-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sd1B6B3mTU9PPCFM0pjeYujO0Z1I7lZmp3OP89dlydtxvvFsPg54E/HPvgCitlHa bEked5oOWzKOwpQHHavlDg== 0000055604-05-000034.txt : 20051130 0000055604-05-000034.hdr.sgml : 20051130 20051130131513 ACCESSION NUMBER: 0000055604-05-000034 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 30 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20051130 DATE AS OF CHANGE: 20051130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYSTONE CONSOLIDATED INDUSTRIES INC CENTRAL INDEX KEY: 0000055604 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 370364250 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03919 FILM NUMBER: 051233857 BUSINESS ADDRESS: STREET 1: 5430 LBJ FWY STE 1740 STREET 2: THREE LINCOLN CENTRE CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144580028 MAIL ADDRESS: STREET 1: 5430 LBJ FWY STE 1740 STREET 2: THREE LINCOLN CENTRE CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE STEEL & WIRE CO DATE OF NAME CHANGE: 19710506 10-K 1 kci10k03.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 - For the fiscal year ended December 31, 2003 Commission file number 1-3919 Keystone Consolidated Industries, Inc. (Exact name of registrant as specified in its charter) Delaware 37-0364250 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 5430 LBJ Freeway, Suite 1740 Three Lincoln Centre, Dallas, TX 75240-2697 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 458-0028 ------------------------- Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Title of each class --------------------------------- Common Stock, $1 par value Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes No X Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes No X Indicate by a check mark whether the Registrant is a shell company (as defined in Rule 12b.2 of the Exchange Act). Yes No X The aggregate market value of the 5,077,832 shares of voting stock held by nonaffiliates of the Registrant, as of June 27, 2003 (the last business day of the Registrant's most-recently completed second fiscal quarter), was approximately $1.9 million. As of November 28, 2005 10,000,000 shares of common stock were outstanding. Documents incorporated by reference None. PART I ITEM 1. BUSINESS. Bankruptcy On February 26, 2004, Keystone Consolidated Industries, Inc. ("Keystone" or the "Company") and five of its direct and indirect subsidiaries filed for voluntary protection under Chapter 11 of the Federal Bankruptcy Code. Keystone and its filing subsidiaries filed their petitions in the U.S. Bankruptcy Court for the Eastern District of Wisconsin in Milwaukee (the "Court"). The Company is managing its business as a debtor-in-possession subject to approval by the Court. Keystone attributed the need to reorganize to weaknesses in product selling prices over the last several years, unprecedented increases in ferrous scrap costs, Keystone's primary raw material, and significant liquidity needs to service employee and retiree medical costs. These problems substantially limited Keystone's liquidity and undermined its ability to obtain sufficient debt or equity capital to operate as a going concern. Under Chapter 11 proceedings, actions by creditors to collect claims in existence at the filing date ("Pre-petition Claims") are stayed, absent specific authorization from the Court to pay such claims while the Company manages the business as a debtor-in-possession. Keystone received approval from the Court to pay certain of its pre-petition liabilities, including employee wages and certain employee benefits. Keystone filed a plan of reorganization on October 4, 2004 and amended that plan on May 26, 2005, June 21, 2005 and June 27, 2005. Keystone's amended plan of reorganization was accepted by the impacted constituencies and confirmed by the Court on August 10, 2005. The Company emerged from bankruptcy protection on August 31, 2005. Significant provisions of Keystone's amended plan of reorganization included, among other things: o Assumption of the previously negotiated amendment to the collective bargaining agreement with the Independent Steel Workers Alliance (the "ISWA"), Keystone's largest labor union; o Assumption of the previously negotiated agreements reached with certain retiree groups that will provide relief by permanently reducing healthcare related payments to these retiree groups from pre-petition levels; o The Company's obligations due to pre-petition secured lenders other than its Debtor-In-Possession lenders were reinstated in full against reorganized Keystone; o All shares of Keystone's common and preferred stock outstanding at the petition date (February 26, 2004) were cancelled; o Pre-petition unsecured creditors with allowed claims against Keystone will receive, on a pro rata basis, in the aggregate, $5.2 million in cash, a $4.8 million secured promissory note and 49% of the new common stock of reorganized Keystone; o Certain operating assets and existing operations of Sherman Wire Company ("Sherman Wire"), one of Keystone's pre-petition wholly-owned subsidiaries, will be sold at fair market value to Keystone, which will then be used to form and operate a newly created wholly-owned subsidiary of reorganized Keystone named Keystone Wire Products Inc.; o Sherman Wire was also reorganized and the proceeds of the operating asset sale to Keystone and other funds will be distributed, on a pro rata basis, to Sherman Wire's pre-petition unsecured creditors as their claims are finally adjudicated; o Sherman Wire's pre-petition wholly-owned non-operating subsidiaries, J.L. Prescott Company, and DeSoto Environmental Management, Inc. as well as Sherman Wire of Caldwell, Inc., a wholly-owned subsidiary of Keystone, will ultimately be liquidated and the pre-petition unsecured creditors with allowed claims against these entities will receive their pro-rata share of the respective entity's net liquidation proceeds; o Pre-petition unsecured creditors with allowed claims against FV Steel & Wire Company, another one of Keystone's wholly-owned subsidiaries, will receive cash in an amount equal to their allowed claims; o One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an affiliate of Contran Corporation ("Contran"), Keystone's largest pre-petition shareholder) converted $5 million of its DIP credit facility, certain of its pre-petition unsecured claims and all of its administrative claims against Keystone into 51% of the new common stock of reorganized Keystone; and o The Board of Directors of reorganized Keystone now consists of seven individuals, two each of which were designated by Contran and the Official Committee of Unsecured Creditors (the "OCUC"), respectively. The remaining three directors qualify as independent directors (two of the independent directors were appointed by Contran with the OCUC's consent and one was appointed by the OCUC with Contran's consent). In addition, Keystone has obtained an $80 million secured credit facility from Wachovia Capital Finance (Central). Proceeds from this credit facility were used to extinguish Keystone's existing Debtor-In-Possession credit facilities and to provide working capital for reorganized Keystone. See Note 19 to the Consolidated Financial Statements. Unless otherwise indicated or required by applicable rules or regulations, the information contained in this Form 10-K is as of December 31, 2003, and has not been updated for events occurring after such date. General Keystone believes it is a leading domestic manufacturer of steel fabricated wire products, nails, industrial wire and wire rod for the agricultural, industrial, construction, original equipment manufacturer and retail consumer markets, and believes it is one of the largest manufacturers of fabricated wire products and nails in the United States based on tons shipped (254,000 tons in 2003). Keystone is vertically integrated, converting substantially all of its fabricated wire products, nails and industrial wire from wire rod produced in its steel mini-mill. The Company's vertical integration has historically allowed it to benefit from the higher and more stable margins associated with fabricated wire products as compared to wire rod, as well as from lower production costs of wire rod as compared to wire fabricators which purchase wire rod in the open market. Moreover, management believes Keystone's downstream fabricated wire products, nails and industrial wire businesses better insulate it from the effects of wire rod imports as compared to non-integrated wire rod producers. In 2003, Keystone had net sales of $306.7 million. Approximately 69% of the Company's net sales were generated from sales of fabricated wire products, nails and industrial wire with the balance generated primarily from sales of wire rod not used in Keystone's downstream operations. The Company's fabricated wire products, which comprised 46% of its 2003 net sales, include agricultural fencing, barbed wire, hardware cloth and welded and woven wire mesh. These products are sold to agricultural, construction, industrial, consumer do-it-yourself and other end-user markets. Keystone serves these markets through distributors, agricultural retailers, building supply centers and consumer do-it-yourself chains such as Tractor Supply Co., Lowe's Companies, Inc., and Ace Hardware Corporation. A significant proportion of these products are sold to agricultural, consumer do-it-yourself and other end-user markets which in management's opinion are typically less cyclical than many steel consuming end-use markets such as the automotive, construction, appliance and machinery manufacturing industries. Management believes the Company's ability to service these customers with a wide range of fabricated wire products through multiple production and distribution locations provides it a competitive advantage in accessing these growing and less cyclical markets. Keystone sells bulk and packaged nails primarily to construction contractors and building product manufacturers and distributors. The Company sells approximately 63% of its nails through PrimeSource, Inc., one of the largest nail distributors in the United States, under PrimeSource's Grip-Rite(R) label. During 2003, nails accounted for approximately 10% of Company net sales. Approximately 60% of Keystone's net sales of fabricated wire products and nails are generated by sales under the RED BRAND trademark, a widely recognized brand name in the agricultural fencing and construction marketplaces for more than 75 years. The Company also sells industrial wire, an intermediate product used in the manufacture of fabricated wire products, to third parties who are generally not competitors. Keystone's industrial wire customers include manufacturers of nails, coat hangers, barbecue grills, air conditioners, tools, containers, refrigerators and other appliances. In 2003, net sales of industrial wire accounted for 13% of Company net sales. In addition, Keystone also sells carbon steel rod into the open market which it is not able to consume in its downstream fabricated wire products, nails and industrial wire operations. During 2003, open market sales of wire rod accounted for 26% of Company net sales. Prior to July 2003, the Company owned a 51% interest in Garden Zone LLC ("Garden Zone"), a distributor of wire, plastic and wood lawn and garden products to retailers. In July 2003, Garden Zone purchased Keystone's 51% ownership in Garden Zone. During 2003, sales by Garden Zone accounted for 4% of Company net sales. In addition, Keystone is engaged in ferrous scrap recycling through its unconsolidated 50% interest in Alter Recycling Company, L.L.C. ("ARC"). See Note 2 to the Consolidated Financial Statements. See "Business -- Products, Markets and Distributions" and Notes 2 and 12 to the Consolidated Financial Statements. The Company's annual billet production capacity is 1 million tons. However, since Keystone's rod production is constrained by the 800,000 ton capacity of its rod mill, the Company anticipates any excess billet production will be sold externally. The Company is the successor to Keystone Steel & Wire Company, which was founded in 1889. Contran Corporation ("Contran") and other entities controlled by Mr. Harold C. Simmons beneficially own approximately 50% of the Company's voting stock at December 31, 2003. Substantially all of Contran's outstanding voting stock is held by trusts established for the benefit of certain children and grandchildren of Mr. Simmons, of which Mr. Simmons is sole trustee, or is held by Mr. Simmons or persons or other entities related to Mr. Simmons. Keystone may be deemed to be controlled by Contran and Mr. Simmons. Contran also owns 54,956 shares of the 71,899 shares of the Company's Redeemable Series A Preferred Stock. Each share of Series A Preferred Stock is convertible, at the option of the holder, into 250 shares of the Company's common stock (equivalent to a $4.00 per share exchange rate). See Note 19 to the Consolidated Financial Statements. As provided by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions that the statements in this Annual Report on Form 10-K relating to matters that are not historical facts including, but not limited to, statements found in this Item 1 - "Business", Item 3 - "Legal Proceedings", Item 7 - "Management's Discussion And Analysis Of Financial Condition And Results Of Operations", and Item 7A - "Quantitative and Qualitative Disclosures About Market Risk", are forward-looking statements that represent management's beliefs and assumptions based on currently available information. Forward-looking statements can be identified by the use of words such as "believes", "intends", "may", "should", "could", "anticipates", "expected", or comparable terminology, or by discussions of strategies or trends. Although Keystone believes the expectations reflected in such forward-looking statements are reasonable, it cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly mpact expected results, and actual future results could differ materially from those described in such forward-looking statements. While it is not possible to identify all factors, Keystone continues to face many risks and uncertainties. Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this Annual Report and those described from time to time in the Company's other filings with the Securities and Exchange Commission (the "SEC"), including, but not limited to: o Future supply and demand for the Company's products (including cyclicality thereof), o Customer inventory levels, o Changes in raw material and other operating costs (such as ferrous scrap and energy), o The possibility of labor disruptions, o General global economic and political conditions, o Competitive products and substitute products, o Customer and competitor strategies, o The impact of pricing and production decisions, o Environmental matters (such as those requiring emission and discharge standards for existing and new facilities), o Government regulations and possible changes therein, o Significant increases in the cost of providing medical coverage to employees and retirees, o The ultimate resolution of pending litigation, o International trade policies of the United States and certain foreign countries, o Operating interruptions (including, but not limited to, labor disputes, fires, explosions, unscheduled or unplanned downtime and transportation interruptions), o The ability of the Company to renew or refinance credit facilities, o Any possible future litigation, and o Other risks and uncertainties as discussed in this Annual Report, including, without limitation, the sections referenced above. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those forecasted or expected. Keystone disclaims any intention or obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise. Manufacturing The Company's manufacturing operations consist of an electric arc furnace mini-mill, a rod mill and three wire and wire product fabrication facilities. The manufacturing process commences at the Company's Keystone Steel & Wire ("KSW") facility in Peoria, Illinois with ferrous scrap being loaded into an electric arc furnace where it is converted into molten steel and then transferred to a ladle refining furnace where chemistries and temperatures are monitored and adjusted to specifications prior to casting. The Company believes it is one of the largest recyclers of ferrous scrap in the State of Illinois. The molten steel is transferred from the ladle refining furnace into a six-strand continuous casting machine which produces five-inch square strands referred to as billets that are cut to predetermined lengths. These billets, along with any billets purchased, if any, from outside suppliers, are then transferred to the adjoining rod mill. Upon entering the rod mill, the billets are brought to rolling temperature in a reheat furnace and are fed to the rolling mill, where they are finished to a variety of diameters and specifications. After rolling, the wire rod is coiled and cooled. After cooling, the coiled wire rod passes through inspection stations for metallurgical, surface and diameter checks. Finished coils are compacted and tied, and either transferred to the Company's other facilities for processing into industrial wire, nails and fabricated wire products or shipped to wire rod customers. While the Company does not maintain a significant "shelf" inventory of finished wire rod, it generally has on hand approximately a one-month supply of industrial wire, nails and fabricated wire products inventory which enables Keystone to fill customer orders and respond to shifts in product demand. Products, Markets and Distribution The following table sets forth certain information with respect to the Company's steel and wire product mix in each of the last three years.
Year Ended December 31, 2001 2002 2003 ---------------- ---------------- ----------- Percent Percent Percent Percent Percent Percent of Tons Of of Tons of of Tons of Product Shipped Sales Shipped Sales Shipped Sales ----------------- ------- ----- ------- ----- ------- ----- Fabricated wire products 31.0% 46.5% 31.2% 46.0% 32.7% 48.0% Nails 11.2 13.9 11.0 13.5 8.6 10.0 Industrial wire 14.2 13.6 14.3 13.3 14.9 14.0 Wire rod 43.6 26.0 42.7 27.0 41.0 26.8 Billets - - .8 .2 2.8 1.2 ----- ----- ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== =====
Fabricated Wire Products. Keystone is one of the leading suppliers in the United States of agricultural fencing, barbed wire, stockade panels and a variety of welded and woven wire mesh, fabric and netting for agricultural, construction and industrial applications. The Company produces these products at KSW and at its Sherman Wire ("Sherman") facilities, in Sherman, Texas. Prior to July 2003, the Company also manufactured these products at its facility in Caldwell, Texas. During July 2003, Keystone transferred the operations at the Caldwell facility to KSW and Sherman and discontinued operations in Caldwell. The Company's fabricated wire products are distributed by Keystone through farm supply distributors, agricultural retailers, building supply centers, building and industrial materials distributors and consumer do-it-yourself chains such as Tractor Supply Co., Lowe's Companies, Inc., and Ace Hardware Corporation. Many of the Company's fencing and related wire products are marketed under the Company's RED BRAND label, a recognized trademark of Keystone for more than 75 years. As part of its marketing strategy, Keystone designs merchandise packaging, and supportive product literature for marketing many of these products to the retail consumer market. Keystone also manufactures products for residential and commercial construction, including rebar ty wire, stucco netting, welded wire mesh, forms and reinforcing building fabric at KSW and Sherman, and at its Engineered Wire Products, Inc. ("EWP") subsidiary in Upper Sandusky, Ohio. The primary customers for these products are construction contractors and building materials manufacturers and distributors. EWP was not one of the Company's subsidiaries that filed for Chapter 11 on February 26, 2004. Keystone believes its fabricated wire products are less susceptible to the cyclical nature of the steel business than nails, industrial wire or wire rod because the commodity-priced raw materials used in such products, such as ferrous scrap, represent a lower percentage of the total cost of such value-added products when compared to wire rod or other less value-added products. Nails. Keystone manufacturers bulk and packaged nails at KSW and sells these nails primarily to construction contractors, building manufacturers and distributors and do-it-yourself retailers. During 2003, the Company sold approximately 63% of its nails through PrimeSource, Inc., one of the largest nail distributors in the United States, under PrimesSource's Grip-Rite(R) label. Prior to August 2003, the Company also manufactured and distributed collated nails at its Keystone Fasteners division in Springdale, Arkansas. In August 2003, the Company sold the Keystone Fasteners division and exited the collated nails business. Industrial Wire. Keystone is one of the largest manufacturers of industrial wire in the United States. At KSW and Sherman the Company produces custom-drawn industrial wire in a variety of gauges, finishes and packages for further consumption by Keystone's fabricated wire products operations or for sale to industrial fabrication and original equipment manufacturer customers. Prior to July 2003, the Company also manufactured these products at its facility in Caldwell, Texas. During July 2003, Keystone transferred the operations at the Caldwell facility to KSW and Sherman and discontinued operations in Caldwell. The Company's industrial wire is used by customers in the production of a broad range of finished goods, including nails, coat hangers, barbecue grills, air conditioners, tools, containers, refrigerators and other appliances. Management believes that with a few exceptions, its industrial wire customers do not generally compete with Keystone. Wire Rod. Keystone produces primarily low carbon steel wire rod at KSW's rod mill. Low carbon steel wire rod, with carbon content of up to 0.38%, is more easily shaped and formed than higher carbon wire rod and is suitable for a variety of applications where ease of forming is a consideration. High carbon steel wire rod, with carbon content of up to 0.65%, is used for high tensile wire applications as well as for furniture and bedding springs. Although Sherman and EWP on occasion buy wire rod from outside suppliers, during 2003, approximately 55% of the wire rod manufactured by the Company was used internally to produce industrial wire, nails and fabricated wire products. The remainder of Keystone's wire rod production was sold directly to producers of construction products, fabricated wire products and industrial wire, including products similar to those manufactured by the Company. Billets. KSW's annual billet production capacity is 1 million tons. However, since KSW's rod production is constrained by the 800,000 ton capacity of its rod mill, periodic excess billet production is sold externally to producers of products manufactured from low carbon steel. Keystone sold 5,000 and 17,000 tons of excess billets in 2002 and 2003, respectively. The company did not sell any excess billets during 2001. Business Dispositions. Prior to July 2003, the Company owned a 51% interest in Garden Zone. In July 2003, Garden Zone purchased Keystone's 51% ownership in Garden Zone for approximately $1.1 million. Keystone recorded a gain of approximately $800,000 as a result of the sale. Garden Zone's revenues during 2001, 2002 and 2003 were approximately $8.0 million, $9.5 million and $11.2 million, respectively. Garden Zone recorded operating profit of $200,000, $100,000 and $700,000 in 2001, 2002 and 2003, respectively. Prior to August 2003, the Company manufactured and distributed collated nails at Keystone Fasteners. In August 2003, the Company sold the Keystone Fasteners division to a third party for approximately $2.2 million. The Company recorded a gain of approximately $300,000 as a result of the sale. Keystone Fasteners' revenues during 2001, 2002 and 2003 approximated $14.5 million, $14.7 million and $7.3 million, respectively. Keystone Fasteners recorded an operating loss of $400,000 and $900,000 during 2001 and 2003, respectively. Keystone Fasteners recorded $100,000 of operating profit during 2002. Industry and Competition The fabricated wire products, nails, industrial wire and wire rod businesses in the United States are highly competitive and are comprised primarily of several large mini-mill wire rod producers, many small independent wire companies and a few large diversified wire producers. Keystone's principal competitors in the fabricated wire products, nails and industrial wire markets are Leggett and Platt, Deacero, Merchants Metals, Inc. and Davis Wire Corporation. Competition in the fabricated wire products, nails and industrial wire markets is based on a variety of factors, including channels of distribution, price, delivery performance, product quality, service, and brand name preference. Since wire rod is a commodity steel product, management believes the domestic wire rod market is more competitive than the fabricated wire products, nails and industrial wire markets, and price is the primary competitive factor. Among Keystone's principal domestic wire rod competitors are Gerdau Ameristeel and Rocky Mountain Steel. The Company also competes with many small independent wire companies who purchase rod from domestic and foreign sources. Due to the breadth of Keystone's fabricated wire products, nails and industrial wire offerings, its ability to service diverse geographic and product markets, and the low relative cost of its internal supply of wire rod, the Company believes it is well positioned to compete effectively with non-diversified wire rod producers and wire companies. Foreign steel and industrial wire producers also compete with the Company and other domestic producers. The domestic steel wire rod industry continues to experience consolidation. During the last five years, the majority of Keystone's major domestic competitors have either filed for protection under federal bankruptcy laws and discontinued operations or reduced or completely shut-down their operations. The Company believes these shut-downs or production curtailments represent a significant decrease in estimated domestic annual wire rod capacity. However, worldwide overcapacity in the steel industry continues to exist and imports of wire rod and certain fabricated wire products in recent years have increased significantly. In an effort to stem increasing levels of imported wire rod, in December 1998, Keystone, joined by six other companies (representing more than 75% of the domestic market), and a labor union petitioned the U.S. International Trade Commission (the "ITC") seeking relief under Section 201 of the Trade Act of 1974. In February 2000, President Clinton announced the implementation of a Tariff-Rate Quota ("TRQ"). The tariff was imposed on wire rod imports from countries subject to the TRQ once imports initially exceed 1.6 million net tons in 2000 and 2001 and 1.7 million net tons in 2002 and 2003. The tariff rate was 10% in 2000, 7.5% in 2001 and 5% in 2002. The Company does not believe the TRQ, which expired in March 2003, had a major impact on the domestic wire rod market and high levels of imported rod continue. Keystone believes its facilities are well located to serve markets throughout the continental United States, with principal markets located in the Midwestern, Southwestern and Southeastern regions. Close proximity to its customer base provides the Company with certain advantages over foreign and certain domestic competition including reduced shipping costs, improved customer service and shortened delivery times. Keystone believes higher transportation costs and the lack of local distribution centers tend to limit foreign producers' penetration of the Company's principal fabricated wire products and industrial wire markets, but there can be no assurance this will continue to be the case. Raw Materials and Energy The primary raw material used in Keystone's operations is ferrous scrap. The Company's steel mill is located close to numerous sources of high density automobile, industrial and railroad ferrous scrap, all of which are currently available. The purchase of ferrous scrap is highly competitive and its price volatility is influenced by periodic shortages, export activity, freight costs, weather, and other conditions beyond the control of the Company. The cost of ferrous scrap can fluctuate significantly and product selling prices cannot always be adjusted, especially in the short-term, to recover the costs of increases in ferrous scrap prices. The Company has not entered into any long-term contracts for the purchase or supply of ferrous scrap and Keystone is, therefore, subject to the price fluctuation of ferrous scrap. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Keystone's manufacturing processes consume large amounts of energy in the form of electricity and natural gas. The Company purchases electrical energy for its Peoria, Illinois facility from a utility under an interruptible service contract which provides for more economical electricity rates but allows the utility to refuse or interrupt power to Keystone's Peoria, Illinois manufacturing facilities. This utility has in the past, and may in the future, refuse or interrupt service to the Company resulting in decreased production and increased costs associated with the related downtime. In addition, in the past the utility has had the right to pass through certain of its costs to consumers through fuel adjustment charges. However, the Company's current agreement with the utility does not provide for such fuel adjustment charges. During the 1999 third quarter, Keystone recorded a $2.2 million charge as a result of an unexpected fuel adjustment charge received from the Peoria plant's electricity provider. The $2.2 million charge was paid during 2000, although during 2001, the Company received a $1.7 million credit on the 1999 fuel adjustment charge. Trademarks The Company has registered the trademark RED BRAND for field fence and related products. Adopted by Keystone in 1924, the RED BRAND trademark has been widely advertised and enjoys high levels of market recognition. The Company also maintains other trademarks for various products which have been promoted in their respective markets. Employment As of December 31, 2003, Keystone employed approximately 1,300 people, of whom approximately 900 are represented by the Independent Steel Workers' Alliance ("ISWA") at KSW, approximately 70 are represented by the International Association of Machinists and Aerospace Workers (Local 1570) ("IAMAW") at Sherman and approximately 60 are represented by Local Union #40, An Affiliate to the International Brotherhood of Teamsters' Chauffeurs Warehousemen and Helpers of America, AFL-CIO ("IBTCWHA") at EWP. The current collective bargaining agreements with the ISWA, IAMAW and IBTCWHA expire in May 2006, October 2005, and November 2006, respectively. The Company believes its relationship with its employees are good. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Customers The Company sells its products to customers in the agricultural, industrial, construction, commercial, original equipment manufacturer and retail markets primarily in the Midwestern, Southwestern and Southeastern regions of the United States. Customers vary considerably by product and management believes Keystone's ability to offer a broad range of products represents a competitive advantage in servicing the diverse needs of its customers. A listing of end-user markets by products follows: Product Principal Markets Served Fencing products Agricultural, construction, do-it-yourself retailers Wire mesh products Agricultural, construction Nails Construction, do-it-yourself retailers Industrial wire Producers of fabricated wire products Wire rod Producers of industrial wire and fabricated wire products Billets Producers of products manufactured from low carbon steel Lawn and garden products Do-it-yourself retailers Keystone's industrial wire customers include manufacturers and producers of nails, coat hangers, barbecue grills, air conditioners, tools, containers, refrigerators and other appliances. With few exceptions, these customers are generally not in competition with the Company. Keystone's wire rod customers include other downstream industrial wire, nail and fabricated wire products companies including manufacturers of products similar to those manufactured by the Company. The Company's ten largest customers represented approximately 33%, 37% and 35% of Keystone's net sales in 2001, 2002 and 2003, respectively. No single customer accounted for more than 9% of the Company's net sales during each of 2001, 2002 or 2003. Keystone's fabricated wire products, nails, industrial wire and rod business is not dependent upon a single customer or a few customers, the loss of any one, or a few, of which would have a material adverse effect on its business. Backlog The Company's backlog of unfilled cancelable fabricated wire products, nails, industrial wire and rod purchase orders, for delivery generally within three months, approximated $22 million at both December 31, 2002 and 2003. Keystone believes backlog is not a significant factor in its business, and all of the backlog at December 31, 2003 was shipped during 2004. Environmental Matters Keystone's production facilities are affected by a variety of environmental laws and regulations, including laws governing the discharge of water pollutants and air contaminants, the generation, transportation, storage, treatment and disposal of solid wastes and hazardous substances and the handling of toxic substances, including certain substances used in, or generated by, the Company's manufacturing operations. Many of these laws and regulations require permits to operate the facilities to which they pertain. Denial, revocation, suspension or expiration of such permits could impair the ability of the affected facility to continue operations. The Company records liabilities related to environmental issues at such time as information becomes available and is sufficient to support a reasonable estimate of a range of probable loss. If Keystone is unable to determine that a single amount in an estimated range is more likely, the minimum amount of the range is recorded. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. Keystone believes its current operating facilities are in material compliance with all presently applicable federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment. Environmental legislation and regulations have changed rapidly in recent years and the Company may be subject to increasingly stringent environmental standards in the future. Information in Note 13 to the Consolidated Financial Statements is incorporated herein by reference. Acquisition and Restructuring Activities The Company routinely compares its liquidity requirements against its estimated future cash flows. As a result of this process, the Company has in the past and may in the future seek to raise additional capital, refinance or restructure indebtedness, consider the sale of interests in subsidiaries, business units or other assets, or take a combination of such steps or other steps, to increase liquidity, reduce indebtedness and fund future activities. Such activities have in the past and may in the future involve related companies. From time to time, the Company and related entities also evaluate the restructuring of ownership interests among its subsidiaries and related companies and expects to continue this activity in the future and may in connection with such activities, consider issuing additional equity securities and increasing the indebtedness of the Company or its subsidiaries. Website and Availability of Company Reports Filed with the SEC The Company does not maintain a website on the internet. The Company will provide without charge copies of this Annual Report on Form 10-K for the year ended December 31, 2003, any copies of the Company's Quarterly Reports on Form 10-Q for 2003 and any Current Reports on Form 8-K for 2003 and 2004, and any amendments thereto, as soon as they are filed with the SEC upon written request to the Company. Such requests should be directed to the attention of the Corporate Secretary at the Company's address on the cover page of this Form 10-K. The general public may read and copy any materials the Company files with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549, and may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an electronic filer, and the SEC maintains an Internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company. ITEM 2. PROPERTIES. The Company's principal executive offices are located in approximately 1,200 square feet of leased space at 5430 LBJ Freeway, Suite 1740, Dallas, Texas 75240-2697. Keystone's fabricated wire products, industrial wire and wire rod production facilities utilize approximately 2.4 million square feet for manufacturing and office space, approximately 84% of which is located at the Company's Peoria, Illinois facility. The following table sets forth the location, size and general product types produced for each of the Company's operating facilities, all of which are owned by the Company.
Approximate Size Facility Name Location (Square Feet) Products Produced ----------------- ------------- --------------- --------------------------------- Keystone Steel & Wire Peoria, IL 2,012,000 Fabricated wire products, nails, industrial wire, wire rod Sherman Wire Sherman, TX 299,000 Fabricated wire products and industrial wire Engineered Wire Upper Sandusky, OH Fabricated wire products Products 79,000 --------- 2,390,000 =========
The Company believes all of its facilities are well maintained and satisfactory for their intended purposes. ITEM 3. LEGAL PROCEEDINGS. On February 26, 2004, Keystone and five of its direct and indirect subsidiaries filed for voluntary protection under Chapter 11 of the Federal Bankruptcy Code. Keystone and its filing subsidiaries filed their petitions in the U.S. Bankruptcy Court for the Eastern District of Wisconsin in Milwaukee. The Chapter 11 cases were consolidated for procedural purposes only and were jointly administered under the name FV Steel and Wire Company - Case No. 04-22421-SVK. Each of the filing companies continued to operate its business and manage its property as a debtor-in-possession. As a result of the Chapter 11 filings, litigation relating to prepetition claims against the filing companies was stayed during the Chapter 11 proceedings. Keystone emerged from Chapter 11 on August 31, 2005. Keystone is also involved in various legal proceedings. Information required by this Item is included in Notes 1, 13, 15 and 19 to the Consolidated Financial Statements, which information is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the quarter ended December 31, 2003. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Prior to December 13, 2001, Keystone's common stock was listed and traded on the New York Stock Exchange (symbol: KES). Subsequent to December 12, 2001, Keystone's common stock is traded on the OTC Bulletin Board (Symbol: KESNQ.PK). The number of holders of record of the Company's common stock as of November 28, 2005 was 2. The following table sets forth the high and low closing sales prices of the Company's common stock for the calendar years indicated, according to published sources.
High Low ------ ------ Year ended December 31, 2003 First quarter $ .55 $ .32 Second quarter $ .40 $ .25 Third quarter $ .45 $ .20 Fourth quarter $ .35 $ .10 Year ended December 31, 2002 First quarter $1.39 $ .34 Second quarter $1.30 $ .78 Third quarter $1.01 $ .44 Fourth quarter $ .70 $ .39
The Company has not paid cash dividends on its common stock since 1977. Keystone is subject to certain covenants under its commercial revolving credit facilities that restrict its ability to pay dividends, including a prohibition against the payment of dividends on its common stock without lender consent. All of the Company's outstanding common stock at December 31, 2003 was cancelled in connection with Keystone's emergence from Chapter 11 on August 31, 2005. See Note 19 to the Consolidated Financial Statements. ITEM 6. SELECTED FINANCIAL DATA. The following selected consolidated financial data should be read in conjunction with Keystone's Consolidated Financial Statements and Item 7 -- "Management's Discussion And Analysis Of Financial Condition And Results Of Operations."
Years ended December 31, ------------------------------------------ 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- (In thousands, except per share and per ton amounts) Statement of Operations Data: Net sales $373,103 $355,795 $325,187 $334,835 $306,671 Cost of goods sold 350,354 348,241 313,931 315,579 310,881 -------- -------- -------- -------- -------- Gross profit (loss) $ 22,749 $ 7,554 $ 11,256 $ 19,256 $ (4,210) ======== ======== ======== ======== ======== Selling expenses $ 6,848 $ 6,733 $ 6,400 $ 7,754 $ 6,934 General and administrative expenses 20,527 16,374 14,723 16,385 10,689 Operating income (loss) 934 (15,173) (4,388) (3,279) (28,731) Gain on early extinguishment of debt - - - 54,739 - Interest expense 14,058 15,346 14,575 5,569 3,941 Income (loss) before income taxes $(12,238) $(32,436) $(20,395) $ 40,045 $(37,218) Minority interest in after-tax earnings - - 1 1 299 Provision for income taxes (benefit) (4,754) (11,370) 5,998 21,622 - --------- -------- -------- -------- ----- Income (loss) before cumulative effect of change in accounting principle (7,484) (21,066) (26,394) 18,422 (37,517) Cumulative effect of change in accounting principle - - - 19,998 - -------- -------- -------- -------- ----- Net income (loss) $ (7,484) $(21,066) $(26,394) $ 38,420 $(37,517) ======== ======== ======== ======== ======== Net income (loss) available for common shares (1) $ (7,484) $(21,066) $(26,394) $ 33,737 $(43,457) ======== ======== ======== ======== ======== Basic net income (loss) available For common shares per share $ (.75) $ (2.10) $ (2.62) $ 3.35 $ (4.32) ======== ======== ======== ======== ======== Diluted net income (loss) available For common shares per share $ (.75) $ (2.10) $ (2.62) $ 1.76 $ (4.32) ======== ======== ======== ======== ======== Weighted average common and common equivalent shares outstanding (3): Basic 9,904 10,039 10,062 10,067 10,068 ======== ======== ======== ======== ======== Diluted 9,904 10,039 10,062 21,823 10,068 ======== ======== ======== ======== ======== Other Financial Data: Capital expenditures $ 16,873 $ 13,052 $ 3,889 $ 7,973 $ 2,683 Depreciation and amortization 21,051 17,224 16,992 17,396 16,461 Other Steel and Wire Products operating data: Shipments (000 tons): Fabricated wire products 223 223 207 209 201 Nails 92 87 74 74 53 Industrial wire 144 128 94 96 91 Wire rod 237 257 291 287 252 Billets - - - 5 17 -------- -------- -------- -------- -------- Total 696 695 666 671 614 ======== ======== ======== ======== ======== Average selling prices (per ton): Fabricated wire products $ 741 $ 723 $ 711 $ 712 $ 703 Nails 657 611 589 592 558 Industrial wire 484 474 454 448 452 Wire rod 277 283 283 304 314 Billets - - - 156 192 Steel and wire products in total 518 501 474 482 479 Average ferrous scrap purchase cost per ton $ 94 $ 100 $ 85 $ 94 $ 115
As of December 31, 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- (In thousands) Balance Sheet Data: Working capital (deficit) (2) $(13,920) $(39,243) $(30,982) $(41,790) $(90,210) Property, plant and equipment, net 150,156 144,696 129,600 119,984 105,316 Total assets 410,918 385,703 366,900 215,495 282,194 Total debt 146,857 146,008 146,455 97,241 87,675 Redeemable preferred stock (3) - - - 2,112 2,112 Stockholders' equity (deficit) 46,315 26,058 (336) (136,900) (10,050)
(1) Includes dividends on preferred stock of $4,683,000 and $5,940,000 in 2002 and 2003, respectively. (2) Working capital (deficit) represents current assets minus current liabilities. (3) All of the Company's outstanding common and preferred stock at December 31, 2003 was cancelled in connection with Keystone's emergence from Chapter 11 on August 31, 2005. See Note 19 to the Consolidated Financial Statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Bankruptcy On February 26, 2004, Keystone and five of its direct and indirect subsidiaries filed for voluntary protection under Chapter 11 of the Federal Bankruptcy Code. Keystone and its subsidiaries filed their petitions in the U.S. Bankruptcy Court for the Eastern District of Wisconsin in Milwaukee. The Company is managing its business as a debtor-in possession subject to approval by the Court. Keystone attributed the need to reorganize to weaknesses in product selling prices over the last several years, unprecedented increases in ferrous scrap costs, Keystone's primary raw material, and significant liquidity needs to service employee and retiree medical costs. These problems substantially limited Keystone's liquidity and undermined its ability to obtain sufficient debt or equity capital to operate as a going concern. Under Chapter 11 proceedings, actions by creditors to collect Pre-petition Claims are stayed, absent specific authorization from the Court to pay such claims while the Company manages the business as a debtor-in-possession. Keystone received approval from the Court to pay certain of its pre-petition liabilities, including employee wages and certain employee benefits. Keystone filed a plan of reorganization on October 4, 2004 and amended that plan on May 26, 2005, June 21, 2005 and June 27, 2005. Keystone's amended plan of reorganization was accepted by the impacted constituencies and confirmed by the Court on August 10, 2005. The Company emerged from bankruptcy protection on August 31, 2005. Significant provisions of Keystone's amended plan of reorganization included, among other things: o Assumption of the previously negotiated amendment to the collective bargaining agreement with the Independent Steel Workers Alliance (the "ISWA"), Keystone's largest labor union; o Assumption of the previously negotiated agreements reached with certain retiree groups that will provide relief by permanently reducing healthcare related payments to these retiree groups from pre-petition levels; o The Company's obligations due to pre-petition secured lenders other than its Debtor-In-Possession lenders were reinstated in full against reorganized Keystone; o All shares of Keystone's common and preferred stock outstanding at the petition date (February 26, 2004) were cancelled; o Pre-petition unsecured creditors with allowed claims against Keystone will receive, on a pro rata basis, in the aggregate, $5.2 million in cash, a $4.8 million secured promissory note and 49% of the new common stock of reorganized Keystone; o Certain operating assets and existing operations of Sherman Wire Company ("Sherman Wire"), one of Keystone's pre-petition wholly-owned subsidiaries, will be sold at fair market value to Keystone, which will then be used to form and operate a newly created wholly-owned subsidiary of reorganized Keystone named Keystone Wire Products Inc.; o Sherman Wire was also reorganized and the proceeds of the operating asset sale to Keystone and other funds will be distributed, on a pro rata basis, to Sherman Wire's pre-petition unsecured creditors as their claims are finally adjudicated; o Sherman Wire's pre-petition wholly-owned non-operating subsidiaries, J.L. Prescott Company, and DeSoto Environmental Management, Inc. as well as Sherman Wire of Caldwell, Inc., a wholly-owned subsidiary of Keystone, will ultimately be liquidated and the pre-petition unsecured creditors with allowed claims against these entities will receive their pro-rata share of the respective entity's net liquidation proceeds; o Pre-petition unsecured creditors with allowed claims against FV Steel & Wire Company, another one of Keystone's wholly-owned subsidiaries, will receive cash in an amount equal to their allowed claims; o One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an affiliate of Contran Corporation ("Contran"), Keystone's largest pre-petition shareholder) converted $5 million of its DIP credit facility, certain of its pre-petition unsecured claims and all of its administrative claims against Keystone into 51% of the new common stock of reorganized Keystone; and o The Board of Directors of reorganized Keystone now consists of seven individuals, two each of which were designated by Contran and the Official Committee of Unsecured Creditors (the "OCUC"), respectively. The remaining three directors qualify as independent directors (two of the independent directors were appointed by Contran with the OCUC's consent and one was appointed by the OCUC with Contran's consent). In addition, Keystone has obtained an $80 million secured credit facility from Wachovia Capital Finance (Central). Proceeds from this credit facility were used to extinguish Keystone's existing Debtor-In-Possession credit facilities and to provide working capital for reorganized Keystone. See Note 19 to the Consolidated Financial Statements. Summary The Company reported a loss before cumulative effect of change in accounting principles of $37.5 million in 2003 and $26.4 million in 2001, and income before cumulative effect of change in accounting principle of $18.4 million in 2002. The primary reasons for the increase in earnings from 2001 to 2002 were (i) lower interest expense and (ii) a $54.7 million gain upon the extinguishment of certain indebtedness. The primary reasons for the decline in earnings from 2002 to 2003 were (i) the gain upon extinguishment of certain indebtedness recognized in 2002, (ii) higher defined benefit pension expense in 2003 and (iii) significantly higher cost for ferrous scrap (the Company's primary raw material in 2003). General The Company believes it is a leading domestic manufacturer of steel fabricated wire products, nails, industrial wire and wire rod for the agricultural, industrial, construction, original equipment manufacturer and retail consumer markets and believes it is one of the largest manufacturers of fabricated wire products and nails in the United States based on tons shipped (254,000 tons in 2003). Keystone's operations benefit from vertical integration as the Company's mini-mill supplies wire rod produced from ferrous scrap to its downstream fabricated wire products, nails and industrial wire operations. Sales of fabricated wire products, nails and industrial wire by these downstream fabrication operations accounted for 69% of 2003 net sales. Keystone's fabricated wire products typically yield higher and less volatile gross margins compared to wire rod. Management believes Keystone's fabricated wire products businesses help mitigate the adverse effect of wire rod imports on market prices compared to producers that rely primarily on wire rod sales. Moreover, historically over time, the Company's wire rod production costs have generally been below the market price for wire rod providing a significant cost advantage over wire producers who purchase wire rod as a raw material. The Company's annual billet production capacity is 1 million tons. However, Keystone's wire rod production is constrained by the 800,000 ton capacity of its rod mill. The Company anticipates any excess billet production will be sold externally. The Company's steel making operations provided 577,000 tons and 723,000 tons of billets in 2003 and 2002, respectively. The 723,000 tons of billets produced by Keystone in 2002 was an annual production record. As a result of the lower billet production in 2003, wire rod production declined 19% from 687,000 tons (86% of estimated capacity) in 2002 to 559,000 tons (70% of estimated capacity). Keystone's estimated current fabricated wire products, nail and industrial wire production capacity is 558,000 tons. The Company's fabricated wire products, nail and industrial wire production facilities operated at about 68%, 67% and 55% of their annual capacity during 2001, 2002 and 2003, respectively. The Company's profitability is dependent in large part on its ability to utilize effectively its production capacity, which is affected by the availability of raw materials, plant efficiency and other production factors and to control its manufacturing costs, which are comprised primarily of raw materials, energy and labor costs. Keystone's primary raw material is ferrous scrap, and during 2003 ferrous scrap costs represented approximately 24% of cost of goods sold. The price of ferrous scrap is highly volatile and ferrous scrap prices are affected by periodic shortages, export activity, freight costs, weather and other conditions largely beyond the control of the Company. Ferrous scrap prices can vary widely from period to period. The average per-ton price paid for ferrous scrap by the Company was $85 in 2001, $94 in 2002 and $115 in 2003. Keystone's product selling prices cannot always be adjusted, especially in the short-term, to recover any increases in ferrous scrap costs. The domestic wire rod industry continues to experience consolidation. During the last five years, the majority of Keystone's major domestic competitors have either filed for protection under Federal bankruptcy laws and discontinued operations or reduced or completely shut-down their operations. The Company believes these shut-downs or production curtailments represent a significant decrease in domestic annual capacity. However, worldwide over capacity in the steel industry continues to exist and imports of wire rod, certain fabricated wire products and nails in recent years have increased significantly. In an effort to stem increasing levels of imported wire rod, in December 1998, Keystone, joined by six other companies (representing more than 75% of the domestic market), and a labor union petitioned the U.S. International Trade Commission (the "ITC") seeking relief under Section 201 of the Trade Act of 1974. In February 2000, President Clinton announced the implementation of a Tariff-Rate Quota ("TRQ") for three years. The tariff was imposed on wire rod imports from countries subject to the TRQ once imports initially exceed 1.6 million net tons in 2000 and 2001 and 1.7 million net tons in 2002 and 2003. The tariff rate was 10% in 2000, 7.5% in 2001 and 5% in 2002. The Company does not believe the TRQ, which expired in March 2003, had a major impact on the domestic wire rod market and high levels of imported rod continue. Keystone consumes a significant amount of energy in its manufacturing operations and, accordingly, its profitability can also be adversely affected by the volatility in the price of coal, oil and natural gas resulting in increased energy, transportation, freight, ferrous scrap and supply costs. During 2003, energy costs represented approximately 10% of cost of goods sold. The Company purchases electrical energy for its Peoria, Illinois facility from a utility under an interruptible service contract which provides for more economical electricity rates but allows the utility to refuse or interrupt power to its manufacturing facilities. The utility has in the past, and may in the future, refuse or interrupt service to Keystone resulting in decreased production and increased costs associated with the related downtime. In addition, in the past the utility has had the right to pass through certain of its costs to consumers through fuel adjustment charges. The Company's current agreement with the utility does not provide for such fuel adjustment charges. During the 1999 third quarter, the Company received an unexpected $2.2 million fuel-adjustment charge from the Peoria plant's electricity provider. The $2.2 million charge, accrued in 1999, was paid during 2000, although during 2001 the Company received a $1.7 million credit with respect to the 1999 fuel-adjustment charge. In July 2003, Keystone sold its 51% interest in Garden Zone back to Garden Zone. The Company recorded a gain of approximately $800,000 as a result of the sale. Garden Zone distributes wire, plastic and wood lawn and garden products to retailers. Garden Zone's revenues during 2001, 2002 and 2003 were approximately $8.0 million, $9.5 million and $11.2 million, respectively. Garden Zone recorded operating profit of $200,000, $100,000 and $700,000 in 2001, 2002 and 2003, respectively. In August 2003, the Company sold its Keystone Fasteners division to a third party. Keystone recorded a gain of approximately $300,000 as a result of the sale. Keystone Fasteners manufacturers and distributes collated nails. Keystone Fasteners' revenues during 2001, 2002 and 2003 approximated $14.5 million, $14.7 million and $7.3 million, respectively. Keystone Fasteners recorded an operating loss of $400,000 and $900,000 during 2001 and 2003, respectively. Keystone Fasteners recorded $100,000 of operating profit during 2002. Keystone is also engaged in the operation of a ferrous scrap recycling facility. The operations of Garden Zone, Keystone Fasteners and the ferrous scrap recycling facility were insignificant when compared to the consolidated operations of the Company. As such, the results of their operations are not separately addressed in the discussion that follows. Results of Operations The following table sets forth Keystone's steel and wire production, ferrous scrap costs, sales volume and pricing data, for the periods indicated.
Years Ended December 31, 2001 2002 2003 ---- ---- ---- (Tons in thousands) Production volume (tons): Billets 686 723 577 Wire rod 651 687 559 Average per-ton ferrous scrap purchase cost $ 85 $ 94 $115 Sales volume (tons): Fabricated wire products 207 209 201 Nails 74 74 53 Industrial wire 94 96 91 Wire rod 291 287 252 Billets - 5 17 ---- ---- ---- 666 671 614 ==== ==== ==== Per-ton selling prices: Fabricated wire products $711 $712 $703 Nails 589 592 558 Industrial wire 454 448 452 Wire rod 283 304 314 Billets - 156 192 All steel and wire products 474 482 479
The following table sets forth the components of the Company's net sales for the periods indicated.
Years Ended December 31, 2001 2002 2003 ---- ---- ---- (In millions) Steel and wire products: Fabricated wire products $146.9 $148.9 $141.2 Nails 43.8 43.8 29.5 Industrial wire 42.9 43.1 41.3 Wire rod 82.3 87.4 78.9 Billets - .8 3.4 Other 1.3 1.3 1.2 ---- ---- ---- 317.2 325.3 295.5 Lawn and garden products 8.0 9.5 11.2 ---- ---- ----- $325.2 $334.8 $306.7 ====== ====== ======
The following table sets forth selected operating data of Keystone as a percentage of net sales for the periods indicated.
Years Ended December 31, 2001 2002 2003 ---- ---- ---- Net sales 100.0% 100.0% 100.0 % Cost of goods sold 96.5 94.2 101.4 ----- ----- ----- Gross margin (loss) 3.5% 5.8% (1.4)% ===== ===== ===== Selling expense 2.0% 2.3% 2.3 % General and administrative expense 4.5 4.9 3.5 Defined benefit pension expense (credit) (1.7) (.5) 2.2 Corporate expense .7 1.8 1.9 Gain on early extinguishment of debt - (16.3) - Income (loss) before income taxes and cumulative effect of change in accounting principle (6.3)% 12.0% (12.2)% Income tax provision 1.8 6.5 - ----- ----- --- Income (loss) before cumulative effect of change in accounting principle (8.1) 5.5 (12.2) Cumulative effect of change in accounting principle - 6.0 - ----- ----- ---- Net income (loss) (8.1)% 11.5% (12.2)% ===== ===== =====
Year ended December 31, 2003 compared to year ended December 31, 2002 Discussion of operating results Net sales declined $28.2 million, or 8.4%, in 2003 from 2002 due primarily to an 8.5% decline in shipment volume of steel and wire products and a .6% decline in overall per-ton steel and wire product selling prices partially offset by a $1.7 million increase, or 17.9%, in Garden Zone's net sales from $9.5 million in 2002 to $11.2 million in 2003. There was no significant change in Keystone's steel and wire products mix between 2002 and 2003. The .6% decline in overall per-ton steel and wire product selling prices ($3 per ton) adversely impacted net sales by approximately $1.8 million. Fabricated wire products per-ton selling prices declined by 1.3% and shipment volume declined by 3.8% in 2003 as compared to 2002. Per-ton selling prices of nails declined by 5.7% and shipments declined by 28.4% in 2003 as compared to 2002. However, per-ton selling prices of industrial wire and wire rod increased by .9% and 3.3%, respectively in 2003 as compared to 2002 while shipment volume of industrial wire and wire rod declined by 5.2% and 12.2%, respectively. The Company believes the lower shipment volumes across all product lines and lower per-ton selling prices of fabricated wire products and nails were due primarily to increased imports and lower demand. Despite these market conditions, the Company was able to slightly increase the per-ton product selling prices of its industrial wire and wire rod product lines. Billet production during 2003 declined by 146,000 tons to 577,000 tons from 723,000 tons in 2002. The primary reason for the lower billet production levels in 2003 was intentional production curtailments as a result of weakening demand and excess inventory levels. Wire rod production during 2003 declined by 128,000 tons to 559,000 tons from 687,000 tons in 2002. The lower wire rod production in 2003 was due primarily to the lower billet production and unplanned production outages during the 2003 first quarter to effect repairs to the Company's rod mill. Despite a 57,000 ton decline (8.5%) in shipment volume in 2003, as compared to 2002, cost of goods sold only declined by 1.5% in 2003 to $310.9 million from $315.6 million in 2002. As a result, the cost of goods sold percentage increased from 94.2% in 2002 to 101.4% of net sales in 2003. This increase in the cost of goods sold percentage was due primarily to increased costs for ferrous scrap, Keystone's primary raw material, and natural gas costs at the Company's Peoria, Illinois facility partially offset by lower costs for electricity at the Peoria facility. In addition, during 2002, Keystone received $900,000 in business interruption insurance proceeds related to incidents in prior years. The Company did not receive any such insurance proceeds in 2003. Keystone's per-ton ferrous scrap costs increased 22% during 2003 as compared to 2002. During 2003, the Company purchased 634,000 tons of ferrous scrap at an average price of $115 per-ton as compared to 2002 purchases of 810,000 tons at an average price of $94 per ton. This increase in per-ton ferrous scrap costs adversely impacted gross profit during 2003 by approximately $13.3 million. Keystone's average ferrous scrap costs in 2004 was approximately $205 per-ton. The cost of natural gas at the Company's Peoria facility in 2003 was approximately $3.9 million higher than 2002 although prices for electrical power in 2003 were approximately $2.5 million lower than in 2002. As a result of increased costs and lower per-ton product selling prices, gross margin of $19.3 million in 2002 declined to a loss in 2003 of $4.2 million. As a result, the gross margin percentage in 2002 of 5.8% declined to a 1.4% loss in 2003. During the first nine months of 2003, selling expense was higher than the same period in 2002 due primarily to increased advertising costs and employee related expenses. However, during the last 3 months of 2003, due to declining liquidity, the Company dramatically reduced all non-essential expenses, including selling expense. As a result, selling expense for the entire year in 2003 declined 10.6% to $6.9 million from $7.8 million in 2002. General and administrative expense of $10.7 million in 2003 was $5.7 million lower than general and administrative expense in 2002 of $16.4 million. The primary reason for this decline was due to lower employee related and travel costs. During 2003, Keystone recorded defined benefit pension expense of $6.9 million as compared to recording a pension credit in 2002 of $1.6 million. The higher pension expense in 2003 is due primarily to a $46 million decline in plan assets during 2002 and the resulting lower expected return on plan assets component of defined benefit pension plan expense. As a result of an $85 million increase in plan assets during 2003, the Company's defined benefit pension credit was approximately $6.8 million in 2004. In addition, Keystone was not required to make any cash contributions for defined benefit pension plan fundings in 2004. However, future variances from assumed actuarial rates, including the rate of return on pension plan assets, may result in increases or decreases in pension expense or credit and future funding requirements. See Note 9 to the Consolidated Financial Statements and the following discussion of Assumptions on Defined Benefit pension Plans - Defined benefit pension plan. General corporate expenses during 2003 of $6.0 million approximated general corporate expenses during 2002. Interest expense during 2003 was lower than 2002 due principally to slightly lower debt levels and lower interest rates. Average borrowings by the Company approximated $101.4 million during 2003 as compared to $106.5 million during 2002. During 2003, the average interest rate on outstanding indebtedness was 2.7% per annum as compared to 4.5% per annum in 2002. Keystone currently anticipates average interest rates and debt levels in 2004 will approximate those at the end of 2003. In the first quarter of 2002, the Company completed an exchange offer related to its 9 5/8% Notes whereby 94% of the holders of the 9 5/8% Notes exchanged their notes for either a discounted cash amount and common stock, new preferred equity and subordinated secured debt securities, or subordinated unsecured debt securities (the "Exchange Offer"). As a result of the Exchange Offer, for financial reporting purposes the Company reported a $54.7 million pre-tax gain ($33.1 million net of income taxes). See Note 5 to the Consolidated Financial Statements. In July 2003, Garden Zone purchased Keystone's 51% ownership in Garden Zone for approximately $1.1 million in cash. In addition, Garden Zone repaid a $493,000 advance that had been made in a prior year, and Keystone was released from its guarantee of 51% of Garden Zone's revolving credit facility. Keystone reported a pre-tax gain of approximately $786,000 in the third quarter of 2003 as a result of this transaction. In August 2003, Keystone sold substantially all of the assets of Keystone Fasteners for $2.2 million in cash. Keystone reported a pre-tax gain of approximately $287,000 in the third quarter of 2003 as a result of this transaction. The principal reasons for the difference between the U.S. federal statutory income tax rate and the Company's effective income tax rates are explained in Note 7 to the Consolidated Financial Statements. At December 31, 2003, the Company had net operating loss carryforwards of approximately $54.5 million and other tax attributes and net deductible temporary differences aggregating into a gross deferred income tax asset of $39.1 million. Because the Company does not currently believe the benefit of such net operating loss carryforward and other net deductible temporary differences meets the "more-likely-than-not" recognition criteria of GAAP, the Company had recorded a deferred tax asset valuation allowance of $39.1 million at December 31, 2003, resulting in no net deferred tax assets. Keystone periodically reviews the recoverability of its deferred tax assets to determine whether such assets meet the "more-likely-than-not" recognition criteria. The Company will continue to review the recoverability of its deferred tax assets, and based on such periodic reviews, Keystone could recognize a change in the recorded valuation allowance related to its deferred tax assets in the future. While the Company currently expects to report pre-tax income for financial reporting purposes during 2004, the Company does not believe it will have sufficient positive evidence to conclude that its net deferred income tax assets will meet the "more-likely-than-not" recognition criteria anytime during 2004. As a result of the deferred tax asset valuation allowance, the Company does not anticipate recognizing a tax provision associated with its expected pre-tax income during 2004 will be appropriate. As a result of the deferred tax asset valuation allowance, other than the $21.6 million tax provision recorded in connection with the Exchange Offer in 2002, the Company did not record a tax benefit during 2002 or 2003 associated with its remaining pre-tax losses. During the 2002 first quarter, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. As a result of adopting SFAS No. 142, negative goodwill of approximately $20.0 million recorded at January 1, 2002 was eliminated as a cumulative effect of change in accounting principle at that date. As a result of the items discussed above, Keystone recorded a net loss during 2003 of $37.5 million as compared to recording net income of $38.4 million in 2002. At December 31, 2003, the Company's financial statements reflected total accrued liabilities of $19.8 million to cover estimated remediation costs arising from environmental issues. Although Keystone has established an accrual for future required environmental remediation costs that are probable and reasonably estimable, there is no assurance regarding the ultimate cost of remedial measures that might eventually be required by environmental authorities or that additional environmental hazards, requiring further remedial expenditures, might not be asserted by such authorities or private parties. Accordingly, the costs of remedial measures may exceed the amounts accrued. See Note 13 to the Consolidated Financial Statements. Year ended December 31, 2002 compared to year ended December 31, 2001 Net sales increased $9.6 million, or 3.0%, in 2002 from 2001 due primarily to a .8% increase in shipment volume of steel and wire products combined with a 1.7% increase in overall per-ton steel and wire product selling prices. There was no significant change in Keystone's steel and wire products product mix between 2001 and 2002. The 1.7% increase in overall per-ton steel and wire product selling prices ($8 per-ton) favorably impacted net sales by $5.4 million. In addition, Garden Zone's net sales increased by 18.8% during 2002 from $8.0 million to $9.5 million. Fabricated wire products per-ton selling prices were relatively unchanged from 2001 to 2002 while shipments increased 1.0%. Nail per-ton selling prices increased .5% in 2002 when compared to 2001 while shipments were relatively unchanged. Industrial wire per-ton selling prices declined 1.3% in 2002 when compared to 2001 while shipments increased 2.1%. The per-ton selling price of wire rod increased 7.4% during 2002 as compared to 2001, while shipments declined 1.4%. The increase in shipment volume of fabricated wire products and industrial wire was due to higher demand. As the demand for these products increased, the Company decreased the volume of rod sold to external customers. Due in part to a 5,000 ton increase in volume during 2002, as compared to 2001, cost of goods sold of $315.6 million during 2002 increased by $1.6 million over the 2001 cost of goods sold of $313.9 million and the cost of goods sold percentage declined from 96.5% in 2001 to 94.2% in 2002. This decline in the cost of goods sold percentage was due primarily to lower wire rod conversion costs, fixed costs at the Company's Peoria, Illinois facility, natural gas costs, healthcare costs for active employees and zinc costs partially offset by higher costs for ferrous scrap, Keystone's primary raw material, and electricity. In addition, during 2002, Keystone received $900,000 in business interruption insurance proceeds related to incidents in prior years (as compared to $1.8 million in 2001). Also in 2001, the Company received a favorable $1.7 million utility settlement relative to a charge by the utility in a prior year, and, during the 2001 fourth quarter, Keystone recorded a $1.3 million benefit as a result of a favorable legal settlement with an electrode vendor related to alleged price fixing. No such settlements were received in 2002. Keystone's per-ton ferrous scrap costs increased 11% during 2002 as compared to 2001. During 2002, the Company purchased 810,000 tons of ferrous scrap at an average price of $94 per-ton as compared to 2001 purchases of 788,000 tons at an average price of $85 per-ton. This increase in per-ton ferrous scrap costs adversely impacted gross profit during 2002 by approximately $7.5 million as compared to 2001. The Company did not purchase any billets in either of 2002 or 2001. Prices for electrical power during 2002 were approximately $1.8 million higher than 2001's prices although natural gas prices in 2002 were approximately $1.9 million lower than in 2001. Lower rod conversion costs and fixed costs at the Company's Peoria, Illinois facility were due primarily to increased production efficiencies combined with lower employee related costs and workers compensation expense. The decline in healthcare costs for active employees is due primarily to the Company increasing the number of employees required to contribute to their healthcare coverage during 2002. Gross profit of $19.3 million during 2002 increased by $8.0 million over the 2001 gross profit of $11.3 million as the gross margin increased from 3.5% in 2001 to 5.8% in 2002. This increase in gross margin was due primarily to the increased overall steel and wire product per-ton selling prices in 2002 combined with lower costs in 2002. Selling expense increased 21.2% to $7.8 million in 2002 from $6.4 million in 2001 due primarily to increased advertising expenses and higher employee related costs. General and administrative expense of $16.4 million in 2002 increased $1.7 million from $14.7 million in 2001 due primarily to higher legal costs during 2002 as compared to 2001. In addition, during 2001, the Company recorded amortization of negative goodwill of approximately $1.4 million. Effective January 1, 2002, the Company's recorded negative goodwill was eliminated as a cumulative effect of change in accounting principle and as such, no further amortization was recorded. Legal expenses increased by approximately $1.0 million in 2002 primarily due to Keystone pursuing a trademark infringement case against several companies that Keystone believes are infringing upon a number of Keystone's trademarks as well as a $650,000 reimbursement of legal fees that was received in 2001. No such reimbursement was received in 2002. During 2002, Keystone recorded a non-cash pension credit of $1.6 million as compared to $5.5 million in 2001. The lower pension credit in 2002 was primarily the result of higher amortization of prior years' actuarial losses and a lower expected return on plan assets during 2002. Although the rate of return was unchanged from 2001 to 2002, the lower, expected return on plan assets during 2002 was due primarily to a $10.5 million decline in plan assets from December 31, 2000 to December 31, 2001. See Note 9 to the Consolidated Financial Statements. See following discussion of Assumptions on Defined Benefit Pension Plans and OPEB Plans - Defined benefit pension plan. Interest expense during 2002 was lower than 2001 due principally to lower debt levels and interest rates. Average borrowings by the Company approximated $106.5 million during 2002 as compared to $149.0 million in 2001. During 2002, the average interest rate on outstanding indebtedness was 4.5% per annum as compared to 8.9% per annum in 2001. The decline in both debt levels and interest rates during 2002 was due primarily to the Exchange Offer. As a result of the deferred tax asset valuation allowance, other than the $21.6 million tax provision recorded in connection with the Exchange Offer, the Company did not record a tax benefit during 2002 associated with its remaining pre-tax loss. On January 1, 2002, Keystone adopted SFAS No. 142, and as such, negative goodwill of approximately $20.0 million recorded at January 1, 2002 was eliminated as a cumulative effect of change in accounting principle at that date. The Exchange Offer, resulted in Keystone recording, for financial reporting purposes, a $54.7 million pre-tax gain ($33.1 million net of income taxes). See Note 5 to Consolidated Financial Statements. As a result of the items discussed above, Keystone recorded net income of $38.4 million during 2002 as compared to a net loss in 2001 of $26.4 million. SEGMENT RESULTS OF OPERATIONS: Keystone's operating segments are defined as components of consolidated operations about which separate financial information is available that is regularly evaluated by the chief operating decision maker in determining how to allocate resources and in assessing performance. The Company's chief operating decision maker is Mr. David L. Cheek, President and Chief Executive Officer of Keystone. Each operating segment is separately managed, and each operating segment represents a strategic business unit offering different products. During 2003, the Company expanded the composition of its reportable segments. The corresponding segment information for prior periods has been restated to conform to the current year presentation. See Note 2 to the Consolidated Financial Statements. The Company's operating segments are organized along its manufacturing facilities and include two reportable segments: (i) Keystone Steel and Wire ("KSW") which manufacturers and sells wire rod, industrial wire and fabricated wire products for agricultural, industrial, construction, commercial, original equipment manufacturers and retail consumer markets and, (ii) Engineered Wire Products ("EWP") which manufactures and sells welded wire reinforcement in both roll and sheet form that is utilized in concrete construction products including pipe, pre-cast boxes and applications for use in roadways, buildings and bridges. EWP is not included in the Company's February 2004 bankruptcy proceedings. Prior to July 2003, the Company owned a 51% interest in Garden Zone, a distributor of wire, plastic and wood lawn and garden products to retailers. In July 2003, Keystone sold its 51% ownership in Garden Zone. In addition, prior to July 2003, Keystone also operated three businesses that did not constitute reportable business segments. These businesses sell industrial wire and fabricated wire products for agricultural, industrial, construction, commercial, original manufacturers and retail consumer markets. The results of operations of these businesses are aggregated and included under the "All Other" heading in the following tables. During July 2003, Keystone transferred its operations at one of these three businesses to other Keystone facilities, and during August 2003 Keystone sold another of the businesses. As a result, as of August 2003, the "All Other" heading in the following tables only includes Sherman Wire. The net proceeds from the sale of Garden Zone and Keystone Fasteners aggregated $3.3 million. The gain on the sale of these businesses, as well as the results of operations of each of Garden Zone and Keystone Fasteners are not significant, individually and in the aggregate. Accordingly, the Company has elected not to present their results of operations as discontinued operations for all periods presented due to their immateriality. The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that (i) defined benefit pension expense for each segment is recognized and measured on the basis of estimated current service cost of each segment, with the remainder of the Company's net defined benefit pension expense or credit not allocated to each segment but still is reported as part of operating profit or loss, (ii) segment OPEB expense is recognized and measured based on the basis of the estimated expense of each segment, with the remainder of the Company's actual OPEB expense not allocated to each segment but still is reported as part of operating profit or loss, (iii) elimination of intercompany profit or loss on ending inventory balances is not allocated to each segment but still is reported as part of operating profit or loss, (iv) LIFO inventory reserve adjustments are not allocated to each segment but still are reported as a part of operating profit or loss, and (v) amortization of goodwill and negative goodwill are included in general corporate expenses and are not allocated to any segment and are not included in total reported operating profit or loss. General corporate expense also includes OPEB and environmental expense relative to facilities no longer owned by the Company. Intercompany sales between reportable segments are generally recorded at prices that approximate market prices to third-party customers.
Principal Business Segment Entities Location Products Keystone Steel & Wire Keystone Steel & Wire Peoria, IL Billets, wire rod, industrial wire, nails and fabricated wire products Engineered Wire Products Engineered Wire Products Upper Sandusky, Fabricated wire products OH Garden Zone Garden Zone (1) Charleston, SC Wire, wood and plastic lawn and garden products All Other Sherman Wire Sherman, TX Industrial wire and fabricated wire products Sherman Wire of Caldwell(2) Caldwell, TX Industrial wire and fabricated wire products Keystone Fasteners(3) Springdale, AR Nails
(1) 51.0% subsidiary - interest sold in July 2003. (2) Transferred operations in July 2003 to Sherman and KSW. (3) Business sold in August 2003.
2001 2002 2003 ---- ---- ---- Revenues: Keystone Steel and Wire $274,525 $290,818 $274,284 Engineered Wire Products 34,177 32,935 35,260 Garden Zone 8,483 10,744 12,082 All other 51,670 45,485 28,127 Elimination of intersegment Revenues (43,668) (45,147) (43,082) -------- -------- -------- $325,187 $334,835 $306,671 ======== ======== ======== Operating profit (loss): Keystone Steel and Wire $(12,779) $ (3,921) $(21,388) Engineered Wire Products 4,156 2,743 2,721 Garden Zone 210 85 700 All Other (2,603) (2,971) (4,579) GAAP adjustments and eliminations 6,628 785 (6,185) -------- ---- -------- $ (4,388) $ (3,279) $(28,731) ======== ======== ========
Keystone Steel & Wire KSW's net sales in 2003 declined by $16.5 million or 5.7% to $274.3 million from $290.8 million in 2002 due primarily to lower shipment volumes partially offset by higher overall per-ton product selling prices. KSW sold approximately 14,000 less tons of products in 2003 as compared to 2002 at selling prices $13 per-ton higher than per-ton product selling prices in 2002. The primary reason for the decline in shipment volume during 2003 at KSW was a 50,000 ton decline in wire rod shipments that were in turn due to lower demand and an unplanned production outage during the first quarter of 2003. During 2003 and 2002, approximately 11% and 12%, respectively of KSW's net sales were made to other Keystone entities. Significantly all of the sales to other Keystone entities were sales of wire rod. During 2003, KSW recorded a $21.4 million operating loss as compared to recording a $3.9 million operating loss in 2002. The primary reasons for the increased operating loss in 2003 were increased costs for ferrous scrap, natural gas, and OPEB expense partially offset by higher per-ton product selling prices and lower costs for electricity. In addition, during 2002, KSW received $900,000 of business interruption insurance proceeds related to incidents in prior years. No such settlements were received by KSW during 2003. KSW's net sales of $290.8 million in 2002 increased approximately $16.3 million or 6%, from 2001 due primarily to higher shipment volumes and higher overall per-ton product selling prices. During 2002, KSW sold 129,000 more tons of products than during 2001 at per-ton product selling prices approximately $15 per-ton higher than the per-ton selling prices in 2001. During 2002 and 2001, approximately 12% and 13%, respectively of KSW's net sales were made to other Keystone entities. The majority of these sales were sales of wire rod. During 2002, KSW recorded a $3.9 million operating loss as compared to a $12.8 million operating loss recorded during 2001. The primary reasons for the lower operating loss in 2002 were the increased per-ton selling prices and lower rod conversion cost, fixed costs, natural gas cost, healthcare costs for active employees and zinc cost all partially offset by higher costs for ferrous scrap, electricity, legal and OPEB costs. In addition, during 2002, KSW received $900,000 of business interruption insurance proceeds related to incidents in prior years as compared to $1.8 million received in 2001. Also, during 2001, KSW received total legal settlements of $3.0 million. No such settlements were received by KSW during 2002. Engineered Wire Products EWP's net sales of $35.3 million during 2003 were approximately $2.3 million or 7% higher than during 2002 due primarily to both increased shipment volume and higher overall per-ton product selling prices. During 2003, EWP sold 3,000 more tons of product than during 2002 at per-ton product selling prices approximately $13 per ton higher than per-ton selling prices in 2002. Despite higher net sales in 2003 as compared to 2002, EWP recorded operating income of $2.7 million in each year due primarily to increased wire rod costs, EWP's primary raw material. EWP purchases the majority of its wire rod requirements from KSW. EWP's net sales of $32.9 million in 2002 decreased approximately $1.2 million or 4%, from 2001 due primarily to lower shipment volumes and lower overall per-ton product selling prices. During 2002, EWP sold 1,000 less tons of product than during 2001 at per-ton product selling prices approximately $9 per-ton lower than the per-ton selling prices in 2001. During 2002, EWP recorded operating income of $2.7 million as compared to $4.2 million of operating income recorded during 2001. The primary reasons for the lower operating income in 2002 were the lower overall pre-ton product selling prices and higher costs for wire rod. Garden Zone Keystone sold its 51% interest in Garden Zone in July 2003. Despite only recording a partial year of sales in 2003, Garden Zone's net sales during 2003 of $12.1 million increased $1.3 million or 12% from Garden Zone's net sales in 2002 of $10.7 million. Garden Zone's increased sales level during 2003 as compared to 2002 was due primarily to increased market penetration by Garden Zone during 2003. As a result of increased net sales in 2003, Garden Zone's operating income in 2003 prior to the disposition by Keystone, increased to $700,000 from $85,000 in 2002. Garden Zone's net sales of $10.7 million in 2002 increased approximately $2.3 million or 27%, from 2001 due primarily to increased market penetration by Garden Zone during 2002. During 2002, Garden Zone recorded operating income of $85,000 as compared to $210,000 during 2001. The primary reason for the lower operating income in 2002 was increased selling and administrative costs despite the higher level of net sales during 2002. All Other The three businesses in this segment recorded net sales of $28.1 million in 2003, as compared to net sales of $45.5 million during 2002. This $17.4 million decline was due primarily to the sale of one of these businesses in August 2003 and the transfer of another one of the businesses to other Keystone segments in July 2003. As a result of the disposition and transfer of businesses within this segment during 2003, tons shipped by the businesses in this segment during 2003 declined by 25,000 tons from 2002 shipment levels. In addition, the overall per-ton product selling price for this segment declined by approximately $31 per-ton during 2003 as compared to 2002. Sherman Wire was the only remaining business in this segment at December 31, 2003. Sherman Wire shipments in 2003 approximated 2002 shipment levels. However, Sherman Wire's per-ton product selling prices declined by approximately $134 per-ton in 2003. During 2003 and 2002, approximately 36% and 21%, respectively of this segment's net sales were made to other Keystone entities. These sales to other Keystone entities were sales of industrial wire and fabricated wire products. During 2003 and 2002, approximately 55% and 10%, respectively of Sherman Wire's net sales were made to other Keystone entities, primarily KSW. The majority of these sales were fabricated wire products. During 2003, these facilities recorded a $4.6 million operating loss as compared to a $3.0 million operating loss in 2002. The primary reason for this increased operating loss in 2003 was the lower overall per-ton product selling prices and increased costs for wire rod, this segment's primary raw material. The businesses in this segment purchase the majority of their wire rod requirements from KSW. During 2003, Sherman Wire recorded an operating loss of $2.5 million as compared to an operating loss of $2.1 million in 2002. Facilities in this segment recorded net sales of $45.5 million in 2002, a decrease of approximately $6.2 million or 12%, from 2001 due primarily to lower shipment volumes partially offset by higher overall per-ton product selling prices. During 2002, these facilities sold 12,000 less tons of product than during 2001 at per-ton product selling prices approximately $17 per-ton higher than the per-ton selling prices in 2001. During 2002 and 2001, approximately 21% and 16%, respectively of this segment's net sales were made to other Keystone entities. During 2002, these facilities recorded a $3.0 million operating loss as compared to a $2.6 million operating loss recorded during 2001. The primary reasons for the increased operating loss in 2002 were higher selling and general and administrative expenses. GAAP adjustments and eliminations in the above table consisted primarily of adjustments to reflect the difference between the defined benefit pension expense or credit and OPEB expense allocated to the segments and the actual expense or credit included in the determination of operating profit or loss. GAAP adjustments and eliminations included a defined benefit pension credit of $8.8 million and $4.9 million during 2001 and 2002, respectively and defined benefit pension expense of $3.8 million during 2003. During 2001, 2002 and 2003, GAAP adjustments and eliminations included OPEB expense of $2.2 million, $3.7 million and $3.3 million, respectively. Related Party Transactions As further discussed in Note 11 to the Consolidated Financial Statements, the Company is party to certain transactions with related parties. Outlook for 2004 During 2004, rod imports continued at high levels. Despite these high import levels, per-ton sales prices of the Company's products rose, in part, to successful prosecution of trade cases against selected countries. In addition, the weakening of the U.S. dollar also resulted in increased prices for imported wire rod. As a result, management believes these factors, combined with the business dispositions in 2003, resulted in a 16% lower shipment volume in 2004 as compared to 2003. However, a 47% increase in overall per-ton product selling prices and the effects of the Company's restructuring efforts in 2004, mitigated the impact of a 78% increase in the cost of ferrous scrap, as well as the $11.2 million of legal and other professional fees associated with the Company's bankruptcy and related restructuring efforts. As a result, Keystone expects it will report net income for 2004. In addition, Keystone expects to report positive cash flows from operating activities in 2004, in part because no contribution to the Company's defined benefit pension plan was required. In addition, as a result of significant accumulated net operating losses, the benefit of which has not been previously recognized for financial reporting purposes as the Company does not currently believe meets the "more-likely-than-not" recognition criteria, the Company does not expect to record significant net tax expense associated with its pre-tax income during 2004. Critical Accounting Policies and Estimates The accompanying "Management's Discussion and Analysis of Financial Condition and Results of Operations" are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reported period. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, inventory reserves, the recoverability of other long-lived assets (including goodwill and other intangible assets), pension and other post-retirement benefit obligations and the underlying actuarial assumptions related thereto, the realization of deferred income tax assets and accruals for environmental remediation, litigation, income tax and other contingencies. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from previously-estimated amounts under different assumptions or conditions. Keystone believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: o The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments and other factors. The Company takes into consideration the current financial condition of the customers, the age of the outstanding balance and the current economic environment when assessing the adequacy of the allowance. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. During 2001, 2002 and 2003, the net amount written off against the allowance for doubtful accounts as a percentage of the balance of the allowance for doubtful accounts as of the beginning of the year ranged from approximately 25% to 57%. o Keystone provides reserves for estimated obsolescence or unmarketable inventories equal to the difference between the cost of inventories and the estimated net realizable value using assumptions about future demand for its products and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. Keystone provides reserves for tools and supplies inventory based generally on both historical and expected future usage requirements. o The Company recognizes an impairment charge associated with its long-lived assets, primarily property and equipment, goodwill and other intangible assets whenever it determines that recovery of such long-lived asset is not probable. Such determination is made in accordance with the applicable GAAP requirements associated with the long-lived asset, and is based upon, among other things, estimates of the amount of future net cash flows to be generated by the long-lived asset and estimates of the current fair value of the asset. Adverse changes in such estimates of future net cash flows or estimates of fair value could result in an inability to recover the carrying value of the long-lived asset, thereby possibly requiring an impairment charge to be recognized in the future. Under applicable GAAP (SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), property and equipment is not assessed for impairment unless certain impairment indicators, as defined, are present. During 2003, impairment indicators were present with respect to the property and equipment associated with the Company's KSW and Sherman segments, which represented a significant portion of the Company's consolidated net property and equipment as of such date. Keystone completed an impairment review of such net property and equipment and related net assets as of December 31, 2003. Such analysis indicated no impairment was present as the estimated future undiscounted cash flows associated with such segments exceeded the carrying value of such segments' net assets by approximately 31% and 79%, respectively. Significant judgment is required in estimating such undiscounted cash flows. Such estimated cash flows are inherently uncertain, and there can be no assurance that the future cash flows reflected in these projections will be achieved. Under applicable GAAP (SFAS No. 142, Goodwill and Other Intangible Assets,) goodwill is required to be reviewed for impairment at least on an annual basis. Goodwill will also be reviewed for impairment at other times during each year when impairment indicators, as defined, are present. As discussed in Notes 1 and 17 to the Consolidated Financial Statements, the Company has assigned its goodwill to the EWP reporting unit (as that term is defined in SFAS No. 142). No goodwill impairment was deemed to exist as a result of the Company's annual impairment review completed during the third quarter of 2003, as the estimated fair value of the EWP reporting unit exceeded the net carrying value by over 300%. The estimated fair value of the EWP reporting unit was determined based on discounted cash flow projections. Significant judgment is required in estimating the discounted cash flows for the EWP reporting unit. Such estimated cash flows are inherently uncertain, and there can be no assurance that EWP will achieve the future cash flows reflected in its projections. o Keystone records a valuation allowance to reduce its deferred income tax assets to the amount that is believed to be realized under the "more-likely-than-not" recognition criteria. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, it is possible that in the future the Company may change its estimate of the amount of the deferred income tax assets that would "more-likely-than-not" be realized in the future, resulting in an adjustment to the deferred income tax asset valuation allowance that would either increase or decrease, as applicable, reported net income or loss in the period such change in estimate was made. At December 31, 2003, the Company believes its gross deferred tax assets do not currently meet the "more-likely-than-not" realizability test and accordingly has provided a valuation allowance for the total gross deferred tax assets. o The Company records accruals for environmental, legal, income tax and other contingencies when estimated future expenditures associated with such contingencies become probable, and the amounts can be reasonably estimated. However, new information may become available, or circumstances (such as applicable laws and regulations) may change, thereby resulting in an increase or decrease in the amount required to be accrued for such matters (and therefore a decrease or increase in reported net income in the period of such change). o Keystone sponsors a defined benefit pension plan covering substantially all employees who meet certain eligibility requirements. For financial reporting purposes at December 31, 2002, the pension plan's accumulated benefit obligation exceeded the plan's assets, and as such, the Company's financial statements reflect an additional minimum pension liability, an intangible asset equal to the amount of unrecognized prior service cost and a charge to stockholders' deficit on its balance sheet. However, as a result of increases in the market value of the plan's assets during 2003, at December 31, 2003, the Plan's assets exceeded the Plan's accumulated benefit obligation, and as such, the additional minimum pension liability, and intangible asset were eliminated. In addition, the Company was not required to make cash contributions to the pension plan during 2003 and was not required to make cash contributions to its pension plan during 2004. The determination of additional minimum liability, intangible asset, charge to stockholders' equity and pension expense is dependent on the selection of certain actuarial assumptions which attempt to anticipate future events. These pension actuarial assumptions, which are described in Note 9 to the Consolidated Financial Statements, include discount rate, expected return on plan assets, rate of future compensation increases, and mortality rates. Actual results that differ from the Company's pension actuarial assumptions are generally accumulated and amortized over future periods and therefore, generally affect the pension asset or liability and pension expense or credit in future periods. While the Company believes its pension actuarial assumptions are appropriate, future material differences between the Company's pension actuarial assumptions and actual results or significant changes in the Company's pension actuarial assumptions, could result in a material increase or decrease in the amount of the reported pension asset or liability and expense or credit, and therefore have a material impact on the Company's reported future results of operations. In addition, the plan could become underfunded under applicable federal regulations, which would require the Company to make cash contributions to the plan. See also the following discussion of Assumptions on Defined Benefit Pension Plans and OPEB Plans - Defined Benefit Pension Plan. o The determination of the Company's obligation and expense for OPEB benefits is dependent on the selection of certain actuarial assumptions which attempt to anticipate future events. These OPEB actuarial assumptions, which are also described in Note 9 to the Consolidated Financial Statements, include discount rate, rate of future increases in healthcare costs, and mortality rates. Actual results that differ from the Company's OPEB actuarial assumptions are, in accordance with GAAP, generally accumulated and amortized over future periods and therefore, generally affect OPEB obligations and expense in future periods. While the Company believes its OPEB actuarial assumptions are appropriate, future differences between the Company's OPEB actuarial assumptions and actual results or significant changes in the Company's OPEB actuarial assumptions could materially affect the reported amount of the Company's future OPEB obligation and expense, and therefore have a material impact on the Company's reported future results of operations. In addition, the amount the Company ultimately pays for future cash OPEB benefits could be materially different from the amounts inherent in the actuarial assumptions. See also the following discussion of Assumptions on Defined Benefit Pension Plans and OPEB Plans - OPEB plans. Accounting Principles Newly Adopted in 2003 See Note 17 to the Consolidated Financial Statements. Accounting Principles Not Yet Adopted See Note 18 to the Consolidated Financial Statements. Assumptions on Defined Benefit Pension Plans and OPEB Plans Defined benefit pension plan. The Company accounts for its defined benefit pension plan using SFAS No. 87, Employer's Accounting for Pensions. Under SFAS No. 87, defined benefit pension plan expense or credit and prepaid or accrued pension costs are each recognized based on certain actuarial assumptions, principally the assumed discount rate, the assumed long-term rate of return on plan assets and the assumed increase in future compensation levels. The Company recognized a consolidated defined benefit pension plan credit of $5.5 million in 2001 and $1.6 million in 2002 and a consolidated defined benefit pension expense of $6.9 million in 2003. The amount of funding requirements for the defined benefit pension plan is based upon applicable regulations, and will generally differ from pension expense or credit recognized under SFAS No. 87 for financial reporting purposes. No contributions were required to be made to the Company's defined benefit pension plan during the past three years. The discount rates the Company utilizes for determining defined benefit pension expense or credit and the related pension obligations are based on current interest rates earned on long-term bonds that receive one of the two highest ratings given by recognized rating agencies. In addition, the Company receives advice about appropriate discount rates from the Company's third-party actuaries, who may in some cases utilize their own market indices. The discount rates are adjusted as of each valuation date (December 31st) to reflect then-current interest rates on such long-term bonds. Such discount rates are used to determine the actuarial present value of the pension obligations as of December 31st of that year, and such discount rates are also used to determine the interest component of defined benefit pension expense or credit for the following year. The Company used the following discount rates for its defined benefit pension plan during the last three years:
Discount rates used for: ------------------------------------------------------------------------------------------------ Obligations at Obligations at Obligations at December 31, 2001 and expense December 31, 2002 and expense December 31, 2003 and in 2002 in 2003 expense in 2004 ------------------------------- -------------------------------- ----------------------------- 7.00% 6.50% 6.00%
The assumed long-term rate of return on plan assets represents the estimated average rate of earnings expected to be earned on the funds invested or to be invested in the plans' assets provided to fund the benefit payments inherent in the projected benefit obligations. Unlike the discount rate, which is adjusted each year based on changes in current long-term interest rates, the assumed long-term rate of return on plan assets will not necessarily change based upon the actual, short-term performance of the plan assets in any given year. Defined benefit pension expense or credit each year is based upon the assumed long-term rate of return on plan assets for the plan and the actual fair value of the plan assets as of the beginning of the year. Differences between the expected return on plan assets for a given year and the actual return are deferred and amortized over future periods based upon the expected average remaining service life of the active plan participants. In determining the expected long-term rate of return on plan asset assumptions, the Company considers the long-term asset mix (e.g. equity vs. fixed income) for the assets of its plan and the expected long-term rates of return for such asset components. In addition, the Company receives advice about appropriate long-term rates of return from the Company's third-party actuaries. Substantially all of Keystone's plan assets are invested in the Combined Master Retirement Trust ("CMRT"), a collective investment trust established by Valhi Inc. ("Valhi"), a majority owned subsidiary of Contran, to permit the collective investment by certain master trusts which fund certain employee benefits plans sponsored by Contran and certain of its affiliates. Harold Simmons is the sole trustee of the CMRT. The CMRT's long-term investment objective is to provide a rate of return exceeding a composite of broad market equity and fixed income indices (including the S&P 500 and certain Russell indicies) utilizing both third-party investment managers as well as investments directed by Mr. Simmons. During the 16-year history of the CMRT through December 31, 2003, the average annual rate of return has been 12.4%. For 2001, 2002 and 2003, the assumed long-term rate of return utilized for plan assets invested in the CMRT was 10%. In determining the appropriateness of such long-term rate of return assumption, the Company considered, among other things, the historical rate of return for the CMRT, the current and projected asset mix of the CMRT and the investment objectives of the CMRT's managers. In addition, the Company receives advice about appropriate long-term rates of return from the Company's third-party actuaries. At December 31, 2003, the asset mix of the CMRT was 63% in U.S. equity securities, 24% in U.S. fixed income securities, 7% in international securities and 6% in cash and other investments. The Company regularly reviews its actual asset allocation for its defined benefit pension plan, and will periodically rebalance the investments in the plan to more accurately reflect the targeted allocation when considered appropriate. As noted above, the Company's assumed long-term rate of return on plan assets was 10% for each of 2001, 2002 and 2003. The Company currently expects to utilize the same long-term rate of return on plan assets assumption in 2004 as it used in 2003 for purposes of determining the 2004 defined benefit pension plan expense or credit. To the extent the defined benefit pension plan's particular pension benefit formula calculates the pension benefit in whole or in part based upon future compensation levels, the projected benefit obligations and the pension expense will be based in part upon expected increases in future compensation levels. For pension benefits which are so calculated, the Company generally bases the assumed expected increase in future compensation levels upon average long-term inflation rates. Based on the actuarial assumptions described above, Keystone expects its defined benefit pension credit will approximate $6.8 million in 2004 compared to a defined benefit pension expense of $6.9 million in 2003. Keystone was not required to make contributions to the defined benefit pension plan during 2004 (none were required in 2003, 2002 or 2001). As noted above, defined benefit pension expense or credit and the amounts recognized as prepaid or accrued pension costs are based upon the actuarial assumptions discussed above. The Company believes all of the actuarial assumptions used are reasonable and appropriate. If Keystone had lowered the assumed discount rate by 25 basis points as of December 31, 2003, the Company's projected and accumulated benefit obligations would have increased by approximately $9.6 million and $9.2 million, respectively at that date, and the defined benefit pension credit would be expected to decrease by approximately $400,000 during 2004. Similarly, if Keystone lowered the assumed long-term rate of return on plan assets by 25 basis points for its defined benefit pension plan, the defined benefit pension credit would be expected to decrease by approximately $700,000 during 2004. OPEB plans. The Company currently provides certain health care and life insurance benefits for eligible retired employees. See Note 9 to the Consolidated Financial Statements. The Company accounts for such OPEB costs under SFAS No. 106, Employers Accounting for Postretirement Benefits other than Pensions. Under SFAS No. 106, OPEB expense and accrued OPEB costs are based on certain actuarial assumptions, principally the assumed discount rate and the assumed rate of increases in future health care costs. The Company recognized consolidated OPEB expense of $12.0 million in 2001, $14.3 million in 2002 and $17.5 million in 2003. Similar to defined benefit pension benefits, the amount of funding will differ from the expense recognized for financial reporting purposes, and contributions to the plans to cover benefit payments aggregated $9.8 million in 2001, $9.2 million in 2002 and $10.3 million in 2003. The assumed discount rates the Company utilizes for determining OPEB expense and the related accrued OPEB obligations are generally based on the same discount rates the Company utilizes for its defined benefit pension plan. In estimating the health care cost trend rate, the Company considers its actual health care cost experience, future benefit structures, industry trends and advice from its third-party actuaries. During each of the past three years, the Company has assumed the relative increase in health care costs will generally trend downward over the next several years, reflecting, among other things, assumed increases in efficiency in the health care system and industry-wide cost containment initiatives. For example, at December 31, 2003, the expected rate of increase in future health care costs was 10% in 2004, declining to 5% in 2009 and thereafter. Based on the actuarial assumptions described above, the Company expects its consolidated OPEB expense will approximate $20.9 million in 2004. In comparison, the Company made approximately $5.3 million of contributions to such plans during 2004. The amount of OPEB contributions made by the Company in 2004, which was lower than the Company's contributions in 2003 of $10.3 million, reflects in part certain interim relief related to the Company's retiree medical plans that were approved by the Bankruptcy Court in connection with the Company's Chapter 11 filing. As noted above, OPEB expense and the amount recognized as accrued OPEB costs are based upon the actuarial assumptions discussed above. The Company believes all of the actuarial assumptions used are reasonable and appropriate. If the Company had lowered the assumed discount rate by 25 basis points for all of its OPEB plans as of December 31, 2003, the Company's aggregate accumulated OPEB obligations would have increased by approximately $8.5 million at that date, and the Company's OPEB expense would be expected to increase by $461,000 during 2004. Similarly, if the assumed future health care cost trend rate had been increased by 100 basis points, the Company's accumulated OPEB obligations would have increased by approximately $39.7 million at December 31, 2003, and OPEB expense would have increased by $4.4 million in 2003. Liquidity and Capital Resources At December 31, 2003, Keystone had negative working capital of $90.2 million, including $34.6 million of notes payable and current maturities of long-term debt as well as outstanding borrowings under the Company's revolving credit facilities of $20.9 million. The amount of available borrowings under these Keystone's revolving credit facilities is based on formula-determined amounts of trade receivables and inventories, less the amount of outstanding letters of credit. At December 31, 2003, unused credit available for borrowing under Keystone's $45 million revolving credit facility (the "Keystone Revolver"), which expires March 31, 2005 and EWP's $7 million revolving credit facility (the "EWP Revolver"), which, as amended, expires September 30, 2005 were $726,000 and $1.9 million, respectively. The Keystone Revolver requires daily cash receipts be used to reduce outstanding borrowings, which results in the Company maintaining zero cash balances when there are balances outstanding under this credit facility. Accordingly, any outstanding balances under the Keystone Revolver are always classified as a current liability regardless of the maturity date of the facility. Keystone retired the EWP Revolver with the proceeds of its exit financing upon emergence from Chapter 11 on August 31, 2005. In addition, EWP Financial LLC ("EWPFLLC"), a wholly-owned subsidiary of Contran, has agreed to loan the Company up to an aggregate of $6 million under the terms of a revolving credit facility that matured on February 24, 2004. The Company did not borrow any amounts under such facility. However, EWPFLLC has issued a $250,000 letter of credit for the benefit of the Company under the revolving credit facility. In January 2004, EWP received a new $6.75 million term loan ("the EWP Term Loan") from the same lender providing the EWP Revolver. The EWP Term Loan bears interest at LIBOR plus 2.5%, is due in 60 monthly installments of $112,500 plus accrued interest, is collateralized by a lien on all of the fixed assets of EWP and cross-collateralized with the EWP Revolver. Proceeds from the EWP Term Loan were used to repay intercompany indebtedness to Keystone. Keystone used the proceeds to reduce the outstanding balance of the Keystone Revolver. The Company retired the EWP Term Loan with the proceeds of its exit financing upon emergence from Chapter 11 on August 31, 2005. On March 15, 2004, the Court approved two new debtor-in-possession financing facilities (the "DIP Order). The first debtor-in-possession financing facility consists of an Assumption Agreement whereby the pre-petition lender on the Keystone Revolver and a term note (the "Keystone Term Note") agreed to convert those credit facilities to a debtor-in-possession facility (collectively, the "Congress DIP Facility"). The terms of the respective facilities comprising the Congress DIP Facility are relatively unchanged from the respective pre-petition facilities with the exception of the elimination of the existing financial covenants and the granting of a second lien on the stock of EWP owned by Keystone. In connection with the approval of the Congress DIP Facility, the Keystone Term Note was increased by $4.0 million. Approximately $2.0 million of these proceeds were applied to the Keystone Revolver portion of the Congress DIP Facility and the remainder was used to fund Keystone's working capital needs. However, the Congress DIP Facility lender also applied an availability reserve of approximately $2.0 million to the borrowing base of the Keystone Revolver in connection with the increase in Keystone Term Note resulting in no net increase in availability under the Keystone Revolver at that time. The Keystone Term Note requires monthly principal payments of $100,000. The Congress DIP Facility, as amended, matures the earliest to occur of September 30, 2005, payment in full of the Congress DIP Facility, confirmation of a plan of reorganization of Keystone, an event of default or upon certain other events. The Congress DIP Facility required a facility fee of $375,000, half of which was paid at inception and half of which was paid in August, 2004. The second debtor-in-possession financing facility comprising the DIP Order is a $5 million revolving credit facility with EWPFLLC (the "EWP DIP Facility"). Advances under the EWP DIP Facility bear interest at the prime rate plus 3.0% per annum and are collateralized by the common stock of EWP owned by Keystone. Proceeds from the EWP DIP Facility were used to fund Keystone's working capital needs. The EWP DIP Facility requires Keystone to abide by specified cash budgets. In addition, the EWP DIP Facility requires EWPFLLC to fund an additional $2 million through a participation in the Congress DIP Facility upon the Company's realization of certain milestones. The Company met such milestones and in April 2004, this additional funding was made. The EWP DIP Facility, as amended, matures upon confirmation of a plan of reorganization of Keystone, closing of a sale of EWP, an event of default under the EWP Term Note, an event of default under the Congress DIP Facility or upon certain other events. The EWP DIP Facility required a facility fee of $100,000, half of which was paid at inception and half of which was paid in August 2004. On August 31, 2005, in connection with its emergence from Chapter 11, Keystone entered into a new $80.0 million secured credit facility. Proceeds from this credit facility were used to extinguish Keystone's existing Debtor-In-Possession credit facilities, the EWP Term Loan and the EWP Revolver and to provide working capital for reorganized Keystone. The facility includes a term loan in the amount of up to $25.0 million, subject to a borrowing base calculation based on the market value of the Company's real property and equipment. To the extent there is sufficient borrowing base, the term loan portion of this credit facility can be reloaded in the amount of $10.0 million. The portion of the credit facility in excess of the term loan balance is available to the Company as a revolving credit facility subject to a borrowing base calculation based on eligible receivables and inventory balances. Interest rates on the credit facility range from the prime rate to the prime rate plus ..5% depending on Keystone's excess availability, as defined in the credit agreement. The facility also provides for a LIBOR interest rate option. Under the terms of the credit facility, the Company is required to annually pay down the term loan portion of the facility in the amount of 25% of excess cash flow, as defined in the agreement, subject to a $2.0 million annual and a $5.0 million aggregate limit. The facility also includes performance covenants related to minimum levels of cash flow and fixed charge coverage ratio. Keystone paid the lender $400,000 of diligence, commitment and closing fees in connection with this facility. During 2003, the Company's operating activities provided approximately $5.9 million of cash, compared to $10.1 million of cash provided by operating activities in 2002. Cash flow from operating activities declined in 2003 compared to 2002 due primarily to a $22.2 million higher loss from operations and relative changes in the levels of assets and liabilities (primarily inventory and accounts payable). Due to Keystone's limited liquidity during the last half of 2003, the Company was not able to operate on a continuous basis. As such, production levels declined and Keystone was forced to substantially reduce its normal inventory levels over the last half of 2003 in order to meet customer shipment demand. In addition, as the Company's liquidity deteriorated throughout 2003, many vendors and suppliers discontinued trade terms and required Keystone to pay cash in advance for all goods as well as pay down old trade payables prior to shipment of new goods. As such, trade accounts payable declined substantially during 2003. During 2003, Keystone made capital expenditures of approximately $2.7 million primarily related to upgrades of production equipment at its facility in Peoria, Illinois, as compared to $8.0 million in 2002. Capital expenditures for 2004 were approximately $5.0 million and were related primarily to upgrades of production equipment. Such capital expenditures were funded using cash flows from operations together with borrowing availability under Keystone's credit facilities. At December 31, 2003, the Company's financial statements reflected accrued liabilities of $19.8 million for estimated remediation costs for those environmental matters which Keystone believes are probable and reasonably estimable. Although the Company has established an accrual for estimated future required environmental remediation costs, there is no assurance regarding the ultimate cost of remedial measures that might eventually be required by environmental authorities or that additional environmental hazards, requiring further remedial expenditures, might not be asserted by such authorities or private parties. Accordingly, the costs of remedial measures may exceed the amounts accrued. Keystone believes it is not possible to estimate the range of costs for certain sites. The upper end of range of reasonably possible costs to Keystone for sites for which the Company believes it is possible to estimate costs is approximately $21.6 million. Keystone was not required to make contributions to its pension plan during 2004. Future variances from assumed actuarial rates, including the rate of return on pension plan assets, may result in increases or decreases to pension expense or credit and funding requirements in future periods. See Note 9 to the Consolidated Financial Statements. The Company periodically reviews the recoverability of its deferred tax assets to determine whether such assets meet the "more-likely-than-not" recognition criteria. At December 31, 2003, the Company expects that its long-term profitability should ultimately be sufficient to enable it to realize full benefit of its future tax deductions, in part due to the long-term nature of its net operating loss carryforwards, which expire in 2019 to 2023. Although, considering all factors believed to be relevant, including the Company's recent operating results, its expected future near-term productivity rates; cost of raw materials, electricity, labor and employee benefits, environmental remediation, and retiree medical coverage; interest rates; product mix; sales volumes and selling prices and the fact that accrued OPEB expenses will become deductible over an extended period of time and require the Company to generate significant amounts of future taxable income, the Company believes its gross deferred tax assets do not currently meet the "more-likely-than-not" realizability test. As such, during the fourth quarter of 2001, the Company provided a deferred tax asset valuation allowance of approximately $14.5 million. During 2002 and 2003, Keystone increased the valuation allowance by $5.5 million and $19.1 million, respectively, and at December 31, 2003, the Company has recognized a deferred tax asset valuation allowance of $39.1 million, or all of the Company's deferred tax asset. Keystone will continue to review the recoverability of its deferred tax assets, and based on such periodic reviews, the Company could change the valuation allowance related to its deferred tax assets in the future. The Company does not currently expect to record significant net tax expense associated with its expected pre-tax income during 2004. Keystone incurs significant ongoing costs for plant and equipment and substantial employee medical benefits for both current and retired employees. As such, Keystone is vulnerable to business downturns and increases in costs, and accordingly, routinely compares its liquidity requirements and capital needs against its estimated future operating cash flows. Despite reductions in fixed costs and increases in certain product selling prices, Keystone was unable to maintain sufficient operating liquidity during 2004 and as a result, on February 26, 2004 Keystone and five of its direct and indirect subsidiaries filed for voluntary protection under Chapter 11 of the Federal Bankruptcy Code. Subsequent to filing for Chapter 11, the Company negotiated a favorable amendment to the collective bargaining agreement with its largest labor union and received interim relief with respect to certain OPEB payments to retirees. Keystone incurred legal and professional fees of approximately $11.2 million during 2004 with respect to its reorganization efforts, including related to the Chapter 11 filing. In addition, the Company is taking additional action towards improving its liquidity. These actions include, but are not limited to, reducing inventory levels through more efficient production schedules and modifying coverages and participant contribution levels of medical plans for both employees and retirees. Keystone has also considered, and may in the future consider, the sale of certain divisions or subsidiaries that are not necessary to achieve the Company's long-term business objectives. However, there can be no assurance Keystone will be successful in any of these or other efforts, or that if successful, they will provide sufficient liquidity for the Company's operations during the next year. See Note 19 to the Consolidated Financial Statements. Under Chapter 11 proceedings, actions by creditors to collect pre-petition claims are stayed, absent specific authorization from the Court to pay such claims while the Company manages the business as a debtor-in-possession. Keystone received approval from the Court to pay certain of its pre-petition Claims, including employee wages and certain employee benefits. Keystone filed a plan of reorganization on October 4, 2004 and amended that Plan on May 26, 2005, June 21, 2005 and June 27, 2005. Keystone's amended plan of reorganization was accepted by the impacted constituencies and confirmed by the Court on August 10, 2005. The Company emerged from bankruptcy protection on August 31, 2005. Significant provisions of Keystone's amended plan of reorganization included, among other things: o Assumption of the previously negotiated amendment to the collective bargaining agreement with the Independent Steel Workers Alliance (the "ISWA"), Keystone's largest labor union; o Assumption of the previously negotiated agreements reached with certain retiree groups that will provide relief by permanently reducing healthcare related payments to these retiree groups from pre-petition levels; o The Company's obligations due to pre-petition secured lenders other than its Debtor-In-Possession lenders were reinstated in full against reorganized Keystone; o All shares of Keystone's common and preferred stock outstanding at the petition date (February 26, 2004) were cancelled; o Pre-petition unsecured creditors with allowed claims against Keystone will receive, on a pro rata basis, in the aggregate, $5.2 million in cash, a $4.8 million secured promissory note and 49% of the new common stock of reorganized Keystone; o Certain operating assets and existing operations of Sherman Wire Company ("Sherman Wire"), one of Keystone's pre-petition wholly-owned subsidiaries, will be sold at fair market value to Keystone, which will then be used to form and operate a newly created wholly-owned subsidiary of reorganized Keystone named Keystone Wire Products Inc.; o Sherman Wire was also reorganized and the proceeds of the operating asset sale to Keystone and other funds will be distributed, on a pro rata basis, to Sherman Wire's pre-petition unsecured creditors as their claims are finally adjudicated; o Sherman Wire's pre-petition wholly-owned non-operating subsidiaries, J.L. Prescott Company, and DeSoto Environmental Management, Inc. as well as Sherman Wire of Caldwell, Inc., a wholly-owned subsidiary of Keystone, will ultimately be liquidated and the pre-petition unsecured creditors with allowed claims against these entities will receive their pro-rata share of the respective entity's net liquidation proceeds; o Pre-petition unsecured creditors with allowed claims against FV Steel & Wire Company, another one of Keystone's wholly-owned subsidiaries, will receive cash in an amount equal to their allowed claims; o One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an affiliate of Contran Corporation ("Contran"), Keystone's largest pre-petition shareholder) converted $5 million of its DIP credit facility, certain of its pre-petition unsecured claims and all of its administrative claims against Keystone into 51% of the new common stock of reorganized Keystone; and o The Board of Directors of reorganized Keystone now consists of seven individuals, two each of which were designated by Contran and the Official Committee of Unsecured Creditors (the "OCUC"), respectively. The remaining three directors qualify as independent directors (two of the independent directors were appointed by Contran with the OCUC's consent and one was appointed by the OCUC with Contran's consent). In addition, Keystone has obtained an $80 million secured credit facility from Wachovia Capital Finance (Central). Proceeds from this credit facility were used to extinguish Keystone's existing Debtor-In-Possession credit facilities and to provide working capital for reorganized Keystone. See Note 19 to the Consolidated Financial Statements. Summary of Debt and Other Contractual Commitments As more fully described in the notes to the Consolidated Financial Statements, the Company is a party to various debt, lease and other agreements which contractually and unconditionally commit the Company to pay certain amounts in the future. See Notes 5, 14, 15 and 19 to the Consolidated Financial Statements. The following table summarizes such contractual commitments of the Company and its consolidated subsidiaries that are unconditional both in terms of timing and amount by the type and date of payment:
Payment due date 2009 and Contractual commitment 2004 2005/2006 2007/2008 after Total - ---------------------- ---- --------- --------- ------- ----- (In thousands) Indebtedness: Principal $19,390 $ 8,868 $34,278 $25,139 $ 87,675 Interest 1,458 1,971 767 4,234 8,430 Operating leases 1,157 1,215 70 48 2,490 Deferred vendor payment agreements 3,227 6,454 807 - 10,488 Product supply agreement 1,200 2,400 2,400 2,700 8,700 ------ ------ ------ ------ ------ $26,432 $20,908 $38,322 $32,121 $117,783 ======= ======= ======= ======= ========
The timing and amounts shown in the above table for the Company's commitments related to indebtedness (both principal and interest), operating leases, deferred vendor payment agreements and product supply agreements are based upon the contractual payment amount and the contractual payment date for such commitments. Therefore, such timing and amounts shown in the above table do not reflect any effect on such commitments that arise from the Company's emergence from Chapter 11 proceedings. Due to the Chapter 11 filings, Keystone was not permitted to make principal or interest payments on its pre-petition debt or deferred vendor payments. As discussed in Note 5 to the Consolidated Financial Statements, certain indebtedness of the Company aggregating $34.5 million has been classified as a current liability at December 31, 2003 because such indebtedness is in default. However, such $34.5 million has been classified in the above table based on the contractual maturity date of such indebtedness because the lender has not accelerated payment of such indebtedness, and because payment on such indebtedness was stayed as a result of the Chapter 11 proceedings. In addition, balances due under the Company's revolving credit facilities are shown as current maturities in the Company's Consolidated Financial Statements at December 31, 2003. However, the above table reflects maturities of these facilities only upon the contracted expiration of the respective facility. The Company has many executory contracts, including the operating leases and product supply agreement included in the above table that were rejected during the Chapter 11 proceedings. Payments under the deferred payment agreements in the above table reflect the minimum payments required under the agreements. Certain provisions of the agreements may require acceleration of the timing of the payments, but not an increase in the total amount to be paid. Payments under the product supply agreement in the above table reflect the minimum payments required under the agreement. In addition, the Company is party to an agreement that requires quarterly contributions of $75,000 to an environmental trust fund. Monies in the trust fund will be made available to the Company when the related environmental site is remediated or when the trust fund has a minimum excess of $2.0 million over the related site's estimated remaining remediation costs. At December 31, 2003, estimated remaining remediation costs exceeded the amount in the environmental trust fund. The above table does not reflect any amounts that the Company might pay to fund its defined benefit pension plans and OPEB plans, as the timing and amount of any such future fundings are unknown and dependent on, among other things, the future performance of defined benefit pension plan assets, interest rate assumptions and actual future retiree medical costs. Such defined benefit pension plans and OPEB plans are discussed above in greater detail. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Keystone's exposure to changes in interest rates relates primarily to long-term debt obligations. At December 31, 2003, approximately 91% of the Company's long-term debt was comprised of fixed rate instruments, which minimize earnings volatility related to interest expense. Keystone does not currently participate in interest rate-related derivative financial instruments. The table below presents principal amounts and related weighted-average interest rates by maturity date for Keystone's long-term debt obligations.
Estimated Contracted Maturity Date Fair Value ----------------- ---------------------------------------- 2004 2005 2006 2007 2008 Thereafter Total December 31, 2003 ---- ---- ---- ---- ---- ---------- ----- ----------------- ($ In thousands) Fixed-rate debt - Principal amount $28,226 $ 23 $ 14 $16,155 $ 1 $16,031 $60,450 (1) Weighted-average interest rate .02% 0.00% 0.00% 3.66% 0.00% 3.82% 2.00% Variable-rate debt- Principal amount $27,224 $ - $ - $ - $ - $ - $27,224 $27,224 Weighted-average interest rate 4.77% -% -% -% -% - % 4.77%
At December 31, 2002, long-term debt included fixed-rate debt of $61.3 million (fair value - $35.0 million) with a weighted average interest rate of 6.3% and $36.0 million of variable-rate debt which approximated fair value, with a weighted-average interest rate of 4.3%. (1) Due to the significant uncertainties surrounding the Company's Chapter 11 filings, management is unable to estimate the aggregate fair value of Keystone's fixed rate notes at December 31, 2003. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information called for by this Item is contained in a separate section of this report. See Index of Financial Statements and Financial Statement Schedule on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures.The Company maintains a system of disclosure controls and procedures. The term "disclosure controls and procedures," as defined by regulations of the SEC, means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits to the SEC under the Securities Exchange Act of 1934, as amended (the "Act"), is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by the Company in the reports that it files or submits to the SEC under the Act is accumulated and communicated to the Company's management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions to be made regarding required disclosure. Each of David L. Cheek, the Company's President and Chief Executive Officer, and Bert E. Downing, Jr., the Company's Vice President, Chief Financial Officer, Corporate Controller and Treasurer, have evaluated the Company's disclosure controls and procedures as of December 31, 2003. Based upon their evaluation, these executive officers have concluded that the Company's disclosure controls and procedures are effective as of the date of such evaluation. Internal Control Over Financial Reporting. The Company also maintains a system of internal controls over financial reporting. The term "internal control over financial reporting," as defined by regulations of the SEC, means a process designed by, or under the supervision of, the Company's principal executive and principal financial officers, or persons performing similar functions, and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and procedures that: o Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company, o Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and o Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the Company's consolidated financial statements. The Company currently expects that Section 404 of the Sarbanes-Oxley Act of 2002 will require the Company to annually include a management report on internal control over financial reporting starting with the Company's Annual Report on Form 10-K for the year ended December 31, 2007. The Company's independent registered public accounting firm will also be required to annually audit the Company's internal control over financial reporting. In order to achieve compliance with Section 404, the Company will have to document, test and evaluate its internal control over financial reporting, using a combination of internal and external resources. The process of documenting, testing and evaluating the Company's internal control over financial reporting under the applicable guidelines is expected to be complex and time consuming, and available internal and external resources necessary to assist the Company in the documentation and testing required to comply with Section 404 could be limited. While the Company currently believes it will be able to dedicate the appropriate resources, and that it will be able to fully comply with Section 404 in its Annual Report on Form 10-K for the year ended December 31, 2007 and be in a position to conclude that the Company's internal control over financial reporting is effective as of December 31, 2007, because the applicable requirements are complex and time consuming, and because currently unforeseen events or circumstances beyond the Company's control could arise, there can be no assurance that the Company will ultimately be able to fully comply with Section 404 in its Annual Report on Form 10-K for the year ended December 31, 2007 or whether it will be able to conclude that the Company's internal control over financial reporting is effective as of December 31, 2007. Changes in Internal Control Over Financial Reporting. There has been no change to the Company's system of internal controls over financial reporting during the quarter ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's system of internal controls over financial reporting. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. DIRECTORS The bylaws of Keystone provide that the Board of Directors shall consist of not less than five and not more than nine persons, as determined by the Board of Directors from time to time. The Board of Directors has currently set the number of directors at seven. The directors elected at the Annual Meeting held October 2, 2003, will hold office until the next annual meeting of shareholders and until their successors are duly elected and qualified or their earlier removal, resignation or death. Set forth below is certain information concerning the directors of Keystone as of December 31, 2003. Biographical information, including ages, is as of December 31, 2003. THOMAS E. BARRY Director since 1989 Dr. Barry, age 60, is vice president for executive affairs at Southern Methodist University and has been a professor of marketing in the Edwin L. Cox School of Business at Southern Methodist University since prior to 1999. Dr. Barry is also a director of Valhi, Inc. ("Valhi"), a publicly held diversified holding company related to Keystone. Dr. Barry ceased being a director upon the Company's emergence from Chapter 11 on August 31, 2005. WILLIAM SPIER Director since 1996 Mr. Spier, age 69, is chairman of the board of Empire Resources, Inc. and has served in such capacity since September 1999. Mr. Spier resigned as a director in January 2005. PAUL M. BASS, JR. Director since 1989 Mr. Bass, age 68, is vice chairman of First Southwest Company, a privately owned investment banking firm, and has served in such capacity since prior to 1999. Mr. Bass is also a director of CompX International Inc. ("CompX"), a manufacturer of ergonomic computer support systems, precision ball bearing slides and security products that is related to Valhi, and a director of MACC Private Equities Inc., a business development company. Mr. Bass is currently serving as chairman of the board of trustees of Southwestern Medical Foundation, a foundation that supports and promotes The University of Texas Southwestern Medical Center. KEITH R. COOGAN Director since 2003 Mr. Coogan, age 51, is chief executive officer of Software Spectrum, Inc., a global business-to-business software services provider that is currently a wholly owned subsidiary of Level 3 Communications, but from 1991 to June 2002 was a publicly traded corporation. From 1990 to October 2002, Mr. Coogan served in various other executive officer positions of Software Spectrum, including vice president of finance and operations and chief operating officer. Mr. Coogan is also a director of CompX. Mr. Coogan serves as chairman of Keystone's audit committee and the Board of Directors has determined that he is an "audit committee financial expert" as defined by the U.S. Securities and Exchange Commission and is an independent director under the corporate governance rules of the New York Stock Exchange. Mr. Coogan ceased being a director upon the Company's emergency from Chapter 11 on August 31, 2005. GLENN R. SIMMONS Director since 1986 Mr. Simmons, age 75, is chairman of the board of Keystone and has served in such capacity since prior to 1999. Since prior to 1999, Mr. Simmons has served as vice chairman of the board of directors of Valhi and Contran. Mr. Simmons has been a director of Contran and an executive officer and/or director of various companies related to Contran since prior to 1999. He is chairman of the board of CompX, a director of NL Industries, Inc. ("NL"), and Kronos Worldwide, Inc. ("Kronos Worldwide"), both engaged in the maufacture of titanium dioxide pigments and related to Valhi; and a director of Titanium Metals Corporation ("TIMET"), a company engaged in the titanium metals industry that is related to Valhi. Mr. Simmons is a brother of Harold C. Simmons, the chairman of the board of Valhi and Contran. J. WALTER TUCKER, JR. Director since 1971 Mr. Tucker, age 78, is vice chairman of the board of Keystone and has served in such capacity since prior to 1999. Mr. Tucker has served as a director, president and chief executive officer of Tucker & Branham, Inc., a privately owned real estate, mortgage banking and insurance firm since prior to 1999. Mr. Tucker is also a director of Valhi. Since prior to 1999, he has also been an executive officer and/or director of various companies related to Valhi and Contran. Mr. Tucker ceased being a director upon the Company's emergence from Chapter 11 on August 31, 2005. STEVEN L. WATSON Director since 2000 Mr. Watson, age 53, has been president and a director of Valhi and Contran since 1998 and chief executive officer of Valhi since 2002. He is also a director of CompX, NL, Kronos Worldwide and TIMET. Mr. Watson has served as an executive officer and/or director of various companies related to Valhi and Contran since 1980. EXECUTIVE OFFICERS In addition to Glenn R. Simmons as chairman of the board and J. Walter Tucker, Jr. as vice chairman, the following are currently executive officers of Keystone. Each executive officer serves at the pleasure of the Board of Directors. Biographical information, including ages, is as of December 31, 2003: DAVID L. CHEEK, age 54, is president and chief executive officer of Keystone and has served in such capacities since April 2003. He was president and chief operating officer from October 2001 to April 2003. Mr. Cheek has served as president, Keystone Steel & Wire, a division of Keystone, since March 2000 and was vice president of manufacturing, Keystone Steel & Wire, from March 1999 to March 2000. He was vice president of operations, Atlantic Steel, Atlanta, Georgia from 1996 to 1999. BERT E. DOWNING, JR., age 47, is vice president, chief financial officer, corporate controller and treasurer of Keystone and has served in such capacities since December 2002. He served as vice president - corporate controller and treasurer since May 2001, as vice president and corporate controller since March 2000, and as corporate controller since prior to 1999. SANDRA K. MYERS, age 60, has served as corporate secretary of Keystone and as executive secretary of Contran since prior to 1999. ITEM 11. EXECUTIVE COMPENSATION. COMPENSATION OF DIRECTORS Directors of Keystone receive an annual retainer of $15,000, a fee of $750 per day for each Board of Directors meeting and/or committee meeting attended, and reimbursement for reasonable expenses incurred in attending Board of Directors and/or committee meetings. Messrs. Glenn R. Simmons and Steven L. Watson ceased receiving fees for serving as directors in November 2003. The Keystone Consolidated Industries, Inc. 1997 Long-Term Incentive Plan provides for awards or grants of stock options, stock appreciation rights, restricted stock, performance grants and other awards to key individuals, including directors, performing services for Keystone or its subsidiaries. Under the 1997 Long-Term Incentive Plan, directors are annually granted stock options exercisable for 1,000 shares of Keystone common stock, par value $1.00 per share (the "Common Stock"). These options have an exercise price equal to the closing sales price per share of Common Stock on the date of grant, have a term of ten years and fully vest on the first anniversary of the date of grant. The directors waived their rights to their 2003 annual grant of stock options, and, accordingly, no annual grants were made in 2003. In addition to serving as directors, Messrs. Simmons, Watson and Tucker provide consulting services to Keystone. Keystone pays Contran for the consulting services provided by Messrs. Simmons and Watson pursuant to Intercorporate Services Agreements approved periodically between Contran and Keystone (each an "Intercorporate Services Agreement"). See Item 13 - Certain Relationships and Related Transactions. EXECUTIVE COMPENSATION The Summary Compensation Table set forth below provides information concerning annual and long-term compensation paid by Keystone for services rendered in all capacities to Keystone and its subsidiaries during 2003, 2002 and 2001 by each of the most highly compensated individuals who were executive officers of Keystone at December 31, 2003 (the "named executive officers"). For amounts Keystone incurred that were attributable to the services Glenn R. Simmons provided Keystone in 2003, 2002 and 2001 under Intercorporate Services Agreements, see Item 13 - Certain Relationships and Related Transactions. SUMMARY COMPENSATION TABLE (1)
Annual Compensation (2) Name and ---------------- All Other Principal Position Year Salary Compensation - -------------------------- ------ ------------------ --------------- David L. Cheek 2003 $286,540 $ 5,431 (2) President and Chief 2002 250,000 2,709 (2) Executive Officer 2001 203,388 1,534 (2) Bert E. Downing, Jr....... 2003 $210,000 $ 523 (2) Vice President, Chief 2002 200,000 35 (2) Financial Officer, 2001 170,000 1,918 (2) Corporate Controller and Treasurer - --------------
(1) For the periods presented for the named executive officers, no stock options or shares of restricted stock were granted nor payouts made pursuant to long-term incentive plans. Therefore, the columns for such compensation have been omitted. (2) No bonuses were paid to the executive officers for the periods presented. An amount for other annual compensation is disclosed only if the amount for other annual compensation exceeds the level required for reporting pursuant to Securities and Exchange Commission (the "SEC") rules. Therefore, the columns for such compensation have been omitted. (3) All other compensation for the last three years for each of the following named executive officers consisted of accruals to unfunded reserve accounts attributable to certain limits under the Internal Revenue Code of 1986, as amended (the "Code"), with respect to the 401(k) Plan and Keystone's pension plan, which amounts are payable upon the named executive officer's retirement, the termination of his employment with Keystone or to his beneficiaries upon his death; as follows:
Unfunded Reserve Account Accruals ---------------------------------- Account Accruals Related Interest Accruals to 401(k) and Pension Above 120% of the AFR Named Executive Officer Plan Limitations Rate (a) Year Total - --------------------- ----- ----------------- --------------- ------------- David L. Cheek 2003 $ 5,431 $ -0- $ 5,431 2002 2,697 12 2,709 2001 1,534 -0- 1,534 Bert E. Downing, Jr. 2003 523 -0- 523 2002 -0- 35 35 2001 1,845 73 1,918 - --------------
(a) The agreements for these unfunded reserve accounts provide that the balance of such accounts accrue credits in lieu of interest compounded quarterly. Pursuant to SEC rules, the amounts shown represent the portion of the credit accruals to the unfunded reserve accounts that exceeds 120% of the applicable federal long-term rate as prescribed by the Code (the "AFR Rate"). The AFR Rate used for such computations was the AFR Rate in effect on December 31, 2003, 2002 and 2001, for the date that the credit accruals for 2003, 2002 and 2001, respectively, were credited to the unfunded reserve account. No Grants of Stock Options or Stock Appreciation Rights. Keystone did not grant any stock options or stock appreciation rights ("SARs") during 2003. Stock Option Exercises and Holdings. The following table provides information, with respect to the named executive officers, concerning the value of unexercised stock options for Common Stock held as of December 31, 2003. In 2003, no named executive officer exercised any stock options. Keystone has not granted any SARs. The underlying Common Stock related to these options was cancelled in connection with Keystone's emergence from Chapter 11 on August 31, 2005. See Note 19 to the Consolidated Financial Statements. DECEMBER 31, 2003 OPTION VALUES
Number of Shares Underlying Unexercised Options at Value of Unexercised December 31, 2003 (#) In-the-Money Options Name at December 31, 2003 (1) -------------------- -------------------------- -------------------------- Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- David L. Cheek 42,000 -0- $ -0- $ -0- Bert E. Downing, Jr. 42,000 -0- -0- -0- - ----------
(1) The values shown in the table are based on the $.10 per share closing price of the Common Stock on December 31, 2003, as reported by the OTC Bulletin Board, less the exercise price of the options. Pension Plan. Keystone maintains a qualified, noncontributory defined benefit plan which provides defined retirement benefits to various groups of eligible employees including executive officers. Normal retirement age under Keystone's pension plan is age 65. The defined benefit for salaried employees, including officers, is based on a straight life annuity. An individual's monthly benefit is the sum of the following: (a) for credited service prior to January 1, 1981, the amount determined by his or her average monthly cash compensation for the five years of his or her highest earnings prior to January 1, 1981, multiplied by 1.1%, multiplied by the years of credited service, plus (b) for each year of service between 1980 and 1989, the amount determined by the sum of 1.2% multiplied by his or her average monthly cash compensation that year up to the social security wage base and 1.75% multiplied by his or her average monthly cash compensation that year in excess of the social security wage base, plus (c) for each year subsequent to 1989, the amount determined by 1.2% multiplied by his or her average monthly cash compensation that year, but not less than $14.00 per month. The estimated annual benefits payable upon retirement at normal retirement age for each of the named executive officers, assuming continued employment with Keystone until normal retirement age at current salary levels are: David L. Cheek, $36,847; and Bert E. Downing, Jr., $59,921. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Compensation Committee is or has been an officer or employee of Keystone or any of its subsidiaries. No executive officer of Keystone has served on the compensation committee, similar committee, or board of directors of another entity, one of whose executive officers served on Keystone's Compensation Committee or Board of Directors. CODE OF ETHICS Keystone has not adopted a code of ethics applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Keystone has not adopted such code because of the limitations on its staff, its severely limited financial resources and other significant additional burdens that its Chapter 11 filing have imposed on its available human and financial resources. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Keystone's executive officers, directors and persons who own more than 10% of a registered class of Keystone's equity securities to file reports of ownership with the SEC and Keystone. Based solely on the review of the copies of such reports filed with the SEC, Keystone believes that for 2003 its executive officers, directors and 10% stockholders complied with all applicable filing requirements under Section 16(a). SECURITY OWNERSHIP OF MANAGEMENT As of December 31, 2003, Keystone's directors, the named executive officers and the directors and executive officers as a group, beneficially owned, as defined by the rules of the SEC, the shares of Common Stock shown in the following table. All of the Company's outstanding Common Stock at December 31, 2003 was cancelled in connection with Keystone's emergence from Chapter 11 on August 31, 2005. See Note 19 to the Consolidated Financial Statements.
Common Stock ------------------------------ Amount and Nature of Percent of Beneficial Ownership (1) Class (1)(2) Name of Beneficial Owner - --------------------------------------------- ------------------- ----------- Thomas E. Barry..................................................... 9,000 (3)(4) * Paul M. Bass, Jr.................................................... 14,000 (3)(4) * David L. Cheek...................................................... 42,000 (3)(4) * Keith R. Coogan..................................................... -0- * Bert E. Downing, Jr................................................. 44,007 (3)(4) * Glenn R. Simmons.................................................... 242,650 (3)(4)(5) 2.4% William Spier....................................................... 386,262 (3) 3.8% J. Walter Tucker, Jr................................................ 160,450 (3)(4) 1.6% Steven L. Watson.................................................... 3,250 (3)(4) * All directors and executive officers as a group (10 persons) ..... 925,219 (3)(4)(5) 9.0%
- -------------------- * Less than 1%. (1) All beneficial ownership is sole and direct except as otherwise set forth herein. Information as to the beneficial ownership of Common Stock has either been furnished to Keystone by or on behalf of the indicated persons or is taken from reports on file with the SEC. The number of shares and percentage of ownership of Common Stock for each person or group assumes the exercise by such person or group (exclusive of the exercise by others) of stock options that such person or group may exercise within 60 days subsequent to December 31, 2003. (2) The percentages are based on 10,068,450 shares of Common Stock outstanding as of December 31, 2003. (3) The shares of Common Stock shown as beneficially owned by such person or group include the following number of shares such person or group has the right to acquire upon the exercise of stock options granted pursuant to Keystone's various stock option plans that such person or group may exercise within 60 days subsequent to December 31, 2003:
Shares of Common Stock Issuable Upon the Exercise of Stock Options On or Before February 29, 2004 Name of Beneficial Owner ------------------------------------------------- ------------------- Thomas E. Barry........................................................... 7,000 Paul M. Bass, Jr.......................................................... 7,000 David L. Cheek............................................................ 42,000 Keith R. Coogan........................................................... -0- Bert E. Downing, Jr....................................................... 42,000 Glenn R. Simmons.......................................................... 127,000 William Spier............................................................. 7,000 J. Walter Tucker, Jr...................................................... 7,000 Steven L. Watson.......................................................... 1,000 All other executive officers of Keystone as a group (1 person)............ 20,000
(4) Excludes certain shares that such individual may be deemed to indirectly and beneficially own as to which such individual disclaims beneficial ownership. See footnote (2) to the "Security Ownership of Certain Beneficial Owners" table for a description of such excluded shares. (5) Glenn R. Simmons is a brother of Harold C. Simmons. See footnote (2) to the "Security Ownership of Certain Beneficial Owners" table. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table and footnotes set forth the stockholders known to Keystone to be beneficial owners, as defined by regulations of the SEC, of more than 5% of the outstanding shares of Common Stock as of December 31, 2003. The table and footnotes also set forth the shares of Keystone's Series A 10% Cumulative Convertible Pay-In-Kind Preferred Stock, stated value $1,000 and no par value per share (the "Series A Preferred Stock"), Contran and its subsidiaries beneficially owned as of December 31, 2003. See footnote (2) below for information concerning individuals and entities that may be deemed to own indirectly and beneficially those shares of Common Stock that Contran, Valhi and NL directly and indirectly hold.
Common and Series A Common Stock Series A Preferred Stock Preferred ------------------------------- ------------------------- Stock Amount and Amount and Combined Nature of Nature of Percent Beneficial Percent of Beneficial Percent of of Beneficial Owner Ownership (1) Class (1) Ownership (1) Class (1) Class (1) - ---------------------------- -------------- ---------- ------------- ---------- ----------- Harold C. Simmons Contran Corporation (2) 4,109,159 (3) 40.8% 54,956 (3) 76.4% 75.0% Valhi, Inc. (2) 326,364 (3) 3.2% -0- (3) -0-% 1.4% NL Industries, Inc. (2) 326,050 (3) 3.2% -0- (3) -0-% 1.4% Harold Simmons Foundation, Inc. 188,400 1.9% -0- (3) -0-% * The Combined Master Retirement Trust 30,000 * -0- (3) -0-% * Annette C. Simmons 10,645 * -0- (3) -0-% * --------- ------- 4,990,618 49.6% 54,956 (3) 76.4% 78.7%
All of the Company's outstanding Common Stock and Series A Preferred Stock at December 31, 2003 was cancelled in connection with Keystone's emergence from Chapter 11 on August 31, 2005. See Note 19 to the Consolidated Financial Statements. - -------------------- * Less than 1% (1) The percentages are based on 10,068,450 shares of Common Stock and 71,899 shares of Series A Preferred Stock outstanding as of December 31, 2003. Subject to Keystone's Restated Certificate of Incorporation, each share of Series A Preferred Stock entitles its holder to convert such share into 250 shares of Common Stock (a conversion price equivalent to $4.00 per share of the stated value). Except as otherwise provided by law, a share of Series A Preferred Stock does not entitle its holder to voting rights. The combined percent of class assumes the full conversion of only Contran's shares of Series A Preferred Stock. The terms of the Series A Preferred Stock are set forth in Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002. All information is taken from or based upon ownership filings made by such persons with the SEC or upon information provided by such persons. (2) The business address of Contran, Valhi and NL is Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697. Contran, Valhi, NL, the Harold Simmons Foundation, Inc. (the "Foundation"), The Combined Master Retirement Trust (the "Master Trust") and Annette C. Simmons, the spouse of Harold C. Simmons, are the direct holders of approximately 40.8%, 3.2%, 3.2%, 1.9%, 0.3% and 0.1%, respectively, of the outstanding Common Stock. Contran is also the direct holder of approximately 76.4% of the outstanding Series A Preferred Stock, which is convertible into approximately 57.7% of the outstanding Common Stock assuming only Contran's conversion of all of its Series A Preferred Stock. Valhi, Tremont LLC ("Tremont") and Ms. Simmons are the direct holders of approximately 63.1%, 21.4% and 0.1%, respectively, of the outstanding common stock of NL. Valhi is the sole member of Tremont. Valhi Group, Inc. ("VGI"), National City Lines, Inc. ("National"), Contran, the Foundation, the Contran Deferred Compensation Trust No. 2 (the "CDCT No. 2") and the Master Trust are the direct holders of 77.6%, 9.1%, 3.1%, 0.9%, 0.4% and 0.1%, respectively, of the outstanding common stock of Valhi. National, NOA, Inc. ("NOA") and Dixie Holding Company ("Dixie Holding") are the direct holders of approximately 73.3%, 11.4% and 15.3%, respectively, of the outstanding common stock of VGI. Contran and NOA are the direct holders of approximately 85.7% and 14.3%, respectively, of the outstanding common stock of National. Contran and Southwest Louisiana Land Company, Inc. ("Southwest") are the direct holders of approximately 49.9% and 50.1%, respectively, of the outstanding common stock of NOA. Dixie Rice Agricultural Corporation, Inc. ("Dixie Rice") is the direct holder of 100% of the outstanding common stock of Dixie Holding. Contran is the holder of 100% of the outstanding common stock of Dixie Rice and approximately 88.9% of the outstanding common stock of Southwest. Substantially all of Contran's outstanding voting stock is held by trusts established for the benefit of certain children and grandchildren of Harold C. Simmons (the "Trusts"), of which Mr. Simmons is the sole trustee or held by Mr. Simmons or persons or other entities related to Mr. Simmons. As sole trustee of the Trusts, Mr. Simmons has the power to vote and direct the disposition of the shares of Contran stock held by the Trusts. Mr. Simmons, however, disclaims beneficial ownership of any Contran shares that the Trusts hold. The Foundation directly holds approximately 1.9% of the outstanding shares of Common Stock and 0.9% of the outstanding shares of Valhi common stock. The Foundation is a tax-exempt foundation organized for charitable purposes. The Master Trust directly holds approximately 0.3% of the outstanding shares of Common Stock and 0.1% of the outstanding shares of Valhi common stock. Valhi established the Master Trust as a trust to permit the collective investment by master trusts that maintain the assets of certain employee benefit plans Valhi and related companies adopt. Mr. Simmons is the sole trustee of the Master Trust and a member of the trust investment committee for the Master Trust. Mr. Simmons is a participant in one or more of the employee benefit plans that invest through the Master Trust. Harold C. Simmons is the chairman of the board and chief executive officer of NL, and chairman of the board of Tremont, Valhi, VGI, National, NOA, Dixie Holding, Dixie Rice, Southwest, Contran and the Foundation. By virtue of the holding of the offices, the stock ownership and his services as trustee, all as described above, Mr. Simmons may be deemed to control such entities, and Mr. Simmons and certain of such entities may be deemed to possess indirect beneficial ownership of the shares of Common Stock or Series A Preferred Stock directly held by certain of such other entities. Mr. Simmons, however, disclaims beneficial ownership of the shares of Common Stock or Series A Preferred Stock beneficially owned, directly or indirectly, by any of such entities, except to the extent of his vested beneficial interest, if any, in any shares of Common Stock the Master Trust directly holds. Harold C. Simmons' spouse is the direct owner of 10,645 shares of Common Stock and 69,475 shares of NL common stock. Mr. Simmons may be deemed to share indirect beneficial ownership of such shares. Mr. Simmons disclaims all such beneficial ownership. Messrs. Barry and Tucker are directors of Valhi. Messrs. Glenn Simmons and Watson are directors and executive officers of Valhi and Contran and directors of NL. Messrs. Bass and Tucker are members of the trust investment committee of the Master Trust. Messrs. David L. Cheek, Bert E. Downing, Jr., Glenn Simmons, Harold Simmons and Watson are participants in one or more of the employee benefit plans that invest through the Master Trust. Each of such persons disclaims beneficial ownership of any shares of Common Stock directly or indirectly owned by any of such entities, except to the extent of such person's vested beneficial interest, if any, in any shares of Common Stock the Master Trust directly holds. The CDCT No. 2 directly holds approximately 0.4% of the outstanding Valhi common stock. U.S. Bank National Association serves as the trustee of the CDCT No. 2. Contran established the CDCT No. 2 as an irrevocable "rabbi trust" to assist Contran in meeting certain deferred compensation obligations that it owes to Harold C. Simmons. If the CDCT No. 2 assets are insufficient to satisfy such obligations, Contran is obligated to satisfy the balance of such obligations as they come due. Pursuant to the terms of the CDCT No. 2, Contran (i) retains the power to vote the shares of Valhi common stock held directly by the CDCT No. 2, (ii) retains dispositive power over such shares and (iii) may be deemed the indirect beneficial owner of such shares. For purposes of calculating the outstanding shares of Valhi common stock as of December 31, 2003, 1,000,000, 3,522,967 and 1,186,200 shares of Valhi common stock held by Valmont Insurance Company, a wholly owned subsidiary of Valhi ("Valmont"), NL and a subsidiary of NL, respectively, are excluded from the amount of Valhi common stock outstanding. Pursuant to Delaware corporate law, Valhi treats these excluded shares held by these majority owned subsidiaries as treasury stock for voting purposes. The business address of Tremont, VGI, National, NOA, Dixie Holding, the Master Trust, the Foundation and Harold and Annette Simmons is Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697. The business address of Dixie Rice is 600 Pasquiere Street, Gueydan, Louisiana 70542. The business address of Southwest is 402 Canal Street, Houma, Louisiana 70360. It is possible that Keystone's Chapter 11 filing may result in a change of control of Keystone. EQUITY COMPENSATION PLAN INFORMATION The following table provides summary information required by SEC rules as of December 31, 2003 with respect to Keystone's equity compensation plans under which Keystone's equity securities may be issued to employees or nonemployees (such as directors, consultants, advisers, vendors, customers, suppliers and lenders) in exchange for goods or services. The Keystone Consolidated Industries, Inc. 1992 Incentive Compensation Plan and the Keystone Consolidated Industries, Inc. 1997 Long-Term Incentive Plan, both of which have been approved by Keystone's stockholders, are the only such Keystone equity compensation plans. The underlying Common Stock related to these options was cancelled in connection with Keystone's emergence from Chapter 11 on August 31, 2005. See Note 19 to the Consolidated Financial Statements.
Column (A) Column (B) Column (C) ------------------ ------------------ ------------------ Number of Securities Remaining Number of Available for Securities to be Future Issuance Issued upon Weighted-Average Under Equity Exercise of Exercise Price of Compensation Plans Outstanding Outstanding (Excluding Options, Options, Securities Warrants and Warrants and Reflected in Plan Category Rights Rights Column (A)) - ---------------- ------------------ ------------------ ------------------ Equity compensation plans approved by security holders.................... 426,000 $8.13 245,000 Equity compensation plans not approved by security holders.................... -0- -0- -0- Total...................... 426,000 $8.13 245,000
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. As set forth in Item 12 under the caption "Security Ownership of Certain Beneficial Owners," Harold C. Simmons, through Contran and other entities or persons, may be deemed to beneficially own approximately 49.6% of the outstanding Common Stock as of December 31, 2003 (78.7% assuming the full conversion of only Contran's shares of Series A Preferred Stock) and, therefore, may be deemed to control Keystone. Keystone and other entities that may be deemed to be controlled by or affiliated with Mr. Simmons sometimes engage in (a) intercorporate transactions such as guarantees, management and expense sharing arrangements, shared fee arrangements, joint ventures, partnerships, loans, options, advances of funds on open account, and sales, leases and exchanges of assets, including securities issued by both related and unrelated parties, and (b) common investment and acquisition strategies, business combinations, reorganizations, recapitalizations, securities repurchases and purchases and sales (and other acquisitions and dispositions) of subsidiaries, divisions or other business units, which transactions have involved both related and unrelated parties and have included transactions which resulted in the acquisition by one related party of a publicly-held minority equity interest in another related party. Keystone continuously considers, reviews and evaluates and understands that Contran and related entities continuously consider, review and evaluate such transactions. Depending upon the business, tax and other objectives then relevant, it is possible that Keystone might be a party to one or more of such transactions in the future. In connection with these activities, Keystone may consider issuing additional equity securities or incurring additional indebtedness. Keystone's acquisition activities have in the past and may in the future include participation in the acquisition or restructuring activities conducted by other companies that may be deemed to be controlled by Harold C. Simmons. It is the policy of Keystone to engage in transactions with related parties on terms, in the opinion of Keystone, no less favorable to Keystone than could be obtained from unrelated parties. No specific procedures are in place that govern the treatment of transactions among Keystone and its related entities, although such entities may implement specific procedures as appropriate for particular transactions. In addition, under applicable principles of law, in the absence of stockholder ratification or approval by directors who may be deemed disinterested, transactions involving contracts among companies under common control must be fair to all companies involved. Furthermore, directors owe fiduciary duties of good faith and fair dealing to all stockholders of the companies for which they serve. Glenn R. Simmons, J. Walter Tucker, Jr. and Sandra K. Myers are not salaried employees of Keystone. Keystone has contracted with Contran, on a fee basis payable in quarterly installments, to provide certain administrative and other services to Keystone in addition to the services of Mr. Simmons and Ms. Myers, including consulting services of Contran executive officers pursuant to the Intercorporate Services Agreement between Contran and Keystone, a copy of which is included as Exhibit 10.1 in the Annual Report on Form 10-K for the fiscal year ended December 31, 2001. The fee incurred during 2003 was $1,005,000. During 2003, the portion of the amount Keystone incurred pursuant to the Intercorporate Services Agreements attributable to the services Mr. Glenn R. Simmons provided Keystone was $242,200. Tall Pines Insurance Company ("Tall Pines"), Valmont Insurance Company ("Valmont") and EWI RE, Inc. ("EWI") provide for or broker certain insurance policies for Contran and certain of its subsidiaries and affiliates, including the Company. Tall Pines and Valmont are wholly-owned subsidiaries of Valhi and EWI is a wholly-owned subsidiary of NL. Prior to January 2002, an entity controlled by one of Harold C. Simmons' daughters owned a majority of EWI, and Contran owned the remainder of EWI. In January 2002, NL purchased EWI from its previous owners. Consistent with insurance industry practices, Tall Pines, Valmont and EWI receive commissions from the insurance and reinsurance underwriters for the policies that they provide or broker. During 2003, Keystone and its subsidiaries paid approximately $2.2 million for policies provided or brokered by Tall Pines, Valmont and/or EWI. These amounts principally included payments for reinsurance and insurance premiums paid to unrelated third parties, but also included commissions paid to Tall Pines and EWI. In Keystone's opinion, the amounts that Keystone and its subsidiaries paid for these insurance policies and the allocation among the company and its affiliates of relative insurance premiums are reasonable and similar to those they could have obtained through unrelated insurance companies and/or brokers. Keystone expects that these relationships with Tall Pines, Valmont and EWI will continue in 2004. Contran and certain of its subsidiaries and affiliates, including the Company, purchase certain of their insurance policies as a group, with the costs of the jointly-owned policies being apportioned among the participating companies. With respect to certain of such policies, it is possible that unusually large losses incurred by one or more insureds during a given policy period could leave the other participating companies without adequate coverage under that policy for the balance of the policy period. As a result, Contran and certain of its subsidiaries and affiliates, including the Company, have entered into a loss sharing agreement under which any uninsured loss is shared by those entities who have submitted claims under the relevant policy. The Company believes the benefits in the form of reduced premiums and broader coverage associated with the group coverage for such policies justifies the risk associated with the potential for any uninsured loss. Dallas Compressor Company, a subsidiary of Contran, sells compressors and related services to Keystone. During 2003, Keystone purchased products and services from Dallas Compressor Company in the amount of $1,000. Aircraft services were purchased from Valhi in the amount of $52,000 for the year ended December 31, 2003. During 2003, Garden Zone, a 51% owned subsidiary of Keystone, paid approximately $35,000 to one of its other owners for accounting and financial services. EWP Financial LLC, ("EWPFLLC") a wholly owned subsidiary of Contran, has agreed to loan Keystone up to an aggregate of $6 million through February 29, 2004. Borrowings bear interest at the prime rate plus 3%, and are collateralized by the stock of EWP. In addition, Keystone pays a commitment fee of .375% on the unutilized portion of the facility. At December 31, 2003, no amounts were outstanding under the facility, and $6 million was available for borrowing by Keystone. However, EWPFLLC has issued a $250,000 letter of credit for the benefit of the Company under this facility. The independent directors of Keystone approved the terms of this loan. During 2003, Keystone paid Contran unused line fees of $23,000 related to this facility. Keystone has a 50% interest in a joint venture, Alter Recycling Company L.L.C. ("ARC"), to operate a ferrous scrap recycling operation at Keystone's facility in Peoria, Illinois. During 2003, Keystone purchased approximately $5.5 million of ferrous scrap from ARC. Keystone believes the terms of the transactions described above were no less favorable to Keystone than those that could have been obtained from an unrelated entity. See also Notes 3 and 11 to the Consolidated Financial Statements. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Independent Auditors. The firm of PricewaterhouseCoopers LLP ("PwC") served as Keystone's independent registered public accounting firm for the year ended December 31, 2003. Keystone expects PwC will be considered for appointment to audit Keystone's annual consolidated financial statements for the year ending December 31, 2004. Pre-approval Policies and Procedures. Effective May 6, 2003, Keystone's audit committee implemented pre-approval policies and procedures that require the audit committee to pre-approve any services Keystone's independent registered public accounting firm provides to Keystone or its subsidiaries. Prior to May 6, 2003, Keystone's audit committee pre-approved all audit and audit related services PwC rendered to Keystone and its subsidiaries. The audit committee did not pre-approve tax and other PwC services provided to Keystone or its subsidiaries prior to May 6, 2003. Fees Paid to PwC. The following table shows the aggregate fees PwC has billed or is expected to bill to Keystone and its subsidiaries for services rendered for 2002 and 2003.
Type of Fees 2002 2003 ---------------- ---- ---- Audit Fees (1) $279,057 $647,821 Audit-Related Fees (2) 83,495 90,610 Tax Fees (3) - - All Other Fees (4) 130,480 9,100 -------- -------- Total $493,032 $747,531 ======== ========
- ----------------------- (1) Fees for the following services: (a) audits of Keystone's consolidated year-end financial statements for each year ($214,057 and $629,821 in 2002 and 2003, respectively); (b) reviews of the unaudited quarterly financial statements appearing in Keystone's Form 10-Q for each of the first three quarters of each year; (c) normally provided statutory or regulatory filings or engagements for each year; and (d) the estimated out-of-pocket costs PwC incurred in providing all of such services for which Keystone reimburses PwC. (e) accounting consultations and attest services concerning financial accounting and reporting standards ($65,000 in 2002) and accounting consultations concerning comment letters received from the United States Securities and Exchange Commission ($18,000 in 2003). (2) Fees for employee benefit plan audits (3) Fees for tax compliance, tax advice and tax planning services. (4) Fees for actuarial valuation services related to Keystone's post retirement benefit plans. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1), (2) The Index of Consolidated Financial Statements and Financial Statement Schedule is included on page F-1 of this report. (a)(3) Exhibits Included as exhibits are the items listed in the Exhibit Index. The Company will furnish a copy of any of the exhibits listed below upon payment of $4.00 per exhibit to cover the costs to the Company in furnishing the exhibits. Exhibit No. Exhibit 3.1 Restated Certificate of Incorporation dated September 15, 1995, as filed with the Secretary of State of Delaware. 3.2 Certificate of Amendment of the Restated Certificate of Incorporation dated October 9, 2003, as filed with the Secretary of State of Delaware. 3.3 Amended and Restated Certificate of Incorporation of the Registrant dated August 31, 2005, as filed with the Secretary of State of Delaware. 3.4 Amended and Restated Certificate of Designations, Rights and Preferences of the Series A 10% Cumulative Convertible Pay-In-Kind Preferred Stock of Registrant dated March 12, 2003. (Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002). 3.5 Bylaws of the Company, as amended and restated December 30, 1994 (Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994). 3.6 Amended and Restated Bylaws of the Registrant dated August 31, 2005. 4.1 Indenture dated as of August 7, 1997 relating to the Registrant's 9 5/8% Senior Secured Notes due 2007. (Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K filed September 4, 1997). 4.2 First Supplemental Indenture Dated as of March 15, 2002 to Indenture Dated as of August 7, 1997 Between Registrant as Issuer and the Bank of New York, as Trustee. (Incorporated by reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.3 Second Supplemental Indenture Dated as of March 15, 2002 to Indenture Dated as of August 7, 1997 Between Registrant as Issuer and the Bank of New York, as Trustee. (Incorporated by reference to Exhibit 4.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). Exhibit No. Exhibit 4.4 Amended and Restated Revolving Loan And Security Agreement dated as of December 29, 1995 between the Company and Congress Financial Corporation (Central). (Incorporated by reference to Exhibit 4.1 to Registrant's Form 10-K for the year ended December 31, 1995). 4.5 First Amendment to Amended and Restated Revolving Loan And Security Agreement dated as of September 27, 1996 between Registrant and Congress Financial Corporation (Central). (Incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996). 4.6 Second Amendment to Amended and Restated Revolving Loan And Security Agreement dated as of August 4, 1997 between Registrant and Congress Financial Corporation (Central). (Incorporated by reference to Exhibit 4.6 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.7 Third Amendment to Amended and Restated Revolving Loan And Security Agreement dated as of May 14, 1999 between Registrant and Congress Financial Corporation (Central). (Incorporated by reference to Exhibit 4.7 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.8 Fourth Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of December 31, 1999 between Registrant and Congress Financial Corporation (Central) (Incorporated by reference to Exhibit 4.4 to the Registrant's Form 10-K for the year ended December 31, 1999). 4.9 Fifth Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of February 3, 2000 between Registrant and Congress Financial Corporation (Central). (Incorporated by reference to Exhibit 4.6 to the Registrant's Form 10-K for the year ended December 31, 1999). 4.10 Sixth Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of January 17, 2001 between Registrant and Congress Financial Corporation (Central). (Incorporated by reference to Exhibit 4.10 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.11 Seventh Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of November 1, 2001 between Registrant and Congress Financial Corporation (Central). (Incorporated by reference to Exhibit 4.11 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.12 Eighth Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of December 31, 2001 between Registrant and Congress Financial Corporation (Central). (Incorporated by reference to Exhibit 4.12 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.13 Ninth Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of January 31, 2002 between Registrant and Congress Financial Corporation (Central). (Incorporated by reference to Exhibit 4.13 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). Exhibit No. Exhibit 4.14 Tenth Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of February 28, 2002 between Registrant and Congress Financial Corporation (Central). (Incorporated by reference to Exhibit 4.14 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.15 Eleventh Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of March 15, 2002 between Registrant and Congress Financial Corporation (Central). (Incorporated by reference to Exhibit 4.15 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.16 Twelfth Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of March 15, 2002 between Registrant and Congress Financial Corporation (Central). (Incorporated by reference to Exhibit 4.16 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.17 Thirteenth Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of November 17,2003 between Registrant and Congress Financial Corporation (Central). 4.18 Loan Agreement dated as of March 13, 2002 between Registrant and the County of Peoria, Illinois. (Incorporated by reference to Exhibit 4.17 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.19 Subordinate Security Agreement dated as of March 13, 2002 made by Registrant in favor of the County of Peoria, Illinois. (Incorporated by reference to Exhibit 4.18 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.20 Amended and Restated EWP Bridge Loan Agreement dated as of November 21, 2001, by and between Registrant and EWP Financial LLC. (Incorporated by reference to Exhibit 4.19 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.21 First Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of March 18, 2002, by and between Registrant and EWP Financial LLC. (Incorporated by reference to Exhibit 4.20 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.22 Second Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of December 31, 2002, by and between Registrant and EWP Financial LLC. (Incorporated by reference to Exhibit 4.21 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002). 4.23 Third Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of June 30, 2003, by and between Registrant and EWP Financial LLC. (Incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003). Exhibit No. Exhibit 4.24 Fourth Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of July 31, 2003, by and between Registrant and EWP Financial LLC. (Incorporated by reference to Exhibit 4.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003). 4.25 Fifth Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of August 31, 2003, by and between Registrant and EWP Financial LLC. (Incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). 4.26 Sixth Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of September 30, 2003, by and between Registrant and EWP Financial LLC. (Incorporated by reference to Exhibit 4.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). 4.27 Seventh Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of October 31, 2003, by and between Registrant and EWP Financial LLC. (Incorporated by reference to Exhibit 4.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). 4.28 Eighth Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of November 25, 2003 by and between Registrant and EWP Financial LLC. 4.29 Ninth Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of December 15, 2003, by and between Registrant and EWP Financial LLC. 4.30 Tenth Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of January 15, 2004, by and between Registrant and EWP Financial LLC. 4.31 Assumption Agreement and Amendment to Financing Agreements dated February 27, 2004 by and between Registrant and Congress Financial Corporation (Central). 4.32 First Amendment to Post-Petition Credit Agreement dated December 10, 2004 by and between Registrant and Congress Financial Corporation (Central). 4.33 Second Amendment to Post-Petition Credit Agreement dated March 31, 2005 by and between Registrant and Congress Financial Corporation (Central). 4.34 Debtor-in-Possession Credit Agreement dated February 27, 2004 by and between Registrant and EWP Financial LLC. 4.35 First Amendment to Debtor-In-Possession Credit Agreement dated August 25, 2004 by and between Registrant and EWP Financial LLC. 4.36 Second Amendment to Debtor-In-Possession Credit Agreement dated December 31, 2004 by and between Registrant and EWP Financial LLC. Exhibit No. Exhibit 4.37 Stock Pledge Agreement dated as of November 21, 2001, by and between Registrant and EWP Financial LLC. (Incorporated by reference to Exhibit 4.21 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.38 Form of Registrant's 6% Subordinated Unsecured Note dated as of March 15, 2002. (Incorporated by reference to Exhibit 4.22 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.39 Form of Registrant's 8% Subordinated Secured Note dated as of March 15, 2002. (Incorporated by reference to Exhibit 4.23 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.40 Indenture Dated as of March 15, 2002, related to Registrant's 8% Subordinated Secured Notes Between Registrant as Issuer, and U.S. Bank National Association, as Trustee. (Incorporated by reference to Exhibit 4.24 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 4.41 Revolving Credit Facility Promissory Note dated as of January 5, 2004, by and between Engineered Wire Products, Inc. and Bank One, N.A. 4.42 Business Loan Agreement (Asset Based) dated as of January 5, 2004, by and between Engineered Wire Products, Inc. and Bank One, N.A. 4.43 Term Promissory Note dated as of January 5, 2004, by and between Engineered Wire Products, Inc. and Bank One, N.A. 4.44 Commercial Security Agreement dated as of January 5, 2004, by and between Engineered Wire Products, Inc. and Bank One, N.A. 4.45 Amendment to Loan Agreement dated May 17, 2004 by and between Engineered Wire Products, Inc. and Bank One, N.A. 4.46 Business Loan Extension Agreement dated June 18, 2004 by and between Engineered Wire Products, Inc. and Bank One, N.A. 4.47 Business Loan Extension Agreement dated September 30, 2004 by and between Engineered Wire Products, Inc. and Bank One, N.A. 4.48 Business Loan Extension Agreement dated December 22, 2004 by and between Engineered Wire Products, Inc. and Bank One, N.A. 4.49 Business Loan Extension Agreement dated March 30, 2005 by and between Engineered Wire Products, Inc. and Bank One, N.A. 4.50 Business Loan Extension Agreement dated June 27, 2005 by and between Engineered Wire Products, Inc. and Bank One, N.A. 4.51 Loan and Security Agreement dated August 31, 2005 by and between the Registrant and Wachovia Capital Finance Corporation (Central). 10.1 Agreement Regarding Shared Insurance between Registrant, CompX International, Inc., Contran Corporation, Kronos Worldwide, Inc., NL Industries, Inc., Titanium Metals Corp. and Valhi, Inc. dated as of October 30, 2003. Exhibit No. Exhibit 10.2 The Combined Master Retirement Trust between Valhi, Inc. and Harold C. Simmons as restated effective July 1, 1995 (Incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-4 (Registration No. 333-35955)). 10.3* Keystone Consolidated Industries, Inc. 1992 Incentive Compensation Plan. (Incorporated by reference to Exhibit 99.1 to Registrant's Registration Statement on Form S-8 (Registration No. 33-63086)). 10.4* Keystone Consolidated Industries, Inc. 1992 Non-Employee Director Stock Option Plan. (Incorporated by reference to Exhibit 99.2 to Registrant's Registration Statement on Form S-8 (Registration No. 33-63086)). 10.5* Keystone Consolidated Industries, Inc. 1997 Long-Term Incentive Plan. (Incorporated by reference to Appendix A to Registrant's Schedule 14A filed April 25, 1997). 10.6* Amendment to the Keystone Consolidated Industries, Inc. 1997 Long-Term Incentive Plan. (Incorporated by reference to Registrant's Schedule 14A filed April 24, 1998.) 10.7* Form of Deferred Compensation Agreement between the Registrant and certain executive officers. (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q (File No. 1-3919) for the quarter ended March 31, 1999). 10.8 Account Reconciliation Agreement dated as of March 12, 2002 between Registrant and Central Illinois Light Company. (Incorporated by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 10.9 Account Reconciliation Agreement dated as of March 11, 2002 between Registrant and PSC Metals, Inc. (Incorporated by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). 21 Subsidiaries of the Company. 31.1 Certification 31.2 Certification 32.1 Certification *Management contract, compensatory plan or agreement. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned and dated November 30, 2005, thereunto duly authorized. KEYSTONE CONSOLIDATED INDUSTRIES, INC. (Registrant) /s/ GLENN R. SIMMONS ----------------------------------- Glenn R. Simmons Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below and dated as of November 30, 2005 by the following persons on behalf of the registrant and in the capacities indicated: /s/ GLENN R. SIMMONS /s/ STEVEN L. WATSON - ------------------------------------ ----------------------------------- Glenn R. Simmons Steven L. Watson Chairman of the Board Director /s/ PAUL M. BASS, JR. /s/ DONALD P. ZIMA - ------------------------------------ ----------------------------------- Paul M. Bass, Jr. Donald P. Zima Director Director /s/ RICHARD R. BURKHART /s/ DAVID L. CHEEK - ------------------------------------ ----------------------------------- Richard R. Burkhart David L. Cheek Director President and Chief Executive Officer /s/ JOHN R. PARKER /s/ BERT E. DOWNING, JR. - ------------------------------------ -------------------------- John R. Parker Bert E. Downing, Jr. Director Vice President, Chief Financial Officer, Corporate Controller and Treasurer /s/ TROY T. TAYLOR (Principal Accounting and - ------------------------------------ Financial Officer) Troy T. Taylor Director KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES ANNUAL REPORT ON FORM 10-K Items 8, 14(a) and 14(d) Index of Consolidated Financial Statements and Financial Statement Schedule Page Financial Statements Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets - December 31, 2002 and 2003 F-3 Consolidated Statements of Operations - Years ended December 31, 2001, 2002 and 2003 F-5 Consolidated Statements of Comprehensive Loss - Years ended December 31, 2001, 2002 and 2003 F-7 Consolidated Statements of Stockholders' Equity (Deficit) - Years ended December 31, 2001, 2002 and 2003 F-8 Consolidated Statements of Cash Flows - Years ended December 31, 2001, 2002 and 2003 F-9 Notes to Consolidated Financial Statements F-11 Financial Statement Schedule Report of Independent Registered Public Accounting Firm S-1 Schedule II - Valuation and Qualifying Accounts S-2 Schedules I, III and IV are omitted because they are not applicable. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Keystone Consolidated Industries, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows present fairly, in all material respects, the consolidated financial position of Keystone Consolidated Industries, Inc. and its subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the consolidated financial statements, on February 26, 2004 the Company filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court (the "Court"). The Company's Plan of Reorganization was substantially consummated on August 31, 2005 and the Company emerged from bankruptcy. The matters discussed above and the recurring losses from operations and the substantial deficiency in stockholders' equity raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. PricewaterhouseCoopers LLP Dallas, Texas November 28, 2005 KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2002 and 2003 (In thousands, except share data)
ASSETS 2002 2003 -------- ------ Current assets: Notes and accounts receivable, net of allowances of $1,762 and $347 $ 22,578 $ 15,781 Inventories 50,089 24,005 Prepaid expenses and other 893 1,253 -------- -------- Total current assets 73,560 41,039 -------- -------- Property, plant and equipment: Land, buildings and improvements 55,949 56,066 Machinery and equipment 317,064 311,353 Construction in progress 820 1,375 -------- -------- 373,833 368,794 Less accumulated depreciation 253,849 263,478 -------- -------- Net property, plant and equipment 119,984 105,316 -------- -------- Other assets: Restricted investments 5,730 5,871 Prepaid pension cost - 126,691 Unrecognized net pension obligation 11,852 - Deferred financing costs 2,319 1,607 Goodwill 752 752 Other 1,298 918 -------- -------- Total other assets 21,951 135,839 -------- -------- $215,495 $282,194 ======== ========
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) December 31, 2002 and 2003 (In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 2002 2003 -------- ------ Current liabilities: Notes payable and current maturities of long-term debt $ 33,935 $ 55,451 Accounts payable 23,696 13,784 Accounts payable to affiliates 1,448 2,992 Accrued OPEB cost 11,372 11,255 Accrued preferred stock dividends 4,683 10,623 Other accrued liabilities 40,216 37,144 --------- --------- Total current liabilities 115,350 131,249 --------- --------- Noncurrent liabilities: Long-term debt 63,306 32,224 Accrued OPEB cost 102,717 109,993 Accrued pension costs 48,571 - Other 20,337 16,666 --------- --------- Total noncurrent liabilities 234,931 158,883 --------- --------- Minority interest 2 - --------- ------ Series A preferred stock, $1,000 stated value; 250,000 shares authorized; 59,399 and 71,899 shares issued 2,112 2,112 --------- --------- Stockholders' equity (deficit): Common stock, $1 par value, 12,000,000 and 27,000,000 shares authorized; 10,069,584 shares issued at 10,798 10,798 stated value Additional paid-in capital 48,388 42,448 Accumulated other comprehensive loss - pension liabilities (170,307) - Accumulated deficit (25,767) (63,284) Treasury stock - 1,134 shares, at cost (12) (12) --------- --------- Total stockholders' equity (deficit) (136,900) (10,050) --------- --------- $ 215,495 $ 282,194 ========= =========
Commitments and contingencies (Notes 13, 14 and 15). KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 2001, 2002 and 2003 (In thousands, except per share data)
2001 2002 2003 -------- -------- -------- Net sales $325,187 $334,835 $306,671 Cost of goods sold 313,931 315,579 310,881 -------- -------- -------- Gross margin (loss) 11,256 19,256 (4,210) -------- -------- -------- Selling expense 6,400 7,754 6,934 General and administrative expense 14,723 16,385 10,689 Defined benefit pension expense (credit) (5,479) (1,604) 6,898 -------- -------- -------- 15,644 22,535 24,521 -------- -------- -------- Operating loss (4,388) (3,279) (28,731) -------- -------- -------- General corporate income (expense): Corporate expense (2,250) (5,946) (5,973) Interest expense (14,575) (5,569) (3,941) Interest income 253 66 41 Gain on early extinguishment of debt - 54,739 - Gain on sale of business units - - 1,073 Other income (expense), net 565 34 313 -------- -------- -------- (16,007) 43,324 (8,487) -------- -------- -------- Income (loss) before income taxes (20,395) 40,045 (37,218) Income tax provision 5,998 21,622 - Minority interest in after-tax earnings 1 1 299 -------- -------- -------- Income (loss) before cumulative effect of change in accounting principle (26,394) 18,422 (37,517) Cumulative effect of change in accounting principle - 19,998 - -------- -------- ----- Net income (loss) (26,394) 38,420 (37,517) Dividends on preferred stock - 4,683 5,940 -------- -------- -------- Net income (loss) available for common shares $(26,394) $ 33,737 $(43,457) ======== ======== ========
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) Years ended December 31, 2001, 2002 and 2003 (In thousands, except per share data)
2001 2002 2003 ---- ---- ---- Basic earnings (loss) per share available for common shares: Income (loss) before cumulative effect of change in accounting principle $ (2.62) $ 1.36 $ (4.32) Cumulative effect of change in accounting principle - 1.99 - -------- -------- ---- Net income (loss) $ (2.62) $ 3.35 $ (4.32) ======== ======== ======= Basic shares outstanding 10,062 10,067 10,068 ======== ======== ======= Diluted earnings (loss) per share available for common shares: Income (loss) before cumulative effect of change in accounting principle $ (2.62) $ .84 $ (4.32) Cumulative effect of change in accounting principle - .92 - -------- -------- ---- Net income (loss) $ (2.62) $ 1.76 $ (4.32) ======== ======== ======= Diluted shares outstanding 10,062 21,823 10,068 ======== ======== =======
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Years ended December 31, 2001, 2002 and 2003 (In thousands)
2001 2002 2003 ---- ---- ---- Net income (loss) $(26,394) $ 38,420 $(37,517) Other comprehensive income (loss), net of tax - Pension liabilities adjustment - (170,307) 170,307 -------- --------- -------- Comprehensive income (loss) $(26,394) $(131,887) $132,790 ======== ========= ========
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) Years ended December 31, 2001, 2002 and 2003 (In thousands)
Accumulated other comprehensive Common stock Additional loss- -------------------- paid-in pension Accumulated Treasury Shares Amount capital liabilities (deficit) stock Total ------ ------ --------- ----------- --------- ------- -------- Balance - December 31, 2000 10,062 $10,792 $53,071 $ - $(37,793) $(12) $ 26,058 Net loss - - - - (26,394) - (26,394) ------ ------- ------- --------- -------- ---- --------- Balance - December 31, 2001 10,062 10,792 53,071 - (64,187) (12) (336) Net income - - - - 38,420 - 38,420 Issuance of common stock 6 6 - - - - 6 Preferred stock dividends - - (4,683) - - - (4,683) Other comprehensive loss - - - (170,307) - - (170,307) ------- ------- ------- --------- -------- ---- --------- Balance - December 31, 2002 10,068 10,798 48,388 (170,307) (25,767) (12) (136,900) Net loss - - - - (37,517) - (37,517) Preferred stock dividends - - (5,940) - - - (5,940) Other comprehensive income - - - 170,307 - - 170,307 ------- ------- ------- --------- -------- ---- --------- Balance - December 31, 2003 10,068 $10,798 $42,448 $ - $(63,284) $(12) $ (10,050) ======= ======= ======= ========= ======== ==== =========
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2001, 2002 and 2003 (In thousands)
2001 2002 2003 -------- ------- ------ Cash flows from operating activities: Net income (loss) $(26,394) $38,420 $(37,517) Depreciation and amortization 16,992 17,396 16,461 Amortization of deferred financing costs 540 747 742 Deferred income taxes 5,902 21,622 - Non-cash OPEB expense 2,243 5,064 7,158 Non-cash defined benefit pension expense (credit) (5,479) (1,604) 6,898 Gain on early extinguishment of debt - (54,739) - Cumulative effect of change in accounting principle - (19,998) - Other, net 1,537 (882) (1,440) Change in assets and liabilities: Notes and accounts receivable (8,310) 6,901 5,887 Inventories 10,354 (9,177) 20,097 Accounts payable (10,616) 1,497 (6,412) Other, net 15,329 4,813 (6,016) -------- -------- -------- Net cash provided by operating activities 2,098 10,060 5,858 -------- -------- -------- Cash flows from investing activities: Capital expenditures (3,889) (7,973) (2,683) Proceeds from sale of business units 757 - 3,344 Collection of notes receivable 735 1,127 75 Other, net 2 1 (619) -------- -------- -------- Net cash provided (used) by investing activities (2,395) (6,845) 117 -------- -------- -------- Cash flows from financing activities: Revolving credit facilities, net 992 (14,446) (7,087) Other notes payable and long-term debt: Additions 56 15,065 3,588 Principal payments (601) (1,354) (2,446) Deferred financing costs paid (150) (2,480) (30) ------- -------- -------- Net cash provided (used) by financing activities 297 (3,215) (5,975) ------- -------- --------
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Years ended December 31, 2001, 2002 and 2003 (In thousands)
2001 2002 2003 ------- -------- ------ Cash and cash equivalents: Net change from operations, investing and financing activities - - - Balance at beginning of year - - - ------- -------- ----- Balance at end of year $ - $ - $ - ======= ======== ===== Supplemental disclosures: Cash paid for: Interest, net of amounts capitalized $ 9,189 $ 4,669 $ 2,789 Income taxes paid (refund), net (194) 74 18
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of significant accounting policies At December 31, 2003, Keystone Consolidated Industries, Inc. ("Keystone" or "the Company") is 50% owned by Contran Corporation ("Contran") and other entities related to Mr. Harold C. Simmons. Substantially all of Contran's outstanding voting stock is held by trusts established for the benefit of certain children and grandchildren of Mr. Simmons, of which Mr. Simmons is sole trustee. The Company may be deemed to be controlled by Contran and Mr. Simmons. At December 31, 2003, Contran owned 54,956 shares of the 71,899 shares of the Company's Redeemable Series A Preferred Stock. See Notes 5 and 6. Each share of Series A Preferred Stock is convertible, at the option of the holder, into 250 shares of the Company's common stock, (equivalent to a $4.00 per share exchange rate). The Company reported a loss before cumulative effect of change in accounting principles of $37.5 million in 2003 and $26.4 million in 2001, and income before cumulative effect of change in accounting principle of $18.4 million in 2002. The primary reasons for the increase in earnings from 2001 to 2002 were (i) lower interest expense and (ii) a $54.7 million gain upon the extinguishment of certain indebtedness. The primary reasons for the decline in earnings from 2002 to 2003 were (i) the gain upon extinguishment of certain indebtedness recognized in 2002, (ii) higher defined benefit pension expense in 2003 and (iii) significantly higher cost for ferrous scrap (the Company's primary raw material in 2003). The accompanying financial statements have been prepared under the assumption the Company will continue to operate on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business and do not reflect adjustments that might result if Keystone is unable to continue as a going concern. However, on February 26, 2004, Keystone and five of its direct and indirect subsidiaries filed for voluntary protection under Chapter 11 of the Federal Bankruptcy Code. Keystone and its subsidiaries filed their petitions in the U.S. Bankruptcy Court for the Eastern District of Wisconsin in Milwaukee (the "Court"). Keystone's amended plan of reorganization was accepted by the impacted constituencies and confirmed by the Court on August 10, 2005. The Company emerged from bankruptcy protection on August 31, 2005. See Note 19. Under Chapter 11 proceedings, actions by creditors to collect claims in existence at the filing date ("Pre-petition Claims") are stayed, absent specific authorization by the Court to pay such claims, while the Company continues to manage the business as a debtor-in-possession. Keystone received approval from the Court to pay certain of its Pre-petition Claims including employee wages and certain employee benefits. All of the Company's liabilities at December 31, 2003 (other than liabilities of one of the Company's subsidiaries that was not a party to the bankruptcy filing), to the extent they were not extinguished before February 26, 2004, are considered Pre-petition Claims. Significant provisions of Keystone's amended plan of reorganization included, among other things: o Assumption of the previously negotiated amendment to the collective bargaining agreement with the Independent Steel Workers Alliance (the "ISWA"), Keystone's largest labor union; o Assumption of the previously negotiated agreements reached with certain retiree groups that will provide relief by permanently reducing healthcare related payments to these retiree groups from pre-petition levels; o The Company's obligations due to pre-petition secured lenders other than its Debtor-In-Possession lenders were reinstated in full against reorganized Keystone; o All shares of Keystone's common and preferred stock outstanding at the petition date (February 26, 2004) were cancelled; o Pre-petition unsecured creditors with allowed claims against Keystone will receive, on a pro rata basis, in the aggregate, $5.2 million in cash, a $4.8 million secured promissory note and 49% of the new common stock of reorganized Keystone; o Certain operating assets and existing operations of Sherman Wire Company ("Sherman Wire"), one of Keystone's pre-petition wholly-owned subsidiaries, will be sold at fair market value to Keystone, which will then be used to form and operate a newly created wholly-owned subsidiary of reorganized Keystone named Keystone Wire Products Inc.; o Sherman Wire was also reorganized and the proceeds of the operating asset sale to Keystone and other funds will be distributed, on a pro rata basis, to Sherman Wire's pre-petition unsecured creditors as their claims are finally adjudicated; o Sherman Wire's pre-petition wholly-owned non-operating subsidiaries, J.L. Prescott Company, and DeSoto Environmental Management, Inc. as well as Sherman Wire of Caldwell, Inc., a wholly-owned subsidiary of Keystone, will ultimately be liquidated and the pre-petition unsecured creditors with allowed claims against these entities will receive their pro-rata share of the respective entity's net liquidation proceeds; o Pre-petition unsecured creditors with allowed claims against FV Steel & Wire Company, another one of Keystone's wholly-owned subsidiaries, will receive cash in an amount equal to their allowed claims; o One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an affiliate of Contran Corporation ("Contran"), Keystone's largest pre-petition shareholder) converted $5 million of its DIP credit facility, certain of its pre-petition unsecured claims and all of its administrative claims against Keystone into 51% of the new common stock of reorganized Keystone; and o The Board of Directors of reorganized Keystone now consists of seven individuals, two each of which were designated by Contran and the Official Committee of Unsecured Creditors (the "OCUC"), respectively. The remaining three directors qualify as independent directors (two of the independent directors were appointed by Contran with the OCUC's consent and one was appointed by the OCUC with Contran's consent). In addition, Keystone has obtained an $80 million secured credit facility from Wachovia Capital Finance (Central). Proceeds from this credit facility were used to extinguish Keystone's existing Debtor-In-Possession credit facilities and to provide working capital for reorganized Keystone. Management's Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results may differ from previously-estimated amounts under different assumptions or conditions. Principles of consolidation. The consolidated financial statements include the accounts of Keystone and its majority-owned subsidiaries. All material intercompany accounts and balances have been eliminated. Certain prior year amounts have been reclassified to conform with the 2003 presentation. Fiscal year. The Company's fiscal year is 52 or 53 weeks and ends on the last Sunday in December. Each of fiscal 2001, 2002 and 2003 were 52-week years. Inventories and cost of sales. Inventories are stated at the lower of cost or market. The last-in, first-out ("LIFO") method is used to determine the cost of approximately 77% and 66% of the inventories held at December 31, 2002 and 2003, respectively. The first-in, first-out or average cost methods are used to determine the cost of all other inventories. Cost of sales include costs for materials, packing and finishing, utilities, salaries and benefits, maintenance, shipping and handling costs and depreciation. Property, plant and equipment and depreciation expense. Property, plant and equipment are stated at cost. Depreciation for financial reporting purposes is computed using principally the straight-line method over the estimated useful lives of 10 to 30 years for buildings and improvements and three to 12 years for machinery and equipment. Accelerated depreciation methods are used for income tax purposes, as permitted. Depreciation expense for financial reporting purposes amounted to $18,184,000, $17,376,000 and $16,459,000 during the years ended December 31, 2001, 2002 and 2003, respectively. Upon sale or retirement of an asset, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized in income currently. Expenditures for maintenance, repairs and minor renewals are expensed; expenditures for major improvements are capitalized. Keystone performs certain planned major maintenance activities during the year (generally during the fourth quarter). The costs estimated to be incurred in connection with these maintenance activities are accrued in advance on a straight-line basis and are included in cost of goods sold. Interest costs related to major long-term capital projects and renewals are capitalized as a component of construction costs. Interest costs capitalized in 2001, 2002 and 2003 amounted to $17,000, $79,000 and $3,000 respectively. When events or changes in circumstances indicate assets may be impaired, an evaluation is performed to determine if an impairment exists. Such events or changes in circumstances include, among other things, (i) significant current and prior periods or current and projected periods with operating losses, (ii) a significant decrease in the market value of an asset or (iii) a significant change in the extent or manner in which an asset is used. All relevant factors are considered. The test for impairment is performed by comparing the estimated future undiscounted cash flows (exclusive of interest expense) associated with the asset to the asset's net carrying value to determine if a write-down to market value or discounted cash flow value is required. Through December 31, 2001, if the asset being tested for impairment was acquired in a business combination accounted for by the purchase method, any goodwill which arose out of that business combination was also considered in the impairment test if the goodwill related specifically to the acquired asset and not to other aspects of the acquired business, such as the customer base or product lines. Effective January 1, 2002, the Company commenced assessing impairment of goodwill in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, and the Company commenced assessing impairment of other long-lived assets (such as property and equipment) in accordance with SFAS No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets. The effects of the Company's Chapter 11 proceedings and reorganization or liquidation could cause management to reassess its present estimate of future cash flows currently used in its impairment analysis. The effects of the Company's Chapter 11 proceedings and reorganization or liquidation could cause management to reassess its present estimate of future cash flows currently used in its impairment analysis. See Note 19. Investment in joint ventures. Investments in 20% but less than majority-owned companies are accounted for by the equity method. Differences between the cost of the investments and Keystone's pro rata share of separately-reported net assets, if any, are not significant. Deferred financing costs. Deferred financing costs relate primarily to the issuance of substantially all of Keystone's long-term debt as well as its primary revolving credit facility and are amortized by the interest method over the respective terms of these debt facilities. Deferred financing costs are stated net of accumulated amortization of $4,957,000 and $5,699,000 at December 31, 2002 and 2003, respectively. Goodwill and negative goodwill. Goodwill represents the excess of cost over fair value of individual net assets acquired in business combinations accounted for by the purchase method. Through December 31, 2001, goodwill was amortized by the straight-line method over not more than 40 years. Upon adoption of SFAS No. 142, effective January 1, 2002, goodwill was no longer subject to periodic amortization. Through December 31, 2001, when events or changes in circumstances indicated that goodwill may be impaired, an evaluation was performed to determine if an impairment existed. All relevant factors were considered in determining whether an impairment existed. If an impairment had been determined to exist, goodwill, and if appropriate, the underlying long-lived assets associated with the goodwill, would have been written down to reflect the estimated future discounted cash flows expected to be generated by the underlying business. Effective January 1, 2002, the Company commenced assessing impairment of goodwill in accordance with SFAS No. 142. The Company's recorded goodwill relates to a business segment that was not included in the Chapter 11 petitions filed in February 2004. See Note 19. Negative goodwill represented the excess of fair value over cost of individual net assets acquired in business combinations accounted for by the purchase method and was amortized by the straight-line method over 20 years through December 31, 2001. Negative goodwill is stated net of accumulated amortization of approximately $7,118,000 at December 31, 2001. Amortization of negative goodwill in 2001 amounted to $1,356,000. Upon adoption of SFAS No. 142, effective January 1, 2002, negative goodwill was eliminated as a cumulative effect of change in accounting principle. Retirement plans and post-retirement benefits other than pensions. Accounting and funding policies for retirement plans and post retirement benefits other than pensions ("OPEB") are described in Note 9. Environmental liabilities. Keystone records liabilities related to environmental remediation when estimated future expenditures are probable and reasonably estimable. If the Company is unable to determine that a single amount in an estimated range is more likely, the minimum amount of the range is recorded. Such accruals are adjusted as further information becomes available or circumstances change. Estimated future expenditures are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. At both December 31, 2002 and 2003 Keystone had such assets recorded of approximately $323,000. Income taxes. Deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the income tax and financial reporting carrying amounts of assets and liabilities. Keystone periodically evaluates its deferred tax assets and adjusts any related valuation allowance based on the estimate of the amount of such deferred tax assets which the Company believes does not meet the "more-likely-than-not" recognition criteria. Net sales. Sales are recorded when products are shipped because title and other risks and rewards of ownership have passed to the customer. Shipping terms of products shipped are generally FOB shipping point, although in some instances shipping terms are FOB destination point (for which sales are not recognized until the product is received by the customer). Amounts charged to customers for shipping and handling are included in net sales. Sales are stated net of price, early payment and distributor discounts and volume rebates. Selling, general and administrative expenses. Selling, general and administrative expenses include costs related to marketing, sales, distribution, and administrative functions such as accounting, treasury and finance, and includes costs for salaries and benefits, travel and entertainment, promotional materials and professional fees. Advertising costs, expensed as incurred, were $.6 million in 2001, $.8 million in 2002 and $1.0 million in 2003. Business interruption insurance recoveries. Business interruption insurance recoveries related to production outages due primarily to equipment failures or malfunctions are recorded as a reduction of cost of goods sold when the recovery is received. During 2001 and 2002 Keystone received such business interruption insurance recoveries of approximately $1.8 million, and $934,000, respectively. Keystone did not receive any such recoveries during 2003. Income (loss) per share. Basic and diluted income (loss) per share is based upon the weighted average number of common shares actually outstanding during each year. Diluted earnings per share includes the diluted impact, if any, of the Company's convertible preferred stock. The impact of outstanding stock options was antidilutive for all periods presented. The weighted average number of outstanding stock options which were excluded from the calculation of diluted earnings per share because their impact would have been antidilutive approximated 651,000, 606,000 and 462,000 in 2001, 2002 and 2003, respectively. Employee stock options. Keystone accounts for stock-based employee compensation in accordance with Accounting Principles Board Opinion ("APBO") No. 25, Accounting for Stock Issued to Employees, and its various interpretations. See Notes 8 and 18. Under APBO No. 25, no compensation cost is generally recognized for fixed stock options in which the exercise price is equal to or greater than the market price on the grant date. Compensation cost related to stock options recognized by the Company in accordance with APBO No. 25 has not been significant in each of the past three years. The following table presents what the Company's consolidated net income (loss), and related per share amounts, would have been in 2001, 2002 and 2003 if Keystone would have elected to account for its stock-based employee compensation related to stock options in accordance with the fair value-based recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for all awards granted subsequent to January 1, 1995.
Years ended December 31, 2001 2002 2003 ---- ---- ---- (In thousands except per share amounts) Net income (loss) available for common shares as reported $(26,394) $38,420 $(36,888) Adjustments, net of applicable income tax effects: Stock-based employee compensation expense under APBO No. 25 - - - Stock-based employee compensation expense under SFAS No. 123 (498) (185) (25) -------- ------- -------- Pro forma net income (loss) available for common shares $(26,892) $38,235 $(36,913) ======== ======= ======== Basic net income (loss) available for common shares per share: As reported $ (2.62) $ 3.35 $ (4.32) Pro forma $ (2.67) $ 3.33 $ (4.32) Diluted net income (loss) available for common shares per share: As reported $ (2.62) $ 1.76 $ (4.32) Pro forma $ (2.67) $ 1.75 $ (4.32)
Derivative activities. Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under SFAS No. 133, all derivatives are recognized as either assets or liabilities and measured at fair value. The accounting for changes in fair value of derivatives will depend upon the intended use of the derivative, and such changes are recognized either in net income or other comprehensive income. As permitted by the transition requirements of SFAS No. 133, as amended, Keystone has exempted from the scope of SFAS No. 133 all host contracts containing embedded derivatives which were acquired or issued prior to January 1, 1999. Keystone is and was not a party to any significant derivative or hedging instrument covered by SFAS No. 133 and therefore the Company's financial statements were not impacted by adopting SFAS No. 133. Business combinations. Effective July 1, 2001 the Company adopted SFAS No. 141, Business Combinations, for all business combinations initiated on or after July 1, 2001, and all purchase business combinations completed on or after July 1, 2001. Under SFAS No. 141, all business combinations initiated on or after July 1, 2001 will be accounted for by the purchase method, and the pooling-of-interests method is prohibited. Reclassifications. Certain prior year amounts have been reclassified to conform to the 2003 presentation. Note 2 - Business Segment Information: Keystone's operating segments are defined as components of consolidated operations about which separate financial information is available that is regularly evaluated by the chief operating decision maker in determining how to allocate resources and in assessing performance. The Company's chief operating decision maker is Mr. David L. Cheek, President and Chief Executive Officer of Keystone. Each operating segment is separately managed, and each operating segment represents a strategic business unit offering different products. During 2003, the Company expanded the composition of its reportable segments. The corresponding segment information for prior periods has been restated to conform to the current year presentation. The Company's operating segments are organized along its manufacturing facilities and include two reportable segments: (i) Keystone Steel and Wire ("KSW") which manufacturers and sells wire rod, wire, nails and wire products for agricultural, industrial, construction, commercial, original equipment manufacturers and retail consumer markets and, (ii) Engineered Wire Products ("EWP") which manufactures and sells welded wire reinforcement in both roll and sheet form that is utilized in concrete construction products including pipe, pre-cast boxes and applications for use in roadways, buildings and bridges. EWP is not included in the Company's February 2004 bankruptcy proceedings. See Note 19. Prior to July 2003, the Company owned a 51% interest in Garden Zone LLC ("Garden Zone"), a distributor of wire, plastic and wood lawn and garden products to retailers. In July 2003, Garden Zone purchased Keystone's 51% ownership in Garden Zone. In addition, prior to July 2003, Keystone also operated three businesses that did not constitute reportable business segments. These businesses sold wire and wire products for agricultural, industrial, construction, commercial, original manufacturers and retail consumer markets. The results of operations of these businesses are aggregated and included under the "All Other" heading in the following tables. During July 2003, Keystone transferred its operations at one of these three businesses to other Keystone facilities, and during August 2003 Keystone sold another of the businesses. As a result, as of August 2003, the "All Other" heading in the following tables only includes Sherman Wire ("Sherman"). Keystone is also engaged in a scrap recycling joint venture through its 50% interest in Alter Recycling Company, L.L.C. ("ARC"), an unconsolidated equity affiliate. KSW's products and EWP's products are distributed primarily in the Midwestern, Southwestern and Southeastern United States. Garden Zone's products were distributed primarily in the Southeastern United States.
Business Segment Principal entities Location Keystone Steel & Wire Keystone Steel & Wire Peoria, Illinois Engineered Wire Products Engineered Wire Products Upper Sandusky, Ohio Garden Zone Garden Zone (1) Charleston, South Carolina All other Sherman Wire Sherman, Texas Sherman Wire of Caldwell, Inc. (2) Caldwell, Texas Keystone Fasteners (3) Springdale, Arkansas
(1) 51.0% subsidiary - interest sold in July 2003. (2) Transferred operations in July 2003 to Sherman Wire and Keystone Steel & Wire. (3) Business sold in August 2003. The net proceeds from the sale of Garden Zone and Keystone Fasteners aggregated $3.3 million. The gain on the sale of these businesses, as well as the results of operations of each of Garden Zone and Keystone Fasteners are not significant, individually and in the aggregate. Accordingly, the Company has elected not to present their results of operations as discontinued operations for all periods presented due to their immateriality. Keystone evaluates segment performance based on segment operating income, which is defined as income before income taxes and interest expense, exclusive of certain items (such as gains or losses on disposition of business units or sale of fixed assets) and certain general corporate income and expense items (including interest income) which are not attributable to the operations of the reportable operating segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that (i) defined benefit pension expense for each segment is recognized and measured on the basis of estimated current service cost of each segment, with the remainder of the Company's net defined benefit pension expense or credit not allocated to each segment but still is reported as part of operating profit or loss, (ii) segment OPEB expense is recognized and measured based on the basis of the estimated expense of each segment with the remainder of the Company's actual OPEB expense not allocated to each segment but still is reported as part of operating profit or loss, (iii) elimination of intercompany profit or loss on ending inventory balances is not allocated to each segment but still is reported as part of operating profit or loss, (iv) LIFO inventory reserve adjustments are not allocated to each segment but still are reported as part of operating profit or loss, and (v) amortization of goodwill and negative goodwill are included in general corporate expenses and are not allocated to any segment and are not included in total reporting operating profit or loss. General corporate expenses also includes OPEB and environmental expenses relative to facilities no longer owned by the Company. Intercompany sales between reportable segments are generally recorded at prices that approximate market prices to third-party customers. Segment assets are comprised of all assets attributable to each reportable operating segment. Corporate assets consist principally of pension related assets, restricted investments, deferred tax assets and corporate property, plant and equipment.
GAAP Adjustments, Corporate Items Garden All Segment and KSW EWP Zone Other Total Eliminations Total --- --- ------ ----- ------- ------------ ----- (In thousands) Year ended December 31, 2003: Third party net sales $244,069 $35,260 $11,203 $ 16,139 $306,671 $ - $306,671 Intercompany sales 30,215 - 879 11,988 43,082 (43,082) - -------- ------- ------- -------- -------- -------- ----- $274,284 $35,260 $12,082 $ 28,127 $349,753 $(43,082) $306,671 ======== ======= ======= ======== ======== ======== ======== Depreciation and amortization $ 13,903 $ 1,014 $ - $ 1,491 $ 16,410 $ 51 $ 16,461 Operating profit (loss) (21,388) 2,721 700 (4,579) (22,546) (6,185) (28,731) Identifiable segment assets 121,826 20,635 - 7,765 150,226 131,968 282,194 Capital expenditures 2,197 380 32 74 2,683 - 2,683 Year ended December 31, 2002: Third party net sales $256,290 $32,935 $ 9,523 $ 36,087 $334,835 $ - $334,835 Intercompany sales 34,528 - 1,221 9,398 45,147 (45,147) - -------- ------- ------- -------- -------- -------- ----- $290,818 $32,935 $10,744 $ 45,485 $379,982 $(45,147) $334,835 ======== ======= ======= ======== ======== ======== ======== Depreciation and $ - amortization $ 14,693 $ 1,006 $ 1,646 $ 17,345 $ 51 $ 17,396 Operating profit (loss) (3,921) 2,743 85 (2,971) (4,064) 785 (3,279) Identifiable segment assets 157,321 18,130 4,186 18,537 198,174 17,321 215,495 Capital expenditures 7,597 164 - 208 7,969 4 7,973 Year ended December 31, 2001: Third party net sales $239,692 $34,177 $ 8,011 $ 43,307 $325,187 $ - $325,187 Intercompany sales 34,833 - 472 8,363 43,668 (43,668) - -------- ------- ------- -------- -------- -------- ----- $274,525 $34,177 $ 8,483 $ 51,670 $368,855 $(43,668) $325,187 ======== ======= ======= ======== ======== ======== ======== Depreciation and $ - amortization $ 15,312 $ 1,043 $ 1,815 $ 18,170 $ (1,178) $ 16,992 Operating profit (loss) (12,779) 4,156 210 (2,603) (11,016) 6,628 (4,388) Identifiable segment assets 162,796 18,252 2,812 22,923 206,783 160,117 366,900 Capital expenditures 3,534 269 - 85 3,888 1 3,889
In the above tables, GAAP adjustments relate to operating profit (loss), Corporate items relate to depreciation and amortization, segment assets and capital expenditures and eliminations relate to net sales. GAAP adjustments are principally (i) the difference between the defined benefit pension expense or credit and OPEB expense allocated to the segments and the actual expense or credit included in the determination of operating profit or loss, (ii) the elimination of intercompany profit or loss on ending inventory balances and (iii) LIFO inventory reserve adjustments.
Years ended December 31, 2001 2002 2003 ---- ---- ---- (In thousands) Operating loss $ (4,388) $(3,279) $(28,731) General corporate items: Interest income 253 66 41 Other income 565 34 1,386 General income (expenses), net (2,250) (5,946) (5,973) Gain on early extinguishment of debt - 54,739 - Interest expense (14,575) (5,569) (3,941) -------- ------- -------- Income (loss) before income taxes $(20,395) $40,045 $(37,218) ======== ======= ========
All of the Company's assets are located in the United States. Information concerning geographic concentration of net sales based on location of customer is as follows:
Year ended December 31, 2001 2002 2003 ---- ---- ---- (In thousands) United States $307,064 $316,361 $303,668 Canada 1,217 1,400 2,876 Great Britain 100 214 125 Australia - 5 - Mexico 189 - - Japan 100 - 2 -------- -------- -------- $308,670 $317,980 $306,671 ======== ======== ========
Note 3 - Joint ventures In January 1999, Keystone and two unrelated parties formed Garden Zone to supply wire, wood and plastic products to the consumer lawn and garden market. Prior to July 2003, Keystone owned 51% of Garden Zone and, as such, Keystone's consolidated financial statements include the accounts of Garden Zone. Neither Keystone nor the other owners contributed capital or assets to the Garden Zone joint venture, but Keystone did guarantee 51% of Garden Zone's $4 million revolving credit agreement. See Note 5. Garden Zone commenced operations in February 1999 and its net income since that date, of which 51% accrued to Keystone for financial reporting purposes, has been insignificant. In July 2003, Garden Zone purchased Keystone's 51% ownership in Garden Zone. In July 1999, Keystone formed ARC, a joint venture with Alter Peoria, Inc., to operate a ferrous scrap recycling operation at Keystone's facility in Peoria, Illinois. ARC sells ferrous scrap to Keystone and others. Upon formation, Keystone contributed the property and equipment of its Peoria ferrous scrap facility (net book value of approximately $335,000) to the joint venture in return for its 50% ownership interest. Keystone is not required to, nor does it currently anticipate it will, make any other contributions to fund or operate this joint venture. Keystone has not guaranteed any debt or other liability of the joint venture. Keystone recognized no gain or loss upon formation of ARC and the investment in ARC is accounted for by the equity method. In addition, Keystone sold its ferrous scrap facility's existing inventory to ARC upon commencement of ARC's operations. Prior to 2001, Keystone had reduced its investment in ARC to zero due to operating losses incurred by ARC. During 2001, 2002 and 2003, Keystone purchased approximately $6.0 million, $5.2 million, and $5.5 million respectively of ferrous scrap from ARC. Note 4 - Inventories
December 31, 2002 2003 ---- ---- (In thousands) Steel and wire products: Raw materials $ 8,825 $ 5,937 Work in process 14,920 5,694 Finished products 21,178 12,818 Supplies 14,710 12,693 ------- ------- 59,633 37,142 Less LIFO reserve 13,352 13,137 ------- ------- 46,281 24,005 Lawn and garden products - finished products 3,808 - ------- ---- $50,089 $24,005 ======= =======
Note 5 - Notes payable and long-term debt The following description of the Company's indebtedness at December 31, 2003 is presented without regard to the affect of the Company's Chapter 11 proceedings, unless otherwise indicated. Substantially all of the indebtedness described below, other than EWP's revolving credit facility, is a Pre-petition Claim under the Chapter 11 filing.
December 31, 2002 2003 ---- ---- (In thousands) Revolving credit facilities: Keystone $ 28,328 $ 16,863 EWP 1,362 3,997 Garden Zone 1,650 - 8% Notes 28,908 28,116 6% Notes 16,031 16,031 9 5/8% Notes 6,150 6,150 Keystone Term Loan 4,167 6,365 County Term Loan 10,000 10,000 Other 645 153 ------- ------- 97,241 87,675 Less current maturities 33,935 55,451 ------- ------- $63,306 $32,224 ======= =======
During March 2002, Keystone completed an exchange offer (the "Exchange Offer") with respect to the 9 5/8% Notes pursuant to which, among other things, holders of $93.9 million principal amount of the 9 5/8% Notes exchanged their 9 5/8% Notes (along with accrued interest of approximately $10.1 million through the date of exchange, including $2.1 million which accrued during the first quarter of 2002) for various forms of consideration, including newly-issued debt and equity securities of the Company, as described below, and such 9 5/8% Notes were retired: o $79.2 million principal amount of 9 5/8% Notes were exchanged for (i) $19.8 million principal amount of 8% Subordinated Secured Notes due 2009 (the "8% Notes") and (ii) 59,399 shares of the Company's Series A 10% Convertible Pay-In-Kind Preferred Stock, o $14.5 million principal amount of 9 5/8% Notes were exchanged for $14.5 million principal amount of 6% Subordinated Unsecured Notes due 2011 (the "6% Notes"), and o $175,000 principal amount of 9 5/8% Notes were exchanged for $36,000 in cash and 6,481 shares of Keystone common stock. As a result of the Exchange Offer, the collateral previously securing the 9 5/8% Notes was released, and the 9 5/8% Note indenture was amended to eliminate substantially all covenants related to the 9 5/8% Notes, including all financial-related covenants. The 8% Notes bear simple interest at 8% per annum, one-half of which will be paid in cash on a semi-annual basis and one-half will be deferred and be paid together with the principal in three installments, one-third in each of March 2007, 2008 and 2009. The 8% Notes are collateralized by a second-priority lien on substantially all of the existing fixed and intangible assets of the Company and its subsidiaries (excluding EWP), other than the real property and other fixed assets comprising Keystone's steel mill in Peoria, Illinois, on which there is a third-priority lien. Keystone may redeem the 8% Notes, at its option, in whole or in part at any time with no prepayment penalty. The 8% Notes are subordinated to all existing senior indebtedness of Keystone, including, without limitation, the revolving credit facilities of Keystone and EWP, the Keystone Term Loan (as defined below) and, to the extent of the Company's steel mill in Peoria, Illinois, the County Term Loan (as defined below). The 8% Notes rank senior to any expressly subordinated indebtedness of Keystone, including the 6% Notes. In October 2002, Contran purchased $18.3 million of the total $19.8 million principal amount at maturity of the 8% Notes. As such, approximately $26.6 million of the recorded $28.9 million liability for the 8% Notes as of December 31, 2002 and $26.0 million of the recorded $28.1 million liability as of December 31, 2003 was payable to Contran. The 6% Notes bear simple interest at 6% per annum, of which one-fourth will be paid in cash on a semi-annual basis and three-fourths will accrue and be paid together with the principal in four installments, one-fourth in each of March 2009, 2010, 2011 and May 2011. Keystone may redeem the 6% Notes, at its option, in whole or in part at any time with no prepayment penalty. The 6% Notes are subordinated to all existing and future senior or secured indebtedness of the Company, including, without limitation, the revolving credit facilities of Keystone, EWP and Garden Zone, the Keystone Term Loan (as defined below), the County Term Loan (as defined below), the 8% Notes and any other future indebtedness of the Company which is not expressly subordinated to the 6% Notes. Keystone accounted for the 9 5/8% Notes retired in the Exchange Offer in accordance with SFAS No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings. In accordance with SFAS No. 15: o The 6,481 shares of Keystone common stock were recorded at their aggregate fair value at issuance of $7,000 based on the quoted market price for Keystone common stock on the date of exchange, o The 59,399 shares of Series A preferred stock were recorded at their aggregate estimated fair value at issuance of $2.1 million, o The 8% Notes were recorded at their aggregate undiscounted future cash flows (both principal and interest) of $29.3 million, and thereafter both principal and interest payments will be accounted for as a reduction of the carrying amount of the debt, and no interest expense will be recognized, and o The 6% Notes were recorded at the $16.0 million carrying amount of the associated 9 5/8% Notes (both principal and interest), and future interest expense on such debt will be recognized on the effective interest method at a rate of 3.8%. As a result, for financial reporting purposes the Company reported a $54.7 million pre-tax gain ($33.1 million net of income taxes) in the first quarter of 2002 related to the exchange of the 9 5/8% Notes. Because of differences between the income tax treatment and the financial reporting treatment of the exchange, the Company reported $65.8 million of income for federal income tax purposes resulting from the exchange. However, all of the taxable income generated from the exchange was offset by utilization of the Company's net operating loss carryforwards, and no cash income tax payments were required to be paid as a result of the exchange. As part of its efforts to restructure the 9 5/8% Notes, in April 2002 Keystone received a new $10 million term loan from the County of Peoria, Illinois (the "County Term Loan"). The County Term Loan does not bear interest, requires no amortization of principal, is due in 2007 and is collateralized by a second priority lien on the real property and other fixed assets comprising KSW's steel mill in Peoria, Illinois. Proceeds from the County Term Loan were used by Keystone to reduce the outstanding balance of Keystone's revolving credit facility. Also as a part of its efforts to restructure the 9 5/8% Notes, in April 2002, Keystone received a new $5 million term loan (the "Keystone Term Loan") from the same lender providing the Keystone revolving credit facility. The Keystone Term Loan bears interest at prime plus 1.0% (5.0% at December 31, 2003). The Keystone Term Loan is collateralized by a first-priority lien on all of the fixed assets of the Company and its subsidiaries, other than EWP. Proceeds from the Keystone Term Loan were used by Keystone to reduce the outstanding balance of Keystone's revolving credit facility. In November 2003, Keystone increased the then $3.0 million outstanding balance on the Keystone Term Loan by $3.5 million. Principal payments on the amended Keystone Term Loan are due in 48 monthly installments through December 2007. Proceeds from the amended Keystone Term Loan were used by Keystone to reduce the outstanding balance of Keystone's revolving credit facility. The Keystone Term Loan comprises a portion of the Company's Debtor-In-Possession ("DIP") Financing. Keystone's primary revolving credit facility ("the Keystone Revolver"), as amended in November 2003, provides for revolving borrowings of up to $45 million based upon formula-determined amounts of trade receivables and inventories. Borrowings bear interest at the prime rate plus 1.0%, mature no later than March, 2005 and are collateralized by certain of the Company's trade receivables and inventories. In addition, the Keystone Revolver is cross-collateralized with junior liens on certain of the Company's property, plant and equipment. The effective interest rate on outstanding borrowings under the Keystone Revolver was 5.0% at December 31, 2003. At December 31, 2003, $3.0 million of letters of credit were outstanding, and $726,000 was available for additional borrowings. The Keystone Revolver requires the Company's daily net cash receipts to be used to reduce the outstanding borrowings, which results in the Company maintaining zero cash balances so long as there is an outstanding balance under the Keystone Revolver. Accordingly, any outstanding balances under the Keystone Revolver are always classified as a current liability, regardless of the maturity date of the facility. The Keystone Revolver contains restrictive covenants, including certain minimum working capital and net worth requirements, maintenance of financial ratios requirements and other customary provisions relative to payment of dividends on Keystone's common stock and on the Company's Redeemable Series A Preferred Stock. Due to the Chapter 11 filings, the Company is no longer required to adhere to these covenants. The Keystone Revolver comprises a portion of the Company's DIP Financing. EWP's $7 million revolving credit facility (the "EWP Revolver") as amended expires in September 2005. Borrowings under the EWP Revolver, as amended in March 2005, bear interest at LIBOR plus 2.45% (3.4% at December 31, 2003). Prior to January 2004, borrowings under the EWP Revolver bore interest at either the prime rate or LIBOR plus 2.25%. At December 31, 2003, $1.9 million was available for additional borrowings under the EWP revolver. EWP's accounts receivable and inventories collateralize the EWP Revolver. The EWP Revolver Agreement contains covenants with respect to working capital, additional borrowings, payment of dividends and certain other matters. At December 31, 2002, Garden Zone had a $4.0 million revolving credit facility (the "Garden Zone Revolver") which bore interest at the LIBOR rate plus 2.4%. During 2002 the Garden Zone Revolver bore interest at the LIBOR rate plus 2%. Garden Zone's accounts receivable and inventories collateralized the Garden Zone Revolver. In addition, EWP Financial LLC ("EWPFLLC"), a wholly-owned subsidiary of Contran had agreed to loan the Company up to an aggregate of $6 million under the terms of a revolving credit facility that matured on February 29, 2004. This facility was collateralized by the common stock of EWP owned by Keystone. The Company did not borrow any amounts under such facility. However, EWPFLLC issued a $250,000 letter of credit for the benefit of the Company under this revolving credit facility. At December 31, 2002, other notes payable and long-term debt included $474,000 advanced to Garden Zone by one of its other owners. The advance bore interest at the prime rate. Interest paid on this advance during 2001, 2002 and 2003 amounted to approximately $34,000, $23,000 and $11,000, respectively. At December 31, 2003, Keystone was not in compliance with certain financial covenants included in the Keystone Revolver. Under the terms of the Keystone Revolver, failure to comply with these covenants is considered an event of default and gives the lender the right to accelerate the maturity of both the Keystone Revolver and the Keystone Term Loan. As such, the Keystone Term Loan was classified as a current liability at December 31, 2003. In addition, the indenture governing Keystone's 8% Notes provides the holders of such Notes with the right to accelerate the maturity of the Notes in the event of a default by Keystone resulting in an acceleration of the maturity of any of the Company's other secured debt. As such, the 8% Notes were also classified as a current liability at December 31, 2003. As a result, aggregate future maturities of other notes payable and long-term debt at December 31, 2003 amounted to $55.5 million, $23,000, $14,000, $16.2 million, $1,000 and $16.0 million in 2004, 2005, 2006, 2007 and 2008 and thereafter, respectively. The balances due under the Keystone Revolver and Keystone Term Note at February 26, 2004 were converted to debtor-in-possession credit facilities. Certain of the Company's indebtedness was cancelled or restructured in connection with the Company's Chapter 11 filing and Keystone's emergence therefrom. See Note 19. Accordingly, the Company has not presented a table of aggregate future maturities of indebtedness, as such table is not meaningful. The Company's revolving credit facilities and the Keystone Term Loan reprice with changes in interest rates. The aggregate fair value of Keystone's fixed rate notes, based on management's estimate of fair value at December 31, 2002 approximated $35.0 million ($61.3 million book value). The book value of all other indebtedness at December 31, 2002 was deemed to approximate market value. Due to the significant uncertainties surrounding the Company's Chapter 11 filings, management is unable to estimate the aggregate fair value of Keystone's fixed rate notes ($60.5 million book value) at December 31, 2003. The book value of all other indebtedness at December 31, 2003 is deemed to approximate market value. Note 6 - Series A preferred stock: In connection with the Exchange Offer, Keystone issued 59,399 shares of Series A 10% Cumulative Convertible Pay-In-Kind Preferred Stock (the "Series A Preferred Stock"). The Series A Preferred Stock has a stated value of $1,000 per share and has a liquidation preference of $1,000 per share plus accrued and unpaid dividends. The Series A Preferred Stock has an annual dividend commencing in December 2002 of $100 per share, and such dividends may be paid in cash or, at the Company's option, in whole or in part in new Series A Preferred Stock based on their stated value. The amount of dividends accrued at December 31, 2002 ($4.7 million) and December 31, 2003 ($10.6 million) has been determined based on the assumption such dividends will be paid in cash rather than in the form of additional shares of Series A Preferred Stock. Effective March 15, 2003, each share of Series A Preferred Stock may be converted into 250 shares of Keystone common stock at the exchange rate of $4.00 per share based on the stated value of each Series A share. The Company may redeem the Series A Preferred Stock at any time, in whole or in part, at a redemption price of $1,000 per share plus accrued and unpaid dividends. In addition, in the event of certain sales of the Company's assets outside the ordinary course of business, the Company will be required to offer to purchase a specified portion of the Series A Preferred Stock, at a purchase price of $1,000 per share plus accrued and unpaid dividends, based upon the proceeds to the Company from such asset sale. Otherwise, holders of the Series A Preferred Stock have no mandatory redemption rights. In connection with the Company's restructuring activities in December 2003, the Company issued 12,500 additional Shares of Series A Preferred Stock to the employees of KSW's primary labor union. Based on the Company's financial position at the issuance date and subsequent Chapter 11 filing, management believes the fair value of the 12,500 additional shares issued in December 2003 was deminimis and as such, did not assign a value to the newly issued shares. The Company does not currently believe it is probable that holders of the Series A Preferred Stock will be able to require the Company to purchase any of their stock, and accordingly the Company is not accreting the Series A Preferred Stock up to its redemption value. In October 2002, Contran purchased 54,956 shares of the original 59,399 shares of the Company's Redeemable Series A Preferred Stock. All of the Company's Series A Preferred Stock was cancelled in connection with Keystone's emergence from Chapter 11 on August 31, 2005. As such, the Company will not be required to pay the accrued dividends related to this stock. See Note 19. Note 7 - Income taxes Summarized below are (i) the differences between the provision (benefit) for income taxes and the amounts that would be expected using the U. S. federal statutory income tax rate of 35%, and (ii) the components of the comprehensive provision (benefit) for income taxes.
Years ended December 31, 2001 2002 2003 ---- ---- ---- (In thousands) Expected tax provision (benefit), at statutory rate $(7,138) $14,016 $(13,026) U.S. state income taxes (benefit), net (399) 2,022 (1,093) Amortization of goodwill and negative goodwill (431) - - Deferred tax asset valuation allowance 14,510 5,536 19,088 Release of tax contingency reserve - - (5,292) Other, net (544) 48 323 ------- ------- -------- Provision (benefit) for income taxes $ 5,998 $21,622 $ - ======= ======= ===== Provision (benefit) for income taxes: Currently payable (refundable): U.S. federal $ (37) $ (34) $ (27) U.S. state 133 34 27 ------- ------- -------- Net currently payable (refundable) 96 - - Deferred income taxes, net 5,902 21,622 - ------- ------- ----- $ 5,998 $21,622 $ - ======= ======= ===== Comprehensive provision for income taxes (benefit) allocable to: Income (loss) before cumulative effect of change in accounting principle $ 5,998 $21,622 $ - Other comprehensive loss - Pension liability - - - ------- ------- ----- $ 5,998 $21,622 $ - ======= ======= =====
The components of the net deferred tax asset are summarized below.
December 31, 2002 2003 -------------------------------------------------------- Assets Liabilities Assets Liabilities -------- -------- --------- -------- (In thousands) Tax effect of temporary differences relating to: Inventories $ 3,049 $ - $ 3,524 $ - Property and equipment - (5,201) - (5,218) Pensions 14,320 - - (49,409) Accrued OPEB cost 44,483 - 46,172 - Accrued liabilities and other deductible differences 14,294 - 14,322 - Other taxable differences - (2,343) 2,607 - Net operating loss carryforwards 11,604 - 20,876 - Alternative minimum tax credit carryforwards 6,260 - 6,260 - Deferred tax asset valuation allowance (86,466) - (39,134) - -------- ------- -------- ----- Gross deferred tax assets 7,544 (7,544) 54,627 (54,627) Reclassification, principally netting by tax jurisdiction (7,544) 7,544 (54,627) 54,627 -------- -------- -------- -------- Net deferred tax asset - - - - Less current deferred tax asset, net of pro rata allocation of deferred tax asset valuation allowance - - - - -------- -------- ------- ---- Noncurrent net deferred tax asset $ - $ - $ - $ - ======== ======== ======= ====
Years ended December 31, 2001 2002 2003 ---- ---- ---- (In thousands) Increase (decrease) in valuation allowance: Increase in certain deductible temporary differences which the Company believes do not meet the "more-likely-than-not" recognition criteria: Recognized in net income (loss) $14,510 $ 5,536 $ 21,995 Offset to the change in gross deferred income tax assets due principally to redetermination of certain tax attributes - - (2,907) Recognized in other comprehensive loss - pension liabilities - 66,420 (66,420) ------- ------- -------- $14,510 $71,956 $(47,332) ======= ======= ========
At December 31, 2003, Keystone had (i) approximately $6.3 million of alternative minimum tax credit carryforwards which have no expiration date and (ii) net operating loss carryforwards of approximately $54.5 million which expire in 2019 through 2023, and which may be used to reduce future taxable income of the entire Company. See Note 19. The Company's emergence from Chapter 11 on August 31, 2005 did not result in an ownership change within the meaning of Section 382 of the Internal Revenue Code. At December 31, 2003, considering all factors believed to be relevant, including the Company's recent operating results, its expected future near-term productivity rates; cost of raw materials, electricity, labor and employee benefits, environmental remediation, and retiree medical coverage; interest rates; product mix; sales volumes and selling prices; financial restructuring efforts and the fact that accrued OPEB expenses will become deductible over an extended period of time and require the Company to generate significant amounts of future taxable income, the Company believes its gross deferred tax assets do not currently meet the "more-likely-than-not" realizability test. As such, the Company has provided a deferred tax asset valuation allowance to offset its gross deferred income tax asset. Keystone will continue to review the recoverability of its deferred tax assets, and based on such periodic reviews, Keystone could recognize a change in the valuation allowance related to its deferred tax assets in the future. Note 8 - Stock options, warrants and stock appreciation rights plan In 1997, Keystone adopted its 1997 Long-Term Incentive Plan (the "1997 Plan"). Under the 1997 Plan, the Company may make awards that include, but need not be limited to, one or more of the following types: stock options, stock appreciation rights, restricted stock, performance grants and any other type of award deemed consistent with the purposes of the plan. Subject to certain adjustments, an aggregate of not more than 500,000 shares of Keystone's common stock may be issued under the 1997 Plan. Stock options granted under the 1997 Plan may include options that qualify as incentive stock options as well as options which are not so qualified. Incentive stock options are granted at a price not less than 100%, or in certain instances, 110% of a fair market value of such stock on the date of the grant. Stock options granted under the 1997 Plan may be exercised over a period of ten, or in certain instances, five years. The vesting period, exercise price, length of period during which awards can be exercised, and restriction periods of all awards are determined by the Incentive Compensation Committee of the Board of Directors. At December 31, 2003, there were 255,000 options outstanding under this plan. During 1997, the Company granted all remaining options available under Keystone's 1992 Option Plan. At December 31, 2003, there were 171,000 options outstanding under this plan. Changes in outstanding options, including options outstanding under the former 1992 Option Plan, pursuant to which no further grants can be made are summarized in the table below.
Price per Amount payable Options share upon exercise Outstanding at December 31, 2000 758,066 $4.25 -$13.94 $6,317,130 Canceled (101,766) 5.13 - 13.94 (863,624) -------- ------------- ----------- Outstanding at December 31, 2001 656,300 4.25 - 13.94 5,453,506 Canceled (169,000) 5.50 - 9.19 (1,465,838) -------- ------------- ----------- Outstanding at December 31, 2002 487,300 4.25 - 13.94 3,987,668 Canceled (61,300) 5.13 - 10.25 (522,824) -------- ------------- ----------- Outstanding at December 31, 2003 426,000 $4.25 -$13.94 $ 3,464,844 ======== ============= ===========
The following table summarizes weighted average information about fixed stock options outstanding at December 31, 2003.
Outstanding Exercisable ---------------------------------------- ------------------------------------------- Weighted Average Weighted Average -------------------------- --------------------------- Range of Remaining Remaining Exercise Contractual Exercise Contractual Exercise Prices Options Life Price Options Life Price ---------- ------- ----------- -------- ------- ----------- ------- $ 4.25-$ 5.50 82,500 6.2 years $ 5.17 82,500 6.2 years $ 5.17 $ 7.63-$10.25 323,500 3.7 years $ 8.53 323,500 3.7 years $ 8.53 $13.94 20,000 3.8 years $13.94 20,000 3.8 years $13.94 ------- ------- 426,000 4.2 years $ 8.13 426,000 4.2 years $ 8.13 ======= =======
At December 31, 2003, options to purchase all 426,000 shares outstanding were exercisable (none at prices lower than the December 31, 2003 quoted market price of $.10 per share). At December 31, 2003, an aggregate of 245,000 shares were available for future grants under the 1997 Plan. As a result of the Company's Chapter 11 filings, the equity of Keystone's common shareholders may be significantly diluted or eliminated entirely. As such, the Company's outstanding stock options may also be eliminated. The pro forma information included in Note 1, required by SFAS No. 123, as amended, is based on an estimation of the fair value of options issued subsequent to January 1, 1995. There were no options granted in 2001, 2002 or 2003. The fair values of the options granted subsequent to January 1, 1995 and prior to January 1, 2001 were calculated using the Black-Scholes stock option valuation model. The Black-Scholes model was not developed for use in valuing employee stock options, but was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, it requires the use of subjective assumptions including expectations of future dividends and stock price volatility. Such assumptions are only used for making the required fair value estimate and should not be considered as indicators of future dividend policy or stock price appreciation. Because changes in the subjective assumptions can materially affect the fair value estimate, and because employee stock options have characteristics significantly different from those of traded options, the use of the Black-Scholes option-pricing model may not provide a reliable estimate of the fair value of employee stock options. The pro forma impact on net income (loss) per share disclosed in Note 1 is not necessarily indicative of future effects on net income (loss) or earnings (loss) per share. All of the Company's outstanding common stock and stock options were cancelled in connection with the Company's emergence from Chapter 11 on August 25, 2005. See Note 19. Note 9 - Pensions and other post retirement benefits plans Keystone sponsors several pension plans and other post retirement benefit plans for its employees and certain retirees. Under plans currently in effect, most active employees would be entitled to receive OPEB upon retirement. The Company uses a December 31st measurement date for its defined benefit pension and OPEB plans. The following tables provide a reconciliation of the changes in the plans' projected benefit obligations and fair value of assets for the years ended December 31, 2002 and 2003:
Pension Benefits Other Benefits ----------------------- ------------------------- 2002 2003 2002 2003 ---- ---- ---- ---- (In thousands) Change in projected benefit obligations ("PBO"): Benefit obligations at beginning of year $314,106 $ 341,388 $ 152,298 $ 171,252 Service cost 3,041 3,456 1,890 2,826 Interest cost 21,938 21,586 10,722 11,849 Participant contributions - - 1,785 1,734 Actuarial loss 28,773 21,914 15,538 57,460 Benefits paid (26,470) (26,280) (10,981) (12,079) -------- --------- --------- --------- Benefit obligations at end of year $341,388 $ 362,064 $ 171,252 $ 233,042 ======== ========= ========= ========= Change in plan assets: Fair value of plan assets at beginning of year $332,990 $286,992 $ - $ - Actual return (loss) on plan assets (19,528) 111,506 - - Employer contributions - - 9,196 10,345 Participant contributions - - 1,785 1,734 Benefits paid (26,470) (26,280) (10,981) (12,079) -------- --------- --------- --------- Fair value of plan assets at end of year $286,992 $ 372,218 $ - $ - ======== ========= ========= ====== Funded status at end of the year: Plan assets greater (less) than PBO $(54,396) $ 10,154 $(171,252) $(233,042) Unrecognized actuarial losses 176,132 105,566 59,656 113,944 Unrecognized prior service cost (credit) 11,852 10,971 (2,493) (2,150) -------- --------- --------- --------- $133,588 $ 126,691 $(114,089) $(121,248) ======== ========= ========= ========= Amounts recognized in the balance sheet: Prepaid pension cost $ - $ 126,691 $ - $ - Unrecognized net pension obligations 11,852 - - - Accrued benefit costs: Current - - (11,372) (11,255) Noncurrent (48,571) - (102,717) (109,993) Accumulated other comprehensive loss - pension liabilities 170,307 - - - -------- --------- --------- ------ $133,588 $ 126,691 $(114,089) $(121,248) ======== ========= ========= =========
The rate assumptions used in determining the actuarial present value of benefit obligations as of December 31, 2002 and 2003 are shown in the following table:
Pension Benefits Other Benefits 2002 2003 2002 2003 Discount rate 6.5% 6.0% 6.5% 6.0% Rate of compensation increase 3.0% 3.0% - -
The rate assumptions used in determining the net periodic pension and other retiree benefit expense during 2001, 2002 and 2003 are shown in the following table:
Pension Benefits Other Benefits --------------------------- ------------------------------ 2001 2002 2003 2001 2002 2003 ---- ---- ---- ---- ---- ---- Discount rate 7.25% 7.0% 6.5% 7.25% 7.0% 6.5% Expected return on plan assets 10.0% 10.0% 10.0% - - - Rate of compensation increase 3.0% 3.0% 3.0% - - -
The following table provides the components of net periodic benefit cost for the plans for the years ended December 31, 2001, 2002 and 2003:
Pension Benefits Other Benefits ------------------------------- ------------------------------ 2001 2002 2003 2001 2002 2003 ---- ---- ---- ---- ---- ---- (In thousands) Service cost $ 2,954 $ 3,041 $ 3,456 $ 1,506 $ 1,890 $ 2,826 Interest cost 21,419 21,938 21,586 9,739 10,722 11,849 Expected return on plan assets (33,142) (31,983) (27,376) - - - Amortization of unrecognized: Prior service cost 882 882 882 (343) (343) (343) Actuarial losses 2,408 4,518 8,350 1,137 1,991 3,171 -------- -------- ------- ------- ------- ------- Net periodic benefit cost (credit) $(5,479) $(1,604) $ 6,898 $12,039 $14,260 $17,503 ======= ======= ======= ======= ======= =======
At December 31, 2003, the accumulated benefit obligation for the Company's pension and OPEB plans was approximately $354.9 million and $232.0 million, respectively (2002 - $335.6 million and $187.4 million, respectively). At December 31, 2001, the Company's defined benefit pension plan's (the "Plan") assets exceeded the Plan's accumulated benefit obligation and as such, was considered over-funded for financial reporting purposes. At December 31, 2002, the accumulated benefit obligation for the Plan approximated $335.6 million. Due to a decline in the value of the Plan's assets during 2002, and a decrease in the discount rate from December 31, 2001 to 2002, the Plan's accumulated benefit obligation at December 31, 2002 exceeded the Plan's assets at that date. As a result, SFAS No. 87, Employers' Accounting for Pensions, provides that the Company is required to record an additional minimum liability that is at least equal to the amount by which the Plan's accumulated benefit obligation exceeds the Plan's assets (or $182.2 million at December 31, 2002), eliminate any recorded prepaid pension cost, record an intangible asset equal to the amount of any unrecognized prior service cost and charge a separate component of stockholders' equity for the difference. As such, during the fourth quarter of 2002, Keystone recorded an additional minimum pension liability of $182.2 million, an intangible pension asset of $11.9 million and charged a separate component of stockholders' equity for $170.3 million. During 2003, the Plan's assets exceeded the accumulated benefit obligation. As such, the previously recorded additional minimum liability, intangible pension asset were eliminated through the separate component of stockholders' equity. At December 31, 2003, substantially all of the plan's net assets were invested in the Combined Master Retirement Trust ("CMRT"), a collective investment trust established by Valhi, Inc. ("Valhi"), a majority-owned subsidiary of Contran, to permit the collective investment by certain master trusts which fund certain employee benefit plans maintained by Contran, Valhi and related companies, including the Company. The remainder of the Plan's assets at December 31, 2003 were primarily invested in real estate. Harold C. Simmons is the sole trustee of the CMRT. Mr. Simmons and two members of Keystone's board of directors and Master Trust Investment Committee comprise the Trust Investment Committee for the CMRT. Neither Mr. Simmons nor the Keystone directors receive any compensation for serving in such capacities. The CMRT's long-term investment objective is to provide a rate of return exceeding a composite of broad market equity and fixed income indices (including the S&P 500 and certain Russell indicies) utilizing both third-party investment managers as well as investments directed by Mr. Simmons. The trustee of the CMRT and the CMRT's Trust Investment Committee actively manage the investments of the CMRT. Such parties have in the past, and may in the future, change the asset mix of the CMRT based upon, among other factors, advice they receive from third-party advisors and their expectations as to what asset mix will generate the greatest overall long-term rate of return. For 2001, 2002 and 2003, the assumed long-term rate of return for plan assets invested in the CMRT was 10%. In determining the appropriateness of such long-term rate of return assumption, the Company considered, among other things, the historical rate of return for the CMRT, the current and projected asset mix of the CMRT and the investment objectives of the CMRT's managers. In addition, the Company receives advice about appropriate long-term rates of return from the Company's third-party actuaries. During the 16-year history of the CMRT through December 31, 2003, the average annual rate of return has been 12.4%. At December 31, 2003, the asset mix of the CMRT was 63% in U.S. equity securities, 24% in U.S. fixed income securities, 7% in international securities and 6% in cash and other investments. With certain exceptions, the trustee of the CMRT has exclusive authority to manage and control the assets of the CMRT. Administrators of the employee benefit plans participating in the CMRT, however, have the authority to direct distributions and transfers of plan benefits under such participating plans. The Trust Investment Committee of the CMRT has the authority to direct the trustee to establish investment funds, transfer assets between investment funds and appoint investment managers and custodians. Except as otherwise provided by law, the trustee is not responsible for the investment of any assets of the CMRT that are subject to the management of an investment manager. The Company may withdraw all or part of the Plan's investment in the CMRT at the end of any calendar month without penalty. At Deceber 31, 2003, the expected increase in future health care costs was 10% for 2004, declining gradually to 5% in 2009 and thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
Change in Health Care Cost Trend -------------------------------------- 1% Increase 1% Decrease ----------- ----------- (In thousands) Increase (decrease): Effect on total of service and interest cost components for the year ended December 31, 2003 $ 2,833 $ (2,157) Effect on postretirement benefit obligation at December 31, 2003 $39,710 $(31,145)
Keystone's post retirement benefit plans were altered in connection with the Company's Chapter 11 filing and emergence therefrom. See Note 19. The Company was not required to make any contributions to its defined benefit pension plan during 2004, while the Company contributed approximately $5.3 million to its OPEB plans during 2004. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the years ended December 31,:
Pension Other Benefits Benefits -------- --------- (In thousands) 2004 $ 27,259 $ 6,183 2005 $ 26,944 $ 7,917 2006 $ 26,774 $ 4,254 2007 $ 26,635 $ 4,453 2008 $ 26,547 $ 4,500 2009 - 2013 $132,680 $22,500
The Company also maintains several defined contribution pension plans. Expense related to these plans was $1.6 million in 2001, $2.5 million in 2002 and $1.5 million in 2003. Note 10 - Other accrued liabilities
December 31, 2002 2003 ---- ---- (In thousands) Current: Environmental $13,122 $13,044 Employee benefits 11,455 10,320 Self insurance 5,317 4,937 Deferred vendor payments 3,338 3,477 Legal and professional 1,176 964 Disposition of former facilities 659 680 Interest 318 326 Other 4,831 3,396 ------- ------- $40,216 $37,144 ======= ======= Noncurrent: Deferred vendor payments $10,252 $ 7,193 Environmental 7,087 6,722 Workers compensation payments 2,309 1,941 Interest 298 709 Other 391 101 ------- ------- $20,337 $16,666 ======= =======
During the first quarter of 2002, two of the Company's major vendors representing approximately $16.1 million of trade payables, agreed to be paid over a five-year period ending in March 2007 with no interest. The repayment of a portion of such deferred vendor payments could be accelerated if the Company achieves specified levels of future earnings. Keystone generally undertakes planned major maintenance activities on an annual basis, usually in the fourth quarter of each year. These major maintenance activities are conducted during a shut-down of the Company's steel and wire rod mills. Repair and maintenance costs incurred in connection with these major maintenance activities are accrued in advance on a straight-line basis throughout the year and are included in cost of goods sold. Note 11 - Related party transactions The Company may be deemed to be controlled by Harold C. Simmons. See Note 1. Corporations that may be deemed to be controlled by or affiliated with Mr. Simmons sometimes engage in (a) intercorporate transactions such as guarantees, management and expense sharing arrangements, shared fee arrangements, joint ventures, partnerships, loans, options, advances of funds on open account, and sales, leases and exchanges of assets, including securities issued by both related and unrelated parties, and (b) common investment and acquisition strategies, business combinations, reorganizations, recapitalizations, securities repurchases, and purchases and sales (and other acquisitions and dispositions) of subsidiaries, divisions or other business units, which transactions have involved both related and unrelated parties and have included transactions which resulted in the acquisition by one related party of a publicly-held minority equity interest in another related party. The Company continuously considers, reviews and evaluates, and understands that Contran and related entities consider, review and evaluate such transactions. Depending upon the business, tax and other objectives then relevant, it is possible that the Company might be a party to one or more such transactions in the future. It is the policy of the Company to engage in transactions with related parties on terms, in the opinion of the Company, no less favorable to the Company than could be obtained from unrelated parties. J. Walter Tucker, Jr., Vice Chairman of the Company, is a principal stockholder of Tucker & Branham, Inc., Orlando, Florida. Although the Company does not pay Mr. Tucker a salary, the Company has contracted with Tucker & Branham, Inc. for management consulting services by Mr. Tucker. Fees paid to Tucker & Branham, Inc. were $52,000 in 2001 and $5,100 in 2002. The Company did not make any such payments to Mr. Tucker in 2003. Under the terms of an intercorporate services agreement ("ISA") entered into between the Company and Contran, employees of Contran will provide certain management, tax planning, financial and administrative services to the Company on a fee basis. Such charges are based upon estimates of the time devoted by the employees of Contran to the affairs of the Company, and the compensation of such persons. Because of the large number of companies affiliated with Contran, the Company believes it benefits from cost savings and economies of scale gained by not having certain management, financial and administrative staffs duplicated at each entity, thus allowing certain individuals to provide services to multiple companies but only be compensated by one entity. The ISA fees charged by Contran to the Company aggregated approximately $1,005,000 in 2001, $1,025,000 in 2002 and $1,005,000 in 2003. At December 31, 2002 and 2003, the Company owed Contran approximately $1.4 million and $2.8 million, respectively, primarily for ISA fees. Such amounts are included in payables to affiliates on the Company's balance sheets. In addition, Keystone purchased certain aircraft services from Valhi in the amount of $124,000 in 2001, $74,000 in 2002 and $52,000 in 2003. Tall Pines Insurance Company ("Tall Pines"), Valmont Insurance Company ("Valmont"), and EWI RE, Inc. provide for or broker certain insurance policies for Contran and certain of its subsidiaries and affiliates, including the Company. Tall Pines and Valmont are wholly-owned subsidiaries of Valhi, and EWI is a wholly-owned subsidiary of NL. Prior to January 2002, an entity controlled by one of Harold C. Simmons' daughters owned a majority of EWI, and Contran owned the remainder of EWI. In January 2002, NL purchased EWI from its previous owners. Consistent with insurance industry practices, Tall Pines, Valmont and EWI receive commissions from the insurance and reinsurance underwriters for the policies that they provide or broker. The aggregate premiums paid to Tall Pines, Valmont and EWI were $2.2 million in each of 2001, 2002 and 2003. These amounts principally included payments for insurance and reinsurance premiums paid to third parties, but also included commissions paid to Tall Pines, Valmont and EWI. At December 31, 2003, the Company owed Tall Pines $236,000 for insurance premiums. In the Company's opinion, the amounts that the Company paid for these insurance policies and the allocation among the Company and its affiliates of relative insurance premiums are reasonable and similar to those they could have obtained through unrelated insurance companies and/or brokers. These relationships with Tall Pines, Valmont and EWI continued in 2004. Contran and certain of its subsidiaries and affiliates, including the Company, purchase certain of their insurance policies as a group, with the costs of the jointly-owned policies being apportioned among the participating companies. With respect to certain of such policies, it is possible that unusually large losses incurred by one or more insureds during a given policy period could leave the other participating companies without adequate coverage under that policy for the balance of the policy period. As a result, Contran and certain of its subsidiaries and affiliates, including the Company, have entered into a loss sharing agreement under which any uninsured loss is shared by those entities who have submitted claims under the relevant policy. The Company believes the benefits in the form of reduced premiums and broader coverage associated with the group coverage for such policies justifies the risk associated with the potential for any uninsured loss. Dallas Compressor Company, a subsidiary of Contran, sells compressors and related services to Keystone. During 2001, 2002 and 2003 Keystone purchased products and services from Dallas Compressor Company in the amount of $31,000, $267 and $1,000, respectively. During each of 2001 and 2002, Garden Zone paid approximately $60,000 to one of its other owners for accounting and financial services. During 2003, Garden Zone paid approximately $35,000 to such owner for these services. EWPFLLC had agreed to loan the Company up to an aggregate of $6 million through February 29, 2004. Borrowings bore interest at the prime rate plus 3%, and are collateralized by the stock of EWP. In addition, the Company paid a commitment fee of .375% on the unutilized portion of the facility. At December 31, 2003, no amounts were outstanding under the facility, and $6 million was available for borrowing by the Company. However, EWPFLLC has issued a $250,000 letter of credit for the benefit of the Company under this facility. The terms of this loan were approved by the independent directors of the Company. The loan matured in February 2004. During 2001, the Company paid EWPFLLC an up-front facility fee of $120,000 related to this facility. During each of 2002 and 2003, Keystone paid EWPFLLC unused line fees of $23,000, related to this facility. See Note 19. Note 12 - Quarterly financial data (unaudited)
March 31, June 30, September 30, December 31, --------- -------- ------------- ------------ (In thousands, except per share data) Year ended December 31, 2003: Net sales $81,089 $ 96,749 $80,452 $ 48,381 Gross profit (loss) 1,438 3,825 (3,260) (6,213) Net loss $(9,006) $ (6,162) $(11,836) $(10,513) ======= ======== ======== ======== Basic and diluted net loss per share $ (1.04) $ (.76) $ (1.32) $ (1.20) ======= ======== ======= ======== Year ended December 31, 2002: Net sales $90,441 $ 99,005 $83,844 $ 61,545 Gross profit (loss) 8,733 10,811 4,334 (4,622) Net gain on early extinguishment of debt 33,117 - - - Change in accounting principle 19,998 - - - Net (income) loss $52,011 $ 2,004 $(4,801) $(10,794) ======= ======= ======= ======== Basic net income (loss) per share available for common shares $ 5.17 $ .03 $ (.63) $ (1.22) ======= ======= ======= ======== Diluted net income (loss) per share available for common shares $ 4.87 $ .03 $ (.63) $ (1.22) ======= ======= ======= ========
Due to timing of the issuance of preferred stock in connection with the Exchange Offer, the sum of the quarterly 2002 diluted net income (loss) per share available for common shares is different than diluted net income per share available for common shares for the full year. As a result of a significant decline in value of the assets of Keystone's defined benefit pension plan during 2002, the plan's accumulated benefit obligation at December 31, 2002 exceeded the plan's assets. Accordingly, during the fourth quarter of 2002, the Company recorded an additional minimum pension liability of $182.2 million and an intangible pension asset of $11.9 million. During 2003, the pension plan experienced better than expected performance and at December 31, 2003, the pension plan's assets exceeded the accumulated benefit obligation. As such, during the fourth quarter of 2003 the previously recorded additional minimum pension liability and intangible asset were eliminated through the separate component of stockholders' equity. See Notes 3, 7 and 9. Note 13 - Environmental matters As a result of the Chapter 11 filings on February 26, 2004, litigation relating to prepetition claims against the filing companies, including Keystone and Sherman Wire Company ("Sherman"), has been stayed. Keystone has been named as a defendant, potentially responsible party ("PRP"), or both, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state laws in approximately 25 governmental and private actions associated with environmental matters, including waste disposal sites and facilities currently or previously owned, operated or used by Keystone, certain of which are on the United States Environmental Protection Agency's (the "U.S. EPA") Superfund National Priorities List or similar state lists. These proceedings seek cleanup costs, damages for personal injury or property damage and/or damages for injury to natural resources. Certain of these proceedings involve claims for substantial amounts. Although Keystone may be jointly and severally liable for such costs, in most cases, it is only one of a number of PRPs who may also be jointly and severally liable. On a quarterly basis, Keystone evaluates the potential range of its liability at sites where it has been named as a PRP or defendant by analyzing and estimating the range of reasonably possible costs to Keystone. Such costs include, among other things, expenditures for remedial investigations, monitoring, managing, studies, certain legal fees, clean-up, removal and remediation. Keystone believes it has provided adequate accruals ($19.8 million at December 31, 2003) for these matters at 13 sites for which Keystone believes its liability is probable and reasonably estimable, but Keystone's ultimate liability may be affected by a number of factors, including the imposition of more stringent standards or requirements under environmental laws or regulations, new developments or changes in remedial alternatives and costs, the allocation of such costs among PRPs, the solvency of other PRPs or a determination that Keystone is potentially responsible for the release of hazardous substances at other sites, any of which could result in expenditures in excess of amounts currently estimated by Keystone to be required for such matters. With respect to other PRPs and the fact that the Company may be jointly and severally liable for the total remediation cost at certain sites, the Company could ultimately be liable for amounts in excess of its accruals due to, among other things, reallocation of costs among PRPs or the insolvency of one or more PRPs. In addition, the actual timeframe for payments by Keystone for these matters may be substantially in the future. Keystone believes it is not possible to estimate the range of costs for eight sites. For these sites, generally the investigation is in the early stages, and it is either unknown as to whether or not the Company actually had any association with the site, or if the Company had association with the site, the nature of its responsibility, if any, for the contamination at the site and the extent of contamination. The timing on when information would become available to the Company to allow the Company to estimate a range of loss is unknown and dependent on events outside the control of the Company, such as when the party alleging liability provides information to the Company. The upper end of the range of reasonably possible costs to Keystone for sites for which it is possible to estimate costs (17 sites) is approximately $21.6 million. Keystone's estimates of such liabilities have not been discounted to present value, and other than certain previously-reported settlements with respect to certain of Keystone's former insurance carriers, Keystone has not recognized any material insurance recoveries. No assurance can be given that actual costs will not exceed accrued amounts or the upper end of the range for sites for which estimates have been made, and no assurance can be given that costs will not be incurred with respect to the seven sites as to which no estimate of liability can presently be made because the respective investigations are in early stages. The extent of CERCLA liability cannot be determined until the Remedial Investigation/Feasibility Study ("RI/FS") is complete, the U.S. EPA issues a Record of Decision ("ROD") and costs are allocated among PRPs. The extent of liability under analogous state cleanup statutes and for common law equivalents is subject to similar uncertainties. The exact time frame over which the Company makes payments with respect to its accrued environmental costs is unknown and is dependent upon, among other things, the timing of the actual remediation process which in part depends on factors outside the control of the Company. At each balance sheet date, the Company makes an estimate of the amount of its accrued environmental costs which will be paid out over the subsequent 12 months, and the Company classifies such amount as a current liability. The remainder of the accrued environmental costs are classified as a noncurrent liability. More detailed descriptions of certain legal proceedings relating to environmental matters are set forth below. A summary of activity in the Company's environmental accruals for the three years ended December 31, 2003 is as follows:
Years ended December 31, 2001 2002 2003 ---- ---- ---- (In thousands) Balance at beginning of period $21,680 $20,552 $20,209 Expense 553 394 - Payments (1,770) (780) (475) Reclassifications 89 43 32 ------- ------- ------- Balance at end of period $20,552 $20,209 $19,766 ======= ======= =======
The Company is currently involved in the closure of inactive waste disposal units at its Peoria facility pursuant to a closure plan approved by the Illinois Environmental Protection Agency ("IEPA") in September 1992. The original closure plan provides for the in-place treatment of seven hazardous waste surface impoundments and two waste piles to be disposed of as special wastes. The Company recorded an estimated liability for remediation of the impoundments and waste piles based on a six-phase remediation plan. The Company adjusts the recorded liability for each Phase as actual remediation costs become known. During 1995, the Company began remediation of Phases II and III and completed these Phases, as well as Phase IV during 1996. During 1998 and 1999 the Company did not have any significant remediation efforts relative to Phases V and VI. During 2000, Keystone began preliminary efforts relative to Phase V. Pursuant to agreements with the IEPA and Illinois Attorney General's office, the Company is depositing $75,000 per quarter into a trust fund. The Company must continue these quarterly deposits and cannot withdraw funds from the trust fund until the fund balance exceeds the sum of the estimated remaining remediation costs plus $2 million. At December 31, 2002 and 2003 the trust fund had balances of $5.1 million and $5.5 million, respectively, which amounts are included in other noncurrent assets because the Company does not expect to have access to any of these funds until after 2004. In February 2000, Keystone received a notice from the United States Environmental Protection Agency ("U.S. EPA") giving formal notice of the U.S. EPA's intent to issue a unilateral administrative order to Keystone pursuant to section 3008(h) of the Resource Conservation and Recovery Act ("RCRA"). The draft order enclosed with this notice would require Keystone to: (1) investigate the nature and extent of hazardous constituents present at and released from five alleged solid waste management units at the Peoria facility; (2) investigate hazardous constituent releases from "any other past or present locations at the Peoria facility where past waste treatment, storage or disposal may pose an unacceptable risk to human health and the environment"; (3) complete by June 30, 2001 an "environmental indicators report" demonstrating the containment of hazardous substances that could pose a risk to "human receptors" and further demonstrating that Keystone "has stabilized the migration of contaminated groundwater at or from the facility;" (4) submit by January 30, 2002 proposed "final corrective measures necessary to protect human health and the environment from all current and future unacceptable risks of releases of hazardous waste or hazardous constituents at or from the Peoria facility; and (5) complete by June 30, 2001 the closure of the sites discussed in the preceding paragraph now undergoing RCRA closure under the supervision of the IEPA. Keystone has complied with deadlines in the draft order. During the fourth quarter of 2000, Keystone entered into a modified Administrative Order on Consent, which may require the Company to conduct cleanup activities at certain solid waste management units at its Peoria facility depending on the results of soil and groundwater sampling and risk assessment to be conducted by Keystone during future periods pursuant to the order. In March 2000, the Illinois Attorney General (the "IAG") filed and served a seven-count complaint against Keystone for alleged violations of the Illinois Environmental Protection Act, 415 ILCS 5/31, and regulations implementing RCRA at Keystone's Peoria facility. The complaint alleges Keystone violated RCRA in failing to prevent spills of an alleged hazardous waste on four separate occasions during the period from June 1995 through January 1999. The complaint also alleges the Company illegally "stored", "disposed of" and manifested the same allegedly hazardous waste on some or all of those occasions. In addition, the complaint alleges these hazardous waste spills resulted in groundwater pollution in violation of the Illinois Environmental Protection Act. The complaint further alleges Keystone improperly disposed of hazardous waste on two occasions at a landfill not permitted to receive such wastes. The complaint seeks the maximum statutory penalties allowed which ranges up to $50,000 for each violation and additional amounts up to $25,000 for each day of violation. Keystone has answered the complaint and proceedings in the case have been stayed pending the outcome of settlement negotiations between Keystone and the IAG's office. In June 2000, the IAG filed a Complaint For Injunction And Civil Penalties against Keystone. The complaint alleges the Company's Peoria facility violated its National Pollutant Discharge Elimination System ("NPDES") permit limits for ammonia and zinc discharges from the facility's wastewater treatment facility into the Illinois River. The complaint alleges specific violations of the 30-day average ammonia limit in the NPDES permit for three months in 1996, 11 months in 1997, 12 months in 1998, 11 months in 1999 and the first two months of 2000. The complaint further alleges two violations of the daily maximum limit for zinc in October and December of 1999. Keystone has answered the complaint and proceedings in the case have been stayed pending the outcome of settlement negotiations between the Company and the IAG's office. "Superfund" sites The Company is subject to federal and state "Superfund" legislation that imposes cleanup and remediation responsibility upon present and former owners and operators of, and persons that generated hazardous substances deposited upon, sites determined by state or federal regulators to contain hazardous substances. Keystone has been notified by U.S. EPA that the Company is a potentially responsible party ("PRP") under the federal "Superfund" legislation for the alleged release or threat of release of hazardous substances into the environment at eight sites. These situations involve cleanup of landfills and disposal facilities which allegedly received hazardous substances generated by discontinued operations of the Company. Although Keystone believes its comprehensive general liability insurance policies provide indemnification for certain costs the Company incurs at the "Superfund" sites discussed below, it has only recorded receivables for the estimated insurance recoveries at three of those sites. During 2001, 2002 and 2003, the Company received approximately $88,000, $43,000 and $31,000, respectively, from certain of its insurers in exchange for releasing such insurers from coverage for certain years of environmental related liabilities. Such amounts are included in Keystone's self insurance accruals. In July 1991, the United States filed an action against a former division of the Company and four other PRPs in the United States District Court for the Northern District of Illinois (Civil Action No. 91C4482) seeking to recover investigation and remediation costs incurred by U.S. EPA at the Byron Salvage Yard, located in Byron, Illinois. In April 1992, Keystone filed a third-party complaint in this civil action against 15 additional parties seeking contribution in the event the Company is held liable for any response costs at the Byron site. Neither the Company nor the other designated PRPs are performing any investigation of the nature and extent of the contamination. In December 1996, Keystone, U.S. EPA and the Department of Justice entered into the Fifth Partial Consent Decree to settle Keystone's liability for EPA response costs incurred at the site through April 1994 for a payment of $690,000. Under the agreement Keystone is precluded from recovering any portion of the $690,000 settlement payment from other parties to the lawsuit. In January 1997, Keystone paid the $690,000 settlement. Keystone will remain potentially liable for EPA response costs incurred after April 30, 1994, and natural resource damage claims, if any, that may be asserted in the future. Keystone recovered a portion of the $690,000 payment from its insurer. In March 1997, U.S. EPA issued a Proposed Remedial Action Plan ("PRAP") recommending that a limited excavation of contaminated soils be performed at an estimated cost of $63,000, that a soil cover be placed over the site, an on-site groundwater pump and treat system be installed and operated for an estimated period of 15 years, and that both on-site and off-site groundwater monitoring be conducted for an indefinite period. U.S. EPA's cost estimate for the recommended plan is $5.1 million. U.S. EPA's estimate of the highest cost alternatives evaluated but not recommended in the PRAP is approximately $6 million. The Company filed public comments on May 1, 1997, objecting to the PRAP. In March 1999, Keystone and other PRP's received a Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") special notice letter notifying them for the first time of a September 1998 Record of Decision ("ROD") and requesting a commitment on or before May 19, 1999 to perform soils work required by that ROD that was estimated to cost approximately $300,000. In addition, the special notice letter also requested the PRPs to reimburse U.S. EPA for costs incurred at the site since May 1994 in the amount of $1.1 million, as well as for all future costs the U.S. EPA will incur at the site in overseeing the implementation of the selected soils remedy and any future groundwater remedy. Keystone refused to agree to the U.S. EPA's past and future cost demand. In August 1999, U.S. EPA issued a groundwater PRAP with an estimated present value cost of $3 million. Keystone filed public comments opposing the PRAP in September 1999. In October 2002, Keystone and the other remaining PRPs entered into a second Consent Decree with the U.S. EPA, in order to resolve their liability for performance of the U.S. EPA's September 1998 ROD for a soils remedy at the site, for the performance of the U.S. EPA's December 1999 ROD for remedial action regarding the groundwater component of Operable Unit No. 4 at the site, for payment of U.S. EPA's site costs incurred since May 1994 as well as future U.S. EPA oversight costs, and for the transfer of certain funds that may be made available to the PRPs as a result of a consent decree reached between U.S. EPA and another site PRP. Under the terms of the second Consent Decree, and the PRP Agreement was executed to implement the PRPs' performance under that decree, Keystone is required to pay approximately $700,000 (of which approximately $600,000 has already been paid into a PRP Group trust fund), and would remain liable for 18.57% of future U.S. EPA oversight costs as well as a similar share of any unanticipated cost increases in the soils remedial action work. (Under the agreements, the City of Byron, Illinois, would assume responsibility for any cost overruns associated with the municipal water supply components of the groundwater contamination remedy.) The U.S. EPA served the PRP Group in February 2003 with its first oversight cost claim under the second Consent Decree, in the amount of $186,000 for the period from March 1, 2000 to November 25, 2002. Keystone's share of that claim is approximately $35,000. The U.S. EPA has also requested changes to the groundwater monitoring program at the site that may require future increases in the PRP Group's groundwater monitoring reserves. In September 2002, the IAG served a demand letter on Keystone and 3 other PRP's seeking recovery of approximately $1.3 million in state cleanup costs incurred at the Byron Salvage Yard site. The PRP's are currently negotiating with the IAG in an attempt to settle this claim. The four PRP's named in the demand letter are also attempting to include other site PRP's in the negotiations. It remains possible that these negotiations could fail and that Keystone's ultimate liability for the Byron Salvage Yard site could increase in a subsequent settlement agreement or as a result of litigation. In September 1991, the Company along with 53 other PRPs, executed a consent decree to undertake the immediate removal of hazardous wastes and initiate a Remedial Investigation/Feasibility Study ("RI/FS") of the Interstate Pollution Control site located in Rockford, Illinois. The Company's percentage allocation within the group of PRPs agreeing to fund this project is currently 2.14%. However, the Company's ultimate allocation, and the ultimate costs of the RI/FS and any remedial action, are subject to change depending, for example, upon: the number and financial condition of the other participating PRPs, field conditions and sampling results, results of the risk assessment and feasibility study, additional regulatory requirements, and the success of a contribution action seeking to compel additional parties to contribute to the costs of the RI/FS and any remedial action. The RI/FS began in 1993, was completed in 1997 and approved by IEPA in 1998. In the summer of 1999, IEPA selected a capping and soil vapor extraction remedy estimated by the PRP group to have a present value cost of approximately $2.5 million. IEPA may also demand reimbursement of future oversight costs. The three largest PRPs at the site are negotiating a consent order with IEPA for the performance of the site remedy. Keystone expects to participate with the larger PRPs in the performance of that remedy based on its RI/FS allocation percentage. In August 1987, Keystone was notified by U.S. EPA that it is a PRP responsible for the alleged hazardous substance contamination of a site previously owned by the Company in Cortland, New York. Four other PRPs participated in the RI/FS and a contribution action is pending against eleven additional viable companies which contributed wastes to the site. Following completion of the RI/FS, U.S. EPA published in November 1997, a PRAP for the site that recommends the excavation and disposal of contaminated soil, installation of an impervious cap over a portion of the site, placement of a surface cover over the remainder of the site and semi-annual groundwater monitoring until drinking water standards are met by natural attenuation. U.S. EPA estimates the costs of this recommended plan to be $3.1 million. The highest cost remedy evaluated by U.S. EPA but not recommended in the PRAP is estimated by U.S. EPA to have a cost of $19.8 million. In September 1998, Keystone and four other PRPs who had funded the prior remedial actions and RI/FS signed a proposed Consent Decree with U.S. EPA calling for them to be "nonperforming parties" for the implementation of a March 1998 Record of Decision. Under this Consent Decree, Keystone could be responsible for an unspecified share of U.S. EPA's future costs in the event that changes to the existing ROD are required. Prior to its acquisition by Keystone, DeSoto, Inc. ("DeSoto") was notified by U.S. EPA that it is one of approximately 50 PRPs at the Chemical Recyclers, Inc. site in Wylie, Texas. In January 1999, DeSoto changed its name to Sherman. Under a consent order with the U.S. EPA, the PRP group has performed a removal action and an investigation of soil and groundwater contamination. Such investigation revealed certain environmental contamination. It is anticipated U.S. EPA will order further remedial action, the exact extent of which is not currently known. Sherman is paying on a non-binding interim basis, approximately 10% of the costs for this site. Remediation costs, at Sherman's present allocation level, are estimated at a range of from $1.5 million to $4 million. In 1984, U.S. EPA filed suit against DeSoto by amending a complaint against Midwest Solvent Recovery, Inc. et al ("Midco"). DeSoto was a defendant based upon alleged shipments to an industrial waste recycling storage and disposal operation site located in Gary, Indiana. The amended complaint sought relief under CERCLA to force the defendants to clean up the site, pay non-compliance penalties and reimburse the government for past clean up costs. In June 1992, DeSoto settled its portion of the case by entering into a partial consent decree, and all but one of the eight remaining primary defendants and 93 third party defendants entered into a main consent decree. Under the terms of the partial consent decree, DeSoto agreed to pay its pro rata share (13.47%) of all costs under the main consent decree. In addition to certain amounts included in the trust fund discussed below, Sherman also has certain funds available in other trust funds due it under the partial consent decree. These credits can be used by Sherman (with certain limitations) to fund its future liabilities under the partial consent decree. In 1995, DeSoto was notified by the Texas Natural Resource Conservation Commission ("TNRCC") that there were certain deficiencies in prior reports to TNRCC relative to one of its non-operating facilities located in Gainesville, Texas. During 1999, Sherman entered into TNRCC's Voluntary Cleanup Program. Remediation costs are presently estimated to be between $1.2 million and $2 million. Investigation activities are on-going including additional soil and groundwater sampling. In December 1991, DeSoto and approximately 600 other PRPs were named in a complaint alleging DeSoto and the PRPs generated wastes that were disposed of at a Pennsauken, New Jersey municipal landfill. The plaintiffs in the complaint were ordered by the court to show in what manner the defendants were connected to the site. The plaintiffs provided an alleged nexus indicating garbage and construction materials from DeSoto's former Pennsauken facility were disposed of at the site and such waste allegedly contained hazardous material to which DeSoto objected. The claim was dismissed without prejudice in August 1993. In 1996, DeSoto received an amended complaint containing the same allegations. This matter is in discovery stage at December 31, 2003. Sherman has denied any liability with regard to this matter and expects to vigorously defend the action. Sherman has received notification from the TNRCC stating that DeSoto is a PRP at the Material Recovery Enterprises Site near Ovalo, Texas, with approximately 3% of the total liability. The matter has been tendered to the Valspar Corporation ("Valspar") pursuant to a 1990 agreement whereby Valspar purchased certain assets of DeSoto. Valspar has been handling the matter under reservation of rights. At the request of Valspar, Sherman has signed a participation agreement which would require Sherman to pay no less than 3% of the remediation costs. Valspar continues to pay for legal fees in this matter and has reimbursed Sherman for all assessments. In November 2003, Sherman received a General Notice of Potential Liability from the U.S. EPA advising them that the U.S. EPA believe Sherman is a PRP at the Lake Calumet Cluster Site in Chicago, Illinois. The U.S. EPA advises the 200 acre site consists of areas of both ground water and surface water contamination located in a remnant wetland area. The U.S. EPA's effort at this site is part of a larger effort undertaken along with the State of Illinois, the City of Chicago, the U.S. Army Corps of Engineers, and the U.S. Department of Energy to cleanup contamination in the Lake Calumet basin. The U.S. EPA alleges the original wetland area has been partially filed by various waste handling and disposal activities which started as early as the 1940's. Incineration of hazardous waste including paints, thinners, varnishes, chlorinated solvents, styrene, ink, adhesives, and antifreeze occurred on the site from 1977 until 1982. In addition, several landfills operated in and near the site from 1967 into the 1990s. Approximately 1,600 ruptured drums have been discovered buried on the site. The U.S. EPA has undertaken or overseen various response actions at the site to mitigate remaining above ground contamination in the site vicinity. The U.S. EPA advises these activities have led to the formation of an extensive ground water contamination plume and contamination in the remaining wetland. The origin of the contamination cannot be associated with any single prior activity. The ground water is in direct contact with the wetland waters, and the same contaminants of concern, certain of which are known to bioaccumulate, and their concentrations are above human health and environmental standards. Sherman did not respond to the November 2003 Notice, however, Sherman notified their insurance carriers and asked them to indemnify and defend Sherman with respect to the Notice. At present, no carrier has agreed to either indemnify or defend. In addition, in November, 2003, Sherman requested the U.S. EPA to provide any documentation that allegedly connects Sherman to the site. Subsequently, the U.S. EPA produced documents that may show that Sherman wastes were sent to the site. It is not possible at this time to determine if Sherman has any future liability with respect to this site. In addition to the sites discussed above, Sherman is allegedly involved at various other sites and in related toxic tort lawsuits which it does not currently expect to incur significant liability. Under the terms of a 1990 asset sale agreement, DeSoto established a trust fund to fund potential clean-up liabilities relating to the assets sold. Sherman has access to the trust fund for any expenses or liabilities it incurs relative to environmental claims relating to the site identified in the trust agreement. The trust fund is primarily invested in United States Treasury securities and is classified as restricted investments on the balance sheet. As of December 31, 2002 and 2003, the balance in the trust fund was approximately $385,000 and $135,000 respectively. Sherman also has access to a trust fund relative to another environmental site for any expenses or liabilities it incurs relative to environmental claims at that site. The trust fund is included in restricted investments on the balance sheet. As of December 31, 2002 and 2003, the balance in this trust fund was approximately $266,000 and $267,000, respectively. Note 14 - Lease commitments At December 31, 2003, the Company is obligated under certain other operating leases through 2010. Future commitments under these leases are summarized below.
Lease commitment (In thousands) 2004 $1,157 2005 921 2006 294 2007 42 2008 28 Thereafter 48 ------ $2,490 ======
The Company has many executory contracts, including the above leases that were rejected during the Chapter 11 proceedings. See Note 19. Note 15 - Other commitments and contingencies Current litigation As a result of the Chapter 11 filings on February 26, 2004, litigation relating to prepetition claims against the filing companies, including Keystone and Sherman has been stayed. These liabilities that relate to Sherman continue to be negotiated and adjudicated subsequent to Keystone's emergence from Chapter 11 on August 31, 2005. In July 2001, Sherman received a letter from a law firm advising them that Sears Roebuck & Co. ("Sears") had been named as a defendant in a lead paint personal injury case. Sears claimed contractual indemnity against Sherman and demanded that Sherman defend and indemnify Sears with regard to any losses or damages Sears may sustain in the case. Sears was named as an additional insured on insurance policies, in which DeSoto, the manufacturer of the paint, was the named insured. Additional demands were made by Sears in 2002 with regard to additional lead paint cases. DeSoto's insurance carriers were notified of the action and asked to indemnify Sherman with respect to the complaint. Sherman has not indemnified Sears and is unaware if the insurors have agreed to indemnify Sears. In May 2002, the Company was notified by an insurance company of a declaratory complaint filed in Cook County Illinois by Sears against the insurance company and a second insurance company (collectively the "Insurance Companies") relative to a certain lead paint personal injury litigation against Sears. It is the Company's understanding that the declaratory complaint has since been amended to include all lead paint cases where Sears has been named as a defendant as a result of paint sold by Sears that was manufactured by DeSoto (now Sherman). Sears was allegedly named as an additional insured on insurance policies issued by the Insurance Companies, in which DeSoto, the manufacturer of the paint, was the named insured. Sears has demanded indemnification from the Insurance Companies. One of the Insurance Companies has demanded indemnification and defense from Sherman. Sherman believes the request for indemnification is invalid. However, such Insurance Company has refused to accept Sherman's response and has demanded that Sherman participate in mediation in accordance with the terms of a prior settlement agreement. Sherman may be sued by the Insurance Companies and, as a result, could be held responsible for all costs incurred by the Insurance Companies in defending Sears and paying for any claims against Sears as well as for the cost of any litigation against Sherman. The total amount of these lead paint litigation related costs and claims could be significant. However, the Company does not have a liability recorded with respect to these matters because the liability that may result, if any, cannot be reasonably estimated at this time. The Company is also engaged in various legal proceedings incidental to its normal business activities. In the opinion of the Company, none of such proceedings is material in relation to the Company's consolidated financial position, results of operations or liquidity. Product supply agreement In 1996, Keystone entered into a fifteen-year product supply agreement (the "Supply Agreement") with a vendor. The Supply Agreement provides, among other things, that the vendor will construct a plant at the Company's Peoria facility and, after completion of the plant, provide Keystone with all, subject to certain limitations, of its gaseous oxygen and nitrogen needs for a 15-year period ending in 2011. In addition to specifying rates to be paid by the Company, including a minimum facility fee of approximately $1.2 million per year, the Supply Agreement also specifies provisions for adjustments to the rates and term of the Supply Agreement. Purchases made pursuant to the Supply Agreement during 2001, 2002 and 2003 amounted to $2.2 million, $1.9 million and $1.4 million, respectively. Concentration of credit risk All of the Company's segments perform ongoing credit evaluations of their customers' financial condition and, generally, require no collateral from their customers. Keystone Steel & Wire. KSW sells its products to agricultural, industrial, construction, commercial, original equipment manufacturers and retail distributors primarily in the Midwestern, Southwestern and Southeastern regions of the United States. KSW's ten largest external customers accounted for approximately 42% of its sales in 2001, 45% in 2002 and 41% in 2003. These customers accounted for approximately 29% of KSW's notes and accounts receivable at December 31, 2002 and 44% at December 31, 2003. KSW's sales to other Keystone segments accounted for approximately 12% of its sales in each of 2001 and 2002 and 11% in 2003. These intercompany customers accounted for approximately 11% of KSW's notes and accounts receivable at December 31, 2002 and less than 1% at December 31, 2003. No single external customer accounted for more than 10% of KSW's sales in each of 2001, 2002 or 2003. Engineered Wire Products. EWP sells its products to concrete pipe manufacturers and retail distributors primarily in the Midwest and East Coast regions of the United States. EWP's ten largest customers accounted for approximately 51% of its sales in 2001, 53% in 2002 and 52% in 2003. These customers accounted for approximately 59% of EWP's notes and accounts receivable at December 31, 2002 and 61% at December 31, 2003. EWP does not sell products to other Keystone segments. A single external customer accounted for 11% of EWP's sales during 2001. Another single external customer accounted for 10% of EWP's sales during each of 2002 and 2003. A third single external customer also accounted for 11% of EWP's sales during 2003. Lawn and garden products. Garden Zone sold its products primarily to retailers in the Southeastern United States. Garden Zone's ten largest customers accounted for significantly all of its sales in 2001, 86% in 2002 and 94% in 2003. Garden Zone's ten largest customers accounted for approximately 73% of its notes and accounts receivable at December 31, 2002. Garden Zone did not sell significant levels of product to other Keystone segments during 2001, 2002 or 2003. A single external customer accounted for 38%, 34% and 50% of Garden Zone's sales during 2001, 2002 and 2003, respectively. Another single customer accounted for 13% and 12% of Garden Zone's sales during 2001 and 2002, respectively. A third external customer also accounted for 10% of Garden Zone's sales during 2003. All Other. The Company's businesses in this segment sell their products to agricultural, industrial, construction, commercial, original equipment manufacturers and retail distributors primarily in the Midwestern, Southwestern and Southeastern regions of the United States. This segment's ten largest external customers accounted for approximately 39% of its sales in each of 2001 and 2002 and 40% in 2003. These customers accounted for approximately 54% of this segment's notes and accounts receivable at December 31, 2002 and 64% at December 31, 2003. This segments' sales to other Keystone segments accounted for approximately 4% of its sales in 2001, 6% in 2002 and 36% in 2003. These intercompany customers accounted for approximately 1% of this segment's notes and accounts receivable at December 31, 2002 and none of this segment's notes and accounts receivable at December 31, 2003. No single external customer accounted for more than 10% of this segment's sales during each of 2001, 2002 or 2003. Note 16 - Earnings per share: Net income (loss) per share is based upon the weighted average number of common shares and dilutive securities. A reconciliation of the numerators and denominators used in the calculations of basic and diluted earnings per share computations of income (loss) before cumulative effect of change in accounting principle is presented below. The dilutive effect of the assumed conversion of the Series A Preferred Stock in the 2002 period is calculated from its issuance in March 2002. Keystone stock options were omitted from the calculation because they were antidilutive in all periods presented.
Years ended December 31, 2001 2002 2003 ---- ---- ---- (In thousands) Numerator: Net income (loss) before cumulative effect of change in accounting principle $(26,394) $18,422 $(37,517) Less Series A Preferred Stock Dividends - (4,683) (5,940) -------- ------- -------- Basic net income (loss) before cumulative effect of change in accounting principle (26,394) 13,739 (43,457) Series A Preferred Stock dividends - 4,683 5,940 ------- ------- -------- Diluted net income (loss) before cumulative effect of change in accounting principle $(26,394) $18,422 $(37,517) ======== ======= ======== Denominator: Average common shares outstanding 10,062 10,067 10,068 Dilutive effect of Preferred Stock Series A - 11,756 - -------- ------- ----- Diluted shares 10,062 21,823 10,068 ======== ======= ========
Note 17 - Accounting principles newly adopted in 2002 and 2003: Goodwill. Effective January 1, 2002, the Company adopted SFAS No. 142. Under SFAS No. 142, goodwill, including goodwill arising from the difference between the cost of an investment accounted for by the equity method and the amount of the underlying equity in net assets of such equity method investee ("equity method goodwill"), is no longer amortized on a periodic basis. Goodwill (other than equity method goodwill) is subject to an impairment test to be performed at least on an annual basis, and impairment reviews may result in future periodic write-downs charged to earnings. Equity method goodwill is not tested for impairment in accordance with SFAS No. 142; rather, the overall carrying amount of an equity method investee will continue to be reviewed for impairment in accordance with existing GAAP. There is currently no equity method goodwill associated with any of the Company's equity method investees. Under the transition provisions of SFAS No. 142, all goodwill existing as of June 30, 2001 ceased to be periodically amortized as of January 1, 2002. Also, in connection with the adoption of SFAS No. 142, negative goodwill of approximately $20.0 million recorded at December 31, 2001 was eliminated as a cumulative effect of change in accounting principle as of January 1, 2002. The Company has assigned its goodwill to the reporting unit (as that term is defined in SFAS No. 142) consisting of EWP. Under SFAS No. 142, such goodwill will be deemed to not be impaired if the estimated fair value of EWP exceeds the net carrying value of EWP, including the allocated goodwill. If the fair value of EWP is less than the carrying value, then a goodwill impairment loss would be recognized equal to the excess, if any, of the net carrying value of the EWP goodwill over its implied fair value (up to a maximum impairment equal to the carrying of the goodwill). The implied fair value of EWP goodwill would be the amount equal to the excess of the estimated fair value of EWP over the amount that would be allocated to the tangible and intangible net assets of EWP (including unrecognized intangible assets) as if such reporting unit had been acquired in a purchase business combination accounted for in accordance with GAAP as of the date of the impairment testing. The Company will use appropriate valuation techniques, such as discounted cash flows, to estimate the fair value of EWP. The Company completed its initial, transitional goodwill impairment analysis under SFAS No. 142 as of January 1, 2002, and no goodwill impairment was deemed to exist as of such date. In accordance with requirements of SFAS No. 142, the Company will review goodwill of EWP for impairment during the third quarter of each year starting in 2002. Goodwill will also be reviewed for impairment at other times during each year when events or changes in circumstances indicate an impairment might be present. Based on the Company's 2002 and 2003 third quarter reviews, no impairment of goodwill were deemed to exist at September 30, 2002 and 2003. As shown in the following table, the Company would have reported a net loss of $27.6 million, or $2.74 per basic share, for 2001, if the goodwill and negative goodwill amortization included in the Company's net loss, as reported, had not been recognized. The per share amounts shown in the following tables reflect the dilutive effect of the assumed conversion of the Series A Convertible Preferred Stock. See Note 5.
Years ended December 31, 2001 2002 2003 ---- ---- ---- (In thousands except per share amounts) Income (loss) before cumulative effect of change in accounting principle as reported $(26,394) $18,422 $(37,517) Adjustments: Goodwill amortization 125 - - Negative goodwill amortization $ (1,356) - - -------- ------- ---------- Adjusted income (loss) before cumulative effect of change in accounting principle $(27,625) $18,422 $(37,517) ======== ======= ======== Basic earnings (loss) per share available for common shares before cumulative effect of change in accounting principle as reported $ (2.62) $ 1.36 $ (4.32) Adjustments: Goodwill amortization .01 - - Negative goodwill amortization (.13) - - -------- -------- ---------- Adjusted basic earnings (loss) per share available for common shares before cumulative effect of change in accounting principle $ (2.74) $ 1.36 $ (4.32) ======= ======= ======== Diluted earnings (loss) per share available for common shares before cumulative effect of change in accounting principle as reported $ (2.62) $ .84 $ (4.32) Adjustments: Goodwill amortization .01 - - Negative goodwill amortization (.13) - - ------- -------- --------- Adjusted diluted earnings (loss) per share available for common shares before cumulative effect of change in accounting principle $ (2.74) $ .84 $ (4.32) ======= ======= ========
Years ended December 31, 2001 2002 2003 ---- ---- ---- (In thousands except per share amounts) Net income (loss) as reported $(26,394) $ 38,420 $(37,517) Adjustments: Goodwill amortization 125 - - Negative goodwill amortization (1,365) - - Cumulative effect of change in accounting principle - (19,998) - ------- -------- --------- Adjusted net income (loss) $(27,625) $ 18,422 $(37,517) ======== ======== ======== Basic earnings (loss) per share available for common shares as reported $ (2.62) $ 3.35 $ (4.32) Adjustments: Goodwill amortization .01 - - Negative goodwill amortization (.13) - - Cumulative effect of change in accounting principle - (1.99) - --------- -------- -------- Adjusted basic earnings (loss) per share available for common shares $ (2.74) $ 1.36 $ (4.32) ======= ======== ======== Diluted earnings (loss) per share available for common shares as reported $ (2.62) $ 1.76 $ (4.32) Adjustments: Goodwill amortization .01 - - Negative goodwill amortization (.13) - - Cumulative effect of change in accounting principle - (.92) - --------- -------- -------- Adjusted diluted earnings (loss) per share available for common shares $ (2.74) $ .84 $ (4.32) ======= ======== ========
Impairment of long-lived assets. The Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective January 1, 2002. SFAS No. 144 retains the fundamental provisions of existing GAAP with respect to the recognition and measurement of long-lived asset impairment contained in SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Lived-Lived Assets to be Disposed Of. However, SFAS No. 144 provides new guidance intended to address certain implementation issues associated with SFAS No. 121, including expanded guidance with respect to appropriate cash flows to be used to determine whether recognition of any long-lived asset impairment is required, and if required how to measure the amount of the impairment. SFAS No. 144 also requires that any net assets to be disposed of by sale to be reported at the lower of carrying value or fair value less cost to sell, and expands the reporting of discontinued operations to include any component of an entity with operations and cash flows that can be clearly distinguished from the rest of the entity. Adoption of SFAS No. 144 did not have a significant effect on the Company as of January 1, 2002. Gain or loss on early extinguishment of debt. The Company adopted SFAS No. 145 effective April 1, 2002. SFAS No. 145, among other things, eliminated the prior requirement that all gains and losses from the early extinguishment of debt be classified as an extraordinary item. Upon adoption of SFAS No. 145, gains and losses from the early extinguishment of debt are now classified as an extraordinary item only if they meet the "unusual and infrequent" criteria contained in Accounting Principles Bulletin ("APBO") No. 30. In addition, upon adoption of SFAS No. 145, all gains and losses from the early extinguishment of debt that had been classified as an extraordinary item are to be reassessed to determine if they would have met the "unusual and infrequent" criteria of APBO No. 30; any such gain or loss that would not have met the APBO No. 30 criteria are retroactively reclassified and reported as a component of income before extraordinary item. The Company has concluded that its 2002 first quarter $54.7 million pre-tax extraordinary gain ($33.1 million, or $3.29 per basic share, net of income taxes) discussed in Note 4 would not have met the APBO No. 30 criteria for classification as an extraordinary item, and accordingly such gain has been retroactively reclassified and is now reported as a component of income before extraordinary item. Guarantees. The Company has complied with the disclosure requirements of FIN No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, as of December 31, 2002. As required by the transition provisions of FIN No. 45, beginning in 2003, the Company will adopt the recognition and initial measurement provisions of this FIN on a prospective basis for any guarantees issued or modified after December 31, 2002. Asset retirement obligations. The Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations, January 1, 2003. Under SFAS No. 143, the fair value of a liability for an asset retirement obligation covered under the scope of SFAS No. 143 is recognized in the period in which the liability is incurred, with an offsetting increase in the carrying amount of the related long-lived asset. Over time, the liability is accreted to its future value, and the capitalized cost is depreciated over the useful life of the related asset. Future revisions in the estimated fair value of the asset retirement obligation, due to changes in the amount and/or timing of the expected future cash flows to settle the retirement obligation, are accounted for prospectively as an adjustment to the previously-recognized asset retirement cost. Upon settlement of the liability, an entity will either settle the obligation for its recorded amount or incur a gain or loss upon settlement. The Company does not have any asset retirement obligations which are covered under the scope of SFAS No. 143, and as such, the effect, to the Company of adopting SFAS No. 143 was not material. Costs associated with exit or disposal activities. The Company adopted SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, January 1, 2003 for exit or disposal activities initiated on or after that date. Under SFAS No. 146, costs associated with exit activities, as defined, that are covered by the scope of SFAS No. 146 will be recognized and measured initially at fair value, generally in the period in which the liability is incurred. Costs covered by the scope of SFAS No. 146 include termination benefits provided to employees, costs to consolidate facilities or relocate employees, and costs to terminate contracts (other than a capital lease). Under prior GAAP, a liability for such an exit cost was recognized at the date an exit plan was adopted, which may or may not have been the date at which the liability was incurred. The effect to the Company of adopting SFAS No. 146 as of January 1, 2003 was not material as the Company was not involved in any exit or disposal activities covered by the scope of the new standards as of such date. Note 18 - Accounting principles not yet adopted: Variable interest entities. The Company is required to comply with the consolidation requirements of FASB Interpretation ("FIN") No. 46R, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, as amended, at March 31, 2004. The Company does not believe it has any involvement with any variable interest entity (as that term is defined in FIN No. 46R) covered by the scope of FIN No. 46R, and therefore the impact of adopting the consolidation requirements of FIN No. 46R is not expected to have a significant effect on the Company's consolidated financial statements. Inventory costs. The Company will adopt SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4," for inventory costs incurred on or after January 1, 2006. SFAS No. 151 requires that the allocation of fixed production overhead costs to inventory shall be based on normal capacity. Normal capacity is not defined as a fixed amount; rather, normal capacity refers to a range of production levels expected to be achieved over a number of periods under normal circumstances, taking into account the loss of capacity resulting from planned maintenance shutdowns. The amount of fixed overhead allocated to each unit of production is not increased as a consequence of idle plant or production levels below the low end of normal capacity, but instead a portion of fixed overhead costs are charged to expense as incurred. Alternatively, in periods of production above the high end of normal capacity, the amount of fixed overhead costs allocated to each unit of production is decreased so that inventories are not measured above cost. SFAS No. 151 also clarifies existing GAAP to require that abnormal freight and wasted materials (spoilage) are to be expensed as incurred. The Company believes its production cost accounting already complies with the requirements of SFAS No. 151, and the Company does not expect adoption of SFAS No. 151 will have a material effect on its consolidated financial statements. Stock options. Based on guidance issued by the U.S. Securities and Exchange Commission, the Company will adopt SFAS No. 123R, "Share-Based Payment," as of January 1, 2006. SFAS No. 123R, among other things, eliminates the alternative in existing GAAP to use the intrinsic value method of accounting for stock-based employee compensation under APBO No. 25. Upon adoption of SFAS No. 123R, the Company will generally be required to recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, with the cost recognized over the period during which an employee is required to provide services in exchange for the award (generally, if the vesting period of the award). No compensation cost will be recognized in the aggregate for equity instruments for which the employee does not render the requisite service (generally, the instrument is forfeited before it has vested). The grant-date fair value will be estimated using option-pricing models (e.g. Black-Scholes or a lattice model). Under the transition alternatives permitted under SFAS No. 123R, the Company will apply the new standard to all new awards granted on or after January 1, 2006, and to all awards existing as of December 31, 2005 which are subsequently modified, repurchased or cancelled. Additionally, as of January 1, 2006, the Company will be required to recognize compensation cost for the portion of any non-vested award existing as of December 31, 2005 over the remaining vesting period. Because the is not expected to grant any options prior to January 1, 2006 and because the number of non-vested awards as of December 31, 2005 with respect to options previously granted by the Company is not expected to be material, the effect of adopting SFAS No. 123R is not expected to be significant in so far as it relates to existing stock options. Should the Company, however, grant a significant number of options in the future, the effect on the Company's consolidated financial statements could be material. Note 19 - Subsequent events In January 2004, EWP received a new $6.75 million term loan ("the EWP Term Loan") from the same lender providing the EWP Revolver. The EWP Term Loan bears interest at LIBOR plus 2.5%, is due in monthly installments of $112,500 plus accrued interest and a balloon payment upon the maturity date, as amended, of March 31, 2005. In addition, the EWP Term Loan, is collateralized by a lien on all of the fixed assets of EWP and cross-collateralized with the EWP Revolver. Proceeds from the EWP Term Loan were used to repay a Keystone intercompany debt. Keystone used the proceeds to reduce the outstanding balance of the Keystone Revolver. On February 26, 2004, Keystone and five of its direct and indirect subsidiaries filed for voluntary protection under Chapter 11 of the Federal Bankruptcy Code. Keystone and its subsidiaries filed their petitions in the U.S. Bankruptcy Court for the Eastern District of Wisconsin in Milwaukee. The Company is managing its business as a debtor-in possession subject to approval by the Court. Keystone attributed the need to reorganize to weaknesses in product selling prices over the last several years, unprecedented increases in ferrous scrap costs, Keystone's primary raw material, and significant liquidity needs to service retiree medical costs. These problems have substantially limited Keystone's liquidity and undermined its ability to obtain sufficient debt or equity capital to operate as a going concern. Under Chapter 11 proceedings, actions by creditors to collect pre-petition claims in existence at the filing date are stayed, absent specific authorization from the Court to pay such claims while the Company manages the business as a debtor-in-possession. Keystone received approval from the Court to pay certain of its pre-petition liabilities, including employee wages and certain employee benefits. Keystone filed a plan of reorganization on October 4, 2004 and amended that plan on May 26, 2005, June 21, 2005 and June 27, 2005. Keystone's amended plan of reorganization was accepted by the impacted constituencies and confirmed by the Court on August 10, 2005. The Company emerged from bankruptcy protection on August 31, 2005. Significant provisions of Keystone's amended plan of reorganization included, among other things: o Assumption of the previously negotiated amendment to the collective bargaining agreement with the Independent Steel Workers Alliance (the "ISWA"), Keystone's largest labor union; o Assumption of the previously negotiated agreements reached with certain retiree groups that will provide relief by permanently reducing healthcare related payments to these retiree groups from pre-petition levels; o The Company's obligations due to pre-petition secured lenders other than its Debtor-In-Possession lenders were reinstated in full against reorganized Keystone; o All shares of Keystone's common and preferred stock outstanding at the petition date (February 26, 2004) were cancelled; o Pre-petition unsecured creditors with allowed claims against Keystone will receive, on a pro rata basis, in the aggregate, $5.2 million in cash, a $4.8 million secured promissory note and 49% of the new common stock of reorganized Keystone; o Certain operating assets and existing operations of Sherman Wire Company ("Sherman Wire"), one of Keystone's pre-petition wholly-owned subsidiaries, will be sold at fair market value to Keystone, which will then be used to form and operate a newly created wholly-owned subsidiary of reorganized Keystone named Keystone Wire Products Inc.; o Sherman Wire was also reorganized and the proceeds of the operating asset sale to Keystone and other funds will be distributed, on a pro rata basis, to Sherman Wire's pre-petition unsecured creditors as their claims are finally adjudicated; o Sherman Wire's pre-petition wholly-owned non-operating subsidiaries, J.L. Prescott Company, and DeSoto Environmental Management, Inc. as well as Sherman Wire of Caldwell, Inc., a wholly-owned subsidiary of Keystone, will ultimately be liquidated and the pre-petition unsecured creditors with allowed claims against these entities will receive their pro-rata share of the respective entity's net liquidation proceeds; o Pre-petition unsecured creditors with allowed claims against FV Steel & Wire Company, another one of Keystone's wholly-owned subsidiaries, will receive cash in an amount equal to their allowed claims; o One of Keystone's Debtor-In-Possession lenders, EWP Financial, LLC (an affiliate of Contran Corporation ("Contran"), Keystone's largest pre-petition shareholder) converted $5 million of its DIP credit facility, certain of its pre-petition unsecured claims and all of its administrative claims against Keystone into 51% of the new common stock of reorganized Keystone; and o The Board of Directors of reorganized Keystone now consists of seven individuals, two each of which were designated by Contran and the Official Committee of Unsecured Creditors (the "OCUC"), respectively. The remaining three directors qualify as independent directors (two of the independent directors were appointed by Contran with the OCUC's consent and one was appointed by the OCUC with Contran's consent). In addition, Keystone has obtained an $80 million secured credit facility from Wachovia Capital Finance (Central). Proceeds from this credit facility were used to extinguish Keystone's existing Debtor-In-Possession credit facilities and to provide working capital for reorganized Keystone. On March 15, 2004, the Court approved two new debtor-in-possession financing facilities (the "DIP Order). The first debtor-in-possession financing facility consists of an Assumption Agreement whereby the pre-petition lender on the Keystone Revolver and Keystone Term Note agreed to convert those credit facilities to a debtor-in-possession facility (collectively, the "Congress DIP Facility"). The terms of the respective facilities comprising the Congress DIP Facility are relatively unchanged from the respective pre-petition facilities with the exception of the elimination of the existing financial covenants and the granting of a second lien on the stock of EWP owned by Keystone. In connection with the approval of the Congress DIP Facility, the Keystone Term Note was increased by $4.0 million. Approximately $2.0 million of these proceeds were applied to the Keystone Revolver portion of the Congress DIP Facility and the remainder was used to fund Keystone's working capital needs. However, the Congress DIP Facility lender applied an availability reserve of approximately $2.0 million to the borrowing base of the Keystone Revolver in connection with the increase in Keystone Term Note resulting in no net increase in availability under the Keystone Revolver at that time. The Keystone Term Note requires monthly principal payments of $100,000. The Congress DIP Facility matures the earliest to occur of September 30, 2005, payment in full of the Congress DIP Facility, confirmation of a plan of reorganization of Keystone, an event of default or upon certain other events. The Congress DIP Facility required a facility fee of $375,000, half of which was paid at inception and half of which was paid in August 2004. The second debtor-in-possession financing facility comprising the DIP Order is a $5 million revolving credit facility with EWPFLLC (the "EWP DIP Facility"). Advances under the EWP DIP Facility bear interest at the prime rate plus 3.0% per annum and are collateralized by the common stock of EWP owned by Keystone. Proceeds from the EWP DIP Facility were used to fund Keystone's working capital needs. The EWP DIP Facility requires Keystone to abide by specified cash budgets. In addition, the EWP DIP Facility requires EWPFLLC to fund up to an additional $2 million through a participation in the Congress DIP Facility upon the Company's realization of certain milestones. The Company met such milestones and in April 2004, this additional funding was made. The EWP DIP Facility, as amended, matures upon confirmation of a plan of reorganization of Keystone, closing of a sale of EWP, an event of default under the EWP Term Note, an event of default under the Congress DIP Facility or upon certain other events. The EWP DIP Facility required a facility fee of $100,000, half of which was paid at inception and half of which was paid in August 2004. On August 31, 2005, in connection with its emergence from Chapter 11, Keystone entered into a new $80.0 million secured credit facility. Proceeds from this credit facility were used to extinguish Keystone's existing Debtor-In-Possession credit facilities, the EWP Term Loan, the EWP Revolver and to provide working capital for reorganized Keystone. The facility includes a term loan in the amount of up to $25.0 million, subject to a borrowing base calculation based on the market value of the Company's real property and equipment. To the extent there is sufficient borrowing base, the term loan portion of this credit facility can be reloaded in the amount of $10.0 million. The portion of the credit facility in excess of the term loan balance is available to the Company as a revolving credit facility subject to a borrowing base calculation based on eligible receivables and inventory balances. Interest rates on the credit facility range from the prime rate to the prime rate plus ..5% depending on Keystone's excess availability, as defined in the credit agreement. The facility also provides for a LIBOR interest rate option. Under the terms of the credit facility, the Company is required to annually pay down the term loan portion of the facility in the amount of 25% of excess cash flow, as defined in the agreement, subject to a $2.0 million annual and a $5.0 million aggregate limit. The facility also includes performance covenants related to minimum levels of cash flow and fixed charge coverage ratio. Keystone paid the lender $400,000 of diligence, commitment and closing fees in connection with this facility. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Keystone Consolidated Industries, Inc.: Our audits of the consolidated financial statements referred to in our report dated November XX, 2005, which contains an explanatory paragraph relating to the Company's ability to continue as a going concern as described in Note 1 to the financial statements, appearing in the 2003 Annual Report to Shareholders of Keystone Consolidated Industries, Inc. (which report and consolidated financial statements are included in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in the index on page F-1 of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Dallas, Texas November 28, 2005 KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Additions Balance at Charged to Deductions Balance at beginning costs and (net of end of Description of period expenses recoveries) period Year ended December 31, 2001: Allowance for doubtful accounts and notes receivable $ 1,681 $ 1,589 $ 412 $ 2,858 ======= ======= ====== ======= Deferred tax asset valuation allowance $ - $14,510 $ - $14,510 ======= ======= ====== ======= Year ended December 31, 2002: Allowance for doubtful accounts and notes receivable $ 2,858 $ 197 $1,293 $ 1,762 ======= ======= ====== ======= Deferred tax asset valuation allowance $14,510 $ 5,536 $ - $20,046 ======= ======= ====== ======= Year ended December 31, 2003: Allowance for doubtful accounts and notes receivable $ 1,762 $ (406) $1,009 $ 347 ======= ======= ====== ======= Deferred tax asset valuation allowance $20,046 $19,088 $ - $39,134 ======= ======= ====== =======
EXHIBIT 21 KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT Jurisdiction of Percent of Incorporation Voting Securities Name of Corporation or Organization Held (1) Sherman Wire of Caldwell, Inc. Nevada 100.0% FV Steel and Wire Company (3) Wisconsin 100.0% Sherman Wire Company (2) Delaware 100.0% J.L. Prescott Company New Jersey 100.0% DeSoto Environmental Management, Inc. Delaware 100.0% Engineered Wire Products, Inc. Ohio 100.0%
(1) Held by the Registrant or the indicated subsidiary of the Registrant. (2) Formerly DeSoto, Inc. (3) Formerly Fox Valley Steel and Wire Company. EX-3.1 2 kcixh3103.txt RESTATED CERTIFICATE OF INCORPORATION OF KEYSTONE CONSOLIDATED INDUSTRIES, INC. Under Section 245 of the Delaware General Corporation Law We, Ralph P. End, Vice President, and Sandra K. Myers, Secretary, of Keystone Consolidated Industries, Inc., a corporation existing under the laws of the state of Delaware, do hereby certify under the seal of the said corporation as follows: FIRST: That the name of the corporation is Keystone Consolidated Industries, Inc., which was originally incorporated under the name KEYSTEEL, INC. SECOND: That the certificate of incorporation of the corporation was filed by the secretary of state, Dover, Delaware, on the 18th day of May, 1955. THIRD: The amendments to the certificate of incorporation effected by this certificate as follows: 1. To replace the purposes clause with a simplified and more general statement of such purposes; 2. To eliminate the right of stockholders to cumulate votes in the election of directors; 3. To classify the Board of Directors into three classes of directors with staggered three-year terms; 4. To reduce the requisite stockholder vote required in connection with any sale, lease or exchange of all or substantially all of the property and assets of the Company; 5. To reduce the requisite stockholder vote to approve future amendments to the Certificate of Incorporation; 6. To restate the Company's Certificate of Incorporation. FOURTH: The amendments and the restatement of the certificate of incorporation have been duty adopted by the stockholders in accordance with Section 245 of the General Corporation Law of the State of Delaware by an affirmative vote of the holders of more than two-thirds of the outstanding shares of common stock of the corporation entitled to notice of, and to vote at a duly called meeting of stockholders and that the capital of the corporation will not be reduced under or by reason of said amendments and restatement. FIFTH: That the text of the certificate of incorporation of said Keystone Consolidated Industries, Inc., as amended is hereby restated as further amended by this certificate, to read in full, as follows: Keystone Consolidated Industries, Inc. a corporation organized and existing under and by virtue of the laws of the State of Delaware, DOES HEREBY CERTIFY: That the present name of the corporation is Keystone Consolidated Industries, Inc. The corporation was originally incorporated under the name Keysteel, Inc. and its original certificate of incorporation was filed with the Secretary of State of the State of Delaware on May 18, 1955. That by written consent of the entire Board of Directors of said corporation, pursuant to Section 141(f) of the General Corporation Law of the State of Delaware (the "GCL"), resolutions were duly adopted setting forth a proposed restated certificate of incorporation of said corporation (the "Restated Certificate of Incorporation"), which Restated Certificate of Incorporation reflected certain amendments to the certificate of incorporation of the Corporation, declaring said Restated Certificate of Incorporation and the amendments reflected therein to be advisable and approving its submission to the stockholders of the corporation for consideration thereof. That thereafter, pursuant to resolution of its Board of Directors, an Annual Meeting of the stockholders of the corporation was duly called and held, upon notice in accordance with Section 222 of the GCL, at which meeting more than two-thirds of the outstanding shares entitled to vote at such meeting were voted in favor of the Restated Certificate of Incorporation. That this Restated Certificate of Incorporation amends and restates the certificate of incorporation of the corporation, as the same heretofore has been amended, supplemented and/or restated (the "Certificate of Incorporation"), and has been duly adopted in accordance with Sections 242 and 245 of the GCL. That the text of the Certificate of Incorporation is hereby restated and integrated and further amended to read in its entirety as follows: FIRST. The name of the corporation is KEYSTONE CONSOLIDATED INDUSTRIES, INC. SECOND. The address of the corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The nature of the business or purpose to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH. The total number of shares of all classes of stock which the corporation shall have authority to issue is twelve million five hundred thousand (12,500,000), of which twelve million (12,000,000) shares are Common Stock of the par value of One Dollar ($1.00) each and five hundred thousand (500,000) shares are Preferred Stock without par value. The Preferred Stock shall be issued in one or more series. The Board of Directors is hereby expressly authorized to issue the shares of Preferred Stock in such series and to fix from time to time before issuance the number of shares to be included in any series and the designation, relative rights, preferences and limitations of all shares of such series. The authority of the Board of Directors with respect to each series shall include, without limitation thereto, the determination of any or all of the following and the shares of each series may vary from the shares of any other series in the following respects: (a) The number of shares constituting such series and the designation thereof to distinguish the shares of such series from the shares of all other series; (b) The annual dividend rate on the shares of that series and whether such dividends shall be cumulative and, if cumulative, the date from which dividends shall accumulate; (c) The redemption price or prices for the particular series, if redeemable, and the terms and conditions of such redemption; (d) The preference, if any, of shares of such series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation; (e) The voting rights, if any, in addition to the voting rights prescribed by law and the terms of exercise of such voting rights; (f) The right, if any, of shares of such series to be converted into shares of any other series or class and the terms and conditions of such conversion; and (g) any other relative rights, preferences and limitations of that series. No holder of stock of the corporation shall have any preemptive or other right whatever, as such holder, to subscribe for or purchase or to have offered to him for subscription or purchase any additional shares of stock of any class, character or description which may be issued or sold by the corporation, or obligations of any kind which may be issued or sold by the corporation and which shall be convertible into stock of any class of the corporation, or to which there shall be attached or appertain any warrant or warrants or other instrument or instruments that shall confer upon the holder of such obligation the right to subscribe for, or to purchase or receive from the corporation any shares of capital stock of any class of the corporation, whether now or hereafter authorized. FIFTH. The minimum amount of capital with which the corporation will commence business is One Thousand Dollars ($1,000.00). SIXTH. The corporation is to have perpetual existence. SEVENTH. The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. EIGHTH. The number of directors of the corporation shall be fixed by the by-laws, subject to the provisions of this certificate of incorporation and to the provisions of the laws of the State of Delaware. The board of directors shall be divided into three classes, designated Class I, Class II and Class III, as nearly equal in number as possible, and the term of office of directors of one class shall expire at each annual meeting of stockholders, and in all cases as to each director until his successor shall be elected and shall qualify (except in cases where no successor is elected due to a reduction in the size of the board) or until his earlier resignation, removal from office, death or incapacity. Additional directorships resulting from an increase in the number of directors shall be apportioned among the classes as equally as possible. Vacancies, including vacancies created by an increase in the size of the board of directors, shall be filled by the affirmative vote of a majority of the remaining board of directors. The initial term of office of directors of Class I shall expire at the annual meeting of stockholders in 1996; that of Class II shall expire at the annual meeting of stockholders in 1997; and that of Class III shall expire at the annual meeting of stockholders in 1998; and in all cases as to each director until his successor shall be elected and shall qualify (except in cases where no successor is elected due to a reduction in the size of the board) or until his earlier resignation, removal from office, death or incapacity. At each annual meeting of stockholders, the number of directors equal to the number of directors of the class whose term expires at the time of such meeting (or, if less, the number of directors properly nominated and qualified (or election) shall be elected to hold office until the third succeeding annual meeting of stockholders after their election. Any director or the entire board of directors may be removed, with or without cause, by holders of a majority of the shares then entitled to vote at an election of directors. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized: To make, after, amend or repeal the by-laws of the corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for say proper purpose and to abolish any such reserve in the manner in which it was created. By resolution passed by the majority of the whole board, to designate one or more committees, each committee to consist of two or more of the directors of the corporations, which, to the extent provided in the resolution or in the by-laws of the corporation, shall have and nay exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. NINTH. Meetings of the stockholders may be held outside of the State of Delaware, if the by-laws so provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. TENTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. ELEVENTH. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this provision to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. IN WITNESS WHEREOF, we have signed this certificate and caused the corporate seal of the corporation to be hereunto affixed this 15th day of September, 1995. /s/ Ralph P. End ------------------------------------------------ Ralph P. End, Vice President Attest: /s/ Sandra K. Myers Sandra K. Myers, Secretary State of Texas ) ) County of Dallas ) Be it remembered on this 15th day of September 1995, personally came before jut Linda S. Roberts, a notary public in and for the county and state aforesaid, Ralph P. End, party to the foregoing certificate, known to me personally to be such, and duty acknowledged the said certificate to be his act and deed, and that the facts therein stated are true. Given under my band and seat of office the day and year aforesaid. /s/ Linda S. Roberts ------------------------------------------------ (Notary public) My commission expires: 10-17-96 EX-3.2 3 kciexh3203k.txt CERTIFICATE OF AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION OF KEYSTONE CONSOLIDATED INDUSTRIES, INC. - ------------------------------------------------------------------------------- Keystone Consolidated Industries, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the state of Delaware (the "Corporation"), does hereby certify that: FIRST: The amendments to the Corporation's restated certificate of incorporation set forth below were duly adopted in accordance with the provisions of section 242 of the General Corporation Law of the state of Delaware, as amended. SECOND: Article Fourth of the Corporation's restated certificate of incorporation is amended to read in its entirety as follows: FOURTH. The total number of shares of all classes of stock which the corporation shall have authority to issue is twenty-seven million five hundred thousand (27,500,000), of which twenty-seven million (27,000,000) shares are Common Stock of the par value of One Dollar ($1.00) each and five hundred thousand (500,000) shares are Preferred Stock without par value (including 250,000 shares of Series A Cumulative Convertible Pay-In-Kind Preferred Stock by prior designation, as amended). The Preferred Stock shall be issued in one or more series. The Board of Directors is hereby expressly authorized to issue the shares of Preferred Stock in such series and to fix from time to time before issuance the number of shares to be included in any series and the designation, relative rights, preferences and limitations of all shares of such series. The authority of the Board of Directors with respect to each series shall include, without limitation thereto, the determination of any or all of the following and the shares of each series may vary from the shares of any other series in the following respects: (a) The number of shares constituting such series and the designation thereof to distinguish the shares of such series from the shares of all other series; (b) The annual dividend rate on the shares of that series and whether such dividends shall be cumulative and, if cumulative, the date from which dividends shall accumulate; (c) The redemption price or prices for the particular series, if redeemable, and the terms and conditions of such redemption; (d) The preference, if any, of shares of such series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation; (e) The voting rights, if any, in addition to the voting rights prescribed by law and the terms of exercise of such voting rights; (f) The right, if any, of shares of such series to be converted into shares of any other series or class and the terms and conditions of such conversion; and (g) Any other relative rights, preferences and limitations of that series. No holder of stock of the corporation shall have any preemptive or other right whatever, as such holder, to subscribe for or purchase or to have offered to him for subscription or purchase any additional shares of stock of any class, character or description which may be issued or sold by the corporation, or obligations of any kind which may be issued or sold by the corporation and which shall be convertible into stock of any class of the corporation, or to which there shall be attached or appertain any warrant or warrants or other instrument or instruments that shall confer upon the holder of such obligation the right to subscribe for, or to purchase or receive from the corporation any shares of capital stock of any class of the corporation, whether now or hereafter authorized. THIRD: Article Eighth of the Corporation's restated certificate of incorporation is amended to read in its entirety as follows: EIGHTH. The number of directors of the corporation shall be fixed by the by-laws, subject to the provisions of this certificate of incorporation and to the provisions of the laws of the State of Delaware. Any director or the entire board of directors may be removed, with or without cause, by holders of a majority of the shares then entitled to vote at an election of directors. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized: To make, alter, amend or repeal the by-laws of the corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By resolution passed by the majority of the whole board, to designate one or more committees, each committee to consist of two or more of the directors of the corporation, which, to the extent provided in the resolution or in the by-laws of the corporation, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. IN WITNESS WHEREOF, Keystone Consolidated Industries, Inc. has caused this certificate to be signed by Sandra K. Myers, its secretary, this __th day of October, 2003. KEYSTONE CONSOLIDATED INDUSTRIES, INC. By: /s/Sandra K. Myers, Secretary Sandra K. Myers, Secretary EX-3.3 4 kciexh3303.txt EXHIBIT A AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF KEYSTONE CONSOLIDATED INDUSTRIES, INC. - ----------------------------------------------------------------------------- ARTICLE I. NAME The name of the corporation is KEYSTONE CONSOLIDATED INDUSTIRES, INC. (the "Corporation"). ARTICLE II. REGISTERED OFFICE AND AGENT The address of the Corporation's registered office in the state of Delaware is Corporation Service Company, 2711 Centerville Road, Suite 400, city of Wilmington, county of New Castle, state of Delaware 19808. The name of the Corporation's registered agent at such address is Corporation Service Company. ARTICLE III. PURPOSE The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful business, act or activity for which corporations may be organized under the General Corporation Law of the state of Delaware as it may be amended from time to time (the "DGCL"). ARTICLE IV. AUTHORIZED STOCK Section 4.1. Authorized Stock. The total number of shares of stock that the Corporation shall have authority to issue is 11,001,000 shares, consisting of 11,000,000 shares of common stock, par value $0.01 per share (the "Common Stock"), and 1,000 shares of preferred stock, par value $0.01 per share (the "Preferred Stock"). I Section 4.2. Common Stock. The rights of the holders of common stock shall be subject to the rights of holders of Preferred Stock and any other applicable provisions of this certificate of incorporation. Section 4.3. Preferred Stock. The board of directors is expressly authorized, at any time and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series with such designations, preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions thereof, as shall be expressed in the resolution or resolutions providing for the issuance thereof adopted by the board of directors and as are not inconsistent with this certificate of incorporation or any amendment hereto, and as may be permitted by the DGCL. Section 4.4. Record Holders. The Corporation shall be entitled to treat the person in whose name any share of its stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation shall have notice thereof, except as expressly provided by applicable law. ARTICLE V. EXISTENCE The Corporation is to have perpetual existence. ARTICLE VI. BYLAWS In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized to adopt, amend or repeal the bylaws or adopt new bylaws. ARTICLE VII. MEETINGS OF STOCKHOLDERS BOOKS OF CORPORATION ELECTION OF DIRECTORS Meetings of stockholders may be held within or without the state of Delaware, as the bylaws of the Corporation may provide. The books of the Corporation may be kept outside the state of Delaware at such place or places as may be designated from time to time by the board of directors or in the bylaws of the Corporation. Election of directors need not be by written ballot unless the bylaws of the Corporation so provide. ARTICLE VIII. INDEMNIFICATION The Corporation shall, to the fullest extent permitted by law, indemnify any and all officers and directors of the Corporation, and may, to the fullest extent permitted by law or to such lesser extent as is determined in the discretion of the board of directors, indemnify all other persons from and against all expenses, liabilities or other matters and advance expenses to all persons whom it shall have the power to indemnify. ARTICLE IX. DIRECTOR LIABILITY A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for such liability as is expressly not subject to limitation under the Delaware General Corporation Law, as the same exists or may hereafter be amended to further limit or eliminate such liability. Any repeal or modification of this ARTICLE by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. ARTICLE X. CERTAIN BUSINESS COMBINATIONS The Corporation expressly elects not to be governed by Section 203 of the General Corporation Law of the state of Delaware. ARTICLE XI. SETTLEMENTS WITH CREDITORS OR STOCKHOLDERS Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the state of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. ARTICLE XII. AMENDMENT The Corporation shall have the right, subject to any express provisions or restrictions contained in this certificate of incorporation or bylaws of the Corporation, from time to time, to amend this certificate of incorporation or any provision thereof in any manner now or hereafter provided by law, and all rights and powers of any kind conferred upon a director or stockholder of the Corporation by this certificate of incorporation or any amendment thereof are conferred subject to such right. EX-3.6 5 kciexh3603k.txt KEYSTONE CONSOLIDATED INDUSTRIES, INC. AMENDED AND RESTATED BYLAWS AMENDED AND RESTATED BYLAWS OF KEYSTONE CONSOLIDATED INDUSTRIES, INC. a Delaware corporation (Amended and Restated as of August 31, 2005) KEYSTONE CONSOLIDATED INDUSTRIES, INC. AMENDED AND RESTATED BYLAWS TABLE OF CONTENTS
Page TABLE OF CONTENTS.................................................................................................i ARTICLE I. REGISTERED AGENT AND OFFICES..........................................................................1 Section 1.1. Registered Agent and Office................................................................1 Section 1.2. Other Offices..............................................................................1 ARTICLE II. MEETINGS OF STOCKHOLDERS.............................................................................2 Section 2.1. Place and Time of Meetings.................................................................2 Section 2.2. Business to be Transacted at Meetings......................................................3 Section 2.3. Notice.....................................................................................5 Section 2.4. List of Stockholders.......................................................................5 Section 2.5. Quorum.....................................................................................6 Section 2.6. Proxies....................................................................................7 Section 2.7. Order of Business..........................................................................8 Section 2.8. Appointment of Inspectors of Election......................................................9 Section 2.9. Action Without a Meeting..................................................................10 Section 2.10. Fixing A Record Date.....................................................................12 Section 2.11. Telephone Meetings.......................................................................14 Section 2.12. Minutes..................................................................................15 ARTICLE III. DIRECTORS..........................................................................................15 Section 3.1. Number, Qualifications and Term of Office.................................................15 Section 3.2. Nomination of Director Candidates.........................................................17 Section 3.3. Removals..................................................................................19 Section 3.4. Vacancies.................................................................................19 Section 3.5. Annual Meeting............................................................................20 Section 3.6. Other Meetings and Notice.................................................................21 Section 3.7. Quorum....................................................................................21 Section 3.8. Committees................................................................................22 Section 3.9. Committee Rules...........................................................................23 Section 3.10. Telephonic Meetings......................................................................23 Section 3.11. Presumption of Assent....................................................................24 Section 3.12. Action Without a Meeting.................................................................24 Section 3.13. Compensation.............................................................................25 Section 3.14. Minutes..................................................................................25 ARTICLE IV. OFFICERS............................................................................................25 Section 4.1. Number....................................................................................25 Section 4.2. Election and Term of Office...............................................................26 Section 4.3. The Chairman of the Board.................................................................26 Section 4.4. The Vice Chairman of the Board............................................................27 Section 4.5. The President.............................................................................28 Section 4.6. The Chief Executive Officer...............................................................29 Section 4.7. The Chief Financial Officer...............................................................29 Section 4.8. Vice Presidents...........................................................................30 Section 4.9. The Secretary and Assistant Secretary.....................................................30 Section 4.10. The Treasurer and Assistant Treasurer....................................................31 Section 4.11. Vacancies................................................................................32 Section 4.12. Other Officers, Assistant Officers and Agents............................................33 Section 4.13. Normal Duties and Responsibilities of Officers...........................................33 ARTICLE V. INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND OTHERS......................................34 Section 5.1. Indemnification...........................................................................34 Section 5.2. Advancement of Expenses...................................................................35 Section 5.3. Expenses of Contested Indemnification Claims..............................................35 Section 5.4. Indemnification Not Exclusive.............................................................36 Section 5.5. Survival of Indemnification and Advancement of Expenses...................................36 Section 5.6. Employees, Agents and Others..............................................................37 Section 5.7. Contract Right............................................................................37 Section 5.8. Insurance.................................................................................38 Section 5.9. Certain References Under Article V........................................................38 ARTICLE VI. STOCK CERTIFICATES..................................................................................39 Section 6.1. Form......................................................................................39 Section 6.2. Transfers.................................................................................40 Section 6.3. Lost or Destroyed Certificates............................................................41 Section 6.4. Registered Stockholders...................................................................41 Section 6.5. Restrictions on Transfers of Shares.......................................................42 ARTICLE VII. CERTAIN BUSINESS COMBINATIONS......................................................................42 ARTICLE VIII. GENERAL PROVISIONS.................................................................................43 Section 8.1. Dividends.................................................................................43 Section 8.2. Accounts..................................................................................43 ARTICLE IX. NOTICES.............................................................................................45 Section 9.1. General...................................................................................45 Section 9.2. Waivers...................................................................................45 Section 9.3. Attendance as Waiver......................................................................46 Section 9.4. Omission of Notice to Stockholders........................................................46
AMENDED AND RESTATED BYLAWS OF KEYSTONE CONSOLIDATED INDUSTRIES, INC. a Delaware corporation (Amended and Restated as of August __, 2005) - ------------------------------------------------------------------------------- ARTICLE I. REGISTERED AGENT AND OFFICES Section 1.1. Registered Agent and Office. The registered agent and office of the corporation shall be such person or entity and located at such place within the state of Delaware as the board of directors may from time to time determine. Section 1.2. Other Offices. The corporation may also have offices at such other places, both within and without the state of Delaware, as the corporation's board of directors may from time to time determine or the business of the corporation may require. ARTICLE II. MEETINGS OF STOCKHOLDERS Section 2.1. Place and Time of Meetings. All meetings of the stockholders shall be held on such date and at such time and place, within or without the state of Delaware, as shall be determined, from time to time, by the board of directors or by means of remote communication. The place at which a meeting of stockholders shall be held shall be stated in the notice and call of the meeting or a duly executed waiver of notice thereof. The chairman of the board, the president, the chief executive officer, the board of directors or the holders of at least 15 percent of the shares of the corporation that would be entitled to vote at such a meeting may call special meetings of stockholders. If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by facsimile transmission to the chairman of the board, the president, the chief executive officer or the secretary of the corporation. No business may be transacted at such special meeting other than specified in such notice. Nothing contained in this Section shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held. Section 2.2. Business to be Transacted at Meetings. At a meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a special meeting, business must be specified in the notice of the meeting (or any supplement thereto). To be properly brought before an annual meeting, business must be (a) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must, in addition to any requirements imposed by federal securities law or other applicable laws, have given timely notice thereof in writing to the secretary of the corporation. To be timely for an annual meeting, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, no later than (i) if the corporation mailed notice of the last annual meeting or publicly disclosed the date of such meeting and the annual meeting for the current year has not changed more than thirty days from such date (as if in the current year), forty-five days before the earlier of the date (as if in the current year) of such mailing or public disclosure or (ii) otherwise ninety days prior to the annual meeting. A stockholder's notice to the secretary with regard to an annual meeting shall set forth as to each order of business that the stockholder proposes to bring before the meeting (a) a brief description of such business desired to be brought before the meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the corporation that are beneficially owned by the stockholder and (d) any material interest of the stockholder in such business. The chairman of the meeting may refuse to bring before a meeting any business not properly brought before the meeting in compliance with this section. Section 2.3. Notice. Notice of the time and place of an annual meeting of stockholders and notice of the time, place and purpose or purposes of a special meeting of the stockholders shall be given by remote communications or by mailing written or printed notice of the same not less than 10, nor more than 60, days prior to the meeting, with postage prepaid, to each stockholder of record of the corporation entitled to vote at such meeting, and addressed to the stockholder's last known post office address or to the address appearing on the corporate books of the corporation. Section 2.4. List of Stockholders. The officer or agent having charge of the stock transfer books of the corporation shall make, at least 10 days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting arranged in alphabetical order, specifying the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting on a reasonably accessible electronic network or, during ordinary business hours, at the principal place of business of the corporation. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. The original stock transfer books shall be the only evidence as to who are the stockholders entitled to examine such list or transfer book or to vote at any such meeting of stockholders. Section 2.5. Quorum. The holders of a majority of the votes entitled to be cast at any meeting of stockholders, counted as a single class if there be more than one class of stock entitled to vote at such meeting, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders except as otherwise provided by statute or by the certificate of incorporation. Once a quorum is present at a meeting of the stockholders, the stockholders represented in person or by proxy at the meeting may conduct such business as may be properly brought before the meeting until it is adjourned, and the subsequent withdrawal from the meeting by any stockholder or the refusal of any stockholder represented in person or by proxy to vote shall not affect the presence of a quorum at the meeting. If a quorum is not present, the chairman of the meeting or the holders of the shares present in person or represented by proxy at the meeting, and entitled to vote thereat, shall have the power, by the affirmative vote of the holders of a majority of such shares, to adjourn the meeting to another time and/or place. Unless the adjournment is for more than thirty days or unless a new record date is set for the adjourned meeting, no notice of the adjourned meeting need be given to any stockholder provided that the time and place of the adjourned meeting were announced at the meeting at which the adjournment was taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. Section 2.6. Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. A telegram, telex, cablegram or reliable electronic transmission executed or duly authorized by the stockholder, or a photographic, photostatic, facsimile or reliable reproduction of a writing executed or duly authorized by the stockholder shall be treated as an execution in writing for purposes of this section. No proxy shall be valid after three years from the date of its execution unless otherwise provided in the proxy. Each proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and the proxy is coupled with an interest. Section 2.7. Order of Business. The order of business at each such stockholders meeting shall be as determined by the chairman of the meeting. One of the following persons, in the order in which they are listed (and in the absence of the first, the next, and so on), shall serve as chairman of the meeting: the chairman of the board, vice chairman of the board, president, the chief executive officer, vice presidents (in the order of their seniority if more than one) and secretary. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls. Section 2.8. Appointment of Inspectors of Election. The board of directors shall appoint one or more inspectors of election ("inspectors") to act at such meeting or any adjournment or postponement thereof and make a written report thereof. The board of directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is so appointed or if no inspector or alternate is able to act, the chairman of the board, the vice chairman of the board, the president or the chief executive officer shall appoint one or more inspectors to act at such meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors may be directors, officers or employees of the corporation. Section 2.9. Action Without a Meeting. (a) Any action to be taken at a meeting of the stockholders, may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holder or holders of shares having not less than the minimum number of votes that would be necessary to take such action at a meeting at which the holders of all shares entitled to vote on the action were present and voted. (b) Every written consent of the stockholders shall bear the date of signature of each stockholder who signs the consent. No written consent shall be effective to take the action that is the subject of the consent unless, within 60 days after the date of the earliest dated consent delivered to the corporation as provided below, a consent or consents signed by the holder or holders of shares having not less than the minimum number of votes that would be necessary to take the action that is the subject of the consent are delivered to the corporation by delivery to its registered office, its principal place of business, or an officer or agent of the corporation having custody of the books in which proceedings of meetings of the stockholders are recorded. Such delivery shall be made by hand or by certified or registered mail, return receipt requested, and in the case of delivery to the corporation's principal place of business, shall be addressed to the president or chief executive officer of the corporation. (c) A telegram, cablegram or electronic transmission by a stockholder, or a photographic, photostatic, facsimile or other reliable reproduction of a writing signed or transmitted by a stockholder, shall be regarded as signed by the stockholder for the purposes of this section. (d) Prompt notice of the taking of any action by stockholders without a meeting by less than unanimous written consent shall be given to those stockholders who did not consent in writing to the action and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the corporation. Section 2.10. Fixing A Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If the board of directors does not so fix a record date: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed. (c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 2.11. Telephone Meetings. Stockholders may participate in and hold a meeting by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 2.12. Minutes. The stockholders shall cause regular minutes of their proceedings to be kept, and such minutes shall be placed in the minute book of the corporation. ARTICLE III. DIRECTORS Section 3.1. Number, Qualifications and Term of Office. The business and affairs of the corporation shall be managed by a board of directors. Subject to the preferential voting rights of the holders of preferred stock or any other class of capital stock of the corporation or any series of any of the foregoing that is then outstanding, the board of directors shall consist of one or more members. The number of members of the board of directors shall be fixed from time to time (i) by the board of directors pursuant to a resolution adopted by a majority of the entire board of directors or (ii) by the stockholders pursuant to a resolution adopted by a majority of the holders of shares of the corporation entitled to vote for the election of directors; provided, however, that if the stockholders have acted to fix the number of directors, any action by the board of directors to fix another number shall only become effective on or after the first annual meeting of stockholders that follows such stockholder action. Each director shall be elected at the annual meeting of the stockholders, except as provided in Section 3.4, and each director elected shall hold office until the next annual meeting of stockholders and until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term expires. Notwithstanding anything herein or in this document to the contrary, until the later of either (i) August 31, 2008 or (ii) the obligations of the corporation and its affiliates under the New Secured Note (as that term is defined in that certain Debtors' Third Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the "Plan") confirmed by the United States Bankruptcy Court for the Eastern District of Wisconsin (the "Court") on August 10, 2005, in case number 04-22421, named In re FV Steel and Wire Company, et al.) are satisfied: (y) the number of members of the board of directors of the corporation shall be fixed at seven (7) , and (z) vacancies of the board of directors of the corporation shall be filled pursuant to the terms of section 11 of the Lock-Up Agreement (as identified by and defined in the Plan). Section 3.2. Nomination of Director Candidates. Subject to the preferential voting rights of the holders of preferred stock or any other class of capital stock of the corporation or any series of any of the foregoing that is then outstanding, nominations for the election of directors may be made by the board of directors or by any stockholder entitled to vote for the election of directors. Any stockholder entitled to vote for the election of a director at a meeting may nominate persons for whom such stockholder may vote only if written notice of such stockholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the secretary of the corporation not later than (a) with respect to an election to be held at an annual meeting of stockholders, (i) if the corporation mailed notice of the last annual meeting or publicly disclosed the date of such meeting and the annual meeting for the current year has not changed more than thirty days from such date (as if in the current year), forty-five days before the earlier of the date (as if in the current year) of such mailing or public disclosure or (ii) otherwise ninety days prior to the annual meeting and (b) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the tenth day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons intended to be nominated; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had such requirements been applicable and each nominee been nominated, or intended to be nominated, by the board of directors; and (e) the consent of each nominee to serve as a director of the corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with this section. Section 3.3. Removals. Subject to the preferential voting rights of the holders of preferred stock or any other class of capital stock of the corporation or any series of any of the foregoing that is then outstanding, each director may be removed from office at any time by the stockholders, with or without cause, by the affirmative vote of the holders of at least a majority of the voting power of all of the shares of the corporation entitled to vote for the election of such director. Section 3.4. Vacancies. Subject to the preferential voting rights of the holders of preferred stock or any other class of capital stock of the corporation or any series of any of the foregoing that is then outstanding and except as otherwise required by law, all vacancies in the board of directors, whether caused by resignation, death or otherwise, may be filled by a majority of the remaining directors though less than a quorum; provided, however, that any vacancy resulting from an increase in the number of directors that is the result of a resolution adopted by the stockholders of the corporation may be filled by the stockholders of the corporation in accordance with the laws of the state of Delaware, any other applicable provisions of the certificate of incorporation and these bylaws. Each director so chosen shall hold office for the unexpired term of his or her predecessor and until his or her successor is elected and qualified or until his or her earlier death, resignation or removal. Section 3.5. Annual Meeting. The annual meeting of the board of directors may be held without notice immediately after the annual meeting of stockholders at the location of the stockholders' meeting. If not held immediately after the annual meeting of the stockholders, the annual meeting of the board of directors shall be held as soon thereafter as may be convenient. Section 3.6. Other Meetings and Notice. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the vice chairman of the board, the president or the or chief executive officer and shall be called by the chairman of the board on the written request of a majority of directors, in each case on at least twenty-four hours notice to each director. Section 3.7. Quorum. A majority of the total number of directors shall be necessary at all meetings to constitute a quorum for the transaction of business. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. At such adjourned meeting at which a quorum shall be present, any business may be transacted that might have been transacted at the meeting as originally notified and called. Section 3.8. Committees. Standing or temporary committees consisting of one or more directors of the corporation may be appointed by the board of directors from time to time, and the board of directors may from time to time invest such committees with such powers as it may see fit, subject to limitations imposed by statute and such conditions as may be prescribed by the board of directors. An executive committee may be appointed by resolution passed by a majority of the entire board of directors and if appointed it shall have all the powers provided by statute, except as specially limited by the board of directors. All committees so appointed shall keep regular minutes of the transactions of their meetings and shall cause them to be recorded in books kept for that purpose in the office of the corporation, and shall report the same to the board of directors at its next meeting. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The board shall have the power at any time to change the membership of, to increase or decrease the membership of, to fill all vacancies in and to discharge any committee of the board, or any member thereof, either with or without cause. Section 3.9. Committee Rules. Each committee of the board of directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by the resolution of the board of directors designating such committee, but in all cases the presence of at least a majority of the members of such committee shall be necessary to constitute a quorum. Section 3.10. Telephonic Meetings. Members of the board of directors or any committee designated by the board of directors may participate in any meeting of the board of directors or such committee by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute presence in person at such meeting. Section 3.11. Presumption of Assent. A director of the corporation who is present at a meeting of the board of directors or any committee thereof at which action on any corporate matter is taken shall be deemed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 3.12. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all members of the board of directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board of directors or committee. Action taken pursuant to such written consent of the board of directors or of any committee thereof shall have the same force and effect as if taken by the board of directors or the committee, as the case may be, at a meeting thereof. Section 3.13. Compensation. The board of directors shall have the authority to fix the compensation of directors. Section 3.14. Minutes. The board of directors shall cause to be kept regular minutes of its proceedings, and such minutes shall be placed in the minute book of the corporation. ARTICLE IV. OFFICERS Section 4.1. Number. The officers of the corporation shall be a chairman of the board, a vice chairman of the board, a president, one or more vice presidents, a secretary, a treasurer, and such other officers and assistant officers as the board of directors may, by resolution, appoint. Any two or more offices may be held by the same person. In its discretion, the board of directors may choose not to fill any office for any period as it may deem advisable, except the offices of president and secretary. Section 4.2. Election and Term of Office. The officers of the corporation shall be elected annually by the board of directors at the annual meeting of the board of directors. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Each officer shall hold office until the next annual meeting of the board of directors and until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 4.3. The Chairman of the Board. The chairman of the board shall preside at all meetings of the stockholders and directors. He or she shall have general and active management of the business of the corporation, shall see that all orders and resolutions of the board of directors are carried into effect and, in connection therewith, shall be authorized to delegate to the vice chairman of the board, president and other officers such of his or her powers and duties as chairman of the board at such time and in such manner as he or she may deem to be advisable. The chairman of the board shall be an ex officio member of all standing committees and he or she shall have such other powers and duties as may from time to time be assigned by the board of directors. Section 4.4. The Vice Chairman of the Board. The vice chairman of the board shall assist the chairman of the board in the management of the business of the corporation, and, in the absence or disability of the chairman of the board, shall preside at all meetings of the stockholders and the board of directors and exercise the other powers and perform the other duties of the chairman of the board or designate the executive officers of the corporation by whom such other powers shall be exercised and other duties performed. The vice chairman of the board shall be an ex officio member of all standing committees and he or she shall have such other powers and duties as may from time to time be assigned by the board of directors or by the chairman of the board. In addition to the foregoing, the vice chairman of the board shall have such other powers, duties and authority as may be set forth elsewhere in these bylaws. Section 4.5. The President. The president shall be the corporation's chief operating officer unless otherwise determined by the board of directors. The president shall assist the chairman of the board in the management of the business of the corporation, and, in the absence or disability of the chairman of the board and the vice chairman of the board, shall preside at all meetings of the stockholders and the board of directors and exercise the other powers and perform the other duties of the chairman of the board or designate the executive officers of the corporation by whom such other powers shall be exercised and other duties performed. The president shall be an ex officio member of all standing committees and he or she shall have such other powers and duties as may from time to time be assigned by the board of directors or by the chairman of the board. In addition to the foregoing, the president shall have such other powers, duties, and authority as may be set forth elsewhere in these bylaws. If the board of directors does not elect a chairman or vice chairman of the board, the president shall also have the duties and responsibilities, and exercise all functions, of the chairman and the vice chairman of the board as provided in these bylaws. Section 4.6. The Chief Executive Officer. The board of directors may designate an individual, whether or not such individual is an officer of the corporation, to serve as the chief executive officer of the corporation. The chief executive officer shall have the duties and responsibilities, and exercise all functions, as the board of directors may determine. Section 4.7. The Chief Financial Officer. The board of directors may designate an individual, whether or not such individual is an officer of the corporation, to serve as the chief financial officer of the corporation. The chief financial officer shall have the duties and responsibilities, and exercise all functions, as the board of directors may determine. Section 4.8. Vice Presidents. Each vice president shall have such powers and discharge such duties as may be assigned from time to time by the chairman of the board, the vice chairman of the board or the president. During the absence or disability of the president, first the chief executive officer and in the absence or disability of the chief executive officer, one such vice president, when designated by the board of directors, shall exercise all the functions of the president. Section 4.9. The Secretary and Assistant Secretary. The secretary or the chairman of the board shall issue notices for all meetings. The secretary shall keep minutes of all meetings of the board of directors, the committees thereof and the stockholders, shall have charge of the seal and the corporate books and shall make such reports and perform such other duties as are incident to the office, and perform such other duties designated or properly required by the chairman of the board, the vice chairman of the board, the president or the chief executive officer. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The assistant secretary shall be vested with the same powers and duties as the secretary, and any act may be done or duty performed by the assistant secretary with like effect as though done or performed by the secretary. The assistant secretary shall have such other powers and perform such other duties as may be assigned by the chairman of the board, the vice chairman of the board, the president or the chief executive officer. Section 4.10. The Treasurer and Assistant Treasurer. The treasurer shall have the custody of all moneys and securities of the corporation and shall keep regular books of account. He or she shall disburse the funds of the corporation in payment of just demands against the corporation, or as may be ordered by the chairman of the board, the vice chairman of the board, the president, the chief executive officer or by the board of directors, taking proper vouchers for such disbursements, and shall render to the board of directors from time to time as may be required of him or her, an account of all transactions as treasurer and of the financial condition of the corporation. The treasurer shall perform all duties incident to the office, and perform such other duties designated or properly required by the chairman of the board, the vice chairman of the board, the president or the chief executive officer. The assistant treasurer shall be vested with the same powers and duties as the treasurer, and any act may be done, or duty performed by the assistant treasurer with like effect as though done or performed by the treasurer. The assistant treasurer shall have such other powers and perform such other duties as may be assigned by the chairman of the board, the vice chairman of the board, the president or the chief executive officer. Section 4.11. Vacancies. Vacancies in any office arising from any cause may be filled by the directors for the unexpired portion of the term with a majority vote of the directors then in office. In the case of the absence or inability to act of any officer of the corporation and of any person herein authorized to act in his or her place, the board of directors may from time to time delegate the powers or duties of such officer to any other officer or any director or other person whom it may select. Section 4.12. Other Officers, Assistant Officers and Agents. Officers, assistant officers, and agents, if any, other than those whose duties are provided for in these bylaws shall hold their offices for such terms and shall exercise such powers and perform such duties as the board of directors may determine. Section 4.13. Normal Duties and Responsibilities of Officers. Unless otherwise provided in these bylaws or the board of directors decides otherwise, if an officer title is one commonly used for officers of a business corporation formed under the Delaware General Corporation Law or any successor or similar statute, the assignment of such title shall constitute the delegation to such officer of the authority and duties that are normally associated with that office, subject to any specific delegation of authority and duties made to such officer by the board of directors. ARTICLE V. INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND OTHERS Section 5.1. Indemnification. To the fullest extent permitted by Delaware law, the corporation shall indemnify any and all officers and directors of the corporation from and against all expenses (including attorneys' fees), liabilities or other matters arising out of their status as such or their acts, omissions or services rendered by such persons in such capacities or otherwise while serving at the request of the corporation. Unless specifically addressed in a repeal or amendment of Delaware law with regard to a corporation's ability to indemnify its officers and directors, no such repeal or amendment shall adversely affect any indemnification rights of any person existing at the time of such repeal or amendment. Section 5.2. Advancement of Expenses. Reasonable expenses (including attorneys' fees) incurred by a director or officer who was, is or is threatened to be made a named defendant or respondent in a proceeding by reason of his or her status as a director or officer of the corporation or services rendered by such persons in such capacities or otherwise at the request of the corporation or incurred by a director or officer for prosecuting a claim under Section 5.3 shall be paid by the corporation in advance of the final disposition of such proceeding upon receipt of a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification and a written undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as authorized in this Article. Section 5.3. Expenses of Contested Indemnification Claims. If a claimant makes a claim on the corporation under Section 5.1 or 5.2 and the corporation does not pay such claim in full within thirty days after it has received such written claim, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expenses of prosecuting such claim. Section 5.4. Indemnification Not Exclusive. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any other bylaw, agreement, vote of stockholders or directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. Section 5.5. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person. Section 5.6. Employees, Agents and Others. To the fullest extent of Delaware law, the corporation may grant rights of indemnification and advancement of expenses to any person who is not at the time a current director or officer of the corporation. Section 5.7. Contract Right. Each of the rights of indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall be a contract right and any repeal or amendment of the provisions of this Article shall not adversely affect any such right of any person existing at the time of such repeal or amendment with respect to any act or omission occurring prior to the time of such repeal or amendment, and further, shall not apply to any proceeding, irrespective of when the proceeding is initiated, arising from the service of such person prior to such repeal or amendment. Section 5.8. Insurance. To the fullest extent of Delaware law, the corporation shall have power to purchase and maintain insurance on behalf of any person, including one who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of this Article. Section 5.9. Certain References Under Article V. For purposes of this Article, references to "the corporation," "other enterprise," "proceeding" and "serving at the request of the corporation" shall have the meanings given such terms in Section 145 of the Delaware General Corporation Law or any successor or similar statute. ARTICLE VI. STOCK CERTIFICATES Section 6.1. Form. The shares of stock of the corporation shall be represented by certificates, provided that the board of directors of the corporation may, by resolution, provide that some or all shares of any or all classes or series of the corporation's stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of uncertificated shares of the corporation shall be entitled to have a stock certificate issued to such holder upon request. Stock certificates shall be issued in numerical order, and each stockholder shall be entitled to a certificate signed by the chairman of the board, the president, the chief executive officer or any vice president and the secretary, any assistant secretary, the treasurer or any assistant treasurer, certifying to the number of shares owned by such stockholder. Where, however, such certificate is signed by a transfer agent or an assistant transfer agent or by a transfer clerk acting on behalf of the corporation, and a registrar or by an agent acting in the dual capacity of transfer agent and registrar, the signatures of any of the above-named officers may be facsimile signatures. In the event that any officer who has signed, or whose facsimile signature has been used on, a certificate ceases to be an officer before the certificate has been delivered, such certificate may nevertheless be adopted and issued and delivered by the corporation, as though the officer who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon, had not ceased to be such officer of the corporation. Section 6.2. Transfers. Transfers of stock shall be made only upon the transfer books of the corporation or respective transfer agents designated to transfer the several classes of stock. Before a new certificate is issued for shares or uncertificated shares are credited to a stockholder's account, as applicable, any old certificate, if any, representing such shares shall be duly surrendered for cancellation. Section 6.3. Lost or Destroyed Certificates. The corporation may issue a new stock certificate in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation shall, except as otherwise determined by the board of directors, the chairman of the board, the president, the chief executive officer any vice president or other authorized officer, require the owner of the lost, stolen or destroyed certificate, or his or her legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 6.4. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of another person, whether or not the corporation shall have express or other notice thereof, except as otherwise provided by the laws of the state of Delaware. Section 6.5. Restrictions on Transfers of Shares. Notice of any restriction on the transfer of shares of the corporation's stock shall be placed on each certificate of stock issued, or in the case of uncertificated shares, contained in the notice sent to the registered holder of such shares in accordance with the laws of the state of Delaware. ARTICLE VII. CERTAIN BUSINESS COMBINATIONS The provision of Section 203 of the Delaware General Corporation Law shall not apply to the corporation. This Article VII shall be amended, altered or repealed only as provided in Section 203 of the Delaware General Corporation Law. ARTICLE VIII. GENERAL PROVISIONS Section 8.1. Dividends. Dividends upon the capital stock of the corporation, subject to any applicable provisions of the certificate of incorporation, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to the applicable provisions of the certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think in the best interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 8.2. Accounts. The chairman of the board, vice chairman of the board, president, the chief executive officer or any vice president is authorized for and on behalf of the corporation: to establish, maintain and to close depositary accounts, in the corporation's name, for the deposit and withdrawal of corporation funds; to designate those individuals authorized to withdraw funds or sign checks in said depositary accounts; and to execute customer agreements with respect to such depositary accounts, including forms of corporate resolutions, certified with respect to the approval of the board of directors as of the date such forms of corporate resolutions are executed. The secretary or assistant secretary is, authorized for and on behalf of the corporation without further action of the board of directors to certify as to the approval of the board of directors of forms of resolutions regarding any of such depositary or trading accounts as of the date the officer of the corporation executes the customer agreement with respect to each such account. ARTICLE IX. NOTICES Section 9.1. General. Whenever the provisions of any statute or these bylaws require notice to be given to any director, officer or stockholder, such notice may be given personally or in writing by facsimile, by telegraph or by depositing the same in the United States mail with postage prepaid addressed to each director, officer or stockholder at his or her address, as the same appears in the books of the corporation, and the time when the same shall be personally given, sent by facsimile or telegraph or mailed shall be deemed to be the time of the giving of such notice. Section 9.2. Waivers. Whenever any notice whatever is required to be given under provisions of law or of the certificate of incorporation or of these bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Section 9.3. Attendance as Waiver. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Section 9.4. Omission of Notice to Stockholders. Any notice required to be given to any stockholder under any statutory provision, the certificate of incorporation or these bylaws need not be given to the stockholder if: (a) notice of two consecutive annual meetings and all notices of meetings held or actions by written consent taken during the period between those annual meetings, if any, or (b) all, and at least two, payments (if sent by first class mail) of distributions or interest on securities during a twelve month period have been mailed to that person, addressed at his or her address as shown on the share transfer records of the corporation, and have been returned undeliverable. Any action or meeting taken or held without notice to such a person shall have the same force and effect as if the notice had been duly given. If such a person delivers to the corporation a written notice setting forth his or her then current address, the requirement that notice be given to that person shall be reinstated. ADOPTED BY THE BOARD OF DIRECTORS AS OF August __, 2005 Sandy Myers, Secretary EX-4.17 6 kciexh41703k.txt THIRTEENTH AMENDMENT TO AMENDED AND RESTATED REVOLVING LOAN AND SECURITY AGREEMENT THIS THIRTEENTH AMENDMENT TO AMENDED AND RESTATED REVOLVING LOAN AND SECURITY AGREEMENT (the "Amendment") is entered into as of November 17, 2003, by and between KEYSTONE CONSOLIDATED INDUSTRIES, INC., a Delaware corporation ("Borrower"), and CONGRESS FINANCIAL CORPORATION (CENTRAL), an Illinois corporation ("Lender"). Except for terms which are expressly defined herein, all capitalized terms used herein shall have the meaning subscribed to them in the Loan Agreement (as defined below). RECITALS WHEREAS, Borrower and Lender are parties to that certain Amended and Restated Revolving Loan and Security Agreement dated as of December 29, 1995 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"). WHEREAS, Borrower desires to amend the terms of the Loan Agreement. WHEREAS, Lender is willing to amend the Loan Agreement on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: I. Amendment to the Loan Agreement. A. Subsection (d) of the definition of "Eligible Borrower Inventory" in Section 1 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "(d) Intentionally Deleted"; B. Subsection (d) of the definition of "Eligible Caldwell Inventory" in Section 1 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "(d) Intentionally Deleted"; C. Subsection (d) of the definition of "Eligible Fox Valley Inventory" in Section 1 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "(d) Intentionally Deleted"; D. Section 2.4(a) of the Loan Agreement is hereby amended and restated in its entirety to read as follows: (a) Lender is making a Term Loan to Borrower in the original principal amount of $6,500,000. The Term Loan is (a) evidenced by a Term Loan promissory note in such original principal amount to be duly executed and delivered by Borrower to Lender on the date of such borrowing; (b) to be repaid, together with interest and other amounts, in accordance with this Agreement, the Term Loan promissory note, and the other Financing Agreements and (c) secured by all of the Collateral. The principal amount of the Term Loan shall be repaid in forty-eight (48) consecutive monthly installments (or earlier as provided herein) payable on the first day of each month commencing [December 1, 2003], of which the first forty-seven (47) installments shall each be in the amount of $135,417 and the last installment shall be in the amount of the entire unpaid balance of the Term Loan and shall be payable on the Renewal Date. II. Conditions to Effectiveness of Amendment. This Amendment shall become effective on the date (the "Effective Date") when Borrower shall satisfy all of the following conditions: A. Amendment. Borrower and Lender shall have duly executed and delivered this Amendment. B. Amended and Restated Term Note. Borrower shall have delivered to Lender a fully executed Amended and Restated Term Note, in form and substance satisfactory to Lender. C. Additional Matters. Lender shall have received such other certificates, opinions, UCC financing statements, documents and instruments relating to the obligations or the transactions contemplated hereby as may have been reasonably requested by Lender, and all corporate and other proceedings and all other documents and all legal matters in connection with the transactions contemplated hereby shall be reasonably satisfactory in form and substance to Lender. III. Covenants. Within thirty (30) days following the Effective Date, Borrower shall deliver to Lender a fully executed copy of a Mortgage Modification with respect to each existing Mortgage on Borrower's owned Real Estate, in form and substance satisfactory to Lender, and with respect to all existing title policies insuring Lender's Lien on the Mortgaged Real Property, endorsements issued by the Title Company insuring that Lender's Lien (and the priority thereof) is not impacted by this Agreement. Notwithstanding the occurrence of the Effective Date, the effect of the Amendment set forth in Article I above shall be revoked, terminated and be of no further force or effect if such requirements set forth in Article III above shall not have been met within the time period set forth above. IV. Representations and Warranties. In order to induce Lender to enter into this Amendment, Borrower represents and warrants to Lender, upon the effectiveness of this Amendment, which representations and warranties shall survive the execution and delivery of this Amendment, that: A. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation; B. the execution, delivery and performance of this Amendment by Borrower are within its corporate powers and have been duly authorized by all necessary corporate action; and C. this Amendment constitutes a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally, and by general principles of equity. V. Miscellaneous. A. Effect; Ratification. The amendments set forth herein are effective solely for the purpose set forth herein and shall be limited precisely as written, and shall not be deemed to (i) be a consent to any amendment, waiver or modification of any other term or condition of the Loan Agreement or of any other Financing Agreements or (ii) prejudice any right or rights that Lender may now have or may have in the future under or in connection with the Loan Agreement or any other Financing Agreements. Each reference in the Loan Agreement to "this Agreement", "herein", "hereof" and words of like import and each reference in the other Financing Agreements to the Loan Agreement shall mean the Loan Agreement as amended hereby. This Amendment shall be construed in connection with and as part of the Loan Agreement and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement and each other Financing Agreement, except as herein amended or waived, are hereby ratified and confirmed and shall remain in full force and effect. B. Costs and Expenses. Borrower shall pay to Lender on demand all reasonable out-of-pocket costs, expenses, title fees, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Amendment, the Loan Agreement, the other Financing Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including, but not limited to: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording and title insurance taxes and fees, if applicable); (b) costs and expenses and fees for title insurance and other insurance premiums, environmental audits, surveys, assessments, engineering reports and inspections, appraisal fees and search fees; (c) costs and expenses of remitting loan proceeds, collecting checks and other items of payment; (d) charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations; (e) costs and expenses of preserving and protecting the Collateral; (f) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Amendment, the Loan Agreement and the other Financing Agreements or defending any claims made or threatened against Lender arising out of the transactions contemplated hereby and thereby (including, without limitation, preparations for and consultations concerning any such matters); and (g) the fees and disbursements of counsel (including legal assistants) to Lender in connection with the foregoing. C. Certain Waivers; Release. Although Borrower does not believe that it has any claims against Lender, it is willing to provide Lender with a general and total release of all such claims in consideration of the benefits which Borrower will receive pursuant to this Amendment. Accordingly, Borrower for itself and any successor of Borrower hereby knowingly, voluntarily, intentionally and irrevocably releases and discharges Lender and its respective officers, directors, agents and counsel (each a "Released Party") from any and all actions, causes of action, suits, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, losses, liabilities, costs, expenses, debts, dues, demands, obligations or other claims of any kind whatsoever, in law, admiralty or equity, which Borrower ever had, now has or hereafter can, shall or may have against any Released Party for, upon or by reason of any matter, cause or thing whatsoever from the beginning of the world to the date of this Amendment. D. Counterparts. This Amendment may be executed in any number of counterparts, each such counterpart constituting an original but all together constituting one and the same instrument. E. Severability. Any provision contained in this Amendment that is held to be inoperative, unenforceable or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable or invalid without affecting the remaining provisions of this Amendment in that jurisdiction or the operation, enforceability or validity of that provision in any other jurisdiction. F. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. [remainder of page intentionally left blank] [Signature Page to Thirteenth Amendment To Amended And Restated Revolving Loan And Security Agreement] IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. CONGRESS FINANCIAL CORPORATION (CENTRAL) By Name: Title: KEYSTONE CONSOLIDATED INDUSTRIES, INC. By Name: Title: CONSENT By Guarantee dated September 27, 1996 (as amended, the "Guarantee"), the undersigned (the "Guarantor") guaranteed to Lender (as defined therein), subject to the terms, conditions and obligations set forth therein, the prompt payment and performance of all of the Guaranteed Obligations (as defined therein). The Guarantor consents to Borrower's execution of the foregoing Thirteenth Amendment to Loan Agreement (the "Amendment;" capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Amendment) and acknowledges the continued validity, enforceability and effectiveness of the Guarantee with respect to all loans, advances and extensions of credit to Borrower, whether heretofore or hereafter made, together with all interests thereon and all expenses in connection therewith. SHERMAN WIRE COMPANY By Name: Title: CONSENT By Confirmation Agreement dated September 27, 1996, relating to that Amendment, Ratification and Confirmation of Secured Guaranty Agreement dated December 29, 1995, relating to, among other things the Secured Guaranty Agreement dated October 16, 1987 (collectively, the "Guarantee"), the undersigned (the "Guarantor") guaranteed to Lender (as defined therein), subject to the terms, conditions and obligations set forth therein, the prompt payment and performance of all of the Obligations (as defined therein). The Guarantor consents to Borrower's execution of the foregoing Thirteenth Amendment to Loan Agreement (the "Amendment;" capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Amendment) and acknowledges the continued validity, enforceability and effectiveness of the Guarantee with respect to all loans, advances and extensions of credit to Borrower, whether heretofore or hereafter made, together with all interests thereon and all expenses in connection therewith. SHERMAN WIRE OF CALDWELL, INC. By Name: Title: CONSENT By Confirmation Agreement dated September 27, 1996, relating to that Guarantee and Waiver and Rider No. 1 to Guarantee and Waiver, each dated December 30, 1993 (as amended, collectively, the "Guarantee"), the undersigned (the "Guarantor") guaranteed to Lender (as defined therein), subject to the terms, conditions and obligations set forth therein, the prompt payment and performance of all of the Obligations (as defined therein). The Guarantor consents to Borrower's execution of the foregoing Thirteenth Amendment to Loan Agreement (the "Amendment;" capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Amendment) and acknowledges the continued validity, enforceability and effectiveness of the Guarantee with respect to all loans, advances and extensions of credit to Borrower, whether heretofore or hereafter made, together with all interests thereon and all expenses in connection therewith. FV STEEL AND WIRE COMPANY By Name: Title: EX-4.28 7 kciexh42803k.txt EIGHTH AMENDMENT TO AMENDED AND RESTATED EWP BRIDGE LOAN AGREEMENT This EIGHTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this "Amendment") is made and entered into as of November 15, 2003 between KEYSTONE CONSOLIDATED INDUSTRIES, INC., a Delaware corporation ("Keystone"), and the lenders listed in Annex I hereto (individually a "Lender" and collectively, the "Lenders"). Recitals A. Keystone and the Lenders have entered into that certain Amended and Restated EWP Bridge Loan Agreement dated as of November 1, 2001, as amended by the First Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of March 18, 2002 between Keystone and the Lenders, the Second Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of December 31, 2002 between Keystone and the Lenders, the Third Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of June 30, 2003 between Keystone and the Lenders, the Fourth Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of July 31, 2003 between Keystone and the Lenders, the Fifth Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of August 27, 2003 between Keystone and the Lenders, the Sixth Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of September 30, 2003 and as further amended by the Seventh Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of October 31, 2003 between Keystone and the Lenders (collectively, the "Loan Agreement"). B. Keystone and the Lenders wish to amend the Loan Agreement as provided herein. C. Capitalized terms used but not otherwise defined herein shall have the same meanings given to such terms in the Loan Agreement. Agreement In consideration of the foregoing and the mutual covenants and agreements herein, the parties hereto do hereby agree as follows. Section 1. Amendment to Loan Agreement. Section 3.3 of the Loan Agreement shall be amended by deleting such section in its entirety and replacing it with the following: 3.3. Maturity Date. Unless the same shall become due earlier as a result of acceleration of the maturity, the Loans shall mature on December 31, 2003 (the "Maturity Date"), at which time the outstanding principal balance of the Loans and all accrued and unpaid interest and commitment fees shall become due and payable. Section 2. Effect on Loan Agreement and Notes. Upon the effectiveness of this Amendment, all Notes outstanding immediately prior to such effectiveness shall be deemed amended as necessary or appropriate to reflect the terms and conditions set forth in the Loan Agreement as modified by this Amendment, and in the event of a conflict between any term or condition of such Notes and the Loan Agreement as so modified, the Loan Agreement as so modified shall control, notwithstanding any provision of such Notes or the Loan Agreement to the contrary. Except as modified by this Amendment, the Loan Agreement and such Notes are in all respects ratified and confirmed and all of the terms, conditions and provisions thereof shall remain in full force and effect. Section 3. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the state of Texas without giving effect to any choice or conflict of law provision or rule (whether of the state of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the state of Texas. Section 4. Headings. The section headings contained in this Amendment are for reference purposes only and will not affect in any way the meaning or interpretation of this Amendment. Section 5. Counterparts; Facsimile. This Amendment may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. This Amendment when executed may be validly delivered by facsimile or other electronic transmission. Section 6. Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction, shall as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. [Remainder of page intentionally left blank. Signature page follows.] The parties hereto have caused this Amendment to be executed by the undersigned thereunto duly authorized as of the date first written above. KEYSTONE: KEYSTONE CONSOLIDATED INDUSTRIES, INC. By: Bert E. Downing, Jr., Vice President, Chief Financial Officer, Corporate Controller and Treasurer THE LENDERS: EWP FINANCIAL LLC By: Bobby D. O'Brien, Vice President, Chief Financial Officer and Treasurer ANNEX I
% of Total Name of Lender Address of Lender Commitment Commitment EWP Financial LLC Three Lincoln Centre $6,000,000 100% 5430 LBJ Freeway Suite 1700 Dallas, Texas 75240 Total Commitment Amount:................................ $6,000,000
EX-4.29 8 kciexh42903.txt NINTH AMENDMENT TO AMENDED AND RESTATED EWP BRIDGE LOAN AGREEMENT This NINTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this "Amendment") is made and entered into as of December 15, 2003 between KEYSTONE CONSOLIDATED INDUSTRIES, INC., a Delaware corporation ("Keystone"), and the lenders listed in Annex I hereto (individually a "Lender" and collectively, the "Lenders"). Recitals A. Keystone and the Lenders have entered into that certain Amended and Restated EWP Bridge Loan Agreement dated as of November 1, 2001, as amended by various amendments, the last of which is the Eighth Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of November 15, 2003 between Keystone and the Lenders (collectively, the "Loan Agreement"). B. Keystone and the Lenders wish to amend the Loan Agreement as provided herein. C. Capitalized terms used but not otherwise defined herein shall have the same meanings given to such terms in the Loan Agreement. Agreement In consideration of the foregoing and the mutual covenants and agreements herein, the parties hereto do hereby agree as follows. Section 1. Amendment to Loan Agreement. Section 3.3 of the Loan Agreement shall be amended by deleting such section in its entirety and replacing it with the following: 3.3. Maturity Date. Unless the same shall become due earlier as a result of acceleration of the maturity, the Loans shall mature on January 31, 2004 (the "Maturity Date"), at which time the outstanding principal balance of the Loans and all accrued and unpaid interest and commitment fees shall become due and payable. Section 2. Effect on Loan Agreement and Notes. Upon the effectiveness of this Amendment, all Notes outstanding immediately prior to such effectiveness shall be deemed amended as necessary or appropriate to reflect the terms and conditions set forth in the Loan Agreement as modified by this Amendment, and in the event of a conflict between any term or condition of such Notes and the Loan Agreement as so modified, the Loan Agreement as so modified shall control, notwithstanding any provision of such Notes or the Loan Agreement to the contrary. Except as modified by this Amendment, the Loan Agreement and such Notes are in all respects ratified and confirmed and all of the terms, conditions and provisions thereof shall remain in full force and effect. Section 3. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the state of Texas without giving effect to any choice or conflict of law provision or rule (whether of the state of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the state of Texas. Section 4. Headings. The section headings contained in this Amendment are for reference purposes only and will not affect in any way the meaning or interpretation of this Amendment. Section 5. Counterparts; Facsimile. This Amendment may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. This Amendment when executed may be validly delivered by facsimile or other electronic transmission. Section 6. Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction, shall as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. The parties hereto have caused this Amendment to be executed by the undersigned thereunto duly authorized as of the date first written above. KEYSTONE: KEYSTONE CONSOLIDATED INDUSTRIES, INC. By: ---------------------------------------------------- Bert E. Downing, Jr., Vice President, Chief Financial Officer, Corporate Controller and Treasurer THE LENDERS: EWP FINANCIAL LLC By: ---------------------------------------------------- Bobby D. O'Brien, Vice President, Chief Financial Officer and Treasurer ANNEX I
% of Total Name of Lender Address of Lender Commitment Commitment EWP Financial LLC Three Lincoln Centre $6,000,000 100% 5430 LBJ Freeway Suite 1700 Dallas, Texas 75240 Total Commitment Amount:................................ $6,000,000
EX-4.30 9 kciexh43003.txt TENTH AMENDMENT TO AMENDED AND RESTATED EWP BRIDGE LOAN AGREEMENT This TENTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this "Amendment") is made and entered into as of January 15, 2004 between KEYSTONE CONSOLIDATED INDUSTRIES, INC., a Delaware corporation ("Keystone"), and the lenders listed in Annex I hereto (individually a "Lender" and collectively, the "Lenders"). Recitals A. Keystone and the Lenders have entered into that certain Amended and Restated EWP Bridge Loan Agreement dated as of November 1, 2001, as amended by various amendments, the last of which is the Ninth Amendment to Amended and Restated EWP Bridge Loan Agreement dated as of December 15, 2003 between Keystone and the Lenders (collectively, the "Loan Agreement"). B. Keystone and the Lenders wish to amend the Loan Agreement as provided herein. C. Capitalized terms used but not otherwise defined herein shall have the same meanings given to such terms in the Loan Agreement. Agreement In consideration of the foregoing and the mutual covenants and agreements herein, the parties hereto do hereby agree as follows. Section 1. Amendment to Loan Agreement. Section 3.3 of the Loan Agreement shall be amended by deleting such section in its entirety and replacing it with the following: 3.3. Maturity Date. Unless the same shall become due earlier as a result of acceleration of the maturity, the Loans shall mature on February 29, 2004 (the "Maturity Date"), at which time the outstanding principal balance of the Loans and all accrued and unpaid interest and commitment fees shall become due and payable. Section 2. Effect on Loan Agreement and Notes. Upon the effectiveness of this Amendment, all Notes outstanding immediately prior to such effectiveness shall be deemed amended as necessary or appropriate to reflect the terms and conditions set forth in the Loan Agreement as modified by this Amendment, and in the event of a conflict between any term or condition of such Notes and the Loan Agreement as so modified, the Loan Agreement as so modified shall control, notwithstanding any provision of such Notes or the Loan Agreement to the contrary. Except as modified by this Amendment, the Loan Agreement and such Notes are in all respects ratified and confirmed and all of the terms, conditions and provisions thereof shall remain in full force and effect. Lender hereby reserves all of its rights under the Loan Agreement, and Keystone hereby acknowledges and agrees that neither this Amendment or any previous amendment to the Loan Agreement nor the failure of Lender to exercise any of its rights under the Loan Agreement, including, without limitation, those arising under Section 3.7 thereof, shall constitute (or be deemed to constitute) a waiver of Lender's rights thereunder, including, without limitation, the conditions to Lender's obligations to extend credit to Keystone thereunder. Section 3. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the state of Texas without giving effect to any choice or conflict of law provision or rule (whether of the state of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the state of Texas. Section 4. Headings. The section headings contained in this Amendment are for reference purposes only and will not affect in any way the meaning or interpretation of this Amendment. Section 5. Counterparts; Facsimile. This Amendment may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. This Amendment when executed may be validly delivered by facsimile or other electronic transmission. I Section 6. Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction, shall as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. The parties hereto have caused this Amendment to be executed by the undersigned thereunto duly authorized as of the date first written above. KEYSTONE: KEYSTONE CONSOLIDATED INDUSTRIES, INC. By: ---------------------------------------------------- Bert E. Downing, Jr., Vice President, Chief Financial Officer, Corporate Controller and Treasurer THE LENDERS: EWP FINANCIAL LLC By: ---------------------------------------------------- Bobby D. O'Brien, Vice President, Chief Financial Officer and Treasurer ANNEX I
% of Total Name of Lender Address of Lender Commitment Commitment EWP Financial LLC Three Lincoln Centre $6,000,000 100% 5430 LBJ Freeway Suite 1700 Dallas, Texas 75240 Total Commitment Amount:................................ $6,000,000
EX-4.31 10 kciexh43103.txt ANNEX A ASSUMPTION AGREEMENT AND AMENDMENT TO FINANCING AGREEMENTS THIS ASSUMPTION AGREEMENT AND AMENDMENT TO FINANCING AGREEMENTS (this "Amendment") is made and entered into as of _____________, 2004, by and between KEYSTONE CONSOLIDATED INDUSTRIES, INC. ("Keystone"), DESOTO ENVIRONMENTAL MANAGEMENT, INC., FV STEEL AND WIRE COMPANY, J.L. PRESCOTT COMPANY, SHERMAN WIRE COMPANY (f/k/a DESOTO, INC.), and SHERMAN WIRE OF CALDWELL, INC., each as a debtor and debtor-in-possession in the Cases (defined below) (each a "Debtor," and, collectively, the "Debtors"), and CONGRESS FINANCIAL CORPORATION (CENTRAL), as lender ("Lender"). Unless otherwise specified, the capitalized terms used herein shall have the meanings ascribed to them in the Pre-Petition Credit Agreement (defined below). RECITALS A. Keystone, as pre-petition debtor, and Lender are parties to (i) that certain Amended and Restated Revolving Loan and Security Agreement, dated as of December 29, 1995 (as amended, modified, restated or supplemented prior to the date hereof, the "Pre-Petition Credit Agreement"), and (ii) the other Financing Agreements, as defined in the Pre-Petition Credit Agreement (all such Financing Agreements, together with the Pre-Petition Credit Agreement, in each case as amended, modified, restated or supplemented prior to the date hereof or by any other amendment executed on or after the date hereof, collectively, the "Original Financing Agreements"). B. Debtors have filed petitions for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. ss.ss. 101, et seq. (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Eastern District of Wisconsin (the "Bankruptcy Court"), on ___________, 2004 (the "Petition Date"), Jointly Administered Case No. ________________ (the "Cases"). C. The commencement of the Cases constituted an Event of Default under Section 10.1(g) the Pre-Petition Credit Agreement. D. In order to continue their operations as debtors-in-possession under the Bankruptcy Code, Debtors have requested that Lender make certain postpetition secured loans to Keystone (the "DIP Financing"). Lender is willing to provide such DIP Financing to Keystone on and after the Petition Date only if, among other things, the Original Financing Agreements are amended as hereinafter set forth and the Bankruptcy Court enters interim and final orders approving this Amendment and otherwise in form and substance satisfactory to Lender in Lender's sole discretion (the "Interim Order" and the "Final Order," respectively). AGREEMENT NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Amendments. The parties hereby amend the Original Financing Agreements as follows: (a) From and after the date hereof, all references in the Original Financing Agreements to "Keystone Consolidated Industries, Inc.," "Borrower," "the "Company," and all other references to Keystone in any capacity shall be deemed to be references to Keystone both before the Petition Date, as pre-petition obligor, and on and after the Petition Date, as a debtor and debtor-in-possession in the Cases. (b) Section 1 of the Pre-Petition Credit Agreement is hereby amended by adding in their proper alphabetical order the definitions of "Bankruptcy Code," "Bankruptcy Court," "Cases," "DIP Financing," "Original Financing Agreements," "Petition Date" and "Pre-Petition Credit Agreement" set forth in the recitals of this Amendment. (c) Section 1 of the Pre-Petition Credit Agreement is hereby further amended by adding the following definitions in their proper alphabetical order (to the extent such terms are not already defined in the Pre-Petition Credit Agreement) and by substituting the following definitions for the existing definitions of such terms (to the extent such terms are currently defined in the Pre-Petition Credit Agreement): "Agreement" shall mean the Amended and Restated Revolving Loan and Security Agreement, dated as of December 29, 1995, as amended, modified, restated or supplemented from time to time, including, without limitation, (a) by the Assumption Agreement and (b) by the Interim Order, the Final Order or any other applicable order of the Bankruptcy Court. "Assumption Agreement" shall mean the Assumption Agreement and Amendment to Financing Agreements, dated as of _____________, 2004, by and between Keystone Consolidated Industries, Inc., Desoto Environmental Management, Inc., FV Steel and Wire Company, J.L. Prescott Company, Sherman Wire Company (f/k/a Desoto, Inc.), and Sherman Wire of Caldwell, Inc. as debtors and debtors-in-possession in the Cases, and Congress Financial Corporation (Central), as lender. "Budget" shall have the meaning ascribed to such term in Section 7.1 hereof. "Debtors" shall mean Keystone Consolidated Industries, Inc., Desoto Environmental Management, Inc., FV Steel and Wire Company, J.L. Prescott Company, Sherman Wire Company (f/k/a Desoto, Inc.), and Sherman Wire of Caldwell, Inc. as debtors and debtors-in-possession in the Cases under the Bankruptcy Code. "DIP Financing" shall mean the advance of funds by Congress to Debtors on and/or after the Petition Date in the form of Revolving Loans and in the form of a Term Loan under the terms and conditions set forth herein. "DIP Indebtedness" shall mean all indebtedness and obligations incurred on or after the Petition Date by Debtors to Congress pursuant to the Financing Agreements (including, without limitation, principal, accrued and unpaid interest and costs and expenses, including reasonable attorneys' fees and expenses). "DIP Term Loan" shall mean the $2,000,000 principal amount of the Term Loan funded by Lender to Borrower during the Cases pursuant to the Interim Order and/or the Final Order. "EWP DIP Credit Agreement" shall mean the Debtor-In-Possession Credit Agreement between the Debtors and EWP Financial "EWP Financial" shall mean EWP Financial LLC, a Delaware limited liability company. "EWP Collateral" shall mean (i) the stock of Engineered Wire Products, Inc. and all substitutions therefor and distributions with respect thereto, (ii) the account maintained on Keystone's books and records styled Loan Account - EWP, Account Number 46009, (iii) the Separate Loan Proceeds Account and (iv) all proceeds of the foregoing. "Final Order" shall mean an order of the Bankruptcy Court entered in the Cases after the Final Hearing as defined in the Interim Order, inter alia, authorizing Debtors, as debtors-in-possession, to incur secured indebtedness pursuant to section 364 of the Bankruptcy Code, which order shall be in form and substance satisfactory to Lender in its sole discretion. "Financing Agreements" shall mean, collectively, this Agreement, the Assumption Agreement, the Interim Order, the Final Order, the DIP Credit Documents and all notes, guarantees, security agreements, trademark security agreements, lockbox and/or blocked account agreements, mortgages, deeds of trust, pledge agreements, letters of credit and other agreements, documents and written indicia of contractual obligations between Debtors and Lender, any Affiliate of Debtors and Lender, any Person owning Collateral and Lender, and/or any Person guaranteeing all or any portion of the Obligations and Lender, in connection with the transactions contemplated hereby, whether pre-petition or post-petition, as each such document has been and may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced. "Interim Order" shall mean the order of the Bankruptcy Court entered in the Cases on ___________, 2004 pursuant to sections 363 and 364 of the Bankruptcy Code, inter alia, authorizing Debtors, as debtors-in-possession, to enter into the Assumption Agreement, which order shall be in form and substance satisfactory to Lender in its sole discretion. "Loans" shall mean any loan or extension of credit, whether made before, on or after the Petition Date, by Lender pursuant to the Financing Agreements, including the Revolving Loans, the Term Loan and the DIP Financing. "Maturity Date" shall mean the date on which this Agreement ceases to continue in full force and effect pursuant to Section 12.1(a) hereof. "Maximum Credit" shall mean the amount of $55,000,000; provided, however, that such amount shall decrease when each payment of principal on the Term Loan is received by Lender and applied to the Term Loan, by an amount equal to the amount of such principal reduction in the Term Loan. "Participation Agreement" shall mean that certain Participation Agreement dated as of February ___, 2004 between Lender and EWP Financial. "Participation" shall have the meaning set forth in the Participation Agreement. "Revolving Loans" shall mean any Revolving Loans, whether made before, on or after the Petition Date, by Lender pursuant to the Financing Agreements and/or the Interim or Final Order. "Separate Loan Proceeds Account" shall have the meaning set forth in Section 4.1(i)(d) of this Amendment. (d) In subsection 1.49 of the Pre-Petition Credit Agreement, the phrase "provided, that, the Interest Rate shall mean the rate of two and one-half percent (2.5%) per annum . . .," where it appears, is hereby amended to read "provided, that, the Interest Rate shall mean the rate of three percent (3.0%) per annum . . . ." (e) Subsection 2.3 of the Pre-Petition Credit Agreement is hereby amended and restated in its entirety to read as follows: "2.3 Availability Reserves. All Revolving Loans otherwise available to Borrower pursuant to the lending formulas and subject to the Maximum Credit and other applicable limits hereunder shall be subject to Lender's continuing right to establish and revise Availability Reserves in its discretion, upon not less than five (5) days prior written notice to Borrower identifying the new or revised Availability Reserve and the reason for the establishment or revision thereof." (f) The Term Loan under subsection 2.4 of the Pre-Petition Credit Agreement shall be increased: (i) upon the effective date of this Amendment, by a principal amount of $2,042,812; (ii) upon the later to occur of the following: (y) the effective date of this Amendment and (z) the date that is one Business Day after Lender has received a $2,000,000 payment from EWP Financial to purchase an initial Participation pursuant to Section 4.1(a) of the Participation Agreement, by an additional principal amount of $2,000,000; provided, however, that if, on the date on which the Lender receives the $2,000,000 payment -------- ------- from EWP Financial to purchase an initial Participation pursuant to Section 4.1(a) of the Participation Agreement, such $2,000,000 is received by Lender from EWP Financial prior to 2:00 p.m. Eastern time, then Congress shall use its best efforts to effect such $2,000,000 increase in the principal amount of the Term Loan on such same date rather than on the next Business Day; and (iii) upon the date that is one Business Day after Lender has received a $3,000,000 payment from EWP to purchase an additional Participation (for a total Participation of $5,000,000) pursuant to Section 4.1(b) of the Participation Agreement, by an additional principal amount of $3,000,000; provided, however, that if, on the date on -------- ------- which the Lender receives the $3,000,000 payment from EWP Financial to purchase an initial Participation pursuant to Section 4.1(b) of the Participation Agreement, such $3,000,000 is received by Lender from EWP Financial prior to 2:00 p.m. Eastern time, then Congress shall use its best efforts to effect such $3,000,000 increase in the principal amount of the Term Loan on such same date rather than on the next Business Day. Such increase(s) in the Term Loan shall be deemed added to the Term Loan existing on the Petition Date under the Pre-Petition Credit Agreement and shall be deemed to be a "Term Loan" under the Agreement. The Debtors expressly acknowledge and agree that Lender shall have no liability whatsoever to the Debtors arising from or related to any failure of EWP to purchase or fund any Participation at any time. (g) Notwithstanding anything set forth in the Pre-Petition Credit Agreement, from and after the effective date of this Amendment, the outstanding principal balance of the Term Loan shall be amortized as follows: A monthly installment in the amount of the lesser of $100,000 and the entire remaining unpaid balance of the Term Loan shall be due and payable on the first day of each calendar month, commencing on April 1, 2004, until the Term Loan has been repaid in full. (h) Subsection 5.1 of the Pre-Petition Credit Agreement is amended by adding the following language to the first sentence of such subsection 5.1 immediately after the phrase "and wherever located" and immediately prior to the first parenthetical in such subsection 5.1: ", whether arising or acquired before, on or after the Petition Date" (i) Subsection 5.2(d) of the Pre-Petition Credit Agreement is hereby amended and restated in its entirety to read as follows: "(d) Borrower does not have any lockbox or other deposit accounts (where payments on Receivables or other proceeds of Inventory or other Collateral are deposited) as of the date hereof, except as set forth in the Information Certificate. Borrower shall not, directly or indirectly, after the date hereof open, establish or maintain any lockbox or other deposit account (where payments on Receivables or other proceeds of Inventory or other Collateral are deposited) unless each of the following conditions is satisfied: (i) Lender shall have received not less than five (5) Business Days prior written notice of the intention of Borrower to open or establish such account which notice shall specify in reasonable detail and specificity acceptable to Lender the name of the account, the owner of the account, the name and address of the bank at which such account is to be opened or established, the individual at such bank with whom Borrower is dealing and the purpose of the account, (ii) the bank where such account is opened or maintained shall be acceptable to Lender, and (iii) on or before the opening of such deposit account, Borrower shall as Lender may specify either (A) deliver to Lender a Deposit Account Control Agreement with respect to such deposit account duly authorized, executed and delivered by Borrower and the bank at which such deposit account is opened and maintained or (B) arrange for Lender to become the customer of the bank with respect to the deposit account on terms and conditions acceptable to Lender. The terms of this subsection (d) shall not apply to deposit accounts specifically and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower's salaried or hourly wage employees. The terms of this subsection (d) shall also not apply to the Borrower's account at U.S. Bank, Routing number: 123000220, Account number: 153656080931, Account name: Keystone Consolidated Industries, Inc. (the "Separate Loan Proceeds Account"); provided, however, that notwithstanding any of the foregoing to the contrary, the Separate Loan Proceeds Account shall at no time contain any funds other than the proceeds of funding from EWP Financial to the Borrower pursuant to the EWP DIP Credit Agreement and the proceeds of the DIP Term Loan." (j) Subsection 6.3(a) of the Pre-Petition Credit Agreement is hereby amended and restated in its entirety to read as follows: 6.3 Collection of Accounts. (a) Borrower shall establish and maintain, at its expense, blocked accounts or lockboxes and related blocked accounts (in either case, "Blocked Accounts"), as Lender may specify, with such banks as are acceptable to Lender into which Borrower shall promptly deposit and direct its account debtors to directly remit all payments on Receivables and all payments constituting proceeds of Inventory or other Collateral in the identical form in which such payments are made, whether by cash, check or other manner. Borrower shall deliver, or cause to be delivered to Lender, a Depository Account Control Agreement duly authorized, executed and delivered by each bank where a Blocked Account is maintained as provided in Section 5.2 hereof or at any time and from time to time Lender may become bank's customer with respect to the Blocked Accounts and promptly upon Lender's request, Borrower shall execute and deliver such agreements or documents as Lender may require in connection therewith. Borrower agrees that all payments made to such Blocked Accounts or other funds received and collected by Lender, whether in respect of the Receivables, as proceeds of Inventory or other Collateral or otherwise shall be treated as payments to Lender in respect of the Obligations and therefore shall constitute the property of Lender to the extent of the then outstanding Obligations. Notwithstanding any of the foregoing, the Separate Loan Proceeds Account is not a Blocked Account, and no payments on Receivables or payments constituting proceeds of Inventory or other Collateral shall be deposited into or held in the Separate Loan Proceeds Account at any time." (k) Section 6 of the Pre-Petition Credit Agreement is amended by adding the following as subsection 6.7 thereof, immediately following the existing subsection 6.6: "6.7 Application of Payments. Debtors irrevocably waive the right to direct the application of any and all payments at any time or times hereafter received by Lender from or on behalf of Debtors, and Debtors hereby expressly agree that Lender may apply all such amounts received by Lender on or after the Petition Date to payment of the Obligations arising before the Petition Date before applying any such amounts to Obligations arising on or after the Petition Date. Debtors hereby irrevocably agree that Lender shall have the continuing exclusive right to apply and to reverse and reapply any and all payments received at any time or times hereafter against the Obligations and the DIP Indebtedness in such manner as Lender may deem advisable notwithstanding any entry by Lender upon any of its books and records. Provided that the DIP Financing has not been terminated, all proceeds of sales of Inventory and collections of Accounts received on or after the Petition Date shall be presumed to constitute proceeds of Collateral that arose or was acquired before the Petition Date and shall be applied first to Revolving Loans and then to Term Loans. Lender will apply the proceeds of its Collateral as set forth in the Interim Order and, if and when a Final Order is entered by the Bankruptcy Court, the Final Order. Lender may effect permanent paydowns of the Revolving Loans as set forth in the Interim Order and the Final Order. Congress shall be under no obligation to marshal any assets in favor of Debtors or any other party or against or in payment of any or all of the Indebtedness." (l) Subsection 7.1 of the Pre-Petition Credit Agreement is amended by adding the following at the end thereof: "Debtor shall furnish Lender on each Friday of each week (or if any such Friday is not a Business Day, the next Business Day) a report setting forth (i) daily cash flow results for each day in the four week period ending on the immediately preceding Friday and also a reconciliation comparing actual expenses paid to the Budget as contemplated by ordering paragraph 15 of the Interim Order (the "Budget"), (ii) daily cash flow projections for the four week period beginning on the immediately preceding Saturday, (iii) the actual and projected aggregate, as of the immediately preceding Friday, of (A) the Net Amount of Eligible Borrower Accounts, (B) the Eligible Caldwell Accounts, (C) the Eligible Fox Valley Accounts, (D) the Eligible Borrower Inventory, (E) the Eligible Caldwell Inventory, and (F) the Eligible Fox Valley Inventory; (iv) in the case of each such report required to be delivered on the last Friday of each month, monthly cash flow projections for each of the next 13 weeks and (v) such other financial and operating information as Lender may reasonably request." (m) Section 8.4 of the Pre-Petition Credit Agreement is amended by adding the following at the end thereof: "The Interim Order and the Final Order will each grant to Lender (i) as security for all of the Obligations, a legal, valid, binding Lien on all Collateral having first priority on all Collateral other than the EWP Collateral and (ii) as security for any increased portion of the Term Loan pursuant to clauses (ii) and (iii) of Section 1(f) of the Assumption Agreement, a Lien on the EWP Collateral, subordinate to the Liens in favor of EWP Financial." (n) Section 9 of the Pre-Petition Credit Agreement is amended by deleting existing subsection 9.13 ("Working Capital") in its entirety and replacing such existing subsection 9.13 with the following: "9.13 [Intentionally Deleted.]" (o) Section 9 of the Pre-Petition Credit Agreement is amended by deleting existing subsection 9.14 ("Tangible Net Worth") in its entirety and replacing such existing subsection 9.14 with the following: "9.14 [Intentionally Deleted.]" (p) Subsection 9.15 of the Pre-Petition Credit Agreement is hereby amended and restated in its entirety to read as follows: "9.15 Costs and Expenses. Borrower shall pay to Lender on demand all costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Agreement, the other Financing Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including, but not limited to: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all title insurance and other insurance premiums, appraisal fees and search fees; (c) costs and expenses of remitting loan proceeds, collecting checks and other items of payment, and establishing and maintaining the Blocked Accounts, together with Lender's customary charges and fees with respect thereto; (d) charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations; (e) costs and expenses of preserving and protecting the Collateral; (f) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement and the other Financing Agreements or defending any claims made or threatened against Lender arising out of the transactions contemplated hereby and thereby (including, without limitation, preparations for and consultations concerning any such matters, and including, without limitation, the fees and costs of any consultants or advisors retained by Lender in Lender's sole discretion to assist Lender during the Cases); (g) from and after an Event of Default, all out-of-pocket expenses and costs heretofore and from time to time hereafter incurred by Lender during the course of periodic field examinations of the Collateral and Borrower's operations, and (h) the fees and disbursements of counsel (including legal assistants) to Lender in connection with any of the foregoing." (q) Section 9 of the Pre-Petition Credit Agreement is amended by deleting existing subsection 9.21 ("Minimum Fixed Charge Coverage Ratio") in its entirety and replacing such existing subsection 9.21 with the following: "9.21 [Intentionally Deleted.]" (r) Section 9 of the Pre-Petition Credit Agreement is amended by deleting existing subsection 9.22 ("Minimum EBITDA") in its entirety and replacing such existing subsection 9.22 with the following: "9.22 [Intentionally Deleted.]" (s) Section 9 of the Pre-Petition Credit Agreement is amended by deleting existing subsection 9.23 ("Minimum EBITDA") in its entirety and replacing such existing subsection 9.23 with the following: "9.23 [Intentionally Deleted.]" (t) Section 9 of the Pre-Petition Credit Agreement is amended by adding the following as subsection 9.26 thereof, immediately following the existing subsection 9.25: "9.26 Payoff Order. At such time as all Obligations have been indefeasibly paid in full in cash, the Debtors shall use their reasonable best efforts to obtain, as promptly as possible, an order of the Bankruptcy Court in form and substance reasonably satisfactory to Lender (such order, the "Payoff Order") that provides for final allowance for all purposes in the Cases of Lender's secured claim as set forth in the proof of claim filed by Lender, and approves on a final basis all payments made on account of the Obligations, and which reflects that all funding commitments or other obligations of the Lender under this Agreement and the Interim Order and the Final Order are terminated. Pending entry of the Payoff Order, Lender shall be entitled to retain all liens and security interests to secure the Borrower's indemnification obligations under subsection 11.5 of this Agreement." (u) Section 9 of the Pre-Petition Credit Agreement is amended by adding the following as subsection 9.27 thereof, immediately following the new subsection 9.26: "9.27 Restructuring Consultant. Until all Obligations have been indefeasibly paid in full in cash, the Debtors shall continue to retain FTI Consulting, or such other individual or entity as is acceptable to the Lender in the Lender's sole discretion, as restructuring consultant to the Debtors." (v) Section 10 of the Pre-Petition Credit Agreement is amended by replacing Section 10.1 thereof with the following: "10.1 Events of Default. The occurrence or existence of any one or more of the following events are referred to herein individually as an "Event of Default," and collectively as "Events of Default": (a) Any Debtor fails to pay when due any of the Obligations in accordance with the terms of the Financing Agreements or fails to perform any or all of the terms, covenants, conditions or provisions contained in the Financing Agreements; (b) any representation, warranty or statement of fact made by any Debtor to Lender in this Agreement, the Assumption Agreement, the other Financing Agreements or any other agreement, schedule, confirmatory assignment or otherwise shall when made or deemed made be false or misleading in any material respect; (c) any Obligor or Debtor revokes, terminates or fails to perform any of the terms, covenants, conditions or provisions of any guarantee, endorsement or other agreement of such party in favor of Lender; (d) any judgment for the payment of money is rendered against any Debtor or any Obligor in excess of $100,000 in any one case or in excess of $500,000 in the aggregate and shall remain undischarged or unvacated for a period in excess of thirty (30) days or execution shall at any time not be effectively stayed, or any judgment other than for the payment of money, or injunction, attachment, garnishment or execution is rendered against any Debtor or any Obligor or any of their assets; (e) any Obligor (being a natural person or a general partner of an Obligor which is a partnership) dies or any Debtor or any Obligor, which is a partnership or corporation, dissolves or suspends or discontinues doing business; (f) conversion of any of the Cases to a case under chapter 7 of the Bankruptcy Code; (g) appointment of a trustee or an examiner with expanded powers in any of the Cases or any Debtor's application for, consent to, or acquiescence in, any such appointment; (h) failure of Debtors to obtain a Final Order (in form and substance satisfactory to Lender in Lender's sole discretion) by March 15, 2004, or such later date as Lender may consent to in writing after the date hereof; (i) except as expressly permitted in the Interim Order or the Final Order, the filing by any Debtor of any application for approval or allowance of, or the entry of any order approving or allowing, any administrative expense claim in any of the Cases having any priority over, or being pari passu with, the administrative priority of the DIP Indebtedness; (j) the entry of an order in any of the Cases granting relief from the automatic stay of section 362 of the Bankruptcy Code to any holder or holders of a lien or security interest on any Collateral with a value of more than $75,000, and allowing such holder or holders to foreclose or otherwise realize upon such liens and security interests; (k) any stay, reversal, modification or other amendment in any respect (except to the extent acceptable to Lender) of the Interim Order or the Final Order; (l) any of the Financing Agreements shall cease to be in full force and effect, or any liens and security interests granted to Lender under the Financing Agreements shall cease to be in full force and effect (to the extent perfection can be accomplished by filing of UCC financial statements or possession), or any liens and security interests granted to Lender under the Financing Agreements shall cease to be valid; (m) (i) the filing of any motion or proceeding with the Bankruptcy Court, which is not dismissed, denied with prejudice or otherwise resolved to the satisfaction of Lender within thirty (30) days of such filing, challenging or seeking otherwise to modify, limit, subordinate or avoid the priority of any Obligations or the perfection or priority of Lender's pre-petition or post-petition liens and security interests on any Collateral, or seeking to impose, surcharge or assess against Lender, its claims or the Collateral any costs or expenses, whether pursuant to section 506(c) of the Bankruptcy Code or otherwise, or (ii) the entry of any order having any such effect; (n) any failure by Debtor to timely comply with any term or provision of the Interim Order or the Final Order; (o) the filing of any motion or application with the Bankruptcy Court seeking the entry of, or the entry of, an order approving any subsequent debtor-in-possession facility for borrowed money unless such subsequent facility and such court order expressly provide for the payment in full to Lender of all Obligations prior to any initial borrowings under such subsequent facility; (p) any event or circumstance shall occur or exist and such event or circumstance is likely, in Lender's reasonable judgment, to have a material adverse effect on the business, assets or prospects of Debtor or any Obligor (other than the commencement and continuation of the Cases); or (q) the occurrence and continuation of a Default or an Event of Default, in each case as defined in and pursuant to the EWP DIP Credit Agreement." (w) Section 12 of the Pre-Petition Credit Agreement is amended by replacing subsection 12.1(a) thereof with the following: "(a) This Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect until the earliest to occur of the following, at which time (and except as Lender may otherwise agree in writing in its sole discretion) this Agreement shall immediately and automatically terminate and all Obligations shall be immediately due and payable (such date of termination being the "Maturity Date"): (i) March 15, 2004, unless a Final Order (in form and substance satisfactory to Lender) has been entered by such date, in which event the Final Order shall identify a later applicable date; (ii) the date of final payment and satisfaction in full of the Obligations and termination of the DIP Financing pursuant to this Agreement; (iii) the effective date of any confirmed plan of reorganization in any of the Cases; (iv) the dismissal of any of the Cases; (v) a material breach by any of the Debtors of any provision of the Interim Order or the Final Order; or (vi) Lender's election, in its sole discretion (subject to the terms hereof), to terminate this Agreement upon the occurrence and during the continuation of any Event of Default. The parties agree that Lender shall have the right in its sole discretion to determine whether to grant any extensions of the Maturity Date set forth in subparagraph (i) above. No termination of this Agreement shall relieve or discharge Debtors of their duties, obligations and covenants hereunder and under the Interim Order and the Final Order until all Obligations have been indefeasibly paid and satisfied in full in cash, and Lender's continuing security interest in the Collateral shall remain in effect until such duties, obligations, and covenants have been fully discharged. Upon the effective date of termination or non-renewal of the Financing Agreements, Borrower shall pay to Lender, in full, all outstanding and unpaid Obligations and shall furnish cash collateral to Lender in such amounts as Lender determines are reasonably necessary to secure Lender from loss, cost, damage or expense, including attorneys' fees and legal expenses, in connection with any or all contingent Obligations, including issued and outstanding Letter of Credit Accommodations and checks or other payments provisionally credited to the Obligations and/or as to which Lender has not yet received final and indefeasible payment. Such cash collateral shall be remitted by wire transfer in Federal Funds to such bank account of Lender as Lender may, in its discretion, designate in writing to Borrower for such purpose. Interest shall be due until and including the next Business Day, if the amounts so paid by Borrower to the bank account designated by Lender are received in such bank account later than 12:00 noon, Chicago time. Lender shall have no obligation to release any of its liens and security interests on the Collateral unless and until Lender's claims shall have been fully, finally and indefeasibly paid and such payment shall have been approved by an order of the Bankruptcy Court." 2. Debtors' Agreement to Assume Certain Obligations and be Bound; Confirmation of Liens and Security Interests; Cross-Guarantees. Each Debtor hereby (a) agrees to be bound by the terms of the Financing Agreements, (b) specifically confirms that the security interests described in the Original Financing Agreements include a duly authorized grant by it of security interests in its assets, whether arising or acquired before, on or after the Petition Date, to secure payment of the Obligations arising before, on and after the Petition Date, (c) grants first priority liens and security interests in favor of Lender on all the post-petition assets of such Debtor, including all types of assets in which Lender was granted a pre-petition security interest under the Original Financing Agreements, as well as all causes of action and claims of such Debtor's estate against third parties, including, without limitation, claims of such Debtor under sections 542, 543, 544, 545, 547, 548, 549, 550 and/or 553 of the Bankruptcy Code (collectively, "Avoidance Actions"); provided, however, Lender's lien on Avoidance Actions shall be limited as provided in ordering paragraphs 6 and 7(b) of the Interim Order, and (d) the Debtors agree and acknowledge that the DIP Indebtedness Obligations are joint and several obligations of each of the Debtors, and may be allocated by the Debtors between and among the Debtors in any fashion the Lender deems to be appropriate, but no Debtors shall have any right to be subrogated for Lender by virtue of making any such payment, and (e) each Debtor unconditionally guarantees the repayment to Lender of the DIP Indebtedness Obligations of each of the other Debtors, and such guarantee is secured by all of the assets of each of the Debtors as set forth in the Interim Order and the Final Order. 3. Amendment Subject to Interim Order and Final Order; Entire Agreement and Acknowledgements of the Parties. Lender and Debtors agree that this Amendment is qualified in its entirety by the terms of the Interim Order and the Final Order, and in the event of any conflict between any term of this Amendment and any term of the Interim Order or the Final Order, the applicable term of the Interim Order or Final Order, as applicable, shall govern. Lender and Debtors agree that the amendments set forth in this Amendment (as modified by the Interim Order and the Final Order, as provided above) constitute the entire agreement of the parties with respect to the matters set forth herein, shall be limited precisely as written and shall not be deemed to be a consent to any waiver, amendment or modification of any other term or condition of any of the Financing Agreements. 4. Conditions Precedent. The effectiveness of this Amendment shall be subject to satisfaction of the following conditions (any one or all of which may be waived in writing by Lender in its sole discretion): (a) Receipt by Lender of executed counterparts to this Amendment, duly executed by each Debtor; (b) Entry by the Bankruptcy Court of the Interim Order in form and substance satisfactory to Lender in Lender's sole discretion; and (c) Receipt by Lender of any and all further agreements, certificates or documents as Lender shall reasonably request together with any consents from third party creditors of Debtors deemed necessary by Lender. 5. References in Other Documents. All references to any of the Original Financing Agreements shall be deemed to be a reference to such Financing Agreement as amended. 6. Miscellaneous (a) To induce Lender to enter into this Amendment, each Debtor hereby represents and warrants to Lender that such Debtor has full corporate power and authority to enter into this Amendment, that this Amendment has been duly authorized, executed and delivered by such Debtor, and that this Amendment constitutes a legal, valid and binding obligation of such Debtor, enforceable against such Debtor in accordance with its terms. (b) This Amendment may be executed by original signature or by facsimile transmission, and in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all of which, taken together, shall constitute one and the same instrument. (c) It is the parties' intention that this Amendment be interpreted in such a way that it is valid and effective under applicable law; however, if one or more of the provisions of this Amendment shall for any reason be found to be invalid or unenforceable, the remaining provisions of this Amendment shall be unimpaired. 7. Choice of Law and Jurisdiction. Any dispute between Lender and Debtors arising out of, connected with, related to, or incidental to the relationship established between them in connection with this Amendment, and whether arising in contract, tort, equity or otherwise, shall be resolved in accordance with the internal laws (and not the conflicts of law provisions) of the State of Illinois. [THIS SPACE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have duly executed and delivered this Amendment as of the day and year first above written. KEYSTONE CONSOLIDATED INDUSTRIES, INC., as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- DESOTO ENVIRONMENTAL MANAGEMENT, INC., as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- FV STEEL AND WIRE COMPANY, as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- J.L. PRESCOTT COMPANY, as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- SHERMAN WIRE COMPANY (f/k/a DESOTO, INC.), as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- SHERMAN WIRE OF CALDWELL, INC., as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- CONGRESS FINANCIAL CORPORATION (CENTRAL), as Lender By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- EX-4.32 11 kciexh43203.txt FIRST AMENDMENT TO POST-PETITION CREDIT AGREEMENT This FIRST AMENDMENT TO POST-PETITION CREDIT AGREEMENT (this "Agreement") is entered into as of this 25th day of August, 2004, by and among KEYSTONE CONSOLIDATED INDUSTRIES, INC. ("Keystone"), DESOTO ENVIRONMENTAL MANAGEMENT, INC., FV STEEL AND WIRE COMPANY, J.L. PRESCOTT COMPANY, SHERMAN WIRE COMPANY (f/k/a DESOTO, INC.), and SHERMAN WIRE OF CALDWELL, INC., each as a debtor and debtor-in-possession in the Cases (defined below) (each a "Debtor," and, collectively, the "Debtors"), and CONGRESS FINANCIAL CORPORATION (CENTRAL), as lender ("Lender"). Unless otherwise specified, the capitalized terms used herein shall have the meanings ascribed to them in the Assumption Agreement and Amendment (defined below). RECITALS A. Keystone, as pre-petition debtor, and Lender are parties to (i) that certain Amended and Restated Revolving Loan and Security Agreement, dated as of December 29, 1995 (as amended, modified, restated or supplemented prior to the date hereof, the "Pre-Petition Credit Agreement"), and (ii) the other Financing Agreements, as defined in the Pre-Petition Credit Agreement (all such Financing Agreements, together with the Pre-Petition Credit Agreement, in each case as amended, modified, restated or supplemented prior to the date hereof or by any other amendment executed on or after the date hereof, collectively, the "Original Financing Agreements"). B. Debtors have filed petitions for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. ss.ss. 101, et seq. (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Eastern District of Wisconsin (the "Bankruptcy Court"), on February 26, 2004 (the "Petition Date"), Jointly Administered Case No. 04-22421-SVK (the "Cases"). C. The commencement of the Cases constituted an Event of Default under Section 10.1(g) the Pre-Petition Credit Agreement. D. In order to continue their operations as debtors-in-possession under the Bankruptcy Code, the Debtors requested that Lender make certain postpetition secured loans to Keystone (the "DIP Financing"). Lender has provided such DIP Financing to Keystone on and after the Petition Date pursuant to the terms and conditions of (a) the Assumption Agreement and Amendment to Financing Agreements entered into as of February 27, 2004 by and among the Lender and the Debtors (the "Assumption Agreement and Amendment"), (b) the Pre-Petition Credit Agreement and the other Original Financing Agreements, as modified by the Assumption Agreement and Amendment (the Pre-Petition Credit Agreement, as modified by the Assumption Agreement and Amendment, the "Post-Petition Credit Agreement") and (c) the Final Order (1) Authorizing Keystone Consolidated Industries, Inc., as Debtor-in-Possession, to Incur Post-Petition Secured Indebtedness, (2) Granting Security Interests and Priority Pursuant to 11 U.S.C. ss. 364 and (3) Modifying Automatic Stay entered by the Bankruptcy Court on March 15, 2004 (the "Financing Order"). E. Subject to the terms and conditions of this Agreement and the other agreements executed in connection herewith, if any, Lender has agreed to the Post-Petition Credit Agreement as set forth herein. NOW, THEREFORE, in consideration of the foregoing, the covenants and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Amendments. (a) Subsection 1.49 of the Post-Petition Credit Agreement is hereby amended to insert the following immediately following the last sentence of existing subsection 1.49 of the Post-Petition Credit Agreement: "Notwithstanding any of the foregoing, in any month in which Borrower at all times would be permitted to obtain from Lender a Revolving Loan in an amount not less than $10,000,000 in excess of any and all Revolving Loans outstanding at such time after giving effect to the lending formulas set forth in Section 2.1(a) hereof, the Interest Rate shall mean (A) as to Prime Rate Loans, a rate of one-half of one percent (0.5%) per annum in excess of the Prime Rate and (B) as to Eurodollar Rate Loans, a rate of two and one-half of one percent (2.5%) percent per annum in excess of the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest Period selected by Borrower as in effect three (3) Business Days after the date of receipt by Lender of the request of Borrower for such Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is higher or lower than any rate previously quoted to Borrower); provided, that, during any such month the Interest Rate shall mean the rate of two and one-half of one percent (2.5%) per annum in excess of the Prime Rate as to Prime Rate Loans and the rate of four and one-half of one percent (4.5%) per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, at Lender's option, without notice, (a) for the period (i) from and after the date of termination or non-renewal hereof until Lender has received full and final payment of all obligations (notwithstanding entry of a judgment against Borrower) and (ii) from and after the date of the occurrence of an Event of Default for so long as such Event of Default is continuing as determined by Lender, and (b) on the Revolving Loans at any time outstanding in excess of the amounts available to Borrower under Section 2 (whether or not such excess(es), arise or are made with or without Lender's knowledge or consent and whether made before or after an Event of Default)." SECTION 2. Representations and Warranties of Debtors. To induce Lender to execute and deliver this Agreement, Debtors represent and warrant that: (a) The execution, delivery and performance by Debtors of this Agreement and all documents and instruments delivered in connection herewith and the Post-Petition Credit Agreement and all other Financing Agreements have been duly authorized, executed and delivered, and this Agreement and all documents and instruments delivered in connection herewith and the Post-Petition Credit Agreement and all other Financing Agreements are legal, valid and binding obligations of Debtors that are a party thereto, enforceable against the Debtors in accordance with its respective terms, except as the enforcement thereof may be subject to (i) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law); (b) No Default or Event of Default has occurred and is continuing and each of the representations and warranties contained in the Post-Petition Credit Agreement and the other Financing Agreements is true and correct in all material respects on and as of the date hereof as if made on the date hereof, except to the extent that such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date, and each of the agreements and covenants in the Financing Agreements are hereby reaffirmed with the same force and effect as if each were separately stated herein and made as of the date hereof; (c) Neither the execution, delivery and performance of this Agreement and all documents and instruments delivered in connection herewith nor the consummation of the transactions contemplated hereby or thereby does or shall contravene, result in a breach of, or violate (i) any provision of any of the Debtors' governing documents, (ii) any law or regulation, or any order or decree of any court or government instrumentality or (iii) any indenture, mortgage, deed of trust, lease, agreement or other instrument to which any Debtor is a party or by which any Debtor or any of its property is bound; (d) Lender's security interests in the Collateral and the Congress DIP Collateral (as defined in the Financing Order) continue to be valid, binding, and enforceable first-priority security interests which secure the Obligations (subject only to encumbrances permitted by Section 9.8 of the Post-Petition Credit Agreement and ordering paragraph 6 of the Financing Order); and (e) No Debtor has made or agreed to make at any time any payment to any other Person on account of the transactions contemplated by this Agreement or any other agreements related thereto or required to be executed and delivered thereby, including, but not limited to, any holders of the Subordinated Indebtedness. No Debtor nor any Affiliate thereof has any obligation to any Person in respect of any finder's or brokerage fees in connection with this Agreement or any other agreements related thereto or required to be executed and delivered thereby. SECTION 3. Reference to and Effect Upon the Post-Petition Credit Agreement. (a) Except as expressly set forth herein, all terms, conditions, covenants, representations and warranties contained in the Post-Petition Credit Agreement or any other Financing Agreement, and all rights of Lender and all Obligations of Debtors thereunder, shall remain in full force and effect. Debtors hereby confirm that the Post-Petition Credit Agreement and the other Financing Agreements are in full force and effect and that Debtors have no defenses, setoffs or counterclaims to the Obligations under the Post-Petition Credit Agreement or any other Financing Agreement. (b) Except as expressly set forth herein, the execution, delivery and effectiveness of this Agreement and any consents and waivers set forth herein shall not directly or indirectly (i) constitute a consent or waiver of any past, present or future violations of any provisions of the Post-Petition Credit Agreement or any other Financing Agreement, (ii) amend, modify or operate as a waiver of any provision of the Post-Petition Credit Agreement or any other Financing Agreement or any right, power or remedy of Lender thereunder, or (iii) constitute a course of dealing or other basis for altering any Obligations of Debtors under the Financing Agreements or any other contract or instrument. (c) This Agreement shall constitute a Financing Agreement. SECTION 4. Costs and Expenses. Debtors agree to promptly reimburse Lender on demand for all fees, costs and expenses (including the fees, costs and expenses of counsel or other consultants or advisors retained by Lender) in connection with the negotiation, preparation and consummation of this Agreement and the other agreements and documents executed in connection herewith and the transactions contemplated hereby and thereby. SECTION 5. Governing Law. Any dispute between Lender and Debtors arising out of, connected with, related to, or incidental to the relationship established between them in connection with this Agreement, and whether arising in contract, tort, equity or otherwise, shall be resolved in accordance with the internal laws (and not the conflicts of law provisions) of the State of Illinois. SECTION 6. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purposes. SECTION 7. Construction. This Agreement and all other agreements and documents executed in connection therewith have been prepared through the joint efforts of all of the parties. Neither the provisions of this Agreement or any such other agreements and documents nor any alleged ambiguity shall be interpreted or resolved against any party on the ground that such party's counsel drafted this Agreement or such other agreements and documents, or based on any other rule of strict construction. Each of the parties hereto represents and declares that such party has carefully read this Agreement and all other agreements and documents executed in connection therewith, and that such party knows the contents thereof and signs the same freely and voluntarily. The parties hereby acknowledge that they have been represented by legal counsel of their own choosing in negotiations for and preparation of this Agreement and all other agreements and documents executed in connection therewith and that each of them has read the same and had their contents fully explained by such counsel and is fully aware of their contents and legal effect. SECTION 8. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. Any party hereto may execute and deliver a counterpart of this Agreement by delivering by facsimile transmission a signature page of this Agreement signed by such party, and any such facsimile signature shall be treated in all respects as having the same effect as an original signature. Any party delivering by facsimile transmission a counterpart executed by it shall promptly thereafter also deliver a manually signed counterpart of this Agreement. SECTION 9. Severability. The invalidity, illegality, or unenforceability of any provision in or obligation under this Agreement in any jurisdiction shall not affect or impair the validity, legality, or enforceability of the remaining provisions or obligations under this Agreement or of such provision or obligation in any other jurisdiction. SECTION 10. Time Of Essence. Time is of the essence in the payment and performance of each of the obligations of Debtors hereunder and with respect to all conditions to be satisfied by Debtors. SECTION 11. Further Assurances. Debtors agree to take all further actions and execute all further documents as Lender may from time to time reasonably request to carry out the transactions contemplated by this Agreement. SECTION 12. Notices. All notices, requests, and demands to or upon the respective parties hereto shall be given in accordance with Section 12.2 of the Post-Petition Credit Agreement. SECTION 13. Effectiveness. This Agreement shall become effective at the time (the "Effective Date") that all of the following conditions precedent have been met (or waived) as determined by Agent in its sole discretion: (a) Agreement. Executed signature pages for this Agreement signed by Lender and each of the Debtors shall have been delivered to Lender. (b) Bankruptcy Court Approval. The Bankruptcy Court shall have entered a final nonappealable order in form and substance acceptable to the Lender in the Lender's sole discretion approving this Agreement and authorizing the Debtors to execute this Agreement. (c) Representations. The representations and warranties contained herein shall be true and correct in all respects, and no Event of Default or Default shall exist on the date hereof. (d) Other Proceedings. All proceedings taken in connection with the transactions contemplated by this Agreement and all documents, instruments, and other legal matters incident thereto shall be satisfactory to Lender and its respective legal counsel. SECTION 14. Waiver Of Jury Trial. DEBTORS AND LENDER WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY OF ANY CLAIM, COUNTERCLAIM, ACTION OR OTHER PROCEEDING ARISING UNDER OR RELATING TO THIS AGREEMENT. SECTION 15. No Third Party Beneficiaries. This Agreement shall be binding upon and inure to the benefit of Debtors, Lender and their respective successors and assigns. No Person other than the parties hereto shall have any rights hereunder or be entitled to rely on this Agreement, and all third-party beneficiary rights are hereby expressly disclaimed. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first written above. KEYSTONE CONSOLIDATED INDUSTRIES, INC., as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- DESOTO ENVIRONMENTAL MANAGEMENT, INC., as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- FV STEEL AND WIRE COMPANY, as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- J.L. PRESCOTT COMPANY, as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- SHERMAN WIRE COMPANY (f/k/a DESOTO, INC.), as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- SHERMAN WIRE OF CALDWELL, INC., as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- CONGRESS FINANCIAL CORPORATION (CENTRAL), as Lender By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- EX-4.33 12 kciexh43303.txt SECOND AMENDMENT TO POST-PETITION CREDIT AGREEMENT This SECOND AMENDMENT TO POST-PETITION CREDIT AGREEMENT (this "Agreement") is entered into as of this 31st day of March, 2005, by and among KEYSTONE CONSOLIDATED INDUSTRIES, INC. ("Keystone"), DESOTO ENVIRONMENTAL MANAGEMENT, INC., FV STEEL AND WIRE COMPANY, J.L. PRESCOTT COMPANY, SHERMAN WIRE COMPANY (f/k/a DESOTO, INC.), and SHERMAN WIRE OF CALDWELL, INC., each as a debtor and debtor-in-possession in the Cases (defined below) (each a "Debtor," and, collectively, the "Debtors"), and CONGRESS FINANCIAL CORPORATION (CENTRAL), as lender ("Lender"). Unless otherwise specified, the capitalized terms used herein shall have the meanings ascribed to them in the Assumption Agreement and Amendment (defined below). RECITALS A. Keystone, as pre-petition debtor, and Lender are parties to (i) that certain Amended and Restated Revolving Loan and Security Agreement, dated as of December 29, 1995 (as amended, modified, restated or supplemented prior to the date hereof, the "Pre-Petition Credit Agreement"), and (ii) the other Financing Agreements, as defined in the Pre-Petition Credit Agreement (all such Financing Agreements, together with the Pre-Petition Credit Agreement, in each case as amended, modified, restated or supplemented prior to the date hereof or by any other amendment executed on or after the date hereof, collectively, the "Original Financing Agreements"). B. Debtors have filed petitions for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. ss.ss. 101, et seq. (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Eastern District of Wisconsin (the "Bankruptcy Court"), on February 26, 2004 (the "Petition Date"), Jointly Administered Case No. 04-22421-SVK (the "Cases"). C. The commencement of the Cases constituted an Event of Default under Section 10.1(g) the Pre-Petition Credit Agreement. D. In order to continue their operations as debtors-in-possession under the Bankruptcy Code, the Debtors requested that Lender make certain postpetition secured loans to Keystone (the "DIP Financing"). Lender has provided such DIP Financing to Keystone on and after the Petition Date pursuant to the terms and conditions of (a) the Assumption Agreement and Amendment to Financing Agreements entered into as of February 27, 2004 by and among the Lender and the Debtors (the "Assumption Agreement and Amendment"), (b) the Pre-Petition Credit Agreement and the other Original Financing Agreements, as modified by the Assumption Agreement and Amendment (the Pre-Petition Credit Agreement, as modified by the Assumption Agreement and Amendment and by the First Amendment to Post-Petition Credit Agreement dated as of December 10, 2004, the "Post-Petition Credit Agreement") and (c) the Final Order (1) Authorizing Keystone Consolidated Industries, Inc., as Debtor-in-Possession, to Incur Post-Petition Secured Indebtedness, (2) Granting Security Interests and Priority Pursuant to 11 U.S.C. ss. 364 and (3) Modifying Automatic Stay entered by the Bankruptcy Court on March 15, 2004 (the "Financing Order"). E. Subject to the terms and conditions of this Agreement and the other agreements executed in connection herewith, if any, Lender has agreed to the Post-Petition Credit Agreement as set forth herein. NOW, THEREFORE, in consideration of the foregoing, the covenants and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Amendment. (a) Subsection 12.1(a) of the Post-Petition Credit Agreement is hereby amended and restated to in its entirety to read as follows: "(a) This Agreement and the other Financing Agreements shall continue in full force and effect for a term ending on the date September 30, 2005 (the "Renewal Date"). Upon the Renewal Date or earlier termination of the Financing Agreements, Borrower shall pay to Lender, in full, all outstanding and unpaid Obligations and shall furnish cash collateral to Lender in such amounts as Lender determines are reasonably necessary to secure Lender from loss, cost, damage or expense, including attorneys' fees and legal expenses, in connection with any contingent Obligations, including issued and outstanding Letter of Credit Accommodations and checks or other payments provisionally credited to the Obligations and/or as to which Lender has not yet received final and indefeasible payment. Such cash collateral shall be remitted by wire transfer in Federal funds to such bank account of Lender, as Lender may, in its discretion, designate in writing to Borrower for such purpose. Interest shall be due until and including the next business day, if the amounts so paid by Borrower to the bank account designated by Lender are received in such bank account later than 12:00 noon, Chicago time." SECTION 2. Covenants of Debtors. (a) By no later than April 5, 2005, Debtors shall file a motion in the Cases with the Bankruptcy Court, in form and substance acceptable to the Lender, seeking the Bankruptcy Court's approval of this Agreement nunc pro tunc to March 31, 2005 out of an abundance of caution. (b) By no later than April 29, 2005, the Debtors shall obtain an order of the Bankruptcy Court, in form and substance acceptable to the Lender, approving this Agreement nunc pro tunc to March 31, 2005. (c) Debtors acknowledge and agree that Debtors' failure to comply with any of the covenants, agreements, representation, warranties and obligations set forth in this Agreement shall constitute an Event of Default under the Post-Petition Credit Agreement. SECTION 3. Representations and Warranties of Debtors. To induce Lender to execute and deliver this Agreement, Debtors represent and warrant that: (a) The execution, delivery and performance by Debtors of this Agreement and all documents and instruments delivered in connection herewith and the Post-Petition Credit Agreement and all other Financing Agreements have been duly authorized, executed and delivered, and this Agreement and all documents and instruments delivered in connection herewith and the Post-Petition Credit Agreement and all other Financing Agreements are legal, valid and binding obligations of Debtors that are a party thereto, enforceable against the Debtors in accordance with its respective terms, except as the enforcement thereof may be subject to general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law); (b) No Default or Event of Default has occurred and is continuing and each of the representations and warranties contained in the Post-Petition Credit Agreement and the other Financing Agreements is true and correct in all material respects on and as of the date hereof as if made on the date hereof, except to the extent that such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date, and each of the agreements and covenants in the Financing Agreements are hereby reaffirmed with the same force and effect as if each were separately stated herein and made as of the date hereof; (c) Neither the execution, delivery and performance of this Agreement and all documents and instruments delivered in connection herewith nor the consummation of the transactions contemplated hereby or thereby does or shall contravene, result in a breach of, or violate (i) any provision of any of the Debtors' governing documents, (ii) any law or regulation, or any order or decree of any court or government instrumentality or (iii) any indenture, mortgage, deed of trust, lease, agreement or other instrument to which any Debtor is a party or by which any Debtor or any of its property is bound; (d) Lender's security interests in the Collateral and the Congress DIP Collateral (as defined in the Financing Order) continue to be valid, binding, and enforceable first-priority security interests which secure the Obligations (subject only to encumbrances permitted by Section 9.8 of the Post-Petition Credit Agreement and ordering paragraph 6 of the Financing Order); and (e) No Debtor has made or agreed to make at any time any payment to any other Person on account of the transactions contemplated by this Agreement or any other agreements related thereto or required to be executed and delivered thereby, including, but not limited to, any holders of the Subordinated Indebtedness. No Debtor nor any Affiliate thereof has any obligation to any Person in respect of any finder's or brokerage fees in connection with this Agreement or any other agreements related thereto or required to be executed and delivered thereby. SECTION 4. Reference to and Effect Upon the Post-Petition Credit Agreement. (a) Except as expressly set forth herein, all terms, conditions, covenants, representations and warranties contained in the Post-Petition Credit Agreement or any other Financing Agreement, and all rights of Lender and all Obligations of Debtors thereunder, shall remain in full force and effect. Debtors hereby confirm that the Post-Petition Credit Agreement and the other Financing Agreements are in full force and effect and that Debtors have no defenses, setoffs or counterclaims to the Obligations under the Post-Petition Credit Agreement or any other Financing Agreement. (b) Except as expressly set forth herein, the execution, delivery and effectiveness of this Agreement and any consents and waivers set forth herein shall not directly or indirectly (i) constitute a consent or waiver of any past, present or future violations of any provisions of the Post-Petition Credit Agreement or any other Financing Agreement, (ii) amend, modify or operate as a waiver of any provision of the Post-Petition Credit Agreement or any other Financing Agreement or any right, power or remedy of Lender thereunder, or (iii) constitute a course of dealing or other basis for altering any Obligations of Debtors under the Financing Agreements or any other contract or instrument. (c) This Agreement shall constitute a Financing Agreement. SECTION 5. Costs and Expenses. Debtors agree to promptly reimburse Lender on demand for all fees, costs and expenses (including the fees, costs and expenses of counsel or other consultants or advisors retained by Lender) in connection with the negotiation, preparation and consummation of this Agreement and the other agreements and documents executed in connection herewith and the transactions contemplated hereby and thereby. SECTION 6. Governing Law. Any dispute between Lender and Debtors arising out of, connected with, related to, or incidental to the relationship established between them in connection with this Agreement, and whether arising in contract, tort, equity or otherwise, shall be resolved in accordance with the internal laws (and not the conflicts of law provisions) of the State of Illinois. SECTION 7. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purposes. SECTION 8. Construction. This Agreement and all other agreements and documents executed in connection therewith have been prepared through the joint efforts of all of the parties. Neither the provisions of this Agreement or any such other agreements and documents nor any alleged ambiguity shall be interpreted or resolved against any party on the ground that such party's counsel drafted this Agreement or such other agreements and documents, or based on any other rule of strict construction. Each of the parties hereto represents and declares that such party has carefully read this Agreement and all other agreements and documents executed in connection therewith, and that such party knows the contents thereof and signs the same freely and voluntarily. The parties hereby acknowledge that they have been represented by legal counsel of their own choosing in negotiations for and preparation of this Agreement and all other agreements and documents executed in connection therewith and that each of them has read the same and had their contents fully explained by such counsel and is fully aware of their contents and legal effect. SECTION 9. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. Any party hereto may execute and deliver a counterpart of this Agreement by delivering by facsimile transmission a signature page of this Agreement signed by such party, and any such facsimile signature shall be treated in all respects as having the same effect as an original signature. Any party delivering by facsimile transmission a counterpart executed by it shall promptly thereafter also deliver a manually signed counterpart of this Agreement. SECTION 10. Severability. The invalidity, illegality, or unenforceability of any provision in or obligation under this Agreement in any jurisdiction shall not affect or impair the validity, legality, or enforceability of the remaining provisions or obligations under this Agreement or of such provision or obligation in any other jurisdiction. SECTION 11. Time Of Essence. Time is of the essence in the payment and performance of each of the obligations of Debtors hereunder and with respect to all conditions to be satisfied by Debtors. SECTION 12. Further Assurances. Debtors agree to take all further actions and execute all further documents as Lender may from time to time reasonably request to carry out the transactions contemplated by this Agreement. SECTION 13. Notices. All notices, requests, and demands to or upon the respective parties hereto shall be given in accordance with Section 12.2 of the Post-Petition Credit Agreement. SECTION 14. Effectiveness. This Agreement shall become effective at the time (the "Effective Date") that all of the following conditions precedent have been met (or waived) as determined by Agent in its sole discretion: (a) Agreement. Executed signature pages for this Agreement signed by Lender and each of the Debtors shall have been delivered to Lender. (b) Representations. The representations and warranties contained herein shall be true and correct in all respects, and no Event of Default or Default shall exist on the date hereof. (c) Other Proceedings. All proceedings taken in connection with the transactions contemplated by this Agreement and all documents, instruments, and other legal matters incident thereto shall be satisfactory to Lender and its respective legal counsel. SECTION 15. Waiver Of Jury Trial. DEBTORS AND LENDER WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY OF ANY CLAIM, COUNTERCLAIM, ACTION OR OTHER PROCEEDING ARISING UNDER OR RELATING TO THIS AGREEMENT. SECTION 16. No Third Party Beneficiaries. This Agreement shall be binding upon and inure to the benefit of Debtors, Lender and their respective successors and assigns. No Person other than the parties hereto shall have any rights hereunder or be entitled to rely on this Agreement, and all third-party beneficiary rights are hereby expressly disclaimed. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first written above. KEYSTONE CONSOLIDATED INDUSTRIES, INC., as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- DESOTO ENVIRONMENTAL MANAGEMENT, INC., as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- FV STEEL AND WIRE COMPANY, as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- J.L. PRESCOTT COMPANY, as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- SHERMAN WIRE COMPANY (f/k/a DESOTO, INC.), as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- SHERMAN WIRE OF CALDWELL, INC., as debtor-in-possession By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- CONGRESS FINANCIAL CORPORATION (CENTRAL), as Lender By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- Consent of EWP Financial LLC EWP Financial LLC hereby acknowledges and agrees that it has received and reviewed a copy of the foregoing Second Amendment to Post-Petition Credit Agreement dated as of March 31, 2005 (the "Second Amendment"), by and among Keystone Consolidated Industries, Inc. ("Keystone"), Desoto Environmental Management, Inc., Fv Steel and Wire Company, J.L. Prescott Company, Sherman Wire Company (f/k/a Desoto, Inc.), and Sherman Wire of Caldwell, Inc., each as a debtor and debtor-in-possession in the Cases (defined below) (each a "Debtor," and, collectively, the "Debtors"), and Congress Financial Corporation (Central), as lender ("Lender"), and EWP Financial LLC further expressly consents to the execution of and performance under the Second Amendment by the Debtors and the Lender. EWP FINANCIAL LLC By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- EX-4.34 13 kciexh43403.txt DEBTOR-IN-POSSESSION CREDIT AGREEMENT THIS DEBTOR-IN-POSSESSION CREDIT AGREEMENT (this "Agreement") is made and entered into as of February ___, 2004 by and between KEYSTONE CONSOLIDATED INDUSTRIES, INC., a Delaware corporation (the "Company"); FV STEEL AND WIRE COMPANY, a Wisconsin corporation; SHERMAN WIRE COMPANY (f/k/a DeSoto, Inc.), a Delaware corporation; SHERMAN WIRE OF CALDWELL, INC., a Nevada corporation; J.L. PRESCOTT COMPANY, a New Jersey corporation; and DESOTO ENVIRONMENTAL MANAGEMENT, INC., a Delaware corporation (collectively with the Company, the "Borrowers"); the lenders listed in Annex I hereto (individually a "Lender" and collectively, the "Lenders"); and EWP FINANCIAL LLC, a Delaware limited liability company, as agent for the Lenders (the "Agent"). Recitals: WHEREAS, on February ___, 2004 (the "Petition Date") the Borrowers filed voluntary petitions for relief under the Bankruptcy Code with the Bankruptcy Court and are continuing in possession of their respective assets and in management of their respective business pursuant to sections 1107 and 1108 of the Bankruptcy Code; and WHEREAS, the Borrowers have requested that the Lenders make funds available for the purposes set forth in this Agreement, and the Lenders are willing to do so pursuant to section 364(c) of the Bankruptcy Code, subject to the terms and conditions of the Agreement; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I. Definitions In addition to terms defined elsewhere in this Agreement, the following definitions shall apply for purposes of this Agreement: "Applicable Laws" shall have the meaning ascribed to it in Section 5.1(e) hereof. "Bankruptcy Code" means Title 11, U.S. Code (11 U.S.C. ss. 101 et seq), as amended from time to time, and any successor statute. "Bankruptcy Court" or "Court" means the United States Bankruptcy Court for the Eastern District of Wisconsin. "Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure, as amended, promulgated under 28 U.S.C. ss. 2075 and the local rules of the Bankruptcy Court, as applicable from time to time to the Case. "Business Day" means a day other than a Saturday, a Sunday or a day on which banking institutions in the City of Dallas, Texas are authorized by law, regulation or executive order to remain closed. If a payment date called for herein or in the Notes is not a Business Day, payment may be made on the next succeeding day that is a Business Day. "Case" means the collective Chapter 11 cases of the Borrowers pending as Jointly Administered ---- Case No. ___________ in the Bankruptcy Court. "Closing" and "Closing Date" shall have the meaning ascribed to such terms in Section 2.2 hereof. "Collateral" means the property and assets described on Schedule 7.1 attached hereto and incorporated herein by reference. "Commitment" means, with respect to each Lender, the amount set forth opposite such Lender's name in Annex I, as the same may be adjusted pursuant to Section 2.1 hereof or as a result of assignments to or from such Lender pursuant to Section 8.8 hereof. "Commitment Fee" means a commitment fee payable to each Lender in the amount of 2% of its Commitment as set forth opposite such Lender's name in Annex I, one-half of which shall be payable on the Closing Date and the remaining one-half of which shall be payable on the earlier of (i) 150 days after the Closing Date and (ii) the closing date of the Sale of EWP. "Congress" means Congress Financial Corporation (Central), a Delaware corporation. "Congress Facility" means (i) that certain Amended and Restated Revolving Credit and Security Agreement dated as of December 29, 1995, as amended, between the Company and Congress, as assumed by the Borrowers and further amended by Assumption Agreement and Amendment to Financing Agreements dated as of February __, 2004 between the Borrowers and Congress, (ii) the other Financing Agreements (as defined in the agreements listed in clause (i) of this definition and (iii) the interim order entered in connection with the agreements listed in clauses (i) and (ii) of this definition. "Confirmation Order" means the order entered by the Court confirming a Plan of Reorganization for the Borrowers in the Case pursuant to section 1129 of the Bankruptcy Code. "Contract" means any contract, agreement, undertaking or commitment (written or oral, formal or informal, firm or contingent) to which the Company or any of its Subsidiaries is a party or by which the Company, any of its Subsidiaries, or any of their respective assets are bound, and which has current operative or executory effect. "Credit Documents" means, collectively, this Agreement, the Notes and all other documents, agreements, instruments, opinions and certificates now or hereafter executed and delivered in connection herewith or therewith, as modified, amended, extended, restated or supplemented from time to time. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Default Interest Rate" shall have the meaning ascribed to it in Section 3.1 hereof. "EWP" means Engineered Wire Products, Inc., a wholly-owned subsidiary of the Company. "EWP Sale Contract" means a binding contract satisfactory to the Company and approved by the Lenders, such approval not to be unreasonably withheld, providing for a Sale of EWP to a financially viable purchaser. "Expenses" means all reasonable costs and expenses of the Agent and the Lenders incurred in connection with the Credit Documents and the transactions contemplated therein, including, without limitation, (i) the costs of conducting record searches, examining collateral, and receiving and transferring funds (including charges for checks for which there are insufficient funds), (ii) the fees and expenses of legal counsel and paralegals (including the allocated cost of internal counsel and paralegals), accountants, appraisers and other consultants, experts or advisors retained by the Agent or any of the Lenders, (iii) the costs of preparing and recording releases of Collateral, and waivers, amendments, and terminations of any of the Credit Documents, (iv) the costs and expenses incurred in connection with the Agent's or the Lenders' due diligence and negotiation, documentation and approval of, the Credit Documents (including all pleadings filed with the Bankruptcy Court relating to the Credit Documents), and (v) all costs and expenses of enforcing the Agent's and the Lenders' rights hereunder and representing the Agent and the Lenders in the Case on any matter related to the Credit Documents. "Expiration Date" means (a) the earliest of (i) 180 days after the date the Petition is filed with the Bankruptcy Court; (ii) the Plan Effective Date; (iii) the dismissal of the Case; (iv) closing of the Sale of EWP or (v) Lenders' election, in their sole discretion, to terminate the Commitments upon the occurrence and during the continuance of an Event of Default or (b) such later date as may be selected by all of the Lenders in their sole discretion and without further order of the Bankruptcy Court. "Final Order" means an order as entered on the docket in the Case by the Bankruptcy Court over the subject matter and the parties as to which the time to appeal, petition for certiorari or seek rehearing has expired and no appeal or petition for certiorari or rehearing has been timely filed or requested or is still pending, or as to which any motion for rehearing, appeal or petition for certiorari that has been filed has been resolved by the highest court to which the order was timely appealed, or from which certiorari or rehearing was sought. "Final Order Date" means the later of the dates on which (i) the Permanent Financing Order becomes a Final Order, (ii) the Labor Costs Order is entered by the Bankruptcy Court, and (iii) a final order with respect to the Congress Facility reflecting substantially the same terms as the interim order with respect to the Congress Facility becomes a Final Order. "First Day Orders" means the orders, in form and substance reasonably satisfactory to the Lenders, made and signed by the Bankruptcy Court on the date of the first day hearing and thereafter entered on the docket. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "Governmental Authority" means the United States, any state or municipality, the government of any foreign country, any subdivision of any of the foregoing, or any authority, department, commission, board, bureau, agency, court, or instrumentality of any of the foregoing. "Holder" means a Lender and any subsequent holder of a Note. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances, or representing obligations in respect of a lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP or the balance deferred and unpaid of the purchase price of any property (other than contingent or "earnout" payment obligations), except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the guarantee, whether or not conditional, by such Person of any indebtedness of any other Person. "Interest Rate" shall have the meaning ascribed to it in Section 3.1 hereof. "Interim Financing Order" means an order, substantially in the form of Exhibit A hereto, made and signed by the Bankruptcy Court on the date of the first day hearing (and thereafter entered on the docket) pending a final hearing pursuant to Rule 4001(c) of the Bankruptcy Rules, approving the execution, delivery and performance of the Credit Documents by the Borrowers and the incurrence by the Borrowers of the Obligations. "ISWA" means the Independent Steel Workers Alliance. "Labor Costs Order" means an order, in form and substance reasonably satisfactory to the Lenders, entered by the Bankruptcy Court approving interim relief under sections 1113(e)/1114(h) of the Bankruptcy Code and/or a modification to the existing Collective Bargaining Agreement between the Company and the ISWA expiring May 2006, resulting in an aggregate reduction of expenses of the Borrowers of at least $1,100,000 per month. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Loan," "Loans" and "Loan Amounts" shall have the meaning ascribed to such terms in Section 2.1 hereof. "Material Adverse Effect" means a material adverse effect on the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of the Company and its Subsidiaries or on the Borrowers' ability to perform their obligations under any of the Credit Documents, it being understood that neither the fact of the filing of the Case, nor the limitations imposed by any provision of the Bankruptcy Code, constitutes a "Material Adverse Effect" as hereinbefore defined. "Note" and "Notes" shall have the meaning ascribed to such terms in Section 2.1 hereof. "Obligations" means the unpaid principal and interest hereunder (including interest accruing on or after the maturity of the Loans), Commitment Fees, Expenses and all other obligations and liabilities of the Borrowers to the Agent or to the Lenders under this Agreement, the Notes, or any other Credit Document. "Permanent Financing Order" means an order, in form and substance reasonably satisfactory to the Lenders, entered by the Bankruptcy Court upon the completion of a final hearing pursuant to Rule 4001(c) of the Bankruptcy Rules, approving the execution, delivery and performance of the Credit Documents by the Borrowers and the incurrence by the Borrowers of the Obligations. "Petition" means the collective petitions of the Borrowers to the Bankruptcy Court to commence the Case. "Plan Effective Date" means the date the Confirmation Order becomes a Final Order, or such other date thereafter as may be specified in the Plan of Reorganization. "Plan of Reorganization" means a plan of reorganization adopted by the Borrowers in connection with the Case and approved by the Bankruptcy Court. "Person" means any individual, corporation, general or limited partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Required Holders" means Holders holding not less than fifty-one percent (51%) of the aggregate principal amount of the Loans then outstanding (or fifty-one percent (51%) of the Commitments if no Loans are then outstanding). "Sale of EWP" means a sale of all or substantially all of the stock or substantially all of the assets of EWP in accordance with the terms of the EWP Sale Contract. "Subsidiary" means any corporation, general or limited partnership, limited liability company, association or other business entity of which securities or other ownership interests representing more than fifty percent (50%) of the ordinary voting power are, at the time as of which any determination is being made, owned or controlled by any of the Borrowers or one or more Subsidiaries of the Borrowers. "SEC" means the Securities and Exchange Commission. "Transaction" shall have the meaning ascribed to it in Section 3.6 (q) hereof. "1933 Act" means the Securities Act of 1933, as amended. ARTICLE II. Loans; Notes; Closing and Closing Date 2.1. Commitment; Revolving Loans; Notes; Tranches. (a) Subject to the terms and conditions set forth in this Agreement, and relying upon the representations and warranties of the Borrowers herein set forth, each Lender severally agrees, from time to time during the period from and including the Closing Date to but not including the Expiration Date, to make a loan or loans to the Borrowers in aggregate principal amount at any time outstanding not to exceed the Commitment of such Lender in accordance with the tranches set forth in subsection (b) of this Section 2.1. The Commitment of each Lender is revolving in nature, and the Borrowers may borrow, repay and reborrow an aggregate principal amount up to the applicable Commitment at any time and from time to time without premium or penalty, subject to the terms and conditions of this Agreement. The amounts borrowed by the Borrowers pursuant to each Commitment (each such borrowing a "Loan" and, collectively, the "Loans", and the aggregate amount of all such Loans outstanding from time to time, the "Loan Amount") shall be evidenced by notes of like tenor except as to principal amount in the form of Exhibit B hereto --------- (each a "Note" and, collectively, the "Notes"), the terms and conditions of which are incorporated in and made a part of this Agreement. Each Note shall be dated the Closing Date and be made payable to the order of the respective Lender for the principal sum of each such Lender's Commitment. (b) The Commitment of each Lender shall be available for making Loans in tranches as follows: (i) During the period commencing on the Closing Date, and ending upon the earlier of (x) the Final Order Date, and (y) the Expiration Date, the Borrowers may submit Notices of Borrowing such that after giving effect to the same the aggregate Loan Amount would not exceed $4,000,000. (ii) During the period (if any) commencing on the Final Order Date and ending upon the Expiration Date, the Borrowers may submit Notices of Borrowing such that after giving effect to the same, the aggregate Loan Amount would not exceed $5,000,000. (iii) Upon closing of the Sale of EWP, all net proceeds of such sale shall be applied to reduce the Obligations, pro rata as to the outstanding principal balance of each Lender's Note, and the Commitment of each Lender to make Loans shall terminate. 2.2. Closing; Closing Date. The closing hereunder (the "Closing") shall occur at 10:00 a.m. at the offices of the Agent on the date on which the terms and conditions to the Lenders' obligations as set forth in Section 4.1 hereof are satisfied, or such other time and place as the parties may agree in writing (the "Closing Date"). 2.3. Notice of Borrowing. In the event that the Borrowers shall elect to borrow from the Lenders pursuant hereto, the Company shall give written notice thereof to each Lender not later than three (3) Business Days prior to the proposed date of such Loans, provided that such notice shall not be required with respect to Loans to be made on the Closing Date. Each such notice shall be by facsimile transmission, promptly confirmed by letter, and shall specify therein: (i) the date of such proposed Loans, which shall be a Business Day; (ii) the aggregate amount of such proposed Loans, which Loans shall be in increments of $100,000; (iii) each Lender's pro rata portion of the aggregate amount of such proposed Loans (i.e., such Lender's respective Loan) (determined on the basis of the ratio of such Lender's Commitment to the aggregate amount of all Commitments), which when aggregated together with the amount of all Loans of such Lender then outstanding shall not exceed the Commitment of such Lender; (iv) the bank account or accounts to which the proceeds of such Loans should be paid by the Lenders; and (v) a general description of the intended use of the proceeds of such Loans. Upon such notice properly given, and subject to the determination by the Required Holders that the Borrowers have satisfied the terms and conditions to the Lenders' obligations as set forth in Section 4.2 hereof, including, without limitation, compliance satisfactory to the Required Holders in their sole discretion with the terms of Section 6.2(a) for use of proceeds, and the Lenders shall each fund their respective Loans at the time and to the account(s) specified in the Company's notice. ARTICLE III. Terms of Loans and Note 3.1. Interest Rate; Payment; Usury. (a) Provided that no Event of Default has occurred and is continuing and subject to the other provisions of this Agreement, the Loan Amount shall bear interest at a rate per annum equal to three percent (3%) plus the rate from time to time published in the Wall Street Journal as the prime rate, whether or not such announced rate is the best rate available at any bank or other financial institution (the "Interest Rate"). During any period that an Event of Default shall have occurred and be continuing, interest on the Loan Amount shall accrue at a rate equal to the Interest Rate plus two percent (2%) (the "Default Interest Rate"). Notwithstanding anything contained herein to the contrary, in no event shall the interest rate on the Loans, including the Default Interest Rate, exceed the highest rate permitted by applicable law. Interest on the Loans, including interest at the Default Interest Rate, shall be based on a 360-day year, and interest shall accrue and be payable for the actual number of calendar days elapsed. Interest shall be payable in arrears commencing on the 31st day of March, 2004 and continuing thereafter on the last day of each subsequent month until the Loan Amount and all accrued interest have been paid in full. (b) It is the intention of the Borrowers and the Lenders to conform strictly to applicable usury laws now or hereafter in force, and any interest payable under this Agreement or the Notes shall be subject to reduction to an amount not to exceed the maximum non-usurious amount for commercial loans allowed under such applicable usury laws as now or hereafter construed by the courts having jurisdiction over such matters. In the event such interest (whether designated as interest, service charges, points, origination fees, or otherwise) does exceed the maximum legal rate, it shall be (i) canceled automatically to the extent that such interest exceeds the maximum legal rate; (ii) if already paid, at the option of each Holder, either be rebated to the Borrowers or credited on the principal amount of the Loans evidenced by the Note held by such Holder; or (iii) if the Loans have been prepaid in full, then such excess shall be rebated to the Borrowers. It is further agreed, without limitation of the foregoing, that all calculations of the rate of interest contracted for, charged, or received under this Agreement and the Notes that are made for the purpose of determining whether such rate exceeds the maximum legal rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating, and spreading throughout the full stated term of the Loans (and any extensions of the term thereof that may be hereafter granted) all such interest at any time contracted for, charged, or received from the Borrowers or otherwise by the Holders so that the rate of interest on account of the Loans, as so calculated, is uniform throughout the term thereof. If the Borrowers are exempt or hereafter become exempt from applicable usury statutes or for any other reason the rate of interest to be charged on the Loans is not limited by law, none of the provisions of this paragraph shall be construed so as to limit or reduce the interest or other consideration payable under this Agreement or the Notes or under any instrument securing payment thereof. The terms and provisions of this paragraph shall control and supersede every other provision of all agreements between the parties hereto. 3.2. Joint and Several Obligations. Borrowers acknowledge and agree that the Obligations are joint and several obligations of each of the Borrowers, and may be allocated by the Borrowers between the Borrowers in any fashion the Borrowers deem to be appropriate, but no Borrower shall have any right to be subrogated for Lenders by virtue of making any such payment, and each Borrower unconditionally guarantees the repayment to Lenders of the Obligations of each of the other Borrowers, and such guarantee shall be secured by the Collateral. 3.3. Maturity. Unless the same shall become due earlier as a result of acceleration of the maturity, the Loans shall mature on the Expiration Date, at which time all outstanding obligations shall become due and payable. 3.4. Prepayments. The Borrowers may from time to time and at any time prepay the Loans, in whole or in part and without premium or penalty. Any partial prepayment shall be applied first to interest which is accrued and unpaid and then to principal. 3.5. Manner of Payment. The Borrowers shall make payments in respect of the Loans (including principal and interest) by wire transfer of immediately available funds to the accounts specified by the Holders. Notwithstanding any other provision in this Agreement or the Notes, the Borrowers covenant and agree and the Lenders among themselves agree that all payments made by the Borrowers of interest and principal, including any prepayments, shall be made to and for the benefit of the Holders pro rata according to the outstanding principal balance of their respective Notes. 3.6. Events of Default. Each of the following constitutes an "Event of Default": (a) default for five (5) days in the payment when due of interest on any of the Notes or of the remaining Commitment Fees; (b) default in payment when due of the principal on any of the Notes; (c) failure of the Borrowers to make payments to the Holders of interest or principal due on the Notes or of any prepayments other than pro rata according to the outstanding principal balance of their respective Notes; (d) the occurrence and continuation of an "Event of Default" under that certain Business Loan Agreement and those certain Promissory Notes, each dated as of January 5, 2004, between EWP and BankOne, as amended, extended, modified, or renewed from time to time or under any agreement evidencing the refinancing of indebtedness thereunder (the "EWP Credit Facility"); (e) (i) the occurrence and continuation of an "Event of Default" under the Congress Facility or any substitute or replacement financing facility therefor which is approved by the Lenders in their sole discretion (a "Substitute Financing"); or (ii) the termination of the Congress Facility unless a Substitute Financing then becomes effective, or if a Substitute Financing is then in effect, termination of the Substitute Financing; or (iii) the amendment or modification of the Congress Facility or the Substitute Financing, as applicable, without Lenders' prior written consent; or (iv) the imposition by Congress within the 150-day period after the Petition Date of reserve or other requirements which have the effect of further reducing the borrowing base under the Congress Facility by more than $250,000; (f) failure by the Borrowers to comply with any of the covenants or agreements in this Agreement or the Notes; (g) any of the representations or warranties of the Borrowers set forth in this Agreement or incorporated herein by reference or set forth in any statement or schedule delivered pursuant to this Agreement was untrue or incorrect in any material respect as of the date of execution of this Agreement or as of the Closing Date or the date subsequent thereto of the making of any additional Loan, in either case as if made on such date; (h) any covenant, agreement or obligation of the Borrowers contained in or evidenced by any of the Credit Documents shall cease to be enforceable, or shall be determined to be unenforceable, in any material respect; any Borrower shall deny or disaffirm its obligations under any of the Credit Documents or any liens or security interests granted in connection therewith; or any liens or security interests granted in any of the Collateral shall be determined to be void, voidable, invalid or unperfected, are subordinated or not given the priority contemplated by this Agreement. (i) the Bankruptcy Court, or any other court with appropriate jurisdiction, shall enter an order amending, supplementing, staying, vacating, or reversing, or shall otherwise modify, (i) the Interim Financing Order or the Permanent Financing Order, as applicable, (ii) the Labor Costs Order or any collective bargaining agreement subject thereto, or (iii) the interim or final order, as applicable, with respect to the Congress Facility, in each case without the Lenders' prior written consent. (j) (i) the Bankruptcy Court shall enter an order dismissing the Case, converting the Case to a case under chapter 7 of the Bankruptcy Code, or appointing a trustee in the Case; or (ii) an application shall be filed (x) by any Person other than the Borrowers, which application is not dismissed within thirty (30) days, or (y) by the Borrowers, for (aa) the appointment of a trustee or (bb) the approval of, or there shall arise, any Lien (other than those of the Lenders hereunder and under the Interim Financing Order, the Permanent Financing Order and the interim and final orders approving the Congress Facility) in the Case having a priority (whether under section 364 of the Bankruptcy Code or otherwise) superior to, pari passu with or junior to that of the Agent and the Lenders on the Collateral, or any administrative expense claim having a priority senior to the administrative expense claim granted to the Agent and the Lenders under the Interim Financing Order and the Permanent Financing Order; or (iii) the Bankruptcy Court shall enter an order granting relief from the automatic stay applicable under section 362 of the Bankruptcy Code to (x) the holder of any lien or security interest other than liens and security interests in favor of the Lenders in any assets of any of the Borrowers, or (y) a party to an action, suit or proceeding (other than an action, suit or proceeding the liability for which is covered by insurance) arising prior to the Petition Date and claiming damages in excess of $250,000 against any of the Borrowers; or (iv) the Borrowers shall pay, or apply to the Bankruptcy Court for authority to pay, any claim arising prior to the Petition Date except as expressly contemplated by this Agreement or the First Day Orders or otherwise approved in writing by the Agent. (k) any unpaid judgment or order as to a liability or debt for the payment of money in excess of $250,000 arising after the Petition Date (to the extent not covered by insurance) shall be rendered against any of the Borrowers and either (i) enforcement proceedings shall have been commenced and shall be continuing by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. (l) (i) the filing of any motion or proceeding with the Bankruptcy Court, which is not dismissed, denied with prejudice or otherwise resolved to the satisfaction of Lenders within thirty (30) days of such filing, challenging or seeking otherwise to modify, limit, subordinate or avoid the priority of any Obligations or the perfection or priority of Lenders' liens and security interests on any Collateral, or seeking to impose, surcharge or assess against Lenders, their claims or the Collateral any material costs or expenses, whether pursuant to section 506(c) of the Bankruptcy Code or otherwise, or (ii) the entry of any order having any such effect; (m) any failure by Borrowers to timely comply with any term or provision of the Interim Financing Order or the Permanent Financing Order; (n) the filing of any motion or application with the Bankruptcy Court seeking the entry of, or the entry of, an order approving any subsequent debtor-in-possession facility for borrowed money (other than the Congress Facility) unless such subsequent facility and such court order expressly provide for the payment in full to Lenders of all Obligations prior to any initial borrowings under such subsequent facility or unless Lenders have consented to such subsequent facility; (o) an application shall be filed with the Bankruptcy Court seeking substantive consolidation of EWP with the Company or any action shall have been taken to grant or obtain a Lien on the assets of EWP other than Liens securing the EWP Credit Facility and Liens permitted under the EWP Credit Facility; (p) any non-monetary judgment or order with respect to an event occurring or arising after the Petition Date shall be rendered against the Borrowers which does or could reasonably be expected to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (q) (i) a strike by the ISWA or any other official or unofficial, organized or unorganized, work stoppage or slow down, including but not limited to a mass sick-out or a refusal to work full days or overtime, by more than 10% of the employees of any Borrower; or (ii) a vote by the ISWA general voting membership to authorize any of the foregoing; or (iii) a vote by the ISWA general voting membership to authorize any group other than the ISWA general voting membership to authorize any of the foregoing; or (r) any of the following events shall not have occurred by the number of days after the Closing Date specified opposite such event:
-------------------------------------------------- ------------------------------------------------ Number of Days after the Closing Date Event -------------------------------------------------- ------------------------------------------------ 18 days Entry of a Permanent Financing Order satisfactory to the Lenders in their sole discretion -------------------------------------------------- ------------------------------------------------ 150 days Closing of the Sale of EWP -------------------------------------------------- ------------------------------------------------ 15 days Entry of a Labor Costs Order -------------------------------------------------- ------------------------------------------------
3.7. Acceleration. (a) Declaration of Acceleration. If any Event of Default occurs and is continuing, the Agent shall, at the direction of the Required Holders (given in the sole discretion of such Holders) and upon notice to the Company (who shall notify the other Borrowers) (i) terminate the Commitments or (ii) declare the outstanding principal of, and accrued and unpaid interest on, the Notes and all other amounts owing under this Agreement and the Notes to be immediately due and payable, or either one or both of the foregoing, whereupon the Commitments shall terminate forthwith and all such amounts shall become immediately due and payable, as the case may be; provided, however, that in the case of an Event of Default arising from any event described in clauses (i) or (j) of Section 3.6 hereof, the Loans and the Notes shall ipso facto become due and payable without further action or notice on the part of the Agent or any Holder. (b) Relief From Stay. Upon the occurrence and during the continuation of an Event of Default, the Agent and the Lenders shall be relieved of any stay, including under section 362 of the Bankruptcy Code. The Agent and the Lenders shall be permitted to exercise any rights and remedies available to them, including but not limited to those described herein, without the necessity of giving notice (except for three Business Days' prior notice to the Company and except for such notice as is required by the Interim Financing Order or the Permanent Financing Order, as applicable) to the Bankruptcy Court or creditors or other parties in interest, or obtaining any further order from the Bankruptcy Court, and free of any restrictions contained in the Bankruptcy Code. (c) Rescission. At any time after a declaration of acceleration with respect to the Notes, the Agent shall, at the direction of the Required Holders (given in the sole discretion of such Holders), rescind and cancel such declaration and its consequences. No such rescission shall affect any subsequent Default or impair any right with respect thereto. 3.8. Other Remedies. If an Event of Default occurs and is continuing, the Agent shall, at the direction of the Required Holders (given in the sole discretion of such Holders), pursue any available remedy to collect the payment of principal and interest (including interest at the Default Interest Rate) on the Notes or to enforce the performance of any provision of such Notes or this Agreement. Upon the occurrence and during the continuance of an Event of Default, the Agent may foreclose on the liens and security interests created pursuant to the Credit Documents, the Interim Financing Order and the Permanent Financing Order by any available judicial procedure, or take possession of any or all of the Collateral without judicial process and enter any premises where any Collateral may be located for the purpose of taking possession of or removing the same. Any Lender may bid, including credit bid, or become a purchaser at any sale, free from any right of redemption, which right is expressly waived by the Borrowers. Subject to any notice required under the Interim Financing Order or the Permanent Financing Order, if notice of intended disposition of Collateral is required by law, Borrowers agree that ten (10) days notice shall constitute reasonable notification. The Borrowers will make the Collateral available to the Agent as the Agent may reasonably specify, and will make reasonably available to the Agent the premises and facilities of the Borrowers for the purpose of the Agent's taking possession of, removing or putting the Collateral in saleable form. A delay or omission by the Agent in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. 3.9. Waiver Of Past Defaults. The Agent, at the direction of the Required Holders (given in the sole discretion of such Holders) shall waive in writing any existing Default or Event of Default and its consequences under this Agreement. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Agreement; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. 3.10. Priorities. Any sums collected by a Holder hereunder or under a Note held by it shall be applied first to all costs and expenses of collection, including reasonable attorneys' fees, then to accrued and unpaid interest (including at the Default Interest Rate to the extent applicable) and then to principal due on such Holder's Note. ARTICLE IV. Conditions to Lender's Obligations 4.1. Conditions at Closing Date. Each Lender's obligation to make the initial Loan on the Closing Date shall be subject to the satisfaction of the following conditions on or before the Closing Date, except to the extent waived by the Required Holders in writing: (a) The Borrowers shall have reimbursed the Lenders for all Expenses, to the extent documented to the Borrowers as of the Closing; (b) The Borrowers shall have paid to each Lender the portion of the Commitment Fee then due and payable; (c) (i) Certificates evidencing all outstanding stock of EWP shall have been delivered, together with stock powers executed in blank, by or on behalf of the Company to and in favor of the Agent for the benefit of the Holders; (d) Each of the representations and warranties of the Borrowers set forth in this Agreement or incorporated herein by reference or set forth in any statement or schedule delivered pursuant to this Agreement are true and correct in all material respects as of the date of execution of this Agreement and as of the Closing Date as if made on such date; (e) The Borrowers shall not be in default with respect to any of their covenants and agreements set forth in Article VI of this Agreement or set forth elsewhere in this Agreement; (f) No Default or Event of Default shall have occurred and be continuing; (g) The Interim Financing Order and the First Day Orders shall have been entered; (h) All conditions to the initial post-Petition borrowing under the Congress Facility shall have been satisfied; (i) That certain Amended and Restated EWP Bridge Loan Agreement dated as of November 21, 2001, as amended, between the Company and the Lenders shall have been amended to reduce the aggregate Commitment of the Lenders thereunder to $250,000; and (j) The Company shall have delivered to the Lenders a certificate, executed by an officer of the Company acceptable to the Required Holders and dated as of the Closing Date, certifying to the Borrowers' fulfillment of the conditions specified in subsections (a) through (i) of this Section 4.1, and expressly detailing, and certifying the compliance with Section 6.2(a) hereof with regard to, the intended use of the proceeds of such Loan. 4.2. Conditions at Subsequent Date. Each Lender's obligation to make a Loan on any date subsequent to the Closing Date shall be subject to the satisfaction of the following conditions on or before the proposed date of such Loan, except to the extent waived by the Required Holders in writing: (a) The Borrowers shall have reimbursed the Lenders for all Expenses, to the extent documented to the Borrowers as of the closing of such Loan; (b) The Borrowers shall have paid to each Lender any portion of the Commitment Fee then due and payable; (c) Each of the representations and warranties of the Borrowers set forth in this Agreement or incorporated herein by reference or set forth in any statement or schedule delivered pursuant to this Agreement are true and correct in all material respects as of the date of the closing of such Loan as if made on such date; (d) The Borrowers shall not be in default with respect to any of their covenants and agreements set forth in Article VI of this Agreement or set forth elsewhere in this Agreement; (e) No Default or Event of Default shall have occurred and be continuing; and (f) The Company shall have delivered to the Lenders a certificate, executed by an officer of the Company, acceptable to the Required Holders and dated as of the date of the closing of such Loan, certifying to the Borrowers' fulfillment of the conditions specified in subsections (a) through (e) of this Section 4.2, and expressly detailing, and certifying the compliance with Section 6.2(a) hereof with regard to, the intended use of the proceeds of such Loan. 4.3. Waiver; Termination. The Required Holders may in their sole discretion waive in writing any of the conditions set forth in Sections 4.1 or 4.2 hereof. ARTICLE V. Representations and Warranties 5.1. Representations and Warranties of the Borrowers. In order to induce the Lenders to enter into this Agreement, the Borrowers represent and warrant to the Lenders on the date hereof and on and as of the date of each Loan, as if made on and as of such date, which representations and warranties shall survive such date and be independent of any investigation or lack of investigation of the Borrowers made by or on behalf of the Agent or the Lenders, as follows: (a) Organization and Standing. Each of the Borrowers is duly incorporated and validly existing under the laws of the State set forth by its name on the first page hereof, and, subject to obtaining any necessary Bankruptcy Court approval, has all requisite corporate power and authority to own or lease its properties and assets and to conduct its business as it has been and is proposed to be conducted. Each of the Borrowers is qualified to do business and in good standing in each jurisdiction in which the failure to so qualify could have a material adverse effect upon its assets, properties, liabilities, financial condition, results of operations or business. (b) Capacity of the Borrowers; Consents; Execution of Agreements. Subject to obtaining any necessary Bankruptcy Court approval, each of the Borrowers has the requisite corporate power, authority, and capacity to enter into this Agreement, the Notes and the other Credit Documents and to perform the transactions and obligations to be performed by it hereunder and thereunder. Except for any necessary Bankruptcy Court approval and except as described on Schedule 5.1(b) hereto, no consent, authorization, approval, license, permit or order of, or filing with, any Person or Governmental Authority is required in connection with the execution and delivery of this Agreement, the Notes and the other Credit Documents or the performance by each of the Borrowers of the transactions and obligations to be performed by it hereunder and thereunder, except as contemplated by said agreements. The failure to obtain any of the consents described on Schedule 5.1(b) prior to the Closing Date will not have a material adverse effect upon any Borrower's assets, properties, liabilities, financial condition, results of operations or business. The execution and delivery of this Agreement, the Notes and the other Credit Documents by the Borrowers, and the performance of the transactions and obligations contemplated hereby and thereby by the Borrowers, have been duly authorized by all requisite action of the Borrowers. This Agreement has been, and the Notes and the other Credit Documents will be, duly executed and delivered by a duly authorized officer of each of the Borrowers and, subject to obtaining any necessary Bankruptcy Court approval, constitutes, or when executed and delivered will constitute, a valid and legally binding agreement of each of the Borrowers, enforceable in accordance with its terms. (c) Valid Issuance. The Notes to be issued hereunder, when issued by the Borrowers to the Lenders pursuant to the terms of this Agreement, will be duly authorized and validly issued. (d) Conflicts; Defaults. The execution and delivery of this Agreement, the Notes, and the other Credit Documents by each of the Borrowers, and the performance by each of the Borrowers of the transactions and obligations contemplated hereby and thereby to be performed, will not: (i) violate, conflict with, or constitute a default under any of the terms or provisions of its certificate of incorporation or bylaws, or any provisions of, or result in the acceleration of any obligation under, any Contract, note, debt instrument, security agreement, or other instrument to which the Company, or any Subsidiary is a party or by which the Company, or any Subsidiary or any of their respective assets is bound; (ii) result in the creation or imposition of any Liens or claims upon the assets of the Company or any Subsidiary or their issued and outstanding capital stock, except with respect to the Collateral pledged hereunder; (iii) constitute a violation of any law, statute, judgment, decree, order, rule, or regulation of a Governmental Authority applicable to the Company, or any Subsidiary; or (iv) constitute an event which, after notice or lapse of time or both, would result in any of the foregoing, in each case, which could reasonably be expected to have a Material Adverse Effect on the Company or such Subsidiary. Neither the Company nor any Subsidiary is presently in violation of any provision of its certificate of incorporation or bylaws. (e) Compliance with Laws. Neither the Company nor any Subsidiary is in violation of, nor do any of their respective operations violate in any respect, any statute, law, or regulation of any Governmental Authority applicable to the Company or a Subsidiary, as the case may be, any of their respective assets, or the conduct of their respective businesses ("Applicable Laws"), the violation of which reasonably could be anticipated to have a Material Adverse Effect upon the Company or a Subsidiary. (f) Litigation. Neither the Company nor any Subsidiary is a party to any material legal action, suit, claim, investigation or proceeding which is not adequately described in a periodic report heretofore filed by the Company with the SEC, and, to the best of the Company's knowledge and belief after due inquiry, there exist no facts or circumstances which reasonably could be anticipated to result in any such action, suit, claim, investigation, or proceeding. (g) Taxes. The Company and each Subsidiary has prepared and duly and timely filed with each appropriate Governmental Authority, all material federal, state, municipal, local and foreign tax returns, information returns and other reports required to be filed on or before the date of this Agreement or the making of any Loan and has paid all material taxes required to be paid by the Company or any Subsidiary prior to the date of this Agreement or the making of any Loan in respect of the periods covered by such returns and reports, except such taxes as are being contested in good faith. (h) Environmental Compliance. Each of the Company and its Subsidiaries are in compliance with all applicable federal, state and local laws and requirements (including permit requirements) relating to the protection of health or the environment in connection with the ownership, operation and condition of its properties and business, except as described in a periodic report heretofore filed by the Company with the SEC or where failure to comply would not have a Material Adverse Effect on the Company or any Subsidiary. (i) Securities Laws. No consent, authorization, approval, permit, or order of or filing with any Governmental Authority is required in order for the Borrowers to execute and deliver this Agreement or the other Credit Documents or to offer, issue, sell or deliver the Notes. Based in part on the representations of the Lenders and under the circumstances contemplated hereby and under current laws and regulations, the offer, issuance, sale and delivery of the Notes to the Lenders are exempt from the prospectus delivery and registration requirements of the 1933 Act. (j) Disclosure. The Company has fully responded to all written requests for information and has accurately answered, to the best of the Company's knowledge and belief after due inquiry, all written questions from the Lenders concerning the assets, properties, liabilities, financial condition, results of operations, business and prospects of the Company and its Subsidiaries, and has not knowingly withheld any facts relating thereto which it reasonably believed to be material with respect to the assets, properties, liabilities, financial condition, results of operations, business or prospects of the Company or any Subsidiary. No information in this Agreement, or in any Schedule or Exhibit attached to this Agreement or delivered to the Lenders in connection herewith, contains any untrue statement of a material fact or when considered together with all such information delivered to the Lenders omits to state any material fact necessary in order to make the statements made in the light of the circumstances under which they were made, when taken as a whole, not misleading. The disclosures made in writing by the Borrowers in connection with this Agreement do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein not misleading. There is no fact or circumstance relating to the Company or any Subsidiary which materially and adversely affects or in the future may, in the reasonable business judgment of the Borrowers, be expected materially and adversely to affect the same which has not been set forth in this Agreement or the Schedules hereto. (k) Collateral. None of the Borrowers owns any property or assets other than the Collateral listed on Schedule 7.1. Each of the Borrowers owns all Collateral listed by its name on Schedule 7.1, free and clear of any and all Liens in favor of third parties except as set forth on Schedule 5.1(k). Subject to approval of the Bankruptcy Court, liens and security interests granted pursuant to the Credit Documents, as and when such Credit Documents are executed and delivered by the Borrowers, constitute valid and enforceable perfected liens on and security interests in the Collateral and, in the case of Collateral over which a lien or security interest is approved by the Bankruptcy Court pursuant to section 364(c) of the Bankruptcy Code, such lien or security interest has, except to the extent specified in Schedule 5.1(k), first priority and such Collateral is not subject to any other Lien. Subject to approval of the Bankruptcy Court, the Obligations constitute allowed administrative expense claims in the Case pursuant to section 503(b) of the Bankruptcy Code. Pursuant to the Bankruptcy Code, the Obligations shall at all times be secured by a perfected security interest in and lien upon all of the Collateral; and the Obligations, as well as the obligations under the Congress Facility, shall have priority in payment over any and all administrative expenses incurred in a superseding case under chapter 7 of the Bankruptcy Code. All filings, notices, recordings and other action necessary to perfect the liens on and security interests in the Collateral created pursuant to Article VII and the Interim Financing Order or the Permanent Financing Order, as applicable, have been made, given or accomplished. (l) The Case; Orders. (i) The Borrowers have: 1. provided to the Agent (which agrees to furnish to each of the Lenders) copies of all pleadings, notices and all other documents filed in the Case as of the Closing Date; 2. no knowledge of any pending or threatened motions (a) to convert the Case to a case under Chapter 7 of the Bankruptcy Code, (b) to appoint a trustee or examiner or (c) that could reasonably be expected to have a Material Adverse Effect on the Borrowers; 3. determined, and hereby represent and warrant that, any Loan made hereunder prior to entry of the Permanent Financing Order is necessary to avoid immediate and irreparable harm to the Borrowers; and 4. been unable to obtain unsecured credit allowable under section 503(b)(1) of the Bankruptcy Code as an administrative expense. (ii) Upon the maturity (whether by acceleration or otherwise) of any of the Obligations, the Agent and the Lenders shall be entitled to immediate payment in accordance with this Agreement and the Interim Financing Order or the Permanent Financing Order, as applicable, of such Obligations without further application to or order by the Bankruptcy Court. (iii) The Interim Financing Order and the Permanent Financing Order will each grant to the Agent for the benefit of the Lenders legal, valid and binding liens on and security interests in the Collateral, subject only to the Liens described on Schedule 5.1(k) 5.2. Representations and Warranties of the Lenders. Each Lender (solely as to itself and not as to any other Lender) represents and warrants to the Borrowers that: (a) Investment Intent. The Note to be issued to such Lender is being acquired for its own account and not with the view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the 1933 Act. Such Lender understands that such Note has not been registered under the 1933 Act by reason of its issuance in a transaction exempt from the registration and prospectus delivery requirements of the 1933 Act pursuant to Section 4(2) thereof. It further understands that such Note will bear the following legend and agrees that it will hold such Note subject thereto: THIS NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW. NEITHER THIS NOTE NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE BORROWERS SHALL HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE BORROWERS (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWERS). (b) Capacity of the Lender; Execution of Agreement. Such Lender has all requisite power, authority, and capacity to enter into this Agreement, and to perform the transactions and obligations to be performed by it hereunder. This Agreement has been duly authorized, executed and delivered by it and constitutes its valid and legally binding obligation, enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws, both state and federal, affecting the enforcement of creditors' rights or remedies in general from time to time in effect and the exercise by courts of equity powers or their application of principles of public policy. (c) Accredited Investor. Such Lender and, if such Lender is a limited partnership or limited liability company, each partner or member of such Lender, is an "accredited investor" as defined in Rule 501 (a) of Regulation D promulgated under the 1933 Act. ARTICLE VI. Covenants and Agreements 6.1. Affirmative Covenants. So long as any Obligations remain outstanding under this Agreement and the Notes, each of the Borrowers covenants and agrees that it will, and the Company covenants and agrees that it will cause each Subsidiary to: (a) Certain Information; SEC Reports; Pleadings. Furnish to the Agent in form and substance satisfactory to the Required Holders: (i) within five (5) days after the Company learns of the commencement or overtly threatened commencement of any material claim or suit, legal or equitable, or of any administrative, arbitration, or other similar proceeding against the Company or any of its Subsidiaries, or any of their respective businesses, assets, or properties which claim or proceeding, if determined adversely to the Company or such Subsidiary, would be likely to have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole, written notice of the nature and extent of such suit or proceeding; (ii) within five (5) days after the Company learns of any circumstance or event which reasonably can be expected to have a Material Adverse Effect on the Company or any Subsidiary, written notice of the nature and extent of such circumstance or event; (iii) simultaneous with the transmission thereof to the Company's shareholders, copies of (or notice from an EDGAR watch service of) all financial statements, proxy statements, reports and any other general written communications which the Company sends to its shareholders and copies (or notice from an EDGAR watch service of) of all registration statements and all regular, special or periodic reports which it files with the SEC or with any securities exchange on which any of its securities are then listed, and copies of all press releases and other statements made available generally by the Company to the public concerning material developments in the Company's businesses; (iv) promptly after the same is available, (i) copies of all material pleadings, motions, applications, judicial information, financial information and other documents (x) filed by or on behalf of the Borrowers with the Bankruptcy Court in the Case or (y) distributed by or on behalf of the Borrowers to any official committee appointed in the Case, and (ii) copies of all pleadings, motions and applications filed by third parties relating to the Obligations or any lien or security interest securing same, or the preference or priority thereof; (v) at the same time required to be provided to Congress, copies of each report required to be provided to Congress pursuant to Section 7.1 of the Congress Facility; and (vi) within ten (10) days after a Holder makes a reasonable request therefor, such other data relating to the business, affairs and financial condition of the Company or any of its Subsidiaries. (b) Taxes. Pay and discharge all post-Petition taxes and other governmental charges before the same shall become overdue, unless and to the extent only that such payment is being contested in good faith. (c) Insurance. Maintain insurance coverage on its physical assets and against other business risks in such amounts and of such types as are customarily carried by companies similar in size and nature, and in the event of acquisition of additional property, real or personal, or of incurrence of additional risks of any nature, increase such insurance coverage in such manner and to such extent as prudent business judgment and present practice would dictate. (d) Examination of Books. Permit the Agent, through its authorized attorneys, accountants and representatives, to examine each of the Borrowers' books, accounts, records, ledgers and assets of every kind and description at all reasonable times upon oral or written request of such Lender, at the Borrowers' cost and expense (provided that so long as the Borrowers shall not be in default, the Borrowers shall be obligated to pay for no more than one (1) such examination per year). (e) Notification of Events of Default, Acceleration or Material Adverse Effect. Promptly notify the Agent of any condition or event which constitutes, or with the passage of time and/or the giving of notice would constitute, an Event of Default under this Agreement or of payment defaults aggregating more than $100,000 on any Indebtedness of the Company and its Subsidiaries or of any acceleration of the maturity of any Indebtedness of the Company and its Subsidiaries aggregating more than $100,000, and promptly inform each Lender of the existence or occurrence of any condition or event (other than conditions having an effect on the economy in general) which could reasonably be anticipated to have a Material Adverse Effect upon the Borrowers. (f) Maintenance of Licenses. Maintain in good standing all licenses required by any Governmental Authority that may be necessary or required for the Company and its Subsidiaries to carry on their respective businesses, where the failure to maintain such licenses would have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole. (g) ERISA Compliance. Comply with all material requirements imposed by the Employee Retirement Income Security Act of 1974 as presently in effect or hereafter promulgated, including but not limited to, the minimum funding requirements of any defined contribution employee benefit plan. (h) Compliance with Law. Comply in all material respects with all applicable laws, rules, regulations and orders of any Governmental Authority, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments, and governmental charges imposed upon it or upon its property, except to the extent that compliance with any of the foregoing is then being contested in good faith by appropriate legal proceedings and with respect to which adequate financial reserves have been established on the books and records of the applicable Borrower and except where the failure to comply would not have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. (i) Sale of EWP. Promptly engage an investment advisor acceptable to the Lenders to assist in the Sale of EWP and commence all other activities necessary and appropriate to accomplish such sale. (j) Separate Loan Proceeds Account. Borrowers shall deposit the proceeds of all Loans to their account at U. S. Bank National Association in Portland, Oregon, ABA number 123000220, A/C number 153656080931, Account Name: Keystone Consolidated Industries, Inc., and shall withdraw such proceeds solely for use as provided in Section 6.2(a). 6.2. Negative Covenants. The Borrowers covenant and agree that so long as any Obligations remain outstanding under this Agreement and the Notes, without the prior written consent of the Required Holders, the Borrowers will not: (a) Use of Proceeds. Use all or any portion of the proceeds of any Loan for any purpose other than the funding and payment of ongoing operating expenditures of the Borrowers arising or becoming due on or subsequent to the Closing Date or, with respect to any Loan made thereafter, the date of the making of such Loan. The Borrowers expressly covenant and agree that, without limiting the generality of the foregoing, the Borrowers will not apply any portion of the proceeds of any Loan to the payment of any pre-Petition obligations of any of the Borrowers or to any obligations of any of the Borrowers to Congress. (b) No Mergers, Etc. Enter into any merger or consolidation or sell, lease, transfer or dispose of all, substantially all, or any material part of its assets, except (i) in the ordinary course of its business, (ii) for the Sale of EWP, or (iii) upon the consent of the Required Holders at the time to any such transaction, and subject in either such case to the approval of the Board of Directors of the Company in accordance with the provisions of the Company's bylaws. (c) Limitations on Indebtedness. Become or remain obligated, or suffer or permit any Subsidiary to become or remain obligated, for any Indebtedness, except: (i) Existing Indebtedness as set forth on Schedule 6.2(c) hereto; (ii) Indebtedness pursuant to the Congress Facility; and (iii) Obligations arising pursuant to this Agreement. (iv) Indebtedness pursuant to capital lease obligations entered into subsequent to the Closing in an amount not to exceed $50,000 in aggregate. (d) Liens. Create, incur, assume or suffer to exist any Lien upon or with respect to the Collateral except for (i)the existing liens and security interests listed on Schedule 5.1(k) and (ii) a subordinate security interest in the EWP Stock securing the term loan under the Congress Facility. ARTICLE VII. Collateral Security And Adequate Protection 7.1. Grant of Security Interest. As security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all the Obligations and to induce the Agent and the Lenders to make the Loans in accordance with the terms hereof, each of the Borrowers hereby assigns, creates, grants, conveys, mortgages, pledges, hypothecates and transfers to the Agent, for its benefit and the ratable benefit of the Lenders, all of its right, title and interest in the real and personal property described on Schedule 7.1 attached hereto and incorporated herein (the "Collateral"), subject only to the liens and security interests described on Schedule 5.1(k). 7.2. Delivery of Pledged Property. All certificates or instruments representing or evidencing the EWP Stock and any substitutions therefore and distributions with respect thereto shall be delivered to and held by or on behalf of the Agent pursuant hereto, shall be in suitable form for transfer by delivery, and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank. 7.3. Continuing Security Interest. This Article shall create a continuing lien on and security interest in the Collateral and shall: (a) remain in full force and effect until payment in full of all Obligations, (b) be binding upon each of the Borrowers, its successors, transferees and assigns, and (c) inure, together with the rights and remedies of the Agent hereunder, to the Agent for its benefit and for the ratable benefit of the Lenders. 7.4. Security Interest Absolute. All rights of the Agent and the Lenders and the security interests granted to the Agent for its benefit and for the ratable benefit of the Lenders hereunder, all obligations of each of the Borrowers hereunder, shall be absolute and unconditional, irrespective of (a) the failure of any Lender (i) to assert any claim or demand or to enforce any right or remedy against any Borrower or any other Person under the provisions of this Agreement, any Note, any other Credit Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any of the Obligations; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations or any other extension, compromise or renewal of any of the Obligations; (c) any reduction, limitation, impairment or termination of any of the Obligations of the Borrowers or any other Person for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each of the Borrowers hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Obligations of such Borrower, any other Person or otherwise, other than payment in full of the Obligations; (d) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of this Agreement, any Note or any other Credit Document; (e) any addition, exchange, release, surrender or non-perfection of any collateral (including the Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guarantee, for any of the Obligations; or (f) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, such Borrower, any other Person, any surety or any guarantor. 7.5. Agent Appointed Attorney-in-Fact. Each of the Borrowers hereby irrevocably appoints the Agent as its attorney-in-fact, with full authority in the place and stead of such Borrower and in the name of such Borrower or otherwise, from time to time in the Agent's discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Section. 7.6. Perfection of Security Interests, Mortgages and Liens. At the request of the Agent, the Borrowers shall execute and deliver to the Lenders documentation satisfactory to the Lenders (or counsel to the Lenders) evidencing the security interests, mortgages and liens granted hereby and providing for the perfection of such security interests, mortgages and liens, and the automatic stay provisions of section 362 of the Bankruptcy Code are modified to permit the execution, delivery and filing of such documentation; provided that no such documentation shall be required as a condition to the validity, priority or perfection of any of the security interests, mortgages or liens created pursuant to this Agreement which security interests, mortgages and liens shall be deemed valid and properly perfected upon entry of the Interim Financing Order. The claims arising under this Agreement shall have administrative expense priority pursuant to sections 503(b) and 507(a)(1) of the Bankruptcy Code. 7.7. Release of Collateral. Upon the indefeasible satisfaction in full by the Borrowers of all of the Obligations, the liens and security interests granted pursuant to this Agreement shall terminate and the Borrowers shall be entitled, upon their request and at their expense, to receive appropriate instruments of release and satisfaction. ARTICLE VIII. Miscellaneous 8.1. Waiver and Amendments. No failure or delay on the part of the Agent or the Lenders in the exercise of any power or right, and no course of dealing between the Borrowers and the Agent or the Lenders, shall operate as a waiver of such power or right, nor shall any single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. Remedies provided for herein are cumulative and not exclusive of any remedies which may be available to the Agent or the Lenders at law or in equity. No notice to or demand on the Borrowers required hereunder or under the Notes shall in any event entitle the Borrowers to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Agent or the Lenders to any other or further action without notice or demand. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the Notes shall in any event be effective with respect to any Lender unless the same shall be in writing and signed and delivered by the Required Holders; provided, however, that no such amendment, modification, termination or waiver shall, without the consent of all of the Lenders: (i) authorize or permit the extension of time for, or any reduction of the amount of, any payment of the principal of, or interest on, the Notes, any rate of interest applicable thereto, or any fees or other amounts payable thereunder; (ii) amend or terminate the respective Commitment of any Lender or modify the provisions of this Section 8.1 or the definition of Required Holders; or (iii) provide for the release of any Collateral. Any waiver of any provision of this Agreement or the Notes, and any consent to any departure by the Borrowers from the terms of any provision of this Agreement or the Notes, shall be effective only in the specific instance and for the specific purpose for which it is given. 8.2. The Agent. Each Lender hereby irrevocably designates and appoints the Agent to act as specified herein or as directed by the Required Holders, and each such Lender hereby irrevocably authorizes the Agent to take such action on its behalf under the provisions of this Agreement or as directed by the Required Holders, and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement or as directed by the Required Holders, together with such other powers as are reasonably incidental thereto. The Agent agrees to act as such upon the express conditions contained in this Section 8.2. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein or as directed by the Required Holders, nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. The provisions of this Section 8.2 are solely for the benefit of the Agent, and the Lenders and the Borrowers shall not have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement, the Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for the Borrowers. Neither the Agent nor any of its respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such person under or in connection with this Agreement (except for its or such person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrowers or any of their officers contained in this Agreement or any other Credit Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or for any failure of the Borrowers to perform their obligations hereunder. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrowers. The Agent shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports certificates or any other documents in connection herewith or therewith furnished or made by the Agent to the Lenders or by or on behalf of the Borrowers to the Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default. Each Lender expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Borrowers shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent, or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrowers and made its own decision to make its Loans hereunder and enter into this Agreement. The Lenders agree to indemnify the Agent in its capacity as such ratably according to their respective Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, reasonable expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Agent in its capacity as such in any way relating to or arising out of this Agreement or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted to be taken by the Agent under or in connection with any of the foregoing, but only to the extent that any of the foregoing is not paid by the Borrowers, provided that no Lender shall be liable to the Agent for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting solely from the Agent's gross negligence or willful misconduct. The agreements in this Section 8.2 shall survive the payment of all Loans. 8.3. Notices. All notices and other communications required or permitted under this Agreement shall be in writing and, if mailed by prepaid registered or certified mail, return receipt requested, shall be deemed to have been received on the earlier of the date shown on the receipt or three (3) Business Days after the post-mark date thereof. Except as otherwise provided herein, notices may also be given by recognized overnight courier services or delivered by hand or facsimile transmission. In the event of delivery by overnight courier service, such notice shall be deemed to have been received as of the regularly scheduled time for delivery established by such courier service. In the event of delivery by hand, such notice shall be deemed effective when delivered. In the event of delivery by facsimile transmission, such notice shall be deemed effective upon confirmation of transmission. All notices and other communications under this Agreement shall be given to the parties hereto at the following addresses: If to the Borrowers: c/o Keystone Consolidated Industries, Inc. Three Lincoln Centre 5430 LBJ Freeway, Suite 1740 Dallas, Texas 75240 Attention: Chief Financial Officer Fax: (972) 448-1408 With a copy to: Kirkland & Ellis LLP 200 E. Randolph Drive Chicago, Illinois 60601 Attention: David E. Eaton, Esq. Fax: (312) 861-2200 If to the Agent: EWP Financial LLC Three Lincoln Centre 5430 LBJ Freeway, Suite 1740 Dallas, Texas 75240 Attention: Bobby D. O'Brien Fax: (972) 448-1445 With a copy to: Rogers & Hardin LLP 2700 International Tower 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Attention: Edward J. Hardin, Esq. Fax: (404) 525-2224 If to the Lenders: To the address for each Lender set forth on Annex I hereto. Any party hereto may change the address to which notices shall be directed under this Section 8.3 by giving written notice of such change to the other parties. 8.4. Restriction on Transfer. The Lenders acknowledge that the Notes have not been registered under the 1933 Act, as amended, or the securities laws of any state. Accordingly, the Notes may not be sold or otherwise disposed of or transferred, unless such sale, disposition or transfer is registered under the 1933 Act and applicable state securities laws or unless the Borrowers have received an opinion of counsel reasonably acceptable to the Borrowers that such sale, disposition or transfer is exempt from such registration. The Notes shall bear a restrictive legend to the foregoing effect. Lenders further agree that the Notes will not be sold or otherwise disposed of or transferred and that no assignment of, or sale of a participation in, the Loans or the Commitments will be made, unless the purchaser, transferee, assignee or participant, as applicable, acknowledges the subordination provisions applicable thereto in a manner reasonably satisfactory to Congress. 8.5. Expenses. The Borrowers shall reimburse the Lenders for all of their Expenses. In addition, the Borrowers shall be responsible for any documentary taxes incurred in connection with the transactions contemplated by this Agreement and the Notes. 8.6. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction, shall as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 8.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without giving effect to any choice or conflict of law provision or rule (whether of the State of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Texas. 8.8. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Borrowers may not, without the prior written consent of all of the Lenders, assign their rights or obligations hereunder or under the Notes, and the Lenders shall not be obligated to make any Loan to any entity other than the Borrowers. No Lender may assign, or sell a participation in, all or any portion of its rights or obligations under this Agreement or the Notes without the prior written consent of the Required Holders. With the prior written consent of the Required Holders, any Lender may assign all or a portion of its Loans and Commitment hereunder to one or more Persons, each of which assignees shall become a party to and be bound by, and shall make the representations and warranties of a Lender under, this Agreement by execution of an assignment agreement in the form of Exhibit C hereto (an "Assignment Agreement"). In connection with any such assignment, the Borrowers shall, upon request by the assignor and assignee and return of the original Note in favor of the assignor, issue replacement Note(s) to the assignee and, if applicable, the assignor in the amount of their respective Commitments set forth in the applicable Assignment Agreement. 8.9. Headings. Headings used in this Agreement are for convenience only and shall not be used in connection with the interpretation of any provision hereof. 8.10. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute one and the same instrument. 8.11. Withholding Tax. The Lenders acknowledge that the Borrowers will be required to comply with the requirements of the Internal Revenue Service relative to backup withholding and the Lenders may be subject to backup withholding depending on their individual status and compliance with applicable filing requirements of the Internal Revenue Service. 8.12. Entire Agreement. This Agreement, together with the exhibits and schedules hereto, constitutes the entire agreement between the parties hereto relating to the subject matter hereof and supersedes all prior negotiations, discussions, writings and agreements between them. [Remainder of page intentionally left blank. Signature page follows.] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by the undersigned thereunto duly authorized as of the date first written above. BORROWERS: KEYSTONE CONSOLIDATED INDUSTRIES, INC. By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- FV STEEL AND WIRE COMPANY By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- SHERMAN WIRE COMPANY (f/k/a DeSoto, Inc.) By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- SHERMAN WIRE OF CALDWELL, INC. By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- J.L. PRESCOTT COMPANY By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- DESOTO ENVIRONMENTAL MANAGEMENT, INC. By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- THE AGENT: EWP FINANCIAL LLC By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- THE LENDERS: EWP FINANCIAL LLC By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- -------------------------------------------- By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: ---------------------------------------------------
ANNEX I % of Total Commitment Name of Lender Address of Lender Commitment Commitment Fee EWP Financial LLC Three Lincoln Centre $5,000,000 100% $100,000 5430 LBJ Freeway Suite 1740 Dallas, Texas 75240 Total Commitment Amount: $5,000,000 (in tranches as provided in Section 2.1(b) hereof).
EXHIBHT A Interim Financing Order EXHIBIT B Form of Note THIS NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW. NEITHER THIS NOTE NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE COMPANY (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY). NEITHER THIS NOTE NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE PURCHASER, ASSIGNEE, TRANFEREE OR PLEDGEE, AS APPLICABLE, ACKNOWLEDGES THE SUBORDINATION PROVISIONS APPLICABLE HERETO IN A MANNER REASONABLY SATISFACTORY TO CONGRESS FINANCIAL CORPORATION (CENTRAL). PROMISSORY NOTE $__,000,000.00 Dallas, Texas February ___, 2004 FOR VALUE RECEIVED, KEYSTONE CONSOLIDATED INDUSTRIES, INC., a Delaware corporation, FV STEEL AND WIRE COMPANY, a Wisconsin corporation; SHERMAN WIRE COMPANY (f/k/a DeSoto, Inc.), a Delaware corporation; SHERMAN WIRE OF CALDWELL, INC., a Nevada corporation; J.L. PRESCOTT COMPANY, a New Jersey corporation; and DESOTO ENVIRONMENTAL MANAGEMENT, INC., a Delaware corporation (collectively, the "Borrowers"), jointly and severally promise to pay to the order of (the "Holder"), at , or such other place as designated in writing by the Holder, the principal sum of __________ MILLION DOLLARS ($__,000,000.00) or, if less, the then unpaid principal amount of Loans made by the Holder to the Borrowers pursuant to that certain Debtor-In-Possession Credit Agreement dated as of February ___, 2004 by and between the Borrowers, EWP Financial LLC, as Agent, the Holder, and the other Lenders party thereto (the "Credit Agreement"), together with interest on the principal balance outstanding from time to time in accordance with the provisions of this Note. This Note is executed and delivered by the Borrowers pursuant to the Credit Agreement, the terms and conditions of which are incorporated herein by reference. Unless otherwise indicated herein, capitalized terms used in this Note have the same meanings set forth in the Credit Agreement. 1. Interest Rate; Payment; Usury. (a) Provided that no Event of Default has occurred and is continuing and subject to the other provisions of this Note, the outstanding principal of this Note shall bear interest at a rate per annum equal to three percent (3%) plus the rate from time to time published in the Wall Street Journal as the prime rate, whether or not such announced rate is the best rate available at any bank or other financial institution (the "Interest Rate"). During any period that an Event of Default shall have occurred and be continuing, interest on the outstanding principal of this Note shall accrue at a rate equal to the Interest Rate plus two percent (2%) (the "Default Interest Rate"). Notwithstanding anything contained herein to the contrary, in no event shall the interest rate on this Note, including the Default Interest Rate, exceed the highest rate permitted by applicable law. Interest on this Note, including interest at the Default Interest Rate, shall be based on a 360-day year, and interest shall accrue and be payable for the actual number of calendar days elapsed. Interest shall be payable in arrears commencing on the 31st day of March, 2004 and continuing thereafter on the last day of each subsequent month until the principal and all accrued interest have been paid in full. (b) It is the intention of the Borrowers and the Holder to conform strictly to applicable usury laws now or hereafter in force, and any interest payable under this Note or the Credit Agreement shall be subject to reduction to an amount not to exceed the maximum non-usurious amount for commercial loans allowed under such applicable usury laws as now or hereafter construed by the courts having jurisdiction over such matters. In the event such interest (whether designated as interest, service charges, points, origination fees or otherwise) does exceed the maximum legal rate, it shall be (i) canceled automatically to the extent that such interest exceeds the maximum legal rate; (ii) if already paid, at the option of the Holder, either be rebated to the Borrowers or credited on the principal amount of this Note; or (iii) if this Note has been prepaid in full, then such excess shall be rebated to the Borrowers. It is further agreed, without limitation of the foregoing, that all calculations of the rate of interest contracted for, charged, or received under this Note and the Credit Agreement that are made for the purpose of determining whether such rate exceeds the maximum legal rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating, and spreading throughout the full stated term of this Note (and any extensions of the term thereof that may be hereafter granted) all such interest at any time contracted for, charged, or received from the Borrowers or otherwise by the Holder so that the rate of interest on account of this Note, as so calculated, is uniform throughout the term thereof. If the Borrowers is exempt or hereafter becomes exempt from applicable usury statutes or for any other reason the rate of interest to be charged on this Note is not limited by law, none of the provisions of this paragraph shall be construed so as to limit or reduce the interest or other consideration payable under this Note or the Credit Agreement or under any instrument securing payment thereof. The terms and provisions of this paragraph shall control and supersede every other provision of all agreements between the Borrowers and the Holder. 2. Maturity. Unless the same shall become due earlier as a result of acceleration of the maturity, this Note shall mature on the earliest of: (i) 180 days after the date the Petition is filed with the Bankruptcy Court, (ii) the Plan Effective Date, or (iii) the dismissal of the Case, at which time the outstanding principal balance of this Note and all accrued and unpaid interest shall become due and payable. 3. Revolving Loans; Prepayments. Subject to the terms and conditions of the Credit Agreement, the Borrowers may from time to time and at any time prior to the Expiration Date borrow, repay and reborrow under this Note or prepay this Note, in whole or in part and without premium or penalty. Any payment shall be applied first to interest which is accrued and unpaid and then to principal. 4. Manner of Payment. The Borrowers shall make payments in respect of this Note (including principal and interest) by wire transfer of immediately available funds to the account specified by the Holder. 5. Events of Default; Acceleration. The maturity of this Note is subject to acceleration pursuant to Section 3.7 of the Credit Agreement if an Event of Default occurs and is continuing pursuant to Section 3.6 of the Credit Agreement. 6. Collection Expenses. In the event the Borrowers fail to pay any installment of interest or principal when due, the Borrowers shall pay to the Holder, in addition to the amounts due, all costs of collection, including reasonable attorneys' fees. 7. Borrowers Waivers. Each of the Borrowers, for itself and its successors and assigns, hereby waives demand, presentment, protest, diligence, notice of dishonor and any other formality in connection with this Note and expressly agrees that this Note, or any payment hereunder, may be extended from time to time and that the Holder may accept security for this Note or release security for this Note, all without in any way affecting the liability of the Borrowers hereunder. 8. Governing Law. All questions concerning the construction, validity and interpretation of this Note shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any choice or conflict of law provision or rule (whether of the State of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Texas. 9. Collateral. The Borrowers' obligations under this Note are secured by the Collateral as provided in the Credit Agreement, the Interim Financing Order and the Permanent Financing Order. 10. Amendment and Waiver. Subject to the Credit Agreement, the provisions of this Note may be amended and waived only with the prior written consent of the Borrowers and the Holder of this Note. IN WITNESS WHEREOF, the Borrowers have executed this Note on the date first written above. KEYSTONE CONSOLIDATED INDUSTRIES, INC. By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- FV STEEL AND WIRE COMPANY By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- SHERMAN WIRE COMPANY (f/k/a DeSoto, Inc.) By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- SHERMAN WIRE OF CALDWELL, INC. By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- J.L. PRESCOTT COMPANY By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- DESOTO ENVIRONMENTAL MANAGEMENT, INC. By: ----------------------------------------------------- Name: ---------------------------------------------------- Title: --------------------------------------------------- EXHIBIT C Form of Assignment ASSIGNMENT AGREEMENT THE ASSIGNED SHARES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE PURCHASER, ASSIGNEE, TRANSFEREE, OR PLEDGEE, AS APPLICABLE, ACKNOWLEDGES THE SUBORDINATION PROVISIONS APPLICABLE HERETO IN A MANNER REASONABLY SATISFACTORY TO CONGRESS FINANCIAL CORPORATION (CENTRAL). Dated ________________ Reference is made to the Debtor-In-Possession Credit Agreement dated as of February __, 2004 among Keystone Consolidated Industries, Inc. and its Subsidiaries party thereto, as Borrowers, EWP Financial LLC, as Agent, and the Lenders party thereto (as such Credit Agreement may hereafter be amended, modified or supplemented from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein as therein defined. ________________ (the "Assignor") and ________________ (the "Assignee") hereby agree as follows: 1. The Assignor hereby sells and assigns to the Assignee without recourse and without representation or warranty (other than as expressly provided herein), and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the date hereof which represents the percentage interest specified in Annex I (the "Assigned Share") of all of Assignor's outstanding rights and obligations under the Credit Agreement, including, without limitation, all rights and obligations with respect to the Assigned Share of the Assignor's Commitment and of the Loans and the Notes held by the Assignor. After giving effect to such sale and assignment, the Assignee's Commitment will be as set forth in Annex I. 2. The Assignor (i) represents and warrants that it is duly authorized to enter into and perform the terms of this Assignment Agreement, that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any liens or security interests; (ii) makes no other representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes no other representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or the performance or observance by the Borrowers of any of their obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto. 3. The Assignee (i) represents and warrants that it is duly authorized to enter into and perform the terms of this Assignment Agreement; (ii) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, including without limitation, all pleadings and information filed with the Bankruptcy Court; (iii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iv) appoints and authorizes the Agent to take such action as agent on its behalf to exercise such powers under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vi) makes the representations and warranties to the Company set forth in Section 5.2 of the Credit Agreement. 3. Following the execution of this Assignment Agreement by the Assignor and the Assignee, an executed original hereof (together with all attachments) will be delivered to the Agent. The effective date of this Assignment Agreement shall be the date of execution hereof by the Assignor and the Assignee (the "Settlement Date"). 4. As of the Settlement Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment Agreement, have the rights and obligations of a Lender thereunder; and (ii) the Assignor shall, to the extent provided in this Assignment Agreement, relinquish its rights and be released from its obligations under the Credit Agreement. 5. It is agreed that upon the effectiveness hereof, the Assignee shall be entitled to all interest on the Assigned Share of the Loans which accrue on and after the Settlement Date. It is further agreed that all payments of principal made by the Company on the Assigned Share of the Loans which occur on and after the Settlement Date will be paid directly to the Assignee. Upon the Settlement Date, the Assignee shall pay to the Assignor an amount specified by the Assignor in writing which represents the Assigned Share of the principal amount of the respective Loans made by the Assignor pursuant to the Credit Agreement which are outstanding on the Settlement Date, net of any closing costs, and which are being assigned hereunder. The Assignor and the Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Settlement Date directly between themselves on the Settlement Date. 6. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. 7. This Assignment Agreement may be executed in counterparts, and by different parties on separate counterparts, each of which shall be an original and all of which collectively shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
as Assignor as Assignee By: By: ----------------------------------------- ----------------------------------------- Its: Its: ---------------------------------------- ----------------------------------------
ANNEX I to ASSIGNMENT AGREEMENT 1. Amounts:
- -------------------------------- ------------------------------------------ ------------------------------------------ Commitment Loans - -------------------------------- ------------------------------------------ ------------------------------------------ Aggregate Amount $_____________ $_______________ for all Lenders - -------------------------------- ------------------------------------------ ------------------------------------------ Assigned Share ____________% ____________% - -------------------------------- ------------------------------------------ ------------------------------------------ Amount of $______________ $______________ Assigned Share - -------------------------------- ------------------------------------------ ------------------------------------------ Amount retained by $______________ $______________ Assignor - -------------------------------- ------------------------------------------ ------------------------------------------ 2. Notices: ASSIGNOR: ASSIGNEE: ============================== ============================== ------------------------------ ------------------------------ Attn: _________________________ Attn: ________________________ Telephone: ____________________ Telephone: ____________________ Fax: _________________________ Fax: ________________________ 3. Payment Instructions: ASSIGNOR: ASSIGNEE: ============================== ============================== ------------------------------ ------------------------------ ABA No.: _____________________ ABA No.: ____________________ Account No.: ___________________ Account No.: __________________ Reference: _____________________ Reference: ____________________ Attn: __________________________ Attn: ________________________
SCHEDULE 5.1(b) Consents None SCHEDULE 5.1(k) Existing Liens and Security Interests 1. Liens and security interests in favor of the Agent and the Lenders on the EWP Stock and EWP Net Investment pursuant to Stock Pledge Agreement dated as of November 21, 2001, securing indebtedness under the EWP Bridge Loan Agreement dated as of November 21, 2001, as amended, between the Company, the Agent and the Lenders. 2. Liens and security interests in favor of Congress securing the Congress Facility pursuant to the following instruments and documents, provided that such liens and security interests in the EWP Stock, the EWP Net Investment and the Separate Loan Proceeds Account (as such terms are defined in Schedule 5.1(k)) are and shall be subordinate to the liens and security interests in favor of Lenders: (i) the Congress Facility; (ii) Amended and Restated Revolving Loan and Security Agreement dated as of March 15, 2002, between Sherman Wire Company and Congress; (iii) Amended and Restated Security Agreement dated December 29, 1995, as amended, and Amendment, Ratification and Confirmation of Secured Guaranty Agreement dated December 29, 1995, each executed by Sherman Wire of Caldwell, Inc. in favor of Congress; (iv) Guarantee and Waiver and Rider No. 1 to Guarantee and Waiver, each dated December 30, 1993, as amended, executed by FV Steel and Wire Company in favor of Congress; (v) Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing dated as of March 15, 2002, executed by the Company in favor of Congress with respect to property located in Peoria, Illinois; (vi) Mortgage , Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing dated as of March 15, 2002, executed by the Company in favor of Congress with respect to property located in Springdale, Arkansas; (vii) Deed of Trust, Assignment, Security Agreement and Financing Statement dated as of March 15, 2002, executed by Sherman Wire Company for the benefit of Congress with respect to property located in Sherman, Grayson County, Texas; (viii) Deed of Trust, Assignment, Security Agreement and Financing Statement dated as of March 15, 2002, executed by Sherman Wire of Caldwell, Inc. for the benefit of Congress with respect to property located in Caldwell, Burleson County, Texas; (ix) Subordination and Intercreditor Agreement dated March 15, 2002, among the County of Peoria, Illinois, the Company and Congress; and (x) Letter Agreement regarding Application of Certain Collateral Proceeds dated March 15, 2002, between the County of Peoria, Illinois, U.S. Bank National Association, as trustee and collateral and Congress. 3. Liens and security interests in favor of the County of Peoria, Illinois securing a $10,000,000 loan to the Company pursuant to the following instruments and documents, none of which grant liens or security interests in the EWP Stock or the EWP Investment: (i) Subordinate Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated as of April 9, 2002, executed by the Company in favor of The County of Peoria, Illinois, with respect to property located in Peoria, Illinois; (ii) Subordinate Security Agreement dated as of April 9, 2002, executed by the Company in favor of The County of Peoria, Illinois; (iii) Escrow Agreement dated as of March 13, 2002, among the Company, The County of Peoria, Illinois, and National City Bank of Michigan/Illinois, as escrow agent. 4. Liens and security interests in favor of U.S. Bank National Association, as Trustee and Collateral Agent (in such capacity, the "Trustee"), under Indenture dated as of March 15, 2002, for the issuance of the Company's 8% Subordinated Secured Notes due 2009 (the "8% Notes"), securing such 8% Notes pursuant to the following instruments and documents, none of which grant liens or security interests in the EWP Stock or the EWP Net Investment: (i) Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing dated as of March 15, 2002, executed by the Company in favor of the Trustee with respect to property located in Peoria, Illinois; (ii) Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing dated as of March 15, 2002, executed by the Company in favor of the Trustee with respect to property located in Springdale, Arkansas; (iii) Deed of Trust, Assignment, Security Agreement and Financing Statement dated as of March 15, 2002, executed b Sherman Wire Company for the benefit of Trustee with respect to property located in Sherman, Grayson County, Texas; (iv) Deed of Trust, Assignment, Security Agreement and Financing Statement dated as of March 15, 2002, executed by Sherman Wire of Caldwell, Inc., for the benefit of Trustee with respect to property located in Caldwell, Burleson County, Texas; (v) Security Agreement dated as of March 15, 2002, executed by the Company in favor of the Trustee; (vi) Security Agreement dated as of March 15, 2002, executed by Sherman Wire Company in favor of the Trustee; and (vii) Security Agreement dated as of March 15, 2002, executed by Sherman Wire of Caldwell, Inc. in favor of the Trustee. 5. Matters listed as liens and encumbrances on Exhibit B to the Mortgages and Deeds of Trust listed in items 4(i) through 4(iv) of this Schedule 5.1(k). SCHEDULE 6.2(c) Existing Indebtedness KEYSTONE CONSOLIDATED INDUSTRIES, INC. SCHEDULE OF INDEBTEDNESS (EXCLUDING ENGINEERED WIRE PRODUCTS,INC.) FEBRUARY 25, 2004 - ---------------------------------------------------------------
Outstanding Balance Keystone Consolidated Industries, Inc. Congress Financial Corporation (Central) - Revolving Credit Facility 23,643,784 Congress Financial Corporation (Central) - Term Facility 6,093,749 8% Notes (face value - not GAAP basis) 19,800,000 Peoria County - Term Facility 10,000,000 6% Notes (face value - not GAAP basis) 14,475,000 9 5/8% Notes 6,150,000 JLG Financial Services - Capital Lease - Boom Lift 51,672 -------------- 80,214,205 -------------- Sherman Wire Company G.E. Capital - Capital Lease - Forklift 12,757 G.E. Capital - Capital Lease - Forklift 4,655 G.E. Capital - Capital Lease - Forklift 4,817 Greater Bay Capital - Capital Lease - 9,094 -------------- 31,323 -------------- 80,245,528 ==============
SCHEDULE 7.1 Collateral All real and personal property (tangible and intangible) of each of the Borrowers, now owned or hereafter acquired or created and wherever located, including without limitation: 1. 100% of the outstanding shares of EWP (the "EWP Stock") and all cash, payments, dividends, securities and other property received, receivable, distributed or distributable with respect to, in exchange for, or on conversion of, the EWP Stock; 2. The account maintained on the Company's books and records, which account is styled as Loan Account - EWP, Account Number 46009 and represents the Company's net investment in EWP (the "EWP Net Investment"); 3. All of each Borrower's Accounts, Receivables, Goods (including without limitation, Inventory and Equipment), General Intangibles (including without limitation, Payment Intangibles, Software and Intellectual Property), Documents, Instruments, Chattel Paper, Investment Property, Deposit Accounts (including, without limitation Borrowers' account at U. S. Bank National Association in Portland, Oregon, ABA number 123000220, A/C number 153656080931, Account Name: Keystone Consolidated Industries, Inc. (the "Separate Loan Proceeds Account")), Reserve or Escrow Accounts, Letter of Credit Rights, Supporting Obligations and Commercial Tort Claims (as any such terms are defined in the applicable Uniform Commercial Code); 4. All real property and related interests and assets of each Borrower, including without limitation, leasehold interests; buildings, structures, fixtures and other improvements located thereon; licenses, easements and appurtenances thereto; and as-extracted collateral therefrom, including without limitation the real property and related interests and assets (i) of the Company located in Peoria, Illinois and Springdale, Arkansas, as such real property and related interests and assets are more particularly described in the mortgages securing the Congress Facility and the 8% Notes listed in Schedule 5.1(k); (ii) of Sherman Wire Company located in Sherman, Grayson County, Texas, as such real property and related interests and assets are more particularly described in the deeds of trust securing the Congress Facility and the 8% Notes listed in Schedule 5.1(k); (iii) of Sherman Wire of Caldwell, Inc., located in Caldwell, Burleson County, Texas, as such real property and related interests and assets are more particularly described in the deeds of trust securing the Congress Facility and the 8% Notes listed in Schedule 5.1(k); (iv) of Sherman Wire Company located in Gainesville, Texas; and (v) of FV Steel and Wire Company located in Hortonville, Wisconsin; and 5. All Products and Proceeds (as such terms are defined in the applicable Uniform Commercial Code) of the Collateral described in items 1 through 4 of this Schedule 7.1 and all substitutions and replacements therefor. EX-4.35 14 kciexh43503.txt FIRST AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT THIS FIRST AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT (this "Amendment") is entered into as of this ____ day of August, 2004 by and among Keystone Consolidated Industries, Inc., a Delaware corporation (the "Company"), FV Steel and Wire Company, a Wisconsin corporation ("FV Steel"), Sherman Wire Company (f/k/a DeSoto, Inc.), a Delaware corporation ("Sherman Wire"), Sherman Wire of Caldwell, Inc., a Nevada corporation ("Caldwell"), J.L. Prescott Company, a New Jersey corporation ("Prescott"), DeSoto Environmental Management, Inc., a Delaware corporation ("DeSoto"; the Company, FV Steel, Sherman Wire, Caldwell, Prescott and DeSoto are, collectively, the "Borrowers" and each, individually, a "Borrower"), the Lenders (as such term is defined below) party hereto, and EWP Financial LLC, a Delaware limited liability company ("EWP Financial"), in its capacity as agent for the Lenders (the "Agent"). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement (as such term is defined below). RECITALS WHEREAS, on February 26, 2004, the Borrowers filed voluntary petitions for relief under the Bankruptcy Code with the Bankruptcy Court; WHEREAS, on February 27, 2004, the Borrowers entered into that certain Debtor-In-Possession Credit Agreement among the Borrowers, entities party thereto from time to time as lenders (the "Lenders"), and the Agent (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), pursuant to which the Lenders agreed to make funds available to the Borrowers from time to time in accordance with the terms and conditions set forth therein; WHEREAS, the Borrowers wish to amend the terms of the Credit Agreement; and WHEREAS, the Agent and the Lenders are willing to amend the Credit Agreement on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto hereby agree as follows: SECTION 1. AMENDMENTS. 1.1 The definition of "Expiration Date" in Article I of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Expiration Date" means (a) the earliest of (i) December 31, 2004; (ii) the Plan Effective Date; (iii) the dismissal of the Case; (iv) closing of a Sale of EWP or (v) Lenders' election, in their sole discretion, to terminate the Commitments upon the occurrence and during the continuance of an Event of Default or (b) such later date as may be selected by all of the Lenders in their sole discretion and without further order of the Bankruptcy Court. 1.2 Section 2.1(b)(iii), Section 6.2(b)(ii) and the definition of "Commitment Fee" in Article I of the Credit Agreement are hereby amended by deleting the words "the Sale of EWP" where such words appear therein and substituting therefor the words "a Sale of EWP." 1.3 Section 3.6 of the Credit Agreement is hereby amended by (i) deleting the word "or" at the end of Section 3.6(q), (ii) deleting Section 3.6(r) in its entirety and (iii) inserting the following Sections 3.6(r) and 3.6(s): (r) there shall be a Material Adverse Change (for purposes of this Section 3.6(r), "Material Adverse Change" shall mean any event, change or effect that individually or when taken together with all other events, changes or effects is materially adverse to the business, assets (including intangible assets), liabilities, financial condition, or results of operations of the Borrowers and EWP taken as a whole, excluding any such event, change or effect resulting solely from (A) changes or effects that generally affect the industry in which the Borrowers and EWP operate and not uniquely related to the Borrowers and EWP, (B) changes in general economic regulatory or political conditions not uniquely related to any of the Borrowers and EWP (including terrorism or the escalation of any war whether declared or undeclared or other hostilities), or (C) changes arising out of, or attributable to, the announcement of the execution of this Amendment); provided, however, that nothing in this Section 3.6(r) shall limit the right of any party in interest in the Case to object to the characterization of any event, change or effect as a Material Adverse Change; provided, further, that the Agent and the Lenders acknowledge and agree that (x) the Bankruptcy Court shall have exclusive jurisdiction to resolve any such objection, and (y) during the pendency of any such objection (or an appeal of an adjudication thereof), the Agent and the Lenders may not exercise any right or remedy available to them as a result of the Material Adverse Change characterization to which such objection has been made until such objection (or the applicable appeal of the adjudication thereof) is resolved by final order; provided that nothing in this clause (y) of Section 3.6(r) shall affect or limit any exercise of the rights and remedies of the Agent and the Lenders upon the occurrence of any Event of Default other than the Material Adverse Change characterization to which objection has been made; or (s) any of the following events shall not have occurred by the number of days after the Closing Date specified opposite such event:
------------------------------------------------------- ----------------------------------------------------- Number of Days after the Closing Date Event ------------------------------------------------------- ----------------------------------------------------- 18 days Entry of a Permanent Financing Order satisfactory to the Lenders in their sole discretion ------------------------------------------------------- ----------------------------------------------------- 15 days Entry of a Labor Costs Order ------------------------------------------------------- -----------------------------------------------------
1.4 Section 6.1(i) of the Credit Agreement is hereby deleted in its entirety and replaced with the following: (i) Intentionally omitted. SECTION 2 CONDITIONS PRECEDENT. This Amendment shall become effective and any Event of Default arising under Section 6.1(i) of the Credit Agreement (prior to the amendment thereof) shall be deemed to be cured on the date on which all of the following conditions have been satisfied: a. Counterparts of this Amendment shall have been duly executed by each Borrower, the Lender and the Agent and delivered to the Agent; b. An order shall have been entered by the Bankruptcy Court which approves the terms and provisions of this Amendment and authorizes the Borrowers to enter into this Amendment, which order shall (i) be in full force and effect, (ii) be in form and substance satisfactory to the Agent and (iii) not have been amended, modified, stayed, vacated, reversed or rescinded in any respect; and c. Agent shall have received acknowledgements and/or amending documentation satisfactory to the Agent and the Lenders in their sole discretion from each of the Borrowers and from Congress Financial Corporation (Central) ("Congress"), confirming that EWP Financial shall have no obligation to fund the additional Participation of $3,000,000 pursuant to Section 4.1(ii) of the Participation Agreement dated February 27, 2004 between EWP Financial and Congress. SECTION 3. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby represents and warrants to the Agent and the Lenders that, as of the date hereof and after giving effect to this Amendment: 3.1 Subject to approval by the Bankruptcy Court, this Amendment and the Credit Agreement, as amended hereby, constitute legal, valid and binding agreements of such Borrower, enforceable against such Borrower in accordance with their respective terms. 3.2 All representations and warranties set forth in the Credit Agreement shall be true and correct as of the date of delivery of this Amendment, and upon the effectiveness of this Amendment, unless and to the extent that any such representation and warranty is stated to relate solely to an earlier date, in which case such representation and warranty shall be true and correct in all material respects as of such earlier date. 3.3 No Default or Event of Default shall have occurred and be continuing under the Credit Agreement. SECTION 4 MISCELLANEOUS. 4.1 This Amendment may be executed in one or more counterparts and when signed by all of the parties to this Amendment shall constitute a single binding agreement, subject to approval by the Bankruptcy Court. Delivery of a counterpart of this Amendment by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment. 4.2 Except as expressly provided in this Amendment, the terms and provisions of the Credit Agreement shall remain in full force and effect and are hereby affirmed, confirmed and ratified in all respects. 4.3 Any term, covenant, agreement or condition of this Amendment may be amended only by a written amendment executed by the parties hereto. 4.4 On or after the effective date hereof, each reference in the Credit Agreement to this "Agreement", "hereof" or words of like import and all references in any agreements to the Credit Agreement shall, unless the context otherwise requires, be deemed to refer to the Credit Agreement as amended hereby. 4.5 The Borrowers agree to pay the Agent and the Lenders for all of their costs, fees and expenses (including reasonable fees and expenses of legal counsel) incurred in the preparation, documentation and negotiation of this Amendment. 4.6 This Amendment shall be binding upon the Borrowers, the Lenders, and the Agent and their respective successors and assigns, and shall inure to the benefit of the Borrowers, the Lenders and the Agent and the benefit of their respective successors and assigns. This Amendment and the rights and duties of the parties hereto shall be construed and determined in accordance with the laws of the State of Texas without giving effect to any choice or conflict of law provision or rule (whether of the State of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Texas. IN WITNESS WHEREOF, this Amendment has been executed and delivered as the of the date first set forth above. BORROWERS: KEYSTONE CONSOLIDATED INDUSTRIES, INC. By: ----------------------------------------------------------- Name: Bert E. Downing, Jr. Title: VP-CFO, Corp. Controller and Treasurer FV STEEL AND WIRE COMPANY By: ----------------------------------------------------------- Name: Bert E. Downing, Jr. Title: VP - Treasurer SHERMAN WIRE COMPANY By: ----------------------------------------------------------- Name: Bert E. Downing, Jr. Title: VP-Treasurer, Controller and Assistant Secretary SHERMAN WIRE OF CALDWELL, INC. By: ----------------------------------------------------------- Name: Bert E. Downing, Jr. Title: Corporate Controller J.L. PRESCOTT COMPANY By: ----------------------------------------------------------- Name: Bert E. Downing, Jr. Title: VP-Treasurer [signature page to First Amendment to Debtor-In-Possession Credit Agreement] DESOTO ENFIRONMENTAL MANAGEMENT, INC. By: -------------------------------------------------- Name: Bert E. Downing, Jr. Title: VP-Treasurer AGENT AND LENDERS: ----------------- EWP FINANCIAL LLC, as Agent and as a Lender By:________________________________________ Name:______________________________________ Title:_______________________________________ [signature page to First Amendment to Debtor-In-Possession Credit Agreement] EX-4.36 15 kciexh43603.txt SECOND AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT THIS SECOND AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT (this "Amendment") is entered into as of this 31st day of December, 2004 by and among Keystone Consolidated Industries, Inc., a Delaware corporation (the "Company"), FV Steel and Wire Company, a Wisconsin corporation ("FV Steel"), Sherman Wire Company (f/k/a DeSoto, Inc.), a Delaware corporation ("Sherman Wire"), Sherman Wire of Caldwell, Inc., a Nevada corporation ("Caldwell"), J.L. Prescott Company, a New Jersey corporation ("Prescott"), DeSoto Environmental Management, Inc., a Delaware corporation ("DeSoto"; the Company, FV Steel, Sherman Wire, Caldwell, Prescott and DeSoto are, collectively, the "Borrowers" and each, individually, a "Borrower"), the Lenders (as such term is defined below) party hereto, and EWP Financial LLC, a Delaware limited liability company ("EWP Financial"), in its capacity as agent for the Lenders (the "Agent"). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement (as such term is defined below). RECITALS WHEREAS, on February 26, 2004, the Borrowers filed voluntary petitions for relief under the Bankruptcy Code with the Bankruptcy Court; WHEREAS, on February 27, 2004, the Borrowers entered into that certain Debtor-In-Possession Credit Agreement among the Borrowers, entities party thereto from time to time as lenders (the "Lenders"), and the Agent, as amended by the First Amendment to Debtor-in-Possession Credit Agreement effective as of October 1, 2004 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), pursuant to which the Lenders agreed to make funds available to the Borrowers from time to time in accordance with the terms and conditions set forth therein; WHEREAS, the Borrowers wish to amend the terms of the Credit Agreement; and WHEREAS, the Agent and the Lenders are willing to amend the Credit Agreement on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto hereby agree as follows: SECTION 1. AMENDMENT. The definition of "Expiration Date" in Article I of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Expiration Date" means (a) the earliest of (i) July 31, 2005, (ii) the Plan Effective Date, (iii) the dismissal of the Case, (iv) closing of a Sale of EWP, (v) Lenders' election, in their sole discretion, to terminate the Commitments upon the occurrence and during the continuance of an Event of Default, or (vi) the maturity date of the Congress DIP Facility including any extension thereof; or (b) such later date as may be selected by all of the Lenders in their sole discretion and without further order of the Bankruptcy Court. SECTION 2. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby represents and warrants to the Agent and the Lenders that, as of the date hereof and after giving effect to this Amendment: 2.1 Subject to authorization or approval by the Bankruptcy Court, this Amendment and the Credit Agreement, as amended hereby, constitute legal, valid and binding agreements of such Borrower, enforceable against such Borrower in accordance with their respective terms. 2.2 All representations and warranties set forth in the Credit Agreement shall be true and correct as of the date of delivery of this Amendment, and upon the effectiveness of this Amendment, unless and to the extent that any such representation and warranty is stated to relate solely to an earlier date, in which case such representation and warranty shall be true and correct in all material respects as of such earlier date. 2.3 No Default or Event of Default shall have occurred and be continuing under the Credit Agreement. SECTION 3. MISCELLANEOUS. 3.1 This Amendment may be executed in one or more counterparts and when signed by all of the parties to this Amendment shall constitute a single binding agreement. Delivery of a counterpart of this Amendment by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment. 3.2 Except as expressly provided in this Amendment, the terms and provisions of the Credit Agreement shall remain in full force and effect and are hereby affirmed, confirmed and ratified in all respects. 3.3 Any term, covenant or agreement of this Amendment may be amended only by a written amendment executed by the parties hereto. 3.4 On or after the effective date hereof, each reference in the Credit Agreement to this "Agreement", "hereof" or words of like import and all references in any agreements to the Credit Agreement shall, unless the context otherwise requires, be deemed to refer to the Credit Agreement as amended hereby. 3.5 The Borrowers agree to pay the Agent and the Lenders for all of their costs, fees and expenses (including reasonable fees and expenses of legal counsel) incurred in the preparation, documentation and negotiation of this Amendment. 3.6 This Amendment shall be binding upon the Borrowers, the Lenders, and the Agent and their respective successors and assigns, and shall inure to the benefit of the Borrowers, the Lenders and the Agent and the benefit of their respective successors and assigns. This Amendment and the rights and duties of the parties hereto shall be construed and determined in accordance with the laws of the State of Texas without giving effect to any choice or conflict of law provision or rule (whether of the State of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Texas. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, this Amendment has been executed and delivered as of the date first set forth above. BORROWERS: KEYSTONE CONSOLIDATED INDUSTRIES, INC. By:________________________________________ Name:______________________________________ Title:_______________________________________ FV STEEL AND WIRE COMPANY By:________________________________________ Name:______________________________________ Title:_______________________________________ SHERMAN WIRE COMPANY By:________________________________________ Name:______________________________________ Title:_______________________________________ SHERMAN WIRE OF CALDWELL, INC. By:________________________________________ Name:______________________________________ Title:_______________________________________ J.L. PRESCOTT COMPANY By:________________________________________ Name:______________________________________ Title:_______________________________________ [signature page to Second Amendment to Debtor-In-Possession Credit Agreement] DESOTO ENVIRONMENTAL MANAGEMENT, INC. By:________________________________________ Name:______________________________________ Title:_______________________________________ AGENT AND LENDERS: ----------------- EWP FINANCIAL LLC, as Agent and as a Lender By:________________________________________ Name:______________________________________ Title:_______________________________________ [signature page to Second Amendment to Debtor-In-Possession Credit Agreement] EX-4.41 16 kciexh44103.txt PROMISSORY NOTE
Borrower: Engineered Wire Products, Inc. Lender: Bank One, N A with its main office at Columbus, Ohio 1200 N. Warpole Street Lima Business Banking LPO Upper Sandusky, OH 43351 121 W High Street. 2nd Floor Lima, OH 45801
Principal Amount: $7,000,000.00 Date of Note: January 5, 2004 PROMISE TO PAY. Engineered Wire Products. Inc. (' Borrower") promises to pay to Bank One, N.A. with its main office at Columbus, Ohio ("Lander"), or order, In lawful money of the United States of America, the principal amount of Seven Million & 00/100 Dollars ($7,000.000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance Interest shell be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on June 30, 2004 In addition. Borrower will pay regular monthly payments of ail accrued unpaid interest due as of each payment data, beginning January 30, 2004, with all subsequent Interest payments to be due on the same day of each month after that. Payments and any other credits shall be allocated among principal, interest and fees at the discretion of Lender unless otherwise required by applicable law. The annual interest rate for this Note is computed on a 3651360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance to outstanding. Borrower will pay Lender at Lender's address shown on loan account statements sent to the Borrower, Lender's address shown in any payment coupon book provided to the Borrower, or at such other place as Lander may designate in writing. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the LIBOR Rate (the "Index"). "LIBOR Rate" shall mean the offered rate for U.S. Dollar deposits of not lass than $1,000,000 00 for a period of time equal to each Interest Period as of 11:00 A.M. City of London, England time two London Business Days prior to the first date of each Interest Period of this Note as shown on the display designated as "British Bankers Assoc Interest Settlement Rates' on the Telerate System ("Telerate"), Page 3760 or Page 3740, or such other page or pages as may replace such pages on Telerate for the purpose of displaying such rate Provided, however, that if such rate is not available on Telerate then such offered rate shall be otherwise independently determined by Lender from an alternate, substantially similar independent source available to Lender or shall be calculated by Lander by a substantially similar methodology as that theretofore used to determine such offered rate in Telerate "London Business Day" means any day other than a Saturday, Sunday or a day on which banking institutions are generally authorized or obligated by law or executive order to close in the City of London, England. Each change in the rate to be charged on this Note will become effective without notice on the commencement of each Interest Period based upon the Index then in effect. "Interest Period' means each consecutive one month period (the first of which shall commence on the date of this Note) effective as of the first day of each Interest Period and ending on the lest day of each Interest Period, provided that if any Interest Period is scheduled to end on a date for which there is no numerical equivalent to the date on which the Interest Period commenced, then it shall end instead on the last day of such calendar month Borrower may prepay all or any portion of the principal amount of this Note bearing interest at a LIBOR Rate, provided that if Borrower makes any such prepayment other than on the last day of an Interest Period, Borrower shall pay all accrued interest on the principal amount prepaid with such prepayment and, on demand, shall reimburse Lender and hold Lender harmless from all losses and expenses incurred by Lender as a result of such prepayment, including, without limitation, any losses and expenses arising from the liquidation or reemployment of deposits acquired to fund or maintain the principal amount prepaid. Such reimbursement shall be calculated as though Lender funded the principal amount prepaid through the purchase of U.S. Dollar deposits in the London, England interbank market having a maturity corresponding to such Interest Period and bearing an interest rate equal to the LIBOR Rate for such interest Period, whether in fact that is the case or not. Lender's determination of the amount of such reimbursement shall be conclusive in the absence of manifest error. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 2 450 percentage points over the Index. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT. Borrower may pay without fee all or a portion of the principal amount owed hereunder earlier than it is due. All prepayments shall be applied to the Indebtedness In such order and manner as Lender may from time to time determine in its sole discretion. Borrower agrees not to send Lender payments marked "paid in full', "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Bank One Business Banking Loan Servicing Disputed Accounts Department, P 0 Box 901094 Fort Worth, TX 76101.2094 LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $25 00, whichever is greater. INTEREST AFTER DEFAULT. Upon the occurrence of any Event of Default, including failure to pay upon final maturity, at Lender's option, and if permitted by applicable law, Lender may add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). Upon the occurrence of any Event of Default, Lander, at its option, may, if permitted under applicable law, increase the variable interest rate on this Note to 6 450 percentage points over the Index. The interest rate will not exceed the maximum rate permitted by applicable law. DEFAULT Each of the following shall constitute en event of default ("Event of Default") under this Note. Payment Default. Borrower fails to make any payment when due under this Note. Other Defaults. Borrower fails to comply with or to pay or perform any other term, obligation, covenant or condition contained In this Note or in any of the Related Documents or to comply with or to pay or perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower or between Borrower and any affiliate of BANK ONE CORPORATION Transfer of Assets. Borrower leases, sells, or otherwise convoys, or agrees to lease, sell, or otherwise convey, a material part of its assets or business outside of the ordinary course of business. Defaults with Respect to Third Parties Borrower fails to make any payment when due or fails to comply with or to perform any term, obligation, covenant or condition contained in any agreement between any other person and Borrower False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter Judgments or Decrees. One or more judgments or decrees shall be entered against the Borrower and such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower Creditor or Forfeiture Proceedings. Commencement of foreclosure, replevin, repossession, attachment, levy, execution, or forfeiture proceedings, whether by judicial proceeding, self-help, or any other method, by any creditor of Borrower, or by any governmental agency against the Collateral or any other assets of Borrower. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in en amount determined by Lander, in its sole discretion, as being an adequate reserve or bond for the dispute Failure to Comply with Laws, Borrower fails to comply with all applicable statutes, laws, ordinances and governmental rules, regulations and orders to which it is subject or which are applicable to its business, property and assets Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower Adverse Change A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired Events Affecting Guarantor. Any of the preceding Events of Default occurs with respect to any guarantor of the Indebtedness as if the word "guarantor" were substituted for the word "Borrower" in such Event of Default, or any guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty Insecurity. Lender in good faith believes Itself insecure. LENDER'S RIGHTS. Upon the occurrence of any Event of Default, Lender may declare the entire unpaid principal balance on this Note and the Indebtedness and all accrued unpaid interest immediately due, without notice (except that in the case of any Event of Default of the type described in the DEFAULT - Insolvency section herein, such acceleration shall be automatic and not at Lender's option), and then Borrower will pay that amount Borrower shall be liable for any deficiency remaining after disposition of any collateral which Lender may choose to realize upon ATTORNEYS' FEES; EXPENSES Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount This Includes, subject to any limits under applicable low, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable low. Borrower also will pay any court coats, in addition to all other sums provided by law GOVERNING LAW. This Note will be governed by, construed and enforced in accordance with federal law and tie laws of the State of Ohio. This Note has been accepted by Lender in the State of Ohio. CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Allen County, State of Ohio. CONFESSION OF JUDGMENT. Borrower hereby irrevocably authorizes and empowers any attorney-at-low, including an attorney hired by Lender, to appear in any court of record and to confess judgment against Borrower for the unpaid amount of this Note as evidenced by an affidavit signed by an officer of Lender setting forth the amount then due, attorneys' fees plus costs of suit, and to release all errors, and waive all rights of appeal. If a copy of this Note, verified by an affidavit, shall have been filed in the proceeding, it will not be necessary to file the original as a warrant of attorney Borrower waives the right to any stay of execution and the benefit of all exemption taws now or hereafter in effect No single exercise of the foregoing warrant and power to confess judgment will be deemed to exhaust the power, whether or not any such exercise shell be held by any court to be invalid, voidable, or void; but the power will continue undiminished end may be exercised from time to time as Lender may elect until all amounts owing on this Note have been paid in full Borrower waives any conflict of interest that an attorney hired by Lender may have in acting on behalf of Borrower in confessing judgment against Borrower while such attorney is retained by Lender Borrower expressly consents to such attorney acting for Borrower in confessing judgment DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored RIGHT OF SETOFF Borrower grants to Lender a security interest in, as well as a right of setoff against, and hereby assigns, conveys, delivers, pledges and transfers to Lender, as security for repayment of the Indebtedness, all Borrower's right, title and interest in and to all Borrower's accounts (whether checking, savings, or some other account) with Lender or any subsidiary or affiliate of BANK ONE CORPORATION (each hereinafter referred to as a "Lender Affiliate") and all other obligations at any time owing by Lender or any Lender Affiliate to Borrower This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future However, this does not Include any IRA or Keogh accounts, or any trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, without prior notice to Borrower and irrespective of U) whether or not Lender has made any demand under this Note or the Related Documents or (ii) whether such Indebtedness is contingent, matured or unmatured, to the extent permitted by law, to collect, charge and/or setoff all sums owing on the Indebtedness against any and all such accounts and other obligations, and, at Lender's option, to administratively freeze or direct a Lender Affiliate to administratively freeze all such accounts and other obligations to allow Lender to protect Lender's security interest, collection, charge and setoff rights provided in this paragraph. COLLATERAL. Borrower acknowledges this Note Is secured by security interest in and lien upon all collateral described in any Related Document LINE OF CREDIT. This Note evidences a revolving Iine of credit The unpaid principal balance of this Note shell increase and decrease with each new advance and payment hereunder, as the case may be. Subject to the terms hereof, Borrower may borrow, repay and reborrow hereunder Advances under this Note, as well as directions for payment from Borrower's accounts, may be requested orally or in writing by Borrower or by an authorized person Lender may, but need not, require that all oral requests be confirmed in writing Borrower agrees to be liable for all sums either' (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower's accounts with Lender. Lender will have no obligation to advance funds under this Note If: (A) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note, (B) Borrower or any guarantor ceases doing business or is insolvent-, (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender, (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender, or (E) Lender in good faith believes itself insecure LATE CHARGES. In the "Late Charge" provision set forth above, the following language is hereby added after the word "greater", 'up to the maximum amount of Two Hundred Fifty Dollars ($250 00) per late charge" FINANCIAL STATEMENTS Borrower shall furnish Lender with such financial statements and other related information at such frequencies and in such detail as Lender may reasonably request. ENFORCEABILITY AND ORGANIZATION. Borrower is duly authorized to transact business in all states in which Borrower is doing business, having obtained all necessary filings, governmental licenses end approvals for each state in which Borrower is doing business. Borrower's execution, delivery end performance of this Note end all the Related Documents have been duty authorized by all necessary action by Borrower. This Note and all the Related Documents constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms if applicable, Borrower is an entity which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the state of its organization. INFORMATION WAIVER Lender may provide, without any limitation whatsoever, to any one or more purchasers, potential purchasers, or affiliates of BANK ONE CORPORATION, any information or knowledge Lender may have about the undersigned or about any matter relating to this document and the Related Documents, and the undersigned hereby waives any right to privacy the undersigned may have with respect to such matters INDEBTEDNESS. The word "Indebtedness" means as principal, interest, end other amounts, costs and expenses payable under the Note or Related Documents, together with all renewals of, extensions of, modifications of, consolidations of and substitutions for the Note Or Related Documents, together with interest on such amounts as provided in this Note, and all obligations, debts and liabilities, plus interest thereon, of Borrower or any one or more of them to Lender, as well as all claims by Lender against Borrower or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of this Note, whether voluntary or otherwise, whether due or not due. direct or indirect, absolute or contingent, liquidated or unliquidated end whether Borrower may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise and whether recovery upon such amounts may be or hereafter become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter become otherwise unenforceable; and further includes, without limitation, all principal, interest, and other amounts, costs and expenses payable under the Related Documents, whether executed by the Borrower or by any other person or entity, together with all renewals of, extensions of, modifications of, consolidations of and substitutions for the Related Documents, together with interest thereon as provided in the Related Documents RELATED DOCUMENTS The words "Related Documents" mean all promissory notes. credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now existing or hereafter arising, executed in connection with the Indebtedness LIABILITIES FOR OBLIGATIONS UNDER RELATED DOCUMENTS. Borrower also promises to pay to Lender all of the Indebtedness Borrower acknowledges that some of the Related Documents, pursuant to which Indebtedness may arise, may be executed only by persons or entities other than the Borrower. PURPOSE. Borrower agrees that no advances under this Note shall be used for personal, family or household purposes and that all advances hereunder shall be used solely for business, commercial, agricultural or other similar purposes ARBITRATION Undersigned and Lender agree that all disputes, claims and controversies between them whether individual, joint, or class in nature, arising from this document or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the Rules of the American Arbitration Association in effect at the time the claim /s filed, upon request of either party. No act to take or dispose of any Collateral or Property (as defined herein or in any Related Document) securing this document shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement This includes, without limitation, obtaining injunctive relief or a temporary restraining order, invoking a power of sale under any deed of trust or mortgage, obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to applicable law Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any Collateral or Property securing this document, including any claim to rescind, reform, or otherwise modify any agreement relating to the Collateral or Property securing this document, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this document shall preclude any party from seeking equitable relief from a court of competent jurisdiction The statute of limitations, estoppel, waiver, )aches, and similar doctrines which would otherwise be applicable In an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes The Federal Arbitration Act shall apply to the construction, interpretation, and enforcement of this arbitration provision JURY WAIVER THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT, THE RELATED DOCUMENTS, OR ANY RELATIONSHIP BETWEEN OR AMONG THE UNDERSIGNED AND LENDER THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING EVIDENCED BY THIS DOCUMENT AND THE RELATED DOCUMENTS BORROWER'S ACKNOWLEDGEMENT AND AGREEMENT REGARDING AFFILIATE BANKS Borrower may now or in the future have a borrowing relationship with Bank One, NA with its main office in Columbus, Ohio (the 'Bank Affiliate-) Lender and Borrower intend that the terms, covenants, conditions, warranties and obligations of Borrower in only one agreement in the nature of a loan or credit agreement )"Loan Agreement') be applicable to the borrowing relationship of Borrower end Lender and of Borrower and the Bank Affiliate Therefore, if Borrower executes a Loan Agreement with the Bank Affiliate, the Borrower agrees that the terms, covenants, conditions, warranties and obligations of Borrower contained in that Loan Agreement between Borrower and the Bank Affiliate shall also apply to this Note. RENEWAL AND EXTENSION. This Note is given in replacement, renewal and/or extension of, but not extinguishing the indebtedness evidenced by, the promissory note dated March 10, 1995, executed by Borrower to NBD Bank, N.A , predecessor in interest to Lender, in the original principal amount of 67,000,000 00, including previous renewals or modifications thereof, if any (the 'Prior Note"), and is not a novation thereof All interest evidenced by the Prior Note being replaced, renewed, and/or extended by this Note shall continue to be due and payable until paid All Related Documents executed in relation to or as security for the Prior Note remain in full force and effect GENERAL PROVISIONS If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Borrower does not agree or intend to pay, and Lender does not agree or intend to contract for, charge. collect, take, reserve or receive (collectively referred to herein as "charge or collect"), any amount in the nature of interest or in the nature of a fee for this loan, which would in any way or event (including demand, prepayment, or acceleration) cause Lender to charge or collect more for this loan then the maximum Lender would be permitted to charge or collect by federal law or the law of the State of Ohio (as applicable). Any such excess interest or unauthorized fee shall, instead of anything stated to the contrary, be applied first to reduce the principal balance of this loan, and when the principal has been paid in full, be refunded to Borrower. If any part of this Note cannot be enforced, this fact will not affect the rest of this Note. It Is agreed that any payment which would otherwise for any reason be deemed unlawful interest under applicable law shall be deemed to have been applied to the unpaid principal balance of this Note, or to other Indebtedness The unpaid balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral, or impair, fail to realize upon or perfect Lender's security interest in the collateral, and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made Unless specifically permitted otherwise by the terms and conditions of this Note, no alteration of or amendment to this Note shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment, Borrower agrees and consents to Lender's sale or transfer, whether now or later, of this Note, or the Related Documents or of any participation interest In this Note or Related Documents to one or more purchasers, whether related or unrelated to Lender Borrower waives any and all notices of sale of this Note, the Related Documents or of any participation interests, as well as any notices of any repurchases of this Note, the Related Documents, or of any participation interests. The obligations under this Note are joint and several PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE. BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE. NOTICE. FOR THIS NOTICE "YOU" MEANS THE BORROWER AND "CREDITOR" AND "HIS" MEANS LENDER WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. BORROWER: ENGINEERED WIRE PRODUCTS. INC. Bert E. Downing. Jr., Vice President/Treasurer of Engineered Wire Products, Inc. EX-4.42 17 kciexh44203.txt BANK1ONE BUSINESS LOAN AGREEMENT (ASSET BASED)
Borrower: Engineered Wire Products, Inc. Lender: Bank One, N A with its main office at Columbus, Ohio 1200 North Warpole Street Lima Business Banking LPO Upper Sandusky, OH 43351 121 W High Street. 2nd Floor Lima, OH 45801
THIS BUSINESS LOAN AGREEMENT (ASSET BASED) dated January 5, 2004, is made and executed between Engineered Wire Products, Inc ("Borrower") and Bank One, N A with its main office at Columbus, Ohio ('Lender") on the following terms and conditions, Borrower has received prior commercial loans from Lander or has applied to Lender for a commercial loan or loans or other financial accommodations, Including those which may be described on any exhibit or schedule attached to this Agreement ("Loan"). Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lander Is relying upon Borrower's representations, warranties, and agreements as set forth In this Agreement, and (B) all such Loans shall be and remain subject to the terms and conditions of this Agreement. TERM. This Agreement shall be effective as of January 5, 2004, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of Lender have been paid in full, in principal, interest, coats, expenses, attorneys' fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement LINE OF CREDIT Lender agrees to make Advances to Borrower from time to time from the date of this Agreement to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed the Borrowing Base Within the foregoing limits, Borrower may borrow, partially or wholly prepay, and reborrow under this Agreement as follows Conditions Precedent to Each Advance. Lender's obligation to make any Advance to or for the account of Borrower under this Agreement is subject to the following conditions precedent, with all documents, instruments, opinions, reports, and other items required under this Agreement to be in form and substance satisfactory to Lender: (1) Lander shall have received evidence that this Agreement and all Related Documents have been duly authorized, executed, and delivered by Borrower to Lender. (2) Lender shall have received such opinions of counsel, supplemental opinions, and documents as Lender may request (3) The security interests in the Collateral shall have been duly authorized, created, and perfected with first lien priority and shall be in full force and effect (4) All guaranties required by Lender for the credit facility(ies) shall have been executed by each Guarantor, delivered to Lender, and be in full force and effect (5) Lender, at its option and for its sole benefit, shall have conducted an audit of Borrower's Accounts, Inventory, books, records, and operations, and Lender shall be satisfied as to their condition (6) Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable (7) There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement, and Borrower shall have delivered to Lender the compliance certificate called for in the paragraph below titled "Compliance Certificate " Making Loan Advances. Advances under this credit facility, as well as directions for payment from Borrower's accounts, may be requested orally or in writing by authorized persons Lender may, but need not, require that all oral requests be confirmed in writing. Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of Borrower (1) when credited to any deposit account of Borrower maintained with Lander or (2) when advanced in accordance with the instructions of an authorized person Lender, et its option, may set a cutoff time, after which all requests for Advances will be treated as having been requested on the next succeeding Business Day Mandatory Loan Repayments. If at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base. Borrower, immediately upon written or oral notice from Lender, shall pay to Lender an amount equal to the difference between the outstanding principal balance of the Advances and the Borrowing Base On the Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid principal amount of all Advances then outstanding and all accrued unpaid interest, together with all other applicable fees, costs and charges, if any, not yet paid Loan Account. Lender shall maintain on its books a record of account in which Lender shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the credit facility Lender shall provide Borrower with periodic statements of Borrower's account, which statements shall be considered to be correct and conclusively binding on Borrower unless Borrower notifies Lender to the contrary within thirty (30) days after Borrower's receipt of any such statement which Borrower deems to be incorrect COLLATERAL. To secure payment of the Primary Credit Facility and performance of all other Loan, obligations and duties owed by Borrower to Lender, Borrower (end others, it required) shall grant to Lender Security interests in such property and assets as Lender may require Lender's Security Interests in the Collateral shall be continuing hens and shall include the proceeds and products of the Collateral, including without limitation the proceeds of any insurance With respect to the Collateral, Borrower agrees and represents and warrants to Lender: Perfection of Security interests, Borrower agrees to execute financing statements and all documents perfecting Lender's Security Interest and to take whatever other actions era requested by Lender to perfect and continue Lender's Security Interests in the Collateral. Upon request of Lender, Borrower will deliver to Lender any and oil of the documents evidencing or constituting the Collateral, and Borrower will note Lender's interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender Contemporaneous with the execution of this Agreement, Borrower will execute one or more UCC financing statements and any similar statements as may be required by applicable law, and Lender will file such financing statements and all such similar statements in the appropriate location or locations. Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue any Security Interest Lender may at any time, and without further authorization from Borrower, file a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement Borrower will reimburse Lender for all expenses for the perfection, termination, and the continuation of the perfection of Lender's security interest in the Collateral. Borrower promptly will notify Lender before any change in Borrower's name including any change to the assumed business names of Borrower. Borrower also promptly will notify Lender before any change in Borrower's Social Security Number or Employer Identification Number. Borrower further agrees to notify Lender in writing prior to any change in address or location of Borrower's principal governance office or should Borrower merge or consolidate with any other entity Collateral Records. Borrower does now, and at all times hereafter shall, keep correct and accurate records of the Collateral, all of which records shall be available to Lender or Lender's representative upon demand for inspection and copying at any reasonable time. With respect to the Accounts, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Accounts and Account balances and agings Records related to Accounts (Receivables) are or will be located at Borrower's headquarters. With respect to the inventory, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible inventory and records itemizing and describing the kind, type, quality, and quantity of Inventory, Borrower's Inventory costs and selling prices, and the daily withdrawals and additions to Inventory Records related to Inventory are or will be located at Borrower's headquarters The above is an accurate and complete list of all locations at which Borrower keeps or maintains business records concerning Borrower's collateral Collateral Schedules. Concurrently with the execution and delivery of this Agreement, Borrower shall execute and deliver to Lender schedules of Accounts and Inventory and schedules of Eligible Accounts and Eligible Inventory in form and substance satisfactory to the Lender. Thereafter supplemental schedules shall be delivered according to the following schedule With respect to Eligible Accounts, schedules shall be delivered with the Borrowing Base certificate With respect to Eligible Inventory, schedules shall be delivered with the Borrowing Base certificate Representations and Warranties Concerning Accounts. With respect to the Accounts, Borrower represents and warrants to Lender (1) Each Account represented by Borrower to be an Eligible Account for purposes of this Agreement conforms to the requirements of the definition of an Eligible Account, (2) All Account information listed on schedules delivered to Lander will be true and correct, subject to immaterial variance; and (3) Lender, its assigns, or agents shall have the right at any time end at Borrower's expense to inspect, examine, and audit Borrower's records end to confirm with Account Debtors the accuracy of such Accounts Representations and Warranties Concerning Inventory. With respect to the Inventory, Borrower represents and warrants to Lender (1) All Inventory represented by Borrower to be Eligible Inventory for purposes of this Agreement conforms to the requirements of the definition of Eligible Inventory, (2) All inventory values listed on schedules delivered to Lander will be true and correct, subject to immaterial variance; (3) The value of the Inventory will be determined on a consistent accounting basis, 14) Except as agreed to the contrary by Lender in writing, all Eligible Inventory is now and at all times hereafter will be in Borrower's physical possession and shall not be held by others on consignment, sale on approval, or sale or return; (5) Except as reflected in the Inventory schedules delivered to Lender, all Eligible Inventory is now and at all times hereafter will be of good and merchantable quality, free from defects, (6) Eligible Inventory is not now and will not at any time hereafter be stored with a belles, warehouseman, or similar party without Lender's prior written consent, and, in such event, Borrower will concurrently at the time of bailment cause any such belles, warehouseman, or similar party to issue and deliver to Lender, in form acceptable to Lender, warehouse receipts in Lender name evidencing the storage of Inventory; and 171 Lender, Its assigns, or agents shall have the right at any time and at Borrower's expense to inspect and examine the Inventory and to check and test the same as to quality, quantity, value, and condition. CONDITIONS PRECEDENT TD EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; 12) Security Agreements granting to Lender security interests in the Collateral, (31 financing statements perfecting Lender's Security Interests; 14) evidence of insurance as required below; (5) together with all such Related Documents as Lender may require for the Loan, all in form and substance satisfactory to Lender and Lender's counsel Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender Or its Counsel, may require. Fees and Expenses. Under This Agreement Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable Representations and Warranties. The representations and warranties set forth in this Agreement, In the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document REPRESENTATIONS AND WARRANTIES Borrower represents and warrants to , and covenants and agrees with, Lender that, as of the date of this Agreement, as of the date of each Advance, as of the date of any renewal, extension or modification, and at all times any Indebtedness exists Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Ohio Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at 1200 North Warpole Street, Upper Sandusky, OH 43351 Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities Authorization Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do riot conflict with, result in a violation of, or constitute a default under 11) any provision of Borrower's articles of incorporation or organization, or bylaws, code of regulations, or any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties. Borrower has the power and authority to execute and deliver the Note and the Related Documents and, if applicable, to grant Collateral as security for the Indebtedness Financial Information, Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender Borrower has no material contingent obligations except as disclosed in such financial statements Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable. Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years. Environmental Matters end Indemnity. Except as disclosed to Lender in writing prior to the execution of this Agreement, Borrower represents and warrants that (1) During the period of ownership, use or control of the Assets (which term, for all purposes of this section, shall include all plants, sites and facilities presently or formerly owned, operated, controlled or leased by the Borrower or any Grantor), Is) there has been no violation of any Environmental Laws, and (b) there has been no use, generation, manufacture, storage, treatment, refinement, transportation, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Assets, (2) Borrower has no knowledge of, or reason to believe that, during the period prior to the ownership, use or control of any of the Assets lair defined in clause 11) above) by Borrower or any Grantor, there has been (a) any breach or violation of any Environmental Laws by any prior owners or occupants of any of the Assets, or (b) any use, generation, manufacture, storage, treatment, refinement, transportation, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Assets, and (3) neither Borrower nor any Grantor have received any notice of, nor have any knowledge of, any actual or threatened claim, legal proceeding or investigation regarding Borrower, any Grantor or any of the Assets (as defined in clause (1) above) related to Environmental Laws The representations and warranties, contained herein are based on Borrower's due diligence in investigating all of the Assets for Hazardous Substances Borrower hereby (1) releases and waives any future claims against any indemnified Party for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any Environmental Laws, and 12) agrees to defend, indemnify and hold harmless each Indemnified Party against any and all obligations, actions, judgments, suits, claims, losses, liabilities, damages, penalties, disbursements, costs and expenses (including, without limitation, reasonable attorneys' and consultants' fees), of any kind or nature, which any Indemnified Party may directly or indirectly sustain or suffer resulting from, relating to, arising Out of or arising as a consequence of Is) any breach of this section or the 'Environmental Compliance and Reports' section below, (b) any use, generation, manufacture, storage, treatment, refinement, transportation, disposal, release, or threatened release of any Hazardous Substance on, under, about or from any of the Assets, whether occurring during or prior to Borrower's or any Grantor's ownership of any of the Assets, and whether or not the same was or should have been known to Borrower, (c) any investigatory or remedial action involving any of the Assets, the operations conducted at any of the Assets or any other operations of Borrower, any Grantor or any occupant at any of the Assets that is required by any Environmental Laws and (d) the contamination of any of the Assets by any Hazardous Substances, by any means whatsoever (including, without limitation, any migration of any Hazardous Substances onto any of the Assets, present or future) BORROWER SHALL INDEMNIFY THE RESPECTIVE INDEMNIFIED PARTY REGARDLESS OF WHETHER THE ACT, OMISSION, FACTS, CIRCUMSTANCE OR CONDITIONS GIVING RISE TO SUCH INDEMNIFICATION WERE CAUSED IN WHOLE DR IN PART BY THE RESPECTIVE INDEMNIFIED PARTY'S SIMPLE (BUT NOT GROSS) NEGLIGENCE The provisions of this section, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall rot be affected by Lender's or any other Indemnified Party's acquisition of any interest in any of the Assets, whether by foreclosure or otherwise. Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, Claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing Use of Loan Proceeds. No portion of any Advance or Loan shall be used directly or indirectly to purchase ineligible securities, as defined by applicable regulations of the Federal Reserve Board, underwritten by any affiliate BANK ONE CORPORATION during the underwriting period and for 30 days thereafter Taxes. To the best of Borrowers knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments end other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or effecting any of the Collateral directly or indirectly securing repayment of Borrower's Indebtedness Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will Notices of Claims and Litigation. Promptly inform Lender in writing of Ill all material adverse changes in Borrower's financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions effecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times Financial Statements. Furnish Lender with the following Interim Statements As soon as available, but in no event later than thirty (30) days after the end of each month, Borrower's balance sheet and profit and loss statement for the period ended, prepared by Borrower. Additional Requirements. Borrowing Base Documents. Deliver to Lender a Borrowing Base certificate, Accounts aging report, and such other supporting documentation as Lender may request from time to time, all in form and detail satisfactory to Lender, within 30 days after the end of each calendar month Reports. Deliver to Lender an Asset Based Lending Audit report and such other supporting documentation as Lender may request from time to time, all in form and detail satisfactory to Lender, no later than September 30th of each calendar year. Consolidated Financial Reports. Borrower shall cause Keystone Consolidated Industries Inc to provide each of the foregoing financial reports to be prepared on a consolidated basis for Keystone Consolidated Industries Inc Financial Statements Annual financial statements, including a balance sheet, income statement, statement of changes in financial position and consolidating information for the Borrower that is included in the consolidated financial statement of Keystone Consolidated Industries Inc for the year ended, of Keystone Consolidated Industries Inc within one hundred twenty 1120) days after the end of Its fiscal year end, such financial statements to be audited by certified public accountant(s) reasonably acceptable to Lender) All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct Additional Information. Furnish such additional information and statements, as Lender may request from lime to time. Financial Covenants and Ratios. Comply with the following covenants and ratios Working Capital Requirements Other Working Capital requirements are as follows: Current Ratio. Maintain a Currant Ratio of not less than 1 50 to 1.00 The "Current Ratio" means current assets, excluding prepaid expenses, divided by current liabilities. This ratio will be evaluated as of each month end. Minimum Income and Cash flow Requirements. Other Cash Flow requirements are as follows Debt Service Coverage Ratio. Maintain a Debt Service Covers" Ratio of not leas than 1.50 to 1 00. The "Debt Service Coverage Ratio" means ratio of (a) not income, after taxes, plus amortization, depreciation and Interest, minus any distributions or dividends, for the twelve month period then ending, divided by (b) current maturities of long term debt, plus interest and current maturities of capital leases for the some such twelve month period. This ratio will be evaluated as of each year end Tangible Net Worth Requirements. Other Net Worth requirements are as follows Unsubordinated Debt To Tangible Not Worth Ratio. Maintain en Unsubordinated Debt to Tangible Not Worth Ratio of less than 2 25 to 1.00. The "Unsubordinated Debt to Tangible Not Worth Ratio" means a ratio of (a) total liabilities, excluding Subordinated Debt, divided by (b) Tangible Net Worth. This ratio will be evaluated as of each month end. Other Requirements. Commencement of Evaluation of Ratios and Covenants Each of the foregoing covenants end ratios will be evaluated for the first time based on the financial reports required herein for the period ending December 31. 2003 and thereafter shall be periodically evaluated as provided in each such covenant or ratio. . Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person in connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lander may reasonably request, including without limitation the following: (1) the name of the insurer, (2) the risks Insured, 13) the amount of the policy; (4) the properties Insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values, and (6) the expiration date of the policy In addition, upon request of Lender (however not more often then annually). Borrower will have en independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral The cost of such appraisal shall be paid by Borrower. Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower end any other party and notify Lender Immediately in writing of any default in connection with any other such agreements Loan Proceeds. Use all Loan proceeds solely for the following specific purposes Pay off intercompany debt In an amount not to exceed $5,750.000 00 Taxes. Charges end Liens. Pay end discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender Borrower shall notify Lender immediately in writing of any default in connection with any agreement. Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel, provide written notice to Lender of any change in executive and management personnel, conduct no business affairs in a reasonable and prudent manner. Environmental Studies Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testing$ as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local low, rule, regulation, order or directive, at or effecting any property or any facility owned, leased or used by Borrower. Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act Borrower may contest in good faith any such law, ordinance. or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior 10 doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to poet adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest. Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other Assets and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) In the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. Compliance Certificates. Unless waived in writing by Lender, provide Lender within thirty (30) days after the end of each month, with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. Environmental Compliance and Reports. Neither Borrower, nor any Grantor, tenant, contractor, agent or other authorized user of any of the Assets shall use, generate, manufacture, store, treat, refine. transport, dispose of, or release any Hazardous Substance on, under, about or from any of the Assets Borrower will at all times comply, and will cause any Grantor to comply, with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject including, without limitation, all Environmental Laws. Borrower will furnish to Lender as soon as possible and in any event within 10 days after receipt by the Borrower or any Grantor, a copy of lei any notice or claim to the effect that Borrower or any Grantor is or may be liable to any person as a result of the release by Borrower or any Grantor or any other person of any Hazardous Substance Into the environment and (b) any notice alleging any violation of any Environmental Law by Borrower or any Grantor Borrower will permit, and will cause any Grantor to permit, Lender, by its representatives and agents. to enter upon end test any of the Assets, and inspect any of Borrower's or any Grantor's books and records, all at such reasonable times end intervals as Lender may designate, in order to determine Borrower's and any Grantor's compliance with both this section and the "Environmental Matters and Indemnity' section above. Any such inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability of the part of Lender to Borrower, any Grantor, or any other person. Change of Location. Immediately notify Lender in writing of any additions to or changes in location of Borrower's businesses, principal office. or Collateral, other than in the ordinary course of business. Title to Assets and Property, Maintain good and marketable title to all of Borrower's Assets and property. Other Information. From time to time Borrower will provide Lender with such other information as Lender may reasonably request. Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, Instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower fads to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower All such expenses will become a part of the Indebtedness and, et Lender's option, will (A) be payable on demand, (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy. (2) the remaining term of the Note, or (3) be treated as a balloon payment which will be due and payable at the Note's maturity Any Collateral also will secure payment of these amounts, Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default NEGATIVE COVENANTS Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender. Capital Expenditures Make or contract to make capital expenditures, including leasehold improvements, in any fiscal year in excess of $800,000.00 or incur liability for rentals of property (including both real and personal property) in an amount which, together with capital expenditures, shall in any fiscal year exceed such sum Debts and Indebtedness. (1) Except for trade debt incurred in the normal course of business and Indebtedness to Lender, create, incur or assume indebtedness for borrowed money, including capital bases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's Assets (except as allowed as Permitted Liens), or 13) sell with or without recourse any of Borrower's accounts, except to Lender. Additional Financial Restrictions. Primary Deposit Relationship, Fail to establish and maintain its primary depository relationship for its operating accounts with Lender. Affiliate Transactions. Enter into any transaction, including without limitation, the purchase, sale or exchange or property or rendering of services with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms no less favorable then would be obtained in a comparable arms length transaction with a person or entity not an Affiliate of Borrower, As used herein the term 'Affiliate" means any individual or entity directly or indirectly under common ownership or control with Borrower Continuity of Operations. (1) Engage in any business activities substantially different then those in which Borrower is presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name. dissolve or transfer or sell Collateral out of the ordinary course of business, 131 pay any dividends or make any other distributions on Borrower's stock (other then dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a 'Subchapter S Corporation' (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to Its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower's stock, (4) purchase, redeem or retire any of Borrower's outstanding shares , or (5) alter or amend Borrower's capital structure Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or assets. (2) purchase, create or acquire any Interest in any other enterprise or entity, or 13) incur any obligation as surety or guarantor other than in the ordinary course of business. RIGHT OF SETOFF. Borrower grants to Lender a security interest in, as well as a right of setoff against, and hereby assigns, conveys, delivers, pledges and transfers to Lender, as security for repayment of the Indebtedness, all Borrower's right, title and interest in and to all Borrower's accounts (whether checking, savings, or some other account) with Lender or any subsidiary or affiliate of BANK ONE CORPORATION (each hereinafter referred to as a 'Lender Affiliate') end all other obligations at any time owing by Lender or any Lender Affiliate to Borrower. This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future However, this does not include any IRA or Keogh accounts, or any trust accounts for which the grant of a security interest would be prohibited by law Borrower authorizes Lender, without prior notice to Borrower and irrespective of (i) whether or not Lender has made any demand under the Note or the Related Documents or (ii) whether such Indebtedness is contingent, matured or unmatured, to the extent permitted by law, to collect, charge and/or setoff all sums owing on the Indebtedness against any and all such account& and other obligations, and, at Lender's option, to administratively freeze or direct a Lender Affiliate to administratively freeze all such accounts and other obligations to allow Lender to protect Lender's security interest, collection, charge and setoff rights provided in this paragraph. DEFAULT Each of the following shall constitute an Event of Default under this Agreement. Payment Default. Borrower fails to make any payment when due under the Loan, Other Defaults Borrower fails to comply with or to pay or perform any other term, obligation, covenant or condition contained in this Note or in any of the Related Documents or to comply with or to pay or perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower or between Borrower and any affiliate of BANK ONE CORPORATION Transfer of Assets, Borrower leases. sells, or otherwise conveys, or agrees to lease, sell, or otherwise convey, a material part of its Assets or business outside of the ordinary course of business. Defaults with Respect to Third Parties Borrower fails to make any payment when due or fails to comply with or perform any term, obligation, covenant or condition contained in any agreement between any other person and Borrower False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Agreement, the Note, or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter Judgments or Decrees. One or more judgments or decrees shall be entered against the Borrower and such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal. Insolvency The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason, Creditor or Forfeiture Proceedings. Commencement of foreclosure, replevin, repossession, attachment, levy, execution, or forfeiture proceedings, whether by judicial proceeding, self-help, or any other method, by any creditor of Borrower, or by any governmental agency against the Collateral or any assets of Borrower This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute Failure to Comply with Laws Borrower fells to comply with all applicable statutes, laws, ordinances and governmental rules, regulations and orders to which it is subject or which are applicable to its business, property and assets Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired Events Affecting Guarantor. Any of the proceeding Events of Default occurs with respect to any guarantor of the Indebtedness as if the word 'guarantor' were substituted for the word 'Borrower' in such Event of Default, or any guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty Insecurity. Lender in good faith believes itself insecure EFFECT OF AN EVENT OF DEFAULT If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the 'Insolvency' subsection above, such acceleration shall be automatic and not optional in addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative end may be exercised singularly or concurrently. Election by Lender to pursue any remedy shell not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. ARBITRATION. Undersigned and Lender agree that all disputes, claims and controversies between them whether individual, joint, or class in nature, arising from this document or otherwise, Including without limitation contract and tort disputes, shall be arbitrated pursuant to the Rules of the American Arbitration Association in effect at the time the claim is filed, upon request of either party. No act to take or dispose of any Collateral or Property (as defined herein or in any Related Document) securing this document shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement This includes, without limitation, obtaining injunctive relief or a temporary restraining order; invoking a power of sale under any deed of trust or mortgage: obtaining a writ of attachment or imposition of a receiver, or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to applicable law Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any Collateral or Property securing this document, including any claim to rescind, reform, or otherwise modify any agreement relating to the Collateral or Property securing this document, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction Nothing in this document shall preclude any party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, end the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. The Federal Arbitration Act shell apply to the construction, interpretation, and enforcement of this arbitration provision JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT, THE RELATED DOCUMENTS, OR ANY RELATIONSHIP BETWEEN OR AMONG THE UNDERSIGNED AND LENDER THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING EVIDENCED BY THIS DOCUMENT AND THE RELATED DOCUMENTS EXCLUSION FROM LOAN AGREEMENT Lender and Borrower hereby agree that, in addition to any loan or financial accommodation described on any Exhibit attached to this Agreement, if any, the following types of loans or financial accommodations, whether now existing or hereafter arising, are excluded from this Agreement (i) any loon evidenced by a promissory note payable to Lender which is the subject of a U S Small Business Administration guaranty, and (e) any construction loon governed by a construction loan agreement LOAN AGREEMENT APPLICABLE TO AFFILIATE BANK. Notwithstanding any other provision in this Agreement, Borrower and Lender agrees that Borrower may now or In the future have a borrowing relationship with Bank One, NA with its main office in Columbus, Ohio ('Bank Affiliate") Lender and Borrower intend that only one agreement In the nature of a loan or credit agreement be applicable to the Borrower's relationship with Lender and/or the Bank Affiliate, except for the exclusion of those certain loans or categories of loans specifically described in this Agreement Borrower agrees as follows a) the terms, covenants, conditions, warranties end obligations of Borrower contained in this Agreement replace those in any loan or credit agreement, if any, presently in existence between Borrower and the Bank Affiliate, b) any reference to "Lender" in this Agreement shall mean the Lender named in this Agreement and the Bank Affiliate. provided however that only the holder of any Note is responsible for any obligation related to funding any Advance on such Note; and c) this Agreement shall continue in full force and effect until all Indebtedness payable to Lender and to the Bank Affiliate is paid in full. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services, Borrower also shall pay all court costs and such additional fees as may be directed by the court Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later. of one or more participation interests in the Loon to one or more purchasers, whether related or unrelated to Lender Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters Borrower additionally waives any and all notices of sale of participation interests, as well as ell notices of any repurchase of such participation interests Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests In the Loon and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender Governing Law. This Agreement will be governed by, construed and enforced in accordance with federal law and the Iowa of the State of Ohio. This Agreement has been accepted by Lender In the State of Ohio. Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Allen County, State of Ohio Indemnification. Borrower agrees to indemnity, defend and hold each of the Indemnified Parties harmless from end against any and all liabilities, obligations, claims, losses, damages, penalties, fines, forfeitures, actions, judgments, suits, costs, expenses, and disbursements of any kind or nature (including, without limitation, Lender's attorneys' fees) (collectively, "Claims') which may be imposed upon, incurred by or assessed against any Indemnified Party (whether or not caused by any Indemnified Party's sole, concurrent, or contributory negligence) arising in connection with this Agreement, any Related Document, or any of the Assets (including, without limitation, the enforcement of this Agreement and the Related Documents and the defense of any Indemnified Party's action or inaction in connection with this Agreement and the Related Documents) or in connection with the Borrower's failure to perform all of Borrower's obligations under this Agreement or any Related Document, except to the limited extent that the claims against any such Indemnified Party are proximately caused by such Indemnified Party's gross negligence or willful misconduct. The Indemnification provided for in this section shall survive the termination of this Agreement and shall extend to and continue to benefit each individual or entity who is or has at any time been en Indemnified Party. Borrower's indemnity obligations under this section shall riot in any way be affected by the presence or absence of covering insurance, or insurance policy or policies affecting the Assets and/or Borrower's business activities. Should any claim, action or proceeding be made or brought against any Indemnified Party by reason of any event as to which Borrower's indemnification obligations apply, then, upon such Indemnified Party's demand, Borrower, at its sole cost and expense, shall defend such claim, action or proceeding in Borrower's name, if necessary, by the attorneys for Borrower's insurance carrier (if such claim, action or proceeding is covered by insurance), or otherwise by such attorneys as such Indemnified Party shall approve. Lender may also elect to engage is own attorneys at its reasonable discretion to defend Borrower or any Indemnified Party and to assist in their defense, and Borrower agrees to pay the fees and disbursements of such attorneys upon Lender's request No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing end signed by Lender. No delay or omission on the pert of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shell constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's, obligations as to any future transactions Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shell not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. Notices Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or. if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning 0f this Agreement Any party may change its address for notices under this Agreement by giving formal written notice to the other panes, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address Unless otherwise provided or required by law, if there is more then one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement. Successors and Assigns All covenants and agreements contained by or on behalf of Borrower shall bind Borrower's successors and assigns and shall Inure to the benefit of Lender, its successors end assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender. Survival of Representations and Warranties Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, end covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force end effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. Time Is of the Essence Time is of the essence in the performance of this Agreement DEFINITIONS The following capitalized words and terms shall have the following meanings when used in this Agreement Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, end the plural shall include the singular, as the context may require Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Ohio Uniform Commercial Code Accounting words and terms not otherwise defined In this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement' Account. The word "Account" means a trade account, account receivable, other receivable, or other right to payment for goods sold or services rendered owing to Borrower (or to a third party grantor acceptable to Lender) Advance. The word "Advance" means a disbursement of loan funds made, or to be made, to or for the benefit of Borrower and, if applicable, includes the issuance by or on behalf of Lender of any letters of credit for the account of Borrower and the extension of any loans or other credit accommodations by Lender to Borrower, Advance. The word "Advance" means a disbursement of loan funds made, or to be made, to or for the benefit of Borrower and, if applicable, includes the issuance by or on behalf of Lender of any letters of credit for the account of Borrower and the extension of any loans or other credit accommodations by Lender to Borrower Agreement. The word "Agreement" means this Business Loan Agreement (Asset Based), as this Business Loan Agreement (Asset Based) may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement (Asset Based) from time to time Assets. The word "Asset" means any property or interest in property of any kind or description of Borrower or any Grantor, or any property or interest in property of any Grantor which is subject to a security interest in favor of Lender, whether such assets are real, personal, tangible, intangible, or mixed, and whether such assets are owned, leased or operated by Borrower, or any such Grantor. Borrower The word "Borrower" means Engineered Wire Products, Inc., and all other persons and entities signing the Note in whatever Capacity Borrowing Base. The words 'Borrowing Base' mean , as determined by Lender from time to time, the lesser of (1) 87,000,000 00 or (2) the sum of (a) 76% of the aggregate amount of Eligible Accounts, plus (b) 50% of the aggregate amount of Eligible Inventory (not to exceed in corresponding Loan amount based on Eligible Inventory 84,000,000 00), provided further, the Borrowing Base shall be reduced by an additional $2,000,000.00 Business Day The words "Business Day" mean a day on which commercial banks are open in the State of Ohio. Collateral, The word "Collateral" means all property and assets granted as collateral security for a Loan, whether reel or personal property, whether granted directly or Indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, dead of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise The word Collateral also includes without limitation all collateral described in the Collateral section of this Agreement Default. The word "Default" means the Default set forth in this Agreement in the section titled "Default". Eligible Accounts. The words "Eligible Accounts" mean at any time, all of Borrower's Accounts which contain selling terms and conditions acceptable to Lender The net amount of any Eligible Account against which Borrower may borrow shall exclude all returns, discounts, credits, and offsets of any nature Unless otherwise agreed to by Lender in writing, Eligible Accounts do not include' (1) Accounts with respect to which the Account Debtor is employee or agent of Borrower (2) Accounts with respect to which the Account Debtor is a subsidiary of, or affiliated with Borrower or its shareholders, officers, or directors (3) Accounts with respect to which goods are placed on consignment, guaranteed sale, or other terms by reason of which the payment by the Account Debtor may be conditional (4) Accounts with respect to which the Account Debtor is not a resident of the United States, except to the extent such Accounts are supported by insurance, bonds or other assurances satisfactory to Lender. (5) Accounts with respect to which Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to Borrower. (6) Accounts which are subject to dispute, counterclaim, or setoff. (7) Accounts with respect to which the goods have not been shipped or delivered, or the services have not been rendered, to the Account Debtor. (8) Accounts with respect to which Lender, In its sole discretion, deems the creditworthiness or financial condition of the Account Debtor to be unsatisfactory. (9) Accounts of any Account Debtor who has filed or has had filed against it a petition in bankruptcy or an application for relief under any provision of any state or federal bankruptcy, insolvency, or debtor-in-relief acts, or who has had appointed a trustee, custodian, or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts (including its payrolls) as such debts become due. (10) Accounts with respect to which the Account Debtor is the United States government or any department or agency of the United States (11) Accounts which have not been paid in full within 90 days from the invoice date. The entire balance of any Account of any single Account Debtor will be ineligible whenever the portion of the Account which has not been paid within 90 days from the invoice date is in excess of 50.000% of the total amount outstanding on the Account (12) That portion of Accounts which constitute retainage (13) Accounts which arise from projects which are bonded. Eligible Inventory. The words "Eligible Inventory" mean at any time, all of Borrower's Inventory as defined below except (1) Inventory which Is not owned by Borrower free and clear of all security interests, liens, encumbrances, and claims of third parties. (2) Inventory which Lender, in its sole discretion, deems to be obsolete, unsalable, damaged, defective, or unfit for further processing. (3) Work in progress Environmental Laws. The words "Environmental Laws" mean any and all federal, state, local and foreign statutes, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees. plans, injunctions, permits, concessions, grants, franchises, licenses. agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (iv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof Event of Default The words "Event of Default" mean any of the events set forth in the section of this Agreement entitled "Default" Expiration Date. The words "Expiration Date" mean the date of termination of Lender's commitment to lend under this Agreement. GAAP. The word "GAAP" means generally accepted accounting principles. Grantor. The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan Hazardous Substances. The words "Hazardous Substances" mean all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Low Indebtedness. The word "Indebtedness" means all principal, Interest, and other amounts, costs and expenses payable under the Note or Related Documents, together with all renewals of, extensions of, modifications of, consolidations of and substitutions for the Note or Related Documents, together with interest on such amounts as provided in this Note, and all obligations, debts and liabilities, plus interest thereon, of Borrower, or any one or more of them. to Lender, as well as claims by Lender against Borrower or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, absolute or contingent, liquidated or unliquidated and whether Borrower may be liable Individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be hereafter may become barred by any statute of limitations, and whether the obligation to repay such amount may be or hereafter may become otherwise unenforceable, and further includes, without limitation, all principal, interest, and other amounts, costs and expenses payable under the Related Documents, whether executed by the Borrower or by any other person or entity, together with all renewals of, extensions of, modifications of, consolidations of and substitutions for the Related Documents, together with the interest thereon as provided in the Related Documents Indemnified Parties. The words "Indemnified Parties" mean the Lender and each of its affiliates, and each of their respective shareholders, directors, offices, employees and agents Inventory. The word "Inventory" means all of Borrower's raw materials, work in process, finished goods, merchandise, parts and supplies, of every kind and description, and goods held for sale or lease or furnished under contracts of service in which Borrower now has or hereafter acquires any right, whether held by Borrower or others, and all documents of title, warehouse receipts, bills of lading, and all other documents of every type covering all or any pert of the foregoing. Inventory includes inventory temporarily out of Borrower's custody or possession and all returns on Accounts Lender, The word "Lender" means Bank One, N A. with its main office at Columbus, Ohio, its successors and assigns Note. The word "Note" means any and all promissory note or notes which evidence Borrower's Loans in favor of Lender, as well as any amendment. modification, renewal and replacement thereof. Permitted Liens The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender, (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith, (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security interests upon or In any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the data of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens", and (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing Primary Credit Facility. The words "Primary Credit Facility' mean the credit facility described in the Line of Credit section of this Agreement Related Documents. The words "Related Documents" mean all promissory notes. credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages. and all other instruments, agreements and documents, whether now existing or hereafter arising, executed in connection with the Indebtedness. Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements. whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. Security Interest. The words "Security Interest" mean, without limitation, any and all typos of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise Subordinated Debt. The words 'Subordinated Debt" mean all present and future obligations, liabilities, claims, rights and demands of any kind which may be owing from Borrower to any creditor. other than Lender, to include, without limitation, principal, interest, costs, attorney's fees, sums paid for protecting the rights of a holder of security, all contingent obligations (such as a guaranty? and all other obligations of any nature whatsoever owed to such a creditor, which have been subordinated in all respects to the Indebtedness owed to Lender by written agreement acceptable to Lender to include, without limitation, deferral of any payment of principal to the creditor, deferral of interest payments upon occurrence of any Event of Default, and subordination of any Security Interest of such creditor until all Indebtedness is paid Tangible Net Worth. The words 'Tangible Net Worth' mean Borrower's total assets excluding all intangible assets (i.e. goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total liabilities excluding Subordinated Debt. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT (ASSET BASED) AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT (ASSET BASED) IS DATED JANUARY 5, 2004 BORROWER ENGINEERED WIRE PRODUCTS, INC. By: Bert E. Downing, Jr., Vice President/Treasurer of Engineered Wire Products, Inc. LENDER. BANK ONE, N.A. WITH ITS MAIN OFFICE AT COLUMBUS. OHIO By: Timothy P. Turnwald Authorized Signature EX-4.43 18 kciexh44303.txt PROMISSORY NOTE
Borrower: Engineered Wire Products, Inc. Lender: Bank One, N A with its main office at Columbus, Ohio 1200 N. Warpole Street Lima Business Banking LPO Upper Sandusky, OH 43351 121 W High Street. 2nd Floor Lima, OH 45801
Principal Amount: $6,750,000.00 Date of Note: January 5, 2004 PROMISE TO PAY. Engineered Wire Products. Inc. ("Borrower") promises to pay to Bank One, N.A. with its main office at Columbus, Ohio ("Lender"), or order, in lawful money of the United States of America, the principal amount of Six Million Seven Hundred Fifty Thousand & 00/100 Dollars ($6,750,000.00), together with interest on the unpaid principal balance from January 5, 2004, until paid in full. PAYMENT Borrower will pay this loan in 59 principal payments of $112,500.00 each and one final principal and interest payment in an amount sufficient to pay this Note in full, Borrower first principal payment is due January 30. 2004. and all subsequent principal payments are due on the some day of each month after that. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment dote, beginning January 30, 2004, with all subsequent Interest payments to be due on the same day of each month after that. Borrower's final payment due December 30. 2008, will be for all principal and alt accrued interest not yet paid Payments and any other credits shall be allocated among principal, interest and fees at the discretion of Lender unless otherwise required by applicable law The annual interest rate for this Note Is computed on a 365/360 basis: that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown on loan account statements sent to the Borrower, Lender's address shown in any payment coupon book provided to the Borrower, or at such other place as Lender may designate in writing VARIABLE INTEREST RATE The interest rate on this Note is subject to change from time to time based on changes in an index which is the LIBOR Rate (the "Index'). "LIBOR Rate" shall mean the offered rate for U S Dollar deposits of not less than $1,000,000 00 for a period of time equal to each Interest Period as of 11 00 A M City of London, England time two London Business Days prior to the first date of each interest Period of this Note as shown on the display designated as "British Bankers Assoc Interest Settlement Rates" on the Telerate System ('Telerate"). Page 3750 or Page 3740. or such other page or pages as may replace such pages on Telerate for the purpose of displaying such rate. Provided, however, that if such rate is not available on Telerate then such offered rate shall be otherwise independently determined by Lender from an alternate, substantially similar independent source available to Lender or shall be calculated by Lender by a substantially similar methodology as that theretofore used to determine such offered rate in Tolerate "London Business Day" means any day other than a Saturday, Sunday or a day on which banking institutions are generally authorized or obligated by low or executive order to close in the City of London, England Each change in the rate to be charged on this Note will become effective without notice on the commencement of each interest Period based upon the Index then in effect. "Interest Period" means each consecutive one month period (the first of which shall commence on the date of this Note) effective as of the first day of each Interest Period and ending on the last day of each interest Period, provided that if any Interest Period is scheduled to end on a date for which there is no numerical equivalent to the date on which the Interest Period commenced, then it shall end instead on the last day of such calendar month. Borrower may prepay all or any portion of the principal amount of this Note bearing interest at a LIBOR Rate, provided that if Borrower makes any such prepayment other than on the lest day of an Interest Period, Borrower shall pay all accrued interest on the principal amount prepaid with such prepayment and, on demand, shall reimburse Lender and hold Lender harmless from all losses and expenses incurred by Lender as a result of such prepayment, including, without limitation, any losses and expenses arising from the liquidation or reemployment of deposits acquired to fund or maintain the principal amount prepaid. Such reimbursement shall be calculated as though Lender funded the principal amount prepaid through the purchase of U.S. Dollar deposits in the London, England interbank market having a maturity corresponding to such Interest Period and bearing an interest rate equal to the LIBOR Rate for such Interest Period, whether in fact that is the case or not Lender's determination of the amount of such reimbursement shall be conclusive in the absence of manifest error The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 2.500 percentage points over the Index NOTICE Under no circumstances will the interest rate on this Note be more then the maximum rate allowed by applicable law PREPAYMENT, Borrower may pay without tee all or a portion of the principal amount owed hereunder earlier than it is due. All prepayments shall be applied to the Indebtedness in such order and manner as Lender may from time to time determine in its sole discretion. Borrower agrees not to send Lender payments marked "paid in full", `without recourse", or similar language If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note. and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, Including any check or other payment instrument that indicates that the payment constitutes 'payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to Bank One Business Banking Loan Servicing Disputed Accounts Department, P 0 Box 901094 Fort Worth, TX 76101-2094. LATE CHARGE If a payment is 10 days or more late, Borrower will be charged 5 000% of the regularly scheduled payment or $25 00, whichever is greater INTEREST AFTER DEFAULT, Upon the occurrence of any Event of Default, including failure to pay upon final maturity, at Lender's option, and if permitted by applicable law. Lender may add any unpaid accrued Interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate) Upon the occurrence of any Event of Default, Lender, at its option, may, if permitted under applicable law, increase the variable interest rate on this Note to 5 500 percentage points over the index The interest rate will not exceed the maximum rate permitted by applicable law DEFAULT. Each of the following shall constitute an event of default ("Event of Default') under this Note Payment Default. Borrower fails to make any payment when due under this Note. Other Defaults. Borrower falls to comply with or to pay or perform any other term, obligation, covenant or condition contained in this Note or in any of the Related Documents or to comply with or to pay or perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower or between Borrower and any affiliate of BANK ONE CORPORATION Transfer of Assets Borrower leases, sells, or otherwise conveys, or agrees to lease, sell, or otherwise convey, a material part of its assets or business outside of the ordinary course of business Defaults with Respect to Third Parties. Borrower fails to make any payment when due or fails to comply with or to perform any term, obligation, covenant or condition contained in any agreement between any other person and Borrower False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the Related Documents Is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter Judgments or Decrees. One or more judgments or decrees shall be entered against the Borrower and such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower Creditor or Forfeiture Proceedings. Commencement of foreclosure, replevin, repossession, attachment, levy, execution, or forfeiture proceedings, whether by judicial proceeding, self-help, or any other method, by any creditor of Borrower, or by any governmental agency against the Collateral or any other assets of Borrower. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and d Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute Failure to Comply with Laws Borrower fails to comply with all applicable statutes, laws, ordinances and governmental rules, regulations and orders to which it is subject or which are applicable to its business, property and assets. Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired Events Affecting Guarantor, Any of the preceding Events of Default occurs with respect to any guarantor of the Indebtedness as if the word "guarantor" were substituted for the word "Borrower" in such Event of Default, or any guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty. Insecurity. Lender in good faith believes itself insecure LENDER'S RIGHTS. Upon the occurrence of any Event of Default. Lender may declare the entire unpaid principal balance on this Note and the Indebtedness and all accrued unpaid interest immediately due, without notice (except that in the case of any Event of Default of the type described in the DEFAULT - insolvency section herein, such acceleration shall be automatic and not at Lender's option), and then Borrower will pay that amount Borrower shall be liable for any deficiency remaining after disposition of any collateral which Lender may choose to realize upon ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals If not prohibited by applicable law. Borrower also will pay any court costs, in addition to all other sums provided by law. GOVERNING LAW. This Note will be governed by, construed and enforced in accordance with federal law end the laws of the State of Ohio. This Note has been accepted by Lender in the State of Ohio CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Allen County, State of Ohio CONFESSION OF JUDGMENT. Borrower hereby irrevocably authorizes and empowers any attorney-at-law, including an attorney hired by Lender, to appear in any court of record and to confess judgment against Borrower for the unpaid amount of this Note as evidenced by an affidavit signed by an officer of Lender setting forth the amount then due, attorneys' fees plus costs of suit, and to release all errors, and waive all rights of appeal. If a copy of this Note, verified by an affidavit, shall have been filed in the proceeding, it will not be necessary to file the original as a warrant of attorney. Borrower waives the right to any stay of execution and the benefit of all exemption laws now or hereafter in effect. No single exercise of the foregoing warrant and power to confess judgment will be deemed to exhaust the power, whether or not any such exercise shall be held by any court to be invalid, voidable, or void, but the power will continue undiminished and may be exercised from time to time as Lender may elect until all amounts owing on this Note have been paid in full Borrower waives any conflict of interest that an attorney hired by Lender may have in acting on behalf of Borrower in confessing judgment against Borrower while such attorney is retained by Lender Borrower expressly consents to such attorney acting for Borrower in confessing judgment DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $26.00 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored. RIGHT OF SETOFF Borrower grants to Lender a security interest in, as well as a right of setoff against, and hereby assigns, conveys, delivers, pledges and transfers to Lender, as security for repayment of the Indebtedness, all Borrower's right, title and interest in and to all Borrower's accounts (whether checking, savings, or some other account) with Lender or any subsidiary or affiliate of BANK ONE CORPORATION (each hereinafter referred to as a 'Lender Affiliate') and all other obligations at any time owing by Lender or any Lender Affiliate to Borrower. This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future However, this does not include any IRA or Keogh accounts, or any trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, without prior notice to Borrower and irrespective of (i) whether or not Lender has made any demand under this Note or the Related Documents or (i) whether such Indebtedness is contingent, matured or unmetured, to the extent permitted by law, to collect, charge and/or setoff all sums owing on the Indebtedness against any and all such accounts and other obligations, and, at Lender's option, to administratively freeze or direct a Lender Affiliate to administratively freeze all such accounts and other obligations to allow Lender to protect Lender's security interest, collection, charge and setoff rights provided in this paragraph COLLATERAL. Borrower acknowledges this Note is secured by security interest in and hen upon all collateral described in any Related Document LATE CHARGES. In the 'Late Charge" provision set forth above, the following language is hereby added after the word "greater" "up to the maximum amount of Two Hundred Fifty Dollars (8260.00) per late charge" FINANCIAL STATEMENTS. Borrower shall furnish Lender with such financial statements and other related information at such frequencies and in such detail as Lender may reasonably request ENFORCEABILITY AND ORGANIZATION. Borrower is duly authorized to transact business in all states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Borrower's execution, delivery and performance of this Note and all the Related Documents have been duty authorized by all necessary action by Borrower This Note and all the Related Documents constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms If applicable, Borrower is an entity which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the state of its organization. INFORMATION WAIVER. Lender may provide, without any limitation whatsoever, to any one or more purchasers, potential purchasers, or affiliates of BANK ONE CORPORATION, any information or knowledge Lender may have about the undersigned or about any matter relating to this document and the Related Documents, and the undersigned hereby waives any right to privacy the undersigned may have with respect to such matters INDEBTEDNESS. The word "Indebtedness" means all principal, interest, and other amounts, costs and expenses payable under the Note or Related Documents, together with all renewals of, extensions of, modifications of, consolidations of and substitutions for the Note or Related Documents, together with interest on such amounts as provided In this Note, and all obligations, debts and liabilities, plus interest thereon, of Borrower or any one or more of them to Lender, as well as all claims by Lender against Borrower or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of this Note, whether voluntary or otherwise, whether due or not due, direct or indirect, absolute or contingent, liquidated or unliquidated and whether Borrower may be liable Individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise and whether recovery upon such amounts may be or hereafter become barred by any statute of limitations, end whether the obligation to repay such amounts may be or hereafter become otherwise unenforceable, and further includes, without limitation, all principal, interest, and other amounts, costs and expenses payable under the Related Documents, whether executed by the Borrower or by any other person or entity, together with all renewals of, extensions of, modifications of, consolidations of and substitutions for the Related Documents, together with interest thereon as provided in the Related Documents RELATED DOCUMENTS. The words "Related Documents' mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, end all other instruments. agreements and documents, whether now existing or hereafter arising, executed in connection with the Indebtedness LIABILITIES FOR OBLIGATIONS UNDER RELATED DOCUMENTS. Borrower also promises to pay to Lender all of the Indebtedness Borrower acknowledges that some of the Related Documents, pursuant to which Indebtedness may arise, may be executed only by persons or entities other than the Borrower PURPOSE. Borrower agrees that no advances under this Note shall be used for personal, family or household purposes and that all advances hereunder shall be used solely for business, commercial, agricultural or other similar purposes. ARBITRATION. Undersigned and Lender agree that all disputes, claims and controversies between them whether individual, joint, or class in nature, arising from this document or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the Rules of the American Arbitration Association in effect at the time the claim is filed, upon request of either party. No act to take or dispose of any Collateral or Property (as defined herein or in any Related Document) securing this document shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This includes, without limitation, obtaining injunctive relief or a temporary restraining order, invoking a power of sale under any deed of trust or mortgage; obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to applicable law Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any Collateral or Property securing this document, including any claim to rescind, reform, or otherwise modify any agreement relating to the Collateral or Property securing this document, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction Nothing in this document shall preclude any party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, Itches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes The Federal Arbitration Act shall apply to the construction, interpretation, and enforcement of this arbitration provision JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT, THE RELATED DOCUMENTS, OR ANY RELATIONSHIP BETWEEN OR AMONG THE UNDERSIGNED AND LENDER THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING EVIDENCED BY THIS DOCUMENT AND THE RELATED DOCUMENTS BORROWER'S ACKNOWLEDGEMENT AND AGREEMENT REGARDING AFFILIATE BANKS. Borrower may now or in the future have a borrowing relationship with Bank One, NA with its main office in Columbus. Ohio (the "Bank Affiliate") Lender and Borrower intend that the terms, covenants, conditions, warranties and obligations of Borrower in only one agreement in the nature of a loan or credit agreement ("Loan Agreement") be applicable to the borrowing relationship of Borrower and Lender and of Borrower and the Bank Affiliate. Therefore, if Borrower executes a Loan Agreement with the Bank Affiliate, the Borrower agrees that the terms, covenants, conditions, warranties and obligations of Borrower contained in that Loan Agreement between Borrower and the Bank Affiliate shall also apply to this Note GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note Borrower does not agree or intend to pay, and Lender does not agree or intend to contract for, charge, collect, take, reserve or receive (collectively referred to herein as "charge or collect"), any amount in the nature of interest or In the nature of a fee for this loan, which would in any way or event (including demand, prepayment, or acceleration) cause Lender to charge or collect more for this loan than the maximum Lender would be permitted to charge or collect by federal law or the law of the State of Ohio (as applicable) Any such excess interest or unauthorized fee shall, instead of anything stated to the contrary, be applied first to reduce the principal balance of this loan, and when the principal has been paid in full, be refunded to Borrower If any part of this Note cannot be enforced, this fact will not affect the rest of this Note it is agreed that any payment which would otherwise for any reason be deemed unlawful interest under applicable law shall be deemed to have been applied to the unpaid principal balance of this Note, or to other Indebtedness. The unpaid balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made Unless specifically permitted otherwise by the terms and conditions of this Note, no alteration of or amendment to this Note shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment Borrower agrees and consents to Lender's sale or transfer, whether now or later, of this Note, or the Related Documents or of any participation interest in this Note or Related Documents to one or more purchasers, whether related or unrelated to Lender Borrower waives any and all notices of sale of this Note, the Related Documents or of any participation interests, as well as any notices of any repurchases of this Note, the Related Documents, or of any participation interests. The obligations under this Note are joint and several. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS BORROWER AGREES TO THE TERMS OF THE NOTE BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE. NOTICE. FOR THIS NOTICE "YOU" MEANS THE BORROWER AND "CREDITOR" AND "HIS" MEANS LENDER WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. BORROWER: ENGINEERED WIRE PRODUCTS. INC Bert E. Downing. Jr., Vice President/Treasurer of Engineered Wire Products, Inc. EX-4.44 19 kciexh44403.txt PROMISSORY NOTE CBorrower: Engineered Wire Products, Inc. Lender: Bank One, N A with its main office at Columbus, Ohio 1200 N. Warpole Street Lima Business Banking LPO Upper Sandusky, OH 43351 121 W High Street. 2nd Floor Lima, OH 45801
THIS COMMERCIAL SECURITY AGREEMENT dated January 5. 2004, is made and executed between Engineered Wire Products, Inc. ("Grantor') and Bank One, N.A. with Its main office at Columbus, Ohio ("Lender*) GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security Interest in the Collateral to secure the Indebtedness and agrees that Lander shall have the rights stated in this Agreement with respect to the Collateral, In addition to all other rights which Lender may have by law. COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means the following described property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the payment of the Indebtedness and performance of all other obligations under the Note and this Agreement All Inventory, Chattel Paper, Accounts, Equipment and General Intangibles All of which "Collateral" shall have the meaning attributed to such word in the Uniform Commercial Code referenced in the section of this Agreement captioned "Definitions" (whenever such word appears in this Agreement, and whether the first letter of such word is upper case or lower case) In addition, the word "Collateral" also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located (A) All accessions, attachments, accessories, tools, parts, supplies, replacements and additions to any of the collateral described herein, whether added now or later (B) All products and produce of any of the property described in this Collateral section ICI All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, or other disposition of any of the property described in this Collateral section (D) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and suns due from a third party who has damaged or destroyed the Collateral or from that party's insurer, whether due to judgment, settlement or other process. (E) All records and date relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or date on electronic media Despite any other provision of this Agreement, Lender is not granted, and will not have, a nonpurchase money security interest in household goods, to the extent such a security interest would be prohibited by applicable low In addition, if because of the type of any Property, Lender is required to give a notice of the right to cancel under Truth in Lending for the Indebtedness, then Lender will not have a security interest in such Property unless and until such a notice is given CROSS-COLLATERALIZATION In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, absolute or contingent, liquidated or unliquidated and whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accomodation party or otherwise RIGHT OF SETOFF Grantor grants to Lender a security interest in, as well as a right of setoff against, and hereby assigns, convoys, delivers, pledges and transfers to Lender, as security for repayment of the Indebtedness, all Grantor's right, title and interest in and to all Grantor's accounts (whether checking, savings, or some other account) with Lender or any subsidiary or affiliate of BANK ONE CORPORATION leach hereinafter referred to as a "Lender Affiliate") and all other obligations at any time owing by Lender or any Lender Affiliate to Grantor This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future However, this does not include any IRA or Keogh accounts, or any trust accounts for which the grant of a security interest would be prohibited by law Grantor authorizes Lender, without prior notice to Grantor and irrespective of (i1 whether or not Lender has made any demand under this Agreement or the Related Documents or (n) whether such Indebtedness is contingent, matured or unmetured, to the extent permitted by law, to collect, charge and/or setoff all sums owing on the Indebtedness against any and all such accounts and other obligations, and, at Lender's option, to administratively freeze or direct a Lender Affiliate to administratively freeze all such accounts and other obligations to allow Lender to protect Lender's security interest, collection, charge and setoff rights provided in this paragraph. GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor covenants, agrees, represents and warrants to Lender that Perfection of Security Interest. Grantor agrees to execute financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender's security interest in the Collateral Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender This Is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness Is paid in full and even though for a period of time Grantor may not be indebted to Lender. Notices to Lender, Grantor will promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantor's name, 121 change in Grantor's assumed business name(s), (3) change in the management of the Corporation Grantor, (4) change in the authorized signer(s); (5) change in Grantor's principal office address, 16) change in Grantor's stale of organization, (7) conversion of Grantor to a new or different type of business entity, or (8) change in any other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender No change in Grantor's name or state of organization will take effect until after Lender has received notice No Violation, The execution and delivery of this Agreement will not violate any low or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws or code of regulations do not prohibit any term or condition of this Agreement, Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral At the time any account becomes subject to a security interest in favor of Lander, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or previously shipped or delivered pursuant to a contract of sale, or for services previously performed by Grantor with or for the account debtor. So long as this Agreement remains in effect, Grantor shall not, without Lender's prior written consent, compromise, settle, adjust. or extend payment under or with regard to any such account There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing Location of the Collateral. Except in the ordinary course of Grantor's business, Grantor agrees to keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts or general intangibles, the records concerning the Collateral) at Grantor's address shown above or at such other locations as are acceptable to Lender, Upon Lender's request, Grantor will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor's operations, including without limitation the following. (1) all real property Grantor owns or is purchasing, (21 all real property Grantor is renting or leasing, 131 all storage facilities Grantor owns, rents, leases, or uses, and (41 all other properties where Collateral is or may be located. If the Collateral is equipment, such equipment shall be located at the addresses shown and shall not be attached to or incorporated into any real property in such a manner that it becomes a fixture thereon. Removal of the Collateral. Except in the ordinary course of Grantor's business, including the sales of inventory, Grantor shall not remove the Collateral from its existing location without Lender's prior written consent To the extent the Collateral consists of accounts or general intangibles, the Grantor shall not relocate the records concerning such Collateral from Grantor's address shown above without written notification to and approval of the Lender To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of Ohio, without Lender's prior written consent. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral Transactions Involving Collateral, Except for inventory sold or accounts collected in the ordinary course of Grantor's business, or as otherwise provided for in this Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business A sale in the ordinary course of Grantor's business does not include a transfer in partial or total satisfaction of a debt or any bulk sale Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender This includes security interests even if junior in right to the security interests granted under this Agreement Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be hold in trust for Lender and shall not be commingled with any other funds, provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender. Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all lions and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons. Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition at all times while this Agreement remains in effect Grantor further agrees to pay when due all claims for work done on, or services rendered or materiel furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be filed against the Collateral Inspection of Collateral- Lender and Lender's designated representatives and agents shell have the right at all reasonable times to examine, audit and inspect the Collateral wherever located. To the extent any of the following types of property are Included in the Collateral, then as often as Lender shall require, in detail satisfactory to Lender. Grantor shall deliver to Lender schedules of accounts and general intangibles, Including, without limitation, names and addresses of account debtors and aging reports, and lists and descriptions of the nature and location of inventory and equipment Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's Interest in the Collateral is not jeopardized in Lender's sole opinion. It the Collateral is subjected to a lien which is not discharged within fifteen 1151 days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings Grantor further agrees to furnish Lender with evidence that such taxes, assessments, end governmental and other charges have been paid in full and in a timely manner Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral, including all laws or regulations relating to the undue erosion of highly-erodible land or relating to the conversion of wetlands for the production of en agricultural product or commodity Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized. Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental Laws, that the business operations of Grantor are not now, and have never been, the subject of any governmental authority's investigation regarding non-compliance with Environmental Laws, that Grantor is not aware of any material contingent liability related to the violation of any Environmental Law, end that the Collateral shall not be used for the improper or unlawful manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for Hazardous Substances Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any Environmental Laws, and t2) agrees to indemnity and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement This obligation to indemnify shall survive the payment of the Indebtedness and the satisfaction of this Agreement. Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty 130) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses "single interest insurance," which will cover only Lender's interest in the Collateral Application of Insurance Proceeds. Grantor shell promptly notify Lender of any loss or damage to the Collateral Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shell pay the balance to Grantor Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor The responsibility for the payment of premiums shall remain Grantor's sole responsibility, Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following' (1) the name of the insurer, (2) the risks insured; (3) the amount of the policy. (4) the property insured, (5) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS Until the occurrence of any Event of Default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts At any time and even though no Event of Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest In the Collateral or if Grantor fads to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, lions, security Interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral All such expenditures incurred or paid by Lender for such purposes will then bear Interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become e part of the Indebtedness and, at Lender's option, will (A) be payable on demand, (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy, 12) the remaining term of the Note, or 13) be treated as a balloon payment which will be due and payable at the Note's maturity. The Collateral also will secure payment of these amounts Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default DEFAULT Each of the following shall constitute en Event of Default under this Agreement: Payment Default. Grantor fails to make any payment when due under the Indebtedness Other Defaults. Grantor fails to comply with or to pay or perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to pay or perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor or between Grantor and any affiliate of BANK ONE CORPORATION False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Agreement, the Note, or the Related Documents Is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter Detective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (Including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason Insolvency. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor. Creditor or Forfeiture Proceedings. Commencement of foreclosure, replevin. repossession, attachment, levy, execution, or forfeiture proceedings, whether by judicial proceeding, self-help, or any other method, by any creditor of Grantor, or by any governmental agency against the Collateral or any other assets of Grantor. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender, However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and it Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute Adverse Change. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired Events Affecting Guarantor Any of the preceding Events of Default occurs with respect to any guarantor of the Indebtedness as If the word "guarantor" were substituted for the word 'Grantor" in such Event of Default, or any guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the Indebtedness Insecurity. Lender in good faith believes itself insecure RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter. Lender shall have all the rights of a secured party under the Ohio Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately due and payable, without notice of any kind to Grantor (except that In the case of any Event of Default of the type described in the DEFAULT - Insolvency section herein, such acceleration shall be automatic and not at Lender's option) Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral, and prior to completion of the removal, disable or otherwise secure the Collateral to prevent its use by Grantor or any third parties, with or without process of law, and with or without notice or demand If the Collateral contains other goods not covered by this Agreement at the time of repossession. Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender's own name or that of Grantor. Lender may sell the Collateral at public auction or private sale Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor reasonable notice of the time after which any private sale or any other intended disposition of the Collateral is to be made Lender may buy the Collateral, or any portion thereof, at public sale or, if the Collateral is of the type which is sold in a recognized market or subject to widely distributed price quotations, at private sale Lender shall not be obligated to make any sale of the Collateral regardless of notice of sale having been given Lender may adjourn any public or private sale by announcement at the time and place fixed therefor, and such sale may be made, without further notice, at such time and place announced at such adjournment The requirements of reasonable notice shall be met if such notice is given at least ten 110) days before the time of the sale or disposition All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid. Appoint Receiver To the extent permitted by applicable law Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the Rents from the Collateral and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond if permitted by law. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the Indebtedness by a substantial amount Employment by Lender shall not disqualify a person from serving as a receiver. Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral Lender may at any time in Lender's discretion transfer any Collateral Into Lender's own name or that of Lender's nominee and receive the payments, rents, Income, and revenues therefrom and hold the same as security for the Indebtedness or apply h to payment of the Indebtedness in such order of preference as Lender may determine Upon notice from the Lender or upon any Event of Default, the Grantor agrees that all sums of money it receives on payment, settlement or otherwise related to any Collateral, including, without limitation, on any accounts, shall be held by Grantor as trustee for Lender without commingling with any of Grantor's funds and shall be immediately delivered to the Bank. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, chores in action, or similar property, Lender may demand. collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender Grantor acknowledges that the Lender shall not be obligated in any manner to make any demand, make any inquiry as to the nature and sufficiency of any payment received by Lender, present or file any claim, or take any other action to collect or enforce the payment of any amounts which may have been due relate to the Collateral, including without limitation, any amounts due on accounts. Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Ohio Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise Election of Remedies. Except as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently Election by Lender to pursue any remedy will not bar any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default end exercise its remedies. JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT, THE RELATED DOCUMENTS, OR ANY RELATIONSHIP BETWEEN OR AMONG THE UNDERSIGNED AND LENDER THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING EVIDENCED BY THIS DOCUMENT AND THE RELATED DOCUMENTS. MISCELLANEOUS PROVISIONS The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing end signed by the party or parties sought to be charged or bound by the alteration or amendment. Attorneys' Fees, Expenses. Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services Grantor also shall pay all court costs and such additional fees as may be directed by the court. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement Governing Law. This Agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State of Ohio This Agreement has been accepted by Lender in the State of Ohio. Choice of Venue If there is a lawsuit, Grantor agrees upon Lender's request to submit to the jurisdiction of the courts of Allen County, State of Ohio No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right A waiver by Lender of a provision of this Agreement shell not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States marl, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address Unless otherwise provided or required by low, if there is more then one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors Power of Attorney Grantor hereby irrevocably appoints Lender as its true and lawful attorney-in-fact, such power of attorney being coupled with en interest, with full power of substitution to do the following in the place and steed of Grantor and in the name of Grantor' (a) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become due. owing or payable from the Collateral, (b) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral, (c) to settle or compromise any and all claims arising under the Collateral, and, in the place and stead of Grantor, to execute and deliver its release and settlement for the claim: (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in is own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable; (e) to execute any documents or instruments necessary to perfect or continue Lender's security interest in the Collateral, and (f) to file such financing statements (including filing carbon, photographic or other reproduction of any financing statement or this Agreement for use as a financing statement) or other documents or instruments to perfect or continue Lender's security interest in the Collateral This power is given as security for the Indebtedness, and the authority hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender Indemnity Grantor hereby agrees to indemnity, defend and hold harmless Lender, and its officers, directors, shareholders. employees, agents and representatives (each an "Indemnified Person") from and against any and all liabilities, obligations, claims, losses, damages, penalties, actions, judgments. suites costs, expenses or disbursements of any kind or nature (collectively, the 'Claims") which may be imposed on, incurred by or asserted against, any Indemnified Person (whether or not caused by any Indemnified Person's sole, concurrent or contributory negligence) arising in connection with this Agreement or the Collateral (including, without limitation, the enforcement of this Agreement and the Related Documents and the defense of any Indemnified Person's action and/or inactions in connection with this Agreement and the Related Documents), except to the limited extent that the Claims against the Indemnified Person are proximately caused by such Indemnified Person's gross negligence or willful misconduct The indemnification provided for in this Section shall survive the termination of this Agreement and shall extend and continue to benefit each individual or entity who is or has at any time been an indemnified Person hereunder Information Waiver Lender may provide, without any limitation whatsoever, to any one or more purchasers, potential purchasers, or affiliates of BANK ONE CORPORATION, any information or knowledge Lender may have about Grantor or about any matter relating to this Agreement, and Grantor hereby waives any right to privacy Grantor may have with respect to such matters Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid. or unenforceable as to any other circumstance If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable If the offending provision cannot be so modified, it shall be considered deleted from this Agreement Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other then Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's Indebtedness shall be paid in full Time Is of the Essence Time is of the essence in the performance of this Agreement. DEFINITIONS, The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Ohio Uniform Commercial Code Agreement. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time tv time, together with all exhibits end schedules attached to INS Commercial Security Agreement from time to time, Borrower. The word "Borrower" means Engineered Wire Products, Inc., and all other persons and entities signing the Note in whatever capacity Collateral. The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement Default. The word "Default" means the Default set forth in this Agreement in the section titled 'Default" Environmental Laws The words "Environmental Laws" mean any and all federal, state, local and foreign statutes, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or liv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the cleanup or other remediation thereof Event of Default The words "Event of Default" mean any of the Events of Default set forth in this Agreement in the Default section of this Agreement. Grantor The word "Grantor' means Engineered Wire Products, Inc Hazardous Substances. The words "Hazardous Substances" mean all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. Indebtedness. The word "Indebtedness' means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents, In addition, and without imitation, the term "Indebtedness" Includes all amounts Identified In the Cross Collateralization and Future Advances paragraphs as contained in one or more of the Related Documents Lender The word "Lender" means Bank One, N.A. with its main office at Columbus, Ohio, its successors and assigns Note. The word "Note" means the Note executed by Grantor In the principal amount of 86,750.000,00 dated January 5, 2004, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness. GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JANUARY 5, 2004. GRANTOR ENGINEERED WIRE PRODUCTS, INC. By: s/s Bert E Downing, Jr., Vice Prow Engineered Wire Products, Inc. EX-4.45 20 kciexh44503.txt BANK1ONE Amendment to Loan Agreement This agreement is made and entered into on May 17, 2004 , by and between Engineered Wire Products, Inc. (if more than one, jointly and severally, "Borrower') and Bank One, Na with its main office in Columbus, OH ("Lender"), and its successors and assigns. WHEREAS, Borrower and Lender entered into a Business Loan Agreement (Asset Based) dated January 5, 2004, as amended (if applicable) (the "Loan Agreement"); and WHEREAS, Borrower has requested and Lender has agreed to amend the Loan Agreement as set forth below; NOW, THEREFORE, in mutual consideration of the agreements contained herein and for other good and valuable consideration, the parties agree as follows: 1. DEFINED TERMS. Capitalized terms not defined herein shall have the meaning ascribed in the Loan Agreement. 2. MODIFICATION OF LOAN AGREEMENT. Effective as of the date of this agreement the Loan Agreement is hereby amended as follows: 2.1 The provision in the Loan Agreement captioned "Financial Statements: Consolidated Financial Reports" in the section captioned "AFFIRMATIVE COVENANTS" is hereby amended as follows: The language now reading: Consolidated Financial Reports, Borrower shall cause Keystone Consolidated Industries Inc to provide each of the foregoing financial reports to be prepared on a consolidated basis for Keystone Consolidated Industries Inc. is replaced with the following: Consolidated Financial Reports. Borrower shall cause Keystone Consolidated Industries, Inc. to provide the Bank with consolidating financial statement, *which will include financial statements of the Borrower as part of Keystone Consolidated Industries, Inc. audited financial statements. * Such consolidated Financial Statements will be unaudited and include balance sheet and statement of operations 3. RATIFICATION. Borrower ratifies and reaffirms the Loan Agreement and the Loan Agreement shall remain in full force and effect as modified herein. 4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants that (a) the representations and warranties contained in the Loan Agreement are true and correct in all material respects as of the date of this agreement, (b) no condition, act or event which could constitute an event of default under the Loan Agreement or any promissory note or credit facility executed in reference to the Loan Agreement exists, and (c) no condition, event, act or omission has occurred, which, with the giving of notice or passage of time, would constitute an event of default under the Loan Agreement or any promissory note or credit facility executed in reference to the Loan Agreement. 5. FEES AND EXPENSES. The Borrower agrees to pay all fees and out-of-pocket disbursements incurred by the Lender in connection with this agreement, including legal fees incurred by the Lender in the preparation, consummation, administration and enforcement of this agreement. 6. EXECUTION AND DELIVERY. This agreement shall become effective only after it is fully executed by the Borrower and the Lender. 7. ACKNOWLEDGEMENTS OF BORROWER. Borrower acknowledges that as of the date of this agreement it has no offsets with respect to all amounts owed by Borrower to Lender arising under or related to the Loan Agreement on or prior to the date of this agreement. Borrower fully, finally and forever releases and discharges the Lender and its successors, assigns, directors, officers, employees, agents and representatives from any and all claims, causes of action, debts and liabilities, of whatever kind or nature, in law or in equity, of Borrower, whether now known or unknown to Borrower, which may have arisen in connection with the Loan Agreement or the actions or omissions of Lender related to the Loan Agreement on or prior to the date hereof. The Borrower acknowledges and agrees that this agreement is limited to the terms outlined above, and shall not be construed as an agreement to change any other terms or provisions of the Loan Agreement. This agree course of dealing or be construed as evidence of any willingness on the Lender's part to grant other or future agreements, should any be requested. 8. NOT A NOVATION. This agreement is a modification only and not a novation. Except for the above-quoted modification(s), the Loan Agreement, any promissory notes or credit facilities, including those referenced in the Loan Agreement, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, instruments, documents or Related Documents, as that term is defined in the Loan Agreement, executed in connection with the Loan Agreement, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This agreement is to be considered attached to the Loan Agreement and made a part thereof This agreement shall not release or affect the liability of any guarantor of any promissory note or credit facility executed in reference to the Loan Agreement or release any owner of collateral granted as security for the Loan Agreement. The validity, priority and enforceability of the Loan Agreement shall not be impaired hereby. To the extent that any provision of this agreement conflicts with any term or condition set forth in the Loan Agreement, or any document executed in conjunction therewith, the provisions of this agreement shall supersede and control. Lender expressly reserves all rights against all parties to the Loan Agreement. Executed by the parties as of May 17, 2004. LENDER; BORROWER: Bank One, NA with its main office in Columbus, OH Engineered Wire Products, Inc. /s/ Timothy P. Turnwald /s/ Bert E. Downing, Jr. By: Timothy P. Turnwald By: Bert E. Downing, Jr. Date: 5-17-04 Date: 6-18-04 EX-4.46 21 kciexh44603.txt BUSINESS LOAN EXTENSION AGREEMENT You have requested an extension of the maturity date of your Loan from JPMorgan Chase Bank, NA, or its predecessor in interest. Pursuant to that request, provided you are not otherwise in default under the terms of the Loan, the maturity date of the Loan is extended three months from the current maturity date. All other terms and conditions of your Loan will remain the same, including but not limited to payments. All rights described in the documentation for the Loan are and remain binding in all respects. This extension agreement shall not release or affect the liability of any guarantor, surety or endorser of the Loan, or release any security interest granted by any owner of any collateral securing the Loan. This agreement is a modification only, and not a novation. Each Borrower continues to authorize any attorney at law to appear in an action on the Loan, as modified, at any time after the same becomes due, whether by acceleration or otherwise, in any court of record in or of the State where the Loan was executed, or of elsewhere, and to waive the issuing and service of process against any or all Borrower, enter an appearance and to confess judgment in favor of JPMorgan Chase Bank, NA, against any or all Borrowers for the amount that may be due under the Loan, as modified, together with costs of suit, and to release all errors and waive all rights of appeal and stay of execution from the judgment rendered. After the judgment is entered against any one or more Borrowers, the powers herein conferred may be exercised as to any one or more of the other Borrowers. The death of any Borrower shall not impair the authority herein granted as to the survivor or survivors of such Borrower. Failure to comply with any of the requirements as stated in this extension agreement will nullify this request. JPMorgan Chase Bank, NA, shall not be bound by this Agreement until JPMorgan Chase Bank, NA, has executed the Acknowledgement and Agreement below. Customer/Loan Number: 2626031526/F67 L 75 C 117 Borrower Name: Engineered Wire Products Inc. Address: 1200 N Warpole City, State, Zip Upper Sandusky OH 43351 WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRAIL. IF YOU DO NOT PAY ON TIME A COURT JUDGEMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. Company Signature: Bert E. Downing, Jr. Title: VP Date: 6/18/04 (authorized signature) Company Signature: Title: Date: (authorized signature) Company Signature: Title: Date: (authorized signature) Company Signature: Title: Date: (authorized signature) ACKNOWLEDGEMENT AND AGREEMENT: The foregoing Business Loan Extension Agreement Is hereby acknowledged and agreed to this 18th day of June, 2004. JPMorgan Chase Bank, NA By: Timothy P. Turnwald Title: V.P. EX-4.47 22 kciexh44703.txt BUSINESS LOAN EXTENSION AGREEMENT You have requested an extension of the maturity data of your Loan from Bank One, NA with its main office in Columbus, Ohio which is further identified below. Pursuant to that request, provided you are not otherwise in default under the terms of the loan, the maturity date of the Loan is extended three months from the currant maturity date. All other terms and conditions of your Loan will remain the same, including but not limited to payments. All rights described in the documentation for the Loan are and remain binding in all respects. This extension agreement shall net release or affect the liability of any guarantor, surety or endorser or the Loan, or release any security interest granted by any owner of any collateral gar-wring the Loan. This agreement is a modification only, and not a novation. Each Borrower continues to authorize any attorney at law to appear in an action an the Loan, as Modified, et any time after the same becomes due, whether by acceleration or otherwise, in any court of record In or of the State where the Loan was executed, or of elsewhere, and to waive the issuing and service of process against any or all Borrower, enter an appearance and to confess judgment in favor of Bank One, NA with its main off Ice In Columbus, Ohio, against any or all Borrowers for the amount that may be due under the Loan, as modified, together with costs or suit, and to release all errors and waive all rights of appeal and stay of execution from the judgment rendered. After the judgment is entered against any one or more Borrowers, the powers herein conferred may be exercised as to any one or more of the airier Borrowers, The death of any Borrower shall not Impair the authority herein granted as to the survivor or survivors of such Borrower. Failure to comply with any of the requirements as stated in this extension agreement will nullify this request. Bank One, NA with its main office in Columbus, Ohio shall not be bound by this Agreement until Bank One, NA with its main office In Columbus, Ohio has executed the Acknowledgement and Agreement below. Customer/Loan Number: 2626031526/F67 L 75 C 117 Borrower Name: Engineered Wire Products Inc. Address: 1200 N Warpole City, State, Zip Upper Sandusky OH 43351 WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRAIL. IF YOU DO NOT PAY ON TIME A COURT JUDGEMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. Company Signature: Bert E. Downing, Jr. Title: VP Date: 9/30/04 (authorized signature) Company Signature: Title: Date: (authorized signature) Company Signature: Title: Date: (authorized signature) Company Signature: Title: Date: (authorized signature) ACKNOWLEDGEMENT AND AGREEMENT: The foregoing Business Loan Extension Agreement is hereby acknowledged and agreed to this 30th day of September, 2004. JPMorgan Chase Bank, NA By: Timothy P. Turnwald Title: V.P. EX-4.48 23 kciexh44803.txt BUSINESS LOAN EXTENSION AGREEMENT You have requested an extension of the maturity date of your Loan from JPMorgan Chase Bank, NA, or its predecessor in interest, Pursuant to that request, provided you are not otherwise in default under the terms of the Loan, the maturity date of the Loan is extended three months from the current maturity date. All other terms and conditions of your Loan will remain the same, including but not limited to payments. All rights described in the documentation for the Loan are and remain binding in all respects. This extension agreement shall not release or affect the liability of any guarantor, surety or endorser of the Loan, or release any security interest granted by any owner of any collateral securing the Loan. This agreement is a modification only, and not a novation. Each Borrower continues to authorize any attorney at law to appear in an action on the Loan, as modified, at any time after the same becomes due, whether by acceleration or otherwise, in any court of record in or of the State where the Loan was executed, or of elsewhere, and to waive the issuing and service of process against any or all Borrower, enter an appearance and to confess judgment in favor of JPMorgan Chase Bank, NA, against any or all Borrowers for the amount that may be due under the Loan, as modified, together with costs of suit, and to release all errors and waive ail rights of appeal and stay of execution from the judgment rendered, After the judgment is entered against any one or more Borrowers, the powers herein conferred may be exercised as to any one or more of the other Borrowers. The death of any Borrower shall not impair the authority herein granted as to the survivor or survivors of such Borrower. Failure to comply with any of the requirements as stated in this extension agreement will nullify this request, JPMorgan Chase Bank, NA, shall not be bound by this Agreement until JPMorgan Chase Bank, NA, has executed the Acknowledgement and Agreement below. Customer/Loan Number: 2626031526/F67 L 75 C 117 Borrower Name: Engineered Wire Products Inc. Address: 1200 N Warpole City, State, Zip Upper Sandusky OH 43351 WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRAIL. IF YOU DO NOT PAY ON TIME A COURT JUDGEMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. Company Signature: Bert E. Downing, Jr. Title: VP Date: 12/16/04 (authorized signature) Company Signature: Title: Date: (authorized signature) Company Signature: Title: Date: (authorized signature) Company Signature: Title: Date: (authorized signature) ACKNOWLEDGEMENT AND AGREEMENT: The foregoing Business Loan Extension Agreement Is hereby acknowledged and agreed to this 22nd day of December, 2004. JPMorgan Chase Bank, NA By: Timothy P. Turnwald Title: V.P. EX-4.49 24 kciexh44903.txt BUSINESS LOAN EXTENSION AGREEMENT You have requested an extension of the maturity date of your Loan from JPMorgan Chase Bank, NA, or its predecessor in interest. Pursuant to that request, provided you are not otherwise in default under the terms of the Loan, the maturity date of the Loan is extended three months from the current maturity date. All other terms and conditions of your Loan will remain the same, including but not limited to payments. All rights described in the documentation for the Loan are and remain binding in all respects. This extension agreement shall not release or affect the liability of any guarantor, surety or endorser of the Loan, or release any security interest granted by any owner of any collateral securing the Loan. This agreement is a modification only, and not a novation. Each Borrower continues to authorize any attorney at law to appear in an action on the Loan, as modified, at any time after the same becomes due, whether by acceleration or otherwise, in any court of record in or of the State where the Loan was executed, or of elsewhere, and to waive the issuing and service of process against any or all Borrower, enter an appearance and to confess judgment in favor of JPMorgan Chase Bank, NA, against any or all Borrowers for the amount that may be due under the Loan, as modified, together with costs of suit, and to release all errors and waive all rights of appeal and stay of execution from the judgment rendered. After the judgment is entered against any one or more Borrowers, the powers herein conferred may be exercised as to any one or more of the other Borrowers. The death of any Borrower shall not impair the authority herein granted as to the survivor or survivors of such Borrower. Failure to comply with any of the requirements as stated in this extension agreement will nullify this request. JPMorgan Chase Bank, NA, shall not be bound by this Agreement until JPMorgan Chase Bank, NA, has executed the Acknowledgement and Agreement below. Customer/Loan Number: 2626031526/F67 L 75 C 117 Borrower Name: Engineered Wire Products Inc. Address: 1200 N Warpole City, State, Zip Upper Sandusky OH 43351 WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRAIL. IF YOU DO NOT PAY ON TIME A COURT JUDGEMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.
Company Signature: Bert E. Downing, Jr. Title: VP Date: 3/30/05 (authorized signature) Company Signature: Title: Date: (authorized signature) Company Signature: Title: Date: (authorized signature) Company Signature: Title: Date: (authorized signature)
ACKNOWLEDGEMENT AND AGREEMENT: The foregoing Business Loan Extension Agreement Is hereby acknowledged and agreed to this 29th date of March, 2005. JPMorgan Chase Bank, NA By: Timothy P. Turnwald Title: V.P. EX-4.50 25 kciexh45003.txt BUSINESS LOAN EXTENSION AGREEMENT You have requested an extension of the maturity date of your Loan from JPMorgan Chase Bank, NA, or its predecessor in interest. Pursuant to that request, provided you are not otherwise in default under the terms of the Loan, the maturity date of the Loan is extended three months from the current maturity date. All other terms and conditions of your Loan will remain the same, including but not limited to payments. All rights described in the documentation for the Loan are and remain binding in all respects. This extension agreement shall not release or affect the liability of any guarantor, surety or endorser of the Loan, or release any security interest granted by any owner of any collateral securing the Loan. This agreement is a modification only, and not a novation. Each Borrower continues to authorize any attorney at law to appear in an action on the Loan, as modified, at any time after the same becomes due, whether by acceleration or otherwise, in any court of record in or of the State where the Loan was executed, or of elsewhere, and to waive the issuing and service of process against any or all Borrower, enter an appearance and to confess judgment in favor of JPMorgan Chase Bank, NA, against any or all Borrowers for the amount that may be due under the Loan, as modified, together with costs of suit, and to release all errors and waive all rights of appeal and stay of execution from the judgment rendered. After the judgment is entered against any one or more Borrowers, the powers herein conferred may be exercised as to any one or more of the other Borrowers. The death of any Borrower shall not impair the authority herein granted as to the survivor or survivors of such Borrower. Failure to comply with any of the requirements as stated in this extension agreement will nullify this request. JPMorgan Chase Bank, NA, shall not be bound by this Agreement until JPMorgan Chase Bank, NA, has executed the Acknowledgement and Agreement below. Customer/Loan Number: 2626031526/F67 L 75 C 117 Borrower Name: Engineered Wire Products Inc. Address: 1200 N Warpole City, State, Zip Upper Sandusky OH 43351 WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRAIL. IF YOU DO NOT PAY ON TIME A COURT JUDGEMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.
Company Signature: Bert E. Downing, Jr. Title: VP Date: 6/27/05 (authorized signature) Company Signature: Title: Date: (authorized signature) Company Signature: Title: Date: (authorized signature) Company Signature: Title: Date: (authorized signature)
ACKNOWLEDGEMENT AND AGREEMENT: The foregoing Business Loan Extension Agreement Is hereby acknowledged and agreed to this 27th date of June, 2005. JPMorgan Chase Bank, NA By: Timothy P. Turnwald Title: V.P. EX-4.51 26 kciexh45103.txt LOAN AND SECURITY AGREEMENT by and among KEYSTONE CONSOLIDATED INDUSTRIES, INC., KEYSTONE WIRE PRODUCTS INC., ENGINEERED WIRE PRODUCTS, INC., and F V STEEL AND WIRE COMPANY, as Borrowers, THE LENDERS FROM TIME TO TIME PARTY HERETO as Lenders, WACHOVIA CAPITAL FINANCE CORPORATION (CENTRAL) as Administrative Agent, and WACHOVIA CAPITAL MARKETS, LLC as Sole Lead Arranger, Manager and Bookrunner Dated: August 31, 2005
TABLE OF CONTENTS Page SECTION 1. DEFINITIONS.....................................................................................1 SECTION 2. CREDIT FACILITIES..............................................................................26 2.1 Loans..........................................................................................26 2.2 Letters of Credit..............................................................................27 2.3 Term Loans.....................................................................................31 2.4 Commitments....................................................................................33 SECTION 3. INTEREST AND FEES..............................................................................33 3.1 Interest.......................................................................................33 3.2 Fees...........................................................................................34 3.3 Changes in Laws and Increased Costs of Loans...................................................35 SECTION 4. CONDITIONS PRECEDENT...........................................................................37 4.1 Conditions Precedent to Initial Loans and Letters of Credit....................................37 4.2 Conditions Precedent to All Loans and Letters of Credit........................................39 SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST......................................................40 5.1 Grant of Security Interest.....................................................................40 5.2 Perfection of Security Interests...............................................................42 SECTION 6. COLLECTION AND ADMINISTRATION..................................................................46 6.1 Borrowers' Loan Accounts.......................................................................46 6.2 Statements.....................................................................................46 6.3 Collection of Accounts.........................................................................46 6.4 Payments.......................................................................................47 6.5 Taxes..........................................................................................48 6.6 Authorization to Make Loans....................................................................50 6.7 Use of Proceeds................................................................................51 6.8 Appointment of Administrative Borrower as Agent for Requesting Loans and Receipts of Loans and Statements...........................................................................51 6.9 Pro Rata Treatment.............................................................................52 6.10 Sharing of Payments, Etc.......................................................................52 6.11 Settlement Procedures..........................................................................53 6.12 Obligations Several; Independent Nature of Lenders' Rights.....................................55 SECTION 7. COLLATERAL REPORTING AND COVENANTS.............................................................55 7.1 Collateral Reporting...........................................................................55 7.2 Accounts Covenants.............................................................................56 7.3 Inventory Covenants............................................................................57 7.4 Equipment and Real Property Covenants..........................................................58 7.5 Power of Attorney..............................................................................58 7.6 Right to Cure..................................................................................59 7.7 Access to Premises.............................................................................59 SECTION 8. REPRESENTATIONS AND WARRANTIES.................................................................60 8.1 Corporate Existence, Power and Authority.......................................................60 8.2 Name; State of Organization; Chief Executive Office; Collateral Locations......................60 8.3 Financial Statements; No Material Adverse Change...............................................61 8.4 Priority of Liens; Title to Properties.........................................................61 8.5 Tax Returns....................................................................................61 8.6 Litigation.....................................................................................62 8.7 Compliance with Other Agreements and Applicable Laws...........................................62 8.8 Environmental Compliance.......................................................................62 8.9 Employee Benefits..............................................................................63 8.10 Bank Accounts..................................................................................64 8.11 Intellectual Property..........................................................................64 8.12 Subsidiaries; Affiliates; Capitalization; Solvency.............................................65 8.13 Labor Disputes.................................................................................65 8.14 Restrictions on Subsidiaries...................................................................66 8.15 Material Contracts.............................................................................66 8.16 Payable Practices..............................................................................66 8.17 Plan of Reorganization.........................................................................66 8.18 Senior Indebtedness............................................................................66 8.19 Accuracy and Completeness of Information.......................................................66 8.20 Survival of Warranties; Cumulative.............................................................67 SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.............................................................67 9.1 Maintenance of Existence.......................................................................67 9.2 New Collateral Locations.......................................................................67 9.3 Compliance with Laws, Regulations, Etc.........................................................68 9.4 Payment of Taxes and Claims....................................................................69 9.5 Insurance......................................................................................69 9.6 Financial Statements and Other Information.....................................................69 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc........................................71 9.8 Encumbrances...................................................................................74 9.9 Indebtedness...................................................................................76 9.10 Loans, Investments, Etc........................................................................78 9.11 Dividends and Redemptions......................................................................80 9.12 Transactions with Affiliates...................................................................81 9.13 Compliance with ERISA..........................................................................81 9.14 End of Fiscal Years; Fiscal Quarters...........................................................82 9.15 Change in Business.............................................................................82 9.16 Limitation of Restrictions Affecting Subsidiaries..............................................82 9.17 Minimum EBITDAR................................................................................82 9.18 Minimum Fixed Charge Coverage Ratio............................................................83 9.19 Minimum Excess Availability....................................................................83 9.20 License Agreements.............................................................................83 9.21 Foreign Assets Control Regulations, Etc........................................................84 9.22 After Acquired Real Property...................................................................84 9.23 Costs and Expenses.............................................................................85 9.24 Plan of Reorganization.........................................................................85 9.25 Further Assurances.............................................................................85 SECTION 10. EVENTS OF DEFAULT AND REMEDIES.................................................................86 10.1 Events of Default..............................................................................86 10.2 Remedies.......................................................................................88 SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW..................................91 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver..........................91 11.2 Waiver of Notices..............................................................................93 11.3 Amendments and Waivers.........................................................................93 11.4 Waiver of Counterclaims........................................................................95 11.5 Indemnification................................................................................95 SECTION 12. THE AGENT......................................................................................96 12.1 Appointment, Powers and Immunities.............................................................96 12.2 Reliance by Agent..............................................................................96 12.3 Events of Default..............................................................................96 12.4 Wachovia in its Individual Capacity............................................................97 12.5 Indemnification................................................................................97 12.6 Non-Reliance on Agent and Other Lenders........................................................97 12.7 Failure to Act.................................................................................98 12.8 Additional Loans...............................................................................98 12.9 Concerning the Collateral and the Related Financing Agreements.................................99 12.10 Field Audit, Examination Reports and other Information; Disclaimer by Lenders..................99 12.11 Collateral Matters.............................................................................99 12.12 Agency for Perfection.........................................................................101 12.13 Successor Agent...............................................................................101 12.14 Other Agent Designations......................................................................102 SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS..............................................................102 13.1 Term..........................................................................................102 13.2 Interpretative Provisions.....................................................................104 13.3 Notices.......................................................................................105 13.4 Partial Invalidity............................................................................106 13.5 Confidentiality...............................................................................107 13.6 Successors....................................................................................108 13.7 Assignments; Participations...................................................................108 13.8 Entire Agreement..............................................................................110 13.9 USA Patriot Act...............................................................................110 13.10 Counterparts, Etc.............................................................................110 SECTION 14. CROSS-GUARANTY................................................................................110 14.1 Cross-Guaranty................................................................................110 14.2 Waivers by Borrowers..........................................................................111 14.3 Benefit of Guaranty...........................................................................111 14.4 Waiver of Subrogation, Etc....................................................................111 14.5 Election of Remedies..........................................................................112 14.6 Limitation....................................................................................112 14.7 Contribution with Respect to Guaranty Obligations.............................................113 14.8 Liability Cumulative..........................................................................113 14.9 Subrogation...................................................................................114
INDEX TO EXHIBITS AND SCHEDULES Exhibit A Form of Assignment and Acceptance Exhibit B Information Certificate Exhibit C Form of Compliance Certificate Exhibit D Closing Checklist Schedule 1.37 Existing Lenders Schedule 1.38 Existing Letters of Credit LOAN AND SECURITY AGREEMENT This Loan and Security Agreement dated August 31, 2005 is entered into by and among Keystone Consolidated Industries, Inc., a Delaware corporation ("Keystone"), Keystone Wire Products Inc., a Delaware corporation ("KWP"), Engineered Wire Products, Inc., an Ohio corporation ("EWP"), F V Steel and Wire Company, a Wisconsin corporation ("F V Steel" and, together with Keystone, KWP and EWP, each individually a "Borrower" and collectively, "Borrowers"), the parties hereto from time to time as lenders, whether by execution of this Agreement or an Assignment and Acceptance (each individually, a "Lender" and collectively, "Lenders" as hereinafter further defined) and Wachovia Capital Finance Corporation (Central), an Illinois corporation, in its capacity as agent for Lenders (in such capacity, "Agent" as hereinafter further defined). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Borrowers have requested that Agent and Lenders enter into financing arrangements with Borrowers pursuant to which Lenders may make loans and provide other financial accommodations to Borrowers; and WHEREAS, each Lender is willing to agree (severally and not jointly) to make such loans and provide such financial accommodations to Borrowers on a pro rata basis according to its Commitment (as defined below) on the terms and conditions set forth herein and Agent is willing to act as agent for Lenders on the terms and conditions set forth herein and the other Financing Agreements; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1.........DEFINITIONS For purposes of this Agreement, the following terms shall have the respective meanings given to them below: 1.1 "Accounts" shall mean, as to each Borrower and Guarantor, all present and future rights of such Borrower and Guarantor to payment of a monetary obligation, whether or not earned by performance, which is not evidenced by chattel paper or an instrument, (a) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for services rendered or to be rendered, (c) for a secondary obligation incurred or to be incurred, or (d) arising out of the use of a credit or charge card or information contained on or for use with the card. 1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest Period for any Eurodollar Rate Loan comprising part of the same borrowing (including conversions, extensions and renewals), the rate per annum determined by dividing (a) the London Interbank Offered Rate for such Interest Period by (b) a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof, "Reserve Percentage" shall mean for any day, that percentage, (expressed as a decimal) which is in effect from time to time under Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as such regulation may be amended from time to time or any successor regulation, as the maximum reserve requirement (including, without limitation, any basic, supplemental, emergency, special, or marginal reserves) applicable with respect to Eurocurrency liabilities as that term is defined in Regulation D (or against any other category of liabilities that includes deposits by reference to which the interest rate of Eurodollar Loans is determined), whether or not any Lender has any Eurocurrency liabilities subject to such reserve requirement at that time. Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credits for proration, exceptions or offsets that may be available from time to time to a Lender. The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Percentage. 1.3 "Adjusted Tangible Net Worth" shall mean as to any Person, at any time, in accordance with GAAP (except as otherwise specifically set forth below), on a consolidated basis for such Person and its Subsidiaries (if any), the amount equal to the difference between: (a) the aggregate net book value of all assets of such Person and its Subsidiaries (excluding the value of patents, trademarks, tradenames, copyrights, licenses, goodwill, leasehold improvements, prepaid assets and other intangible assets), calculating the book value of inventory for this purpose on a first-in-first-out basis, after deducting from such book values all appropriate reserves in accordance with GAAP (including all reserves for doubtful receivables, obsolescence, depreciation and amortization) and (b) the aggregate amount of the Indebtedness and other liabilities of such Person and its Subsidiaries (including tax and other proper accruals). 1.4 "Administrative Borrower" shall mean Keystone Consolidated Industries, Inc., a Delaware corporation in its capacity as Administrative Borrower on behalf of itself and the other Borrowers pursuant to Section 6.8 hereof and it successors and assigns in such capacity. 1.5 "Affiliate" shall mean, with respect to a specified Person, any other Person which directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with such Person, and without limiting the generality of the foregoing, includes (a) any Person which beneficially owns or holds ten (10%) percent or more of any class of Voting Stock of such Person or other equity interests in such Person, (b) any Person of which such Person beneficially owns or holds ten (10%) percent or more of any class of Voting Stock or in which such Person beneficially owns or holds ten (10%) percent or more of the equity interests and (c) any director or executive officer of such Person. For the purposes of this definition, the term "control" (including with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by agreement or otherwise. 1.6 "Agent" shall mean Wachovia Capital Finance Corporation (Central), in its capacity as agent on behalf of Lenders pursuant to the terms hereof and any replacement or successor agent hereunder. 1.7 "Agent Payment Account" shall mean account no. 5000000030266 of Agent at Wachovia Bank, National Association, or such other account of Agent as Agent may from time to time designate to Administrative Borrower as the Agent Payment Account for purposes of this Agreement and the other Financing Agreements. 1.8 "Aggregate Suppressed Availability" shall mean, as to Borrowers, the aggregate amount calculated at any date equal to: (a) the sum of each Borrowing Base of the Borrowers (after giving effect to any Reserves other than any Reserves in respect of Letter of Credit Obligations), minus (b) the sum of: (i) the outstanding principal amount of the Revolving Loans, plus (ii) the amount of all Reserves then established in respect of Letter of Credit Obligations, plus (iii) the aggregate amount of all then outstanding and unpaid trade payables and other obligations of Borrowers which are outstanding more than sixty (60) days past due as of the end of the immediately preceding month or at Agent's option, as of a more recent date based on such reports as Agent may from time to time specify (other than trade payables or other obligations being contested or disputed by Borrowers in good faith), plus (iv) without duplication, the amount of checks issued by Borrowers to pay trade payables and other obligations which are more than sixty (60) days past due as of the end of the immediately preceding month or at Agent's option, as of a more recent date based on such reports as Agent may from time to time specify (other than trade payables or other obligations being contested or disputed by Borrowers in good faith), but not yet sent. 1.9 "Agreement" shall mean this Loan and Security Agreement, as amended, restated or otherwise modified from time to time. 1.10 "Applicable Margins" shall mean, at any time, as to the Interest Rate for Prime Rate Loans, Eurodollar Rate Loans and the letter of credit fee on the outstanding undrawn amount of Letter of Credit Obligations, the applicable row of per annum rates set forth below if the average daily Excess Availability for all Borrowers in the aggregate during the immediately preceding calendar quarter is at or within the amounts indicated for such row:
Applicable Margin for Applicable Margin for Prime Rate Loans that Eurodollar Rate Loans Applicable Margin for Applicable Margin for are Revolving Loans that are Revolving Eurodollar Rate Loans Letter of Credit ---------- Excess Availability and Term Loans Loans that are Term Loans Obligations ------------------- -------------- ----- ---------- ----------- (a) $25,000,000 or 0.00% 2.00% 2.25% 2.25% more (b) Greater than or 0.25% 2.25% 2.50% 2.50% equal to $15,000,000 and less than $25,000,000 (c) Less than 0.50% 2.50% 2.75% 2.75% $15,000,000
provided however, that, beginning on the date hereof and continuing through January 31, 2006, the Applicable Margins shall be those per annum rates designated in row (b) above. Commencing on the first Business Day of February, 2006 and thereafter on the first Business Day immediately following each calendar quarter, the Applicable Margins shall be adjusted based on the average daily Excess Availability for all Borrowers in the aggregate for the calendar quarter most recently ended. 1.11 "Assignment and Acceptance" shall mean an Assignment and Acceptance substantially in the form of Exhibit A attached hereto (with blanks appropriately completed) delivered to Agent in connection with an assignment of a Lender's interest hereunder in accordance with the provisions of Section 13.7 hereof. 1.12 "Bankruptcy Court" shall mean the United States Bankruptcy Court for the Eastern District of Wisconsin. 1.13 "Blocked Accounts" shall have the meaning set forth in Section 6.3 hereof. 1.14 "Borrowers" shall mean, collectively, the following (together with their respective successors and assigns): (a) Keystone Consolidated Industries, Inc., a Delaware corporation; (b) Keystone Wire Products Inc., a Delaware corporation; (c) Engineered Wire Products, Inc., an Ohio corporation; (d) F V Steel and Wire Company, a Wisconsin corporation; and (e) any other Person that at any time after the date hereof becomes a Borrower with the prior written consent of Agent; each sometimes being referred to herein individually as a "Borrower". 1.15 "Borrowing Base" shall mean, at any time, as to each Borrower, the amount equal to: (a) the amount equal to: (i) eighty-five (85%) percent of the Eligible Accounts of such Borrower, plus (ii) the lesser of (A) the Inventory Loan Limit for such Borrower or (B) the sum of: (1) the lesser of sixty-five (65%) percent multiplied by the Value of the Eligible Inventory of such Borrower consisting of finished goods or eighty-five (85%) percent of the Net Recovery Percentage multiplied by the Value of such Eligible Inventory, plus (2) the lesser of sixty (60%) percent multiplied by the Value of the Eligible Inventory of such Borrower consisting of raw materials or eighty-five (85%) percent of the Net Recovery Percentage multiplied by the Value of such Inventory, minus (b) Reserves attributable to such Borrower. For purposes only of applying the Inventory Loan Limit, Agent may treat the then undrawn amounts of outstanding Letters of Credit for the purpose of purchasing Eligible Inventory as Revolving Loans to the extent Agent is in effect basing the issuance of the Letter of Credit on the Value of the Eligible Inventory being purchased with such Letter of Credit. In determining the actual amounts of such Letter of Credit to be so treated for purposes of the sublimit, the outstanding Revolving Loans and Reserves shall be attributed first to any components of the lending formulas set forth above that are not subject to such sublimit, before being attributed to the components of the lending formulas subject to such sublimit. The amounts of Eligible Inventory of any Borrower shall, at Agent's option, be determined based on the lesser of the amount of Inventory set forth in the general ledger of such Borrower or the perpetual inventory record maintained by such Borrower. 1.16 "Business Day" shall mean any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of Illinois or the State of North Carolina, and a day on which Agent is open for the transaction of business, except that if a determination of a Business Day shall relate to any Eurodollar Rate Loans, the term Business Day shall also exclude any day on which banks are closed for dealings in dollar deposits in the London interbank market or other applicable Eurodollar Rate market. 1.17 "Capital Expenditures" means all expenditures during any measuring period for any fixed asset or improvements or replacements, substitutions, or additions thereto that have a useful life of more than one year and are required to be capitalized under GAAP. 1.18 "Capital Leases" shall mean, as applied to any Person, any lease of (or any agreement conveying the right to use) any property (whether real, personal or mixed) by such Person as lessee which in accordance with GAAP, is required to be accounted for as a capital lease on the balance sheet of such Person. 1.19 "Capital Stock" shall mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's capital stock or partnership, limited liability company or other equity interests at any time outstanding, and any and all rights, warrants or options exchangeable for or convertible into such capital stock or other interests (but excluding any debt security that is exchangeable for or convertible into such capital stock). 1.20 "Cash Equivalents" shall mean, at any time, (a) any evidence of Indebtedness with a maturity date of one hundred eighty (180) days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof; provided, that, the full faith and credit of the United States of America is pledged in support thereof; (b) certificates of deposit or bankers' acceptances with a maturity of one hundred eighty (180) days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500,000,000; (c) commercial paper (including variable rate demand notes) with a maturity of ninety (90) days or less issued by a corporation (except an Affiliate of any Borrower or Guarantor) organized under the laws of any State of the United States of America or the District of Columbia and rated at least A-1 by Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc. or at least P-1 by Moody's Investors Service, Inc.; (d) repurchase obligations with a term of not more than thirty (30) days for underlying securities of the types described in clause (a) above entered into with any financial institution having combined capital and surplus and undivided profits of not less than $500,000,000; (e) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the United States of America or issued by any governmental agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within ninety (90) days or less from the date of acquisition; provided, that, the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions with Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985; and (f) investments in money market funds and mutual funds which invest substantially all of their assets in securities of the types described in clauses (a) through (e) above. 1.21 "Change of Control" shall mean (a) the transfer (in one transaction or a series of transactions) of all or substantially all of the assets of any Borrower or Guarantor to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), other than as permitted in Section 9.7 hereof; (b) the liquidation or dissolution of any Borrower or Guarantor or the adoption of a plan by the stockholders of any Borrower or Guarantor relating to the dissolution or liquidation of such Borrower or Guarantor, other than as permitted in Section 9.7 hereof; (c) the acquisition by any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), except for one or more Permitted Holders, of beneficial ownership, directly or indirectly, of a majority of the voting power of the total outstanding Voting Stock of the Parent; (d) the failure of the Permitted Holders to own greater than fifty (50%) percent of the voting power of the total outstanding Voting Stock of Parent; or (e) the failure of Parent to own directly or indirectly one hundred (100%) percent of the voting power of the total outstanding Voting Stock of any other Borrower or Guarantor. 1.22 "Code" shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.23 "Collateral" shall have the meaning set forth in Section 5 hereof. 1.24 "Collateral Access Agreement" shall mean an agreement in writing, in form and substance reasonably satisfactory to Agent, from any lessor of premises to any Borrower or Guarantor, or any other person to whom any Collateral is consigned or who has custody, control or possession of any such Collateral or is otherwise the owner or operator of any premises on which any of such Collateral is located, in favor of Agent with respect to the Collateral at such premises or otherwise in the custody, control or possession of such lessor, consignee or other person. 1.25 "Commitment" shall mean, at any time, as to each Lender, the principal amount set forth below such Lender's signature on the signatures pages hereto designated as the Commitment or on Schedule 1 to the Assignment and Acceptance Agreement pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 13.7 hereof, as the same may be adjusted from time to time in accordance with the terms hereof; sometimes being collectively referred to herein as "Commitments". 1.26 "Confirmation Order" shall mean the order of the Bankruptcy Court confirming the Plan of Reorganization pursuant to Section 1129 of the United States Bankruptcy Code. 1.27 "Credit Facility" shall mean the Loans and Letters of Credit provided to or for the benefit of any Borrower pursuant to Sections 2.1, 2.2 and 2.3 hereof. 1.28 "Default" shall mean an act, condition or event which with notice or passage of time or both would constitute an Event of Default. 1.29 "Defaulting Lender" shall have the meaning set forth in Section 6.11 hereof. 1.30 "Deposit Account Control Agreement" shall mean an agreement in writing, in form and substance reasonably satisfactory to Agent, by and among Agent, the Borrower or Guarantor with a deposit account at any bank and the bank at which such deposit account is at any time maintained which provides that such bank will comply with instructions originated by Agent directing disposition of the funds in the deposit account without further consent by such Borrower or Guarantor and has such other terms and conditions as Agent may reasonably require. 1.31 "EBITDAR" shall mean, with respect to any Person for any fiscal period, without duplication, an amount equal to (a) consolidated net income of such Person for such period determined in accordance with GAAP, minus (b) the sum of (i) income tax credits, (ii) interest income, (iii) gain from extraordinary items for such period, (iv) any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, exchange or other disposition of capital assets by such Person (including any fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets and all securities), and (v) any other non-cash gains that have been added in determining consolidated net income, in each case to the extent included in the calculation of consolidated net income of such Person for such period in accordance with GAAP, but without duplication, plus (c) the sum of (i) any provision for income taxes, (ii) Interest Expense, (iii) loss from extraordinary items for such period, (iv) depreciation and amortization for such period, (v) amortized debt discount for such period, and (vi) Restructuring Expenses for such period, in each case to the extent included in the calculation of consolidated net income of such Person for such period in accordance with GAAP, but without duplication. For purposes of this definition, the following items shall be excluded in determining consolidated net income of a Person: (1) the income (or deficit) of any other Person accrued prior to the date it became a Subsidiary of, or was merged or consolidated into, such Person or any of such Person's Subsidiaries; (2) the income (or deficit) of any other Person (other than a Subsidiary) in which such Person has an ownership interest, except to the extent any such income has actually been received by such Person in the form of cash dividends or distributions; (3) the undistributed earnings of any Subsidiary of such Person to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any contractual obligation or requirement of law applicable to such Subsidiary; (4) any write-up or write-down of any asset; (5) any net gain from the collection of the proceeds of life insurance policies; (6) any net gain arising from the extinguishment, under GAAP, of any Indebtedness, of such Person; (7) in the case of a successor to such Person by consolidation or merger or as a transferee of its assets, any earnings or losses of such successor prior to such consolidation, merger or transfer of assets; (8) any deferred credit representing the excess of equity in any Subsidiary of such Person at the date of acquisition of such Subsidiary over the cost to such Person of the investment in such Subsidiary and (9) non-cash pension related gains and losses and other non-cash post employment benefits. 1.32 "Eligible Accounts" shall mean Accounts created by a Borrower that in each case satisfy the criteria set forth below as determined by Agent in good faith. In general, Accounts shall be Eligible Accounts if: (a) such Accounts arise from the actual and bona fide sale and delivery of goods by such Borrower or rendition of services by such Borrower in the ordinary course of its business which transactions are completed in accordance in all material respects with the terms and provisions contained in any documents related thereto; (b) such Accounts are not unpaid more than ninety (90) days after the date of the original invoice for them; (c) such Accounts comply with the terms and conditions contained in Section 7.2(b) of this Agreement; (d) such Accounts do not arise from sales on consignment, guaranteed sale, sale and return, sale on approval, or other terms under which payment by the account debtor are conditional or contingent; (e) the chief executive office of the account debtor with respect to such Accounts is located in the United States of America or Canada or, at Agent's option, if the chief executive office and principal place of business of the account debtor with respect to such Accounts is located other than in the United States of America or Canada, then if either: (i) the account debtor has delivered to such Borrower an irrevocable letter of credit issued or confirmed by a bank reasonably satisfactory to Agent and payable only in the United States of America and in U.S. dollars, sufficient to cover such Account, in form and substance reasonably satisfactory to Agent and if required by Agent, the original of such letter of credit has been delivered to Agent or Agent's agent and the issuer thereof, and such Borrower has complied with the terms of Section 5.2(f) hereof with respect to the assignment of the proceeds of such letter of credit to Agent or naming Agent as transferee beneficiary thereunder, as Agent may specify, or (ii) such Account is subject to credit insurance payable to Agent issued by an insurer and on terms and in an amount reasonably acceptable to Agent, or (iii) such Account is otherwise reasonably acceptable in all material respects to Agent (subject to such lending formula with respect thereto as Agent may determine); (f) such Accounts do not consist of progress billings (such that the obligation of the account debtors with respect to such Accounts is conditioned upon such Borrower's satisfactory completion of any further performance under the agreement giving rise thereto), bill and hold invoices or retainage invoices, except as to bill and hold invoices, if Agent shall have received an agreement in writing from the account debtor, in form and substance reasonably satisfactory to Agent, confirming the unconditional obligation of the account debtor to take the goods related thereto and pay such invoice; (g) to the extent that the account debtor with respect to such Accounts has not asserted a counterclaim, defense or dispute and is not owed or does not claim to be owed any amounts that may give rise to any right of setoff or recoupment against such Accounts (but the portion of the Accounts of such account debtor in excess of the amount at any time and from time to time owed by such Borrower to such account debtor or claimed owed by such account debtor shall be deemed Eligible Accounts); (h) there are no facts, events or occurrences which would impair the validity, enforceability or collectability of such Accounts or reduce the amount payable or delay payment thereunder; (i) such Accounts are subject to the first priority, valid and perfected security interest of Agent and any goods giving rise thereto are not, and were not at the time of the sale thereof, subject to any liens except those non-consensual statutory liens permitted in this Agreement; (j) neither the account debtor nor any officer or director of the account debtor with respect to such Accounts is an officer, director, agent or other Affiliate of any Borrower or Guarantor; (k) the account debtors with respect to such Accounts are not any foreign government, the United States of America, any State, political subdivision, department, agency or instrumentality thereof, unless, if the account debtor is the United States of America, any State, political subdivision, department, agency or instrumentality thereof, upon Agent's request, the Federal Assignment of Claims Act of 1940, as amended or any similar State or local law, if applicable, has been complied with in a manner satisfactory to Agent; (l) there are no proceedings or actions which are threatened or pending against the account debtors with respect to such Accounts which could reasonably be expected to result in any material adverse change in any such account debtor's financial condition (including, without limitation, any bankruptcy, dissolution, liquidation, reorganization or similar proceeding); (m) the aggregate amount of such Accounts owing by a single account debtor or its Affiliates do not constitute more than twenty (20%) percent (or, in the case of Tractor Supply, thirty (30%) percent) of the aggregate amount of all otherwise Eligible Accounts (but the portion of the Accounts not in excess of the applicable percentages may be deemed Eligible Accounts); (n) such Accounts are not owed by an account debtor who has Accounts unpaid more than sixty (60) days after the original invoice date for them which constitute more than twenty (20%) percent (or, in the case of Tractor Supply, thirty (30%) percent) of the total Accounts of such account debtor; (o) the account debtor is not located in a state requiring the filing of a Notice of Business Activities Report or similar report in order to permit such Borrower to seek judicial enforcement in such State of payment of such Account, unless such Borrower has qualified to do business in such state or has filed a Notice of Business Activities Report or equivalent report for the then current year or such failure to file and inability to seek judicial enforcement is capable of being remedied without any material delay or material cost; (p) such Accounts are owed by account debtors whose total indebtedness to such Borrower does not exceed the credit limit with respect to such account debtors as determined by such Borrower from time to time, to the extent such credit limit as to any account debtor is established consistent with the current practices of such Borrower as of the date hereof and such credit limit is acceptable to Agent (but the portion of the Accounts not in excess of such credit limit may be deemed Eligible Accounts); and (q) such Accounts are not owed by account debtors which Agent has advised Administrative Borrower in writing are not deemed to be creditworthy by Agent. The criteria for Eligible Accounts set forth above may only be changed and any new criteria for Eligible Accounts may only be established by Agent in good faith based on either: (i) an event, condition or other circumstance arising after the date hereof, or (ii) an event, condition or other circumstance existing on the date hereof to the extent Agent has no actual knowledge thereof prior to the date hereof, in either case under clause (i) or (ii) which materially and adversely affects or could reasonably be expected to materially and adversely affect the Accounts in the good faith determination of Agent. Any Accounts that are not Eligible Accounts shall nevertheless be part of the Collateral. 1.33 "Eligible Inventory" shall mean, as to each Borrower (other than F V Steel), Inventory of such Borrower consisting of finished goods held for resale in the ordinary course of the business of such Borrower and raw materials for such finished goods, that in each case satisfy the criteria set forth below as determined by Agent in good faith. In general, Eligible Inventory shall not include: (a) work-in-process; (b) components which are not part of finished goods; (c) spare parts for equipment; (d) packaging and shipping materials; (e) supplies used or consumed in such Borrower's business; (f) Inventory at premises other than those owned or leased and controlled by any Borrower unless Agent has received a Collateral Access Agreement in respect of such premises or, in Agent's sole discretion, Agent has elected to implement a Reserve in respect of the obligations of such Borrower at such premises in such amounts as Agent shall determine in its good faith; (g) Inventory subject to a security interest or lien in favor of any Person other than Agent except those statutory liens permitted in this Agreement; (h) bill and hold goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory that is not subject to the first priority, valid and perfected security interest of Agent; (k) returned (unless otherwise constituting Eligible Inventory), damaged and/or defective Inventory; (l) Inventory purchased or sold on consignment and (m) Inventory located outside the United States of America. The criteria for Eligible Inventory set forth above may only be changed and any new criteria for Eligible Inventory may only be established by Agent in good faith based on either: (i) an event, condition or other circumstance arising after the date hereof, or (ii) an event, condition or other circumstance existing on the date hereof to the extent Agent has no actual knowledge thereof prior to the date hereof, in either case under clause (i) or (ii) which materially and adversely affects or could reasonably be expected to materially and adversely affect the Inventory in the good faith determination of Agent. Any Inventory that is not Eligible Inventory shall nevertheless be part of the Collateral. 1.34 "Eligible Transferee" shall mean (a) any Lender; (b) the parent company of any Lender and/or any Affiliate of such Lender which is at least fifty (50%) percent owned by such Lender or its parent company; (c) any person (whether a corporation, partnership, trust or otherwise) that is engaged in the business of making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor, and in each case is approved by Agent; and (d) any other commercial bank, financial institution or "accredited investor" (as defined in Regulation D under the Securities Act of 1933) approved by Agent, provided, that, (i) neither any Borrower nor any Guarantor or any Affiliate of any Borrower or Guarantor shall qualify as an Eligible Transferee and (ii) no Person to whom any Indebtedness which is in any way subordinated in right of payment to any other Indebtedness of any Borrower or Guarantor shall qualify as an Eligible Transferee, except as Agent may otherwise specifically agree. 1.35 "Environmental Laws" shall mean all foreign, Federal, State and local laws (including common law), legislation, rules, codes, licenses, permits (including any conditions imposed therein), authorizations, judicial or administrative decisions, injunctions or agreements between any Borrower or Guarantor and any Governmental Authority, (a) relating to pollution and the protection, preservation or restoration of the environment (including air, water vapor, surface water, ground water, drinking water, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, (b) relating to the exposure to, or the use, storage, recycling, treatment, generation, manufacture, processing, distribution, transportation, handling, labeling, production, release or disposal, or threatened release, of Hazardous Materials, or (c) relating to all laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials. The term "Environmental Laws" includes (i) the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Federal Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii) applicable state counterparts to such laws and (iii) any common law or equitable doctrine that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Materials. 1.36 "Equipment" shall mean, as to each Borrower and Guarantor, all of such Borrower's and Guarantor's now owned and hereafter acquired equipment, wherever located, including machinery, data processing and computer equipment (whether owned or licensed and including embedded software), vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located. 1.37 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, together with all rules, regulations and interpretations thereunder or related thereto. 1.38 "ERISA Affiliate" shall mean any person required to be aggregated with any Borrower, any Guarantor or any of its or their respective Subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of the Code. 1.39 "ERISA Event" shall mean (a) any "reportable event", as defined in Section 4043(c) of ERISA or the regulations issued thereunder, with respect to a Pension Plan, other than events as to which the requirement of notice has been waived in regulations by the Pension Benefit Guaranty Corporation; (b) the adoption of any amendment to a Pension Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) a complete or partial withdrawal by any Borrower, Guarantor or any ERISA Affiliate from a Multiemployer Plan or a cessation of operations which is treated as such a withdrawal or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the Pension Benefit Guaranty Corporation to terminate a Pension Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (f) the imposition of any liability under Title IV of ERISA, other than the Pension Benefit Guaranty Corporation premiums due but not delinquent under Section 4007 of ERISA, upon any Borrower, Guarantor or any ERISA Affiliate in excess of $750,000 and (g) any other event or condition with respect to a Plan including any Pension Plan subject to Title IV of ERISA maintained, or contributed to, by any ERISA Affiliate that could reasonably be expected to result in liability of any Borrower in excess of $750,000. 1.40 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on which interest is payable based on the Adjusted Eurodollar Rate in accordance with the terms hereof. 1.41 "Event of Default" shall mean the occurrence or existence of any event or condition described in Section 10.1 hereof. 1.42 "EWP" shall have the meaning set forth in the preamble to this Agreement. 1.43 "Excess Availability" shall mean, as to each Borrower, the amount calculated at any date equal to: (a) the lesser of: (i) the Borrowing Base of such Borrower and (ii) the Revolving Loan Limit of such Borrower (in each case under (i) or (ii) after giving effect to any Reserves other than any Reserves in respect of Letter of Credit Obligations), minus (b) the sum of: (i) the outstanding principal amount of the Revolving Loans as to such Borrower, plus (ii) the amount of all Reserves then established in respect of Letter of Credit Obligations as to such Borrower, plus (iii) the aggregate amount of all then outstanding and unpaid trade payables and other obligations of such Borrower which are outstanding more than sixty (60) days past due as of the end of the immediately preceding month or at Agent's option, as of a more recent date based on such reports as Agent may from time to time specify (other than trade payables or other obligations being contested or disputed by such Borrower in good faith), plus (iv) without duplication, the amount of checks issued by such Borrower to pay trade payables and other obligations which are more than sixty (60) days past due as of the end of the immediately preceding month or at Agent's option, as of a more recent date based on such reports as Agent may from time to time specify (other than trade payables or other obligations being contested or disputed by such Borrower in good faith), but not yet sent. 1.44 "Excess Cash Flow" means, without duplication, with respect to any fiscal year of Borrowers and their Subsidiaries, consolidated net income plus (a) depreciation, amortization and Interest Expense to the extent deducted in determining consolidated net income, plus decreases or minus increases (as the case may be) in (b) Working Capital, minus (c) Interest Expense paid or accrued (excluding any original issue discount, interest paid in kind or amortized debt discount, to the extent included in determining Interest Expense) and scheduled principal payments paid or payable in respect of Indebtedness for borrowed money, plus or minus (as the case may be), (d) extraordinary gains or losses which are cash items not included in the calculation of net income, plus (e) taxes deducted in determining consolidated net income to the extent not paid for in cash minus (f) Capital Expenditures (excluding the financed portion thereof). 1.45 "Exchange Act" shall mean the Securities Exchange Act of 1934, together with all rules, regulations and interpretations thereunder or related thereto. 1.46 "Existing Lenders" shall mean the lenders to Borrowers listed on Schedule 1.37 hereto and their respective predecessors, successors and assigns. 1.47 "Existing Letters of Credit" shall mean, collectively, the letters of credit issued for the account of a Borrower or Guarantor or for which such Borrower or Guarantor is otherwise liable listed on Schedule 1.38 hereto, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.48 "Fee Letter" shall mean the letter agreement, dated as of the date hereof, by and among Borrowers and Agent, setting forth certain fees payable by Borrowers to Agent, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.49 "Financing Agreements" shall mean, collectively, this Agreement and all notes, guarantees, security agreements, deposit account control agreements, investment property control agreements, intercreditor agreements and all other agreements, documents and instruments now or at any time hereafter executed and/or delivered by any Borrower or Guarantor in connection with this Agreement; provided, that, (a) the term Financing Agreements shall include the Peoria Intercreditor Agreement and all Mortgages, deposit account control agreements and similar agreements executed prior to the date hereof to which Agent and any Borrower are a party that have been amended to reflect the transactions under this Agreement and (b) in no event shall the term Financing Agreements be deemed to include any Hedge Agreement. 1.50 "Fixed Charge Coverage Ratio" shall mean with respect to any Person for any fiscal period, the ratio of EBITDAR to Fixed Charges. 1.51 "Fixed Charges" means, with respect to any Person for any fiscal period, (a) the aggregate of all Interest Expense paid or payable during such period, plus (b) scheduled payments of principal with respect to Indebtedness during such period including scheduled payments with respect to Capital Leases, plus (c) income taxes paid or payable in cash during such fiscal period. This definition of Fixed Charges shall exclude any scheduled lump sum payments required to be made by Borrowers in 2007, 2008 and 2009 on the Remaining Notes. 1.52 "Foreign Lender" shall mean any Lender that is organized under the laws of a jurisdiction other than that in which a Borrower is resident for tax purposes. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. 1.53 "Funding Bank" shall have the meaning given to such term in Section 3.3 hereof. 1.54 "F V Steel" shall have the meaning set forth in the preamble to this Agreement. 1.55 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board which are applicable to the circumstances as of the date of determination consistently applied, except that, for purposes of Sections 9.17 and 9.18 hereof, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements delivered to Agent prior to the date hereof. 1.56 "Governmental Authority" shall mean any nation or government, any state, province, or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 1.57 "Guarantors" shall mean any Person that at any time after the date hereof becomes party to a guarantee in favor of Agent or any Lender or otherwise liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations (other than Borrowers); each sometimes being referred to herein individually as a "Guarantor". 1.58 "Hazardous Materials" shall mean any hazardous, toxic or dangerous substances, materials and wastes, including hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including any that are or become classified as hazardous or toxic under any Environmental Law). 1.59 "Hedge Agreement" shall mean an agreement between any Borrower and Agent, any Lender, any Affiliate of any Lender or any other financial institution acceptable to Agent (and in each case as to any such Lender, Affiliate or other financial institution only to the extent approved by Agent) that is a rate swap agreement, basis swap, forward rate agreement, commodity swap, interest rate option, forward foreign exchange agreement, spot foreign exchange agreement, rate cap agreement rate, floor agreement, rate collar agreement, currency swap agreement, cross-currency rate swap agreement, currency option, any other similar agreement (including any option to enter into any of the foregoing or a master agreement for any the foregoing together with all supplements thereto) for the purpose of protecting against or managing exposure to fluctuations in interest or exchange rates, currency valuations or commodity prices; sometimes being collectively referred to herein as "Hedge Agreements". 1.60 "Indebtedness" shall mean, with respect to any Person, any liability, whether or not contingent, (a) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof) or evidenced by bonds, notes, debentures or similar instruments; (b) representing the balance deferred and unpaid of the purchase price of any property or services (other than an account payable to a trade creditor (whether or not an Affiliate) incurred in the ordinary course of business of such Person and payable in accordance with customary trade practices); (c) all obligations as lessee under leases which have been, or should be, in accordance with GAAP recorded as Capital Leases; (d) any contractual obligation, contingent or otherwise, of such Person to pay or be liable for the payment of any indebtedness described in this definition of another Person, including, without limitation, any such indebtedness, directly or indirectly guaranteed, or any agreement to purchase, repurchase, or otherwise acquire such indebtedness, obligation or liability or any security therefor, or to provide funds for the payment or discharge thereof, or to maintain solvency, assets, level of income, or other financial condition; (e) all obligations with respect to redeemable stock and redemption or repurchase obligations under any Capital Stock or other equity securities issued by such Person; (f) all reimbursement obligations and other liabilities of such Person with respect to surety bonds (whether bid, performance or otherwise), letters of credit, banker's acceptances, drafts or similar documents or instruments issued for such Person's account; (g) all indebtedness of such Person in respect of indebtedness of another Person for borrowed money or indebtedness of another Person otherwise described in this definition which is secured by any consensual lien, security interest, collateral assignment, conditional sale, mortgage, deed of trust, or other encumbrance on any asset of such Person, whether or not such obligations, liabilities or indebtedness are assumed by or are a personal liability of such Person, all as of such time; (h) all obligations, liabilities and indebtedness of such Person (marked to market) arising under swap agreements, cap agreements and collar agreements and other agreements or arrangements designed to protect such person against fluctuations in interest rates or currency or commodity values; (i) all obligations owed by such Person under License Agreements with respect to non-refundable, advance or minimum guarantee royalty payments; (j) indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer to the extent such Person is liable therefor as a result of such Person's ownership interest in such entity, except to the extent that the terms of such indebtedness expressly provide that such Person is not liable therefor or such Person has no liability therefor as a matter of law and (k) the principal and interest portions of all rental obligations of such Person under any synthetic lease or similar off-balance sheet financing where such transaction is considered to be borrowed money for tax purposes but is classified as an operating lease in accordance with GAAP. 1.61 "Indenture" shall mean that certain Indenture dated as of March 15, 2002 between Keystone and U.S. Bank National Association in respect of the 8% Subordinated Secured Notes due March 15, 2009 issued by Keystone. 1.62 "Indenture Intercreditor Agreement" means that certain Letter Agreement dated as of March 15, 2002 among U.S. Bank National Association, the County of Peoria, Illinois and Agent. 1.63 "Information Certificate" shall mean, collectively, the Information Certificates of Borrowers and Guarantors constituting Exhibit B hereto containing material information with respect to Borrowers and Guarantors, their respective businesses and assets provided by or on behalf of Borrowers and Guarantors to Agent in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein. 1.64 "Intellectual Property" shall mean, as to each Borrower and Guarantor, such Borrower's and Guarantor's now owned and hereafter arising or acquired: patents, patent rights, patent applications, copyrights, works which are the subject matter of copyrights, copyright applications, copyright registrations, trademarks, servicemarks, trade names, trade styles, trademark and service mark applications, and licenses and rights to use any of the foregoing and all applications, registrations and recordings relating to any of the foregoing as may be filed in the United States Copyright Office, the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof, any political subdivision thereof or in any other country or jurisdiction, together with all rights and privileges arising under applicable law with respect to any Borrower's or Guarantor's use of any of the foregoing; all extensions, renewals, reissues, divisions, continuations, and continuations-in-part of any of the foregoing; all rights to sue for past, present and future infringement of any of the foregoing; inventions, trade secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys, reports, manuals, and operating standards; goodwill (including any goodwill associated with any trademark or servicemark, or the license of any trademark or servicemark); customer and other lists in whatever form maintained; trade secret rights, copyright rights, rights in works of authorship, domain names and domain name registration; software and contract rights relating to computer software programs, in whatever form created or maintained. 1.65 "Intercompany Services Agreement" means that certain Intercorporate Services Agreement effective as of September 1, 2005 between Contran Corporation and Keystone. 1.66 "Interest Expense" means, with respect to any Person for any fiscal period, interest expense (whether cash or non-cash) of such Person determined in accordance with GAAP for the relevant period ended on such date, including, interest expense with respect to any Indebtedness for borrowed money of such Person and interest expense for the relevant period that has been capitalized on the balance sheet of such Person. 1.67 "Interest Period" shall mean for any Eurodollar Rate Loan, a period of approximately one (1), two (2), or three (3) months duration as any Borrower (or Administrative Borrower on behalf of such Borrower) may elect, the exact duration to be determined in accordance with the customary practice in the applicable Eurodollar Rate market; provided, that, such Borrower (or Administrative Borrower on behalf of such Borrower) may not elect an Interest Period which will end after the last day of the then-current term of this Agreement. 1.68 "Interest Rate" shall mean, (a) Subject to clauses (b) and (c) of this definition below: (i) as to Prime Rate Loans that are Revolving Loans, a rate equal to the Applicable Margin for Prime Rate Loans that are Revolving Loans then in effect plus the Prime Rate, (ii) as to Prime Rate Loans that are Term Loans, a rate equal to the Applicable Margin for Prime Rate Loans that are Term Loans then in effect plus the Prime Rate, (iii) as to Eurodollar Rate Loans that are Revolving Loans, a rate equal to the Applicable Margin for Eurodollar Loans that are Revolving Loans then in effect plus the Adjusted Eurodollar Rate (in each case, based on the London Interbank Offered Rate applicable for the Interest Period selected by a Borrower, or by Administrative Borrower on behalf of such Borrower, as in effect two (2) Business Days prior to the commencement of the Interest Period, whether such rate is higher or lower than any rate previously quoted to any Borrower or Guarantor), (iv) as to Eurodollar Rate Loans that are Term Loans, a rate equal to the Applicable Margin for Eurodollar Rate Loans that are Term Loans then in effect plus the Adjusted Eurodollar Rate (in each case, based on the Eurodollar Rate applicable for the Interest Period selected by a Borrower, or by Administrative Borrower on behalf of such Borrower, as in effect two (2) Business Days prior to the commencement of the Interest Period, whether such rate is higher or lower than any rate previously quoted to any Borrower or Guarantor), and (v) as to fees for Letter of Credit Obligations, a rate equal to the Applicable Margin for Letter of Credit Obligations then in effect; (b) If Borrowers fail to deliver the collateral reports required under Section 7.1(a), the Agent may elect to increase the Applicable Margins to their highest levels set forth in the definition of the term "Applicable Margins" (without regard to the amount of Excess Availability) effective as of the first Business Day of such month in which such failure occurred until such time as Administrative Borrower satisfies such delivery requirement; and (c) Notwithstanding anything to the contrary contained in clauses (a) and (b) of this definition, the Applicable Margins otherwise used to calculate the Interest Rate for Prime Rate Loans, Eurodollar Rate Loans and fees for Letter of Credit Obligations shall be the highest respective per annum rates set forth in the definition of "Applicable Margins" for each such category (without regard to the amount of Excess Availability) plus in each case two percent (2%) per annum, at Agent's option, (i) either (A) without notice, for the period on and after the date of termination or non-renewal hereof until such time as all Obligations (other than contingent indemnification obligations not asserted or due) are paid and satisfied in full in immediately available funds, or (B) upon notice to the Administrative Borrower (which notice shall not be required if an Event of Default has occurred and is continuing under Sections 10.1(g) and (h) of this Agreement), for the period from and after the date of the occurrence of any Event of Default, and for so long as such Event of Default is continuing and (ii) on the Revolving Loans to any Borrower at any time outstanding in excess of the Borrowing Base of such Borrower or the Revolving Loan Limit of such Borrower (whether or not such excess(es) arise or are made with or without Agent's or any Lender's knowledge or consent and whether made before or after an Event of Default). 1.69 "Inventory" shall mean, as to each Borrower and Guarantor, all of such Borrower's and Guarantor's now owned and hereafter existing or acquired goods, wherever located, which (a) are leased by such Borrower or Guarantor as lessor; (b) are held by such Borrower or Guarantor for sale or lease or to be furnished under a contract of service; (c) are furnished by such Borrower or Guarantor under a contract of service; or (d) consist of raw materials, work in process, finished goods or materials used or consumed in its business. 1.70 "Inventory Loan Limit" shall mean, as to each Borrower, at any time, the amount equal to $35,000,000 minus the then outstanding principal amount of Revolving Loans to the other Borrowers based on Eligible Inventory (and including Letters of Credit to the extent provided in the definition of the term Borrowing Base). 1.71 "Investment Property Control Agreement" shall mean an agreement in writing, in form and substance reasonably satisfactory to Agent, by and among Agent, any Borrower or Guarantor (as the case may be) and any securities intermediary, commodity intermediary or other person who has custody, control or possession of any investment property of such Borrower or Guarantor acknowledging that such securities intermediary, commodity intermediary or other person has custody, control or possession of such investment property on behalf of Agent, that it will comply with entitlement orders originated by Agent with respect to such investment property, or other instructions of Agent, and has such other terms and conditions as Agent may reasonably require. 1.72 "Keystone" shall have the meaning set forth in the preamble to this Agreement. 1.73 "KWP" shall have the meaning set forth in the preamble to this Agreement. 1.74 "Lenders" shall mean the financial institutions who are signatories hereto as Lenders and other persons made a party to this Agreement as a Lender in accordance with Section 13.7 hereof, and their respective successors and assigns; each sometimes being referred to herein individually as a "Lender". 1.75 "Letter of Credit Documents" shall mean, with respect to any Letter of Credit, such Letter of Credit, any amendments thereto, any documents delivered in connection therewith, any application therefor, and any agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for the rights and obligations of the parties concerned or at risk or any collateral security for such obligations. 1.76 "Letter of Credit Limit" shall mean $6,000,000. 1.77 "Letter of Credit Obligations" shall mean, at any time, the sum of (a) the aggregate undrawn amount of all Letters of Credit outstanding at such time, plus (b) the aggregate amount of all drawings under Letters of Credit for which the issuer thereof has not at such time been reimbursed, plus (c) without duplication, the aggregate amount of all payments made by each Lender to the issuer with respect to such Lender's participation in Letters of Credit as provided in Section 2.2 for which Borrowers have not at such time reimbursed the Lenders, whether by way of a Revolving Loan or otherwise. 1.78 "Letters of Credit" shall mean all letters of credit (whether documentary or stand-by and whether for the purchase of inventory, equipment or otherwise) issued by an issuer for the account of any Borrower pursuant to this Agreement, and all amendments, renewals, extensions or replacements thereof and including, but not limited to, the Existing Letters of Credit. The issuer of the Letters of Credit shall be, and all references to such issuer herein shall mean, Wachovia Bank, National Association and its successors and assigns or such other bank as Agent may from time to time designate. 1.79 "License Agreements" shall have the meaning set forth in Section 8.11 hereof. 1.80 "Loan Limit" shall mean, as to each Borrower, at any time, the amount equal to the Maximum Credit minus the then outstanding principal amount of the Loans and the Letters of Credit provided to the other Borrowers. 1.81 "Loans" shall mean, collectively, the Revolving Loans and the Term Loans. 1.82 "London Interbank Offered Rate" shall mean, with respect to any Eurodollar Loan for the Interest Period applicable thereto, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. Dollars at approximately 11:00 A.M. (London time) two (2) Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, that, if more than one rate is specified on Telerate Page 3750, the applicable rate shall be the arithmetic mean of all such rates. If, for any reason, such rate is not available, the term "London Interbank Offered Rate" shall mean, with respect to any Eurodollar Loan for the Interest Period applicable thereto, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two (2) Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. 1.83 "Material Adverse Effect" shall mean a material adverse effect on (a) the financial condition, business, performance or operations of Borrowers taken as a whole; (b) the legality, validity or enforceability of any of the Financing Agreements; (c) the legality, validity, enforceability, perfection or priority of the security interests and liens of Agent upon the Collateral; (d) the Collateral or its value; (e) the ability of any Borrower to repay the Obligations or of any Borrower to perform its obligations under this Agreement or any of the other Financing Agreements as and when to be performed; or (f) the ability of Agent and the Lenders to enforce the Obligations or realize upon the Collateral or otherwise with respect to the rights and remedies of Agent and Lenders under any of the Financing Agreements. 1.84 "Material Contract" shall mean (a) any contract or other agreement (other than the Financing Agreements), written or oral, of any Borrower or Guarantor involving monetary liability of or to any Person in an amount in excess of $750,000 in any fiscal year and (b) any other contract or other agreement (other than the Financing Agreements), whether written or oral, to which any Borrower or Guarantor is a party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto would have a Material Adverse Effect. 1.85 "Maximum Credit" shall mean the amount of $80,000,000. 1.86 "Mortgaged Properties" shall mean Upper Sandusky, Ohio, Hortonville, Wisconsin and Peoria, Illinois. 1.87 "Mortgages" shall mean, individually and collectively, each of the following (as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced): (a) the Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing, dated of even date herewith, by EWP in favor of Agent with respect to the Real Property and related assets of such Borrower located in Upper Sandusky, Ohio, (b) the Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing, dated of even date herewith, by F V Steel in favor of Agent with respect to the Real Property and related assets of such Borrower located in Hortonville, Wisconsin, and (c) the Mortgage, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing, dated of even date herewith, by Keystone in favor of Agent with respect to the Real Property and related assets of such Borrower located in Peoria, Illinois. 1.88 "Multiemployer Plan" shall mean a "multi-employer plan" as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding six (6) years contributed to by any Borrower, Guarantor or any ERISA Affiliate or with respect to which any Borrower, Guarantor or any ERISA Affiliate may incur any liability. 1.89 "Net Recovery Percentage" shall mean the fraction, expressed as a percentage, (a) the numerator of which is the amount equal to the amount of the recovery in respect of the Inventory or Equipment, as applicable, at such time on a "net orderly liquidation value" basis as set forth in the most recent appraisal of Inventory or Equipment, as applicable, received by Agent in accordance with Sections 7.3 or 7.4, as applicable, net of operating expenses, liquidation expenses and commissions, and (b) the denominator of which is the applicable value of the aggregate amount of the Inventory or Equipment, as applicable, subject to such appraisal. 1.90 "Obligations" shall mean (a) any and all Loans, Letter of Credit Obligations and all other obligations, liabilities and indebtedness of every kind, nature and description owing by any or all of Borrowers and Guarantors to Agent or any Lender and/or any of their Affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under this Agreement or any of the other Financing Agreements or on account of any Letter of Credit and all other Letter of Credit Obligations, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to such Borrower or Guarantor under the United States Bankruptcy Code or any similar statute (including the payment of interest and other amounts which would accrue and become due but for the commencement of such case, whether or not such amounts are allowed or allowable in whole or in part in such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, or secured or unsecured and (b) for purposes only of Section 5.1 hereof and subject to the priority in right of payment set forth in Section 6.4 hereof, all obligations, liabilities and indebtedness of every kind, nature and description owing by any or all of Borrowers to Agent, any Lender, any Affiliate of any Lender or any other financial institution acceptable to Agent (and in each case as to any such Lender, Affiliate of any Lender or other financial institution only to the extent approved by Agent) arising under or pursuant to a Hedge Agreement, whether now existing or hereafter arising, provided, that, (i) such obligations, liabilities and indebtedness shall only be included within the Obligations if upon Agent's request, Agent shall have entered into an agreement, in form and substance satisfactory to Agent, with any Lender, any Affiliate of any Lender or any other financial institution acceptable to Agent that is a counterparty to such Hedge Agreement, as acknowledged and agreed to by Borrowers, providing for the delivery to Agent by such counterparty of information with respect to the amount of such obligations and providing for the other rights of Agent and such Lender, Affiliate of any Lender or any other financial institution acceptable to Agent, as the case may be, in connection with such arrangements and (ii) in no event shall the party to such Hedge Agreement to whom such obligations, liabilities or indebtedness are owing be deemed a Lender for purposes hereof to the extent of and as to such obligations, liabilities or indebtedness other than for purposes of Section 5.1 hereof and other than for purposes of Sections 12.1, 12.2, 12.3(b), 12.6, 12.7, 12.9, 12.12 and 13.6 hereof and in no event shall the approval of any such person be required in connection with the release or termination of any security interest or lien of Agent. 1.91 "Other Taxes" shall have the meaning given to such term in Section 6.5 hereof. 1.92 "Parent" shall mean Keystone and its successors and assigns. 1.93 "Participant" shall mean any financial institution that acquires and holds a participation in the interest of any Lender in any of the Loans and Letters of Credit in conformity with the provisions of Section 13.7 of this Agreement governing participations. 1.94 "Peoria Debt" shall mean the obligations and liabilities of Administrative Borrower to the County of Peoria, Illinois under that certain Loan Agreement dated as of March 13, 2002 (as amended or otherwise modified from time to time) between Administrative Borrower and the County of Peoria, Illinois. 1.95 "Peoria Intercreditor Agreement" shall mean that certain Subordination and Intercreditor Agreement dated as of March 15, 2002 (as amended or otherwise modified from time to time) among Administrative Borrower, Agent and the County of Peoria, Illinois. 1.96 "Permitted Holders" shall mean Contran Corporation, a Delaware corporation and its Affiliates. 1.97 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including any corporation which elects subchapter S status under the Code), limited liability company, limited liability partnership, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof. 1.98 "Pension Plan" shall mean a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which any Borrower or Guarantor sponsors, maintains, or to which any Borrower, Guarantor or ERISA Affiliate makes, is making, or is obligated to make contributions, other than a Multiemployer Plan. 1.99 "Plan" shall mean an employee benefit plan (as defined in Section 3(3) of ERISA) which any Borrower or Guarantor sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a Multiemployer Plan has made contributions at any time during the immediately preceding six (6) plan years or with respect to which any Borrower or Guarantor may incur liability. 1.100 "Plan of Reorganization" shall mean the Borrowers' (other than EWP) Third Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code dated June 24, 2005 (as amended on August 10, 2005), as it may be amended from time to time to the extent permitted under Section 9.24 of this Agreement. 1.101 "Prime Rate" shall mean the rate from time to time publicly announced by Wachovia Bank, National Association, or its successors, as its prime rate, whether or not such announced rate is the best rate available at such bank. 1.102 "Prime Rate Loans" shall mean any Loans or portion thereof on which interest is payable based on the Prime Rate in accordance with the terms thereof. 1.103 "Pro Rata Share" shall mean as to any Lender, the fraction (expressed as a percentage) the numerator of which is such Lender's Commitment and the denominator of which is the aggregate amount of all of the Commitments of Lenders, as adjusted from time to time in accordance with the provisions of Section 13.7 hereof; provided, that, if the Commitments have been terminated, the numerator shall be the unpaid amount of such Lender's Loans and its interest in the Letters of Credit and the denominator shall be the aggregate amount of all unpaid Loans and Letters of Credit. 1.104 "Real Property" shall mean all now owned and hereafter acquired real property of each Borrower and Guarantor, including leasehold interests, together with all buildings, structures, and other improvements located thereon and all licenses, easements and appurtenances relating thereto, wherever located, including the real property and related assets more particularly described in the Mortgages. 1.105 "Real Property Closing Conditions" shall mean with respect to the Mortgages for the real property located in Hortonville, Wisconsin and Upper Sandusky Ohio, receipt by Agent of ALTA surveys, ALTA title commitments (consistent with the requirements of Section 4.1(k) hereof) and such other documents and instruments as Agent may reasonably require with respect to both Mortgages all in form and substance reasonably satisfactory to Agent. 1.106 "Receivables" shall mean all of the following now owned or hereafter arising or acquired property of each Borrower and Guarantor: (a) all Accounts; (b) all interest, fees, late charges, penalties, collection fees and other amounts due or to become due or otherwise payable in connection with any Account; (c) all payment intangibles of such Borrower or Guarantor; (d) letters of credit, indemnities, guarantees, security or other deposits and proceeds thereof issued payable to any Borrower or Guarantor or otherwise in favor of or delivered to any Borrower or Guarantor in connection with any Account; or (e) all other accounts, contract rights, chattel paper, instruments, notes, general intangibles and other forms of obligations owing to any Borrower or Guarantor, whether from the sale and lease of goods or other property, licensing of any property (including Intellectual Property or other general intangibles), rendition of services or from loans or advances by any Borrower or Guarantor or to or for the benefit of any third person (including loans or advances to any Affiliates or Subsidiaries of any Borrower or Guarantor) or otherwise associated with any Accounts, Inventory or general intangibles of any Borrower or Guarantor (including, without limitation, choses in action, causes of action, tax refunds, tax refund claims, any funds which may become payable to any Borrower or Guarantor in connection with the termination of any Plan or other employee benefit plan and any other amounts payable to any Borrower or Guarantor from any Plan or other employee benefit plan, rights and claims against carriers and shippers, rights to indemnification, business interruption insurance and proceeds thereof, casualty or any similar types of insurance and any proceeds thereof and proceeds of insurance covering the lives of employees on which any Borrower or Guarantor is a beneficiary). 1.107 "Records" shall mean, as to each Borrower and Guarantor, all of such Borrower's and Guarantor's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of any Borrower or Guarantor with respect to the foregoing maintained with or by any other person). 1.108 "Reference Bank" shall mean Wachovia Bank, National Association, or such other bank as Agent may from time to time designate. 1.109 "Renewal Date" shall have the meaning set forth in Section 13.1 hereof. 1.110 "Register" shall have the meaning set forth in Section 13.7 hereof. 1.111 "Remaining Notes" shall mean collectively, the Peoria Debt and the 8% notes issued pursuant to the Indenture. 1.112 "Required Lenders" shall mean, at any time, those Lenders whose Pro Rata Shares aggregate sixty-six and two-thirds (66 2/3%) percent or more of the aggregate of the Commitments of all Lenders, or if the Commitments shall have been terminated, Lenders to whom at least sixty-six and two-thirds (66 2/3%) percent of the then outstanding Obligations are owing. 1.113 "Reserves" shall mean as of any date of determination, such amounts as Agent may from time to time establish and revise reasonably and in good faith reducing the amount of Revolving Loans and Letters of Credit which would otherwise be available to any Borrower under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks which, as reasonably determined by Agent in good faith, materially and adversely affect, or would have a reasonable likelihood of materially and adversely affecting, either (i) the Collateral comprising the Borrowing Base or Collateral on which the Term Loans are based, its value or the amount that will likely be received by Agent from the sale or other disposition or realization upon such Collateral, or (ii) the assets, business or prospects of any Borrower or (iii) the security interests and other rights of Agent and the Lenders in the Collateral (including the enforceability, perfection and priority thereof) or (b) to reflect Agent's good faith belief that any collateral report or financial information furnished by or on behalf of any Borrower or Guarantor to Agent is incomplete, inaccurate or misleading in any material respect or (c) to reflect outstanding Letters of Credit as provided in Section 2.2 hereof or (d) in respect of any state of facts which Agent determines in good faith constitutes a Default or an Event of Default. Without limiting the generality of the foregoing, Reserves may, at Agent's option, be established to reflect: (i) dilution with respect to the Accounts (based on the ratio of the aggregate amount of non-cash reductions in Accounts for any period to the aggregate dollar amount of the sales of such Borrower for such period) as calculated by Agent for any period is or is reasonably anticipated to be greater than three (3%) percent; (ii) that the orderly liquidation value of the Equipment or fair market value or quick sale value of any of the Real Property as set forth in the most recent acceptable appraisals received by Agent with respect thereto has declined so that the then outstanding principal amount of the Term Loans is greater than such percentage with respect to such appraised values as Agent used in establishing the original principal amount of the Term Loans multiplied by such appraised values; (iii) returns, discounts, claims, credits and allowances of any nature that are not paid pursuant to the reduction of Accounts; (iv) sales, excise or similar taxes included in the amount of any Accounts reported to Agent; (v) a change in the turnover, age or mix of the categories of Inventory that adversely affects the aggregate value of all Inventory; (vi) amounts due or to become due to owners and lessors of premises where any Collateral is located, other than for those locations where Agent has received a Collateral Access Agreement that Agent has accepted in writing and (vii) obligations, liabilities or indebtedness (contingent or otherwise) of Borrowers to Agent, any Lender, any Affiliate of any Lender or any other financial institution acceptable to Agent (and in each case as to any such , Lender, Affiliate of any Lender or other financial institution only to the extent approved by Agent) arising under or in connection with any Hedge Agreement of any Borrower with Agent, any Lender, any Affiliate of any Lender or any other financial institution acceptable to Agent or as such Person may otherwise require in connection therewith to the extent that such obligations, liabilities or indebtedness constitute Obligations as such term is defined herein or otherwise receive the benefit of the security interest of Agent in any Collateral. The amount of any Reserve established by Agent shall have a reasonable relationship to the event, condition or other matter which is the basis for such reserve as determined by Agent in good faith and to the extent that such Reserve is in respect of amounts that may be payable to third parties Agent may, at its option, deduct such Reserve from the Revolving Loan Limit, at any time that such limit is less than the amount of the Borrowing Base. 1.114 "Restructuring Expenses" shall mean fees and expenses relating to the Chapter 11 cases and the consummation of the Plan of Reorganization for any period ending on or before December 31, 2006 and other business restructuring fees and expenses of the type described in Financial Accounting Standards Board 146 for any period ending on or before December 31, 2006.. 1.115 "Revolving Loan Limit" shall mean, as to each Borrower, at any time, the amount equal to the $80,000,000 minus the sum of (a) the then outstanding principal amount of the Revolving Loans and Letters of Credit provided to the other Borrowers plus (b) the then outstanding principal amount of the Term Loans. 1.116 "Revolving Loans" shall mean the loans now or hereafter made by or on behalf of any Lender or by Agent for the account of any Lender on a revolving basis pursuant to the Credit Facility (involving advances, repayments and readvances) as set forth in Section 2.1 hereof. 1.117 "Solvent" shall mean, at any time with respect to any Person, that at such time such Person (a) is able to pay its debts as they mature and has (and has a reasonable basis to believe it will continue to have) sufficient capital (and not unreasonably small capital) to carry on its business consistent with its practices as of the date hereof, and (b) the assets and properties of such Person at a fair valuation (and including as assets for this purpose at a fair valuation all rights of subrogation, contribution or indemnification arising pursuant to any guarantees given by such Person) are greater than the Indebtedness of such Person, and including subordinated and contingent liabilities computed at the amount which, such person has a reasonable basis to believe, represents an amount which can reasonably be expected to become an actual or matured liability (and including as to contingent liabilities arising pursuant to any guarantee the face amount of such liability as reduced to reflect the probability of it becoming a matured liability). 1.118 "Special Agent Advances" shall have the meaning set forth in Section 12.11 hereof. 1.119 "Subsidiary" or "subsidiary" shall mean, with respect to any Person, any corporation, limited liability company, limited liability partnership or other limited or general partnership, trust, association or other business entity of which an aggregate of at least a majority of the outstanding Capital Stock or other interests entitled to vote in the election of the board of directors of such corporation (irrespective of whether, at the time, Capital Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency), managers, trustees or other controlling persons, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such Person and/or one or more subsidiaries of such Person. Notwithstanding the foregoing, the term "Subsidiary" shall exclude Sherman Wire Company, Sherman Wire of Caldwell, Inc., J.L. Prescott Company and De Soto Environmental Management, Inc., each of which is to be managed for the benefit of its creditors or liquidated pursuant to the Plan of Reorganization. 1.120 "Term A Loans" shall mean, collectively, the term loans made by or on behalf of Lenders as provided for in Section 2.3(a) hereof and based on 40% of the appraised net orderly liquidation value of such Borrowers' Equipment as determined by Agent based on appraisals received prior to the date hereof. 1.121 "Term B Loans" shall mean, collectively, the term loans made by or on behalf of Lenders as provided for in Section 2.3(b) hereof and based on the lesser of (a) 60% of the appraised fair market value of EWP's and FV Steel's Real Property as determined by Agent based on appraisals received prior to the date hereof or (b) 80% of the quick sale value of such Borrowers' Real Property as determined by Agent based on appraisals received prior to the date hereof. 1.122 "Term C Loans" shall mean, collectively, the term loans made by or on behalf of Lenders to any Borrower after the date hereof as provided for in Section 2.3(c) hereof. 1.123 "Term Loans" shall mean, collectively, the Term A Loans, Term B Loans and Term C Loans. 1.124 "Trustee Debt" shall mean the obligations and liabilities of Keystone and FV Steel to the trustee for the Holders of the Class A6 Claims (as such terms are defined in the Plan of Reorganization) under that certain Promissory Note dated as of the date hereof issued by Keystone and FV Steel in favor of such trustee. 1.125 "Trustee Intercreditor Agreement" shall mean that certain Subordination and Intercreditor Agreement dated as of the date hereof (as amended or otherwise modified from time to time) among Keystone, FV Steel, Agent and the trustee for the Holders of the Class A6 Claims (as such terms are defined in the Plan of Reorganization). 1.126 "UCC" shall mean the Uniform Commercial Code as in effect in the State of Illinois, and any successor statute, as in effect from time to time (except that terms used herein which are defined in the Uniform Commercial Code as in effect in the State of Illinois on the date hereof shall continue to have the same meaning notwithstanding any replacement or amendment of such statute except as Agent may otherwise determine). 1.127 "Value" shall mean, as determined by Agent in good faith, with respect to Inventory, the lower of (a) cost computed on a first-in first-out basis in accordance with GAAP or (b) market value, provided, that, for purposes of the calculation of the Borrowing Base, the Value of the Inventory shall not include: (A) the portion of the value of Inventory equal to the profit earned by any Affiliate on the sale thereof to any Borrower or (B) write-ups or write-downs in value with respect to currency exchange rates. 1.128 "Voting Stock" shall mean with respect to any Person, (a) one (1) or more classes of Capital Stock of such Person having general voting powers to elect at least a majority of the board of directors, managers or trustees of such Person, irrespective of whether at the time Capital Stock of any other class or classes have or might have voting power by reason of the happening of any contingency, and (b) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (a) of this definition. 1.129 "Wachovia" shall mean Wachovia Capital Finance Corporation (Central), an Illinois corporation, in its individual capacity, and its successors and assigns. 1.130 "Working Capital" shall mean as to any Person, at any time, in accordance with GAAP, on a consolidated basis for such Person and its subsidiaries (if any), the amount equal to the difference between: (a) the aggregate net book value of all current assets of such Person and its subsidiaries (as determined in accordance with GAAP), calculating the book value of inventory for this purpose on a first-in-first-out basis, and (b) all current liabilities of such Person and its subsidiaries (as determined in accordance with GAAP), provided, that, as to Parent, for purposes of Section 9.18, the liabilities of Parent and its Subsidiaries to Agent and Lenders under this Agreement shall not be considered current liabilities (whether or not classified as current liabilities in accordance with GAAP). SECTION 2. CREDIT FACILITIES 2.1 Loans. (a) Subject to and upon the terms and conditions contained herein, each Lender severally (and not jointly) agrees to make its Pro Rata Share of Revolving Loans to each Borrower (other than F V Steel) from time to time in amounts requested by such Borrower (or Administrative Borrower on behalf of such Borrower) up to the aggregate amount outstanding for all Lenders at any time equal to the lesser of: (i) the Borrowing Base of such Borrower at such time or (ii) the Revolving Loan Limit of such Borrower at such time. (b) Except in Agent's discretion, with the consent of all Lenders, or as otherwise provided herein, (i) the aggregate amount of the Loans and the Letter of Credit Obligations outstanding at any time shall not exceed the Maximum Credit, (ii) the aggregate principal amount of the Revolving Loans and Letter of Credit Obligations outstanding at any time to a Borrower shall not exceed the Borrowing Base of such Borrower, (iii) the aggregate principal amount of the Loans and Letter of Credit Obligations outstanding at any time to a Borrower shall not exceed the Loan Limit of such Borrower, (iv) the aggregate principal amount of the Revolving Loans outstanding to a Borrower based on the Eligible Inventory of such Borrower shall not exceed the Inventory Loan Limit of such Borrower and (v) the aggregate principal amount of the Revolving Loans outstanding at any time to Borrowers based on the Eligible Inventory shall not exceed $35,000,000. (c) In the event that (i) the aggregate amount of the Loans and the Letter of Credit Obligations outstanding at any time exceed the Maximum Credit, or (ii) except as otherwise provided herein, the aggregate principal amount of the Revolving Loans and Letter of Credit Obligations outstanding to a Borrower exceed the Borrowing Base of such Borrower or the Revolving Loan Limit of such Borrower, or (iii) the aggregate principal amount of Revolving Loans and Letter of Credit Obligations based on the Eligible Inventory of a Borrower exceed the Inventory Loan Limit of such Borrower, or (iv) the aggregate principal amount of Revolving Loans and Letters of Credit based on the Eligible Inventory of all Borrowers exceeds the sublimit set forth above, such event shall not limit, waive or otherwise affect any rights of Agent or Lenders in such circumstances or on any future occasions and Borrowers shall, upon demand by Agent, which may be made at any time or from time to time, immediately repay to Agent the entire amount of any such excess(es) for which payment is demanded. 2.2 Letters of Credit. (a) Subject to and upon the terms and conditions contained herein and in the Letter of Credit Documents, at the request of a Borrower (other than F V Steel) (or Administrative Borrower on behalf of such Borrower), Agent agrees to provide or arrange for the account of such Borrower one or more Letters of Credit, for the ratable risk of each Lender according to its Pro Rata Share, containing terms and conditions acceptable to Agent and the issuer thereof. The issuer of the Letters of Credit will be Wachovia Bank, National Association or such other bank as Agent may from time to time designate. (b) The Borrower requesting such Letter of Credit (or Administrative Borrower on behalf of such Borrower) shall give Agent three (3) Business Days' prior written notice of such Borrower's request for the issuance of a Letter of Credit. Such notice shall be irrevocable and shall specify the original face amount of the Letter of Credit requested, the effective date of issuance of such requested Letter of Credit, whether such Letter of Credit may be drawn in a single or in partial draws, the date on which such requested Letter of Credit is to expire (which date shall be a Business Day and in no event shall such date be less than ten (10) days prior to the end of the then current term of this Agreement), the purpose for which such Letter of Credit is to be issued, and the beneficiary of the requested Letter of Credit. The Borrower requesting the Letter of Credit (or Administrative Borrower on behalf of such Borrower) shall attach to such notice the proposed terms of the Letter of Credit. The renewal or extension of any Letter of Credit shall, for purposes hereof, be treated in all respects the same as the issuance of a new Letter of Credit hereunder. (c) In addition to being subject to the satisfaction of the applicable conditions precedent contained in Section 4 hereof and the other terms and conditions contained herein, no Letter of Credit shall be available unless each of the following conditions precedent have been satisfied in a manner reasonably satisfactory to Agent: (i) the Borrower requesting such Letter of Credit (or Administrative Borrower on behalf of such Borrower) shall have delivered to the proposed issuer of such Letter of Credit at such times and in such manner as such proposed issuer may require, an application, in form and substance satisfactory to such proposed issuer and Agent, for the issuance of the Letter of Credit and such other Letter of Credit Documents as may be required pursuant to the terms thereof, and the form and terms of the proposed Letter of Credit shall be satisfactory to Agent and such proposed issuer; (ii) as of the date of issuance, no order of any court, arbitrator or other Governmental Authority shall purport by its terms to enjoin or restrain money center banks generally from issuing letters of credit of the type and in the amount of the proposed Letter of Credit, and no law, rule or regulation applicable to money center banks generally and no request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over money center banks generally shall prohibit, or request that the proposed issuer of such Letter of Credit refrain from, the issuance of letters of credit generally or the issuance of such Letters of Credit; (iii) after giving effect to the issuance of such Letter of Credit, the Letter of Credit Obligations shall not exceed the Letter of Credit Limit; and (iv) the Excess Availability of the Borrower requesting such Letter of Credit, prior to giving effect to any Reserves with respect to such Letter of Credit, on the date of the proposed issuance of any Letter of Credit, shall be equal to or greater than: (A) if the proposed Letter of Credit is for the purpose of purchasing Eligible Inventory and the documents of title with respect thereto are consigned to the issuer, the sum of (1) the percentage equal to one hundred (100%) percent minus the then applicable percentage with respect to Eligible Inventory set forth in the definition of the term Borrowing Base multiplied by the Value of such Eligible Inventory, plus (2) freight, taxes, duty and other amounts which Agent estimates must be paid in connection with such Inventory upon arrival and for delivery to one of such Borrower's locations for Eligible Inventory within the United States of America and (B) if the proposed Letter of Credit is for any other purpose or the documents of title are not consigned to the issuer in connection with a Letter of Credit for the purpose of purchasing Inventory, an amount equal to one hundred (100%) percent of the Letter of Credit Obligations with respect thereto. Effective on the issuance of each Letter of Credit, a Reserve shall be established in the applicable amount set forth in Section 2.2(c)(iv)(A) or Section 2.2(c)(iv)(B). (d) Except in Agent's discretion, with the consent of all Lenders, the amount of all outstanding Letter of Credit Obligations shall not at any time exceed the Letter of Credit Limit. (e) Each Borrower shall reimburse immediately the issuer of a Letter of Credit for any draw under any Letter of Credit issued for the account of such Borrower by such issuer and pay such issuer the amount of all other charges and fees payable to issuer in connection with any Letter of Credit issued for the account of such Borrower immediately when due, irrespective of any claim, setoff, defense or other right which such Borrower may have at any time against the issuer or any other Person. Each drawing under any Letter of Credit or other amount payable in connection therewith when due shall constitute a request by the Borrower for whose account such Letter of Credit was issued to Agent for a Prime Rate Loan in the amount of such drawing or other amount then due and shall be made by Agent on behalf of Lenders as a Revolving Loan (or Special Agent Advance, as the case may be). The date of such Loan shall be the date of the drawing or as to other amounts, the due date therefor. Any payments made by or on behalf of Agent or any Lender to an issuer and/or related parties in connection with any Letter of Credit shall constitute additional Revolving Loans to such Borrower pursuant to this Section 2 (or Special Agent Advances as the case may be). (f) Borrowers and Guarantors shall indemnify and hold Agent and Lenders harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Agent or any Lender may suffer or incur in connection with any Letter of Credit and any documents, drafts or acceptances relating thereto, including any losses, claims, damages, liabilities, costs and expenses due to any action taken by any issuer or correspondent with respect to any Letter of Credit, except to the extent such losses, claims, damages, liabilities, costs or expenses are a direct result of the gross negligence or wilful misconduct of Agent or any Lender as determined pursuant to a final non-appealable order of a court of competent jurisdiction. Each Borrower and Guarantor assumes all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit and for such purposes the drawer or beneficiary shall be deemed such Borrower's agent. Each Borrower and Guarantor assumes all risks for, and agrees to pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject to any Letter of Credit or any documents, drafts or acceptances thereunder. Each Borrower and Guarantor hereby releases and holds Agent and Lenders harmless from and against any acts, waivers, errors, delays or omissions with respect to or relating to any Letter of Credit, except for the gross negligence or wilful misconduct of Agent or any Lender as determined pursuant to a final, non-appealable order of a court of competent jurisdiction. The provisions of this Section 2.2(f) shall survive the payment of Obligations and the termination of this Agreement. (g) In connection with Inventory purchased pursuant to any Letter of Credit, Borrowers and Guarantors shall, at Agent's request, instruct all suppliers, carriers, forwarders, customs brokers, warehouses or others receiving or holding cash, checks, Inventory, documents or instruments in which Agent holds a security interest that upon Agent's request, such items are to be delivered to Agent and/or subject to Agent's order, and if they shall come into such Borrower's or Guarantor's possession, to deliver them, upon Agent's request, to Agent in their original form. Except as otherwise provided herein, Agent shall not exercise such right to request such items so long as no Event of Default shall have occurred and be continuing. Except as Agent may otherwise specify, Borrowers shall designate Agent or the issuer of the Letter of Credit related thereto, as the consignee on all bills of lading and other negotiable and non-negotiable documents. (h) Each Borrower and Guarantor hereby irrevocably authorizes and directs any issuer of a Letter of Credit to name such Borrower or Guarantor as the account party therein and to deliver to Agent all instruments, documents and other writings and property received by issuer pursuant to the Letter of Credit and to accept and rely upon Agent's instructions and agreements with respect to all matters arising in connection with the Letter of Credit or the Letter of Credit Documents with respect thereto. Nothing contained herein shall be deemed or construed to grant any Borrower or Guarantor any right or authority to pledge the credit of Agent or any Lender in any manner. Agent and Lenders shall have no liability of any kind with respect to any Letter of Credit provided by an issuer unless Agent has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such Letter of Credit. Borrowers and Guarantors shall be bound by any reasonable interpretation made in good faith by Agent, or any other issuer or correspondent under or in connection with any Letter of Credit or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of any Borrower or Guarantor. (i) Immediately upon the issuance or amendment of any Letter of Credit, each Lender shall be deemed to have irrevocably and unconditionally purchased and received, without recourse or warranty, an undivided interest and participation to the extent of such Lender's Pro Rata Share of the liability with respect to such Letter of Credit and the obligations of Borrowers with respect thereto (including all Letter of Credit Obligations with respect thereto). Each Lender shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and be obligated to pay to the issuer of any such Letter of Credit therefor and discharge when due, its Pro Rata Share of all of such obligations arising under such Letter of Credit. Without limiting the scope and nature of each Lender's participation in any Letter of Credit, to the extent that the issuer has not been reimbursed or otherwise paid as required hereunder or under any such Letter of Credit, each such Lender shall pay to the issuer its Pro Rata Share of such unreimbursed drawing or other amounts then due to issuer in connection therewith. (j) The obligations of Borrowers to pay each Letter of Credit Obligations and the obligations of Lenders to make payments to Agent for the account of any issuer with respect to Letters of Credit shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances, whatsoever, notwithstanding the occurrence or continuance of any Default, Event of Default, the failure to satisfy any other condition set forth in Section 4 or any other event or circumstance. If such amount is not made available by a Lender when due, Agent shall be entitled to recover such amount on demand from such Lender with interest thereon, for each day from the date such amount was due until the date such amount is paid to Agent at the interest rate then payable by Borrower in respect of Loans that are Prime Rate Loans. Any such reimbursement shall not relieve or otherwise impair the obligation of Borrower to reimburse Issuing Bank under any Letter of Credit or make any other payment in connection therewith. (k) Any rights, remedies, duties or obligations granted or undertaken by any Borrower to any issuer or correspondent in any application for any Letter of Credit, or any other agreement in favor of any issuer or correspondent relating to any Letter of Credit, shall be deemed to have been granted or undertaken by such Borrower to Agent. Any duties or obligations undertaken by Agent to any issuer or correspondent in any application for any Letter of Credit, or any other agreement by Agent in favor of any issuer or correspondent relating to any Letter of Credit, shall be deemed to have been undertaken by Borrowers to Agent and to apply in all respects to Borrowers. 2.3 Term Loans. (a) Subject to and upon the terms and conditions contained herein, on the date hereof and upon the satisfaction of all the conditions set forth in Section 4, each Lender severally (and not jointly) agrees to make Term A Loans (collectively, the "Term A Loans") in an amount equal to its Pro Rata Share of the aggregate original principal amount of the Term A Loans of $22,508,000. The aggregate original principal amount of the Term A Loans to Keystone shall be in the amount of $21,311,150 and to EWP shall be in the amount of $1,196,850. (b) Subject to and upon the terms and conditions contained herein, on the date on which the Real Property Closing Conditions are satisfied and upon the satisfaction of all the conditions set forth in Section 4, each Lender severally (and not jointly) agrees to make Term B Loans (collectively, the "Term B Loans") in an amount equal to its Pro Rata Share of the aggregate original principal amount of the Term B Loans of $620,000. The aggregate original principal amount of the Term B Loans to EWP shall be in the amount of $488,000 and to F V Steel in the amount of $132,000. (c) Subject to and upon the terms and conditions contained herein, from time to time after the date hereof upon the written request of Administrative Borrower to Agent which may be made no more frequently than once in any 180 day period (but no earlier than January 31, 2006), each Lender severally (and not jointly) agrees to make Term C Loans (collectively, the "Term C Loans") to the Borrowers designated in such written request within five (5) Business Days after Agent's receipt of such written request; provided, that all the following conditions are satisfied with respect to each Term C Loan (i) each written request designates the Borrower to receive the Term C Loan, describes the Equipment on which such Term C Loan is to be based, and specifies the amount of such Term C Loan requested to be advanced, (ii) each Term C Loan shall be based on new Equipment purchased and not otherwise supporting an outstanding Term Loan, (iii) all the conditions set forth in Section 4 have been satisfied, (iv) each Term C Loan shall be made in increments of $250,000, (v) each Term C Loan shall not exceed the lesser of (A) $10,000,000 less the principal amount of all Term C Loans then outstanding, (B) $23,128,000 less the principal amount of all Term Loans then outstanding and (C) an amount equal to eighty (80%) percent of the Net Recovery Percentage with respect to such new Equipment multiplied by the cost of such new Equipment, (vi) Agent shall have received a net orderly liquidation value appraisal with respect to such new Equipment from an appraiser, and in scope and methodology, reasonably satisfactory to Agent and (vii) no Term C Loans may be made after August 31, 2009. (d) Each of the Term Loans shall be evidenced by this Agreement, shall be repaid, together with interest and other amounts, in accordance with this Agreement and the other Financing Agreements and shall be secured by all of the Collateral. If requested by Agent or any Lender, the Borrowers shall further evidence the Term Loans by executing promissory notes in the form provided by Agent. (e) The principal amount of each Term A Loan shall be repaid in sixty (60) consecutive equal monthly installments (or earlier as provided herein) payable on the first day of each month commencing on October 1, 2005, each in an amount sufficient (assuming a like repayment each month) to reduce each Term A Loan to zero ($0) by the first day of September, 2010. The principal amount of each Term B Loan shall be repaid in eighty-four (84) consecutive equal monthly installments (or earlier as provided herein) payable on the first day of each month commencing on the first day of the month immediately following the date on which each Term B Loan is made, each in an amount sufficient (assuming a like repayment each month) to reduce each Term B Loan to zero ($0) on the eighty-fourth (84th) installment. The principal amount of each Term C Loan shall be repaid in sixty (60) consecutive equal monthly installments (or earlier as provided herein) payable on the first day of each month commencing on the first day of the month immediately following the date of which such Term C Loan was made, each in an amount sufficient (assuming a like repayment each month) to reduce each Term A Loan to zero ($0) on the sixtieth (60th) installment. Notwithstanding the foregoing or anything in this Agreement to the contrary, all Term Loans shall be due and payable on the earlier of (i) the Renewal Date, (ii) if declared due and payable pursuant to Section 10.2 hereof or (iii) the date the Commitment to make Revolving Loans is terminated. (f) Within five (5) Business Days of the date on which financial statements are required to be delivered pursuant to Section 9.6(a)(ii) for each fiscal year of Administrative Borrower, commencing with the fiscal year ended December 31, 2006, Borrowers shall prepay the Term Loans in an amount equal to twenty-five (25%) percent of Excess Cash Flow for such fiscal year less the amount of any voluntary prepayments of the Term Loans made pursuant to Section 2.3(g) of this Agreement in such fiscal year (excluding prepayments from asset sales). Any prepayments from Excess Cash Flow shall be allocated to each Borrower's Term Loans based upon such Borrower's relative contribution to Excess Cash Flow and shall be applied as follows: first, to interest then due and payable on that Borrower's Term Loans, pro rata; second, to prepay the scheduled principal installments of that Borrower's Term Loans, pro rata, in inverse order of maturity, until such Term Loans have been prepaid in full; third, to interest then due and payable on Revolving Loans made to that Borrower; fourth, to the principal balance of Revolving Loans outstanding to that Borrower until the same have been paid in full (without a permanent reduction in the Commitment to make Revolving Loans); fifth, to any Letter of Credit Obligations of such Borrower to provide cash collateral therefore until all such Letter of Credit Obligations have been fully cash collateralized; sixth, to interest then due and payable on the Term Loans of each other Borrower, pro rata; seventh, to the Term Loans of each other Borrower, pro rata, to prepay the scheduled principal installments of the Term Loans of such other Borrowers in inverse order of maturity, until prepaid in full; eighth, to interest then due and payable on the Revolving Loans outstanding to each other Borrower (without a permanent reduction in the Commitment to make Revolving Loans), pro rata; ninth, to the principal balance of the Revolving Loans made to each other Borrower, pro rata, until the same have been paid in full, and last to any Letter of Credit Obligations of each other Borrower, pro rata, to provide cash collateral therefore until all such Letter of Credit Obligations have been fully cash collateralized. Each such prepayment from Excess Cash Flow shall be accompanied by a certificate signed by Administrative Borrower's chief financial officer certifying the manner in which Excess Cash Flow, the resulting prepayment, and the method of allocation to each Borrower's Obligations were calculated, which certificate shall be in form and substance reasonably satisfactory to Agent. Notwithstanding anything herein to the contrary, prepayments from Excess Cash Flow shall not exceed $2,000,000 in any fiscal year of Administrative Borrower and shall not exceed $5,000,000 in the aggregate during the term of this Agreement. (g) At any time, Borrowers may prepay the Loans, in whole or in part, subject to the payment of any fees or expenses that may be due under Sections 3.3(d) and 13.1(c) of this Agreement. Prepayments (unless a prepayment in whole) shall be in increments of $100,000. Any prepayment of a Term Loan shall be applied to the scheduled installments of such Term Loan in inverse order of maturity. 2.4 Commitments. The aggregate amount of each Lender's Pro Rata Share of the Loans and Letter of Credit Obligations shall not exceed the amount of such Lender's Commitment, as the same may from time to time be amended in accordance with the provisions hereof. SECTION 3. INTEREST AND FEES 3.1 Interest. (a) Borrowers shall pay to Agent, for the benefit of Lenders, interest on the outstanding principal amount of the Loans at the Interest Rate. All interest accruing hereunder on and after the date of and during the continuance of any Event of Default or termination hereof shall be payable on demand. (b) Each Borrower (or Administrative Borrower on behalf of such Borrower) may from time to time request Eurodollar Rate Loans or may request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue for an additional Interest Period. Such request from a Borrower (or Administrative Borrower on behalf of such Borrower) shall specify the amount of the Eurodollar Rate Loans or the amount of the Prime Rate Loans to be converted to Eurodollar Rate Loans or the amount of the Eurodollar Rate Loans to be continued (subject to the limits set forth below) and the Interest Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and conditions contained herein, three (3) Business Days after receipt by Agent of such a request from a Borrower (or Administrative Borrower on behalf of such Borrower), such Eurodollar Rate Loans shall be made or Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be, provided, that, (i) no Default or Event of Default shall exist or have occurred and be continuing, (ii) no party hereto shall have sent any notice of termination of this Agreement, (iii) such Borrower (or Administrative Borrower on behalf of such Borrower) shall have complied with such customary procedures as are established by Agent and specified by Agent to Administrative Borrower from time to time for requests by Borrowers for Eurodollar Rate Loans, (iv) no more than five (5) Interest Periods may be in effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans must be in an amount not less than $1,000,000 or an integral multiple of $500,000 in excess thereof, (vi) the maximum amount of the Eurodollar Rate Loans in the aggregate at any time requested by Borrowers shall not exceed the amount equal to (A) the lowest aggregate principal amount of the Term Loans which it is anticipated will be outstanding as of the last day of the applicable Interest Period plus (B) eighty (80%) percent of the lowest principal amount of the Revolving Loans which it is anticipated will be outstanding during the applicable Interest Period, in each case as determined by Agent in good faith (but with no obligation of Agent or Lenders to make such Loans), and (vii) Agent and each Lender shall have determined that the Interest Period or Adjusted Eurodollar Rate is available to Agent and such Lender and can be determined as of the date of the request for such Eurodollar Rate Loan by such Borrower. Any request by or on behalf of a Borrower for Eurodollar Rate Loans or to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to the contrary contained herein, Agent and Lenders shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if Agent and Lenders had purchased such deposits to fund the Eurodollar Rate Loans. (c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the last day of the applicable Interest Period, unless Agent has received a request to continue such Eurodollar Rate Loan at least three (3) Business Days prior to such last day in accordance with the terms hereof. Any Eurodollar Rate Loans shall, at Agent's option, upon notice by Agent to Administrative Borrower, be subsequently converted to Prime Rate Loans in the event that this Agreement shall terminate or not be renewed. Borrowers shall pay to Agent, for the benefit of Lenders, upon demand by Agent (or Agent may, at its option, charge any loan account of any Borrower) any amounts required to compensate any Lender or Participant for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate Loans prior to the end of the applicable Interest Period. (d) Interest shall be payable by Borrowers to Agent, for the account of Lenders, monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The interest rate on non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the day of any change in such Prime Rate. In no event shall charges constituting interest payable by Borrowers to Agent and Lenders exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any such part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto. 3.2 Fees. (a) Borrowers shall pay to Agent, for the account of Lenders, monthly an unused line fee at a rate equal to one quarter of one (.25%) percent per annum calculated upon the amount by which $80,000,000 exceeds the average daily principal balance of the outstanding Loans and Letters of Credit during the immediately preceding month (or part thereof) while this Agreement is in effect and for so long thereafter as any of the Obligations (other than contingent indemnification obligations not asserted or due) are outstanding, which fee shall be payable on the first day of each month in arrears. (b) In the case of Letters of Credit, Borrowers shall pay to Agent, for the account of Lenders, a fee at a rate equal to the then applicable Interest Rate for Letter of Credit Obligations on the average daily maximum amount available to be drawn under all of such Letters of Credit for the immediately preceding month (or part thereof), payable in arrears as of the first day of each succeeding month, computed for each day from the date of issuance to the date of expiration. Such letter of credit fees shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of Borrowers to pay such fee shall survive the termination or non-renewal of this Agreement. In addition to the letter of credit fees provided above, Borrowers shall pay to the issuer of any Letter of Credit for its own account (without sharing with Lenders) the letter of credit fronting and negotiation fees agreed to by Borrowers and such issuer from time to time and the customary charges from time to time of such issuer with respect to the issuance, amendment, transfer, administration, cancellation and conversion of, and drawings under, such Letters of Credit. (c) Borrowers shall pay to Agent the other fees and amounts set forth in the Fee Letter in the amounts and at the times specified therein. 3.3 Changes in Laws and Increased Costs of Loans. (a) If after the date hereof, either (i) any change in, or in the interpretation of, any law or regulation is introduced, including, without limitation, with respect to reserve requirements (other than reserves taken into account in the calculation of the "Reserve Percentage" in the definition of "Adjusted Eurodollar Rate"), applicable to any Lender or any banking or financial institution from whom any Lender borrows funds or obtains credit (a "Funding Bank"), or (ii) a Funding Bank or any Lender complies with any future guideline or request from any central bank or other Governmental Authority or (iii) a Funding Bank or any Lender reasonably determines that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof has or would have the effect described below, or a Funding Bank or any Lender complies with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, and in the case of any event set forth in this clause (iii), such adoption, change or compliance has or would have the direct or indirect effect of reducing the rate of return on any Lender's capital as a consequence of its obligations hereunder to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration the Funding Bank's or Lender's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, and the result of any of the foregoing events described in clauses (i), (ii) or (iii) is or results in an increase in the cost to any Lender of funding or maintaining the Loans, the Letters of Credit or its Commitment, then Borrowers and Guarantors shall from time to time within five (5) days of demand by Agent pay to Agent additional amounts sufficient to indemnify such Lender against such increased cost on an after-tax basis (after taking into account applicable deductions and credits in respect of the amount indemnified). A certificate (with reasonably detailed calculations) as to the amount of such increased cost shall be submitted to Administrative Borrower by Agent or the applicable Lender and shall be conclusive, absent manifest error. (b) If prior to the first day of any Interest Period, (i) Agent shall have determined in good faith (which determination shall be conclusive and binding upon Borrowers and Guarantors absent manifest error) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Adjusted Eurodollar Rate for such Interest Period, (ii) Agent has received notice from the Required Lenders that the Adjusted Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to Lenders of making or maintaining Eurodollar Rate Loans during such Interest Period, or (iii) Dollar deposits in the principal amounts of the Eurodollar Rate Loans to which such Interest Period is to be applicable are not generally available in the London interbank market, Agent shall give telecopy or telephonic notice thereof to Administrative Borrower as soon as practicable thereafter, and will also give prompt written notice to Administrative Borrower when such conditions no longer exist. If such notice is given (A) any Eurodollar Rate Loans requested to be made on the first day of such Interest Period shall be made as Prime Rate Loans, (B) any Loans that were to have been converted on the first day of such Interest Period to or continued as Eurodollar Rate Loans shall be converted to or continued as Prime Rate Loans and (C) each outstanding Eurodollar Rate Loan shall be converted, on the last day of the then-current Interest Period thereof, to Prime Rate Loans. Until such notice has been withdrawn by Agent, no further Eurodollar Rate Loans shall be made or continued as such, nor shall any Borrower (or Administrative Borrower on behalf of any Borrower) have the right to convert Prime Rate Loans to Eurodollar Rate Loans. (c) Notwithstanding any other provision herein, if the adoption of or any change in any law, treaty, rule or regulation or final, non-appealable determination of an arbitrator or a court or other Governmental Authority or in the interpretation or application thereof occurring after the date hereof shall make it unlawful for Agent or any Lender to make or maintain Eurodollar Rate Loans as contemplated by this Agreement, (i) Agent or such Lender shall promptly give written notice of such circumstances to Administrative Borrower (which notice shall be withdrawn whenever such circumstances no longer exist), (ii) the commitment of such Lender hereunder to make Eurodollar Rate Loans, continue Eurodollar Rate Loans as such and convert Prime Rate Loans to Eurodollar Rate Loans shall forthwith be canceled and, until such time as it shall no longer be unlawful for such Lender to make or maintain Eurodollar Rate Loans, such Lender shall then have a commitment only to make a Prime Rate Loan when a Eurodollar Rate Loan is requested and (iii) such Lender's Loans then outstanding as Eurodollar Rate Loans, if any, shall be converted automatically to Prime Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Rate Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, Borrowers and Guarantors shall pay to such Lender such amounts, if any, as may be required pursuant to Section 3.3(d) below. (d) Borrowers and Guarantors shall indemnify Agent and each Lender and to hold Agent and each Lender harmless from any loss or expense which Agent or such Lender may sustain or incur as a consequence of (i) default by Borrower in making a borrowing of, conversion into or extension of Eurodollar Rate Loans after such Borrower (or Administrative Borrower on behalf of such Borrower) has given a notice requesting the same in accordance with the provisions of this Loan Agreement, (ii) default by any Borrower in making any prepayment of a Eurodollar Rate Loan after such Borrower has given a notice thereof in accordance with the provisions of this Agreement, and (iii) the making of a prepayment of Eurodollar Rate Loans on a day which is not the last day of an Interest Period with respect thereto. With respect to Eurodollar Rate Loans, such indemnification may include an amount equal to the excess, if any, of (A) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or extended, for the period from the date of such prepayment or of such failure to borrow, convert or extend to the last day of the applicable Interest Period (or, in the case of a failure to borrow, convert or extend, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Eurodollar Rate Loans provided for herein over (B) the amount of interest (as determined by such Agent or such Lender) which would have accrued to Agent or such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market. This covenant shall survive the termination or non-renewal of this Agreement and the payment of the Obligations. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions Precedent to Initial Loans and Letters of Credit. The obligation of Lenders to make the initial Loans or of Agent and Lenders to provide for the initial Letters of Credit hereunder is subject to the satisfaction of, or waiver of, immediately prior to or concurrently with the making of such Loan or the issuance of such Letter of Credit of each of the following conditions precedent: (a) Agent shall have received, in form and substance reasonably satisfactory to Agent, all releases, terminations and such other documents as Agent may reasonably request to evidence and effectuate the termination by the Existing Lenders of their respective financing arrangements with Borrowers and Guarantors and the termination and release by it or them, as the case may be, of any interest in and to any assets and properties of each Borrower and Guarantor, duly authorized, executed and delivered by it or each of them, including, but not limited to, (i) UCC termination statements for all UCC financing statements previously filed by it or any of them or their predecessors, as secured party and any Borrower or Guarantor, as debtor; and (ii) satisfactions and discharges of any mortgages, deeds of trust or deeds to secure debt by any Borrower or Guarantor in favor of it or any of them, in form acceptable for recording with the appropriate Governmental Authority; (b) all requisite corporate action and proceedings in connection with this Agreement and the other Financing Agreements shall be reasonably satisfactory in form and substance to Agent, and Agent shall have received all information and copies of all documents, including records of requisite corporate action and proceedings which Agent may have reasonably requested in connection therewith, such documents where requested by Agent or its counsel to be certified by appropriate corporate officers or Governmental Authority (and including a copy of the certificate of incorporation of each Borrower and Guarantor certified by the Secretary of State (or equivalent Governmental Authority) which shall set forth the same complete corporate name of such Borrower or Guarantor as is set forth herein and such document as shall set forth the organizational identification number of each Borrower or Guarantor, if one is issued in its jurisdiction of incorporation); (c) no material adverse change shall have occurred in the business or operations of Borrowers since July 29, 2005; (d) Agent shall have completed a field review and audit of the Records and such other information with respect to the Collateral as Agent may reasonably require to determine the amount of Loans available to Borrowers (including, without limitation, current perpetual inventory records and/or roll-forwards of Accounts and Inventory through the date of closing and test counts of the Inventory in a manner reasonably satisfactory to Agent, together with such supporting documentation as may be reasonably necessary or appropriate, and other documents and information that will enable Agent to accurately identify and verify the Collateral), the results of which in each case shall be reasonably satisfactory to Agent, not more than three (3) Business Days prior to the date hereof or such earlier date as Agent may agree; (e) Agent shall have received, in form and substance reasonably satisfactory to Agent, all consents, waivers, acknowledgments and other agreements from third persons which Agent may deem reasonably necessary or desirable in order to permit, protect and perfect its security interests in and liens upon the Collateral or to effectuate the provisions or purposes of this Agreement and the other Financing Agreements, including, without limitation, Collateral Access Agreements; (f) the Excess Availability in the aggregate for all Borrowers as of the date hereof shall be not less than $15,000,000 after giving effect to (i) the initial Loans made or to be made and Letters of Credit issued or to be issued in connection with the initial transactions hereunder, (ii) all payments required to be made under the Plan of Reorganization on or about the Effective Date (as defined therein), and (iii) all transaction fees and expenses associated with the Plan of Reorganization and the Financing Agreements on or about the Effective Date; (g) Agent shall have received, in form and substance satisfactory to Agent, Deposit Account Control Agreements by and among Agent, each Borrower and Guarantor, as the case may be and each bank where such Borrower (or Guarantor) has a deposit account, in each case, duly authorized, executed and delivered by such bank and Borrower or Guarantor, as the case may be (or Agent shall be the bank's customer with respect to such deposit account as Agent may specify); (h) Agent shall have received evidence, in form and substance satisfactory to Agent, that Agent has a valid perfected first priority security interest in all or substantially all of the Collateral subject to security interests permitted under Section 9.8; (i) Agent shall have received and reviewed lien and judgment search results for the jurisdiction of organization of each Borrower and Guarantor, the jurisdiction of the chief executive office of each Borrower and Guarantor and all jurisdictions in which assets of Borrowers and Guarantors are located, which search results shall be in form and substance satisfactory to Agent; (j) Except for the real property located in Peoria, Illinois, Agent shall have received environmental audits of the Real Property to be subject to the Mortgages conducted by an independent environmental engineering firm reasonably acceptable to Agent, and in form, scope and methodology reasonably satisfactory to Agent, the results of which shall be reasonably satisfactory to Agent; (k) With respect to the Mortgaged Properties (except for the real property located in Peoria, Illinois), Agent shall have received, in form and substance reasonably satisfactory to Agent, a valid and effective title insurance policy issued by a company and agent reasonably acceptable to Agent: (i) insuring the priority, amount and sufficiency of the Mortgages, (ii) insuring against matters materially affecting the Mortgaged Properties that would be disclosed by surveys and (iii) containing any legally available endorsements, assurances or affirmative coverage reasonably requested by Agent for protection of its interests; (l) Agent shall have received originals of the shares of the stock certificates representing all of the issued and outstanding shares of the Capital Stock of each Borrower and Guarantor (other than Parent) and owned by any Borrower or Guarantor, in each case together with stock powers duly executed in blank with respect thereto; (m) Agent shall have received evidence of insurance and loss payee endorsements required hereunder and under the other Financing Agreements, in form and substance reasonably satisfactory to Agent, and certificates of insurance policies and/or endorsements naming Agent as loss payee; (n) Except for the real property located in Peoria, Illinois, Agent shall have received appraisals with respect to the Borrower's Inventory, Equipment and Mortgaged Properties conducted by appraisers reasonably acceptable to Agent, all in form, scope and methodology reasonably satisfactory to Agent, the results of which shall be reasonably satisfactory to Agent and Agent shall have received reliance letters from such appraisers; (o) Agent shall have received, in form and substance reasonably satisfactory to Agent, such opinion letters of counsel to Borrowers and Guarantors with respect to the Financing Agreements and such other matters as Agent may reasonably request; (p) (i) The Plan of Reorganization shall be in form and substance satisfactory to Agent and shall have been confirmed pursuant to the Confirmation Order; (ii) Borrowers shall have delivered to Agent a true and correct copy of the Confirmation Order, in form and substance satisfactory to Agent; (iii) Borrowers shall have complied in full with the notice and other requirements for confirmation of the Plan of Reorganization and entry of the Confirmation Order; (iv) the Bankruptcy Court shall have entered the Confirmation Order, in form and substance satisfactory to Agent (A) authorizing the secured financing under the Financing Agreements and (B) revesting in Borrowers all property of Borrowers' estate, free and clear of all interests, liens, claims and encumbrances (except liens securing the Obligations and as otherwise permitted in writing by Agent); (v) the Confirmation Order shall be a "Final Order" (as defined in the Plan of Reorganization); and (vi) the conditions precedent to the confirmation of the Plan of Reorganization shall have been satisfied or validly waived in accordance with the terms of the Plan of Reorganization and Confirmation Order and the "Effective Date" (as defined in the Plan of Reorganization) shall have contemporaneously occurred under the Plan of Reorganization; and (q) the other Financing Agreements and all instruments and documents set forth on Exhibit D hereto shall have been duly executed and delivered to Agent, in form and substance reasonably satisfactory to Agent. 4.2 Conditions Precedent to All Loans and Letters of Credit. The obligation of Lenders to make the Loans, including the initial Loans, or of the Agent and Lenders to provide for any Letter of Credit, including the initial Letters of Credit, is subject to the further satisfaction of, or waiver of, immediately prior to or concurrently with the making of each such Loan or the issuance of such Letter of Credit of each of the following conditions precedent: (a) all representations and warranties contained herein and in the other Financing Agreements shall be true and correct in all material respects (without duplication in respect of any materiality qualifier set forth in any such representation and warranty) with the same effect as though such representations and warranties had been made on and as of the date of the making of each such Loan or providing each such Letter of Credit and after giving effect thereto, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate in all material respects (without duplication in respect of any materiality qualifier set forth in any such representation and warranty) on and as of such earlier date); (b) no law, regulation, order, judgment or decree of any Governmental Authority shall exist, and no action, suit, investigation, litigation or proceeding shall be pending or threatened in any court or before any arbitrator or Governmental Authority, which (i) purports to enjoin, prohibit, restrain or otherwise affect (A) the making of the Loans or providing the Letters of Credit, or (B) the consummation of the transactions contemplated pursuant to the terms hereof or the other Financing Agreements or (ii) has or has a reasonable likelihood of having a Material Adverse Effect; and (c) no Default or Event of Default shall exist or have occurred and be continuing on and as of the date of the making of such Loan or providing each such Letter of Credit and after giving effect thereto. SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST 5.1 Grant of Security Interest. To secure payment and performance of all Obligations, each Borrower and Guarantor hereby grants to Agent, for itself and the benefit of Lenders, a continuing security interest in, a lien upon, and a right of set off against, and hereby collaterally assigns to Agent, for itself and the benefit of Lenders, as security, all personal and real property and fixtures, and interests in property and fixtures, of each Borrower and Guarantor, whether now owned or hereafter acquired or existing, and wherever located (together with all other collateral security for the Obligations at any time granted to or held or acquired by Agent or any Lender, collectively, the "Collateral"), including: (a) all Accounts; (b) all general intangibles, including, without limitation, all Intellectual Property; (c) all goods, including, without limitation, Inventory and Equipment; (d) all Real Property and fixtures; (e) all chattel paper, including, without limitation, all tangible and electronic chattel paper; (f) all instruments, including, without limitation, all promissory notes; (g) all documents; (h) all deposit accounts; (i) all letters of credit, banker's acceptances and similar instruments and including all letter-of-credit rights; (j) all supporting obligations and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Receivables and other Collateral, including (i) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (ii) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (iii) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Receivables or other Collateral, including returned, repossessed and reclaimed goods, and (iv) deposits by and property of account debtors or other persons securing the obligations of account debtors; (k) all (i) investment property (including securities, whether certificated or uncertificated, securities accounts, security entitlements, commodity contracts or commodity accounts) and (ii) monies, credit balances, deposits and other property of any Borrower or Guarantor now or hereafter held or received by or in transit to Agent, any Lender or its Affiliates or at any other depository or other institution from or for the account of any Borrower or Guarantor, whether for safekeeping, pledge, custody, transmission, collection or otherwise; (l) all commercial tort claims, including, without limitation, those identified in the Information Certificate; (m) to the extent not otherwise described above, all Receivables; (n) all Records; and (o) all products and proceeds of the foregoing, in any form, including insurance proceeds and all claims against third parties for loss or damage to or destruction of or other involuntary conversion of any kind or nature of any or all of the other Collateral. Anything contained in this Agreement to the contrary notwithstanding, the term "Collateral" shall not include (A) any rights or interest in any contract, lease, permit, charter or license agreement covering real, intangible or personal property of a Borrower or Guarantor if under the terms of such contract, lease, permit, charter or license agreement, or applicable law with respect thereto, the valid grant of a security interest or lien therein to the Agent is prohibited as a matter of law or under the terms of such agreement, contract, lease, permit, charter or license agreement and such prohibition has not been or is not waived or the consent of the other party to such contract, lease, permit, charter or license agreement has not been or is not otherwise obtained; provided, that any such contract, lease, permit, charter or license agreement shall only be excluded hereunder to the extent and for so long as the consequences specified in this clause (A) shall result and shall become Collateral immediately and automatically at such time as such consequences are no longer in effect; or (B) any Equipment or other assets of a Borrower or Guarantor in which a negative pledge agreed to, under a capital lease or purchase money indebtedness; provided, that, the foregoing exclusions under (A) and (B) shall in no way be construed (1) to apply if any described prohibition is unenforceable under Sections 9-406, 9-407, or 9-408 of the UCC or other applicable law or principles of equity, or (2) so as to limit, impair, or otherwise affect the Agent's continuing security interests in and liens upon any rights or interests of a Borrower or Guarantor in or to monies due or to become due under any described contract, lease, permit, charter or license agreement or (3) to limit, impair, or otherwise affect the Agent's continuing security interests in and liens upon any rights or interests of a Borrower or Guarantor in and to any proceeds from the sale, license, lease, or other dispositions of any such contract, lease, permit, charter or license agreement. 5.2 Perfection of Security Interests. (a) Each Borrower and Guarantor irrevocably and unconditionally authorizes Agent (or its agent) to file at any time and from time to time such financing statements with respect to the Collateral naming Agent or its designee as the secured party and such Borrower or Guarantor as debtor, as Agent may require, and including the Collateral as all assets of such Borrower or Guarantor, as the case may be, or words of similar effect and including any other information with respect to such Borrower or Guarantor or otherwise required by part 5 of Article 9 of the Uniform Commercial Code of such jurisdiction as Agent may determine, together with any amendment and continuations with respect thereto, which authorization shall apply to all financing statements filed on, prior to or after the date hereof. Each Borrower and Guarantor hereby ratifies and approves all financing statements naming Agent or its designee as secured party and such Borrower or Guarantor, as the case may be, as debtor with respect to the Collateral (and any amendments with respect to such financing statements) filed by or on behalf of Agent prior to the date hereof and ratifies and confirms the authorization of Agent to file such financing statements (and amendments, if any). Each Borrower and Guarantor hereby authorizes Agent to adopt on behalf of such Borrower and Guarantor any symbol required for authenticating any electronic filing. In the event that the description of the collateral in any financing statement naming Agent or its designee as the secured party and any Borrower or Guarantor as debtor includes assets and properties of such Borrower or Guarantor that do not at any time constitute Collateral, whether hereunder, under any of the other Financing Agreements or otherwise, the filing of such financing statement shall nonetheless be deemed authorized by such Borrower or Guarantor to the extent of the Collateral included in such description and it shall not render the financing statement ineffective as to any of the Collateral or otherwise affect the financing statement as it applies to any of the Collateral. In no event shall any Borrower or Guarantor at any time file, or permit or cause to be filed, any correction statement or termination statement with respect to any financing statement (or amendment or continuation with respect thereto) naming Agent or its designee as secured party and such Borrower or Guarantor as debtor. (b) Each Borrower and Guarantor does not have any chattel paper (whether tangible or electronic) or instruments as of the date hereof, except as set forth in the Information Certificate. In the event that any Borrower or Guarantor shall be entitled to or shall receive any chattel paper or instrument with a face value in excess of $250,000, individually or in the aggregate, after the date hereof, Borrowers and Guarantors shall promptly notify Agent thereof in writing. Promptly upon the request of Agent, such Borrower or Guarantor shall deliver, or cause to be delivered to Agent, all such tangible chattel paper and instruments that such Borrower or Guarantor has or may at any time acquire, accompanied by such instruments of transfer or assignment duly executed in blank as Agent may from time to time specify, in each case except as Agent may otherwise agree. At Agent's option, each Borrower and Guarantor shall, or Agent may at any time on behalf of any Borrower or Guarantor, cause the original of any such instrument or chattel paper to be conspicuously marked in a form and manner acceptable to Agent with the following legend referring to chattel paper or instruments as applicable: "This [chattel paper] [instrument] is subject to the security interest of Wachovia Capital Finance Corporation (Central) and any sale, transfer, assignment or encumbrance of this [chattel paper] [instrument] violates the rights of such secured party." (c) In the event that any Borrower or Guarantor shall at any time hold or acquire an interest in any electronic chattel paper or any "transferable record" (as such term is defined in Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction), such Borrower or Guarantor shall promptly notify Agent thereof in writing. Promptly upon Agent's request, such Borrower or Guarantor shall take, or cause to be taken, such actions as Agent may reasonably request to give Agent control of such electronic chattel paper under Section 9-105 of the UCC and control of such transferable record under Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as in effect in such jurisdiction. (d) Each Borrower and Guarantor does not have any deposit accounts as of the date hereof, except as set forth in the Information Certificate. Borrowers and Guarantors shall not, directly or indirectly, after the date hereof open, establish or maintain any deposit account unless each of the following conditions is satisfied: (i) Agent shall have received not less than five (5) Business Days prior written notice of the intention of any Borrower or Guarantor to open or establish such account which notice shall specify in reasonable detail and specificity reasonably acceptable to Agent the name of the account, the owner of the account, the name and address of the bank at which such account is to be opened or established, the individual at such bank with whom such Borrower or Guarantor is dealing and the purpose of the account, (ii) the bank where such account is opened or maintained shall be reasonably acceptable to Agent, and (iii) on or before the opening of such deposit account, such Borrower or Guarantor shall as Agent may specify either (A) deliver to Agent a Deposit Account Control Agreement with respect to such deposit account duly authorized, executed and delivered by such Borrower or Guarantor and the bank at which such deposit account is opened and maintained or (B) arrange for Agent to become the customer of the bank with respect to the deposit account on terms and conditions acceptable to Agent. The terms of this subsection (d) shall not apply to deposit accounts (i) specifically and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of any Borrower's or Guarantor's salaried employees and (ii) with a balance of less than $25,000 for any one account so long as the aggregate balance in all such accounts does not exceed $100,000. (e) No Borrower or Guarantor owns or holds, directly or indirectly, beneficially or as record owner or both, any investment property, as of the date hereof, or has any investment account, securities account, commodity account or other similar account with any bank or other financial institution or other securities intermediary or commodity intermediary as of the date hereof, in each case except as set forth in the Information Certificate. (i) In the event that any Borrower or Guarantor shall be entitled to or shall at any time after the date hereof hold or acquire any certificated securities, such Borrower or Guarantor shall promptly endorse, assign and deliver the same to Agent, accompanied by such instruments of transfer or assignment duly executed in blank as Agent may from time to time specify. If any securities, now or hereafter acquired by any Borrower or Guarantor are uncertificated and are issued to such Borrower or Guarantor or its nominee directly by the issuer thereof, such Borrower or Guarantor shall immediately notify Agent thereof and shall as Agent may specify, either (A) cause the issuer to agree to comply with instructions from Agent as to such securities, without further consent of any Borrower or Guarantor or such nominee, or (B) arrange for Agent to become the registered owner of the securities. (ii) Borrowers and Guarantors shall not, directly or indirectly, after the date hereof open, establish or maintain any investment account, securities account, commodity account or any other similar account (other than a deposit account) with any securities intermediary or commodity intermediary unless each of the following conditions is satisfied: (A) Agent shall have received not less than five (5) Business Days prior written notice of the intention of such Borrower or Guarantor to open or establish such account which notice shall specify in reasonable detail and specificity reasonably acceptable to Agent the name of the account, the owner of the account, the name and address of the securities intermediary or commodity intermediary at which such account is to be opened or established, the individual at such intermediary with whom such Borrower or Guarantor is dealing and the purpose of the account, (B) the securities intermediary or commodity intermediary (as the case may be) where such account is opened or maintained shall be reasonably acceptable to Agent, and (C) on or before the opening of such investment account, securities account or other similar account with a securities intermediary or commodity intermediary, such Borrower or Guarantor shall as Agent may specify either (i) execute and deliver, and cause to be executed and delivered to Agent, an Investment Property Control Agreement with respect thereto duly authorized, executed and delivered by such Borrower or Guarantor and such securities intermediary or commodity intermediary or (ii) arrange for Agent to become the entitlement holder with respect to such investment property on terms and conditions acceptable to Agent. The terms of this subsection (e)(ii) shall not apply to investment accounts, securities accounts, commodity accounts or any other similar accounts with a balance of less than $25,000 for any one account so long as the aggregate balance in all such accounts does not exceed $100,000. (f) Borrowers and Guarantors are not the beneficiary or otherwise entitled to any right to payment under any letter of credit, banker's acceptance or similar instrument as of the date hereof, except as set forth in the Information Certificate. In the event that any Borrower or Guarantor shall be entitled to or shall receive any right to payment under any letter of credit, banker's acceptance or any similar instrument with a face value in excess of $250,000, whether as beneficiary thereof or otherwise after the date hereof, such Borrower or Guarantor shall promptly notify Agent thereof in writing. Such Borrower or Guarantor shall immediately, as Agent may specify, either (i) deliver, or cause to be delivered to Agent, with respect to any such letter of credit, banker's acceptance or similar instrument, the written agreement of the issuer and any other nominated person obligated to make any payment in respect thereof (including any confirming or negotiating bank), in form and substance reasonably satisfactory to Agent, consenting to the assignment of the proceeds of the letter of credit to Agent by such Borrower or Guarantor and agreeing to make all payments thereon directly to Agent or as Agent may otherwise direct or (ii) cause Agent to become, at Borrowers' expense, the transferee beneficiary of the letter of credit, banker's acceptance or similar instrument (as the case may be). (g) Borrowers and Guarantors do not have any commercial tort claims as of the date hereof, except as set forth in the Information Certificate. In the event that any Borrower or Guarantor shall at any time after the date hereof have any commercial tort claims with a value, individually or in the aggregate with all other commercial tort claims in excess of $250,000 in respect of which such claim has been filed in a court of law, such Borrower or Guarantor shall promptly notify Agent thereof in writing, which notice shall (i) set forth in reasonable detail the basis for and nature of such commercial tort claim and (ii) include the express grant by such Borrower or Guarantor to Agent of a security interest in such commercial tort claim (and the proceeds thereof). In the event that such notice does not include such grant of a security interest, the sending thereof by such Borrower or Guarantor to Agent shall be deemed to constitute such grant to Agent. Upon the sending of such notice, any commercial tort claim described therein shall constitute part of the Collateral and shall be deemed included therein. Without limiting the authorization of Agent provided in Section 5.2(a) hereof or otherwise arising by the execution by such Borrower or Guarantor of this Agreement or any of the other Financing Agreements, Agent is hereby irrevocably authorized from time to time and at any time to file such financing statements naming Agent or its designee as secured party and such Borrower or Guarantor as debtor, or any amendments to any financing statements, covering any such commercial tort claim as Collateral. In addition, each Borrower and Guarantor shall promptly upon Agent's reasonable request, execute and deliver, or cause to be executed and delivered, to Agent such other agreements, documents and instruments as Agent may require in connection with such commercial tort claim. (h) Borrowers and Guarantors do not have any goods, documents of title or other Collateral in the custody, control or possession of a third party as of the date hereof, except as set forth in the Information Certificate and except for goods located in the United States in transit to a location of a Borrower or Guarantor permitted herein in the ordinary course of business of such Borrower or Guarantor in the possession of the carrier transporting such goods and except for goods sent for repair in the ordinary course of business. In the event that any goods, documents of title or other Collateral with a value in excess of $250,000 (individually or in the aggregate) are at any time after the date hereof in the custody, control or possession of any other person not referred to in the Information Certificate or such carriers (or absent for repairs in the ordinary course of business), Borrowers and Guarantors shall promptly notify Agent thereof in writing. Promptly upon Agent's request, Borrowers and Guarantors shall deliver to Agent a Collateral Access Agreement duly authorized, executed and delivered by such person and the Borrower or Guarantor that is the owner of such Collateral. (i) Borrowers and Guarantors shall take any other actions reasonably requested by Agent from time to time to cause the attachment, perfection and first priority of, and the ability of Agent to enforce, the security interest of Agent in any and all of the Collateral, including, without limitation, (i) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the UCC or other applicable law, to the extent, if any, that any Borrower's or Guarantor's signature thereon is required therefor, (ii) causing Agent's name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of Agent to enforce, the security interest of Agent in such Collateral, (iii) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of Agent to enforce, the security interest of Agent in such Collateral, (iv) using commercially reasonable efforts to obtain the consents and approvals of any Governmental Authority or third party, including, without limitation, any consent of any licensor, lessor or other person obligated on Collateral, and taking all actions required by any earlier versions of the UCC or by other law, as applicable in any relevant jurisdiction. SECTION 6. COLLECTION AND ADMINISTRATION 6.1 Borrowers' Loan Accounts. Agent shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Loans, Letters of Credit and other Obligations and the Collateral, (b) all payments made by or on behalf of any Borrower or Guarantor and (c) all other appropriate debits and credits as provided in this Agreement, including fees, charges, costs, expenses and interest. All entries in the loan account(s) shall be made in accordance with Agent's customary practices as in effect from time to time. 6.2 Statements. Agent shall render to Administrative Borrower each month a statement setting forth the balance in the Borrowers' loan account(s) maintained by Agent for Borrowers pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Agent but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrowers and Guarantors and conclusively binding upon Borrowers and Guarantors as an account stated except to the extent that Agent receives a written notice from Administrative Borrower of any specific exceptions of Administrative Borrower thereto within thirty (30) days after the date such statement has been received by Parent. Until such time as Agent shall have rendered to Administrative Borrower a written statement as provided above, the balance in any Borrower's loan account(s) shall be presumptive evidence of the amounts due and owing to Agent and Lenders by Borrowers and Guarantors. 6.3 Collection of Accounts. (a) Borrowers shall establish and maintain, at their expense, blocked accounts or lockboxes and related blocked accounts (in either case, "Blocked Accounts"), as Agent may specify, with such banks as are acceptable to Agent into which Borrowers shall promptly deposit and direct their respective account debtors to directly remit all payments on Receivables and all payments constituting proceeds of Inventory or other Collateral in the identical form in which such payments are made, whether by cash, check or other manner. Borrowers shall deliver, or cause to be delivered to Agent a Deposit Account Control Agreement duly authorized, executed and delivered by each bank where a Blocked Account is maintained as provided in Section 5.2 hereof or at any time and from time to time Agent may become the bank's customer with respect to any of the Blocked Accounts and promptly upon Agent's request, Borrowers shall execute and deliver such agreements and documents as Agent may require in connection therewith. Each Borrower and Guarantor agrees that all payments made to such Blocked Accounts or other funds received and collected by Agent or any Lender, whether in respect of the Receivables, as proceeds of Inventory or other Collateral or otherwise shall be treated as payments to Agent and Lenders in respect of the Obligations and therefore shall constitute the property of Agent and Lenders to the extent of the then outstanding Obligations. (b) For purposes of calculating the amount of the Loans available to each Borrower, such payments will be applied (conditional upon final collection) to the Obligations on the Business Day of receipt by Agent of immediately available funds in the Agent Payment Account provided such payments and notice thereof are received in accordance with Agent's usual and customary practices as in effect from time to time and within sufficient time to credit such Borrower's loan account on such day, and if not, then on the next Business Day. For the purposes of calculating interest on the Obligations, such payments or other funds received will be applied (conditional upon final collection) to the Obligations one (1) Business Day following the date of receipt of immediately available funds by Agent in the Agent Payment Account provided such payments or other funds and notice thereof are received in accordance with Agent's usual and customary practices as in effect from time to time and within sufficient time to credit such Borrower's loan account on such day, and if not, then on the next Business Day. In the event that at any time or from time to time there are no Revolving Loans outstanding, Agent shall be entitled to an administrative fee in an amount calculated based on the Interest Rate for Prime Rate Loans (on a per annum basis) multiplied by the amount of the funds received in the Blocked Account for such day as calculated by Agent in accordance with its customary practice. The economic benefit of the timing in the application of payments (and the administrative charge with respect thereto, if applicable) shall be for the sole benefit of Agent. (c) Each Borrower and Guarantor and their respective employees, agents and Subsidiaries shall, acting as trustee for Agent, receive, as the property of Agent, any monies, checks, notes, drafts or any other payment relating to and/or proceeds of Accounts or other Collateral which come into their possession or under their control and immediately upon receipt thereof, shall deposit or cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same to be remitted, in kind, to Agent. In no event shall the same be commingled with any Borrower's or Guarantor's own funds. Borrowers agree to reimburse Agent on demand for any amounts owed or paid to any bank or other financial institution at which a Blocked Account or any other deposit account or investment account is established or any other bank, financial institution or other person involved in the transfer of funds to or from the Blocked Accounts arising out of Agent's payments to or indemnification of such bank, financial institution or other person. The obligations of Borrowers to reimburse Agent for such amounts pursuant to this Section 6.3 shall survive the termination of this Agreement. 6.4 Payments. (a) All Obligations shall be payable to the Agent Payment Account as provided in Section 6.3 or such other place as Agent may designate from time to time. Subject to the other terms and conditions contained herein, Agent shall apply payments received or collected from any Borrower or Guarantor or for the account of any Borrower or Guarantor (including the monetary proceeds of collections or of realization upon any Collateral) as follows: first, to pay any fees, indemnities or expense reimbursements then due to Agent and Lenders from any Borrower or Guarantor; second, to pay interest due in respect of any Loans (and including any Special Agent Advances) or Letter of Credit Obligations; third, to pay or prepay principal in respect of Special Agent Advances; fourth, to pay principal due in respect of the Loans in such order as Agent shall determine unless otherwise expressly provided in this Agreement and to pay or prepay Obligations arising under or pursuant to any Hedge Agreement of a Borrower with Agent, any Lender, any Affiliate of any Lender or any other financial institution or acceptable to Agent (up to the amount of any then effective Reserve established in respect of such Obligations), on a pro rata basis (as between the Loans and Obligations under any Hedge Agreement); fifth, to pay or prepay any other Obligations whether or not then due, in such order and manner as Agent determines and at any time an Event of Default exists or has occurred and is continuing, to provide cash collateral for any Letter of Credit Obligations; and sixth, to pay or prepay any Obligations arising under or pursuant to Hedge Agreements (other than to the extent provided for above) on a pro rata basis. Notwithstanding anything to the contrary contained in this Agreement, (i) unless so directed by Administrative Borrower, or unless a Default or an Event of Default shall exist or have occurred and be continuing, Agent shall not apply any payments which it receives to any Eurodollar Rate Loans, except (A) on the expiration date of the Interest Period applicable to any such Eurodollar Rate Loans or (B) in the event that there are no outstanding Prime Rate Loans and (ii) to the extent any Borrower uses any proceeds of the Loans or Letters of Credit to acquire rights in or the use of any Collateral or to repay any Indebtedness used to acquire rights in or the use of any Collateral, payments in respect of the Obligations shall be deemed applied first to the Obligations arising from Loans and Letters of Credit that were not used for such purposes and second to the Obligations arising from Loans and Letters of Credit the proceeds of which were used to acquire rights in or the use of any Collateral in the chronological order in which such Borrower acquired such rights in or the use of such Collateral. (b) At Agent's option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Financing Agreements may be charged directly to the loan account(s) of any Borrower maintained by Agent. If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations, Agent or any Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by Agent or such Lender. Borrowers and Guarantors shall be liable to pay to Agent, and do hereby indemnify and hold Agent and Lenders harmless for the amount of any payments or proceeds surrendered or returned. This Section 6.4(b) shall remain effective notwithstanding any contrary action which may be taken by Agent or any Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive the payment of the Obligations and the termination of this Agreement. 6.5 Taxes. (a) Any and all payments by or on account of any of the Obligations shall be made free and clear of and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, charges, withholdings, liabilities, restrictions or conditions of any kind, excluding (i) in the case of each Lender and Agent (A) taxes measured by its net income, and franchise taxes imposed on it, by the United States or jurisdiction (or any political subdivision thereof) under the laws of which such Lender or Agent (as the case may be) is organized and (B) any United States withholding taxes payable with respect to payments under the Financing Agreements under laws (including any statute, treaty or regulation) in effect on the date hereof (or, in the case of an Eligible Transferee, the date of the Assignment and Acceptance) applicable to such Lender or Agent, as the case may be, but not excluding any United States withholding taxes payable as a result of any change in such laws occurring after the date hereof (or the date of such Assignment and Acceptance) and (ii) in the case of each Lender, taxes measured by its net income, and franchise taxes imposed on it as a result of a present or former connection between such Lender and the jurisdiction of the Governmental Authority imposing such tax or any taxing authority thereof or therein (all such non-excluded taxes, levies, imposts, fees, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). (b) If any Taxes shall be required by law to be deducted from or in respect of any sum payable in respect of the Obligations to any Lender or Agent (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 6.5), such Lender or Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the relevant Borrower or Guarantor shall make such deductions, (iii) the relevant Borrower or Guarantor shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable law and (iv) the relevant Borrower or Guarantor shall deliver to Agent evidence of such payment. (c) In addition, each Borrower and Guarantor agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies of the United States or any political subdivision thereof or any applicable foreign jurisdiction, and all liabilities with respect thereto, in each case arising from any payment made hereunder or under any of the other Financing Agreements or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any of the other Financing Agreements (collectively, "Other Taxes"). (d) Each Borrower and Guarantor shall indemnify each Lender and Agent for the full amount of Taxes and Other Taxes (including any Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this Section 6.5) paid by such Lender or Agent (as the case may be) and any liability (including for penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within thirty (30) days from the date such Lender or Agent (as the case may be) makes written demand (including reasonably detailed calculations) therefor. A certificate as to the amount of such payment or liability delivered to Administrative Borrower by a Lender (with a copy to Agent) or by Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (e) As soon as practicable after any payment of Taxes or Other Taxes by any Borrower or Guarantor, such Borrower or Guarantor shall furnish to Agent, at its address referred to herein, the original or a certified copy of a receipt evidencing payment thereof or other evidence of such payment. (f) Without prejudice to the survival of any other agreements of any Borrower or Guarantor hereunder or under any of the other Financing Agreements, the agreements and obligations of such Borrower or Guarantor contained in this Section 6.5 shall survive the termination of this Agreement and the payment in full of the Obligations. (g) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the applicable Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any of the other Financing Agreements shall deliver to Administrative Borrower (with a copy to Agent), at the time or times prescribed by applicable law or reasonably requested by Administrative Borrower or Agent (in such number of copies as is reasonably requested by the recipient), whichever of the following is applicable (but only if such Foreign Lender is legally entitled to do so): (i) duly completed copies of Internal Revenue Service Form W-8BEN claiming exemption from, or a reduction to, withholding tax under an income tax treaty, or any successor form, (ii) duly completed copies of Internal Revenue Service Form 8-8ECI claiming exemption from withholding because the income is effectively connection with a U.S. trade or business or any successor form, (iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Sections 871(h) or 881(c) of the Code, (A) a certificate of the Lender to the effect that such Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, a "10 percent shareholder" of a Borrower within the meaning of Section 881(c)(3)(B) of the Code or a "controlled foreign corporation" described and Section 881(c)(3)(C) of the Code and (B) duly completed copies of Internal Revenue Service Form W-8BEN claiming exemption from withholding under the portfolio interest exemption or any successor form or (iv) any other applicable form, certificate or document prescribed by applicable law as a basis for claiming exemption from or a reduction in United States withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit a Borrower to determine the withholding or deduction required to be made. Unless Administrative Borrower and Agent have received forms or other documents satisfactory to them indicating that payments hereunder or under any of the other Financing Agreements to or for a Foreign Lender are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, Borrowers or Agent shall withhold amounts required to be withheld by applicable requirements of law from such payments at the applicable statutory rate. (h) Any Lender claiming any additional amounts payable pursuant to this Section 6.5 shall use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its applicable lending office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that would be payable or may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender. 6.6 Authorization to Make Loans. Agent and Lenders are authorized to make the Loans based upon telephonic or other instructions received from anyone purporting to be an officer of Administrative Borrower or any Borrower or other authorized person or, at the discretion of Agent, if such Loans are necessary to satisfy any Obligations. All requests for Loans or Letters of Credit hereunder shall specify the date on which the requested advance is to be made (which day shall be a Business Day) and the amount of the requested Loan. Requests received after 11:00 a.m. Chicago time on any day shall be deemed to have been made as of the opening of business on the immediately following Business Day. All Loans and Letters of Credit under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, any Borrower or Guarantor when deposited to the credit of any Borrower or Guarantor or otherwise disbursed or established in accordance with the instructions of any Borrower or Guarantor or in accordance with the terms and conditions of this Agreement. 6.7 Use of Proceeds. Borrowers shall use the initial proceeds of the Loans and Letters of Credit hereunder only for: (a) payments to each of the persons listed in the disbursement direction letter furnished by Borrowers to Agent on or about the date hereof to consummate the Plan of Reorganization, (b) costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement, the other Financing Agreements and the Plan of Reorganization, (c) other payments in accordance with the terms of the Plan of Reorganization and (d) general operating, working capital and other proper corporate purposes not otherwise prohibited by the terms of this Agreement. All other Loans made or Letters of Credit provided to or for the benefit of any Borrower pursuant to the provisions hereof shall be used by such Borrower only for general operating, working capital and other proper corporate purposes of such Borrower not otherwise prohibited by the terms hereof. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which could reasonably be likely to cause any of the Loans to be considered a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended. 6.8 Appointment of Administrative Borrower as Agent for Requesting Loans and Receipts of Loans and Statements. (a) Each Borrower hereby irrevocably appoints and constitutes Administrative Borrower as its agent and attorney-in-fact to request and receive Loans and Letters of Credit pursuant to this Agreement and the other Financing Agreements from Agent or any Lender in the name or on behalf of such Borrower. Agent and Lenders may disburse the Loans to such bank account of Administrative Borrower or a Borrower or otherwise make such Loans to a Borrower and provide such Letters of Credit to a Borrower as Administrative Borrower may designate or direct, without notice to any other Borrower or Guarantor. Notwithstanding anything to the contrary contained herein, Agent may at any time and from time to time require that Loans to or for the account of any Borrower be disbursed directly to an operating account of such Borrower. (b) Administrative Borrower hereby accepts the appointment by Borrowers to act as the agent and attorney-in-fact of Borrowers pursuant to this Section 6.8. Administrative Borrower shall ensure that the disbursement of any Loans to each Borrower requested by or paid to or for the account of Parent, or the issuance of any Letter of Credit for a Borrower hereunder, shall be paid to or for the account of such Borrower. (c) Each Borrower and other Guarantor hereby irrevocably appoints and constitutes Administrative Borrower as its agent to receive statements on account and all other notices from Agent and Lenders with respect to the Obligations or otherwise under or in connection with this Agreement and the other Financing Agreements. (d) Any notice, election, representation, warranty, agreement or undertaking by or on behalf of any other Borrower or any Guarantor by Administrative Borrower shall be deemed for all purposes to have been made by such Borrower or Guarantor, as the case may be, and shall be binding upon and enforceable against such Borrower or Guarantor to the same extent as if made directly by such Borrower or Guarantor. (e) No purported termination of the appointment of Administrative Borrower as agent as aforesaid shall be effective, except after ten (10) days' prior written notice to Agent. 6.9 Pro Rata Treatment. Except to the extent otherwise provided in this Agreement or as otherwise agreed by Lenders: (a) the making and conversion of Loans shall be made among the Lenders based on their respective Pro Rata Shares as to the Loans and (b) each payment on account of any Obligations to or for the account of one or more of Lenders in respect of any Obligations due on a particular day shall be allocated among the Lenders entitled to such payments based on their respective Pro Rata Shares and shall be distributed accordingly. 6.10 Sharing of Payments, Etc. (a) Each Borrower and Guarantor agrees that, in addition to (and without limitation of) any right of setoff, banker's lien or counterclaim Agent or any Lender may otherwise have, each Lender shall be entitled, at its option (but subject, as among Agent and Lenders, to the provisions of Section 12.3(b) hereof), to offset balances held by it for the account of such Borrower or Guarantor at any of its offices, in dollars or in any other currency, against any principal of or interest on any Loans owed to such Lender or any other amount payable to such Lender hereunder, that is not paid when due (regardless of whether such balances are then due to such Borrower or Guarantor), in which case it shall promptly notify Administrative Borrower and Agent thereof; provided, that, such Lender's failure to give such notice shall not affect the validity thereof. (b) If any Lender (including Agent) shall obtain from any Borrower or Guarantor payment of any principal of or interest on any Loan owing to it or payment of any other amount under this Agreement or any of the other Financing Agreements through the exercise of any right of setoff, banker's lien or counterclaim or similar right or otherwise (other than from Agent as provided herein), and, as a result of such payment, such Lender shall have received more than its Pro Rata Share of the principal of the Loans or more than its share of such other amounts then due hereunder or thereunder by any Borrower or Guarantor to such Lender than the percentage thereof received by any other Lender, it shall promptly pay to Agent, for the benefit of Lenders, the amount of such excess and simultaneously purchase from such other Lenders a participation in the Loans or such other amounts, respectively, owing to such other Lenders (or such interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) in accordance with their respective Pro Rata Shares or as otherwise agreed by Lenders. To such end all Lenders shall make appropriate adjustments among themselves (by the resale of participation sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) Each Borrower and Guarantor agrees that any Lender purchasing a participation (or direct interest) as provided in this Section may exercise, in a manner consistent with this Section, all rights of setoff, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans or other amounts (as the case may be) owing to such Lender in the amount of such participation. (d) Nothing contained herein shall require any Lender to exercise any right of setoff, banker's lien, counterclaims or similar rights or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other Indebtedness or obligation of any Borrower or Guarantor. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, assign such rights to Agent for the benefit of Lenders and, in any event, exercise its rights in respect of such secured claim in a manner consistent with the rights of Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. 6.11 Settlement Procedures. (a) In order to administer the Credit Facility in an efficient manner and to minimize the transfer of funds between Agent and Lenders, Agent may, at its option, subject to the terms of this Section, make available, on behalf of Lenders, the full amount of the Loans requested or charged to any Borrower's loan account(s) or otherwise to be advanced by Lenders pursuant to the terms hereof, without requirement of prior notice to Lenders of the proposed Loans. (b) With respect to all Loans made by Agent on behalf of Lenders as provided in this Section, the amount of each Lender's Pro Rata Share of the outstanding Loans shall be computed weekly, and shall be adjusted upward or downward on the basis of the amount of the outstanding Loans as of 5:00 p.m. Chicago time on the Business Day immediately preceding the date of each settlement computation; provided, that, Agent retains the absolute right at any time or from time to time to make the above described adjustments at intervals more frequent than weekly, but in no event more than twice in any week. Agent shall deliver to each of the Lenders after the end of each week, or at such lesser period or periods as Agent shall determine, a summary statement of the amount of outstanding Loans for such period (such week or lesser period or periods being hereinafter referred to as a "Settlement Period"). If the summary statement is sent by Agent and received by a Lender prior to 12:00 p.m. Chicago time, then such Lender shall make the settlement transfer described in this Section by no later than 3:00 p.m. Chicago time on the same Business Day and if received by a Lender after 12:00 p.m. Chicago time, then such Lender shall make the settlement transfer by not later than 3:00 p.m. Chicago time on the next Business Day following the date of receipt. If, as of the end of any Settlement Period, the amount of a Lender's Pro Rata Share of the outstanding Loans is more than such Lender's Pro Rata Share of the outstanding Loans as of the end of the previous Settlement Period, then such Lender shall forthwith (but in no event later than the time set forth in the preceding sentence) transfer to Agent by wire transfer in immediately available funds the amount of the increase. Alternatively, if the amount of a Lender's Pro Rata Share of the outstanding Loans in any Settlement Period is less than the amount of such Lender's Pro Rata Share of the outstanding Loans for the previous Settlement Period, Agent shall forthwith transfer to such Lender by wire transfer in immediately available funds the amount of the decrease. The obligation of each of the Lenders to transfer such funds and effect such settlement shall be irrevocable and unconditional and without recourse to or warranty by Agent. Agent and each Lender agrees to mark its books and records at the end of each Settlement Period to show at all times the dollar amount of its Pro Rata Share of the outstanding Loans and Letters of Credit. Each Lender shall only be entitled to receive interest on its Pro Rata Share of the Loans to the extent such Loans have been funded by such Lender. Because the Agent on behalf of Lenders may be advancing and/or may be repaid Loans prior to the time when Lenders will actually advance and/or be repaid such Loans, interest with respect to Loans shall be allocated by Agent in accordance with the amount of Loans actually advanced by and repaid to each Lender and the Agent and shall accrue from and including the date such Loans are so advanced to but excluding the date such Loans are either repaid by Borrowers or actually settled with the applicable Lender as described in this Section. (c) To the extent that Agent has made any such amounts available and the settlement described above shall not yet have occurred, upon repayment of any Loans by a Borrower, Agent may apply such amounts repaid directly to any amounts made available by Agent pursuant to this Section. In lieu of weekly or more frequent settlements, Agent may, at its option, at any time require each Lender to provide Agent with immediately available funds representing its Pro Rata Share of each Loan, prior to Agent's disbursement of such Loan to Borrower. In such event, all Loans under this Agreement shall be made by the Lenders simultaneously and proportionately to their Pro Rata Shares. No Lender shall be responsible for any default by any other Lender in the other Lender's obligation to make a Loan requested hereunder nor shall the Commitment of any Lender be increased or decreased as a result of the default by any other Lender in the other Lender's obligation to make a Loan hereunder. (d) If Agent is not funding a particular Loan to a Borrower (or Administrative Borrower for the benefit of such Borrower) pursuant to Sections 6.11(a) and 6.11(b) above on any day, but is requiring each Lender to provide Agent with immediately available funds on the date of such Loan as provided in Section 6.11(c) above, Agent may assume that each Lender will make available to Agent such Lender's Pro Rata Share of the Loan requested or otherwise made on such day and Agent may, in its discretion, but shall not be obligated to, cause a corresponding amount to be made available to or for the benefit of such Borrower on such day. If Agent makes such corresponding amount available to a Borrower and such corresponding amount is not in fact made available to Agent by such Lender, Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon for each day from the date such payment was due until the date such amount is paid to Agent at the Federal Funds Rate for each day during such period (as published by the Federal Reserve Bank of New York or at Agent's option based on the arithmetic mean determined by Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of the three leading brokers of Federal funds transactions in New York City selected by Agent) and if such amounts are not paid within three (3) days of Agent's demand, at the highest Interest Rate provided for in Section 3.1 hereof applicable to Prime Rate Loans. During the period in which such Lender has not paid such corresponding amount to Agent, notwithstanding anything to the contrary contained in this Agreement or any of the other Financing Agreements, the amount so advanced by Agent to or for the benefit of any Borrower shall, for all purposes hereof, be a Loan made by Agent for its own account. Upon any such failure by a Lender to pay Agent, Agent shall promptly thereafter notify Administrative Borrower of such failure and Borrowers shall pay such corresponding amount to Agent for its own account within five (5) Business Days of Administrative Borrower's receipt of such notice. A Lender who fails to pay Agent its Pro Rata Share of any Loans made available by the Agent on such Lender's behalf, or any Lender who fails to pay any other amount owing by it to Agent, is a "Defaulting Lender". Agent shall not be obligated to transfer to a Defaulting Lender any payments received by Agent for the Defaulting Lender's benefit, nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder (including any principal, interest or fees). Amounts payable to a Defaulting Lender shall instead be paid to or retained by Agent. Agent may hold and, in its discretion, relend to a Borrower the amount of all such payments received or retained by it for the account of such Defaulting Lender. For purposes of voting or consenting to matters with respect to this Agreement and the other Financing Agreements and determining Pro Rata Shares, such Defaulting Lender shall be deemed not to be a "Lender" and such Lender's Commitment shall be deemed to be zero (0). This Section shall remain effective with respect to a Defaulting Lender until such default is cured. The operation of this Section shall not be construed to increase or otherwise affect the Commitment of any Lender, or relieve or excuse the performance by any Borrower or Guarantor of their duties and obligations hereunder. (e) Nothing in this Section or elsewhere in this Agreement or the other Financing Agreements shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its Commitment hereunder or to prejudice any rights that any Borrower may have against any Lender as a result of any default by any Lender hereunder in fulfilling its Commitment. 6.12 Obligations Several; Independent Nature of Lenders' Rights. The obligation of each Lender hereunder is several, and no Lender shall be responsible for the obligation or commitment of any other Lender hereunder. Nothing contained in this Agreement or any of the other Financing Agreements and no action taken by the Lenders pursuant hereto or thereto shall be deemed to constitute the Lenders to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and subject to Section 12.3 hereof, each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. SECTION 7. COLLATERAL REPORTING AND COVENANTS 7.1 Collateral Reporting. (a) Borrowers shall provide Agent with the following documents in a form reasonably satisfactory to Agent: (i) on a regular basis as required by Agent, schedules of sales made, credits issued and cash received; (ii) as soon as possible after the end of each month (but in any event within fifteen (15) Business Days after the end thereof), on a monthly basis or more frequently as Agent may reasonably request, (A) perpetual inventory reports, (B) inventory reports by location and category (and including the amounts of Inventory and the value thereof at any leased locations and at premises of warehouses, processors or other third parties), (C) agings of accounts receivable (together with a reconciliation to the previous month's aging and general ledger) and (D) agings of accounts payable (and including information indicating the amounts owing to owners and lessors of leased premises, warehouses, processors and other third parties from time to time in possession of any Collateral); (iii) upon Agent's reasonable request, (A) copies of customer statements, purchase orders, sales invoices, credit memos, remittance advices and reports, and copies of deposit slips and bank statements, (B) copies of shipping and delivery documents, and (C) copies of purchase orders, invoices and delivery documents for Inventory and Equipment acquired by any Borrower or Guarantor; and (iv) such other reports as to the Collateral as Agent shall reasonably request from time to time. (b) If any Borrower's or Guarantor's records or reports of the Collateral are prepared or maintained by an accounting service, contractor, shipper or other agent, such Borrower and Guarantor hereby irrevocably authorizes such service, contractor, shipper or agent to deliver such records, reports, and related documents to Agent and to follow Agent's instructions with respect to further services at any time that an Event of Default exists or has occurred and is continuing. 7.2 Accounts Covenants. (a) Borrowers shall notify Agent promptly of: (i) any material delay in any Borrower's performance of any of its material obligations to any account debtor or the assertion of any material claims, offsets, defenses or counterclaims by any account debtor, or any material disputes with account debtors, or any settlement, adjustment or compromise thereof, (ii) all material adverse information known to any Borrower or Guarantor relating to the financial condition of any account debtor and (iii) any event or circumstance which, to the best of any Borrower's or Guarantor's knowledge, would cause Agent to consider any then existing Accounts as no longer constituting Eligible Accounts. No credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor without Agent's consent, except in the ordinary course of a Borrower's or Guarantor's business in accordance with practices and policies previously disclosed in writing to Agent and except as set forth in the schedules delivered to Agent pursuant to Section 7.1(a) above. So long as no Event of Default exists or has occurred and is continuing, Borrowers and Guarantors shall settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor. At any time that an Event of Default exists or has occurred and is continuing, Agent shall, at its option, have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with account debtors or grant any credits, discounts or allowances. (b) With respect to each Account: (i) the amounts shown on any invoice delivered to Agent or schedule thereof delivered to Agent shall be true and complete, (ii) no payments shall be made thereon except payments immediately delivered to Agent pursuant to the terms of this Agreement, (iii) no material credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor except as reported to Agent in accordance with this Agreement and except for credits, discounts, allowances or extensions made or given in the ordinary course of each Borrower's business in accordance with practices and policies previously disclosed to Agent, (iv) there shall be no material setoffs, deductions, contras, defenses, counterclaims or disputes existing or asserted with respect thereto except as reported to Agent in accordance with the terms of this Agreement, (v) none of the transactions giving rise thereto will violate any applicable foreign, Federal, State or local laws or regulations, all documentation relating thereto will be legally sufficient under such laws and regulations and all such documentation will be legally enforceable in accordance with its terms. (c) Agent shall have the right at any time or times, in Agent's name or in the name of a nominee of Agent, to verify the validity, amount or any other matter relating to any Receivables or other Collateral, by mail, telephone, facsimile transmission or otherwise. 7.3 Inventory Covenants. With respect to the Inventory: (a) each Borrower and Guarantor shall at all times maintain inventory records reasonably satisfactory to Agent, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, such Borrower's or Guarantor's cost therefor and daily withdrawals therefrom and additions thereto; (b) Borrowers and Guarantors shall conduct a physical count of the Inventory at least once each year but at any time or times as Agent may request on or after an Event of Default, and promptly following such physical inventory shall supply Agent with a report in the form and with such specificity as may be satisfactory to Agent concerning such physical count; (c) Borrowers and Guarantors shall not remove any Inventory from the locations set forth or permitted herein, without the prior written consent of Agent, except for sales of Inventory in the ordinary course of its business and except to move Inventory directly from one location set forth or permitted herein to another such location and except for Inventory shipped from the manufacturer thereof to such Borrower or Guarantor which is in transit to the locations set forth or permitted herein; (d) upon Agent's request, Borrowers shall, at their expense, no more than one (1) time in any twelve (12) month period, but at any time or times as Agent may request on or after an Event of Default, deliver or cause to be delivered to Agent written appraisals as to the Inventory in form, scope and methodology acceptable to Agent and by an appraiser acceptable to Agent, addressed to Agent and Lenders and upon which Agent and Lenders are expressly permitted to rely; (e) Borrowers and Guarantors shall produce, use, store and maintain the Inventory with all reasonable care and caution, ordinary wear and tear and casualty and condemnation excepted and in accordance with applicable standards of any insurance and in conformity with applicable laws (including the requirements of the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto); (f) none of the Inventory or other Collateral constitutes farm products or the proceeds thereof; (g) each Borrower and Guarantor assumes all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; (h) Borrowers and Guarantors shall not sell Inventory to any customer on approval, or any other basis which entitles the customer to return or may obligate any Borrower or Guarantor to repurchase such Inventory; (i) Borrowers and Guarantors shall keep the Inventory in good and marketable condition; and (j) Borrowers and Guarantors shall not, without prior written notice to Agent or the specific identification of such Inventory in a report with respect thereto provided by Administrative Borrower to Agent pursuant to Section 7.1(a) hereof, acquire or accept any Inventory on consignment or approval. 7.4 Equipment and Real Property Covenants. With respect to the Equipment and Real Property: (a) upon Agent's request, Borrowers and Guarantors shall, at their expense, no more than one (1) time in any twelve (12) month period, but at any time or times as Agent may request on or after an Event of Default, deliver or cause to be delivered to Agent written appraisals as to the Equipment and/or the Real Property in form, scope and methodology reasonably acceptable to Agent and by an appraiser acceptable to Agent, addressed to Agent and upon which Agent is expressly permitted to rely; (b) Borrowers and Guarantors shall keep the Equipment in good order, repair, running and marketable condition (ordinary wear and tear excepted); (c) Borrowers and Guarantors shall use the Equipment and Real Property with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with all applicable laws; (d) the Equipment is and shall be used in the business of Borrowers and Guarantors and not for personal, family, household or farming use; (e) the Borrowers and Guarantors represent and warrant that the Equipment of Borrowers and Guarantors are located on Real Property owned by a Borrower or Guarantor which is subject to a Mortgage in favor of Agent and Borrowers and Guarantors shall not remove any Equipment from such locations, except to the extent necessary to have any Equipment repaired or maintained in the ordinary course of its business or to move Equipment directly from one owned location subject to a Mortgage to another owned location subject to a Mortgage and except for the movement of motor vehicles used by or for the benefit of such Borrower or Guarantor in the ordinary course of business; (f) the Equipment is now and shall remain personal property and Borrowers and Guarantors shall not permit any of the Equipment to be or become a part of or affixed to real property; and (g) each Borrower and Guarantor assumes all responsibility and liability arising from the use of the Equipment and Real Property. 7.5 Power of Attorney. Each Borrower and Guarantor hereby irrevocably designates and appoints Agent (and all persons designated by Agent) as such Borrower's and Guarantor's true and lawful attorney-in-fact, and authorizes Agent, in such Borrower's, Guarantor's or Agent's name, to: (a) at any time an Event of Default has occurred and is continuing (i) demand payment on Receivables or other Collateral, (ii) enforce payment of Receivables by legal proceedings or otherwise, (iii) exercise all of such Borrower's or Guarantor's rights and remedies to collect any Receivable or other Collateral, (iv) sell or assign any Receivable upon such terms, for such amount and at such time or times as the Agent deems advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi) discharge and release any Receivable, (vii) prepare, file and sign such Borrower's or Guarantor's name on any proof of claim in bankruptcy or other similar document against an account debtor or other obligor in respect of any Receivables or other Collateral, (viii) notify the post office authorities to change the address for delivery of remittances from account debtors or other obligors in respect of Receivables or other proceeds of Collateral to an address designated by Agent, and open and dispose of all mail addressed to such Borrower or Guarantor and handle and store all mail relating to the Collateral; and (ix) do all acts and things which are necessary, in Agent's determination, to fulfill such Borrower's or Guarantor's obligations under this Agreement and the other Financing Agreements and (b) at any time to (i) take control in any manner of any item of payment in respect of Receivables or constituting Collateral or otherwise received in or for deposit in the Blocked Accounts or otherwise received by Agent or any Lender, (ii) have access to any lockbox or postal box into which remittances from account debtors or other obligors in respect of Receivables or other proceeds of Collateral are sent or received, (iii) endorse such Borrower's or Guarantor's name upon any items of payment in respect of Receivables or constituting Collateral or otherwise received by Agent and any Lender and deposit the same in Agent's account for application to the Obligations, (iv) endorse such Borrower's or Guarantor's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Receivable or any goods pertaining thereto or any other Collateral, including any warehouse or other receipts, or bills of lading and other negotiable or non-negotiable documents, (v) clear Inventory the purchase of which was financed with a Letter of Credit through U.S. Customs or foreign export control authorities in such Borrower's or Guarantor's name, Agent's name or the name of Agent's designee, and to sign and deliver to customs officials powers of attorney in such Borrower's or Guarantor's name for such purpose, and to complete in such Borrower's or Guarantor's or Agent's name, any order, sale or transaction, obtain the necessary documents in connection therewith and collect the proceeds thereof, and (vi) sign such Borrower's or Guarantor's name on any verification of Receivables and notices thereof to account debtors or any secondary obligors or other obligors in respect thereof. Each Borrower and Guarantor hereby releases Agent and Lenders and their respective officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Agent's or any Lender's own gross negligence or wilful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction. 7.6 Right to Cure. Agent may, at its option, upon notice to Administrative Borrower, (a) cure any default by any Borrower or Guarantor under any material agreement with a third party that affects the Collateral, its value or the ability of Agent to collect, sell or otherwise dispose of the Collateral or the rights and remedies of Agent or any Lender therein or the ability of any Borrower or Guarantor to perform its obligations hereunder or under any of the other Financing Agreements, (b) pay or bond on appeal any judgment entered against any Borrower or Guarantor, (c) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral (except those permitted by the terms of this Agreement) and (d) pay any amount, incur any expense or perform any act which, in Agent's reasonable judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Agent and Lenders with respect thereto. Agent may add any amounts so expended to the Obligations and charge any Borrower's account therefor, such amounts to be repayable by Borrowers on demand. Agent and Lenders shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of any Borrower or Guarantor. Any payment made or other action taken by Agent or any Lender under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 7.7 Access to Premises. From time to time as requested by Agent, at the cost and expense of Borrowers, (a) Agent or its designee shall have complete access to all of each Borrower's and Guarantor's premises during normal business hours and after notice to Administrative Borrower, or at any time and without notice to Administrative Borrower if an Event of Default has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of each Borrower's and Guarantor's books and records, including the Records, and (b) each Borrower and Guarantor shall promptly furnish to Agent such copies of such books and records or extracts therefrom as Agent may request, and Agent or any Lender or Agent's designee may use during normal business hours such of any Borrower's and Guarantor's personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Receivables and realization of other Collateral. SECTION 8. REPRESENTATIONS AND WARRANTIES Each Borrower and Guarantor hereby represents and warrants to Agent and Lenders the following (which shall survive the execution and delivery of this Agreement): 8.1 Corporate Existence, Power and Authority. Each Borrower and Guarantor is a corporation duly organized and in good standing under the laws of its jurisdiction of organization and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect. The execution, delivery and performance of this Agreement, the other Financing Agreements and the transactions contemplated hereunder and thereunder (a) are all within each Borrower's and Guarantor's corporate powers, (b) have been duly authorized, (c) are not in contravention of law or the terms of any Borrower's or Guarantor's certificate of incorporation, by laws, or other organizational documentation, or any material indenture, agreement or undertaking to which any Borrower or Guarantor is a party or by which any Borrower or Guarantor or its property are bound and (d) will not result in the creation or imposition of, or require or give rise to any obligation to grant, any lien, security interest, charge or other encumbrance upon any property of any Borrower or Guarantor except for liens in favor of the Agent. This Agreement and the other Financing Agreements to which any Borrower or Guarantor is a party constitute legal, valid and binding obligations of such Borrower and Guarantor enforceable in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally, by general equitable principles or by principles of good faith and fair dealing (regardless of whether enforcement is sought in equity or at law). 8.2 Name; State of Organization; Chief Executive Office; Collateral Locations. (a) As of the date hereof, the exact legal name of each Borrower and Guarantor is as set forth on the signature page of this Agreement and in the Information Certificate. As of the date hereof, no Borrower or Guarantor has, during the five years prior to the date of this Agreement, been known by or used any other corporate or fictitious name or been a party to any merger or consolidation, or acquired all or substantially all of the assets of any Person, or acquired any of its property or assets out of the ordinary course of business, except as set forth in the Information Certificate. (b) As of the date hereof, each Borrower and Guarantor is an organization of the type and organized in the jurisdiction set forth in the Information Certificate. As of the date hereof, the Information Certificate accurately sets forth the organizational identification number of each Borrower and Guarantor or accurately states that such Borrower or Guarantor has none and accurately sets forth the federal employer identification number of each Borrower and Guarantor. (c) As of the date hereof, the chief executive office and mailing address of each Borrower and Guarantor and each Borrower's and Guarantor's Records concerning Accounts are located only at the address identified as such in Schedule 8.2 to the Information Certificate and its only other places of business and the only other locations of Collateral with a value in excess of $50,000, if any, are the addresses set forth in Schedule 8.2 to the Information Certificate, subject to the rights of any Borrower or Guarantor to establish new locations in accordance with Section 9.2 below. The Information Certificate correctly identifies any of such locations which are not owned by a Borrower or Guarantor and sets forth the owners and/or operators thereof. 8.3 Financial Statements; No Material Adverse Change. All financial statements relating to any Borrower or Guarantor which have been or may hereafter be delivered by any Borrower or Guarantor to Agent and Lenders have been prepared in accordance with GAAP (except as to any interim financial statements, to the extent such statements are subject to normal year-end adjustments and do not include any notes) and fairly present in all material respects the financial condition and the results of operation of the Administrative Borrower and its Subsidiaries, taken as a whole as at the dates and for the periods set forth therein. Except as disclosed in any interim financial statements furnished by Borrowers and Guarantors to Agent prior to the date of this Agreement, there has been no act, condition or event which has had or is reasonably likely to have a Material Adverse Effect since the date of the most recent audited financial statements of the Administrative Borrower and its Subsidiaries, taken as a whole furnished by any Borrower or Guarantor to Agent prior to the date of this Agreement. The projections dated May 24, 2005 for the fiscal years ending 2005 through 2007 that have been delivered to Agent or any projections of the Administrative Borrower and its Subsidiaries, taken as a whole hereafter delivered to Agent have been prepared in light of the past operations of the businesses and are based upon estimates and assumptions made in good faith and believed by the Administrative Borrower to be reasonable when made in light of the then current conditions and current facts. 8.4 Priority of Liens; Title to Properties. The security interests and liens granted to Agent under this Agreement and the other Financing Agreements constitute valid and perfected first priority liens and security interests in and upon the Collateral subject only to the liens indicated on Schedule 8.4 to the Information Certificate and the other liens permitted under Section 9.8 hereof. Each Borrower and Guarantor has good and marketable fee simple title to or valid leasehold interests in all of its Real Property and good, valid and marketable title to, valid leasehold interests in or other rights to use all of its other properties and assets subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those granted to Agent and such others as are specifically listed on Schedule 8.4 to the Information Certificate or permitted under Section 9.8 hereof. 8.5 Tax Returns. Each Borrower and Guarantor has filed, or caused to be filed, in a timely manner all federal and all other material State, foreign and local tax returns, reports and declarations which are required to be filed by it. All information in such tax returns, reports and declarations is complete and accurate in all material respects. EWP has paid or caused to be paid all material, and each other Borrower and Guarantor has paid or caused to be paid all material post-petition, taxes due and payable or claimed due and payable in any assessment received by it, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower or Guarantor and with respect to which adequate reserves have been set aside on its books. Each Borrower (other than EWP) has paid or caused to be paid all pre-petition taxes due and payable prior to February 26, 2004 in accordance with the terms of the Plan of Reorganization. Adequate provision has been made for the payment of all accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. 8.6 Litigation. Except as set forth on Schedule 8.6 to the Information Certificate, (a) there is no investigation by any Governmental Authority pending, or to any Borrower's or Guarantor's actual knowledge threatened, against or affecting any Borrower or Guarantor, its or their assets or business and (b) there is no action, suit, proceeding or claim by any Person pending, or to any Borrower's or Guarantor's actual knowledge threatened, against any Borrower or Guarantor or its or their assets, or against or affecting any transactions contemplated by this Agreement, in each case, which has or could reasonably be expected to have a Material Adverse Effect. 8.7 Compliance with Other Agreements and Applicable Laws. (a) Borrowers and Guarantors are not in default in any respect under, or in violation in any respect of the terms of, any material agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound which default or violation could, individually or in the aggregate for all such defaults or violations, reasonably be expected to have a Material Adverse Effect. Borrowers and Guarantors are in compliance with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority relating to their respective businesses, including, without limitation, those set forth in or promulgated pursuant to the Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as amended, and the rules and regulations thereunder, and all Environmental Laws, except in each case where any non-compliance or violation could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (b) Borrowers and Guarantors have obtained all permits, licenses, approvals, consents, certificates, orders or authorizations of any Governmental Authority required by Environmental Law and for the lawful conduct of its business except where the failure to obtain could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (the "Permits"). All of the Permits are valid and subsisting and in full force and effect. There are no actions, claims or proceedings pending or to the best of any Borrower's or Guarantor's actual knowledge, threatened that seek the revocation, cancellation, suspension or modification of any of the Permits. 8.8 Environmental Compliance. (a) Except as set forth on Schedule 8.8 to the Information Certificate, Borrowers, Guarantors and any Subsidiary of any Borrower or Guarantor have not generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates in any respect any applicable Environmental Law or Permit, and the operations of Borrowers, Guarantors and any Subsidiary of any Borrower or Guarantor complies in all respects with all Environmental Laws and all Permits, except in each case where any non-compliance or violation could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (b) Except as set forth on Schedule 8.8 to the Information Certificate, there has been no investigation by any Governmental Authority or any proceeding, complaint, order, directive, claim, citation or notice by any Governmental Authority or any other person nor is any pending or to any Borrower's or Guarantor's actual knowledge threatened, with respect to any non compliance with or violation of the requirements of any Environmental Law by any Borrower or Guarantor and any Subsidiary of any Borrower or Guarantor or the release, spill or discharge, threatened or actual, of any Hazardous Material or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter, which in each case could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (c) Except as set forth on Schedule 8.8 to the Information Certificate, Borrowers, Guarantors and their Subsidiaries have no liability in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials (i) with respect to the Real Property owned by EWP and FV Steel to the extent such liability exceeds $750,000 or (ii) with respect to all other Real Property to the extent such liability could reasonably be expected to have a Material Adverse Effect. 8.9 Employee Benefits. (a) Each Plan is in compliance in all respects with the applicable provisions of ERISA, the Code and other Federal or State law except for any non-compliance which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service and to any Borrower's or Guarantor's actual knowledge, nothing has occurred which would cause the loss of such qualification. Each Borrower and its ERISA Affiliates have made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending, or to any Borrower's or Guarantor's actual knowledge, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) based on the latest valuation of each Pension Plan and on the actuarial methods and assumptions employed for such valuation (determined in accordance with the assumptions used for funding such Pension Plan pursuant to Section 412 of the Code) the aggregate current value of accumulated benefit liabilities of such Pension Plan under Section 4001(a)(16) of ERISA does not exceed the aggregate current value of the assets of such Pension Plan; (iii) each Borrower and Guarantor, and their ERISA Affiliates, have not incurred and do not reasonably expect to incur, any material liability under Title IV of ERISA with respect to any Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) each Borrower and Guarantor, and their ERISA Affiliates, have not incurred and do not reasonably expect to incur, any material liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) each Borrower and Guarantor, and their ERISA Affiliates, have not engaged in a transaction that would be subject to Section 4069 or 4212(c) of ERISA. 8.10 Bank Accounts. As of the date hereof all of the deposit accounts, investment accounts or other accounts in the name of or used by any Borrower or Guarantor maintained at any bank or other financial institution are set forth on Schedule 8.10 to the Information Certificate, subject to the right of each Borrower and Guarantor to establish new accounts in accordance with Section 5.2 hereof. 8.11 Intellectual Property. Each Borrower and Guarantor owns or licenses or otherwise has the right to use all Intellectual Property necessary for the operation of its business as presently conducted or proposed to be conducted. As of the date hereof, Borrowers and Guarantors do not have any Intellectual Property registered, or subject to pending applications, in the United States Patent and Trademark Office or any similar office or agency in the United States, any State thereof, any political subdivision thereof or in any other country, other than those described in Schedule 8.11 to the Information Certificate and has not granted any licenses with respect thereto other than as set forth in Schedule 8.11 to the Information Certificate. No event has occurred which permits or would permit after notice or passage of time or both, the revocation, suspension or termination of such rights, except in each case, where any such event could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. To any Borrower's and Guarantor's actual knowledge, no slogan or other advertising device, product, process, method, substance or other Intellectual Property or goods bearing or using any Intellectual Property presently contemplated to be sold by or employed by any Borrower or Guarantor infringes any patent, trademark, servicemark, tradename, copyright, license or other Intellectual Property owned by any other Person presently and no claim or litigation is pending or threatened against or affecting any Borrower or Guarantor contesting its right to sell or use any such Intellectual Property, in each case which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. As of the date hereof, Schedule 8.11 to the Information Certificate sets forth all of the agreements or other arrangements of each Borrower and Guarantor pursuant to which such Borrower or Guarantor has a license (except for commercially available off-the-shelf software licenses) or other right to use any trademarks, logos, designs, representations or other Intellectual Property owned by another person as in effect on the date hereof and the dates of the expiration of such agreements or other arrangements of such Borrower or Guarantor as in effect on the date hereof (collectively, together with such agreements or other arrangements as may be entered into by any Borrower or Guarantor after the date hereof, collectively, the "License Agreements" and individually, a "License Agreement"). No trademark, servicemark, copyright or other Intellectual Property at any time used by any Borrower or Guarantor which is owned by another person, or owned by such Borrower or Guarantor subject to any security interest, lien, collateral assignment, pledge or other encumbrance in favor of any person other than Agent, is affixed to any Eligible Inventory, except (a) to the extent permitted under the term of the license agreements listed on Schedule 8.11 to the Information Certificate and (b) to the extent the sale of Inventory to which such Intellectual Property is affixed is permitted to be sold by such Borrower or Guarantor under applicable law (including the United States Copyright Act of 1976). 8.12 Subsidiaries; Affiliates; Capitalization; Solvency. (a) As of the date hereof, each Borrower and Guarantor does not have any direct or indirect Subsidiaries or Affiliates and is not engaged in any joint venture or partnership except as set forth in Schedule 8.12 to the Information Certificate. (b) As of the date hereof, each Borrower and Guarantor is the record and beneficial owner of all of the issued and outstanding shares of Capital Stock of each of the Subsidiaries listed on Schedule 8.12 to the Information Certificate as being owned by such Borrower or Guarantor and there are no proxies, irrevocable or otherwise, with respect to such shares and no equity securities of any of the Subsidiaries are or may become required to be issued by reason of any options, warrants, rights to subscribe to, calls or commitments of any kind or nature and there are no contracts, commitments, understandings or arrangements by which any Subsidiary is or may become bound to issue additional shares of it Capital Stock or securities convertible into or exchangeable for such shares, other than those provided by statute. (c) As of the date hereof, the issued and outstanding shares of Capital Stock of each Borrower and Guarantor are directly and beneficially owned and held by the persons indicated in the Information Certificate, and in each case all of such shares have been duly authorized and are fully paid and non-assessable and are, except with respect to Administrative Borrower, free and clear of all claims, liens, pledges and encumbrances of any kind, except those in favor of Agent and nonconsensual statutory liens permitted under Section 9.8. (d) Each Borrower is Solvent and will continue to be Solvent after the creation of the Obligations, the security interests of Agent and the other transaction contemplated hereunder. 8.13 Labor Disputes. (a) As of the date hereof, set forth on Schedule 8.13 to the Information Certificate is a list (including dates of termination) of all collective bargaining or similar agreements between or applicable to each Borrower and Guarantor and any union, labor organization or other bargaining agent in respect of the employees of any Borrower or Guarantor on the date hereof. (b) There is (i) no unfair labor practice complaint pending against any Borrower or Guarantor or, to any Borrower's or Guarantor's actual knowledge, threatened against it, before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement is pending on the date hereof against any Borrower or Guarantor or, to any Borrower's or Guarantor's actual knowledge, threatened against it, and (ii) no strike, labor dispute, slowdown or stoppage is pending against any Borrower or Guarantor or, to any Borrower's or Guarantor's actual knowledge, threatened against any Borrower or Guarantor, in each case which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 8.14 Restrictions on Subsidiaries. Except for restrictions contained in this Agreement or any other agreement with respect to Indebtedness of any Borrower or Guarantor permitted hereunder, there are no contractual or consensual restrictions on any Borrower or Guarantor or any of its Subsidiaries which prohibit or otherwise restrict (a) the transfer of cash or other assets (i) between any Borrower or Guarantor and any of its or their Subsidiaries or (ii) between any Subsidiaries of any Borrower or Guarantor or (b) the ability of any Borrower or Guarantor or any of its or their Subsidiaries to incur Indebtedness or grant security interests to Agent or any Lender in the Collateral. 8.15 Material Contracts. Schedule 8.15 to the Information Certificate sets forth all Material Contracts to which any Borrower or Guarantor is a party or is bound as of the date hereof. Borrowers and Guarantors have delivered true, correct and complete copies of such Material Contracts to Agent on or before the date hereof. Borrowers and Guarantors are not in breach or in default in any respect of or under any Material Contract and have not received any notice of the intention of any other party thereto to terminate any Material Contract, in each case which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 8.16 Payable Practices. Each Borrower and Guarantor have not made any material change in the historical accounts payable practices from those in effect immediately prior to the date hereof. 8.17 Plan of Reorganization. Borrowers have delivered to Agent a true and correct copy of the Plan of Reorganization and the Plan of Reorganization delivered has not otherwise been amended or modified in any manner adverse to Agent and the Lenders. The Plan of Reorganization has been confirmed pursuant to the Confirmation Order, Borrowers have delivered to Agent a true and correct certified copy of the Confirmation Order, the Confirmation Order has not been amended or modified in any manner adverse to Agent and the Lenders, the Confirmation Order shall be a Final Order (as defined in the Plan of Reorganization) and the "Effective Date" (as defined in the Plan of Reorganization) shall contemporaneously occur on the date hereof. 8.18 Senior Indebtedness. The Obligations constitute "Senior Indebtedness" (as defined in the Indenture) and "Senior Debt" (as defined in the Peoria Intercreditor Agreement). 8.19 Accuracy and Completeness of Information. All information furnished by or on behalf of any Borrower or Guarantor in writing to Agent or any Lender in connection with this Agreement or any of the other Financing Agreements or any transaction contemplated hereby or thereby, including all information on the Information Certificate (but excluding any projections) is true and correct in all material respects on the date as of which such information is dated or certified and does not omit any material fact necessary in order to make such information not materially misleading. No event or circumstance has occurred which has had or could reasonably be expected to have a Material Adverse Affect, which has not been fully and accurately disclosed to Agent in writing prior to the date hereof. 8.20 Survival of Warranties; Cumulative. All representations and warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement and shall be deemed to have been made again to Agent and Lenders on the date of each additional borrowing or other credit accommodation hereunder and shall be conclusively presumed to have been relied on by Agent and Lenders regardless of any investigation made or information possessed by Agent or any Lender. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which any Borrower or Guarantor shall now or hereafter give, or cause to be given, to Agent or any Lender. SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS 9.1 Maintenance of Existence. (a) Each Borrower and Guarantor shall at all times preserve, renew and keep in full force and effect its corporate existence and rights and franchises material to its business and maintain in full force and effect all material licenses, trademarks, tradenames, approvals, authorizations, leases, contracts and Permits necessary to carry on the business as presently or proposed to be conducted, except as permitted in Section 9.7 hereto. (b) No Borrower or Guarantor shall change its name unless each of the following conditions is satisfied: (i) Agent shall have received not less than fifteen (15) days prior written notice from Administrative Borrower of such proposed change in its corporate name, which notice shall accurately set forth the new name; and (ii) Agent shall have received a copy of the amendment to the Certificate of Incorporation of such Borrower or Guarantor providing for the name change certified by the Secretary of State of the jurisdiction of incorporation or organization of such Borrower or Guarantor as soon as it is available. (c) No Borrower or Guarantor shall change its chief executive office or its mailing address or organizational identification number (or if it does not have one, shall not acquire one) unless Agent shall have received not less than fifteen (15) days' prior written notice from Administrative Borrower of such proposed change, which notice shall set forth such information with respect thereto as Agent may reasonably require and Agent shall have received such agreements as Agent may reasonably require in connection therewith. No Borrower or Guarantor shall change its type of organization or jurisdiction of organization. 9.2 New Collateral Locations. Each Borrower and Guarantor may only open any new location within the continental United States provided such Borrower or Guarantor (a) gives Agent thirty (30) days prior written notice of the intended opening of any such new location and (b) executes and delivers, or causes to be executed and delivered, to Agent such agreements, documents, and instruments as Agent may deem reasonably necessary or desirable to protect its interests in the Collateral at such location to the extent the value of Collateral at such location is in excess of $250,000 individually or in the aggregate for all such locations. 9.3 Compliance with Laws, Regulations, Etc. (a) Each Borrower and Guarantor shall, and shall cause any Subsidiary to, at all times, comply with all laws, rules, regulations, licenses, approvals, orders and other Permits applicable to it and duly observe all requirements of any foreign, Federal, State or local Governmental Authority, except in each case where non-compliance could not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. (b) Borrowers and Guarantors shall give written notice to Agent immediately upon any Borrower's or Guarantor's receipt of any notice of, or any Borrower's or Guarantor's otherwise obtaining knowledge of, (i) the occurrence of any event involving the release, spill or discharge, threatened or actual, of any Hazardous Material or (ii) any investigation, proceeding, complaint, order, directive, claims, citation or notice with respect to: (A) any non-compliance with or violation of any Environmental Law by any Borrower or Guarantor or (B) the release, spill or discharge, threatened or actual, of any Hazardous Material other than in the ordinary course of business and other than as permitted under any applicable Environmental Law, in each under clauses (i) and (ii) that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Copies of all material environmental surveys, audits, assessments, feasibility studies and results of remedial investigations shall be promptly furnished, or caused to be furnished, by such Borrower or Guarantor to Agent. Each Borrower and Guarantor shall take prompt action to respond to any material non-compliance with any of the Environmental Laws and shall regularly report to Agent on such response. (c) Without limiting the generality of the foregoing, whenever Agent reasonably determines that there is non-compliance, or any condition which requires any action by or on behalf of any Borrower or Guarantor in order to avoid any non compliance, with any Environmental Law in each case that would reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect, Borrowers shall, at Agent's request and Borrowers' expense: (i) cause an independent environmental engineer reasonably acceptable to Agent to conduct such tests of the site where non-compliance with such Environmental Laws has occurred as to such non-compliance and prepare and deliver to Agent a report as to such non-compliance setting forth the results of such tests, a proposed plan for responding to any environmental problems described therein, and an estimate of the costs thereof and (ii) provide to Agent a supplemental report of such engineer whenever the scope of such non-compliance, or such Borrower's or Guarantor's response thereto or the estimated costs thereof, shall change in any material respect. (d) Each Borrower and Guarantor shall indemnify and hold harmless Agent and Lenders and their respective directors, officers, employees, agents, invitees, representatives, successors and assigns, from and against any and all actual losses, claims, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and expenses) directly or indirectly arising out of or attributable to the use, generation, manufacture, reproduction, storage, release, threatened release, spill, discharge, disposal or presence of a Hazardous Material, including the costs of any required or necessary repair, cleanup or other remedial work with respect to any property of any Borrower or Guarantor and the preparation and implementation of any closure, remedial or other required plans. All representations, warranties, covenants and indemnifications in this Section 9.3 shall survive the payment of the Obligations and the termination of this Agreement. 9.4 Payment of Taxes and Claims. Each Borrower and Guarantor shall, and shall cause any Subsidiary to, duly pay and discharge all material taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower, Guarantor or Subsidiary, as the case may be, and with respect to which adequate reserves have been set aside on its books to the extent required by GAAP. 9.5 Insurance. Each Borrower and Guarantor shall, and shall cause any Subsidiary to, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. Said policies of insurance shall be reasonably satisfactory to Agent as to form, amount and insurer. Borrowers and Guarantors shall furnish certificates, policies or endorsements to Agent as Agent shall reasonably require as proof of such insurance, and, if any Borrower or Guarantor fails to do so, Agent is authorized, but not required, to obtain such insurance at the expense of Borrowers. Such Borrower or Guarantor may subsequently cancel any insurance purchased by Agent after providing Agent with satisfactory evidence that such Borrower or Guarantor has obtained insurance as required by this Section 9.5. All policies shall provide for at least thirty (30) days prior written notice to Agent of any cancellation or reduction of coverage. Borrowers and Guarantors shall cause Agent to be named as a loss payee and an additional insured (but without any liability for any premiums) under such insurance policies and Borrowers and Guarantors shall obtain non-contributory lender's loss payable endorsements to all insurance policies in form and substance reasonably satisfactory to Agent. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Agent as its interests may appear and further specify that Agent and Lenders shall be paid regardless of any act or omission by any Borrower, Guarantor or any of its or their Affiliates. Without limiting any other rights of Agent or Lenders, any insurance proceeds received by Agent at any time may be applied to payment of the Obligations, whether or not then due, in any order and in such manner as Agent may determine. Upon application of such proceeds to the Revolving Loans, Revolving Loans may be available subject and pursuant to the terms hereof to be used for the costs of repair or replacement of the Collateral lost or damages resulting in the payment of such insurance proceeds. 9.6 Financial Statements and Other Information. (a) Each Borrower and Guarantor shall, and shall cause any Subsidiary to, keep proper books and records in which true and complete entries in all material respects shall be made of all dealings or transactions of or in relation to the Collateral and the business of such Borrower, Guarantor and its Subsidiaries in accordance with GAAP. Borrowers and Guarantors shall promptly furnish to Agent and Lenders all such financial and other information as Agent shall reasonably request relating to the Collateral and the assets, business and operations of Borrowers and Guarantors, and Borrower shall notify the auditors and accountants of Borrowers and Guarantors that Agent is authorized to obtain such information directly from them. Without limiting the foregoing, Borrowers shall furnish or cause to be furnished to Agent, the following: (i) within thirty (30) days after the end of each fiscal month, monthly unaudited consolidated financial statements (including in each case balance sheets, statements of income and loss, statements of cash flow, and statements of shareholders' equity), all in reasonable detail, fairly presenting in all material respects the financial position and the results of the operations of Administrative Borrower and its Subsidiaries as of the end of and through such fiscal month, certified to be correct by the chief financial officer of Administrative Borrower, subject to normal year-end adjustments and accompanied by a compliance certificate substantially in the form of Exhibit C hereto, along with a schedule in a form reasonably satisfactory to Agent of the calculations used in determining, as of the end of such month, whether Borrowers and Guarantors were in compliance with the covenants set forth in Sections 9.17 (which, for purposes of Section 9.17 shall be determined on a quarterly basis) and 9.18 of this Agreement for such month, and (ii) within one hundred ten (110) days after the end of each fiscal year, audited consolidated financial statements of Administrative Borrower and its Subsidiaries (including in each case balance sheets, statements of income and loss, statements of cash flow, and statements of shareholders' equity), and the accompanying notes thereto, all in reasonable detail, fairly presenting in all material respects the financial position and the results of the operations of Administrative Borrower and its Subsidiaries as of the end of and for such fiscal year, together with the unqualified opinion (as to scope or going concern) of independent certified public accountants with respect to the audited consolidated financial statements, which accountants shall be an independent accounting firm selected by Administrative Borrower and reasonably acceptable to Agent, that such audited consolidated financial statements have been prepared in accordance with GAAP, and present fairly in all material respects the results of operations and financial condition of Administrative Borrower and its Subsidiaries as of the end of and for the fiscal year then ended, and (iii) at such time as available, but in no event later than thirty (30) days after the end of each fiscal year (commencing with the fiscal year of Borrowers ending December 31, 2005), projected consolidated financial statements (including in each case, forecasted balance sheets and statements of income and loss, statements of cash flow, and statements of shareholders' equity) of Administrative Borrower and its Subsidiaries for such fiscal year, all in reasonable detail, and in a format consistent with the projections delivered by Borrowers to Agent prior to the date hereof, together with such supporting information as Agent may reasonably request. Such projected financial statements shall be prepared on a monthly basis for such year. Such projections shall be based upon estimates and assumptions made in good faith and believed by the Administrative Borrower to be reasonable when made in light of the then current conditions and facts (it being understood that actual results may differ from those set forth in such projected financial statements). Each year Borrowers shall provide to Agent a semi-annual update with respect to such projections or at any time an Event of Default has occurred and is continuing, more frequently as Agent may require. (b) Borrowers and Guarantors shall promptly notify Agent in writing of the details of (i) any loss, damage, investigation, action, suit, proceeding or claim relating to Collateral having a value of more than $500,000 or which could reasonably be expected to have a Material Adverse Effect, (ii) any Material Contract being terminated which could reasonably be expected to have a Material Adverse Effect, (iii) any order, judgment or decree in excess of $500,000 shall have been entered against any Borrower or Guarantor any of its or their properties or assets, (iv) any notification of a material violation of laws or regulations received by any Borrower or Guarantor, (v) any ERISA Event, and (vi) the occurrence of any Default or Event of Default. (c) Promptly after the sending or filing thereof, Borrowers shall send to Agent copies of (i) all reports which Administrative Borrower or any of its Subsidiaries sends to its security holders generally, (ii) all reports and registration statements which Administrative Borrower or any of its Subsidiaries files with the Securities Exchange Commission, any national or foreign securities exchange or the National Association of Securities Dealers, Inc., and such other reports as Agent may hereafter specifically identify to Administrative Borrower that Agent will reasonably require be provided to Agent, (iii) all press releases and (iv) all other statements concerning material changes or developments in the business of a Borrower or Guarantor made available by any Borrower or Guarantor to the public. (d) Borrowers and Guarantors shall furnish or cause to be furnished to Agent such budgets, forecasts, projections and other information respecting the Collateral and the business of Borrowers and Guarantors, as Agent may, from time to time, reasonably request. Agent is hereby authorized to deliver a copy of any financial statement or any other information relating to the business of Borrowers and Guarantors to any court or other Governmental Authority or, subject to the confidentiality provisions herein, to any Lender or Participant or prospective Lender or Participant or any Affiliate of any Lender or Participant. Each Borrower and Guarantor hereby irrevocably authorizes and directs all accountants or auditors to deliver to Agent, at Borrowers' expense, copies of the financial statements of any Borrower and Guarantor and any reports or management letters prepared by such accountants or auditors on behalf of any Borrower or Guarantor and to disclose to Agent and Lenders such information as they may have regarding the business of any Borrower and Guarantor. Any documents, schedules, invoices or other papers delivered to Agent or any Lender may be destroyed or otherwise disposed of by Agent or such Lender one (1) year after the same are delivered to Agent or such Lender, except as otherwise designated by Administrative Borrower to Agent or such Lender in writing. 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Each Borrower and Guarantor shall not, and shall not permit any Subsidiary to, directly or indirectly, (a) merge into or with or consolidate with any other Person or permit any other Person to merge into or with or consolidate with it except that any wholly-owned Subsidiary of Administrative Borrower may merge with and into or consolidate with Administrative Borrower or any other wholly-owned Subsidiary of Administrative Borrower, provided, that, each of the following conditions is satisfied as determined by Agent in good faith: (i) Agent shall have received not less than twenty (20) Business Days' prior written notice of the intention of such Subsidiaries to so merge or consolidate, which notice shall set forth in reasonable detail satisfactory to Agent, the persons that are merging or consolidating, which person will be the surviving entity, the locations of the assets of the persons that are merging or consolidating, and the material agreements and documents relating to such merger or consolidation, (ii) Agent shall have received such other information with respect to such merger or consolidation as Agent may reasonably request, (iii) as of the effective date of the merger or consolidation and after giving effect thereto, no Default or Event of Default shall exist or have occurred, (iv) Agent shall have received, true, correct and complete copies of all agreements, documents and instruments relating to such merger or consolidation, including, but not limited to, the certificate or certificates of merger to be filed with each appropriate Secretary of State (with a copy as filed promptly after such filing), (v) as of the effective date of the merger or consolidation, (A) the surviving corporation shall expressly confirm, ratify and assume the Obligations and the Financing Agreements to which it is a party in writing, in form and substance satisfactory to Agent, and (B) Borrowers and Guarantors shall have executed and delivered such other agreements, documents and instruments as Agent may request in connection therewith; (b) sell, issue, assign, lease, license, transfer, abandon or otherwise dispose of any Capital Stock or Indebtedness to any other Person or any of its assets to any other Person, except for (i) sales or other dispositions of Inventory in the ordinary course of business, (ii) the sale or other disposition of Equipment (including surplus, worn-out or obsolete Equipment or Equipment no longer used or useful in the business of any Borrower or Guarantor) so long as (A) such sales or other dispositions do not involve Equipment having an aggregate fair market value in excess of $250,000 for all such Equipment disposed of in any fiscal year of Administrative Borrower or as Agent may otherwise agree, (B) no Event of Default has occurred and is continuing at the time of, or would result after giving effect to, any such sale or disposition, (C) Borrowers receive net cash consideration for such sale or disposition at least equal to the amount of Term Loans advanced against such Equipment (to the extent Term Loans were advanced against such Equipment) and (D) all net proceeds are promptly transferred to Agent to be applied against the remaining Term Loans of such Borrower in inverse order of maturity, or, if such Term Loans have been repaid in full, to the remaining Obligations as Agent shall determine, and (iii) the issuance and sale by Administrative Borrower of Capital Stock of such Borrower after the date hereof; provided, that, (A) Agent shall have received not less than five (5) Business Days' prior written notice of such issuance and sale by such Borrower, which notice shall specify the parties to whom such shares are to be sold, the terms of such sale, the total amount which it is anticipated will be realized from the issuance and sale of such stock and the net cash proceeds which it is anticipated will be received by such Borrower from such sale, (B) such Borrower shall not be required to pay any cash dividends or repurchase or redeem such Capital Stock or make any other payments in respect thereof, except as otherwise permitted in Section 9.11 hereof, (C) the terms of such Capital Stock, and the terms and conditions of the purchase and sale thereof, shall not include any terms that include any limitation on the right of such Borrower to request or receive Loans or Letters of Credit or the right of such Borrower to amend or modify any of the terms and conditions of this Agreement or any of the other Financing Agreements or otherwise in any way relate to or affect the arrangements of Borrowers and Guarantors with Agent and Lenders or are more restrictive or burdensome to any such Borrower or Guarantor than the terms of any Capital Stock in effect on the date hereof, (D) except as Agent may otherwise agree in writing, all of the proceeds of the sale and issuance of such Capital Stock shall be paid to Agent for application to the Obligations in such order and manner as Agent may determine or at Agent's option (once all Loans are paid in full and only Letter of Credit Obligations remain outstanding), to be held as cash collateral for the Obligations and (E) as of the date of such issuance and sale and after giving effect thereto, no Default or Event of Default shall exist or have occurred, (iv) the issuance of Capital Stock of Administrative Borrower consisting of common stock pursuant to an employee stock option or grant or similar equity plan or 401(k) plans of such Borrower for the benefit of its employees, directors and consultants, provided, that, in no event shall such Borrower be required to issue, or shall such Borrower issue, Capital Stock pursuant to such stock plans or 401(k) plans which would result in a Change of Control or other Event of Default, (v) the issuance of Capital Stock of Administrative Borrower for (a) transfers and replacements of then outstanding shares of Capital Stock and (b) stock splits and stock dividends, (vi) the licensing or sublicensing by the Administrative Borrower and its Subsidiaries, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business, (vii) the sale or discount by any Borrower, Guarantor or Subsidiary of overdue Accounts receivable arising in the ordinary course of business provided, that (A) such Accounts are not included in the calculation of the most recent Borrowing Base, (B) all net proceeds shall be paid to Agent for application to the Obligations in such order and manner as Agent may determine, (C) no Event of Default has occurred and is continuing at the time of any such sale or discount and (D) the face amount of such Account to be sold or discounted does not exceed $250,000 individually or in the aggregate for all such Accounts, (viii) the use or transfer of money or Cash Equivalents by the Administrative Borrower and its Subsidiaries in a manner that is not prohibited by the terms of this Agreement or the other Financing Agreements, (ix) the issuance by Borrowers of Capital Stock in accordance with the Plan of Reorganization so long as all such Capital Stock (except with respect to Administrative Borrower) is pledged to Agent to secure the Obligations, (x) investments permitted pursuant to Section 9.10, (xi) the lease by F V Steel of its real property pursuant to the terms of that certain Real Estate Lease dated January 1, 2001 between F V Steel and Fox Valley Steel and Wire Company, (c) wind up, liquidate or dissolve except that any Guarantor may wind up, liquidate and dissolve, provided, that, each of the following conditions is satisfied, (i) the winding up, liquidation and dissolution of such Guarantor shall not violate any law or any order or decree of any court or other Governmental Authority in any material respect and shall not conflict with or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, or any other agreement or instrument to which any Borrower or Guarantor is a party or may be bound, (ii) such winding up, liquidation or dissolution shall be done in accordance with the requirements of all applicable laws and regulations, (iii) effective upon such winding up, liquidation or dissolution, all of the assets and properties of such Guarantor shall be duly and validly transferred and assigned to a Borrower, free and clear of any liens, restrictions or encumbrances other than the security interest and liens of Agent (and Agent shall have received such evidence thereof as Agent may reasonably require) and other liens permitted under this Agreement and Agent shall have received such deeds, assignments or other agreements as Agent may reasonably request to evidence and confirm the transfer of such assets to of such Guarantor to a Borrower, (iv) Agent shall have received all documents and agreements that any Borrower or Guarantor has filed with any Governmental Authority or as are otherwise required to effectuate such winding up, liquidation or dissolution, (v) no Borrower or Guarantor shall assume any Indebtedness, obligations or liabilities as a result of such winding up, liquidation or dissolution, or otherwise become liable in respect of any obligations or liabilities of the entity that is winding up, liquidating or dissolving, unless such Indebtedness is otherwise expressly permitted hereunder, (vi) Agent shall have received not less than ten (10) Business Days prior written notice of the intention of such Guarantor to wind up, liquidate or dissolve, and (vii) as of the date of such winding up, liquidation or dissolution and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing. 9.8 Encumbrances. Each Borrower and Guarantor shall not, and shall not permit any Subsidiary to, create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including the Collateral, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any security interest or lien with respect to any such assets or properties, except: (a) the security interests and liens of Agent for itself and the benefit of Lenders and the security interests and liens of Agent for the benefit of itself, any Lender, any Affiliate of any Lender or any other financial institution acceptable to Agent (and in each case as to any such Lender, Affiliate or other financial institution only to the extent approved by Agent) that is party to a Hedge Agreement to the extent provided for herein and subject to the terms hereof; (b) liens securing the payment of taxes, assessments or other governmental charges or levies either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower, or Guarantor or Subsidiary, as the case may be and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of such Borrower's, Guarantor's or Subsidiary's business to the extent: (i) such liens secure Indebtedness which is not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower, Guarantor or such Subsidiary, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) zoning, building and land use restrictions, easements, rights-of-way licenses, covenants, reservations, conditions, title exceptions and other restrictions affecting the use of Real Property which, individually or in the aggregate, do not interfere in any material respect with the use of such Real Property or ordinary conduct of the business of such Borrower, Guarantor or such Subsidiary as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto; (e) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on Real Property to secure Indebtedness permitted under Section 9.9(b) hereof; (f) pledges and deposits of cash by any Borrower or Guarantor after the date hereof in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits consistent with the current practices of such Borrower or Guarantor as of the date hereof; (g) pledges and deposits of cash by any Borrower or Guarantor after the date hereof to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary course of business consistent with the current practices of such Borrower or Guarantor as of the date hereof; provided, that, in connection with any performance bonds issued by a surety or other person, the issuer of such bond shall have waived in writing any rights in or to, or other interest in, any of the Collateral in an agreement, in form and substance satisfactory to Agent; (h) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by any Borrower or Guarantor located on the premises of such Borrower or Guarantor from time to time in the ordinary course of business and consistent with current practices of such Borrower or Guarantor and the precautionary UCC financing statement filings in respect thereof; (i) judgments and other similar liens arising in connection with court proceedings that do not constitute an Event of Default, provided, that, (i) such liens are being contested in good faith and by appropriate proceedings diligently pursued, (ii) adequate reserves or other appropriate provision, if any, as are required by GAAP have been made therefor, (iii) a stay of enforcement of any such liens is in effect and (iv) Agent may establish a Reserve with respect thereto; (j) the security interests and liens set forth on Schedule 8.4 to the Information Certificate and renewals and extensions thereof so long as such renewals and extensions relate solely to the same asset originally encumbered; (k) liens encumbering customary initial deposits and margin deposits, and similar liens and margin deposits, and similar liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business; (l) non-exclusive licenses or sublicenses, granted to third parties in the ordinary course of business not interfering with the business of the Administrative Borrower or any of its Subsidiaries; (m) rights of setoff or bankers' liens upon deposits of cash in favor of banks or other depository institutions and liens associated with overdraft protection and netting services; (n) liens in favor of customs and revenues authorities which secure payment of customs duties in connection with the importation of goods; (o) liens deemed to exist in connection with permitted repurchase obligations or set-off rights; (p) liens in favor of collecting banks arising under Section 4-210 of the UCC; (q) carriers', warehousemen's, suppliers' or other similar possessory liens arising in the ordinary course of business and which have not arisen to secure Indebtedness for borrowed money; provided that (i) such liens do not in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of businesses of Borrowers and Guarantors and (ii) such liens do not encumber assets comprising the Borrowing Base or any real property or Equipment on which the Term Loans were advanced unless either (A) Agent has received a satisfactory Collateral Access Agreement under which such liens are waived or subordinated or (B) Agent has elected to implement a Reserve; (r) deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings to which any Borrower, Guarantor or Subsidiary is a party; and (s) other non-consensual liens not specifically listed above securing Indebtedness not to exceed $100,000 outstanding at any one time in the aggregate. 9.9 Indebtedness. Each Borrower and Guarantor shall not, and shall not permit any Subsidiary to, incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Indebtedness, or guarantee, assume, endorse, or otherwise become responsible for (directly or indirectly), the Indebtedness, performance, obligations or dividends of any other Person, except: (a) the Obligations; (b) purchase money Indebtedness (including Capital Leases) arising after the date hereof to the extent secured by purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on Real Property not to exceed $750,000 in the aggregate at any time outstanding so long as such security interests and mortgages do not apply to any property of such Borrower, Guarantor or Subsidiary other than the Equipment or Real Property so acquired, and the Indebtedness secured thereby does not exceed the cost of the Equipment or Real Property so acquired, as the case may be; (c) guarantees by any Borrower or Guarantor of the Obligations of the other Borrowers or Guarantors in favor of Agent for the benefit of Lenders; (d) the Indebtedness permitted under Section 9.10(g) hereof; (e) unsecured Indebtedness of any Borrower or Guarantor arising after the date hereof to any third person (but not to any other Borrower or Guarantor), provided, that, each of the following conditions is satisfied as determined by Agent: (i) such Indebtedness shall be on terms and conditions acceptable to Agent and shall be subject and subordinate in right of payment to the right of Agent and Lenders to receive the prior payment and satisfaction in full payment of all of the Obligations pursuant to the terms of an intercreditor agreement between Agent and such third party, in form and substance satisfactory to Agent, (ii) Agent shall have received not less than ten (10) days prior written notice of the intention of such Borrower or Guarantor to incur such Indebtedness, which notice shall set forth in reasonable detail satisfactory to Agent the amount of such Indebtedness, the person or persons to whom such Indebtedness will be owed, the interest rate, the schedule of repayments and maturity date with respect thereto and such other information as Agent may request with respect thereto, (iii) Agent shall have received true, correct and complete copies of all agreements, documents and instruments evidencing or otherwise related to such Indebtedness, (iv) except as Agent may otherwise agree in writing, all of the proceeds of the loans or other accommodations giving rise to such Indebtedness shall be paid to Agent for application to the Obligations in such order and manner as Agent may determine or at Agent's option, to be held as cash collateral for the Obligations, (v) in no event shall the aggregate principal amount of such Indebtedness incurred during the term of this Agreement exceed $1,000,000, (vi) as of the date of incurring such Indebtedness and after giving effect thereto, no Default or Event of Default shall exist or have occurred, (vii) such Borrower and Guarantor shall not, directly or indirectly, (A) amend, modify, alter or change the terms of such Indebtedness or any agreement, document or instrument related thereto, except, that, such Borrower or Guarantor may, after prior written notice to Agent, amend, modify, alter or change the terms thereof so as to extend the maturity thereof, or defer the timing of any payments in respect thereof, or to forgive or cancel any portion of such Indebtedness (other than pursuant to payments thereof), or to reduce the interest rate or any fees in connection therewith, or (B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness (except pursuant to regularly scheduled payments permitted herein), or set aside or otherwise deposit or invest any sums for such purpose, and (viii) Borrowers and Guarantors shall furnish to Agent all notices or demands in connection with such Indebtedness either received by any Borrower or Guarantor or on its behalf promptly after the receipt thereof, or sent by any Borrower or Guarantor or on its behalf concurrently with the sending thereof, as the case may be; (f) the Indebtedness set forth on Schedule 9.9 to the Information Certificate; provided, that, (i) Borrowers and Guarantors may only make regularly scheduled payments of principal and interest in respect of such Indebtedness in accordance with the terms of the agreement or instrument evidencing or giving rise to such Indebtedness as in effect on the date hereof; provided, that no payments may be made in respect of the Peoria Debt, the Indebtedness under the Indenture or the Trustee Debt unless expressly permitted by the Peoria Intercreditor Agreement, the Indenture and the Trustee Intercreditor Agreement, respectively (ii) Borrowers and Guarantors shall not, directly or indirectly, (A) amend, modify, alter or change the terms of such Indebtedness or any agreement, document or instrument related thereto as in effect on the date hereof except, that, Borrowers and Guarantors may, after prior written notice to Agent, amend, modify, alter or change the terms thereof so as to extend the maturity thereof, or defer the timing of any payments in respect thereof, or to forgive or cancel any portion of such Indebtedness (other than pursuant to payments thereof), or to reduce the interest rate or any fees in connection therewith, or (B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or set aside or otherwise deposit or invest any sums for such purpose, and (iii) Borrowers and Guarantors shall furnish to Agent all notices or demands in connection with such Indebtedness either received by any Borrower or Guarantor or on its behalf, promptly after the receipt thereof, or sent by any Borrower or Guarantor or on its behalf, concurrently with the sending thereof, as the case may be; (g) Indebtedness of any Borrower entered into in the ordinary course of business pursuant to a Hedge Agreement; provided, that, (i) such arrangements are either with Agent, any Lender, or any Affiliate of any Lender or other financial institutions acceptable to Agent (and in each case as to any such Lender, Affiliate or other financial institution only to the extent approved by Agent), (ii) such arrangements are not for speculative purposes, and (iii) such Indebtedness shall be unsecured, except to the extent such Indebtedness constitutes part of the Obligations arising under or pursuant to Hedge Agreements with Agent, any Lender, any Affiliate of any Lender or another financial institution that are secured under the terms hereof; (h) other unsecured Indebtedness incurred after the date hereof and not otherwise permitted hereunder in an aggregate principal amount not exceeding $1,000,000 at any one time outstanding; provided, that, at the time of and after giving effect to such incurrence of Indebtedness no Event of Default shall exist; and (i) extensions, renewals or refinancings of any Indebtedness permitted under Schedule 9.9 so long as (i) such Indebtedness ("Refinancing Indebtedness") is in an original aggregate principal amount not greater than the aggregate principal amount of the Indebtedness being extended, renewed or refinanced, (ii) if the Indebtedness being extended, renewed or refinanced is subordinated to any of the Obligations, such Refinancing Indebtedness is subordinated to the Obligations on terms not less favorable to the Lenders than the terms of the subordination provisions governing such Indebtedness being extended, renewed or refinanced, (iii) at the time of and after giving effect to such renewal or refinancing, no Event of Default shall have occurred and be continuing and (iv) the other terms and conditions of such Refinancing Indebtedness (including amortization, interest rates and fees) are no less favorable to the applicable Borrower or Guarantor than the Indebtedness being extended, renewed or refinanced. 9.10 Loans, Investments, Etc. Each Borrower and Guarantor shall not, and shall not permit any Subsidiary to, directly or indirectly, make any loans or advance money or property to any person, or invest in (by capital contribution, dividend or otherwise) or purchase or repurchase the Capital Stock or Indebtedness or all or a substantial part of the assets or property of any person, or form or acquire any Subsidiaries, or agree to do any of the foregoing, except: (a) the endorsement of instruments for collection or deposit in the ordinary course of business; (b) investments in cash or Cash Equivalents, provided, that, (i) no Loans are then outstanding and (ii) the terms and conditions of Section 5.2 hereof shall have been satisfied with respect to the deposit account, investment account or other account in which such cash or Cash Equivalents are held; (c) the existing equity investments of each Borrower and Guarantor as of the date hereof in its Subsidiaries and other equity investments made pursuant to the Plan of Reorganization, provided, that, no Borrower or Guarantor shall have any further obligations or liabilities to make any capital contributions or other additional investments or other payments to or in or for the benefit of any of such Subsidiaries; (d) loans and advances by any Borrower or Guarantor to employees of such Borrower or Guarantor for: (i) reasonably and necessary work-related travel or other ordinary business expenses to be incurred by such employee in connection with their work for such Borrower or Guarantor and (ii) reasonable and necessary relocation expenses of such employees (including home mortgage financing for relocated employees); (e) stock or obligations issued to any Borrower or Guarantor by any Person (or the representative of such Person) in respect of Indebtedness of such Person owing to such Borrower or Guarantor in connection with the insolvency, bankruptcy, receivership or reorganization of such Person or a composition or readjustment of the debts of such Person (or in connection with the settlement of Accounts of such Person); provided, that, the original of any such stock or instrument evidencing such obligations shall be promptly delivered to Agent, upon Agent's request, together with such stock power, assignment or endorsement by such Borrower or Guarantor as Agent may reasonably request; (f) obligations of account debtors to any Borrower or Guarantor arising from Accounts which are past due evidenced by a promissory note made by such account debtor payable to such Borrower or Guarantor; provided, that, promptly upon the receipt of the original of any such promissory note by such Borrower or Guarantor, such promissory note shall be endorsed and delivered to Agent in accordance with Section 5.2 hereof; (g) loans by a Borrower (other than FV Steel) or Guarantor to another Borrower or Guarantor after the date hereof, provided, that, (i) as to all of such loans, (A) within thirty (30) days after the end of each fiscal month, Borrowers shall provide to Agent a report in form and substance satisfactory to Agent of the outstanding amount of such loans as of the last day of the immediately preceding month and indicating any loans made and payments received during the immediately preceding month, (B) the Indebtedness arising pursuant to any such loan shall not be evidenced by a promissory note or other instrument, unless the single original of such note or other instrument is promptly delivered to Agent upon its request to hold as part of the Collateral, with such endorsement and/or assignment by the payee of such note or other instrument as Agent may require, (C) as of the date of any such loan and after giving effect thereto, the Borrower or Guarantor making such loan shall be Solvent, and (D) as of the date of any such loan and after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing, (ii) as to loans by a Guarantor to a Borrower, (A) the Indebtedness arising pursuant to such loan shall be subject to, and subordinate in right of payment to, the right of Agent and Lenders to receive the prior final payment and satisfaction in full of all of the Obligations on terms and conditions acceptable to Agent, (B) promptly upon Agent's request, Agent shall have received a subordination agreement, in form and substance satisfactory to Agent, providing for the terms of the subordination in right of payment of such Indebtedness of such Borrower to the prior final payment and satisfaction in full of all of the Obligations, duly authorized, executed and delivered by such Guarantor and such Borrower, and (C) such Borrower shall not, directly or indirectly make, or be required to make, any payments in respect of such Indebtedness prior to the end of the then current term of this Agreement; (iii) as to loans by a Borrower to a Guarantor or another Borrower, as of the date of any such loan and after giving effect thereto (A) Borrowers shall have aggregate Excess Availability equal to at least $5,200,000 and (B) with respect to any such loans by a Borrower to any other Borrower or Guarantor, (1) the Excess Availability of such lending Borrower shall be not less than $200,000 and (2) such lending Borrower shall have an Adjusted Tangible Net Worth of not less than $100,000; (h) the loans and advances set forth on Schedule 9.10 to the Information Certificate; provided, that, as to such loans and advances, Borrowers and Guarantors shall not, directly or indirectly, amend, modify, alter or change the terms of such loans and advances or any agreement, document or instrument related thereto and Borrowers and Guarantors shall furnish to Agent all notices or demands in connection with such loans and advances either received by any Borrower or Guarantor or on its behalf, promptly after the receipt thereof, or sent by any Borrower or Guarantor or on its behalf, concurrently with the sending thereof, as the case may be, (i) to the extent permitted by applicable law, Administrative Borrower may accept notes from officers and employees in exchange for Capital Stock of such Borrower, purchased by such officers or employees pursuant to a stock ownership or purchase plan or compensation plan; (j) pledges and deposits made by any Borrower, Guarantor or Subsidiary permitted under this Agreement, including deposits made in the ordinary course of business securing obligations or performance under contracts, such as in connection with real estate or personal property leases; (k) other loans or investments not permitted above to the extent the aggregate amount of such loans and investments does not exceed $200,000; and (l) extensions, renewals or refinancings of the loans and advances under Schedule 9.10 to the Information Certificate so long as the principal amount is not increased. 9.11 Dividends and Redemptions. Each Borrower and Guarantor shall not, directly or indirectly, declare or pay any dividends on account of any shares of class of any Capital Stock of such Borrower or Guarantor now or hereafter outstanding, or set aside or otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class of Capital Stock (or set aside or otherwise deposit or invest any sums for such purpose) for any consideration or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such shares, except that: (a) any Borrower or Guarantor may declare and pay such dividends or redeem, retire, defease, purchase or otherwise acquire any shares of any class of Capital Stock for consideration in the form of shares of common stock (so long as after giving effect thereto no Change of Control or other Default or Event of Default shall exist or occur); (b) Borrowers and Guarantors may pay dividends to the extent permitted in Section 9.12 below; (c) any Subsidiary of Administrative Borrower may pay dividends to its direct stockholder; (d) Administrative Borrower may repurchase Capital Stock consisting of common stock held by employees pursuant to any employee stock ownership plan thereof upon the termination, retirement or death of any such employee in accordance with the provisions of such plan, provided, that, as to any such repurchase, each of the following conditions is satisfied: (i) as of the date of the payment for such repurchase and after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing, (ii) such repurchase shall be paid with funds legally available therefor or a note, (iii) such repurchase shall not violate any law or regulation or the terms of any indenture, agreement or undertaking to which such Borrower is a party or by which such Borrower or its property are bound, and (iv) the aggregate amount of all cash payments for such repurchases in any calendar year shall not exceed $500,000. 9.12 Transactions with Affiliates. Each Borrower and Guarantor shall not, directly or indirectly: (a) purchase, acquire or lease any property from, or sell, transfer or lease any property to, any officer, director or other Affiliate of such Borrower or Guarantor, except (i) upon fair and reasonable terms no less favorable to such Borrower or Guarantor than such Borrower or Guarantor would obtain in a comparable arm's length transaction with an unaffiliated person or (ii) pursuant to the Intercompany Services Agreement; or (b) make any payments (whether by dividend, loan or otherwise) of management, consulting or other fees for management or similar services, or of any Indebtedness owing to any Affiliate of such Borrower or Guarantor, except (i) reasonable compensation to officers, employees and directors for services rendered to such Borrower or Guarantor in the ordinary course of business, and (ii) scheduled payments pursuant to the Intercompany Services Agreement as in effect on the date hereof. 9.13 Compliance with ERISA. Each Borrower and Guarantor shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal and State law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; (c) not terminate any Pension Plan so as to incur any material liability to the Pension Benefit Guaranty Corporation; (d) not allow or suffer to exist any prohibited transaction involving any Plan or any trust created thereunder which would subject such Borrower, Guarantor or such ERISA Affiliate to a material tax or other liability on prohibited transactions imposed under Section 4975 of the Code or ERISA; (e) make all required contributions to any Plan which it is obligated to pay under Section 302 of ERISA, Section 412 of the Code or the terms of such Plan; (f) not allow or suffer to exist any accumulated funding deficiency, whether or not waived, with respect to any such Pension Plan; (g) not engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA; or (h) not allow or suffer to exist any occurrence of a reportable event or any other event or condition which presents a material risk of termination by the Pension Benefit Guaranty Corporation of any Plan that is a single employer plan, which termination could result in any material liability to the Pension Benefit Guaranty Corporation. 9.14 End of Fiscal Years; Fiscal Quarters. Each Borrower and Guarantor shall, for financial reporting purposes, cause its, and each of its Subsidiaries' (a) fiscal years to end on December 31 of each year and (b) fiscal quarters to end on March 31, June 30, September 30 and December 31 of each year. 9.15 Change in Business. The Borrowers and Guarantors shall not engage in any business other than the business of the Borrowers and Guarantors on the date hereof and any business reasonably related, ancillary or complimentary to such businesses. 9.16 Limitation of Restrictions Affecting Subsidiaries. Each Borrower and Guarantor shall not, directly, or indirectly, create or otherwise cause or suffer to exist any encumbrance or restriction which prohibits or limits the ability of any Subsidiary of such Borrower or Guarantor to (a) pay dividends or make other distributions or pay any Indebtedness owed to such Borrower or Guarantor or any Subsidiary of such Borrower or Guarantor; (b) make loans or advances to such Borrower or Guarantor or any Subsidiary of such Borrower or Guarantor, (c) transfer any of its properties or assets to such Borrower or Guarantor or any Subsidiary of such Borrower or Guarantor; or (d) create, incur, assume or suffer to exist any lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than encumbrances and restrictions arising under (i) applicable law, (ii) this Agreement, (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of such Borrower or Guarantor or any Subsidiary of such Borrower or Guarantor, (iv) customary restrictions on dispositions of real property interests found in reciprocal easement agreements of such Borrower or Guarantor or any Subsidiary of such Borrower or Guarantor, (v) any agreement relating to permitted Indebtedness incurred by a Subsidiary of such Borrower or Guarantor, and (vi) the extension or continuation of contractual obligations in existence on the date hereof; provided, that, any such encumbrances or restrictions contained in such extension or continuation are no less favorable to Agent and Lenders than those encumbrances and restrictions under or pursuant to the contractual obligations so extended or continued. 9.17 Minimum EBITDAR. Borrowers and their Subsidiaries on a consolidated basis shall have, at the end of each fiscal quarter set forth below, EBITDAR for the 12 month period then ending of not less than the following:
Period Ending EBITDAR September 30, 2005 $12,712,000 December 31, 2005 $ 6,170,000 March 31, 2006 $ 3,242,000 June 30, 2006 $14,122,000 September 30, 2006 $16,653,000 December 31, 2006 $16,170,000 March 31, 2007 $16,300,000 June 30, 2007 $16,600,000 September 30, 2007 $16,900,000 December 31, 2007 and each fiscal quarter ending thereafter $17,000,000
9.18 Minimum Fixed Charge Coverage Ratio. Borrowers and their Subsidiaries on a consolidated basis shall have, at the end of each calendar month, a Fixed Charge Coverage Ratio for the 12 month period then ending of not less than 1.0:1.0. 9.19 Minimum Excess Availability. Borrowers shall maintain at all times Aggregate Suppressed Availability of at least $5,000,000. 9.20 License Agreements. (a) Each Borrower and Guarantor shall (i) observe and perform all of the material terms, covenants, conditions and provisions of the material License Agreements to which it is a party to be observed and performed by it, at the times set forth therein, if any, (ii) not do, permit, suffer or refrain from doing anything that could reasonably be expected to result in a default under or breach of any of the terms of any material License Agreement, (iii) not cancel, surrender, modify, amend, waive or release any material License Agreement in any material respect or any term, provision or right of the licensee thereunder in any material respect, or consent to or permit to occur any of the foregoing; except, that, subject to Section 9.19(b) below, such Borrower or Guarantor may cancel, surrender or release any material License Agreement in the ordinary course of the business of such Borrower or Guarantor; provided, that, such Borrower or Guarantor (as the case may be) shall give Agent not less than thirty (30) days prior written notice of its intention to so cancel, surrender and release any such material License Agreement, (iv) give Agent prompt written notice of any material License Agreement entered into by such Borrower or Guarantor after the date hereof, together with a true, correct and complete copy thereof and such other information with respect thereto as Agent may request, (v) give Agent prompt written notice of any material breach of any obligation, or any default, by any party under any material License Agreement, and deliver to Agent (promptly upon the receipt thereof by such Borrower or Guarantor in the case of a notice to such Borrower or Guarantor and concurrently with the sending thereof in the case of a notice from such Borrower or Guarantor) a copy of each notice of default, and (vi) furnish to Agent, promptly upon the reasonable request of Agent, such information and evidence as Agent may reasonably require from time to time concerning the observance, performance and compliance by such Borrower or Guarantor or the other party or parties thereto with the material terms, covenants or provisions of any material License Agreement. (b) Each Borrower and Guarantor will either exercise any option to renew or extend the term of each material License Agreement to which it is a party in such manner as will cause the term of such material License Agreement to be effectively renewed or extended for the period provided by such option and give prompt written notice thereof to Agent or give Agent prior written notice that such Borrower or Guarantor does not intend to renew or extend the term of any such material License Agreement or that the term thereof shall otherwise be expiring, not less than sixty (60) days prior to the date of any such non-renewal or expiration. In the event of the failure of such Borrower or Guarantor to extend or renew any material License Agreement to which it is a party, Agent shall have, and is hereby granted, the irrevocable right and authority, at its option, to renew or extend the term of such material License Agreement, whether in its own name and behalf, or in the name and behalf of a designee or nominee of Agent or in the name and behalf of such Borrower or Guarantor, as Agent shall determine at any time that an Event of Default shall have occurred and be continuing. Upon the occurrence and during the continuation of an Event of Default, Agent may, but shall not be required to, perform any or all of such obligations of such Borrower or Guarantor under any of the License Agreements, including, but not limited to, the payment of any or all sums due from such Borrower or Guarantor thereunder. Any sums so paid by Agent shall constitute part of the Obligations. 9.21 Foreign Assets Control Regulations, Etc. None of the requesting or borrowing of the Loans or the requesting or issuance, extension or renewal of any Letter of Credit or the use of the proceeds of any thereof will violate the Trading With the Enemy Act (50 USC ss.1 et seq., as amended) (the "Trading With the Enemy Act") or any of the foreign assets control regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended) (the "Foreign Assets Control Regulations") or any enabling legislation or executive order relating thereto (including, but not limited to (a) Executive order 13224 of September 21, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the "Executive Order") and (b) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56). None of Borrowers or any of their Subsidiaries or other Affiliates is or will become a "blocked person" as described in the Executive Order, the Trading with the Enemy Act or the Foreign Assets Control Regulations or engages or will engage in any dealings or transactions, or be otherwise associated, with any such "blocked person". 9.22 After Acquired Real Property. If any Borrower or Guarantor hereafter acquires fee simple title to any Real Property, fixtures or any other property that is of the kind or nature described in the Mortgages and such Real Property, fixtures or other property is adjacent to, contiguous with or necessary or related to or used in connection with any Real Property then subject to a Mortgage, or if such Real Property is not adjacent to, contiguous with or related to or used in connection with such Real Property, then if such Real Property, fixtures or other property at any location (or series of adjacent, contiguous or related locations, and regardless of the number of parcels) has a fair market value in an amount equal to or greater than $100,000 (or if an Event of Default has occurred and is continuing, then regardless of the fair market value of such assets), without limiting any other rights of Agent or any Lender, or duties or obligations of any Borrower or Guarantor, promptly upon Agent's request, such Borrower or Guarantor shall execute and deliver to Agent a mortgage, deed of trust or deed to secure debt, as Agent may reasonably determine, in form and substance substantially similar to the Mortgages and as to any provisions relating to specific state laws reasonably satisfactory to Agent and in form appropriate for recording in the real estate records of the jurisdiction in which such Real Property or other property is located granting to Agent a first and only lien and mortgage on and security interest in such Real Property, fixtures or other property (except as such Borrower or Guarantor would otherwise be permitted to incur hereunder or under the Mortgages or as otherwise consented to in writing by Agent) and such other agreements, documents and instruments as Agent may reasonably require in connection therewith. 9.23 Costs and Expenses. Borrowers and Guarantors shall pay to Agent on demand all costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, syndication, administration, collection, liquidation, enforcement and defense of the Obligations, Agent's rights in the Collateral, this Agreement, the other Financing Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) costs and expenses and fees for insurance premiums, environmental audits, title insurance premiums, surveys, assessments, engineering reports and inspections, appraisal fees and search fees, background checks, costs and expenses of remitting loan proceeds, collecting checks and other items of payment, and establishing and maintaining the Blocked Accounts, together with Agent's customary charges and fees with respect thereto; (c) charges, fees or expenses charged by any bank or issuer in connection with any Letter of Credit; (d) costs and expenses of preserving and protecting the Collateral; (e) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Agent, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement and the other Financing Agreements or defending any claims made or threatened against Agent or any Lender arising out of the transactions contemplated hereby and thereby (including preparations for and consultations concerning any such matters); (f) all out-of-pocket expenses and costs heretofore and from time to time hereafter incurred by Agent during the course of periodic field examinations of the Collateral and such Borrower's or Guarantor's operations, plus a per diem charge at Agent's then standard rate for Agent's examiners in the field and office (which rate as of the date hereof is $800 per person per day); and (g) the fees and disbursements of counsel (including legal assistants) to Agent in connection with any of the foregoing. 9.24 Plan of Reorganization. Borrowers shall consummate the Plan of Reorganization in accordance with its terms and the terms of the Confirmation Order. Unless otherwise agreed to by Agent in writing, Borrowers shall not agree to, or suffer to occur, any amendment, supplement or addition to, or any other modification of, the Plan of Reorganization or the Conformation Order, except to the extent such amendment, supplement, addition or modification would not reasonably be expected to adversely affect the Agent and Lenders. 9.25 Further Assurances. At the reasonable request of Agent at any time and from time to time, Borrowers and Guarantors shall, at their expense, duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement or any of the other Financing Agreements. Agent may at any time and from time to time reasonably request a certificate from an officer of any Borrower or Guarantor representing that all conditions precedent to the making of Loans and providing Letters of Credit contained herein are satisfied. In the event of such request by Agent, Agent and Lenders may, at Agent's option, cease to make any further Loans or provide any further Letters of Credit until Agent has received such certificate and, in addition, Agent has reasonably determined that such conditions are satisfied. SECTION 10. EVENTS OF DEFAULT AND REMEDIES 10.1 Events of Default. The occurrence or existence of any one or more of the following events are referred to herein individually as an "Event of Default", and collectively as "Events of Default": (a) (i) any Borrower fails to pay any of the Obligations when due or (ii) any Borrower or Guarantor fails to perform any of the covenants contained in Sections 9.1, 9.2, 9.5 through 9.12 and 9.17 through 9.25 or (iii) any Borrower or Guarantor fails to perform any of the terms, covenants, conditions or provisions contained in this Agreement or any of the other Financing Agreements other than those described in Sections 10.1(a)(i) and 10.1(a)(ii) above and such failure shall continue for ten (10) days; (b) any representation, warranty or statement of fact made by any Borrower or Guarantor to Agent in this Agreement, the other Financing Agreements or any other written agreement, schedule, confirmatory assignment or otherwise shall when made or deemed made be false or misleading in any material respect; (c) any Guarantor revokes or terminates or purports to revoke or terminate any of the terms, covenants, conditions or provisions of any guarantee, or other agreement of such party in favor of Agent or any Lender; (d) any judgment for the payment of money is rendered against any Borrower or Guarantor in excess of $750,000 in any one case or in excess of $750,000 in the aggregate (to the extent not covered by insurance where the insurer has assumed responsibility in writing for such judgment) and shall remain undischarged or unvacated for a period in excess of thirty (30) days or execution shall at any time not be effectively stayed, or any judgment other than for the payment of money, or injunction, attachment, garnishment or execution is rendered against any Borrower or Guarantor or any of the Collateral having a value in excess of $750,000; (e) any Guarantor (being a natural person or a general partner of an Guarantor which is a partnership) dies or any Borrower or Guarantor, which is a partnership, limited liability company, limited liability partnership or a corporation, dissolves or suspends or discontinues doing business; (f) any Borrower or Guarantor makes an assignment for the benefit of creditors, makes or sends notice of a bulk transfer or calls a meeting of its creditors or principal creditors in connection with a moratorium or adjustment of the Indebtedness due to them; (g) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed against any Borrower or Guarantor or all or any substantial part of its properties and such petition or application is not dismissed within thirty (30) days after the date of its filing or any Borrower or Guarantor shall file any answer admitting or not contesting such petition or application or indicates its consent to, acquiescence in or approval of, any such action or proceeding or the relief requested is granted sooner; (h) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at a law or equity) is filed by any Borrower or Guarantor or for all or any substantial part of its property; (i) any default in respect of any Indebtedness of any Borrower or Guarantor (other than Indebtedness owing to Agent and Lenders hereunder), in any case in an amount in excess of $750,000, which default continues for more than the applicable cure period, if any, with respect thereto; (j) any material provision hereof or of any of the other Financing Agreements shall for any reason cease to be valid, binding and enforceable with respect to any Borrower or Guarantor in accordance with its terms, or any Borrower or Guarantor shall challenge the enforceability hereof or thereof, or shall assert in writing, that any provision hereof or of any of the other Financing Agreements has ceased to be or is otherwise not valid, binding or enforceable in accordance with its terms, or any security interest provided for herein or in any of the other Financing Agreements shall cease to be a valid and perfected first priority security interest in any of the Collateral purported to be subject thereto (except as otherwise permitted herein or therein); (k) an ERISA Event shall occur which results in or could reasonably be expected to result in liability of any Borrower in an aggregate amount in excess of $750,000; (l) any Change of Control; (m) the indictment by any Governmental Authority, or as Agent may reasonably and in good faith determine, the threatened indictment by any Governmental Authority of any Borrower or Guarantor of which any Borrower, Guarantor or Agent receives notice, in either case, as to which there is a reasonable possibility of an adverse determination, in the good faith determination of Agent, under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against such Borrower or Guarantor, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of (i) any of the Collateral having a value in excess of $750,000 or (ii) any other property of any Borrower or Guarantor which is necessary or material to the conduct of its business; (n) there shall be a material adverse change in the business, assets or prospects of any Borrower or Guarantor after the date hereof; (o) there shall be an Event of Default under any of the other Financing Agreements; or (p) the Peoria Intercreditor Agreement, the Trustee Intercreditor Agreement, the Indenture Intercreditor Agreement or any subordination provisions therein or under the Indenture shall become unenforceable; or (q) there shall be a material violation of the Confirmation Order or Plan of Reorganization. 10.2 Remedies. (a) At any time an Event of Default has occurred and is continuing, Agent and Lenders shall have all rights and remedies provided in this Agreement, the other Financing Agreements, the UCC and other applicable law, all of which rights and remedies may be exercised without notice to or consent by any Borrower or Guarantor, except as such notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Agent and Lenders hereunder, under any of the other Financing Agreements, the UCC or other applicable law, are cumulative, not exclusive and enforceable, in Agent's discretion, alternatively, successively, or concurrently on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by any Borrower or Guarantor of this Agreement or any of the other Financing Agreements. Subject to Section 12 hereof, Agent may, and at the direction of the Required Lenders shall, at any time or times, proceed directly against any Borrower or Guarantor to collect the Obligations without prior recourse to the Collateral. (b) Without limiting the generality of the foregoing, at any time an Event of Default has occurred and is continuing, Agent may, at its option and shall upon the direction of the Required Lenders, (i) upon notice to Administrative Borrower, accelerate the payment of all Obligations and demand immediate payment thereof to Agent for itself and the benefit of Lenders (provided, that, upon the occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations shall automatically become immediately due and payable), and (ii) terminate the Commitments whereupon the obligation of each Lender to make any Loan and an issuer to issue any Letter of Credit shall immediately terminate (provided, that, upon the occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h), the Commitments and any other obligation of the Agent or a Lender hereunder shall automatically terminate). (c) Without limiting the foregoing, at any time an Event of Default has occurred and is continuing, Agent may, in its discretion (i) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (ii) require any Borrower or Guarantor, at Borrowers' expense, to assemble and make available to Agent any part or all of the Collateral at any place and time designated by Agent, (iii) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (iv) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, (v) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including entering into contracts with respect thereto, public or private sales at any exchange, broker's board, at any office of Agent or elsewhere) at such prices or terms as Agent may deem reasonable, for cash, upon credit or for future delivery, with the Agent having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of any Borrower or Guarantor, which right or equity of redemption is hereby expressly waived and released by Borrowers and Guarantors and/or (vi) terminate this Agreement. If any of the Collateral is sold or leased by Agent upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Agent. If notice of disposition of Collateral is required by law, ten (10) days prior notice by Agent to Administrative Borrower designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and Borrowers and Guarantors waive any other notice. In the event Agent institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, each Borrower and Guarantor waives the posting of any bond which might otherwise be required. At any time an Event of Default exists or has occurred and is continuing, upon Agent's request, Borrowers will either, as Agent shall specify, furnish cash collateral to the issuer to be used to secure and fund the reimbursement obligations to the issuer in connection with any Letter of Credit Obligations or furnish cash collateral to Agent for the Letter of Credit Obligations. Such cash collateral shall be in the amount equal to one hundred five (105%) percent of the amount of the Letter of Credit Obligations plus the amount of any fees and expenses payable in connection therewith through the end of the latest expiration date of the Letters of Credit giving rise to such Letter of Credit Obligations. (d) At any time or times that an Event of Default has occurred and is continuing, Agent may, in its discretion, enforce the rights of any Borrower or Guarantor against any account debtor, secondary obligor or other obligor in respect of any of the Accounts or other Receivables. Without limiting the generality of the foregoing, Agent may, in its discretion, at such time or times (i) notify any or all account debtors, secondary obligors or other obligors in respect thereof that the Receivables have been assigned to Agent and that Agent has a security interest therein and Agent may direct any or all account debtors, secondary obligors and other obligors to make payment of Receivables directly to Agent, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Receivables or other obligations included in the Collateral and thereby discharge or release the account debtor or any secondary obligors or other obligors in respect thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Receivables or such other obligations, but without any duty to do so, and Agent and Lenders shall not be liable for any failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action Agent may deem necessary or desirable for the protection of its interests and the interests of Lenders. At any time that an Event of Default has occurred and is continuing, at Agent's request, all invoices and statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to Agent and are payable directly and only to Agent and Borrowers and Guarantors shall deliver to Agent such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Agent may require. In the event any account debtor returns Inventory when an Event of Default has occurred and is continuing, Borrowers shall, upon Agent's request, hold the returned Inventory in trust for Agent, segregate all returned Inventory from all of its other property, dispose of the returned Inventory solely according to Agent's instructions, and not issue any credits, discounts or allowances with respect thereto without Agent's prior written consent. (e) To the extent that applicable law imposes duties on Agent or any Lender to exercise remedies in a commercially reasonable manner (which duties cannot be waived under such law), each Borrower and Guarantor acknowledges and agrees that it is not commercially unreasonable for Agent or any Lender (i) to fail to incur expenses reasonably deemed significant by Agent or any Lender to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain consents of any Governmental Authority or other third party for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against account debtors, secondary obligors or other persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims against Collateral, (iv) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other persons, whether or not in the same business as any Borrower or Guarantor, for expressions of interest in acquiring all or any portion of the Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, (xi) to purchase insurance or credit enhancements to insure Agent or Lenders against risks of loss, collection or disposition of Collateral or to provide to Agent or Lenders a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by Agent, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist Agent in the collection or disposition of any of the Collateral. Each Borrower and Guarantor acknowledges that the purpose of this Section is to provide non-exhaustive indications of what actions or omissions by Agent or any Lender would not be commercially unreasonable in the exercise by Agent or any Lender of remedies against the Collateral and that other actions or omissions by Agent or any Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this Section. Without limitation of the foregoing, nothing contained in this Section shall be construed to grant any rights to any Borrower or Guarantor or to impose any duties on Agent or Lenders that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section. (f) For the purpose of enabling Agent to exercise the rights and remedies hereunder, each Borrower and Guarantor hereby grants to Agent, to the extent assignable, an irrevocable, non-exclusive license (exercisable at any time an Event of Default shall have occurred and for so long as the same is continuing) without payment of royalty or other compensation to any Borrower or Guarantor, to use, assign, license or sublicense any of the trademarks, service-marks, trade names, business names, trade styles, designs, logos and other source of business identifiers and other Intellectual Property and general intangibles now owned or hereafter acquired by any Borrower or Guarantor, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof. (g) At any time an Event of Default has occurred and is continuing, Agent may apply the cash proceeds of Collateral actually received by Agent from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Obligations, in whole or in part and in accordance with the terms hereof, whether or not then due or may hold such proceeds as cash collateral for the Obligations. Borrowers and Guarantors shall remain liable to Agent and Lenders for the payment of any deficiency with interest at the highest rate provided for herein and all costs and expenses of collection or enforcement, including attorneys' fees and expenses. (h) Without limiting the foregoing, upon the occurrence and during the continuance of an Event of Default, (i) Agent and Lenders may, at Agent's option, and upon the occurrence of an Event of Default at the direction of the Required Lenders, Agent and Lenders shall, without notice, (A) cease making Loans or arranging for Letters of Credit or reduce the lending formulas or amounts of Loans and Letters of Credit available to Borrowers and/or (B) terminate any provision of this Agreement providing for any future Loans or Letters of Credit to be made by Agent and Lenders to Borrowers and (ii) Agent may, at its option, establish such Reserves as Agent determines, without limitation or restriction, notwithstanding anything to the contrary contained herein. SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. (a) The validity, interpretation and enforcement of this Agreement and the other Financing Agreements (except as otherwise provided therein) and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of Illinois but excluding any principles of conflicts of law or other rule of law that would cause the application of the law of any jurisdiction other than the laws of the State of Illinois. (b) Borrowers, Guarantors, Agent and Lenders irrevocably consent and submit to the non-exclusive jurisdiction of the Circuit Courts of Cook County, Illinois and the United States District Court for the Northern District of Illinois, whichever Agent may elect, and waive any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Agreement or any of the other Financing Agreements or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Agreement or any of the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agree that any dispute with respect to any such matters shall be heard only in the courts described above (except that Agent and Lenders shall have the right to bring any action or proceeding against any Borrower or Guarantor or its or their property in the courts of any other jurisdiction which Agent deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce its rights against any Borrower or Guarantor or its or their property). (c) Each Borrower and Guarantor hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth herein and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Agent's option, by service upon any Borrower or Guarantor (or Administrative Borrower on behalf of such Borrower or Guarantor) in any other manner provided under the rules of any such courts. (d) BORROWERS, GUARANTORS, AGENT AND LENDERS EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWERS, GUARANTORS, AGENT AND LENDERS EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY BORROWER, ANY GUARANTOR, AGENT OR ANY LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Agent and Lenders shall not have any liability to any Borrower or Guarantor (whether in tort, contract, equity or otherwise) for losses suffered by such Borrower or Guarantor in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless and to the extent that it is determined by a final and non-appealable judgment or court order binding on Agent and such Lender, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Agent and Lenders shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Agreement. Each Borrower and Guarantor: (i) certifies that neither Agent, any Lender nor any representative, agent or attorney acting for or on behalf of Agent or any Lender has represented, expressly or otherwise, that Agent and Lenders would not, in the event of litigation, seek to enforce any of the waivers provided for in this Agreement or any of the other Financing Agreements and (ii) acknowledges that in entering into this Agreement and the other Financing Agreements, Agent and Lenders are relying upon, among other things, the waivers and certifications set forth in this Section 11.1 and elsewhere herein and therein. 11.2 Waiver of Notices. Each Borrower and Guarantor hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and chattel paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on any Borrower or Guarantor which Agent or any Lender may elect to give shall entitle such Borrower or Guarantor to any other or further notice or demand in the same, similar or other circumstances. 11.3 Amendments and Waivers. (a) Neither this Agreement nor any other Financing Agreement nor any terms hereof or thereof may be amended, waived, discharged or terminated unless such amendment, waiver, discharge or termination is in writing signed by Agent and the Required Lenders or at Agent's option, by Agent with the authorization or consent of the Required Lenders, and as to amendments to any of the Financing Agreements (other than with respect to any provision of Section 12 hereof), by any Borrower and such amendment, waiver, discharger or termination shall be effective and binding as to all Lenders only in the specific instance and for the specific purpose for which given; except, that, no such amendment, waiver, discharge or termination shall: (i) reduce the interest rate or any fees or extend the time of payment of principal, interest or any fees or reduce the principal amount of any Loan or Letters of Credit, in each case without the consent of each Lender directly affected thereby, (ii) increase the Commitment of any Lender over the amount thereof then in effect or provided hereunder, in each case without the consent of the Lender directly affected thereby, (iii) release any Collateral (except as expressly required hereunder or under any of the other Financing Agreements or applicable law and except as permitted under Section 12.11(b) hereof), without the consent of Agent and all of Lenders, (iv) reduce any percentage specified in the definition of Required Lenders, without the consent of Agent and all of Lenders, (v) consent to the assignment or transfer by any Borrower or Guarantor of any of their rights and obligations under this Agreement, without the consent of Agent and all of Lenders, (vi) amend, modify or waive any terms of this Section 11.3 hereof, without the consent of Agent and all of Lenders, or (vii) increase the advance rates constituting part of the Borrowing Base or increase the Inventory Loan Limit or the Letter of Credit Limit from those set forth in this Agreement as of the date hereof, without the consent of Agent and all of Lenders. (b) Agent and Lenders shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its or their rights, powers and/or remedies unless such waiver shall be in writing and signed as provided herein. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Agent or any Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Agent or any Lender would otherwise have on any future occasion, whether similar in kind or otherwise. (c) Notwithstanding anything to the contrary contained in Section 11.3(a) above, in connection with any amendment, waiver, discharge or termination, in the event that any Lender whose consent thereto is required shall fail to consent or fail to consent in a timely manner (such Lender being referred to herein as a "Non-Consenting Lender"), but the consent of any other Lenders to such amendment, waiver, discharge or termination that is required are obtained, if any, then Wachovia shall have the right, but not the obligation, at any time thereafter, and upon the exercise by Wachovia of such right, such Non-Consenting Lender shall have the obligation, to sell, assign and transfer to Wachovia or such Eligible Transferee as Wachovia may specify, the Commitment of such Non-Consenting Lender and all rights and interests of such Non-Consenting Lender pursuant thereto. Wachovia shall provide the Non-Consenting Lender and Administrative Borrower with prior written notice of its intent to exercise its right under this Section, which notice shall specify on date on which such purchase and sale shall occur. Such purchase and sale shall be pursuant to the terms of an Assignment and Acceptance (whether or not executed by the Non-Consenting Lender), except that on the date of such purchase and sale, Congress, or such Eligible Transferee specified by Congress, shall pay to the Non-Consenting Lender (except as Wachovia and such Non-Consenting Lender may otherwise agree) the amount equal to: (i) the principal balance of the Loans held by the Non-Consenting Lender outstanding as of the close of business on the business day immediately preceding the effective date of such purchase and sale, plus (ii) amounts accrued and unpaid in respect of interest and fees payable to the Non-Consenting Lender to the effective date of the purchase (but in no event shall the Non-Consenting Lender be deemed entitled to any early termination fee), minus (iii) the amount of the closing fee received by the Non-Consenting Lender pursuant to the terms hereof or of any of the other Financing Agreements multiplied by the fraction, the numerator of which is the number of months remaining in the then current term of the Credit Facility and the denominator of which is the number of months in the then current term thereof. Such purchase and sale shall be effective on the date of the payment of such amount to the Non-Consenting Lender and the Commitment of the Non-Consenting Lender shall terminate on such date. (d) The consent of Agent shall be required for any amendment, waiver or consent affecting the rights or duties of Agent hereunder or under any of the other Financing Agreements, in addition to the consent of the Lenders otherwise required by this Section and the exercise by Agent of any of its rights hereunder with respect to Reserves or Eligible Accounts or Eligible Inventory shall not be deemed an amendment to the advance rates provided for in this Section 11.3. Notwithstanding anything to the contrary contained in Section 11.3(a) above, (i) in the event that Agent shall agree that any items otherwise required to be delivered to Agent as a condition of the initial Loans and Letters of Credit hereunder may be delivered after the date hereof, Agent may, in its discretion, agree to extend the date for delivery of such items or take such other action as Agent may deem appropriate as a result of the failure to receive such items as Agent may determine or may waive any Event of Default as a result of the failure to receive such items, in each case without the consent of any Lender and (ii) Agent may consent to any change in the type of organization, jurisdiction of organization or other legal structure of any Borrower, Guarantor or any of their Subsidiaries and amend the terms hereof or of any of the other Financing Agreements as may be necessary or desirable to reflect any such change, in each case without the approval of any Lender. (e) The consent of Agent and any Lender, any Affiliate of any Lender or any other financial institution acceptable to Agent, as the case may be, that is party to a Hedge Agreement at such time shall be required for any amendment to the priority of payment of Obligations arising under or pursuant to any Hedge Agreements of a Borrower or Guarantor as set forth in Section 6.4(a) hereof. 11.4 Waiver of Counterclaims. Each Borrower and Guarantor waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other then compulsory counterclaims) in any action or proceeding with respect to this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 11.5 Indemnification. Each Borrower and Guarantor shall, jointly and severally, indemnify and hold Agent and each Lender, and their respective officers, directors, agents, employees, advisors and counsel and their respective Affiliates (each such person being an "Indemnitee"), harmless from and against any and all losses, claims, damages, liabilities, costs or expenses (including attorneys' fees and expenses) imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, any other Financing Agreements, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including amounts paid in settlement, court costs, and the fees and expenses of counsel except that Borrowers and Guarantors shall not have any obligation under this Section 11.5 to indemnify an Indemnitee with respect to a matter covered hereby to the extent resulting from the gross negligence or wilful misconduct of such Indemnitee as determined pursuant to a final, non-appealable order of a court of competent jurisdiction (but without limiting the obligations of Borrowers or Guarantors as to any other Indemnitee). To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, Borrowers and Guarantors shall pay the maximum portion which it is permitted to pay under applicable law to Agent and Lenders in satisfaction of indemnified matters under this Section. To the extent permitted by applicable law, no Borrower or Guarantor shall assert, and each Borrower and Guarantor hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any of the other Financing Agreements or any undertaking or transaction contemplated hereby. All amounts due under this Section shall be payable within five (5) days after demand. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. SECTION 12. THE AGENT 12.1 Appointment, Powers and Immunities. Each Lender irrevocably designates, appoints and authorizes Wachovia to act as Agent hereunder and under the other Financing Agreements with such powers as are specifically delegated to Agent by the terms of this Agreement and of the other Financing Agreements, together with such other powers as are reasonably incidental thereto. Agent (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Financing Agreements, and shall not by reason of this Agreement or any other Financing Agreement be a trustee or fiduciary for any Lender; (b) shall not be responsible to Lenders for any recitals, statements, representations or warranties contained in this Agreement or in any of the other Financing Agreements, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Financing Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Financing Agreement or any other document referred to or provided for herein or therein or for any failure by any Borrower or any Guarantor or any other Person to perform any of its obligations hereunder or thereunder; and (c) shall not be responsible to Lenders for any action taken or omitted to be taken by it hereunder or under any other Financing Agreement or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. Agent may employ agents and attorneys in fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys in fact selected by it in good faith. Agent may deem and treat the payee of any note as the holder thereof for all purposes hereof unless and until the assignment thereof pursuant to an agreement (if and to the extent permitted herein) in form and substance satisfactory to Agent shall have been delivered to and acknowledged by Agent. 12.2 Reliance by Agent. Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Agent. As to any matters not expressly provided for by this Agreement or any other Financing Agreement, Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Required Lenders or all of Lenders as is required in such circumstance, and such instructions of such Agents and any action taken or failure to act pursuant thereto shall be binding on all Lenders. 12.3 Events of Default. (a) Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or an Event of Default or other failure of a condition precedent to the Loans and Letters of Credit hereunder, unless and until Agent has received written notice from a Lender, or a Borrower specifying such Event of Default or any unfulfilled condition precedent, and stating that such notice is a "Notice of Default or Failure of Condition". In the event that Agent receives such a Notice of Default or Failure of Condition, Agent shall give prompt notice thereof to the Lenders. Agent shall (subject to Section 12.7) take such action with respect to any such Event of Default or failure of condition precedent as shall be directed by the Required Lenders to the extent provided for herein; provided, that, unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to or by reason of such Event of Default or failure of condition precedent, as it shall deem advisable in the best interest of Lenders. Without limiting the foregoing, and notwithstanding the occurrence and continuance of an Event of Default or any other failure to satisfy any of the conditions precedent set forth in Section 4 of this Agreement to the contrary, unless and until otherwise directed by the Required Lenders, Agent may, but shall have no obligation to, continue to make Loans and issue or cause to be issued any Letter of Credit for the ratable account and risk of Lenders from time to time if Agent believes making such Loans or issuing or causing to be issued such Letter of Credit is in the best interests of Lenders. (b) Except with the prior written consent of Agent, no Lender may assert or exercise any enforcement right or remedy in respect of the Loans, Letter of Credit Obligations or other Obligations, as against any Borrower or Guarantor or any of the Collateral or other property of any Borrower or Guarantor. 12.4 Wachovia in its Individual Capacity. With respect to its Commitment and the Loans made and Letters of Credit issued or caused to be issued by it (and any successor acting as Agent), so long as Wachovia shall be a Lender hereunder, it shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Wachovia in its individual capacity as Lender hereunder. Wachovia (and any successor acting as Agent) and its Affiliates may (without having to account therefor to any Lender) lend money to, make investments in and generally engage in any kind of business with Borrowers (and any of its Subsidiaries or Affiliates) as if it were not acting as Agent, and Wachovia and its Affiliates may accept fees and other consideration from any Borrower or Guarantor and any of its Subsidiaries and Affiliates for services in connection with this Agreement or otherwise without having to account for the same to Lenders. 12.5 Indemnification. Lenders agree to indemnify Agent (to the extent not reimbursed by Borrowers hereunder and without limiting any obligations of Borrowers hereunder) ratably, in accordance with their Pro Rata Shares, for any and all claims of any kind and nature whatsoever that may be imposed on, incurred by or asserted against Agent (including by any Lender) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Financing Agreement or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including the costs and expenses that Agent is obligated to pay hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, provided, that, no Lender shall be liable for any of the foregoing to the extent it arises from the gross negligence or willful misconduct of the party to be indemnified as determined by a final non-appealable judgment of a court of competent jurisdiction. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 12.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has, independently and without reliance on Agent or other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of Borrowers and Guarantors and has made its own decision to enter into this Agreement and that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Financing Agreements. Agent shall not be required to keep itself informed as to the performance or observance by any Borrower or Guarantor of any term or provision of this Agreement or any of the other Financing Agreements or any other document referred to or provided for herein or therein or to inspect the properties or books of any Borrower or Guarantor. Agent will use reasonable efforts to provide Lenders with any information received by Agent from any Borrower or Guarantor which is required to be provided to Lenders or deemed to be requested by Lenders hereunder and with a copy of any Notice of Default or Failure of Condition received by Agent from any Borrower or any Lender; provided, that, Agent shall not be liable to any Lender for any failure to do so, except to the extent that such failure is attributable to Agent's own gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. Except for notices, reports and other documents expressly required to be furnished to Lenders by Agent or deemed requested by Lenders hereunder, Agent shall not have any duty or responsibility to provide any Lender with any other credit or other information concerning the affairs, financial condition or business of any Borrower or Guarantor that may come into the possession of Agent. 12.7 Failure to Act. Except for action expressly required of Agent hereunder and under the other Financing Agreements, Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from Lenders of their indemnification obligations under Section 12.5 hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. 12.8 Additional Loans. Agent shall not make any Revolving Loans or provide any Letter of Credit to any Borrower on behalf of Lenders intentionally and with actual knowledge that such Revolving Loans or Letter of Credit would cause the aggregate amount of the total outstanding Revolving Loans and Letters of Credit to such Borrower to exceed the Borrowing Base of such Borrower, without the prior consent of all Lenders, except, that, Agent may make such additional Revolving Loans or provide such additional Letter of Credit on behalf of Lenders, intentionally and with actual knowledge that such Revolving Loans or Letter of Credit will cause the total outstanding Revolving Loans and Letters of Credit to such Borrower to exceed the Borrowing Base of such Borrower, as Agent may deem necessary or advisable in its discretion, provided, that: (a) the total principal amount of the additional Revolving Loans or additional Letters of Credit to any Borrower which Agent may make or provide after obtaining such actual knowledge that the aggregate principal amount of the Revolving Loans equal or exceed the Borrowing Bases of Borrowers, plus the amount of Special Agent Advances made pursuant to Section 12.11(a)(ii) hereof then outstanding, shall not exceed the aggregate amount equal to ten percent (10%) of the Maximum Credit and shall not cause the total principal amount of the Loans and Letters of Credit to exceed the Maximum Credit and (b) no such additional Revolving Loan or Letter of Credit shall be outstanding more than ninety (90) days after the date such additional Revolving Loan or Letter of Credit is made or issued (as the case may be), except as the Required Lenders may otherwise agree. Each Lender shall be obligated to pay Agent the amount of its Pro Rata Share of any such additional Revolving Loans or Letters of Credit. 12.9 Concerning the Collateral and the Related Financing Agreements. Each Lender authorizes and directs Agent to enter into this Agreement and the other Financing Agreements on behalf of such Lender (including, without limitation, post closing, intercreditor and subordination agreements) and each such Lender agrees to be bound by the terms thereof. Each Lender agrees that any action taken by Agent or Required Lenders in accordance with the terms of this Agreement or the other Financing Agreements and the exercise by Agent or Required Lenders of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. 12.10 Field Audit, Examination Reports and other Information; Disclaimer by Lenders. By signing this Agreement, each Lender: (a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report and report with respect to the Borrowing Base prepared or received by Agent (each field audit or examination report and report with respect to the Borrowing Base being referred to herein as a "Report" and collectively, "Reports"), appraisals with respect to the Collateral and financial statements with respect Parent and its Subsidiaries received by Agent; (b) expressly agrees and acknowledges that Agent (i) does not make any representation or warranty as to the accuracy of any Report, appraisal or financial statement or (ii) shall not be liable for any information contained in any Report, appraisal or financial statement; (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or any other party performing any audit or examination will inspect only specific information regarding Borrowers and Guarantors and will rely significantly upon Borrowers' and Guarantors' books and records, as well as on representations of Borrowers' and Guarantors' personnel; and (d) agrees to keep all Reports confidential and strictly for its internal use in accordance with the terms of Section 13.5 hereof, and not to distribute or use any Report in any other manner. 12.11 Collateral Matters. (a) Agent may, at its option, from time to time, at any time on or after an Event of Default and for so long as the same is continuing or upon any other failure of a condition precedent to the Loans and Letters of Credit hereunder, make such disbursements and advances ("Special Agent Advances") which Agent, in its sole discretion, (i) deems necessary or desirable either to preserve or protect the Collateral or any portion thereof or (ii) to enhance the likelihood or maximize the amount of repayment by Borrowers and Guarantors of the Loans and other Obligations, provided, that, (A) the aggregate principal amount of the Special Agent Advances pursuant to this clause (ii) outstanding at any time, plus the then outstanding principal amount of the additional Loans and Letters of Credit which Agent may make or provide as set forth in Section 12.8 hereof, shall not exceed the amount equal to ten (10%) percent of the Maximum Credit and (B) the aggregate principal amount of the Special Agent Advances pursuant to this clause (ii) outstanding at any time, plus the then outstanding principal amount of the Loans, shall not exceed the Maximum Credit, except at Agent's option, provided, that, to the extent that the aggregate principal amount of Special Agent Advances plus the then outstanding principal amount of the Loans exceed the Maximum Credit the Special Agent Advances that are in excess of the Maximum Credit shall be for the sole account and risk of Agent and notwithstanding anything to the contrary set forth below, no Lender shall have any obligation to provide its share of such Special Agent Advances in excess of the Maximum Credit, or (iii) to pay any other amount chargeable to any Borrower or Guarantor pursuant to the terms of this Agreement or any of the other Financing Agreements consisting of (A) costs, fees and expenses and (B) payments to Issuing Bank in respect of any Letter of Credit Obligations. The Special Agent Advances shall be repayable on demand and together with all interest thereon shall constitute Obligations secured by the Collateral. Special Agent Advances shall not constitute Loans but shall otherwise constitute Obligations hereunder. Interest on Special Agent Advances shall be payable at the Interest Rate then applicable to Prime Rate Loans and shall be payable on demand. Without limitation of its obligations pursuant to Section 6.11, each Lender agrees that it shall make available to Agent, upon Agent's demand, in immediately available funds, the amount equal to such Lender's Pro Rata Share of each such Special Agent Advance. If such funds are not made available to Agent by such Lender, such Lender shall be deemed a Defaulting Lender and Agent shall be entitled to recover such funds, on demand from such Lender together with interest thereon for each day from the date such payment was due until the date such amount is paid to Agent at the Federal Funds Rate for each day during such period (as published by the Federal Reserve Bank of New York or at Agent's option based on the arithmetic mean determined by Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of the three leading brokers of Federal funds transactions in New York City selected by Agent) and if such amounts are not paid within three (3) days of Agent's demand, at the highest Interest Rate provided for in Section 3.1 hereof applicable to Prime Rate Loans. (b) Lenders hereby irrevocably authorize Agent, at its option and in its discretion to release any security interest in, mortgage or lien upon, any of the Collateral (i) upon termination of the Commitments and payment and satisfaction of all of the Obligations (other than contingent indemnification obligations not asserted) and delivery of cash collateral to the extent required under Section 13.1 below, or (ii) constituting property being sold or disposed of if Administrative Borrower or any Borrower or Guarantor certifies to Agent that the sale or disposition is made in compliance with Section 9.7 hereof (and Agent may rely conclusively on any such certificate, without further inquiry), or (iii) constituting property in which any Borrower or Guarantor did not own an interest at the time the security interest, mortgage or lien was granted or at any time thereafter, or (iv) having a value in the aggregate in any twelve (12) month period of less than $1,500,000, and to the extent Agent may release its security interest in and lien upon any such Collateral pursuant to the sale or other disposition thereof, such sale or other disposition shall be deemed consented to by Lenders, or (v) if required or permitted under the terms of any of the other Financing Agreements, including any intercreditor agreement, or (vi) approved, authorized or ratified in writing by all of Lenders. Except as provided above, Agent will not release any security interest in, mortgage or lien upon, any of the Collateral without the prior written authorization of all of Lenders. Upon request by Agent at any time, Lenders will promptly confirm in writing Agent's authority to release particular types or items of Collateral pursuant to this Section. (c) Without any manner limiting Agent's authority to act without any specific or further authorization or consent by the Required Lenders, each Lender agrees to promptly confirm in writing, upon request by Agent, the authority to release Collateral conferred upon Agent under this Section. Agent shall (and is hereby irrevocably authorized by Lenders to) execute such documents as may be necessary to evidence the release of the security interest, mortgage or liens granted to Agent upon any Collateral to the extent set forth above; provided, that, (i) Agent shall not be required to execute any such document on terms which, in Agent's opinion, would expose Agent to liability or create any obligations or entail any consequence other than the release of such security interest, mortgage or liens without recourse or warranty and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any security interest, mortgage or lien upon (or obligations of any Borrower or Guarantor in respect of) the Collateral retained by such Borrower or Guarantor. (d) Agent shall have no obligation whatsoever to any Lender or any other Person to investigate, confirm or assure that the Collateral exists or is owned by any Borrower or Guarantor or is cared for, protected or insured or has been encumbered, or that any particular items of Collateral meet the eligibility criteria applicable in respect of the Loans or Letters of Credit hereunder, or whether any particular reserves are appropriate, or that the liens and security interests granted to Agent pursuant hereto or any of the Financing Agreements or otherwise have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Agreement or in any of the other Financing Agreements, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, subject to the other terms and conditions contained herein, Agent may act in any manner it may deem appropriate, in its discretion, given Agent's own interest in the Collateral as a Lender and that Agent shall have no duty or liability whatsoever to any other Lender. 12.12 Agency for Perfection. Each Lender hereby appoints Agent and each other Lender as agent and bailee for the purpose of perfecting the security interests in and liens upon the Collateral of Agent in assets which, in accordance with Article 9 of the UCC can be perfected only by possession (or where the security interest of a secured party with possession has priority over the security interest of another secured party) and Agent and each Lender hereby acknowledges that it holds possession of any such Collateral for the benefit of Agent as secured party. Should any Lender obtain possession of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor shall deliver such Collateral to Agent or in accordance with Agent's instructions. 12.13 Successor Agent. Agent may resign as Agent upon thirty (30) days' notice to Lenders and Administrative Borrower. If Agent resigns under this Agreement, the Required Lenders shall appoint from among the Lenders a successor agent for Lenders. If no successor agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with Lenders and Administrative Borrower, a successor agent from among Lenders which, absent the occurrence and continuance of an Event of Default, shall be acceptable to Administrative Borrower, which acceptance shall not be unreasonably withheld or delayed. Upon the acceptance by the Lender so selected of its appointment as successor agent hereunder, such successor agent shall succeed to all of the rights, powers and duties of the retiring Agent and the term "Agent" as used herein and in the other Financing Agreements shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 12 shall inure to its benefit as to any actions taken or omitted by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is thirty (30) days after the date of a retiring Agent's notice of resignation, the retiring Agent's resignation shall nonetheless thereupon become effective and Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. 12.14 Other Agent Designations. Agent may at any time and from time to time determine that a Lender may, in addition, be a "Co-Agent", "Syndication Agent", "Documentation Agent" or similar designation hereunder and enter into an agreement with such Lender to have it so identified for purposes of this Agreement. Any such designation shall be effective upon written notice by Agent to Administrative Borrower of any such designation. Any Lender that is so designated as a Co-Agent, Syndication Agent, Documentation Agent or such similar designation by Agent shall have no right, power, obligation, liability, responsibility or duty under this Agreement or any of the other Financing Agreements other than those applicable to all Lenders as such. Without limiting the foregoing, the Lenders so identified shall not have or be deemed to have any fiduciary relationship with any Lender and no Lender shall be deemed to have relied, nor shall any Lender rely, on a Lender so identified as a Co-Agent, Syndication Agent, Documentation Agent or such similar designation in deciding to enter into this Agreement or in taking or not taking action hereunder. SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS 13.1 Term. (a) This Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect for a term ending on the date five (5) years from the date hereof (the "Renewal Date"), and from year to year thereafter, unless sooner terminated pursuant to the terms hereof. Agent may, at its option (or shall at the direction of any Lender in writing received by Agent at least ninety (90) days prior to the Renewal Date or the anniversary of any Renewal Date, as the case may be), terminate this Agreement and the other Financing Agreements, or Administrative Borrower or any Borrower may terminate this Agreement and the other Financing Agreements, each case, effective on the Renewal Date or on the anniversary of the Renewal Date in any year by giving to the other party at least sixty (60) days prior written notice; provided, that, this Agreement and all other Financing Agreements must be terminated simultaneously. In addition, Borrowers may terminate this Agreement at any time upon ten (10) days prior written notice to Agent (which notice shall be irrevocable) and Agent may, at its option, and shall at the direction of Required Lenders, terminate this Agreement at any time upon the occurrence and during the continuance of an Event of Default. Upon the Renewal Date or any other effective date of termination of the Financing Agreements, Borrowers shall pay to Agent all outstanding and unpaid Obligations and shall furnish cash collateral to Agent (or at Agent's option, a letter of credit issued for the account of Borrowers and at Borrowers' expense, in form and substance reasonably satisfactory to Agent, by an issuer reasonably acceptable to Agent and payable to Agent as beneficiary) in such amounts as Agent determines are reasonably necessary to secure Agent and Lenders from loss, cost, damage or expense, including attorneys' fees and expenses, in connection with any contingent Obligations, including issued and outstanding Letter of Credit Obligations and checks or other payments provisionally credited to the Obligations and/or as to which Agent or any Lender has not yet received final and indefeasible payment and any continuing obligations of Agent or any Lender pursuant to any Deposit Account Control Agreement and for any of the Obligations arising under or in connection with any Hedge Agreement in such amounts as the other party to such Hedge Agreement may require (unless such Obligations arising under or in connection with any Hedge Agreement are paid in full in cash and terminated in a manner satisfactory to such other party). The amount of such cash collateral (or letter of credit, as Agent may determine) as to any Letter of Credit Obligations shall be in the amount equal to one hundred five (105%) percent of the amount of the Letter of Credit Obligations plus the amount of any fees and expenses payable in connection therewith through the end of the latest expiration date of the Letters of Credit giving rise to such Letter of Credit Obligations. Such payments in respect of the Obligations and cash collateral shall be remitted by wire transfer in Federal funds to the Agent Payment Account or such other bank account of Agent, as Agent may, in its discretion, designate in writing to Administrative Borrower for such purpose. Interest shall be due until and including the next Business Day, if the amounts so paid by Borrowers to the Agent Payment Account or other bank account designated by Agent are received in such bank account later than 12:00 noon, Chicago time. (b) No termination of the Commitments, this Agreement or any of the other Financing Agreements shall relieve or discharge any Borrower or Guarantor of its respective duties, obligations and covenants under this Agreement or any of the other Financing Agreements until all Obligations (other than contingent indemnification obligations not asserted) have been fully and finally discharged and paid, and Agent's continuing security interest in the Collateral and the rights and remedies of Agent and Lenders hereunder, under the other Financing Agreements and applicable law, shall remain in effect until all such Obligations (other than contingent indemnification obligations not asserted) have been fully and finally discharged and paid. Accordingly, each Borrower and Guarantor waives any rights it may have under the UCC to demand the filing of termination statements with respect to the Collateral and Agent shall not be required to send such termination statements to Borrowers or Guarantors, or to file them with any filing office, unless and until this Agreement shall have been terminated in accordance with its terms and all Obligations (other than contingent indemnification obligations not asserted) paid and satisfied in full in immediately available funds. (c) If for any reason this Agreement is terminated prior to the Renewal Date, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Agent's and each Lender's lost profits as a result thereof, Borrowers agree to pay to Agent, for the benefit of Lenders, upon the effective date of such termination, an early termination fee in the amount equal to
Amount Period (i) 1.0% of Maximum Credit From the date hereof to and including the first anniversary of the date hereof (ii) 0.50% of Maximum Credit From and after the first anniversary of the date hereof to and including the second anniversary of the date hereof (iii) 0.25% of Maximum Credit From and after the second anniversary of the date hereof but prior to the end of the then current term (excluding the last 30 days of the then current term).
Such early termination fee shall be presumed to be the amount of damages sustained by Agent and Lenders as a result of such early termination and Borrowers and Guarantors agree that it is reasonable under the circumstances currently existing (including, but not limited to, the borrowings that are reasonably expected by Borrowers hereunder and the interest, fees and other charges that are reasonably expected to be received by Agent and Lenders pursuant to the Credit Facility). In addition, Agent and Lenders shall be entitled to such early termination fee upon the occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if Agent and Lenders do not exercise the right to terminate this Agreement, but elect, at their option, to provide financing to any Borrower or permit the use of cash collateral under the United States Bankruptcy Code. The early termination fee provided for in this Section 13.1 shall be deemed included in the Obligations. 13.2 Interpretative Provisions. (a) All terms used herein which are defined in Article 1, Article 8 or Article 9 of the UCC shall have the meanings given therein unless otherwise defined in this Agreement. (b) All references to the plural herein shall also mean the singular and to the singular shall also mean the plural unless the context otherwise requires. (c) All references to any Borrower, Guarantor, Agent and Lenders pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns. (d) The words "hereof", "herein", "hereunder", "this Agreement" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (e) The word "including" when used in this Agreement shall mean "including, without limitation" and the word "will" when used in this Agreement shall be construed to have the same meaning and effect as the word "shall". (f) An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 11.3 or is cured in a manner satisfactory to Agent, if such Event of Default is capable of being cured as determined by Agent. (g) All references to the term "good faith" used herein when applicable to Agent or any Lender shall mean, notwithstanding anything to the contrary contained herein or in the UCC, honesty in fact in the conduct or transaction concerned. Borrowers and Guarantors shall have the burden of proving any lack of good faith on the part of Agent or any Lender alleged by any Borrower or Guarantor at any time. (h) Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given in accordance with GAAP, and all financial computations hereunder shall be computed unless otherwise specifically provided herein, in accordance with GAAP as consistently applied and using the same method for inventory valuation as used in the preparation of the financial statements of Parent most recently received by Agent prior to the date hereof. Notwithstanding anything to the contrary contained in GAAP or any interpretations or other pronouncements by the Financial Accounting Standards Board or otherwise, the term "unqualified opinion" as used herein to refer to opinions or reports provided by accountants shall mean an opinion or report that is unqualified as to going concern or the scope of the audit. (i) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including", the words "to" and "until" each mean "to but excluding" and the word "through" means "to and including". (j) Unless otherwise expressly provided herein, (i) references herein to any agreement, document or instrument shall be deemed to include all subsequent amendments, modifications, supplements, extensions, renewals, restatements or replacements with respect thereto, but only to the extent the same are not prohibited by the terms hereof or of any other Financing Agreement, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, recodifying, supplementing or interpreting the statute or regulation. (k) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (l) This Agreement and other Financing Agreements may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. (m) This Agreement and the other Financing Agreements are the result of negotiations among and have been reviewed by counsel to Agent and the other parties, and are the products of all parties. Accordingly, this Agreement and the other Financing Agreements shall not be construed against Agent or Lenders merely because of Agent's or any Lender's involvement in their preparation. 13.3 Notices. (a) All notices, requests and demands hereunder shall be in writing and deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next Business Day, one (1) Business Day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. Notices delivered through electronic communications shall be effective to the extent set forth in Section 13.3(b) below. All notices, requests and demands upon the parties are to be given to the following addresses (or to such other address as any party may designate by notice in accordance with this Section):
If to any Borrower or Guarantor: c/o Keystone Consolidated Industries, Inc. 5430 LBJ Freeway, Suite 1740 Dallas, Texas 75240 Attention: Vice President and Chief Financial Officer Telephone No.: (972) 458-0028 Telecopy No.: (972) 448-1445 If to Agent: Wachovia Capital Finance Corporation (Central) 150 South Wacker Drive, Suite 2200 Chicago, Illinois 60606 Attention: Account Officer: Keystone Consolidated Industries, Inc. Telephone No.:(312) 332-0420 Telecopy No.: (312) 332-0424
(b) Notices and other communications to Agent and Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by Agent or as otherwise determined by Agent, provided, that, the foregoing shall not apply to notices to any Lender pursuant to Section 2 hereof if such Lender, as applicable, has notified Agent that it is incapable of receiving notices under such Section by electronic communication. Unless Agent otherwise requires, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender's receipt of an acknowledgement from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgement), provided, that, if such notice or other communication is not given during the normal business hours of the recipient, such notice shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communications is available and identifying the website address therefor. 13.4 Partial Invalidity. If any provision of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 13.5 Confidentiality. (a) Agent and each Lender shall use all commercially reasonable efforts to keep confidential, in accordance with its customary procedures for handling confidential information and safe and sound lending practices, any non-public information supplied to it by any Borrower pursuant to this Agreement, provided, that, nothing contained herein shall limit the disclosure of any such information: (i) to the extent required by statute, rule, regulation, subpoena or court order, (ii) to bank examiners and other regulators, auditors and/or accountants, in connection with any litigation to which Agent or such Lender is a party, (iii) to any Lender or Participant (or prospective Lender or Participant) or to any Affiliate of any Lender so long as such Lender or Participant (or prospective Lender or Participant) or Affiliate shall have been instructed to treat such information as confidential in accordance with this Section 13.5, or (iv) to counsel for Agent or any Lender or Participant (or prospective Lender or Participant). (b) In the event that Agent or any Lender receives a request or demand to disclose any confidential information pursuant to any subpoena or court order, Agent or such Lender, as the case may be, agrees (i) to the extent permitted by applicable law or if permitted by applicable law, to the extent Agent or such Lender determines in good faith that it will not create any risk of liability to Agent or such Lender, Agent or such Lender will promptly notify Administrative Borrower of such request so that Administrative Borrower may seek a protective order or other appropriate relief or remedy and (ii) if disclosure of such information is required, disclose such information and, subject to reimbursement by Borrowers of Agent's or such Lender's expenses, cooperate with Administrative Borrower in the reasonable efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to such portion of the disclosed information which Administrative Borrower so designates, to the extent permitted by applicable law or if permitted by applicable law, to the extent Agent or such Lender determines in good faith that it will not create any risk of liability to Agent or such Lender. (c) In no event shall this Section 13.5 or any other provision of this Agreement, any of the other Financing Agreements or applicable law be deemed: (i) to apply to or restrict disclosure of information that has been or is made public by any Borrower, Guarantor or any third party or otherwise becomes generally available to the public other than as a result of a disclosure in violation hereof, (ii) to apply to or restrict disclosure of information that was or becomes available to Agent or any Lender (or any Affiliate of any Lender) on a non-confidential basis from a person other than a Borrower or Guarantor, (iii) to require Agent or any Lender to return any materials furnished by a Borrower or Guarantor to Agent or a Lender or prevent Agent or a Lender from responding to routine informational requests in accordance with the Code of Ethics for the Exchange of Credit Information promulgated by The Robert Morris Associates or other applicable industry standards relating to the exchange of credit information. The obligations of Agent and Lenders under this Section 13.5 shall supersede and replace the obligations of Agent and Lenders under any confidentiality letter signed prior to the date hereof or any other arrangements concerning the confidentiality of information provided by any Borrower or Guarantor to Agent or any Lender. In addition, Agent and Lenders may disclose information relating to the Credit Facility to Gold Sheets and other similar bank trade publications, with such information to consist of deal terms and other information customarily found in such publications. 13.6 Successors. This Agreement, the other Financing Agreements and any other document referred to herein or therein shall be binding upon and inure to the benefit of and be enforceable by Agent, Lenders, Borrowers, Guarantors and their respective successors and assigns, except that Borrower may not assign its rights under this Agreement, the other Financing Agreements and any other document referred to herein or therein without the prior written consent of Agent and Lenders. Any such purported assignment without such express prior written consent shall be void. No Lender may assign its rights and obligations under this Agreement without the prior written consent of Agent, except as provided in Section 13.7 below. The terms and provisions of this Agreement and the other Financing Agreements are for the purpose of defining the relative rights and obligations of Borrowers, Guarantors, Agent and Lenders with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Agreement or any of the other Financing Agreements. 13.7 Assignments; Participations. (a) Each Lender may, with the prior written consent of Agent, assign all or, if less than all, a portion equal to at least $5,000,000 in the aggregate for the assigning Lender, of such rights and obligations under this Agreement to one or more Eligible Transferees (but not including for this purpose any assignments in the form of a participation), each of which assignees shall become a party to this Agreement as a Lender by execution of an Assignment and Acceptance; provided, that, (i) such transfer or assignment will not be effective until recorded by Agent on the Register and (ii) Agent shall have received for its sole account payment of a processing fee from the assigning Lender or the assignee in the amount of $5,000. (b) Agent shall maintain a register of the names and addresses of Lenders, their Commitments and the principal amount of their Loans (the "Register"). Agent shall also maintain a copy of each Assignment and Acceptance delivered to and accepted by it and shall modify the Register to give effect to each Assignment and Acceptance. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and any Borrowers, Guarantors, Agent and Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Administrative Borrower and any Lender at any reasonable time and from time to time upon reasonable prior notice. (c) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and to the other Financing Agreements and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations (including, without limitation, the obligation to participate in Letter of Credit Obligations) of a Lender hereunder and thereunder and the assigning Lender shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement. (d) By execution and delivery of an Assignment and Acceptance, the assignor and assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any of the other Financing Agreements or the execution, legality, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Financing Agreements furnished pursuant hereto, (ii) the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower, Guarantor or any of their Subsidiaries or the performance or observance by any Borrower or Guarantor of any of the Obligations; (iii) such assignee confirms that it has received a copy of this Agreement and the other Financing Agreements, together with such other documents and information it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (iv) such assignee will, independently and without reliance upon the assigning Lender, Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Financing Agreements, (v) such assignee appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Financing Agreements as are delegated to Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto, and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Financing Agreements are required to be performed by it as a Lender. Agent and Lenders may furnish any information concerning any Borrower or Guarantor in the possession of Agent or any Lender from time to time to assignees and Participants, subject to the provisions of Section 13.5. (e) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement and the other Financing Agreements (including, without limitation, all or a portion of its Commitments and the Loans owing to it and its participation in the Letter of Credit Obligations, without the consent of Agent or the other Lenders); provided, that, (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment hereunder) and the other Financing Agreements shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and Borrowers, Guarantors, the other Lenders and Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Financing Agreements, and (iii) the Participant shall not have any rights under this Agreement or any of the other Financing Agreements (the Participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the Participant relating thereto) and all amounts payable by any Borrower or Guarantor hereunder shall be determined as if such Lender had not sold such participation. (f) Nothing in this Agreement shall prevent or prohibit any Lender from pledging its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Lenders from such Federal Reserve Bank; provided, that, no such pledge shall release such Lender from any of its obligations hereunder or substitute any such pledgee for such Lender as a party hereto. (g) Borrowers and Guarantors shall assist Agent or any Lender permitted to sell assignments or participations under this Section 13.7 in whatever manner reasonably necessary in order to enable or effect any such assignment or participation, including (but not limited to) the execution and delivery of any and all agreements, notes and other documents and instruments as shall be reasonably requested and the preparation and delivery of offering materials, projections and other informational materials, appraisals or other documents for, and the participation of relevant management in meetings and conference calls with, potential Lenders or Participants. Borrowers shall certify the correctness, completeness and accuracy, in all material respects, of all descriptions of Borrowers and Guarantors and their affairs provided, prepared or reviewed by any Borrower or Guarantor that are contained in any selling materials and all other information provided by it and included in such materials. 13.8 Entire Agreement. This Agreement, the other Financing Agreements, any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. In the event of any inconsistency between the terms of this Agreement and any schedule or exhibit hereto, the terms of this Agreement shall govern. 13.9 USA Patriot Act. Each Lender subject to the USA PATRIOT Act (Title III of Pub.L. 107-56 (signed into law October 26, 2001) (the "Act") hereby notifies Borrowers and Guarantors that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies each person or corporation who opens an account and/or enters into a business relationship with it, which information includes the name and address of Borrowers and Guarantors and other information that will allow such Lender to identify such person in accordance with the Act and any other applicable law. Borrowers and Guarantors are hereby advised that any Loans or Letters of Credit hereunder are subject to satisfactory results of such verification. 13.10 Counterparts, Etc. This Agreement or any of the other Financing Agreements may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement or any of the other Financing Agreements by telefacsimile or other electronic method of transmission shall have the same force and effect as the delivery of an original executed counterpart of this Agreement or any of such other Financing Agreements. Any party delivering an executed counterpart of any such agreement by telefacsimile or other electronic method of transmission shall also deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of such agreement. SECTION 14. CROSS-GUARANTY 14.1 Cross-Guaranty. Each Borrower hereby agrees that such Borrower is jointly and severally liable for, and hereby absolutely and unconditionally guarantees to Agent and Lenders and their respective successors and assigns, the full and prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of, all Obligations owed or hereafter owing to Agent and Lenders by each other Borrower. Each Borrower agrees that its guaranty obligation hereunder is a continuing guaranty of payment and performance and not of collection, that its obligations under this Section 14 shall not be discharged until payment and performance, in full, of the Obligations (other than contingent indemnification obligations not asserted) has occurred, and that its obligations under this Section 14 shall be absolute and unconditional, irrespective of, and unaffected by, (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Agreement, any other Financing Agreement or any other agreement, document or instrument to which any Borrower is or may become a party; (b) the absence of any action to enforce this Agreement (including this Section 14) or any other Financing Agreement or the waiver or consent by Agent and Lenders with respect to any of the provisions thereof; (c) the existence, value or condition of, or failure to perfect its lien against, any security for the Obligations or any action, or the absence of any action, by Agent and Lenders in respect thereof (including the release of any such security); (d) the insolvency of any Borrower or Guarantor; or (e) any other action or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor other than payment in full of the Obligations (other than contingent indemnification obligations not asserted). Each Borrower shall be regarded, and shall be in the same position, as principal debtor with respect to the Obligations guaranteed hereunder. 14.2 Waivers by Borrowers. Each Borrower expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel Agent or Lenders to marshal assets or to proceed in respect of the Obligations guaranteed hereunder against any other Borrower or Guarantor, any other party or against any security for the payment and performance of the Obligations before proceeding against, or as a condition to proceeding against, such Borrower. It is agreed among each Borrower, Agent and Lenders that the foregoing waivers are of the essence of the transaction contemplated by this Agreement and the other Financing Agreements and that, but for the provisions of this Section 14 and such waivers, Agent and Lenders would decline to enter into this Agreement. 14.3 Benefit of Guaranty. Each Borrower agrees that the provisions of this Section 14 are for the benefit of Agent and Lenders and their respective successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between any other Borrower and Agent or Lenders, the obligations of such other Borrower under the Financing Agreements. 14.4 Waiver of Subrogation, Etc. Notwithstanding anything to the contrary in this Agreement or in any other Financing Agreement, and except as set forth in Section 14.9, each Borrower hereby expressly and irrevocably waives any and all rights at law or in equity to subrogation, reimbursement, exoneration, contribution, indemnification or set off and any and all defenses available to a surety, guarantor or accommodation co-obligor until payment in full of the Obligations (other than contingent indemnification obligations not asserted) and termination of all Commitments. Each Borrower acknowledges and agrees that this waiver is intended to benefit Agent and Lenders and shall not limit or otherwise affect such Borrower's liability hereunder or the enforceability of this Section 14, and that Agent, Lenders and their respective successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 14.4. 14.5 Election of Remedies. If Agent or any Lender may, under applicable law, proceed to realize its benefits under any of the Financing Agreements giving Agent or such Lender a lien upon any Collateral, whether owned by any Borrower or by any other Person, either by judicial foreclosure or by non-judicial sale or enforcement, Agent or any Lender may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Section 14. If, in the exercise of any of its rights and remedies, Agent or any Lender shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Borrower or any other Person, whether because of any applicable laws pertaining to "election of remedies" or the like, each Borrower hereby consents to such action by Agent or such Lender and waives any claim based upon such action, even if such action by Agent or such Lender shall result in a full or partial loss of any rights of subrogation that each Borrower might otherwise have had but for such action by Agent or such Lender. Any election of remedies that results in the denial or impairment of the right of Agent or any Lender to seek a deficiency judgment against any Borrower shall not impair any other Borrower's obligation to pay the full amount of the Obligations. In the event Agent or any Lender shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the Financing Agreements, Agent or such Lender may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by Agent or such Lender but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether Agent, Lender or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Section 14, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Agent or any Lender might otherwise be entitled but for such bidding at any such sale. 14.6 Limitation. Notwithstanding any provision herein contained to the contrary, each Borrower's liability under this Section 14 (which liability is in any event in addition to amounts for which such Borrower is primarily liable under Section 1) shall be limited to an amount not to exceed as of any date of determination the greater of: (a) the net amount of all Loans advanced to any other Borrower under this Agreement and then re-loaned or otherwise transferred to, or for the benefit of, such Borrower; and (b) the amount that could be claimed by Agent and Lenders from such Borrower under this Section 14 without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law after taking into account, among other things, such Borrower's right of contribution and indemnification from each other Borrower under Section 14.7. 14.7 Contribution with Respect to Guaranty Obligations. (a) To the extent that any Borrower shall make a payment under this Section 14 of all or any of the Obligations (other than Loans made to that Borrower for which it is primarily liable) (a "Guarantor Payment") that, taking into account all other Guarantor Payments then previously or concurrently made by any other Borrower, exceeds the amount that such Borrower would otherwise have paid if each Borrower had paid the aggregate Obligations satisfied by such Guarantor Payment in the same proportion that such Borrower's "Allocable Amount" (as defined below) (as determined immediately prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each of the Borrowers as determined immediately prior to the making of such Guarantor Payment, then, following payment in full in cash of the Obligations (other than contingent indemnification obligations not asserted) and termination of the Commitments, such Borrower shall be entitled to receive contribution and indemnification payments from, and be reimbursed by, each other Borrower for the amount of such excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment. (b) As of any date of determination, the "Allocable Amount" of any Borrower shall be equal to the maximum amount of the claim that could then be recovered from such Borrower under this Section 14 without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law. (c) This Section 14.7 is intended only to define the relative rights of Borrowers and nothing set forth in this Section 14.7 is intended to or shall impair the obligations of Borrowers, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with the terms of this Agreement, including Section 14.1. Nothing contained in this Section 14.7 shall limit the liability of any Borrower to pay the Loans made directly or indirectly to that Borrower and accrued interest, fees and expenses with respect thereto for which such Borrower shall be primarily liable. (d) The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets of the Borrower to which such contribution and indemnification is owing. (e) The rights of the indemnifying Borrowers against other Credit Parties under this Section 14.7 shall be exercisable upon the full and indefeasible payment of the Obligations (other than contingent indemnification obligations not asserted) and the termination of the Commitments subject to Section 14.9. 14.8 Liability Cumulative. The liability of Borrowers under this Section 14 is in addition to and shall be cumulative with all liabilities of each Borrower to Agent and Lenders under this Agreement and the other Financing Agreements to which such Borrower is a party or in respect of any Obligations or obligation of the other Borrower, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary. 14.9 Subrogation. Upon payment in full of the Obligations (other than contingent indemnification obligations not asserted) and the termination of the Commitments, each Borrower shall be subrogated to the rights of Agent and Lenders to the extent of any payments made by such Borrower pursuant to this Section 14. Notwithstanding anything in this Section 14 to the contrary, to the extent any Borrower acquires rights to subrogation, indemnification or contribution under this Section 14 and such rights adversely affect Agent's or any Lender's rights to exercise rights and remedies under the Financing Agreements or to receive payment of the Obligations, then at Agent's request, such Borrower or Borrowers shall execute an agreement pursuant to which such Borrower or Borrowers waive their rights of subrogation, indemnification or contribution under this Section 14. [Signature Pages Follow] [Signature Page to Loan and Security Agreement] IN WITNESS WHEREOF, Agent, Lenders and Borrowers have caused these presents to be duly executed as of the day and year first above written. BORROWERS: KEYSTONE CONSOLIDATED INDUSTRIES, INC. By: ----------------------------------------------------------- Title: -------------------------------------------------------- Name: --------------------------------------------------------- KEYSTONE WIRE PRODUCTS INC. By: ----------------------------------------------------------- Title: -------------------------------------------------------- Name: --------------------------------------------------------- ENGINEERED WIRE PRODUCTS, INC. By: ----------------------------------------------------------- Title: -------------------------------------------------------- Name: --------------------------------------------------------- F V STEEL AND WIRE COMPANY By: ----------------------------------------------------------- Title: -------------------------------------------------------- Name: --------------------------------------------------------- AGENT AND LENDERS: ----------------- WACHOVIA CAPITAL FINANCE CORPORATION (CENTRAL), as Agent and a Lender By: ----------------------------------------------------------- Title: -------------------------------------------------------- Name: --------------------------------------------------------- EXHIBIT A to LOAN AND SECURITY AGREEMENT ASSIGNMENT AND ACCEPTANCE AGREEMENT This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and Acceptance") dated as of _____________, 200_ is made between ________________________ (the "Assignor") and ____________________ (the "Assignee"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Wachovia Capital Finance Corporation (Central), in its capacity as agent pursuant to the Loan Agreement (as hereinafter defined) acting for and on behalf of the financial institutions which are parties thereto as lenders (in such capacity, "Agent"), and the financial institutions which are parties to the Loan Agreement as lenders (individually, each a "Lender" and collectively, "Lenders") have entered or are about to enter into financing arrangements pursuant to which Agent and Lenders may make loans and advances and provide other financial accommodations to Keystone Consolidated Industries, Inc., Keystone Wire Products Inc., Engineered Wire Products, Inc. and F V Steel and Wire Company (collectively, "Borrowers") as set forth in the Loan and Security Agreement, dated August 31, 2005, by and among Borrowers, certain of their affiliates, Agent and Lenders (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, the "Loan Agreement"), and the other agreements, documents and instruments referred to therein or at any time executed and/or delivered in connection therewith or related thereto (all of the foregoing, together with the Loan Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, being collectively referred to herein as the "Financing Agreements"); WHEREAS, as provided under the Loan Agreement, Assignor committed to making Loans (the "Committed Loans") to Borrowers in an aggregate amount not to exceed $___________ (the "Commitment"); WHEREAS, Assignor wishes to assign to Assignee [part of the] [all] rights and obligations of Assignor under the Loan Agreement in respect of its Commitment in an amount equal to $______________ (the "Assigned Commitment Amount") on the terms and subject to the conditions set forth herein and Assignee wishes to accept assignment of such rights and to assume such obligations from Assignor on such terms and subject to such conditions; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: 1. Assignment and Acceptance. (a) Subject to the terms and conditions of this Assignment and Acceptance, Assignor hereby sells, transfers and assigns to Assignee, and Assignee hereby purchases, assumes and undertakes from Assignor, without recourse and without representation or warranty (except as provided in this Assignment and Acceptance) an interest in (i) the Commitment and each of the Committed Loans of Assignor and (ii) all related rights, benefits, obligations, liabilities and indemnities of the Assignor under and in connection with the Loan Agreement and the other Financing Agreements, so that after giving effect thereto, the Commitment of Assignee shall be as set forth below and the Pro Rata Share of Assignee shall be _______ (__%) percent. (b) With effect on and after the Effective Date (as defined in Section 5 hereof), Assignee shall be a party to the Loan Agreement and succeed to all of the rights and be obligated to perform all of the obligations of a Lender under the Loan Agreement, including the requirements concerning confidentiality and the payment of indemnification, with a Commitment in an amount equal to the Assigned Commitment Amount. Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Agreement are required to be performed by it as a Lender. It is the intent of the parties hereto that the Commitment of Assignor shall, as of the Effective Date, be reduced by an amount equal to the Assigned Commitment Amount and Assignor shall relinquish its rights and be released from its obligations under the Loan Agreement to the extent such obligations have been assumed by Assignee; provided, that, Assignor shall not relinquish its rights under Sections 2.2, 6.4, 6.9, 11.5 and 12.5 of the Loan Agreement to the extent such rights relate to the time prior to the Effective Date. (c) After giving effect to the assignment and assumption set forth herein, on the Effective Date Assignee's Commitment will be $_____________. (d) After giving effect to the assignment and assumption set forth herein, on the Effective Date Assignor's Commitment will be $______________ (as such amount may be further reduced by any other assignments by Assignor on or after the date hereof). 2. Payments. (a) As consideration for the sale, assignment and transfer contemplated in Section 1 hereof, Assignee shall pay to Assignor on the Effective Date in immediately available funds an amount equal to $____________, representing Assignee's Pro Rata Share of the principal amount of all Committed Loans. (b) Assignee shall pay to Agent the processing fee in the amount specified in Section 13.7(a) of the Loan Agreement. 3. Reallocation of Payments. Any interest, fees and other payments accrued to the Effective Date with respect to the Commitment, Committed Loans and outstanding Letters of Credit shall be for the account of Assignor. Any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Commitment Amount shall be for the account of Assignee. Each of Assignor and Assignee agrees that it will hold in trust for the other party any interest, fees and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt. 4. Independent Credit Decision. Assignee acknowledges that it has received a copy of the Loan Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements of Borrowers and their Subsidiaries, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Acceptance and agrees that it will, independently and without reliance upon Assignor, Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit and legal decisions in taking or not taking action under the Loan Agreement. 5. Effective Date; Notices. (a) As between Assignor and Assignee, the effective date for this Assignment and Acceptance shall be _______________, 200_ (the "Effective Date"); provided, that, the following conditions precedent have been satisfied on or before the Effective Date: (i)......this Assignment and Acceptance shall be executed and delivered by Assignor and Assignee; (ii).....the consent of Agent as required for an effective assignment of the Assigned Commitment Amount by Assignor to Assignee shall have been duly obtained and shall be in full force and effect as of the Effective Date; (iii)....written notice of such assignment, together with payment instructions, addresses and related information with respect to Assignee, shall have been given to Administrative Borrower and Agent; (iv).....Assignee shall pay to Assignor all amounts due to Assignor under this Assignment and Acceptance; and (v)......the processing fee referred to in Section 2(b) hereof shall have been paid to Agent. (b) Promptly following the execution of this Assignment and Acceptance, Assignor shall deliver to Administrative Borrower and Agent for acknowledgment by Agent, a Notice of Assignment in the form attached hereto as Schedule 1. 6. Agent. [INCLUDE ONLY IF ASSIGNOR IS AN AGENT] (a) Assignee hereby appoints and authorizes Assignor in its capacity as Agent to take such action as agent on its behalf to exercise such powers under the Loan Agreement as are delegated to Agent by Lenders pursuant to the terms of the Loan Agreement. (b) Assignee shall assume no duties or obligations held by Assignor in its capacity as Agent under the Loan Agreement.] 7. Withholding Tax. Assignee (a) represents and warrants to Assignor, Agent and Borrowers that under applicable law and treaties no tax will be required to be withheld by Assignee, Agent or Borrowers with respect to any payments to be made to Assignee hereunder or under any of the Financing Agreements, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the United States or any State thereof) to Agent and Borrowers prior to the time that Agent or Borrowers are required to make any payment of principal, interest or fees hereunder, duplicate executed originals of either U.S. Internal Revenue Service Form W-8BEN or W-8ECI, as applicable (wherein Assignee claims entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S. federal income withholding tax on all payments hereunder) and agrees to provide new such forms upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption. 8. Representations and Warranties. (a) Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any security interest, lien, encumbrance or other adverse claim, (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance and to fulfill its obligations hereunder, (iii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Loan Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance, and (iv) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of Assignor, enforceable against Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles. (b) Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Agreement or any of the other Financing Agreements or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Agreement or any other instrument or document furnished pursuant thereto. Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or statements of Borrowers, Guarantors or any of their respective Affiliates, or the performance or observance by Borrowers, Guarantors or any other Person, of any of its respective obligations under the Loan Agreement or any other instrument or document furnished in connection therewith. (c) Assignee represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance, and to fulfill its obligations hereunder, (ii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Loan Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; and (iii) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of Assignee, enforceable against Assignee in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights to general equitable principles. 9. Further Assurances. Assignor and Assignee each hereby agree to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Assignment and Acceptance, including the delivery of any notices or other documents or instruments to Borrowers or Agent, which may be required in connection with the assignment and assumption contemplated hereby. 10. Miscellaneous. (a) Any amendment or waiver of any provision of this Assignment and Acceptance shall be in writing and signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Assignment and Acceptance shall be without prejudice to any rights with respect to any other for further breach thereof. (b) All payments made hereunder shall be made without any set-off or counterclaim. (c) Assignor and Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Assignment and Acceptance. (d) This Assignment and Acceptance may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. (e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF ILLINOIS, Assignor and Assignee each irrevocably submits to the non-exclusive jurisdiction of any State or Federal court sitting in Cook County, Illinois over any suit, action or proceeding arising out of or relating to this Assignment and Acceptance and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Illinois State or Federal court. Each party to this Assignment and Acceptance hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. (f) ASSIGNOR AND ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE LOAN AGREEMENT, ANY OF THE OTHER FINANCING AGREEMENTS OR ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN). IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment and Acceptance to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By: -------------------------------------------------- Title: ----------------------------------------------- [ASSIGNEE] By: -------------------------------------------------- Title: ----------------------------------------------- SCHEDULE 1 NOTICE OF ASSIGNMENT AND ACCEPTANCE ___, 20__ ......... ......... ......... Attn.: ......... ------------------------------ Re: ----------------------------------------- Ladies and Gentlemen: Wachovia Capital Finance Corporation (Central), in its capacity as agent pursuant to the Loan Agreement (as hereinafter defined) acting for and on behalf of the financial institutions which are parties thereto as lenders (in such capacity, "Agent"), and the financial institutions which are parties to the Loan Agreement as lenders (individually, each a "Lender" and collectively, "Lenders") have entered or are about to enter into financing arrangements pursuant to which Agent and Lenders may make loans and advances and provide other financial accommodations to Keystone Consolidated Industries, Inc., Keystone Wire Products Inc., Engineered Wire Products, Inc. and F V Steel and Wire Company (collectively, "Borrowers") as set forth in the Loan and Security Agreement, dated August 31, 2005, by and among Borrowers, certain of their affiliates, Agent and Lenders (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, the "Loan Agreement"), and the other agreements, documents and instruments referred to therein or at any time executed and/or delivered in connection therewith or related thereto (all of the foregoing, together with the Loan Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, being collectively referred to herein as the "Financing Agreements"). Capitalized terms not otherwise defined herein shall have the respective meanings ascribed thereto in the Loan Agreement. 1. We hereby give you notice of, and request your consent to, the assignment by __________________________ (the "Assignor") to ___________________________ (the "Assignee") such that after giving effect to the assignment Assignee shall have an interest equal to ________ (__%) percent of the total Commitments pursuant to the Assignment and Acceptance Agreement attached hereto (the "Assignment and Acceptance"). We understand that the Assignor's Commitment shall be reduced by $_____________, as the same may be further reduced by other assignments on or after the date hereof. 2. Assignee agrees that, upon receiving the consent of Agent to such assignment, Assignee will be bound by the terms of the Loan Agreement as fully and to the same extent as if the Assignee were the Lender originally holding such interest under the Loan Agreement. 3. The following administrative details apply to Assignee: (A) Notice address: Assignee name: -------------------------------------------- Address: -------------------------------------------- Attention: -------------------------------------------- Telephone: -------------------------------------------- Telecopier: -------------------------------------------- (B) Payment instructions: Account No.: -------------------------------------------- At: -------------------------------------------- Reference: -------------------------------------------- Attention: -------------------------------------------- 4. You are entitled to rely upon the representations, warranties and covenants of each of Assignor and Assignee contained in the Assignment and Acceptance. IN WITNESS WHEREOF, Assignor and Assignee have caused this Notice of Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above mentioned. Very truly yours, [NAME OF ASSIGNOR] By: -------------------------------------------------- Title: ----------------------------------------------- [NAME OF ASSIGNEE] By: -------------------------------------------------- Title: ----------------------------------------------- ACKNOWLEDGED AND ASSIGNMENT CONSENTED TO: WACHOVIA CAPITAL FINANCE CORPORATION (CENTRAL) as Agent By: ......... -------------------------------------------------- Title: ......... ----------------------------------------------- EXHIBIT B to LOAN AND SECURITY AGREEMENT INFORMATION CERTIFICATE EXHIBIT C to LOAN AND SECURITY AGREEMENT Compliance Certificate To: Wachovia Capital Finance Corporation (Central) as Agent 150 S. Wacker Drive, Suite 2200 Chicago, Illinois 60606 Ladies and Gentlemen: I hereby certify to you in my capacity as an officer pursuant to Section 9.6 of the Loan Agreement (as defined below) as follows: 1. I am the duly elected Chief Financial Officer of Keystone Consolidated Industries, Inc., Keystone Wire Products Inc., Engineered Wire Products, Inc. and F V Steel and Wire Company (collectively, "Borrowers"). Capitalized terms used herein without definition shall have the meanings given to such terms in the Loan and Security Agreement, dated August 31, 2005, by and among Wachovia Capital Finance Corporation (Central) as agent for the financial institutions party thereto as lenders (in such capacity, "Agent") and the financial institutions party thereto as lenders (collectively, "Lenders"), Borrowers and certain of their affiliates (as such Loan and Security Agreement is amended, modified or supplemented, from time to time, the "Loan Agreement"). 2. I have reviewed the terms of the Loan Agreement, and have made, or have caused to be made under my supervision, a review in reasonable detail of the transactions and the financial condition of Borrowers and Guarantors, during the immediately preceding fiscal month. 3. The review described in Section 2 above did not disclose the existence during or at the end of such fiscal month, and I have no knowledge of the existence and continuance on the date hereof, of any condition or event which constitutes a Default or an Event of Default, except as set forth on Schedule I attached hereto. Described on Schedule I attached hereto are the exceptions, if any, to this Section 3 listing, in detail, the nature of the condition or event, the period during which it has existed and the action which any Borrower or Guarantor has taken, is taking, or proposes to take with respect to such condition or event. 5. Attached hereto as Schedule III are the calculations used in determining, as of the end of such fiscal month or fiscal quarter, as applicable, whether Borrowers and Guarantors are in compliance with the covenants set forth in Section 9.17 and Section 9.18 of the Loan Agreement for such fiscal month or fiscal quarter, as applicable. The foregoing certifications are made and delivered this day of ___________, 20__. Very truly yours, KEYSTONE CONSOLIDATED INDUSTRIES, INC. KEYSTONE WIRE PRODUCTS INC. ENGINEERED WIRE PRODUCTS, INC. F V STEEL AND WIRE COMPANY By: ----------------------------------------- Title: -------------------------------------- EXHIBIT D to LOAN AND SECURITY AGREEMENT CLOSING CHECKLIST SCHEDULE 1.37 EXISTING LENDERS SCHEDULE 1.38 EXISTING LETTERS OF CREDIT SCHEDULE 1.73 PERMITTED HOLDERS EX-10.1 27 kciexh10103.txt EXECUTION COPY CONFIDENTIAL AGREEMENT REGARDING SHARED INSURANCE This Agreement Regarding Shared Insurance (hereinafter the "Agreement") is made as of the 30th day of October 2003, by and between CompX International Inc. ("CompX") Contran Corporation ("Contran"); Keystone Consolidated Industries, Inc. ("Keystone"); Kronos Worldwide, Inc. ("KI") NL Industries, Inc. ("NL"); Titanium Metals Corp. ("Titanium Metals"); and Valhi, Inc. ("Valhi"); (For convenience, each of the above entities and/or its subsidiaries may be referred to as a "Party," and collectively they may be referred to as the "Parties"). WITNESSETH THAT: WHEREAS, the Parties are affiliated companies that have been, are, and in the future may be insured under a number of shared insurance policies that provide shared limits of available insurance; and WHEREAS, although as of the date of this Agreement the Parties separately and collectively never have exhausted the total limits of insurance coverage available under any shared insurance agreement, the Parties wish to ensure that claims asserted under any of the shared insurance policies by any one Party will not unreasonably deprive other Parties of insurance that may be available to them. AGREEMENTS: NOW, THEREFORE, in full consideration of the foregoing and of the mutual agreements herein contained, and intending to be legally bound, the Parties agree as follows: 1. Definitions The following definitions will apply to the listed terms wherever those terms appear throughout the Agreement as well as in any exhibits or attachments thereto. Moreover, each defined term stated in a singular form shall include the plural form, each defined term stated in plural form shall include the singular form, and each defined term stated in the masculine form or in the feminine form shall include the other. A. "Shared Insurance Policy" shall mean any one or more of the insurance policies listed on Exhibit "A" hereto, as well as any past, present or future insurance policies that provide insurance coverage to all of the Parties to this Agreement and where the policy provides for an aggregate limit for all claims during the policy period. B. "Covered Claim" shall mean any claim for insurance coverage that any Party may assert at any time under any Shared Insurance Policy that is covered in whole or in part under the terms and conditions of the Shared Insurance Policy in question, or that would be covered but for the fact that all available limits of insurance coverage under the Shared Insurance Policy in question already have been exhausted by another claim or claims of any Party. C. "Reimbursed Covered Claim" shall mean any Covered Claim for which any Party actually has received a total or partial insurance coverage under any Shared Insurance Policy. D. "Remaining Covered Claim" shall mean any Covered Claim or portion of a Covered Claim of any Party for which the available limits of insurance coverage under the Shared Insurance Policy in question already have been exhausted by a Reimbursed Covered Claim or Reimbursed Covered Claims of any Party or Parties. 2. Agreement Whenever the available limits of insurance under any Shared Insurance Policy have been exhausted by a Reimbursed Covered Claim or Reimbursed Covered Claims submitted by one or more of the Parties, this Agreement will provide a mechanism by which the Parties will share financial responsibility for all Remaining Covered Claims. Financial responsibility for each Remaining Covered Claim shall be divided among those Parties with Covered Claims for that policy. Each Party other than the holder of a particular Remaining Covered Claim shall indemnify and reimburse the holder of that Remaining Covered Claim for a percentage of that Remaining Covered Claim equal to the percentage of Covered Claims of the Indemnifying Party bears to the sum of all Parties' Covered Claims for the particular policy. Any indemnification obligation required by this Agreement shall be paid within 60 days after a Party requests in writing indemnification from another Party or Parties with respect to a Remaining Covered Claim and provides a brief description of the Remaining Covered Claim, as well as identification of the Shared Insurance Policy that would, but for exhaustion of limits, provide coverage for the Remaining Covered Claim. If the insurer issuing the Shared Insurance Policy in question has taken the position that the claim would be covered and payable but for prior exhaustion of available limits of coverage, the claim conclusively will be considered by the Parties to be a Remaining Covered Claim. If the insurer issuing the Shared Insurance Policy in question has not or will not expressly state that a claim would be covered and payable but for exhaustion, the Parties will attempt in good faith to agree whether or not the claim is a Remaining Covered Claim. If the Parties cannot agree whether a claim is a Remaining Covered Claim, the question will be settled pursuant to the "Dispute Resolution" provisions of this Agreement. 3. Confidentiality The Parties agree that all matters relating to the terms, negotiation and implementation of this Agreement, including documents and information exchanged during negotiations or relating to indemnification obligations and claims made hereunder, shall be confidential and are not to be disclosed except as required by law or regulation or by order of court or by agreement, in writing, of the Parties, except that, provided recipients agree to keep such information confidential, the Agreement may be disclosed to any officer, director, or parent corporation of any Party and any outside counsel, consultants, auditors or accountants of any Party. In the event a private litigant, by way of document request, interrogatory, subpoena, or questioning at deposition or trial, attempts to compel disclosure of anything protected by this Section, the Party from whom disclosure is sought shall decline to provide the requested information on the ground that this Agreement prevents such disclosure. In the event such private litigant seeks an Order from any court or governmental body to compel such disclosure, or in the event that a court, government official, or governmental body (other than the Inland Revenue or Internal Revenue Service or other similar U.S. or foreign governmental taxation authorities) requests or requires disclosure of anything protected by this Agreement, the Party from whom disclosure is sought shall promptly give written notice by facsimile or hand-delivery to the other Party, and shall promptly provide copies of all notice papers, orders, requests or other documents in order to allow each Party to take such protective steps as may be appropriate in order to preserve the confidentiality of such information. Notice shall be made under this Paragraph to the persons identified in this Agreement. 4. No Modification No change or modification of this Agreement shall be valid unless it is made in writing and signed by each of the Parties. 5. Execution There will be two signed originals of this Agreement. This Agreement may be executed and delivered in counterparts, each of which when so executed and delivered shall be deemed an original and shall together constitute an entire Agreement. This Agreement may be executed and delivered by facsimile, each of which when so executed and delivered shall be deemed an original. 6. Governing Law This Agreement shall be governed by and shall be construed in accordance with the laws of the State of Texas without giving effect to any choice of law or conflict of law provision or rule. 7. Dispute Resolution A. The Parties agree to use their best efforts to resolve claims relating to this Agreement prior to instituting arbitration proceedings as set forth below. In the event such efforts are unsuccessful, the Parties agree that any controversy or claim arising out of or relating to this Agreement or any breach thereof, including without limitation, any disputes concerning the calculation of any settlement payment under this Agreement, shall be submitted to final and binding arbitration before a single arbitrator, who shall be a former judge or an attorney licensed to practice law in Texas with at least ten years' experience, and whom the Parties shall choose. If the Parties cannot agree on the arbitrator, the arbitrator shall be selected in accordance with the Commercial Arbitration Rules of the American Arbitration Association that are in effect at the time the dispute is submitted to arbitration. B. To the extent the Parties are unable to agree, the commercial rules and procedures of the American Arbitration Association that were in effect on the date of execution of this Agreement shall apply to the arbitration. Texas law shall govern any arbitration. C. Any arbitration conducted in accordance with this Agreement shall be conducted in Texas or such other location as the Parties may agree. The Parties shall abide by the arbitrator's award, and judgment on that award may be entered by a court of competent jurisdiction in Texas , in accordance with Texas law. 8. Notices Unless another person is designated, in writing, for receipt of notices hereunder, notices to the respective Parties shall be sent to the following person by facsimile transmission or overnight courier: CompX International Inc.: Darryl R. Halbert Three Lincoln Centre 5430 LBJ Freeway Suite 1700 Dallas, Texas 75240 (972) 233-1700 phone (972) 448-1419 fax Contran Corporation: J. Mark Hollingsworth Three Lincoln Centre 5430 LBJ Freeway Suite 1700 Dallas, Texas 75240 (972) 233-1700 phone (972) 448-1445 fax Keystone Consolidated Industries, Inc. Bert D. Downing, Jr. Three Lincoln Centre 5430 LBJ Freeway Suite 1700 Dallas, Texas 75240 (972) 233-1700 phone (972) 448-1408 fax Kronos Worldwide, Inc. Robert D. Graham Three Lincoln Centre 5430 LBJ Freeway Suite 1700 Dallas, Texas 75240 (972) 233-1700 phone (972) 448-1445 fax NL Industries, Inc. Robert D. Graham Three Lincoln Centre 5430 LBJ Freeway Suite 1700 Dallas, Texas 75240 (972) 233-1700 phone (972) 448-1445 fax Titanium Metals Corporation: Joan Prusse 1999 Broadway Suite 4300 Denver, Colorado 80202 303-296-5600 phone 303-291-1990 fax Valhi, Inc.: J. Mark Hollingsworth Three Lincoln Centre 5430 LBJ Freeway Suite 1700 Dallas, Texas 75240 (972) 233-1700 phone (972) 448-1445 fax 9. Integration This Agreement constitutes the entire Agreement between the Parties with respect to the subject matter hereof, and supersedes all discussions, agreements and understandings, both written and oral, among the Parties with respect thereto. 10. Severability This Agreement shall be binding upon and inure to the benefit of the Parties hereto. In case any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired hereby. 11. Term This Agreement may be terminated by each of the Parties upon one (1) year's written notice to the other Parties. 12. Assignment This Agreement shall not be assignable by any Party without the prior written consent of the other except that any successor to the Party may assume the rights and obligations of the Party under this Agreement. Nothing in this Agreement, expressed or implied, is intended to confer upon any person, other than the Parties hereto and their successors and assigns, any rights or remedies under or by reason of this Agreement. IN WITNESS WHEREOF, the Parties have executed this Agreement by their duly authorized representatives. CompX International Inc. By: /s/ Darryl Halbert Its: Chief Financial Officer Date: October 31, 2003 Contran Corporation By: /s/ J. Mark Hollingsworth Its: Vice President, General Counsel Date: November 10, 2003 Keystone Consolidated Industries, Inc. By: /s/ Bert Downing, Jr. Its: Vice President, CFO Date: October 28, 2003 Kronos Worldwide, Inc. By: /s/ Robert D. Graham Its: Vice President, General Counsel Date: November 7, 2003 NL Industries, Inc. By: /s/ Robert D. Graham Its: Vice President, General Counsel Date: November 7, 2003 Titanium Metals Corporation. By: /s/ Joan H. Prusse Its: Vice President, General Counsel Date: November 7, 2003 Valhi, Inc. By: /s/ J. Mark Hollingsworth Its: Vice President, General Counsel Date: November 10, 2003 EXHIBIT A Shared Insurance Policies 1. Directors and Officers Liability (Primary and Excess) 2. Fiduciary liability 3. General Liability (U.S) 4. General Liability (Canada) 5. Excess Liability 6. Property 7. Deductible Buydown EX-31.1 28 kciexh31103.txt Exhibit 31.1 I, David L. Cheek, the President and Chief Executive Officer of Keystone Consolidated Industries, Inc., certify that: 1) I have reviewed this annual report on Form 10-K of Keystone Consolidated Industries, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 30, 2005 /s/ David L. Cheek David L. Cheek President and Chief Executive Officer EX-31.2 29 kciexh31203.txt Exhibit 31.2 I, Bert E. Downing, Jr., the Vice President, Chief Financial Officer, Corporate Controller and Treasurer of Keystone Consolidated Industries, Inc., certify that: 1) I have reviewed this annual report on Form 10-K of Keystone Consolidated Industries, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 30, 2005 /s/ Bert E. Downing, Jr. - ------------------------ Bert E. Downing, Jr. Vice President, Chief Financial Officer, Corporate Controller and Treasurer EX-32.1 30 kciexh32103.txt Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Keystone Consolidated Industries, Inc. (the "Company") on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, David L. Cheek, President and Chief Executive Officer of the Company, and Bert E. Downing, Jr., Vice President, Chief Financial Officer, Corporate Controller and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ David L. Cheek /s/ Bert E. Downing, Jr. - ------------------------------------- ------------------------- David L. Cheek Bert E. Downing, Jr. President and Chief Executive Officer Vice President, Chief Financial Officer, November 30,2005 Corporate Controller and Treasurer November 30, 2005 Note: The certification the registrant furnishes in this exhibit is not deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. Registration Statements or other documents filed with the Securities and Exchange Commission shall not incorporate this exhibit by reference, except as otherwise expressly stated in such filing. -----END PRIVACY-ENHANCED MESSAGE-----