-----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, Q4YnQuslrr/w6DmWzK51keFfp16Q2spFgyUkkgVIbf3p+FgYzrEC/hnEwTquMJ8U hma0IEJ5S5vtTfisqVZamw== 0000950124-98-001405.txt : 19980318 0000950124-98-001405.hdr.sgml : 19980318 ACCESSION NUMBER: 0000950124-98-001405 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 30 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980317 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORTON INDUSTRIAL GROUP INC CENTRAL INDEX KEY: 0000064247 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 380811650 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-13198 FILM NUMBER: 98567660 BUSINESS ADDRESS: STREET 1: 1021 WEST BIRCHWOOD STREET CITY: MORTON STATE: IL ZIP: 61550 BUSINESS PHONE: 3092667176 MAIL ADDRESS: STREET 1: 1021 WEST BIRCHWOOD STREET CITY: MORTON STATE: IL ZIP: 61550 FORMER COMPANY: FORMER CONFORMED NAME: MLX CORP /GA DATE OF NAME CHANGE: 19960823 FORMER COMPANY: FORMER CONFORMED NAME: MCLOUTH STEEL CORP DATE OF NAME CHANGE: 19850212 10-K405 1 FORM 10-K405 1 ================================================================================ U.S. 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, 1997. OR [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________ COMMISSION FILE NUMBER: O-13198 MORTON INDUSTRIAL GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) GEORGIA 38-0811650 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.)
1021 WEST BIRCHWOOD, MORTON, ILLINOIS 61550 (Address of principal executive offices) 309-266-7176 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: (TITLE OF CLASS) Class A Common Stock, par value $.01 per share 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) 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. [X] As of March 2, 1998, the aggregate market value of the Class A Common Stock held by non-affiliates was approximately $28,279,000, and there were 3,803,334 shares of Class A Common Stock and 200,000 shares of Class B Common Stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held in June 1998 are incorporated by reference into Part III hereof. ================================================================================ 2 PART I ITEM 1. BUSINESS BACKGROUND The Registrant is a Georgia corporation that was named MLX Corp. ("MLX") prior to January 20, 1998. On that date, Morton Metalcraft Holding Co., a Delaware corporation ("Morton"), was merged with and into MLX (the "Merger"), which changed its name to Morton Industrial Group, Inc. (the "Company"). Financial information, Management's Discussion and Analysis of Financial Condition and Results of Operations, and certain other information about MLX are contained in this annual report on Form 10-K, as is information about the business of the Company. Financial information, Management's Discussion and Analysis of Financial Condition and Results of Operations, and other information about Morton are set forth in Exhibit 99.1 to this annual report on Form 10-K. Before June 30, 1995, MLX owned and managed businesses in a variety of industries. With the sale of its S.K. Wellman industrial friction materials business on June 30, 1995, MLX ceased to have recurring revenues or operating subsidiaries and began searching for acquisition opportunities that met its financial acquisition criteria. Those criteria generally focused on mid-sized entities that were involved in manufacturing, distribution, or assembly of non-consumer products and that offered continuing management. Between June 1995 and October 1997, MLX evaluated more than 150 potential acquisition opportunities in a wide array of industries and made offers or engaged in extensive valuation discussions in more than ten instances. Representatives of Morton and MLX began discussions in June 1997 that led to the two companies' execution of an Agreement and Plan of Merger on October 20, 1997, and the closing of the Merger on January 20, 1998. Until the completion of the Merger, MLX's offices were located in the Atlanta, Georgia, metropolitan area. The predecessor of Morton was founded in 1963 in Morton, Illinois, to produce fabricated sheet metal products for customers located in central Illinois. During its first two decades Morton developed into a custom sheet metal fabricator specializing in fast turnarounds. In 1989, Mr. William D. Morton, now the Chairman, Chief Executive Officer, and President of the Company, and several venture capital investors acquired control of Morton. In 1995, Morton purchased the venture capital interests as a part of a recapitalization of Morton. GENERAL The Company, now headquartered in Morton, Illinois, and operating through its subsidiaries is a contract manufacturer and supplier of high-quality fabricated sheet metal components and subassemblies for construction, agricultural, and industrial equipment manufacturers located primarily in the Midwestern and Southeastern United States. The Company provides large original equipment manufacturers with a wide range of services including design, prototype fabrication, precision tool making, and fabrication of component parts. Additional services provided by the Company include welding, painting, subassembly, packaging, warehousing, and just-in-time delivery to customers' production lines. The Company combines this wide range of services with high-quality, state-of-the-art fabrication capabilities, and has developed close relationships with customers such as Caterpillar Inc. ("Caterpillar") and Deere & Co. ("Deere"). (In its two most recent fiscal years, sales to Caterpillar and Deere have constituted between 85% and 89% of Morton's total sales.) The Company works closely with its major customers on product development, production scheduling, and just-in-time delivery. FABRICATION OPERATIONS The Company's primary fabrication operations include cutting, punching, bending, welding, painting, final assembly, packaging, warehousing and just-in-time delivery of sheet metal components and subassemblies. The Company also offers fully integrated ancillary services, including design engineering, tool making and prototype fabrication. 2 3 Within its fabrication operations, the Company's products fall into the following seven categories of fabricated products and other miscellaneous products: - Sheet Metal Component Packages -- includes panels, doors, hoods, brackets, grills, supports and covers produced primarily for construction and agricultural equipment. - Sheet Metal Enclosures and Boxes -- includes generator set enclosures, compressor enclosures and electrical and battery boxes developed in response to customers' need for environmentally sound enclosures that are aesthetically attractive and cost competitive. - Special Weldments -- includes lift arms, seat modules, guards, platforms and step assemblies. This business developed primarily from concurrent design projects with two major customers. - Fabricated Steel Tanks -- includes fuel, hydraulic and water reservoirs. The Company developed these products in response to customers' needs for flexible designs that facilitate quick response to changes in tank requirements. - Prototype/Tooling -- includes prototype, tooling and preproduction steps in the manufacturing process. The Company's dedicated prototype and tooling departments work with customers throughout development efforts, allowing for a smooth introduction of new products and subassemblies to the focus factories. - Store Fixtures -- includes backframes, lights, and brackets used in store displays. - Feeder Housings -- includes feeder housings and other harvester components manufactured for agricultural equipment in the Company's Peoria, Illinois, facility. While these products and services currently represent the core of the Company's business, the Company's management is evaluating opportunities for a further broadening of the Company's offerings to customers. The Company's facilities are located near its key customers in the Midwest and the Southeast. The Birchwood Street complex in Morton, Illinois, houses receiving, tool making, pre-production, first operations, general fabrication and enclosure operations. Substantially all non-production personnel, including senior management, purchasing, engineering, sales, production control and accounting are also located at this facility. The Detroit Avenue plant, located one mile from Birchwood Street, contains the production operations for commodity products such as tanks, seat modules, and heavy fabrication operations. The Company produces components for agricultural equipment at its Peoria, Illinois, facility, which opened in 1995. The Company's Apex, North Carolina plant serves the operations of nearby customers and entered production in July 1997. At these locations, the Company employs computer assisted design and manufacturing equipment, including laser cutting machines and robotic welders. Morton combined its sales and engineering organizations in 1995. This sales and engineering group has primary responsibility for managing relationships with customers and working with them to design new products. An account team, led by one of the Company's account managers and including representatives from all key functional areas of the Company, works closely with each key customer to design products, produce prototypes, schedule production, and monitor quality and customer satisfaction. COMPETITION The component fabrication industry is fragmented and highly competitive, with no single supplier having significant market share. Competition involves product quality, price, the ability to provide just-in-time deliveries, provision of support services, and product development capabilities. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS At December 31, 1997, MLX had no business operations. Following the Merger, the Company's business is in the fabrication segment. 3 4 AVAILABILITY OF RAW MATERIALS The primary raw material used by the Company after the Merger is steel, and the Company has five major steel suppliers. The Company also purchases fabrications and machined parts from a large number of suppliers. All raw materials are in adequate supply. PATENTS, TRADEMARKS, LICENSES, FRANCHISES, AND CONCESSIONS The Company holds no material patents, trademarks, franchises, or concessions. The Company has been granted a number of software licenses that it uses in its design, production, and other business operations. All of these licenses have customary terms and conditions. WORKING CAPITAL ITEMS The Company's working capital requirements reflect several business factors. Working capital requirements are typically greater during the second half of the calendar year because both Deere and Caterpillar suspend operations for two weeks of vacation time during July and/or August. Production operations of both of these customers also slow during the last two weeks of December. During these periods, the Company must rely more heavily on its credit facilities for liquidity. The Company's rapid growth over the last two years has also increased the Company's need for working capital to meet the capital expenditures required to increase production capacity. ENVIRONMENTAL REGULATION The Company's operations are subject to numerous federal, state and local laws and regulations concerning the containment and disposal of hazardous materials. The Company maintains a policy of complying with all environmental rules and regulations and believes that it is in substantial compliance with all applicable environmental laws and regulations. EMPLOYEES As of February 1, 1998, the Company employed 941 employees, of which 799 were hourly, 139 were salaried, and three were part-time employees. The Company believes that its relationship with its employees is good. ADDITIONAL INFORMATION ABOUT MORTON For additional information about Morton, including its audited financial statements for the six months ended December 31, 1997, and its three fiscal years ended June 30, 1997, 1996, and 1995, see Exhibit 99.1 to this annual report on Form 10-K. Exhibit 99.1 also contains Morton's Management's Discussion and Analysis of Financial Condition and Results of Operations, Selected Financial Data, and unaudited financial statements for the six months ended December 31, 1996. Exhibit 99.2 to this annual report on Form 10-K contains pro forma condensed combined financial statements giving effect to the Merger. ITEM 2. PROPERTIES. The following table summarizes the Company's manufacturing, warehouse, and office facilities:
APPROX. MONTHLY EXPIRATION LOCATION SQ. FT. ACRES LEASE TERMS DATE - -------- ------- ----- ----------- ---------- 1021 West Birchwood Street Morton, IL............................................ 270,000 40 Owned N/A 400 Detroit Avenue Morton, IL............................................ 75,000 N/A $21,164 08/31/04 Peoria, IL............................................ 137,000 N/A $20,035 05/31/03 Apex, NC.............................................. 100,000 N/A $37,580 11/06/06
4 5 ITEM 3. LEGAL PROCEEDINGS. The Company is not currently a party to any material legal proceedings that the Company's management believes would have a material adverse effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Prior to the conclusion of the Merger, MLX's common stock traded on the over-the-counter market under the symbol "MLXR" and was quoted on the OTC Bulletin Board of the National Association of Security Dealers, Inc. Following the Merger, the Company's Class A Common Stock continued to be traded on the over-the-counter market under the symbol "MGRP" and quoted on the OTC Bulletin Board. The Company has applied to have the Class A common Stock listed for trading on the NASDAQ Small Cap Market under the symbol "MGRP." The following table sets forth the quarterly high and low bids for the MLX common stock during MLX's two most recent fiscal years as reported by Bloomberg Financial Services:
MLX COMMON STOCK ------------------------- HIGH LOW ---- --- 1997 October 1 to December 31.................................. $19.0000 $15.8125 July 1 to September 30.................................... $16.2500 $14.6875 April 1 to June 30........................................ $14.8750 $14.2500 January 1 to March 31..................................... $16.7500 $13.2500 1996 October 1 to December 31.................................. $13.5000 $12.6250 July 1 to September 30.................................... $13.5625 $13.0000 April 1 to June 30........................................ $15.2500 $12.7500 January 1 to March 31..................................... $13.1250 $ 9.8750
As of March 2, 1998, there were 5,899 holders of record and 2,343 beneficial holders of the Company's Class A Common Stock. MLX did not declare or pay any dividends in its fiscal years ended December 31, 1997, and 1996. In connection with the Merger, the Company entered into a credit agreement that precludes the payment of dividends. 5 6 ITEM 6. SELECTED MLX FINANCIAL DATA. The following selected financial data relates to MLX before the Merger and is derived from the audited financial statements of MLX.
YEAR ENDED DECEMBER 31 ----------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA: Net sales...................................... $ -- $ -- $ -- $ -- $ -- General and administrative expenses............ (1,553) (997) (1,015) (827) (1,342) Stock appreciation rights compensation......... (2,225) -- -- -- -- Interest income................................ 1,886 1,876 1,074 17 12 Interest expense............................... -- -- (114) (202) (366) Other (expense) income......................... -- -- (18) (94) 81 Provision for income taxes..................... -- (317) 18 376 549 ------- ------- ------- ------- ------- Earnings (loss) from continuing operations........................... (1,892) 562 (55) (730) (1,066) Discontinued operations (net of income taxes)...................................... -- -- 20,593 3,477 3,105 Extraordinary gain on early retirement of debt (net of income taxes)....................... -- -- 272 -- 3,627 ------- ------- ------- ------- ------- Net earnings (loss).................... $(1,892) $ 562 $20,810 $ 2,747 $ 5,666 ------- ------- ------- ------- ------- Earnings (loss) applicable to common stock................................ $(1,892) $ 562 $20,158 $ 1,689 $ 4,793 ======= ======= ======= ======= ======= PER SHARE DATA: Average outstanding common shares -- basic..... 2,618 2,613 2,576 2,537 2,539 Average outstanding common shares -- diluted... 2,618 2,755 2,576 2,537 2,539 Earnings (loss) per share--basic Continuing operations (net of dividends and accretion on preferred stock)............. $ (0.72) $ 0.22 $ (0.27) $ (0.70) $ (0.76) Discontinued operations (net of income taxes).................................... -- -- 7.99 1.37 1.22 Extraordinary gain on early retirement of debt (net of income taxes)................ -- -- 0.11 -- 1.43 ------- ------- ------- ------- ------- Total.................................. $ (0.72) $ 0.22 $ 7.83 $ 0.67 $ 1.89 ======= ======= ======= ======= ======= Earnings (loss) per share -- diluted Continuing operations (net of dividends and accretion on preferred stock)............. $ (0.72) $ 0.20 $ (0.27) $ (0.70) $ (0.76) Discontinued operations (net of income taxes).................................... -- -- 7.99 1.37 1.22 Extraordinary gain on early retirement of debt (net of income taxes)................ -- -- 0.11 -- 1.43 ------- ------- ------- ------- ------- Total....................................... $ (0.72) $ 0.20 $ 7.83 $ 0.67 $ 1.89 ======= ======= ======= ======= ======= FINANCIAL POSITION (AT END OF PERIOD): Working capital (deficit)...................... $35,383 $37,304 $36,445 $ (42) $(1,181) Total assets................................... 38,259 39,431 38,509 13,874 11,603 Long-term liabilities.......................... 2,042 1,998 1,957 2,463 2,403 Shareholders' equity........................... $34,872 $36,764 $35,878 $10,729 $ 7,324
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MLX. RESULTS OF OPERATIONS BASIS OF PRESENTATION -- On January 20, 1998, MLX completed the Merger with Morton following the approval of the Agreement and Plan of Merger at a special meeting of MLX shareholders the previous day. Pursuant to the Merger, the name of MLX was changed to Morton Industrial Group, Inc., and 1,232,323 shares of the Company Class A Common Stock and 100,000 of its shares of Class B Common Stock were 6 7 issued to holders of the common stock of Morton. The accompanying financial statements report the financial condition and results of operations of MLX for all periods presented excluding the results of the Merger. On June 30, 1995, MLX completed the sale of all the common stock of its subsidiary, S.K. Wellman Limited, Inc. ("Wellman"), following the approval of such divestiture by MLX's shareholders at the 1995 Annual Meeting. The accompanying financial statements report the financial condition and results of operations of the Wellman business as a discontinued operation and, accordingly, the results of operations of Wellman for all the periods presented are excluded from earnings/loss from continuing operations. The gain on the disposal of the Wellman subsidiary is reported as a gain from the disposal of a discontinued business. The discussion below addresses the operations and financial condition of MLX only and as they existed prior to the Merger with Morton. OPERATIONS -- After the disposal of Wellman, MLX had no recurring revenues or operating subsidiaries. The general and administrative expenses of MLX were incurred for acquisition search, compensation, occupancy, shareholders costs (such as printing, distribution, and stock transfer fees) and legal and professional matters. MLX invested its cash resources in short-term repurchase instruments managed by selected commercial banks. As of December 31, 1997, MLX's average rate of return on these investments was approximately 5.50%. As these investments account for all of MLX's income subsequent to the sale of Wellman, MLX financial results are affected by changes in the short-term interest rates available to MLX. Following the divestiture of Wellman, MLX was actively engaged in pursuing the acquisition of new businesses and on October 20, 1997, entered into a definitive agreement to merge with Morton Metalcraft Holding Co. The Merger proposal (completed on January 20, 1998) reflected an enterprise valuation of Morton of approximately $81.1 million to Morton stockholders, which includes the issuance of 1,232,323 shares of MLX Class A Common Stock and 100,000 shares of MLX Class B Common Stock, a cash payment of $20 million to Morton stockholders for the purchase of Morton common stock, and the assumption of Morton's debt. Prior to the Merger transaction, MLX considered its business to be that of seeking to acquire an operating business that met its financial acquisition criteria. Accordingly, MLX believed that it was not an investment company as defined by the Investment Company Act of 1940 (the "Act") and submitted an application to the Securities and Exchange Commission (the "Commission") requesting an exemption from certain provisions of the Act until December 31, 1997. On May 19, 1997, the Commission issued an exemptive order pursuant to Sections 6(c) and 6(e) of the Act, which exempted MLX from all provisions of the Act except Sections 9, 17(a), 17(d) (modified as described in the application), 17(e), 17(f) (modified as described in the application), and 36 through 53, through December 31, 1997. MLX and other persons, in their transactions and relations with MLX, were subject to such excepted sections of the Act as if MLX were a registered investment company under the Act. The implementation of the exemptive order did not require MLX to change or modify any of its existing practices or policies. On October 27, 1997, MLX submitted a new application, identical to the existing one, asking for an extension of the exemptive period through June 30, 1998, and the application was approved on December 30, 1997. 1997 VERSUS 1996 -- General and administrative expenses in 1997 amounted to $1.6 million versus a 1996 level of approximately $997,000, an increase of approximately 56%. The increase in expenses in 1997 reflected $670,000 accrued for professional fees in the Merger, which was partially offset by generally lower insurance charges. On February 12, 1997, MLX's Board of Directors approved the conversion of all the common stock options held by its former Chief Executive Officer to stock appreciation rights ("SARs"), and all such SARs were exercised as of that date. The resulting compensation liability under this agreement amounted to $2.2 million and was paid in February 1997. There was no such compensation in 1996. Interest income in 1997 amounted to $1.9 million compared to $1.9 million in 1996. 7 8 In 1997, MLX had a net loss of $1.9 million (or $0.72 per share -- diluted) compared to net earnings of $562,000 (or $.20 per share -- diluted) in 1996. 1996 VERSUS 1995 -- General and administrative expenses in 1996 amounted to $997,000 versus a 1995 level of approximately $1.0 million, a decrease of 2%. Interest income in 1996 amounted to $1.9 million compared to $1.1 million in 1995 because the 1995 period included two quarters that preceded the sale of Wellman and the availability of cash proceeds from that sale. Correspondingly, there was no interest expense in 1996 compared to $114,000 in 1995 since the debt obligations of MLX were repaid following the divestiture of the Wellman business. There were no dividends and accretion on the Registrant's Series A Preferred Stock in 1996 compared to $652,000 in 1995. This decrease resulted from the redemption of such Preferred Stock at the time of the Wellman transaction. In 1996, MLX had net earnings of $562,000 (or $.20 per share -- diluted) compared to $20.8 million in 1995 (or $7.83 per share net of obligations on the Series A Preferred Stock). In 1995, earnings from discontinued operations (including the gain on disposal of Wellman) amounted to $7.99 per share -- diluted, and the extraordinary gain on early retirement amounted to $0.11 per share -- diluted. MLX has been able to offset substantially all of its federal taxable income with its pre-reorganization tax loss carryforwards and therefore has a federal tax liability only for Alternative Minimum Tax amounts. Accordingly, the charge in lieu of federal income taxes included in the statements of income is not accruable or payable. These pro forma charges in 1996 and 1995 were $299,000 and $11.3 million, respectively. No such pro forma charge was recorded in 1997. The following table illustrates the effect of this pro forma charge on the Company's earnings and earnings per share.
1997 1996 1995 ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net Earnings (loss).................................. $(1,892) $562 $20,810 Less dividends and accretion on preferred stock...... -- -- (652) Plus pro forma federal tax charge not due or payable............................................ -- 299 11,325 ------- ---- ------- Total earnings (loss)................................ $(1,892) $861 $31,483 ======= ==== ======= Total earnings (loss) per common share -- diluted.... $ (0.72) $.31 $ 12.22 ======= ==== =======
FINANCIAL POSITION AND LIQUIDITY Consolidated working capital at December 31, 1997, was $35.4 million compared to $37.3 million at the end of 1996. Working capital at December 31, 1997, consisted principally of cash and short-term investments of $36.7 million and estimated short-term obligations of $1.3 million for income taxes, legal and professional expenses and compensation. On February 12, 1997, MLX's Board of Directors approved the conversion of all the common stock options held by its former Chief Executive Officer to stock appreciation rights ("SARs") and those SARs were exercised as of that date. The resulting liability of $2.2 million was disbursed to the former Chief Executive Officer in February 1997. MLX invested its available funds in short-term repurchase agreements managed by five selected commercial banks and collateralized by U.S. Treasury and federal agency obligations. MLX issued instructions to each such bank providing guidelines on investments and restrictions on any disbursement of MLX's funds. In connection with the sale of Wellman, MLX funded an escrow fund with a cash payment of $4 million to partially collateralize the indemnification obligations of MLX in the purchase and sale agreement. MLX's maximum liability under such indemnity provisions was $5 million. On October 1, 1996, the escrow fund balance of $4.3 million was disbursed to MLX. An additional escrow fund amounting to $1,250,000 was 8 9 established at June 30, 1995 (adjusted to $1,347,000 in August 1995) relating to certain estimated income tax obligations arising from the sale. MLX's Zero Coupon Bonds were originally issued in 1990 and amended in 1992. The proceeds of the Wellman transaction were used to repay all outstanding obligations under these Bonds. The 1993 Variable Rate Subordinated Notes were issued in April 1993 in exchange for certain of the Zero Coupon Bonds. All obligations under such Notes were repaid with proceeds of the Wellman divestiture. The Series A Preferred Stock was issued as of December 31, 1992, and April 22, 1993, with an escalating dividend rate feature and provision for redemption solely at the option of MLX. In connection with the Wellman transaction, all such Preferred Stock was redeemed. OTHER DATA CAPITAL EXPENDITURES -- MLX had no material commitments for capital expenditures outstanding at December 31, 1997. EMPLOYEES -- MLX's business was conducted by two full-time and three part-time employees. The services of the part-time employees were obtained through a facilities and service sharing arrangement with Pameco Corp. At December 31, 1996, the number of MLX's employees was the same. See Exhibit 99.1 to this annual report on Form 10-K for Item 6 and 7 information about Morton. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO MLX CORP. CONSOLIDATED FINANCIAL STATEMENTS a. Report of Independent Auditors. b. Consolidated Balance Sheets of MLX as of December 31, 1997, and 1996. c. Consolidated Statements of Operations of MLX for each of the years ended December 31, 1997, 1996, and 1995. d. Consolidated Statements of Cash Flows of MLX for each of the years ended December 31, 1997, 1996, and 1995. e. Consolidated Statements of Stockholders' Equity of MLX for each of the years ended December 31, 1997, 1996, and 1995. f. Notes to Consolidated Financial Statements of MLX. 9 10 REPORT OF INDEPENDENT AUDITORS Board of Directors MLX Corp. We have audited the accompanying balance sheets of MLX Corp. as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 in accordance with generally accepted auditing standards. 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MLX Corp. at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Atlanta, Georgia February 20, 1998 10 11 MLX CORP. BALANCE SHEETS
DECEMBER 31 ------------------- 1997 1996 ---- ---- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents................................. $ 36,718 $ 37,927 Prepaid expenses.......................................... 10 46 -------- -------- Total current assets........................................ 36,728 37,973 Equipment and other assets.................................. 2 4 Tax escrow funds............................................ 1,529 1,454 -------- -------- Total assets................................................ $ 38,259 $ 39,431 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accrued compensation and benefits......................... $ 169 $ 103 Other accrued professional services and expenses.......... 914 280 Accrued taxes............................................. 262 286 -------- -------- Total current liabilities................................... 1,345 669 Other long-term liabilities................................. 2,042 1,998 Shareholders' equity: Preferred stock, no par value - authorized 1,500,000 shares; none outstanding............................... -- -- Preferred stock, Series A, $30 par value - authorized 500,000 shares; none outstanding....................... -- Common stock, $.01 par value - authorized 38,500,000 shares; 2,618,000 shares outstanding in 1997 and 1996................................................... 26 26 Capital in excess of par value............................ 73,165 73,165 Retained earnings deficit................................. (38,319) (36,427) -------- -------- Total shareholders' equity.................................. 34,872 36,764 -------- -------- Total liabilities and shareholders' equity.................. $ 38,259 $ 39,431 ======== ========
See accompanying notes. 11 12 MLX CORP. STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31 --------------------------- 1997 1996 1995 ---- ---- ---- (IN THOUSANDS) Net sales................................................... $ -- $ -- $ -- General and administrative expenses......................... 1,553 997 1,015 Stock appreciation rights compensation 2,225 -- -- ------- ------- ------- Operating loss from continuing operations................... (3,778) (997) (1,015) Interest income 1,886 1,876 1,074 Interest expense -- -- (114) Other expense -- -- (18) ------- ------- ------- Earnings (loss) before income taxes, discontinued operations and extraordinary item.................................... (1,892) 879 (73) Provision (benefit) for income taxes: Federal taxes due and payable -- 18 -- Charge in lieu of federal income taxes (federal income tax benefit)............................................... -- 299 (18) ------- ------- ------- Earnings (loss) from continuing operations before extraordinary item........................................ (1,892) 562 (55) Discontinued operations: Earnings from operations (net of income tax of $1,928).... -- -- 2,507 Gain on disposal of business (net of income tax of $13,311)............................................... -- -- 18,086 ------- ------- ------- Earnings from discontinued operations....................... -- -- 20,593 ------- ------- ------- Extraordinary gain on early retirement of debt (net of income taxes of $140)..................................... -- -- 272 ------- ------- ------- Net earnings (loss)......................................... (1,892) 562 20,810 Dividends and accretion of preferred stock.................. -- -- (652) ------- ------- ------- Earnings (loss) applicable to common stock.................. $(1,892) $ 562 $20,158 ======= ======= ======= Earnings (loss) per common share -- basic: Earnings (loss) from continuing operations (net of dividends and accretion on preferred stock)............ $(0.72) $0.22 $(0.27) Discontinued operations: Earnings from operations.................................. -- -- 0.97 Gain of disposal of business.............................. -- -- 7.02 Extraordinary gain on early retirement of debt.............. -- -- 0.11 ------- ------- ------- Net earnings (loss) per common share -- basic.......... $(0.72) $0.22 $7.83 ======= ======= ======= Net earnings (loss) per common share -- diluted............. $(0.72) $0.20 $7.83 ======= ======= =======
See accompanying notes. 12 13 MLX CORP. STATEMENTS OF SHAREHOLDERS' EQUITY
CAPITAL IN SERIES A EXCESS OF RETAINED OTHER PREFERRED COMMON PAR EARNINGS EQUITY STOCK STOCK VALUE (DEFICIT) ADJUSTMENTS TOTAL --------- ------ ---------- --------- ----------- ----- (IN THOUSANDS) Balance January 1, 1995............ $ 7,265 $25 $61,874 $(57,147) $(1,288) $10,729 Dividends and accretion on preferred stock............... 117 -- -- (652) -- (535) Foreign currency translation adjustment.................... -- -- -- -- (77) (77) Benefit of pre-reorganization tax loss carryforward............. -- -- 11,325 -- -- 11,325 Stock options exercised.......... -- 1 180 -- -- 181 Equity adjustment upon sale of S.K. Wellman.................. -- -- -- -- 1,365 1,365 Redemption of preferred stock.... (7,382) -- (538) -- -- (7,920) Net earnings..................... -- -- -- 20,810 -- 20,810 ------- --- ------- -------- ------- ------- Balance December 31, 1995.......... -- 26 72,841 (36,989) -- 35,878 Benefit of pre-reorganization tax loss carryforwards............ -- -- 299 -- -- 299 Stock options exercised.......... -- -- 25 -- -- 25 Net earnings..................... -- -- -- 562 -- 562 ------- --- ------- -------- ------- ------- Balance December 31, 1996.......... -- 26 73,165 (36,427) -- 36,764 Net loss......................... -- -- -- (1,892) -- (1,892) ------- --- ------- -------- ------- ------- Balance December 31, 1997.......... $ -- $26 $73,165 $(38,319) $ -- $34,872 ======= === ======= ======== ======= =======
See accompanying notes. 13 14 MLX CORP. STATEMENTS OF CASH FLOWS
1997 1996 1995 ------- ------- ------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Earnings (loss) from continuing operations (including extraordinary gain on early retirement of debt)........... $(1,892) $ 562 $ 217 Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by (used in) operating activities from continuing operations: Extraordinary gain on early retirement of debt............ -- -- (412) Charge in lieu of federal income taxes.................... -- 299 122 Change in operating assets and liabilities of continuing operations: Prepaid expenses....................................... 36 57 (217) Accounts payable and accrued expenses.................. 676 (5) (1,655) Other.................................................. 46 42 (54) ------- ------- ------- Net cash provided by (used in) operating activities from continuing operations..................................... (1,134) 955 (1,999) Net cash provided by operating activities from discontinued operations................................................ -- -- 3,875 ------- ------- ------- Net cash provided by (used in) operating activities......... (1,134) 955 1,876 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of S.K. Wellman.......................... -- -- 49,177 Redemption of Series A Preferred Stock...................... -- -- (7,920) Decrease (increase) in escrow funds for warranties and taxes..................................................... (75) 4,044 (5,498) Investing cash flows from discontinued operations........... -- -- (1,437) ------- ------- ------- Net cash provided by (used in) investing activities......... (75) 4,044 34,322 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Payments of dividends on Series A Preferred Stock........... -- -- (747) Repayment of debt........................................... -- -- (2,076) Stock options exercised..................................... -- 25 181 Financing cash flows from discontinued operations........... -- -- (1,740) ------- ------- ------- Net cash provided by (used in) financing activities......... -- 25 (4,382) ------- ------- ------- Net increase (decrease) in cash and cash equivalents........ (1,209) 5,024 31,816 Cash and cash equivalents at January 1...................... 37,927 32,903 1,087 Cash and cash equivalents at December 31.................... $36,718 $37,927 $32,903 ======= ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid............................................... $ -- $ -- $ 127 ======= ======= =======
See accompanying notes. 14 15 MLX CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF PRESENTATION MLX Corp. (MLX or the Company) was merged with Morton Metalcraft Holding, Co. on January 20, 1998 and its name was changed to Morton Industrial Group, Inc. (see Note 6). During 1995, the Company sold its sole remaining operating subsidiary, S.K. Wellman Limited, Inc. (Wellman). Accordingly, the accompanying financial statements and notes have been restated to report the operating results of Wellman as a discontinued operation. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. CASH EQUIVALENTS Cash equivalents consist of investments in short-term asset management accounts with five banking institutions, none of which holds greater than $8.1 million of these assets. All investments are stated at cost plus accrued interest which approximates market value. At December 31, 1997, the Company's average rate of return on these investments was approximately 5.50%. As these investments account for all of the Company's income subsequent to the sale of Wellman, the Company's future financial results will be impacted by changes in the short-term interest rates available to the Company. For purposes of the accompanying Statements of Cash Flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. FEDERAL INCOME TAXES Any tax benefits resulting from the utilization of the Company's federal net operating loss or other carryforwards existing at December 11, 1984, the date of confirmation of the Plan of Reorganization (Confirmation Date), are excluded from operations and credited to capital in excess of par value in the year such tax benefits are realized. EARNINGS PER COMMON SHARE In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the Statement 128 requirements. RELATIONSHIP WITH PAMECO CORPORATION MLX has an arrangement with Pameco Corporation (Pameco) pursuant to which MLX shares certain management, operational and administrative functions. The costs for such services are also shared. MLX paid $54,000 to Pameco under this agreement in 1997, $52,000 in 1996 and $60,000 1995. Such amounts are included as a component of general and administrative expenses in the accompanying Statements of Operations. 15 16 MLX CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 2. SALE OF S.K. WELLMAN SUBSIDIARY On April 10, 1995, the Company entered into a stock purchase agreement (the Agreement) with a third party for the sale of all the common stock of Wellman for $60 million, which includes certain amounts related to the repayment or assumption of debt and capital leases by the purchaser. Such sale was approved by the common shareholders of MLX Corp. at the 1995 annual meeting of shareholders and was completed on June 30, 1995. The cash proceeds received by the Company pursuant to the transaction, less purchase price adjustments and estimated expenses, amounted to $48.9 million. In connection with the sale of the Wellman subsidiary, the Company repaid its principal and interest obligations under the Variable Rate Subordinated Notes and Zero Coupon Bonds and redeemed its Series A Preferred Stock along with unpaid dividends. The net proceeds to the Company from the transaction after such repayments were $38.5 million. A portion of these proceeds was used by the Company to fund an escrow account of $4 million to partially collateralize its indemnification obligations in the purchase and sale agreement. The Company's maximum liability under such indemnity provisions was $5 million. On October 1, 1996, the escrow fund balance of $4.3 million was disbursed to MLX. An additional escrow fund amounting to $1,250,000 was established at June 30, 1995 (adjusted to $1,347,000 in August 1995) relating to certain estimated income tax obligations arising from the sale. This escrow fund has been classified as long-term in the Balance Sheets. Other Long-Term Liabilities include taxes related to this escrow fund which are estimated to be payable after one year. The transaction resulted in a gain of $31.4 million. Income taxes were provided for this gain as follows (in thousands): Federal and state income taxes payable...................... $ 3,291 Pro forma charge in lieu of federal income taxes............ 10,020 ------- $13,311 =======
The accompanying consolidated financial statements reflect the operating results and cash flows of the discontinued operations separately from continuing operations for all years presented. The operating results of the discontinued operations through the date of the sale were as follows:
YEAR ENDED DECEMBER 31, 1995 ------------ (IN THOUSANDS) Net sales................................................... $34,916 ======= Earnings from operations before income taxes................ $ 4,435 Income taxes................................................ (1,928) ------- Earnings from discontinued operations....................... $ 2,507 =======
16 17 MLX CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following table provides supplemental information pertaining to the discontinued operations in the Statements of Cash Flows through the date of the sale:
YEAR ENDED DECEMBER 31, 1995 ------------ (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Earnings from discontinued operations....................... $ 2,507 Adjustments to reconcile earnings to net cash provided by discontinued operating activities: Depreciation and amortization............................. 1,062 Charge in lieu of federal income taxes.................... 1,183 Changes in operating assets and liabilities: Accounts receivable....................................... (1,158) Inventories and prepaid expenses.......................... (791) Accounts payable and accrued expenses..................... 310 Other..................................................... 762 ------- Net cash provided by operating activities................... $ 3,875 ======= CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment................... $(1,437) ------- Net cash used in investing activities....................... $(1,437) ======= CASH FLOWS FROM FINANCING ACTIVITIES Borrowings on long-term debt................................ $ 522 Repayment of debt........................................... (2,262) ------- Net cash used in financing activities....................... $(1,740) =======
3. GAIN ON EARLY RETIREMENT OF DEBT In connection with the sale of Wellman (see Note 2), the Company retired Zero Coupon Bonds and Variable Rate Subordinated Notes with a carrying value of $2.5 million with cash payments totaling $2.1 million. The resulting net gain on early retirement of debt (net of pro forma charge in lieu of federal income taxes of $140,000) has been reported as an extraordinary item. Also on June 30, 1995, the Company redeemed all its outstanding shares of Series A Preferred Stock for cash payments totaling $7.9 million, the contractual redemption value. The difference between this redemption amount and the carrying value of $7.4 million was charged to Capital in Excess of Par Value. 4. SHAREHOLDERS' EQUITY, STOCK OPTIONS AND EARNINGS PER SHARE The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company has two stock option plans. Under the MLX Corp. Stock Option Plan, adopted in 1985, the Company granted stock options to certain officers, directors and key employees at prices not less than the 17 18 MLX CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) market value on the date the option was granted. At December 31, 1997, 20,000 options were outstanding under this Plan with exercise periods extending through December 1999. No new options may be granted under this Plan. Under the MLX Corp. Stock Option and Incentive Award Plan (the "1995 Plan"), adopted in 1995, stock-based awards may be issued to key employees (including directors who are also employees) and certain others in a variety of forms. Such awards may include incentive stock options, non-qualified stock options, restricted stock and outright stock awards. A total of 125,000 shares of MLX common stock are reserved under the 1995 Plan. All options granted under the 1995 plan have 5 year terms and vest and become fully exercisable at the end of 3 years of continued employment. The 1995 Plan terminates in June 2005. At December 31, 1997, 30,000 options were outstanding under the 1995 Plan. Pro forma information regarding net income (loss) and earnings per share is required by Statement 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. There were no options granted in 1996 and in 1997. The fair value for the options granted in 1995 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 6.21%; volatility factor of the expected market price of the Company's common stock of .817; and a weighted average expected life of the option of 5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands except for earnings per share information):
1997 1996 1995 ---- ---- ---- Pro forma net earnings (loss)........................ $(1,934) $ 520 $20,140 Pro forma earnings (loss) per share -- diluted....... $ (0.74) $0.19 $ 7.81
Because Statement 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until future years. 18 19 MLX CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) A summary of the Company's stock option activity, and related information for the years ended December 31 follows:
1997 1996 1995 ------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- -------- ------- -------- ------- -------- Outstanding at beginning of year....... 50,000 $7.19 60,200 $6.39 104,467 $3.04 Granted.............................. -- -- -- 30,000 9.25 Exercised............................ -- (10,200) 2.50 (67,834) 2.63 Cancelled............................ -- -- -- (6,433) 5.01 ------ ----- ------- ----- ------- ----- Outstanding at end of year............. 50,000 $7.19 50,000 $7.19 60,200 $6.39 ====== ===== ======= ===== ======= ===== At December 31 Exercisable.......................... 50,000 $7.19 40,000 $6.67 36,033 $5.08 ====== ===== ======= ===== ======= ===== Reserved for future grant............ 95,000 95,000 95,000 ====== ======= ======= Weighted average fair value of options granted during the year.............. -- -- $ 6.40 ====== ======= =======
Exercise prices for options outstanding as of December 31, 1997 ranged from $4.00 to $9.25. The weighted average remaining contractual life of those options is 2.2 years. At December 31, 1996, the Company's former Chief Executive Officer held options to acquire 190,400 shares of the Company's common stock at $5.00 per share (the market value at date of grant) which are not reflected in the table above. In February 1997, the MLX Board of Directors approved the conversion of the 190,400 options held by the former Chief Executive Officer to Stock Appreciation Rights and all such SARs were exercised as of February 12, 1997. The resulting liability under this agreement amounted to $2.2 million and was disbursed in February 1997 and was reported as compensation expense in 1997. The Company is authorized to issue up to 500,000 shares designated as Series A Preferred Stock with a par value and liquidation preference of $30 per share. The Series A Preferred Stock is nonvoting. Dividends on shares of Series A Preferred Stock outstanding during 1995 were payable in cash on the basis of an increasing rate formula (12.5% at June 30, 1995). All outstanding shares of Series A Preferred Stock were redeemed by the Company with the proceeds from the sale of Wellman. An aggregate of 264,000 shares of Series A Preferred Stock was issued to certain holders of Zero Coupon Bonds as of December 1992 and April 1993. The Series A Preferred Stock was initially recorded at its estimated fair value and was being increased to the redemption price of $30 per share during the period from date of issuance until January 1, 1999 (commencement of maximum annual dividend rate). This annual accretion, based on the interest method, was charged to retained earnings and amounted to $117,000 in 1995. The assets and liabilities of foreign operations of the discontinued operations were translated into U.S. dollars at current exchange rates with the resulting cumulative translation adjustment, $(1,018,000) at December 31, 1994, recorded as a separate component of shareholders' equity. In connection with the sale of Wellman, the cumulative translation adjustment at June 30, 1995 was included in the calculation of the gain on the sale. 19 20 MLX CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the computation of basic and diluted earnings per share (in 000's except per share amounts):
1997 1996 1995 ---- ---- ---- Net income (loss) from continuing operations................ $(1,892) $ 562 $ (55) Dividends and accretion on preferred stock.................. -- -- (652) ------- ------ ------ Net income (loss) from continuing operations applicable to common stock.............................................. $(1,892) $ 562 $ (707) ======= ====== ====== Basic average common shares outstanding..................... 2,618 2,613 2,576 Effect of dilutive securities -- employee stock options..... -- 142 -- Diluted average common shares outstanding................... 2,618 2,755 2,576 ======= ====== ====== Earnings (loss) from continuing operations per share -- basic..................................................... $ (0.72) $ 0.22 $(0.27) ======= ====== ====== Earnings from continuing operations per share -- diluted.... $ (0.72) $ 0.20 $(0.27) ======= ====== ======
The effect of dilutive securities is anti-dilutive for 1997 and 1995, therefore basic and dilutive earnings per share are the same for those years. 5. INCOME TAXES The Company accounts for income taxes in accordance with the liability method as required by FASB Statement No. 109, "Accounting for Income Taxes." At December 31, 1997, MLX has net operating loss carryforwards, existing as of the Confirmation Date, of approximately $75.0 million which are available to offset future taxable income for federal income tax purposes. Such carryforwards expire as of December 31 in each of the years as follows: $1.2 million in 1998 and $73.8 million in 1999. Any tax benefit derived from the utilization of these net operating loss carryforwards is excluded from operations and credited to capital in excess of par value in the year such tax benefits are utilized. Subsequent to the Confirmation Date, the Company has available (for federal income tax purposes), net operating loss carryforwards of approximately $60.3 million, which expire as of December 31 in each of the years as follows: $2.7 million in 2000, $2.2 million in 2002, $5.0 million in 2005, $2.0 million in 2006, $47.3 million in 2007, and $1.1 million in 2012. The cumulative net operating loss for financial reporting purposes approximates the tax amount as shown above. The components of the income tax provision are as follows (in thousands):
1997 1996 1995 ---- ---- ---- Charge in lieu of federal income taxes (federal income tax benefits): Continuing operations.................................. $ -- $299 $(18) Extraordinary gain on early retirement of debt......... -- -- 140 Federal alternative minimum taxes...................... -- 18 -- ------ ---- ---- Total............................................. $ -- $317 $122 ====== ==== ====
Income tax expense associated with discontinued operations is set forth in Note 2. The charge in lieu of federal income taxes (federal income tax benefit) approximates the statutory rate applied to earnings before income taxes. 20 21 MLX CORP. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows (in thousands):
1997 1996 ---- ---- Federal net operating loss carryforward................... $46,000 $ 94,000 State net operating loss carryforward..................... 3,000 3,000 Reserves and other........................................ 900 1,000 ------- -------- Total..................................................... 49,900 98,000 Valuation allowance for deferred tax assets............... 49,900 (98,000) ------- -------- Net deferred tax assets................................... $ -- $ -- ======= ========
The valuation allowance for deferred tax assets decreased $48.1 million during 1997. 6. SUBSEQUENT EVENTS On January 20, 1998 the Company merged (the "Merger") with Morton Metalcraft Holding Co. ("Morton") and the Articles of Incorporation were amended to change the name of the Company to Morton Industrial Group, Inc. In connection with the merger, the Company paid $19,991,000 for the purchase of 612,121 shares of Morton common stock and options and warrants to purchase Morton common stock and issued 1,332,323 shares of common stock for the remaining shares of Morton common stock. The Merger for accounting and financial reporting purposes will be treated as a purchase in accordance with generally accepted accounting principles. The Merger will be accounted for as though Morton purchased MLX because (i) the Chairman and Chief Executive Officer of Morton through his common stock ownership in the merged companies, together with the right to vote certain shares pursuant to a Shareholders Agreement will have over 50% of the votes of all classes of stock of the Surviving Company, (ii) the Chairman of the Board of Directors, Chief Executive Officer and directors of the Surviving Company will consist of individuals appointed by the Chairman and Chief Executive Officer of Morton, (iii) the revenues, net earnings and current market value of Morton exceeds those of MLX and (iv) the market value of the consideration received by the former shareholders of Morton common stock and former holders of options and warrants for Morton common stock, including MLX Common Stock, MLX Options and cash, exceeds the market value of the securities to be retained by the shareholders of MLX common stock. The historical financial statements of Morton Metalcraft Holding Co. will, after the date of the Merger, become the historical financial statements of MLX, Inc. as the result of the reverse purchase. On January 19, 1998 the shareholders of MLX approved an amendment to the Articles of Incorporation to (i) provide for the reclassification of the existing common stock of MLX, par value $.01 per share as Class A Common stock of MLX, par value $.01 per share , (ii) establish a class of 200,000 shares of Class B Common Stock of MLX, par value $.01 per share and (iii) establish the rights of the MLX Class B Common Stock. The shareholders also approved the MLX Corp. 1997 Stock Option Plan. Under the 1997 Stock Plan, a maximum of 1,166,896 shares of MLX Class A Common Stock, subject to adjustment as described in the 1997 Stock Plan, would be authorized to be delivered to MLX's officers, other key employees, directors and consultants by MLX, in the sole discretion of a stock plan committee, pursuant to either nonqualified stock options or incentive stock options. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 21 22 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item 10 about the executive officers and Directors of the Company is incorporated herein by reference to the information set forth under the caption "Election of Directors" in the Company's definitive proxy statement for the 1998 annual meeting of stockholders, which will be filed with the Securities and Exchange commission not later than one hundred twenty days after December 31, 1997 pursuant to Regulation 14A. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item 11 is incorporated herein by reference to the information set forth under the caption "Executive Compensation" in the Company's definitive proxy statement for the 1998 annual meeting of stockholders, which will be filed with the Securities and Exchange commission not later than one hundred twenty days after December 31, 1997 pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item 12 is incorporated herein by reference to the information set forth under the caption "Voting securities and Principal Stockholders" in the Company's definitive proxy statement for the 1998 annual meeting of stockholders, which will be filed with the Securities and Exchange commission not later than one hundred twenty days after December 31, 1997 pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item 13 is incorporated herein by reference to the information set forth under the caption "Certain Transactions" in the Company's definitive proxy statement for the 1998 annual meeting of stockholders, which will be filed with the Securities and Exchange commission not later than one hundred twenty days after December 31, 1997 pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS CONTAINED ON FORM 8-K. (a) The following documents are filed as part of this report: 1. FINANCIAL STATEMENTS. The following financial statements of MLX Corp. are included in Item 8: a. Report of Independent Auditors. b. Consolidated Balance Sheets of MLX as of December 31, 1997, and 1996. c. Consolidated Statements of Operations of MLX for each of the years ended December 31, 1997, 1996, and 1995. d. Consolidated Statements of Cash Flows of MLX for each of the years ended December 31, 1997, 1996, and 1995. e. Consolidated Statements of Stockholders' Equity of MLX for each of the years ended December 31, 1997, 1996, and 1995. f. Notes to Consolidated Financial Statements of MLX. 22 23 The following financial statements of Morton Metalcraft Holding Co. are contained in Exhibit 99.1: a. Report of Independent Auditors. b. Consolidated Balance Sheets as of December 31, 1997, and June 30, 1997, and 1996. c. Consolidated Statements of Operations for the Six Months Ended December 31, 1997, and the Fiscal Years Ended June 30, 1997, 1996, and 1995. d. Consolidated Statements of Stockholders' Equity (Deficit) for the Six Months Ended December 31, 1997, and the Fiscal Years Ended June 30, 1997, 1996, and 1995. e. Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1997, and the Fiscal Years Ended June 30, 1997, 1996, and 1995. f. Notes to the Consolidated Financial Statements. g. Consolidated Balance Sheet as of December 31, 1997 (audited) and 1996 (unaudited). h. Consolidated Statements of Operations for the Six Months Ended December 31, 1997 (audited) and 1996 (unaudited). i. Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1997 (audited) and 1996 (unaudited). 2. FINANCIAL STATEMENT SCHEDULES. MLX Corp.: All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. Morton: Schedule IX -- Valuation and Qualifying Accounts appears in Exhibit 99.1. 3. EXHIBITS.
EXHIBIT NUMBER AND DOCUMENT TITLE INCORPORATED BY REFERENCE TO FILED HEREWITH - --------------------------------- ---------------------------- -------------- 2.1 -- Agreement and Plan of Merger Between MLX Annex B to the Definitive Proxy Corp. and Morton Metalcraft Holding Co., dated Statement on Schedule 14A filed by as of October 20, 1997 MLX Corp. with the Securities and Exchange Commission ("SEC") on January 6, 1998. 2.2 -- Securities Purchase Agreement Among MLX X Corp. and Security Holders of Morton Metalcraft Holding Co., dated as of October 20, 1997 3.1 -- Articles of Incorporation of the MLX Corp. Form 10-Q for the quarter registrant as Amended prior to January 20, 1998 ended June 30, 1993 3.2 -- Articles of Amendment to Articles of Exhibit 3 to Morton Industrial Group, Incorporation of the Registrant Effective Inc. Report on Form 8-K filed with January 20, 1998 the SEC on February 4, 1998 3.3 -- Bylaws of the Registrant, as Amended X 10.1 -- Credit Agreement Among the Registrant, X Morton Metalcraft Co., Morton Metalcraft Co. of North Carolina and Harris Trust & Savings Bank, individually and as Agent, dated January 20, 1998
23 24
EXHIBIT NUMBER AND DOCUMENT TITLE INCORPORATED BY REFERENCE TO FILED HEREWITH - --------------------------------- ---------------------------- -------------- 10.2 -- Security Agreement executed by Morton X Industrial Group, Inc., Morton Metalcraft Co., and Morton Metalcraft Co. of North Carolina in favor of Harris Trust & Savings Bank, individually and as Agent, dated January 20, 1998 10.3 -- Mortgage and Security Agreement with X Assignment of Rents executed by Morton Metalcraft Co. in favor of Harris Trust & Savings Bank, individually and as Agent, dated January 20, 1998 10.4 -- Pledge Agreement executed by Registrant X in favor of Harris Trust & Savings Bank, individually and as Agent, dated January 20, 1998 10.5 -- Limited Indemnification Agreement dated X as of October 20, 1997, among MLX Corp., William D. Morton, and Other Morton Metalcraft Shareholders and Option Holders 10.6 -- Industrial Building Lease between Morton X Welding Co., Inc., and Morton Metalcraft Co. dated September 1, 1994 10.7 -- Lease between Caterpillar, Inc., and X Morton Metalcraft Co., Inc. dated June 9, 1995 10.8 -- Lease between Agracel, Inc., and Morton X Metalcraft Co. dated November 6, 1996 10.9 -- Employment Agreement dated as of January X 20, 1998, between the Registrant and William D. Morton 10.10 -- Employment Agreement dated as of X January 20, 1998, between the Registrant and Daryl R. Lindemann 10.11 -- MLX Corp. 1997 Stock Option Plan Appendix C to the Definitive Proxy Statement on Schedule 14A filed by MLX Corp. with the SEC on January 6, 1998 10.12 -- MLX Corp. 1995 Stock Option Plan MLX Corp. Definitive Proxy Statement on Schedule 14A for the 1995 Annual Meeting of Stockholders 10.13 -- Master Lease Agreement between Morton X Metalcraft Co. and General Electric Capital Corporation dated August 7, 1996 10.14 -- Guaranty of Master Lease Agreement by X Morton Metalcraft Holding Co., dated August 7, 1996 10.15 -- Split Dollar Insurance Agreement X between Morton Metalcraft Co. and William D. Morton dated February 3, 1995 10.16 -- Split Dollar Assignment between William X D. Morton and Morton Metalcraft Co. dated February 3, 1995
24 25
EXHIBIT NUMBER AND DOCUMENT TITLE INCORPORATED BY REFERENCE TO FILED HEREWITH - --------------------------------- ---------------------------- -------------- 10.17 -- Split Dollar Insurance Agreement X between Morton Metalcraft Co. and William D. Morton dated October 10, 1993 10.18 -- Split Dollar Assignment between William X D. Morton and Morton Metalcraft Co., dated October 10, 1993 10.19 -- Split Dollar Insurance Agreement X between Morton Metalcraft Co. and Daryl R. Lindemann dated October 10, 1993 10.20 -- Split Dollar Assignment between Daryl X R. Lindemann and Morton Metalcraft Co., dated October 10, 1993 10.21 -- Death Benefit Agreement between Morton X Metalcraft Co. and William D. Morton 10.22 -- Salary Continuation Agreement between X Morton Metalcraft Co. and William D. Morton dated February 26, 1996 21.1 -- Subsidiaries of Registrant X 23.1 -- Consent of Ernst & Young LLP X 23.2 -- Consent of Clifton Gunderson L.L.C. X 27.1 -- Financial Data Schedule -- MLX Corp. X 27.2 -- Financial Data Schedule -- Morton X Metalcraft Holding Co. 99.1 -- Additional Information About Morton X Metalcraft Holding Co., Including Financial Statements 99.2 Pro Forma Condensed Combined Financial X Statements
4. REPORTS ON FORM 8-K None. 25 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant as duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MORTON INDUSTRIAL GROUP, INC. By: /s/ WILLIAM D. MORTON ------------------------------------ William D. Morton President, Chief Executive Officer, and Chairman of the Board of Directors Dated: March 10, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ WILLIAM D. MORTON President, Chief Executive March 10, 1998 - ----------------------------------------------------- Officer, and Chairman of the William D. Morton Board of Directors /s/ DARYL R. LINDEMANN Vice President -- Finance March 10, 1998 - ----------------------------------------------------- (Principal Accounting Officer) Daryl R. Lindemann /s/ FRED W. BROLING Director March 13, 1998 - ----------------------------------------------------- Fred W. Broling Director March , 1998 - ----------------------------------------------------- Alfred R. Glancy III /s/ MARK W. MEALY Director March 9, 1998 - ----------------------------------------------------- Mark W. Mealy /s/ WILLEM F. P. DE VOGEL Director March 10, 1998 - ----------------------------------------------------- Willem F. P. De Vogel
26 27 EXHIBIT INDEX Except where incorporated by reference, the following documents are attached to this annual report on Form 10-K as Exhibits: 2.1 - Agreement and Plan of Merger Between MLX Corp. and Morton Metalcraft Holding Co., dated as of October 20, 1997, incorporated by reference to the definitive Proxy Statement on Schedule 14A filed by MLX Corp. with the Securities and Exchange Commission ("SEC") on January 6, 1998. 2.2 - Securities Purchase Agreement Among MLX Corp. and Security Holders of Morton Metalcraft Holding Co., dated as of October 20, 1997 3.1 - Articles of Incorporation of the registrant as Amended prior to January 20, 1998, incorporated by reference to MLX Corp.'s Form 10-Q for the quarter ended June 30, 1993. 3.2 - Articles of Amendment to Articles of Incorporation of the Registrant Effective January 20, 1998, incorporated by reference to Exhibit 3 to Morton Industrial Group, Inc.'s Report on Form 8-K filed with the SEC on February 4, 1998. 3.3 - Bylaws of the Registrant, as Amended 10.1 - Credit Agreement Among the Registrant, Morton Metalcraft Co., Morton Metalcraft Co. of North Carolina and Harris Trust & Savings Bank, individually and as Agent, dated January 20, 1998 10.2 - Security Agreement executed by Morton Industrial Group, Inc., Morton Metalcraft Co., and Morton Metalcraft Co. of North Carolina in favor of Harris Trust & Savings Bank, individually and as Agent, dated January 20, 1998 10.3 - Mortgage and Security Agreement with Assignment of Rents executed by Morton Metalcraft Co. in favor of Harris Trust & Savings Bank, individually and as Agent, dated January 20, 1998 28 10.4 - Pledge Agreement executed by Registrant in favor of Harris Trust & Savings Bank, individually and as Agent, dated January 20, 1998 10.5 - Limited Indemnification Agreement dated as of October 20, 1997, among MLX Corp., William D. Morton, and Other Morton Metalcraft Shareholders and Option Holders 10.6 - Industrial Building Lease between Morton Welding Co., Inc., and Morton Metalcraft Co. dated September 1, 1994 10.7 - Lease between Caterpillar, Inc., and Morton Metalcraft Co., Inc. dated June 9, 1995 10.8 - Lease between Agracel, Inc., and Morton Metalcraft Co. dated November 6, 1996. 10.9 - Employment Agreement dated as of January 20, 1998, between the Registrant and William D. Morton 10.10 - Employment Agreement dated as of January 20, 1998, between the Registrant and Daryl R. Lindemann 10.11 - MLX Corp. 1997 Stock Option Plan, incorporated by reference to the Definitive Proxy Statement on Schedule 14A filed by MLX Corp. with the SEC on January 6, 1998. 10.12 - MLX Corp. 1995 Stock Option Plan, incorporated by reference to Definitive Proxy Statement on Schedule 14A filed by MLX Corp. with the SEC for the 1995 annual meeting of stockholders. 10.13 - Master Lease Agreement between Morton Metalcraft Co. and General Electric Capital Corporation dated August 7, 1996 10.14 - Guaranty of Master Lease Agreement by Morton Metalcraft Holding Co., dated August 7, 1996 10.15 - Split Dollar Insurance Agreement between Morton Metalcraft Co. and William D. Morton dated -2- 29 February 3, 1995. 10.16 - Split Dollar Assignment between William D. Morton and Morton Metalcraft Co. dated February 3, 1995 10.17 - Split Dollar Insurance Agreement between Morton Metalcraft Co. and William D. Morton dated October 10, 1993 10.18 - Split Dollar Assignment between William D. Morton and Morton Metalcraft Co., dated October 10, 1993 10.19 - Split Dollar Insurance Agreement between Morton Metalcraft Co. and Daryl R. Lindemann dated October 10, 1993 10.20 - Split Dollar Assignment between Daryl R. Lindemann and Morton Metalcraft Co., dated October 10, 1993 10.21 - Death Benefit Agreement between Morton Metalcraft Co. and William D. Morton 10.22 - Salary Continuation Agreement between Morton Metalcraft Co. and William D. Morton dated February 26, 1996. 21.1 - Subsidiaries of Registrant 23.1 - Consent of Ernst & Young LLP 23.2 - Consent of Clifton Gunderson L.L.C. 27.1 - Financial Data Schedule - MLX Corp. 27.2 - Financial Data Schedule - Morton Metalcraft Holding Co. 99.1 - Additional Information About Morton Metalcraft Holding Co., Including Financial Statements 99.2 - Pro-Forma Condensed Combined Financial Statements -3- EX-2.2 2 EX-2.2 1 EXECUTION COPY EXHIBIT 2.2 SECURITIES PURCHASE AGREEMENT AGREEMENT, dated October 20, 1997, among MLX Corp., a Georgia corporation ("Buyer"), and the holders (the "Selling Securityholders") of shares of common stock ("Common Stock"), par value $0.01 per share, of Morton Metalcraft Holding Co., a Delaware Corporation (the "Company"), and options and warrants to acquire shares of Common Stock (such shares of Common Stock, warrants and options, the "Company Securities"). Pursuant to an Agreement and Plan of Merger dated as of October 20, 1997 (the "Merger Agreement"), among Buyer and the Company, the Company shall be merged with and into Buyer (the "Merger"), with Buyer being the surviving corporation (hereinafter referred to as the "Surviving Corporation"). Pursuant to Section 5.9 of the Merger Agreement, prior to the Effective Time (as defined in the Merger Agreement), the Company will be recapitalized (the "Recapitalization") as set forth in the Merger Agreement. Each Selling Securityholder is the record and beneficial owner of the Company Securities set forth opposite such Selling Securityholder's name on Exhibit A hereto. As a result of the Recapitalization, each Selling Securityholder will become the record and beneficial owner of the newly issued securities of the Company (the "Recap Company Securities") set forth opposite such Selling Securityholder's name on Exhibit B hereto. Each Selling Securityholder wishes to sell the Recap Company Securities (all such Recap Company Securities of all Selling Securityholders herein referred to as the "Sale Securities") set forth opposite such Selling Stockholder's name on Exhibit C 2 2 hereto and Buyer wishes to purchase all such Sale Securities upon the terms and subject to the conditions of this Agreement. Capitalized terms used herein but not otherwise defined shall have the meanings given them in Section 11.1 hereof. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Sale and Purchase of Sale Securities. 1.1 Sale and Purchase of Sale Securities. At the Closing (as hereinafter defined), (i) each Selling Securityholder shall sell, and Buyer shall purchase all of the Sale Securities of such Selling Securityholder, free of any Liens, (ii) each Selling Securityholder shall deliver or cause to be delivered to Buyer certificates representing all of such Sale Securities accompanied by stock or warrant powers, as the case may be, duly executed in blank, in proper form for transfer, and with all appropriate stock transfer tax stamps affixed, and (iii) Buyer shall deliver the Purchase Price (as hereinafter defined) to the Selling Securityholders in accordance with Section 1.2 below. 1.2 Purchase Price. The aggregate purchase price for the Sale Securities (the "Purchase Price") shall be the aggregate of all the purchase prices shown on Exhibit C. Buyer shall pay to each of the Selling Securityholders in immediately available funds, pursuant to written instructions provided by each Selling Securityholder at or prior to the Closing, the amount of the payment set forth opposite such Selling Securityholder's name on Exhibit C, against receipt of the Sale Securities of such Selling Stockholder set forth on Exhibit C hereto. 3 3 2. Closing; Closing Date. The closing of the purchase and sale of the Sale Securities (the "Closing") shall take place immediately prior to the Effective Time (as defined in the Merger Agreement) on satisfaction or waiver of the conditions set forth in Article 4 hereof at such place and time as the parties may agree in writing (such time and date being referred to herein as the "Closing Date"). 3. Representations and Warranties of Selling Securityholders. Each Selling Securityholder severally, and not jointly, represents and warrants to Buyer as follows: 3.1 Title to the Company Securities. Except as set forth on Schedule 3.1, as of the date hereof, such Selling Securityholder owns of record, free and clear of any Lien, such Company Securities set forth opposite such Selling Stockholder's name on Exhibit A hereto. 3.2 Title to the Recap Company Securities. As of the Closing Date and assuming the consummation of the Recapitalization in accordance with the Merger Agreement, such Selling Securityholder shall own of record, free and clear of any Lien, such Recap Company Securities set forth opposite such Selling Stockholder's name on Exhibit B hereto. Any Liens set forth on Schedule 3.1 regarding such Selling Stockholder's Company Securities shall no longer be in effect as of the Closing Date. 3.3 Title to the Sale Securities. As of the Closing Date and assuming the consummation of the Recapitalization in accordance with the Merger Agreement, such Selling Securityholder shall own of record, free and clear of any Lien, such Sale Securities set forth opposite such Selling Stockholder's name on 4 4 Exhibit C hereto, and, upon delivery of and payment for such Sale Securities by Buyer as herein provided, such Selling Securityholder will convey to Buyer good and valid title thereto, free and clear of any Lien. Any Liens set forth on Schedule 3.1 regarding such Selling Stockholder's Sale Securities shall no longer be in effect as of the Closing Date. 3.4 Authority to Execute and Perform Agreement. Such Selling Securityholder has the full legal right, power and all authority required to enter into, execute and deliver this Agreement and to perform fully such Selling Securityholder's obligations hereunder. This Agreement has been duly executed and delivered by such Selling Securityholder and (assuming the due authorization, execution and delivery hereof by Buyer) is a legal, valid and binding obligation of such Selling Securityholder enforceable against such Selling Securityholder in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors' rights and to general equity principles (regardless of whether enforcement is sought in a proceeding at law or in equity). 3.5 Noncontravention. Except as set forth on Schedule 3.5, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby by such Selling Securityholder will not (i) contravene such Selling Securityholder's charter, articles or certificate of incorporation or by-laws, as applicable; (ii) violate, or cause such Selling Securityholder to be in default under, any provision of law, rule, regulation, order, writ, judgment, injunction, decree, determination or award in effect having 5 5 applicability to such Selling Securityholder; (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which such Selling Securityholder is a party or by which it or its properties may be bound or affected; or (iv) result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties now owned by such Selling Securityholder. 3.6 Representations and Warranties on Closing Date. The representations and warranties of such Selling Stockholder contained in this Article 3 shall be true and correct on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. 4. Representations and Warranties of Buyer. Buyer represents and warrants to each Selling Securityholder as follows: 4.1 Authority to Execute and Perform Agreement. Buyer has the full legal right, power and all authority required to enter into, execute and deliver this Agreement and to perform fully Buyer's obligations hereunder. This Agreement has been duly executed and delivered by Buyer and (assuming the due authorization, execution and delivery hereof by the Selling Securityholders) is a legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors' rights and to general equity principles (regardless of whether enforcement is sought in a proceeding at law or in equity). 4.2 Noncontravention. Except as set forth on Schedule 4.2, 6 6 the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby by Buyer will not (i) contravene Buyer's charter, articles or certificate of incorporation or by-laws; (ii) violate, or cause Buyer to be in default under, any provision of law, rule, regulation, order, writ, judgment, injunction, decree, determination or award in effect having applicability to Buyer; (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Buyer is a party or by which it or its properties may be bound or affected; or result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties now owned by Buyer. 5. Conditions Precedent to the Obligation of Buyer to Close. The obligation of Buyer to enter into and complete the Closing is subject, at the option of Buyer, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by it: 5.1 Consummation of the Merger. All conditions precedent to the consummation of the Merger shall have been fulfilled by the parties to the Merger Agreement. 5.2 Representations and Warranties. The representations and warranties of the Selling Securityholders contained in this Agreement shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. 6. Conditions Precedent to the Obligation of the Selling Securityholders to Close. The obligation of each of the Selling Securityholders to enter into and complete the Closing is subject, at the option of such Selling Securityholder, 7 7 to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by it: 6.1 Consummation of the Merger. All conditions precedent to the consummation of the Merger shall have been fulfilled by the parties to the Merger Agreement, the Buyer shall in good faith expect the Effective Time under the Merger Agreement to occur immediately after the Closing hereunder and no amendment or other modification to the Merger Agreement shall have been made which would increase the merger consideration thereunder or otherwise adversely affect the rights of any of the Selling Securityholders hereunder. 6.2 Shareholders' Agreement. The Shareholders' Agreement, dated as of March 20, 1995, among the Company, Morton Metalcraft Co., William D. Morton and the Purchasers (as defined therein) party thereto shall have been terminated simultaneously with the Closing of this Agreement. 6.3 Shareholders' Agreement. The Shareholders' Agreement, dated as of January 25, 1995, as amended as of July 11, 1997, among the Company, Morton Metalcraft Co., William D. Morton and the Noteholders (as defined therein) party thereto shall have been terminated simultaneously with the Closing of this Agreement. 6.4 Representations and Warranties. The representations and warranties of Buyer contained in this Agreement shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. 8 8 6.5 Recapitalization. The Recapitalization shall have been consummated by the Company and as a result thereof the Company's capital structure shall be as set forth on Exhibit B hereto. 6.6 Prepayment of Certain Debt of the Company. On or immediately after the Closing Date, the Company shall have prepaid the indebtedness owed to each of Connecticut General Life Insurance Company ("CGLIC"), as beneficial owner (CIG & CO. being the registered owner) and CIGNA Mezzanine Partners III, L.P. ("CMP"; CMP and CGLIC collectively being referred to as, "CIGNA"), as beneficial owner (CIG & CO. being the registered owner) pursuant to the Company's 11.50% Senior Notes due January 31, 2005 (the "CIGNA Notes"), in the aggregate outstanding principal amount of $25,000,000 such prepayment being accompanied with a prepayment premium of $250,000, all accrued and unpaid interest due on the CIGNA Notes on the Closing Date and all other amounts due and owing under those separate Note Purchase Agreements, dated as of January 25, 1997, between the Company and each of CGLIC and CMP, and the Company and Buyer shall have taken or caused to be taken all actions required to be taken by each of them on or immediately after the Closing Date pursuant to that certain Note Redemption Agreement, dated as of October 20, 1997, between, the Company, Morton Metalcraft Co., Buyer and CIGNA. 7. Covenants. 7.1 Reasonable Best Efforts. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its reasonable best efforts (to the extent within the control of any party hereto) to take, or cause to be 9 9 taken, all action, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by the Merger Agreement. 7.2 Survival of Representations and Warranties of the Selling Securityholders After Closing. Notwithstanding any right of Buyer to investigate and notwithstanding any knowledge of facts determined or determinable by Buyer pursuant to such investigation or right of investigation, Buyer has the right to rely fully upon the representations and warranties of the Selling Securityholders contained in this Agreement. Notwithstanding any waiver by Buyer of any condition precedent to its obligation to close, all representations and warranties shall survive the execution and delivery of this Agreement and the Closing hereunder. 7.3 Survival of Representations and Warranties of Buyer After Closing. Notwithstanding any right of the Selling Securityholders to investigate and notwithstanding any knowledge of facts determined or determinable by the Selling Securityholders pursuant to such investigation or right of investigation, the Selling Securityholders have the right to rely fully upon the representations and warranties of Buyer contained in this Agreement. Notwithstanding any waiver by the Selling Securityholders of any condition precedent to its obligation to close, all representations and warranties shall survive the execution and delivery of this Agreement and the Closing hereunder. 7.4 Selling Securityholder Restrictions. Each Selling Securityholder hereby agrees to waive all restrictions (whether transfer or otherwise) applicable to the shares of such Selling Securityholder to the extent necessary to 10 10 facilitate the consummation of the transactions contemplated by this Agreement. Each Selling Securityholder hereby further agrees that any agreements containing any such restrictions as they apply to the Sale Securities shall terminate upon the consummation of the transaction contemplated by this Agreement. 8. Indemnification. 8.1 Indemnification by Selling Securityholders. Each Selling Securityholder hereby agrees that such Selling Securityholder shall be severally, and not jointly, liable to and shall indemnify, defend and hold harmless Buyer, its Affiliates (including the Surviving Corporation) and their respective directors, officers, employees, Affiliates, successors and assigns pursuant to this Agreement from and against any and all loss, cost, damage or expense (including reasonable fees of counsel) whatsoever based upon, arising out of or otherwise resulting from any breach of any representation or warranty of such Selling Securityholder, or breach of any covenant or obligation of such Selling Securityholder or enforcement by Buyer of its rights agasint such Selling Securityholders hereunder, in either case, contained in this Agreement. Nothing in the Limited Indemnification Agreement, dated October 17, 1997 (the "Indemnification Agreement"), among Buyer and certain of the Selling Securityholders shall limit the general liability of Selling Securityholders under this Agreement. 8.2 Indemnification by Buyer. Buyer hereby agrees that Buyer shall be liable to and shall indemnify, defend and hold harmless each Selling Securityholder, its Affiliates and their respective directors, officers, employees, Affiliates, successors and assigns pursuant to this Agreement from and against any and all loss, cost, damage or expense (including reasonable fees of counsel) whatsoever 11 11 based upon, arising out of or otherwise resulting from any breach of any representation or warranty of Buyer, or breach of any covenant or obligation of Buyer or enforcement by any Selling Securityholder of its rights hereunder, in either case, contained in this Agreement. Nothing in the Limited Indemnification Agreement shall limit the general liability of Buyer under this Agreement. 9. Additional Parties. The parties to this Agreement agree that additional Selling Securityholders ("Additional Selling Securityholders") may be added as parties to this Agreement prior to the Closing by such Additional Selling Securityholders agreeing in writing to be bound by the provisions of this Agreement, such addition to be made without the necessity of any action by the parties hereto. 10.Termination of Agreement. This Agreement shall terminate prior to the Closing as follows: (a) upon the termination of the Merger Agreement; or (b) at any time on or prior to the Closing Date, by mutual written consent of the Selling Securityholders and Buyer. If this Agreement is terminated as provided herein no party hereto shall have any liability or further obligation to any other party under the terms of this Agreement except for the intentional or willful violation of, or willful misstatement contained in, the representations and warranties of such parties contained in this Agreement. 11. Miscellaneous. 11.1 Certain Definitions. (a) As used in this Agreement, the 12 12 following terms have the following meanings: (i) "Affiliate" means, with respect to any Person, any other Person controlling, controlled by or under common control with, or the parents, spouse, lineal descendants or beneficiaries of, such Person. (ii) "Lien" means any lien, pledge, mortgage, security interest, claim, lease, charge, option, right of first refusal, easement, servitude, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction or limitation whatsoever (other than restrictions imposed by applicable securities laws). (iii) "Person" means any individual, corporation, limited liability company, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Body or other entity. 11.2 Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission or, if mailed, five days after the date of deposit in the United States mails, as follows: (a) if to Buyer, to: MLX Corp. 1000 Center Place Norcross, Georgia 30093 Attention: Thomas C. Waggoner Telecopy: (770) 798-0633 13 13 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Attention: Robert M. Hirsh, Esq. Facsimile: (212) 757-3990 (b) if to a Selling Securityholder, to the address set forth on Exhibit D hereto. Any party may by notice given in accordance with this Section to the other parties designate another address or Person for receipt of notices hereunder. 11.3 Entire Agreement. This Agreement contains the entire agreement among the parties with respect to the purchase of the Sale Securities and supersedes all prior agreements, written or oral, with respect thereto. 11.4 Waivers and Amendments. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. 11.5 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware. 11.6 Binding Effect; No Assignment. This Agreement shall 14 14 be binding upon and inure to the benefit of the parties and their respective successors and legal representatives. This Agreement is not assignable, except that Buyer may assign its rights hereunder to any of its Affiliates. 11.7 Variations in Pronouns. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. 11.8 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. 11.9 Headings. The headings in this Agreement are for reference only, and shall not affect the interpretation of this Agreement. 11.10 Severability of Provisions. If any provision or any portion of any provision of this Agreement, or the application of any such provision or any portion thereof to any Person or circumstance, shall be held invalid or unenforceable, the remaining portion of such provision and the remaining provisions of this Agreement, and the application of such provision or portion of such provision as is held invalid or unenforceable to Persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby. 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. MLX CORP. By: /s/ Thomas C. Waggoner ------------------------- Name: Title: /s/ William D. Morton ------------------------- William D. Morton /s/ Brian L. Geiger ------------------------- Brian L. Geiger /s/ Daryl R. Lindemann ------------------------- Daryl R. Lindemann /s/ Brian R. Doolittle ------------------------- Brian R. Doolittle /s/ David M. Stratton ------------------------- David M. Stratton 16 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. /s/ Mark W. Mealy ------------------------- Mark W. Mealy /s/ Reid G. Leggett ------------------------- Reid G. Leggett /s/ Frederic H. Garner ------------------------- Frederic H. Garner /s/ Katherine D. Garner ------------------------- Katherine D. Garner /s/ Edward P. Imbrogno ------------------------- Edward P. Imbrogno /s/ Thomas L. Temple ------------------------- Thomas L. Temple /s/ Stephen E. Cummings ------------------------- Stephen E. Cummings /s/ John T. Johnston III ------------------------- John T. Johnston III 17 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. /s/ Robert G. Calton III ------------------------- Robert G. Calton III /s/ Kelly L. Katterhagen ------------------------- Kelly L. Katterhagen /s/ William A. Morrisett ------------------------- William A. Morrisett /s/ Matthew S. Rankowitz ------------------------- Matthew S. Rankowitz /s/ John H. Grigg ------------------------- John H. Grigg /s/ Shannon G. Smith ------------------------- Shannon G. Smith 18 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. /s/ Nancy B. Conner ------------------------- Nancy B. Conner /s/ Charles H. Conner, Jr. -------------------------- Charles H. Conner, Jr. /s/ Charles H. Conner, Jr. -------------------------- Charles H. Conner, Jr., as custodian for Lindsay A. Conner /s/ Charles H. Conner, Jr. -------------------------- Charles H. Conner, Jr., as custodian for Bryan B. Conner EX-3.3 3 EX-3.3 1 EXHIBIT 3.3 BYLAWS OF MORTIN INDUSTRIAL GROUP, INC. (Formerly MLX Corp. and Georgia MLX Corp.) ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The corporation shall maintain at all times a registered office in the State of Georgia and a registered agent at that office. SECTION 2. OTHER OFFICES. The corporation may also have offices at such other places both within and without the State of Georgia as the business of the corporation may require or make desirable. ARTICLE II SHAREHOLDERS MEETINGS SECTION 1. REGULAR MEETINGS. The regular meeting of the shareholders of the corporation shall be held at the principal office of the corporation or at such other place in the United States as may be determined by the board of directors, at 11:00 a.m. on such date in April or May of each year, or at such other date and time as shall be determined by the board of directors, for the purpose of electing directors and transacting such other business as may properly be brought before the meeting. SECTION 2. SPECIAL MEETINGS. (a) Special meetings of the shareholders shall be called by the President or the Secretary (i) when so directed by a majority of the entire board of directors or (ii) upon the written demand of holders of at least thirty-three and one-third percent (33 1/3%) of the issued and outstanding shares of any class of voting shares. (b) Promptly after the receipt of written shareholder demands (the "Demand Date") purporting to comply with the provisions of the Georgia Business Corporation Code, as amended from time to time (the "Code"), and these bylaws, the corporation shall engage independent inspectors for the purpose of 2 determining the validity of the demand(s) and any revocations thereof. Within 15 days of the Demand Date, such independent inspectors shall deliver to the corporation a written report stating whether the demand comports with the requirements of the Code and these bylaws. If such written report states that the demand is adequate, or if no report is delivered by the independent inspectors within 15 days from the Demand Date, the President or the Secretary of the corporation shall call a special shareholders meeting by mailing notice within 15 days after receipt of the report by said independent inspectors or after the expiration of the reporting period. (c) The time, date and place of any special shareholders meeting shall be determined by the board of directors and shall be set forth in the notice of meeting. SECTION 3. NOTICE OF MEETINGS. Unless otherwise required by law or specified in the articles of incorporation or these bylaws, written notice of every meeting of shareholders, stating the place, date and hour of the meeting, shall be given, in a manner permitted by applicable law, to each shareholder of record entitled to vote at such meeting not less than 10 nor more than 60 days prior to the date of the meeting. Notice of a special meeting shall include a description of the purpose for which such meeting is called. The form of notice of a meeting shall be as presented by counsel for the corporation and approved by the Chairman. Notice may be waived as provided by law. SECTION 4. QUORUM. The holders of a majority of the shares outstanding and entitled to vote thereat (not a majority of each class of voting shares), present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the shareholders (except as otherwise provided by law, the articles of incorporation or these bylaws). If a quorum is not present at any meeting of the shareholders, the holders of a majority of the shares present (in person or represented by proxy) and entitled to vote thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. SECTION 5. VOTING. Unless otherwise provided by law, the articles of incorporation, or board resolutions setting forth the preferences and other rights, restrictions or limitations of any class or series of preferred stock, each outstanding share, regardless of class, shall be entitled to one vote on each matter voted on at a shareholders meeting. Unless the articles of - 2 - 3 incorporation, these bylaws, a resolution of the board of directors or applicable law require a different vote, action on a matter presented for consideration at a meeting where a quorum is present, shall be approved as follows: (a) directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present; and (b) all other matters shall be approved if the votes cast within the applicable voting group (as defined by applicable law) favoring the action exceed the votes cast opposing the action. A shareholder may vote his shares in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for him by signing an appointment form. An appointment of a proxy is valid for eleven months unless a shorter or longer period is expressly provided in the appointment form. SECTION 6. SHAREHOLDER PROPOSALS. (a) No shareholder proposal or resolution (each a "Shareholder Proposal"), whether purporting to be binding or non-binding on the corporation or its board of directors, shall be considered at any annual or special meeting of the shareholders unless: (i) If such Shareholder Proposal relates solely to the nomination and election of directors, it satisfies the requirements of Article III, Section 3 hereof; or (ii) With respect to any Shareholder Proposal to be considered at a special shareholders meeting called pursuant to Article II, Section 2, subsection (a)(i), the shareholder(s) proposing to make such Shareholder Proposal provided the information set forth in subsection (b) of this Section 6 to the board of directors within 14 days after the date of the notice calling such special shareholders meeting (or if less than 21 days notice of the meeting is given to shareholders, such information was delivered to the President not later than the close of the seventh day following the date on which the notice of the shareholders' meeting was mailed); or (iii) With respect to any Shareholder Proposal to be considered at a special shareholders meeting called pursuant to Article II, Section 2, subsection (a)(ii) hereof, the shareholder(s) proposing to make such - 3 - 4 Shareholder Proposal provided the information set forth in subsection (b) of this Section 6 to the board of directors concurrently with the filing of the initial demand by shareholders relating to such special shareholders meeting; or (iv) With respect to any Shareholder Proposal to be considered at any regular meeting of shareholders, other than as described in clause (i) hereof, the shareholder(s) proposing to make such Shareholder Proposal provided the information set forth in subsection (b) of this Section 6 to the board of directors between 90 to 120 days prior to the regular meeting at which they wish the Shareholder Proposal to be considered. For the purposes of determining whether information was provided at the times or within the specified periods, the date of the applicable meeting shall be as set forth in the notice of meeting given by the corporation, and such times and periods will be determined without regard to any postponements, deferrals or adjournments of such meeting to a later date. (b) The following information must be provided to the board of directors, within or at the times specified above, in order for the Shareholder Proposal to be considered at the applicable shareholders meeting. (i) The Shareholder Proposal, as it will be proposed, in full text and in writing; (ii) The purpose(s) for which the Shareholder Proposal is desired and the specific meeting at which such proposal is proposed to be considered; (iii) The name(s), address(es), and number of shares held of record by the shareholder(s) making such Shareholder Proposal (or owned beneficially and represented by a nominee certificate on file with the corporation; (iv) The number of shares that have been solicited with regard to the Shareholder Proposal and the number of shares the holders of which have agreed (in writing or otherwise) to vote in any specific fashion on said Shareholder Proposal; and - 4 - 5 (v) A written statement by said shareholder(s) that they intend to continue ownership of such voting shares through the date of the meeting at which said Shareholder Proposal is proposed to be considered. (c) Failure to fully comply with the provisions of this Section 6 shall bar discussion of and voting on the Shareholder Proposal at the applicable regular or special shareholders meeting. Any Shareholder Proposal that does not comply with the requirements of this Section 6 shall be disregarded by the chairman of the meeting, and any votes cast in support of the Shareholder Proposal, unless the Shareholder Proposal has been validly submitted by another shareholder, shall be disregarded by the chairman of such meeting. (d) The provisions in this Section 6 shall be read in accordance with and so as not to conflict with the rules and regulations promulgated by the Securities and Exchange Commission and any stock exchange or quotation system upon which the corporation's shares are traded. Nothing in these bylaws shall be deemed to require the consideration at any meeting of shareholders of any Shareholder Proposal that, pursuant to law, the corporation may refuse to permit consideration thereof. SECTION 7. LIST OF SHAREHOLDERS; INSPECTION OF RECORDS. (a) The corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving their names and addresses and the number, class and series, if any, of the shares held by each. (b) Shareholders are entitled to inspect the corporate records as and to the extent provided by the Code. ARTICLE III DIRECTORS SECTION 1. POWERS. Except as otherwise provided by any legal agreement among shareholders, the property, affairs and business of the corporation shall be managed and directed by its board of directors, which may exercise all powers of the corporation and do all lawful acts and things which are not (by law, by any legal agreement among shareholders, by the articles of incorporation or by these bylaws) directed or required to be exercised or done by the shareholders. - 5 - 6 SECTION 2. NUMBER, ELECTION AND TERM. The number of directors which shall constitute the whole board shall be not less than five nor more than ten, the number thereof to be determined from time to time by resolution of the board of directors. Except as hereinafter provided with respect to filling vacancies on the board, the directors shall be elected by the shareholders at an annual meeting or at a special meeting called for that purpose (in the event of a failure to elect them at an annual meeting) as provided in Article II hereof, and each director elected shall hold office until his successor is elected and qualified or until his earlier resignation, removal from office, or death. Directors shall be natural persons who have attained the age of 21 years, but need not be residents of the State of Georgia or shareholders of the corporation. SECTION 3. NOMINATIONS. (a) If any shareholder intends to nominate or cause to be nominated any candidate for election to the board of directors (other than any candidate to be sponsored by and proposed at the instance of the management), such shareholder shall notify the President by first class registered mail sent not less than 14 nor more than 50 days before the scheduled meeting of the shareholders at which directors will be elected. However, if less than 21 days notice of the meeting is given to shareholders, such nomination shall be delivered or mailed to the President not later than the close of the seventh day following the date on which the notice of the shareholders' meeting was mailed. Such notification shall contain the following information with respect to each nominee, to the extent known to the shareholder giving such notification: (1) Name, address and principal present occupation; (2) To the knowledge of the shareholder who proposed to make such nomination, the total number of shares that may be voted for such proposed nominee; (3) The names and address of the shareholders who propose to make such nomination, and the number of shares of the corporation owned by each of such shareholders; and (4) The following additional information with respect to each nominee: age, past employment, education, beneficial ownership of shares in the corporation, past and present financial standing, criminal history (including any convictions, indictments or settlements thereof), involvement in any past or pending litigation or administrative proceedings - 6 - 7 (including threatened involvement), relationship to and agreements (whether or not in writing) with the shareholder(s) (and their relatives, subsidiaries and affiliates) intending to make such nomination, past and present relationships or dealings with the corporation or any of its subsidiaries, affiliates, directors, officers or agents, plans or ideas for managing the affairs of the corporation (including, without limitation, any termination of employees, any sales of corporate assets, any proposed merger, business combination or recapitalization involving the corporation, and any proposed dissolution or liquidation of the corporation), and all additional information relating to such person that would be required to be disclosed, or otherwise required, pursuant to Sections 13 or 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act"), in connection with any acquisition of shares by such nominee or in connection with the solicitation of proxies by such nominee for his election as a director, regardless of the applicability of such provisions of the Exchange Act. (b) Any nominations not in accordance with the provisions of this Section 3 may be disregarded by the chairman of the meeting, and upon instructions by the chairman, votes cast for each such nominee shall be disregarded. In the event, however, that a person should be nominated by more than one shareholder, and if one such nomination complies with the provisions of this Section 3, such nomination shall be honored, and all shares voted for such nominee shall be counted. SECTION 4. VACANCIES. Vacancies, including vacancies resulting from any increase in the number of directors, but not including vacancies resulting from removal from office by the shareholders (except as provided in Section 9 of this Article), may be filled by the board of directors or by a majority of the directors then in office (if the directors remaining in office constitute less than a quorum), and a director so chosen shall hold office until the next annual election and until his successor is duly elected and qualified, unless sooner displaced. If there are no directors in office, then vacancies shall be filled through election by the shareholders. SECTION 5. MEETINGS AND NOTICE. The board of directors of the corporation may hold meetings, both regular and special, - 7 - 8 either within or without the State of Georgia. Regular meetings of the board of directors may be held at such time and place as shall from time to time be determined by the Chairman or any three directors upon two day's notice given in a manner permitted by law. Special meetings of the board may be called by the Chairman or by any three directors upon two day's notice given in a manner permitted by law. Such notice shall state a reasonable time, date and place of meeting, but the purpose need not be stated therein. Such notice may be waived as provided by law. Unless otherwise provided by law, the articles of incorporation of these bylaws, directors may participate in a meeting of the board, or any committee thereof, by means of conference telephone or similar communications equipment whereby all persons participating in the meeting can hear each other. Participation in the meeting shall constitute presence in person. The board of directors shall hold an annual meeting for the election of officers of the corporation as soon as practicable after the annual meeting of the shareholders shall have been held. Such meeting may be held at the registered office of the corporation or at such other place as may be designated in the notice. SECTION 6. QUORUM. At all meetings of the board, a majority of directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board, except as may be otherwise specifically provided by law, by the articles of incorporation, by these bylaws or by contract. If a quorum shall not be present at any meeting of the board, 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. SECTION 7. CONSENT OF DIRECTORS. Unless otherwise restricted by the articles of incorporation or these bylaws, 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 the action is evidenced by one or more written consents describing the action taken and signed by each director or committee member, and the writing or writings are delivered to the corporation for inclusion in the minutes for filing with the corporate records. Such consent shall have the same force and effect as a unanimous vote of the board or committee, as the case may be. SECTION 8. COMMITTEES. The board of directors may by resolution create one or more committees and appoint one or more members of the board of directors to serve on them. The board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of - 8 - 9 such committee. Any such committee, to the extent provided in the resolution, shall have and may exercise all of the authority of the board of directors in the management of the business and affairs of the corporation, subject to limitations imposed by law or the articles of incorporation. 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. A majority of each committee may determine its action and may fix the time and places of its meetings, unless otherwise provided by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. SECTION 9. REMOVAL OF DIRECTORS. No member of the board of directors of the corporation may be removed, except for cause, unless the removal is voted upon at a duly held meeting of the shareholders called for such purpose at which holders of at least seventy-five percent (75%) of the shares entitled to vote at an election of directors vote for any such removal of a director or directors. SECTION 10. COMPENSATION OF DIRECTORS. Directors shall be entitled to such compensation for their services as directors or members of any committee of the board as shall be fixed from time to time by resolution adopted by the board, and shall also be entitled to reimbursement for any reasonable expenses incurred in attending any meeting of the board or any such committee. ARTICLE IV OFFICERS SECTION 1. NUMBER. The officers of the corporation shall be chosen by the board of directors and shall be a Chairman, a President (each of whom shall be chosen from among the members of the board of directors), one or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers. Two or more offices may be held by the same person, but an officer shall not execute, acknowledge or verify an instrument in more than one capacity if the instrument is required by law, the articles of incorporation or these bylaws to be executed, acknowledged or verified by two or more officers. The board of directors shall, from time to time, designate one of the officers of the corporation as the Chief Executive Officer of the corporation. The board of directors may further, from time to time, but shall not be obligated to, designate one of the officers of the corporation as the Chief Operating Officer of the corporation and may, from time to time, but shall not be obligated to, designate one of the officers of the corporation as - 9 - 10 the Chief Financial Officer. The board of directors may appoint such other officers and agents as it shall deem necessary. SECTION 2. COMPENSATION. The salaries of all officers and agents of the corporation shall be fixed by the board of directors or a committee or officer appointed by the board. SECTION 3. TERM OF OFFICE. Unless otherwise provided by resolution of the board of directors, the principal officers shall be chosen annually by the board of directors at the first meeting of the board following the regular meeting of shareholders of the corporation, or as soon thereafter as is conveniently possible. Subordinate officers may be elected from time to time, and the Chairman may appoint Assistant Secretaries and Assistant Treasurers for terms of less than one year. Each officer shall serve until his successor shall have been chosen and qualified, or until his death, resignation or removal. SECTION 4. REMOVAL. Any officer may be removed from office at any time, with or without cause, by the board of directors whenever in its judgment the best interests of the corporation will be served thereby. SECTION 5. VACANCIES. Any vacancy in an office, existing for any reason, may be filled by the board of directors. SECTION 6. POWERS AND DUTIES. Except as otherwise provided by law, the articles of incorporation or these bylaws, or as hereinafter provided, the officers of the corporation shall each have such powers and duties as from time to time may be conferred by the board of directors. (a) Chairman. The Chairman shall preside as chairman at all meetings of the board of directors and of the shareholders, and shall have such other authority and duties as the board of directors or these bylaws shall provide. (b) President. The President shall perform such duties as may be prescribed by the board of directors. In the event of the absence or inability of the Chairman to act, the President shall have the powers and duties of the Chairman. (c) Vice President. It shall be the duty of each Vice President to do and perform all of the duties required by him by the board of directors. In the event of the absence or inability of the President to act or a vacancy in the office, the duties of the President shall devolve upon the respective Vice Presidents in the order designated by the board of directors. - 10 - 11 (d) Secretary. It shall be the duty of the Secretary to keep a correct record of all of the proceedings of the meetings of the stockholders and of the board of directors; to give, or cause to be given, notice of all meetings of the shareholders; to keep, or cause to be kept, books for the record and transfer of stock, to issue certificates of stock when duly authorized to do so, and to attest the same, together with all other instruments of the corporation requiring attention; to have charge of the corporate seal of the corporation and to affix the same to instruments as he may be directed and authorized; and in general to perform such other duties as pertain to the office of secretary of a corporation, and all duties imposed upon him by these bylaws, as well as those required of him by the board of directors. (e) Assistant Secretary. The Assistant Secretary shall have such powers and perform such duties as shall from time to time be assigned to him by the board of directors and/or the Chairman. In the absence of the Secretary or in the case of his inability to act, the Assistant Secretary shall possess the powers and perform the duties of the Secretary, subject to control by the board of directors. (f) Treasurer. It shall be the duty of the Treasurer to have the care and custody of all the funds and securities of the corporation which may come into his hands; to endorse checks, drafts and other instruments for the payment of money for deposit or collection when necessary or proper; to deposit the same to the credit of the corporation in such bank or banks or depository or depositories as the board of directors may designate. The Treasurer may endorse all commercial documents requiring endorsement for or on behalf of the corporation; he may sign all receipts and vouchers for payments made to the corporation; he shall render a statement of his cash account to the board of directors as often as they shall require the same; he shall keep or cause to be kept, in books regularly kept for that purpose, full and adequate account of all monies received and paid by him on account of the corporation; and shall keep or cause to be kept, accurate and true accounts of all the corporation's business transactions; he shall at all reasonable times exhibit his books and accounts to any director of the corporation, upon application, at the office of the corporation during regular business hours; and he shall perform all acts incident to the position of Treasurer, subject to the control of the board of directors. In the event of the absence or inability of the Vice President(s) or a vacancy in the office, the duties of the Vice President shall devolve upon the Treasurer and, in the event of the absence or inability of the Treasurer or a vacancy in that office, upon the Secretary. - 11 - 12 (g) Assistant Treasurer. The Assistant Treasurer shall have such power and shall perform such duties as shall be assigned to him from time to time by the Treasurer or the board of directors or the Chairman. In the absence of the Treasurer or in the case of his inability to act, the Assistant Treasurer shall possess the powers and perform the duties of the Treasurer, subject to the control of the board of directors. (h) Bonds and Sureties. If required by the board of directors, any officer or employee shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. (i) Signatures. The signature of any officer, employee or agent upon any document of the corporation may be made by facsimile or machine signature under such limitations and circumstances as the board of directors or any appropriate committee of the board of directors may provide from time to time. SECTION 7. VOTING SECURITIES OF CORPORATION. Unless otherwise provided by the board of directors, the Chairman, and in his absence, the President, shall have full power and authority on behalf of the corporation to attend and to act and vote at any meetings of security holders of corporations in which the corporation may hold securities, and at such meetings shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the corporation might have possessed and exercised if it had been present. The board of directors by resolution from time to time may confer like powers upon any other person or persons. ARTICLE V INDEMNIFICATION SECTION 1. RIGHT OF INDEMNIFICATION. The corporation shall indemnify each of its current and former officers, directors, employees and agents (and the heirs and legal representatives of such officers and directors) to the maximum extent permitted by applicable law. - 12 - 13 SECTION 2. ADVANCE OF EXPENSES. The corporation shall advance expenses incurred by a current or former officer or director with respect to any proceeding for which indemnification is available if such officer or director complies with the provisions of applicable law. SECTION 3. RIGHTS OF INDEMNIFICATION CUMULATIVE. The rights of indemnification provided in this Article V shall be in addition to any rights to which any director or officer or other person may otherwise be entitled under any bylaw, agreement, vote of shareholders, or otherwise, and shall be in addition to the power of the corporation to purchase and maintain insurance with respect to any director, officer or other person. ARTICLE VI CERTIFICATES OF STOCK SECTION 1. FORM OF CERTIFICATE. Every holder of record of fully-paid shares in the corporation shall be entitled to have a certificate in such form as the board of directors may from time to time prescribe signed by the Chairman, President or any Vice President and the Treasurer or any Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation, sealed with the corporate seal of the corporation. Where any such certificate is signed (i) by a transfer agent or an assistant transfer agent or (ii) by a transfer clerk acting for the corporation and a registrar, the signature of the Chairman, President, or any Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary and the seal of the corporation upon such certificate may be a facsimile engraved or printed thereon. In case any such officer who has signed or whose facsimile signature has been used on any such certificate shall have ceased to be such officer before such certificate is delivered by the corporation, such certificate may nevertheless be issued and delivered with the same effect as if such officer had not ceased to be such officer. The name of the person to whom any certificate is issued, with the number of shares represented thereby, and the date of issue of the certificate shall be entered into a book or books to be kept for that purpose. SECTION 2. LOST CERTIFICATES. The corporation may issue a new certificate in place of any certificate theretofore issued by the corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit, in form and substance satisfactory to the corporation, of that fact by the person claiming the certificate to be lost, stolen or destroyed. The corporation may, in its discretion and as a condition precedent - 13 - 14 to the issuance thereof, together with such other conditions precedent that it may reasonably require, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 3. TRANSFERS. (a) Transfers of capital shares of the corporation shall be made only on the books of the corporation by the registered holder thereof, or by his duly authorized attorney, or with a transfer clerk or transfer agent appointed as provided in Section 5 of this Article, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. (b) Except as otherwise provided by law or as provided elsewhere herein, 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 for all other purposes, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof. (c) Capital shares may be transferred by delivery of the certificates thereof, accompanied either by an assignment in writing on the back of the certificates or by separate written power of attorney to sell, assign and transfer the same, signed by the record holder thereof, or by his duly authorized attorney-in-fact, and accompanied by such evidence that all such signatures are genuine, as the corporation, at its option, may request, but no transfer shall affect the right of the corporation to pay any dividend upon the stock to the holder of record as the holder in fact thereof for all purposes, and no transfer shall be valid, except between the parties thereto, until such transfer shall have been made upon the books of the corporation as herein provided. (d) The board may, from time to time, make such additional rules and regulations as it may deem expedient, not inconsistent with these bylaws or the articles of incorporation concerning the issue, transfer and registration of certificates for shares of the corporation, and nothing contained herein shall limit or waive any rights of the corporation with respect to such matters under applicable law or any subscriptions or other agreement by which the corporation is bound. - 14 - 15 SECTION 4. RECORD DATE. the stock transfer books shall not be closed at any time for any purpose unless otherwise required by law, but in order that the corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express any consent or demand with respect to any corporate action, 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 shares or for the purpose of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of shares 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 days and, in case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action requiring such determination of shareholders is to be taken. SECTION 5. TRANSFER AGENT AND REGISTRAR. The board of directors may appoint one or more transfer agents or one or more transfer clerks and one or more registrars, and may require all certificates of shares to bear the signature or signatures of any of them. ARTICLE VII CONVEYANCE OF REAL ESTATE All transfers and conveyances of real estate shall be made by the corporation, under seal, in accordance with the orders of the board of directors, and shall be signed by the Chairman, President, any Vice President or Treasurer and attested by the Secretary. ARTICLE VIII MINUTE BOOK The articles of incorporation and all amendments thereto, the proceedings of all regular and special meetings of stockholders and directors, the bylaws and all amendments thereto, and reports of any committees of directors shall be recorded in the corporation's minute book. The minutes of each meeting shall be signed by the Secretary and attested by the Chairman or President depending upon who presides. ARTICLE IX CONTRACTS - 15 - 16 All contracts for the purchase of supplies or property or the sale of products or property of the corporation in the regular course of business, shall be executed on behalf of the corporation by the Chairman, President, any Vice President or Treasurer. All other contracts, bills of sale, mortgages, guaranties, deeds, assignments, leases and all evidences of debt other than checks, bills of exchange, trade acceptances and drafts, shall be signed by the Chairman, President, any Vice President or Treasurer and the Secretary or Assistant Secretary, except as otherwise provided by resolution of the board of directors of the corporation. No check or other instrument for the payment of money to the corporation shall be endorsed otherwise than for deposit to the credit of the corporation. All checks of the corporation shall be drawn to order. Each bank account of the corporation shall be established or continued by resolution of the board of directors, a certified copy of which shall be filed with the bank, and shall provide that the funds on deposit therein shall be withdrawn only upon checks signed by any of the officers of the corporation specified in such resolution. ARTICLE X GENERAL PROVISIONS SECTION 1. DISTRIBUTION. Distributions upon shares of the corporation, subject to the provisions, if any, of the articles of incorporation, or any lawful agreement among shareholders, may be declared by the board of directors at any regular or special meeting, pursuant to law. Distributions may be paid in cash or in property, subject to applicable provisions of the articles of incorporation. Before payment of any distribution, there may be set aside out of any funds of the corporation available for distribution such sum or sums as the board from time to time, in its sole and absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing distributions, or for repairing or maintaining any property of the corporation, or for such other purpose as the board shall deem conducive to the interest of the corporation, and the board may modify or abolish any such reserve in its sole and absolute discretion. SECTION 2. FISCAL YEAR. The fiscal year of the corporation shall end on December 31 of each year. SECTION 3. SEAL. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization - 16 - 17 and the words "Corporate Seal" and "Georgia." The seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced. SECTION 4. SAVINGS CLAUSE. To the extent these bylaws conflict with any provision of any state or federal law as such laws may be amended from time to time, these bylaws shall be construed so as not to conflict with said law, and any discretionary actions made hereunder shall be made in accordance with applicable law. ARTICLE XI AMENDMENTS The board of directors shall have power to alter, amend or repeal these bylaws or adopt new bylaws, including the fixing of directors as permitted by law, at any meeting of the directors by a vote of the majority of the members thereof, provided that notice of the proposed amendment or repeal shall have been given in the notice or waiver of notice of such meeting of the board and provided further that the maximum and minimum number of directors specified in Article III, Section 2 of these bylaws may be amended only upon the vote of not less than eighty percent (80%) of the members thereof. - 17 - EX-10.1 4 EX-10.1 1 EXHIBIT 10.1 ================================================================================ U.S. $50,000,000 CREDIT AGREEMENT by and among MORTON INDUSTRIAL GROUP, INC. and CERTAIN OF ITS SUBSIDIARIES and HARRIS TRUST AND SAVINGS BANK individually and as Agent and the Lenders which are or become parties hereto 2 Dated as of January __, 1998 ================================================================================ -ii- 3 TABLE OF CONTENTS SECTION HEADING PAGE SECTION 1. THE CREDITS...............................................1 Section 1.1. Revolving Credit........................................1 (a) Generally...............................................1 (b) Revolving Loans.........................................1 (c) Mandatory Conversion of Revolving Loans.................2 (d) Voluntary Conversion of Revolving Loans.................3 (e) Conversions Generally...................................3 Section 1.2. Term Credit.............................................3 Section 1.3. Letters of Credit.......................................4 (a) General Terms...........................................4 (b) Applications............................................4 (c) The Reimbursement Obligation............................5 (d) The Participating Interests.............................5 (e) Indemnification.........................................6 (f) Change in Laws..........................................7 Section 1.4. Manner and Disbursement of Borrowings...................7 (a) Generally...............................................7 (b) Reimbursement Obligation................................8 (c) Agent Reliance on Bank Funding..........................8 Section 1.5. Manner of Obtaining Letters of Credit...................8 Section 1.6. Appointment of Morton as Agent for Borrowers; Reliance by Agent................................................9 (a) Appointment.............................................9 (b) Reliance................................................9 SECTION 2. INTEREST AND CHANGE IN CIRCUMSTANCES......................9 Section 2.1. Interest Rate Options...................................9 Section 2.2. Minimum Amounts........................................10 Section 2.3. Computation of Interest................................10 Section 2.4. Manner of Rate Selection...............................11 Section 2.5. Change of Law..........................................11 Section 2.6. Unavailability of Deposits or Inability to Ascertain Adjusted LIBOR.........................................11 Section 2.7. Taxes and Increased Costs..............................12 -i- 4 Section 2.8. Change in Capital Adequacy Requirements................13 Section 2.9. Funding Indemnity......................................13 Section 2.10. Lending Branch.........................................14 Section 2.11. Lender's Duty to Mitigate..............................14 Section 2.12. Discretion of Lenders as to Manner of Funding..........15 Section 2.13. Replacement of Lender..................................15 SECTION 3. FEES, PREPAYMENTS, TERMINATIONS, APPLICATIONS AND NOTATIONS................................................16 Section 3.1. Fees...................................................16 Section 3.2. Voluntary Prepayments..................................17 Section 3.3. Mandatory Prepayments..................................17 Section 3.4. Terminations of Revolving Credit Commitments...........19 Section 3.5. Place and Application of Payments......................20 Section 3.6. Notations and Requests.................................21 SECTION 4. COLLATERAL.............................................21 Section 4.1. Collateral.............................................21 Section 4.2. Guaranties.............................................22 Section 4.3. Further Assurances.....................................22 SECTION 5. DEFINITIONS............................................22 Section 5.1. Definitions............................................22 Section 5.2. Interpretation.........................................35 Section 5.3. Change in Accounting Principles........................35 SECTION 6. REPRESENTATIONS AND WARRANTIES.........................35 Section 6.1. Organization and Qualification.........................35 Section 6.2. Non-Borrowing Subsidiaries.............................36 Section 6.3. Margin Stock...........................................37 Section 6.4. Financial Reports......................................37 Section 6.5. Full Disclosure........................................37 Section 6.6. Good Title.............................................37 Section 6.7. Litigation and Other Controversies.....................38 Section 6.8. Taxes..................................................38 Section 6.9. Approvals..............................................38 Section 6.10. Affiliate Transactions.................................38 -ii- 5 Section 6.11. Investment Company.....................................38 Section 6.12. ERISA..................................................38 Section 6.13. Compliance with Laws...................................39 Section 6.14. Other Agreements.......................................39 Section 6.15. Merger Documents.......................................39 SECTION 7. CONDITIONS PRECEDENT.....................................39 Section 7.1. All Advances...........................................39 Section 7.2. Initial Advance........................................40 SECTION 8. COVENANTS................................................42 Section 8.1. Maintenance of Business................................42 Section 8.2. Maintenance of Property................................42 Section 8.3. Taxes and Assessments..................................42 Section 8.4. Insurance..............................................43 Section 8.5. Financial Reports......................................43 Section 8.6. Interest Coverage Ratio................................45 Section 8.7. Leverage Ratio.........................................45 Section 8.8. Net Worth..............................................45 Section 8.9. Fixed Charge Coverage Ratio............................45 Section 8.10. Capital Expenditures...................................45 Section 8.11. Indebtedness...........................................45 Section 8.12. Liens..................................................46 Section 8.13. Investments, Loans, Advances and Guaranties............47 Section 8.14. Leases. (a) Sales and Leasebacks......................48 Section 8.15. Dividends and Certain Other Restricted Payments........48 Section 8.16. Mergers, Consolidations and Sales......................48 Section 8.17. Acquisitions...........................................49 Section 8.18. Maintenance of Subsidiaries............................50 Section 8.19. Formation of Subsidiaries..............................51 Section 8.20. ERISA..................................................51 Section 8.21. Compliance with Laws...................................51 Section 8.22. Burdensome Contracts With Affiliates...................51 Section 8.23. Changes in Fiscal Year.................................51 Section 8.24. Change in the Nature of Business.......................52 Section 8.25. Use of Loan Proceeds...................................52 SECTION 9. EVENTS OF DEFAULT AND REMEDIES...........................52 -iii- 6 SECTION 10. THE AGENT................................................55 Section 10.1. Appointment and Authorization..........................55 Section 10.2. Rights as a Lender.....................................55 Section 10.3. Standard of Care.......................................55 Section 10.4. Costs and Expenses.....................................56 Section 10.5. Indemnity..............................................56 SECTION 11. JOINT AND SEVERAL LIABILITY AND GUARANTIES...............57 Section 11.1. Joint and Several Liability and Guaranties.............57 Section 11.2. Guaranty Unconditional.................................57 Section 11.3. Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances...............................58 Section 11.4. Waivers................................................58 Section 11.5. Limit on Recovery......................................59 Section 11.6. Stay of Acceleration...................................59 Section 11.7. Benefit to Guarantors..................................59 Section 11.8. Guarantor Covenants....................................59 SECTION 12. MISCELLANEOUS............................................59 Section 12.1. Holidays...............................................59 Section 12.2. No Waiver, Cumulative Remedies.........................59 Section 12.3. Waivers, Modifications and Amendments..................60 Section 12.4. Costs and Expenses.....................................60 Section 12.5. Documentary Taxes......................................61 Section 12.6. Survival of Representations............................61 Section 12.7. Survival of Indemnities................................61 Section 12.8. Notices................................................61 Section 12.9. Headings...............................................61 Section 12.10. Severability of Provisions.............................61 Section 12.11. Counterparts...........................................62 Section 12.12. Binding Nature, Governing Law, Etc.....................62 Section 12.13. Entire Understanding...................................62 Section 12.14. Participations.........................................62 Section 12.15. Assignment Agreements..................................62 Section 12.16. Confidentiality........................................63 Signature....................................................................65 -iv- 7 Exhibit A -- Revolving Credit Note Exhibit B -- Term Credit Note Exhibit C -- Mandatory Conversion Term Note Exhibit D -- Voluntary Conversion Term Note Exhibit E -- Compliance Certificate Attachment to Compliance Certificate Exhibit F -- Notice of Payment Request Exhibit G -- Guaranty Exhibit H -- Opinion of Counsel Schedule 6.2 -- Subsidiaries -v- 8 MORTON INDUSTRIAL GROUP, INC. CREDIT AGREEMENT To Each of the Lenders Signatory Hereto Ladies and Gentlemen: The undersigned, Morton Metalcraft Co., an Illinois corporation ("Morton"), and Morton Metalcraft Co. of North Carolina, a North Carolina corporation ("Morton North Carolina") (Morton and Morton North Carolina being hereinafter referred to collectively as the "Borrowers" and individually as a "Borrower") apply to you for your several commitments, subject to all of the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth, to make a revolving credit (the "Revolving Credit") and a term credit (the "Term Credit") in each case available to the Borrowers, all as more fully hereinafter set forth. The undersigned, Morton Industrial Group, Inc., a Georgia corporation (the "Parent"), executes and delivers this Agreement to confirm certain of its agreements made in connection with the extension of such credit to the Borrowers. SECTION 1. THE CREDITS. Section 1.1. Revolving Credit. (a) Generally. Subject to the terms and conditions hereof, each Lender severally agrees to extend credit to the Borrowers on a revolving basis under the Revolving Credit which may be availed of by each and any Borrower from time to time, and borrowings thereunder may be repaid and used again, during the period from the date hereof to and including the Termination Date, at which time the commitments of the Lenders to extend credit under the Revolving Credit shall expire. The maximum amount of the Revolving Credit which each Lender agrees to extend to the Borrowers, taken together, shall not exceed its Revolving Credit Commitment. The Revolving Credit may be utilized by each and any Borrower in the form of Revolving Loans and Letters of Credit, all as more fully hereinafter set forth; provided, however, that the aggregate amount of Revolving Loans and L/C Obligations outstanding at any one time from all the Borrowers, taken together, shall not exceed the Revolving Credit Commitments then in effect. For all purposes of this Agreement, where a determination of the unused or available amount of the Revolving Credit Commitments is necessary, the Revolving Loans and L/C Obligations shall be deemed to utilize the Revolving Credit Commitments then in effect. The obligations of the Lenders hereunder are several and not joint, and no Lender shall under any circumstances be 9 obligated to extend credit under the Revolving Credit in excess of its Revolving Credit Commitment. (b) Revolving Loans. Subject to the terms and conditions hereof, the Revolving Credit may be availed of by each and any Borrower in the form of loans (individually a "Revolving Loan" and collectively the "Revolving Loans"). Each Revolving Loan by the Lenders shall be in a minimum amount of $100,000 or such greater amount which is an integral multiple of $100,000, except to the extent Section 2 provides otherwise in the case of LIBOR Portions. Each Revolving Loan shall be made pro rata by the Lenders in accordance with the amounts of their respective Percentages. Each advance made by a Lender of its pro rata share of each Revolving Loan shall be evidenced by the same Revolving Credit Note of the Borrowers (individually, for each Lender, its "Revolving Credit Note" and collectively, for all the Lenders, their "Revolving Credit Notes"), jointly and severally, payable to the order of such Lender in the amount of its Revolving Credit Commitment, with each Revolving Credit Note to be in the form (with appropriate insertions) attached hereto as Exhibit A. Each Revolving Credit Note shall be dated the date of issuance thereof, be expressed to bear interest as provided in Section 2 hereof and be expressed to mature on the Termination Date. Without regard to the principal amount of each Revolving Credit Note stated on its face, the actual principal amount at any time outstanding and owing by the Borrowers on account thereof shall be the sum of all advances then or theretofore made thereon less all payments of principal actually received. (c) Mandatory Conversion of Revolving Loans. If the aggregate unpaid principal balance of Revolving Loans shall exceed $15,000,000 for at least three (3) consecutive days during any fiscal quarter prior to the Termination Date, then $10,000,000 of the Revolving Loans outstanding (or such lesser amount of the Revolving Loans as may then be outstanding) as of the close of the next succeeding fiscal quarter shall as of such day be automatically converted (such conversion to be made ratably among the Lenders in accordance with their Percentages) into a term loan (a "Mandatory Conversion Term Loan") such that each Lender shall be deemed to have made a pro rata share of such Mandatory Conversion Term Loan in the amount of such Lender's Percentage of the Revolving Loans so converted; provided, however, that (i) unless the Required Lenders otherwise agree in their discretion, no such conversion shall occur if any Default or Event of Default shall have occurred and be continuing and (ii) once $20,000,000 of Revolving Loans have been converted (whether as a result of voluntary or mandatory conversions), no further conversions of the Revolving Loans shall be required by this Section. Each Lender's pro rata share of each Mandatory Conversion Term Loan shall be made against and evidenced by a separate Term Loan Note of the Borrowers (individually a "Mandatory Conversion Term Note" and collectively the "Mandatory Conversion Term Notes"), jointly and severally, one such Note per Lender for each Mandatory Conversion Term Loan, payable to the order of such Lender in an amount equal to such Lender's Percentage of the Revolving Loans so -2- 10 converted, each Mandatory Conversion Term Note to be in the form (with appropriate insertions) attached hereto as Exhibit C. Each Mandatory Conversion Term Note shall be expressed to mature in consecutive quarterly installments equal (except for the last such installment) to 1/28th of the principal amount of the Mandatory Conversion Term Loan evidenced thereby, commencing on the first close of a calendar quarter following the date on which the relevant Revolving Loans were converted and continuing on the last day of each and every calendar quarter thereafter, but with the final payment of both principal and interest, if not sooner paid, due on the Termination Date. (d) Voluntary Conversion of Revolving Loans. Any time during the period from the date hereof to the Termination Date, upon five (5) Business Days' prior written notice to the Agent (which shall promptly so inform the Lenders), Morton (which is acting on behalf of the Borrowers pursuant to Section 1.6 hereof) may elect to convert all or any part (but if in part, then in an minimum amount of $5,000,000 or such greater amount which is an integral multiple of $1,000,000 and such conversion to be made ratably as among the Lenders in accordance with their Percentages) of the then outstanding Revolving Loans to a term loan (individually a "Voluntary Conversion Term Loan") (the Mandatory Conversion Term Loans and Voluntary Conversion Term Loans being hereinafter referred to collectively as "Conversion Term Loans" and individually as a "Conversion Term Loan") such that each Lender shall be deemed to have made a pro rata share of such Voluntary Conversion Term Loan in the amount of such Lender's Percentage of the amount of Revolving Loans so converted; provided, however, that (i) no such conversion shall be permitted if any Default or Event of Default shall have occurred and be continuing and (ii) no such conversion shall be permitted unless at least one Mandatory Conversion Term Loan shall have been made. Each Lender's share of a Voluntary Conversion Term Loan shall be made against and evidenced by a separate Term Loan Note of the Borrowers (individually a "Voluntary Conversion Term Note" and collectively the "Voluntary Conversion Term Notes") (the Mandatory Conversion Term Notes and the Voluntary Conversion Term Notes being hereinafter referred to collectively as the "Conversion Term Notes" and individually as a "Conversion Term Note"), jointly and severally, one such Note per Lender for each Voluntary Conversion Term Loan, payable to the order of such Lender in an amount equal to such Lender's Percentage of the Revolving Loans so converted, each Voluntary Conversion Term Note to be in the form (with appropriate insertions) attached hereto as Exhibit D. Each Voluntary Conversion Term Note shall be expressed to mature in consecutive quarterly installments equal (except for the last such installment) to 1/28th of the principal amount of the Voluntary Conversion Term Loan evidenced thereby, commencing on the first close of a calendar quarter to follow the date on which the relevant Revolving Loans were converted and continuing on the last day of each and every calendar quarter thereafter, but with the final payment of both principal and interest, if not sooner paid, due on the Termination Date. -3- 11 (e) Conversions Generally. The principal amount of each Conversion Term Loan shall concurrently and permanently reduce by like amount the Revolving Credit Commitments and hence the credit available under such Commitments, and no amount repaid or prepaid on any Conversion Term Loan may be borrowed again. The Lenders' respective shares of each Conversion Term Loan, and share of the related concurrent reduction by like amount of the Revolving Credit Commitments, shall be ratable in accordance with their respective Percentages. Section 1.2. Term Credit. Subject to all of the terms and conditions hereof, the Lenders severally agreed to make a term loan (the "Term Credit Loan") to the Borrowers under the Term Credit in an amount not to exceed their Term Credit Commitments. The Term Loan shall be disbursed in a single advance made, if at all, on or before January 31, 1998, at which time the commitments of the Lenders to make the Term Loan shall expire. Each Lender shall advance a pro rata share of the Term Loan in accordance with the amounts of their respective Percentages. Each Lender's pro rata share of the Term Loan shall be evidenced by a Term Loan Note of the Borrowers (individually a "Term Credit Note" and collectively the "Term Credit Notes") (the Conversion Term Notes and the Term Credit Notes being hereinafter referred to collectively as the "Term Notes" and individually as a "Term Note") payable to the order of such Lender in the amount of its pro rata share of the Term Loan, each Term Credit Note to be in the form (with appropriate insertions) attached hereto as Exhibit B. Each Term Credit Note shall be expressed to mature in twenty-four (24) installments commencing on March 31, 1998 and continuing on the last day of each calendar quarter occurring thereafter to and including September 30, 2003, with the final installment due on December 31, 2003, with the principal installments on the Term Credit Notes to aggregate $500,000 per installment through and including December 31, 1999, $625,000 per installment thereafter and through and including December 31, 2001, $750,000 per installment thereafter and through and including September 30, 2003 and with the final principal installment on all the Term Credit Notes to aggregate in an amount equal to all principal and interest not sooner paid, and with the amount of each installment due on the Term Credit Note held by each Lender to be equal to such Lender's Percentage of such installment. Section 1.3. Letters of Credit. (a) General Terms. Subject to the terms and conditions hereof, as part of the Revolving Credit, the Agent shall issue standby and commercial letters of credit (each a "Letter of Credit") for the account of each and any Borrower in U.S. Dollars in an aggregate undrawn face amount up to the amount of the L/C Commitment as then in effect; provided, however, that the aggregate L/C Obligations at any time outstanding shall not exceed the difference between the Revolving Credit Commitments in effect at such time and the aggregate principal amount of Revolving Loans then outstanding. Each Letter of Credit shall be issued by the Agent, but each -4- 12 Lender shall be obligated to reimburse the Agent for its Percentage of the amount of each drawing thereunder and, accordingly, the undrawn face amount of each Letter of Credit shall constitute usage of the Revolving Credit Commitment of each Lender pro rata in accordance with each Lender's Percentage. (b) Applications. At any time before the Termination Date, the Agent shall, at the request of Morton (which is acting on behalf of the Borrowers pursuant to Section 1.6 hereof), issue one or more Letters of Credit for the account of any one or more of the Borrowers, in a form satisfactory to the Agent, in an aggregate face amount as set forth above, upon the receipt of an application for the Letter of Credit in the form customarily prescribed by the Agent duly executed by each Borrower for whose account such Letter of Credit was issued (each an "Application"). Each Letter of Credit issued hereunder which is a standby letter of credit shall expire not later than the earlier of (i) twelve (12) months from the date of issuance and each renewal or (ii) the Termination Date. Each Letter of Credit issued hereunder which is a commercial letter of credit shall expire not later than the earlier of (i) one hundred eighty (180) days from the date of issuance and each renewal or (ii) the Termination Date. The current forms of the Agent's Applications for standby and commercial Letters of Credit attached hereto as Schedule 1.3 (Standby) and Schedule 1.3 (Commercial), respectively. The Agent shall provide at least one of the Borrowers and each Lender with copies of any new form of Application that may, from time to time, be adopted by the Agent. Notwithstanding anything contained in any Application to the contrary (i) the Borrowers shall be jointly and severally liable for all obligations in respect of each Letter of Credit, (ii) the Borrowers' obligation to pay fees in connection with each Letter of Credit shall be as exclusively set forth in Section 3.1(b) hereof, (iii) except during the continuance of an Event of Default, the Agent will not call for the funding by the Borrowers of any amount under a Letter of Credit, or any other form of collateral security for the Borrowers' obligations in connection with such Letter of Credit, before being presented with a drawing thereunder, and (iv) if the Agent is not timely reimbursed for the amount of any drawing under a Letter of Credit on the date such drawing is paid, the Borrowers' obligation to reimburse the Agent for the amount of such drawing shall bear interest (which the Borrowers hereby promise, jointly and severally, to pay) from and after the date such drawing is paid at a rate per annum equal to the sum of 2-1/4% plus the Domestic Rate from time to time in effect. The Agent will promptly notify the Lenders of each issuance by it of a Letter of Credit. If the Agent issues any Letters of Credit with expiration dates that are automatically extended unless the Agent gives notice that the expiration date will not so extend beyond its then scheduled expiration date, the Agent will give such notice of non-renewal before the time necessary to prevent such automatic extension if before such required notice date (i) the expiration date of such Letter of Credit if so extended would be after the Termination Date, (ii) the Revolving Credit Commitments have been terminated or (iii) an Event of Default exists and the Required Lenders have given the Agent instructions not to so permit the extension of the expiration date of such Letter of Credit. The -5- 13 Agent agrees to issue amendments to the Letter(s) of Credit increasing the amount, or extending the expiration date, thereof at the request of the Borrowers subject to the conditions of Section 7 and the other terms of this Section 1.3. Without limiting the generality of the foregoing, the Agent's obligation to issue, amend or extend the expiration date of a Letter of Credit is subject to the conditions of Section 7 and the other terms of this Section 1.3 and the Agent will not issue, amend or extend the expiration date of any Letter of Credit if any Lender notifies the Agent of any failure to satisfy or otherwise comply with such conditions and terms and directs the Agent not to take such action. (c) The Reimbursement Obligation. Subject to Section 1.3(b) hereof, the obligation of a Borrower to reimburse the Agent for all drawings under a Letter of Credit issued for such Borrower's account (a "Reimbursement Obligation") shall be governed by the Application related to such Letter of Credit, except that reimbursement of each drawing shall be made in immediately available funds at the Agent's principal office in Chicago, Illinois by no later than 12:30 p.m. (Chicago time) on the date when such drawing is paid or, if drawing was paid after 11:30 a.m. (Chicago time), by the end of such day. If the relevant Borrower does not make any such reimbursement payment on the date due and the Participating Lenders fund their participations therein in the manner set forth in Section 1.3(d) below, then all payments thereafter received by the Agent in discharge of any of the relevant Reimbursement Obligations shall be distributed in accordance with Section 1.3(d) below. (d) The Participating Interests. Each Lender (other than the Lender then acting as Agent in issuing Letters of Credit), by its acceptance hereof, severally agrees to purchase from the Agent, and the Agent hereby agrees to sell to each such Lender (a "Participating Lender"), an undivided percentage participating interest (a "Participating Interest"), to the extent of its Percentage, in each Letter of Credit issued by, and each Reimbursement Obligation owed to, the Agent. Upon any failure by a Borrower to pay any Reimbursement Obligation in respect of a Letter of Credit issued for such Borrower's account at the time required on the date the related drawing is paid, as set forth in Section 1.3(c) above, or if the Agent is required at any time to return to a Borrower or to a trustee, receiver, liquidator, custodian or other Person any portion of any payment of any Reimbursement Obligation, each Participating Lender shall, not later than the Business Day it receives a certificate in the form of Exhibit F hereto from the Agent to such effect, if such certificate is received before 1:00 p.m. (Chicago time), or not later than the following Business Day, if such certificate is received after such time, pay to the Agent an amount equal to its Percentage of such unpaid or recaptured Reimbursement Obligation together with interest on such amount accrued from the date the related payment was made by the Agent to the date of such payment by such Participating Lender at a rate per annum equal to (i) from the date the related payment was made by the Agent to the date two (2) Business Days after payment by such Participating Lender is due hereunder, the Federal Funds Rate for each such day and -6- 14 (ii) from the date two (2) Business Days after the date such payment is due from such Participating Lender to the date such payment is made by such Participating Lender, the Domestic Rate in effect for each such day. Each such Participating Lender shall thereafter be entitled to receive its Percentage of each payment received in respect of the relevant Reimbursement Obligation and of interest paid thereon, with the Agent retaining its Percentage as a Lender hereunder. The several obligations of the Participating Lenders to the Agent under this Section 1.3 shall be absolute, irrevocable and unconditional under any and all circumstances whatsoever (except, without limiting the Borrowers' joint and several obligations under each Application for a Letter of Credit issued for any Borrower's account, to the extent such Borrower is relieved from its obligation to reimburse the Agent for a drawing under a Letter of Credit because of the Agent's gross negligence or willful misconduct in determining that documents received under the Letter of Credit comply with the terms thereof) and shall not be subject to any set-off, counterclaim or defense to payment which any Participating Lender may have or have had against any one or more of the Borrowers, the Agent, any other Lender or any other Person whatsoever. Without limiting the generality of the foregoing, such obligations shall not be affected by any Default or Event of Default or by any reduction or termination of any Revolving Credit Commitment of any Lender, and each payment by a Participating Lender under this Section 1.3 shall be made without any offset, abatement, withholding or reduction whatsoever. The Agent shall be entitled to offset amounts received for the account of a Lender under this Agreement against unpaid amounts due from such Lender to the Agent hereunder (whether as fundings of participations, indemnities or otherwise), but shall not be entitled to offset against amounts owed to the Agent by any Lender arising outside this Agreement. (e) Indemnification. Each Participating Lender shall, to the extent of its respective Percentage, indemnify the Agent (to the extent not reimbursed by the Borrowers) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from the Agent's gross negligence or willful misconduct) that the Agent may suffer or incur in connection with any Letter of Credit. The obligations of the Participating Lenders under this Section 1.3(d) and all other parts of this Section 1.3 shall survive termination of this Agreement and of all other L/C Documents. (f) Change in Laws. If the Agent or any Lender shall determine in good faith that any change in any applicable law, regulation or guideline (including, without limitation, Regulation D of the Board of Governors of the Federal Reserve System) or any new law, regulation or guideline, or any interpretation of any of the foregoing by any governmental authority charged with the administration thereof or any central bank or other fiscal, monetary or other authority having jurisdiction over the Agent or such Lender (whether or not having the force of law), shall: -7- 15 (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against the Letters of Credit, or the Agent's or such Lender's or the liability of any Borrower with respect thereto; or (ii) impose on the Agent or such Lender any penalty with respect to the foregoing or any other condition regarding this Agreement, the Applications or the Letters of Credit; and the Agent or such Lender shall determine in good faith that the result of any of the foregoing is to increase the cost (whether by incurring a cost or adding to a cost) to the Agent or such Lender of issuing, maintaining or participating in the Letters of Credit hereunder (without benefit of, or credit for, any prorations, exemptions, credits or other offsets available under any such laws, regulations, guidelines or interpretations thereof), then the Borrowers shall pay on demand to the Agent or such Lender from time to time as specified by the Agent or such Lender such additional amounts as the Agent or such Lender shall determine are sufficient to compensate and indemnify it for such increased cost in respect of each such Letter of Credit; provided, however, that the Borrowers shall not be obligated to pay any such amount or amounts to the extent such additional cost was incurred or paid by such Lender more than sixty (60) days prior to the date of the delivery of the certificate referred to in the immediately following sentence (nothing herein to impair or otherwise affect the Borrowers' liability hereunder for costs subsequently incurred or paid by such Lender). Section 1.4. Manner and Disbursement of Borrowings. (a) Generally. Morton (which is acting on behalf of the Borrowers pursuant to Section 1.6 hereof) shall give written or telephonic notice to the Agent (which notice shall be irrevocable once given and, if given by telephone, shall be promptly confirmed in writing) by no later than 11:00 a.m. (Chicago time) on any Business Day of each request for a Loan, in each case specifying the type of Loan (whether a Revolving Loan or a Term Credit Loan) which is to be made, the Borrower to which the proceeds of such Loan are to be disbursed (in the case of a Loan of a Revolving Loan), the amount of such Loan and the date such Loan is to be made. The Agent shall promptly notify each Lender of the Agent's receipt of each such notice. Each Loan shall initially constitute part of the applicable Domestic Rate Portion except to the extent the Company has otherwise timely elected as provided in Section 2 hereof. Not later than 12:00 noon (Chicago time) on the date specified for any Loan to be made by a Lender hereunder, such Lender shall make the proceeds of its pro rata share of such Loan available to the Agent in Chicago in immediately available funds. Subject to the provisions of Section 7 hereof, the proceeds of each Loan shall be made available to the relevant Borrower at the principal office of the Agent in Chicago, Illinois, in immediately available funds, upon receipt by the Agent from each Lender of its pro rata share of such Loan. -8- 16 (b) Reimbursement Obligation. In the event the Company fails to give notice pursuant to Section 1.4(a) above of a Revolving Loan equal to the amount of a Reimbursement Obligation and has not notified the Agent by 11:00 a.m. (Chicago time) on the day such Reimbursement Obligation becomes due that it intends to repay such Reimbursement Obligation through funds not borrowed under this Agreement, the Company shall be deemed to have requested a Revolving Loan constituting part of the Domestic Rate Portion on such day in the amount of the Reimbursement Obligation then due, subject to Section 7.1 hereof, which Borrowing shall be applied to pay the Reimbursement Obligation then due. (c) Agent Reliance on Bank Funding. Unless the Agent shall have been notified by a Lender prior to 11:30 a.m. (Chicago time) on the date a Loan is to be made hereunder that such Lender does not intend to make its pro rata share of such Loan available to the Agent, the Agent may assume that such Lender has made such share available to the Agent on such date and the Agent may in reliance upon such assumption make available to the relevant Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent by such Lender and the Agent has made such amount available to the relevant Borrower, the Agent shall be entitled to receive such amount from such Lender forthwith upon the Agent's demand, together with interest thereon in respect of each day during the period commencing on the date such amount was made available to such Borrower and ending on but excluding the date the Agent recovers such amount at a rate per annum equal to the effective rate charged to the Agent for overnight federal funds transactions with member banks of the federal reserve system for each day as determined by the Agent (or in the case of a day which is not a Business Day, then for the preceding day). If such amount is not received from such Lender by the Agent immediately upon demand, such Borrower will, on demand, repay to the Agent the proceeds of the Loan attributable to such Lender with interest thereon at a rate per annum equal to the interest rate applicable to the relevant Loan, but without such payment being considered a payment or prepayment of a Loan, so that the such Borrower will have no liability under Section 2.9 hereof with respect to such payment. Section 1.5. Manner of Obtaining Letters of Credit. Morton (which is acting on behalf of the Borrowers pursuant to Section 1.6 hereof) shall provide at least four (4) Business Days' advance written notice to the Agent of a Borrower's request for the issuance for such Borrower's account of a Letter of Credit, such notice in each case to be accompanied by an Application for such Letter of Credit properly completed and executed by such Borrower and in the case of an extension or an increase in the amount of a Letter of Credit, a written request therefor, in a form acceptable to the Agent, in each case, together with the fees called for by this Agreement. The Agent shall promptly notify each Lender of the Agent's receipt of each such notice. -9- 17 Section 1.6. Appointment of Morton as Agent for Borrowers; Reliance by Agent. (a) Appointment. Each Borrower irrevocably appoints Morton as its agent hereunder to make requests on such Borrower's behalf under Section 1 hereof for borrowings to be made by such Borrower and for Letters of Credit to be issued for such Borrower's sole or joint account, to select on such Borrower's behalf the interest rate to be applicable under Section 2 hereof to Loans made to such Borrower, effect conversions of Revolving Loans into Voluntary Conversion Term Loans and to take any other action contemplated by the Loan Documents with respect to credit extended hereunder to such Borrower. The Agent and the Lenders shall be entitled to conclusively presume that any action by Morton under the Loan Documents is taken on behalf of any one or more of the relevant Borrowers whether or not Morton so indicates. (b) Reliance. All requests for borrowings and selection of interest rates to be applicable thereto may be written or oral, including by telephone or facsimile. The Borrowers agree that the Agent may rely on any such notice given by any person the Agent in good faith believes is an Authorized Representative without the necessity of independent investigation (the Borrowers hereby indemnifying the Agent and Lenders from any liability or loss ensuing from such reliance), and in the event any such telephonic or other oral notice conflicts with any written confirmation, such oral or telephonic notice shall govern if the Agent has acted in reliance thereon. SECTION 2. INTEREST AND CHANGE IN CIRCUMSTANCES. Section 2.1. Interest Rate Options. (a) Subject to the terms and conditions of this Section 2, portions of the principal indebtedness evidenced by the Notes (all of the indebtedness evidenced by the Notes, whether or not Notes of the same class, bearing interest at the same rate for the same period of time being hereinafter referred to as a "Portion") may, at the option of Morton, which is acting on behalf of the Borrowers pursuant to Section 1.6 hereof, bear interest with reference to the Domestic Rate (the "Domestic Rate Portion") or with reference to the Adjusted LIBOR ("LIBOR Portions"), and Portions of a particular class of Notes may be converted from time to time from one basis for such Notes to the other. All of the indebtedness evidenced by the Notes which is not part of a LIBOR Portion shall constitute a single Domestic Rate Portion. All of the indebtedness evidenced by the Notes which bears interest with reference to a particular Adjusted LIBOR for a particular Interest Period shall constitute a single LIBOR Portion. Anything contained herein to the contrary notwithstanding, the obligation of the Lenders to create, continue or effect by conversion any LIBOR Portion shall be conditioned upon the fact that at the time no Default or Event of Default shall have occurred and be continuing. The Borrowers hereby promise to pay interest on each Portion at the rates and times specified in this Section 2. -10- 18 (b) Domestic Rate Portion. Each Domestic Rate Portion shall bear interest (which the Borrowers hereby promise to pay at the times herein provided) at the rate per annum determined by adding the Applicable Margin to the Domestic Rate as in effect from time to time, provided that if a Domestic Rate Portion or any part thereof is not paid when due (whether by lapse of time, acceleration or otherwise) such Portion shall bear interest (which the Borrowers hereby promise to pay at the times herein provided), before as well as after judgment, until payment in full thereof at the rate per annum determined by adding 2% to the interest rate which would otherwise be applicable thereto from time to time. Interest on the Domestic Rate Portion shall be payable monthly on the last day of each month in each year (commencing January 31, 1998) and at maturity of the applicable Notes, and interest after maturity shall be due and payable upon demand. Any change in the interest rate on the Domestic Rate Portions resulting from a change in the Domestic Rate shall be effective on the date of the relevant change in the Domestic Rate. (c) LIBOR Portions. Each LIBOR Portion shall bear interest (which the relevant Borrower hereby promises to pay at the times herein provided) for each Interest Period selected therefor at a rate per annum determined by adding the Applicable Margin to the Adjusted LIBOR for such Interest Period, provided that if any LIBOR Portion is not paid when due (whether by lapse of time, acceleration or otherwise) such Portion shall bear interest (which the relevant Borrower hereby promises to pay at the times herein provided), whether before or after judgment, until payment in full thereof through the end of the Interest Period then applicable thereto at the rate per annum determined by adding 2% to the interest rate which would otherwise be applicable thereto, and effective at the end of the Interest Period such LIBOR Portion shall automatically be converted into and added to the Domestic Rate Portion and shall thereafter bear interest at the interest rate applicable to the Domestic Rate Portion of the applicable Notes after default. Interest on each LIBOR Portion shall be due and payable on the last day of each Interest Period applicable thereto and, with respect to any Interest Period applicable to a LIBOR Portion in excess of three (3) months, on the date occurring every three (3) months after the date such Interest Period began and at the end of such Interest Period, and interest after maturity shall be due and payable upon demand. Morton (which is acting on behalf of the Borrowers pursuant to Section 1.6 hereof) shall notify the Agent on or before 11:00 a.m. (Chicago time) on the third Business Day preceding the end of an Interest Period applicable to a LIBOR Portion whether such LIBOR Portion is to continue as a LIBOR Portion, in which event Morton shall notify the Agent of the new Interest Period selected therefor, and in the event Morton shall fail to so notify the Agent, such LIBOR Portion shall automatically be converted into and added to the Domestic Rate Portion of the applicable Notes as of and on the last day of such Interest Period. The Agent shall promptly notify each Lender of each notice received from Morton pursuant to the foregoing provision. -11- 19 Section 2.2. Minimum Amounts. Each LIBOR Portion shall be in a minimum amount of $1,000,000 or such greater amount which is an integral multiple of $100,000. Section 2.3. Computation of Interest. All interest on each LIBOR Portion shall be computed on the basis of a year of 360 days for the actual number of days elapsed. All interest on the Domestic Rate Portion shall be computed on the basis of a year of 365 days (or, in a leap year, 366 days) for the actual number of days elapsed. Section 2.4. Manner of Rate Selection. Morton (which is acting on behalf of the Borrowers pursuant to Section 1.6 hereof) shall notify the Agent by 11:00 a.m. (Chicago time) at least three (3) Business Days prior to the date upon which it requests that any LIBOR Portion be created or that any part of the Domestic Rate Portion be converted into a LIBOR Portion (each such notice to specify in each instance the amount thereof and the Interest Period selected therefor), and the Agent shall advise each Lender of each notice by 2:00 p.m. (Chicago time) on the same Business Day the Agent receives such notice. If any request is made to convert a LIBOR Portion into the Domestic Rate Portion, such conversion shall only be made so as to become effective as of the last day of the Interest Period applicable thereto. All requests for the creation, continuance or conversion of Portions under this Agreement shall be irrevocable. Section 2.5. Change of Law. Notwithstanding any other provisions of this Agreement or of the Notes, if at any time any Lender shall determine in good faith that any change in applicable laws, treaties or regulations or in the interpretation thereof makes it unlawful for such Lender to create or continue to maintain any LIBOR Portion, it shall promptly so notify the Agent (which shall in turn promptly notify any of the Borrowers and the other Lenders) and the obligation of such Lender to create, continue or maintain LIBOR Portions under this Agreement shall terminate until it is no longer unlawful for such Lender to create, continue or maintain LIBOR Portions. The Borrowers, on demand, shall, if the continued maintenance of any such LIBOR Portion is unlawful, thereupon prepay the outstanding principal amount of the affected LIBOR Portions, together with all interest accrued thereon and all other amounts payable to the affected Lender with respect thereto under this Agreement; provided, however, that Morton (which is acting on behalf of the Borrowers pursuant to Section 1.6 hereof) may instead elect to convert the principal amount of the affected LIBOR Portion into the Domestic Rate Portion of the applicable Notes, subject to the terms and conditions of this Agreement. Section 2.6. Unavailability of Deposits or Inability to Ascertain Adjusted LIBOR. Notwithstanding any other provision of this Agreement or of the Notes, if prior to the commencement of any Interest Period: -12- 20 (a) the Agent or Required Lenders in good faith determine that deposits in the amount of any LIBOR Portion scheduled to be outstanding during such Interest Period are not readily available to the Lenders in the relevant market; (b) the Agent or Required Lenders in good faith determine that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining Adjusted LIBOR; or (c) the Agent or Required Lenders in good faith determine that (i) LIBOR as determined by the Agent will not adequately and fairly reflect the cost to the Lenders of funding their LIBOR Portions for such Interest Period and (ii) the Lenders' rights to payment under Section 2.7 hereof will not reasonably compensate them for such inadequate or unfair reflection of such cost; then the Agent or Required Lenders, as the case may be, shall promptly give notice thereof to the other Lenders and the Company and the obligations of the Lenders to create, continue or effect by conversion any LIBOR Portion in such amount and for such Interest Period shall terminate until deposits in such amount and for the Interest Period selected by or on behalf of the relevant Borrower shall again be readily available in the relevant market and adequate and reasonable means exist for ascertaining Adjusted LIBOR. Section 2.7. Taxes and Increased Costs. With respect to any LIBOR Portion, if any Lender shall determine in good faith that any change in any applicable law, treaty, regulation or guideline (including, without limitation, Regulation D of the Board of Governors of the Federal Reserve System) or any new law, treaty, regulation or guideline, or any interpretation of any of the foregoing by any governmental authority charged with the administration thereof or any central bank or other fiscal, monetary or other authority having jurisdiction over such Lender or its lending branch or the LIBOR Portions contemplated by this Agreement (whether or not having the force of law) shall: (i) impose, increase, or deem applicable any reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, or any other acquisition of funds or disbursements by, such Lender which is not in any instance already accounted for in computing Adjusted LIBOR; (ii) subject such Lender, any LIBOR Portion or a Note to the extent it evidences such a Portion, to any tax (including, without limitation, any United States interest equalization tax or similar tax however named applicable to the acquisition or holding of debt obligations and any interest or penalties with respect thereto), duty, -13- 21 charge, stamp tax, fee, deduction or withholding in respect of this Agreement, any LIBOR Portion or a Note to the extent it evidences such a Portion, except such taxes as may be measured by the overall net income or gross receipts of such Lender or its lending branches and imposed by the jurisdiction, or any political subdivision or taxing authority thereof, in which such Lender's principal executive office or its lending branch is located; (iii) change the basis of taxation of payments of principal and interest due from any Borrower to such Lender hereunder or under a Note to the extent it evidences any LIBOR Portion (other than by a change in taxation of the overall net income or gross receipts of such Lender); or (iv) impose on such Lender any penalty with respect to the foregoing or any other condition regarding this Agreement, the disbursement of credit hereunder, any LIBOR Portion or a Note to the extent it evidences any LIBOR Portion; and such Lender shall determine that the result of any of the foregoing is to increase the cost (whether by incurring a cost or adding to a cost) to such Lender of creating or maintaining any LIBOR Portion hereunder or to reduce the amount of principal or interest received or receivable by such Lender (without benefit of, or credit for, any prorations, exemption, credits or other offsets available under any such laws, treaties, regulations, guidelines or interpretations thereof), then the Borrowers shall pay on demand to such Lender from time to time as specified by such Lender such additional amounts as such Lender shall reasonably determine are sufficient to compensate and indemnify it for such increased cost or reduced amount; provided, however, that the Borrowers shall not be obligated to pay any such amount or amounts to the extent such additional cost or payment was incurred or paid by such Lender more than sixty (60) days prior to the date of the delivery of the certificate referred to in the immediately following sentence (nothing herein to impair or otherwise affect the Borrowers' liability hereunder for costs or payments subsequently incurred or paid by such Lender). If a Lender makes such a claim for compensation, it shall provide to any of the Borrowers (with a copy to the Agent) a certificate setting forth the computation of the increased cost or reduced amount as a result of any event mentioned herein in reasonable detail and such certificate shall be conclusive if reasonably determined. Section 2.8. Change in Capital Adequacy Requirements. If any Lender shall determine that the adoption after the date hereof of any applicable law, rule or regulation regarding capital adequacy, or any change in any existing law, rule or regulation, 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, or compliance by such Lender (or any of its branches or any corporation controlling such Lender) with any request -14- 22 or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's or such corporation's capital, as the case may be, as a consequence of such Lender's obligations hereunder or for the credit which is the subject matter hereof to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to liquidity and capital adequacy) by an amount deemed by such Lender to be material, then from time to time, within fifteen (15) days after demand by such Lender, the Borrowers shall pay to the Lender such additional amount or amounts reasonably determined by such Lender as will compensate such Lender for such reduction; provided, however, that the Borrowers shall not be obligated to compensate such Lender to the extent its rate of return was so reduced more than sixty (60) days prior to the date of such demand (nothing herein to impair or otherwise affect the Borrowers' liability hereunder to compensate for subsequent reductions in such Lender's rate of return). Section 2.9. Funding Indemnity. In the event any Lender shall incur any loss, cost or expense (including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired or contracted to be acquired by such Lender to fund or maintain its part of any LIBOR Portion or the relending or reinvesting of such deposits or other funds or amounts paid or prepaid to such Lender) as a result of: (i) any payment of a LIBOR Portion on a date other than the last day of the then applicable Interest Period for any reason, whether before or after default, and whether or not such payment is required by any provisions of this Agreement; or (ii) any failure by any Borrower to create, borrow, continue or effect by conversion a LIBOR Portion on the date specified in a notice given pursuant to this Agreement, unless such failure results from the Lenders' inability or unwillingness pursuant to Sections 2.5 and 2.6 hereof to create, continue or effect by conversion such LIBOR Portion; then, upon the demand of such Lender, the Borrowers shall pay to such Lender such amount as will reimburse such Lender for such loss, cost or expense. If a Lender requests such a reimbursement, it shall provide to any of the Borrowers (with a copy to the Agent) a certificate setting forth the computation of the loss, cost or expense giving rise to the request for reimbursement in reasonable detail and such certificate shall be conclusive if reasonably determined; provided, however, that the Borrowers shall not be obligated to pay any such amount or amounts to the extent such loss, cost or expense was incurred by such Lender more than sixty (60) days prior to the date of the delivery of such certificate (nothing herein to impair -15- 23 or otherwise affect the Borrowers' liability hereunder to compensate for any subsequent loss, cost, or expense incurred by such Lender). Section 2.10. Lending Branch. Each Lender may, at its option, elect to make, fund or maintain its pro rata share of the Loans hereunder at the branches or offices specified on the signature pages hereof or on any Assignment Agreement executed and delivered pursuant to Section 12.15 hereof or at such of its branches or offices as such Lender may from time to time elect. Section 2.11. Lender's Duty to Mitigate. Each Lender agrees that, as promptly as practicable after it becomes aware of the occurrence of an event or the existence of a condition that would cause it to be affected under Section 2.5, 2.6 or 2.7 hereof, such Lender will, after notice to any Borrower, to the extent not inconsistent with such Lender's internal policies and customary business practices, use its best efforts to make, fund or maintain the affected LIBOR Portion or issue or participate in the affected Letter of Credit, as the case may be, through another lending office of such Lender if as a result thereof the unlawfulness which would otherwise require payment of such Portion pursuant to Section 2.5 hereof would cease to exist or the circumstances which would otherwise terminate such Lender's obligation to make such Portion under Section 2.6 hereof would cease to exist or the increased costs which would otherwise be required to be paid in respect of such Portion or Letter of Credit pursuant to Section 2.7 hereof would be materially reduced, and if, as determined by such Lender, in its sole discretion, the making, funding or maintaining of such Portion, or issuance or participation in such Letter of Credit, as the case may be, through such other lending office would not otherwise adversely affect such Portion or such Lender. The Borrowers hereby agree to pay all reasonable expenses incurred by each such Lender in utilizing another lending office pursuant to this Section 2.11. Section 2.12. Discretion of Lenders as to Manner of Funding. Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of its Notes in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder (including, without limitation, determinations under Sections 2.5, 2.6, 2.7 and 2.9 hereof) shall be made as if each Lender had actually funded and maintained each LIBOR Portion during each Interest Period applicable thereto through the purchase of deposits in the relevant market in the amount of its share of such LIBOR Portion, having a maturity corresponding to such Interest Period, and bearing an interest rate equal to the LIBOR for such Interest Period. Section 2.13. Replacement of Lender. (a) In the event that (x) any Borrower receives from a Lender a certificate requesting an amount be paid to such Lender under Section 1.3(f), 2.7 -16- 24 or 2.8 hereof and the Required Lenders have not similarly made requests for payment arising out of the same circumstances or (y) the obligation of any Lender to make or maintain any LIBOR Portion has terminated under Section 2.5 or 2.6 hereof and the obligations of the Required Lenders to make or maintain LIBOR Portions have not similarly terminated by reason of the same circumstances or (z) any Lender becomes a Defaulting Lender, then the Company may request other Lenders hereunder to assume in full the Commitments then in effect of the Lender requesting such amount be paid or whose obligations with respect to LIBOR Portions have so terminated or of such Defaulting Lender, as the case may be (such Lender in each case being herein referred to as the "Replaceable Lender"), and to purchase the Notes issued to the Replaceable Lender at a price equal to the outstanding principal amount of such Notes and the Replaceable Lender's share of any accrued and unpaid interest on such Notes plus accrued and unpaid commitment fees owed to the Replaceable Lender, and if any Lender or Lenders in their sole discretion agree so to assume in full the Commitments of the Replaceable Lender (each an "Assuming Lender"), and after payment by the Borrowers to the Replaceable Lender of all amounts due under this Agreement to such Lender (including any amount specified as due in a certificate submitted under Section 1.3(f), 2.7 or 2.8 hereof) not so paid by the Assuming Lender, then such assumption shall take place in the manner set forth in subsection (b) below. In the event no Lender or Lenders agrees to assume in full the Commitments of the Replaceable Lender, then the Company may nominate one or more Lenders not then party to this Agreement so to assume in full the Commitments of the Replaceable Lender, and if such nominated Lender or Lenders are acceptable to the Agent and Required Lenders (excluding the Replaceable Lender), such assumption shall take place in the manner set forth in subsection (b) below and each such Lender or Lenders shall become a Lender hereunder (each a "New Lender") and the Replaceable Lender shall no longer be a party hereto or have any rights hereunder. (b) In the event a Replaceable Lender's Commitments are to be assumed in full by an Assuming Lender or a New Lender, then such assumption shall take place on a date acceptable to the Company, the Replaceable Lender and the Assuming Lender or New Lender, as the case may be, and such assumption shall take place through the payment of all amounts due under this Agreement to the Replaceable Lender and the execution of such instruments and documents as shall, in the reasonable opinion of the Agent, be reasonably necessary or appropriate for the Assuming Lender or New Lender to assume in full the Commitments of the Replaceable Lender (including, without limitation, the issuance of new Notes and the execution of an amendment hereto making any New Lender a party hereto). In the event no Assuming Lender or New Lender agrees to assume in full the Commitments of the Replaceable Lender, then such Replaceable Lender shall remain a party hereto and its Commitments shall remain in effect. (c) The rights and remedies against a Defaulting Lender under this Agreement, including without limitation this Section 2.13, are in addition to other rights and remedies that the -17- 25 Borrowers may have against such Defaulting Lender with respect to any Loan which such Defaulting Lender has not funded, and that the Agent, or any Lender may have against such Defaulting Lender with respect to any such Loan. SECTION 3. FEES, PREPAYMENTS, TERMINATIONS, APPLICATIONS AND NOTATIONS. Section 3.1. Fees. (a) Commitment Fee. For the period from and including the date hereof to but not including the Termination Date, the Borrowers shall pay to the Agent for the ratable benefit of the Lenders in accordance with their Percentages, a commitment fee at the Applicable Margin (computed on the basis of a year of 360 days for the actual number of days elapsed) on the average daily unused portion of the Revolving Credit Commitments. Such commitment fee shall be payable quarterly in arrears on the last day of each March, June, September and December in each year (commencing March 31, 1998) and on the Termination Date. (b) Letter of Credit Fees. On the date of issuance or extension, or increase in the amount, of each Letter of Credit pursuant to Section 1.3 hereof, the Borrowers shall pay to the Agent for its own account an issuance fee equal to .125% of the face amount of (or the increase in the face amount of) such Letter of Credit. On the last day of each calendar quarter (commencing on March 31, 1998) to, and on, the Termination Date, the Borrowers shall pay to the Agent for the ratable benefit of the Lenders in accordance with their percentages a fee equal to the Applicable Margin for LIBOR Portions of the Revolving Loans (computed on the basis of a year of 360 days for the actual number of days elapsed) on the average daily outstanding amounts during the immediately preceding calendar quarter of the Letters of Credit. In addition to the letter of credit fees called for above, the Borrowers further agree to pay to the Agent for its own account such processing and transaction fees and charges as the Agent from time to time customarily imposes in connection with any issuance, amendment, cancellation, negotiation and/or payment of letters of credit and drafts drawn thereunder. (c) Audit Fees. The Borrowers shall pay to the Agent for its own use and benefit charges for audits of the Collateral by the Agent or its agents or representatives in such amounts as the Agent may from time to time request (the Agent acknowledging and agreeing that such charges shall be computed in the same manner as it at the time customarily uses for the assessment of charges for similar collateral audits actually performed by it); provided, however, that in the absence of any Default or Event of Default, (i) the Borrowers shall not be required to reimburse the Agent for more than one (1) such audit per year (a "Scheduled Field Audit") plus one (1) audit of each target of an Acquisition and (ii) the Borrowers shall in no event be liable for more than $3,000 for any one Scheduled Field Audit. -18- 26 (d) Agent's Fee. The Borrowers shall pay to the Agent the fees agreed to in a letter exchanged between them. Section 3.2. Voluntary Prepayments. (a) Revolving Credit Notes. The Borrowers shall have the privilege of prepaying the Revolving Credit Notes in whole or in part (but if in part, then in a minimum amount of $100,000 or such greater amount which is an integral multiple of $100,000) on any Business Day upon notice thereof to the Agent not later than 11:00 a.m. (Chicago time) on such day, the Agent to promptly so notify the Lenders, by the relevant Borrower or Borrowers paying to the Agent for the account of the Lenders the principal amount to be prepaid and (i) if such a prepayment prepays such Notes in full and is accompanied by the termination in whole of the Revolving Credit Commitments pursuant to which such Notes were issued, accrued interest thereon to the date of prepayment plus any commitment fee which has accrued and is unpaid and (ii) any amount due the Lenders under Section 2.9 hereof. Any amount so prepaid on the Revolving Credit Notes may, subject to the terms and conditions of this Agreement, be reborrowed. (b) Term Notes. The Borrowers shall have the privilege of prepaying the Term Notes in whole or in part (but if in part, then in a minimum amount of $100,000 or such greater amount which is an integral multiple of $100,000 as to any particular class of Term Notes being prepaid) at any time upon one (1) Business Day's prior notice to the Agent (such notice, if received subsequent to 11:00 a.m. (Chicago time) on a given day, to be treated as though received at the opening of business on the next Business Day), which shall promptly so notify the Lenders, by paying to the Agent for the account of the Lenders the principal amount to be prepaid and (i) if such a prepayment prepays such Notes in full, accrued interest thereon to the date of prepayment and (ii) any amounts due to the Lenders under Section 2.9 hereof. Voluntary prepayments of the principal of each class of the Term Notes shall be applied in several installments thereof due on such class of Notes in the inverse order of their respective maturities. No amount paid or prepaid on the Term Notes may be reborrowed. Section 3.3. Mandatory Prepayments. (a) Excess Cash Flow. If the Leverage Ratio equals or exceeds 2.50 to 1.00 as of December 31 of any calendar year (commencing on December 31, 1998) then, not later than April 15 of the immediately following year (commencing April 15, 1999), the Borrowers shall pay over to the Agent for the ratable benefit of the Lenders, as and for a mandatory prepayment on the Term Notes an amount equal to 50% of Excess Cash Flow for the then most recently completed fiscal year. Each such prepayment shall be applied to the remaining installments of the Conversion Term Notes in the inverse order of maturity, ratably as among installments on both -19- 27 classes of Conversion Term Notes due on the same date in accordance with the aggregate principal amount of the installments due on each such class of the Conversion Term Notes, until the Conversion Term Notes have been fully paid and satisfied, with any remaining balance of such prepayment applied to the remaining installments of the Term Credit Notes in the inverse order of maturity. (b) Equity Offering. Within five (5) Business Days of receipt by the Parent or any Borrower of cash proceeds from any public offering or private placement of any capital stock or other equity securities of the Parent or any Borrower (other than proceeds from (i) any sale of capital stock of any Borrower pursuant to an employee stock ownership plan or (ii) any sale of capital stock of the Parent or any Borrower, or any options to acquire any such stock, to officers or directors of the Parent or any Borrower as compensation for services rendered or (iii) any exercise by such officers or directors of such options), the Parent or relevant Borrower (as the case may be) shall make a mandatory prepayment in an amount equal to 100% of the net cash proceeds of such issuance (net only of underwriting discounts and commissions and any other reasonable out-of-pocket costs and expenses directly incurred and payable in connection therewith). Each such prepayment shall be applied to the remaining installments of the Conversion Term Notes in the inverse order of maturity, ratably as among installments on both classes of Conversion Term Notes due on the same date in accordance with the aggregate principal amount of the installments due on each such class of the Conversion Term Notes, until the Conversion Term Notes have been fully paid and satisfied, with any remaining balance of such prepayment applied to the remaining installments of the Term Credit Notes in the inverse order of maturity. (c) Asset Sales. Any and all proceeds derived from the sale or disposition (whether voluntary or involuntary), or on account of damage or destruction, of the real estate, furniture, fixtures, equipment or other fixed assets of any Borrower shall be paid over to the Agent as and for a mandatory prepayment on the Term Notes; provided, however, that if at the time of receipt no amount is outstanding under the Term Notes or the amount received is in excess of the amount necessary to prepay the Term Notes in full, then such payment or excess (as appropriate) shall be held by the Agent as collateral security for the Borrowers' L/C Obligations if the Term Loans have been prepaid in full but Letters of Credit are outstanding and the Commitments shall be ratably reduced by a like amount; provided, however, that (i) the foregoing provisions shall be inapplicable to proceeds received by the Agent under the Collateral Documents if and so long as, pursuant to the terms of the Collateral Documents, the same are to be held by the Agent and disbursed for the restoration, repair or replacement of the property in respect of which such proceeds were received, (ii) no prepayment shall be required with respect to the first $100,000 of net proceeds (i.e., gross proceeds net of out-of-pocket expenses incurred in effecting the sale or other disposition) received during any one calendar year from the sale or other disposition of -20- 28 equipment, furniture and fixtures of the Borrowers, taken together, which are worn out, obsolete or, in the good faith judgment of such Borrower, no longer desirable to the efficient conduct of its business as then conducted, (iii) no prepayment shall be required with respect to proceeds received from the sale, damage or destruction of any of the equipment or other assets subject to Liens permitted by Section 8.12 hereof if and to the extent such proceeds are applied to reduce the indebtedness secured by such Liens and (iv) so long as no Default or Event of Default has occurred or is continuing the Borrowers may retain the proceeds derived from the sale, damage or destruction of fixtures, furniture and equipment if and to the extent that the relevant Borrower establishes to the reasonable satisfaction of the Agent that the equipment sold, damaged, or destroyed has been replaced (or repaired in the case of damaged property) with fixtures, furniture or equipment of at least equal value and utility to that replaced (before any such damage or destruction) which is subject to a first lien in favor of the Agent for the benefit of the Lenders. Nothing herein contained shall in any manner impair or otherwise affect the prohibitions against the sale or other disposition of Collateral contained herein and in the Collateral Documents. Each such prepayment shall be applied to the remaining installments of the Conversion Term Notes in the inverse order of maturity, ratably as among installments on both classes of Conversion Term Notes due on the same date in accordance with the aggregate principal amount of the installments due on each such class of the Conversion Term Notes, until the Conversion Term Notes have been fully paid and satisfied, with any remaining balance of such prepayment applied to the remaining installments of the Term Credit Notes in the inverse order of maturity. (d) Commitment Reductions. In the event the aggregate principal amount of Revolving Loans and L/C Obligations exceeds the Revolving Credit Commitments after giving effect to any reduction therein (whether such reductions were voluntary or required), the Borrowers shall immediately and without notice or demand pay over the amount of the excess to the Agent as and for a mandatory prepayment on the principal of the Revolving Loans or, if the Revolving Loans have been prepaid in full but Reimbursement Obligations are outstanding, then, in such event, such excess shall be paid over to the Agent to be applied against or held as collateral security for such Reimbursement Obligations. Section 3.4. Terminations of Revolving Credit Commitments. (a) Voluntary. Morton (which is acting on behalf of the Borrower pursuant to Section 1.6 hereof) shall have the right as of the close of any calendar quarter, upon five (5) Business Days' prior notice to the Agent (which shall promptly notify the Lenders), to ratably terminate the Revolving Credit Commitments without premium or penalty and in whole or in part (but if in part, then in an amount not less than $5,000,000 or such greater amount which is an integral multiple of $100,000), provided that the Revolving Credit Commitments may not be reduced to an amount less than the aggregate principal amount of the Revolving Loans and L/C -21- 29 Obligations then outstanding. Any termination of the Revolving Credit Commitments pursuant to this Section may not be reinstated. Any reduction of the Revolving Credit Commitments to a level below the L/C Commitment shall effect a concurrent reduction in the L/C Commitment so as to equal the total Revolving Credit Commitments after giving effect to such reduction. (b) Mandatory. Effective December 31, 2000, the Revolving Credit Commitments shall automatically reduce to $15,000,000 if such Commitments have not already been reduced to such amount or less (whether such reductions were voluntary or required), such reduction to reduce the Revolving Credit Commitments of the Lenders pro rata in accordance with their respective Percentages. Section 3.5. Place and Application of Payments. All payments of principal, interest, fees and all other amounts payable hereunder shall be made to the Agent at its office at 111 West Monroe Street, Chicago, Illinois (or at such other place as the Agent may specify) on the date any such payment is due and payable. All such payments shall be made in lawful money of the United States of America, in immediately available funds at the place of payment, without setoff or counterclaim and without reduction for, and free from, any and all present or future taxes, levies, imposts, duties, fees, charges, deductions, withholdings, restrictions or conditions of any nature imposed by any government or any political subdivision or taxing authority thereof (but excluding any taxes imposed on or measured by the net income of the Lender). Payments received by the Agent after 11:00 a.m. (Chicago time) shall be deemed received as of the opening of business on the next Business Day. Except as herein provided, all payments shall be received by the Agent for the ratable account of the Lenders and shall be promptly distributed by the Agent ratably to the Lenders. Unless Morton (which is acting on behalf of the Borrowers pursuant to Section 1.6 hereof) otherwise directs or this Agreement otherwise requires, principal payments on any particular class of Notes shall be first applied to the Domestic Rate Portion of such Notes until payment in full thereof, with any balance applied to the LIBOR Portions of such Notes in the order in which their Interest Periods expire. Any amount paid or prepaid on the Revolving Credit Notes may, subject to all of the terms and conditions hereof, be borrowed, repaid and borrowed again. No amount paid or prepaid on the Term Notes may be reborrowed. Anything contained herein to the contrary notwithstanding, all payments and collections received in respect of the Loans and other Obligations by the Agent or any of the Lenders after the occurrence of an Event of Default shall be remitted to the Agent and distributed as follows: (a) first, to the payment of any outstanding costs and expenses incurred by the Agent in protecting, preserving or enforcing rights under this Agreement and the other Loan Documents and in any event including all costs and expenses of a character which the Borrowers have agreed to pay under Section 11.4 hereof (such funds to be retained by -22- 30 the Agent for its own account unless it has previously been reimbursed for such costs and expenses by the Lenders, in which event such amounts shall be remitted to the Lenders to reimburse them for payments theretofore made to the Agent); (b) second, to the payment of any outstanding interest or other fees or indemnification amounts due under the Loan Documents other than for principal of the Loans and L/C Obligations, ratably as among the Agent and the Lenders in accord with the amount of such interest and other fees or Obligations owing each; (c) third, to the payment of the principal of the Loans and any liabilities in respect of Reimbursement Obligations and to the Agent to be held as collateral security for any undrawn Letters of Credit (until the Agent is holding an amount of cash equal to the then outstanding amount of all such Letters of Credit), the aggregate amount paid to or held as collateral security for the Lenders to be allocated pro rata as among the Lenders in accord with the then respective aggregate unpaid principal balances of the Loans and the L/C Obligations; (d) fourth, to the Agent and the Lenders ratably in accord with the amounts of other Obligations owing to each of them (other than those described above) unless and until all such Obligations have been fully paid and satisfied; and (e) fifth, to Morton (each Borrower hereby agreeing that its recourse for its share of such payment shall be to Morton and not the Agent or any Lender) or to whoever the Agent reasonably determines to be lawfully entitled thereto. Section 3.6. Notations and Requests. All Loans made by a Lender against a Note, the status of all amounts evidenced by a Note as constituting part of the Domestic Rate Portion or a LIBOR Portion, and the rates of interest and Interest Periods applicable to such Portions shall be recorded by such Lender on its books and records or, at its option in any instance, endorsed on a schedule to its Note and the unpaid principal balance and status, rates and Interest Periods so recorded or endorsed by such Lender shall be prima facie evidence in any court or other proceeding brought to enforce its Note of the principal amount remaining unpaid thereon, the status of the Loans evidenced thereby and the interest rates and Interest Periods applicable thereto; provided that the failure of a Lender to record any of the foregoing shall not limit or otherwise affect the obligation of the Borrowers to repay the principal amount of each Note together with accrued interest thereon. Prior to any Lender's negotiation of a Note, such Lender shall record on a schedule thereto the status of all amounts evidenced thereby as constituting part of the Domestic Rate Portion or LIBOR Portion and the rates of interest and the Interest Periods applicable thereto. -23- 31 SECTION 4. COLLATERAL. Section 4.1. Collateral. The payment and performance of the Obligations shall at all times be secured by, among other things, (a) all of the Borrowers' and other Subsidiaries' accounts, chattel paper, documents, instruments, general intangibles, inventory, equipment and certain other assets and property of the Borrowers and the other Subsidiaries, in each case whether now owned or held or hereafter acquired or arising, pursuant to that certain Security Agreement from the Borrowers and the other Subsidiaries dated as of even date herewith, as the same may be amended, modified or supplemented from time to time (the "Security Agreement"), (b) all of the capital stock of the Subsidiaries and certain other assets and property of the Parent, the Borrowers and the other Subsidiaries, in each case whether now owned or held or hereafter acquired or arising, pursuant to that certain Pledge Agreement from the Parent and Morton dated as of even date herewith, as the same may be amended, modified or supplemented from time to time (the "Pledge Agreement"), (c) Morton's real estate in Morton, Illinois, commonly known as 1021 West Birchwood and related assets and properties of Morton, in each case whether now owned or held or hereafter acquired or arising, pursuant to that certain Mortgage and Security Agreement with Assignment of Rents from Morton dated as of January 19, 1998, as the same may be amended, modified or supplemented from time to time (the "Mortgage"), and (d) within 30 days from the date hereof, an assignment of the Parent's life insurance policy maintained on the life of William D. Morton, in an amount not less than $4,000,000, such assignment being made pursuant to a separate Assignment of Life Insurance Policy as Collateral dated of even date herewith, as the same may be amended, modified or supplemented from time to time (the "Life Insurance Assignment"). Section 4.2. Guaranties. Payment of the Notes and the other Obligations shall at all times be jointly and severally guaranteed by each Subsidiary pursuant hereto or pursuant to a Guaranty issued by such Subsidiary. In the event any Subsidiary is hereafter acquired or formed, each Borrower shall also cause such Subsidiary to execute such Collateral Documents (having terms and conditions substantially similar to those executed by each Borrower and its Subsidiaries in connection with the initial Loans under this Agreement) as the Agent may then require granting the Agent for the benefit of the Lenders a security interest in and lien on the assets of such Subsidiary as collateral security for the Notes and the other Obligations, together with such other instruments, documents, certificates and opinions required by the Agent in connection therewith. Section 4.3. Further Assurances. Each Borrower covenants and agrees that it shall, and shall cause each Subsidiary to, comply with all terms and conditions of each of the Collateral Documents and that each Borrower shall, and shall cause each Subsidiary to, at any time and from time to time as requested by the Agent, execute and deliver such further instruments and do such -24- 32 other acts as the Agent or the Required Lenders may deem necessary or desirable to provide for or protect or perfect the Lien of the Agent in the Collateral. SECTION 5. DEFINITIONS; INTERPRETATION. Section 5.1. Definitions. The following terms when used herein shall have the following meanings: "Acquisition" means (i) the acquisition of all or any substantial part of the assets, property or business of any other person, firm or corporation, (ii) any acquisition of a majority of the common stock or other equity securities of any firm or corporation. "Adjusted LIBOR" means a rate per annum determined by the Agent pursuant to the following formula: Adjusted LIBOR = LIBOR ----------------------- 100%-Reserve Percentage "Reserve Percentage" means, for the purpose of computing Adjusted LIBOR, the maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental or other special reserves) imposed by the Board of Governors of the Federal Reserve System (or any successor) under Regulation D on Eurocurrency liabilities (as such term is defined in Regulation D) for the applicable Interest Period as of the first day of such Interest Period, but subject to any amendments to such reserve requirement by such Board or its successor, and taking into account any transitional adjustments thereto becoming effective during such Interest Period. For purposes of this definition, LIBOR Portions shall be deemed to be Eurocurrency liabilities as defined in Regulation D without benefit of or credit for prorations, exemptions or offsets under Regulation D. "LIBOR" means, for an Interest Period, (a) the LIBOR Index Rate for such Interest Period, if such rate is available, and (b) if the LIBOR Index Rate cannot be determined, the arithmetic average of the rate of interest per annum (rounded upwards, if necessary, to nearest 1/100 of 1%) at which deposits in U.S. dollars in immediately available funds are offered to the Agent at 11:00 a.m. (London, England time) two (2) Business Days before the beginning of such Interest Period by major banks in the interbank eurodollar market for a period equal to such Interest Period and in an amount equal or comparable to the principal amount of such LIBOR Portion which is scheduled to be made by the Agent. Each determination of LIBOR made by the Agent shall be conclusive and binding absent manifest error. "Affiliate" means any Person, directly or indirectly controlling or controlled by, or under direct or indirect common control with, another Person. A Person shall be deemed to control -25- 33 another Person for the purposes of this definition if such Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of the other Person, whether through the ownership of voting securities, common directors, trustees or officers, by contract or otherwise; provided that, in any event, any Person that owns, directly or indirectly, 5% or more of the securities having the ordinary voting power for the election of directors or governing body of a corporation or 5% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. "Agent" means Harris Trust and Savings Bank and any successor thereto appointed pursuant to Section 10.1 hereof. "Applicable Margin" means the rate specified below, subject to quarterly adjustment as hereinafter provided:
Applicable Applicable Applicable Applicable When Following Status Margin Margin Margin Margin Exists For Any Margin For Domestic Rate For LIBOR Portions For Domestic Rate For LIBOR Portions Determination Date Portion of Revolving of Revolving and Portion of of Conversion Term and Term Credit Loan Term Credit Loan Conversion Term Loans Is: Is: Loans Is: Commitment Fee Is Is: Level I Status 0% 1.00% .25% 0% 1.25% Level II Status 0% 1.25% .25% 0% 1.50% Level III Status 0% 1.625% .375% 0% 1.875% Level IV Status .25% 2.00% .50% .50% 2.25%
provided, however, that all of the foregoing is subject to the following: (i) the initial Applicable Margin in effect through the first Margin Determination Date shall be the Applicable Margin for Level III Status; -26- 34 (ii) on or before the date that is ten (10) Business Days after the date on which the Company has delivered a Compliance Certificate to the Agent for a given quarterly accounting period of the Parent (commencing with the quarterly accounting period ending on or about June 30, 1998) pursuant to Section 8.5 hereof (such date that is ten (10) Business Days after the date on which the Company delivered a Compliance Certificate to the Agent being herein referred to as the "Margin Determination Date"), the Agent shall determine whether Level I Status, Level II Status, Level III Status or Level IV Status exists as of the close of the applicable accounting period, based upon the Compliance Certificate and financial statements delivered to the Agent under Section 8.5 hereof for such accounting period, and shall promptly notify the Company and the Lenders of such determination and of any change in the Applicable Margin resulting therefrom. Any such change in the Applicable Margin shall be effective as of such Margin Determination Date, with such new Applicable Margin to continue in effect until the next Margin Determination Date. If the Company has not delivered a Compliance Certificate by the date such Compliance Certificate is required to be delivered under Section 8.5 hereof, until a Compliance Certificate is delivered before the next Margin Determination Date, the Applicable Margin shall be the Applicable Margin for Level IV Status. If the Company subsequently delivers a Compliance Certificate before the next Margin Determination Date, the Applicable Margin established by such Compliance Certificate shall take effect from the date of delivery until the next Margin Determination Date; and (iii) if and so long as any Event of Default has occurred and is continuing hereunder, notwithstanding anything herein to the contrary, the Applicable Margin shall be the Applicable Margin for Level IV Status. "Application" is defined in Section 1.3 hereof. "Authorized Representative" means those persons shown on the list of officers and employees of the Borrowers provided by Morton (which is acting on behalf of the Borrowers pursuant to Section 1.6 hereof) pursuant to Section 7.2(a) hereof or on any update of any such list provided by Morton to the Agent, or any further or different officers and employees so named by any Authorized Representative in a written notice to the Agent. "Borrowers" is defined in the introductory paragraph hereof, with (i) the term "Borrowers" to mean the Borrowers, collectively, and, also, each individually, and (ii) all promises and covenants (including promises to pay) and representations and warranties of and by the Borrowers made in the Loan Documents or any instruments or documents delivered pursuant thereto to be and constitute the joint and several promises, covenants, representations and warranties of and by each and all of such corporations. The term "Borrower" appearing in such -27- 35 singular form shall be deemed a reference to any of the Borrowers unless the context in which such term is used shall otherwise require. "Business Day" means any day (other than a Saturday or Sunday) on which banks are not authorized or required to close in Chicago, Illinois and, when used with respect to LIBOR Portions, a day on which banks are dealing in United States Dollar deposits in the interbank market of London, England and Nassau, Bahamas. "Capital Expenditures" means for any period capital expenditures of the Parent and its Subsidiaries during such period as defined and classified in accordance with GAAP, but in any event excluding amounts expended to effect a Permitted Acquisition. "Capital Lease" means any lease of Property which in accordance with GAAP is required to be capitalized on the balance sheet of the lessee. "Capitalized Lease Obligation" means the amount of the liability shown on the balance sheet of any Person in respect of a Capital Lease determined in accordance with GAAP. "Change of Control" means the occurrence, at any time after the date hereof, of (i) any Person or two or more Persons acting in concert acquiring beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of Parent (or other securities convertible into such securities) representing more than 25% of the combined voting power of all securities of the Parent entitled to vote in the election of directors; or (ii) commencing after the date hereof, individuals who as of the date hereof were directors of the Parent ceasing for any reason to constitute a majority of the Board of Directors of the Parent unless the Persons replacing such individuals were nominated by William D. Morton or the Board of Directors of the Parent; or (iii) any Person or two or more Persons acting in concert acquiring by contract or otherwise, or entering into a contract or arrangement which upon consummation will result in its or their acquisition of, or control over, securities of the Parent (or other securities convertible into such securities) representing more than 25% of the combined voting power of all securities of the Parent entitled to vote in the election of directors. "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute thereto. "Collateral Documents" means the Security Agreement and all other mortgages, deeds of trust, security agreements, assignments, financing statements and other documents as shall from time to time secure the Obligations. -28- 36 "Commitments" means and includes the Revolving Credit Commitments and the Term Credit Commitments. "Compliance Certificate" means a certificate in the form Exhibit E hereto. "Consolidated Net Income" means, with reference to any period, the net income (or net deficit) of the Parent and its Subsidiaries for such period as computed on a consolidated basis in accordance with GAAP; provided, however, that if any Permitted Acquisition occurs at any time during such period, Consolidated Net Income shall be calculated on a proforma basis to include earnings of the acquired entity or business for the entire period prior to such Permitted Acquisition as if such Permitted Acquisition had taken place on the first day of such period, all as reasonably calculated by the Borrowers based on actual results of operations of the acquired entity or business (without giving retroactive effect to any operating efficiencies realized after such Acquisition). "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Parent or any Subsidiary, are treated as a single employer under Section 414 of the Code. "Conversion Term Loans" is defined in Section 1.1(d) hereof. "Conversion Term Notes" is defined in Section 1.1(d) hereof. "Current Maturities" means, as of any date, the aggregate amount of payments scheduled to be made by the Parent and its Subsidiaries within the twelve (12) calendar months following such date with respect to principal on all Indebtedness (whether at maturity, as a result of mandatory sinking fund redemption, scheduled mandatory prepayment or otherwise). "Default" means any event or condition the occurrence of which would, with the passage of time or the giving of notice, or both, constitute an Event of Default. "Defaulting Lender" shall mean a Lender which has failed to fund as and when required by the terms and conditions of this Agreement such Lender's ratable share of any Loan hereunder, if any so long as such failure continues unremedied. "Domestic Rate" means, for any day, the greater of (i) the rate of interest announced by the Agent from time to time as its prime commercial rate, as in effect on such day; and (ii) the sum of (x) the rate determined by the Agent to be the average (rounded upwards, if necessary, to the next higher 1/100 of 1%) of the rates per annum quoted to the Agent at approximately 10:00 a.m. -29- 37 (Chicago time) (or as soon thereafter as is practicable) on such day (or, if such day is not a Business Day, on the immediately preceding Business Day) by two or more Federal funds brokers selected by the Agent for the sale to the Agent at face value of Federal funds in an amount equal or comparable to the principal amount owed to the Agent for which such rate is being determined, plus (y) 1/2 of 1% (0.5%). "Domestic Rate Portion" is defined in Section 2.1(a) hereof. "EBIT" means, with reference to any period, Consolidated Net Income for such period plus all amounts deducted in arriving at such Consolidated Net Income for such period in respect of (i) Interest Expense for such period plus (ii) federal, state and local income taxes for such period; provided, however, that (x) if EBIT includes any Consolidated Net Income for any period ending on or prior to December 31, 1997, EBIT shall be increased by all amounts deducted in arriving at such Consolidated Net Income for such period in respect of the non-cash charges taken against earnings on or prior to December 31, 1997 and (y) if EBIT includes any Consolidated Net Income for any period ending on or prior to March 31, 1998, EBIT shall be increased by all amounts deducted in arriving at such Consolidated Net Income for such period in respect of the one-time non-recurring charge (not to exceed $4,000,000) taken against earnings on or prior to March 31, 1998 for bonus payments to management of the Parent and Borrowers. "EBITDA" means, with reference to any period, Consolidated Net Income for such period plus all amounts deducted in arriving at such Consolidated Net Income for such period in respect of (i) Interest Expense for such period, plus (ii) federal, state and local income taxes for such period, plus (iii) all amounts properly charged for depreciation of fixed assets and amortization of intangible assets during such period on the books of the Parent and its Subsidiaries; provided, however, that (x) if EBITDA includes any Consolidated Net Income for any period ending on or prior to December 31, 1997, EBITDA shall be increased by all amounts deducted in arriving at such Consolidated Net Income for such period in respect of the non-cash charges taken against earnings on or prior to December 31, 1997 and (y) if EBITDA includes any Consolidated Net Income for any period ending on or prior to March 31, 1998, EBITDA shall be increased by all amounts deducted in arriving at such Consolidated Net Income for such period in respect of the one-time non-recurring charge (not to exceed $4,000,000) taken against earnings on or prior to March 31, 1998 for bonus payments to Morton's management of the Parent and Borrowers. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute thereto. "Event of Default" means any event or condition identified as such in Section 9.1 hereof. -30- 38 "Excess Cash Flow" means, as of any date the same is to be computed, EBITDA for the period consisting of the four most recently completed fiscal quarters of the Parent, less Interest Expense paid in cash by the Parent and its Subsidiaries during such period, less payments in cash by the Parent and its Subsidiaries in respect of taxes on or measured by net income during such period, less the aggregate amount of all Capital Expenditures during such period other than any Capital Expenditures financed through any Capitalized Lease, less Current Maturities as at said date. "Fixed Charge Coverage Ratio" means, as of any date the same is to be determined, the ratio of (i) the amount (if any) by which (a) EBITDA for the four consecutive fiscal quarters of the Parent ending on, or (if none so end) most recently completed prior to such date exceeds (b) Pro Forma Capital Expenditures during the same four fiscal quarters (excluding 50% of such Pro Forma Capital Expenditures which consist of Greenfield Expenses) to (ii) the sum of (a) Pro Forma Interest Expense for the same four fiscal quarters and (b) Current Maturities as at said date. "GAAP" means generally accepted accounting principles as in effect from time to time, applied by the Parent and its Subsidiaries on a basis consistent with the preparation of the Parent's most recent financial statements furnished to the Lenders pursuant to Section 6.4 hereof. "Greenfield Expenses" means Capital Expenditures made for construction of an entirely new plant or other production facilities. "Guarantor" means the Parent and each Subsidiary that is a signatory hereto or that executes and delivers to the Agent a Guaranty along with the accompanying closing documents required by Section 4.2 hereof; provided, however, that the term "Guarantor", when used in Sections 6.2 and 7.2 hereof, shall not include the Parent. "Guaranty" means this Agreement as to Guarantors party hereto and otherwise, a letter to the Agent in the form of Exhibit G hereto executed by a Subsidiary whereby it acknowledges it is party hereto as a Guarantor under Section 11 hereof and also in the case of any Subsidiary not organized under the laws of the United States of any State thereof, such other form of guaranty as shall be reasonably acceptable to the Agent and the Required Lenders. "Indebtedness" means for any Person (without duplication) (i) all indebtedness created, assumed or incurred in any manner by such Person representing money borrowed (including by the issuance of debt securities), (ii) all indebtedness for the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business which are not more than 180 days past due), (iii) all indebtedness secured by any Lien upon Property of such -31- 39 Person, whether or not such Person has assumed or become liable for the payment of such indebtedness, (iv) all Capitalized Lease Obligations of such Person, (v) all obligations of such Person on or with respect to letters of credit, bankers' acceptances and other extensions of credit whether or not representing obligations for borrowed money and (vi) each "non-compete" and like payment owed by such Person in connection with an Acquisition, to the extent such payment would be classified as a liability under GAAP. "Interest Coverage Ratio" means, as of any date the same is to be determined, the ratio of (i) EBIT for the four consecutive fiscal quarters of the Parent ending on, or (if none so end) most recently completed prior to such date to (ii) Pro Forma Interest Expense for the same four fiscal quarters. "Interest Expense" means, with reference to any period, the sum of all interest charges with respect to Indebtedness (including imputed interest charges with respect to Capitalized Lease Obligations and all amortization of debt discount and expense) of the Parent and its Subsidiaries for such period determined in accordance with GAAP. "Interest Period" means, with respect to any LIBOR Portion, the period commencing on, as the case may be, the creation, continuation or conversion date with respect to such LIBOR Portion and ending one (1), two (2), three (3) or six (6) months thereafter as selected by Morton in its notice as provided herein; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day, unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) no Interest Period may extend beyond the final maturity date of any Note evidencing such Portion; (iii) the interest rate to be applicable to each Portion for each Interest Period shall apply from and including the first day of such Interest Period to but excluding the last day thereof; and (iv) no Interest Period may be selected if after giving effect thereto any Borrower will be unable to make a principal payment scheduled to be made during such -32- 40 Interest Period without paying part of a LIBOR Portion on a date other than the last day of the Interest Period applicable thereto. For purposes of determining an Interest Period, a month means a period starting on one day in a calendar month and ending on a numerically corresponding day in the next calendar month, provided, however, if an Interest Period begins on the last day of a month or if there is no numerically corresponding day in the month in which an Interest Period is to end, then such Interest Period shall end on the last Business Day of such month. "L/C Commitment" shall mean $5,000,000, in each case as the same may be reduced pursuant to Section 3.4 hereof. "L/C Document" shall mean the Letters of Credit, any draft or other document presented in connection with a drawing thereunder, the Applications and this Agreement. "L/C Obligations" means as of any date the same is to be determined, the sum of (i) the aggregate undrawn amount then available under the Letters of Credit then outstanding (with the undrawn amount available under a Letter of Credit to be the maximum amount which can then be drawn thereunder (after giving effect to any prior reductions in such amount, whether scheduled on the face of such Letter of Credit or due to prior partial drawings) under any circumstances and over any period of time plus (ii) all unpaid Reimbursement Obligations then outstanding (other than any such Reimbursement Obligations as are being repaid the same day directly out of the proceeds of a Revolving Loan requested for such purpose). "Lender" means Harris Trust and Savings Bank, the other signatories hereto (other than the Parent and the Borrowers) and all other lenders becoming parties hereto pursuant to Section 11.16 hereof. "Letters of Credit" is defined in Section 1.3 hereof. "Level I Status" means, for any Margin Determination Date, that as of the close of the most recently completed fiscal quarter with reference to which such Margin Determination Date was set, the Leverage Ratio is less than 1.50 to 1. "Level II Status" means, for any Margin Determination Date, that as of the close of the most recently completed fiscal quarter with reference to which such Margin Determination Date was set, the Leverage Ratio is greater than or equal to 1.50 to 1 but less than 2.00 to 1. -33- 41 "Level III Status" means, for any Margin Determination Date, that as of the close of the most recently completed fiscal quarter with reference to which such Margin Determination Date was set, the Leverage Ratio is greater than or equal to 2.00 to 1 but less than 3.00 to 1. "Level IV Status" means, for any Margin Determination Date, that as of the close of the most recently completed fiscal quarter with reference to which such Margin Determination Date was set, the Leverage Ratio is greater than or equal to 3.00 to 1. "Leverage Ratio" means, as of any date the same is to be determined, the ratio of (x) Total Funded Debt as of such date to (y) EBITDA for the four consecutive fiscal quarters of the Parent ending on, or (if none so end) most recently completed prior to such date. "LIBOR Index Rate" means, for any Interest Period, the rate per annum (rounded upwards, if necessary, to the next higher one hundred-thousandth of a percentage point) for deposits in U.S. Dollars for a period equal to such Interest Period, which appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time) on the day two (2) Business Days before the commencement of such Interest Period. "LIBOR Portions" is defined in Section 2.1(a) hereof. "Lien" means any mortgage, lien, security interest, pledge, charge or encumbrance of any kind in respect of any Property, including the interests of a vendor or lessor under any conditional sale, capital lease or other title retention arrangement. "Loan Documents" means this Agreement, the Notes, the Applications, the L/C Documents, the Guaranties and the Collateral Documents. "Loans" means and includes Revolving Loans, the Term Loans and the Conversion Term Loans. "Material Plan" is defined in Section 9.1(h) hereof. "Mandatory Conversion Term Loans" is defined in Section 1.1(c) hereof. "Mandatory Conversion Term Notes" is defined in Section 1.1(c) hereof. "Merger" means that certain merger pursuant to the Merger Documents pursuant to which Morton Holding merges with and into the Parent (then known as MLX Corp.), in which the Parent is the surviving corporation. -34- 42 "Merger Documents" means that certain Agreement and Plan of Merger dated as of October 20, 1997 by and between Morton Holding and the Parent. "Mortgage" is defined in Section 4.1 hereof. "Morton" is defined in the introductory paragraph hereof. "Morton Holding" means Morton Metalcraft Holding Co., a former Delaware corporation of which Morton was previously a subsidiary and which merges out of existence in the Merger. "Morton North Carolina" is defined in the introductory paragraph hereof. "Net Worth" means, at any time the same is to be determined, the total shareholders' equity (including capital stock, additional paid-in capital and retained earnings after deducting treasury stock, but excluding minority interest in Subsidiaries) which would appear on the balance sheet of the Parent and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Notes" means and includes the Revolving Credit Notes and the Term Notes. When used with reference to the Notes, the term "class" of Notes refers to the status of such Notes as one of the following four types, Revolving Credit Notes, Mandatory Conversion Term Notes, Voluntary Conversion Term Notes or Term Credit Notes, such Notes to constitute four separate classes of Notes. "Obligations" means all obligations of the Borrowers and either of them to pay the principal and interest on the Loans, all Reimbursement Obligations, all fees and charges payable hereunder, and all other payment obligations of the Borrowers arising under or in relation to any Loan Document, in each case whether now existing or hereafter arising, due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired. "Parent" is defined in the introductory paragraph hereof. "PBGC" means the Pension Benefit Guaranty Corporation or any Person succeeding to any or all of its functions under ERISA. "Percentage" means, for each Lender, the percentage of the Revolving Credit Commitments represented by such Lender's Revolving Credit Commitment or, if the Revolving Credit Commitments have been terminated, the percentage held by such Lender (including -35- 43 through participation interests in L/C Obligations) of the aggregate principal amount of all outstanding Obligations. "Permitted Acquisitions" means the Acquisitions permitted pursuant to Section 8.17 hereof. "Person" means an individual, partnership, corporation, association, trust, unincorporated organization or any other entity or organization, including a government or agency or political subdivision thereof. "Plan" means any employee pension benefit plan covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code that either (i) is maintained by a member of the Controlled Group for employees of a member of the Controlled Group, (ii) is maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, or (iii) under which a member of the Controlled Group has any liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years or by reason of being deemed a contributing sponsor under Section 4064 of ERISA. "Portion" is defined in Section 2.1(a) hereof. "Pro Forma Capital Expenditures" means, with reference to any period (the "measurement period"), Capital Expenditures for such measurement period; provided, however, that if the measurement period ends at any time prior to the fourth fiscal quarter of the Parent to commence and end after the date of this Agreement, Pro Forma Capital Expenditures shall mean the product of (x) Capital Expenditures for each fully completed fiscal quarter of the Parent which commenced and ended after the date of this Agreement (each, a "post-closing quarter") and (y) a fraction, the numerator of which is 4 and the denominator of which is the whole number of post-closing quarters included in such measurement period. "Pro Forma Interest Expense" means, with reference to any period (the "measurement period"), Interest Expense for such measurement period; provided, however, that if the measurement period ends at any time prior to the fourth fiscal quarter of the Parent to commence and end after the date of this Agreement, Pro Forma Interest Expense shall mean the product of (x) Interest Expense for each fully completed fiscal quarter of the Parent which commenced and ended after the date of this Agreement (each, a "post-closing quarter") and (y) a fraction, the numerator of which is 4 and the denominator of which is the whole number of post-closing -36- 44 quarters included in such measurement period; further provided, however, that if any Permitted Acquisition occurs at any time during such measurement period, Interest Expense shall be equal to the product of (x) interest charges with respect to Indebtedness, as reasonably determined on a consolidated basis, from and including the date of (and after giving effect to) the most recent such Permitted Acquisition occurring during such period through the close of such measurement period, multiplied by (y) a fraction, the numerator of which is the number of days in such measurement period and the denominator of which is the number of those days in such measurement period including and following the date of such Permitted Acquisition. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Reimbursement Obligation" is defined in Section 1.3(c) hereof. "Required Lenders" means, as of the date of determination thereof, those Lenders holding at least 66-2/3% of the Revolving Credit Commitments or, in the event that no Revolving Credit Commitments are outstanding hereunder, those Lenders holding at least 66-2/3% in aggregate principal amount of the Loans outstanding hereunder. "Restricted Payments" is defined in Section 8.16 hereof. "Revolving Credit" is defined in the introductory paragraph hereof. "Revolving Credit Commitments" means the aggregate amount of the commitments of the Lenders to extend credit under the Revolving Credit, as such amount may be reduced pursuant hereto. The Revolving Credit Commitments are $35,000,000 as of the date hereof. "Revolving Loans" is defined in Section 1.2 hereof. "Revolving Credit Notes" is defined in Section 1.2 hereof. "Subordinated Debt" means indebtedness for borrowed money subordinated in right of payment to the prior payment of the Obligations by written provisions acceptable to the Agent and Required Lenders in form and substance and otherwise pursuant to documentation, in an amount, and containing interest rates, payment terms, maturities, amortization schedules, covenants, defaults, remedies and other material terms in form and substance satisfactory to the Agent and Required Lenders. -37- 45 "Subsidiary" means (x) when used with reference to the Parent, any corporation or other Person more than 50% of the outstanding ordinary voting shares or other equity interests of which is at the time directly or indirectly owned by the Parent, by one or more of such Subsidiaries, or by the Parent and one or more of such Subsidiaries and (y) when used with reference to any Borrower, any corporation or other Person more than 50% of the outstanding ordinary voting shares or other equity interests of which is at the time directly or indirectly owned by such Borrower, by one or more of such Subsidiaries, or by the Borrower and one or more of such Subsidiaries. "Telerate Page 3750" means the display designated as "Page 3750" on the Telerate Service (or such other page as may replace Page 3750 on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. Dollar deposits). "Term Credit" is defined in the introductory paragraph hereof. "Term Credit Commitments" means the commitments of the Lenders to make the Term Credit Loan in the amounts set forth opposite their signatures hereto under the heading "Term Credit Commitment" and opposite their signatures on Assignment Agreements delivered pursuant to Section 12.15 hereof under the heading "Term Credit Commitment", as such amounts may be reduced pursuant hereto. The Term Credit Commitments are $15,000,000 as of the date hereof. "Term Credit Loan" is defined in Section 1.2 hereof. "Term Credit Notes" is defined in Section 1.4 hereof. "Termination Date" means (x) December 31, 2003, or (y) if earlier, such earlier date on which the Revolving Credit Commitments are terminated in whole pursuant to Sections 3.4, 9.2 or 9.3 hereof, or (z) if later, such later date to which the Revolving Credit Commitments are extended pursuant to Section 11.14 hereof. "Term Notes" is defined in Section 1.2 hereof. "Total Funded Debt" means, at any time the same is to be determined, the aggregate of all Indebtedness of the Parent and its Subsidiaries at such time, plus all Indebtedness of any other Person which is directly or indirectly guaranteed by the Parent or any of its Subsidiaries or which the Company of any of its Subsidiaries has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which the Parent or any of its Subsidiaries has otherwise assured a creditor against loss. -38- 46 "Unfunded Vested Liabilities" means, for any Plan at any time, the amount (if any) by which the present value of all vested nonforfeitable accrued benefits under such Plan exceeds the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA. "Voluntary Conversion Term Loans" is defined in Section 1.1(d) hereof. "Voluntary Conversion Term Notes" is defined in Section 1.1(d) hereof. "Welfare Plan" means a "welfare plan" as defined in Section 3(1) of ERISA. "Wholly Owned Subsidiary" means (x) when used with reference to the Parent, a Subsidiary of which all of the issued and outstanding shares of capital stock (other than directors' qualifying shares as required by law) or other equity interests are owned by the Parent and/or one or more Wholly Owned Subsidiaries within the meaning of this definition and (y) when used with reference to any Borrower, a Subsidiary of which all of the issued and outstanding shares of capital stock (other than directors' qualifying shares as required by law) or other equity interests are owned by such Borrower and/or one or more Wholly Owned Subsidiaries within the meaning of this definition. Section 5.2. Interpretation. The foregoing definitions are equally applicable to both the singular and plural forms of the terms defined. All references to time of day herein are references to Chicago, Illinois time unless otherwise specifically provided. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, it shall be done in accordance with GAAP except where such principles are inconsistent with the specific provisions of this Agreement. Section 5.3. Change in Accounting Principles. If, after the date of this Agreement, there shall occur any change in generally accepted accounting principles from those used in the preparation of the financial statements referred to in Section 6.4 hereof and such change shall result in a change in the method of calculation of any financial covenant, standard or term found in this Agreement, either the Parent or the Required Lenders may by notice to the Lenders and the Parent, respectively, require that the Lenders and the Parent negotiate in good faith to amend such covenant, standard and term so as equitably to reflect such change in accounting principles, with the desired result being that the criteria for evaluating the financial condition of the Parent and its Subsidiaries shall be the same as if such change had not been made. No delay by the Parent or the Required Lenders in requiring such negotiation shall limit their right to so require such a -39- 47 negotiation at any time after such a change in accounting principles. Without limiting the generality of the foregoing, the Parent shall neither be deemed to be in compliance with any financial covenant hereunder nor out of compliance with any financial covenant hereunder if such state of compliance or noncompliance, as the case may be, would not exist but for the occurrence of a change in accounting principles after the date hereof. SECTION 6. REPRESENTATIONS AND WARRANTIES. The Parent and each Borrower represents and warrants to the Lenders as follows (provided that each Borrower is making such representations and warranties only as to itself and its Subsidiaries): Section 6.1. Organization and Qualification. (i) The Parent is duly organized, validly existing and in good standing as a corporation under the laws of the State of Georgia, (ii) Morton is duly organized, validly existing and in good standing as a corporation under the laws of the State of Illinois and (iii) Morton North Carolina is duly organized, validly existing and in good standing as a corporation under the laws of the State of North Carolina, and each has full and adequate corporate power to own its Property and carry on its business as now conducted. Each of the Parent and the Borrowers is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business conducted by it or the nature of the Property owned or leased by it requires such licensing or qualifying unless and to the extent that the failure to be so licensed or qualified or to be in such good standing would not have any material adverse effect on the financial condition, Properties, business, or operations of the Parent, Morton or Morton North Carolina or in the ability of any of them to perform or the Agent's ability to enforce performance of the obligations of any of them under the Loan Documents. The Parent and each Borrower has full right and authority to enter into this Agreement, to obtain (in the case of each Borrower) the credit herein provided for, to issue (in the case of each Borrower) its Notes in evidence of the borrowings herein provided for, to execute and deliver each Loan Document delivered by it, and to perform each and all of the matters and things therein provided for; and the Loan Documents do not, nor does the performance or observance by the Parent or any Borrower of any of the matters and things therein provided for, contravene or constitute a default under any provision of law or any judgment, injunction, order or decree binding upon the Parent or any Borrower or any charter or by-law provision of the Parent or any Borrower or any covenant, indenture or agreement of or affecting the Parent or any Borrower or any of their respective Properties, or result in the creation or imposition of any Lien on any Property of the Parent or any Borrower. Section 6.2. Non-Borrowing Subsidiaries. Each Guarantor is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated or -40- 48 organized, as the case may be, has full and adequate power to own its Property and carry on its business as now conducted, and is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business conducted by it or the nature of the Property owned or leased by it requires such licensing or qualifying unless and to the extent that the failure to be so licensed or qualified or to be in such good standing would not have any material adverse effect on the financial condition, Properties, business or operations of the Parent and its Subsidiaries taken as a whole or, in the case of a Borrower, in its ability to perform or the Agent's ability to enforce performance of such Borrower's obligations under the Loan Documents. Each Guarantor has full right, power and authority to execute and deliver each Loan Document delivered by it and to observe and perform each and all of the matters and things therein provided for, and the Loan Documents do not, nor will the performance or observance by any Guarantor of any of the matters and things therein provided for, contravene any provision of law or any charter or by-law provision of any Guarantor or any covenant, indenture or agreement of or affecting the Parent or any Subsidiary or any of their respective Properties or require any governmental approval or consent. Schedule 6.2 hereto identifies each Subsidiary, the jurisdiction of its incorporation or organization, as the case may be, the percentage of issued and outstanding shares of each class of its capital stock or other equity interests owned by the Parent and the Subsidiaries and, if such percentage is not 100% (excluding directors' qualifying shares as required by law), a description of each class of its authorized capital stock and other equity interests and the number of shares of each class issued and outstanding. All of the outstanding shares of capital stock and other equity interests of each Subsidiary are validly issued and outstanding and fully paid and nonassessable and all such shares and other equity interests indicated on Schedule 6.2 as owned by the Parent or a Subsidiary are owned, beneficially and of record, by the Parent or such Subsidiary free and clear of all Liens. There are no outstanding commitments or other obligations of any Subsidiary to issue, and no options, warrants or other rights of any Person to acquire, any shares of any class of capital stock or other equity interests of any Subsidiary. Section 6.3. Margin Stock. Neither the Parent nor any Borrower nor any of their respective Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loan or Letter of Credit issued hereunder will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock. Section 6.4. Financial Reports. The consolidated balance sheet of Morton and its Subsidiaries as at June 30, 1997 and the related consolidated statements of income, retained earnings and cash flows of the Parent and its Subsidiaries for the fiscal year then ended, and accompanying notes thereto, which financial statements are accompanied by the audit report of Clifton Gunderson L.L.C., independent public accountants, and the unaudited interim -41- 49 consolidated balance sheet of Morton and its Subsidiaries as at September 30, 1997, and the related consolidated statements of income, retained earnings and cash flows of the Parent and its Subsidiaries for the three (3) months then ended, heretofore furnished to the Lenders, fairly present the consolidated financial condition of the Parent and its Subsidiaries as at said dates and the consolidated results of their operations and cash flows for the periods then ended in conformity with GAAP applied on a consistent basis. Neither the Parent nor any Borrower nor any of their respective Subsidiaries has contingent liabilities which are material to it other than as indicated on such financial statements or, with respect to future periods, on the financial statements furnished pursuant to Section 8.5 hereof. Since June 30, 1997, or if later, the date as of which were prepared the most recent financial statements for Morton or the Parent, as the case may be, furnished pursuant to Section 8.5(a) or (b) hereof, there has been no material adverse change in the condition (financial or otherwise) or business prospects of the Parent and its Subsidiaries taken as a whole. Section 6.5. Full Disclosure. The statements and information furnished to the Agent and the Lenders in connection with the negotiation of this Agreement and the commitments by the Lenders to provide all or part of the financing contemplated hereby do not contain any untrue statements of a material fact or omit a material fact necessary to make the material statements contained therein or herein not misleading, the Lenders acknowledging that as to any projections furnished to any Lender, the Parent and the Borrowers only represent that the same were prepared on the basis of information and estimates the Parent and the Borrowers believed to be reasonable. Section 6.6. Good Title. The Parent, each Borrower and their respective Subsidiaries have good and defensible title to their respective material assets as reflected on the most recent consolidated balance sheet of the Parent and its Subsidiaries furnished to the Lenders (except for sales of assets by the Parent, such Borrower and such Subsidiaries in the ordinary course of their respective businesses), subject to no Liens other than such thereof as are permitted by Section 8.12 hereof. Section 6.7. Litigation and Other Controversies. There is no litigation or governmental proceeding or labor controversy pending, nor to the knowledge of the Parent or any Borrower threatened, against the Parent, such Borrower or any of their respective Subsidiaries which if adversely determined would result in any material adverse change in the financial condition, Properties, business or operations of the Parent and its Subsidiaries taken as a whole. Section 6.8. Taxes. All tax returns with respect to any income tax or other material tax required to be filed by the Parent or any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes, assessments, fees and other governmental charges upon the Parent or any Subsidiary -42- 50 or upon any of their respective Properties, income or franchises, which are shown to be due and payable in such returns, have been paid. The Parent does not know of any proposed additional tax assessment against any subsidiary for which adequate provision in accordance with GAAP has not been made on its accounts. Adequate provisions in accordance with GAAP for taxes on the books of the Parent and each Subsidiary have been made for all open years, and for its current fiscal period. Section 6.9. Approvals. No authorization, consent, license, exemption, filing or registration with any court or governmental department, agency or instrumentality, nor any approval or consent of the stockholders of the Parent or any other Person, is or will be necessary to the valid execution, delivery or performance by the Parent and the Borrowers of this Agreement, the Applications or the Notes. Section 6.10. Affiliate Transactions. Neither the Parent nor any Borrower nor any of their respective Subsidiaries is a party to any contracts or agreements with any of its Affiliates (other than with Wholly Owned Subsidiaries) on terms and conditions which are less favorable to the Parent, such Borrower or such Subsidiary than would be usual and customary in similar contracts or agreements between Persons not affiliated with each other. Section 6.11. Investment Company; Public Utility Holding Company. Neither the Parent nor any Borrower nor any of their respective Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "public utility holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 6.12. ERISA. The Parent and each other member of its Controlled Group has fulfilled its obligations under the minimum funding standards of and is in compliance in all material respects with ERISA and the Code to the extent applicable to it and has not incurred any liability to the PBGC or a Plan under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. Neither the Parent nor any Subsidiary has any contingent liabilities with respect to any post-retirement benefits under a Welfare Plan, other than liability for continuation coverage described in article 6 of Title I of ERISA. Section 6.13. Compliance with Laws. The Parent, each Borrower and their respective Subsidiaries are in compliance with the requirements of all federal, state and local laws, rules and regulations applicable to or pertaining to the Properties or business operations of the Parent, such Borrower or any such Subsidiary (including, without limitation, the Occupational Safety and Health Act of 1970, the Americans with Disabilities Act of 1990, and laws and regulations establishing quality criteria and standards for air, water, land and toxic or hazardous wastes or -43- 51 substances), non-compliance with which would reasonably be expected to have a material adverse effect on the financial condition, Properties, business or operations of the Parent and its Subsidiaries taken as a whole. Neither the Parent nor any Borrower nor any of their respective Subsidiaries has received notice to the effect that its operations are not in compliance with any of the requirements of applicable federal, state or local environmental, health and safety statutes and regulations or are the subject of any governmental investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action would reasonably be expected to have a material adverse effect on the financial condition, Properties, business or operations of the Parent and its Subsidiaries taken as a whole. Section 6.14. Other Agreements. Neither the Parent nor any Borrower nor any of their respective Subsidiaries is in default under the terms of any covenant, indenture or agreement of or affecting the Parent, such Borrower or any such Subsidiary or any of their Properties, which default would have a material adverse effect on the financial condition, Properties, business or operations of the Parent and its Subsidiaries taken as a whole. Section 6.15. Merger Documents. The Borrowers heretofore caused Morton Holding to deliver to each Lender true and correct copies of the Merger Documents and all exhibits thereto and the same have not been amended or modified in any respect. Morton Holding has all necessary corporate right, power and authority to consummate the Merger and other transactions contemplated by the Merger Documents and to perform and observe all of its obligations thereunder. Morton Holding is not in default in any material respect of any of its obligations under the Merger Documents. SECTION 7. CONDITIONS PRECEDENT. The obligation of the Lenders to make any Loan or of the Agent to issue any Letter of Credit under this Agreement is subject to the following conditions precedent: Section 7.1. All Advances. As of the time of the making of each Loan and the issuance of each Letter of Credit (including the initial Loan and the initial Letter of Credit) hereunder: (a) each of the representations and warranties set forth in Section 6 hereof and the Applications shall be true and correct in all material respects as of such time, except to the extent the same relate expressly to an earlier date; -44- 52 (b) the Parent and each Borrower shall be in compliance with all of the terms and conditions hereof, and no Default or Event of Default shall have occurred and be continuing hereunder; (c) after giving effect to such extension of credit to the relevant Borrower, (i) the aggregate principal amount of all Revolving Loans and L/C Obligations outstanding under the Revolving Credit shall not exceed the Revolving Credit Commitments then in effect; (d) such extension of credit shall not violate any order, judgment or decree of any court or other authority or any provision of law or regulation applicable to the Agent or any Lender (including, without limitation, Regulation U of the Board of Governors of the Federal Reserve System) as then in effect; and (e) in the case of the issuance of any Letter of Credit, the Agent shall have received a properly completed Application therefor and, in the case of an extension or increase in the amount of the Letter of Credit, the Agent shall have received a written request therefor, in a form acceptable to the Agent, with such Application or written request, in each case to be accompanied by the fees required by this Agreement. Each Borrower's request for any Loan or for any Letter of Credit, shall constitute its warranty to the Agent and the Lenders on the date such credit is to be extended as to the facts specified in paragraphs (a) and (b) of this Section. Section 7.2. Initial Advance. Prior to the making of the initial Loan or the issuance of the initial Letter of Credit hereunder, the following conditions precedent shall also have been satisfied: (a) the Agent shall have received the following for the account of the Lenders (each to be properly executed and completed) and the same shall have been approved as to form and substance by the Lenders: (i) the Notes; (ii) the Guaranties; (iii) the Collateral Documents and the UCC financing statements requested by the Agent in connection therewith; -45- 53 (iv) a mortgagee's policy of title insurance (or a binding commitment therefor) for the Mortgage insuring the Lien thereof in the amount of $7,500,000 to be a valid first lien subject to no defects or objections which are unacceptable to the Agent, together with endorsements (including, without limitation, a revolving credit endorsement and a comprehensive endorsement) as the Agent may require; (v) an ALTA survey prepared by a licensed surveyor on each parcel of real property subject to the lien of the Mortgage, which survey shall also state whether or not any portion of the real property is in a designated flood hazard area; (vi) a report of an independent firm of environmental engineers acceptable to the Agent concerning the environmental hazards and matters with respect to the parcels of real property subject to the lien of the Mortgage; (vii) certified copies of resolutions of the Board of Directors of the Parent, each Borrower and each Guarantor authorizing the execution and delivery of the Loan Documents delivered by them and indicating the authorized signers of such Loan Documents; (viii) copies of the articles of incorporation and by-laws of the Parent, each Borrower and each Guarantor certified as true and correct by the Secretary or other appropriate officer of the Parent, such Borrower or such Guarantor, as the case may be; (ix) a good standing certificate for the Parent, each Borrower and Guarantor, dated as of a date no earlier than thirty days prior to the date hereof, from the appropriate governmental office in the jurisdiction of its incorporation; (x) an incumbency certificate containing the name, title and genuine signatures of the Borrowers' Authorized Representatives; (xi) certified copies of the Merger Documents, together with all exhibits and attachments thereto; and (xii) payoff letters from Connecticut General Life Insurance Company and CIGNA Mezzanine Partners III, L.P. (collectively, "Cigna") and Fleet Capital Corporation ("Fleet") which contain Cigna's and Fleet's promise to release their -46- 54 respective Liens on all assets of any of the Borrowers upon its receipt of the payoff amount specified therein; and (b) the Agent shall have received for the account of and addressed to the Lenders the favorable written opinion of counsel for the Parent and the Borrowers and certain Guarantors in the form attached hereto as Exhibit H; (c) the Merger shall have occurred subject to no conditions subsequent which have not yet been satisfied except for the Lenders' funding out of the initial Loans of not more than $25,000,000 of the merger price therefor and the Agent shall have received evidence satisfactory to it of the foregoing; (d) the Agent shall have received for itself and for the Lenders the initial fees called for hereby; (e) each Lender shall have received a pro forma balance sheet of the Parent and its Subsidiaries as of and immediately after giving effect to the Merger and such other valuations and certifications, as it may require in order to satisfy itself as to the value of the Collateral, the financial condition of the Parent and of each Borrower and their respective Subsidiaries, and the lack of material contingent liabilities of the Parent, each Borrower and their respective Subsidiaries; (f) the Agent shall have received a Compliance Certificate showing a pro forma computation (after giving effect to the Merger) of the calculations contained therein (other than the Fixed Charge Coverage Ratio) as of the close of the most recently completed fiscal quarter of the Parent, such pro forma computation to be in form and substance reasonably satisfactory to the Agent and otherwise in reasonable detail; (g) the Liens granted to the Agent under the Collateral Documents shall have been perfected in a manner satisfactory to each Lender and its counsel; and (h) the Agent shall have received for the account of the Lenders such other agreements, instruments, documents, certificates and opinions as the Agent or the Lenders may reasonably request. SECTION 8. COVENANTS. The Parent and each Borrower agrees that, so long as any Loans, Letters of Credit or Commitments are available to or in use by any Borrower hereunder, except to the extent -47- 55 compliance in any case or cases is waived in writing by the Required Lenders and except that each Borrower is making such agreements only as to itself and its Subsidiaries: Section 8.1. Maintenance of Business. The Parent and each Borrower shall, and shall cause each of their respective Subsidiaries to, preserve and keep in force and effect its corporate existence (except to the extent such existence terminates in mergers and consolidations permitted by Section 8.16 hereof) and all licenses, permits and franchises necessary to the proper conduct of its business. Section 8.2. Maintenance of Property. The Parent and each Borrower will maintain, preserve and keep those of its Properties material to its business in good repair, working order and condition (ordinary wear and tear excepted) and will from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall be fully preserved and maintained, and will cause each of their respective Subsidiaries to do so in respect of Property owned or used by it. Section 8.3. Taxes and Assessments. The Parent and each Borrower will duly pay and discharge, and will cause each of their respective Subsidiaries to duly pay and discharge, all federal and other material taxes, rates, assessments, fees and governmental charges upon or against it or its Properties, in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith and by appropriate proceedings which prevent enforcement of the matter under contest and adequate reserves are provided therefor. Section 8.4. Insurance. The Parent and each Borrower will insure and keep insured, and will cause each of their respective Subsidiaries to insure and keep insured, with good and responsible insurance companies, all insurable Property owned by it which is of a character usually insured by Persons similarly situated and operating like Properties against loss or damage from such hazards and risks, and in such amounts, as are insured by Persons similarly situated and operating like Properties; and the Parent and each Borrower will insure, and cause each of their respective Subsidiaries to insure, such other hazards and risks (including employers' and public liability risks) with other good and responsible insurance companies as and to the extent usually insured by Persons similarly situated and conducting similar businesses. The Parent and each Borrower will upon request of the Agent furnish a certificate setting forth in summary form the nature and extent of the insurance maintained pursuant to this Section. Section 8.5. Financial Reports. The Parent and each Borrower will, and will cause each of their respective Subsidiaries to, maintain a standard system of accounting in accordance with GAAP, will permit the Agent, each Lender and their representatives to visit and inspect the -48- 56 properties and assets (including books and records) of the Parent, such Borrower and their respective Subsidiaries at all reasonable times and will furnish to the Agent, each Lender and their duly authorized representatives such information respecting the business and financial condition of the Parent, such Borrower and their respective Subsidiaries as the Agent or such Lender may reasonably request; and without any request, the Parent will furnish to the Lenders: (a) as soon as available, and in any event within 45 days after the close of each quarterly fiscal period of the Parent, a copy of the balance sheet and statements of income, retained earnings and cash flows of the Parent and its Subsidiaries for such period, all prepared on a consolidated basis and in reasonable detail showing in comparative form the figures for the corresponding date and period in the previous fiscal year, prepared by the Parent in accordance with GAAP (subject to normal year-end audit adjustments and the absence of notes) and certified to by the chief financial officer of the Parent; (b) as soon as available, and in any event within 90 days after the close of each fiscal year of the Parent, a copy of the consolidated balance sheet of the Parent and its Subsidiaries as of the close of such fiscal year and the consolidated statements of income, retained earnings and cash flows of the Parent and its Subsidiaries for such period, and accompanying notes thereto, all in reasonable detail showing in comparative form the figures for the previous fiscal year, accompanied by an unqualified opinion thereon of Clifton Gunderson L.L.C. or another firm of independent public accountants of recognized national standing, selected by the Parent and satisfactory to the Required Lenders, to the effect that the financial statements have been prepared in accordance with GAAP and present fairly in accordance with GAAP the consolidated financial condition of the Parent and its Subsidiaries as of the close of such fiscal year and the results of their operations and cash flows for the fiscal year then ended and that an examination of such accounts in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, such examination included such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances; (c) if any Lender so requests, the Parent or any Borrower, not later than 10 days after receipt thereof, a copy of any management letters on internal accounting controls of the Parent or any Subsidiary prepared by its independent public accountants; (d) promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports the Parent sends to its shareholders, and copies of all other regular, periodic and special reports (other than SEC Form 3, Form 4, Form 5, Form S-8 or similar administrative reports) and all registration -49- 57 statements the Parent files with the Securities and Exchange Commission or any successor thereto, or with any national securities exchanges; and (e) promptly after knowledge thereof shall have come to the attention of any responsible officer of the Parent or any Borrower, written notice of any threatened or pending litigation or governmental proceeding or labor controversy against the Parent or any Subsidiary which, if adversely determined, would have a material adverse effect on the financial condition, Properties, business or operations of the Parent and its Subsidiaries taken as a whole or of the occurrence of any Default or Event of Default hereunder. Each of the financial statements furnished to the Lenders pursuant to clauses (a) and (b) of this Section shall be accompanied by a written certificate in the form attached hereto as Exhibit E signed by the chief financial officer of the Parent to the effect that to the best of the chief financial officer's knowledge and belief no Default or Event of Default is continuing as of the close of the period covered by such statements or, if any such Default or Event of Default is continuing as of the close of such period, setting forth a description of such Default or Event of Default and specifying the action, if any, taken by the Parent or any Borrower to remedy the same. Such certificate shall also set forth the calculations supporting such statements in respect of Sections 8.6, 8.7, 8.8, 8.9 and 8.10 of this Agreement. The Parent and Borrowers will, and will cause each Subsidiary to, permit the Agent, the Lenders and their duly authorized representatives to visit and inspect any of the Properties of the Parent, the Borrowers and their respective Subsidiaries, to examine all of their books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants (and by this provision the Parent and Borrowers authorize such accountants to discuss with the Lenders (and such Persons as any Lender may designate) the finances and affairs of the Parent, the Borrowers and its Subsidiaries) all at such reasonable times and as often as may be reasonably requested. Section 8.6. Interest Coverage Ratio. The Parent will, as of the last day of each fiscal quarter of the Parent, maintain an Interest Coverage Ratio of not less than 2.50 to 1.0. Section 8.7. Leverage Ratio. The Parent will at all times maintain its Leverage Ratio at not more than (i) 3.5 to 1.0 from the date hereof through and including the third fiscal quarter of the Parent's fiscal year 2000 and (ii) 3.0 to 1.0 at all times thereafter. Section 8.8. Net Worth. The Parent will, as of the last day of each fiscal quarter of the Parent, maintain its Net Worth at not less than the Minimum Required Amount. For purposes -50- 58 of this Section 8.8, the term "Minimum Required Amount" shall mean $1,250,000 through March 30, 1998 and shall increase (but never decrease) as of March 31, 1998 and as of the close of each fiscal quarter of the Parent by sixty percent (60%) of Consolidated Net Income (if positive) for the fiscal quarter of the Parent then ended. Section 8.9. Fixed Charge Coverage Ratio. The Parent will, as of the last day of each fiscal quarter of the Parent, maintain the Fixed Charge Coverage Ratio at not less than 1.25 to 1.0. Section 8.10. Capital Expenditures. The Parent will not, nor will it permit any Subsidiary to, expend during any fiscal year, or (without duplication) become obligated to expend during such fiscal year, in each case for Capital Expenditures (including any Greenfield Expenses) an aggregate amount in excess of $8,000,000 for the Parent and its Subsidiaries taken together. Section 8.11. Indebtedness. The Parent and each Borrower will not, nor will it permit any of their respective Subsidiaries to, issue, incur, assume, create or have outstanding any Indebtedness; provided, however, that the foregoing provisions shall not restrict nor operate to prevent: (a) the Obligations; (b) purchase money indebtedness and Capitalized Lease Obligations secured by Liens permitted by Section 8.12(d) hereof in an aggregate amount which does not exceed $5,000,000 at any one time outstanding; (c) intercompany borrowings by and from the Parent and its Subsidiaries; (d) indebtedness secured by Liens permitted by Section 8.12(e) hereof in an aggregate amount which does not exceed $1,000,000 at any one time outstanding; (e) non-compete payments owing by Morton to Roland Lender and Lee Hinnen aggregating not more than $500,000; (f) non-compete payments owing to sellers as part of the consideration due them for Permitted Acquisitions; (g) unsecured Subordinated Debt; and -51- 59 (h) unsecured indebtedness not otherwise permitted by this Section 8.11 provided the aggregate amount at any one time outstanding does not exceed $100,000. Section 8.12. Liens. The Parent and each Borrower will not, and will not permit any of their respective Subsidiaries to, create, incur or permit to exist any Lien of any kind on any Property owned by the Parent, such Borrower or any such Subsidiary; provided, however, that this Section shall not apply to nor operate to prevent: (a) Liens arising by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, taxes, assessments, statutory obligations or other similar charges, good faith cash deposits in connection with tenders, contracts or leases to which the Parent, any Borrower or any of their respective Subsidiaries is a party or other cash deposits required to be made in the ordinary course of business, provided in each case that the obligation is not for borrowed money and that the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate proceedings which prevent enforcement of the matter under contest and adequate reserves have been established therefor; (b) mechanics', workmen's, materialmen's, landlords', carriers', or other similar Liens arising in the ordinary course of business with respect to obligations which are not overdue or which are being contested in good faith by appropriate proceedings which prevent enforcement of the matter under contest; (c) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Parent and its Subsidiaries secured by a pledge of assets permitted under this clause, including interest and penalties thereon, if any, shall not be in excess of $250,000 at any one time outstanding; (d) Liens securing indebtedness permitted by Section 8.11(b) hereof in respect of Property now owned or hereafter acquired by the Parent, any Borrower or any of their respective Subsidiaries (not extending to any other Property), or Liens on Property so acquired (not extending to any other Property) existing at the time of acquisition thereof, or renewals, extensions and refundings of any such Liens (not extending to any other Property); (e) any Lien existing on any Property (other than (i) shares of stock in any Subsidiary, (ii) receivables, inventory and similar working capital assets and (iii) patents, trademarks and similar intangibles) prior to the acquisition thereof by the Parent or any -52- 60 Subsidiary, provided that such Lien is not created in contemplation of or in connection with such acquisition; (f) the Liens described on Schedule 8.12 hereof; and (g) with respect to real property, easements, rights of way, reservations and other minor defects or irregularities in title which do not materially impair the use thereof for the purposes for which it is held by the Parent, any Borrower or any of their respective Subsidiaries. Section 8.13. Investments, Loans, Advances and Guaranties. The Parent and each Borrower will not, and will not permit any of their respective Subsidiaries to, directly or indirectly, make, retain or have outstanding any investments (whether through purchase of stock or obligations or otherwise) in, or loans or advances (other than for travel advances and other similar cash advances made to employees in the ordinary course of business) to, any other Person, or be or become liable as endorser, guarantor, surety or otherwise for any debt, obligation or undertaking of any other Person, or otherwise agree to provide funds for payment of the obligations of another, or supply funds thereto or invest therein or otherwise assure a creditor of another against loss or apply for or become liable to the issuer of a letter of credit which supports an obligation of another, or subordinate any claim or demand it may have to the claim or demand of any other Person; provided, however, that the foregoing provisions shall not apply to nor operate to prevent: (a) investments in direct obligations of the United States of America or of any agency or instrumentality thereof whose obligations constitute full faith and credit obligations of the United States of America, provided that any such obligations shall mature within one year of the date of issuance thereof; (b) investments in commercial paper rated at least P-1 by Moody's Investors Services, Inc. and at least A-1 by Standard & Poor's Corporation maturing within 270 days of the date of issuance thereof; (c) investments in certificates of deposit issued by any United States commercial bank having capital and surplus of not less than $100,000,000 which have a maturity of one year or less; (d) endorsement of items for deposit or collection of commercial paper received in the ordinary course of business; -53- 61 (e) intercompany loans and advances by and from the Parent and its Subsidiaries; (f) Permitted Acquisitions; and (g) the Guaranties. In determining the amount of investments, loans, advances and guarantees permitted under this Section, investments shall always be taken at the original cost thereof (regardless of any subsequent appreciation or depreciation therein); loans and advances shall be taken at the principal amount thereof then remaining unpaid; and guarantees shall be taken at the amount of obligations guaranteed thereby. Section 8.14. Leases. (a) Sales and Leasebacks. The Parent and each Borrower will not, and will not permit any of their respective Subsidiaries to, enter into any arrangement with any bank, insurance company or any other lender or investor providing for the leasing by the Parent, such Borrower or any such Subsidiary of any Property theretofore owned by it and which has been or is to be sold or transferred by such owner to such lender or investor. (b) Operating Leases. The Parent and Borrowers shall not, nor shall they permit any of their Subsidiaries to, acquire the use or possession of any Property under a lease or similar arrangement, whether or not the Parent or any of its Subsidiaries have the express or implied right to acquire title to or purchase such Property, at any time if, after giving effect thereto, the aggregate amount of fixed rentals and other consideration payable by the Parent and its Subsidiaries under all such leases and similar arrangements would exceed $5,000,000 during any fiscal year of the Parent. Capital Leases shall not be included in computing compliance with this Section to the extent the Parent's and its Subsidiaries' liability in respect of the same is permitted by Section 8.11(b) hereof. Section 8.15. Dividends and Certain Other Restricted Payments. The Parent will not (a) declare or pay any dividends on or make any other distributions in respect of any class or series of its capital stock or (b) directly or indirectly purchase, redeem or otherwise acquire or retire any of its capital stock; provided, however, that the foregoing shall neither apply to nor operate to prevent the Parent's expenditure of up to $63,000 in the aggregate to redeem fractional shares of its common stock resulting from a previous reverse stock split at the Parent. Section 8.16. Mergers, Consolidations and Sales. The Parent and each Borrower will not, and will not permit any of their respective Subsidiaries to, be a party to any merger or consolidation, or sell, transfer, lease or otherwise dispose of any operating unit or division or any -54- 62 rights to any trade name or similar intangible or all or any substantial part of its Property (except for sales of inventory in the ordinary course of business), or in any event sell or discount (with or without recourse) any of its notes or accounts receivable; provided, however, that: (a) any Subsidiary of the Parent (including any corporation which immediately after giving effect to an Acquisition permitted by Section 8.17 hereof becomes such a Subsidiary, but in any event excluding the Borrowers) may merge or consolidate with or into the Parent, Morton or any Wholly Owned Subsidiary of Morton; provided that in any such merger or consolidation involving the Parent or a Borrower, the Parent or such Borrower (as the case may be) shall be the surviving or continuing corporation, or, in the case of any other merger or consolidation of a Subsidiary (whether of the Parent or a Borrower) and a Wholly Owned Subsidiary of the Parent or any Borrower, such Wholly Owned Subsidiary shall be the continuing or surviving corporation; and provided, further, that, in the case of such a merger or consolidation involving a Guarantor, the net worth of the continuing or surviving corporation shall not be less than the net worth of such Guarantor immediately prior to such merger or consolidation; (b) any Subsidiary may in the ordinary course of its business sell, lease or otherwise dispose of all or any substantial part of its equipment to the Parent, Morton or any Wholly Owned Subsidiary of the Company; and (c) the Parent may merge with a Wholly Owned Subsidiary incorporated in Delaware solely for the purpose of changing the Parent's state of incorporation to Delaware, with such Wholly Owned Subsidiary surviving such merger, provided that: (i) at the time of such merger, no Default or Event of Default shall occur or be continuing; (ii) such Wholly Owned Subsidiary shall have acknowledged in writing (in form and substance reasonably satisfactory to the Agent and Required Lenders) its assumption of all the Parent's obligations under the Loan Documents to the same extent, with the same force and effect, as if such Wholly Owned Subsidiary were originally the Parent identified and defined therein; (iii) the Agent shall have received an opinion of counsel of the Parent, and such other assurances that the Agent or Required Lenders shall reasonably require, to confirm that such merger has been effected in accordance with all applicable laws and that the foregoing conditions set forth in this subsection (c) have been satisfied; and -55- 63 (iv) such merger shall have no adverse effect on the financial condition Properties, business or operations the Parent, Morton or Morton North Carolina or in the ability of any of them to perform or the Agent's ability to enforce performance of the obligations of any of them under the Loan Documents. The term "substantial" as used herein shall mean the sale, transfer, lease or other disposition in any fiscal year of five percent (5%) or more of the Properties of the Parent and its Subsidiaries taken as a whole. Section 8.17. Acquisitions. The Parent and each Borrower will not, and will not permit any of their respective Subsidiaries to, make or commit to make any Acquisitions; provided, however, that the Parent, any Borrower and their respective Wholly Owned Subsidiaries may make Acquisitions of assets located primarily in the United States used or useful in a business similar or related to the business of the Parent, such Borrower or such Subsidiary (or Acquisitions of the capital stock of a corporation engaged primarily in such a business if (a) the corporation's primary operations are in the United States and (b) immediately after giving effect to such Acquisition, the corporation so acquired becomes a Subsidiary) if and only if: (i) the Parent or any Borrower has, prior to committing to the acquisition, notified the Lenders thereof and demonstrated to the satisfaction of the Lenders that no Default or Event of Default shall occur or be continuing at the time of or after giving effect to the Acquisition in question, (ii) the board of directors or other governing body of such Person whose Property, or voting stock or other interests in which, are being so acquired has approved the terms of such Acquisition, (iii) the Parent shall have delivered to the Lenders an updated Schedule 6.2 to reflect any new Subsidiary resulting from such Acquisition, (iv) the aggregate amount expended by the Parent and its Subsidiaries as consideration for such Acquisition (and in any event (1) including as such consideration, any Indebtedness assumed or incurred as a result of such Acquisition, and (2) excluding as such consideration, any equity securities issued by the Parent as consideration for such Acquisition), when taken together with the aggregate amount expended as consideration (including Indebtedness and excluding equity securities as aforesaid) for all other Acquisitions permitted under this Section 8.18 during the then twelve most recently completed calendar months does not exceed $15,000,000, (v) the Parent or any Borrower has informed the Lenders of such Acquisition at least ten (10) Business Days in advance of its closing and promptly informed the Lenders of any terms and conditions applicable to the Acquisition which the Parent or any Borrower in good faith believe are material, (vi) the Parent can demonstrate on a pro forma basis after giving effect to such Acquisition that (x) the Leverage Ratio (such pro forma calculation of the Leverage Ratio to be made on the basis of the information contained in the then most recent Compliance Certificate required to be submitted to each Lender with the following adjustments: (i) Total Funded Debt shall include all indebtedness incurred directly or indirectly to finance such Acquisition and (ii) EBITDA shall be computed as if such Acquisition had occurred -56- 64 at the commencement of the four-quarter period with reference to which the Leverage Ratio is being calculated) is less than 3.0 to 1.0 and (y) the Parent will continue to comply through the term of this Agreement with Sections 8.6, 8.7, 8.9 and 8.10 of this Agreement (the Borrowers to be liable to reimburse the Agent and Lenders for their reasonable out-of-pocket costs of conducting due diligence to verify such demonstration), (vii) at least ten (10) Business Days in advance of the closing of such Acquisition, the Parent or any Borrower have provided to the Lenders such financial and other information regarding the Person whose Property or capital stock is being so acquired, including financial statements, and a description of such Person, as the Agent or any Lender may reasonably request and (viii) after giving effect to such Acquisition, the Revolving Loans and L/C Obligations are at least $5,000,000 below the Revolving Credit Commitments then in effect. Capital Expenditures for Property in compliance with Section 8.10 hereof shall not be considered Acquisitions subject to this Section. Section 8.18. Maintenance of Subsidiaries. The Parent and each Borrower will not assign, sell or transfer, or permit any of their respective Subsidiaries to issue, assign, sell or transfer, any shares of capital stock of a Subsidiary, provided that the foregoing shall not operate to prevent the issuance, sale and transfer to any person of any shares of capital stock of a Subsidiary solely for the purpose of qualifying, and to the extent legally necessary to qualify, such person as a director of such Subsidiary. Section 8.19. Formation of Subsidiaries. In the event any Subsidiary is formed or acquired after the date hereof, the Borrowers shall within thirty (30) Business Days thereof (x) furnish an update to Schedule 6.2 hereof to reflect such new Subsidiary and (y) cause such newly-formed or acquired Subsidiary to execute a Guaranty and execute such Collateral Documents to the extent required by Section 4 hereof (on terms substantially similar to those executed in connection with this Agreement) as the Agent may then require granting the Agent for the benefit of the Lenders a security interest in and lien on the personal property of such Subsidiary as collateral security for the Notes and the other Obligations, together with documentation (including a legal opinion) similar to that described in Section 7.2 hereof relating to the authorization for, execution and delivery of, and validity of such Subsidiary's obligations as a Guarantor hereunder and otherwise under its Loan Documents in form and substance satisfactory to the Agent and such other instruments, documents, certificates and opinions as are required by the Agent in connection therewith. Section 8.20. ERISA. The Parent and each Borrower will, and will cause each of their respective Subsidiaries to, promptly pay and discharge all obligations and liabilities arising under ERISA of a character which if unpaid or unperformed might result in the imposition of a Lien against any material portion of its Properties. The Parent and each Borrower will, and will cause each of their respective Subsidiaries to, promptly notify the Lenders of (i) the occurrence of any -57- 65 reportable event (as defined in ERISA) with respect to a Plan, (ii) receipt of any notice from the PBGC of its intention to seek termination of any Plan or appointment of a trustee therefor, (iii) its intention to terminate or withdraw from any Plan, and (iv) the occurrence of any event with respect to any Plan which would result in the incurrence by the Parent, any Borrower or any of their respective Subsidiaries of any material liability, fine or penalty, or any material increase in the contingent liability of the Parent, such Borrower or any such Subsidiary with respect to any post-retirement Welfare Plan benefit. Section 8.21. Compliance with Laws. The Parent and each Borrower will, and will cause each of their respective Subsidiaries to, comply in all respects with the requirements of all federal, state and local laws, rules, regulations, ordinances and orders applicable to or pertaining to the Properties or business operations of the Parent, such Borrower or any such Subsidiary, non-compliance with which could have a material adverse effect on the financial condition, Properties, business or operations of the Parent and its Subsidiaries taken as a whole or would reasonably be expected to result in a Lien upon any of their Property. Section 8.22. Burdensome Contracts With Affiliates. The Parent and each Borrower will not, and will not permit any of their respective Subsidiaries to, enter into any contract, agreement or business arrangement with any of its Affiliates (other than with Wholly Owned Subsidiaries) on terms and conditions which are less favorable to the Parent, such Borrower or such Subsidiary than would be usual and customary in similar contracts, agreements or business arrangements between Persons not affiliated with each other. Section 8.23. Changes in Fiscal Year. Except to change (with notice to the Lenders) its fiscal year to correspond with the calendar year, neither the Parent nor any Borrower nor any of their respective Subsidiaries will change its fiscal year from its present basis without the prior written consent of the Required Lenders. Section 8.24. Change in the Nature of Business. The Parent and each Borrower will not, and will not permit any of their respective Subsidiaries to, engage in any business or activity if as a result the general nature of the business of the Parent, such Borrower or any such Subsidiary would be changed in any material respect from the general nature of the business engaged in by the Parent, such Borrower or such Subsidiary on the date of this Agreement. Section 8.25. Use of Loan Proceeds. The Borrowers will use the Revolving Credit solely to refinance currently outstanding Indebtedness, to finance general corporate needs and to finance the Permitted Acquisitions. The Borrower will use the Term Loans solely to refinance currently outstanding Indebtedness. -58- 66 SECTION 9. EVENTS OF DEFAULT AND REMEDIES. Section 9.1. Any one or more of the following shall constitute an Event of Default hereunder: (a) default in the payment when due of all or any part of the principal of any Note (whether at the stated maturity thereof or at any other time provided for in this Agreement) or default in the reimbursement when due of amounts drawn under a Letter of Credit; or (b) default for five (5) days or more in the payment when due of all or any part of interest on any Note (whether at the stated maturity thereof or at any other time provided for in this Agreement) or of any fee or other amount payable by the Parent or any Borrower hereunder or under any Application; or (c) default in the observance or performance of any covenant set forth in Sections 8.6, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.13, 8.15, 8.16, 8.17, 8.18 or 8.25 hereof; or (d) default in the observance or performance of any covenant set forth in Section 8.5 hereof which is not remedied within ten (10) days after written notice thereof to any Borrower by the Agent or any Lender; or (e) default in the observance or performance of any other provision hereof or of any Application which is not remedied within thirty (30) days after written notice thereof to any Borrower by the Agent or any Lender; or (f) any representation or warranty made by the Parent or any Borrower herein or in any Application, or in any statement or certificate furnished by it pursuant hereto or thereto, or in connection with any Loan made or Letter of Credit issued hereunder, proves untrue in any material respect as of the date of the issuance or making thereof; or (g) any Guaranty shall for any reason not be or shall cease to be in full force and effect, or any Guarantor shall purport to disavow, revoke, repudiate or terminate its Guaranty; or (h) default shall occur under any evidence of Indebtedness aggregating $1,000,000 or more issued, assumed or guaranteed by the Parent or any Subsidiary or under any indenture, agreement or other instrument under which the same may be issued, and such default shall continue for a period of time sufficient to permit the acceleration of -59- 67 the maturity of any such Indebtedness (whether or not such maturity is in fact accelerated) or any such Indebtedness shall not be paid when due (whether by lapse of time, acceleration or otherwise); or (i) any judgment or judgments, writ or writs, or warrant or warrants of attachment, or any similar process or processes in an aggregate amount in excess of $250,000 shall be entered or filed against the Parent or any of its Subsidiaries or against any of their Property and which remains unvacated, unbonded, unstayed or unsatisfied for a period of thirty (30) days; or (j) the Parent or any member of its Controlled Group shall fail to pay when due an amount or amounts aggregating in excess $250,000 which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Vested Liabilities in excess of $250,000 (collectively, a "Material Plan") shall be filed under Title IV of ERISA by the Parent or any other member of its Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Material Plan or a proceeding shall be instituted by a fiduciary of any Material Plan against the Parent or any member of its Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within thirty (30) days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or (k) the Parent or any Subsidiary makes any payment or other distribution on account of the principal of or interest on any indebtedness which payment or other distribution is prohibited under the terms of any instrument subordinating such indebtedness to the Notes or the Borrowers' other obligations hereunder; (l) either Borrower shall cease at any time and for any reason to be a Wholly Owned Subsidiary of the Parent; (m) a Change of Control shall occur; or (n) the Parent or any Subsidiary shall (i) have entered involuntarily against it an order for relief under the United States Bankruptcy Code, as amended, (ii) not pay, or admit in writing its inability to pay, its debts generally as they become due, (iii) make an assignment for the benefit of creditors, (iv) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it -60- 68 or any substantial part of its Property, (v) institute any proceeding seeking to have entered against it an order for relief under the United States Bankruptcy Code, as amended, to adjudicate it insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, or (vi) fail to contest in good faith any appointment or proceeding described in Section 9.1(p) hereof; or (o) a custodian, receiver, trustee, examiner, liquidator or similar official shall be appointed for the Parent or any of its Subsidiaries or any substantial part of any of their Property, or a proceeding described in Section 9.1(n)(v) shall be instituted against the Parent or any of its Subsidiaries, and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of sixty (60) days. Section 9.2. When any Event of Default described in clauses (a) through (m), both inclusive, of Section 9.1 has occurred and is continuing, the Agent shall, upon request of the Required Lenders, by notice to any Borrower, take either or both of the following actions: (a) terminate the obligations of the Lenders to extend any further credit hereunder on the date (which may be the date thereof) stated in such notice; (b) declare the principal of and the accrued interest on the Notes to be forthwith due and payable and thereupon the Notes, including both principal and interest and all fees, charges and other amounts payable hereunder, shall be and become immediately due and payable without further demand, presentment, protest or notice of any kind. Section 9.3. When any Event of Default described in clauses (n) or (o) of Section 9.1 has occurred and is continuing, then the Notes, including both principal and interest, and all fees, charges and other amounts payable hereunder, shall immediately become due and payable without presentment, demand, protest or notice of any kind, and the obligations of the Lenders to extend further credit pursuant to any of the terms hereof shall immediately terminate. Section 9.4. When any Event of Default, other than an Event of Default described in subsections (n) or (o) of Section 9.1, has occurred and is continuing, the relevant Borrower shall, upon demand of the Agent (which demand shall be made upon the request of the Required Lenders), and when any Event of Default described in subsections (n) or (o) of Section 9.1 has occurred the relevant Borrower shall, without notice or demand from the Agent, immediately pay -61- 69 to the Agent the full outstanding amount of each Letter of Credit (such amount to be held as cash collateral for the applicable Borrower's obligations in respect of the Letters of Credit), the relevant Borrower agreeing to immediately make each such payment and acknowledging and agreeing the Agent and the Lenders would not have an adequate remedy at law for failure of the relevant Borrower to honor any such demand and that the Agent shall have the right to require the relevant Borrower to specifically perform such undertaking whether or not any draws had been made under any such Letter of Credit. SECTION 10. THE AGENT. Section 10.1. Appointment and Authorization. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers hereunder and under the Guaranties and the Applications as are designated to the Agent by the terms hereof and thereof together with such powers as are reasonably incidental thereto. The Lenders expressly agree that the Agent is not acting as a fiduciary of the Lenders in respect of the Loan Documents, the Borrowers or otherwise, and nothing herein or in any of the other Loan Documents shall result in any duties or obligations on the Agent or any of the Lenders except as expressly set forth herein. The Agent may resign at any time by sending twenty (20) days prior written notice to any Borrower and the Lenders and may be removed by the Required Lenders upon twenty (20) days prior written notice to any Borrower and the Lenders. In the event of any such resignation or removal the Required Lenders may appoint a new agent after consultation with any Borrower, which shall succeed to all the rights, powers and duties of the Agent hereunder and under the Guaranties and Applications. Any resigning or removed Agent shall be entitled to the benefit of all the protective provisions hereof with respect to its acts as an agent hereunder, but no successor Agent shall in any event be liable or responsible for any actions of its predecessor. If the Agent resigns or is removed and no successor is appointed, the rights and obligations of such Agent shall be automatically assumed by the Required Lenders and (i) each Borrower shall be directed to make all payments due each Lender hereunder directly to such Lender and (ii) the Agent's rights in the Guaranties and Applications shall be assigned without representation, recourse or warranty to the Lenders as their interests may appear. Section 10.2. Rights as a Lender. The Agent has and reserves all of the rights, powers and duties hereunder and under its Notes and the Guaranties and Applications as any Lender may have and may exercise the same as though it were not the Agent and the terms "Lender" or "Lenders" as used herein and in all of such documents shall, unless the context otherwise expressly indicates, include the Agent in its individual capacity as a Lender. Section 10.3. Standard of Care. The Lenders acknowledge that they have received and approved copies of the Guaranties and such other information and documents concerning the -62- 70 transactions contemplated and financed hereby as they have requested to receive and/or review. The Agent makes no representations or warranties of any kind or character to the Lenders with respect to the validity, enforceability, genuineness, perfection, value, worth or collectibility hereof or of the Notes or the Guaranties or of any other documents called for hereby or thereby. Neither the Agent nor any director, officer, employee, agent or representative thereof shall in any event be liable for any clerical errors or errors in judgment, inadvertence or oversight, or for action taken or omitted to be taken by it or them hereunder or under the Guaranties or Applications or in connection herewith or therewith except for its or their own gross negligence or willful misconduct. The Agent shall incur no liability under or in respect of this Agreement or the Guaranties or Applications by acting upon any notice, certificate, warranty, instruction or statement (oral or written) of anyone (including anyone in good faith believed by it to be authorized to act on behalf of the Borrowers or the Parent), unless it has actual knowledge of the untruthfulness of same. The Agent may execute any of its duties hereunder by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders for the default or misconduct of any such agents or attorneys-in-fact selected with reasonable care except for the gross negligence or willful misconduct of its employees. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agencies hereby created and its duties hereunder, and shall incur no liability to anyone and be fully protected in acting upon the advice of such counsel. The Agent shall be entitled to assume that no Default or Event of Default exists unless notified to the contrary by a Lender. The Agent shall in all events be fully protected in acting or failing to act in accord with the instructions of the Required Lenders. The Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by the Agent by reason of taking or continuing to take any such action. The Agent may treat the owner of any Note as the holder thereof until written notice of transfer shall have been filed with the Agent signed by such owner in form satisfactory to the Agent. Each Lender acknowledges that it has independently and without reliance on the Agent or any other Lender and based upon such information, investigations and inquiries as it deems appropriate made its own credit analysis and decision to extend credit to the Borrowers. It shall be the responsibility of each Lender to keep itself informed as to the creditworthiness of the Borrowers and the Agent shall have no liability to any Lender with respect thereto. Section 10.4. Costs and Expenses. Each Lender agrees to reimburse the Agent for all costs and expenses suffered or incurred by the Agent in performing its duties hereunder and under the Guaranties and Applications, or in the exercise of any right or power imposed or conferred upon the Agent hereby or thereby, to the extent that the Agent is not promptly reimbursed for same by the Parent or any Borrower, all such costs and expenses to be borne by the Lenders ratably in accordance with the amounts of their respective Commitments. If any Lender fails to reimburse the Agent for such Lender's share of any such costs and expenses, such costs and -63- 71 expenses shall be paid pro rata by the remaining Lenders, but without in any manner releasing the defaulting Lender from its liability hereunder. Section 10.5. Indemnity. The Lenders, to the extent not prohibited by applicable law, shall ratably indemnify and hold the Agent, and its directors, officers, employees, agents or representatives harmless from and against any liabilities, losses, costs and expenses suffered or incurred by them hereunder or under the Guaranties or Applications or in connection with the transactions contemplated hereby or thereby, regardless of when asserted or arising, except to the extent they are promptly reimbursed for the same by the relevant Borrower and except to the extent that any event giving rise to a claim was caused by the gross negligence or willful misconduct of the party seeking to be indemnified. If any Lender defaults in its obligations hereunder, its share of the obligations shall be paid pro rata by the remaining Lenders, but without in any manner releasing the defaulting Lender from its liability hereunder. SECTION 11. JOINT AND SEVERAL LIABILITY AND GUARANTIES. Section 11.1. Joint and Several Liability and Guaranties. To induce the Lenders to provide the credit described herein and in consideration of benefits expected to accrue to each Guarantor by reason of the Commitments and for other good and valuable consideration, receipt of which is hereby acknowledged, the Parent, each Subsidiary party hereto and each Subsidiary which executes and delivers a Guaranty (the Parent and each such Subsidiary being hereinafter referred to individually as a "Guarantor" and collectively as the "Guarantors") hereby unconditionally and irrevocably guarantee jointly and severally to the Agent, the Lenders and each other holder of any of the Obligations, and each Borrower hereby unconditionally and irrevocably agrees to be jointly and severally liable to the Agent, the Lenders and such holders for, the due and punctual payment of all present and future indebtedness of the Borrowers evidenced by or arising out of the Loan Documents, including, but not limited to, the due and punctual payment of principal of and interest on the Notes and the due and punctual payment of all other Obligations now or hereafter owed by the Borrowers under the Loan Documents as and when the same shall become due and payable, whether at stated maturity, by acceleration or otherwise, according to the terms hereof and thereof. In case of failure by the Borrowers punctually to pay any indebtedness or other Obligations guarantied hereby or for which the Borrowers agree hereby to be jointly and severally liable, each Guarantor hereby unconditionally agrees jointly and severally to make such payment or to cause such payment to be made punctually as and when the same shall become due and payable, whether at stated maturity, by acceleration or otherwise, and as if such payment were made by the Borrowers. Section 11.2. Guaranty Unconditional. The obligations of each Guarantor as a guarantor or joint and several obligor under the Loan Documents, including this Section 11, shall -64- 72 be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (a) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of any Borrower or of any other Guarantor under this Agreement or any other Loan Document or by operation of law or otherwise; (b) any modification or amendment of or supplement to this Agreement or any other Loan Document; (c) any change in the corporate existence, structure or ownership of, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting, the Borrowers, any other Guarantor, or any of their respective assets, or any resulting release or discharge of any obligation of any Borrower or of any other Guarantor contained in any Loan Document; (d) the existence of any claim, set-off or other rights which the Guarantor may have at any time against the Agent, any Lender or any other Person, whether or not arising in connection herewith; (e) any failure to assert, or any assertion of, any claim or demand or any exercise of, or failure to exercise, any rights or remedies against any Borrower, any other Guarantor or any other Person or Property; (f) any application of any sums by whomsoever paid or howsoever realized to any obligation of any Borrower, regardless of what obligations of the Borrowers remain unpaid; (g) any invalidity or unenforceability relating to or against any Borrower or any other Guarantor for any reason of this Agreement or of any other Loan Document or any provision of applicable law or regulation purporting to prohibit the payment by the Borrowers or any other Guarantor of the principal of or interest on any Note or any other amount payable by them under the Loan Documents; or (h) any other act or omission to act or delay of any kind by the Agent, any Lender or any other Person or any other circumstance whatsoever that might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the obligations of the Guarantors under the Loan Documents. -65- 73 Section 11.3. Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances. Each Guarantor's obligations under this Section 11 shall remain in full force and effect until the Commitments are terminated and the principal of and interest on the Notes and all other amounts payable by the Borrowers under this Agreement and all other Loan Documents shall have been paid in full. If at any time any payment of the principal of or interest on any Note or any other amount payable by the Borrowers under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any Borrower or of any Guarantor, or otherwise, each Guarantor's obligations under this Section 11 with respect to such payment shall be reinstated at such time as though such payment had become due but had not been made at such time. Section 11.4. Waivers. (a) General. Each Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by the Agent, any Lender or any other Person against the Borrowers, another Guarantor or any other Person. (b) Subrogation and Contribution. Each Guarantor hereby agrees not to exercise or enforce any right of exoneration, contribution, reimbursement, recourse or subrogation available to such Guarantor against any Person liable for payment of the Obligations, or as to any security therefor, unless and until the full amount owing on the Obligations has been paid and the Commitments have terminated; and the payment by such Guarantor of any amount pursuant to any of the Loan Documents on account of credit extended to any other Borrower shall not in any way entitle such Guarantor to any right, title or interest (whether by way of subrogation or otherwise) in and to any of the Obligations or any proceeds thereof or any security therefor unless and until the full amount owing on the Obligations has been paid and the Commitments have terminated. Section 11.5. Limit on Recovery. Notwithstanding any other provision hereof or of the Revolving Credit Notes, the right of recovery against each Guarantor under this Section 11 or against a Borrower on the Notes issued by it shall not (to the extent required by or as may be necessary or desirable to ensure the enforceability against such Guarantor of its obligations hereunder or thereunder in accordance with the laws of the jurisdiction of its incorporation or where it carries on business) exceed (x) the amount which would render such Guarantor's obligations under this Section 11 and the Notes void or voidable under applicable law, including without limitation fraudulent conveyance law minus (y) $1.00. Section 11.6. Stay of Acceleration. If acceleration of the time for payment of any amount payable by the Borrowers under this Agreement or any other Loan Document is stayed -66- 74 upon the insolvency, bankruptcy or reorganization of any of the Borrowers, all such amounts otherwise subject to acceleration under the terms of this Agreement or the other Loan Documents shall nonetheless be payable jointly and severally by the Guarantors hereunder forthwith on demand by the Agent made at the request of the Required Lenders. Section 11.7. Benefit to Guarantors. All of the Guarantors are engaged in related businesses and integrated to such an extent that the financial strength and flexibility of each Guarantor has a direct impact on the success of each other Guarantor. Each Guarantor will derive substantial direct and indirect benefit from the extension of credit hereunder. Section 11.8. Guarantor Covenants. Each Guarantor shall take such action as the Parent and the Borrowers are required by this Agreement to cause such Guarantor to take, and shall refrain from taking such action as the Parent and the Borrowers are required by this Agreement to prohibit such Guarantor from taking. SECTION 12. MISCELLANEOUS. Section 12.1. Holidays. If any payment of principal or interest on any Note or any fee hereunder shall fall due on a day which is not a Business Day, principal together with interest at the rate the Note bears for the period prior to maturity or any fee at the rate such fee accrues shall continue to accrue from the stated due date thereof to and including the next succeeding Business Day, on which the same is payable. Section 12.2. No Waiver, Cumulative Remedies. No delay or failure on the part of the Agent or any Lender or on the part of any other holder of any Note in the exercise of any power or right shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise of any power or right preclude any other or further exercise thereof, or the exercise of any other power or right, and the rights and remedies hereunder of the Agent, each Lender and each other holder of any Note are cumulative to, and not exclusive of, any rights or remedies which any of them would otherwise have. Section 12.3. Waivers, Modifications and Amendments. Any provision hereof or of the Notes or the Guaranties may be amended, modified, waived or released and any Default or Event of Default and its consequences may be rescinded and annulled upon the written consent of the Required Lenders; provided, however, that without the consent of all Lenders no such amendment, modification or waiver shall increase the amount or extend the terms of any Lender's Commitment or increase the L/C Commitment or reduce the interest rate applicable to or extend the maturity (including any scheduled installment) of its Notes or reduce the amount of the principal or interest or fees to which such Lender is entitled hereunder or release any substantial -67- 75 (in value) part of the collateral security afforded by the Collateral Documents (except in connection with a sale or other disposition required to be effected by the provisions hereof or of the Collateral Documents) or release any Guarantor or change this Section or change the definition of "Required Lenders" or change the number of Lenders required to take any action hereunder or under the Guaranties. No amendment, modification or waiver of the Agent's protective provisions shall be effective without the prior written consent of the Agent. Section 12.4. Costs and Expenses. The Borrowers agree to pay on demand the costs and expenses of the Agent in connection with the negotiation, preparation, execution and delivery of the Loan Documents and the other instruments and documents to be delivered hereunder or thereunder or in connection with the transactions contemplated hereby or thereby or in connection with any consents hereunder or waivers or amendments hereto or thereto, including the fees and expenses of Messrs. Chapman and Cutler, counsel for the Agent, with respect to all of the foregoing (whether or not the transactions contemplated hereby are consummated), and all costs and expenses (including attorneys' fees), if any, incurred by the Agent, the Lenders or any other holders of a Note in connection with a default under or the enforcement of the Loan Documents or any other instrument or document to be delivered hereunder or thereunder. Each Borrower agrees to pay on demand all costs and expenses for which such Borrower is liable in accordance with the preceding sentence in connection with Letters of Credit issued for such Borrower's account. The Borrowers agree to indemnify and save the Lenders and the Agent harmless from any and all liabilities, losses, costs and expenses (collectively, "indemnified liabilities") incurred by the Lenders or the Agent in connection with any action, suit or proceeding brought against the Agent or any Lender by any Person (but excluding attorneys' fees for litigation solely between the Lenders to which neither the Parent nor any Borrower are a party) which arises out of the transactions contemplated or financed hereby or out of any action or inaction by the Agent or any Lender hereunder or thereunder, except for such thereof as is caused by the gross negligence or willful misconduct of the party seeking to be indemnified. Each Borrower agrees to similarly indemnify and save the Lenders and the Agent harmless from any and all indemnified liabilities as relate to Letters of Credit issued for its account. The provisions of this Section and the protective provisions of Section 2 hereof shall survive payment of the Notes. Section 12.5. Documentary Taxes. The Borrowers agree to pay on demand any documentary, stamp or similar taxes payable in respect of this Agreement, the Notes, the Applications, or any Guaranty including interest and penalties, in the event any such taxes are assessed, irrespective of when such assessment is made and whether or not any credit is then in use or available hereunder. Section 12.6. Survival of Representations. All representations and warranties made herein or in any other Loan Documents or in certificates given pursuant hereto or thereto shall -68- 76 survive the execution and delivery of this Agreement and shall continue in full force and effect with respect to the date as of which they were made as long as any credit is in use or available hereunder. Section 12.7. Survival of Indemnities. All indemnities and other provisions relative to reimbursement to the Lenders of amounts sufficient to protect the yield of the Lenders with respect to the Loans and Letters of Credit, including, but not limited to, Sections 1.3, 2.7, 2.8 and 2.9 hereof, shall survive the termination of this Agreement and the payment of the Notes. Section 12.8. Notices. Except as otherwise specified herein, all notices hereunder shall be in writing (including cable or telecopy) and shall be given to the relevant party at its address or telecopier number set forth below, in the case of the Parent or the Borrowers, or on the appropriate signature page hereof, in the case of the Lenders and the Agent, or such other address or telecopier number as such party may hereafter specify by notice to the Agent and any Borrower given by United States certified or registered mail or by telecopy. Notices hereunder to the Parent or any Borrower shall be addressed to the name of such Person in care of Morton at: 1021 West Birchwood Morton, Illinois 61550-0429 Attention: Chief Financial Officer Telephone: (309)266-7176 Telecopy: (309)263-1841 Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section and a confirmation of such telecopy has been received by the sender, (ii) if given by mail, five (5) days after such communication is deposited in the mail, certified or registered with return receipt requested, addressed as aforesaid or (iii) if given by any other means, when delivered at the addresses specified in this Section; provided that any notice given pursuant to Section 1 or Section 2 hereof shall be effective only upon receipt. Section 12.9. Headings. Section headings used in this Agreement are for convenience of reference only and are not a part of this Agreement for any other purpose. Section 12.10. Severability of Provisions. Any provision of this Agreement which is unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. All rights, remedies and powers provided in this Agreement and the Notes may be exercised only to the extent that the exercise -69- 77 thereof does not violate any applicable mandatory provisions of law, and all the provisions of this Agreement and the Notes are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement or the Notes invalid or unenforceable. Section 12.11. Counterparts. This Agreement may be executed in any number of counterparts, and by different parties hereto on separate counterpart signature pages, and all such counterparts taken together shall be deemed to constitute one and the same instrument. Section 12.12. Binding Nature, Governing Law, Etc. This Agreement shall be binding upon the Parent, the Borrowers and their respective successors and assigns, and shall inure to the benefit of the Agent and the Lenders and the benefit of their successors and assigns, including any subsequent holder of an interest in the Notes. This Agreement and the rights and duties of the parties hereto shall be governed by, and construed in accordance with, the internal laws of the State of Illinois without regard to principles of conflicts of laws. The Borrowers may not assign their rights hereunder without the written consent of the Lenders. Section 12.13. Entire Understanding. This Agreement, together with the Notes, constitute the entire understanding of the parties with respect to the subject matter hereof and any prior agreements, whether written or oral, with respect thereto are superseded hereby except for prior understandings related to fees payable to the Agent upon the initial closing of the transactions contemplated hereby. Section 12.14. Participations. Any Lender may, upon the prior written consent of any Borrower (which consent shall not be unreasonably withheld), grant participations in its extensions of credit hereunder to any other bank or other lending institution (a "Participant") provided that (i) no Participant shall thereby acquire any direct rights under this Agreement, (ii) no Lender shall agree with a Participant not to exercise any of such Lender's rights hereunder without the consent of such Participant except for rights which under the terms hereof may only be exercised by all Lenders and (iii) no sale of a participation in extensions of credit shall in any manner relieve the selling Lender of its obligations hereunder. Section 12.15. Assignment Agreements. Each Lender may, from time to time upon at least five (5) Business Days' prior written notice to the Agent, assign to other commercial lenders part of its rights and obligations under this Agreement (including without limitation the indebtedness evidenced by the Notes then owned by such assigning Lender, together with an equivalent proportion of its Commitments to make Loans hereunder) pursuant to written agreements executed by such assigning Lender, such assignee lender or lenders, the Parent and the Agent, which agreements shall specify in each instance the portion of the indebtedness -70- 78 evidenced by the Notes which is to be assigned to each such assignee lender and the portion of the Commitments of the assigning Lender to be assumed by it (the "Assignment Agreements"); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of the assigning Lender's rights and obligations under this Agreement and the assignment shall cover the same percentage of such Lender's Commitments, Loans and Notes; (ii) unless the Agent otherwise consents, the aggregate amount of the Commitments, Loans and Notes of the assigning Lender being assigned pursuant to each such assignment (determined as of the effective date of the relevant Assignment Agreement) shall in no event be less than $5,000,000 and shall be an integral multiple of $1,000,000; (iii) the Agent, each Lender originally party hereto and Morton must each consent (such consent to not be unreasonably withheld by any such party), to each such assignment to a party which was not an original signatory of this Agreement (provided no such consent is required from Morton (i) for any assignment to any Lender party hereto, whether an original signatory of this Agreement or a party hereto by reason of an Assignment Agreement, (ii) for any assignment to any Affiliate of any such Lender and (iii) for any such assignment made during the continuance of any Event of Default); and (iv) the assigning Lender must pay to the Agent a processing and recordation fee of $2,500 and any out-of-pocket attorneys' fees and expenses incurred by the Agent in connection with such Assignment Agreement. Upon the execution of each Assignment Agreement by the assigning Lender thereunder, the assignee lender thereunder, the Parent and the Borrowers and the Agent and payment to such assigning Lender by such assignee lender of the purchase price for the portion of the indebtedness of the Borrowers being acquired by it, (i) such assignee lender shall thereupon become a "Lender" for all purposes of this Agreement with Commitments in the amounts set forth in such Assignment Agreement and with all the rights, powers and obligations afforded a Lender hereunder, (ii) such assigning Lender shall have no further liability for funding the portion of its Commitments assumed by such other Lender and (iii) the address for notices to such assignee Lender shall be as specified in the Assignment Agreement executed by it. Concurrently with the execution and delivery of such Assignment Agreement, the Borrowers shall execute and deliver Notes to the assignee Lender in the respective amounts of its Commitments under the Revolving Credit and Term Credit and new Notes to the assigning Lender in the respective amounts of its Commitments under the Revolving Credit and Term Credit after giving effect to the reduction occasioned by such assignment, all such Notes to constitute "Notes" for all purposes of this Agreement. Section 12.16. Confidentiality. The Agent and each Lender shall hold in confidence any material nonpublic information delivered or made available to them by the Parent or any Subsidiary. The foregoing to the contrary notwithstanding, nothing herein shall prevent any Lender from disclosing any information delivered or made available to it by the Parent or any Subsidiary (i) to any other Lender, (ii) to any other Person if reasonably incidental to the administration of the credit contemplated hereby, (iii) upon the order of any court or -71- 79 administrative agency, (iv) upon the request or demand of any regulatory agency or authority, (v) which has been publicly disclosed other than as a result of a disclosure by the Agent or any Lender which is not permitted by this Agreement, (vi) in connection with any litigation to which the Agent, any Lender, or any of their respective Affiliates may be a party, along with the Parent, any Subsidiary or any of their respective Affiliates, (vii) to the extent reasonably required in connection with the exercise of any right or remedy under this Agreement, the other L/C Documents or otherwise, (viii) to such Lender's legal counsel and financial consultants and independent auditors, and (ix) to any actual or proposed participant or assignee of all or part of its rights under the credit contemplated hereby provided such participant or assignee agrees in writing to be bound by the duty of confidentiality under this Section to the same extent as if it were a Lender hereunder. -72- 80 Upon your acceptance hereof in the manner hereinafter set forth, this Agreement shall constitute a contract between us for the uses and purposes hereinabove set forth. Dated as of this 20th day of January, 1998. MORTON INDUSTRIAL GROUP, INC. By Its:__________________________________ MORTON METALCRAFT CO. By Its:__________________________________ MORTON METALCRAFT CO. OF NORTH CAROLINA By Its:__________________________________ -73- 81 Accepted and Agreed to at Chicago, Illinois as of the day and year last above written. Each of the Lenders hereby agrees with each other Lender that if it should receive or obtain any payment (whether by voluntary payment, by realization upon collateral, by the exercise of rights of setoff or banker's lien, by counterclaim or cross action, or by the enforcement of any rights under this Agreement, the Notes, the Guaranties or otherwise) in respect of the obligations of the any Borrower under this Agreement, the Notes and the Guaranties in a greater amount than such Lender would have received had such payment been made to the Agent and been distributed among the Lenders as contemplated by Section 2.4 hereof then in that event the Lender receiving such disproportionate payment shall purchase for cash without recourse from the other Lenders an interest in the obligations of such Borrower to such Lenders arising under this Agreement the Notes, and the Guaranties in such amount as shall result in a distribution of such payment as contemplated by Section 2.4 hereof. In the event any payment made to a Lender and shared with the other Lenders pursuant to the provisions hereof is ever recovered from such Lender, the Lenders receiving a portion of such payment hereunder shall restore the same to the payor Lender, but without interest. Amount and Percentage of Commitments: Revolving Credit Commitment: HARRIS TRUST AND SAVINGS BANK $14,000,000 (40%) Term Credit Commitment: By_____________________________ $6,000,000 (40%) Its Vice President 111 West Monroe Street Chicago, Illinois 60603 Attention: Agency Services Telephone: (312) 461-2359 Telecopy: (312) 765-1655 LIBOR Funding Office: Nassau Branch c/o 111 West Monroe Street Chicago, Illinois 60690 -74- 82 Amount and Percentage of Commitments: Revolving Credit Commitment: FIRSTAR BANK MILWAUKEE, N.A. $7,000,000 (20%) Term Credit Commitment: By______________________________ $3,000,000 (20%) Its________________________ _____________________________ _____________________________ _____________________________ _____________________________ Telephone: _________________ Telecopy: __________________ LIBOR Funding Office _____________________________ _____________________________ _____________________________ -75- 83 Amount and Percentage of Commitments: Revolving Credit Commitment: NATIONAL CITY BANK $7,000,000 (20%) Term Credit Commitment: By______________________________ $3,000,000 (20%) Its________________________ 1900 East Ninth Street Locator #2094 Cleveland, Ohio 44114-3484 Attention: Margaret Moek Telephone: (216) 575-2577 Telecopy: (216) 575-2162 LIBOR Funding Office 1900 East Ninth Street Locator #2094 Cleveland, Ohio 44114-3484 -76- 84 Amount and Percentage of Commitments: Revolving Credit Commitment: THE NORTHERN TRUST COMPANY $7,000,000 (20%) Term Credit Commitment: By______________________________ $3,000,000 (20%) Its________________________ ________________________________ ________________________________ ________________________________ ________________________________ Telephone: ___________________ Telecopy: ____________________ LIBOR Funding Office _____________________________ _____________________________ _____________________________ -77- EX-10.2 5 EX-10.2 1 EXHIBIT 10.2 SECURITY AGREEMENT This Security Agreement (the "Agreement") is dated as of January____, 1998, by and among the parties executing this Agreement under the heading "Debtors" (such parties, along with any parties who execute and deliver to the Agent an agreement in the form attached hereto as Exhibit D, being hereinafter referred to collectively as the "Debtors" and individually as a "Debtor"), and HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation ("Harris"), with its mailing address at 111 West Monroe Street, Chicago, Illinois 60603, acting as agent hereunder for the Lenders hereinafter identified and defined (Harris acting as such agent and any successor or successors to Harris acting in such capacity being hereinafter referred to as the "Agent"); PRELIMINARY STATEMENTS A. Morton Industrial Group, Inc., a Georgia corporation (the "Company"), and certain Subsidiaries of the Company, Harris, individually and as agent, and certain Lenders have entered into a Credit Agreement dated as of even date herewith (such Credit Agreement, as the same may be amended or modified from time to time, including amendments and restatements thereof in its entirety, being hereinafter referred to as the "Credit Agreement"), pursuant to which Harris and other Lenders from time to time party to the Credit Agreement (Harris and the other Lenders which are now or from time to time hereafter become party to the Credit Agreement, being hereinafter referred to collectively as the "Lenders" and individually as a "Lender") have agreed, subject to certain terms and conditions, to extend credit and make certain other financial accommodations available to the Borrowers identified therein. B. As a condition precedent to extending credit or otherwise making financial accommodations available to the Borrowers under the Credit Agreement, the Lenders have required, among other things, that each Debtor grant to the Agent for the benefit of the Lenders a lien on and security interest in certain personal property of such Debtor pursuant to this Agreement. C. The Company owns, directly or indirectly, all or substantially all of the equity interests in each Debtor (other than the Company) and the Company provides each Debtor with financial, management, administrative, and technical support which enables such Debtor to conduct its business in an orderly and efficient manner in the ordinary course. D. Each Debtor will benefit, directly or indirectly, from credit and other financial accommodations extended by the Lenders to the Borrowers. 2 NOW, THEREFORE, for and in consideration of the execution and delivery by the Lenders of the Credit Agreement, and other good and valuable consideration, receipt whereof is hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Terms Defined in Credit Agreement. All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. The term "Debtor" and "Debtors" as used herein shall mean and include the Debtors collectively and also each individually, with all grants, representations, warranties and covenants of and by the Debtors, or any of them, herein contained to constitute joint and several grants, representations, warranties and covenants of and by the Debtors; provided, however, that unless the context in which the same is used shall otherwise require, any grant, representation, warranty or covenant contained herein related to the Collateral shall be made by each Debtor only with respect to the Collateral owned by it or represented by such Debtor as owned by it. Section 2. Grant of Security Interest in the Collateral; Obligations Secured. (a) Each Debtor hereby grants to the Agent for the benefit of the Lenders a lien on and security interest in, and right of set-off against, and acknowledges and agrees that the Agent has and shall continue to have for the benefit of the Lenders a continuing lien on and security interest in, and right of set-off against, any and all right, title and interest of each Debtor, whether now owned or existing or hereafter created, acquired or arising, in and to the following: (i) Receivables. Receivables, whether now owned or existing or hereafter created, acquired or arising, and however evidenced or acquired, or in which such Debtor now has or hereafter acquires any rights (the term "Receivables" means and includes all accounts, accounts receivable, contract rights, instruments, notes, drafts, acceptances, documents, chattel paper, any right of such Debtor to payment for goods sold or leased or for services rendered, whether arising out of the sale of Inventory (as hereinafter defined) or otherwise and whether or not earned by performance, and all other forms of obligations owing to such Debtor, and all of such Debtor's rights to any merchandise and other goods (including without limitation any returned or repossessed goods and the right of stoppage in transit) which is represented by, arises from or is related to any of the foregoing); (ii) General Intangibles. All general intangibles, whether now owned or existing or hereafter created, acquired or arising, or in which such Debtor now has or hereafter acquires any rights, including, without limitation all patents, patent applications, patent licenses, trademarks, trademark registrations, trademark licenses, trade styles, trade names, copyrights, copyright registrations, copyright licenses and other licenses and similar intangibles and all customer, client and supplier lists (in whatever form maintained) and all rights in leases and other agreements relating to real or personal property, all -2- 3 causes of action and tax refunds of every kind and nature, all privileges, franchises, immunities, licenses, permits and similar intangibles, all rights to receive payments in connection with the termination of any pension plan or employee stock ownership plan or trust established for the benefit of employees of such Debtor and all other personal property (including things in action) not otherwise covered by this Agreement; (iii) Inventory. Inventory, whether now owned or existing or hereafter created, acquired or arising, or in which such Debtor now has or hereafter acquires any rights and all documents of title at any time evidencing or representing any part thereof (the term "Inventory" means and includes all goods which are held for sale or lease or are to be furnished under contracts of service or consumed in such Debtor's business, and all goods which are raw materials, work-in-process, finished goods, materials and supplies of every kind and nature, in each case used or usable in connection with the acquisition, manufacture, processing, supply, servicing, storing, packing, shipping, advertising, selling, leasing or furnishing of such goods, and any constituents or ingredients thereof, and all goods which are returned or repossessed goods); (iv) Equipment. Equipment, whether now owned or existing or hereafter created, acquired or arising, or in which such Debtor now has or hereafter acquires any rights (the term "Equipment" means and includes all equipment, machinery, tools, trade fixtures, furniture, furnishings, office equipment and vehicles (including vehicles subject to a certificate of title law) and all other goods, in each case now or hereafter used or usable in connection with such Debtor's business, together with all parts, accessories and attachments relating to any of the foregoing); (v) Investment Property. All Investment Property, whether now owned or existing or hereafter created, acquired or arising, or in which such Debtor now has or hereafter acquires any rights (the term "Investment Property" means and includes all investment property and any other securities (whether certificated or uncertificated), security entitlements, securities accounts, commodity contracts and commodity accounts, including all substitutions and additions thereto, all dividends, distributions and sums distributable or payable from, upon, or in respect of such property, and all rights and privileges incident to such property); (vi) Records and Cabinets. Supporting evidence and documents relating to any of the above-described property, including without limitation, computer programs, disks, tapes and related electronic data processing media, rights of such Debtor to retrieve the same from third parties, written applications, credit information, account cards, payment records, correspondence, delivery and installation certificates, invoice copies, delivery -3- 4 receipts, notes and other evidences of indebtedness, insurance certificates and the like, together with all books of account, ledgers and cabinets in which the same are reflected or maintained, all whether now existing or hereafter arising; (vii) Deposits and Property in Possession. All deposit accounts (whether general, special or otherwise) maintained with the Agent or any of the Lenders and all sums now or hereafter on deposit therein or payable thereon, and any and all other property or interests in property which now is or may from time to time hereafter come into the possession, custody or control of the Agent or any of the Lenders, or any agent or affiliate of the Agent or any of the Lenders, in any way and for any purpose (whether for safekeeping, custody, pledge, transmission, collection or otherwise); (viii) Accessions and Additions. All accessions and additions to and substitutions and replacements of any of the foregoing, whether now existing or hereafter arising; and (ix) Proceeds and Products. All proceeds and products of the foregoing and all insurance of the foregoing and proceeds thereof, whether now existing or hereafter arising; all of the foregoing being herein sometimes referred to as the "Collateral." (b) This Agreement is made and given to secure, and shall secure, the payment and performance of (i) (x) any and all indebtedness, obligations and liabilities of any of the Borrowers to the Agent, the Lenders, or any of them individually, evidenced by or otherwise arising out of or relating to the Credit Agreement or any promissory note of any of the Borrowers issued at any time under the Credit Agreement (including all notes issued in extension or renewal thereof or in substitution or replacement therefor), and (y) any liability of any of the Debtors, or any of them individually, arising out of the Credit Agreement, as well as for any and all other indebtedness, obligations and liabilities of the Debtors, or any of them individually, to the Agent, the Lenders, or any of them individually, evidenced by or otherwise arising out of or relating to this Agreement or any other Loan Document, in each case, whether now existing or hereafter arising (and whether arising before or after the filing of a petition in bankruptcy), due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired, and (ii) any and all expenses and charges, legal or otherwise, suffered or incurred by the Agent, the Lenders, or any of them individually, in collecting or enforcing any of such indebtedness, obligations or liabilities or in realizing on or protecting or preserving any security therefor, including, without limitation, the lien and security interest granted hereby (all of the foregoing being hereinafter referred to as the "Obligations"). Notwithstanding anything in this Agreement to the contrary, the right of -4- 5 recovery against any Debtor (other than the Borrowers to which this limitation shall not apply) under this Agreement shall not exceed $1 less than the amount which would render such Debtor's obligations under this Agreement void or voidable under applicable law, including fraudulent conveyance law. Section 3. Covenants, Agreements, Representations and Warranties. Each Debtor hereby covenants and agrees with, and represents and warrants to the Agent and the Lenders that: (a) Such Debtor is duly organized and existing under the laws of the state of its organization, is the sole and lawful owner of its Collateral and has full right, power and authority to enter into this Agreement and to perform each and all of the matters and things herein provided for; and the execution and delivery of this Agreement, and the observance and performance of any of the matters and things herein set forth, will not violate or contravene any provision of law or of the articles of incorporation, by-laws or operating agreement of such Debtor, as applicable, or of any indenture, loan agreement or other agreement of or affecting such Debtor or any of its properties, or result in the creation or imposition of any liens or encumbrance on any property of such Debtor. (b) The Collateral is in each Debtor's possession at the locations listed under Column_1 on Schedule_A attached hereto. Each Debtor's respective chief executive office and chief place of business is listed opposite its name on Schedule_A attached hereto and the Debtors have no other places of business other than those listed under Column_4 on Schedule_A attached hereto. No Debtor will remove its Collateral from the locations specified in the first sentence of this Section_3(b) without prior written notice to the Agent, unless such Collateral will be moved to a location outside the United States, in which event, the Agent's prior written consent shall be required, which consent shall not be unreasonably withheld (provided that if for any reason Collateral is at any time kept or located at locations other than its present location or locations hereafter consented to by the Agent shall nevertheless have and retain a security interest therein). (c) The Collateral and every part thereof is and will be free and clear of all security interests, liens (including, without limitation, mechanic's, laborer's and statutory liens), attachments, levies and encumbrances of every kind, nature and description and whether voluntary or involuntary except for the security interest of the Agent therein and as otherwise provided in the Credit Agreement, and each Debtor will warrant and defend its Collateral against any claims and demands of all persons at any time claiming the same or any interest therein adverse to the Agent or any Lender. -5- 6 (d) Each Debtor will pay promptly when due all taxes, assessments, and governmental charges and levies upon or against its Collateral in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith by appropriate proceedings. (e) Each Debtor at its own cost and expense will maintain, keep and preserve its Collateral in good repair and condition and will not waste or destroy such Collateral or any part thereof and will not be negligent in the care and use of any Collateral and will not use or permit to be used any Collateral in violation of any statute, ordinance or other governmental requirement. Each Debtor will perform its obligations under any contract or other agreement constituting part of the Collateral, it being understood and agreed that the Agent and the Lenders have no responsibility to perform such obligations. (f) Except for liens expressly permitted by the Credit Agreement, and subject to Sections_5(a), 7(b) and 7(c) hereof, no Debtor will, without the Agent's prior written consent, sell, assign, mortgage, lease or otherwise dispose of its Collateral or any interest therein. (g) Each Debtor will insure its Collateral which is insurable against such risks and hazards as other companies similarly situated insure against, and including in any event loss or damage by fire, theft, burglary, pilferage, loss in transit and such other hazards as the Agent may specify, in amounts and under policies containing loss payable clauses to the Agent as its interest may appear (and, if the Agent requests, naming the Agent and the Lenders as additional insureds therein) by insurers acceptable to the Agent. In case of any material loss, damage to or destruction of its Collateral or any part thereof, the appropriate Debtor shall promptly give written notice thereof to the Agent generally describing the nature and extent of such damage or destruction. In the event any Debtor shall receive any proceeds of such insurance, such Debtor will immediately pay over such proceeds to the Agent. Net insurance proceeds received by the Agent under the provisions hereof or under any policy or policies of insurance covering the Collateral or any part thereof shall be applied to the reduction of the Obligations (whether or not then due); provided, however, that the Agent may in its sole discretion release any or all such insurance proceeds to the appropriate Debtor. All insurance proceeds shall be subject to the lien and security interest of the Agent hereunder. UNLESS THE DEBTORS PROVIDE THE AGENT WITH EVIDENCE OF THE INSURANCE COVERAGE REQUIRED BY THIS AGREEMENT, THE AGENT MAY PURCHASE INSURANCE AT THE DEBTORS' EXPENSE TO PROTECT THE AGENT'S INTERESTS IN THE COLLATERAL. THIS INSURANCE MAY, BUT NEED NOT, PROTECT ANY DEBTOR'S INTERESTS IN THE COLLATERAL. -6- 7 THE COVERAGE PURCHASED BY THE AGENT MAY NOT PAY ANY CLAIMS THAT ANY DEBTOR MAKES OR ANY CLAIM THAT IS MADE AGAINST SUCH DEBTOR IN CONNECTION WITH THE COLLATERAL. THE DEBTORS MAY LATER CANCEL ANY SUCH INSURANCE PURCHASED BY THE AGENT, BUT ONLY AFTER PROVIDING THE AGENT WITH EVIDENCE THAT THE DEBTORS HAVE OBTAINED INSURANCE AS REQUIRED BY THIS AGREEMENT. IF THE AGENT PURCHASES INSURANCE FOR THE COLLATERAL, THE DEBTORS WILL BE RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING INTEREST AND ANY OTHER CHARGES THAT THE AGENT MAY IMPOSE IN CONNECTION WITH THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE CANCELLATION OR EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE MAY BE ADDED TO THE OBLIGATIONS SECURED HEREBY. THE COSTS OF THE INSURANCE MAY BE MORE THAN THE COST OF INSURANCE THE DEBTORS MAY BE ABLE TO OBTAIN ON THEIR OWN. (h) Each Debtor will at all times allow the Agent, any Lender or their respective representatives free access to and right of inspection of the Collateral. Each Debtor will, to the extent it is within its power so to do, authorize and instruct all bailees and other parties at any time holding, storing, shipping or transferring all or any part of such Debtor's Collateral to permit the Agent, any Lender or their respective or its designees to examine and inspect any of such Collateral then in such party's possession and to verify from such party's own books and records any information concerning such Collateral or any part thereof which the Agent or such Lender may seek to verify. As to any premises not owned by any of the Debtors wherein any of the Collateral is located, if any, the appropriate Debtor shall, unless the Agent requests otherwise, cause each Person having any right, title or interest in, or lien on, any of such premises to enter into an agreement (any such agreement to contain a legal description of such premises) whereby such party disclaims any right, title and interest in, and lien on, the Collateral, allowing the removal of such Collateral by the Agent or its designee and otherwise in form and substance acceptable to the Agent. (i) Each Debtor agrees from time to time to deliver to the Agent and any Lender such evidence of the existence and identity of such Debtor's Collateral and of its availability as collateral security pursuant hereto (including, without limitation, schedules describing all Receivables created or acquired by such Debtor, copies of customer invoices or the equivalent and original shipping or delivery receipts for all merchandise and other goods sold or leased or services rendered, together with such Debtor's warranty of the genuineness thereof, and reports stating the book value of Inventory and Equipment by major category and location), as the Agent or such Lender may request. Each Debtor will promptly notify the Agent and each Lender of any Collateral which such Debtor has -7- 8 determined to have been rendered obsolete, stating the prior book value of such Collateral, its type and location. (j) Each Debtor will comply with the terms and conditions of any leases, easements, right-of-way agreements or other agreements covering the premises wherein its Collateral is located and any orders, ordinances, laws or statutes of any city, state or other governmental entity, department or agency having jurisdiction with respect to such premises or the conduct of business thereon. (k) On failure of any Debtor to perform any of the covenants and agreements herein contained, the Agent may, at its option, perform the same and in so doing may expend such sums as the Agent may deem advisable in the performance thereof, including without limitation the payment of any insurance premiums, the payment of any taxes, liens and encumbrances, expenditures made in defending against any adverse claim and all other expenditures which the Agent may be compelled to make by operation of law or which the Agent may make by agreement or otherwise for the protection of the security hereof. All such sums and amounts so expended shall be repayable by the Debtors immediately without notice or demand, shall constitute so much additional Obligations hereby secured and shall bear interest from the date said amounts are expended at the rate per annum (computed on the basis of a 365-day or 366 day year, as the case may be, for the actual number of days elapsed) determined by adding 2% to the Base Rate (such rate per annum as so determined being hereinafter referred to as the "Default Rate"). No such performance of any covenant or agreement by the Agent on behalf of any Debtor and no such advancement or expenditure therefor, shall relieve any Debtor of any default under the terms of this Agreement or in any way obligate the Agent or any Lender to take any further or future action with respect thereto. The Agent, in making any payment hereby authorized, may do so according to any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien or title or claim. The Agent, in performing any act hereunder, shall be the sole judge of whether the relevant Debtor is required to perform same under the terms of this Agreement. The Agent is authorized to charge any depository account of any Debtor maintained with the Agent for the amount of such sums and amounts so expended. (l) Each Debtor warrants that such Debtor has not transacted business, and does not transact business, under any trade names except as set forth on Schedule_B. Each Debtor agrees that it will not change its name or transact business under any trade names without first giving the Agent 30 days' prior written notice of its intent to do so. -8- 9 (m) Each Debtor agrees to execute and deliver to the Agent such further agreements and assignments or other instruments and to do all such other things as the Agent may deem necessary or appropriate to assure the Agent its security interest hereunder, including such financing statement or statements or amendments thereof or supplements thereto or other instruments as the Agent or the Required Lenders may from time to time require in order to comply with the Uniform Commercial Code as enacted in the State of Illinois and any successor statute(s) thereto (the "Code"). Each Debtor hereby agrees that a carbon, photographic or other reproduction of this Agreement or any such financing statement is sufficient for filing as a financing statement by the Agent without notice thereof to any Debtor wherever the Agent in its sole discretion desires to file the same. In the event for any reason the law of any other jurisdiction than Illinois becomes or is applicable to the Collateral or any part thereof, or to any of the Obligations, each Debtor agrees to execute and deliver all such instruments and to do all such other things as the Agent in its sole discretion deems necessary or appropriate to preserve, protect and enforce the security interests of the Agent under the law of such other jurisdiction to at least the same extent as such security interests would be protected under the Code. If any Collateral is in the possession or control of any Debtor's agents or processors and unless the Agent requests otherwise, such Debtor agrees to notify such agents or processors in writing of the Agent's security interests therein, and upon the Agent's request instruct them to hold all such Collateral for the Agent's account and subject to the Agent's instructions. The Debtors agree to mark their books and records to reflect the security interests of the Agent in the Collateral. Section 4. Special Provisions Re: Receivables. (a)_As of the time any Receivable becomes subject to the security interest provided for hereby and at all times thereafter, each Debtor shall be deemed to have warranted as to each and all of such Receivables that all warranties of such Debtor set forth in this Agreement are true and correct with respect to such Receivables; that each Receivable and all papers and documents relating thereto are genuine and in all respects what they purport to be; that each Receivable is valid and subsisting and, if such Receivable is an account, arises out of a bona fide sale of goods sold and delivered by such Debtor to, or in the process of being delivered to, or out of and for services theretofore actually rendered by such Debtor to, the account debtor named therein; that no such Receivable is evidenced by any instrument or chattel paper unless such instrument or chattel paper has theretofore been endorsed by such Debtor and delivered to the Agent (except to the extent the Agent specifically requests such Debtor not to do so with respect to any such instrument or chattel paper); that no surety bond was required or given in connection with said Receivable or the contracts or purchase orders out of which the same arose; that the amount of the Receivable represented as owing is the correct amount actually and unconditionally owing, except for normal cash discounts on normal trade terms in the ordinary course of business if such Receivable is an -9- 10 account and that the amount of such Receivable represented as owing is not disputed and is not subject to any set-offs, credits, deductions or countercharges other than those arising in the ordinary course of such Debtor's business which are disclosed to the Agent in writing promptly upon such Debtor becoming aware thereof; provided, however, that the untruth of the foregoing warranties of this sentence as to Receivables aggregating not more than $100,000 shall not constitute a breach of this sentence. Without limiting the foregoing, if any Receivable arises out of a contract with the United States of America or any of its departments, agencies or instrumentalities, if and to the extent the Agent so requests, each Debtor agrees to notify the Agent and execute whatever instruments and documents are required by the Agent in order that such Receivable shall be assigned to the Agent and that proper notice of such assignment shall be given under the federal Assignment of Claims Act (or any successor statute) (b) Each Debtor shall keep all of its books and records relating to the Receivables only at its chief executive office described in Section_3(b) hereof. (c) Unless and until an Event of Default occurs, any merchandise which is returned by a customer or account debtor or otherwise recovered may be resold by the Debtors in the ordinary course of their respective businesses in accordance with Section_5(b) hereof; after an Event of Default occurs, such merchandise shall be set aside and held by each of the Debtors as trustee for the Agent and the Lenders and shall remain part of the Agent's Collateral. Unless and until an Event of Default occurs, each Debtor may settle and adjust disputes and claims with its customers and account debtors, handle returns and recoveries and grant discounts, credits and allowances in the ordinary course of its business and otherwise for amounts and on terms which such Debtor considers advisable. However, after an Event of Default has occurred and unless the Agent requests otherwise, each Debtor shall notify the Agent promptly of all returns and recoveries and on request deliver the merchandise to the Agent. After an Event of Default has occurred and unless the Agent requests otherwise, each Debtor shall also notify the Agent promptly of all disputes and claims and settle or adjust them at no expense to the Agent or the Lenders, but no discount, credit or allowance other than on normal trade terms in the ordinary course of business shall be granted to any customer or account debtor and no returns of merchandise shall be accepted by such Debtor without the Agent's consent. The Agent may, at all times after such an Event of Default has occurred, settle or adjust disputes and claims directly with customers or account debtors for amounts and upon terms which the Agent considers advisable. (d) From time to time, as the Agent may request of any Debtor, such Debtor shall provide the Agent with schedules describing all Receivables created or acquired by such Debtor, provided, however, that the failure of such Debtor to execute and deliver such schedules shall not affect or limit the Agent's security interest or other rights in and to any such Receivables. -10- 11 Together with each schedule, each Debtor shall if requested by the Agent, furnish copies of customers' invoices or the equivalent, and original shipping or delivery receipts, for all merchandise sold, and each Debtor warrants the genuineness thereof. Section 5. Collection of Receivables. (a) Except as otherwise provided in this Agreement each Debtor shall make collection of all of its Receivables and may use the same to carry on its business in accordance with sound business practice and otherwise subject to the terms hereof. (b) Whether or not the Agent has exercised any or all of its rights under other provisions of this Section_5 and whether or not any Event of Default has occurred, at the request of the Agent, each Debtor agrees that: (i)_all instruments and chattel paper at any time constituting part of the Collateral (including any post-dated checks) shall, upon receipt by the relevant Debtor, be immediately endorsed to and deposited with Agent; and (ii)_such Debtor shall instruct all account debtors to remit all payments in respect of its Receivables to a lockbox or lockboxes from which deposits will be made into one or more accounts maintained with the Agent or under the control by agreement of the Agent (whether or not maintained with the Agent), the Debtors acknowledging that each such account and all funds contained therein constitute Collateral hereunder. (c) Whether or not any Event of Default has occurred and whether or not the Agent has exercised any or all of its rights under other provisions of this Section_5, in the event the Agent requests any Debtor to do so, all instruments and chattel paper at any time constituting part of the Receivables (including any postdated checks) shall, upon receipt by such Debtor, be immediately endorsed to and deposited with the Agent. (d) Upon the occurrence and during the continuation of any Event of Default and whether or not the Agent has exercised any or all of its rights under other provisions of this Section_5, the Agent or its designee may notify any Debtor's customers or account debtors at any time that Receivables have been assigned to the Agent or of the Agent's security interest therein and either in its own name, or such Debtor's or both, demand, collect (including without limitation through a lockbox analogous to that described in Section_5(b) hereof), receive, receipt for, sue for, compound and give acquittance for any or all amounts due or to become due on Receivables, and in the Agent's discretion file any claim or take any other action or proceeding which the Agent may deem necessary or appropriate to protect and realize upon the security interest of the Agent in the Receivables. (e) Any proceeds of Receivables or other Collateral transmitted to or otherwise received by the Agent pursuant to any of the provisions of Sections 5(b), 5(c) or 5(d) hereof shall -11- 12 be handled and administered by the Agent in and through a remittance account maintained at the Agent and each Debtor acknowledges that the maintenance of such remittance account by the Agent is solely for the Agent's own convenience and that such Debtor does not have any right, title or interest in such remittance account or any amounts at any time standing to the credit thereof. The Agent may apply all or any part of any proceeds of Receivables or other Collateral received by it from any source to the payment of the Obligations (whether or not then due and payable), such applications to be made in such amounts, in such manner and order and at such intervals as the Agent may from time to time in its discretion determine, but not less often than once each week. The Agent need not apply or give credit for any item included in proceeds of Receivables or other Collateral until the Agent has received final payment therefor at its office in cash or final solvent credits current in Chicago, Illinois, acceptable to the Agent as such. However, if the Agent does give credit for any item prior to receiving final payment therefor and the Agent fails to receive such final payment or an item is charged back to the Agent for any reason, the Agent may at its election in either instance charge the amount of such item back against the remittance account, together with interest thereon at the Default Rate. Each Debtor shall accompany each transmission of any proceeds of Receivables or other Collateral to the Agent with a report in such form as the Agent shall require identifying the particular Receivable or other Collateral from which the same arises or relates. The Debtors hereby jointly and severally indemnify the Agent and the Lenders from and against all liabilities, damages, losses, actions, claims, judgments, costs, expenses, charges and attorney's fees suffered or incurred by the Agent or the Lenders because of the maintenance of the foregoing arrangements. The Agent and the Lenders shall have no liability or responsibility to any Debtor for accepting any check, draft or other order for payment of money bearing the legend "payment in full" or words of similar import or any other restrictive legend or endorsement whatsoever or be responsible for determining the correctness of any remittance. Section 6. Special Provisions Re: Investment Property. (a)__Unless and until an Event of Default has occurred and is continuing and thereafter until notified to the contrary by the Agent pursuant to Section_9(e) hereof: (i) Each Debtor shall be entitled to exercise all voting and/or consensual powers pertaining to the Investment Property or any part thereof owned or held by it, for all purposes not inconsistent with the terms of this Agreement, the Credit Agreement or any other document evidencing or otherwise relating to any Obligations; and (ii) Each Debtor shall be entitled to receive and retain all cash dividends paid upon or in respect of the Investment Property owned or held by it. -12- 13 (b) Certificates for all securities now or at any time constituting Investment Property hereunder shall be promptly delivered by the relevant Debtor to the Agent duly endorsed in blank for transfer or accompanied by an appropriate assignment or assignments or an appropriate undated stock power or powers, in every case sufficient to transfer title thereto, and, with respect to any Investment Property held by a securities intermediary, commodity intermediary, or other financial intermediary of any kind, the relevant Debtor shall execute and deliver, and shall cause any such intermediary to execute and deliver, an agreement among such Debtor, the Agent, and such intermediary in form and substance satisfactory to the Agent which provides, among other things, for the intermediary's agreement that it will comply with entitlement orders, and apply any value distributed on account of any Investment Property maintained in an account with such intermediary, as directed by the Agent without further consent by such Debtor at any time after the occurrence of any Event of Default; provided, however, that, prior to the existence of an Event of Default and thereafter until otherwise required by the Agent or the Required Lenders, a Debtor shall not be required to deliver any such certificates or cause any such agreement to be entered into with the relevant financial intermediary if and so long as (i) the fair market value of any such Investment Property held by such Debtor is less than $100,000 and (ii)_the aggregate fair market value of all such Investment Property held by the Debtors and not subject to the control (as such term is defined in the Code) of the Agent under the Collateral Documents is less than $250,000 at any one time outstanding. The Agent may at any time after the occurrence of an Event of Default cause to be transferred into its name or the name of its nominee or nominees any and all of the Investment Property hereunder. (c) Unless and until an Event of Default has occurred and is continuing, each Debtor may sell or otherwise dispose of any Investment Property to the extent permitted by the Credit Agreement, provided that no Debtor shall sell or otherwise dispose of any capital stock or other equity interests in any other Debtor or any direct or indirect Subsidiary of any Debtor without the Agent's prior written consent. During the existence of any Event of Default, no Debtor shall sell or otherwise dispose of all or any part of the Investment Property without the prior written consent of the Agent. (d) Each Debtor represents that on the date of this Agreement, none of the Investment Property consists of margin stock (as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System) except to the extent such Debtor has delivered to the Agent a duly executed and completed Form U-1 with respect to such stock. If at any time the Investment Property or any part thereof consists of margin stock, the relevant Debtor shall promptly so notify the Agent and deliver to the Agent duly executed and completed Form U-1 and such other instruments and documents reasonably requested by the Agent in form and substance satisfactory to the Agent. -13- 14 (e) Notwithstanding anything to the contrary contained herein, in the event any Investment Property is subject to the terms of a separate security agreement (including, without limitation, the Pledge Agreement bearing even date herewith relating to the equity interests issued by certain of the Debtors hereunder) in favor of the Agent, the terms of such separate security agreement shall govern and control unless otherwise agreed to in writing by the Agent and the Lenders. Section 7. Special Provisions Re: Inventory and Equipment. (a)__Each Debtor will at its own cost and expense maintain, keep and preserve its Inventory in good and merchantable condition and keep and preserve its Equipment in good repair, working order and condition, ordinary wear and tear excepted, and without limiting the foregoing make all necessary and proper repairs, replacements and additions to the Equipment so that the efficiency thereof shall be fully preserved and maintained. (b) Each Debtor may, until an Event of Default has occurred and is continuing and thereafter until otherwise notified by the Agent, use, consume and sell its Inventory in the ordinary course of its business as presently conducted, but a sale in the ordinary course of business shall not under any circumstance include any transfer or sale in satisfaction, partial or complete, of a debt owing by any Debtor. (c) Each Debtor may, until an Event of Default has occurred and is continuing and thereafter until otherwise notified by the Agent, sell (i) obsolete, worn out or unusable Equipment which is concurrently replaced with similar Equipment at least equal in quality and condition to that sold and owned by such Debtor free of any lien, charge or encumbrance other than the lien hereof and (y)_Equipment which is not necessary for, or of importance to, the proper conduct of any Debtor's business in the ordinary course and failure to repair or replace such Equipment would not be disadvantageous to the rights hereunder of the Agent and the Lenders. (d) As of the time any Inventory or Equipment becomes subject to the security interest provided for hereby and at all times thereafter, each Debtor shall be deemed to have warranted as to any and all of its Inventory and Equipment that all warranties of such Debtor set forth in this Agreement are true and correct with respect to such Inventory and Equipment and that all of such Inventory and Equipment is located at a location set forth pursuant to Section 3(b) hereof. Each Debtor warrants and agrees that no Inventory is or will be consigned to any other person without the Agent's prior written consent. (e) Each Debtor shall at its own cost and expense cause the lien of the Agent in and to any portion of its Collateral subject to a certificate of title law to be duly noted on such certificate of title or to be otherwise filed in such manner as is prescribed by law in order to perfect such lien -14- 15 and shall cause all such certificates of title and evidences of lien to be deposited with the Agent unless otherwise permitted by the Required Lenders in their sole discretion; provided that no Debtor shall be obligated to cause the Agent's lien to be so noted or to deliver any such certificate of title to the Agent to the extent such certificate is held by another creditor with a purchase money security interest permitted by the Credit Agreement on the Collateral represented by such certificate. (f) Each Debtor shall at its own cost and expense cause any certificate of title evidencing any of the Collateral to be amended to reflect the current and correct name of such Debtor as and when required by applicable law, but in any event no later than such date on which such Debtor must renew its registration of such Collateral under applicable law. Each Debtor shall cause the lien of the Agent in such Collateral to continue to be duly noted on such amended or reissued certificate of title. (g) Except for Equipment from time to time located on the real estate described on Schedule C attached hereto and as otherwise disclosed to the Agent in writing, none of the Equipment is or will be attached to real estate in such a manner that the same may become a fixture. (h) If any of its Inventory is at any time evidenced by a document of title, such document shall be promptly delivered by the appropriate Debtor to the Agent. Section 8. Power of Attorney. In addition to any other powers of attorney contained herein, each Debtor appoints the Agent, its nominee, or any other person whom the Agent may designate as such Debtor's attorney in fact, with full power to endorse such Debtor's names on any checks, notes, acceptances, money orders, drafts or other forms of payment or security that may come into the Agent's possession, to sign such Debtor's names on any invoice or bill of lading relating to any Receivables, on drafts against customers, on schedules and assignments of Receivables, on notices of assignment, on public records, on verifications of accounts and on notices to customers, to send requests for verification of Receivables to customers or account debtors, to notify the post office authorities to change the address for delivery of such Debtor's mail to an address designated by the Agent and to receive, open and dispose of all mail addressed to such Debtor and to do all other things necessary to carry out this Agreement. Each Debtor hereby ratifies and approves all acts of any such attorney and agree that neither the Agent nor any such attorney nor any Lender will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law other than their own gross negligence or willful misconduct. The foregoing power of attorney, being coupled with an interest, is irrevocable until the Obligations have been fully satisfied and any commitment of the Lenders to extend credit constituting Obligations has terminated. The Agent may file one or more financing -15- 16 statements disclosing its security interest in any or all of the Collateral without any Debtor's signature appearing thereon. Each Debtor also hereby grants the Agent a power of attorney to execute any such financing statement, or amendments and supplements to financing statements, on behalf of such Debtor without notice thereof to any Debtor, which power of attorney is coupled with an interest and is irrevocable until the Obligations have been fully satisfied and any commitment of the Lenders to extend credit constituting Obligations to any of the Borrowers has terminated. Section 9. Defaults and Remedies. (a) The occurrence of any event or the existence of any condition which is specified as an Event of Default under the Credit Agreement shall constitute an "Event of Default" hereunder. (b) Upon the occurrence of any Event of Default, the Agent shall have, in addition to all other rights provided herein or by law, the rights and remedies of a secured party under the Code (regardless of whether the Code is the law of the jurisdiction where the rights or remedies are asserted and regardless of whether the Code applies to the affected Collateral), and further the Agent may, without demand and without advertisement, notice, hearing or process of law, all of which each Debtor hereby waives to the extent permitted by law, at any time or times, sell and deliver any or all Collateral held by or for it at public or private sale, for cash, upon credit or otherwise, at such prices and upon such terms as the Agent deems advisable, in its sole discretion. In addition to all other sums due the Agent and the Lenders hereunder, the Debtors jointly and severally agree to pay to the Agent and the Lenders all costs and expenses incurred by the Agent and the Lenders, including reasonable attorneys' fees and court costs, in obtaining, liquidating or enforcing payment of Collateral or Obligations or in the prosecution or defense of any action or proceeding by or against the Agent or such Lender or the Debtors or any of them concerning any matter arising out of or connected with this Agreement or the Collateral or Obligations, including without limitation any of the foregoing arising in, arising under or related to a case under the Bankruptcy Code. Any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Debtors in accordance with Section 14(b) hereof at least ten days before the time of sale or other event giving rise to the requirement of such notice; however, no notification need be given to a Debtor if that Debtor has signed, after an Event of Default has occurred, a statement renouncing any right to notification of sale or other intended disposition. The Agent shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. The Agent or any Lender may be the purchaser at any such sale. To the extent permitted by applicable law, each Debtor hereby waives all of its rights of redemption from any such sale. Subject to the provisions of applicable law, the Agent may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, be -16- 17 made at the time and place to which the sale was postponed or the Agent may further postpone such sale by announcement made at such time and place. (c) Without in any way limiting the foregoing, during the existence of any Event of Default, the Agent shall have the right, in addition to all other rights provided herein or by law, to take physical possession of any and all of the Collateral and anything found therein, the right for that purpose to enter without legal process any premises where the Collateral may be found (provided such entry be done lawfully), and the right to maintain such possession on each Debtor's premises (each Debtor hereby agreeing to lease warehouses without cost or expense to the Agent or its designee if the Agent so requests) or to remove its Collateral or any part thereof to such other places as the Agent may desire. During the existence of any Event of Default, the Agent shall have the right to exercise any and all rights with respect to deposit accounts of any Debtor maintained with the Agent or any Lender, including, without limitation, the right to collect, withdraw and receive all amounts due or to become due or payable under each such deposit account. During the existence of any Event of Default, each Debtor shall, upon the Agent's demand, assemble its Collateral and make it available to the Agent at a place designated by the Agent. If the Agent exercises its right to take possession of the Collateral, each Debtor shall also at its expense perform any and all other steps requested by the Agent to preserve and protect the security interest hereby granted in the Collateral, such as placing and maintaining signs indicating the security interest of the Agent, appointing overseers for the Collateral and maintaining stock records. (d) Without in any way limiting the foregoing, each Debtor hereby grants to the Agent and the Lenders a royalty-free irrevocable license and right to use all of such Debtor's patents, patent applications, patent licenses, trademarks, trademark registrations, trademark licenses, trade names, trade styles, and similar intangibles in connection with any foreclosure or other realization by the Agent or the Lenders on all or any part of the Collateral, provided that the license granted hereunder shall not include any rights in any license agreement under which the relevant Debtor is licensee which, by its terms, prohibits the license contemplated by this Section. The license and right granted the Agent and the Lenders hereby shall be without any royalty or fee or charge whatsoever. Such license and right shall only be exercisable upon the occurrence and continuation of an Event of Default. (e) Without in any way limiting the foregoing, during the existence of any Event of Default, all rights of a Debtor to exercise the voting and/or consensual powers which it is entitled to exercise pursuant to Section_6(a)(i) hereof and/or to receive and retain the distributions which it is entitled to receive and retain pursuant to Section 6(a)(ii) hereof, shall, at the option of the Agent, cease and thereupon become vested in the Agent, which, in addition to all other rights provided herein or by law, shall then be entitled solely and exclusively to exercise all voting and -17- 18 other consensual powers pertaining to the Investment Property and/or to receive and retain the distributions which such Debtor would otherwise have been authorized to retain pursuant to Section 6(a)(ii) hereof and shall then be entitled solely and exclusively to exercise any and all rights of conversion, exchange or subscription or any other rights, privileges or options pertaining to any Investment Property as if the Agent were the absolute owner thereof including, without limitation, the rights to exchange, at its discretion, any and all of the Investment Property upon the merger, consolidation, reorganization, recapitalization or other readjustment of the respective issuer thereof or upon the exercise by or on behalf of any such issuer or the Agent of any right, privilege or option pertaining to any Investment Property and, in connection therewith, to deposit and deliver any and all of the Investment Property with any committee, depositary, transfer Agent, registrar or other designated agency upon such terms and conditions as the Agent may determine. Without limiting the foregoing, during the existence of any Event of Default, the Agent may, by written demand, direct any securities intermediary, commodities intermediary, or other financial intermediary at any time holding any Investment Property, or any issuer thereof, to deliver such Collateral, or any part thereof, and/or liquidate such Collateral, or any party thereof, and deliver the proceeds therefrom to the Agent. In the event the Agent in good faith believes any of the Collateral constitutes restricted securities within the meaning of any applicable securities laws, any disposition thereof in compliance with such laws shall not render the disposition commercially unreasonable. (f) The powers conferred upon the Agent hereunder are solely to protect its interest in the Collateral and shall not impose on it any duty to exercise such powers. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of Investment Property in its possession if such Collateral is accorded treatment substantially equivalent to that which the Agent accords its own property consisting of similar type assets, it being understood, however, that the Agent shall have no responsibility for ascertaining or taking any action with respect to calls, conversions, exchanges, maturities, tenders, or other matters relating to any such Collateral, whether or not the Agent has or is deemed to have knowledge of such matters. This Agreement constitutes an assignment of rights only and not an assignment of any duties or obligations of any Debtor in any way related to the Collateral, and the Agent shall have no duty or obligation to discharge any such duty or obligation. The Agent shall have no responsibility for taking any necessary steps to preserve rights against any parties with respect to any Collateral or initiating any action to protect the Collateral against the possibility of a decline in market value. Neither the Agent or any Lender, nor any party acting as attorney for the Agent or any Lender, shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law other than such person's gross negligence or willful misconduct. (g) Failure by the Agent or any Lender to exercise any right, remedy or option under this Agreement or any other agreement between the Debtors or any of them and the Agent or any -18- 19 Lender or Lenders or provided by law, or delay by the Agent or any Lender in exercising the same, shall not operate as a waiver; no waiver shall be effective unless it is in writing, signed by the party against whom enforcement of the waiver is sought and then only to the extent specifically stated. Neither the Agent, any Lender nor any party acting as attorney for the Agent or such Lender, shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct. The rights and remedies of the Agent and the Lenders under this Agreement shall be cumulative and not exclusive of any other right or remedy which the Agent or any Lender may have. For purposes of this Agreement, an Event of Default shall be construed as continuing after its occurrence until the same is waived in writing by the Lenders or the Required Lenders, as the case may be, in accordance with the Credit Agreement. Section 10. Application of Proceeds. The proceeds and avails of the Collateral at any time received by the Agent upon the occurrence and during the continuation of any Event of Default shall, when received by the Agent in cash or its equivalent, be applied by the Agent in reduction of the Obligations in accordance with the terms of the Credit Agreement. The Debtors shall remain liable to the Agent and the Lenders for any deficiency. Any surplus remaining after the full payment and satisfaction of the Obligations shall be returned to the Debtors or to whomsoever the Agent reasonably determines is lawfully entitled thereto. Section 11. Continuing Agreement. This Agreement shall be a continuing agreement in every respect and shall remain in full force and effect until all of the Obligations, both for principal and interest, have been fully paid and satisfied and any commitment to extend any credit constituting Obligations to any of the Borrowers shall have terminated. Section 12. Primary Security; Obligations Absolute. The lien and security herein created and provided for stand as direct and primary security for the Obligations. No application of any sums received by the Agent in respect of the Collateral or any disposition thereof to the reduction of the Obligations or any portion thereof shall in any manner entitle any Debtor to any right, title or interest in or to the Obligations or any collateral security therefor, whether by subrogation or otherwise, unless and until all Obligations have been fully paid and satisfied and any commitment to extend credit constituting Obligations to any of the Borrowers shall have terminated. Each Debtor acknowledges and agrees that the lien and security hereby created and provided for are absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of the Agent, any Lender or any other holder of any of the Obligations, and without limiting the generality of the foregoing, the lien and security hereof shall not be impaired by any acceptance by the Agent, any Lender or any holder of any of the Obligations of any other security for or guarantors upon any of the Obligations or by any failure, neglect or omission on the part of the Agent, any Lender or any other holder of any of the -19- 20 Obligations to realize upon or protect any of the Obligations or any collateral security therefor. The lien and security hereof shall not in any manner be impaired or affected by (and the Agent and the Lenders, without notice to anyone, are hereby authorized to make from time to time) any sale, pledge, surrender, compromise, settlement, release, renewal, extension, indulgence, alteration, substitution, exchange, change in, modification or disposition of any of the Obligations, or of any collateral security therefor, or of any guaranty thereof or of any obligor thereon. The Lenders may at their discretion at any time grant credit to any of the Borrowers without notice to any Debtor in such amounts and on such terms as the Lenders may elect (all of such to constitute additional Obligations) without in any manner impairing the lien and security hereby created and provided for. No release, compromise or discharge of any Debtor hereunder or with respect to any of the Obligations or any Collateral provided by such Debtor shall release or discharge, or impair the agreements of, any other Debtor hereunder or in any manner impair the liens and security interests granted by any other Debtor hereunder; and the Agent may proceed against the Collateral provided hereunder by any one or more of the Debtors without proceeding against any or all of the other Debtors, their respective properties or any other security or guaranty whatsoever. Without limiting the generality of the foregoing, the Agent (acting at the direction of the Lenders) may at any time or from time to time release any Debtor from its obligations hereunder or release any Collateral or effect any compromise with any Debtor, and no such release or compromise shall in any manner impair or otherwise effect the liens granted by, or the obligations of, the other Debtors hereunder. In order to foreclose or otherwise realize hereon and to exercise the rights granted the Agent hereunder and under applicable law as against any Debtor or any Collateral in which such Debtor has rights, there shall be no obligation on the part of the Agent, any Lender or any other holder of any of the Obligations at any time to first resort for payment to any of the Borrowers or any other Debtor or any other Person, its property or estate or to any guaranty of the Obligations or any portion thereof or to resort to any other collateral security, property, liens or any other rights or remedies whatsoever, and the Agent shall have the right to enforce this instrument as against any Debtor or any Collateral in which such Debtor has rights, irrespective of whether or not other proceedings or steps are pending seeking resort to or realization upon or from any of the foregoing. Section 13. The Agent. In acting under or by virtue of this Agreement, the Agent shall be entitled to all the rights, authority, privileges and immunities provided in Section_10 of the Credit Agreement, all of which provisions of said Section 10 are incorporated by reference herein with the same force and effect as if set forth herein in their entirety. The Agent hereby disclaims any representation or warranty to the Lenders concerning the perfection of the security interest granted hereunder or in the value of any of the Collateral. Section 14. Miscellaneous. (a) This Agreement cannot be changed or terminated orally. All of the rights, privileges, remedies and options given to the Agent and the Lenders -20- 21 hereunder shall inure to the benefit of their respective successors and assigns, and all the terms, conditions, promises, covenants, representations and warranties of and in this Agreement shall bind each Debtor and its legal representatives, successors and assigns, provided that no Debtor may assign its rights or delegate its duties hereunder without the Agent's prior written consent. Without limiting the generality of the foregoing, and subject to the provisions of Sections 12.14 and 12.15 of the Credit Agreement, any Lender may assign or otherwise transfer any indebtedness held by it secured by this Agreement to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, subject, however, to the provisions of the Credit Agreement. Each Debtor hereby releases the Agent and each Lender from any liability for any act or omission relating to its Collateral or this Agreement, except the Agent's or such Lender's gross negligence or willful misconduct. (b) All communications provided for herein shall be in writing, except as otherwise specifically provided for hereinabove, and shall be deemed to have been given or made, if to any Debtor when given to any of the Borrowers in accordance with Section 12.8 of the Credit Agreement, or if to the Agent or any Lender, when given to such party in accordance with Section 12.8 of the Credit Agreement. (c) No Lender shall have the right to institute any suit, action or proceeding in equity or at law for the foreclosure against any Collateral subject to this Agreement or for the execution of any trust or power hereof or for the appointment of a receiver, or for the enforcement of any other remedy under or upon this Agreement; it being understood and intended that no one or more of the Lenders shall have any right in any manner whatsoever to affect, disturb or prejudice the lien and security interest of this Agreement by its or their action or to enforce any right hereunder, and that all proceedings at law or in equity shall be instituted, had and maintained by the Agent in the manner herein provided for the ratable benefit of the Lenders. (d) In the event that any provision hereof shall be deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Agreement shall be construed as not containing such provision, but only as to such locations where such law or interpretation is operative, and the invalidity of such provision shall not affect the validity of any remaining provision hereof, and any and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect. Without limiting the generality of the foregoing, in the event that this Agreement shall be deemed to be invalid or otherwise unenforceable with respect to any Debtor, such invalidity or unenforceability shall not affect the validity of this Agreement with respect to the other Debtors. -21- 22 (e) This Agreement shall be deemed to have been made in the State of Illinois and shall be governed by the internal laws of the State of Illinois (without regard to the principles of conflicts of law). All terms which are used in this Agreement which are defined in the Code shall have the same meanings herein as said terms do in the Code unless this Agreement shall otherwise specifically provide. The headings in this instrument are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof. (f) This Agreement may be executed in any number of counterparts, each constituting an original, but all together one and the same instrument. Each Debtor acknowledges that this Agreement is and shall be effective upon its execution and delivery by such Debtor to the Agent, and it shall not be necessary for the Agent to execute this Agreement or any other acceptance hereof or otherwise to signify or express its acceptance hereof. (g) THE AGENT AND THE DEBTORS AGREE THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, ILLINOIS, BUT EACH OF THE AGENT AND THE DEBTORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, ILLINOIS. EACH OF THE DEBTORS WAIVES IN ALL DISPUTES ANY OBJECTION THAT SUCH DEBTOR MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE OR ANY OBJECTION THAT SUCH DEBTOR MAY HAVE THAT ANY OTHER PARTY HAS NOT BEEN JOINED IN SUCH PROCEEDING. EACH OF THE DEBTORS AGREES THAT THE AGENT SHALL HAVE THE RIGHT TO PROCEED AGAINST EACH AND ANY OF THE DEBTORS OR THEIR COLLATERAL IN A COURT IN ANY LOCATION TO ENABLE THE AGENT TO REALIZE ON THE COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE AGENT, WHETHER OR NOT PROCEEDING SEPARATELY AGAINST ANY DEBTOR AND ITS PROPERTY OR JOINTLY AGAINST THE BORROWER AND ANY ONE OR MORE OF THE DEBTORS AND THEIR PROPERTY. EACH OF THE DEBTORS WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH. [SIGNATURE PAGES TO FOLLOW] -22- 23 IN WITNESS WHEREOF, the Debtors have caused this Agreement to be duly executed as of the date first above written. DEBTORS: MORTON INDUSTRIAL GROUP, INC. By Its__________________________________ MORTON METALCRAFT CO. By Its__________________________________ MORTON METALCRAFT CO. OF NORTH CAROLINA By Its__________________________________ -23- 24 Accepted and agreed to as of the date first above written. HARRIS TRUST AND SAVINGS BANK, as Agent as aforesaid for the Lenders By Its____________________________________ -24- EX-10.3 6 EX-10.3 1 EXHIBIT 10.3 | | | This Document Prepared By | and After Recording Return To: | | Thomas M. Quirk | Chapman and Cutler | 111 West Monroe Street | Chicago, Illinois 60603 | | | | | | ================================================================================ SPACE ABOVE THIS LINE RESERVED FOR RECORDER'S USE ONLY MORTGAGE AND SECURITY AGREEMENT WITH ASSIGNMENT OF RENTS This Mortgage dated as of January __, 1998 from Morton Metalcraft Co., an Illinois corporation with its principal place of business and mailing address at 1021 West Birchwood, Morton, Illinois 61550-0429 (hereinafter referred to as the "Mortgagor") to Harris Trust and Savings Bank, an Illinois banking corporation with its principal place of business and mailing address at 111 West Monroe Street, Chicago, Illinois 60690 ("Harris"), as agent hereunder for the Lenders hereinafter identified and defined (Harris acting as such agent and any successor or successors to Harris in such capacity being hereinafter referred to as the "Mortgagee"); WITNESSETH THAT: WHEREAS, the Mortgagor and Morton Metalcraft Co. of North Carolina ("Morton North Carolina; the Mortgagor and Morton North Carolina being herein referred to collectively as the "Borrowers" and individually as a "Borrower") have entered into with Harris (individually and as agent for the Lenders identified and defined below) that certain Credit Agreement dated as of January 20, 1998 (such Credit Agreement as the same may from time to time be modified, amended or restated being hereinafter referred to as the "Credit Agreement") pursuant to which Harris and the other lenders named therein and which may thereafter become parties thereto (Harris and such other lenders being herein referred to collectively as the "Lenders" and individually as a "Lender") commit, subject to certain terms and conditions, (i) to make a 2 revolving credit facility available to the Borrowers in the form of loans and letters of credit (the "Revolving Credit") in the aggregate principal amount not to exceed $35,000,000 at any one time outstanding during the period ending on December 31, 2003 (the "Termination Date") with all loans made under the Revolving Credit being repayable on the Termination Date and (ii) to make term loans in the aggregate principal amount of $15,000,000 to Mortgagor payable in installments with a final maturity of all principal and interest not required to be sooner paid of December 31, 2003 (the "Term Loans"), a true and correct copy of which Credit Agreement is on file at the offices of the Mortgagee; and WHEREAS, advances from time to time made under the Revolving Credit are evidenced and to be evidenced by Revolving Credit Notes (such Revolving Credit Notes and any extensions thereof or modifications thereto and any and all notes issued in renewal thereof or in substitution or replacement therefor being hereinafter referred to as the "Revolving Credit Notes") aggregating $35,000,000 in face principal amount and payable to the order of the respective Lenders named thereon, whereby the Borrowers promise to pay the advances evidenced thereby on or before the Termination Date with interest and premium as set forth in the Credit Agreement; and WHEREAS, the Term Loans are evidenced and to be evidenced by Term Credit Notes (the "Term Credit Notes") aggregating $15,000,000 in principal amount and payable to the order of the respective Lenders named thereon, whereby the Borrowers promises to pay the term loans evidenced thereby, with interest and premium as set forth in the Credit Agreement, in installments with a final maturity of all principal and interest and premium not required to be sooner paid of December 31, 2003; and WHEREAS, pursuant to the terms of the Credit Agreement, any Lender or Lenders may, from time to time, assign to other Lenders portions of the indebtedness evidenced by the Notes then owned by such assigning Lender together with an equivalent proportion of such assigning Lender's obligation to make advances under the Credit Agreement (each such assignment being hereinafter referred to as an "Assignment"); and WHEREAS, in the event of each Assignment under the Credit Agreement, the Borrowers have agreed pursuant to the terms of the Credit Agreement to execute and deliver to each new assignee Lender by reason of such Assignment, new Notes evidencing that portion of the indebtedness so assigned to such new assignee Lender and advances to be thereafter made by such new assignee Lender pursuant to the Credit Agreement and to execute new Notes to such assigning Lender evidencing the portion of such indebtedness not so assigned and advances to be thereafter made by such assigning Lender pursuant to the Credit Agreement; and -2- 3 WHEREAS, it is the intention of the Mortgagor that all such Notes constitute "Notes" for the purposes hereof and to be secured hereby; and WHEREAS, pursuant to the terms of the Credit Agreement, the Mortgagee may from time to time issue letters of credit (the "Letters of Credit") for the account of the Borrowers in an aggregate face amount not to exceed $5,000,000 and with expiry dates on or before the Termination Date, and which Letters of Credit, when combined with the principal amount of loans outstanding under the Revolving Credit from time to time, shall not exceed $35,000,000; and NOW, THEREFORE, in order to secure (i) payment of all principal of and interest and premium on the Notes (ratably among the Notes without preference or priority to one over the others) as and when the same become due and payable (whether by lapse of time, acceleration or otherwise) and all advances now or hereafter evidenced thereby, (ii) the payment and performance of all obligations arising under any applications executed by the Borrowers, or either of them, in connection with any of the Letters of Credit, including the obligation of the Borrowers, or either of them, to reimburse the Mortgagee for any draws under the Letters of Credit, (iii) payment of all fees and charges payable by the Borrowers, or either of them, under the terms of the Credit Agreement, (iv) payment of all other sums at any time due or owing from or required to be paid by the Borrowers, or either of them, under the terms of the Mortgage and the performance and observance of all the covenants and agreements in the Mortgage provided to be performed or observed by the Mortgagor, and (v) the performance and observance of all covenants and agreements contained in the Mortgage or in the Notes or in the Credit Agreement or in any other instrument or document at any time evidencing or securing any of the foregoing indebtedness, obligations or liabilities or setting forth terms and conditions applicable thereto (all of such indebtedness, obligations and liabilities referred to in clauses (i), (ii), (iii), (iv) and (v) above being hereinafter collectively referred to as the "indebtedness hereby secured"), Mortgagor does hereby grant, bargain, sell, convey, mortgage, warrant, assign, and pledge unto the Mortgagee, its successors and assigns, and grant to the Mortgagee, its successors and assigns a security interest in all and singular the properties, rights, interests and privileges described in Granting Clauses I, II, III, IV, V and VI below, all of the same being collectively referred to herein as the "Mortgaged Premises": GRANTING CLAUSE I That certain real estate lying and being in the County of Tazewell in the State of Illinois, more particularly described in Schedule I attached hereto and made a part hereof. GRANTING CLAUSE II -3- 4 All buildings and improvements of every kind and description heretofore or hereafter erected or placed on the property described in Granting Clause I and all materials intended for construction, reconstruction, alteration and repairs of the buildings and improvements now or hereafter erected thereon, all of which materials shall be deemed to be included within the premises immediately upon the delivery thereof to the said real estate, and all fixtures, machinery, apparatus, equipment, fittings and articles of personal property of every kind and nature whatsoever now or hereafter attached to or contained in or used or useful in connection with said real estate and the buildings and improvements now or hereafter located thereon and the operation, maintenance and protection thereof, including but not limited to all machinery, motors, fittings, radiators, awnings, shades, screens, all gas, coal, steam, electric, oil and other heating, cooking, power and lighting apparatus and fixtures, all fire prevention and extinguishing equipment and apparatus, all cooling and ventilating apparatus and systems, all plumbing, incinerating, and sprinkler equipment and fixtures, all elevators and escalators, all communication and electronic monitoring equipment, all window and structural cleaning rigs and all other machinery and equipment of every nature and fixtures and appurtenances thereto and all items of furniture, appliances, draperies, carpets, other furnishings, equipment and personal property used or useful in the operation, maintenance and protection of the said real estate and the buildings and improvements now or hereafter located thereon and all renewals or replacements thereof or articles in substitution therefor or insurance proceeds relating thereto, whether or not the same are or shall be attached to said real estate, buildings or improvements in any manner, and all proceeds thereof; it being mutually agreed, intended and declared that all the aforesaid property shall, so far as permitted by law, be deemed to form a part and parcel of the real estate and for the purpose of this Mortgage to be real estate and covered by this Mortgage; and as to the balance of the property aforesaid, this Mortgage is hereby deemed to be as well a Security Agreement under the provisions of the Uniform Commercial Code for the purpose of creating hereby a security interest in said property, which is hereby granted by Mortgagor as debtor to Mortgagee as secured party, securing the indebtedness hereby secured. The addresses of Mortgagor (debtor) and Mortgagee (secured party) appear at the beginning hereof. GRANTING CLAUSE III All right, title and interest of Mortgagor now owned or hereafter acquired in and to all and singular the estates (including without limitation leasehold estates), leases, tenements, hereditaments, privileges, easements, licenses, franchises, appurtenances and royalties, mineral, oil, and water rights belonging or in any wise appertaining to the property described in the preceding Granting Clause I and the buildings and improvements now or hereafter located thereon and the reversions, rents, issues, revenues and profits thereof and insurance proceeds therefrom, including all interest of Mortgagor in all rents, issues and profits of and insurance proceeds from the aforementioned property and all rents, issues, profits, revenues, royalties, bonuses, rights and benefits due, payable or accruing (including all deposits of money as advanced rent or for -4- 5 security) under any and all leases or subleases and renewals thereof of, or under any contracts or options for the sale of all or any part of, said property (including during any period allowed by law for the redemption of said property after any foreclosure or other sale), together with the right, but not the obligation, to collect, receive and receipt for all such rents and other sums and apply them to the indebtedness hereby secured and to demand, sue for and recover the same when due or payable; provided that the assignments made hereby shall not impair or diminish the obligations of Mortgagor under the provisions of such leases or other agreements nor shall such obligations be imposed upon Mortgagee. By acceptance of this Mortgage, Mortgagee agrees, not as a limitation or condition hereof, but as a personal covenant available only to Mortgagor that until an event of default (as hereinafter defined) shall occur giving Mortgagee the right to foreclose this Mortgage, Mortgagor may collect, receive (but not more than 30 days in advance) and enjoy such rents. GRANTING CLAUSE IV All judgments, awards of damages, settlements and other compensation heretofore or hereafter made resulting from condemnation proceedings or the taking of the property described in Granting Clause I or any part thereof or any building or other improvement now or at any time hereafter located thereon or any easement or other appurtenance thereto under the power of eminent domain, or any similar power or right (including any award from the United States Government at any time after the allowance of the claim therefor, the ascertainment of the amount thereof and the issuance of the warrant for the payment thereof), whether permanent or temporary, or for any damage (whether caused by such taking or otherwise) to said property or any part thereof or the improvements thereon or any part thereof, or to any rights appurtenant thereto, including severance and consequential damage, and any award for change of grade of streets (collectively "Condemnation Awards"). GRANTING CLAUSE V All property and rights, if any, which are by the express provisions of this instrument required to be subjected to the lien hereof and any additional property and rights that may from time to time hereafter, by installation or writing of any kind, be subjected to the lien hereof by Mortgagor or by anyone in Mortgagor's behalf. GRANTING CLAUSE VI All rights in and to common areas and access roads on adjacent properties heretofore or hereafter granted to Mortgagor and any after-acquired title or reversion in and to the beds of any -5- 6 ways, roads, streets, avenues and alleys adjoining the property described in Granting Clause I or any part thereof. TO HAVE AND TO HOLD the Mortgaged Premises and the properties, rights and privileges hereby granted, bargained, sold, conveyed, mortgaged, warranted, pledged and assigned, and in which a security interest is granted, or intended so to be, unto Mortgagee, its successors and assigns, forever; provided, however, that this instrument is upon the express condition that if the principal of and interest on the Notes shall be paid in full and all other indebtedness hereby secured shall be fully paid and performed and no Letters of Credit shall remain outstanding, then this instrument and the estate and rights hereby granted shall cease, determine and be void and this instrument shall be released by Mortgagee upon the written request and at the expense of Mortgagor, otherwise to remain in full force and effect. It is expressly understood and agreed that the indebtedness hereby secured will in no event exceed two hundred percent (200%) of (i) the total face amount of the Notes and the Letters of Credit plus (ii) the total interest which may hereafter accrue under the Notes and the Reimbursement Obligations (as defined in the Credit Agreement) on such face amount plus (iii) any fees, costs or expenses which may be payable hereunder or under the Credit Agreement. Mortgagor hereby covenants and agrees with Mortgagee as follows: 1. Payment of the Indebtedness. The indebtedness hereby secured will be promptly paid as and when the same becomes due without any relief whatever from valuation or appraisement laws of the State of Illinois. 2. Binding Obligation and Further Assurances. This Mortgage and all other documents, instruments and agreements executed in connection herewith are valid and binding obligations of Mortgagor, enforceable in accordance with their respective terms. Mortgagor will execute and deliver such further instruments and do such further acts as may be necessary or proper to carry out more effectively the purpose of this instrument and, without limiting the foregoing, to make subject to the lien hereof any property agreed to be subjected hereto or covered by the Granting Clauses hereof or intended so to be. 3. Ownership of the Mortgaged Premises. Mortgagor covenants and warrants that it is lawfully seized of and has good and marketable fee title to the Mortgaged Premises free and clear of all liens, charges and encumbrances whatsoever except those exceptions to title listed on Schedule II attached hereto (the "Permitted Exceptions") and Mortgagor has good right, full power and authority to convey, transfer and mortgage the same to Mortgagee for the uses and purposes set forth in this Mortgage; -6- 7 and Mortgagor will warrant and forever defend the title to the Mortgaged Premises subject to the Permitted Exceptions against all claims and demands whatsoever. 4. Possession. Provided no event of default has occurred and is continuing hereunder, Mortgagor shall be suffered and permitted to remain in full possession, enjoyment and control of the Mortgaged Premises, subject always to the observance and performance of the terms of this instrument. 5. Payment of Taxes. Mortgagor shall pay before any penalty attaches, all general taxes and all special taxes, special assessments, water, drainage and sewer charges and all other charges of any kind whatsoever, ordinary or extraordinary, which may be levied, assessed, imposed or charged on or against the Mortgaged Premises or any part thereof and which, if unpaid, might by law become a lien or charge upon the Mortgaged Premises or any part thereof, and shall, upon written request, exhibit to Mortgagee official receipts evidencing such payments, except that, unless and until foreclosure, distraint, sale or other similar proceedings shall have been commenced, no such charge or claim need be paid if being contested (except to the extent any full or partial payment shall be required by law), after notice to Mortgagee, by appropriate proceedings which shall operate to prevent the collection thereof or the sale or forfeiture of the Mortgaged Premises or any part thereof to satisfy the same, conducted in good faith and with due diligence and if Mortgagor shall have furnished such security, if any, as may be required in the proceedings or requested by Mortgagee. 6. Payment of Taxes on Notes, Letters of Credit, Mortgage or Interest of Mortgagee or Lenders. Mortgagor agrees that if any tax, assessment or imposition upon this Mortgage or the indebtedness hereby secured or the Notes or any of the Letters of Credits or the interest of Mortgagee or any Lender in the Mortgaged Premises or upon Mortgagee or any Lender by reason of or as a holder of any of the foregoing (including, without limitation, excise taxes, but excepting therefrom any income tax on interest payments on the principal portion of the indebtedness hereby secured imposed by the United States or any state) is levied, assessed or charged, then, unless all such taxes are paid by Mortgagor to, for or on behalf of Mortgagee or any Lender as they become due and payable (which Mortgagor agrees to do upon demand of Mortgagee, to the extent permitted by law), or Mortgagee or any Lender is reimbursed for any such sum advanced by Mortgagee, all sums hereby secured shall become immediately due and payable, at the option of Mortgagee upon 30 days' notice to Mortgagor, notwithstanding anything contained herein or in any law heretofore or hereafter enacted, including any provision thereof forbidding Mortgagor from making any such payment. Mortgagor agrees to exhibit to Mortgagee, upon request, official receipts showing payment of all taxes and charges which Mortgagor is required to pay hereunder. -7- 8 7. Recordation and Payment of Taxes and Expenses Incident Thereto. Mortgagor will maintain and preserve the lien of this Mortgage until all indebtedness hereby secured has been paid and satisfied in full. Without limiting the foregoing, Mortgagor will cause this Mortgage, all mortgages supplemental hereto and any financing statement or other notice of a security interest required by Mortgagee at all times to be kept, recorded and filed at its own expense in such manner and in such places as may be required by law for the recording and filing or for the rerecording and refiling of a mortgage, security interest, assignment or other lien or charge upon the Mortgaged Premises, or any part thereof, in order fully to preserve and protect the rights of Mortgagee hereunder and, without limiting the foregoing, Mortgagor will pay or reimburse Mortgagee and any Lender for the payment of any and all taxes, fees or other charges incurred in connection with any such recordation or rerecordation, including any documentary stamp tax or tax imposed upon the privilege of having this instrument or any instrument issued pursuant hereto recorded. 8. Insurance. Mortgagor will, at its expense, keep all buildings, improvements, equipment and other property now or hereafter constituting part of the Mortgaged Premises insured against loss or damage by fire, lightning, windstorm, explosion and such other risks as are usually included under extended coverage policies, or which are usually insured against by companies similarly situated conducting similar businesses and owning like properties, in amount sufficient to prevent Mortgagor, Mortgagee or the Lenders from becoming a co-insurer of any partial loss under applicable policies and in any event not less than the then full insurable value (actual replacement value without deduction for physical depreciation) thereof, as determined at the request of Mortgagee and at Mortgagor's expense by the insurer or insurers or by an expert approved by Mortgagee, all under insurance policies payable, in case of loss or damage, to Mortgagee (and if Mortgagee so requests, naming Mortgagee and the Lenders as additional insureds therein), such rights to be evidenced by the usual standard non-contributory form of mortgage clause to be attached to each policy. Mortgagor shall not carry separate insurance concurrent in kind or form and contributing in the event of loss, with any insurance required hereby. Mortgagor shall also obtain and maintain public liability, property damage and workmen's compensation insurance in each case in form and content satisfactory to Mortgagee and in amounts as are customarily carried by owners of like property and approved by Mortgagee. Mortgagor shall also obtain and maintain such other insurance with respect to the Mortgaged Premises in such amounts and against such insurable hazards as Mortgagee from time to time may require, including, without limitation, boiler and machinery insurance, insurance against flood risks for any improvements located in a flood plain when and to the extent obtainable from the United States Government or any agency thereof, and insurance against loss of rent due to fire and risks now or hereafter embraced by so-called "extended coverage". All insurance -8- 9 required hereby shall be maintained with good and responsible insurance companies satisfactory to Mortgagee and shall not provide for any deductible amount in excess of $250,000 not approved in writing by Mortgagee, shall provide that any losses shall be payable notwithstanding any act or negligence of Mortgagor, shall provide that no cancellation thereof shall be effective until at least thirty days after receipt by Mortgagor and Mortgagee of written notice thereof, and shall be satisfactory to Mortgagee in all other respects. Upon the execution of this Mortgage and thereafter not less than 15 days prior to the expiration date of any policy delivered pursuant to this instrument, Mortgagor will deliver to Mortgagee certificates evidencing the policy or renewal policy, as the case may be, required by this instrument, bearing notations evidencing the payment of all premiums. In the event of foreclosure, Mortgagor authorizes and empowers Mortgagee to effect insurance upon the Mortgaged Premises in amounts aforesaid for a period covering the time of redemption from foreclosure sale provided by law, and if necessary therefor to cancel any or all existing insurance policies. 9. Damage to or Destruction of Mortgaged Premises. (a) Notice. In case of any material damage to or destruction of the Mortgaged Premises or any part thereof, Mortgagor shall promptly give written notice thereof to Mortgagee, generally describing the nature and extent of such damage or destruction. (b) Restoration. In case of any damage to or destruction of the Mortgaged Premises or any part thereof, Mortgagor, whether or not the insurance proceeds, if any, received on account of such damage or destruction shall be sufficient for the purpose, at Mortgagor's expense, will promptly commence and complete (subject to unavoidable delays occasioned by strikes, lockouts, acts of God, inability to obtain labor or materials, governmental restrictions and similar causes beyond the reasonable control of Mortgagor) the restoration, replacement or rebuilding of the Mortgaged Premises as nearly as possible to its value, condition and character immediately prior to such damage or destruction, provided that any part of the Mortgaged Premises so damaged or destroyed need not be restored, replaced or rebuilt if (i) prior to its damage or destruction, it had become uneconomical, obsolete or worn out or (ii) it is not necessary for or of importance to the proper conduct of the Mortgagor's business in the ordinary course. (c) Adjustment of Loss. Mortgagor hereby authorizes Mortgagee, at Mortgagee's option, to adjust and compromise any losses under any insurance afforded at any time after the occurrence and during the continuation of any event of default hereunder or any event which with the lapse of time, the giving of -9- 10 notice, or both, would constitute an event of default hereunder (herein, a "default"), but unless Mortgagee elects to adjust the losses as aforesaid, said adjustment and/or compromise shall be made by Mortgagor, subject to final approval of Mortgagee (regardless of whether or not a default or event of default hereunder shall have occurred) in the case of losses exceeding $250,000. (d) Application of Insurance Proceeds. Net insurance proceeds (except in cases where (i) the amount payable in respect of any one loss, when combined with amounts paid in respect of all losses incurred during any calendar year, is less than $250,000 and (ii) an event of default hereunder shall not have occurred and be continuing, in which case the amount payable in respect of such loss may be received by Mortgagor and need not be applied toward the payment of the amount owing on the indebtedness hereby secured or for the restoration of the Mortgaged Premises damaged or destroyed) received by Mortgagee under the provisions of this Mortgage or any instruments supplemental hereto or thereto or under any policy or policies of insurance covering the Mortgaged Premises or any part thereof shall first be applied toward the payment of the amount owing on the indebtedness hereby secured in such order of application as Mortgagee may elect whether or not the same may then be due or be otherwise adequately secured; provided, however, that such proceeds shall be made available for the restoration of the portion of the Mortgaged Premises damaged or destroyed if written application for such use is made within thirty (30) days of receipt of such proceeds and the following conditions are satisfied: (i) Mortgagor has in effect business interruption insurance covering the income to be lost during the restoration period as a result of the damage or destruction to the Mortgaged Premises or provides Mortgagee with other evidence satisfactory to it that Mortgagor has cash resources sufficient to pay its obligations during the restoration period; (ii) no event of default, or event which, with the lapse of time, the giving of notice, or both, would constitute an event of default hereunder, shall have occurred or be continuing (and if such an event shall occur during restoration Mortgagee may, at its election, apply any insurance proceeds then remaining in its hands to the reduction of the indebtedness evidenced by the NOTES and the other indebtedness hereby secured); (iii) Mortgagor shall have submitted to Mortgagee plans and specifications for the restoration which shall be satisfactory to it; (iv) Mortgagor shall submit to Mortgagee fixed price contracts with good and responsible contractors and materialmen covering all work and materials necessary to complete restoration and providing for a total completion price not in excess of the amount of insurance proceeds available for restoration, or, if a deficiency shall exist, Mortgagor shall have deposited the amount of such deficiency with Mortgagee and (v) Mortgagor shall have obtained a waiver of the right of -10- 11 subrogation from any insurer under such policies of insurance who at that time claims that no liability exists as to Mortgagor or the insured under such policies. Any insurance proceeds to be released pursuant to the foregoing provisions may at the option of Mortgagee be disbursed from time to time as restoration progresses to pay for restoration work completed and in place and such disbursements may at Mortgagee's option be made directly to Mortgagor or to or through any contractor or materialman to whom payment is due or to or through a construction escrow to be maintained by a title insurer acceptable to Mortgagee. Mortgagee may impose such further conditions upon the release of insurance proceeds (including the receipt of title insurance) as are customarily imposed by prudent construction lenders to insure the completion of the restoration work free and clear of all liens or claims for lien. All title insurance charges and other costs and expenses paid to or for the account of Mortgagor in connection with the release of such insurance proceeds shall constitute so much additional indebtedness hereby secured to be payable upon demand with interest at the Default Rate. Mortgagee may deduct any such costs and expenses from insurance proceeds at any time standing in its hands. If Mortgagor fails to request that insurance proceeds be applied to the restoration of the improvements or if Mortgagor makes such a request but fails to complete restoration within a reasonable time, Mortgagee shall have the right, but not the duty, to restore or rebuild said Mortgaged Premises or any part thereof for or on behalf of Mortgagor in lieu of applying said proceeds to the indebtedness hereby secured and for such purpose may do all necessary acts, including using funds deposited by Mortgagor as aforesaid and advancing additional funds for the purpose of restoration, all such additional funds to constitute part of the indebtedness hereby secured payable upon demand with interest at the Default Rate. 10. Eminent Domain. Mortgagor acknowledges that Condemnation Awards have been assigned to Mortgagee, which awards Mortgagee is hereby irrevocably authorized to collect and receive, and to give appropriate receipts and acquittances therefor, and at Mortgagee's option, to apply the same toward the payment of the amount owing on account of the indebtedness hereby secured in such order of application as Mortgagee may elect and whether or not the same may then be due and payable or otherwise adequately secured; provided, however, that a Condemnation Award in respect of any taking of a portion (but not all or any material portion) of the Mortgaged Premises shall be made available for the restoration of such Mortgaged Premises in the same manner and subject to the same conditions as are imposed on the release of insurance proceeds set forth in Section 9(d) hereof as if the Mortgaged Premises so taken were destroyed and the Condemnation Award for such taking was actually insurance proceeds in respect of the Mortgaged Premises so deemed as having been destroyed. In the event that any proceeds -11- 12 of a Condemnation Award shall be made available to Mortgagor for restoring the Mortgaged Premises so taken, Mortgagor hereby covenants to promptly commence and complete such restoration of the Mortgaged Premises as nearly as possible to its value, condition and character immediately prior to such taking. Mortgagor covenants and agrees that Mortgagor will give Mortgagee immediate notice of the actual or threatened commencement of any proceedings under condemnation or eminent domain affecting all or any material part of the Mortgaged Premises including any easement therein or appurtenance thereof or severance and consequential damage and change in grade of streets, and will deliver to Mortgagee copies of any and all papers served in connection with any such proceedings. Mortgagor further covenants and agrees to make, execute and deliver to Mortgagee, at any time or times upon request, free, clear and discharged of any encumbrances of any kind whatsoever, any and all further assignments and/or instruments deemed necessary by Mortgagee for the purpose of validly and sufficiently assigning all awards and other compensation heretofore and hereafter to be made to Mortgagor for any taking, either permanent or temporary, under any such proceeding. 11. Construction, Repair, Waste, Etc. Mortgagor agrees that no building or other improvement on the Mortgaged Premises and constituting a part thereof shall be materially altered, removed or demolished nor shall any material fixtures or appliances on, in or about said buildings or improvements be severed, removed, sold or mortgaged, without the consent of Mortgagee, and in the event of the demolition or destruction in whole or in part of any of the fixtures or articles of personal property covered hereby, Mortgagor covenants that the same will be replaced promptly by similar fixtures and articles of personal property at least equal in quality and condition to those replaced, free from any security interest in or encumbrance thereon or reservation of title thereto other than liens permitted by the Credit Agreement and the Permitted Exceptions; provided, however, that Mortgagor may alter, remove or demolish any such building, improvement, fixture or appliance, and need not replace any such fixtures or personal property, in each case to the extent such action (i) is desirable to the proper conduct of the business of Mortgagor in the ordinary course as presently conducted and otherwise in the best interest of Mortgagor, (ii) does not impair the overall value or utility of the Mortgaged Premises and Mortgagor's other related properties as an integrated facility, (iii) does not decrease the efficiency or capacity of the Mortgaged Premises and (iv) does not impair the rights and benefits under this Mortgage of the Lenders. Mortgagor further agrees to permit, commit or suffer no material waste, impairment or deterioration of the Mortgaged Premises or any part thereof; to keep and maintain said Mortgaged Premises and every part thereof in good working condition (ordinary wear and tear excepted); to effect such repairs as Mortgagee may reasonably require and from time to time to make all needful and proper replacements and additions so that said buildings, fixtures, machinery and appurtenances will, at all times, be in good working condition (ordinary wear and tear -12- 13 excepted), fit and proper for the respective purposes for which they were originally erected or installed; to comply with all statutes, orders, requirements or decrees relating to the Mortgaged Premises by any federal, state or municipal authority if the failure to comply with such statutes, orders, requirements or decrees could have a material adverse effect on the Mortgaged Premises or the business or financial condition of the Mortgagor; to observe and comply with all conditions and requirements necessary to preserve and extend any and all rights, licenses, permits (including, but not limited to, zoning variances, special exceptions and non-conforming uses), privileges, franchises and concessions which are applicable to the Mortgaged Premises or which have been granted to or contracted for by Mortgagor in connection with any existing or presently contemplated use of the Mortgaged Premises or any part thereof and not to initiate or acquiesce in any changes to or terminations of any of the foregoing or of zoning classifications affecting the use to which the Mortgaged Premises or any part thereof may be put without the prior written consent of Mortgagee; and to make no material alterations in or improvements or additions to the Mortgaged Premises except as required by governmental authority or as permitted by Mortgagee. Mortgagor will not lease the Mortgaged Premises or any material part thereof without the prior written consent of Mortgagee, which consent shall not be unreasonably withheld. 12. Liens and Encumbrances. Mortgagor will not, without the prior written consent of Mortgagee, directly or indirectly, create or suffer to be created or to remain and will discharge or promptly cause to be discharged any mortgage, lien, encumbrance or charge on, pledge of, or conditional sale or other title retention agreement with respect to, the Mortgaged Premises or any part thereof, whether superior or subordinate to the lien hereof, except for this instrument, liens permitted by the Credit Agreement and the Permitted Exceptions. 13. Right of Mortgagee to Perform Mortgagor's Covenants, Etc. If Mortgagor shall fail to make any payment or perform any act required to be made or performed hereunder, Mortgagee, without waiving or releasing any obligation or default, may (but shall be under no obligation to) at any time after notice to the Mortgagor make such payment or perform such act for the account and at the expense of Mortgagor, and may enter upon the Mortgaged Premises or any part thereof for such purpose and take all such action thereon as, in the opinion of Mortgagee, may be reasonably necessary or appropriate therefor. All sums so paid by Mortgagee and all reasonable costs and expenses (including without limitation attorney's fees and expenses) so incurred, together with interest thereon from the date of payment or incurrence at the Default Rate, shall constitute so much additional indebtedness hereby secured and shall be paid by Mortgagor to Mortgagee on demand. Mortgagee in making any payment authorized under this Section relating to taxes or assessments may do so according to any bill, statement or -13- 14 estimate procured from the appropriate public office without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien or title or claim thereof. 14. After-Acquired Property. Any and all property hereafter acquired which is of the kind or nature herein provided, or intended to be and become subject to the lien hereof, shall ipso facto, and without any further conveyance, assignment or act on the part of Mortgagor, become and be subject to the lien of this Mortgage as fully and completely as though specifically described herein; but nevertheless Mortgagor shall from time to time, if requested by Mortgagee, execute and deliver any and all such further assurances, conveyances and assignments as Mortgagee may reasonably require for the purpose of expressly and specifically subjecting to the lien of this Mortgage all such property. 15. Inspection by Mortgagee. Mortgagee, any Lender and their respective representatives shall have the right to inspect the Mortgaged Premises at all reasonable times, and access thereto shall be permitted for that purpose; provided, however, that prior to the occurrence of any Default or Event of Default hereunder, any such access or inspection shall only be required during the Mortgagor's normal business hours and shall only be permitted with at least 24 hours advance notice. 16. Reports on Mortgaged Premises. Mortgagor will furnish to Mortgagee or any Lender such information and data with respect to the Mortgaged Premises as Mortgagee or such Lender may reasonably request. 17. Subrogation. Mortgagor acknowledges and agrees that Mortgagee shall be subrogated to any lien discharged out of the proceeds of the loan evidenced by any Note or out of any advance by Mortgagee hereunder, irrespective of whether or not any such lien may have been released of record. 18. Events of Default. Any one or more of the following shall constitute an event of default hereunder: (a) Failure to pay when due any indebtedness hereby secured; or (b) Any event occurs or condition exists which is specified as an Event of Default under the Credit Agreement; or (c) The Mortgaged Premises or any material part thereof shall be sold, transferred, or conveyed, whether voluntarily or involuntarily, by operation of law or otherwise, except for sales of obsolete, worn out or unusable fixtures or -14- 15 personal property which are concurrently replaced (unless the Mortgagor, in the exercise of its commercially reasonable judgment deems such replacement not necessary or impractical and such failure to replace would cause no material adverse change in the Mortgaged Premises) with similar fixtures or personal property at least equal in quality and condition to those sold and owned by Mortgagor free of any lien, charge or encumbrance other than the lien hereof; or (d) Any indebtedness secured by a lien or charge on the Mortgaged Premises or any part thereof is not paid when due after the expiration of applicable grace periods and the giving of applicable notices, if any (unless such indebtedness is being contested in good faith by appropriate proceedings which prevent the enforcement of the matter under contest and adequate reserves have been established therefor), or proceedings are commenced to foreclose or otherwise realize upon any such lien or charge or to have a receiver appointed for the property subject thereto or to place the holder of such indebtedness or its representative in possession thereof; or (e) The Mortgaged Premises is abandoned. 19. Remedies. When any event of default has happened and is continuing (regardless of the pendency of any proceeding which has or might have the effect of preventing Mortgagor from complying with the terms of this instrument and of the adequacy of the security for the Notes, Letters of Credit and the other indebtedness hereby secured) and in addition to such other rights as may be available under applicable law, but subject at all times to any mandatory legal requirements: (a) Acceleration. As and to the extent expressly permitted by the Credit Agreement, Mortgagee may, by written notice to Mortgagor, declare the Notes and all unpaid indebtedness hereby secured, including the reimbursement obligations of the Mortgagor in connection with any Letters of Credit, including any interest then accrued thereon, to be forthwith due and payable, whereupon the same shall become and be forthwith due and payable, without other notice or demand of any kind. (b) Uniform Commercial Code. Mortgagee shall, with respect to any part of the Mortgaged Premises constituting property of the type in respect of which realization on a lien or security interest granted therein is governed by the Uniform Commercial Code, have all the rights, options and remedies of a secured party under the Uniform Commercial Code of Illinois, including without limitation, the right to the possession of any such property, or any part thereof, and the right -15- 16 to enter without legal process any premises where any such property may be found. Any requirement of said Code for reasonable notification shall be met by mailing written notice to Mortgagor at its address above set forth at least 10 Business Days prior to the sale or other event for which such notice is required. The expenses of retaking, selling, and otherwise disposing of said property, including reasonable attorney's fees and legal expenses incurred in connection therewith, shall constitute so much additional indebtedness hereby secured and shall be payable upon demand with interest at the Default Rate. (c) Foreclosure. Mortgagee may proceed to protect and enforce the rights of Mortgagee or Lenders hereunder (i) by any action at law, suit in equity or other appropriate proceedings, whether for the specific performance of any agreement contained herein, or for an injunction against the violation of any of the terms hereof, or in aid of the exercise of any power granted hereby or by law, or (ii) by the foreclosure of this Mortgage. (d) Appointment of Receiver. Mortgagee shall, as a matter of right, without notice and without giving bond to Mortgagor or anyone claiming by, under or through it, and without regard to the solvency or insolvency of Mortgagor or the then value of the Mortgaged Premises, be entitled to have a receiver appointed of all or any part of the Mortgaged Premises and the rents, issues and profits thereof, with such power as the court making such appointment shall confer, and Mortgagor hereby consents to the appointment of such receiver and shall not oppose any such appointment. Any such receiver may, to the extent permitted under applicable law, without notice, enter upon and take possession of the Mortgaged Premises or any part thereof by force, summary proceedings, ejectment or otherwise, and may remove Mortgagor or other persons and any and all property therefrom, and may hold, operate and manage the same and receive all earnings, income, rents, issues and proceeds accruing with respect thereto or any part thereof, whether during the pendency of any foreclosure or until any right of redemption shall expire or otherwise. (e) Taking Possession, Collecting Rents, Etc. Mortgagee may enter and take possession of the Mortgaged Premises or any part thereof and manage, operate, insure, repair and improve the same and take any action which, in Mortgagee's reasonable judgment, is necessary or proper to conserve the value of the Mortgaged Premises. Mortgagee may also take possession of, and for these purposes use, any and all personal property contained in the Mortgaged Premises and used in the operation, rental or leasing thereof or any part thereof. Mortgagee shall be entitled to collect and receive all earnings, revenues, rents, issues and -16- 17 profits of the Mortgaged Premises or any part thereof (and for such purpose Mortgagor does hereby irrevocably constitute and appoint Mortgagee its true and lawful attorney-in-fact for it and in its name, place and stead to receive, collect and receipt for all of the foregoing, Mortgagor irrevocably acknowledging that any payment made to Mortgagee hereunder shall be a good receipt and acquittance against Mortgagor to the extent so made) and to apply same to the reduction of the indebtedness hereby secured. The right to enter and take possession of the Mortgaged Premises and use any personal property therein, to manage, operate and conserve the same, and to collect the rents, issues and profits thereof, shall be in addition to all other rights or remedies of Mortgagee hereunder or afforded by law, and may be exercised concurrently therewith or independently thereof. The reasonable expenses (including any receiver's fees, counsel fees, costs and agent's compensation) incurred pursuant to the powers herein contained shall be so much additional indebtedness hereby secured which Mortgagor promises to pay upon demand together with interest at the Default Rate. Mortgagee shall not be liable to account to Mortgagor for any action taken pursuant hereto other than to account for any rents actually received by Mortgagee. Without taking possession of the Mortgaged Premises, Mortgagee may, in the event the Mortgaged Premises becomes vacant or is abandoned, take such steps as it deems appropriate to protect and secure the Mortgaged Premises (including hiring watchmen therefor) and all reasonable costs incurred in so doing shall constitute so much additional indebtedness hereby secured payable upon demand with interest thereon at the Default Rate. 20. Waiver of Right to Redeem From Sale - Waiver of Appraisement, Valuation, Etc. Mortgagor shall not and will not apply for or avail itself of any appraisement, valuation, stay, extension or exemption laws, or any so-called "Moratorium Laws", now existing or hereafter enacted in order to prevent or hinder the enforcement or foreclosure of this Mortgage, but hereby waives the benefit of such laws. Mortgagor for itself and all who may claim through or under it waives any and all right to have the property and estates comprising the Mortgaged Premises marshalled upon any foreclosure of the lien hereof and agrees that any court having jurisdiction to foreclose such lien may order the Mortgaged Premises sold as an entirety. In the event of any sale made under or by virtue of this instrument, the whole of the Mortgaged Premises may be sold in one parcel as an entirety or in separate lots or parcels at the same or different times, all as the Mortgagee may determine. Mortgagee or any Lender shall have the right to become the purchaser at any sale made under or by virtue of this instrument; and Mortgagee or any Lender so purchasing at any such sale shall have the right to be credited upon the amount of the bid made therefor by Mortgagee or such Lender with the amount payable to Mortgagee or such Lender out of the net proceeds of such sale, and upon compliance with -17- 18 the terms of sale, may hold, retain and possess and dispose of such property in its own absolute right without further accountability. In the event of any such sale, the Notes, the Reimbursement Obligations and the other indebtedness hereby secured, if not previously due, shall be and become immediately due and payable without demand or notice of any kind. Mortgagor hereby waives any and all rights of redemption prior to or from sale under any order or decree of foreclosure pursuant to rights herein granted, on behalf of Mortgagor, and each and every person acquiring any interest in, or title to the Mortgaged Premises described herein subsequent to the date of this Mortgage, and on behalf of all other persons to the extent permitted by applicable law. 21. Costs and Expenses of Foreclosure. In any suit to foreclose the lien hereof there shall be allowed and included as additional indebtedness in the decree for sale all reasonable expenditures and expenses which may be paid or incurred by or on behalf of Mortgagee or any Lender for attorney's fees, appraiser's fees, outlays for documentary and expert evidence, stenographic charges, publication costs and costs (which may be estimated as to items to be expended after the entry of the decree) of procuring all such abstracts of title, title searches and examination, guarantee policies, Torrens certificates and similar data and assurances with respect to title as Mortgagee or any Lender may deem to be reasonably necessary either to prosecute any foreclosure action or to evidence to the bidder at any sale pursuant thereto the true condition of the title to or the value of the Mortgaged Premises, all of which expenditures shall become so much additional indebtedness hereby secured which Mortgagor agrees to pay and all of such shall be immediately due and payable with interest thereon from the date of expenditure until paid at the Default Rate. 22. Application of Proceeds. The proceeds and avails of the Mortgaged Premises, including without limitation the proceeds of any foreclosure sale of the Mortgaged Premises or of any sale of property pursuant to Section l9(b) hereof, shall, when received by Mortgagee in cash or its equivalent, be applied by the Mortgagee as set forth in Section 3.5 of the Credit Agreement. Mortgagor shall remain liable to Mortgagee and the Lenders for any deficiency. Any surplus remaining after the full payment and satisfaction of the foregoing shall be returned to Mortgagor or to whomsoever a court of competent jurisdiction shall determine to be entitled thereto. 23. Deficiency Decree. If at any foreclosure proceeding the Mortgaged Premises shall be sold for a sum less than the total amount of indebtedness for which judgment is therein given, the judgment creditor shall be entitled to the entry of a deficiency decree against Mortgagor and against the property of Mortgagor for the amount of such deficiency; and Mortgagor does hereby irrevocably consent to the appointment of a receiver for the Mortgaged Premises and the property of Mortgagor and -18- 19 of the rents, issues and profits thereof after such sale and until such deficiency decree is satisfied in full. 24. Mortgagee's Remedies Cumulative - No Waiver. No remedy or right of Mortgagee shall be exclusive of but shall be cumulative and in addition to every other remedy or right now or hereafter existing at law or in equity or by statute or otherwise. No delay in the exercise or omission to exercise any remedy or right accruing on any default shall impair any such remedy or right or be construed to be a waiver of any such default or acquiescence therein, nor shall it affect any subsequent default of the same or a different nature. Every such remedy or right may be exercised concurrently or independently, and when and as often as may be deemed expedient by Mortgagee. 25. Mortgagee Party to Suits. Mortgagee shall have the power and authority (but not the duty) to institute and maintain any suits and proceedings as Mortgagee may deem advisable (a) to prevent any impairment of the Mortgaged Premises by any acts which may be unlawful or which violate the terms of this Mortgage, (b) to preserve or protect its interest in the Mortgaged Premises or (c) to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to Mortgagee's or Lender's interest. If Mortgagee or any Lender shall be made a party to or shall intervene in any action or proceeding affecting the Mortgaged Premises or the title thereto or the interest of Mortgagee or any Lender under this Mortgage (including probate and bankruptcy proceedings), or if Mortgagee or any Lender employs an attorney to collect any or all of the indebtedness hereby secured or to enforce any of the terms hereof or realize hereupon or to protect the lien hereof, or if Mortgagee or any Lender shall incur any costs or expenses in preparation for the commencement of any foreclosure proceedings or for the defense of any threatened suit or proceeding which might affect the Mortgaged Premises or the security hereof, whether or not any such foreclosure or other suit or proceeding shall be actually commenced, then in any such case, Mortgagor agrees to pay to Mortgagee or such Lender, as the case may be, immediately and without demand, all reasonable costs, charges, expenses and attorney's fees incurred by Mortgagee or such Lender in any such case, and the same shall constitute so much additional indebtedness hereby secured payable upon demand with interest at the Default Rate. 26. Modifications Not to Affect Lien. Mortgagee, without notice to anyone (except the Lenders), and without regard to the consideration, if any, paid therefor, or the presence of other liens on the Mortgaged Premises, may at the direction of the Lenders release any part of the Mortgaged Premises or any person liable for any of the indebtedness hereby secured, may extend the time of payment of any of the indebtedness hereby secured and may grant waivers or other indulgences with respect hereto and thereto, and may agree with Mortgagor to modifications to the terms and conditions contained herein or otherwise applicable to any of the indebtedness hereby secured (including modifications in the rates of interest applicable thereto), without in any way affecting or impairing the liability of any party liable upon any of the indebtedness -19- 20 hereby secured or the priority of the lien of this Mortgage upon all of the Mortgaged Premises not expressly released, and any party acquiring any direct or indirect interest in the Mortgaged Premises shall take same subject to all of the provisions hereof. 27. Revolving Credit Loan. This Mortgage is given to secure, among other things, a revolving credit loan and shall secure not only presently existing indebtedness under the Credit Agreement but also future advances, or otherwise, as are made within twenty (20) years from the date hereof, to the same extent as if such future advances were made on the date of the execution of this Mortgage, although there may be no advance made at the time of execution of this Mortgage and although there may be no indebtedness hereby secured outstanding at the time any advance is made. The lien of this Mortgage shall be valid as to all indebtedness hereby secured, including future advances, from the time of its filing for record in the recorder's or registrar's office of the county in which the Mortgaged Premises are located. The total amount of indebtedness hereby secured may increase or decrease from time to time, but the total unpaid balance of indebtedness hereby secured (including disbursements which Mortgagee may make under this Mortgage, the Credit Agreement or any other documents related thereto) at any one time outstanding shall not exceed a maximum principal amount of One Hundred Million Dollars ($100,000,000) plus interest thereon and any disbursements made for payment of taxes, special assessments or insurance on the Mortgaged Premises and interest on such disbursements (all such indebtedness being hereinafter referred to as the "maximum amount secured hereby"). This Mortgage shall be valid and have priority over all subsequent liens and encumbrances, including statutory liens, excepting solely taxes and assessments levied on the Mortgaged Premises, to the extent of the maximum amount secured hereby. 28. Notices. All communications provided for herein shall be in writing (including cable, telecopy or telex) and shall be given to the relevant party at its address, telecopier number or telex number set forth below, in the case of the Mortgagor or the Mortgagee, or on the signature pages of the Credit Agreement, in the case of the Lenders, or such other address, telecopier number or telex number as such party may hereafter specify by notice to the Mortgagor and the Mortgagee given by United States certified or registered mail, by telecopy or by other telecommunication device capable of creating a written record of such notice and its receipt: -20- 21 Morton Metalcraft Co. 1021 West Birchwood Morton, Illinois 61550-0429 Attention: Chief Financial Officer Telephone: (309) 266-7176 Telecopy: (309) 263-1841 Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60690 Attention: Richard Michalek Telephone: (312) 461-2272 Telecopy: (312) 461-2591 Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified herein and a confirmation of such telecopy has been received by the sender, (ii) if given by telex, when such telex is transmitted to the telex number specified herein and the answer back is received by sender, (iii) if given by mail, five (5) days after such communication is deposited in the mail, certified or registered with return receipt requested, addressed as aforesaid or (iv) if given by any other means, when delivered at the addresses specified herein. 29. Compliance with Environmental Laws. Mortgagor represents and warrants that, to the best of Mortgagor's knowledge, except as heretofore disclosed in writing to the Mortgagee, the Mortgaged Premises complies in all material respects with all applicable federal, state, regional, county or local laws, statutes, rules, regulations or ordinances (collectively, "Environmental Laws"), including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. SS.9601 et seq., the Resource Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. SS.6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. SS.1251 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. SS.2601 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. SS.11001 et seq., the Clean Air Act of 1966, as amended, 42 U.S.C. SS.7401 et seq., the National Environmental Policy Act of 1975, 42 U.S.C. SS.4321, the Rivers and Harbours Act of 1899, 33 U.S.C. SS.401 et seq., the Occupational Safety and Health Act of 1970, 29 U.S.C. SS.651 et seq., and the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. SS.300(F) et seq., and all rules, regulations and guidance documents promulgated or published -21- 22 thereunder, and any state, regional, county or local statute, law, rule, regulation or ordinance relating to public health, safety or the environment, including, without limitation, relating to releases, discharges, emissions or disposals to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use, handling or disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to the treatment, storage, disposal or management of hazardous substances (including, without limitation, petroleum, its derivatives or by-products, or other hydrocarbons), to exposure to toxic, hazardous, or other controlled, prohibited or regulated substances, to the transportation, storage, disposal, management or release of gaseous or liquid substances, and any regulation, order, injunction, judgment, declaration, notice or demand issued thereunder. 30. Condition of Property. Mortgagor warrants and represents that, to the best of its knowledge, except as heretofore disclosed in writing to the Mortgagee, the Mortgaged Premises, including all personal property, is free from contamination, that there has not been thereon a release, discharge or emission, or threat of release, discharge or emission, of any hazardous substance, gas or liquid (including, without limitation, petroleum, its derivatives or by-products, or other hydrocarbons), or any other substance, gas or liquid, which is prohibited, controlled or regulated under applicable law, or which poses a threat or nuisance to safety, health or the environment, and that the Mortgaged Premises does not contain, or is not affected by, except to the extent not in violation of Environmental Laws: (i) asbestos, (ii) urea formaldehyde foam insulation, (iii) polychlorinated biphenyls (PCBs), (iv) underground storage tanks, (v) landfills, land disposals or dumps. 31. Notice of Environmental Problem. Except as heretofore disclosed in writing to the Mortgagee, Mortgagor represents and warrants that to the best of its knowledge it has not given, nor should it give, nor has it received, any notice, letter, citation, order, warning, complaint, inquiry, claim or demand that: (i) Mortgagor has violated, or is about to violate, any federal, state, regional, county or local environmental, health or safety statute, law, rule, regulation, ordinance, judgment or order on the Mortgaged Premises; (ii) there has been a release, or there is threat of release, of hazardous substances (including, without limitation, petroleum, its by-products or derivatives, or other hydrocarbons) from the Mortgaged Premises; (iii) Mortgagor may be or is liable, in whole or in part, for the costs or cleaning up, remediating or responding to a release of hazardous substances (including, without limitation, petroleum, its by-products or derivatives, or other hydrocarbons) on the Mortgaged Premises; (iv) any of the Mortgagor's property or assets are subject to a lien in favor of any governmental body for any liability, costs or damages, under federal, state or local environmental law, rule or regulation arising from or costs incurred by such governmental entity in response to a release of a hazardous substance (including, without limitation, petroleum, its by-products -22- 23 or derivatives, or other hydrocarbons). In the event that Mortgagor receives any notice of the type described in this Section, Mortgagor shall promptly provide a copy to Mortgagee, and in no event, later than fifteen (15) days from Mortgagor's receipt or submission thereof. 32. Use of Property and Facilities. Mortgagor represents and warrants that to the best of its knowledge, except as heretofore disclosed in writing to the Mortgagee, it has never in the past engaged in, and agrees that in the future it shall not conduct, any business, operations or activity on the Mortgaged Premises, or employ or use the personal property or facilities, to manufacture, use, generate, treat, store, transport or dispose of any hazardous substance (including, without limitation, petroleum, its derivatives or by-products, or other hydrocarbons), or any other substance which is prohibited, controlled or regulated under applicable law, or which poses a threat or nuisance to safety, health or the environment, including, without limitation, any business, operation or activity which would cause Mortgagor, its property or facilities, to be in violation of the Resource Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. SS.6901 et seq., the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. SS.9601 et seq., the Clean Air Act of 1966, as amended, 42 U.S.C. SS.7401 et seq., or any similar state, county, regional or local statute, law, regulation, rule or ordinance, including, without limitation, any state statute providing for financial responsibility for cleanup for the release or threatened release of substances provided for thereunder. The provisions of this Section shall apply to all real and personal property, without limitation, owned or controlled by Mortgagor or its subsidiaries. 33. Partial Invalidity. All rights, powers and remedies provided herein are intended to be limited to the extent necessary so that they will not render this Mortgage invalid, unenforceable or not entitled to be recorded, registered or filed under any applicable law. If any term of this Mortgage shall be held to be invalid, illegal or unenforceable, the validity and enforceability of the other terms of this Mortgage shall in no way be affected thereby. 34. Agent. Mortgagee has been appointed as agent pursuant to the Credit Agreement. In acting under or by virtue of this Mortgage, Mortgagee shall be entitled to all the rights, authority, privileges and immunities provided in Section 10 of the Credit Agreement, all of which provisions of said Section 10 are incorporated by reference herein with the same force and effect as if set forth herein. Mortgagee hereby disclaims any representation or warranty to Lenders concerning the perfection of the security interest granted hereunder or the value of the Mortgaged Premises. -23- 24 35. Restrictions on Lenders' Right to Enforce. No Lender shall have the right to institute any suit, action or proceeding in equity or at law for the foreclosure of this Mortgage or for the execution of any trust or power hereof or for the appointment of a receiver, or for the enforcement of any other remedy under or upon this Mortgage; it being understood and intended that no one or more of the Lenders shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of this Mortgage by its or their action or to enforce any right hereunder, and that all proceedings at law or in equity shall be instituted, had and maintained by the Mortgagee in the manner herein provided and for the ratable benefit of the Lenders. 36. Successors and Assigns. Whenever any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all the covenants, promises and agreements in this Mortgage contained by or on behalf of Mortgagor, or by or on behalf of Mortgagee or Lenders, shall bind and inure to the benefit of the respective successors and assigns of such parties, whether so expressed or not. Without limiting the generality of the foregoing, and subject to the provisions of Sections 12.14 and 12.15 of the Credit Agreement, any Lender may assign or otherwise transfer any indebtedness held by it secured by this Mortgage to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, subject, however, to the provisions of the Credit Agreement. 37. Default Rate. For purposes of this Mortgage, "Default Rate" shall mean the rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, for the actual number of days elapsed) determined by adding 2% to the rate per annum from time to time announced by Harris as its prime commercial rate (with any change in the Default Rate resulting from a change in such prime commercial rate to be and become effective as of and on the date of the relevant change in such prime commercial rate). 38. Liens Absolute, Etc. Mortgagor acknowledges and agrees that the lien and security interest hereby created and provided for are absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of Mortgagee or any other holder of any of the indebtedness hereby secured, and without limiting the generality of the foregoing, the lien and security hereof shall not be impaired by any acceptance by Mortgagee or any other holder of any of the indebtedness hereby secured of any other security for or guarantors upon any of the indebtedness hereby secured or by any failure, neglect or omission on the part of Mortgagee or any other holder of any of the indebtedness hereby secured to realize upon or protect any of the indebtedness hereby secured or any collateral or security therefor. The lien and security interest hereof shall not in any manner be impaired or affected by (and Mortgagee, without -24- 25 notice to anyone, is hereby authorized to make from time to time) any sale, pledge, surrender, compromise, settlement, release, renewal, extension, indulgence, alteration, substitution, exchange, change in, modification or disposition of any of the indebtedness hereby secured, or of any collateral or security therefor, or of any guaranty thereof, or of any instrument or agreement setting forth the terms and conditions pertaining to any of the foregoing. The Lenders may at their discretion at any time grant credit to any Borrower without notice to Mortgagor in such amounts and on such terms as such Lenders may elect (all of such to constitute additional indebtedness hereby secured) without in any manner impairing the lien and security interest created and provided for herein. In order to realize hereon and to exercise the rights granted Mortgagee hereby and under applicable law, there shall be no obligation on the part of Mortgagee or any other holder of any of the indebtedness hereby secured at any time to first resort for payment to any Borrower or to any guaranty of any of the indebtedness hereby secured or any portion thereof or to resort to any other collateral, security, property, liens or any other rights or remedies whatsoever, and Mortgagee shall have the right to enforce this Mortgage irrespective of whether or not other proceedings or steps seeking resort to or realization upon or from any of the foregoing are pending. 39. Direct and Primary Security - No Subrogation. The lien and security interest herein created and provided for stand as direct and primary security for the Notes as well as for any of the other indebtedness hereby secured. No application of any sums received by Mortgagee in respect of the Mortgaged Premises or any disposition thereof to the reduction of the indebtedness hereby secured or any part thereof shall in any manner entitle Mortgagor to any right, title or interest in or to the indebtedness hereby secured or any collateral or security therefor, whether by subrogation or otherwise, unless and until all indebtedness hereby secured has been fully paid and satisfied and any commitment of the Lenders to extend credit to Mortgagor or to any Borrower shall have expired. 40. Headings. The headings in this instrument are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof. 41. Changes, Etc. This instrument and the provisions hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 42. Governing Law. The creation of this Mortgage, the perfection of the lien or security interest in the Mortgaged Premises, and the rights and remedies of the Mortgagee with respect to the Mortgaged Premises, as provided herein and by the laws of the state in which the Mortgaged Premises is -25- 26 located, shall be governed by and construed in accordance with the internal laws of the state in which the Mortgaged Premises is located without regard to principles of conflicts of law. OTHERWISE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE MORTGAGE, THE CREDIT AGREEMENT, THE NOTES, THE LETTERS OF CREDIT AND ALL OTHER OBLIGATIONS OF MORTGAGOR SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. -26- 27 IN WITNESS WHEREOF, Mortgagor has caused these presents to be signed the day and year first above written. MORTON METALCRAFT CO. By Its______________________ __________________ (Type or Print Name) -27- 28 STATE OF ILLINOIS ) ) SS. COUNTY OF COOK ) I, _______________________________, a Notary Public in and for said County, in the State aforesaid, do hereby certify that _______________, ___________ of Morton Metalcraft Co., an Illinois corporation, who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such _____________, appeared before me this day in person and acknowledged that he signed and delivered the said instrument as his own free and voluntary act and as the free and voluntary act and deed of said corporation for the uses and purposes therein set forth. Given under my hand and notarial seal, this _____ day of January, 1998. ___________________________ _______ Notary Public _____________________________ _______ (Type or Print Name) (Notary Seal) Commission Expires: ________________________________ EX-10.4 7 EX-10.4 1 EXHIBIT 10.4 PLEDGE AGREEMENT This Pledge Agreement (the "Agreement") is dated as of January 20, 1998, by and among the parties executing this Agreement under the heading "Pledgors" (such parties, along with any parties who execute and deliver to the Agent an agreement in the form attached hereto as Schedule E, being hereinafter referred to collectively as the "Pledgors" and individually as a "Pledgor"), each with its mailing address as set forth on the signature page hereto and HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation ("Harris"), with its mailing address at 111 West Monroe Street, Chicago, Illinois 60603, acting as agent hereunder for the Secured Creditors hereinafter identified and defined (Harris acting as such agent and any successor or successors to Harris acting in such capacity being hereinafter referred to as the "Agent"); PRELIMINARY STATEMENTS A. Morton Industrial Group, Inc., a Georgia corporation (the "Company"), certain Subsidiaries of the Company, Harris, individually and as agent, and certain lenders have entered into a Credit Agreement dated as of even date herewith (such Credit Agreement, as the same may be amended or modified from time to time, including amendments and restatements thereof in its entirety, being hereinafter referred to as the "Credit Agreement"), pursuant to which Harris and other lenders from time to time party to the Credit Agreement (Harris and the other lenders which are now or from time to time hereafter become party to the Credit Agreement, being hereinafter referred to collectively as the "Lenders" and individually as a "Lender") have agreed, subject to certain terms and conditions, to extend credit and make certain other financial accommodations available to the Borrowers identified therein. B. As a condition precedent to extending credit or otherwise making financial accommodations available to the Borrowers under the Credit Agreement, the Lenders have required, among other things, that each Pledgor grant to the Agent for the benefit of the Lenders a lien on and security interest in certain personal property of such Pledgor pursuant to this Agreement. C. The Company owns, directly or indirectly, all or substantially all of the equity interests in each Borrower and provides each Borrower with financial, management, administrative, and technical support which enables such Borrower to conduct its business in an orderly and efficient manner in the ordinary course. D. Each Borrower will benefit, directly or indirectly, from credit and other financial accommodations extended by the Lenders to the Company. 2 NOW, THEREFORE, for and in consideration of the execution and delivery by the Lenders of the Credit Agreement, and other good and valuable consideration, receipt whereof is hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Terms Defined in Credit Agreement. All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. The term "Pledgor" and "Pledgors" as used herein shall mean and include the Pledgors collectively and also each individually, with all grants, representations, warranties and covenants of and by the Pledgors, or any of them, herein contained to constitute joint and several grants, representations, warranties and covenants of and by the Pledgors; provided, however, that unless the context in which the same is used shall otherwise require, any grant, representation, warranty or covenant contained herein related to the Collateral shall be made by each Pledgor only with respect to the Collateral owned by it or represented by such Pledgor as owned by it. Section 2. Grant of Security Interest in the Collateral. Each Pledgor hereby grants to the Agent a security interest in, in each case for the ratable benefit of the Lenders, and acknowledges and agrees that the Agent has and shall continue to have for the ratable benefit of the Lenders a continuing security interest in, any and all right, title and interest of each Pledgor, whether now owned or existing or hereafter created, acquired or arising, in and to the following (collectively, the "Collateral"): (a) Stock Collateral. (i) All shares of the capital stock of each of the issuers listed and described on Schedule A attached hereto owned or held by such Pledgor, whether now owned or hereafter acquired (those shares delivered to and deposited with the Agent on the date hereof being listed and described on Schedule A attached hereto), and all substitutions and additions to such shares (herein, the "Pledged Securities"), (ii) all dividends, distributions and sums distributable or payable from, upon or in respect of the Pledged Securities and (iii) all other rights and privileges incident to the Pledged Securities (all of the foregoing being hereinafter referred to collectively as the "Stock Collateral"); (b) Partnership Interest Collateral. (i) Each partnership identified on Schedule B attached hereto and made a part hereof (such partnerships being hereinafter referred to collectively as the "Partnerships" and individually as a "Partnership") and (ii) any and all payments and distributions of whatever kind or character, whether in cash or other property, at any time made, owing or payable to such Pledgor in respect of or on account of its present or hereafter acquired interests in the Partnerships, whether due or to become due and whether representing profits, distributions pursuant to complete or partial liquidation or dissolution of any such Partnership, distributions representing the complete -2- 3 or partial redemption of such Pledgor's interest in any such Partnership or the complete or partial withdrawal of such Pledgor from any such Partnership, repayment of capital contributions, payment of management fees or commissions, or otherwise, and the right to receive, receipt for, use and enjoy all such payments and distributions (all of the foregoing being hereinafter collectively called the "Partnership Interest Collateral"); and (c) Proceeds. All proceeds of the foregoing. All terms which are used in this Agreement which are defined in the Uniform Commercial Code of the State of Illinois ("UCC") shall have the same meanings herein as such terms are defined in the UCC, unless this Agreement shall otherwise specifically provide. Section 3. Obligations Hereby Secured. This Agreement is made and given to secure, and shall secure, the payment and performance of (i)(x) any and all indebtedness, obligations and liabilities of the Borrowers to the Agent, the Lenders, or any of them individually, evidenced by or otherwise arising out of or relating to the Credit Agreement or any promissory note of any of the Borrowers issued at any time under the Credit Agreement (including all notes issued in extension or renewal thereof or in substitution or replacement therefor) and (y) any liability of the Pledgors, or any of them individually, arising out of the Credit Agreement, as well as for any and all other indebtedness, obligations and liabilities of the Pledgors, or any of them individually, to the Agent, the Lenders, or any of them individually, evidenced by or otherwise arising out of or relating to this Agreement or any other Loan Document, in each case, whether now existing or hereafter arising (and whether arising before or after the filing of a petition in bankruptcy), due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired, and (ii) any and all expenses and charges, legal or otherwise, suffered or incurred by the Agent, the Lenders, or any of them individually, in collecting or enforcing any of such indebtedness, obligations or liabilities or in realizing on or protecting or preserving any security therefor, including, without limitation, the lien and security interest granted hereby (all of the foregoing being hereinafter referred to as the "Obligations"). Notwithstanding anything in this Agreement to the contrary, the right of recovery against any Pledgor (other than the Borrowers to which this limitation shall not apply) under this Agreement shall not exceed $1 less than the amount which would render such Pledgor's obligations under this Agreement void or voidable under applicable law, including fraudulent conveyance law. Section 4. Covenants, Agreements, Representations and Warranties. Each Pledgor hereby covenants and agrees with, and represents and warrants to, the Agent and the Lenders that: (a) Each Pledgor is and shall be the sole and lawful legal, record and beneficial owner of its Collateral. Each Pledgor's chief executive office or place of business at the -3- 4 address listed under such Pledgor's name on Schedule A and Schedule B hereto, as applicable. Each Pledgor agrees that it will not change any location set forth on the applicable Schedule hereto without prior written notice to the Agent, unless such location shall be outside the United States, in which event, the Agent's prior written consent shall be required, which consent shall not be unreasonably withheld. No Pledgor shall, without the Agent's prior written consent, sell, assign, or otherwise dispose of the Collateral or any interest therein. The Collateral, and every part thereof, is and shall be free and clear of all security interests, liens, rights, claims, attachments, levies and encumbrances of every kind, nature and description and whether voluntary or involuntary, except for the security interest of the Agent hereunder and for other Liens which are expressly permitted by the Credit Agreement. Each Pledgor shall warrant and defend the Collateral against any claims and demands of all persons at any time claiming the same or any interest in the Collateral adverse to the Agent and the Lenders. (b) Each Pledgor agrees to execute and deliver to the Agent such further agreements, assignments, instruments and documents and to do all such other things as the Agent may deem necessary or appropriate to assure the Agent its lien and security interest hereunder, including such assignments, acknowledgments (including acknowledgments of assignment in the form attached hereto as Schedule C) stock powers, financing statements, instruments and documents as the Agent may from time to time require in order to comply with the Uniform Commercial Code as enacted in the State of Illinois and any successor statute(s) thereto (the "UCC"). Each Pledgor hereby agrees that a carbon, photographic or other reproduction of this Agreement or any such financing statement is sufficient for filing as a financing statement by the Agent without notice thereof to such Pledgor wherever the Agent in its discretion desires to file the same. In the event for any reason the law of any jurisdiction other than Illinois becomes or is applicable to the Collateral or any part thereof, or to any of the Obligations, each Pledgor agrees to execute and deliver all such agreements, assignments, instruments and documents and to do all such other things as the Agent in its sole discretion deems necessary or appropriate to preserve, protect and enforce the lien and security interest of the Agent under the law of such other jurisdiction to at least the same extent as such security interests would be protected under the UCC. (c) If, as and when any Pledgor (x) delivers any securities for pledge hereunder in addition to those listed on Schedule A hereto or (y) pledges interests in any Partnership in addition to those listed on Schedule B hereto, the Pledgors shall furnish to the Agent a duly completed and executed amendment to such Schedule in substantially the form (with appropriate insertions) of Schedule D hereto reflecting the securities pledged hereunder after giving effect to such addition. -4- 5 (d) None of the Collateral constitutes margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System). (e) On failure of any Pledgor to perform any of the agreements and covenants herein contained, the Agent may, at its option, perform the same and in so doing may expend such sums as the Agent may deem advisable in the performance thereof, including, without limitation, the payment of any taxes, liens and encumbrances, expenditures made in defending against any adverse claim, and all other expenditures which the Agent may be compelled to make by operation of law or which Agent may make by agreement or otherwise for the protection of the security hereof. All such sums and amounts so expended shall be repayable by the Pledgors immediately without notice or demand, shall constitute additional Obligations secured hereunder and shall bear interest from the date said amounts are expended at the rate per annum (computed on the basis of a 365-day or 366-day year, as the case may be, for the actual number of days elapsed) determined by adding 2% to the Base Rate (such rate per annum as so determined being hereinafter referred to as the "Default Rate"). No such performance of any covenant or agreement by the Agent on behalf of such Pledgor, and no such advancement or expenditure therefor, shall relieve such Pledgor of any default under the terms of this Agreement or in any way obligate the Agent or any Lender to take any further or future action with respect thereto. The Agent, in making any payment hereby authorized, may do so according to any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate, or into the validity of any tax assessment, sale, forfeiture, tax lien or title or claim. The Agent, in performing any act hereunder, shall be the sole judge of whether the relevant Pledgor is required to perform the same under the terms of this Agreement. The Agent is hereby authorized to charge any depository or other account of any Pledgor maintained with the Agent for the amount of such sums and amounts so expended. Section 5. Special Provisions Re: Stock Collateral. (a) Each Pledgor has the right to vote the Pledged Securities and there are no restrictions upon the voting rights associated with, or the transfer of, any of the Pledged Securities, except as provided by federal and state laws applicable to the sale of securities generally. (b) The certificates for all shares of the Pledged Securities shall be delivered by the relevant Pledgor to the Agent or any bailee of the Agent duly endorsed in blank for transfer or accompanied by an appropriate assignment or assignments or an appropriate undated stock power or powers, in every case sufficient to transfer title thereto. Each Pledgor acknowledges and agrees that National City Bank, Cleveland, Ohio ("NatCity") -5- 6 currently acts and shall continue to act as the Agent's bailee until such time as NatCity delivers the Pledged Securities and such stock powers to the Agent or any other bailee of the Agent. The Agent may at any time after the occurrence of an Event of Default cause to be transferred into its name or into the name of its nominee or nominees any and all of the Pledged Securities. The Agent shall at all times have the right to exchange the certificates representing the Pledged Securities for certificates of smaller or larger denominations. (c) The Pledged Securities have been validly issued and are fully paid and non-assessable. There are no outstanding commitments or other obligations of the issuers of any of the Pledged Securities to issue, and no options, warrants or other rights of any individual or entity to acquire, any share of any class or series of capital stock of such issuers. The Pledged Securities listed and described on Schedule A attached hereto and delivered concurrently herewith to NatCity as the Agent's bailee constitute the percentage of the issued and outstanding capital stock of each series and class of the issuers thereof as set forth thereon owned by the relevant Pledgor. Each Pledgor further agrees that in the event any such issuer shall issue any additional capital stock of any series or class (whether or not entitled to vote) to such Pledgor or otherwise on account of its ownership interest therein, each Pledgor will forthwith pledge and deposit hereunder, or cause to be pledged and deposited hereunder, all such additional shares of such capital stock. Section 6. Special Provisions Re: Partnership Interest Collateral. (a) Each Pledgor further warrants to and agrees with the Agent and the Lenders as follows: (i) that said Partnerships are valid and existing entities of the type listed on Schedule B and are duly organized and existing under applicable law; (ii) that the Partnership Interest Collateral listed and described on Schedule B attached hereto constitutes the percentage of the equity interest in each Partnership set forth thereon owned by the relevant Pledgor; (iii) that the copies of the partnership agreements (each such agreement being hereinafter referred to as "Organizational Agreement") for the Partnerships heretofore delivered to the Agent are true and correct copies thereof and have not been amended or modified in any respect, except for such amendments or modifications as are attached to the copies thereof delivered to the Agent; and -6- 7 (iv) that the Partnerships have no loans outstanding to the Pledgors, and no Pledgor will borrow money from the Partnerships. (b) The Pledgors shall not, without the prior written consent of the Agent, consent to any amendment or modification to any of the Organizational Agreements which would in any manner adversely affect or impair the Partnership Interest Collateral or reduce or dilute the rights of the Pledgor with respect to any of the Partnerships, any of such done without such prior written consent to be null and void. The Pledgors shall promptly send to the Agent copies of all notices and communications with respect to each Partnership alleging the existence of a default by an Pledgor in the performance of any of its obligations under any Organizational Agreement. Each Pledgor agrees that it will promptly notify the Agent of any litigation which might adversely affect such Pledgor or a Partnership or any of their respective properties and of any material adverse change in the operations, business properties, assets or conditions, financial or otherwise, of any Pledgor or any Partnership. Each Pledgor shall promptly perform all of its obligations under each Organizational Agreement. In the event any Pledgor fails to pay or perform any obligation arising under any Organizational Agreement or otherwise related to any Partnership, the Agent may, but need not, pay or perform such obligation at the expense and for the account of the Pledgors and all funds expended for such purposes shall constitute Obligations secured hereby which the Pledgors promise to pay to the Agent together with interest thereon at the Default Rate. Section 7. Voting Rights and Dividends. Unless and until an Event of Default hereunder has occurred and thereafter until notified by the Agent pursuant to Section 9(b) hereof: (a) Each Pledgor shall be entitled to exercise all voting and/or consensual powers pertaining to the Collateral of such Pledgor, or any part thereof, for all purposes not inconsistent with the terms of this Agreement or any other document evidencing or otherwise relating to any of the Obligations. (b) Each Pledgor shall be entitled to receive and retain all dividends and distributions in respect of the Collateral which are paid in cash of whatsoever nature; provided, however, that such dividends and distributions representing: (i) stock or liquidating dividends or a distribution or return of capital upon or in respect of the Pledged Securities or any part thereof or resulting from a split-up, revision or reclassification of the Pledged Securities or any part thereof or received in addition to, in substitution of or in exchange for the Pledged Securities or any part thereof as a result of a merger, consolidation or otherwise, or -7- 8 (ii) distributions in complete or partial liquidation of any Partnership or the interest of such Pledgor therein, in each case, shall be paid, delivered or transferred, as appropriate, directly to the Agent immediately upon the receipt thereof by such Pledgor and shall, in the case of cash, be applied by the Agent to the satisfaction of Obligations in accordance with the provisions of Section 10 hereof, whether or not the same may then be due or otherwise adequately secured and shall, in the case of all other property, together with any cash received by the Agent and not applied as aforesaid, be held by the Agent pursuant hereto as part of the Pledged Securities as additional Pledged Securities pledged under and subject to the terms of this Agreement; or (c) In order to permit each Pledgor to exercise such voting and/or consensual powers which it is entitled to exercise under subsection (a) above and to receive such distributions which such Pledgor is entitled to receive and retain under subsection (b) above, the Agent will, if necessary, upon the written request of such Pledgor, from time to time execute and deliver to such Pledgor appropriate proxies and dividend orders. Section 8. Power of Attorney. Each Pledgor hereby appoints the Agent, and each of its nominees, officers, agents, attorneys, and any other person whom the Agent may designate, as such Pledgor's attorney-in-fact, with full power and authority to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all sums or properties which may be or become due, payable or distributable in respect of the Collateral or any part thereof, with full power to settle, adjust or compromise any claim thereunder or therefor as fully as such Pledgor could itself do, to endorse or sign the Pledgor's name on any assignments, stock powers, or other instruments of transfer and on any checks, notes, acceptances, money orders, drafts, and any other forms of payment or security that may come into the Agent's possession and on all documents of satisfaction, discharge or receipt required or requested in connection therewith, and, in its discretion, to file any claim or take any other action or proceeding, either in its own name or in the name of such Pledgor, or otherwise, which the Agent may deem necessary or appropriate to collect or otherwise realize upon all or any part of the Collateral, or effect a transfer thereof, or which may be necessary or appropriate to protect and preserve the right, title and interest of the Agent in and to such Collateral and the security intended to be afforded hereby. Each Pledgor hereby ratifies and approves all acts of any such attorney and agrees that neither the Agent nor any such attorney will be liable for any such acts or omissions nor for any error of judgment or mistake of fact or law other than such person's gross negligence or willful misconduct. The Agent may file one or more financing statements disclosing its security interest in all or any part of the Collateral without any Pledgor's signature appearing thereon, and each Pledgor also hereby grants the Agent a power of attorney to execute any such financing -8- 9 statements, and any amendments or supplements thereto, on behalf of such Pledgor without notice thereof to such Pledgor. The foregoing powers of attorney, being coupled with an interest, are irrevocable until the Obligations have been fully satisfied and any commitment of the Lenders to extend credit constituting Obligations to any of the Borrowers has terminated; provided, however, that the Agent agrees, as a personal covenant to the relevant Pledgor, not to exercise the powers of attorney set forth in this Section unless an Event of Default exists. Section 9. Defaults and Remedies. (a) The occurrence of any event or the existence of any condition which is specified as an "Event of Default" under the Credit Agreement shall constitute an "Event of Default" hereunder. (b) Upon the occurrence of any Event of Default, all rights of the Pledgors to receive and retain the distributions which they are entitled to receive and retain pursuant to Section 7(b) hereof shall, at the option of the Agent cease and thereupon become vested in the Agent which, in addition to all other rights provided herein or by law, shall then be entitled solely and exclusively to receive and retain the distributions which the Pledgors would otherwise have been authorized to retain pursuant to Section 7(b) hereof and all rights of the Pledgors to exercise the voting and/or consensual powers which they are entitled to exercise pursuant to Section 7(a) hereof shall, at the option of the Agent, cease and thereupon become vested in the Agent which, in addition to all other rights provided herein or by law, shall then be entitled solely and exclusively to exercise all voting and other consensual powers pertaining to the Collateral and to exercise any and all rights of conversion, exchange or subscription and any other rights, privileges or options pertaining thereto as if the Agent were the absolute owner thereof including, without limitation, the right to exchange, at its discretion, the Collateral or any part thereof upon the merger, consolidation, reorganization, recapitalization or other readjustment of the respective issuer thereof or upon the exercise by or on behalf of any such issuer or the Agent of any right, privilege or option pertaining to the Collateral or any part thereof and, in connection therewith, to deposit and deliver the Collateral or any part thereof with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Agent may determine. In the event the Agent in good faith believes any of the Collateral constitutes restricted securities within the meaning of any applicable securities law, any disposition thereof in compliance with such laws shall not render the disposition commercially unreasonable. (c) Upon the occurrence of any Event of Default, the Agent shall have, in addition to all other rights provided herein or by law, the rights and remedies of a secured party under the UCC (regardless of whether the UCC is the law of the jurisdiction where the rights or remedies are asserted and regardless of whether the UCC applies to the affected Collateral), and further the Agent may, without demand and without advertisement, notice, hearing or process of law, all of which each Pledgor hereby waives to the extent permitted by law, at any time or times, sell and deliver any or all of the Collateral held by or for it at public or private sale, at any securities -9- 10 exchange or broker's board or at any of the Agent's offices or elsewhere, for cash, upon credit or otherwise, at such prices and upon such terms as the Agent deems advisable, in its sole discretion. In the exercise of any such remedies, the Agent may sell the Collateral as a unit even though the sales price thereof may be in excess of the amount remaining unpaid on the Obligations. Also, if less than all the Collateral is sold, the Agent shall have no duty to marshal or apportion the part of the Collateral so sold as between the Pledgors, or any of them, but may sell and deliver any or all of the Collateral without regard to which of the Pledgors are the owners thereof. In addition to all other sums due the Agent or any Lender hereunder, each Pledgor shall pay the Agent and the Lenders all costs and expenses incurred by the Agent and such Lenders, including reasonable attorneys' fees and court costs, in obtaining, liquidating or enforcing payment of Collateral or the Obligations or in the prosecution or defense of any action or proceeding by or against the Agent, such Lenders or any Pledgor concerning any matter arising out of or connected with this Agreement or the Collateral or the Obligations including, without limitation, any of the foregoing arising in, arising under or related to a case under the United States Bankruptcy Code (or any successor statute). Any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Pledgors in accordance with Section 14(b) hereof at least ten days before the time of sale or other event giving rise to the requirement of such notice; provided, however, no notification need be given to a Pledgor if such Pledgor has signed, after an Event of Default has occurred, a statement renouncing any right to notification of sale or other intended disposition. The Agent shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. The Agent or any Lender may be the purchaser at any sale or other disposition of the Collateral or any part thereof. Each Pledgor hereby waives all of its rights of redemption from any sale or other disposition of the Collateral or any part thereof. The Agent may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, be made at the time and place to which the sale was postponed or the Agent may further postpone such sale by announcement made at such time and place. EACH PLEDGOR AGREES THAT IF ANY PART OF THE COLLATERAL IS SOLD AT ANY PUBLIC OR PRIVATE SALE, THE AGENT MAY ELECT TO SELL ONLY TO A BUYER WHO WILL GIVE FURTHER ASSURANCES, SATISFACTORY IN FORM AND SUBSTANCE TO THE AGENT, RESPECTING COMPLIANCE WITH THE REQUIREMENTS OF THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED, AND A SALE SUBJECT TO SUCH CONDITION SHALL BE DEEMED COMMERCIALLY REASONABLE. EACH PLEDGOR FURTHER AGREES THAT IN ANY SALE OF ANY PART OF THE COLLATERAL, THE AGENT IS HEREBY AUTHORIZED TO COMPLY WITH ANY LIMITATION OR RESTRICTION IN CONNECTION WITH SUCH SALE AS IT MAY BE ADVISED BY COUNSEL IS NECESSARY IN ORDER TO AVOID ANY VIOLATION OF APPLICABLE LAW (INCLUDING, WITHOUT LIMITATION, COMPLIANCE WITH SUCH PROCEDURES AS MAY RESTRICT THE NUMBER OF PROSPECTIVE BIDDERS AND -10- 11 PURCHASERS AND/OR FURTHER RESTRICT SUCH PROSPECTIVE BIDDERS OR PURCHASERS TO PERSONS WHO WILL REPRESENT AND AGREE THAT THEY ARE PURCHASING FOR THEIR OWN ACCOUNT FOR INVESTMENT AND NOT WITH A VIEW TO THE DISTRIBUTION OR RESALE OF SUCH COLLATERAL ), OR IN ORDER TO OBTAIN ANY REQUIRED APPROVAL OF THE SALE OR OF THE PURCHASER BY ANY GOVERNMENTAL REGULATORY AUTHORITY OR OFFICIAL, AND EACH PLEDGOR FURTHER AGREES THAT SUCH COMPLIANCE SHALL NOT RESULT IN SUCH SALE BEING CONSIDERED OR DEEMED NOT TO HAVE BEEN MADE IN A COMMERCIALLY REASONABLE MANNER, NOR SHALL THE AGENT BE LIABLE OR ACCOUNTABLE TO ANY PLEDGOR FOR ANY DISCOUNT ALLOWED BY REASON OF THE FACT THAT SUCH COLLATERAL IS SOLD IN COMPLIANCE WITH ANY SUCH LIMITATION OR RESTRICTION. (d) In the event the Agent shall sell any part of the Partnership Interest Collateral at a foreclosure sale, each Pledgor hereby grants the purchaser of such portion of the Partnership Interest Collateral to the fullest extent of its capacity, the ability (but not the obligation) to become a partner in the relevant Partnership (subject to the approval of the general partner of the relevant Partnership, in the exercise of its sole discretion), in the place and stead of such Pledgor. To exercise such right, the purchaser shall give written notice to the relevant Partnership of its election to become a partner in such Partnership. Following such election and giving of consent by all necessary partners of the relevant Partnership as to the purchaser becoming a partner, the purchaser shall have the right and powers and be subject to the liabilities of a partner under the relevant Organizational Agreement and the partnership act governing the Partnership. (e) Upon the occurrence and during the continuation of any Event of Default, in addition to all other rights provided herein or by law, the Agent shall have the right to cause all or any part of the Partnership Interest Collateral of any of the Pledgors in any one or more of the Partnerships to be redeemed and to cause a withdrawal, in whole or in part, of any Pledgor from any Partnership or any of its Partnership Interest Collateral therein. (f) The powers conferred upon the Agent hereunder are solely to protect its interest in the Collateral and shall not impose on it any duties to exercise such powers. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equivalent to that which the Agent accords its own property, consisting of similar types securities, it being understood, however, that the Agent shall have no responsibility for (i) ascertaining or taking any action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Collateral, whether or not the Agent has or is deemed to have knowledge of such matters, (ii) taking any necessary steps to preserve rights against any parties with respect to any Collateral, or (iii) initiating any action to protect the Collateral or any part thereof against the possibility of a decline in market value. This Agreement constitutes an assignment of rights only and not an assignment of any duties or obligations of the Pledgors in any way related to the Collateral, and the Agent shall have no duty -11- 12 or obligation to discharge any such duty or obligation. By its acceptance hereof, the Agent does not undertake to perform or discharge and shall not be responsible or liable for the performance or discharge of any such duties or responsibilities and shall not in any event become a "Substituted Limited Partner" or words of like import (as defined in the relevant Organizational Agreement) in the relevant Partnership. Neither the Agent or any Lender, nor any party acting as attorney for the Agent or any Lender, shall be liable hereunder for any acts or omissions or for any error of judgment or mistake of fact or law other than such person's gross negligence or willful misconduct. (g) Failure by the Agent to exercise any right, remedy or option under this Agreement or any other agreement between any Pledgor and the Agent or provided by law, or delay by the Agent in exercising the same, shall not operate as a waiver; and no waiver shall be effective unless it is in writing, signed by the party against whom such waiver is sought to be enforced and then only to the extent specifically stated. The rights and remedies of the Agent and the Lenders under this Agreement shall be cumulative and not exclusive of any other right or remedy which the Agent or the Lenders may have. For purposes of this Agreement, an Event of Default shall be construed as continuing after its occurrence until the same is waived in writing by the Lenders or the Required Lenders, as the case may be, in accordance with the Credit Agreement. Section 10. Application of Proceeds. The proceeds and avails of the Collateral at any time received by the Agent during the existence of any Event of Default shall, when received by the Agent in cash or its equivalent, be applied by the Agent in reduction of, or as collateral security for, the Obligations in accordance with the terms of the Credit Agreement. The Pledgors shall remain liable to the Agent and the Lenders for any deficiency. Any surplus remaining after the full payment and satisfaction of the Obligations shall be returned to the Pledgors, or to whomsoever the Agent reasonably determines is lawfully entitled thereto. Section 11. Continuing Agreement. This Agreement shall be a continuing agreement in every respect and shall remain in full force and effect until all of the Obligations, both for principal and interest, have been fully paid and satisfied and any commitment to extend constituting Obligations to and of the Borrowers shall have terminated. Upon such termination of this Agreement, the Agent shall, upon the request and at the expense of the Pledgors, forthwith release all its liens and security interests hereunder. Section 12. Primary Security; Obligations Absolute. The lien and security herein created and provided for stand as direct and primary security for the Obligations. No application of any sums received by the Agent in respect of the Collateral or any disposition thereof to the reduction of the Obligations or any portion thereof shall in any manner entitle any Pledgor to any right, title or interest in or to the Obligations or any collateral security therefor, whether by -12- 13 subrogation or otherwise, unless and until all Obligations have been fully paid and satisfied and any commitments to extend credit constituting Obligations to any of the Borrowers shall have terminated. Each Pledgor acknowledges and agrees that the lien and security hereby created and provided for are absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of the Agent, any Lender or any other holder of any of the Obligations, and without limiting the generality of the foregoing, the lien and security hereof shall not be impaired by any acceptance by the Agent, any Lender or any other holder of any of the Obligations of any other security for or guarantors upon any Obligations or by any failure, neglect or omission on the part of the Agent, any Lender or any other holder of any of the Obligations to realize upon or protect any of the Obligations or any collateral security therefor. The lien and security hereof shall not in any manner be impaired or affected by (and the Agent and the Lenders, without notice to anyone, are hereby authorized to make from time to time) any sale, pledge, surrender, compromise, settlement, release, renewal, extension, indulgence, alteration, substitution, exchange, change in, modification or disposition of any of the Obligations, or of any collateral security therefor, or of any guaranty thereof, or of any instrument or agreement setting forth the terms and conditions pertaining to any of the foregoing. The Lenders may at their discretion at any time grant credit to any of the Borrowers without notice to any Pledgor in such amounts and on such terms as the Lenders may elect without in any manner impairing the lien and security hereby created and provided for. In order to realize hereon and to exercise the rights granted the Agent hereunder and under applicable law as against any Pledgor or any portion of the Collateral in which any such Pledgor has rights, there shall be no obligation on the part of the Agent, any Lender or any other holder of any of the Obligations at any time to first resort for payment to any of the Borrowers or any other Pledgor or any other Person, its property or estate or to any guaranty of the Obligations or any portion thereof or to resort to any other collateral security, property, liens or any other rights or remedies whatsoever, and the Agent shall have the right to enforce this Agreement as against any Pledgor or any portion of the Collateral in which any such Pledgor has rights, irrespective of whether or not other proceedings or steps are pending seeking resort to or realization upon or from any of the foregoing. Section 13. The Agent. In acting under or by virtue of this Agreement, Agent shall be entitled to all the rights, authority, privileges and immunities provided in Section 10 of the Credit Agreement, all of which provisions of said Section 10 are incorporated by reference herein with the same force and effect as if set forth herein in their entirety. The Agent hereby disclaims any representation or warranty to the Lenders or any other holders of the Obligations concerning the perfection of the liens and security interests granted hereunder or in the value of the Collateral. Section 14. Miscellaneous. (a) This Agreement cannot be changed or terminated orally. This Agreement shall create a continuing lien on and security interest in the Collateral and shall be binding upon each Pledgor, its successors and assigns, and shall inure, together with the -13- 14 rights and remedies of the Agent and the Lenders hereunder, to the benefit of the Agent and the Lenders, and their successors and assigns; provided, however, that no Pledgor may assign its rights or delegate its duties hereunder without the Agent's prior written consent. Without limiting the generality of the foregoing, and subject to the provisions of the Credit Agreement, any Lender may assign or otherwise transfer any indebtedness held by it secured by this Agreement to any other person, and such other person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise. (b) All communications provided for herein shall be in writing, except as otherwise specifically provided for hereinabove, and shall be deemed to have been given or made, if to any Pledgor when given to any of the Borrowers in accordance with Section 12.8 of the Credit Agreement, or if to the Agent or any Lender, when given to such party in accordance with Section 12.8 of the Credit Agreement. (c) No Lender shall have the right to institute any suit, action or proceeding in equity or at law for the foreclosure or other realization upon any Collateral subject to this Agreement or for the execution of any trust or power hereof or for the appointment of a receiver, or for the enforcement of any other remedy under or upon this Agreement; it being understood and intended that no one or more of the Lenders shall have any right in any manner whatsoever to affect, disturb or prejudice the lien and security interest of this Agreement by its or their action or to enforce any right hereunder, and that all proceedings at law or in equity shall be instituted, had and maintained by the Agent in the manner herein provided for the benefit of the Lenders. (d) In the event that any provision hereof shall be deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Agreement shall be construed as not containing such provision, but only as to such locations where such law or interpretation is operative, and the invalidity of such provision shall not affect the validity of any remaining provision hereof, and any and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect. Without limiting the generality of the foregoing, in the event that this Agreement shall be deemed to be invalid or otherwise unenforceable with respect to any Pledgor, such invalidity or unenforceability shall not affect the validity of this Agreement with respect to the other Pledgors. (e) This Agreement shall be deemed to have been made in the State of Illinois and shall be governed by, and construed in accordance with, the laws of the State of Illinois. All terms which are used in this Agreement which are defined in the UCC shall have the same meanings herein as said terms do in the UCC unless this Agreement shall otherwise specifically provide. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof. -14- 15 (f) This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterpart signature pages, each constituting an original, but all together one and the same instrument. Each Pledgor acknowledges that this Agreement is and shall be effective upon its execution and delivery by such Pledgor to the Agent, and it shall not be necessary for the Agent to execute this Agreement or any other acceptance hereof or otherwise to signify or express its acceptance hereof. (g) In the event the Agent and the Lenders shall at any time in their discretion permit a substitution of Pledgors hereunder or a party shall wish to become a Pledgor hereunder, such substituted or additional Pledgor shall, upon executing an agreement in the form attached hereto as Schedule E, become a party hereto and be bound by all the terms and conditions hereof to the same extent as though such Pledgor had originally executed this Agreement and, in the case of a substitution, in lieu of the Pledgor being replaced. No such substitution shall be effective absent the written consent of Agent and the Lenders nor shall it in any manner affect the obligations of the other Pledgors hereunder. (h) THE AGENT AND THE PLEDGORS AGREE THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, ILLINOIS, BUT EACH OF THE AGENT AND THE PLEDGORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, ILLINOIS. EACH OF THE PLEDGORS WAIVES IN ALL DISPUTES ANY OBJECTION THAT SUCH PLEDGOR MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE OR ANY OBJECTION THAT SUCH PLEDGOR MAY HAVE THAT ANY OTHER PARTY HAS NOT BEEN JOINED IN SUCH PROCEEDING. EACH OF THE PLEDGORS AGREES THAT THE AGENT SHALL HAVE THE RIGHT TO PROCEED AGAINST EACH AND ANY OF THE PLEDGORS OR THEIR COLLATERAL IN A COURT IN ANY LOCATION TO ENABLE THE AGENT TO REALIZE ON THE COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE AGENT, WHETHER OR NOT PROCEEDING SEPARATELY AGAINST ANY PLEDGOR AND ITS PROPERTY OR JOINTLY AGAINST THE BORROWERS AND ANY ONE OR MORE OF THE PLEDGORS AND THEIR PROPERTY. EACH OF THE PLEDGORS WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH. [SIGNATURE PAGES TO FOLLOW] -15- 16 IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be duly executed and delivered as of the date first above written. PLEDGORS: MORTON INDUSTRIAL GROUP, INC. By Its____________________________________ MORTON METALCRAFT CO. By Its___________________________________ MORTON METALCRAFT CO. OF NORTH CAROLINA By Its____________________________________ Acknowledged and agreed to as of the date first above written. HARRIS TRUST AND SAVINGS BANK, as Agent as aforesaid for the Lenders By Its:___________________________________ -16- EX-10.5 8 EX-10.5 1 EXECUTION COPY EXHIBIT 10.5 LIMITED INDEMNIFICATION AGREEMENT LIMITED INDEMNIFICATION AGREEMENT, dated October 20, 1997 (the "Agreement"), by and among MLX Corp., a Georgia corporation ("Buyer") and certain holders (the "Securityholders") of shares of common stock ("Common Stock"), par value $0.01 per share, of Morton Metalcraft Holding Co., a Delaware corporation (the "Company") and options and warrants to acquire shares of Common Stock (such shares of Common Stock, warrants and options, the "Company Securities"). Pursuant to an Agreement and Plan of Merger dated as of October 20, 1997 (the "Merger Agreement"), among Buyer and the Company, the Company shall be merged with and into Buyer (the "Merger"), with Buyer being the surviving corporation (hereinafter referred to as the "Surviving Corporation"). Pursuant to that certain Securities Purchase Agreement, dated as of October 20, 1997 (the "Securities Purchase Agreement"), by and among Buyer and certain holders (the "Selling Securityholders") of Company Securities, immediately prior to the Merger, the Selling Securityholders will sell and Buyer will purchase, at the prices and on the terms and conditions set forth therein, the Company Securities of the Selling Securityholders set forth in the Securities Purchase Agreement. Buyer has requested as an inducement for it to enter into the Merger Agreement and the Securities Purchase Agreement that the Securityholders execute and deliver this Agreement and the Securityholders are willing to execute and deliver this 2 2 Agreement as an inducement to Buyer to enter into the Merger Agreement and Securities Purchase Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Indemnification. 1.1 Obligations to Indemnify. Each Securityholder hereby agrees that subject to Section 1.2 below, such Securityholder shall be severally, and not jointly, liable to and shall indemnify, defend and hold harmless Buyer, its affiliates (including the Surviving Corporation) and their respective directors, officers, employees, affiliates, successors and assigns (each, an "Indemnified Party") pursuant to this Agreement from and against any and all loss, cost, damage or expense (including reasonable fees of counsel) whatsoever ("Losses") based upon, arising out of or otherwise resulting from any breach of any representation or warranty of the Company, or breach of any covenant or obligation of the Company, in either case, contained in the Merger Agreement, or the enforcement by the Company of its rights hereunder; provided that for purposes of this Agreement, each representation and warranty of the Company contained in the Merger Agreement will, for purposes of this Agreement, be deemed amended and supplemented by the disclosures contained in the certificate delivered to Buyer as required by Section 6.2.3 of the Merger Agreement. Each Security holder shall not be liable for any breaches of representations and warranties of the Company of which none of the persons identified on Schedule 1.1 had actual knowledge on or before the Closing Date. 3 3 1.2 Limitation on Liability. The indemnification provided for in this Agreement shall be subject to the limitation that: (a) no Securityholder shall be obligated to make any payment for indemnification pursuant to this Agreement in respect of any Losses until the aggregate amount of such Losses exceeds $500,000 (the "Basket Amount"), whereupon the Securityholders shall, severally and not jointly, be obligated to pay, subject to clauses (b), (c) and (d) below, all such amounts for indemnification in excess of the Basket Amount; (b) the Securityholders shall have no obligation to make indemnification payments under this Agreement in excess of $1,600,000 in the aggregate; (c) with respect to any Losses, each Securityholder shall be obligated to pay, subject to the other limitations set forth in this Section 1.2, an amount equal to the product of (A) the amount of such Losses, times (B) a fraction, the numerator of which is the number of shares of Common Stock owned by such Securityholder and/or the number of shares of Common Stock for which such Securityholder's Company Securities are exercisable immediately prior to the acquisition of Company Securities pursuant to the Securities Purchase Agreement, as the case may be, and the denominator of which is the total number of shares of Common Stock owned by all Securityholders plus the number of shares of Common Stock reserved for issuance upon the exercise of options or warrants owned by all Securityholders, in each case, immediately prior to the acquisition of Company 4 4 Securities pursuant to the Securities Purchase Agreement. (d) except with respect to Losses for which an Indemnification Notice (as defined below) has been given prior to 18 months after the Effective Time, the obligation to make indemnification payments under this Agreement shall terminate 18 months after the Effective Time. 1.3 Other Liability. Nothing in this Agreement shall limit the several liability of each Securityholder under the Securities Purchase Agreement. 1.4 Notice to Securityholders. (a) Notice of Asserted Liability. Promptly after an Indemnified Party under this Agreement receives notice of any demand, claim or circumstances which, with the lapse of time, would or might give rise to a claim or the commencement (or threatened commencement) of any action, audit, proceeding or investigation (an "Asserted Liability") that may result in a Loss, or otherwise determines that any Securityholder is or may be obligated to provide indemnification to it under this Agreement such Indemnified Party shall give notice thereof (the "Indemnification Notice") to the Securityholders. The Indemnification Notice shall describe the Asserted Liability or Loss, as the case may be, in reasonable detail, and shall indicate the amount (estimated, if necessary and to the extent it is feasible) of the Loss that has been or may be suffered by Buyer. The failure to give the Indemnification Notice promptly shall not bar indemnification hereunder except to the extent provided in Section 1.2(d) or to the extent such failure prejudiced the party against whom indemnification is sought. 5 5 (b) Opportunity to Defend. In the event the Securityholders may be obligated to make indemnification payments with respect to an Asserted Liability the Securityholders may elect to control and compromise or defend, at the Securityholders' expense and by their own counsel, any such Asserted Liability (other than any Asserted Liability in respect of Taxes). Any such decisions and actions with respect to any such Asserted Liability shall be made by Securityholders obligated to pay a majority of losses under Section 1.2(c). If the Securityholders elect to compromise or defend such Asserted Liability, they shall within 30 days (or sooner, if the nature of the Asserted Liability so requires) notify Buyer of their intent to do so, and, if requested, Buyer shall cooperate at the expense of the Securityholders (with respect to out-of-pocket expenses), in the compromise of, or defense against such Asserted Liability. If the Securityholders elect not to compromise or defend the Asserted Liability, or fail, in a timely manner, to notify Buyer of their election as herein provided, Buyer shall have the right, without prejudice to its right to indemnification from the Securityholders, to pay, compromise or defend such Asserted Liability. Notwithstanding any other provision of this Agreement, neither the Securityholders nor Buyer may settle or compromise any claim over the objection of the other. In any event, both Buyer and the Securityholders may participate in the defense of such Asserted Liability. If the Securityholders choose to defend any claim, Buyer shall make available to the Securityholders any books, records or other documents within its control that are reasonably requested for such defense and shall afford reasonable access to its personnel and the personnel of the Surviving 6 6 Corporation. Notwithstanding any other provision of this Agreement, if Buyer shall determine in good faith that the indemnification payment as set forth in Section 1.2(a) and (b) will not be sufficient to satisfy the Asserted Liability, Buyer may elect to control, compromise or defend such Asserted Liability, and in such event shall permit the reasonable participation of the Securityholders. 2. Consent to Jurisdiction and Service of Process. Any legal action, suit or proceeding arising out of or relating to this Agreement may be instituted in the United States District Court for the District of Delaware, and each party agrees not to assert, by way of motion, as a defense, or otherwise, in any such action, suit or proceeding, any claim that it is not subject personally to the jurisdiction of such Court, that the action, suit or proceeding is brought in an inconvenient forum, that the venue of the action, suit or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such Court. Each party irrevocably submits to the jurisdiction of such Court in any such action, suit or proceeding. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given personally or by registered or certified mail, return receipt requested, or by any other means of mail that requires a signed receipt, postage prepaid, mailed to such party as herein provided. Nothing herein contained shall be deemed to affect the rights of any party to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against any other party in any other jurisdiction if permitted by law. 3. Miscellaneous. 7 7 3.1 Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed, or sent by facsimile transmission or, if mailed, five days after the date of deposit in the United States mails, as follows: (a) if to Buyer or to the Surviving Corporation, to: MLX Corp. 1000 Center Place Norcross, Georgia 30093 Attention: Thomas C. Waggoner Telecopy: (770) 798-0633 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019 Attention: Robert M. Hirsh, Esq. Telecopy: (212) 373-2159 (b) if to a Securityholder, to the address set forth on Exhibit A hereto: 3.2 Entire Agreement. This Agreement is entered into and delivered pursuant to the Merger Agreement and the Securities Purchase Agreement and together with such agreements contains the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto. 8 8 3.3 Waivers and Amendments. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by the Buyer and by the Securityholders who are, pursuant to Section 1.2(a), obligated to pay a majority of Losses as determined under Section 1.2(c). No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies of any party based upon a breach of any representation, warranty, covenant or agreement contained in the Merger Agreement shall in no way be limited by the fact that such inaccuracy or breach may also be the subject matter of any other representation, warranty, covenant or agreement contained in the Merger Agreement (or in any other agreement between the parties) as to which there is no inaccuracy or breach. 3.4 Effectiveness. This Agreement shall become effective only upon the consummation of the Merger. 3.5 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely within such State. 3.6 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 9 9 3.7 Further Assurances. Each of the parties shall execute such documents and other papers and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and the transactions contemplated hereby. 3.8 Variations in Pronouns. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. 3.9 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. 3.10 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement. 10 10 Schedule 1.1 to Limited Indemnification Agreement William D. Morton Daryl R. Lindemann Brian L. Geiger Brian R. Doolittle David Stratton Robert J. Janeczko EX-10.6 9 EX-10.6 1 EXHIBIT 10.6 INDUSTRIAL BUILDING LEASE
- -------------------------------------------------------------------------------------------------------- DATE OF LEASE TERM OF LEASE MONTHLY RENT - -------------------------------------------------------------------------------------------------------- September 1, 1994 BEGINNING ENDING $11,460 subject to adjust- -------------------------------------------------- ment for a building addition (see Section 25) and annual 9/01/94 8/31/04 escalator (see Section 26) - -------------------------------------------------------------------------------------------------------- Location of Premises: 400 Detroit Street Morton, Illinois 61550 - -------------------------------------------------------------------------------------------------------- Purpose: Manufacturing, Painting, Warehousing and Office Administration. This agreement supersedes the lease dated June 30, 1992. - -------------------------------------------------------------------------------------------------------- LESSEE LESSOR NAME Morton Metalcraft Co. NAME Morton Welding Co., Inc. ADDRESS 1021 W. Birchwood Street ADDRESS 724 W. Jackson Street Morton, Illinois 61550 Morton, Illinois 61550
In consideration of the mutual covenants and agreements herein stated, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor solely for the above purpose the Premises designated above (the "Premises"), together with the appurtenances thereto, for the above Term. RENT 1. Lessee shall pay Lessor or Lessor's agent as rent for the Premises, the sum stated above, monthly paid on the 15th of each month, until termination of this lease, at Lessor's address stated above or such other address as Lessor may designate in writing. CONDITION 2. Lessee has examined and knows the condition of the AND UPKEEP Premises and has received the same in good order and OF repair, and acknowledges that no representations as to PREMISES the condition and repair thereof have been made by Lessor, or his agent, prior to or at the execution of this lease that are not herein expressed; Lessee will keep the Premises including all appurtenances, in good repair, replacing all broken glass with glass of the same size and quality as that broken, and will replace all damaged plumbing fixtures with others of equal quality, and will keep the Premises, including adjoining alleys, in a clean and healthful condition according to the applicable municipal ordinances and the direction of the proper public officers during the term of this lease at Lessee's expense, and will without injury to the roof remove all snow and ice from the same when necessary, and will remove the snow and ice from the sidewalk abutting the Premises; and upon the termination of this lease, in any way, will yield up the Premises to Lessor, in good condition and repair, loss by fire and ordinary wear excepted, and will deliver the keys therefor at the place of payment of said rent. 2 LESSEE NOT 3. Lessee will not allow the Premises to be used for any TO MISUSE; purpose that will increase the rate of insurance SUBLET; thereon, nor for any purpose other than that ASSIGNMENT hereinbefore specified, and will not load floors with machinery or goods beyond the floor load rating prescribed by applicable municipal ordinances, and will not allow the Premises to be occupied in whole, by any other person, and will not assign this lease without in each case the written consent of the Lessor first had, and Lessee will not permit any transfer by operation of law of the interest in the Premises acquired through this lease, and will not permit the Premises to be used for any unlawful purpose, or for any purpose that will injure the reputation of the building or increase the fire hazard of the building, or disturb the tenants or the neighborhood, and will not permit the same to remain vacant or unoccupied for more than twenty consecutive days; and will not allow any signs, cards or placards to be posted, or placed thereon, nor permit any alteration of or addition to any part of the Premises, except by written consent of Lessor; all alterations and additions to the Premises shall remain for the benefit of Lessor unless otherwise provided in the consent aforesaid. Lessor agrees that the Lessee can sublet any or all of the offices to a company or companies of solid reputation of its sole choice. MECHANIC'S 4. Lessee will not permit any mechanic's lien or LIEN liens to be placed upon the Premises or any building or improvement thereon during the term hereof, and in case of the filing of such lien Lessee will promptly pay same. If default in payment thereof shall continue for thirty (30) days after written notice thereof from Lessor to the Lessee, the Lessor shall have the right and privilege at Lessor's option of paying the same or any portion thereof without inquiry as to the validity thereof, and any amounts so paid, including expenses and interest, shall be so much additional indebtedness hereunder due from Lessee to Lessor and shall be repaid to Lessor immediately on rendition of bill therefor. INDEMNITY 5. Lessee covenants and agrees that he will protect FOR and save and keep the Lessor forever harmless and ACCIDENTS indemnified against and from any penalty or damages or charges imposed for any violation of any laws or ordinances, whether occasioned by the neglect of Lessee or those holding under Lessee, and that Lessee will at all times protect, indemnify and save and keep harmless the Lessor against and from any and all loss, cost, damage or expense, arising out of or from any accident or other occurrence on or about the Premises, causing injury to any person or property whomsoever or whatsoever and will protect, indemnify and save and keep harmless the Lessor against and from any and all claims and against and from any and all loss, cost, damage or expense arising out of any failure of Lessee in any respect to comply with and perform all the requirements and provisions hereof. The Lessee agrees at all times during the term of this lease and any extension thereof, at Lessee's expense, to maintain, keep in effect, furnish and deliver to Lessor liability insurance policies in a form and with an insurer satisfactory to Lessor providing statutory worker's compensation insurance for Lessee's employees and insuring both the Lessor and Lessee against all liability for damages to person -2- 3 or property in or about the leased premises in an amount equivalent to One Million Dollars for injury to one person, One Million Dollars for injuries arising out of any one accident and not less than One Million Dollars for damage to property, or a single combined limit of Two Million Dollars bodily injury and property damage. All such insurance shall insure performance by Lessee of the indemnity provisions hereof. NON- 6. Except as provided by Illinois statute, Lessor LIABILITY shall not be liable for any damage occasioned by OF LESSOR failure to keep the Premises in repair, nor for any damage done or occasioned by or from plumbing, gas, water, sprinkler, steam or other pipes or sewerage or the bursting leaking or running of any pipes, tank or plumbing fixtures, in, above, upon or about Premises or any building or improvement thereon nor for any damage occasioned by water, snow or ice being upon or coming through the roof, skylights, trap door or otherwise, nor for any damages arising from acts or neglect of any owners or occupants of adjacent or contiguous property. WATER, GAS 7. Lessee will pay, in addition to the rent above AND ELEC- specified, all water rents, gas and electric light TRIC and power bills taxed, levied or charged on the CHARGES Premises, for and during the time for which this lease is granted, and in case said water rents and bills for gas, electric light and power shall not be paid when due, Lessor shall have the right to pay the same, which amounts so paid, together with any sums paid by Lessor to keep the Premises in a clean and healthy condition, as above specified, are declared to be so much additional rent and payable with the installment of rent next due thereafter. REAL ES- 8. Lessee shall be responsible for and pay all real TATE TAXES estate taxes which are assessed and payable on the Premises which relate to Tenant's period of occupancy under this lease. BUILDING 9. Lessee shall maintain on the buildings and INSURANCE other improvements that are part of the Premises a policy of standard fire and extended coverage insurance for the full insurable value of the Premises with a loss payable clause in favor of Lessor as its interest may appear. Lessee shall deposit such policies of insurance with Lessor. KEEP PRE- 10. Lessor shall not be obliged to incur any expense MISES IN for repairing any improvements upon said demised REPAIR premises or connected therewith, and the Lessee at his own expense will keep all improvements in good repair (injury by fire, or other causes beyond Lessee's control excepted) as well as in a good tenantable and wholesome condition, and will comply with all local or general regulations, laws and ordinances applicable thereto, as well as lawful requirements of all competent authorities in that behalf. Lessee will, as far as possible, keep said improvements from deterioration due to ordinary wear and from falling temporarily out of repair. If Lessee does not make repairs as required hereunder promptly and adequately, Lessor may but need not make such repairs and pay the costs thereof, and such costs shall be so much additional rent immediately due from and payable by Lessee to Lessor. -3- 4 ACCESS 11. Lessee will allow Lessor free access to the Premises TO PREMISES for the purpose of examining or exhibiting the same, or to make any needful repairs, or alterations thereof which Lessor may see fit to make. ABANDON- 12. If Lessee shall abandon or vacate the Premises, or MENT AND if Lessee's right to occupy the Premises be terminated RELETTING by Lessor by reason of Lessee's breach of any of the covenants herein, the same may be re-let by Lessor for such rent and upon such terms as Lessor may deem fit; and if a sufficient sum shall not thus be realized monthly, after paying the expenses of such re-letting and collecting to satisfy the rent hereby reserved, Lessee agrees to satisfy and pay all deficiency monthly during the remaining period of this lease. HOLDING 13. Lessee will, at the termination of this lease by OVER lapse of time or otherwise yield up immediate possession to Lessor, and failing so to do, will pay as liquidated damages, for the whole time such possession is withheld, the sum of Four Hundred Dollars ($400.00) per day; but the provisions of this clause shall not be held as a waiver by Lessor of any right of re-entry as hereinafter set forth; nor shall the receipt of said rent or any part thereof, or any other act in apparent affirmance of tenancy, operate as a waiver of the right to forfeit this lease and the term hereby granted for the period still unexpired, for a breach of any of the covenants herein. EXTRA FIRE 14. There shall not be allowed, kept, or used on the HAZARD Premises any inflammable or explosive liquids or materials save such as may be necessary for use in the business of the Lessee, and in such case, any such substances shall be delivered and stored in amount, and used, in accordance with the rules of the applicable Board of Underwriters and statutes and ordinances now or hereafter in force. Both parties understand that the building has had and will continue to be used for painting services and all such paint, solvents, chemicals, and materials required for such services will be present on the site. DEFAULT BY 15. If default be made in the payment of the above LESSEE rent, or any part thereof, or in any of the covenants herein contained to be kept by the Lessee, Lessor may at any time thereafter at his election declare said term ended and reenter the Premises or any part thereof, with or (to the extent permitted by law) without notice or process of law, and remove Lessee or any persons occupying the same, without prejudice to any remedies which might otherwise be used for arrears of rent, and Lessor shall have at all times the right to distrain for rent due, and shall have a valid and first lien upon all personal property which Lessee now owns, or may hereafter acquire or have an interest in, which is by law subject to such distraint, as security for payment of the rent herein reserved. NO RENT 16. Lessee's covenant to pay rent is and shall be REDUCTION independent of each and every other covenant of this OR SET OFF lease. Lessee agrees that any claim by Lessee against Lessor shall not be deducted from rent nor set off against any claim for rent in any action. -4- 5 RENT AFTER 17. It is further agreed, by the parties hereto, that NOTICE OR after the service of notice, or the commencement of a SUIT suit or after final judgement for possession of the Premises, Lessor may receive and collect any rent due, and the payment of said rent shall not waive or affect said notice, said suit, or said judgement. PAYMENT OF 18. Lessee will pay and discharge all reasonable COSTS costs, attorney's fees and expenses that shall be made and incurred by Lessor in enforcing the covenants and agreements of this lease. RIGHTS 19. The rights and remedies of Lessor under this lease CUMULATIVE are cumulative. The exercise or use of any one or more thereof shall not bar Lessor from exercise or use of any other right or remedy provided herein or otherwise provided by law, nor shall exercise nor use of any right or remedy by Lessor waive any other right or remedy. FIRE AND 20. In case the Premises shall be rendered untenantable CASUALTY during the term of this lease by fire or other casualty, Lessor at his option may terminate the lease or repair the Premises within sixty (60) days thereafter. If Lessor elects to repair, this lease shall remain in effect provided such repairs are completed within said time. If Lessor shall not have repaired the Premises within said time, then at the end of such time the term hereby created shall terminate. If this lease is terminated by reason of fire or casualty as herein specified, rent shall be apportioned and paid to the day of such fire or other casualty. SUBORDINA- 21. This lease is subordinate to all mortgages which may TION now or hereafter affect the Premises. PLURALS; 22. The words "Lessor" and "Lessee" wherever herein SUCCESSORS occurring and used shall be construed to mean "Lessors" and "Lessees" in case more than one person constitutes either party to this lease; and all the covenants and agreements contained shall be binding upon, and inure to, their respective successors, heirs, executors, administrators and assigns and may be exercised by his or their attorney or agent. SEVER- 23. Wherever possible each provision of this lease shall ABILITY be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this lease shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this lease. PURCHASE 24. Lessor agrees to provide Lessee an option to purchase OPTION the premises under lease at any time of the Lessee's choice for an amount equal to the higher of two Appraisals from Appraisers of mutual choice of both parties provided that the higher Appraisal is not more than 110% of the lower Appraisal and provided further that in no event shall the option price be less than $1,250,000 plus the cost of the building addition and building improvements contemplated by Section 25 hereof (estimated at $500,000 for a total estimated floor option price of $1,750,000). In the event that the higher Appraisal is more -5- 6 than 110% of the lower Appraisal, the Appraisers shall select a third Appraiser and the option price shall be the average of the two Appraisals which are closest to each other (but not less than the floor option price mentioned above). BUILDING 25. Lessor agrees to pay for improvements to the existing ADDITION building located on the Premises in accordance with plans and specifications to be submitted by Lessee and approved by Lessor (at an estimated cost of $75,000) and a building addition in accordance with plans and specifications to be submitted by Lessee and approved by Lessor (at an estimated cost of $425,000) with such improvements to be constructed by a contractor selected by the Lessee and approved by the Lessor. Where the Lessor's approval is required herein, such approval shall not be unreasonably withheld. At such time as the building addition is sufficiently completed that the Lessee begins occupancy of the Premises, the monthly rental amount shall be increased by an amount determined by multiplying the total cost of the improvements to the existing building and the building addition including construction period interest by 11% and dividing the amount so determined by 12 to arrive at the monthly rental adjustment. Lessor and Lessee also agree to complete the Addendum attached hereto as Exhibit A to document the rental adjustment. RENT ESCA- 26. Lessor and Lessee agree that as of September 1, 1995 LATOR and on September 1 of each year thereafter during the lease term, the monthly rental shall be increased. The new monthly rental for each year shall be determined by multiplying the monthly rental in effect at the end of the immediately preceding lease year by 103% to arrive at the monthly rental to be effective as of September 1 and continuing for the next lease year. EPA COM- 27. Lessor shall retain responsibility for the clean up PLIANCE of any environmental contamination which existed prior to Lessee's occupancy of the Premises including any clean up required in connection with the underground storage tanks which were located on the Premises when leased to the Lessee. Lessee shall assume responsibility to comply with all EPA regulations going forward and shall be responsible for any contamination or clean up required as a result of the Lessee's business operations. CATER- 28. Both parties understand that should the Lessee's PILLAR largest customer, Caterpillar, have a work stoppage, STRIKE other than normal vacation, of any duration, that the CLAUSE Lessee shall have the right to reduce its monthly lease payment by 50% for 3 months. The amount of any rental payment reductions pursuant hereto shall be due and payable to Lessor 12 months following the end of the reduction period. WAIVER OF 29. Neither the Lessor nor the Lessee shall be liable to SUBROGA- the other for loss arising out of damage to or TION destruction of the leased premises or the building or improvement of which the leased premises are a part or with which they are connected or the contents thereof, when such loss is caused by any of the perils which are or could be included within or insured against by a standard form of fire insurance policy with extended coverage, including all risk type form and sprinkler leakage insurance, if applicable. All such claims for any -6- 7 and all loss, however caused, are waived. Said absence of liability shall exist whether or not the damage or destruction is caused by the negligence or acts of either Lessee or Lessor or by any of their respective agents, servants, or employees. It is the intention and agreement of the Lessor and the Lessee that the rentals reserved by this lease have been fixed in contemplation that each party shall fully provide his own insurance protection, except as heretofore set forth, and that each party shall look to his respective insurance carriers for reimbursement of any such loss and that as a further condition thereof no insurance carrier shall be entitled to subrogation under any circumstances against any party to this lease. Neither the Lessor nor the Lessee shall have any interest or claim in the other's insurance policy or policies, except as heretofore provided. The foregoing release and waiver shall be in force only if both releasers' insurance policies contain a clause that such a release or waiver shall not invalidate the insurance thereunder. Lessee agrees that all personal property upon the premises shall be at the risk of the Lessee only and Lessor shall not be liable for its damage or theft regardless of the cause of such damage or theft. This lease consists of 7 pages numbered 1 to 7, and a one page Addendum, identified by Lessor and Lessee. IN WITNESS WHEREOF, the parties hereto have executed this instrument as of the Date of lease stated above. LESSEE: MORTON METALCRAFT CO. LESSOR: MORTON WELDING CO., INC. By____________________________ By________________________________ William D. Morton, President James A. Rinkenberger, President -7- 8 Exhibit A ADDENDUM Lessor and Lessee agree that the building addition contemplated by Section 25 of the Lease Agreement between the parties dated September 1, 1994 was available for occupancy by the Lessee on _____, 199___ and that the total cost of the improvements to the existing building and the new addition was $____. Accordingly, as of ____, 199___, the monthly rental under the Lease Agreement shall increase by $________________ per month from the previous monthly rental of $_______ per month to the new monthly rental of $per month. Further, the parties agree that the floor option price under Section 24 of the Lease Agreement shall be $______. Dated this _____ day of ________________, 19___. LESSEE: MORTON METALCRAFT CO. LESSOR: MORTON WELDING CO., INC. By____________________________ By________________________________ William D. Morton, President James A. Rinkenberger, President 9 AMENDMENT TO INDUSTRIAL BUILDING LEASE MORTON WELDING CO., INC., as Lessor, and MORTON METALCRAFT CO., as Lessee, entered into an Industrial Building Lease dated September 1, 1994 (the "Lease") for the premises commonly known as 400 Detroit Street, Morton, Illinois 61550. Pursuant to Section 25 of the Lease, the Lessor paid for improvements to the existing building and the Lessor and the Lessee have now agreed on the completion of the Addendum attached to the Lease as Exhibit A. In connection with the completion of Exhibit A, however, the Lessor and the Lessee agree to use a capitalization rate of 11-3/4% rather than the 11% provided in the Lease. Exhibit A attached hereto is hereby approved, authorized and ratified. Except as herein modified, the parties hereto do hereby ratify and confirm the Lease. Dated as of this ____ day of May, 1995. LESSEE: LESSOR: MORTON METALCRAFT CO. MORTON WELDING CO., INC. By William D. Morton By James A. Rinkenberger -------------------------- ------------------------- William D. Morton, President James A. Rinkenberger President President 10 EXHIBIT A ADDENDUM Lessor and Lessee agree that the building addition contemplated by Section 25 of the Lease Agreement between the parties dated September 1, 1994 was available for occupancy by the Lessee on November 15, 1994 and that the total cost of the improvements to the existing building and the new addition was $746,779.00. Accordingly, as of November 15, 1994, the monthly rental under the Lease Agreement shall increase by $7,312.22 per month from the previous monthly rental of $12,055.86 per month to the new monthly rental of $19,368.07 per month. Further, the parties agree that the floor option price under Section 24 of the Lease Agreement shall be $1,996,779.00. Dated this ______ day of May, 1995. LESSEE: MORTON METALCRAFT CO. LESSOR: MORTON WELDING CO., INC. By William D. Morton By James A. Rinkenberger -------------------------------- -------------------------------- William D. Morton, President James A. Rinkenberger, President EX-10.7 10 EX-10.7 1 EXHIBIT 10.7 LEASE This Lease is made and entered into this 9th day of June, 1995, by and between Caterpillar Inc., a Delaware corporation, (hereinafter referred to as "Lessor"), and Morton Metalcraft Co., an Illinois corporation, (hereinafter referred to as "Lessee"). Witnesseth: 1. PREMISES - Lessor, for and in consideration of the rent and covenants, conditions and agreements hereinafter described to be kept and performed by Lessee, does hereby rent, demise and lease to Lessee, and Lessee does hereby rent and lease from Lessor, one hundred thirty-seven thousand three hundred fifty-one (137,351) square feet in a building located at 8201 N. University Street, Peoria, IL 61615, being more particularly shown on Exhibit "A" attached hereto and incorporated herein by reference (the "Premises"). Lessee shall have access rights to the Premises as shown on Exhibit A and exclusive use of the fenced-in area shown on Exhibit A. Lessee may use existing hard-surfaced areas within the fenced-in area for employee parking and truck access. Any additional employee parking on or off site shall be provided by Lessee. 2. TERM - The term of this Lease shall be for eight years, commencing on June 1, 1995 and terminating on May 31, 2003. 3. RENT - Rent shall be payable in monthly installments, commencing January 1, 1996, in accordance with the following schedule: 2 -2- Years 1996 - 1997 $20,030.35/MO ($1.75/SF/YR) Years 1998 - 1999 $25,753.30/MO ($2.25/SF/YR) Years 2000 - 2001 $27,470.20/MO ($2.40/SF/YR) Year 2002 $28,294.30/MO (3% escalation) Year 2003 $29,143.13/MO (3% escalation) Monthly installments of rent as provided above shall be paid in advance on the first day of each month at the offices of the Lessor shown in Section 23. If commencement and termination dates are other than the first of a month, rent shall be prorated based on the number of days used in the month. 4. USE OF PREMISES - Premises are to be used by Lessee for manufacturing and assembly purposes, or for any other purposes permitted by applicable law, zoning and covenants and by this Lease. Lessee shall comply, at the cost and expense of Lessee, with any and all ordinances, statutes or other laws relating to the use of the Premises, and will observe and comply with requests of fire insurance companies respecting the use of the Premises. Lessee's employees, agents and invitees shall remain within the Premises and not enter adjoining building space. 5. REGULATORY COMPLIANCE A. Lessee shall not, and shall not permit others to, introduce, use, dispose of, dump or store any materials on the Premises in a 3 -3- manner in which, or whose presence would, violate any laws, ordinances or regulations relating to environment, health or safety conditions; and Lessee's operations at the Premises shall remain in compliance with all such applicable laws. B. Lessee agrees to defend and hold Lessor harmless from and to indemnify Lessor against any and all claims, liabilities and damages, penalties, costs or expenses (including, but not limited to, attorney's fees) arising from or caused in whole or in part, directly or indirectly, from any failure to comply with Lessee's obligations in this Section. This indemnification shall survive the termination of this Agreement. C. Lessor agrees to defend and hold Lessee harmless from and to indemnify Lessee against any and all claims, liabilities and damages, penalties, costs or expense (including, but not limited to attorney's fees) arising from any violation of any environmental, health or safety regulation or law or condition existing prior to Lessee's occupancy of the Premises or solely caused by Lessor. In the event any environmental condition existing prior to Lessee's occupancy of the Premises adversely impacts Lessee's occupancy of or the conduct of Lessee's business upon the Premises, Lessee may, as its sole remedy, either terminate this Lease or ask Lessor to abate the rent to the extent the Premises becomes untenantable. This indemnification shall survive the termination of this Agreement. 4 -4- 6. ALTERATIONS, IMPROVEMENTS AND SIGNS A. Improvements by Lessee During the term of the Lease, Lessee at its sole expense may, with the prior consent of Lessor, make alterations and improvements to the Premises for use by Lessee as provided herein, including but not limited to, installation of signs, equipment, fixtures, partitions and shelving. Lessor hereby preliminarily consents to Lessee's planned improvements detailed on Exhibit B hereto, pending Lessor's approval of the final designs. Upon termination of this Lease, alterations and improvements to the Premises made by Lessee and other property of Lessee left in place with the consent of Lessor shall become the property of Lessor, unless the consent given by Lessor to Lessee was conditioned upon Lessee's removal of such improvements and restoration of the Premises to the same condition as existed prior to the alterations and improvements. If Lessee has not removed its alterations and improvements (except as Lessor has otherwise agreed) at the termination of this Lease, Lessor may remove them and all charges therefor will be due immediately from Lessee. B. Improvements by Lessor - Lessor agrees to make the alterations and improvements to the Premises specified in Exhibit C hereto. Such alterations and improvements shall be at Lessor's cost. Lessor 5 -5- agrees to contribute fifty thousand dollars ($50,000) towards Lessee's construction of a new dock as specified in Exhibit B hereto, with such contribution due upon receipt by Lessor of invoices identified by Lessee as pertaining to completion of construction of the new dock. 7. UTILITIES AND REIMBURSEMENT COSTS - Lessee shall pay for all utilities (e.g. gas, electricity, water and sanitary sewer) serving the Premises. In addition, Lessee shall pay for its prorata share (which prorata share equals 33.3% based upon property containing 412,404 sq. ft. of building space) of all building insurance costs and real estate taxes. Such prorata share shall be paid by Lessee within thirty (30) days after receiving an invoice from Lessor. 8. TAXES AND INSURANCE a. Taxes - Subject to Lessee's reimbursement of Lessee's prorata share of real estate taxes as specified in Section 7 above, Lessor shall pay when due all real estate taxes levied against the property which includes the Premises. Lessee will be responsible to Lessor for any increase in taxes resulting solely from improvements made by Lessee. Lessee shall pay when due all personal property taxes assessed against property owned by or placed in, upon or about the Premises by Lessee. b. Insurance - Lessee at its expense shall procure and maintain during the Lease term: 6 -6- i) casualty insurance on improvements and personal property of Lessee on the Premises including, without limitation, fire, extended coverage and all-risk hazard insurance; ii) Commercial General Liability Insurance for Bodily Injury and Property Damage covering Premises, completed operations and personal injury in a combined amount of not less than $2,000,000; and iii) Workman's Compensation and employer's liability insurance coverage for all employees of Lessee employed on or about the Premises, or shall be a qualified self-insurer, as required by the laws of the State of Illinois. Lessee shall provide to Lessor not less than five (5) days prior to Lessee's occupancy of the Premises certificates evidencing the existence of said coverages, designating Lessor as an additional insured under the coverages set forth in item ii above, and providing that the Lessor shall receive not less than ten (10) days prior notice of any change in or cancellation of the policies or coverage thereunder. Each party hereby releases and relieves the other and waives, respectively, their entire claim against the other for property loss or property damage arising out of or incident to fire explosion, sprinkler or water damage, or other perils included in the extended coverage endorsement of the insurance policies of either party, on or about the Premises, whether due to the 7 -7- negligence of any of said parties, their agents or employees or otherwise. The foregoing language shall not be construed as waiving or releasing any claim or claims which the parties or either of them have against any insurance company or companies. 9. REPAIRS AND MAINTENANCE - Lessor shall maintain the roof, foundations, exterior walls (excluding windows) and fire protection system of the Premises. The term "roof" as used herein shall include skylights, smoke hatches and roof vents. Lessee, at its expense, shall maintain and repair all building equipment located on the Premises including, but not limited to, fire sprinkler systems, sanitary and storm sewer lines, utility services, exterior lighting, floor covering, heating, ventilation and air conditioning system, truck doors, dock levelers, dock bumpers, dock plates, plumbing work and fixtures. Lessee shall also maintain (including snow removal) and repair all outside areas of the Premises, including, but not limited to, the lawn, driveways, storage areas, dock ramps and parking areas. Lessee shall maintain and repair all improvements installed by Lessee. Lessee, at its expense, shall clean the Premises and arrange for regular removal from the Premises Lessee's trash and debris. Notwithstanding the foregoing, in no event shall Lessee have any responsibility to maintain or repair any building equipment located outside of the Premises, even if such equipment is a part of or connected to equipment located on the Premises. If any building equipment located on the Premises services both areas on the Premises and areas outside of the Premises, Lessee shall only be responsible for a percentage of the cost to maintain and 8 -8- repair the same, this percentage being equivalent to the percentage of the equipment's capacity designed to service only the Premises. At the termination of this Lease term or extension thereof, the Lessee shall return the Premises to a condition similar to that existing at the commencement of the Lease, excepting ordinary wear and tear. 10. ACCESS BY LESSOR - Upon reasonable notice, except in emergencies where no such notice shall be required, Lessor's representatives shall have the right to enter the Premises to inspect the same, and to perform such work as may be permitted or required hereunder (including testing and maintenance of the exterior underground fire protection sprinkler lines), to make repairs or alterations, to deal with emergencies, to post such notices as may be permitted or required by law to prevent the perfection of liens against Lessor's interest in the Premises or to exhibit the Premises to prospective tenants, purchasers, or others, or for any other purposes Lessor may deem necessary or desirable; provided, however, that Lessor shall not unreasonably interfere with Lessee's operations. Lessee shall not be entitled to any abatement of rent by reason of the exercise of any such right of entry. Lessee shall give notice to Lessor at least thirty (30) days prior to vacating the Premises and shall meet with Lessor for a joint inspection of the Premises at the time of vacating. 11. INDEMNIFICATION - Lessee hereby agrees to defend, indemnify and hold harmless Lessor, its officers, employees and agents, from and against all claims and demands of any nature whatsoever arising out of the injury to or death of any person or damage to property, to the extent caused by the acts or omissions of Lessee, its employees, agents, guests, licensees or invitees during the term of this Lease, or resulting from possession or use of the Premises by Lessee. 9 -9- Lessor herby agrees to defend, indemnify and hold harmless Lessee, its officers, employees and agents, from and against all claims and demands of any nature whatsoever arising out of the injury to or death of any person or damage to property, to the extent caused by the acts or omissions of Lessor, its employees, agents, guests, licensees or invitees during the term of this Lease. 12. LOSS OR DESTRUCTION OF PREMISES - In the event that the Premises are damaged by fire or other casualty or taken by condemnation of public authority in such a way that the Premises are rendered partially or substantially unsuitable to Lessee for the carrying out of its business, and if Lessor does not restore the Premises within ninety (90) days following any such casualty or taking, then either party shall have the option of terminating this Lease. To the extent that the Premises become untenantable, rent shall be abated. 13. LESSEE SHALL DISCHARGE ALL LIENS - Lessee shall promptly pay all its contractors and materialmen. Should any lien be filed against the Premises or Lessor as a result of Lessee's act or forbearance, Lessee shall promptly furnish Lessor security in an amount sufficient to protect Lessor from loss or make provisions for discharge of the lien within five (5) days after written request by Lessor. 14. DEFAULT BY LESSEE, RIGHTS AND REMEDIES - If default is made in the payment of rent at the times herein stated, or if Lessee shall fail to perform any of the covenants, conditions and agreements contained in this Lease and such default continues for fifteen (15) days after written notice thereof by Lessor to Lessee, then Lessor, or its legal 10 -10- representative, shall have all rights and remedies at law or in equity to evict Lessee and retake possession with or without court order and without in any way prejudicing Lessor from exercising any and all rights, remedies or causes of action which it may have, including the right to receive and collect the balance of rent or any other sums which may be due under this Lease. All remedies of Lessor are cumulative and the selection of one remedy shall not be deemed a waiver of any other. If Lessee shall make an assignment for the benefit of creditors, file a petition in any court for insolvency proceedings of any kind, or have a petition filed against it for insolvency proceedings in any court, this Lease shall automatically terminate and Lessor shall have the rights provided for herein in the event of default. 15. WAIVER - The waiver by Lessor of breach of any term, covenant, condition or agreement herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant, condition or agreement. 16. ASSIGNMENT OR SUBLETTING - Lessee shall not assign this Lease or sublease all or any portion of the Premises without the written consent of Lessor, which consent shall not be unreasonably withheld. 17. SUBORDINATION - This Lease and all the rights of Lessee hereunder are and shall be subject and subordinate at all times to the lien or liens of any mortgages placed on the Premises, either prior or subsequent to the date hereof. Lessee shall execute and deliver upon demand such 11 -11- further instrument or instruments evidencing such subordination of this Lease as may be requested by any mortgagee or proposed mortgagee. 18. WASTE OR NUISANCE - Lessee shall not commit or suffer to be committed any waste upon the Premises or any nuisance or other act or thing which may disturb the quiet enjoyment of another tenant in the building in which the Premises is located. 19. QUIET ENJOYMENT - As long as Lessee is not in default under the terms of this Lease, Lessee shall at all times during the term hereof have the peaceable and quiet enjoyment, possession, occupancy and use of the Premises. 20. BROKERS - Lessor and Lessee each represent that it has not dealt with any broker in connection with the negotiation, execution, or delivery of this Lease, except for Maloof Real Estate Company ("Broker"), for whose commission Lessor is solely responsible. Each party shall defend, indemnify and hold harmless the other party from and against any claims or demands for brokerage commissions or finder's fees alleged to arise from the acts of the first mentioned party. 21. OPTION TO RENEW - If Lessee is not then in default under this Lease, Lessee shall have an option to renew this Lease for three (3) further terms of five (5) years each ("Renewal Period" or "Renewal Periods") by giving Lessor written notice of its election to do so not less than one hundred eighty (180) days prior to the end of the then current term. Such renewals shall be on the same terms and conditions other than as to rent. Rent for each Renewal Period shall equal the greater 12 -12- of: a) the final rental rate under the then-current term, with an annual escalation factor thereafter equaling the increase in the Consumer Price Index; or b) the fair market rate (based upon a five year lease of similar property) at the beginning of the Renewal Period, with an annual escalation factor thereafter equaling the increase in the Consumer Price Index. (If the U.S. Department of Labor discontinues publishing the Consumer Price Index at regular intervals, then any similar reports issued at regular intervals by another agency of the U.S. Government for substantially similar purposes shall be used.) If the parties cannot agree upon the fair market rate, such dispute shall be submitted to arbitration. Lessor shall select one arbitrator, Lessee shall select one arbitrator, and if the two arbitrators are unable to agree upon the fair market rent within thirty (30) days of their appointment, the two arbitrators shall select a third arbitrator, whose determination thereof shall be binding on Lessor and Lessee. All three arbitrators shall be licensed Real Estate Brokers with at least five (5) years' experience in the Peoria, IL area. 22. NOTICES - Any notice or other communication provided for in this Lease shall be given by certified mail or telefax to the other party at the address specified below unless a party has changed its address by notice given pursuant to this section: Lessor: Caterpillar Inc. 100 N.E. Adams Street Peoria, Illinois 61629-3315 Attn.: Real Estate Manager 13 -13- Lessee: Morton Metalcraft Co. 1021 W. Birchwood Morton, IL 61550-0429 Attn: Vice President of Finance 23. SUCCESSORS - All rights, liabilities, and covenants herein contained, given to or imposed upon the parties hereto shall extend to and bind their heirs, executors, administrators, successors and assigns. 24. PARTIAL INVALIDITY - The provisions of this Lease shall be severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the remaining provisions. 25. GOVERNING LAW - This Lease or any term hereof shall be construed according to the laws of the State of Illinois. IN WITNESS WHEREOF, the parties have caused this Lease to be executed on the day and year first above written. CATERPILLAR INC., Lessor MORTON METALCRAFT CO., Lessee By: /s/ Glen Barton By: /s/ William D. Morton -------------------------- -------------------------- Name: Glen Barton Name: William D. Morton ------------------------ ------------------------ Title: Group President Title: President ----------------------- ----------------------- EX-10.8 11 EX-10.8 1 EXHIBIT 10.8 LEASE THIS LEASE (the "Lease") is made and entered into as of the 6th day of November, 1996, by and between AGRACEL, INC., an Illinois corporation, hereinafter referred to as "Lessor", and MORTON METALCRAFT CO., an Illinois corporation, of 1021 West Birchwood Street, P.O. Box 429, Morton, Illinois 61550-0429, hereinafter referred to as "Lessee". 1. PROPERTY LEASED: (a) Lessor shall lease to the Lessee and Lessee shall lease from Lessor that certain parcel of real property legally described at Article 1 (b) below (the "Land"), together with the buildings and improvements to be erected thereon by Lessor according to plans and specifications described on Exhibit A attached hereto (the "Building"). The Land and the Building are hereafter referred to as the "Premises". (b) The Building is to be constructed on the Land described as: See attached Exhibit B. (c) (i) Lessor agrees to construct the Building on the Land in accordance with the plans and specifications attached as Exhibit A hereto, as the same may be amended from time to time by agreement of the parties, as set forth in written change orders signed by both parties or their designated representatives. Lessor further agrees to provide such on-site improvements as are delineated in Exhibit A hereto. (ii) Lessor agrees that such construction will be under roof and sufficiently complete to take delivery of Lessee's equipment not later than February 3, 1997, and that all such 2 -2- construction except for punch-list items will be completed, and a certificate of occupancy sufficient to permit Lessee to begin manufacturing operations will be issued, not later than March 14, 1997. Punchlist items will be completed not later than May 15, 1997. (iii) Lessor agrees to secure all necessary permits for such construction; that such construction will be completed in a good and workmanlike manner; that materials and workmanship will be of such quality as is usual and customary in the Wake County, North Carolina area; and that all such construction shall comply with all applicable building and safety codes, and shall comport in all material respects with the plans and specifications. (iv) Lessor shall provide usual ventilation, heating, air conditioning, electrical, plumbing, and mechanical systems, equipment, and fixtures for the Building, to the extent set forth in Exhibit A hereto. (v) Upon the commencement date, or as soon thereafter as they shall become available, Lessor shall deliver and transfer to Lessee all manufacturers' warranties, owners' manuals and related materials. Lessor warrants the workmanship and materials of the Building and its components installed by Lessor, its subcontractors, agents, and anyone working under Lessor's control, for a period of one (1) year after the commencement date hereof. (vi) Lessor warrants that upon completion of the improvements, public utilities providing water, electrical power, 3 -3- natural gas, telephone and sewage disposal, will be available to the building. Lessee will pay any "turn-on" costs. (vii) Lessor warrants that all improvements to be constructed will comply with all building codes, zoning laws, minimum size requirements, setbacks and required parking. (viii) Lessor warrants that the improvements will, to the extent required by the American with Disabilities Act, comply with the Act. (d) So long as Lessee is not in default of this Lease and so long as there has been no adverse material changes in Lessee's financial condition and business prospects, Lessor agrees to construct at Lessor's expense expansions to the Building at any time and from time to time upon written notice from Lessee on the following terms and conditions: (i) Initial annual rental for each expansion shall be determined according to the following formula: (A) Actual Cost (hereinafter defined) of the expansion multiplied by (B) a percentage equal to the sum of the Lessor's actual cost of funds for the expansion plus four and one-half percent (4 1/2%) per annum. Initial Annual Rental for each expansion shall be paid for the first year following the substantial completion of that expansion. Rental for that expansion thereafter shall be based upon the initial rental for that expansion plus 3% per year for the remainder of the term and any extensions. Rental shall be payable in equal monthly installments in advance on the first day of each month commencing on the date of substantial completion of the expansion of the Building. 4 -4- (ii) The "Actual Cost" of each expansion to the Building is herein defined as the cost of financing, cost of materials and labor, the fees of architects, engineers, surveyors, and other professionals; actual out-of-pocket costs for obtaining permits and other governmental approvals; and any other out-of-pocket costs actually and reasonably incurred by Lessor for construction of the expansion of the Building, as such costs may be adjusted (by increase or decrease) by change orders mutually agreed upon by Lessor and Lessee, all as determined by an internal audit performed by Lessor and Lessee upon the substantial completion of the expansion. (iii) Lessee shall provide to Lessor a preliminary design for each expansion which shall conform to all laws, rules and regulations then in effect and applicable to the Building and which shall incorporate materials and workmanship of a quality at least equal to that of the Building; (iv) Lessor shall promptly estimate the Actual Cost (hereinafter defined) of the construction of the expansion to the Building based upon the preliminary design and provide to Lessee a written estimate in reasonable line-item detail of the Actual Cost of the expansion. Upon Lessee's receipt of Lessor's Actual Cost estimate, Lessee shall promptly notify Lessor of its acceptance or challenge of Lessor's estimate of Actual Cost. If 5 -5- Lessee challenges Lessor's estimate of the Actual Cost or any line-item thereof, Lessor shall promptly provide Lessee with three competitive bids for each line-item to which Lessee's challenge relates, and Lessor shall award contracts to the competitive bidders of Lessee's choice. Lessor's estimate of Actual Cost, as adjusted by challenge as provided above, shall further be adjusted (either by increase or decrease) to reflect any change orders mutually agreed upon by Lessor and Lessee during the construction of the expansion. (v) If the Initial Term (hereinafter defined) of the Lease at the time(s) Lessee exercises its continuing expansion option is less than ten years, then as a condition precedent to Lessor's obligation to construct an expansion to the Building, Lessee and Lessor shall execute an amendment to the Lease providing for an additional extension term (the "Amended Extension Term") which, when added to the unexpired portion of the Initial Term, will equal not less than ten years, calculated as of the date of substantial completion of the expansion to the Building. The rental for the premises during the Amended Extension Term, exclusive of the expansion(s), shall be the same as during the initial term adjusted as set forth at paragraph 2. The rental for the expansion(s) during the remainder of the Initial Term and the Amended Extension Term shall be as set forth in Paragraph 1(d)(i) above. As used herein, "Initial Term" shall mean the initial ten (10) year term of the Lease, inclusive of any extension term as to which Lessee has then exercised its option pursuant to Paragraph 3(d) below. 6 -6- (vi) Promptly upon establishment of the estimate of the Actual Cost of the expansion as set forth in subsection (iv) above, Lessor shall promptly commence and diligently pursue to completion the construction of the expansion. If Lessor fails to provide Lessee with an estimate of the Actual Cost of the expansion pursuant to the provisions of subsection (iv) above or if Lessor fails to promptly commence and diligently pursue to completion the construction of the expansion, then in addition to any other remedies Lessee may have under this Lease or at law for Lessor's breach, and upon written notice to Lessor, Lessee may at its own cost and expense undertake to complete the construction of the expansion, calculate the Actual Cost of the expansion, determine the rental due on the expansion in accordance with the terms set forth in subsection (i) above, and offset from the rental due for the expansion all costs incurred by Lessee in completing the construction of the expansion until Lessee has been reimbursed in full. (vii) All other terms of this Lease applicable to the construction of the Building and the lease of the premises shall apply to the construction and lease of the expansion to the Building. 2. RENTAL: Tenant shall pay to Landlord initial rent in the amount of $3.46 per square foot for 98,250 square feet for the first year of the term of this lease. Rent payable thereafter shall be based upon the initial rent plus three percent (3%) per year for the remainder of the Term and any extensions, payable as follows: 7 -7- Year 1.................................................$28,328.75 per month Year 2.................................................$29,178.61 per month Year 3.................................................$30,053.96 per month Year 4.................................................$30,955.57 per month Year 5.................................................$31,884.23 per month Year 6.................................................$32,840.75 per month Year 7.................................................$33,825.97 per month Year 8.................................................$34,840.74 per month Year 9.................................................$35,885.96 per month Year 10................................................$36,962.54 per month beginning with the commencement date defined below, and continuing on the same date of each month thereafter. Lessee shall also pay to Lessor a sum equivalent to one month's rent, which sum shall be held by Lessor in an interest bearing escrow account as security for the faithful performance by Lessee of all of the terms of this Lease by Lessee to be observed and performed. Interest on the escrow account will be retained by and taxable to the lessor. At the end of the lease term, provided the lessee has fulfilled its obligation under the lease, the escrow balance will be returned to the lessee within thirty days of the end of the lease. If the cost of construction of the building and improvements changes as a result of changes requested by Lessee, then the rent shall adjust according to the following formula: 8 -8- Agreed to increase Increase (decrease) (decrease) in = in initial annual rent cost x 12.75% 3. TERM: (a) The initial term of this Lease shall be ten (10) years, beginning on the commencement date (defined in paragraph (b) of this article) and ending at 12 o'clock midnight on a date ten (10) years thereafter, unless sooner terminated as provided herein. (b) The commencement date shall be March 15, 1997, or as soon thereafter as the Building to be constructed by Lessor is substantially complete. The commencement date shall be delayed for one day by each day of delay caused solely by any material change orders required by Lessee. Each change order at the time agreed to shall specify the number of days required to implement it. If delays caused solely by Lessee in supplying plans and specifications or because of change orders shall cause a delay in the completion date of more than thirty (30) days, then the Lessee shall pay to Lessor a per diem rent for each day in excess of thirty (30) days of delay calculated by taking the monthly rent installment specified above at Article 2 and dividing it by 30. "Substantially complete" means that a Certificate of Occupancy sufficient to permit Lessee to begin manufacturing operations has been issued and the Building is capable of being occupied by Lessee for its purpose of operating therein a light manufacturing plant suitable for manufacturing sheet metal fabrications upon installation of equipment for such purposes by 9 -9- Lessee as planned, even though some construction items may still be incomplete and in the process of being completed. After the commencement date has been determined, and upon the demand of either party, the parties shall execute a declaration in recordable form expressing the specific commencement and termination dates of the initial term. (c) Lessor agrees that construction will be under roof to the extent necessary to take delivery and provide suitable cover for Lessee's equipment not later than February 3, 1997, subject to delay caused solely by Lessee. Commencing on February 4, 1997, the Lessee may enter upon the leased property at reasonable times for the purpose of installing equipment, furniture, and fixtures. Lessee's activities may not unreasonably interfere with Lessor's contractor's activities. (d) The Lessee shall have one option to extend this Lease for a period of five (5) years on the same terms as the initial term. Lessee shall exercise this option by sending written notice thereof to Lessor not later than March 15, 2006. During the extended term of this Lease, Lessee shall pay rent at the Fair Market Rental (hereinafter defined). All other terms of this Lease shall continue in full force and effect during the extended term. "Fair Market Rental" is herein defined as the rental which a willing tenant would pay Lessor for the rental of space of the size, location, and configuration of the premises for the extension term, estimated as of the commencement of the extension term. Within sixty (60) days after Lessor has received notice from Lessee that Lessee is exercising its extension 10 -10- option, Lessor shall send to Lessee a written notice specifying the Fair Market Rental as estimated by Lessor in accordance with this subparagraph and, within fifteen (15) days after receipt of such notice, Lessee shall give Lessor written notice of its acceptance or challenge of Lessor's estimation of the Fair Market Rental; provided, however, that if Lessee challenges Lessor's estimation of the Fair Market Rental, Lessor and Lessee shall endeavor to reach an agreement as to the Fair Market Rental within fifteen (15) days after the expiration of such fifteen (15) day period for challenge. If Lessor and Lessee are unable to reach an agreement as to the Fair Market Rental within said time period, they each shall immediately thereafter select an appraiser, each of whom shall be a legally qualified commercial real estate appraiser with a minimum of three (3) years' experience in the Raleigh, North Carolina commercial real estate market, who shall determine the Fair Market Rental. The appraisers shall be instructed to complete the appraisal procedure and to submit their written determinations to Lessor and Lessee within thirty (30) days after their selection. In the event that the determination of the Fair Market Rental submitted by Lessor's appraiser is less than or equal to one hundred five percent (105%) of the determination of the Fair Market Rental submitted by Lessee's appraiser, the Fair Market Rental shall be the average of such determinations. If the determination of the Fair Market Rental submitted by Lessor's appraiser is greater than one hundred five percent (105%) of the determination of the Fair Market Rental submitted by Lessee's appraiser, the 11 -11- appraisers shall, within ten (10) days, appoint a third appraiser with similar qualifications to make such determination of the Fair Market Rental in accordance with the foregoing limitations. The third appraiser shall be instructed to complete the appraisal procedure and to submit a written determination of the Fair Market Rental to Lessor and Lessee within thirty (30) days after such appraiser's appointment. The determination which is neither the highest nor the lowest of the three (3) determinations of the Fair Market Rental shall be binding upon Lessor and Lessee. Lessor and Lessee shall each bear the costs of their respective appraisers. The expenses of the third appraiser shall be borne one-half (1/2) by Lessor and one-half (1/2) by Lessee. Notwithstanding the foregoing, rental during the extension term for any and all expansions to the Building constructed pursuant to the terms of Paragraph 1(d) above shall be calculated in accordance with the terms set forth in Paragraph 1(d) above. (e) If Lessor is delayed by more than thirty (30) days in (i) substantially completing the construction of the building by March 14, 1997, for any reason other than a delay caused solely by Lessee, Lessor shall pay to Lessee $500.00 per day for each day that substantial completion is delayed. Lessor shall not under any circumstances be liable for contingent or consequential damages. The completion date shall be extended day for day by any delays caused by Lessee. 4. USE OF PREMISES: a) The premises are leased for the purpose of general light manufacturing, including the manufacture of sheet metal 12 -12- components manufactured by Lessee and are not to be used for any other purpose without first having secured the written consent of the Lessor, which consent shall not be unreasonably withheld. No use of the building shall be made which would increase the insurable risk of the building for fire and extended coverage insurance. b) The premises shall at all times after the commencement date be accessible to semi-trucks. 5. PUBLIC REQUIREMENTS: (a) Lessee shall comply with, and on date of commencement, the improvements shall conform with all laws, ordinances, governmental orders and regulations and other public requirements now and hereafter affecting the premises or the use thereof, including but not limited to all recorded covenants and restrictions, if any. Lessee shall save and hold Lessor harmless from expense or damage resulting from failure to do so, except for such lack of such compliance which exists and affects the premises or the use thereof at the commencement date of this Lease. Lessor guarantees that the real estate is properly zoned for those uses of the premises provided by paragraph 4. (b) In the furtherance of, and not in limitation of, Lessee's obligations under the foregoing paragraph, throughout the terms of this Lease, Lessee shall do or cause to be done all things necessary to preserve and keep in full force and effect permits required for the conduct of its business and operations from the time of commencement of this Lease until its expiration or termination. 13 -13- 6. ASSIGNING AND SUBLEASING: Lessee shall not sublet the premises or any part thereof and Lessee shall not assign, transfer, pledge, mortgage or otherwise encumber this Lease, or any portion of the term thereof, without the previous written consent in each instance of Lessor, and Lessee shall furnish to Lessor with each request a copy of such proposed instrument; Lessor agreeing, however, not to arbitrarily withhold consent to subletting for any legitimate business not detrimental to the premises or adjacent property, or occupants thereof, and not more hazardous on account of fire or otherwise, and not creating wear and tear to the premises more than the business for which the premises are herein leased. Permission is, however, granted Lessee to assign or transfer this Lease and also to sublet the premises to any subsidiary corporation of Lessee, affiliate corporation of Lessee, or parent corporation of Lessee, upon giving Lessor written notice of intent so to do. Lessee shall have the right to transfer and assign this Lease without Lessor's consent to any parent, subsidiary, or affiliated company of Lessee or to any person or corporation acquiring all or substantially all of the assets of Lessee by purchase, merger, consolidation or otherwise. An affiliate company is a company which has at least a 50% common ownership with Lessee. Transfers of Lessee's shares of stock as may occur from time to time shall not be deemed a prohibited assignment of this Lease. In the event of any assignment or subletting, Lessee shall remain the principal obligor to the Lessor under all covenants of this Lease, and by accepting any assignment or subletting, an assignee 14 -14- or sublessee shall become bound by and shall perform and shall become entitled to the benefits of all the terms, conditions and covenants by which the Lessee hereunder is bound. 7. INSURANCE--LESSEE: (a) Lessee shall, throughout the term of this Lease, maintain fire and extended coverage insurance on the premises leased in an amount equal to the full insurable value thereof, in a company or companies rated Best A or better. (b) Lessee shall, at its expense, during the term hereof, maintain and deliver to Lessor public liability insurance policies with respect to the premises. Such policies shall name both the Lessor and the Lessee as insureds as their interests may appear, and have limits of at least $2,000,000 for injury or death to any one person and $2,000,000 for any one accident, and $1,000,000 with respect to damage to property. Such policies shall be in whatever form and with such insurance companies as are reasonably satisfactory to Lessor, and shall provide for at least ten days' prior notice to Lessor of cancellation. At least ten days before any such policy expires, Lessee shall supply Lessor with a substitute therefor, together with evidence that the premiums therefor were paid. If Lessee fails to do so, Lessor may procure such policies or pay such premiums. In such case, all amounts so paid by Lessor, with interest thereon at the rate of 4% over Wall Street Journal's published prime rate as published from time to time per annum, shall be added to the next monthly rent installment coming due, and shall be collected as additional rent. 15 -15- (c) Lessee shall be responsible for its equipment, furniture, fixtures, inventory and other personal property located on the premises and shall be solely responsible for carrying whatever insurance it desires with respect to such property. (d) Lessor and Lessor's mortgagee, if any, shall at all times be named as a co-insured on all policies of insurance required by this Lease and Lessee shall provide to Lessor and Lessor's mortgagee, if any, a current certificate showing compliance with this requirement, provided that Lessor shall have notified Lessee in writing of the name and address of such mortgagee. Each policy of insurance shall require notice to Lessor and Lessor's mortgagee prior to cancellation. 8. TAXES: Lessee shall pay all real property taxes, personal property taxes and special assessments lawfully levied against the premises during the term of this Lease. Taxes for the first and last year of the Lease shall be prorated between Lessor and Lessee, based on number of days leased. Lessee shall have the right to contest the amount or validity, in whole or in part, of any tax by appropriate proceedings diligently conducted in good faith. If the provisions of any law or regulation then in effect so require, Lessor shall join in such proceedings. 9. MAINTENANCE BY LESSEE: Lessee agrees to take good care of the premises and appurtenances thereto, and to keep them in good repair, free from 16 -16- filth, overloading, danger of fire or any pest or nuisance, and to keep all mechanical systems in good working order. Lessee agrees to maintain and replace any plate glass or other glass in the building. To the extent not provided by construction warranties and manufacturers' warranties, Lessee shall conduct a continuing program of preventive maintenance covering such mechanical equipment, including regular service and maintenance to heating and air conditioning equipment by competent tradesmen. Lessee shall not permit any waste of the premises. At the expiration or other termination of this Lease, Lessee shall return the premises to Lessor broom clean in as good condition as when received by Lessee, except only for normal wear and use, damage by fire, explosion or other insured casualty and acts of third parties not under control of Lessee. If Lessee fails to do anything required of Lessee in this paragraph within a reasonable time, Lessor may, at Lessor's option, perform the same at Lessee's expense. 10. ALTERATIONS AND ADDITIONS: Lessee shall have the right, at its sole expense, to make non-structural additions, improvements, or modifications to the interior of the building on the premises for the convenient conduct of its business. All such changes shall be made in a good and workmanlike manner and in accordance with applicable codes and regulations. Lessee shall give Lessor prior written notice of any alterations, additions, improvements or modifications so made. 17 -17- Lessee shall have the right to install such machinery, equipment, and business and trade fixtures as it deems necessary, and such items shall remain the property of Lessee and shall be removed at the termination of this Lease, the Lessee repairing any damage occasioned by removal. If Lessee shall obtain written consent of Lessor to leave any machinery or like equipment in the premises, then the full title to such machinery and equipment shall thereupon pass to Lessor. 11. LESSOR'S RIGHT OF ENTRY: Lessor, or Lessor's Agent, may enter upon the premises at reasonable hours upon reasonable notice to examine the same and to do anything required of Lessor hereunder or which Lessor may deem necessary for the good of the premises; and during the last 90 days of this Lease may display a sign offering the premises for sale or for lease, which sign may be affixed in a conspicuous place on the front of the premises. Neither Lessor nor any of Lessor's agents who enters upon the premises shall disclose to any person or entity any information, observations, data, or visual impressions regarding the trade secrets or other confidential business information of Lessee. Lessor and any of its agents agree that they will not take any photographs, videotapes or other images of the interior of the premises without the prior consent of Lessee. 12. SIGNS AND ADVERTISEMENTS: Lessee is hereby granted the privilege of erecting signs on the front of the premises, including in the front and side yards of the building, subject to applicable laws and regulations, 18 -18- including but not limited to ordinances of the municipality in which the premises are located and restrictive covenants relating to signs in the industrial park in which the premises are located, if applicable. No signs shall be erected which are attached to the roof of the building and no signs shall be attached to the building at right angles suspended by guy wires, but shall be attached flush to the building in a safe and secure manner. All such signs shall advertise the Lessee's business, and no revenue producing signs shall be permitted on the premises. Lessee shall not paint any signs directly on the building, or otherwise deface, damage or overload the building. Lessee shall remove all signs at the termination of this Lease, and shall repair any damage to the building caused by signs at its sole cost and expense. 13. LIABILITY: Lessee hereby relinquishes all claims, releases, assumes all risks and agrees to hold Lessor harmless from any liability for any damage done or occasioned by or from any plumbing, wiring, gas, water, steam, sprinkler system, equipment or other pipes, or the bursting, leaking or running of any tank, washstand, water closet, waste pipe or other articles in, above, upon or about the building or premises, or for damage occasioned from or by water, snow, or ice being upon or about the premises (except on the roof of the building) unless caused by the negligence or intentional act of Lessor, its agents or employees. Lessor and Lessee hereby expressly waive any cause of action or right of recovery which either may have hereafter against the 19 -19- other for any loss or damage to the premises, or to the contents thereof, from all claims and liabilities arising from or caused by any hazard that could be covered by a standard fire insurance policy with extended coverage and "all risk" endorsement on the premises or on the contents thereof, to the extent of any amounts actually received or which could have been received had the proper insurance been in place, and each party hereto shall obtain a waiver from any insurance carrier with which it carries insurance covering the premises, or the contents thereof, releasing its subrogation rights as against the other party, and upon request by either party evidence of said waiver shall be furnished by each party hereto to the other party. Lessee agrees to save and hold Lessor harmless from any claim, damage, liability, or expense arising from any injury (including death) to persons or damage to property occurring in, on or about the premises, except to the extent caused by the negligence of the Lessor, its agents and employees. In the event of the negligence of more than one party, the parties shall be liable to one another for their proportionate share. 14. DAMAGE BY CASUALTY: If, during the term hereof, or previous thereto, the premises or any Building of which the premises are a part shall suffer damage by fire, explosion, providential means or any other casualty to the extent that the premises or Building cannot reasonably be repaired within 90 days after date of such damage, in the judgment of Lessor and Lessee, of if they cannot agree, a mutually agreeable third party qualified in the construction 20 -20- industry in or about Wake County, North Carolina, or to such an extent that under the then existing laws, orders, ordinances or other public requirements the same cannot be repaired to substantially the same form and with substantially the same materials as before such damage, then the term hereby created shall, at the option of either party exercised by written notice not later than sixty (60) days after the occurrence of such casualty, terminate as of the date of such damage and rent shall cease as of the date of such damage (with proportionate refund of any prepayment) on condition Lessee forthwith surrenders the premises to Lessor. If this Lease is not so terminated, then Lessor shall repair the premises as soon as practicable with due diligence. A maximum of 120 days shall be considered a reasonable time in which to complete repairs barring any extraordinary circumstances or matters beyond the control of Lessor, placing the same in as good condition as they were just before such damage, and rent shall abate pro rata and in proportion to untenantability of the premises (or if the undamaged portion is not reasonably usable for Lessee's purposes pending the restoration of the Building, all rent shall abate) from the time of such damage until restoration of the premises by Lessor. It is further agreed that the period for reconstruction shall be extended for such time during which strikes, riots, civil commotion, governmental intervention, acts of God, or any other contingency beyond Lessor's control shall delay the construction. In case of such damage, whether this Lease is thereby terminated or not, Lessee shall remove all of the rubbish 21 -21- and debris of Lessee's property within sixty (60) days after written request by Lessor, and if this Lease is not thereby terminated, Lessee shall not do anything to hinder or delay Lessor's work of repair, and will cooperate with Lessor in such work. Lessor shall not be liable for inconvenience to Lessee by making repairs to any part of the premises or Building, nor for the restoration of any improvements made by Lessee, nor for the restoration of any property of Lessee. Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the premises requires that the insurance proceeds be applied to such indebtedness, then Lessor shall have the right to terminate this Lease by delivering written notice of termination to Lessee, whereupon all rights and obligations hereunder shall cease and terminate with proportionate refund of any prepayment. 15 DEFAULT: If there be default in payment of any rent or in any other of Lessee's obligations hereunder, or if the premises be vacated by Lessee without adequate provision for building security and maintenance, and if such default or condition shall continue after ten (10) days' notice, in writing, from Lessor to Lessee to make good such default or correct such condition, Lessor may, at Lessor's option, at any time thereafter while such default or condition continues, without further notice or demand, declare this Lease terminated and enter upon and repossess the premises free of this Lease; or Lessor may, at Lessor's option, enter upon and repossess the premises as aforesaid or receive the keys 22 -22- thereto, Lessee hereby acknowledging that the Lessor has received same as Agent of the Lessee and is authorized to re-let the premises for the balance of the term of this Lease, for a shorter or longer term, at such rental as Lessor deems fit, and may receive the rents therefor, applying the same first to the payment of the reasonable expense of such re-letting and second to the payment of rent due and to become due under this Lease, Lessee remaining liable for and agreeing hereby to pay Lessor any deficiency. Lessor shall make reasonable efforts to re-lease the premises. Listing the premises for re-lease with a reputable broker shall be considered a reasonable effort, but all reasonable broker's commissions shall be at Lessee's expense. Provided, however, if any such default be other than for non-payment of money and it would take more than thirty (30) days to cure the same, Lessor shall not be entitled to terminate this Lease or enter upon the premises for such default if Lessee begins the cure of such default within said thirty (30) days and prosecutes the cure thereof with due diligence to completion. If any proceedings under the present or any other Bankruptcy Code, including but not being limited to voluntary or involuntary straight bankruptcy proceedings, arrangements or reorganizations, be instituted by or against Lessee, or if a receiver or trustee be appointed for or ordered to dispose of Lessee's business or property, or if Lessee makes any assignment or conveyance for benefit of creditors, the same shall constitute a breach of this Lease and Lessor shall forthwith on such breach have the right of 23 -23- termination, entry and repossession as above, in this paragraph set forth. 16. EMINENT DOMAIN: If the premises or any substantial part thereof shall be taken by any competent authority under the power of eminent domain, or a conveyance thereof be made in lieu of or in anticipation of the exercise of such power, or if the premises or any substantial part thereof be acquired for any public or quasi-public use or purpose, the term of this Lease shall cease and terminate upon the date when the possession of said premises or the part thereof so taken shall be required for such use or purpose and without apportionment of the award, and Lessee shall have no claim against Lessor for the value of any unexpired term of this Lease. If any condemnation proceeding shall be instituted in which it is sought to take or damage any part of Lessor's building or the land under it, Lessor or Lessee shall have the right to cancel this Lease after having given written notice of cancellation to the other not less than ninety (90) days prior to the date of cancellation designated in the notice. Rent at the then current rate shall be apportioned as of the date of the termination. No money or other consideration shall be payable by the Lessor to the Lessee or by Lessee to the Lessor for the right of cancellation and the Lessee shall have no right to share in the condemnation award or in any judgment for damages caused by the taking. Nothing in this paragraph shall preclude an award being made to Lessee for loss of business or depreciation to and cost of removal of equipment or fixtures. 24 -24- 17. UTILITIES: Lessee shall contract in its own name and pay for all charges for water, sewer charges, gas heat, oil, electricity, fuel, telephone and other utilities used in or serving the premises during the term of this Lease. 18. MECHANIC'S LIENS: Lessee will not permit any mechanic's liens, or other liens, to be placed upon the premises or any building or improvement thereon during the term hereof as a result of Lessee's actions, and in case of the filing of any such lien, Lessee will promptly pay same; provided, however, that Lessee shall have the right to contest the validity or amount of any such lien upon posting security with Lessor which in Lessor's sole reasonable judgment is adequate to pay and discharge any such lien in full if held valid. Lessee shall have sixty (60) days after filing to pay the lien or post security as provided. If default in payment thereof shall continue for thirty (30) days after notice thereof from Lessor to Lessee, Lessor shall have the right and privilege at Lessor's option of paying the same or any portion thereof without inquiry as to the validity thereof, and any amounts so paid, including expenses and interest, shall be immediately due by Lessee to Lessor and shall be paid promptly upon presentation of bill therefor. Lessor covenants that it will not permit any mechanic's liens to be placed on the premises, and that, should such lien be recorded against the premises, Lessor will ensure its removal not 25 -25- later than thirty (30) days after written demand therefor is made upon Lessor by Lessee. 19. MORTGAGES AND ESTOPPEL CERTIFICATES: This Lease shall be subject and subordinate to any mortgage or deed or trust now or at any time hereafter constituting a lien or charge upon the Premises or the improvements situated thereon; provided that Lessee and the holder of such mortgage or deed of trust shall have entered into a non-disturbance and attornment agreement in form and content reasonably acceptable to such parties. Subject to the foregoing, Lessee shall at any time hereafter on demand execute any instruments, releases or other documents which may be required by any such mortgagee for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage. Lessee shall at any time and from time to time, upon not less than thirty (30) days' prior request by Lessor, execute, acknowledge and deliver to Lessor, a statement in writing certifying that (i) this Lease is unmodified and in full force and effect (or if there have been modifications that the same is in full force and effect as modified and identifying the modifications), (ii) the dates to which the base rent and other charges have been paid, and (iii) so far as the person making the certificate knows, Lessor is not in default under any provisions of this Lease (or if there are defaults, specifying the defaults). It is intended that any such statement may be relied upon by any person proposing to acquire Lessor's interest in this Lease or the premises, or any prospective mortgagee of, or 26 -26- assignee of any mortgage upon such interest or the premises. 20. ENVIRONMENTAL COVENANTS AND WARRANTIES: Compliance with Law: (a) Lessee, at Lessee's expense, shall comply with all applicable federal, state and local laws, regulations, or ordinances pertaining to air and water quality, hazardous materials (as hereinafter defined), waste disposal, air emissions, and other environmental matters, and with any direction of any public officer or officers, pursuant to law, which shall impose any duty upon Lessor or Lessee with respect to any of the foregoing. (b) Lessor shall deliver a Phase 1 Environmental Audit prepared by a professional registered engineer with environmental expertise, dated not earlier than August 1, 1996, to Lessee within eight (8) weeks of execution by Lessee of this lease. As used in this paragraph, the Phase I Environmental Audit shall be in accordance with the provisions set forth in 42 U.S.C. 9601(35)(B) and shall also consist of a visual inspection of the premises, including any equipment and machinery thereon and all building components or materials used therein, an inquiry into past occupants and uses of the premises, a search of all records pertaining to environmental conditions on the premises, including any reports generated for or from any governmental authority, notices of warnings, complaints and violations of applicable environmental statutes, rules or regulations, and applicable environmental statutes, rules or regulations, and a visual inspection of all properties adjoining the premises, and any 27 -27- other investigation deemed consistent with good commercial practices. Lessee shall, upon written notice to Lessor, have the right thereafter to terminate this Lease if the Phase I Environmental Audit shows conditions on the Land violative of environmental laws, rules, regulations or ordinances and which cannot with due diligence by Lessor be corrected prior to Lessee's initial occupation of the premises. Upon delivery of the Phase I Environmental Audit, Lessor will represent that to the best of Lessor's information and belief said Phase I Environmental Audit is complete, true and accurate; that to the best of Lessor's information and belief there has been no change in the condition of the premises since the date of said Phase I Environmental Audit; that except as may be reflected in said Phase I Environmental Audit, Lessor has no knowledge of any environment hazard or pollution on the premises, now or in the past; and that to the best of Lessor's information and belief, the premises are in full compliance with all legal requirements of every sort whatsoever. Lessor warrants that neither it nor any person or entity under its control will take any action which will cause the premises or any part thereof to be materially in violation of any applicable statute, ordinance or regulation for more than thirty (30) days after Lessor receives notice of such violation. 21. INDEMNIFICATION: (a) Lessee shall indemnify, defend, and hold Lessor harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities, or losses (including, without 28 -28- limitation, diminution in value of the premises, damages for the loss or restriction on use of rentable or usable space or of any amenity of the premises and reasonable sums paid in settlement of claims, reasonable attorney's fees, reasonable consultant fees, and reasonable expert fees) which arise during or after the Lease term as a result of contamination by hazardous material as a result of Lessee's use or activities, or of Lessee's agents or contractors. This indemnification of Lessor by Lessee includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal, or restoration work required by any federal, state, or local government agency or political subdivision because of hazardous material present in the soil or groundwater on or under the premises as a result of Lessee's use or activities, or Lessee's agents or contractors, or which would have with reasonable care exerted by Lessee not have occurred. Without limiting the foregoing, if the presence of any hazardous material on the premises caused or permitted by Lessee or its agents or contractors results in any contamination of the premises, Lessee shall promptly take all actions at its sole expenses as are necessary to return the premises to the condition existing prior to the release of any such hazardous material to the premises, provided that Lessor's approval of such actions shall first be obtained, which approval shall not be unreasonably withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the premises. The 29 -29- foregoing indemnity shall survive the expiration or earlier termination of this Lease. (b) At the expiration of this Lease or any extension hereof, Lessee shall select, said selection to be mutually agreeable to Lessor, a professional registered engineer with environmental expertise to conduct, at Lessee's sole expense, a Phase I Environmental Audit of the premises. As used in this Paragraph, a Phase I Environmental Audit shall be in accordance with the provisions set forth in 42 U.S.C. 9601(35)(B) and shall also consist of a visual inspection of the premises, including any equipment and machinery thereon and all building components or materials used therein, an inquiry into past occupants and uses of the premises, a search of all records pertaining to environmental conditions on the premises, including any reports generated for or from any governmental authority, notices of warnings, complaints and violations of applicable environmental statutes, rules or regulations, and applicable environmental statutes, rules or regulations, and a visual inspection of all properties adjoining the premises, and any other investigation deemed consistent with good commercial practices. (c) As used herein, the term "hazardous material" means any hazardous or toxic substance, material, or waste, including, but not limited to, those substances, materials, and wastes listed in the United States Department of Transportation Hazardous Materials Table (49 CFR 172.101) or by the United States Environmental Protection Agency as hazardous substances (40 CFR Part 302) or hazardous wastes (40 CFR Part 261), petroleum 30 -30- products, asbestos, or such other substances, materials, and wastes that are or become regulated under any applicable state or local law. (d) Anything in this Lease to the contrary notwithstanding Lessee shall not be responsible for any costs or expenses caused by any condition of the premises existing before the date of this Lease or created after the termination of this Lease, or created by any person or entity other than Lessee, its agents or contractors, except where by reasonable care, Lessee could have prevented such occurrence. 22. OPTION TO PURCHASE: Lessor grants to Lessee an irrevocable option to purchase the premises on the terms and conditions set forth hereafter. (a) Lessee shall have the right to exercise this option at any time during the term of this lease or extension thereof by mailing six months written notice of its exercise to Lessor. (b) Exercise of its option rights shall entitle and require Lessee to purchase the premises and to close within thirty (30) days following the later to occur of (i) the date six months after exercise of the option; or (ii) the establishment of the purchase price pursuant to the terms of subsection (c) below. If the closing date occurs after the expiration of the term of the Lease, inclusive of any and all extensions thereof, then Lessee shall be permitted to hold over the premises from the date of the expiration of the term of the Lease until the closing date upon the same terms and conditions set forth in this Lease and at the same monthly rental as that paid in the last month of the term of 31 -31- the Lease. Lessor will convey title by general warranty deed with English covenants of title, but subject to no exceptions to title other than as set forth in the policy of title insurance reviewed and approved by Lessee pursuant to the terms set forth in Paragraph 23 below. (c) The purchase price for the premises shall be determined as follows: Lessor and Lessee shall each select an appraiser, each of whom shall be a duly licensed or legally authorized commercial real estate appraiser with a minimum of three (3) years' experience in the Raleigh, North Carolina commercial real estate market. The appraisers shall be instructed to complete the appraisal procedure and to submit their written determinations to Lessor and Lessee within thirty (30) days after their selection. The purchase price shall be the higher of: (1) the two appraisals, but not more than 110% of the lowest appraisal; or (2) $3.2 million plus the cost of all changes, additions, improvements and expansions that are financed by the Lessor pursuant hereto, except as listed on the Exhibit A Contract Specifications. (d) Should any part of the premises be condemned prior to Lessee's exercise of its option rights hereunder, all proceeds from said condemnation shall belong to Lessor, and Lessee's option right shall remain in full force and effect as to the remainder of the premises. Should any part of the premises be condemned after Lessee's exercise of its option rights hereunder, Lessor shall tender to Lessee any offer for the premises, and the defense of any condemnation suit; Lessee shall be entitled to all 32 -32- proceeds from said condemnation; and Lessee shall be obligated to proceed to closing as to the remainder of the premises. (e) Lessor agrees that it will not take any action regarding the premises which would impair the value of Lessee's option rights. Lessor agrees that Lessee shall be entitled to have specific performance of its option rights herein granted; that those rights shall be binding on Lessor and Lessor's successors and assigns; and that those rights shall be covenants running with the Land. Upon request, Lessor agrees to execute and deliver to Lessee a memorandum of option in such form as to be recordable among the land records of Wake County North Carolina. (f) Upon Lessee's exercise of the option rights herein granted, and ascertainment of the purchase price and date of closing, the parties agree to execute and deliver to each other duplicate originals of an appropriate contract of purchase and sale, embodying the terms set forth herein and such other terms as are usual, necessary and appropriate to the transaction. 23 TITLE: Within thirty (30) days following the date of this Lease, Lessor shall deliver to Lessee a copy of a current owner's policy of title insurance, together with a copy of all exceptions to title noted therein, issued by a title company satisfactory to Lessor and Lessee insuring Lessor's fee simple title to the Land. Upon receipt of such copy, Lessee shall have five (5) business days to review and approve the title to the Land. Lessee shall have the right to terminate this Lease, immediately upon written 33 -33- notice to Lessor if such title insurance policy discloses any matter or exception which would materially and adversely affect Lessee's use and quiet enjoyment of the premises for the purposes set forth in this Lease. 24. The submission of this Lease to Lessee shall not be construed as an offer and Lessee shall not have any rights with respect thereto unless Lessor executes a copy of this Lease and delivers the same to Lessee; provided, however, that if Lessor shall not have executed and delivered a copy of this Lease to Lessee by October 30, 1996, then this Lease shall be null and void and of no further force and effect and neither party shall have any rights thereunder. 25. This Lease shall be amended to conform to any reasonable requests of Lessor's lender or lenders so long as such amendment or amendments to not adversely affect Lessee's rights pursuant hereto or increase Lessee's duties with respect hereto. 26. Lessor may be required by contractual obligation to purchase an additional 1.43 acres adjoining the present site for $20,000.00. In the event that occurs, the purchase price of $20,000.00 shall be considered a Lessee requested expansion, pursuant to paragraph 1(d) and the rent shall be re-calculated accordingly, and the additional 1.43 acres shall be considered part of the leased Premises. 27. Lessor's return on its investment is based upon the initial improvements being financed through Industrial Revenue Bonds which are Federal and State income tax exempt. Maintenance of the tax exempt status of the financing requires certain 34 -34- actions and forebearances on Lessee's part. Lessee agrees to do whatever is required of it to maintain the tax exempt status of Lessor's financing. Should the tax exempt status of Lessor's financing be lost except due solely to the act or actions of Lessor, and Lessor's cost of financing increases as a result, then Lessee shall pay to Lessor, as additional rent, such sums as are necessary to reimburse Lessor for any diminishment in its return on its investment resulting from the increase in Lessor's cost of financing. In the event that tax exempt financing is used for any Lessee required improvements, pursuant to paragraph 10, then the foregoing shall apply to that financing as well. 28. WAIVER: A waiver by Lessor or Lessee of any default or breach hereunder shall not be construed to be a continuing waiver of such default or breach, not as a waiver or permission, expressed or implied, of any other or subsequent default or breach. All waivers must be in writing and no course of conduct shall establish a custom or confer any rights upon Lessee or Lessor. 29. NOTICES: Unless otherwise designated by like notice in writing by either party to the other, notices required herein shall be sent by registered or certified mail or by express overnight delivery as follows: To Lessor: Agracel, Inc. P.O. Box 1107 Effingham, Illinois 62401 35 -35- Copy to: Q. Anthony Siemer P.O. Box 607 Effingham, Illinois 62401 To Lessee: Morton Metalcraft Co. 1021 West Birchwood Street P.O. Box 429 Morton, Illinois 61550-0429 Notices so mailed or delivered shall be deemed duly given upon deposit with the U.S. Postal service or overnight courier, as applicable, postage or delivery fee prepaid, addressed as above indicated. 30. SUCCESSORS: All of the terms, covenants and conditions of this Lease shall apply and inure to the benefit of, and be binding upon the parties hereto, and upon their respective successors in interest and legal representatives, except as otherwise provided herein. 31. QUIET POSSESSION: Lessor covenants with Lessee that said Lessee, on paying the rent herein required to be paid and performing the covenants herein contained, shall and may peaceably and quietly have, hold and enjoy the premises during the term of this Lease. 32. PROCUREMENT OF THIS LEASE: Each of the parties hereto certifies that no broker or leasing agent independent of the parties has been involved in the negotiation of this Lease. 33. ATTORNEY'S FEES: If any action at law or in equity shall be brought to enforce any of the covenants, terms or conditions of this Lease, the prevailing party shall be entitled to recover from the other 36 -36- party, as part of the prevailing party's costs, reasonable attorney's fees, the amount of which shall be fixed by the court, and shall be made a part of any judgment or decree rendered. 34. LEASE CONSTITUTES ENTIRE CONTRACT: Each party to this Lease acknowledges that this Lease constitutes all of the agreements between the parties hereto, and that no representations, warranties, or other covenants are included except as set forth herein, and this Lease shall not be recordable, but a "Memorandum of Lease" in usual and customary form will be executed and acknowledged by the parties, upon request of either party, which may be recorded. IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease or have caused it to be executed by this respective authorized representatives the day and year first above written. Each of the persons executing this Lease represent that they are authorized to execute the same on behalf of the party for whom they have executed hereafter. LESSEE MORTON METALCRAFT CO. By: /s/ Daryl R. Lindemann ----------------------------- Its Vice President of Finance ATTEST: By: ------------------ Its Vice President 37 -37- LESSOR AGRACEL INC., By: /s/ [SIG] ------------------------- Its President ATTEST: By: /s/ [SIG] ------------------------- Its Vice President STATE OF ILLINOIS ) ) ss. COUNTY OF TAZEWELL ) I, the undersigned, a Notary Public, in and for said county, in the state aforesaid, DO HEREBY CERTIFY that Daryl R. Lindemann, personally known to me to be the Vice President of Morton Metalcraft Co., and David M. Strotton, personally known to me to be the President of said corporation, and personally known to me to be the same persons whose names are subscribed to the foregoing instrument, appeared before me this day in person and acknowledged that as such Vice Presidents they signed and delivered the said instrument as Vice Presidents of said corporation, and caused the corporate seal of said corporation to be affixed thereto, pursuant to authority given by the Board of Directors of said corporation, as their free and voluntary act and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth. Given under my hand and notarial seal this 6th day of November, 1996. /s/ Judith A. Heisel ------------------------ Notary Public My commission expires: July, 1997 "OFFICIAL SEAL" Judith A. Heisel Notary Public, State of Illinois My Commission Expires 07/08/97 EX-10.9 12 EX-10.9 1 EXHIBIT 10.9 EMPLOYMENT AGREEMENT AGREEMENT made this 20th day of January, 1998, by and between MORTON INDUSTRIAL GROUP, INC., a Georgia corporation (the "Company"), and WILLIAM D. MORTON (the "Executive"). W I T N E S S E T H: WHEREAS, pursuant to a certain Agreement and Plan of Merger dated October 20, 1997 (the "Merger Agreement"), MLX CORP., a Georgia corporation ("MLX"), through a merger (the "Merger") of MORTON METALCRAFT HOLDING CO., a Delaware corporation ("Morton"), with and into MLX whose name is being changed to MORTON INDUSTRIAL GROUP, INC., will acquire Morton; and WHEREAS, the Executive was employed by Morton and, accordingly, the Company (as successor to the business of Morton) wishes to ensure the employment of the Executive with the Company and the Executive wishes to accept such employment upon the terms and conditions hereinafter set forth; and WHEREAS, it is intended that the Company and its subsidiaries will be operationally combined under the management of the Executive who shall serve as the Company's Chairman and Chief Executive Officer ("Company CEO") with other companies which may be acquired by the Company (the Company and its subsidiaries, together with such other companies are collectively called the "Group"); NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Employment The Company agrees to employ the Executive during the Term specified in paragraph 2, and the Executive agrees to accept such employment, upon the terms and conditions hereinafter set forth. 2. Term (a) Subject to Sections 6 and 7 below and the other terms and conditions of this Agreement, the Executive's employment by the Company shall be for a term commencing on the date hereof and expiring on the close of business on December 31, 2007 (the "Initial Term"); provided, however, the term of the Executive's employment by the Company shall continue thereafter unless and until either party shall give to the other six months advance written notice of expiration of the term (a "Notice of Termination") (the Initial Term and the period, if any, thereafter, during which the Executive's employment shall continue are collectively referred to as the "Term"). Any Notice of Termination given under 2 this paragraph 2(a) shall specify the date of expiration (which may not be earlier than December 31, 2007) and may be given at any time on or after June 30, 2007. The Company shall have the right at any time during any such six month notice period to relieve the Executive of his offices, duties and responsibilities and to place him on a paid leave-of-absence status, provided that during such notice period the Executive shall remain a full-time employee of the Company and shall continue to receive his base salary compensation and other benefits as provided in this Agreement. The effective date of the termination of the Executive's employment with the Company, regardless of the reason therefor, is referred to in this Agreement as the "Date of Termination". (b) Upon termination of the employment of the Executive with the Company pursuant to a Notice of Termination under paragraph 2(a) above, the Company shall pay the Executive, subject to appropriate offsets, as permitted by the applicable law, only for debts due from the Executive to the Company or another company with the Group (collectively, "Offsets"), for so long as the Executive is not in breach of his obligations to the Company under Section 8 hereof, his base salary compensation and any unused accrued vacation only through, and any unpaid reimbursement expenses outstanding as of, the Date of Termination. Any benefits to which the Executive or his beneficiaries may be entitled under the plans and programs described in Section 5 below, or any other applicable plans and programs in which he participated as an employee of the Company, shall be determined as of the Date of Termination in accordance with the terms of such plans and programs. In connection with the Executive's termination of employment pursuant to paragraph 2(a), except as provided in this paragraph 2(b), the Company shall have no further liability to the Executive or the Executive's heirs, beneficiaries or estate for damages, compensation, benefits, severance, indemnities or other amounts of whatever nature. 3. Duties and Responsibilities (a) During the Term, the Executive shall have the position of Chairman and Chief Executive Officer of the Company and any member of the Group (unless Executive declines to serve in such capacity). The Executive shall report to the Board of Directors (the "Board") of the Company. (b) The Executive shall perform such duties and responsibilities customary to his office and as are reasonably necessary to the operations of the Company and the Group and as may be assigned to him from time to time by or under authority of the Board consistent with his positions as designated in paragraph 3(a) above. (c) The Executive's employment by the Company shall be full-time and during the Term, the Executive agrees that he will (i) devote all of his business time and attention, his best - 2 - 3 efforts, and his skill and ability to promote the interests of the Group; (ii) carry out his duties in a competent and professional manner; and (iii) work with other employees of the Group in a competent and professional manner. Notwithstanding the foregoing, the Executive shall be permitted to engage in other business activities (as an active participant or a passive investor), including without limitation, serving on civic or charitable boards and committees and performing speaking engagements, provided that such activities are not rendered for a company which transacts business with any member of the Group or engages in business competitive with that conducted by any member of the Group (or, if such company does transact business with a member of the Group or does engage in a competitive business, it is a publicly held corporation and the Executive owns less than 1/4 of 1% of its outstanding shares) and further provided that such activities (individually or collectively) do not materially interfere with the performance of his duties or responsibilities under this Agreement. (d) The Executive's services hereunder shall be performed at the offices of the Company in Morton, Illinois, subject to necessary travel requirements of his position and duties hereunder. The Executive shall not be required to relocate without his prior written consent. 4. Compensation As compensation for his services hereunder, the Company shall pay the Executive during the Term, in accordance with its normal payroll practices, direct salary compensation at an annual rate of $280,000, provided that such annual rate of salary compensation shall be increased by not less than 5% annually (but may not be decreased) under the authority of the Board and the Board's Compensation Committee. 5. Expenses; Fringe Benefits (a) The Company agrees to pay or to reimburse the Executive during the Term for all reasonable, ordinary and necessary vouchered business or entertainment expenses incurred in the performance of his services hereunder in accordance with the policy of the Company and the Group as from time to time in effect. The Executive, as a condition precedent to obtaining such payment or reimbursement, shall provide to the Company any and all statements, bills or receipts evidencing the travel or out-of-pocket expenses for which the Executive seeks payment or reimbursement, and any other information or materials, as the Company or the Group may from time to time reasonably require. (b) During the Term, subject to the approval of the Board, the Executive shall be eligible to participate in the incentive compensation plans of the Company as in effect from time to time. - 3 - 4 (c) During the Term, the Executive and, to the extent eligible, his dependents, shall be entitled to participate in and receive all benefits under any welfare benefit plans and programs (including without limitation, medical, dental, disability, group life (including accidental death and dismemberment) and business travel insurance plans and programs) now or hereafter provided by the Company which are applicable generally to the employees of the Company, subject, however, to the generally applicable eligibility and other provisions of the various plans and programs in effect from time to time. (d) During the Term, the Executive shall be entitled to participate in all retirement plans and programs (including without limitation any profit sharing/401(k) plan) which are applicable generally to the employees of the Company, subject, however, to generally applicable eligibility and other provisions of the various plans and programs in effect from time to time. In addition, during the Term, the Executive shall be entitled to receive fringe benefits and perquisites in accordance with the plans, practices, programs and policies of the Company from time to time in effect which are available generally to the officers of the Company and such other fringe benefits as may from time to time be approved in writing by the Board. (e) During the Term, the Company will provide the Executive with the exclusive use of a Company leased automobile and pay for all costs of leasing, insuring, and maintaining such automobile for use in the business of the Company on a basis consistent with the pre-Merger policy of Morton, and such costs shall be added to Executive's compensation as required by applicable tax regulations. (f) The Executive shall be entitled to vacation during each calendar year of the Term on a basis consistent with the pre-Merger vacation policy of Morton, to be taken at such time(s) as shall not, in the reasonable judgment of the Company CEO, materially interfere with the Executive's fulfillment of his duties hereunder, and shall be entitled to as many holidays, sick days and personal days as are in accordance with the Company's policy then in effect for its executive officers generally, upon such terms as may be provided its executive officers generally. (g) The Executive and Morton are currently parties to an Executive Stock Option Agreement dated February 15, 1995, as amended (the "Executive Stock Option Agreement"), pursuant to which the Executive holds options to purchase 64,815 shares of Morton's stock (the "Pre-Merger Options"). Pursuant to a separate agreement to be entered into by and between the Executive and the Company, the Pre-Merger Options will be converted to options for Company shares (but will be adjusted to reflect the effects of the Merger). This Agreement is not otherwise intended to in any way modify or amend the Executive Stock Option Agreement which shall remain in full force and effect. - 4 - 5 (h) Notwithstanding anything to the contrary contained above, the Company shall be entitled to terminate or reduce any employee benefit or perquisite enjoyed by the Executive pursuant to the provisions of paragraph 5(b), 5(c) 5(d) and 5(f) above, if such reduction is part of an across-the-board reduction applicable to all executive officers of the Company. 6. Termination (a) The Company, by direction of the Board, shall be entitled to terminate the Term and to discharge the Executive for "cause" effective upon the giving of written notice. The term "cause" shall be limited to the following grounds: (i) Conviction in a court of law of, or entering a plea of guilty or no contest to, any felony or any crime involving dishonesty or theft. Upon the termination of the employment of the Executive with the Company (x) pursuant to this paragraph 6(a) or (y) by virtue of the Executive's resignation other than as described in paragraph 2(a) above or paragraph 6(b) below, or (z) any other termination by the Executive other than pursuant to a termination under paragraph 2(a) above or paragraph 6(b) below (each event of termination set forth in clauses (x), (y) and (z) is sometimes referred to as a "For Cause Termination"), the Company shall pay the Executive, subject to any Offsets, his base salary compensation and any unused accrued vacation only through, and any unpaid reimbursable expenses outstanding as of, the Date of Termination. Any benefits to which the Executive or his beneficiaries may be entitled under the plans and programs described in Section 5 above, or any other applicable plans and programs in which he participated as an employee of the Company, shall be determined as of his Date of Termination in accordance with the terms of such plans and programs. In connection with a For Cause Termination, except as provided in this paragraph 6(a) and paragraph 20(c) below, the Company shall have no further liability to the Executive or the Executive's heirs, beneficiaries or estate for damages, compensation, benefits, severance, indemnities or other amounts of whatever nature. (b) The Executive shall be entitled to terminate the Term hereunder in the event that the Company is in default of a material term of this Agreement, which default remains uncured for a period of 30 days after written notice of such default from the Executive to the Company (such notice to specify the specific nature of the claimed default and the manner in which the Executive requires such default to be cured) (a "Constructive Termination"). Notwithstanding a Constructive Termination, or in the event the Company terminates the employment of the Executive in breach of its obligations under this Agreement, the restrictions set forth in paragraph 8 shall remain in full force and effect. - 5 - 6 (c) In the event of a Constructive Termination, or a termination of the employment of the Executive by the Company in breach of its obligations under this Agreement (each such event being called a "Company Termination"), as liquidated damages, the Executive shall be entitled to continue to receive from the Company, subject to any Offsets, (i) for so long as the Executive is not in breach of his obligations to the Company under Section 8 hereof, his then applicable base salary compensation when otherwise payable through the minimum remaining Term hereof absent the Company Termination, and (ii) any unpaid reimbursable expenses outstanding, and any unused accrued vacation, as of the Date of Termination. For this purpose, the "minimum remaining Term" shall mean (x) December 31, 2007 if the Company Termination occurs on or prior to June 30, 2007, or (y) six months from the Company Termination, if such termination occurs after June 30, 2007. Any benefits to which Executive or his beneficiaries may be entitled under the plans and programs described in Section 5 above, or any other applicable plans and programs in which he participated as an employee of the Company, shall be determined as of the Date of Termination in accordance with the terms of such plans and programs; provided, however, that the Executive shall be entitled to continued participation on the same basis (including without limitation, cost contributions) as the other senior executives of the Company in all medical, dental, hospitalization, disability and life insurance coverage (the "Continued Plans") in which he was participating on the Date of Termination (as such Continued Plans are from time to time in effect at the Company) until the earlier of (A) the end of the period that he receives base salary compensation payments under clause (i) above or (B) the date, or dates, he is entitled to receive coverage and benefits under the same type of plan of a subsequent employer, and provided further: (1) that if the Executive is precluded from continuing his participation in any Continued Plan, he shall be provided with the after-tax economic equivalent of the benefits provided under the Continued Plan in which he is unable to participate, for the period specified above; (2) that the economic equivalent of a benefit foregone shall be deemed the lowest cost that would be incurred by the Executive in obtaining such benefit himself on an individual basis; and (3) that payment of such after-tax economic equivalent shall be made quarterly in advance. Except as provided in this paragraph 6(c) and paragraph 20(c) below in connection with a Company Termination, (x) the Company shall have no further liability to the Executive or the Executive's heirs, beneficiaries or estate for damages, compensation, benefits, severance, indemnities or other amounts of whatever nature and (y) the Executive shall be under no obligation to mitigate his damages or to seek other employment and any income the Executive earns from subsequent employment or consulting shall not reduce payments by the Company under clause (i) of this paragraph 6(c) or otherwise. (d) It is agreed that a termination of the Executive's employment pursuant to a Notice of Termination given in accordance with paragraph 2(a) above shall not be deemed a Company - 6 - 7 Termination or a For Cause Termination. It is also agreed that any termination of the Executive's employment by the Company for any breach or alleged breach of this Agreement by the Executive (other than as provided in paragraph 6(a) above) shall be deemed to be a Company Termination and not a For Cause Termination. 7. DISABILITY; DEATH (a) In the event the Executive shall be unable to perform his duties hereunder by virtue of illness or physical or mental incapacity or disability (from any cause of causes whatsoever) in substantially the manner and to the extent required hereunder prior to the commencement of such disability (all such causes being herein referred to as "disability") and the Executive shall fail to perform such duties for periods aggregating 270 days, whether or not continuous, in any continuous period of 360 days, the Company shall have the right to terminate the Executive's employment hereunder as at the end of any calendar month during the continuance of such disability upon at least 30 days' prior written notice to him. In the event of the Executive's death, the Date of Termination shall be the date of such death. (b) In the event the Executive's employment terminates pursuant to paragraph 7(a), the Executive, or in the case of his death, the Executive's estate, shall be entitled to receive when otherwise payable, subject to any Offsets, (i) all base salary compensation earned but unpaid as of the Date of Termination and (ii) any unpaid reimbursable expenses outstanding, and any unused accrued vacation, as of such date. Any benefits to which the Executive or his beneficiaries may be entitled under the plans and programs described in Section 5 above or any other applicable plans and programs in which he participated as an employee of the Company, shall be determined as of the Date of Termination in accordance with the terms of such plans and programs. In the event of the Executive's termination due to disability or death, except as provided in this paragraph 7(b) and paragraph 20(c) below, the Company shall have no further liability to the Executive or the Executive's heirs, beneficiaries or estate for damages, compensation, benefits, severance, indemnities or other amounts of whatever nature. 8. NON-SOLICITATION/NON-SUPPLY AND PROTECTION OF CONFIDEN- TIAL INFORMATION (a) The Executive agrees that his services hereunder are of a special, unique and extraordinary character and his position with the Group and the Company (as successor to the business of Morton) places him in a position of confidence and trust with the customers and employees of the Company and other members of the Group. The Executive acknowledges (x) that from time to time members of the Group cooperate with each other in supplying current customers and/or the solicitation of prospective customers and (y) that the rendering of services and the supply of products to the - 7 - 8 customers of the Group necessarily requires the disclosure to the Executive of confidential information and trade secrets of the Company and the Group (such as without limitation, marketing plans, budgets, designs, client preferences and policies, and identity of appropriate personnel of customers with sufficient authority to influence a shift in suppliers). The parties hereto agree that in the course of the Executive's employment with the Company and its predecessors, the Executive has and will continue to develop a personal relationship with the Group's customers and a knowledge of those customers' affairs and requirements, and that the relationship of the Group with its established customers has been and will continue to be placed in the Executive's hands in confidence and trust. The Executive consequently agrees that it is reasonable and necessary for the protection of the trade secrets, goodwill and business of the Company and the Group that the Executive make the covenants contained herein. Accordingly, the Executive agrees that for the period commencing on the date hereof and terminating the later of (1) December 31, 2009 and (2) two years after the Date of Termination, he shall not, as an individual, partner, shareholder, employee, consultant or in association with any other person, business or enterprise, except on behalf of the Company or another member of the Group, directly or indirectly, and regardless of the reason for his ceasing to be employed by the Company: (i) attempt in any manner to solicit or accept from any customer business of the type performed by members of the Group or to persuade any customer to cease to do business or to reduce the amount of business which any such customer has customarily done or is reasonably expected to do with any member of the Group, whether or not the relationship between such member of the Group and such customer was originally established in whole or in part through his efforts. (ii) employ as an employee or retain as an exclusive consultant any person who is then or at any time during the preceding twelve months was an employee of or consultant to any member of the Group, or persuade or attempt to persuade any employee of or consultant to any member of the Group to leave the employ of such member of the Group or to become employed as an employee or retained as an exclusive consultant by anyone other than by a member of the Group; or (iii) supply to or for any customers any products or services of the type supplied by members of the Group, as an independent contractor or employee of the customer or in any other capacity whatsoever. As used in paragraph 8(a) through paragraph 8(e), the term "Group" shall include the Company and each other member of the Group and the term "customer" shall mean (1) anyone who is a customer of any member of the Group on the Date of Termination or, if the Executive's employment shall not have terminated, at the time of the alleged prohibited conduct (any such applicable date being called - 8 - 9 the "Determination Date"); (2) anyone who was a customer of any member of the Group at any time during the one year period immediately preceding the Determination Date; (3) any prospective customer to whom any member of the Group had made a new business presentation (or similar offering of products or services) at any time during the one year period immediately preceding the Determination Date; and (4) any prospective customer to whom any member of the Group made a new business presentation (or similar offering of products or services) at any time within six months after the Determination Date (but only if the initial contract between such member of the Group and such prospective customer occurred prior to the Determination Date, regardless if such contact was made by the Executive). In addition, if the customer is part of a group of companies which conducts business through more than one entity, division or operating unit, whether or not separately incorporated (a "Customer Group"), the term "customer" as used herein shall include each entity, division and operating unit of the Customer Group. (b) At any time while this paragraph 8 remains applicable after the Executive is no longer employed by the Company, it shall be the responsibility of the Executive to ascertain whether a prospect is a "customer" as defined in this paragraph 8, of any member of the Group, if necessary by making written inquiry of the Company, prior to soliciting or accepting from any such prospect business of the type performed by members of the Group or supply to or for any such prospect any products or services of the type supplied by members of the Group. Within ten business days after receipt of such inquiry, the Company shall notify the Executive in writing as to whether such prospect is a customer within the meaning of this paragraph 8, and if the Company determines that such prospect is a customer, such notification shall include the reasons for the Company's determination set forth with reasonably specificity. (c) The Executive also agrees that he will not at any time (whether during the Term or after termination of this Agreement), disclose to anyone any confidential information or trade secret of any member of the Group, or any customer of any member of the Group, or utilize such confidential information or trade secret for his own benefit, or for the benefit of third parties and all memoranda, notes, records or other documents compiled by him or made available to him during the Term pertaining to the business of members of the Group and/or their respective customers shall be the property of the Company and shall be delivered immediately to the Company on the termination of his employment or, upon request, at any other time. The term "confidential information or trade secret" does not include information which (i) becomes generally available to the public other than by breach of this provision or (ii) the Executive learns from a third party who is not under an obligation of confidence to the Company, or another member of the Group. - 9 - 10 (d) If the Executive commits a breach or is about to commit a breach, of any of the provisions of paragraphs 8(a) or 8(c) above, the Company shall have the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction without being required to post bond or other security and without having to prove the inadequacy of the available remedies at law, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and the Group and that money damages will not provide an adequate remedy to the Company or the Group. In addition, the Company may take all such other actions and remedies available to it under law or in equity and shall be entitled to such damages as it can show it has sustained by reason of such breach. (e) The parties acknowledge that the type and periods of restriction imposed in the provisions of paragraphs 8(a) and 8(c) above are fair and reasonable and are reasonably required for the protection of the Company and the Group and the goodwill associated with the business of the Company and the Group; and that the time, scope, geographic area and other provisions of this paragraph 8 have been specifically negotiated by sophisticated commercial parties and are given as an integral part of the transactions contemplated by the Merger Agreement, it being understood that the customers of the Group may be supplied from any location and accordingly it is reasonable that the restrictive covenants set forth herein are not limited by narrow geographic area but generally by the location of such customers and potential customers. The Executive specifically acknowledges that his being restricted from soliciting and supplying customers as contemplated by this Agreement will not prevent him from being employed or earning a livelihood in the type of business conducted by the members of the Group. If any of the covenants in paragraphs 8(a) or 8(c) above, or any part thereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect, without regard to the invalid portions. If any of the covenants contained in paragraphs 8(a) and 8(c), or any part thereof, is held to be unenforceable by reason of its extending for too great a period of time or over too great a geographic area or by reason of its being too extensive in any other respect, the parties agree (i) such covenant shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographic areas as to which it may be enforceable and/or over the maximum extent in all other respects as to which it may be enforceable, all as determined by the court making such determination and (ii) in its reduced form, such covenant shall then be enforceable. The parties hereto intend to and hereby confer jurisdiction to enforce the covenants contained in paragraphs 8(a) and 8(c) above upon the courts of any state or other jurisdiction within the geographical scope of such covenants. In the event that the courts of any one or more of such states or other jurisdictions shall hold such covenants unenforceable (in whole or in part) by reason of the breadth of such scope or otherwise, it is the - 10 - 11 intention of the parties hereto that such determination not bar or in any way affect the right of the Company to the relief provided above in the courts of any other states or other jurisdictions within the geographical scope of such covenants, as to breaches of such covenants in such other respective states or other jurisdictions, the above covenants as they relate to each state or other jurisdiction being, for this purpose, severable into diverse and independent covenants. 9. INTELLECTUAL PROPERTY During the Term, the Executive will disclose to the Company all ideas, inventions and business plans developed by him during such period which relate directly or indirectly to the business of the Group, including without limitation, any design, logo, slogan or campaign or any process, operation, product or improvement which may be patentable or copyrightable. The Executive agrees that all patents, licenses, copyrights, tradenames, trademarks, service marks, advertising campaigns, promotional campaigns, designs, logos, slogans and business plans developed or created by the Executive in the course of his employment hereunder, either individually or in collaboration with others, will be deemed works for hire and as between the Executive and the Company the sole and absolute property of the Company, subject to the rights of customers and others contracting with the Company. The Executive agrees, that at the Company's request and expense, he will take all steps necessary to secure the rights thereto to the Company by patent, copyrights or otherwise. 10. ENFORCEABILITY The failure of any party at any time to require performance by another party of any provision hereunder shall in no way affect the right of that party thereafter to enforce the same, nor shall it affect any other party's right to enforce the same, or to enforce any of the other provisions in this Agreement; nor shall the waiver by any party of the breach of any provision hereof be taken or held to be a waiver of any subsequent breach of such provision or as a waiver of the provision itself. 11. ASSIGNMENT This Agreement is a personal contract and the Executive's rights and obligations hereunder may not be sold, transferred, assigned, pledged or hypothecated by the Executive. The rights and obligations of the Company hereunder shall be binding upon and run in favor of the successors and assigns of the Company. 12. MODIFICATION This Agreement may not be orally canceled, changed, modified or amended, and no cancellation, change, modification or amendment - 11 - 12 shall be effective or binding, unless in writing and signed by the parties to this Agreement. 13. SEVERABILITY; SURVIVAL In the event any provision or portion of this Agreement is determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall nevertheless be binding upon the parties with the same effect as thought the invalid or unenforceable part had been severed and deleted. The respective rights and obligations of the parties hereunder shall survive the termination of the Executive's employment to the extent necessary to the intended preservation of such rights and obligations. 14. LIFE INSURANCE The Executive agrees that the Company shall have the right to obtain life insurance on the Executive's life, at the sole expense of the Company, as the case may be, and with the Company as the sole beneficiary thereof. The executive shall (a) cooperate fully in obtaining such life insurance, (b) sign any necessary consents, applications and other related forms or documents and (c) take any reasonably required medical examinations. 15. NOTICE Any notice, request, instruction or other document to be given hereunder by any party hereto to another party shall be in writing and shall be deemed effective (a) upon personal delivery, if delivered by hand, or (b) three days after the date of deposit in the mails, postage prepaid if mailed by certified or registered mail, or (c) on the next business day, if sent by facsimile transmission (if receipt is electronically confirmed) or prepaid overnight courier service, and in each case addressed as follows: If to the Executive: William D. Morton 2660 N. Morton Avenue Morton, Illinois 61550 If to the Company: Morton Industrial Group, Inc. P. O. Box 429 1021 W. Birchwood Morton, Illinois 61550 Attention: Chief Executive Officer Fax: (309) 263-1841 - 12 - 13 with copy to: Husch & Eppenberger 800 Central Building 101 S.W. Adams Street Peoria, Illinois 61602 Attention: Gene A. Petersen Fax: (309) 637-4928 Any party may change the address to which notices are to be sent by giving notice of such change of address to the other party in the manner provided for giving notice. 16. APPLICABLE LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without application of conflict of law provisions applicable herein. The parties hereby irrevocably submit to the personal jurisdiction of the United States District Court for the Central District of Illinois located in Peoria, Illinois or the courts of the State of Illinois located in Peoria County, Illinois in any action or proceeding arising out of or relating to this Agreement in any way, and hereby irrevocably agree that all claims in respect of any such action or proceeding may be heard and determined in any such court. In furtherance thereof, the parties hereby irrevocably consent to the service of any summons and complaint and any other process which may be served in any action or proceeding arising out of or related to this Agreement in any way brought in the United States District Court for the Central District of Illinois located in Peoria, Illinois or the courts of the State of Illinois located in Peoria County, Illinois by the mailing by certified or registered mail of copies of such process to their respective addresses as set in paragraph 15 of this Agreement, and the parties hereby irrevocably waive any objection which any of them now or hereafter may have to the laying of venue of any action or proceeding arising out of or relating to this Agreement in any way brought in the United States District Court for the Central District of Illinois located in Peoria, Illinois or the courts of the State of Illinois located in Peoria County, Illinois and any objection on the ground that any such action or proceeding in any of such courts has been brought in an inconvenient forum. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING UNDER THIS AGREEMENT. 17. NO CONFLICT The Executive represents and warrants that he is not subject to any agreement, instrument, order, judgment or decree of any kind, or any other restrictive agreement of any character, which would prevent him from entering into this agreement or which would be breached by the Executive upon his performance of his duties pursuant to this Agreement. - 13 - 14 18. ENTIRE AGREEMENT This Agreement represents the entire agreement between the Company and the Executive with respect to the subject matter hereof, and all prior agreements, plans and arrangements relating to the employment of the Executive by the Company are nullified and superseded hereby. 19. HEADINGS The headings contained in this Agreement are for reference purposes only, and shall not affect the meaning or interpretation of this Agreement. 20. MISCELLANEOUS (a) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (b) Following the date hereof and regardless of any dispute that may arise in the future, the Executive will not, and will use his best efforts to cause his business associates to not, disparage, criticize or make statements to the detriment of the Company, the Group or any of their affiliates; and the Company will not, and will use its best efforts to cause their affiliated companies to not, disparage, criticize or make statements to the detriment of the Executive. (c) Notwithstanding anything to the contrary contained in this Agreement, the rights of the Executive under the provisions of the Company by-laws relating to indemnification of directors and officers shall survive any termination of this Agreement. (d) The Executive acknowledges that Executive has consulted or has had the opportunity to consult his own attorney in connection with this Agreement. (e) This Agreement shall become effective only if this Agreement has been approved by the holders of record of stock of Morton representing more than 75% of the voting power of all outstanding stock of Morton, determined without regard to any stock owned or constructively owned by any "disqualified individual" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")) who will be receiving compensation that, absent satisfaction of certain shareholder approval requirements would constitute "parachute payments" under Section 280G of the Code, prior to the effective date of the Merger. - 14 - 15 21. SHAREHOLDERS AGREEMENT Concurrently with the effective date of the Merger, the Executive, as a shareholder in the Company, will enter into a Shareholders Agreement dated October 20, 1997 (the "Shareholders Agreement") with certain other shareholders of the Company pursuant to which the Executive will be given the right to vote certain Company shares held by such other shareholders. For purposes of the Shareholders Agreement, the Executive's employment with the Company shall be deemed to continue (and his voting rights under the Shareholders Agreement shall continue) unless a For Cause Termination of the Executive's employment with the Company occurs pursuant to paragraph 6(a) above or the Executive's employment with the Company is terminated by death or disability pursuant to paragraph 7(a) above. In the event of any conflict between the provisions of this Agreement and the provisions of the Shareholders Agreement with respect to the matters covered in this Section 21 of this Agreement, provisions of the Shareholders Agreement shall control. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. MORTON INDUSTRIAL GROUP, INC. By David R. Lindemann -------------------------------- Name: David R. Lindemann Title:Vice President William D. Morton ------------------------------------ William D. Morton, Executive - 15 - EX-10.10 13 EX-10.10 1 EXHIBIT 10.10 EMPLOYMENT AGREEMENT AGREEMENT made this 20th day of January, 1998, by and between MORTON INDUSTRIAL GROUP, INC., a Georgia corporation (the "Company"), and DARYL R. LINDEMANN (the "Executive"). W I T N E S S E T H: WHEREAS, pursuant to a certain Agreement and Plan of Merger dated October 20, 1997 (the "Merger Agreement"), MLX CORP., a Georgia corporation ("MLX"), through a merger (the "Merger") of MORTON METALCRAFT HOLDING CO., a Delaware corporation ("Morton"), with and into MLX, whose name is being changed to MORTON INDUSTRIAL GROUP, INC., will acquire Morton; and WHEREAS, the Executive was employed by Morton and, accordingly, the Company (as successor to the business of Morton) wishes to ensure the employment of the Executive with the Company and the Executive wishes to accept such employment upon the terms and conditions hereinafter set forth; and WHEREAS, it is intended that the Company and its subsidiaries will be operationally combined under the management of WILLIAM D. MORTON, as the Company's Chairman and Chief Executive Officer ("Company CEO") with other companies which may be acquired by the Company (the Company and its subsidiaries, together with such other companies are collectively called the "Group"); NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT The Company agrees to employ the Executive during the Term specified in paragraph 2, and the Executive agrees to accept such employment, upon the terms and conditions hereinafter set forth. 2. TERM (a) Subject to Sections 6 and 7 below and the other terms and conditions of this Agreement, the Executive's employment by the Company shall be for a term commencing on the date hereof and expiring on the close of business on December 31, 2000 (the "Initial Term"); provided, however, the term of the Executive's employment by the Company shall continue thereafter unless and until either party shall give to the other six months advance written notice of expiration of the term (a "Six Month Notice of Termination") (the Initial Term and the period, if any, thereafter, 2 during which the Executive's employment shall continue are collectively referred to as the "Term"). Any Six Month Notice of Termination given under this paragraph 2(a) shall specify the date of expiration (which may not be earlier than December 31, 2000) and may be given at any time on or after June 30, 2000. Notwithstanding the foregoing provisions, the Company shall have the right at any time during the Initial Term to terminate the term of the Executive's employment by giving the Executive twelve months advance written notice of the termination of the Term (a "Twelve Month Notice of Termination"). The Company shall have the right at any time during any such six month or twelve month notice period to relieve the Executive of his offices, duties and responsibilities and to place him on a paid leave-of-absence status, provided that during such notice period the Executive shall remain a full-time employee of the Company and shall continue to receive his base salary compensation and other benefits as provided in this Agreement. The effective date of the termination of the Execu- tive's employment with the Company, regardless of the reason therefor, is referred to in this Agreement as the "Date of Termination". (b) Upon termination of the employment of the Executive with the Company pursuant to a Six Month Notice of Termination or a Twelve Month Notice of Termination under paragraph 2(a) above, the Company shall pay the Executive, subject to appropriate offsets, as permitted by the applicable law, only for debts due from the Executive to the Company or another company with the Group (collectively, "Offsets"), for so long as the Executive is not in breach of his obligations to the Company under Section 8 hereof, his base salary compensation and any unused accrued vacation only through, and any unpaid reimbursement expenses outstanding as of, the Date of Termination. Any benefits to which the Executive or his beneficiaries may be entitled under the plans and programs described in Section 5 below, or any other applicable plans and programs in which he participated as an employee of the Company, shall be determined as of the Date of Termination in accordance with the terms of such plans and programs. In connection with the Executive's termination of employment pursuant to paragraph 2(a), except as provided in this paragraph 2(b), the Company shall have no further liability to the Executive or the Executive's heirs, beneficiaries or estate for damages, compensation, benefits, severance, indemnities or other amounts of whatever nature. 3. DUTIES AND RESPONSIBILITIES (a) During the Term, the Executive shall have the position of Vice President of Finance, Secretary and Treasurer. The Executive shall assume similar positions at one or more members of the Group if requested to do so by the Company CEO. The Executive shall report to the Company CEO or such other officer of the Company as designated from time to time by the Company CEO at such times and in such detail as such officer shall reasonably require. - 2 - 3 (b) The Executive shall perform such duties and responsibilities customary to his office and as are reasonably necessary to the operations of the Company and the Group and as may be assigned to him from time to time by or under authority of the Board of Directors of the Company (the "Board") and the Company CEO, consistent with his positions as designated in paragraph 3(a) above. (c) The Executive's employment by the Company shall be full-time and during the Term, the Executive agrees that he will (i) devote all of his business time and attention, his best efforts, and his skill and ability to promote the interests of the Group; (ii) carry out his duties in a competent and professional manner; and (iii) work with other employees of the Group in a competent and professional manner. Notwithstanding the foregoing, the Executive shall be permitted to engage in other business activities (as an active participant or a passive investor), including without limitation, serving on civic or charitable boards and committees and performing speaking engagements, provided that such activities are not rendered for a company which transacts business with any member of the Group or engages in business competitive with that conducted by any member of the Group (or, if such company does transact business with a member of the Group or does engage in a competitive business, it is a publicly held corporation and the Executive owns less than 1/4 of 1% of its outstanding shares) and further provided that such activities (individually or collectively) do not materially interfere with the performance of his duties or responsibilities under this Agreement. (d) The Executive's services hereunder shall be performed at the offices of the Company in Morton, Illinois, subject to necessary travel requirements of his position and duties hereunder. The Executive shall not be required to relocate without his prior written consent. 4. COMPENSATION As compensation for his services hereunder, the Company shall pay the Executive during the Term, in accordance with its normal payroll practices, direct salary compensation at an annual rate of $95,000, provided that such annual rate of salary compensation shall be increased by not less than $5,000 annually (but may not be decreased) under the authority of the Company CEO in accordance with the Company's general compensation policies. 5. EXPENSES; FRINGE BENEFITS (a) The Company agrees to pay or to reimburse the Executive during the Term for all reasonable, ordinary and necessary vouchered business or entertainment expenses incurred in the performance of his services hereunder in accordance with the policy of the Company and the Group as from time to time in effect. The Executive, as a condition precedent to obtaining such payment - 3 - 4 or reimbursement, shall provide to the Company any and all statements, bills or receipts evidencing the travel or out-of-pocket expenses for which the Executive seeks payment or reimbursement, and any other information or materials, as the Company or the Group may from time to time reasonably require. (b) During the Term, subject to the approval of the Company CEO, the Executive shall be eligible to participate in the incentive compensation plans of the Company as in effect from time to time. (c) During the Term, the Executive and, to the extent eligible, his dependents, shall be entitled to participate in and receive all benefits under any welfare benefit plans and programs (including without limitation, medical, dental, disability, group life (including accidental death and dismemberment) and business travel insurance plans and programs) now or hereafter provided by the Company which are applicable generally to the employees of the Company, subject, however, to the generally applicable eligibility and other provisions of the various plans and programs in effect from time to time. (d) During the Term, the Executive shall be entitled to participate in all retirement plans and programs (including without limitation any profit sharing/401(k) plan) which are applicable generally to the employees of the Company, subject, however, to generally applicable eligibility and other provisions of the various plans and programs in effect from time to time. In addition, during the Term, the Executive shall be entitled to receive fringe benefits and perquisites in accordance with the plans, practices, programs and policies of the Company from time to time in effect which are available generally to the officers of the Company and such other fringe benefits as may from time to time be approved in writing by the Company CEO. (e) The Executive shall be entitled to vacation during each calendar year of the Term on a basis consistent with the pre-Merger vacation policy of Morton, to be taken at such time(s) as shall not, in the reasonable judgment of the Company CEO, materially interfere with the Executive's fulfillment of his duties hereunder, and shall be entitled to as many holidays, sick days and personal days as are in accordance with the Company's policy then in effect for its executive officers generally, upon such terms as may be provided its executive officers generally. (f) The Executive and Morton are currently parties to an Executive Stock Option Agreement dated September 7, 1990, as amended (the "Executive Stock Option Agreement"), pursuant to which the Executive holds options to purchase 83,333 shares of Morton's stock (the "Pre-Merger Options"). Pursuant to a separate agreement to be entered into by and between the Executive and the Company, concurrently with the effective date of the Merger, the Company will purchase from the Executive certain of the Pre-Merger Options - 4 - 5 and the remaining Pre-Merger Options will be converted to options for Company shares (but will be adjusted to reflect the effects of the Merger). This Agreement is not otherwise intended to in any way modify or amend the Executive Stock Option Agreement which shall remain in full force and effect. (g) Notwithstanding anything to the contrary contained above, the Company shall be entitled to terminate or reduce any employee benefit or perquisite enjoyed by the Executive pursuant to the provisions of paragraph 5(b), 5(c) 5(d) and 5(e) above, if such reduction is part of an across-the-board reduction applicable to all employees holding similar positions. 6. TERMINATION (a) The Company, by direction of the Board or the Company CEO, shall be entitled to terminate the Term and to discharge the Executive for "cause" effective upon the giving of written notice. The term "cause" shall be limited to the following grounds: (i) The Executive's failure or refusal to material- ly perform his duties and responsibilities as set forth in paragraph 3 hereof, or the willful failure of the Executive to devote all of his business time and attention exclusively to the business and affairs of the Company and the Group in accordance with the terms hereof, in each case if such failure or refusal is not cured within 30 days after written notice thereof to the Executive by the Company; (ii) Use of alcohol or illegal drugs, interfering with the performance of the Executive's obligations under this Agreement, continuing after written warning; (iii) Conviction in a court of law of, or entering a plea of guilty or no contest to, any felony or any crime involving dishonesty or theft; (iv) The commission in bad faith by the Executive of any act which injures or could reasonably be expected to injure the reputation, business or business relationships of the Company or any other member of the Group, including without limitation, a willful or intentional breach of the provisions of Section 8 of this Agreement; and (v) Any material breach (not covered by any of the clauses (i) through (v)) of any term, provision or condition of this Agreement, if such breach is not cured within 30 days after written notice thereof to the Executive by the Company (such notice to specify the specific nature of the claimed breach and the manner in which the Company requires such breach to be cured). - 5 - 6 In any case where warning or notice to the Executive is required under this Section 6(a), such warning or notice shall identify with reasonably specificity the conduct relied upon as a basis for such warning or notice. Upon the termination of the employment of the Executive with the Company (x) pursuant to this paragraph 6(a) or (y) by virtue of the Executive's resignation other than as described in paragraph 2(a) above or paragraph 6(b) below, or (z) any other termination by the Executive other than pursuant to a termination under paragraph 2(a) above or paragraph 6(b) below (each event of termination set forth in clauses (x), (y) and (z) is sometimes referred to as a "For Cause Termination"), the Company shall pay the Executive, subject to any Offsets, his base salary compensation and any unused accrued vacation only through, and any unpaid reimbursable expenses outstanding as of, the Date of Termination. Any benefits to which the Executive or his beneficiaries may be entitled under the plans and programs described in Section 5 above, or any other applicable plans and programs in which he participated as an employee of the Company, shall be determined as of his Date of Termination in accordance with the terms of such plans and programs. In connection with a For Cause Termination, except as provided in this paragraph 6(a) and paragraph 20(c) below, the Company shall have no further liability to the Executive or the Executive's heirs, beneficiaries or estate for damages, compensation, benefits, severance, indemnities or other amounts of whatever nature. (b) The Executive shall be entitled to terminate the Term hereunder in the event that the Company is in default of a material term of this Agreement, which default remains uncured for a period of 30 days after written notice of such default from the Executive to the Company (such notice to specify the specific nature of the claimed default and the manner in which the Executive requires such default to be cured) (a "Constructive Termination"). Notwithstanding a Constructive Termination, or in the event the Company terminates the employment of the Executive in breach of its obligations under this Agreement, the restrictions set forth in paragraph 8 shall remain in full force and effect. (c) In the event of a Constructive Termination, or a termination of the employment of the Executive by the Company in breach of its obligations under this Agreement (each such event being called a "Company Termination"), as liquidated damages, the Executive shall be entitled to continue to receive from the Company, subject to any Offsets, (i) for so long as the Executive is not in breach of his obligations to the Company under Section 8 hereof, his then applicable base salary compensation when otherwise payable through the minimum remaining Term hereof absent the Company Termination, and (ii) any unpaid reimbursable expenses outstanding, and any unused accrued vacation, as of the Date of Termination. For this purpose, the "minimum remaining Term" shall mean (x) one year from the Company Termination if the Company Termination occurs on or prior to June 30, 2000, or (y) six months - 6 - 7 from the Company Termination, if such termination occurs after June 30, 2000. Any benefits to which Executive or his beneficiaries may be entitled under the plans and programs described in Section 5 above, or any other applicable plans and programs in which he participated as an employee of the Company, shall be determined as of the Date of Termination in accordance with the terms of such plans and programs; provided, however, that the Executive shall be entitled to continued participation on the same basis (including without limitation, cost contributions) as the other senior executives of the Company in all medical, dental, hospitalization, disability and life insurance coverage (the "Continued Plans") in which he was participating on the Date of Termination (as such Continued Plans are from time to time in effect at the Company) until the earlier of (A) the end of the period that he receives base salary compensation payments under clause (i) above or (B) the date, or dates, he is entitled to receive coverage and benefits under the same type of plan of a subsequent employer, and provided further: (1) that if the Executive is precluded from continuing his participation in any Continued Plan, he shall be provided with the after-tax economic equivalent of the benefits provided under the Continued Plan in which he is unable to participate, for the period specified above; (2) that the economic equivalent of a benefit foregone shall be deemed the lowest cost that would be incurred by the Executive in obtaining such benefit himself on an individual basis; and (3) that payment of such after-tax economic equivalent shall be made quarterly in advance. Except as provided in this paragraph 6(c) and paragraph 20(c) below in connection with a Company Termination, (x) the Company shall have no further liability to the Executive or the Executive's heirs, beneficiaries or estate for damages, compensation, benefits, severance, indemnities or other amounts of whatever nature and (y) the Executive shall be under no obligation to mitigate his damages or to seek other employment and any income the Executive earns from subsequent employment or consulting shall not reduce payments by the Company under clause (i) of this paragraph 6(c) or otherwise. (d) It is agreed that a termination of the Executive's employment pursuant to a Notice of Termination given in accordance with paragraph 2(a) above shall not be deemed a Company Termination or a For Cause Termination. 7. DISABILITY; DEATH (a) In the event the Executive shall be unable to perform his duties hereunder by virtue of illness or physical or mental incapacity or disability (from any cause of causes whatsoever) in substantially the manner and to the extent required hereunder prior to the commencement of such disability (all such causes being herein referred to as "disability") and the Executive shall fail to perform such duties for periods aggregating 270 days, whether or not continuous, in any continuous period of 360 days, the Company shall have the right to terminate the Executive's employment hereunder as at the end of any calendar month during the - 7 - 8 continuance of such disability upon at least 30 days' prior written notice to him. In the event of the Executive's death, the Date of Termination shall be the date of such death. (b) In the event the Executive's employment terminates pursuant to paragraph 7(a), the Executive, or in the case of his death, the Executive's estate, shall be entitled to receive when otherwise payable, subject to any Offsets, (i) all base salary compensation earned but unpaid as of the Date of Termination and (ii) any unpaid reimbursable expenses outstanding, and any unused accrued vacation, as of such date. Any benefits to which the Executive or his beneficiaries may be entitled under the plans and programs described in Section 5 above, or any other applicable plans and programs in which he participated as an employee of the Company, shall be determined as of the Date of Termination in accordance with the terms of such plans and programs. In the event of the Executive's termination due to disability or death, except as provided in this paragraph 7(b) and paragraph 20(c) below, the Company shall have no further liability to the Executive or the Executive's heirs, beneficiaries or estate for damages, compensation, benefits, severance, indemnities or other amounts of whatever nature. 8. NON-SOLICITATION/NON-SUPPLY AND PROTECTION OF CONFIDEN- TIAL INFORMATION (a) The Executive agrees that his services hereunder are of a special, unique and extraordinary character and his position with the Group and the Company (as successor to the business of Morton) places him in a position of confidence and trust with the customers and employees of the Company and other members of the Group. The Executive acknowledges (x) that from time to time members of the Group cooperate with each other in supplying current customers and/or the solicitation of prospective customers and (y) that the rendering of services and the supply of products to the customers of the Group necessarily requires the disclosure to the Executive of confidential information and trade secrets of the Company and the Group (such as without limitation, marketing plans, budgets, designs, client preferences and policies, and identity of appropriate personnel of customers with sufficient authority to influence a shift in suppliers). The parties hereto agree that in the course of the Executive's employment with the Company and its predecessors, the Executive has and will continue to develop a personal relationship with the Group's customers and a knowledge of those customers' affairs and requirements, and that the relationship of the Group with its established customers has been and will continue to be placed in the Executive's hands in confidence and trust. The Executive consequently agrees that it is reasonable and necessary for the protection of the trade secrets, goodwill and business of the Company and the Group that the Executive make the covenants contained herein. Accordingly, the Executive agrees that for the period commencing on the date hereof and terminating the later of (1) December 31, 2002 and (2) two years after the Date of - 8 - 9 Termination, he shall not, as an individual, partner, shareholder, employee, consultant or in association with any other person, business or enterprise, except on behalf of the Company or another member of the Group, directly or indirectly, and regardless of the reason for his ceasing to be employed by the Company: (i) attempt in any manner to solicit or accept from any customer business of the type performed by members of the Group or to persuade any customer to cease to do business or to reduce the amount of business which any such customer has customarily done or is reasonably expected to do with any member of the Group, whether or not the relationship between such member of the Group and such customer was originally established in whole or in part through his efforts. (ii) employ as an employee or retain as an exclusive consultant any person who is then or at any time during the preceding twelve months was an employee of or consultant to any member of the Group, or persuade or attempt to persuade any employee of or consultant to any member of the Group to leave the employ of such member of the Group or to become employed as an employee or retained as an exclusive consultant by anyone other than by a member of the Group; or (iii) supply to or for any customers any products or services of the type supplied by members of the Group, as an independent contractor or employee of the customer or in any other capacity whatsoever. As used in paragraph 8(a) through paragraph 8(e), the term "Group" shall include the Company and each other member of the Group and the term "customer" shall mean (1) anyone who is a customer of any member of the Group on the Date of Termination or, if the Executive's employment shall not have terminated, at the time of the alleged prohibited conduct (any such applicable date being called the "Determination Date"); (2) anyone who was a customer of any member of the Group at any time during the one year period immediately preceding the Determination Date; (3) any prospective customer to whom any member of the Group had made a new business presentation (or similar offering of products or services) at any time during the one year period immediately preceding the Determination Date; and (4) any prospective customer to whom any member of the Group made a new business presentation (or similar offering of products or services) at any time within six months after the Determination Date (but only if the initial contract between such member of the Group and such prospective customer occurred prior to the Determination Date, regardless if such contact was made by the Executive). In addition, if the customer is part of a group of companies which conducts business through more than one entity, division or operating unit, whether or not separately incorporated (a "Customer Group"), the term "customer" as used herein shall include each entity, division and operating unit of the Customer Group. - 9 - 10 (b) At any time while this paragraph 8 remains applicable after the Executive is no longer employed by the Company, it shall be the responsibility of the Executive to ascertain whether a prospect is a "customer" as defined in this paragraph 8, of any member of the Group, if necessary by making written inquiry of the Company, prior to soliciting or accepting from any such prospect business of the type performed by members of the Group or supply to or for any such prospect any products or services of the type supplied by members of the Group. Within ten business days after receipt of such inquiry, the Company shall notify the Executive in writing as to whether such prospect is a customer within the meaning of this paragraph 8, and if the Company determines that such prospect is a customer, such notification shall include the reasons for the Company's determination set forth with reasonably specificity. (c) The Executive also agrees that he will not at any time (whether during the Term or after termination of this Agreement), disclose to anyone any confidential information or trade secret of any member of the Group, or any customer of any member of the Group, or utilize such confidential information or trade secret for his own benefit, or for the benefit of third parties and all memoranda, notes, records or other documents compiled by him or made available to him during the Term pertaining to the business of members of the Group and/or their respective customers shall be the property of the Company and shall be delivered immediately to the Company on the termination of his employment or, upon request, at any other time. The term "confidential information or trade secret" does not include information which (i) becomes generally available to the public other than by breach of this provision or (ii) the Executive learns from a third party who is not under an obligation of confidence to the Company, or another member of the Group. (d) If the Executive commits a breach or is about to commit a breach, of any of the provisions of paragraphs 8(a) or 8(c) above, the Company shall have the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction without being required to post bond or other security and without having to prove the inadequacy of the available remedies at law, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and the Group and that money damages will not provide an adequate remedy to the Company or the Group. In addition, the Company may take all such other actions and remedies available to it under law or in equity and shall be entitled to such damages as it can show it has sustained by reason of such breach. (e) The parties acknowledge that the type and periods of restriction imposed in the provisions of paragraphs 8(a) and 8(c) above are fair and reasonable and are reasonably required for the protection of the Company and the Group and the goodwill associated with the business of the Company and the Group; and that the time, - 10 - 11 scope, geographic area and other provisions of this paragraph 8 have been specifically negotiated by sophisticated commercial parties and are given as an integral part of the transactions contemplated by the Merger Agreement, it being understood that the customers of the Group may be supplied from any location and accordingly it is reasonable that the restrictive covenants set forth herein are not limited by narrow geographic area but generally by the location of such customers and potential customers. The Executive specifically acknowledges that his being restricted from soliciting and supplying customers as contemplated by this Agreement will not prevent him from being employed or earning a livelihood in the type of business conducted by the members of the Group. If any of the covenants in paragraphs 8(a) or 8(c) above, or any part thereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect, without regard to the invalid portions. If any of the covenants contained in paragraphs 8(a) and 8(c), or any part thereof, is held to be unenforceable by reason of its extending for too great a period of time or over too great a geographic area or by reason of its being too extensive in any other respect, the parties agree (i) such covenant shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographic areas as to which it may be enforceable and/or over the maximum extent in all other respects as to which it may be enforceable, all as determined by the court making such determination and (ii) in its reduced form, such covenant shall then be enforceable. The parties hereto intend to and hereby confer jurisdiction to enforce the covenants contained in paragraphs 8(a) and 8(c) above upon the courts of any state or other jurisdiction within the geographical scope of such covenants. In the event that the courts of any one or more of such states or other jurisdictions shall hold such covenants unenforceable (in whole or in part) by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the right of the Company to the relief provided above in the courts of any other states or other jurisdictions within the geographical scope of such covenants, as to breaches of such covenants in such other respective states or other jurisdictions, the above covenants as they relate to each state or other jurisdiction being, for this purpose, severable into diverse and independent covenants. 9. INTELLECTUAL PROPERTY During the Term, the Executive will disclose to the Company all ideas, inventions and business plans developed by him during such period which relate directly or indirectly to the business of the Group, including without limitation, any design, logo, slogan or campaign or any process, operation, product or improvement which may be patentable or copyrightable. The Executive agrees that all patents, licenses, copyrights, tradenames, trademarks, service marks, advertising campaigns, promotional campaigns, designs, - 11 - 12 logos, slogans and business plans developed or created by the Executive in the course of his employment hereunder, either individually or in collaboration with others, will be deemed works for hire and as between the Executive and the Company the sole and absolute property of the Company, subject to the rights of customers and others contracting with the Company. The Executive agrees, that at the Company's request and expense, he will take all steps necessary to secure the rights thereto to the Company by patent, copyrights or otherwise. 10. ENFORCEABILITY The failure of any party at any time to require performance by another party of any provision hereunder shall in no way affect the right of that party thereafter to enforce the same, nor shall it affect any other party's right to enforce the same, or to enforce any of the other provisions in this Agreement; nor shall the waiver by any party of the breach of any provision hereof be taken or held to be a waiver of any subsequent breach of such provision or as a waiver of the provision itself. 11. ASSIGNMENT This Agreement is a personal contract and the Executive's rights and obligations hereunder may not be sold, transferred, assigned, pledged or hypothecated by the Executive. The rights and obligations of the Company hereunder shall be binding upon and run in favor of the successors and assigns of the Company. 12. MODIFICATION This Agreement may not be orally canceled, changed, modified or amended, and no cancellation, change, modification or amendment shall be effective or binding, unless in writing and signed by the parties to this Agreement. 13. SEVERABILITY; SURVIVAL In the event any provision or portion of this Agreement is determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall nevertheless be binding upon the parties with the same effect as thought the invalid or unenforceable part had been severed and deleted. The respective rights and obligations of the parties hereunder shall survive the termination of the Executive's employment to the extent necessary to the intended preservation of such rights and obligations. 14. LIFE INSURANCE The Executive agrees that the Company shall have the right to obtain life insurance on the Executive's life, at the sole expense of the Company, as the case may be, and with the Company as the - 12 - 13 sole beneficiary thereof. The executive shall (a) cooperate fully in obtaining such life insurance, (b) sign any necessary consents, applications and other related forms or documents and (c) take any reasonably required medical examinations. 15. NOTICE Any notice, request, instruction or other document to be given hereunder by any party hereto to another party shall be in writing and shall be deemed effective (a) upon personal delivery, if delivered by hand, or (b) three days after the date of deposit in the mails, postage prepaid if mailed by certified or registered mail, or (c) on the next business day, if sent by facsimile transmission (if receipt is electronically confirmed) or prepaid overnight courier service, and in each case addressed as follows: If to the Executive: Daryl R. Lindemann 52 Maple Ridge Drive Morton, IL 61550 If to the Company: Morton Industrial Group, Inc. P. O. Box 429 1021 W. Birchwood Morton, Illinois 61550 Attention: Chief Executive Officer Fax: (309) 263-1841 with copy to: Husch & Eppenberger 800 Central Building 101 S.W. Adams Street Peoria, Illinois 61602 Attention: Gene A. Petersen Fax: (309) 637-4928 Any party may change the address to which notices are to be sent by giving notice of such change of address to the other party in the manner provided for giving notice. 16. APPLICABLE LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without application of conflict of law provisions applicable herein. The parties hereby irrevocably submit to the personal jurisdiction of the United States District Court for the Central District of Illinois located in Peoria, Illinois or the courts of the State of Illinois located in Peoria County, Illinois in any action or proceeding arising out of or relating to this Agreement in any way, and hereby irrevocably - 13 - 14 agree that all claims in respect of any such action or proceeding may be heard and determined in any such court. In furtherance thereof, the parties hereby irrevocably consent to the service of any summons and complaint and any other process which may be served in any action or proceeding arising out of or related to this Agreement in any way brought in the United States District Court for the Central District of Illinois located in Peoria, Illinois or the courts of the State of Illinois located in Peoria County, Illinois by the mailing by certified or registered mail of copies of such process to their respective addresses as set in paragraph 15 of this Agreement, and the parties hereby irrevocably waive any objection which any of them now or hereafter may have to the laying of venue of any action or proceeding arising out of or relating to this Agreement in any way brought in the United States District Court for the Central District of Illinois located in Peoria, Illinois or the courts of the State of Illinois located in Peoria County, Illinois and any objection on the ground that any such action or proceeding in any of such courts has been brought in an inconvenient forum. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING UNDER THIS AGREEMENT. 17. NO CONFLICT The Executive represents and warrants that he is not subject to any agreement, instrument, order, judgment or decree of any kind, or any other restrictive agreement of any character, which would prevent him from entering into this agreement or which would be breached by the Executive upon his performance of his duties pursuant to this Agreement. 18. ENTIRE AGREEMENT This Agreement represents the entire agreement between the Company and the Executive with respect to the subject matter hereof, and all prior agreements, plans and arrangements relating to the employment of the Executive by the Company are nullified and superseded hereby. 19. HEADINGS The headings contained in this Agreement are for reference purposes only, and shall not affect the meaning or interpretation of this Agreement. 20. MISCELLANEOUS (a) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (b) Following the date hereof and regardless of any dispute that may arise in the future, the Executive will not, and - 14 - 15 will use his best efforts to cause his business associates to not, disparage, criticize or make statements to the detriment of the Company, the Group or any of their affiliates; and the Company will not, and will use its best efforts to cause their affiliated companies to not, disparage, criticize or make statements to the detriment of the Executive. (c) Notwithstanding anything to the contrary contained in this Agreement, the rights of the Executive under the provisions of the Company by-laws relating to indemnification of directors and officers shall survive any termination of this Agreement. (d) The Executive acknowledges that Executive has consulted or has had the opportunity to consult his own attorney in connection with this Agreement. (e) This Agreement shall become effective only if this Agreement has been approved by the holders of record of stock of Morton representing more than 75% of the voting power of all outstanding stock of Morton, determined without regard to any stock owned or constructively owned by any "disqualified individual" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")) who will be receiving compensation that, absent satisfaction of certain shareholder approval requirements would constitute "parachute payments" under Section 280G of the Code, prior to the effective date of the Merger. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. MORTON INDUSTRIAL GROUP, INC. By William D. Morton -------------------------------- Name: Title: Daryl R. Lindemann ----------------------------------- Daryl R. Lindemann, Executive - 15 - EX-10.13 14 EX-10.13 1 EXHIBIT 10.13 MASTER LEASE AGREEMENT THIS MASTER LEASE AGREEMENT, dated as of August 7, 1996, ("AGREEMENT"), between GENERAL ELECTRIC CAPITAL CORPORATION, with an office at 303 INTERNATIONAL CIRCLE SUITE 300, HUNT VALLEY, MARYLAND 21031, (hereinafter called, together with its successors and assigns, if any, "LESSOR"), and MORTON METALCRAFT CO., A CORPORATION, organized and existing under the laws of the State of ILLINOIS, with its mailing address and chief place of business at 1021 W. BIRCHWOOD STREET, MORTON, IL 61550 (hereinafter called "LESSEE"). WITNESSETH: I. LEASING: (a) Subject to the terms and conditions set forth below, Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment ("EQUIPMENT") described in Annex A to any schedule hereto ("SCHEDULE") and this Agreement shall be effective from and after the date of execution hereof. Terms defined in a Schedule and not otherwise defined herein shall have the meanings ascribed to them in such Schedule. (b) The obligation of Lessor to purchase Equipment from the manufacturer or supplier thereof ("SUPPLIER",) and to lease the same to Lessee under any Schedule shall be subject to receipt by Lessor, prior to the Lease Commencement Date (with respect to such Equipment), of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then to be leased hereunder, (ii) a Purchase Order Assignment and Consent in the form of Annex B to the applicable Schedule, unless Lessor shall have delivered its purchase order for such Equipment, (iii) evidence of insurance which complies with the requirements of Section X, and (iv) such other documents as Lessor may reasonably request. As a further condition to such obligations of Lessor, Lessee shall, upon delivery of such Equipment (but not later than the Base Lease Commencement Date specified in the applicable Schedule) execute and deliver to Lessor a Certificate of Acceptance (in the form of Annex C to the applicable Schedule) covering such Equipment. Lessor hereby appoints Lessee its agent for inspection and acceptance of the Equipment from the Supplier. Upon execution by Lessee of any Certificate of Acceptance, the Equipment described thereon shall be deemed to have been delivered to, and irrevocably accepted by, Lessee for lease hereunder. II. TERM, RENT AND PAYMENT: (a) The rent payable hereunder and Lessee's right to use the Equipment shall commence on the date of execution by Lessee of the Certificate of Acceptance for such Equipment ("LEASE COMMENCEMENT DATE"). The term of this Agreement shall be the period specified in the applicable Schedule. If any term is extended, the word "TERM" shall be deemed to refer to all extended terms, and all provisions of this Agreement shall apply during any extended terms, except as may be otherwise specifically provided in writing. (b) Rent shall be paid to lessor at its address stated above, except as otherwise directed by Lessor. Payments of rent shall be in the amount set forth in, and due in accordance with, the provisions of the applicable Schedule. If one or more Advance Rentals are payable, such Advance Rental shall be (i) set forth on the applicable Schedule, (ii) due upon acceptance by Lessor of such Schedule, and (iii) when received by Lessor, applied to the first rent payment and the balance, if any, to the final rental payment(s) under such Schedule. In no event shall any Advance Rental or any other rent payments be refunded to Lessee. If rent is not paid within ten days of its due date, Lessee agrees to pay a late charge of five cents ($.05) per dollar on, and in addition to, the amount of such rent but not exceeding the lawful maximum, if any. (c) So long as no default shall have occurred and be continuing under the terms of this agreement, neither Lessor nor its agents, employees, creditors, or assigns will disturb Lessee's quiet, peaceful and uninterrupted possession of the Equipment during the term of this Lease and Lessee's uninterrupted use thereof for its intended purpose. III. TAXES: Except as provided in Section XIV(c), Lessee shall have no liability for taxes imposed by the United States of America or any State or political subdivision thereof which are on or measured by the net income of Lessor. Lessee shall report (to the extent that it is legally permissible) and pay promptly all other taxes, fees and assessments due, imposed, assessed or levied against any Equipment (or the purchase, ownership, delivery, leasing, possession, use or operation thereof), this Agreement (or any rentals or receipts hereunder), any Schedule, Lessor or Lessee by any foreign, federal, state or local government or taxing authority during or related to the term of this Agreement, including, without limitation, all license and registration fees, and all sales, use, personal property, excise, gross receipts, franchise, stamp or other taxes, imposts, duties and charges, together with any penalties, fines or interest thereon (all hereinafter called "TAXES"). Lessee shall (i) reimburse Lessor upon receipt of written request for reimbursement for any Taxes charged to or assessed against Lessor, (ii) on request of Lessor, submit to Lessor written evidence of Lessee's payment of Taxes, (iii) on all reports or returns show the ownership of the Equipment by Lessor, and (iv) send a copy thereof to Lessor. The obligations of Lessee under this Section IV shall survive any expiration or termination of this Agreement. IV. REPORTS: (a) Lessee will notify Lessor in writing, within ten (10) days after any tax or other lien shall attach to any Equipment, of the full particulars thereof and of the location of such Equipment on the date of such notification. 2 (b) Lessee will within ninety (90) days of the close of each fiscal year of Lessee, deliver to Lessor, Lessee's complete financial statements, certified by a recognized firm of certified public accountants. If Lessee becomes a publicly traded entity, Lessee will, within thirty (30) days after the date on which they are filed, deliver to Lessor all Forms 10-K and 10-Q filed with the Securities and Exchange Commission. Upon request Lessee will deliver to Lessor quarterly, within ninety (90) days of the close of each fiscal quarter of Lessee, in reasonable detail, copies of Lessee's quarterly financial report certified by the chief financial officer of Lessee. Upon request, Lessee will deliver to Lessor one copy of each financial statement, report, notice or proxy statement sent by Lessee to shareholders generally and one copy of each regular or periodic report, registration statement or prospectus filed by Lessee with any securities exchange or the Securities and Exchange Commission or any successor agency, such copies to be delivered to Lessor within thirty (30) days after they become available or are otherwise filed. (c) Lessee will permit Lessor to inspect any Equipment during normal business hours. (d) Lessee will keep the Equipment at the Equipment Location (specified in the applicable Schedule) and will give Lessor prior written notice of any relocation of Equipment. Upon the written request of Lessor, Lessee will notify Lessor forthwith in writing of the location of any Equipment as of the date of such notification. (e) Lessee will promptly and fully report to Lessor in writing if any Equipment is lost or damaged (where the estimated repair costs would exceed twenty-five percent (25%) of its then fair market value), or is otherwise involved in an accident causing personal injury or property damage. (f) Within thirty (30) days after any request by Lessor, Lessee will furnish a certificate of an authorized officer of Lessee stating that he has reviewed the activities of Lessee and that, to the best of his knowledge, there exists no default (as described in Section XI) or event which with notice or lapse of time (or both) would become such a default. V. DELIVERY, USE AND OPERATION: (a) All Equipment shall be shipped directly from the Supplier to Lessee. (b) Lessee agrees that the Equipment will be used by Lessee solely in the conduct of its business and in a manner complying with all applicable federal, state, and local laws and regulations and any applicable insurance policies and Lessee shall not discontinue use of the Equipment. (c) LESSEE SHALL NOT ASSIGN, OTHER THAN TO A WHOLLY-OWNED SUBSIDIARY OF MORTON METAL CRAFT HOLDINGS, MORTGAGE, SUBLET OR HYPOTHECATE ANY EQUIPMENT, OR THE INTEREST OF LESSEE HEREUNDER, NOR SHALL LESSEE REMOVE ANY EQUIPMENT FROM THE CONTINENTAL UNITED STATES, WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR. (d) Lessee will keep the Equipment free and clear of all liens and encumbrances other than those which result from acts of Lessor. VI. SERVICE: (a) Lessee will, at its sole expense, maintain each unit of Equipment in good operating order, repair, condition and appearance in accordance with manufacturer's recommendations, normal wear and tear excepted. Lessee shall, if at any time requested by Lessor, affix in a prominent position on each unit of Equipment plates, tags or other identifying labels showing ownership thereof by Lessor. (b) Lessee will not, without the prior consent of Lessor, affix or install any accessory, equipment or device on any Equipment if such addition will impair the originally intended function or use of such Equipment. All additions, repairs, parts, supplies, accessories, equipment, and devices furnished, attached or affixed to any Equipment which are not readily removable shall be made only in compliance with applicable law, including Internal Revenue Service guidelines, shall be free and clear of all liens, encumbrances or rights of others, and shall become the property of Lessor. Lessee will not, without the prior written consent of Lessor and subject to such conditions as Lessor may impose for its protection, affix or install any Equipment to or in any other personal or real property. (c) Any alterations or modifications to the Equipment that may, at any time during the term of this Agreement, be required to comply with any applicable law, rule or regulation shall be made at the expense of Lessee. VII. STIPULATED LOSS VALUE: Lessee shall promptly and fully notify Lessor in writing if any unit of Equipment shall be or become worn out, lost, stolen, destroyed, irreparably damaged in the reasonable determination of Lessee, or permanently rendered unfit for use from any cause whatsoever (such occurrences being hereinafter called "CASUALTY OCCURRENCES"). On the rental payment date next succeeding a Casualty Occurrence (the "PAYMENT DATE"), Lessee shall pay Lessor the sum of (x) the Stipulated Loss Value of such unit calculated as of the rental next preceding such Casualty Occurrence ("CALCULATION DATE") and (y) all rentals and other amounts which are due hereunder as of the Payment Date. Upon payment of all sums due hereunder, the term of this lease as to such unit shall terminate and ownership of such unit shall pass to Lessee or Lessee's insurance company. VIII. LOSS OR DAMAGE: Lessee hereby assumes and shall bear the entire risk of any loss, theft, damage to, or destruction of, any unit of Equipment from any cause whatsoever from the time the Equipment is shipped to Lessee. IX. INSURANCE: Lessee agrees, at its own expense, to keep all Equipment insured for such amounts and against such hazards as Lessor may require, including, but not limited to, insurance for damage to or loss of such Equipment and liability coverage for personal injuries, death or property damage, with Lessor named as additional insured and with a loss payable clause in favor of Lessor, as its interest may appear, irrespective of any breach of warranty or other act or omission of Lessee. All such policies shall be with companies, and on terms, reasonably satisfactory to Lessor. 3 Lessee agrees to deliver to Lessor evidence of insurance reasonably satisfactory to Lessor. No insurance shall be subject to any co-insurance clause. If the Lessee has not paid the Lessor for such Equipment pursuant to Section VIII, Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make proof of loss and claim for insurance, and to make adjustments with insurers and to receive payment of and execute or endorse all documents, checks or drafts in connection with payments made as a result of such insurance policies. Any such adjustments with insurers must be approved in writing by Lessee. Any expense of Lessor in adjusting or collecting insurance shall be borne by Lessee. Lessee will not make adjustments with insurers except (i) with respect to claims for damage to any unit of Equipment where the repair costs do not exceed ten percent (10%) of such unit's fair market value, or (ii) with Lessor's written consent. Said policies shall provide that the insurance may not be altered or cancelled by the insurer until after thirty (30) days' written notice to Lessor. Lessor shall apply proceeds of insurance, in whole or in part, to (i) repair or replace Equipment or any portion thereof, or (ii) satisfy any obligation of Lessee to Lessor hereunder. X. RETURN OF EQUIPMENT: (a) Upon any expiration or termination of this Agreement or any Schedule, Lessee shall promptly, at its own cost and expense: (i) perform any testing and repairs required to place the affected units of Equipment in the same condition and appearance as when received by Lessee (reasonable wear and tear excepted) and in good working order for their originally intended purpose; (ii) if deinstallation, disassembly or crating is required, cause such units to be deinstalled, disassembled and crated by an authorized manufacturer's representative or such other service person as is satisfactory to Lessor; and, (iii) return such units to a location within the continental United States as Lessor shall direct. (b) Until Lessee has fully complied with the requirements of Section X(a) above, Lessee's rent payment obligation and all other obligations under this Agreement shall continue from month to month notwithstanding any expiration or termination of the lease term. Lessor may terminate such continued leasehold interest upon ten (10) days' notice to Lessee. XI. DEFAULT: (a) Lessor may in writing declare this Agreement in default if: Lessee breaches its obligation to pay rent or any other sum when due and fails to cure the breach within ten (10) days; Lessee breaches any of its insurance obligations herewith under Section IX; Lessee breaches any of its other obligations hereunder and fails to cure that breach within thirty (30) days after written notice thereof; any representation or warranty made by or on behalf of Lessee in connection with this Agreement shall be false or misleading in any material respect; Lessee or any guarantor becomes insolvent or ceases to do business as a going concern; any Equipment is illegally used; a petition is filed by or against Lessee or any guarantor under any bankruptcy or insolvency laws; there is a revocation or anticipatory repudiation of any guarantor's obligations under any guaranty issued in connection with this Agreement; Lessee or any guarantor shall be in default under any material obligation and the applicable grace period with respect thereto shall have expired; Lessee or any guarantor shall have terminated its existence, consolidated with, merged into or conveyed or leased substantially all of its assets as an entirety to any person (such actions being referred to as an "Event"). Any provision of this Agreement to the contrary notwithstanding. Lessor may exercise all rights and remedies hereunder independently with respect to each Schedule. (b) After default at the request of Lessor, Lessee shall comply with the provisions of Section X(a). Lessee hereby authorizes Lessor to enter, with or without legal process, any premises where any Equipment is believed to be and take possession thereof. Lessee shall, without further demand, forthwith pay to Lessor as liquidated damages for loss of a bargain and not as a penalty, the Stipulated Loss Value of the Equipment (calculated as of the rental date next preceding the declaration of default), and all rentals and other sums then due hereunder. Lessor may terminate this Agreement as to any or all of the Equipment, provided that a termination shall occur only upon written notice by Lessor to Lessee and only as to the items of Equipment specified in any such notice. Lessor may, but shall not be required to, sell Equipment at private or public sale, in bulk or in parcels, with or without notice, and without having the Equipment present at the place of sale; or Lessor may, but shall not be required to, lease, otherwise dispose of or keep idle all or part of the Equipment; and Lessor may use Lessee's premises for any or all of the foregoing without liability for rent, costs, damages or otherwise. The proceeds of sale, lease or other disposition, if any, shall be applied in the following order of priorities: (1) to pay all of Lessor's costs, charges and expenses incurred in taking, removing, holding, repairing and selling, leasing or otherwise disposing of Equipment; then, (2) to the extent not previously paid by Lessee, to pay Lessor all sums due from Lessee hereunder, then (3) to reimburse to Lessee any sums previously paid by Lessee as liquidated damages; and (4) any surplus shall be retained by Lessor. Lessee shall pay any deficiency in (1) and (2) forthwith. (c) The foregoing remedies are cumulative, and any or all thereof may be exercised in lieu of or in addition to each other or any remedies at law, in equity, or under statute. Lessee waives notice of sale or other disposition (and the time and place thereof), and the manner and place of any advertising. Lessee shall pay Lessor's actual attorney's fees incurred in connection with the enforcement, assertion, defense or preservation of Lessor's rights and remedies hereunder, or if prohibited by law, such lesser sum as may be permitted. Waiver of any default shall not be a waiver of any other or subsequent default. (d) Any default under the terms of this or any other agreement between Lessor and Lessee may be declared by Lessor a default under this and any such other agreement. (e) Lessee is in default, and a default has been declared, under it's revolving credit agreement with Fleet Capital Corporation (or any replacement said revolving credit agreement), which is evidenced by a Loan and Security Agreement dated February 1, 1995. XII. ASSIGNMENT: Lessor may, without the consent of Lessee, assign this Agreement or any Schedule or any interests therein. Lessee agrees that if Lessee receives written notice of an assignment from Lessor, Lessee will pay all rent and all other amounts payable under any assigned Equipment Schedule to such assignee or as instructed by Lessor. Lessee further agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by assignee. Lessee hereby waives and agrees not to assert against any such assignee any defense, set-off, recoupment claim or counterclaim which Lessee has or may at any time have against Lessor for any reason whatsoever. 4 XIII. NET LEASE; NO SET-OFF, ETC: This Agreement is a net lease. Lessee's obligation to pay rent and other amounts due hereunder shall be absolute and unconditional. Lesee shall not be entitled to any abatement or reductions of, or set-offs against, said rent or other amounts, including, without limitation, those arising or allegedly arising out of claims (present or future, alleged or actual, and including claims arising out of strict tort or negligence of Lessor) of Lessee against Lessor under this Agreement or otherwise. Nor shall this Agreement terminate or the obligations of Lessee be affected by reason of any defect in or damage to, or loss of possession, use or destruction of, any Equipment from whatsoever cause, except as otherwise provided in Section VIII herein. It is the intention of the parties that rents and other amounts due hereunder shall continue to be payable in all events in the manner and at the times set forth herein unless the obligation to do so shall have been terminated pursuant to the express terms hereof. XIV. INDEMNIFICATION: (a) Lessee hereby agrees to indemnify, save and keep harmless Lessor, its agents, employees, successors and assigns from and against any and all losses, damages, penalties, injuries, claims, actions and suits, including legal expenses, of whatsoever kind and nature, in contract or tort or otherwise, unless caused by the gross negligence or willful misconduct of Lessor, and including, but not limited to, Lessor's strict liability in tort, arising out of (i) the selection, manufacture, purchase, acceptance or rejection of Equipment, the ownership of Equipment during the term of this Agreement, and the delivery, lease, possession, maintenance, uses, condition, return or operation of Equipment (including, without limitation, latent and other defects, whether or not discoverable by Lessor or Lessee and any claim for patent, trademark or copyright infringement or environmental damage) or (ii) the condition of Equipment sold or disposed of after use by Lessee, any sublessee or employee of Lessee, so long as any such condition arises out of Lessee's lease, possession, maintenance, use or operation of the Equipment during the term of the Agreement. The Equipment will be sold as is, where is without warranty and representations of any kind. Lessee shall, upon request, defend any actions based on, or arising out of, any of the foregoing. (b) The Lease has been entered into on the assumption that (i) the Lease will be treated for federal income tax purposes as a true lease and the Lessor will be treated as the owner and lessor of the Equipment and the Lessee will be treated as the lessee of the Equipment, and (ii) on the Lease Commencement Date for any unit of Equipment, such unit will qualify for all of the items of deduction and credit specified in Section C of applicable Schedule ("TAX BENEFITS") in the hands of Lessor (all references to Lessor in this Section XV include Lessor and the consolidated tax payer group which Lessor is a member). (c) If as a result of a breach of any representation, warranty or covenant of the Lessee contained in this Agreement or any Schedule (i) tax counsel of Lessor shall determine that Lessor is not entitled to claim on its federal income tax return all or any portion of the Tax Benefits with respect to any Equipment or (ii) any such Tax Benefit claimed on the federal income tax return of Lessor is disallowed or adjusted by the Internal Revenue Service or (iii) any such Tax Benefit is recomputed or recaptured (any such determination, disallowance, adjustment, recomputation or recapture being hereinafter called a "LOSS"), then Lessee shall pay to Lessor, as an indemnity and as additional rent, such amount as shall, in the reasonable opinion of Lessor, cause Lessor's after-tax economic yields and cash flows, computed on the same assumptions, including tax rates, and were utilized by Lessor in originally evaluating the transaction (such yields and flows being hereinafter called the "NET ECONOMIC RETURN") to equal the Net Economic Return that would have been realized by Lessor if such Loss had not occurred. Such amount shall be payable upon demand accompanied by a statement describing in reasonable detail such Loss and the computation of such amount. Anything in this paragraph to the contrary notwithstanding, Lessee shall have no obligation to indemnify Lessor from or against any such Loss to the extent that such Loss is caused by: (i) any failure by Lessor to properly or timely claim on its federal income tax return any Tax Benefits on any Equipment (unless such failure is based upon a determination by tax counsel of Lessor that Lessor is not entitled to claim such Tax Benefits with respect to such Equipment); (ii) any failure of Lessor to have sufficient taxable income to benefit from the Tax Benefits; (iii) any liability of the Lessor for any alternative minimum taxes; (iv) the status of Lessor for purposes of federal income taxes; (v) any sale or other disposition of any Equipment by Lessor other than after an event of default by Lessee; (vi) any tax election made or not made by Lessor relating to the Tax Benefits; or (vii) any event which results in a payment by Lessee in an amount equal to, or measured by, the Stipulated Loss Value to the extent that such Loss was included in Lessor's calculation of such Stipulated Loss Value. (d) All of Lessor's rights, privileges and indemnities contained in this Section XIV shall survive the expiration or other termination of this Agreement and the rights, privileges and indemnities contained herein are expressly made for the benefit of, and shall be enforceable by Lessor, its successors and assigns. XV. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS NOT MADE, NOR SHALL LESSOR BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE EQUIPMENT LEASED HEREUNDER OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without limiting the foregoing, Lessor shall have no responsibility or liability to Lessee or any other person with respect to any of the following, regardless of any negligence of Lessor (i) any liability, loss or damage caused or alleged to be caused directly or indirectly by any Equipment, any inadequacy thereof, any deficiency or defect (latent or otherwise) therein, or any other circumstance in connection therewith; (ii) the use, operation or performance of any Equipment or any risks relating thereto; (iii) any interruption of service, loss of business or anticipated profits or consequential damages; or (iv) the delivery, operation, servicing, maintenance, repair, improvement or replacement of any Equipment. If, and so long as, no default exists under this Lease, Lessee shall be, and hereby is, authorized during the terms of this Lease to assert and enforce, at Lessee's sole cost and expense, from time to time, in the name of and for the account of Lessor and/or Lessee, as their interests may appear, whatever claims and rights Lessor may have against any Supplier of the Equipment. XVI. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby represents and warrants to Lessor that on the date hereof and on the date of execution of each Schedule: 5 (a) Lessee has adequate power and capacity to enter into, and perform under, this Agreement and all related documents (together, the "DOCUMENTS") and is duly qualified to do business where ever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is or is to located. (b) The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies therein provided may be limited under applicable bankruptcy and insolvency laws. (c) No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents except such as have already been obtained. (d) The entry into and performance by Lessee of the Documents will not; (i) violate any judgment, order, law or regulation applicable to Lessee or any provision of Lessee's Certificate of Incorporation or By-Laws; or (ii) result in any breach of, constitute a default under or result in the creation of any lien, charge, security interest or other encumbrance upon any Equipment pursuant to any indenture, mortgage, deed of trust, bank loan or credit agreement or other instrument (other than this Agreement) to which Lessee is a party. (e) There are no suits or proceedings pending or threatened in court or before any commission, board or other administrative agency against or affecting Lessee, which if decided adversely will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Agreement. (f) The Equipment accepted under any Certificate of Acceptance is and will remain tangible personal property. (g) Each financial statement delivered to Lessor has been prepared in accordance with GAAP consistently applied, and since the date of the most recent such financing statement, there has been no material adverse change. (h) Lessee is and will be at all times validly existing and in good standing under the laws of the State of its incorporation (specified in the first sentence of this Agreement). (i) The Equipment will at all times be used for commercial or business purposes. XVII. PURCHASE OPTION: (a) So long as no default exists hereunder and the lease has not been earlier terminated, Lessee may at lease expiration, upon at least one hundred eighty (180) days' prior written notice to Lessor, purchase all (but not less than all) of the Equipment in any Schedule on an AS IS, WHERE IS BASIS without recourse to or warranty from Lessor, express or implied ("AS IS BASIS") for cash equal to its then Fair Market Value (plus all applicable sales taxes). (b) "FAIR MARKET VALUE", shall mean the price which a willing buyer (who is neither a lessee in possession nor a used equipment dealer) would pay for the Equipment in an arm's-length transaction to a willing seller under no compulsion to sell; provided, however, that in such determination: (i) the Equipment shall be assumed to be in the condition in which it is required to be maintained and returned under this Agreement; (ii) in the case of any installed Equipment, that Equipment shall be valued on an installed basis; and (iii) costs of removal from current location shall not be a deduction from such valuation. If Lessor and Lessee are unable to agree on the Fair Market Value at least one hundred thirty-five (135) days before lease expiration, Lessor shall appoint an independent appraiser (reasonably acceptable to Lessee) to determine Fair Market Value, and that determination shall be final, binding and conclusive. Lessee shall bear all costs associated with any such appraisal. (c) Lessee shall be deemed to have waived this option unless it provides Lessor with written notice of its irrevocable election to exercise the same within fifteen (15) days after Fair Market Value is determined (by agreement or appraisal). 6 XVIII. MISCELLANEOUS: (A) LESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS LEASE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. (b) Unless and until Lessee exercises its rights under Section XVII above, nothing herein contained shall give or convey to Lessee any right, title or interest in and to any Equipment except as a lessee. Any cancellation or termination by Lessor, pursuant to the provision of this Agreement, any Schedule, supplement or amendment hereto, or the lease of any Equipment hereunder, shall not release Lessee from any then outstanding obligations to Lessor hereunder. All Equipment shall at all times remain personal property of Lessor regardless of the degree of its annexation to any real property and shall not by reason of any installation in, or affixation to, real or personal property become a part thereof. (c) Time is of the essence of this Agreement. Lessor's failure at any time to require strict performance by Lessee of any of the provisions hereof shall not waive or diminish Lessor's right thereafter to demand strict compliance therewith. Lessee agrees, upon Lessor's request, to execute any instrument necessary or expedient for filing, recording or perfecting the interest of Lessor. All notices required to be given hereunder shall be deemed adequately given if sent by registered or certified mail to the addressee at its address stated herein, or at such other place as such addressee may have designated in writing and shall be deemed effective when sent. This Agreement and any Schedule and Annexes thereto constitute the entire agreement of the parties with respect to the subject matter hereof. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO. LESSOR [SIG] -------------- LESSEE [SIG] -------------- (d) In case of a failure of Lessee to comply with any provision of this Agreement, Lessor shall have the right, but shall not be obligated, to effect such compliance, in whole or in part; and all moneys spent and expenses and obligations incurred or assumed by Lessor in effecting such compliance shall constitute additional rent due to Lessor within five days after the date Lessor sends notice to Lessee requesting payment. Lessor's effecting such compliance shall not be a waiver of Lessee's default. (e) In the event that Lessee is declared in a default under this Agreement, any rent or other amount not paid to Lessor when due hereunder shall bear interest, both before and after any judgment or termination hereof, at the lesser of eighteen percent (18%) per annum or the maximum rate allowed by law. Any provisions in this Agreement and any Schedule which are in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL CORPORATION MORTON METALCRAFT CO. By: /s/ James R. Newman By: /s/ Daryl R. Lindemann --------------------------------- ----------------------------- Name: James R. Newman Name: Daryl R. Lindemann ------------------------------- --------------------------- Title: Sr. Credit Analyst Title: Vice President ------------------------------ -------------------------- 7 CORPORATE LESSEE'S BOARD OF DIRECTORS RESOLUTION The undersigned hereby certifies: (i) that she/he is the Secretary of MORTON METALCRAFT CO.; (ii) that the following is a true and correct copy of resolutions duly adopted at a meeting of the Board of Directors of said Corporation duly held on the 7th day of August, 1996; and (iii) that said resolutions have not been amended, rescinded, modified or revoked, and are in full force and effect: "RESOLVED, that each of the officers of this Corporation, whose name appears below: William D. Morton - -------------------------- ----------------------------------- President Treasurer Daryl R. Lindemann - -------------------------- ----------------------------------- Vice President Secretary or the duly elected or appointed successor in office of any or all of them, be, and herby is, authorized and empowered in the name and on behalf of this Corporation to enter into, execute and deliver a master lease agreement with GENERAL ELECTRIC CAPITAL CORPORATION ("LESSOR") as Lessor, providing for the leasing to (or sale and leaseback by) this Corporation, from time to time, of certain equipment, and further providing for this Corporation to indemnify said Lessor against certain occurrences and against the loss of contemplated tax treatment; and FURTHER RESOLVED, that each officer of this Corporation be, and hereby is, authorized and empowered in the name and on behalf of this Corporation to enter into, execute and deliver any documents and to do and perform all other acts and deeds which may be necessary or appropriate to effectuate the lease (or sale and leaseback) of equipment from Lessor; and FURTHER RESOLVED, that the Lessor may rely upon the aforesaid resolutions until receipt by it of written notice of any change. IN WITNESS WHEREOF, I have set my hand and affixed the seal of said Corporation this 7th day of August, 1996. (CORPORATE SEAL) Daryl R. Lindemann - -------------------------- Secretary EX-10.14 15 EX-10.14 1 EXHIBIT 10.14 CORPORATE GUARANTY Date: August 7, 1996 General Electric Capital Corporation 303 International Circle Suite 300 Hunt Valley, MARYLAND 21031 To induce you to enter into, purchase or otherwise acquire, now or at any time hereafter, any promissory notes, security agreements, chattel mortgages, pledge agreements, conditional sale contracts, lease agreements, and/or any other documents or instruments evidencing or relating to, any lease, loan, extension of credit or other financial accommodation (collectively "Account Documents" and each an "Account Document") to MORTON METALCRAFT CO., a corporation organized and existing under the laws of the State of Illinois ("Customer"), but without in any way binding you to do so, the undersigned, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby guarantee to you, your successors and assigns, the due regular and punctual payment of any sum or sums of money which the Customer may owe to you now or at any time hereafter, whether evidenced by an Account Document, on open account or otherwise, and whether it represents principal, interest, rent, late charges, indemnities, an original balance, an accelerated balance, liquidated damages, a balance reduced by partial payment, a deficiency after sale or other disposition of any leased equipment, collateral or security, or any other type of sum of any kind whatsoever that the Customer may owe to you now or at any time hereafter, and does hereby further guarantee to you, your successors and assigns, the due, regular and punctual performance of any other duty or obligation of any kind or character whatsoever that the Customer may owe to you now or at any time hereafter (all such payment and performance obligations being collectively referred to as "Obligations"). Undersigned does hereby further guarantee to pay upon demand all losses, costs, attorneys' fees and expenses which may be suffered by you by reason of Customer's default or default of the undersigned. This Guaranty is a guaranty of prompt payment and performance (and not merely a guaranty of collection). Nothing herein shall require you to first seek or exhaust any remedy against the Customer, its successors and assigns, or any other person obligated with respect to the Obligations, or to first foreclose, exhaust or otherwise proceed against any leased equipment, collateral or security which may be given in connection with the Obligations. It is agreed that you may, upon any breach or default of the Customer, or at any time thereafter, make demand upon the undersigned and receive payment and performance of the Obligations, with or without notice or demand for payment or performance by the Customer, its successors or assigns, or any other person. Suit may be brought and maintained against the undersigned, at your election, without joinder of the Customer or any other person as parties thereto. The obligations of each signatory to this Guaranty shall be joint and several. The undersigned agrees that its obligations under this Guaranty shall be primary, absolute, continuing and unconditional, irrespective of and unaffected by any of the following actions or circumstances (regardless of any notice to or consent of the undersigned): (a) the genuineness, validity, regularity and enforceability of the Account Documents or any other document; (b) any extension, renewal, amendment, change, waiver or other modification of the Account Documents or any other document; (c) the absence of, or delay in any action to enforce the Account Documents, this Guaranty or any other document;(d) your failure or delay in obtaining any other guaranty of the Obligations (including, without limitation, your failure to obtain the signature of any other guarantor hereunder); (e) the release of, extension of time for payment or performance by, or any other indulgence granted to the Customer or any other person with respect to the Obligations by operation of law or otherwise; (f) the existence, value, (with or without substitution) of, time, place and manner of any sale or other disposition of any leased equipment, collateral or security given in connection with the Obligations, or any other impairment (whether intentional or negligent, by operation of law or otherwise) of the rights of the undersigned; (g) the Customer's voluntary or involuntary bankruptcy assignment for the benefit of creditors, reorganization, or similar proceedings affecting the Customer or any of its assets; or (h) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor. This Guaranty may be terminated upon delivery to you (at your address shown above) of a written termination notice from the undersigned. However, as to all Obligations (whether matured, unmatured, absolute, contingent or otherwise) incurred by the Customer prior to your receipt of such written termination notice (and regardless of any subsequent amendment, extension or other modification which may be made with respect to such Obligations), this Guaranty shall nevertheless continue and remain undischarged until all such Obligations are indefeasibly paid and performed in full. The undersigned agrees that this Guaranty shall remain in full force and effect or be reinstated (as the case may be) if at any time payment or performance of any of the Obligations (or any party thereof) is rescinded, reduced or must otherwise be restored or returned by you, all as though such payment or performance had not been made. If, by reason of any bankruptcy, insolvency orsimilar laws effecting the rights of creditors, you shall be prohibited from exercising any of your rights or remedies against the Customer or any other person or against any property, then, as between you and the undersigned, such prohibition shall be of no force and effect, and you shall have the right to make demand upon, and receive payment from, the undersigned of all amounts and other sums that would be due to you upon a default with respect to the Obligations. Notice of acceptance of this Guaranty and of any default by the Customer or any other person is hereby waived. Presentment, protest, demand, and notice of protest, demand and dishonor of any of the Obligations, and the exercise of possessory, collection or other remedies for the Obligations, are hereby waived. The undersigned warrants that it has adequate means to obtain from the Customer on a continuing basis financial data and other information regarding the Customer and is not relying upon you to provide any such data or other information. Without limiting the foregoing, notice of adverse change in the Customer's financial condition or of any other fact which might materially increase the risk of the undersigned is also waived. 2 All settlements, compromises, accounts stated and agreed balances made in good faith between the Customer, its successors or assigns, and you shall be binding upon and shall not affect the liability of the undersigned. Until such time as all obligations have been paid in full, the undersigned hereby irrevocably and unconditionally waives and relinquishes all statutory, contractual, common law, equitable and all other claims against the Customer, any other obligor for any of the Obligations, any collateral therefor, or any other assets of the Customer or any such other obligor, for subrogation, reimbursement, exoneration, contribution, indemnification, setoff or other recourse in respect of sums paid or payable to you by the undersigned hereunder, and the undersigned hereby further irrevocably and unconditionally waives and relinquishes any and all other benefits which it might otherwise directly or indirectly receive or be entitled to receive by reason of any amounts paid by, or collected or due from, it, the Customer or any other obligor for any of the Obligations, or realized from any of their respective assets. THE UNDERSIGNED HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN US RELATING TO THE SUBJECT MATTER HEREOF OR THEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN US. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, OR ANY RELATED DOCUMENTS. IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. As used in this Guaranty, the word "person" shall include any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or any government or any political subdivision thereof. This Guaranty is intended by the parties as a final expression of the guaranty of the undersigned and is also intended as a complete and exclusive statement of the terms thereof. No course of dealing, course of performance or trade usage, nor any paid evidence of any kind, shall be used to supplement or modify any of the terms hereof. Nor are there any conditions to the full effectiveness of this Guaranty. This Guaranty and each of its provisions may only be waived, modified, varied, released, terminated or surrendered, in whole or in part, by a duly authorized written instrument signed by you. No failure by you to exercise your rights hereunder shall give rise to any estoppel against you, or excuse the undersigned from performing hereunder. Your waiver of any right to demand performance hereunder shall not be a waiver of any subsequent or other right to demand performance hereunder. This Guaranty shall bind the undersigned's successors and assigns and the benefits thereof shall extend to and include your successors and assigns. In the event of default hereunder, you may at any time inspect undersigned's records, or at your option, undersigned shall furnish you with a current independent audit report. If any provisions of this Guaranty are in conflict with any applicable statute, rule or law, then such provisions shall be deemed null and void to the extent that they may conflict therewith, but without invalidating any other provisions hereof. Each signatory on behalf of a corporate guarantor warrants that he had authority to sign on behalf of such corporation and by so signing, to bind said guarantor corporation hereunder. IN WITNESS WHEREOF, this Guaranty is executed the day and year above written. MORTON METALCRAFT HOLDING CO. By: Daryl R. Lindemann -------------------------------- (Signature) Title: Vice President -------------------------------- (Officer's Title) ATTEST: William D. Morton ------------------------------ Secretary/Assistant Secretary 3 (3/91) STOCKHOLDERS CERTIFICATION We, the undersigned, being all of the stockholders of MORTON METALCRAFT HOLDING CO. ("GUARANTOR"), the corporation which is about to execute a guaranty of the obligations of MORTON METALCRAFT CO. ("CUSTOMER") in favor of GENERAL ELECTRIC CAPITAL CORPORATION (the "GECC CORPORATION"), do hereby certify to such GECC Corporation that it is to the benefit of the Guarantor to execute such guaranty, that the benefit to be received by the Guarantor from such guaranty is reasonably worth the obligations thereby guaranteed, that the Guarantor is authorized to execute said guaranty, and that the persons executing the same on behalf of the Guarantor are duly authorized to do so in their named capacity and to thereby bind the Guarantor to the terms of said instrument as therein set forth. Dated: , 19 (L.S.) -------------------------- -- ----------------------------- (L.S.) ----------------------------- (L.S.) ----------------------------- CERTIFIED RESOLUTION The undersigned hereby certifies that he is Secretary of MORTON METALCRAFT HOLDING CO., that the following resolution was passed at a meeting of the Board of Directors of said corporation held on August 7, 1996 duly called, a quorum being present, that said resolution has not since been revoked or amended, and that the form of guaranty referred to therein is the form shown attached hereto: "RESOLVED that it is to the benefit of this corporation that it execute a guaranty of the obligations of MORTON METALCRAFT CO. ("CUSTOMER") to GENERAL ELECTRIC CAPITAL CORPORATION (the "GECC CORPORATION") and that the benefit to be received by this corporation from such guaranty is reasonably worth the obligations thereby guaranteed, and further that such guaranty shall be substantially in the form annexed to these minutes, and further that the President and Vice President (Title of Officers) of this corporation are authorized to execute such guaranty on the behalf of this corporation." WITNESS my hand and the seal of this corporation on this 7th day of August, 1996. Daryl R. Lindemann ------------------------------- [Seal] Secretary CERTIFICATION AND REPRESENTATION BY SIGNING OFFICERS We, the undersigned, William D. Morton and Daryl R. Lindemann, being the President and Vice President of MORTON METALCRAFT HOLDING CO., the corporation which executed the guaranty attached hereto, hereby jointly and severally certify and represent to GENERAL ELECTRIC CAPITAL CORPORATION that each of the undersigned executed the guaranty for and on behalf of said corporation and that in so executing said instrument the undersigned were duly authorized to do so in their named capacity as officers and by so executing to hereby bind said guarantor corporation to the terms of said instrument as therein set forth. William D. Morton (L.S.) Daryl R. Lindemann (L.S.) - -------------------------------- ----------------------------- Date: August 7, 1996 Date: August 7, 1996 ------------------------------- -------------------------------- EX-10.15 16 EX-10.15 1 EXHIBIT 10.15 SPLIT DOLLAR INSURANCE AGREEMENT THIS AGREEMENT made and entered into as of the 3rd day of February, 1995, by and between MORTON METALCRAFT CO., an Illinois corporation, with principal offices and place of business in the State of Illinois in Morton, Illinois (hereinafter referred to as the "Corporation"), and WILLIAM D. MORTON II, an individual residing at 105 Forrest View Road, Morton, Illinois 61550 (hereinafter referred to as the "Employee"); WITNESSETH: WHEREAS, the Employee is employed by the Corporation as President/CEO of the Corporation; and WHEREAS, the Employee, on November 28, 1994, applied to John Hancock Mutual Life Insurance Company (hereinafter referred to as the "Insurer") for life insurance in the specified amount of $2,000,000; and WHEREAS, pursuant to the aforesaid application, the Insurer issued its modified premium whole life insurance policy with additional insurance protection rider in the initial face amount of $2,000,000 dated February 3, 1995 as Policy No. 67090421 (hereinafter the "Policy"); and WHEREAS, the Corporation, in recognition of the Employee's management skills, knowledge of the Corporation's business and contributions to its earnings and profits, desires to obtain key executive death protection for its estimated losses in the event of the Employee's premature death; and WHEREAS, the Corporation is to receive, by way of an assignment, a limited Policy ownership interest in the Policy on the life of the Employee and has agreed to pay premiums under the method described herein; and WHEREAS, the Employee agrees to make the Policy subject to the limited Policy ownership interest of the Corporation in exchange for the Corporation's willingness to pay a portion of the Policy premiums due on the Policy; and WHEREAS, this Agreement is intended to qualify as a split dollar life insurance plan as described in Revenue Ruling 64-328; NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein, the parties hereto agree as follows: 1. Policy Subject to this Agreement; Term. The Policy shall be subject to the terms and conditions of this Agreement during the 2 term hereof. The term of this Agreement shall commence on February 3, 1995 and shall expire February 2, 2015, unless earlier terminated as hereafter provided. 2. Beneficiary Provisions. The beneficiary provisions of the Policy shall provide that upon the death of the Employee the proceeds shall be paid as follows: A. Amount to Corporation. To the Corporation there shall be paid $1,100,000, or the total proceeds of less than that amount. The Employee shall not have the right to change the beneficiary as to this portion of the proceeds except with the consent of the Corporation, and this designation may be accomplished pursuant to an assignment of an interest in the Policy as described below. B. Amount to Employee's Beneficiaries. Any balance of the proceeds shall be paid to the beneficiary or beneficiaries noted by the Employee in the Policy, and if no such beneficiary is noted, to the Employee's spouse, if living, otherwise to the Executor or Administrator of the estate of the Employee. 3. Ownership. Although the consent of the Corporation is required for any change of beneficiary as to the portion of the proceeds payable to Corporation as provided in Section 2, and although the exercise of ownership rights is subject to the further restrictions provided in Sections 5 and 7, all rights of ownership of the Policy continue in the Employee. 4. Premium Payments. The premiums on the Policy shall be paid by the Corporation. Such premium payments shall be allocated between the Corporation and the Employee as follows: A. Corporation's Share. The Corporation's share of the premium shall be equal to the lesser of (i) the economic benefit of $1,100,000 of one-year term insurance or (ii) the amount of planned premium due on the Policy. Such economic benefit shall be computed in accordance with the procedures specified in Internal Revenue Service Revenue Rulings 64-328 and 66-110, using the government "P.S. 58" rates set forth in Revenue Rulings 55-747 and 66-110. B. Employee's Share. The Employee's share of the premium shall equal the planned premium pursuant to the Policy less the share of the planned premium allocated to the Corporation in accordance with subsection 4(A) above. The Employee shall reimburse the Corporation for the amount of the premium allocated to the Employee at the time of each premium payment by the Corporation. Solely as an administrative convenience, the Employee may request that the Corporation make direct payment to the Insurer of the entire premium due and charge the Employee with earned income in an amount equal -2- 3 to that portion of the premium allocated to the Employee in this subsection. 5. Assignment of Limited Policy Ownership Interest. The Employee does hereby assign, transfer and set over to the Corporation, its successors and assigns, a specific and limited policy ownership interest in the Policy in consideration of the premium payment paid by the Corporation as required hereunder. 6. Corporation's Policy Interest Defined. The limited policy ownership interest hereby assigned by the Employee to the Corporation is that in the event of the Employee's death during the term, the Corporation's policy interest shall be an amount equal to $1,100,000 of death protection under the limited policy ownership created hereunder as set forth in Section 2 hereof. 7. Restriction on Policy Loans and Surrenders. It is understood and agreed that all cash values accruing to the Policy are the sole property of the Employee and that the Corporation has no interest in or claim to such values. The Corporation's interest in the Policy is limited to its beneficial interest specified in Sections 2 and 6 hereof. It is further provided, however, that while this Agreement is in force neither party to the Agreement shall have the right to borrow, directly or indirectly against the Policy's values, to assign the Policy as collateral (except the assignment from the Employee to the Corporation to secure the death benefit payable to the Corporation hereunder) or to surrender the Policy in full or in part. 8. Possession of Policy. If the above-described Policy is in the possession of the Corporation, the Corporation will, upon notice and request, forward the Policy without unreasonable delay to the Insurer if required by the Insurer for any Policy transaction or change. 9. Insurer Action. The Insurer shall be bound only by the provisions of and endorsements on the Policy, and any payments made or actions taken by it in accordance therewith shall fully discharge it from all claims, suits and demands of all persons whatsoever. It shall in no way be bound by or be deemed to have notice of the provisions of this Agreement. 10. Termination of the Agreement. This Agreement shall terminate on the first to occur of the following: (a) expiration of the term of this Agreement as set forth in Section 1 hereof; (b) while the Employee is living by written notice by either the Corporation or the Employee to the other; (c) upon termination of the Employee's employment with the Corporation. Upon termination of this Agreement, the Corporation shall receive an amount equal to any unearned premium attributable to the premiums allocated to the Corporation at the time of such termination and the Corporation's interest in the Policy shall thereafter cease. -3- 4 11. Special Provisions. The following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974: A. The named fiduciary: The Corporation. B. The funding policy under this Agreement is that all premiums on the Policy be remitted to the Insurer when due. C. Direct payment by the Insurer is the basis of payment of benefits under this Agreement, with those benefits in turn being based on the payment of premiums as provided in this Agreement. D. The claims procedure under this Agreement shall be as follows: (1) If for any reason a claim for benefits under this Agreement is denied by the Corporation, it shall deliver to the claimant a written explanation setting forth the specific reason for the denial, pertinent references to the Agreement section on which the denial is based, such other data as may be pertinent and information on the procedures to be followed by the claimant in obtaining a review of his claim, all written in a manner calculated to be understood by the claimant. For this purpose: (A) The claimant's claim shall be deemed filed when presented in writing to the Corporation. (B) The Corporation's explanation shall be in writing delivered to the claimant within ninety (90) days of the date the claim is filed. (2) The claimant shall have sixty (60) days following his receipt of the denial of the claim to file with the Corporation a written request for review of the denial. For such review, the claim or his representative may submit pertinent documents and written issues and comments. (3) The Corporation shall decide the issue on review and furnish the claimant with a copy within sixty (60) days of receipt of the claimant's request for review of his claim. The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the claimant, as -4- 5 well as specific reference to the pertinent Agreement provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such sixty (60) days, the claim shall be deemed denied on review. 12. Binding Effect. This Agreement shall be binding upon the parties hereto, their respective heirs, assigns, successors, executors and administrators. 13. Entire Agreement. This Agreement constitutes the entire agreement between the parties in connection with the subject matter hereof. 14. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Illinois. 15. Amendments. Amendments may be made to this Agreement by a written agreement signed by each of the parties and attached hereto. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ATTEST: MORTON METALCRAFT CO. By: Daryl R. Lindemann By: William D. Morton II ----------------------- ----------------------------- Daryl R. Lindemann, William D. Morton II, Secretary President William D. Morton --------------------------------- William D. Morton II -5- EX-10.16 17 EX-10.16 1 EXHIBIT 10.16 SPLIT DOLLAR ASSIGNMENT ----------------------- INSURER: John Hancock Mutual Life Insurance Company INSURED: William D. Morton II POLICY NO.: 67090421 THIS ASSIGNMENT is made by the undersigned Owner effective on the 3rd day of February, 1995. DEFINITIONS: A. "Assignee": Morton Metalcraft Co., an Illinois corporation, with principal offices at 1021 West Birchwood, Morton, Illinois 61550-0429. B. "Owner": William D. Morton II C. "Policy": The following policy of insurance issued by the Insurer on the life the Insured, together with any supplementary contracts issued in conjunction therewith: Policy No.: 67090421 Face Amount: $2,000,000 D. "Policy Interest": The Assignee's Policy Interest shall be as set forth in the Split Dollar Insurance Agreement. The Insurer shall be entitled to rely on the Assignee's certification of the amount of its Policy Interest. E. "Split Dollar Agreement": That certain Agreement of even date herewith, between the Owner and the Assignee. The Insurer is not bound by nor deemed to have notice of the provisions of the Split Dollar Insurance Agreement. RECITALS: A. Under the Split Dollar Insurance Agreement, the Assignee has agreed to join with the Owner in payment of premiums on the Policy. B. In consideration of such premium payments by the Assignee, the Owner here intends to grant the Assignee certain limited interests in the Policy. THEREFORE, for value received, it is agreed: 2 1. Assignment. The Owner hereby assigns, transfers and sets over to the Assignee, its successors and assigns, the following specific rights in the Policy and subject to the following terms and conditions: A. The right to realize against the cash value of the Policy an amount equal to the unearned portion of the premiums paid by it and the amount in the unearned premium account in the event of the Policy's surrender by the Owner. B. The right to realize against proceeds of the Policy, to the extent of its Policy Interest, in the event of the Insured's death. 2. Retained Rights. Except as expressly provided in Section 1, the Owner retains all rights under the Policy including, but not limited to, the exclusive right to surrender and to borrow against the Policy without the consent of the Assignee. 3. Insurer. The Insurer is hereby authorized to recognize, and is fully protected in recognizing: A. The claims of the Assignee to rights hereunder, without investigating the reasons for such action by the Assignee, or the validity of the amount of such claims. B. The Owner's request for surrender of the Policy without the consent of the Assignee. Upon the surrender, the Policy shall be terminated and of no further force or effect. 4. Release of Assignment. Upon payment to the Assignee of its Policy Interest, the Assignee shall execute a written release of this Assignment. IN WITNESS WHEREOF, the Owner and Assignee have executed this Assignment on the date first above written. William D. Morton II, Owner ---------------------------------- William D. Morton II, Owner ATTEST: MORTON METALCRAFT CO., Assignee By: Daryl R. Lindemann By: William D. Morton II ---------------------- -------------------------------- Daryl R. Lindemann, William D. Morton II, Secretary President -2- 3 STATE OF ILLINOIS ) ) SS. COUNTY OF ________ ) I, the undersigned authority, in and for said County, in said State, hereby certify that William D. Morton II whose name is signed to the foregoing assignment and who is known to me, acknowledged before me on this day that, being informed of the contents of the assignment, William D. Morton II executed the same voluntarily on the day the same bears date. Given under my hand and official seal this 3rd day of February, 1995. [SIG] --------------------------------- Notary Public ACCEPTANCE - ------------------------------- "OFFICAL SEAL" Judith A. Hasel Notary Public State of Illinois My commission Expires 07/08/97 - ------------------------------- This Assignment was received and recorded by John Hancock Mutual Life Insurance Company on the 10 day of April, 1995. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By: [SIG] ------------------------------- Its Security ------------------------------- - 3 - EX-10.17 18 EX-10.17 1 EXHIBIT 10.17 SPLIT DOLLAR INSURANCE AGREEMENT -------------------------------- THIS AGREEMENT made and entered into as of the 10th day of October, 1993, by and between MORTON METALCRAFT CO., an Illinois corporation, with principal offices and place of business in the State of Illinois in Morton, Illinois (hereinafter referred to as the "Corporation"), and WILLIAM D. MORTON, II, an individual residing at 105 Forrest View Rd., Morton, Illinois 61550 (hereinafter referred to as the "Employee"); WITNESSETH: WHEREAS, the Employee is employed by the Corporation as President of the Corporation; and WHEREAS, the Employee, on September 14, 1993, applied to Protective Life Insurance Company (hereinafter referred to as the "Insurer") for life insurance in the specified amount of $300,000; and WHEREAS, pursuant to the aforesaid application, the Insurer issued its flexible premium adjustable life insurance policy under the Insurer's program known as Patriot 100 Plus in the initial face amount of $300,000 dated October 10, 1993 as Policy No. B00212921 (hereinafter the "Policy"); and WHEREAS, the Corporation in recognition of the Employee's invaluable management skills, knowledge of the Corporation's business and contributions to earnings and profits, desires to obtain key executive death protection for its estimated losses in the event of the Employee's premature death; and WHEREAS, the Corporation agrees to receive, by way of an assignment, a limited Policy ownership interest in the Policy on the life of the Employee and to pay premiums under the method described herein; and WHEREAS, the Employee agrees to make the Policy subject to this Agreement in exchange for the Employer's willingness to pay a portion of the Policy premiums due on the Policy; and WHEREAS, this Agreement is intended to qualify as a split dollar life insurance plan as described in Revenue Ruling 64-328; NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein, the parties hereto agree as follows: 1. Policy Subject to This Agreement; Term. The Policy shall be subject to the terms and conditions of this Agreement during the term hereof. The term of this Agreement shall commence 2 on October 10, 1993 and shall expire October 10, 2012, unless earlier terminated as hereafter provided. 2. Premium Payments. The Corporation has paid to the Insurer an initial premium on the Policy of $3,500.00. The Corporation agrees to continue to pay eighteen (18) additional annual premiums of $3,500.00 each, which represents the cumulative increasing P.S. 58 costs for the assigned death benefit to the Corporation of $229,548 during the term of this Agreement, averaged and levelized over a period of nineteen (19) years commencing on the date of issuance of the Policy, for a term of nineteen (19) years of protection. The annualized amount of premiums is reflected in Column 1 on Exhibit A attached hereto and made a part hereof by this reference. Employee agrees to pay any remaining portion of the planned periodic premiums due with respect to the Policy. The Policy may, at the Employee's discretion, provide for the waiver of premium on the Employee's disability. If it does so provide, the cost thereof shall be borne by the Employee, the prior provisions of this Section 2 to the contrary notwithstanding. 3. Assignment of Limited Policy Ownership Interest. The Employee does hereby assign, transfer and set over to the Corporation, its successors and assigns, a specific and limited policy ownership interest in the Policy in consideration of the premium payment paid by the Corporation as required hereunder. 4. Corporation's Policy Interest Defined. The limited policy ownership interest hereby assigned by the Employee to the Corporation is as follows: A. Upon death of Employee. In the event of the Employee's death during the term, the Corporation's policy interest shall be an amount equal to $229,548 of death protection under the limited policy ownership created hereunder, increased by the amount, if any, of unearned premiums resulting from the pre-payment of premiums by the Corporation plus any amount in the "unearned premium account" as hereinafter defined. Any remaining death proceeds shall be payable to Employee's designated beneficiary pursuant to the Policy. For purposes of this Agreement, the "unearned premium account" means the amount by which the Corporation's levelized premium payments required pursuant to this Agreement exceeds the amount of the P.S. 58 costs for the assigned death benefits accrued during the term of the Policy until the date of termination of the Policy, as reflected in Column 2 of Exhibit A attached. B. Upon Cancellation or Termination of the Policy. In the event the Employee elects to surrender or cancel the Policy during the term, the Corporation shall receive such share of the Policy cash values as -2- 3 are attributable to the Corporation's prepaid premiums and any unearned premium account. In the event such cash values are insufficient to repay any amount due the Corporation, the Employee agrees to pay any difference to THE Corporation. No further benefits shall be payable to the Corporation hereunder. Any remaining cash value shall inure to the benefit of the Employee. 5. Employee's Retained Incidents of Ownership. Except as to the limited policy ownership rights specifically granted the Corporation herein, Employee retains all incidents of ownership (including the right to surrender or cancel the Policy and the right to borrow or withdraw against the Policy). Employee's right to borrow shall be limited to an amount equal to the maximum loan value reduced by any prepaid premiums and unearned premium account of the Corporation. Employee's right to withdraw from the Policy cash values under the Policy's partial surrender provisions shall be limited to the allowable partial surrender value under the Policy reduced by any prepaid premiums and any unearned premium account in favor of the Corporation. In the event Employee's Policy loans and accrued interest or, alternatively, the sum of Employee's cash withdrawals, reduce the Corporation's earlier-stated death benefit, the Employee agrees to contribute to the Policy such sums as are required to maintain the integrity of such death benefits. 6. Possession of Policy. If the above-described Policy is in the possession of the Corporation, the Corporation will, upon notice and request, forward the Policy without unreasonable delay to the Insurer if required by the Insurer for any Policy transaction or change. 7. Insurer Action. The Insurer shall be bound only by the provisions of and endorsements on the Policy, and any payments made or actions taken by it in accordance therewith shall fully discharge it from all claims, suits and demands of all persons whatsoever. It shall in no way be bound by or be deemed to have notice of the provisions of this Agreement. 8. Release of Corporation's Limited Ownership Interest. Upon Employee's request and upon full payment to the Corporation of its Policy interest, as earlier defined, the Corporation agrees to release and reassign its ownership rights to the Policy to the Employee. 9. Premium Waiver. If the Policy contains a disability waiver of premium provision or waiver of monthly deduction, any waived amounts shall be considered for all purposes of this Agreement as having been paid by the Employee and all provisions herein relating to Policy cash values and death proceeds shall be construed accordingly should such premium waiver become effective. - 3 - 4 10. Termination of the Agreement. This Agreement shall terminate during Employee's lifetime on the first to occur of the following: (a) expiration of the term of this Agreement as set forth in Section 1 hereof; (b) surrender of the Policy by the Employee, who has the sole and exclusive right of surrender; (c) by written notice by either the Corporation or the Employee to the other; (d) upon termination of Employee's employment. Upon termination of this Agreement, the Corporation shall receive an amount equal to the Corporation's prepaid premiums and any unearned premium account at the time of such termination and the Corporation's interest in the Policy shall thereafter cease. 11. Special Provisions. The following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974: A. The named fiduciary: The Corporation. B. The funding policy under this Agreement is that all premiums on the Policy be remitted to the Insurer when due. C. Direct payment by the Insurer is the basis of payment of benefits under this Agreement, with those benefits in turn being based on the payment of premiums as provided in this Agreement. D. The claims procedure under this Agreement shall be as follows: (1) If for any reason a claim for benefits under this Agreement is denied by the Corporation, it shall deliver to the claimant a written explanation setting forth the specific reason for the denial, pertinent references to the Agreement section on which the denial is based, such other data as may be pertinent and information on the procedures to be followed by the claimant in obtaining a review of his claim, all written in a manner calculated to be understood by the claimant. For this purpose: (A) The claimant's claim shall be deemed filed when presented in writing to the Corporation. (B) The Corporation's explanation shall be in writing delivered to the claimant within ninety (90) days of the date the claim is filed. (2) The claimant shall have sixty (60) days - 4 - 5 following his receipt of the denial of the claim to file with the Corporation a written request for review of the denial. For such review, the claim or his representative may submit pertinent documents and written issues and comments. (3) The Corporation shall decide the issue on review and furnish the claimant with a copy within sixty (60) days of receipt of the claimant's request for review of his claim. The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the claimant, as well as specific reference to the pertinent Agreement provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such sixty (60) days, the claim shall be deemed denied on review. 12. No Contract of Employment. Neither this Agreement, nor any provisions hereof, nor any action taken by the Corporation pursuant hereto, shall be construed as giving to the Employee the right to be retained in the employ of the Corporation, nor shall it limit or restrict the right of the Corporation to terminate the employmennt of the Employee with or without cause. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ATTEST: MORTON METALCRAFT CO. By: By: ---------------------- -------------------------------- Daryl R. Lindemann, William D. Morton II, Secretary President ----------------------------------- William D. Morton II - 5 - EX-10.18 19 EX-10.18 1 EXHIBIT 10.18 SPLIT DOLLAR ASSIGNMENT INSURER: Protective Life Insurance Company INSURED: William D. Morton, II POLICY NO.: B00212921 THIS ASSIGNMENT is made by the undersigned Owner effective this 10th day of October, 1993. DEFINITIONS: A. "Assignee": Morton Metalcraft Co., an Illinois corporation, with principal offices at 1021 West Birchwood, Morton, Illinois 61550-0429. B. "Owner": William D. Morton, II. C. "Policy": The following policy of insurance issued by the Insurer on the life the Insured, together with any supplementary contracts issued in conjunction therewith: Policy No.: B00212921 Face Amount: $300,000.00 D. "Policy Interest": The Assignee's Policy Interest shall be as set forth in the Split Dollar Insurance Agreement. The Insurer shall be entitled to rely on the Assignee's certification of the amount of its Policy Interest. E. "Split Dollar Agreement": That certain Agreement of even date herewith, between the Owner and the Assignee. The Insurer is not bound by nor deemed to have notice of the provisions of the Split Dollar Insurance Agreement. RECITALS: A. Under the Split Dollar Insurance Agreement, the Assignee has agreed to join with the Owner in payment of premiums on the Policy. B. In consideration of such premium payments by the Assignee, the Owner here intends to grant the Assignee certain limited interests in the Policy. THEREFORE, for value received, it is agreed: 2 1. Assignment. The Owner hereby assigns, transfers and sets over to the Assignee, its successors and assigns, the following specific rights in the Policy and subject to the following terms and conditions: A. The right to realize against the cash value of the Policy an amount equal to the unearned portion of the premiums paid by it and the amount in the unearned premium account in the event of the Policy's surrender by the Owner. B. The right to realize against proceeds of the Policy, to the extent of its Policy Interest, in the event of the Insured's death. 2. Retained Rights. Except as expressly provided in Section 1, the Owner retains all rights under the Policy including, but not limited to, the exclusive right to surrender and to borrow against the Policy without the consent of the Assignee. 3. Insurer. The Insurer is hereby authorized to recognize, and is fully protected in recognizing: A. The claims of the Assignee to rights hereunder, without investigating the reasons for such action by the Assignee, or the validity of the amount of such claims. B. The Owner's request for surrender of the Policy without the consent of the Assignee. Upon the surrender, the Policy shall be terminated and of no further force or effect. 4. Release of Assignment. Upon payment to the Assignee of its Policy Interest, the Assignee shall execute a written release of this Assignment. IN WITNESS WHEREOF, the Owner and Assignee have executed this Assignment on the date first above written. William D. Morton ----------------------------------- William D. Morton, II, Owner ATTEST: MORTON METALCRAFT CO., Assignee By: Daryl R. Lindemann By: William D. Morton -------------------------- -------------------------------- Daryl R. Lindemann, William D. Morton, II, Secretary President - 2 - 3 STATE OF ILLINOIS ) ) SS. COUNTY OF TAZEWELL ) I, the undersigned authority, in and for said County, in said State, hereby certify that William D. Morton, II whose name is signed to the foregoing assignment and who is known to me, acknowledged before me on this day that, being informed of the contents of the assignment, William D. Morton, II executed the same voluntarily on the day the same bears date. Given under my hand and official seal this 11th day of October, 1993. Judith A. Heisel - ------------------------------------ ----------------------------------- "OFFICIAL SEAL" Notary Public JUDITH A. HEISEL NOTARY PUBLIC, STATE OF ILLINOIS MY COMMISSION EXPIRES 07/08/97 - ------------------------------------- ACCEPTANCE This Assignment was received and recorded by Protective Life Insurance Company on the 23rd day of February, 1995. PROTECTIVE LIFE INSURANCE COMPANY By: Denise M. Johnson -------------------------------- Its Policy Service Analyst -------------------------------- - 3 - EX-10.19 20 EX-10.19 1 EXHIBIT 10.19 SPLIT DOLLAR INSURANCE AGREEMENT THIS AGREEMENT made and entered into as of the 10th day of October, 1993, by and between MORTON METALCRAFT CO., an Illinois corporation, with principal offices and place of business in the State of Illinois in Morton, Illinois (hereinafter referred to as the "Corporation"), and DARYL R. LINDEMANN, an individual residing at 52 Maple Ridge, Morton, Illinois 61550 (hereinafter referred to as the "Employee"); WITNESSETH: WHEREAS, the Employee is employed by the Corporation as _____________ ______________________ of the Corporation; and WHEREAS, the Employee, on September 14, 1993, applied to Protective Life Insurance Company (hereinafter referred to as the "Insurer") for life insurance in the specified amount of $300,000; and WHEREAS, pursuant to the aforesaid application, the Insurer issued its flexible premium adjustable life insurance policy under the Insurer's program known as Patriot 100 Plus in the initial face amount of $300,000 dated October 10, 1993 as Policy No. B00212920 hereinafter the "Policy"); and WHEREAS, the Corporation in recognition of the Employee's invaluable management skills, knowledge of the Corporation's business and contributions to earnings and profits, desires to obtain key executive death protection for its estimated losses in the event of the Employee's premature death; and WHEREAS, the Corporation agrees to receive, by way of an assignment, a limited Policy ownership interest in the Policy on the life of the Employee and to pay premiums under the method described herein; and WHEREAS, the Employee agrees to make the Policy subject to this Agreement in exchange for the Employer's willingness to pay a portion of the Policy premiums due on the Policy; and WHEREAS, this Agreement is intended to qualify as a split dollar life insurance plan as described in Revenue Ruling 64-328; NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein, the parties hereto agree as follows: 1. Policy Subject to This Agreement; Term. The Policy shall be subject to the terms and conditions of this Agreement during the term hereof. The term of this Agreement shall commence 2 on October 10, 1993 and shall expire October 10, 2019, unless earlier terminated as hereafter provided. 2. Premium Payments. The Corporation has paid to the Insurer an initial premium on the Policy of $2,300.00. The Corporation agrees to continue to pay twenty-five (25) additional annual premiums of $2,300.00 each, which represents the cumulative increasing P.S. 58 costs for the assigned death benefit to the Corporation of $183,633 during the term of this Agreement, averaged and levelized over a period of twenty-six (26) years commencing on the date of issuance of the Policy, for a term of twenty-six (26) years of protection. The annualized amount of premiums is reflected in Column 1 on Exhibit A attached hereto and made a part hereof by this reference. Employee agrees to pay any remaining portion of the planned periodic premiums due with respect to the Policy. The Policy may, at the Employee's discretion, provide for the waiver of premium on the Employee's disability. If it does so provide, the cost thereof shall be borne by the Employee, the prior provisions of this Section 2 to the contrary notwithstanding. 3. Assignment of Limited Policy Ownership Interest. The Employee does hereby assign, transfer and set over to the Corporation, its successors and assigns, a specific and limited policy ownership interest in the Policy in consideration of the premium payment paid by the Corporation as required hereunder. 4. Corporation's Policy Interest Defined. The limited policy ownership interest hereby assigned by the Employee to the Corporation is as follows: A. Upon death of Employee. In the event of the Employee's death during the term, the Corporation's policy interest shall be an amount equal to $183,633 of death protection under the limited policy ownership created hereunder, increased by the amount, if any, of unearned premiums resulting from the pre-payment of premiums by the Corporation plus any amount in the "unearned premium account" as hereinafter defined. Any remaining death proceeds shall be payable to Employee's designated beneficiary pursuant to the Policy. For purposes of this Agreement, the "unearned premium account" means the amount by which the Corporation's levelized premium payments required pursuant to this Agreement exceeds the amount of the P.S. 58 costs for the assigned death benefits accrued during the term of the Policy until the date of termination of the Policy, as reflected in Column 2 of Exhibit A attached. B. Upon Cancellation or Termination of the Policy. In the event the Employee elects to surrender or cancel the Policy during the term, the Corporation shall receive such share of the Policy cash values as - 2 - 3 are attributable to the Corporation's prepaid premiums and any unearned premium account. In the event such cash values are insufficient to repay any amount due the Corporation, the Employee agrees to pay any difference to the Corporation. No further benefits shall be payable to the Corporation hereunder. Any remaining cash value shall inure to the benefit of the Employee. 5. Employee's Retained Incidents of Ownership. Except as to the limited policy ownership rights specifically granted the Corporation herein, Employee retains all incidents of ownership (including the right to surrender or cancel the Policy and the right to borrow or withdraw against the Policy). Employee's right to borrow shall be limited to an amount equal to the maximum loan value reduced by any prepaid premiums and unearned premium account of the Corporation. Employee's right to withdraw from the Policy cash values under the Policy's partial surrender provisions shall be limited to the allowable partial surrender value under the Policy reduced by any prepaid premiums and any unearned premium account in favor of the Corporation. In the event Employee's Policy loans and accrued interest or, alternatively, the sum of Employee's cash withdrawals, reduce the Corporation's earlier-stated death benefit, the Employee agrees to contribute to the Policy such sums as are required to maintain the integrity of such death benefits. 6. Possession of Policy. If the above-described Policy is in the possession of the Corporation, the Corporation will, upon notice and request, forward the Policy without unreasonable delay to the Insurer if required by the Insurer for any Policy transaction or change. 7. Insurer Action. The Insurer shall be bound only by the provisions of and endorsements on the Policy, and any payments made or actions taken by it in accordance therewith shall fully discharge it from all claims, suits and demands of all persons whatsoever. It shall in no way be bound by or be deemed to have notice of the provisions of this Agreement. 8. Release of Corporation's Limited Ownership Interest. Upon Employee's request and upon full payment to the Corporation of its Policy interest, as earlier defined, the Corporation agrees to release and reassign its ownership rights to the Policy to the Employee. 9. Premium Waiver. If the Policy contains a disability waiver of premium provision or waiver of monthly deduction, any waived amounts shall be considered for all purposes of this Agreement as having been paid by the Employee and all provisions herein relating to Policy cash values and death proceeds shall be construed accordingly should such premium waiver become effective. - 3 - 4 10. Termination of the Agreement. This Agreement shall terminate during Employee's lifetime on the first to occur of the following: (a) expiration of the term of this Agreement as set forth in Section 1 hereof; (b) surrender of the Policy by the Employee, who has the sole and exclusive right of surrender; (c) by written notice by either the Corporation or the Employee to the other; (d) upon termination of Employee's employment. Upon termination of this Agreement, the Corporation shall receive an amount equal to the Corporation's prepaid premiums and any unearned premium account at the time of such termination and the Corporation's interest in the Policy shall thereafter cease. 11. Special Provisions. The following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974: A. The named fiduciary: The Corporation. B. The funding policy under this Agreement is that all premiums on the Policy be remitted to the Insurer when due. C. Direct payment by the Insurer is the basis of payment of benefits under this Agreement, with those benefits in turn being based on the payment of premiums as provided in this Agreement. D. The claims procedure under this Agreement shall be as follows: (1) If for any reason a claim for benefits under this Agreement is denied by the Corporation, it shall deliver to the claimant a written explanation setting forth the specific reason for the denial, pertinent references to the Agreement section on which the denial is based, such other data as may be pertinent and information on the procedures to be followed by the claimant in obtaining a review of his claim, all written in a manner calculated to be understood by the claimant. For this purpose: (A) The claimant's claim shall be deemed filed when presented in writing to the Corporation. (B) The Corporation's explanation shall be in writing delivered to the claimant within ninety (90) days of the date the claim is filed. (2) The claimant shall have sixty (60) days - 4 - 5 following his receipt of the denial of the claim to file with the Corporation a written request for review of the denial. For such review, the claim or his representative may submit pertinent documents and written issues and comments. (3) The Corporation shall decide the issue on review and furnish the claimant with a copy within sixty (60) days of receipt of the claimant's request for review of his claim. The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the claimant, as well as specific reference to the pertinent Agreement provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such sixty (60) days, the claim shall be deemed denied on review. 12. No Contract of Employment. Neither this Agreement, nor any provisions hereof, nor any action taken by the Corporation pursuant hereto, shall be construed as giving to the Employee the right to be retained in the employ of the Corporation, nor shall it limit or restrict the right of the Corporation to terminate the employmennt of the Employee with or without cause. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ATTEST: MORTON METALCRAFT CO. By:______________________ By:________________________________ Daryl R. Lindemann, William D. Morton II, Secretary President ___________________________________ Daryl R. Lindemann - 5 - EX-10.20 21 EX-10.20 1 EXHIBIT 10.20 SPLIT DOLLAR ASSIGNMENT INSURER: Protective Life Insurance Company INSURED: Daryl R. Lindemann POLICY NO.: B00212920 THIS ASSIGNMENT is made by the undersigned Owner effective this 10th day of October, 1993. DEFINITIONS: A. "Assignee": Morton Metalcraft Co., an Illinois corporation, with principal offices at 1021 West Birchwood, Morton, Illinois 61550-0429. B. "Owner": Daryl R. Lindemann. C. "Policy": The following policy of insurance issued by the Insurer on the life the Insured, together with any supplementary contracts issued in conjunction therewith: Policy No.: B00212920 Face Amount: $300,000.00 D. "Policy Interest": The Assignee's Policy Interest shall be as set forth in the Split Dollar Insurance Agreement. The Insurer shall be entitled to rely on the Assignee's certification of the amount of its Policy Interest. E. "Split Dollar Agreement": That certain Agreement of even date herewith, between the Owner and the Assignee. The Insurer is not bound by nor deemed to have notice of the provisions of the Split Dollar Insurance Agreement. RECITALS: A. Under the Split Dollar Insurance Agreement, the Assignee has agreed to join with the Owner in payment of premiums on the Policy. B. In consideration of such premium payments by the Assignee, the Owner here intends to grant the Assignee certain limited interests in the Policy. THEREFORE, for value received, it is agreed: 2 1. Assignment. The Owner hereby assigns, transfers and sets over to the Assignee, its successors and assigns, the following specific rights in the Policy and subject to the following terms and conditions: A. The right to realize against the cash value of the Policy an amount equal to the unearned portion of the premiums paid by it and the amount in the unearned premium account in the event of the Policy's surrender by the Owner. B. The right to realize against proceeds of the Policy, to the extent of its Policy Interest, in the event of the Insured's death. 2. Retained Rights. Except as expressly provided in Section 1, the Owner retains all rights under the Policy including, but not limited to, the exclusive right to surrender and to borrow against the Policy without the consent of the Assignee. 3. Insurer. The Insurer is hereby authorized to recognize, and is fully protected in recognizing: A. The claims of the Assignee to rights hereunder, without investigating the reasons for such action by the Assignee, or the validity of the amount of such claims. B. The Owner's request for surrender of the Policy without the consent of the Assignee. Upon the surrender, the Policy shall be terminated and of no further force or effect. 4. Release of Assignment. Upon payment to the Assignee of its Policy Interest, the Assignee shall execute a written release of this Assignment. IN WITNESS WHEREOF, the Owner and Assignee have executed this Assignment on the date first above written. Daryl R. Lindemann ----------------------------------- Daryl R. Lindemann, Owner ATTEST: MORTON METALCRAFT CO., Assignee By:Daryl R. Lindemann By: William D. Morton, II -------------------------- --------------------------------- Daryl R. Lindemann, William D. Morton, II, Secretary President - 2 - 3 STATE OF ILLINOIS ) ) SS. COUNTY OF TAZEWELL ) I, the undersigned authority, in and for said County, in said State, hereby certify that Daryl R. Lindemann whose name is signed to the foregoing assignment and who is known to me, acknowledged before me on this day that, being informed of the contents of the assignment, Daryl R. Lindemann executed the same voluntarily on the day the same bears date. Given under my hand and official seal this 10th day of October, 1993. Judith A. Heisel - --------------------------------------- ------------------------------ "OFFICIAL SEAL" Notary Public Judith A. Heisel Notary Public, State of Illinois My Commission Expires 07/08/97 - --------------------------------------- ACCEPTANCE This Assignment was received and recorded by Protective Life Insurance Company on the 23rd day of February, 1995. PROTECTIVE LIFE INSURANCE COMPANY By: Denise M. Johnson -------------------------------- Its Policy Service Analyst ----------------------------- - 3 - EX-10.21 22 EX-10.21 1 EXHIBIT 10.21 DEATH BENEFIT AGREEMENT This Agreement, made as of the ______ day of __________________, 1993, between MORTON METALCRAFT CO. (the "Company") and William D. Morton, II, (the "Employee"). WITNESSETH: WHEREAS, the Employee is employed as an officer of the Company; and WHEREAS, the Employee's services to the Company have contributed substantially to the general welfare of the Company; and WHEREAS, the Employee is willing to continue in the employ of the Company provided the Company agrees to pay to the beneficiaries designated herein certain benefits in accordance with the terms and conditions set forth below; NOW, THEREFORE, it is agreed: 1. Death Benefits. If the Employee dies while in the employ of the Company prior to October 10, 2012, the Company shall pay to the Employee's widow, or if no widow survives him, to his surviving descendants per stripes, as a death benefit, $230,000. Such amount will be payable within ninety (90) after the date of death, without interest. In the event that all of the persons designated herein as beneficiaries die prior to payment of the amount provided for herein, the obligation of the Company to make the payment hereunder shall terminate. The Employee shall have no right to modify or alter the beneficiaries designated herein. 2. Suicide Exclusion. If the Employee commits suicide while sane or insane, on or before October 17, 1995, no benefits shall be payable hereunder and this Agreement shall be considered terminated, null and void. 3. Termination of Employment; Termination of Split Dollar Agreement. If the Employee terminates employment prior to his death, or if the Company discharges the Employee for any reason, no benefits shall become due and payable to the named beneficiaries hereunder and this Agreement shall be considered terminated, null and void. Likewise, if either party terminates the Split Dollar Life Insurance Agreement between the parties hereto prior to Employee's death, no benefits shall become due and payable to the named beneficiaries hereunder and this Agreement shall be considered terminated, null and void. 4. Benefits Not Assignable. Neither the Employee, his widow, his descendants, nor any other beneficiaries which may be 2 designated herein, shall have any right to commute or assign the right to receive payments hereunder and to the extent permitted by law, such payments shall be exempt from the claims of creditors. 5. Not a Contract of Employment. This Agreement shall not be deemed to constitute a contract of employment between the parties, nor shall any provision restrict the right of the Company to discharge the Employee, or restrict the right of the Employee to voluntarily terminate employment. 6. Waiver. The waiver by either party hereto of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by either the Company or Employee. 7. Severability. The invalidity or unenforceability of any particular provision or provisions of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions had been omitted. 8. Governing Law. The validity and construction of this Agreement shall be governed by the laws of the state of Illinois. 9. Headings. The headings of the several paragraphs hereof are for convenience in reference only and shall not be construed to be a part of this Agreement. 10. Binding Effect. This Agreement shall be binding upon and inure to the benefit of both the Company and the Employee and their respective successors, heirs and legal representatives. ATTEST: MORTON METALCRAFT CO. By: By: ----------------------- ------------------------- Daryl R. Lindemann, William D. Morton, II, Secretary President -------------------------- William D. Morton, II - 2 - EX-10.22 23 EX-10.22 1 EXHIBIT 10.22 SALARY CONTINUATION AGREEMENT AGREEMENT made this 26 day of February, 1996, between MORTON METALCRAFT CO., an Illinois corporation (the "Corporation"), and WILLIAM D. MORTON (the "Employee"). 1. Duties. The Corporation has for many years employed the Employee as its President and Chief Executive Officer. Employee hereby agrees to continue serving the Corporation in that capacity. 2. Benefit in the Event of Death. In consideration of the Employee's agreement to continue service with the Corporation, if the Employee dies during the term of his employment, the Corporation shall pay to his widow, if she survives him, the sum of his then annual base salary payable in twelve (12) substantially equal monthly installments commencing one month after the Employee's death. In the event the Employee's widow survives Employee but dies prior to receipt of the total number of installments due hereunder, any remaining installments shall be payable to her estate. If Employee's spouse does not survive him, the payments shall be made to Employee's estate. 3. Benefit in the Event of Disability. The following provisions shall be applicable in the event Employee shall become Disabled, as hereinafter defined, during the term of his employment: A. Employee shall be considered to be "Disabled" for purposes of this Agreement when, in the judgment of the board of directors of the Corporation, Employee has been unable, by reason of mental or physical incapacity, for a continuous period of thirty (30) days, to properly perform his duties as President and Chief Executive Officer. As to any period of time during which Employee is covered under the terms of an individual or group disability income insurance policy issued to the Corporation, the definition of Disabled herein above set forth shall be disregarded, and Employee shall be considered Disabled only in the event he has suffered a disability as that term is defined in such disability income insurance policy. In the event the Corporation shall be the owner of more than one disability income insurance policy covering Employee, then the definition of Disability set forth in the policy most recently acquired by the Corporation shall be controlling. B. From and after the date upon which Employee shall become Disabled, to and including three hundred sixty-five (365) days thereafter as he shall continue to be Disabled, the Employee shall be entitled to receive his base compensation which would otherwise have become due and payable to him during such period. 2 C. Any payment required by this section being made to the Employee while he is Disabled shall be reduced by the amount of any payments made directly to Employee under the terms of any disability income insurance policy issued to the Corporation or provided by the Corporation for the Employee's benefit. 4. Maximum Benefits. The maximum amount of benefits payable pursuant to this Agreement by the Corporation shall in no event exceed an amount equal to the Employee's annual base salary in effect at the time the benefit becomes payable. 5. Continued Employment. Nothing contained herein shall be construed to be a contract of employment for any term of years, nor as conferring upon the Employee the right to continue to be employed by the Corporation in any capacity. 6. Entire Agreement. This Agreement supersedes all other agreements previously made between the parties relating to its subject matter. There are no other understandings or agreements. 7. Nonwaiver. No delay or failure by either party to exercise any right under this Agreement, and no partial or single exercise of that right, shall constitute a waiver of that right or any other right, unless otherwise provided herein. 8. Headings. The headings of this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 9. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Illinois. 10. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 11. Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of each of the parties and their respective successors and assigns. IN WITNESS WHEREOF, the parties have signed this Agreement as of the day and date first above written. MORTON METALCRAFT CO. By: William D. Morton William D. Morton ------------------------- ------------------------------ Its President William D. Morton -2- EX-21.1 24 EX-21.1 1 EXHIBIT 21.1 Subsidiaries of the Registrant At December 31, 1997, the MLX Corp. had no subsidiaries. Following the Merger on January 20, 1997, Morton Industrial Group, Inc., had two directly wholly owned subsidiaries: Morton Metalcraft Co., an Illinois corporation Morton Metalcraft Co. of North Carolina, a North Carolina corporation EX-23.1 25 EX-23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement (Form S-8 No. 333-22555) pertaining to the MLX Corp. Stock Option and Incentive Award Plan and in the related Prospectuses of our report dated February 20, 1998, with respect to the financial statements of MLX Corp. included in the form 10-K of Morton Industrial Group, Inc. (formerly MLX Corp.) for the year ended December 31, 1997. ERNST & YOUNG LLP March 5, 1998 Atlanta, Georgia EX-23.2 26 EX-23.2 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS Board of Directors Morton Metalcraft Holding Co. Morton, Illinois We consent to the inclusion of our report dated February 4, 1998, with respect to the consolidated balance sheets of Morton Metalcraft Holding Co. and Subsidiaries as of December 31, 1997 and June 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the six months ended December 31, 1997 and each of the years in the three-year period ended June 30, 1997, and the financial statement schedule, which report appears as an exhibit in the Form 10-K of MLX Corp. dated December 31, 1997. CLIFTON GUNDERSON L.L.C. Peoria, Illinois February 27, 1998 EX-27.1 27 EX-27.1
5 1,000 12-MOS DEC-31-1997 DEC-31-1997 36,718 0 0 0 0 36,728 2 0 36,259 1,345 0 26 0 0 34,846 38,259 0 0 0 0 3,778 0 0 (1,892) 0 (1,892) 0 0 0 (1,892) (.72) (.72)
EX-27.2 28 EX-27.2
5 1,000 6-MOS DEC-31-1997 DEC-31-1997 138 0 7,768 (100) 7,510 18,261 28,078 (9,265) 39,388 29,576 23,000 52 0 0 (13,604) 39,388 46,598 46,598 41,932 41,932 11,492 60 1,737 (8,568) (3,370) (5,198) 0 0 0 (5,198) (2.67) (1.56)
EX-99.1 29 EX-99.1 1 EXHIBIT 99.1 ADDITIONAL INFORMATION ABOUT MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES This Exhibit contains additional information about Morton Metalcraft Holding Co. and its subsidiaries (collectively, "Morton") for periods ending before January 20, 1998, the date upon which Morton Metalcraft Holding Co. was merged with and into the Registrant. The information includes Selected Historical Financial Data about Morton for the six months ended December 31, 1997, and the three fiscal years ended June 30, 1997, 1996, and 1995, a Management's Discussion and Analysis of Financial Condition and Results of Operations for such six month and fiscal year periods, audited financial statements for such six month and fiscal year periods, and other information. BACKGROUND. The Registrant is a Georgia corporation that was named MLX Corp. ("MLX") prior to January 20, 1998. On that date, Morton Metalcraft Holding Co., a Delaware corporation ("Morton") was merged with and into MLX (the "Merger"), which changed its name to Morton Industrial Group, Inc. (the "Company"). The predecessor of Morton was founded in 1963 in Morton, Illinois, to produce fabricated sheet metal products for customers located in central Illinois. During its first two decades Morton developed into a custom sheet metal fabricator specializing in fast turnarounds. In 1989, Mr. William D. Morton, now the Chairman, Chief Executive Officer, and President of the Registrant, and several venture capital investors acquired control of Morton. In 1995, Morton purchased the venture capital interests as a part of a recapitalization of the company. GENERAL. The Company, headquartered in Morton, Illinois, and operating through its subsidiaries is a contract manufacturer and supplier of high-quality fabricated sheet metal components and subassemblies for construction, agricultural, and industrial equipment manufacturers located primarily in the Midwestern and Southeastern United States. The Company provides large original equipment manufacturers with a wide range of services including design, prototype fabrication, precision tool making, and fabrication of component parts. Additional services provided by the Company include welding, painting, subassembly, packaging, warehousing, and just-in-time delivery to customers' production lines. The Company combines this wide range of services with high-quality, state-of-the-art fabrication capabilities, and has developed close relationships with customers such as Caterpillar Inc. ("Caterpillar") and Deere & Co. ("Deere"). (In its two most recently ended fiscal years and the six month period ended December 31, 1997, the Company's sales to Caterpillar and Deere have constituted between 85% and 89% of its total sales.) The Company works closely with its major customers on product development, production scheduling, and just-in-time delivery. FABRICATION OPERATIONS. The Company's primary fabrication operations include cutting, punching, bending, welding, painting, final assembly, packaging, warehousing and just-in-time delivery of sheet metal components and subassemblies. The Company - 1 - 2 also offers fully integrated ancillary services, including design engineering, tool making and prototype fabrication. Within its fabrication operations, the Company's products fall into the following seven categories of fabricated steel products and other miscellaneous products: - Sheet Metal Component Packages - includes panels, doors, hoods, brackets, grills, supports and covers produced primarily for construction and agricultural equipment. - Sheet Metal Enclosures and Boxes - includes generator set enclosures, compressor enclosures and electrical and battery boxes developed in response to customers' need for environmentally sound enclosures that are aesthetically attractive and cost competitive. - Special Weldments - includes lift arms, seat modules, guards, platforms and step assemblies. This business developed primarily from concurrent design projects with two major customers. - Fabricated Steel Tanks - includes fuel, hydraulic and water reservoirs. The Company developed these products in response to customers' needs for flexible designs that facilitate quick response to changes in tank requirements. - Prototype/Tooling - includes prototype, tooling and preproduction steps in the manufacturing process. The Company's dedicated prototype and tooling departments work with customers throughout development efforts, allowing for a smooth introduction of new products and subassemblies to the focus factories. - Store Fixtures - includes backframes, lights, and brackets used in store displays. - Feeder Housings - includes feeder housings and other harvester components manufactured for agricultural equipment in the Company's Peoria, Illinois, facility. While these products and services currently represent the core of the Company's business, the Company's management is evaluating opportunities for a further broadening of the Company's offerings to customers. The Company's facilities are located near its key customers in the Midwest and the Southeast. The Birchwood Street complex in Morton, Illinois, houses receiving, tool making, pre-production, first operations, general fabrication and enclosure operations. Substantially all non-production personnel, including senior management, purchasing, engineering, sales, production control and accounting are also located at this facility. The Detroit Avenue plant, located one mile from Birchwood Street, contains the production operations for commodity products such as tanks, seat modules, and heavy fabrication operations. The Company produces components for agricultural equipment at its Peoria, Illinois, facility, which opened in 1995. The Company's Apex, North Carolina, plant serves the operations of nearby customers and entered production in July 1997. At these locations, the Company employs computer assisted design and manufacturing equipment, including laser cutting machines and robotic welders. Morton combined its sales and engineering organizations in 1995. This sales and engineering group has primary responsibility for managing - 2 - 3 relationships with customers and working with them to design new products. An account team, led by one of the Company's account managers and including representatives from all key functional areas of the Company, works closely with each key customer to design products, produce prototypes, schedule production, and monitor quality and customer satisfaction. COMPETITION. The component fabrication industry is fragmented and highly competitive, with no single supplier having significant market share. Competition involves product quality, price, the ability to provide just-in-time deliveries, provision of support services, and product development capabilities. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. The Company's business is in the fabrication segment. AVAILABILITY OF RAW MATERIALS. The primary raw material used by the Company after the Merger is steel, and the Company has five major steel suppliers. The Company also purchases fabrications and machined parts from a large number of suppliers. All raw materials are in adequate supply. PATENTS, TRADEMARKS, LICENSES, FRANCHISES, AND CONCESSIONS. The Company holds no material patents, trademarks, franchises, or concessions. The Company has been granted a number of software licenses that it uses in its design, production, and other business operations. All of these licenses have customary terms and conditions. WORKING CAPITAL ITEMS. The Company's working capital requirements reflect several business factors. Working capital requirements are typically greater during the second half of the calendar year because both Deere and Caterpillar suspend operations for two weeks of vacation time during July and/or August. Production operations of both of these customers also slow during the last two weeks of December. During these periods, the Company must rely more heavily on its credit facilities for liquidity. The Company's rapid growth over the last two years has also increased the Company's need for working capital to meet the capital expenditures required to increase production capacity. ENVIRONMENTAL REGULATION. The Company's operations are subject to numerous federal, state and local laws and regulations concerning the containment and disposal of hazardous materials. The Company maintains a policy of complying with all environmental rules and regulations and believes that it is in substantial compliance with all applicable environmental laws and regulations. EMPLOYEES As of February 1, 1998, the Company employed 941 employees, of which 799 were hourly, 139 were salaried, and 3 were employed part-time and paid on an hourly basis. The Company believes that its relationship with its employees is good. - 3 - 4 PROPERTIES The following table summarizes the Company's manufacturing, warehouse, and office facilities:
Approx. Monthly Expiration LOCATION Sq. Ft. Acres Lease Terms Date - ---------------------------- ------- ----- ----------- ---------- 1021 West Birchwood Street Morton, IL ................. 270,000 40 Owned N/A 400 Detroit Avenue Morton, IL ................. 75,000 N/A $21,164 08/31/04 Peoria, IL ................. 137,000 N/A $20,035 05/31/03 Apex, NC ................... 100,000 N/A $37,580 11/06/06
LEGAL PROCEEDINGS The Company is not currently a party to any material legal proceedings that the Company's management believes would have a material adverse effect on the Company's financial condition or results of operations. SALES BACKLOG The Company's backlog of sales orders at December 31, 1997, totaled $74.5 million. The Company expects that virtually all of those orders would be shipped in the twelve months ending December 31, 1998. This backlog level compares to a sales order backlog of $56.5 million at December 31, 1996, virtually all of which was shipped in calendar 1997. EXECUTIVE OFFICERS OF THE COMPANY Information about the Company's two executive officers following the Merger is set out below.
Name Age Position - --------------------------------- --- ---------------------------------------- William D. Morton ............... 50 Chairman of the Board, President, and Chief Executive Officer Daryl R. Lindemann .............. 43 Vice President (Finance), Treasurer and Secretary
WILLIAM D. MORTON joined Morton in 1988 as an Executive Vice President. Together with other investors, he purchased Morton from Morton's founding owners in 1989 and has served as President and Chief Executive Officer since that date. Mr. Morton received a Bachelors Degree in Mechanical Engineering from the University of Illinois in 1970. He is a member of the Society of Manufacturing Engineers. DARYL R. LINDEMANN has been Vice President of Finance, Secretary and Treasurer since he joined Morton in 1990. Mr. Lindemann is a Certified Public Accountant and received a B.S. in Accounting in 1976 from the University of Illinois. He is a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. - 4 - 5 SELECTED HISTORICAL FINANCIAL DATA OF MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES Set forth below are certain selected historical financial data of Morton Metalcraft Holding Co. and subsidiaries ("Morton"). This information should be read in conjunction with the financial statements of Morton and the related notes thereto appearing elsewhere herein and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Morton." The selected consolidated financial data for, and as of the end of, each of the five fiscal years ended June 30 and the six months ended December 31, 1997,are derived from the audited financial statements of Morton. Information for the six months ended December 31, 1996, is derived from the unaudited financial statements of Morton.
Six Months Ended December 31, For the Fiscal Year Ended June 30, ----------------------------------------------------------------------- 1997 1996 1997 1996 1995 ------------ ------------ ------------- ------------- ------------- (In thousands except for share and per share data) Operating data: Net Sales ................................ $ 46,598 $ 32,958 $ 80,762 $ 59,006 $ 48,568 Cost of sales ............................ (41,932) (29,206) (70,541) (50,049) (40,730) General and administrative expenses ...... (11,552) (2,578) (7,003) (4,900) (3,951) Interest income .......................... 9 - 15 7 9 Interest expense ......................... (1,737) (1,628) (3,266) (3,297) (2,434) Other income (expense) ................... 46 31 45 194 (378) (Provision) benefit for income taxes ..... 3,370 282 (5) (424) (522) ---------- --------- ---------- ---------- ---------- Net earnings (loss) ...................... $ (5,198) $ (141) $ 7 $ 537 $ 562 ========== ========= ========== ========== ========== Supplemental disclosure: Cash flows from operations ............... $ 1,277 $ 1,096 $ 5,144 $ 3,783 $ 2,510 Cash flows used in investing activities .. $ (6,229) $ (1,599) $ (5,592) $ (2,853) $ (4,282) Cash flows from financing activities $ 4,886 $ 257 $ 323 $ (726) $ 1,865 Per share data: Weighted average outstanding common shares - Basic 1,944,444 1,944,444 1,944,444 1,944,444 3,535,006 - Diluted 3,325,974 3,323,925 3,327,241 3,309,827 3,551,006 Earnings (loss) per share - Basic ($ 2.67) ($ .07) - $ .28 $ .16 - Diluted ($ 1.56) ($ .04) - .16 $ .16 Financial position (at end of period): Working capital .......................... ($ 11,315) $ 3,869 $ 2,147 $ 4,078 $ 4,548 Total assets ............................. $ 39,388 $ 29,142 34,362 29,576 27,550 Long-term liabilities .................... $ 23,364 $ 27,564 27,861 27,673 27,456 Stockholders' equity (deficit) ........... ($ 13,552) ($ 9,388) $ (9,099) $ (9,106) $ (9,644) For the Fiscal Year Ended June 30, ---------------------------------- 1994 1993 ------------ ------------- (In thousands except for share and per share data) Operating data: Net Sales ................................ $ 39,602 $ 32,774 Cost of sales ............................ (32,673) (27,544) General and administrative expenses ...... (3,806) (2,949) Interest income .......................... 15 15 Interest expense ......................... (1,172) (1,434) Other income (expense) ................... 50 26 (Provision) benefit for income taxes ..... (878) (368) ----------- ------------ Net earnings (loss) ...................... $ 1,138 $ 520 =========== ============ Supplemental disclosure: Cash flows from operations ............... $ 1,771 $ 2,647 Cash flows used in investing activities .. $ (1,323) $ (998) Cash flows from financing activities $ (530) $ (1,830) Per share data: Weighted average outstanding common shares - Basic 4,722,221 4,722,221 - Diluted 4,722,221 4,722,221 Earnings (loss) per share - Basic $ .24 $ .11 - Diluted $ .24 .11 Financial position (at end of period): Working capital .......................... $ 528 $ 177 Total assets ............................. 23,576 21,209 Long-term liabilities .................... 9,168 10,390 Stockholders' equity (deficit) ........... $ 2,564 $ 1,426
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MORTON The following discussion should be read in conjunction with the consolidated financial statements of Morton and the notes thereto included elsewhere in this Exhibit 99.1. GENERAL Before the Merger, Morton Metalcraft Holding Co., through its subsidiaries, was a contract manufacturer and supplier of fabricated sheet metal components and subassemblies for U.S. construction, agricultural, and industrial equipment manufacturers. Morton operated four manufacturing facilities in Illinois and North Carolina and had long standing relationships - 5 - 6 with its two major customers, Caterpillar Inc. ("Caterpillar") and Deere & Co. ("Deere"). OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1997, VERSUS SIX MONTHS ENDED DECEMBER 31, 1996 Revenues for Morton for the six months ended December 31, 1997, were $46.6 compared to $33.0 for the six months ended December 31, 1996, an increase of $13.6 million or 41.2%. The increase resulted primarily from additional fabrication for Deere. Sales to Deere and Caterpillar were approximately 87.0% and 85.1% of Morton's total sales for the six months ended December 31, 1997, and 1996, respectively. Morton's gross profits for the six months ended December 31, 1997, increased by approximately $.9 million, or 25.0%, over the same six months in the prior year. The gross margin achieved in the six months ended December 31, 1997, was 10.0%, compared to 11.4% for the six months ended December 31, 1996. The decline resulted from expenses associated with the start-up of Morton's North Carolina facility and an approximately $2.0 million downward adjustment of inventory values. The effect of these adjustments was partially offset by increased productivity at the Peoria and Morton, Illinois, plants, improved labor efficiency and better material use stemming from investments in production technology, including laser cutting technology. New products manufactured for Deere required higher material content and contributed to lower labor and overhead costs. (The gross margins for the six months ended December 31, 1996, were lower than those realized in earlier periods as a result of the write-off of certain intangible assets, the downward revaluation of inventories, and expenses associated with the development of the North Carolina plant.) Selling and administrative expenses for the six months ended December 31, 1997, amounted to $11.5 million, compared with $2.6 million for the six months ended December 31, 1996, or an increase of $8.9 million. Of this increase, $4.0 million was accrued bonuses to be paid to members of management and other employees of Morton and its subsidiaries to compensate them for their prior contributions to Morton's growth and success for which they had not been adequately compensated. (Until eliminated in July 1997, restrictions in the Company's credit facilities limited the compensation Morton and its subsidiaries could pay management.) Morton also accrued professional fees, investment banking costs, credit agreement fees, and other costs of the Merger and the related bank financing that totaled approximately $2.5 million for the six month period ended December 31, 1997, that were not incurred in the comparable year earlier period. Other selling and general and administrative costs increased as a result of the increase in sales volume over the prior year's period, approximately $.5 million of expenses related to the start-up of operations at the North Carolina facility, and approximately $.7 million of compensation expense associated with a stock option grant. Interest expense for the six months ended December 31, 1997, was $1.7 million, an increase of approximately $.1 million over the comparable six month period in 1996. Income tax benefits of $3.4 million and $.3 million resulted from operating losses of $8.6 million and $.4 million for the six months ended December 31, 1997, and 1996, respectively. - 6 - 7 FISCAL YEAR ENDED JUNE 30, 1997 VERSUS FISCAL YEAR ENDED JUNE 30, 1996 Revenues for Morton for the fiscal year ended June 30, 1997 were $80.8 million versus $59.0 million for the fiscal year ended June 30, 1996, an increase of $21.8 million or 36.9%. This increase resulted from higher sales to Deere for component packages, enclosures and boxes and feeder housings, as well as higher sales of in-store display fixtures. Year over year, combined sales to Deere and Caterpillar locations decreased slightly as a percent of total revenues from 88.8% to 88.1%. The gross margin achieved in the year ended June 30, 1997 was 12.7% compared to 15.2% in the prior year. This decline resulted from expenses associated with the start-up of the North Carolina facility, a write-off of $1.8 million of intangible assets, and a $.9 million downward adjustment of the value of excess inventory. The write-off of intangible assets resulted from a reassessment of their future benefit to Morton in consideration of the company's growth, its continuous design changes to existing products, its continuous factory rearrangements and the opening of the North Carolina facility. The effect of these expenses and adjustments was partly offset by increased productivity at the Peoria and Morton, Illinois facilities, improved labor efficiency and better material use stemming from investments in production technology, including laser cutting equipment. New products manufactured for Deere required higher material content and contributed to lower labor and overhead costs. Selling and administration expenses for the year ended June 30, 1997 amounted to $7.0 million (or 8.7% of revenues), an increase of $2.1 million or 43% over the year earlier period. The primary component of this increase was a charge of $1.8 million (versus $142,000 in the earlier period) due to increased payments under Morton's employee incentive programs. During the year Morton began making payments under a new incentive compensation program for all of its employees and increased bonuses to management. Morton expects that approximately $1,500,000 of these incentive program expenses will be recurring annually, and if Morton's performance improves these expenses will increase, although at a substantially lower rate than that experienced in the year ended June 30, 1997. Interest expense in the year ended June 30, 1997 amounted to $3.3 million representing a nominal decrease from the earlier amount. Income taxes for the year ended June 30, 1997 decreased 98.8% from the prior fiscal year reflecting the reduction of Morton's earnings before taxes, primarily as a result of the write-off and adjustments described above. Net earnings decreased by 98.7% from those realized in the prior fiscal year. FISCAL YEAR ENDED JUNE 30, 1996 VERSUS FISCAL YEAR ENDED JUNE 30, 1995 Morton's revenues for the year ended June 30, 1996 amounted to $59.0 million compared to $48.6 million in the year ended June 30, 1995, an increase of $10.4 million or 21.4%. This increase resulted from higher sales of sheet metal component packages, the introduction of the feeder housing product line for Deere and slightly lower sales of display fixtures. Year over year, combined sales to Caterpillar and Deere rose from 84.8% to 88.8%. The gross margin achieved in the year ended June 30, 1996 was 15.2% compared to 16.1% in the year earlier period. This decrease resulted from changes in product mix as a result of the commencement of feeder housing production and added indirect labor and other start-up costs associated with the opening of the Peoria facility. - 7 - 8 Selling and administration expenses for the year ended June 30, 1996 amounted to $4.9 million versus $3.9 million in the earlier year, an increase of $949,000 or 24%. This increase resulted primarily from higher compensation charges and insurance expenses. Year over year, selling and administration expenses as a percent of revenues rose from 8.1% to 8.3%. Interest expense in the year ended June 30, 1996 amounted to $3.3 million compared to $2.4 million in the earlier year. This increase resulted from higher borrowing stemming from the January 1, 1995 recapitalization of Morton. Income taxes for the year ended June 30, 1996, decreased by approximately $0.1 million or 18.9% as a result of reduced earnings before taxes and a decrease in Morton's effective tax rate from 48.2% to 44.1%. Net earnings declined a nominal amount to slightly more than $0.5 million. FINANCIAL POSITION AND LIQUIDITY Morton's consolidated working capital at December 31, 1997 was ($11.3) million compared to $2.1 million at June 30, 1997, the Company's prior fiscal year end. The decrease was primarily the result of a number of factors, including (i) $5.6 million of capital expenditures, principally leasehold improvements and equipment costs for the new North Carolina facility and costs of the addition to the Morton, Illinois, facility, (ii) $4.0 `million of accrued bonuses for management and employees of the Company and its subsidiaries, (iii) $2.5 million of expenses associated with the Merger, (iv) $.7 million of compensation expense related to the grant of a stock option, and (v) $.5 million of expenses related to the start-up of the North Carolina facility. At December 31, 1997, Morton financed its operations with cash from operations and the use of a revolving credit facility with a bank. The revolving credit agreement provided for borrowings based on agreed-upon percentages of eligible assets and an interest rate equal to 0.5% above the bank's base rate. At December 31, 1997, Morton's outstanding indebtedness under the revolving credit facility was approximately $6.7 million. The $25 million senior notes payable that were outstanding on December 31, 1997, were issued in January 1995 in connection with a recapitalization of Morton. The notes bore interest at 11.5% and were due in varying annual installments from 1998 through 2005. The notes contained standard restrictive covenants limiting certain actions pertaining to lease commitments and added indebtedness. Subsequent Events. Concurrently with the closing of the Merger of Morton with MLX Corp., the surviving company, Morton Industrial Group, Inc. (the "Company") entered into a credit agreement with a bank group. The credit agreement contains a $15 million term loan facility and $35 million revolving credit facility. Twenty million dollars of the revolving credit facility can be converted to term loans before December 31, 2000. In addition, if during any quarter the Company's borrowings under the revolving credit facility exceed $15,000,000, $10,000,000 of that facility will be converted into an additional term loan facility, and the revolving credit facility will be reduced by $10,000,000. The initial interest rate on both facilities is, at the Company's option, (i) the reserve adjusted LIBOR plus the applicable LIBOR margin, fixed for 30, 60, 90, or 180 day periods, or (ii) the agent bank's base rate (which is the - 8 - 9 greater of the prime rate of the Federal Funds Rate plus 0.5%) plus an "applicable base rate margin that increases from .25% to 2.0% as the Company's funded debt to EBITDA ratio increases. The term loan facility, all of which was borrowed at the Merger closing, matures on December 31, 2003. The Company's indebtedness under the credit agreement is secured by a security interest in all of the assets of the Company and its subsidiaries, a mortgage on real property owned by the Company and its subsidiaries, and a pledge of the stock of the Company's subsidiaries. At the closing, the Company borrowed $5.7 million under the revolving credit facility. A portion of the proceeds of the Company's borrowings under both facilities at closing was used to pay off Morton's pre-closing bank and institutional debt. The credit agreement contains standard financial covenants and other covenants that restrict certain activities by the Company and its subsidiaries, including a prohibition on the payment of dividends. The Company believes that cash generated by its operations and availability under its credit agreement will provide the necessary liquidity for its current operations. The Company is actively pursuing acquisition possibilities in its industry and related industries. The Company plans to use the availability under its revolving credit facility to finance any such acquisitions, which would result in the Company's incurring increased interest expense. Higher debt levels may also be incurred as a result of the Company's internal growth and related working capital requirements. On March 2, 1998, the Company entered into a Stock Purchase Agreement with the two principal owners of Carroll George, Inc., a Northwood, Iowa, supplier of composite structures and plastic-based assemblies and components to construction, agricultural, and industrial equipment manufacturers. Subject to its completion of due diligence and other conditions to closing, the Company plans to close the acquisition of substantially all of the capital stock of Carroll George, Inc. on or before May 1, 1998. Additional information about the transaction, including the financial statements of Carroll George, Inc., and pro-forma financial statements giving effect to the transactions will be filed by the Company on Form 8-K. OTHER CONSIDERATIONS Capital Expenditures. Capital expenditures for the six months ended December 31, 1997, were $5.6 million, and were principally for leasehold improvements and equipment costs for the new North Carolina facility and costs of the addition to the Morton, Illinois, facility. Capital expenditures for the year ended June 30, 1997 amounted to $5.7 million. Such expenditures were made primarily to construct leasehold improvements and acquire equipment for the North Carolina facility, and improve the production flow at the Morton facility. During the year ended June 30, 1996, capital expenditures totaled $2.1 million and included completion of the Peoria fabrication facility and the acquisition of equipment. The Company has budgeted $5.0 million of capital expenditures for the fiscal year ending December 31, 1998. These expenditures will be, among other things, for presses, pressbrakes, additional equipment for the North Carolina facility, information systems additions, cranes, and other new equipment. Acquisitions of businesses during 1998 may result in increases in the Company's capital expenditure budget for the year. - 9 - 10 Year 2000. The Company has completed an internal assessment of its information systems to determine year 2000 compliance. While the Company's product design, business, and application software and hardware will be able to perform in the year 2000 and beyond, certain personal computers used for workplace data collection and certain Company-developed software require revision to perform in 2000. The Company estimates that the revisions will cost a maximum of $300,000. The Company has acquired software to help it identify the changes required to Company-developed software. The Company expects to be fully year 2000 compliant by September 30, 1999. Other Matters. Most of the Company's production for Deere and Caterpillar is used in products that those companies sell in the United States. As a result, the Company currently believes that the continuing economic instability in Asia will not have a material impact on its business. The Company expects that it will continue to incur costs associated with the start-up and rapid growth of its North Carolina operation that will reduce the Company's gross margins for the current fiscal year ending December 31, 1998. The rapid growth has resulted in labor inefficiencies and increased the management and training time required to improve productivity. The Company's management has introduced a program to address these issues and is vigorously implementing it. In addition, the Company is in the process of establishing additional relationships with material suppliers located in the Southeast who can meet the Company's just-in-time delivery requirements. Until it establishes these additional relationships, the Company will continue to incur transportation costs to receive supplies, including steel, at a higher cost than the Company experiences in its Illinois plants. Fiscal Year. The Company's fiscal year will end on December 31, commencing with the year ending December 31, 1998. Recently Released Accounting and Reporting Pronouncements. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130 - Reporting Comprehensive Income establishes standards for reporting comprehensive income and components. The Statement addresses certain items that affect a company's net assets without affecting its income statement. SFAS 130 is applicable to the Company beginning in 1998 and should have no significant impact on the Company's financial statement. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131 - Disclosures about Statements of an Enterprise and Related Information redefines the way public companies report information about their business segments. The statement intends to align reportable segments and certain disclosures with how the operations are managed internally. It also modifies certain geographic disclosures to be identified by country instead of geographic region. SFAS 131 is applicable to the Company beginning with its year-end reporting beginning in 1998. The impact of this statement on the Company's disclosures is not expected to be significant. - 10 - 11 Forward Looking Statements. Certain statements contained in this Exhibit 99.1, including this Management's Discussion and Analysis, that are not related to historical results are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1934 and Section 21E of the Securities Exchange Act of 1934 and involve risks and uncertainties. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimate," or variations of such words and similar expressions are intended to identify such forward looking statements. Although the Company believes that the assumptions upon which these forward looking statements are based are reasonable, there can be no assurance that such assumptions will prove to be accurate and actual results could differ materially from those discussed in the forward looking statements. Factors that could contribute to such differences include, but are not limited to the concentration of the Company's sales and the possibility that one or both of its two major customers, or a single plant of either of the two, could reduce or cease placing orders with the Company; competition with other fabricators; customer substitution of plastic components for metal components; the risks associated with the Company's acquisition strategy, including unanticipated problems, difficulties in integrating acquired businesses; diversion of management's attention from daily operations; potential increased interest costs; and possible adverse effects on earnings resulting from increased goodwill amortization; reduction of key customers' sales in developing countries; the loss of key employees, introduction of new technologies that require significant capital expenditures; and general and business conditions. INDEX TO MORTON METALCRAFT HOLDING CO. CONSOLIDATED FINANCIAL STATEMENTS a. Report of Independent Auditors. b. Consolidated Balance Sheets as of December 31, 1997, and June 30, 1997, and 1996. c. Consolidated Statements of Operations for the Six Months Ended December 31, 1997, and the Fiscal Years Ended June 30, 1997, 1996, and 1995. d. Consolidated Statements of Stockholders' Equity (Deficit) for the Six Months Ended December 31, 1997, and the Fiscal Years Ended June 30, 1997, 1996, and 1995. e. Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1997, and the Fiscal Years Ended June 30, 1997, 1996, and 1995. f. Notes to the Consolidated Financial Statements. g. Consolidated Balance Sheet as of December 31, 1997 (audited) and 1996 (unaudited). h. Consolidated Statements of Operations for the Six Months Ended December 31, 1997 (audited) and 1996 (unaudited). i. Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1997 (audited) and 1996 (unaudited). - 11 - 12 INDEPENDENT AUDITOR'S REPORT Board of Directors Morton Metalcraft Holding Co. Morton, Illinois We have audited the accompanying consolidated balance sheets of Morton Metalcraft Holding Co. and Subsidiaries as of December 31, 1997 and June 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the six months ended December 31, 1997 and each of the years in the three-year period ended June 30, 1997. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying table of contents. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Morton Metalcraft Holding Co. and Subsidiaries as of December 31, 1997 and June 30, 1997 and 1996, and the results of their operations and their cash flows for the six months ended December 31, 1997 and each of the years in the three-year period ended June 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. CLIFTON GUNDERSON L.L.C. Peoria, Illinois February 4, 1998 13 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND JUNE 30, 1997 AND 1996 (Dollars in Thousands, Except Share Data) ASSETS
JUNE 30, DECEMBER 31, ---------------------------- 1997 1997 1996 ------------ ----------- ----------- CURRENT ASSETS Cash $ 138 $ 204 $ 304 ------------ ----------- ----------- Accounts and notes receivable: Trade (Notes 6 and 12) 7,678 7,818 4,933 Employees and other 90 27 5 ------------ ----------- ----------- 7,768 7,845 4,938 Less allowance for doubtful accounts 100 40 10 ------------ ----------- ----------- Net receivables 7,668 7,805 4,928 ------------ ----------- ----------- Inventories (Notes 2 and 6) 7,510 8,005 8,879 Prepaid expenses and other current assets 815 821 975 Refundable income taxes 2,060 912 - Deferred income taxes (Note 10) 70 - - ------------ ----------- ----------- Total current assets 18,261 17,747 15,086 ------------ ----------- ----------- NOTE RECEIVABLE - STOCKHOLDER (Note 3) 250 268 253 ------------ ----------- ----------- DEFERRED INCOME TAXES (Note 10) 114 - - ------------ ----------- ----------- PROPERTY, PLANT, AND EQUIPMENT (Notes 4 and 8) Cost 28,078 22,507 16,644 Less accumulated depreciation 9,265 8,171 6,642 ------------ ----------- ----------- Net property, plant, and equipment 18,813 14,336 10,002 ------------ ----------- ----------- INTANGIBLE ASSETS, at cost, less accumulated amortization (Note 5) 1,950 2,011 4,235 ------------ ----------- ----------- $ 39,388 $ 34,362 $ 29,576 ============ =========== ===========
F-1 14 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
JUNE 30, DECEMBER 31, ------------------------- 1997 1997 1996 ------------ ----------- ----------- CURRENT LIABILITIES Note payable to bank (Note 6) $ 6,740 $ 1,666 $ 1,005 Current installments of long-term debt (Note 7) 2,000 - - Current installments of obligations under capital leases (Note 8) 195 196 124 Current installments of covenants payable (Note 9) 195 184 163 Accounts payable 11,892 10,434 7,267 Accrued salaries and wages 4,615 1,311 604 Accrued payroll taxes and withholding 316 264 324 Accrued acquisition costs 1,826 - - Accrued interest payable 1,198 1,198 1,216 Income taxes payable - - 82 Deferred income taxes (Note 10) - 47 63 Other 599 300 161 ------------ ----------- ----------- Total current liabilities 29,576 15,600 11,009 LONG-TERM DEBT, excluding current installments (Note 7) 23,000 25,000 25,000 OBLIGATIONS UNDER CAPITAL LEASES, excluding current installment (Note 8) 221 318 275 COVENANTS PAYABLE, excluding current installments (Note 9) 143 244 427 DEFERRED INCOME TAXES (Note 10) - 2,299 1,971 ------------ ----------- ----------- Total liabilities 52,940 43,461 38,682 ------------ ----------- ----------- STOCKHOLDERS' EQUITY (DEFICIT) (Note 11) Class A common stock, $.01 par value. Authorized 9,159,257 shares; issued 5,066,665 shares; 1,388,889 shares reserved 51 51 51 Class B common stock, convertible, $.01 par value. Authorized 100,000 shares; issued 100,000 shares 1 1 1 Additional paid-in capital 1,203 458 458 Retained earnings (deficit) (2,037) 3,161 3,154 Treasury stock, 3,222,221 shares, at cost (12,770) (12,770) (12,770) ------------ ----------- ----------- Total stockholders' equity (deficit) (13,552) (9,099) (9,106) ------------ ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 16) $ 39,388 $ 34,362 $ 29,576 ============ ========== ===========
These consolidated financial statements should be read only in connection with the accompanying notes to consolidated financial statements. F-2 15 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1997 AND THE YEARS ENDED JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data)
JUNE 30, DECEMBER 31, ------------------------------------------- 1997 1997 1996 1995 ------------ ----------- ----------- ----------- NET SALES (Note 12) $ 46,598 $ 80,762 $ 59,006 $ 48,568 COST OF SALES 41,932 70,541 50,049 40,730 ------------ ----------- ----------- ----------- Gross profit 4,666 10,221 8,957 7,838 ------------ ----------- ----------- ----------- OPERATING EXPENSES Selling expenses 1,202 1,832 1,529 1,278 Administrative expenses 10,350 5,171 3,371 2,672 ------------ ----------- ----------- ----------- Total operating expenses 11,552 7,003 4,900 3,950 ------------ ----------- ----------- ----------- Operating income (loss) (6,886) 3,218 4,057 3,888 ------------ ----------- ----------- ----------- OTHER INCOME (EXPENSES) Interest income 9 15 7 9 Interest expense (1,737) (3,266) (3,297) (2,434) Gain on sale of equipment - 18 145 - Miscellaneous 46 27 49 (54) Forgiveness of note receivable from stockholder - - - (324) ------------ ----------- ----------- ----------- Total other income (expenses) (1,682) (3,206) (3,096) (2,803) ------------ ----------- ----------- ----------- Earnings (loss) before income taxes (8,568) 12 961 1,085 INCOME TAXES (Note 10) (3,370) 5 424 523 ------------ ----------- ----------- ----------- NET EARNINGS (LOSS) $ (5,198) $ 7 $ 537 $ 562 ============ =========== =========== =========== EARNINGS (LOSS) PER SHARE (Note 15) Basic $ (2.67) $ - $ .28 $ .16 ============ =========== =========== =========== Diluted $ (1.56) $ - $ .16 $ .16 ============ =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 1,944,444 1,944,444 1,944,444 3,535,006 ============ =========== =========== =========== Diluted 3,325,974 3,327,241 3,309,827 3,551,006 ============ =========== =========== ===========
These consolidated financial statements should be read only in connection with the accompanying notes to consolidated financial statements. F-3 16 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) SIX MONTHS ENDED DECEMBER 31, 1997 AND THE YEARS ENDED JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands)
CLASS A COMMON STOCK COMMON STOCK ------------------------ ------------------------ SHARES SHARES ISSUED AMOUNT ISSUED AMOUNT ----------- ----------- ----------- ----------- BALANCE - JUNE 30, 1994, AS PREVIOUSLY REPORTED 510,000 $ 510 - $ - Recapitalization (510,000) (510) 4,622,221 46 ----------- ----------- ----------- ----------- BALANCE - JUNE 30, 1994, AS RESTATED - - 4,622,221 46 Acquisition of 3,222,221 Class A common shares - - - - Issuance of common shares to certain stockholders - - 444,444 5 Net earnings - - - - ----------- ----------- ----------- ----------- BALANCE - JUNE 30, 1995 - - 5,066,665 51 Net earnings - - - - ----------- ----------- ----------- ----------- BALANCE - JUNE 30, 1996 - - 5,066,665 51 Net earnings - - - - ----------- ----------- ----------- ----------- BALANCE - JUNE 30, 1997 - - 5,066,665 51 Net loss - - - - Issuance of stock options - - - - ----------- ----------- ----------- ----------- BALANCE - DECEMBER 31, 1997 - $ - 5,066,665 $ 51 =========== =========== =========== ===========
These consolidated financial statements should be read only in connection with the accompanying notes to consolidated financial statements. F-4 17
CLASS B COMMON STOCK ------------------------ ADDITIONAL SHARES PAID-IN RETAINED TREASURY ISSUED AMOUNT CAPITAL EARNINGS STOCK TOTAL ---------- ---------- ---------- --------- ---------- ---------- - $ - $ - $ 2,055 $ - $ 2,565 100,000 1 463 - - - ---------- ---------- ---------- --------- ---------- ---------- 100,000 1 463 2,055 - 2,565 - - - - (12,770) (12,770) - - (5) - - - - - - 562 - 562 ---------- ---------- ---------- --------- ---------- ---------- 100,000 1 458 2,617 (12,770) (9,643) - - - 537 - 537 ---------- ---------- ---------- --------- ---------- ---------- 100,000 1 458 3,154 (12,770) (9,106) - - - 7 - 7 ---------- ---------- ---------- --------- ---------- ---------- 100,000 1 458 3,161 (12,770) (9,099) - - - (5,198) - (5,198) - - 745 - - 745 ---------- ---------- ---------- --------- ---------- ---------- 100,000 $ 1 $ 1,203 $ (2,037) $ (12,770) $ (13,552) ========== ========== ========== ========= ========== ==========
These consolidated financial statements should be read only in connection with the accompanying notes to consolidated financial statements. F-5 18 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 31, 1997 AND THE YEARS ENDED JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands)
JUNE 30, DECEMBER 31, ---------------------------------------------- 1997 1997 1996 1995 ------------ ------------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) $ (5,198) $ 7 $ 537 $ 562 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization of plant and equipment 1,094 1,541 1,339 1,131 Other amortization 185 370 917 766 Write-off of intangible assets 552 1,854 - - Forgiveness of note receivable from stockholder - - - 324 Compensation expense from issuance of stock options 745 - - - Increase (decrease) in allowance for doubtful accounts 60 30 - (5) (Decrease) increase in deferred income taxes (2,530) 312 180 (43) (Gain) loss on sale of equipment - (18) (144) 38 Interest income capitalized as note receivable - stockholder - (15) (3) (7) Decrease (increase) in accounts and notes receivable 77 (2,907) (236) 143 Decrease (increase) in inventories 495 874 (348) (1,827) Decrease (increase) in prepaid expenses and other current assets 6 154 (26) (206) Increase in refundable income taxes (1,148) (912) - - Increase in accounts payable 1,458 3,167 1,684 890 Increase (decrease) in accrued expenses and other current liabilities 5,481 686 (117) 744 ------------ ------------- ------------ ------------ Net cash provided by operating activities 1,277 5,143 3,783 2,510 ------------ ------------- ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (5,571) (5,707) (2,142) (2,568) Proceeds from sale of equipment - 135 215 358 Increase in intangible assets (676) - (676) (2,047) Increase in note receivable - stockholder - - (250) (25) Repayment of note receivable - stockholder 18 - - - ------------ ------------- ------------ ------------ Net cash used in investing activities (6,229) (5,572) (2,853) (4,282) ------------ ------------- ------------ ------------
These consolidated financial statements should be read only in connection with the accompanying notes to consolidated financial statements. F-6 19 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 31, 1997 AND THE YEARS ENDED JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands)
JUNE 30, DECEMBER 31, ---------------------------------------- 1997 1997 1996 1995 ------------ ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of note payable to bank $ 51,726 $ 79,418 $ 58,182 $ 51,562 Principal payments on note payable to bank (46,652) (78,757) (58,682) (54,042) Proceeds from issuance of long-term debt - - - 25,000 Principal payments on long-term debt - - - (7,706) Principal payments under capital lease obligations (98) (170) (81) (50) Principal payments on covenants payable (90) (162) (145) (128) Purchase of treasury stock - - - (12,770) ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities 4,886 329 (726) 1,866 ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH (66) (100) 204 94 CASH AT BEGINNING OF PERIOD 204 304 100 6 ------------ ------------ ------------ ------------ CASH AT END OF PERIOD $ 138 $ 204 $ 304 $ 100 ============ ============ ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 1,737 $ 3,284 $ 3,279 $ 1,199 ============ ============ ============ ============ Income taxes $ 307 $ 687 $ 493 $ 868 ============ ============ ============ ============ NONCASH FINANCING AND INVESTING ACTIVITIES Capital lease obligations incurred for machinery and equipment $ - $ 285 $ 480 $ 94 ============ ============ ============ ============
These consolidated financial statements should be read only in connection with the accompanying notes to consolidated financial statements. F-7 20 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) DESCRIPTION OF BUSINESS The Morton Metalcraft Holding Co. holds the stock of its subsidiaries, Morton Metalcraft Co. and Morton Metalcraft Co. of North Carolina. The primary business of the subsidiaries is to fabricate and bend sheet metal in its plants located in Morton and Peoria, Illinois and Apex, North Carolina. Morton Metalcraft Co. of North Carolina began operations in July 1997. (B) PRINCIPLES OF CONSOLIDATION The consolidated financial statements as of December 31, 1997 and June 30, 1997 and 1996 and for the six months ended December 31, 1997 and each of the years in the three-year period ended June 30, 1997 include the financial statements of Morton Metalcraft Holding Co. (Company) and its wholly owned subsidiaries, Morton Metalcraft Co. and Morton Metalcraft Co. of North Carolina. All significant intercompany transactions and balances have been eliminated in consolidation. The Company changed its fiscal year end to December 31 subsequent to June 30, 1997. (C) USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (D) INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method on all inventories. During 1996, the Company changed its method of determining the cost of inventory from the last-in, first-out (LIFO) method to the FIFO method. This change was not retroactively applied due to the amounts being immaterial. The Company believes the FIFO method results in a closer matching of costs and revenue during periods of fluctuating prices. (E) PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at cost less accumulated depreciation. Equipment under capital leases is stated at the lower of the net present value of the minimum lease payments at the beginning of the lease term or fair value at the inception of the lease. Depreciation of plant and equipment is calculated over the estimated useful lives of the respective assets on the straight-line method. The equipment held under capital leases is amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. F-8 21 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (F) INTANGIBLE ASSETS Intangible assets are recorded at cost and include acquisition costs, amortized over 20 years, covenants not to compete, amortized over 10 years, and goodwill, amortized over 20 years. Other intangible assets are amortized over their estimated useful lives, typically no more than 5 years. The Company's policy is to continually evaluate whether later events and circumstances have occurred that indicate the remaining useful life of intangibles may warrant revision or that the remaining balance of intangibles may not be recoverable. Such evaluation is based on various analyses including cash flow and profitability projections. If the sum of the expected future undiscounted cash flows is less than the carrying amount, a loss is recognized for the difference between the fair value and carrying amount of the asset. (G) INCOME TAXES Deferred income taxes are provided on temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years' tax returns. Deferred tax assets are recognized for temporary differences that will be deductible in future years' tax returns and for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. (H) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash, accounts and notes receivable, accounts payable, notes payable, and long-term debt, to approximate the fair value of the respective assets and liabilities. (I) EARNINGS (LOSS) PER SHARE Earnings (loss) per share is computed under the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share, which was adopted retroactively by the Company at December 31, 1997. Amounts reported as earnings (loss) per share for the six months ended December 31, 1997 and for each of the three years in the period ended June 30, 1997, reflect the earnings available to stockholders for the year divided by the weighted average number of common shares outstanding during the year. F-9 22 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 2 - INVENTORIES A summary of inventories follows:
JUNE 30, DECEMBER 31, -------------------------- 1997 1997 1996 ------------ ------------ ------------ Finished goods $ 2,588 $ 2,339 $ 2,220 Work in process 1,573 2,851 4,111 Raw materials, purchased parts, and manufactured components 3,349 2,815 2,548 ------------ ------------ ------------ TOTAL INVENTORIES $ 7,510 $ 8,005 $ 8,879 ============ ============ ============
NOTE 3 - NOTE RECEIVABLE - STOCKHOLDER At December 31, 1997 and June 30, 1997 and 1996, the Company had a note receivable from a stockholder in the amount of $250, $268, and $253, respectively. The note, which is unsecured, is due April 12, 2001 and accrues interest at 5.88 percent. NOTE 4 - PROPERTY, PLANT, AND EQUIPMENT A summary of property, plant, and equipment (at cost), including assets held under capital leases as described in Note 8 to the consolidated financial statements, is as follows:
JUNE 30, DECEMBER 31, -------------------------- 1997 1997 1996 ------------ ------------ ------------ Land, plant sites $ 545 $ 545 $ 545 Land held for expansion 121 121 121 Land improvements 203 203 131 Buildings and improvements 3,865 3,083 2,508 Leasehold improvements 1,050 592 327 Machinery 14,694 11,397 8,026 Tooling 5,028 4,540 3,727 Office equipment 2,507 1,961 1,212 Automobiles and trucks 65 65 47 ------------ ------------ ------------ $ 28,078 $ 22,507 $ 16,644 ============ ============ ============
F-10 23 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 5 - INTANGIBLE ASSETS A summary of intangible assets, at cost, is as follows:
JUNE 30, DECEMBER 31, -------------------------- 1997 1997 1996 ------------ ------------ ------------ Goodwill $ 1,200 $ 1,200 $ 1,200 Organization costs 374 374 374 Covenants not to compete 2,136 2,136 2,136 Engineering costs - - 1,748 Specific project start-up costs - - 854 Refinancing costs 676 779 779 Factory rearrangement - - 700 ------------ ------------ ------------ 4,386 4,489 7,791 Less accumulated amortization 2,436 2,478 3,556 ------------ ------------ ------------ NET INTANGIBLES $ 1,950 $ 2,011 $ 4,235 ============ ============ ============
During the six months ended December 31, 1997 and the year ended June 30, 1997, intangible assets with a net value of approximately $552 and $1,854, respectively, were written off due to the determination that these intangible assets no longer had value. NOTE 6 - NOTE PAYABLE TO BANK The Company has a revolving credit agreement which provides up to $9,000 in revolving credit, limited to 85 percent of qualified accounts receivable and 40-60 percent of eligible inventory (up to a maximum borrowing of $5,000 for inventory) and expires January 30, 1999. The interest on the outstanding borrowings is due on the first day of each month at 0.5 percent over the bank's base rate (9.00 percent at December 31, 1997). At December 31, 1997 and June 30, 1997 and 1996, the Company had $6,740, $1,666, and $1,005, respectively, of its credit line in use. The revolving credit agreement contains certain restrictive covenants on the Company, including financial restrictions relating to working capital, net worth, and earnings. The restrictions also limit capital expenditures, executive compensation, ownership changes, and prohibit dividend payments and the creation of additional indebtedness. Subsequent to December 31, 1997, the Company refinanced its revolving credit agreement and entered into a new revolving credit facility with another institution. The new revolving credit facility provides up to $35,000 in revolving credit and is a portion of a $50,000 total credit facility as discussed at Note 7. F-11 24 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 7 - LONG-TERM DEBT A summary of long-term debt follows:
JUNE 30, DECEMBER 31, -------------------------- 1997 1997 1996 ------------ ------------ ------------ $25,000 senior notes payable with interest at 11.5 percent; due in annual installments of various amounts beginning January 31, 1999 with the balance due January 31, 2005. $ 25,000 $ 25,000 $ 25,000 ============ ============ ============
On January 25, 1995, the Company entered into a note and warrant purchase agreement, pursuant to which the Company agreed to sell $25,000 of the Company's 11.50 percent senior notes in consideration for a promise to repay the principal, including interest, and the issuance of warrants to purchase 72,000 shares of the Company's common stock as discussed at Note 11. The above-mentioned financing arrangement imposes certain restrictions on the Company, including financial restrictions relating to working capital, lease commitments, and indebtedness. The restrictions also require the Company to maintain key man life insurance on the Company's president. The interest on the senior notes is payable semi-annually in arrears each January and July. The aggregate amounts of long-term debt maturities and principal payments for each of the five years subsequent to December 31, 1997 and thereafter are as follows: Fiscal year ending: 1998 $ - 1999 2,500 2000 3,125 2001 3,750 2002 3,750 Thereafter 11,875 -------- $ 25,000 ========
As discussed at Note 6, subsequent to December 31, 1997, the Company entered into a financing arrangement with another institution which provides total financing of $50,000. The arrangement contains a $35,000 revolving credit portion and a $15,000 term loan portion. If during any quarter, borrowings under the revolving credit facility exceed $15,000, $10,000 of the revolving credit facility will be converted into an additional term loan, and the revolving credit facility will be reduced by $10,000. The financing arrangement bears interest at an adjustable rate based on LIBOR plus an applicable margin which will vary depending on certain financial ratios achieved by the Company. The financing arrangement has a term of six years and includes some mandatory prepayment terms and customary financial and other covenants. This financing arrangement requires quarterly principal payments of various amounts of which $2,000 will be due in 1998. This amount has been reclassified as a current liability as of December 31, 1997. F-12 25 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 7 - LONG-TERM DEBT (CONTINUED) In connection with the above arrangement, the Company recorded debt issue costs of $676 and wrote-off approximately $552 of previous debt issue costs, net of accumulated amortization, that related to the previous financing facility. In addition, the Company expensed $340 in termination fees to the previous institution. NOTE 8 - LEASES The Company is obligated under various capital leases for certain machinery. At December 31, 1997, the gross amount of equipment and related amortization recorded under capital leases was as follows:
1997 ------ Machinery $ 837 Less accumulated amortization (143) ------ $ 694 ======
Amortization of assets held under capital leases is included with depreciation expense. The present value of future minimum capital lease payments at December 31, 1997 was as follows: Year ending December 31: 1998 $ 231 1999 128 2000 83 2001 30 ------ Total minimum lease payments 472 Less amount representing interest (from 9.2 to 10.4 percent) 56 ------ Present value of net minimum capital lease payments 416 Less current installments of obligations under capital leases 195 ------ OBLIGATIONS UNDER CAPITAL LEASES, EXCLUDING CURRENT INSTALLMENTS $ 221 ======
The Company also has operating leases for two of its plants, certain warehouse space, and manufacturing and computer equipment. Rental expense for operating leases was $1,452, $2,061, $1,328, and $891 for the six months ended December 31, 1997 and years ended June 30, 1997, 1996, and 1995, respectively. F-13 26 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 8 - LEASES (CONTINUED) Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 1997 are: Year ending December 31: 1998 $ 3,298 1999 3,207 2000 2,955 2001 2,610 2002 2,434 Thereafter 4,989 -------- TOTAL MINIMUM LEASE PAYMENTS $ 19,493 ========
NOTE 9 - COVENANTS PAYABLE With the acquisition of the outstanding common stock of Morton Metalcraft Co. in 1989, the Company entered into non-competition agreements which expire August 31, 1999 with two of Morton Metalcraft Co.'s former shareholders and officers in exchange for $3,050. Monthly installments of $19 through August 15, 1999 will be paid to retire these obligations. The remaining payments have been recorded in the consolidated financial statements at their net present value. NOTE 10 - INCOME TAXES Income tax expense (benefit) consists of the following:
CURRENT DEFERRED TOTAL ------- -------- -------- December 31, 1997: Federal $ (812) $ (2,021) $ (2,833) State (28) (509) (537) ------- -------- -------- $ (840) $ (2,530) $ (3,370) ======= ======== ======== June 30, 1997: Federal $ (250) $ 254 $ 4 State (57) 58 1 ------- -------- -------- $ (307) $ 312 $ 5 ======= ======== ========
F-14 27 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 10 - INCOME TAXES (CONTINUED)
CURRENT DEFERRED TOTAL -------- -------- -------- June 30, 1996: Federal $ 224 $ 147 $ 371 State 20 33 53 -------- -------- -------- $ 244 $ 180 $ 424 ======== ======== ======== June 30, 1995: Federal $ 520 $ (35) $ 485 State 46 (8) 38 -------- -------- -------- $ 566 $ (43) $ 523 ======== ======== ========
Total income tax expense (benefit) differed from the amounts computed by applying the U.S. federal corporate income tax rate of 34 percent for all periods to earnings (loss) before income taxes as a result of the following:
JUNE 30, DECEMBER 31, ----------------------------------------------- 1997 1997 1996 1995 ------------ ------------ ------------ ------------ Computed "expected" tax expense (benefit) $ (2,913) $ 4 $ 327 $ 369 State income taxes (benefit), net of federal income tax benefit (expense) (354) 1 35 25 Surtax exemption - (2) - - Amortization of goodwill 10 20 20 20 Officer's life insurance 8 16 15 10 Forgiveness of note receivable - stockholder - - - 110 Other, net (121) (34) 27 (11) ------------ ------------ ------------ ------------ TOTAL INCOME TAX EXPENSE $ (3,370) $ 5 $ 424 $ 523 ============ ============ ============ ============ EFFECTIVE TAX RATE (39.3)% 39.2% 44.1% 48.2% ============ ============ ============ ============
F-15 28 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 10 - INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997 and June 30, 1997 and 1996 are presented below:
JUNE 30, DECEMBER 31, ------------------------ 1997 1997 1996 ------------ ----------- ----------- Deferred tax assets: Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 $ - $ 6 $ 80 Accrued vacation pay 136 125 112 Net operating loss carryforwards 2,298 - - State tax credit carryforwards 50 - - Compensation expense from issuance of stock options 289 - - Other 39 16 - ------------ ----------- ----------- Total deferred tax assets 2,812 147 192 ------------ ----------- ----------- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation (2,389) (2,211) (1,876) Recapture of inventory LIFO valuation for tax purposes (155) (194) (255) Excess of tax over book amortization of organization costs (84) (88) (95) ------------ ----------- ----------- Total deferred tax liabilities (2,628) (2,493) (2,226) ------------ ----------- ----------- NET DEFERRED TAX ASSET (LIABILITY) $ 184 $ (2,346) $ (2,034) ============ =========== ===========
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of approximately $474 prior to the expiration of the net operating loss carryforward in 2012. The Company has a tax net operating loss carryforward of approximately $5,920 available at December 31, 1997 which expires in 2012. F-16 29 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 11 - EMPLOYEE STOCK OPTIONS AND WARRANTS The Company has granted stock options to purchase the Company's Class A common stock to certain officers and directors. The options may be exercised at any time prior to their expiration dates. The 722,222 shares under option have been reserved. A summary of the stock options follows:
NUMBER EXERCISE EXPIRATION OF SHARES PRICE DATE - --------- -------- ----------------- 444,443 $.11 September 1, 1999 83,333 $.11 September 1, 2000 83,333 $.22 July 13, 2002 64,815 $.11 February 15, 2005 46,298 $.90 May 8, 2005
On October 8, 1997, the Company granted options to purchase 46,298 shares of the Company's Class A common stock to an officer of the Company at an option price of $.90 per share. The Company has recognized compensation expense of $745 in connection with this transaction. In addition, 46,298 of previously outstanding options to purchase the Company's Class A common stock were canceled. The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Basis Compensation, but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its option plan. If the Company had elected to recognize compensation cost for the plan based on the fair value at the grant dates for awards under the plan consistent with the method prescribed by SFAS No. 123, the effect on net income and earnings per share would not have been significant. On January 25, 1995, the Board of Directors authorized the issuance of 666,667 warrants, each representing the right to purchase one share of the Company's common stock, as part of the consideration for the purchase of the $25,000 senior notes as discussed at Note 7. The warrants may be exercised at any time prior to their expiration date of January 31, 2005 for the exercise price of $.002 per share. There was no value assigned to the warrants upon issuance. The 666,667 shares under the warrant agreement have been reserved. NOTE 12 - CONCENTRATION OF SALES Sales to customers in excess of 10 percent of total net sales for the six months ended December 31, 1997 and each of the years ended June 30, 1997, 1996, and 1995 are as follows:
CUSTOMER A CUSTOMER B ---------- ---------- Periods ended: December 31, 1997 34% 53% June 30, 1997 39% 46% June 30, 1996 53% 34% June 30, 1995 63% 20%
F-17 30 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 12 - CONCENTRATION OF SALES (CONTINUED) Trade accounts receivable with these customers totaled $5,027, $6,502, and $3,964 at December 31, 1997 and June 30, 1997 and 1996, respectively. NOTE 13 - EMPLOYEE PARTICIPATION PLAN The Morton Metalcraft Co. Employee Participation Plan allows substantially all employees to defer up to 15 percent of their income through payroll deduction of pre-tax contributions under section 401(k) of the Internal Revenue Code. The Company matches 25 percent of the first 6 percent of pre-tax income contributed by each employee. Employees may also make contributions of after-tax income. Additionally, the Company may make discretionary contributions to the plan for the benefit of participating employees. The expense charged to operations for Company matching and discretionary contributions was $70, $116, $87, and $70 for the six months ended December 31, 1997 and the years ended June 30, 1997, 1996, and 1995, respectively. NOTE 14 - LEASED PROPERTIES The Company leases certain portions of its office, warehouse, and factory space under operating leases to other companies. Rental revenue earned under noncancelable operating leases amounted to $13, $22, $55, and $74 for the six months ended December 31, 1997 and the years ended June 30, 1997, 1996, and 1995, respectively. NOTE 15 - EARNINGS (LOSS) PER SHARE The following reflects the reconciliation of the numerators and denominators of the earnings (loss) per share and net earnings (loss) per share assuming dilution computations:
SIX MONTHS ENDED DECEMBER 31, 1997 ----------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------ ------------- ------------ Basic loss per share $ (5,198) 1,944,444 $ (2.67) ============ Effect of dilutive securities: Stock options - 714,948 Warrants - 666,582 ------------ ------------- DILUTED LOSS PER SHARE $ (5,198) 3,325,974 $ (1.56) ============ ============= ============
F-18 31 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 15 - EARNINGS (LOSS) PER SHARE (CONTINUED)
YEAR ENDED JUNE 30, 1997 ------------------------------------------ INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------ -------------- ------------ Basic earnings per share $ 7 1,944,444 $ - ============ Effect of dilutive securities: Stock options - 716,226 Warrants - 666,571 ------------ ------------ DILUTED EARNINGS PER SHARE $ 7 3,327,241 $ - ============ ============ ============
YEAR ENDED JUNE 30, 1996 ----------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------ ------------- ------------ Basic earnings per share $ 537 1,944,444 $ .28 ============ Effect of dilutive securities: Stock options - 699,086 Warrants - 666,297 ------------ ------------ DILUTED EARNINGS PER SHARE $ 537 3,309,827 $ .16 ============ ============ ============
YEAR ENDED JUNE 30, 1995 ------------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------ ------------- ------------ Basic earnings per share $ 562 3,535,006 $ .16 ============ Effect of dilutive securities: Stock options - - Warrants - 16,000 ------------ -------------- DILUTED EARNINGS PER SHARE $ 562 3,551,006 $ .16 ============ ============== ============
Options to purchase 722,222 shares of Class A common stock at an average price of $.12 per share were outstanding at June 30, 1995, but were not included in the computation of diluted earnings per share because they were anti-dilutive. F-19 32 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 16 - COMMITMENTS AND CONTINGENCIES SELF INSURANCE The Company provides health benefits to its employees under the Morton Metalcraft Co. Health Care Payment Plan (Plan). The Plan is a partially self-insured program funded by contributions from the Company and its employees. The Plan has purchased stop-loss insurance coverage for individual claims in excess of $50. PURCHASE COMMITMENTS At December 31, 1997, the Company had outstanding purchase commitments for certain manufacturing equipment totaling approximately $2,000. NOTE 17 - SUBSEQUENT EVENT On January 20, 1998, the Company merged (the "Merger") with MLX Corp. ("MLX") with MLX being the surviving corporation. As a result of the Merger, the Company will cease to exist as a separate corporate entity and MLX amended its Articles of Incorporation to change the corporate name of MLX to Morton Industrial Group, Inc. The Merger, for financial accounting and reporting purposes, will be treated as a purchase in accordance with generally accepted accounting principles. The Merger will be accounted for as though the Company purchased MLX because (i) the Chairman and CEO of the Company will maintain voting control in the surviving corporation, (ii) the Chairman of the Board of Directors, CEO, and directors of the surviving corporation will consist of individuals appointed by the Chairman and CEO of the Company, (iii) the revenues, net earnings, and current market value of the Company exceed those of MLX, and (iv) the market value of the consideration received by the former shareholders of the Company and former holders of options and warrants for Company common stock, including MLX common stock, MLX options, and cash exceeds the market value of the securities to be retained by the shareholders of MLX common stock. The historical financial statements of Morton Metalcraft Holding Co. will, after the date of the merger, become the historical financial statements of MLX, Inc. as the result of the reverse merger. Immediately preceding the Merger, the Company recapitalized its existing common stock, no par value, into Class A common stock, par value $.01, and Class B common stock, par value $.01, and approved a 9.259 to 1.0 common stock split in order to provide for the one-for-one stock exchange rate in the Merger. Class B common stock contains the identical rights and preferences as Class A common stock but have limited voting rights. Each share of Class B common stock is convertible into one share of Class A common stock at the option of the shareholder. The capital structure and per share amounts in the accompanying financial statements have been adjusted for the recapitalization and split. F-20 33 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND JUNE 30, 1997, 1996, AND 1995 (Dollars in Thousands, Except Per Share Data) NOTE 17 - SUBSEQUENT EVENT (CONTINUED) In connection with the Merger, MLX purchased 612,121 shares of common stock and 721,211 options and warrants to acquire common stock from certain officers, directors, and warrant holders of the Company for an aggregate purchase price of $19,991 immediately prior to the consummation of the Merger. These shares, warrants, and options were canceled when the Merger was consummated. Upon consummation of the Merger, each share of the Company's common stock was exchanged for one share of the Surviving Corporation's common stock with equivalent voting rights and all outstanding options to purchase the Company's common stock were exchanged for options to purchase equivalent common stock of the Surviving Corporation. At December 31, 1997, the Company has recorded accrued bonuses in the amount of $4,000 and various accrued consulting and legal expenses in the amount of $1,000 in connection with the Merger. The following unaudited pro forma summary presents the Company's consolidated results of operations for the six months ended December 31, 1997, as if the Merger had occurred on July 1, 1997. Net sales $ 46,598 ========= Net loss $ 5,466 ========= Net loss per share - diluted $ 1.39 =========
This information is an integral part of the accompanying consolidated financial statements. F-21 34 MORTON METALCRAFT HOLDING CO. SCHEDULE IX - VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - --------------------------- ---------- -------------------- ---------- --------- ADDITIONS -------------------- BALANCE AT CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO OTHER AT END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - --------------------------- ---------- ---------- -------- ---------- --------- Allowance for doubtful accounts: Six months ended December 31, 1997 $ 40 $ 60 $ - $ - $ 100 ========== ========== ======== ========== ========= Year ended June 30, 1997 $ 10 $ 42 $ - $ 12 $ 40 ========== ========== ======== ========== ========= Year ended June 30, 1996 $ 10 $ - $ - $ - $ 10 ========== ========== ======== ========== =========
F-22 35 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (Dollars In Thousands, Except Share Data)
ASSETS (UNAUDITED) 1997 1996 ---------- ----------- CURRENT ASSETS Cash $ 138 $ 58 ---------- ----------- Accounts and notes receivable: Trade 7,678 5,120 Employees and other 90 16 ---------- ----------- 7,768 5,136 Less allowance for doubtful accounts 100 10 ---------- ----------- Net receivables 7,668 5,126 ---------- ----------- Inventories 7,510 8,752 Prepaid expenses and other current assets 815 840 Refundable income taxes 2,060 59 Deferred income taxes 70 - ---------- ----------- Total current assets 18,261 14,835 ---------- ----------- NOTE RECEIVABLE - STOCKHOLDER 250 260 ---------- ----------- DEFERRED INCOME TAXES 114 - ---------- ----------- PROPERTY, PLANT, AND EQUIPMENT Cost 28,078 18,319 Less accumulated depreciation 9,265 7,366 ---------- ----------- Net property, plant, and equipment 18,813 10,953 ---------- ----------- INTANGIBLE ASSETS, at cost, less accumulated amortization 1,950 3,094 ---------- ----------- $ 39,388 $ 29,142 ========== ===========
F-23 36 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED) 1997 1996 ----------- ----------- CURRENT LIABILITIES Note payable to bank $ 6,740 $ 1,410 Current installments of long-term debt 2,000 - Current installments of obligations under capital leases 195 152 Current installments of covenants payable 195 173 Accounts payable 11,892 7,192 Accrued salaries and wages 4,615 308 Accrued payroll taxes and withholding 316 158 Accrued acquisition costs 1,826 - Accrued interest payable 1,198 1,198 Deferred income taxes - 63 Other 599 312 ----------- ----------- Total current liabilities 29,576 10,966 ----------- ----------- LONG-TERM DEBT, excluding current installments 23,000 25,000 ----------- ----------- OBLIGATIONS UNDER CAPITAL LEASES, excluding current installment 221 255 ----------- ----------- COVENANTS PAYABLE, excluding current installments 143 338 ----------- ----------- DEFERRED INCOME TAXES - 1,971 ----------- ----------- Total liabilities 52,940 38,530 ----------- ----------- STOCKHOLDERS' EQUITY (DEFICIT) Class A common stock, $.01 par value. Authorized 9,159,257 shares; issued 5,066,665 shares; 1,388,889 shares reserved 51 51 Class B common stock, convertible, $.01 par value. Authorized 100,000 shares; issued 100,000 shares 1 1 Additional paid-in capital 1,203 458 Retained earnings (deficit) (2,037) 2,872 Treasury stock, 3,222,221 shares, at cost (12,770) (12,770) ----------- ----------- Total stockholders' equity (deficit) (13,552) (9,388) ----------- ----------- $ 39,388 $ 29,142 =========== ===========
These consolidated financial statements should be read only in connection with the accompanying notes to consolidated financial statements. F-24 37 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (Dollars In Thousands, Except Per Share Data)
(UNAUDITED) 1997 1996 ------------- ------------ NET SALES $ 46,598 $ 32,958 COST OF SALES 41,932 29,206 ------------- ------------ Gross profit 4,666 3,752 ------------- ------------ OPERATING EXPENSES Selling expenses 1,202 803 Administrative expenses 10,350 1,775 ------------- ------------ Total operating expenses 11,552 2,578 ------------- ------------ Operating income (loss) (6,886) 1,174 ------------- ------------ OTHER INCOME (EXPENSE) Interest income 9 - Interest expense (1,737) (1,628) Miscellaneous 46 31 ------------- ------------ Total other income (expense) (1,682) (1,597) ------------- ------------ Loss before income taxes (8,568) (423) INCOME TAXES (3,370) (282) ------------- ------------ NET LOSS ($5,198) ($141) ============= ============ LOSS PER SHARE Basic $ (2.67) $ (.07) ============= ============ Diluted $ (1.56) $ (.04) ============= ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 1,944,444 1,944,444 ============= ============ Diluted 3,325,974 3,323,925 ============= ============
These consolidated financial statements should be read only in connection with the accompanying notes to consolidated financial statements. F-25 38 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (Dollars In Thousands)
(UNAUDITED) 1997 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (5,198) $ (282) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization of plant and equipment 1,094 724 Other amortization 185 481 Write-off of intangible assets 552 660 Interest income capitalized as note receivable - stockholder - (7) Compensation expense from issuance of stock options 745 - Increase in allowance for doubtful accounts 60 - Decrease in deferred taxes (2,530) - Decrease (increase) in accounts and notes receivable 77 (198) Decrease in inventories 495 128 Decrease in prepaid expenses and other current assets 6 135 Increase in refundable income taxes (1,148) (59) Increase (decrease) in accounts payable 1,458 (75) Increase (decrease) in accrued expenses and other current liabilities 5,481 (411) ------------ ------------ Net cash provided by operating activities 1,277 1,096 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (5,571) (1,599) Increase in intangible assets (676) - Repayment of note receivable - stockholder 18 - ------------ ------------ Net cash used in investing activities (6,229) (1,599) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of note payable to bank 51,726 33,967 Principal payments on note payable to bank (46,652) (33,562) Principal payments under capital lease obligations (98) (69) Principal payments on covenants payable (90) (79) ------------ ------------ Net cash provided by financing activities 4,886 257 ------------ ------------ NET DECREASE IN CASH (66) (246) CASH AT BEGINNING OF PERIOD 204 304 ------------ ------------ CASH AT END OF PERIOD $ 138 $ 58 ============ ============
These consolidated financial statements should be read only in connection with the accompanying notes to consolidated financial statements. F-26 39 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (Dollars In Thousands)
(UNAUDITED) 1997 1996 ---------- ------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 1,737 $ 1,644 ========== ============ Income taxes $ 307 $ - ========== ============ NONCASH FINANCING AND INVESTING ACTIVITIES Capital lease obligations incurred for machinery and equipment $ - $ 77 =========== ============
These consolidated financial statements should be read only in connection with the accompanying notes to consolidated financial statements. F-27 40 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE 1 The Company changed its fiscal year end to December 31 subsequent to June 30, 1997. The Company's consolidated financial statements as of and for the six months ended December 31, 1997 have been audited by the Company's independent auditor and are presented in Exhibit 99.1. The Company's consolidated financial statements as of and for the six months ended December 31, 1996 have been prepared without audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of (a) the consolidated balance sheet at December 31, 1996, (b) the consolidated statement of operations for the six months ended December 31, 1996, and (c) the consolidated statement of cash flows for the six months ended December 31, 1996 have been made. NOTE 2 The results for the six months ended December 31, 1997 and 1996 are not necessarily indicative of the results for their entire respective calendar years. NOTE 3 - LOSS PER SHARE Loss per share is computed under the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share, which was adopted retroactively by the Company at December 31, 1997. Amounts reported as loss per share for the six months ended December 31, 1997 and 1996, reflect the loss to stockholders for the period divided by the weighted average number of common shares outstanding during the year. The following reflects the reconciliation of the numerators and denominators of the loss per share and net loss per share assuming dilution computations:
SIX MONTHS ENDED DECEMBER 31, 1997 ---------------------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------ ------------- ------------ Basic loss per share $ (5,198) 1,944,444 $ (2.67) ============ Effect of dilutive securities: Stock options - 714,948 Warrants - 666,582 ------------ ------------- DILUTED LOSS PER SHARE $ (5,198) 3,325,974 $ (1.56) ============ ============= ============
F-28 41 MORTON METALCRAFT HOLDING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE 3 - LOSS PER SHARE (CONTINUED)
SIX MONTHS ENDED DECEMBER 31, 1996 ----------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------ ------------- ------------ Basic loss per share $ (141) 1,944,444 $ (.07) ============ Effect of dilutive securities: Stock options - 712,962 Warrants - 666,519 ------------ ------------- DILUTED LOSS PER SHARE $ (141) 3,323,925 $ (.04) ============ ============= ============
F-29 EX-99.2 30 EX-99.2 1 EXHIBIT 99.2 MORTON INDUSTRIAL GROUP, INC. Pro Forma Condensed Combined Financial Statements (In Thousands except share amounts) On January 20, 1998 MLX, Inc. merged (the "Merger") with Morton Metalcraft Holding Co. ("Morton") and the Articles of Incorporation were amended to change the name of the merged company to Morton Industrial Group, Inc. In connection with the Merger, MLX, Inc. paid $19,991 for the purchase of 612,121 shares of Morton common stock and 721,211 options and warrants to purchase Morton common stock and issued 1,332,323 shares of common stock for the remaining shares of Morton common stock. The Merger for accounting and financial reporting purposes, will be treated as a purchase in accordance with generally accepted accounting principles. The Merger will be accounted for as though Morton purchased MLX because (i) the Chairman and Chief Executive Officer of Morton through his common stock ownership in the merged companies, together with the right to vote certain shares pursuant to a Shareholders Agreement will have over 50% of the votes of all classes of stock of the surviving company, (ii) the Chairman of the Board of Directors, Chief Executive Officer and directors of the surviving company will consist of individuals appointed by the Chairman and Chief Executive Officer of Morton, (iii) the revenues, net earnings and current market value of Morton exceeds those of MLX and (iv) the market value of the consideration received by the former shareholders of Morton common stock and former holders of options and warrants for Morton common stock, including MLX Common Stock, MLX options and cash, exceeds the market value of the securities to be retained by the shareholders of MLX common stock. The information contained herein has been derived from historical data included in the financial statement of MLX and Morton, and should be read in conjunction with the respective "Management's Discussion and Analysis of Financial Condition and Result of Operations" and the financial statements and notes thereto included elsewhere in this Form 10-K or the exhibits thereto. The pro forma financial information is not necessarily indicative of the results which actually would have occurred if the transaction had been completed on the date and for the periods indicated or which may result in the future. PRO FORMA CONDENSED COMBINED BALANCE SHEET The following unaudited pro forma condensed combined balance sheet combines the consolidated balance sheet of Morton at December 31, 1997 with the balance sheet of MLX at December 31, 1997, accounting for the merger as a reverse purchase, as though the merger had occurred on December 31, 1997. PF-1 2 PRO FORMA CONDENSED COMBINED BALANCE SHEET (Caption> HISTORICAL --------------------------- PRO FORMA MORTON MLX ADJUSTMENTS COMBINED ------------------------------------------------------------- (In thousands) (Unaudited) ASSETS Current assets: Cash $ 138 $ 36,718 $ (19,991) (1) $ 5,865 (11,000) (3) Accounts receivable 7,668 - - 7,668 Inventories 7,510 - - 7,510 Refundable income taxes 2,060 - - 2,060 Prepaid expenses and other current assets 885 10 - 895 ------------------------------------------------------------- Total current assets 18,261 36,728 (30,991) 23,998 Notes receivable - stockholder 250 - - 250 Property, plant, and equipment, net 18,813 2 - 18,815 Other assets 114 1,529 - 1,643 Deferred tax asset - - 3,071 (4) 3,071 Intangible assets 1,950 - - 1,950 ------------------------------------------------------------- $ 39,388 $ 38,259 $ (27,920) $ 49,727 ============================================================= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Notes payable, current installments under capital leases and covenants payable $ 9,130 $ - $ - $ 9,130 Accounts payable and accrued expenses 20,446 1,345 350 (5) 22,141 ------------------------------------------------------------- Total current liabilities 29,576 1,345 350 31,271 Long-term liabilities 23,364 2,042 (11,000) (3) 14,406 (19,991) (1) 14,881 (2) (350) (3) 3,071 (4) Stockholders' equity (deficit) (13,552) 34,872 (14,881) (6) 4,050 ------------------------------------------------------------- $ 39,388 $ 38,259 $ (27,920) $ 49,727 =============================================================
PF-2 3 PRO FORMA CONDENSED COMBINED BALANCE SHEET (CONTINUED) Notes (1) Represents cash paid for the purchase of 612,121 shares of Morton common stock for $9,182, options to purchase 54,545 shares of Morton Class A Common Stock for $810 and warrants to purchase 666,667 shares of Morton Class A Common Stock for $9,999. (2) Represents the value assigned to 1,332,323 shares of surviving company Common Stock issued for 1,332,323 shares of Morton common stock. Such dollar amount was determined based on the net assets of MLX after the cash payment to Morton common shareholders referred to in (1). (3) Represents payment of $11,000 of Morton's Senior Notes Payable with cash from MLX. The balance of the Morton Senior Notes Payable will be repaid with a $50,000 credit facility available to the surviving corporation. Borrowing under the $50,000 credit facility and a corresponding repayment of the Senior Notes Payable has not been separately reflected in the pro forma balance sheet. (4) Represents deferred tax asset, net of valuation allowance, recognized as a result of MLX's net operating loss carryforward. Such amounts were recorded based on Morton's history of profitable operating results and anticipated profitable operating results in the near term. (5) Includes, in connection with the Merger, a $350 severance package granted to the President of MLX, which was approved by the MLX Board of Directors. (6) Elimination of remaining balance of stockholders' equity of MLX after cash payment to holders of Morton Common Stock. PF-3 4 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS The following unaudited pro forma condensed combined statement of operations combines the consolidated statement of operations of Morton for the six months ended December 31, 1997 and the year ended June 30, 1997 and the statement of operations of MLX for the six months ended December 31, 1997 and the twelve months ended June 30, 1997, accounting for the Merger as a reverse purchase as though the Merger had occurred at the beginning of the respective period.
SIX MONTHS ENDED DECEMBER 31, 1997 ------------------------------------------------ HISTORICAL ----------------------- PRO FORMA MORTON MLX ADJUSTMENTS COMBINED ------------------------------------------------ (In thousands, except per share amounts) (Unaudited) Net sales $ 46,598 $ - $ - $ 46,598 Cost of sales 41,932 - - 41,932 ---------------------------------------------- Gross profit 4,666 - - 4,666 Operating expenses: Selling expenses 1,202 - - 1,202 Administrative expenses 10,350 1,085 - 11,435 ---------------------------------------------- Total operating expenses 11,552 1,085 - 12,637 ---------------------------------------------- Operating income (loss) (6,886) (1,085) - (7,971) Other income (expense): Interest income 9 973 (788)(3) 194 Interest expense (1,737) - 632(2) (1,105) Other 46 - - 46 ---------------------------------------------- Total other income (expense) (1,682) 973 (156) (865) ---------------------------------------------- Earnings (loss) before income taxes (8,568) (112) (156) (8,836) Income taxes (3,370) - - (3,370) ---------------------------------------------- Net earnings (loss) $ (5,198) $ (112) $ (156) $ (5,466) ============================================= Earnings (loss) per common share - diluted $ (1.56) $ (.04) $ (1.39)(6) ============================================= Average number of common shares outstanding - diluted 3,326 2,618 3,936 (6) =============================================
PF-4 5 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED JUNE 30, 1997 ------------------------------------------------ HISTORICAL -------------------- PRO FORMA MORTON MLX ADJUSTMENTS COMBINED ---------------------------------------------------- (In thousands, except per share amounts) (Unaudited) Net sales $ 80,762 $ - $ - $ 80,762 Cost of sales 70,541 - - 70,541 ---------------------------------------------------- Gross profit 10,221 - - 10,221 Operating expenses: Selling expenses 1,832 - - 1,832 Administrative expenses 5,171 929 - 6,100 Stock appreciation rights compensation - 2,225 (1) 2,225 ---------------------------------------------------- Total operating expenses 7,003 3,154 - 10,157 ---------------------------------------------------- Operating income (loss) 3,218 (3,154) 64 Other income (expense): Interest income 15 1,865 (1,528) (3) 352 Interest expense (3,266) - 1,265 (2) (2,001) Other 45 - - 45 ---------------------------------------------------- Total other income (expense) (3,206) 1,865 (263) (1,604) ---------------------------------------------------- Earnings (loss) before income taxes 12 (1,289) (263) (1,540) Income taxes 5 - (5)(4) - ---------------------------------------------------- Net earnings (loss) $ 7 $ (1,289) $ (258) $ (1,540) ==================================================== Earnings (loss) per common share - diluted $ --- $ (0.49) $ (0.39)(6) ==================================================== Average number of common shares outstanding - diluted 3,327 2,618 3,936 (6) ====================================================
PF-5 6 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (CONTINUED) Notes (1) On February 12, 1997, MLX's Board of Directors approved the conversion of all the common stock options held by its former Chief Executive Officer to Stock Appreciation Rights (SAR's), and all such SAR's were exercised as of that date. The resulting liability under this agreement amounted to $2.2 million and was disbursed in February 1997. The non-recurring compensation expense from this transaction is reported in the accompanying statement of operations for the twelve months ended June 30, 1997. Pro forma operating results for the year ended June 30, 1997, without this nonrecurring compensation charge would be as follows: Net earnings $ 411 Earnings per common share - diluted $0.09 (2) Represents adjustment to interest expense as a result of the assumed repayment of $11,000 of 11.5% Senior Notes Payable of Morton with cash from MLX. (3) Represents adjustment to interest income as a result of the use of funds for cash paid for the purchase of Morton Common Stock and the repayment of $11,000 of 11.5% Senior Notes Payable of Morton. The interest income adjustment was based on the average earnings on investments by MLX for the period (5.09% for the six months ended December 31, 1997 and 4.93% for the year ended June 30, 1997). (4) Represents adjustment of the income tax provision to the estimated effective rate. (5) The pro forma condensed combined statement of operations does not include the accrual of a $350 severance package granted to an officer of MLX. Such amount will be charged to MLX's operations in the quarter ending March 31, 1998, when such amount is awarded. (6) Income (loss) per common shares - dilutive was computed based on the weighted average number of shares of common outstanding. Pro forma income (loss) per common share - diluted is computed using weighted average shares of Class A Common Stock and Class B Common Stock outstanding after the Merger (3,936,574 shares for the six months ended December 31, 1997 and the year ended June 30, 1997). PF-6 -----END PRIVACY-ENHANCED MESSAGE-----