e10vq

-----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, KLUsZMSisH2kM5oBf598o/XEcAfpofjDVyN/xMw9RpNu4EKa9XViGB9tJadSy4yc GkmlM5wdXF63zfiVHFOsSg== 0000950137-04-006351.txt : 20040806 0000950137-04-006351.hdr.sgml : 20040806 20040806163250 ACCESSION NUMBER: 0000950137-04-006351 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040626 FILED AS OF DATE: 20040806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORTON INDUSTRIAL GROUP INC CENTRAL INDEX KEY: 0000064247 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 380811650 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13198 FILM NUMBER: 04958467 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-Q 1 c87305e10vq.htm QUARTERLY REPORT e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One) /X/		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 26, 2004

OR


/ /		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 0-13198

MORTON INDUSTRIAL GROUP, INC.

(Exact name of registrant as specified in its charter)


Georgia (State or other jurisdiction of Incorporation or organization)		38-0811650 (IRS Employer Identification No.)

1021 W. Birchwood, Morton, Illinois 61550
(Address of principal executive offices)

(309) 266-7176
(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the common stock held by non-affiliates of the registrant (based upon the last reported sale price on the OTC Market) on the last business day of the registrant’s most recently completed second fiscal quarter was approximately $6,700,000.


	Outstanding as of
	July 30, 2004
Class A Common Stock, $.01 par value		4,560,547
Class B Common Stock, $.01 par value		100,000

ITEM 1. FINANCIAL STATEMENTS

MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 26, 2004 and June 28, 2003
(Dollars in thousands, except per share data)
(Unaudited)


	Three Months Ended						Six Months Ended
	June 26, 2004			June 28, 2003			June 26, 2004			June 28, 2003
Net sales	$	50,706			34,398			90,626			66,778
Cost of sales		44,561			29,388			78,972			57,177

Gross profit		6,145			5,010			11,654			9,601

Operating expenses:
Selling expenses		785			712			1,587			1,413
Administrative expenses		2,729			2,600			5,367			5,207

Total operating expenses		3,514			3,312			6,954			6,620

Operating income		2,631			1,698			4,700			2,981

Other income (expense):
Interest expense		(1,159	)		(936	)		(1,730	)		(1,869	)
Interest on redeemable preferred stock		(36	)		—			(249	)		—
Gain on redemption of preferred stock		850			—			1,700			—
Other		42			171			83			337

Total other income (expense)		(303	)		(765	)		(196	)		(1,532	)

Earnings before income taxes and discontinued operations		2,328			933			4,504			1,449
Income taxes		100			360			150			560

Earnings before discontinued operations		2,228			573			4,354			889

Discontinued operations:
Net loss from operations of discontinued plastics operations		—			(85	)		—			140
Income taxes		—			(35	)		—			55

		—			(50	)		—			85

Net earnings		2,228			523			4,354			974
Accretion of discount on preferred shares		—			(383	)		—			(715	)

Net earnings available to common stockholders	$	2,228			140			4,354			259

Earnings per common share — basic:
Earnings from continuing operations	$	0.48			0.04			0.94			0.04
Earnings (loss) from discontinued operations		—			(0.01	)		—			0.02

Net earnings available to common stockholders	$	0.48			0.03			0.94			0.06

Earnings per common share — diluted:
Earnings from continuing operations	$	0.38			0.03			0.76			0.03
Earnings (loss) from discontinued operations		—			(0.01	)					0.02

Net earnings available to common stockholders	$	0.38			0.02			0.76			0.05

See accompanying notes to condensed consolidated financial statements.

TABLE OF CONTENTS


	ITEM 1. FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Certification
Certification
Certification
Certification
First Amendment to the Second Amended and Restated Credit Agreement
Amended and Restated Note and WarrantPurchase Agreement

MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
June 26, 2004 and December 31, 2003
(Dollars in thousands)


Assets	June 26, 2004			December 31, 2003
	(Unaudited)
Current assets:
Trade accounts receivable, less allowance for doubtful accounts of $175 in 2004 and $202 in 2003	$	16,472			7,253
Unbilled receivables		2,196			—
Notes receivable		—			100
Inventories		17,275			13,863
Prepaid expenses and other current assets		2,532			1,087
Deferred income taxes		1,600			1,600

Total current assets		40,075			23,903

Property, plant, and equipment, net		22,831			22,432
Note receivable		1,265			1,183
Intangible assets, at cost, less accumulated amortization		2,355			1,100
Other assets		117			204

	$	66,643			48,822

Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Outstanding checks in excess of bank balance	$	1,246			943
Current installments of long-term debt		3,284			6,210
Accounts payable		21,859			17,343
Accrued expenses		5,701			5,450
Income taxes payable		23			275
Redeemable preferred stock		500			500

Total current liabilities		32,613			30,721
Long-term debt, excluding current installments		44,096			32,331
Other liabilities		118			118
Redeemable preferred stock		7,500			9,250
Warrants payable		1,560			—

Total liabilities		85,887			72,420

Stockholders’ equity (deficit):
Class A common stock		46			46
Class B common stock		1			1
Additional paid-in capital		20,895			20,895
Accumulated deficit		(40,186	)		(44,540	)

Total stockholders’ equity (deficit)		(19,244	)		(23,598	)

	$	66,643			48,822

See accompanying notes to condensed consolidated financial statements.

MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 26, 2004 and June 28, 2003
(Dollars in thousands)
(Unaudited)


	Six Months Ended
	June 26, 2004			June 28, 2003
Net cash provided by (used in) operating activities	$	(5,567	)		1,932

Cash flows from investing activities:
Proceeds from sale of business		—			4,800
Capital expenditures		(3,008	)		(1,929	)

Net cash provided by (used in) investing activities		(3,008	)		2,871

Cash flows from financing activities:
Increase in checks issued in excess of bank balance		303			1,339
Net borrowings (repayments) on revolving debt		8,100			(4,200	)
Principal payments on long-term debt and capital leases		(2,265	)		(1,642	)
Retirement of revolving debt in connection with refinancing		(14,650	)		—
Retirement of term debt in connection with refinancing		(22,153	)		—
Proceeds from issuance of revolving debt		7,200			—
Proceeds from issuance of long-term debt		34,000			—
Redemption of preferred stock		(300	)		—
Proceeds from notes receivable		100			—
Debt issuance costs		(1,760	)		(300	)

Net cash provided by (used in) financing activities		8,575			(4,803	)

Net change in cash		—			—
Cash at beginning of period		—			—

Cash at end of period	$	—			—

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	793			1,373

Income taxes	$	314			—

See accompanying notes to condensed consolidated financial statements.

MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity (Deficit)
For the Six Months Ended June 26, 2004
(Dollars in thousands)
(Unaudited)


	Class A				Class B
	common stock				common stock				Additional
	Shares				Shares				paid-in		Accumulated
	issued		Amount		issued		Amount		capital		(deficit)			Total
Balance, December 31, 2003		4,560,547	$	46		100,000	$	1	$	20,895	$	(44,540	)	$	(23,598	)
Net earnings available to common stockholders		—		—		—		—		—		4,354			4,354

Balance, June 26, 2004		4,560,547	$	46		100,000	$	1	$	20,895	$	(40,186	)	$	(19,244	)

See accompanying notes to condensed consolidated financial statements.

MORTON INDUSTRIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 26, 2004 and June 28, 2003
(Unaudited)

(1) Nature of Business

Through our operating subsidiaries, we are a contract manufacturer and supplier of high-quality fabricated sheet metal components and subassemblies for construction, industrial and agricultural original equipment manufacturers located primarily in the Midwestern and Southeastern United States.

(2) Interim Financial Data

The Condensed Consolidated Financial Statements at June 26, 2004, and for the three and six months ended June 26, 2004 and June 28, 2003, are unaudited and reflect all adjustments, consisting of normal recurring accruals and other adjustments which, in the opinion of our management, are necessary for a fair presentation of the financial position, operating results, and cash flows for the interim periods indicated. Our fiscal quarters end on a Saturday (nearest to a quarter end) except for the fourth quarter which ends on December 31. For both the quarters ended June 26, 2004 and June 28, 2003 there were 64 shipping days. For the six months ended June 26, 2004, there were 124 shipping days, and for the six months ended June 28, 2003, there were 126 shipping days. Results of operations for interim periods are not necessarily indicative of the results of operations for the full fiscal year. You should read the condensed consolidated financial statements in connection with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations of Morton Industrial Group, Inc. contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed on March 30, 2004.

(3) Discontinued Operations

The results from discontinued operations for the three and six months ended June 28, 2003 reflect the results of Mid-Central Plastics, Inc., which we sold on June 20, 2003.

Resulting from that sale is a note receivable of $1,100,000 due June 20, 2006 which bears interest at 15% per annum. Interest for the period of June 20, 2003 through June 20, 2004 was 15% payment-in-kind, with interest payable monthly in cash beginning in July, 2004. The note receivable, due from the buyer, is subordinate to required payments due by the buyer to its senior secured lender. Payments received by the Company are assigned to Harris Trust and Savings Bank, As Agent, the Company’s senior secured lender.

(4) Inventories

The Company’s inventories, in thousands of dollars, at June 26, 2004, and December 31, 2003, are summarized as follows:


	June 26,		December 31,
	2004		2003
Raw materials, purchased parts and manufactured components	$	7,099	$	4,915
Work-in-process		4,874		3,521
Finished goods		5,302		5,427

	$	17,275	$	13,863

(5) Earnings Per Share

The following reflects the reconciliation of the components of the basic and diluted earnings per common share computations:


	Quarter Ended June 26, 2004							Quarter Ended June 28, 2003
	Earnings		Shares		Per Share			Earnings		Shares		Per Share
	(Numerator)		(Denominator)		Amount			(Numerator)		(Denominator)		Amount
Basic earnings available to common stockholders	$	2,228,000		4,660,547	$	0.48		$	140,000		4,660,547	$	0.03
Effect of dilutive securities, stock options and warrants		—		1,300,571		(0.10	)		—		230,739		(0.01	)

Diluted earnings available to common stockholders	$	2,228,000		5,961,118	$	0.38		$	140,000		4,891,286	$	0.02


	Six Months Ended June 26, 2004							Six Months Ended June 28, 2003
	Earnings		Shares		Per Share			Earnings		Shares		Per Share
	(Numerator)		(Denominator)		Amount			(Numerator)		(Denominator)		Amount
Basic earnings available to common stockholders	$	4,354,000		4,660,547	$	0.94		$	259,000		4,660,547	$	0.06
Effect of dilutive securities, stock options and warrants		—		1,106,696		(0.18	)		—		228,563		(0.01	)

Diluted earnings available to common stockholders	$	4,354,000		5,767,243	$	0.76		$	259,000		4,889,110	$	0.05

For the quarter and six months ended June 28, 2003, options and warrants aggregating 1,053,915 and 1,058,634 shares, respectively, were excluded from the computation of diluted earnings per share due to their anti-dilutive effect. No options or warrants were excluded from the computation of diluted earnings for the quarter and six months ended June 26, 2004.

(6) Segment Reporting

Following the June 20, 2003 sale of Mid-Central Plastics, Inc., we have only one remaining segment — the contract metals fabrication segment.

(7) Debt and Warrants

On March 26, 2004, the Company entered into a Second Amended and Restated Credit Agreement with a syndicate of banks led by Harris Trust and Savings Bank, As Agent, and also on March 26, 2004, entered into a Note and Warrant Purchase Agreement with BMO Nesbitt Burns Capital (U.S.) Inc., As Agent. These agreements were effective on March 26, 2004, and provided financing to replace the revolving credit facility and term note payable previously due to Harris Trust and Savings Bank, As Agent. In connection with this transaction, the 238,584 warrants to purchase Class A Common Stock were surrendered by the holders; as described below, new warrants were issued on March 26, 2004.

On June 23, 2004, the Company entered into the First Amendment to the Second Amended and Restated Credit Agreement and also on June 23, 2004, entered into an Amended and Restated Note and Warrant Purchase Agreement with BMO Nesbitt Burns Capital (U.S.) Inc., As Agent. The effect of the June 23, 2004 amendments was to increase the amount due to BMO Nesbitt Burns Capital (U.S.) Inc., As Agent, by $2,000,000, reduce the four-year secured term loan described below by $1,000,000 and reduce the secured revolving credit facility described below by $1,000,000.

Under the terms of the new agreements and amendments, at June 26, 2004 the Company has:

1) A four-year secured term loan in the amount of $21 million with variable rate interest; principal payments are due in quarterly installments of $500,000 beginning June 30, 2004 through March 31, 2005 and due in quarterly installments of $750,000 beginning June 30, 2005 through December 31, 2007 with the balance of $10,750,000 due on March 31, 2008.

2) A secured revolving credit facility with a limit of $18 million, with variable rate interest, and with an initial revolving credit balance of $8.7 million, and with initial availability of $5.4 million as of March 26, 2004. At June 26, 2004, the Company has a revolving credit balance of $13.9 million and availability of $4.1 million (based on an $18 million limit). The balance is due March 31, 2008. The amount available under the revolving credit facility is limited to 85% of eligible accounts receivable and 60% of eligible inventory. The facility requires a commitment fee of 0.50% per annum on the unused portion of the facility.

3) A senior secured subordinated note in the amount of $12 million bearing cash interest of 12% and payment-in-kind interest of 4% with no principal amortization, and the balance due March 26, 2009. This debt is subordinated to the secured term loan and the revolving credit facility with respect to both payment and lien priority.

Related to the senior secured subordinated note, on March 26, 2004 the Company issued 545,467 warrants to purchase shares of its Class A Common Stock for $0.02 per share; these warrants expire March 26, 2014. The warrant holder may exercise the warrants at any time. The warrants may be put to the Company, at the then fair market value, at the earlier of: a) five years from the date of issue; b) a change of control; c) a default on the senior secured subordinated loan; d) a prepayment of 75% or more of the original principal balance of the senior secured subordinated loan.

The Company has estimated the fair value of the warrants at the date of issue, and at June 26, 2004, to be $1.5 million, and has reported that amount as warrants payable and as debt discount in the accompanying Condensed Consolidated Balance Sheets. The debt discount is being amortized using the effective yield method over 5 years, the term of the related senior secured subordinated note. The Company will update, on a quarterly basis, the fair value of the warrants and record changes in the fair value, if any, as interest expense.

The stock purchase warrant includes provisions that will reduce the 545,467 warrants that can be put to the Company if a) a change of control occurs prior to 5 years from the date of issue and the Company achieves specified net equity levels; or b) if a change of control has not occurred prior to 5 years from the date of issue and the Company achieves specified EBITDA (earnings before interest, taxes, depreciation and amortization) levels. The number of warrants could be reduced to several levels, but no lower than 290,278.

In connection with these loans, the Company has granted the lenders a lien on all of the Company’s accounts receivable, inventory, equipment, land and buildings, and various other assets. These agreements contain restrictions on capital expenditures, additional debt or liens, investments, mergers and acquisitions, asset sales and payments such as dividends or stock repurchases. These agreements also impose various financial covenants, including financial performance ratios. Fees associated with the March 26, 2004 and June 23, 2004 transactions, including underwriting and legal fees, were approximately $1.75 million, paid at the respective closings.

(8) Stock Option Plan

The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, the Company records compensation expense on the date of grant only if the current market price of the underlying stock exceeds the exercise price. The Company issues options at the current market price on the date of issuance and, accordingly, has not recognized any stock-based employee compensation cost for stock options in the financial statements.

The per share weighted-average fair value of stock options granted during the six months ended June 28, 2003 was $0.13 at the date of grant based on the Black Scholes option-pricing model with the following weighted-average assumptions: expected dividend

yield of 0%, risk-free interest rate of 6%, volatility of 91%, and an expected life of 10 years. No options were granted during the six months ended June 26, 2004.

Had we determined compensation cost based on the fair value at the grant date for our stock options under SFAS No. 123, Accounting for Stock-Based Compensation, our net earnings, in thousands of dollars, would have been reduced to the pro forma amounts indicated below:


	Quarter			Quarter
	Ended			Ended
	June 26,			June 28,
	2004			2003
Net earnings available to common stockholders:
As reported	$	2,228			140
Total stock-based employee compensation expense determined under fair value based method for all awards		(12	)		(38	)

Pro forma	$	2,216			102

Basic earnings available to common stockholders per share:
As reported	$	0.48			0.03
Pro forma	$	0.48			0.02
Diluted earnings available to common stockholders per share:
As reported	$	0.38			0.02
Pro forma	$	0.38			0.02


	Six Months			Six Months
	Ended			Ended
	June 26,			June 28,
	2004			2003
Net earnings available to common stockholders:
As reported	$	4,354			259
Total stock-based employee compensation expense determined under fair value based method for all awards		(25	)		(74	)

Pro forma	$	4,329			185

Basic earnings available to common stockholders per share:
As reported	$	0.94			0.06
Pro forma	$	0.93			0.04
Diluted earnings available to common stockholders per share:
As reported	$	0.76			0.05
Pro forma	$	0.75			0.04

(9) Impact of Recently Issued Accounting Standards

FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46R or the Interpretation), addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. The Interpretation was issued on December 24, 2003, and replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued on January 17, 2003. The Company has adopted Interpretation 46 with no impact on its financial statements.

The FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. FASB Staff Position Financial Accounting Standard 150-3, Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable

Noncontrolling Interest under FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, defers the effective date of Statement 150 for certain mandatorily redeemable noncontrolling interests of all entities. The Company adopted SFAS 150 as of July 1, 2003.

(10) Redeemable Preferred Stock

The Company and Worthington entered into a stock redemption agreement, dated December 23, 2003, that provides for 30 monthly redemption payments of $50,000 each over a three-year period (10 payments each year in 2004, 2005 and 2006) to redeem all of the preferred stock. Each payment will redeem 333 (or 334) shares of the 10,000 shares outstanding and will result in a gain on redemption of $283,000. Redemption payments made each month during the three and six months ended June 26, 2004 resulted in the “gain on redemption of redeemable preferred stock” of $850,000 and $1,700,000, respectively, which is reported in the accompanying condensed consolidated statements of operations. If shares are not redeemed in accordance with the provisions of this agreement, the redemption price remains at $1,000 per share. As part of this agreement, all litigation between the Company and Worthington was settled and dismissed.

(11) Unbilled Receivables

During the six months ended June 26, 2004, the Company incurred increased costs for the purchase of raw materials as a result of dynamic changes in the U.S. steel markets. The Company’s supplier agreements with key customers allow surcharges for the passthrough of the additional raw material costs. The Company has recognized as net sales, and also recognized an identical amount as cost of sales, surcharge amounts of approximately $7 million for the six months ended June 26, 2004. The Company has classified unbilled surcharges in accompanying balance sheet as “unbilled receivables”. The surcharges are generally invoiced to the Company’s customers within weeks following the month end in which those surcharges are identified.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis describes changes in the Company’s financial condition since December 31, 2003. The analysis of results of operations compares the quarters and six months ended June 26, 2004 and June 28, 2003. Any references to December 31, 2003 relate to data found in Form 10-K as filed with the Securities and Exchange Commission on March 30, 2004.

GENERAL

We are a contract manufacturer of highly engineered metal components and subassemblies for construction, industrial and agricultural original equipment manufacturers. Our largest customers, Caterpillar Inc. and Deere & Co., accounted for approximately 85% of our net sales for the quarter and six months ended June 26, 2004, and accounted for approximately 88% and 87% of our net sales in 2003 and 2002, respectively.

Historically, the Company has been a fabricator of sheet metal products. Subsequent to a merger in January, 1998, when the Company became a publicly-traded entity, the Company acquired six facilities that fabricated either injection molded or thermoformed plastic components. We acquired two of the plastics fabrication facilities separately in 1998 and four together in 1999. We sold one of the plastics fabrication facilities acquired in 1998 at the end of 1999. The four plastics fabrication facilities acquired together in 1999 were sold in December, 2002. These four facilities, operating as Morton Custom Plastics, LLC, were incurring significant losses and filed for protection as debtor-in-possession under Chapter 11 of the United States Bankruptcy Code. At the time of the sale of Morton Custom Plastics, LLC, the Company determined that is was appropriate to focus solely on its core competency, sheet metal fabrication, and offered for sale its remaining plastics fabrication facility, which we sold in June, 2003. In the Company’s accompanying financial statements, all of the plastics fabrication operating results are reported as discontinued operations.

As a part of the 1999 plastics facilities acquisition, the Company issued $10 million of redeemable preferred stock with a maturity date of April 2004. The Company negotiated a settlement in December 2003 with the holder of the preferred stock, and began making

redemption payments in January, 2004. If the redemption payments are paid according to the terms of the settlement agreement, the payments will aggregate $1.5 million over a three-year period ending in 2006.

Since June, 2003, the Company has focused solely on its core business, sheet metal fabrication (the Company’s continuing operations). The Company recognized earnings of over $1.2 million from its continuing operations in 2003, but had incurred losses from its continuing operations in 2001 and 2002 when demand by the Company’s customers was depressed. These losses from continuing operations as well as the acquisition and subsequent disposition of certain plastics facilities created pressure on our liquidity.

To take advantage of the potential for growth in 2004 and beyond, and to be able to effectively serve our customers, we must be able to ensure an adequate flow of raw materials into our production processes, be able to hire and train additional employees and be able to fund our need for new manufacturing equipment and meet our other working capital needs. Accordingly, the Company entered into a new credit facility in March, 2004, and an amendment to that facility in June, 2004, that are described below. The new credit facility (March, 2004) provided additional availability at the closing of approximately $5 million. Management believes that the new credit facility will permit the Company to meet its liquidity requirements driven by raw material, manpower and capital expenditure requirements through the term of the facility, which matures in March, 2008.

As noted above, two customers account for a significant portion of our net sales. Caterpillar Inc. and Deere & Co. are both forecasting greater orders for fabricated parts supplied by Morton Industrial Group, Inc. for 2004. We believe that this demand is being fueled by the improved economic conditions in the United States. The Company is responding by hiring additional manpower, adding capital equipment as necessary and increasing the flow of purchased raw materials in a difficult steel market. The U.S. steel industry has restructured, consolidated and is challenged to meet growing domestic and international demand. The steel industry has been impacted by China’s growing consumption of scrap steel and coke, a raw material used in processing steel. Cosmetically sensitive sheet steel, our core commodity, is on allocation and has correspondingly seen inflationary pricing; most inflationary steel pricing becomes the responsibility of the Company’s customers.

One of our largest customers, Caterpillar Inc., operates certain of its manufacturing facilities with United Auto Worker (UAW) employees. Caterpillar Inc. presented to the UAW, on August 5, 2004, an offer described in a press release as a “last, best and final offer”. We currently understand that a ratification vote will be held on August 15, 2004.

In pricing our products, we consider the volume of the product to be manufactured, required engineering resources and the complexity of the product. Our customers typically expect us to offset any manufacturing cost increases with improvements in production flow, efficiency, productivity or engineering redesigns. As a part of their supplier development programs, our primary customers initiate cost improvement efforts on a regular basis.

RESULTS OF OPERATIONS

Second quarter, 2004 versus second quarter, 2003

Net sales for the quarter ended June 26, 2004 were $50.7 million compared to $34.4 million for the quarter ended June 28, 2003, an increase of $16.3 million or 47.4%. The sales increase resulted primarily from increased unit demand by existing customers of construction-related equipment components and an increase in industrial components to new customers. Our construction-related revenues increased by nearly $11.0 million for the comparable quarters and accounted for nearly two-thirds of our second quarter revenue. Industrial related revenues increased by approximately $4.5 million and agricultural-related revenues increased modestly for the comparable quarters. Sales for the quarter ended June 26, 2004 included surcharges passed through to our customers of approximately $6.0 million. Most of the revenue growth came from increased unit sales to our two largest customers, Deere & Co. and Caterpillar Inc. Based upon customer forecasts and the addition of new customers, the Company currently anticipates revenue growth for calendar year 2004 that could exceed 25% compared to calendar year 2003. Our ability to increase revenues at that rate will be subject to a number of factors, including the continuing demand that we now forecast, the availability of raw materials, principally steel, and the availability of working capital to support that growth. Recently, steel prices have increased as steel supply has tightened, due in part to the national economic recovery, China’s growing steel consumption, and reduced domestic steel production capacity. We expect that this trend will continue through the remainder of 2004, and there could be periods when steel is not available on demand. We will work with our steel suppliers to attempt to address these issues. Historically we have been able to negotiate with our customers to have them absorb increases in our raw material costs, and, as indicated in Note 11 above, we have billed certain cost increases to our customers.

Sales to Caterpillar Inc. and Deere & Co. aggregated approximately 85% and 92% of our net sales for the second quarters of 2004 and 2003, respectively.

Gross profit for the quarter ended June 26, 2004 was $6.1 million compared with $5.0 million for the quarter ended June 26, 2003, an increase of $1.1 million or 22.7%. The Company’s gross profit percentage decreased to 12.2% from 14.6%. Although the gross profit dollars are supported by the effect of absorbing fixed costs over a larger revenue base, as well as our continuing focus on cost savings programs including 6 Sigma and various lean manufacturing concepts, the decrease in gross profit percentage results from overtime and other labor costs due to rapid sales growth, quarter-over-quarter, in response to customer demand. The gross profit percentage is also decreased approximately 1.5% by passing through to customers, at cost with no margin, the increased steel costs described in Note 11 above. We use internal metrics to measure our success in achieving various productivity, quality, on-time delivery and profitability goals.

Selling and administrative expenses for the quarter ended June 26, 2004 amounted to $3.5 million, or 7.0% of sales, compared with $3.3 million, or 9.7% of sales in the quarter a year ago. This decreased expense percentage relates primarily to a higher sales volume, and relatively flat selling and administrative expenses.

Interest expense for the quarter ended June 26, 2004 amounted to $1.1 million compared to $0.9 million in the comparable quarter a year ago. This increase resulted from higher average levels of debt in 2004, as well as higher interest rates in the second quarter of 2004 vs. the second quarter of 2003. The debt increase results from the new credit facility which has provided necessary working capital for the Company’s operations, as well as higher interest rates associated with the new credit facility compared to the credit facility in place in the comparable period in 2003.

Interest on redeemable preferred stock relates to the accretion of the discount on redeemable preferred stock for the quarter ended June 26, 2004. This classification in other expense resulted from the implementation of SFAS 150. For the first quarter of 2003, the accretion was classified as “accretion of preferred stock discount”. The accretion period ended in April, 2004.

As a result of a preferred stock settlement agreement, the Company made three preferred stock redemption payments during the three months ended June 26, 2004, which resulted in the “gain on redemption of redeemable preferred stock” of $850,000 in the accompanying condensed consolidated statements of operations.

For the second quarter of 2004, we recognized an income tax expense of $100,000 related to state income taxes. Related to Federal income taxes, we have utilized net operating loss carry forwards to the extent of taxable income, and decreased the valuation allowance accordingly.

The income from discontinued operations represents the results of the operations of Mid-Central Plastics, Inc. which was sold in June 2003.

First six months, 2004 versus first six months, 2003

Net sales for the six months ended June 26, 2004 were $90.6 million compared to $66.8 million for the six months ended June 28, 2003, an increase of $23.8 million or 35.8%. The sales increase resulted primarily from increased unit demand by existing customers of construction-related equipment components and an increase in industrial components to new customers. Our construction-related revenues increased by over $16.5 million for the comparable six month periods and accounted for nearly two-thirds of our six month revenue. Industrial related revenues increased by nearly $6.0 million and agricultural-related revenues increased modestly for the comparable periods. Sales for the six months ended June 26, 2004 included surcharges passed through to our customers of approximately $7.0 million. Most of the revenue growth came from increased unit sales to our two largest customers, Deere & Co. and Caterpillar Inc.

Sales to Caterpillar Inc. and Deere & Co. aggregated approximately 85% and 91% of our net sales for the first six months of 2004 and 2003, respectively.

Gross profit for the six months ended June 26, 2004 was $11.7 million compared with $9.6 million for the six months ended June 26, 2003, an increase of $2.1 million or 21.4%. The Company’s gross profit percentage decreased to 12.9% from 14.4%. Although the gross profit dollars are supported by the effect of absorbing fixed costs over a larger revenue base, as well as our continuing focus on cost savings programs including 6 Sigma and various lean manufacturing concepts, the decrease in gross profit percentage results from overtime and other labor costs due to rapid sales growth, quarter-over-quarter, in response to customer demand. The gross profit percentage is also decreased approximately 1.0% by passing through to customers, at cost with no margin, the increased steel costs described in Note 11 above. We use internal metrics to measure our success in achieving various productivity, quality, on-time delivery and profitability goals.

Selling and administrative expenses for the six months ended June 26, 2004 amounted to $7.0 million, or 7.7% of sales, compared with $6.6 million, or 10.0% of sales in the comparable period a year ago. This decreased expense percentage relates primarily to a higher sales volume, and relatively flat selling and administrative expenses.

Interest expense for the six months ended June 26, 2004 amounted to $1.7 million compared to $1.9 million in the comparable period a year ago. This increase results from a combination of changing factors in the two quarter of 2004. During the first quarter of 2004 compared to the first quarter of 2003, the Company had lower average debt levels and comparable interest rates. Resulting from the March 2004 financing transaction, the Company experienced higher average levels of debt in the second quarter of 2004, as well as higher interest rates in the second quarter of 2004 vs. the second quarter of 2003. The debt increase results from the new credit facility which has provided necessary working capital for the Company’s operations.

Interest on redeemable preferred stock relates to the accretion of the discount on redeemable preferred stock for the six months ended June 26, 2004. This classification in other expense resulted from the implementation of SFAS 150. For the first six months of 2003, the accretion was classified as “accretion of preferred stock discount”. The accretion period ended in April, 2004.

As a result of the preferred stock settlement agreement, the Company made six preferred stock redemption payments during the six months ended June 26, 2004, which resulted in the “gain on redemption of redeemable preferred stock” of $1,700,000 in the accompanying condensed consolidated statements of operations.

For the first six months of 2004, we recognized an income tax expense of $150,000 related to state income taxes. Related to Federal income taxes, we have utilized net operating loss carry forwards to the extent of taxable income, and decreased the valuation allowance accordingly.

The income from discontinued operations represents the results of the operations of Mid-Central Plastics, Inc. which was sold in June 2003.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have funded our business with cash flows from operations, management of our working capital and borrowings under revolving credit and term loan facilities.

Our consolidated working capital at June 26, 2004 was $7.5 million compared to a deficit of $6.8 million at December 31, 2003. This represents an increase in working capital of approximately $14.3 million. This working capital increase results primarily from a March 26, 2004 refinancing described below, and the growth of inventories and accounts receivable classified as current assets.

March 26, 2004 Refinancing

Under the terms of the new agreements and amendments, the Company has:

1) A 4-year secured term loan in the amount of $21 million with variable rate interest; principal payments are due in quarterly installments of $500,000 beginning June 30, 2004 through March 31, 2005 and due in quarterly installments of $750,000 beginning June 30, 2005 through December 31, 2007 with the balance of $10,750,000 due on March 31, 2008. The Company has entered into an interest rate protection contract (swap agreement) on $10,750,000 of the term loan effective June 30, 2004.

At the Company’s option, for both the secured term loan and the secured revolving credit facility, interest will be at either a bank base rate plus applicable margin, or an adjusted LIBOR plus a LIBOR margin. At inception, the bank rate plus applicable margin is 6.75% and the adjusted LIBOR plus a LIBOR margin is 5.35%. At June 26, 2004, and in connection with the June 23, 2004 amendments, those rates are the same as at inception. Also, under the swap agreement referenced above, the adjusted LIBOR rate plus the applicable LIBOR margin is 7.72% as of June 26, 2004. The swap agreement does not qualify as a hedge under SFAS 133; accordingly, mark-to-market adjustments related to that swap agreement could impact interest expense during the term of the swap agreement, which expires March 31, 2008.

Historically, we have met our near term liquidity requirements with cash flows from operations, the Harris line of credit, and management of our working capital to reflect current levels of operations. Management expects that cash flows from operations, working capital management and availability under the new bank revolving line of credit described above will permit us to meet our liquidity requirements through the term of the new credit facility.

Preferred Stock

Pursuant to a 1999 agreement to purchase certain assets of Worthington Custom Plastics, Inc. (“Worthington”), the Company issued 10,000 shares of its preferred stock, without par value, to Worthington. The preferred stock was mandatorily redeemable on April 15, 2004 at $1,000 per share. The Company and Worthington have entered into a stock redemption agreement, dated December 23, 2003, that provides for 30 monthly redemption payments of $50,000 each over a three-year period (10 payments each year in 2004, 2005 and 2006) to fully redeem the preferred stock. Each $50,000 payment and redemption of 333 (or 334) shares reduces the $10 million face value of the redeemable preferred stock by $333,000 (or $334,000). If shares are not redeemed in accordance with the provisions of this agreement, the redemption price remains at $1,000 per share.

Capital Expenditures

We incurred $3.0 million of capital expenditures during the first six months of 2004, including approximately $1.8 million related to expansion activities and approximately $1.2 million for the normal update and replacement of manufacturing equipment.

We estimate that our capital expenditures in 2004 will total approximately $5.0 million, of which $2.0 will be for expansion activities and the remaining $3.0 million will be for the normal update and replacement of manufacturing equipment.

Significant Cash Commitments

The Company has significant future cash commitments, primarily scheduled debt payments and scheduled lease payments.

The following table summarizes the Company’s contractual obligations at June 26, 2004:


	Payments Due by Period
			Less than						After
	Total		1 Year		1-3 Years		4-5 Years		5 Years
					(In thousands)
Bank indebtedness Term loan	$	21,000	$	2,000	$	9,000	$	10,000	$	—
Revolving line of credit		13,900		—		—		13,900		—
Senior subordinated debt		12,107		—		—		12,107		—
Other debt obligations		1,865		533		1,208		124		—
Operating leases		22,966		6,826		13,450		2,692		—
Preferred stock redemption		1,200		500		700		—		—

Total contractual cash obligations	$	73,038	$	9,859	$	24,358	$	38,823	$	—

Under its bank credit facility, the Company had $618,000 standby letters of credit outstanding at June 26, 2004 in connection with lease obligations. Management expects that cash flows from operations, working capital management and availability under its new bank revolving line of credit will permit us to meet our liquidity requirements through the term of the credit facility.

Pursuant to a 1999 agreement to purchase certain assets of Worthington Custom Plastics, Inc. (“Worthington”), the Company issued 10,000 shares of its preferred stock, without par value, to Worthington. The preferred stock was mandatorily redeemable on April 15, 2004 at $1,000 per share. The Company and Worthington have entered into a preferred stock redemption agreement, dated December 23, 2003, that provides for 30 monthly redemption payments of $50,000 each over a three-year period (10 payments each year in 2004, 2005 and 2006) to fully redeem the preferred stock. Each $50,000 payment and redemption of 333 (or 334) shares reduces the $10 million face value of the redeemable preferred stock by $333,000 (or $334,000). If shares are not redeemed under the provision of this agreement, the redemption price remains at $1,000 per share. The significant cash commitments table above assumes that payments are made over the next three years and that the redeemable preferred stock is retired for $1.5 million.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued on January 17, 2003. The Company has adopted Interpretation 46 with no impact on its financial statements.

The FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. FASB Staff Position Financial Accounting Standard 150-3, Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interest under FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, defers the effective date of Statement 150 for certain mandatorily redeemable noncontrolling interests of all entities. The Company adopted SFAS 150 as of July 1, 2003.

FORWARD LOOKING STATEMENTS

“Safe Harbor” Statement Under The Private Securities Litigation Reform Act Of 1995: This quarterly report contains “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements containing the words “anticipates,” “believes,” “intends,” “estimates,” “expects,” “projects” and similar words. The forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from any future results expressed or implied by such forward looking statements. Such factors include, among others, the following: the loss of certain significant customers; the cyclicality of our construction and agricultural sales; the availability of working capital; the orders of our two major customers; general economic and business conditions, both nationally and in the markets in which we operate or will operate; competition; and other factors referenced in the Company’s reports and registration statements filed with the Securities and Exchange Commission. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward looking statements. The forward looking statements contained herein speak only of the Company’s expectation as of the date of this quarterly report. We disclaim any obligations to update any such factors or publicly announce the result of any revisions to any of the forward looking statements contained herein to reflect future events or developments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company uses variable-rate debt to finance its operations. The debt obligations expose the Company to variability in interest payments due to changes in interest rates. Management believes it is prudent to limit the variability of a portion of its interest payments. To meet this objective, management has entered into an interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk. The swap changes the variable-rate cash flow exposure on certain debt obligations to fixed cash flows. Under the terms of the interest rate swap, the Company receives variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed rate debt on a portion of its term loan. The Company entered into a swap arrangement effective June 30, 2004, that will fix the interest rate on approximately 50% of the Company’s term loan described above.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

(a) Evaluation of disclosure controls and procedures. The Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of the end of the period covered by this Form 10-Q, are effective.

The Company’s management, including its principal executive officer and principal financial officer, does not expect that the Company’s disclosure controls and procedures or its internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgements in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control.

Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. The design of any system of controls also is based, in part, upon certain assumptions about the likelihood of future events, and there can only be reasonable assurance that any design will succeed in achieving its stated goals under all potential future conditions. It is the responsibility of the Company's management to assess and remedy any such development.

(b) Changes in internal controls. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

Changes in internal controls

We seek to maintain a system of internal accounting controls that are intended to provide reasonable assurances that our books and records accurately reflect our transactions and that our established policies and procedures are followed. There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect our disclosure controls and procedures subsequent to the date we carried out this evaluation.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in routine litigation. Management does not believe any legal proceedings would have a material adverse effect on the Company’s financial condition or results of operations.

ITEM 2. CHANGES IN SECURITIES

On March 26, 2004, the Company issued its senior subordinated lender warrants to purchase 545,467 shares of its Class A Common Stock at an exercise price of $0.02 per share. The Company relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933. The Company issued the warrants in consideration of the holders advancing funds under the senior secured subordinated note described above. The warrant holder may exercise the warrants at any time. These warrants expire March 26, 2014. These warrants may be put to the Company, at the then fair market value, five years from the date of issue, or upon change of control or upon a default on the senior secured subordinated loan. The June 23, 2004 credit facility amendments had no impact on the number of warrants.

The 238,584 warrants previously outstanding were surrendered by the holders of those warrants on March 26, 2004.

Under the terms of our agreement with our senior secured lender, no amounts are available for the payment of dividends at June 26, 2004.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Morton Industrial Group, Inc., held its Annual Meeting on June 8, 2004 to:

1. Elect three directors to serve for one-year terms until the Annual Meeting of Shareholders in 2005.

2. Consider and act upon a proposal to ratify the selection of KPMG, LLP as independent auditors of the Company for 2004.

The results of the shareholders’ votes on each of these matters appear in the following tables.

Election of Directors:


	For		Against		Abstained		Total
William D. Morton		4,683,226		12,222		—		4,695,448
Fred W. Broling		4,683,263		12,185		—		4,695,448
Mark W. Mealy		4,683,147		12,301		—		4,695,448

Ratification of Selection of Independent Auditor:


	For		Against		Abstained		Total
KPMG LLP		4,650,149		44,416		883		4,695,448

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits


11.		The computation can be determined from this report.
31.1		Certification pursuant to Rule 13a-14(a)
31.2		Certification pursuant to Rule 13a-14(a)
32.1		Certification pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1		First Amendment to Second Amended and Restated Credit Agreement
99.2		Amended and Restated Note and Warrant Purchase Agreement

(B) Reports on Form 8-K.

Form 8-K dated May 14, 2004 reporting results of operations for the quarter ended March 27, 2004.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MORTON INDUSTRIAL GROUP, INC.

By: /s/ Daryl R. Lindemann
Daryl R. Lindemann
Chief Financial Officer

Dated: August 6, 2004

EX-31.1 2 c87305exv31w1.htm CERTIFICATION exv31w1

Exhibit 31.1

I, William D. Morton, as Chairman and Chief Executive Officer of Morton Industrial Group, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Morton Industrial Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ William D. Morton
William D. Morton
Chairman and Chief Executive Officer
August 6, 2004

EX-31.2 3 c87305exv31w2.htm CERTIFICATION exv31w2

Exhibit 31.2

I, Daryl R. Lindemann, as Chief Financial Officer of Morton Industrial Group, Inc., certify that:

/s/ Daryl R. Lindemann
Daryl R. Lindemann
Chief Financial Officer
August 6, 2004

EX-32.1 4 c87305exv32w1.htm CERTIFICATION exv32w1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Morton Industrial Group, Inc. (the “Company”) on Form 10-Q for the period ended June 26, 2004. as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William D. Morton, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William D. Morton

William D. Morton
Chairman and Chief Executive Officer
August 6, 2004

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2 5 c87305exv32w2.htm CERTIFICATION exv32w2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Morton Industrial Group, Inc. (the “Company”) on Form 10-Q for the period ended June 26, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daryl R. Lindemann, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

/s/ Daryl R. Lindemann

Daryl R. Lindemann
Chief Financial Officer
August 6, 2004

EX-99.1 6 c87305exv99w1.htm FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED CREDIT AGREEMENT exv99w1

EXHIBIT 99.1

First Amendment to Second Amended and Restated Credit Agreement

This First Amendment to Second Amended and Restated Credit Agreement (herein, the “Amendment”) is made as of June 23, 2004, by and among Morton Industrial Group, Inc., a Georgia corporation (the “Borrower”), the Lenders party to the Credit Agreement hereinafter identified and defined, and Harris Trust and Savings Bank, as Agent for the Lenders (in such capacity, the “Agent”).

Recitals

A. The Lenders currently extend credit to the Borrower on the terms and conditions set forth in that certain Second Amended and Restated Credit Agreement dated as of March 26, 2004, by and among the Borrower, the Guarantors, the Lenders and the Agent (the “Credit Agreement”). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement.

B. The Borrower has requested that the Lenders amend the Credit Agreement to permit the Borrower to enter into a series of transactions (as described in this Recital B, the “Senior Subordinated Debt Restructuring”) which will effect a net increase in the aggregate principal amount of the Senior Subordinated Debt from $10,000,000 to $12,000,000. As part of the Senior Subordinated Debt Restructuring, the Borrower will: (i) receive the proceeds of a new investment in A Notes (as defined below) from JZ Equity Partners PLC in an aggregate amount of $3,050,000, (ii) retain $6,000,000 of the existing investment in Subordinated Debt by Mezzanine Finance, which investment will henceforth be evidenced by an A Note, with the $4,000,000 balance of Mezzanine Finance’s original investment in Subordinated Debt to be repaid to Mezzanine Finance as part of the Senior Subordinated Debt Restructuring and (iii) receive the proceeds of a new investment in a B Note (as defined below) from Prism Mezzanine Fund SBIC, L.P., in the amount of $2,950,000. After giving effect to the transactions described in the preceding sentence, the Subordinated Debt issued or retained in connection therewith will be held by the Senior Subordinated Debt Holders (as defined below) in the amounts shown on Schedule I hereto.

C. The Borrower has further requested that it be permitted to apply the net $2,000,000 cash proceeds received by it as a result of the Senior Subordinated Debt Restructuring to reduce both the Term Loan and the Revolving Loans in equal amounts, and the Lenders are willing to consent to such application of proceeds. In addition, the Borrower has requested and the Lenders have agreed to make certain other amendments to the Credit Agreement, all on the terms and conditions herein set forth.

Now, Therefore, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1. Amendments.

Subject to the satisfaction of the conditions precedent set forth in Section 2 below, the Credit Agreement shall be and hereby is amended as follows:

1.1. Section 3.3(b) of the Credit Agreement is hereby amended by adding a new sentence thereto immediately following the last sentence of such Section, to read in its entirety as follows:

Notwithstanding the foregoing, the $2,000,000 net cash proceeds received by the Borrower from the Senior Subordinated Debt Restructuring shall be applied on the First Amendment Effective Date as follows: $1,000,000 shall be applied to repay the Term Loan and $1,000,000 shall be applied to repay the Revolving Loans.

1.2. Section 3.4(b) of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

(b) Mandatory. Concurrent with each prepayment of Revolving Loans required under subsections (a), (b) and (c) of Section 3.3 (other than the $1,000,000 prepayment of the Revolving Loans from the proceeds of the Senior Subordinated Debt Restructuring required pursuant to the terms of the First Amendment), the Revolving Credit Commitments shall permanently terminate ratably in accordance with each Lender’s Revolver Percentage by an amount equal to the aggregate amount required to be prepaid and applied against Revolving Loans.

1.3. Section 5.1 of the Credit Agreement is hereby amended by deleting the schedule set forth in the definition of “Applicable Margin” therein and replacing it with the following schedule:

Applicable Margin

for Domestic Rate

Applicable Margin

Portions under

for LIBOR Portions

Total Senior Funded

Revolving Credit

under Revolving

Debt/EBITDA Ratio

and Term Loan and

Credit and Term

Applicable Margin

for Such Pricing

Reimbursement

Loan and Letter of

for Commitment Fee

Level

Date

Obligations Shall Be:

Credit Fee Shall Be:

Shall Be:

Greater than or equal to 2.25 to 1.0

2.50

4.00

0.50

III

Less than 2.25 to 1.0, but greater than or equal to 1.75 to 1.0

2.00

3.50

0.50

-2-

Applicable Margin

for Domestic Rate

Applicable Margin

Portions under

for LIBOR Portions

Total Senior Funded

Revolving Credit

under Revolving

Debt/EBITDA Ratio

and Term Loan and

Credit and Term

Applicable Margin

for Such Pricing

Reimbursement

Loan and Letter of

for Commitment Fee

Level

Date

Obligations Shall Be:

Credit Fee Shall Be:

Shall Be:

Less than 1.75 to 1.0, but greater than or equal to 1.25 to 1.0

1.50

3.00

0.50

Less than 1.25 to 1.0

1.00

2.50

0.50

1.4. Section 5.1 of the Credit Agreement is hereby further amended by adding the following new definitions thereto, each in its appropriate order in the alphabetical sequence, each such definition to read in its entirety as follows:

“A Notes” means and includes those certain 16% Senior Secured Subordinated Promissory Notes in the aggregate principal amount of $9,050,000 issued to Mezzanine Finance and JZ Equity by the Borrower pursuant to the terms of the Note Purchase Agreement.

“B Note” means and includes that certain 14% Senior Secured Subordinated Promissory Note in the principal amount of $2,950,000 issued to Prism by the Borrower pursuant to the terms of the Note Purchase Agreement.

“First Amendment” means that certain First Amendment to Second Amended and Restated Credit Agreement dated as of June 23, 2004, by and among the Borrower, the Lenders and the Agent.

“First Amendment Effective Date” means the date upon which the First Amendment becomes effective pursuant to its terms.

“JZ Equity” means JZ Equity Partners PLC, a company formed under the laws of England and Wales.

“Note Purchase Agreement” means that certain Amended and Restated Note and Warrant Purchase Agreement dated as of June 23, 2004, as it may be amended, restated or modified from time to time, by and among the Borrower, the Guarantors,

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Mezzanine Finance, as agent, and the Senior Subordinated Debt Holders.

“Prism” means Prism Mezzanine Fund SBIC, L.P., a Delaware limited partnership.

“Senior Subordinated Debt Holders” means collectively, Mezzanine Finance, JZ Equity and Prism and their respective successors and assigns permitted pursuant to the terms of the Note Purchase Agreement and the Subordination Agreement.

“Senior Subordinated Debt Restructuring” is used as defined in the First Amendment.

1.5. The following definitions within Section 5.1 of the Credit Agreement are hereby amended and restated:

“Required Lenders” means, as of the date of determination thereof, Lenders holding (including through participation interests) at least 51% in aggregate principal amount of the Loans, L/C Obligations and Unused Revolving Credit Commitments outstanding hereunder.

“Senior Subordinated Debt” means the Indebtedness of the Borrower evidenced by the A Notes and the B Notes in the aggregate initial principal amount of $12,000,000 due March 26, 2009, made by the Borrower in favor of the Senior Subordinated Debt Holders, as the same may be amended, modified, supplemented or restated from time to time in accordance with the provisions of this Agreement.

“Term Loan Commitments” means the commitments of the Lenders to make a portion of the Term Loan in the amounts set forth opposite their signature hereto under the headings “Term Loan” and opposite their signatures on Assignment Agreements delivered pursuant to Section 12.15 hereof under the heading “Term Loan,” as such amount may be reduced pursuant hereto. The Term Loan Commitments are $21,000,000 as of the First Amendment Effective Date.

“Warrants” means the warrants to purchase common stock of the Borrower issued on or about the First Amendment Effective Date to the Senior Subordinated Debt Holders in accordance with the terms of the Note Purchase Agreement, as they may be modified or assigned from time to time in accordance with the

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terms of the Note Purchase Agreement and the Subordination Agreement.

1.6 The definition of “Change of Control” in Section 5.1 of the Credit Agreement is hereby amended by deleting the phrase “Note and Warrant Purchase Agreement for the Senior Subordinated Debt” in clause (v) thereof and replacing it with “Note Purchase Agreement”.

1.7 Section 8.5(h) of the Credit Agreement is hereby amended by deleting the period at the end of the fifth line thereof and replacing with it a comma, and immediately thereafter inserting a new clause, reading in its entirety as follows:

provided however, that if at the close of any calendar month there is less than $3,000,000 in availability under the Borrowing Base, the Borrowing Base Certificate shall thereafter be submitted weekly on the last day of each week showing figures as of the end of the preceding week, until such time as such Borrowing Base Certificates have shown that there is greater than $3,000,000 in availability under the Borrowing Base as of the last day of four consecutive weeks, at which time the Borrowing Base Certificate may once again be submitted on a monthly basis at the times set forth above.

1.8. Section 8.11(g) of the Credit Agreement is hereby amended by deleting the phrase “Mezzanine Finance” in the first line thereof and replacing it with “the Senior Subordinated Debt Holders”, and by deleting the amount “$10,000,000” in the second line thereof and replacing it with “$12,000,000”.

1.9. Section 8.12(f) of the Credit Agreement is hereby amended by deleting the reference to “Section 8.11(g)” in the third line thereof and replacing it with “Section 8.11(h)”.

1.10 Section 8.12(g) of the Credit Agreement is hereby amended by inserting a comma after “Mezzanine Finance” and immediately thereafter inserting the phrase “as agent for the Subordinated Debt Holders,” in line 1 thereof.

1.11 Section 8.26 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

Section 8.26. No Restrictions. Except as provided herein or in the instruments evidencing the Senior Subordinated Debt as in effect on the First Amendment Effective Date, the Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of the Borrower or any Subsidiary to: (a) pay dividends or make any other distribution on any Subsidiary’s capital stock or other equity interests owned by the Borrower or any other Subsidiary, (b) pay

-5-

any indebtedness owed to the Borrower or any other Subsidiary, (c) make loans or advances to the Borrower or any other Subsidiary, (d) transfer any of its Property to the Borrower or any other Subsidiary, or (e) guarantee the Obligations and/or grant Liens on its assets to the Agent as required by the Loan Documents, except for such encumbrances or restrictions relating to (i) customary non-assignment provisions of any lease and restrictions therein restricting subletting, (ii) customary net worth provisions contained in leases and other agreements entered into by the Borrower or a Subsidiary in the ordinary course of business, (iii) customary non-assignment provisions in licenses entered into by the Borrower or a Subsidiary as lessee, in the ordinary course of business, and (iv) purchase money obligations and Capitalized Lease Obligations that impose restrictions on the property purchased or leased.

1.12. Section 8.27 of the Credit Agreement is hereby amended by deleting the phrase “Mezzanine Capital” in the third line thereof and replacing it with “the Senior Subordinated Debt Holders”.

1.13. Section 8.27 of the Credit Agreement is hereby further amended by adding a new sentence thereto immediately following the last sentence of such Section, to read in its entirety as follows:

“Notwithstanding the foregoing, the Borrower shall be permitted to repay up to $4,000,000 in principal amount of the Senior Subordinated Debt owed to Mezzanine Finance as part of the Senior Subordinated Debt Restructuring.”

Section 2. Conditions Precedent and Post-Closing Assignments.

The effectiveness of this Amendment is subject to the satisfaction of all of the following conditions precedent:

2.1. The Borrower, the Agent, the Lenders and the Guarantors shall have executed and delivered this Amendment.

2.2 The Agent, the Senior Subordinated Debt Holders, the Borrower and the Guarantors shall have executed and delivered an amendment to the Subordination Agreement in form and substance satisfactory to the Agent relating to the Senior Subordinated Debt Restructuring.

2.3 The Agent shall have received a true and correct copy of all documentation entered into by the Borrower, the Guarantors, and the Senior Subordinated Debt Holders in connection with the Senior Subordinated Debt Restructuring.

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2.4. The Agent shall have received copies (executed or certified, as may be appropriate) of all legal documents or proceedings taken in connection with the execution and delivery of this Amendment to the extent the Agent or its counsel may reasonably request.

2.5. Legal matters incident to the execution and delivery of this Amendment shall be satisfactory to the Agent and its counsel.

In addition, pursuant to Assignment and Acceptance agreements (the "Assignment Agreements”) previously executed by and between Bank One, NA (“Bank One") and each of the Lenders, which Assignment Agreements have been delivered to and are being held in escrow by the Agent, Bank One has agreed to purchase interests in certain Obligations owed to the Lenders by the Borrower and to assume certain obligations of the Lenders in such amounts that, after giving effect to such Assignment Agreements, (i) Bank One shall be a Lender under the Credit Agreement with the Commitments set forth below, (ii) Bank of Montreal shall no longer be a Lender under the Credit Agreement and (iii) each of Harris Trust and Savings Bank and National City Bank of the Midwest, formerly referred to herein as National City Bank shall remain as Lenders under the Credit Agreement with the Commitments set forth below:


	Post-Assignment		Post-Assignment
	Term Loan		Revolving Credit
Lender	Commitment		Commitment
Harris Trust and Savings Bank	$	7,538,461.54	$	6,461,538.46
National City Bank of the Midwest	$	8,076,923.08	$	6,923,076.92
Bank One, NA	$	5,384,615.38	$	4,615,384.62

Immediately after this Amendment becomes effective in accordance with its terms, the Agent will release the Assignment Agreements from escrow and the Assignment Agreements will become effective without any further action by the parties thereto.

Section 3. Representations.

In order to induce the Lenders to execute and deliver this Amendment, the Borrower hereby represents to the Lenders that as of the date hereof, and after giving effect to this Amendment, (a) the representations and warranties set forth in Section 6 of the Credit Agreement are and shall be and remain true and correct in all material respects (except that for purposes of this paragraph the representations contained in Section 6.5 shall be deemed to refer to the most recent financial statements of the Borrower delivered to the Lenders) and (b) the Borrower is in full compliance with all of the terms and conditions of the Credit Agreement after giving effect to this Amendment and no Default or Event of Default has occurred and is continuing under the Credit Agreement or shall result after giving effect to this Amendment.

-7-

Section 4. Miscellaneous.

4.1. The Borrower and certain of its Subsidiaries have heretofore executed and delivered to the Agent and the Lenders certain of the Collateral Documents. The Borrower hereby acknowledges and agrees that, notwithstanding the execution and delivery of this Amendment, the Collateral Documents remain in full force and effect and the rights and remedies of the Agent and the Lenders thereunder, the obligations of the Borrower and its Subsidiaries thereunder, and the liens and security interests created and provided for thereunder remain in full force and effect and shall not be affected, impaired, or discharged hereby. Nothing herein contained shall in any manner affect or impair the priority of the liens and security interests created and provided for by the Collateral Documents as to the indebtedness which would be secured thereby prior to giving effect to this Amendment.

4.2. Except as specifically amended herein or waived hereby, the Credit Agreement shall continue in full force and effect in accordance with its original terms. Reference to this specific Amendment need not be made in the Credit Agreement, the Notes, or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to or with respect to the Credit Agreement, any reference in any of such items to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby.

4.3. The Borrower agrees to pay all reasonable out-of-pocket costs and expenses incurred by the Agent and the Lenders in connection with the preparation, execution and delivery of this Amendment and the documents and transactions contemplated hereby, including the reasonable fees and expenses of counsel for the Agent with respect to the foregoing.

4.4. This Amendment may be executed in any number of counterparts, and by the different parties on different counterpart signature pages, all of which taken together shall constitute one and the same agreement. Any of the parties hereto may execute this Amendment by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This Amendment shall be governed by the internal laws of the State of Illinois.

[Signature Pages to Follow]

-8-

This First Amendment to Second Amended and Restated Credit Agreement is entered into by the parties hereto as of the date and year first above written.


		Morton Industrial Group, Inc.

		By /s/ Rodney B. Harrison
		Name Rodney B. Harrison
		Title Vice President of Finance

		Accepted and agreed to.

		Harris Trust And Savings Bank

		By /s/ Jay S. Dameron
		Name Jay S. Dameron
		Title Vice President

		National City Bank of the Midwest, formerly referred to herein as National City Bank

		By /s/ Michael A. Zeller
		Name Michael A. Zeller
		Title Vice President

		Bank of Montreal

		By /s/ Daniel J. Gresla
		Name Daniel J. Gresla
		Title Managing Director

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Guarantors’ Acknowledgement and Consent

Each of the undersigned hereby acknowledges and agrees that it is a Guarantor under the terms of Section 11 of the Credit Agreement and, as such, has executed and delivered certain Collateral Documents pursuant to the Credit Agreement. The undersigned hereby consent to the First Amendment to Second Amended and Restated Credit Agreement as set forth above and agree to the terms thereof, and the undersigned hereby confirm that their guaranties and the Collateral Documents executed by them, and all of the obligations of the undersigned thereunder, remain in full force and effect. The undersigned further agree that the consent of the undersigned to any further amendments to the Credit Agreement shall not be required as a result of this consent having been obtained. The undersigned acknowledge the Lenders are relying on this acknowledgement and consent in entering into the First Amendment to Second Amended and Restated Credit Agreement with the Borrower.


		Morton Metalcraft Co.

		By /s/ William D. Morton
		Name William D. Morton
		Title Chairman/CEO

		Morton Metalcraft Co. of North Carolina

		By /s/ William D. Morton
		Name William D. Morton
		Title Chairman/CEO

		Morton Metalcraft Co. of South Carolina

		By /s/ William D. Morton
		Name William D. Morton
		Title Chairman/CEO


		Mid Central Plastics, Inc.

		By /s/ William D. Morton
		Name William D. Morton
		Title Chairman/CEO

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		B&W Metal Fabricators, Inc.

		By /s/ William D. Morton
		Name William D. Morton
		Title Chairman/CEO

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SCHEDULE I


	Principal Amount of
Senior Subordinated Note Holder	Subordinated Loan		A Note/B Note
BMO Nesbitt Burns Capital (U.S.), Inc.	$	6,000,000	A Note
JZ Equity Partners PLC	$	3,050,000	A Note
Prism Mezzanine Fund SBIC, L.P.	$	2,950,000	B Note

EX-99.2 7 c87305exv99w2.htm AMENDED AND RESTATED NOTE AND WARRANTPURCHASE AGREEMENT exv99w2

EXHIBIT 99.2

AMENDED AND RESTATED
NOTE AND WARRANT PURCHASE AGREEMENT

BY AND AMONG

MORTON INDUSTRIAL GROUP, INC.,
THE GUARANTORS FROM TIME TO TIME PARTY HERETO,
THE PURCHASERS

AND

BMO NESBITT BURNS CAPITAL (U.S.), INC.,
AS AGENT

DATED AS OF JUNE 23, 2004

TABLE OF CONTENTS


		Page
SECTION 1 PURCHASE AND SALE OF THE NOTES AND WARRANTS			1
Section 1.1	Notes and Warrants		1
Section 1.2	The Closing		2
Section 1.3	Pro Rata Payment		2
SECTION 2 INTEREST			2
Section 2.1	Interest Rate		2
Section 2.2	Computation of Interest		3
Section 2.3	Default Rate.		3
SECTION 3 FEES, PREPAYMENTS, TERMINATIONS, APPLICATIONS AND NOTATIONS			3
Section 3.1	Fees		3
Section 3.2	Voluntary Prepayments of Notes		3
Section 3.3	Place of Payments		4
Section 3.4	Application of Payments		5
SECTION 4 COLLATERAL			5
Section 4.1	Collateral		5
Section 4.2	Guaranties		6
Section 4.3	Further Assurances		6
Section 4.4	Collections		6
SECTION 5 DEFINITIONS; INTERPRETATION			7
Section 5.1	Definitions		7
Section 5.2	Interpretation		18
Section 5.3	Change in Accounting Principles		18
SECTION 6 REPRESENTATIONS AND WARRANTIES			19
Section 6.1	Organization and Qualification		19
Section 6.2	Subsidiaries		19
Section 6.3	Authority and Validity of Obligations		20
Section 6.4	Use of Proceeds; Margin Stock		20
Section 6.5	Financial Reports		20
Section 6.6	Full Disclosure		21

TABLE OF CONTENTS
(continued)


		Page
Section 6.7	Good Title		21
Section 6.8	Litigation and Other Controversies		21
Section 6.9	Taxes		21
Section 6.10	Approvals		22
Section 6.11	Affiliate Transactions		22
Section 6.12	Investment Company; Public Utility Holding Company		22
Section 6.13	ERISA		22
Section 6.14	Compliance with Laws (Nonenvironmental)		22
Section 6.15	Environmental and Safety Matters		22
Section 6.16	Other Agreements		24
Section 6.17	No Default		24
Section 6.18	Trademarks, Franchises, and Licenses		24
Section 6.19	Governmental Authority and Licensing		24
Section 6.20	Solvency		25
Section 6.21	Capital Structure		25
Section 6.22	SEC Disclosure		26
SECTION 7 CONDITIONS PRECEDENT			26
Section 7.1	Conditions		26
Section 7.2	Documents		27
SECTION 8 COVENANTS			28
Section 8.1	Maintenance of Business		28
Section 8.2	Maintenance of Property		28
Section 8.3	Taxes and Assessments		28
Section 8.4	Insurance		28
Section 8.5	Financial Reports		29
Section 8.6	Total Funded Debt/EBITDA Ratio		31
Section 8.7	Total Senior Funded Debt/EBITDA Ratio		31
Section 8.8	Minimum EBITDA		31
Section 8.9	Fixed Charge Coverage Ratio		32

TABLE OF CONTENTS
(continued)


		Page
Section 8.10	Capital Expenditures		32
Section 8.11	Board Matters		32
Section 8.12	Investor Protection		33
Section 8.13	Equity Restriction		33
Section 8.14	Indebtedness		33
Section 8.15	Liens		34
Section 8.16	Investments, Loans, Advances and Guaranties		35
Section 8.17	Leases		37
Section 8.18	Dividends and Certain Other Restricted Payments		37
Section 8.19	Mergers, Consolidations and Sales		37
Section 8.20	Acquisitions		38
Section 8.21	Maintenance of Subsidiaries		38
Section 8.22	Formation of Subsidiaries		39
Section 8.23	ERISA		39
Section 8.24	Compliance with Laws		39
Section 8.25	Burdensome Contracts with Affiliates		39
Section 8.26	Changes in Fiscal Year		39
Section 8.27	Change in the Nature of Business		40
Section 8.28	Use of Loan Proceeds		40
Section 8.29	No Restrictions		40
Section 8.30	Senior Debt		40
Section 8.31	Junior Subordinated Debt		40
Section 8.32	[Reserved]		40
Section 8.33	Worthington Settlement Documents		40
Section 8.34	Mid-Central Debt		41
Section 8.35	D & O Insurance		41
Section 8.36	Capital Stock		41
Section 8.37	Management Compensation		41
Section 8.38	Additional Life Insurance		41

iii

TABLE OF CONTENTS
(continued)


		Page
SECTION 9 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS			42
Section 9.1	Organization and Good Standing		42
Section 9.2	Authorization; Power		42
Section 9.3	Validity		42
Section 9.4	Accredited Investor		42
Section 9.5	Purchase for Own Account; Acknowledgment of Risk		42
SECTION 10 EVENTS OF DEFAULT AND REMEDIES			43
Section 10.1	Events of Default.		43
Section 10.2	Consequences of Events of Default		45
SECTION 11 THE AGENT			46
Section 11.1	Appointment and Authorization of Agent		46
Section 11.2	Agent and its Affiliates		46
Section 11.3	Action by Agent		46
Section 11.4	Consultation with Experts		47
Section 11.5	Liability of Agent; Credit Decision		47
Section 11.6	Indemnity		47
Section 11.7	Resignation of Agent and Successor Agent		48
Section 11.8	Designation of Additional Agents		48
Section 11.9	Authorization to Release or Subordinate or Limit Liens		48
Section 11.10	Authorization to Enter into, and Enforcement of, the Collateral Documents		49
Section 11.11	Subordination and Intercreditor Agreement		49
SECTION 12 THE GUARANTIES			49
Section 12.1	The Guaranties		49
Section 12.2	Guaranty Unconditional		50
Section 12.3	Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances		51
Section 12.4	Waivers		51
Section 12.5	Limit on Recovery		51

TABLE OF CONTENTS
(continued)


		Page
Section 12.6	Stay of Acceleration		51
Section 12.7	Benefit to Guarantors		51
Section 12.8	Guarantor Covenants		52
SECTION 13 MISCELLANEOUS			52
Section 13.1	Holidays		52
Section 13.2	No Waiver, Cumulative Remedies		52
Section 13.3	Waivers, Modifications and Amendments		52
Section 13.4	Costs and Expenses		52
Section 13.5	Documentary Taxes		53
Section 13.6	Survival of Representations		53
Section 13.7	Survival of Indemnities		53
Section 13.8	Notices		53
Section 13.9	Headings		54
Section 13.10	Severability of Provisions		54
Section 13.11	Counterparts		54
Section 13.12	Binding Nature, Governing Law, Etc		54
Section 13.13	Entire Understanding		54
Section 13.14	Confidentiality		55
Section 13.15	Sharing of Set-Off		55
Section 13.16	Headings		55
Section 13.17	Set-off		55
Section 13.18	Construction		56
Section 13.19	Submission to Jurisdiction; Waiver of Jury Trial		56
Section 13.20	Confirmation and Ratification of Terms		56

PURCHASER SCHEDULE


Exhibit A-1	—	Form of A Note
Exhibit A-2	—	Form of B Note
Exhibit B	—	Form of Warrant
Exhibit C	—	Compliance Certificate
		Attachment to Compliance Certificate
Exhibit D	—	Guaranty
Schedule 6.2	—	Subsidiaries
Schedule 6.7	—	Property
Schedule 6.15	—	Environmental and Safety Matters
Schedule 6.21	—	Capital Structure
Schedule 7.2(l)	—	EBITDA Reconciliation
Schedule 8.15	—	Other Liens

MORTON INDUSTRIAL GROUP, INC.
AMENDED AND RESTATED
NOTE AND WARRANT
PURCHASE AGREEMENT

This Amended and Restated Note and Warrant Purchase Agreement is entered into as of June 23, 2004, (the “Agreement”), by and among Morton Industrial Group, Inc., a Georgia corporation (the “Company”), each of the Subsidiaries from time to time becoming a party hereto, as Guarantors, each of the purchasers set forth in the Purchaser Schedule hereto (together with any other transferee or other Person that becomes a holder of any Note, collectively, the "Purchasers” and individually, a “Purchaser”), and BMO Nesbitt Burns Capital (U.S.), Inc., in its capacity as agent hereunder (hereinafter referred to as "BMO” or the “Agent”).

WHEREAS, Agent, the Company and certain other parties entered into that certain Note and Warrant Purchase Agreement dated as of March 26, 2004 (the "Original Purchase Agreement”), pursuant to which, among other things: Agent purchased from the Company (i) a Senior Secured Subordinated Promissory Note in the aggregate principal amount of $10,000,000 (the “Original BMO Note”) and (ii) a Stock Purchase Warrant to acquire shares of the Common Stock of the Company (the “Original BMO Warrant”);

WHEREAS, JZ Equity Partners PLC, a company formed under the laws of England and Wales (“JZ Partners”) and Prism Mezzanine Fund SBIC, L.P., a Delaware limited partnership (“Prism” and, together with BMO and JZ Partners, the “Investors”) desire to lend money to the Company and become a party to, and be subject to the terms of, the Purchase Agreement as if each of them were originally named a party thereunder;

WHEREAS, the Company has requested the Investors to extend an additional loan to the Company in the aggregate amount of $2,000,000 to repay certain of the Company’s senior debt and certain expenses of the Company;

WHEREAS, as a result of the transactions contemplated by this Agreement, a portion of the obligations under the Original BMO Note will be paid off and the Original BMO Warrant will be reduced; and

WHEREAS, the parties hereto have agreed to amend and restate in its entirety the Original Purchase Agreement in accordance with the terms of this Agreement.

The parties hereto agree as follows:

SECTION 1

PURCHASE AND SALE OF THE NOTES AND WARRANTS

Section 1.1 Notes and Warrants.

(a) Sale and Issuance of Securities. Subject to the terms and conditions hereof, at the Closing the Company shall sell to the Purchasers and the Purchasers shall purchase from the Company (i) the Notes in the aggregate principal amount of $12,000,000, in the

amounts set forth opposite each Purchaser’s name as set forth in the Purchaser Schedule, and (ii) the Warrants to purchase in the aggregate nine percent (9%) of the Company’s common stock on a fully-diluted basis, in the amounts set forth opposite each Purchaser’s name as set forth in the Purchaser Schedule.

(b) Guaranties. The obligations of the Company under the Notes, the Collateral Documents and, with respect to the payment to each Purchaser of the Put Price (as defined in the Warrants), shall be guaranteed by each Subsidiary of the Company pursuant to a guaranty in form and substance acceptable to the Agent (the “Guaranty”).

Section 1.2 The Closing. The closing of the separate purchases and sales of the Securities (the “Closing”) shall take place at the offices of Vedder, Price, Kaufman & Kammholz, P.C., at 10:00 a.m. on June 23, 2004 (the “Closing Date”), or at such other place or on such other date as may be mutually agreeable to the Company, the Agent and the Purchasers. At the Closing, the Company shall deliver to the Purchasers instruments evidencing the Notes and the Warrants to be purchased by such Purchaser, payable to the order of such Purchaser or its nominee or registered in such Purchaser’s or its nominee’s name, respectively, upon payment by such Purchaser of the amount set forth opposite such Purchaser’s name in the Purchaser Schedule, by wire transfer of immediately available funds to an account specified in writing by the Company to the Agent at least two (2) Business Days prior to the Closing.

Section 1.3 Pro Rata Payment. All payments to the Purchasers or any other holders of the Notes (whether for principal, interest or otherwise) shall be made pro rata among such holders based upon the aggregate unpaid principal amount of the Notes held by each such holder. If any holder of any of the Notes obtains any payment (whether voluntary or involuntary) of principal, interest or other amount with respect to any of the Notes in excess of such holder’s pro rata share of such payments obtained by all holders of the Notes, such holder hereby agrees to purchase from the other holders of the Notes a participation in the Notes held by them as is necessary to cause such holders to share the excess payment ratably among each of them as provided in this Section 1.3.

SECTION 2

INTEREST

Section 2.1 Interest Rate.

(a) The A Notes shall bear interest on the unpaid balance thereof at the aggregate rate of 16% per annum, and shall be payable at the times specified in the A Notes, which interest shall be segregated into Current Interest and Deferred Interest, all as more fully specified in the A Notes.

(b) The B Note shall bear interest on the unpaid balance thereof at the aggregate rate of 14% per annum and having such other terms as set forth in such B Note, and shall be payable at the times specified in the B Note, which interest shall be segregated into Current Interest and Deferred Interest, all as more fully specified in the B Note.

Section 2.2 Computation of Interest. All interest shall be computed on the basis of a year of 360 days for the actual number of days elapsed.

Section 2.3 Default Rate. Notwithstanding anything to the contrary contained herein, while any Event of Default exists or after acceleration, the Company shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all Notes at a rate per annum equal to the rate specified in Section 10.2 of this Agreement. Any interest above the aggregate rate specified in Section 2.1 required to be paid under this Section 2.3 shall be deemed to be Current Interest.

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 Maturity Date, the Company shall pay to the Agent for the ratable benefit of the Purchasers as hereinafter set forth, a commitment fee of $40,000.

(b) Audit and Appraisal Fees. The Company shall pay to the Agent for its own use and benefit reasonable 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 reasonably 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). The Agent, on behalf of the Purchasers, shall be entitled to conduct two (2) such audits (each a “Scheduled Field Audit”) during each calendar year (unless any Default or Event of Default has occurred, in which case there shall be no limit on the number of such audits). In the absence of any Default or Event of Default, the Company shall not be required to reimburse the Agent for more than two (2) Scheduled Field Audits per calendar year.

Section 3.2 Voluntary Prepayments of Notes.

(a) Optional Prepayments of the Notes. At any time and from time to time, the Company may, at its option, upon notice as provided in Section 3.2(b), prepay all or any portion of the principal balance of the Notes, on any quarterly payment date, in minimum increments of $500,000, plus a prepayment premium equal to the product obtained by multiplying (i) the amount being prepaid by (ii) the percentage set forth below opposite the time period in which such prepayment shall occur (the “Prepayment Premium”):


Time Period	Percentage
Closing Date to March 31, 2005		3	%
April 1, 2005 to March 31, 2006		2	%
April 1, 2006 to March 31, 2007		1	%
April 1, 2007 to maturity	No Prepayment Premium

In addition, the Company may, at its option, upon notice as provided in Section 3.2(b), prepay all or any portion of the Deferred Interest on any quarterly payment date without having to pay a prepayment premium. Except as provided in Section 3.2(a) and 3.2(c) hereof, the Notes may not be voluntarily prepaid by the Company.

(b) Notice of Optional Prepayments; Officer’s Certificate. The Company will give each holder of the Notes written notice of such optional prepayment under Section 3.2(a) not less than two (2) Business Days prior to the date fixed for such prepayment. Each such notice shall be accompanied by an officer’s certificate (i) stating the principal amount and holder of each Note to be prepaid and the principal amount thereof to be prepaid, (ii) stating the proposed date of prepayment and any conditions relating thereto and (iii) stating the Prepayment Premium required under Section 3.2(a) (calculated as of the date of such prepayment).

(i) In the event of a Change of Control, the Company will, at least thirty (30) days and not more than sixty (60) days prior to such Change of Control, give written notice thereof to each holder of the Securities, which shall contain a written irrevocable notice that the Company will prepay (a “Prepayment Notice”), by a date (the “Prepayment Date”) specified in such notice (which date shall be on or prior to the effective date of the Change of Control), all of the Obligations under the Notes held by such holder in full (and not in part) in cash. Such notice may state that the Company’s prepayment is conditioned upon the consummation of such Change of Control. The Company shall pay to such holder the outstanding principal amount of all Notes then held by such holder, together with all accrued and unpaid interest thereon and all other amounts thereunder. In the event of a prepayment of the Notes in connection with a Change of Control, no Prepayment Premium shall be due in connection therewith and neither the Company nor any Guarantor shall be liable therefor.

(ii) Any notice by the Company to prepay the Notes, and any subsequent prepayment thereof pursuant to this Section 3.2(c), shall be accompanied by an officer’s certificate (A) stating the principal amount of each Note to be prepaid, (B) stating the Prepayment Date, (C) stating the accrued interest and all other amounts thereunder on each such Note to the Prepayment Date to be prepaid, (D) stating the Prepayment Premium payable in connection with such proposed prepayment (calculated as of the date of such notice or prepayment, as the case may be), (E) certifying that the conditions of this Section 3.2(c) have been fulfilled, and (F) specifying the nature of the Change of Control, the transactions or proposed transactions resulting in such Change of Control and the date or proposed date of the occurrence of such Change of Control.

Section 3.3 Place of Payments. All payments of principal, interest, fees and all other amounts payable hereunder shall be made to such Purchaser’s account as specified in the Purchaser Schedule 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, by wire transfer of 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 such Purchaser). Payments received by such Purchaser after 1:00 p.m. (Chicago time) or any date 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 Purchasers and shall be promptly distributed by the Agent ratably to the Purchasers. No amount paid or prepaid on the Notes may be reborrowed.

Section 3.4 Application of Payments Anything contained herein to the contrary notwithstanding, all payments and collections received in respect of the Notes and other Obligations by the Agent or any of the Purchasers, after acceleration or the final maturity of the Obligations as a result 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 Operative Documents and in any event including all costs and expenses of a character which the Company has agreed to pay under Section 13.4 hereof (such funds to be retained by the Agent for its own account unless it has previously been reimbursed for such costs and expenses by the Purchasers, in which event such amounts shall be remitted to the Purchasers 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 Operative Documents other than for principal of the Notes, ratably as among the Agent and the Purchasers in accord with the amount of such interest and other fees or Obligations owing each;

(c) third, to the payment of all other unpaid Obligations and all other indebtedness, obligations, and liabilities of the Company and its Subsidiaries secured by the Operative Documents (including, without limitation, the Put Price and any Deferred Put Obligation) to be allocated pro rata in accordance with the aggregate unpaid amounts owing to each holder thereof; and

(d) fourth, to the Company or to whoever the Agent reasonably determines to be lawfully entitled thereto.

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 Company’s and its Subsidiaries’ accounts, chattel paper, documents, instruments, general intangibles, inventory, equipment and certain other assets and property of the Company and its Subsidiaries, in each case whether now owned or held or hereafter acquired or arising, pursuant to that certain Security Agreement from the Company and its Subsidiaries dated as of March 26, 2004, as the same has been or may hereafter

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 Company and its Subsidiaries, in each case whether now owned or held or hereafter acquired or arising, pursuant to that certain Pledge Agreement from the Company dated as of March 26, 2004, as the same has been or may be hereafter amended, modified or supplemented from time to time (the “Pledge Agreement”), and (c) the real estate and related assets and properties of the Company and its Subsidiaries, in each case whether now owned or held or hereafter acquired or arising, pursuant to mortgages and trust deeds reasonably acceptable to the Agent as to form and substance (as supplemented or otherwise modified from time to time, collectively the "Mortgages” and individually each a “Mortgage”).

Section 4.2 Guaranties. Payment of obligations evidenced by 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, the Company shall also cause such Subsidiary to execute such Collateral Documents (having terms and conditions substantially similar to those executed by the Company and its Subsidiaries in connection with the purchase and sale of the Securities under this Agreement) as the Agent may then require, granting in favor of the Agent for the benefit of the holders of the Notes 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. The Company 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 the Company 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 other acts as the Agent or the Majority Holders may deem necessary or desirable to provide for or protect or perfect the Lien of the Agent in the Collateral.

Section 4.4 Collections. The Company shall establish and maintain such arrangements as shall be necessary or appropriate to assure that all proceeds of the Collateral of the Company and its Subsidiaries are deposited (in the same form as received) in accounts maintained with a financial institution reasonably satisfactory to, and under the dominion and control of, the Agent (subject to the dominion and control of the Senior Bank Agent), such accounts to constitute special restricted accounts, the Company and Guarantors acknowledging that the Agent has (and is hereby granted) a lien on such accounts and all funds contained therein to secure the Obligations. It shall be a condition to the Company’s or any Subsidiary’s right to establish and maintain such deposit accounts at any time following the Closing Date, that the financial institutions maintaining such accounts shall have delivered to the Agent blocked account agreements reasonably satisfactory to the Agent in form and substance pursuant to which such financial institutions acknowledge the Agent’s Lien thereon, waive any right of offset or bankers’ liens thereon (other than (i) Liens of the Senior Bank Agent which are subject to the Subordination Agreement and (ii) with respect to account maintenance charges and returned items). Agent acknowledges that Harris Trust and Savings Bank is a satisfactory financial institution for purposes of this Section 4.4.

SECTION 5

DEFINITIONS; INTERPRETATION.

Section 5.1 Definitions. The following terms when used herein shall have the following meanings:

"A Notes” means and includes those certain Senior Secured Subordinated Promissory Notes dated the date hereof in the aggregate principal amount of Nine Million Fifty Thousand Dollars $9,050,000, issued to BMO and JZ Partners by the Company pursuant to this Agreement, in substantially the form attached hereto as Exhibit A-1, with the blanks appropriately filled in, as may be amended, restated, replaced, substituted or otherwise modified from time to time.

"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, or (iii) any other transaction pursuant to which a Person is newly allocated a majority of the profits or losses of any other Person.

"Affiliate” means any Person, directly or indirectly controlling, controlled by, or under direct or indirect common control with, another Person. A Person shall be deemed to control 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 BMO Nesbitt Burns Capital (U.S.), Inc. and any successor thereto appointed pursuant to Section 11.1 hereof.

"Authorized Representative” means those Persons shown on the list of officers and employees of the Company pursuant to Section 7.2(h) hereof or on any update of any such list provided by the Company to the Agent, or any further or different officers and employees so named by any Authorized Representative in a written notice to the Agent.

"B Note” means and includes that certain Senior Secured Subordinated Promissory Note dated the date hereof in the aggregate principal amount of Two Million Nine Hundred Fifty Thousand Dollars $2,950,000, issued to Prism by the Company pursuant to this Agreement, in substantially the form attached hereto as Exhibit A-2, with the blanks appropriately filled in, as may be amended, restated, replaced, substituted or otherwise modified from time to time.

"BMO” means BMO Nesbitt Burns Capital (U.S.), Inc., a Delaware corporation.

"Board” shall mean the board of directors (or comparable managers) of a Person.

"Borrowing Base” shall have the meaning given such term in the Senior Credit Agreement as in effect on the date hereof.

"Borrowing Base Certificate” shall have the meaning given such term in the Senior Credit Agreement as in effect on the date hereof.

"Business Day” means any day (other than a Saturday or Sunday) on which banks are not authorized or required to close in Chicago, Illinois.

"Capital Expenditures” means, for any period, capital expenditures of the Company and its Subsidiaries during such period as defined and classified in accordance with GAAP.

"Capital Lease” means any lease of Property which, in accordance with GAAP, is required to be capitalized on the balance sheet of the lessee.

"Capital Stock” shall mean (i) in the case of a corporation, voting capital stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of voting capital stock, (iii) in the case of a partnership, voting partnership interests (whether general or limited), (iv) in the case of a limited liability company, voting membership or similar interests and (v) any other interest or participation that confers on a Person the right to vote and to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

"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.

"Cash Maturities” means, with reference to any period, the aggregate amount of payments required to be made by the Company and its Subsidiaries during such period with respect to principal on all Indebtedness (whether at maturity, as a result of mandatory sinking fund redemption, scheduled mandatory prepayment or otherwise).

"CERCLA” is defined in Section 6.15(b).

"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), directly or indirectly, of securities of the Company (or other securities convertible into such securities) representing more than twenty-five percent (25%) of the combined voting power of all securities of the Company 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 Company ceasing for any reason to constitute a majority of the Parent Board unless the Persons replacing such individuals were nominated by William D. Morton or the Parent Board; 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 Company (or other securities convertible into such securities) representing more than twenty-five percent (25%) of the combined voting power of all securities of the Company entitled to vote in the election of directors; or (iv) except for Permitted Transfers, either William D. Morton or Mark W. Mealy

ceases any time and for any reason own and to hold of record at least ninety percent (90%) of the securities of the Company which he owns and holds of record on March 26, 2004; or (v) William D. Morton shall fail to own or be a party to one or more contracts or arrangements giving him voting control over at least fifty-one percent (51%) of the combined voting power of all securities of the Company entitled to vote in the election of directors.

"Closing Date” means the date on which the Agent has received signed counterpart signature pages of this Agreement from each of the signatories and the conditions in Section 7.1 and 7.2 hereof have been fulfilled.

"Code” means the Internal Revenue Code of 1986, as amended, and any successor statute thereto.

"Collateral Documents” means the Security Agreement, the Pledge Agreement, the Mortgages and all other mortgages, deeds of trust, security agreements, assignments, financing statements and other documents as shall from time to time secure the Obligations.

"Consolidated Entity” means, collectively, the Company and each of its Subsidiaries that are consolidated for financial reporting purposes.

"Consolidated Net Income” means, with reference to any period, the net income (or net deficit) of the Company and its Subsidiaries for such period as computed on a consolidated basis in accordance with GAAP.

"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 Company or any Subsidiary, are treated as a single employer under Section 414 of the Code.

"Credit Parties” means the Company and the Domestic Subsidiaries, and the term “Credit Party” shall mean any of the foregoing unless the context in which such term is used shall otherwise require.

"Current Interest” means the rate of twelve percent (12.00%) per annum (computed on the basis of a 360-day year and the actual number of days elapsed in any year) on the unpaid principal amount of the Notes outstanding from time to time from and including the date of issuance thereof until the date paid, or if less, at the highest rate then permitted under applicable law.

"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.

"Deferred Interest” means the rate of four percent (4%) per annum (computed on the basis of a 360-day year and the actual number of days elapsed in any year) on the unpaid principal amount of the Notes outstanding from time to time from and including the date of issuance thereof until the date paid, or if less, at the highest rate then permitted under applicable law.

"Deferred Put Obligations” shall have the meaning given such term in the Warrants.

"Domestic Subsidiary” means each Subsidiary of the Company which is organized under the laws of the United States of America or any State thereof.

"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, plus (iii) with respect to any applicable accounting period of the Company, to the extent such charges against Consolidated Net Income are reflected on the Company’s annual audited financial statements for the most recent fiscal year then ended, (x) non-cash charges reflecting impairment charges arising from SFAS No. 142 (Goodwill and Other Intangible Assets), for such period, and (y) non-cash charges for accretion of discount on, or interest on, preferred stock of the Company for such period, plus or minus (iv) non-cash charges or gains resulting from any valuation of the Warrants in accordance with the provisions of FAS 150.

"EBITDA” means, with reference to any period, EBIT for such period plus all amounts properly deducted in arriving at such Consolidated Net Income for such period in respect of depreciation of fixed assets and amortization of intangible assets during such period on the books of the Company and its Subsidiaries; provided, that EBITDA for the fiscal quarters of the Company listed below shall be deemed by the parties hereto to be, notwithstanding the other provisions of this definition, $3,401,000 for the fiscal quarter ended June 30, 2003, $2,324,000 for the fiscal quarter ended September 30, 2003, and $2,365,000 for the fiscal quarter ended December 31, 2003.

"Environmental Claims” means all claims, however asserted, by any governmental authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment.

"Environmental Laws” means any present or future federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, licenses, authorizations and permits of, and agreements with, any governmental authority, in each case relating to Environmental Matters.

"Environmental Matters” means any matter arising out of or relating to health and safety, or pollution or protection of the environment or workplace, including any of the foregoing relating to the presence, use, production, generation, handling, transport, treatment, storage, disposal, distribution, discharge, release, control or cleanup of any Hazardous Materials.

"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 10.1 hereof.

"Fixed Charge Coverage Ratio” means, as of the last day of each fiscal quarter of the Company, the ratio of (i) EBITDA for the four fiscal quarters of the Company ending on such date, less Capital Expenditures for such four fiscal quarters, to (ii) the sum for such four fiscal quarters of (a) Interest Expense (but excluding therefrom all payment-in-kind interest and non-cash interest relating to the Warrants in accordance with the provisions of FAS 150), (b) Cash

Maturities, (c) federal, state and local income taxes and (d) without duplication of the foregoing, stock redemption payments required to be made pursuant to the terms of the Stock Redemption Agreement; provided that, for all calculations of the Fixed Charge Coverage Ratio for fiscal quarters ending through and including December 31, 2004, (1) Interest Expense for the four fiscal quarters then ended shall be deemed by the parties hereto to be equal to the product of (x) Interest Expense incurred during the period (the "post-closing period”) from and including the effective date through and including the last day of such period and (y) a fraction, the numerator of which is 365 and the denominator of which is the number of days in such post-closing period, (2) Cash Maturities for the four fiscal quarters then ended shall be deemed by the parties hereto to be equal to the product of (x) Cash Maturities during the post-closing period and (y) a fraction, the numerator of which is 365 and the denominator of which is the number of days in such post-closing period, and (3) stock redemption payments required to be made during the four fiscal quarters then ended shall be deemed by the parties hereto to be $500,000.

"GAAP” means generally accepted accounting principles as in effect from time to time, applied by the Company and its Subsidiaries on a basis consistent with the preparation of the Company’s audited financial statements referred to in Section 6.5 hereof.

"Guarantor” means 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.

"Guaranteed Obligations” is defined in Section 12.1 hereof.

"Guaranty” means this Agreement as to Guarantors party hereto and otherwise, a letter to the Agent in the form of Exhibit E hereto executed by a Subsidiary whereby it acknowledges it is party hereto as a Guarantor under Section 12 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 Majority Holders.

"Hazardous Material” means all or any of the following: (i) substances that are defined or listed in, or otherwise classified pursuant to, any Environmental Laws or regulations as “hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic substances” or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, or toxicity; (ii) oil, petroleum or petroleum derived substances, natural gas, natural gas liquids or synthetic gas and drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (iii) any flammable substances or explosives or any radioactive materials; and (iv) asbestos in any form or electrical equipment which contains any oil or dielectric fluid containing polychlorinated biphenyls.

"Hedging Liability” means the liability of the Company to any of the Senior Lenders or their Affiliates in respect of any interest rate swaps, interest rate caps, interest rate collars, or other interest rate hedging arrangements as the Company may from time to time enter into with any one or more of the Senior Lenders or their Affiliates. Unless and until the amount of the Hedging Liability is fixed and determined, the Hedging Liability shall be deemed to be the

market value of the notional amount of the hedge from the date of computation to the date the hedge expires.

"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 (but specifically excluding (x) trade accounts payable arising in the ordinary course of business which are not more than 180 days past due and (y) unsecured indebtedness of the type and in the amount permitted pursuant to Section 8.14(f) hereof), (iii) all indebtedness secured by any Lien upon Property of such Person, whether or not such Person has assumed or become liable for the payment of such indebtedness, (iv) all indebtedness secured by a purchase money mortgage or other Lien to secure all or part of the purchase price of Property subject to such mortgage or Lien, (v) all Capitalized Lease Obligations of such Person, (vi) 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, (vii) 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, and (viii) with respect to the Company or any of its Subsidiaries, all obligations of such Persons to pay the Purchase Price (and, to the extent all or any portion of such amount is reinstated pursuant to the Stock Redemption Agreement, the Stated Redemption Amount) for the Subject Stock under, and as such capitalized terms are defined in, the Stock Redemption Agreement, it being understood that for the purpose of calculating compliance with the terms and provisions of this Agreement, the amount of “Indebtedness” at any time of the type described in this clause (viii) shall be agreed by the parties to be the arithmetical sum of all such obligations then due and unpaid or to become due at any time in the future under such agreement as in effect at the time of determination, provided that there shall be excluded from this definition of “Indebtedness” the obligations of the Company under the Warrants, notwithstanding any contrary treatment thereof under GAAP.

"Interest Expense” means, with reference to any period (the “measurement period”), the sum of all interest expense with respect to Indebtedness or Hedging Liabilities relating to indebtedness (including imputed interest charges with respect to Capitalized Lease Obligations and all amortization of debt discount and expense) of the Company and its Subsidiaries for such measurement period determined in accordance with GAAP (and including, for any measurement period in the overall calculation of Interest Expense for such measurement period, the net amount of interest expense relating to Hedging Liabilities during such measurement period, whether positive or negative).

"Investors” has the meaning given such term in the second “Whereas” clause hereof.

"Investor Rights Agreement” means that certain Investor Rights Agreement dated as of March 26, 2004, as amended by that certain Joinder and First Amendment to Investor Rights Agreement dated the date hereof, among the Company, Agent and the Purchasers and certain other Persons, as the same has been or may hereafter be further amended, modified, supplemented or restated from time to time in accordance with the terms hereof.

"Junior Subordinated Debt” means, collectively (x) the currently outstanding Indebtedness of the Company evidenced by those two Non-Negotiable Promissory Notes

(subordinated) each dated as of April 8, 1998, one payable to the order of Joseph T. Buie, Jr. in the currently outstanding principal amount of $1,198,358, and the second payable to the order of Ernest J. Butler in the currently outstanding principal amount of $569,632, (y) Indebtedness to Worthington under the Settlement Agreement and the Stock Redemption Agreement and (z) any other indebtedness for borrowed money which shall be subordinated in right of payment to the prior payment of the Obligations by written provisions acceptable to the Agent and Majority Holders 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 Majority Holders.

"JZ Partners” has the meaning given such term in the second “Whereas” clause 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.

"Majority Holders” means, as of the date of determination thereof, the holders of at least fifty-one percent (51%) of the outstanding principal amount of the Notes and the holders of at least fifty-one percent (51%) of the Underlying Capital Stock (on an as-converted basis).

"Material Adverse Effect” means (a) a material adverse change in, or material adverse effect upon, the operations, business, Property, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole, (b) a material impairment of the ability of the Company or any Subsidiary to perform its material obligations under any Operative Document, or (c) a material adverse effect upon (i) the legality, validity, binding effect or enforceability against the Company or any Subsidiary of any Operative Document or the rights and remedies of the Agent and the Purchasers thereunder or (ii) the perfection or priority of any Lien granted under any Collateral Document.

"Material Plan” is defined in Section 10.1(j) hereof.

"Maturity Date” means (x) March 26, 2009, or (y) if earlier, such earlier date on which the Notes are accelerated in whole pursuant to Sections 10.1 or 10.2 hereof.

"Mid-Central” means Mid-Central Plastics, Inc., an Iowa corporation.

"Mid-Central Notes” means those certain promissory notes received by Mid-Central as partial consideration for the Mid-Central Sale, including without limitation the Three Month Note, the Six Month Note and the Subordinated Note as defined in the asset purchase agreement for the Mid-Central Sale, all of which are subject to the terms of the Wells Fargo Subordination Agreement.

"Mid-Central Sale” means the sale by Mid-Central to Innovative Injection Technologies, Inc. of substantially all of its assets, including without limitation its right, title and interest in and to its real property and associated improvements and certain personal property associated therewith located at 2360 Grand Avenue, West Des Moines, Iowa.

"Mortgage” is defined in Section 4.1 hereof.

"Morton South Carolina” means Morton Metalcraft Co. of South Carolina, a South Carolina corporation.

"Notes” means and includes, collectively, the A Notes and the B Note.

"Obligations” means all obligations of the Company to pay the principal and interest on the Notes, all fees and charges payable hereunder, and all other payment obligations of the Company arising under or in relation to any Operative Document, including, without limitation, the Put Price and any Deferred Put Obligations, 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.

"Officer’s Certificate” means a certificate signed on behalf of the Company by the Company’s president, CEO or chief financial officer, stating that (a) the officers signing such certificate have made or have caused to be made such investigations as are necessary in order to permit them to verify the accuracy of the information set forth in such certificate and (b) such certificate does not misstate any material fact and does not omit to state any fact necessary to make the certificate not misleading.

"Operative Documents” means this Agreement, the Notes, the Warrants, the Investor Rights Agreement, the Guaranties, the Collateral Documents and all other documents, instruments and agreements executed by or on behalf of the Company and delivered concurrently herewith or at any time hereafter to or for the Purchasers, Agent or any Affiliate of Purchasers or Agent, all as amended, restated or supplemented from time to time.

"Option Plans” means the Stock Option Plan and the Company Director Plan, as each such term is defined in Section 6.21(a) hereof.

"Original BMO Note” has the meaning given such term in the first “Whereas” clause hereof.

"Original BMO Warrant” has the meaning given such term in the first “Whereas” clause hereof.

"Original Purchase Agreement” has the meaning given such term in the first “Whereas” clause hereof.

"Parent Board” has the meaning given such term in Section 8.11 hereof.

"Payment Default” means in Event of Default as described in Section 10.1(a) after the expiration of any applicable grace period.

"PBGC” means the Pension Benefit Guaranty Corporation or any Person succeeding to any or all of its functions under ERISA.

"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.

"Permitted Transfers” means any sale, assignment, transfer, pledge, hypothecation, mortgage, encumbrance or other disposition of all or any of the Capital Stock of the Company held by William Morton or Mark Mealy, respectively, as follows: (i) by way of gift to any member of his family or to any trust or other estate planning entity for his benefit or the benefit of any such family member, provided that any such transferee shall agree in writing with the Company and the Purchasers, as a condition to such transfer, to be bound by all of the provisions of this Agreement to the same extent as if such transferee were such transferor; or (ii) by will or the laws of descent and distribution, in which event each such transferee shall be bound by all of the provisions of this Agreement to the same extent as if such transferee were such transferor. As used herein, the word “family” shall include any spouse, lineal ancestor or descendant.

"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.

"Pledge Agreement” is defined in Section 4.1 hereof.

"Prism” has the meaning given such term in the second “Whereas” clause hereof.

"Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

"Reportable Event” means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code.

"Securities” means, collectively, the Notes and the Warrants.

"Securities Act” means the Securities Act of 1933, as amended, or any similar federal law then in force.

"Security Agreement” is defined in Section 4.1 hereof.

"Securities and Exchange Commission” includes any governmental body or agency succeeding to the functions thereof.

"Securities Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar federal law then in force.

"Senior Bank Agent” means Harris Trust and Savings Bank, in its capacity as agent under the Senior Credit Agreement and any successor thereto appointed pursuant to the Senior Credit Agreement.

"Senior Credit Agreement” means that certain Second Amended and Restated Credit Agreement, dated as of March 26, 2004, as amended by that certain First Amendment to Second Amended and Restated Credit Agreement dated the date hereof, by and among the Company, certain guarantor parties thereto, the Senior Lenders and the Senior Bank Agent, as further amended, supplemented or modified from time to time, including, without limitation, any agreement refinancing in whole or in part the “Obligations” (as defined therein) as permitted under the Subordination Agreement.

"Senior Credit Documents” means the Senior Credit Agreement and the related agreements, documents and instruments, as amended, modified or supplemented in accordance with the Subordination Agreement.

"Senior Debt” means the Indebtedness of the Company and extension of credit by the Senior Lenders under the Senior Credit Agreement, together with extensions of credit pursuant to any modifications of the Senior Credit Agreement, to the extent permitted under the Subordination Agreement, as the same may be amended, modified, supplemented or restated from time to time in accordance with the provisions of this Agreement.

"Senior Lenders” means the financial institutions from time to time party to the Senior Credit Agreement.

"Settlement Agreement” means that certain Settlement Agreement dated as of November 20, 2003 by and between Worthington Industries, Inc., Worthington and the Company.

"Shares” shall mean certificated or uncertificated instruments or denominations that represent the ownership of the Capital Stock of any Person.

"SMP” means SMP Steel Corporation, a South Carolina corporation.

"Stock Redemption Agreement” means that certain Stock Redemption Agreement dated as of December 23, 2003 between the Company and Worthington.

"Subordination Agreement” means that certain Subordination and Intercreditor Agreement dated as of March 26, 2004, as amended by that certain First Amendment to Subordination and Intercreditor Agreement dated the date hereof, by and between the Agent and Senior Bank Agent, as the same has been or may hereafter be further amended, modified, supplemented or restated from time to time in accordance with the terms hereof.

"Subsidiary” means 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 Company, by one or more of its Subsidiaries, or by the Company and one or more of such Subsidiaries.

"Subsidiary Board” has the meaning given such term in Section 8.11 of this Agreement.

"Tax” or “Taxes” means federal, state, county, local, foreign or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, real or personal property, capital stock, license, payroll, wage or other withholding, employment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated and other taxes of any kind whatsoever (including, without limitation, deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not.

"Tax Return” means any return, information report or filing with respect to Taxes, including any schedules attached thereto and including any amendment thereof.

"Total Funded Debt” means, at any time the same is to be determined, the aggregate of all Indebtedness of the Company and its Subsidiaries at such time, plus all Indebtedness of any other Person which is directly or indirectly guaranteed by the Company 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 Company or any of its Subsidiaries has otherwise assured a creditor against loss.

"Total Funded Debt/EBITDA Ratio” means, as of the last day of any fiscal quarter of the Company, the ratio of (x) Total Funded Debt as of such date to (y) EBITDA for the four fiscal quarters of the Company ending on such date.

"Total Senior Funded Debt” means, at any time the same is to be determined, Total Funded Debt at such time minus the sum of (i) the principal balance of the Obligations, and (ii) the principal balance of Junior Subordinated Debt then outstanding to Messrs. Bouie and Butler, and (iii) amounts owing by the Company to Worthington pursuant to the Settlement Agreement or the Stock Redemption Agreement.

"Total Senior Funded Debt/EBITDA Ratio” means, as of the last day of any fiscal quarter of the Company, the ratio of (x) Total Senior Funded Debt as of such date to (y) EBITDA for the four fiscal quarters of the Company ending on such date.

"Underlying Capital Stock” means (a) the Capital Stock issued or issuable upon exercise of the Warrants and (b) any Capital Stock issued or issuable with respect to the securities referred to in clause (a) above by way of dividend or split or in connection with a combination of Shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, any Person who exercises a Warrant shall be deemed to be the holder of the Underlying Capital Stock obtainable upon exercise of such Warrant, and such Person shall be entitled to exercise the rights of a holder of Underlying Capital Stock hereunder. As to any particular Shares of Underlying Capital Stock, such Shares shall cease to be Underlying Capital Stock when they have been (i) effectively registered under the Securities Act

and disposed of in accordance with the registration statement covering them, (ii) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or any similar provision then in force) or (iii) repurchased by the Company or any of its Subsidiaries.

"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.

"Unused Revolving Credit Commitments” shall have the meaning given such term in the Senior Credit Agreement.

“Warrants” means and includes those certain Stock Purchase Warrants issued by the Company in favor of the Purchasers to acquire an aggregate of nine percent (9%) of the Capital Stock of the Company, on a fully-diluted basis, in substantially the form attached hereto as Exhibit B, with the blanks appropriately filled in, as may be amended, restated, replaced, substituted or otherwise modified from time to time, and “Warrant” means each of the Warrants issued hereunder, individually.

"Welfare Plan” means a “welfare plan” as defined in Section 3(1) of ERISA.

"Wells Fargo Subordination Agreement” means that certain Subordination Agreement dated as of June 20, 2003 made by the Company for the benefit of Wells Fargo Business Credit, Inc. and relating to the Mid-Central Notes, in the form delivered to the Agent.

"Wholly Owned Subsidiary” means a Subsidiary of the Company 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 Company and/or one or more Wholly Owned Subsidiaries within the meaning of this definition.

"Worthington” means WI Products, Inc., f/k/a Worthington Custom Plastics, Inc.

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 6.5 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 Company or the Majority Holders may by notice to the holders of the Notes and the Company, respectively, require that the Agent (at the direction of the Majority

Holders) and the Company 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 Company and its Subsidiaries shall be the same as if such change had not been made. No delay by the Company or the Majority Holders in requiring such negotiation shall limit their right to so require such a negotiation at any time after such a change in accounting principles. Without limiting the generality of the foregoing, the Company 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 Company represents and warrants to the Agent and the Purchasers as follows:

Section 6.1 Organization and Qualification. The Company is duly organized, validly existing and in good standing as a corporation under the laws of the State of Georgia, and has full and adequate corporate power to own its Property and carry on its business as now conducted. The Company 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 qualification 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 Company or in its ability to perform or the Agent’s ability to enforce performance of the Company’s obligations under the Operative Documents.

Section 6.2 Subsidiaries. Each Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated or 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 qualification 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 Company and its Subsidiaries taken as a whole or in its ability to perform or the Agent’s ability to enforce performance of the Company’s obligations under the Operative Documents. 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 Company 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 Company or a Subsidiary are owned, beneficially and of record, by the Company or such Subsidiary free and

clear of all Liens, other than Liens in favor of the Senior Bank Agent that are subject to the Subordination Agreement. 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 Authority and Validity of Obligations. The Company has full right and authority to enter into this Agreement and the other Operative Documents executed by it, to issue its Notes and Warrants, to grant to the Agent the Liens described in the Collateral Documents executed by the Company, and to perform all of its obligations hereunder and under the other Operative Documents executed by it. Each Subsidiary has full right and authority to enter into the Operative Documents executed by it, to grant to the Agent the Liens described in the Collateral Documents executed by such Person, and to perform all of its obligations under the Operative Documents executed by it. The Operative Documents delivered by the Company and its Subsidiaries have been duly authorized, executed, and delivered by such Persons and constitute valid and binding obligations of the Company and its Subsidiaries enforceable against them in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors’ rights generally and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law); and this Agreement and the other Operative Documents do not, nor does the performance or observance by the Company or any Subsidiary of any of the matters and things herein or therein provided for, (a) contravene or constitute a default under any provision of law or any judgment, injunction, order or decree binding upon the Company or any Subsidiary or any provision of the organizational documents (e.g., charter, certificate or articles of incorporation and by-laws, certificate or articles of association and operating agreement, partnership agreement, or other similar organizational documents) of the Company or any Subsidiary, (b) contravene or constitute a default under any covenant, indenture or agreement of or affecting the Company or any Subsidiary or any of their Property, in each case where such contravention or default, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, or (c) result in the creation or imposition of any Lien on any Property of the Company or any Subsidiary other than the Liens (i) granted in favor of the Agent pursuant to the Collateral Documents, and (ii) granted in favor of the Senior Bank Agent that are subject to the Subordination Agreement.

Section 6.4 Use of Proceeds; Margin Stock. The Company shall use the proceeds of the issuance of the Notes to refinance all or a part of its existing senior credit facility, to pay fees and expenses associated with such refinancing and general working capital purposes. Neither the Company nor any of its 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 Note 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 6.5 Financial Reports. The consolidated balance sheet of the Company and its Subsidiaries as at December 31, 2003 and the related consolidated statements of income, retained earnings and cash flows of the Company and its Subsidiaries for the fiscal year then ended, and accompanying notes thereto, which financial statements are accompanied by the audit report of KPMG LLP, independent public accountants, and the unaudited interim consolidated balance

sheet of the Company and its Subsidiaries as at February 29, 2004 and the related consolidated statements of income, retained earnings and cash flows of the Company and its Subsidiaries for the two (2) months then ended, heretofore furnished to the Purchasers, fairly present the consolidated financial condition of the Company 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 Company nor any of its 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 December 31, 2003, no event or condition has occurred which would have a Material Adverse Effect.

Section 6.6 Full Disclosure. The statements and information furnished to the Agent and the Purchasers in connection with the negotiation of this Agreement and the commitments by the Purchasers 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 Purchasers acknowledging that as to any projections furnished to any Purchaser, the Company only represents that the same were prepared on the basis of information and estimates the Company believed to be reasonable.

Section 6.7 Good Title. The Company and its respective Subsidiaries have good and defensible title to their respective Property as reflected on the most recent consolidated balance sheet of the Company and its Subsidiaries furnished to the Purchasers (except for sales of assets by the Company and such Subsidiaries in the ordinary course of their respective businesses), subject to no Liens other than such thereof as are specifically identified on Schedule 6.7 or, with the exception of Liens on real Property, permitted by Section 8.15 hereof.

Section 6.8 Litigation and Other Controversies. There is no litigation or governmental proceeding or labor controversy pending, nor to the knowledge of the Company threatened, against the Company or any of its Subsidiaries which if adversely determined would result in any material adverse change in the financial condition, Properties, business or operations of the Company and its Subsidiaries taken as a whole.

Section 6.9 Taxes. All Tax Returns with respect to any material Tax required to be filed by the Company or any Subsidiary in any jurisdiction have, in fact, been filed, and all Taxes upon the Company or any Subsidiary 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 Company does not know of any proposed additional Tax assessment against the Company or any Subsidiary which if paid (taking into consideration any cash segregated for such purpose) would have a Material Adverse Effect. Adequate provisions in accordance with GAAP for Taxes on the books of the Company and each Subsidiary have been made, or (to the extent such provisions have not been made) adequate cash reserves for such Taxes have been segregated, in each case for all open years, and for its current fiscal period. No Consolidated Entity has made an election under §341(f) of the Code. No Consolidated Entity is liable for the Taxes of another Person that is not a Subsidiary in an amount under (i) Treasury Regulation §1.1502-6 (or comparable provisions of state, local or foreign law), (ii) as a transferee or successor, (iii) by contract or indemnity, or (iv) otherwise. No Consolidated Entity is a party to any tax sharing agreement. Each Consolidated Entity has disclosed on its federal income Tax Returns any position taken for

which substantial authority (within the meaning of Code §6662(d)(2)(B)(i)) did not exist at the time the Tax Return was filed. No Consolidated Entity has made any payments, is obligated to make payments or is a party to an agreement that could obligate it to make any payments that would not be deductible under Code §280G.

Section 6.10 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 Company or any other Person, is or will be necessary to the valid execution, delivery or performance by the Company of this Agreement, the Operative Documents, the Notes, the Warrants or the Investor Rights Agreement.

Section 6.11 Affiliate Transactions. Neither the Company nor any of its 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 Company or such Subsidiary than would be usual and customary in similar contracts or agreements between Persons not affiliated with each other.

Section 6.12 Investment Company; Public Utility Holding Company. Neither the Company nor any of its 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 6.13 ERISA. The Company 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 Company 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 6.14 Compliance with Laws (Nonenvironmental). The Company and its Subsidiaries are in compliance with the requirements of all federal, state and local laws, rules and regulations (in each case, other than with respect to Environmental Laws) applicable to or pertaining to the Properties or business operations of the Company or any such Subsidiary (including, without limitation, the Occupational Safety and Health Act of 1970, and the Americans with Disabilities Act of 1990, non-compliance with which would reasonably be expected to have a Material Adverse Effect as a whole. Neither the Company nor any of its 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 statutes and regulations (other than Environmental Laws), which non-compliance would reasonably be expected to have a Material Adverse Effect.

Section 6.15 Environmental and Safety Matters

(a) Except as set forth on the Schedule 6.15, the Company and its Subsidiaries have materially complied with and are currently in material compliance with all Environmental

Laws, and neither the Company nor any of its respective Subsidiaries have received any oral or written notice, regarding any liabilities (whether accrued, absolute, contingent, unliquidated or otherwise) or any corrective, investigatory or remedial obligations arising under Environmental Laws which have not been corrected and which relate to the Company or any of its Subsidiaries or any of their Properties or facilities. Without limiting the generality of the foregoing, the Company and its Subsidiaries have obtained and materially complied with, and are currently in material compliance with, all permits, licenses and other authorizations that may be required pursuant to any Environmental Law for the occupancy of their properties or facilities or the operation of their businesses. Neither this Agreement nor the consummation of the transactions contemplated by this Agreement shall impose any obligations on the Company or any of its Subsidiaries or otherwise for site investigation or cleanup, or notification to or consent of any government agencies or third parties under any Environmental Laws (including, without limitation, any so called “transaction-triggered” or “responsible property transfer” laws and regulations). None of the following exists in violation of Environmental Laws at any property or facility owned, occupied or operated by the Company or any of its respective Subsidiaries:

(i) underground storage tanks or surface impoundments;

(ii) asbestos-containing materials in any form or condition; or

(iii) materials or equipment containing polychlorinated biphenyls.

(b) Except as set forth on Schedule 6.15, neither the Company nor any of its respective Subsidiaries has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled or released any substance (including, without limitation, any Hazardous Material) or owned, occupied or operated any facility or property, so as to give rise to liabilities of the Company or any of its Subsidiaries for response costs, natural resource damages or attorneys fees pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), as amended, or any other Environmental Law, except where any such action would not, individually or in the aggregate, have a Material Adverse Effect.

(c) Without limiting the generality of the foregoing, except as set forth on Schedule 6.15, no facts, events or conditions relating to the past or present Properties, facilities or operations of the Company or its Subsidiaries shall materially prevent, hinder or limit continued compliance with Environmental Laws, give rise to any corrective, investigatory or remedial obligations pursuant to Environmental Laws or any other material liabilities (whether accrued, absolute, contingent, unliquidated or otherwise) pursuant to Environmental Laws (including, without limitation, those liabilities relating to onsite or offsite releases or threatened releases of Hazardous Materials, personal injury, property damage or natural resources damage).

(d) Except as set forth on Schedule 6.15, neither the Company nor any of its Subsidiaries has, either expressly or by operation of law, assumed or undertaken any liability or corrective, investigatory or remedial obligation of any other Person relating to any Environmental Laws.

(e) Except as set forth on Schedule 6.15, neither the Company nor any of its Subsidiaries has received or is subject to any Environmental Claims. No Lien, whether recorded or unrecorded, in favor of any international, federal, state or local governmental authority having jurisdiction over the Company or any of its Subsidiaries, relating to any liability of the Company or any of its Subsidiaries arising under any Environmental Laws has attached to any property owned, leased or operated by the Company or any of its Subsidiaries.

Section 6.16 Other Agreements. Neither the Company nor any of its Subsidiaries is in default under the terms of any covenant, indenture or agreement of or affecting the Company or any such Subsidiary or any of their Properties, which default would have a Material Adverse Effect. All of the Company’s and its Subsidiaries’ material contracts are valid, binding and enforceable in accordance with their respective terms, except where any failure or failures thereof would not, considered in the aggregate, have a Material Adverse Effect. Each of the Company and each of its Subsidiaries has performed all obligations required to be performed by it under such contracts and is not in default under or in breach of nor in receipt of any claim of default or breach under any such contract; no event has occurred which, with the passage of time or the giving of notice or both, would result in a default, breach or event of noncompliance by the Company or any of its Subsidiaries under any such contract; and neither the Company nor any of its Subsidiaries has any present expectation or intention of not fully performing all such obligations; neither the Company nor any of its Subsidiaries has knowledge of any breach or anticipated breach by the other parties to any such contract. Neither the Company nor any of its Subsidiaries is a party to any contract or commitment requiring it to purchase or sell goods or services or lease property above or below (as the case may be) prevailing market prices and rates.

Section 6.17 No Default. No Default or Event of Default has occurred and is continuing.

Section 6.18 Trademarks, Franchises, and Licenses. The Company and its Subsidiaries own, possess, or have the right to use all necessary patents, licenses, franchises, trademarks, trade names, trade styles, copyrights, trade secrets, know how, and confidential commercial and proprietary information to conduct their businesses as now conducted, without known conflict with any patent, license, franchise, trademark, trade name, trade style, copyright or other proprietary right of any other Person, except for any such failures to so own, possess or have the right to use the same or any such conflicts which would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect.

Section 6.19 Governmental Authority and Licensing. The Company and its Subsidiaries have received all licenses, permits, and approvals of all federal, state, and local governmental authorities, if any, necessary to conduct their businesses, in each case where the failure to obtain or maintain the same could reasonably be expected to have a Material Adverse Effect. No investigation or proceeding which, if adversely determined, could reasonably be expected to result in revocation or denial of any material license, permit or approval is pending or, to the knowledge of the Company, threatened.

Section 6.20 Solvency. The Company and its Subsidiaries are solvent, able to pay their debts as they become due, and have sufficient capital to carry on their business and all businesses in which they are about to engage.

Section 6.21 Capital Structure.

(a) Generally. The authorized capital stock of the Company consists of (i) 20,000,000 shares of Class A Common Stock, $.01 par value, of which there are 4,560,547 shares issued and outstanding as of the Closing Date and no shares held in the treasury of the Company; (ii) 200,000 shares of Class B Common Stock, $.01 par value, of which there are 100,000 shares issued and outstanding as of the Closing Date and no shares held in the treasury of the Company; and (iii) 2,000,000 shares of Preferred Stock, no par value, of which 10,000 shares are issued and outstanding as of the Closing Date and no shares held in the treasury of the Company. All outstanding shares of the Company’s Class A and Class B Common Stock and Preferred Stock are duly authorized, validly issued, fully paid and nonassessable and are not subject to preemptive rights created by statute, the Articles of Incorporation or Bylaws of the Company or any agreement or document to which the Company is a party or by which it is bound. Shares of the Company’s Class B Common Stock are convertible, on a one-to-one basis, into shares of the Company’s Class A Common Stock, and shares of the Company’s Preferred Stock are not convertible into any Capital Stock of the Company. As of the Closing Date the Company had remaining a reserve of an aggregate of 1,166,711 shares and 25,000 shares, respectively, of the Company’s Class A Common Stock for issuance to employees pursuant to the Company’s 1997 Employee Stock Option Plan (the “Stock Option Plan”), and the Company’s Morton Industrial Group, Inc. Nonemployee Directors’ Compensation Plan (the “Company Director Plan”). Except for the Warrants, Schedule 6.21 sets forth for each Person who held options to acquire shares of the Company’s Class A or Class B Common Stock, or any other capital stock of the Company, in each case as of the Closing Date, the name of the holder of such option, the number of shares subject to such option, the exercise price of such option, the number of shares as to which such option was vested at such date and the vesting schedule for such option. As of the Closing Date there are, in the aggregate, 336,981 shares of Class A Common Stock available for issuance under the Option Plans.

(b) Obligations With Respect to Capital Stock. Except as set forth in Section 6.21(a), and except for the Warrants, as of the Closing Date, there are no equity securities, partnership interests or similar ownership interests of any class of the Company, or any securities exchangeable or convertible into or exercisable for such equity securities, partnership interests or similar ownership interests, issued, reserved for issuance or outstanding. As of the Closing Date, except as described in Section 6.21(a) and except for the Warrants, there are no options, warrants, equity securities, partnership interests or similar ownership interests, calls, rights (including preemptive rights), commitments or agreements of any character to which the Company or any of its Subsidiaries is a party or by which it is bound obligating the Company or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition, of any shares of capital stock, partnership interests or similar ownership interests of the Company or any of its Subsidiaries or obligating the Company or any of its Subsidiaries to grant, extend, accelerate the vesting of or enter into any such option, warrant, equity security, call, right, commitment or agreement.

Section 6.22 SEC Disclosure. The Class A Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company has timely filed all proxy statements, reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act. The Company has filed (a) its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and (b) its Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2003 (collectively, the “SEC Reports”). Each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the United States Securities and Exchange Commission or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed) and fairly present in all material respects the financial condition, the results of operations and the cash flows of the Company and its Subsidiaries, on a consolidated basis, as of, and for, the periods presented in each such SEC Report.

SECTION 7

CONDITIONS PRECEDENT.

The obligation of the Purchasers to purchase and pay for the Securities is subject to fulfillment on or prior to the Closing Date of the following conditions precedent to the satisfaction of the Purchasers in their sole discretion:

Section 7.1 Conditions. As of the time of the purchase of the Securities by the Purchasers:

(a) each of the representations and warranties set forth in Section 6 hereof and the other Operative Documents 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;

(b) the Company 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) the Company shall have simultaneously sold to the Purchasers the Securities to be purchased by the Purchasers hereunder at the Closing;

(d) the Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws;

(e) the purchase and sale of the Securities 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 Purchaser (including, without limitation, Regulation U of the Board of Governors of the Federal Reserve System, the Securities Act and the Securities Exchange Act) as then in effect;

(f) the Company, the Senior Bank Agent and the Senior Lenders shall have entered into the Senior Credit Agreement and all conditions to its effectiveness shall have been satisfied and no default or event of default shall have occurred and be continuing thereunder prior to and after giving effect to this Agreement and the transactions contemplated hereby;

(g) the Purchasers shall have received approval from each of their respective investment committees to purchase the Securities and enter into this Agreement;

(h) since December 31, 2003 there shall have been no change in the financial condition, operating results, assets, operations, business prospects, results, assets, operations, business prospects, employee relations or customer or supplier relations of the Company or any of its Subsidiaries which would have a Material Adverse Effect;

(i) Agent and the other Purchasers shall have completed a due diligence review of the Company and its Subsidiaries and their respective records, financial condition and operations, which due diligence review shall be satisfactory to Agent and the other Purchasers in their sole discretion; and

(j) Agent shall have paid Prism $75,000 in immediately available funds; and

(k) the Company shall have paid to BMO, by wire transfer of immediately available funds, an amount equal to $4,000,000 in prepayment of a portion of the Original BMO Note.

Section 7.2 Documents. At or prior to the purchase of the Securities, the Agent shall have received the following for the account of the Purchasers (each to be properly executed and completed) and the same shall have been approved as to form and substance by the Purchasers:

(a) this Agreement, the Notes and the Warrants, duly executed by the Company, the Guarantors and the Purchasers, as applicable;

(b) a Secretary’s Certificate of the Company and each Guarantor, together with (i) authorizing resolutions and (ii) incumbency certificates;

(c) such other documents, instructions and agreements as the Agent shall request in connection with the foregoing matters;

(d) Agent shall have received from the Company the commitment fee required pursuant to Section 3.1(a);

(e) the Company, the Senior Bank Agent and the Senior Lenders shall have entered into the First Amendment to Senior Credit Agreement and all conditions to its

effectiveness shall have been satisfied and no default or event of default shall have occurred and be continuing thereunder prior to and after giving effect to this Agreement and the transactions contemplated hereby;

(f) the Agent and Senior Bank Agent shall have entered into that certain First Amendment to Subordination Agreement and all conditions to its effectiveness shall have been satisfied;

(g) the Company, Agent and the Purchasers and certain other Persons shall have entered into that certain Joinder and First Amendment to Investor Rights Agreement and all conditions to its effectiveness shall have been satisfied; and

(h) Agent shall have delivered to the Company the Original BMO Note and the Original BMO Warrant.

SECTION 8

COVENANTS.

The Company agrees that, so long as any portion of the Notes remains outstanding, except to the extent compliance in any case or cases is waived in writing by the Majority Holders:

Section 8.1 Maintenance of Business. The Company shall, and shall cause each of its 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 8.19 hereof) and all licenses, permits and franchises necessary to the proper conduct of its business.

Section 8.2 Maintenance of Property. The Company 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 Company will duly pay and discharge, and will cause each of its 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 Company will insure and keep insured, and will cause each of its 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 Company 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 Company 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 Company will, and will cause each of its Subsidiaries to, maintain a standard system of accounting in accordance with GAAP, will permit the Agent, each holder of any Note and their representatives to visit and inspect the properties and assets (including books and records) of the Company and its Subsidiaries at all reasonable times and will furnish to the Agent, each holder of the Securities and their duly authorized representatives such information respecting the business and financial condition of the Company and its Subsidiaries as the Agent or such holder may reasonably request; and without any request, the Company will furnish to the holders of the Notes:

(a) as soon as available, and in any event within 45 days after the close of each monthly fiscal period of the Company which is also the end of a fiscal quarter of the Company and within 30 days after the close of each other monthly fiscal period of the Company, a copy of the balance sheet, statements of income, retained earnings and cash flows of the Company 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 and a comparison to budget, prepared by the Company in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes) and certified to by the chief financial officer of the Company;

(b) as soon as available, and in any event within 90 days after the close of each fiscal year of the Company, a copy of the consolidated balance sheet of the Company and its Subsidiaries as of the close of such fiscal year and the consolidated statements of income, retained earnings and cash flows of the Company 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 and a comparison to budget, accompanied by an unqualified opinion thereon of KPMG LLP or another firm of independent public accountants of recognized national standing, selected by the Company and satisfactory to the Agent, 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 Company 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) a copy of any management letters on internal accounting controls of the Company 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 Company 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 statements the Company files with the Securities and Exchange Commission or any successor thereto, or with any national securities exchanges;

(e) promptly after knowledge thereof shall have come to the attention of any responsible officer of the Company, written notice of (x) any threatened or pending litigation or governmental proceeding or labor controversy against the Company or any Subsidiary which, if adversely determined, would have a material adverse effect on the financial condition, Properties, business or operations of the Company and its Subsidiaries taken as a whole or of (y) the occurrence of any Default or Event of Default hereunder;

(f) as soon as available, and in any event within 30 days prior to the end of each fiscal year of the Company, a copy of the Company’s consolidated and consolidating business plan for the following fiscal year, such budget and business plan to show the Company’s projected consolidated and consolidating revenues, expenses and balance sheet on a quarter-by-quarter/month-by-month basis, such business plan to be in reasonable detail prepared by the Company and in form satisfactory to the Agent and the Majority Holders (which shall include a summary of all assumptions made in preparing such budget and business plan);

(g) notice of any Change of Control; and

(h) within thirty (30) days after the close of each month, a Borrowing Base Certificate prepared as of the last day of such month.

Each of the financial statements furnished to the holders of the Notes pursuant to clauses (a) and (b) of this Section shall be accompanied by a written certificate in the form attached hereto as Exhibit C signed by the chief financial officer of the Company 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 Company 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 Company will, and will cause each Subsidiary to, permit the Agent, the Purchasers and their duly authorized representatives to visit and inspect any of the Properties of the Company and its 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 Company authorizes such accountants to discuss with the holders of the Notes (and such Persons as any holder of any Note may designate) the finances and affairs of the Company and its Subsidiaries) all at such reasonable times and as often as may be reasonably requested.

Section 8.6 Total Funded Debt/EBITDA Ratio. The Company shall not, as of the last day of each fiscal quarter of the Company ending on the dates set forth below, permit the Total Funded Debt/EBITDA Ratio to be greater than the corresponding ratio set forth opposite such dates:


		Total Funded
Fiscal Quarter		Debt/EBITDA Ratio
Ending Dates		Shall Not Be Greater Than
Closing Date through and including 9/30/04		5.00 to 1.0
12/31/04 through 9/30/05		4.50 to 1.0
12/31/05 through 9/30/06		4.00 to 1.0
12/31/06 through 9/30/07		3.50 to 1.0
12/31/07 and thereafter		3.40 to 1.0

Section 8.7 Total Senior Funded Debt/EBITDA Ratio. The Company shall not, as of the last day of each fiscal quarter of the Company ending on the dates set forth below, permit the Total Senior Funded Debt/EBITDA Ratio to be greater than the corresponding ratio set forth opposite such dates:


Fiscal Quarter		Total Senior Funded Debt/EBITDA
Ending Dates		Ratio Shall Not Be Greater Than
Closing Date through and including 9/30/04		3.95 to 1.0
12/31/04 through 9/30/05		3.30 to 1.0
12/31/05 through 9/30/06		2.90 to 1.0
12/31/06 through 9/30/07		2.45 to 1.0
12/31/07 and thereafter		2.35 to 1.0

Section 8.8 Minimum EBITDA. The Company shall not, as of the last day of each fiscal quarter of the Company ending on the dates set forth below, permit EBITDA for the four fiscal quarters of the Company then most-recently ended to be less than the corresponding amount set forth opposite such dates:


Fiscal Quarter		EBITDA For Such Period
Ending Date		Shall Not Be Less Than:
3/31/04 through 9/30/04		$10,000,000
12/31/04 through 9/30/06		$10,200,000
12/31/06 and thereafter		$9,775,000

Section 8.9 Fixed Charge Coverage Ratio. The Company will not, as of the last day of each fiscal quarter of the Company ending on the dates set forth below, permit the Fixed Charge Coverage Ratio to be less than:


Fiscal Quarter		Fixed Charge Coverage
Ending Dates		Ratio Shall Not Be Less Than
At all times		1.0 to 1.0

Section 8.10 Capital Expenditures. The Company will not, nor will it permit any Subsidiary to, expend or (without duplication) become obligated to expend, in each case for Capital Expenditures aggregating for the Company and its Subsidiaries (taken together) an amount during any fiscal year of the Company in excess of the corresponding amount set forth below opposite such fiscal year:


	Capital Expenditures
Fiscal Year	Shall Not Exceed
2004	$	5,280,000
2005	$	5,720,000
2006	$	7,260,000
2007	$	7,370,000
2008	$	7,590,000

Section 8.11 Board Matters. The Company shall hold meetings of its Board of Directors (the “Parent Board”) at least once every quarter. The Board of Directors of any Subsidiary of the Company (each, a “Subsidiary Board”) shall hold meetings at least once every quarter. The Parent Board shall have an audit committee and a compensation committee. Members of the audit committee and the compensation committee shall be members of the Parent Board that are not employees of the Company or any of its Subsidiaries. Each of BMO Nesbitt Burns Capital (U.S.), Inc. and Prism shall have the right to appoint one (1) Person as its designee to the Parent Board and each Subsidiary Board (each, an “Investor Designee”). Each Investor Designee shall have observation rights with respect to all meetings of the Parent Board

and each Subsidiary Board. Each Investor Designee shall have the right to attend each meeting of the Parent Board and each Subsidiary Board and all committees, respectively, thereof. The Parent Board and each Subsidiary Board shall give each Investor notice of each meeting of its Board and each committee thereof at the same time and in the same manner as notices given to the members of its Board (which notice shall be promptly confirmed in writing). Each Investor Designee and each Investor shall be entitled to receive all written materials and other information given to members of the Parent Board and the Subsidiary Boards and each committee thereof in connection with such meetings at the same time such materials and information are given to all other members of such Boards and such committees. The Company and each Subsidiary shall reimburse each Investor Designee for reasonable out-of-pocket expenses in connection with attending such Parent Board and Subsidiary Board and committee meetings. The Company and each Subsidiary agrees to take any and all actions necessary to effectuate the intent of the foregoing provisions.

Section 8.12 Investor Protection. In connection with any Change of Control or similar transaction under circumstances where any Purchaser or any holder thereof continues to hold a Warrant, the Company shall make, or cause to be made, available to such Purchaser and/or such holder all economic benefits in a manner that treats any Purchaser and/or such holder equitably with respect to all other equity holders of the Company. In this regard, the Company agrees to structure any Change of Control or similar transaction, under circumstances where any Purchaser or any holder thereof continues to hold a Warrant, in order to treat all equity holders, including such Purchaser and/or such holder, in a fair and equitable manner and such transaction structure shall not include disguised purchase price components in the form of payments allocated to covenants not to compete, consulting payments and the like, except for employment agreements or similar agreements providing for reasonable “arms length” levels of compensation to such equity holder in return for future services to be rendered to the acquirer subsequent to a Change of Control.

Section 8.13 Equity Restriction. The Company shall not:

(a) except as expressly permitted under Section 8.18 and 8.33 of this Agreement, directly or indirectly make, or permit any of its Subsidiaries to make, any purchase of any Capital Stock, or directly or indirectly redeem, purchase or make, or permit any of its Subsidiaries to redeem, purchase or make, any payments with respect to any stock appreciation rights, phantom stock plans or similar rights or plans; and

(b) authorize, issue or enter into any agreement providing for the issuance (contingent or otherwise) of any notes or debt securities containing equity features (including, without limitation, any notes or debt securities convertible into or exchangeable for Capital Stock or other equity securities issued in connection with the issuance of Capital Stock, or other equity securities or containing profit participation features) at a price at issuance which is lower than the then current market price of the Company’s Capital Stock except as otherwise expressly contemplated by this Agreement.

Section 8.14 Indebtedness. The Company will not, nor will it permit any of its Subsidiaries to, issue, incur, assume, create or have outstanding any Indebtedness; provided, however, that the foregoing provisions shall neither restrict nor operate to prevent:

(a) obligations of the Company and its Subsidiaries owing to the Agent and the Senior Lenders (and their Affiliates) under the Senior Credit Agreement;

(b) purchase money indebtedness and Capitalized Lease Obligations secured by Liens permitted by Section 8.15(d) hereof in an aggregate amount which does not exceed $3,000,000 at any one time outstanding;

(c) obligations of the Company arising out of interest rate, foreign currency and commodity hedging arrangements entered into with financial institutions in the ordinary course of business and not for speculative purposes;

(d) intercompany borrowings by and from the Company and its Subsidiaries;

(e) indebtedness secured by Liens permitted by Section 8.15(e) hereof in an aggregate amount which does not exceed $1,000,000 at any one time outstanding;

(f) unsecured indebtedness in an aggregate principal amount not to exceed $1,500,000 at any one time outstanding in favor of vendors or suppliers other than Deere or Caterpillar representing the extension, with the consent of the creditor, beyond the normal due date (but not beyond 360 days from invoice) of trade credit incurred in the ordinary course of business;

(g) the liability of Morton Metalcraft Co. of South Carolina for the currently outstanding indebtedness of SMP to Little River Electric Cooperative, Inc. (“Little River”) evidenced by that certain Mortgage Note of SMP dated as of November 22, 1996 payable to the order of Little River in the face principal amount of $400,000 provided such liability at no time aggregates in excess of $400,000;

(h) all obligations of the Company to pay the Purchase Price (and, to the extent all or any portion of such amount is reinstated pursuant to the Stock Redemption Agreement, the Stated Redemption Amount) for the Subject Stock under, and as such capitalized terms are defined in, the Stock Redemption Agreement;

(i) to the extent not included in Section 8.14(h), the Junior Subordinated Debt; and

(j) unsecured indebtedness not otherwise permitted by this Section 8.14 provided the aggregate amount at any one time outstanding does not exceed $100,000.

Section 8.15 Liens. The Company will not, and will not permit any of its Subsidiaries to, create, incur or permit to exist any Lien of any kind on any Property owned by the Company 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 Company or any of its 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 Company 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 8.14(b) hereof in respect of Property now owned or hereafter acquired by the Company or any of its 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 Company or any Subsidiary, provided that such Lien is not created in contemplation of or in connection with such acquisition;

(f) Liens on the real estate of Morton Metalcraft Co. of South Carolina in Honea Path, Abbeville County, South Carolina and the buildings and other improvements situated on such real estate securing the indebtedness permitted by Section 8.14(g) hereof provided such liens do not in any event encumber any trade fixtures or similar equipment;

(g) Liens granted in favor of Senior Bank Agent on certain assets of the Company and its Subsidiaries that are subject to the terms of the Subordination Agreement;

(h) the Liens described on Schedule 8.15 hereof; and

(i) 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 Company or any of its Subsidiaries.

Section 8.16 Investments, Loans, Advances and Guaranties. The Company will not, and will not permit any of its 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;

(e) the Company’s investments from time to time in its Subsidiaries, and other intercompany loans and advances by and from the Company and its Subsidiaries to one another;

(f) the Mid-Central Notes;

(g) the Guaranties; and

(h) guaranties by the Company of (i) trade accounts payable of its Subsidiaries arising in the ordinary course of business which are not more than ninety (90) days past due and (ii) indebtedness of its Subsidiaries permitted pursuant to Sections 8.14(b), (c), (f), and (j) hereof.

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.

In addition to the foregoing, neither the Company nor any Subsidiary will (i) create or be or become a party to the creation of any special-purpose vehicle or entity, whether or not the Company or any Subsidiary owns an equity interest therein, (ii) be or become a partner of any general or limited partnership or a member of any limited liability Company or similar Person, or (iii) enter into any agreement pursuant to which it will be allocated any profits or losses of any Person, whether or not it holds an equity interest of any type therein.

Section 8.17 Leases. (a) The Company will not, and will not permit any of its Subsidiaries to, enter into any arrangement with any bank, insurance company or any other lender or investor providing for the leasing by the Company 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.

(a) Operating Leases. The Company shall not, nor shall it permit any of its Subsidiaries to, acquire the use or possession of any Property under a lease or similar arrangement, whether or not the Company 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 Company and its Subsidiaries under all such leases and similar arrangements would exceed $7,500,000 for fiscal year 2004, $8,100,000 for fiscal year 2005, and $8,500,000 for fiscal year 2006 and thereafter.

Section 8.18 Dividends and Certain Other Restricted Payments. The Company 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:

(i) provided that no Default or Event of Default exists before or after giving effect thereto or would be caused thereby, the Company’s expenditure of up to $20,000 in the aggregate to redeem fractional shares of its common stock resulting from a previous reverse stock split of the Company; or

(ii) the Company’s redemption of up to 10,000 shares of its Series 1999A Preferred Stock at a redemption price not to exceed $50,000 per 333 (or 334, as the case may be) shares redeemed and payable at the times set forth in Section 3 of the Stock Redemption Agreement as in effect on the Closing Date, provided that at the time of such redemption (x) the Company was in compliance with the requirements of each of Sections 8.6, 8.7, 8.8, 8.9 and 8.10 of this Agreement as of the end of the most recent fiscal quarter for which it was required to submit financial statements and a compliance certificate pursuant to Section 8.5 hereof, (y) no Event of Default exists under Section 10.1(a) or (b) hereof before or after giving effect to such redemption and (z) no “Standstill Period” (as defined in the Subordination Agreement) is in effect under the Subordination Agreement at the time of such redemption.

Section 8.19 Mergers, Consolidations and Sales. The Company will not, and will not permit any of its 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 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 Company may merge or consolidate with or into the Company or any Wholly Owned Subsidiary of the Company; provided that in any such merger or consolidation involving the Company, the Company shall be the surviving or continuing

corporation, or, in the case of any other merger or consolidation of a Subsidiary and a Wholly Owned Subsidiary of the Company, 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 Company or any Wholly Owned Subsidiary of the Company; and

(c) the Company may merge with a Wholly Owned Subsidiary incorporated in Delaware and directly owned by the Company solely for the purpose of changing the Company’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 Majority Holders) its assumption of all the Company’s obligations under the Operative Documents to the same extent, with the same force and effect, as if such Wholly Owned Subsidiary were originally the Company identified and defined therein;

(iii) the Agent shall have received an opinion of counsel of the Company, and such other assurances that the Agent or Majority Holders 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

(iv) such merger shall have no adverse effect on the financial condition Properties, business or operations the Company or any Subsidiary or on the ability of any Subsidiary to perform or the Agent’s ability to enforce performance of the obligations of any of them under the Operative 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 Company and its Subsidiaries taken as a whole.

Section 8.20 Acquisitions. The Company will not, and will not permit any of its Subsidiaries to, make or commit to make any Acquisitions.

Section 8.21 Maintenance of Subsidiaries. The Company will not assign, sell or transfer, or permit any of its Subsidiaries to issue, assign, sell or transfer, any shares of capital stock of a Subsidiary, provided that the foregoing shall not operate to prevent (a) 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, (b) the issuance of such stock to the Company or a Wholly-Owned Subsidiary,

and (c) the Lien granted on equity interests in the Company’s Subsidiaries in favor of the Agent and, subject to the Subordination Agreement, Liens granted therein to Senior Bank Agent.

Section 8.22 Formation of Subsidiaries. In the event any Subsidiary is formed or acquired after the date hereof, the Company 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 holders of the Notes 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 the Operative 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 8.23 ERISA. The Company will, and will cause each of its 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 Company will, and will cause each of its Subsidiaries to, promptly notify the holders of the Notes of (i) the occurrence of any Reportable Event 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 Company or any of its Subsidiaries of any material liability, fine or penalty, or any material increase in the contingent liability of the Company or any such Subsidiary with respect to any post-retirement Welfare Plan benefit.

Section 8.24 Compliance with Laws. The Company will, and will cause each of its 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 Company or any such Subsidiary, non-compliance with which could have a Material Adverse Effect or would reasonably be expected to result in a Lien upon any of their Property.

Section 8.25 Burdensome Contracts with Affiliates. The Company will not, and will not permit any of its 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 Company or such Subsidiary than would be usual and customary in similar contracts, agreements or business arrangements between Persons not affiliated with each other.

Section 8.26 Changes in Fiscal Year. Except to change (with notice to the Purchasers) its fiscal year to correspond with the calendar year, neither the Company nor any of its Subsidiaries will change its fiscal year from its present basis without the prior written consent of the Majority Holders.

Section 8.27 Change in the Nature of Business. The Company will not, and will not permit any of its Subsidiaries to, engage in any business or activity if as a result the general nature of the business of the Company or any such Subsidiary would be changed in any material respect from the general nature of the business engaged in by the Company or such Subsidiary on the date of this Agreement.

Section 8.28 Use of Loan Proceeds. The Company will use the proceeds of the Loans solely for the purposes described in, or otherwise permitted by, Section 6.4 hereof.

Section 8.29 No Restrictions. Except as provided herein, the Company shall not, nor shall it permit any Subsidiary to, directly or indirectly create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of the Company or any Subsidiary to: (a) pay dividends or make any other distribution on any Subsidiary’s capital stock or other equity interests owned by the Company or any other Subsidiary, (b) pay any indebtedness owed to the Company or any other Subsidiary, (c) make loans or advances to the Company or any other Subsidiary, (d) transfer any of its Property to the Company or any other Subsidiary, or (e) guarantee the Obligations and/or grant Liens on its assets to the Agent as required by the Operative Documents, except for such encumbrances or restrictions relating to (i) customary non-assignment provisions of any lease and restrictions therein restricting subletting, (ii) customary net worth provisions contained in leases and other agreements entered into by the Company or a Subsidiary in the ordinary course of business, (iii) customary non-assignment provisions in licenses entered into by the Company or a Subsidiary as lessee, in the ordinary course of business, and (iv) purchase money obligations and Capitalized Lease Obligations that impose restrictions on the property purchased or leased.

Section 8.30 Senior Debt. The Company shall not, nor shall it permit any Subsidiary to, amend or modify the terms and conditions applicable to the Senior Debt owing to Senior Lender in violation of the terms of the Subordination Agreement.

Section 8.31 Junior Subordinated Debt. The Company shall not, nor shall it permit any Subsidiary to (a) amend or modify the terms and conditions applicable to the Junior Subordinated Debt owing to Messrs. Buie and Butler or amend or modify any terms applicable to any other Junior Subordinated Debt in any respect whatsoever, (b) make any voluntary prepayment of the Junior Subordinated Debt or effect any voluntary redemption thereof, or (c) make any payment on account of any Junior Subordinated Debt which is prohibited under the terms of any instrument or agreement subordinating the same to the Obligations. Notwithstanding the foregoing, the Company may agree to a decrease in the interest rate applicable to the Junior Subordinated Debt or to a deferral of repayment of any of the principal of or interest on the Junior Subordinated Debt beyond the current due dates therefor.

Section 8.32 [Reserved].

Section 8.33 Worthington Settlement Documents. The Company will not, nor will it permit any Subsidiary to, amend or modify any of the terms or provisions of either of the Settlement Agreement or the Stock Redemption Agreement without the prior written consent of the Majority Holders. The Company will not, nor will it permit any Subsidiary to, (i) prepay or otherwise advance the time for the payment of any amounts due, or pay more than the amounts

otherwise due, under the Settlement Agreement or the Stock Redemption Agreement, or (ii) pay any amount due under the Stock Redemption Agreement unless such payment is permitted pursuant to the terms of Section 8.18 hereof (or represents interest on such a permitted payment permitted to be paid pursuant to the immediately following sentence), without (in each case described in the foregoing clauses (i) and (ii)) the prior written consent of the Majority Holders. Without limiting the foregoing, the Company will not pay, or permit any Subsidiary to pay, more than $50,000 during any month as a payment of the Purchase Price (as defined in the Stock Redemption Agreement) for the Subject Stock (as defined in the Stock Redemption Agreement), unless such additional payment is a Deferred Payment (as defined in the Stock Redemption Agreement) or interest on a Deferred Payment which, pursuant to the terms of the Stock Redemption Agreement, may no longer be deferred. If the making of any payment due under the Stock Redemption Agreement would constitute a Payment Default or a Statutory Default (as those terms are defined in the Stock Redemption Agreement), the Company will, and will cause any Subsidiary to, take all necessary actions to defer such payment under the Stock Redemption Agreement in accordance with the terms thereof.

Section 8.34 Mid-Central Debt. The Company will not, nor will it permit Mid-Central or any other Subsidiary to, amend or modify any of the terms or provisions of, or agree to defer or forgive any payments otherwise due under, any of the Mid-Central Notes, except to the extent required by the Wells Fargo Subordination Agreement.

Section 8.35 D & O Insurance. The Company shall at all times maintain directors’ and officers’ liability insurance policies.

Section 8.36 Capital Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Capital Stock, solely for the purpose of issuance upon any conversion of the Warrants, such number of shares of Capital Stock issuable upon the conversion of the Warrants. All shares of Capital Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens, charges and encumbrances. The Company shall take all such actions as may be necessary to assure that all such Shares of Capital Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which Shares of Capital Stock may be listed.

Section 8.37 Management Compensation. The Company shall not, without the Agent’s prior written approval, increase the compensation paid to any officer, key employee or consultant in excess of historical increases in such compensation consistent with the past practices of the Company; provided, however, that, upon the approval of the compensation committee of the Parent Board, the Company shall be permitted to pay to William Morton a bonus of up to $150,000 for the Company’s 2003 fiscal year.

Section 8.38 Additional Life Insurance. The Agent shall have received, for the benefit of the Purchasers, collateral assignments of life insurance in form and substance satisfactory to the Agent (a) on the life of William D. Morton in the amount of $4,000,000 at the Closing; and (b) on the lives of certain key employees of the Company determined by the Agent, which insurance shall be in an aggregate amount of not less than $2,000,000 for all such persons, within thirty (30) days of the Closing.

In addition to the foregoing, so long any portion of the Warrant, the Underlying Capital Stock or the Deferred Put Obligations remains outstanding, except to the extent compliance in any case or cases is waived in writing by the Majority Holders, the Company shall and shall cause its Subsidiaries to observe the covenants set forth in Sections 8.1, 8.2, 8.5, 8.11, 8.12, 8.13, 8.36 and 8.37 hereof.

SECTION 9

REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

As a material inducement to the Company entering into this Agreement and selling the Securities hereunder, each Purchaser, severally but not jointly, hereby represents and warrants to Holdings and the Company as follows:

Section 9.1 Organization and Good Standing. It is a limited partnership, limited liability company, corporation, or trust, as the case may be, duly organized, validly existing and in good standing under the laws of its state or country of formation or organization and has all requisite power and authority to carry on its business as now conducted.

Section 9.2 Authorization; Power. The execution and delivery by it of, and the performance by it under, the Operative Documents to which it is a party and the purchase of the Note and the Warrant issued in favor of it have been duly authorized by all requisite action, and it has the full right, power and authority to enter into, and perform its obligations under, this Agreement.

Section 9.3 Validity. This Agreement has been duly executed and delivered by it and constitutes its valid and binding obligation, enforceable in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors’ rights generally or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. The execution, delivery and performance of this Agreement and the purchase of the Securities will not conflict with, or result in a material breach of any of the terms of, or constitute a material default under, its charter documents.

Section 9.4 Accredited Investor. It is an “accredited investor” as such term is defined in Rule 501 of Regulation D under the Securities Act.

Section 9.5 Purchase for Own Account; Acknowledgment of Risk. It is acquiring the Securities purchased hereunder by it or acquired pursuant hereto by it for its own account without the present intention of resale or distribution. It acknowledges that it may not resell or otherwise transfer such Securities without an effective registration statement or exemption therefrom under federal and applicable state securities laws, and that it may have to hold its investment for an indefinite amount of time. It further acknowledges that the purchase of the Securities is a risky investment and that it may lose its entire investment hereby.

SECTION 10

EVENTS OF DEFAULT AND REMEDIES.

Section 10.1 Events of Default. 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

(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 Company hereunder or under any other Operative Document; or

(c) default in the observance or performance of any covenant set forth in Section 8.1, 8.6, 8.7, 8.8, 8.9, 8.10, 8.13, 8.14, 8.15, 8.16, 8.17, 8.18, 8.19, 8.20, 8.21, 8.22, 8.28, 8.31, 8.33 or 8.34 hereof or of any provision in any Operative Document dealing with the use, disposition or remittance of the proceeds of Collateral or requiring the maintenance of insurance thereon; or

(d) default in the observance or performance of any covenant set forth in Section 8.5, 8.11 or 8.12 which is not remedied within ten (10) days after written notice thereof to the Company by the Agent or any holder of any Note; or

(e) default in the observance or performance of any other provision hereof or of any other Operative Document which is not remedied within thirty (30) days after written notice thereof to the Company by the Agent or any holder of any Note; or

(f) any representation or warranty made by the Company herein or in any other Operative Document, or in any statement or certificate furnished by it pursuant hereto or thereto, or in connection with the purchase and sale of the Securities, proves untrue in any material respect as of the date of the issuance or making thereof; or

(g) any event occurs or condition exists (other than those described in subsections (a) through (f) above) which is specified as an event of default under any of the other Operative Documents, or any of the Operative Documents shall for any reason not be or shall cease to be in full force and effect or is declared to be null and void, or any Guarantor shall purport to disavow, revoke, repudiate or terminate its obligations thereunder, or any of the Collateral Documents shall for any reason fail to create a valid and perfected first priority Lien in favor of the Agent in any Collateral purported to be covered thereby except as expressly permitted by the terms thereof, or any Subsidiary takes any action for the purpose of terminating, repudiating or rescinding any Loan Document executed by it or any of its obligations thereunder; or

(h) default shall occur under any evidence of Indebtedness aggregating $1,000,000 or more issued, assumed or guaranteed by the Company 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 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 Company 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 Company 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 Company 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 Company 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) a Change of Control shall occur; or

(l) the Company 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 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 this Section 10.1(l); or

(m) a custodian, receiver, trustee, examiner, liquidator or similar official shall be appointed for the Company or any of its Subsidiaries or any substantial part of any of their Property, or a proceeding described in Section 10.1(l) shall be instituted against the Company or any of its Subsidiaries, and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of sixty (60) days; or

(n) the Senior Lenders shall accelerate the Senior Debt; or

(o) the Company shall breach or fail to perform any of its covenants or obligations contained in the Investor Rights Agreement; or

(p) all or any portion of the outstanding principal of the Notes (or any accrued and unpaid interest thereon) has not been paid in full and any Purchaser exercises its put rights under the Warrant; or

(q) the Company shall have defaulted in any of its obligations under any Warrant.

Section 10.2 Consequences of Events of Default.

(a) If any Event of Default has occurred, the total interest rate on the Notes shall increase immediately by two (2) percentage points and such two percent (2%) shall be deemed to be and treated as Current Interest. Any increase of the Current Interest resulting from the operation of this subsection shall terminate as of the close of business on the date on which no Event of Default exists (subject to subsequent increases pursuant to this subparagraph). Notwithstanding the foregoing, if a Payment Default occurs at any time on or prior to December 31, 2004, the sum of the Current Interest and Deferred Interest with respect to the Notes shall permanently increase by two (2) percentage points; provided, however, that if such Payment Default is cured within one hundred eighty (180) days of the occurrence thereof, the sum of the Current Interest and Deferred Interest shall thereafter decrease to sixteen percent (16%) with respect to the A Notes and fourteen percent (14%) with respect to the B Note.

(b) If an Event of Default of the type described in Section 10.1(l) has occurred, then the aggregate principal amount of the Notes (together with all accrued interest thereon and all other amounts due and payable with respect thereto) shall become immediately due and payable without any action on the part of the holders of the Notes, and the Company shall immediately pay to the holders of the Notes all amounts due and payable with respect to the Notes.

(c) If any Event of Default has occurred and is continuing, then each holder of the Notes may declare all or any portion of the outstanding principal amount of its Note (together with all accrued interest thereon and all other amounts due and payable with respect thereto) to be immediately due and payable and may demand immediate payment of all or any portion of the outstanding principal amount of such Note (together with all such other amounts then due and payable) owned by such holder.

(d) Subject to Section 11 hereof the Agent (at the direction of the Majority Holders, shall also have any other rights which such holder may be afforded under any contract or agreement from time to time and any other rights which such holder may have pursuant to applicable law.

(e) The Agent (at the direction of the Majority Holders) may commence enforcement actions under the Collateral Documents and may exercise the Put under and as defined in the Warrants.

SECTION 11

THE AGENT

Section 11.1 Appointment and Authorization of Agent. Each Purchaser hereby appoints BMO Nesbitt Burns Capital (U.S.), Inc. as the Agent under the Operative Documents and hereby authorizes the Agent to take such action as Agent on its behalf and to exercise such powers under the Operative Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto. The Purchasers expressly agree that the Agent is not acting as a fiduciary of the holders of the Notes in respect of the Operative Documents, the Company or otherwise, and nothing herein or in any of the other Operative Documents shall result in any duties or obligations on the Agent or any of the Operative Documents except as expressly set forth herein.

Section 11.2 Agent and its Affiliates. The Agent shall have the same rights and powers under this Agreement and the other Operative Documents as any other Purchaser and may exercise or refrain from exercising such rights and power as though it were not the Agent, and the Agent and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Company or any Affiliate of the Company as if it were not the Agent under the Operative Documents. The term “Purchaser” or “holder of a Note” as used herein and in all other Operative Documents, unless the context otherwise clearly requires, includes the Agent in its individual capacity as a holder of a Note. References herein to the Agent’s Notes, or to the amount owing to the Agent for which an interest rate is being determined, refer to the Agent in its individual capacity as a holder of a Note.

Section 11.3 Action by Agent. If the Agent receives from the Company a written notice of an Event of Default pursuant to Section 8.5 hereof, the Agent shall promptly give each of the holders of the Notes written notice thereof. The obligations of the Agent under the Operative Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action hereunder with respect to any Default or Event of Default, except as expressly provided in Section 11.2. Upon the occurrence of an Event of Default, the Agent shall take such action to enforce its Lien on the Collateral and to preserve and protect the Collateral as may be directed by the Majority Holders. Unless and until the Majority Holders give such direction, the Agent may (but shall not be obligated to) take or refrain from taking such actions as it deems appropriate and in the best interest of all the holders of the Notes. In no event, however, shall the Agent be required to take any action in violation of applicable law or of any provision of any Operative Document, and the Agent shall in all cases be fully justified in failing or refusing to act hereunder or under any other Operative Document unless it first receives any further assurances of its indemnification from the holders of the Notes that it may require, including prepayment of any related expenses and any other protection it requires against any and all costs, expense, and liability which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall be entitled to assume that no Default or Event of Default exists unless notified in writing to the contrary by a holder of a Note or the Company. In all cases in which the Operative Documents do not require the Agent to take specific action, the Agent shall be fully justified in using its discretion in failing to take or in taking any action thereunder. Any instructions of the Majority Holders, or of any other group

of holders of the Notes called for under the specific provisions of the Operative Documents, shall be binding upon all the holders of the Notes and the holders of the Obligations.

Section 11.4 Consultation with Experts. The Agent may consult with legal counsel, independent public accountants, and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts.

Section 11.5 Liability of Agent; Credit Decision. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection with the Operative Documents: (i) with the consent or at the request of the Majority Holders or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify: (i) any statement, warranty or representation made in connection with this Agreement, any other Operative Document or any Note or Warrant; (ii) the performance or observance of any of the covenants or agreements of the Company or any Subsidiary contained herein or in any other Operative Document; (iii) the satisfaction of any condition specified in Section 7 hereof, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness, genuineness, enforceability, perfection, value, worth or collectibility hereof or of any other Operative Document or of any other documents or writing furnished in connection with any Operative Document or of any Collateral; and the Agent makes no representation of any kind or character with respect to any such matter mentioned in this sentence. The Agent may execute any of its duties under any of the Operative Documents by or through employees, agents, and attorneys-in-fact and shall not be answerable to the holders of the Notes, the Company, or any other Person for the default or misconduct of any such agents or attorneys-in-fact selected with reasonable care. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, other document or statement (whether written or oral) believed by it to be genuine or to be sent by the proper party or parties. In particular and without limiting any of the foregoing, the Agent shall have no responsibility for confirming the accuracy of any compliance certificate or other document or instrument received by it under the Operative Documents. The Agent may treat the payee of any Note as the holder thereof until written notice of transfer shall have been filed with the Agent signed by such payee in form satisfactory to the Agent. Each holder of a Note acknowledges that it has independently and without reliance on the Agent or any other holder of any Note, and based upon such information, investigations and inquiries as it deems appropriate, made its own credit analysis and decision to purchase the Securities in the manner set forth in the Operative Documents. It shall be the responsibility of each holder of any Note to keep itself informed as to the creditworthiness of the Company and its Subsidiaries, and the Agent shall have no liability to any holder of any Note with respect thereto.

Section 11.6 Indemnity. The holders of the Notes shall ratably, in accordance with their respective interests in the Notes and Warrants, indemnify and hold the Agent, and its directors, officers, employees, agents, and representatives harmless from and against any liabilities, losses, costs or expenses suffered or incurred by it under any Operative Document or in connection with the transactions contemplated thereby, regardless of when asserted or arising, except to the extent they are promptly reimbursed for the same by the Company 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. The obligations of the holders of the Notes under this Section shall survive termination of this Agreement. The Agent shall be entitled to offset amounts received for the account of a holder of a Note under this Agreement against unpaid amounts due from such holder 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 holder of a Note arising outside of this Agreement and the other Operative Documents.

Section 11.7 Resignation of Agent and Successor Agent. The Agent may resign at any time by giving written notice thereof to the holders of the Notes and the Company. Upon any such resignation of the Agent, the Majority Holders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Holders, and shall have accepted such appointment, within 30 days after the retiring Agent’s giving of notice of resignation then the retiring Agent may, on behalf of the holders of the Notes, appoint a successor Agent, which may be any holder of a Note hereunder or any commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $200,000,000. Upon the acceptance of its appointment as the Agent hereunder, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent under the Operative Documents, and the retiring Agent shall be discharged from its duties and obligations thereunder. After any retiring Agent’s resignation hereunder as Agent, the provisions of this Section 11 and all protective provisions of the other Operative Documents shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent, but no successor Agent shall in any event be liable or responsible for any actions of its predecessor. If the Agent resigns and no successor is appointed, the rights and obligations of such Agent shall be automatically assumed by the Majority Holders and (i) the Company shall be directed to make all payments due each holder of any Note hereunder directly to such holder and (ii) the Agent’s rights in the Collateral Documents shall be assigned without representation, recourse or warranty to the holders of the Notes as their interests may appear.

Section 11.8 Designation of Additional Agents. The Agent shall have the continuing right, for purposes hereof, at any time and from time to time to designate one or more of the holders of the Notes (and/or its or their Affiliates) as “syndication agents,” “documentation agents,” “arrangers,” or other designations for purposes hereto, but such designation shall have no substantive effect, and such holder and their Affiliates shall have no additional powers, duties or responsibilities as a result thereof.

Section 11.9 Authorization to Release or Subordinate or Limit Liens. The Agent is hereby irrevocably authorized by each Purchaser and any of the holders of the Notes to (a) release any Lien covering any Collateral that is sold, transferred, or otherwise disposed of in accordance with the terms and conditions of this Agreement and the relevant Collateral Documents (including a sale, transfer, or disposition permitted by the terms of Section 8.19 hereof or which has otherwise been consented to in accordance with Section 13.3 hereof), (b) release or subordinate any Lien on Collateral consisting of goods financed with purchase money indebtedness or under a Capital Lease to the extent such purchase money indebtedness or Capitalized Lease Obligation, and the Lien securing the same, are permitted by Sections 8.14(b) and 8.15(d) hereof, and (c) reduce or limit the amount of the indebtedness secured by any

particular item of Collateral to an amount not less than the estimated value thereof to the extent necessary to reduce mortgage registry, filing and similar tax.

Section 11.10 Authorization to Enter into, and Enforcement of, the Collateral Documents. The Agent is hereby irrevocably authorized by each of the holders of the Notes to execute and deliver the Collateral Documents on behalf of each of the holders of the Notes and their Affiliates and to take such action and exercise such powers under the Collateral Documents as the Agent considers appropriate, provided the Agent shall not amend the Collateral Documents unless such amendment is agreed to in writing by the Majority Holders. Each holder of the Notes acknowledges and agrees that it will be bound by the terms and conditions of the Collateral Documents upon the execution and delivery thereof by the Agent. Except as otherwise specifically provided for herein, no holder (or its Affiliates) other than the Agent 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 or for the execution of any trust or power in respect of the Collateral or for the appointment of a receiver or for the enforcement of any other remedy under the Collateral Documents; it being understood and intended that no one or more of the holder of the Notes (or their Affiliates) shall have any right in any manner whatsoever to affect, disturb or prejudice the Lien of the Agent (or any security trustee therefor) under the Collateral Documents by its or their action or to enforce any right thereunder, and that all proceedings at law or in equity shall be instituted, had, and maintained by the Agent (or its security trustee) in the manner provided for in the relevant Collateral Documents for the benefit of the holder of the Notes and their Affiliates.

Section 11.11 Subordination and Intercreditor Agreement. The Agent is hereby irrevocably authorized by each of the Purchasers on their own behalf to execute and deliver the Subordination Agreement on the Closing Date, and to take such action and exercise such powers under the Subordination Agreement as the Agent considers appropriate. Each Lender acknowledges that it has read, and accepts, the Subordination Agreement and will be bound by the terms and conditions thereof.

SECTION 12

THE GUARANTIES

Section 12.1 The Guaranties. To induce the Purchasers to purchase the Securities 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, each Subsidiary party hereto and each Subsidiary which executes and delivers a Guaranty (each such Subsidiary being hereinafter referred to individually as a “Guarantor” and collectively as the “Guarantors”) hereby unconditionally and irrevocably guarantees jointly and severally to the Agent, the Purchasers, their Affiliates and each other holder of the Securities and any of the Obligations, the due and punctual payment of all present and future Obligations, including, but not limited to, the due and punctual payment of principal of and interest on the Notes and obligations with respect to the Warrants and under the Deferred Put Obligations, 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 as and when the same shall become due and payable, whether at its stated maturity, by acceleration or otherwise, according to the terms

thereof (the Obligations so guaranteed being hereinafter referred to collectively as the “Guaranteed Obligations”). In case of failure by the Company punctually to pay any Guaranteed Obligations, each Guarantor hereby unconditionally and jointly and severally agrees 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 Company. Each Guaranty is a guaranty of payment and not of collection.

Section 12.2 Guaranty Unconditional. The obligations of each Guarantor as a guarantor under this Section 12 and with respect to the Operative Documents shall 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 the Company or of any other Guarantor under this Agreement or any other Operative Document or by operation of law or otherwise;

(b) any modification or amendment of or supplement to this Agreement or any other Operative Document;

(c) any change in the corporate existence, structure or ownership of, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting, the Company, any other Guarantor, or any of their respective assets, or any resulting release or discharge of any obligation of the Company or of any other Guarantor contained in any Operative Document;

(d) the existence of any claim, set-off or other rights which the Guarantor may have at any time against the Agent, any holder of any Note 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 the Company, 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 the Company, regardless of what obligations of the Company remain unpaid;

(g) any invalidity or unenforceability relating to or against the Company or any other Guarantor for any reason of this Agreement or of any other Operative Document or any provision of applicable law or regulation purporting to prohibit the payment by the Company or any other Guarantor of the principal of or interest on any Note or any other amount payable by them under the Operative Documents; or

(h) any other act or omission to act or delay of any kind by the Agent, any holder of any Note 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 Operative Documents.

Section 12.3 Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances. Each Guarantor’s obligations under this Section 12 shall remain in full force and effect until the principal of and interest on the Notes and all other Guaranteed Obligations shall have been paid and satisfied in full. If at any time any payment of the principal of or interest on any Note or any other amount payable by the Company under any of the Operative Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Company or of any Guarantor, or otherwise, each Guarantor’s obligations under this Section 12 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 12.4 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 holder of any Note or any other Person against the Company, 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 Guaranteed Obligations, or as to any security therefor, unless and until the full amount owing on the Guaranteed Obligations has been paid; and the payment by such Guarantor of any amount pursuant to any of the Operative Documents on account of credit extended to the Company 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 Guaranteed Obligations or any proceeds thereof or any security therefor unless and until the full amount owing on the Guaranteed Obligations has been paid.

Section 12.5 Limit on Recovery. Notwithstanding any other provision hereof, the right of recovery against each Guarantor under this Section 12 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 void or voidable under applicable law, including without limitation fraudulent conveyance law minus (y) $1.00.

Section 12.6 Stay of Acceleration. If acceleration of the time for payment of any amount payable by the Company under this Agreement or any other Operative Document is stayed upon the insolvency, bankruptcy or reorganization of the Company, all such amounts otherwise subject to acceleration under the terms of this Agreement or the other Operative Documents shall nonetheless be payable jointly and severally by the Guarantors hereunder forthwith on demand by the Agent made at the request of the Majority Holders.

Section 12.7 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 12.8 Guarantor Covenants. Each Guarantor shall take such action as the Company is required by this Agreement to cause such Guarantor to take, and shall refrain from taking such action as the Company is required by this Agreement to prohibit such Guarantor from taking.

SECTION 13

MISCELLANEOUS.

Section 13.1 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 13.2 No Waiver, Cumulative Remedies. No delay or failure on the part of the Agent 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 holder of any Note are cumulative to, and not exclusive of, any rights or remedies which any of them would otherwise have.

Section 13.3 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 Majority Holders; provided, however, that without the consent of all holders of the Notes no such amendment, modification or waiver shall (a) increase the amount or extend the terms of any Note or (b) reduce the interest rate applicable to or extend the maturity (including any scheduled installment) of its Notes or (c) reduce the amount of the principal or interest or fees to which such holder is entitled hereunder or (d) release any substantial (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 (e) change this Section or Section 1.3 hereof or (f) change the definition of “Majority Holders” or (g) change the number of holders of Notes required to take any action hereunder or under the Guaranties or (h) affect the rights of any one Purchaser, or group of Purchasers, without similarly affecting the rights of all Purchasers. No amendment, modification or waiver of the Agent’s protective provisions shall be effective without the prior written consent of the Agent.

Section 13.4 Costs and Expenses. The Company agrees to pay on demand the costs and expenses of each of the Purchasers in connection with the negotiation, preparation, execution and delivery of the Operative 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 Vedder, Price, Kaufman & Kammholz, P.C., 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 holders of the Notes or any other holders of a Note in connection with a default under or the enforcement of the Operative Documents or any other instrument or document to be delivered hereunder or thereunder. The Company agrees to indemnify and save the holders of the Notes and the Agent harmless from any and all liabilities, losses, costs and expenses (collectively, “indemnified liabilities”) incurred by the holders of the Notes or the Agent in connection with any action, suit or proceeding brought against the Agent or any holder of any Note by any Person (but excluding attorneys’ fees for litigation solely between the holders of the Notes to which the Company is not a party) which arises out of the transactions contemplated or financed hereby or out of any action or inaction by the Agent or any holder of any Note hereunder or thereunder, except for such thereof as is caused by the gross negligence or willful misconduct of the party seeking to be indemnified. The provisions of this Section and the protective provisions of Section 2 hereof shall survive payment of the Notes.

Section 13.5 Documentary Taxes. The Company agrees to pay on demand any documentary, stamp or similar taxes payable in respect of this Agreement, the Notes, the Warrant, any Collateral Document 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 13.6 Survival of Representations. All representations and warranties made herein or in any other Operative Documents or in certificates given pursuant hereto or thereto shall 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 13.7 Survival of Indemnities. All indemnities and other provisions relative to reimbursement to the holders of the Notes of amounts sufficient to protect the yield of the holders of the Notes with respect to the Notes, 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 13.8 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 Company, or on the appropriate signature page hereof, in the case of the holders of the Securities and the Agent, or such other address or telecopier number as such party may hereafter specify by notice to the Agent and the Company given by United States certified or registered mail or by telecopy. Notices hereunder to the Company shall be addressed to the name of such Person 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 13.9 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 13.10 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 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 13.11 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 13.12 Binding Nature, Governing Law, Etc. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of the Agent and the Purchasers 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 Company may not assign its rights hereunder without the written consent of the Agent and the holders of the Notes.

Section 13.13 Entire Understanding. This Agreement, together with other Operative Documents, constitutes 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.

(a) Transfer Restrictions. The Securities acquired pursuant hereto are subject to the applicable transfer restrictions contained in the Notes, the Warrants and the Investor Rights Agreement, as the case may be. Notwithstanding anything to the contrary contained herein or in the other Operative Documents, the Company hereby consents to each Purchaser’s sale, assignment, transfer or other disposition, at any time and from time to time hereafter, of this Agreement or the other Operative Documents, or of any portion thereof, to such Purchaser’s Affiliates, and to each Purchaser’s granting participations to such Purchaser’s Affiliates in the Obligations and related Operative Documents, including, without limitation, each Purchaser’s rights, title, interest, remedies, powers and/or duties. The Company agrees that it shall execute and deliver such documents as such Purchaser may request in connection with the foregoing.

Section 13.14 Confidentiality. The Agent and each holder of any Note shall hold in confidence any material nonpublic information delivered or made available to them by the Company or any Subsidiary. The foregoing to the contrary notwithstanding, nothing herein shall prevent any holder of any Note from disclosing any information delivered or made available to it by the Company or any Subsidiary (i) to any other holder, (ii) to any other Person if reasonably incidental to the administration of the credit contemplated hereby, (iii) upon the order of any court or 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 holder of any Note which is not permitted by this Agreement, (vi) in connection with any litigation to which the Agent, any holder, or any of their respective Affiliates may be a party, along with the Company, 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 or otherwise, (viii) to such holder’s Affiliates and to its and its Affiliates’ 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 hereby.

Section 13.15 Sharing of Set-Off. Each holder of any Note agrees with each other holder a party hereto that if such holder shall receive and retain any payment, whether by set-off or application of deposit balances or otherwise, on any of the Notes or Obligations in excess of its ratable share of payments on all such Obligations then outstanding to the holder of the Notes, then such holder shall purchase for cash at face value, but without recourse, ratably from each of the other holders such amount of the Notes or Obligations, or participations therein, held by each such other holder (or interest therein) as shall be necessary to cause such holder to share such excess payment ratably with all the other holders of the Notes; provided, however, that if any such purchase is made by any holder, and if such excess payment or part thereof is thereafter recovered from such purchasing holder, the related purchases from the other holders of the Notes shall be rescinded ratably and the purchase price restored as to the portion of such excess payment so recovered, but without interest.

Section 13.16 Headings. Section headings used in this Agreement are for reference only and shall not affect the construction of this Agreement.

Section 13.17 Set-off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuation of any Event of Default, each holder of any Note and each subsequent holder of any Obligation is hereby authorized by the Company and each Guarantor at any time or from time to time, without notice to the Company or such Guarantor or to any other Person, any such notice being hereby expressly waived, to set-off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts, and in whatever currency denominated) and any other indebtedness at any time held or owing by that Purchaser or that subsequent holder to or for the credit or the account of the Company or such Guarantor, whether or not matured, against and on account of the Obligations of the Company or such Guarantor to that Purchaser or that subsequent holder under the Operative Documents, including, but not limited to, all claims of any nature or description arising out of or connected with the Operative Documents, irrespective of whether or not (a) that Purchaser or that subsequent holder shall have made any demand hereunder or (b) the principal of or the interest on the Loans or

Notes and other amounts due hereunder shall have become due and payable pursuant to Section 9 hereof and although said obligations and liabilities, or any of them, may be contingent or unmatured.

Section 13.18 Construction. The provisions of this Agreement relating to Subsidiaries shall only apply during such times as the Company has one or more Subsidiaries. Nothing contained herein shall be deemed or construed to permit any act or omission which is prohibited by the terms of any Collateral Document, the covenants and agreements contained herein being in addition to and not in substitution for the covenants and agreements contained in the Collateral Documents.

Section 13.19 Submission to Jurisdiction; Waiver of Jury Trial. The Company and the Guarantors hereby submit to the nonexclusive jurisdiction of the United States District Court for the Northern District of Illinois and of any Illinois State court sitting in the City of Chicago for purposes of all legal proceedings arising out of or relating to this Agreement, the other Operative Documents or the transactions contemplated hereby or thereby. The Company and the Guarantors irrevocably waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. THE COMPANY, THE GUARANTORS, THE AGENT, AND THE PURCHASERS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY.

Section 13.20 Confirmation and Ratification of Terms.

(a) Upon the effectiveness of this Agreement, each reference to the Original Purchase Agreement in any other Operative Document, and any document, instrument or agreement executed and/or delivered in connection with the Original Purchase Agreement or any other Operative Document, shall mean and be a reference to this Agreement.

(b) The other Operative Documents and all agreements, instruments and documents executed or delivered in connection with the Original Purchase Agreement or any other Operative Document shall each be deemed to be amended to the extent necessary, if any, to give effect to the provisions of this Agreement, as the same may be amended, modified, supplemented or restated from time to time.

(c) The effect of this Agreement is to amend and restate the Original Purchase Agreement in its entirety, and to the extent any rights, benefits, Liens or provisions in favor of Agent of any Purchaser existed in the Original Purchase Agreement and continue to exist in this Agreement without any written waiver of any such rights, benefits, Liens or provisions prior to the date hereof, then such rights, benefits, Liens or provisions are acknowledged to be and continue to be effective from and after March 26, 2004. This Agreement is not a novation.

(d) The parties hereto agree and acknowledge that any and all rights, remedies, Liens and payment provisions under the Original Purchase Agreement, including, without limitation, any and all rights, remedies and payment provisions with respect to (i) any

representation and warranty made or deemed to be made pursuant to the Original Purchase Agreement or (ii) any indemnification provision, shall continue and survive the execution and delivery of this Agreement.

(e) The parties hereto agree and acknowledge that any amounts owing as fees, expenses, charges, costs, Obligations or otherwise under or pursuant to the Original Purchase Agreement, immediately prior to the effectiveness of this Agreement shall be owing as or for fees, expenses, charges, costs, Obligations or otherwise under or pursuant to this Agreement.

(f) BMO hereby waives any and all prepayment fees required to be paid by the Company under the Original BMO Note. The foregoing waiver is limited to the prepayment fees required to be paid due to the Company’s prepayment of a portion of the Original BMO Note in connection with the execution of this Agreement, and shall not be deemed to constitute a waiver of any other prepayment fees subsequently required to be paid pursuant to the Note executed by the Company in favor of BMO in connection herewith.

[Signature Pages to Follow]

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 the date first above written.

MORTON INDUSTRIAL GROUP, INC.

By:   /s/ Rodney B. Harrison
Name:   Rodney B. Harrison
Title:   Vice President of Finance

MORTON METALCRAFT CO.

By:   /s/ William D. Morton
Name:   William D. Morton
Title:   Chairman/CEO

MORTON METALCRAFT CO. OF NORTH CAROLINA

By:   /s/ William D. Morton
Name:   William D. Morton
Title:   Chairman/CEO

MORTON METALCRAFT CO. OF SOUTH CAROLINA

By:   /s/ William D. Morton
Name:   William D. Morton
Title:   Chairman/CEO

MID CENTRAL PLASTICS, INC.

By:   /s/ William D. Morton
Name:   William D. Morton
Title:   Chairman/CEO

B&W METAL FABRICATORS, INC.

By:   /s/ William D. Morton
Name:   William D. Morton
Title:   Chairman/CEO

     Accepted and Agreed to at Chicago, Illinois as of the day and year last above written.

BMO NESBITT BURNS CAPITAL (U.S.), INC.,
as Agent and as a Purchaser

By:   /s/ Douglas P. Sutton
Name:   Douglas P. Sutton
Title:   Managing Director

JZ EQUITY PARTNERS PLC, as a Purchaser

By:   /s/ David W. Zalaznick
Name:   David W. Zalaznick
Title:   Director of Investment Advisor

PRISM MEZZANINE FUND SBIC, L.P., as a Purchaser

By:   /s/ Blaine A. Crissman
Name:   Blaine A. Crissman
Title:   Partner

Schedule 8.15
Page 1

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1.		Elect three directors to serve for one-year terms until the Annual Meeting of Shareholders in 2005.

2.		Consider and act upon a proposal to ratify the selection of KPMG, LLP as independent auditors of the Company for 2004.

1.		I have reviewed this quarterly report on Form 10-Q of Morton Industrial Group, Inc.;

2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) for the registrant and have:

		a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

		b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

		c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.		The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

		a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

		b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

(1)		The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


MORTON INDUSTRIAL GROUP, INC.
By:	/s/ Rodney B. Harrison
	Name:	Rodney B. Harrison
	Title:	Vice President of Finance


MORTON METALCRAFT CO.
By:	/s/ William D. Morton
	Name:	William D. Morton
	Title:	Chairman/CEO


MORTON METALCRAFT CO. OF NORTH CAROLINA
By:	/s/ William D. Morton
	Name:	William D. Morton
	Title:	Chairman/CEO


MORTON METALCRAFT CO. OF SOUTH CAROLINA
By:	/s/ William D. Morton
	Name:	William D. Morton
	Title:	Chairman/CEO


MID CENTRAL PLASTICS, INC.
By:	/s/ William D. Morton
	Name:	William D. Morton
	Title:	Chairman/CEO


B&W METAL FABRICATORS, INC.
By:	/s/ William D. Morton
	Name:	William D. Morton
	Title:	Chairman/CEO


BMO NESBITT BURNS CAPITAL (U.S.), INC., as Agent and as a Purchaser
By:	/s/ Douglas P. Sutton
	Name:	Douglas P. Sutton
	Title:	Managing Director


JZ EQUITY PARTNERS PLC, as a Purchaser
By:	/s/ David W. Zalaznick
	Name:	David W. Zalaznick
	Title:	Director of Investment Advisor


PRISM MEZZANINE FUND SBIC, L.P., as a Purchaser
By:	/s/ Blaine A. Crissman
	Name:	Blaine A. Crissman
	Title:	Partner