10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 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 0-2389

ROANOKE ELECTRIC STEEL CORPORATION

(Exact name of Registrant as specified in its charter)

Virginia	54-0585263
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
P.O. Box 13948, Roanoke, Virginia	24038-3948
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (540) 342-1831

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, No Par Value

(Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

As of December 31, 2004, the aggregate market value, based on the last sales price for that day, of the voting stock held by non-affiliates of Roanoke Electric Steel Corporation was $210,042,091.

As of December 31, 2004, 11,030,313 shares of Roanoke Electric Steel Corporation common stock were issued and outstanding.

DOCUMENTS INCORPORTED BY REFERENCE

The portions of the Annual Report to Shareholders for the year ended October 31, 2004 referred to in parts I, II, and IV are incorporated by reference into Parts I, II, and IV. The portions of the Proxy Statement for the Company’s Annual Meeting of Shareholders to be held on January 28, 2005 referred to in Part III are incorporated by reference into Part III. Except for those portions of the 2004 Annual Report to Shareholders expressly incorporated herein by reference, such report is not to be deemed filed with the Securities and Exchange Commission.

PART I

FORWARD-LOOKING STATEMENTS

From time to time, Roanoke Electric Steel Corporation (the “Company” or “Roanoke Electric Steel”) may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company’s business include economic and industry conditions, availability and prices of utilities, supplies and raw materials, prices of steel products, domestic and foreign competition, foreign trade policies affecting imports and exports, governmental regulations, interest rates, inflation, labor relations, environmental concerns and compliance issues, and others.

ITEM 1. BUSINESS

(a) General Development of Business.

The Company, directly and through its subsidiaries, is engaged in the manufacturing, fabricating and marketing of merchant steel products, specialty steel sections, billets, open-web steel joists and reinforcing bars. Each subsidiary is either a supplier to the parent company or a purchaser of its finished product and billets. During the fiscal year ended October 31, 2004, the Company and its subsidiaries continued to operate their business as they had the past four years, with no material changes in operations or in the mode of conducting their business.

(b) Financial Information and Classes of Products or Services.

The Company’s business consists of one industry segment or line of business, which is the extracting of scrap metal from discarded automobiles and the manufacturing, fabricating and marketing of merchant steel bar products and specialty steel sections, reinforcing bars, open-web steel joists and billets. The industry segment consists of three classes of products - merchant steel products and specialty steel sections, fabricated bar joists and reinforcing bars, and billets.

FINANCIAL INFORMATION

AND CLASSES OF PRODUCTS OR SERVICES

	2004		2003			2002
Sales to Unaffiliated Customers:
Merchant Steel and Specialty Steel Sections	$	343,604,922	$	211,209,483		$	172,654,655
Fabricated Bar Joists and Reinforcing Bars		109,759,887		75,449,093			73,575,373
Billets		26,012,379		25,432,380			17,543,681
Total Consolidated Sales	$	479,377,188	$	312,090,956		$	263,773,709
Earnings (Loss) from Operations	$	30,446,248	$	(2,996,543	)	$	(6,008,897	)
Cumulative effect of accounting change		—		(228,410	)		—
Net Earning (Loss)	$	30,446,248	$	(3,224,953	)	$	(6,008,897	)
Total Assets	$	318,971,033	$	270,867,486		$	289,717,573

(c) Narrative Description of Business.

(i) Roanoke Electric Steel Corporation, the parent company, is a state-of-the-art steel mini-mill located in Roanoke, Virginia. This facility melts scrap steel in electric furnaces and continuously casts the molten steel into billets. These billets are rolled into merchant steel products consisting of angles, plain rounds, flats, channels and reinforcing bars of various lengths and sizes. Excess steel billet production is sold to mills without sufficient melting capacities or facilities. Roanoke Electric Steel markets its products to steel service centers and fabricators. The products are distributed directly to customers from orders solicited by an in-house paid sales staff.

Shredded Products Corp. (“Shredded Products”), a subsidiary with operations in Rocky Mount and Montvale, Virginia, extracts scrap steel and other metals from junked automobiles and other waste materials. These facilities supply Roanoke Electric with a substantial amount of its raw materials. Nonferrous metals generated in the process are sold to unrelated customers.

John W. Hancock, Jr., Incorporated (“Hancock”), and Socar, Inc. and Socar of Ohio, Inc. (collectively “Socar”), are steel fabrication subsidiaries located in Salem, Virginia, Florence, South Carolina and Continental, Ohio. All three operations purchase rounds and angles from the parent company to fabricate steel joists and joist girders. These joists and joist girders are used as horizontal supports for floors and roofs in commercial and industrial buildings. The Hancock facility also manufactures structural pallet rack and structural cantilever rack. This rack is used for heavy storage in retail, warehouses and distribution centers. Joists are cheaper and lighter than structural steel or reinforced concrete. The joists and rack are distributed by these subsidiaries to their customers from orders solicited by manufacturer’s representatives and pursuant to successful bids placed directly by the subsidiaries.

RESCO Steel Products Corporation (“RESCO Steel Products”), a Salem, Virginia based subsidiary, fabricates concrete reinforcing steel by cutting and bending it to contractor specifications. The rebars are distributed to contractors from orders solicited by a paid sales staff and pursuant to successful bids placed directly by the subsidiary.

Steel of West Virginia, Inc. (“Steel”), through its subsidiary, SWVA, Inc. (“SWVA”), is a steel mini-mill and steel fabricating facility operating in Huntington, West Virginia. A steel fabricating subsidiary, Marshall Steel, Inc. (“Marshall”), is located in Memphis, Tennessee. These locations produce or fabricate specialty steel sections and custom-finished products, which are placed directly into customers’ assembly lines. The niche markets supplied with these products include truck trailers, industrial lift trucks, guardrail posts, manufactured housing, off-highway construction equipment, and mining equipment. These products are marketed by senior management and an in-house paid sales staff, whose sales efforts cover all of North America and, to a small degree, certain foreign markets.

The Roanoke and Huntington facilities both utilize electricity and natural gas as their power sources, with electric arc furnaces using electricity and with reheat furnaces using natural gas. The arc furnaces are used in the actual melting of scrap steel (to produce billets), while the reheat furnaces are used to reheat the billets, which are then rolled into a finished product.

(ii) During fiscal year 2004 the Company did not introduce a new product or begun to do business in a new industry segment that will require the investment of a material amount of assets or that otherwise is material.

(iii) The Company’s main raw material, scrap steel, is supplied for the most part by scrap dealers within a 300 mile radius of the mill. The majority of this raw material is purchased through two independent scrap brokers. Shredded Products supplies 10,000 to 15,000 tons of scrap per month. Although scrap is generally available to the Company, the price of scrap steel is highly responsive to changes in demand, including demand in foreign countries as well as in the United States. The ability to maintain satisfactory profit margins in times when scrap is relatively high priced is dependent upon the levels of steel prices, which are determined by market forces. Alloys and other materials needed for the melting process are provided by various domestic and foreign companies.

Shredded Products sometimes experiences difficulty in purchasing scrap automobiles at a satisfactory level. Competition from a number of other shredding operations and reluctance by dealers to sell scrap automobiles due to market conditions are the main causes. High offering prices generally increase the supply; however, the increased cost to produce sometimes is very comparable to the price of similar scrap that can be purchased on the outside.

Substantially all of Hancock’s steel components are purchased from the parent company’s Roanoke facility, which is located conveniently nearby and, therefore, such components are generally available to the subsidiary as needed.

RESCO Steel Products purchases most of its steel components from suppliers within its market area, determined mainly by freight cost. Such components would be generally available to the subsidiary, since the parent company could produce and supply this raw material as needed from its Roanoke facility.

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Socar receives most of its raw steel material from the parent company and other nearby suppliers, the determinant usually being freight cost. The availability of raw materials is not of major concern to the subsidiary, since the parent company could supply most of its needs from the Roanoke facility.

Steel, like Roanoke Electric Steel, uses scrap steel as its main raw material. Even though the purchase of steel scrap is subject to market conditions largely beyond its control, the Steel is located in a scrap surplus region and, therefore, typically maintains less than a one month supply of scrap, which keeps inventory costs to a minimum. Although one scrap dealer supplies 25% to 30% of SWVA’s requirements, the Company believes that a number of adequate sources of scrap and other raw materials that it uses are readily available. SWVA has historically been successful in passing on scrap cost increases through price increases; however, the effect of market price competition has limited the ability to increase prices.

(iv) The Company currently holds no patents, trademarks, licenses, franchises or concessions that are material to its business operations.

(v) The business of the Company is not seasonal, except that certain weather conditions restrict delivery schedules at various times.

(vi) The Company does not offer extended payment terms to its customers, nor is it normally required to carry significant amounts of inventory to meet rapid delivery requirements of customers; although, at times market conditions have required the stockpiling of popular bar products for rapid delivery. Working capital practices generally remain constant during the course of business except when the Company determines it to be advantageous to stockpile raw materials due to price considerations.

(vii) During fiscal year 2004, inter-company sales (tons) to Steel, Hancock, Socar and RESCO Steel Products, were approximately 8%, 4%, 3% and 0% of the Company’s total sales (tons), respectively. During fiscal years 2004, 2003 and 2002, respectively, the largest nonaffiliated customer purchased approximately 3%, 4% and 4% of total sales (tons) — 4%, 3% and 2% of total sales (dollars). The 2004 and 2003 customers purchased merchant bar and specialty products. The 2002 customer was the temporary return of the same billet customer from 2000, where poor market conditions in the steel industry contributed to this customer’s worsened financial condition and eventual bankruptcy. Under normal market conditions, we would not expect the loss of any of these customers to have a materially adverse effect on the Company and its subsidiaries taken as a whole. In addition, considerably more billet tons were used internally by SWVA, which helped to mitigate the lost billet sales.

(viii) The Company believes that the amount of its backlog is not generally material to an understanding of the business. All backlog is shipped within a twelve-month period.

(ix) The business of the Company is not subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government.

(x) The Company competes with steel-producing mills of similar size operative within its market region and also larger mills producing similar products. The market region in which the Company sells its products mainly consists of the majority of states east of the Mississippi River. Price, including transportation cost, is the major determinant in securing business. Sales increased in 2003 as a result of both improved selling prices and increased tons shipped for merchant bar products and specialty steel sections. The higher selling prices were principally due to rising scrap steel costs, which prompted several industry-wide price increases, as well as a strengthening in product demand. An improvement in market conditions contributed to the higher shipment levels. The momentum obtained during 2003 continued in 2004. Average price per ton for merchant bar and specialty products increased as a result of both product mix and higher selling prices. The volatile scrap market once again prompted industry-wide price increases due to the rising cost of scrap. Shipment levels in 2004 were again higher as a result of continued improvements in market conditions.

The joist business is highly competitive. Due to similarity of product, relatively small price differences are often the determining factor in placing business. Ability to meet the customer’s time requirements for delivery also is important in securing business. Competing successfully becomes more difficult with the distance to point of delivery due to transportation costs. The slight increase in 2003 sales for fabricated products was due primarily to improved selling prices, which reacted to higher raw material costs. Shipments of fabricated products decreased due to intense competition within the commercial construction industry. Competitive conditions within the nonresidential construction industry generally impact selling prices and shipment levels of fabricated products and were relatively favorable during 2004 as reflected in the higher selling prices. Higher raw material costs also prompted increased fabricated product prices. The improved shipments of fabricated products resulted from increased business activity.

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Billets are semi-finished products used by the Company in its rolling mill process to manufacture various merchant bar products and specialty steel sections. Excess billet production is sold to nonaffiliated customers who further fabricate the billets for various end uses. Billet sales increased in 2003, as higher scrap steel costs brought improvements in billet pricing. Favorable market conditions also contributed to the increased billet shipments during the year. Again in 2004, a spike in scrap steel costs pushed billet prices higher. Billet shipments declined due to a greater demand for internal consumption, thus reducing the tons available for shipment to outside customers.

(xi) During the last three fiscal years, the Company was not involved in any material research and development activities.

(xii) The Company is subject to federal, state and local environmental laws and regulations concerning, among other matters, wastewater discharge, air emissions, furnace dust disposal and disposal of auto fluff and other wastes. As with similar mills in the industry, the Roanoke and Huntington furnaces are classified as generating hazardous waste because they produce certain types of dust containing lead, zinc and cadmium. At the Roanoke furnaces, the Company treats between 60% and 80% of its electric arc furnace dust, a hazardous substance, utilizing its own approved stabilization process, and disposes of the non-hazardous resulting solid waste in an approved solid waste landfill. The remaining electric arc furnace dust is disposed through a contract with an approved waste disposal firm. At the Huntington furnace, SWVA collects and handles furnace waste through contracts with a company, which reclaims, from the waste dust, certain materials and recycles or disposes of the remainder. Shredded Products operates an approved landfill for use in disposal of its waste products associated with its auto shredding operations. The Company believes it is in substantial compliance with applicable federal, state and local regulations. However, future changes in regulations may require expenditures which could adversely affect earnings in subsequent years.

The Company has constructed over the years pollution control equipment at a net aggregate cost of over $10,400,000. Annual operating expenses and depreciation of all pollution control equipment and waste disposal costs are in excess of $3,200,000 in the aggregate. Additional future capital expenditures for pollution control and waste disposal equipment for use at the Company’s Roanoke facility are planned in connection with future expansion of the facility and the cost of this additional equipment is presently estimated to be less than $12,000,000. This expansion and, thus, the expenditures have been delayed for both economic and financial reasons, and will be completed and funded as the Company’s financial resources permit. Implementation of the Clean Air Act Amendments of 1990, or any other environmental concerns, is not anticipated to have a materially adverse effect on the Company’s operations, capital resources or liquidity, nor should any incremental increase in capital expenditures occur due to the Act.

See Note 7, “Commitments and Contingent Liabilities”, in Notes to Consolidated Financial Statements contained in the Registrant’s 2004 Annual Report to Stockholders, filed as an Exhibit to this Form 10-K.

The Company from time to time receives requests for information and less frequently, notices from regulatory authorities asserting that it is not in compliance with such laws and regulations. In response, and in some instances on our own initiative, we engage in discussions with regulatory agencies to satisfy the agency that we are operating in material compliance with applicable environmental regulations. The Company considers these discussions to be in the ordinary course of business, a necessity of the highly regulated industry in which it operates. The Company works cooperatively to address any concerns raised by regulatory agencies, and will continue to work with federal and state agencies to ensure that they are satisfied that operations are in material compliance with applicable regulations.

The Roanoke metropolitan area recently has been designated as being in non-attainment with the National Ambient Air Quality Standards for ozone on an eight-hour basis. The Virginia Department of Environmental Quality, and the localities and industries in the Roanoke metropolitan area have entered into an “Early Action Compact” with EPA. An Early Action Compact is a commitment on the part of regulated entities to take immediate measures to reduce ozone precursor emissions. The Company is in the process of implementing reasonably available control technologies for nitrogen oxide emissions at its Roanoke facility. The costs associated with this implementation are not expected to have a material effect on the Company and it operations.

(xiii) At October 31, 2004, the Company employed 529 persons at its Roanoke plant. The Company’s subsidiaries, Steel, Hancock, Socar, Shredded Products and RESCO Steel Products employed 554, 260, 226, 52 and 44 persons, respectively.

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(d) Financial Information about Foreign and Domestic Operations and Export Sales.

When billet production exceeds required needs, the semi-finished product is offered for sale to unaffiliated companies. During past years, a portion of the excess billets has been sold to brokers who represent foreign purchasers. In 2003, export (billet) sales to China amounted to $4,276,000. During fiscal years 2004 and 2002, Roanoke Electric did not make any foreign sales of excess billets. However, SWVA sold a small percentage of its rolled products to foreign markets during these years. The information required by this paragraph by geographical area, as to foreign and domestic operations, is not provided since it is identical to the table in paragraph (b) with virtually all information pertaining to the United States.

ITEM 2. PROPERTIES

The Company owns 82 acres situated in the City of Roanoke, Virginia, which comprises its main plant, of which 25 acres are used to provide 364,500 square feet of manufacturing space with an annual billet capacity of approximately 650,000 tons and rolling mill capacity of 400,000 tons. A 30 acre site is owned in Salem, Virginia, of which 10 acres were used to provide 51,355 square feet of manufacturing space, until March 1991, when the plant was idled. The Company acquired in 1991 a 447 acre tract of land in Franklin County, Virginia, 100 acres of which were transferred to Shredded Products in a move of shredding operations from its Montvale location. Part of this new Shredded Products property is being used as an approved industrial landfill. The remaining 347 acres of this land, 206 acres of which were sold between 1995 and 2004, is being marketed as an industrial park for Franklin County.

Shredded Products operates in both Montvale and Rocky Mount, Virginia. The Montvale plant is situated on a 75 acre site owned by the Company, approximately 20 acres of which are regularly used in its scrap processing operation, with an annual production capacity of approximately 24,000 tons. The Rocky Mount facility is located on a 100 acre site owned by Shredded Products, partially consisting of a 25 acre industrial landfill used for the disposal of its auto fluff, and another 25 acres of which are regularly used in its shredding operation, with an annual production capacity of approximately 150,000 tons.

Hancock is located in Roanoke County near Salem, Virginia. The plant is situated on a 37 acre site owned by Hancock, 17 acres of which are regularly used in its operations, with an annual production capacity of approximately 62,000 tons. Buildings on the site contain 160,904 square feet of floor space.

Socar is located in Florence, South Carolina, and in Continental, Ohio. The Florence facility is located on a 28 acre site owned by Socar, 16 acres of which are regularly used in its operations. Buildings on the site contain 93,359 square feet of floor space. The plant located on a 32 acre site in Continental, Ohio, owned by Socar, has 94,400 square feet of floor space in manufacturing buildings, situated on 8 acres regularly used in its operations. Both operations have a combined annual production capacity of approximately 50,000 tons.

RESCO Steel Products operates from a building containing 43,340 square feet of floor space, with an annual production capacity of approximately 25,000 tons. The plant is located in Salem, Virginia, on a 7 acre site owned by RESCO Steel Products.

Steel and its subsidiaries are located in Huntington, West Virginia and in Memphis, Tennessee. The Huntington facility is located on a 42 acre site owned by SWVA, most of which are regularly used in its operations. Buildings on the site contain 558,175 square feet of manufacturing space with an annual billet capacity of approximately 280,000 tons and rolling mill capacity of 300,000 tons. The plant located in Memphis, Tennessee and owned by Marshall operates in 41,000 square feet of manufacturing space on approximately 4 acres.

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The following information relates to the productive capacity utilization, based on estimated full production, for the facilities operated by the Registrant and each of its subsidiaries for the year ended October 31, 2004:

Roanoke Electric Steel Corporation
	Melt Shop (Percentage of Utilization 90%)
	Rolling Mill (106%)
Shredded Products Corp.
	Montvale (74%)
	Rocky Mount (62%)
John W. Hancock, Jr., Incorporated (73%)
Socar, Inc. — SC & OH (73%)
RESCO Steel Products Corporation (84%)
SWVA, Inc.
	Melt Shop (100%)
	Rolling Mill (93%)

The various buildings are of modern design, well maintained, and suitable and adequate for the requirements of the business. The Registrant believes that its facilities are being adequately used, that it does not have any excess capacity and that it has no excess or obsolete facilities.

ITEM 3. LEGAL PROCEEDINGS

There were no legal proceedings against the Company that would have a material adverse effect on the Company or its consolidated financial condition.

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

None

EXECUTIVE OFFICERS OF ROANOKE ELECTRIC STEEL CORPORATION

The executive officers of the Company are set forth below. All officers are elected annually to serve at the discretion of the Board of Directors. Except as noted below, each of the executive officers has worked with the Company or its subsidiaries for at least five years. There are no family relationships among the Company’s executive officers, nor any agreement or understanding between any officer and any other person pursuant to which the officer was selected.

T Joe Crawford, 49, is President and Chief Operating Officer of the Company. Prior to June 22, 2004, Mr. Crawford was Vice President – Administration and Secretary. Mr. Crawford has 27 years of credited service with the Company.

Timothy R. Duke, 53, is Chief Executive Officer of Steel of West Virginia, Inc., SWVA, Inc., Marshall Steel, Inc., and Steel Ventures, Inc., wholly-owned subsidiaries of the Company. Mr. Duke has 17 years of credited service with the Company.

Donald R. Higgins, 59, is Vice President – Sales. Mr. Higgins has 39 years of credited service with the Company.

Mark G. Meikle, 40, is Vice President – Finance, Assistant Treasurer, and Chief Financial Officer of the Company. Mr. Meikle joined the Company in September 2003. Prior to joining the Company, Mr. Meikle was Vice President and Chief Financial Officer of Belton Industries, a specialty fabric weaver from September 2000 to September 2003, Vice President of Container Management, Inc., a container leasing company for the textile industry, from March 1999 to September 2000, Vice President, Treasurer and Chief Financial Officer of Steel of West Virginia, Inc. from October 1996 to March 1999. Mr. Meikle has 11 years of credited service with the Company.

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Donald G. Smith, 69, is Chairman of the Board, Chief Executive Officer, and Treasurer of the Company. Prior to June 22, 2004, Mr. Smith was also President. Mr. Smith has 47 years of credited service with the Company.

William M. Watson, Jr., 49, is General Counsel and Secretary of the Company. Mr. Watson joined the Company in August 2004. Prior to joining the Company, Mr. Watson was “of counsel” to Woods Rogers, PLC, the Company’s outside counsel, from January 2002 to July 2004, and Senior Vice President and Secretary of Wachovia Corporation and Wachovia Bank, National Association from October 1998 to January 2002. Mr. Watson has 1 year of credited service with the Company.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

The table below contains certain information regarding the Company’s equity compensation plans as of October 31, 2004.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders (1)	343,000	10.91	0
Equity compensation plans not approved by security holders (2)	23,500	14.52	1,000
Total	366,500		1,000

(1) Represents stock options granted under the Company’s Employees’ Stock Option Plan which expired with the grants made in February of 2004.

(2) Represents stock options granted to non-employee directors under the Company’s Non-Employee Director Stock Option Plan, which was adopted in 1997. The plan provided that a participating director was eligible to receive a maximum award covering 3,000 shares. As of October 31, 2004, options covering 24,000 shares had been granted under the plan and four of the Company’s current non-employee directors had received options to purchase 3,000 shares of the Company’s common stock. The options each have an exercise price equal to the fair market value of the Company’s common stock on the date of grant, were fully vested and exercisable on the date of grant, and have a term of 10 years.

The other information required by this item is incorporated by reference to the information under the heading “Stock Activity” in the 2004 Annual Report to Shareholders. The Registrant did not, during fiscal year 2004, make any sale of securities not registered under the Securities Act of 1933.

ITEM 6. SELECTED FINANCIAL DATA

The information required by this item is incorporated by reference to the information under the heading “Selected Financial Data” in the 2004 Annual Report to Shareholders.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The specific information required by this item is incorporated by reference to the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2004 Annual Report to Shareholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company had no material outstanding derivative financial instruments, other financial instruments or derivative commodity instruments at October 31, 2004, although the Company does engage in transactions involving derivative instruments from time to time as appropriate, and as of October 31, 2004, did have in place several short-term derivative commodity instruments to minimize the Company’s exposure to natural gas purchases used in the manufacturing process at the Huntington, West Virginia facility. A further discussion of the Company’s use of derivative instruments is described in “Note 6 - Derivative Instruments” to the “Notes to Consolidated Financial Statements” in the 2004 Annual Report to Shareholders, which information is incorporated by reference herein.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The specific information required by this item is incorporated by reference to the information under the headings “Independent Auditors’ Report”, “Consolidated Financial Statements” and “Notes to Consolidated Financial Statements” in the 2004 Annual Report to Shareholders.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

Management, including the Principal Executive Officer and the Principal Financial Officer and Chief Accounting Officer, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a - 15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this annual report on Form 10-K. Based on that evaluation, the Registrant’s Principal Executive Officer and the Principal Financial Officer and Chief Accounting Officer, have concluded that the Registrant’s disclosure controls and procedures were effective.

Changes in Internal Controls over Financial Reporting.

As previously disclosed, during the 2004 first quarter, Deloitte & Touche LLP, the Company’s independent auditors, informed the Company that they had identified a reportable condition in the design of the Company’s internal controls. The condition, which was not a material weakness, related to a lack of segregation of duties between certain transaction recording functions and asset accountability functions. Since being informed of the condition, the Company has taken various steps, including designing and instituting additional procedures, hiring additional staff, and separating and reorganizing functional responsibilities. Most of these changes were implemented during the Company’s second quarter ended April 30, 2004, with the remainder of the changes completed during the third quarter ended July 31, 2004, and the Company believes that these changes will correct the condition noted by Deloitte & Touche LLP. The Company regularly monitors and evaluates the design and effectiveness of its internal control and procedures to improve its controls and procedures over time and to correct any matters that the Company discovers, or that are brought to the Company’s attention. Other than as noted herein, there were no significant changes in the Company’s internal control over financial reporting (as defined in Rules 13a - 15(f) and 15d - 15(e)) that occurred during the fourth quarter which have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item concerning the Company’s directors is incorporated by reference to the information under the heading “Information Concerning Directors and Nominees” in the Proxy Statement for the 2005 Annual Meeting of Shareholders.

The information required by this item concerning the Company’s executive officers is incorporated by reference to Part I of this report titled “Executive Officers of Roanoke Electric Steel Corporation.”

The information required by this item concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 by the Company’s directors, executive officers and 10 percent shareholders is incorporated by reference to the information under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement for the 2005 Annual Meeting of Shareholders.

The Company’s Board of Directors has determined the Thomas L. Robertson and George W. Logan, are each an “audit committee financial expert” and “independent” as these terms are defined in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc.

The Company has adopted a code of conduct which applies to all directors, officers and employees, including the principal executive officer, principal financial officer, principal accounting officer or controller and other officers who perform similar functions (the “Designated Officers”). A copy of the code of conduct is posted on the Company’s website, www.roanokesteel.com, under the tab “Corporate Governance.” The Company intends to disclose any changes in or waivers from its code of conduct applicable to directors, executive officers, and any Designated Officer on its website or by filing a current report on Form 8-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the information under the headings “Executive Compensation”, “Compensation Committee and Report on Executive Compensation”, “Performance Graph” and “Board of Directors and Committees — Director Compensation” in the Proxy Statement for the 2005 Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the information under the headings “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Directors and Executive Officers” in the Proxy Statement for the 2005 Annual Meeting, and under the heading “Notes to Consolidated Financial Statements” in the 2004 Annual Report to Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item concerning the principal accounting fees paid by the Company and the Audit Committee’s pre-approval policies and procedures, is incorporated by reference to the information under the heading “Audit Committee and Other Audit Matters” in the Proxy Statement for the 2005 Annual Meeting of Shareholders. Approximately 14% of the fees, other than audit fees, paid to Deloitte & Touche LLP, the Company’s independent auditors, for the fiscal year ending October 31, 2004 were for services approved by the Audit Committee pursuant to its pre-approval policy.

9

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this report:

1. Financial Statements. The following financial statements are incorporated by reference to pages 10 through 25 of the 2004 Annual Report:

(a) Consolidated Balance Sheets

(b) Consolidated Statements of Stockholders’ Equity and Comprehensive Earnings (Loss)

(c) Consolidated Statements of Earnings (Loss)

(d) Consolidated Statements of Cash Flows

(e) Notes to Consolidated Financial Statements

(f) Independent Auditors’ Report

Individual financial statements of the Company are not being filed because the Company is primarily an operating company and its subsidiaries do not have minority equity interests and/or long-term indebtedness (including current portions) to any person outside the consolidated group (excluding long-term indebtedness which is collateralized by the Company by guarantee, pledge, assignment or otherwise), in amounts which together exceed 5 percent of the total consolidated assets.

2. Financial Statement Schedules. See Item 15(c)

3. Exhibits. The exhibits listed on the accompanying Index to Exhibits immediately following the signature page are filed as part of, and incorporated into, this report.

(b) See Index to Exhibits and Item 15(a)(3).

(c) The following financial statement schedule should be read in conjunction with the consolidated financial statements. The financial statement schedules not included in this report Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements or included in the notes thereto.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

Roanoke Electric Steel Corporation

102 Westside Blvd., NW

Roanoke, VA 24017

We have audited the consolidated financial statements of Roanoke Electric Steel Corporation and its wholly-owned subsidiaries (the “Company”) as of October 31, 2004 and 2003, and for each of the three years in the period ended October 31, 2004, and have issued our report thereon dated December 8, 2004 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, on November 1, 2002); such consolidated financial statements and report are included in your 2004 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of the Company, listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Raleigh, North Carolina

December 8, 2004

10

Set forth below is “Schedule II - Valuation and Qualifying Accounts” for the Registrant as required by Rule 5-04 of Regulation S-X:

Description	Beginning Balance		Charged to Cost & Expenses (1)		Charged to Other Accounts		(A/R Charged Against Allowance) Deductions		Ending Balance
Y/E 10/31/02:
Allowance for:
Bad debts	$	1,098,478	$	963,763	$	—	$	881,426	$	1,180,815
Sales returns		1,452,522		606,425		—		1,376,016		682,931
		2,551,000		1,570,188		—		2,257,442		1,863,746
Y/E 10/31/03:
Allowance for:
Bad debts		1,180,815		3,328,465		—		1,680,687		2,828,593
Sales returns		682,931		742,544		—		824,039		601,436
		1,863,746		4,071,009		—		2,504,726		3,430,029
Y/E 10/31/04:
Allowance for:
Bad debts		2,828,593		2,079,166		—		595,308		4,312,451
Sales returns		601,436		1,887,679		—		1,462,847		1,026,268
	$	3,430,029	$	3,966,845	$	—	$	2,058,155	$	5,338,719

(1) The Company sells to a large customer base of steel fabricators, steel service centers, original equipment manufacturers and construction contractors, most all of which deal primarily on 30-day credit terms. The Company believes its concentration of credit risk to be minimal in any one geographic area or market segment. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. Allowances for doubtful accounts are maintained to provide for estimated losses resulting from the inability of the Company’s customers to make required payments. Such allowances are estimated based on historical loss experience (relative to aging of accounts receivable) and current market economic conditions affecting our customers (i.e., bankruptcy filing). If the amount of allowances exceeds our estimates, or if the financial condition of the Company’s customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances may be required. Credit losses have not been significant in the past, with the exception of fiscal years 2004 and 2003, and are generally within management’s expectations. In 2003 there were bad debt charges of $1,264,702 as a result of the bankruptcy of a few customers, and a $1,100,000 increase in bad debt reserves in connection with another customer. In 2004 bad debt expense decreased $1,249,299, even though the overall expense was still significant due to the bankruptcy of a few customers.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: January 10, 2005	ROANOKE ELECTRIC STEEL CORPORATION
	By:	/s/ Donald G. Smith
		Donald G. Smith, Chairman, Treasurer and
		Chief Executive Officer

11

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Donald G. Smith	Chairman of the Board, Chief Executive Officer, Treasurer (Principal Executive Officer)	January 10, 2005
Donald G. Smith
/s/ Mark G. Meikle	Vice President – Finance, Assistant Treasurer, Chief Financial Officer (Principal Financial Officer)	January 10, 2005
Mark G. Meikle
/s/ T. Joe Crawford	President and Director	January 10, 2005
T. Joe Crawford
* George B. Cartledge, Jr.	Director	January 10, 2005
* Timothy R. Duke	Director	January 10, 2005
* George W. Logan	Director	January 10, 2005
* Charles I. Lunsford, II	Director	January 10, 2005
* Thomas L. Robertson	Director	January 10, 2005
* Charles W. Steger	Director	January 10, 2005
* Joseph H. Vipperman	Director	January 10, 2005

*     By:	/s/ William M. Watson, Jr.
	William M. Watson, Jr., Attorney-in-fact

12

EXHIBIT INDEX

Exhibit No.	Description
3.1	Articles of Incorporation, as amended, of Roanoke Electric Steel Corporation (incorporated by reference to Exhibit 3(a) to the Annual Report on Form 10-K for the fiscal year ended October 31, 2002 (file number 0-2389))
3.2	Bylaws, as amended, of Roanoke Electric Steel Corporation (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarter ended July 31, 2004 (file number 0-2389))
4.1	Form of certificate representing common stock of Roanoke Electric Steel Corporation (incorporated by reference to Exhibit 4(a) to Registration Statement No. 333-25299, on Form S-8, filed with the Commission on April 16, 1997)
4.2	Credit Agreement dated October 4, 2004 among Roanoke Electric Steel Corporation, the lender parties thereto, and Wachovia Bank, National Association (FILED HEREWITH)
10.1*	Roanoke Electric Steel Corporation Executive Officer Incentive Arrangement (incorporated by reference to Exhibit 10(a) to the Annual Report on Form 10-K for the fiscal year ended October 31, 1999 (file number 0-2389))
10.2*	Roanoke Electric Steel Corporation Employees’ Stock Option Plan (incorporated by reference to Exhibit 10(b) to the Annual Report on Form 10-K for the fiscal year ended October 31, 1998 (file number 0-2389))
10.3*	Amendment No. 4 to the Roanoke Electric Steel Corporation Employees’ Stock Option Plan (incorporated by reference to Exhibit 10(c) to the Annual Report on Form 10-K for the fiscal year ended October 31, 2003 (file number 0-2389))
10.4*	Roanoke Electric Steel Corporation Non-Employee Directors’ Stock Option Plan (incorporated by reference to Exhibit 10(d) to the Annual Report on Form 10-K for the fiscal year ended October 31, 2003 (file number 0-2389))
10.5*	Form of Executive Officer Incentive Arrangement (incorporated by reference to Exhibit 10(a) to the Annual Report on Form 10-K for the fiscal year ended October 31, 1999 (file number 0-2389))
10.6*	Severance Agreement dated November 1, 2001 with Donald G. Smith (incorporated by reference to Exhibit 10(e) to the Annual Report on Form 10-K for the fiscal year ended October 31, 2002 (file number 2389))
10.7*	Severance Agreement dated November 1, 2001 with Donald R. Higgins (incorporated by reference to Exhibit 10(e) to the Annual Report on Form 10-K for the fiscal year ended October 31, 2002 (file number 2389))
10.8*	Severance Agreement dated November 1, 2001 with T. Joe Crawford (incorporated by reference to Exhibit 10(e) to the Annual Report on Form 10-K for the fiscal year ended October 31, 2002 (file number 2389))
10.9*	Severance Agreement dated November 1, 2001 with Timothy R. Duke (incorporated by reference to Exhibit 10(e) to the Annual Report on Form 10-K for the fiscal year ended October 31, 2002 (file number 0-2389))

10.10*	Severance Agreement dated as of October 29, 2003 with Mark G. Meikle (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended April 30, 2004 (file number 0-2389))
10.11*	Collective Bargaining Agreement dated June 10, 2002 by and between SWVA, Inc. and the United Steelworkers of America, AFL-CIO (incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q for the quarter ended July 31, 2002 (file number 0-2389))
13	2004 Annual Report to Shareholders (FILED HEREWITH)
21	Subsidiaries of Roanoke Electric Steel Corporation (FILED HEREWITH)
23	Consent of Deloitte & Touche LLP (FILED HEREWITH)
24	Power of Attorney (FILED HEREWITH)
31.1	Certification of the principal executive officer of Roanoke Electric Steel Corporation pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (FILED HEREWITH)
31.2	Certification of the principal financial officer of Roanoke Electric Steel Corporation pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (FILED HEREWITH)
32.1	Certification of the principal executive officer of Roanoke Electric Steel Corporation pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (FILED HEREWITH)
32.2	Certification of the principal financial officer of Roanoke Electric Steel Corporation pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (FILED HEREWITH)

 * Management contract or compensatory plan or arrangement of the Company required to be filed as an exhibit.

EX-4.2

EXHIBIT 4.2

EXECUTION COPY

$85,000,000

CREDIT AGREEMENT

among

ROANOKE ELECTRIC STEEL CORPORATION,

as Borrower

and

CERTAIN DOMESTIC SUBSIDIARIES OF THE BORROWER

FROM TIME TO TIME PARTIES HERETO,

as Guarantors,

THE LENDERS PARTIES HERETO,

WACHOVIA BANK, NATIONAL ASSOCIATION,

as Administrative Agent,

and

BB&T OF VIRGINIA,

as Syndication Agent

Dated as of October 4, 2004

WACHOVIA CAPITAL MARKETS, LLC,

as Sole Lead Arranger and Book Runner

TABLE OF CONTENTS

			Page
ARTICLE I DEFINITIONS			1
	Section 1.1	Defined Terms.	1
	Section 1.2	Other Definitional Provisions.	24
	Section 1.3	Accounting Terms.	24
ARTICLE II THE LOANS; AMOUNT AND TERMS			25
	Section 2.1	Revolving Loans.	25
	Section 2.2	Term Loan Facility.	27
	Section 2.3	Letter of Credit Subfacility.	29
	Section 2.4	Swingline Loan Subfacility.	32
	Section 2.5	Fees.	34
	Section 2.6	Commitment Reductions.	34
	Section 2.7	Prepayments.	35
	Section 2.8	Minimum Principal Amount of Tranches; Lending Offices.	38
	Section 2.9	Default Rate and Payment Dates.	38
	Section 2.10	Conversion Options.	38
	Section 2.11	Computation of Interest and Fees.	39
	Section 2.12	Pro Rata Treatment and Payments.	39
	Section 2.13	Non-Receipt of Funds by the Administrative Agent.	41
	Section 2.14	Inability to Determine Interest Rate.	42
	Section 2.15	Illegality.	43
	Section 2.16	Requirements of Law.	43
	Section 2.17	Indemnity.	44
	Section 2.18	Taxes.	45
	Section 2.19	Indemnification; Nature of Issuing Lender’s Duties.	47
	Section 2.20	Increase Option.	48
ARTICLE III REPRESENTATIONS AND WARRANTIES			49
	Section 3.1	Financial Condition.	49
	Section 3.2	No Change.	50
	Section 3.3	Corporate Existence; Compliance with Law.	50
	Section 3.4	Corporate Power; Authorization; Enforceable Obligations.	50
	Section 3.5	No Legal Bar; No Default.	51
	Section 3.6	No Material Litigation.	51
	Section 3.7	Investment Company Act/Public Utility Holding Company Act.	51
	Section 3.8	Margin Regulations.	51
	Section 3.9	ERISA.	52
	Section 3.10	Environmental Matters.	52
	Section 3.11	Use of Proceeds.	53
	Section 3.12	Subsidiaries.	53
	Section 3.13	Ownership.	53
	Section 3.14	Indebtedness.	53
	Section 3.15	Taxes.	54

i

	Section 3.16	Intellectual Property.	54
	Section 3.17	Solvency.	55
	Section 3.18	Investments.	55
	Section 3.19	Location of Collateral.	55
	Section 3.20	No Burdensome Restrictions.	55
	Section 3.21	Brokers’ Fees.	55
	Section 3.22	Labor Matters.	55
	Section 3.23	Security Documents.	56
	Section 3.24	Accuracy and Completeness of Information.	56
	Section 3.25	Material Contracts.	56
	Section 3.26	Insurance.	56
	Section 3.27	Anti-Terrorism Laws.	57
ARTICLE IV CONDITIONS PRECEDENT			57
	Section 4.1	Conditions to Closing Date and Initial Extensions of Credit.	57
	Section 4.2	Conditions to All Extensions of Credit.	61
ARTICLE V AFFIRMATIVE COVENANTS			62
	Section 5.1	Financial Statements.	62
	Section 5.2	Certificates; Other Information.	63
	Section 5.3	Payment of Obligations.	65
	Section 5.4	Conduct of Business and Maintenance of Existence.	65
	Section 5.5	Maintenance of Property; Insurance.	65
	Section 5.6	Inspection of Property; Books and Records; Discussions.	66
	Section 5.7	Notices.	66
	Section 5.8	Environmental Laws.	67
	Section 5.9	Financial Covenants.	68
	Section 5.10	Additional Subsidiary Guarantors.	68
	Section 5.11	Compliance with Law.	68
	Section 5.12	Pledged Assets.	68
	Section 5.13	Further Assurances.	69
ARTICLE VI NEGATIVE COVENANTS			69
	Section 6.1	Indebtedness.	69
	Section 6.2	Liens.	70
	Section 6.3	Nature of Business.	70
	Section 6.4	Consolidation, Merger, Sale or Purchase of Assets, etc.	70
	Section 6.5	Advances, Investments and Loans.	72
	Section 6.6	Transactions with Affiliates.	72
	Section 6.7	Ownership of Subsidiaries; Restrictions.	72
	Section 6.8	Fiscal Year; Organizational Documents; Material Contracts; Subordinated Indebtedness.	72
	Section 6.9	Limitation on Restricted Actions.	72
	Section 6.10	Restricted Payments.	73
	Section 6.11	Sale Leasebacks.	73
	Section 6.12	No Further Negative Pledges.	74

ii

ARTICLE VII EVENTS OF DEFAULT			74
	Section 7.1	Events of Default.	74
	Section 7.2	Acceleration; Remedies.	76
ARTICLE VIII THE AGENT			77
	Section 8.1	Appointment.	77
	Section 8.2	Delegation of Duties.	77
	Section 8.3	Exculpatory Provisions.	78
	Section 8.4	Reliance by Administrative Agent.	78
	Section 8.5	Notice of Default.	78
	Section 8.6	Non-Reliance on Administrative Agent and Other Lenders.	79
	Section 8.7	Indemnification.	79
	Section 8.8	Administrative Agent in Its Individual Capacity.	80
	Section 8.9	Successor Administrative Agent.	80
	Section 8.10	Other Agents.	80
ARTICLE IX MISCELLANEOUS			81
	Section 9.1	Amendments, Waivers and Release of Collateral.	81
	Section 9.2	Notices.	82
	Section 9.3	No Waiver; Cumulative Remedies.	84
	Section 9.4	Survival of Representations and Warranties.	84
	Section 9.5	Payment of Expenses and Taxes.	84
	Section 9.6	Successors and Assigns; Participations; Purchasing Lenders.	85
	Section 9.7	Adjustments; Set-off.	88
	Section 9.8	Table of Contents and Section Headings.	89
	Section 9.9	Counterparts.	89
	Section 9.10	Effectiveness.	89
	Section 9.11	Severability.	89
	Section 9.12	Integration.	89
	Section 9.13	Governing Law.	89
	Section 9.14	Service of Process.	90
	Section 9.16	Acknowledgments.	90
	Section 9.17	Waivers of Jury Trial.	91
ARTICLE X GUARANTY			91
	Section 10.1	The Guaranty.	91
	Section 10.2	Bankruptcy.	91
	Section 10.3	Nature of Liability.	92
	Section 10.4	Independent Obligation.	92
	Section 10.5	Authorization.	92
	Section 10.6	Reliance.	93
	Section 10.7	Waiver.	93
	Section 10.8	Limitation on Enforcement.	94
	Section 10.9	Confirmation of Payment.	94

iii

Schedules

Schedule 1.1-1	Account Designation Letter
Schedule 1.1-2	Permitted Investments
Schedule 1.1-3	Permitted Liens
Schedule 2.1(a)	Schedule of Lenders and Commitments
Schedule 2.1(b)(i)	Form of Notice of Borrowing
Schedule 2.1(e)	Form of Revolving Note
Schedule 2.2(d)	Form of Term Note
Schedule 2.4(d)	Form of Swingline Note
Schedule 2.10	Form of Notice of Conversion/Extension
Schedule 2.18	2.18 Certificate
Schedule 3.10	Environmental Matters
Schedule 3.12	Subsidiaries
Schedule 3.16	Intellectual Property
Schedule 3.19(a)	Location of Real Property
Schedule 3.19(b)	Location of Collateral
Schedule 3.19(c)	Chief Executive Offices
Schedule 3.22	Labor Matters
Schedule 3.25	Material Contracts
Schedule 3.26	Insurance
Schedule 4.1-1	Form of Secretary’s Certificate
Schedule 4.1-2	Form of Solvency Certificate
Schedule 5.10	Form of Joinder Agreement
Schedule 6.1(b)	Indebtedness
Schedule 6.6	Transactions with Affiliates
Schedule 9.2	Schedule of Lenders’ Lending Offices
Schedule 9.6(c)	Form of Commitment Transfer Supplement

iv

CREDIT AGREEMENT, dated as of October 4, 2004, among ROANOKE ELECTRIC STEEL CORPORATION, a corporation organized under the laws of the Commonwealth of Virginia (the “Borrower”), each Material Domestic Subsidiary of the Borrower identified as a “Guarantor” on the signature pages hereto and such other Material Domestic Subsidiaries of the Borrower as may from time to time become a party hereto (individually a “Guarantor” and collectively, the “Guarantors”), the several banks and other financial institutions as may from time to time become parties to this Agreement (collectively, the “Lenders”; and individually, a “Lender”), and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as administrative agent for the Lenders hereunder (in such capacity, the “Administrative Agent”).

W I T N E S S E T H:

WHEREAS, the Borrower has requested that the Lenders make loans and other financial accommodations to the Borrower in the amount of up to $85,000,000, as more particularly described herein; and

WHEREAS, the Lenders have agreed to make such loans and other financial accommodations to the Borrower on the terms and conditions contained herein.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Defined Terms.

As used in this Agreement, terms defined in the preamble to this Agreement have the meanings therein indicated, and the following terms have the following meanings:

“Account Designation Letter” shall mean the Notice of Account Designation Letter dated the Closing Date from the Borrower to the Administrative Agent substantially in the form attached hereto as Schedule 1.1-1.

“Additional Credit Party” shall mean each Person that becomes a Guarantor by execution of a Joinder Agreement in accordance with Section 5.10.

“Administrative Agent” shall have the meaning set forth in the first paragraph of this Agreement and any successors in such capacity.

1

“Affiliate” shall mean as to any Person, any other Person (excluding any Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, a Person shall be deemed to be “controlled by” a Person if such Person possesses, directly or indirectly, power either (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

“Agreement” or “Credit Agreement” shall mean this Credit Agreement, as amended, restated, modified or supplemented from time to time in accordance with its terms.

“Aggregate Revolving Committed Amount” shall have the meaning set forth in Section 2.1.

“Alternate Base Rate” shall mean, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: “Prime Rate” shall mean, at any time, the rate of interest per annum publicly announced from time to time by Wachovia at its principal office in Charlotte, North Carolina as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. The parties hereto acknowledge that the rate announced publicly by Wachovia as its Prime Rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks; and “Federal Funds Effective Rate” shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published on the next succeeding Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive in the absence of manifest error) that it is unable to ascertain the Federal Funds Effective Rate, for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the opening of business on the date of such change.

“Alternate Base Rate Loans” shall mean Loans that bear interest at an interest rate based on the Alternate Base Rate.

“Applicable Percentage” shall mean, for any day, the rate per annum set forth below opposite the applicable level then in effect, it being understood that the Applicable Percentage for (a) Alternate Base Rate Loans shall be the percentage set forth under the column “Alternate Base Rate Margin”, (b) LIBOR Rate Loans shall be the percentage set forth under the column “LIBOR Rate Margin and Letter of Credit Fees”, (c) the Letter of Credit Fees shall be the

2

percentage set forth under the column “LIBOR Rate Margin and Letter of Credit Fees” and (d) the Commitment Fee shall be the percentage set forth under the column “Commitment Fee”:

Level	Leverage Ratio	Alternate Base Rate Margin		LIBOR Rate Margin and Letter of Credit Fees		Commitment Fee
I	> 2.50 to 1.0	1.75	%	2.75	%	.50	%
II	> 2.00 to 1.0 but < 2.50 to 1.0	1.25	%	2.25	%	.50	%
III	> 1.50 to 1.0 but < 2.00 to 1.0	1.00	%	2.00	%	.50	%
IV	> 1.00 to 1.0 but < 1.50 to 1.0	.75	%	1.75	%	.50	%
V	< 1.00 to 1.0	.50	%	1.50	%	.375	%

The Applicable Percentage shall, in each case, be determined and adjusted quarterly on the date five (5) Business Days after the date on which the Administrative Agent has received from the Borrower the financial information and certifications required to be delivered to the Administrative Agent and the Lenders in accordance with the provisions of Sections 5.1(a) and (b) and Section 5.2(b) (each an “Interest Determination Date”). Such Applicable Percentage shall be effective from such Interest Determination Date until the next such Interest Determination Date. The initial Applicable Percentages shall be those set forth in Level III until the Interest Determination Date occurring after the delivery of the officer’s compliance certificate pursuant to Section 5.2(b) for the quarter ended March 31, 2005. After the Closing Date, if the Borrower shall fail to provide the quarterly financial information and certifications in accordance with the provisions of Sections 5.1(a) and (b) and Section 5.2(b), the Applicable Percentage from the date five (5) Business Days after the date by which the Borrower was so required to provide such financial information and certifications to the Administrative Agent and the Lenders, be based on Level I until such time as such information and certifications are provided, whereupon the Level shall be determined by the then current Leverage Ratio.

“Arranger” shall mean Wachovia Capital Markets, LLC, as Sole Lead Arranger and Book Runner, together with its successors and/or assigns.

“Asset Disposition” shall mean the disposition of any or all of the assets (including, without limitation, the Capital Stock of a Subsidiary or any ownership interest in a joint venture) of any Credit Party or any Subsidiary whether by sale, lease, transfer or otherwise. The term “Asset Disposition” shall not include (a) the sale, lease, transfer or other disposition of assets permitted by Section 6.4(a)(i), (ii), (iii), (iv), (v) or (vii) hereof or (b) any Equity Issuance.

“Bankruptcy Code” shall mean the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time.

“Borrower” shall have the meaning set forth in the first paragraph of this Agreement.

“Borrowing Date” shall mean, in respect of any Loan, the date such Loan is made.

3

“Business” shall have the meaning set forth in Section 3.10.

“Business Day” shall mean a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina are authorized or required by law to close; provided, however, that when used in connection with a rate determination, borrowing or payment in respect of a LIBOR Rate Loan, the term “Business Day” shall also exclude any day on which banks in London, England are not open for dealings in Dollar deposits in the London interbank market.

“Capital Lease” shall mean any lease of property, real or personal, the obligations with respect to which are required to be capitalized on a balance sheet of the lessee in accordance with GAAP.

“Capital Lease Obligations” shall mean the capitalized lease obligations relating to a Capital Lease determined in accordance with GAAP.

“Capital Stock” shall mean (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership interests and (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

“Cash Equivalents” shall mean (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve (12) months from the date of acquisition (“Government Obligations”), (ii) U.S. dollar denominated (or foreign currency fully hedged) time deposits, certificates of deposit, Eurodollar time deposits and Eurodollar certificates of deposit of (y) any domestic commercial bank of recognized standing having capital and surplus in excess of $250,000,000 or (z) any bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody’s is at least P-1 or the equivalent thereof (any such bank being an “Approved Bank”), in each case with maturities of not more than 364 days from the date of acquisition, (iii) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody’s and maturing within six months of the date of acquisition, (iv) repurchase agreements with a bank or trust company (including a Lender) or a recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America, (v) obligations of any state of the United States or any political subdivision thereof for the payment of the principal and redemption price of and interest on which there shall have been irrevocably deposited Government Obligations maturing as to principal and interest at times and in amounts sufficient to provide such payment and (vi) auction preferred stock rated in the highest short-term credit rating category by S&P or Moody’s.

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“Change of Control” shall mean (a) any Person or two or more Persons acting in concert shall have acquired “beneficial ownership,” directly or indirectly, of, or shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of, or control over, Voting Stock of the Borrower (or other securities convertible into such Voting Stock) representing 20% or more of the combined voting power of all Voting Stock of the Borrower or (b) Continuing Directors shall cease for any reason to constitute a majority of the members of the board of directors of the Borrower then in office. As used herein, “beneficial ownership” shall have the meaning provided in Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934.

“Closing Date” shall mean the date of this Agreement.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

“Collateral” shall mean a collective reference to the collateral which is identified in, and at any time will be covered by, the Security Documents.

“Commitment” shall mean the Revolving Commitment, the LOC Commitment, the Swingline Commitment and the Term Loan Commitment, individually or collectively, as appropriate.

“Commitment Fee” shall have the meaning set forth in Section 2.5(a).

“Commitment Percentage” shall mean the Revolving Commitment Percentage, the LOC Commitment Percentage and/or the Term Loan Commitment Percentage, as appropriate.

“Commitment Period” shall mean the period from and including the Closing Date to but not including the Maturity Date.

“Commitment Transfer Supplement” shall mean a Commitment Transfer Supplement, substantially in the form of Schedule 9.6(c).

“Commonly Controlled Entity” shall mean an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code.

“Consolidated Capital Expenditures” shall mean, for any period, all capital expenditures of the Credit Parties and their Subsidiaries on a consolidated basis for such period, as determined in accordance with GAAP. The term “Consolidated Capital Expenditures” shall not include capital expenditures in respect of the reinvestment of proceeds derived from Recovery Events received by the Credit Parties and their Subsidiaries to the extent that such reinvestment is permitted under the Credit Documents.

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“Consolidated EBITDA” shall mean, for any period, the sum of (a) Consolidated Net Income for such period, plus (b) an amount which, in the determination of Consolidated Net Income for such period, has been deducted for (i) Consolidated Interest Expense, (ii) total federal, state, local and foreign income taxes, (iii) depreciation, amortization and other non-cash charges, (iv) any non-recurring cash charges or expenses related to a Permitted Acquisition as agreed to by the Administrative Agent and (v) any goodwill impairment expense as referred to in Financial Accounting Standards Board Statement No. 142, all of the foregoing as determined in accordance with GAAP.

“Consolidated Interest Expense” shall mean, for any period, the consolidated interest expense (including, without limitation, the portion of any Capital Lease Obligation allocable to interest expense in accordance with GAAP) of the Credit Parties and their Subsidiaries for such period determined in accordance with GAAP.

“Consolidated Net Income” shall mean, for any period, net income (or net loss) of the Credit Parties and their Subsidiaries on a consolidated basis, as determined in accordance with GAAP.

“Consolidated Working Capital” shall mean, as of any date of determination, the excess of (a) current assets (excluding cash and Cash Equivalents) of the Borrower and its Subsidiaries on a consolidated basis at such time less (b) current liabilities (excluding current maturities of long term debt) of the Borrower and its Subsidiaries on a consolidated basis at such time, all as determined in accordance with GAAP.

“Continuing Directors” shall mean, during any period of up to twenty-four (24) consecutive months commencing after the Closing Date, individuals who at the beginning of such twenty-four-month period were directors of the Borrower (together with any new director whose election by the Borrower’s board of directors or whose nomination for election by the Borrower’s shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved).

“Contractual Obligation” shall mean, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound.

“Copyright Licenses” shall mean any written agreement naming any Obligor as licensor and granting any right under any Copyright including, without limitation, any thereof referred to in Schedule 3.16.

“Copyrights” shall mean (a) all registered United States copyrights in all Works, now existing or hereafter created or acquired, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Copyright Office including, without limitation, any thereof referred to in Schedule 3.16, and (b) all renewals thereof including, without limitation, any thereof referred to in Schedule 3.16.

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“Credit Documents” shall mean this Agreement, each of the Notes, any Joinder Agreement, the LOC Documents, the Security Documents and each other agreement, certificate, document or instrument delivered in connection with any Credit Document, whether or not specifically mentioned herein or therein.

“Credit Party” shall mean any of the Borrower or the Guarantors.

“Credit Party Obligations” shall mean, without duplication, (a) all of the obligations (including the Obligations) of the Credit Parties to the Lenders (including the Issuing Lender) and the Administrative Agent, whenever arising, under this Agreement, the Notes or any of the other Credit Documents (including, but not limited to, any interest accruing after the occurrence of a filing of a petition of bankruptcy under the Bankruptcy Code with respect to any Credit Party, regardless of whether such interest is an allowed claim under the Bankruptcy Code) and (b) all liabilities and obligations, whenever arising, owing from any Credit Party or any of its Subsidiaries to any Hedging Agreement Provider arising under any Secured Hedging Agreement.

“Current Maturities of Long Term Debt” shall mean, at any date, the consolidated current maturities of long term Indebtedness of the Credit Parties and their Subsidiaries as of such date determined in accordance with GAAP.

“Debt Issuance” shall mean the issuance of any Indebtedness for borrowed money by any Credit Party or any of its Subsidiaries (excluding, for purposes hereof, any Equity Issuance or any Indebtedness of any Credit Party and its Subsidiaries permitted to be incurred pursuant to (a) Section 2.20 or (b) Section 6.1 hereof).

“Default” shall mean any event that would constitute an Event of Default, whether or not any requirement for the giving of notice or the lapse of time, or both, or any other condition, has been satisfied.

“Defaulting Lender” shall mean, at any time, any Lender that, at such time (a) has failed to make a Loan required pursuant to the term of this Credit Agreement, including the funding of a Participation Interest in accordance with the terms hereof, (b) has failed to pay to the Administrative Agent or any Lender an amount owed by such Lender pursuant to the terms of this Credit Agreement or (c) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or to a receiver, trustee or similar official.

“Dollars” and “$” shall mean dollars in lawful currency of the United States of America.

“Domestic Lending Office” shall mean, initially, the office of each Lender designated as such Lender’s Domestic Lending Office shown on Schedule 9.2; and thereafter, such other office of such Lender as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office of such Lender at which Alternate Base Rate Loans of such Lender are to be made.

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“Domestic Subsidiary” shall mean any Subsidiary that is organized and existing under the laws of the United States or any state or commonwealth thereof or under the laws of the District of Columbia.

“Environmental Laws” shall mean any and all applicable foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirement of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment.

“Equity Issuance” shall mean any issuance by any Credit Party or any Subsidiary to any Person which is not a Credit Party or an Existing Stockholder of (a) shares or interests of its Capital Stock, (b) any shares or interests of its Capital Stock pursuant to the exercise of options or warrants or other similar rights, (c) any shares or interests of its Capital Stock pursuant to the conversion of any debt securities to equity or (d) warrants or options or other similar rights which are exercisable for or convertible into shares or interests of its Capital Stock. The term “Equity Issuance” shall not include (i) any Asset Disposition, (ii) any Debt Issuance or (iii) any issuance of equity by a Credit Party or any Subsidiary made as consideration for a Permitted Acquisition.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

“Eurodollar Reserve Percentage” shall mean for any day, the percentage (expressed as a decimal and rounded upwards, if necessary, to the next higher 1/100th of 1%) which is in effect for such day as prescribed by the Federal Reserve Board (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) in respect of Eurocurrency liabilities, as defined in Regulation D of such Board as in effect from time to time, or any similar category of liabilities for a member bank of the Federal Reserve System in New York City.

“Event of Default” shall mean any of the events specified in Section 7.1; provided, however, with respect to any such event, that any requirement for the giving of notice or the lapse of time, or both, or any other condition with respect thereto, has been satisfied.

“Excess Cash Flow” shall mean, for any period, for the Borrower and its Subsidiaries, on a consolidated basis, an amount equal to (without duplication) the sum of (a) Consolidated EBITDA for such period, minus (b) actual Consolidated Capital Expenditures for such period, minus (c) Consolidated Interest Expense for such period, minus (d) federal, state, local and foreign income taxes paid in cash for such period, minus (e) scheduled payments and voluntary prepayments of Indebtedness (excluding prepayments of the Revolving Loans unless they result in a pro rata reduction of the Revolving Committed Amount) during such period, minus (f) Restricted Payments made hereunder during such period, minus (g) any increases in Consolidated Working Capital for such period, plus (h) any decreases in Consolidated Working Capital for such period.

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“Extension of Credit” shall mean, as to any Lender, the making of a Loan by such Lender or the issuance of, or participation in, a Letter of Credit by such Lender.

“Federal Funds Effective Rate” shall have the meaning set forth in the definition of “Alternate Base Rate”.

“Fee Letter” shall mean the letter agreement dated August 10, 2004 addressed to the Borrower from Wachovia and Wachovia Capital Markets, LLC, as amended, restated, modified, supplemented or otherwise replaced from time to time.

“Fixed Charge Coverage Ratio” shall mean, with respect to the Credit Parties and their Subsidiaries on a consolidated basis for the twelve month period ending on the last day of any fiscal quarter of the Borrower, the ratio of (i) the sum of (a) Consolidated EBITDA for such period minus (b) Consolidated Capital Expenditures for such period to (ii) the sum of (a) Current Maturities of Long Term Debt as of such date plus (b) Consolidated Interest Expense for such period plus (c) amounts paid in respect of federal, state, local and foreign income, value added and similar taxes during such period plus (d) the amount of any Restricted Payments made during such period .

“Flood Hazard Property” shall have the meaning set forth in Section 4.1(e)(iv).

“Funded Debt” shall mean, with respect to any Person, without duplication, (a) all Indebtedness of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations of such Person incurred, issued or assumed as the deferred purchase price of property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof) which would appear as liabilities on a balance sheet of such Person and including, in any event, earnout obligations, (e) the principal portion of all obligations of such Person under Capital Leases, (f) all obligations of such Person under Hedging Agreements, excluding any portion thereof which would be accounted for as interest expense under GAAP, (g) the maximum amount of all letters of credit issued or bankers’ acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (h) all preferred Capital Stock issued by such Person and which by the terms thereof could be (at the request of the holders thereof or otherwise) subject to mandatory sinking fund payments, redemption or other acceleration prior to the date that is six months after the Maturity Date, (i) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product, (j) all Indebtedness of others of the type described in clauses (a) through (i) hereof secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (k) all Guaranty Obligations of such Person with respect to Indebtedness of another Person of the type described in clauses (a) through (i) hereof and (l) all Indebtedness of the type described in clauses (a) through (i)

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hereof of any partnership or unincorporated joint venture in which such Person is a general partner or a joint venturer; provided, however, that Funded Debt shall not include Indebtedness among the Credit Parties to the extent such Indebtedness would be eliminated on a consolidated basis.

“GAAP” shall mean generally accepted accounting principles in effect in the United States of America applied on a consistent basis, subject, however, in the case of determination of compliance with the financial covenants set out in Section 5.9 to the provisions of Section 1.3.

“Government Acts” shall have the meaning set forth in Section 2.19.

“Governmental Authority” shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Guaranty Obligations” shall mean, with respect to any Person, without duplication, any obligations of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether direct or indirect, and including without limitation any obligation, whether or not contingent, (a) to purchase any such Indebtedness or any property constituting security therefor, (b) to advance or provide funds or other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency or other balance sheet condition of such other Person (including without limitation keep well agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other Person, (c) to lease or purchase Property, securities or services primarily for the purpose of assuring the holder of such Indebtedness or (d) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof. The amount of any Guaranty Obligation hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount (or maximum principal amount, if larger) of the Indebtedness in respect of which such Guaranty Obligation is made.

“Guarantor” shall have the meaning set forth in the first paragraph of this Agreement.

“Guaranty” shall mean the guaranty of the Guarantors set forth in Article X.

“Hedging Agreements” shall mean, with respect to any Person, any agreement entered into to protect such Person against fluctuations in interest rates, or currency or raw materials values, including, without limitation, any interest rate swap, cap or collar agreement or similar arrangement between such Person and one or more counterparties, any foreign currency exchange agreement, currency protection agreements, commodity purchase or option agreements or other interest or exchange rate or commodity price hedging agreements.

“Hedging Agreement Provider” shall mean any Person that enters into a Secured Hedging Agreement with a Credit Party or any of its Subsidiaries that is permitted by Section 6.1(e) to the extent such Person is a Lender, an Affiliate of a Lender or any other Person that was a Lender (or an Affiliate of a Lender) at the time it entered into the Secured Hedging Agreement but has ceased to be a Lender (or whose Affiliate has ceased to be a Lender) under the Credit Agreement.

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“Indebtedness” shall mean, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations of such Person issued or assumed as the deferred purchase price of property or services purchased by such Person (other than trade debt incurred in the ordinary course of business) which would appear as liabilities on a balance sheet of such Person, (e) all obligations of such Person under take-or-pay or similar arrangements or under commodities agreements, (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) all Guaranty Obligations of such Person with respect to Indebtedness of another Person, (h) the principal portion of all obligations of such Person under Capital Leases plus any accrued interest thereon, (i) all obligations of such Person under Hedging Agreements, (j) the maximum amount of all letters of credit issued or bankers’ acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (k) all preferred Capital Stock issued by such Person and which by the terms thereof could be (at the request of the holders thereof or otherwise) subject to mandatory sinking fund payments, redemption or other acceleration prior to the date that is six months after the Maturity Date, (l) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product plus any accrued interest thereon and (m) the Indebtedness of any partnership or unincorporated joint venture in which such Person is a general partner or a joint venturer.

“Insolvency” shall mean, with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of such term as used in Section 4245 of ERISA.

“Insolvent” shall mean being in a condition of Insolvency.

“Intellectual Property” shall mean, collectively, all Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses.

“Interest Determination Date” shall have the meaning assigned thereto in the definition of “Applicable Percentage”.

“Interest Payment Date” shall mean (a) as to any Alternate Base Rate Loan or Swingline Loan, the last Business Day of each January, April, July and October during the term of this Agreement and on the applicable Maturity Date, (b) as to any LIBOR Rate Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any LIBOR Rate Loan having an Interest Period longer than three months, each day which is three months after the first day of such Interest Period and the last day of such Interest Period and (d) as to any Loan which is the subject of a mandatory prepayment required pursuant to Section 2.7(b) hereof, the date of such prepayment.

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“Interest Period” shall mean, with respect to any LIBOR Rate Loan,

(i) initially, the period commencing on the Borrowing Date or conversion date, as the case may be, with respect to such LIBOR Rate Loan and ending one, two, three or six months (or, subject to availability, nine or twelve months) thereafter, as selected by the Borrower in the notice of borrowing or notice of conversion given with respect thereto; and

(ii) thereafter, each period commencing on the last day of the immediately preceding Interest Period applicable to such LIBOR Rate Loan and ending one, two, three or six months and, if available, nine or twelve months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto;

provided that the foregoing provisions are subject to the following:

(A) if any Interest Period pertaining to a LIBOR Rate Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;

(B) any Interest Period pertaining to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month;

(C) if the Borrower shall fail to give notice as provided above, the Borrower shall be deemed to have selected an Alternate Base Rate Loan to replace the affected LIBOR Rate Loan;

(D) any Interest Period in respect of any Loan that would otherwise extend beyond the applicable Maturity Date for such Loan shall end on such Maturity Date;

(E) with regard to the Term Loan, no Interest Period shall extend beyond any principal amortization payment date unless the portion of the Term Loan consisting of Alternate Base Rate Loans together with the portion of the Term Loan consisting of LIBOR Rate Loans with Interest Periods expiring prior to or concurrently with the date such principal amortization payment date is due, is at least equal to the amount of such principal amortization payment due on such date; and

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(F) no more than five (5) LIBOR Rate Loans may be in effect at any time; provided that, for purposes hereof, LIBOR Rate Loans with different Interest Periods shall be considered as separate LIBOR Rate Loans, even if they shall begin on the same date and have the same duration, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new LIBOR Rate Loan with a single Interest Period.

“Investment” shall mean all investments made directly or indirectly in, to or from any Person, whether in cash or by acquisition of shares of Capital Stock, property, assets, indebtedness or other obligations or securities or by loan advance, capital contribution or otherwise.

“Issuing Lender” shall mean Wachovia.

“Issuing Lender Fees” shall have the meaning set forth in Section 2.5(c).

“Joinder Agreement” shall mean a Joinder Agreement substantially in the form of Schedule 5.10, executed and delivered by an Additional Credit Party in accordance with the provisions of Section 5.10.

“Lender” shall have the meaning set forth in the first paragraph of this Agreement.

“Letters of Credit” shall mean any letter of credit issued by the Issuing Lender pursuant to the terms hereof, as such Letters of Credit may be amended, modified, extended, renewed or replaced from time to time.

“Letter of Credit Fee” shall have the meaning set forth in Section 2.5(b).

“Leverage Ratio” shall mean, with respect to the Credit Parties and their Subsidiaries on a consolidated basis for the twelve month period ending on the last day of any fiscal quarter of the Borrower, the ratio of (a) Funded Debt of the Credit Parties and their Subsidiaries on a consolidated basis on the last day of such period to (b) Consolidated EBITDA for such period.

“LIBOR” shall mean, for any LIBOR Rate Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term “LIBOR” shall mean, for any LIBOR Rate Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100th of 1%). If, for any reason, neither of such rates is

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available, then “LIBOR” shall mean the rate per annum at which, as determined by the Administrative Agent, Dollars in an amount comparable to the Loans then requested are being offered to leading banks at approximately 11:00 A.M. London time, two (2) Business Days prior to the commencement of the applicable Interest Period for settlement in immediately available funds by leading banks in the London interbank market for a period equal to the Interest Period selected.

“LIBOR Lending Office” shall mean, initially, the office of each Lender designated as such Lender’s LIBOR Lending Office shown on Schedule 9.2; and thereafter, such other office of such Lender as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office of such Lender at which the LIBOR Rate Loans of such Lender are to be made.

“LIBOR Rate” shall mean a rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) determined by the Administrative Agent pursuant to the following formula:

LIBOR Rate =	LIBOR
	1.00 - Eurodollar Reserve Percentage

“LIBOR Rate Loan” shall mean Loans the rate of interest applicable to which is based on the LIBOR Rate.

“Lien” shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Capital Lease having substantially the same economic effect as any of the foregoing).

“Loan” shall mean a Revolving Loan, a Swingline Loan and/or the Term Loan as appropriate.

“LOC Commitment” shall mean the commitment of the Issuing Lender to issue Letters of Credit and with respect to each Lender, the commitment of such Lender to purchase participation interests in the Letters of Credit up to such Lender’s LOC Committed Amount as specified in Schedule 2.1(a), as such amount may be reduced from time to time in accordance with the provisions hereof.

“LOC Commitment Percentage” shall mean, for each Lender, the percentage identified as its LOC Commitment Percentage on Schedule 2.1(a), as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 9.6(c).

“LOC Committed Amount” shall mean, collectively, the aggregate amount of all of the LOC Commitments of the Lenders to issue and participate in Letters of Credit as referenced in Section 2.3 and, individually, the amount of each Lender’s LOC Commitment as specified in Schedule 2.1(a).

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“LOC Documents” shall mean, with respect to any Letter of Credit, such Letter of Credit, any amendments thereto, any documents delivered in connection therewith, any application therefor, and any agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (i) the rights and obligations of the parties concerned or (ii) any collateral security for such obligations.

“LOC Obligations” shall mean, at any time, the sum of (i) the maximum amount which is, or at any time thereafter may become, available to be drawn under Letters of Credit then outstanding, assuming compliance with all requirements for drawings referred to in such Letters of Credit plus (ii) the aggregate amount of all drawings under Letters of Credit honored by the Issuing Lender but not theretofore reimbursed.

“Mandatory Borrowing” shall have the meaning set forth in Section 2.3(e) and Section 2.4(b)(ii), as the context may require.

“Material Adverse Effect” shall mean a material adverse effect on (a) the business, operations, property, condition (financial or otherwise) or prospects of the Credit Parties and their Subsidiaries taken as a whole, (b) the ability of the Borrower or any Guarantor to perform its obligations, when such obligations are required to be performed, under this Agreement, any of the Notes or any other Credit Document or (c) the validity or enforceability of this Agreement, any of the Notes or any of the other Credit Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder.

“Material Contract” shall mean any contract or other arrangement, whether written or oral, to which any Credit Party or any of its Subsidiaries is a party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto could reasonably be expected to have a Material Adverse Effect.

“Material Domestic Subsidiary” shall mean, at any time, any Domestic Subsidiary that as of such time accounts for either (a) five percent (5%) of the total assets (determined on a fair market value basis) of the Borrower and its Subsidiaries taken as a whole or (b) 5% of Consolidated Net Income of the Borrower and its Subsidiaries taken as a whole; provided, that if on any date of determination, the Borrower and the Material Domestic Subsidiaries, collectively, shall account for less than ninety percent (90%) of the total assets (determined on a fair market value basis) of the Borrower and its Subsidiaries taken as a whole or less than ninety percent (90%) of the Consolidated Net Income of the Borrower and its Subsidiaries taken as a whole, then the Credit Parties shall cause Subsidiaries which are not then Material Domestic Subsidiaries to comply with the provisions of Sections 5.10 and 5.12 hereof in a number sufficient to meet each such requirement.

“Materials of Environmental Concern” shall mean any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.

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“Maturity Date” shall mean the fifth anniversary of the Closing Date.

“Moody’s” shall mean Moody’s Investors Service, Inc.

“Multiemployer Plan” shall mean a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“Net Cash Proceeds” shall mean the aggregate cash proceeds received by any Credit Party or any Subsidiary in respect of any Asset Disposition, Equity Issuance or Debt Issuance, net of (a) direct costs paid or payable as a result thereof (including, without limitation, reasonable legal, accounting and investment banking fees, and sales commissions) and (b) taxes paid or payable as a result thereof; it being understood that “Net Cash Proceeds” shall include, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received by any Credit Party or any Subsidiary in respect of any Asset Disposition, Equity Issuance or Debt Issuance.

“Note” or “Notes” shall mean the Revolving Notes, the Swingline Note and/or the Term Notes, collectively, separately or individually, as appropriate.

“Notice of Borrowing” shall mean the written notice of borrowing as referenced and defined in Section 2.1(b)(i) or 2.4(b)(i), as appropriate.

“Notice of Conversion/Extension” shall mean the written notice of extension or conversion as referenced and defined in Section 2.10.

“Obligations” shall mean, collectively, each Loan and the LOC Obligations.

“Obligor” or “Obligors” shall mean the Borrower and the Guarantors.

“Operating Lease” shall mean, as applied to any Person, any lease (including, without limitation, leases which may be terminated by the lessee at any time) of any property (whether real, personal or mixed) which is not a Capital Lease other than any such lease in which that Person is the lessor.

“Participant” shall have the meaning set forth in Section 9.6(b).

“Participation Interest” shall mean the purchase by a Lender of a participation interest in Letters of Credit as provided in Section 2.3 and in Swingline Loans as provided in Section 2.4.

“Patent License” shall mean all agreements, whether written or oral, providing for the grant by or to an Obligor of any right to manufacture, use or sell any invention covered by a Patent, including, without limitation, any thereof referred to in Schedule 3.16.

“Patents” shall mean (a) all letters patent of the United States or any other country and all reissues and extensions thereof, including, without limitation, any thereof referred to in Schedule 3.16 and (b) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including, without limitation, any thereof referred to in Schedule 3.16.

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“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA.

“Permitted Acquisition” shall mean any acquisition or any series of related acquisitions by the Borrower or any Subsidiary of all or substantially all of the business or a line of business (whether by the acquisition of capital stock, assets or any combination thereof) of any other Person (such Person or such division, line of business or other business unit of such Person shall be referred to herein as the “Target”) if (i) prior to the consummation of such acquisition, the Borrower shall have provided to the Administrative Agent and each of the Lenders financial projections, prepared in accordance with GAAP and otherwise in form acceptable to the Administrative Agent, demonstrating to the satisfaction of the Administrative Agent, on a pro-forma basis, that upon completion of such acquisition, the Borrower shall be in compliance with each of the financial covenants described in Section 5.9, (ii) the business or line of business being acquired is a business in substantially the same fields as the businesses conducted by the Borrower and its Subsidiaries on the Closing Date or a business reasonably related thereto or logical extensions thereof and (iii) no single such acquisition shall obligate the Borrower and its Subsidiaries to pay cash consideration in an amount in excess of $7,500,000.

“Permitted Investments” shall mean:

(i) cash and Cash Equivalents;

(ii) receivables owing to the Borrower or any of its Subsidiaries or any receivables and advances to suppliers, in each case if created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms;

(iii) Investments in and loans or advances by any Credit Party to any other Credit Party;

(iv) loans and advances to employees and Affiliates in the ordinary course of business in an aggregate amount not to exceed $100,000 at any time outstanding;

(v) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business;

(vi) Investments, acquisitions or transactions permitted under Section 6.4(b);

(vii) Permitted Acquisitions;

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(viii) Investments existing as of the Closing Date and set forth on Schedule 1.1-2 and any replacements or substitutions thereof; provided the aggregate amount of each such Investment is not materially increased pursuant to such replacement or substitution; and

(ix) additional loan advances and/or Investments of a nature not contemplated by the foregoing clauses hereof, provided that such loans, advances and/or Investments made pursuant to this clause (ix) shall not exceed an aggregate amount of $1,000,000.

“Permitted Liens” shall mean:

(i) Liens created by or otherwise existing, under or in connection with this Agreement or the other Credit Documents in favor of the Lenders;

(ii) Liens in favor of a Hedging Agreement Provider in connection with any Secured Hedging Agreement, but only (A) to the extent such Liens are on the same collateral as to which the Administrative Agent on behalf of the Lenders also has a Lien and (B) if such Hedging Agreement Provider and the Lenders shall share pari passu in the collateral subject to such Liens;

(iii) Liens securing purchase money Indebtedness and Capital Lease Obligations to the extent permitted under Section 6.1(c); provided, that (A) any such Lien attaches to such property concurrently with or within 30 days after the acquisition thereof and (B) such Lien attaches solely to the property so acquired in such transaction;

(iv) Liens for taxes, assessments, charges or other governmental levies not yet due or as to which the period of grace (not to exceed sixty (60) days), if any, related thereto has not expired or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the any Credit Party or its Subsidiaries, as the case may be, in conformity with GAAP;

(v) carriers’, warehousemen’s, landlord’s, mechanics’, materialmen’s, processor’s, repairmen’s or other like Liens arising in the ordinary course of business which are not overdue for a period of more than sixty (60) days or which are being contested in good faith by appropriate proceedings;

(vi) pledges or deposits in connection with workers’ compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements incurred in the ordinary course of business;

(vii) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

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(viii) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred to in the foregoing clauses; provided that such extension, renewal or replacement Lien shall be limited to all or a part of the property which secured the Lien so extended, renewed or replaced;

(ix) Liens existing on the Closing Date and set forth on Schedule 1.1-3; provided that (a) no such Lien shall at any time be extended to cover property or assets other than the property or assets subject thereto on the Closing Date and (b) the principal amount of the Indebtedness secured by such Liens shall not be extended, renewed, refunded or refinanced;

(x) easements, rights-of-way, restrictions (including zoning restrictions), minor defects or irregularities in title and other similar charges or encumbrances not, in any material respect, impairing the use of the encumbered Property for its intended purposes;

(xi) Liens on equipment arising from precautionary UCC financing statements relating to the lease of such equipment to the extent permitted by this Agreement; and

(xii) Liens on assets existing at the time such assets are acquired in connection with a Permitted Acquisition or Section 6.4(b) and not incurred in contemplation thereof, as long as the outstanding principal amount of the Indebtedness secured thereby is not increased after the date of the Permitted Acquisition.

“Person” shall mean an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature.

“Plan” shall mean, at any particular time, any employee benefit plan which is covered by Title IV of ERISA and in respect of which any Credit Party or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Pledge Agreement” shall mean the Pledge Agreement dated as of the Closing Date executed by the Credit Parties in favor of the Administrative Agent as amended, modified, restated or supplemented from time to time.

“Prime Rate” shall have the meaning set forth in the definition of Alternate Base Rate.

“Pro Forma Basis” shall mean, with respect to any transaction, that such transaction shall be deemed to have occurred as of the first day of the twelve-month period ending as of the most recent month end preceding the date of such transaction.

“Properties” shall have the meaning set forth in Section 3.10(a).

“Purchasing Lenders” shall have the meaning set forth in Section 9.6(c).

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“Recovery Event” shall mean the receipt by any Credit Party or any of its Subsidiaries of any cash insurance proceeds or condemnation award payable by reason of theft, loss, physical destruction or damage, taking or similar event with respect to any of their respective property or assets.

“Register” shall have the meaning set forth in Section 9.6(d).

“Reorganization” shall mean, with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of such term as used in Section 4241 of ERISA.

“Related Fund” shall mean, with respect to any Lender, any fund or trust or entity that invests in commercial bank loans in the ordinary course of business and is advised or managed by (i) such Lender, (ii) an Affiliate of such Lender, (iii) any other Lender or any Affiliate thereof or (iv) the same investment advisor as any Person described in clauses (i) through (iii).

“Reportable Event” shall mean any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty-day notice period is waived under PBGC Reg. §4043.

“Required Lenders” shall mean, at any time, Lenders holding at least sixty-six and two-thirds percent (66 ²/3%) of (i) the Commitments (and Participation Interests therein) or (ii) if the Commitments have been terminated, the outstanding Loans and Participation Interests (including the Participation Interests of the Issuing Lender in any Letters of Credit and of the Swingline Lender in Swingline Loans) provided, however, that if any Lender shall be a Defaulting Lender at such time, then there shall be excluded from the determination of Required Lenders, Obligations (including Participation Interests) owing to such Defaulting Lender and such Defaulting Lender’s Commitments, or after termination of the Commitments, the principal balance of the Obligations owing to such Defaulting Lender.

“Requirement of Law” shall mean, as to any Person, the Certificate of Incorporation and By-laws or other organizational or governing documents of such Person, and each law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“RESCO Steel Products” shall mean RESCO Steel Products, a Virginia corporation.

“Responsible Officer” shall mean, as to (a) the Borrower, any of the President and the Chief Executive Officer or the Chief Financial Officer or (b) any other Credit Party, any duly authorized officer thereof.

“Restricted Payment” shall mean (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of any Credit Party or any of its Subsidiaries, now or hereafter outstanding, (b) any redemption, retirement, sinking fund or

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similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of any Credit Party or any of its Subsidiaries, now or hereafter outstanding, (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of any Credit Party or any of its Subsidiaries, now or hereafter outstanding, (d) any payment with respect to any earnout obligation, (e) any payment or prepayment of principal of, premium, if any, or interest on, redemption, purchase, retirement, defeasance, sinking fund or similar payment with respect to, any Subordinated Indebtedness or (f) the payment by any Credit Party or any of its Subsidiaries of any management or consulting fee to any Person (other than a Credit Party) or of any salary, bonus or other form of compensation (excluding any reasonable directors’ fee or other reasonable compensation paid to directors of the Borrower to the extent such fees and compensation are consistent with past practices of the Borrower) to any Person (other than a Credit Party) who is directly or indirectly a significant partner, shareholder, owner or executive officer of any such Person, to the extent such salary, bonus or other form of compensation is not included in the corporate overhead of such Credit Party or such Subsidiary.

“Revolving Commitment” shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans in an aggregate principal amount at any time outstanding up to such Lender’s Revolving Committed Amount.

“Revolving Commitment Percentage” shall mean, for each Lender, the percentage identified as its Revolving Commitment Percentage on Schedule 2.1(a), as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 9.6(c).

“Revolving Committed Amount” shall mean the amount of each Lender’s Revolving Commitment as specified on Schedule 2.1(a), as such amount may be reduced from time to time in accordance with the provisions hereof.

“Revolving Loans” shall have the meaning set forth in Section 2.1.

“Revolving Note” or “Revolving Notes” shall mean the promissory notes of the Borrower in favor of each of the Lenders evidencing the Revolving Loans provided pursuant to Section 2.1(e), individually or collectively, as appropriate, as such promissory notes may be amended, modified, supplemented, extended, renewed or replaced from time to time.

“S&P” shall mean Standard & Poor’s Ratings Group, a division of McGraw Hill, Inc, or any successor to the rating agency business thereof.

“Scheduled Funded Debt Payments” shall mean, as of any date of determination for the Credit Parties and their Subsidiaries, the sum of all scheduled payments of principal on Funded Debt for the applied period ending on the date of determination (including the principal component of payments due on Capital Leases during the applicable period ending on the date of determination).

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“Secured Hedging Agreement” shall mean any Hedging Agreement between a Credit Party and a Hedging Agreement Provider, as amended, modified, supplemented, extended or restated from time to time.

“Security Agreement” shall mean the Security Agreement dated as of the Closing Date executed by the Credit Parties in favor of the Administrative Agent, as amended, modified or supplemented from time to time in accordance with its terms.

“Security Documents” shall mean the Security Agreement and the Pledge Agreement and such other documents executed and delivered in connection with the attachment and perfection of the Administrative Agent’s security interests and liens arising thereunder, including, without limitation, UCC financing statements.

“Single Employer Plan” shall mean any Plan which is not a Multiemployer Plan.

“Subordinated Indebtedness” shall mean any Indebtedness incurred by any Credit Party that is specifically subordinated in right of payment to the prior payment of the Credit Party Obligations on terms acceptable to the Administrative Agent and the Required Lenders.

“Subsidiary” shall mean, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.

“Swingline Commitment” shall mean the commitment of the Swingline Lender to make Swingline Loans in an aggregate principal amount at any time outstanding up to the Swingline Committed Amount, and the commitment of the Lenders to purchase participation interests in the Swingline Loans as provided in Section 2.4(b)(ii), as such amounts may be reduced from time to time in accordance with the provisions hereof.

“Swingline Committed Amount” shall mean the amount of the Swingline Lender’s Swingline Commitment as specified in Section 2.4(a).

“Swingline Lender” shall mean Wachovia.

“Swingline Loan” or “Swingline Loans” shall have the meaning set forth in Section 2.4(a).

“Swingline Note” shall mean the promissory note of the Borrower in favor of the Swingline Lender evidencing the Swingline Loans provided pursuant to Section 2.4(d), as such promissory note may be amended, modified, supplemented, extended, renewed or replaced from time to time.

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“Target” shall have the meaning set forth in the definition of “Permitted Acquisition” in this Section 1.1.

“Taxes” shall have the meaning set forth in Section 2.18.

“Term Loan” shall have the meaning set forth in Section 2.2(a).

“Term Loan Commitment” shall mean, with respect to each Lender, the commitment of such Lender to make its portion of the Term Loan in a principal amount equal to such Lender’s Term Loan Commitment Percentage of the Term Loan Committed Amount (and for purposes of making determinations of Required Lenders hereunder after the Closing Date, the principal amount outstanding on the Term Loan).

“Term Loan Commitment Percentage” shall mean, for any Lender, the percentage identified as its Term Loan Commitment Percentage on Schedule 2.1(a), as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 9.6.

“Term Loan Committed Amount” shall have the meaning set forth in Section 2.2(a).

“Term Note” or “Term Notes” shall mean the promissory notes of the Borrower in favor of each of the Lenders evidencing the portion of the Term Loan provided pursuant to Section 2.2(d), individually or collectively, as appropriate, as such promissory notes may be amended, modified, restated, supplemented, extended, renewed or replaced from time to time.

“Title Insurance Company” shall have the meaning set forth in Section 4.1(e)(iii).

“Trademark License” shall means any agreement, written or oral, providing for the grant by or to an Obligor of any right to use any Trademark, including, without limitation, any thereof referred to in Schedule 3.16.

“Trademarks” shall mean (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress and service marks, logos and other source or business identifiers, and the goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, including, without limitation, any thereof referred to in Schedule 3.16 and (b) all renewals thereof, including, without limitation, any thereof referred to in Schedule 3.16.

“Tranche” shall mean the collective reference to LIBOR Rate Loans whose Interest Periods begin and end on the same day. A Tranche may sometimes be referred to as a “LIBOR Tranche”.

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“Transfer Effective Date” shall have the meaning set forth in each Commitment Transfer Supplement.

“2.18 Certificate” shall have the meaning set forth in Section 2.18(b).

“Type” shall mean, as to any Loan, its nature as an Alternate Base Rate Loan or LIBOR Rate Loan, as the case may be.

“UCC” shall mean the Uniform Commercial Code as in effect from time to time in the State of North Carolina.

“Voting Stock” shall mean, with respect to any Person, Capital Stock issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote may be or have been suspended by the happening of such a contingency.

“Wachovia” shall mean Wachovia Bank, National Association, a national banking association.

“Works” shall mean all works which are subject to copyright protection pursuant to Title 17 of the United States Code.

Section 1.2 Other Definitional Provisions.

(a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes or other Credit Documents or any certificate or other document made or delivered pursuant hereto.

(b) The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified.

(c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

Section 1.3 Accounting Terms.

Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP applied on a basis consistent with the most recent audited consolidated financial statements of the Borrower delivered to the Lenders; provided that, if the Borrower notifies the Administrative Agent that it wishes to amend any covenant in Section 5.9 to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders

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wish to amend Section 5.9 for such purpose), then the Borrower’s compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders.

The Borrower shall deliver to the Administrative Agent and each Lender at the same time as the delivery of any annual or quarterly financial statements given in accordance with the provisions of Section 5.1, (i) a description in reasonable detail of any material change in the application of accounting principles employed in the preparation of such financial statements from those applied in the most recently preceding quarterly or annual financial statements as to which no objection shall have been made in accordance with the provisions above and (ii) a reasonable estimate of the effect on the financial statements on account of such changes in application.

Notwithstanding the above, the parties hereto acknowledge and agree that, for purposes of all calculations made in determining compliance for any applicable period with the financial covenants set forth in Section 5.9 (including without limitation for purposes of the definition of “Pro Forma Basis” set forth in Section 1.1), after consummation of any Permitted Acquisition, (a) income statement items and other balance sheet items (whether positive or negative) attributable to the Target acquired in such transaction shall be included in such calculations to the extent relating to such applicable period, and (b) Indebtedness of a Target which is retired in connection with a Permitted Acquisition shall be excluded from such calculations and deemed to have been retired as of the first day of such applicable period.

ARTICLE II

THE LOANS; AMOUNT AND TERMS

Section 2.1 Revolving Loans.

(a) Revolving Commitment. During the Commitment Period, subject to the terms and conditions hereof, each Lender severally, but not jointly, agrees to make revolving credit loans (“Revolving Loans”) to the Borrower from time to time in an aggregate principal amount of up to FIFTY-FIVE MILLION DOLLARS ($55,000,000) (as such aggregate maximum amount may reduced from time to time as provided in Section 2.6, the “Aggregate Revolving Committed Amount”) for the purposes hereinafter set forth; provided, however, that (i) with regard to each Lender individually, the sum of such Lender’s Revolving Commitment Percentage of outstanding Revolving Loans plus such Lender’s Revolving Commitment Percentage of outstanding Swingline Loans plus such Lender’s LOC Commitment Percentage of LOC Obligations shall not exceed such Lender’s Revolving Committed Amount and (ii) with regard to the Lenders collectively, the sum of the outstanding Revolving Loans plus outstanding Swingline Loans plus LOC Obligations shall not exceed the Aggregate Revolving Committed Amount. Revolving Loans may consist of Alternate Base Rate Loans or LIBOR Rate Loans, or a combination thereof, as the Borrower may request, and

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may be repaid and reborrowed in accordance with the provisions hereof; provided, however, Revolving Loans made on the Closing Date or on any of the three Business Days following the Closing Date may only consist of Alternate Base Rate Loans unless the Borrower executes a funding indemnity letter in form and substance satisfactory to the Administrative Agent. LIBOR Rate Loans shall be made by each Lender at its LIBOR Lending Office and Alternate Base Rate Loans at its Domestic Lending Office.

(b) Revolving Loan Borrowings.

(i) Notice of Borrowing. The Borrower shall request a Revolving Loan borrowing by written notice (or telephone notice promptly confirmed in writing which confirmation may be by fax) to the Administrative Agent not later than 11:00 A.M. (Charlotte, North Carolina time) on the Business Day prior to the date of requested borrowing in the case of Alternate Base Rate Loans, and on the third Business Day prior to the date of the requested borrowing in the case of LIBOR Rate Loans. Each such request for borrowing shall be irrevocable and shall specify (A) that a Revolving Loan is requested, (B) the date of the requested borrowing (which shall be a Business Day), (C) the aggregate principal amount to be borrowed, (D) whether the borrowing shall be comprised of Alternate Base Rate Loans, LIBOR Rate Loans or a combination thereof, and if LIBOR Rate Loans are requested, the Interest Period(s) therefor. A form of Notice of Borrowing (a “Notice of Borrowing”) is attached as Schedule 2.1(b)(i). If the Borrower shall fail to specify in any such Notice of Borrowing (I) an applicable Interest Period in the case of a LIBOR Rate Loan, then such notice shall be deemed to be a request for an Interest Period of one month, or (II) the type of Revolving Loan requested, then such notice shall be deemed to be a request for an Alternate Base Rate Loan hereunder. The Administrative Agent shall give notice to each Lender promptly upon receipt of each Notice of Borrowing, the contents thereof and each such Lender’s share thereof.

(ii) Minimum Amounts. Each Revolving Loan shall be in a minimum aggregate amount of $1,000,000 and in integral multiples of $500,000 in excess thereof (or the remaining amount of the Aggregate Revolving Committed Amount, if less).

(iii) Advances. Each Lender will make its Revolving Commitment Percentage of each Revolving Loan borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in Section 9.2, or at such other office as the Administrative Agent may designate in writing, by 1:00 P.M. (Charlotte, North Carolina time) on the date specified in the applicable Notice of Borrowing in Dollars and in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent by crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent.

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(c) Repayment. The principal amount of all Revolving Loans shall be due and payable in full on the Maturity Date, unless accelerated sooner pursuant to Section 7.2.

(d) Interest. Subject to the provisions of Section 2.9, Revolving Loans shall bear interest as follows:

(i) Alternate Base Rate Loans. During such periods as Revolving Loans shall be comprised of Alternate Base Rate Loans, each such Alternate Base Rate Loan shall bear interest at a per annum rate equal to the sum of the Alternate Base Rate plus the Applicable Percentage; and

(ii) LIBOR Rate Loans. During such periods as Revolving Loans shall be comprised of LIBOR Rate Loans, each such LIBOR Rate Loan shall bear interest at a per annum rate equal to the sum of the LIBOR Rate plus the Applicable Percentage.

Interest on Revolving Loans shall be payable in arrears on each Interest Payment Date.

(e) Revolving Notes. Each Lender’s Revolving Committed Amount shall be evidenced by a duly executed promissory note of the Borrower to such Lender in substantially the form of Schedule 2.1(e).

Section 2.2 Term Loan Facility.

(a) Term Loan. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, each Lender severally, but not jointly, agrees to make available to the Borrower on the Closing Date such Lender’s Term Loan Commitment Percentage of a term loan in Dollars (the “Term Loan”) in the aggregate principal amount of THIRTY MILLION DOLLARS ($30,000,000) (the “Term Loan Committed Amount”) for the purposes set forth in Section 3.11. The Term Loan may consist of Alternate Base Rate Loans or LIBOR Rate Loans, or a combination thereof, as the Borrower may request; provided, however, the Term Loan made on the Closing Date may only consist of Alternate Base Rate Loans unless the Borrower executes a funding indemnity letter in form and substance satisfactory to the Administrative Agent. Amounts repaid on the Term Loan may not be reborrowed.

(b) Repayment of Term Loan. The principal amount of the Term Loan shall be repaid in twenty (20) consecutive quarterly installments as follows:

Principal Amortization Payment Date	Term Loan Principal Amortization Payment
January 31, 2005	$	1,500,000

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Principal Amortization Payment Date	Term Loan Principal Amortization Payment
April 30, 2005	$	1,500,000
July 31, 2005	$	1,500,000
October 31, 2005	$	1,500,000
January 31, 2006	$	1,500,000
April 30, 2006	$	1,500,000
July 31, 2006	$	1,500,000
October 31, 2006	$	1,500,000
January 31, 2007	$	1,500,000
April 30, 2007	$	1,500,000
July 31, 2007	$	1,500,000
October 31, 2007	$	1,500,000
January 31, 2008	$	1,500,000
April 30, 2008	$	1,500,000
July 31, 2008	$	1,500,000
October 31, 2008	$	1,500,000
January 31, 2009	$	1,500,000
April 30, 2009	$	1,500,000
July 31, 2009	$	1,500,000
Maturity Date	$	1,500,000

(c) Interest on the Term Loan. Subject to the provisions of Section 2.9, the Term Loan shall bear interest as follows:

(i) Alternate Base Rate Loans. During such periods as the Term Loan shall be comprised of Alternate Base Rate Loans, each such Alternate Base Rate Loan shall bear interest at a per annum rate equal to the sum of the Alternate Base Rate plus the Applicable Percentage; and

(ii) LIBOR Rate Loans. During such periods as the Term Loan shall be comprised of LIBOR Rate Loans, each such LIBOR Rate Loan shall bear interest at a per annum rate equal to the sum of the LIBOR Rate plus the Applicable Percentage.

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Interest on the Term Loan shall be payable in arrears on each Interest Payment Date.

(d) Term Notes. Each Lender’s Term Loan Commitment Percentage of the Term Loan Committed Amount shall be evidenced by a duly executed promissory note of the Borrower to such Lender in substantially the form of Schedule 2.2(d).

Section 2.3 Letter of Credit Subfacility.

(a) Issuance. Subject to the terms and conditions hereof and of the LOC Documents, if any, and any other terms and conditions which the Issuing Lender may reasonably require, during the Commitment Period the Issuing Lender shall issue, and the Lenders shall participate in, Letters of Credit for the account of the Borrower from time to time upon request in a form acceptable to the Issuing Lender; provided, however, that (i) the aggregate amount of LOC Obligations shall not at any time exceed FIVE MILLION DOLLARS ($5,000,000) (the “LOC Committed Amount”), (ii) the sum of outstanding Revolving Loans plus outstanding Swingline Loans plus LOC Obligations shall not at any time exceed the Aggregate Revolving Committed Amount, (iii) all Letters of Credit shall be denominated in U.S. Dollars and (iv) Letters of Credit shall be issued for lawful corporate purposes and may be issued as standby letters of credit, including in connection with workers’ compensation and other insurance programs, and trade letters of credit. Except as otherwise expressly agreed upon by the Administrative Agent, no Letter of Credit shall have an original expiry date more than twelve (12) months from the date of issuance; provided, however, so long as no Default or Event of Default has occurred and is continuing and subject to the other terms and conditions to the issuance of Letters of Credit hereunder, the expiry dates of Letters of Credit may be extended annually or periodically from time to time on the request of the Borrower or by operation of the terms of the applicable Letter of Credit to a date not more than twelve (12) months from the date of extension; provided, further, that no Letter of Credit, as originally issued or as extended, shall have an expiry date extending beyond the date which is five (5) Business Days prior to the Maturity Date. Each Letter of Credit shall comply with the related LOC Documents. The issuance and expiry date of each Letter of Credit shall be a Business Day. Any Letters of Credit issued hereunder shall be in a minimum original face amount of $100,000. Wachovia shall be the Issuing Lender on all Letters of Credit issued on or after the Closing Date.

(b) Notice and Reports. The request for the issuance of a Letter of Credit shall be submitted to the Issuing Lender at least five (5) Business Days prior to the requested date of issuance. The Issuing Lender will promptly upon request provide to the Administrative Agent for dissemination to the Lenders a detailed report specifying the Letters of Credit which are then issued and outstanding and any activity with respect thereto which may have occurred since the date of any prior report, and including therein, among other things, the account party, the beneficiary, the face amount, expiry date as well as any payments or expirations which may have occurred. The Issuing Lender will further provide to the Administrative Agent promptly upon request copies of the Letters of Credit. The Issuing Lender will provide to the Administrative Agent promptly upon request a summary report of the nature and extent of LOC Obligations then outstanding.

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(c) Participations. Each Lender upon issuance of a Letter of Credit shall be deemed to have purchased without recourse a risk participation from the Issuing Lender in such Letter of Credit and the obligations arising thereunder and any collateral relating thereto, in each case in an amount equal to its LOC Commitment Percentage of the obligations under such Letter of Credit and shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and be obligated to pay to the Issuing Lender therefor and discharge when due, its LOC Commitment Percentage of the obligations arising under such Letter of Credit. Without limiting the scope and nature of each Lender’s participation in any Letter of Credit, to the extent that the Issuing Lender has not been reimbursed as required hereunder or under any LOC Document, each such Lender shall pay to the Issuing Lender its LOC Commitment Percentage of such unreimbursed drawing in same day funds on the day of notification by the Issuing Lender of an unreimbursed drawing pursuant to the provisions of subsection (d) hereof. The obligation of each Lender to so reimburse the Issuing Lender shall be absolute and unconditional and shall not be affected by the occurrence of a Default, an Event of Default or any other occurrence or event. Any such reimbursement shall not relieve or otherwise impair the obligation of the Borrower to reimburse the Issuing Lender under any Letter of Credit, together with interest as hereinafter provided.

(d) Reimbursement. In the event of any drawing under any Letter of Credit, the Issuing Lender will promptly notify the Borrower and the Administrative Agent. The Borrower shall reimburse the Issuing Lender on the day of drawing under any Letter of Credit (with the proceeds of a Revolving Loan obtained hereunder or otherwise) in same day funds as provided herein or in the LOC Documents. If the Borrower shall fail to reimburse the Issuing Lender as provided herein, the unreimbursed amount of such drawing shall bear interest at a per annum rate equal to the Alternate Base Rate plus the Applicable Percentage for Revolving Loans that are Alternate Base Rate Loans plus two percent (2%). Unless the Borrower shall immediately notify the Issuing Lender and the Administrative Agent of its intent to otherwise reimburse the Issuing Lender, the Borrower shall be deemed to have requested a Revolving Loan in the amount of the drawing as provided in subsection (e) hereof, the proceeds of which will be used to satisfy the reimbursement obligations. The Borrower’s reimbursement obligations hereunder shall be absolute and unconditional under all circumstances irrespective of any rights of set-off, counterclaim or defense to payment the Borrower may claim or have against the Issuing Lender, the Administrative Agent, the Lenders, the beneficiary of the Letter of Credit drawn upon or any other Person, including without limitation any defense based on any failure of the Borrower to receive consideration or the legality, validity, regularity or unenforceability of the Letter of Credit. The Issuing Lender will promptly notify the other Lenders of the amount of any unreimbursed drawing and each Lender shall promptly pay to the Administrative Agent for the account of the Issuing Lender in Dollars and in immediately available funds, the amount of such Lender’s LOC Commitment Percentage of such unreimbursed drawing. Such payment shall be made on the day such notice is received by such Lender from the Issuing Lender if such notice is

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received at or before 2:00 P.M. (Charlotte, North Carolina time), otherwise such payment shall be made at or before 12:00 Noon (Charlotte, North Carolina time) on the Business Day next succeeding the day such notice is received. If such Lender does not pay such amount to the Issuing Lender in full upon such request, such Lender shall, on demand, pay to the Administrative Agent for the account of the Issuing Lender interest on the unpaid amount during the period from the date of such drawing until such Lender pays such amount to the Issuing Lender in full at a rate per annum equal to, if paid within two (2) Business Days of the date of drawing, the Federal Funds Effective Rate and thereafter at a rate equal to the Alternate Base Rate. Each Lender’s obligation to make such payment to the Issuing Lender, and the right of the Issuing Lender to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and without regard to the termination of this Agreement or the Commitments hereunder, the existence of a Default or Event of Default or the acceleration of the Credit Party Obligations hereunder and shall be made without any offset, abatement, withholding or reduction whatsoever.

(e) Repayment with Revolving Loans. On any day on which the Borrower shall have requested, or been deemed to have requested, a Revolving Loan to reimburse a drawing under a Letter of Credit, the Administrative Agent shall give notice to the Lenders that a Revolving Loan has been requested or deemed requested in connection with a drawing under a Letter of Credit, in which case a Revolving Loan borrowing comprised entirely of Alternate Base Rate Loans (each such borrowing, a “Mandatory Borrowing”) shall be immediately made (without giving effect to any termination of the Commitments pursuant to Section 7.2) pro rata based on each Lender’s respective Revolving Commitment Percentage (determined before giving effect to any termination of the Commitments pursuant to Section 7.2) and the proceeds thereof shall be paid directly to the Issuing Lender for application to the respective LOC Obligations. Each Lender hereby irrevocably agrees to make such Revolving Loans immediately upon any such request or deemed request on account of each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the same such date notwithstanding (i) the amount of Mandatory Borrowing may not comply with the minimum amount for borrowings of Revolving Loans otherwise required hereunder, (ii) whether any conditions specified in Section 4.2 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) failure for any such request or deemed request for Revolving Loan to be made by the time otherwise required in Section 2.1(b), (v) the date of such Mandatory Borrowing or (vi) any reduction in the Aggregate Revolving Committed Amount after any such Letter of Credit may have been drawn upon; provided, however, that in the event any such Mandatory Borrowing should be less than the minimum amount for borrowings of Revolving Loans otherwise provided in Section 2.1(b)(ii), the Borrower shall pay to the Administrative Agent for its own account an administrative fee of $500. In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code), then each such Lender hereby agrees that it shall forthwith fund (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) its Participation Interests in

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the LOC Obligations; provided, further, that in the event any Lender shall fail to fund its Participation Interest on the day the Mandatory Borrowing would otherwise have occurred, then the amount of such Lender’s unfunded Participation Interest therein shall bear interest payable by such Lender to the Issuing Lender upon demand, at the rate equal to, if paid within two (2) Business Days of such date, the Federal Funds Effective Rate, and thereafter at a rate equal to the Alternate Base Rate.

(f) Modification, Extension. The issuance of any supplement, modification, amendment, renewal, or extension to any Letter of Credit shall, for purposes hereof, be treated in all respects the same as the issuance of a new Letter of Credit hereunder.

(g) Uniform Customs and Practices. The Issuing Lender shall have the Letters of Credit be subject to The Uniform Customs and Practice for Documentary Credits, as published as of the date of issue by the International Chamber of Commerce (the “UCP”), in which case the UCP may be incorporated therein and deemed in all respects to be a part thereof.

Section 2.4 Swingline Loan Subfacility.

(a) Swingline Commitment. During the Commitment Period, subject to the terms and conditions hereof, the Swingline Lender, in its individual capacity, agrees to make certain revolving credit loans to the Borrower (each a “Swingline Loan” and, collectively, the “Swingline Loans”) for the purposes hereinafter set forth; provided, however, (i) the aggregate amount of Swingline Loans outstanding at any time shall not exceed FIVE MILLION DOLLARS ($5,000,000) (the “Swingline Committed Amount”) and (ii) the sum of the outstanding Revolving Loans plus outstanding Swingline Loans plus LOC Obligations shall not exceed the Aggregate Revolving Committed Amount. Swingline Loans hereunder may be repaid and reborrowed in accordance with the provisions hereof.

(b) Swingline Loan Borrowings.

(i) Notice of Borrowing and Disbursement. The Swingline Lender will make Swingline Loans available to the Borrower on any Business Day upon request made by the Borrower not later than 2:00 P.M. (Charlotte, North Carolina time) on such Business Day. A notice of request for Swingline Loan borrowing shall be made in the form of Schedule 2.1(b)(i) with appropriate modifications. Swingline Loan borrowings hereunder shall be made in minimum amounts of $100,000 and in integral amounts of $100,000 in excess thereof.

(ii) Repayment of Swingline Loans. Each Swingline Loan borrowing shall be due and payable on the Maturity Date. The Swingline Lender may, at any time, in its sole discretion, by written notice to the Borrower and the Administrative Agent, demand repayment of its Swingline Loans by way of a Revolving Loan borrowing, in which case the Borrower shall be deemed to have requested a Revolving Loan borrowing comprised entirely of Alternate Base Rate

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Loans in the amount of such Swingline Loans; provided, however, that, in the following circumstances, any such demand shall also be deemed to have been given one Business Day prior to each of (a) the Maturity Date, (b) the occurrence of any Event of Default described in Section 7.1(e), (c) upon acceleration of the Credit Party Obligations hereunder, whether on account of an Event of Default described in Section 7.1(e) or any other Event of Default and (d) the exercise of remedies in accordance with the provisions of Section 7.2 hereof (each such Revolving Loan borrowing made on account of any such deemed request therefor as provided herein being hereinafter referred to as “Mandatory Borrowing”). Each Lender hereby irrevocably agrees to make such Revolving Loans promptly upon any such request or deemed request on account of each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the same such date notwithstanding (I) the amount of Mandatory Borrowing may not comply with the minimum amount for borrowings of Revolving Loans otherwise required hereunder, (II) whether any conditions specified in Section 4.2 are then satisfied, (III) whether a Default or an Event of Default then exists, (IV) failure of any such request or deemed request for Revolving Loans to be made by the time otherwise required in Section 2.1(b)(i), (V) the date of such Mandatory Borrowing or (VI) any reduction in the Revolving Committed Amount or termination of the Revolving Commitments immediately prior to such Mandatory Borrowing or Contemporaneously therewith. In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code), then each Lender hereby agrees that it shall forthwith purchase (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) from the Swingline Lender such participations in the outstanding Swingline Loans as shall be necessary to cause each such Lender to share in such Swingline Loans ratably based upon its respective Revolving Commitment Percentage (determined before giving effect to any termination of the Commitments pursuant to Section 7.2); provided that (A) all interest payable on the Swingline Loans shall be for the account of the Swingline Lender until the date as of which the respective participation is purchased and (B) at the time any purchase of participations pursuant to this sentence is actually made, the purchasing Lender shall be required to pay to the Swingline Lender interest on the principal amount of such participation purchased for each day from and including the day upon which the Mandatory Borrowing would otherwise have occurred to but excluding the date of payment for such participation, at the rate equal to, if paid within two (2) Business Days of the date of the Mandatory Borrowing, the Federal Funds Effective Rate, and thereafter at a rate equal to the Alternate Base Rate.

(c) Interest on Swingline Loans. Subject to the provisions of Section 2.9, Swingline Loans shall bear interest at a per annum rate equal to the Alternate Base Rate plus the applicable Percentage for Revolving Loans that are Alternate Base Rate Loans. Interest on Swingline Loans shall be payable in arrears on each Interest Payment Date.

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(d) Swingline Note. The Swingline Loans shall be evidenced by a duly executed promissory note of the Borrower to the Swingline Lender in the original amount of the Swingline Committed Amount and substantially in the form of Schedule 2.4(d).

Section 2.5 Fees.

(a) Commitment Fee. In consideration of the Revolving Commitments, the Borrower agrees to pay to the Administrative Agent for the ratable benefit of the Lenders holding Revolving Commitments a commitment fee (the “Commitment Fee”) in an amount equal to the Applicable Percentage per annum on the average daily unused amount of the Aggregate Revolving Committed Amount. For purposes of computation of the Commitment Fee, LOC Obligations shall be considered usage of the Aggregate Revolving Committed Amount but Swingline Loans shall not be considered usage of the Aggregate Revolving Committed Amount. The Commitment Fee shall be payable quarterly in arrears on the 15th day following the last day of each fiscal quarter of the Borrower for the prior fiscal quarter of the Borrower.

(b) Letter of Credit Fees. In consideration of the LOC Commitments, the Borrower agrees to pay to the Issuing Lender a fee (the “Letter of Credit Fee”) equal to the Applicable Percentage per annum on the average daily maximum amount available to be drawn under each Letter of Credit from the date of issuance to the date of expiration. In addition to such Letter of Credit Fee, the Issuing Lender may charge, and retain for its own account without sharing by the other Lenders, an additional facing fee of one-fourth of one percent (0.25%) per annum on the average daily maximum amount available to be drawn under each such Letter of Credit issued by it. The Issuing Lender shall promptly pay over to the Administrative Agent for the ratable benefit of the Lenders (including the Issuing Lender) the Letter of Credit Fee. The Letter of Credit Fee shall be payable quarterly in arrears on the 15th day following the last day of each fiscal quarter of the Borrower for the prior fiscal quarter of the Borrower.

(c) Issuing Lender Fees. In addition to the Letter of Credit Fees payable pursuant to subsection (b) hereof, the Borrower shall pay to the Issuing Lender for its own account without sharing by the other Lenders the reasonable and customary charges from time to time of the Issuing Lender with respect to the amendment, transfer, administration, cancellation and conversion of, and drawings under, such Letters of Credit (collectively, the “Issuing Lender Fees”).

(d) Administrative Fee. The Borrower agrees to pay to the Administrative Agent the annual administrative fee as described in the Fee Letter.

Section 2.6 Commitment Reductions.

(a) Voluntary Reductions. The Borrower shall have the right to terminate or permanently reduce the unused portion of the Aggregate Revolving Committed Amount at any time or from time to time upon not less than five (5) Business Days’ prior notice to

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the Administrative Agent (which shall notify the Lenders thereof as soon as practicable) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which shall be in a minimum amount of $1,000,000 or an integral multiple thereof) and shall be irrevocable and effective upon receipt by the Administrative Agent; provided that no such reduction or termination shall be permitted if after giving effect thereto, and to any prepayments of the Loans made on the effective date thereof, the sum of the outstanding Revolving Loans plus outstanding Swingline Loans plus outstanding LOC Obligations would exceed the Aggregate Revolving Committed Amount.

(b) Swingline Committed Amount. If the Aggregate Revolving Committed Amount is reduced pursuant to Section 2.6(a) or (b) below the then Swingline Committed Amount, the Swingline Committed Amount shall automatically be reduced by an amount such that the Swingline Committed Amount equals the Aggregate Revolving Committed Amount.

(c) Maturity Date. The Revolving Commitment, the Swingline Commitment and the LOC Commitment shall automatically terminate on the Maturity Date.

Section 2.7 Prepayments.

(a) Optional Prepayments. The Borrower shall have the right to prepay Loans in whole or in part from time to time; provided, however, that each partial prepayment of the Term Loan shall be in a minimum principal amount of $1,000,000 and integral multiples of $500,000 in excess thereof, and each partial prepayment of a Swingline Loan shall be in a minimum principal amount of $100,000 and integral multiples of $100,000 in excess thereof. The Borrower shall give three Business Days’ irrevocable notice in the case of LIBOR Rate Loans and one Business Day’s irrevocable notice in the case of Alternate Base Rate Loans, to the Administrative Agent (which shall notify the Lenders thereof as soon as practicable). Amounts prepaid under this Section 2.7(a) shall be applied to the outstanding Loans as the Borrower may elect; provided that each Lender shall receive its pro rata share (except with respect to prepayments of Swingline Loans) of any such prepayment based on its Revolving Commitment Percentage or Term Loan Commitment Percentage, as applicable. All prepayments under this Section 2.7(a) shall be subject to Section 2.17, but otherwise without premium or penalty. Interest on the principal amount prepaid shall be payable on the next occurring Interest Payment Date that would have occurred had such Loans not been prepaid or, at the request of the Administrative Agent, interest on the principal amount prepaid shall be payable on any date that a prepayment is made hereunder through the date of prepayment. Amounts prepaid on the Revolving Loans and the Swingline Loans may be reborrowed in accordance with the terms hereof. Amounts prepaid on the Term Loan may not be reborrowed.

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(b) Mandatory Prepayments.

(i) Aggregate Revolving Committed Amount. If at any time after the Closing Date, the sum of the outstanding Revolving Loans plus outstanding Swingline Loans plus LOC Obligations shall exceed the Aggregate Revolving Committed Amount, the Borrower immediately shall prepay the Loans and cash collateralize the LOC Obligations in an amount sufficient to eliminate such excess (such prepayment to be applied as set forth in clause (vi) below).

(ii) Asset Dispositions. Promptly following any Asset Disposition (or, in the case of the sale of RESCO Steel Products, within one year from the date of such sale, to the extent the Net Cash Proceeds from such sale have not been used by the Borrower or its Subsidiaries to finance Permitted Acquisitions as set forth in Section 6.4(b)(a)(viii)), the Borrower shall prepay the Loans and cash collateralize the LOC Obligations in an aggregate amount equal to one hundred percent (100%) of the Net Cash Proceeds derived from such Asset Disposition (such prepayment to be applied as set forth in clause (vi) below).

(iii) Issuances. Immediately upon receipt by any Credit Party of proceeds from (A) any Debt Issuance, the Borrower shall prepay the Loans and cash collateralize the LOC Obligations in an aggregate amount equal to one-hundred percent (100%) of the Net Cash Proceeds of such Debt Issuance (such prepayment to be applied as set forth in clause (v) below) or (B) any Equity Issuance, the Borrower shall prepay the Loans and cash collateralize the LOC Obligations in an aggregate amount equal to one hundred percent (100%) of the Net Cash Proceeds of such Equity Issuance (such prepayment to be applied as set forth in clause (vi) below).

(iv) Recovery Event. To the extent of cash proceeds received in connection with a Recovery Event which are not applied in accordance with Section 6.4(a)(iii), immediately following the expiration of the period allowed for reinvesting of such cash proceeds pursuant to Section 6.4(a)(iii), the Borrower shall prepay the Loans and cash collateralize the LOC Obligations in an aggregate amount equal to one-hundred percent (100%) of such cash proceeds (such prepayment to be applied as set forth in clause (vi) below).

(v) Excess Cash Flow. Within ninety (90) days after the end of each fiscal year (commencing with the fiscal year ending October 31, 2005), the Borrower shall prepay the Loans and/or cash collateralize the LOC Obligations in an amount equal to fifty percent (50%) of the Excess Cash Flow earned during such prior fiscal year. Any payments of Excess Cash Flow shall be applied as set forth in clause (vi) below.

(vi) Application of Mandatory Prepayments. All amounts required to be paid pursuant to this Section 2.7(b) shall be applied as follows: (A) with respect to all amounts prepaid pursuant to Section 2.7(b)(i), (1) first, to the

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Swingline Loans, (2) second, to the Revolving Loans and (3) third (after all Revolving Loans have been repaid), to a cash collateral account in respect of LOC Obligations, (B) with respect to all amounts prepaid pursuant to Sections 2.7(b)(ii) through (v), (1) first, to the remaining Term Loan amortization payments set forth in Section 2.2(b) on a pro rata basis, (2) second to the Swingline Loans, (3) third, to the Revolving Loans and (4) fourth (after all Revolving Loans have been repaid), to a cash collateral account in respect of LOC Obligations. Within the parameters of the applications set forth above, prepayments shall be applied first to Alternate Base Rate Loans and then to LIBOR Rate Loans in direct order of Interest Period maturities. Each Lender shall receive its pro rata share (except with respect to prepayments of Swingline Loans) of any such prepayment based on its Revolving Commitment Percentage or Term Loan Commitment Percentage, as applicable. All prepayments under this Section 2.7(b) shall be subject to Section 2.17 and be accompanied by interest on the principal amount prepaid through the date of prepayment.

(vii) Prepayment Account. If the Borrower is required to make a mandatory prepayment of LIBOR Rate Loans under this Section 2.7(b), the Borrower shall have the right, in lieu of making such prepayment in full, to deposit an amount equal to such mandatory prepayment with the Administrative Agent in a cash collateral account maintained (pursuant to documentation reasonably satisfactory to the Administrative Agent) by and in the sole dominion and control of the Administrative Agent. Any amounts so deposited shall be held by the Administrative Agent as collateral for the prepayment of such LIBOR Rate Loans and shall be applied to the prepayment of the applicable LIBOR Rate Loans at the end of the current Interest Periods applicable thereto. At the request of the Borrower, amounts so deposited shall be invested by the Administrative Agent in Cash Equivalents maturing prior to the date or dates on which it is anticipated that such amounts will be applied to prepay such LIBOR Rate Loans; any interest earned on such Cash Equivalents will be for the account of the Borrower and the Borrower will deposit with the Administrative Agent the amount of any loss on any such Cash Equivalents to the extent necessary in order that the amount of the prepayment to be made with the deposited amounts may not be reduced. Any amounts in such prepayment account in excess of the amounts necessary to be applied as a mandatory prepayment under this Section 2.7(b) shall be released by the Administrative Agent to the Borrower promptly upon request by the Borrower.

(c) Hedging Obligations Unaffected. Any repayment or prepayment made pursuant to this Section 2.7 shall not affect the Borrower’s obligation to continue to make payments under any Secured Hedging Agreement, which shall remain in full force and effect notwithstanding such repayment or prepayment, subject to the terms of such Secured Hedging Agreement.

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Section 2.8 Minimum Principal Amount of Tranches; Lending Offices.

(a) All borrowings, payments and prepayments in respect of Revolving Loans and the Term Loan shall be in such amounts and be made pursuant to such elections so that after giving effect thereto the aggregate principal amount of the Revolving Loans and the Term Loan comprising any Tranche shall be (i) with respect to LIBOR Rate Loans, (A) which are Revolving Loans $1,000,000 or a whole multiple of $500,000 in excess thereof and (B) which are Term Loans, $2,000,000 or a whole multiple of $1,000,000 in excess thereof, and (ii) with respect to Alternate Base Rate Loans, $1,000,000 or a whole multiple of $500,000 in excess thereof.

(b) LIBOR Rate Loans shall be made by each Lender at its LIBOR Lending Office and Alternate Base Rate Loans at its Domestic Lending Office.

Section 2.9 Default Rate and Payment Dates.

Upon the occurrence, and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate 2% greater than the rate which would otherwise be applicable (or if no rate is applicable, whether in respect of interest, fees or other amounts, then the Alternate Base Rate plus the Applicable Percentage with respect to Alternate Base Rate Loans plus 2%).

Section 2.10 Conversion Options.

(a) The Borrower may, in the case of Revolving Loans and the Term Loan, elect from time to time to convert Alternate Base Rate Loans to LIBOR Rate Loans, by giving the Administrative Agent at least three Business Days’ prior irrevocable written notice of such election. A form of Notice of Conversion/Extension is attached as Schedule 2.10. If the date upon which an Alternate Base Rate Loan is to be converted to a LIBOR Rate Loan is not a Business Day, then such conversion shall be made on the next succeeding Business Day and during the period from such last day of an Interest Period to such succeeding Business Day such Loan shall bear interest as if it were an Alternate Base Rate Loan. All or any part of outstanding Alternate Base Rate Loans may be converted as provided herein, provided that (i) no Loan may be converted into a LIBOR Rate Loan when any Default or Event of Default has occurred and is continuing and (ii) partial conversions shall be in an aggregate principal amount of (A) in the case of Revolving Loans $1,000,000 or a whole multiple of $500,000 in excess thereof and (B) in the case of the Term Loan, $2,000,000 or a whole multiple of $1,000,000 in excess thereof.

(b) Any LIBOR Rate Loans may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Borrower with the notice provisions contained in Section 2.10(a); provided, that no LIBOR Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, in which case such Loan shall be automatically converted to an Alternate Base Rate Loan

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at the end of the applicable Interest Period with respect thereto. If the Borrower shall fail to give timely notice of an election to continue a LIBOR Rate Loan, or the continuation of LIBOR Rate Loans is not permitted hereunder, such LIBOR Rate Loans shall be automatically converted to Alternate Base Rate Loans at the end of the applicable Interest Period with respect thereto.

Section 2.11 Computation of Interest and Fees.

(a) Interest payable hereunder with respect to Alternate Base Rate Loans based on the Prime Rate shall be calculated on the basis of a year of 365 days (or 366 days, as applicable) for the actual days elapsed. All other fees, interest and all other amounts payable hereunder shall be calculated on the basis of a 360 day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of a LIBOR Rate on the Business Day of the determination thereof. Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate shall become effective. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change.

(b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the computations used by the Administrative Agent in determining any interest rate.

Section 2.12 Pro Rata Treatment and Payments.

(a) Each borrowing of Revolving Loans and any reduction of the Revolving Commitments shall be made pro rata according to the respective Revolving Commitment Percentages of the Lenders. Each payment under this Agreement or any Note shall be applied, (i) first, to any fees then due and owing by the Borrower pursuant to Section 2.5, (ii) second, to interest then due and owing hereunder and under the Notes, (iii) third, to principal then due and owing hereunder and under the Notes and (iv) fourth, to all other Credit Party Obligations then due and owing under the Credit Documents. Each payment on account of any fees pursuant to Section 2.5 shall be made pro rata in accordance with the respective amounts due and owing (except as to the portion of the Letter of Credit Fees retained by the Issuing Lender and the Issuing Lender Fees). Each payment (other than prepayments) by the Borrower on account of principal of and interest on the Revolving Loans and the Term Loan shall be made pro rata according to the instructions of the Borrower. Prepayments made pursuant to Section 2.15 shall be applied in accordance with such section. Each optional prepayment on account of principal of the Loans shall be applied in accordance with Section 2.7(a) and each mandatory prepayment on account of principal of the Loans shall be applied in accordance with Section 2.7(b). All payments (including prepayments) to be made by the Borrower on account of principal, interest and fees shall be made without defense, set-off or counterclaim and

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shall be made to the Administrative Agent for the account of the Lenders at the Administrative Agent’s office specified on Schedule 9.2 in Dollars and in immediately available funds not later than 1:00 P.M. (Charlotte, North Carolina time) on the date when due. The Administrative Agent shall distribute such payments to the Lenders entitled thereto promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the LIBOR Rate Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a LIBOR Rate Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day.

(b) Allocation of Payments After Event of Default. Notwithstanding any other provision of this Credit Agreement to the contrary, after the occurrence and during the continuance of an Event of Default, all amounts collected or received by the Administrative Agent or any Lender on account of the Credit Party Obligations or any other amounts outstanding under any of the Credit Documents or in respect of the Collateral shall be paid over or delivered as follows:

FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys’ fees) of the Administrative Agent in connection with enforcing the rights of the Lenders under the Credit Documents and any protective advances made by the Administrative Agent with respect to the Collateral under or pursuant to the terms of the Collateral Documents;

SECOND, to payment of any fees owed to the Administrative Agent;

THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation, reasonable attorneys’ fees) of each of the Lenders in connection with enforcing its rights under the Credit Documents or otherwise with respect to the Credit Party Obligations owing to such Lender;

FOURTH, to the payment of all of the Credit Party Obligations consisting of accrued fees and interest (including, without limitation, accrued fees and interest arising under any Secured Hedging Agreement);

FIFTH, to the payment of the outstanding principal amount of the Credit Party Obligations, and including with respect to any Secured Hedging Agreement, any breakage, termination or other payments due under such Secured Hedging Agreement and any interest accrued thereon;

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SIXTH, to all other Credit Party Obligations and other obligations which shall have become due and payable under the Credit Documents or otherwise and not repaid pursuant to clauses “FIRST” through “FIFTH” above; and

SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus.

In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category; (ii) each of the Lenders and Hedging Agreement Providers shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Loans and LOC Obligations held by such Lender or the outstanding obligations payable to such Hedging Agreement Provider bears to the aggregate then outstanding Loans, LOC Obligations and obligations payable under all Secured Hedging Agreements) of amounts available to be applied pursuant to clauses ”THIRD”, “FOURTH”, “FIFTH” and “SIXTH” above; and (iii) to the extent that any amounts available for distribution pursuant to clause “FIFTH” above are attributable to the issued but undrawn amount of outstanding Letters of Credit, such amounts shall be held by the Administrative Agent in a cash collateral account and applied (A) first, to reimburse the Issuing Lender from time to time for any drawings under such Letters of Credit and (B) then, following the expiration of all Letters of Credit, to all other obligations of the types described in clauses “FIFTH” and “SIXTH” above in the manner provided in this Section 2.12(b). Notwithstanding the foregoing terms of this Section 2.11, only Collateral proceeds and payments under the Guaranty with respect to Secured Hedging Agreements shall be applied to obligations under any Secured Hedging Agreement.

Section 2.13 Non-Receipt of Funds by the Administrative Agent.

(a) Unless the Administrative Agent shall have been notified in writing by a Lender prior to the date a Loan is to be made by such Lender (which notice shall be effective upon receipt) that such Lender does not intend to make the proceeds of such Loan available to the Administrative Agent, the Administrative Agent may assume that such Lender has made such proceeds available to the Administrative Agent on such date, and the Administrative Agent may in reliance upon such assumption (but shall not be required to) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent, the Administrative Agent shall be able to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent will promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover from the Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is

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recovered by the Administrative Agent at a per annum rate equal to (i) from the Borrower at the applicable rate for the applicable borrowing pursuant to the Notice of Borrowing and (ii) from a Lender at the Federal Funds Effective Rate.

(b) Unless the Administrative Agent shall have been notified in writing by the Borrower, prior to the date on which any payment is due from it hereunder (which notice shall be effective upon receipt) that the Borrower does not intend to make such payment, the Administrative Agent may assume that such Borrower has made such payment when due, and the Administrative Agent may in reliance upon such assumption (but shall not be required to) make available to each Lender on such payment date an amount equal to the portion of such assumed payment to which such Lender is entitled hereunder, and if the Borrower has not in fact made such payment to the Administrative Agent, such Lender shall, on demand, repay to the Administrative Agent the amount made available to such Lender. If such amount is repaid to the Administrative Agent on a date after the date such amount was made available to such Lender, such Lender shall pay to the Administrative Agent on demand interest on such amount in respect of each day from the date such amount was made available by the Administrative Agent to such Lender to the date such amount is recovered by the Administrative Agent at a per annum rate equal to the Federal Funds Effective Rate.

(c) A certificate of the Administrative Agent submitted to the Borrower or any Lender with respect to any amount owing under this Section 2.13 shall be conclusive in the absence of manifest error.

Section 2.14 Inability to Determine Interest Rate.

Notwithstanding any other provision of this Agreement, if (i) the Administrative Agent shall reasonably determine (which determination shall be conclusive and binding absent manifest error) that, by reason of circumstances affecting the relevant market, reasonable and adequate means do not exist for ascertaining LIBOR for such Interest Period or (ii) the Required Lenders shall reasonably determine (which determination shall be conclusive and binding absent manifest error) that the LIBOR Rate does not adequately and fairly reflect the cost to such Lenders of funding LIBOR Rate Loans that the Borrower has requested be outstanding as a LIBOR Tranche during such Interest Period, the Administrative Agent shall forthwith give telephone notice of such determination, confirmed in writing, to the Borrower, and the Lenders at least two Business Days prior to the first day of such Interest Period. Unless the Borrower shall have notified the Administrative Agent upon receipt of such telephone notice that it wishes to rescind or modify its request regarding such LIBOR Rate Loans, any Loans that were requested to be made as LIBOR Rate Loans shall be made as Alternate Base Rate Loans and any Loans that were requested to be converted into or continued as LIBOR Rate Loans shall remain as or be converted into Alternate Base Rate Loans. Until any such notice has been withdrawn by the Administrative Agent, no further Loans shall be made as, continued as, or converted into, LIBOR Rate Loans for the Interest Periods so affected.

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Section 2.15 Illegality.

Notwithstanding any other provision of this Agreement, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof by the relevant Governmental Authority to any Lender shall make it unlawful for such Lender or its LIBOR Lending Office to make or maintain LIBOR Rate Loans as contemplated by this Agreement or to obtain in the interbank eurodollar market through its LIBOR Lending Office the funds with which to make such Loans, (a) such Lender shall promptly notify the Administrative Agent and the Borrower thereof, (b) the commitment of such Lender hereunder to make LIBOR Rate Loans or continue LIBOR Rate Loans as such shall forthwith be suspended until the Administrative Agent shall give notice that the condition or situation which gave rise to the suspension shall no longer exist and (c) such Lender’s Loans then outstanding as LIBOR Rate Loans, if any, shall be converted on the last day of the Interest Period for such Loans or within such earlier period as required by law to Alternate Base Rate Loans. The Borrower hereby agrees promptly to pay any Lender, upon its demand, any additional amounts necessary to compensate such Lender for actual and direct costs (but not including anticipated profits) reasonably incurred by such Lender including, but not limited to, any interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain its LIBOR Rate Loans hereunder. A certificate as to any additional amounts payable pursuant to this Section submitted by such Lender, through the Administrative Agent, to the Borrower shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts (including reasonable efforts to change its LIBOR Lending Office) to avoid or to minimize any amounts which may otherwise be payable pursuant to this Section; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender in its sole discretion to be material.

Section 2.16 Requirements of Law.

(a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof:

(i) shall subject such Lender to any tax of any kind whatsoever with respect to any Letter of Credit or any application relating thereto, any LIBOR Rate Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for changes in the rate of tax on the overall net income of such Lender);

(ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the LIBOR Rate hereunder; or

(iii) shall impose on such Lender any other condition;

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and the result of any of the foregoing is to increase the cost to such Lender of making or maintaining LIBOR Rate Loans or the Letters of Credit or to reduce any amount receivable hereunder or under any Note, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such additional cost or reduced amount receivable which such Lender reasonably deems to be material as determined by such Lender with respect to its LIBOR Rate Loans or Letters of Credit. A certificate as to any additional amounts payable pursuant to this Section submitted by such Lender, through the Administrative Agent, to the Borrower shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts (including reasonable efforts to change its Domestic Lending Office or LIBOR Lending Office, as the case may be) to avoid or to minimize any amounts which might otherwise be payable pursuant to this paragraph of this Section; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender in its sole discretion to be material.

(b) If any Lender shall have reasonably determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Lender’s or such corporation’s capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender’s or such corporation’s policies with respect to capital adequacy) by an amount reasonably deemed by such Lender in its sole discretion to be material, then from time to time, within fifteen (15) days after demand by such Lender, the Borrower shall pay to such Lender such additional amount as shall be certified by such Lender as being required to compensate it for such reduction. Such a certificate as to any additional amounts payable under this Section submitted by a Lender (which certificate shall include a description of the basis for the computation), through the Administrative Agent, to the Borrower shall be conclusive absent manifest error.

(c) The agreements in this Section 2.16 shall survive the termination of this Agreement and payment of the Notes and all other amounts payable hereunder.

Section 2.17 Indemnity.

The Borrower hereby agrees to indemnify each Lender and to hold such Lender harmless from any funding loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower in payment of the principal amount of or interest on any Loan by such Lender in accordance with the terms hereof, (b) default by the Borrower in accepting a borrowing after the Borrower has given a notice in accordance with the terms hereof, (c) default by the Borrower in making any prepayment after the Borrower has given a notice in accordance

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with the terms hereof, and/or (d) the making by the Borrower of a prepayment of a Loan (other than a Base Rate Loan), or the conversion thereof, on a day which is not the last day of the Interest Period with respect thereto, in each case including, but not limited to, any such loss or expense arising from interest or fees payable by such Lender to lenders of funds obtained by it in order to maintain its Loans hereunder. A certificate as to any additional amounts payable pursuant to this Section submitted by any Lender, through the Administrative Agent, to the Borrower (which certificate must be delivered to the Administrative Agent within thirty days following such default, prepayment or conversion) shall be conclusive in the absence of manifest error. The agreements in this Section shall survive termination of this Agreement and payment of the Notes and all other amounts payable hereunder.

Section 2.18 Taxes.

(a) All payments made by the Borrower hereunder or under any Note will be, except as provided in Section 2.18(b), made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any Governmental Authority or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding any tax imposed on or measured by the net income or profits of a Lender pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as “Taxes”). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. The Borrower will furnish to the Administrative Agent as soon as practicable after the date the payment of any Taxes is due pursuant to applicable law certified copies (to the extent reasonably available and required by law) of tax receipts evidencing such payment by the Borrower. The Borrower agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender.

(b) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower and the Administrative Agent on or prior to the Closing Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 9.6(d) (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, (i) if the Lender is a “bank” within the meaning of Section 881(c)(3)(A) of the Code, two accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying such Lender’s entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note or (ii) if the Lender is not a “bank” within the meaning of

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Section 881(c)(3)(A) of the Code, either Internal Revenue Service Form 1001 or 4224 as set forth in clause (i) above, or (x) a certificate substantially in the form of Schedule 2.18 (any such certificate, a “2.18 Certificate”) and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8 (or successor form) certifying such Lender’s entitlement to an exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Lender agrees that it will deliver upon the Borrower’s request updated versions of the foregoing, as applicable, whenever the previous certification has become obsolete or inaccurate in any material respect, together with such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note. Notwithstanding anything to the contrary contained in Section 2.18(a), but subject to the immediately succeeding sentence, (x) each Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold Taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Lender has not provided to the Borrower U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 2.18(a) hereof to gross-up payments to be made to a Lender in respect of Taxes imposed by the United States if (I) such Lender has not provided to the Borrower the Internal Revenue Service Forms required to be provided to the Borrower pursuant to this Section 2.18(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) above, to the extent that such Forms do not establish a complete exemption from withholding of such Taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 2.18, the Borrower agrees to pay additional amounts and to indemnify each Lender in the manner set forth in Section 2.18(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Closing Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of Taxes.

(c) Each Lender agrees to use reasonable efforts (including reasonable efforts to change its Domestic Lending Office or LIBOR Lending Office, as the case may be) to avoid or to minimize any amounts which might otherwise be payable pursuant to this Section; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender in its sole discretion to be material.

(d) If the Borrower pays any additional amount pursuant to this Section 2.18 with respect to a Lender, such Lender shall use reasonable efforts to obtain a refund of tax or credit against its tax liabilities on account of such payment; provided that such Lender shall have no obligation to use such reasonable efforts if either (i) it is in an excess foreign tax credit position or (ii) it believes in good faith, in its sole discretion, that

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claiming a refund or credit would cause adverse tax consequences to it. In the event that such Lender receives such a refund or credit, such Lender shall pay to the Borrower an amount that such Lender reasonably determines is equal to the net tax benefit obtained by such Lender as a result of such payment by the Borrower. In the event that no refund or credit is obtained with respect to the Borrower’s payments to such Lender pursuant to this Section 2.18, then such Lender shall upon request provide a certification that such Lender has not received a refund or credit for such payments. Nothing contained in this Section 2.18 shall require a Lender to disclose or detail the basis of its calculation of the amount of any tax benefit or any other amount or the basis of its determination referred to in the proviso to the first sentence of this Section 2.18 to the Borrower or any other party.

(e) The agreements in this Section 2.18 shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder.

Section 2.19 Indemnification; Nature of Issuing Lender’s Duties.

(a) In addition to its other obligations under Section 2.3, the Borrower hereby agrees to protect, indemnify, pay and save each Issuing Lender harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys’ fees) that the Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit or (ii) the failure of the Issuing Lender to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions, herein called “Government Acts”).

(b) As between the Borrower and the Issuing Lender, the Borrower shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. The Issuing Lender shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of a Letter of Credit to comply fully with conditions required in order to draw upon a Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under a Letter of Credit or of the proceeds thereof; and (vii) any consequences arising from causes beyond the control of the Issuing Lender, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of the Issuing Lender’s rights or powers hereunder.

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(c) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Issuing Lender, under or in connection with any Letter of Credit or the related certificates, if taken or omitted in good faith, shall not put such Issuing Lender under any resulting liability to the Borrower. It is the intention of the parties that this Agreement shall be construed and applied to protect and indemnify the Issuing Lender against any and all risks involved in the issuance of the Letters of Credit, all of which risks are hereby assumed by the Borrower, including, without limitation, any and all risks of the acts or omissions, whether rightful or wrongful, of any Government Authority. The Issuing Lender shall not, in any way, be liable for any failure by the Issuing Lender or anyone else to pay any drawing under any Letter of Credit as a result of any Government Acts or any other cause beyond the control of the Issuing Lender.

(d) Nothing in this Section 2.19 is intended to limit the reimbursement obligation of the Borrower contained in Section 2.3(d) hereof. The obligations of the Borrower under this Section 2.19 shall survive the termination of this Agreement. No act or omissions of any current or prior beneficiary of a Letter of Credit shall in any way affect or impair the rights of the Issuing Lender to enforce any right, power or benefit under this Agreement.

(e) Notwithstanding anything to the contrary contained in this Section 2.19, the Borrower shall have no obligation to indemnify any Issuing Lender in respect of any liability incurred by such Issuing Lender arising out of the gross negligence or willful misconduct of the Issuing Lender (including action not taken by an Issuing Lender), as determined by a court of competent jurisdiction.

Section 2.20 Increase Option.

(a) Request for Increase. Provided there exists no Default or Event of Default, upon notice to the Lenders, the Borrower may, request an increase in the Aggregate Revolving Committed Amount by up to the aggregate principal amount of $10,000,000; provided that any such request for an increase shall be in a minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess thereof. At the time of sending such notice, the Borrower shall specify the time period within which each Lender is requested to respond (which shall in no event be less than ten (10) Business Days from the date of delivery of such notice to the Lenders).

(b) Lender Elections to Increase. Each Lender shall notify the Borrower and the Administrative Agent within such requested time period whether or not it agrees to increase its Commitment and, if so, whether by an amount equal to, greater than, or less than its applicable Commitment Percentage of such requested increase. Any Lender not responding within such time period shall be deemed to have declined to increase its Commitment.

(c) Effective Date and Allocations. If the Aggregate Revolving Committed Amount is increased in accordance with this Section, the Administrative Agent and the

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Borrower shall determine the effective date (the “Increase Effective Date”) and the final allocation of such increase. The Administrative Agent shall promptly notify the Borrower and the Lenders of the final allocation of such increase and the Increase Effective Date.

(d) Conditions to Effectiveness of Increase. As a condition precedent to such increase, the Borrower shall deliver to the Lenders (x) a certificate of each Credit Party dated as of the Increase Effective Date signed by a Responsible Officer of such Credit Party (i) certifying and attaching the resolutions adopted by such Credit Party approving or consenting to such increase, and (ii) in the case of the Borrower, certifying that, before and after giving effect to such increase, (A) the representations and warranties contained in Article III hereof and the other Credit Documents are true and correct on and as of the Increase Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this Section 2.20, the representations and warranties contained in subsections (a) and (b) of Section 3.1 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 5.1, and (B) no Default or Event of Default then exists and (y) an opinion or opinions of legal counsel for the Borrower, dated as of the Increase Effective Date and addressed to the Administrative Agent and the Lenders, in form and substance reasonably acceptable to the Lenders. The Borrower shall prepay any Loans outstanding on the Increase Effective Date to the extent necessary to keep the outstanding Loans ratable with any revised applicable Commitment Percentages arising from any nonratable increase in the Commitments under this Section.

(e) Conflicting Provisions. This Section shall supersede any provisions in Sections 2.11 or 9.1 to the contrary.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

To induce the Lenders to enter into this Agreement and to make the Extensions of Credit herein provided for, the Credit Parties hereby represent and warrant to the Administrative Agent and to each Lender that:

Section 3.1 Financial Condition.

The Borrower has delivered to the Administrative Agent and the Lenders (a) balance sheets and the related statements of income and of cash flows of the Borrower and its Subsidiaries for fiscal years ended October 31, 2001, 2002 and 2003 audited by Deloitte & Touche LLP, (b) unaudited balance sheets and the related statements of income and of cash flows of the Borrower and its Subsidiaries for the first three full fiscal quarters of 2004 of the Borrower, (c) unaudited balance sheets and the related statements of income and of cash flows of the Borrower and its Subsidiaries for the fiscal month ending August 31, 2004 and (d) five-year

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projections of the Borrower and its Subsidiaries, all in form and substance satisfactory to the Administrative Agent and certified by the chief financial officer of the Borrower that (i) with respect to the audited and unaudited financial statements, such financial statements are complete and correct and taken as a whole fairly present the financial condition of the Borrower and its Subsidiaries as at the dates indicated in all material respects, subject, with respect to the unaudited financial statements, to footnotes and changes resulting from audit and normal year-end adjustments, and (ii) with respect to the pro forma balance sheet and the projections, they were prepared in good faith based upon, to the best of such officer’s knowledge, reasonable assumptions. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as disclosed therein).

Section 3.2 No Change.

Since October 31, 2003 (and after delivery of annual audited financial statements in accordance Section 5.1(a), since the date of the most recently delivered annual audited financial statements) there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect.

Section 3.3 Corporate Existence; Compliance with Law.

Each of the Credit Parties (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, (b) has the requisite power and authority and the legal right to own and operate all its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified to conduct business and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to so qualify or be in good standing could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law, except where noncompliance could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 3.4 Corporate Power; Authorization; Enforceable Obligations.

Each of the Credit Parties has full power and authority and the legal right to make, deliver and perform the Credit Documents to which it is party and has taken all necessary limited liability company or corporate action to authorize the execution, delivery and performance by it of the Credit Documents to which it is party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery or performance of any Credit Document by the Credit Parties (other than those which have been obtained) or with the validity or enforceability of any Credit Document against the Credit Parties (except such filings as are necessary in connection with the perfection of the Liens created by such Credit Documents). Each Credit Document to which it is a party has been duly executed and delivered on behalf of the Credit Parties party thereto. Each Credit Document to which it is a party constitutes a legal, valid and binding obligation of the Credit Parties party thereto, enforceable

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against such Credit Parties in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

Section 3.5 No Legal Bar; No Default.

The execution, delivery and performance of the Credit Documents, the borrowings thereunder and the use of the proceeds of the Loans will not violate any Requirement of Law or any Contractual Obligation of any Credit Party (except those as to which waivers or consents have been obtained), and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any Requirement of Law or Material Contract other than the Liens arising under or contemplated in connection with the Credit Documents. No Credit Party is in default under or with respect to any of its Contractual Obligations that individually, or in the aggregate, could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing.

Section 3.6 No Material Litigation.

No material litigation, investigation, claim, criminal prosecution, civil investigative demand, imposition of criminal or civil fines and penalties, or any other proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Credit Parties, threatened by or against (a) any Credit Party or any of its Subsidiaries or against any of its or their respective properties or revenues that could reasonably be expected to have a Material Adverse Effect or (b) with respect to the Credit Documents or any Loan or any of the transactions contemplated hereby.

Section 3.7 Investment Company Act/Public Utility Holding Company Act.

No Credit Party is an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended. No Credit Party is a subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act, or any federal or state statute or regulation limiting its ability to incur the Credit Party Obligations

Section 3.8 Margin Regulations.

No part of the proceeds of any Loan hereunder will be used directly or indirectly for any purpose which violates, which would be inconsistent with or which would require any Lender to make any filing in accordance with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. The Credit Parties and their Subsidiaries taken as a group do not own “margin stock” except as identified in the financial statements referred to in Section 3.1 and the aggregate value of all “margin stock” owned by the Credit Parties and their Subsidiaries taken as a group does not exceed 25% of the value of their assets.

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Section 3.9 ERISA.

Neither a Reportable Event which could reasonably be expected to have a Material Adverse Effect nor a material “accumulated funding deficiency” (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred resulting in any material liability that has remained underfunded, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by an amount which is material, as determined in accordance with GAAP. Neither any Credit Party nor any Commonly Controlled Entity is currently subject to any liability for a complete or partial withdrawal from a Multiemployer Plan.

Section 3.10 Environmental Matters.

(a) The facilities and properties owned, leased or operated by the Credit Parties or any of their Subsidiaries (the “Properties”) do not contain any Materials of Environmental Concern in amounts or concentrations which (i) constitute a material violation of or (ii) could give rise to material liability under, any Environmental Law.

(b) Except as set forth on Schedule 3.10, the Properties and all operations of the Credit Parties and/or their Subsidiaries at the Properties are in compliance, and have in the last five years been in compliance, in all material respects with all applicable Environmental Laws, and there is no material contamination at, under or about the Properties or material violation of any Environmental Law with respect to the Properties or the business operated by the Credit Parties or any of their Subsidiaries (the “Business”).

(c) Except as set forth on Schedule 3.10, no Credit Party has received any written or actual notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Business, nor does the Credit Parties nor any of their Subsidiaries have knowledge or reason to believe that any such notice will be received or is being threatened.

(d) Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location which could give rise to material liability under any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in material violation of, or in a manner that could give rise to material liability under, any applicable Environmental Law.

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(e) Except as set forth on Schedule 3.10, no judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Credit Parties, threatened, under any Environmental Law to which any Credit Party or any Subsidiary is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business.

(f) Except as set forth on Schedule 3.10, there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of any Credit Party or any Subsidiary in connection with the Properties or otherwise in connection with the Business, in material violation of or in amounts or in a manner that could give rise to material liability under Environmental Laws.

Section 3.11 Use of Proceeds.

The proceeds of the Extensions of Credit shall be used by the Borrower solely to (i) refinance certain existing indebtedness of the Borrower, (ii) pay fees and expenses owing to the Lenders and the Administrative Agent in connection with this Credit Agreement and (iii) provide for working capital and other general corporate purposes of the Credit Parties and their Subsidiaries.

Section 3.12 Subsidiaries.

Set forth on Schedule 3.12 is a complete and accurate list of all Subsidiaries of the Credit Parties as of the Closing Date. Information on the attached Schedule includes state of incorporation or organization; the number of shares of each class of Capital Stock or other equity interests outstanding; the number and percentage of outstanding shares of each class of Capital Stock; and the number and effect, if exercised, of all outstanding options, warrants, rights of conversion or purchase and similar rights. The outstanding Capital Stock and other equity interests of all such Subsidiaries is validly issued, fully paid and non-assessable and is owned, free and clear of all Liens (other than those arising under or contemplated in connection with the Credit Documents).

Section 3.13 Ownership.

Each Credit Party and its Subsidiaries is the owner of, and has good and marketable title to or a valid leasehold interest in, all of its respective assets, and none of such assets is subject to any Lien other than Permitted Liens.

Section 3.14 Indebtedness.

Except as otherwise permitted under Section 6.1, the Credit Parties and their Subsidiaries have no Indebtedness.

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Section 3.15 Taxes.

Each of the Credit Parties and its Subsidiaries has filed, or caused to be filed, all tax returns (federal, state, local and foreign) required to be filed and paid (a) all amounts of taxes shown thereon to be due (including interest and penalties) and (b) all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owing by it, except for such taxes (i) which are not yet delinquent, (ii) that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP or (iii) the failure of which to pay could not reasonably be expected to have a Material Adverse Effect. Neither any of the Credit Parties nor any of its Subsidiaries are aware as of the Closing Date of any proposed tax assessments against it or any of its Subsidiaries other than real estate taxes, personal property taxes and similar taxes in the ordinary course of business, which taxes are not yet due and payable.

Section 3.16 Intellectual Property.

Each of the Credit Parties and its Subsidiaries owns, or has the legal right to use, all Intellectual Property necessary for each of them to conduct its business as currently conducted. Set forth on Schedule 3.16 is a list of all Intellectual Property owned by each of the Credit Parties and its Subsidiaries or that each of the Credit Parties or any of its Subsidiaries has the right to use. Except as disclosed in Schedule 3.16 hereto, (a) the specified Credit Party has the right to use the Intellectual Property disclosed in Schedule 3.16 hereto in perpetuity and without payment of royalties, (b) all registrations with and applications to Governmental Authorities in respect of such Intellectual Property are valid and in full force and effect and are not subject to the payment of any taxes or maintenance fees or the taking of any interest therein, held by any of the Credit Parties to maintain their validity or effectiveness and (c) there are no restrictions on the direct or indirect transfer of any material Contractual Obligation, or any interest therein, held by any of the Credit Parties in respect of such Intellectual Property. Except where a default, claim or infringement could not reasonably be expected to have a Material Adverse Effect, none of the Credit Parties is in default (or with the giving of notice or lapse of time or both, would be in default) under any license to use such Intellectual Property; no claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Credit Parties or any of their Subsidiaries know of any such claim; and, to the knowledge of the Credit Parties or any of their Subsidiaries, the use of such Intellectual Property by any of the Credit Parties or any of its Subsidiaries does not infringe on the rights of any Person. The Credit Parties have recorded or deposited with and paid to the United States Copyright Office, the Register of Copyrights, the Copyrights Royalty Tribunal or other Governmental Authority, all notices, statements of account, royalty fees and other documents and instruments required under the terms and conditions of any Contractual Obligation of the Credit Parties and/or under Title 17 of the United States Code and the rules and regulations issued thereunder to the extent Copyrights have been registered by a Credit Party (collectively, the “Copyright Act”), and are not liable to any Person for copyright infringement under the Copyright Act or any other law, rule, regulation, contract or license as a result of their business operations except where such infringement could not reasonably be expected to have a Material Adverse Effect. Schedule 3.16 may be updated from time to time by the Borrower to include new Intellectual Property by giving written notice thereof to the Administrative Agent.

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Section 3.17 Solvency.

To the best of the Borrower’s knowledge and belief, the fair saleable value of all of the Credit Parties’ assets, measured on a going concern basis, exceeds all probable liabilities, including those to be incurred pursuant to this Credit Agreement. None of the Credit Parties (a) has unreasonably small capital in relation to the business in which it is or proposes to be engaged or (b) has incurred, or believes that it will incur after giving effect to the transactions contemplated by this Credit Agreement, debts beyond its ability to pay such debts as they become due.

Section 3.18 Investments.

All Investments of each of the Credit Parties and its Subsidiaries are Permitted Investments.

Section 3.19 Location of Collateral.

Set forth on Schedule 3.19(a) is a list of all real properties of the Credit Parties and their Subsidiaries as of the Closing Date with street address, county and state where located. Set forth on Schedule 3.19(b) is a list of all locations where any tangible personal property of the Credit Parties and their Subsidiaries is located as of the Closing Date, including county and state where located. Set forth on Schedule 3.19(c) is the chief executive office and principal place of business of each of the Credit Parties and their Subsidiaries and the State of incorporation or organization of each such Person, in each case as of the Closing Date.

Section 3.20 No Burdensome Restrictions.

None of the Credit Parties or any of its Subsidiaries is a party to any agreement or instrument or subject to any other obligation or any charter or corporate restriction or any provision of any applicable law, rule or regulation which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

Section 3.21 Brokers’ Fees.

None of the Credit Parties or any of its Subsidiaries has any obligation to any Person in respect of any finder’s, broker’s, investment banking or other similar fee in connection with any of the transactions contemplated under the Credit Documents other than the closing and other fees payable pursuant to this Credit Agreement.

Section 3.22 Labor Matters.

There are no collective bargaining agreements or Multiemployer Plans covering the employees of any of the Credit Parties or any of its Subsidiaries as of the Closing Date, other

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than as set forth in Schedule 3.22 hereto, and none of the Credit Parties or any of its Subsidiaries (i) has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years, other than as set forth in Schedule 3.22 hereto or (ii) has knowledge of any potential or pending strike, walkout or work stoppage. Other than as set forth on Schedule 3.22, no unfair labor practice complaint is pending against any Credit Party or any of its Subsidiaries or, to the best knowledge of the Credit Parties, threatened against any Credit Party or any of its Subsidiaries.

Section 3.23 Security Documents.

The Security Documents create valid security interests in, and Liens on, the Collateral purported to be covered thereby, which security interests and Liens are currently (or will be, upon the filing of appropriate financing statements, the Administrative Agent obtaining “control” (as defined in the UCC) over those items of Collateral that control is required in order to perfect a security interest therein and the recordation of Intellectual Property notices with the United States Patent and Trademark Office and the United States Copyright Office, in each case in favor of the Administrative Agent, on behalf of the Lenders) perfected security interests and Liens, prior to all other Liens other than Permitted Liens.

Section 3.24 Accuracy and Completeness of Information.

All factual information heretofore, contemporaneously or hereafter furnished by or on behalf of any Credit Party or any of its Subsidiaries to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or any other Credit Document, or any transaction contemplated hereby or thereby, is or will be true and accurate in all material respects and not incomplete by omitting to state any material fact necessary to make such information not misleading. There is no fact now known to any Credit Party or any of its Subsidiaries which has, or could reasonably be expected to have, a Material Adverse Effect which fact has not been set forth herein, in the financial statements of the Borrower and its Subsidiaries furnished to the Administrative Agent and/or the Lenders, or in any certificate, opinion or other written statement made or furnished by any Credit Party to the Administrative Agent and/or the Lenders.

Section 3.25 Material Contracts.

Schedule 3.25 sets forth a true and correct and complete list of all Material Contracts currently in effect as of the Closing Date. All of the Material Contracts are in full force and effect and no material defaults currently exist thereunder.

Section 3.26 Insurance.

The present insurance coverage of the Credit Parties and their Subsidiaries is outlined as to carrier, policy number, expiration date, type and amount on Schedule 3.26 and such insurance coverage complies with the requirements set forth in Section 5.5(b).

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Section 3.27 Anti-Terrorism Laws.

(a) Neither the borrowing of the Loans hereunder nor the Borrower’s use of the proceeds thereof will violate the Patriot Act, the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto, or is in violation of any federal statute or Presidential Executive Order, including without limitation Executive Order 13224 66 Fed. Reg. 49079 (September 25, 2001) (Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit or Support Terrorism).

(b) None of the Borrower, Subsidiaries of the Borrower or Affiliates of the Borrower are (i) named on the United States Department of the Treasury’s Specially Designated Nationals or Blocked Persons list available through http://www.treas.gov/ offices/eotffc/ofac/sdn/index.html or as otherwise published from time to time, or (ii) (A) an agency of the government of a country, (B) an organization controlled by a country, or (C) a person resident in a country that is subject to sanctions under a program specified on http://www.treas.gov/offices/eotffc/ofac/sanctions/index.html or as otherwise published from time to time, as such program may be applicable to such agency, organization, or person.

ARTICLE IV

CONDITIONS PRECEDENT

Section 4.1 Conditions to Closing Date and Initial Extensions of Credit.

This Agreement shall become effective upon, and the obligation of each Lender to make the initial Revolving Loans, the Swingline Loans and the Term Loan on the Closing Date is subject to, the satisfaction of the following conditions precedent:

(a) Execution of Agreement. The Administrative Agent shall have received (i) counterparts of this Agreement, (ii) for the account of each applicable Lender, a Revolving Note and a Term Note, (iii) for the account of the Swingline Lender, the Swingline Note, and (iv) counterparts of the Security Agreement and the Pledge Agreement, in each case conforming to the requirements of this Agreement and executed by a duly authorized officer of each party thereto, and in each case in form and substance satisfactory to the Lenders.

(b) Authority Documents. The Administrative Agent shall have received the following:

(i) Articles of Incorporation/Charter Documents. Copies of the articles of incorporation or other charter documents, as applicable, of each Credit Party certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state of its incorporation;

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(ii) Resolutions. Copies of resolutions of the board of directors of each Credit Party approving and adopting the Credit Documents, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary of such Credit Party (pursuant to a secretary’s certificate in substantially the form of Schedule 4.1-1 attached hereto) as of the Closing Date to be true and correct and in force and effect as of such date;

(iii) Bylaws/Operating Agreement. A copy of the bylaws or comparable operating agreement of each Credit Party certified by a secretary or assistant secretary of such Credit Party (pursuant to a secretary’s certificate in substantially the form of Schedule 4.1-1 attached hereto) as of the Closing Date to be true and correct and in force and effect as of such date;

(iv) Good Standing. Copies of (i) certificates of good standing, existence or its equivalent with respect to the each Credit Party certified as of a recent date by the appropriate Governmental Authorities of the state of incorporation or organization and each other state in which the failure to so qualify and be in good standing could reasonably be expected to have a Material Adverse Effect on the business or operations of the Credit Parties and their Subsidiaries in such state and (ii) a certificate indicating payment of all corporate franchise taxes certified as of a recent date by the appropriate governmental taxing authorities; and

(v) Incumbency. An incumbency certificate of each Credit Party certified by a secretary or assistant secretary (pursuant to a secretary’s certificate in substantially the form of Schedule 4.1-1 attached hereto) to be true and correct as of the Closing Date.

(c) Legal Opinions of Counsel. The Administrative Agent shall have received opinions of legal counsel (including local counsel to the extent required by the Administrative Agent) for the Credit Parties, dated the Closing Date and addressed to the Administrative Agent and the Lenders, which opinions shall provide, among other things, that the Credit Parties and their Subsidiaries are in compliance with all regulatory requirements, corporate instruments and material agreements on the Closing after giving effect to the transactions contemplated herein and shall otherwise be in form and substance acceptable to the Administrative Agent.

(d) Personal Property Collateral. The Administrative Agent shall have received, in form and substance satisfactory to the Administrative Agent:

(i) searches of Uniform Commercial Code filings in the jurisdiction of the chief executive office of each Credit Party, the State of incorporation or organization of each Credit Party and each jurisdiction where any Collateral is

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located or where a filing would need to be made in order to perfect the Administrative Agent’s security interest in the Collateral, copies of the financing statements on file in such jurisdictions and evidence that no Liens exist other than Permitted Liens;

(ii) UCC financing statements for each appropriate jurisdiction as is necessary, in the Administrative Agent’s sole discretion, to perfect the Administrative Agent’s security interest in the Collateral;

(iii) duly executed consents as are necessary, in the Administrative Agent’s sole discretion, to perfect the Lenders’ security interest in the Collateral; and

(iv) in the case of any warehouse, plant or other real property material to the Credit Parties’ business that is leased by a Credit Party, such estoppel letters, consents and waivers from the landlords on such real property as may be required by the Administrative Agent.

(e) Liability, Casualty and Business Interruption Insurance. The Administrative Agent shall have received copies of insurance policies or certificates of insurance evidencing liability and casualty insurance meeting the requirements set forth herein or in the Security Documents and business interruption insurance satisfactory to the Administrative Agent. The Administrative Agent shall be named as loss payee or mortgagee, as its interest may appear, and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral, and each provider of any such insurance shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to the Administrative Agent, that it will give the Administrative Agent thirty (30) days prior written notice before any such policy or policies shall be altered or canceled.

(f) Fees. The Administrative Agent and the Lenders shall have received all fees, if any, owing pursuant to the Fee Letter and Section 2.5.

(g) Litigation. There shall not exist any material pending litigation, investigation, bankruptcy or insolvency, injunction, order or claim affecting or relating to any Credit Party or any of its Subsidiaries, this Agreement and the other Credit Documents, that has not been settled, dismissed, vacated, discharged or terminated prior to the Closing Date.

(h) Solvency Certificate. The Administrative Agent shall have received an officer’s certificate prepared by the chief financial officer of the Borrower as to the financial condition, solvency and related matters of each Credit Party, in each case after giving effect the initial borrowings under the Credit Documents, in substantially the form of Schedule 4.1-2 hereto.

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(i) Account Designation Letter. The Administrative Agent shall have received the executed Account Designation Letter in the form of Schedule 1.1-1 hereto.

(j) Corporate Structure. The corporate, capital and ownership structure of the Credit Parties (other than the Borrower) and their Subsidiaries shall be as described in Schedule 3.12, and shall otherwise be satisfactory to the Administrative Agent and the Lenders. The Administrative Agent and the Lenders shall be satisfied with the management of the Credit Parties and their Subsidiaries and with all legal, tax, accounting, business and other matters relating to the Credit Parties and their Subsidiaries.

(k) Consents. The Administrative Agent shall have received evidence that all governmental, shareholder, board of director and material third party consents and approvals necessary in connection with the financings and other transactions contemplated hereby have been obtained and all applicable waiting periods have expired without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on such transactions or that could seek or threaten any of such transactions.

(l) Compliance with Laws. The financings and other transactions contemplated hereby shall be in compliance with all applicable laws and regulations (including all applicable securities and banking laws, rules and regulations).

(m) Minimum Consolidated EBITDA. The Administrative Agent shall have received evidence satisfactory to it provided by the Borrower that Consolidated EBITDA of the Borrower and its Subsidiaries, as determined by the Administrative Agent was not less than $36,000,000.

(n) Bankruptcy. There shall be no bankruptcy or insolvency proceedings with respect to the any Credit Party or any of its Subsidiaries.

(o) Material Adverse Effect. No material adverse change shall have occurred since October 31, 2003 in the business, properties, prospects, operations, regulatory environment or condition (financial or otherwise) of the Credit Parties and their Subsidiaries taken as a whole. There has been no event and there exists no condition or state of facts that could reasonably be expected to have a Material Adverse Effect.

(p) Financial Statements. The Administrative Agent shall have received copies of the financial statements referred to in Section 3.1 hereof, each in form and substance satisfactory to it.

(q) Termination of Existing Indebtedness. As of the Closing Date, all existing Indebtedness for borrowed money of the Credit Parties and their Subsidiaries (other than certain Capital Lease Obligations and purchase money Indebtedness set forth on Schedule 6.1(b)) shall have been repaid in full and terminated and all Liens relating thereto shall have been terminated.

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(r) Officer’s Certificates. The Administrative Agent shall have received a certificate executed by a Responsible Officer of the Borrower as of the Closing Date stating that (i) no action, suit, investigation or proceeding is pending or, to the knowledge of any Credit Party, threatened in any court or before any arbitrator or governmental instrumentality that purports to affect any Credit Party or any other transaction contemplated by the Credit Documents, if such action, suit, investigation or proceeding could reasonably be expected to have a Material Adverse Effect and (ii) immediately after giving effect to this Credit Agreement (including the initial Extensions of Credit hereunder), the other Credit Documents and all the transactions contemplated therein to occur on such date, (A) no Default or Event of Default exists, (B) all representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects and (C) the Credit Parties are in compliance with each of the financial covenants set forth in Section 5.9 on a pro forma basis, and demonstrating compliance with such financial covenants.

(s) Leverage Ratio. The Administrative Agent shall have received evidence that the Leverage Ratio of the Borrower and its Subsidiaries on a consolidated basis is not greater than 2.00 to 1.0, calculated on a pro forma basis giving effect to the initial Extensions of Credit and the transactions to occur on the Closing Date, as of the most recently ended twelve month period as of the last day of the month immediately preceding the Closing Date.

(t) Additional Matters. All other documents and legal matters in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel.

Section 4.2 Conditions to All Extensions of Credit.

The obligation of each Lender to make any Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent on the date of making such Extension of Credit:

(a) Representations and Warranties. The representations and warranties made by the Credit Parties herein, in the Security Documents or which are contained in any certificate furnished at any time under or in connection herewith shall be true and correct on and as of the date of such Extension of Credit as if made on and as of such date.

(b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Extension of Credit to be made on such date unless such Default or Event of Default shall have been waived in accordance with this Agreement.

(c) Compliance with Commitments. Immediately after giving effect to the making of any such Extension of Credit (and the application of the proceeds thereof), (i) the sum of outstanding Revolving Loans plus outstanding Swingline Loans plus LOC

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Obligations shall not exceed the Aggregate Revolving Committed Amount, (ii) the LOC Obligations shall not exceed the LOC Committed Amount and (iii) the Swingline Loans shall not exceed the Swingline Committed Amount.

(d) Additional Conditions to Extensions of Credit. If such Extension of Credit is made pursuant to Sections 2.1, 2.2, 2.3, or 2.4, all conditions set forth in such Section shall have been satisfied.

Each request for an Extension of Credit and each acceptance by the Borrower of any such Extension of Credit shall be deemed to constitute a representation and warranty by the Borrower as of the date of such Extension of Credit that the applicable conditions in paragraphs (a) through (e) of this Section have been satisfied.

ARTICLE V

AFFIRMATIVE COVENANTS

The Credit Parties hereby covenant and agree that on the Closing Date, and thereafter for so long as this Agreement is in effect and until the Commitments have terminated, no Note remains outstanding and unpaid and the Credit Party Obligations, together with interest, Commitment Fees and all other amounts owing to the Administrative Agent or any Lender hereunder, are paid in full, the Credit Parties shall, and shall cause each of their Subsidiaries, to:

Section 5.1 Financial Statements.

Furnish to the Administrative Agent and each of the Lenders:

(a) Annual Financial Statements. As soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Borrower, a copy of the consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows of the Borrower and its consolidated Subsidiaries for such year, audited (with respect to the consolidated statements only) by a firm of independent certified public accountants of nationally recognized standing, in each case setting forth in comparative form consolidated for the preceding fiscal year, reported on without a “going concern” or like qualification or exception, or qualification indicating that the scope of the audit was inadequate to permit such independent certified public accountants to certify such financial statements without such qualification;

(b) Quarterly Financial Statements. As soon as available and in any event within forty-five (45) days after the end of each of the fiscal quarters of the Borrower, a company-prepared consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such period and related company-prepared consolidated statements of income and retained earnings and of cash flows for the Borrower and its consolidated Subsidiaries for such quarterly period and for the portion of the fiscal year

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ending with such period, in each case setting forth in comparative form consolidated figures for the corresponding period or periods of the preceding fiscal year (subject to the absence of footnotes and audit and normal recurring year-end adjustments) and including management discussion and analysis of operating results inclusive of operating metrics in comparative form;

(c) Monthly Financial Statements. As soon as available and in any event within thirty (30) days after the end of each month of the Borrower (other than at the end of a fiscal quarter, in which case forty-five (45) days after the end thereof), a company-prepared consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such period and related company-prepared consolidated statements of income and retained earnings and of cash flows for the Borrower and its consolidated Subsidiaries for such monthly period and for the portion of the fiscal year ending with such period, in each case setting forth in comparative form consolidated figures for the corresponding period or periods of the preceding fiscal year (subject to the absence of footnotes and audit and normal recurring year-end adjustments); and

(d) Annual Budget Plan and Cash Flow Projections. As soon as available, but in any event within thirty (30) days after the end of each fiscal year of the Borrower (beginning with the end of fiscal year 2005), a copy of the annual budget of the Borrower for the next fiscal year which budget shall be in the same form as the annual budget prepared for the board of directors of the Borrower and shall include statements of cash flow and income and balance sheets for the applicable period);

all such financial statements to be complete and correct in all material respects (subject, in the case of interim statements, to audit and normal recurring year-end adjustments) and to be prepared in reasonable detail and, in the case of the annual and quarterly financial statements provided in accordance with subsections (a) and (b) above, in accordance with GAAP applied consistently throughout the periods reflected therein and further accompanied by a description of, and an estimation of the effect on the financial statements on account of, a change, if any, in the application of accounting principles as provided in Section 1.3.

Section 5.2 Certificates; Other Information.

Furnish to the Administrative Agent and each of the Lenders:

(a) concurrently with the delivery of the financial statements referred to in Section 5.1(a) above, a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate;

(b) concurrently with the delivery of the financial statements referred to in Sections 5.1(a) and 5.1(b) above, a certificate of a Responsible Officer stating that, to the best of such Responsible Officer’s knowledge, during such period each of the Credit Parties observed or performed in all material respects all of its covenants and other

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agreements, and satisfied in all material respects every condition, contained in this Agreement to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and such certificate shall include the calculations in reasonable detail required to indicate compliance with Section 5.9 as of the last day of such period;

(c) within ten (10) days after the same are sent or filed, as applicable, (i) copies of all reports (other than those otherwise provided pursuant to Section 5.1 and those which are of a promotional nature) and other financial information which the Borrower sends to its equity holders and (ii) copies of all financial statements and non-confidential reports which the Borrower may make to, or file with the Securities and Exchange Commission or any successor or analogous Governmental Authority;

(d) within ninety (90) days after the end of each fiscal year of the Borrower, a certificate containing information regarding the calculation of Excess Cash Flow and the amount of all Asset Dispositions, Debt Issuances, and Equity Issuances that were made during the prior fiscal year, the calculation of Excess Cash Flow, and amounts received in connection with any Recovery Event during the prior fiscal year;

(e) promptly, such additional financial and other information as the Administrative Agent, on behalf of any Lender, may from time to time reasonably request; and

(f) unless otherwise agreed to by the Administrative Agent in its reasonable discretion not less than twenty (20) days (or such shorter period of time as agreed to by the Administrative Agent) prior to the consummation of any Permitted Acquisition:

(i) a reasonably detailed description of the material terms of such Permitted Acquisition (including, without limitation, the purchase price and method and structure of payment) and of the acquired company;

(ii) (A) audited financial statements of the acquired company for its two (2) most recent fiscal years prepared by independent certified public accountants or, if such audited financial statements are unavailable, then company-prepared unaudited financial statements of the acquired company for its two (2) most recent fiscal years, in each case acceptable to the Administrative Agent, and (B) unaudited fiscal year-to-date statements for the most recent interim period;

(iii) consolidated projected income statements of the Borrower and its consolidated Subsidiaries (giving effect to such Permitted Acquisition and the consolidation with the Borrower of each relevant acquired company) for the three (3)-year period following the consummation of such Permitted Acquisition, in reasonable detail, together with any appropriate statement of assumptions and pro forma adjustments reasonably acceptable to the Administrative Agent; and

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(iv) any due diligence reports (including, but not limited to, reports prepared by an accounting firm and customer surveys), board presentations or narrative descriptions prepared by, or on behalf of, any Credit Party with respect to the acquired company.

Section 5.3 Payment of Obligations.

Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its taxes (Federal, state, local and any other taxes) and all its other obligations and liabilities of whatever nature and any additional costs that are imposed as a result of any failure to so pay, discharge or otherwise satisfy such obligations and liabilities, except when the amount or validity of such obligations, liabilities and costs is currently being contested in good faith by appropriate proceedings and reserves, if applicable, in conformity with GAAP with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be.

Section 5.4 Conduct of Business and Maintenance of Existence.

Continue to engage in business of the same general type as now conducted by it on the Closing Date or any business reasonably related thereto or logical extensions thereof and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business; comply with all Contractual Obligations and Requirements of Law applicable to it except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 5.5 Maintenance of Property; Insurance.

(a) Keep all material property necessary in its business in good working order and condition (ordinary wear and tear and obsolescence excepted);

(b) Maintain with financially sound insurance companies insurance on all its material property (including without limitation its material tangible Collateral) in at least such amounts and against at least such risks in accordance with the past practices of the Borrower; and furnish to the Administrative Agent, upon written request, full information as to the insurance carried; provided, however, that the Credit Parties and their Subsidiaries may maintain self insurance plans in accordance with the past practices of the Borrower. The Administrative Agent shall be named as loss payee or mortgagee, as its interest may appear, and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral, and each provider of any such insurance shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to the Administrative Agent, that it will give the Administrative Agent thirty (30) days prior written notice before any such policy or policies shall be altered or canceled, and that no act or default of any Credit Party or any of its Subsidiaries or any other Person shall affect the rights of the Administrative Agent or the Lenders under such policy or policies; and

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(c) In case of any material loss, damage to or destruction of the Collateral of any Credit Party or any part thereof, such Credit Party shall promptly give written notice thereof to the Administrative Agent generally describing the nature and extent of such damage or destruction. In case of any such loss, damage to or destruction of the Collateral of any Credit Party or any part thereof, such Credit Party, whether or not the insurance proceeds, if any, received on account of such damage or destruction shall be sufficient for that purpose, at such Credit Party’s cost and expense, will promptly repair or replace the Collateral of such Credit Party so lost, damaged or destroyed.

Section 5.6 Inspection of Property; Books and Records; Discussions.

Keep proper books of records and account in which full, true and correct entries in conformity with GAAP (where applicable) and all Requirements of Law shall be made of all dealings and transactions in relation to its businesses and activities; and permit, during regular business hours and upon reasonable notice by the Administrative Agent or any Lender, the Administrative Agent or any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records (other than materials protected by the attorney-client privilege and materials which the Borrower may not disclose without violation of a confidentiality obligation binding upon it) at any reasonable time and as often as may reasonably be desired, and to discuss the business, operations, properties and financial and other condition of the Credit Parties and their Subsidiaries with officers and employees of the Credit Parties and their Subsidiaries and with its independent certified public accountants, in each case at the Borrower’s expense.

Section 5.7 Notices.

Give notice in writing to the Administrative Agent (which shall promptly transmit such notice to each Lender) of:

(a) promptly, but in any event within two (2) Business Days after any Credit Party knows or has reason to know thereof, the occurrence of any Default or Event of Default;

(b) promptly, any default or event of default under any Contractual Obligation of any Credit Party or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect or involve a monetary claim in excess of $1,000,000;

(c) promptly, any litigation, or any investigation or proceeding known to a Credit Party, affecting any Credit Party or any of its Subsidiaries (including pursuant to Environmental Laws) which, if adversely determined, could reasonably be expected to have a Material Adverse Effect;

(d) as soon as possible and in any event within thirty (30) days after any Credit Party knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, a failure to make any

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required contribution to a Plan, the creation of any Lien in favor of the PBGC (other than a Permitted Lien) or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan, which could reasonably be expected to have a Material Adverse Effect or (ii) the institution of proceedings or the taking of any other action by the PBGC or any Credit Party or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan which, if adversely determined, could reasonably be expected to have a Material Adverse Effect; and

(e) promptly, any other development or event which could reasonably be expected to have a Material Adverse Effect.

Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower proposes to take with respect thereto. In the case of any notice of a Default or Event of Default, the Borrower shall specify that such notice is a Default or Event of Default notice on the face thereof.

Section 5.8 Environmental Laws.

(a) Comply in all material respects with, and ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect;

(b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not reasonably be expected to have a Material Adverse Effect; and

(c) Defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective employees, agents, officers and directors and affiliates, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the any Credit Party or any of its Subsidiaries or the Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable attorney’s and consultant’s fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing

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arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in this paragraph shall survive repayment of the Notes and all other amounts payable hereunder.

Section 5.9 Financial Covenants.

Commencing on the day immediately following the Closing Date, each of the Credit Parties shall, and shall cause each of its Subsidiaries to, comply with the following financial covenants:

(a) Leverage Ratio. The Leverage Ratio, as of the last day of each fiscal quarter of the Borrower, shall be less than or equal to 3.00 to 1.0.

(b) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio, as of the last day of each fiscal quarter of the Borrower shall be greater than or equal to 1.10 to 1.0.

(c) Consolidated Capital Expenditures. Consolidated Capital Expenditures of the Borrower shall be less than or equal to $75,000,000 over the term of this Agreement.

Section 5.10 Additional Subsidiary Guarantors.

The Credit Parties will cause each of their Material Domestic Subsidiaries, whether newly formed, after acquired or otherwise existing, to promptly become a Guarantor hereunder by way of execution of a Joinder Agreement. The guaranty obligations of any such Additional Credit Party shall be secured by, among other things, the Collateral of the Additional Credit Party and such Material Domestic Subsidiary shall execute and deliver to the Administrative Agent such Security Documents, legal opinions and related documents as the Administrative Agent may reasonably request with respect to such Collateral.

Section 5.11 Compliance with Law.

To the extent failure to do so would have a Material Adverse Effect, each Credit Party will, and will cause each of its Subsidiaries to (a) observe and remain in compliance with all applicable Requirements of Law (including Environmental Laws) and maintain in full force and effect all permits, authorizations, registrations and consents from any Governmental Authority, in each case applicable to the conduct of its business and (b) keep in full force and effect all licenses, certifications or accreditations necessary for any Property to carry on its business.

Section 5.12 Pledged Assets.

Each Credit Party will, and will cause each of its Material Domestic Subsidiaries to be subject at all times to a first priority, perfected Lien with respect to all of such Subsidiary’s tangible and intangible personal property (subject in each case to Permitted Liens) in favor of the Administrative Agent pursuant to the terms and conditions of the Security Documents or such other security documents as the Administrative Agent shall reasonably request. Each Credit Party shall, and shall cause each of its Material Domestic Subsidiaries to, adhere to the covenants set forth in the Security Documents.

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Section 5.13 Further Assurances.

The Borrower shall use its commercially reasonable efforts to deliver (or cause to be delivered) to the Administrative Agent, no later than 60 days following the Closing Date, landlord lien waivers, in form and substance satisfactory to the Administrative Agent, with respect to the leased properties located at 404 Bodiley Street, Memphis, Tennessee, 391 East Mallory Street, Memphis, Tennessee, 1801 Dock Street, Memphis, Tennessee and 200 Harris Street, Wurtland, Kentucky.

ARTICLE VI

NEGATIVE COVENANTS

The Credit Parties hereby covenant and agree that on the Closing Date, and thereafter for so long as this Agreement is in effect and until the Commitments have terminated, no Note remains outstanding and unpaid and the Credit Party Obligations, together with interest, Commitment Fee and all other amounts owing to the Administrative Agent or any Lender hereunder, are paid in full that:

Section 6.1 Indebtedness.

Each of the Credit Parties will not, nor will it permit any Subsidiary to, contract, create, incur, assume or permit to exist any Indebtedness, except:

(a) Indebtedness arising or existing under this Agreement and the other Credit Documents;

(b) Indebtedness of the Borrower and its Subsidiaries existing as of the Closing Date as referenced in the financial statements referenced in Section 3.1 (and set out more specifically in Schedule 6.1(b)) hereto and renewals, refinancings or extensions thereof in a principal amount not in excess of that outstanding as of the date of such renewal, refinancing or extension;

(c) Indebtedness of the Borrower and its Subsidiaries incurred after the Closing Date consisting of Capital Leases or Indebtedness incurred to provide all or a portion of the purchase price or cost of construction of an asset provided that (i) such Indebtedness when incurred shall not exceed the purchase price or cost of construction of such asset; (ii) no such Indebtedness shall be refinanced for a principal amount in excess of the principal balance outstanding thereon at the time of such refinancing; and (iii) the total amount of all such Indebtedness shall not exceed $5,000,000 at any time outstanding;

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(d) unsecured intercompany Indebtedness among the Credit Parties;

(e) Indebtedness and obligations owing under Secured Hedging Agreements and other Hedging Agreements entered into in order to manage existing or anticipated interest rate, exchange rate or commodity price risks and not for speculative purposes;

(f) Indebtedness and obligations of Credit Parties owing under documentary letters of credit for the purchase of goods or other merchandise (but not under standby, direct pay or other letters of credit except for the Letters of Credit hereunder) generally;

(g) Guaranty Obligations in respect of Indebtedness of a Credit Party to the extent such Indebtedness is permitted to exist or be incurred pursuant to this Section 6.1;

(h) Indebtedness that is assumed in connection with a Permitted Acquisition and not incurred in contemplation thereof, as long as the outstanding principal amount of the Indebtedness is not increased after the date of the Permitted Acquisition;

(i) preferred Capital Stock of the Borrower issued in connection with any rights plan or similar anti-takeover plan; and

(j) other Indebtedness of the Credit Parties and its Subsidiaries which does not exceed $1,000,000 in the aggregate at any time outstanding.

Section 6.2 Liens.

Each of the Credit Parties will not, nor will it permit any Subsidiary to, contract, create, incur, assume or permit to exist any Lien with respect to any of its property or assets of any kind (whether real or personal, tangible or intangible), whether now owned or hereafter acquired, except for Permitted Liens.

Section 6.3 Nature of Business.

Each of the Credit Parties will not, nor will it permit any Subsidiary to, alter the character of its business in any material respect from that conducted as of the Closing Date.

Section 6.4 Consolidation, Merger, Sale or Purchase of Assets, etc.

Each of the Credit Parties will not, nor will it permit any Subsidiary to:

(a) dissolve, liquidate or wind up its affairs, sell, transfer, lease or otherwise dispose of its property or assets or agree to do so at a future time except the following, without duplication, shall be expressly permitted:

(i) the sale, transfer, lease or other disposition of inventory and materials in the ordinary course of business;

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(ii) the sale, transfer or other disposition of cash and Cash Equivalents;

(iii) (A) the disposition of property or assets as a direct result of a Recovery Event or (B) the sale, lease, transfer or other disposition of machinery, parts and equipment no longer used or useful in the conduct of the business of the Borrower or any of its Subsidiaries, so long as the net proceeds therefrom are used to replace such machinery, parts and equipment or to purchase or otherwise acquire new assets or property within 360 days of receipt of the net proceeds;

(iv) the sale, lease or transfer of property or assets (for fair market value) between the Borrower and any Guarantor;

(v) the sale, lease or transfer of property or assets from a Credit Party other than the Borrower to another Credit Party;

(vi) the sale, lease or transfer of property or assets not to exceed $1,000,000 in the aggregate in any fiscal year;

(vii) the dissolution or liquidation of any Subsidiary (other than a Material Domestic Subsidiary) provided the net proceeds, after satisfaction of all liabilities (including a reasonable reserve for contingent liabilities) and the payment of expenses related thereto, from the dissolution or liquidation are distributed to a Credit Party; and

(viii) the sale of RESCO Steel Products; provided the Net Cash Proceeds from such sale that are not applied by the Borrower to finance one or more Permitted Acquisitions within one year from the date of such sale, shall be used to prepay the Loans in accordance with Section 2.7(b).

provided, that, in the case of clauses (i), (ii), (iii), (vi) and (viii) above, at least 75% of the consideration (excluding trade-in value) received therefor by the Borrower or any other Credit Party is in the form of cash or Cash Equivalents; provided, further, that with respect to sales of assets permitted hereunder only, the Administrative Agent shall be entitled, without the consent of the Required Lenders, to release its Liens relating to the particular assets sold; or

(b) (i) purchase, lease or otherwise acquire (in a single transaction or a series of related transactions) the property or assets of any Person (other than purchases or other acquisitions of inventory, leases, materials, property and equipment in the ordinary course of business, except as otherwise limited or prohibited herein) or (ii) enter into any transaction of merger or consolidation, except for (A) investments or acquisitions permitted pursuant to Section 6.5, (B) the merger or consolidation of a Credit Party with and into another Credit Party; provided that if the Borrower is a party thereto, the Borrower will be the surviving corporation and (C) the merger or consolidation of a Subsidiary with a Credit Party provided the Credit Party is the surviving entity.

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Section 6.5 Advances, Investments and Loans.

Each of the Credit Parties will not, nor will it permit any Subsidiary to, make any Investment except for Permitted Investments.

Section 6.6 Transactions with Affiliates.

Except as set forth on Schedule 6.6, each of the Credit Parties will not, nor will it permit any Subsidiary to, enter into any transaction or series of transactions, whether or not in the ordinary course of business, with any officer, director, shareholder or Affiliate other than on terms and conditions substantially as favorable as would be obtainable in a comparable arm’s-length transaction with a Person other than an officer, director, shareholder or Affiliate.

Section 6.7 Ownership of Subsidiaries; Restrictions.

Each of the Credit Parties will not, nor will it permit any Subsidiary to, create, form or acquire any Subsidiaries, except for (i) Permitted Investments or (ii) Material Domestic Subsidiaries which are joined as Additional Credit Parties in accordance with the terms of Section 5.10. The Borrower will not sell, transfer, pledge or otherwise dispose of any Capital Stock or other equity interests in any of its Subsidiaries, nor will it permit any of its Subsidiaries to issue, sell, transfer, pledge or otherwise dispose of any of their Capital Stock or other equity interests, except in a transaction permitted by Section 6.4.

Section 6.8 Fiscal Year; Organizational Documents; Material Contracts; Subordinated Indebtedness.

Each of the Credit Parties will not, nor will it permit any Subsidiary to, change its fiscal year. Each of the Credit Parties will not, nor will it permit any Subsidiary to, amend, modify or change its articles of incorporation (or corporate charter or other similar organizational document) or bylaws (or other similar document) in any manner adverse to the Lenders without the prior written consent of the Required Lenders. Each of the Credit Parties will not, nor will it permit any Subsidiary to, without the prior written consent of the Administrative Agent, amend, modify, cancel or terminate or fail to renew or extend or permit the amendment, modification, cancellation or termination of any of the Material Contracts, except in the event that such amendments, modifications, cancellations or terminations could not reasonably be expected to have a Material Adverse Effect. The Borrower will not, without the prior written consent of the Required Lenders, amend, modify, waive or extend or permit the amendment, modification, waiver or extension of any term of any Subordinated Indebtedness or of any documentation governing or evidencing any such Subordinated Indebtedness in a manner that is adverse to the interests of the Lenders.

Section 6.9 Limitation on Restricted Actions.

Each of the Credit Parties will not, nor will it permit any Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Person to (a) pay dividends or make any other distributions

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to any Credit Party on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, (b) pay any Indebtedness or other obligation owed to any Credit Party, (c) make loans or advances to any Credit Party, (d) sell, lease or transfer any of its properties or assets to any Credit Party or (e) act as a Guarantor and pledge its assets pursuant to the Credit Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except (in respect of any of the matters referred to in clauses (a)-(d) above) for such encumbrances or restrictions existing under or by reason of (i) this Agreement and the other Credit Documents, (ii) applicable law, (iii) any document or instrument governing Indebtedness incurred pursuant to Section 6.1(c); provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith or (iv) any Permitted Lien or any document or instrument governing any Permitted Lien; provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien.

Section 6.10 Restricted Payments.

Each of the Credit Parties will not, nor will it permit any Subsidiary to, directly or indirectly, declare, order, make or set apart any sum for or pay any Restricted Payment, except (a) to make dividends payable solely in the same class of Capital Stock of such Person, (b) to make dividends or other distributions payable to any Credit Party (directly or indirectly through Subsidiaries) and (c) so long as no Default of the type referenced in Section 7.1(a) nor any Event of Default would occur on an actual or Pro Forma Basis after giving effect thereto, (i) to pay dividends in respect of the Borrower’s Capital Stock and (ii) so long as the Borrower can demonstrate on a Pro Forma Basis after giving effect thereto, availability under the Aggregate Revolving Committed Amount of at least $10,000,000, to repurchase shares of the Borrower’s Capital Stock in an aggregate amount over the term of this Agreement not to exceed (A) $7,500,000, until such time as the Term Loan has been paid in full and (B) $10,000,000 (less the amount of any repurchases made pursuant to clause (A) above), from and after the date that the Term Loan has been paid in full; provided, however that with respect to clause (c)(ii)(A), the Borrower shall also demonstrate, on a Pro Forma Basis after giving effect thereto, a Leverage Ratio of less than 2.50 to 1.0.

Section 6.11 Sale Leasebacks.

Each of the Credit Parties will not, nor will it permit any Subsidiary to, directly or indirectly become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an operating lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, (a) which any Credit Party or any Subsidiary has sold or transferred or is to sell or transfer to a Person which is not another Credit Party or Subsidiary or (b) which any Credit Party or any Subsidiary intends to use for substantially the same purpose as any other property which has been sold or is to be sold or transferred by such Credit Party or such Subsidiary to another Person which is not another Credit Party or Subsidiary in connection with such lease.

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Section 6.12 No Further Negative Pledges.

Each of the Credit Parties will not, nor will it permit any Subsidiary to, enter into, assume or become subject to any agreement prohibiting or otherwise restricting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, or requiring the grant of any security for such obligation if security is given for some other obligation, except (a) pursuant to this Agreement and the other Credit Documents, (b) pursuant to any document or instrument governing Indebtedness incurred pursuant to Section 6.1(c), provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith and (c) in connection with any Permitted Lien or any document or instrument governing any Permitted Lien, provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien.

ARTICLE VII

EVENTS OF DEFAULT

Section 7.1 Events of Default.

An Event of Default shall exist upon the occurrence of any of the following specified events (each an “Event of Default”):

(a) The Borrower shall fail to pay any principal on any Loan when due in accordance with the terms thereof or hereof; or the Borrower shall fail to reimburse the Issuing Lender for any LOC Obligations when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or any fee or other amount payable hereunder when due in accordance with the terms thereof or hereof and such failure shall continue unremedied for three (3) Business Days (or any Guarantor shall fail to pay on the Guaranty in respect of any of the foregoing or in respect of any other Guaranty Obligations thereunder within the aforesaid period of time); or

(b) Any representation or warranty made or deemed made herein, in the Security Documents or in any of the other Credit Documents or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect, false or misleading in any material respect on or as of the date made or deemed made; or

(c) (i) Any Credit Party shall fail to perform, comply with or observe any term, covenant or agreement applicable to it contained in Section 5.4, Section 5.7(a), Section 5.9 or Article VI hereof or (ii) any Credit Party shall fail to comply with any other covenant, contained in this Credit Agreement or the other Credit Documents or any other agreement, document or instrument among any Credit Party, the Administrative Agent and the Lenders or executed by any Credit Party in favor of the Administrative Agent or the Lenders (other than as described in Sections 7.1(a), 7.1(b) or 7.1(c)(i) above), and in the event such breach or failure to comply is capable of cure, is not cured within thirty (30) days of its occurrence; or

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(d) Any Credit Party or any of its Subsidiaries shall (i) default in any payment of principal of or interest on any Indebtedness (other than the Notes) in a principal amount outstanding of at least $5,000,000 in the aggregate for the Credit Parties and their Subsidiaries beyond the period of grace (not to exceed thirty (30) days), if any, provided in the instrument or agreement under which such Indebtedness was created; (ii) default in the observance or performance of any other agreement or condition relating to any Indebtedness in a principal amount outstanding of at least $5,000,000 in the aggregate for the Credit Parties and their Subsidiaries or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity; or (iii) breach or default any Secured Hedging Agreement; or

(e) (i) The Borrower or any of the Borrower’s Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower or any Subsidiary shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any of the Borrower’s Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any of the Borrower’s Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any of the Borrower’s Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clauses (i), (ii) or (iii) above; or (v) the Borrower or any of the Borrower’s Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or

(f) One or more judgments or decrees shall be entered against any Credit Party or any of its Subsidiaries involving in the aggregate a liability (to the extent not paid when due or covered by insurance) of $5,000,000 or more and all such judgments or decrees shall not have been paid and satisfied, vacated, discharged, stayed or bonded pending appeal within twenty (20) days from the entry thereof; or

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(g) (i) Any Person shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any “accumulated funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan (other than a Permitted Lien) shall arise on the assets of any Credit Party or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a Trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) any Credit Party or any of its Subsidiaries or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, any Multiemployer Plan or (vi) any other similar event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could have a Material Adverse Effect; or

(h) There shall occur a Change of Control; or

(i) The Guaranty or any provision thereof shall cease to be in full force and effect or any Guarantor or any Person acting by or on behalf of any Guarantor shall deny or disaffirm any Guarantor’s obligations under the Guaranty; or

(j) Any other Credit Document shall fail to be in full force and effect or to give the Administrative Agent and/or the Lenders the security interests, liens, rights, powers and privileges purported to be created thereby (except as such documents may be terminated or no longer in force and effect in accordance with the terms thereof, other than those indemnities and provisions which by their terms shall survive); or

(k) Any uninsured damage to or loss, theft or destruction of any assets of any Credit Party or any of its Subsidiaries shall occur that is in excess of $5,000,000.

Section 7.2 Acceleration; Remedies.

Upon the occurrence of an Event of Default, then, and in any such event, (a) if such event is an Event of Default specified in Section 7.1(e) above, automatically the Commitments shall immediately terminate and the Loans (with accrued interest thereon), and all other amounts under the Credit Documents (including without limitation the maximum amount of all contingent liabilities under Letters of Credit) shall immediately become due and payable, and (b) if such event is any other Event of Default, any or all of the following actions may be taken: (i) with the written consent of the Required Lenders, the Administrative Agent may, or upon the written

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request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; (ii) the Administrative Agent may, or upon the written request of the Required Lenders, the Administrative Agent shall, by notice of default to the Borrower, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith and direct the Borrower to pay to the Administrative Agent cash collateral as security for the LOC Obligations for subsequent drawings under then outstanding Letters of Credit in an amount equal to the maximum amount of which may be drawn under Letters of Credit then outstanding, whereupon the same shall immediately become due and payable; (iii) exercise any rights or remedies of the Administrative Agent or the Lenders under this Agreement or any other Credit Document, including, without limitation, any rights or remedies with respect to the Collateral and (iv) exercise any rights or remedies available to the Administrative Agent or Lenders under applicable law.

ARTICLE VIII

THE AGENT

Section 8.1 Appointment.

Each Lender hereby irrevocably designates and appoints Wachovia Bank, National Association as the Administrative Agent of such Lender under this Agreement, and each such Lender irrevocably authorizes Wachovia Bank, National Association, as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent.

Section 8.2 Delegation of Duties.

The Administrative Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Without limiting the foregoing, the Administrative Agent may appoint one of its affiliates as its agent to perform the functions of the Administrative Agent hereunder relating to the advancing of funds to the Borrower and distribution of funds to the Lenders and to perform such other related functions of the Administrative Agent hereunder as are reasonably incidental to such functions.

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Section 8.3 Exculpatory Provisions.

Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement (except for its or such Person’s own gross negligence or willful misconduct) or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of any of the Credit Documents or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance by the Borrower of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower.

Section 8.4 Reliance by Administrative Agent.

The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless (a) a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent and (b) the Administrative Agent shall have received the written agreement of such assignee to be bound hereby as fully and to the same extent as if such assignee were an original Lender party hereto, in each case in form satisfactory to the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under any of the Credit Documents in accordance with a request of the Required Lenders or all of the Lenders, as may be required under this Agreement, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes.

Section 8.5 Notice of Default.

The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default”. In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt

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notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided, however, that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders except to the extent that this Credit Agreement expressly requires that such action be taken, or not taken, only with the consent or upon the authorization of the Required Lenders, or all of the Lenders, as the case may be.

Section 8.6 Non-Reliance on Administrative Agent and Other Lenders.

Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representation or warranty to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates.

Section 8.7 Indemnification.

The Lenders agree to indemnify the Administrative Agent in its capacity hereunder (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this Section, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of any Credit Document or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided, however, that no Lender shall be liable for the

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payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from the Agent’s gross negligence or willful misconduct, as determined by a court of competent jurisdiction. The agreements in this Section 8.7 shall survive the termination of this Agreement and payment of the Notes and all other amounts payable hereunder.

Section 8.8 Administrative Agent in Its Individual Capacity.

The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not the Administrative Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms “Lender” and “Lenders” shall include the Administrative Agent in its individual capacity.

Section 8.9 Successor Administrative Agent.

The Administrative Agent may resign as Administrative Agent upon 30 days’ prior notice to the Borrower and the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the Notes, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Borrower, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term “Administrative Agent” shall mean such successor agent effective upon such appointment and approval, and the former Agent’s rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent’s resignation as Administrative Agent, the provisions of this Section 8.9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement.

Section 8.10 Other Agents.

The Syndication Agent listed on the front cover hereof shall have no duties or obligations, and thus no liabilities, other than in its capacity as a Lender under this Agreement and the other Credit Documents.

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ARTICLE IX

MISCELLANEOUS

Section 9.1 Amendments, Waivers and Release of Collateral.

Neither this Agreement, nor any of the other Credit Documents, nor any terms hereof or thereof may be amended, supplemented, waived or modified nor may any departure by the Borrower or any other Credit Party from the terms and provisions hereof and thereof be consented to by the Lenders except in accordance with the provisions of this Section. The Required Lenders may, or, with the written consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into with the Borrower written amendments supplements or modifications hereto and to the other Credit Documents for the purpose of adding any provisions to this Agreement or the other Credit Documents or changing in any manner the rights of the Lenders or of the Borrower hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders may specify in such instrument, any of the requirements of this Agreement or the other Credit Documents or any Default or Event of Default and its consequences or consent to any departure by the Borrower or any other Credit Party from the terms and provisions hereof and thereof; provided, however, that no such waiver, consent, amendment, supplement, modification or release shall:

(i) reduce the amount or extend the scheduled date of maturity of any Loan or Note or any installment thereon, or reduce the stated rate of any interest or fee payable hereunder (except in connection with a waiver of interest at the increased post-default rate) or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lender’s Commitment, in each case without the written consent of each Lender directly affected thereby; or

(ii) amend, modify or waive any provision of this Section 9.1 or reduce the percentage specified in the definition of Required Lenders, without the written consent of all the Lenders; or

(iii) amend, modify or waive any provision of Article VIII without the written consent of the then Administrative Agent; or

(iv) release all or substantially all of the Guarantors from their obligations under the Guaranty, without the written consent of all of the Lenders; or

(v) release all or substantially all of the Collateral, without the written consent of all of the Lenders and any Hedging Agreement Provider; or

(vi) amend, modify or waive any provision of the Credit Documents requiring consent, approval or request of the Required Lenders or all Lenders, without the written consent of all of the Required Lenders or Lenders as appropriate;

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provided, further, that no amendment, waiver or consent affecting the rights or duties of the Administrative Agent, the Issuing Lender or the Swingline Lender under any Credit Document shall in any event be effective, unless in writing and signed by the Administrative Agent, the Issuing Lender and/or the Swingline Lender, as applicable, in addition to the Lenders required hereinabove to take such action.

Any such waiver, any such amendment, supplement or modification and any such release shall apply equally to each of the Lenders and shall be binding upon the Borrower, the other Credit Parties, the Lenders, the Administrative Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the other Credit Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Loans and Notes and other Credit Documents, and any Default or Event of Default permanently waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon.

Notwithstanding any of the foregoing to the contrary, the consent of the Borrower shall not be required for any amendment, modification or waiver of the provisions of Article VIII (other than the provisions of Section 8.9); provided, however, that the Administrative Agent will provide written notice to the Borrower of any such amendment, modification or waiver. In addition, the Borrower and the Lenders hereby authorize the Administrative Agent to modify this Credit Agreement by unilaterally amending or supplementing Schedule 2.1(a) from time to time in the manner requested by the Borrower, the Administrative Agent or any Lender in order to reflect any assignments or transfers of the Loans as provided for hereunder; provided further, however, that the Administrative Agent shall promptly deliver a copy of any such modification to the Borrower and each Lender.

Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, (x) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein and (y) the Required Lenders may consent to allow a Credit Party to use cash collateral in the context of a bankruptcy or insolvency proceeding.

Section 9.2 Notices.

Except as otherwise provided in Article II, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) when delivered by hand, (b) when transmitted via telecopy (or other facsimile device) to the number set out herein, (c) the day following the day on which the same has been delivered prepaid (or pursuant to an invoice arrangement) to a reputable national overnight air courier service or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case addressed as follows in the case of the Borrower,

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the other Credit Parties and the Administrative Agent, and as set forth on Schedule 9.2 in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes:

The Borrower and the other Credit Parties:	Roanoke Electric Steel Corporation. P.O. Box 13948 Roanoke, Virginia 24038 Attention: Mr. Mark Meikle – Vice President – Finance and Chief Financial Officer Telecopier: (540) 342-9437 Telephone: (540) 342-1831
and
	P.O. Box 13948 Roanoke, Virginia 24038 Attention: Mr. William Watson – Vice President – General Counsel and Secretary Telecopier: (540) 983-7284 Telephone: (540) 342-1831
	with a copy to:
	R. Neal Keesee, Jr. Woods Rogers PLC 10 South Jefferson Street, Suite 1400 Post Office Box 14125 Roanoke, Virginia 24038-4125 Telecopier: (540) 983-7711 Telephone: (540) 983-7627
The Administrative Agent:	Wachovia Bank, National Association, as Administrative Agent Charlotte Plaza 201 South College Street, CP-8 Charlotte, North Carolina 28288-0680 Attention: Syndication Agency Services Telecopier: (704) 383-3612 Telephone: (704) 383-4131
	with a copy to:
	Wachovia Bank, National Association One Wachovia Center 301 South College Street, DC-5 Charlotte, North Carolina 28288-0760 Attention: Shawn Young, Vice President Telecopier: (704) 383-7611 Telephone: (704) 715-1707

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Section 9.3 No Waiver; Cumulative Remedies.

No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

Section 9.4 Survival of Representations and Warranties.

All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans; provided that all such representations and warranties shall terminate on the date upon which the Commitments have been terminated and all Credit Party Obligations have been paid in full.

Section 9.5 Payment of Expenses and Taxes.

The Borrower agrees (a) to pay or reimburse the Administrative Agent and the Arranger for all their reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation, negotiation, printing and execution of, and any amendment, supplement or modification to, this Agreement and the other Credit Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, together with the reasonable fees and disbursements of counsel to the Administrative Agent and the Arranger, (b) to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement and the other Credit Documents, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent and to the Lenders (including reasonable allocated costs of in-house legal counsel), (c) on demand, to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent

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under or in respect of, the Credit Documents and any such other documents and (d) to pay, indemnify, and hold each Lender and the Administrative Agent and their Affiliates harmless from and against, any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of the Credit Documents and any such other documents and the use, or proposed use, of proceeds of the Loans (all of the foregoing, collectively, the “indemnified liabilities”); provided, however, that the Borrower shall not have any obligation hereunder to the Administrative Agent or any Lender with respect to indemnified liabilities arising from the gross negligence, bad faith or willful misconduct of the Administrative Agent or any such Lender, as determined by a court of competent jurisdiction pursuant to a final non-appealable judgment. The agreements in this Section 9.5 shall survive repayment of the Loans, Notes and all other Credit Party Obligations.

Section 9.6 Successors and Assigns; Participations; Purchasing Lenders.

(a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Administrative Agent, all future holders of the Notes and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement or the other Credit Documents without the prior written consent of each Lender.

(b) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities (“Participants”) participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender, or any other interest of such Lender hereunder. In the event of any such sale by a Lender of participating interests to a Participant, such Lender’s obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. No Lender shall transfer or grant any participation under which the Participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the scheduled maturity of any Loan or Note or any installment thereon in which such Participant is participating, or reduce the stated rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of interest at the increased post-default rate) or reduce the principal amount thereof, or increase the amount of the Participant’s participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without consent of any participant if the Participant’s participation is not increased as a result thereof), (ii) release all or substantially all of the Guarantors from their obligations under the Guaranty, (iii) release all or substantially all of the Collateral or (iv) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement. In the case of any

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such participation, the Participant shall not have any rights under this Agreement or any of the other Credit Documents (the Participant’s rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the Participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation; provided that each Participant shall be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.5 with respect to its participation in the Commitments and the Loans outstanding from time to time; provided, further, that no Participant shall be entitled to receive any greater amount pursuant to such Sections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred.

(c) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time, sell or assign to any Lender or any Affiliate or Related Fund thereof and, with the consent of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower (in each case, which consent shall not be unreasonably withheld or delayed), to one or more additional banks or financial institutions or entities (each a “Purchasing Lender”), all or any part of its rights and obligations under this Agreement and the Notes in minimum amounts of $5,000,000 with respect to its Revolving Commitment, its Revolving Loans or its Term Loan (or, if less, the entire amount of such Lender’s obligations), pursuant to a Commitment Transfer Supplement, executed by such Purchasing Lender and such transferor Lender (and, to the extent required above, the Administrative Agent and the Borrower), and delivered to the Administrative Agent for its acceptance and recording in the Register; provided, however, that any sale or assignment to an existing Lender shall not require the consent of the Administrative Agent or the Borrower nor shall any such sale or assignment be subject to the minimum assignment amounts specified herein. Upon such execution, delivery, acceptance and recording, from and after the Transfer Effective Date specified in such Commitment Transfer Supplement, (x) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein and (y) the transferor Lender thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Agreement (and, in the case of a Commitment Transfer Supplement covering all or the remaining portion of a transferor Lender’s rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto; provided, however, that such Lender shall still be entitled to any indemnification rights that expressly survive hereunder). Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and the Notes. On or prior to the Transfer Effective Date specified in such Commitment Transfer Supplement, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the Notes delivered to the Administrative Agent pursuant to such Commitment Transfer Supplement new Notes to

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the order of such Purchasing Lender in an amount equal to the Commitment assumed by it pursuant to such Commitment Transfer Supplement and, unless the transferor Lender has not retained a Commitment hereunder, new Notes to the order of the transferor Lender in an amount equal to the Commitment retained by it hereunder. Such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Notes replaced thereby. The Notes surrendered by the transferor Lender shall be returned by the Administrative Agent to the Borrower marked “canceled”.

(d) The Administrative Agent shall maintain at its address referred to in Section 9.2 a copy of each Commitment Transfer Supplement delivered to it and a register (the “Register”) for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

(e) Upon its receipt of a duly executed Commitment Transfer Supplement, together with payment to the Administrative Agent by the transferor Lender or the Purchasing Lender, as agreed between them, of a registration and processing fee of $3,500.00 for each Purchasing Lender listed in such Commitment Transfer Supplement and the Notes subject to such Commitment Transfer Supplement, the Administrative Agent shall (i) accept such Commitment Transfer Supplement, (ii) record the information contained therein in the Register and (iii) give prompt notice of such acceptance and recordation to the Lenders and the Borrower.

(f) The Borrower authorizes each Lender to disclose to any Participant or Purchasing Lender (each, a “Transferee”) and any prospective Transferee any and all financial information in such Lender’s possession concerning the Borrower and its Affiliates which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender’s credit evaluation of the Borrower and its Subsidiaries prior to becoming a party to this Agreement, in each case subject to Section 9.15.

(g) At the time of each assignment pursuant to this Section 9.6 to a Person which is not already a Lender hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to the Borrower and the Administrative Agent the appropriate Internal Revenue Service Forms (and, if applicable, a 2.18 Certificate) described in Section 2.18.

(h) Nothing herein shall prohibit any Lender from pledging or assigning any of its rights under this Agreement (including, without limitation, any right to payment of principal and interest under any Note) to any Federal Reserve Bank in accordance with applicable laws.

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Section 9.7 Adjustments; Set-off.

(a) Each Lender agrees that if any Lender (a “benefited Lender”) shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7.1(e), or otherwise) in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender’s Loans, or interest thereon, such benefited Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender’s Loan, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that each Lender so purchasing a portion of another Lender’s Loans may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion.

(b) In addition to any rights and remedies of the Lenders provided by law (including, without limitation, other rights of set-off), each Lender shall have the right, without prior notice to any Credit Party, any such notice being expressly waived by the Credit Parties to the extent permitted by applicable law, upon the occurrence of any Event of Default, to setoff and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of any Credit Party, or any part thereof in such amounts as such Lender may elect, against and on account of the obligations and liabilities of the Borrower and the other Credit Parties to such Lender hereunder and claims of every nature and description of such Lender against the Borrower and the other Credit Parties, in any currency, whether arising hereunder, under the Notes or under any documents contemplated by or referred to herein or therein, as such Lender may elect, whether or not such Lender has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The aforesaid right of set-off may be exercised by such Lender against any Credit Party or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or execution, judgment or attachment creditor of any such Credit Party, or against anyone else claiming through or against any such Credit Party or any such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by such Lender prior to the occurrence

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of any Event of Default. Each Lender agrees promptly to notify the applicable Credit Party and the Administrative Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application.

Section 9.8 Table of Contents and Section Headings.

The table of contents and the Section and subsection headings herein are intended for convenience only and shall be ignored in construing this Agreement.

Section 9.9 Counterparts.

This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same agreement.

Section 9.10 Effectiveness.

This Credit Agreement shall become effective on the date on which all of the parties have signed a copy hereof (whether the same or different copies) and shall have delivered the same to the Administrative Agent pursuant to Section 9.2 or, in the case of the Lenders, shall have given to the Administrative Agent written, telecopied or telex notice (actually received) at such office that the same has been signed and mailed to it.

Section 9.11 Severability.

Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 9.12 Integration.

This Agreement and the other Credit Documents represent the agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the Borrower or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Credit Documents.

Section 9.13 Governing Law.

This Agreement and the other Credit Documents and the rights and obligations of the parties under this Agreement and the other Credit Documents shall be governed by, and construed and interpreted in accordance with, the law of the State of North Carolina.

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Section 9.14 Service of Process.

Each of the Borrower and the other Credit Parties irrevocably agrees that all service of process in any proceeding in any court may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to it at its address set forth in Section 9.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto, such service being hereby acknowledged by the each of the Borrower and the other Credit Parties to be effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law.

Section 9.15 Confidentiality.

The Administrative Agent and each of the Lenders agrees that it will use its best efforts not to disclose without the prior consent of the Borrower (other than to its employees, affiliates, auditors or counsel or to another Lender) any information with respect to the Credit Parties and their Subsidiaries which is furnished pursuant to this Agreement, any other Credit Document or any documents contemplated by or referred to herein or therein and which is designated by the Borrower to the Lenders in writing as confidential or as to which it is otherwise reasonably clear such information is not public, except that any Lender may disclose any such information (a) as has become generally available to the public other than by a breach of this Section 9.15, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or the OCC or the NAIC or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in response to any summons or subpoena or any law, order, regulation or ruling applicable to such Lender, (d) to any prospective Participant or assignee in connection with any contemplated transfer pursuant to Section 9.6; provided that such prospective transferee shall have been made aware of this Section 9.15 or (e) to Gold Sheets and other similar bank trade publications, such information to consist of deal terms and other information regarding the credit facilities evidenced by this Credit Agreement customarily found in such publications.

Section 9.16 Acknowledgments.

The Borrower and the other Credit Parties each hereby acknowledges that:

(a) it has been advised by counsel in the negotiation, execution and delivery of each Credit Document;

(b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower or any other Credit Party arising out of or in connection with this Agreement and the relationship between Administrative Agent and Lenders, on one hand, and the Borrower and the other Credit Parties, on the other hand, in connection herewith is solely that of debtor and creditor; and

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(c) no joint venture exists among the Lenders or among the Borrower or the other Credit Parties and the Lenders.

Section 9.17 Waivers of Jury Trial.

THE BORROWER, THE OTHER CREDIT PARTIES, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

ARTICLE X

GUARANTY

Section 10.1 The Guaranty.

In order to induce the Lenders to enter into this Credit Agreement and any Hedging Agreement Provider to enter into any Secured Hedging Agreement and to extend credit hereunder and thereunder and in recognition of the direct benefits to be received by the Guarantors from the Extensions of Credit hereunder and any Secured Hedging Agreement, each of the Guarantors hereby agrees with the Administrative Agent and the Lenders as follows: the Guarantor hereby unconditionally and irrevocably jointly and severally guarantees as primary obligor and not merely as surety the full and prompt payment when due, whether upon maturity, by acceleration or otherwise, of any and all Credit Party Obligations. If any or all of the Credit Party Obligations becomes due and payable hereunder or under any Secured Hedging Agreement, each Guarantor unconditionally promises to pay such Credit Party Obligations to the Administrative Agent, the Lenders, the Hedging Agreement Providers, or their respective order, or demand, together with any and all reasonable expenses which may be incurred by the Administrative Agent or the Lenders in collecting any of the Credit Party Obligations.

Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the obligations of a Guarantor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each such Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code).

Section 10.2 Bankruptcy.

Additionally, each of the Guarantors unconditionally and irrevocably guarantees jointly and severally the payment of any and all Credit Party Obligations of the Borrower to the Lenders and any Hedging Agreement Provider whether or not due or payable by the Borrower upon the occurrence of any of the events specified in Section 7.1(e), and unconditionally promises to pay such Credit Party Obligations to the Administrative Agent for the account of the Lenders and to

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any such Hedging Agreement Provider, or order, on demand, in lawful money of the United States. Each of the Guarantors further agrees that to the extent that the Borrower or a Guarantor shall make a payment or a transfer of an interest in any property to the Administrative Agent, any Lender, or any Hedging Agreement Provider, which payment or transfer or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, or otherwise is avoided, and/or required to be repaid to the Borrower or a Guarantor, the estate of the Borrower or a Guarantor, a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such avoidance or repayment, the obligation or part thereof intended to be satisfied shall be revived and continued in full force and effect as if said payment had not been made.

Section 10.3 Nature of Liability.

The liability of each Guarantor hereunder is exclusive and independent of any security for or other guaranty of the Credit Party Obligations of the Borrower whether executed by any such Guarantor, any other guarantor or by any other party, and no Guarantor’s liability hereunder shall be affected or impaired by (a) any direction as to application of payment by the Borrower or by any other party, or (b) any other continuing or other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the Credit Party Obligations of the Borrower, or (c) any payment on or in reduction of any such other guaranty or undertaking, or (d) any dissolution, termination or increase, decrease or change in personnel by the Borrower, or (e) any payment made to the Administrative Agent, the Lenders, or any Hedging Agreement Provider on the Credit Party Obligations which the Administrative Agent, such Lenders, or such Hedging Agreement Providers repay the Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and each of the Guarantors waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding.

Section 10.4 Independent Obligation.

The obligations of each Guarantor hereunder are independent of the obligations of any other guarantor or the Borrower, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not action is brought against any other guarantor or the Borrower and whether or not any other Guarantor or the Borrower is joined in any such action or actions.

Section 10.5 Authorization.

Each of the Guarantors authorizes the Administrative Agent, each Lender and each Hedging Agreement Provider without notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to (a) renew, compromise, extend, increase, accelerate or otherwise change the time for payment of, or otherwise change the terms of the Credit Party Obligations or any part thereof in accordance with this Agreement and any Secured Hedging Agreement, including any increase or decrease of the rate of interest thereon, (b) take and hold security from any guarantor or any other party for the payment of this Guaranty or the Credit Party Obligations

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and exchange, enforce waive and release any such security, (c) apply such security and direct the order or manner of sale thereof as the Administrative Agent and the Lenders in their discretion may determine and (d) release or substitute any one or more endorsers, guarantors, the Borrower or other obligors.

Section 10.6 Reliance.

It is not necessary for the Administrative Agent, the Lenders, or any Hedging Agreement Providers to inquire into the capacity or powers of the Borrower or the officers, directors, members, partners or agents acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder.

Section 10.7 Waiver.

(a) Each of the Guarantors waives any right (except as shall be required by applicable statute and cannot be waived) to require the Administrative Agent, any Lender or any Hedging Agreement Provider to (i) proceed against the Borrower, any other guarantor or any other party, (ii) proceed against or exhaust any security held from the Borrower, any other guarantor or any other party or (iii) pursue any other remedy in the Administrative Agent’s, any Lender’s, or any Hedging Agreement Provider’s power whatsoever. Each of the Guarantors waives any defense based on or arising out of any defense of the Borrower, any other guarantor or any other party other than payment in full of the Credit Party Obligations, including without limitation any defense based on or arising out of the disability of the Borrower, any other guarantor or any other party, or the unenforceability of the Credit Party Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower other than payment in full of the Credit Party Obligations. The Administrative Agent or any of the Lenders may, at their election, foreclose on any security held by the Administrative Agent or a Lender by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable (to the extent such sale is permitted by applicable law), or exercise any other right or remedy the Administrative Agent and any Lender may have against the Borrower or any other party, or any security, without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent the Credit Party Obligations have been paid in full. Each of the Guarantors waives any defense arising out of any such election by the Administrative Agent and each of the Lenders, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantors against the Borrower or any other party or any security.

(b) Each of the Guarantors waives all presentments, demands for performance, protests and notices, including without limitation notices of nonperformance, notice of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional Credit Party Obligations. Each Guarantor assumes all responsibility for being and keeping itself informed of the Borrower’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Credit Party Obligations and the nature,

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scope and extent of the risks which such Guarantor assumes and incurs hereunder, and agrees that neither the Administrative Agent nor any Lender shall have any duty to advise such Guarantor of information known to it regarding such circumstances or risks.

(c) Each of the Guarantors hereby agrees it will not exercise any rights of subrogation which it may at any time otherwise have as a result of this Guaranty (whether contractual, under Section 509 of the U.S. Bankruptcy Code, or otherwise) to the claims of the Lenders or any Hedging Agreement Provider against the Borrower or any other guarantor of the Credit Party Obligations of the Borrower owing to the Lenders or such Hedging Agreement Provider (collectively, the “Other Parties”) and all contractual, statutory or common law rights of reimbursement, contribution or indemnity from any Other Party which it may at any time otherwise have as a result of this Guaranty until such time as the Credit Party Obligations shall have been paid in full and the Commitments have been terminated. Each of the Guarantors hereby further agrees not to exercise any right to enforce any other remedy which the Administrative Agent, the Lenders or any Hedging Agreement Provider now have or may hereafter have against any Other Party, any endorser or any other guarantor of all or any part of the Credit Party Obligations of the Borrower and any benefit of, and any right to participate in, any security or collateral given to or for the benefit of the Lenders and/or the Hedging Agreement Providers to secure payment of the Credit Party Obligations of the Borrower until such time as the Credit Party Obligations shall have been paid in full and the Commitments have been terminated.

Section 10.8 Limitation on Enforcement.

The Lenders and the Hedging Agreement Providers agree that this Guaranty may be enforced only by the action of the Administrative Agent acting upon the instructions of the Required Lenders or such Hedging Agreement Provider and that no Lender or Hedging Agreement Provider shall have any right individually to seek to enforce or to enforce this Guaranty, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent for the benefit of the Lenders under the terms of this Agreement. The Lenders further agree that this Guaranty may not be enforced against any director, officer, employee or stockholder of the Guarantors.

Section 10.9 Confirmation of Payment.

The Administrative Agent and the Lenders will, upon request after payment of the Credit Party Obligations which are the subject of this Guaranty and termination of the Commitments relating thereto, confirm to the Borrower, the Guarantors or any other Person that the Credit Party Obligations have been paid in full and the Commitments relating thereto terminated, subject to the provisions of Section 10.2.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by its proper and duly authorized officers as of the day and year first above written.

BORROWER:	ROANOKE ELECTRIC STEEL CORPORATION,
	a Virginia corporation
	By:
	Name:
	Title:
GUARANTORS:	SHREDDED PRODUCTS CORP.,
	a Virginia corporation
	By:
	Name:
	Title:
	JOHN W. HANCOCK, JR., INCORPORATED,
	a Virginia corporation
	By:
	Name:
	Title:
	SOCAR, INC.,
	a South Carolina corporation
	By:
	Name:
	Title:
	STEEL OF WEST VIRGINIA, INC.,
	a Delaware corporation
	By:
	Name:
	Title:

Credit Agreement 2004

SWVA, INC.,

a Delaware corporation

By:

Name:

Title:

SOCAR OF OHIO, INC.,

a Ohio corporation

By:

Name:

Title:

EX-13

Exhibit 13

Roanoke Electric Steel

ANNUAL REPORT 2004

A YEAR FOR THE RECORDS

RECORD SALES

RECORD EARNINGS

RECORD SHAREHOLDER EQUITY

RECORD PRODUCTION

IN A YEAR OF TRANSITION

THE NEXT 50 YEARS HAS ALREADY BEGUN.

Planning and Managing Leadership Succession.

As Roanoke Electric Steel’s 50th Anniversary approaches, our leadership succession plan advances to a new phase with the election of T. Joe Crawford to the position of President and Chief Operating Officer.

Joe assumed his new leadership responsibilities on June 22, 2004 from Donald G. Smith, who remains as Chairman of the Board, Chief Executive Officer and Treasurer of the Corporation.

Joe has held progressively more responsible management positions since he joined Roanoke Electric Steel Corporation in 1977. He was elected Corporate Secretary in 1985. In 1993, Joe was elected to the additional position of Assistant Vice President and in 1998, he was elected Vice President and Corporate Secretary.

Few events in the life of an organization are as critical as the transition of leadership. Many variables must be factored into the planning to ensure that the transition leverages an opportunity to pursue new horizons while honoring the culture, tradition, and continuity of the company’s values. Transition represents a rare opportunity to move forward with a new understanding of the complexities, challenges, and changes the company must address to continue to grow.

Conducting business today requires a historically unprecedented blend of agility and accountability. Rapid growth of emerging technologies, heightened expectations by shareholders, domestic and international competition, the stewardship of sustainable growth and value, a public demand for precise standards of accounting and corporate conduct are among the challenges companies must successfully navigate.

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As with our 1967 transfer of leadership, from company founder, John Hancock, Jr., to Mickey Meador and in 1985 to Don Smith, similar factors are in place to ensure another seamless, successful transition. Don had worked with Mr. Hancock for 28 years before his election as President. Joe has worked with Don for 27 years.

This overlap of tenures provides the company and the successor full advantage of the mentoring process, including the transfer of critical institutional knowledge built up throughout the 49 successful years of operation.

For Roanoke Electric Steel Corporation, the year 2004 began an era of change and a future of continuation. It marked the beginning of a management transition and a renewed commitment to the management policies and principals that continue to serve us well. By building on this strong foundation, we prepare for and share the vision of another 50 years of success for Roanoke Electric Steel Corporation. In fact, it’s already begun.

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The Company, directly and through its subsidiaries, is engaged in the manufacturing, fabricating and marketing of merchant steel products, specialty steel sections, billets, open-web steel joists and reinforcing bars. Each subsidiary is either a supplier to the parent company or a purchaser of its finished product and billets.

Roanoke Electric Steel Corporation, the parent company, is a state-of-the-art steel mini-mill located in Roanoke, Virginia. This facility melts scrap steel in electric furnaces and continuously casts the molten steel into billets. These billets are rolled into merchant steel products consisting of angles, plain rounds, flats, channels and reinforcing bars of various lengths and sizes. Excess steel billet production is sold to mills without sufficient melting capacities or facilities. Roanoke Electric Steel Corporation markets its products to steel service centers and fabricators.

Steel of West Virginia, Inc., through its subsidiary, SWVA, Inc., is a steel mini-mill and steel fabricating facility operating in Huntington, West Virginia. A steel fabricating subsidiary, Marshall Steel, Inc., is located in Memphis, Tennessee. These locations produce or fabricate specialty steel sections and custom-finished products and serve niche markets.

Shredded Products Corporation, a subsidiary with operations in Rocky Mount and Montvale, Virginia, extracts scrap steel and other metals from junked automobiles and other waste materials. These facilities supply the parent company with a substantial amount of its raw materials. Nonferrous metals generated in the process are sold to unrelated customers.

John W. Hancock, Jr., Inc. and Socar, Inc. are steel fabrication subsidiaries located in Salem, Virginia, Florence, South Carolina and Continental, Ohio. All three operations purchase rounds and angles from the parent company to fabricate steel joists and joist girders. These joists and joist girders are used as horizontal supports for floors and roofs in commercial and industrial buildings. The Hancock facility also manufactures structural pallet rack and structural cantilever rack. This rack is used for heavy storage in retail, warehouses and distribution centers.

RESCO Steel Products Corporation, a Salem, Virginia based subsidiary, fabricates concrete reinforcing steel by cutting and bending it to contractor specifications.

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2004 Results

Fiscal year 2004 was the best year in the history of our company and was especially pleasing, given the challenges of the last three years. The positive momentum Roanoke Electric Steel Corporation established during 2003 not only continued, but grew significantly during 2004. Your company is pleased to report a number of financial records were established during the year:

• Record sales of $479,377,188

• Record earnings of $30,446,248

• Record earnings per share of $2.78

• Record shareholders’ equity of $155,395,361

The company achieved continual improvement during the year, as shown below:

	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr
Net Sales	$	87,255,510	$	118,949,522	$	129,443,989	$	143,728,167
Net Earnings	$	1,533,676	$	5,222,056	$	7,757,545	$	15,932,971
Basic Earnings Per Share	$	.14	$	.48	$	.71	$	1.45

In 2004, the company had earnings of $30,446,248, compared to a loss of $3,224,953 last year. Basic earnings per share were $2.78 in 2004, compared to a basic loss per share of $.29 in 2003.

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The company continued to experience increasing demand for almost all of its products, thanks to a strong business environment. The improved performance for the year was primarily due to increased shipments of mill products and billets and improved margins for both. The improved margins were attributable to increased selling prices. During 2004, sales increased 53.6% over 2003. Selling prices for our products increased throughout the year due to an improving economy and rising scrap costs. In fact, the average price per ton increased during the year for merchant bar products 49.8%, for specialty steel products 25.2%, for fabricated products 28.6% and for billets 48.1%, due to both product mix and higher selling prices.

The company also achieved record annual tons in a number of facilities, including record tonnage produced in the melt shop at Steel of West Virginia and in the primary melting furnace and rolling mill at Roanoke Electric Steel Corporation. In addition, finished steel shipments from the Roanoke mill were at an all-time high.

The company’s mills are currently operating near capacity and, with business conditions remaining strong, should continue to do so.

Financial Condition

Our financial condition continued to improve during the year. In October 2004, the company entered into a new five-year loan with its banking syndicate, providing a revolving credit line and less restrictive covenants than the prior agreement. In addition, at year-end the company reported:

• Working capital was $115,500,754, an increase of $30,218,865 from 2003.

• The current ratio was 2.58 to 1, and the quick ratio was 1.05 to 1.

• Net debt was reduced by $6,558,872, and long-term debt as a percentage of total capital improved to 27.5% from 33.7% last year.

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While capital expenditures were limited during the downturn of the last three years, the continued success of our company requires investment in equipment, processes and technology. The increased free cash flows resulting from the company’s improved results, along with the additional flexibility provided by the new loan facility, will enable the company to address some needed capital expenditures, ensuring our position as a low-cost producer and further enhancing shareholder value. A hallmark of our company has been continual reinvestment to maintain highly efficient, state-of-the-art facilities, to produce steel products efficiently and to the highest quality to remain competitive in our industry.

Shareholder Value

Our solid performance continued to create value for our shareholders in 2004, as our share price increased by 47%. Also, recognizing the return to more historic profitability levels, the Board of Directors in May restored the dividend to the level in effect prior to a 50% reduction in November 2002. The dividend rate was further increased by 10% in October with the Board’s declaration of the 184th consecutive quarterly dividend in the amount of 11 cents per share, payable November 24, 2004. Based on the share price at year-end, the current annual yield on our common stock is approximately 3%.

Looking Forward

As we look to fiscal 2005, we anticipate that the positive factors currently driving our markets are sustainable and present a scenario for continued healthy price levels and volume for our products. It is our sincerest desire that the continued strong demand, along with the efforts of our experienced and dedicated workforce, will translate into another year of excellent results and improved shareholder value in 2005.

Fiscal 2004 has indeed been a year of transition, not only in our dramatic return to profitability, but in a number of leadership changes. In February 2004, Frank A. Boxley retired as a director of your company after eleven years of service. We sincerely appreciate

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his guidance and support during his tenure. To fill the vacancy created by Mr. Boxley’s retirement, Joseph H. Vipperman was elected to our Board of Directors. In the first major change in company management since 1985, your company implemented the initial stage of our management succession plan in June 2004 by electing T. Joe Crawford as President and Chief Operating Officer. We are excited by these changes and confident that the nearly 50-year tradition of strong leadership for your company will be continued under the new leadership.

It has been our pleasure reporting to you the fiscal 2004 results. We are especially pleased with the dramatic recovery from the most difficult period in your company’s history, a turnaround which could not have been accomplished without the patience, sacrifices and perseverance of our employees. We thank each of them for their loyalty and for their exceptional efforts. We also thank our valued customers for their support in achieving the 2004 results and extend our sincere gratitude to you, our shareholders, for your interest, confidence and investment in Roanoke Electric Steel Corporation.

T. Joe Crawford	Donald G. Smith
President Chief Operating Officer	Chairman of the Board Chief Executive Officer

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Year Ended October 31,	2004			2003			2002			2001			2000
Operations
Sales	$	479,377,188		$	312,090,956		$	263,773,709		$	307,674,605		$	372,728,108
Gross earnings		91,165,842			24,090,351			17,601,055			34,931,300			62,461,062
Interest expense		4,480,195			5,435,464			6,552,936			8,670,337			9,077,550
Income tax expense (benefit)		18,219,846			(1,988,676	)		(4,459,535	)		904,072			8,744,301
Earnings (loss) before cumulative effect of change in accounting principle		30,446,248			(2,996,543	)		(6,008,897	)		1,348,022			14,061,449
Net earnings (loss)		30,446,248			(3,224,953	)		(6,008,897	)		1,348,022			14,061,449
Financial Position
Working capital	$	115,500,754		$	85,281,889		$	94,675,819		$	104,919,632		$	111,444,079
Total assets		318,971,033			270,867,486			289,717,573			316,886,778			339,678,909
Long-term debt and capital lease obligation		58,941,362			63,958,948			78,792,278			93,835,033			108,874,521
Stockholders’ equity		155,395,361			126,065,624			130,988,698			138,606,184			144,721,829
Selected Ratios
Gross profit margin		19.0	%		7.7	%		6.7	%		11.4	%		16.8	%
Operating income (loss) margin		6.4	%		(1.0	%)		(2.3	%)		0.4	%		3.8	%
Effective tax (benefit) rate		37.4	%		(39.9	%)		(42.6	%)		40.1	%		38.3	%
Current ratio		2.6			2.9			3.2			3.2			3.2
Quick ratio		1.0			1.4			1.6			1.8			1.6
Funded debt as a percentage of total capital		29.5	%		36.2	%		41.7	%		44.0	%		46.1	%
Return on average stockholders’ equity		21.6	%		(2.5	%)		(4.5	%)		1.0	%		10.0	%
Per Share Data
Earnings (loss) before cumulative effect of accounting change:
Basic	$	2.78		$	(0 .27	)	$	(0 .55	)	$	0.12		$	1.28
Diluted		2.76			(0.27	)		(0.55	)		0.12			1.28
Net earnings (loss):
Basic		2.78			(0.29	)		(0.55	)		0.12			1.28
Diluted		2.76			(0.29	)		(0.55	)		0.12			1.28
Cash dividends		0.36			0.20			0.35			0.40			0.40
Stockholders’ equity		14.11			11.53			11.97			12.70			13.28
Weighted average common shares outstanding		10,957,586			10,938,999			10,934,380			10,908,584			10,952,529

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Consolidated Statements Of Earnings (Loss)

	Year Ended October 31,
	2004			2003			2002
SALES	$	479,377,188		$	312,090,956		$	263,773,709
COST OF SALES		388,211,346			288,000,605			246,172,654
GROSS EARNINGS		91,165,842			24,090,351			17,601,055
OTHER OPERATING EXPENSES (INCOME)
Administrative		31,666,334			23,285,533			22,543,027
Interest expense		4,480,195			5,435,464			6,552,936
Profit sharing		9,622,733			1,309,091			658,699
Interest income		(207,694	)		(433,558	)		(1,055,175	)
Antitrust litigation settlement		(3,061,820	)		(520,960	)		—
Officer life insurance proceeds		—			—			(630,000	)
Total		42,499,748			29,075,570			28,069,487
EARNINGS (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		48,666,094			(4,985,219	)		(10,468,432	)
INCOME TAX EXPENSE (BENEFIT)		18,219,846			(1,988,676	)		(4,459,535	)
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		30,446,248			(2,996,543	)		(6,008,897	)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		—			(228,410	)		—
NET EARNINGS (LOSS)	$	30,446,248		$	(3,224,953	)	$	(6,008,897	)
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Basic:
Earnings (loss) before cumulative effect of accounting change	$	2.78		$	(0.27	)	$	(0.55	)
Cumulative effect of accounting change		—			(0.02	)		—
Net earnings (loss)	$	2.78		$	(0.29	)	$	(0.55	)
Diluted:
Earnings (loss) before cumulative effect of accounting change	$	2.76		$	(0.27	)	$	(0.55	)
Cumulative effect of accounting change		—			(0.02	)		—
Net earnings (loss)	$	2.76		$	(0.29	)	$	(0.55	)
CASH DIVIDENDS PER SHARE OF COMMON STOCK	$	0.36		$	0.20		$	0.35

See notes to consolidated financial statements and independent auditors’ report.

10

Consolidated Statements Of Stockholders’ Equity And Comprehensive Earnings (Loss)

	Common Stock				Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock (At Cost)			Comprehensive Earnings (Loss)
	Shares		Amount										Shares	Amount
BALANCE, NOVEMBER 1, 2001	12,184,677		$	4,066,765		—	$	138,555,379		$	(3,198,092	)	1,273,114	$	817,868
Comprehensive loss:
Net loss	—			—		—		(6,008,897	)		—		—		—	$	(6,008,897	)
Other comprehensive earnings, net of tax:
Change in derivative financial instruments	—			—		—		—			1,397,985		—		—		1,397,985
Accretion of past hedging relationships	—			—		—		—			492,224		—		—		492,224
Other comprehensive earnings	—			—		—		—			—		—		—		1,890,209
Comprehensive loss	—			—		—		—			—		—		—	$	(4,118,688	)
Stock options exercised	31,250			328,124		—		—			—		—		—
Cash dividends	—			—		—		(3,826,922	)		—		—		—
BALANCE, OCTOBER 31, 2002	12,215,927			4,394,889		—		128,719,560			(1,307,883	)	1,273,114		817,868
Comprehensive loss:
Net loss	—			—		—		(3,224,953	)		—		—		—	$	(3,224,953	)
Other comprehensive earnings, net of tax:
Unrealized gain on “available for sale” securities	—			—		—		—			67,688		—		—		67,688
Accretion of past hedging relationships	—			—		—		—			510,419		—		—		510,419
Change in derivative financial instruments	—			—		—		—			(18,525	)	—		—		(18,525	)
Other comprehensive earnings	—			—		—		—			—		—		—		559,582
Comprehensive loss	—			—		—		—			—		—		—	$	(2,665,371	)
Repurchase and retirement of common stock	(10,000	)		—		—		(70,140	)		—		—		—
Cash dividends	—			—		—		(2,187,563	)		—		—		—
BALANCE, OCTOBER 31, 2003	12,205,927			4,394,889		—		123,236,904			(748,301	)	1,273,114		817,868
Comprehensive earnings:
Net earnings	—			—		—		30,446,248			—		—		—	$	30,446,248
Other comprehensive earnings, net of tax:
Unrealized adjustment on “available for sale” securities	—			—		—		—			(26,077	)	—		—		(26,077	)
Accretion of past hedging relationships	—			—		—		—			797,464		—		—		797,464
Change in derivative financial instruments	—			—		—		—			239,178		—		—		239,178
Other comprehensive earnings	—			—		—		—			—		—		—		1,010,565
Comprehensive earnings	—			—		—		—			—		—		—	$	31,456,813
Stock options exercised or expired	83,000			938,940	$	885,427		—			—		—		—
Cash dividends	—			—		—		(3,951,443	)		—		—		—
BALANCE, OCTOBER 31, 2004	12,288,927		$	5,333,829	$	885,427	$	149,731,709		$	262,264		1,273,114	$	817,868

See notes to consolidated financial statements and independent auditors’ report.

11

Consolidated Balance Sheets

	October 31,
	2004		2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	869,000	$	13,422,044
Investments		—		3,778,392
Accounts receivable, net of allowances of $5,338,719 in 2004 and $3,430,029 in 2003		75,558,674		46,469,280
Refundable income taxes		—		608,244
Inventories		102,099,659		59,565,245
Prepaid and other expenses		1,898,841		1,466,176
Deferred income taxes		8,011,122		5,525,279
Total current assets		188,437,296		130,834,660
PROPERTY, PLANT AND EQUIPMENT
Land		7,734,589		7,734,589
Buildings		44,811,189		45,099,325
Manufacturing machinery and equipment		136,230,189		136,053,175
Other property and equipment		39,360,377		38,465,785
Assets under construction		2,205,425		1,375,707
Total		230,341,769		228,728,581
Less-accumulated depreciation		117,318,369		105,323,406
Property, plant and equipment, net		113,023,400		123,405,175
GOODWILL		13,868,647		13,868,647
OTHER ASSETS		3,641,690		2,759,004
TOTAL	$	318,971,033	$	270,867,486
LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES
Current portion of long-term debt and capital lease obligation	$	6,019,598	$	7,560,884
Bank overdraft		4,777,540		—
Accounts payable		31,286,346		24,540,814
Dividends payable		1,211,740		546,641
Employees’ taxes withheld		248,408		275,112
Accrued profit sharing contribution		7,281,552		1,339,642
Accrued wages and expenses		11,964,585		11,289,678
Accrued income taxes		10,146,773		—
Total current liabilities		72,936,542		45,552,771
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION		58,941,362		63,958,948
DEFERRED INCOME TAXES		28,152,620		29,908,754
OTHER LIABILITIES		3,545,148		5,381,389
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 7)
STOCKHOLDERS’ EQUITY
Common stock-no par value-authorized 20,000,000 shares, issued 12,288,927 shares in 2004 and 12,205,927 in 2003		5,333,829		4,394,889
Additional paid-in capital		885,427		—
Retained earnings		149,731,709		123,236,904
Accumulated other comprehensive income (loss)		262,264		(748,301	)
Total		156,213,229		126,883,492
Less-treasury stock, 1,273,114 shares at cost		817,868		817,868
Total stockholders’ equity		155,395,361		126,065,624
TOTAL	$	318,971,033	$	270,867,486

See notes to consolidated financial statements and independent auditors’ report.

12

Consolidated Statements Of Cash Flows

	Year Ended October 31,
	2004			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)	$	30,446,248		$	(3,224,953	)	$	(6,008,897	)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Cumulative effect of change in accounting principle		—			228,410			—
Postretirement liabilities		(152,849	)		229,274			198,856
Landfill closure obligation		33,634			31,367			—
Depreciation and amortization		15,851,231			15,897,881			16,959,166
Write-off of deferred financing cost		375,624			—			—
(Gain) loss on sale of investments and property, plant and equipment		(45,724	)		125,663			654
Provision (benefit) for deferred income taxes		(4,933,072	)		(2,095,404	)		378,921
Workers’ compensation insurance deposit		(1,000,000	)		(676,000	)		—
Changes in assets and liabilities which provided (used) cash, exclusive of changes shown separately		(46,686,288	)		9,031,743			(1,728,256	)
Net cash provided by (used in) operating activities		(6,111,196	)		19,547,981			9,800,444
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(4,216,791	)		(2,694,137	)		(2,088,490	)
Proceeds from sale of property, plant and equipment		54,981			7,440			59,015
Purchases of investments		(1,143,794	)		(2,743,053	)		(13,938,270	)
Proceeds from sales of investments		5,146,030			12,974,436			12,252,956
Net cash provided by (used in) investing activities		(159,574	)		7,544,686			(3,714,789	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends		(3,951,443	)		(2,187,563	)		(3,826,922	)
Increase (decrease) in dividends payable		665,099			(500	)		(544,015	)
Proceeds from exercise of common stock options		938,940			—			328,124
Payment of long-term debt		(71,792,278	)		(22,542,755	)		(15,039,488	)
Proceeds from long-term debt		65,252,012			—			—
Repurchase of common stock		—			(70,140	)		—
Financing cost paid		(770,758	)		(285,000	)		(316,474	)
Interest rate swap termination fee		(1,382,780	)		(863,581	)		(742,201	)
Proceeds from bank overdraft		4,777,540			—			—
Capital lease obligation		—			234,557			—
Payment of capital lease principal		(18,606	)		(7,003	)		—
Net cash used in financing activities		(6,282,274	)		(25,721,985	)		(20,140,976	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(12,553,044	)		1,370,682			(14,055,321	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		13,422,044			12,051,362			26,106,683
CASH AND CASH EQUIVALENTS, END OF YEAR	$	869,000		$	13,422,044		$	12,051,362
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED (USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
(Increase) decrease in accounts receivable	$	(29,089,394	)	$	(6,167,956	)	$	1,653,025
(Increase) decrease in refundable income taxes		608,244			3,570,174			(2,428,722	)
(Increase) decrease in inventories		(42,534,414	)		2,797,357			326,717
(Increase) decrease in prepaid expenses		(64,910	)		(347,484	)		(107,018	)
(Increase) decrease in other assets		(81,905	)		(120,064	)		89,913
Increase (decrease) in accounts payable		6,745,532			7,648,119			(1,169,016	)
Increase (decrease) in accrued profit sharing contribution		5,941,910			734,919			(182,214	)
Increase (decrease) in accrued income taxes		10,146,773			—			—
Increase (decrease) in other liabilities		1,641,876			916,678			89,059
Total	$	(46,686,288	)	$	9,031,743		$	(1,728,256	)

See notes to consolidated financial statements and independent auditors’ report.

13

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation - The consolidated financial statements include the accounts of Roanoke Electric Steel Corporation and its wholly-owned subsidiaries, Shredded Products Corporation, John W. Hancock, Jr., Inc., Socar, Inc., RESCO Steel Products Corporation, Roanoke Technical Treatment & Services, Inc. and Steel of West Virginia, Inc. (the “Company”). All significant intercompany accounts and transactions have been eliminated. The Company operates in a single business segment.

Cash and Cash Equivalents - The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Investments - During 2004, the Company sold substantially all of its investments. Historically, investments consisted primarily of debt securities which were to mature between 2004 and 2033. The Company complied with Statement of Financial Accounting Standards (“SFAS”) No.115, “Accounting for Certain Investments in Debt and Equity Securities”, and accordingly, management classified its entire debt securities portfolio as “available for sale”. Under SFAS No. 115, “available for sale” securities were reported at fair value with unrealized gains and losses reported as other comprehensive income. These investments were carried on the balance sheet at fair value, which approximated amortized cost.

Inventories - Inventories of the Company are valued at the lower of cost or market. Cost is determined principally using the first-in, first-out method of accounting and includes materials, costs of production and manufacturing overhead. The determination of market includes such factors as utility of goods, the ability to dispose of the goods in the ordinary course of business, physical obsolescence and changes in price levels (see Note 2).

Property, Plant and Equipment - These assets are stated at cost. Depreciation expense is computed by straight-line and declining-balance methods. Maintenance and repairs are charged against operations as incurred. Major items of renewals and betterments are capitalized and depreciated over their estimated useful lives. Upon retirement or other disposition of plant and equipment, the cost and related accumulated depreciation are removed from the property and allowance accounts, and the resulting gain or loss is reflected in earnings (see Note 3).

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated during the life of those assets are less than the assets’ carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount.

Goodwill - The Company has adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”, which requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach. Based on the Company’s current reporting structure, it has determined that it operates as three reporting units and, therefore, has assigned goodwill at the operating division level. Fair value is measured using a valuation based on market multiples, comparable transactions and discounted cash flow methodologies. The goodwill impairment test is performed annually or whenever an event has occurred that would more likely than not reduce the fair value of a reporting unit below its carrying amount (see Note 12).

Deferred Financing Costs - Deferred financing costs are included in other long-term assets and represent expenses related to issuing the Company’s long-term debt. Such amounts are being amortized over the remaining term of the related financing and are included in interest expense (see Note 5).

Income Taxes - The Company applies the provisions of SFAS No. 109, “Accounting for Income Taxes”. Under SFAS No. 109, deferred income taxes are provided by the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the future tax consequences of temporary differences between tax bases and financial reporting bases of other assets and liabilities (see Note 4).

Revenue Recognition - Revenue is primarily recognized when title transfers upon shipment. Additionally, revenue is recognized on certain fabricated products sold pursuant to construction contracts utilizing the percentage-of-completion method. Percentage of completion is measured principally based on steel consumed on finished product as a percentage of the estimated steel required for each contract. We recognize profit at the time revenue is recognized, based on our estimates as to the project status and the costs

14

remaining to complete a particular project. Costs and estimated earnings on uncompleted contracts were $3,367,434 as of October 31, 2004 and $3,298,501 as of October 31, 2003, and are included in accounts receivable. Such fabricated products accounted for 19%, 20%, and 23% of consolidated sales for the years ending October 31, 2004, 2003 and 2002, respectively.

The Company records shipping and handling expenses in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-10, “Accounting for Shipping and Handling Fees and Cost”. Shipping and handling charges, billed to the customer, are included in sales revenues and the costs associated with such shipments are included in cost of sales. There were no sales to an unaffiliated customer in excess of 10% of consolidated sales for 2004, 2003 or 2002.

Concentration of Credit Risk - The Company sells to a large customer base of steel fabricators, steel service centers, original equipment manufacturers and construction contractors, most all of which deal primarily on 30-day credit terms. The Company believes its concentration of credit risk to be minimal in any one geographic area or market segment. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. Credit losses have not been significant in the past, with the exception of fiscal years 2004 and 2003, and are generally within management’s expectations.

Fair Value of Financial Instruments - At October 31, 2004, the fair value of the Company’s cash and cash equivalents, accounts receivable, and long-term debt approximated amounts recorded in the accompanying consolidated financial statements (see Note 5).

Stock-Based Compensation - The Company’s stock option plans are described more fully in Note 10. The Company accounts for stock options under the intrinsic value method recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. No stock-based employee compensation cost is reflected in net earnings (loss), as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation:

	Year Ended October 31,
	2004			2003			2002
Net earnings (loss):
As reported	$	30,446,248		$	(3,224,953	)	$	(6,008,897	)
Deduct total stock-based compensation expense determined under fair value method for all awards, net of tax		(88,313	)		(206,177	)		—
Pro forma	$	30,357,935		$	(3,431,130	)	$	(6,008,897	)
Basic net earnings (loss) per share:
As reported	$	2.78		$	(0.29	)	$	(0.55	)
Pro forma	$	2.77		$	(0.31	)	$	(0.55	)
Diluted net earnings (loss) per share:
As reported	$	2.76		$	(0.29	)	$	(0.55	)
Pro forma	$	2.75		$	(0.31	)	$	(0.55	)

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2004 and 2003, respectively: dividend yield of 2.70% and 1.58%; expected volatility of 37.94% and 67.24%; risk-free interest rates of 3.18% and 3.25%; and an expected life of 5 years.

Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Derivative Instruments - In June 1998, SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, was issued, establishing standards for accounting and reporting derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. Effective November 1, 2000, the Company adopted the policy of accounting and reporting the fair value of derivatives used as cash flow hedging activities, as referred to in SFAS No. 133, through other comprehensive income (see Note 6).

15

Recently Adopted and Recently Issued Accounting Pronouncements - In July 2002, SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, was issued, requiring companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 replaces EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 had no material impact on the Company’s results of operations or financial condition.

In December 2002, SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS No. 123, Accounting for Stock-Based Compensation”, was issued. This statement was issued to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock- based compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments to SFAS No. 123 in paragraphs 2 (a)-2 (e) of this statement were effective for financial statements for fiscal years ending after December 15, 2002 (see Notes 1 and 10).

In November 2002, the FASB issued FASB Interpretation No. (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others”. It clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term of the guarantee in the event that the specified triggering events or conditions occur. The objective of the initial measurement of the liability is the fair value of the guarantee at its inception. The initial recognition and initial measurement provisions of FIN 45 are effective on a prospective basis to guarantees issued or amended after December 31, 2002. The Company will record the fair value of future material guarantees, if any. The adoption of FIN 45 had no significant impact on the Company’s financial condition or results of operations.

In January 2003, FIN 46, “Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51”, was issued (revised December 2003). This interpretation provides guidance related to identifying variable interest entities (previously known as special purpose entities or SPEs) and determining whether such entities should be consolidated. This interpretation must be applied immediately to variable interest entities created or obtained after January 31, 2003, however certain provisions of the interpretation were deferred until the period ending after March 15, 2004. The company does not have any variable interest entities, and the adoption of this interpretation did not have an effect on the Company’s results of operations or financial condition.

In April 2003, the FASB issued SFAS No. 149, “Accounting for Derivative Instruments and Hedging Activities.” The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The amendments set forth in SFAS No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except for certain outlined exceptions. The adoption of SFAS No. 149 did not have a material impact on the Company’s results of operations or financial condition.

In May 2003, SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”, was issued. SFAS No. 150 is effective for the Company’s 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. The new rules establish standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that financial instruments within its scope be classified as liabilities. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position or results of operations.

In May 2004, the FASB issued FASB Staff Position (“FSP”) No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” When adopted, FSP No. 106-2 will supersede FSP No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” which was issued in January 2004 and permitted a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act until more authoritative guidance on the accounting for the federal subsidy was issued, which the Company elected. FSP No. 106-2 requires the Company to assess the impact of the federal subsidy on the accumulated postretirement benefit obligation and net periodic postretirement benefit cost. The Company adopted FSP No. 106-2, and based on its evaluating the effects of this Position, has determined there to be no material impact on the Company’s financial position or results of operations.

Reclassifications - Certain amounts included in the consolidated financial statements for prior years have been reclassified from their original presentation to conform with the current year presentation.

16

NOTE 2 - INVENTORIES

Inventories include the following major classifications:

	October 31,
	2004		2003
Scrap Steel	$	13,839,442	$	5,668,835
Melt supplies		4,216,074		2,554,662
Billets		12,226,288		4,066,909
Mill supplies		4,840,071		4,469,254
Work-in-process		14,568,837		6,832,299
Finished steel		52,408,947		35,973,286
Total inventories	$	102,099,659	$	59,565,245

NOTE 3 - PROPERTIES AND DEPRECIATION

Depreciation expense for the years ended October 31, 2004, 2003 and 2002 amounted to $14,554,355, $14,896,157 and $16,073,507, respectively. Generally, the rates of depreciation range from 3.3% to 20% for buildings and improvements, 5% to 33% for manufacturing machinery and equipment and 10% to 33% for other property and equipment. Property additions included no capitalized interest for 2004, 2003 and 2002.

NOTE 4 - INCOME TAXES

The Company files a consolidated federal income tax return. The federal income tax returns through October 31, 1999 have been examined by the Internal Revenue Service with all issues settled.

The following is a reconciliation of income tax expense (benefit) per consolidated statements of earnings (loss) to that computed by using the federal statutory tax rate of 35%:

	Year Ended October 31,
	2004		2003			2002
Federal tax at the statutory rate	$	17,033,133	$	(1,744,827	)	$	(3,663,951	)
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit		873,317		(176,912	)		(651,004	)
Executive compensation		270,431		—			—
Other items, net		42,965		(66,937	)		(144,580	)
Income taxes per consolidated statements of earnings (loss)	$	18,219,846	$	(1,988,676	)	$	(4,459,535	)

The components of income tax expense (benefit) are as follows:

	Year Ended October 31,
	2004			2003			2002
Current income taxes:
Federal	$	20,143,039		$	(281,031	)	$	(3,925,324	)
State		3,009,879			387,759			(913,132	)
Total current income taxes		23,152,918			106,728			(4,838,456	)
Deferred income taxes:
Federal		(3,995,788	)		(1,545,264	)		467,334
State		(937,284	)		(550,140	)		(88,413	)
Total deferred income taxes		(4,933,072	)		(2,095,404	)		378,921
Total income taxes	$	18,219,846		$	(1,988,676	)	$	(4,459,535	)

17

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. There are no valuation allowances. The deferred tax liabilities and assets are as follows:

	October 31,
	2004		2003
Deferred tax liabilities:
Depreciation	$	28,152,620	$	29,908,754
Deferred tax assets:
Accruals and allowances		3,051,473		1,986,570
Accrued self-insurance expenses		2,884,111		584,406
Postretirement costs		1,258,988		1,126,333
Inventories		466,230		188,783
Derivative liabilities		245,808		454,474
State loss carryover		—		318,944
Other		104,512		865,769
Total deferred tax assets		8,011,122		5,525,279
Net deferred tax liabilities	$	20,141,498	$	24,383,475

Realization of certain deferred assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to expiration of the carryforward periods in 2021. The Company believes it is more likely than not the deferred net assets will be realized.

NOTE 5 - LONG-TERM DEBT

Long-term debt consisted of the following:

	October 31,
	2004		2003
Syndicated term loan	$	30,000,000	$	71,250,000
Revolving credit agreement		34,752,012		—
Other notes payable		—		42,278
Total		64,752,012		71,292,278
Less - current portion		6,000,000		7,542,278
Long-term debt	$	58,752,012	$	63,750,000

On October 4, 2004, the Company entered into an $85,000,000, five-year credit arrangement with a group of banks. The credit facility consists of a $30,000,000 term loan and a $55,000,000 revolving loan. The credit facility permits the Company, upon request, to increase the aggregate amount by an additional $10,000,000, and establishes two sub-facilities pursuant to which one of the banks in the syndicate will issue letters of credit in the aggregate amount of up to $5,000,000 and will make swing-line loans in the aggregate amount of up to $5,000,000, with any such amounts to be applied to and reduce the amount available for borrowing under the revolving loan.

The loans will bear interest at the Company’s option at (i) one, two, three, six or, if available, nine or twelve month LIBOR as selected by the Company, or (ii) the greater of (A) the prime rate publicly announced from time to time by the loans administrative agent, or (B) the effective federal funds rate quoted by the Federal Reserve Bank of New York plus 1/2 of 1%. Under the term loan agreement and a portion of the revolver, interest was payable at October 31, 2004, at the one-month LIBOR rate of 1.87% plus 2.00%. Under the remainder of the revolver, interest was payable at October 31, 2004, at the bank’s base rate option of 5.75%. The term loan requires quarterly payments of principal in the amount of $1,500,000 plus interest, and the revolving loan requires quarterly payments of interest until the fifth anniversary of the credit facility at which time the outstanding principal balance of the revolving loan must be paid in full.

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The loans are secured by a pledge of the outstanding stock in each of the Company’s direct and indirect subsidiaries and by a lien on the tangible and intangible personal property of the Company and each of its subsidiaries. The Company may prepay the loans at any time at its option, and is required to make mandatory prepayments based on certain circumstances.

The loans are subject to various representations and warranties and affirmative and negative covenants, including the Company obligation to maintain a leverage ratio of less than or equal to 3:1, to maintain fixed charge coverage ratio greater than or equal to 1.10:1, and to limit capital expenditures on a consolidated basis to no more than $75,000,000 over the term of the credit facility. The Company was in compliance with the loan agreements as of October 31, 2004 and 2003.

Annual aggregate long-term debt maturities are approximately $6,000,000 a year for 2005, 2006, 2007 and 2008, and $40,752,012 for 2009.

Prior to October 4, 2004, the Company had a syndicated term loan, payable in quarterly installments of $3,750,000 plus interest, as of October 31, 2003, at the LIBOR rate of 1.16% plus 4.00%, due January 3, 2006. Such syndicated term loan was repaid with proceeds from the new credit arrangement. In connection with the extinguishment, the Company wrote off remaining, unamortized deferred finance costs of $375,624, which is included in interest expense in the consolidated statement of earnings.

NOTE 6 - DERIVATIVE INSTRUMENTS

Historically, the Company utilized interest rate swaps to manage its exposure to movements in interest rates paid on corporate debt and that qualified as cash flow hedges. On June 25, 1999, the Company entered into a reverse swap, converting $40,000,000 of existing term debt to a variable interest rate from a fixed rate. A fee of $1,300,000 was received and being recorded in income ratable over the 6 1/2 years which remained to maturity of the term loan.

Effective November 1, 2000, the Company adopted SFAS No. 133 and, in accordance with the transition provisions, recorded a cumulative effect adjustment of $1,663,516 in other comprehensive income to recognize the fair value of the swap as a cash flow hedging instrument. On April 1, 2002, the Company effected an early termination, or unwind, of its interest rate swap agreement and incurred a $3,000,179 termination fee payable to the counterparty over the term of the existing debt.

In connection with the Company’s debt refinancing on October 4, 2004, the remaining unamortized fee earned, $200,000, and unrecognized amounts included in other comprehensive loss related to these past hedges, $680,491 ($408,295 net of taxes), were recorded as adjustments to interest expense in the statement of earnings.

During fiscal years 2004 and 2003, the Company entered into multiple, one-year or less, derivative commodity instruments, to minimize the exposure of price risk related to certain natural gas purchases used in the manufacturing process at its West Virginia facility. The contracts used to mitigate the price risk related to natural gas purchases are designated as effective cash flow hedges for a portion of the natural gas usage over the periods in the agreements. Unrealized gains and losses associated with marking the contracts to market are recorded as a component of other comprehensive income (loss) and included in the stockholders’ equity section of the balance sheet as part of accumulated comprehensive income (loss). These gains and losses are recognized in earnings in the month in which the related natural gas is used, or in the month a hedge is determined to be ineffective. There were no ineffective hedges at October 31, 2004.

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The components of other comprehensive income (loss) are as follows:

	Year Ended October 31,
	2004									2003									2002
	Before-Tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount			Before-Tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount			Before-Tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period	$	(26,677	)	$	10,834		$	(15,843	)	$	200,142		$	(80,273	)	$	119,869			—			—			—
Reclassification adjustments for gains (losses) realized in net income		(17,233	)		6,999			(10,234	)		(86,811	)		34,630			(52,181	)		—			—			—
Net unrealized gains (losses)		(43,910	)		17,833			(26,077	)		113,331			(45,643	)		67,688			—			—			—
Unrealized losses on qualifying cash flow hedges:
Unrealized gains (losses) arising during period		196,749			(84,076	)		112,673			(32,567	)		14,042			(18,525	)	$	4,476,674		$	(1,909,789	)	$	2,566,885
Reclassification adjustments for gains (losses) realized in net income		220,902			(94,397	)		126,505			—			—			—			(2,041,126	)		872,226			(1,168,900	)
Net unrealized gains (losses)		417,651			(178,473	)		239,178			(32,567	)		14,042			(18,525	)		2,435,548			(1,037,563	)		1,397,985
Accretion of past hedging relationships		1,327,919			(530,455	)		797,464			849,163			(338,744	)		510,419			857,545			(365,321	)		492,224
Other comprehensive income (loss)	$	1,701,660		$	(691,095	)	$	1,010,565		$	929,927		$	(370,345	)	$	559,582		$	3,293,093		$	(1,402,884	)	$	1,890,209

The components of accumulated other comprehensive income (loss) are as follows:

	October 31,
	2004		2003
Unrealized gains on securities, net of taxes of $27,810 and $45,643	$	41,611	$	67,688
Unrealized gains (losses) on qualifying cash flow hedges, net of taxes of $164,431 and ($14,042)		220,653		(18,525	)
Past hedging relationships, net of taxes of $0 and ($530,455)		—		(797,464	)
Accumulated other comprehensive income (loss)	$	262,264	$	(748,301	)

NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES

At October 31, 2004, the Company was committed for $1,876,297 for purchases of equipment and production facilities.

The Company is not involved in any legal proceedings or environmental matters outside the ordinary course of business. In the opinion of management, amounts accrued for potential awards or assessments in connection with these matters at this time are adequate, and the outcome of such environmental and legal concerns currently pending will not have a material effect on the Company’s consolidated financial position, results of operations, or cash flows. The Company reassesses these matters as new facts and cases are brought to management’s attention.

NOTE 8 - COMMON STOCK AND EARNINGS PER SHARE

Outstanding common stock consists of 560,000 shares, issued prior to October 31,1967, at no stated value; 750,656 shares issued subsequent to October 31, 1967, at a stated value of $.50 per share; 1,310,656 shares issued in 1981 at no stated value; 1,310,656 shares, less the equivalent of 42 fractional shares, issued in 1986 at no stated value; 1,965,963 shares, less the equivalent of 151 fractional shares, issued in 1988 at no stated value; 800 shares issued in 1989 at no stated value; 3,000 shares issued in 1992 at no stated value; 1,200 shares issued in 1993 at no stated value; 44,000 shares issued in 1994 at no stated value; 3,023,804 shares, less the equivalent of 152 fractional shares, issued in 1995 at no stated value; 23,750 shares issued in 1996 at no stated value; 35,950 shares issued in 1997 at no stated value; 4,572,870 shares, less the equivalent of 158 fractional shares, issued in 1998 at no stated value, less 1,253,800 treasury (repurchased) shares retired during 1998; 75,900 shares issued in 1999 at no stated value, less 126,000 treasury (repurchased) shares retired during 1999; 30,275 shares issued in 2000 at no stated value, less 155,000 treasury (repurchased) shares retired during 2000; 10,500 shares issued in 2001 at no stated value; 31,250 shares issued in 2002 at no stated value, less 10,000 treasury (repurchased) shares retired during 2003 and 83,000 shares issued in 2004 at no stated value. During the years ended October 31, 1986 and October 31, 1996, the Company increased authorized common stock from 4,000,000

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shares to 10,000,000 shares, and from 10,000,000 shares to 20,000,000 shares, respectively. The Company retired in 1998, 1999, 2000 and 2003 all of its treasury stock applicable to the shares acquired through its common stock repurchase plans.

SFAS No. 128, “Earnings per Share”, requires the presentation of “basic” earnings per share and “diluted” earnings per share on the face of the statement of earnings. Basic earnings per share is computed by dividing the net income available to common stockholders by the weighted average shares of outstanding common stock. The calculation of diluted earnings per share is similar to basic earnings per share except that the denominator includes dilutive common stock equivalents such as stock options. Basic earnings (loss) per share have been computed based on the weighted average number of shares outstanding of 10,957,586 for 2004, 10,938,999 for 2003 and 10,934,380 for 2002. The average number of shares outstanding was weighted after giving effect to stock options exercised and/or repurchased common stock during 2004, 2003, and 2002. Diluted earnings (loss) per share have been computed based on the weighted average number of shares outstanding (including outstanding and exercisable stock options) of 11,034,445 for 2004, 10,945,346 for 2003 and 10,967,904 for 2002. Options to purchase 107,000,323,000 and 122,500 shares of common stock were outstanding at October 31, 2004, 2003 and 2002, respectively, but were not included in the computation of diluted earnings (loss) per share because the effect would be antidilutive.

NOTE 9 - PROFIT SHARING PLANS

The Company, including Shredded Products Corporation, RESCO Steel Products Corporation, Socar, Inc. and Steel of West Virginia, Inc. (“SWVA”), has qualified profit sharing plans which cover substantially all employees. John W. Hancock, Jr., Inc. has an unqualified plan. Socar, Inc.’s annual contribution is discretionary while the other plans’, except SWVA, annual contribution cannot exceed 20% of their combined earnings before income taxes. SWVA’s annual contribution cannot exceed 17% of its pretax profit for bargaining unit employees, with comparable amounts contributed ratably to the nonbargaining group. Total retirement contributions of all Companies shall not exceed the maximum amount deductible for such year under the Internal Revenue Code and amounted to $9,622,733 for 2004, $1,309,091 for 2003 and $658,699 for 2002.

NOTE 10 - STOCK OPTIONS

Under a nonqualified stock option plan which expired during 2004, the Company could issue 112,500 shares of unissued common stock to employees of the Company each plan year. Under a non-statutory stock option plan which expired during 2004, the Company could issue 25,000 shares of unissued common stock to directors of the Company over the life of the plan. There were 112,500 stock options granted in 2004 and 2003. There were no stock options granted in 2002. Options for 112,500 shares were granted for 2001, 112,500 shares for 2000, 112,500 shares for 1999, 84,000 shares for 1998, 82,000 shares for 1997, 75,000 shares for 1996, 41,500 shares for 1995, 36,000 shares for 1992, and 32,500 shares for 1990. Three-for-two stock splits in 1998 and 1995 increased these grants an additional 117,275 and 32,300 shares, respectively. These options are exercisable for a term of 5 years for employees and 10 years for directors from the date of grant, and a summary follows:

	Weighted Average Exercise Price Per Share		Shares
Balance, November 1, 2001	$	12.88	501,550
Granted		—	—
Exercised		8.93	(31,250	)
Expired or terminated		12.87	(27,000	)
Balance, October 31, 2002		13.16	443,300
Granted		8.84	112,500
Exercised		—	—
Expired or terminated		14.19	(126,300	)
Balance, October 31, 2003		11.62	429,500
Granted		10.36	112,500
Exercised		9.61	(83,000	)
Expired or terminated		13.78	(92,500	)
Balance, October 31, 2004		11.14	366,500
Shares available for grant at year-end			0

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The Company applies APB No. 25 and related Interpretations in accounting for the nonqualified stock option plans. Accordingly, compensation cost of $205,875, $167,625, and $0 for the years ended October 31, 2004, 2003 and 2002, respectively, was recognized for the difference between the exercise price and the fair value of the stock price at the grant date.

The fair value of options granted during the years ended October 31, 2004 and 2003 was $4.18 and $5.53, respectively. The following table summarizes information about stock options outstanding and exercisable at October 31, 2004:

Exercise Prices		Number Outstanding and Exercisable	Remaining Contractual Life in Years
	$  8.44	69,500	3.09
	9.61	80,500	1.25
	10.36	99,500	4.25
	10.50	10,000	2.33
	14.45	93,500	.25
	17.50	13,500	3.25
		366,500

NOTE 11 - HEALTH BENEFITS AND POSTRETIREMENT COSTS

The Company currently provides certain health care benefits for terminated employees who have completed 10 years of continuous service after age 45. On July 1, 2003 the Company amended the policy to discontinue coverage of employees that were not already qualified at the time. Those qualified were employees who were age 55 or more and had 10 years of service on July 1, 2003.

On October 31, 2003, the Company adopted SFAS No. 132, “Employers’ Disclosures About Pensions and Other Postretirement Benefits”, which standardizes disclosure requirements for pensions and other postretirement benefits. Required disclosures under this statement as of, and for the years ended October 31, are as follows:

	2004			2003			2002
Change in benefit obligation:
Benefit obligation at beginning of year	$	2,584,712		$	2,355,438		$	2,156,582
Service cost		—			179,032			182,150
Interest cost		104,212			167,882			142,169
Benefits paid		(408,148	)		(117,640	)		(125,463	)
Benefit obligation at end of year	$	2,280,776		$	2,584,712		$	2,355,438
Change in plan assets:
Fair value of plan assets at beginning of year		—			—			—
Employer contribution	$	408,148		$	117,640		$	125,463
Benefits paid		(408,148	)		(117,640	)		(125,463	)
Fair value of plan assets at end of year	$	—		$	—		$	—
Fund status	$	(2,280,776	)	$	(2,584,712	)	$	(2,355,438	)
Unrecognized net actuarial gains		(197,710	)		(265,972	)		(136,118	)
Unrecognized transition obligation		(470,422	)		(598,719	)		—
Accrued benefit cost	$	(2,948,908	)	$	(3,449,403	)	$	(2,491,556	)
Weighted average assumptions - discount rate		5.75	%		6.25	%		6.75	%
Components of net periodic benefit cost:
Service cost	$	—		$	179,032		$	182,150
Interest cost		104,212			167,882			142,169
Amortization of transition cost		(151,789	)		3,234			795
Net periodic benefit cost	$	(47,577	)	$	350,148		$	325,114

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The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation at October 31, 2004 was 10.0% for 2004, decreasing by one-percentage-point per year until 2006, then decreasing a half-percentage-point per year until it reaches 5.0% in 2012. A one-percentage-point increase in the assumed health care cost trend rate for each year would increase the October 31, 2004 accumulated postretirement benefit obligation by $78,594 and the aggregate service and interest cost by $4,881.

NOTE 12 - GOODWILL

At fiscal year-end October 31, 2001, the Company had goodwill of $13,868,647, net of accumulated amortization of $2,328,313. The Company early adopted SFAS No. 142 on November 1, 2001 and, subsequently, discontinued goodwill amortization. Based on the Company’s current reporting structure, it has determined that it operates as three reporting units and, therefore, has assigned goodwill at the operating division level. The Company completed the first step of the transitional goodwill impairment test, which indicated that the Company’s goodwill was not impaired as of October 31, 2001. On an ongoing basis, the Company will perform an annual impairment test on May 31. The Company performed annual goodwill impairment testing in each of 2002, 2003 and 2004, which indicated that the Company’s goodwill was not impaired. At least quarterly, the Company will analyze whether an event has occurred that more likely than not will reduce the reporting unit’s fair value below its carrying amount and, if necessary, a goodwill impairment test will be performed between the annual dates. Impairment adjustments recognized after adoption, if any, will be recognized as operating expenses.

NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION

	Year Ended October 31,
	2004		2003			2002
Cash paid during the period for:
Interest	$	3,959,443	$	5,266,028		$	6,542,485
Income taxes (net of cash received)	$	11,706,806	$	(3,791,376	)	$	(2,409,734	)

NOTE 14 - DEFERRED COMPENSATION PLAN

The Company maintains a nonqualified deferred compensation plan (the “Executive Deferred Compensation Plan”). The purpose of the Executive Deferred Compensation Plan is to provide to certain eligible employees of the Company the opportunity to: (1) defer elements of their compensation (including any investment income thereon) which might not otherwise be deferrable under the current plans; and (2) receive the benefit of additions to their deferral comparable to those obtainable under the current plans in the absence of certain restrictions and limitations in the Internal Revenue Code. Amounts deferred are paid into a trust owned by the Company and are included in other assets. The Company’s liability and trust asset under the Executive Deferred Compensation Plan as of October 31, 2004 and 2003 was $614,382 and $537,011, respectively.

NOTE 15 - ENTERPRISE-WIDE INFORMATION

The Company’s business consists of one industry segment, which is the extracting of scrap metal from discarded automobiles and the manufacturing, fabricating and marketing of merchant steel bar products and specialty steel sections, reinforcing bars, open-web steel joists and billets. The industry segment consists of three classes of products - merchant steel products and specialty steel sections, fabricated bar joists and reinforcing bars and billets.

	Financial Information Relating to Classes of Products
	2004		2003		2002
Sales to unaffiliated customers:
Merchant steel and specialty steel sections	$	343,604,922	$	211,209,483	$	172,654,655
Fabricated bar joists and reinforcing bars		109,759,887		75,449,093		73,575,373
Billets		26,012,379		25,432,380		17,543,681
Total consolidated sales	$	479,377,188	$	312,090,956	$	263,773,709

Information relating to geographic areas indicates that significantly all of the consolidated sales are domestic, as foreign revenues are not material.

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NOTE 16 - ASSET RETIREMENT OBLIGATIONS

In June 2001, SFAS No. 143, “Accounting for Asset Retirement Obligations”, was issued, addressing financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated costs. SFAS No. 143 requires that the discounted fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of the fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.

The Company adopted SFAS No. 143 on November 1, 2002. Application of the statement encompasses an industrial landfill located on the site of the Company’s subsidiary, Shredded Products Corporation, which will operate for approximately thirty-four more years before closing.

SFAS No. 143 requires pro forma disclosure of the amount of the liability for obligations as if the statement had been applied during all periods affected, using current information, current assumptions, and current interest rates. In addition, the effect of adopting a new accounting principle on net earnings and the related per share amounts is required to be shown on the face of the statement of earnings for all periods presented under APB No. 20.

On November 1, 2002, the date of adoption, an asset retirement obligation for landfill closure and post closure costs of $433,902 was recorded, compared to the associated long-lived asset, net of accumulated depreciation of $205,492. This resulted in a cumulative effect of adopting this statement of $228,410. The effect of this statement had it been applied during prior years would not have been material to the amounts presented or to the reported earnings per share.

At October 31, 2004 and 2003, the asset retirement obligation totaled $498,903 and $465,269, respectively, and is included in other non-current liabilities. Accretion expense was $33,634 in 2004 and $31,367 in 2003.

NOTE 17 - LEASES

The Company has non-cancelable operating leases for trucks and trailers used in hauling products and supplies, various manufacturing and office equipment, land used for storage and access purposes, and buildings used both as office and plant facilities and for product and supplies storage. Rental expense under operating leases was $2,063,318, $1,767,433 and $1,919,587 in 2004, 2003 and 2002, respectively.

The Company has a capital lease for land used in the manufacturing process. The liability associated with the capital lease amounted to $208,948 and $227,554 at October 31, 2004 and 2003, respectively.

The future minimum lease payments under non-cancelable operating and capital leases as of October 31, 2004 are as follows:

	Operating Leases		Capital Leases
2005	$	1,777,719	$	30,000
2006		1,663,118		30,000
2007		1,488,772		30,000
2008		1,447,675		30,000
2009 and after		1,350,581		140,000
Total minimum lease payments	$	7,727,865		260,000
Less amounts representing interest				51,052
Present value of net minimum lease payments				208,948
Less current portion under capital lease				19,598
Long-term obligation under capital lease			$	189,350

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NOTE 18 - UNAUDITED QUARTERLY FINANCIAL DATA

Summarized unaudited quarterly financial data for 2004 follows:

	Three Months Ended
	January 31		April 30		July 31		October 31
Sales	$	87,255,510	$	118,949,522	$	129,443,989	$	143,728,167
Gross earnings	$	8,851,857	$	19,368,213	$	25,938,043	$	37,007,729
Net earnings	$	1,533,676	$	5,222,056	$	7,757,545	$	15,932,971
Net earnings per share:
Basic	$	.14	$	.48	$	.71	$	1.45
Diluted	$	.14	$	.47	$	.70	$	1.44

Summarized unaudited quarterly financial data for 2003 follows:

	Three Months Ended
	January 31			April 30			July 31			October 31
Sales	$	61,129,954		$	77,075,724		$	82,285,245		$	91,600,033
Gross earnings	$	3,073,159		$	4,276,379		$	6,256,455		$	10,484,358
Net earnings (loss)	$	(2,129,872	)	$	(1,476,247	)	$	(319,569	)	$	700,735
Net earnings (loss) per share:
Basic	$	(.19	)	$	(.13	)	$	(.03	)	$	.06
Diluted	$	(.19	)	$	(.13	)	$	(.03	)	$	.06

To the Stockholders and Board of Directors of Roanoke Electric Steel Corporation:

We have audited the accompanying consolidated balance sheets of Roanoke Electric Steel Corporation and its wholly-owned subsidiaries (the “Company”) as of October 31, 2004 and 2003, and the related consolidated statements of earnings (loss), stockholders’ equity and comprehensive earnings (loss), and cash flows for each of the three years in the period ended October 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Roanoke Electric Steel Corporation and its wholly-owned subsidiaries at October 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 16 to the consolidated financial statements, effective November 1, 2002, the Company changed its method for accounting for asset retirement obligations in accordance with Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations.”

Raleigh, North Carolina

December 8, 2004

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FORWARD-LOOKING STATEMENTS

From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company’s business include economic and industry conditions, availability and prices of utilities, supplies and raw materials, prices of steel products, foreign and domestic competition, foreign trade policies affecting imports and exports, governmental regulations, interest rates, inflation, labor relations, environmental concerns and compliance issues, and others.

OVERVIEW

During our 2004 fiscal year, the Company reported net earnings of $30,446,248. The steel industry as a whole has experienced a very robust year in terms of earnings. The Company was able to increase its profit margins in a period of rapidly rising costs and pricing environment, as discussed more fully below.

The Company is a domestic steel manufacturing company. The Company, directly and through its subsidiaries, is engaged in the manufacturing, fabricating and marketing of merchant steel products, specialty steel sections, billets, open-web steel joists and reinforcing bars. Each subsidiary is either a supplier to the parent company or a purchaser of its finished product and billets. The Company sells its products through its sales force to our customers, which include service centers, original equipment manufacturers, and fabricators.

Roanoke Electric Steel Corporation, the parent company, is a state-of-the-art steel mini-mill located in Roanoke, Virginia. This facility melts scrap steel in electric furnaces and continuously casts the molten steel into billets. These billets are rolled into merchant steel products consisting of angles, plain rounds, flats, channels and reinforcing bars of various lengths and sizes. Excess steel billet production is sold to mills without sufficient melting capacities or facilities. Roanoke Electric Steel Corporation markets its products to steel service centers and fabricators. Steel of West Virginia, Inc., through its subsidiary, SWVA, Inc., is a steel mini-mill and steel fabricating facility operating in Huntington, West Virginia. A steel fabricating subsidiary, Marshall Steel, Inc., is located in Memphis, Tennessee. These locations produce or fabricate specialty steel sections and custom-finished products and serve niche markets. Shredded Products Corporation, a subsidiary with operations in Rocky Mount and Montvale, Virginia, extracts scrap steel and other metals from junked automobiles and other waste materials. These facilities supply the parent company with a substantial amount of its raw materials. Nonferrous metals generated in the process are sold to unrelated customers. John W. Hancock, Jr., Inc. and Socar, Inc. are steel fabrication subsidiaries located in Salem, Virginia, Florence, South Carolina and Continental, Ohio. All three operations purchase rounds and angles from the parent company to fabricate steel joists and joist girders. These joists and joist girders are used as horizontal supports for floors and roofs in commercial and industrial buildings. The Hancock facility also manufactures structural pallet rack and structural cantilever rack. This rack is used for heavy storage in retail, warehouses and distribution centers. RESCO Steel Products Corporation, a Salem, Virginia based subsidiary, fabricates concrete reinforcing steel by cutting and bending it to contractor specifications.

ECONOMIC FACTORS AND STEEL INDUSTRY TRENDS AFFECTING OPERATING RESULTS

The Company’s sales are predominantly affected by the volume of products shipped to customers, the corresponding mix of products shipped and the associated sales prices of each product. These factors can be significantly impacted by general economic conditions, industry trends and competitive pressures. The Company has limited pricing power and in general price will rise or fall based on market forces. The cost of the Company’s main raw material, scrap steel, is also based on market forces.

All direct and indirect manufacturing costs are included in cost of sales. The principle elements of cost of sales are raw materials, labor and energy. The primary components of raw materials include scrap and other additives, the costs of which are demand driven, and can be affected by available supply and inflationary pressures. The steel industry initiated a number of scrap surcharges and base-price increases during the year due to the increased cost of scrap steel. Labor costs are

26

influenced mainly by production and shipment levels. Energy costs are associated with the Company’s utilization of both electricity and natural gas as its power sources, with electric arc furnaces using electricity and with reheat furnaces using natural gas. The arc furnaces are used in the actual melting of scrap steel (to produce billets), while the reheat furnaces are used to reheat the billets which are then rolled into a finished product. The availability of this power supply and the peak demands by the Company determine energy pricing.

INCOME STATEMENT CLASSIFICATIONS

Sales

The Company’s sales are a factor of net tons shipped, product mix and related pricing. Sales are determined by subtracting product returns, sales discounts, return allowances and claims from total sales.

Cost of Sales

The Company’s cost of sales represent all direct and indirect costs associated with the manufacture of our products. The principal elements of these costs are steel scrap, alloys, electrodes, depreciation, and freight.

Other Operating Expenses (Income)

The Company’s other operating expenses are composed of four main areas. Administrative expenses consist of costs associated with our sales, finance and accounting, and administrative departments. These costs include labor and benefits, professional services, certain insurance expenses and various property taxes. Interest expense consists of interest and financing cost amortization associated with our credit facilities as described in the notes to our financial statements contained elsewhere in this report. Profit sharing expenses are related to the Company’s various plans’ contributions which represent a percentage of earnings or agency limitations. The antitrust litigation settlement is due to partial settlements received in conjunction with a class action suit for antitrust violations against the Company’s graphite electrode suppliers.

The following table sets forth amounts from our consolidated statements of earnings (loss) along with the dollar and percentage change for fiscal 2004 compared to fiscal 2003:

	2004			2003			$ Inc (Dec)			% Inc (Dec)
Sales	$	479,377,188		$	312,090,956		$	167,286,232		53.6	%
Cost of sales		388,211,346			288,000,605			100,210,741		34.8	%
Gross Earnings		91,165,842			24,090,351			67,075,491		278.4	%
Other operating expenses (income):
Administrative expenses		31,666,334			23,285,533			8,380,801		36.0	%
Interest expense		4,480,195			5,435,464			(955,269	)	(17.6	%)
Profit sharing		9,622,733			1,309,091			8,313,642		635.1	%
Interest income		(207,694	)		(433,558	)		225,864		52.1	%
Antitrust litigation settlement		(3,061,820	)		(520,960	)		(2,540,860	)	(487.7	%)
Total operating expenses		42,499,748			29,075,570			13,424,178		46.2	%
Earnings (loss) before income taxes and cumulative effect of change in accounting principle		48,666,094			(4,985,219	)		53,651,313		1,076.2	%
Income tax expense (benefit)		18,219,846			(1,988,676	)		20,208,522		1,016.2	%
Earnings (loss) before cumulative effect of change in accounting principle		30,446,248			(2,996,543	)		33,442,791		1,116.0	%
Cumulative effect of change in accounting principle		—			(228,410	)		228,410		100.0	%
Net earnings (loss)	$	30,446,248		$	(3,224,953	)	$	33,671,201		1,044.1	%

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The following table sets forth amounts from our consolidated statements of loss along with the dollar and percentage change for fiscal 2003 compared to fiscal 2002:

	2003			2002			$ Inc (Dec)			% Inc (Dec)
Sales	$	312,090,956		$	263,773,709		$	48,317,247		18.3	%
Cost of sales		288,000,605			246,172,654			41,827,951		17.0	%
Gross Earnings		24,090,351			17,601,055			6,489,296		36.9	%
Other operating expenses (income):
Administrative expenses		23,285,533			22,543,027			742,506		3.3	%
Interest expense		5,435,464			6,552,936			(1,117,472	)	(17.1	%)
Profit sharing		1,309,091			658,699			650,392		98.7	%
Antitrust litigation settlement		(520,960	)		—			(520,960	)	*
Interest income		(433,558	)		(1,055,175	)		621,617		58.9	%
Officer life insurance proceeds		—			(630,000	)		630,000		100.0	%
Total operating expenses		29,075,570			28,069,487			1,006,083		3.6	%
Loss before income taxes and cumulative effect of change in accounting principle		(4,985,219	)		(10,468,432	)		5,483,213		52.4	%
Income tax benefit		(1,988,676	)		(4,459,535	)		2,470,859		55.4	%
Loss before cumulative effect of change in accounting principle		(2,996,543	)		(6,008,897	)		3,012,354		50.1	%
Cumulative effect of change in accounting principle		(228,410	)		—			(228,410	)	*
Net loss		($3,224,953	)		($6,008,897	)	$	2,783,944		46.3	%

* cannot be calculated

RESULTS OF OPERATIONS

Sales

Sales increased 18.3% in 2003 mainly due to improved selling prices for merchant bar products, specialty steel sections and billets. Selling prices for merchant bar products, specialty steel sections and billets increased 18.8%, 8.8% and 11.3%, respectively. The improvement in selling prices was principally due to rising scrap steel costs which prompted several industry-wide price increases as well as a strengthening in demand for the company’s products. Tons shipped of merchant bar products, specialty products and billets also increased as a result of an improvement in the company’s markets. Fabricated selling prices increased 1.1% during the year, although the total tons shipped decreased due to continued intense competition within the commercial construction industry.

The momentum obtained during 2003 continued in 2004. Sales for 2004 increased 53.6% to $479,377,188 compared to $312,090,956 in 2003. Average price per ton for merchant products, specialty products, fabricated products and billets increased 49.8%, 25.2%, 28.6% and 48.1%, respectively, due to both product mix and higher selling prices. The volatile scrap market once again prompted industry-wide price increases due to the rising cost of scrap. Tons shipped of merchant products, specialty products and fabricated products increased 15.3%, 21.4% and 15.6%, respectively. Billet shipments declined due to a greater demand for internal consumption, thus reducing the tons available for shipment to outside customers.

Cost of Sales and Gross Margins

Cost of sales increased in 2003 due, mainly, to an increase in tons shipped of specialty products and billets, and an increase in the costs of scrap steel. Cost of sales increased in 2004 due to the increased tons shipped of each product class mentioned above, and an increase in scrap costs of 72.6%.

In 2003, gross earnings as a percentage of sales was 7.7%, due primarily to an increase in selling prices in three of our product classes despite higher scrap costs. Gross earnings increased from 7.7% in 2003 to 19% in 2004. The Company experienced a widening of our gross margins during 2004 as our average selling price per ton increased quicker than our average scrap cost.

Repairs and maintenance expense for the years ended October 31, 2004, 2003, 2002 amounted to $26,372,867, $19,585,305, and $17,425,850 respectively. Repairs and maintenance fluctuates depending upon the required needs during each of the periods mentioned. The Company has no significant deferred maintenance and believes its facilities are operating within reasonable productive capacities.

Administrative Expenses

Total administrative expenses increased in 2003, mainly, due to bad debt charges of $1,264,702 as a result of the bankruptcy of a few customers, and a $1,100,000 increase in bad debt

28

reserves in connection with another customer. These charges more than offset a decline in salaries of $173,207, director’s fees of $112,500, and administrative insurance (workers’ compensation and health claims) expense of $1,288,796. Administrative expenses as a percentage of sales decreased to 7.5% due to the increase in sales.

Administrative expenses increased 36.0% from 2003 to 2004. Executive and other management compensation increased by $4,512,121, insurance expense increased by $3,229,952 (relating mainly to claims for workers’ compensation and health benefits) and professional fees increased by $1,316,930 (most in relation to the Sarbanes-Oxley Act), more than offsetting the bad debt expense reduction of $1,249,299. Administrative expenses as a percentage of sales decreased to 6.6% due to the increase in sales.

Interest Expense

In 2003, interest expense declined due to reduced average borrowings and lower average interest rates. Interest expense declined again in 2004 as a result of reduced average borrowings and lower average interest rates. In October 2004 the Company entered into a new five-year loan agreement with its banking syndicate. The new facility provides for a revolving loan of up to $55,000,000 and a term loan of $30,000,000.

The loans will bear interest at the Company’s option at (i) one, two, three, six or, if available, nine or twelve month LIBOR as selected by the Company, or (ii) the greater of (A) the prime rate publicly announced from time to time by the loans administrative agent, or (B) the effective federal funds rate quoted by the Federal Reserve Bank of New York plus 1/2 of 1%. The term loan requires quarterly payments of principal in the amount of $1,500,000 plus interest, and the revolving loan requires quarterly payments of interest until the fifth anniversary of the credit facility at which time the outstanding principal balance of the revolving loan must be paid in full.

Profit Sharing Expense and Income Taxes

Contributions to various profit sharing plans are determined as a proportion of earnings before income taxes and should normally increase or decrease with earnings. However, in 2003 and 2002, profit sharing expense was accrued, even though consolidated operating losses were incurred, because two plans provided benefits as a result of earnings by the sponsoring companies. One plan provided no benefits due to losses by the sponsoring company. During 2004 profit sharing expense increased due to the improved profitability of the Company.

In 2003, the effective rate for income tax benefits was lower, mainly, due to the absence of a research and development refund of $487,358 received in 2002. The effective income tax rate was lower in 2004 due to a significant increase in earnings before taxes and certain state income tax credits earned. The effective income tax rates for 2004, 2003 and 2002 were 37.4%, 39.9% and 42.6%, respectively.

Interest Income

Interest income decreased in each of the comparable years resulting from both reduced interest rates and investments.

Antitrust Litigation Settlement

Other operating expense were reduced by $3,061,820 and $520,000, respectively, in 2004 and 2003 first quarters, as a result of partial settlements received in conjunction with a class action suit for antitrust litigation against the Company’s graphite electrode suppliers.

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

At year-end, working capital was $115,500,754, the current ratio was 2.6 to 1 and the quick ratio was 1.0 to 1. These are sound indicators of ample liquidity and a healthy financial condition, even though, at the timing of balance sheet presentation, a portion of cash was in an overdraft position. Current debt maturities are $6,000,000 annually, which will affect future liquidity and working capital.

Net cash used in operations was ($6,111,196) for the year ended October 31, 2004. Net cash used related to operating assets and liabilities increased $55,718,031 (2004 - ($46,686,288); 2003 - $9,031,743), which was primarily attributable to the 53.6% growth in the Company’s sales. Earnings from operations improved $33,671,201 (2004 - $30,446,248; 2003 - ($3,224,953)). Earnings for 2004 included a $3,061,820 payment received from graphite electrode plaintiffs in conjunction with a class action suit for antitrust violations. Amounts received related to this matter were $520,960 in 2003. With the favorable turn in market conditions, the Company anticipates future positive cash flows, which should generate the cash needed to cover anticipated contractual obligations and various planned capital expenditures.

Net cash used in investing activities was ($159,574) for the year ended October 31, 2004. Expenditures for property, plant and equipment amounted to $4,216,791 for the year. During 2004, net cash used in investing activities included net proceeds of $4,002,236 from the sale (purchase) of investments, partially used to curtail debt.

Net cash used in financing activities was ($6,282,274) for the year ended October 31, 2004. Cash dividends of $3,951,443 were paid during the year, as the Company increased its dividend rate. Net cash used in financing activities included the refinancing of long-term debt, with the curtailment and eventual payoff of the existing loan agreement amounting to $71,792,278, against proceeds of $65,252,012 on the new credit facility. With this new credit facility, the loans are secured by a pledge of the outstanding stock in each of the Company’s direct and indirect subsidiaries and by a lien on the tangible and intangible personal property of the Company and each of its subsidiaries. The Company may prepay the loans at any time at its option, and is required to make mandatory prepayments based on certain circumstances. The loans are

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subject to various representations and warranties and affirmative and negative covenants, including the Company obligation to maintain a leverage ratio of less than or equal to 3:1, to maintain fixed charge coverage ratio greater than or equal to 1.10:1, and to limit capital expenditures on a consolidated basis to no more than $75,000,000 over the term of the credit facility. As to debt maturities, refer to contractual obligations below. Cash requirements near year-end pushed a portion of cash to an overdraft position of $4,777,540.

The Company’s ability to meet its debt service obligations and reduce its total debt will depend upon its future performance, which in turn, will depend upon general economic, financial and business conditions, along with competition, legislation and regulations that are largely beyond its control. The Company believes that cash flow from operations (improving with better market conditions and corporate earnings), together with availability on the new revolving credit facility, should provide the liquidity and capital resources necessary to remain competitive, fund operations, and meet required debt retirement for at least the next twelve months.

The Company was in compliance with its loan agreement as of October 31, 2004 (see Note 5).

At October 31, 2004, there were commitments for the purchase of property, plant and equipment of $1,876,297. These commitments, together with current debt maturities, will affect future earnings, working capital and liquidity, and will be financed from available cash reserves, internally generated funds and the revolving credit facility.

During the year, borrowings decreased to $64,960,960, and the ratio of debt to equity remained at 1.1 to 1. The percentage of long-term debt to total capitalization decreased from 33.7% to 27.5% at year-end. These improvements resulted from the pay down and refinancing of long-term debt.

Management is of the opinion that adoption of the Clean Air Act Amendments or any other environmental concerns will not have a materially adverse effect on the Company’s operations, capital resources or liquidity (see Note 7). Applicable additional future capital expenditures are presently estimated to be less than $10,000,000 and will be completed and funded, as the Company’s financial resources permit.

The following table sets forth the Company’s contractual obligations, excluding interest charges, at October 31, 2004, and the effect such obligations are expected to have on liquidity and cash flow in future periods:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Long-Term Debt	$	64,752,012	$	6,000,000	$	12,000,000	$	46,752,012		—
Capital Lease Obligations		208,948		19,598		42,381		47,016	$	99,953
Operating Leases		7,727,865		1,777,719		3,151,890		2,798,256		—
Purchase Obligations		1,876,297		1,876,297		—		—		—
Other Long-Term Liabilities		3,545,148		200,000		500,000		500,000		2,345,148
Total	$	78,110,270	$	9,873,614	$	15,694,271	$	50,097,284	$	2,445,101

OFF-BALANCE SHEET FINANCING ARRANGEMENTS

The Company has no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s discussion and analysis of its financial condition and results of operations is based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Estimates and assumptions are made, during the preparation of these financial statements that affect the amounts reported. Periodically, the Company evaluates its estimates, including those related to contracts, warranties (if any), taxes, insurance and environment. Under different assumptions and conditions, actual costs may vary from these estimates.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements:

Allowance for Doubtful Accounts - Allowances for doubtful accounts are maintained to provide for estimated losses resulting from the inability of the Company’s customers to make required payments. Such allowances are estimated based on historical loss experience (relative to aging of accounts receivable) and current market economic conditions affecting our customers (i.e., bankruptcy filing). If the amount of allowances exceeds our estimates, or if the financial condition

30

of the Company’s customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances may be required.

Impairments of Long-Lived Assets - In accordance SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated during the life of those assets are less than the assets’ carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount.

Self-Retained Insurance Risks - The company has self-retained insurance risks associated with coverage for workers’ compensation and insurance plans. Accrued liabilities have been recorded based on estimates of the ultimate costs to settle incurred and incurred but not reported claims. The Company’s estimates are based on judgments and actuarial assumptions regarding the frequency and severity of claims, historical claims loss data, economic conditions and claim management and settlement practices. If actual claims loss experience exceed our estimates, additional liabilities may be required.

Contingencies - Compliance with environmental laws and regulations established by federal, state and local authorities may subject the Company to additional costs. The Comany believes it is in compliance with such laws and regulations based on currently available facts and present laws and regulations.

Recently Adopted and Recently Issued Accounting Pronouncements

In July 2002, SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, was issued, requiring companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 replaces EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 had no material impact on the Company’s results of operations or financial condition.

In December 2002, SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS No. 123, Accounting for Stock-Based Compensation”, was issued. This statement was issued to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments to SFAS No. 123 in paragraphs 2 (a)-2 (e) of this statement were effective for financial statements for fiscal years ending after December 15, 2002 (see Notes 1 and 10).

In November 2002, the FASB issued FASB Interpretation No. (“FIN”) 45, ‘Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others”. It clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term of the guarantee in the event that the specified triggering events or conditions occur. The objective of the initial measurement of the liability is the fair value of the guarantee at its inception. The initial recognition and initial measurement provisions of FIN 45 are effective on a prospective basis to guarantees issued or amended after December 31, 2002. The Company will record the fair value of future material guarantees, if any. The adoption of FIN 45 had no significant impact on the Company’s financial condition or results of operations.

In January 2003, FIN 46, “Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51”, was issued (revised December 2003). This interpretation provides guidance related to identifying variable interest entities (previously known as special purpose entities or SPEs) and determining whether such entities should be consolidated. This interpretation must be applied immediately to variable interest entities created or obtained after January 31, 2003, however certain provisions of the interpretation were deferred until the period ending after March 15, 2004. The company does not have any variable interest entities, and the adoption of this interpretation did not have an effect on the Company’s results of operations or financial condition.

In April 2003, the FASB issued SFAS No. 149, “Accounting for Derivative Instruments and Hedging Activities.” The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The amendments set forth in SFAS No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except for certain outlined exceptions. The adoption of SFAS No. 149 did not have a material impact on the Company’s results of operations or financial condition.

In May 2003, SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities

31

and Equity”, was issued. SFAS No. 150 is effective for the Company’s 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. The new rules establish standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that financial instruments within its scope be classified as liabilities. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position or results of operations.

In May 2004, the FASB issued FASB Staff Position (“FSP”) No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” When adopted, FSP No. 106-2 will supersede FSP No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” which was issued in January 2004 and permitted a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act until more authoritative guidance on the accounting for the federal subsidy was issued, which the Company elected. FSP No. 106-2 requires the Company to assess the impact of the federal subsidy on the accumulated postretirement benefit obligation and net periodic postretirement benefit cost. The Company adopted FSP No. 106-2, and based on its evaluating the effects of this Position, has determined there to be no material impact on the Company’s financial position or results of operations.

The Common Stock of Roanoke Electric Steel Corporation is traded on the Nasdaq National Market using the symbol RESC. At year-end, there were approximately 540 shareholders of record. All amounts below are per share.

	2004 Stock Prices				2003 Stock Prices				Cash Dividends
	High		Low		High		Low		2004		2003
First Quarter	$	13.26	$	9.30	$	11.03	$	9.33	$	.05	$	.05
Second Quarter		14.83		12.10		11.25		6.55		.10		.05
Third Quarter		14.57		11.60		9.20		5.98		.10		.05
Fourth Quarter		16.88		13.35		10.20		8.90		.11		.05

32

Officers

Donald G. Smith, 69

Chairman, Treasurer and Chief Executive Officer

47 years of service

T. Joe Crawford, 49

President and Chief Operating Officer

27 years of service

J. Kenneth Charles, III, 51

President, Socar, Inc.

27 years of service

Timothy R. Duke, 53

President and Chief Executive Officer,

Steel of West Virginia, Inc.

17 years of service

James F. Garlow, 68

President, John W. Hancock, Jr., Inc.

43 years of service

H. James Akers, Jr., 65

Vice President, Melt Operations

48 years of service

Daniel L. Board, 67

Vice President, Purchasing

44 years of service

Donald R. Higgins, 59

Vice President-Sales

39 years of service

Mark G. Meikle, 40

Vice President-Finance, Assistant Treasurer and Chief Financial Officer

11 years of service

William M. Watson, Jr., 49

General Counsel and Secretary

1 year of service

Board Of Directors

George B. Cartledge, Jr.

Chairman,

Grand Home Furnishings, Inc.

T. Joe Crawford

President and Chief Operating Officer,

Roanoke Electric Steel Corporation

Timothy R. Duke

President and Chief Executive Officer,

Steel of West Virginia, Inc.

George W. Logan

Chairman,

Valley Financial Corporation

Charles I. Lunsford, II

Retired Chairman,

Charles Lunsford Sons & Associates

Thomas L. Robertson

Chairman,

Carilion Foundation

Donald G. Smith

Chairman, Treasurer and Chief Executive Officer,

Roanoke Electric Steel Corporation

Charles W. Steger

President,

Virginia Polytechnic Institute and State University

Joseph H. Vipperman

Retired Executive Vice President-Corporate Services,

American Electric Power Company

Committees Of The Board

Executive:

D. G. Smith, Chairman;

T. L. Robertson, G.W. Logan,

G. B. Cartledge, Jr.

Audit:

T. L. Robertson, Chairman;

G.W. Logan, C.W. Steger

Compensation:

G. B. Cartledge, Jr., Chairman;

C. I. Lunsford, II, J. H. Vipperman

Profit Sharing:

C. I. Lunsford, II, Chairman;

D. G. Smith, M. G. Meikle

Nominating and Corporate Governance:

C. I. Lunsford, II, Chairman;

G. B. Cartledge Jr., C.W. Steger

Corporate Information

Annual Meeting

The 2005 Annual Meeting of Shareholders will be held at 10:00 a.m. on Friday, January 28, 2005 at the American Electric Power Company Building, 40 Franklin Road, S.W., Roanoke, Virginia.

Outside Counsel

Woods Rogers P.L.C.

Roanoke, Virginia

Transfer Agent

Shareholder Inquiries:

Roanoke Electric Steel Corporation

c/o EquiServe

P.O. Box 43012

Providence, RI 02940-3010

1-800-633-4236

www.equiserve.com

Dividend Reinvestment Plan

Roanoke Electric Steel offers its shareholders a dividend reinvestment plan through its transfer agent. For more information, please contact the transfer agent or William M. Watson, Jr., General Counsel and Secretary.

Independent Auditors

Deloitte & Touche LLP

Raleigh, North Carolina

Stock Listing

Nasdaq National Market

Symbol: RESC

Financial Information

Analysts, investors and others seeking financial information are requested to contact: Mark G. Meikle, Vice President-Finance or William M. Watson, Jr., General Counsel and Secretary.

Copies of the Corporation’s Annual Report or Form 10-K may be obtained without charge by writing to Mr. Watson at the address below.

Corporate Office

102 Westside Boulevard NW (zip 24017)

P. O. Box 13948

Roanoke, Virginia 24038-3948

540-342-1831

Roanoke Electric Steel Corporation

Steel Mini-mills

Parent:

Roanoke Electric Steel Corporation

102 Westside Boulevard NW (zip 24017)

P. O. Box 13948

Roanoke, Virginia 24038-3948

Telephone: 540-342-1831 Sales: 800-753-3532 Fax: 540-342-6610

Web site: www.roanokesteel.com E-mail: sales@roanokesteel.com

Subsidiary:

SWVA, Inc.

17th Street & 2nd Avenue (zip 25703)

P. O. Box 2547

Huntington, West Virginia 25726-2547

Telephone: 304-696-8200 Sales: 800-624-3492 Fax: 304-529-1479

Web site: www.swvainc.com E-mail: steel@swvainc.com or sales@swvainc.com

Steel Fabricators

Subsidiaries:

John W. Hancock, Jr., Inc.

2535 Diuguids Lane

P. O. Box 3400

Salem, Virginia 24153

Telephone: 540-389-0211 Sales: 800-336-5773 Fax: 540-389-0378

Web site: www.hancockjoist.com E-mail: jwmail@hancockjoist.com

Marshall Steel, Inc.

1555 Harbor Avenue

P. O. Box 13463

Memphis, Tennessee 38113-0463

Telephone: 901-946-1124 Fax: 901-946-5676

Web site: www.swvainc.com E-mail: sales@marshallsteel.com

RESCO Steel Products Corporation

438 Kessler Mill Rd.

Salem, Virginia 24153

P. O. Box 13948

Roanoke, Virginia 24038-3948

Telephone: 540-387-0284 Sales: 800-868-0628 Fax: 540-389-4971

E-mail: jimcarr@rescosteel.com

Socar, Inc.

2527 East National Cemetery Road (zip 29506)

P. O. Box 671

Florence, South Carolina 29503

Telephone: 843-669-5183 Sales: 800-669-5183 Fax: 843-669-0675

Web site: www.socarinc.com E-mail: llm@socarinc.com

Socar of Ohio, Inc.

21739 Road E 16

P. O. Box 219

Continental, Ohio 45831

Telephone: 419-596-3100 Fax: 419-596-3120

Web site: www.socarinc.com E-mail: socaroh@socarinc.com

Scrap Steel Processor

Subsidiary:

Shredded Products Corporation

700 Commerce Road

Rocky Mount, Virginia 24151

Telephone: 540-489-7599 Fax: 540-489-8431

1144 Fluff Road

P. O. Box 159,

Montvale, Virginia 24122

Telephone: 540-947-2225 Toll free: 877-668-8253 Fax: 540-947-5173

EX-21

Exhibit 21

Subsidiaries of Roanoke Electric Steel Corporation

The following are the direct and indirect subsidiaries of Roanoke Electric Steel Corporation

Name	Jurisdiction of Organization	Name Under Which a Subsidiary Does Business in Addition to the Subsidiary’s Corporate Name
John W. Hancock, Jr. Incorporated	Virginia	Hancock Rack
RESCO Steel Products, Inc.	Virginia
Roanoke Technical Treatment & Services, Inc. (Inactive)	Virginia
Shredded Products Corp.	Virginia
Socar, Inc.	South Carolina
Socar of Ohio, Inc.	Ohio
Steel of West Virginia, Inc.	Delaware
Marshall Steel, Inc.	Delaware
Steel Ventures, Inc.	Delaware
SWVA, Inc.	Delaware

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

Roanoke Electric Steel Corporation

Roanoke, Virginia

We consent to the incorporation by reference in this Registration Statement No’s. 33-27359, 33-35243, 333-25299 and 333-49525 of Roanoke Electric Steel Corporation on Form S-8 of our reports dated December 8, 2004 (which reports express an unqualified opinion and include an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, on November 1, 2002), incorporated by reference in this Annual Report on Form 10-K of Roanoke Electric Steel Corporation for the year ended October 31, 2004.

/s/ DELOITTE & TOUCHE LLP

Raleigh, North Carolina

January 10, 2005

EX-24

Exhibit 24

POWER OF ATTORNEY

FORM 10-K

KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned Directors of Roanoke Electric Steel Corporation, a Virginia corporation, hereby constitute and appoint T. Joe Crawford, Mark G. Meikle, and William M. Watson, Jr., or any of them, with full power to each of them to act alone, my true and lawful attorneys-in-fact and agents, for me on my behalf and in my name, place and stead, to execute and file the Annual Report on Form 10-K for Roanoke Electric Steel Corporation. for its fiscal year ended October 31, 2004, and any amendment which such attorney- or attorneys-in-fact may deem appropriate or necessary.

Dated: December 21, 2004

/s/ George B. Cartledge, Jr.	/s/ Thomas L. Robertson
/s/ T. Joe Crawford	/s/ Donald G. Smith
/s/ Timothy R. Duke	/s/ Charles W. Steger
/s/ George W. Logan	/s/ Joseph H. Vipperman
/s/ Charles I. Lunsford, II

EX-31.1

Exhibit 31.1

ROANOKE ELECTRIC STEEL CORPORATION

SECTION 302

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Donald G. Smith, certify that:

1. I have reviewed this annual report on Form 10-K of Roanoke Electric Steel Corporation (the “Company”);

2. Based on my knowledge, this annual 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 annual report;

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

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company 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 Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) not applicable

c) evaluated the effectiveness of the Company’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

d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of Company board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’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 Company’s internal controls.

Date: January 10, 2005

/s/ Donald G. Smith

Donald G. Smith,

Chairman, Treasurer and

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

ROANOKE ELECTRIC STEEL CORPORATION

SECTION 302

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Mark G. Meikle, certify that:

1. I have reviewed this annual report on Form 10-K of Roanoke Electric Steel Corporation (the “Company”);

2. Based on my knowledge, this annual 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 annual report;

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

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company 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 Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) not applicable

c) evaluated the effectiveness of the Company’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

d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of Company board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’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 Company’s internal controls.

Date: January 10, 2005

/s/ Mark G. Meikle

Mark G. Meikle,

Vice President - Finance, Assistant Treasurer and

Chief Financial Officer

(Principal Financial Officer and Chief Accounting Officer)

EX-32.1

Exhibit 32.1

ROANOKE ELECTRIC STEEL CORPORATION

SECTION 906

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

The undersigned hereby certifies in his capacity as an officer of Roanoke Electric Steel Corporation (the “Company”), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of the Company on Form 10-K for the year ended October 31, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: January 10, 2005

/s/ Donald G. Smith

Donald G. Smith,

Chairman, Treasurer and

Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

ROANOKE ELECTRIC STEEL CORPORATION

SECTION 906

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

The undersigned hereby certifies in his capacity as an officer of Roanoke Electric Steel Corporation (the “Company”), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of the Company on Form 10-K for the year ended October 31, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: January 10, 2005

/s/ Mark G. Meikle

Mark G. Meikle,

Vice President - Finance, Assistant Treasurer and

Chief Financial Officer

(Principal Financial Officer and Chief Accounting Officer)