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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
<TABLE>
<S> <C>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] --
</TABLE>
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
COMMISSION FILE NUMBER 1-3919
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 37-0364250
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5430 LBJ FREEWAY, SUITE 1740
THREE LINCOLN CENTRE, DALLAS, TX 75240-2697
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (214) 458-0028
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE.
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/
As of March 1, 1994, 5,592,751 shares of common stock were outstanding. The
aggregate market value of the 2,180,468 shares of voting stock held by
nonaffiliates of the Registrant, as of such date, was approximately $25.6
million.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is incorporated by reference from the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
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PART I
ITEM 1. BUSINESS.
GENERAL
Keystone Consolidated Industries, Inc. ("Keystone" or the "Company"),
incorporated in Delaware in 1955, is the successor to Keystone Steel & Wire
Company, which was founded in 1889. The Company is a diversified manufacturer of
carbon steel rod, wire and a wide range of wire products for a variety of end
uses. The Company's operations are conducted by four divisions, Keystone Steel &
Wire, Keystone Fasteners, Sherman Wire ("Sherman") and KeyWest Wire, and two
wholly-owned subsidiaries, Wire Products Company and Sherman Wire of Caldwell,
Inc. Keystone owns and operates five plants in Illinois, Texas, Arkansas and
Wisconsin and leases one distribution facility in California. Product
distribution is concentrated primarily in the midwestern and southwestern
regions of the United States.
At December 31, 1993, Contran Corporation ("Contran") held, directly or
indirectly, approximately 62% of the Company's outstanding common stock. All of
Contran's outstanding common stock is held by trusts established for the benefit
of the children and grandchildren of Harold C. Simmons, of which Mr. Simmons is
the sole trustee. Mr. Simmons, Chairman of the Board and Chief Executive Officer
of Contran, may be deemed to control Contran and the Company.
MANUFACTURING AND DISTRIBUTION
The Company's manufacturing operations consist of a steel mill, a carbon
steel rod mill and five wire and wire product fabrication facilities. The steel
mill, rod mill and the Company's largest wire facility are located in Peoria,
Illinois. The manufacturing process commences in the steel mill with scrap steel
being loaded into an electric arc furnace and converted into molten steel. The
molten steel is then transferred by ladle into a six-strand continuous casting
machine that produces five-inch square strands that are cut to predetermined
lengths, referred to as billets. These billets, along with any billets purchased
from outside suppliers, are then transferred to the adjoining on-site rod mill.
Upon entering the rod mill, the billets pass through a computer-controlled,
multi-zone recuperative reheat furnace. The heated billets are fed into the
rolling line, where they pass through various finishing stands during the rod
production process. After rolling, the rod is coiled and control cooled and then
passed through inspection stations for metallurgical, surface and diameter
checks. Finished coils are compacted and banded, and then either transferred to
the Company's fabrication facilities for processing into wire, nails and other
wire products or shipped to rod customers.
While the Company does not maintain a significant "shelf" inventory of
finished rod, it generally does have on hand approximately a one-month supply of
wire products inventory which enables the Company to respond to customer orders
and shifts in product demand.
The Company operates production facilities utilizing approximately 2.5
million square feet for manufacturing and office space, approximately 85% of
which is located at Peoria, Illinois. The Company also leases 121,000 square
feet of warehouse and office space in California.
PRODUCTS AND MARKETS
The Company produces carbon steel rod, wire and a wide range of wire
products for agricultural, industrial, construction, commercial, original
equipment manufacturers ("OEM") and retail consumer markets.
Carbon Steel Rod. The Company produces carbon steel rod at its Peoria rod
mill. In 1993, approximately 53% of the rod manufactured by the Company was used
internally at the Company's five wire mills and fabrication facilities and
approximately 47% was sold directly to producers of construction products, wire
and wire products, including products similar to those manufactured by the
Company. The Company believes its
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ability to internally convert a large portion of its rod production into a wide
variety of wire and wire products provides significant opportunities for
improving margins and enhances marketing flexibility, compared to non-integrated
or single product rod producers. Sales of carbon steel rod were $84.1 million in
1991, $82.4 million in 1992 and $99.9 million in 1993.
Drawn Carbon Steel Wire. The Company believes it is one of the largest
manufacturers of carbon steel wire in the United States. At its Peoria, Sherman
and Caldwell plants, the Company produces custom-drawn carbon steel wire in a
variety of gauges, finishes and packages for industrial fabrication and OEM
customers. The Company's drawn wire is used by these customers in the production
of a broad range of finished goods including nails, coat hangers, barbecue
grills, air conditioners, tools, refrigerators and other appliances. Sales of
drawn wire were $47.5 million in 1991, $55.2 million in 1992 and $67.8 million
in 1993.
Fencing and Related Wire Products. The Company believes it is a leading
supplier in the United States of agricultural fencing, barbed wire, stockade
panels and a variety of welded and woven wire mesh, fabric and netting for
agricultural, construction and industrial applications through farm supply
distributors, hardlines merchandisers and building and industrial materials
distributors. Many of these fencing and related wire products are marketed under
the Company's RED BRAND(R) label. As part of its marketing strategy, the Company
designs merchandise packaging, product supportive literature and
point-of-purchase displays for marketing of many of these products to the retail
consumer market. Sales of fencing and related wire products were $96.2 million
in 1991, $101.9 million in 1992 and $102.2 million in 1993.
Construction Products. The Company manufactures products for residential
and commercial construction, including nails, pipe reinforcing fabric, rebar ty
wire, stucco netting and reinforcing building fabric. The primary customers for
these products are construction contractors and building materials distributors.
The Company sells most of its nails through PrimeSource, Inc., one of the
largest nail distributors in the United States, under the latter's Grip-Rite(R)
label. Sales of construction products were $74.3 million in 1991, $76.8 million
in 1992 and $75.3 million in 1993.
INDUSTRY AND COMPETITION
The carbon steel rod, wire and wire products industries in the United
States are highly competitive and are comprised primarily of several large
mini-mill rod producers, many small independent wire companies and a few large
diversified rod and wire producers, such as the Company. Foreign steel and wire
producers also compete with the Company and other domestic producers. Since
carbon steel rod is a commodity steel product, price is the primary competitive
factor. Competition in the wire and fabricated wire product categories is based
primarily on price, delivery performance, product quality, service, and brand
name preference.
Although some economic conditions affecting the domestic steel industry
have improved in recent years, many problems remain unresolved. Worldwide
overcapacity continues to exist. The Voluntary Restraint Agreements, negotiated
in the mid-80's by the United States government with foreign governments to
curtail steel imports, expired in March 1992. Since that time, imports of wire
rod and certain wire products have increased approximately 20%.
The domestic carbon steel rod industry experienced a consolidation of
operations over the past decade, as large integrated steel producers disposed of
or, to a significant degree, discontinued their carbon steel rod and wire
operations. Some of this capacity was replaced by the capacity of domestic
mini-mills and foreign producers. The mini-mills are typically modern,
relatively small and low cost steel rod producers that, like the Company, make
steel from scrap with the electric arc furnace process. The Company also
competes with many small independent wire companies who purchase rod from
domestic and foreign sources. The Company believes that, as one of the few
domestic diversified rod and wire producers, it is well positioned to compete
effectively with non-diversified rod producers and wire companies. This is due
to its broad range of fabricated wire products, its diverse geographic and
product markets, and its low cost internal supply of steel rod.
The Company also believes its facilities are well located to serve markets
throughout the continental United States, with principal markets located in the
midwestern and southwestern regions. Close proximity to
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its customer base provides the Company with certain advantages over foreign and
certain domestic competition by reducing its shipping costs and allowing
improved customer service and shortened delivery times. The Company believes
higher transportation costs and the lack of local distribution centers tends to
limit foreign producers' penetration of the Company's principal rod, wire and
wire products markets, but there can be no assurance this will continue to be
the case.
ENVIRONMENTAL MATTERS
The Company's production facilities are affected by a variety of
environmental laws and regulations, including laws governing the discharge of
water pollutants and air contaminants, the generation, transportation, storage,
treatment and disposal of solid wastes and hazardous substances and the handling
of toxic substances, including certain substances used or generated by the
Company's manufacturing operations. Many of these laws and regulations require
permits to operate the facilities to which they pertain. Denial, revocation,
suspension or expiration of such permits could impair the ability of the
affected facility to continue operations.
Environmental legislation and regulations have changed rapidly in recent
years and it is likely that the Company will be subject to increasingly
stringent environmental standards in the future. See Item 7 -- "Management's
Discussion And Analysis Of Financial Condition And Results Of
Operations -- Liquidity and Capital Resources" regarding capital expenditures
expected to be incurred in 1994 for environmental related items.
Information in Note 14 to the Consolidated Financial Statements is
incorporated herein by reference.
RAW MATERIALS AND ENERGY
The principal raw material used in the Company's operations is scrap steel,
which currently is readily available. The Company's Peoria steel mill is located
close to numerous sources of high density automobile, industrial and railroad
scrap. The purchase of scrap steel is highly competitive and its price
volatility is influenced by periodic shortages, freight costs, weather,
speculation by scrap brokers and other conditions beyond the control of the
Company. The cost of scrap can vary significantly and product selling prices
cannot always be adjusted, especially in the short-term, to recover the costs of
large increases in scrap prices. See Item 7 -- "Management's Discussion And
Analysis Of Financial Condition And Results Of Operations."
The Company's manufacturing processes also consume large amounts of energy
in the form of electricity and natural gas. The Company purchases its electrical
energy for its Peoria plant from a regulated utility under an interruptible
service contract which provides for more economical electricity rates.
PATENTS AND TRADEMARKS
The Company has registered the trademark "RED BRAND" for field fence and
related products. The "RED BRAND" trademark has been widely advertised and, in
management's opinion, enjoys high levels of market recognition and brand
preference. The Company maintains other trademarks for various products which
have been promoted in their respective markets. While the Company owns one
patent relating to product packaging, the loss of such would not have a material
adverse effect on the financial condition of the Company.
EMPLOYMENT
The Company currently employs approximately 1,900 persons, of whom
approximately 1,200 are represented by the Independent Steel Workers Alliance
("ISWA") at its Peoria, Illinois facilities and approximately 150 are
represented by the International Association of Machinists and Aerospace Workers
(Local 1570) ("IAMAW") at its Sherman, Texas facilities. The current collective
bargaining agreement with the ISWA expires in May 1996 and the Sherman
collective bargaining agreement with the IAMAW expires in February 1997. The
Company believes its labor relations are satisfactory.
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CUSTOMERS
The Company is not dependent upon a single customer or a few customers, the
loss of any one, or a few, of which would have a material adverse effect on its
business.
ORDER BACKLOG
The Company's backlog of unfilled cancelable purchase orders, for delivery
within generally three months, approximated $23 million and $33 million at
December 31, 1992 and 1993, respectively. The Company does not believe that
backlog is a significant factor in its business.
ITEM 2. PROPERTIES.
The Company's principal executive offices are located in approximately
3,000 square feet of leased space at 5430 LBJ Freeway, Dallas, Texas 75240-2697.
See Item 1 -- "Business" for a description of the Company's manufacturing
and distribution facilities. In management's opinion, the Company's facilities
represent an adequate resource for the purpose for which they are intended and
are suitable for the manufacture and sale of carbon steel rod, wire and wire
products.
Production facilities (with the exception of certain leased equipment) are
owned by the Company and collateralize a revolving line of credit and certain
long-term debt and pension obligations.
The current estimated annual capacity of the rod mill is approximately
750,000 tons; however, rod production is restricted by the Company's steel
making operations, which have an annual productive capacity of approximately
655,000 tons. From time to time the Company purchases billets from other
suppliers, resulting in increased utilization of the rod mill. The Company
purchased 106,000 tons of billets in 1993 and the rod mill operated at
approximately 95% of capacity. The Company will purchase billets in 1994;
however, the amounts purchased will depend on price and other market conditions.
Based on the Company's 1994 operating plan, which anticipates purchasing 72,000
tons of billets, the rod mill is expected to operate at approximately 94% of
estimated total capacity in 1994.
The estimated current annual wire and wire products capacity is
approximately 539,000 tons. Utilization of the Company's annual wire and wire
products productive capacity was 70% in 1991, 72% in 1992 and 77% in 1993.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings. Information required
by this Item is included in Note 14 to the Consolidated Financial Statements,
which information is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1993.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Keystone's common stock is listed and traded on the New York Stock Exchange
(symbol: KES). The number of holders of record of the Company's common stock as
of February 25, 1994 was 1,250. The following table sets forth the high and low
sales prices of the Company's common stock for the calendar years indicated,
according to published sources.
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<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1993
First quarter.......................................... $10.88 $ 9.38
Second quarter......................................... 12.25 8.50
Third quarter.......................................... 10.38 7.75
Fourth quarter......................................... 11.00 8.75
1992
First quarter.......................................... $13.50 $10.75
Second quarter......................................... 12.63 10.38
Third quarter.......................................... 12.25 10.63
Fourth quarter......................................... 12.50 9.00
</TABLE>
No cash dividends have been paid since 1977. The Company is subject to
certain loan covenants that restrict its ability to pay dividends, including a
prohibition against the payment of dividends without lender consent under its
commercial revolving credit facility.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Item
7 -- "Management's Discussion And Analysis Of Financial Condition And Results Of
Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales................................. $297,887 $302,477 $302,132 $316,251 $345,186
Gross profit.............................. 33,979 37,792 37,454 37,443 32,521
Interest expense.......................... 6,839 5,427 4,322 3,036 6,575
Income from continuing operations......... $ 8,082 $ 8,328 $ 9,769 $ 5,146 $ 749
Discontinued operations................... -- (1,320) -- -- --
Extraordinary items(C).................... 3,967 3,146 3,502 -- --
Cumulative effect of changes in accounting
principles(A).......................... -- -- -- (69,949) --
-------- -------- -------- -------- --------
Net income (loss)................. $ 12,049 $ 10,154 $ 13,271 $(64,803) $ 749
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per share data:
Income (loss) per common and common
equivalent share(B):
Continuing operations.................. $ 1.46 $ 1.48 $ 1.75 $ .92 $ .14
Discontinued operations................ -- (.24) -- -- --
Extraordinary items(C)................. .72 .56 .62 -- --
Cumulative effect of changes in
accounting principles(A)............. -- -- -- (12.53) --
-------- -------- -------- -------- --------
Net income (loss)................. $ 2.18 $ 1.80 $ 2.37 $ (11.61) $ .14
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Cash dividends declared................... $ -- $ -- $ -- $ -- $ --
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Balance sheet data (at year end):
Total assets.............................. $173,562 $179,525 $182,077 $202,109 $206,654
Notes payable and current long-term
debt................................... 19,596 27,383 23,406 23,741 8,148
Long-term debt............................ 21,358 17,539 13,884 10,744 19,042
Noncurrent accrued pension cost........... 44,531 68,335 55,462 51,638 60,102
Noncurrent accrued OPEB cost.............. 4,674 3,929 3,109 93,727 96,336
Stockholders' equity (deficit)............ 25,437 10,947 27,149 (39,036) (50,908)
</TABLE>
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(A) Relates to adoption of Statement of Financial Accounting Standards ("SFAS")
No. 106 -- "Postretirement Benefits Other Than Pensions" ("OPEB") and SFAS
No. 109 -- "Employers' Accounting for Income Taxes."
(B) Fully diluted net income per common and common equivalent share in 1989 was
$2.17. For the other years presented, primary and fully diluted net income
per common and common equivalent share were the same. See Note 1 to the
Consolidated Financial Statements.
(C) Extraordinary items relate to income tax benefits resulting from utilization
of loss carryforwards. Subsequent to adoption of SFAS No. 109 in 1992 such
items are not classified as extraordinary items.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating, investing and financing activities are
summarized below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1991 1992 1993
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided (used) by:
Operating activities:
Net income (loss)....................................... $13,271 $(64,803) $ 749
Depreciation............................................ 9,996 10,525 11,084
Noncash OPEB cost....................................... -- 3,207 2,195
Cumulative effect of changes in accounting principles... -- 69,949 --
Other, net.............................................. 14 239 (1,078)
Changes in assets and liabilities, net.................. (6,523) (9,044) 1,649
------- -------- -------
16,758 10,073 14,599
------- -------- -------
Investing activities:
Capital expenditures.................................... (9,271) (7,459) (7,349)
Other, net.............................................. 123 191 505
------- -------- -------
(9,148) (7,268) (6,844)
------- -------- -------
Financing activities:
Net borrowings (repayments)............................. (7,632) (2,805) (7,295)
Issuance (repurchase) of common stock................... 22 -- (460)
------- -------- -------
(7,610) (2,805) (7,755)
------- -------- -------
Net cash provided (used) by operating, financing and
investing activities.................................. $ -- $ -- $ --
------- -------- -------
------- -------- -------
</TABLE>
In addition to earnings being higher in 1991 than in either 1992 or 1993,
fluctuations in cash flow from operations were impacted by changes in relative
levels of assets and liabilities, including levels of pension contributions in
each year. Pension contributions approximated $12 million in 1991, $20 million
in 1992, and $15 million in 1993. The 1993 pension contributions included a $2.3
million payment to the pension plans in order to avoid a second tier excise tax
related to an adverse May 1993 U.S. Supreme Court decision (see Note 14 to the
Consolidated Financial Statements). The minimum required pension contributions
in 1994 are currently estimated to be approximately $14 million.
In December 1993, the Company entered into a new $20 million term loan with
the financial institution that also provides the Company's $35 million revolving
credit facility. The new term loan bears interest at the prime rate plus 1% and
is due through 1996. The Company used $6.8 million of the proceeds to prepay the
Company's prior term loan, which bore interest at the prime rate plus 2.5%, and
the balance of the proceeds
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was applied to reduce outstanding revolving borrowings. This refinancing
contributed significantly to the Company's increase in working capital at
December 31, 1993 compared to the end of 1992.
The amount of available borrowings under the Company's $35 million
commercial revolving credit facility, which expires December 31, 1996, is based
on formula-determined amounts of trade receivables and inventories, less the
amount of outstanding letters of credit. Additional available borrowings under
the revolving credit facility were $30.7 million at December 31, 1993.
Capital expenditures are currently estimated to be approximately $18
million in 1994, including approximately $2.1 million for environmentally
related items. A significant portion of the increase in 1994 capital
expenditures over the prior two years relates to upgrades of production
equipment and information systems at the Company's Peoria, Illinois facility.
Reference is made to Note 14 to the Consolidated Financial Statements for a
description of certain environmental matters relating to the Peoria facility.
Due to the continuing escalation of costs of employee health care benefits,
the Company continues to monitor its numerous employee health and welfare
benefits plans and has implemented various plan modifications during 1993 which
provide certain cost savings, including a more equitable sharing of health care
costs for both retirees and active employees.
Effective December 31, 1993, due primarily to the continued general decline
in interest rates, the Company changed the discount rate used in determining the
actuarial present values of its pension obligations from 9.5% to 7.5%. This
change resulted in, among other things, an increase in the Company's noncurrent
pension cost liability and a charge to stockholders' deficit. Variances from
actuarially assumed rates, including the rate of return on pension plan assets,
will continue to result in additional increases or decreases in these accounts,
as well as deferred taxes, pension expense and funding requirements in future
periods. See Note 7 to the Consolidated Financial Statements.
Effective December 31, 1993, the Company also changed the discount rate
used in determining the actuarial present value of its "OPEB" obligations from
9.5% to 7.5%. Such change in the discount rate does not impact the Company's
cash flows, as payments for OPEB costs continue to be made when incurred.
At December 31, 1993, the Company has recorded net deferred tax assets of
$33.5 million, which amount is net of a valuation allowance of $30 million.
Approximately $8.7 million of the Company's deferred tax debits relate to net
operating loss and alternative minimum tax credit carryforwards which are
expected to be utilized in the next few years (since returning to profitability
in 1989, following completion of its rod mill modernization and disposal of its
unprofitable fasteners and plastics business, the Company has realized almost $4
million of net tax benefits from losses accumulated in prior years and no
carryforwards have expired). The remainder of the Company's gross deferred tax
debits related primarily to expenses, principally OPEB and pensions, that have
been accrued for financial reporting purposes but have not yet been paid or
become deductible for income tax purposes. While the Company currently expects
that its long-term profitability should ultimately be sufficient to enable it to
realize full benefit of these future tax deductions, considering all factors
believed to be relevant, including the Company's recent profitability, its
expected future near-term levels of profitability, and the fact that accrued
OPEB and pension expenses will become deductible over an extended period of time
and require the Company to generate significant future taxable income, the
Company believes that a portion of the gross deferred tax assets may not
currently meet a "more likely than not" realizability test and, accordingly, the
Company has provided a deferred tax valuation allowance. The Company will
continue to monitor and evaluate the need for, and amount of, a deferred tax
valuation allowance and will in the future, after considering all factors
believed to be relevant, make appropriate adjustments in such allowance.
The Company incurs significant ongoing costs for plant and equipment and
substantial employee pension and medical benefits for current and retired
employees which leave the Company vulnerable to business downturns and increases
in costs. In order to meet its financial obligations, the Company has reduced
controllable costs, modified product mix, acquired and disposed of businesses,
refinanced certain indebtedness,
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and raised additional equity capital. The Company will continue to evaluate the
need for similar actions or other measures in the future in order to meet its
obligations.
For 1994, management has budgeted profitable results of operations with
sufficient cash flows from operations and financing activities to meet its
anticipated operating needs. This budget is based upon management's assessment
of various financial and operational factors including, but not limited to,
assumptions relating to product shipments, product mix and selling prices;
production schedules; productivity rates; raw materials, electricity, labor,
employee benefits and other fixed and variable costs; working capital
requirements; interest rates; repayments of long-term debt; capital
expenditures; and available borrowings under the Company's revolving credit
facility. However, potential liabilities under environmental laws and
regulations with respect to the clean-up and disposal of wastes beyond present
accruals, any significant increases in the required minimum fundings to the
Company's pension funds or in the cost of providing medical coverage to active
and retired employees could have a material adverse effect on the future
liquidity, financial condition and results of operations of the Company.
Additionally, any significant decline in the Company's markets or market share,
any inability to maintain satisfactory billet and rod production levels, or any
other unanticipated costs, if significant, could result in a need for funds
greater than the Company currently has available. There can be no assurance the
Company would be able to obtain an adequate amount of additional financing. See
Note 14 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
The Company's continuing operations are the manufacture and sale of carbon
steel rod, wire and wire products for agricultural, industrial, construction,
commercial, OEM and retail consumer markets.
During 1993, the Peoria steel and rod mills increased production of billets
by approximately 2% (644,000 tons compared to 632,000 tons) and steel rod by
approximately 9% (715,000 tons compared to 655,000 tons) over the production for
1992. From time to time the Company purchases billets from other suppliers
resulting in increased utilization of the rod mill. The Company purchased 72,000
tons, 41,000 tons and 106,000 tons of billets in 1991, 1992 and 1993,
respectively.
The following table sets forth selected operating data of the Company as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1991 1992 1993
----- ----- -----
<S> <C> <C> <C>
Net sales........................................................... 100.0% 100.0 % 100.0%
Cost of goods sold.................................................. 87.6 88.2 90.6
----- ----- -----
Gross profit...................................................... 12.4 11.8 9.4
Selling, general and administrative expenses........................ 6.3 8.3 7.4
Other income........................................................ .2 -- .2
----- ----- -----
Income before interest expense and income taxes................... 6.3 3.5 2.2
Interest expense.................................................... 1.4 .9 1.9
----- ----- -----
Income before income taxes........................................ 4.9 2.6 .3
Provision for income taxes.......................................... 1.7 1.0 .1
----- ----- -----
Income from continuing operations................................. 3.2 1.6 .2
Extraordinary items................................................. 1.2 -- --
Cumulative effect of changes in accounting principles............... -- (22.1) --
----- ----- -----
Net income (loss)......................................... 4.4% (20.5)% .2%
----- ----- -----
----- ----- -----
</TABLE>
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YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
NET SALES
Net sales were $302.1 million in 1991, $316.3 million in 1992 and $345.2
million in 1993. During 1993, tons of rod sold increased 12% (337,000 tons
compared to 302,000 tons), while tons of wire and wire products sold increased
8% (414,000 tons compared to 383,000 tons). Of the 8% increase in wire and wire
product tonnage, wire tonnage increased 26% and wire products tonnage decreased
2%. Wire is generally sold at a lower selling price per ton than wire products.
In 1993, selling prices of wire and wire products increased approximately 2% and
selling prices of rod increased approximately 9% compared to 1992 prices.
During 1992, tons of rod sold were comparable to 1991 (302,000 tons
compared to 301,000 tons), while tons of wire and wire products sold increased
7% (383,000 tons compared to 359,000 tons) compared to 1991. Of the 7% increase
in wire and wire product tonnage, wire tonnage increased 16% and wire products
tonnage increased 2%. Sales attributable to the KeyWest Wire division (acquired
in May 1991) during the first four months of 1992 were $5.9 million and 6,000
tons of wire and wire products. The Company sold for export 26,000 tons and
4,000 tons of rod during 1991 and 1992, respectively. In 1992, selling prices of
wire and wire products decreased approximately 1% and selling prices of rod
decreased approximately 3% compared to 1991 prices.
GROSS PROFIT
Gross profit was $37.5 million in 1991, $37.4 million in 1992 and $32.5
million in 1993. Gross profit in 1993, as a percentage of net sales, declined
2.4% from 1992 due primarily to significantly higher scrap steel costs. The
purchase of scrap steel is highly competitive and its price volatility is
influenced by periodic shortages, freight costs, weather, speculation by scrap
brokers and other conditions largely beyond the control of the Company. The cost
of scrap can vary significantly and product selling prices cannot always be
adjusted, especially in the short-term, to recover the costs of large increases
in scrap prices. Scrap prices rose by approximately 50% during 1993 and, despite
increasing certain product selling prices five times during 1993, these
significant cost increases could not be immediately recovered which adversely
affected the Company's 1993 gross profit margins. While gross profit in 1993 was
aided by higher product selling prices, increased tons of product sold and lower
rod conversion costs, it was also negatively impacted by approximately $2.3
million of additional environmental costs related to the inadvertent processing
of some contaminated scrap steel. See Note 14 to the Consolidated Financial
Statements.
Gross profit in 1992, as a percentage of net sales, declined slightly from
1991 due to lower selling prices and higher health care costs, including
increased costs due to the adoption of SFAS 106, partially offset by lower
pension costs, an increase in the tons of wire and wire products sold and lower
raw material and rod conversion costs. Gross profit in 1992 was also negatively
impacted by $1 million related to the inadvertent processing of some
contaminated scrap steel.
Although the Company's primary energy source is purchased coal-generated
electricity, gross profit can also be adversely affected by the volatility in
the price of oil and natural gas resulting in increased energy, transportation,
freight, scrap and supply costs. The Company cannot predict if it would be able
to recover any such cost increases through higher product selling prices or
improved production efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $18.9 million in 1991,
$26.1 million in 1992 and $25.3 million in 1993. The 1993 decrease in selling,
general and administrative expenses resulted primarily from a decrease of
approximately $3.7 million in expenses related to environmental issues offset by
increased expenses of $3.2 million related to excise taxes due to the adverse
May 1993 U.S. Supreme Court decision. See Note 14 to the Consolidated Financial
Statements.
Almost 70% of the $7.2 million increase in 1992 related to environmental
issues, including a $3.5 million fourth quarter revision of previous estimates
of the costs for closure of certain inactive waste disposal units at
9
<PAGE> 11
Peoria. Higher medical and insurance costs, along with a full year of operating
expense of the KeyWest Wire division acquired in May 1991, also contributed to
the increase in 1992.
OTHER INCOME
Other income in 1993 primarily represents rental income and gain on sale of
fixed assets. Other income in 1991 included interest on an installment note,
which was paid in full during 1992, from one of the Company's largest customers.
INTEREST EXPENSE
Interest expense increased by $3.5 million in 1993 and includes $3.9
million related to the adverse May 1993 U.S. Supreme Court decision. See Note 14
to the Consolidated Financial Statements.
Interest expense declined in 1992 due principally to lower interest rates
and lower average borrowing levels.
INCOME TAXES
The principal reasons for the difference between the U.S. federal statutory
income tax rate and the Company's effective income tax rates are explained in
Note 5 to the Consolidated Financial Statements. The Company's net current taxes
payable result primarily from the alternative minimum tax. The Company's
deferred tax position at December 31, 1993 is explained in Note 5 to the
Consolidated Financial Statements and in "Liquidity and Capital Resources"
above.
EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
See Notes 5 and 10, respectively, to the Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this Item is contained in a separate section
of this report. See Index of Financial Statements and Financial Statement
Schedules on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to
disclosure provided under the captions "Election of Directors" and "Executive
Officers" in Keystone's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this report (the "Keystone Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to
disclosure provided under the caption "Executive Compensation" in the Keystone
Proxy Statement.
10
<PAGE> 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference to
disclosure provided under the caption "Security Ownership" in the Keystone Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to
disclosure provided under the caption "Certain Business Relationships and
Related Transactions" in the Keystone Proxy Statement. See also Note 11 to the
Consolidated Financial Statements.
11
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C>
(a)(1),(2) The Index of Consolidated Financial Statements and Financial Statement
Schedules is included on page F-1 of this report.
(a)(3) Exhibits
Included as exhibits are the items listed in the Exhibit Index. The Company
will furnish a copy of any of the exhibits listed below upon payment of $4.00
per exhibit to cover the costs to the Company in furnishing the exhibits. The
Company agrees to furnish to the Commission upon request copies of any
instruments not included herein defining the rights of holders of long-term
debt of the Company.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<S> <C>
3.1 -- Certificate of Incorporation, as amended and filed with the Secretary
of State of Delaware -- incorporated by reference to Exhibit 3.1 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1990.
3.2 -- Bylaws of the Company, as amended and restated May 15,
1990 -- incorporated by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K dated for the year ended December 31,
1990.
4.1 -- Accounts Receivable Financing Agreement and Security Agreement dated
December 19, 1986, as amended between the Company and Congress
Financial Corporation (Central) -- incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990.
4.2 -- Amendment No. 6, dated November 1, 1991 to Accounts Receivable
Financing Agreement and Rider No. 1 between the Company and Congress
Financial Corporation (Central) dated December 19,
1986 -- incorporated by reference to Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
4.3 -- Amendment No. 7, dated January 15, 1993 to Accounts Receivable
Financing Agreement and Rider No. 1 between the Company and Congress
Financial Corporation (Central) dated December 19, 1986.
4.4 -- Amendment No. 8, dated December 30, 1993 to Accounts Receivable
Financing Agreement and Rider No. 1 between the Company and Congress
Financial Corporation (Central) dated December 19, 1986.
4.5 -- Term Loan and Security Agreement between the Company and Congress
Financial Corporation (Central) dated December 30, 1993.
10.1 -- Intercorporate Services Agreement with Contran Corporation dated as
of January 1, 1993.
21 -- Subsidiaries of the Company.
23 -- Consent of Coopers & Lybrand.
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1993.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned and dated March 15, 1994, thereunto duly
authorized.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
(Registrant)
/s/ GLENN R. SIMMONS
Glenn R. Simmons
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below and dated as of March 15, 1994, by the following
persons on behalf of the registrant and in the capacities indicated:
<TABLE>
<S> <C>
/s/ GLENN R. SIMMONS /s/ DAVID E. CONNOR
Glenn R. Simmons David E. Connor
Chairman of the Board and Director
Chief Executive Officer
/s/ J. WALTER TUCKER, JR. /s/ RICHARD N. ULLMAN
J. Walter Tucker, Jr. Richard N. Ullman
Vice Chairman of the Board Director
/s/ THOMAS E. BARRY /s/ HAROLD M. CURDY
Thomas E. Barry Harold M. Curdy
Director Vice President -- Finance,
Treasurer and Principal
Financial Officer
/s/ PAUL M. BASS, JR. /s/ BERT E. DOWNING, JR.
Paul M. Bass, Jr. Bert E. Downing, Jr.
Director Controller and Principal
Accounting Officer
/s/ DONALD A. SOMMER
Donald A. Sommer
Director
</TABLE>
13
<PAGE> 15
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
ITEMS 8, 14(A) AND 14(D)
INDEX OF CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Accountants................................................ F-2
Consolidated Balance Sheets -- December 31, 1992 and 1993........................ F-3
Consolidated Statements of Operations -- Years ended December 31, 1991, 1992 and
1993.......................................................................... F-4
Consolidated Statements of Cash Flows -- Years ended December 31, 1991, 1992 and
1993.......................................................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) -- Years ended December
31, 1991, 1992 and 1993....................................................... F-6
Notes to Consolidated Financial Statements....................................... F-7/F-19
FINANCIAL STATEMENT SCHEDULES
Schedule V -- Property, Plant and Equipment...................................... S-1
Schedule VI -- Accumulated Depreciation of Property, Plant and Equipment......... S-2
Schedule VIII -- Valuation and Qualifying Accounts............................... S-3
Schedule X -- Supplementary Income Statement Information......................... S-3
</TABLE>
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
F-1
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Keystone Consolidated Industries, Inc.
We have audited the consolidated financial statements and the financial
statement schedules of Keystone Consolidated Industries, Inc. and Subsidiaries
as listed in the Index of Consolidated Financial Statements and Financial
Statement Schedules on page F-1 of this Annual Report on Form 10-K. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Keystone Consolidated Industries, Inc. and Subsidiaries as of December 31, 1993
and 1992, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1993 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in Note 10 to the Consolidated Financial Statements, in 1992
the Company changed its methods of accounting for postretirement benefits other
than pensions and for income taxes in accordance with Statements of Financial
Accounting Standards Nos. 106 and 109, respectively.
COOPERS & LYBRAND
Dallas, Texas
March 11, 1994
F-2
<PAGE> 17
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1992 AND 1993
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1992 1993
-------- --------
<S> <C> <C>
Current assets:
Notes and accounts receivable, net of allowances of $464 and $435.... $ 35,749 $ 38,513
Inventories.......................................................... 36,444 35,544
Deferred income taxes................................................ 4,190 5,437
Prepaid expenses and other........................................... 1,710 1,257
-------- --------
Total current assets......................................... 78,093 80,751
-------- --------
Property, plant and equipment.......................................... 216,930 222,601
Less accumulated depreciation.......................................... 132,108 141,832
-------- --------
Net property, plant and equipment............................ 84,822 80,769
-------- --------
Other assets:
Unrecognized net pension obligation.................................. 13,887 12,067
Deferred income taxes................................................ 20,667 28,056
Notes receivable..................................................... 2,551 1,917
Other................................................................ 2,089 3,094
-------- --------
Total other assets........................................... 39,194 45,134
-------- --------
$202,109 $206,654
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable and current maturities of long-term debt............... $ 23,741 $ 8,148
Accounts payable..................................................... 20,733 24,189
Accounts payable to affiliates....................................... 38 111
Accrued pension cost................................................. 7,259 9,556
Accrued OPEB cost.................................................... 7,657 7,243
Other accrued liabilities............................................ 17,888 25,119
-------- --------
Total current liabilities.................................... 77,316 74,366
-------- --------
Noncurrent liabilities:
Long-term debt....................................................... 10,744 19,042
Accrued pension cost................................................. 51,638 60,102
Accrued OPEB cost.................................................... 93,727 96,336
Other................................................................ 7,720 7,716
-------- --------
Total noncurrent liabilities................................. 163,829 183,196
-------- --------
Stockholders' equity (deficit):
Preferred stock, no par value; 500,000 shares authorized............. -- --
Common stock, $1 par value, 9,000,000 shares authorized; 5,514,685
shares issued at stated value..................................... 6,244 6,244
Additional paid-in capital........................................... 18,803 18,803
Excess of pension cost over unrecognized net pension obligation...... (23,156) (35,317)
Accumulated deficit.................................................. (40,796) (40,047)
Treasury stock -- 10,550 and 56,550 shares, at cost.................. (131) (591)
-------- --------
Total stockholders' deficit.................................. (39,036) (50,908)
-------- --------
$202,109 $206,654
-------- --------
-------- --------
</TABLE>
Commitments and contingencies (Note 14).
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 18
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues and other income:
Net sales................................................ $302,132 $316,251 $345,186
Interest and other, net.................................. 587 46 525
-------- -------- --------
302,719 316,297 345,711
-------- -------- --------
Costs and expenses:
Cost of goods sold....................................... 264,678 278,808 312,665
Selling.................................................. 4,825 4,833 5,032
General and administrative............................... 14,074 21,280 20,309
Interest................................................. 4,322 3,036 6,575
-------- -------- --------
287,899 307,957 344,581
-------- -------- --------
Income before income taxes....................... 14,820 8,340 1,130
Provision for income taxes................................. 5,051 3,194 381
-------- -------- --------
Income before extraordinary item and cumulative
effect of changes in accounting principles..... 9,769 5,146 749
Extraordinary item......................................... 3,502 -- --
Cumulative effect of changes in accounting principles...... -- (69,949) --
-------- -------- --------
Net income (loss)................................ $ 13,271 $(64,803) $ 749
-------- -------- --------
-------- -------- --------
Income (loss) per common and common equivalent share:
Before extraordinary item............................. $ 1.75 $ .92 $ .14
Extraordinary item.................................... .62 -- --
Cumulative effect of changes in accounting
principles.......................................... -- (12.53) --
-------- -------- --------
Net income (loss)................................ $ 2.37 $ (11.61) $ .14
-------- -------- --------
-------- -------- --------
Weighted average common and common equivalent shares
outstanding.............................................. 5,591 5,572 5,495
-------- -------- --------
-------- -------- --------
</TABLE>
F-4
<PAGE> 19
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1991 1992 1993
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $13,271 $(64,803) $ 749
------- -------- --------
Adjustments:
Depreciation........................................... 9,996 10,525 11,084
Noncash OPEB cost...................................... -- 3,207 2,195
Cumulative effect of changes in accounting
principles........................................... -- 69,949 --
Other, net............................................. 14 239 (1,078)
Change in assets and liabilities:
Accounts and notes receivable........................ 208 (4,055) (2,735)
Inventories.......................................... (7,602) 3,437 900
Accounts payable..................................... 2,769 (397) 3,529
Accrued pension cost, net of adjustments to
stockholders'
equity and the unrecognized net pension
obligation........................................ (2,041) (11,312) (7,354)
Other, net........................................... 143 3,283 7,309
------- -------- --------
Total adjustments...................................... 3,487 74,876 13,850
------- -------- --------
Net cash provided by operating activities......... 16,758 10,073 14,599
------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (9,271) (7,459) (7,349)
Proceeds from disposition of property and equipment....... 123 191 505
------- -------- --------
Net cash used by investing activities............. (9,148) (7,268) (6,844)
------- -------- --------
Cash flows from financing activities:
Revolving credit facility, net............................ (2,460) 638 (16,451)
Other notes payable and long-term debt:
Additions.............................................. 34 90 20,091
Principal payments..................................... (5,206) (3,533) (10,935)
Issuance (purchase) of common stock....................... 22 -- (460)
------- -------- --------
Net cash used by financing activities............. (7,610) (2,805) (7,755)
------- -------- --------
Net change in cash and cash equivalents..................... -- -- --
Cash and cash equivalents, beginning of year................ -- -- --
------- -------- --------
Cash and cash equivalents, end of year...................... $ -- $ -- $ --
------- -------- --------
------- -------- --------
Supplemental disclosures -- cash paid for:
Interest, net of amount capitalized....................... $ 4,486 $ 3,104 $ 2,797
Income taxes.............................................. 1,731 3,909 70
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 20
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------- PAID-IN PENSION EARNINGS TREASURY
SHARES AMOUNT CAPITAL LIABILITIES (DEFICIT) STOCK
------ ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1990......... 5,507 $6,236 $ 18,789 $ (24,670) $ 10,736 $ (144)
Net income........................... -- -- -- -- 13,271 --
Pension adjustments.................. -- -- -- 2,909 -- --
Exercise of employee stock options... 8 8 14 -- -- --
------ ------ ---------- ----------- ----------- --------
Balance -- December 31, 1991......... 5,515 6,244 18,803 (21,761) 24,007 (144)
Net loss............................. -- -- -- -- (64,803) --
Pension adjustments.................. -- -- -- (1,395) -- --
Issuance of treasury stock........... -- -- -- -- -- 13
------ ------ ---------- ----------- ----------- --------
Balance -- December 31, 1992......... 5,515 6,244 18,803 (23,156) (40,796) (131)
Net income........................... -- -- -- -- 749 --
Pension adjustments.................. -- -- -- (12,161) -- --
Purchase of treasury stock........... -- -- -- -- -- (460)
------ ------ ---------- ----------- ----------- --------
Balance -- December 31, 1993......... 5,515 $6,244 $ 18,803 $ (35,317) $ (40,047) $ (591)
------ ------ ---------- ----------- ----------- --------
------ ------ ---------- ----------- ----------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 21
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Keystone Consolidated Industries, Inc. ("Keystone" or the "Company") is a
majority-owned subsidiary of Contran Corporation ("Contran"). At December 31,
1993, Contran held, directly or indirectly, approximately 62% of the Company's
outstanding common stock. All of Contran's outstanding common stock is held by
trusts established for the benefit of the children and grandchildren of Harold
C. Simmons, of which Mr. Simmons is sole trustee. Mr. Simmons may be deemed to
control Contran and the Company.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany accounts and
balances have been eliminated.
Fiscal year
The Company's fiscal year is 52 or 53 weeks and ends on the last Sunday in
December. Each of fiscal 1991, 1992 and 1993 were 52-week years.
Property, plant, equipment and depreciation
Property, plant and equipment are stated at cost. Repairs, maintenance and
minor renewals are expensed as incurred. Improvements which substantially
increase an asset's capacity or alter its capabilities are capitalized.
Depreciation is computed using principally the straight-line method over
the estimated useful lives of 10 to approximately 30 years for buildings and
improvements and three to 12 years for machinery and equipment.
Retirement plans and postretirement benefits other than pensions
Accounting and funding policies for retirement plans and postretirement
benefits other than pensions ("OPEB") are described in Notes 7 and 9,
respectively.
Environmental liabilities
The Company records liabilities related to environmental issues at such
time as information becomes available and is sufficient to support a reasonable
estimate of range of loss. If the Company is unable to determine that a single
amount in an estimated range is more likely, the minimum amount of the range is
recorded.
Income taxes
Deferred income tax assets and liabilities are recognized for the expected
future tax effects of temporary differences between the income tax and financial
reporting carrying amounts of assets and liabilities.
Income (loss) per share
Income (loss) per share is based on the weighted average number of common
and common equivalent shares outstanding during each year. Outstanding stock
options and other common stock equivalents are excluded from the computations
when the effect of their assumed exercise is antidilutive.
F-7
<PAGE> 22
NOTE 2 -- INVENTORIES
Inventories are stated at the lower of cost or market. The last-in,
first-out ("LIFO") method is used to determine the cost of approximately 68% and
71% of the inventories held at December 31, 1992 and 1993, respectively, and the
first-in, first-out or average cost methods are used to determine the cost of
all other inventories.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.................................................. $ 9,331 $ 9,944
Work in process................................................ 7,974 9,963
Finished products.............................................. 13,643 14,250
Supplies....................................................... 14,119 14,115
-------- --------
45,067 48,272
Less LIFO reserve.............................................. 8,623 12,728
-------- --------
$ 36,444 $ 35,544
-------- --------
-------- --------
</TABLE>
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land, buildings and improvements............................... $ 41,912 $ 42,461
Machinery and equipment........................................ 169,596 175,734
Leasehold improvements......................................... 1,204 1,204
Construction in progress....................................... 4,218 3,202
-------- --------
$216,930 $222,601
-------- --------
-------- --------
</TABLE>
NOTE 4 -- NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Keystone:
Commercial credit agreements:
Revolving credit facility................................. $ 20,362 $ 3,911
Term loans................................................ 9,107 19,439
Series 1976 Pollution Control Revenue Bonds, interest at 8%;
due in equal annual installments through 1996............. 2,000 1,500
Urban and Community Development Assistance Grants, interest
at 8%, due in semi-annual installments through 2003....... 2,300 2,082
Other, interest at 3% to 13.75%, due in installments through
1996...................................................... 716 258
-------- --------
34,485 27,190
Less current maturities................................. 23,741 8,148
-------- --------
$ 10,744 $ 19,042
-------- --------
-------- --------
</TABLE>
The Company maintains a $35 million commercial revolving credit facility
which matures December 31, 1996, is collateralized primarily by the Company's
trade receivables and inventories and bears interest at 1.5% over the prime rate
(an effective rate of 7.5% at December 31, 1993). The amount of available
borrowings is based on formula-determined amounts of trade receivables and
inventories, less the amount of outstanding letters of credit (approximately $.4
million at December 31, 1993). At December 31, 1993, the available
F-8
<PAGE> 23
borrowings under this credit facility were $30.7 million. This credit facility
requires that the Company's daily cash receipts be used to reduce the
outstanding borrowings, which results in the Company maintaining zero cash
balances.
On December 30, 1993, the Company entered into a new $20 million term loan
with the financial institution that provides the Company's revolving credit
facility. The new term loan bears interest at the prime rate plus 1% and is due
in 35 monthly installments of $.3 million plus accrued interest and one final
installment of the remaining principal and interest on December 31, 1996. The
new term loan requires compliance with the restrictive covenants, security
agreement and certain other terms of the revolving credit facility and is
further collateralized by the Company's property, plant and equipment. In
addition, the new term loan becomes due and payable if the Company terminates
its revolving credit facility. The proceeds of the new term loan were used to
prepay the Company's prior term loan ($6.8 million) and the balance was applied
to reduce the revolving borrowings. Upon closing the new term loan, the Company
immediately made a prepayment of principal in the amount of $.6 million.
The Company's commercial credit agreements contain restrictive covenants,
including a prohibition against the payment of dividends without lender consent,
and certain minimum working capital and net worth requirements. Substantially
all of the Company's notes payable and long-term debt reprice with changes in
interest rates, and the book value of such indebtedness is deemed to approximate
market value.
Average short-term borrowings under revolving credit agreements were $19.8
million in 1991, $18.4 million in 1992 and $19.2 million in 1993, at average
interest rates of 11.4%, 8.8% and 8.2%, respectively. The maximum short-term
borrowings outstanding at any month end during these years were $31.3 million in
1991, $28.6 million in 1992 and $27.3 million in 1993.
At December 31, 1992 and 1993, total collateralized obligations, including
deferred pension contributions (see Note 7), amounted to $50.3 million and $40.5
million, respectively.
The aggregate maturities of notes payable and long-term debt are shown in
the table below.
<TABLE>
<CAPTION>
AMOUNT
--------------
YEAR ENDING (IN THOUSANDS)
DECEMBER 31,
- ------------
<S> <C>
1994........................................................ $ 8,148
1995........................................................ 4,155
1996........................................................ 13,570
1997........................................................ 243
1998........................................................ 207
1999 and thereafter......................................... 867
--------------
$ 27,190
--------------
--------------
</TABLE>
F-9
<PAGE> 24
NOTE 5 -- INCOME TAXES
Summarized below are (i) the difference between the provision for income
taxes and the amounts that would be expected using the U. S. federal statutory
income tax rate of 34% in 1991 and 1992 and 35% in 1993 and (ii) the components
of the comprehensive provision for income taxes.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected tax expense, at statutory rates...................... $ 5,039 $ 2,836 $ 396
U.S. state income taxes, net.................................. 13 380 207
Nondeductible excise taxes.................................... -- -- 1,110
Rate change adjustment of deferred taxes...................... -- -- (1,320)
Other, net.................................................... (1) (22) (12)
------- ------- -------
5,051 3,194 381
Extraordinary item............................................ (3,502) -- --
------- ------- -------
Provision for income taxes charged to results of
operations............................................. 1,549 3,194 381
Stockholders' equity -- pension component..................... -- (856) (7,774)
------- ------- -------
Comprehensive provision (benefit) for income
taxes............................................. $ 1,549 $ 2,338 $(7,393)
------- ------- -------
------- ------- -------
Comprehensive provision (benefit) for income taxes:
Currently payable:
U.S. federal............................................. $ 5,032 $ 4,751 $ 439
U.S. state............................................... 19 664 171
Benefit of loss carryforwards............................ (5,032) (5,211) (767)
Alternative minimum tax liability........................ 1,530 2,983 1,406
------- ------- -------
Net currently payable.................................. 1,549 3,187 1,249
Deferred income taxes, net.................................. -- (849) (8,642)
------- ------- -------
$ 1,549 $ 2,338 $(7,393)
------- ------- -------
------- ------- -------
</TABLE>
The components of the net deferred tax asset are summarized below.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1992 1993
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax effect of temporary differences relating to:
Inventories................................... $ 1,490 $ -- $ 1,623 $ --
Property and equipment........................ -- (12,216) -- (11,845)
Accrued pension cost.......................... 13,461 -- 18,206 --
Accrued OPEB cost............................. 38,526 -- 40,396 --
Accrued liabilities and other deductible
differences................................ 6,733 -- 6,978 --
Other taxable differences..................... -- (615) -- (583)
Net operating loss carryforwards.............. 2,169 -- 2,376 --
Alternative minimum tax credit
carryforwards.............................. 5,309 -- 6,342 --
Valuation allowance............................. (30,000) -- (30,000) --
-------- -------- -------- --------
Gross deferred tax assets (liabilities).... 37,688 (12,831) 45,921 (12,428)
Reclassification, principally netting by tax
jurisdiction.................................. (12,831) 12,831 (12,428) 12,428
-------- -------- -------- --------
Net deferred tax asset..................... 24,857 -- 33,493 --
Less current deferred tax asset, net of
valuation
allowances of $5,057 and $4,870 in 1992
and 1993, respectively........................ 4,190 -- 5,437 --
-------- -------- -------- --------
Noncurrent deferred tax asset................. $ 20,667 $ -- $ 28,056 $ --
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
F-10
<PAGE> 25
While the Company currently expects that its long-term profitability should
ultimately be sufficient to enable it to realize full benefit of its future tax
deductions, considering all factors believed to be relevant, including the
Company's recent profitability, its expected future near-term levels of
profitability, and the fact that accrued OPEB and pension expenses will become
deductible over an extended period of time and require the Company to generate
significant future taxable income, the Company believes that a portion of the
gross deferred tax assets may not currently meet a "more likely than not"
realizability test. There was no change in the valuation allowance during 1992
or 1993.
The net operating loss carryforwards of approximately $6.1 million and $4.9
million for federal and state income tax purposes, respectively, expire from
2003 through 2005. The Company utilized its remaining alternative minimum tax
loss carryforward during 1991; accordingly, the full 20% alternative minimum tax
is payable by the Company for 1992 and 1993.
For financial reporting purposes, the utilization of net operating loss
carryforwards to offset the provision for income taxes in 1991 has been reported
as an extraordinary item, as then required. Subsequent to the adoption of SFAS
No. 109 in 1992, such benefits are not classified as extraordinary items.
NOTE 6 -- STOCK OPTIONS AND STOCK APPRECIATION RIGHTS PLAN
The Company's Incentive Stock Option -- Stock Appreciation Rights Plan (the
"1982 Option Plan") permits the granting of incentive stock options ("ISOs") and
stock appreciation rights ("SARs") to purchase up to 337,500 shares of the
Company's common stock, subject to adjustment in certain instances. ISOs are 20%
vested and exercisable one year from the date of grant, increasing to 40% at two
years after the date of grant, 60% at three years after the date of grant, and
100% at four years after the date of grant. ISOs expire five years from the date
of grant. There have been no SARs awarded to date. The 1982 Option Plan was
replaced in May 1992 upon adoption of the Keystone Consolidated Industries, Inc.
1992 Incentive Compensation Plan (the "1992 Option Plan").
The 1992 Option Plan permits the granting of stock options, SARs and
restricted stock to key employees of the Company or its parent or subsidiaries
for up to 100,000 shares of the Company's common stock, subject to adjustments
in certain instances. The 1992 Option Plan provides for the grant of options
that qualify as incentive stock options and for options which are not so
qualified. Incentive stock options are granted at a price not less than 100% of
the fair market value of such stock on the date of grant. The exercise price of
all options and SARs, the length of period during which the options or SARs may
be exercised, and the length of the restriction period for restricted stock
awards are determined by the Incentive Compensation Committee of the Board of
Directors.
The Keystone Consolidated Industries, Inc. 1992 Non-Employee Director Stock
Option Plan (the "Director Plan") was adopted in May 1992. The Director Plan
provides that each non-employee director of the Company will automatically be
granted annually an option to purchase 1,000 shares of the Company's common
stock. Options are granted at a price equal to the fair market value of such
stock on the date of the grant, vest one year from the date of the grant and
expire five years from the date of the grant. Up to 50,000 shares of the
Company's common stock may be issued pursuant to the Director Plan.
F-11
<PAGE> 26
Changes in outstanding options, including options outstanding under a prior
plan pursuant to which no further grants can be made are summarized in the table
below.
<TABLE>
<CAPTION>
PRICE PER AMOUNT PAYABLE
OPTIONS SHARE UPON EXERCISE
------- ------------ --------------
<S> <C> <C> <C>
Outstanding at December 31, 1990....................... 144,000 $ 2.93-17.79 $1,687,480
Granted.............................................. 10,000 15.81 158,100
Exercised............................................ (7,500) 2.93 (22,000)
------- ------------ --------------
Outstanding at December 31, 1991....................... 146,500 8.53-17.79 1,823,580
Granted.............................................. 20,000 10.75-12.86 246,650
Canceled............................................. (37,500) 10.41-17.79 (556,301)
------- ------------ --------------
Outstanding at December 31, 1992....................... 129,000 8.53-15.81 1,513,929
Granted.............................................. 55,000 8.75-10.50 490,000
Canceled............................................. (4,500) 9.99-15.77 (53,625)
------- ------------ --------------
Outstanding at December 31, 1993....................... 179,500 $ 8.53-15.81 $1,950,304
------- ------------ --------------
------- ------------ --------------
</TABLE>
At December 31, 1993, options to purchase 142,700 shares were exercisable
(110,000 shares exercisable at prices lower than the December 31, 1993 quoted
market price of $10.25 per share) and options to purchase an additional 23,800
will become exercisable in 1994. At December 31, 1993, an aggregate of 90,000
shares were available for future grants under the 1992 Option Plan and the
Director Plan.
In January 1994, the Company awarded 19,200 shares of restricted stock
under the terms of the 1992 Option Plan as partial consideration for
compensation that had been accrued at December 31, 1993. The restricted stock
vests 40% six months after the award date, increasing to 70% 18 months after the
award date and 100% two years after the award date.
NOTE 7 -- EMPLOYEE BENEFIT PLANS
The Company maintains several noncontributory defined benefit pension plans
covering most of its employees. Benefits are based on a combination of stated
percentages of an employee's wages. Pension plan assets are primarily invested
in a collective investment trust (the "Collective Trust") formed by Valhi, Inc.,
a majority-owned subsidiary of Contran, to permit the collective investment by
trusts which implement employee benefit plans maintained by Contran, Valhi and
related companies, including the Company. Harold C. Simmons is the sole trustee
and the sole member of the Trust Investment Committee for such trust.
The Company's funding policy is to contribute amounts equal to, or
exceeding, minimum funding requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The Company received permission from
the Internal Revenue Service ("IRS") to defer the annual pension plan
contributions for plan years ended June 30, 1980, 1984 and 1985, which, in the
aggregate, amounted to $31.7 million. The deferred amounts, with interest, are
payable to the plans over fifteen years. At December 31, 1993, the remaining
balance of such deferred contributions was approximately $13.3 million. Payment
of these deferred contributions, due through 2000, is collateralized by a lien
on all of the Company's assets.
The components of net periodic pension cost are presented in the table
below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1991 1990 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost........................................ $ 1,357 $ 2,005 $ 1,931
Interest cost on projected benefit obligation....... 14,715 14,593 14,509
Actual return on plan assets........................ (11,050) (6,559) (18,200)
Net amortization and deferral....................... 4,704 (1,418) 9,363
-------- -------- -------
Net periodic pension cost......................... $ 9,726 $ 8,621 $ 7,603
-------- -------- -------
-------- -------- -------
</TABLE>
F-12
<PAGE> 27
Effective December 31, 1993, due primarily to the continued general decline
in interest rates, the Company changed the discount rates used in determining
the actuarial present values of the projected pension plan benefit obligations
from 9.5% to 7.5% and also reduced its assumed long-term rate of return on plan
assets from 12% to 10%. These changes resulted in, among other things, an
increase in noncurrent pension cost liability of $28 million, and a $17 million
charge to stockholders' deficit. Variances from actuarially assumed rates,
including the rate of return on pension plan assets, will result in additional
increases or decreases in these accounts, as well as deferred taxes, pension
expense and funding requirements in future periods.
The following table sets forth the actuarially estimated obligations and
funded status of the Company's various defined benefit pension plans and the
Company's accrued pension cost.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................................ $149,269 $173,924
-------- --------
-------- --------
Accumulated benefit obligation....................................... $153,828 $180,426
-------- --------
-------- --------
Projected benefit obligation......................................... $159,072 $187,776
Plan assets at fair value.............................................. 94,940 110,767
-------- --------
Projected benefit obligation in excess of plan assets.................. 64,132 77,009
Unrecognized net loss from experience different from actuarial
assumptions.......................................................... (29,202) (51,304)
Unrecognized net obligation being amortized over 15-19 years........... (13,887) (12,067)
Adjustment required to recognize minimum liability..................... 37,854 56,020
-------- --------
Total accrued pension cost...................................... 58,897 69,658
Less current portion................................................... 7,259 9,556
-------- --------
Noncurrent accrued pension cost................................. $ 51,638 $ 60,102
-------- --------
-------- --------
</TABLE>
The assumed rates of increase in future compensation levels were 3%. The
assumed long-term rates of return on assets were 12% and 10% at December 31,
1992 and 1993, respectively. The vested benefit obligation includes the
actuarial present value of the vested benefits to which an active employee is
entitled if employment was terminated immediately.
The Company maintains several defined contribution plans covering most of
its employees. The Company contributes the lesser of an amount equal to the
participants' contributions or a profit sharing formula established by the Board
of Directors. Expense related to these plans was $2.1 million in 1991, $2.3
million in 1992 and $2.4 million in 1993.
F-13
<PAGE> 28
NOTE 8 -- OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current:
Salary, wages, vacations and other employee expense.................... $ 10,096 $ 9,388
Excise tax and related accrued interest................................ -- 7,120
Environmental.......................................................... 2,200 3,525
Other.................................................................. 5,592 5,086
-------- --------
$ 17,888 $ 25,119
-------- --------
-------- --------
Noncurrent:
Environmental.......................................................... $ 6,222 $ 6,056
Other.................................................................. 1,498 1,660
-------- --------
$ 7,720 $ 7,716
-------- --------
-------- --------
</TABLE>
NOTE 9 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company currently provides, in addition to pension benefits, medical
and life insurance benefits for certain retired employees of currently owned
businesses as well as for certain retirees of businesses which have been sold or
discontinued. Certain retirees are required to contribute to the cost of their
benefits. Under plans currently in effect, certain active employees would be
entitled to receive OPEB upon retirement. OPEB expense under the pay-as-you-go
method was $6.5 million in 1991. OPEB expense under the accrual method pursuant
to SFAS No. 106 for the years ended December 31, 1992 and 1993 was composed of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Service cost............................................................. $ 1,046 $ 1,109
Interest cost on projected benefit obligation............................ 9,002 9,132
Amortization of prior service cost....................................... -- (171)
-------- --------
Total OPEB expense............................................. $ 10,048 $ 10,070
-------- --------
-------- --------
</TABLE>
The following table sets forth the actuarial present value of the estimated
accumulated OPEB obligations, none of which have been funded.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated OPEB obligations:
Current retirees..................................................... $ 76,888 $ 74,369
Fully eligible active plan participants.............................. 1,130 1,071
Other active plan participants....................................... 23,366 27,511
-------- --------
101,384 102,951
Unrecognized net loss from experience different from actuarial
assumptions.......................................................... -- (4,952)
Unrecognized prior service credit...................................... -- 5,580
-------- --------
Total accrued OPEB cost................................................ 101,384 103,579
Less current portion................................................... 7,657 7,243
-------- --------
Noncurrent accrued OPEB cost.................................... $ 93,727 $ 96,336
-------- --------
-------- --------
</TABLE>
The rates used in determining the actuarial present value of the
accumulated OPEB obligations were (i) discount rate -- 9.5% and 7.5% at December
31, 1992 and 1993, respectively, and (ii) rate of increase in
F-14
<PAGE> 29
future health care costs -- 11% in 1993 and 10% in 1994, gradually declining to
5.5% in 2015 and thereafter. If the health care cost trend rate was increased by
one percentage point for each year, OPEB expense would have increased $1.2
million in each of 1992 and 1993, and the actuarial present value of accumulated
OPEB obligations at December 31, 1992 and 1993 would have increased $10.3
million and $10.4 million, respectively.
NOTE 10 -- CHANGE IN ACCOUNTING PRINCIPLES
The Company (i) elected early compliance with both SFAS No. 106 (OPEB) and
SFAS No. 109 (income taxes) as of January 1, 1992; (ii) elected to apply SFAS
No. 109 prospectively and not restate prior years; and (iii) elected immediate
recognition of the OPEB transition obligation. The cumulative effect of changes
in accounting principles is shown in the table below.
<TABLE>
<CAPTION>
AMOUNT
------
(IN THOUSANDS)
<S> <C>
Increase (decrease) in net assets at January 1, 1992:
Accrued OPEB cost.................................................... $(93,957)
Deferred income taxes, net........................................... 24,008
--------
Loss from cumulative effect of changes in accounting principles... $(69,949)
========
</TABLE>
NOTE 11 -- RELATED PARTY TRANSACTIONS
The Company may be deemed to be controlled by Harold C. Simmons (see Note
1). Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in various transactions with related parties, including
the Company. Such transactions may include, among other things, management and
expense sharing arrangements, advances of funds on open account, and sales,
leases and exchanges of assets. It is the policy of the Company to engage in
transactions with related parties on terms, in the opinion of the Company, no
less favorable to the Company than could be obtained from unrelated parties.
Depending upon the business, tax and other objectives then relevant, the Company
may be a party to one or more such transactions in the future.
J. Walter Tucker, Jr., Vice Chairman of the Company, is a principal
stockholder of Tucker & Branham, Inc., Orlando, Florida. The Company has
contracted with Tucker & Branham, Inc. for the services of Mr. Tucker. Fees paid
Tucker & Branham, Inc. were $41,000 in 1991, $50,000 in 1992 and $62,000 in
1993.
Under the terms of an Intercorporate Services Agreement with Contran,
Contran and related companies perform certain management, financial and
administrative services for the Company on a fee basis. Aggregate fees paid
pursuant to this agreement were $484,000 in 1991, $508,000 in 1992 and $580,000
in 1993. In addition, the Company purchased certain aircraft services from Valhi
in the amount of $178,000 in each of 1991 and 1992 and $158,000 in 1993.
Certain of Keystone's property, liability and casualty insurance risks were
partially reinsured by a captive insurance subsidiary of Valhi prior to 1993.
The premiums and claims paid in connection therewith were approximately $234,000
in 1991, $18,000 in 1992 and $139,000 in 1993. In 1991, $770,000 of unrelated
third party property premiums were financed over a nine-month period by this
subsidiary.
F-15
<PAGE> 30
NOTE 12 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year ended December 31, 1993:
Net sales........................................ $ 81,130 $95,822 $ 86,361 $81,873
Gross profit..................................... 7,155 9,190 9,012 7,164
Net income (loss)........................ $ 592 $(3,590) $ 3,191 $ 556
-------- ------- ------------ -----------
-------- ------- ------------ -----------
Income (loss) per common share................... $ .11 $ (.65) $ .58 $ .10
-------- ------- ------------ -----------
-------- ------- ------------ -----------
Year ended December 31, 1992:
Net sales........................................ $ 82,656 $92,459 $ 76,978 $64,158
Gross profit..................................... 9,807 12,854 9,497 5,285
Income (loss) before cumulative effect of changes
in accounting principles...................... $ 2,156 $ 4,049 $ 2,133 $(3,192)
Cumulative effect of changes in accounting
principles.................................... (69,949) -- -- --
-------- ------- ------------ -----------
Net income (loss)........................ $(67,793) $ 4,049 $ 2,133 $(3,192)
-------- ------- ------------ -----------
-------- ------- ------------ -----------
Income (loss) per common share:
Income (loss) before cumulative effect of
changes in accounting principles............ $ .38 $ .73 $ .38 $ (.57)
Cumulative effect of changes in accounting
principles.................................. (12.53) -- -- --
-------- ------- ------------ -----------
Net income (loss)........................ $ (12.15) $ .73 $ .38 $ (.57)
-------- ------- ------------ -----------
-------- ------- ------------ -----------
</TABLE>
NOTE 13 -- INDUSTRY SEGMENT INFORMATION
The Company's continuing operations are comprised of one segment, the
manufacture and sale of carbon steel rod, wire and wire products for
agricultural, industrial, construction, commercial, original equipment
manufacturers and retail consumer markets.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1991 1992 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................. $302,132 $316,251 $345,186
-------- -------- --------
-------- -------- --------
Operating income........................................... $ 19,248 $ 12,826 $ 12,361
General corporate expense, net............................. (106) (1,450) (4,656)
Interest expense........................................... (4,322) (3,036) (6,575)
-------- -------- --------
Income before income taxes....................... $ 14,820 $ 8,340 $ 1,130
-------- -------- --------
-------- -------- --------
</TABLE>
Export sales were $7.5 million in 1991, $2.8 million in 1992 and $1.5
million in 1993. General corporate expenses in 1993 included $3.2 million of
nondeductible excise taxes, and interest expense included $3.9 million of
related interest. See Note 14.
NOTE 14 -- COMMITMENTS AND CONTINGENCIES
Environmental matters -- Peoria facility
The Company is currently involved in the closure of inactive waste disposal
units at its Peoria, Illinois facility pursuant to a closure plan approved by
the Illinois Environmental Protection Agency ("IEPA") in September 1992 which
provides for the treatment of seven hazardous waste surface impoundments and two
waste piles. The closure plan proposes, among other things, the in-place
treatment of certain sediments in the surface impoundments, which treatment is
designed to convert certain hazardous wastes to special wastes that
F-16
<PAGE> 31
qualify for "delisting" and can be removed and disposed of at a lesser cost than
"listed" hazardous wastes. One of the seven surface impoundments, containing
approximately 30% of the total sediments to be treated, was treated as a full
scale test during 1993 to meet established criteria and a delisting petition was
filed with the Illinois Pollution Control Board ("IPCB") documenting the results
of that treatment. Based on these results, the IPCB approved the Company's
delisting petition on February 17, 1994. At December 31, 1993, the Company has a
$7.3 million accrual representing the estimated costs remaining to be incurred
relating to the remediation efforts, exclusive of capital improvements. The
remediation is expected to be performed over the next five to six years. The
Company also reached agreements with the IEPA and the Illinois Attorney
General's office concerning financial assurance, liability insurance, delisting
procedure and certain ground water contamination issues which, along with the
closure plan, were incorporated in a Consent Order in July 1993. Pursuant to the
agreement, the Company will deposit $3 million into a trust fund over a six-year
period. The Company cannot withdraw funds from the trust fund until the fund
balance exceeds the sum of the estimated remaining remediation costs plus $2
million. At December 31, 1992 and 1993 the trust fund had balances of $501,000
and $863,000, respectively, which amounts are included in other noncurrent
assets because the Company does not expect to have access to any of these funds
until after 1997.
In the normal course of operations at the Company's Peoria facility an
unknown amount of a radioactive element was contained in some scrap being melted
in an electric arc furnace resulting in the pollution control system and the
accumulated furnace dust becoming contaminated. As a result, it was necessary
for the Company to clean the pollution control system and remove, contain and
store the contaminated dust. The Company has incurred $2.1 million of costs
related to this incident, net of $1.2 million in insurance reimbursements. The
insurers are disputing coverage for the remaining $1.1 million in excess of the
Company's $1 million insurance deductible. Preliminary cost estimates to
stabilize and dispose of the contaminated dust offsite range from $7 million to
$9 million. However, the Company is investigating alternatives to stabilization
and offsite disposal of the contaminated dust including storing the dust on site
indefinitely. The preliminary cost estimate for long term on-site storage is
approximately $1.2 million, which amount has been accrued at December 31, 1993.
The Company believes its comprehensive general liability insurance policies
provide indemnification for costs incurred resulting from this incident.
However, because of the dispute with the insurers, the Company has not recorded
an insurance receivable related to this matter.
Environmental matters -- "Superfund" sites
The Company is also subject to federal and state "Superfund" legislation
that imposes cleanup and remediation responsibility upon present and former
owners and operators of, and persons that generated hazardous substances
deposited upon, sites determined by state or federal regulators to contain
hazardous substances. The Company has been notified by the United States
Environmental Protection Agency ("U.S. EPA") that the Company is a potentially
responsible party ("PRP") under the federal "Superfund" legislation for the
alleged release or threat of release of hazardous substances into the
environment at several sites. These situations involve cleanup of landfills and
disposal facilities which allegedly received hazardous substances generated by
discontinued operations of the Company. The Company believes its comprehensive
general liability insurance policies provide indemnification for certain costs
the Company incurs at the three "Superfund" sites discussed below and has
recorded receivables for the estimated insurance recoveries.
In July 1991, the United States filed an action against a former subsidiary
of the Company and four other PRP's in the United States District Court for the
Northern District of Illinois (Civil Action No. 91C4482) seeking to recover
investigation and remediation costs incurred by U.S. EPA at the Byron Salvage
Yard, located in Byron, Illinois. In April 1992, Keystone filed a third-party
complaint in this civil action against 15 additional parties seeking
contribution in the event the Company is held liable for any response costs at
the Byron site. Neither the Company nor the other designated PRPs are performing
any investigation of the nature and extent of the contamination. U.S. EPA has
possession of the site, is conducting the remedial investigation, and has not
made available sufficient data, tests results or other facts that would enable
the PRPs to speculate as to an appropriate remedy or remedies. In July 1993, the
U.S. EPA made available for inspection records documenting approximately $10
million in investigation and remediation costs incurred at the site and produced
copies of the laboratory results on groundwater samples taken as a part of the
ongoing
F-17
<PAGE> 32
remedial investigation. U.S. EPA has not released any hydrogeological analysis
or risk assessment of those test results, nor has it disclosed any of its
remedial investigation findings. Until U.S. EPA releases its remedial
investigation/feasibility study ("RI/FS"), the Company has no basis to predict
whether U.S. EPA will require any further groundwater remediation measures. The
Company accrued its $500,000 estimated share of the documented investigation and
remediation costs during 1993.
In September 1991, the Company along with 53 other PRP's, executed a
consent decree to undertake the immediate removal of hazardous wastes and
initiate a RI/FS of the Interstate Pollution Control site located in Rockford,
Illinois. The Company's percentage allocation within the group of PRP's agreeing
to fund this project is 2.14%. However, the Company's ultimate allocation, and
the ultimate costs of the RI/FS and the removal action, are subject to change
depending, for example, upon: the number and financial condition of the other
participating PRPs, field conditions and sampling results, additional regulatory
requirements, and the success of a planned contribution action seeking to compel
additional parties to contribute to the costs of the RI/FS and removal action.
The project manager for the engineering firm conducting the RI/FS at the site
has concluded the least expensive remedial option would be to cap the site and
install and operate a soil vapor extraction system, at an estimated cost of
approximately $2.6 million. The remedial investigation is still in process and
the feasibility study is not due to be completed until 1995. The Company's share
of the estimated least expensive remedial option is approximately $56,000, which
was accrued in the fourth quarter of 1993.
In August 1987, the Company was notified by the U.S. EPA that it is a PRP
responsible for the alleged hazardous substance contamination of a site
previously owned by the Company in Cortland, New York. There are four other PRPs
and a contribution action is pending against eleven additional viable companies
which contributed wastes to the site. A recent estimate made by the principal
engineering firm responsible for the management of the RI/FS indicated the
estimated cost of the least expensive remedial option is $6 million to $8.5
million. This option would involve pumping and treating contaminated groundwater
extracted from wells on the site, as well as the construction of a site cap. The
likelihood that U.S. EPA will select this option will depend on, among other
things, the results of the supplemental field investigations initiated in
November 1993 and the findings of the site risk assessment and feasibility
study. The Company's estimated share of the least expensive remedial option is
approximately $375,000, which was accrued in the fourth quarter of 1993.
Current litigation
In 1983 and 1984, the Company satisfied a portion of its funding
obligations to the Keystone Master Pension Trust ("KMPT") through the
contribution of certain real property. The IRS contended these contributions
were prohibited sales between the Company and the KMPT and in 1988, issued a
Notice of Deficiency proposing the imposition of excise taxes plus accrued
interest against the Company under the "prohibited transaction" provisions of
the Internal Revenue Code (the "Code"). On May 24, 1993, the U.S. Supreme Court
reversed lower court decisions favorable to the Company and remanded the case to
the tax court to determine the amount due. The Company believed the
contributions were not prohibited transactions and had no accrual with respect
to this matter prior to the U.S. Supreme Court's reversal of the favorable lower
courts' decisions. The Company has estimated the costs of the 5% nondeductible
excise taxes to be approximately $3.2 million and the related interest accrued
through December 31, 1993 to be approximately $3.9 million, resulting in a net
after-tax charge of approximately $5.6 million in 1993. In addition, to avoid a
second tier $9.6 million excise tax, the Company made a "correction" payment of
$2.3 million to its pension plans in June 1993. The IRS contended this
additional payment should have been approximately $3.5 million higher. The
Company is currently negotiating a settlement of this matter with the IRS.
In February 1989, the Company sold substantially all of the operating
assets of two former divisions. As part of the purchase price, the Company
received two promissory notes from the purchaser collateralized by the assets
sold. In 1991, the purchaser restructured its business and borrowing
obligations, including its notes payable to the Company, sold product lines,
spun off operations and sold unused machinery and equipment. In consideration of
the Company's consent to that restructuring, the Company obtained certain
replacement security interests including a secured note receivable, proceeds,
from a noncompetition agreement and security interests in two of the purchasers
limited partnership interests. In October 1991, an involuntary bankruptcy
petition was filed against the purchaser by certain unsecured creditors. As a
result, a liquidation effort
F-18
<PAGE> 33
commenced under the supervision of the U.S. Bankruptcy Court. The Company
accounts for the notes by the cost recovery method and the net carrying value
was $3.0 million and $2.4 million at December 31, 1992 and 1993, respectively.
In November 1993, the bankruptcy Trustee commenced an adversary proceeding
against the Company seeking to subordinate certain claims filed by the Company
during the bankruptcy proceeding and to recover certain payments received by the
Company, aggregating $1.6 million at December 31, 1993, pursuant to the note
receivable and noncompetition agreement referred to above. The Company believes
the adversary proceeding is without merit and intends to vigorously defend its
interests.
The Company is also engaged in various legal proceedings incidental to its
normal business activities. In the opinion of the Company, none of such
proceedings is material in relation to the Company's consolidated financial
position, results of operations or liquidity.
Concentration of credit risk
The Company sells its products to agricultural, industrial, construction,
commercial, original equipment manufacturers and retail distributors primarily
in the midwestern and southwestern regions of the United States. The Company
performs ongoing credit evaluations of its customer's financial condition and,
generally, requires no collateral from its customers. The Company's ten largest
customers accounted for approximately 31% of sales in 1991, 33% in 1992 and 30%
in 1993 and approximately 39% and 33% of notes and accounts receivable at
December 31, 1992 and 1993, respectively.
F-19
<PAGE> 34
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
CLASSIFICATION OF PERIOD ADDITIONS RETIREMENTS OTHER OF PERIOD
- ------------------------------------------- ---------- --------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991:
Land..................................... $ 1,427 $ -- $ -- $ -- $ 1,427
Buildings and improvements............... 36,586 1,843 -- -- 38,429
Machinery and equipment.................. 159,456 5,950 847 -- 164,559
Leasehold improvements................... 1,204 -- -- -- 1,204
Construction in progress................. 3,427 1,478 28 -- 4,877
---------- --------- ----------- ----- ---------
$ 202,100 $ 9,271 $ 875 $ -- $ 210,496
---------- --------- ----------- ----- ---------
---------- --------- ----------- ----- ---------
Year ended December 31, 1992:
Land..................................... $ 1,427 $ -- $ -- $ -- $ 1,427
Buildings and improvements............... 38,429 2,119 16 (47) 40,485
Machinery and equipment.................. 164,559 5,919 929 47 169,596
Leasehold improvements................... 1,204 -- -- -- 1,204
Construction in progress................. 4,877 (579) 80 -- 4,218
---------- --------- ----------- ----- ---------
$ 210,496 $ 7,459 $ 1,025 $ -- $ 216,930
---------- --------- ----------- ----- ---------
---------- --------- ----------- ----- ---------
Year ended December 31, 1993:
Land..................................... $ 1,427 $ 94 $ -- $ -- $ 1,521
Buildings and improvements............... 40,485 586 131 -- 40,940
Machinery and equipment.................. 169,596 7,754 1,547 (69) 175,734
Leasehold improvements................... 1,204 -- -- -- 1,204
Construction in progress................. 4,218 (1,085) -- 69 3,202
---------- --------- ----------- ----- ---------
$ 216,930 $ 7,349 $ 1,678 $ -- $ 222,601
---------- --------- ----------- ----- ---------
---------- --------- ----------- ----- ---------
</TABLE>
S-1
<PAGE> 35
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION
OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
CLASSIFICATION OF PERIOD ADDITIONS RETIREMENTS OTHER OF PERIOD
- ------------------------------------------- ---------- --------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991:
Buildings and improvements............... $ 19,487 $ 1,052 $ -- $ 1 $ 20,540
Machinery and equipment.................. 92,408 8,917 747 -- 100,578
Leasehold improvements................... 1,187 27 -- -- 1,214
---------- --------- ----------- ----- ---------
$ 113,082 $ 9,996 $ 747 $ 1 $ 122,332
---------- --------- ----------- ----- ---------
---------- --------- ----------- ----- ---------
Year ended December 31, 1992:
Buildings and improvements............... $ 20,540 $ 1,166 $ 14 $ 104 $ 21,796
Machinery and equipment.................. 100,578 9,277 735 6 109,126
Leasehold improvements................... 1,214 82 -- (110) 1,186
---------- --------- ----------- ----- ---------
$ 122,332 $10,525 $ 749 $ -- $ 132,108
---------- --------- ----------- ----- ---------
---------- --------- ----------- ----- ---------
Year ended December 31, 1993:
Buildings and improvements $ 21,796 $ 1,227 $ 28 $ -- $ 22,995
Machinery and equipment.................. 109,126 9,855 1,332 -- 117,649
Leasehold improvements................... 1,186 2 -- -- 1,188
---------- --------- ----------- ----- ---------
$ 132,108 $11,084 $ 1,360 $ -- $ 141,832
---------- --------- ----------- ----- ---------
---------- --------- ----------- ----- ---------
</TABLE>
S-2
<PAGE> 36
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND (NET OF END OF
DESCRIPTION OF PERIOD EXPENSES RECOVERIES) PERIOD
- -------------------------------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1991:
Allowance for doubtful accounts and notes
receivable................................... $1,209 $133 $ 1,025 $ 317
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Reserve for supplies inventory.................. $ 768 $298 $ -- $1,066
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Allowance for doubtful notes and interest
receivable................................... $1,100 $ -- $ 1,100 $ --
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Year ended December 31, 1992:
Allowance for doubtful accounts and notes
receivable................................... $ 317 $ 45 $ (102) $ 464
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Reserve for supplies inventory.................. $1,066 $180 $ -- $1,246
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Year ended December 31, 1993:
Allowance for doubtful accounts and notes
receivable................................... $ 464 $ (6) $ (23) $ 435
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Reserve for supplies inventory.................. $1,246 $247 $ -- $1,493
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
* * * * *
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
YEARS ENDED DECEMBER 31,
--------------------------------
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Maintenance................................................... $ 34,676 $ 36,830 $ 34,116
-------- -------- --------
-------- -------- --------
</TABLE>
- ---------------
Note: Other items are omitted as the amounts did not exceed one percent of total
sales or are reported in the related statements of operations and
statements of cash flows.
S-3
<PAGE> 37
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Numbers:
manually
Exhibit No. signed copy
- ----------- -------------
<S> <C> <C>
3.1 Certificate of Incorporation, as amended and filed with the Secretary of State of
Delaware -- incorporated by reference to Exhibit 3.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1990.
3.2 Bylaws of the Company, as amended and restated May 15, 1990 -- incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990.
4.1 Accounts Receivable Financing Agreement and Security Agreement dated December 19,
1986, as amended between the Company and Congress Financial Corporation (Central) --
incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990.
4.2 Amendment No. 6, dated November 1, 1991 to Accounts Receivable Financing Agreement
and Rider No. 1 between the Company and Congress Financial Corporation (Central)
dated December 19, 1986 -- incorporated by reference to Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
4.3 Amendment No. 7, dated January 15, 1993 to Accounts Receivable Financing Agreement
and Rider No. 1 between the Company and Congress Financial Corporation (Central)
dated December 19, 1986.
4.4 Amendment No. 8, dated December 30, 1993 to Accounts Receivable Financing Agreement
and Rider No. 1 between the Company and Congress Financial Corporation (Central)
dated December 19, 1986.
4.5 Term Loan and Security Agreement between the Company and Congress Financial
Corporation (Central) dated December 30, 1993.
10.1 Intercorporate Services Agreement with Contran Corporation dated as of January 1, 1993.
21 Subsidiaries of the Company.
23 Consent of Coopers & Lybrand.
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1993.
<PAGE> 1
EXHIBIT 4.3
AMENDMENT NO. 7 TO
ACCOUNTS RECEIVABLE FINANCING
AGREEMENT {SECURITY AGREEMENT} AND RIDER
NO. 1 TO ACCOUNTS RECEIVABLE FINANCING
AGREEMENT (SECURITY AGREEMENT)
This Amendment No. 7 (the "Amendment") dated as of January 15,
1993 is entered into by Keystone Consolidated Industries, Inc. ("Debtor") and
Congress Financial Corporation (Central) ("Congress"). Capitalized terms used
herein but not defined herein shall have the meaning ascribed to them in the
Accounts Receivable Financing Agreement {Security Agreement} dated as of
December 19, 1986, as amended (as so amended the "Loan Agreement") , and Rider
No. 1 to Accounts Receivable Financing Agreement (Security Agreement) , dated
as of December 19, 1986, as amended (as so amended, the "Rider") , by and
between Debtor and Congress. The Rider and the Loan Agreement are
collectively hereinafter referred to as the "Agreement."
WITNESSETH:
WHEREAS, Debtor and Congress have entered into the Agreement;
and
WHEREAS, Debtor and Congress have agreed to amend the Rider on
the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto
agree, effective January 1, 1992, paragraph 1(p) of the Rider is deleted in its
entirety and the following is substituted therefore:
(p) "Tangible Net Worth" shall mean, as of any date of
determination, the excess of total assets over total liabilities of
the Debtor in conformity with generally accepted accounting principles
(GAAP), but excluding from
<PAGE> 2
the determination of total assets any items which are treated as
intangibles in conformity with GAAP, and excluding from total assets
and liabilities any increased pension or postretirement benefit
liabilities or increased assets which result solely from the Debtor's
adoption of Financial Accounting Standards Board Statements Nos. 87,
88 and 106 ("SFAS Nos. 87, 88 and 106").
IN WITNESS WHEREOF, this Amendment has been duly executed as
of the day and year first above written.
KEYSTONE CONSOLIDATED
INDUSTRIES, INC.
By: /s/ HAROLD M. CURDY
Name: Harold M. Curdy
Title: Vice President, Finance
CONGRESS FINANCIAL CORPORATION
(CENTRAL)
By: /s/ JAMES W. WALD
Name: James W. Wald
Title: Vice President
<PAGE> 1
EXHIBIT 4.4
AMENDMENT NO. 8 TO ACCOUNTS RECEIVABLE FINANCING AGREEMENT
{SECURITY AGREEMENT} AND RIDER NO. 1 TO ACCOUNTS RECEIVABLE
FINANCING AGREEMENT {SECURITY AGREEMENT}
THIS AMENDMENT NO. 8 (the "Amendment") is made and entered
into as of December 30, 1993 by and between KEYSTONE CONSOLIDATED INDUSTRIES,
INC. ("Debtor") and CONGRESS FINANCIAL CORPORATION (CENTRAL) ("Congress").
Recitals
A. Debtor and Congress are the parties to that certain
Accounts Receivable Financing Agreement {Security Agreement} (as amended to
date, the "Loan Agreement") and Rider No. 1 thereto (as amended to date, "Rider
No. 1") , each dated as of December 19, 1986.
B. Debtor and Congress are about to enter in a Term
Loan Agreement of even date herewith and each desires to amend Rider No. 1 in
connection therewith.
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
1. Term of Revolving Loan Agreement. Section 16 of Rider
No. 1 is amended by deleting "December 31, 1993" therefrom and replacing such
date with "December 31, 1996".
2. Effect on Loan Agreement and Rider No. 1. The Loan
Agreement and Rider No. 1, as amended hereby shall be and remain in full force
and effect and are hereby, ratified and confirmed in all respects.
3. Execution in Counterparts. This Amendment may be
executed in any number of counterparts, each of which shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Amendment as of the day and year first above written.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
By: /s/ HAROLD M. CURDY
CONGRESS FINANCIAL CORPORATION
(CENTRAL)
By: /s/ GEORGE KALESNIK, SR. VP
<PAGE> 1
EXHIBIT 4.5
TERM LOAN AND SECURITY AGREEMENT
This Term Loan and Security Agreement (the "Agreement") is made and
entered into as of December 30, 1993 by and between Congress Financial
Corporation (Central) ("Lender") and Keystone Consolidated Industries, Inc.
("Borrower").
RECITALS
A. Borrower and Lender are the parties to that certain Accounts
Receivable Financing Agreement {Security Agreement} dated as of December 19,
1986, as amended to date (the "Accounts Financing Agreement") , and Rider No. 1
to Accounts Receivable Financing Agreement (Security Agreement), as amended to
date ("Rider No. 1"). The Accounts Financing Agreement and Rider No. 1 are
hereinafter referred to collectively as the "Revolving Loan Agreement".
Capitalized terms used and not otherwise defined in this Agreement are used as
they are defined in the Revolving Loan Agreement.
B. Lender is a party to that certain Amendment and Restatement of
Subordination Agreement (the "Subordination Agreement") dated as of June 30,
1987 by and among Harold C. Simmons, as trustee under the Keystone Master
Pension Trust (the "Trust") , ITT Commercial Finance Corp. ("ITT") and Lender
concerning various obligations of Borrower to the Trust, ITT and Lender,
including the obligations of Borrower to ITT under the ITT Loan Agreement (as
defined in the Subordination Agreement).
C. Borrower, the trustee of the Trust and Wire Products, Inc. are
the parties to that certain Amendment and Restatement of Security Agreement
(the "Security Agreement") dated as of January 8, 1987 concerning, among other
things, the relative priority of security interests held by the trustee of the
Trust, Lender and the Term Lenders (as defined in the Security Agreement).
D. Borrower has requested and Lender has agreed to make a term
loan to Borrower upon the terms and subject to the conditions set forth in this
Agreement.
E. The term loan to be made under this Agreement will replace and
be a refinancing of the obligations of Borrower under the ITT Loan Agreement.
Lender, upon the making of the term loan contemplated by this Agreement, will
be a Term Lender (as defined in the Security Agreement).
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
<PAGE> 2
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural. All
references to Borrower and Lender pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall include their respective
successors and assigns. The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not any particular provision of this Agreement
and as this Agreement now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced. An Event of Default
shall continue or be continuing until it is waived in accordance with Section
9.3 hereof. Any accounting term used herein unless otherwise defined in this
Agreement shall have the meanings customarily given to such term in accordance
with GAAP. For purposes of this Agreement, the following terms shall have the
respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of
Borrower to payment for goods sold or leased or for services rendered, which
are not evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Equipment" shall mean all of Borrower's now owned and
hereafter acquired equipment, machinery, computers and computer hardware and
software (whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used
in connection therewith, and substitutions and replacements thereof, wherever
located.
1.3 "Event of Default" shall mean the occurrence or existence of
any event or condition described in Section 8.1 hereof.
1.4 "Financing Agreements" shall mean, collectively, this
Agreement and any other agreement, document or instrument now or at any time
hereafter executed and/or delivered by Borrower or any Obligor in connection
with this Agreement, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.5 "GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which
2
<PAGE> 3
are applicable to the circumstances as of the date of determination, except
that, for purposes of Sections 7.13 and 7.14 hereof, GAAP shall be determined
on the basis of such principles in effect on the date hereof and consistent
with those used in the preparation of the audited financial statements
delivered to Lender prior to the date hereof.
1.6 "Inventory" shall mean all of Borrower's now owned and
hereafter existing or acquired raw materials, work in process, finished goods
and all other inventory of whatsoever kind or nature, wherever located.
1.7 "Information Certificate" shall mean the Information
Certificate of Borrower constituting Exhibit A hereto containing material
information with respect to Borrower, its business and assets provided by or on
behalf of Borrower to Lender in connection with the preparation of this
Agreement and the other Financing Agreements and the financing arrangements
provided for herein.
1.8 "Obligations" shall mean the Term Loan and all other
obligations, liabilities and indebtedness of every kind, nature and description
owing by Borrower to Lender and/or its affiliates, including principal,
interest, charges, fees, costs and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, whether arising under this
Agreement or otherwise, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal term of this
Agreement or after the commencement of any case with respect to Borrower under
the United States Bankruptcy Code or any similar statute (including, without
limitation, the payment of interest and other amounts which would accrue and
become due but for the commencement of such case), whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, and however acquired by
Lender.
1.9 "Obligor" shall mean any guarantor, endorser, acceptor, surety
or other person liable on or with respect to the Obligations or who is the
owner of any property which is security for the Obligations, other than
Borrower.
1.10 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
3
<PAGE> 4
1.11 "Prime Rate" shall mean the rate from time to time publicly
announced by Philadelphia National Bank, incorporated as CoreStates Bank, N.A.,
or its successors and assigns, at its office in Philadelphia, Pennsylvania, as
its prime rate, whether or not such announced rate is the best rate available
at such bank.
1.12 "Records" shall mean all of Borrower's present and future
books of account of every kind or nature, purchase and sale agreements,
invoices, ledger cards, bills of lading and other shipping evidence,
statements, correspondence, memoranda, credit files and other data relating to
the Collateral or any account debtor, together with the tapes, disks, diskettes
and other data and software storage medium and devices, file cabinets or
containers in or on which the foregoing are stored (including any rights of
Borrower with respect to the foregoing maintained with or by any other person).
1.13 "Term Loan" is defined in Section 2.1 hereof.
1.14 "Value" shall mean, as determined by Lender in good faith,
with respect to Inventory, the lower of (a) cost computed on a first-in-
first-out basis in accordance with GAAP or (b) market value.
SECTION 2. CREDIT FACILITIES
2.1 Term Loan. Subject to, and upon the terms and conditions
contained herein, Lender agrees to make a loan (the "Term Loan") to Borrower in
the principal amount of $20,000,000.
2.2 Scheduled Principal Payments. Except as provided in Sections
2.3 and 8.2(b) hereof, the principal amount of the Term Loan shall be due and
payable in 35 equal monthly payments of $277,777 due on February 1, 1994 and on
the first day of each month thereafter and a final payment of the remaining
principal balance due on December 31, 1996.
2.3 Mandatory Prepayment Upon Termination of Revolver. The entire
principal balance of the Term Loan then outstanding shall be due and payable on
the date that the Revolving Loan Agreement is terminated by Borrower pursuant
to Section 16 of Rider No. 1.
2.4 Interest.
(a) Borrower shall pay to Lender interest on the
outstanding principal amount of the Obligations at the rate of one percent (1%)
per annum in excess of the Prime Rate, except that Borrower shall pay to Lender
interest, at Lender's option, without notice, at the Default Rate on the
Obligations for the period on and after (i) the date that is 120 days after the
date
4
<PAGE> 5
of termination or non-renewal hereof, or (ii) the date of the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, and for so long as such Event of Default or
other event is continuing as determined by Lender and until such time as all
obligations are indefeasibly paid in full (notwithstanding entry of any
judgment against Borrower). All interest accruing hereunder on and after the
date of any Event of Default or termination or non-renewal hereof shall be
payable on demand.
(b) Accrued interest shall be due and payable on each date
that principal is due and payable under Sections 2.2, 2.3 or 8.2(b) hereof.
Interest shall be calculated on the basis of a three hundred sixty (360) day
year and actual days elapsed. The interest rate shall increase or decrease by
an amount equal to each increase or decrease in the Prime Rate effective on the
first day of the month after any change in such Prime Rate is announced based
on the Prime Rate in effect on the last day of the month in which any such
change occurs. In no event shall charges constituting interest payable by
Borrower to Lender exceed the maximum amount or the rate permitted under any
applicable law or regulation, and if any part or provision of this Agreement is
in contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.
2.5 Closing Fee. Borrower shall pay to Lender as a closing fee the
amount of $200,000, which shall be fully earned as of and payable on the date
hereof.
2.6 Loan Account Charges. Lender shall have the right, at its
option, to charge all principal, interest, fees and all other Obligations and
other amounts payable by Borrower hereunder to Borrower's loan account referred
to in Section 2 of the Accounts Financing Agreement
2.7 Payments. Borrower shall make all payments to Lender on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind. If
after receipt of any payment of, or proceeds applied to the payment of, any of
the Obligations, Lender is required to surrender or return such payment to any
Person for any reason, then the Obligations intended to be satisfied by such
payment shall be reinstated and continue and this Agreement shall continue in
full force as if such payment had not been received by Lender. Borrower shall
be liable to pay to Lender, and does indemnify and hold Lender harmless for the
amount of any payments surrendered or returned. This Section 2.7 shall remain
effective notwithstanding any contrary action which may be taken by Lender in
reliance upon
5
<PAGE> 6
such payment. This Section 2.7 shall survive the termination or non-renewal of
this Agreement.
2.8 Authorization to Make Loan. Lender is authorized to make the
Term Loan based upon telephonic or other instructions received from anyone
purporting to be an officer of Borrower or other authorized person. The Term
Loan shall be conclusively presumed to have been made to, and at the request of
and for the benefit of, Borrower when deposited to the credit of Borrower or
otherwise disbursed or established in accordance with the instructions of
Borrower or in accordance with the terms and conditions of this Agreement.
2.9 Use of Proceeds. Borrower shall use the proceeds of the Term
Loan only for: (a) payments to each of the persons listed in the disbursement
direction letter furnished by Borrower to Lender on or about the date hereof,
including all payments necessary to replace and refinance the ITT Loan
Agreement (as defined in the Subordination Agreement); (b) costs, expenses and
fees in connection with the preparation, negotiation, execution and delivery of
this Agreement and the other Financing Agreements; and (c) working capital
purposes.
SECTION 3. CONDITIONS PRECEDENT. Each of the following is a condition
precedent to Lender making the Term Loan:
3.1 Termination of Existing Loans. Lender shall have received, in
form and substance satisfactory to Lender, all releases, terminations and other
documents as Lender may request to evidence and effectuate the termination by
the existing lender or lenders to Borrower of their respective financing
arrangements with Borrower and the termination and release by it or them, as
the case may be, of any interest in and to any assets and properties of
Borrower or any Obligor, duly authorized, executed and delivered by it or each
of them, including, but not limited to, UCC termination statements for all UCC
financing statements previously filed by it or any of them, as secured party
and Borrower or any Obligor, as debtor.
3.2 Security Interests. Lender shall have received evidence, in
form and substance satisfactory to Lender, that Lender has valid perfected and
first priority security interests in and liens upon the Collateral and any
other property which is intended to be security for the Obligations, subject
only to the security interests and liens permitted under Section 7.8 hereof.
3.3 Corporate Action. All requisite corporate action and
proceedings in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to Lender, and Lender shall have
received all information and copies of all documents, including, without
limitation, records of
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requisite corporate action and proceedings which Lender may have requested in
connection therewith, such documents where requested by Lender or its counsel
to be certified by appropriate corporate officers or governmental authorities.
3.4 Required Consents. Lender shall have received, in form and
substance satisfactory to Lender, all consents, waivers, acknowledgments and
other agreements from third persons which Lender may deem necessary or
desirable in order to permit, protect and perfect its security interests in and
liens upon the Collateral or to effectuate the provisions or purposes of this
Agreement and the other Financing Agreements, including, without limitation,
acknowledgments by lessors, mortgagees and warehousemen of Lender's security
interests in the Collateral, waivers by such persons of any security interests,
liens or other claims by such persons to the Collateral and agreements
permitting Lender access to, and the right to remain on, the premises to
exercise its rights and remedies and otherwise deal with the Collateral.
3.5 Evidence of Insurance. Lender shall have received evidence of
insurance and loss payee endorsements required hereunder and under the other
Financing Agreements, in form and substance satisfactory to Lender, and
certificates of insurance policies and/or endorsements naming Lender as loss
payee.
3.6 Opinions of Counsel. Lender shall have received, in form and
substance satisfactory to Lender, such opinion letters of counsel to Borrower
with respect to the Financing Agreements and such other matters as Lender may
request.
3.7 Execution and Delivery of Documents. The other Financing
Agreements and all instruments and documents hereunder and thereunder shall
have been duly executed and delivered to Lender, in form and substance
satisfactory to Lender.
3.8 Representations and Warranties. All representations and
warranties contained herein and in the other Financing Agreements shall be true
and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of the
making of the Term Loan.
3.9 No Defaults. No Event of Default shall have occurred and no
event shall have occurred or condition be existing which, with notice or
passage of time or both, would constitute an Event of Default.
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SECTION 4. ACKNOWLEDGMENT OF SECURITY INTEREST
Borrower acknowledges that (i) the Obligations are included within the
term "Obligations" as such term is used in the Revolving Loan Agreement and
(ii) the Obligations are therefore secured by the liens and security interests
in the Collateral granted in the Revolving Loan Agreement and the other
collateral documents related thereto.
SECTION 5. COLLATERAL COVENANTS
5.1 Inventory Covenants. (a) Borrower shall not remove any
Inventory from the locations set forth herein, without the prior written
consent of Lender, except for sales of Inventory in the ordinary course of
Borrower's business and except to move Inventory directly from one location set
forth herein to another such location; (b) upon Lender's request, Borrower
shall, at its expense, no more than once in any twelve (12) month period, but
at any time or times as Lender may request on or after an Event of Default,
deliver or cause to be delivered to Lender written reports or appraisals as to
the Inventory in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely; (c) Borrower shall produce, use, store and
maintain the Inventory, with all reasonable care and caution and in accordance
with applicable standards of any insurance and in conformity with applicable
laws (including, but not limited to, the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto); (d) Borrower assumes all responsibility and liability arising from
or relating to the production, use, sale or other disposition of the Inventory;
(e) Borrower shall not sell Inventory to any customer on approval, or any other
basis which entitles the customer to return or may obligate Borrower to
repurchase such Inventory; (f) Borrower shall keep the Inventory in good and
marketable condition; and (g) Borrower shall not, without prior written notice
to Lender, acquire or accept any Inventory on consignment or approval.
5.2 Equipment Covenants. Borrower shall, at its expense, at any
time or times as Lender may request on or after an Event of Default, deliver or
cause to be delivered to Lender written reports or appraisals as to the
Equipment in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender; (a) Borrower shall keep the Equipment in good
order, repair, running and marketable condition (ordinary wear and tear
excepted); (b) Borrower shall use the Equipment, with all reasonable care and
caution and in accordance with applicable standards of any insurance and in
conformity with all applicable laws; (c) the Equipment is and shall be used in
Borrower's business and not for personal, family, household or farming use;
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(d) Borrower shall not remove any Equipment from the locations set forth
herein, except to the extent necessary to have any Equipment repaired or
maintained in the ordinary course of the business of Borrower or to move
Equipment directly from one location set forth herein to another such location
and except for the movement of motor vehicles used by or for the benefit of
Borrower in the ordinary course of business; (e) the Equipment is now and shall
remain personal property and Borrower shall not permit any of the Equipment to
be or become a part of or affixed to real property; and (f) Borrower assumes
all responsibility and liability arising from the use of the Equipment.
5.3 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage
of time or both would constitute an Event of Default exists (i) demand payment
of Accounts; (ii) enforce payment of Accounts by legal proceedings or
otherwise; (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral; (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable; (v)
settle, adjust, compromise, extend or renew an Account; (vi) discharge and
release any Account; (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against an account debtor;
(viii) notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, and open and dispose of all
mail addressed to Borrower; and (ix) do all acts and things which are
necessary, in Lender's determination, to fulfill Borrower's obligations under
this Agreement and (b) at any time (i) take control in any manner of any item
of payment of proceeds thereof; (ii) have access to any lockbox or postal box
into which Borrower's mail is deposited; (iii) endorse Borrower's name upon any
items of payment or proceeds thereof and deposit the same in Lender's account
for application to the Obligations; (iv) endorse Borrower's name upon any
chattel paper, document, instrument, invoice, or similar document or agreement
relating to any Account or any goods pertaining thereto or any other
Collateral; and (v) sign Borrower's name on any verification of Accounts and
notices thereof to account debtors and (vi) execute in Borrower's name and file
any UCC financing statements or amendments thereto. Borrower hereby releases
Lender and its officers, employees and designees from any liabilities arising
from any act or acts under this power of attorney and in furtherance thereof,
whether of omission or commission, except as a result of Lender's own gross
negligence or wilful misconduct as determined pursuant to a final
non-appealable order of a court of competent jurisdiction.
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5.4 Right to Cure. Lender may, at its option, (a) cure any
default by Borrower under any agreement with a third party or pay or bond on
appeal any judgment entered against Borrower, (b) discharge taxes, liens,
security interests or other encumbrances at any time levied on or existing with
respect to the Collateral and (c) pay any amount, incur any expense or perform
any act which, in Lender's judgment, is necessary or appropriate to preserve,
protect, insure, maintain, enforce and collect the Collateral and the rights of
Lender with respect thereto. All amounts so expended shall constitute
Obligations and shall be repayable by Borrower on demand. Lender shall be under
no obligation to effect such cure, payment or bonding and shall not, by doing
so, be deemed to have assumed any obligation or liability of Borrower. Any
payment made or other action taken by Lender under this Section 5.4 shall be
without prejudice to any right to assert an Event of Default hereunder and to
proceed accordingly.
5.5 Access to Premises. From time to time as requested by Lender,
at the cost and expense of Borrower, (a) Lender or its designee shall have
complete access to all of Borrower's premises during normal business hours and
after notice to Borrower, or at any time and without notice to Borrower if an
Event of Default exists, for the purposes of inspecting, verifying and auditing
the Collateral and all of Borrower's books and records, including, without
limitation, the Records, and (b) Borrower shall promptly furnish to Lender such
copies of such books and records or extracts therefrom as Lender may request,
and (c) Lender or its designee may use during normal business hours such of
Borrower's personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists for the
collection of Accounts and realization of other Collateral.
SECTION 6. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a condition to the making of the Term Loan:
6.1 Corporate Existence, Power and Authority; Subsidiaries.
Borrower is a corporation duly organized and in good standing under the laws of
its state of incorporation and is duly qualified as a foreign corporation and
in good standing in all states or other jurisdictions where the nature and
extent of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify would not have a material adverse effect on Borrower's financial
condition, results of operation or business or the rights of Lender in or to
any of the Collateral.
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The execution, delivery and performance of this Agreement, the other Financing
Agreements and the transactions contemplated hereunder and thereunder are all
within Borrower's corporate powers, have been duly authorized and are not in
contravention of law or the terms of Borrower's certificate of incorporation,
by-laws, or other organizational documentation, or any indenture, agreement or
undertaking to which Borrower is a party or by which Borrower or its property
are bound. This Agreement and the other Financing Agreements constitute legal,
valid and binding obligations of Borrower enforceable in accordance with their
respective terms. Borrower does not have any subsidiaries except as set forth
on the Information Certificate.
6.2 Financial Statements; No Material Adverse Change. All
financial statements relating to Borrower which have been or may hereafter be
delivered by Borrower to Lender are prepared in accordance with GAAP and fairly
present the financial condition and the results of operation of Borrower as at
the dates and for the periods set forth therein. Except as disclosed in any
interim financial statements furnished by Borrower to Lender prior to the date
of this Agreement or in the Information Certificate, there has been no material
adverse change in the assets, liabilities, properties and condition, financial
or otherwise, of Borrower, since the date of the most recent audited financial
statements furnished by Borrower to Lender prior to the date of this Agreement.
6.3 Chief Executive Office; Collateral Locations. The chief
executive office of Borrower and Borrower's Records concerning Accounts are
located only at the address set forth in the Information Certificate and its
only other places of business and the only other locations of Collateral, if
any, are the addresses set forth in the Information Certificate, subject to the
right of Borrower to establish new locations in accordance with Section 7.2
hereof. The Information Certificate correctly identifies any of such locations
which are not owned by Borrower and sets forth the owners and/or operators
thereof, and to the best of Borrower's knowledge, the holders of any mortgages
on such locations.
6.4 Priority of Liens; Title to Properties. The security interests
and liens granted to Lender under this Agreement and the other Financing
Agreements constitute valid and perfected first priority liens and security
interests in and upon the Collateral subject only to the liens permitted under
Section 7.8 hereof. Borrower has good and marketable title to all of its
properties and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or changes of any kind, except those granted to Lender
and such others are specifically permitted under Section 7.8 hereof.
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6.5 Tax Returns. Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to
be filed by it (without requests for extension except as previously disclosed
in writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Borrower has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.
6.6 Litigation. Except as described in Section 10(f) of Rider No.
1 and the Information Certificate, there are no judgments outstanding against
Borrower, there is no present investigation by any governmental agency pending,
or to the best of Borrower's knowledge threatened, against or affecting
Borrower, its assets or business and there is no action, suit, proceeding or
claim by any Person pending, or to the best of Borrower's knowledge threatened,
against Borrower or its assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, which if adversely determined with
respect to it would result in any material adverse change in the assets,
business or prospects of Borrower or which would impair the ability of Borrower
to perform its obligations hereunder or under any of the other Financing
Agreements to which it is a party or of Lender to enforce the Obligations or
realize upon the Collateral.
6.7 Compliance with Other Agreements and Applicable Laws. Borrower
is not in default under, or in violation of any of the terms of, any agreement,
contract, instrument, lease or other commitment to which it is a party or by
which it or any of its assets are bound. Borrower is in compliance in all
material respects with all applicable provisions of laws, rules, regulations,
licenses, permits, approvals and orders of any foreign, Federal, State or local
governmental authority.
6.8 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is and will be true and correct in all material
respects on the date as of which such information is dated or certified and
does not omit and will not omit any material fact necessary in order to make
such information not misleading. No event or circumstance has occurred which
has had
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or could reasonably be expected to have a material adverse affect on the
business, assets or prospects of Borrower, which has not been fully and
accurately disclosed to Lender in writing.
6.9 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be
conclusively presumed to have been relied on by Lender regardless of any
investigation made or information possessed by Lender. The representations and
warranties set forth herein shall be cumulative and in addition to any other
representations or warranties which Borrower shall now or hereafter give, or
cause to be given, to Lender.
6.10 Revolving Loan Agreement Representations. Except as disclosed
in the Information Certificate, each of the representations and warranties in
Sections 10(i) , 10(k) and 10(m) of Rider No. 1 are true and correct as of
the date hereof.
SECTION 7. AFFIRMATIVE AND NEGATIVE COVENANTS
7.1 Maintenance of Existence. Borrower shall at all times
preserve, renew and keep in full, force and effect its corporate existence and
rights and franchises with respect thereto and maintain in full force and
effect all permits, licenses, trademarks, tradenames, approvals,
authorizations, leases and contracts necessary to carry on the business as
presently or proposed to be conducted. Borrower shall give Lender thirty (30)
days prior written notice of any proposed change in its corporate name, which
notice shall set forth the new name and Borrower shall deliver to Lender a copy
of the amendment to the Certificate of Incorporation of Borrower providing for
the name change certified by the Secretary of State of the jurisdiction of
incorporation of Borrower as soon as it is available.
7.2 New Collateral Locations. Borrower may open any new location
within the continental United States provided Borrower (a) gives Lender thirty
(30) days prior written notice of the intended opening of any such new location
and (b) executes and delivers, or causes to be executed and delivered, to
Lender such agreements, documents, and instruments as Lender may deem
reasonably necessary or desirable to protect its interests in the Collateral at
such location, including, without limitation, UCC financing statements.
7.3 Compliance with Laws, Regulations, Etc. Borrower shall, at all
times, comply in all material respects with all laws rules, regulations,
licenses, permits, approvals and orders applicable to it and duly observe all
requirements, of any Federal, State or local governmental authority.
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7.4 Payment of Taxes and Claims. Borrower shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon
or against it or its properties or assets, except for taxes the validity of
which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrower and with respect to which adequate reserves
have been set aside on its books.
7.5 Insurance. Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to
form, amount and insurer. Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such insurance, and,
if Borrower fails to do so, Lender is authorized, but not required, to obtain
such insurance at the expense of Borrower. All policies shall provide for at
least thirty (30) days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for Borrower in
obtaining, and at any time an Event of Default exists, adjusting, settling,
amending and canceling such insurance. Borrower shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies
in form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower or any of its affiliates. At
its option, Lender may apply any insurance proceeds received by Lender at any
time to the cost of repairs or replacement of Collateral and/or to payment of
the Obligations, whether or not then due, in any order and in such manner as
Lender may determine or hold such proceeds as cash collateral for the
Obligations.
7.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which
full and true entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower in accordance with GAAP
and Borrower shall furnish or cause to be furnished to Lender: (i) within
forty-five (45) days after the end of each fiscal month, monthly unaudited
financial statements (including balance sheets, statements of income and loss
and statements of shareholders' equity) , all in reasonable detail, fairly
presenting the financial position and the results of Borrower's operations as
of the end of such fiscal month; (ii)
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within ninety (90) days after the end of each fiscal year, audited financial
statements of Borrower (including balance sheets, statements of income and
loss, statements of cash flow and statements of shareholders' equity) , and the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of Borrower's operations as of the end of
such fiscal year, together with the opinion of independent certified public
accountants, which accountants shall be an independent accounting firm selected
by Borrower and reasonably acceptable to Lender, that such financial statements
have been prepared in accordance with GAAP, and present fairly the results of
operations and financial condition of Borrower for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of
the details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for
the Obligations or which would result in any material adverse change in
Borrower's business, properties, assets, goodwill or condition, financial or
otherwise, and (ii) the occurrence of any Event of Default or event which, with
the passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Borrower shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all reports which
Borrower sends to its stockholders generally and copies of all reports and
registration statements which Borrower files with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to
Lender such budgets, forecasts, projections and other information respecting
the Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Borrower hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Lender, at
Borrower's expense, copies of the financial statements of Borrower and any
reports or management letters prepared by such accountants or auditors on
behalf of Borrower and to disclose to Lender such information as they may have
regarding the business of Borrower. Any documents, schedules, invoices or other
papers delivered to Lender may be destroyed or otherwise disposed of by Lender
one (1) year after the same are delivered to Lender, except as otherwise
designated by Borrower to Lender in writing.
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7.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.
Borrower shall comply with the provisions of Sections 11(b) and 11(c) of Rider
No. 1.
7.8 Encumbrances. Borrower shall not create, incur, assume or
suffer to exist any security interest, mortgage, pledge, lien or other
encumbrance of any nature whatsoever on any of its assets or properties,
including, without limitation, the Collateral, except as permitted under
Section 11(b) of Rider No. 1 and disclosed in the Information Certificate.
7.9 Indebtedness. Borrower shall not incur, create, assume, become
or be liable in any manner with respect to, or permit to exist, any obligations
or indebtedness, except (a) the Obligations; (b) trade obligations and normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings diligently pursued and available to
Borrower, and with respect to which adequate reserves have been set aside on
its books; (c) purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in violation
of any other provision of this Agreement; and (d) obligations or indebtedness
set forth on the Information Certificate.
7.10 Loans, Investments, Guarantees, Etc. Borrower shall not,
directly or indirectly, make any loans or advance money or property to any
person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the stock or indebtedness or all or a substantial part
of the assets or property of any person, or guarantee, assume, endorse, or
otherwise become responsible for (directly or indirectly) the indebtedness,
performance, obligations or dividends of any Person or agree to do any of the
foregoing, except: (a) the endorsement of instruments for collection or deposit
in the ordinary course of business; (b) investments in short-term direct
obligations of the United States Government; (c) investments in negotiable
certificates of deposit issued by any bank satisfactory to Lender, payable to
the order of Borrower or to bearer and delivered to Lender; and (d) investments
in commercial paper rated A1 by Standard & Poor's Rating Group or P1 by Moody's
Investors Service, Inc.; provided, that, as to any of the foregoing, unless
waived in writing by Lender, Borrower shall take such actions as are deemed
necessary by Lender to perfect the security interest of Lender in such
investments.
7.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of any class
of capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease,
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purchase or otherwise acquire any shares of any class of capital stock (or set
aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make
any other distribution (by reduction of capital or otherwise) in respect of any
such shares or agree to do any of the foregoing, except as permitted under the
Revolving Loan Agreement, as amended.
7.12 Transactions with Affiliates. Borrower shall not enter into
any transaction for the purchase, sale or exchange of property or the rendering
of any service to or by any affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair
and reasonable terms no less favorable to Borrower than Borrower would obtain
in a comparable arm's length transaction with an unaffiliated person.
7.13 Working Capital. Borrower shall, at all times, maintain
Working Capital as required by the Revolving Loan Agreement.
7.14 Tangible Net Worth. Borrower shall, at all times, maintain
Tangible Net Worth as required by the Revolving Loan Agreement.
7.15 Costs and Expenses. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the collateral, this Agreement, the other Financing Agreements and
all other documents related hereto or thereto, including any amendments,
supplements or consents which may hereafter be contemplated (whether or not
executed) or entered into in respect hereof and thereof, including, but not
limited to: (a) all costs and expenses of filing or recording (including
Uniform Commercial Code financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes and fees, if applicable);
(b) all title insurance and other insurance premiums, appraisal fees and
search fees; (c) costs and expenses of preserving and protecting the
Collateral; (d) costs and expenses paid or incurred in connection with
obtaining payment of the Obligations, enforcing the security interests and
liens of Lender, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Agreement and the other Financing
Agreements or defending any claims made or threatened against Lender arising
out of the transactions contemplated hereby and thereby (including, without
limitation, preparations for and consultations concerning any such matters);
and (e) the fees and disbursements of counsel (including legal assistants) to
Lender in connection with any of the foregoing.
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7.16 Further Assurances. At the request of Lender at any time and
from time to time, Borrower shall, at its expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary
or proper to evidence, perfect, maintain and enforce the security interests and
the priority thereof in the Collateral and to otherwise effectuate the
provisions or purposes of this Agreement or any of the other Financing
Agreements. Lender may at any time and from time to time request a certificate
from an officer of Borrower remaking, as of the date of such certificate, the
representations and warranties set forth in this Agreement. Where permitted by
law, Borrower hereby authorizes Lender to execute and file one or more UCC
financing statements signed only by Lender.
7.17 Benefit Plans. The covenant of Borrower set forth in Section
11(a) of Rider No. 1 incorporated herein by this reference as if set forth
herein in full.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES
8.1 Events of Default. The occurrence or existence of any one or
more of the following events are referred to herein individually as an "Event
of Default", and collectively as "Events of Default":
(a) Borrower fails to pay when due any of the Obligations
or fails to perform any of the terms, covenants, conditions or provisions
contained in this Agreement or any of the other Financing Agreements;
(b) any representation, warranty or statement of fact
made by Borrower to Lender in this Agreement, the other Financing Agreements or
any other agreement, schedule, confirmatory assignment or otherwise shall when
made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform
any of the terms, covenants, conditions or provisions of any guarantee,
endorsement or other agreement of such party in favor of Lender; or
(d) a Default (as defined in the Revolving Loan
Agreement).
8.2 Remedies.
(a) At any time an Event of Default exists or has
occurred and is continuing, Lender shall have all rights and remedies provided
in this Agreement, the other Financing Agreements, the Uniform Commercial Code
and other applicable law,
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<PAGE> 19
all of which rights and remedies may be exercised without notice to or consent
by Borrower, except as such notice or consent is expressly provided for
hereunder or required by applicable law. All rights, remedies and powers
granted to Lender hereunder, under any of the other Financing Agreements, the
Uniform Commercial Code or other applicable law, are cumulative, not exclusive
and enforceable, in Lender's discretion, alternatively, successively, or
concurrently on any one or more occasions, and shall include, without
limitation, the right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by Borrower of this Agreement or any of
the other Financing Agreements. Lender may, at any time or times, proceed
directly against Borrower to collect the Obligations without prior recourse to
the Collateral.
(b) Without limiting the foregoing, at any time an Event
of Default exists or has occurred and is continuing, Lender may, in its
discretion and without limitation (i) accelerate the payment of all Obligations
and demand immediate payment thereof to Lender (provided, that, upon the
occurrence of any Event of Default described in Sections 8.1(g) and 8.1(h), all
Obligations shall automatically become immediately due and payable), (ii) with
or without judicial process or the aid or assistance of others, enter upon any
premises on or in which any of the Collateral may be located and take
possession of the Collateral or complete processing, manufacturing and repair
of all or any portion of the Collateral, (iii) require Borrower, at Borrower's
expense, to assemble and make available to Lender any part or all of the
Collateral at any place and time designated by Lender, (iv) collect, foreclose,
receive, appropriate, setoff and realize upon any and all Collateral, (v)
remove any or all of the Collateral from any premises on or in which the same
may be located for the purpose of effecting the sale, foreclosure or other
disposition thereof or for any other purpose, (vi) sell, lease, transfer,
assign, deliver or otherwise dispose of any and all Collateral (including,
without limitation, entering into contracts with respect thereto, public or
private sales at any exchange, broker's board, at any office of Lender or
elsewhere) at such prices or terms as Lender may deem reasonable, for cash,
upon credit or for future delivery, with Lender having the right to purchase
the whole or any part of the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption of Borrower, which
right or equity of redemption is hereby expressly waived and released by
Borrower. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5) days prior notice by
Lender to Borrower designating the time and place of any public sale or the
time after which any private sale or other intended disposition of Collateral
is to be made, shall be deemed to be reasonable notice
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<PAGE> 20
thereof and Borrower waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
(c) Lender may apply the cash proceeds of Collateral
actually received by Lender from any sale, lease, foreclosure or other
disposition of the Collateral to payment of the Obligations, in whole or in
part and in such order as Lender may elect, whether or not then due. Borrower
shall remain liable to Lender for the payment of any deficiency with interest
at the highest rate provided for herein and all costs and expenses of
collection or enforcement, including attorneys' fees and legal expenses.
SECTION 9. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
9.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws (as opposed to the conflicts
of law provisions) of the State of Illinois.
(b) Borrower and Lender irrevocably consent and submit to
the non-exclusive jurisdiction of the Circuit Court of Cook County, Illinois
and the United States District Court for the Northern District of Illinois,
Eastern Division and waive any objection based on venue or forum non conveniens
with respect to any action instituted therein, and agree that any dispute
arising out of the relationship between any such persons or the conduct of any
such persons in connection with this Agreement or otherwise shall be heard only
in the courts described above (except that Lender shall have the right to bring
any action or proceeding against Borrower or its property in the courts of any
other jurisdiction which Lender deems necessary or appropriate in order to
realize on the Collateral).
(c) Borrower hereby waives personal service of any and
all process upon it and consents that all such service of process may be made
by registered mail (return receipt requested) directed to its address set forth
on the signature pages hereof and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the U.S.
mails, or, at Lender's option, by service upon CT Corporation, whom Borrower
irrevocably appoints as its agent for the purpose of accepting service of
process within the State of Illinois. In
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<PAGE> 21
addition, Lender agrees promptly to forward by registered mail any process so
served upon such agent to Borrower at its address set forth on the signature
pages hereof. Borrower hereby consents to service of process as aforesaid.
Within thirty (30) days after such service, Borrower shall appear in answer to
such process, failing which Borrower shall be deemed in default and judgment
may be entered by Lender against Borrower for the amount of the claim and other
relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO
OR EITHER OF THEM IN RESPECT TO THIS AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR THE TRANSACTIONS RELATED HERETO IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.
BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY AND THAT ANY OF THEM MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Nothing in this Section 9.1 shall affect the rights
of Lender to serve legal process in any other manner permitted by law or affect
the rights of Lender to bring any action or proceeding against Borrower or its
property in the courts of any other jurisdiction.
(f) Lender shall not have any liability to Borrower
(whether in tort, contract, equity or otherwise) for losses suffered by
Borrower in connection with, arising out of, or in any way related to the
transactions or relationships contemplated by this Agreement, or any act,
omission or event occurring in connection herewith, unless it is determined by
a final and nonappealable judgment or court order binding on Lender, that the
losses were the result of acts or omissions constituting gross negligence or
willful misconduct. In any such litigation, Lender shall be entitled to the
benefit of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of this
Agreement.
9.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly provided for
herein. No notice to or demand on Borrower which
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<PAGE> 22
Lender may elect to give shall entitle Borrower to any other or further notice
or demand in the same, similar or other circumstances.
9.3 Amendments and Waivers. Neither this Agreement nor any
provision hereof shall be amended, modified, waived or discharged orally or by
course of conduct, but only by a written agreement signed by an authorized
officer of Lender. Lender shall not, by any act, delay, omission or otherwise
be deemed to have expressly or impliedly waived any of its rights, powers
and/or remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. Any such waiver shall be enforceable only to the
extent specifically set forth therein. A waiver by Lender of any right, power
and/or remedy on any one occasion shall not be construed as a bar to or waiver
of any such right, power and/or remedy which Lender would otherwise have on any
future occasion, whether similar in kind or otherwise.
9.4 Waiver of Counterclaims. Borrower waives all rights to
interpose any claims, deductions, setoffs or counterclaims of any nature (other
then compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
9.5 Indemnification. Borrower shall indemnify, defend and hold
Lender, and its directors, agents, employees and counsel, harmless from and
against any and all losses, claims, damages, liabilities, deficiencies,
judgments, penalties or expenses imposed on, incurred by or asserted against
any of them in connection with any litigation, investigation, claim or
proceeding commenced or threatened related to the negotiation, preparation,
execution, delivery, enforcement, performance or administration of this
Agreement, any other Financing Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any act, omission to
act, event or transaction related or attendant thereto, including, without
limitation, amounts paid in settlement, court costs, and the fees and expenses
of counsel. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this Section may be unenforceable because it violates any
law or public policy, Borrower shall pay the maximum portion which it is
permitted to pay under applicable law to Lender in satisfaction of indemnified
matters under this Section 9.5. The foregoing indemnity shall survive the
payment of the Obligations and the termination of this Agreement. All of the
foregoing costs and expenses shall be part of the Obligations and secured by
the Collateral.
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<PAGE> 23
SECTION 10. GENERAL PROVISIONS
10.1 Notices. All notices, requests and demands hereunder shall be
in writing and (a) made to Lender at its address set forth below and to
Borrower at its chief executive office set forth below, or to such other
address as either party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with
instructions to deliver the next business day, one (1) business day after
sending; and if by certified mail, return receipt requested, five (5) days
after mailing.
10.2 Partial Invalidity. If any provision of this Agreement is held
to be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
10.3 Successors. This Agreement, the other Financing Agreements and
any other document referred to herein or therein shall be binding upon and
inure to the benefit of and be enforceable by Lender, Borrower and their
respective successors and assigns, except that Borrower may not assign its
rights under this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written consent of
Lender. Lender may, after notice to Borrower, assign its rights and delegate
its obligations under this Agreement and the other Financing Agreements and
further may assign, or sell participations in, all or any part of the Term Loan
or any other interest herein to another financial institution or other person,
in which event, the assignee or participant shall have, to the extent of such
assignment or participation, the same rights and benefits as it would have if
it were the Lender hereunder, except as otherwise provided by the terms of such
assignment or participation.
10.4 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and
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<PAGE> 24
contracts concerning the subject matter hereof, whether oral or written.
IN WITNESS WHEREOF, Borrower has caused these presents to be duly
executed and delivered as of the day and year first above written.
BORROWER
KEYSTONE CONSOLIDATED
INDUSTRIES, INC.
By: /s/ HAROLD M. CURDY
Title: VICE PRESIDENT - FINANCE
AND TREASURER
CHIEF EXECUTIVE OFFICE:
5430 LBJ FREEWAY, SUITE 1740
DALLAS, TEXAS 75240
Accepted and Agreed:
CONGRESS FINANCIAL CORPORATION
(CENTRAL)
By: /s/ GEORGE KALESNIK
Title: Senior Vice President
Address:
100 South Wacker Drive, Suite 1940
Chicago, Illinois 60606
24
<PAGE> 25
EXHIBIT A
INFORMATION CERTIFICATE
TO
TERM LOAN AND SECURITY AGREEMENT
BETWEEN
CONGRESS FINANCIAL CORPORATION (CENTRAL)
AND
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
1. Subsidiaries (Section 6.1 of the Agreement):
Wire Products Company
Sherman Wire of Caldwell, Inc.
2. Material adverse change in the assets, liabilities, properties and
condition, financial or otherwise, of Borrower, since the date of the
most recent audited financial statements furnished by Borrower to
Lender (Section 6.2 of the Agreement):
The Company is changing the discount rate, effective the end
of fiscal 1993, used to value its pension and other post
retirement benefit obligations from 9.5% to 7.5%. These
changes will result in increases of approximately $28 million
in accrued non-current pension costs, $11 million in
non-current deferred taxes, and $17 million in stockholders'
deficit.
3. Locations of Borrowers businesses and Collateral (Section 6.3
of the Agreement):
Keystone Consolidated Industries, Inc.
5430 LBJ Freeway, Suite 1740
Dallas, Texas 75240
Keystone Steel & Wire
7000 SW Adams Street
Peoria, Illinois 61641
Sherman Wire
Hwy 56W and Gibbons Road
Sherman, Texas 75090
Sherman Wire of Caldwell, Inc.
Nagel Drive
P 0 Box 879
Caldwell, Texas 77836
Wire Products Company
111 N. Douglas Street
Hortonville, Wisconsin 54944
Page 1 of 3
<PAGE> 26
EXHIBIT A
Keystone Fasteners
1407 South Powell
Springdale, Arkansas 72764
KeyWest Wire
250 E. Virginia Street
San Jose, California 95112
4. Pending actions, suits, proceedings or claims against Borrower
(Section 6.6 of the Agreement):
See Schedule A attached.
5. Licenses, patents, and trademarks currently owned and used in the
conduct of Borrowers business (Section 6.10 of the Agreement):
Licenses: None
Patents: None
Trademarks: See Schedule B attached.
6. Contingent liabilities in connection with a release of any hazardous
or toxic substance into the atmosphere (Section 6.10 of the
Agreement):
651 Walsh Avenue, Santa Clara, California (formerly owned by
Keystone Consolidated Industries, Inc.)
Keystone Steel & Wire, Peoria, Illinois (ditch cleanup)
Byron, Illinois, superfund site
American Chemical Services, Griffith, Indiana, superfund site
Rosen Superfund, Cortland, New York, superfund site
Conservation Chemical, Gary, Indiana, superfund site
Interstate Pollution/Roto Rooter, Rockford, Illinois,
superfund site
Brockman No. I Landfill
Pagel's Pit, Rockford, Illinois
USS Lead Refinery, Inc., East Chicago, Illinois
Page 2 of 3
<PAGE> 27
EXHIBIT A
7. Pending or threatened controversies with employees other than employee
grievances arising in the ordinary course of business which are not in
the aggregate, material to the continued financial success and well
being of Borrower (Section 6.10 of the Agreement):
Donna Anderson vs. KCI - Case #C-93-20440 JW
Roy Griffith vs. KCI - Case #93-1504
8. Encumbrances and indebtedness (Sections 7.8 and 7.9 of the Agreement):
None except:
Security in Wire Products assets
Urban Development $1,759,000
Series 1976 Pollution Control Revenue Bonds 1,500,000
Community Development Assistance Program 324,000
Misc. debt on equipment leases 208,000
State of Illinois 67,000
North Atlantic Realty Co. 67,000
----------
$3,925,000
==========
Amounts represent indebtedness as of September 30, 1993.
Page 3 of 3
<PAGE> 28
SCHEDULE A - INFORMATION CERTIFICATE
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
CURRENT LITIGATION
DECEMBER 30, 1993
<PAGE> 29
CORPORATE LITIGATION
PAGE
1 Keystone Consolidated Industries, Inc. vs. Commissioner of Internal
Revenue
2 William Murphy and ISWA etal v Keystone Steel & Wire
3 Appeal of NLRB Decision on Union 30 and Out Pension Option, Court of
Appeals for the D.C. District No. 93-1357
ENVIRONMENTAL LITIGATION AND CLAIMS
4 Case No. VW85-R-36 - US-EPA v. Keystone
5 Brockman No. 1 Landfill, EPA No. 7412. National Lock Hardware Division
6 Byron Salvage Yard, Byron, Illinois
7-8 Rosen Site, Cortland, New York
9 Pagel's Pit, Rockford, Illinois
10 Interstate Pollution Control/Roto Rooter Site, Rockford, Illinois
11 American Chemical Services, Inc., Griffin, Indiana
12 USS Lead Refinery, Inc., East Chicago, Illinois
INSURED MATTERS
13 Robert Showalter vs. United Engineering, Inc. vs. KCI, Circuit
Court, State of Illinois #90 L 553
14 Donna Anderson vs KeyWest Wire
15 Jack Frost vs Keystone Consolidated Industries, Inc., Case
No. 93 L 00176, Peoria County Circuit Court
16 Roy Griffith vs Keystone Steel & Wire., Case No. 93 1504, District
Court, Central District of Illinois
<PAGE> 30
Case No. 4657-89 - Keystone Consolidated Industries, Inc. vs. Commissioner
of Internal Revenue
A. Nature of Case: On March 8, 1983, the Company satisfied a portion of
its funding obligation to the Keystone Master Pension Trust ("KMPT")
through the contribution of certain income producing property with an
appraised value of $9.7 million. On March 13, 1984, the Company
contributed additional property to the KMPT valued at $5.3 million.
The KMPT subsequently sold all of the real property contributed for
approximately $15.5 million. On December 14, 1988, the IRS issued a
Notice of Deficiency (the "Notice") proposing the imposition of excise
taxes plus accrued interest against the Company under the "prohibited
transaction" provisions of the Internal Revenue Code (the "Code")
allegedly due with respect to these contributions. It is the position
of the IRS that these contributions were prohibited sales transactions
between the Company and the KMPT.
B. Amount Involved: The Notice proposes to assess (i) first tier excise
taxes in the amount of $482,773 with respect to each of the Company's
taxable years ended June 30, 1983, 1985, 1986, 1987, 1988 and each
fiscal year thereafter until the deficiency is corrected, and $749,600
with respect to the Company's taxable year ended June 30, 1984 (ii)
second tier excise taxes in the amount of $9.7 million, and (iii)
interest on the first tier excise taxes.
C. Status: March 3, 1989, the Company filed a petition in the United
States Tax Court contesting all of the excise taxes proposed in the
Notice, taking the position that the IRS theory is without basis under
the Code and that no prohibited transactions occurred. Keystone's
Motion for Summary Judgment was granted on December 17, 1990. On
January 17, 1992 the Fifth Circuit Court of Appeals affirmed the Tax
Court decision in this matter. On August 25, 1993 the Supreme Court
of the United States held that the contribution of property, other
than cash, is a prohibited transaction and remanded the case to the
Tax Court to determine the tax due.
D. Fees to Date: $644,493
E. Handling Attorney: Ray Wexler 312/861-2018
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois
F. Company Contact: Ralph P. End
G. Decision Maker: Glenn R. Simmons
H. File Number: 503-AO23
- 1 -
<PAGE> 31
Case No. 93-1247 - William Murphy and ISWA etal v Keystone Steel & Wire
A. Nature of Case: Plaintiffs filed this action on July 2, 1993 in U.S.
District Court seeking an injunction directing Keystone to comply with
the Collective Bargaining Agreement and continue to provide lifetime
health insurance benefits required by the medical benefits plan and
applicable collective bargaining agreements and prohibiting Keystone
Steel & Wire from terminating the medical benefits plan or decreasing
benefits provided to retirees of Keystone Steel & Wire.
B. Amount Involved: Unknown
C. Status: Motion for Summary Judgment was filed on September 28, 1993
based on the legends in each plan document and summary plan document
that the Company reserves the right to amend or terminate the plan(s)
at any time.
D. Fees to Date: None
E. Handling Attorney: Steve Gay
Husch & Eppenberger
101 S.W. Adams
Peoria, Illinois 61602
F. Company Contact: Ralph End
G. Decision Maker: Bob Singer
H. File Number: 500 1003
- 2 -
<PAGE> 32
Appeal of NLRB Decision on Union 30 and Out Pension Option, Court of Appeals
for the D.C. District No. 93-1357
A. Nature of case: Beginning in 1982, Keystone Steel & Wire erroneously
permitted those who retired from a union position under the 30-
and-out provision to receive pension benefits immediately from both
the Union Pension Plan and the Management Pension Plan when they did
not satisfy the conditions of the Management Pension Plan. The NLRB
maintains that KSW violated the NLRA by unilaterally implementing
changes to the Management Pension Plan adversely affecting bargaining
unit employees.
B. Status: On February 18, 1992, an Administrative Law Judge determined
that KSW had no obligation to bargain with the union before making
unilateral changes in the Management Pension Plan. On appeal, the
NLRB reversed the Administrative Law Judge. On May 25, 1993, KSW
filed an appeal to the US Court of Appeals for the District of
Columbia Circuit.
C. Fees to date:
D. Handling Attorney: Mark G. Arnold 314-421-4800
Stuart Cohen 309-637-4900
Husch & Eppenberger
100 North Broadway, Suite 1000
St. Louis, Mo 63102-2706
E. Company Contact: Ralph End
F. Decision Maker: Glenn Simmons
G. File Number: 502-1000
- 3 -
<PAGE> 33
Case No. VW85-R-36 US-EPA v. Keystone Consolidated Industries, Inc.
A. Nature of Case: In July 1986, the United States filed suit in the
federal court in Peoria, Illinois seeking injunctive relief and
damages for alleged violation of the Resource Conservation and
Recovery Act ("RCRA") occurring at the Company's Bartonville
facilities. An evidentiary hearing was held during July 1986 on the
government's motion for a preliminary injunction seeking, in part,
immediate cessation of discharges of treated spent pickle liquor into
on-site surface impoundments. In an oral ruling from the bench on
July 28, 1986, the court found the government had made a sufficient
showing of RCRA violations requiring the cessation of discharges into
the impoundments by October 1, 1986.
B. Amount Involved: Unknown.
C. Status: Keystone stopped the discharge of waste pickle liquor prior to
October 1986 and under a consent order paid a fine of $280,000 and
agreed to the closure of the ditches receiving the waste pickle
liquor. During testing necessary to develop the closure plan,
Keystone discovered the ground water contaminated with TCE.
Additional testing was conducted to develop a closure plan to
eliminate the waste pickle liquor sludge which was filed on June 15,
1992 and approved by the IEPA on June 30, 1992 subject to certain
conditions and modifications. On July 2, 1993, the parties entered a
Consent Order requiring Keystone to take certain remedial action
specified in the approved Closure Plan and deposit in a trust certain
funds to assure compliance with the Closure Plan. The trust was
initially funded with a deposit of $500,000 on July 1, 1992 and the
Consent Order requires Keystone to make 10 additional quarterly
deposits of $175,000 each, then 10 additional quarterly deposits of
$75,000 beginning January 1, 1995 through April 1, 1997. Future
additional contributions will depend on the then estimated cost of
remedial action and the accumulated balance in the trust fund.
D. Fees to Date: $297,850
E. Handling Attorney: Andrew Running, 312-861-2412
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
F. Company Contact: Les Phillips, Ralph End
G. Company Decision Maker: Glenn R. Simmons
H. File Number: 503 A009
- 4 -
<PAGE> 34
Brockman No. 1 Landfill. Pending before Illinois Environmental Protection
Agency, EPA. No. 7412
A. Nature of claim: On April 21, 1987, Keystone was notified by the
Illinois EPA (IEPA) that it is a potentially responsible party for the
clean up of Brockman No. 1 Landfill. IEPA records show that Brockman
No. 1 Landfill was issued IEPA permit 77-8 on January 12, 1978 to
accept 4,500 gallons per year of miscellaneous metal finishing waste
generated by the National Lock Hardware Division. IEPA claims
leachate from the landfill is polluting the Illinois River. IEPA has
designated National Lock Hardware division a potentially responsible.
B. Amount Involved: The IEPA estimates the Brockman No. 1 Landfill
contains 20,000 drums containing metal stripping and plating sludges;
cyanides; organic solvents/sludges; and 1,400,000 gallons of bulk
wastes. No estimates of the cost of cleanup are available. To date
the IEPA has incurred $749,598 in remedial action. Our permit limited
us to dispose of up to 4,500 gallons per year to the site.
C. Status: Because the low percent of waste that may have been
contributed by National Lock is negligible, Keystone has taken no
action in this matter.
D. Fees to Date: $4000
E. Handling Attorney: Andy Running (312) 861-2412
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
F. Company Contact: Ralph P. End
G. Decision Maker: Glenn R. Simmons
H. File No.: 501 A079
- 5 -
<PAGE> 35
Byron Salvage Yard, Region IV, United States Environmental Protection Agency
("USEPA")
A. Nature of Case: On July 17, 1991, the United States filed a lawsuit
under CERCLA against National Lock and four other companies (Nalco
Chemical Company, General Motors Corporation, Interstate Pollution
Control, Co. and Commonwealth Edison Corporation) seeking recovery of
at least $3,773,881.34 in response costs incurred by the USEPA at the
Byron Salvage Yard site near Byron, Illinois.
B. Amount Involved: Unknown
C. Status: Keystone answered the complaint on September 3, 1991. On
April 23, 1992, Keystone filed a third party contribution action
against 15 companies that generated wastes sent to the Byron Site.
(Amrock Corporation, Atwood Industries, Inc., Coltec Industries, Inc.,
Ecolab, Inc., Elco Industries, Inc., Frantz Manufacturing Company,
Lawrence Brothers, Inc., Quality Metal Finishing Company, Quebecor
Printing Mount Morris, Inc., Raco Inc., RB&W Corporation, Sundstrand
Corporation, The Valspar Corporation, and Woodward Governor Company,
Inc.) Initial discovery is underway in the third party action. Wausau
has orally agreed to pay 75% of Keystone's defense costs incurred in
this matter. Wausau has not accepted nor rejected our claim for any
costs incurred in the cleanup. On July 26, 1993, the EPA produced
documents evidencing $10 million of incurred costs.
D. Fees to date: $167,550
E. Handling Attorney: Andy Running and Lisa Esayian (312) 861-2412
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois
F. Company Contact: Ralph P. End
G. Decision Maker: Glenn R. Simmons
H. File Number: 800 1002
- 6 -
<PAGE> 36
Rosen Site, Cortland, New York, United States Environmental Protection Agency
("USEPA")
A. Nature of Case: By letter of August 21, 1987, the USEPA notified
Keystone that it is one of the entities that owned and/or operated the
Rosen Site at the time of the disposal of hazardous substances there
and, accordingly, a responsible party under CERCLA. Six other
entities were originally named potentially responsible parties "PRP",
including the two Rosen brothers who have filed bankruptcy.
B. Amount Involved: Wausau agreed to pay 55% of Keystone's legal defense
costs in this matter but has not accepted liability for the actual
cost of cleanup of this site.
C. Status: The USEPA advised Keystone that the waste sources at the
site include approximately 1,200 drums and contains, 90 tanks, 22
cylinders of compressed gases, 4 capacitors and numerous piles of
municipal and industrial debris. The site also contains PCB
contaminated soils, organic volatiles, flammable liquids and solids
and significant amounts of heavy metals. During September 1988 the
EPA issued a 106 ruling requiring the PRP'S, including Keystone, to
undertake the surface clean-up of the site. On April 4, 1989 the
US-EPA issued an order requiring Niagara Mohawk Power Corporation to
join Dallas Corporation, Monarch Machine Tool Company and Keystone in
the surface cleanup. The PRP's signed a contract with Industrial Oil
Tank Service Corp. for the surface cleanup work. Keystone's share of
the removal of the surface debris was approximately $100,000. On July
14, 1989 the USEPA issued a notice of its intent to commence a
Remedial Investigation and Feasibility Study (RI/FS) of the Rosen Site
to determine the nature and extent of hazardous substances at the site
and recover the costs of remediation from the PRP'S. This notice
identified Agway, Inc; BMC Industries, Inc.; Cooper Industries, Inc.;
Pall Trinity Micro Corp.; Pennwelt Corp.; Potter Paint Co and Smith
Corona Corp. as additional PRP's. To avoid a unilateral order to
perform an RI/FS dictated by the EPA, the four original PRP's
attempted to negotiate an acceptable consent order. On December 14,
1989, Keystone withdrew from the negotiations, but Dallas Corp.,
Monarch Machine Tool Co., and Niagara Mohawk Power Co. subsequently
signed the consent order proposed by the EPA. On February 7, 1990,
the EPA issued an Administrative Order under Section 106 requiring
Agway, Inc., Cooper Industries, Inc., Keystone Consolidated
Industries, Inc., Potter Paint Company, Inc. Harvey M. Rosen, and
Smith Corona Corporation to participate in the Remedial
Investigation/Feasibility Study covered by the Consent Orders proposed
by the EPA. Subsequently Agway, Inc. and Smith Corona persuaded the
EPA to be removed from the PRP list. The PRP's entered an agreement
with Blasland & Bouck Engineers, P.C. to conduct a Remedial
Investigation of the site at an estimated cost of $550,000.
Five participating PRP'S, including Keystone, have retained counsel to
prosecute a third party action for contribution. A complaint was
filed on June 11, 1992 against Agway, BMC, Borg-Warner, Elf Atochem
North America, Inc., Mack Trucks, Inc., Motor Transportation
Services, Inc., Pall Trinity Micro Corporation, Redding-Hunter, Inc.,
Rotelcom, Inc., Smith Corona Corporation, Sola Basic Industries,
Inc., Wilson Sporting Goods Co., Philip A. Rosen and Harvey M. Rosen.
- 7 -
<PAGE> 37
D. Fees to Date: $768,720
E. Handling Attorney: Andy Running
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
F. Company Contact: Ralph End
G. Decision Maker: Glenn Simmons
H. File Number: 800 1013
- 8 -
<PAGE> 38
Pagel's Pit Landfill Enforcement action by the U.S. EPA under CERCLA.
A. Nature of Case: During July 1985 the U.S. EPA notified approximately
50 firms, including National MetalCrafters, of the threatened release
or potential release of hazardous chemicals from the Pagel's Pit Site
and requested the PRP's to undertake remedial action.
B. Amount Involved: Illinois EPA estimates clean up costs between
$7,500,000 and $14,000,000.
C. Status: During March 1986, MetalCrafters and 17 other PRP's agreed to
undertake a Remedial Investigation and Feasibility Study without
admitting liability. Based on records available at the site, the
wastes contributed by MetalCrafters was minor and Keystone has paid
$14,000 to date as it's contribution to the RI/FS. Keystone
(successor to MetalCrafters) has signed a buy-out agreement between
EPA, the operator and deminimis generators. Under the buy-out
agreement, Keystone paid an additional $35,000. A consent decree has
been signed by all PRP's and was filed November 25, 1992. We are
waiting now for approval from the Justice Department.
D. Fees to Date: $36,048
E. Handling Attorney: Andy Running (312)861-2412
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
F. Company contact: Ralph P. End
G. Decision maker: Glenn R. Simmons
H. File Number: 800-1001
- 9 -
<PAGE> 39
Interstate Pollution Control/Roto Rooter Site United States EPA enforcement
action under Super Fund Statute(CERCLA)
A. Nature of case: During 1989, the IPC site was added to the superfund
list. On June 13, 1990 MetalCrafters received a Request for
Information under Section 104(e) of CERCLA. IPC operated the site
from 1971 through 1984 as a hauler, recycler, storage facility of
industrial wastes. IPC installed an incinerator in 1971 capable of
burning 3,500 gallons of liquid wastes per week.
B. Amount involved: Unknown
C. Status: During 1991 the USEPA directed a group of 67 PRP's to take
immediate action to reduce possible immediate hazards at the site
(surface removal). Records available at the site indicate very little
waste contributed by National MetalCrafters. Subsequent information
received in January 1992 indicates National Lock is responsible for
generating up to 2.14% of the volume of wastes at the site.
D. Estimated cost of defense: On August 6, 1990, Keystone filed a claim
with Wausau Insurance Company for reimbursement of defense costs.
Wausau has orally agreed to reimburse 75% of Keystone's defense costs
incurred in this matter. Wausau has not accepted nor rejected our
claim for any costs incurred in the cleanup.
E. Fees to date: $92,337
Cleanup costs to date: $22,752
F. Handling attorney: Andy Running (312) 861-2412
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
G. Company contact: Ralph P. End
H. Decision Maker: Glenn R. Simmons
I. File Number: 800-1022
- 10 -
<PAGE> 40
American Chemical Services, Inc. United States EPA enforcement action under
Super Fund Statute (CERCLA)
A. Nature of Case: American Chemical Services, Inc. disposed of a
variety of hazardous wastes on this site from 1955 through 1975.
MetalCrafters received a Request for Information on April 29, 1987.
Information produced to date indicates MetalCrafters contributed
approximately 0.01% of total volume of waste.
B. Amount involved: Unknown
C. Status: Because of the low contribution percentage, Keystone has
consistently rejected the invitation to participate in a consent
decree to fund a Remedial Investigation and Feasibility Study. The
efforts to negotiate a buy-out agreement among about 100 deminimis
generators and the USEPA continue.
D. Fees to date: $2,110
E. Handling attorney: Andy Running (312) 861-2412
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
F. Company contact: Ralph P. End
G. Decision Maker: Glenn R. Simmons
H. File Number: 800-1008
-11-
<PAGE> 41
USS Lead Refinery, Inc. Site, East Chicago, Indiana - United States EPA action
under Super Fund Statute (CERCLA)
A. Nature of Case: On September 6, 1991, Keystone received a Request for
Information regarding the generation, storage, treatment or disposal
of hazardous wastes at the site from 1906 to 1985.
B. Amount Involved: Unknown
C. Status: After diligent record search, no records have been located
that indicate Keystone shipped any wastes to the site. The USEPA
forwarded a copy of a 1968 document from USS Lead Refinery whereby USS
Lead agreed to purchase from Keystone up to 50 tons of lead ashes for
recovery. The document does not indicate whether any lead ashes were
shipped to USS Lead.
D. Estimated Cost of defense: Wausau Insurance Company was notified on
October 8, 1991 of a potential claim for defense of this matter.
E. Fees to Date:
F. Handling attorney:
G. Company contact: Ralph P. End
H. Decision Maker: Glenn R. Simmons
I. File Number: 800 1039
-12-
<PAGE> 42
Robert Showalter vs. United Engineering, Inc. vs Keystone Consolidated
Industries, Inc. Circuit Court, State of Illinois #90 L 553
A. Nature of Case: Robert Showalter died as a result of a furnace
explosion on October 26, 1989. Because Showalter was an employee and
entitled to workers compensation which precludes a direct action
against an employer, he sued United Engineering, the manufacturer of
the water cooled roof panels covering the furnace. In March 1991,
United Engineering filed a third party action against Keystone.
B. Amount Involved: Keystone is self insured for first $1 million with
excess employers' liability coverage with third party insurers
covering the next $14 million.
C. Status: A similar case, decided by the Illinois supreme court on
April 18, 1991, limits Keystone's liability to the amount that would
be provided by workers compensation. Although Keystone has incurred
the maximum expense under worker compensation, Keystone remains a
party to this litigation.
D. Fees to Date: $43,870
E. Handling Attorney: Larry Chilton (312) 454-5133
Stevenson Rusin & Friedman
10 South Riverside Plaza, Suite 1530
Chicago, Illinois 60606
F. Company Contact: Ralph P. End
C. Decision Maker: Robert W. Singer
H. File Number: 501 1007
-13-
<PAGE> 43
Case No. C-93-20440 JW - Donna S. Anderson v. KeyWest Wire, et al. United
States District Court Northern district of California
A. Nature of Case: Donna Anderson was first hired in November 1967. In 1982
she was promoted to Inside Sales Manager and relocated from Peoria,
Illinois to Santa Clara, California. Her employment with Keystone
terminated in 1983 when KeyWest Wire was sold to PPA Industries. Keystone
acquired KeyWest Wire from PPA in May 1991 and hired Ms. Anderson in her
then current position of Manager of Marketing and Sales. Ms. Anderson was
terminated for failure to follow specific directions. Ms. Anderson claims
her termination was a result of sex discrimination.
B. Amount Involved:
C. Status: Discovery continues.
D. Fees to Date:
E. Handling Attorney: Richard S. Falcone
and Lori Farber
Littler, Mendelson, Fastiff, Tichy & Mathiason
Sixty South Market, Suite 1100
San Jose, California 95113
Phone: 408-998-4150
F. Company Contact: Ralph End
G. Decision Maker: Bob Singer
H. File Number: 501 1011
-14-
<PAGE> 44
Jack Frost vs Keystone Consolidated Industries, Inc., Case No. 93 L 00176,
Peoria County Circuit Court
A. Nature of Case: Jack Frost, an employee of ITEX Enterprises, Inc. ,
was injured while working at the Keystone Steel & Wire facility. ITEX
Enterprises was hired to perform certain repairs on a structure owned
by Keystone. The accident occurred on December 23, 1993 - Jack Frost
fell on plastic sheeting and hurt his right knee.
B. Amount Involved:
C. Status:
D. Estimated Cost of Defense: Covered by insurance.
E. Fees to Dated:
F. Handling attorney: James L. Hafele and Associates
416 Main Street, Suite 1100
Peoria, Illinois 61602
Phone: 309-673-3513
Fax: 309-673-3526
G. Company Contact: Ralph P. End
H. Decision Maker: Robert W. Singer
I. File Number: 503 1008
-15-
<PAGE> 45
Roy Griffith vs Keystone Steel & Wire., Case No. 93 1504, District Court,
Central District of Illinois
A. Nature of Case: Roy Griffith, former employee of Keystone Steel &
Wire, has filed a six count sexual harassment complaint against KSW
and several employees, requesting $300,000 damage for each count
B. Amount Involved: Three counts requesting $15,000 each.
C. Status: Because of the potential conflict of interest among the
defendants, Keystone is providing separate counsel for the employee
defendants. An answer will be timely filed along with a motion to
dismiss because the plaintiff has not exhausted his remedies under the
collective bargaining agreement.
D. Estimated Cost of Defense:
E. Fees to Dated:
F. Handling attorney: Mike Lied
Husch & Eppenberger
101 SW Adams
Peoria, Illinois 61602
G. Company Contact: Ralph P. End
H. Decision Maker: Robert W. Singer
I. File Number:
-16-
<PAGE> 46
SCHEDULE B - INFORMATION CERTIFICATE
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
UNITED STATES ISSUED TRADEMARKS
<TABLE>
<CAPTION>
CASE. REGISTRATION ISSUE
NO. TRADEMARK NUMBER DATE GOODS
--- --------- ------------ ---------- -----
<S> <C> <C> <C> <C>
644 Fence Post with Red Stripe 308,004 11/14/33 Metallic Fence Posts
663 ARROW 94,911 1/14/14 Barbed Wire
687 Red Line Around Spooled Barbed Wire 182,257 4/8/24 Reeled or spooled barbed wire
688 White Line Around Spooled Barbed Wire 182,259 4/8/24 Reeled or spooled barbed wire
689 Black Line Around Spooled Barbed Wire 182,261 4/8/24 Reeled or spooled barbed wire
690 Orange Line Around Spooled Barbed Wire 182,263 4/8/24 Reeled or spooled barbed wire
691 Blue Strand in Body of Wire 184,948 6/3/24 Wire fence, including farm and
poultry fences
692 Yellow Strand in Body of Wire 184,950 6/3/24 Poultry fences
700 Blue Line Around Spooled Barbed Wire 182,258 4/8/24 Reeled or spooled barbed wire
701 Yellow Line Around Spooled Barbed Wire 182,260 4/8/24 Reeled or spooled barbed wire
702 Green Line Around Barbed Wire 182,262 4/8/24 Reeled or spooled barbed wire
703 Red Strand in Body of Wire 184,947 6/3/24 Wire fence, including farm &
poultry fences
704 White Strand in Body of Wire 184,949 6/3/24 Wire fence, including farm &
poultry fences
705 Black Strand in Body of Wire 184,951 6/3/24 Wire fence, including farm &
poultry fences
706 Orange Strand in Body of Wire 184,953 6/3/24 Wire fence, including farm &
poultry fences
736 Red colored barb 622,004 2/28/56 Barbed Wire
809 KEYLINE 617,363 12/13/55 Metal mesh fencing
818 APACHE 618,081 12/27/55 Barbed wire
1002 RED BRAND 555,298 2/26/52 Wire fence
1113 KEYWELD 569,489 1/20/53 Welded metal mesh fabric
1153 DEFENDER 122,493 8/20/18 Barbed wire, fence wire, and wire
fence
1154 RUTHLESS 122,496 8/20/18 Barbed wire, fence wire, and wire
fence
1339 KEYFRAME 719,855 8/15/61 Prepunched structural members for
connection of bolts in framing
(NOT TO BE RENEWED)
1395 KEYCORNER 717,733 7/4/61 Corner lathing strips (NOT TO BE
RENEWED)
1396 KEYWALL 717,734 7/4/61 Masonry reinforcing strips
1397 KEYDECK 717,732 7/4/61 Wire fabric reinforcement for
roof decks
1398 KEYSTRIP 717,731 7/4/61 Lathering reinforcing strips (NOT
TO BE RENEWED)
1401 Fence with red Top Portion 141,481 4/26/21 Wire fencing
1408 KEY-Z-BEAD 722,964 10/24/61 Corner reinforcing beads for
plaster walls (NOT TO BE RENEWED)
1618 Twisted Wire Fence Stays with Ret Top 297,991 10/11/32 Twisted wire fence stays
1741 FLEXOMATIC 754,460 8/13/63 Upholster Spring wire
1831 GALVANNEALED 176,327 11/20/23 Wire fence and barbed wire
1832 GALVANNEALED 176,329 11/20/23 Plain galvanized wire and
galvanized telephone wire
2054 Fence w/Black Upper Portion 193,925 3/31/25 Wire fence, including farm &
poultry fences
2055 Fence w/Yellow Upper Portion 196,925 3/31/25 Wire fence, including farm &
poultry fences
</TABLE>
<PAGE> 47
SCHEDULE B - INFORMATION CERTIFICATE
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
UNITED STATES ISSUED TRADEMARKS
<TABLE>
<CAPTION>
CASE. REGISTRATION ISSUE
NO. TRADEMARK NUMBER DATE GOODS
--- --------- ------------ ---------- -----
<S> <C> <C> <C> <C>
2056 Drawing of Wire Fence (orange) 196,928 3/31/25 Wire fence, including farm &
poultry fences
2057 Fence w/Blue Band 196,9929 3/31/25 Wire fence, including farm &
poultry fences
2058 Fence w/White Upper Portion 198,437 5/19/25 Wire fence, including farm &
poultry fences
2175 Mesh Design 815,695 9/27/66 Self-furring plastic mesh
2298 SQUARE DEAL 58,221 12/11/06 Wire fence
2324 KEYSTONE 62,025 4/16/07 Wire fence
2325 MONARCH 62,313 4/30/07 Wire fence
2738 Red Top Fence Post 125,561 5/27/39 Metallic Fence Post
2747 HI-BOND 407,707 6/20/44 Reinforcing steel bars for using
in concrete constructions
2766 KEYMESH 523,557 4/4/50 Stucco netting
2768 BLUE RIBBON 76,791 2/15/10 Wire fence only (barbed wire
deleted)
2772 SQUARE DEAL 86,714 5/28/12 Metal gates
2805 K Symbol 903,358 12/1/70 Nails
2901 KEYMESH 928,544 2/8/72 Reinforcing wire and paperbacked
reinforcing wire
3001 K Symbol 951,688 1/30/73 Wire fabrics, namely hardware
cloth, utility fabric and netting
75,663 KEYLINK 1,057,380 2/1/77 Wire mesh attachment clip
77,140 SAVAGE 1,080,778 1/3/78 Barbed Wire
77,141 WRANGLER 1,080,777 1/3/78 Barbed Wire
77,925 KEY-LITE 1,113,152 2/13/79 Plastic coated wire fabric
79,153 IMPERIAL AND DESIGN 1,157,847 6/23/81 Welding wire
80,435 THE MOST RESPECTED NAME IN FARM FENCE 1,197,052 5/1/82 Wire mesh fence
82,569 VERTICAL GARDEN 1,268,879 3/6/84 Galvanized mesh wire for use in
fencing, trellises and cages
83,089 RED BRAND 1,285,810 7/17/84 Nails
84,243 KING RANCH 1,321,770 2/26/85 Wire fencing
84,421 HI-BOND 1,327,996 4/2/85 Nails
84,443 HI-BOND VCC 1,332,847 4/30/85 Nails
85,202 THE MOST RESPECTED NAME IN FARM FENCE 544,614 6/24/85 Wire mesh fence
(Principle Register)
87,417 TEX-BALE 411,885 2/1/83 Baling Wire
87,418 TEX-BALE (State of Texas) 34,094 8/18/77 Hardware, plumbing and steam-
fitting supplies
</TABLE>
<PAGE> 48
KEYSTONE B - INFORMATION CERTIFICATE
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
FOREIGN TRADEMARK APPLICATION AND REGISTRATIONS
<TABLE>
<CAPTION>
SERIAL NO./ REG. NO./
COUNTRY CASE NO. TRADEMARK FILING DATE ISSUE DATE
------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C>
ARGENTINA RED BRAND Design 251,518
Oct 9, 1947
84,382 RED BRAND 1,451,201 1,139,089
Aug 28,1984 June 3, 1985
84,395 Red Brand on Barbed Wire 1,464,955 1,171,304
Nov 14, 1984 Sept 2, 1985
BRAZIL 71,002 RED BRAND Design 114,185
Aug 8, 1949
84,383 RED BRAND 811,727,050
Oct 3, 1984
CANADA 63,174 GAVANNEALED 180,935 15,434,749
05/21/23 Dec 29, 1923
63,175 RED BRAND Design 16,436,654
Nov 13, 1924
70,015 Red-Topped Fence Post 330,735 178,166
Mar 5, 1970 Sept 3, 1971
75,448 RED STRAND 17,238,344
Aug 18,1925
86,260 Red Top (not yet filed)
86,261 Red Barbs (not yet filed)
SOUTH AFRICA 75,108 KEYSTONE 1853/47
July 2, 1947
75,109 RED BRAND 1855/47
July 2,1947
75,110 SQUARE DEAL 1856/47
July 2, 1947
</TABLE>
<PAGE> 49
KEYSTONE B - INFORMATION CERTIFICATE
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
FOREIGN TRADEMARK APPLICATION AND REGISTRATIONS
<TABLE>
<CAPTION>
SERIAL NO./ REG. NO./
CASE NO. INVENTOR INVENTION FILING DATE ISSUE DATE
-------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C>
67,182 Byarl, et al Improved Keydeck Sub-Purlin 681,986 3,456,415
11/13/67 7/22/69
81,099 Badtke Box and Lid 243,058 4,342,403
Lehman Construction 03/12/81 08/03/82
81,219 Heaslip Method and apparatus For 278,719 4,391,319
Introducing Elements Into 06/29/81 07/05/83
Molten Metal Streams And
Casting In Inert Atmosphere
85,381 Reysen Carrying Device for Coiled 755,415 4,607,807
Wire 7/15/85 8/26/86
</TABLE>
<PAGE> 50
A CORESTATES COMPANY
GUARANTEE AND WAIVER
Chicago, Illinois
December 30, 1993
In order to induce Congress Financial Corporation {(Central)} (herein
called "Congress") to extend from time to time, in its sole discretion in each
instance, one or more loans, advances or other financial accommodations to, or
for the account or benefit of, Keystone Consolidated Industries, Inc.
("Obligor") and for other good and valuable consideration received, the
undersigned, irrevocably and unconditionally guarantees and agrees to be liable
for the prompt indefeasible and full payment, performance and observance of all
indebtedness, liabilities, obligations and agreements of any kind of Obligor to
Congress, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether now existing or hereafter arising, whether direct or
indirect, absolute or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, original, renewed
or extended, whether arising under any guarantee, endorsement or undertaking
which Congress may make or issue to others for Obligor's account, including,
without limitation, any accommodation extended to Obligor with respect to
Congress' making or joining in applications for letters of credit, acceptance
of drafts or endorsement of notes or other instruments by Congress for
Obligor's account and benefit, and whether arising directly or acquired from
others (whether acquired outright or by assignment as collateral security from
another and including, without limitation, Congress' participations or
interests in Obligor's obligations to others), and of all agreements, documents
and instruments evidencing any of the foregoing or under which any of the
foregoing may have been issued, created, assumed or guaranteed, including,
without limitation, Congress' charges, commissions, interests, expenses, fees,
costs and reasonable attorneys' fees chargeable to Obligor in connection with
any or all of the foregoing (all of the foregoing being herein referred to,
jointly and severally, as the "Obligations").
The undersigned waives notice of acceptance of this guarantee, the
making of loans and extensions of credit to Obligor, the purchase or
acquisition of receivables from Obligor, notice of any Obligations, and waives
presentment, demand for payment, protest, notice of protest, notice of dishonor
or nonpayment of any Obligations, suit or taking other action by Congress
against, and any other notice to, any party liable thereon (including the
undersigned) and waives any defense, offset or counterclaim to any liability
hereunder. Congress may at any time and from time to time without the consent
of, or notice to, the undersigned, without incurring responsibility to the
undersigned, without impairing or releasing the obligations of the undersigned
hereunder, upon or without any terms or conditions and in whole or in part: (1)
change the manner, place or terms of payment, and/or change or extend the time
of payment of, renew or alter, any Obligations, any security therefor, or any
liability incurred directly or indirectly in respect thereof, and the guarantee
herein made shall apply to the Obligations as so changed, extended, renewed or
altered: (2) sell, exchange, release, surrender, offset, realize upon or
otherwise deal with in any manner and in any order any property by whomsoever
at any time pledged or mortgaged to secure, or howsoever securing, the
Obligations or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof; (3) exercise or refrain
from exercising any rights against the Obligor or others (including the
undersigned) or otherwise act or refrain from acting; (4) settle or compromise
any Obligations, any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof, and
may subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Obligor to creditors of the Obligor other
than Congress and the undersigned; and (5) apply any sums by whomsoever paid or
howsoever realized to any Obligations regardless of what Obligations remain
unpaid. The undersigned also agrees than Congress need not attempt to collect
any Obligations from the Obligor or others or to realize upon any collateral,
but may require the undersigned to make immediate payment of the Obligations to
Congress when due or at any time thereafter.
No invalidity, irregularity or unenforceability of all or any part of
the Obligations, or of any security therefor, shall affect, impair or be a
defense to this guarantee nor shall any other circumstance which might
otherwise constitute a defense available to, or legal or equitable discharge
of, the Obligor in respect of any of the Obligations, or of any security
therefor, or the undersigned in respect of this guarantee, affect, impair or be
a defense to this guarantee. Without limitation of the foregoing, the
liability of the undersigned hereunder shall not be discharged or impaired in
any respect by reason of any failure by Congress to perfect or continue
perfection of any lien or security interest in any security for the Obligations
or any delay by Congress in perfecting any such lien or security interest.
The liability of the undersigned hereunder is absolute, primary and
unconditional and shall not be subject to any offset, defense or counterclaim
of the Obligor. This guarantee is a continuing one and all obligations shall
be conclusively presumed to have been created in reliance hereon. The books
and records of Congress, showing the account between the Obligor and Congress,
shall be admissible in evidence in any action or proceeding as prima facie
proof of the items therein set forth, and the monthly statement rendered to the
Obligor, to the extent no written objection is made within thirty (30) days
after the date thereof, shall constitute an account stated between Congress and
the Obligor and be binding on the undersigned.
Payment by the undersigned shall be made to Congress at Congress'
office from time to time on demand as the Obligations become due. One or more
successive or concurrent actions may be brought hereon against the undersigned
either in the same action in which Obligor is sued or in separate actions. In
the event any claim or action, or action on any judgment, based on this
guarantee is brought against the undersigned, the undersigned agrees not to
deduct, set-off, or seek to counterclaim for or recoup any amounts which are or
may be owed by Congress to the undersigned.
<PAGE> 51
No revocation or termination hereof shall affect in any manner rights
arising under this guarantee with respect to (a) Obligations which shall have
been created, contracted, assumed or incurred prior to receipt by Congress of
written notice of such revocation or termination or (b) Obligations which shall
have been created, contracted, assumed or incurred after receipt of such
written notice pursuant to any contract entered into by Congress prior to
receipt of such notice; and the sole effect of revocation or termination hereof
shall be to exclude from this guarantee Obligations thereafter arising which
are unconnected with Obligations theretofore arising or transactions
theretofore entered into.
Upon the happening of any of the following events: default by the
Obligor under any of the Obligations, or insolvency of the Obligor or the
undersigned, or suspension of business of the Obligor or the undersigned, or
the issuance of any warrant of attachment against any of the property of the
Obligor or the undersigned, or the making by the Obligor or the undersigned of
any assignment for the benefit of creditors, or a trustee or receiver being
appointed for the Obligor or the undersigned or for any property of either of
them, or any proceeding being commenced by or against the Obligor or the
undersigned under any bankruptcy, reorganization, arrangement of debt,
insolvency, readjustment of debt, receivership, liquidation or dissolution law
or stature and, with respect to any such proceeding against the Obligor or the
undersigned, remains undismissed for a period of thirty (30) days, unless the
Obligor or the undersigned shall earlier acquiesce thereto - then and in any
such event, and at any time thereafter, Congress may, without notice to the
Obligor or the undersigned, make the Obligations, whether or not then due,
immediately due and payable hereunder as to the undersigned, and Congress shall
be entitled to enforce the obligations of the undersigned hereunder.
All sums of money at any time to the credit of the undersigned with
Congress and any of the property of the undersigned on which Congress, at any
time, has a lien or security interest or is in the possession of Congress at
any time may be held by Congress as security for any and all obligations of the
undersigned hereunder, notwithstanding that any of said money or property may
have been deposited, pledged or delivered by the undersigned for any other,
different or specific purpose. Any and all claims of any nature which the
undersigned may now or hereafter have against the Obligor, and payment of all
amounts now or hereafter owed to the undersigned by the Obligor or any other
obligor with respect to the Obligations (whether by contribution or otherwise)
are hereby subordinated to the full payment to Congress of the Obligations and
are hereby assigned to Congress as additional Collateral security therefor.
In the event Congress retains attorneys for the purpose of effecting
collection of the Obligations or the liabilities of the undersigned hereunder,
the undersigned shall pay all costs and expenses of every kind for collection,
including reasonable attorneys' fees.
If claim is ever made upon Congress for repayment or recovery of any
amount or amounts received by Congress in payment or on account of any of the
Obligations and Congress repays all or part of said amount by reason of (a) any
judgment, decree or order of any court or administrative body having
jurisdiction over Congress or any of its property, or (b) any settlement or
compromise of any such claim effected by Congress with any such claimant
(including the Obligor), then and in such event the undersigned agrees that any
such judgment, decree, order, settlement or compromise shall be binding upon
the undersigned, notwithstanding any revocation hereof or the cancellation of
any note or other instrument evidencing any Obligation, and the undersigned
shall be and remain liable to Congress hereunder for the amount so repaid or
recovered to the same extend as if such amount had never originally been
received by Congress.
No delay on the part of Congress in exercising any of its options,
power or rights, or partial or single exercise thereof, shall constitute a
waiver thereof. No notice or demand on the undersigned shall be deemed to be
a waiver of the obligation of the undersigned to take further action without
notice or demand as provided herein. No waiver of any of its rights hereunder,
and no modification or amendment of this guarantee, shall be deemed to be made
by Congress unless the same shall be in writing, duly signed on behalf of
Congress, and each such waiver, if any, shall apply only with respect to the
specific instance involved, and shall in no way impair the rights of Congress
or the obligations of the undersigned to Congress in any other respect ant any
other time. The undersigned shall have no right of subrogation,
indemnification or recourse to any Obligations or collateral or guarantees
therefor or against the Obligor or any of its assets or property until Congress
shall have been indefeasibly paid in full all Obligations.
This guarantee and the rights and obligations of Congress and of the
undersigned hereunder shall be governed and construed in accordance with the
laws of the State of Illinois; and this guarantee is binding upon the
undersigned and its successors or assigns, and shall inure to the benefit of
Congress, its successors or assigns.
The undersigned does hereby waive trial by jury in any action,
proceeding or counterclaim brought against the undersigned on any matters
whatsoever arising out of or in any way connected with this guarantee, and the
undersigned hereby agrees that all actions and proceedings relating directly or
indirectly hereto may, at the option of Congress, be litigated exclusively in
courts having their situs in Cook County, Illinois, and the undersigned hereby
irrevocably submits and consents to the jurisdiction of the Circuit Court of
Cook County, Illinois and the United States District Court for the Northern
District of Illinois, Eastern Division, and consents to the service of process
in any such action or proceeding by certified or registered mail sent to the
undersigned at the address of the undersigned shown from time to time on the
records of Congress or by any other method permitted by law.
The undersigned does hereby represent and warrant to Congress that the
execution and delivery of this instrument to Congress by the undersigned has
been duly authorized by all necessary action of the Board of Directors and
Shareholders of the undersigned, is validly issued in accordance with the
Certificate of Incorporation and By-laws of the undersigned and in accordance
with any statutes applicable
2
<PAGE> 52
hereto. Without limitation of the foregoing, this guarantee may not be
terminated and shall continue so long as any obligation of the Obligor to
Congress shall be outstanding.
WIRE PRODUCTS COMPANY
By: /s/ HAROLD M. CURDY
Title: VICE PRESIDENT - TREASURER
3
<PAGE> 53
RIDER NO. 1 TO GUARANTEE AND WAIVER
THIS Rider No. 1 to Guarantee and Waiver, is made and entered
into as of December 30, 1993 by WIRE PRODUCTS COMPANY, a Wisconsin corporation
(the "Guarantor"), in favor of CONGRESS FINANCIAL CORPORATION (CENTRAL), an
Illinois corporation ("Lender").
WITNESSETH:
WHEREAS, the Lender and Keystone Consolidated Industries,
Inc., a Delaware corporation (the "Guaranteed Party") have entered into that
certain Accounts Receivable Financing Agreement {Security Agreement} and a
Rider No. 1 thereto, each dated as of December 19, 1986 and that certain Term
Loan Agreement of even date herewith (collectively, the "Loan Agreements"); and
WHEREAS, the Lender and the Guarantor have entered into that
certain Guarantee and Waiver (as amended and supplemented hereby, the
"Guarantee") , providing for the guarantee of the Obligations (as defined in
the Guarantee) and desire to modify and supplement the terms of the Guarantee.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and to induce
the Lender to extend credit, the Guarantor agrees with the Lender for its
benefit as follows:
1. Definitions. When capitalized and used herein, terms
defined in the Loan Agreements and not otherwise defined herein shall have the
meanings ascribed to them in the Loan Agreements.
2. Maximum Guaranteed Amount. Anything herein or in the
Guarantee to the contrary notwithstanding, the maximum liability of Guarantor
hereunder shall in no event exceed the lesser of (i) the highest amount which
is valid and enforceable in any action or proceeding involving any state
corporate law or any state or Federal bankruptcy, insolvency, reorganization,
fraudulent conveyance or other law involving the rights of creditors generally
and (ii) 95% of the excess of the present saleable value of the assets of
Guarantor as of date hereof over the amount of all liabilities of Guarantor,
contingent or otherwise, as of the date hereof, as such terms (or their
equivalent under applicable law) are determined in accordance with applicable
state and Federal laws governing the determination of the insolvency of a
debtor.
3. Waiver of Rights of Subrogation, Etc. Guarantor
waives, and agrees that it will not assert or otherwise claim, any right of
contribution, reimbursement, repayment, indemnity or subrogation under or in
respect of the Guarantee, whether arising by any payment made hereunder, by
agreement or otherwise.
<PAGE> 54
Guarantor further agrees that it will not enter into any agreement providing,
directly or indirectly, for any contribution, reimbursement, repayment or
indemnity by the Guaranteed Party, any other Guarantor or any other Person, on
account of any payment by such Guarantor hereunder, and that any such agreement
would be void.
4. Collateral.
4.1. In order to secure the prompt performance, observance
and payment in full of all its existing and hereafter arising obligations to
Lender under the Guarantee, Guarantor hereby grants to Lender a continuing
security interest in, a lien upon, and a right of setoff against, and Guarantor
hereby assigns, transfers, pledges and sets over to Lender all of the
following, wheresoever located, (collectively, "Collateral"):
(a) All of Guarantor's present and future accounts,
contract rights, general intangibles, chattel paper, documents and
instruments, as such terms are defined in the UCC, including, without
limitation, all obligations for the payment of money arising out of
Guarantor's sale, lease or other disposition of goods or other
property or rendition of services ("Accounts");
(b) All present and future moneys, securities and other
property and the proceeds thereof, now or hereafter held or received
by, or in transit to, Lender from or for Guarantor, whether for
safekeeping, pledge, custody, transmission, collection or otherwise,
and all of Guarantor's deposits (general or special), balances, sums
and credits with Lender at any time existing; all of Guarantor's
right, title and interest, and all of Guarantor's rights, remedies,
security and liens, in, to and in respect of the Accounts and other
Collateral, including, without limitation, rights of stoppage in
transit, replevin, repossession and reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party, guaranties or
other contracts of suretyship with respect to the Accounts, deposits
or other security for the obligation of any debtor or obligor in any
way obligated on or in connection with any Account (an "Account
Debtor"), and credit and other insurance; all of Guarantor's right,
title and interest in, to and in respect of all goods relating to, or
which by sale have resulted in, Accounts including, without
limitation, all goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or evidencing,
any Accounts or other Collateral, including without limitation, all
returned, reclaimed or repossessed goods; all deposit accounts; all
books, records, ledger cards, computer programs, and other property
and general intangibles evidencing or relating to the Accounts and any
other Collateral or any Account Debtor, together with the file
cabinets or containers in which the foregoing are
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<PAGE> 55
stored; all other general intangibles of every kind and description,
including without limitation, trade names and trademarks, and the
goodwill of the business symbolized thereby, patents, copyrights,
licenses and Federal, State and local tax refund claims of all kinds;
(c) All raw materials, work in process, finished goods,
and all other inventory of whatsoever kind or nature, wherever located
whether now owned or hereafter existing or acquired by Guarantor
("Inventory"), including without limitation, all wrapping, packaging,
advertising, shipping materials, and all other goods consumed in
Guarantor's business, all labels and other devices, names or marks
affixed to or to be affixed thereto for purposes of selling or of
identifying the same or the seller or manufacturer thereof and all of
Guarantor's right, title and interest therein and thereto;
(d) All machinery, computers and computer hardware,
tools, dies, jigs, furniture, trade fixtures and fixtures; all
attachments, accessions and property now or hereafter affixed thereto
or used in connection therewith, substitutions and replacements
thereof, wherever located, whether now owned or hereafter acquired by
Guarantor ("Equipment");
(e) All books, records, documents, other property and
general intangibles at any time relating to the Accounts, Inventory
and Equipment; and
(f) All products and proceeds of the foregoing, in any
form, including, without limitation, insurance proceeds and any claims
against third parties for loss or damage to or destruction of any or
all of the foregoing.
4.2. Guarantor hereby represents, warrants and covenants
to Lender the following (which shall survive the execution and delivery of the
Guarantee), the truth and accuracy of which, or compliance with, being a
continuing condition of the making of loans by Lender under the Loan
Agreements:
(a) Guarantor is and shall be, with respect to all
Collateral now existing or hereafter acquired, the owner of such
Collateral free from any lien, security interest, claim or encumbrance
of any kind, except for liens in Lender's favor, purchase money liens
on specific inventory and its proceeds and as otherwise consented to
in writing by Lender, and Guarantor shall defend the same against the
claims of all persons.
(b) Guarantor will not directly or indirectly sell,
lease, transfer, abandon or otherwise dispose of all or any
substantial portion of Guarantor's property or assets or consolidate
or merge with or into any other entity or permit
3
<PAGE> 56
any other entity to consolidate or merge with or into Guarantor.
Guarantor will at all times preserve, renew and keep in full force and
effect Guarantor's existence as a corporation and the rights and
franchises with respect thereto and continue to engage in business of
the same type as Guarantor is engaged as of the date hereof.
Guarantor shall give Lender thirty (30) days prior written notice of
any proposed change in Guarantor's corporate name which notice shall
set forth the new name.
(c) Guarantor shall not change the location of its chief
executive without Lender's prior written consent and prior to making
any such change, Guarantor agrees to execute any additional financing
statements or other documents or notices which Lender may require.
IN WITNESS WHEREOF, this Rider has been executed and delivered
as of the date first written above.
WIRE PRODUCTS COMPANY
By: /s/ HAROLD M. CURDY
Name: HAROLD M. CURDY
Title: VICE PRESIDENT - TREASURER
CONGRESS FINANCIAL
CORPORATION (CENTRAL)
By: /s/ GEORGE KALESNIK
Name: GEORGE KALESNIK
Title: SR. VICE PRES.
4
<PAGE> 1
EXHIBIT 10.1
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"), effective as
of January 1, 1993, amends and supersedes that certain Intercorporate Services
Agreement dated as of January 1, 1992 by and between Contran Corporation
("Contran") a Delaware corporation, and Keystone Consolidated Industries, Inc.
("Recipient"), A Delaware corporation.
W I T N E S S E T H:
WHEREAS, employees and agents of Contran and affiliates of Contran
perform management, financial and administrative functions for Recipient
without direct compensation from Recipient; and
WHEREAS, Recipient does not separately maintain the full internal
capability to perform all necessary management, financial and administrative
functions which Recipient requires; and
WHEREAS, it is believed that the cost of maintaining the additional
personnel by Recipient necessary to perform the functions provided for by this
Agreement would exceed the fee set forth in Section 3 of this Agreement and
that the terms of this Agreement are no less favorable to Recipient than could
otherwise be obtained from a third party for comparable services; and
WHEREAS, Recipient desires to continue receiving the management,
financial and administrative services presently provided by Contran and
affiliates of Contran and Contran is willing to continue to provide such
services under the terms of this Agreement.
NOW, THEREFORE, for and in consideration of the mutual premises,
representations and covenants herein contained, the parties hereto mutually
agree as follows:
1. Services to be Provided: Contran agrees to make available to
Recipient, upon request, the following services (the "Services") to be
rendered by the internal staff of Contran and affiliates of Contran:
(a) Consultation and assistance in the development and
implementation of Recipient's corporate business strategies,
plans and objectives.
(b) Consultation and assistance in management and conduct of
corporate affairs and corporate governance consistent with the
Articles of Incorporation and By-Laws of Recipient.
<PAGE> 2
(c) Consultation and assistance in maintenance of financial
records and controls, including preparation and review of
periodic financial statements and reports to be filed with
public and regulatory entities and those required to be
prepared for financial institutions or pursuant to indentures
and credit agreements.
(d) Consultation and assistance in cash management and in
arranging financing necessary to implement the business plans
of Recipient.
(e) Consultation and assistance in tax management and
administration including; preparation and filing of tax
returns, tax reporting, examinations by government authorities
and tax planning.
(f) Consultation and assistance in performing internal audit and
control functions.
(g) Consultation and assistance with respect to insurance and risk
management.
(h) Consultation and assistance with respect to employee benefit
plans and incentive compensation arrangements.
(i) Such other services as may be requested by Recipient or deemed
necessary and proper from time to time.
2. Miscellaneous Services: It is the intent of the parties hereto that
Contran provide only the Services requested by Recipient in connection
with routine management, financial and administrative functions
related to the ongoing operations of Recipient and not with respect to
special projects, including corporate investments, acquisitions and
divestitures. The parties hereto contemplate that the Services
rendered in connection with the conduct of Recipient's business will
be on a scale compared to that existing on the date of this Agreement,
adjusted for internal corporate growth or contraction, but not for
major corporate acquisitions or divestitures, and that adjustments may
be required to the terms of this Agreement in the event of such major
corporate acquisitions, divestitures or special projects. Recipient
will continue to bear all other costs required for outside services
including, but not limited to, the outside services of attorneys,
auditors, trustees, transfer agents and registrars, and it is
expressly understood that Contran assumes no liability for any
expenses or services other than those stated in Section 1. In addition
to the fee paid to Contran by Recipient for the Services provided
pursuant to this Agreement, Recipient will pay to Contran the amount
of out-of-pocket costs incurred by Contran in rendering such Services.
- 2 -
<PAGE> 3
3. Fee for Services: Recipient agrees to pay to Contran $145.000.00
quarterly, commencing as of January 1, 1993, pursuant to this
Agreement.
4. Original Term: Subject to the provisions of Section 5 hereof, the
original term of this Agreement shall be from January 1, 1993 to
December 31, 1993.
5. Extensions. This Agreement shall be extended on a quarter-to-quarter
basis after the expiration of its original term unless written
notification is given by Contran or Recipient thirty (30) days in
advance of the first day of each successive quarter or unless it is
superseded by a subsequent written agreement of the parties hereto.
6. Limitation of Liability. In providing its Services hereunder,
Contran shall have a duty to act, and to cause its agents to act, in a
reasonably prudent manner, but neither Contran nor any officer,
director, employee or agent of Contran or its affiliates shall be
liable to Recipient for any error of judgment or mistake of law or for
any loss incurred by Recipient in connection with the matter to which
this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Contran.
7. Indemnification of Contran by Recipient. Recipient shall indemnify
and hold harmless Contran, its affiliates and their respective
officers, directors and employees from and against any and all losses,
liabilities, claims, damages, costs and expenses (including attorneys'
fees and other expenses of litigation) to which such party may become
subject to arising out of the Services provided by Contran to
Recipient hereunder, provided that such indemnity shall not protect
any such party against any liability to which such person would
otherwise be subject to by reason of willful misfeasance, bad faith
or gross negligence.
B. Further Assurances. Each of the parties will make, execute,
acknowledge and deliver such other instruments and documents, and take
all such other actions, as the other party may reasonably request and
as may reasonably be required in order to effectuate the purposes of
this Agreement and to carry out the terms hereof.
9. Notices. All communications hereunder shall be in writing and shall
be addressed, if intended for Contran, to Three Lincoln Centre, 5430
LBJ Freeway, Suite 1700, Dallas, Texas 75240, Attention: President, or
such other address as it shall have furnished to Recipient in writing,
and if intended for Recipient, to Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1740, Dallas, Texas 75240, Attention: Chairman or such
other address as it shall have furnished to Contran in writing.
- 3 -
<PAGE> 4
10. Amendment and Modification. Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated other than by
agreement in writing signed by the parties hereto.
11. Successor and Assigns: This Agreement shall be binding upon and inure
to the benefit of Contran and Recipient and their respective
successors and assigns, except that neither party may assign its
rights under this Agreement without the prior written consent of the
other party.
12. Governing Law: This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
CONTRAN CORPORATION
By: /s/ MICHAEL A. SNETZER
Michael A. Snetzer
President
KEYSTONE CONSOLIDATED
INDUSTRIES, INC.
By: /s/ GLENN R. SIMMONS
Glen R. Simmons
Chairman of the Board and
Chief Executive Officer
- 4 -
<PAGE> 1
EXHIBIT 21
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percent of
voting securities
State or county owned at
Name of incorporation December 31, 1993
- ------------------------------ ---------------- -----------------
<S> <C> <C>
Sherman Wire of Caldwell, Inc. Nevada 100.0%
Wire Products Company Wisconsin 100.0%
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements of
Keystone Consolidated Industries, Inc. on Form S-8 (File Nos. 33-30137,
33-63086 and 2-93666) of our report, which includes an explanatory paragraph
regarding changes in accounting methods for postretirement benefits other than
pensions and for income taxes in accordance with Statements Of Financial
Accounting Standards Nos. 106 and 109, respectively, dated March 11, 1994, on
our audits of the consolidated financial statements and financial statement
schedules of Keystone Consolidated Industries, Inc. and Subsidiaries as of
December 31, 1993 and 1992 and for the years ended December 31, 1993, 1992 and
1991, which report is included in this Annual Report on form 10-K.
COOPERS & LYBRAND
Dallas, Texas
March 11, 1994
