SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934 [Fee required] - For the fiscal year ended December 31, 1995
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Commission file number 1-3919
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Keystone Consolidated Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 37-0364250
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5430 LBJ Freeway, Suite 1740
Three Lincoln Centre, Dallas, TX 75240-2697
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 458-0028
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1 par value New York Stock Exchange
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
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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 registrants 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 18, 1996, 5,687,424 shares of common stock were outstanding. The
aggregate market value of the 1,843,791 shares of voting stock held by
nonaffiliates of the Registrant, as of such date, was approximately $18.9
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.
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 mini-mill
manufacturer of carbon steel rod, wire and a wide range of wire products for a
variety of end uses. Mini-mills are typically modern, low cost producers that,
like the Company, make steel from scrap with the electric arc furnace process.
The Company owns and operates five plants in Illinois, Texas, Arkansas and
Wisconsin. Product distribution is concentrated primarily in the Midwestern and
Southwestern regions of the United States. The Company's operations are
conducted by three divisions, Keystone Steel & Wire ("KSW"), Keystone
Fasteners and Sherman Wire ("Sherman"), and two wholly-owned subsidiaries, Fox
Valley Steel and Wire Company ("Fox Valley"), formerly Wire Products Company,
and Sherman Wire of Caldwell, Inc. ("Caldwell").
At December 31, 1995, Contran Corporation ("Contran") held, directly or
indirectly, approximately 68% of the Company's outstanding common stock.
Substantially all of Contran's outstanding voting 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.
The statements in this Annual Report on Form 10-K relating to matters that
are not historical facts including, but not limited to, statements found in this
Item 1 - `Business'', in Items 3 - ``Legal Proceedings'', and in Item 7 -
`Management's Discussion And Analysis Of Financial Condition And Results Of
Operations', are forward looking statements that involve a number of risks and
uncertainties. Factors that could cause actual future results to differ
materially from those expressed in such forward looking statements include, but
are not limited to, cost of raw materials, future supply and demand for the
Company's products (including cyclicality thereof), general economic conditions,
competitive products and substitute products, customer and competitor
strategies, the impact of pricing and production decisions, environmental
matters, government regulations and possible changes therein, and the ultimate
resolution of pending litigation and possible future litigation as discussed in
this Annual Report, including, without limitation, the sections referenced
above.
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 at KSW 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 transferred by ladle into a six-strand continuous
casting machine which produces five-inch square strands, referred to as billets,
that are cut to predetermined lengths. These billets, along with billets
purchased from outside suppliers, are transferred to the adjoining 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, control cooled and passed
through inspection stations for metallurgical, surface and diameter checks.
Finished coils of rod are compacted, 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 normally maintain a significant inventory of
finished rod or wire, 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 84% of
which is located at KSW. The Company leases approximately 56,000 square feet of
warehouse space in Sherman, Texas. Prior to October 1995, the Company leased a
distribution facility in Northern California. The Company's West Coast
customers are now being served directly by KSW and Sherman.
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 KSW rod
mill. In 1995, approximately 57% of the rod manufactured by the Company was
used internally at the Company's five wire fabrication facilities, up from 53%
in 1993 and 56% in 1994. The remainder of the Company's rod production was sold
directly to producers of construction products, wire and wire products,
including products similar to those manufactured by the Company. The Company
believes, as compared to non-integrated or single product rod producers, its
ability to internally convert a large portion of rod production into a wide
variety of wire and wire products provides significant opportunities for
improving margins and enhances marketing flexibility. Trade sales of carbon
steel rod were $100 million in 1993, $99 million in 1994 and $92 million in
1995.
Drawn Carbon Steel Wire. At its KSW, Fox Valley, Sherman and Caldwell
facilities, the Company produces custom-drawn carbon steel wire in a variety of
gauges, finishes and packages for industrial fabrication and OEM customers. The
Company believes it is one of the largest manufacturers of carbon steel wire in
the United States. 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 $68 million in 1993, $80 million in 1994 and $81
million in 1995.
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. These products are
distributed by the Company 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, supportive product 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 $101 million in 1993, $106 million in
1994 and $98 million in 1995.
Construction Products. The Company manufactures products for residential
and commercial construction, including nails, 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
approximately 40% 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 $75 million in 1993, $78 million in 1994 and
$73 million in 1995.
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 markets is based
primarily on price, delivery performance, product quality, service, and brand
name preference.
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. Worldwide overcapacity in the steel industry
continues to exist and since the expiration of Voluntary Restraint Agreements
with foreign governments in March 1992, imports of wire rod and certain wire
products have increased significantly.
The Company competes with many small independent wire companies who
purchase rod from domestic and foreign sources. Due to its broad range of
fabricated wire products, diverse geographic and product markets, and low cost
internal supply of steel rod, 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.
The Company 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 its customer base
provides the Company with certain advantages over foreign and certain domestic
competition including reduced shipping costs, improved customer service, and
shortened delivery times. 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 in, or generated by, the
Company's manufacturing operations. Many of these laws and regulations require
permits to operate the facilities to which they pertain. Denial, revocation,
suspension or expiration of such permits could impair the ability of the
affected facility to continue operations.
Environmental legislation and regulations have changed rapidly in recent
years and the Company may be subject to increasingly stringent environmental
standards in the future. The Company currently does not expect capital
expenditures related to environmental items during the near future to be
significant.
Information in Note 13 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.
KSW's steel mill is located close to numerous sources of high density
automobile, industrial and railroad scrap which currently is all readily
available. The purchase of scrap steel is highly competitive and its price
volatility is influenced by periodic shortages, freight costs, weather, 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 consume large amounts of energy in
the form of electricity and natural gas. The Company purchases its electrical
energy for its KSW facilities 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(R) for field fence and
related products. The RED BRAND(R) trademark has been widely advertised and, in
management's opinion, enjoys high levels of market recognition. 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 2,000 persons, of whom
approximately 1,200 are represented by the Independent Steel Workers Alliance
("ISWA") at its KSW facilities and approximately 150 are represented by the
International Association of Machinists and Aerospace Workers (Local 1570)
("IAMAW") at its Sherman facilities. The current collective bargaining
agreement with the ISWA expires in May 1996 and the Company has begun
negotiating with union representatives. The collective bargaining agreement
with the IAMAW expires in February 1997. The Company believes its labor
relations are satisfactory. See Item 7 -- "Management's Discussion And Analysis
Of Financial Condition And Results Of Operations."
CUSTOMERS AND ORDER BACKLOG
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. See Note 13 to the Consolidated Financial Statements. The Company's
backlog of unfilled cancelable purchase orders, for delivery generally within
three months, approximated $45 million and $30 million at December 31, 1994 and
1995, respectively. The Company does not believe backlog is a significant
factor in its business.
MERGER
In March 1996, the Company announced it was engaged in discussions with
DeSoto, Inc. (NYSE: DSO) regarding a proposed merger of the companies. DeSoto
had previously notified the Pension Benefit Guaranty Corporation of its
intention to terminate its overfunded pension plan and the proposed merger with
Keystone would provide an alternative to that termination. The transaction is
subject to, among other conditions, mutual due diligence, the negotiation and
signing of a definitive agreement, the approval of the respective Boards' of
Directors and shareholders and Keystone's primary lender as well as the
requisite governmental reviews. The acquisition, as presently contemplated,
would be funded by the issuance of 3.5 million Company shares to the
shareholders of DeSoto and would be accounted for as a purchase. DeSoto is
engaged in the manufacturing and packaging of household cleaning products.
ITEM 2. PROPERTIES.
The Company's principal executive offices are located in approximately
3,200 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 the Company's products.
The Company's production facilities (with the exception of certain leased
equipment) are owned by the Company and are pledged as collateral on the
Company's revolving line of credit and certain long-term debt and pension
obligations.
The current estimated annual capacity of the Company's 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 61,000 tons of billets in 1995 and the rod mill operated at
approximately 88% of estimated capacity. The Company expects to purchase
billets in 1996; however, the amounts purchased will depend on price and other
market conditions. The Company's 1996 Operating Plan anticipates purchasing
55,000 tons of billets and the rod mill operating at an expected 91% of
estimated capacity.
The Company's estimated current annual wire and wire products capacity is
approximately 532,000 tons. Utilization of the Company's annual wire and wire
products productive capacity aggregated 77% in 1993, 83% in 1994 and 77% in
1995.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings. Information required
by this Item is included in Note 13 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, 1995.
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 March 18, 1996 was 1,079. 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.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
1995
First quarter $13.88 $13.38
Second quarter 13.75 13.38
Third quarter 15.13 13.50
Fourth quarter 15.00 11.13
1994
First quarter $12.00 $10.00
Second quarter 15.88 11.50
Third quarter 17.38 14.38
Fourth quarter 18.00 13.63
</TABLE>
The Company has not paid cash dividends since 1977. The Company is subject
to certain loan covenants under its commercial revolving credit facility that
restrict the ability to pay dividends, including a prohibition against the
payment of dividends without lender consent.
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,
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
<S> (In thousands, except per share data)
Income statement data: <C> <C> <C> <C> <C>
Net sales $302,132 $316,251 $345,186 $364,435 $345,657
Gross profit $ 37,454 $ 37,443 $ 32,521 $ 36,982 $ 32,748
Income from continuing operations $ 9,769 $ 5,146 $ 749 $ 7,561 $ 4,887
Extraordinary items (C) 3,502 - - - -
Cumulative effect of changes in
accounting principles (A) - (69,949) - - -
-------- -------- -------- -------- --------
Net income (loss) $ 13,271 $(64,803) $ 749 $ 7,561 $ 4,887
======== ======== ======== ======== ========
Per share data:
Earnings per common and common
equivalent share (B):
Continuing operations $ 1.75 $ .92 $ .14 $ 1.35 $ .86
Extraordinary items (C) .62 - - - -
Cumulative effect of changes in
accounting principles (A) - (12.53) - - -
-------- -------- -------- -------- --------
Net income (loss) $ 2.37 $ (11.61) $ .14 $ 1.35 $ .86
======== ======== ======== ======== ========
Cash dividends declared $ - $ - $ - $ - $ -
======== ======== ======== ======== ========
Balance sheet data (at year end):
Total assets $182,077 $202,109 $206,654 $205,601 $198,822
Notes payable and long-term debt 37,290 34,485 27,190 26,054 29,945
Noncurrent accrued pension cost 55,462 51,638 60,102 40,470 39,222
Noncurrent accrued OPEB cost 3,109 93,727 96,336 98,310 97,868
Stockholders' equity (deficit) 27,149 (39,036) (50,908) (40,579) (37,493)
</TABLE>
(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)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 in 1991 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
The Company's revolving credit facility requires daily cash receipts to be
used to reduce outstanding borrowings. Cash flows from operating, investing and
financing activities are summarized below.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net cash provided (used) by:
Operating activities:
Before changes in assets and liabilities $ 12,950 $ 25,203 $ 19,537
Accrued excise tax and related interest 7,120 (5,054) (1,033)
Other changes in assets and liabilities, net (6,045) (7,459) (6,006)
-------- -------- --------
14,025 12,690 12,498
-------- -------- --------
Investing and financing activities:
Capital expenditures (7,349) (12,742) (18,208)
Net borrowings (repayments) (7,295) (1,136) 3,891
Other, net 619 1,188 1,819
-------- -------- --------
(14,025) (12,690) (12,498)
-------- -------- --------
Net change in cash $ - $ - $ -
======== ======== ========
</TABLE>
In addition to lower earnings in 1995, fluctuations in cash flow from
operations were impacted by changes in relative levels of assets and
liabilities, including levels of pension fundings in excess of pension expense
during each year. Pension fundings exceeded pension expense by approximately $7
million in 1993, $11 million in 1994 (including additional pension contributions
of $3.3 million resulting from the excise tax litigation) and $10 million in
1995. In addition, as part of the settlement of this litigation, the Company
made excise tax installment payments of $1 million each in 1994 and 1995 and
will make the final installment payment of approximately $1 million in 1996.
Pension fundings in 1996 are currently estimated to exceed pension expense by
approximately $5 million.
A significant portion of the increase in 1995 capital expenditures over the
levels of the prior two years relates to upgrades of production equipment and
the information systems project which began in 1994 at KSW. Capital
expenditures for 1996 are currently estimated to be approximately $23 million
and are related primarily to upgrades of production equipment and the
information systems project at KSW.
At December 31, 1995, the Company had a working capital deficit of $6.9
million, including $18.8 million of notes payable and current maturities of
long-term debt. The outstanding borrowings under the Company's $35 million
revolving credit facility amounted to $14.6 million at December 31, 1995. The
amount of available borrowings under the Company's $35 million revolving credit
facility 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, which expires December
31, 1999, were $20.1 million at December 31, 1995.
The Company evaluates the discount rate used in determining the actuarial
present values of its pension obligations in response to changes in interest
rates and, if appropriate, adjusts the rate annually. The discount rate used at
December 31, 1995 was 7.5% (1994 - 8.5%, 1993 - 7.5%). These discount rate
changes resulted in, among other things, adjustments to the Company's noncurrent
pension liability and 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, and pension expense and funding requirements in future periods.
See Note 6 to the Consolidated Financial Statements.
On December 31, 1995 and 1994, the Company similarly changed the discount
rate used in determining the actuarial present value of its OPEB obligations.
Such changes in the OPEB discount rate do not impact the Company's cash flows,
as payments for OPEB costs continue to be made when incurred. See Note 8 to the
Consolidated Financial Statements.
At December 31, 1995, the Company has net deferred tax assets (before
valuation reserve) of $58 million. Approximately $6.5 million of such deferred
tax assets relates to 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 $6.4
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
asset relates principally to OPEB and pension expense accrued for financial
reporting purposes but not yet paid or deductible for income tax purposes. The
Company currently believes its long-term profitability should ultimately be
sufficient to enable it to realize full benefit of these future tax deductions.
Although, considering all factors believed to be relevant, including the
Company's expected future near-term levels of profitability, and the fact
accrued OPEB expenses will become deductible over an extended period of time and
require the Company to generate significant future taxable income, the Company
believes a portion of its deferred tax assets may not currently meet a "more
likely than not" realizability test and, accordingly, has provided a deferred
tax valuation allowance of $30 million. There was no change in such valuation
allowance during 1993, 1994 or 1995. 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 both current and retired
employees. As such, the Company is 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, restructured certain indebtedness, 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.
Management has budgeted profitable results of operations for 1996 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;
inability to successfully negotiate a new labor agreement at its KSW facility in
May 1996; 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 13 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
The Company's principal operations are the manufacture and sale of carbon
steel rod, wire and wire products for agricultural, industrial, construction,
commercial, OEM and retail consumer markets.
The statements in this Annual Report on Form 10-K relating to matters that
are not historical facts including, but not limited to, statements found in Item
1 - `Business'' and Item 3 - ``Legal Proceedings'', and in this Item 7 -
`Management's Discussion And Analysis Of Financial Condition And Results Of
Operations', are forward looking statements that involve a number of risks and
uncertainties. Factors that could cause actual future results to differ
materially from those expressed in such forward looking statements include, but
are not limited to, cost of raw materials, future supply and demand for the
Company's products (including cyclicality thereof), general economic conditions,
competitive products and substitute products, customer and competitor
strategies, the impact of pricing and production decisions, environmental
matters, government regulations and possible changes therein, and the ultimate
resolution of pending litigation and possible future litigation as discussed in
this Annual Report, including, without limitation, the sections referenced
above.
While the Company's 1995 billet production of 645,000 tons was comparable
to the production for 1994, steel rod production declined 7% to 662,000 tons
from 713,000 tons in 1994. 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, 95,000 tons and 61,000 tons of billets in 1993, 1994 and
1995, respectively. In addition to the lower billet purchases, the decline in
steel rod production was primarily a result of lower sales demand and down-time
associated with unplanned equipment repairs and electrical power refusals and
interruptions. The Company purchases electrical energy from a regulated utility
under an interruptible service contract which provides for more economical
electricity rates but allows the utility to refuse or interrupt power during
periods of peak demand. During 1994 and 1993, the Company's billet and steel
rod production was comparable (647,000 tons compared to 644,000 tons of billets
and 713,000 tons compared to 715,000 tons of steel rod).
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,
--------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 90.6 89.8 90.5
----- ----- -----
Gross profit 9.4 10.2 9.5
Selling, general and administrative expenses 7.4 7.1 6.2
Other income .2 - -
----- ----- -----
Income before interest and income taxes 2.2 3.1 3.3
Interest - notes payable and long-term debt .8 .7 1.0
Interest (credit) related to excise tax 1.1 (1.0) -
----- ----- -----
Income before income taxes .3 3.4 2.3
Provision for income taxes .1 1.3 .9
----- ----- -----
Income from continuing operations .2% 2.1% 1.4%
===== ===== ======
</TABLE>
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Net Sales
Net sales were $345.2 million in 1993, $364.4 million in 1994 and $345.7
million in 1995. During 1995, tons of rod sold decreased 9% (287,000 tons
compared to 316,000 tons), tons of wire sold decreased 2% (164,000 tons compared
to 167,000 tons), and tons of wire products sold decreased 9% (242,000 tons
compared to 267,000 tons). Rod and wire are generally sold at lower selling
prices per ton than wire products. In 1995, average selling prices of rod,
wire, and wire products were all approximately 3% higher than in 1994.
During 1994, tons of rod sold decreased 6% (316,000 tons compared to
337,000 tons), tons of wire sold increased 12% (167,000 tons compared to 149,000
tons), and tons of wire products increased 3% (267,000 tons compared to 258,000
tons). In 1994, average selling prices of rod, wire and wire products increased
6%, 5% and 1%, respectively, as compared to 1993.
Gross Profit
Gross profit was $32.5 million in 1993, $37.0 million in 1994 and $32.7
million in 1995. Gross profit in 1995, as a percentage of net sales, declined
.7% from 1994 as higher product selling prices were more than offset by a 3%
increase in scrap costs, increased rod conversion costs and increased costs
resulting from production outages due to power refusals and interruptions as
well as unplanned equipment repairs.
Gross profit in 1994, as a percentage of net sales, increased .8% from 1993
as higher product selling prices more than offset a 2% increase in scrap costs
and the effects of inclement weather during the 1994 first quarter which
resulted in production outages and increased costs.
The purchase of scrap steel is highly competitive and its price volatility
is influenced by periodic shortages, freight costs, weather 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. The
Company currently expects 1996 average scrap steel prices will approximate
average 1995 prices.
Although the Company's primary energy source is 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 resulting increases in such costs through higher product selling
prices or improved production efficiencies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, in total, declined 16% from
1994 to 1995. This decline was primarily a result of lower expenses related to
the Company's information systems project, environmental remediation and
disposal of contaminated electric arc furnace dust.
Although selling, general and administrative expenses were, in total,
comparable between 1994 and 1993, each year contained certain offsetting items.
Environmental related expenses were higher in 1994 than in 1993, while 1993
expenses included $3.2 million of pension related excise taxes.
Other Income
Other income in the past three years primarily represents rental income and
net gains on sale of property, plant and equipment.
Interest Expense
Interest expense related to notes payable and long-term debt in 1995 was
higher than 1994 due principally to higher average interest rates and higher
average borrowing levels. Interest expense in 1994 was comparable with 1993 as
lower average borrowing levels in 1994 were offset by higher interest rates.
Interest expense in 1993, as well as the interest credit in 1994 related to
the excise tax matter, are discussed in Note 13 to the Consolidated Financial
Statements.
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 4 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, 1995 is explained in Note 4 to the
Consolidated Financial Statements and in "Liquidity and Capital Resources"
above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this Item is contained in a separate section
of this report. See Index of Financial Statements and Financial Statement
Schedule on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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.
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 9 to the
Consolidated Financial Statements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1), (2) The Index of Consolidated Financial Statements and Financial
Statement Schedule is included on page F-1 of this report.
(a)(3) Exhibits
Included as exhibits are the items listed in the Exhibit Index. The
Company will furnish a copy of any of the exhibits listed below upon
payment of $4.00 per exhibit to cover the costs to the Company in
furnishing the exhibits. 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.
Exhibit No. Exhibit
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 December 30, 1994 --
incorporated by reference to Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
4.1 --Amended and Restated Revolving Loan And Security Agreement dated as
of December 29, 1995 between the Company and Congress Financial
Corporation (Central).
4.2 --Term Loan and Security Agreement between the Company and Congress
Financial Corporation (Central) dated December 30, 1993 -- incorporated
by reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
10.1 --Intercorporate Services Agreement with Contran Corporation dated as
of January 1, 1995.
21 --Subsidiaries of the Company.
23 --Consent of Coopers & Lybrand.
27 --Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1995.
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 25, 1996, 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 25, 1996 by the following
persons on behalf of the registrant and in the capacities indicated:
/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
KEYSTONE CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
ITEMS 8, 14(A) AND 14(D)
INDEX OF CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page
----
FINANCIAL STATEMENTS
Report of Independent Accountants F-2
Consolidated Balance Sheets -- December 31, 1994 and 1995 F-3/F-4
Consolidated Statements of Operations -- Years ended December 31,
1993, 1994 and 1995 F-5
Consolidated Statements of Stockholders' Equity (Deficit) -- Years
ended December 31, 1993, 1994 and 1995 F-6
Consolidated Statements of Cash Flows -- Years ended December 31,
1993, 1994 and 1995 F-7/F-8
Notes to Consolidated Financial Statements F-9/F-23
FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts S-1
Schedules I, III and IV are omitted because they are not applicable.
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 schedule of Keystone Consolidated Industries, Inc. and Subsidiaries as
listed in the Index of Consolidated Financial Statements and Financial Statement
Schedule on page F-1 of this Annual Report on Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, 1995
and 1994, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 16, 1996, except for Note 14
as to which the date is March 13, 1996
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1994 1995
-------- --------
<S>
Current assets: <C> <C>
Notes and accounts receivable, net of allowances
of $553 and $537 $ 41,915 $ 31,363
Inventories 35,861 35,631
Deferred income taxes 4,552 3,685
Prepaid expenses 2,057 2,026
-------- --------
Total current assets 84,385 72,705
-------- --------
Property, plant and equipment:
Land, buildings and improvements 45,886 45,715
Machinery and equipment 179,747 187,577
Leasehold improvements 1,236 1,204
Construction in progress 4,839 11,263
-------- --------
231,708 245,759
Less accumulated depreciation 150,561 159,323
-------- --------
Net property, plant and equipment 81,147 86,436
-------- --------
Other assets:
Unrecognized net pension obligation 10,247 8,427
Deferred income taxes 23,783 24,485
Other 6,039 6,769
-------- --------
Total other assets 40,069 39,681
-------- --------
$205,601 $198,822
======== ========
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1994 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
1994 1995
-------- --------
<S> <C> <C>
Current liabilities:
Notes payable and current maturities of
long-term debt $ 10,714 $ 18,750
Accounts payable 28,418 26,534
Accounts payable to affiliates 191 39
Accrued pension cost 13,735 7,170
Accrued OPEB cost 6,825 7,776
Other accrued liabilities 21,973 19,297
-------- --------
Total current liabilities 81,856 79,566
-------- --------
Noncurrent liabilities:
Long-term debt 15,340 11,195
Accrued pension cost 40,470 39,222
Accrued OPEB cost 98,310 97,868
Other 10,204 8,464
-------- --------
Total noncurrent liabilities 164,324 156,749
-------- --------
Stockholders' equity (deficit):
Preferred stock, no par value; 500,000 shares
authorized - -
Common stock, $1 par value, 12,000,000 shares
authorized; 5,593,585 and 5,637,641 shares issued
at stated value 6,313 6,362
Additional paid-in capital 19,393 20,013
Excess of pension cost over unrecognized net
pension obligation (33,787) (36,257)
Accumulated deficit (32,486) (27,599)
Treasury stock - 1,134 shares, at cost (12) (12)
-------- --------
Total stockholders' deficit (40,579) (37,493)
-------- --------
$205,601 $198,822
======== ========
</TABLE>
[FN]
Commitments and contingencies (Notes 13 and 14).
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1993, 1994 and 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues and other income:
Net sales $345,186 $364,435 $345,657
Other, net 525 18 267
-------- -------- --------
345,711 364,453 345,924
-------- -------- --------
Costs and expenses:
Cost of goods sold 312,665 327,453 312,909
Selling 5,032 5,101 4,367
General and administrative 20,309 20,675 17,185
Interest - notes payable & long-term debt 2,618 2,688 3,385
Interest (credit) related to excise tax 3,957 (3,853) -
-------- -------- --------
344,581 352,064 337,846
-------- -------- --------
Income before income taxes 1,130 12,389 8,078
Provision for income taxes 381 4,828 3,191
-------- -------- --------
Net income $ 749 $ 7,561 $ 4,887
======== ======== ========
Net income per common and common
equivalent share $ .14 $ 1.35 $ .86
======== ======== ========
Weighted average common and common
equivalent shares outstanding 5,495 5,601 5,654
======== ======== ========
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1993, 1994 and 1995
(In thousands)
<TABLE>
<CAPTION>
Additional Retained
Common stock paid-in Pension earnings Treasury
------------
Shares Amount capital liabilities (deficit) stock
------ ------ --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
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)
Net income - - - - 7,561 -
Pension adjustments - - - 1,530 - -
Purchase of treasury stock - - - - - (43)
Issuance of treasury stock - - - - - 622
Exercise of employee stock options 62 62 474 - - -
Restricted stock granted, net 17 - - - - -
Issuance of restricted stock - 7 116 - - -
----- ------ ------- -------- ------- -----
Balance - December 31, 1994 5,594 6,313 19,393 (33,787) (32,486) (12)
Net income - - - - 4,887 -
Pension adjustments - - - (2,470) - -
Issuance of common stock 44 44 554 - - -
Exercise of employee stock option - - 2 - - -
Issuance of restricted stock - 5 64 - - -
----- ------ ------- -------- -------- -----
Balance - December 31,1995 5,638 $6,362 $20,013 $(36,257) $(27,599) $ (12)
===== ====== ======= ========= ========= =====
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1993, 1994 and 1995
(In thousands)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 749 $ 7,561 $ 4,887
Depreciation 11,084 11,585 11,961
Deferred income taxes (862) 4,180 1,744
Other, net 1,979 1,877 945
------- ------- --------
12,950 25,203 19,537
Change in assets and liabilities:
Accounts receivable (2,675) (3,555) 10,379
Inventories 900 (317) 103
Accounts payable 3,529 4,309 (2,036)
Accrued pension cost (7,354) (11,125) (10,042)
Accrued excise tax and related interest 7,120 (5,054) (1,033)
Other, net (445) 3,229 (4,410)
------- -------- -------
Net cash provided by operating
activities 14,025 12,690 12,498
------- -------- --------
Cash flows from investing activities:
Capital expenditures (7,349) (12,742) (18,208)
Collection of notes receivable 574 555 1,711
Proceeds from disposition of property
and equipment 505 17 106
------- -------- --------
Net cash used by investing
activities (6,270) (12,170) (16,391)
------- -------- --------
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1993, 1994 and 1995
(In thousands)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Revolving credit facility, net $(16,451) $ 2,620 $ 8,030
Other notes payable and long-term debt:
Additions 20,091 208 81
Principal payments (10,935) (3,964) (4,220)
Common stock issued (purchased), net (460) 616 2
-------- ------- -------
Net cash provided (used) by financing
activities (7,755) (520) 3,893
-------- ------- --------
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 $ 2,797 $ 2,831 $ 3,673
Income taxes 70 1,721 1,560
Common stock contributed to employee
benefit plan $ - $ 622 $ 597
Restricted stock issued in consideration
for accrued compensation $ - $ 123 $ 69
Book value of equipment and inventory
contributed to joint venture $ - $ 559 $ 127
Note received on sale of property $ - $ - $ 400
</TABLE>
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,
1995, Contran held, directly or indirectly, approximately 68% of the Company's
outstanding common stock. Substantially all of Contran's outstanding voting
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 and management's estimates. The consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All material intercompany accounts and balances have been
eliminated. Certain 1993 and 1994 amounts have been reclassified to conform
with the 1995 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Ultimate actual results may, in some instances, differ from
previously estimated amounts.
Equity affiliates. The Company's consolidated financial statements include
an investment in a joint venture in which the Company has a 20% ownership. The
investment is accounted for by the equity method whereby the original investment
was recorded at cost and is adjusted subsequently by the Company's share of
undistributed earnings or losses of the joint venture.
Fiscal year. The Company's fiscal year is 52 or 53 weeks and ends on the
last Sunday in December. Each of fiscal 1993 and 1994 were 52-week years and
1995 was a 53-week year.
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 6 and 8, 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.
Advertising costs. Advertising costs, expensed as incurred, were $1 million
in each of 1993 and 1994 and $.9 million in 1995.
Income per share. Income 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.
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 71% and
73% of the inventories held at December 31, 1994 and 1995, respectively. The
first-in, first-out or average cost methods are used to determine the cost of
all other inventories.
<TABLE>
<CAPTION>
December 31,
-------------------
1994 1995
---- ----
(In thousands)
<S> <C> <C>
Raw materials $12,672 $12,669
Work in process 8,086 13,825
Finished products 14,501 10,258
Supplies 14,407 13,552
------- -------
49,666 50,304
Less LIFO reserve 13,805 14,673
------- -------
$35,861 $35,631
======= =======
</TABLE>
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
-----------------
1994 1995
---- ----
(In thousands)
<S> <C> <C>
Commercial credit agreements:
Revolving credit facility $ 6,531 $14,561
Term loan 16,382 13,050
Series 1976 Pollution Control Revenue Bonds, interest
at 8%; due in equal annual installments through 1996 1,000 500
Urban and Community Development Assistance Grants,
interest at 8%, due in semi-annual installments
through 2003 1,847 1,444
Other 294 390
------- -------
26,054 29,945
Less current maturities 10,714 18,750
------- -------
$15,340 $11,195
======= =======
</TABLE>
The Company's $35 million revolving credit facility is collateralized
primarily by the Company's trade receivables and inventories, and effective
January 1, 1996, bears interest at 1% over the prime rate and matures December
31, 1999. During 1995 the facility bore interest at 1.5% over the prime rate.
The effective interest rate was 10% and 10.25% at December 31, 1994 and 1995,
respectively. 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 $.3 million at December 31, 1995). At December
31, 1995, the available borrowings under this credit facility were $20.1
million. This credit facility requires the Company's daily cash receipts to be
used to reduce the outstanding borrowings, which results in the Company
maintaining zero cash balances.
The Company's term loan, as extended in 1995, bears interest at the prime
rate plus 1% and is due in monthly installments of $.3 million plus accrued
interest through December 1999. The term loan is with the financial institution
that provides the Company's revolving credit facility and 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. The term loan becomes due and payable if the
Company terminates its revolving credit facility.
The Company's agreements contain restrictive convenants, including
certain minimum working capital and net worth requirements and a prohibition
against the payment of dividends without lender consent. 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.
The aggregate maturities of notes payable and long-term debt are shown in
the table below.
<TABLE>
<CAPTION>
Year ending December 31, Amount
- ------------------------ ------
(In thousands)
<S> <C>
1996 $18,750
1997 3,652
1998 3,604
1999 3,296
2000 242
2001 and thereafter 401
-------
$29,945
=======
</TABLE>
At December 31, 1994 and 1995, total collateralized obligations, including
deferred pension contributions (see Note 6), amounted to $36.7 million and $38.3
million, respectively.
NOTE 4 - INCOME TAXES
Summarized below are (i) the differences between the provision for income
taxes and the amounts that would be expected using the U. S. federal statutory
income tax rate of 35%, and (ii) the components of the comprehensive provision
for income taxes.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1993 1994 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Expected tax expense, at statutory rates $ 396 $ 4,336 $ 2,827
U.S. state income taxes, net 207 557 171
Nondeductible excise taxes (credit) 1,110 (58) -
Rate change adjustment of deferred taxes (1,320) - -
Other, net (12) (7) 193
------- ------- -------
Provision for income taxes charged to
results of operations 381 4,828 3,191
Stockholders' equity - pension component (7,774) 978 (1,580)
------- ------- -------
Comprehensive provision (benefit) for
income taxes $(7,393) $ 5,806 $ 1,611
======= ======= =======
Comprehensive provision (benefit) for income
taxes:
Currently payable:
U.S. federal $ 439 $ 943 $ 2,458
U.S. state 171 294 254
Benefit of loss carryforwards (767) (2,247) (1,271)
Alternative minimum tax liability 1,406 1,663 -
------- ------- -------
Net currently payable 1,249 653 1,441
Deferred income taxes, net (8,642) 5,153 170
------- ------- -------
$(7,393) $ 5,806 $ 1,611
======= ======= =======
</TABLE>
Currently, the Company believes its long-term profitability should
ultimately be sufficient to enable it to realize full benefit of its future tax
deductions. Although, considering all factors believed to be relevant,
including the Company's recent profitability, its expected future near-term
levels of profitability based on factors such as expected production levels;
productivity rates; cost of raw materials, electricity, labor, employee wages
and benefits, environmental remediation, and retiree medical coverage; interest
rates; product mix; sales volumes and selling prices, and the fact accrued OPEB
expenses will become deductible over an extended period of time and require the
Company to generate significant future taxable income, the Company believes 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 1993, 1994 or 1995.
The Company was subject to the full 20% alternative minimum tax in 1993 and
1994. During 1995, the Company was subject to the regular U.S. federal
statutory income tax rate of 35%, but utilized alternative minimum tax credit
carryforwards to reduce its current federal income tax payable to an amount
equal to the alternative minimum tax.
The components of the net deferred tax asset are summarized below.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1994 1995
------------------------ ------------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
(In thousands)
<S>
Tax effect of temporary differences relating to: <C> <C> <C> <C>
Inventories $ 1,798 $ - $ 1,866 $ -
Property and equipment - (10,584) - (8,189)
Accrued pension cost 10,916 - 10,603 -
Accrued OPEB cost 41,003 - 41,202 -
Accrued liabilities and other deductible
differences 7,421 - 7,325 -
Other taxable differences - (1,159) - (1,183)
Net operating loss carryforwards 1,949 - - -
Alternative minimum tax credit carryforwards 6,991 - 6,546 -
Valuation allowance (30,000) - (30,000) -
-------- -------- -------- --------
Gross deferred tax assets (liabilities) 40,078 (11,743) 37,542 (9,372)
Reclassification, principally netting by tax
jurisdiction (11,743) (11,743) (9,372) 9,372
-------- -------- -------- -------
Net deferred tax asset 28,335 - 28,170 -
Less current deferred tax asset, net of prorata
allocation of valuation allowance
4,552 - 3,685 -
-------- -------- -------- --------
Noncurrent deferred tax asset $ 23,783 $ - $ 24,485 $ -
======== ======== ======== ========
</TABLE>
NOTE 5 - STOCK OPTIONS AND STOCK APPRECIATION RIGHTS PLAN
The Company's 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 300,000 shares of the Company's common stock, subject to
certain adjustments. 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 annually, each non-employee director of the Company will
automatically be granted 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.
Changes in outstanding options, including 25,000 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, 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
Granted 9,900 10.25-11.25 106,475
Exercised (61,500) 8.53-15.77 (535,252)
Canceled (16,300) 8.75-15.77 (226,825)
------- ------------ ----------
Outstanding at December 31, 1994 111,600 8.75-15.81 1,294,702
Granted 5,000 13.38 66,875
Exercised (200) 8.75 (1,750)
Canceled (21,000) 15.77 (331,102)
-------- ------------ ----------
Outstanding at December 31, 1995 95,400 $ 8.75-15.81 $1,028,725
======== ============ ==========
</TABLE>
During 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. During 1994, 1,800 shares of
restricted stock were forfeited. At December 31, 1995, 12,500 shares had been
issued.
At December 31, 1995, options to purchase 53,180 shares were exercisable
(34,180 shares exercisable at prices lower than the December 31, 1995 quoted
market price of $11.50 per share) and options to purchase an additional 21,080
shares will become exercisable in 1996. At December 31, 1995, an aggregate of
262,000 shares were available for future grants under the 1992 Option Plan and
the Director Plan.
The Company expects to elect the disclosure alternative proscribed by SFAS
No. 123, `Accounting for Stock-Based Compensation'' and to continue to account
for stock-based employee compensation in accordance with Accounting Principles
Board Opinion No. 25, `Accounting for Stock Issued to Employees'' and its
various interpretations. Under APBO No. 25, no compensation cost is generally
recognized for fixed stock options in which the exercise price is not less than
the market price on the grant date. Under the disclosure alternative of SFAS
No. 123, the Company will disclose, beginning in 1996, the respective pro forma
net income and earnings per share as if the fair value based accounting method
of SFAS No. 123 had been used to account for stock-based compensation cost for
all awards granted after January 1, 1995.
NOTE 6 - 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 each 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 was granted funding
waivers from the Internal Revenue Service ("IRS") to defer the annual pension
plan contributions for the 1980, 1984 and 1985 plan years, 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, 1995, the remaining
balance of such deferred contributions was approximately $8.3 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,
------------------------------
1993 1994 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost $ 1,931 $ 2,601 $ 1,811
Interest cost on projected benefit obligation 14,509 13,691 14,460
Actual (return)/loss on plan assets (18,200) 1,272 (22,633)
Net amortization and deferral 9,363 (8,621) 15,022
------- ------- -------
Net periodic pension cost $ 7,603 $ 8,943 $ 8,660
======= ======= =======
</TABLE>
The Company evaluates the discount rate used in determining the actuarial
present values of its pension obligations in response to changes in interest
rate trends and, if appropriate, adjusts the rate annually. The discount rate
used at December 31, 1995 was 7.5% (1994 - 8.5%, 1993 - 7.5%). The 1% decrease
in 1995 resulted in, among other things, an increase in noncurrent pension
liability of $14.7 million and a $9.0 million charge to stockholders' deficit.
The 1% increase in 1994 resulted in, among other things, a decrease in
noncurrent pension liability of $14.5 million, and an $8.8 million credit 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 assumed rate of increase in future compensation levels and long-term
rate of return on assets were 3% and 10%, 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 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,
---------------------
1994 1995
---- ----
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $160,413 $182,612
======== ========
Accumulated benefit obligation $166,738 $183,143
======== ========
Projected benefit obligation $174,640 $192,192
Plan assets at fair value 112,474 136,752
-------- --------
Projected benefit obligation in excess of plan assets 62,166 55,440
Unrecognized net loss from experience different from
actuarial assumptions (49,399) (54,589)
Unrecognized net obligation being amortized over
15-19 years (10,247) (8,373)
Adjustment required to recognize minimum liability 51,685 53,914
-------- --------
Total accrued pension cost 54,205 46,392
Less current portion 13,735 7,170
-------- --------
Noncurrent accrued pension cost $ 40,470 $ 39,222
======== ========
</TABLE>
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 formula established by the Board of Directors.
Expense related to these plans was $2.4 million in each of 1993 and 1994, and
$2.3 million in 1995.
NOTE 7 - OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1995
---- ----
(In thousands)
<S> <C> <C>
Current:
Salary, wages, vacations and other employee expenses $10,558 $ 9,342
Environmental 5,553 4,111
Accrued excise tax and related interest 1,033 1,033
Other 4,829 4,811
------- -------
$21,973 $19,297
======= =======
Noncurrent:
Environmental $ 7,469 $ 6,677
Accrued excise tax and related interest 1,033 -
Other 1,702 1,787
------- -------
$10,204 $ 8,464
======= =======
</TABLE>
NOTE 8 - 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, most active employees would be
entitled to receive OPEB upon retirement. OPEB expense for the years ended
December 31, 1993, 1994 and 1995 was composed of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1993 1994 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost $ 1,109 $ 1,396 $ 985
Interest cost on projected benefit obligation 9,132 7,421 7,123
Amortization of prior service cost (171) (343) (343)
Amortization of gains - - (331)
------- ------- ------
Total OPEB expense $10,070 $ 8,474 $7,434
======= ======= ======
</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,
-------------------
1994 1995
---- ----
(In thousands)
<S> <C> <C>
Actuarial present value of accumulated
OPEB obligations:
Current retirees $ 67,632 $ 69,701
Fully eligible active plan participants 992 1,636
Other active plan participants 25,107 25,263
-------- --------
93,731 96,600
Unrecognized net gain from experience different
from actuarial assumptions 6,167 4,150
Unrecognized prior service credit 5,237 4,894
-------- --------
Total accrued OPEB cost 105,135 105,644
Less current portion 6,825 7,776
-------- --------
Noncurrent accrued OPEB cost $ 98,310 $ 97,868
======== ========
</TABLE>
The rates used in determining the actuarial present value of the
accumulated OPEB obligations were (i) discount rate - 7.5% in 1995 and 8.5% in
1994 and (ii) rate of increase in future health care costs - 8% in 1996,
gradually declining to 5% in 2006 and thereafter. If the health care cost trend
rate was increased by one percentage point for each year, OPEB expense would
have increased $.8 million, $1.0 million and $1.2 million in 1995, 1994 and
1993, respectively, and the actuarial present value of accumulated OPEB
obligations at December 31, 1995 and 1994 would have increased $7.7 million and
$9.6 million, respectively.
The Company evaluates the discount rate used in valuing its OPEB
liabilities in response to changes in interest rate trends and, if appropriate,
adjusts the rate annually. A one percent change in the discount rate results in
an approximate $8 million change in accumulated OPEB obligation.
NOTE 9 - 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. Although the Company
does not pay Mr. Tucker a salary, the Company has contracted with Tucker &
Branham, Inc. for management consulting services by Mr. Tucker. Fees paid to
Tucker & Branham, Inc. were $62,000 in 1993, $66,000 in 1994 and $50,000 in
1995.
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 incurred
by the Company pursuant to this agreement were $580,000 in 1993, $640,000 in
1994 and $500,000 in 1995. In addition, the Company purchased certain aircraft
services from Valhi in the amount of $158,000 in 1993, $128,000 in 1994 and
$150,000 in 1995.
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 $139,000
in 1993, $98,000 in 1994, and $39,000 in 1995.
NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Net sales $90,768 $ 95,482 $82,921 $76,486
Gross profit 7,491 11,255 6,539 7,463
Net income $ 255 $ 2,876 $ 759 $ 997
======= ======== ======= =======
Income per common share $ .05 $ .50 $ .14 $ .17
======= ======= ======= =======
Year ended December 31, 1994:
Net sales $87,580 $102,549 $87,571 $86,735
Gross profit 7,218 12,034 8,632 9,098
Net income (loss) $ 408 $ 5,839 $ 1,557 $ (243)
======= ======== ======= =======
Income (loss) per common share $ .07 $ 1.04 $ .28 $ (.04)
======= ======== ======= =======
</TABLE>
NOTE 11 - JOINT VENTURE
In November 1994, the Company entered into a Joint Venture Agreement with
an unrelated party and formed Engineered Wire Products, Inc. (EWP), a
manufacturer and distributor of wire mesh, which previously operated as a
division of the unrelated party. The Company obtained a 20% interest in EWP, in
exchange for contributions of $1 million in cash and equipment in 1994 and $1
million in cash and inventory in 1995. In connection with the Joint Venture
Agreement, the Company also entered into a Shareholders' Agreement which gives
the Company the exclusive option to acquire the remaining 80% interest in EWP at
fair market value for a period of five years. The Company accounts for its
interest in EWP under the equity method. At December 31, 1994 and 1995, the
Company's investment in EWP amounted to $1 million and $2.1 million,
respectively, and is included in other assets. Earnings from the Company's
investment in EWP were insignificant and are recorded in other income. The
Company's underlying equity in net assets of EWP amounted to $1.2 million and
$1.5 million at December 31, 1994 and 1995, respectively. Sales by the Company
to EWP during 1994 and 1995 amounted to $2.3 and $13.5 million, respectively and
receivables from EWP at December 31, 1994 amounted to $.6 million. The Company
did not have any receivables from EWP at December 31, 1995. Inventory purchased
from the Company and held by EWP at December 31, 1994 and 1995 was
insignificant.
NOTE 12 - OPERATIONS
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 primarily in the Midwestern and
Southwestern United States.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1993 1994 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net sales $345,186 $364,435 $345,657
======== ======== ========
Operating income $ 12,361 $ 12,112 $ 12,054
Excise tax and related interest (Note 13) (7,120) 4,020 -
General corporate expense, net (1,493) (1,055) (591)
Interest expense (2,618) (2,688) (3,385)
-------- -------- --------
Income before income taxes $ 1,130 $ 12,389 $ 8,078
======== ======== ========
</TABLE>
Export sales were $1.5 million in 1993, $2.8 million in 1994 and $.9
million in 1995.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Environmental matters - Peoria facility
The Company is currently involved in the closure of inactive waste disposal
units at its Peoria facility pursuant to a closure plan approved by the Illinois
Environmental Protection Agency ("IEPA") in September 1992. The original
closure plan provides for the in-place treatment of seven hazardous waste
surface impoundments and two waste piles to be disposed of as special wastes.
The Company recorded an estimated liability for remediation of the impoundments
and waste piles based on a six phase remediation plan. The Company adjusts the
recorded liability for each Phase as actual remediation costs become known.
During the remediation of Phase I, which was completed in 1994, the Company
discovered additional contaminated soils and recorded a charge of $3.1 million
for the treatment and disposal costs related to the additional soils. During
1995, the Company began remediation of Phases II and III and expects to complete
these Phases by June 1996. Additional contaminated soils were discovered and
the Company recorded a charge of $2.4 million in the 1995 fourth quarter for the
currently estimated remediation costs for Phases II and III. At December 31,
1995, the Company has a $9.4 million accrual representing the estimated costs
remaining to be incurred relating to the remediation efforts, exclusive of
capital improvements. The remediation is currently expected to be complete in
1998. Pursuant to agreements with the IEPA and Illinois Attorney General's
office, 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, 1994 and 1995 the trust fund had balances of $1.5
million and $2.4 million, respectively, which amounts are included in other
noncurrent assets because the Company does not expect to have access to any of
these funds until after 1998.
During 1992, in the normal course of operations at the Company's Peoria
facilities, an unknown amount of a radioactive element contained in scrap was
melted in an electric arc furnace, resulting in the low-level contamination of
the pollution control system and the accumulated furnace dust. As a result, it
was necessary for the Company to clean the pollution control system and remove
and dispose of the radioactive contaminated dust. During 1995, the Company
completed shipping the contaminated dust to a licensed waste disposal facility
which successfully treated and disposed of the contaminated dust.
Environmental matters - "Superfund" sites
The Company is subject to federal and state "Superfund" legislation that
imposes cleanup and remediation responsibility upon present and former owners
and operators of, and persons that generated hazardous substances deposited
upon, sites determined by state or federal regulators to contain hazardous
substances. 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 remedial investigation. During 1994, U.S. EPA released
its remedial investigation study showing ground water contamination, however
U.S. EPA has not completed a feasibility study or risk assessment for the site.
Until U.S. EPA releases its Final Record of Decision, the Company will not know
whether U.S. EPA will require any further groundwater remediation measures. In
October 1994, Keystone, U.S. EPA and the Department of Justice reached a verbal
agreement to settle Keystone's liability for EPA response costs incurred at the
site through April 1994 for a payment of $690,000. Under the agreement Keystone
would be precluded from recovering any portion of the $690,000 settlement
payment from other parties to the lawsuit. At December 31, 1995, the terms of
that verbal agreement were still not approved by the District Court. Keystone
will remain potentially liable for EPA response costs incurred after April 30,
1994, and natural resource damage claims, if any, that may be asserted in the
future. Keystone has a verbal agreement with its insurer to recover a portion
of the anticipated $690,000 payment. At December 31, 1994 and 1995, the Company
had accrued a liability of $690,000 based upon its verbal agreement with U.S.
EPA and the Department of Justice.
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 Remedial Investigation/Feasibility Study ("RI/FS") of the Interstate
Pollution Control site located in Rockford, Illinois. The Company's percentage
allocation within the group of PRP's agreeing to fund this project is currently
2.14%. However, the Company's ultimate allocation, and the ultimate costs of
the RI/FS and any remedial action, are subject to change depending, for example,
upon: the number and financial condition of the other participating PRPs, field
conditions and sampling results, results of the risk assessment and feasibility
study, additional regulatory requirements, and the success of a contribution
action seeking to compel additional parties to contribute to the costs of the
RI/FS and any remedial action. The 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 expected to be
completed during 1996. The Company's current allocated share of the estimated
least expensive remedial option is $56,000 and was accrued prior to 1994.
In August 1987, the Company was notified by U.S. EPA that it is a PRP
responsible for the alleged hazardous substance contamination of a site
previously owned by the Company in Cortland, New York. There are four other
PRPs participating in the RI/FS and a contribution action is pending against
eleven additional viable companies which contributed wastes to the site. An
estimate made by the principal engineering firm responsible for the management
of the RI/FS indicated the cost of the least expensive remedial option is
approximately $3 million. This option would involve the construction of a site
cap and ground water monitoring. The likelihood that U.S. EPA will select this
option will depend on, among other things, the results of the EPA's evaluation
of the feasibility study. The Company's estimated share of the least expensive
remedial option is $375,000 and was accrued prior to 1994.
Settled litigation
During 1993, the Company accrued an aggregate of $7.1 million for the
estimated cost of excise taxes ($3.2 million) and related interest ($3.9
million) as a result of an unfavorable U.S. Supreme Court decision related to
the Company's 1983 and 1984 contributions of certain real property to its
pension plans. 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
1994, pursuant to the terms of a Closing Agreement with the IRS, the Company
made an additional "correction" payment of approximately $3.3 million to its
pension plans and agreed to pay a total of $3.1 million in excise taxes and
interest, in three equal installments, over a two-year period beginning in June
1994. As a result, in 1994 the Company recorded a $4 million reduction in
previously accrued expenses related to this matter. At December 31, 1994 and
1995, the remaining accrued liability related to this matter amounted to
approximately $2.1 million and $1 million, respectively.
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 customers' financial condition and,
generally, requires no collateral from its customers. The Company's ten largest
customers accounted for approximately 32% of sales in 1993, 29% in 1994 and 30%
in 1995, and approximately 33% and 33% of notes and accounts receivable at
December 31, 1994 and 1995, respectively.
As discussed in Note 6, the assets of the Company's pension plans are
primarily invested in the Collective Trust. Securities of a single issuer
composed approximately 22% and 20%, respectively, of the Collective Trusts' net
assets at December 31, 1994 and 1995, respectively. The common stock of this
issuer is publicly traded on a national exchange. During 1994, the stock's high
and low sales prices were $44.50 and $29.50 per share, respectively, and was
$30.88 at the end of the year. During 1995, the stock's high and low sales
prices were $67.63 and $27.25 per share, respectively, and was $35.25 at the end
of the year.
NOTE 14 - SUBSEQUENT EVENT
In March 1996, the Company announced it was engaged in discussions with
DeSoto, Inc. (NYSE: DSO) regarding a proposed merger of the companies. DeSoto
had previously notified the Pension Benefit Guaranty Corporation of its
intention to terminate its overfunded pension plan and the proposed merger with
Keystone would provide an alternative to that termination. The transaction is
subject to, among other conditions, mutual due diligence, the negotiation and
signing of a definitive agreement, the approval of the respective Boards' of
Directors and shareholders and Keystone's primary lender as well as the
requisite governmental reviews. The acquisition, as presently comtemplated,
would be funded by the issuance of 3.5 million Company shares to the
shareholders of DeSoto and would be accounted for as a purchase. DeSoto is
engaged in the manufacturing and packaging of household cleaning products.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND
QUALIFYING ACCOUNTS
(In thousands)
<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, 1993:
Allowance for doubtful accounts and notes receivable $ 464 $ (6) $ (23) $ 435
======= ==== ====== =======
Deferred tax asset valuation allowance $30,000 $ - $ - $30,000
======= ==== ====== =======
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts and notes receivable $ 435 $128 $ (10) $ 553
======= ==== ====== =======
Deferred tax asset valuation allowance $30,000 $ - $ - $30,000
======= ==== ====== =======
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts and notes receivable $ 553 $232 $ (248) $ 537
======= ==== ====== =======
Deferred tax asset valuation allowance $30,000 $ - $ - $30,000
======= ==== ====== =======
</TABLE>
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
EXHIBIT INDEX
Page Numbers:
manually
Exhibit No. signed copy
------------
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 December 30,
1994 -- incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
4.1 Amended and Restated Revolving Loan and Security Agreement
dated as of December 29, 1995 between the Company and
Congress Financial Corporation (Central).
4.2 Term Loan and Security Agreement between the Company and
Congress Financial Corporation (Central) dated December 30,
1993 -- incorporated by reference to Exhibit 4.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
10.1 Intercorporate Services Agreement with Contran Corporation
dated as of January 1, 1995.
21 Subsidiaries of the Company.
23 Consent of Coopers & Lybrand.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1995.
EXHIBIT 4.1
Amended and Restated
Revolving Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (Central)
as Lender
and
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
as Borrower
Dated: December 29, 1995
TABLE OF CONTENTS
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Page
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SECTION 1.............................INTERPRETATION; DEFINITIONS -2-
SECTION 2.......................................CREDIT FACILITIES -8-
2.1 Revolving Loans -8-
2.2 Letter of Credit Accommodations -9-
2.3 Availability Reserves -11-
SECTION 3. INTEREST AND FEES -11-
3.1 Interest -11-
3.2 Closing Fee -12-
3.3 Servicing Fee -12-
SECTION 4. CONDITIONS PRECEDENT -12-
4.1 Conditions Precedent to Effectiveness -12-
4.2 Conditions Precedent to All Revolving Loans and Letter of
Credit Accommodations -13-
SECTION 5. GRANT OF SECURITY INTEREST -13-
SECTION 6. COLLECTION AND ADMINISTRATION -14-
6.1 Borrower's Loan Account -14-
6.2 Statements -14-
6.3 Collection of Accounts -14-
6.4 Payments -15-
6.5 Authorization to Make Revolving Loans -16-
6.6 Use of Proceeds -16-
SECTION 7. COLLATERAL REPORTING AND COVENANTS -16-
7.1 Collateral Reporting -16-
7.2 Accounts Covenants -17-
7.3 Inventory Covenants -18-
7.4 Equipment Covenants -18-
7.5 Power of Attorney -19-
7.6 Right to Cure -19-
7.7 Access to Premises -20-
SECTION 8. REPRESENTATIONS AND WARRANTIES -20-
8.1 Corporate Existence, Power and Authority; Subsidiaries -20-
8.2 Financial Statements; No Material Adverse Change. -20-
8.3 Chief Executive Office; Collateral Locations. -21-
8.4 Priority of Liens; Title to Properties;
Status of Obligations -21-
8.5 Tax Returns -21-
8.6 Litigation -21-
8.7 Compliance with Other Agreements and Applicable Laws -22-
8.8 Intangibles -22-
8.9 Federal Contracts -22-
8.10 Employee Litigation -22-
8.11 Accuracy and Completeness of Information. -22-
8.12 Survival of Warranties; Cumulative -22-
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS -23-
9.1 Maintenance of Existence -23-
9.2 New Collateral Locations -23-
9.3 Compliance with Laws, Regulations, Etc -23-
9.4 Payment of Taxes and Claims -23-
9.5 Insurance -23-
9.6 Financial Statements and Other Information -24-
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc -25-
9.8 Encumbrances -25-
9.9 Indebtedness -25-
9.10 Revolving Loans, Investments, Guarantees, Etc -26-
9.11 Dividends and Redemptions -26-
9.12 Transactions with Affiliates -26-
9.13 Working Capital -27-
9.14 Tangible Net Worth -27-
9.15 Costs and Expenses -27-
9.16 Certain Payments, etc -27-
9.17 Pension Plan -27-
9.18 Environmental Compliance -28-
9.19 Further Assurances -28-
SECTION 10. EVENTS OF DEFAULT AND REMEDIES -29-
10.1 Events of Default -29-
10.2 Remedies -30-
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS;
GOVERNING LAW -32-
11.1 Governing Law; Choice of Forum; Service of Process; Jury
Trial Waiver -32-
11.2 Waiver of Notices -33-
11.3 Amendments and Waivers -33-
11.4 Waiver of Counterclaims -33-
11.5 Indemnification -33-
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS -34-
12.1 Term -34-
12.2 Notices -34-
12.3 Partial Invalidity -35-
12.4 Indemnifications for Changes in Laws -35-
12.5 Successors -35-
12.6 Entire Agreement -35-
AMENDED AND RESTATED
--------------------
REVOLVING LOAN AND SECURITY AGREEMENT
-------------------------------------
This Amended and Restated Revolving Loan and Security Agreement dated
December , 1995 (this "Agreement") is entered into by and between Congress
---
Financial Corporation (Central) a Delaware corporation ("Lender") and Keystone
Consolidated Industries, Inc., a Delaware corporation ("Borrower"), and amends
and restates in its entirety that certain Accounts Receivable Financing
Agreement (Security Agreement), that certain Rider No. 1 to Accounts Receivable
Financing Agreement (Security Agreement) and that certain Security Agreement
(Inventory Lien) and (Machinery and Equipment Loan), each dated as of December
19, 1986, and each between Lender and Borrower (collectively, as amended or
otherwise modified by that certain Amendment No. 1 to Accounts Receivable
Financing Agreement [Security Agreement] and Rider No. 1 to Accounts Receivable
Financing Agreement [Security Agreement] dated as of January 9, 1987, Amendment
No. 2 to Accounts Receivable Financing Agreement [Security Agreement] and Rider
No. 1 to Accounts Receivable Financing Agreement [Security Agreement] dated as
of March 12, 1987, Amendment No. 3 to Accounts Receivable Financing Agreement
[Security Agreement] and Rider No. 1 to Accounts Receivable Financing Agreement
[Security Agreement] dated as of October 16, 1987, Amendment No. 4 in the form
of a letter to Accounts Receivable Financing Agreement [Security Agreement] and
Rider No. 1 to Accounts Receivable Financing Agreement [Security Agreement]
dated August 27, 1987, Amendment No. 5 to Accounts Receivable Financing
Agreement [Security Agreement] and Rider No. 1 to Accounts Receivable Financing
Agreement [Security Agreement] dated as of August 7, 1989, Amendment No. 6 to
Accounts Receivable Financing Agreement [Security Agreement] and Rider No. 1 to
Accounts Receivable Financing Agreement [Security Agreement] dated as of
November 1, 1991, Amendment No. 7 to Accounts Receivable Financing Agreement
[Security Agreement] and Rider No. 1 to Accounts Receivable Financing Agreement
[Security Agreement] dated as of January 15, 1993, and Amendment No. 8 to
Accounts Receivable Financing Agreement [Security Agreement] and Rider No. 1 to
Accounts Receivable Financing Agreement [Security Agreement] dated as of
December 30, 1993, (the "Original Agreement").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, in addition to the Original Agreement, Lender and Borrower are
also parties to that certain Term Loan Agreement (as defined in Section 1.31
herein).
WHEREAS, Borrower has requested that Lender amend the Original Agreement to
provide for, among other things, the extension of the term of the Original
Agreement; and
WHEREAS, Lender is willing to amend and restate the Original Agreement on
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. INTERPRETATION: DEFINITIONS
----------------------------
This Agreement is intended to amend and restate the provisions of the
Original Agreement and, as of the Effective Date (as defined in Section 4.1
below), except as expressly modified herein: (a) all of the terms and
provisions of the Original Agreement shall continue to apply for the period
prior to the Effective Date, including any determinations of payment dates,
interest rates, Events of Default or any amount that may be payable to Lender or
any other party, and (b) the Obligations (as defined in the Original Agreement)
under the Original Agreement shall continue to be paid or prepaid in accordance
with the Original Agreement on or prior to the Effective Date, and be secured by
the Collateral, and shall from and after the Effective Date continue to be owing
and be subject to the terms of this Agreement. All references in the Financing
Agreements to the Original Agreement shall be deemed to include references to
this Agreement, as it may be amended, restated, supplemented or otherwise
modified from time to time, and such Financing Agreements are hereby amended to
reflect such changed reference.
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 exist or
continue or be continuing until such Event of Default is waived in accordance
with Section 11.3. 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 "Affiliate" shall mean any person or entity (i) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with Borrower, (ii) that directly or beneficially owns
or holds five percent (5%) or more of any class of the voting stock of Borrower
or (iii) five percent (5%) or more of the voting stock (or in the case of an
entity that is not a corporation, five percent (5%) or more of the equity
interest) of which is owned directly or beneficially or held by Borrower.
1.3 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Revolving Loans and Letter of Credit Accommodations which
would otherwise be available to Borrower under the lending formula(s) provided
for herein: (a) to reflect events, conditions, contingencies or risks which, as
determined by Lender in good faith, do or may affect either (i) the Collateral
or any other property which is security for the Obligations or its value, (ii)
the assets, business or prospects of Borrower or any Obligor or (iii) the
security interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Obligor to Lender is or may have been incomplete,
inaccurate or misleading in any material respect or (c) in respect of any state
of facts which Lender determines in good faith constitutes an Event of Default
or may, with notice or passage of time or both, constitute an Event of Default.
1.4 `Blocked Accounts'' shall have the meaning set forth in Section 6.3
hereof.
1.5 `Collateral'' shall have the meaning set forth in Section 5 hereof.
1.6 `Eligible Accounts'' shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
a) such Accounts arise from the actual and bona fide sale and
---- ----
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
b) such Accounts are not unpaid more than sixty (60) days after the
date of the original invoice for them;
c) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
d) such Accounts do not arise from sales on consignment, guaranteed
sale, sale and return, sale on approval, or other terms under which payment by
the account debtor may be conditional or contingent;
e) the chief executive office of the account debtor with respect to
such Accounts is located in the United States of America, or, at Lender's
option, if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank reasonably
satisfactory to Lender, sufficient to cover such Account, in form and substance
reasonably satisfactory to Lender and, if required by Lender, the original of
such letter of credit has been delivered to Lender or Lender's agent and the
issuer thereof notified of the assignment of the proceeds of such letter of
credit to Lender, or (ii) such Account is subject to credit insurance payable to
Lender issued by an insurer and on terms and in an amount acceptable to Lender,
or (iii) such Account is otherwise acceptable in all respects to Lender (subject
to such lending formula with respect thereto as Lender may determine);
f) such Accounts do not consist of progress billings, bill and hold
invoices or retainage invoices, except as to bill and hold invoices, if Lender
shall have received an agreement in writing from the account debtor, in form and
substance reasonably satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
g) the account debtor with respect to such Accounts has not asserted
a counterclaim, defense or dispute and does not have, and does not engage in
transactions which may give rise to, any right of setoff against such Accounts;
h) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or reduce the amount
payable or delay payment thereunder;
i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
j) neither the account debtor nor any director, officer or employee
of the account debtor with respect to such Accounts is an officer, director or
employee of or is affiliated with Borrower directly or indirectly by virtue of
family membership, ownership, control, management or otherwise;
k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner reasonably
satisfactory to Lender;
l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
m) such Accounts of a single account debtor or its affiliates do not
constitute more than fifty (50%) percent of all otherwise Eligible Accounts (but
the portion of the Accounts not in excess of such percentage may be deemed
Eligible Accounts);
n) such Accounts are not owed by an account debtor who has Accounts
unpaid more than sixty (60) days after the date of the original invoice for them
which constitute more than fifty (50%) percent of the total Accounts of such
account debtor; and
o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit, if any, with respect
to such account debtors as established by Lender from time to time (but the
portion of the Accounts not in excess of such credit limit may still be deemed
Eligible Accounts);
p) such Accounts are not owed by account debtors which Lender has
advised Borrower in writing are not deemed to be creditworthy by Lender;
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.7 "Eligible Inventory" shall mean that Inventory of Borrower which is
and at all times continues to be acceptable to Lender in all respects.
Standards of eligibility may be fixed and revised from time to time solely by
Lender in its exclusive judgment. In determining eligibility Lender may, but is
not required to, rely on reports and schedules of Inventory furnished by
Borrower, but reliance by Lender thereon from time to time shall not be deemed
to limit Lender's right to revise standards of eligibility at any time as to
both present and future Inventory. In general and without limiting Lender's
discretion, Eligible Inventory shall not include (a) work-in-process (other than
work-in-process of the Keystone Steel and Wire Division of Borrower); (b)
components which are not part of finished goods; (c) spare parts for equipment;
(d) supplies used or consumed in Borrower's business (other than steel used or
consumed by Borrower in the process of manufacturing Inventory); (e) Inventory
at premises other than those owned and controlled by Borrower, except if Lender
shall have received an agreement in writing from the person in possession of
such Inventory and/or the owner or operator of such premises in form and
substance satisfactory to Lender acknowledging Lender's first priority security
interest in the Inventory, waiving security interests and claims by such person
against the Inventory and permitting Lender access to, and the right to remain
on, the premises so as to exercise Lender's rights and remedies and otherwise
deal with the Collateral; (f) Inventory subject to a security interest or lien
in favor of any person other than Lender except those permitted in this
Agreement; (g) bill and hold goods; (h) Inventory, which in Lender's discretion
is unserviceable, obsolete or slow moving; (i) Inventory which is not subject to
the first priority, valid and perfected security interest of Lender; (j)
returned, damaged and/or defective Inventory; and (k) Inventory purchased or
sold on consignment. General criteria for Eligible Inventory may be established
and revised from time to time by Lender in good faith. Any Inventory which is
not Eligible Inventory shall nevertheless be part of the Collateral.
1.8 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers, computer hardware, owned and licensed
computer software, vehicles, tools, furniture, fixtures, all attachments,
accessions and property now or hereafter affixed thereto or used in connection
therewith, and substitutions and replacements thereof, wherever located.
1.9 "ERISA" shall mean the Employee Retirement Security Act of 1974, as
amended or modified from time to time.
1.10 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 10.1 hereof.
1.11 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements, trademark security agreements,
blocked account agreements, mortgages, deeds of trust, pledge agreements and
other agreements, documents and instruments 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.
1.12 "Fixed Asset Equity Factor" at any time shall mean an amount equal to
the difference between $20 million and the sum of (a) the outstanding principal
balance of the loans made under the Term Loan Agreement and (b) the product of
(i) $20 million multiplied by (ii) a fraction, the numerator of which is the
number of months which have elapsed at such time since December 31, 1995 and the
denominator of which is sixty.
1.13 "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 are applicable to the
circumstances as of the date of determination consistently applied.
1.14 "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.
1.15 "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 and all wrapping,
packaging, advertising and shipping materials, and any documents relating
thereto, and all labels and other devices, names and marks affixed or to be
affixed thereto for purposes of selling or of identifying the same or the seller
or manufacturer thereof, and all right, title and interest of Borrower therein
and thereto, wherever located, whether now owned or hereafter acquired by
Borrower.
1.16 "Joint Venture" shall mean Keystone-Ezinex L.L.C. which has been
formed to design, construct and operate a zinc extraction process on steel mill
electric arc furnace dust.
1.17 "Joint Venture Credit Facility" shall mean the credit facility between
Joint Venture and Lender pursuant to which Lender issues, or guarantees Joint
Venture's reimbursement obligations with respect to, one or more letters of
credit issued as credit support for bonds issued by or for the benefit of Joint
Venture and which credit facility is guaranteed by Borrower.
1.18 "Joint Venture Guarantee" shall mean that certain Guarantee by
Borrower of Joint Venture's obligations under the Joint Venture Credit Facility.
1.19 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by Borrower of its obligations to such issuer.
1.20 "Maximum Credit" shall mean the amount of $35,000,000.
1.21 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.22 "Obligations" shall mean any and all Revolving Loans, Letter of Credit
Accommodations 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, the Term Loan Agreement and/or the Joint
Venture Guarantee 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.
1.23 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person now or hereafter liable on or with respect to the Obligations or
who is the owner of any property which is now or hereafter security for the
Obligations, other than Borrower.
1.24 "Payment Account" shall have the meaning set forth in Section 6.3 (a)
hereof.
1.25 "Pension Trustee" shall mean the trustee under that certain Keystone
Master Pension Trust.
1.26 "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.
1.27 "Prime Rate" shall mean the rate from time to time publicly announced
by CoreStates Bank, N.A., or its successors, at its office in Philadelphia,
Pennsylvania, as its prime rate, whether or not such announced rate is the best
rate available at such bank.
1.28 "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 media 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).
1.29 "Revolving Loans" shall mean the loans now or hereafter made by Lender
to or for the benefit of Borrower on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
1.30 "Tangible Net Worth" shall mean, as of any date of determination, the
excess of total assets over total liabilities of the Borrower in conformity with
generally accepted accounting principles (GAAP), but excluding from the
determination of total assets any items which are treated as intangibles in
conformity with GAAP, and excluding from total assets and liabilities any
pension or post-retirement benefit assets or liabilities.
1.31 "Term Loan Agreement" shall mean that certain Term Loan and Security
Agreement entered into as of December 30, 1993 by and between Lender and
Borrower.
1.32 "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.
1.33 "Working Capital" shall mean as to any Person, at any time, in
accordance with GAAP, on a consolidated basis for such Person and its
subsidiaries (if any), the amount equal to the difference between: (a) the
aggregate net book value of all current assets of such Person and its
subsidiaries (as determined in accordance with GAAP), calculating the book value
of inventory for this purpose on a first-in-first-out basis, and (b) all current
liabilities of such Person and its subsidiaries (as determined in accordance
with GAAP), provided, that, as to Borrower, for purposes of Section 9.13, the
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liabilities of Borrower and its subsidiaries to Lender under this Agreement
shall not be considered current liabilities (whether or not classified as
current liabilities in accordance with GAAP) and excluding from current
liabilities and current assets any pension or post-retirement benefit assets or
liabilities.
SECTION 2. CREDIT FACILITIES
-----------------
2.1 Revolving Loans.
---------------
a) Subject to, and upon the terms and conditions contained herein,
Lender may, in its sole discretion, agree to make Revolving Loans to Borrower
from time to time in amounts requested by Borrower up to the amount which, when
added to the maximum amount owing under the Joint Venture Guarantee, is equal to
the sum of:
(i) eighty-five percent (85%) of the Net Amount of Eligible
Accounts, plus
(ii) the lesser of (A) fifty percent (50%) of the value of
Eligible Inventory or (B) an amount equal to $15,000,000, plus
(iii) after the effective date of the Joint Venture Credit
Facility and only so long as the Joint Venture Guarantee remains
outstanding, the Fixed Asset Equity Factor; less
----
(iv) any Availability Reserves.
b) Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to Borrower, (i) reduce the lending formula with
respect to Eligible Accounts to the extent that Lender determines in good faith
that: (A) the dilution with respect to the Accounts for any period (based on the
ratio of (1) the aggregate amount of reductions in Accounts other than as a
result of payments in cash to (2) the aggregate amount of total sales) has
increased in any material respect or may be reasonably anticipated to increase
in any material respect above historical levels, or (B) the general
creditworthiness of account debtors has declined or (ii) reduce the lending
formula(s) with respect to Eligible Inventory to the extent that Lender
determines that: (A) the number of days of the turnover of the Inventory for any
period has changed in any material respect or (B) the liquidation value of the
Eligible Inventory, or any category thereof, has decreased, or (C) the nature
and quality of the Inventory has deteriorated. In determining whether to reduce
the lending formula(s), Lender may consider events, conditions, contingencies or
risks which are also considered in determining Eligible Accounts, Eligible
Inventory or in establishing Availability Reserves.
c) Except in Lender's discretion, the aggregate amount of the
Revolving Loans and the Letter of Credit Accommodations outstanding at any time
shall not exceed the Maximum Credit. In the event that the outstanding amount
of any component of the Revolving Loans, or the aggregate amount of the
outstanding Revolving Loans and Letter of Credit Accommodations, exceed the
amounts available under the lending formulas, the sublimits for Letter of Credit
Accommodations set forth in Section 2.2(c) or the Maximum Credit, as applicable,
such event shall not limit, waive or otherwise affect any rights of Lender in
that circumstance or on any future occasions and Borrower shall, upon demand by
Lender, which may be made at any time or from time to time, immediately repay to
Lender the entire amount of any such excess(es) for which payment is demanded.
2.2 Letter of Credit Accommodations.
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a) Subject to, and upon the terms and conditions contained herein,
at the request of Borrower, Lender agrees to provide or arrange for Letter of
Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Revolving Loans to
Borrower pursuant to this Section 2.
b) In addition to any charges, fees or expenses charged by any bank
or issuer in connection with the Letter of Credit Accommodations, Borrower shall
pay to Lender a letter of credit fee at a rate equal to one-quarter of one
percent (.25%) per month on the outstanding balance of the Letter of Credit
Accommodations as of the first day of each month, payable in advance (and with
respect to a Letter of Credit Accommodation issued during any month, payable on
the date of such issuance for the remainder of such month and thereafter on the
first day of each succeeding month). Such letter of credit fee shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed and the obligation of Borrower to pay such fee shall survive the
termination or non-renewal of this Agreement.
c) No Letter of Credit Accommodations shall be available unless on
the date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving Loans available to Borrower (subject to the Maximum Credit and any
Availability Reserves) are equal to or greater than: an amount equal to one
hundred (100%) percent of the face amount thereof and all other commitments and
obligations made or incurred by Lender with respect thereto. Effective on the
issuance of each Letter of Credit Accommodation, the amount of Revolving Loans
which might otherwise be available to Borrower shall be reduced by the face
amount of each such Letter of Credit Accommodation.
d) Except in Lender's discretion, (i) the amount of all outstanding
Letter of Credit Accommodations (other than any obligations owing by Borrower
with respect to the Joint Venture Credit Agreement or Joint Venture Guarantee)
and all other commitments and obligations made or incurred by Lender in
connection therewith, shall not at any time exceed $5 million. At any time an
Event of Default exists or has occurred and is continuing, upon Lender's
request, Borrower will either furnish cash collateral to secure the
reimbursement obligations to the issuer in connection with any Letter of Credit
Accommodations or furnish cash collateral to Lender for the Letter of Credit
Accommodations, and in either case, the Revolving Loans otherwise available to
Borrower shall not be reduced as provided in Section 2.2(c) to the extent of
such cash collateral.
e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation; provided, however, that Borrower shall
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not be required to indemnify Lender for any claims, damages, losses,
liabilities, costs or expenses to the extent caused by (i) the willful
misconduct or gross negligence of Lender in determining whether a request
presented under any Letter of Credit Accommodation complied with the terms of
such Letter of Credit Accommodation or (ii) Lender's failure to pay under any
Letter of Credit Accommodation after the timely presentation to it of a request
for payment strictly complying with the terms and conditions of such Letter of
Credit Accommodation. Borrower assumes all risks with respect to the acts or
omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrower hereby releases and holds Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation. The provisions of this Section
2.2(e) shall survive the payment of Obligations and the termination or non-
renewal of this Agreement.
f) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not: (i) at any time an Event of Default exists
or has occurred and is continuing, (A) approve or resolve any questions of non-
compliance of documents, (B) give any instructions as to acceptance or rejection
of any documents or goods, or (C) execute any and all applications for steamship
or airway guaranties, indemnities or delivery orders, and (ii) at all times,
(A) grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in Borrower's name.
g) Any rights, remedies, duties or obligations granted or undertaken
by Borrower to any issuer or correspondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by Borrower to Lender and
to apply in all respects to Borrower.
h) Borrower shall promptly examine (i) the copy of any Letter of
Credit Accommodations, including any amendments thereof, sent to it by or on
behalf of Lender and (ii) all documents and instruments delivered to it by or on
behalf of Lender in connection with such Letters of Credit Accommodations. In
the event of any claim of noncompliance with Borrower's instructions or other
irregularity, Borrower will immediately notify Lender thereof in writing.
Borrower will be conclusively deemed to have waived any such claim against
Lender, its correspondents, agents, and any banks or other financial
institutions used in connection with the issuance of Letters of Credit
Accommodations, unless such notice is given as aforesaid.
2.3 Availability Reserves. All Revolving Loans otherwise available to
---------------------
Borrower pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
to establish and revise Availability Reserves.
SECTION 3. INTEREST AND FEES
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3.1 Interest.
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a) Borrower shall pay to lender interest on the daily average
outstanding principal amount of the Revolving Loans and, to the extent permitted
by applicable law, the other non-contingent Obligations, at the rate of one
percent (1%) per annum in excess of the Prime Rate, except that Borrower shall
pay to Lender interest on the foregoing, at Lender's option, without notice, at
the rate of three percent (3%) per annum in excess of the Prime Rate: (i) for
the period from and after the date of termination or non-renewal hereof, or the
date of the occurrence of an Event of Default, and for so long as such event of
Default is continuing as determined by Lender in good faith and until such time
as Lender has received full and final payment of all such Obligations
(notwithstanding entry of any judgment against Borrower) and (ii) on the
Revolving Loans at any time outstanding in excess of the amounts available to
Borrower under Section 2 (whether or not such excess(es) arise or are made with
or without Lender's knowledge or consent and whether made before or after an
Event of Default). All interest accruing hereunder on and after the occurrence
of any of the events referred to in Sections 3.1(a)(i) or 3.1(a)(ii) above shall
be payable on demand.
(b) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed (including the date of borrowing or incurrence but excluding the date of
payment, if made in accordance with Section 6.3(b)). 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.
3.2 Closing Fee. In connection with the Original Agreement, Borrower paid
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to Lender a closing fee and no closing fee is required for the closing hereof.
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing fee
-------------
in an amount equal to $5,000 in respect of Lender's services for each month (or
part thereof) while this Agreement remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as of
and be payable in advance on the first day of each month.
SECTION 4. CONDITIONS PRECEDENT
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4.1 Conditions Precedent to Effectiveness. This Agreement shall become
-------------------------------------
effective on the Business Day on which each of the following conditions
precedent has been satisfied (such date, the "Effective Date"):
a) 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 or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
b) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements 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 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;
c) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrower or any Obligor 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;
d) 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, acknowledgements 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;
e) 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;
f) 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; and
g) 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.
h) Lender shall have received, in form and substance satisfactory to
Lender, confirmation from the Pension Trustee that all of the Obligations
constitute "Senior Debt" under and as defined in that certain Amendment and
Restatement of Subordination Agreement dated June 30, 1987 among the Pension
Trustee, ITT Commercial Finance Corp. and Lender.
4.2 Conditions Precedent to All Revolving Loans and Letter of Credit
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Accommodations. Each of the following is an additional condition precedent to
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Lender making Revolving Loans and/or providing Letter of Credit Accommodations
to Borrower, including the initial Revolving Loans and Letter of Credit
Accommodations and any future Revolving Loans and Letter of Credit
Accommodations:
a) 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 each such Revolving Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto; and
b) no Event of Default and no event or condition which, with notice
or passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such
Revolving Loan or providing each such Letter of Credit Accommodation and after
giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower has
previously granted, and hereby grants, to Lender a continuing security interest
in, a lien upon, and a right of set off against, and hereby assigns to Lender as
security, the following property and interests in property, whether now owned or
hereafter acquired or existing, and wherever located (collectively, the
"Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, certificated and uncertificated
securities, credit balances, deposits, investment property, deposit accounts and
other property of Borrower now or hereafter held or received by or in transit to
Lender or its affiliates or at any other depository or other institution from or
for the account of Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Accounts and other Collateral, including, without limitation, (a) rights and
remedies under or relating to guaranties, contracts of suretyship, letters of
credit and credit and other insurance related to the Collateral, (b) rights of
stoppage in transit, replevin, repossession, reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party, (c) goods described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including, without
limitation, returned, repossessed and reclaimed goods, and (d) deposits by and
property of account debtors or other persons securing the obligations of account
debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records;
5.7 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
5.8 any and all of Borrower's real and personal property in which a
security interest or on which a lien has been or is concurrently herewith or
hereafter granted in favor of Lender.
SECTION 6. COLLECTION AND ADMINISTRATION
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6.1 Borrower's Loan Account. Lender shall maintain one or more loan
-----------------------
account(s) on its books in which shall be recorded (a) all Revolving Loans,
Letter of Credit Accommodations and other Obligations and the Collateral, (b)
all payments made by or on behalf of Borrower and (c) all other appropriate
debits and credits as provided in this Agreement, including, without limitation,
fees, charges, costs, expenses and interest. All entries in the loan account(s)
shall be made in accordance with Lender's customary practices as in effect from
time to time.
6.2 Statements. Lender shall render to Borrower each month a statement
----------
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement
as provided above, the balance in Borrower's loan account(s) shall be
presumptive evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
----------------------
a) Borrower shall establish and maintain, at its expense, blocked
accounts or lockboxes and related blocked accounts (in either case, "Blocked
Accounts"), as Lender may specify, with such banks as are acceptable to Lender
into which Borrower shall promptly deposit and direct its account debtors to
directly remit all payments on Accounts and all payments constituting proceeds
of Inventory or other Collateral in the identical form in which such payments
are made, whether by cash, check or other manner. The banks at which the
Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Blocked Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or deposited into the
Blocked Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise, shall be the property of Lender.
b) For purposes of calculating interest on the Obligations, such
payments or other funds received will be applied (conditional upon final
collection) to the Obligations one (1) business day following the date of
receipt of immediately available funds by Lender in the Payment Account. For
purposes of calculating the amount of the Revolving Loans available to Borrower,
such payments will be applied (conditional upon final collection) to the
Obligations on the business day of receipt by Lender in the Payment Account, if
such payments are received within sufficient time (in accordance with Lender's
usual and customary practices as in effect from time to time) to credit
Borrower's loan account on such day, and if not, then on the next business day.
c) Borrower and all of its affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Lender. In no
event shall the same be commingled with Borrower's own funds. Borrower agrees
to reimburse Lender on demand for any amounts owed or paid to any bank at which
a Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall
survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
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provided in Section 6.3 or such other place as Lender may designate from time to
time. Lender may apply payments received or collected from Borrower or for the
account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines. At
Lender's option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be
charged directly to the loan account(s) of Borrower. 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 of
Collateral applied to the payment of, any of the Obligations, Lender is required
to surrender or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or proceeds shall
be reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender. Borrower
shall be liable to pay to Lender, and does hereby indemnify and hold Lender
harmless for the amount of any payments or proceeds surrendered or returned.
This Section 6.4 shall remain effective notwithstanding any contrary action
which may be taken by Lender in reliance upon such payment or proceeds. This
Section 6.4 shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
6.5 Authorization to Make Revolving Loans. Lender is authorized to make
-------------------------------------
the Revolving Loans and provide the Letter of Credit Accommodations based upon
telephonic or other instructions received from anyone purporting to be an
officer of Borrower or other authorized person or, at the discretion of Lender,
if such Revolving Loans are necessary to satisfy any Obligations. All requests
for Revolving Loans or Letter of Credit Accommodations hereunder shall specify
the date on which the requested advance is to be made or Letter of Credit
Accommodations established (which day shall be a Business Day) and the amount of
the requested Revolving Loan. Requests received after 11:00 a.m. Chicago time
on any day shall be deemed to have been made as of the opening of business on
the immediately following business day. All Revolving Loans and Letter of
Credit Accommodations under this Agreement 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.
6.6 Use of Proceeds. Borrower shall use the proceeds of all Revolving
---------------
Loans made or Letter of Credit Accommodations provided by Lender to Borrower
pursuant to the provisions hereof only for general operating, working capital
and other proper corporate purposes of Borrower not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for
the purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Revolving Loans to be considered a "purpose credit" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System, as
amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
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7.1 Collateral Reporting. Borrower shall provide Lender with the
--------------------
following documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender, a schedule of Accounts; (b) on a monthly basis or more
frequently as Lender may request, (i) summary inventory reports, (ii) inventory
reports by category and (iii) agings of accounts payable, (c) upon Lender's
request, (i) copies of customer statements and credit memos, remittance advices
and reports, and copies of deposit slips and bank statements, (ii) copies of
shipping and delivery documents, and (iii) copies of purchase orders, invoices
and delivery documents for Inventory and Equipment acquired by Borrower; (d)
agings of accounts receivable on a monthly basis or more frequently as Lender
may request; and (e) such other reports as to the Collateral as Lender shall
request from time to time. If any of Borrower's records or reports of the
Collateral are prepared or maintained by an accounting service, contractor,
shipper or other agent, Borrower hereby irrevocably authorizes such service,
contractor, shipper or agent to deliver such records, reports, and related
documents to Lender and to follow Lender's instructions with respect to further
services at any time that an Event of Default exists or has occurred and is
continuing.
7.2 Accounts Covenants.
------------------
a) Borrower shall notify Lender promptly of: (i) any material delay
in Borrower's performance of any of its obligations to any account debtor or the
assertion of any material claims, offsets, defenses or counterclaims by any
account debtor, or any material disputes with account debtors, or any
settlement, adjustment or compromise thereof, (ii) all material adverse
information relating to the financial condition of any account debtor and (iii)
any event or circumstance which, to Borrower's knowledge would reasonably cause
Lender to consider any then existing Accounts as no longer constituting Eligible
Accounts. No credit, discount, allowance or extension or agreement for any of
the foregoing shall be granted to any account debtor without Lender's consent,
except in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed in writing to Lender. So long as no
Event of Default exists or has occurred and is continuing, Borrower shall
settle, adjust or compromise any claim, offset, counterclaim or dispute with any
account debtor. At any time that an Event of Default exists or has occurred and
is continuing, Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with account
debtors or grant any credits, discounts or allowances.
b) Borrower shall promptly report to Lender any return of Inventory
by an account debtor having a sales price in excess of $500,000. At any time
that such Inventory is returned, reclaimed or repossessed, the related Account
shall not be deemed an Eligible Account. In the event any account debtor
returns Inventory when an Event of Default exists or has occurred and is
continuing, Borrower shall, upon Lender's request, (i) hold the returned
Inventory in trust for Lender, (ii) segregate all returned Inventory from all of
its other property, (iii) dispose of the returned Inventory solely according to
Lender's instructions, and (iv) not issue any credits, discounts or allowances
with respect thereto without Lender's prior written consent.
c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no material credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no material setoffs, deductions, contracts, defenses,
counterclaims or disputes existing or asserted with respect thereto except as
reported to Lender in accordance with the terms of this Agreement, (v) none of
the transactions giving rise thereto will violate any applicable State or
Federal laws or regulations, all documentation relating thereto will be legally
sufficient under such laws and regulations and all such documentation will be
legally enforceable in accordance with its terms.
d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
e) Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree.
f) Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing, (i) notify any or all account debtors that
the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are payable directly
and only to Lender and Borrower shall deliver to Lender such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
-------------------
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) Borrower shall not remove any Inventory from the
locations set forth or permitted 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 or
permitted herein to another such location; (d) 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; (e) 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); (f) Borrower assumes all responsibility and liability arising from or
relating to the production, use, sale or other disposition of the Inventory; (g)
Borrower shall not sell Inventory to any customer on approval, bill-and-hold,
guaranteed sale, sale-and-return, or consignment basis or any other basis which
entitles the customer to return or may obligate Borrower to repurchase such
Inventory; (h) Borrower shall keep the Inventory in good and marketable
condition; and (i) Borrower shall not, without prior written notice to Lender,
acquire or accept any Inventory on consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon Lender's
-------------------
request, 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; (b)
Borrower shall keep the Equipment in good order, repair, running and marketable
condition (ordinary wear and tear excepted); (c) 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; (d) the
Equipment is and shall be used in Borrower's business and not for personal,
family, household or farming use; (e) Borrower shall not remove any Equipment
from the locations set forth or permitted 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
or permitted 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; (f) 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 (g) Borrower assumes all responsibility and
liability arising from the use of the Equipment.
7.5 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 or has occurred and is
continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (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 the other Financing Agreements and (b) at any time to (i) take
control in any manner of any item of payment or 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 the 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, (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.
7.6 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 (except those permitted by the terms of this Agreement) 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 or maintain
the Collateral and the rights of Lender with respect thereto. Lender may add
any amounts so expended to the Obligations and charge Borrower's account
therefor, such amounts to 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 7.6 shall be
without prejudice to any right to assert an Event of Default hereunder and to
proceed accordingly.
7.7 Access to Premises. From time to time as requested by 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 or has occurred and is continuing, 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) 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 or has occurred
and is continuing for the collection of Accounts and realization of other
Collateral.
SECTION 8. 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 continuing condition of the making of Revolving Loans
and providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is a
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corporation duly organized and in good standing under the laws of the State of
Delaware and is duly qualified as a foreign corporation and in good standing in
Illinois, Arkansas and Texas and in all other states or other jurisdictions
where the nature and extent of the business transacted by it or the ownership of
assets makes such qualification necessary. 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. The
performance of Borrower's obligations do not, as of the execution hereof,
require any governmental consent, registration or approval, do not contravene
any contractual or governmental restriction binding upon Borrowers and will not,
except as contemplated herein, result in the imposition of any lien, charge,
security interest or encumbrance upon any property of the Borrower under any
existing indenture, mortgage, deed of trust, loan or credit agreement or other
material agreement or instrument to which the Borrower is a party or by which it
or any of its property may be bound or affected. The execution and delivery by
Borrower of the Agreement and all other documents and instruments executed and
delivered in connection herewith and the performance of Borrower's obligations
hereunder and thereunder are not in contravention of any law or laws. 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. Except as disclosed on the Information Certificate, Borrower has
not used and has no current plans to use, any corporate or fictitious name other
than the corporate name shown on the Borrower's Articles of Incorporation.
8.2 Financial Statements; No Material Adverse Change. All financial
------------------------------------------------
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been 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 (provided that monthly or quarterly
--------
statements are subject to normal year-end adjustments and may not contain all
footnote and disclosure information required by GAAP). Except as disclosed in
any interim financial statements furnished by Borrower to Lender prior to the
date of this Agreement, 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.
8.3 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 below 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 9.2 below. 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.
8.4 Priority of Liens; Title to Properties; Status of Obligations. 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 existing liens
indicated on Schedule 8.4 hereto and, with respect to Collateral other than
Accounts and Inventory, the other liens permitted under Section 9.8 hereof.
Borrower has good and marketable title to all of its properties and assets
subject to no liens, mortgages, pledges, security interests, encumbrances or
charges of any kind, except those granted to Lender and such others as are
specifically listed on Schedule 8.4 hereto or permitted under Section 9.8
hereof. Any and all security interests granted to the Pension Trustee in any
or all of the assets of the Borrower are subordinated and secondary to any and
all security interests granted to Lender in any and all assets of the Borrower.
All of the Obligations constitute "Senior Debt" under and as defined in that
certain Amendment and Restatement of Subordination Agreement dated June 30, 1987
among the Pension Trustee, ITT Commercial Finance Corp. and Lender.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
-----------
manner all tax returns, reports, declarations and extensions which are required
to be filed by it. All information in such tax returns, reports and
declarations is complete and accurate in all material respects. 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. 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.
8.6 Litigation. Except as set forth on the Information Certificate, there
----------
is no present investigation by any governmental agency pending, or to the best
of Borrower's knowledge, after due inquiry, 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
against Borrower would result in any material adverse change in the assets,
business or prospects of Borrower or 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 any Obligations or realize upon
any Collateral. With the exception of the matters described in the Information
Certificate, none of the operations of Borrowers or of any of its subsidiaries
is the subject of federal, state or local litigation or investigation involving
or evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any hazardous or toxic substance, waste or
constituent, or other substance into the environment. Except as described in
the Information Certificate, neither Borrower nor any of its subsidiaries has
any material contingent liability in connection with any release of any
hazardous or toxic substance, waste, or constituent, or other substance into the
environment.
8.7 Compliance with Other Agreements and Applicable Laws. Borrower is not
----------------------------------------------------
in default in any material respect under, or in violation in any material
respect 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 and 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, including,
without limitation, environmental protection laws.
8.8 Intangibles. Borrower possesses adequate licenses, patents, patent
-----------
applications, copyrights, service marks, trademarks and tradenames to continue
to conduct its business as heretofore conducted and all such items are described
in the Information Certificate, attached hereto and made a part hereof.
8.9 Federal Contracts. Borrower is not a party to any material contracts
-----------------
with the United States of America or any agency or department thereof pursuant
to which goods are delivered, or services are performed, by Borrower in exchange
for payment by the United States of America or such agency or department.
8.10 Employee Litigation. Except as disclosed in the Information
-------------------
Certificate attached hereto and made a part hereof, there are no controversies
pending or, to the best of Borrower's knowledge and after diligent inquiry,
threatened between the Borrower and any of its 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.
8.11 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 true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading.
No event or circumstance has occurred which has had 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.
8.12 Survival of Warranties; Cumulative. All representations and
----------------------------------
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder 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.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
9.1 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 not amend its Articles of Incorporation, except that
Borrower may amend its Articles of Incorporation to effect a change in its
corporate name, provided that 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.
9.2 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.
9.3 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 of any Federal, State or local governmental
authority applicable to it.
9.4 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. Borrower shall be liable for any tax or penalty imposed on
Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Revolving Loans,
provided, that, nothing contained herein shall be construed to require Borrower
- -------- ----
to pay any income or franchise taxes attributable to the income of Lender from
any amounts charged or paid hereunder to Lender. The foregoing indemnity shall
survive the payment of the Obligations and the termination or non-renewal of
this Agreement.
9.5 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 and acceptable
to Lender, including, but not limited to, public liability and third party
property damage insurance. 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 or has
occurred and is continuing, 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.
9.6 Financial Statements and Other Information.
------------------------------------------
a) Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in relation
to the Collateral and the business of Borrower and its subsidiaries (if any) in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Lender: (i) within thirty (30) days after the end of each fiscal month, monthly
unaudited consolidated financial statements (including, in each case, balance
sheets, statements of income and loss and statements of shareholders' equity),
all in reasonable detail, fairly presenting the financial position and the
results of the operations of Borrower and its subsidiaries as of the end of and
through such fiscal month, subject to normal year-end adjustments, and (ii)
within ninety (90) days after the end of each fiscal year, audited consolidated
financial statements of Borrower and its subsidiaries (including, in each case,
balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), and the accompanying notes thereto, all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrower and its subsidiaries as of the end of and for 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 and its subsidiaries as of the
end of and for the fiscal year then ended.
b) Borrower shall within five (5) business days notify Lender in
writing of the details of (i) any material 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, (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 and (iii) any other material adverse change in the business,
assets or condition, financial or otherwise, of the Borrower.
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.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
--------------------------------------------------------
shall not, directly or indirectly, (a) recapitalize, merge into or with or
consolidate with any other Person or permit any other Person to merge into or
with or consolidate with it, or (b) sell, assign, lease or transfer to any other
Person, abandon or otherwise dispose of any stock or indebtedness or any of its
assets to any other Person (except for (i) sales of Inventory in the ordinary
course of business, (ii) the disposition of worn-out or obsolete Equipment or
Equipment no longer used in the business of Borrower so long as (A) if an Event
of Default exists or has occurred and is continuing, any proceeds are paid to
Lender and (B) such sales do not involve Equipment having an aggregate fair
market value in excess of $50,000 for all such Equipment disposed of in any
fiscal year of Borrower and (iii) the sale or lease of machinery, equipment or
real property upon terms reasonably acceptable to Lender), or (c) form or
acquire any subsidiaries, or (d) wind up, liquidate or dissolve or (e) agree to
do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer to
------------
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including, without
limitation, the Collateral, except: (a) liens and security interests of Lender;
------
(b) liens securing the payment of taxes, either not yet overdue or 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; (c) non-consensual statutory liens (other than
liens securing the payment of taxes) arising in the ordinary course of
Borrower's business to the extent: (i) such liens secure indebtedness which is
not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower, in each
case prior to the commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside on its books; (d)
zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of real property which do not interfere in any material
respect with the use of such real property or ordinary conduct of the business
of Borrower as presently conducted thereon or materially impair the value of the
real property which may be subject thereto; and (e) the security interests and
liens set forth on Schedule 8.4 hereto.
9.9 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 the 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; provided, that, (i) Borrower may only make
-------- ----
regularly scheduled payments of principal and interest in respect of such
indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such indebtedness as in effect on the date hereof,
(ii) Borrower shall not, directly or indirectly, (A) amend, modify, alter or
change the terms of such indebtedness or any agreement, document or instrument
related thereto as in effect on the date hereof, or (B) redeem, retire, defease,
purchase or otherwise acquire such indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose, and (iii) Borrower shall furnish to
Lender all notices or demands in connection with such indebtedness either
received by Borrower or on its behalf, promptly after the receipt thereof, or
sent by Borrower or on its behalf, concurrently with the sending thereof, as the
case may be.
9.10 Revolving 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) loans or investments which result from
the conversion of past due accounts receivable into notes or stock, which notes
or stock are delivered and pledged to Lender; (c) investments in: (i) short-
term direct obligations of the United States Government, (ii) negotiable
certificates of deposit issued by any bank satisfactory to Lender, payable to
the order of the Borrower or to bearer and delivered to Lender, (iii) commercial
paper rated A1 or P1, and (iv) the advances and investments as of December 31,
1995 in Engineered Wire Products, Inc., an Ohio corporation, and (v) advances to
the Joint Venture which are approved from time to time by Lender; 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 and (d) the guarantee by
Borrower of the obligations owing to Lender by Joint Venture and the guarantees
set forth in the Information Certificate.
9.11 Dividends and Redemptions. Borrower shall not, directly or
-------------------------
indirectly, declare or pay any dividends on account of any shares of 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, 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.
9.12 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 as provided in Section 9.16 and 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 the Borrower
than Borrower would obtain in a comparable arm's length transaction with an
unaffiliated person.
9.13 Working Capital. Borrower shall, at all times, maintain Working
---------------
Capital of not less than $15,000,000.
9.14 Tangible Net Worth. Borrower shall, at all times, maintain Tangible
------------------
Net Worth of not less than $10,000,000.
9.15 Costs and Expenses. Borrower shall pay to Lender on demand all costs,
------------------
expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not limited to: (a)
all costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) all title insurance
and other insurance premiums, appraisal fees and search fees; (c) costs and
expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (d) charges, fees or
expenses charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including, without limitation,
preparations for and consultations concerning any such matters); (g) from and
after an Event of Default, all out-of-pocket expenses and costs heretofore and
from time to time hereafter incurred by Lender during the course of periodic
field examinations of the Collateral and Borrower's operations, and (h) the fees
and disbursements of counsel (including legal assistants) to Lender in
connection with any of the foregoing.
9.16 Certain Payments, etc. Borrower shall not make any loans to, or pay
---------------------
any bonuses, management or other fees or other amounts to any officers,
directors, employees or stockholders of Borrower or any affiliate, except for
(i) advances for travel and expenses to Borrower's officers, directors or
employees in the ordinary course of business, (ii) reasonable salaries and
bonuses for all salaried personnel other than Borrower's officers and directors,
(iii) reasonable salaries and bonuses to Borrower's officers and directors, and
(iv) management fees payable in the absence of an Event of Default to any
affiliate or other entity, or its officers or directors, in an amount not
exceeding, in the aggregate, $750,000 in any fiscal year.
9.17 Pension Plans. Borrower shall (i) keep in full force and effect any
-------------
and all pension plans which are presently in existence or may, from time to
time, come into existence under ERISA, unless such pension plans can be
terminated without material liability to Borrower in connection with such
termination; (ii) make contributions to all of Borrower's pension plans in a
timely manner and in a sufficient amount to comply with the requirements of
ERISA; (iii) comply with all material requirements of ERISA which relate to such
plans and shall not, without the prior consent of Lender, seek waivers of the
minimum funding standards under ERISA with respect to such plans for any plan
year ending after December 31, 1994; (iv) make all required amortization
payments necessary to satisfy, and otherwise comply with the conditions of the
waivers granted by the IRS with respect to minimum funding for the plan years
ended June 30, 1985, June 30, 1984 and June 30, 1980, and otherwise make all
required amortization payments necessary to satisfy Borrower's unfunded pension
liability; provided however, Borrower shall not use funds acquired from Lender
or proceeds of Collateral for the purpose of making any such amortization
payments without giving Lender at least five (5) days notice of its intent to
make such payment; and (v) notify Lender immediately upon receipt by Borrower of
any notice of the institution of any proceeding or other action which may result
in the termination of any pension plans or the imposition of any lien on
Borrower's assets by the Pension Benefit Guaranty Corporation, including the
failure by Borrower to make required payments or the occurrence of a default
under the Security Agreement executed by Borrower in favor of the Keystone
Master Pension Trust dated March 17, 1986, as amended and restated by agreement
dated January 8, 1986.
9.18 Environmental Compliance. Borrower shall, and shall cause its
------------------------
subsidiaries to, conduct their respective businesses so as to comply in all
material respects with all applicable environmental health and safety statutes
and regulations in all jurisdictions in which they, respectively, are or may at
any time be doing business; provided, however, that nothing contained in this
-------- -------
subsection shall prevent the Borrower or any subsidiary from contesting, in good
faith by appropriate legal proceedings, any such law, regulation, interpretation
thereof or application thereof, provided, further, that the Borrower shall
-------- -------
comply with the order of any court or governmental body of applicable
jurisdiction relating to such laws unless the Borrower or such subsidiary shall
currently be prosecuting an appeal or proceedings for review and shall have
secured a stay of enforcement or execution or other arrangement postponing
enforcement or execution pending such appeal or proceedings for review. If the
Borrower or any of its subsidiaries shall (a) receive notice that any violation
of any federal, state or local environmental law or regulation may have been
committed or is about to be committed by Borrower or any of its subsidiaries,
(b) receive notice that any administrative or judicial complaint or order has
been filed or is about to be filed against the Borrower or any of its
subsidiaries alleging violations of any federal, state or local environmental
law or regulation or requiring the Borrower or any of its subsidiaries to take
action in connection with the release of toxic or hazardous substances into the
environment or (c) receive any notice from a federal, state, or local
governmental agency or private party alleging that the Borrower or any
subsidiary may be liable or responsible for costs associated with a response to
or cleanup of a release of a toxic or hazardous substance into the environment
or any damages caused thereby, the Borrower shall provide Lender with a copy of
such notice within five (5) days of Borrower's receipt thereof. Within ten (10)
days of the Borrower or any of its subsidiaries having learned of the enactment
or promulgation of any federal, state or local environmental law or regulation
which may result in any material adverse change in the condition, financial or
otherwise, of the Borrower or any of its subsidiaries, the Borrower shall
provide Lender with notice thereof.
9.19 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 representing that all conditions precedent to the making of Revolving
Loans and providing Letter of Credit Accommodations contained herein are
satisfied. In the event of such request by Lender, Lender may, at its option,
cease to make any further Revolving Loans or provide any further Letter of
Credit Accommodations until Lender has received such certificate and, in
addition, Lender has determined that such conditions are satisfied. Where
permitted by law, Borrower hereby authorizes Lender to execute and file one or
more UCC financing statements signed only by Lender.
SECTION 10 EVENTS OF DEFAULT AND REMEDIES
------------------------------
10.1 Events of Default. The occurrence or existence of any one or more of
-----------------
the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
a) 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
or deemed 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;
d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $100,000 in any one case or in excess of
$500,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership or corporation, dissolves or suspends or discontinues doing
business;
f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within thirty (30)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, which
default continues for more than the applicable cure period, if any, with respect
thereto, or any default by Borrower or any Obligor under any material contract,
lease, license or other obligation to any person other than Lender, which
default continues for more than the applicable cure period, if any, with respect
thereto;
j) any change in the controlling ownership of Borrower;
k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such Obligor;
l) there shall be a material adverse change in the business, assets
or prospects of Borrower or any Obligor after the date hereof;
m) there shall be an event of default under any of the other
Financing Agreements.
n) a Default under and as defined in that certain Security Agreement
executed by Borrower in favor of the Keystone Master Pension Trust dated March
17, 1986, as amended and restated by agreement dated January 8, 1986 shall
occur; or
o) there shall occur a termination of that certain Amendment and
Restatement of Subordination Agreement executed by the Trustee of the Keystone
Master Pension Trust in favor of Lender dated January 8, 1986 or the Trustee or
any party succeeding in interest thereto shall assert the termination of such
Subordination Agreement or contest the binding effect or validity thereof.
10.2 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, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, 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 or any Obligor 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 10.1(g) and 10.1(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 the 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 and/or (vii) terminate this
Agreement. 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 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.
d) Without limiting the foregoing, upon 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, Lender may, at its option, without notice, (i)
cease making Revolving Loans or arranging for Letter of Credit Accommodations or
reduce the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any provision of this
Agreement providing for any future Revolving Loans or Letter of Credit
Accommodations to be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
-------------------------------
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
---------------------------------------------------------------------
a) The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Illinois
(without giving effect to principles of conflicts of law).
b) Borrower and Lender irrevocably consent and submit to the non-
exclusive jurisdiction of the Courts of the State of Illinois located in Chicago
and the United States District Court for the Northern District of Illinois and
waive any objection based on venue or forum non conveniens with respect to any
----- --- ----------
action instituted therein arising under this Agreement or any of the other
Financing Agreements or in any way connected with or related or incidental to
the dealings of the parties hereto in respect of this Agreement or any of the
other Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agree that any dispute with respect to any such
matters shall be heard only in the courts described above (except that 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 or to otherwise enforce its
rights against Borrower or its property).
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 certified
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 Borrower in any other manner provided under the
rules of any such courts. 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) AT THE OPTION OF LENDER, BORROWER 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 IN
RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. AT THE
OPTION OF LENDER, BORROWER 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 LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF BORROWER HERETO TO THE
WAIVER OF ITS RIGHT TO TRIAL BY JURY.
e) 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 non-appealable
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.
11.2 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 Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 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.
11.4 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.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
---------------
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs 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, 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 11.5 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. The foregoing indemnity
shall survive the payment of the Obligations and the termination or non-renewal
of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
12.1 Term.
----
a) This Agreement and the other Financing Agreements shall continue
in full force and effect for a term ending on the date December 31, 1999 (the
"Renewal Date"), with the Renewal Date being extended on each Renewal Date to
the date which is the year after the then current Renewal Date unless sooner
terminated pursuant to the terms hereof. The maturity of the Term Loan
Agreement is hereby also extended to December 31, 1999. Lender or Borrower
(subject to Lender's right to extend the Renewal Date as provided above) may
terminate this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice; provided, that,
-------- ----
this Agreement all other Financing Agreements and the Term Loan Agreement must
be terminated simultaneously. Upon the effective date of termination or non-
renewal of the Financing Agreements, Borrower shall pay to Lender, in full, all
outstanding and unpaid Obligations and shall furnish cash collateral to Lender
in such amounts as Lender determines are reasonably necessary to secure Lender
from loss, cost, damage or expense, including attorneys' fees and legal
expenses, in connection with any contingent Obligations, including issued and
outstanding Letter of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which Lender has not yet
received final and indefeasible payment. Such cash collateral shall be remitted
by wire transfer in Federal funds to such bank account of Lender, as Lender may,
in its discretion, designate in writing to Borrower for such purpose. Interest
shall be due until and including the next business day, if the amounts so paid
by Borrower to the bank account designated by Lender are received in such bank
account later than 12:00 noon, Chicago time.
b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
c) If for any reason this Agreement and the Term Loan Agreement are
terminated by the Borrower prior to the end of the then current term or renewal
term of this Agreement, in view of the impracticality and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of Lender's lost profits as a result thereof, Borrower
agrees to pay to Lender, upon the effective date of such termination, an early
termination fee equal to one percent (1%) of the outstanding balance of the Term
Loan at such time. In addition, the Borrower agrees to pay Lender, upon each
prepayment of the loan made under the Term Loan Agreement, an early termination
fee equal to one percent (1.0%) of the amount of each such prepayment. Such
early termination fee shall be presumed to be the amount of damages sustained by
Lender as a result of such early termination and Borrower agrees that it is
reasonable under the circumstances currently existing. The early termination
fee provided for in this Section 12.1 shall be deemed included in the
Obligations.
12.2 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.
12.3 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.
12.4 Indemnifications for Changes in Laws. If, at any time or times after
------------------------------------
December 19, 1986 there shall become effective any amendment to, deletion from
or revision, modification or other change in any provision of any statute, or
any rule, regulation or interpretation thereunder or any similar law or
regulation, affecting Lender's extensions of credit provided for in the
Agreement and/or the selling of participations therein, Borrower shall indemnify
and hold Lender harmless from and against any and all obligations, fees,
liabilities, losses, penalties, costs, expenses and damages, of every kind and
nature, imposed upon or incurred by Lender by reason of any such amendment,
deletion, revision, modification or other change, whether or not the
transactions contemplated by the Agreement are consummated. Without limiting
the foregoing, if after December 31, 1986 Lender shall have determined that the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by Lender with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on Lender's capital as a
consequence of its obligations hereunder to a level below that which Lender
could have achieved but for such adoption, change or compliance (taking into
account Lender's policies with respect to capital adequacy) by an amount deemed
by Lender to be material, then from time to time, Borrower shall pay to Lender
such additional amount or amounts as will compensate Lender for such reduction.
12.5 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 Loans, the Letter of Credit
Accommodations 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.
12.6 Entire Agreement. This Agreement, the other Financing Agreements, any
----------------
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written.
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
LENDER BORROWER
- ------ --------
CONGRESS FINANCIAL CORPORATION KEYSTONE CONSOLIDATED
(Central) INDUSTRIES, INC.
By: By:
----------------------------- -----------------------------
Title: Title:
--------------------------- ---------------------------
Address: Chief Executive Office:
- -------- ----------------------
100 South Wacker Three Lincoln Centre
Chicago, Illinois 60606 5430 LBJ Freeway #1740
Dallas, Texas 75240
EXHIBIT 10.1
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"), effective as of
January 1, 1995, amends and supersedes that certain Intercorporate Services
Agreement dated as of January 1, 1994 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.
(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.
3. Fee for Services: Recipient agrees to pay to Contran $125,000.00
quarterly, commencing as of January 1, 1995, 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, 1995 to December 31,
1995.
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.
8. 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 of the Board, or such other address as it shall
have furnished to Contran in writing.
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:
---------------------------
Steven L. Watson
Vice President
KEYSTONE CONSOLIDATED
INDUSTRIES, INC.
By:
---------------------------
Glenn R. Simmons
Chairman of the Board and
Chief Executive Officer
EXHIBIT 21
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Percent of
voting securities
State or county owned at
Name of incorporation December 31, 1995
- ------------------------------ ---------------- -----------------
Sherman Wire of Caldwell, Inc. Nevada 100.0%
Fox Valley Steel and Wire Company Wisconsin 100.0%
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 dated February 16, 1996, except for Note 13 as to
which the date is March 13, 1996, on our audits of the consolidated financial
statements and financial statement schedule of Keystone Consolidated Industries,
Inc. and Subsidiaries as of December 31, 1995 and 1994 and for the years ended
December 31, 1995, 1994 and 1993, which report is included in this Annual Report
on form 10-K.
Dallas, Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KEYSTONE
CONSOLIDATED INDUSTRIES, INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 31,900
<ALLOWANCES> 537
<INVENTORY> 35,631
<CURRENT-ASSETS> 72,705
<PP&E> 245,759
<DEPRECIATION> 159,323
<TOTAL-ASSETS> 198,822
<CURRENT-LIABILITIES> 79,566
<BONDS> 11,195
<COMMON> 6,362
0
0
<OTHER-SE> (43,855)
<TOTAL-LIABILITY-AND-EQUITY> 198,822
<SALES> 345,657
<TOTAL-REVENUES> 345,924
<CGS> 312,909
<TOTAL-COSTS> 312,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 3,385
<INCOME-PRETAX> 8,078
<INCOME-TAX> 3,191
<INCOME-CONTINUING> 4,887
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,887
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
</TABLE>
