-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LCFah83Zmj/UIE/ZFOVWTXVPwdOsUz0oeCjRGzXUrIbshlYdrDkzILdGaYy+nHWq CDRvW4wIZuPpUk1NoMbT6g== 0000897069-00-000114.txt : 20000225 0000897069-00-000114.hdr.sgml : 20000225 ACCESSION NUMBER: 0000897069-00-000114 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LADISH CO INC CENTRAL INDEX KEY: 0000814250 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 311145953 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23539 FILM NUMBER: 552017 BUSINESS ADDRESS: STREET 1: 5481 S PACKARD AVE CITY: CUDAHY STATE: WI ZIP: 53110 BUSINESS PHONE: 4147472611 MAIL ADDRESS: STREET 1: 5481 SOUTH PACKARD AVE CITY: CUDAHY STATE: WI ZIP: 53110 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- Form 10-K -------------------- (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to COMMISSION FILE NUMBER 0-23539 Ladish Co., Inc. ( Exact name of registrant as specified in its charter ) Wisconsin 31-1145953 ( State of Incorporation ) ( I.R.S. Employer Identification No. ) 5481 S. Packard Avenue 53110 Cudahy, Wisconsin ( Zip Code ) ( Address of principal executive offices ) Registrant's telephone number, including area code (414) 747-2611 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Name of each exchange Title of each class on which registered Common stock, $0.01 par value Nasdaq ------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) or the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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] The aggregate market value of voting stock held by nonaffiliates of the Registrant is $46,276,111 as of February 8, 2000. 13,401,234 ( Number of Shares of common stock outstanding as of February 18, 2000 ) ================================================================================ ( Continued on reverse side ) ( Continued from cover page ) DOCUMENTS INCORPORATED BY REFERENCE With the exception of those sections which are specifically incorporated by reference in this Form 10-K Annual Report including the annual report to security holders for fiscal year ended December 31, 1999 and the proxy statement for the annual meeting of security holders in 2000, no other documents are to be deemed a part of this report. 2 PART 1 Item 1. Business General Ladish Co., Inc. ("Ladish" or the "Company") engineers, produces and markets high-strength, high-technology forged and formed metal components for a wide variety of load-bearing and fatigue-resisting applications in the jet engine, aerospace and industrial markets. Approximately 90% of the Company's 1999 billings were derived from the sale of jet engine parts, missile components, landing gear, helicopter rotors and other aerospace products. Approximately 20% of the Company's 1999 billings were derived from sales, directly or through prime contractors, under United States government contracts, primarily covering defense equipment. Although no comprehensive trade statistics are available, based on its experience and knowledge of the industry, management believes that the Company is the second largest supplier of forging products to the domestic aerospace industry, with an estimated 20% market share in the jet engine component field. Recent Acquisitions In February 1999 the Company's wholly-owned subsidiary, Stowe Machine Co., Inc. ("Stowe"), acquired the business and assets of Adco Manufacturing, Incorporated ("Adco"). Adco was combined into Stowe and the Stowe financial results are consolidated with those of the Company for the purpose of this Form 10-K Annual Report. In January 2000 the Company's newly created, wholly-owned subsidiary, Pacific Cast Technologies, Inc. ("PCT") merged with Wyman-Gordon Titanium Castings, LLC with PCT being the surviving entity. For purposes of this Form 10-K Annual Report the results of PCT are not reflected in the Company's financial results. Products and Markets The Company markets its forging products primarily to manufacturers of jet engines, commercial business and defense aircraft, helicopters, satellites, heavy-duty off-road vehicles and industrial and marine turbines. The principal forging markets served by the Company are jet engine, commercial aerospace (defined by Ladish as satellite, rocket and aircraft components other than jet engines) and general industrial forgings. The amount of revenue and the revenue as a percentage of total revenue by market were as follows for the periods indicated: Years Ended December 31, 1997 1998 1999 ---- ---- ---- (Dollars in millions) Jet Engine Forgings................$153 73% $160 70% $124 73% Aerospace Forgings................. 35 17% 47 21% 27 16% General Industrial Forgings........ 22 10% 20 9% 19 11% ---- ---- ---- ---- ---- ---- Total.........................$210 100% $227 100% $170 100% ==== ==== ==== ==== ==== ==== Manufacturing Ladish offers one of the most complete ranges of forging services in the world. The Company employs all major forging processes, including open and closed-die hammer and press forgings, as well as ring-rolling, and also produces near-net shape aerospace components through isothermal forging and hot-die forging techniques. Closed-die forging involves hammering or pressing heated metal into the required 3 shape and size by utilizing machined impressions in specially prepared dies which exert three-dimensional control on the heated metal. Open-die forging involves the hammering or pressing of metal into the required shape without such three-dimensional control, and ring-rolling involves rotating heated metal rings through presses to produce the desired shape. Much of the Company's forging business is capital intensive, requiring large and sophisticated press, hammer and heating equipment and extensive facilities for inspection and testing of components after forging. Ladish believes that it has the largest forging hammer and largest ring-roll in the world at its plant in Cudahy, Wisconsin. Its largest counterblow forging hammer has a capacity of 125,000 mkg (meter-kilograms), and its ring-rolling equipment can produce single-piece seamless products that weigh up to 350,000 pounds with outside diameters as large as 28 feet and face heights up to 10 feet. Ladish's 4,500-ton and 10,000-ton isothermal presses can produce forgings, in superalloys as well as titanium, that weigh up to 2,000 pounds. Much of the equipment has been designed and built by Ladish. The Company also maintains such auxiliary facilities as die-sinking, heat-treating and machining equipment and produces most of the precision dies necessary for its forging operations. The Company considers such equipment to be in good operating condition and adequate for the purposes for which it is being used. Marketing and Sales The forging product sales force (consisting of 14 engineers), based in Cudahy, Wisconsin, is supported by the Company's metallurgical staff of approximately 100 engineers and technicians. These technically trained sales engineers, organized along product line and customer groupings, work with customers on an ongoing basis to monitor competitive trends and technological innovations. Additionally, sales engineers consult with customers regarding potential projects and product development opportunities. During the past few years, the Company has refocused its marketing efforts on the jet engine components market and the commercial aerospace industry. The Company is actively involved with key customers in joint cooperative research and development, engineering, quality control, just-in-time inventory control and computerized process modeling programs. The Company has entered into strategic life-of-the-program contracts for a number of sole-sourced products with each of Allison, Sikorsky and Thyssen for major programs. The Company believes that these contracts are a reflection of the aerospace and industrial markets' recognition of the Company's manufacturing and technical expertise. The research and development of jet engine components is actively supported by the Company's Advanced Materials and Process Technology Group. The Company's long-standing commitment to research and development is evidenced by its industry-recognized materials and process advancements such as processing aluminum-lithium, Udimet 720 and titanium aluminides. The experienced staff and fully equipped research facilities support Ladish sales through customer-funded projects. Management believes that these research efforts position the Company to participate in future growth in demand for critical advanced jet engine components. Customers The Company's top three customers, Rolls-Royce, United Technologies and General Electric, accounted for approximately 58% of the Company's revenues in 1997, 61% of the Company's revenues in 1998 and 60% of the Company's revenues in 1999. No other customer accounted for ten percent or more of the Company's sales. 4 Caterpillar, Volvo and Allison are also significant customers of the Company. Because of the relatively small number of customers for some of the Company's principal products, the Company's largest customers exercise significant influence over the Company's prices and other terms of trade. A substantial portion of the Company's revenues is derived from long-term, fixed price contracts with major engine and aircraft manufacturers. These contracts are typically "requirements" contracts under which the purchaser commits to purchase a given portion of its requirements of a particular component from the Company. Actual purchase quantities are typically not determined until shortly before the year in which products are to be delivered. The Company attempts to minimize its risk by entering into fixed-price contracts with its raw material suppliers. Additionally, a portion of the Company's revenue is directly or indirectly related to government spending, particularly military and space program spending. Research and Development The Company maintains a research and development department which is engaged in applied research and development work primarily relating to the Company's forging operations. The Company works closely with customers, universities and government technical agencies in developing advanced forgings, materials and processes. The Company spent approximately $3.4 million, $4.5 million and $3.3 million on applied research and development work during 1997, 1998 and 1999, respectively. Although the Company owns patents covering certain of its processes, the Company does not consider these patents to be of material importance to the Company's business as a whole. The Company considers certain other information that it owns to be trade secrets and the Company takes measures to protect the confidentiality and control the disclosure and use of such information. The Company believes that these safeguards adequately protect its proprietary rights and the Company vigorously defends these rights. The Company owns or has obtained licenses for various trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, copyright registrations, patent applications, inventions, know-how, trade secrets, confidential information and any other intellectual property that are necessary for the conduct of its business (collectively, "Intellectual Property"). The Company is not aware of any existing or threatened patent infringement claim (or of any facts that would reasonably be expected to result in any such claim) or any other existing or threatened challenge by any third party that would significantly limit the rights of the Company with respect to any such Intellectual Property or to the validity or scope of any such Intellectual Property. The Company has no pending claim against a third party with respect to the infringement by such third party or any such Intellectual Property that, if determined adversely to the Company, would individually or in the aggregate have a material adverse effect on the Company's financial condition or results of operations. While the Company considers all of its proprietary rights as a whole to be important, the Company does not consider any single right to be essential to its operations as a whole. Raw Materials Raw materials used by the Company in its forgings include alloys of titanium, nickel, steel, aluminum, tungsten and other high temperature alloys. The major portion of metal requirements for forged products are purchased from major metal suppliers producing forging quality material as needed to fill customer orders. The Company has two or more sources of supply for all significant raw materials. 5 The titanium and nickel-based superalloys used by the Company have a relatively high dollar value. Accordingly, the Company recovers and recycles scrap materials such as machine turnings, forging flash, solids and test pieces. The Company's most significant raw materials consist of nickel and titanium alloys. Its principal suppliers of nickel alloys include Special Metals Corporation and Allegheny Technologies. Its principal suppliers of titanium alloys are Titanium Metals Corporation of America, Allegheny Technologies and RTI International. The Company typically has fixed-price contracts with its suppliers. In addition, the Company, its customers and suppliers have undertaken active programs for supply chain management which are reducing overall lead times and the total cost of raw materials. Backlog The average amount of time necessary to manufacture the Company's products is five to six weeks from the receipt of raw material. The timing of the placement and filling of specific orders may significantly affect the Company's backlog figures, which are subject to cancellation for a variety of reasons. In addition, the Company typically only includes those contracts which will result in shipments within the next 12 to 18 months when compiling backlog and does not include the out years of long-term agreements. As a result, the Company's backlog may not be indicative of actual results or provide meaningful data for period-to-period comparisons. The Company's backlog was approximately $278 million, $243 million and $225 million as of December 31, 1997, 1998 and 1999, respectively. Patents and Trademarks The Company does not hold, by license or otherwise, any patents, trademarks, franchises or concessions whose loss or modification would materially affect its business in the aggregate. Competition The sale of forged metal components is highly competitive. Certain of the Company's competitors are larger than the Company, and have substantially greater capital resources. Although the Company is the sole supplier on several sophisticated components required by prime contractors under a number of governmental programs, many of the Company's products could be replaced with other similar products of its competitors. However, the significant investment in tooling, the time required and the cost of obtaining the status of a "certified supplier" are barriers to entry. Competition is based on quality (including advanced engineering and manufacturing capability), price and the ability to meet delivery requirements. Environmental, Health and Safety Matters The Company's operations are subject to many federal, state and local regulations relating to the protection of the environment and to workplace health and safety. In particular, the Company's operations are subject to extensive federal, state and local laws and regulations governing waste disposal, air and water emissions, the handling of hazardous substances, environmental protection, remediation, workplace exposure and other matters. Management believes that the Company is presently in substantial compliance with all such laws and does not currently anticipate that the Company will be required to expend any substantial amounts in the foreseeable future in order to meet 6 current environmental, workplace health or safety requirements. However, additional costs and liabilities may be incurred to comply with current and future requirements, which costs and liabilities could have a material adverse effect on the Company's results of operations or financial condition. There are no known pending remedial actions or claims relating to environmental matters that are expected to have a material effect on the Company's financial position or results of operations. All of the properties owned by the Company, however, are located in industrial areas and have a history of heavy industrial use. These properties may potentially incur environmental liabilities in the future that could have a material adverse effect on the Company's financial condition or results of operations. The Company has been named a potentially responsible party at three "Superfund" sites. Although the Company does not believe that the amount for which it may be held liable will be material and has reserved approximately $250,000 for such loss, no assurance can be given that the amount for which the Company will be held responsible will not be significantly greater than expected. In connection with the sale of the Company's former Industrial Products Division ("IPD"), the Company has agreed to indemnify Trinity Industries, Inc. until May 29, 2001 against certain environmental liabilities that may arise with respect to the properties and operations of IPD relating to the period prior to closing. Year 2000 Compliance The Company installed a new computer operating system which is compliant with Year 2000 demands. The new system includes hardware, software, fiber-optic wiring and extensive training for numerous Company personnel. The project was initiated in 1997 and the Company implemented the system at the end of the third quarter of 1998. The Company did not experience any material operating issues with respect to Year 2000. Forward Looking Statements Any statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995, and involve risks and uncertainties. These forward-looking statements include expectations, beliefs, plans, objectives, future financial performance, estimates, projections, goals and forecasts. Potential factors which could cause the Company's actual results of operations to differ materially from those in the forward-looking statements include market conditions and demand for the Company's products; competition; technologies; raw material prices; interest rates and capital costs; taxes; unstable governments and business conditions in emerging economies; and legal, regulatory and environmental issues. Any forward-looking statement speaks only as of the date on which such statement is made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. Employees As of December 31, 1999, the Company had approximately 1,001 employees, of whom 721 were engaged in manufacturing functions, 75 in executive and administrative functions, another 160 in technical functions, and 45 in sales and sales support. At such date, approximately 732 employees, principally those engaged in manufacturing, were represented by labor organizations under collective bargaining agreements. With the addition of PCT, the Company will add approximately 260 employees. The following table sets forth certain information with respect to the Company's collective bargaining agreements with its employees: 7 Number of Employees Represented by Collective Bargaining Union Expiration Date Agreement - ----- --------------- ------------- International Association of Machinists & February 20, 2000 317 Aerospace Workers, Local 1862 International Brotherhood of Boilermakers, September 24, 2000 175 Iron Ship Builders, Blacksmiths, Forgers & Helpers, Subordinate Lodge 1509 International Federation of Professional & August 20, 2000 112 Technical Engineers, Technical Group, Local 92 International Association of Machinists & March 26, 2000 67 Aerospace Workers, Die Sinkers, Local 140 Office & Professional Employees July 1, 2001 32 International Union, Clerical Group, Local 35 International Brotherhood of Electrical October 15, 2000 25 Workers, Local 662 Service Employees International, Local 150 April 23, 2000 4 Management Name Age Position ---- --- -------- Kerry L. Woody.................48 President & CEO and Director Wayne E. Larsen................45 Vice President Law/Finance & Secretary and Director Gene E. Bunge..................54 Vice President, Engineering Robert J. Noel.................59 Vice President, Corp. Business Development/Technology George Groppi..................51 Vice President, Quality & Metallurgy David L. Provan................50 Vice President, Materials Management Gary J. Vroman.................40 Vice President, Sales & Marketing Lawrence C. Hammond............52 Vice President, Human Resources Item 2. Properties The following table sets forth the location and size of the Company's two facilities: Approximate Approximate Acreage Square Footage ------------------- -------------- Cudahy, Wisconsin 184.5 1,650,000 Windsor, Connecticut 8.2 30,000 Albany, Oregon 14.0 90,000 The above facilities are owned by the Company. The Company also owns approximately 4 acres of land in Houston, Texas, which is currently vacant and for sale. The Company believes that its facilities are well maintained, are suitable to support the Company's business and are adequate for the Company's present and anticipated needs. While the rate of utilization of the Company's manufacturing equipment is not uniform, the Company estimates that its facilities overall are currently operating at approximately 60% of capacity. 8 The principal executive offices of the Company are located at 5481 South Packard Avenue, Cudahy, Wisconsin 53110. Its telephone number at such address is (414) 747-2611. Item 3. Legal Proceedings From time to time the Company is involved in legal proceedings relating to claims arising out of its operations in the normal course of business. The Company believes that there are no material legal proceedings pending or threatened against the Company or any of its properties. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of 1999. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The common stock of the Company, par value $0.01 per share, trades on the Nasdaq National Market under the symbol "LDSH". Prior to the registration of the common stock of the Company on March 9, 1998, limited trading of the common stock occurred in the over-the-counter market. These quotations for the pre-registration period reflect inter-dealer prices, without retail mark-up, mark-down or commission, and do not necessarily represent actual transactions. The following table sets forth, for the fiscal periods indicated, the high and low bid prices up until March 9, 1998 and the high and low sales prices for the periods thereafter. At December 31, 1999 there were approximately 250 beneficial holders of the Company's common stock. Year Ended Year Ended Year Ended December 31, 1997 December 31, 1998 December 31, 1999 High Low High Low High Low ----------------- ----------------- ----------------- First quarter......$12.60 $9.90 $22.50 $13.50 $8.38 $6.72 Second quarter.....$13.50 $9.90 $15.62 $12.25 $8.31 $6.41 Third quarter......$22.80 $12.60 $13.12 $8.00 $8.63 $6.44 Fourth quarter.....$19.80 $17.10 $10.00 $6.56 $7.50 $5.84 The Company has not paid cash dividends and currently intends to retain all its earnings to finance its operations, its stock repurchase program and future growth. The Company does not expect to pay dividends for the foreseeable future. Item 6. Selected Financial Data The selected financial data have been derived from the Financial Statements of the Company and have been audited. The financial data set forth below as of December 31, 1995, 1996, 1997, 1998 and 1999 and for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 are derived from the Financial Statements prepared of the Company which have been audited by Arthur Andersen LLP, independent public accountants. The data below should be read in conjunction with the Financial Statements and the Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this filing. 9 Year Ended December 31, (dollars in thousands, except income (loss) per share) --------------------------------------------------------------------------
INCOME STATEMENT DATA 1995 1996 1997 1998 1999 - --------------------- ---- ---- ---- ---- ---- Net sales.......................................... $115,738 $162,002 $209,816 $226,767 $170,241 Income (loss) from operations...................... (18,752) 5,809 24,387 24,557 11,990 Interest expense................................... 3,339 3,703 3,334 1,256 810 Income (loss) from continuing operations........... (22,146) 2,135 18,902 21,372 9,703 Income (loss) from discontinued operations......... 1,214 (8,856) -- -- -- Net income (loss).................................. (20,932) (6,721) 18,902 21,372 9,703 Basic earnings (loss) per share from continuing operations............................ (4.40) 0.42 3.63 1.76 0.71 Diluted earnings (loss) per share from continuing operations............................ (4.40) 0.20 1.52 1.55 0.67 Dividends paid .................................... -- -- -- -- -- Shares used to compute income (loss) per share Basic...........................................5,029,517 5,091,957 5,208,251 12,155,484 13,715,555 Diluted.........................................5,029,517 10,857,910 12,469,818 13,826,133 14,513,261 December 31, ------------------------------------------------------------------------- BALANCE SHEET DATA 1995 1996 1997 1998 1999 - ------------------ ---- ---- ---- ---- ---- Total assets....................................... $164,696 $170,270 $165,461 $172,893 $159,583 Net working capital................................ 24,405 15,475 32,292 40,049 39,007 Total debt......................................... 43,932 51,848 39,716 3,500 -- Stockholders' equity (deficit)..................... (9,751) (16,287) 5,017 68,646 73,467
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 In 1999, net sales at the Company were $170.2 million, a 25% decline from the level of 1998 sales. This reduction in revenue was attributable to two significant equipment failures, one at the Company and one at the Company's joint venture partner, and to the overall softening of the aerospace supply market in 1999. Gross profit for the year ended December 31, 1999 was $19.2 million, or 11.3% of sales, in contrast to $32.6 million, or 14.4% of sales, for 1998 due to the decrease in sales. Selling, general and administrative expenses were $7.2 million, or 4.2% of sales, in fiscal 1999 in comparison to $8.1 million, or 3.6% of sales, in 1998. The increase in the expenses as a percentage of sales reflects the impact of the sales reduction and the fixed nature of a portion of these expenses. Interest expense for the year ended December 31, 1999 was $.8 million in contrast to interest expense of $1.3 million in fiscal 1998. The reduction in interest expense was the result of decreased levels of debt and reduced interest rates. As of December 31, 1999 the Company's senior debt had an interest rate equal to LIBOR plus 0.75% as opposed to an interest rate equal to commercial paper plus 1.5% at December 31, 1998. Income before taxes for 1999 was $11.4 million in comparison to pretax income of $23.7 for 1998. The decrease in pretax income was directly due to the reduction in sales from 1999 to 1998. The 1999 tax provision of $1.7 million, an implied rate of 15%, primarily reflects a non-cash accounting charge associated with the Company's use of its net operating losses ("NOLs"). The reversal of valuation allowances relating to pre-restructuring NOLs requires the Company to record a tax provision and to reflect the offset as an addition to paid-in capital, rather than as an offset to the provision for income taxes. The Company intends to continue to use its NOLs in the future to reduce actual payment of federal income taxes. The future use of the NOLs is subject to certain statutory restrictions. See "Liquidity and Capital Resources." 10 At December 31, 1999 contract backlog at the Company was $225 million. This represents a 7% reduction from the $243 million of contract backlog at the end of 1998. The decline in backlog is attributable to decreased raw material prices, shortened lead-times and inventory adjustments at aerospace customers. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997. For the third year in a row, net sales for the year ended December 31, 1998 increased over the prior year. In fiscal 1998 the Company had $226.8 million in net sales, an 8% increase over the $209.8 million in net sales in fiscal 1997. The Company attributed the growth in sales to the continued strength of the commercial aerospace sector which drove the demand for jet engine components. In addition, the Ladish sales improvement in 1998 was also the result of attention to bettering on-time deliveries and internal operating efficiencies. Gross profit in 1998 increased to $32.6 million due largely to increased net sales. In 1998, selling, general and administrative expenses, as a percentage of sales, were 3.6% in comparison to 3.5% in 1997. The increase is attributable to larger foreign sales which incur additional selling expenses for travel and the increase in sales commissions. The Company incurred interest expense of $1.3 million in 1998 in comparison to $3.3 million in 1997, a decrease of $2 million. The decrease of interest expense was attributable to (i) the repayment of the Subordinated Notes issued in late 1995 and early 1996, see "Liquidity and Capital Resources"; (ii) lower loan balances of senior debt; and (iii) reduced interest rates. As of December 31, 1998, the Company's senior debt had an effective interest rate equal to the commercial paper rate plus 1.5% per annum (reduced from 2.0% as of April 1, 1998). Effective interest rates averaged 7.4% during 1998 compared to 8.3% during 1997. Income before taxes for 1998 was $23.7 million for the Company in comparison to pretax income of $20.5 million for 1997. The increase in pretax income was primarily related to the increase in sales from one period to the next and the reduction in interest expense. The 1998 tax provision of $2.4 million, an implied rate of 10%, represents a non-cash accounting charge. The reversal of valuation allowances relating to pre-restructuring NOLs requires the Company to record a tax provision and to reflect the offset as an addition to paid-in capital, rather than as an offset to the provision for income taxes. Contract backlog at December 31, 1998 was $243 million, compared to $278 million at December 31, 1997, a decrease of 12%, due to increased raw material availability, shortened leadtimes and current aerospace global demand. Liquidity and Capital Resources As of July 1, 1999, the Company entered into a new credit facility (the "New Facility") with a syndicate of lenders. The New Facility provides for borrowings of up to $100 million subject to certain limitations. Borrowings under the New Facility are unsecured and will initially be structured as revolving loans with the option of conversion into term loans. Borrowings under the New Facility bear interest at a rate of LIBOR plus 0.75% per annum. Proceeds from the New Facility were used to terminate the prior credit agreement on July 1, 1999. At December 31, 1999, approximately $48.6 11 million was available and undrawn under the New Facility. There were no borrowings under the New Facility as of December 31, 1999. On March 13, 1998 the Company successfully completed an initial public offering for 2,336,000 shares of common stock (the "IPO"). The Company received approximately $29.5 million in proceeds from the IPO, after underwriting discounts and commissions. Those proceeds were utilized by the Company to reduce its pension liability, redeem the Subordinated Notes and repay a portion of the outstanding indebtedness under the Revolving Credit Facility. Subsequent to the IPO, the underwriters elected to purchase additional shares of common stock from the Company which resulted in the Company receiving approximately $6.3 million in additional proceeds. These additional proceeds along with approximately $7.0 million of proceeds and satisfaction of debt from the exercise of warrants were used to repay the remaining outstanding balance under the Revolving Credit Facility. In December 1995, the Company issued a total of $4.0 million of its 12% senior subordinated secured notes due December 22, 2000 (the "Subordinated Notes") to certain stockholders. In February 1996, the Company completed a second offering of Subordinated Notes when it issued an additional $5.3 million of Subordinated Notes to certain other stockholders. On March 31, 1998 the Company redeemed the Subordinated Notes by repaying the outstanding face value of the Subordinated Notes plus accrued interest thereon. The Company has net operating loss ("NOL") carryforwards, which were generated prior to a financial restructuring that was completed on April 30, 1993, as well as NOL carryforwards that were generated in subsequent years. The total remaining NOL carryforwards were approximately $50 million as of December 31, 1999. The NOL carryforwards expire gradually beginning in the year 2007 through 2010. The Company's IPO created an ownership change as defined by the Internal Revenue Service ("IRS"). This ownership change generated an IRS imposed limitation on the utilization of NOL carryforwards on future tax returns. The annual use of the NOL carryforwards is limited to the lesser of the Company's taxable income or the amount of the IRS imposed limitation. Approximately $12 million of the NOL carryforwards is available for use annually. Approximately $2 million of the $12 million annual limitation relates to a previous restriction on NOL carryforwards generated prior to the financial restructuring. Based on the limitations described above and certain other factors, a valuation allowance has been recorded against the entire amount of the net deferred tax assets. Any tax benefit that is realized in subsequent years from the reduction of the valuation allowance established at or prior to the financial restructuring will be recorded as an addition to paid-in capital. Any tax benefit that is realized in subsequent years from the utilization of deferred tax assets created after April 30, 1993, will be recorded as a reduction of future income tax provisions. Under the common stock repurchase program authorized by the Company's Board of Directors, the Company repurchased 1,516,768 shares of its common stock, or common stock equivalents, as of December 31, 1999. The Company funded this repurchase program with approximately $8.5 million of the cash generated from operations. Inflation has not had a material effect upon the Company during the period covered by this report. Given the products manufactured by the Company and the raw materials used therein, the Company does not anticipate any significant impact from inflation in the foreseeable future. Item 7.A. Quantitative and Qualitative Disclosures about Market Risk 12 The Company believes that its exposure to market risk related to changes in foreign currency exchange rates and trade accounts receivable is immaterial. Item 8. Financial Statements and Supplementary Data The response to Item 8. Financial Statements and Supplementary Data incorporate by reference the information listed in the index to consolidated financial statements and accompanying schedules beginning on page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company did not change public accounting firms in 1998, and there have been no disagreements on accounting and financial disclosure with the Company's public accounting firm, Arthur Andersen LLP. PART III Item 10. Directors and Executive Officers of the Registrant Certain information called for by this Item is incorporated herein by reference to the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an Exhibit. The list of Executive Officers in Part I, Item 1. Business, paragraph captioned "Executive Officers of the Registrant" is incorporated by reference. The list of Directors of the Company is as follows: Name Age Lawrence L. Bianchi 58 Charles W. Finkl 79 Wayne E. Larsen 45 Robert W. Sullivan 41 Kerry L. Woody 48 Other information required by Item 401 of Regulation S-K is as follows: Lawrence W. Bianchi, 58. Director since 1998. Mr. Bianchi in 1993 retired as the Managing Partner of the Milwaukee, Wisconsin office of KPMG Peat Marwick. From 1994 to 1998 Mr. Bianchi served as CFO of the law firm of Foley & Lardner. Mr. Bianchi's principal occupation is investments. Gene E. Bunge, 54. Mr. Bunge has served as Vice President, Engineering since November 1991. From 1985 until that time he was General Manager of Engineering. Mr. Bunge has been with the Company since 1973. He has a B.S.E.E. from the Milwaukee School of Engineering. Charles W. Finkl, 79. Director since 1998. Mr. Finkl is a director and the Chairman and Chief Executive Officer of A. Finkl & Sons, Co., a Chicago, Illinois based metals processor, a position he has held for more than ten years. George Groppi, 51. Mr. Groppi has served as Vice President Quality and Metallurgy since September 1999. He was named Manager of Product Metallurgy in 1992. In 1994 he was appointed Manager of Production Control and recently assumed the position of Manager of Quality & Metallurgy. Mr. 13 Groppi has been with the Company since 1969. He holds a B.S. in Mechanical Engineering from Marquette University. Lawrence C. Hammond, 52. Mr. Hammond has served as Vice President, Human Resources since January 1994. Prior to that time he had served as Director of Industrial Relations at the Company and he had been Labor Counsel at the Company. Mr. Hammond has been with the Company since 1980. He has a B.A. and a Masters in Industrial Relations from Michigan State University and a J.D. from the Detroit College of Law. Wayne E. Larsen, 45. Director since 1997. Since 1995 Mr. Larsen has been Vice President Law/Finance and Secretary of the Company. He served as General Counsel and Secretary from 1989 after joining the Company as corporate counsel in 1981. He is also a director and Vice President and Secretary of Stowe Machine Co., Inc. Mr. Larsen is a Trustee of the Ladish Co. Foundation and a director of the Wisconsin Foundation for Independent Colleges. Mr. Larsen has a B.A. from Marquette University and a J.D. from Marquette Law School. Robert J. Noel. 59. Mr. Noel has served as Vice President Corporate Business Development/ Tech-nology since September 1999. He had been Vice President, Quality and Technology since March 1991. He had been Manager of Metallurgy since 1985 and prior to that period was a Product Metallurgist for jet engine components. Mr. Noel has been with the Company since 1963. He has a B.S. in Mechanical Engineering from Marquette University. David L. Provan, 50. Mr. Provan has served as Vice President, Materials Management since September 1999. Prior to that time he had been Purchasing Manager, Raw Materials, and Head Buyer. Mr. Provan has been with the Company since 1979. He has a Bachelor's Degree in Business Administration from the University of Wisconsin-Parkside. Robert W. Sullivan, 41. Director since 1993. Mr. Sullivan is President of The Plitt Company, a seafood distribution concern. Previously Mr. Sullivan had been President of The Martec Group, a sales and marketing consulting group for more than five years. Gary J. Vroman, 40. Mr. Vroman has served as Vice President, Sales and Marketing since December 1995. From January 1994 to December 1995 he was General Manager of Sales. Prior to that period he had been the Product Manager for jet engine components. Mr. Vroman has been with the Company since 1982. He has a B.S. in Engineering from the University of Illinois and a M.S. in Engineering Management from the Milwaukee School of Engineering. Kerry L. Woody, 48. Director since 1997. Mr. Woody has been President since 1995 and was appointed Chief Executive Officer of the Company in 1998. Prior to that time he was Vice President-Operations, Vice President-Manufacturing Services and Production Manager. He joined the Company in 1975. Mr. Woody is also a director and Vice President of Stowe Machine Co., Inc. In addition, Mr. Woody serves as a Director of Vilter Manufacturing Co. and Milwaukee Lutheran College. Mr. Woody has a B.S. in Engineering from Milliken University. Item 11. Executive Compensation The information called for by this Item is incorporated herein by reference to the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an Exhibit. 14 Item 12. Security Ownership of Certain Beneficial Owners and Management The information called for by this Item is incorporated herein by reference to the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an Exhibit. Item 13. Certain Relationships and Related Transactions The information called for by this Item is incorporated herein by reference to the Proxy Statement for the Annual Meeting of Stockholders filed herewith as an Exhibit. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Exhibits. See the accompanying index to exhibits on page X-1 which is part of this report. Financial Statements. See the accompanying index to financial statements and schedules on page F-1 which is a part of this report. Reports on Form 8-K. The Company has not filed any reports on Form 8-K during the fourth quarter of 1999. 15 LADISH CO., INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1999 TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Ladish Co., Inc.: We have audited the accompanying consolidated balance sheets of Ladish Co., Inc. and subsidiaries, a Wisconsin corporation, as of December 31, 1998 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ladish Co., Inc. and subsidiaries as of December 31, 1998 and 1999, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP --------------------------------- ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 28, 2000 LADISH CO., INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1999 (Dollars in Thousands Except Per Share Data) ASSETS 1998 1999 ------ --------- --------- CURRENT ASSETS: Cash and cash equivalents $5,517 $1,008 Accounts receivable, less allowance of $300 35,409 25,222 Inventories 40,983 42,427 Prepaid expenses and other current assets 276 238 --------- --------- Total current assets 82,185 68,895 PROPERTY, PLANT AND EQUIPMENT: Land and improvements 3,855 3,855 Building and improvements 14,925 15,912 Machinery and equipment 112,279 120,526 Construction in progress 5,893 5,562 --------- --------- 136,952 145,855 Less- Accumulated depreciation (50,981) (62,648) --------- --------- Net property, plant and equipment 85,971 83,207 OTHER ASSETS 4,737 7,481 --------- --------- Total assets $172,893 $159,583 ========= ========= The accompanying notes to consolidated financial statements are an integral part of these statements. LADISH CO., INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1999 (Dollars in Thousands Except Per Share Data) LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1999 ------------------------------------ ----- ---- CURRENT LIABILITIES: Current portion of senior debt $ 2,250 $ - Accounts payable 16,194 12,548 Accrued liabilities- Pensions 738 504 Postretirement benefits 5,488 5,551 Wages and salaries 4,045 3,107 Taxes, other than income taxes 272 227 Interest 36 54 Profit sharing 2,720 958 Paid progress billings 6,767 5,556 Other 3,626 1,383 -------- -------- Total current liabilities 42,136 29,888 LONG-TERM LIABILITIES: Senior debt-less current portion 1,250 - Pensions 16,013 12,947 Postretirement benefits 42,762 40,929 Officers' deferred compensation 1,409 1,745 Other noncurrent liabilities 677 607 -------- -------- Total liabilities 104,247 86,116 STOCKHOLDERS' EQUITY: Common stock-authorized 100,000,000, issued and outstanding 14,013,667 and 14,318,406 shares in each period of $.01 par value 140 143 Additional paid-in capital 81,661 80,293 Accumulated deficit (11,462) (1,759) Treasury stock, 222,754 and 770,672 shares, respectively, of common stock, at cost (1,693) (5,210) -------- -------- Total stockholders' equity 68,646 73,467 -------- -------- Total liabilities and stockholders' equity $172,893 $159,583 ======== ======== The accompanying notes to consolidated financial statements are an integral part of these statements. LADISH CO., INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Per Share Data) Years Ended December 31, ---------------------------- 1997 1998 1999 -------- -------- -------- NET SALES $209,816 $226,767 $170,241 COST OF SALES 178,051 194,125 151,065 -------- -------- -------- Gross profit 31,765 32,642 19,176 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,378 8,085 7,186 -------- -------- -------- Income from operations 24,387 24,557 11,990 OTHER (INCOME) EXPENSE: Interest expense, net 3,334 1,256 810 Other, net 549 (446) (236) -------- --------- ------- Income before provision for income taxes 20,504 23,747 11,416 PROVISION FOR INCOME TAXES 1,602 2,375 1,713 -------- -------- -------- Net income $ 18,902 $ 21,372 $ 9,703 ======== ======== ======== EARNINGS PER SHARE: Basic $3.63 $1.76 $0.71 Diluted $1.52 $1.55 $0.67 The accompanying notes to consolidated financial statements are an integral part of these statements. LADISH CO., INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in Thousands Except Per Share Data)
Common Stock Additional Treasury -------------------- Paid-in Accumulated Stock, Shares Amount Capital Deficit at Cost Total ---------- ------ ---------- ----------- -------- -------- BALANCE, December 31, 1996 5,139,993 $ 51 $35,398 $(51,736) $ - $(16,287) Net income - - - 18,902 - 18,902 Issuance of common stock 119,166 1 814 - - 815 Reduction in valuation allowance related to pre-restructuring NOLs - - 1,519 - - 1,519 Exercise of warrants 56,314 1 67 - - 68 ---------- ---- ------- -------- ------- -------- BALANCE, December 31, 1997 5,315,473 53 37,798 (32,834) - 5,017 Net income - - - 21,372 - 21,372 Issuance of common stock 2,837,138 28 34,910 - - 34,938 Exercise of warrants 5,869,389 59 6,892 - - 6,951 Purchase of treasury stock - - - - (1,693) (1,693) Reduction in valuation allowance related to pre-restructuring NOLs - - 2,211 - - 2,211 Repurchase of shares, retired (8,333) - (150) - - (150) ---------- ---- ------- -------- ------- -------- BALANCE, December 31, 1998 14,013,667 140 81,661 (11,462) (1,693) 68,646 Net income - - - 9,703 - 9,703 Issuance of common stock 2,000 - 12 - - 12 Retirement of warrants - - (3,253) - - (3,253) Exercise of warrants 302,739 3 207 - - 210 Purchase of treasury stock - - - - (3,517) (3,517) Reduction in valuation allowance related to pre-restructuring NOLs - - 1,666 - - 1,666 ---------- ---- ------- -------- ------- -------- BALANCE, December 31, 1999 14,318,406 $143 $80,293 $ (1,759) $(5,210) $ 73,467 ========== ==== ======= ======== ======= ========
The accompanying notes to consolidated financial statements are an integral part of these statements. LADISH CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Years Ended December 31, ----------------------------- 1997 1998 1999 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $18,902 $21,372 $9,703 Adjustments to reconcile net income to net cash provided by (used for) operating activities- Depreciation 9,773 10,491 11,755 Amortization 159 227 506 Payment-in-kind interest on subordinated debt 1,240 300 - Reduction in valuation allowance 1,519 2,211 1,666 Loss on disposal of property, plant and equipment 750 34 35 Changes in assets and liabilities, net of impact of acquisitions- Accounts receivable (5,382) (7,778) 11,398 Inventories (8,887) 6,720 1,507 Other assets (437) 345 (634) Accounts payable and accrued liabilities (12,657) (4,009) (10,062) Other liabilities (7,115) (14,833) (4,633) ------- ------- ------- Net cash provided by (used for) operating activities (2,135) 15,080 21,241 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (9,217) (13,662) (7,792) Proceeds from sale of property, plant and equipment 984 3 33 Acquisition of businesses (8,529) - (11,593) Proceeds from sale of IPD 36,500 - - IPD disposition funds placed in escrow (3,650) - 3,650 ------- ------- ------- Net cash provided by (used for) investing activities 16,088 (13,659) (15,702) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Retirement of senior subordinated debt (68) (11,625) - Repayment of senior debt (14,304) (23,891) (3,500) Repayment of notes payable - (1,000) - Issuance of common stock 815 34,938 12 Retirement of warrants - - (3,253) Exercise of warrants 68 6,951 210 Repurchase of common stock - (1,843) (3,517) ------- ------- ------- Net cash provided by (used in) financing activities (13,489) 3,530 (10,048) ------- ------- -------
LADISH CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (continued)
Years Ended December 31, ----------------------------- 1997 1998 1999 ------- ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 464 $ 4,951 $(4,509) CASH AND CASH EQUIVALENTS, beginning of period 102 566 5,517 ------- ------- ------- CASH AND CASH EQUIVALENTS, end of period $ 566 $ 5,517 $ 1,008 ======= ======= ======= SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid $ 326 $ 48 $ 177 Interest paid $ 2,595 $ 3,868 $ 742
The accompanying notes to consolidated financial statements are an integral part of these statements. LADISH CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands Except Share and Per Share Data) (1) Business Information- Ladish Co., Inc. (the "Company") engineers, produces and markets high-strength, high-technology forged and formed metal components for a wide variety of load-bearing and fatigue-resisting applications in the engine, aerospace and industrial markets, for both domestic and international customers. The Company operates as a single segment. Net sales to the engine, aerospace and industrial markets were approximately 73%, 16% and 11%, respectively, of total Company net sales in 1999. Through May 30, 1997, the Company operated facilities located in Cudahy, Wisconsin; Russellville, Arkansas; and Cynthiana, Kentucky. In February 1997, the Board of Directors approved the disposition of the Company's Industrial Products Division ("IPD") which included the facilities located in Arkansas and Kentucky. The disposal date was May 30, 1997, however, the impact of the discontinued operations were accounted for in 1996. Substantially all IPD assets were sold to a third party buyer for approximately $36,500 in cash subject to a working capital adjustment. Ten percent of the cash proceeds ($3,650) was placed in an escrow account to secure certain representations made by the Company in connection with the sale. In 1999, all contingencies were resolved and the funds placed in escrow were collected. In June 1997, the Company acquired Stowe Machine Co., Inc. ("Stowe"), a finished machining operation located in Windsor, Connecticut. In February 1999, the Company acquired Adco Manufacturing, Incorporated ("Adco"), a finished machining operation. Adco was relocated and merged operations with Stowe in Windsor, Connecticut. The Company has three customers that each accounted for more than 10% of total Company net sales in 1997, 1998 and 1999, respectively, and collectively accounted for approximately 58%, 61% and 60%, respectively, of total Company net sales. Exports accounted for approximately 42%, 44% and 44% of total Company net sales in 1997, 1998 and 1999, respectively, with exports to Europe constituting approximately 32%, 36% and 38%, respectively, of total Company net sales. As of December 31, 1999, approximately 73% of the Company's employees were represented by one of seven collective bargaining units. The collective bargaining agreements with most of these units will expire during the year 2000. The Company does not anticipate that work stoppages will arise in connection with the renewal of these agreements in the future. (2) Summary of Significant Accounting Policies- (a) Outstanding checks- Outstanding payroll and accounts payable checks related to certain bank accounts are recorded as accounts payable in the accompanying balance sheets. These checks amounted to $2,144 and $2,037 as of December 31, 1998 and 1999, respectively. (b) Inventories- Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) valuation method. Inventory values include material and conversion costs. Inventories consist of the following: December 31, ---------------------- 1998 1999 --------- --------- Raw materials $16,546 $15,215 Work-in-process and finished 27,713 29,500 --------- --------- 44,259 44,715 Less progress payments (3,276) (2,288) --------- --------- Total inventories $40,983 $42,427 ========= ========= (c) Property, plant and equipment- Additions to property, plant, and equipment are recorded at cost. Tooling costs are expensed as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, as follows: Land improvements 30 or 39 years Buildings and improvements 30 or 39 years Machinery and equipment 5 to 12 years (d) Goodwill- Goodwill represents the excess of the purchase price over the fair value of identifiable net assets relating to the 1997 acquisition of Stowe and the 1999 acquisition of Adco. Goodwill is included in other assets and is being amortized on a straight-line basis over 20 years. As of December 31, 1999, unamortized goodwill amounted to $6,709. Amortization expense was $24, $43 and $316 in 1997, 1998 and 1999, respectively. The Company evaluates goodwill to assess recoverability from future operations. Impairments are recognized in operating results to the extent that carrying value exceeds fair value. (e) Revenue recognition- Sales revenue is recognized when products are shipped. Net sales include reductions for returns and allowances, sales discounts and freight out. Progress payments on contracts are generally recognized as a reduction of the related inventory costs. Progress payments in excess of inventory costs are reflected as deferred revenue. -2- (f) Income taxes- Deferred income taxes are provided at the enacted marginal rates on the difference between the financial statement and income tax basis of assets and liabilities. Deferred income tax provisions or benefits are based on the change in the deferred tax assets and liabilities from period to period. (g) Consolidation- The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. (h) Use of estimates- 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 amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (i) Reclassification- Certain reclassifications have been made to the 1997 and 1998 financial statements to conform with the 1999 presentation. (3) Debt- Senior debt- On July 1, 1999, the Company entered into a new credit facility (the "New Facility") with a syndicate of lenders. The New Facility provides for borrowings of up to $100,000 subject to certain limitations. Borrowings under the New Facility are unsecured and will initially be structured as revolving loans with the option of conversion into term loans. Borrowings under the New Facility bear interest at a rate of LIBOR plus 0.75% per annum. Proceeds from the New Facility were used to terminate the prior credit agreement on July 1, 1999. As of December 31, 1999, approximately $48,600 was available and undrawn under the New Facility. The balance of the borrowings under the New Facility as of December 31, 1999 was $0. Senior subordinated secured notes and warrants- In 1995 and 1996, the Company issued senior subordinated notes ("Notes") to two of the Company's largest stockholders. The noteholders also received warrants with each Note purchased. Each warrant entitles the holder to purchase one share of common stock for $1.20 per share. The exercise price may be paid in cash, or by the surrender of already outstanding Ladish common stock, or other warrants having a fair value equal to the exercise price. The warrants expire ten years from the date of issuance. In March 1998, the Notes were paid in full. Warrants outstanding and exercisable were 7,608,932, 1,732,964 and 660,787 for the years ended December 31, 1997, 1998 and 1999, respectively. -3- (4) Stockholders' Equity- In December 1997, the Company's articles of incorporation were amended to provide for a 1-6 reverse split of the common stock. All common stock amounts have been adjusted for this reverse split. In March 1998, the Company sold 2,837,138 shares in an initial offering ("IPO") at a per share price of $13.50. The net IPO proceeds to the Company of approximately $35,000 were used to repay subordinated debt and a portion of outstanding indebtedness under the Company's senior credit facility and to contribute to certain underfunded pension plans. In addition, the Company received total cash proceeds of $6,951 from the exercise of warrants during 1998. Under the common stock repurchase program authorized by the Company's Board of Directors, the Company repurchased 547,918 shares of its common stock and 746,096 warrants during 1999. The Company funded this repurchase program with approximately $6,800 of the cash generated from operations. As of December 31, 1999, the Company has repurchased a total of 1,517,798 shares of its common stock, or common stock equivalents for a total of approximately $8,500 under the repurchase program. The Company has a Long-Term Incentive Plan (the "Plan") that covers certain employees. Under the Plan, incentive stock options may be granted to employees of the Company which expire ten years from the grant date. In September 1996, the Company issued 433,333 options under the Plan. These options vest over four years. During 1998 and 1999, the Company issued 320,000 and 76,000 options, respectively, under the Plan. These options vest over two years. As of December 31, 1999, 713,416 of these options remain outstanding. The Company has reserved 6,500 shares for future issuance under the Plan. The Company accounts for its option grants using the intrinsic value based method pursuant to APB Opinion No. 25 and Statement of Financial Accounting Standards No. 123 ("SFAS 123") under which no compensation expense was recognized in 1997, 1998 and 1999. Had compensation cost for these options been determined pursuant to the fair value method under SFAS 123, the Company's pro forma net income and diluted earnings per share would have been as follows: 1997 1998 1999 ----------------- ----------------- --------------- As Pro As Pro As Pro Reported Forma Reported Forma Reported Forma -------- -------- -------- -------- -------- ------ Net income $18,902 $17,439 $21,372 $20,603 $9,703 $9,202 Diluted earnings $1.52 $1.40 $1.55 $1.49 $0.67 $0.63 per share Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, and additional awards in future years are anticipated, the effect of applying SFAS 123 in the above pro forma disclosure is not necessarily indicative of future results. -4- The fair value of the option grants in 1999 used to compute the pro forma amounts above was estimated based on vesting of the grants using the Black-Scholes option pricing model with the following assumptions: weighted average risk free interest rate of 5.72%, weighted-average expected remaining lives of 10 years, weighted-average volatility factor of 45.11%, and a weighted-average Black-Scholes option price of $5.06.
1997 1998 1999 -------------------- -------------------- --------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------- -------- ------- -------- ------- -------- Outstanding at beginning of Period 929,521 $11.34 815,604 $12.08 1,135,604 $11.00 Granted - - 320,000 8.25 76,000 8.18 Forfeited (2,500) 6.00 - - - - Exercised (111,417) 6.00 - - (2,000) 6.00 -------- ------ --------- ------ --------- ------ Outstanding at end of Period 815,604 $12.08 1,135,604 $11.00 1,209,604 $10.83 ======== ====== ========= ====== ========= ====== Exercisable at end of Period 598,937 $14.28 707,270 $13.02 973,604 $11.47 ======== ====== ========= ====== ========= ======
The options outstanding as of December 31, 1999 consist of the following: Weighted Average Average Range of Number of Options Exercise Price Remaining Exercise ------------------------ ------------------------ Contractual Prices Outstanding Exercisable Outstanding Exercisable Life ----------- ----------- ----------- ----------- ----------- ----------- $5 to $10 713,416 477,416 $ 7.24 $ 6.75 7.89 $10 to $15 220,528 220,528 12.00 12.00 3.33 $15 to $20 165,396 165,396 18.00 18.00 3.33 $20 to $25 110,264 110,264 21.00 21.00 3.33 --------- ------- ------ ------ ---- 1,209,604 973,604 $10.83 $11.47 6.02 ========= ======= ====== ====== ==== (5) Research and Development- Research and Development costs are expensed as incurred. These costs were $3,427, $4,503 and $3,265 in 1997, 1998 and 1999, respectively. Research and Development costs funded by customers, amounting to $1,071, $2,310 and $862 in 1997, 1998 and 1999, respectively, have been recorded as sales. Revenues from Research and Development funded by customers are recognized when the related product is shipped or the services are provided. -5- (6) Leases- Certain office and warehouse facilities and equipment are leased under noncancelable operating leases expiring on various dates through the year 2004. Rental expense was $304, $283 and $261 in 1997, 1998 and 1999, respectively. Minimum lease obligations under noncancelable operating leases are as follows: 2000 $104 2001 85 2002 74 2003 45 2004 and thereafter 45 ----- Total $353 ===== (7) Income Taxes- The Company has net operating loss ("NOL") carryforwards, which were generated prior to a financial restructuring that was completed on April 30, 1993, as well as NOL carryforwards that were generated in subsequent years. The total remaining NOL carryforwards were approximately $50,000 as of December 31, 1999. The NOL carryforwards expire gradually beginning in the year 2007 through 2010. The Company's IPO created an ownership change as defined by the Internal Revenue Service, ("IRS"). This ownership change generated an IRS imposed limitation on the utilization of NOL carryforwards on future tax returns. The annual use of the NOL carryforwards is limited to the lesser of the Company's taxable income or the amount of the IRS imposed limitation. Approximately $12,000 of the NOL carryforwards is available for use annually. Approximately $2,100 of the $12,000 annual limitation relates to a previous restriction on NOL carryforwards generated prior to the financial restructuring. Based on the limitations described above and certain other factors, a valuation allowance has been recorded against the entire amount of the net deferred tax assets. Any tax benefit that is realized in subsequent years from the reduction of the valuation allowance established at or prior to the financial restructuring will be recorded as an addition to paid-in-capital. Any tax benefit that is realized in subsequent years from the utilization of deferred tax assets created after April 30, 1993, will be recorded as a reduction of future income tax provisions. -6- Components of the deferred income taxes are as follows: December 31, ------------------ 1998 1999 ------ ------ Current deferred tax assets: Inventory adjustments $1,719 $ 585 Accrued employee costs 1,333 1,340 Pension benefits - 50 Postretirement healthcare benefits 2,195 2,220 Other 1,042 391 ------ ------ Total current deferred tax assets 6,289 4,586 Current valuation allowance (6,289) (4,586) ------ ------ Net current deferred taxes $ - $ - ====== ====== December 31, ------------------ 1998 1999 ------ -------- Noncurrent deferred tax assets and (liabilities): Property, plant and equipment $(18,028) $(16,617) Operating loss carryforwards 20,965 20,198 Pension benefits 6,969 5,720 Postretirement healthcare benefits 17,105 16,372 Other 119 52 -------- ------- Total net noncurrent deferred tax assets 27,130 25,725 Noncurrent valuation allowance (27,130) (25,725) -------- -------- Net noncurrent deferred taxes $ - $ - ======== ======== A summary of the Company's effective tax rates is as follows: 1997 1998 1999 ------ ------- ------- Pretax book income $20,504 $23,747 $11,416 ======= ======= ======= Federal tax at statutory rate $7,176 $8,311 $3,996 State tax at statutory rate 1,025 1,187 571 Post restructuring net operating losses utilized (6,599) (7,123) (2,854) ------- ------- ------- Total provision $ 1,602 $2,375 $1,713 ======= ======= ======= Effective tax rate 7.8% 10.0% 15.0% ======= ======= ======= (8) Pensions and Post-Retirement Benefits- The Company has noncontributory defined benefit pension plans ("Plans") covering substantially all employees. Plans covering salaried and management employees provide pension benefits that are based on the highest five consecutive years of an employee's compensation during the last ten years prior to retirement. Plans covering hourly employees and union members generally provide benefits of stated amounts for each year of service. The Company's funding policy is to contribute annually an -7- amount equal to or greater than the minimum amount required under the Employee Retirement Income Security Act of 1974. The Plans' assets are primarily invested in U.S. Government securities, corporate bonds and common stocks. In addition to pension benefits, employees are provided certain postretirement healthcare and life insurance benefits. Substantially all of the employees may become eligible for these benefits when they retire. The Company accrues, as current costs, the future lifetime retirement benefits for both active and retired employees and their dependents. Steps have been taken by the Company to reduce the amount of the future obligation for postretirement healthcare benefits of future retirees by capping the amount of funds payable on behalf of the retirees. The following is a reconciliation of the change in benefit obligation and plan assets for the years ended December 31, 1998 and 1999:
Pension Benefits Postretirement Benefits ------------------------- ---------------------- December 31, December 31, ------------------------- ---------------------- 1998 1999 1998 1999 ---------- ---------- ---------- ----------- CHANGE IN BENEFIT OBLIGATION: Projected benefit obligation at beginning of year $177,820 $176,094 $ 54,178 $ 50,767 Service cost 1,203 1,318 357 361 Interest cost 13,781 13,310 3,984 3,612 Amendments - 3,750 - - Actuarial (gains)/losses 492 (10,611) (2,264) (3,006) Benefits paid (17,202) (17,844) (5,488) (5,551) -------- -------- -------- -------- Projected benefit obligation at end of $176,094 $166,017 $ 50,767 $ 46,183 year ======== ======== ======== ======== CHANGE IN PLAN ASSETS: Plan assets at fair value at beginning $183,318 $ $ of year $204,626 - - Actual return on plan assets 18,531 27,274 - - Company contributions 19,979 951 5,488 5,551 Benefits paid (17,202) (17,844) (5,488) (5,551) -------- -------- -------- -------- Plan assets at fair value at end of year $204,626 $215,007 $ - $ - ======== ======== ======== ======== Funded status of plan $ 28,532 $ 48,990 $(50,767) $(46,183) Unrecognized prior service cost 1,891 3,191 - - Unrecognized net actuarial (gain)/loss (47,174) (65,632) 2,517 (297) -------- -------- -------- -------- Net accrued benefit cost $(16,751) $(13,451) $(48,250) $(46,480) ======== ======== ======== ======== WEIGHTED AVERAGE ASSUMPTIONS: Discount rate 7.50% 8.25% 7.50% 8.25% Rate of increase in compensation levels 3.00% 3.00% - - Expected long-term rate of return on 9.25% 9.25% - - assets
-8- The components of the net periodic benefit costs for the years ended December 31, 1997, 1998 and 1999, respectively, are:
Pension Benefits Postretirement Benefits ---------------------------- ------------------------ 1997 1998 1999 1997 1998 1999 -------- -------- -------- ------- ------- ------ Service cost-benefit earned during the period $ 1,426 $ 1,203 $ 1,318 $ 343 $357 $361 Interest cost on projected benefit obligation 14,070 13,781 13,310 3,619 3,984 3,612 Actual return on plan assets (35,145) (18,531) (27,274) - - - Net amortization and deferral 21,660 3,575 10,295 (77) (28) (192) ------- ------- ------- ------ ------ ------ Net periodic benefit cost (income) $ 2,011 $ 28 $(2,351) $3,885 $4,313 $3,781 ======= ======= ======= ====== ====== ======
Assumptions used in the determination of net periodic benefit costs for these years are: 1997 1998 1999 -------- -------- -------- Discount rate 8.25% 7.75% 7.50% Rate of increase in compensation levels 2.00% 2.00% 3.00% Expected long-term rate of return on assets 9.25% 9.25% 9.25% Certain employees are covered by union-sponsored, collectively bargained, multi-employer pension plans. The actuarial calculation of the Company's minimum funding pension payment due in 2000 for 1999 is $504. This amount is shown as a current liability on the balance sheet as of December 31, 1999. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects: 1% 1% Increase Decrease -------- -------- Effect on total of service and interest cost $219 $(100) components Effect on postretirement healthcare benefit $1,821 $(1,155) obligation During 1999, the Company offered certain employees a one-time early-retirement program that resulted in additional pension expense of $2,097. The impact of the additional liability is included in the amendments in the benefit obligation reconciliation. -9- (9) Officers' Deferred Compensation Plan- Certain officers have deferred compensation agreements which, upon retirement, provide them with, among other things, supplemental pension and other postretirement benefits. An accumulated unfunded liability, net of the Rabbi Trust, of $1,409 and $1,745 as of December 31, 1998 and 1999, respectively, has been recorded under these agreements as actuarially determined. The expense was $165, $135 and $114 in 1997, 1998 and 1999, respectively. The Company established a Rabbi Trust in July of 1998 to fund a portion of this plan. The Rabbi Trust does not hold any Company stock and is considered in the calculations determined by the actuary. (10) Profit Sharing- The Company has a profit sharing program in which substantially all of the employees are eligible to participate. The profit sharing payout is derived from a formula based on pretax income and is payable no later than February 15th of the subsequent year. The expense was $2,629, $2,720 and $958 in 1997, 1998 and 1999, respectively. (11) Commitments and Contingencies- The Company is involved in various stages of investigation relative to environmental protection matters relating to various waste disposal sites. The potential costs related to such matters and the possible impact thereof on future operations are uncertain due in part to uncertainty as to the extent of the pollution, the complexity of government laws and regulations and their interpretations, the varying costs and effectiveness of alternative cleanup technologies and methods, and the questionable level of the Company's involvement. The Company has made provisions in the financial statements for potential losses related to these matters. The Company does not anticipate such losses will have a material impact on the financial statements beyond the aforementioned provisions. Various other lawsuits and claims arising in the normal course of business are pending against the Company and such losses are not expected to be material to the financial statements. In December 1998, one of the Company's primary presses suffered a major breakdown and was not operational for several months. The Company filed claims with its insurance company for all repair and business interruption costs. As of December 31, 1999, all reimbursable costs have been recovered through the Company's policy. (12) Earnings Per Share- Basic earnings per share of common stock are computed by dividing net income by the weighed average number of common shares outstanding during the period. Diluted earnings per share of common stock are computed by dividing net income by the average number of common shares and common share equivalents related to the assumed exercise of stock options and warrants. -10- The following shares were used to calculate basic and diluted earnings per share: December 31, ---------------------------------- 1997 1998 1999 ---------- ---------- ---------- Average basic common shares 5,208,251 12,155,484 13,715,555 outstanding Incremental shares applicable to 7,261,567 1,670,649 797,706 common stock options and warrants ---------- ---------- ---------- Average diluted common shares 12,469,818 13,826,133 14,513,261 outstanding ========== ========== ========== The shares outstanding used to compute diluted earnings per share for 1999 excluded outstanding options to purchase 889,688 shares of common stock at a weighted average exercise price of $9.25. The options were excluded because their exercise prices were greater than the average market price of the common shares during the year and their inclusion in the computation would have been antidilutive. (13) Acquisitions- On June 16, 1997, the Company completed the purchase of certain assets and assumption of certain liabilities of Stowe Machine Co., Inc. ("Stowe"). The purchase price was composed of approximately $8,500 in cash and a note payable of $1,000. The Stowe acquisition was accounted for using the purchase method of accounting. Accordingly, the net assets were allocated based upon their fair values at the acquisition's effective date of June 16, 1997. The Company's consolidated statements of operations do not include the revenues and expenses of Stowe prior to this date. The excess of the purchase price over the fair value of the net assets acquired (goodwill) of approximately $870 will be amortized on a straight-line basis over 20 years. On February 16, 1999, the Company completed the purchase of certain assets and assumption of certain liabilities of Adco Manufacturing, Incorporated ("Adco"). The purchase price was approximately $10,850 in cash, plus a working capital adjustment of approximately $750. The Adco acquisition has been accounted for using the purchase method of accounting. Accordingly, the net assets are included in the Company's consolidated balance sheet as of December 31, 1999 based upon their fair values at the acquisition date of February 16, 1999. The Company's consolidated statements of operations do not include the revenues and expenses of Adco prior to this date. The excess of the purchase price over the fair value of the net assets acquired (goodwill) of approximately $6,220 will be amortized on a straight-line basis over 20 years. (14) Subsequent Events- On January 14, 2000, the Company acquired all of the membership interest of Wyman-Gordon Titanium Castings, LLC for a purchase price of $26,600 in cash. The acquired business was renamed Pacific Cast Technologies, Inc. and is located in Albany, Oregon. The acquisition was financed through the use of the senior credit facility. -11- (15) Quarterly Results of Operations (Unaudited)- The following table sets forth unaudited consolidated income statement data for each quarter of the Company's last two fiscal years. The unaudited quarterly financial information has been prepared on the same basis as the annual information presented in the financial statements and, in management's opinion, reflects all adjustments (consisting of normal recurring entries) necessary for a fair presentation of the information provided. The operating results for any quarter are not necessarily indicative of results for any future period. Quarters Ended -------------------------------------------- 1998 March 31 June 30 September 30 December 31 -------------------------- -------- ------- ------------ ----------- Net sales $61,671 $60,779 $53,368 $50,949 Gross profit 9,714 10,248 6,719 5,961 Operating income 7,657 8,078 4,745 4,077 Net income 6,268 7,172 4,270 3,662 Basic earnings per share 0.94 0.51 0.30 0.26 Diluted earning per share 0.73 0.46 0.27 0.24 Quarters Ended -------------------------------------------- 1999 March 31 June 30 September 30 December 31 ------------------------- -------- ------- ------------ ----------- Net sales $42,756 $44,771 $41,803 $40,911 Gross profit 3,438 5,015 5,044 5,679 Operating income 1,781 3,093 3,175 3,941 Net income 1,469 2,528 2,488 3,218 Basic earnings per share 0.11 0.18 0.18 0.24 Diluted earning per share 0.10 0.18 0.17 0.23 -12- (16) Valuation and Qualifying Accounts-
Provision Payments Balance at Charged to and Balance at Beginning of Profit and Accounts End of Year Loss Written Off Year ------------ ---------- ----------- ---------- Year ended December 31, 1997 Allowance for doubtful accounts $300 $ 9 $ 9 $300 ====== ===== ===== ====== Year ended December 31, 1998 Allowance for doubtful accounts $300 $ 2 $2 $300 ====== ===== ===== ====== Year ended December 31, 1999 Allowance for doubtful accounts $300 $(3) $(3) $300 ====== ===== ===== ======
-13- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LADISH CO., INC. By: /s/ WAYNE E. LARSEN ---------------------------------- Wayne E. Larsen Vice President Law/Finance & February 18, 2000 Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ KERRY L. WOODY President and Chief Executive February 18, 2000 - ------------------------- Officer (Principal Executive ----------------- Kerry L. Woody Officer), Director /s/ WAYNE E. LARSEN Vice President Law/Finance & February 18, 2000 - ------------------------- Secretary (Principal Financial ----------------- Wayne E. Larsen and Accounting Officer), Director /s/ LAWRENCE W. BIANCHI Director February 18, 2000 - ------------------------- ----------------- Lawrence W. Bianchi /s/ CHARLES W. FINKL Director February 18, 2000 - ------------------------- ----------------- Charles W. Finkl /s/ ROBERT W. SULLIVAN Director February 17, 2000 - ------------------------- ----------------- Robert W. Sullivan 16 INDEX TO EXHIBITS Exhibit Page Numbers Description Number - ------- ----------- ------ 3 (a) Articles of Incorporation of the Company as filed with the Secretary of the State of Wisconsin filed with Form S-1 as Exhibit 3.2 on December 23, 1997 are incorporated by reference. 3 (b) The Ladish Co., Inc. By-Laws filed with Form S-1 as Exhibit 3.2 on December 23, 1997 are incorporated by reference. 10 (a) Form of Ladish Co., Inc. 1996 Long Term Incentive Plan filed with Form S-1 as Exhibit 10.4 on December 23, 1997 is incorporated by reference. 10 (b) Form of Employment Agreement between Ladish Co., Inc. and certain of its executive officers filed with Form S-1 as Exhibit 10.5 on December 23, 1997 is incorporated by reference. 10 (c) Credit Agreement dated February 15, 1999 among Ladish Co., X-2 Inc. and Firstar Bank Milwaukee, N.A. and the Financial Institutions Parties thereto. 10 (d) Agreement dated September 15, 1995 between Ladish Co., Inc. and Weber Metals, Inc. filed with Form S-1 as Exhibit 10.7 on February 23, 1998 is incorporated by reference. 21 List of Subsidiaries of the Company. X-56 23 Consent of Independent Public Accountants. X- 27 Financial Data Schedule. X- 99 Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders (to be filed pursuant to Regulation 14A within 120 days after the end of the Company's fiscal year and, upon such filing, incorporated herein by reference). EX-10.(C) 2 CREDIT AGREEMENT CREDIT AGREEMENT AMONG LADISH CO., INC., THE FINANCIAL INSTITUTIONS PARTIES HERETO AND FIRSTAR BANK MILWAUKEE, N.A., AS AGENT DATED AS OF FEBRUARY 15, 1999 TABLE OF CONTENTS Page ---- 1. Definitions 1 2. The Credit Facilities; Fees 2.1 Revolving Loans 11 2.2 Interest Rate Options 12 2.3 Borrowing Procedure for Revolving Loans 12 2.4 Continuation and Conversion Procedure 14 2.5 Commitment Fee 14 2.6 Reduction or Termination of Revolving Loan Commitment 15 2.7 Interest Rates 15 2.8 Payments 16 2.9 Prepayments 16 2.10 Additional LIBOR Rate Loan Provisions 17 2.11 Setoff 18 2.12 Pro Rata Treatment; Sharing of Payments 18 2.13 Capital Adequacy 19 2.14 Yield Protection 19 2.15 Taxes 20 2.16 Other Fees 22 2.17 Use of Proceeds 23 2.18 Lender Withdrawal Prior to Effective Date; Replacement Lender 23 3. Representations and Warranties 3.1 Organizations, Subsidiaries; Corporate Power 24 3.2 Authorization and Binding Effect 24 3.3 Financial Statements 24 3.4 Litigation 25 3.5 Restricted Payments 25 3.6 Indebtedness; No Default 25 3.7 Ownership of Properties; Liens and Encumbrances 25 3.8 Tax Returns Filed 26 3.9 Margin Stock 26 3.10 Investment Company 26 3.11 ERISA Liabilities 26 3.12 No Burdensome Agreements 27 3.13 Trademarks, Etc. 27 3.14 Dump Sites 27 3.15 Tanks 27 3.16 Other Environmental Conditions 27 3.17 Changes in Laws 28 3.18 Environmental Judgments, Decrees and Orders 28 3.19 Environmental Permits and Licenses 28 3.20 Year 2000 28 3.21 Accuracy of Information 28 4. Conditions for Borrowing 4.1 On or Before the Date of Execution of this Agreement 28 4.2 On or Before the Effective Date 29 4.3 On or Before Each Subsequent Borrowing Date 31 5. Affirmative Covenants 5.1 Annual Financial Statement 31 5.2 Interim Financial Statements 32 5.3 Management Letters 32 5.4 Other Financial Information 32 5.5 Books and Records; Inspection 32 5.6 Insurance 32 5.7 Condition of Property 33 5.8 Payment of Taxes 33 5.9 Compliance with Law 33 5.10 ERISA Certificate 33 5.11 Compliance with Other Loan Documents 34 5.12 Notice of Default or Claimed Default 34 6. Negative Covenants 6.1 Restricted Payments 34 6.2 Limitations on Indebtedness 35 6.3 Limitations on Guaranty Obligations 35 6.4 Limitations on Lease Obligations 35 6.5 Limitation on Liens and Encumbrances 35 6.6 Limitation on Mergers, Etc. 35 6.7 Limitation on Acquisitions, Advances and Investments 35 ii 6.8 Lines of Business 36 6.9 Sales of Receivables 36 6.10 Sales of Subsidiaries 36 6.11 Sale and Leaseback 36 6.12 Indebtedness to Capitalization Ratio 36 6.13 Interest Coverage Ratio 36 6.14 Indebtedness to EBITDA Ratio 36 6.15 Transactions with Affiliates 36 7. Events of Default; Remedies 7.1 Events of Default 37 7.2 Remedies 38 8. The Agent 8.1 Appointment and Duties of Agent and Issuing Bank 39 8.2 Discretion and Liability of the Agent 39 8.3 Notice of Default 39 8.4 Consultation 39 8.5 Communications To and From the Agent 40 8.6 Limitations of Agency 40 8.7 No Representation or Warranty 40 8.8 Lender Credit Decision 40 8.9 Indemnity 40 8.10 Resignation or Removal of Agent; Successor Agent 41 9. Miscellaneous 9.1 Survival of Representations and Warranties 41 9.2 Indemnification 42 9.3 Expenses 42 9.4 Notices 42 9.5 Assignments and Participations 43 9.6 Titles 44 9.7 Parties Bound; Waiver 44 9.8 Governing Law 45 9.9 Submission to Jurisdiction; Service of Process 45 9.10 Waiver of Jury Trial 45 9.11 Limitation of Liability 46 iii 9.12 Amendments 46 9.13 Counterparts 46 9.14 Entire Agreement 46 Schedules Schedule 1.1: Existing Liens and Security Interests Schedule 3.4: Litigation Schedule 3.18: Environmental Matters Schedule 3.20 Year 2000 Compliance Schedule 6.3 Guaranty Obligations Exhibits Exhibit A: Form of Revolving Note Exhibit B: Form of Notice of Borrowing Exhibit C Form of Conversion/Continuation Notice Exhibit D: Form of Opinion of Company Counsel Exhibit E Form of Assignment and Assumption iv CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of February 15, 1999, is among LADISH CO., INC., a Wisconsin corporation (the "Company"), the financial institutions parties hereto (individually a "Lender" and collectively the "Lenders") and FIRSTAR BANK MILWAUKEE, N.A., as agent for the Lenders (in such capacity, the "Agent"). The parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following terms have the following meanings: "Adjusted LIBOR Rate" means, with respect to a LIBOR Rate Loan for the relevant Interest Period, a rate per annum (rounded upward, if necessary, to the next higher 1/16 of 1%) determined according to the following formula: Adjusted LIBOR Rate = LIBOR Rate ------------------------------------ 1.00 - LIBOR Reserve Requirement "Affiliate" of any Person means any other Person, directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether by ownership of stock (or other ownership interests), by contract or otherwise. "Amortization Expense" means, for any period, the aggregate amount reported as an expense by the Company and its Consolidated Subsidiaries for the amortization of intangible assets on the consolidated statement of income for such period of the Company and its Consolidated Subsidiaries. "Applicable Margin" means (a) in the case of Base Rate Loans, minus 100 basis points (-1.0%) per annum and (b) in the case of LIBOR Rate Loans, plus 75 basis points (.75%) per annum. "Base Rate" means, for any day, the higher of (a) 0.50% per annum above the latest Federal Funds Rate for such day and (b) the Prime Rate in effect for such day. "Base Rate Loans" means a Revolving Loan that bears interest at a rate determined by reference to the Base Rate. "Borrowing Date" means each date on which a Revolving Loan is made by a Lender to the Company. "Business Day" means a day (other than Saturday or Sunday) on which banks are open for business in Milwaukee , Wisconsin and, with respect to the making, payment or rate determination of a LIBOR Rate Loan, a day on which dealings in United States dollars are carried on in the London interbank market. "Capitalized Lease Obligations" means the aggregate amount of the obligations of the Company and its Consolidated Subsidiaries under any lease or rental arrangement which would be capitalized under GAAP and shown as a liability on the consolidated balance sheet of the Company and its Consolidated Subsidiaries. "Change in Control" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 35% or more of the outstanding shares of voting stock of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Consolidated Subsidiaries" means Subsidiaries whose financial statements are consolidated with those of the Company in accordance with GAAP. "Controlled Group" means a group of trades or businesses (whether or not incorporated) under common control, as defined in the regulations issued pursuant to section 414(c) of the Code or such other regulations prescribed by the Pension Benefit Guaranty Corporation pursuant to section 4001(b)(1) of ERISA, of which the Company is a part. "Conversion/Continuation Notice" means a notice in substantially the form of Exhibit C. "Default" means any act, event, condition or omission which, with the giving of notice or lapse of time, would constitute an Event of Default if uncured or unremedied. "Depreciation Expense" means, for any period, the aggregate amount reported as an expense by the Company and its Consolidated Subsidiaries 2 for the depreciation of tangible assets on the consolidated statement of income for such period of the Company and its Consolidated Subsidiaries. "Earnings Before Taxes" means, for any period, the Net Earnings of the Company and its Consolidated Subsidiaries, but before income taxes, as reported on the consolidated statement of income for such period of the Company and its Consolidated Subsidiaries. "Effective Date" means July 1, 1999. "Eligible Assignee" means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000 (provided that such bank is acting through a branch or agency located in the United States) and (c) a Person that is primarily engaged in the business of commercial banking and which is an Affiliate of a Lender. "Environmental Laws" means all federal, state and local laws including statutes, regulations, ordinances, codes, rules and other governmental restrictions and requirements relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or hazardous substances including, but not limited to, the Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976, the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, regulations of the Environmental Protection Agency, regulations of the Nuclear Regulatory Commission and regulations of any state department of natural resources or state environmental protection agency now or at any time hereafter in effect. "ERISA" means, at any date, the Employee Retirement Income Security Act of 1974, and the regulations thereunder, all as the same shall be in effect at such date. "Event of Default" means the occurrence of any of the events described in section 7.1. "Federal Funds Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight, Federal funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers on such day, as published for such day by the Federal Reserve Bank of New York in the weekly statistical release designated as H.15(519), or any 3 successor publication, on the preceding Business Day opposite the caption "Federal Funds Rate (Effective)", or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. In the case of a day which is not a Business Day, the Federal Funds Rate for such day shall be the Federal Funds Rate for the preceding Business Day. "Firstar" means Firstar Bank Milwaukee, N.A., a national banking association. "GAAP" means generally accepted accounting principles in effect in the United States from time to time. "Guaranty Obligations" means any direct or indirect liability or obligation of the Company or any Subsidiary under any agreement, undertaking or arrangement under which the Company or a Subsidiary guarantees, endorses or otherwise becomes or is liable for an obligation of any other Person. "Indebtedness" of a Person means, without duplication, such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations, whether or not assumed, secured by a mortgage lien, pledge or security interest on the property of such Person, (d) obligations which are evidenced by notes, acceptances or other instruments, (e) Capitalized Lease Obligations, (f) obligations arising pursuant to Swap Contracts and (g) obligations for which such Person is obligated pursuant to a letter of credit. In the case of the Company, for purposes of the financial covenants in section 6 of this Agreement, the Indebtedness under clause (f) shall be valued at the Swap Termination Value if a "termination event" or "event of default" has occurred under the Swap Contract and, at all other times, shall be deemed to be $0. "Indebtedness to Capitalization Ratio" means the relationship, expressed as a numerical ratio, between: (a) Indebtedness; and 4 (b) the sum of (i) Indebtedness and (ii) Total Equity; all as determined without duplication in accordance with GAAP applied on a consistent basis to the Company and its Consolidated Subsidiaries as of the date of determination. "Indebtedness to EBITDA Ratio" means the relationship, expressed as a numerical ratio, between: (a) Indebtedness, as of the date of determination; and (b) the sum of (i) Earnings Before Taxes, (ii) Interest Expense, (iii) Depreciation Expense and (iv) Amortization Expense, in each case for the four quarter period ending on the date of determination; all as determined in accordance with GAAP applied on a consistent basis to the Company and its Consolidated Subsidiaries; provided, however, if the Company (a) acquires the capital stock or other ownership interests of another Person (the "Acquired Company") which, upon completion of the transaction, becomes a Subsidiary or (b) acquires assets from another Person (the "Acquired Assets"), then the Earnings Before Taxes, Interest Expense, Depreciation Expense and Amortization Expense of the Acquired Company, or, in the case of Acquired Assets, the portion thereof attributable to the Acquired Assets, shall be added to or subtracted from, as the case may be, those of the Company for the portion of the four quarter period preceding the date of determination that the Company did not own the Acquired Company or the Acquired Assets. The Company shall separately identify any amounts relating to an Acquired Company or to Acquired Assets in the financial covenant calculations required to be provided under section 5.2. "Interest Coverage Ratio" means the relationship, expressed as a numerical ratio, between: (a) the sum of (i) Earnings Before Taxes and (ii) Interest Expense; and (b) Interest Expense; all as determined without duplication in accordance with GAAP applied on a consistent basis to the Company and its Consolidated Subsidiaries for the four quarter period ending on the date of determination. 5 "Interest Expense" means, for any period, the aggregate amount which would be reported as paid, incurred, or accrued as interest expense on the consolidated statement of income for such period of the Company and its Consolidated Subsidiaries. "Interest Period" means, with respect to a LIBOR Rate Loan, a period of one, two or three months commencing on (and including) a Business Day selected by the Company pursuant to section 2.4(a) or 2.5(c) of this Agreement and ending on (but excluding) the day which corresponds numerically to such date one, two or three months thereafter (or, if such month has no numerically corresponding date, on the last Business Day of such month), provided that: (a) if an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is in a new calendar month in which case such Interest Period shall end on the immediately preceding Business Day); and (b) no Interest Period may end later than the Maturity Date, in the case of a Revolving Loan. "Lease Obligations" means, at any date, the obligations of the Company or any Subsidiary under leases of real or personal property (including taxes, insurance, maintenance and similar expenses which the Company or a Subsidiary is required to pay under any such lease) whether or not such obligations are reflected as liabilities on the consolidated balance sheet of the Company or in a note thereto excluding, however, Capitalized Lease Obligations. "LIBOR Rate" means, with respect to a LIBOR Rate Loan for the applicable Interest Period, the interest rate at which deposits in United States dollars, in an amount approximately equal to the requested LIBOR Rate Loan and having a maturity approximately equal to the requested Interest Period, are offered to the Agent by prime banks in the London interbank market at approximately 11 a.m. (London time) two Business Days prior to the first day of such Interest Period. The LIBOR Rate determined by the Agent shall, in the absence of manifest error, be conclusive. "LIBOR Rate Loan" means a Revolving Loan bearing interest at a rate determined by reference to the Adjusted LIBOR Rate. "LIBOR Reserve Requirement" means, with respect to a LIBOR Rate Loan for the applicable Interest Period, the percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including, 6 without limitation, any marginal, special, emergency and supplemental reserves) established by the Board of Governors of the Federal Reserve System for "eurocurrency liabilities" (as defined in Regulation D of such Board), or for other liabilities which include deposits of the type used in determining the LIBOR Rate, having a term approximately equal to the applicable Interest Period. "Loan" means an extension of credit by a Lender to the Company in the form of a Revolving Loan. "Loan Documents" means this Agreement, the Notes and all other documents, instruments and agreements related to or executed in connection with this Agreement and the transactions contemplated hereby. "Majority Lenders" means the Lenders holding in the aggregate at least 51% of the aggregate outstanding principal balance of the Loans or, if there are no Loans outstanding, Lenders whose aggregate Percentage is at least 51%. "Maturity Date" means June 29, 2000, or such earlier date on which the Agent declares the Notes to be, or the Notes automatically become, immediately due and payable pursuant to section 7.2 of this Agreement. "Multiemployer Plan" means any pension benefit plan subject to Title IV of ERISA as defined in section 4001(a)(3) of ERISA, to which the Company, any of its Subsidiaries or any member of the Controlled Group is required to contribute on behalf of its employees. "Net Earnings" means, for any period, the excess of: (a) all revenues and income derived from operations in the ordinary course of business (excluding extraordinary gains and profits upon the disposition of investments and fixed assets), over (b) all expenses and other proper charges against income (including payment or provision for all applicable income and other taxes, but excluding extraordinary losses and losses upon the disposition of investments and fixed assets), all as determined for such period in accordance with GAAP applied on a consistent basis to the Company and its Consolidated Subsidiaries. "Note" means a Revolving Note and "Notes" means all Revolving Notes. 7 "Notice of Borrowing" means a notice in substantially the form of Exhibit B. "Percentage" means, for each Lender: (a) a percentage equal to such Lender's Revolving Loan Commitment divided by the aggregate Revolving Loan Commitments of all Lenders; or, (b) if the aggregate Revolving Loan Commitments of all Lenders have been terminated, a percentage equal to the outstanding principal amount of Loans made by such Lender divided by the aggregate outstanding principal amount of Loans made by all Lenders; and the Percentage of each Lender as of the date of execution of this Agreement is set forth opposite its signature hereto. "Permitted Liens" means (a) security interests and liens listed on Schedule 1.1 attached hereto, provided that the Indebtedness secured thereby shall not be renewed, extended or increased; (b) liens for taxes, assessments or governmental charges not delinquent or being contested in good faith by the Company or any Subsidiary for which adequate reserves are established and maintained in accordance with GAAP; (c) construction lien claims not delinquent; (d) purchase money security interests or liens on any property to be used by the Company or a Subsidiary in the normal course of its business, and created or incurred simultaneously with the acquisition of such property, if such security interest or lien is limited to the property so acquired and the aggregate Indebtedness incurred by the Company and its Subsidiaries during any fiscal year which is secured by such security interests and liens does not exceed $2,000,000; (e) liens or deposits in connection with worker's compensation or other insurance or to secure the performance of bids, trade contracts (other than for borrowed money), leases, public or statutory obligations, surety or appeal bonds or other obligations of like nature incurred in the ordinary course of business; (f) security interests or liens in respect of capital assets acquired pursuant to capitalized leases, provided the aggregate Capitalized Lease Obligations (determined in accordance with GAAP) under all capitalized leases does not exceed $2,000,000; and (h) easements, restrictions, minor title irregularities and similar matters which have no material adverse effect as a practical matter upon the ownership or use of its property by the Company or any Subsidiary. "Permitted Swap Contract" means a Swap Contract between the Company and a Lender (or any Affiliate of a Lender); provided that such agreement is entered into in the ordinary course of business by the Company for 8 the purpose of mitigating the Company's risks with respect to interest rate volatility and not for the purpose of speculation. "Person" means any natural person, corporation, limited liability company, joint venture, partnership, association, trust or other entity or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means any pension benefit plan subject to Title IV of ERISA, including any Multiemployer Plan, maintained by the Company, any of its Subsidiaries or any member of the Controlled Group or any such Plan to which the Company, any of its Subsidiaries or any member of the Controlled Group is required to contribute on behalf of its employees. "Prime Rate" means the rate of interest announced by the Agent from time to time as its base rate for interest rate determinations. The Prime Rate may or may not be the lowest interest rate charged by the Agent. "Quoted Rate" means, as to a Swing Line Loan, the per annum rate of interest quoted to the Company by Firstar as the rate of interest applicable to the Swing Line Loan requested by the Company. "Quoted Rate Loan" means a Swing Line Loan that bears interest based on the Quoted Rate. "Reportable Event" means a reportable event as that term is defined in ERISA. "Restricted Payments" means dividends or other distributions by the Company or any Subsidiary based upon the stock or other ownership interest of the Company or any Subsidiary (except dividends payable to the Company and dividends payable solely in stock of the Company) and purchases, redemptions and other acquisitions, direct or indirect, by the Company or any Subsidiary, of the stock or other ownership interest of the Company or any Subsidiary. "Revolving Loan" means a Loan made by a Lender to the Company pursuant to section 2.1 of this Agreement. "Revolving Loan Commitment" means the obligation of each Lender to make Revolving Loans to the Company. The total Revolving Loan Commitment of the Lenders is $100,000,000 as of the date of the execution of this Agreement and is subject to reduction from time to time pursuant to section 2.6 and is further subject to reduction and reinstatement pursuant to section 2.18. The 9 Revolving Loan Commitment of each Lender as of the date of execution of this Agreement is set forth opposite its signature hereto. "Revolving Note" means a promissory note of the Company in the form of Exhibit A, appropriately completed, evidencing Revolving Loans made by a Lender to the Company and "Revolving Notes" means each Revolving Note. "Subordinated Debt" means Indebtedness for borrowed money of the Company or any of its Subsidiaries, the payment of which is fully subordinated, in a manner satisfactory to the Lenders, to the prior payment of the Notes. "Subsidiary" means as of a particular date (a) any corporation more than 50% of whose outstanding stock having ordinary voting power for the election of directors shall at the time be owned or controlled by the Company or by one of its Subsidiaries and (b) any limited liability company more than 50% of whose outstanding ownership interests shall at the time be owned or controlled by the Company or by one of its Subsidiaries. "Swap Contract" means any agreement (including any master agreement and the schedules thereto) designed to protect at least one of the parties thereto from fluctuations in interest rates, exchange rates or forward rates including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate swap, cap or collar agreements, forward rate currency or interest rate options, puts and warrants. "Swap Termination Value" means, in respect to any Swap Contract, the termination value determined in accordance with such Swap Contract after taking into account any legally enforceable netting agreement. "Swing Line Loan" means a Revolving Loan made to the Company by Firstar pursuant to Section 2.1(b). Swing Line Loans shall be a subfacility of Firstar's Revolving Loan Commitment and thus, a subfacility of the Lenders' total Revolving Loan Commitment. "Term Loan" means an advance by a Lender to the Company with a duration of one, three or five years to be used by the Company to finance (or refinance Revolving Loans made to finance) the acquisition of the business and/or assets of another Person. Term Loans will be made only upon the execution and delivery of an amendment to this Agreement containing terms and conditions acceptable to the Company and all of the Lenders. 10 "Total Equity" means the aggregate amount shown as shareholders' equity as reported on the consolidated balance sheet of the Company and its Consolidated Subsidiaries. "Type" means, with respect to any Revolving Loan, its nature as a Base Rate Loan or as a LIBOR Rate Loan. 2. The Credit Facilities; Fees. 2.1 Revolving Loans. (a) During the period from the Effective Date to the Maturity Date, each Lender will make Revolving Loans to the Company, subject to the terms and conditions hereof, in an amount equal to such Lender's Percentage of the amount of Revolving Loans requested by the Company on the applicable Borrowing Date, up to the maximum amount at any time outstanding of such Lender's Revolving Loan Commitment; provided, however, that the Lenders shall have no obligation to make Revolving Loans to the Company if, after giving effect thereto, the sum of the aggregate outstanding principal amount of Revolving Loans would exceed the total Revolving Loan Commitments. Within such maximum amount Revolving Loans may be made, repaid and made again. The Revolving Loans made by a Lender shall be evidenced by a Revolving Note payable to the order of such Lender and shall be payable on the Maturity Date. Although each Revolving Note shall be expressed to be payable in the amount of the payee Lender's Revolving Loan Commitment on the Effective Date, the Company shall be obligated to pay only the amount of Revolving Loans actually disbursed to or for the account of the Company by the payee Lender, together with interest on the unpaid balance of the sums so disbursed, which remain outstanding from time to time as shown on the records of the payee Lender. Except as set forth below, the Revolving Loans made by the Lenders on a Borrowing Date shall be made ratably in accordance with each Lender's Percentage. (b) The parties agree that for ease of administration and to avoid frequent transfers of funds, Firstar may at its option and from time to time make Swing Line Loans to the Company without proportionate loans by the other Lenders. Notwithstanding any provision of this Agreement to the contrary: (i) The aggregate outstanding principal amount of all outstanding Swing Line Loans shall not exceed $5,000,000; 11 (ii) The Company may request a Swing Line Loan by a telephonic request therefor to Firstar not later than 3 p.m., Milwaukee, Wisconsin time on the requested Borrowing Date; (iii) Swing Line Loans shall be evidenced by the Revolving Note payable to the order of Firstar; (iv) Swing Line Loans shall be Base Rate Loans or Quoted Rate Loans, at the option of the Company; and (v) Swing Line Loans may be prepaid at any time in whole or in part without premium or penalty and all payments of principal and interest made by the Company on Swing Line Loans shall be made to and retained by Firstar. Except as expressly set forth to the contrary in this Agreement, Swing Line Loans shall be governed by the provisions of this Agreement applicable to Revolving Loans. During any period that any Swing Line Loans are outstanding, the Lenders agree that at any time, upon the request of Firstar, each Lender will make a Revolving Loan to the Company by transferring to Firstar an amount equal to such Lender's Percentage of the aggregate principal amount of, and accrued interest on, the Swing Line Loans then outstanding. Such transfer shall be considered a Revolving Loan (which shall be a Base Rate Loan) by that Lender to the Company and a payment of the Swing Line Loans by the Company to Firstar. If an Event of Default occurs while Swing Line Loans are outstanding, each Lender agrees to purchase from Firstar, at any time upon Firstar's request, a participation in such Swing Line Loans in an amount equal to such Lender's Percentage of the then outstanding principal amount of, and accrued interest on, the Swing Line Loans, and the principal amount of such participation shall bear interest at the greater of the Base Rate or the interest rate in effect for such Swing Line Loans. 2.2 Interest Rate Options. Revolving Loans, except for Swing Line Loans, may be Base Rate Loans or LIBOR Rate Loans, or a combination thereof. The Company shall select the Type of Revolving Loan (and in the case of LIBOR Rate Loans, the applicable Interest Period) in accordance with sections 2.3(a) and 2.4(c). The aggregate principal amount of LIBOR Rate Loans made by the Lenders on a Borrowing Date, or pursuant to an election by the Company to either (a) convert Base Rate Loans to LIBOR Rate Loans or (b) continue LIBOR Rate Loans, shall be in a minimum amount of $1,000,000 and in integral multiples of $100,000 above such minimum. After giving effect to any 12 advance under section 2.1 or conversion or continuation under section 2.4, there may not be more than 10 different Interest Periods in effect. 2.3 Borrowing Procedure for Revolving Loans. (a) The Company shall request Revolving Loans by submitting a Notice of Borrowing to the Agent. The Notice of Borrowing must be received by the Agent (i) in the case of LIBOR Rate Loans, not later than 11 a.m., Milwaukee, Wisconsin time, on a Business Day which is three Business Days prior to the requested Borrowing Date (which must be a Business Day) and (ii) in the case of Base Rate Loans, not later than 11 a.m., Milwaukee, Wisconsin time, on the requested Borrowing Date (which must be a Business Day). Each Notice of Borrowing must specify the amount of the requested Revolving Loans, the Type of requested Revolving Loans and, if the Company requests LIBOR Rate Loans, the applicable Interest Period. The aggregate amount of each type of Revolving Loans made on each Borrowing Date shall be in a minimum amount of $1,000,000 and in integral multiples of $100,000 above such minimum. Each Notice of Borrowing shall be irrevocable and shall constitute a certification by the Company that the borrowing conditions specified in sections 4.3(b) and 4.3(c) will be satisfied on the specified Borrowing Date. The Agent will promptly notify the Lenders of the requested Revolving Loans. On or before 3 p.m., Milwaukee, Wisconsin time, on the specified Borrowing Date each Lender shall deposit its Percentage of the requested Revolving Loans with the Agent in immediately available funds. Upon fulfillment of the applicable borrowing conditions, the Agent shall deposit the Revolving Loans in the Company's account maintained with the Agent or as the Company may otherwise direct in writing. (b) Unless the Agent shall have been notified by telephone, confirmed promptly thereafter in writing, by a Lender not later than 2 p.m., Milwaukee, Wisconsin time, on a Borrowing Date that such Lender will not make available to the Agent such Lender's Percentage of the requested Revolving Loans, the Agent may assume that such Lender has made such amount available to the Agent and, in reliance upon such assumption, the Agent may (but shall not be required) to make available to the Company on such Borrowing Date a corresponding amount. If and to the extent that such Lender shall not have so made such amount available to the Agent and the Agent in such circumstances has made such amount available to the Company, such Lender shall on the Business Day following the Borrowing Date make such amount, together with interest at the Federal Funds Rate for each day during such period, available to the Agent. If such amount is so made available, such payment to the Agent shall constitute such Lender's Revolving Loan on the Borrowing Date for all purposes of this Agreement. If such amount is not made available to the Agent on the Business Day following the Borrowing Date, the Agent shall notify the Company of such 13 failure to fund and, upon demand by the Agent, the Company shall pay such amount to the Agent for the Agent's account together with interest thereon, for each day from the date the Agent made such amount available to the Company to the date such amount is repaid to the Agent, at the interest rate specified in section 2.7(a). (c) The failure of any Lender to make a Revolving Loan shall not relieve any other Lender of its obligation hereunder to make a Revolving Loan on the applicable Borrowing Date, but no Lender shall be responsible for the failure of any other Lender to make the Revolving Loan to be made by such other Lender on the applicable Borrowing Date. 2.4 Continuation and Conversion Procedure. (a) Base Rate Loans shall continue as Base Rate Loans unless and until converted into LIBOR Rate Loans. The Company may elect from time to time, subject to the terms and conditions of this Agreement, to convert all or any part of the outstanding Base Rate Loans into LIBOR Rate Loans. (b) At the end of the applicable Interest Period for LIBOR Rate Loans, such LIBOR Rate Loans shall be automatically converted into Base Rate Loans unless the Company shall have given the Agent notice in accordance with section 2.4(c) requesting that, at the end of such Interest Period, such LIBOR Rate Loans continue as LIBOR Rate Loans. (c) The Company shall deliver a Conversion/ Continuation Notice to the Agent for each conversion of Base Rate Loans or continuation of LIBOR Rate Loans. The Conversion/Continuation Notice must be received by the Agent not later than 11 a.m., Milwaukee time, at least three Business Days prior to the date of the requested conversion or continuation and must specify (i) the requested date (which shall be a Business Day) of such conversion or continuation, (ii) the amount of Loans to be converted or continued and (iii) the duration of the Interest Periods applicable thereto. (d) The Agent will promptly notify each Lender of its receipt of a Conversion/Continuation Notice or, if no notice is timely provided by the Company, the Agent will promptly notify each Lender of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given. 14 (e) Notwithstanding anything to the contrary contained in this section, Loans may not be converted into or continued as LIBOR Rate Loans when any Default or Event of Default has occurred and is continuing. 2.5 Commitment Fee. As consideration for the Lenders' Revolving Loan Commitments, the Company will pay to the Agent, for the account of the Lenders, on the last Business Day of each quarter commencing September 30, 1999 and on the Maturity Date, a commitment fee equal to .15% (15 basis points) per annum of the daily average unused amount of the Revolving Loan Commitment during the preceding quarter or other applicable period; provided that for purposes of computing the commitment fee due on September 30, 1999, the applicable period shall be the Effective Date through September 30, 1999. Commitment fees shall be calculated for the actual number of days elapsed on the basis of a 360-day year. 2.6 Reduction or Termination of Revolving Loan Commitment. (a) The Company may, upon seven Business Days' prior written notice to the Agent, permanently reduce the amount of the total Revolving Loan Commitment; provided that (i) no such reduction shall reduce the amount of the total Revolving Loan Commitment to an amount less than the sum of the aggregate unpaid principal balances of the Revolving Notes on the date of such reduction and (ii) upon any termination of the Revolving Loan Commitments the Company shall pay to the Agent, for the account of the Lenders, the outstanding principal balance of the Revolving Notes, all accrued interest on the Revolving Notes and all fees, expenses and other amounts payable under this Agreement relating to the Revolving Loans as of the termination date. Each reduction in the total Revolving Loan Commitment shall be in a minimum amount of $1,000,000. Each reduction in the total Revolving Loan Commitment shall ratably reduce each Lender's Revolving Loan Commitment. (b) The total Revolving Loan Commitment shall be reduced by the principal amount of Revolving Loans the Company and the Lenders agree to convert to Term Loans. As the Company repays the outstanding principal under the Term Loans, the total Revolving Loan Commitment shall be increased by the amount of each principal repayment and the Revolving Loan Commitment of each Lender will be ratably increased. 2.7 Interest Rates. (a) The unpaid principal balance of Base Rate Loans outstanding from time to time under the Revolving Notes shall bear interest prior to the Maturity Date at an annual rate equal to the Base Rate plus the 15 Applicable Margin for Base Rate Loans, and such rate shall change on each day on which the Base Rate changes. Accrued interest shall be due on the first Business Day of each month, commencing August 2, 1999, and on the Maturity Date. (b) The unpaid principal balance of each LIBOR Rate Loan under the Revolving Notes shall bear interest during the applicable Interest Period at the corresponding Adjusted LIBOR Rate plus the Applicable Margin for LIBOR Rate Loans. Accrued interest for each LIBOR Rate Loan shall be due on the last day of the applicable Interest Period, and on the Maturity Date. (c) The unpaid principal balance of each Quoted Rate Loan outstanding from time to time under the Revolving Notes shall bear interest prior to the Maturity Date at an annual rate equal to the Quoted Rate. Accrued interest for each Quoted Rate Loan shall be due on the first Business Day of each month, commencing on the first of such dates to occur after the Borrowing Date for such Quoted Rate Loan. (d) Notwithstanding the provisions of sections 2.7(a), 2.7(b), and 2.7(c) above, upon the occurrence and during the continuance of an Event of Default, the unpaid principal balance of each Note shall, upon notice from the Agent to the Company (which notice the Agent may send in its discretion and shall send at the direction of the Majority Lenders), bear interest at an annual rate equal to the Base Rate plus one percentage point (the "Default Rate"), payable upon demand. On and after the Maturity Date, the unpaid principal balance of the Revolving Notes and all accrued interest thereon shall bear interest at the Default Rate and shall be payable upon demand. (e) Interest shall be calculated for the actual number of days elapsed on the basis of a 360-day year. 2.8 Payments. All payments of principal and interest on the Notes and of all fees due hereunder shall be made at the office of the Agent, for the account of the Lenders, in immediately available funds not later than 12 noon, Milwaukee, Wisconsin time, on the date due; funds received after that time shall be deemed to have been received on the next Business Day. Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. The Agent may charge any account of the Company at the Agent or at any Lender for any payment due under the Notes, or any fee or expense payable hereunder, on or after the date due. Except as otherwise provided in section 2.12, the Agent shall forward to each Lender, 16 promptly after receipt (and in any event no later than 2 p.m. on the following Business Day), such Lender's Percentage of such payments received by the Agent. 2.9 Prepayments. The Company shall make a mandatory prepayment of the Revolving Notes if and to the extent that the sum of the aggregate outstanding principal balances of the Revolving Notes exceeds the Revolving Loan Commitment. The Company may at any time repay, without premium or penalty, Base Rate Loans in a minimum amount of $ 100,000 (or, if less, all outstanding Base Rate Loans). The Company may at any time repay, without premium or penalty, Quoted Rate Loans. The Company may prepay LIBOR Rate Loans (in a minimum amount of $1,000,000 and in integral multiples of $100,000 above such minimum) at any time; provided, that, in the event of a prepayment of a LIBOR Rate Loan on any day other than the last day of the applicable Interest Period, the Company shall also pay to the Agent for the account of the Lenders on the prepayment date the amounts referred to in section 2.10(c). The Company will give the Agent notice of any optional prepayment of the Revolving Notes not later than 12 noon, Milwaukee, Wisconsin time, on the Business Day prior to the prepayment date, specifying the prepayment date (which must be a Business Day) and the amount to be prepaid. The amount of such prepayment and any amounts related thereto shall be due and payable on the specified prepayment date. 2.10 Additional LIBOR Rate Loan Provisions (a) If any Lender determines that the making or maintaining of a LIBOR Rate Loan would violate any applicable law, rule regulation or directive, whether or not having the force of law, then the obligation of the Lenders to make or continue LIBOR Rate Loans, or to convert Base Rate Loans into LIBOR Rate Loans, shall be suspended until the Agent notifies the Company that the circumstances causing such suspension no longer exist. During any such period, all LIBOR Rate Loans shall automatically convert into Base Rate Loans at the end of the applicable Interest Period or sooner if required by law. (b) If the Agent is unable to determine the LIBOR Rate in respect of a requested Interest Period or the Majority Lenders are unable to obtain deposits of United States dollars in the London interbank market in the applicable amounts and for the requested Interest Period, then, upon notice from the Agent to the Company, the obligation of the Lenders to make or continue LIBOR Rate Loans, or to convert Base Rate Loans into LIBOR Rate Loans, shall be suspended until the Agent notifies the Company that the circumstances causing such suspension no longer exist. 17 (c) If any Lender shall incur any loss or expense (including any loss or expense incurred by reason of a liquidation or redeployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of a LIBOR Rate Loan, or to convert any portion of a Base Rate Loan into a LIBOR Rate Loan) as a result of: (i) any conversion or repayment or prepayment of the principal amount of LIBOR Rate Loan on a date other than the last day of the Interest Period applicable thereto (whether as a result of acceleration, prepayment or otherwise); (ii) any Revolving Loan not being made as a LIBOR Rate Loan in accordance with the Notice of Borrowing therefor; or (iii) any Revolving Loan not being continued as, or converted into, a LIBOR Rate Loan in accordance with the Continuation/ Conversion Notice therefore, then, upon written notice from such Lender to the Company, the Company shall, within ten days of its receipt thereof, pay to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Company. 2.11 Setoff. Each Lender shall, upon the occurrence and during the continuance of an Event of Default, have the right to apply to the payment of any Note held by such Lender (whether or not then due) any and all balances, credits, deposits, accounts or monies of the Company then or thereafter maintained with such Lender. Each Lender agrees to promptly notify the Company and the Agent after any such setoff and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. 2.12 Pro Rata Treatment; Sharing of Payments. (a) Except as otherwise provided in this Agreement, all payments of principal, interest and fees made by the Company shall be distributed pro rata to the Lenders according to their respective Percentages. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) in excess of its pro rata share of payments then or therewith obtained by all Lenders, such Lender shall immediately purchase, without recourse and for cash, from the other Lenders, such participations in the Notes of such other Lenders so that each Lender shall thereafter have a percentage interest in all of such obligations equal to such Lender's Percentage; provided, however, that if any payment so received shall be recovered in whole or in part from such purchasing Lender, the purchase shall be rescinded and the purchase price restored to the extent of any such recovery, but without interest. The Company agrees that any Lender so purchasing a participation from another Lender pursuant to this section may, to the fullest extent 18 permitted by law, exercise all of its rights of payment (including its right of setoff) with respect to such participation as if such Lender were the direct creditor of the Company in the amount of such participation. (b) Notwithstanding anything to the contrary contained in this Credit Agreement, any Lender that fails to make available to the Agent its pro rata share of any Loan as, when and to the full extent required by the provisions of this Credit Agreement, shall be deemed delinquent ("a "Delinquent Lender") until such time as such delinquency is satisfied. A Delinquent Lender shall be deemed to have assigned any and all payments due to it from the Company to the Agent and the nondelinquent Lenders for application to, and reduction of, their respective pro rata shares of all outstanding Loans. The Delinquent Lender hereby authorizes the Agent to (i) retain such payments to the extent the Agent funded such delinquency or (ii) distribute such payments to the nondelinquent Lenders in proportion to their respective pro rata shares of all outstanding Loans to the extent the nondelinquent Lenders funded such delinquency. A Delinquent Lender shall be deemed to have satisfied in full a delinquency when and if, as a result of the application of the assigned payments to the Agent and/or the nondelinquent Lenders, all advances funded by the Agent have been repaid in full and the Lenders' respective pro rata shares of all outstanding Loans have returned to their respective Percentages. 2.13 Capital Adequacy. As used in this section, the term "Regulatory Change" means any change enacted or issued after the date of this Agreement of any (or the adoption after the date of this Agreement of any new) federal or state law, regulation, interpretation, direction, policy or guideline, or any court decision, which affects (or, in the case of a court decision would, if the decision were applicable to any Lender, affect) the treatment of any Loan or any commitment of any Lender hereunder as an asset or other item included for the purpose of calculating the appropriate amount of capital to be maintained by such Lender or any corporation controlling such Lender. If such Regulatory Change has the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of the Loans or commitments of such Lender hereunder to a level below that which such Lender or such corporation could have achieved but for such Regulatory Change (taking into account such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed in good faith by such Lender to be material, then from time to time following notice by such Lender to the Company of such Regulatory Change, within ten days after demand from such Lender, the Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation, as the case may be, for such reduction. 19 2.14 Yield Protection. If any law or any governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, or the compliance of any Lender therewith, (a) subjects any Lender to any tax, duty, charge or withholding on or from payments due from the Company (excluding federal taxation of the overall net income of any Lender and any such tax, duty, charge or withholding in effect as of the date of this Agreement), or changes the basis of taxation of payments to any Lender in respect of its Loans or other amounts due it hereunder (excluding federal taxation of the overall net income of any Lender); (b) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any lender (other than reserves and assessments taken into account in determining the interest rate applicable to LIBOR Rate Loans) with respect to its Loans or any Letter of Credit; or (c) imposes any other condition the result of which is to increase the cost to any Lender of making, funding or maintaining the Loans or reduces any amount received by any Lender in connection with the Loans or requires any Lender to make any payment calculated by reference to the amount of Loans held or interest received by it, by an amount deemed material by such Lender; then, within ten days of demand by such Lender, the Company shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender determines is attributable thereto. 2.15 Taxes. (a) Any and all payments by the Company hereunder or under the Notes shall be made, in accordance with sections 2.08 and 2.09 free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding in the case of each Lender and the Agent, taxes imposed on or measured by net income or overall gross receipts, and capital and franchise taxes imposed on it (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). Subject to the provisions of subsection 2.15(h) below, if the Company shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions 20 (including deductions applicable to additional sums payable under this section 2.15) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Company shall make such deductions and (iii) the Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Company agrees to pay any present and future stamp and documentary taxes and any other excise and property taxes, charges and similar levies which arise from any payment made hereunder or under the Notes or the other Loan Documents or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or the Notes or the other Loan Documents (the foregoing are collectively referred to herein as "Other Taxes"). (c) Except to the extent the Company makes payments pursuant to subsections (a) or (b) above, and subject to the provisions of subsection (h) below, the Company will indemnify each Lender and the Agent against, and reimburse each on demand for, the full amount of Taxes and Other Taxes (including, without limitation, any Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this section 2.15) incurred or paid by such Lender or the Agent (as the case may be) or any of their respective affiliates and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Each Lender agrees, within a reasonable time after receiving a written request from the Company, to provide the Company and the Agent with such certificates as are reasonably required, and take such other actions as are reasonably necessary, to claim such exemptions as such Lender may be entitled to claim in respect of all or a portion of any Taxes or Other Taxes which are otherwise required to be paid or deducted or withheld pursuant to this section 2.15 in respect of any payments under this Agreement or under the Notes. (d) Within 90 days after the close of each fiscal year of the Company, the Company will furnish to the Agent, at its address referred to in section 11.4, the original or a certified copy of a receipt evidencing payment of any Taxes or Other Taxes during such fiscal year. (e) Each Lender that is not created or organized under the laws of the United States or a political subdivision thereof shall deliver to the Company and the Agent on the date hereof (i) [a] two duly completed copies of IRS Form 1001 (or any successor or substitute form or forms) if such Lender claims eligibility to receive payments hereunder and under the Notes or 21 other documents without deduction or withholding of United States federal income tax under the provisions of an applicable tax treaty concluded by the United States or [b] two duly completed copies of IRS Form 4224 (or any successor or substitute form or forms) if the Lender claims such eligibility under sections 1441(c)(1) and 1442(a) of the Code. Each such Lender shall amend or deliver such additional IRS Forms as required by law and to the extent legally entitled to do so. (f) Any Lender claiming any additional amounts payable pursuant to this section 2.15 shall use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to take any actions permissible if the taking of such action would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender including changing the jurisdiction of its lending office. If such additional amounts cannot be eliminated by such actions, the Company shall have the right to replace the affected Lender hereunder with a Lender not so affected which is reasonably acceptable to the Agent and the remaining Majority Lenders upon payment to such affected Lender of outstanding principal, accrued interest and fees and all other amounts due pursuant to this Agreement, including any amounts payable hereunder and under sections 2.10, 2.13 and 2.14. No replacement of a Lender shall be made pursuant hereto if, after giving affect thereto, any amount shall be owing the replaced Lender hereunder. (g) Without prejudice to the survival of any other agreement of the Company under this Agreement, the agreements and obligations of the Company, the Lenders or the Agent contained in this section 2.15 shall survive the payment in full of principal and interest under this Agreement and under the Notes. (h) Notwithstanding the provisions of section 2.15(a) and 2.15(c) above, the Company shall not be required to pay any additional amounts thereunder to a Lender if (i) the obligation to pay such additional amounts would not have arisen but for a failure of the Lender to comply with requirements described in section 2.15(e) and an exemption would have been available to such Lender or (ii) the Lender shall not have furnished the Company with such forms or shall not have taken such other action as reasonably may be available to it under applicable tax laws and any applicable tax treaty to obtain an exemption from, or reduction (to the lowest applicable rate) of withholding of such United States federal income tax and an exemption would have been available to such Lender; provided, however, that the Company's obligation to pay such additional amounts shall be reinstated upon receipt of such 22 forms or evidence that action with respect to obtaining such exemption or reduction has been taken. 2.16 Other Fees. In addition to the other fees described herein: (a) the Company shall pay to the Agent, for the ratable account of the Lenders, a closing fee of $75,000 on the date of the execution of this Agreement, which fee shall be fully earned on the Effective Date and shall be refunded by a Lender only if such Lender withdraws from this Agreement pursuant to Section 2.18(a); and (b) the Company shall pay to Firstar, for the sole account of Firstar, the fees set forth in that certain letter agreement dated as of February 15, 1999 between Firstar and the Company. 2.17 Use of Proceeds. The Company shall use Loan proceeds solely for the purpose of refinancing existing Indebtedness, corporate acquisitions, working capital needs and for other general corporate and lawful purposes. 2.18 Lender Withdrawal Prior to Effective Date; Replacement Lender. (a) Each Lender may, by sending written notice to the Agent and the Company on or prior to June 30, 1999, withdraw from this Agreement. In such event, (i) all rights and obligations of the withdrawing Lender under this Agreement shall immediately terminate and the withdrawing Lender shall be deemed to no longer be a party to this Agreement and (ii) the total Revolving Loan Commitment of the Lenders shall be reduced by the Revolving Loan Commitment of the withdrawing Lender. The withdrawing Lender shall, at the time it sends notice of withdrawal, refund to the Company such Lender's ratable share of the closing fee paid by the Company pursuant to section 2.16(a). The withdrawing Lender shall be entitled to the benefit of section 9.2 of this Agreement with respect to matters arising prior to the date of such Lender's withdrawal. (b) The Company and the Lenders may agree, on or before the Effective Date, to add a new financial institution to this Agreement to replace the withdrawing Lender. To do so, the Company, the Agent, the Lenders and the new Lender shall execute an amendment or supplement to this Agreement which sets forth the Revolving Loan Commitment of the new Lender and contains an agreement that the new Lender will be bound by the provisions of this Agreement. 23 Such amendment or supplement shall address such other matters as are mutually agreeable to the Company, the Agent, the Lenders and the new Lender. Upon the execution and delivery of such amendment or supplement, the new Lender shall be a party to this Agreement and shall be a "Lender" for all purposes of the Agreement and the total Revolving Loan Commitment of the Lenders shall be increased by the Revolving Loan Commitment of the new Lender. 3. Representations and Warranties. In order to induce the Lenders to make the Loans, the Company represents and warrants to the Lenders that: 3.1 Organization; Subsidiaries; Corporate Power. The Company is a corporation validly existing under the laws of the State of Wisconsin and (a) the Company has filed with the Wisconsin Department of Financial Institutions the required annual report for its most recently completed report year, (b) the Company is not the subject of a proceeding under Wisconsin Statutes section 180.1421 to cause its dissolution, (c) no filing has been made with the Wisconsin Department of Financial Institutions of a decree of dissolution with respect to the Company and (d) neither the shareholders nor the Board of Directors of the Company have taken any action authorizing the liquidation or dissolution of the Company. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of its business or the ownership of its properties requires such qualification and in which the failure to so qualify would materially adversely affect the business operations or financial condition of the Company. Schedule 3.1 contains the name, state of incorporation and number of authorized and outstanding shares of each class of stock of each Subsidiary and the number thereof owned by the Company. Each Subsidiary is validly existing and in good standing in the state of its incorporation and each is duly qualified as a foreign corporation and is in good standing in every jurisdiction in which the nature of its business or the ownership of its properties requires such qualification and in which the failure to so qualify would materially adversely affect the business operations or financial condition of such Subsidiary. The Company and each Subsidiary has the corporate power to own its properties and carry on its business as currently being conducted. 3.2 Authorization and Binding Effect. The execution and delivery by the Company of the Loan Documents to which it is a party, and the performance by the Company of its obligations thereunder, are within its corporate power, have been duly authorized by proper corporate action on the part of the Company, are not in violation of any existing law, rule or regulation of any governmental agency or authority, any order or decision of any court, the Articles of Incorporation or By-Laws of the Company or the terms of any agreement, restriction or undertaking to which the Company is a party or by which it is bound, 24 and do not require the approval or consent of the shareholders of the Company, any governmental body, agency or authority or any other person or entity. The Loan Documents to which the Company is a party, when executed and delivered, will constitute the valid and binding obligations of the Company enforceable in accordance with their terms, except as limited by bankruptcy, insolvency or similar laws of general application affecting the enforcement of creditors' rights and except to the extent that general principles of equity might affect the specific enforcement of such Loan Documents. 3.3 Financial Statements. The Company has furnished to the Lenders (a) the consolidated balance sheet of the Company and its Consolidated Subsidiaries as of December 31, 1997, and related statements of income, retained earnings and cash flows for the year ended on that date, certified by Arthur Anderson LLP, and (b) the consolidated balance sheet of the Company and its Consolidated Subsidiaries dated September 30, 1998 and related statements of income and retained earnings for the period ended on such date, prepared by the Company. Such financial statements were prepared in accordance with GAAP consistently applied throughout the periods involved, are correct and complete and fairly present the consolidated financial condition of the Company and such Subsidiaries as of such dates and the results of their operations for the periods ended on such dates, subject, in the case of the interim statements, to normal year-end adjustments. There has been no material adverse change in the condition or prospects of the Company or its Consolidated Subsidiaries, financial or otherwise, since the date of the most recent financial statement furnished to the Lenders. 3.4 Litigation. Except for the matters described on Schedule 3.4, there is no litigation or administrative proceeding pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or the properties of the Company or any Subsidiary which if determined adversely would have a material adverse effect upon the business, financial condition or properties of the Company or such Subsidiary. 3.5 Restricted Payments. The Company has not, since the date of the most recent financial statements referred to in section 3.3, made any Restricted Payments except for Restricted Payments permitted under section 6.1. 3.6 Indebtedness; No Default. Neither the Company nor any Subsidiary has any outstanding Indebtedness, Guaranty Obligations or Lease Obligations, except those permitted under sections 6.2, 6.3 and 6.4. There exists no default nor has any act or omission occurred which, with the giving of notice or the passage of time, would constitute a default under the provisions of (a) any instrument evidencing such Indebtedness, Guaranty Obligations or Lease Obligations or any agreement relating thereto or (b) any other agreement or 25 instrument to which the Company or any Subsidiary is a party and which is material to the financial condition, business operations or prospects of the Company or such Subsidiary. 3.7 Ownership of Properties; Liens and Encumbrances. The Company and each Subsidiary has good and marketable title to all property, real and personal, reflected on the most recent financial statement of the Company furnished to the Lenders, and all property purported to have been acquired since the date of such financial statement, except property sold or otherwise disposed of in the ordinary course of business subsequent to such date; and all such property is free of any lien, security interest, mortgage, encumbrance or charge of any kind or any agreement not to grant a security interest, mortgage or lien, except Permitted Liens. All owned and leased buildings and equipment of the Company and each Subsidiary are in good condition, repair and working order (reasonable wear and tear excepted) and, to the Company's knowledge, conform in all material respects to all applicable laws, ordinances and regulations. 3.8 Tax Returns Filed. The Company and each Subsidiary has filed when due all federal and state income and other tax returns which are required to be filed. The Company has paid or made provision for the payment of all taxes shown on such returns, and on all assessments received by it to the extent that such taxes or assessments have become due, except any such taxes or assessments which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been established. The Company has no knowledge of any liabilities which may be asserted against it or any Subsidiary upon audit of its federal or state tax returns. 3.9 Margin Stock. The Company will not use, directly or indirectly, any part of the proceeds of any Note for the purpose of purchasing or carrying, or to extend credit to others for the purpose of purchasing or carrying, any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any amendments thereto. Neither the Company nor any Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock. 3.10 Investment Company. The Company is not an "investment company" or a company controlled by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 3.11 ERISA Liabilities. The Company has no knowledge of the occurrence of any event with respect to any Plan which could result in a liability of the Company or any Subsidiary or any member of the Controlled 26 Group to any Plan, the Internal Revenue Service or to the Pension Benefit Guaranty Corporation other than the payment of contributions in the normal course or premiums (but not a late payment charge) pursuant to section 4007 of ERISA. With respect to any Plan there is no (a) accumulated funding deficiency within the meaning of section 412(a) of the Code; (b) nondeductible contribution to any Plan within the meaning of section 4972 of the Code; (c) excess contribution within the meaning of section 4979(c) of the Code which would result in tax under section 4979(a) of the Code; (d) prohibited transaction within the meaning of ERISA section 406 which is not exempt under ERISA section 408; (e) failure to make required contributions to any Multiemployer Plan; or (f) withdrawal or partial withdrawal from any Multiemployer Plan within the meaning of ERISA sections 4203 and 4205. 3.12 No Burdensome Agreements. Neither the Company nor any Subsidiary is a party to or bound by any agreement, instrument or undertaking, or subject to any other restriction (a) which materially adversely affects, or is likely in the future to so affect, the property, financial condition or business operations of the Company or any Subsidiary or (b) under or pursuant to which the Company or any Subsidiary is or will be required to grant (or under which any other Person may obtain) a security interest or lien upon any of its property (other than a Permitted Lien), either upon demand or upon the fulfillment of a condition, with or without demand. 3.13 Trademarks, Etc. The Company and each Subsidiary possesses adequate trademarks, trade names, copyrights, patents, permits, service marks and licenses, or rights thereto, for the present and planned future conduct of their respective businesses substantially as now conducted, without any known conflict with the rights of others which would result in a material adverse effect on the Company or any Subsidiary. 3.14 Dump Sites. With respect to the period during which the Company or any Subsidiary owned or occupied its real estate, and to the Company's knowledge after reasonable investigation, with respect to the time before the Company or any Subsidiary owned or occupied its real estate, no person or entity has caused or permitted materials to be stored, deposited, treated, recycled or disposed of on, under or at any real estate owned or occupied by the Company or any Subsidiary, which materials, if known to be present, would require cleanup, removal or some other remedial action under Environmental Laws. 3.15 Tanks. There are not now, to the Company's knowledge after reasonable investigation, tanks or other facilities on, under, or at any real estate owned or occupied by the Company or any Subsidiary which 27 contain materials which, if known to be present in soils or ground water, would require cleanup, removal or some other remedial action under Environmental Laws. 3.16 Other Environmental Conditions. There are no conditions existing which would subject the Company or any Subsidiary to damages, penalties, injunctive relief or cleanup costs under any Environmental Laws or which require or are likely to require cleanup, removal, remedial action or other response pursuant to Environmental Laws by the Company or any Subsidiary. 3.17 Changes in Laws. To the Company's knowledge after reasonable investigation, there are no proposed or pending changes in Environmental Laws that would adversely affect the Company or any Subsidiary. 3.18 Environmental Judgments, Decrees and Orders. Neither the Company nor any Subsidiary is subject to any judgment, decree, order or citation related to or arising out of Environmental Laws. Except as set forth in Schedule 3.18, neither the Company nor any Subsidiary has been named as a potentially responsible party by a governmental body or agency in a matter arising under any Environmental Law. 3.19 Environmental Permits and Licenses. The Company and each Subsidiary has all permits, licenses and approvals required under Environmental Laws. 3.20 Year 2000. Except as set forth on Schedule 3.20 attached hereto, the information technology systems used by the Company and its Subsidiaries in their business operations accurately process date/time data (including without limitation calculating, comparing and sequencing) from, into and between the twentieth and twenty-first centuries, the year 1999 and 2000 and leap year calculations. 3.21 Accuracy of Information. All information furnished by the Company to the Lenders is true, correct and complete in all material respects as of the date furnished and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make such information not misleading. 4. Conditions for Borrowing. The Lenders' obligations to make Loans is subject to the satisfaction, on or before the following Borrowing Dates, of the following conditions: 28 4.1 On or Before the Date of Execution of this Agreement. The Agent shall have received the following, all in form, detail and content satisfactory to the Lenders: (a) Certified Articles of Incorporation. A copy of the Articles of Incorporation of the Company, certified as of a recent date by the Wisconsin Department of Financial Institutions. (b) Certificates of Status and Good Standing. Certificates of status and good standing with respect to the Company, issued as of a recent date by the Secretary of State (or comparable governmental authority) of each state in which the Company is incorporated or is qualified to transact business as a foreign corporation. (c) Closing Certificate. Copies, certified by the Secretary of the Company to be true and correct and in full force and effect on the Closing Date, of (i) the By-Laws of the Company; (ii) resolutions of the Board of Directors of the Company authorizing the execution and delivery of the Loan Documents to which the Company is a party; and (iii) a statement containing the names and titles of the officer or officers of the Company authorized to sign such Loan Documents, together with true signatures of such officers. (d) Proceedings Satisfactory. Such other documents as the Lenders may reasonably request; and all proceedings taken in connection with the transactions contemplated by this Agreement, and all instruments, authorizations and other documents applicable thereto, shall be satisfactory to the Lenders. (e) Fees. The fees set forth in section 2.16 hereof. 4.2 On or Before the Effective Date. The Agent shall have received the following, in form, detail and content satisfactory to the Lenders: (a) Notes. The Revolving Notes, duly executed by the Company. (b) Personal Property Searches. Searches of the appropriate public offices demonstrating that no security interest, tax lien, judgment lien or other charge or encumbrance is of record affecting the Company or its properties except those which are acceptable to the Agent. (c) Financial Statements. Financial statements of the Company for the year ended December 31, 1998 and for the quarter ended 29 March 31, 1999 which comply with the requirements of sections 5.1 and 5.2, respectively. (d) Termination of GE Capital Financing. Evidence that the Company has terminated its financing arrangements with GE Capital Corporation ("GECC") as of the Effective Date and paid to GECC all amounts owed thereunder together with GECC's release of its security interests in and liens upon the properties of the Company and the agreement of GECC to provide such termination statements, mortgage satisfactions and other, similar documents as may reasonably be requested to evidence such release. (e) Updated Closing Certificate. A certificate dated the Effective Date and signed by the Secretary or Assistant Secretary of the Company certifying that (i) the Articles of Incorporation and By-Laws of the Company have not been amended since the date of the Closing Certificate furnished pursuant to section 4.1(c), (ii) the Board of Directors' resolution attached to such Closing Certificate has not been amended or revoked and is in full force and effect and (iii) the officers of the Company who signed such Closing Certificate continue to hold the office or offices set forth opposite their names in such Closing Certificate. (f) Bring-Down Certificate. A certificate dated the Effective Date and signed by the President or any Vice President of the Company, certifying that (i) the representations and warranties of the Company contained in section 3 hereof are true and correct as of the Effective Date and (ii) no Default or Event of Default exists as of the Effective Date. (g) Opinion of Counsel. An opinion from Wayne E. Larsen, Esq., general counsel of the Company, in the form of Exhibit D attached hereto. (h) Proceedings Satisfactory. Such other documents as the Lenders may reasonably request; and all proceedings taken in connection with the transactions contemplated by this Agreement, and all instruments, authorizations and other documents applicable thereto, shall be satisfactory to the Lenders. 4.3 On or Before Each Subsequent Borrowing Date: (a) Borrowing Procedure. The Company shall have complied with the borrowing procedure specified in section 2.3. 30 (b) Representations and Warranties True and Correct. The representations and warranties contained in section 3 hereof and in the other Loan Documents shall be true and correct on and as of the relevant Borrowing Date except (i) that the representations and warranties contained in section 3.3 shall apply to the most recent financial statements delivered pursuant to sections 5.1 and 5.2 and (ii) for changes contemplated or permitted by this Agreement. (c) No Default. There shall exist on that Borrowing Date no Default or Event of Default. (d) Proceedings and Documentation. The Lenders shall have received such instruments and other documents as they may reasonably request in connection with the making of such Loans, and all such instruments and documents shall be in form and content satisfactory to the Lenders. 5. Affirmative Covenants. The Company covenants that it will, at all times on and after the Effective Date until the Lenders' Revolving Loan Commitment has terminated or expired, and the Notes, and all fees and expenses payable hereunder, have been paid in full: 5.1 Annual Financial Statement. Furnish to the Agent within 90 days after the end of each fiscal year of the Company a copy for each Lender of a balance sheet of the Company and its Consolidated Subsidiaries as of the close of such fiscal year and related statements of income, retained earnings and cash flows for such year, setting forth in each case in comparative form corresponding figures from the preceding annual audit, all in reasonable detail and satisfactory in scope to the Lenders, prepared in accordance with GAAP applied on a consistent basis, accompanied by the unqualified opinion of a firm of independent certified public accountants selected by the Company and satisfactory to the Lenders. Each annual financial statement shall be accompanied by a written statement from the accounting firm which prepared the same containing a computation showing whether or not the Company is in compliance with the financial covenants contained in section 6. All such financial statements, and the financial statements referred to in section 5.2, shall be furnished in consolidated form for the Company and all Consolidated Subsidiaries which it may at the time have. 5.2 Interim Financial Statements. Furnish to the Agent within 45 days after the end of each fiscal quarter of the Company a copy for each Lender of the consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such fiscal quarter, together with the related statements of income and retained earnings for the period from the beginning of 31 the fiscal year to the end of such period, prepared in the manner set forth in section 5.1 for the annual statements, certified, subject to audit and normal year-end adjustments, to be accurate and complete by an authorized financial representative of the Company and accompanied by the certificate of such representative (i) containing computations showing whether or not the Company is in compliance with the financial covenants set forth in section 6 and (ii) to the effect that there exists no Default or Event of Default or, if any Default or Event of Default exists, specifying the nature thereof, the period of existence thereof and what action the Company proposes to take with respect thereto. 5.3 Management Letters. Furnish to the Agent, promptly upon receipt, copies for each Lender of all management letters and detailed audit reports submitted to the Company by its independent certified public accountants. 5.4 Other Financial Information. Furnish to the Agent, as soon as available, copies for each Lender of all reports submitted to the shareholders of the Company in their capacity as shareholders, and such other financial information as any Lender may from time to time reasonably request. 5.5 Books and Records; Inspection. Keep and cause each Subsidiary to keep proper, complete and accurate books of record and account and permit any representatives of the Agent or any Lender to visit and inspect any of the properties and examine and copy any of the books and records of the Company or any Subsidiary at any reasonable time and as often as may reasonably be desired. 5.6 Insurance. Maintain and cause each Subsidiary to maintain insurance coverage as may be required by law but in any event not less than insurance coverage, in the forms, amounts and with companies, which would be carried by prudent management in connection with similar properties and businesses. Without limiting the foregoing, the Company will and will cause each Subsidiary to (a) keep all its physical property insured against fire and extended coverage risks in amounts and with deductibles at least equal to those generally maintained by businesses engaged in similar activities in similar geographic areas; (b) maintain all such worker's compensation and similar insurance as may be required by law; and (c) maintain, in amounts and with deductibles at least equal to those generally maintained by businesses engaged in similar activities in similar geographic areas, general public liability insurance against claims for bodily injury, death or property damage occurring on, in or about the properties of the Company or such Subsidiary, business interruption insurance and product liability insurance. 32 5.7 Condition of Property. Keep and cause each Subsidiary to keep its properties (whether owned or leased) in good condition, repair and working order (reasonable wear and tear excepted). 5.8 Payment of Taxes. Pay and discharge, and cause each Subsidiary to pay and discharge, all lawful taxes, assessments and governmental charges upon it or against its properties prior to the date on which penalties are attached thereto, unless and to the extent only that the same shall be contested in good faith and by appropriate proceedings by the Company or the appropriate Subsidiary and appropriate reserves with respect thereto are established and maintained in accordance with GAAP. 5.9 Compliance with Law. Do and, except as permitted under section 6.6, cause each Subsidiary to do all things necessary to (a) maintain its corporate existence in its state of incorporation and maintain its qualification as a foreign corporation in any other state where the ownership of property or the conduct of business make qualification necessary and where the failure to so qualify would have a material adverse effect upon its business, operations or financial condition, (b) preserve and keep in full force and effect its rights and franchises necessary to continue its business and (c) comply with all applicable laws, regulations and ordinances, including all applicable Environmental Laws, except those being contested in good faith and involving no possibility of criminal liability, if and to the extent that the failure to so comply would have a material adverse affect upon the Company and its Subsidiaries taken as a whole. 5.10 ERISA Certificate. Comply and cause each Subsidiary to comply with all applicable requirements of ERISA for each Plan and furnish to the Agent, as soon as possible and in any event within 30 days after the Company shall have obtained knowledge that a Reportable Event has occurred with respect to any Plan, a certificate of an officer of the Company setting forth the details as to such Reportable Event and the action which the Company proposes to take with respect thereto, and a copy of each notice of a Reportable Event sent to the Pension Benefit Guaranty Corporation by the Company and, with respect to a Multiemployer Plan, furnish to the Agent as soon as possible after the Company receives notice or obtains knowledge that the Company or any member of the Controlled Group may be subject to withdrawal liability, or required to post a bond to avoid such liability, to a Multiemployer Plan, a certificate of an officer of the Company setting forth the details as to such event and the actions which the Company plans to take with respect thereto. 5.11 Compliance with Other Loan Documents. Timely comply with all of its obligations under the other Loan Documents. 33 5.12 Notice of Default or Claimed Default. Furnish to the Agent (a) immediately upon becoming aware of any Default or Event of Default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (b) immediately upon becoming aware that the holder of any other Indebtedness issued or assumed by the Company or any Subsidiary, or the lessor under any lease as to which the Company or any Subsidiary is the lessee, has given notice or has taken any action with respect to a claimed default thereunder, or under any agreement under which any such Indebtedness was issued or secured, a written notice specifying the notice given or action taken, the nature of the claimed default and what action the Company is taking or proposes to take with respect thereto; (c) immediately upon receipt, copies of any correspondence, notice, pleading, citation, indictment, complaint, order, decree or other document from any governmental authority or court asserting or alleging a circumstance or condition which requires or may require a financial contribution by the Company or a cleanup, removal, remedial action or other response by or on the part of the Company or any Subsidiary under Environmental Laws or which seeks damages or civil, criminal or punitive penalties from the Company or any Subsidiary for an alleged violation of Environmental Laws which, in any such case, is likely to have a material adverse effect on the financial condition or business operations of the Company or any Subsidiary; and (d) written notice of any condition or event which would make the warranties contained in section 3 inaccurate, as soon as the Company becomes aware of such condition or event. 6. Negative Covenants. The Company covenants that, without the prior written consent of the Majority Lenders, it will not, and will not permit any Subsidiary to, at any time on or after the Effective Date until the Lenders' Revolving Loan Commitment has terminated or expired, and the Notes, and all fees and expenses payable hereunder, have been paid in full: 6.1 Restricted Payments. Make any Restricted Payments except that so long as no Default or Event of Default exists the Company may make Restricted Payments if, after giving effect thereto, the aggregate amount of Restricted Payments made during the period after December 31, 1997, to and including the date of making the Restricted Payment in question, does not exceed 50% of the Company's Net Earnings for such period computed on a cumulative basis for said entire period. 6.2 Limitations on Indebtedness. Create, incur, assume or permit to exist any Indebtedness except (a) Indebtedness owed to the Lenders hereunder; (b) Indebtedness secured by Permitted Liens; (c) Subordinated Debt; (d) Indebtedness permitted under section 6.7(e); and (e) Indebtedness arising in connection with a Permitted Swap Contract. 34 6.3 Limitations on Guaranty Obligations. Create, incur, assume or permit to exist any Guaranty Obligations except for (a) the endorsement of negotiable or nonnegotiable instruments for collection in the ordinary course of business, and (b) Guaranty Obligations in favor of a Lender; and (c) Guaranty Obligations described on Schedule 6.3 existing on the date of this Agreement, provided that the principal amount thereof shall not be increased. 6.4 Limitations on Lease Obligations. Permit the aggregate Lease Obligations of the Company and its Subsidiaries to exceed $1,000,000 due in any fiscal year of the Company. 6.5 Limitations on Liens and Encumbrances. Create, assume or permit to exist any mortgage, security interest, lien or charge of any kind, including any restriction against mortgages, security interests, liens or charges upon any of its other property or assets, whether now owned or hereafter acquired, except for Permitted Liens. 6.6 Limitations on Mergers, Etc. Merge or consolidate with or into any other corporation or entity or sell, lease, transfer or otherwise dispose of in a single transaction or a series of transactions, all or a substantial part of its assets (other than sales made in the ordinary course of business), except that any Subsidiary may merge into, or transfer all or a substantial part of its assets to the Company or to a Subsidiary wholly owned by the Company. 6.7 Limitations on Acquisitions, Advances and Investments. Acquire stock issued by a corporation, all or substantially all of the assets of any Person, an ownership interest in any limited liability company or any partnership or joint venture interest or make any loan, advance or extension of credit to any Person except (a) the purchase of United States government bonds and obligations; (b) extensions of credit to customers in the ordinary course of business of the Company or any Subsidiary; (c) the purchase of bank certificates of deposit issued by a bank having a long-term certificate of deposit rating of A or better from Standard & Poor's Rating Services (or an equivalent rating from another national rating agency), (d) commercial paper with a maturity not exceeding 90 days; (e) investments of the Company in any Subsidiary in existence on the Closing Date, and loans and advances to wholly owned Subsidiaries of the Company and advances by any Subsidiary to the Company or to another wholly owned Subsidiary; (f) deposits in deposit accounts at banks; (g) investments in bank repurchase agreements; (h) loans and advances to employees and agents in the ordinary course of business for travel and entertainment expenses and similar items; (i) partnership and joint ventures entered into in the ordinary course of business; (j) nonhostile acquisitions of the assets or 100% of the stock or other 35 ownership interest of a Person; and (k) the purchase by the Company of its stock to the extent permitted under section 6.1. 6.8 Lines of Business. Engage or permit any Subsidiary to engage in any business other than those in which it is now engaged and any business directly related thereto if, as a result thereof, the general nature of the businesses engaged in by the Company and its Subsidiaries on a consolidated basis would be substantially changed from the general nature of their businesses as of the Closing Date. 6.9 Sales of Receivables. Discount or sell with recourse, or sell for less than the face amount thereof, any of its notes or accounts receivable. 6.10 Sales of Subsidiaries. Sell or otherwise dispose of any stock (or other ownership interest), or securities convertible into stock (or other ownership interest), of any Subsidiary except to the Company or to a Subsidiary wholly owned by the Company. 6.11 Sale and Leaseback. Sell or transfer any fixed assets and then or thereafter rent or lease as lessee any such assets. 6.12 Indebtedness to Capitalization Ratio. Permit the Indebtedness to Capitalization Ratio to exceed 0.55 to 1.0 at any time. 6.13 Interest Coverage Ratio. Permit the Interest Coverage Ratio to be less than 3.00 to 1.00 at any time. 6.14 Indebtedness to EBITDA Ratio. Permit the Indebtedness to EBITDA Ratio to exceed 2.00 to 1.0 at any time. 6.15 Transactions with Affiliates. Enter into or be a party to any transaction with any Affiliate except as otherwise provided herein or in the ordinary course of business and upon fair and reasonable terms which are no less favorable than a comparable arm's length transaction with an entity which is not an Affiliate. 7. Events of Default; Remedies. 7.1 Events of Default. The occurrence of any of the following shall constitute an Event of Default: (a) Failure to Pay Note. The Company fails to pay (a) principal on any Note when due, whether at a stated payment date, or a date 36 fixed by the Company for prepayment or by acceleration, or (b) interest on any Note, or any fee or other amount payable hereunder, when due and such default in payment of interest, fees or other amounts continues uncured for a period of five days; or (b) Falsity of Representations and Warranties. Any representation or warranty made in any Loan Document or in any writing furnished in connection with or pursuant to this Agreement or any other Loan Document is false in any material respect on the date as of which made or as of which the same is to be effective; or (c) Breach of Covenants. The Company fails to comply with any term, covenant or agreement contained in section 5 or 6 hereof; or (d) Breach of Other Provisions. The Company fails to comply with any other agreement contained herein and such default continues for a period of 30 days after written notice to the Company from the Agent; or (e) Default Under Other Agreements. The Company or any Subsidiary fails to pay when due any other Indebtedness issued or assumed by the Company or such Subsidiary or fails to comply with the terms of any agreement under which such Indebtedness was created and such default continues beyond the period of grace, if any, therein provided; or (f) Entry of Final Judgments. A final judgment is entered against the Company or any Subsidiary which, together with all unsatisfied final judgments entered against the Company and all Subsidiaries, exceeds the sum of $250,000, and such judgment shall remain unsatisfied or unstayed for a period of 60 days after the entry thereof; or (g) ERISA Liability. Any event in relation to any Plan which the Lenders determine in good faith could result in any of the occurrences set forth in section 3.11 above; or (h) Default Under Other Loan Documents. An "Event of Default" (as defined therein) shall occur under any other Loan Document or the party to any other Loan Document fails to timely comply with any term, covenant or agreement contained therein; or (i) Change In Control. Any Change in Control shall occur; or 37 (j) Insolvency, Failure to Pay Debts or Appointment of Receiver, Etc. The Company or any Subsidiary becomes insolvent or the subject of state insolvency proceedings, fails generally to pay its debts as they become due or makes an assignment for the benefit of creditors; or a receiver, trustee, custodian or other similar official is appointed for, or takes possession of any substantial part of the property of, the Company or any Subsidiary; or (k) Subject of United States Bankruptcy Proceedings. The taking of corporate action by the Company or any Subsidiary to authorize such organization to become the subject of proceedings under the United States Bankruptcy Code; or the execution by the Company or any Subsidiary of a petition to become a debtor under the United States Bankruptcy Code; or the filing of an involuntary petition against the Company or any Subsidiary under the United States Bankruptcy Code which remains undismissed for a period of 60 days; or the entry of an order for relief under the United States Bankruptcy Code against the Company or any Subsidiary. 7.2 Remedies. Upon the occurrence of any of the events described in sections 7.1(a) through 7.1(j), inclusive, the Agent shall, at the direction of the Majority Lenders, at the same or different times, take any of the following actions: (a) declare the Lenders' Revolving Loan Commitments to be terminated, whereupon the Lenders' Revolving Loan Commitments shall immediately terminate; or (b) declare the Loans, and all accrued interest thereon, to be immediately due and payable, whereupon the Loans, all accrued interest thereon and all other amounts owing or payable under the Loan Documents shall be immediately due and payable without presentment, demand, protest or notice of any kind, all of which are expressly waived by the Company. Promptly following the making of such declaration, the Agent shall give notice thereof to the Company and each Lender but the failure to give such notice shall not impair any of the effects of such declaration. Upon the occurrence of any of the events described in section 7.1(k), the Lenders' Revolving Loan Commitments shall immediately terminate, and the Notes, together with accrued interest thereon and all other amounts owing or payable under the Loan Documents shall be immediately due and payable without presentment, demand, protest or notice of any kind, all of which are expressly waived by the Company. 8. The Agent. 38 8.1 Appointment and Duties of the Agent. The Lenders hereby appoint Firstar, subject to the terms and conditions of this section 8, as the Agent for the Lenders under and for purposes of this Agreement and the other Loan Documents. Each of the Lenders hereby irrevocably, authorizes, and directs the Agent to take such action on its behalf and to exercise such powers hereunder as are delegated to the Agent herein, together with such powers as are reasonably incident thereto, in connection with the administration of and enforcement of any rights or remedies with respect to this Agreement and the other Loan Documents. The Agent shall use reasonable diligence to examine the face of each document received by it hereunder to determine whether such document, on its face, appears to be what it purports to be. However, the Agent shall not be under any duty to examine into or pass upon the validity or genuineness of any documents received by it hereunder and the Agent shall be entitled to assume that any of the same which appears regular on its face is genuine and valid and what it purports to be. 8.2 Discretion and Liability of the Agent. Subject to sections 8.3, 8.5 and 9.12 hereof, the Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights which may be vested in it by, or with respect to, taking or refraining from taking any action or actions which it may be able to take under or in respect of this Agreement and the other Loan Documents. Neither the Agent nor any of its directors, officers, employees, agents or representatives shall be liable for any action taken or not taken under any Loan Document in the absence of gross negligence or willful misconduct. 8.3 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to a failure by the Company to pay principal, interest or fees required to be paid to the Agent, unless the Agent has actual knowledge of such facts or has received notice from a Lender or the Company in writing that such Lender or the Company considers that a Default or Event of Default has occurred and is continuing and which specifies the nature thereof. If the Agent shall acquire actual knowledge of or receive notice from a Lender or the Company that a Default or Event of Default has occurred, the Agent shall promptly notify the Lenders and the Company of such Default or Event of Default. 8.4 Consultation. The Agent in good faith may consult with legal counsel or other advisors selected by it and shall be entitled to fully rely upon any opinion of such counsel or other advisor in connection with any action taken or not taken by the Agent in accordance with such opinion. 39 8.5 Communications To and From the Agent. Upon any occasion requiring or permitting an approval, consent, waiver, election or other action on the part of the Lenders, unless action by the Agent alone is expressly permitted hereunder, action shall be taken by the Agent for and on behalf or for the benefit of the Lenders upon the direction of the Majority Lenders or, if required under section 9.12, all the Lenders. The Company may rely upon any communication from the Agent hereunder and need not inquire into the propriety of or authorization for such communication. Upon receipt by the Agent from the Company or any Lender of any communication calling for an action on the part of the Lenders, the Agent will, in turn, promptly inform the other Lenders in writing of the nature of such communication. In addition, the Agent shall forward to each Lender, promptly after receipt, copies of information provided by the Company pursuant to the requirements of the Loan Documents including, without limitation, the financial statements referred to in sections 5.1 and 5.2, and the notices referred to in section 5.12. 8.6 Limitations of Agency. The Agent will act under the Loan Documents solely as the agent of the Lenders and only to the extent specifically set forth in the Loan Documents and will, under no circumstances, be considered to be a fiduciary of any nature whatsoever in respect of any other Person. The relationship between the Agent and the Lenders is that of agent and principal only and the Agent shall not be deemed to be a trustee or fiduciary for any Lender. The Agent may generally engage in any kind of banking or trust business with the Company as if it were not the Agent. 8.7 No Representation or Warranty. No Lender (including the Agent) makes to any other Lender any representation or warranty, express or implied, or assumes any responsibility with respect to the execution, validity or enforceability of this Agreement or the other Loan Documents. 8.8 Lender Credit Decision. Each Lender acknowledges that it has, independent of and without reliance upon any other Lender (including the Agent) or any information provided by any other Lender (including the Agent) and based upon the financial statements of the Company and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independent of and without reliance upon any other Lender (including the Agent) and based upon such documents and information as it shall deem appropriate at that time, continue to make its own credit decision in taking or not taking action under this Agreement and the other Loan Documents. 8.9 Indemnity. Each Lender hereby indemnifies (which indemnity shall survive the termination of this Agreement) the Agent, pro rata 40 according to such Lender's Percentage, from and against any and all liabilities, obligations, losses, damages, claims, costs, or expenses of any kind or nature whatsoever including reasonable attorneys' fees which may at any time be imposed on, incurred by, or asserted against, the Agent in any way related to or arising out of this Agreement or the other Loan Documents and as to which the Agent is not reimbursed by the Company; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted solely from the Agent's gross negligence or willful misconduct. The Agent shall not be required to take any action hereunder or under any other Loan Document, or to prosecute or defend any suit in respect of the transactions contemplated hereby, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of the Agent shall be or become, in the Agent's determination, inadequate, the Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. 8.10 Resignation or Removal of Agent; Successor Agent. The Agent may resign as such at any time upon at least 30 days' prior notice to the Company and all Lenders. The Agent may be removed at any time by the Majority Lenders upon at least 30 days' prior notice by the Majority Lenders to the Company and the Agent, but only for cause consisting of its gross negligence or willful misconduct or following a declaration of insolvency by the appropriate regulators. If the Agent at any time shall resign or be removed, the Majority Lenders may appoint another Lender as a successor Agent which shall thereupon become the Agent hereunder. If no successor Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint the successor Agent, which shall be one of the Lenders. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall be entitled to receive from the retiring Agent such documents of transfer and such assignments as such successor Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations as Agent under this Agreement. 9. Miscellaneous. 9.1 Survival of Representations and Warranties. The Company's representations and warranties contained in section 3 hereof shall survive closing and execution and delivery of the Notes. 41 9.2 Indemnification. The Company agrees to defend, indemnify and hold harmless the Agent, the Lenders and their respective directors, officers, employees and agents from and against any and all loss, cost, expense or liability (including reasonable attorneys' fees) incurred in connection with any and all claims or proceedings (whether brought by a private party or governmental agency) as a result of, or arising out of or relating to: (a) bodily injury, property damage, abatement or remediation, environmental damage or impairment or any other injury or damage resulting from or relating to any hazardous or toxic substance or contaminated material (as determined under Environmental Laws) located on or migrating into, from or through property previously, now or hereafter owned or occupied by the Company, which the Agent or any Lender may incur due to the making of the Loans, or otherwise; (b) any transaction financed or to be financed, in whole or in part, directly or indirectly, with the proceeds of any Loan; or (c) the entering into, performance of and exercise of their rights under this Agreement or any other Loan Document by the Agent, and the Lenders. This indemnity will survive the repayment of the Loans. 9.3 Expenses. The Company agrees, whether or not the transaction hereby contemplated shall be consummated, to pay on demand (a) all out-of-pocket expenses incurred by the Agent or any Lender in connection with the negotiation, execution, administration, amendment or enforcement of this Agreement and the other Loan Documents, including reasonable counsel fees and expenses (provided that the maximum amount of fees and expenses incurred by each Lender in connection with the negotiation, execution, administration and amendment of this Agreement and the other Loan Documents to be reimbursed by the Company shall not exceed $1,000), (b) any taxes (including any interest and penalties relating thereto) payable by any Lender (other than taxes based upon such Lender's net income) on or with respect to the transactions contemplated by this Agreement (the Company hereby agreeing to indemnify each Lender with respect thereto) and (c) all out-of-pocket expenses, including reasonable counsel fees and expenses, incurred by the Agent or any Lender in connection with any litigation, proceeding or dispute in any way related to the Agent's and the Lenders' relationships with the Company, whether arising hereunder or otherwise, other than in connection with a successful action brought by the Company against a 42 Lender for such Lender's breach of its obligations to the Company. The obligations of the Company under this section will survive payment of the Loans. 9.4 Notices. All notices provided for herein shall be in writing and shall be (a) delivered; (b) sent by express or first-class mail; or (c) sent by facsimile transmission and confirmed in writing provided to the recipient in a manner described in (a) or (b), and, if to the Agent or a Lender, addressed to it at the address set forth below its signature, and if to the Company, addressed to it at 5481 South Packard Avenue, Cudahy, Wisconsin 53110, Attention: Wayne E. Larsen, Vice President Law/Finance, Facsimile No. 414-747-2890, or to such other address with respect to any party as such party shall notify the others in writing; such notices shall be deemed given when delivered or mailed or so transmitted. 9.5 Assignments and Participations. (a) Any Lender may, with the written consent of the Company (at all times other than during the existence of an Event of Default) and the Agent, which consents shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Company or the Agent shall be required in connection with any assignment and delegation by a Lender to an Eligible Assignee that is an Affiliate of such Lender) (each an "Assignee") all, or any ratable part of all, of the Loans, the Revolving Loan Commitment and the other rights and obligations of such Lender hereunder, in a minimum amount of $10,000,000; provided, however, that the Company and the Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to the Company and the Agent an Assignment and Acceptance in the form of Exhibit E (an "Assignment and Acceptance") together with any Note subject to such assignment and (iii) the assignor Lender or Assignee has paid to the Agent a processing fee in an amount specified by the Agent not exceeding $3,500 and has agreed to indemnify and hold the Company harmless from and against any and all costs, expenses and liabilities resulting from such assignment. (b) From and after the date that the Agent notifies the assignor Lender that it has received (and provided its consent with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender 43 under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. (c) Within five Business Days after its receipt of notice by the Agent that it has received an executed Assignment and Acceptance and payment of the processing fee, (and provided that it consents to such assignment in accordance with subsection 9.5(a)), the Company shall execute and deliver to the Agent, a new Note evidencing such Assignee's assigned Revolving Loan Commitment and, if the assignor Lender has retained a portion of its Loans and its Revolving Loan Commitment, a replacement Note in the principal amount of the Revolving Loan Commitment retained by the assignor Lender (such Note to be in exchange for, but not in payment of, the Note held by such Lender). Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Revolving Loan Commitments arising therefrom. The Revolving Loan Commitment allocated to each Assignee shall reduce the Revolving Loan Commitment of the assigning Lender pro tanto. (d) Any Lender may, at its option, with the written consent of the Company (at all times other than during the existence of an Event of Default) sell to another financial institution or institutions participating interests in a Note payable to such Lender and, in connection with each such sale, and thereafter, disclose to the purchaser or prospective purchaser of each such interest financial and other information concerning the Company. The Company agrees that if amounts outstanding under this Agreement or a Note are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each such purchaser shall be deemed to have, to the extent permitted by applicable law, the right of setoff in respect of its participating interest in amounts owing under this Agreement and such Note to the same extent as if the amount of its participating interest were owed directly to it. The Company further agrees that each such purchaser shall be entitled to the benefits of sections 2.13 and 2.14 with respect to its participation in the selling Lender's Revolving Loan Commitment; provided that no such purchaser shall be entitled to receive any greater amount pursuant to that section than the Lender would have been entitled to receive if no such sale had occurred. 9.6 Titles. The titles of sections in this Agreement are for convenience only and do not limit or construe the meaning of any section. 44 9.7 Parties Bound; Waiver. The provisions of this Agreement shall inure to the benefit of and be binding upon any successor of any of the parties hereto and shall extend and be available to any holder of a Note; provided that the Company's rights under this Agreement are not assignable. No delay on the part of the Agent or any Lender in exercising any right, power or privilege hereunder shall operate as a waiver thereof, and no single or partial exercise of any right, power or privilege hereunder shall preclude other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein specified are cumulative and not exclusive of any rights or remedies which the Agent or a Lender would otherwise have. 9.8 Governing Law. This Agreement is being delivered in and shall be deemed to be a contract governed by the laws of the State of Wisconsin and shall be interpreted and enforced in accordance with the laws of that state without regard to the principles of conflicts of laws. 9.9 Submission to Jurisdiction; Service of Process. As a material inducement to the Agent and the Lenders to enter into this Agreement: (a) THE COMPANY AGREES THAT ALL ACTIONS OR PROCEEDINGS IN ANY MANNER RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS MAY BE BROUGHT ONLY IN COURTS OF THE STATE OF WISCONSIN LOCATED IN MILWAUKEE COUNTY OR THE FEDERAL COURT FOR THE EASTERN DISTRICT OF WISCONSIN AND THE COMPANY CONSENTS TO THE JURISDICTION OF SUCH COURTS. THE COMPANY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH COURT AND ANY RIGHT IT MAY HAVE NOW OR HEREAFTER HAVE TO CLAIM THAT ANY SUCH ACTION OR PROCEEDING IS IN AN INCONVENIENT COURT; and (b) The Company consents to the service of process in any such action or proceeding by certified mail sent to the address specified in section 9.4. Nothing contained herein shall affect the right of the Agent or the Lenders to serve process in any other manner permitted by law. 9.10 Waiver of Jury Trial. THE COMPANY, THE AGENT AND THE LENDERS HEREBY KNOWINGLY AND VOLUNTARILY WAIVE THE RIGHT EACH OF THEM MAY HAVE TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM BASED ON OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, ANY COURSE OF CONDUCT, COURSE OF DEALING, 45 STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ANY OTHER ACTION OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE AGENT AND THE LENDERS TO ENTER INTO THIS AGREEMENT. 9.11 Limitation of Liability. THE COMPANY, THE AGENT AND THE LENDERS HEREBY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO CLAIM OR RECOVER FROM ANY OTHER PARTY ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES, OF WHATEVER NATURE, OTHER THAN ACTUAL DAMAGES. 9.12 Amendments. No provision of this Agreement or the other Loan Documents may be amended, modified, supplemented, changed, waived, discharged or terminated unless the consent of the Majority Lenders and the Company is obtained in writing, provided, however, that no such amendment, modification or waiver which would: (a) Modify any requirement hereunder that any particular action be taken by all the Lenders or by the Majority Lenders shall be effective unless consented to by each Lender; (b) modify this section 9.12, change the definition of "Majority Lenders," increase any Revolving Loan Commitment or the Percentage of any Lender, or reduce any fees payable hereunder, shall be effective unless consented to by each Lender; (c) extend the scheduled due date for the payment of principal or interest on any Note (or reduce the principal amount of or rate of interest on any Note) shall be made without the consent of the holder of such Note; (d) release any collateral (except as permitted herein or in the applicable Loan Document) shall be effective unless consented to by each Lender; or (e) adversely affect the interests, rights, or obligations of the Agent shall be made without the consent of the Agent. 9.13 Counterparts. This Agreement and any amendment hereof may be executed in several counterparts, each of which shall be executed by the Agent and the Company and be deemed to be an original and all of which together shall constitute one instrument. This Agreement shall become effective when counterparts hereof executed on behalf of the Company, the Agent and each 46 Lender shall have been received by the Agent and notice thereof shall have been given by the Agent to the Company and each Lender. 9.14 Entire Agreement. This Agreement and the other Loan Documents shall constitute the entire agreement of the parties pertaining to the subject matter hereof and supersedes all prior or contemporaneous agreements and understandings of the parties in connection therewith. LADISH CO., INC. BY______________________________ Its____________________________ Revolving Loan Commitment Percentage ---------- ---------- $25,000,000 25% FIRSTAR BANK MILWAUKEE, N.A., as the Agent and a Lender BY_____________________________ Its___________________________ Address: 777 East Wisconsin Avenue Milwaukee, WI 53202 Attn: Jeffrey J. Janza Facsimile No.: 414-765-4632 47 Revolving Loan Commitment Percentage ---------- ---------- $17,500,000 17.5% THE FIRST NATIONAL BANK OF CHICAGO BY_____________________________ Its___________________________ Address: One First National Plaza Suite IL1-0088 Chicago, IL 60670 Attn: Lisa Mott Facsimile No.: 312-732-1117 $17,500,000 17.5% U.S. BANK NATIONAL ASSOCIATION BY_____________________________ Its___________________________ Address: 201 West Wisconsin Avenue Milwaukee, WI 53259 Attn: Dennis Ciche Facsimile No.: 414-227-5881 $15,000,000 15% HARRIS TRUST AND SAVINGS BANK BY_____________________________ Its___________________________ Address: 111 West Monroe Street 48 10th Floor West Chicago, IL 60603 Attn: Sunny M. Harnett Facsimile No.: 312-293-5040 $15,000,000 15% LASALLE NATIONAL BANK BY_____________________________ Its___________________________ Address: 411 East Wisconsin Avenue Milwaukee, WI 53202 Attn: James A. Meyer Facsimile No.: 414-224-0071 $10,000,000 10% ST. FRANCIS BANK, F.S.B. BY_____________________________ Its___________________________ Address: 13400 Bishops Lane Suite 190 Brookfield, WI 53005 Attn: John C. Tans Facsimile No.: 414-486-8778 - ------------- -------- $100,000,000 100% ========================== 49 SCHEDULE 1.1 Existing Liens and Security Interests The liens and security interests arising under the March 9, 1998 Amended and Restated Credit Agreement among Ladish Co., Inc. and General Electric Capital Corporation, as amended. April 24, 1997 Escrow Agreement between Ladish Co., Inc. and Trinity Fitting and Flange Group, Inc. with Bank One Wisconsin Trust Company as escrow agent. SCHEDULE 3.1 Subsidiaries 1. Stowe Machine Co., Inc., a Nevada corporation 2. McLad Corporation, a Nevada corporation SCHEDULE 3.4 Litigation None SCHEDULE 3.18 Environmental Matters Ladish Co., Inc. has been named as a potentially responsible party at the following locations: Site Status ---- ------ 1) Hunts Superfund Site Consent order signed, site Caledonia, WI remedied, monitoring continuing. 2) Fadrowski Superfund Site Site remedied, owner has Franklin, WI monitoring responsibility. 3) ILCO Superfund Site Ladish settled as a De Minimis Leeds, AL party and dismissed. 4) Marina Cliffs Superfund Site Ladish settled as a De Minimis South Milwaukee, WI party and dismissed. Former subsidiary of Ladish Co., Inc. was named as a potentially responsible party at the Operating Industries Inc. site in California. The subsidiary was liquidated with no additional assets. SCHEDULE 3.20 Year 2000 Compliance Ladish Co., Inc. is in the process of changing its information technology system and believes that the new system will be Year 2000 compliant. SCHEDULE 6.3 Guaranty Obligations Ladish Co., Inc. has guaranteed the performance of its wholly-owned subsidiary, Stowe Machine Co., Inc. ("Stowe") in connection with the purchase by Stowe of the business and assets of Adco Manufacturing, Incorporated. Ladish Co., Inc. has guaranteed certain aspects of the performance and condition of the assets of its former Industrial Products Division ("IPD") under the sale of IPD to Trinity Fitting and Flange Company, Inc. X-2 EX-21 3 LIST OF SUBSIDIARIES OF THE COMPANY EXHIBIT 21 As of December 31, 1999 the Company had the following subsidiaries: (i) Stowe Machine Co., Inc., a Nevada corporation; and (ii) McLad Corporation, a Nevada corporation. EX-23 4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated January 28, 2000 included in the Ladish Co., Inc. 10-K, dated February 21, 2000, and to all references to our firm included in this registration statement. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Milwaukee, Wisconsin February 19, 2000 EX-27 5 FDS -- LADISH CO., INC.
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF LADISH CO., INC. AS OF AND FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1,008 0 25,522 300 42,427 68,895 145,855 (62,648) 159,583 29,888 0 0 0 143 73,467 159,583 170,241 170,241 151,065 7,186 (236) 0 (810) 11,416 1,713 9,703 0 0 0 9,703 0.71 0.67
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