<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 5-10065
EARLE M. JORGENSEN COMPANY
(Exact name of registrant as specified in its charter)
Delaware 95-0886610
---------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3050 East Birch Street, Brea, California 92822
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (714) 579-8823
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. None
----
Number of shares outstanding of the registrant's common stock, par value $.01
per share at May 31, 1997 - 128 shares
<PAGE>
PART I
SAFE HARBOR ACT STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: SOME OF THE INFORMATION CONTAINED IN THIS REPORT IS FORWARD LOOKING AND
INVOLVES RISKS AND UNCERTAINTIES THAT COULD SIGNIFICANTLY IMPACT EXPECTED
RESULTS. WHILE IT IS IMPOSSIBLE TO ITEMIZE THE MANY FACTORS AND SPECIFIC EVENTS
THAT COULD AFFECT THE COMPANY'S OUTLOOK, THE STATEMENTS CONTAINED HEREIN ARE
BASED ON EXPECTATIONS REGARDING FUTURE SALES, COMMITMENTS, EXPENSES AND THE
COSTS OF GOODS SOLD. EACH OF SUCH ITEMS COULD BE FURTHER AFFECTED BY THE IMPACT
OF GENERAL ECONOMIC FACTORS AND CONDITIONS IN THE METALS DISTRIBUTION INDUSTRY
AND IN THE INDUSTRIES IN WHICH THE COMPANY'S CUSTOMERS OPERATE.
ITEM 1. BUSINESS
Earle M. Jorgensen Company (the "Company") is one of the largest
independent distributors of metal products in the United States. The Company
was formed on May 3, 1990, in a transaction structured by Kelso & Companies Inc.
("Kelso"), through the combination of two leading metals distributors, Earle M.
Jorgensen Company ("EMJ") (founded in 1921) and Kilsby-Roberts Holding Co.
("Kilsby") (successor to C.A. Roberts Company, founded in 1915). In connection
with the combination of EMJ and Kilsby, the Company became a wholly owned
subsidiary of Earle M. Jorgensen Holding Company, Inc. ("Holding"). The events,
activities and transactions associated with the Company becoming a wholly owned
subsidiary of Holding are together sometimes hereinafter referred to as the
"Acquisition."
THE COMPANY
The Company is one of the largest independent distributors of metals
products in the United States, with approximately 2,300 full-time employees.
The Company operates a domestic network of 25 service centers, one sales office,
one merchandising office, one cutting center, two tube honing facilities and
four plate processing centers. In addition, the Company operates five foreign
service centers. The Company sells metal in a wide variety of capital goods
related industries. Sales orders are filled from stock inventory maintained at
company facilities (stock sales) and by arranging direct shipments from mills to
the Company's customers (mill-direct sales). The Company's foreign service
centers are operated through wholly-owned subsidiaries in the United Kingdom,
Canada and Mexico that together accounted for approximately 6.2% of revenues in
fiscal 1997. See "Business--Foreign Operations."
Since the merger in 1990, the Company has initiated various programs,
including the consolidation and sale of facilities, to align its operations with
its strategic goals. In fiscal 1996, the Company implemented a plan designed to
enhance operating productivity and efficiencies resulting in workforce
reductions and asset write-downs. On January 30, 1997, the Company elected a
new President, Chief Executive Officer and Chief Operating Officer. Under his
direction the Company developed a plan to restructure and realign its operations
and to further reduce its workforce. In March 1997, the Company began
implementing its 1997 restructuring which, among other things, included the
closure of service centers in Birmingham, Alabama; Hartford, Connecticut;
Detroit, Michigan and Buffalo, New York, the elimination of its flat-rolled
processing center, and the consolidation of its two honing operations. The
Company anticipates that it will be able to continue to serve substantially all
of its customers of the closed facilities from other nearby facilities. In
addition, the Company is currently in negotiations for the sale of its
operations in Hawaii, the United Kingdom and Mexico. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
General".
The Company's primary business goal is to increase market share while
maintaining its gross margins. The Company believes its market penetration,
reputation for quality and customer service, economies of scale and broad
product lines make it a strong competitor in the metals distribution industry.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--General." The Company has invested significant resources
to upgrade its management information and financial reporting system. The new
system, named "WIN", for "worldwide information network", was brought on line
in February 1995. Management believes the WIN system provides the Company with
improved information processing capabilities over its former systems. The
Company is using WIN to support electronic commerce, including electronic data
interchange ("EDI"), remote inquiry and order ("RIO") and other productivity
enhancing functions, to better serve its customers and suppliers.
1
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CUSTOMERS AND MARKETS
The Company services the steel or aluminum requirements of over 40,000
active customers throughout the United States in a wide variety of industries,
including machinery manufacturing, transportation, fabricated metal products,
aerospace, oil tools, construction, shipbuilding, plastics, chemicals,
petrochemicals, farm equipment, food processing, energy and environmental
control. The Company is not dependent on any single customer, and during fiscal
1997 no single customer accounted for more than 4% of its revenues.
During fiscal 1997, the Company handled approximately 8,300 sales
transactions per business day generating an average revenue of approximately
$490 per transaction. Stock sales represented approximately 86% of Company
revenues in fiscal 1997. Special requirements of the customer are met by
arranging mill-direct sales and by making buy-outs from other distributors of
items the Company does not maintain as stock inventory. Such sales generally
have lower margins than stock sales, but provide a valuable customer service.
The vast majority of sales are from individual orders and are not
subject to ongoing contracts; however, the Company enters into contracts to
purchase and supply specific products over a period of a year or longer. Such
contracts provide the customer with greater certainty as to timely delivery,
price stability and continuity of supply, and sometimes satisfy particular
processing or inventory management requirements. Such contracts have resulted
in new customer relationships and increased sales volumes for the Company, but
generally, have a slightly lower gross margin than ordinary sales. Such
contracts, in the aggregate, represented less than 10% of Company revenues in
fiscal 1997.
SEASONAL FLUCTUATIONS AND BACKLOG
Seasonal fluctuations in the Company's business generally occur in the
summer months and in November and December, when many customers' plants are
closed for vacations. Order backlog is not a significant factor in the business
of the Company, as orders are generally filled within 24 hours.
PRODUCTS
The Company has designated certain carbon and alloy, aluminum, and
stainless commodities as core product offerings under its Bar, Tubing and Pipe,
Plate, and Sheet product lines. The Company is committed to stocking a broad
range of shapes and sizes of each of these commodities in each service center
(unless there is no market for the product line at a particular location), and
each service center is expected to be a market leader in the Company's core
product lines in its geographic area. In addition to stocking core products,
each service center tailors its inventory to the customer and market
requirements of its geographic area.
Major markets for the Company's products include construction, farm
and other special machinery, aircraft and aerospace components, biomedical,
defense, automotive and truck manufacturing, shipbuilding and repair, oil
refining and exploration, chemical and petrochemical and utilities. Carbon steel
products (hot-rolled and cold-finished) are used in construction equipment, farm
equipment, automotive and truck manufacturing, shipbuilding and oil exploration
as well as a wide range of other products. Stainless steel is used widely in the
chemical, petrochemical, oil refining and biomedical industries where resistance
to corrosion is important. Aluminum is frequently used in aircraft and aerospace
applications where weight is a factor. Different tubing products are appropriate
for particular uses based on different characteristics of the tubing materials,
including strength, weight, resistance to corrosion and cost. Carbon pipe and
tubing are used in general manufacturing. Alloy tubing is used primarily in the
manufacturing of oil field equipment and farm equipment. Stainless steel pipe
and tubing are used in applications requiring a high resistance to corrosion,
such as food processing. Aluminum pipe and tubing are used in applications that
put a premium on light weight (such as aerospace manufacturing).
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The following table sets forth a percentage breakdown of revenue from
stock sales (excludes mill-direct revenue and buy-outs) by product group for
U.S. operations for the last three fiscal years ended March 31, 1997.
PERCENTAGE BREAKDOWN OF
REVENUES FROM STOCK SALES BY PRODUCT GROUP
<TABLE>
<CAPTION>
(PERCENTAGES)
FISCAL YEAR ENDED
MARCH 31,
------------------------
1997 1996 1995
------------------------
<S> <C> <C> <C> <C>
BARS:
Carbon and Alloy . . . . . . . . . . . . . . . . . . . 33.9 32.6 37.1
Stainless. . . . . . . . . . . . . . . . . . . . . . . 13.6 14.2 12.0
Aluminum.. . . . . . . . . . . . . . . . . . . . . . . 5.5 5.7 6.6
----- ----- -----
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53.0 52.5 55.7
----- ----- -----
TUBING AND PIPE:
Carbon and Alloy . . . . . . . . . . . . . . . . . . . 26.8 26.4 26.0
Stainless. . . . . . . . . . . . . . . . . . . . . . . 3.7 3.8 3.5
Aluminum.. . . . . . . . . . . . . . . . . . . . . . . 3.6 3.7 3.3
----- ----- -----
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.1 33.9 32.8
----- ----- -----
PLATE:
Carbon.. . . . . . . . . . . . . . . . . . . . . . . . 5.6 5.4 4.8
Stainless. . . . . . . . . . . . . . . . . . . . . . . 1.8 2.2 1.1
Aluminum.. . . . . . . . . . . . . . . . . . . . . . . 2.5 2.8 2.2
----- ----- -----
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9 10.4 8.1
----- ----- -----
SHEET:
Carbon . . . . . . . . . . . . . . . . . . . . . . . . 0.5 0.6 1.0
Stainless. . . . . . . . . . . . . . . . . . . . . . . 0.6 0.9 0.7
Aluminum.. . . . . . . . . . . . . . . . . . . . . . . 1.8 1.5 1.3
----- ----- -----
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 3.0 3.0
----- ----- -----
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.2 0.4
----- ----- -----
100.0 100.0 100.0
----- ----- -----
----- ----- -----
Revenues from stock sales as a percentage of total revenues. 85.7 83.4 79.5
----- ----- -----
----- ----- -----
</TABLE>
INTELLECTUAL PROPERTY AND LICENSES
The Company has registered "EMJ" as a trademark and service mark in
the United States and in other countries where it does or expects to do
business.
The Company considers certain other information owned by it to be
trade secrets and the Company takes measures to protect the confidentiality and
control the disclosure of such information. The Company believes that these
safeguards
3
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adequately protect its proprietary rights and the Company vigorously defends
these rights. While the Company considers all of its intellectual property
rights as a whole to be important, the Company does not consider any single
right to be essential to its operations.
MANAGEMENT INFORMATION SYSTEMS
In February 1995, the Company implemented a new management information
system that integrated three different systems the Company had operated in prior
years into one system for most Company operations. While the transition to the
new system was disruptive and required a Company-wide training effort and
changes in operational processes, the new system is designed to increase the
Company's ability to analyze and manage the operations and improve the
productivity of the Company and its customers and suppliers. The new system
enhances the Company's ability to utilize electronic commerce in dealing with
its customers and suppliers, including EDI, RIO, bar coding and other functions
that can result in more efficiency and greater productivity for all users. The
Company's Information Technology Department continues to refine and upgrade the
new system to provide better information and services for its employees and
customers.
SUPPLIERS
In March 1997, the Company consolidated its purchasing functions in
Brea, California and Chicago to its merchandising office in Chicago. Purchases
are made by specialists in each of the Company's major product lines. The
Company concentrates on developing close working relationships with high-quality
suppliers to ensure quality and timely delivery to the Company's customers.
The vast majority of the Company's purchases are made by purchase
order and the Company has no significant supply contracts with periods in excess
of one year. The Company is not dependent on any single supplier for a material
portion of its purchases, and in fiscal year 1997 no single supplier represented
more than 10% of its total purchases. The Company purchased less than 3% of its
inventory requirements from foreign based suppliers in fiscal 1997.
EMPLOYEES
As of May 31, 1997, the Company employed approximately 2,300 persons,
of whom approximately 1,400 were in production or shipping, 450 were in sales
and 450 served in executive, administrative or office capacities.
Approximately 800 of the Company's employees from nineteen locations are
represented by four different unions. The related collective bargaining
agreements expire on staggered dates between August 1997 and May 2001. The
Company believes that it has a good overall relationship with its employees. As
of May 31, 1997, the Company had terminated the employment of 154 employees
pursuant to the 1997 restructuring plan. The Company anticipates that upon
completion of the 1997 restructuring plan, including the disposition of
operations, the aggregate reduction of employees will be approximately 300.
FOREIGN OPERATIONS
The Company's five service centers outside the United States operate
through three wholly-owned foreign subsidiaries: Kilsby Jorgensen Steel &
Aluminium Ltd., a United Kingdom limited liability company; Earle M. Jorgensen
(Canada) Inc., a Canadian limited liability company; and Kilsby Jorgensen Steel
& Aluminum S.A. de C.V., a Mexican limited liability company. The foreign
service centers carry product lines tailored to the customers and the markets
they serve. For the fiscal years ended March 31, 1997, 1996 and 1995, revenues
from foreign operations totaled $63.8 million, $66.7 million and $58.7 million
or 6.2%, 6.5% and 5.7% of the Company's total revenues, respectively.
As of March 1997, the foreign operations in the United Kingdom and in
Mexico were being held for sale. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations". The Company intends
to continue its operations in Canada.
COMPETITION
The metals service center industry is highly fragmented and generally
competes on price, product availability, timely delivery, reliability, quality
and processing capability. Apart from price, these services are all "value-
added" services provided by metals service centers to lower customers' overall
costs. The industry includes both general-line distributors, which handle a
wide range of metal products, and specialty distributors, which specialize in
particular categories of metal products. Metals service centers range from
nationwide to regional and local in geographic coverage. Although the
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Company is one of the largest distributors of metals in the United States, some
of its competitors have greater financial resources than the Company.
ENVIRONMENTAL MATTERS
The Company is subject to extensive and changing federal, state, local
and foreign laws and regulations designed to protect the environment and human
health and safety, including those relating to the use, handling, storage,
discharge and disposal of hazardous substances and the remediation of
environmental contamination. As a result, the Company is from time to time
involved in administrative and judicial proceedings and inquiries relating to
environmental matters.
During fiscal 1997, expenditures made in connection with environmental
matters totaled approximately $1.1 million, principally for remediation and
investigation activities at sites where contamination of soil and/or groundwater
is present. Of these sites, only those environmental matters related to former
facilities of the Company are expected to require significant future
expenditures. As of March 31, 1997, the Company had accrued approximately $1.4
million for future investigation and remediation expenditures to the extent such
expenditures could be reasonably estimated. Although it is possible that new
information or future developments could require the Company to reassess its
potential exposure relating to all pending environmental matters, management
believes that, based upon all currently available information, the resolution of
such environmental matters will not have a material adverse effect on the
Company's financial condition, results of operations and liquidity. The
possibility exists, however, that new environmental legislation and/or
environmental regulations may be adopted, or other environmental conditions may
be found to exist, that may require expenditures not currently anticipated and
that may be material. See Note 9 to the Company's Consolidated Financial
Statements included elsewhere herein for a more detailed discussion of specific
environmental contingencies.
ITEM 2. PROPERTIES
The Company currently maintains 25 domestic service centers, one sales
office, one merchandising office, one cutting center, two tube honing facilities
and four plate processing centers at various locations throughout the United
States and is headquartered in Brea, California. The Company also maintains
five foreign metals service centers through its subsidiaries in Canada, Mexico
and the United Kingdom. Service centers in Birmingham, Alabama; Hartford,
Connecticut; Detroit, Michigan and Buffalo, New York have been closed in
connection with the 1997 restructuring plan described under "Item 1. Business --
- - The Company". In addition, the Company discontinued its flat-rolled
processing operations in April 1997 and is in negotiations for the sale of its
operations in Hawaii, the United Kingdom and Mexico. The Company's facilities
are in good condition and are equipped to provide efficient processing of
customer orders. The Company's facilities generally are capable of being
utilized at higher capacities, if necessary. Most leased facilities have
initial terms of more than one year and include renewal options. While some of
the leases expire in the near term, the Company does not believe that it will
have difficulty renewing such leases or finding alternative sites.
Set forth below is a table summarizing certain information with
respect to the Company's facilities.
Owned/ Facility
Country/City/State Leased (Sq.Ft)
------------------ ------ --------
United States
Birmingham, Alabama (a) Owned 69,900
Atlanta, Georgia Leased 27,300
Phoenix, Arizona Owned 72,200
Little Rock, Arkansas Leased 28,800
Hayward, California Leased 86,000
Los Angeles, California Owned 632,700
Los Angeles, California Leased 83,600
Denver, Colorado Leased 78,800
Hartford, Connecticut (a) Owned 48,000
Honolulu, Hawaii Owned 109,200
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Blue Island, Illinois Leased 20,500
Chicago, Illinois Owned 554,000
Roselle, Illinois Leased 4,900
Plainfield, Indiana Owned 142,700
Davenport, Iowa Leased 59,200
Boston, Massachusetts Owned 64,200
Detroit, Michigan (a) Owned 116,400
Minneapolis, Minnesota Owned 160,000
Kansas City, Missouri Owned 126,500
Kansas City, Missouri Leased 66,500
St. Louis, Missouri Leased 106,700
Buffalo, New York (a) Owned 37,000
Charlotte, North Carolina Owned 178,200
Cincinnati, Ohio Leased 137,000
Cleveland, Ohio Owned 199,600
Cleveland, Ohio Owned 134,500
Tulsa, Oklahoma Owned 106,500
Tulsa, Oklahoma Leased 37,000
Tulsa, Oklahoma Owned 137,900
Portland, Oregon Leased 31,300
Philadelphia, Pennsylvania Leased 234,800
Memphis, Tennessee Leased 56,500
Dallas, Texas Owned 132,200
Dallas, Texas Owned 72,000
Houston, Texas Owned 276,000
Kent, Washington Leased 83,700
Canada
Toronto, Ontario Leased 38,600
Montreal, Quebec Leased 57,000
Mexico
Toluca (a) Leased 27,000
United Kingdom
Sheffield (a) Leased 78,400
Arbroath, Scotland (a) Leased 10,000
Other Properties
Brea, California (headquarters) Leased 38,300
- -------------------------
(a) Closed and/or held for sale as part of the 1997 restructuring plan.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations". The sale of the Birmingham
facility is expected to be completed in June 1997.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries and branches are occasionally
involved in ordinary, routine litigation incidental to their normal course of
business, none of which they believe to be material to their financial
condition or results of operations. The Company and its subsidiaries and
branches maintain various liability insurance coverages to protect their
assets from losses arising out of or involving activities associated with
ongoing and normal business operations. See also "Item 1. Business --
Environmental Matters."
6
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY
The Company has 128 shares of common stock par value $.01 per
share, all of which is owned by Holding. During the fiscal years ended March
31, 1997, 1996 and 1995, the Company paid dividends of $5,552,000,
$22,289,000 and $3,654,000, respectively, to Holding in connection with
Holding's repurchasing of its capital stock from employees of the Company
whose employment had terminated, as required by the terms of Holding's
Stockholders Agreement and the ESOP. The Company has not declared or paid
any other dividends on its capital stock since the Acquisition.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from the
audited consolidated financial statements of the Company. The consolidated
financial statements of the Company have been audited by Ernst & Young LLP,
independent auditors. All information contained in the following table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the consolidated financial
statements of the Company and the related notes thereto included elsewhere in
this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $1,023,565 $1,025,659 $1,022,884 $843,380 $781,926
Gross profit (1) 280,739 261,021 305,909 249,758 238,951
Operating expenses exclusive of restructuring,
consolidation and other non-recurring
charges 245,826 245,619 247,184 222,750 214,790
Restructuring, consolidation and other
non-recurring charges 20,088 12,776 715 1,282 9,063
Income from operations 14,825 2,626 58,010 25,726 15,098
Net interest expense 40,880 40,874 34,604 30,032 42,941
Extraordinary item and cumulative effect
of accounting changes --- --- --- --- 68,320
Net income (loss) (26,556) (29,311) 19,919 (4,306) (89,463)
BALANCE SHEET DATA:
Working capital $180,637 $166,587 $243,738 $176,280 $146,861
Net property, plant & equipment 120,050 134,259 139,705 143,099 154,317
Total assets 454,882 484,911 543,548 505,928 479,303
Long-term debt (including current portion) 291,286 279,952 296,274 294,136 273,128
</TABLE>
7
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<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Stockholder's equity 1,927 25,141 76,400 54,708 59,632
OTHER SUPPLEMENTAL DATA:
Depreciation and amortization (2) $ 10,620 $ 12,022 $ 14,135 $ 14,680 $ 17,000
Non-cash ESOP expense (3) 3,102 3,401 7,694 6,005 5,919
Net cash interest expense (4) 37,747 37,310 31,592 26,457 48,422
Capital expenditures 4,449 16,658 16,177 12,371 5,898
Ratio of earnings to fixed charges (5) --- --- 1.58 --- ---
Dividends paid (6) 5,552 22,289 3,654 5,898 2,908
</TABLE>
_______________
(1) In February 1995, the Company began the implementation of a new enhanced
inventory and management information system. To ensure the accuracy of the
conversion of the perpetual inventory records, the Company performed
physical inventory counts and other procedures at all of its locations
during the second, third and fourth quarters of fiscal 1996. The Company
identified a difference between the perpetual inventory records and the
general ledger amounting to $26.9 million and, accordingly, has recorded a
special charge to cost of sales for this difference in the fourth quarter
of fiscal 1996.
(2) Depreciation and amortization excludes amortization of debt issue costs
aggregating $2,144, $2,144, $2,117, $2,040 and $4,229 for the years ended
March 31, 1997, 1996, 1995, 1994 and 1993, respectively, and debt issue
costs of $550 written off in connection with an amendment to the Company's
revolving loan agreement in fiscal 1996, reflected in the Company's
consolidated statements of operations as interest expense.
(3) Non-cash ESOP expense represents the amount of ESOP expense charged to
operations that were or will be paid in the form of Holding's equity
securities.
(4) Net cash interest expense represents net interest expense adjusted to
exclude (i) the amortization and write-off of debt issue costs (see note
(2) above) and bond discount, and (ii) accrued interest.
(5) In computing the ratio of earnings to fixed charges, "earnings" represents
pre-tax income (loss) plus fixed charges except capitalized interest, if
any. "Fixed charges" represents interest whether expended or capitalized,
debt cost amortization, and 33% of rent expense, which is representative of
the interest factor. Earnings were insufficient to cover fixed charges for
the fiscal years ended March 31, 1997, 1996, 1994 and 1993 by $26,055,
$38,248, $4,306 and $27,843, respectively. Earnings were sufficient to
cover fixed charges for the fiscal year ended March 31, 1995.
(6) Dividends to Holding in connection with Holding's repurchasing of its
capital stock from terminated employees. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources".
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Item 6.
Selected Financial Data" and the consolidated financial statements of the
Company, and the notes related thereto appearing elsewhere in this Form 10-K.
GENERAL
In May 1990, Kelso and its affiliates acquired control of EMJ and
Kilsby in the Acquisition and combined their operations to form the Company. As
a result of the Acquisition, the Company incurred substantial indebtedness and
remains highly leveraged.
During the past two years, the Company has undergone substantial
changes. In March 1997, the Company announced a $15.6 million restructuring
plan which included selling certain foreign operations, closing four domestic
distribution centers, and reducing the Company's workforce in order to improve
operating efficiencies and margins. In addition, fiscal 1997 included a $4.5
million write-off of certain costs related to its management information and
reporting system. In fiscal 1996, the Company recorded a $3.6 million
restructuring charge for workforce reductions and a non-recurring charge of $9.2
million for asset write-downs and write-offs. In addition, fiscal 1996 included
an inventory adjustment of $26.9 million representing the difference between the
Company's physical inventory balances and its perpetual inventory records after
the implementation and conversion to a new management information system in
February 1995. The implementation of the new computer system adversely affected
the Company's results of operations in fiscal 1996. Start-up difficulties
impacted sales, purchasing, receivables and inventory management causing the
Company to incur additional expense in correcting errors arising in the
transition process.
The Company's results of operations are affected by trends in the
metals distribution industry, which is generally cyclical. Prices paid for
steel and other metal commodities are affected by changes in worldwide
supplies and demand, which can significantly impact revenues and gross
margin. Increases in raw material prices generally result in increased
revenues; however, the ability to sustain gross and operating margins also
depends on the ability of the Company to pass such price increases on to its
customers.
While economic and industry trends have an important effect on the
Company's results of operations, the Company believes its results have been less
sensitive to economic trends affecting certain segments of the industry due to
its geographically diversified operations, its broad customer base and the
variety of industries served. In addition, the Company had concentrated on
higher margin specialty products, such as bar and tubing which have historically
been less vulnerable to industry cycles.
STATEMENT OF OPERATIONS INFORMATION
RESULTS OF OPERATIONS -- YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH
31, 1996
REVENUES. Revenues for fiscal 1997 decreased 0.2% to $1,023.6 million,
compared to $1,025.7 million in fiscal 1996. Revenues from domestic operations
for fiscal 1997 increased $0.8 million to $959.8 million compared to $959.0
9
<PAGE>
million in fiscal 1996. Foreign revenues decreased $2.9 million to $63.8
million. While domestic revenues were relatively flat, foreign revenues were
adversely impacted by general weaknesses in the local economies.
GROSS PROFIT. Gross profit increased $19.7 million to $280.7 million
in fiscal 1997 compared to $261.0 million in fiscal 1996 while gross margin
increased to 27.4% compared to 25.4%. The increases were primarily attributable
to an inventory adjustment of $26.9 million recorded in fiscal 1996 (see Note 2
to Consolidated Financial Statements). Fiscal 1997 also included a LIFO credit
of $3.5 million compared to a corresponding LIFO charge of $9.7 million in
fiscal 1996. Gross profit and gross margin from foreign operations was $13.4
million and 21.0% in fiscal 1997, compared to $15.6 million and 23.4% in fiscal
1996. Exclusive of foreign operations, LIFO, and the 1996 inventory adjustment,
gross margin was 27.5% for fiscal 1997, compared to 29.4% in fiscal 1996. The
decrease of 1.9% reflects changes in product and customer mix resulting from
cyclical changes in industrial production, competitive pricing pressures,
disposition of slow moving and discontinued inventory, and a sudden decline in
stainless and aluminum commodity sheet prices.
EXPENSES. Total operating expenses of $265.9 million in fiscal 1997
included a restructuring charge of $15.6 million and a non-recurring charge for
asset write-offs of $4.5 million (see Note 1 to Consolidated Financial
Statements). Total operating expenses of $258.4 million in fiscal 1996 included
a restructuring charge of $3.6 million for workforce realignment, and a non-
recurring charge of $9.2 million for asset write-downs and write-offs (see Note
1 to Consolidated Financial Statements). Excluding such charges, operating
expenses in fiscal 1997 would have been $245.8 million, or 24.0% of revenues,
compared to $245.6 million, or 23.9% of revenues, in fiscal 1996.
Warehouse and delivery expenses increased $5.3 million (4.1%) to
$135.3 million in fiscal 1997 compared to $130.0 million in fiscal 1996. As a
percent of revenues, warehouse and delivery expenses were 13.2% in 1997 and
12.7% in fiscal 1996. The increases are primarily attributable to higher
freight costs and related handling expenses resulting from the expansion of
services from existing inventory depots and from additional depots established
in fiscal 1996.
Selling, general and administrative expenses decreased $5.2 million
(4.4%) to $110.5 million in fiscal 1997 compared to $115.7 million in fiscal
1996. In fiscal 1997 selling expenses decreased $1.0 million (2.4%) to $40.8
million, and decreased as a percent of revenues to 4.0% from 4.1% in fiscal 1996
due to lower compensation costs. General and administrative expenses decreased
by $4.1 million (5.5%) to $69.7 million in fiscal 1997, and to 6.8% of revenues
from 7.2% in fiscal 1996. The decrease in general and administrative expenses
was primarily due to lower compensation expense, lower depreciation and
amortization of property, plant and equipment resulting from a change in
accounting estimate in fiscal 1996 (see Note 1 to Consolidated Financial
Statements), higher income from cash discounts taken on vendor payments and
gains from sales of surplus facilities.
NET INTEREST EXPENSE. Net interest expense was $40.9 million in both
fiscal 1997 and 1996. Such amounts include interest on the Revolving Credit
Facility, Senior Notes, interest on borrowings against the cash surrender value
of certain life insurance policies and the amortization or write-off of debt
issue costs ($2.1 million in fiscal 1997 and $2.7 million in fiscal 1996).
During fiscal 1997 the average outstanding indebtedness (excluding
borrowings against the cash surrender value of certain life insurance policies)
was $304.5 million versus $305.4 million in fiscal 1996. The weighted average
interest rate on such indebtedness during fiscal 1997 was 9.62% versus 9.83% in
fiscal 1996. The decrease in the average outstanding indebtedness and the
weighted average interest rate was attributable to the Company's Revolving
Credit Facility borrowings. The average borrowings under the Revolver decreased
to $130.4 million from $131.6 million in fiscal 1996, and the average interest
rate decreased to 8.54% in fiscal 1997 from 9.09% in fiscal 1996.
The outstanding borrowings against the cash surrender value of life
insurance policies was $76.5 million at March 31, 1997 and $65.9 million at
March 31, 1996, and the total interest expense on such borrowings increased to
$8.6 million in fiscal 1997 compared to $7.2 million in fiscal 1996. Such
increases resulted from a borrowing of $11.4 million against the increased cash
surrender value of life insurance policies in November 1996 to pay annual
premiums on such policies and to pay interest on previous borrowings (see
Liquidity and Capital Resources). As specified in the terms of the insurance
policies, the rates for dividends payable on the policies correspondingly
increase when borrowings are outstanding under the policies. This increase in
dividends is greater than the increase in the incremental borrowing rate.
Dividend income is reported in general and administrative expenses in the
Company's statements of operations and is not offset against the interest
expense.
10
<PAGE>
The interest rates on the Senior Notes and on the life insurance
policy borrowings are fixed at 10.75% and 11.76%, respectively. The interest
rate on the Revolving Credit Facility is at a floating rate (10.0% as of March
31, 1997).
RESULTS OF OPERATIONS -- YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH
31, 1995
REVENUES. Revenues for fiscal 1996 increased 0.3% to $1,025.7 million,
compared to $1,022.9 million in fiscal 1995.
Revenues from domestic operations for fiscal 1996 decreased $5.2
million (0.5%) to $959.0 million compared to $964.2 million in fiscal 1995.
Foreign revenues increased $8.0 million (13.7%) to $66.7 million. The decrease
in domestic revenues was related to a weakening of the U.S. economy, primarily
in the northeast and midwest regions, softening in prices for certain of the
Company's products, and changes in product mix. Demand flattened in the second
quarter and declined in the third and fourth quarters of fiscal 1996 when
compared to the same periods in the prior year. In addition, the transition to
the Company's new management information system in 1996 was disruptive to
operations and contributed to the decrease in domestic revenues.
GROSS PROFIT. Gross profit decreased $44.9 million (14.7%) to $261.0
million compared to $305.9 million fiscal 1995 while gross margin decreased to
25.4% compared to 29.9%. The decrease was primarily attributable to an
inventory adjustment of $26.9 million (see Note 2 to Consolidated Financial
Statements). Fiscal 1996 included a LIFO charge of $9.7 million reflecting
higher material costs and product mix changes compared to a corresponding LIFO
charge of $7.6 million in fiscal 1995. Gross profit from foreign operations was
$15.6 million and gross margin was 23.4%, compared to $14.0 million and 23.9%,
respectively, in fiscal 1995. Exclusive of foreign operations, LIFO charges and
the inventory adjustment, the domestic operations gross margin was 29.4% for
fiscal 1996 compared to 31.1% in the prior year. The difference is primarily
due to changes in product mix resulting from domestic cyclical changes in
industrial production, higher scrap charges recognized in fiscal 1996 versus
1995 and competitive pricing pressures.
EXPENSES. Total operating expenses in fiscal 1996 included a second
quarter restructuring charge of $12.8 million for workforce realignment ($3.6
million) and asset write-downs or write-offs ($9.2 million) (see Note 1 to
Consolidated Financial Statements). Excluding such charges total operating
expenses decreased $1.6 million (0.6%) to $245.6 million compared to $247.2
million in fiscal 1995. As a percentage of revenues, these expenses decreased
to 23.9% compared to 24.2% in fiscal 1995.
Warehouse and delivery expenses increased $4.3 million (3.4%) to
$130.0 million and to 12.7% as a percentage of revenue in fiscal 1996 compared
to $125.7 million or 12.3% in fiscal 1995. The increases are primarily
attributable to additional costs incurred in connection with physical inventory
counts and higher freight costs resulting from an inventory balancing program
implemented during the year to better serve geographic demand and designed to
reduce inventories.
Selling, general and administrative expenses decreased $5.8 million
(4.8%) to $115.7 million and to 11.3% as a percentage of revenues in fiscal 1996
compared to $121.5 million or 11.9% in fiscal 1995. In fiscal 1996, selling
expenses decreased $2.8 million (6.3%) to $41.8 million and decreased, as a
percentage of revenue, to 4.1% from 4.4% in fiscal 1995, primarily due to lower
compensation costs. General and administrative expenses decreased by $3.0
million (3.9%) to $73.9 million compared to fiscal 1995, and decreased, as a
percentage of revenue, to 7.2% from 7.5% in fiscal 1995. The decrease in general
and administrative expenses was primarily due to lower insurance and
communication costs, lower amortization of step-up of property, plant and
equipment resulting from a change in accounting estimate (see Note 1 to
Consolidated Financial Statements), and higher dividend income earned from life
insurance policies maintained by the Company, partially offset by higher
professional services costs incurred in connection with environmental,
information technology, marketing and human resource projects.
NET INTEREST EXPENSE. Net interest expense during fiscal 1996
increased $6.3 million to $40.9 million compared to $34.6 million in fiscal
1995. Such increase was primarily the result of higher average outstanding
indebtedness ($305.4 million versus $290.4 million in fiscal 1995), a higher
weighted average interest rate (9.83% versus 9.44% in fiscal 1995), and higher
interest costs associated with increased borrowings against the cash surrender
value of life insurance policies. The increase in the average outstanding
indebtedness and the weighted average interest rate is primarily attributable to
the Company's Revolving Credit Facility borrowings. The average borrowings
under the Revolver increased to $131.6 million compared to $124.1 million in
fiscal 1995 and the average interest rate increased from 8.02% in fiscal 1995 to
9.09% in fiscal 1996. The increased average borrowings under the Revolver were
primarily attributable to the higher level of receivables in the first quarter
of fiscal 1996 in part arising from the transition to the new computer system.
The outstanding principal amount of borrowings against the cash surrender value
of life insurance policies was $65.9 million at
11
<PAGE>
March 31, 1996 versus $55.6 million at March 31, 1995, and the interest expense
on such borrowings increased to $7.2 million in fiscal 1996 compared to $4.7
million in fiscal 1995.
Almost all of the interest expense of the Company was payable in
respect of three items of indebtedness: the Senior Notes, the life insurance
policy borrowings, and the Revolving Credit Facility. The interest rate of the
Senior Notes, representing approximately $154.5 million (or 55.2%) in the
aggregate in principal amount of the indebtedness of the Company, at March 31,
1996, is fixed, as is the interest rate on the life insurance policy borrowings.
The interest rate on the Revolving Credit Facility, representing approximately
$105.9 million (or 37.8%) in principal amount of the indebtedness of the Company
at March 31, 1996, is at a floating rate (8.3% as of March 31, 1996). The
interest rate payable by the Company on $20.2 million of such indebtedness was
effectively capped at 9-3/4% pursuant to an interest rate protection agreement
entered into with Bankers Trust Company on April 14, 1993 and expiring on April
6, 1996. Such interest rate protection agreement required Bankers Trust Company
to make payments to the Company each quarter, in an amount equal to the product
of the notional amount of $20.2 million and the difference between the three
month London interbank offered rate and the cap rate of 7%, if the London
interbank offered rate exceeds the cap rate. The three month London interbank
offered rate at March 31, 1996 was 5.47% and no payments to the Company were
required under the agreement since it was entered into. The Company paid a one
time fee of $101,000 when it entered into the agreement, which was included in
interest expense in fiscal 1994.
During fiscal 1996, the Company borrowed $10.3 million against certain
life insurance policies to pay annual premiums on such policies and to pay
interest on previous borrowings (see Liquidity and Capital Resources). As a
result of this borrowing, the Company's interest expense increased in the second
half of fiscal 1996 due to the higher incremental borrowings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ongoing cash requirements for debt service and capital
expenditures through fiscal 1998 will consist primarily of interest payments
under its Revolving Credit Facility, interest payments on the Senior Notes,
dividend payments to Holding in connection with the required repurchase of its
capital stock from departing stockholders pursuant to Holding's Stockholders
Agreement and the ESOP, capital expenditures and principal and interest payments
on the Company's industrial revenue bond and purchase money indebtedness.
Principal payments required by the Company's currently outstanding industrial
revenue bonds and purchase money indebtedness amount to $1.0 million in fiscal
1998, $1.5 million in fiscal 1999 and 2000 and $14.7 million in the aggregate
thereafter through 2010. The Company will not be required to make any principal
payments in respect of the Senior Notes until 2000. On March 19, 1997, the
Company received an amendment to the Revolving Credit Facility which, among
other things, extended the expiration date to September 1999. In June 1997, the
Company received a waiver with respect to fiscal 1997 financial covenants
relating to consolidated net worth and fixed charge coverage ratio and received
amendments to other financial covenants for future periods. Although compliance
with such covenants in the future is largely dependent on the future performance
of the Company and general economic conditions, for which there can be no
assurance, the Company expects that it will continue to be in compliance with
such covenants for the foreseeable future. The Company is not in default under
the Senior Note Indenture and does not anticipate any default thereunder for the
foreseeable future.
At March 31, 1997, the Company's primary sources of liquidity were
available borrowings of $44.3 million under the Revolving Credit Facility,
borrowings of approximately $5.0 million against certain life insurance policies
and internally generated funds. Borrowings under the Revolving Credit Facility
are secured by the Company's domestic inventory and accounts receivable, and
future availability under the facility is determined by prevailing levels of the
Company's accounts receivable and inventory. The life insurance policy loans
are secured by the cash surrender value of the
12
<PAGE>
policies and are non-recourse to the Company. The interest rate on the loans is
0.5% greater than the dividend income rate on the policies. As of March 31,
1997, there was approximately $14.3 million of cash surrender value in all life
insurance policies maintained by the Company, net of borrowings.
The Company's capital expenditures were $4.4 million in fiscal 1997,
$16.7 million in fiscal 1996 and $16.2 million in fiscal 1995. Capital
expenditures in fiscal 1996 and 1995 included $6.3 million and $5.7 million,
respectively, of expenditures financed through purchase money and industrial
revenue bond indebtedness. During the year ended March 31, 1997, capital
expenditures were primarily for routine replacement of machinery and equipment
and for computer hardware and software. For fiscal 1998, the Company has
budgeted approximately $7.0 million for similar capital expenditures.
Approximately $4.8 million is for the acquisition of equipment and machinery and
warehouse expansions, and $2.2 million of the budget is for further enhancement
of the Company's information technology systems. The Company expects to finance
such expenditures from internal cash flows.
During fiscal 1997, the Company redeemed $5.6 million of its capital
stock from retiring and terminated employees, as required by the terms of the
Company's ESOP and Holding's Stockholders Agreement. The Company expects that
such redemptions for fiscal 1998 will be higher than fiscal 1997 due to the
workforce reductions resulting from the March 1997 restructuring plan, although
the timing of such expenditures is not within the control of the Company and
there can be no assurance in this regard.
The cash required to complete the 1997 restructuring including the
redemption of stock from terminated employees, will be approximately $17.2
million. Such amount is expected to be financed from proceeds from the sale
of domestic facilities and foreign operations as discussed above, and from
internal cash flows.
Working capital and cash flows of the Company over the past three
fiscal years are summarized below:
<TABLE>
<CAPTION>
SELECTED DATA FISCAL YEAR
--------------------------------------
1997 1996 1995
--------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $180,637 $166,587 $243,738
Net cash provided by (used in) operating activities . . . . . . . . . (5,504) 67,058 (15,201)
Net cash provided by (used in) investing activities . . . . . . . . . (680) (16,105) (10,352)
Net cash provided by (used in) financing activities . . . . . . . . . 4,838 (38,745) 23,384
</TABLE>
The Company's working capital increased $14.0 million to $180.6
million at March 31, 1997 versus $166.6 million at March 31, 1996, primarily
as the result of lower accounts payable offset by higher accruals associated
with the 1997 restructuring plan and lower inventory levels. The Company's
average accounts receivable days outstanding (including foreign accounts)
were 39.1 days in fiscal 1997 and 40.8 days in fiscal 1996.
Net cash provided by operations decreased $72.6 million in fiscal 1997
compared to fiscal 1996 primarily due to changes in accounts receivable in
fiscal 1996 and 1995 attributable to the unusually large increase in accounts
receivable in the last quarter of fiscal 1995 in connection with the
implementation of the new computer system, lower accounts payable and the non-
cash charge of $26.9 million for the inventory adjustment recorded in fiscal
1996.
Net cash used in investing activities decreased $15.4 million in
1997 compared to 1996 primarily resulting from lower capital expenditures for
property, plant and equipment and higher proceeds from fixed asset
dispositions.
Net cash provided by financing activities increased $43.6 million
in 1997 compared to 1996 primarily as a result of lower funding requirements
for the repurchase of capital stock from retiring and departing employees
pursuant to the Company's ESOP and Holding's Stockholders Agreement and
higher borrowings against the Revolving Credit Facility.
As of March 31, 1997, the Company believes its sources of liquidity
and capital resources are sufficient to meet all currently anticipated
operating cash requirements, including debt service payments on the revolving
loans and the Senior Notes prior to their respective maturities. However, the
Company anticipates that it will be necessary to replace the Revolving Credit
Facility on or prior to its maturity in September 1999 and to refinance all
or a portion of the Senior Notes on or prior to their maturity in March 2000,
although there can be no assurance on what terms, if any, the Company would
be able to obtain such refinancing or additional financing. In addition, the
Company might be required to dispose of material assets or operations to meet
its obligations under the terms of the Company's indebtedness; however, there
can be no assurance as to the timing of such sales, the proceeds which the
Company could realize therefrom or that such proceeds
13
<PAGE>
would be adequate to meet the obligations then due. The Company's ability to
make interest payments on the revolving loans and the Senior Notes will be
dependent on improvements in the Company's future operating performance above
historical levels which will be dependent on a number of factors, many of which
are beyond its control, and the continued availability of revolving credit
borrowings. There can be no assurance that the Company will be able to effect
any improvements in its operating results or that any improvements achieved will
be realized in time or will be of sufficient magnitude to enable the Company to
meet its debt service obligations.
ENVIRONMENTAL CONTINGENCIES
The Company is currently involved with remediation and/or
investigation activities at several former facilities where soil and/or
groundwater contamination is present. As of March 31, 1997, reserves
totaling $1.4 million have been established to cover those future
environmental costs that are known or can be reasonably estimated. See Note
9 to the Company's Consolidated Financial Statements included elsewhere
herein for a more detailed discussion of specific environmental contingencies.
Although it is possible that new information or future developments
could require the Company to reassess its potential exposure relating to all
pending environmental matters, management believes that, based upon all
currently available information, the resolution of such environmental matters
will not have a material adverse effect on the Company's financial condition,
results of operations or liquidity. The possibility exists, however, that new
environmental legislation and/or environmental regulations may be adopted, or
other environmental conditions may be found to exist, that may require
expenditures not currently anticipated and that may be material. See "Item
1. Business--Environmental Matters."
FOREIGN EXCHANGE EXPOSURE
The functional currency for the Company's foreign subsidiaries is the
applicable local currency. Exchange adjustments resulting from foreign currency
transactions are recognized in net earnings, whereas adjustments resulting from
the translation of financial statements are reflected as a separate component of
stockholder's equity. The Company does not hedge its exposure to foreign
currency fluctuations. Net foreign currency transaction gains or losses have
not been material in any of the years presented. See "Item 1. Business--
Foreign Operations." However, the 1995 devaluation of the Mexican peso and
ongoing instability of the peso and the Mexican economy have had a negative
impact on the Company's operations.
In March 1997, the Company approved a restructuring plan that
included selling its foreign operations in the United Kingdom and Mexico. As a
result of this decision, the cumulative foreign currency translation losses for
these operations were recognized as part of the estimated loss on sale of these
operations. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations".
INFLATION
The Company's operations have not been, nor are they expected to be,
materially affected by inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required by this Item 8
are set forth as indicated in Item 14(a)(1) and (2) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age (at March 31, 1997),
principal occupation and business experience during the last five years of each
of the directors and executive officers of the Company and Holding. The
directors and executive officers of the Company and Holding are identical. The
executive officers serve at the pleasure of the Board of Directors of the
Company and Holding, respectively.
Each member of the Board of Directors of the Company and of Holding
holds office until the next annual meeting of the stockholders thereof or until
his successor is elected and qualified. The election of directors of Holding is
subject to the provisions of a Stockholders' Agreement described below.
Non-officer directors of the Company, other than Messrs. Schuchert
and Nickell, are paid an annual retainer of $25,000 plus $1,000 for each
board meeting attended. In addition, outside directors are reimbursed for all
out-of-pocket expenses related to meetings attended. In consideration of his
service as Chairman of the Board, Holding entered into an incentive
compensation agreement with Mr. Roderick pursuant to which he was granted
50,000 shares of Holding Common Stock, 34,000 of which were vested pursuant
to such agreement as of its March 31, 1997 expiration date. Pursuant to the
agreement, Mr. Roderick was paid a cash payment in fiscal 1996 totaling
$145,309 equal to the federal, state and local income tax liability payable
by him by reason of the value of the initial payment to him of 20,000
unrestricted shares of Holding Common and such cash payment. The directors
receive no additional compensation for their services as directors of
Holding. Officers of the Company and Holding who serve as directors do not
receive compensation for their services as directors other than the
compensation they receive as officers of the Company and Holding.
On December 23, 1992, Kelso and its chief executive officer, Joseph S.
Schuchert, a director of the Company and Holding, without admitting or denying
the findings contained therein, consented to the entry of an administrative
order in respect of a Securities and Exchange Commission (the "Commission")
inquiry relating to the Acquisition. The order found that the tender offer
filing of Kelso & Companies, Inc. in connection with the Acquisition did not
comply fully with the Commission's tender offer reporting requirements, and
required Kelso and Companies Inc. and Mr. Schuchert to comply with those
requirements in the future.
There are no family relationships among directors and executive
officers of the Company and Holding. For information regarding the stock
ownership of Holding by the Company's and Holding's directors and executive
officers, see "Item 12. Security Ownership of Certain Beneficial Owners and
Management."
NAME AGE POSITION
Earle M. Jorgensen 98 Chairman Emeritus and Director
David M. Roderick 73 Chairman of the Executive Committee and
Director
Neven C. Hulsey 62 Chairman of the Board and Director
Maurice S. Nelson, Jr. 59 President, Chief Executive Officer and
Chief Operating Officer and Director
Charles P. Gallopo 55 Vice President and Chief Financial Officer
Randal J. Haas 48 Vice President Strategic Business
Development and Secretary and Secretary
Frank D. Travetto 44 Vice President Merchandising
Kenneth L. Henery 50 Vice President Central Region
James D. Hoffman 38 Vice President Eastern Region
15
<PAGE>
R. Neil McCaffery 47 Vice President Western Region
Mark R. McWhirter 37 Vice President and Chief Information
Officer
Joseph S. Schucher 68 Director
William A. Marquard 77 Director
Frank Nickell 49 Director
John Rutledge 48 Director
EARLE M. JORGENSEN. Mr. Jorgensen founded EMJ and was Chairman of the
Board of EMJ and its successor, the Company, from 1924 until April 1994. He was
also Chairman of the Board of Holding from May 1990 until April 1994. Mr.
Jorgensen was Chief Executive Officer of EMJ from 1924 to June 1986. Until
February 1990, Mr. Jorgensen was a director of Northrop Corporation. Mr.
Jorgensen has been a director of Holding since May 1990. In April 1994, Mr.
Jorgensen became Chairman Emeritus of the Board of the Company and Holding.
DAVID M. RODERICK. Mr. Roderick became Chairman of the Executive
Committee of the Company and Holding on February 1, 1997. Prior to that, Mr.
Roderick was Chairman of the Board of the Company and Holding from April 1994.
Mr. Roderick has been a director of the Company and Holding since January 1994.
Mr. Roderick also serves as director of American Standard Companies Inc., Baron
Enterprises and Kelso & Companies Inc. Previously, Mr. Roderick served as
Director, Chairman, and CEO of the USX Corporation. Mr. Roderick joined USX in
1959, was Chairman of USX Finance Committee and a Director from 1973 to 1975,
was President and Director from 1975 until 1979 and was CEO and Chairman from
1979 to 1989.
NEVEN C. HULSEY. Mr. Hulsey became Chairman of the Board of the
Company and Holding on February 1, 1997. Prior to that, Mr. Hulsey was
President and Chief Executive Officer of the Company from April 1990, and of
Holding from May 1990. Mr. Hulsey was Chairman of the Board, Director,
President and Chief Executive Officer of Kilsby from 1984 until May 1990. Mr.
Hulsey has been a director of the Company from March 1990, and a director of
Holding from May 1990. Mr. Hulsey also serves as a director of International
House of Pancakes, Inc. and Webco Industries Inc.
MAURICE S. NELSON, JR. Mr. Nelson was elected President, Chief
Executive Officer and Chief Operating Officer and a director of the Company and
Holding effective February 1, 1997. Prior to that, Mr. Nelson served as
President, Chief Executive Officer and Chief Operating Officer of Inland Steel
Company from 1992 until April 1996. Prior to that, Mr. Nelson was the President
of the Aerospace and Commercial division of the Aluminum Company of America
(Alcoa) from 1987 to 1992.
CHARLES P. GALLOPO. Mr. Gallopo has been Vice President and Chief
Financial Officer of the Company and Holding since December 1993. Prior to that,
Mr. Gallopo was Chief Financial Officer of Severin Montres, Ltd., since July
1989. Severin Montres, Ltd. is a manufacturer and distributor of Gucci watches.
RANDAL J. HAAS. Mr. Haas has been Vice President Strategic Business
Development and Secretary of the Company and Holding from 1996. Prior to that,
Mr. Haas was Vice President Quality and Secretary of the Company and Holding
since 1993 and Vice President Administration and Human Resources and Secretary
since May 1990.
FRANK D. TRAVETTO. Mr. Travetto has been the Company's Vice President
Merchandising since March 1997. Prior to that, Mr. Travetto was the Company's
Vice President Western Region since 1996, the Company's Vice President Eastern
Region from 1992 to 1996, and the Company's Division President, Canadian
Operations from 1990 to 1992.
16
<PAGE>
KENNETH L. HENRY. Mr. Henry has been the Company's Vice President
Central Region since October 1995. Prior to that, Mr. Henry was the Company's
Vice President Southern Region since 1994, and Vice President of the Kilsby-
Roberts Division of EMJ from April 1992 to 1994.
JAMES D. HOFFMAN. Mr. Hoffman has been the Company's Vice President
Eastern Region since July 1996. Prior to that, Mr. Hoffman was District Manager
for the Company's Cleveland and Buffalo operations since June 1992.
R. NEIL MCCAFFERY. Mr. McCaffery has been the Company's Vice
President Western Region since March 1997. Prior to that, Mr. McCaffery was
the Company's Vice President Southern Region since April 1996, and was
District Manager for the Company's Los Angeles and Phoenix operations from
1991 to 1996.
MARK R. MCWHIRTER. Mr. McWhirter has been Vice President and Chief
Information Officer of the Company since February 1995. Prior to that, Mr.
McWhirter was an Account Manager at Electronic Data Systems since March 1988.
JOSEPH S. SCHUCHERT. Mr. Schuchert has been Chairman and Chief
Executive Officer and a director of Kelso & Companies Inc. since March 1989.
Kelso & Companies Inc. is the general partner of Kelso, a Delaware limited
partnership. Prior to the formation of Kelso & Companies Inc. in 1989, Mr.
Schuchert was Managing General Partner of Kelso. Mr. Schuchert is a director of
American Standard Companies Inc. and Kelso Insurance Services, Inc. Mr.
Schuchert has been a director of the Company since March 1990, and a director of
Holding since May 1990.
WILLIAM A. MARQUARD. Mr. Marquard has been a director of the Company
since March 1990, and a director of Holding since May 1990. Mr. Marquard also
serves as a director and Chairman of the Board of Arkansas Best Corporation and
Mosler, Inc., and as a director of Americold Corporation, Kelso and Companies
Inc., Treadco, Inc. and EarthShell Container Corporation.
FRANK NICKELL. Mr. Nickell has served as director of the Company
and Holding since August 1993. He has been President and a director of Kelso
& Companies Inc. since March 1989. Kelso & Companies Inc. is the general
partner of Kelso, a Delaware limited partnership. Prior to the formation of
Kelso & Companies Inc., from 1984 to 1989, Mr. Nickell was a general partner
of Kelso. He is also a director of Charter Communications Long Beach, Inc.,
CCA Holdings Corp., CCT Holdings Corporation, Tyler Holdings Corporation,
Peebles Inc., Kelso Insurance Services, Inc., and The Bear Stearns Companies.
JOHN RUTLEDGE. Dr. Rutledge has been a director of the Company and
Holding since June 1992. Dr. Rutledge is the founder of Rutledge & Company,
Inc., a merchant banking firm, and has been Chairman since January 1991. He
is the founder of Claremont Economics Institute, and has been Chairman since
January 1979. Dr. Rutledge is also a director of American Standard Companies,
Inc., Amerindo Investment Advisers, Inc., Utendahl Capital Partners, Lazard
Freres Funds, Fluidrive Inc., United Refrigerated Services, Inc., Adobe Air
Inc. and CST Office Products, and is a consultant to Kelso.
STOCKHOLDERS' AGREEMENT
Holding's Bylaws provide for one to ten directors. The Board of
Directors of Holding currently consists of eight directors. Certain of
Holding's shareholders have agreed, pursuant to the Stockholders' Agreement
dated as of September 14, 1990, as amended ( the "Stockholders' Agreement"),
that two directors shall be designated by the Management Stockholders (as
defined in the Stockholders' Agreement), so long as they are reasonably
acceptable to Kelso, and that five directors shall be designated by Kelso.
Messrs. Nelson and Hulsey are the directors designated by the Management
Stockholders and the remaining directors were designated by Kelso. The current
vacancies are for one of the directors to be elected by the holders of Series A
Preferred Stock of Holding and for one of the directors to be designated by
Kelso. The Stockholders' Agreement also provides that (i) prior to the earlier
of May 3, 1995 or the occurrence of an initial public offering of at least 50%
of the outstanding shares of Holding Common Stock pursuant to an effective
registration statement under the Securities Act, sales of shares of Holding
Common Stock by a Management Stockholder are subject to a right of first refusal
granted to Holding, Kelso and certain Management Stockholders who are parties to
the Stockholders' Agreement and, (ii) in the event of termination of employment,
under certain circumstances, the Management Stockholders are entitled to sell
their shares of Holding Common Stock to Holding and Holding is required to
repurchase such shares at their appraised value.
17
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Set forth below is information concerning the compensation levels for
the executive officers of Holding and the Company serving as of March 31, 1997.
Officers of the Company receive no additional compensation for their services as
officers of Holding.
CASH COMPENSATION. The following table sets forth compensation for the
three fiscal years ended March 31, 1997 for the Chief Executive Officer and the
four most highly compensated executive officers of the Company as of March 31,
1997.
<TABLE>
<CAPTION>
Summary of Compensation Table
Annual Compensation Long-Term
Compensation
Awards
------------------------------------- ------------------
Securities
Name and Underlying Stock All Other
Principal Position Year Salary Bonus Options/SAR(#)(2) Compensation (3)
------------------ ---- ------ ----- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Maurice S. Nelson, Jr. 1997 $ 91,670 $ -- 1,320,000 $150,000
President, Chief Executive
Officer and Chief Operating
Officer (4)
Neven C. Hulsey
Chairman and Director 1997 444,344 -- 123,048
(served as Chief Executive 1996 421,997 62,500 153,380
Officer through January 1997) 1995 379,382 607,987 129,034
Lonnie R. Terry
Former Vice President Vice 1997 275,246 50,000 486,164
President, Chief 1996 272,688 68,125 63,452
Operating Officer 1995 270,706 355,970 125,773
and Director (5)
Charles P. Gallopo
Vice President and 1997 196,470 84,714 28,272
Chief Financial 1996 195,023 12,102 32,397
Officer 1995 186,351 241,555 16,000 35,881
John W. Ruck
Former Vice President Chief 1997 151,800 -- 133,174
Value Officer (5) 1996 150,329 13,750 33,838
1995 136,589 163,953 32,882
Randal J. Haas
Vice President, 1997 139,174 35,000 23,601
and Secretary 1996 138,425 47,500 27,768
1995 138,682 193,953 48,533
</TABLE>
_______________
18
<PAGE>
(1) Amounts reflect cash compensation earned by executive officers in each of
the fiscal years presented, including amounts received after fiscal
yearend, or deferred at the election of those officers. Bonus includes (i)
a cash bonus payable each year to all management investors pursuant to the
Company's Management Stock Bonus Plan (or, in the case of Mr. Gallopo,
equivalent policy) in proportion to their ownership of Holding Common
Stock, and (ii) a cash bonus payable each year pursuant to the Company's
Key Employee Incentive Compensation Plan ("Incentive Plan") which became
effective April 1, 1994. The following bonuses were paid to Messrs.
Nelson, Hulsey, Terry, Gallopo, Ruck and Haas under the Company's
Management Stock Bonus Plan (a) in fiscal 1997: none, except Mr. Gallopo
($84,714), (b) in fiscal 1996: none, $62,500, $18,125, $12,102, $13,750 and
$12,500, and (c) in fiscal 1995: none, $250,000, $72,500, $48,408, $55,000
and $50,000, respectively. The following allocations were made under the
Incentive Plan to Messrs. Nelson, Hulsey, Terry, Gallopo, Ruck and Haas,
respectively, (a) in fiscal 1997 and 1996: none, and (b) in fiscal 1995:
none, $357,987, $233,470, $155,647, $108,953 and $108,953. In addition,
Mr. Terry received payments of $50,000 in all years shown, and Mr. Haas
received payments of $35,000 in all years shown, pursuant to a plan
providing for fixed bonuses payable to employees of EMJ in lieu of a bonus
payable to them pursuant to an incentive bonus plan terminated after the
Acquisition. Mr. Gallopo received a discretionary incentive bonus of
$37,500 in fiscal 1995.
(2) Holding has granted Mr. Nelson options to purchase shares of Holding Common
Stock. Holding has granted Mr. Gallopo 16,000 phantom stock units which
will vest on the earlier of November 29, 1997, Mr. Gallopo's death or
disability, and the occurrence of a terminating transaction involving
Holding, provided Mr. Gallopo is employed by Holding on such date. Each
phantom stock unit when vested entitles the holder to receive an amount
equal to the difference between the fair market value of a share of Holding
Common Stock on the date of redemption and a base price, subject to
adjustment, of $9.23.
(3) Amounts shown include allocations to the accounts of each of the named
officers of contributions made by the Company to the ESOP and to the
Company's 401(a)(17) Supplemental Contribution Plan (401(a)(17) Plan") and
of premiums paid by the Company for long-term disability and life insurance
policies. The following allocations were made in fiscal 1997 to Messrs.
Nelson, Hulsey, Terry, Gallopo, Ruck and Haas, respectively: (i) ESOP
(estimated), $7,500 each, except Mr. Nelson (none); (ii) 401(a)(17)
Plan, none, $14,717, $9,872, $6,559, $1,646 and $1,199; (iii) long term
disability,none, $11,408, $9,308, $6,207, $3,599 and $3,679; and (iv) life
insurance, none, $89,423, $25,830, $8,007, $11,790 and $11,223. In fiscal
1996, the following allocations were made to Messrs. Hulsey, Terry,
Gallopo, Ruck and Haas, respectively: (i) ESOP ,$7,500 each; (ii)
401(a)(17) Plan, $31,057, $17,425, $9,996, $5,262 and $4,698; (iii) long
term disability, $13,990, $9,578, $6,351, $7,950 and $3,225; and (iv) life
insurance, $100,833, $28,949, $8,550, $13,126 and $11,985. In fiscal 1995,
the following allocations were made to Messrs. Hulsey, Terry, Gallopo, Ruck
and Haas, respectively: (i) ESOP, $16,500 each; (ii) 401(a)(17)
Plan, $23,021, $12,652, $7,722, none and none; (iii) long term
disability, $11,824, $8,835, $6,133, $7,950 and $3,225; and (iv) life
insurance, $77,689, $21,915, $5,526, $10,413 and $9,056. The amounts in
respect of life insurance represent the estimated value of the premiums
paid by the Company on certain disability and life insurance policies in
respect of each executive. Some of the policies are managed on a split-
dollar basis and the Company will receive the premiums it has paid from the
proceeds of such insurance. In such cases the amount of the other
compensation attributed to the executive was calculated by treating the
premiums paid by the Company as a demand loan, and the amount of
compensation is equal to the imputed interest expense on the cumulative
outstanding premiums paid by the Company, assuming an interest rate equal
to the short-term federal funds rate, from time to time. Amounts shown
also include severance paid or payable to Messrs. Terry and Ruck of
$433,653 and 108,640, respectively, upon their termination from The
Company on March 31, 1997; a discretionary payment to Mr. Nelson of
$150,000 in fiscal 1997; and payments of $65,871 and $19,752 to Messrs.
Terry and Haas, respectively, in fiscal 1995, as a lump sum distribution
in connection with the termination of the Supplemental Benefit Plan
established by EMJ effective January 1, 1986.
(4) Mr. Nelson joined the Company on February 1, 1997 and his compensation in
fiscal 1997 represents actual compensation for a period of two months.
(5) Messrs. Terry and Ruck left the Company on March 31, 1997.
19
<PAGE>
STOCK OPTION GRANTS TABLE
The following table sets forth certain information concerning
stock options granted during fiscal 1997 by Holding to the Chief Executive
Officer and the next four most highly compensated executive officers of the
Company. In addition, there are shown hypothetical gains that could be
realized for the respective options, based on assumed rates of annual
compound price appreciation of 5% and 10% from the date the options are
granted over the ten-year term of the options. The actual gain, if any,
realized upon exercise of the options will depend upon the market price of
Holding's Common Stock relative to the exercise price of the option at the
time the option is exercised. There is no assurance that the amounts
reflected in this table will be realized.
<TABLE>
<CAPTION>
Options Granted in Last Fiscal Year
Individual Grants
------------------------------------------------------------- Potential Realizable Value at
Number of Assumed Annual Rates of
Securities % of Total Stock Price Appreciation for
Underlying Options Granted Exercise Option Term
Options Granted to Employees in Price Expiration ----------------------------------
Name (#) (1) Fiscal Year ($/Sh.) Date 5% ($) 10%($)
---- --------- ----------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Maurice S. Nelson, Jr. 1,320,000 100% $5.41 1/30/2007 $4,491,062 $11,381,234
Neven C. Hulsey --- 0% N/A N/A N/A N/A
Lonnie R. Terry --- 0% N/A N/A N/A N/A
Charles P. Gallopo --- 0% N/A N/A N/A N/A
Randal J. Haas --- 0% N/A N/A N/A N/A
John W. Ruck --- 0% N/A N/A N/A N/A
</TABLE>
_______________
(1) Holding has not granted any stock appreciation rights. Mr. Nelson's
options become exercisable in installments of 50% each year on January 30,
2000 and January 30, 2001. All outstanding stock options shall become
fully exercisable and shall be cancelled and exchanged for cash in an
amount equal to the excess of the Change in Control Price (as defined in
the Stock Option Plan as defined below) over the exercise price, in the
event of any transaction or series of transactions, other than a public
offering, where a person or a group, excluding Holding, any of its
subsidiaries, Kelso and its affiliates, is or becomes the beneficial owner,
directly or indirectly, of securities representing 35% or more of the
voting power of Holding's then outstanding securities (a "Change of
Control"), unless the Executive Committee determines prior to the
occurrence of such Change of Control that such options shall be honored, or
assumed or new rights (having substantially equivalent or better rights,
terms and conditions and economic value) substituted therefor.
HOLDING STOCK OPTION PLAN
Holding has adopted, subject to stockholder approval, the Earle M.
Jorgensen Holding Company, Inc. Stock Option Plan (the "Stock Option Plan").
Option grants may be made by the Executive Committee under the Stock Option
Plan. Stock options may be granted at not less than 100% of the fair market
vale of Holding Common Stock on the date of grant and are generally
exercisable for a period not exceeding ten years. Option grants or the
vesting of options may be contingent upon terms and conditions, such as the
achievement of performance measures or upon the passage of time, as the
Executive Committee determines. Grants and awards made by the Executive
Committee under the Stock Option Plan are intended to provide executive
officers not only with additional incentives for outstanding individual
performance but also with the opportunity to acquire an ownership stake in
the Company, thereby more closely aligning their interests with those of the
stockholders.
The Executive Committee has the right, subject to the consent of
the holders of options, to grant replacement options which may contain terms
more favorable than the options they replace, including, without limitation,
a lower exercise price, and cancel the replaced options.
20
<PAGE>
The aggregate number of shares of Holding Common Stock available
for grants or subject to outstanding options, and the respective prices
and/or vesting criteria applicable to outstanding options shall be
proportionately adjusted to reflect any stock dividend on the Holding Common
Stock, or any recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination, exchange of shares, warrants or rights
offering to purchase the Holding Common Stock at a price substantially below
its fair market value. To the extent deemed appropriate by the Executive
Committee, subject to any required action by the stockholders, in any merger,
consolidation, reorganization, liquidation, dissolution, or other similar
transaction, any option granted under the Stock Option Plan shall pertain to
the securities and any other property to which a holder of the number of
shares of Common Stock covered by the option would have been entitled to
receive in connection with such event.
Upon a Change of Control of Holding, with certain exceptions, the
value of all outstanding stock options (whether or not then fully exercisable
or vested) will be cashed out at specified prices as of the date of the
Change of Control, except that any stock options outstanding for less than
six months will not be cashed out until six months after the applicable date
of grant.
Generally, a participant who is granted a stock option will not be
subject to federal income tax at the time of grant and the Company will not
be entitled to a tax deduction by reason of such grant. Upon exercise of a
nonqualified option, generally the difference between the option price and
the fair market value of the Holding Common Stock on the date of exercise
will be considered ordinary income to the participant and generally the
Company will be entitled to a corresponding tax deduction.
Upon exercise of an incentive stock option, no taxable income will
be recognized by the participant and the Company is not entitled to a tax
deduction by reason of such exercise. However, if Holding Common Stock
purchased pursuant to the exercise of an incentive stock is sold within two
years from the date of grant or within one year after the transfer of such
Holding Common Stock to the participant, then the difference, with certain
adjustments, between the fair market value of the Holding Common Stock at the
date of exercise and the option price will be considered ordinary income to
the participant and generally the Company will be entitled to a corresponding
tax deduction. If the participant disposes of the Holding Common Stock after
such holding periods, any gain or loss upon such disposition will be treated
as a capital gain or loss and the Company will not be entitled to a deduction.
The maximum number of shares of Holding Common Stock reserved for
issuance under the Stock Option Plan is 1,500,000, subject to adjustment as
provided in the Stock Option Plan to reflect certain corporate transactions
affecting the number or type of outstanding shares.
THE ESOP
The Company maintains an employee stock ownership plan (ESOP) in
respect of the Company's nonunion employees who meet certain service
requirements. The Company's annual contributions to the ESOP are a
percentage (between 5% and 15% based on a formula rewarding the achievement
of certain Company performance objectives) of total cash compensation (as
defined in the ESOP) determined by the Board of Directors of Holding and may
be made by the Company in cash or by Holding in shares of Holding capital
stock. Participants become 20% vested in their account balances after one
year of continuous service. Participants vest an additional 20% for each year
of service thereafter and become fully vested upon completion of five years
of service, retirement, disability or death. Upon the occurrence of a
participant's termination (as defined), retirement, disability, or death, the
ESOP is required to either distribute the vested balance in stock or
repurchase the vested balance. If stock is distributed, it is accompanied by
a put option to Holding under terms defined in the ESOP. At March 31, 1997,
shares of Holding's Series A and Series B Preferred Stock and Holding Common
Stock owned by the ESOP totaled 107,170, 24,444 and 3,511,701 shares,
respectively. Contributions payable to the ESOP totaled $3,102,000,
$3,401,000, $7,694,000, $6,005,000 and $5,919,000 as of March 31, 1997, 1996,
1995, 1994 and 1993 respectively. Contributions were made by Holding in the
form of Series B Preferred Stock for fiscal 1992, a combination of cash
($632,000) and Series B Preferred Stock ($5,287,000) for fiscal 1993, and
Holding Common Stock for fiscal years 1994, 1995 and 1996. The contribution
for fiscal 1997 will be made in the form of Holding Common Stock or cash.
Although Holding has not expressed any intent to terminate the ESOP,
it has the right to do so at any time. In the event of such termination,
participants become fully vested to the extent of the balances in their separate
accounts and receive put options with respect to Holding stock allocated to
their accounts.
21
<PAGE>
In 1984, 1985 and 1986, K-R purchased life insurance policies to
provide, among other things, a separate source for funds to repurchase
capital stock, including capital stock distributed by the ESOP, from
departing employees. In 1997, 1996 and 1995, the Company borrowed $53.9
million in aggregate against the cash surrender value of such policies
(including $28.6 million for renewal premiums and accrued interest and $25.3
million to reduce borrowings under its Revolving Credit Facility). The net
cash surrender value of certain life insurance policies available for future
borrowings as of March 31, 1997 was approximately $5.0 million. Other
resources of the Company, such as the Revolving Credit Facility, are
available, subject to certain limitations, to satisfy stock repurchase
obligations as they arise.
The Internal Revenue Service (the "IRS") is currently conducting
an audit of the Earle M. Jorgensen Employee Stock Ownership Plan for the
years ended March 31, 1992 through March 31, 1996. A preliminary report has
been issued to the Company in which the IRS asserted that certain
contributions of stock by Holding to the ESOP violated provisions of the
Internal Revenue Code. The Company believes that this assertion is incorrect
and has responded to the IRS that it disagrees with the conclusions of this
preliminary report. The U.S. Department of Labor (the "DOL") has conducted
an investigation of the same transactions involving the ESOP and has come to
conclusions similar to those reached by the IRS. The Company believes that
the DOL's assertions are also incorrect and will respond accordingly to the
DOL.
PENSION PLANS
Prior to September 30, 1992, the Company maintained a salaried
employees pension plan (the "Pension Plan") for the benefit of employees
within the ormer Jorgensen Steel and Aluminum division, providing for
benefits to retirees based upon length of service and average annual
compensation over the term of employment. The Pension Plan was terminated on
September 30, 1992. Upon such termination, retirees and participants who
terminated employment prior to October 15, 1992 were given a deferred Group
Annuity Contract purchased from Transamerica, Inc. Participants who had not
terminated employment prior to October 15, 1992 were entitled to elect to
take distribution of their accrued benefits in one of the following forms:
(i) a deferred Group Annuity Contract from Transamerica, Inc., (ii) a
transfer of the present value of their accrued benefits to the Company's
401(k) plan, or (iii) a lump sum distribution of the present value of their
accrued benefit. Messrs. Terry and Haas each elected to have the present
value of his accrued benefit ($234,429 and $112,682, respectively)
transferred to the Company's 401(k) plan.
In addition, a Supplemental Benefit Plan (the "Supplemental
Pension Plan") was established by EMJ effective January 1, 1986. Under a
change in law, applicable to the Pension Plan but not the Supplemental
Pension Plan, effective January 1, 1989, participants could no longer accrue
benefits with respect to compensation in excess of $200,000, as adjusted for
inflation. Pursuant to an amendment to the Supplemental Pension Plan, any
amount that would have been payable under the Pension Plan but for this
limitation on includable compensation will be paid from the Supplemental
Pension Plan. Amounts payable under the Supplemental Pension Plan were fixed
(except for cost of living adjustments) upon termination of the Pension Plan.
Under the Pension Plan, the compensation for the executive
officers employed by EMJ prior to the Acquisition and named in the Cash
Compensation Table was their total aggregate direct compensation at the time
of termination of the Pension Plan. Mr. Terry had 28 and Mr. Haas had 18
years of credited service under the plan. The benefits payable to Messrs.
Terry and Haas under the Supplemental Pension Plan were fixed (except for
cost of living adjustment) at the time of termination of the Pension Plan.
Assuming they retire at age 65, Mr. Terry will be entitled to a monthly
benefit of $918.23, and Mr. Haas will be entitled to a monthly benefit of
$377.39, in each case subject to an annual cost of living adjustment after
such retirement. Such payments would be actuarially adjusted for payments
beginning at other than age 65.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
David M. Roderick, Frank Nickell and Maurice S. Nelson, Jr. are
members of the Executive Committee, which succeeded the functions of the
Management and Compensation Committee of Holding and the Company on January
30, 1997. Prior to January 30, 1997, Mr. Roderick, Mr. Schuchert and Mr.
Hulsey were members of the Management and Compensation Committee. Mr. Nelson
is the President, Chief Executive Officer and Chief Operating Officer of
Holding and the Company. During the time Mr. Hulsey was a member of the
Management and Compensation Committee, he was also the President and Chief
Executive Officer of the Company and Holding.
22
<PAGE>
Kelso affiliates beneficially own shares of the capital stock of
Holding as described under "Security Ownership of Certain Beneficial Owners."
Mr. Nickell and Mr. Schuchert are stockholders of Kelso and general partners
of Kelso Partners I, L.P. ("KP I"), Kelso Partners III, L.P. ("KP III"), and
Kelso Partners IV, L.P. ("KP IV"). KP I, KP III and KP IV are the general
partners of Kelso Investment Associates, Limited Partnership ("KIA I"), KIA
III-Earle M. Jorgensen, L.P. ("KIA III-EMJ") and Kelso Investment Associates
IV, L.P. ("KIA IV"), respectively. Mr. Nickell and Mr. Schuchert are
directors of Holding and the Company and share investment and voting power
with respect to shares of the capital stock of Holding held by KIA I, KIA
III-EMJ and KIA IV as described under "Security Ownership of Certain
Beneficial Owners."
In connection with the Acquisition, the Company agreed to pay
Kelso an annual fee of $1,250,000 each year for financial advisory services
and to reimburse it for out-of-pocket expenses incurred in connection with
rendering such services. Two principals of Kelso serve on the Boards of
Directors of the Company and Holding. For each of the fiscal years 1997,
1996 and 1995, the Company paid Kelso the annual fee of $1,250,000 and
reimbursed Kelso $393,000, $154,000 and $164,000, respectively, for
out-of-pocket expenses.
Holding has issued to KIA IV two warrants, each entitling KIA IV
to purchase at a purchase price of $.01 per share, shares of Holding Common
Stock representing 10% of the issued and outstanding Holding Common Stock on
a fully diluted basis.
In January 1996, the Company amended its agreement with Kelso
Insurance Services, Inc. (an affiliate of Kelso) ("Kelso Insurance"), and
American Telephone and Telegraph Company ("AT&T") pursuant to which the
Company as well as certain other Kelso affiliated companies participates in a
telecommunications network under which AT&T provides communications services
to the group at a special tariff rate. Pursuant to such agreement, as
amended, the Company has guaranteed a minimum annual usage for communication
services, and Kelso Insurance has guaranteed the Company's minimum usage to
AT&T. No fee was paid by the Company to Kelso Insurance in connection with
this transaction.
Mr. Hulsey is a general partner of two California partnerships:
Kilsby-Roberts Group ("KRG"), and East 31st Street North ("31st St."), and
has an interest in such partnerships of 3.704% and 3.279%, respectively.
Through December 1996, KRG owned a facility leased to the Company and
received approximately $41,000 of rent monthly from the Company during fiscal
1997. The Company believes such rent was a market rent and is not higher than
would otherwise be paid if such premises were leased from an independent
third party. In January 1997, KRG sold the facility to an independent third
party. On April 18, 1995, the Company purchased the facility located in
Tulsa, Oklahoma owned by "31st St." for approximately $2.1 million. The
Company believes, based on a current independent appraisal, that such
purchase price was equal to the fair market value of the property and was not
higher than would otherwise be paid if the property was purchased from an
independent third party. Prior to such purchase the Company leased the
facility from 31st St. for a monthly rent of approximately $26,000. The
Company believes such rent was a market rent and was not higher than would
otherwise be paid if the premises were leased from an independent third party.
Mr. Roderick had a three-year incentive compensation agreement
with Holding which expired on March 31, 1997. Pursuant to such agreement, Mr.
Roderick was granted 50,000 shares of Holding Common Stock, 20,000 of which
were vested upon issuance and all or a portion of the remainder were to be
vested through fiscal 1997, if Holding achieved certain financial targets.
As of March 31, 1997, a total of 34,000 shares were vested under the
agreement.
23
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK OF THE COMPANY
All of the issued and outstanding voting stock of the Company,
consisting of 128 shares of common stock, is owned by Holding.
CAPITAL STOCK OF HOLDING
The following table sets forth information with respect to the
beneficial ownership of shares of Holding Common Stock and Series A Preferred
Stock as of March 31, 1997, by all stockholders of Holding known to be
beneficial owners of more than 5% of any such class, by each director, by
each executive officer of the Company named in the Summary Compensation Table
and by all directors and executive officers as a group as determined in
accordance with Rule 13d-3(i) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). As of March 31, 1997, 26,213 shares of Series B
Preferred Stock of Holding have been issued (and 997 shares have been accrued
but not declared), of which 24,444 were owned by the ESOP and 1,766 were
owned by Holding.
<TABLE>
<CAPTION>
Percentage of
Percentage of Number of Shares of Series
Number of Shares of Shares A Preferred
Name and Address of Shares of Common Stock of Series A Stock
Beneficial Owner Common Stock Outstanding(a) Preferred Stock Outstanding (b)
------------------- ------------ -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Kelso Investment Associates, IV, L.P. (c) 9,465,287 (d) 59.9%(d) 0 0.0%
KIA III - Earle M. Jorgensen, L.P. (c) 1,704,740 13.2% 0 0.0%
Joseph S. Schuchert (c) 11,167,215 (d)(e) 70.6%(d)(e) 24,519 (f) 15.2% (f)
Frank T. Nickell (c) 11,187,714 (d)(e) 70.7%(d)(e) 24,519 (f) 15.2% (f)
Michael B. Goldberg (c) 11,167,215 (d)(e) 70.6%(d)(e) 0 0.0%
George E. Matelich (c) 11,172,215 (d)(e) 70.6%(d)(e) 24,519 (f) 15.2% (f)
Thomas R. Wall, IV (c) 11,172,215 (d)(e) 70.6%(d)(e) 24,519 (f) 15.2% (f)
Frank K. Bynum (c) 11,167,215 (d)(e) 70.6%(d)(e) 0 0.0%
David I. Wahrhaftig (c) 11,167,215 (d)(e) 70.6%(d)(e) 0 0.0%
Earle M. Jorgensen (g) 200,000 1.6% 0 0.0%
Neven C. Hulsey (g) 250,000 1.9% 24,519 15.2%
Maurice S. Nelson (g) 0 0.0% 0 0.0%
Lonnie R. Terry (g) (l) 72,500 0.6% 0 0.0%
Charles P. Gallopo (g) 50,000 0.4% 0 0.0%
Randal J. Haas (g) 50,000 0.4% 0 0.0%
John W. Ruck (g) (l) 55,000 0.4% 2,942 1.8%
David M. Roderick (g) 34,000 0.3% 0 0.0%
John Rutledge (h) 5,000 0.0% 0 0.0%
William A. Marquard (c) 10,000 0.1% 0 0.0%
Earle M. Jorgensen Company Employee
Stock Ownership Plan (g) 3,365,408 (i) 26.1%(i) 99,803 (i) 61.7% (i)
All directors and executive officers of
the Company as a group 792,999 (j) 6.2%(j) 28,321 (k) 17.5% (k)
</TABLE>
- ---------------
(a) The percentage of shares of Holding Common Stock outstanding for KIA IV,
and Messrs. Schuchert, Nickell, Goldberg, Matelich, Wall, Bynum and
Wahrhaftig was calculated assuming the total outstanding shares of Holding
Common Stock was 15,814,974, (i) including shares of Holding Common Stock
which would be outstanding assuming KIA IV exercised the two Warrants
referred to in note (d) below in succession and there had been no other
dilution events prior to such exercise and (ii) excluding the 316,435
shares of Holding Common Stock currently held in the Holding treasury. The
percentage of shares of Holding Common Stock outstanding for all other
holders was calculated assuming the total outstanding shares of Holding
Common Stock was 12,877,059, excluding shares issuable upon the exercise of
the Warrants held by KIA IV and the 316,435 shares of Holding Common Stock
held in the Holding treasury as of March 31, 1997.
24
<PAGE>
(b) The percentage of shares of Series A Preferred Stock outstanding was
calculated assuming the total outstanding shares of Series A Preferred
Stock was 161,778, excluding 85,768 shares of Series A Preferred Stock held
in the Holding treasury as of March 31, 1997.
(c) The business address for such person(s) is c/o Kelso & Company, 320 Park
Avenue, 24th Floor, New York, New York 10022. Kelso & Company is a private
investment firm that engages in leveraged acquisitions.
(d) Includes 2,937,915 shares of the Holding Common Stock that KIA IV is
entitled to purchase pursuant to two Warrants issued to KIA IV, one of
which was issued pursuant to the terms of the Subordinated Notes because
the Subordinated Notes were not refinanced within one year of issuance and
one of which was issued in connection with the exchange of the Subordinated
Notes for the Holding Notes. Each warrant entitles the holder to purchase
up to 10% of the Holding Common Stock on a fully diluted basis at an
exercise price of $.01 per share.
(e) Messrs. Schuchert, Nickell, Goldberg, Matelich, Wall, Bynum and Wahrhaftig
may be deemed to share beneficial ownership of shares of Holding Common
Stock owned of record by (i) KIA IV and an affiliated entity by virtue of
their status as general partners of KP IV, the general partner of KIA IV,
and such affiliate, and (ii) KIA III-EMJ by virtue of their status as
general partners of KP III, the general partner of KIA III-EMJ. Messrs.
Schuchert, Nickell, Goldberg, Matelich, Wall, Bynum and Wahrhaftig share
investment and voting power with respect to securities owned by the Kelso
affiliates. Messrs. Schuchert, Nickell, Goldberg, Matelich, Wall, Bynum and
Wahrhaftig disclaim beneficial ownership of the shares of Holding Common
Stock owned by the Kelso affiliates.
(f) Messrs. Schuchert, Nickell, Matelich and Wall may be deemed to share
beneficial ownership of shares of Series A Preferred Stock owned of record
by KIA I by virtue of their status as general partners of KP I, the general
partner of KIA I. Messrs. Schuchert, Nickell, Matelich and Wall disclaim
beneficial ownership of the shares of Series A Preferred Stock owned by KIA
I.
(g) The business address of such person(s) or entity is 3050 East Birch Street,
Brea, California 92822.
(h) The business address for Dr. Rutledge is One Greenwich Office Park,
Greenwich, Connecticut 06831.
(i) Excludes 146,293 shares of Holding Common Stock and 7,367 shares of Series
A Preferred Stock held by the ESOP in directed accounts that may be deemed
to be beneficially owned by any of the directors or executive officers or
other employees of the Company.
(j) Excludes (i) 11,181,643 shares of Holding Common Stock held by Kelso
affiliates that may be deemed to be beneficially owned by Mr. Schuchert and
Mr. Nickell, and (ii) shares held by the ESOP, except for shares held in
directed accounts that may be deemed to be beneficially owned by any of the
directors and executive officers of the Company.
(k) Excludes (i) 24,519 shares of Series A Preferred Stock held by KIA I that
may be deemed to be beneficially owned by Mr. Schuchert and Mr. Nickell,
and (ii) shares held by the ESOP, except for shares held in directed
accounts that may be deemed to be beneficially owned by any of the
directors or executive officers of the Company.
(l) Messrs. Terry and Ruck left the Company on March 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Kelso affiliates beneficially own shares of the capital stock of
Holding as described under "Item 12. Security Ownership of Certain
Beneficial Owners and Management." Messrs. Schuchert, Nickell, Goldberg,
Matelich, Wall, Bynum and Wahrhaftig are indirect stockholders of Kelso and
general partners of Kelso KP I (other than Messrs. Goldberg, Bynum and
Wahrhaftig), KP III and KP IV. KP I, KP III and KP IV are the general
partners of KIA I, KIA III-EMJ and KIA IV, respectively. Messrs. Schuchert
and Nickell are directors of Holding and the Company. Although Messrs.
Schuchert, Nickell, Matelich and Wall share investment and voting power with
respect to securities of Holding owned by Kelso affiliates, they disclaim
beneficial ownership of such shares. See "Item 12. Security Ownership of
Certain Beneficial Owners and Management."
25
<PAGE>
The Company, Holding and Kelso and its affiliates entered into
certain agreements in connection with the Acquisition. Such agreements and
transactions are described under "Item 11. Executive Compensation --
Compensation Committee Interlocks and Insider Participation."
KIA IV is the holder of two Holding warrants which are described
under "Item 11. Executive Compensation -- Compensation Committee Interlocks
and Insider Participation."
In September 1995 the Company terminated its agreement with Dr.
Rutledge pursuant to which Dr. Rutledge provided an ongoing business
management program to the Company and its employees. Dr. Rutledge was paid
$50,000 under the agreement in fiscal 1996 prior to its termination and
$100,000 in fiscal 1995. Dr. Rutledge continues to provide similar services
to the Company for which he is reimbursed for his travel expenses.
Mr. Gallopo has borrowed $403,000 from Holding by issuing two
separate notes, one of which is non-recourse, each in the principal amount of
$201,500, to Holding in payment for 50,000 shares of Holding Common Stock.
The notes mature on March 31, 2001, bear interest at the rate of 6% per
annum, and are secured by a pledge of Mr. Gallopo's Holding Common Stock.
Mr. Gallopo has also received 16,000 phantom stock units. Such award is
described in the Summary Compensation Table under "Item 11. Executive
Compensation."
Mr. Roderick had an incentive compensation agreement with Holding
which expired on March 31, 1997. Such agreement is described under "Item 11.
Executive Compensation -- Compensation Committee Interlocks and Insider
Participation."
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
See "Index to Financial Statements" (page F-1).
(a)(2) FINANCIAL STATEMENT SCHEDULES.
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules have been omitted because the information is not applicable
or is not material or because the information required is set forth in the
financial statements or the notes thereto.
(a)(3) EXHIBITS.
See "Index to Exhibits" for listing of those exhibits included in this
filing.
Exhibit
Number Description
- ------- -----------
3.1* Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on
Form S-1 as filed on January 15, 1993 (Registration No. 33-57134) (the
"Company's 1993 Registration Statement").
3.2* By-laws of the Company. Incorporated by reference to Exhibit 3.2 of
the Company's 1993 Registration Statement.
4.1* Form of Indenture with respect to the Notes. Incorporated by
reference to Exhibit 4.1 of Amendment No. 3 to the Company's 1993
Registration Statement ("Amendment No. 3").
4.2* Form of certificate for the Notes (included in Exhibit 4.1 to
Amendment No. 3).
26
<PAGE>
Exhibit
Number Description
- ------- -----------
4.3* Credit Agreement ("Revolving Credit Facility"), as dated March 3, 1993
among the Company, Holding, Various Financial Institutions, and BT
Commercial Corporation and Chemical Bank, as Agents (the "Agents").
Incorporated by reference to Exhibit 4.1 of the Company's Form 8-K as
filed March 24, 1993 with the Commission (Registration No. 33-57134).
4.4* Form of Restructuring Agreement among Holding, the Company and KIA IV.
Incorporated by reference to Exhibit 4.25 of Amendment No. 3.
4.5* Form of Security Agreement between the Company and BT Commercial
Corporation, as Collateral Agent, Incorporated by Reference to Exhibit
4.27 of Amendment No. 3.
10.1* Stockholders Agreement, amended and restated as of September 14, 1990,
among Holding, KIA III-EMJ, KIA IV, Kelso Equity Partners II, L.P. and
the Management Stockholders and Other Investors named therein.
Incorporated by reference to Exhibit 4.1 of Holding's Post-Effective
Amendment No. 1 to the Form S-1 Registration Statement as filed with
the Commission on October 12, 1990 (Registration No. 33-35022)
("Holding's Post-Effective Amendment No. 1 to the 1990 Form S-1").
10.2* Amendment to the Stockholders Agreement, dated as of January 20, 1992.
Incorporated by reference to Exhibit 10.2 of the Company's 1993
Registration Statement.
10.3* Management Stockholders Bonus Plan. Incorporated by reference to
Exhibit 4.7 of Holding's Post-Effective Amendment No. 1 to the 1990
Form S-1.
10.5* Services Agreement, between Acquisition and Kelso, dated March 19,
1990. Incorporated by reference to Exhibit 10.2 of Holding's
Registration Statement on Form S-1 as filed May 30, 1990
with the Commission (Registration No. 33-35022) ("Holding's 1990
Registration Statement").
10.6* Trust Agreement applicable to the EMJ Employee Stock Ownership and
Capital Accumulation Plan, dated as of May 25, 1984, by and between
Crocker National Bank ("Crocker"), as Trustee, and EMJ. Incorporated
by referenced to Exhibit 4.1 to Form 8 (Amendment No. 1 to EMJ's
Annual Report on Form 10-K, Registration No. L-7537, for the fiscal
year ended December 31, 1984)(the "Form 8").
10.7* Amendment 1985-I to the EMJ Employee Stock Ownership and Capital
Accumulation Plan effective as of January 1985. Incorporated by
reference to Exhibit 4.1 to Post-Effective Amendment No. 1 to EMJ's
Registration Statement on Form S-8, Registration No. 2-87991, filed
August 21, 1985.
10.8* Amendment 1986-I to the EMJ Employee Stock Ownership and Capital
Accumulation Plan and Plan Trust Agreement executed December 1986
between EMJ and Wells Fargo Bank, N.A., as Trustee (formerly Crocker).
Incorporated by reference to Exhibit 4.2 to the Form 8.
10.9* Amendment 1988-I to the EMJ Employee Stock Ownership and Capital
Accumulation Plan executed February 29, 1988. Incorporated by
reference to Exhibit (10)d to EMJ's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987.
10.10* Amendment 1988-II to the EMJ Employee Stock Ownership and Capital
Accumulation Plan executed June 22, 1988. Incorporated by reference
to Exhibit 8 to EMJ's Schedule 14D-9 filed on February 5, 1990 ("EMJ's
1990 Schedule 14D-9").
10.11* Amendment 1989-I to the EMJ Employee Stock Ownership and Capital
Accumulation Plan executed March 20, 1989. Incorporated by reference
to Exhibit 8 to EMJ's 1990 Schedule 14D-9.
27
<PAGE>
Exhibit
Number Description
- ------- -----------
10.12* EMJ Supplemental Benefit Plan 1989 Amendment in Toto. Incorporated by
reference to Exhibit (10)p to EMJ's 1989 Form 10-K.
10.13* Amendment 1989-II to the EMJ Employee Stock Ownership and Capital
Accumulation Plan executed December 29, 1989. Incorporated by
reference to Exhibit (10)q to EMJ's 1989 Form 10-K.
10.14* Amendment 1990-I to the EMJ Employee Stock Ownership and Capital
Accumulation Plan Trust Agreement executed March 19, 1990.
Incorporated by reference to Exhibit (10)r to EMJ's Annual Report on
Form 10-K for fiscal year ended December 31, 1989.
10.15* C. A. Roberts Pension Plan, amended and restated as of January 1,
1986, with amendments thereto. Incorporated by reference to Exhibit
10.22 of Holding's 1990 Registration Statement.
10.16* Kilsby Executive Life Insurance Plan. Incorporated by reference to
Exhibit 10.25 of Holding's 1990 Registration Statement.
10.17* Kilsby Executive Long-Term Disability Plan. Incorporated by reference
to Exhibit 10.26 of Holding's 1990 Registration Statement.
10.18* Holding's ESOP. Incorporated by reference to Exhibit 10.31 of
Holding's Annual Report on Form 10-K for the year ended March 31, 1991
(Registration No. 33-35022) ("Holding's Form 10-K").
10.19* Amendment No. 1 to Holding's ESOP, dated October 21, 1991.
Incorporated by reference to Exhibit 10.24 of the Company's 1993
Registration Statement.
10.20* Amendment No. 2 to Holding's ESOP, dated October 21, 1991.
Incorporated by reference to Exhibit 10.25 of the Company's 1993
Registration Statement.
10.21* Amendment No. 3 to Holding's ESOP, dated February 18, 1992.
Incorporated by reference to Exhibit 10.26 of the Company's 1993
Registration Statement.
10.22* Amendment No. 4 to Holding's ESOP, dated January 25, 1993.
Incorporated by reference to Exhibit No. 10.21 to Holding's
Registration Statement on Form S-1 as filed October 19, 1994 with the
Commission (Registration No. 33-85364) ("Holding's 1994 Registration
Statement").
10.23* Amendment No. 5 to Holding's ESOP, dated January 25, 1993.
Incorporated by reference to Exhibit No. 10.22 to Holding's 1994
Registration Statement.
10.24* Amendment No. 6 to Holding's ESOP, dated January 25, 1993.
Incorporated by reference to Exhibit No. 10.23 to Holding's 1994
Registration Statement.
10.25* Amendment No. 7 to Holding's ESOP, dated January 25, 1993.
Incorporated by reference to Exhibit No. 10.24 to Holding's 1994
Registration Statement.
10.26* Amendment No. 8 to Holding's ESOP, dated July 27, 1993. Incorporated
by reference to Exhibit No. 10.25 to Holding's 1994 Registration
Statement.
10.27* Amendment No. 9 to Holding's ESOP, dated October 7, 1994.
Incorporated by reference to Exhibit No. 10.26 to Holding's 1994
Registration Statement.
10.28* Holding's ESOP Trust Agreement. Incorporated by reference to Exhibit
10.32 of Holding's Form 10-K.
28
<PAGE>
Exhibit
Number Description
- ------- -----------
10.29* Jorgensen Compensation Policy, dated as of April 1, 1991, including
description of Return on Net Operating Assets Incentive Plan.
Incorporated by reference to Exhibit 10.34 of Holding's 1991
Form 10-K.
10.30* Lease and Agreement, dated as of August 1, 1991, between Advantage
Corporate Income Fund L.P. and the Company, relating to the sale and
lease-back of K-R's Kansas City, Missouri property. Incorporated by
reference to Exhibit 10.30 of the Company's 1993 Registration
Statement.
10.31* Lease and Agreement, dated as of September 1, 1991, between Advantage
Corporate Income Fund L.P. and the Company, relating to the sale and
lease-back of the Cincinnati, Ohio property. Incorporated by
reference to Exhibit 10.31 of the Company's 1993 Registration
Statement.
10.32* Industrial Building Lease, dated as of October 16, 1991, between Ira
Houston Jones and Helen Mansfield Jones, Roderick M. Jones and
Cherilyn Jones, Roger G. Jones and Norma Jean Jones, Robert M. Jones
and Olga F. Jones and the Company, relating to the sale and lease-back
of the Alameda Street property in Lynwood, California. Incorporated
by reference to Exhibit 10.32 of the Company's 1993 Registration
Statement.
10.33* Stock Purchase Agreement, dated as of January 21, 1992, between
McJunkin Corporation and the Company, relating to the sale of the
Company's Republic Supply division. Incorporated by reference to
Exhibit 10.33 of the Company's 1993 Registration Statement.
10.34* Contract of Sale, dated as of January 21, 1992, between the Company
and Hansford Associates Limited Partnership, relating to the sale of
the warehouse properties and the sale of the Company's Republic Supply
division. Incorporated by reference to Exhibit 10.34 of the Company's
1993 Registration Statement.
10.35* Stock Purchase Agreement, dated as of June 30, 1992, among Forge
Acquisition Corporation, The Jorgensen Forge Corporation and the
Company, relating to the sale of the Company's Forge division.
Incorporated by reference to Exhibit 10.35 of the Company's 1993
Registration Statement.
10.36* Industrial Real Estate Lease, dated June 25, 1992, between Paul
Nadzikewycz and the Company, relating to the sale and lease-back of
JSA's Denver, Colorado property. Incorporated by reference to Exhibit
10.36 of the Company's 1993 Registration Statement.
10.37* Industrial Real Estate Lease, dated October 19, 1992, between Fiorito
Enterprises, Inc. and the Company, relating to the sale and lease-back
of the Portland, Oregon facility. Incorporated by reference to
Exhibit 10.27 of the Company's 1993 Registration Statement.
10.38* Truck Lease and Service Agreement, dated as of November 1, 1984,
between Ryder Truck Rental, Inc. ("Ryder") and EMJ and all amendments
thereto, between Ryder and the Company (amendments dated January 1,
1992, January 30, 1992 and undated (executed by the Company)).
Incorporated by reference to Exhibit 10.38 of the Company's 1993
Registration Statement.
10.39* Lease, dated July 30, 1982, between Republic Bank, Dallas N.A., as
Ancillary Trustee of the Fluor Employees' Trust Fund and Kilsby-
Roberts Co., relating to K-R's Houston, Texas property (the "Houston
Lease"). Incorporated by reference to Exhibit 10.42 of the Company's
1993 Registration Statement.
10.40* Amendment No. 1 to the Houston Lease, dated as of December 31, 1986,
among Barclays Bank of California, as Trustee for Republic Bank,
Dallas, N.A., as Ancillary Trustee of the Fluor Employees' Trust Fund,
KRG and Kilsby-Roberts Co. Incorporated by reference to Exhibit 10.43
of the Company's 1993 Registration Statement.
29
<PAGE>
Exhibit
Number Description
- ------- -----------
10.41* Form of Management Agreement between the Company and Holding.
Incorporated by reference to Exhibit 10.46 of Amendment No. 2 to the
Company's 1993 Registration Statement.
10.42* Form of Tax Allocation Agreement between the Company and Holding.
Incorporated by reference to Exhibit 10.47 of Amendment No. 3.
10.43* Second Amendment dated as January 26, 1994 to the revolving credit
facility among the Company, Holding, certain financial institutions
named therein and BT Commercial Corporation and Chemical Bank, as
agents. Incorporated by reference to the Company's quarterly report
on Form 10-Q, Commission File No. 5-10065 for the fiscal quarter ended
January 3, 1994.
10.44* Third Amendment dated as of February 25, 1994 to the revolving credit
facility among the Company, Holding, certain financial institutions
named therein and BT Commercial Corporation and Chemical Bank, as
agents. Incorporated by reference to Exhibit 10.42 to the Company's
Annual Report on Form 10-K, Commission No. 5-10065 for the fiscal year
ended March 31, 1994 (the "Company's 1994 Form 10-K").
10.45* Fourth Amendment dated as of May 4, 1994 to the revolving credit
facility among the Company, Holding, certain financial institutions
named therein and BT Commercial Corporation and Chemical Bank, as
agents. Incorporated by reference to Exhibit 10.43 to the Company's
1994 Form 10-K.
10.46* Earle M. Jorgensen Holding Company, Inc. Phantom Stock Plan adopted
January 11, 1995. Incorporated by reference to Exhibit 10.39 to
Amendment No.1 to Holding's 1994 Registration Statement as filed with
the commission on January 19, 1995 (Registration No. 33-85364)
("Amendment No. 1 to Holding's 1994 Registration Statement").
10.47* Industrial Real Estate Lease, dated July 15, 1993, between Jorgensen
and 58 Cabot L.P., relating to the Langhorne, Pennsylvania facility.
Incorporated by reference to Exhibit 10.27 to Holding's 1994
Registration Statement.
10.48* Amendment to the Stockholders Agreement, dated as of September 30,
1994. Incorporated by reference to Exhibit 10.41 to Amendment No. 1
to Holding's 1994 Registration Statement.
10.49* Stock Compensation Agreement, dated as of December 13, 1994, between
Holding and David M. Roderick. Incorporated by reference to Exhibit
10.42 to Amendment No. 1 to Holding's 1994 Registration Statement.
10.50* Holding's Key Employee Incentive Compensation Plan, effective April 1,
1994. Incorporated by reference to Exhibit 10.53 to the Company's
Annual Report on Form 10-K, Commission File No. 5-10065 for the fiscal
year ended March 31, 1995 (the "Company's 1995 Form 10-K").
10.51* Holding's 401(a)(17) Supplemental Contribution Plan, effective April
1, 1994. Incorporated by reference to Exhibit 10.54 to the Company's
1995 Form 10-K.
10.52* Holding's Deferred Compensation Plan, effective April 1, 1994.
Incorporated by reference to Exhibit 10.55 to the Company's 1995 Form
10-K.
10.53* Fifth Amendment dated as of August 17, 1995 to the revolving credit
facility among the Company, Holding, certain financial institutions
named therein and BT Commercial Corporation and Chemical Bank, as
agents. Incorporated by reference to the Company's Quarterly Report
on Form 10-Q, Commission File No. 5-10065 for the fiscal quarter ended
September 29, 1995.
30
<PAGE>
Exhibit
Number Description
- ------- -----------
10.54* Form of Sixth Amendment dated as of January 30, 1996 to the revolving
credit facility among the Company, Holding, certain financial
institutions named therein and BT Commercial Corporation and Chemical
Bank, as agents. Incorporated by reference to the Company's Quarterly
Report on Form 10-Q, Commission File No. 5-10065 for the fiscal
quarter ended January 3, 1996.
10.55* Form of Seventh Amendment dated as of June 20, 1996 to the revolving
credit facility among the Company, Holding, certain financial
institutions named therein and BT Commercial Corporation and Chemical
Bank, as agents. Incorporated by reference to Exhibit 10.58 to the
Company's Annual Report on Form 10-K, Commission No. 5-10065 for the
fiscal year ended March 31, 1996 (the "Company's 1996 Form 10-K").
10.56** Amendment No. 2 to the Earle M. Jorgensen Company Capital Accumulation
Plan and Trust dated as of May 3, 1996.
10.57** Earle M. Jorgensen Holding Company, Inc. Stock Option Plan effective
January 30, 1997.
10.58** Form of Holding Incentive and Non-Qualified Stock Option Agreement.
10.59** Form of Eighth Amendment dated as of March 19, 1997 to the revolving
credit facility among the Company, Holding, certain financial
institutions named therein and BT Commercial Corporation and Chemical
Bank, as agents.
10.60** Form of Ninth Amendment and Waiver dated as of June 4, 1997 to the
revolving credit facility among the Company, Holding, certain
financial institutions named therein and BT Commercial Corporation and
Chemical Bank, as agents.
12.1** Statement of Computation of Number of Times Fixed Charges Earned.
22.1** Listing of the Company's subsidiaries.
27** Financial Data Schedule
(b) Reports on Form 8-K.
None
_______________
* Previously filed.
** Included in this filing.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brea, State of
California, on the 26th day of June, 1997.
EARLE M. JORGENSEN COMPANY
By /s/ Charles P. Gallopo
------------------------
Charles P. Gallopo
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- -----
<S> <C> <C>
Director and Chairman Emeritus
-------------------------
Earle M. Jorgensen
/s/David M. Roderick Director and Chairman of the Executive
-------------------------- Committee
David M. Roderick June 26, 1997
/s/Neven C. Hulsey Chairman and Director
--------------------------
Neven C. Hulsey June 26, 1997
/s/Maurice S. Nelson President, Chief Executive Officer and
-------------------------- Chief Operating Officer and Director
Maurice S. Nelson June 26, 1997
/s/Charles P. Gallopo Vice President and Chief Financial
-------------------------- Officer (Principal Financial and
Charles P. Gallopo Accounting Officer) June 26, 1997
/s/Joseph S. Schuchert Director
--------------------------
Joseph S. Schuchert June 26, 1997
/s/Frank Nickell Director
--------------------------
Frank Nickell June 26, 1997
/s/William A. Marquard Director
--------------------------
William A. Marquard June 26, 1997
/s/John Rutledge Director
--------------------------
Dr. John Rutledge June 26, 1997
</TABLE>
32
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
33
<PAGE>
FINANCIAL STATEMENTS
Page
----
EARLE M. JORGENSEN COMPANY:
Report of Independent Auditors F-2
Consolidated Balance Sheets at March 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years ended
March 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Stockholder's Equity for the
years ended March 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1997, 1996, 1995 F-6
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholder
Earle M. Jorgensen Company
We have audited the accompanying consolidated balance sheets of Earle M.
Jorgensen Company as of March 31, 1997 and 1996, and the related consolidated
statements of operations, stockholder's equity, and cash flows for each of
the three years in the period ended March 31, 1997. Our audits also included
the financial statement schedule listed in the index at item 14(a)(2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Earle M. Jorgensen
Company at March 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ERNST & YOUNG LLP
Orange County, California
May 19, 1997, except for Note 6-Credit Agreement
as to which the date is June 4, 1997
F-2
<PAGE>
Earle M. Jorgensen Company
Consolidated Balance Sheets
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------
1997 1996
--------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 21,477 $ 22,823
Accounts receivable, less allowance for doubtful accounts 113,544 113,664
Inventories 174,045 188,452
Other current assets 3,915 4,513
--------------------------------
Total current assets 312,981 329,452
--------------------------------
Net property, plant and equipment, at cost 120,050 134,259
Cash surrender value of life insurance policies 14,258 11,599
Debt issue costs, net of accumulated amortization 4,806 6,127
Other assets 2,787 3,474
--------------------------------
Total assets $ 454,882 $ 484,911
--------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 87,519 $ 112,551
Accrued restructuring expenses 10,632 783
Other accrued liabilities 25,973 30,219
Deferred income taxes 7,270 18,362
Current portion of long-term debt 950 950
--------------------------------
Total current liabilities 132,344 162,865
--------------------------------
Long-term debt 290,336 279,002
Deferred income taxes 26,742 14,448
Other long-term liabilities 3,533 3,455
Commitments and contingencies
Stockholder's equity
Preferred stock, $.01 par value; 200 shares authorized and unissued --- ---
Common stock, $.01 par value; 2,800 share authorized; 128 shares
issued and outstanding --- ---
Capital in excess of par value 171,073 173,523
Foreign currency translation adjustment 44 (5,748)
Accumulated deficit (169,190) (142,634)
--------------------------------
Total stockholder's equity 1,927 25,141
--------------------------------
Total liabilities and stockholder's equity $ 454,882 $ 484,911
--------------------------------
--------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Earle M. Jorgensen Company
Consolidated Statements of Operations
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Revenues $1,023,565 $1,025,659 $1,022,884
Cost of sales, before inventory adjustment 742,826 737,756 716,975
----------------------------------------
280,739 287,903 305,909
Inventory adjustment --- (26,882) ---
----------------------------------------
Gross profit 280,739 261,021 305,909
Expenses:
Warehouse and delivery 135,287 129,966 125,683
Selling 40,791 41,794 44,627
General and administrative 69,748 73,859 76,874
Restructuring and consolidation expenses 15,638 3,571 715
Other non-recurring charges 4,450 9,205 ---
----------------------------------------
Total expenses 265,914 258,395 247,899
----------------------------------------
Income from operations 14,825 2,626 58,010
Interest expense, net 40,880 40,874 34,604
----------------------------------------
Income (loss) before income taxes (26,055) (38,248) 23,406
Income tax provision (benefit) 501 (8,937) 3,487
----------------------------------------
Net income (loss) $ (26,556) $ (29,311) $ 19,919
----------------------------------------
----------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Earle M. Jorgensen Company
Consolidated Statements of Stockholder's Equity
(dollars in thousands)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK CAPITAL CURRENCY
--------------------- IN EXCESS TRANSLATION ACCUMULATED
SHARES AMOUNT OF PAR VALUE ADJUSTMENT DEFICIT TOTAL
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 128 $ --- $188,371 $ (421) $(133,242) $ 54,708
Dividend to parent --- --- (3,654) --- --- (3,654)
Capitalization of ESOP
contribution, net --- --- 7,694 --- --- 7,694
Foreign currency translation
adjustment --- --- --- (2,267) --- (2,267)
Net income --- --- --- --- 19,919 19,919
---------------------------------------------------------------------------------
Balance at March 31, 1995 128 --- 192,411 (2,688) (113,323) 76,400
Dividend to parent --- --- (22,289) --- --- (22,289)
Capitalization of ESOP
contribution, net --- --- 3,401 --- --- 3,401
Foreign currency translation
adjustment --- --- --- (3,060) --- (3,060)
Net loss --- --- --- --- (29,311) (29,311)
---------------------------------------------------------------------------------
Balance at March 31, 1996 128 --- 173,523 (5,748) (142,634) 25,141
Dividend to parent --- --- (5,552) --- --- (5,552)
Capitalization of ESOP
contribution, net --- --- 3,102 --- --- 3,102
Foreign currency translation
adjustment and writeoff --- --- --- 5,792 --- 5,792
Net loss --- --- --- --- (26,556) (26,556)
---------------------------------------------------------------------------------
Balance at March 31, 1997 128 $ --- $171,073 $ 44 $(169,190) $ 1,927
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Earle M. Jorgensen Company
Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(26,556) $(29,311) $ 19,919
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Inventory adjustment --- 26,882 ---
Write-off of foreign currency translation losses 5,345 --- ---
Asset write-downs 4,450 9,205 ---
Depreciation and amortization 10,620 12,022 14,135
Amortization of debt issue costs and discount on senior
notes included in interest expense 2,279 2,279 2,253
Accrued postretirement benefits 280 (256) (360)
ESOP expense contributed to capital 3,102 3,401 7,694
Deferred income taxes 1,202 (9,650) 2,060
Gain on sale of property, plant and equipment (1,079) (559) (665)
Debt forgiveness charge from pre-payment
of note receivable --- --- 51
Provision for bad debts 1,817 1,362 1,456
Increase in cash surrender value of life insurance
over premiums paid (1,798) (1,894) (1,381)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (1,697) 40,065 (42,384)
Decrease (increase) in inventories, excluding
the inventory adjustment above 14,407 (5,245) (27,524)
Decrease (increase) in other current assets 635 2,921 (2,489)
Increase (decrease) in accounts payable and accrued
liabilities and expenses (19,428) 19,241 14,360
Other 917 (3,405) (2,326)
------------------------------------------------
Net cash provided by (used in) operating activities (5,504) 67,058 (15,201)
------------------------------------------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (4,449) (16,658) (16,177)
Proceeds from the sale of property, plant and equipment 4,630 1,158 3,851
Proceeds from note receivable --- --- 1,695
Premiums paid on life insurance policies (2,345) (1,530) (2,661)
Proceeds from redemption of life insurance policies 1,484 925 2,940
------------------------------------------------
Net cash used in investing activities (680) (16,105) (10,352)
------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
Earle M. Jorgensen Company
Consolidated Statements of Cash Flows (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Net borrowings (payments) under revolving loan agreements $12,149 $(19,747) $(4,309)
Borrowings on cash surrender value of life insurance policies --- --- 25,331
Proceeds from issuance of industrial revenue bonds --- --- 4,500
Other borrowings (payments), net (949) 3,291 1,811
Increase in debt issue costs (810) --- (295)
Cash dividend to Parent (5,552) (22,289) (3,654)
-----------------------------------------------
Net cash provided by (used in) financing activities 4,838 (38,745) 23,384
-----------------------------------------------
Net increase (decrease) in cash (1,346) 12,208 (2,169)
Cash at beginning of year 22,823 10,615 12,784
-----------------------------------------------
Cash at end of year $21,477 $ 22,823 $10,615
-----------------------------------------------
-----------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements
March 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION---The Company became a wholly-owned
subsidiary of Earle M. Jorgensen Holding Company, Inc. (the Parent) as the
result of a series of business combinations and mergers effective April 1, 1990.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries including Kilsby Jorgensen Steel and
Aluminium Ltd. (EMJ (UK)) (formerly Kilsby-Roberts Ltd.), Kilsby Jorgensen Steel
& Aluminum S.A. de C.V. (EMJ (Mexico)), and Earle M. Jorgensen (Canada) Inc.
(EMJ (Canada)) (formerly Kilsby Jorgensen Steel and Aluminum Inc.) and Stainless
Insurance Ltd., a captive insurance subsidiary (EMJ (Bermuda)) operating in the
United Kingdom, Mexico, Canada and Bermuda, respectively. Excluding EMJ
(Bermuda), net losses from foreign operations totaled $3,516,000 and $114,000 in
1997 and 1995, respectively. In fiscal 1996, such foreign operations generated
$357,000 of net income. In fiscal 1997, EMJ (Bermuda) generated $436,000 of net
income from investment income and intercompany fees. All significant
intercompany accounts and transactions have been eliminated.
Certain amounts reported in prior years have been reclassified to conform to the
1997 presentation.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION---The Company recognizes revenue when products are shipped.
RESTRUCTURING AND CONSOLIDATIONS---In March 1997, the Company approved a plan
to restructure its operations. The plan's major actions included selling
certain foreign operations (see Note 4), closing four domestic distribution
centers whose sales territories are now serviced from other nearby
facilities, and reducing the Company's workforce by approximately 10%. As a
result, a restructuring charge of $15,638,000 was recorded to cover
provisions for loss on sale of foreign operations ($7,027,000, including the
write-off of cumulative translation adjustments of $5,345,000); costs of
severance and other termination benefits and related expenses associated with
the reduction in workforce ($6,537,000); and costs directly related to the
closure of facilities for which there is no future economic value
($2,074,000).
Management expects a significant portion of the costs related to the
restructuring plan will be incurred by July 1, 1997. The domestic facilities
that were closed are owned by the Company and are being held for sale. It is
expected the sale of these facilities and of the foreign operations will be
completed during fiscal 1998.
In September 1995, the Company implemented a plan designed to enhance operating
productivity and efficiencies. As a result, a restructuring charge of
$3,571,000 was recorded to cover the costs associated with a 7% reduction in the
Company's workforce. In addition, the Company recorded a non-recurring charge
of $9,205,000 for write-downs and write-offs of certain property, plant and
equipment, a portion of which ($3,330,000) was the excess purchase price or
"step-up" allocated to the net book values of such assets at the time of the
Company's merger in 1990.
Commencing in fiscal 1993, the Company implemented a consolidation program to
combine certain service centers serving the same market. The Company recorded
charges of $715,000 during fiscal 1995 related to the physical relocation of
employees, equipment, inventory, severance costs and costs to dispose of
facilities.
F-8
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT---Property, plant and equipment is recorded at
cost. Additions, renewals and betterments are capitalized; maintenance and
repairs which do not extend useful lives are expensed as incurred. Gains or
losses from disposals are reflected in income and the related costs and
accumulated depreciation are removed from the accounts. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of 10 to 40 years for buildings and improvements and 3 to 20 years
for machinery and equipment. Leasehold improvements are amortized over the
terms of the respective leases.
Effective July 1, 1995, the Company extended the useful lives for the step-up of
property, plant and equipment resulting from the 1990 merger through fiscal
2008. As a result, amortization expense in fiscal 1996 and 1997 was reduced
approximately $3.3 million and $1.8 million, respectively, on a comparative
basis, and such reduced amortization will continue through each of the fiscal
years ending 1998 through 2000.
CONCENTRATION OF CREDIT RISK---The Company sells the majority of its products
throughout the United States, Canada, Mexico and Europe. Sales to the Company's
recurring customers are generally made on open account terms while sales to
occasional customers are made on a C.O.D. basis. The Company performs periodic
credit evaluations of its ongoing customers and generally does not require
collateral. The Company establishes an allowance for potential credit losses
based upon factors surrounding the credit risk for specific customers,
historical trends and other information; such losses have been within
management's expectations. The Company's allowance for doubtful accounts at
March 31, 1997 and 1996 was $963,000 and $1,017,000, respectively. Management
believes there are no significant concentrations of credit risk as of March 31,
1997.
DEBT ISSUE COST---Debt issue costs are deferred and amortized to interest
expense over the life of the underlying indebtedness. The amortization of debt
issue costs aggregated $2,144,000, $2,144,000 and $2,117,000 for the years ended
March 31, 1997, 1996 and 1995, respectively. Accumulated amortization of debt
issue costs was $8,612,000 and $6,468,000 at March 31, 1997 and 1996,
respectively.
FOREIGN CURRENCY TRANSLATION---The assets and liabilities of the foreign
subsidiaries have been translated into U.S. dollars using the year-end exchange
rates. Revenues, costs and expenses have been translated at average exchange
rates for each year. Adjustments resulting from translation of foreign currency
financial statements are reflected as a separate component of stockholder's
equity. Exchange gains and losses from foreign currency transactions are
included in operations in the period in which they occur.
CASH AND STATEMENTS OF CASH FLOWS---Cash includes disbursements and deposits not
yet funded by or applied to the Company's Revolving Credit Facility as of a
balance sheet date. The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
For the years ended March 31, 1997, 1996 and 1995 cash paid for interest on
borrowings was $37,747,000, $37,310,000 and $31,592,000, and cash paid for
income taxes was $403,000, $677,000 and $1,056,000, respectively.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In fiscal 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which requires impairment losses to be recorded on long-lived assets used in
operations or are expected to be disposed of, when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets. There were no impairment losses
recorded in fiscal 1996 as the result of adopting SFAS No. 121. In fiscal
1997, the Company evaluated certain applications of its management
information and financial reporting system and determined that such
applications would not be used in the future. Accordingly, the Company
recorded a non-recurring charge of $4,450,000 for the write-off of costs
related to these applications.
F-9
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
2. INVENTORIES
Substantially all inventories are held for sale at the Company's service
center locations and are valued at the lower of cost (using the last-in,
first-out (LIFO) method) or market. If the Company had used the first-in,
first-out (FIFO) method of inventory valuation, inventories would have been
higher by $1,697,000 at March 31, 1997 and $5,187,000 at March 31, 1996.
In fiscal years 1997 and 1995, a reduction of LIFO inventory quantities
carried at costs lower or higher than costs prevailing in prior years
occurred but did not have a significant impact on the Company's gross profit.
There were no such reductions in fiscal 1996.
In February 1995, the Company began the implementation of a new enhanced
inventory and management information system. To ensure the accuracy of the
conversion of the perpetual inventory records, the Company performed physical
inventory counts and other procedures at all of its locations during the second,
third and fourth quarters of fiscal 1996. The Company identified a difference
between the perpetual inventory records and the general ledger amounting to
$26.9 million and, accordingly, recorded a charge to cost of sales for this
difference in the fourth quarter of fiscal 1996.
3. NET PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation at March 31, 1997 and
1996 consisted of the following:
1997 1996
--------------------------------
Land $ 32,583,000 $ 34,178,000
Buildings and improvements 43,943,000 51,895,000
Machinery and equipment 97,940,000 103,012,000
--------------------------------
174,466,000 189,085,000
Less accumulated depreciation 54,416,000 54,826,000
--------------------------------
Net property, plant and equipment $120,050,000 $134,259,000
--------------------------------
--------------------------------
4. FOREIGN OPERATIONS HELD FOR SALE
In March 1997, the Company approved a plan to sell its foreign operations in the
United Kingdom and Mexico. The net assets of such operations at March 31, 1997
and 1996 consisted of the following:
1997 1996
--------------------------------
Current assets $17,210,000 $20,133,000
Property, plant and equipment, net 758,000 810,000
Other assets 12,000 54,000
--------------------------------
Total assets 17,980,000 20,997,000
Current liabilities, including a reserve
of $7,027,000 for estimated loss 13,126,000 5,397,000
--------------------------------
Net assets $ 4,854,000 $15,600,000
--------------------------------
--------------------------------
For the fiscal years ended March 31, 1997, 1996 and 1995, combined revenues from
these foreign operations were $35,193,000, $36,629,000 and $29,974,000; and
income (loss) from operations was ($2,935,000), $80,000 and ($534,000),
respectively.
F-10
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
5. CASH SURRENDER VALUE OF LIFE INSURANCE
The Company is the owner and beneficiary of life insurance policies on all
former nonunion employees of a predecessor company including certain current
employees of the Company and its Parent. The Company is also the owner and
beneficiary of key man life insurance policies on certain current and former
executives of the Company and predecessor companies. These policies are
designed to provide cash to the Company to repurchase shares held by employees
in the ESOP and shares held individually by employees upon the termination of
their employment.
The Company uses borrowings from the cash surrender value of certain policies to
pay a portion of the premiums and accrued interest on those policies and to
fund working capital needs. As of March 31, 1997, approximately $5,000,000 was
available for future borrowings.
<TABLE>
<CAPTION>
Surrender value Loans Net cash
before loans outstanding surrender value
--------------------------------------------------
<S> <C> <C> <C>
Balance at March 31, 1997 $90,805,000 $76,547,000 $14,258,000
Balance at March 31, 1996 $77,527,000 $65,928,000 $11,599,000
</TABLE>
Interest expense on outstanding loans in fiscal 1997, 1996 and 1995 totaled
$8,621,000, $7,173,000 and $4,709,000, respectively.
6. LONG-TERM DEBT
Long-term debt at March 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
--------------------------------
<S> <C> <C>
Revolving loans due September 9, 1999 $118,011,000 $105,862,000
10-3/4% Senior Notes due March 1, 2000 154,607,000 154,473,000
Industrial Development Revenue Bonds:
Payable in annual installments of $500,000
commencing June 1, 1998, interest at 9% 4,000,000 4,000,000
Payable in annual installments of $715,000
commencing December 1, 2004, interest at 5.25% 4,300,000 4,300,000
Payable in annual installments of $900,000
commencing September 1, 2000, interest at 8.5% 4,500,000 4,500,000
Purchase money financing, payable in monthly
installments of principal of $79,000 plus interest
through July, 2003; interest at one month
LIBOR plus 3.25% 5,868,000 6,817,000
------------ ------------
291,286,000 279,952,000
Less current portion 950,000 950,000
------------ ------------
$290,336,000 $279,002,000
------------ ------------
------------ ------------
</TABLE>
Aggregate maturities of long-term debt are as follows: $950,000 in 1998;
$1,450,000 in 1999; $274,068,000 in 2000; $2,350,000 in 2001; $2,350,000 in
2002; and $10,118,000 thereafter. The fair value of the Company's Senior
Notes at March 31, 1997 was $150,350,000 based on the quoted market price as
of that date. The carrying values of all other long-term debt and other
financial instruments at March 31, 1997 approximate fair value.
F-11
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
10-3/4% SENIOR NOTES
In March 1993, the Company refinanced its revolving and term loans by issuing
$155 million of 10-3/4% Senior Notes and entering into a new $175 million
revolving credit facility (Credit Agreement). The 10-3/4% Senior Notes were
sold at 99.392% of face value resulting in a discount of $942,000 and an
effective yield to maturity of 10-7/8%.
CREDIT AGREEMENT
The revolving loans, which allow maximum borrowings of $175 million, including
letters of credit ($1.6 million outstanding at March 31, 1997), bear interest at
a base rate (generally defined as the bank's prime lending rate plus 1-1/2% or
LIBOR plus 2.75%). At March 31, 1997, the bank's prime lending rate was 8.50%
and LIBOR was 5.69%. In addition, borrowings under the revolving loans are
limited to an amount equal to 85% of eligible trade receivables plus 43.5% of
eligible inventories (as defined). Unused available borrowings under the
revolving loans totaled $44.3 million at March 31, 1997. The revolving loans
mature on September 9, 1999. Borrowings under the revolving loans are secured
by a lien on all domestic inventory and accounts receivable of the Company.
Under the Credit Agreement the Company is obligated to pay certain fees
including an unused commitment fee of 0.5%, payable quarterly in arrears, and
letter of credit fees of 2-3/4% per annum of the maximum amount available to be
drawn under each letter of credit, payable quarterly in arrears, plus issuance,
fronting, amendment and other standard fees. The Company paid loan commitment
fees totaling $305,000 in 1997, $218,000 in 1996 and $193,000 in 1995.
The Credit Agreement contains financial covenants in respect of maintenance of
minimum consolidated net worth, working capital and fixed charge coverage ratio
(as defined). The Credit Agreement also limits, among other things, the
incurrence of liens and other indebtedness, mergers, consolidations, the sale of
assets, annual capital expenditures, advances, investments and loans by the
Company and its subsidiaries, dividends and other restricted payments by the
Company and its subsidiaries in respect to their capital stock, and certain
transactions with affiliates. On June 4, 1997, the Company received a waiver to
fiscal 1997 financial covenants relating to consolidated net worth and fixed
charge ratio and received amendments to other financial covenants for future
periods.
OTHER
The Company issues industrial revenue bonds in connection with significant
facility improvements or construction projects. The purchase money financing of
$5,868,000 represents the net borrowings under a loan agreement entered into on
March 27, 1995 which provided up to $7,500,000 for the expansion or acquisition
of facilities and purchase of equipment. These obligations are secured by the
underlying assets acquired or constructed.
7. INCOME TAXES
The Company is included in the consolidated tax returns of the Parent. Pursuant
to an agreement with the Parent, the Company calculates its tax provision as
though it filed separate returns.
The Company records deferred taxes based upon differences between the
financial statement and tax basis of assets and liabilities. Deferred taxes
are also recorded for the future benefit of Federal and state tax losses and
tax credit carryforwards. Deferred tax assets have not been recognized for
the loss carryforwards of the Company's foreign subsidiaries. Consistent with
SFAS No. 109, "Accounting for Income Taxes" a valuation allowance has been
recognized for certain deferred tax assets, which management believes are not
likely to be realized.
F-12
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
At March 31, 1997, the Company has net operating loss carryforwards of
$70,000,000 for Federal income tax purposes. These carryforwards resulted from
the Company's losses during 1993 and 1996, and expire in years 2009 and 2011,
respectively. The ultimate realization of the benefits of these loss
carryforwards is dependent on future profitable operations. In addition, use of
the Company's net operation loss carryforwards and other tax attributes may be
substantially limited if a cumulative change in ownership of more than 50%
occurs within any three year period subsequent to a loss year.
The Company's federal income tax returns for the years ended 1993 and 1994 are
currently under examination by the Internal Revenue Service.
Significant components of the Company's deferred income tax assets and
liabilities at March 31, 1997 and 1996 were as follows:
1997 1996
--------------------------
Deferred tax liabilities:
Tax over book depreciation $10,267,000 $12,970,000
Purchase price adjustments 43,324,000 45,380,000
----------- -----------
Total deferred tax liabilities 53,591,000 58,350,000
----------- -----------
Deferred tax assets:
Net operating loss carryforwards 25,747,000 27,550,000
Other 16,538,000 7,990,000
Valuation allowance for deferred tax assets (22,706,000) (10,000,000)
----------- -----------
Net deferred tax assets 19,579,000 25,540,000
----------- -----------
Net deferred tax liabilities $34,012,000 $32,810,000
----------- -----------
----------- -----------
Income before taxes consists primarily of income (loss) from the Company's
domestic operations and also includes pre-tax income (loss) of $(3,080,000),
$359,000 and $(114,000) from the Company's foreign operations for fiscal 1997,
1996 and 1995, respectively.
Significant components of the provision for income taxes attributable to
continuing operations for the years ended March 31, 1997, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ --- $ --- $ 516,000
State 403,000 676,000 991,000
Foreign --- --- ---
------------- -------------- -------------
Total current 403,000 676,000 1,507,000
------------- -------------- -------------
Deferred:
Federal (10,111,000) (12,240,000) 3,079,000
State (2,497,000) (3,235,000) 1,101,000
Foreign --- --- ---
Valuation allowances 12,706,000 5,862,000 (2,200,000)
------------- -------------- -------------
Total deferred 98,000 (9,613,000) 1,980,000
------------- -------------- -------------
$ 501,000 $ (8,937,000) $ 3,487,000
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
F-13
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The reconciliation of the income tax provision (benefit) differs from that which
would result from applying the U.S. statutory rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Expected tax (benefit) at Federal statutory rates $(9,119,000) $(13,387,000) $ 8,192,000
State tax expense (benefit), net of Federal taxes (1,207,000) (1,876,000) 942,000
Net increase in cash surrender values of life insurance (2,797,000) (1,607,000) (1,306,000)
State franchise and capital taxes 403,000 423,000 421,000
Effect of Internal Revenue Service examination --- 792,000 ---
Foreign loss carryforward (with) without tax benefit 1,078,000 (126,000) ---
Tax benefit of credit carryovers and carrybacks (800,000) --- (846,000)
Change in valuation allowance 12,706,000 5,862,000 (2,200,000
Other 237,000 982,000 (1,716,000)
------------ ------------ ------------
Income tax (benefit) expense $ 501,000 $ (8,937,000) $ 3,487,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The change of $12,706,000 in the valuation allowance for deferred tax assets was
due to the uncertainty of realizing the benefit during the tax loss carryforward
period.
8. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN
The Company and its Parent have an Employee Stock Ownership Plan (ESOP) which
covers nonunion employees of the Company who meet certain service requirements.
The cost of the ESOP is borne by the Company through annual contributions to an
Employee Stock Ownership Trust (ESOT) in amounts determined by the Plan
Administrative Committee (the Committee). Contributions may be made in cash or
shares of the Parent's stock as the Parent's Board of Directors may from time to
time determine. Participants vest at a rate of 20% per year of service and
become fully vested upon retirement, disability or death. Upon the occurrence
of a participant's termination (as defined), retirement, disability, or death,
the ESOP is required, by the terms of the ESOP, to either distribute the vested
balance in stock or repurchase the vested balance (as determined by the
Committee). If stock is distributed, it is accompanied by a put option to the
Parent under terms defined in the ESOP. Shares of the Parent's Series A and B
preferred and common stock owned by the ESOP totaled 107,170, 24,444 and
3,511,701 at March 31, 1997, respectively. Contributions payable to the ESOT
totaled $3,102,000, $3,401,000 and $7,694,000 in 1997, 1996 and 1995, which
represents 5% of eligible compensation in 1997 and 1996 and 11% in 1995. The
contribution for fiscal 1997 will be in the form of common stock or cash. The
contribution for fiscal 1996 and 1995 was made in the form of common stock.
Although the Parent has not expressed any intent to terminate the plan, it has
the right to do so at any time. In the event of such termination, participants
become fully vested to the extent of the balances in their separate accounts and
come under the put options as previously discussed.
F-14
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION AND POSTRETIREMENT BENEFIT PLANS
The Company historically maintained noncontributory defined benefit pension
plans covering substantially all former employees of a predecessor company not
covered by union plans. The Hourly Plan and Salaried Plan provide benefits on
years of service and the employee's compensation during the last ten years of
employment. Net pension expense for the Hourly Plan for the years ended March 31
1997, 1996 and 1995 was $420,000, $500,000 and $286,000, respectively. There
was no pension expense or income for the Salaried Plan for the years ended March
31, 1997, 1996 and 1995.
In September 1991, the Company's Board of Directors (Board) approved a
restructuring of the Company's benefit package. In March 1992, the Salaried
Plan was amended to set the benefits obligation equal to the overfunded value of
the plan assets and in November 1992, such benefits were distributed to
participants in settlement of the Salaried Plan obligations. In June 1993, the
Company transferred the obligations and assets related to the non-union
participants of the Hourly Plan to a newly created plan and amended the Plan's
provisions to set the benefit obligation equal to the overfunded value of the
plan assets. In November 1993, benefits totaling $7.2 million were paid to
participants in settlement of these obligations. The assets of the Hourly Plan
for union participants are held in trust and consist of bonds, equity securities
and insurance contracts and the Company contributes at least the minimum
required annually under ERISA.
The Company maintains an unfunded Supplemental Plan which provides benefits to
highly compensated employees whose basic pension plan benefit is limited by the
Internal Revenue Code. Net pension expense for the Supplemental Plan for the
years ended March 31, 1997, 1996 and 1995 was $67,000, $67,000 and $228,000,
respectively. This plan is being dissolved since its benefits related to those
provided by the Salaried Plan.
In addition to the Company's defined benefit pension plans, the Company sponsors
a defined benefit health care plan that provides postretirement medical and
dental benefits to eligible full time employees. The plan is contributory, with
retiree contributions adjusted annually, and contains other cost-sharing
features such as deductibles and coinsurance. The accounting for the plan
anticipates future cost-sharing changes to the written plan that are consistent
with the Company's expressed intent to increase the retiree contribution rate
annually to compensate for the expected health care trend rate. The Company's
policy is to fund the cost of medical benefits under this plan as they are
submitted for reimbursement. Gains and losses realized from the remeasurement
of the plan's liability are amortized to income over 3 years.
Information as of March 31, 1997, regarding the Hourly Plan, Supplemental Plan,
and Postretirement Benefit Plan follows:
<TABLE>
<CAPTION>
Supplemental Postretirement
Hourly Plan Plan Plan
------------ ------------ --------------
<S> <C> <C> <C>
Projected benefit obligation $(8,049,000) $(788,000) $(3,108,000)
Fair value of plan assets 8,714,000 --- ---
Prepaid (accrued) pension costs (176,000) (500,000) (3,519,000)
Discount rate 7.50% 7.50% 7.50%
Expected long-term rate of return on assets 8.00% --- ---
Rate of increase in compensation levels 5.00% 5.00% ---
</TABLE>
The discount rate, expected long-term rate of return on assets, and rate of
increase in compensation levels used to calculate the expense under these plans
for fiscal 1997, 1996 and 1995 were 7.25%, 8.00% and 5.00%; 8.25%, 8.00% and
5.00% and 7.25%, 8.00% and 5.00%, respectively.
F-15
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION AND POSTRETIREMENT BENEFIT PLANS (CONTINUED)
The health care cost trend rate used in the calculation of cost (income) related
to the postretirement health care plans was 9.0% grading down ratably to 5.5% by
March 2004. A 1% increase in the assumed health care cost trend rate would have
increased postretirement costs in fiscal 1997 by $189,000.
The health care cost trend rate used to calculate the accumulated postretirement
benefit obligation was 9.5% for 1996, grading down ratably to 5.5% by March
2004. The health care cost trend rate assumption can have a significant effect
on the amounts reported. A 1% increase in the assumed health care cost trend
rate in each year would increase the projected benefit obligation as of March
31, 1997 by $418,000.
In accordance with union agreements, the Company also contributes to
multiemployer defined benefit retirement plans covering substantially all union
employees of the Company. Expenses incurred in connection with these plans
totaled $1,753,000, $1,771,000 and $1,496,000 in 1997, 1996 and 1995,
respectively.
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases, under several agreements with varying terms, certain office
and warehouse facilities, equipment and vehicles. Rent expense totaled
$16,789,000, $17,844,000 and $16,636,000 for the years ended March 31, 1997,
1996 and 1995, respectively. The portion of rent expense paid to related
parties totaled $367,000, $443,000 and $762,000 for the years ended March 31,
1997, 1996 and 1995, respectively. As of March 31, 1997, there were no future
lease obligations with related parties. Minimum rentals of certain leases
escalate from time to time based on certain indices. At March 31, 1997 the
Company was obligated under noncancellable operating leases for future minimum
rentals as follows:
Fiscal year:
1998 $13,594,000
1999 11,587,000
2000 9,915,000
2001 7,741,000
2002 5,454,000
Thereafter 18,340,000
-----------
Total $66,631,000
-----------
-----------
OTHER COMMITMENTS
In connection with the 1990 merger, the Company agreed to pay Kelso &
Company, Inc. (Kelso), affiliates of which own the majority of Parent's
common stock, an annual fee of $1.25 million each year for financial advisory
services and to reimburse it for out-of-pocket expenses incurred in
connection with rendering such services. The Company also agreed to
indemnify Kelso and its affiliates against certain claims, losses, damages
and liabilities and expenses that may arise in connection with the merger.
Fees and expenses paid to Kelso in connection with these agreements totaled
$1,643,000, $1,404,000 and $1,414,000 during the years ended March 31, 1997,
1996 and 1995, respectively.
F-16
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
ENVIRONMENTAL CONTINGENCIES
The Company is currently involved with investigation and/or remediation
activities at several current and formerly-owned facilities where soil and/or
groundwater contamination is present or alleged. As of March 31, 1997, reserves
totaling $1.4 million have been established to cover those future environmental
costs which are known or can be reasonably estimated based on findings and
recommendations from independent environmental consultants. In addition to the
matters specified below, the Company is involved with several smaller clean up
efforts for which it has reserved $25,000.
ALAMEDA STREET (LOS ANGELES). Remediation was completed in fiscal 1996 and the
Company has received final approval from the County of Los Angeles authorities.
Total costs incurred by the Company in connection with this project were $3.4
million, of which $1.7 million has been capitalized to the property. The
Company was reimbursed $1.5 million of such costs by the lessee in accordance
with a cost sharing agreement.
BRISTOL (PENNSYLVANIA). A remedial action plan submitted and approved by the
Pennsylvania regulatory agency has been substantially completed. As of March
31, 1997, the project's cost has totaled $4.3 million, of which $3.2 million has
been paid by the Company and $1.1 million was paid by the former owner of the
property pursuant to a cost sharing agreement. Estimated remaining costs to be
incurred by the Company approximate $45,000, which amount has been reserved at
March 31, 1997. The Company sold the facility in July 1996.
FORGE (SEATTLE/KENT, WA). The Company has indemnified the purchasers of its
former Forge facility for remediation of certain conditions at the facility and
at an off-site disposal site existing at the date of purchase. In addition, the
Company indemnified such purchasers for up to $2.5 million of remediation and
investigation costs associated with or related to the environmental conditions
existing at the time of sale and discovered after the closing and for which
claims were made prior to July 2, 1995. No such claims were made. As of
March 31, 1997, the remediation and investigation costs of the Forge facility
have totaled $2.3 million and the Company has reserved an additional $1,315,000
for estimated remaining costs. As of March 31, 1997, remediation and
investigation costs at the disposal site have totaled $475,000. Monitoring of
the disposal site is expected to continue and the related costs will be expensed
as incurred.
UNION (NEW JERSEY). During fiscal 1994, the Company was notified by the current
owner that it has potential responsibility for the environmental contamination
of a property formerly owned by a subsidiary and disposed of by such subsidiary
prior to its acquisition by the Company. The prior owner of such subsidiary has
also been notified of its potential responsibility. On March 27, 1997, the
current owner of the property informed the Company that it estimated the cost of
investigation and cleanup of the property at $875,000. The costs of
investigation and cleanup may be higher or lower than such estimate and the
Company does not have sufficient information to determine what potential
liability it has, if any. Accordingly, no reserves have been specifically
established for this matter as of March 31, 1997.
Although it is possible that new information or future developments could
require the Company to reassess its potential exposure relating to all pending
environmental matters, management believes that, based upon all currently
available information, the resolution of such environmental matters will not
have a material adverse effect on the Company's financial condition, results of
operations or liquidity. The possibility exists, however, that new
environmental legislation and/or environmental regulations may be adopted, or
other environmental conditions may be found to exist, that many require
expenditures not currently anticipated and that may be material.
OTHER
The Company is involved in litigation in the normal course of business. In the
opinion of management, these matters will be resolved without a material impact
on the Company's financial position or results of operations.
F-17
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule Sequentially
Number Description of Schedules* Numbered Page
-------- ------------------------- -------------
EARLE M. JORGENSEN COMPANY:
Schedule II Valuation and Qualifying Accounts and Reserves S-2
_______________
* All other schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or related
notes.
S-1
<PAGE>
EARLE M. JORGENSEN COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------- ------------------- ------------------ ----------------------- -------------
BALANCE AT CHARGES TO BAD DEBTS CHARGED BALANCE AT
DESCRIPTION BEGINNING OF PERIOD COSTS AND EXPENSES OFF (NET OF RECOVERIES) END OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended March 31, 1997
Allowance for doubtful accounts .... $1,017,000 $1,817,000 $(1,871,000) $963,000
Year ended March 31, 1996
Allowance for doubtful accounts .... 1,146,000 1,362,000 (1,491,000) 1,017,000
Year ended March 31, 1995
Allowance for doubtful accounts .... 972,000 1,456,000 (1,282,000) 1,146,000
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequentially
Number Description of Exhibit Numbered Page
EARLE M. JORGENSEN COMPANY:
10.56 Amendment No. 2 to the Earle M. Jorgensen Company Employee Capital
Accumulation Plan and Trust dated as of May 3, 1996.
10.57 Earle M. Jorgensen Holding Company, Inc. Stock Option Plan effective
January 30, 1997.
10.58 Form of Holding Incentive and Non-Qualified Stock Option Agreement.
10.59 Form of Eighth Amendment dated as of March 19, 1997 to the revolving
credit facility among the Company, Holding, certain financial
institutions named therein and BT Commercial Corporation and
Chemical Bank, as agents.
10.60 Form of Ninth Amendment and Waiver dated as of June 4, 1997 to the
revolving credit facility among the Company, Holding, certain
financial institutions named therein and BT Commercial Corporation and
Chemical Bank, as agents.
12.1 Statement of Computation of Number of Times Fixed Charges Earned.
22.1 Listing of the Company's Subsidiaries
27 Financial Data Schedule
<PAGE>
AMENDMENT NO. 2
TO THE
EARLE M. JORGENSEN COMPANY
EMPLOYEE CAPITAL ACCUMULATION PLAN AND TRUST
WHEREAS, Earle M. Jorgensen Company previously established the Earle M.
Jorgensen Company Employee Stock Ownership and Capital Accumulation Plan
effective January 1, 1984 for employees of Earle M. Jorgensen Company by the
merger of four previously established plans;
WHEREAS, effective January 1, 1991, certain assets from the Earle M.
Jorgensen Company Employee Stock Ownership and Capital Accumulation Plan were
transferred to the Earle M. Jorgensen Company Employee Stock Ownership Plan, as
renamed the Earle M. Jorgensen Company Employee Capital Accumulation Plan, (the
"Plan");
WHEREAS, the Plan and the Trust Agreement (the "Trust") were most recently
restated effective January 1, 1993 and subsequently amended;
WHEREAS, Subsection 19.1 provides that the Company reserves the right to
amend the Plan and Trust;
NOW THEREFORE RESOLVED, that Section 9 and Appendix C are amended effective
January 1, 1996 as follows:
1. Section 9 is amended to restate Subsection 9.5 in its entirety as follows:
9.5 Interest Rate
The interest rate charged on Participant loans shall be a fixed
reasonable rate of interest, determined from time to time by the
Administrator, which provides the Plan with a return commensurate with
the prevailing interest rate charged by persons in the business of
lending money for loans which would be made under similar
circumstances. The interest rate is determined as set forth in
Appendix C, and may be changed from time to time by the Administrator,
in writing, without the necessity of amending this Plan and Trust.
2. Appendix C is amended to restate in its entirety as set forth on the
attached.
Date: May 3, 1996 Earle M. Jorgensen Company
By: /S/LONNIE R. TERRY
------------------------------
Title: Chief Operations Officer
----------------------------
1
<PAGE>
EARLE M. JORGENSEN COMPANY AMENDMENT NO. 2
EMPLOYEE CAPITAL ACCUMULATION PLAN AND TRUST
The provisions of the above amendment which relate to the Trustee are hereby
approved and executed.
Date: June 14, 1996 BZW Barclays Global Investors, National Association
By: /S/ DELORES UPTON
-------------------------
Title: Principal
----------------------
Date: July 5, 1996 BZW Barclays Global Investors, National Association
By: /S/ STEPHEN R. CONRAD
------------------------------
Title: Principal
---------------------------
2
<PAGE>
EARLE M. JORGENSEN COMPANY AMENDMENT NO. 2
EMPLOYEE CAPITAL ACCUMULATION PLAN AND TRUST
APPENDIX C - LOAN INTEREST RATE
The interest rate charged on Participant loans shall be equal to the prime rate
published in the Wall Street Journal at the time the loan is process, plus 2%.
If multiple prime rates are published in the Wall Street Journal, the prime rate
selected shall be the rate closest to the last prime rate used for this purpose.
3
<PAGE>
EXHIBIT A
EARLE M. JORGENSEN HOLDING COMPANY INC. OPTION PLAN
SECTION 1.
PURPOSE
The purpose of the plan is to foster and promote the long-term
financial success of the Company and materially increase shareholder value by
(a) motivating superior performance by means of performance-related incentives,
(b) encouraging and providing for the acquisition of an ownership interest in
the Company by Employees, Consultants and Directors and (c) enabling the Company
to attract and retain the services of an outstanding management team upon whose
judgment, interest, and special effort the successful conduct of its operations
is largely dependent.
SECTION 2.
DEFINITIONS
2.1. DEFINITIONS. Whenever used herein, the following terms shall have the
respective meanings set forth below;
(a) "Act" means the Securities Exchange Act of 1934, as amended.
(b) "Adjustment Event" shall mean any stock dividend, stock split or
share combination of, or extraordinary cash dividend on, the Common Stock
or recapitalization, reorganization, merger, consolidation, split-up, spin-
off, combination, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below Fair Market Value, or
other similar event affecting Common Stock of the Company.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means (a) the wilful and continuing or repeated failure
of the Employee to substantially perform his duties in good faith (other
than such failure resulting from incapacity due to physical or mental
illness), after a demand for substantial performance issued by the Board of
Directors or its Executive Committee, or by the Chief Executive Officer of
the Company, that specifically identifies the manner in which the Employee
has not substantially performed his duties in good faith, (b) engaging by
the Employee in conduct that is demonstrably and materially and
intentionally injurious to the Company, including, without limitation, the
wrongful disclosure of material secret or confidential information of the
Company
<PAGE>
or any material act of fraud or embezzlement, or (c) the Employee is
indicted for a felony or a crime involving moral turpitude.
(e) "Change of Control" means a transaction or series of transactions
(other than a Public Offering) whereby any "person," including a "group"
(as such terms are used in Sections 13(d) and 14(d)(2) of the Act, but
excluding the Company, any of its Subsidiaries, any employee benefit plan
of the Company or any of its Subsidiaries, Kelso and its affiliates, is or
becomes the "beneficial owner" (as defined in Rule 13(d)(3) under the Act),
directly or indirectly, of securities of the Company representing 35% or
more of the combined voting power of the Company's then outstanding
securities;
(f) "Change in Control Price" means the highest price per share of
Common Stock offered in conjunction with any transaction resulting in a
Change in Control (as determined in good faith by the Committee if any part
of the offered price is payable other than in cash).
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the Executive Committee of the Board (or such
other committee of the Board that the Board shall designate), which shall
consist of at least two or more members who are Non-Employee Directors
within the meaning of Rule 16b-3, as promulgated under the Act and serving
at the pleasure of the Board.
(i) "Consultant" means any person, including an advisor, engaged by
the Company or a Subsidiary to render consulting or advisory services and
who is compensated for such services, provided that the term "Consultant"
shall not include Directors who are paid only a director's fee by the
Company or who are not compensated by the Company for their services as
Directors.
(j) "Common Stock" means the common stock of the Company, par value
$0.01 per share;
(k) "Company" means Earle M. Jorgensen Holding Company, Inc.
(l) "Director" means a member of the Board.
(m) "Disability" means the inability of a Participant to perform his
duties and responsibilities as an officer or employee of the Company or any
of it subsidiaries on a full-time basis for more than six months within any
12-month
-2-
<PAGE>
period because of a physical, mental or emotional incapacity resulting from
injury, sickness or disease.
(n) "Employee" means any officer or other key employee of the Company
or any of its Subsidiaries.
(o) "Fair Market Value" means, if no Public Offering has occurred,
the fair market value of a share of Common Stock as determined in
accordance with the Stockholders' Agreement. Following a Public Offering
the Fair Market Value, on any date, shall mean the average of the highest
and lowest sales price reported for such day on a national exchange or the
average of the highest and lowest bid and asked prices on such date as
reported on a nationally recognized system of price quotation. In the
event that there are no Common Stock transactions reported on such exchange
or system on such date, Fair Market Value shall mean the closing price on
the immediately preceding date on which Common Stock transactions were so
reported.
(p) "Kelso" means Kelso Investment Associates III, L.P., Kelso
Investment Associates IV, L.P. and Kelso Equity Partners II, L.P.
(q) "Option" means the right to purchase Common Stock at a stated
price for a specified period of time. For purposes of the Plan, an option
may be either (i) an "Incentive Stock Option" within the meaning of Section
422 of the Code or (ii) an Option which is not an Incentive Stock Option (a
"Non-Qualified Stock Option").
(r) "Participant" means any Employee, Consultant or Director
designated by the Committee to receive an Incentive Award under the Plan.
(s) "Plan" means this Earle M. Jorgensen Holding Company, Inc. Option
Plan, as set forth herein and as the same may be amended from time to time.
(t) "Public Offering" means the Company's offering Common Stock to
the general public through registration statement filed with the Securities
Exchange commission that covers (together with prior effective
registrations) not less than 35% of the then outstanding shares of Common
Stock on a fully diluted basis.
(u) "Retirement" means termination of a Participant's employment on
or after the date the participant attains age 65 or such earlier date as
the Committee may permit, either as to all Participants or as to any
individual Participant.
-3-
<PAGE>
(v) "Stockholders Agreement" means the Stockholders, Agreement,
amended and restated as of September 14, 1990 among the Company; KIA III -
Earle M. Jorgensen, L.P.; Kelso Investment Associates IV, L.P.; Kelso
Equity Partners II, L.P.; those employees of the Company or any Subsidiary
listed on the Schedule of Management Stockholders; and certain other
persons listed on the Schedule of Other Investors thereto, as currently in
effect and as may be amended from time to time.
(w) "Subsidiary" means any corporation or partnership in which the
Company owns, directly or indirectly, 50% or more of the total combined
voting power of all classes of stock of such corporation or o the capital
interest or profits interest of such partnership.
2.2. GENDER AND NUMBER. Except where otherwise indicated by the
context, words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular.
SECTION 3.
ELIGIBILITY AND PARTICIPATION
Participants in the Plan shall be those Employees, Consultants or
Directors selected by the Committee to participate in the Plan.
SECTION 4.
ADMINISTRATION
4.1. POWER TO GRANT AND ESTABLISH TERMS OF OPTIONS. The Committee
shall have the authority, subject to the text of the Plan, to determine the
Employees, Consultants or Directors to whom options shall be granted and the
terms and conditions of any and all Options, including but not limited to the
number of shares of Common Stock to be covered by each Option, the time or times
at which Options shall be granted, and the terms and provisions of the
instruments by which options shall be evidenced and to designate Options as
Incentive Stock Options or Non-Qualified Stock Options. The proper officers of
the Company may suggest to the Committee the Participants who should receive
options. The terms and conditions of each Option grant shall be determined by
the Committee at the time of grant, and such terms and conditions shall not be
subsequently changed in a manner which would be adverse to the Participant
without the consent of the Participant to whom such Option has been granted.
The Committee may establish different terms and conditions for different
Participants receiving Options and for the same
-4-
<PAGE>
Participant for each Option such Participant may receive, whether or not granted
at different times. The grant of any Option to any Participant shall neither
entitle such Participant to, nor disqualify him from, the grant of any other
options.
4.2. SUBSTITUTE OPTIONS. The Committee shall have the right, subject
to the consent of Participants to whom options have been granted, to grant in
substitution to outstanding Options, replacement options which may contain terms
more favorable to the Participant than the Options they replace, including,
without limitation, a lower exercise price (subject to Section 6.2), and to
cancel replaced Options.
4.3. ADMINISTRATION. The Committee shall be responsible for the
administration of the Plan. Any Option granted by the Committee may be subject
to such conditions, not inconsistent with the terms of the Plan, as the
Committee shall determine. The Committee, by majority action thereof, is
authorized to prescribe, amend and rescind rules and regulations relating to the
Plan, to provide for conditions deemed necessary or advisable to protect the
interests of the Company to interpret the Plan and to make all other
determinations necessary or advisable for the administration and interpretation
of the Plan to carry out its provisions and purposes. Determinations,
interpretations or other actions made or taken by the Committee pursuant to the
provisions of the Plan shall be final, binding and conclusive for all purposes
and upon all persons. The Committee may consult with legal counsel, who may be
counsel to the Company, and shall not incur any liability for any action taken
in good faith in reliance upon the advice of counsel.
SECTION 5.
STOCK SUBJECT TO PLAN
5.1. NUMBER. Subject to the provisions of Section 5.3, the number of
shares of Common Stock subject to options under the Plan may not exceed One
Million Five Hundred Thousand (1,500,000) shares of Common Stock. The shares to
be delivered under the Plan consist, in whole or in part, of Common Stock held
in treasury or authorized but unissued Common Stock, not reserved for any other
purpose.
5.2. CANCELLED, TERMINATED OR FORFEITED AWARDS. Any shares of Common
Stock subject to an option which for any reason expires, or is cancelled,
terminated or otherwise settled without the issuance of any Common Stock shall
again be available under the Plan.
5.3. ADJUSTMENT IN CAPITALIZATION. The aggregate number of shares of
Common Stock available for grants of Options under Section 5.1 or subject to
outstanding option grants and the
-5-
<PAGE>
respective prices and/or vesting criteria applicable to outstanding options
shall be proportionately adjusted to reflect, as deemed equitable and
appropriate by the Committee, an Adjustment Event; PROVIDED THAT, unless the
Committee otherwise agrees, in no event shall any adjustment be made by reason
of (a) the issuance or exercise of warrants issued in connection with the
incurrence, amendment, extension or refinancing of the Company's Series A
Variable Rate Senior Notes due in the year 2001; or (b) the issuance or exercise
of warrants issued in connection with an amendment, extension or refinancing of
Earle M. Jorgensen Company's Senior Notes due 2000. To the extent deemed
equitable and appropriate by the Committee, subject to any required action by
stockholders, in any merger, consolidation, reorganization, liquidation,
dissolution, or other similar transaction, any Option granted under the Plan
shall pertain to the securities and other property to which a holder of the
number of shares of Common Stock covered by the Option would have been entitled
to receive in connection with such event.
SECTION 6.
STOCK OPTIONS
6.1. GRANT OF OPTIONS. Options may be granted to Participants at
such time or times as shall be determined by the Committee. Options granted
under the Plan may be of two types: (i) Incentive Stock Options and (ii)
Non-Qualified Stock Options, except that no Incentive Stock Option may be
granted to any employee of a Subsidiary which is not a Corporation. The date
of grant of an Option under the Plan will be the date on which the Option is
awarded by the Committee or, if so determined by the Committee, the date on
which occurs any event the occurrence of which is an express condition
precedent to the grant of the Option. The Committee shall determine the
number of Options, if any, to be granted to a Participant. Each Option shall
be evidenced by an Option agreement that shall specify the type of Option
granted, the exercise price, the duration of the Option, the number of shares
of Common Stock to which the Option pertains, and such other terms and
conditions not inconsistent with the Plan as the Committee shall determine.
6.2. OPTION PRICE. Non-Qualified Stock Options and Incentive Stock
Options granted pursuant to the Plan shall have an exercise price which is not
less than the Fair Market Value on the date the Option is granted.
6.3. EXERCISE OF OPTIONS. Options awarded to a Participant under the
Plan shall be exercisable at such times and shall be subject to such
restrictions and conditions including the performance of a minimum period of
service or the satisfaction of performance goals as the Committee may impose at
time of grant of such Options, subject to the Committee's right
-6-
<PAGE>
to accelerate the exerciseability of such Options in its discretion.
Notwithstanding the foregoing, no Option shall be exercisable for more than 10
years after the date on which it is granted. Except as may be provided in any
provision approved by the Committee pursuant to this Section 6.3, after becoming
exercisable each installment shall remain exercisable until expiration,
termination or cancellation of the Option. An Option may be exercised from time
to time, in whole or in part, up to the total number of shares of Common Stock
with respect to which it is then exercisable.
6.4. PAYMENT. The Committee shall establish procedures governing the
exercise of Options, which shall require that written notice of exercise be
given and that the Option price be paid in full at the time of exercise (i) in
cash or cash equivalents, (ii) in shares of Common Stock which have been owned
by the Participant for at least six months' (or such greater or lesser period as
the Committee shall determine) having a Fair Market Value on the date of
exercise equal to such Option price or in a combination of cash and Common Stock
or (iii) in accordance with such procedures or in such other form as the
Committee shall from time to time determine. As soon as practicable after
receipt of a written exercise notice and payment of the exercise price in
accordance with this Section 6.4, the Company shall deliver to the Participant a
certificate or certificates representing the acquired shares of Common Stock.
6.5. INCENTIVE STOCK OPTIONS. Notwithstanding anything in the Plan to
the contrary, no term of the Plan relating to Incentive Stock options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under Section 422
of the Code, or, without the consent of any Participant affected thereby, to
cause any Incentive Stock Option previously granted to fail to qualify for the
Federal income tax treatment afforded under Section 421 of the Code.
6.6. BUYOUT. The Committee may at any time offer to buy out for a
payment in cash any Option previously granted, based on such terms and
conditions as the Committee shall establish and communicate to the optionee
at the time such offer is made.
6.7. SETTLEMENT. At the time a Participant exercises an Option, in
lieu of accepting payment of the exercise price of the option and delivering the
number of shares of Common Stock for which the Option is being exercised, the
Committee may direct that the Company either (i) pay the Participant a cash
amount, or (ii) issue a lesser number of shares of Common Stock, in any such
case, having a Fair Market Value on the date of exercise, equal to the amount,
if any, by which the aggregate Fair Market Value of the shares of Common Stock
as to which the Option is being
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exercised exceeds the aggregate exercise price for such shares, based on such
terms and conditions as the Committee shall establish. Without limiting the
generality of the foregoing, at any time prior to a Public Offering, the
Committee may provide that any such settlement may take into account the length
of time that has transpired since the date as of which any prior valuation of
the Common Stock was conducted and may determine Fair Market Value in such
circumstances based on the weighted average of the value of the Stock as of more
than one date.
6.8. TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. Unless otherwise
determined by the Committee at the time of grant and specified in the Option
agreement, in the event a Participant's employment with the Company or a
Subsidiary terminates by reason of Retirement, any Options granted to such
Participant which are then exercisable may be exercised at any time prior to the
first anniversary of the Participant's termination of employment or the
expiration of the term of the Options, whichever period is shorter. All Options
granted to the Participant which are not then exercisable shall terminate and be
cancelled immediately upon such termination.
6.9. TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY. Unless
otherwise determined by the Committee at the time of grant and specified in the
Option agreement, in the event a Participant's employment with the Company or a
Subsidiary terminates by reason of death or Disability, any Options granted to
such Participant which are then exercisable may be exercised by the Participant
or the Participant's designated beneficiary, and if none is named, in accordance
with Section 9.2, at any time prior to the first anniversary of the
Participant's termination of employment or the expiration date of the term of
the Options, whichever period is shorter. All Options granted to the
Participant which are not then exercisable shall terminate and be cancelled
immediately upon such termination. Notwithstanding anything else contained
herein to the contrary, a Participant's employment may only be terminated due to
Disability if such Participant shall not have returned to the full-time
performance of his duties, responsibilities and obligations within 30 days after
such Participant has received written notice of the intent to terminate his
employment.
6.10. TERMINATION OF EMPLOYMENT FOR CAUSE. Unless otherwise
determined by the Committee at the time of grant and specified in the Option
agreement, in the event a Participant's employment with the Company or a
Subsidiary is terminated for Cause, all Options granted to such Participant
which are then outstanding (whether or not exercisable prior to the date of such
termination) shall be cancelled and forfeited immediately upon such termination.
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6.11. TERMINATION OF EMPLOYMENT FOR ANY OTHER REASON. Unless
otherwise determined by the Committee at the time of grant and specified in the
Option agreement, in the event the Participant's employment with the Company or
a Subsidiary terminates for any reason other than one described in Section 6.8,
6.9 or 6.10, any Options granted to such Participant which are exercisable at
the date of the Participant's termination of employment shall be exercisable at
any time prior to 60 days following the Participant's termination of employment
or the expiration of the term of such options, whichever period is shorter. All
Options granted to the Participant which are not then exercisable shall
terminate and be cancelled immediately upon such termination.
6.12. COMMITTEE DISCRETION. Notwithstanding anything else contained
in this Section 6 to the contrary, the Committee may permit all or any portion
of any Options to be exercised following a Participant's termination of
employment for any reason on such terms and subject to such conditions as the
Committee shall determine for a period up to and including, but not beyond, the
expiration of the term of such Options.
SECTION 7.
CHANGE IN CONTROL
7.1. ACCELERATED VESTING AND PAYMENT. Unless otherwise determined by
the Committee at the time of grant, in the event of a Change in Control, each
Option shall be cancelled in exchange for a payment in cash of an amount equal
to the excess of the Change in Control Price over the exercise price for such
Option (except as provided in Section 7.2 below).
7.2. ALTERNATIVE AWARDS. Notwithstanding Section 7.1, no
cancellation, cash settlement or other payment shall occur with respect to any
Option if the Committee reasonably determines in good faith prior to the
occurrence of a Change in Control that such Option shall be honored or assumed,
or new rights substituted therefor (such honored, assumed or substituted award
hereinafter called an "Alternative Award), by a Participant's employer (or the
parent or a subsidiary of such employer) immediately following the Change in
Control, provided that any such Alternative Award must:
(i) provide such Participant (or each Participant in a class
of Participants) with rights and entitlements substantially equivalent
to or better than the rights, terms and conditions applicable under
such Option, including, but not limited to, an identical or better
exercise or vesting schedule and identical or better timing and
methods of payment;
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(ii) have substantially equivalent economic value to such
Option (determined at the time of the Change in Control);
(iii) have terms and conditions which provide that in the event
that the Participant's employment is involuntarily terminated or
constructively terminated any condition on a Participant's rights
under, or restrictions on transfer or exerciseability applicable to,
each such Alternative Award shall be waived or shall lapse, as the
case may be.
For this purpose, a constructive termination shall mean a termination by a
Participant following a material reduction in the Participant's compensation or
a material reduction the Participant's responsibilities, in each case without
the Participant's written consent.
SECTION 8.
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN
The Board may at any time terminate or suspend the Plan, and from time
to time may amend or modify the Plan. No action of the Board may, without the
consent of a Participant alter or impair his rights under any previously granted
Option.
SECTION 9.
MISCELLANEOUS PROVISIONS
9.1. NONTRANSFERABILITY OF AWARDS. Unless the Committee shall permit
(on such terms and conditions as it shall establish) an Option to be transferred
to a Permitted Transferee (as such term is defined in Section 1.1 of the
Stockholders Agreement), no Option granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution, All rights with respect
to any Option granted to a Participant under the Plan shall be exercisable
during his lifetime only by such Participant or, if applicable, a Permitted
Transferee.
9.2. BENEFICIARY DESIGNATION. Each Participant under the Plan may
from time to time name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
or by whom any right under the Plan is to be exercised in case of his death.
Each designation will revoke all prior designations by the same Participant,
shall be in a form prescribed by the Committee, and will be effective only when
filed by the Participant in writing with the Committee during his lifetime. In
the absence of any
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such designation, benefits remaining unpaid or Options outstanding at the
Participant's death shall be paid to or exercised by the Participant's surviving
spouse, if any, or otherwise to or by his estate.
9.3. NO GUARANTEE OF EMPLOYMENT OR PARTICIPATION. Nothing in the Plan
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary or affiliate. No Employee shall have a right to be selected as a
Participant, or, having been so selected, to receive any future Option grants.
9.4. TAX WITHHOLDING. (a) The Company shall have the power to
withhold, or require a Participant to remit to the Company promptly upon
notification of the amount due, an amount sufficient to satisfy Federal, state
and local withholding tax requirements with respect to any Option, and the
Company may defer payment of cash or issuance or delivery of Common Stock until
such requirements are satisfied.
(b) To the extent provided by the terms of an Option Agreement, the
person to whom an Option is granted may, at the discretion of the Board, satisfy
any mandatory federal, state or local tax withholding obligation relating to the
exercise or acquisition of stock under an Option by any of the following means
or by a combination of such means: (1) tendering cash payment; (2) authorizing
the Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Participant as a result of the exercise or acquisition of stock
under the Option provided that such arrangement will not result in a charge to
the Company's reported earnings; or (3) delivering to the Company owned and
unencumbered shares of the Common Stock of the Company that have been held for
the period required to avoid a charge to the Company's reported earnings.
9.5. INDEMNIFICATION. Each person who is or shall have been a member
of the Committee or of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability , or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be made a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of any
judgment in any such action, suit, or proceeding against him, provided he shall
give the Company an opportunity, at its own expense, to handle and defend the
same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive and shall be
independent
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of any other rights of indemnification to which such persons may be entitled
under the Company's Certificate of Incorporation or By-laws, by contract, as a
matter of law, or otherwise.
9.6. NO LIMITATION ON COMPENSATION. Nothing in the Plan stall be
construed to limit the right of the Company to establish other plans or to pay
compensation to its employees in cash or property, in a manner which is not
expressly authorized under the Plan.
9.7. REQUIREMENTS OF LAW. The granting of Options and the issuance
of shares of Common Stock shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
9.8. GOVERNING LAW. The Plan, and all agreements entered into
pursuant to the Plan, shall be construed in accordance with and governed by the
laws of the state of Delaware.
9.9. NO IMPACT ON BENEFITS. Options granted under the Plan are not
compensation for purposes of calculating an Employee's rights under any
employee benefit plan.
9.10. SECURITIES LAW COMPLIANCE. Instruments evidencing the grant of
Options may contain such other provisions not inconsistent with the Plan, as the
Committee deems advisable, including a requirement that the Participant
represent to the Company in writing, when he receives shares upon exercise of an
Option (or at such other time as the Committee deems appropriate) that he is
acquiring such shares (unless they are then covered by a Securities Act of 1933
registration statement), for his own account for investment only and with no
present intention to transfer, sell or otherwise dispose of such shares except
such disposition by a legal representative as shall be required by will or the
laws of any jurisdiction in winding up the estate of the Participant. Such
shares shall be transferable only if the proposed transfer shall be permissible
pursuant to the Plan and if, in the opinion of counsel satisfactory to the
Company, such transfer at such time will be in compliance with applicable
securities laws.
9.11. TERM OF PLAN. This Plan shall be effective as of January 30,
1997. This Plan shall expire on January 29, 2007 (except as to Incentive Awards
outstanding on that date), unless sooner terminated pursuant to Section 8 of the
Plan.
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EARLE M. JORGENSEN HOLDING COMPANY, INC.
INCENTIVE AND NON-QUALIFIED
STOCK OPTION AGREEMENT
INCENTIVE AND NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement"), dated
as of January 30, 1997, between EARLE M. JORGENSEN HOLDING COMPANY, INC., a
Delaware corporation (the "Company"), and ______________________ (the
"Employee"), pursuant to the Earle M. Jorgensen Holding Company, Inc. Option
Plan, as the same may be amended from time to time (the "Plan").
WHEREAS, in conjunction with his employment, the Company determined to
grant options to the Employee;
WHEREAS, the Company has adopted the Plan to effect such grants and future
grants; and
WHEREAS, the Employee is a key employee as contemplated by the Plan and the
Committee has determined that it is in the interest of the Company to grant
these options to the Employee.
NOW THEREFORE, in consideration of the promises and subject to the terms
and conditions set forth herein and in the Plan, the parties hereto agree as
follows:
1. CONFIRMATION OF GRANT; OPTION PRICE. The Company hereby evidences and
confirms the grant to the Employee, effective as of the date hereof (the "Grant
Date"), of options to purchase from the Company _________ shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), which
shall become exercisable, if at all, as provided in Section 2(a) (the
"Options"). The Options shall have an option exercise price of $____ per share
(the "Option Price"), which is not less than the Fair Market Value per share of
the Common Stock on the Grant Date. The Options granted pursuant to this
Agreement are subject in all respects to the terms of the Plan, all of which
terms are made a part of and incorporated into this Agreement. Capitalized
terms used herein, but not defined herein, shall have the same meanings set
forth in the Plan. The Options granted hereunder are intended to be Incentive
Stock options within the meaning of section 422 of the Internal Revenue Code of
1986, as amended, to the maximum extent possible in light of the limitations
contained in section 422(d) of the Code on the amount of Common Stock which may
be treated as subject to Incentive Stock Options, with any portion of the
Options which exceeds such limitations to be treated as Non-Qualified Stock
Options.
2. EXERCISABILITY. Subject to Section 11 hereof, the options will become
exercisable, it at all, in accordance with the following provisions of this
Section 2.
<PAGE>
(a) OPTIONS. Except as otherwise provided in this Agreement, the
Options shall be exercisable
________________________________________________________________________________
__________, PROVIDED that the Employee is in the continuous employment of the
Company or a Subsidiary from the Grant Date to the applicable vesting date and,
PROVIDED, FURTHER, that in all events 100% of such Options shall become
exercisable at the time and under the circumstances described in Section 5.
(b) NORMAL EXPIRATION DATE. Unless an earlier termination date is
specified in accordance with Section 2, 4 or 5, the Options shall terminate on
the tenth anniversary of the Grant Date (the "Normal Expiration Date"). Once
Options have become exercisable pursuant to this Section 2, such Options may be
exercised, subject to Sections 4 and 11 hereof, at any time and from time to
time until the Normal Expiration Date.
3. METHOD OF EXERCISE AND PAYMENT. Subject to Section 11, the Options
may be exercised by the Employee subject to such terms and conditions as are
established by the Committee, which shall require that written notice of
exercise be given and that the Option Price be paid in full at the time of
exercise (i) in cash or cash equivalents, including an assignment of the right
to receive cash proceeds from the sale of any Common Stock subject to the
Option, (ii) in already owned shares of Common Stock having an aggregate Fair
Market Value on the date of exercise equal to such Option Price, (iii) in a
combination of cash and Common Stock or (iv) in accordance with such procedures
or in such other form as the Committee shall from time to time determine. As
soon as practicable after receipt of a written exercise notice and payment in
full of the Option Price of any exercisable options, the Company shall deliver
to the Employee a certificate or certificates representing the shares of Common
Stock acquired upon the exercise thereof, registered in the name of the
Employee, provided that, if the Company, in its sole discretion, shall determine
that, under applicable securities laws, any certificates issued under this
Section 3 must bear a legend restricting the transfer of such Common Stock, such
certificates shall bear the appropriate legend.
4. TERMINATION OF EMPLOYMENT.
(a) SPECIAL TERMINATION. In the event that the Employee's employment
with the Company and the Subsidiaries terminates by reason of the Employee's
death or Disability (each a "Special Termination"), then 100% of any Options
held by the Employee which are then exercisable may be exercised by the Employee
or the Employee's beneficiary as designated in accordance with Section 9, or if
no such beneficiary is named, by the Employee's estate, at any time prior to the
first anniversary of the Employee's termination of employment or the Normal
Expiration Date of the Options, whichever period is shorter. All Options held
by the Employee which are not then exercisable shall
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terminate and be cancelled immediately upon a Special Termination.
(b) TERMINATION FOR CAUSE. Unless otherwise determined by the
Committee, in the event that the Employee's employment with the Company and the
Subsidiaries is terminated for Cause, all Options then held by the Employee,
whether or not then exercisable, shall terminate and be cancelled immediately
upon such termination of employment.
(c) OTHER TERMINATION OF EMPLOYMENT. Unless otherwise determined by
the Committee, in the event that the Employee's employment with the Company and
the Subsidiaries terminates for any reason other than (a) a Special Termination
or (b) for Cause, then any Options held by the Employee which are exercisable at
the date of the Employee's termination of employment shall be exercisable at any
time up until the 60th day following the expiration of the Notice Period (as
defined in Section 8 hereof) (or, in the event that the Employee dies after
terminating his employment, but within the period during which the Options would
otherwise be exercisable hereunder, the 120th day after the date of the
Employee's death) or the Normal Expiration Date of the Options, whichever period
is shorter, but any Options held by the Employee that are not then exercisable
shall terminate and be cancelled immediately upon such termination of
employment.
(d) COMMITTEE DISCRETION. Notwithstanding anything else contained
herein to the contrary, the Committee may at any time extend the post-
termination exercise period of all or any portion of the options outstanding
that have not terminated up to and including, but not beyond, the Normal
Expiration Date of such Options.
5. CHANGE IN CONTROL.
(a) ACCELERATED VESTING AND PAYMENT. Unless the Committee shall
otherwise determine in the manner set forth in Section 5(b), in the event of a
Change in Control, each outstanding Option (regardless of whether such Options
are at such time otherwise exercisable) shall be cancelled in exchange for a
payment in cash of an amount equal to the excess, if any, of the Change in
Control Price over the Option Price.
(b) ALTERNATIVE OPTIONS. Notwithstanding Section 5(a), no
cancellation, acceleration of exercisability, vesting or cash settlement or
other payment shall occur with respect to any Option in connection with a Change
in Control if the Committee reasonably determines in good faith, prior to the
occurrence of such Change in Control, that such Option shall be honored or
assumed or new rights substituted therefor (such honored, assumed or substituted
Option being hereinafter referred to as an "Alternative Option") by the new
employer, PROVIDED that any such Alternative Option must:
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(i) provide the Employee that held such Option with rights and
entitlements substantially equivalent to or better than the rights,
term and conditions applicable under such Option, including, but not
limited to, an identical or better exercise and vesting schedule and
identical or better timing and methods of payment;
(ii) have substantially equivalent economic value to such
Option (determined at the time of the Change in Control); and
(iii) have terms and conditions which provide that in the event
that the Employee's employment is involuntarily terminated or
constructively terminated following a Change in Control any conditions
on the Employee's rights under, or any restrictions on transfer or
exercisability applicable to, each such Alternative Option shall be
waived or shall lapse, as the case may be.
6. TAX WITHHOLDING. (a) Whenever Common Stock is to be issued pursuant
to the exercise of an Option or any cash payment is to be made hereunder, the
Company shall have the power to withhold, or require the Employee to remit to
the Company, an amount sufficient to satisfy all Federal, state and local
withholding tax requirements relating to such transaction, and the Company may
defer payment of cash or issuance of Common Stock until such requirements are
satisfied.
(b) Employee may, at the discretion of the Board, satisfy any
mandatory federal, state or local tax withholding obligation relating to the
exercise or acquisition of stock under an Option by any of the following means
or by a combination of such means: (1) tendering cash payment; (2) authorizing
the Company to withhold shares from the shares of the Common Stock otherwise
issuable to Employee as a result of the exercise or acquisition of stock under
the Option provided that such arrangement will not result in a charge to the
Company's reported earnings; or (3) delivering to the Company owned and
unencumbered shares of the Common Stock of the Company that have been held for
the period required to avoid a charge to the Company's reported earnings.
7. NONTRANSFERABILITY OF AWARDS. No Options granted hereby may be sold,
transferred, pledged, assigned, encumbered or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution or,
on such terms and conditions as the Committee shall establish, to a Permitted
Transferee. All rights with respect to options granted to the Employee
hereunder shall be exercisable during his lifetime only by such Employee or, if
applicable, a Permitted Transferee. Following the Employee's death, all rights
with respect to Options that were exercisable at the time of the Employee's
death and have not
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terminated shall be exercised by his designated beneficiary, his estate or, if
applicable, a Permitted Transferee.
8. REPURCHASE AND SETTLEMENT OF OPTIONS. Upon receipt of notice from
the Employee of his exercise of any Options hereunder, the Company may, in lieu
of accepting payment of the Option Price therefor and delivering the number of
shares for which the options are being exercised, either (i) pay the Employee an
amount in cash, in lieu of permitting the Employee to exercise such Options, or
(ii) deliver to the employee a lesser number of shares of Common Stock having an
aggregate Fair Market Value on the date of exercise, in any such case, equal to
the excess, if any, of the aggregate Fair Market Value of the shares of Common
Stock as to which the Options are being exercised over the aggregate Option
Price for such shares. In addition, during the 60 day period following any
termination of the Employee's employment with the Company and the Subsidiaries
(the "Notice Period"), the Company may repurchase all or any portion of the
Options then held by the Employee that are exercisable as of the date of such
termination for a cash payment equal to the excess, if any, of (x) the Fair
Market Value of the shares of Common Stock covered by such Options (or any
portion thereof that the Company elects to repurchase hereunder) over (y) the
aggregate Option Price for such shares.
Notwithstanding anything else contained herein to the contrary, in the
event of any such repurchase or other transaction described in this Section 8 at
any time prior to a Public Offering, if the date of such repurchase or other
transaction (the "Exercise Date") is on or after the first day of the seventh
month of any fiscal year, (i) the Fair Market Value of any share of Common Stock
shall be calculated by reference to the most recent report to the Company
describing the conclusions of an independent valuation consultant or appraiser
of recognized national standing reasonably satisfactory to Kelso as to the value
of the Common Stock as of the last day of the last ended fiscal year of the
Company or such other more recent date requested by the Company (an "Appraisal
Date") rendered prior to such Exercise Date, increased (or reduced) by the
product (the "Adjustment Amount") of (A) the increase (decrease) in such Fair
Market value from the Appraisal Date used in such last report to the Appraisal
Date used in the next report issued following such Exercise Date, multiplied by
(B) a fraction, the denominator of which is the number of days in the period
between the Appraisal Dates preceding and following the Exercise Date and the
numerator of which is the number of days elapsed from the earlier Appraisal Date
to such Exercise Date and (ii) (A) the Company shall pay the Employee the amount
described in the foregoing provisions of this Section 8 based on the Fair Market
Value as determined by the most recent appraisal report prior to the Exercise
Date within 30 days following the Exercise Date, and (B) within 30 days
following the Appraisal Date following the Exercise Date, the Company shall pay
the Employee or the Employee shall pay to the Company, as the case may be, the
Adjustment Amount. Upon payment
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of cash or distribution of shares of Common Stock pursuant to this Section 8,
the Employee's rights as to the portion of the Options which is the subject of
such payment or distribution shall be deemed satisfied in full.
9. BENEFICIARY DESIGNATION. The Employee may from time to time name
any beneficiary or beneficiaries (who may be named contingently or
successively) by whom any right under the Plan and this Agreement is to be
exercised in case of his death. Each designation will revoke all prior
designations by the Employee, shall be in a form reasonably prescribed by the
Committee and will be effective only when filed by the Employee in writing
with the Committee during his lifetime. If no beneficiary is named, or if a
named beneficiary does not survive the Employee, Section 9.2 of the Plan
shall determine who may exercise the Employee's rights under the Plan.
10. ADJUSTMENT IN CAPITALIZATION. The number, class and exercise price of
any outstanding Options (and the number of shares of Common Stock subject to
outstanding Options) shall be adjusted by the Committee if, in its sole
discretion, it shall deem such an adjustment to be necessary or appropriate to
reflect any stock dividend, stock split or share combination of, or
extraordinary cash dividend on, the Common Stock or recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination, exchange
of shares, warrants or rights offering to purchase Common Stock at a price
substantially below fair market value, or other similar event affecting the
Common Stock of the Company.
11. REQUIREMENTS OF LAW. The issuance of shares of Common Stock pursuant
to the Options shall be subject to all applicable laws, rules and regulations
and to such approvals by any governmental agencies or national securities
exchanges as may be required. No shares of Common Stock shall be issued upon
exercise of any Options granted hereunder if such exercise or issuance would
result in a violation of applicable law, including the federal securities laws
and any applicable state securities laws.
12. NO GUARANTEE OF EMPLOYMENT. Nothing in this Agreement shall interfere
with or limit in any way the right of the Company or any Subsidiary to terminate
the Employee's employment at any time or confer upon, the Employee any right to
continue in the employ of the Company or any Subsidiary.
13. NO RIGHTS AS STOCKHOLDER. Except as otherwise required by law, the
Employee shall not have any rights as a stockholder with respect to any shares
of Common Stock covered by the options granted hereby until such time as the
shares of Common Stock issuable upon exercise of such Options have been so
issued. Notwithstanding anything else contained herein to the contrary, the
exercise of any portion of the Options conveyed hereby is
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expressly conditioned upon the Employee becoming a party to the Stockholders
Agreement with respect to any shares of Common Stock to be acquired upon such
exercise.
14. INTERPRETATION; CONSTRUCTION. Any determination or interpretation by
the Committee under or pursuant to this Agreement shall be final and conclusive
on all persons affected hereby. In the event of a conflict between any term of
this Agreement and the terms of the Plan, the terms of the Plan shall control.
15. AMENDMENTS. The Committee shall have the right, in its sole
discretion, to alter or amend this Agreement from time to time as provided in
the Plan in any manner for the purpose of promoting the objectives of the Plan,
provided that no such amendment shall in any manner adversely affect the
Employee's rights under this Agreement without the Employee's consent. Subject
to the preceding sentence, any alteration or amendment of this Agreement by the
Committee shall, upon adoption thereof by the Committee, become and be binding
and conclusive on all persons affected thereby without requirement for consent
or other action with respect thereto by any such person. The Company shall give
written notice to the Employee of any such alteration or amendment of this
Agreement as promptly as practicable after the adoption thereof. This Agreement
may also be amended by a writing signed by both the Company and the Employee.
16. MISCELLANEOUS.
(a) NOTICES. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by certified mail,
return receipt requested, postage prepaid or by any recognized international
equivalent of such mail delivery, to the Company or the Employee, as the case
may be, at the following addresses or to such other address as, the Company or
the Employee, as the case may be, shall specify by notice to the other party:
(i) if to the Company, to:
Earle M. Jorgensen Holding Company, Inc.
3050 East Birch Street
Brea, California 92822
ATTENTION: Secretary
with a copy to:
James J. Connors, II, Esq.
Kelso & Company, Inc.
320 Park Avenue
New York, New York 10022
(ii) if to the Employee, to the Employee's last known home
address.
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All such notices and communications shall be deemed to have been received on the
date of delivery or an the third business day after the mailing thereof.
(b) BINDING EFFECT; BENEFITS. This Agreement shall be binding upon
and inure to the benefit of the parties to this Agreement and their respective
successors and assigns. Nothing in this Agreement, express or implied, is
intended or shall be construed to give any person other than the parties to this
Agreement or their respective successors or assigns any legal or equitable
right, remedy or claim under or in respect of any agreement or any provision
contained herein.
(c) WAIVER. Either party hereto may by written notice to the other
(i) extend the time for the performance of any of the obligations or other
actions of the other under this Agreement, (ii) waive compliance with any of the
conditions or covenants of the other contained in this Agreement and (iii) waive
or modify performance of any of the obligations of the other under this
Agreement. Except as provided in the preceding sentence, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained herein. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any preceding or succeeding breach and no failure by either party to exercise
any right or privilege hereunder shall be deemed a waiver of such party's rights
or privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
(d) ASSIGNABILITY. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by either the Company or the Employee without the prior written
consent of the other party.
(e) APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, regardless of the
law that might be applied under principles of conflict of laws.
(f) SECTION AND OTHER HEADINGS. The section and other headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
-8-
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have duly executed this
Agreement as of the date first above written.
EARLE M. JORGENSEN HOLDING COMPANY, INC.
By:
---------------------------
Name:
------------------
Title:
------------------
EMPLOYEE
------------------------------
-9-
<PAGE>
EIGHTH AMENDMENT
EIGHTH AMENDMENT (this "Amendment"), dated as of March 19, 1997, among
EARLE M. JORGENSEN HOLDING COMPANY, INC., a Delaware corporation ("Holding"),
EARLE M. JORGENSEN COMPANY, a Delaware corporation (the "Borrower"), the
financial institutions party to the Credit Agreement referred to below (the
"Lenders") and BT COMMERCIAL CORPORATION and THE CHASE MANHATTAN BANK, as
successor in interest to Chemical Bank, as Agents. All capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H :
WHEREAS, Holding, the Borrower, the Agents and the Lenders are parties
to a Credit Agreement, dated as of March 3, 1993, as amended, modified and
supplemented to the date hereof (as so amended, modified and supplemented, the
"Credit Agreement"); and
WHEREAS, the parties to the Credit Agreement wish to amend the Credit
Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Section 1.1 of the Credit Agreement is hereby amended by (a)
deleting the definitions of "Current Liabilities" and "Expiration Date" and (b)
inserting the following new definitions in lieu thereof:
"CURRENT LIABILITIES shall (i) mean all liabilities designated as
"current" on a consolidated balance sheet of the Borrower prepared in
accordance with GAAP (excluding that portion of the Senior Notes
designated as "current" liabilities in accordance with GAAP) and (ii)
include, without limitation and solely for the purpose of calculating
financial covenants contained in this Credit Agreement, the balance of
Revolving Loans outstanding.
<PAGE>
EXPIRATION DATE shall mean September 9, 1999.
2. Section 1.1 of the Credit Agreement is further amended by (a)
deleting the first parenthetical in the definition of "Fixed Charges" and (b)
inserting the following new parenthetical in lieu thereof:
"(PROVIDED, however, that for the purpose of calculating the Fixed
Charge Coverage Ratio, Fixed Charges shall exclude the aggregate
amount of fees paid by the Borrower to the Banks on February 28,
1997)"
3. Section 1.1 of the Credit Agreement is further amended by
inserting the following new definition in alphabetical order therein:
"TOTAL AVAILABILITY shall mean the difference between (i) the
lesser of (x) the Total Commitments and (y) the Borrowing Base and
(ii) the aggregate balance of Revolving Loans outstanding and all
Letter of Credit Obligations outstanding."
4. Section 2.2 of the Credit Agreement is hereby amended by
inserting after the final period in clause (a) the following new sentence:
"In addition, in no event after giving effect to the Reduction
Percentage, shall the percentage in clause (B) above be less than
forty-five percent (45%)."
5. Section 7.1 of the Credit Agreement is hereby amended by (a)
deleting clause (e) in its entirety and (b) inserting the following new clause
(e) in lieu thereof:
"(e) upon request by the Agents or at any time a Default or Event
of Default shall exist and in any event either (i) if the Total
Availability is equal to or less than $30,000,000, not later than
12:00 Noon Los Angeles time on the third Business Day of each week,
and within 12 Business Days after the last Business Day of each month,
a Borrowing Base certificate in substantially the form of Exhibit I
(the "Borrowing Base Certificate"), duly completed, as of the Friday
of the immediately preceding week and as of the last day of such
month, as applicable (or such other date as the Agents may specify in
such request) or (ii) if the Total Availability is more than
$30,000,000,
-2-
<PAGE>
within five Business Days after the end of each month, a draft of, and
within 12 Business Days after the end of each month, a final version
of, the Borrowing Base Certificate, duly completed, as of the last day
of such immediately preceding month (or such other date as the Agents
may specify in such request). In any event, such Borrowing Base
Certificate shall be certified by the Borrower's chief executive
officer, chief financial officer, treasurer or controller and be
subject only to adjustment upon completion of the normal year-end
audit and confirmation based upon cycle counting verification. In
addition, each Borrowing Base Certificate shall have attached to it
such additional schedules and/or other information, including monthly
aging reports, as either Agent may reasonably request;"
6. Section 8.4 of the Credit Agreement is hereby amended by (a)
deleting the period "Fiscal year beginning April 1, 1997 and thereafter" and
corresponding amount "$12,000,000" and (b) inserting the following new periods
and corresponding amounts in lieu thereof:
"Fiscal year beginning April 1, 1997
and ending March 31, 1998 $12,000,000
Fiscal year beginning April 1, 1998
and ending March 31, 1999 $12,000,000
Fiscal year beginning April 1, 1999
and thereafter $12,000,000"
7. Section 8.5 of the Credit Agreement is amended by (a) deleting
the word "and" at the end of clause (k), (b) deleting clause (l) in its
entirety, and (c) inserting the following new clauses (l) and (m):
"(l) any Investments in accordance with any Rabbi Trust of the
Borrower in effect on January 1, 1997 that is for the benefit of the
Borrower's 401(a)(17) Supplemental Compensation Plan and deferred
compensation plans; and
(m) any Investments in addition to those contemplated by the
foregoing clauses (a) through (l), PROVIDED that all Investments made
pursuant to this clause (m) shall be permitted by the Senior Notes and
shall not exceed $10,000,000 at any time outstanding."
-3-
<PAGE>
8. Section 8.9 of the Credit Agreement is hereby amended by (a)
deleting the period "Each fiscal quarter occurring on and after December 30,
1997" and corresponding amount "79,000,000" and (b) inserting the following new
periods and corresponding amounts in lieu thereof:
December 30, 1997 to March 31, 1998 79,000,000
April 1, 1998 to June 30, 1998 80,000,000
July 1, 1998 to September 29, 1998 81,000,000
September 30, 1998 to December 31, 1998 82,000,000
January 1, 1999 to March 31, 1999 83,000,000
April 1, 1999 to June 30, 1999 84,000,000
Each fiscal quarter occurring on and
after July 1, 1999 85,000,000".
9. Section 8.10 of the Credit Agreement is hereby amended by (a)
deleting the amount "$140,000,000" and (b) inserting the amount "$75,000,000" in
lieu thereof.
10. Section 8.16 of the Credit Agreement is amended by inserting
"(other than Investments permitted under Section 8.5(l))" after the reference to
"investments".
11. In order to induce the Lenders to enter into this Amendment, each
Credit Party hereby:
(a) makes each of the representations, warranties and agreements
contained in Section 6 of the Credit Agreement on the Eighth Amendment
Effective Date (as defined in Section 15 of this Amendment), both before
and after giving effect to this Amendment; and
(b) represents and warrants that no Default or Event of Default is in
existence on the Eighth Amendment Effective Date, both before and after
giving effect to this Amendment.
12. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
13. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
-4-
<PAGE>
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with Holding and the Payments Administrator.
14. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
15. This Amendment shall become effective on the date (the "Eighth
Amendment Effective Date") when (i) Holding, the Borrower, the Agents, the
Issuing Bank and each Lender shall have signed a copy hereof (whether the same
or different copies) and shall have delivered (including by way of facsimile
transmission) the same to the Payments Administrator at the Payment Office, (ii)
each Lender which prior to the Eighth Amendment Effective Date has committed to
lend under the Credit Agreement an amount in excess of $15,000,000 shall have
received a fee of 3/8 of 1% of such Lender's allocated Commitment and (iii) each
Lender which prior to the Eighth Amendment Effective Date has committed to lend
under the Credit Agreement an amount equal to or less than $15,000,000 shall
have received a fee of 1/4 of 1% of such Lender's allocated Commitment.
16. From and after the Eighth Amendment Effective Date, all
references in the Credit Agreement and each of the Credit Documents to the
Credit Agreement shall be deemed to be references to such Credit Agreement as
amended hereby.
* * *
-5-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
EARLE M. JORGENSEN HOLDING
COMPANY, INC.
By
--------------------------------------
Title:
EARLE M. JORGENSEN COMPANY
By
--------------------------------------
Title:
AGENTS:
BT COMMERCIAL CORPORATION,
as Agent
By
--------------------------------------
Title:
THE CHASE MANHATTAN BANK, N.A.,
as Agent
By
--------------------------------------
Title:
<PAGE>
ISSUING BANK:
BANKERS TRUST COMPANY
By
--------------------------------------
Title:
LENDERS:
BT COMMERCIAL CORPORATION
By
--------------------------------------
Title:
THE CHASE MANHATTAN BANK, N.A.
By
--------------------------------------
Title:
ARAB BANKING CORPORATION
By
--------------------------------------
Title:
THE BANK OF NEW YORK
COMMERCIAL CORPORATION
By
--------------------------------------
Title:
<PAGE>
BANK OF SCOTLAND
By
--------------------------------------
Title:
BANQUE PARIBAS
By
--------------------------------------
Title:
By
--------------------------------------
Title:
THE CIT GROUP/BUSINESS CREDIT INC.
By
--------------------------------------
Title:
DRESDNER BANK AG, New York Branch
and Grand Cayman Branch
By
--------------------------------------
Title:
THE FIRST NATIONAL BANK OF BOSTON
By
--------------------------------------
Title:
<PAGE>
MANUFACTURERS BANK
By
--------------------------------------
Title:
SOCIETE GENERALE,
Los Angeles Branch
By
--------------------------------------
Title:
UNION BANK OF CALIFORNIA, N.A.
By
--------------------------------------
Title:
WELLS FARGO BANK, N.A.
By
--------------------------------------
Title:
<PAGE>
NINTH AMENDMENT AND WAIVER
NINTH AMENDMENT AND WAIVER (this "Amendment"), dated as of June 4,
1997, among EARLE M. JORGENSEN HOLDING COMPANY, INC., a Delaware corporation
("Holding"), EARLE M. JORGENSEN COMPANY, a Delaware corporation (the
"Borrower"), the financial institutions party to the Credit Agreement referred
to below (the "Lenders") and BT COMMERCIAL CORPORATION and THE CHASE MANHATTAN
BANK, as successor in interest to Chemical Bank, as Agents. All capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H :
WHEREAS, Holding, the Borrower, the Agents and the Lenders are parties
to a Credit Agreement, dated as of March 3, 1993, as amended, modified and
supplemented to the date hereof (as so amended, modified and supplemented, the
"Credit Agreement"); and
WHEREAS, the parties to the Credit Agreement wish to amend the Credit
Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Section 8.9 is waived to the extent necessary to permit the
Borrower's Consolidated Net Worth for the date March 31, 1997 to be less than
$75,000,000.
2. Section 8.10 is waived to the extent necessary to permit the
Borrower's Working Capital for the fiscal quarter ending on March 31, 1997 to be
less than $75,000,000.
3. Section 8.11 is waived to the extent necessary to permit the
Borrower's Fixed Charge Coverage Ratio for the fiscal year ending on March 31,
1997 to be less than 1.10 to 1.
4. The definition of "Consolidated Net Worth" appearing in Section
1.1 of the Credit Agreement is hereby amended by (i) deleting the word "and"
appearing at the end of clause (x) thereof and (ii) inserting the following new
clause (z) before the period appearing at the end of clause (y) thereof:
<PAGE>
"; and (z) without giving effect to any reduction thereto as a result
of any restructuring charges and other non-recurring charges incurred
by the Borrower in its 1997 fiscal year in an aggregate amount not to
exceed $20,088,000".
5. The definition of "Current Assets" appearing in Section 1.1 of
the Credit Agreement is hereby amended by (i) deleting the words "other than"
appearing in the parenthetical therein and (ii) inserting the word "including"
in lieu thereof.
6. Section 8.10 of the Credit Agreement is amended by (i) deleting
the amount "$75,000,000" appearing therein and (ii) inserting the new amount
"$60,000,000" in lieu thereof.
7. Section 8.11 of the Credit Agreement is hereby deleted in its
entirety and the following new Section 8.11 is inserted in lieu thereof:
"8.11 FIXED CHARGE COVERAGE RATIO. The Borrower will not
permit the Fixed Charge Coverage Ratio for any period of four
consecutive fiscal quarters (or, if shorter, the period beginning on
April 1, 1997 and ending on the last day of each fiscal quarter of the
Borrower specified below), in each case taken as one accounting
period, ended on a date set forth below to be less than the ratio set
forth opposite such date:
Fiscal Quarter
Ended Ratio
-------------- -----
June 27, 1997 1.10 to 1
September 26, 1997 1.15 to 1
December 30, 1997 1.20 to 1
March 31, 1998 and each
quarter thereafter 1.20 to 1".
8. Section 8.1 of the Credit Agreement is hereby amended by deleting
the amount "$30,000,000" appearing in clause (d) thereof and inserting the
amount "$50,000,000" in lieu thereof.
9. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of
-2-
<PAGE>
any other provision of the Credit Agreement or any other Credit Document.
10. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with Holding and the Payments Administrator.
11. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
12. This Amendment shall become effective on the date (the "Ninth
Amendment Effective Date") when Holding, the Borrower, the Agents, the Issuing
Bank and the Required Lenders shall have signed a copy hereof (whether the same
or different copies) and shall have delivered (including by way of facsimile
transmission) the same to the Payments Administrator at the Payment Office.
13. From and after the Ninth Amendment Effective Date, all references
in the Credit Agreement and each of the Credit Documents to the Credit Agreement
shall be deemed to be references to such Credit Agreement as amended hereby.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
EARLE M. JORGENSEN HOLDING
COMPANY, INC.
By
---------------------------------
Name:
Title:
EARLE M. JORGENSEN COMPANY
By
---------------------------------
Name:
Title:
AGENTS:
BT COMMERCIAL CORPORATION,
as Agent
By
---------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.,
as Agent
By
---------------------------------
Name:
Title:
<PAGE>
ISSUING BANK:
BANKERS TRUST COMPANY
By
---------------------------------
Name:
Title:
LENDERS:
BT COMMERCIAL CORPORATION
By
---------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.
By
---------------------------------
Name:
Title:
THE BANK OF NEW YORK
COMMERCIAL CORPORATION
By
---------------------------------
Name:
Title:
BANK OF SCOTLAND
By
---------------------------------
Name:
Title:
<PAGE>
THE CIT GROUP/BUSINESS CREDIT INC.
By
---------------------------------
Name:
Title:
CONGRESS FINANCIAL CORPORATION
By
---------------------------------
Name:
Title:
BANKBOSTON, N.A.
By
---------------------------------
Name:
Title:
FLEET BANK, N.A.
By
---------------------------------
Name:
Title:
MELLON BANK, N.A.
By
---------------------------------
Name:
Title:
SUMMIT COMMERCIAL/GIBRALTAR CORP.
By
---------------------------------
Name:
Title:
<PAGE>
WELLS FARGO BANK, N.A.
By
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT 12.1
EARLE M. JORGENSEN COMPANY
STATEMENT OF COMPUTATION OF RATIO
OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income (loss) before income taxes $(26,055) $(38,248) $ 23,406
Fixed charges to be added back to earnings:
Interest and debt expense 41,223 41,153 34,971
Rentals (one-third of all rent and related costs
charged to income) 5,596 5,948 5,545
-------- -------- --------
Total fixed charges 46,819 47,101 40,516
-------- -------- --------
Earnings before income taxes and fixed charges $ 20,764 $ 8,853 $ 63,922
-------- -------- --------
-------- -------- --------
Ratio of earnings to fixed charges .44 .19 1.58
-------- -------- --------
-------- -------- --------
Amount by which earnings are inadequate to cover
fixed charges $(26,055) $(38,248) $ ---
-------- -------- --------
-------- -------- --------
</TABLE>
53
<PAGE>
EXHIBIT 22.1
EARLE M. JORGENSEN COMPANY
LISTING OF THE COMPANY'S SUBSIDIARIES
<TABLE>
<CAPTION>
DATE STATE/
NATURE OF ACQUIRED % COUNTRY OF
NAME BUSINESS OR CREATED OWNED INCORPORATION
- ---- -------- ---------- ----- -------------
<S> <C> <C> <C> <C>
Kilsby Jorgensen Steel & Aluminum, S.A. de C.V. Metal 06/18/92 100% Mexico
Distributor
Kilsby Jorgensen Steel & Aluminium Ltd. Metal 05/03/90 100% United Kingdom
Distributor
Earle M. Jorgensen (Canada) Inc. (formerly Kilsby Metal 11/13/90 100% Canada
Jorgensen Steel & Aluminum Inc.) Distributor
Stainless Insurance Ltd. Captive 03/20/96 100% Bermuda
Insurance
</TABLE>
54
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AS OF
AND FOR THE YEAR ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 21,477
<SECURITIES> 0
<RECEIVABLES> 114,507
<ALLOWANCES> 963
<INVENTORY> 174,045
<CURRENT-ASSETS> 312,981
<PP&E> 174,466
<DEPRECIATION> 54,416
<TOTAL-ASSETS> 454,882
<CURRENT-LIABILITIES> 132,344
<BONDS> 290,336
0
0
<COMMON> 0
<OTHER-SE> 1,927
<TOTAL-LIABILITY-AND-EQUITY> 454,882
<SALES> 1,023,565
<TOTAL-REVENUES> 1,023,565
<CGS> 742,826
<TOTAL-COSTS> 742,826
<OTHER-EXPENSES> 150,915
<LOSS-PROVISION> 1,817
<INTEREST-EXPENSE> 40,880
<INCOME-PRETAX> (26,055)
<INCOME-TAX> 501
<INCOME-CONTINUING> (26,556)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,556)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
