UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-3855
Laclede Steel Company
(Exact name of Registrant as specified in its charter)
Delaware 43-0368310
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Metropolitan Square
211 North Broadway
St. Louis, Missouri 63102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 425-1400
Securities registered pursuant to Section 12(b) of the Act:
Name of
each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
$.01 par value, Common Stock
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in any amendment to this Form 10-K. [X]
At the date of filing of this report there were 4,056,140 shares of $.01
par value common stock outstanding. At February 20, 1998 the aggregate market
value of voting stock held by non-affiliates of the Registrant was
approximately $7,299,000.
Documents Incorporated by Reference
NONE
<PAGE>
PART I
Item 1. Business.
(a) General Development of Business
Laclede Steel Company is a manufacturer of a wide range of carbon and
alloy steel products, including pipe and tubular products, hot rolled products
(primarily special quality bars), wire products, and welded chain. The Company
converts its semi-finished steel into products through its rolling mills and
finishing plants. The Company produces wire products and welded chain
utilizing rods purchased on the open market. Each of the Company's finishing
facilities is located near its end markets and is specialized by product to
optimize efficiency.
The Company is one of three full-line domestic producers of continuous
weld pipe in the United States. In addition, the Company believes it is an
important North American producer of oil tempered wire, which is used for
applications such as mechanical springs and overhead garage door springs. Oil
tempered wire has metallurgical properties that typically command a price
premium over commodity grades of wire, and therefore produces higher profit
margins. The Company's manufactured and imported chain products give it a
significant position in the truck and automobile tire chain and the hardware
and industrial chain markets. The Company's special quality bars are primarily
sold to forgers for finishing into a variety of products.
The Company produces semi-finished steel at its Alton, Illinois Plant.
With the completion of a Ladle Furnace facility in the second quarter of 1996
the Company now produces all of its steel by the more efficient continuous cast
method. Annual steelmaking capacity is estimated at 780,000 net tons. Through
1995, the Alton Plant had supplied nearly all of the semi-finished steel used
to finish products at the Company's downstream facilities. The Company began
purchasing rods for its two wire mills and the welded chain operations in the
second quarter of 1996. Over the last twelve years the Company has acquired or
leased five additional finishing facilities, constructed a new finishing
facility and relocated much of its labor-intensive work to lower cost labor
areas. On February 10, 1997 the Company sold the assets of its electric weld
structural tubing operation located in Benwood, West Virginia. Sales of
structural tubing accounted for approximately 6% of consolidated net sales in
1996.
At December 31, 1996 Ivaco Inc. of Montreal, Canada owned 2,018,650
shares of the Company's common stock or 49.8% of the total number of shares
outstanding. On September 26, 1997, a subsidiary of Ivaco Inc. sold one-half
of the Ivaco investment in the Company to Midwest Holdings, Inc., a
wholly-owned subsidiary of Birmingham Steel Corporation ("Midwest Holdings").
The securities of the Company sold consisted of 1,009,325 common shares and
183,334 shares of the Company's Series A preferred stock. The preferred shares
are convertible into 859,834 common
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<PAGE>
shares of the Company. The transaction was effected through the sale of a
wholly-owned subsidiary of Ivaco which contained such shares to Midwest
Holdings. In connection with the transaction Ivaco, among other things, gave
Midwest Holdings the voting rights on Ivaco's remaining investment in the
Company's common stock and, in any additional common stock Ivaco may own as a
result of the conversion of Ivaco's remaining Series A preferred stock, subject
to certain limitations. In addition, Ivaco agreed not to sell any portion of
its remaining investment in the Company prior to September 24, 1998 and has
provided Midwest Holdings with a limited right of first refusal with respect to
such interests until September 24, 2002. At December 31, 1997 Birmingham Steel
Corporation and affiliates owned 1,029,325 shares of the Company's common stock
or 25.4% of the total number of shares outstanding and Ivaco Inc. owned
1,009,325 shares or 24.9% of the outstanding shares.
(b) Financial Information
The following table sets forth certain financial information relating
to Registrant's operations:
Year Ended December 31,
(Thousands of Dollars) 1997 1996 1995
Net Sales $325,029 $335,381 $320,350
Net Loss $ (3,007) $ (9,985) $(10,137)
Identifiable Assets $313,820 $331,110 $349,778
(c) Description of Business
The following table lists the Company's wide range of steel products:
Pipe and Tubular Products: Continuous Weld Pipe
- A53 Standard and Extra Heavy
- API 5L Line Pipe
- Coupling Stock
- Fence Pipe
- Rigid Conduit Shells
Hot Rolled Products: Carbon and Alloy SBQ Bars
Forging Billets
Special Shapes
Special Processing
Wire Products: Cold Drawn Wire
- High Carbon
- Low Carbon
Heat Treated Wire
- Carbon Oil Tempered
- Alloy Oil Tempered
- Annealed
Chain: Welded Chain
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<PAGE>
The following table presents, for the years indicated, the percentage
of the Company's total sales by product class:
Product 1997 1996 1995
Pipe and tube 38.0% 41.1% 40.8%
Hot Rolled 37.8 35.1 34.7
Wire 14.8 13.6 16.4
Chain 9.4 10.2 8.1
Total 100% 100% 100%
Pipe and Tubular Products. The Company's tubular products consist
primarily of continuous butt weld ("CBW") pipe which is sold in the U.S. and
Canada to distributors and manufacturers. Pipe products are produced and
finished at the Company's Alton and Fairless Hills, Pennsylvania Plants and
finished at the Vandalia, Illinois Facility. Prior to 1993, the majority of
the Company's CBW pipe was finished at the Alton Plant or at the Fairless
Facility, as discussed below. While semi-finished pipe continues to be
produced at the Alton Plant, in 1993 the Company moved the majority of the
Alton Plant's finishing operations to the Company's new Vandalia Facility. By
the end of 1993, the majority of CBW pipe was no longer finished at the Alton
Plant. In February 1997 the Company sold the assets of its electric resistance
weld tubing operation located in Benwood, West Virginia. This product
accounted for approximately 6% of consolidated net sales in 1996.
The Company is one of only three full line producers of CBW pipe in
the United States, due in part to the Company's long-term lease from former
competitor USX Corporation of its pipe manufacturing facilities at the Fairless
Facility.
In 1996 the Company completed the planned modifications to the Melt
Shop at the Alton Plant by installation of a Ladle Furnace Facility that
allowed the Company to shift the remaining portion of its steel production used
in pipe making from the ingot process to the more efficient continuous cast
method.
Hot Rolled Products. The Company's hot rolled products are produced at
the Alton Plant and consist primarily of special quality ("SBQ") bars sold to
manufacturers to be cold drawn or forged.
Wire Products. The Company is a major manufacturer of wire products.
These products include high and low carbon wire, oil tempered wire, and
annealed wire. The Company believes it is an important participant in the oil
tempered wire market. Wire
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products are currently manufactured and finished at the Company's
Memphis, Tennessee and Fremont, Indiana Facilities. The Fremont Facility is
the Company's stand-alone oil tempered wire plant which the Company believes to
be a state-of-the-art facility. The Fremont Plant has begun producing oil
tempered wire for automobile suspension springs and for brake springs. This is
a recently developed new product which is expected to have a positive effect on
profitability.
Chain Products. Laclede Chain, one of the Company's wholly owned
subsidiaries, produces welded chain and also imports a significant amount of
chain for resale. Laclede Chain generated in excess of $30 million in sales in
1997, approximately 47% of which was attributable to sales of anti-skid devices
for trucks and automobiles. The balance of the Company's chain products sales
is in the hardware and industrial chain business.
At December 31, 1997 and 1996 the Company had a sales backlog of over
$30 million. This backlog does not have significant seasonal variation.
Long-term sales commitments do not represent a significant portion of the
business.
Research and development activities of the Company have not been
material.
The Company manufactures steel from steel scrap generated in the
course of its steel production and purchased in the open market from numerous
scrap suppliers. Since it does not produce its own raw materials, the Company
is subject to the fluctuation in prices and availability of scrap. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) for additional discussion.
The Company's business strategy has been to modernize its basic
steelmaking facilities at the Alton Plant while growing and modernizing its
lower cost, downstream finishing facilities. In the months ahead management
will be reviewing all of the operations to develop a plan to improve the
long-term profit- ability of the Company and maximize our cash flow. The
Company will also be exploring alternatives to strengthen the balance sheet of
the Company.
The Company began its business expansion with the acquisition of a
chain manufacturer in northwestern Missouri in 1984. Since 1984 the Company
has acquired four additional facilities and constructed one new facility. Most
notable among these new and/or expanded facilities are the Company's lease of
the pipe manufacturing facilities at the Fairless Facility, the Company's
expanded oil tempered wire operations at the Fremont Facility, and the
construction of the Vandalia Facility, a tubular finishing plant.
The Fremont Facility was expanded in order to handle the majority of
oil tempered wire volume previously produced at the Alton Plant's wire mill.
Relatively minor amounts of oil
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tempered wire are produced at the Memphis Plant. The Vandalia Facility
processes semi-finished pipe produced at the Alton Plant.
In 1996 the Company completed a planned restructuring of the
steelmaking facilities at the Alton Plant. The Company's Ladle Furnace
Facility became operational in the second quarter of 1996 and all steel is now
produced using the more efficient continuous cast method. In connection with
this restructuring, the Company shut down its Blooming Mill and Rod Mill
operations. The shutdown of these facilities, together with the move to 100%
continuous cast steel, have resulted in more efficient operations at the Alton
Plant. In 1996 the Company began purchasing the rod requirements for its wire
operations on the open market resulting in reduced costs and improved quality.
In February 1997, the Company sold the assets of its electric weld
structural and mechanical tubing operation, located in Benwood, West Virginia.
After collection of a related note receivable, cash proceeds from the sale of
these assets, which consist primarily of equipment and inventory, totaled
approximately $11.0 million. The Company used the funds from the sale to
improve its working capital position. Sale of these assets did not affect the
Company's primary tubular business, continuous weld pipe.
Capital Improvements. While the Company has expanded and improved its
downstream finishing facilities, it has also completed important capital
improvements to the steelmaking operations at the Alton Plant. The primary
objective of these improvements was to substantially reduce production costs
and provide access to new markets. For further information and for discussion
of future capital expenditure plans, please refer to MD&A.
Competition
The Company believes that the principal competitive factors affecting
its business are price, quality and customer service. Price sensitivity in
markets for the Company's products is driven by competitive factors and the
cost of steel production.
Domestic. The Company faces competition from regional mini-mill
companies and fully integrated steel mills, and such competition can be
expected to continue. Moreover, the addition
of new sheet capacity in the industry has had and will continue to have a
favorable impact on production costs of the Company's tubular product
competitors. The Company also expects increased competition in its bar product
business as announced increases in capacity materialize.
Foreign. The Company also faces competition from foreign steel
producers. Foreign competition may increase in the future, due to factors such
as changes in currency exchange rates, repeal
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of duties on foreign-produced steel or the enactment of restrictive or
burdensome regulations or taxes that affect domestic but not foreign steel
manufacturers. Many foreign steel producers are owned, controlled or
subsidized by their governments and their decisions with respect to production
and sales may be influenced more by political and economic policy
considerations than by prevailing market conditions.
Environmental Matters
In general, the Company is subject to a broad range of federal, state
and local environmental regulations, including those governing discharges into
the air and water, the handling and disposal of solid and/or hazardous wastes
and the remediation of contamination associated with the release of hazardous
substances. The domestic steel industry, including the Company, has spent
substantial amounts to comply with these requirements. Although the Company
believes it is in substantial compliance with the various environmental
regulations applicable to its business, there can be no assurance that future
changes in environmental regulations will not require the Company to incur
significant costs in order to comply with such future regulations.
Specifically, like all electric arc furnace (EAF) steel producers, the
Company generates EAF dust as part of the steelmaking process. For some time,
the EPA has classified EAF dust as a designated hazardous waste. Over a period
of years, the Company accumulated approximately 145,000 tons of this material
on-site at the Alton Plant, pending development of technology for economical
treatment. The Company has received approval of a modified closure plan for
disposition of this existing EAF dust with the Illinois EPA which provides for
the closure of all piles in place.
In December 1997, the Company idled its High Temperature Metal
Recovery facility ("HTMR") after the facility became inoperable due to an
accident. This facility was used to dispose of the Company's EAF dust generated
in the Alton Facility. During 1998, management plans to dispose of the EAF dust
through alternative methods. Management plans to evaluate the HTMR facility
periodically to determine the economic feasibility of repairing and operating
the unit.
Employees. As of December 31, 1997, the Company employed approximately
1,475 employees, 300 of whom are classified as management, administrative and
sales personnel.
The Company's 685 hourly employees at the Alton Plant are covered by a
collective bargaining agreement that expires in September of 2001. None of the
Company's other employees are covered by a collective bargaining agreement.
The Company has never experienced a strike, and it believes that its relations
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with its employees are good. The compensation for the majority of the
Company's employees is based partially on productivity in accordance with
various incentive plans.
Item 2. Properties.
The Company's steelmaking facilities are located on a 400-acre site in
Alton, Illinois, and consist of two electric furnaces with a combined rated
production capacity of over 780,000 net tons per year, a ladle metallurgy
facility, a continuous bloom casting facility, a roughing mill and 14-inch bar
mill, 8-inch bar mill, 22-inch strip mill and facilities for the manufacture of
continuous butt-weld pipe. The Company also has a pipe finishing plant in
Vandalia, Illinois, a chain manufacturing plant in Maryville, Missouri, a wire
mill in Memphis, Tennessee and a wire oil tempering facility in Fremont,
Indiana. The Company operates a pipe mill in Bucks County, Pennsylvania which
is leased from USX Corporation. The lease expires September 30, 2001 with an
option to renew until September 30, 2006.
The Company's property is well maintained and adequate for production
of its existing product line. The majority of the Company's properties are
owned in fee. For its executive offices the Company presently leases space in
the Metropolitan Square Building in downtown St. Louis under a lease expiring
on April 30, 2004.
Item 3. Legal Proceedings.
There are various claims pending involving the Company and its
subsidiaries with respect to environmental, hazardous substance, product
liability, personal injury, and other matters arising out of the routine
conduct of it business. The Company believes it has meritorious defenses with
respect to all claims and litigation and the ultimate disposition of such
matters will not materially affect its financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of the stockholders held on December 16, 1997
the following directors were elected:
Name Number of Votes
Joseph Alvarado 3,722,425
Robert A. Garvey 3,722,875
Michael H. Lane 3,719,818
William R. Lucas, Jr. 3,722,425
Wayne P. E. Mang 3,722,425
John B. McKinney 3,719,368
Philip R. Morgan 3,723,675
Robert H. Quenon 3,722,211
George H. Walker III 3,721,361
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PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
Laclede's common stock is traded on the NASDAQ National Market System
and the symbol is LCLD. As of January 1998 there were approximately 550
stockholders of record.
Market
Price Range 1997 1996
Quarter High Low High Low
First $ 5 $ 3-1/8 $ 8 $ 5-1/2
Second 4-5/8 3-5/8 8-1/4 5-3/8
Third 5-3/16 3-1/2 6-3/8 4
Fourth 6 3-7/8 4-1/2 2-3/4
Dividends Per
Share Paid on
Common Stock 1997 1996
None None
Payment of dividends on common stock is limited by the Company's Loan
and Security Agreement. See Note 4 to the Company's Consolidated Financial
Statements. In addition, the Certificate of Designation for the Company's
outstanding Series A Preferred Stock provides that the Company shall not
declare or pay any dividends on the Company's common stock unless full
cumulative dividends have been paid or declared on the Series A Preferred
Stock. At this date, full cumulative dividends have not been paid or declared
on the Series A Preferred Stock.
On July 30, 1996, the Company sold 416,667 shares of Series A Preferred
Stock to Ivaco Inc. and the executive officers of the Company for an aggregate
sales price of approximately $6,250,000. There were no underwriters and no
underwriting discount or commission and the net proceeds to the Company, after
expenses, was $6,090,000. The sale of the Series A Preferred Stock to Ivaco
Inc. and the executive officers of the Company was exempt from registration
under the Securities Act of 1933 pursuant to Section 4(2) as a transaction not
involving any public offering because of the limited number of offerees, each
of whom was a sophisticated investor and fully informed as to the risks
involved. On October 28, 1996, at a special meeting of stockholders, the
Company's stockholders approved a recapitalization of the Series A Preferred
Stock such that each share of the preferred stock became convertible into the
Company's Common Stock at the option of the holder at a conversion price of
$3.20 into 4.69 shares of common stock.
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Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Five-Year Financial Summary
(In Thousands of Dollars Except Per Share Data)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales $325,029 $335,381 $320,350 $341,289 $328,766
Earnings (Loss) Before Cumulative
Effect of Change in Accounting
Principle* $ (3,007) $ (9,985) $(10,137) $ 4,462 $ 3,107
Net Earnings (Loss)* $ (3,007) $ (9,985) $(10,137) $ 4,462 $(43,436)
Basic and Diluted Net
Earnings (Loss) per share* $ (0.83) $ (2.50) $ (2.50) $ 1.10 $ (10.71)
Other Financial Data
Total assets $313,820 $331,110 $349,778 $343,251 $349,814
Working capital 55,899 62,001 87,759 88,906 88,833
Capital expenditures 3,016 10,726 13,847 14,747 12,782
Long-term debt 109,157 107,889 118,791 100,801 100,926
Stockholders' equity 21,101 17,245 16,518 53,743 42,590
Stockholders' equity per share $ 5.20 $ 4.25 $ 4.07 $ 13.25 $ 10.50
Cash dividends per share $ -- $ -- $ -- $ -- $ --
</TABLE>
* Includes restructuring, asset impairment and other charges which reduced
net earnings in 1996 by $1.0 million or $.24 per share and in 1995 by $11.4
million or $2.81 per share.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Operating Results 1995 to 1997
The net loss for 1997 was $3.0 million. In the first quarter of 1997
the Company realized an after-tax gain of $.6 million on the sale of its
Benwood Facility.
The net loss for 1996 was $10.0 million which included a $1.6 million
($1.0 million after tax) charge for an early retirement incentive in the fourth
quarter discussed in Notes 5 and 6 to the Consolidated Financial Statements.
Net earnings for 1995 were $1.3 million before the effect of
restructuring, asset impairment and other charges described in Note 6 to the
Consolidated Financial Statements. The net loss for 1995 was $10.1 million
after deducting the $11.4 million after-tax effect of the special charges.
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The change in net sales for the last three fiscal years is analyzed as
follows:
(In Thousands)
1997 Vs. 1996 1996 Vs. 1995 1995 Vs.1994
Increase (Decrease)
in net sales $(10,352) $ 15,031 $(20,939)
Comprised of:
Increase (Decrease)
in volume $(13,107) $ 32,192 $(24,788)
Increase (Decrease)
in price $ 2,755 $(17,161) $ 3,849
In 1997 net sales decreased by $10.4 million compared to 1996
reflecting a 3.4% decrease in steel shipments and an overall increase in sales
prices. Lower shipments are primarily a result of the sale of the Benwood
electric weld structural tubing operation. The overall increase in sales
prices reflects an improved product mix in shipments of continuous weld pipe
and higher prices for oil tempered wire. SBQ bar prices, which began to
decline in 1995, remained at lower levels throughout 1997.
Cost of products sold decreased by $17.4 million in 1997 versus 1996
reflecting the 3.4% decline in shipments, the effect of cost reductions
implemented in late 1996, and lower costs for the Company's basic raw material,
ferrous scrap. The Company also continued to benefit from the productivity
gains which it began to experience in most of its operations in the second half
of 1996.
The Company's 1997 fourth quarter results, however, were affected by
negotiations with the Steelworkers' Union for a new contract at the Alton
Plant.
During the first half of October hourly employees at the Alton Plant worked
without a contract while the Company continued negotiations with the Union.
During the period significant non-recurring expenses were incurred in
preparation for a potential strike. While the Company and the Union were able
to reach an agreement without a work stoppage, the uncertain situation
contributed to poor productivity in October. In the fourth quarter of 1997 the
Company also recorded inventory write-downs of $3.4 million, primarily related
to tubular products and semi-finished steel. This adjustment, which reduces
the carrying cost to estimated net realizable value, was based on a review of
year-end inventory.
Net sales increased by $15.0 million in 1996 over 1995 resulting from a
13.5% increase in tons shipped offset by a 5.4% reduction in selling prices.
Cost of products sold increased by $30.3 million reflecting the higher
volume of shipments in 1996 and a change in the mix of products sold.
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In 1995 net sales decreased by $20.9 million as a result of a 6.4%
reduction in steel shipments. While sales prices declined in the second half
of 1995, average prices for the year were slightly higher than 1994.
Cost of products sold decreased by 6.4% compared to 1994, reflecting
lower volume. As discussed below, production costs in 1995 include the effects
of further increases in the cost of the Company's basic raw material, ferrous
scrap.
In 1995 scrap prices were 3.4% higher than 1994. In 1996 and 1997
scrap prices declined, with average scrap prices in 1997 about 4% lower than
1995.
In addition to demand for steel, there are other factors affecting the
supply of scrap that could be considered structural changes, including the
growth in electric furnace production which is almost totally dependent on
ferrous scrap as a raw material.
In the first half of 1995, the Company was able to recover the
increased scrap costs through higher selling prices for its products. In the
second half of 1995 and in 1996, declining sales prices had a negative impact
on product margins.
In December 1995 a decision was made leading to a restructuring of the
steelmaking facilities at the Alton Plant. As a result of this decision,
accounting charges totaling $9.8 million after taxes were recorded in the
fourth quarter of 1995. These charges, which are primarily non-cash in nature,
include recognition of impairment loss for equipment, retirement costs for
affected employees, and adjustments of rod and wire inventories to market
value.
The Company also recognized a charge of $1.6 million, after taxes,
related to inventory write-downs in its tubular product operations. This
inventory adjustment, which reduced the carrying cost to net realizable value,
reflected higher production costs together with significant reductions in
selling prices for tubular products. Pressure on sales prices in 1995 was
caused by lower prices for sheet steel, the raw material for the Company's
competitors in the pipe market.
The Company's Ladle Furnace Facility became operational in the second
quarter of 1996 and all steel is now produced using the more efficient
continuous cast method. The Company ceased production of rods, and began
purchasing requirements for its wire operations on the open market, at a
significant reduction in costs.
In connection with this restructuring, in 1996 the Company also shut
down its Blooming Mill and Rod Mill operations. The shutdown of these
facilities, together with the move to 100% continuous cast steel, results in
more efficient operations at
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the Alton Plant. These actions, however, resulted in production inefficiencies
and higher costs early in the year. These inefficiencies continued after the
start-up of the Ladle Furnace until August 1996 when the Company began to
experience progress in the form of lower steelmaking costs.
Selling, general and administrative expenses were lower in 1997
primarily as a result of reductions in the salaried workforce.
The 1997 decrease in interest expense is due to a decrease in average
borrowings outstanding. The increase in interest expense in 1996 over 1995
reflects an increase in the average borrowings outstanding and a slightly
higher average rate of interest.
In the second quarter of 1995 the Company completed the sale of
approximately 3% of the common stock of its subsidiary, Laclede Mid America,
Inc. Accordingly a non-taxable gain of $728,000 representing the excess of the
sales price over the net book value of the stock sold, is included in the
results for 1995. Higher depreciation expense in 1995 is a result of increased
capital expenditure levels. Reduced depreciation in 1996 reflects the shutdown
of the Blooming Mill and Rod Mill at the Alton Plant.
General inflation has not had a significant effect on the Company's
sales and revenues, which are more related to factors such as domestic steel
capacity, currency levels, demand for the Company's products, and the impact of
foreign steel imports. Imported steel typically has the greatest impact on the
Company's tubular products.
Divisions and Subsidiaries
The Company operates a cold drawn wire mill in Memphis, Tennessee and
an oil tempered wire facility in Fremont, Indiana. In 1998 the Fremont Plant
expects to increase its production of certain higher grades of oil tempered
wire, utilizing technology developed in connection with the project to produce
wire for suspension springs.
The Company's wholly-owned subsidiary, Laclede Chain Manufacturing
Company, operates a manufacturing plant in Maryville, Missouri and a warehouse
and sales operation in Portland, Oregon. The Laclede Chain operation made a
significant contribution to consolidated earnings in the fourth quarter of
1996.
Fourth quarter 1997 results for Laclede Chain were substantially below
expectations. This is a direct result of unusually mild weather in the
Northwest in November and December, and its impact on traction chain sales.
- 13 -<PAGE>
Under an agreement with USX Corporation the Company leases the Pipe
Mill Operations located at the Fairless Works in Bucks County, Pennsylvania.
Shipments of continuous weld pipe from the Fairless Plant represented 36% of
tubular products sales in 1997.
The Company also operates a tubular finishing plant in Vandalia,
Illinois. The Vandalia facility processes semi-finished pipe produced at the
Alton Pipe Mill. Shipments of continuous weld pipe from the Vandalia Plant
represented 44% of tubular products sales in 1997.
Liquidity and Capital Resources
In the year 1997 operating activities used $8.5 million in cash. This
compares to 1996 when $11.8 million was provided, reflecting a large decrease
in inventories and an increase in accounts payable. Contributions to Company
pension plans totaled $14.7 million in 1997, $15.0 million in 1996 and $11.3
million in 1995. In 1995 operating activities used $4.9 million in cash.
Significant expenditures also included capital expenditures of $3.0 million in
1997, $10.7 million in 1996 and $13.8 million in 1995.
In February 1997 the Company completed the sale of its electric weld
structural and mechanical tubing operation, located in Benwood, West Virginia.
After collection of a related note receivable, cash proceeds from the sale of
these assets, which consisted primarily of equipment and inventory, were
approximately $11.0 million. Net working capital decreased by $6.1 million
during the year and the ratio of current assets to current liabilities was 1.8
to 1.0 at December 31, 1997.
In the third quarter of 1997 the Company reached an agreement with its
lenders for an increase in availability under the Loan and Security Agreement
of approximately $13.0 million, the majority of which was applied as a
reduction in trade accounts payable.
The Company has periodically amended its Loan and Security Agreement to
modify financial covenants relating to operating results and net worth. The
most recent amendment was effective March 27, 1998. In the event further
amendment to financial covenants is necessary in the future, there can be no
assurance that the Company will be able to obtain such amendment.
The Company is also required to comply with various covenants related
to limits on liability as defined in the Pollution Control Revenue Bonds. At
December 31, 1997, the Company was in compliance with these covenants. As part
of the modifications to the Restated Loan and Security Agreement previously
mentioned, in 1997 the Company received the approval of parties to the Solid
Waste Revenue Bonds to eliminate certain negative financial covenants contained
therein and to substitute therefore certain collateral. Subsequent to that
substitution, the only remaining negative financial covenant with respect to
- 14 -<PAGE>
the Solid Waste Revenue Bonds is that the Company may not without
the prior written consent of the Issuer of the Bonds (i) borrow from its
subsidiary, Laclede Chain Manufacturing Company, or (ii) take cash advances
from Laclede Chain Manufacturing Company, except to the extent that the
aggregate principal amount of all such borrowings and cash advances at any one
time do not exceed $7.0 million. Collateral granted to the Trustee of the Solid
Waste Revenue Bonds for the benefit of the bondholders consists of (i) all of
the issued and outstanding shares of Laclede Chain Manufacturing Company and
(ii) all of Laclede Chain Manufacturing Company's machinery and equipment now
owned or thereafter acquired. As of December 31, 1997, the Company is in
compliance with the remaining negative covenant contained in the Solid Waste
Revenue Bonds.
During 1998 the Company anticipates capital expenditures of
approximately $6.0 million, and contributions to pension plans of $13.6
million. Assuming that the Company is able to (i) maintain its existing level
of sales, (ii) avoid sales price decreases and (iii) capture savings from
productivity improvements, the Company will generate sufficient cash flow to
finance its 1998 liquidity requirements including the above referenced
expenditures. If the Company is unable to maintain its existing level of sales
and current pricing or if the Company's productivity improvements fail to
produce positive financial results, the Company may not generate sufficient cash
flow to finance its 1998 liquidity requirements. In such event, the Company
would evaluate other methods of generating cash flow such as the sale of
significant businesses or assets and refinancing transactions. There can be no
assurance, however, that any such alternative could be successfully completed.
In July 1996, the Company issued a total of $6.25 million in Series A
Preferred Stock to its largest stockholder, Ivaco Inc., and to executive
officers of the Company. On October 28, 1996, at a special meeting of the
stockholders, an amendment was approved to the Company's Certificate of
Incorporation which reduced the par value of each share of common stock from
$13.33 per share to $0.01 per share and increased the number of authorized
common stock shares from 5,000,000 shares to 25,000,000 shares. The
stockholders also approved the recapitalization of the Company's Series A 6%
preferred stock to convertible preferred stock. At such time each share of the
preferred stock became convertible into common stock at the option of the
holder at a conversion price of $3.20 into 4.69 shares of common stock. In
connection with the sale of Series A Preferred Stock to Ivaco Inc. and to
executive officers of the Company, the Company was required to use its best
efforts to obtain stockholder approval of the amendment to the Company's
Certificate of Incorporation. In addition such approval was necessary in order
for the Company to pursue a rights offering to all of the Company's
stockholders, entitling all such stockholders to subscribe for Series A
Preferred Stock (the "Rights Offering").
- 15 -<PAGE>
The Company, however, has postponed the Rights Offering until it
improves its operating results. In this regard the Company implemented a
number of cost reduction and productivity improvement programs that improved
1997 results, and continues to study cost reduction options. The Company does
not presently intend to proceed with the Rights Offering until operating
results have reached satisfactory levels and a long-term strategic plan has
been developed. There can be no assurance when or if the Company will proceed
with a Rights Offering.
At December 31, 1997, $76.5 million in borrowings were outstanding
under the Company's revolving credit facility, and unused availability totaled
$5.2 million. Amounts available under this facility were utilized early in the
first quarter of 1998 to cover outstanding short-term commitments, primarily
trade accounts payable.
In 1996 the Company experienced higher than expected retirements from
its hourly workforce at the Alton Plant. This was particularly the result of
restructuring of operations and early retirement incentives offered in late
1996. In addition in October 1997 the Company negotiated a new Labor Agreement
for hourly employees at the Alton Plant, which includes an increase in pension
benefits. Despite the negative effect which these factors have on pension
costs, the Company does not anticipate an increase in required plan
contributions in 1998. A planned change in the actuarial method of recognizing
gains in the market value of pension plan assets will have a favorable impact
on 1998 funding requirements, which should approximate the 1997 level. Current
actuarial projections indicate that if the Company continues to make its
required minimum quarterly contributions, the Plan's funded percentage will
increase and future minimum funding requirements will decline somewhat from
1997 and 1998 levels. Under the new actuarial method with respect to the
market value of pension plan assets, however, any material decrease in the
market value of pension plan assets could have a material adverse effect on the
Company's future pension funding requirements. There can be no assurance that
the Company could fund such requirements.
As discussed in Note 3 to the Consolidated Financial Statements, at
December 31, 1997 the Company has net deferred tax assets of $45.4 million.
For tax purposes, the Company had available as of December 31, 1997,
net operating loss ("NOL") carryforwards for regular federal income tax
purposes of approximately $68,100,000. These NOL carryforwards expire as
follows:
2008 $ 7,600,000
2009 900,000
2010 14,900,000
2011 27,200,000
2012 17,500,000
- 16 -<PAGE>
Additionally, in conjunction with the Alternative Minimum Tax Rules
("AMT"), the Company had available AMT credit carryforwards of approximately
$2,500,000, which may be used indefinitely to reduce regular federal income
taxes.
Management believes that it is more likely than not that all of the NOL
carryforwards will be utilized prior to their expiration. The NOL
carryforwards, as well as the existing deductible temporary differences, with
the exception of differences relating to the minimum pension liability
adjustment and the postretirement benefits, are largely offset by the existing
taxable temporary differences relating to accelerated depreciation which will
reverse within the carryforward period. Furthermore, any recorded deferred tax
assets associated with these future tax benefits which would not be offset by
the reversal of the accelerated depreciation are expected to be realized by the
achievement of future profitable operations. The Company experienced
profitable operations in 1993, 1994 and 1995, exclusive of nonrecurring/unusual
charges in connection with restructuring and modifying the operations of the
Company. While the Company experienced significant operating losses in 1996,
management believes 1997 would have been a profitable year were it not for the
unanticipated losses associated with the union contract negotiations, the
related decrease in productivity in the periods surrounding the termination of
the contract and the year-end inventory write-offs. Additionally, management
currently expects operations in 1998 to return to profitability.
The Company operates in a highly cyclical industry and consequently has
had a history of generating operating profits over an average business cycle
despite periods of operating losses within a cycle. Consequently, the Company
has had a history of generating NOL carryforwards and then utilizing such NOL
carryforwards to reduce regular income taxes in future periods. During the
period 1981 to 1984 the Company utilized $2,700,000 of NOL carryforwards to
reduce federal income taxes. Thus, management believes that no valuation
allowance is necessary for these deferred tax assets at this time.
The Company has recorded deferred tax benefits associated with
postretirement obligations and additional minimum pension liabilities of
approximately $45,000,000 as of December 31, 1997. The Company should have
deductible differences for tax purposes which greatly exceed the corresponding
deductions for financial reporting purposes in future years. These
liabilities, which are based on actuarial calculations, are expected to be paid
and deductible over the remaining lives of current and retired employees. Any
tax losses in future years associated with these deductible payments will be
subject to the 15-year NOL carryforward period provided under current tax law.
Because of the extremely long period of time that is available to realize these
future tax benefits, a valuation allowance for these deferred tax assets is not
deemed necessary.
- 17 -<PAGE>
In making these determinations regarding the ultimate realization of
the deferred tax assets, the Company is governed by the provisions of FAS 109,
which requires that when management is relying on future taxable income to
support the position that no valuation allowance is necessary, projections of
future operations must be substantially based on historical operating results,
as adjusted for unusual/nonrecurring items. Management believes the
Company-wide cost reductions and productivity improvements implemented in the
last two years will return the Company to profitability in 1998. However, if
operating losses should occur in fiscal 1998, it would represent the fourth
successive loss year on an unadjusted basis, and under the provisions of FAS
109, a valuation allowance would likely be required and such valuation
allowance would possibly be required on the entire deferred tax asset of
$45,400,000. A valuation allowance of this magnitude would eliminate the
Company's net worth and under the current Bank Loan and Security Agreement,
result in a violation of the Company's net worth covenant in such agreement.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if
the percentage of stock (by value) of a corporation (the "Loss Corporation")
that is owned by one or more "five-percent shareholders" has increased by more
than 50 percentage points over the lowest percentage of stock owned by the same
shareholders during a three year testing period (an "Ownership Change"), the
use of pre-ownership change net operating losses of the Loss Corporation
following such Ownership Change will be limited based on the value of the Loss
Corporation immediately before the Ownership Change occurs (a "Section 382
Limitation"). As of December 31, 1997, the Company had a deferred tax asset of
approximately $30,000,000 related to net operating loss and alternative minimum
tax carryovers. Although the Company believes that the transactions
consummated pursuant to the Purchase Agreement between Ivaco and Birmingham
Steel on September 26, 1997 should not result in an Ownership Change, future
transactions involving persons who are not or who during the ensuing thirty-six
month period become "five-percent shareholders" as defined in Section 382 may
trigger an Ownership Change. If such an Ownership Change occurs, the Company's
use of its existing net operating loss carryovers at such time will be subject
to a Section 382 Limitation based on the value of the Company on the date of
such an Ownership Change. Depending on the size of such net operating loss
carryovers at such time the limitation could have a material adverse effect on
the Company's financial statements.
Year 2000 Matters
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a
- 18 -<PAGE>
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
In 1996, the Company initiated a conversion from existing accounting
software to programs that are year 2000 compliant. Management believes that
the
year 2000 issue will not pose significant operational problems for its computer
systems. As a result, all costs associated with this conversion are being
expensed as incurred and are not expected to have a material adverse effect on
the results of operations. The conversion is expected to be completed in 1998.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis and other portions
of this report on Form 10-K, contain various "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Sections 21E of the Securities Exchange Act of 1934, as amended, which
represent the Company's expectations or beliefs concerning future events,
including the following: statements regarding the overall demand for steel;
statements regarding the ability to maintain sales
prices; statements regarding productivity improvement programs; statements
regarding the Company's profitability; statements regarding future borrowing
capacity; and statements regarding future pension funding requirements. In
addition, statements containing expressions such as "believes," "anticipates"
or "expects" used in the Company's periodic reports on Forms 10-K, 10-Q and 8-K
filed with the SEC are intended to identify forward-looking statements.
Forward-looking statements by the Company and its management are based on
estimates, projections, beliefs and assumptions of management and are not
guarantees of future performance. The Company disclaims any obligation to
update or revise any forward-looking statement based on the occurrence of
future events, the receipt of new information, or otherwise. The Company
cautions that these and similar statements included in this report and in
previously filed periodic reports including reports filed on Forms 10-K, 10-Q
and 8-K and further qualified by important factors that could cause actual
results to differ materially from those in the forward-looking statement,
including, without limitation, the following: decline in sales prices for
steel products; increases in the cost of steel scrap; failure to obtain
significant benefits from the Company's cost reduction and productivity
improvement programs; increased domestic or foreign steel competition and
decreases in the market value of the Company's qualified pension plan assets.
Item 8. Financial Statements and Supplementary Data.
The index to the Financial Statements of the Company and the
independent auditors' report of Deloitte & Touche LLP appear on pages 27 and
53.
- 19 -<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
NONE
PART III
Item 10. Directors and Executive Officers of the Company.
(a) Certain information with respect to each of the directors of
the Company is set forth below, including any positions they
hold with the Company and their business experience the past
five years:
Name, Age, Other Positions with the Company, Served as
Principal Occupation and Directorships of a Director
Other Companies Since
Joseph Alvarado, 45. . . . . . . . . . . . . . . 1997
Executive Vice President-Commercial of
Birmingham Steel Corporation ("Birmingham
Steel") (mini-mill steel producer) (1997
to date); President, Inland Steel Bar
Company (steel bar producer) (1995 to 1997);
Vice President & General Manager-Sales &
Marketing, Inland Steel Bar Company (1988
to 1994).
Robert A. Garvey, 60. . . . . . . . . . . . . . 1997
Chairman of the Board and Chief Executive
Officer of Birmingham Steel (mini-mill steel
producer) (January 5, 1996 to date); President
of North Star Steel (1984 to 1996). Director
of Birmingham Steel.
Michael H. Lane, 55 . . . . . . . . . . . . . . 1997
Vice President-Finance, Treasurer and Secretary
of the Company (January 1983 to date).
William R. Lucas, Jr., 42 . . . . . . . . . . . 1997
Executive Vice President-Administration and
General Counsel of Birmingham Steel (mini-
mill steel producer) (1996 to date); Executive
Vice President & General Counsel of Birmingham
Steel (1995-1996); Managing Partner of Lightfoot,
Franklin, White & Lucas (law firm) (1990 to
1995).
Wayne P. E. Mang, 60 . . . . . . . . . . . . . 1997
President and Chief Operating Officer, Russel
Metals (steel product processor and
distributor) (1982 to 1997). Director of
Wainbee Ltd. and Maverick Tube Corporation.
- 20 -<PAGE>
Name, Age, Other Positions with the Company, Served as
Principal Occupation and Directorships of a Director
Other Companies Since
Philip R. Morgan, 49 . . . . . . . . . . . . . 1997
President and Chief Executive Officer,
Morgan Construction Company (supplier of
steel rolling mill technology and equipment)
(1986 to date).
Robert H. Quenon, 69 . . . . . . . . . . . . . 1992
Mining Consultant (1991 to date); Chairman
of the Board, Federal Reserve Bank of
St. Louis (1993 to 1995); Chairman (1990
to 1991) and President and Chief Executive
Officer (1983 to 1990) of Peabody Holding
Company, Inc. (coal mining and sales);
Director of Ameren Corporation and Newmont
Gold Co.
George H. Walker III, 66 . . . . . . . . . . . 1990
Chairman of the Board, Stifel Financial
Corp. (investment banking firm) and its
principal subsidiary, Stifel, Nicolaus &
Company, Incorporated (stock brokerage
firm) (1979 to date); Director of Laidlaw
Corp. and EAC Corporation
The executive officers of the Company and their ages are as follows:
Name Age Position
John B. McKinney 65 President, Chief Executive
Officer and Director-Retired
in February 1998
Thomas E. Brew, Jr. 55 President and Chief
Executive Officer effective
February 26, 1998
Michael H. Lane 55 Vice President-Finance,
Treasurer and Secretary
J. William Hebenstreit 52 Vice President-Operations
Larry J. Schnurbusch 51 Vice President-Administration
H. Bruce Nethington 56 Vice President-Human
Resources
John B. McKinney was elected President and Chief Executive Officer of
the Company in January 1983. Mr. McKinney was a director of the Company from
1981 until he retired in February 1998.
- 21 -<PAGE>
Thomas E. Brew, Jr. of Argus Management Corporation was elected
President and Chief Executive Officer by the Board of Directors on February 26,
1998. Mr. Brew has been Executive Vice President of Argus Management
Corporation (a consulting firm) since July 1997. From November 1994 until July
1997 Mr. Brew was President, CEO and Chairman of the Board of Directors of
Kurzweil Applied Intelligence, Inc. (a software development company). Prior to
1994 Mr. Brew served as Executive Vice President of Argus Management
Corporation.
Michael H. Lane was elected Vice President-Finance, Treasurer and
Secretary of the Company in 1983. Mr. Lane was elected to the Board of
Directors in 1997.
J. William Hebenstreit was elected Vice President-Operations of the
Company in 1983.
Larry J. Schnurbusch was elected Vice President-Administration in 1993.
Prior to 1993, he served as Director of Corporate Administration of the
Company.
H. Bruce Nethington was elected Vice President-Human Resources in 1993.
Prior to 1993, he served as Director of Industrial Relations of the Company.
Item 11. Executive Compensation.
The following table presents summary information concerning
compensation for services rendered to the Company during each of the last three
fiscal years by those persons who at December 31, 1997 were the Chief Executive
Officer and the other executive officers.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Other Annual All Other
Name and Bonus Compensation Compensation
Principal Position Year Salary($) ($)(1) ($)(2) ($)(3)
<S> <C> <C> <C> <C> <C>
John B. McKinney(4) 1997 $364,500 $ -- $ 29,025 $39,761
President and Chief 1996 364,500 -- 288,923 39,471
Executive Officer 1995 364,500 -- 562,528 36,848
J. W. Hebenstreit 1997 $243,504 $ -- $ 10,223 $17,746
Vice President- 1996 243,504 -- 156,875 17,678
Operations 1995 243,504 -- 312,005 12,915
Michael H. Lane(5) 1997 $243,504 $ -- $ 13,101 $19,773
Vice President- 1996 243,504 -- 190,293 19,767
Finance, Treasurer 1995 243,504 -- 339,222 14,964
and Secretary
Larry J. Schnurbusch 1997 $178,008 $ -- $ 75,724 $11,477
Vice President- 1996 178,008 -- 122,503 11,431
Administration 1995 178,008 -- 125,771 6,943
H. Bruce Nethington 1997 $167,508 $ -- $ 45,929 $13,282
Vice President- 1996 167,508 -- 121,596 13,282
Human Resources 1995 167,508 -- 145,307 8,921
</TABLE>
(1) No bonuses were earned under the Company's
Discretionary Incentive Compensation Plan
for 1997, 1996 or 1995.
- 22 -<PAGE>
(2) Amounts reported as Other Annual Compensation consist primarily of income
tax payments related to Company contributions to the Key Employee
Retirement Plan. Such contributions represent taxable income to Plan
participants and, under the terms of the Plan, the Company is obligated to
reimburse participants for the payment of such taxes.
Certain perquisites which the executive officers received in 1995, 1996
and 1997 the aggregate amount of which did not exceed the lesser of
$50,000 or 10% of any such officer's salary and bonus, are not
included in other Annual Compensation.
(3) The amounts shown represent life insurance premiums paid by the Company on
behalf of the executive officers and matching amounts paid by the Company
under the profit sharing plan.
(4) Mr. McKinney retired from the Company on February 28, 1998.
(5) Mr. Lane has entered into an amendment to his employment agreement with
the Company, see "Employment Contracts" below.
The Company did not grant any stock appreciation rights or stock options
in 1997 and all aspects of prior plans have expired.
Benefit Plans
The Company maintains the Laclede Salaried Employees' Pension Plan (the
"Pension Plan"), a defined benefit plan which provides a monthly pension to
salaried employees of the Company (excluding employees covered by a collective
bargaining agreement) who retire or terminate with vested rights in accordance
with the provisions of the Pension Plan. Benefits are based upon years of
credited service and covered compensation, offset by the participant's Primary
Insurance Amount under the Federal Social Security Act. The Company also
maintains the Key Employee Retirement Plan (the "Supplement Plan"), the purpose
of which is to provide additional retirement income to certain key employees of
the Company, including certain of the executive officers. Under the
Supplement Plan, the eligible employees were guaranteed that the total amount
received by them each year during retirement from the Pension Plan, Federal
Social Security and the Supplement Plan would be equal to 70% of the average of
their highest aggregate three consecutive calendar year salary and bonus during
their last 10 years of employment with the Company ("Salary Level"), assuming
retirement at age 60. In connection with a Company-wide cost reduction program
initiated in 1996, in October 1996 the executive officers agreed to a reduction
in retirement benefits under the Supplement Plan by a change in the percentage
of Salary Level benefits from 70 to 65%. If the employee retires prior to age
60, the applicable percentage of the Salary Level will be reduced 2.5% for each
year of retirement age below age 60.
- 23 -<PAGE>
The aggregate annual benefits payable
pursuant to the Pension Plan, the Supplement
Plan and Federal Social Security at various
assumed salary levels and retirement ages are
summarized as follows:
<TABLE>
<CAPTION>
Estimated Annual Retirement
Benefit at the Respective Ages
Listed
Salary Level* 50 53 56 60
<S> <C> <C> <C> <C>
175,000 . . . . . . . . . . . . . $ 85,313 $ 93,844 $102,375 $113,750
225,000 . . . . . . . . . . . . . 109,688 120,656 131,625 146,250
275,000 . . . . . . . . . . . . . 134,063 147,469 160,875 178,750
325,000 . . . . . . . . . . . . . 158,438 174,281 190,125 211,250
375,000 . . . . . . . . . . . . . 182,813 201,094 219,375 243,750
425,000 . . . . . . . . . . . . . 207,188 227,906 248,625 276,250
475,000 . . . . . . . . . . . . . 231,563 254,719 277,875 308,750
525,000 . . . . . . . . . . . . . 255,938 281,531 307,125 341,250
575,000 . . . . . . . . . . . . . 280,313 308,344 336,375 373,750
625,000 . . . . . . . . . . . . . 304,688 335,156 365,625 406,250
675,000 . . . . . . . . . . . . . 329,063 361,969 394,875 438,750
</TABLE>
* Salary level assumes the average of the
highest average aggregate three
consecutive calendar year earnings for
eligible executive officers during the
last ten years of their employment.
Messrs. McKinney, Hebenstreit, Lane, Schnurbusch and Nethington have
accumulated 41, 30, 25, 29 and 30 credited years of service, respectively. The
current salary level for each of the executive officers eligible for benefits
under the Supplement Plan is: Mr. McKinney, $547,243; Mr. Hebenstreit
$326,193; Mr. Lane, $326,193; Mr. Schnurbusch, $221,627; and Mr. Nethington,
$193,919. Upon termination of employment, a covered employee or his
beneficiary at any time prior to commencement of benefits under the Supplement
Plan may select the payment of all benefits due under the Supplement Plan in
one lump sum payment. The Supplement Plan's funds are held and invested by a
trustee. As a result of Mr. Nethington's planned retirement on April 30, 1998,
the Company will be obligated to make an additional aggregate payment of
approximately $530,000 to Mr. Nethington, which Mr. Nethington and the Company
have agreed will be paid in five monthly installments. In addition the Company
will reimburse Mr. Nethington for amounts necessary to cover taxes incurred on
account of benefits payable under the Supplement Plan. Pursuant to the
November 14, 1990 amendment to the Supplement Plan (the "1990 Amendment") the
funds held under the Supplement Plan for Messrs. McKinney, Hebenstreit and Lane
were transferred to separate trusts under which the employees participating in
the Supplement Plan were the direct beneficiaries. Because such trusts are
fully funded, the Company will have no further payment requirements as a result
of the retirement of Mr. McKinney and the anticipated termination of employment
of Mr. Lane.
The Company also maintains the Laclede Steel Company Salaried Employees'
Profit Sharing Plan (the "Profit Sharing Plan") for the purposes of encouraging
eligible employees to develop initiative and productivity and providing the
employees
- 24 -<PAGE>
with additional retirement benefits. The Profit Sharing Plan is intended to
qualify as a cash deferred compensation arrangement under Section 401(k) of the
Internal Revenue Code. Salaried employees of the Company are eligible to
participate in the Profit Sharing Plan.
Compensation of Directors
Directors who are not otherwise employed by the Company receive a $1,125
monthly retainer and a per diem fee of $1,125, plus expenses, for Board or
committee meetings attended. Directors who are not otherwise employed by the
Company, who are members of the Shareholder Value Enhancement Committee receive
a $500 monthly retainer fee. The Chairman of the Board receives a $2,250
monthly retainer fee.
Employment Contracts
Messrs. McKinney, Hebenstreit, Lane, Schnurbusch and Nethington each has
an employment agreement with the Company (the "Employment Agreements").
Although Mr. McKinney left the Company on February 28, 1998, the Company will
continue to pay his annual salary of $364,500 and benefits through August
2, 1999, the termination date of his Employment Agreement. On March 24,
1998, Mr. Lane and the Company entered into an amendment to his Employment
Agreement providing that Mr. Lane will continue as Vice President-Finance,
Treasurer and Secretary of the Company until the earlier of September
20, 1998 or a date determined by the President of the Company. After
termination of his employment, the Company will continue to pay Mr. Lane his
minimum annual salary of $243,500 and benefits until the later of August 2,
1999 or twelve months from Mr. Lane's termination date. Effective July 30,
1996 the Employment Agreement of Mr. Hebenstreit provides for a minimum salary
of $243,500 for his services as Vice President-Operations. Also effective July
30, 1996, Mr. Schnurbusch's Employment Agreement provides for a minimum salary
of $178,000 for his services as Vice President-Administration. The Employment
Agreements for Messrs. Hebenstreit and Schnurbusch continue through August 2,
1999. Mr. Nethington's Employment Agreement provides for a minimum salary of
$167,500 which will be paid until April 30, 1998, the date of his retirement
from the Company.
Item 12. Security Ownership of Certain
Beneficial Owners and
Management.
The following information is furnished with respect to each person known
by management of the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock of the Company, each director of the Company, each
executive officer of the Company and all directors and executive officers as a
group. The information is furnished as of March 3, 1998.
- 25 -
<PAGE>
<TABLE>
<CAPTION>
Shares of
Series A
Shares of Preferred
Common Stock Stock
Name and Address of Beneficially Percent of Beneficially Percent of
Beneficial Owner Owned (1) Class Owned(1) Class
<S> <C> <C> <C> <C>
Birmingham Steel Corporation (2) 2,038,650 50.26% (3) 366,667 88.00%
1000 Urban Center Drive, Suite 300
Birmingham, AL 35242
Ivaco Inc. (2) . . . . . . 1,009,325 24.88% (3) 183,333 44.00%
Place Mercantile
770 rue Sherbrooke ouest
Montreal, Quebec, Canada H3A 1G1
Joseph Alvarado (4). . . . 100 * -- --
Robert A. Garvey (4) . . . 375 * -- --
J. W. Hebenstreit . . . . 10,000 * 21,667 5.20%
Michael H. Lane . . . . . 10,600 * 5,000 1.20%
William R. Lucas, Jr. (4). 100 * -- --
Wayne P. E. Mang . . . . . 100 * -- --
Thomas E. Brew, Jr. . . . -- * -- --
Philip R. Morgan . . . . . 1,000 * -- --
H. Bruce Nethington . . . 1,000 * 5,000 1.20%
Robert H. Quenon . . . . . 300 * -- --
Larry J. Schnurbusch . . . 7,730 * 5,000 1.20%
George H. Walker III . . . 1,000 (5) * -- --
All Directors and Executive
Officers as a Group
(12 persons) . . . . . . . 32,305 * 36,667 8.8%
</TABLE>
* Represents less than one percent of the outstanding Common Stock of the
Company.
(1) Beneficial ownership of shares, as determined in accordance with
applicable Securities and Exchange Commission rules, includes shares as
to which a person directly or indirectly has or shares voting power
and/or investment power. Unless otherwise indicated, each holder
has sole voting and investment power over the shares reported.
(2) On September 26, 1997, a subsidiary of Ivaco Inc. ("Ivaco"), sold
one-half of the Ivaco investment in the Company to a wholly-owned
subsidiary of Birmingham Steel Corporation ("Midwest Holdings"). The
securities of the Company sold consisted of 1,009,325 common shares
and 183,334 shares of the Company's Series A preferred stock. The
preferred shares are convertible into 859,834 common shares of the
Company. The transaction was effected through the sale of a
wholly-owned subsidiary of Ivaco which contained such shares to
Midwest Holdings. In connection with the transaction Ivaco, among
other things, gave Midwest Holdings the voting rights on Ivaco's
remaining investment in the Company's common stock and, in any
additional common stock Ivaco may own as a result of the conversion of
Ivaco's remaining Series A preferred stock, subject to certain
limitations. In addition, Ivaco agreed not to sell any portion of its
remaining investment in the Company prior to September 24, 1998 and
has provided Midwest Holdings with a limited right
- 26 -<PAGE>
of first refusal with respect to such interests until September 24,
2002. This information is based upon Schedule 13D forms of Ivaco and
Birmingham Steel, filed on September 30, 1997 and October 6, 1997,
respectively.
(3) Pursuant to Securities and Exchange Commission rules, the Ivaco shares
subject to the proxy referred to in footnote (2) above are reflected
as owned by both Ivaco and Birmingham Steel.
(4) Mr. Garvey is Chairman of the Board and Chief Executive Officer of
Birmingham Steel. Messrs. Alvarado and Lucas are executive officers
of Birmingham Steel. As a result of such positions, such individuals
may be deemed beneficial owners of the Company shares beneficially
owned by Birmingham Steel. Each of these individuals disclaims such
beneficial ownership.
(5) Does not include 1,000 shares of Common Stock owned by Mr. Walker's
wife. Mr. Walker disclaims beneficial ownership of
such shares.
Item 13. Certain Relationships and Related Transactions.
In 1997, the Company engaged Stifel, Nicolaus & Company, Incorporated
to assist in obtaining approval of changes to financial covenants and
collateral arrangements on its Solid Waste Revenue Bonds. Mr. George H.
Walker III, a Company Director, is the Chairman of the Board of Stifel
Financial Corporation, the parent of Stifel, Nicolaus & Company, Incorporated.
The Company paid a fee for these services of approximately $70,000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) Documents Filed as Part of This Report
The following is an index of the financial statements and schedules
included in this Report.
(1) Financial Statements
LACLEDE STEEL COMPANY AND SUBSIDIARIES
Page
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . 31
Consolidated Balance Sheets, December 31, 1997 and 1996 . . 32
- 27 -<PAGE>
Page
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995. . . . . . . . 34
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . 35
Notes to Consolidated Financial Statements . . . . . . . . 36
Independent Auditors' Report on Financial Statements. . . . 53
(2) Consolidated Financial Statement Schedules
NONE
(3) Exhibits
The following is an index of the exhibits included in this Report or
incorporated herein by reference.
(3)(a) Registrant's Certificate of Incorporation as restated
October 28 1996. (Incorporated by reference to Exhibit (3) in
Registrant's Quarterly Report on Form 10-Q for September 30,
1996.)
(3)(b) By-laws of Registrant amended December 19, 1997.
(4)(a) Registrant's Loan and Security Agreement dated as of September
7, 1994 amended and restated as of August 20, 1997.
(Incorporated by reference to Exhibit (4)(a) in Registrant's
Quarterly Report on Form 10-Q for September 30, 1997.)
(4)(b) First Amendment dated December 30, 1997 to the Company's
Restated Loan and Security Agreement.
(4)(c) Second amendment effective March 27, 1998 to the Company's
Restated Loan and Security Agreement.
(4)(d) Certificate of Designation of Series A Preferred Stock dated
July 30, 1996. (Incorporated by reference to Exhibit (4)(i) in
the Registrant's Quarterly Report on Form 10-Q for June 30,
1996.)
(10)(a) Discretionary incentive compensation plan for Executive
Officers of the Registrant. (Incorporated by reference to
Exhibit (10)(a) in Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.)
- 28 -<PAGE>
(10)(b) Stock Purchase Agreement dated July 30, 1996 between Ivaco Inc.
and Laclede Steel Company. (Incorporated by reference to
Exhibit (10)(a) of Registrant's Quarterly Report on Form 10-Q
for June 30, 1996.)
(10)(c) Management Stock Purchase Agreements dated July 30, 1996
between Laclede Steel Company and John B. McKinney, Michael H.
Lane, J. William Hebenstreit, Larry J. Schnurbusch and H.
Bruce Nethington. (Incorporated by reference to Exhibit (10)(b)
of Registrant's Quarterly Report on Form 10-Q for June 30,
1996.)
(10)(d) Restated Employment Agreements dated as of July 30, 1996
between Laclede Steel Company and John B. McKinney, Michael H.
Lane, J. William Hebenstreit, Larry J. Schnurbusch and H.
Bruce Nethington. (Incorporated by reference to Exhibit (10)(c)
of Registrant's Quarterly Report on Form 10-Q dated June 30,
1996.)
(10)(e) Amendment dated as of March 24, 1998 to the Restated Employment
Agreement between Laclede Steel Company and Michael H. Lane.
(10)(f) Registration Rights Agreement dated July 30, 1996 between
Laclede Steel Company and Ivaco Inc., John B. McKinney, Michael
H. Lane, J. William Hebenstreit, Larry J. Schnurbusch and H.
Bruce Nethington. (Incorporated by reference to Exhibit (10)(d)
of Registrant's Quarterly Report on Form 10-Q dated June 30,
1996.)
(10)(g) Restated Key Employee Retirement Plan dated October 16, 1996.
(Incorporated by reference to Exhibit (10)(g) in Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996.)
(10)(h) Asset Purchase Agreement dated January 10, 1997 between
Excaliber Tubular Corporation and Laclede Steel Company.
(Incorporated by reference to Exhibit (10)(h) in Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996.)
- 29 -<PAGE>
(21) Subsidiaries of Registrant.
Instruments with respect to long-term debt issues have been
omitted where the amount of securities authorized under such
instruments does not exceed 10% of the total consolidated assets
of the Registrant. Registrant hereby agrees to furnish a copy
of any such instrument to the Commission upon its request.
NOTE
Copies of exhibits will be supplied upon written
request and payment of the Registrant's fee of $.25
per page requested.
(b) Reports on Form 8-K
Form 8-K reporting on Item 1 - Change in Control of Registrant under
a Purchase Agreement dated as of September 26, 1997 was filed on
October 3, 1997.
Form 8-K reporting on Item 1 - Change in Control of Registrant filed
on October 14, 1997 reporting that on October 8, 1997 the Company
appointed three of Birmingham Steel's executive officers to the Board
of Directors of the Company.
- 30 -<PAGE>
<TABLE>
LACLEDE STEEL COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands of Dollars except Per Share Amounts)
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
NET SALES $ 325,029 $ 335,381 $ 320,350
COSTS AND EXPENSES:
Cost of products sold 299,570 316,954 286,632
Selling, general and
administrative expenses 13,654 14,201 14,209
Depreciation 7,696 7,743 8,151
Interest expense, net 10,046 11,163 10,125
Restructuring, asset impairment
and other charges ---- 1,559 18,422
Gain on sale of subsidiary stock ---- ---- (728)
Gain on sale of facility (987) ---- ----
Total costs and expenses 329,979 351,620 336,811
LOSS BEFORE INCOME TAXES (4,950) (16,239) (16,461)
INCOME TAX BENEFITS (1,943) (6,254) (6,324)
NET LOSS $ (3,007) $ (9,985) $ (10,137)
PREFERRED STOCK DIVIDEND REQUIREMENT (375) (156) ----
NET LOSS AVAILABLE TO COMMON
SHAREHOLDERS $ (3,382) $ (10,141) $ (10,137)
BASIC AND DILUTED
NET LOSS PER SHARE $ (0.83) $ (2.50) $ (2.50)
</TABLE>
See Notes to Consolidated Financial Statements.
- - 31 -
<PAGE>
<TABLE>
LACLEDE STEEL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
Assets
(In Thousands of Dollars)
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 186 $ 143
Accounts receivable, less allowances
of $2,412 in 1997 and $2,428 in 1996 40,282 38,772
Prepaid expenses 1,238 443
Inventories:
Finished 45,823 46,631
Semi-finished 18,166 23,540
Raw materials 4,681 5,218
Supplies 14,136 14,720
Total inventories 82,806 90,109
Total current assets 124,512 129,467
NON-CURRENT ASSETS:
Intangible pension asset 14,652 14,464
Other intangible assets 2,119 2,263
Bond funds in trust 2,385 2,385
Prepaid pension contributions 5,441 5,766
Deferred income taxes 45,400 47,557
Notes receivable 3,396 3,600
Other 4,897 4,104
Total non-current assets 78,290 80,139
PLANT AND EQUIPMENT, AT COST:
Land 1,499 1,589
Buildings 27,681 28,591
Machinery and equipment 210,490 215,444
239,670 245,624
Less - accumulated depreciation 128,652 124,120
Net plant and equipment 111,018 121,504
TOTAL ASSETS $ 313,820 $ 331,110
</TABLE>
- - 32 -
<PAGE>
<TABLE>
Liabilities and Stockholders' Equity
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 42,682 $ 41,293
Accrued compensation 6,269 6,780
Current portion of long-term debt 2,356 2,484
Accrued costs of pension plans 13,577 14,049
Other 3,729 2,860
Total current liabilities 68,613 67,466
NON-CURRENT LIABILITIES:
Accrued costs of pension plans 36,864 53,181
Accrued postretirement medical benefits 75,864 79,782
Other 2,221 5,547
114,949 138,510
LONG-TERM DEBT 109,157 107,889
COMMITMENTS AND CONTINGENCIES - NOTE 9 ---- ----
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, authorized 2,000,000
shares; issued and outstanding 416,667 shares 83 83
Common stock, $.01 par value, authorized 25,000,000
shares; issued and outstanding 4,056,140 shares 41 41
Capital in excess of par 59,763 60,138
Accumulated deficit (15,307) (12,300)
Minimum pension liability adjustment (23,479) (30,717)
Total stockholders' equity 21,101 17,245
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 313,820 $ 331,110
</TABLE>
See Notes to Consolidated Financial Statements.
- - 33 -
<PAGE>
<TABLE>
LACLEDE STEEL COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(In Thousands of Dollars)
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Preferred stock
(416,667 shares issued)
Beginning balance $ 83 $ -- $ --
Sale of convertible preferred stock -- 83 --
Ending balance 83 83 --
Common stock - $0.01 par value
(4,056,140 shares issued)
Beginning balance 41 54,081 54,081
Reduction in par value of common stock -- (54,040) --
Ending balance 41 41 54,081
Capital in excess of par value
Beginning balance 60,138 247 247
Sale of convertible preferred stock -- 6,007 --
Reduction in par value of common stock -- 54,040 --
Dividend requirement on convertible
preferred stock (375) (156) --
Ending balance 59,763 60,138 247
Retained earnings (deficit)
Beginning balance (12,300) (2,315) 7,822
Net loss (3,007) (9,985) (10,137)
Ending balance (15,307) (12,300) (2,315)
Minimum pension liability
Beginning balance (30,717) (35,495) (8,407)
Change 7,238 4,778 (27,088)
Ending balance (23,479) (30,717) (35,495)
Total Stockholders' Equity at End of Year $ 21,101 $ 17,245 $ 16,518
</TABLE>
See Notes to Consolidated Financial Statements.
- - 34 -
<PAGE>
<TABLE>
LACLEDE STEEL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands of Dollars)
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,007) $ (9,985) $ (10,137)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 7,696 7,743 8,151
Gain on sale of subsidiary stock ---- ---- (728)
Gain on sale of facility (987) ---- ----
Restructuring, asset impairment and other charges ---- 1,559 18,422
Change in deferred income taxes (2,279) (6,424) (6,185)
Changes in assets and liabilities
that provided (used) cash:
Accounts receivable (1,510) (1,485) 8,300
Inventories 3,504 17,173 (12,483)
Accounts payable and accrued expenses (2,983) 10,306 (8,861)
Pension cost less than funding (4,977) (5,429) (2,526)
Accrued postretirement medical benefits (3,918) (1,649) 1,162
Net cash provided by (used in) operating activities (8,461) 11,809 (4,885)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,016) (10,726) (13,847)
Proceeds from sale of assets 10,972 4,000 ----
Net cash provided by (used in) investing activities 7,956 (6,726) (13,847)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayments) under revolving credit loan 390 (8,415) 18,453
Proceeds from term loan 4,079 ---- ----
Proceeds from long-term debt ---- ---- 2,000
Payments on long-term debt (3,329) (2,462) (2,488)
Proceeds from sale of stock of subsidiary ---- ---- 1,000
Proceeds from issuance of convertible preferred stock ---- 6,090 ----
Payment of financing costs (592) (314) (231)
Net cash provided by (used in) financing activities 548 (5,101) 18,734
CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the year 43 (18) 2
At beginning of year 143 161 159
At end of year $ 186 $ 143 $ 161
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 10,057 $ 10,476 $ 10,209
Income tax payments (refunds), net $ 337 $ (1,317) $ 794
</TABLE>
See Notes to Consolidated Financial Statements.
- - 35 -
<PAGE>
Notes to Consolidated Financial Statements
Note 1
Nature of Operations:
Laclede Steel Company and Subsidiaries (the Company) is a manufacturer of
carbon and alloy steel products, including pipe products, hot rolled products,
wire products and welded chain. The Company's continuous butt weld pipe is
sold in the U.S. and Canada to distributors and manufacturers. Hot rolled
products consist primarily of special quality bars sold to manufacturers to be
cold drawn or forged. Wire products include high and low carbon wire, oil
tempered wire used for mechanical springs, overhead door springs, automotive
suspension and brake springs, and annealed wire and rod. Laclede Chain
Manufacturing Company, a wholly-owned subsidiary, produces chain products and
also imports a significant amount of chain. Approximately one-half of the
chain business is attributable to sales of anti-skid devices for trucks and
automobiles and the balance is in sales of hardware and industrial chain.
Note 2
Accounting Policies:
The Company's significant accounting policies are summarized as follows:
Principles of Consolidation
The consolidated financial statements include the accounts of Laclede
Steel Company and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated.
Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity
of three months or less at date of purchase to be cash equivalents.
Inventories
Inventories of finished and semi-finished products, raw materials and
supplies are stated at the lower of cost, predominantly moving average, or
market. Market determination is based on the net realizable value of the total
of the components of each major category of inventory.
Plant and Equipment
Plant and equipment, consisting primarily of steelmaking and related
facilities, are carried at cost. Major renewals and betterments are
capitalized, while replacements, rebuilding costs and repairs are charged to
operations. The cost of normal retirements is charged to accumulated
depreciation and salvage realized, if any, is credited thereto.
- 36 -<PAGE>
Depreciation
The Company follows the policy of providing for depreciation of plant and
equipment by charging operations with amounts sufficient to amortize the cost
over the following estimated useful lives:
Buildings and improvements 20 to 45 years
Machinery and equipment 4 to 25 years
Office furniture and equipment 6 to 10 years
Depreciation is computed on the straight-line method for financial
reporting purposes.
Impairment of Long-Lived Assets
In 1995 the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The general
requirements of this statement are applicable to the properties and intangible
assets of the Company and require impairment to be considered whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. See Note 6 for discussion of asset impairment charges in
1995.
Other Intangible Assets
Other intangible assets include the excess of the purchase price of
acquisitions over the fair value of the net assets acquired and these amounts
are amortized on a straight-line basis over 25 years.
Management periodically reviews the value of its intangible assets to
determine if an impairment has occurred or whether changes have occurred that
would require a revision to the remaining useful life. In making such
determination, management evaluates the performance, on an undiscounted basis,
of the underlying operations or assets which give rise to such amount. Based
on this review, management does not believe that any such impairment has
occurred.
Income Taxes
Deferred income taxes are provided for the temporary differences between
the tax basis of the Company's assets and liabilities and their financial
reporting amounts at each year end, utilizing currently enacted tax rates. See
Note 3 for details of significant temporary differences.
- 37 -<PAGE>
Per Share Data and Preferred Stock Dividends
Per share amounts for 1997, 1996 and 1995 have been calculated based on
weighted average shares outstanding of 4,056,140. Net loss per share in 1997
and 1996 was computed by dividing the net loss, after deducting convertible
preferred dividend requirements of $375,000 in 1997 and $156,000 in 1996, by
the weighted average shares outstanding.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain Significant Estimates
Amounts reported for pensions and postretirement medical benefits and
their related deferred tax assets are subject to significant fluctuation due to
changes in interest rates. Estimates of environmental remediation-related
obligations are discussed in Note 9.
Current Vulnerability Due to Certain Concentrations
The Company manufactures steel from steel scrap generated in the course of
its steel production and purchased in the open market from numerous scrap
suppliers. Since it does not produce its own raw materials, the Company
is subject to the fluctuation in prices and availability of scrap.
Approximately 58% of the Company's production employees are covered by a
collective bargaining agreement, which expires in September 2001.
Note 3
Income Taxes:
The provision for income taxes represents an effective combined federal
and state tax rate of 39% for 1997 and 1996 and 38% for 1995. See the
reconciliation of these tax rates to the statutory rate below. The provision
(credit) for income taxes consists of the following (thousands of dollars):
1997 1996 1995
Current income taxes $ 336 $ 170 $ (139)
Deferred income taxes (2,279) (6,424) (6,185)
$ (1,943) $(6,254) $ (6,324)
- 38 -<PAGE>
Deferred tax assets were decreased in 1997 by $4,436,000 and in 1996 by
$2,929,000 and increased in 1995 by $16,151,000, as a result of the tax effects
of the minimum pension liability adjustment. These amounts are not reflected
in the tax provision of these years. See Note 5 for further discussion.
Deferred tax assets and liabilities are comprised of the following at
December 31 (thousands of dollars):
1997 1996
Deferred tax liabilities:
Depreciation $(29,621) $ (28,549)
Accrued costs of pension plans (4,689) (2,490)
Total deferred tax liabilities (34,310) (31,039)
Deferred tax assets:
Minimum pension liability adjustment 14,390 18,826
Postretirement medical benefits 30,801 31,361
Active employee benefit liabilities 2,460 2,566
Environmental costs 114 1,199
Allowances on receivables 979 954
Net operating loss and alternative
minimum tax carryovers 29,981 21,832
Other 985 1,858
Total deferred tax assets 79,710 78,596
Net deferred tax assets $ 45,400 $ 47,557
For tax purposes, the Company had available as of December 31, 1997, net
operating loss ("NOL") carryforwards for regular federal income tax purposes of
approximately $68,100,000. These NOL carryforwards expire as follows:
2008 $ 7,600,000
2009 900,000
2010 14,900,000
2011 27,200,000
2012 17,500,000
Additionally, in conjunction with the Alternative Minimum Tax Rules
("AMT"), the Company had available AMT credit carryforwards of approximately
$2,500,000, which may be used indefinitely to reduce regular federal income
taxes.
Management believes that it is more likely than not that all of the NOL
carryforwards will be utilized prior to their expiration. The NOL
carryforwards, as well as the existing deductible temporary differences, with
the exception of differences relating to the minimum pension liability
adjustment and the postretirement medical benefits, are largely offset by the
existing taxable temporary differences relating to accelerated depreciation
which will reverse within the carryforward period.
- 39 -<PAGE>
Furthermore, any recorded deferred tax assets associated with these future tax
benefits which would not be offset by the reversal of the accelerated
depreciation are expected to be realized by the achievement of future
profitable operations. The Company experienced profitable operations in 1993,
1994 and 1995, exclusive of nonrecurring/unusual charges in connection with
restructuring and modifying the operations of the Company. While the Company
experienced significant operating losses in 1996, management believes 1997
would have been a profitable year were it not for the unanticipated losses
associated with the union contract negotiations, the related decrease in
productivity in the periods surrounding the termination of the contract and the
year-end inventory write-offs. Additionally, management currently expects
operations in 1998 to return to profitability.
The Company operates in a highly cyclical industry and consequently has
had a history of generating operating profits over an average business cycle
despite periods of operating losses within a cycle. Consequently, the
Company has had a history of generating NOL carryforwards and then utilizing
such NOL carryforwards to reduce regular income taxes in future periods.
During the period 1981 to 1984 the Company utilized $2,700,000 of NOL
carryforwards to reduce federal income taxes. Management believes that no
valuation allowance is necessary for these deferred tax assets at this time.
The Company has recorded deferred tax benefits associated with
postretirement obligations and additional minimum pension liabilities of
approximately $45,000,000 as of December 31, 1997. The Company should have
deductible differences for tax purposes which greatly exceed the corresponding
deductions for financial reporting purposes in future years. These
liabilities, which are based on actuarial calculations, are expected to be paid
and deductible over the remaining lives of current and retired employees. Any
tax losses in future years associated with these deductible payments will be
subject to the 15-year NOL carryforward period provided under current tax
law. Because of the extremely long period of time that is available to realize
these future tax benefits, a valuation allowance for these deferred tax assets
is not deemed necessary.
In making these determinations regarding the ultimate realization of the
deferred tax assets, the Company is governed by the provisions of FAS 109,
which requires that when management is relying on future taxable income
to support the position that no valuation allowance is necessary, projections
of future operations must be substantially based on historical operating
results, as adjusted for unusual/nonrecurring items. Management believes the
Company-wide cost reductions and productivity improvements implemented in the
last two years will return the Company to profitability in 1998. However, if
operating losses
- 40 -<PAGE>
should occur in fiscal 1998, it would represent the fourth successive loss year
on an unadjusted basis, and under the provisions of FAS 109, a valuation
allowance would likely be required and such valuation allowance would
possibly be required on the entire deferred tax asset of $45,400,000. A
valuation allowance of this magnitude would eliminate the Company's net worth
and under the current Bank Loan and Security Agreement, result in a violation
of the Company's net worth covenant in such agreement.
The applicable statutory federal income tax rate of 34% for each of the
three years is reconciled to the effective income tax rate as follows
(thousands of dollars):
1997 1996 1995
Federal income tax credit
computed at statutory tax rate $ (1,651) $(5,503) $(5,604)
Non-taxable gain on sale of
subsidiary stock -- -- (277)
State income taxes, net (399) (819) (542)
Other 107 68 99
Credit for income taxes $ (1,943) $(6,254) $(6,324)
Under Section 382 of the Internal Revenue Code of 1986, as amended, if the
percentage of stock (by value) of a corporation (the "Loss Corporation") that
is owned by one or more "five-percent shareholders" has increased by more than
50 percentage points over the lowest percentage of stock owned by the same
shareholders during a three year testing period (an "Ownership Change"), the
use of pre-ownership change net operating losses of the Loss Corporation
following such Ownership Change will be limited based on the value of the Loss
Corporation immediately before the Ownership Change occurs (a "Section 382
Limitation"). As of December 31, 1997, the Company had a deferred tax asset of
approximately $30,000,000 related to net operating loss and alternative minimum
tax carryovers. Although the Company believes that the transactions
consummated pursuant to the Purchase Agreement between Ivaco and Birmingham
Steel on September 26, 1997 should not result in an Ownership Change, future
transactions involving persons who are not or who during the ensuing thirty-six
month period become "five-percent shareholders" as defined in Section 382
may trigger an Ownership Change. If such an Ownership Change occurs, the
Company's use of its existing net operating loss carryovers at such time will
be subject to a Section 382 Limitation based on the value of the Company on
the date of such an Ownership Change. Depending on the size of such net
operating loss carryovers at such time the limitation could have a material
adverse effect on the Company's financial statements.
- 41 -<PAGE>
Note 4
Debt:
Long-term debt consists of the following at December 31 (thousands of
dollars):
1997 1996
Bank Loan and Security Agreement:
Revolving Loan $76,516 $ 76,126
Term Loan 8,582 6,777
Note Payable Due December 31, 2001 2,000 2,000
Solid Waste Disposal Revenue Bonds:
8.375% Bonds due from 1996 to 2008 6,275 6,615
8.5% Bonds due from 2015 to 2020 9,430 9,430
8% Pollution Control Revenue Bonds due
October 1, 2001 (annual sinking fund
payments began in 1993) 8,040 8,700
8% Industrial Development Revenue Bonds
due October 1, 2001 (annual sinking fund
payments began in 1992) 670 725
111,513 110,373
Less amounts payable within one year 2,356 2,484
$109,157 $107,889
The Company has a Loan and Security Agreement with three banks, expiring
in September 2002, which has been amended and restated to provide a total
credit facility of up to $100,000,000. At December 31, 1997 the Term Loan
balance was $8,582,000 and the Revolving Loan maximum commitment was
$91,418,000 depending on borrowing base availability. The December 31, 1997
amount available of $5,200,000 under the revolving credit facility was utilized
early in the first quarter of 1998 to cover outstanding short-term commitments,
primarily trade accounts payable. Interest on the Revolving Loan is payable
at either prime plus 1-1/2% or a Eurodollar rate, at the Company's option.
Interest on the Term Loan is payable at either prime plus 2% or a Eurodollar
rate, also at the Company's option. At December 31, 1997, the interest rates
ranged from 9.2% to 10.5%. Interest on the $2,000,000 note payable is at prime
plus 1% and was 9.5% at December 31, 1997.
- 42 -<PAGE>
Under terms of the Loan and Security Agreement the Company granted
security interests in accounts receivable and inventory to the participating
banks to support the Revolving Loan. The Term Loan is secured by certain Plant
and Equipment.
The Company has periodically amended its Loan and Security Agreement to
modify financial covenants relating to operating results and net worth. The
most recent amendment was effective March 27, 1998 when covenant violations
relating to 1997 were waived, and provisions relating to periods subsequent to
1997 were amended, as shown below.
Based on management's projections of future operations, management
believes it will be able to maintain compliance with the financial covenants
and ratios throughout 1998. The Company has received several waivers and
amendments from its banks in the past and while management believes it will be
able to receive waivers or amendments in the future, should the need arise,
there are no assurances that such waivers or amendments will be forthcoming.
The most restrictive provisions of the Company's loan agreements, as
amended, include the following:
A. The Company shall maintain specified consolidated adjusted net worth
levels as follows:
March 31, 1998 $26,000,000
June 30, 1998 26,000,000
September 30, 1998 29,000,000
December 31, 1998 31,600,000
Thereafter, as defined in the Loan and Security Agreement.
As of December 31, 1997 consolidated adjusted net worth, as defined in the
Loan and Security Agreement, was $28,205,000.
B. The Company will also maintain a Consolidated Fixed Charge Coverage Ratio,
as defined, determined as of the end of each quarter.
C. Payment of cash dividends on common stock is limited to 50% of cumulative
net earnings after March 31, 1994. As of December 31, 1997 no funds are
available for dividends on common stock and such funds are not likely to
be available in the foreseeable future.
The Company is also required to comply with various covenants relating to
limits on liabilities as defined in the Pollution Control Revenue Bonds. At
December 31, 1997, the Company was in compliance with these covenants. As part
of the modifications to the Restated Loan and Security Agreement
- 43 -<PAGE>
previously mentioned, in 1997 the Company received the approval of parties to
the Solid Waste Revenue Bonds to eliminate certain negative financial covenants
contained therein and to substitute therefore certain collateral. Subsequent
to that substitution, the only remaining negative financial covenant with
respect to the Solid Waste Revenue Bonds is that the Company may not without
the prior written consent of the Issuer of the Bonds (I) borrow from its
subsidiary, Laclede Chain Manufacturing Company, or (ii) take cash advances
from Laclede Chain Manufacturing Company, except to the extent that the
aggregate principal amount of all such borrowings and cash advances at any one
time do not exceed $7,000,000. Collateral granted to the Trustee of the Solid
Waste Revenue Bonds for the benefit of the bondholders consists of (i) all of
the issued and outstanding shares of Laclede Chain Manufacturing Company and
(ii) all of Laclede Chain Manufacturing Company's machinery and equipment now
owned or thereafter acquired. As of December 31, 1997, the Company is in
compliance with the remaining negative covenant contained in the Solid Waste
Revenue Bonds.
The Company has no compensating balance arrangements. Excluding the
Revolving Loan, aggregate maturities of long-term borrowings at December 31,
1997 for the next five years are as follows:
1998 $ 2,356,000
1999 2,411,000
2000 2,461,000
2001 10,241,000
2002 4,008,000
The Company estimates that the fair value of its long-term debt in the
aggregate approximates the carrying value at December 31, 1997 and 1996.
The Company is party to a Paying Agent Agreement in which the Paying Agent
assists the Company in purchasing certain raw material. The terms of this
agreement require the Company to pay a commission of 1.5% on all purchases
plus a fee on the invoice amount. Amounts purchased under this agreement are
included in accounts payable and amounted to $5,984,000 and $3,270,000 as of
December 31, 1997 and 1996, respectively.
Note 5
Employee Benefits:
Defined Benefit Pension Plan -
The Company has several non-contributory defined benefit pension plans
providing retirement benefits for substantially all employees. Benefits under
the plans are primarily based on years of service and employee's compensation
prior to retirement.
- 44 -<PAGE>
Annual pension plan funding is based on the range of deductible contributions
permitted by ERISA regulations, taking into account the Company's current income
tax situation.
The components of pension cost are as follows (thousands of dollars):
1997 1996 1995
Service cost $ 1,742 $ 2,111 $ 1,538
Interest cost on projected
benefit obligation 13,710 13,868 14,767
Actual return on plan assets (25,675) (19,996) (22,502)
Net amortization and deferral 19,917 13,596 14,921
Net periodic pension cost 9,694 9,579 8,724
Curtailment loss recognized -- 1,559 2,966
Total pension cost $ 9,694 $11,138 $ 11,690
In the fourth quarter of 1996 the Company presented an early retirement
incentive offer to certain hourly employees at the Alton Plant.
Approximately 90 employees elected to accept the offer and retired during the
quarter. In accordance with applicable accounting standards, the Company
recorded a non-cash charge of $1,559,000 representing a pension curtailment
loss and the cost of special termination benefits.
In the fourth quarter of 1995 the Company recorded a special restructuring
charge which included a $2,966,000 curtailment loss related to planned work
force reductions. See Note 6 to the Consolidated Financial Statements for
additional discussion.
The projected benefit obligations at December 31, 1997 and 1996 were
determined using assumed discount rates of 7.25% and 6.75%, respectively. The
assumed discount rate is based on market conditions and reflects annuity
purchase rates available to theoretically settle plan obligations. For all
plans other than the Alton Plant Hourly Employees' Plan, the average assumed
rate of increase in compensation levels was 2% for all years. Reflecting the
Labor Agreement for Alton hourly employees, a 1% rate of increase in
compensation was assumed for all years. The weighted average assumed long-term
rate of return on the market-related value of plan assets was 9.9% for 1997,
9.8% for 1996 and 9.9% for 1995.
- 45 -<PAGE>
A summary of the funded status of the plans is as follows (thousands of
dollars):
<TABLE>
<CAPTION>
December 31
1997 1996
Assets ExceedAccumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Total Benefits Exceed Assets Total
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value
of accumulated benefit
obligation:
Vested $ (7,384) $(179,470) $(186,854) $ (6,658) $(182,949) $(189,607)
Non-Vested (348) (8,256) (8,604) (367) (5,013) (5,380)
Total $ (7,732) $(187,726) $(195,458) $ (7,025) $(187,962) $(194,987)
Projected benefit
obligation $ (11,176) $(189,584) $(200,760) $ (9,386) $(190,657) $(200,043)
Plan assets at fair 11,374 137,332 148,706 9,320 121,013 130,333
value
Projected benefit
obligation(in excess of)
less than plan assets 198 (52,252) (52,054) (66) (69,644) (69,710)
Unrecognized net
obligation at transition
date, January 1, 1987 251 6,078 6,329 315 7,599 7,914
Unrecognized losses,
net 4,803 40,598 45,401 5,426 53,362 58,788
Unrecognized prior
service cost 189 7,655 7,844 (168) 5,720 5,552
Adjustment required to
recognize minimum
liability -- (52,520) (52,520) -- (64,008) (64,008)
Net pension cost
recorded on balance
sheet $ 5,441 $ (50,441) $ (45,000) $ 5,507 $ (66,971) $ (61,464)
</TABLE>
- 46 -
<PAGE>
In accordance with FASB Statement No. 87, the Company has recorded an
additional minimum pension liability for underfunded plans of $52,520,000 at
December 31, 1997 and $64,008,000 at December 31, 1996, representing the excess
of unfunded accumulated benefit obligations over previously recorded pension
cost liabilities. A corresponding amount is recognized as an intangible asset
except to the extent that these additional liabilities exceed related
unrecognized prior service cost and net transition obligation, in which case
the increase in liabilities is charged directly to stockholders' equity. The
principal cause of the reduction in underfunded pension liability is actual
return on plan assets in excess of the assumed rate of return in 1997. As of
December 31, 1997, the excess minimum liability was $37,869,000 and the
after-tax charge to equity was $23,479,000. As of December 31, 1996,
$49,543,000 of the excess minimum pension liability resulted in a charge to
equity, net of income taxes, of $30,717,000.
Profit Sharing Plan -
The Company maintains a defined contribution profit sharing thrift plan
covering a majority of its salaried employees. In 1996 the Plan was amended to
provide for a minimum Company contribution regardless of the level of Company
profitability. Company contributions for 1997 amounted to $259,000 and for
1996 amounted to $272,000. There was no profit sharing contribution for 1995.
Postretirement Medical Benefit Plans -
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for active and retired employees. A
significant portion of the Company's employees may become eligible for the
retiree benefits if they reach retirement age while working for the Company.
The components of net periodic postretirement medical benefit costs are as
follows (thousands of dollars):
1997 1996 1995
Service cost $ 452 $ 698 $ 638
Interest cost 3,731 4,522 5,708
Amortization of unrecognized
prior service credits (960) -- --
Amortization of unrecognized
net gain (1,420) (1,265) (215)
Net periodic cost 1,803 3,955 6,131
Curtailment loss recognized -- -- 1,089
Total cost $ 1,803 $3,955 $ 7,220
- 47 -<PAGE>
The reduction in cost in 1996 was due to favorable claims experience in
prior years. The 1997 cost reduction resulted from both plan and assumption
changes. The actual postretirement medical benefits paid amounted to
$5,721,000 in 1997, $5,603,000 in 1996 and $4,969,000 in 1995. See Note 6 for
discussion of curtailment loss.
A summary of the status of the plans is as follows (thousands of dollars):
December 31, December 31,
1997 1996
Accumulated postretirement
benefit obligation (APBO):
Retirees $ (43,249) $ (37,100)
Fully eligible active
employees (5,131) (9,044)
Other active employees (7,370) (7,692)
Total (55,750) (53,836)
Fair value of plan assets -- --
Funded status (55,750) (53,836)
Unrecognized prior service credits (7,845) (8,805)
Unrecognized net gain (12,269) (17,141)
Accrued postretirement
benefit cost $ (75,864) $ (79,782)
The increase in APBO as of December 31, 1997 relates to recent unfavorable
claims experience.
The assumed discount rate used to measure the APBO was 7.25% at December
31, 1997 and 1996. The assumed future health care cost trend rate for the
December 31, 1997 and 1996 calculations is 7.9%, gradually declining to 3.25%.
A one percentage point increase in the assumed health care cost trend rates for
each future year would have increased the aggregate of the service and interest
cost components of the net periodic postretirement benefit cost by $477,000 for
1997, $480,000 for 1996 and $603,000 for 1995, and would have increased the
APBO by $5,455,000 as of December 31, 1997 and $4,302,000 as of December 31,
1996.
Note 6
Restructuring, Asset Impairment and Other Charges:
In the fourth quarter of 1996 the company presented an early retirement
incentive offer to certain hourly employees at the Alton Plant.
Approximately 90 employees elected to accept the offer and retired during the
quarter. In accordance with
- 48-<PAGE>
applicable accounting standards, the Company recorded a non-cash charge of
$1,559,000 ($951,000 after taxes), representing a pension curtailment loss and
the cost of special termination benefits.
In December 1995, the Company recorded a non-cash charge of $18,422,000
($11,422,000 after taxes), relating to the restructuring of its operations,
asset impairments and inventory write-offs. This charge was primarily the
result of a decision to initiate the final phase of the Company's strategic
plan, leading to a restructuring of the steelmaking facilities at the Alton
Plant.
The new Ladle Furnace Facility became operational in the second quarter of
1996 and all steel is now produced using the more efficient continuous cast
method. The Company also ceased production of rods, and began purchasing
requirements for its wire operations on the open market, at a significant
reduction in costs. In connection with this restructuring, the Company also
shut down its Blooming Mill and Rod Mill operations.
As a result of this decision, non-cash accounting charges totaling
$15,780,000 were recorded, which are included in the $18,422,000 charge
mentioned above. These charges include $6,190,000 for recognition of impairment
loss for equipment and $4,565,000 for employee termination benefits and pension
and postretirement benefit curtailment losses. In addition inventories relating
to these operations have been written down by $5,025,000 to reduce their
carrying cost to their net realizable value.
The Company also recognized a charge of $2,642,000 related to inventory
write-downs in its tubular product operations, which are also part of the
$18,422,000 charge. This inventory adjustment, which reduces the carrying cost
to net realizable value, reflects higher second half production costs together
with significant reductions in selling prices for tubular
products during 1995.
Note 7
Interest Expense, Net:
Interest expense capitalized in 1996 and 1995 was $323,000 and $484,000,
respectively. No interest was capitalized in 1997.
- 49 -<PAGE>
Note 8
Quarterly Results of Operations (Unaudited):
The results of operations by quarter for 1997 and 1996 were as follows (in
thousands of dollars except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
1997 1996
Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $80,846 $78,722 $85,788 $79,673 $80,975 $86,436 $83,630 $84,340
Cost of products sold 73,870 71,180 77,163 77,357 76,058 83,245 80,836 76,815
Net sales less cost
of products sold $ 6,976 $ 7,542 $ 8,625 $ 2,316 $ 4,917 $ 3,191 $ 2,794 $ 7,525
Net earnings (loss) $ 135 $ 9 $ 521 $(3,672) $(2,031) $(3,045) $(3,390) $(1,519)
Basic and
fully diluted
net earnings (loss)
per share $ 0.01 $ (0.02) $ 0.11 $ (0.93) $ (0.50) $ (0.75) $ (0.84) $ (0.41)
</TABLE>
Note 9
Commitments And Contingencies:
The Company has non-cancelable operating leases for office space and
certain equipment through 2007. Future minimum lease commitments required under
these leases are as follows:
1998 $4,890,000
1999 4,635,000
2000 4,412,000
2001 3,037,000
2002 1,577,000
Thereafter 3,020,000
TOTAL $21,571,000
Rent expense under all leases in 1997, 1996 and 1995 was $4,254,000,
$3,528,000 and $2,777,000, respectively.
In 1996 the Company entered into a sale and leaseback transaction with a
third party for the Ladle Metallurgy Facility at Alton. The third party agreed
to purchase the equipment in 1996 for approximately $4,000,000 cash and a note
receivable for approximately $3,600,000 which was paid in January 1998 to
complete the lease transaction. The lease term is for five years starting
August 1, 1996 and continuing until June 30, 2001 with an option to purchase the
equipment at the expiration date.
- 50 -<PAGE>
There are various claims pending involving the Company and its subsidiaries
with respect to environmental, hazardous substance and other matters arising out
of the routine conduct of the business. Such claims either have not been
reduced to litigation or, if suit has been filed, are in the discovery stage.
Therefore the total liability on pending claims at December 31, 1997, if any,
cannot be determined.
The Company believes it has meritorious defenses with respect to all claims
and litigation and the ultimate disposition of such matters will not materially
affect its financial position or results of operations.
In connection with its Melt Shop operations the Company generates electric
furnace dust, which the Environmental Protection Agency (EPA) has designated as
a hazardous waste. The Company developed a modified closure plan which was
approved by the Illinois EPA. This plan provided for the closure of existing
electric furnace dust piles in place, and the project was completed in
1997. Because the project was completed at less than the cost reserve
previously established, a credit for $994,000 was recorded in the fourth quarter
of 1997.
Idled Property
In December 1997, the Company idled its High Temperature Metal Recovery
facility ("HTMR") after the facility became inoperable due to an accident. This
facility was used to dispose of the Company's EAF dust generated in the Alton
Facility. During 1998, management plans to dispose of the EAF dust through
alternative methods. Management plans to evaluate the HTMR facility
periodically to determine the economic feasibility of repairing and operating
the unit. If it is determined that the HTMR unit cannot function on an
economically feasible basis in the future, it is unlikely that the asset would
support its current carrying value which was approximately $15,300,000 as of
December 31, 1997, and a corresponding impairment write-down may be necessary.
Retirements
Executive retirements, including CEO John B. McKinney, in the first half of
1998 will result in non-cash charges of approximately $3,000,000 ($1,800,000
after recognition of tax benefits).
Note 10
Preferred Stock:
In July 1996 the Company issued 416,667 shares of Series A 6% preferred
stock to Ivaco Inc. and the executive officers of the Company for $6,090,000,
after expenses. This transaction resulted in an increase in capital
in excess of par value of
- 51 -<PAGE>
$6,006,667. On October 28, 1996, at a special meeting of the stockholders, an
amendment was approved to the Company's Certificate of Incorporation which
reduced the par value of each share of common stock from $13.33 per share to
$.01 per share and increased the number of authorized common stock shares from
5,000,000 shares to 25,000,000 shares. The stockholders also approved the
recapitalization of the Company's Series A 6% preferred stock. At such time
each share of the preferred stock became convertible into common stock at the
option of the holder at a conversion price of $3.20 into 4.69 shares of common
stock. In the event of voluntary or involuntary liquidation of the Company, the
holders of shares of Series A Preferred Stock are entitled to receive
liquidating distributions in the amount of $15.00 per share plus accrued and
unpaid dividends before payment is made to holders of common stock.
Note 11
Benwood Sale:
In February 1997, the Company sold the assets of its electric weld
structural and mechanical tubing operation, located in Benwood, West Virginia.
Cash proceeds from the sale of these assets, which consist primarily of
equipment and inventory, totaled approximately $11,000,000. The Company used
the funds from the sale to improve its working capital position. Sale of these
assets will not affect the Company's primary tubular business, continuous weld
pipe.
Note 12
Related-Party Transactions:
The Company has transactions in the normal course of business with Ivaco
Inc. or affiliated companies. As of December 31, 1997 Ivaco Inc. owned 24.88%
of the Company's outstanding common stock. In 1997 the Company purchased rods
at market prices totaling $5,502,000 from affiliates of Ivaco.
Prior to 1998, the Company participated in an insurance purchasing
arrangement with Ivaco. Under the terms of this arrangement Ivaco purchased
insurance on behalf of the Company and billed the Company for this insurance.
Amounts paid by the Company for this insurance amounted to $1,156,000,
$1,521,000 and $1,341,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Company also has transactions in the normal course of business with
Birmingham Steel or affiliated companies. As of December 31, 1997 Birmingham
Steel beneficially owned 50.26% of the Company's outstanding common stock which
includes the voting rights on the Ivaco investment discussed above. In 1997 the
Company purchased rods and participated in rod conversion arrangements with
affiliates of Birmingham Steel at market prices, which totaled $3,508,000. Also
in 1997, an affiliate of Birmingham Steel purchased semi-finished steel from the
Company at market prices totaling $643,000.
- 52 -<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board Of Directors
And Stockholders Of
Laclede Steel Company:
We have audited the accompanying consolidated balance sheets of Laclede
Steel Company and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Laclede Steel Company and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
March 27, 1998
St. Louis, Missouri
- 53 -<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
March 30, 1998 /s/ Thomas E. Brew, Jr.
Date Thomas E. Brew, Jr.
President
Principal Executive Officer
March 30, 1998 /s/ Michael H. Lane
Date Michael H. Lane
Vice President-Finance
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
March 30, 1998 /s/ Wayne P. E. Mang
Date Wayne P. E. Mang
Chairman of the Board
March 30, 1998 /s/ Joseph Alvarado
Date Joseph Alvarado
Director
March 30, 1998 /s/ Robert A. Garvey
Date Robert A. Garvey
Director
March 30, 1998 /s/ William R. Lucas, Jr.
Date William R. Lucas, Jr.
Director
March 28, 1998 /s/ Philip R. Morgan
Date Philip R. Morgan
Director
March 30, 1998 /s/ Robert H. Quenon
Date Robert H. Quenon
Director
March 23, 1998 /s/ George H. Walker III
Date George H. Walker III
Director
Effective
December 19, 1997
BY-LAWS
OF
LACLEDE STEEL COMPANY
ARTICLE I
Offices
The general offices of the Company shall be in the City of St.
Louis, State of Missouri, unless the Board of Directors shall otherwise
determine.
ARTICLE II
Stockholders Meetings
Section 1. Annual Meeting. The annual meeting of the
stockholders of the Company for the election of Directors and for the
transaction of such other business as may properly come before the meeting shall
be held in each year on such date as shall be specified by the Board of
Directors, but, unless so specified, shall be held on the third Thursday in May
in each year if not a legal holiday and, if a legal holiday, then on the next
succeeding business day. The annual meeting of stockholders shall be held at
the general offices of the Company in St. Louis, Missouri and shall be convened
at 9:00 a.m. unless the Board of Directors shall specify a different place at
which the meeting shall be held or a different hour at which the meeting shall
be convened.
Section 2. Special Meetings. Special meetings of the
stockholders may be called by the President or by resolution of the Board of
Directors whenever deemed necessary. In addition, special meetings of the
stockholders may be called upon the condition, by the person or persons and for
the purpose specified in Section 1 of Article III of these By-Laws. The
business transacted at any special meeting of the stockholders shall be confined
to the purpose or purposes specified in the notice therefor and to matters
germane thereto. Special meetings of the stockholders shall be held at the
general offices of the Company and shall be convened at 9:00 a.m. unless the
Board of Directors or the President or other person or persons, as the case may
be, calling the meeting shall specify a different place at which the meeting
shall be held or a different hour at which the meeting shall be convened.
Section 3. Notice. Notice of each meeting of the stockholders
stating the place, the date and the hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called shall
be mailed or caused to be mailed not less than ten days nor more than fifty days
before the date of the meeting by the Secretary at the direction of the
president or the Board of Directors or the person or persons calling the
meeting, to each stockholder of record entitled to vote at such meeting at his
address as it appears on the records of the Company. Notice may be waived, and
the presence of any stockholder in person or by proxy at any meeting shall
constitute a waiver of notice of such meeting except where a stockholder attends
a meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
Section 4. Quorum. A majority of the outstanding shares
entitled to vote at a meeting represented in person or by proxy shall constitute
a quorum at a meeting of the stockholders. Every decision of a majority of the
shares present, in person or by proxy, entitled to vote, provided a quorum is
present, shall be valid as a corporate act unless by reason of the particular
nature of such action a different vote is required by law or by the Certificate
of Incorporation of the Company.
Section 5. Adjournment. Any meeting of the stockholders may
adjourn from time to time until its business is completed. In the absence of a
quorum, a majority of the shares represented in person or by proxy shall have
the right successively to adjourn the meeting to a specified date. Any business
which may have been transacted at the meeting at which the adjournment is taken,
may be transacted at the adjourned meeting. No notice need be given of an
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken, provided that if the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 6. Voting. At all meetings of the stockholders each
outstanding share shall be entitled to one vote on each matter submitted to a
vote, but no share belonging to the Company shall be voted. In all elections for
Directors of the Company each stockholder shall be entitled to as many votes as
shall equal the number of votes which (except for this provision) he would be
entitled to cast for the election of Directors with respect to his shares of
stock multiplied by the number of Directors to be elected and he may cast all
such votes for a single Director or may distribute them among the number to be
voted for, or any two or more of them, as he may see fit. A stockholder may
vote either in person or by proxy executed in writing by the stockholder or by
his attorney-in-fact. No proxy shall be valid after three years from the date
of its execution unless otherwise provided in the proxy.
Section 7 . List of Stockholders. At least ten (10) days
before each meeting of the stockholders the Secretary of the Company shall make
a complete list of the stockholders entitled to vote at such meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall be
open to examination of any stockholder, for any purpose germane to the meeting
during ordinary business hours, for at least ten (10) days prior to the meeting
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. Such list shall also be produced and kept at
the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
Section 8. Inspectors. At any meeting of the stockholders at
which Directors are to be elected or vote of the stockholders is to be taken on
any proposition, the President or other person presiding at such meeting may
appoint not less than two persons, who are not Directors, inspectors to receive
and canvass the votes given at such meeting, and certify the results to him. In
all cases where the right to vote upon any share or shares shall be questioned,
it shall be the duty of the inspectors, if any, or persons conducting the vote
to require the stock ledger of the Company as evidence of shares held and the
question shall be determined in accordance with said stock ledger.
Section 9. Presiding Officer. The Chairman of the Board shall
preside at all meetings of the stockholders. In the absence of the Chairman,
the Board of Directors may designate a substitute chairman to preside at any
meeting of stockholders. At any meeting of stockholders, the Chairman, or in
his absence, the substitute chairman, if any, appointed by the Board of
Directors, may, from time to time, during such meeting, appoint a temporary
chairman to preside temporarily at such meeting.
Section 10. Special Meetings Called by Stockholders. A Special
Meeting of Stockholders may also be called by holders (the "Requesting Holders")
representing at least 25% of the outstanding shares entitled to vote at any
annual meeting of the stockholders or at any special meeting of the
stockholders. In order to exercise this right, the Requesting Holders must give
notice (the "Notice") to the Secretary of the Company, setting forth (i) the
subject matter to be considered at the Special Meeting (ii) the proposed record
date (the "Record Date") for the special Meeting (which shall be a least 15 days
after delivery of the Notice), (iii) the proposed date (the "Meeting Date") for
the Special Meeting and (iv) such other information as the Requesting Holders
shall reasonably request to be included in the Proxy Statement, Notice of
Special Meeting and Proxy (the "Proxy Materials") to be prepared by the Company
in connection with the Special Meeting. The business conducted at the Special
Meeting shall be limited to the matters set forth in the Notice. The Special
Meeting shall be held at the general offices of the Company unless another place
within the City of St. Louis shall be set by the Company, and shall be convened
at 9:00 A.M. (local time). The Company shall file with the Securities and
Exchange Commission (the "SEC") no later than 10 days after the Company receives
the Notice, preliminary Proxy Material (and use its best efforts to file
definitive Proxy Materials as soon as possible thereafter) or, if no preliminary
Proxy Materials are required to be filed, definitive Proxy Material, which Proxy
Material shall contain in all material respects the request or requests of the
Requesting Holders as set forth in the Notice. No later than two business days
after the definitive Proxy Materials are filed with the SEC, the Company shall
send the Proxy Materials to all stockholders of record on the Record Date. The
Company shall comply with all applicable laws relating to the Special Meeting.
If the number of days between the date of the mailing of the proxy Materials and
the Meeting Date is less than 30 days, the Company shall notify the Requesting
Holders and the Meeting Date shall be moved to the 30th day (or, if not a
business day, the next business day thereafter) following the commencement of
the mailing of the Proxy Materials to stockholders unless the Requesting Holders
request that the Meeting Date remain unchanged from the date set forth in the
Notice. If the Company is unable to comply as a matter of law with the Record
Date or the Meeting Date, the Company shall change such date to the first
business day thereafter as is legally permissible. Notwithstanding any
provision in the By-laws to the contrary, this Section 10 of Article II may only
be amended, altered or repealed by a vote of holders of 75% of the outstanding
shares entitled to vote at any annual meeting of the stockholders or at any
special meeting of the stockholders called for that purpose; provided, however,
the Requesting Holders may waive any obligation of the Company hereunder with
respect to the Special Meeting called by such Requesting Holders.
ARTICLE III
Board of Directors
Section 1. Number, Tenure and Vacancies. The property and
business of the Company shall be controlled and managed by a Board of Directors.
The Board of Directors shall consist of nine (9) persons who are stockholders of
the Company. Each director shall hold office until the annual meeting of the
stockholders next succeeding his election and until his successor shall be
elected and qualified. Election of directors shall be by written ballot.
Vacancies on the Board of Directors and newly created directorships resulting
from any increase in the authorized number of directors, shall be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Any director elected to fill a vacancy or to fill a
newly created directorship shall hold office until the next annual meeting, and
until his successor shall be elected and qualified. If at any time, by reason
of death or resignation or other cause, the Company shall have no directors in
office, then any officer or stockholder, or an executor, administrator, trustee
or guardian of a stockholder, or other fiduciary entrusted with like
responsibility for the person or estate of a stockholder, may call a special
meeting of stockholders for the purpose of electing directors. Notice of such
special meeting shall be given by the person or persons calling the meeting
herein before provided.
Section 2. Regular Meetings of Directors. Regular meetings of
the Board of Directors shall be held on such dates as the Board of Directors
may, from time to time, determine. No notice of any regular meeting of the
Board of Directors need be given.
Section 3. Special Meetings. Special meetings of the Board of
Directors may be called by the President any time and special meetings shall be
called by the President or the Secretary upon the written request of any four
Directors specifying the purpose or purposes for such special meeting. Written
notice of all special meetings of the Board of Directors stating the time, place
and purpose of the meeting shall be mailed on a date which is at least one day
before the date of the meeting and addressed to each Director at his address as
it appears on the records of the Company. Attendance of a Director at any
special meeting shall constitute a waiver of notice thereof except where a
Director attends the meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. A Director, either prior to or after any meeting, may waive notice
thereof, whether or not he attends the meeting, and such waiver may be in
writing or by telegram.
Section 4. Quorum. A majority of the Board of Directors shall
be required to be present at any meeting to constitute a quorum for the
transaction of business and, except as otherwise specifically provided in these
By-Laws, the concurring vote of at least a majority of the Directors at a
meeting at which a quorum is present shall be required to determine all
questions coming before the Board. In the absence of a quorum the Directors
present shall have the right successively to adjourn the meeting to a specified
date and no notice need be given of such adjournment. Members of the Board of
Directors may participate in a meeting by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can here each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 5. Presiding Officer. The Board shall by majority vote
select a member of the Board of Directors to serve as Chairman of the Board and
to preside at all meetings of the Board of Directors. In the absence of the
Chairman, the Board of Directors may designate a substitute chairman to preside
at any meeting of the Board of Directors. At any meeting of the Board of
Directors, the Chairman, or in his absence, the substitute chairman designated
by the Board of Directors, may, from time to time, during such meetings, appoint
a temporary chairman to preside at such meetings.
Section 6. Consents. Any action required or permitted to be
taken at any meeting of the Board of Directors, may be taken without a meeting
if all the members of the Board of Directors consent thereto in writing,
provided that the writing or writings shall be filed with the minutes of the
proceedings of the Board of Directors.
Section 7. Compensation. Directors as such shall receive such
compensation as the Board of Directors may from time to time determine.
Section 8. Fixing Record Date. In order to determine the
stockholders entitled to notice of or to vote at any meeting of the stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of shares of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
ARTICLE IV
Officers
Section 1. Number. The officers of the Company shall consist
of a President, one or more Vice Presidents, a Secretary, an Assistant
Secretary, a Treasurer, and an Assistant Treasurer, and in addition to the
above-named officers such other officers as the Board of Directors may, from
time to time, designate.
Section 2. Term. The officers shall hold office for a period
of one year or until their successors have been duly elected and qualified,
provided, however, that any officer or agent elected by the Board of Directors
may be removed by the Board and any such officer or agent, other than the
President, may be removed by the President, whenever in its or his judgment the
best interest of the Company will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person removed. Any
vacancy occurring among officers may be filled at any time by the Board of
Directors.
Section 3. Consolidation of Offices. Any two or more offices,
except President and a Vice President, President and Secretary, Secretary and
Assistant Secretary, and Treasurer and Assistant Treasurer, may be held by the
same person.
Section 4. Election. All officers shall be elected at the
first meeting of the Board of Directors held after the annual meeting of the
stockholders, or as soon thereafter as possible.
Section 5. Compensation. Officers shall receive such
compensation as may be fixed, from time to time, by the Board of Directors and
the fact that any officer shall also be a Director shall not preclude his
receiving compensation for his services as an officer.
ARTICLE V
Duties of Officers
Section 1. President. The President shall be a stockholder and
a member of the Board of Directors. He shall be the chief executive officer of
the Company and shall exercise general management over the affairs of the
Company and its property, subject to control by the Board of Directors. He
shall exercise such other powers and perform such other duties as are prescribed
by law, by these By-Laws, or by the Board of Directors and as are ordinarily
incident to the office of President.
Section 2. Vice President or Vice Presidents. The Vice
President or Vice Presidents shall exercise such powers and perform such duties
as may be elsewhere prescribed by these By-laws and as may be prescribed, from
time to time, by the Board of Directors or by the President.
Section 3. Secretary. The Secretary shall keep the minutes of
all meetings of the stockholders and of the Board of Directors, and shall attend
to the giving and serving of all notices as may be required by law or by these
By-Laws. He shall have in his custody the seal of the Company and shall affix
the same to deed, contracts and other instruments requiring the seal when duly
signed on behalf of the Company and he shall exercise such other powers and
perform such other duties as may be elsewhere prescribed in these By-Laws and as
may be prescribed, from time to time, by the Board of Directors or by the
President and as are ordinarily incident to the office of the Secretary.
Section 4. Assistant Secretary. The Assistant Secretary shall
perform the duties of the Secretary in the event of the death, disability or
absence of the Secretary and shall exercise such other powers and perform such
other duties as may be elsewhere prescribed in these By-Laws and as may be
prescribed, from time to time, by the Board of Directors or the President.
Section 5. Treasurer. The Treasurer shall have charge of all
books of account, funds, evidences of indebtedness and other securities of the
Company and shall deposit the funds belonging to the Company in the name of the
Company in such banks or trust companies as may be designated by the Board of
Directors. He shall keep full and accurate accounts of all transactions of the
Company and of money received and paid out. He shall make such reports to the
stockholders, the Board of Directors and the president as they may respectively
direct. He shall exercise such other powers and perform such other duties as
may be elsewhere prescribed in these By-Laws and as may be prescribed, from time
to time, by the Board of Directors or by the President and as are ordinarily
incident to the office of the Treasurer.
Section 6. Assistant Treasurer. The Assistant Treasurer shall
perform the duties of the Treasurer in the event of the death, disability or
absence of the Treasurer, and shall exercise such other powers and perform such
other duties as may be elsewhere prescribed in these By-Laws and as may be
prescribed, from time to time, by the Board of Directors or President.
Section 7. Additional Officers. The additional officers
designated by the Board of Directors shall exercise such powers and perform such
duties as may be prescribed, from time to time, by the Board of Directors or the
President and as are ordinarily incident to the office held by such additional
officers.
Section 8. Bonds. At the option of the Board of Directors, the
Treasurer or any other officer shall be required to give bond for the faithful
performance of his duties.
ARTICLE VI
Fiscal Year
The fiscal year of the Company shall commence on the first day
of January in each year.
ARTICLE VII
Certificates of Stock and Transfers
Section 1. Certificates. Each stockholder shall be entitled to
a certificate, certifying the number and character of shares owned by him. The
certificates shall be in such form as shall be approved by the Board of
Directors and shall be signed by, or in the name of the Company, by the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and sealed with the seal of the
Company, which seal may be facsimile, engraved or printed. The signatures of
the officers of the company may be facsimile on any stock certificates which are
countersigned by the Company's transfer agent or the Company's registrar. The
certificates, as they are issued, shall be consecutively numbered and registered
in the order of their issuance and shall be entered on the stock transfer books
of the Company as they are issued. Proper records shall be kept which shall
show the name and address of the owner of each certificate and the number of
shares issued to each stockholder and, in the case of cancellation, shall show
the date of such cancellation.
Section 2. Transfers. The shares of stock shall be
transferable only upon the books of the Company. Every transfer shall be by the
holder thereof in person or by attorney upon surrender and cancellation of the
outstanding certificates for the shares so transferred and upon proof
satisfactory to the Company that the person presenting such certificate is
legally entitled to transfer the same.
Section 3. Lost Certificates. In the event of the loss, theft,
or destruction of any stock certificate, a new certificate may be issued only
upon compliance with the following conditions. The owner of such lost, stolen,
or destroyed certificate shall file with the Secretary an affidavit stating the
number of the certificate, the number of shares represented thereby, the facts
with regard to the ownership of the certificate, and the circumstances
surrounding its loss, theft, or destruction. The Secretary shall present such
affidavit to the Board of Directors and if the Board of Directors shall be
satisfied that such certificate has been lost, stolen or destroyed and that a
new certificate ought to be issued in lieu thereof, the Board of Directors may
order a new certificate to be issued to such owner upon his filing with the
Company either (a) a bond in such penal sum and with such conditions and such
surety as the Board of Directors may prescribe, indemnifying the Company, its
Directors and officers against all expense, damage or liability which may be
occasioned by the issuance of a new certificate, or (b) a certificate of the
surety in a lost security blanket bond, which bond shall have been previously
approved by the Board of Directors, assuming liability under such bond, in such
penal sum as the Board of Directors may prescribe, with respect to the issuance
of a new certificate in lieu of the one alleged to have been lost, stolen, or
destroyed.
Section 4. Transfer and Registration Agents. The Board of
Directors may appoint a transfer agent or agents who shall have and exercise
supervision over the transfer of shares of stock and the issuance of stock
certificates, subject to such conditions and regulations as the Board of
Directors may prescribe; and the Board of Directors may appoint a registrar who
shall register all transfers of shares of stock and the issuance of stock
certificates, subject to such conditions and regulations as the Board shall
prescribe.
ARTICLE VIII
Seal
The corporate seal of the Company shall be in circular form and
bear the name of the Company arranged on the outer edge, with the word "Seal"
and the word "Delaware" also appearing thereon.
ARTICLE IX
Amendments to By-Laws
These By-Laws, or any of them, may be amended, altered or
repealed and new By-Laws adopted either (a) by the stockholders, (i) by vote of
the holders of two-thirds (2/3) of the outstanding shares entitled to vote at
any annual meeting of the stockholders or at any special meeting of the
stockholders called for that purpose in the case of an amendment, alteration or
repeal of this Article IX or of Section 1 of Article III of these By-Laws, and
(ii) by vote of the holders of a majority of the outstanding shares entitled to
vote at any annual meeting of the stockholders or at any special meeting of the
stockholder called for that purpose in any other case, or (b) by the Board of
Directors, by vote of a three-fourths majority of the whole board of Directors
of the Company except that the Board of Directors may not alter, amend or repeal
Article IX or Section 1 of Article III of these By-Laws.
ARTICLE X
Indemnification of Directors and Others
Section 1. Actions, Suits or Proceedings Other Than By or in
the Right of the Company. The Company shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or on the right of the Company) by reason
of the fact that he is or was or has agreed to become a director, officer,
employee or agent of the Company, or is or was serving or has agreed to serve at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, against
costs, charges, expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonable incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
Section 2. Actions or Suits By or in the Right of the
Corporation. The company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the company to procure a judgment in its favor by
reason of the fact that he is or was or has agreed to become a director,
officer, employee or agent of the Company, or is or was serving or has agreed to
serve at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action alleged to have been taken or omitted in such capacity,
against costs, charges, and expenses (including attorneys' fees) actually and
reasonably incurred by him or on his behalf in connection with the defense or
settlement of such action or suit and any appeal therefrom, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such costs, charges and expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. Indemnification for Costs, Charges and Expenses of
Successful Party. Notwithstanding the other provisions of this Article, to the
extent that a director, officer, employee or agent of the Company has been
successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of and
claim, issue or matter therein, he shall be indemnified against all costs,
charges and expenses (including attorneys' fees) actually and reasonably
incurred by him or on his behalf in connection therewith.
Section 4. Determination of Right to Indemnification. Any
indemnification under Sections 1 and 2 of this Article (unless ordered by a
court) shall be paid by the company unless a determination is made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders, that indemnification of the director, officer, employee or agent
is not proper in the circumstances because he has not met the applicable
standard of conduct set forth in Sections 1 and 2 of this Article.
Section 5. Advance of Costs, Charges and Expenses. Costs,
charges and expenses (including attorneys' fees) incurred by a person referred
to in Sections 1 and 2 of this Article in defending a civil or criminal action,
suit or proceeding shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding provided, however, that the
payment of such costs, charges and expenses incurred by a director or officer in
his capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer) in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of such director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director of officer is not entitled to be indemnified by
the Company as authorized in this Article. Such costs, charges and expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate. The Board of
Directors may, in the manner set forth above, and upon approval of such
director, officer, employee or agent of the Company, authorize the Company's
counsel to represent such person, in any action, suit or proceeding, whether or
not the company is a party to such action, suit or proceeding.
Section 6. Procedure for Indemnification. Any indemnification
under Sections 1, 2 and 3, or advance of costs, charges and expenses under
Section 5 of this Article, shall be made promptly, and in any event within 60
days, upon the written request of the director, officer, employee or agent. The
right to indemnification or advances as granted by this Article shall be
enforceable by the director, officer, employee or agent in any court of
competent jurisdiction, if the Company denies such request, in whole or in part,
or if no disposition thereof is made within 60 days. Such person's costs and
expenses incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the Company. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advance of costs, charges and
expenses under Section 5 of this Article where the required undertaking, if any,
has been received by the Company) that the claimant has not met the standard of
conduct set forth in Sections 1 and 2 of the Article but the burden of proving
such defense shall be on the Company. Neither the failure of the Company
(including its Board of Directors, its independent legal counsel, and its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in Sections 1 or
2 of this Article, nor the fact that there has been an actual determination by
the Company (including its Board of Directors, independent legal counsel and its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 7. Other Rights; Continuation of Right to
Indemnification. The indemnification and advancement of expenses provided by
this Article shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under any law (common or statutory),
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and to action in another capacity while
holding such office or while employed by or acting as agent for the Company and
shall continue as to a person who has ceased to be a director, officer, employee
or agent, and shall inure to the benefit of the estate, heirs, executors and
administrators of such person. All rights to indemnification under this Article
shall be deemed to be a contract between the Company and each director, officer,
employee or agent of the Company who serves or served in such capacity at any
time while this Article is in effect. Any repeal or modification of this Article
or any repeal or modification of relevant provisions of the Delaware General
Corporation law or any other applicable laws shall not in any way diminish any
rights to indemnification of such director, officer, employee or agent or the
obligations of the company arising thereunder.
Section 8. Savings Clause. If this Article or any portion
thereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Company shall nevertheless indemnify each director,
officer, employee and agent of the Company as to costs, charges and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, including any action by or in the right of the
Company, to the full extent permitted by any applicable portion of the company's
Articles of Incorporation or of this Article which shall not have been
invalidated and to the full extent permitted by applicable law.
AMENDMENT NO. 1
TO
LOAN AND SECURITY AGREEMENT
DATED AS OF SEPTEMBER 7, 1994
AMENDED AND RESTATED
AS OF AUGUST 20, 1997
THIS AMENDMENT NO. 1 dated as of December 30, 1997 (this
"Amendment") is entered into among BANKAMERICA BUSINESS CREDIT, INC., a Delaware
corporation ("BABC"), BNY FINANCIAL CORPORATION, a New York corporation ("BNY")
formerly known as The Bank of New York Commercial Corporation, NATIONSBANK,
N.A., a national banking association ("NB") (BABC, BNY and NB and their
respective successors and assigns being sometimes hereinafter referred to
collectively as the "Lenders" and each of BABC, BNY and NB and its successors
and assigns being sometimes hereinafter referred to individually as a "Lender"),
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, as agent for the
Lenders (in such capacity as agent, the "Agent"), LACLEDE STEEL COMPANY, a
Delaware corporation (the "Parent"), LACLEDE CHAIN MANUFACTURING COMPANY, a
Delaware corporation ("Laclede Chain"), and LACLEDE MID AMERICA INC., an Indiana
corporation ("Laclede Mid America") (the Parent, Laclede Chain and Laclede Mid
America being sometimes hereinafter referred to collectively as the "Borrowers"
and each of the Parent, Laclede Chain and Laclede Mid America being sometimes
hereinafter referred to individually as a "Borrower").
W I T N E S S E T H:
WHEREAS, the Borrowers, the Lenders and the Agent are parties to
a certain Loan and Security Agreement dated as of September 7, 1994 and amended
and restated as of August 20, 1997 (the "Loan Agreement," capitalized terms used
herein without definition having the meanings given such terms in the Loan
Agreement); and
WHEREAS, the Borrowers, the Lenders and the Agent have agreed to
amend the Loan Agreement on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises set forth
above, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrowers, the Lenders and the
Agent hereby agree as follows:
Section 1. Amendment of the Loan Agreement. Subject to the
fulfillment of the conditions precedent set forth in Section 3 below, the Loan
Agreement is amended as follows:
(a) The definition of Consolidated Earnings contained in
Section 1.2 is amended to delete the words "performance fee referred to
in Section 3.10" in their entirety and to substitute the words "fee
payable pursuant to Amendment No. 1 hereto dated December 30, 1997"
therefor.
(b) Section 4.2 (Termination of Revolver Facility) is
amended to delete the amount (i) "$950,000" in the chart contained
therein and to substitute the amount "$1,250,000" therefor, and (ii)
"$750,000" in the chart contained therein and to substitute the amount
"$1,050,000" therefor.
(c) Section 8.24 (Consolidated Fixed Charge Coverage Ratio)
is amended to delete the period "01/01/97-12/31/97" and corresponding
ratio "0.80 to 1.00" from the chart contained therein.
(d) Section 8.25 is hereby amended and restated as follows:
8.25 Consolidated Adjusted Net Worth. The Borrowers will
maintain a Consolidated Adjusted Net Worth, determined as of the last
day of each fiscal quarter in each Fiscal Year, in an amount which is
not less than the sum of (a) the aggregate amount of any contributions
to the capital of the Parent made after February 26, 1997 plus (b) the
amount indicated opposite each of the following dates:
Quarter Ending Date Amount
03/31/97 $31,000,000
06/30/97 $31,000,000
09/30/97 $31,500,000
12/31/97 $30,000,000
03/31/98 $30,000,000
06/30/98 $30,000,000
09/30/98 $30,700,000
12/31/98 $31,600,000
In addition, the pre-tax loss for the Parent and its consolidated
Subsidiaries for the Fiscal Year ending December 31, 1997, determined in
accordance with GAAP (but excluding gain or loss arising from
extraordinary items) and reported on the Financial Statements, shall not
exceed $1,750,000.
Beginning with the fiscal quarter ending March 31, 1999, the Borrowers
will maintain a Consolidated Adjusted Net Worth, calculated as of the
last day of each fiscal quarter in each Fiscal Year, of not less than
the sum of (a) the aggregate amount of any contributions to the capital
of the Parent made after February 26, 1997, plus (b) $31,600,000, plus
(c) an amount (to the extent greater than zero and without deduction for
any losses) equal to the sum of (i) fifty percent (50.0%) of the amount
by which Consolidated Adjusted Net Worth at December 31, 1998 exceeds
$31,600,000, plus (ii) fifty percent (50.0%) of Consolidated Net
Earnings for each Fiscal Year thereafter.
Section 2. Waiver. Subject to the fulfillment of the
conditions precedent set forth in Section 3 below, the Lenders and the Agent
hereby waive any right to receive a performance fee pursuant to the terms of
Section 3.10 of the Loan Agreement.
Section 3. Conditions to Amendment. This Amendment shall
become effective upon the satisfaction of the following conditions precedent:
(a) receipt by the Agent by facsimile transmission of a
counterpart of this Amendment executed by each Borrower and each Lender,
and execution of this Amendment by the Agent (provided, that each
Borrower and each Lenders shall promptly execute six applicable
signature pages hereof and deliver such pages to the Agent); and
(b) receipt by the Agent, for the ratable account of the
Lenders, of a fee in the amount of $250,000.
Section 4. Representations and Warranties. Each Borrower
hereby represents and warrants that (i) this Amendment constitutes a legal,
valid and binding obligation of such Borrower, enforceable against such Borrower
in accordance with its terms, (ii) the representations and warranties contained
in the Loan Agreement are correct in all material respects as though made on and
as of the date of this Amendment, and (iii) no Event of Default has occurred and
is continuing.
Section 5. Reference to and Effect on the Loan Agreement.
(a) Upon the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder", "hereof",
"herein", or words of like import shall mean and be a reference to the Loan
Agreement, as amended hereby, and each reference to the Loan Agreement in any
other document, instrument or agreement executed and/or delivered in connection
with the Loan Agreement shall mean and be a reference to the Loan Agreement, as
amended hereby.
(b) Except as specifically amended above, the Loan
Agreement and all other documents, instruments and agreements executed and/or
delivered in connection therewith shall remain in full force and effect and are
hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of the
Agent or the Lenders under the Loan Agreement, nor constitute a waiver of any
provision of the Loan Agreement, except as specifically set forth herein.
Section 6. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
Section 7. Governing Law. This Amendment shall be governed by
and construed in accordance with the internal laws (as opposed to the conflicts
of laws provisions) of the State of Illinois.
Section 8. Legal Fees. The Borrowers agree to pay to the
Agent, for its benefit, on demand, all costs and expenses that the Agent pays or
incurs in connection with the negotiation, preparation, consummation,
administration, enforcement and termination of this Amendment, including,
without limitation, the allocated costs of the Agent's in-house counsel fees.
<PAGE>
Section 9. Section Titles. The section titles contained in
this Amendment are and shall be without substance, meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of December 30, 1997.
LACLEDE STEEL COMPANY
By:________________________________
Vice President
LACLEDE CHAIN MANUFACTURING COMPANY
By:________________________________
Vice President
LACLEDE MID AMERICA INC.
By:________________________________
Vice President
<PAGE>
BANKAMERICA BUSINESS CREDIT, INC., as the Agent
By:________________________________
Vice President
BANKAMERICA BUSINESS CREDIT,
INC., as a Lender
By:________________________________
Vice President
BNY FINANCIAL CORPORATION, as
a Lender
By:________________________________
Vice President
NATIONSBANK, N.A., as a Lender
By:________________________________
Vice President
AMENDMENT NO. 2
TO
LOAN AND SECURITY AGREEMENT
DATED AS OF SEPTEMBER 7, 1994
AMENDED AND RESTATED
AS OF AUGUST 20, 1997
THIS AMENDMENT NO. 2 dated as of March 27, 1998 (this
"Amendment") is entered into among BANKAMERICA BUSINESS CREDIT, INC., a Delaware
corporation ("BABC"), BNY FINANCIAL CORPORATION, a New York corporation ("BNY")
formerly known as The Bank of New York Commercial Corporation, NATIONSBANK,
N.A., a national banking association ("NB") (BABC, BNY and NB and their
respective successors and assigns being sometimes hereinafter referred to
collectively as the "Lenders" and each of BABC, BNY and NB and its successors
and assigns being sometimes hereinafter referred to individually as a "Lender"),
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, as agent for the
Lenders (in such capacity as agent, the "Agent"), LACLEDE STEEL COMPANY, a
Delaware corporation (the "Parent"), LACLEDE CHAIN MANUFACTURING COMPANY, a
Delaware corporation ("Laclede Chain"), and LACLEDE MID AMERICA INC., an Indiana
corporation ("Laclede Mid America") (the Parent, Laclede Chain and Laclede Mid
America being sometimes hereinafter referred to collectively as the "Borrowers"
and each of the Parent, Laclede Chain and Laclede Mid America being sometimes
hereinafter referred to individually as a "Borrower").
W I T N E S S E T H:
WHEREAS, the Borrowers, the Lenders and the Agent are parties to
a certain Loan and Security Agreement dated as of September 7, 1994, amended and
restated as of August 20, 1997 and amended by that certain Amendment No. 1 dated
as of December 23, 1997 (the "Loan Agreement," capitalized terms used herein
without definition having the meanings given such terms in the Loan Agreement);
and
WHEREAS, the Borrowers, the Lenders and the Agent have agreed to
amend the Loan Agreement on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises set forth
above, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrowers, the Lenders and the
Agent hereby agree as follows:
Section 1. Amendment of the Loan Agreement. Subject to the
fulfillment of the conditions precedent set forth in Section 3 below, the Loan
Agreement is amended as follows:
(a) Section 8.24 is amended and restated as follows:
8.24 Consolidated Fixed Charge Coverage Ratio. The Borrowers
will maintain a Consolidated Fixed Charge Coverage Ratio, determined as
of the end of each period listed below, for the period indicated of not
less than the ratio indicated opposite such period:
Period Ratio
01/01/98 - 03/31/98 0.45 to 1.00
01/01/98 - 06/30/98 0.55 to 1.00
01/01/98 - 09/30/98 0.65 to 1.00
01/01/98 - 12/31/98 0.80 to 1.00
01/01/99 - 03/31/99 0.90 to 1.00
01/01/99 - 06/30/99 0.90 to 1.00
01/01/99 - 09/30/99 0.80 to 1.00
01/01/99 - 12/31/99 0.90 to 1.00
01/01/00 - 03/31/00 0.95 to 1.00
01/01/00 - 06/30/00 0.95 to 1.00
01/01/00 - 09/30/00 0.85 to 1.00
01/01/00 - 12/31/00 0.95 to 1.00
and commencing on
03/31/01 and as of
the last day of each
fiscal quarter in each
Fiscal Year thereafter,
for the twelve-month
period ending on such
date 0.95 to 1.00
For purposes of this Section 8.24, the Consolidated Fixed Charge
coverage Ratio shall be calculated without giving effect to a noncash
charge to the Parent's earnings and net worth during 1998, not to exceed
$3,000,000, for the early retirement of two key employees.
(b) Section 8.25 is amended and restated as follows:
8.25 Consolidated Adjusted Net Worth. The Borrowers will
maintain a Consolidated Adjusted Net Worth, determined as of the last
day of each fiscal quarter in each Fiscal Year, in an amount which is
not less than the sum of (a) the aggregate amount of any contributions
to the capital of the Parent made after February 26, 1997 plus (b) the
amount indicated opposite each of the following dates:
Quarter Ending Date Amount
03/31/98 $26,000,000
06/30/98 $26,000,000
09/30/98 $29,000,000
12/31/98 $31,600,000
Beginning with the fiscal quarter ending March 31, 1999, the Borrowers
will maintain a Consolidated Adjusted Net Worth, calculated as of the
last day of each fiscal quarter in each Fiscal Year, of not less than
the sum of (a) the aggregate amount of any contributions to the capital
of the Parent made after February 26, 1997, plus (b) $31,600,000, plus
(c) an amount (to the extent greater than zero and without deduction for
any losses) equal to the sum of (i) fifty percent (50.0%) of the amount
by which Consolidated Adjusted Net Worth at December 31, 1998 exceeds
$31,600,000, plus (ii) fifty percent (50.0%) of Consolidated Net
Earnings for each Fiscal Year thereafter.
For purposes of this Section 8.25, the Consolidated Adjusted Net Worth
shall be calculated without giving effect to a noncash charge to the
Parent's earnings and net worth during 1998, not to exceed $3,000,000,
for the early retirement of two key employees.
Section 2. Waiver; Margin Increase. (a) Subject to the
fulfillment of the conditions precedent set forth in Section 3 below, the
Lenders and the Agent hereby waive the Event of Default arising from the
Borrowers' failure pursuant to Section 8.25 to (i) have a Consolidated Adjusted
Net Worth, in accordance with such Section, as of December 31, 1997, of not less
than $30,000,000 (provided, that such Consolidated Adjusted Net Worth shall not
be less than $28,000,000), and (ii) have a pre-tax loss, in accordance with such
Section, for the Fiscal Year ending December 31, 1997, of not more than
$1,750,000 (provided, that such pre-tax loss shall not exceed $4,900,000).
(b) Effective as of April 1, 1998, each of the Margins shall be
increased by one half of one percent (0.50%) per annum.
(i) (A) In the event that the Borrowers shall have (i) a
Consolidated Fixed Charge Coverage ratio (calculated in accordance with
Section 8.24, as amended by this Amendment) for the period 01/01/98 -
06/30/98, of not less than 0.61 to 1.00, and (ii) Consolidated Adjusted
Net Worth (calculated in accordance with Section 8.25, as amended by
this Amendment), determined as of 06/30/98, of not less $26,914,000,
each of such increased Margins shall be reduced by one quarter of one
percent (0.25%) per annum, effective on August 1, 1998.
(B) In the event that the Borrowers shall not qualify for the
reduction described in the immediately preceding subparagraph (i)(A),
such reduction shall become effective on November 1, 1998 in the event
that the Borrowers shall have (i) a Consolidated Fixed Charge Coverage
ratio (calculated in accordance with Section 8.24, as amended by this
Amendment) for the period 01/01/98 - 09/30/98, of not less than 0.69 to
1.00, and (ii) Consolidated Adjusted Net Worth (calculated in accordance
with Section 8.25, as amended by this Amendment), determined as of
09/30/98, of not less $29,861,000.
(ii) In addition to the maximum reduction of one quarter of one percent
(0.25%) per annum pursuant to the foregoing subparagraph (i), such
increased Margins shall be reduced by one quarter of one percent (0.25%)
per annum on the first day of the first calendar month following the
Agent's receipt of financial statements as of the end of a fiscal
quarter demonstrating that the Borrowers would be in compliance with
Sections 8.24 and 8.25 of the Loan Agreement, as such Sections existed
prior to this Amendment (but calculated without giving effect to a
noncash charge to the Parent's earnings and net worth during 1998, not
to exceed $3,000,000, for the early retirement of two key employees).
Section 3. Conditions to Amendment. This Amendment shall
become effective upon the receipt by the Agent by facsimile transmission of a
counterpart of this Amendment executed by each Borrower and each Lender, and
execution of this Amendment by the Agent (provided, that each Borrower and each
Lenders shall promptly execute six applicable signature pages hereof and deliver
such pages to the Agent).
Section 4. Representations and Warranties. Each Borrower
hereby represents and warrants that (i) this Amendment constitutes a legal,
valid and binding obligation of such Borrower, enforceable against such Borrower
in accordance with its terms, (ii) the representations and warranties contained
in the Loan Agreement are correct in all material respects as though made on and
as of the date of this Amendment, and (iii) no Event of Default has occurred and
is continuing.
Section 5. Reference to and Effect on the Loan Agreement.
(a) Upon the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder", "hereof",
"herein", or words of like import shall mean and be a reference to the Loan
Agreement, as amended hereby, and each reference to the Loan Agreement in any
other document, instrument or agreement executed and/or delivered in connection
with the Loan Agreement shall mean and be a reference to the Loan Agreement, as
amended hereby.
(b) Except as specifically amended above, the Loan
Agreement and all other documents, instruments and agreements executed and/or
delivered in connection therewith shall remain in full force and effect and are
hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of the
Agent or the Lenders under the Loan Agreement, nor constitute a waiver of any
provision of the Loan Agreement, except as specifically set forth herein.
Section 6. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
Section 7. Governing Law. This Amendment shall be governed by
and construed in accordance with the internal laws (as opposed to the conflicts
of laws provisions) of the State of Illinois.
Section 8. Legal Fees. The Borrowers agree to pay to the
Agent, for its benefit, on demand, all costs and expenses that the Agent pays or
incurs in connection with the negotiation, preparation, consummation,
administration, enforcement and termination of this Amendment, including,
without limitation, the allocated costs of the Agent's in-house counsel fees.
<PAGE>
Section 9. Section Titles. The section titles contained in
this Amendment are and shall be without substance, meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of March 27, 1998.
LACLEDE STEEL COMPANY
By:________________________________
Vice President
LACLEDE CHAIN MANUFACTURING COMPANY
By:________________________________
Vice President
LACLEDE MID AMERICA INC.
By:________________________________
Vice President
<PAGE>
BANKAMERICA BUSINESS CREDIT, INC., as the Agent
By:________________________________
Vice President
BANKAMERICA BUSINESS CREDIT,
INC., as a Lender
By:________________________________
Vice President
BNY FINANCIAL CORPORATION, as
a Lender
By:________________________________
Vice President
NATIONSBANK, N.A., as a Lender
By:________________________________
Vice President
AMENDMENT TO RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDMENT TO RESTATED EMPLOYMENT AGREEMENT ("Amendment") is made
and entered into as of the 24th day of March, 1998, by and between LACLEDE STEEL
COMPANY, a Delaware corporation ("Employer"), and MICHAEL H. LANE ("Employee").
WHEREAS, Employee and Employer previously entered into an employment
agreement as of the 19th day of October, 1994 that was most recently restated on
the 30th day of July, 1996 ("Restated Employment Agreement"); and
WHEREAS, Employee and Employer desire to amend the Restated Employment
Agreement by making the amendments stated herein and as amended, to reaffirm
Employee's Restated Employment Agreement; and
WHEREAS, Employee and Employer desire to set forth the terms of
Employee's continued employment with Employer and the terms of the separation of
Employee from Employer's employ at the end of such employment;
NOW, THEREFORE, in consideration of the foregoing and the promises and
agreements herein contained, the parties agree as follows:
A. Employee shall continue as Vice-President Finance, Treasurer
& Secretary and as Chief Financial Officer.
B. The term of Employee's employment under Employee's Restated
Employment Agreement is changed to the earlier of (a) one hundred eighty (180)
days from the date of this Amendment or (b) such earlier date as shall be
determined by the President of Employer by giving written notice to Employee.
In either case the date of the termination of Employee's
Restated Employment Agreement is hereafter referred to as
Employee's "Agreement Termination Date." Notwithstanding Employee's
Agreement Termination Date or anything contained in Employee's Key
Employee Retirement Agreement with Employer (Employee's "KERP"),
Employer and Employee agree that Employee shall receive a lump sum payment
of Employee's Accrued Benefit on the later of August 2, 1999 or twelve (12)
months after Employee's Agreement Termination Date (Employee's "KERP Payment
Date").
Until Employee's KERP Payment Date, Employee shall be
considered an active employee of Employer.
C. Until Employee's Agreement Termination date, Employer shall
continue to pay Employee monthly compensation of $20,292.00
("Monthly Payment" and in the plural "Monthly Payments") reduced by
applicable employment taxes, at the same time and in the same manner as
Employer pays its other officers.
D. During Employee's employment with Employer, Employer shall
provide Employee with such fringe benefits as are made available by
Employer from time to time to other employees of Employer at Employee's level
of employment; provided however, that benefits paid to Employee
shall in all events include Employee's leased automobile, Employee's tax
assistance program, health and disability insurance (collectively the
"Benefits").
E. After Employee's Agreement Termination Date Employer shall
pay Employee Monthly Payments (or in the case of a period of less
than one month, the pro rata portion of the Monthly Payment for such
period based on a thirty (30) day month) for the greater period of (a) each
month from Employee's Agreement Termination Date through August 2, 1999,
or (b) each month for twelve (12) months from Employee's Agreement
Termination Date.
The total of such Monthly Payments, as applicable, are
hereafter referred to as the "Sum of Monthly Payments". If Employee remains in
the employ of Employer for at least one hundred eighty (180) days from the
date of this Amendment then in lieu of paying the Monthly Payments to
Employee each month as set forth above, the Sum of Monthly Payments shall be
paid in two (2) equal installments. In such case, the first installment
shall be paid
on the first working day after Employee's Agreement Termination
Date and the final installment shall be paid three (3) months after
Employee's Agreement Termination Date. Monthly Payments and the Sum of
Monthly Payments shall be reduced only by applicable employment taxes
normally deducted from Employee's wages.
F. Employee shall be entitled to receive the Benefits through
Employee's KERP Payment Date.
G. After Employee's KERP Payment Date Employee shall be
eligible to participate in the Laclede Retired Salaried Medical Plan, as
such Plan may be amended from time to time by Employer.
H. After Employee's KERP Payment Date medical benefits now
payable for the benefit of Employee's dependent daughter, Kelly Lane,
under the Laclede Salaried Employee Medical Plan, as referenced in the
attached letter from General American Life Insurance Company, shall be
provided under the Laclede Retired Salaried Medical Plan, as such Plan
may be amended from time to time, so long as such benefits are
recommended by General American Life Insurance Company or its independent case
manager, or the successors of either of them.
I. Any notice to Employer hereunder shall be addressed as
follows:
Laclede Steel Company
Attn: President
15th Floor
One Metropolitan Square
St. Louis, Missouri 63102
Any notice to Employee hereunder shall be made addressed as
follows:
Michael H. Lane
3708 Sunset Chase
St. Louis, Missouri 63127
J. Except as expressly amended by this Amendment the Restated
Employment Agreement is hereby ratified in all respects. If any provision of
this Amendment is inconsistent with any provision of the Restated Employment
Agreement, then this Amendment shall govern.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
____________________________
MICHAEL H. LANE
"Employee"
LACLEDE STEEL COMPANY
By: _________________________
Thomas E. Brew, Jr.,
President
"Employer"
EXHIBIT (21)
Subsidiaries of Registrant
Laclede Chain Manufacturing Company - wholly-owned.
Laclede Mid America Inc. - 96.66% owned.
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<SALES> 325,029
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