<PAGE> 1
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
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OF 1934
For the fiscal year ended SEPTEMBER 30, 1999
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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
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LACLEDE STEEL COMPANY
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(Exact name of Registrant as specified in its charter)
DELAWARE 43-0368310
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
440 NORTH 4TH STREET
SUITE 300
ST. LOUIS, MISSOURI 63102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 425-1400
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
$.01 PAR VALUE, COMMON STOCK
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(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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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 December 6, 1999 the aggregate market
value of voting stock held by non-affiliates of the Registrant was approximately
$1,750,000.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
NONE
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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 semifinished 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.
PROCEEDINGS UNDER CHAPTER 11
On November 30, 1998, the Company and its subsidiaries, Laclede Chain
Manufacturing Company and Laclede Mid America, Inc., filed voluntary petitions
seeking reorganization under Chapter 11 of the United States Bankruptcy Code
(the "Bankruptcy Code") in the United States Bankruptcy Court for the Eastern
District of Missouri (the "Bankruptcy Court"). These petitions are being jointly
administered under Case Numbers 98-53121-399, 98-53122-399 and 98-53123-399,
pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure. The
Company is in possession of its properties and assets and continues to operate
with its existing directors and officers as debtors-in-possession. As
debtors-in-possession, the Company is authorized to operate its business, but
may not engage in transactions outside of the normal course of business without
approval, after notice and hearing, of the Bankruptcy Court.
Pursuant to the provisions of the Bankruptcy Code, as of the petition date
actions to collect pre-petition indebtedness owed by the Company are stayed and
other pre-petition contractual obligations may not be enforced against the
Company. In addition, as debtors-in-possession, the Company has the right,
subject to the Bankruptcy Court's approval and certain other conditions, to
assume or reject any pre-petition executory contracts and unexpired leases.
Parties affected by these rejections may file claims with the Bankruptcy Court
in accordance with the reorganization process. The Bankruptcy Court has approved
payment of certain pre-petition liabilities such as employee wages and benefits.
Furthermore, the Bankruptcy Court has allowed for the retention of legal and
financial professionals.
The Bankruptcy Court has approved an $85 million debtor-in-possession
financing facility provided by a Bank Group led by BankAmerica Business Credit
(the "DIP Facility"). The DIP Facility has provided it with the cash and
liquidity to conduct its operations while it prepares a reorganization plan. The
Company intends to present a plan of reorganization to the Bankruptcy Court to
reorganize the Company's businesses and to restructure the Company's
obligations. Under the provisions of the Bankruptcy Code, the Company had the
exclusive right to file such plan at any time during the 120-day period
following November 30, 1998. The exclusive filing time period has been extended
by the Bankruptcy Court at the Company's request to January 31, 2000.
GENERAL
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.
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The Company produces semi-finished steel at its Alton, Illinois Plant.
Annual steelmaking capacity is estimated at 680,000 net tons. To improve
productivity the Company is utilizing one electric furnace, which reduces
production capacity to approximately 580,000 net tons per year. The Company
purchases rods for its wire mill and the welded chain operation.
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 shares of the Company. Ivaco has provided Midwest Holdings
with a limited right of first refusal with respect to such interests until
September 24, 2002. At September 30, 1999 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:
<TABLE>
<CAPTION>
Fiscal Nine-Month
Year Ended Transition Period Ended Year Ended
September 30, 1999 September 30, 1998 December 31, 1997
------------------ ------------------ -----------------
(Thousands of Dollars)
----------------------
<S> <C> <C> <C>
Net Sales $ 241,582 $ 232,289 $ 325,029
========= ========= =========
Net Loss $ (21,353) $ (83,812) $ (3,007)
========= ========= =========
Identifiable Assets $ 190,071 $ 216,191 $ 313,820
========= ========= =========
</TABLE>
(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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The following table presents, for the periods indicated, the percentage of
the Company's total sales by product class:
<TABLE>
<CAPTION>
Nine-Month
Fiscal Transition Period
Year Ended Ended Year Ended
September 30, 1999 September 30, 1998 December 31, 1997
------------------ ------------------ -----------------
Product
-------
<S> <C> <C> <C>
Pipe and Tube 34.4% 35.5% 38.0%
Hot Rolled 41.1% 44.0% 37.8%
Wire 11.1% 11.8% 14.8%
Chain 13.4% 8.7% 9.4%
---- --- ---
Total 100% 100% 100%
=== === ===
</TABLE>
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.
The Company is one of only three full line producers of CBW pipe in the
United States, due in part to the Company's lease from former competitor USX
Corporation of its pipe manufacturing facilities at the Fairless Facility.
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.
Hot Rolled Products. The Company's hot rolled products are produced at the
Alton Plant and consist primarily of special quality bars ("SBQ") 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 products are currently manufactured and finished at the Company's
Fremont, Indiana Facility. 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 Company closed its Memphis, Tennessee wire mill in 1998 and sold a
large portion of the assets, including its wire manufacturing equipment located
in Memphis.
Chain Products. Laclede Chain Manufacturing Company, one of the Company's
wholly owned subsidiaries, produces welded chain and also imports a significant
amount of chain for resale. Approximately 50% of its annual sales are
attributable to sales of anti-skid devices for trucks and
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automobiles. The balance of the Company's chain products sales are in the
hardware and industrial chain business.
At September 30, 1999 the Company had an estimated sales backlog of
approximately $15 million. 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 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.
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. Because of the bankruptcy filing, and liquidity
issues, the Company's capital expenditures were minimal in recent years. 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 primarily driven by competitive factors.
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 increased in 1998 and early 1999 to unprecedented levels,
declining somewhat in recent months. Foreign competition may further increase in
the future, due to factors such as changes in currency exchange rates, repeal 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
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material on-site at the Alton Plant, pending development of technology for
economical treatment. The Company received approval of a modified closure plan
for disposition of this existing EAF dust with the Illinois EPA, and has
completed the closure of all piles in place.
In December 1997, the Company idled its High Temperature Metal Recovery
facility (HTMR) after the facility was damaged in an accident. This facility was
used to dispose of the Company's EAF dust generated in the Alton Facility. Since
1997 the Company has disposed of the EAF dust through alternative methods. In
1998 Management evaluated the HTMR facility and the decision was made to
permanently shut down the operation.
EMPLOYEES
As of September 30, 1999, the Company employed approximately 1,200
employees, approximately 220 of whom are classified as management,
administrative and sales personnel.
The Company's 575 hourly employees at the Alton Plant are covered by a
collective bargaining agreement that expires in September of 2001. In connection
with the bankruptcy proceedings the Company is negotiating an amendment and
extension of the collective bargaining agreement. 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 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 casting production
capacity of over 680,000 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. To improve productivity the Company is utilizing one electric
furnace, which reduces production capacity to approximately 580,000 net tons per
year. The Company also has a pipe finishing plant in Vandalia, Illinois, a chain
manufacturing plant in Maryville, Missouri, and a wire oil tempering facility in
Fremont, Indiana. The Company operates a pipe mill in Fairless Hills,
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. In connection with its reorganization under the Bankruptcy Code, the
Company rejected its lease for space for corporate offices in the Metropolitan
Square Building and now leases space at 440 North Fourth Street in downtown
St. Louis under a lease expiring on November 30, 2001, with an option to extend
to November 30, 2004.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries, Laclede Chain Manufacturing Company and
Laclede Mid America, Inc., filed voluntary petitions seeking reorganization
under Chapter 11 of the United States Bankruptcy Code on November 30, 1998.
Additional information related to the filing is set forth under Part 1, Item 1
and Part II, Item 7 of this Form 10-K and Note 1 of the Notes to Consolidated
Financial Statements. Such information is incorporated herein by reference.
There are other 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 its business. Such claims that arose prior to November 30, 1998 are subject
to the automatic stay of the United States Bankruptcy Code.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Laclede's common stock is traded on the OTC Bulletin Board System and the
symbol is LCLDQ. As of December 20, 1999 there were 507 stockholders of record.
<TABLE>
<CAPTION>
MARKET
PRICE RANGE 1999 1998
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BY QUARTER HIGH LOW HIGH LOW
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<S> <C> <C> <C> <C>
First $ 5/8 $ 5/32 $ 5-5/8 $ 3
Second 1/2 7/32 5-1/4 3-1/4
Third 11/16 3/8 3-3/8 1/4
Fourth 1-7/8 7/16 5/8 1/8
</TABLE>
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Dividends Per Share Paid on Common Stock None None
</TABLE>
Payment of dividends on common stock was limited by the Company's Loan and
Security Agreement and is prohibited by the covenants in the DIP Facility. See
Note 6 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.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine-Month
Fiscal Transition Period
Year Ended Ended
September 30, September 30 Years Ended December 31
------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales $ 241,582 $ 232,289 $ 325,029 $ 335,381 $ 320,350
Restructuring, Asset Impairment
and other Charges (Credits) $ 7,177 $ 27,646 $ (987) $ 1,559 $ 17,694
Net Loss $ (21,353)* $ (83,812) $ (3,007) $ (9,985) $ (10,137)
Basic and Diluted Net Loss Per
Common Share $ (5.28) $ (20.73) $ (0.83) $ (2.50) $ (2.50)
Other Financial Data:
Total Assets $ 190,071 $ 216,191 $ 313,820 $ 331,110 $ 349,778
Working Capital 20,476 (78,734) 55,899 62,001 87,759
Capital Expenditures 1,510 3,848 3,016 10,726 13,847
Long-Term Debt (Subject to
Compromise in 1999) 25,990 -- 109,157 107,889 118,791
Stockholders' Equity (Deficit) (85,986) (103,019) 21,101 17,245 16,518
Stockholders' Equity (Deficit)
Per Common Share $ (21.20) $ (25.40) $ 5.20 $ 4.25 $ 4.07
Cash Dividends
Per Common Share $ -- $ -- $ -- $ -- $ --
</TABLE>
* Includes $6,052 in reorganization costs, $6,215 in non-cash periodic pension
costs recorded in excess of current service costs, and $7,177 in restructuring,
asset impairment and other charges (credits).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
In order to preserve its operational strength and the assets of its
businesses, on November 30, 1998, the Company sought protection of the federal
bankruptcy laws by filing a voluntary petition for relief under Chapter 11 of
the United States Bankruptcy Code. Under Chapter 11 the Company continues to
conduct business in the ordinary course under the protection of the Bankruptcy
Court, while a reorganization plan is developed to restructure its obligations
and its operations. There can be no assurance that the reorganization plan will
be successful.
As discussed below, since filing for protection under Chapter 11, the
Company has substantially improved its operating performance, primarily as the
result of cost reduction and productivity improvements.
The Company has experienced operating losses since 1995. In early 1998,
management developed a plan to reorganize operations and improve operating
efficiencies. This plan included the consolidation of Wire and Tubular
Operations, improvement in operations in the Melt Shop and 14" Bar
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Mill at the Alton Plant, and consolidation of certain administrative functions.
The shutdown of the Memphis Plant and consolidation of Wire Operations in the
Fremont Plant was completed in the third quarter of 1998.
The Company's tubular products are currently produced at the Alton and
Fairless Plants, with finishing operations also performed at the Vandalia Plant.
With current production and shipping requirements, the Alton and Fairless Plants
are each operating at levels substantially below capacity. Management's plan
included consolidation of pipe-making operations in order to improve production
efficiencies and reduce the overall costs. In connection with the development of
a reorganization plan while under the protection of the Bankruptcy Court, the
Company is negotiating with the United Steelworkers of America, representing
workers at the Alton Plant, regarding the consolidation of pipe-making
operations.
The Company has also developed a capital program to improve the operating
efficiency of the Melt Shop and 14" Bar Mill at the Alton Plant. Implementation
of this program will depend upon obtaining adequate financing. In this regard
the Company is negotiating with potential lenders, with the intention of
utilizing government loan guarantees recently made available under the Emergency
Steel Guarantee Loan Program. At this time there is no assurance that the loan
guarantees or funds for the capital program will be available to the Company.
OPERATING RESULTS 1997 TO 1999
On October 22, 1998 the Company changed its fiscal year end from December
31 to September 30. Accordingly, results of operations for the transition period
ended September 30, 1998 cover a nine-month period.
In the twelve months ended September 30, 1999 the Company incurred a net
loss of $21.4 million. Included in the net loss is $6.1 million for
reorganization expenses (primarily professional fees incurred in connection with
the bankruptcy proceedings), $11.7 million in pension curtailment losses, and
$6.2 million in non-cash periodic pension costs in excess of current service
costs. As discussed in Note 7 to the Consolidated Financial Statements,
termination of the Company's hourly and salaried pension plans will be an
integral part of the plan of reorganization. Management believes the pension
liabilities, other than costs for service subsequent to the bankruptcy filing
date, will be assumed by the Pension Benefit Guaranty Corporation. In fiscal
1999 the Company also recorded income of $4.6 million, recognizing settlements
of class action lawsuits involving electrode manufacturers. Excluding these
charges and credits, the net loss for the year ended September 30, 1999 was
approximately $2.0 million.
The net loss for the nine-month transition period ended September 30, 1998
was $83.8 million. In 1998 the Company recorded asset impairment and other
charges of $27.6 million, including losses of approximately $4.6 million and
$15.4 million related to the shutdown of its Memphis plant and HTMR facility,
respectively. Additionally, the Company also recorded charges of $7.6 million in
connection with the retirements of several officers of the Company and certain
restructuring expenses. Included in this amount is approximately $5.8 million in
primarily non-cash settlement and curtailment expenses relating to the Company's
Key Employee Retirement Plan.
The Company also recorded a provision for income taxes in 1998 of $31.1
million, reflecting a valuation allowance for deferred tax assets. See Note 5 to
the Consolidated Financial Statements for additional discussion.
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.
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The change in net sales for the last three fiscal periods is analyzed as
follows:
<TABLE>
<CAPTION>
(In Thousands)
-------------------------------------------------------------------------
Nine-Month Transition
Twelve Months Ended Period Ended
September 30, 1999 Vs. September 30, 1998 Vs.
Twelve Months Ended Nine Months Ended
September 30, 1998 September 30, 1997 1997 Vs. 1996
------------------ ------------------ -------------
<S> <C> <C> <C>
Decrease in net sales $ (70,380) $ (13,067) $ (10,352)
Comprised of:
Decrease in volume $ (52,151) $ (5,562) $ (13,107)
Increase (Decrease) in price $ (18,229) $ (7,505) $ 2,755
</TABLE>
In the twelve months ended September 30, 1999 total steel shipments
declined by 21.1% compared to the twelve-month period ended September 30, 1998.
Average selling prices for pipe and tubular products decreased by 8.6%, while
prices for hot rolled and semi-finished products declined by 5.6% and 3.8%,
respectively. Shipments of chain products increased by 2.8% in 1999 over the
prior twelve-month period.
Cost of products sold decreased by $86.0 million, or 27.7%, in the year
ended September 30, 1999, compared to the preceding twelve months. This reflects
the reduction in steel shipments and a decline in average scrap prices of
approximately 26%. In addition, in fiscal 1999 there were significant
productivity improvements and reductions in maintenance costs and plant overhead
costs at the Alton Plant.
In the 1998 transition period, the decrease in net sales of $13.1 million
compared to nine months ended September 30, 1997 reflects a 2.6% decrease in
steel shipments, which primarily occurred in the third quarter. In the third
quarter of 1998 steel shipments declined 14.0% when compared to the third
quarter of 1997. This reflects the overall decline in demand for steel products
and the unprecedented increase in foreign imports.
For the nine-month transition period ended September 30, 1998 pipe and
tubular selling prices declined about 4.5%. This was partially offset by higher
price realizations on hot rolled and wire products.
Cost of products sold increased $10.1 million in the first nine months of
1998 versus the comparable period of 1997, despite the decrease in shipping
volume. This reflects the negative effect which the Company's inventory
reduction program had on production and maintenance costs per ton. In addition,
costs were negatively impacted by increases in workers' compensation expenses
and provision for slow moving and obsolete inventories.
Selling, general and administrative expenses decreased by $2.7 million in
the year ended September 30, 1999 when compared to the proceeding twelve-month
period. The reduction in Alton Plant overhead expenses mentioned above, and the
decrease in selling general and administrative expenses, is primarily due to a
significant reduction in salaried employees since early 1998. The relocation of
the corporate offices in November 1999 will reduce future selling general and
administrative expenses by approximately $250 thousand annually. Selling,
general and administrative expenses increased slightly in the nine-month
transition period ended September 30, 1998 due to higher professional fees
related to restructuring. Interest expense increased in 1998 due to higher
interest rates which more than offset lower amounts outstanding.
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<PAGE> 11
Interest expense decreased approximately $4.1 million in the year ended
September 30, 1999 when compared to the proceeding twelve-month period. This
reflects a decrease in borrowings under the Company's debtor-in-possession
financing facility, and the discontinuance of recording interest expense on
unsecured and undersecured prepetition debt pursuant to AICPA Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7").
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, demands 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's subsidiary, Laclede Mid America Inc. operates an oil tempered
wire facility in Fremont, Indiana. In 1998 the Fremont Plant increased its
production of certain higher grades of oil tempered wire, utilizing technology
developed in connection with the project to produce wire for suspension springs.
In 1999 the Board of Directors approved a $1.5 million capital project to
install an additional oil tempered line, which will increase overall plant
capacity by approximately 15%.
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 operating results in the year ended September 1999, reflecting
significant traction chain sales in the winter of 1998-99.
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 37.1% of
tubular products sales in fiscal 1999 and 33.8% in the nine-month transition
period ended September 30, 1998.
The Company also operates a tubular finishing plant in Vandalia, Illinois.
The Vandalia facility processes semi-finished pipe produced at the Alton and
Fairless Pipe Mills. Shipments of continuous weld pipe from the Vandalia Plant
represented 47.9% of tubular products sales in fiscal 1999 and 46.6% in the
nine-month transition period ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended September 30, 1999 operating activities provided
approximately $19.0 million in cash. Cash flow from financing activities used
$18.3 million in cash, primarily as the result of a reduction in borrowing under
the Company's bank facility. Investing activities used $.7 million in cash flow
in the period. At September 30, 1999, $61.9 million in borrowings were
outstanding under the Company's bank facility.
Operating activities provided $4.5 million in cash and investing activities
provided $1.0 million in cash flow in the nine-month transition period ended
September 30, 1998. In January 1998 the Company completed the sale and leaseback
transaction for the Ladle Metallurgy Facility at the Alton Plant. This note
receivable collection under the sale and leaseback transaction provided the
Company with $3.6 million in cash. In September 1998 the Company completed the
sale of a portion of the Memphis Wire Plant, realizing approximately $1.2
million in cash. Capital expenditures for the nine-month transition period ended
September 30, 1998 totaled $3.8 million.
- 11 -
<PAGE> 12
On November 30, 1998, the Company obtained an $85.0 million, thirteen-month
debtor-in-possession financing facility from its existing lenders, which
replaced its existing Bank Credit Facility. On December 23, 1998, the Court
issued an Order approving the new facility. On December 17, 1999 the
debtor-in-possession financing facility was extended to June 30, 2000.
The $85.0 million DIP Facility provides for revolving credit loans based on
accounts receivable and inventory levels. As of December 31, 1999 the Company
had unused availability under its DIP Facility of approximately $7.2 million.
In connection with the DIP facility, as amended, the Company must maintain
compliance with several restrictive covenants, including the maintenance of
specified levels of operating cash flow and minimum operating contributions from
the Alton Steel Operations, as defined.
The Company's projections indicate that availability under the
debtor-in-possession facility should be adequate to finance its operations until
exit from bankruptcy, and all planned capital expenditures, which will be
approximately $3.0 million during the nine months ending June 30, 2000.
The Company will present a plan of reorganization to the Bankruptcy Court
to reorganize the Company's businesses and to restructure the Company's
obligations. In connection with this plan the Company anticipates obtaining exit
financing which will be adequate to finance its operations after emerging from
bankruptcy, presently anticipated during the first-half of calendar 2000.
Although the Company believes that the anticipated cash flow from future
operations and borrowings under the DIP Facility and anticipated exit financing
should provide sufficient liquidity for the Company to meet its debt service
requirements and fund ongoing operations, there can be no assurance these or
other possible sources will be adequate. As previously mentioned the Company is
also negotiating with potential lenders with the intention of utilizing
government loan guarantees recently made available in the Emergency Steel
Guarantee Loan Program, to provide funds for capital expenditures for the Melt
Shop and 14" Bar Mill at the Alton Plant.
YEAR 2000 MATTERS
The Company has been focused on the year 2000 issue since 1996. The first
phase of the Company's year 2000 management was to designate a project leader,
identify specific plant and business operation team leaders and create a list of
business and information systems and non-information systems that required
assessment. The second phase was to form teams to evaluate identified systems
for year 2000 readiness. The third phase was to develop a schedule to achieve
readiness and repair and/or replace non-ready systems. The Company has completed
phases one, two and three. In early 2000, the Company will begin year-end
processing and follow-up testing. The Company believes it is year 2000 ready in
all material respects at December 31, 1999.
Business and Information Systems ("IT Systems"): The Company believes that
its mainframe business computer system is year 2000 ready at December 31, 1999.
The Company has replaced or upgraded its desktop computers that were not year
2000 ready.
Non-IT Systems: There are a number of non-IT system issues at the Company's
Alton, Illinois facility. Several systems related to the electric melt shop have
had software upgrades or been replaced including the power measurement software,
the ladle metallurgy furnace, the caster control system and the chemical
analysis equipment. The Alton facility's 14-inch mill also has a number of
systems that have had software upgrades or been replaced including the process
logic control system and the mill's tracking device and monitor equipment. In
addition, with respect to several systems related to the Alton 14" mill the
Company has received assurances from various equipment or software vendors as to
year 2000 readiness.
- 12 -
<PAGE> 13
No material year 2000 compliance issues have been identified at the
Company's Fremont Wire Mill, Fairless Hills Pipe Mill or the Vandalia Pipe
Finishing Facility.
Customers and Vendors: The Company has communicated with its significant
customers and vendors to understand their year 2000 issues and how they might
prepare themselves to manage these issues as they relate to the Company. To
date, no significant customers or vendors have informed the Company that a
material year 2000 issue exists which would have a material effect on the
Company.
The Company has in place a comprehensive contingency plan to address year
2000 readiness matters that would interfere with or interrupt its manufacturing
process. This plan includes backing up all significant computer files, the
intentional shut-down of the Alton facility immediately prior to Saturday,
January 1, 2000 and a systematic start-up of each separate operating unit within
the Alton facility on the next scheduled day of the plant operations.
Based on the Company's current assessment, the costs of addressing
potential problems are not currently expected to have a material adverse impact
on the Company's financial position, results of operations or cash flows in
future periods. If the Company or its customers or vendors identify year 2000
issues in the future, however, and are unable to resolve such issues in a timely
manner; it could result in a material financial risk. Accordingly, the Company
plans to devote the necessary resources to resolve all significant year 2000
issues in a timely manner.
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; statements
regarding Year 2000 compliance 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; decreases in the market value of the
Company's qualified pension plan assets; increases in financing costs, labor
relations, and adverse developments arising from the Chapter 11 proceedings and
adverse developments in the timing or results from the Company's current
business plan.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative
- 13 -
<PAGE> 14
Financial Instruments, Other Financial Instruments and Derivative Commodity
Instruments". The Company had no holdings of derivative financial or commodity
instruments at September 30, 1999. A review of the Company's other financial
instruments and risk exposures at that date revealed that the Company had
exposure to interest rate risk due to the floating rate DIP Facility debt of
$61.9 million. The Company utilized sensitivity analyses to assess the potential
effect of this risk and concluded that near-term changes in interest rates
should not materially adversely affect the Company's financial position, results
of operations or cash flow.
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 20 and 46,
respectively.
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:
<TABLE>
<CAPTION>
NAME, AGE, OTHER POSITIONS WITH THE COMPANY, SERVED AS A
PRINCIPAL OCCUPATION AND DIRECTORSHIPS OF OTHER COMPANIES DIRECTOR SINCE
- --------------------------------------------------------- --------------
<S> <C>
Michael H. Lane, 56 . . . . . . . . . . . . . . . 1997
Executive Vice President, Chief Financial Officer (January 1999 to date); Vice
President - Finance, Treasurer and Secretary (1983 to 1999).
Wayne P. E. Mang, 62 . . . . . . . . . . . . . . . 1997
President and Chief Operating Officer, Russel Metals (steel product processor
and distributor) (1982 to 1997). Director of Wainbee Holdings, Inc. and Maverick
Tube Corporation.
Philip R. Morgan, 51 . . . . . . . . . . . . . . . 1997
President, Chief Executive Officer and Director, Morgan Construction Company
(supplier of steel rolling mill technology and equipment) (1986 to date).
Robert H. Quenon, 71 . . . . . . . . . . . . . . . 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 Director of Newmont Mining
Corporation.
George H. Walker III, 68 . . . . . . . . . . . . . 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., EAC Corporation, Western &
Southern Life Insurance Company and Macroeconomic Advisers.
</TABLE>
- 14 -
<PAGE> 15
The executive officers of the Company and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas E. Brew, Jr. 57 President and Chief
Executive Officer
Michael H. Lane 56 Executive Vice President
Chief Financial Officer
Ralph M. Cassell 57 Vice President-Wire and Chain
James T. Caporaletti 57 Vice President & General
Manager-Tubular Products
</TABLE>
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 had 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 Executive Vice President and Chief Financial
Officer in 1999 and Vice President - Finance, Treasurer and Secretary of the
Company in 1983. Mr. Lane was elected to the Board of Directors in 1997.
Ralph M. Cassell was appointed President Laclede Wire Company (Laclede Mid
America) and Laclede Chain Manufacturing Company on October 28, 1998. Mr.
Cassell is Vice President of Laclede Steel Company. Prior to October 1998 Mr.
Cassell served as Vice President and General Manager of Laclede Wire Company and
also as Director Quality Management for Laclede Steel Company.
James T. Caporaletti was appointed Vice President and General Manager of
Tubular Products on September 30, 1999. Mr. Caporaletti was appointed Director
of Tubular Operations in April 1999, Manager - Tubular Operations in July 1998,
and Plant Manager - Fairless Works in October 1991.
- 15 -
<PAGE> 16
ITEM 11. EXECUTIVE COMPENSATION
The following table presents summary information concerning
compensation for services rendered to the Company during the fiscal year ended
September 30, 1999 and the last three fiscal years by those persons who at
September 30, 1999 were the Chief Executive Officer and the other executive
officers.
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Other Annual All Other
Name and Fiscal Bonus Compensation Compensation
Principal Position Year Salary ($) ($) (2) ($) (3) ($) (4)
- ------------------ ---- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Thomas E. Brew (5) 1999 $ 673,373 $ -- $ -- $ --
President and Chief 1998(1) 439,808 -- -- --
Executive Officer
Michael H. Lane (6) 1999 $ 243,504 $ -- $ 13,188 $ 18,157
Executive Vice President , 1998(1) 182,628 -- -- 17,252
Chief Financial Officer 1997 243,504 -- 13,101 19,773
1996 243,504 -- 190,297 19,767
James T. Caporaletti 1999 $ 102,461 $ -- $ -- $ 2,570
Vice President and 1998(1) 61,304 -- -- 1,463
General Manager of 1997 75,323 -- -- 1,800
Tubular Products 1996 73,311 -- -- 1,750
Ralph M. Cassell 1999 $ 148,334 $ -- $ -- $ 3,008
Vice President- 1998(1) 91,170 -- -- 3,332
Wire and Chain 1997 111,000 28,860 -- 3,733
1996 108,000 -- -- 3,668
Thomas W. Calhoun (7) 1999 $ 103,080 $ -- $ -- $ 1,613
Vice President and 1998(1) 73,269 -- -- 44
General Manager of
Tubular Products
</TABLE>
(1) The 1998 fiscal year is the nine-month transition period beginning January
1, 1998 and ending September 30, 1998.
(2) No bonuses were earned under the Company's Discretionary Incentive
Compensation Plan for the years reported. Mr. Cassell's 1997 bonus was
earned based on results from wire operations.
(3) Amount reported as Other Annual Compensation in 1996 for Mr. Lane consists
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 was
obligated to reimburse participants for the payment of such taxes. Other
amounts in this column relate to tax payments on permanent life insurance
premiums and tax assistance.
- 16 -
<PAGE> 17
Certain perquisites which the executive officers received in the years
reported 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.
(4) The amounts shown represent life insurance premiums paid by the Company on
behalf of the executive officers and matching amount paid by the Company
under a defined contribution plan.
(5) Payments were made to Argus Management Corporation, which employs Mr. Brew
who was engaged by the Board of Directors in February 1998. He is the
Executive Vice President of Argus Management Corporation.
(6) Mr. Lane has entered into an amendment to his employment agreement with the
Company, see "Employment Contracts" below.
(7) Mr. Calhoun resigned during 1999.
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. In connection with the
bankruptcy proceedings the Company expects the Pension Benefit Guaranty
Corporation to terminate the Pension Plan and assume responsibility for payment
of pension benefits, which could result in a reduction of benefits for some
participants, including executive officers.
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. Benefits for former executive officers McKinney, Hebenstreit
and Nethington were fully funded at the time of their retirement. The Company,
therefore, had no further payment requirements as the result of their
retirement. Benefits for former Vice President-Administration, Larry J.
Schnurbusch, were partially funded and he has filed a claim with the Bankruptcy
Court for unpaid benefits under the Plan of approximately $925,000.
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. 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. Pursuant to the
November 14, 1990 amendment to the Supplement Plan (the "1990 Amendment") the
funds held under the Supplement Plan for then participants were transferred to a
separate trust under which the employees participating in the Supplement Fund
were the direct beneficiaries.
- 17 -
<PAGE> 18
Mr. Lane is the only remaining key employee participating in the Supplement
Plan. He has accumulated 27 years of credited service, and his current salary
level eligible for benefits under the Supplement Plan is $326,193. The aggregate
annual benefits payable to him pursuant to the Pension Plan, the Supplement Plan
and Federal Social Security at his present age is approximately $190,000.
Because of the transfer of funds in connection with the 1990 Amendment, the
Company has no payment requirement with respect to future 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
employees 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. The Chairman of the Board, Wayne P. E. Mang,
receives a $2,250 monthly retainer fee.
EMPLOYMENT CONTRACTS
On February 25, 1999 the United States Bankruptcy Court for the Eastern
District of Missouri entered an order approving each of (a) the Company's Key
Employee Incentive Retention Plan; (b) the assumption of the Consulting
Agreement with Argus Management Corporation and Thomas E. Brew, Jr., President
of the Company; and (c) and the assumption of the Amended and Restated
Employment Agreements between the Company, Michael H. Lane and Larry J.
Schnurbusch. Mr. Schnurbusch retired from the Company during 1999 and, as a
result, his Restated Employment Agreement has terminated. Present participants
in the Key Employee Incentive Retention Plan are Michael H. Lane, Executive Vice
President and Ralph M. Cassell, Vice President of the Company and President of
Laclede Chain Manufacturing Co. and Laclede Mid-America, Inc. This plan calls
for the payment of one year's salary as a retention bonus to each of the covered
individuals upon successful confirmation by the Bankruptcy Court. Payment is due
upon confirmation of a Plan of Reorganization. There are no interim payments and
no payment is made to a participant (i) unless he remains in the employ of the
Company, or in Mr. Cassell's case, its subsidiaries, on the date of
confirmation, or (ii) if the employee is terminated with cause prior to that
time. If the Company's bankruptcy proceeding is converted to a liquidation under
Chapter 7 of the United States Bankruptcy Code then the retention bonus paid to
such employee is reduced to one-half salary and is payable on conversion of the
bankruptcy case. Mr. Lane's bonus upon a successful reorganization of the
Company currently would be $243,500. Mr. Cassell's bonus would currently be
$150,000.
The Consulting Agreement with Argus Management Corporation and Thomas E.
Brew, Jr. provides for Mr. Brew to act as President of the Company for the
period of one year provided that either party may terminate the Agreement with
four (4) weeks prior written notice. Compensation under that Agreement is
$12,000 per week, together with reimbursement of expenses, including Mr. Brew's
weekly travel expenses to his home in Boston. Massachusetts as well as
reasonable housing and automobile expenses while Mr. Brew is in the Alton/St.
Louis area.
Mr. Lane's Employment Agreement provides for Mr. Lane to hold the position
of Executive Vice President for a term to expire December 31, 2000 at an annual
salary of $243,500. Mr. Lane's agreement continues in force thereafter for
successive one-year periods, but is terminable by the Company on ninety (90)
days notice. If Mr. Lane remains in the employ of the Company through December
31, 2000 or if he is terminated without "good cause" or leaves the Company for
"employee good reason," both as defined in that agreement, the Company also will
pay Mr. Lane a severance benefit in a lump sum equal to the amount of his annual
base salary, currently, $243,500. Separately,
- 18 -
<PAGE> 19
Mr. Lane is entitled to benefits under the Company's Key Employee Retirement
Plan, payable to him on the first business day after he ceases for any reason to
be a full-time employee of the Company. Mr. Lane's benefits under that Plan have
been fully funded for a number of years.
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 December 1, 1999.
<TABLE>
<CAPTION>
Shares of
Shares of Series A
Common Stock Preferred 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) 1,029,325 25.38% 183,334 44.00%
1000 Urban Center Drive, Suite 300
Birmingham, AL 35242
Ivaco Inc. (2) 1,009,325 24.88% 183,333 44.00%
Place Mercantile
770 Rue Sherbrooke ouest
Montreal, Quebec, Canada H3A 1G1
James T. Caporaletti -- --
Ralph M. Cassell 50 * --
Michael H. Lane 10,600 * 5,000 1.20%
Wayne P. E. Mang 100 * --
Thomas E. Brew, Jr. -- --
Philip R. Morgan 1,000 * --
Robert H. Quenon 300 * --
George H. Walker III (3) 1,000 * --
All Directors and Executive 13,050 * 5,000 1.20%
Officers as a Group (8 persons)
</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
- 19 -
<PAGE> 20
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. On July 29, 1998, Robert A. Garvey, Joseph
Alvarado and William R. Lucas, Jr., each an officer of Birmingham Steel,
resigned as directors of the Company. Following this action, no representatives
of Birmingham Steel held positions on the Company's Board of Directors. In
addition, on September 24, 1998, Midwest Holdings notified LCL Holdings I,
pursuant to Section 2 (the "Voting Agreement") of the Purchase Agreement, it was
canceling the Voting Agreement and the Proxy which was granted to Midwest
Holdings by LCL Holdings I on September 26, 1997, relating to the 1,009,325
Holdings I Common Shares and the 183,333 Holdings I Preferred Shares owned by
LCL Holdings I (collectively, the "Shares"), as to any and all of such Shares.
This information is based upon Schedule 13D forms of Ivaco and Birmingham Steel,
filed on September 30, 1997 and October 8, 1998, respectively.
(3) 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
Prior to January 1, 1998, the Company was self-insured for workers'
compensation liabilities. Ivaco Inc. guaranteed a $4.0 million surety bond
covering such liabilities. Claims paid subsequent to December 31, 1997 related
to pre-1998 occurrences have been charged against the surety bond guaranteed by
Ivaco Inc.
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets, September 30, 1999 and 1998 . . . . . . . . . . . 23 - 24
Consolidated Statements of Operations for the fiscal year ended September 30,
1999, the nine-month transition period ended September 30, 1998 and the year
ended December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Stockholders' Equity (Deficit) for the fiscal year
ended September 30, 1999 and for the nine-month transition period ended
September 30, 1998 and the year ended December 31, 1997. . . . . . . . . . . . . 26
Consolidated Statements of Cash Flows for the year ended September 30, 1999, the
nine-month transition period ended September 30, 1998 and the year ended
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 28 - 45
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . 46 - 47
</TABLE>
- 20 -
<PAGE> 21
(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 October 21, 1998.
(Incorporated by reference to Exhibit (3) (b) in
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998.)
(4) (a) Registrant's Postpetition Loan and Security Agreement dated
December 1, 1998. (Incorporated by reference to Exhibit (4)
(e) in Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998.)
(4) (b) First Amendment to Postpetition Loan and Security Agreement
dated December 23, 1998. (Incorporated by reference to
Exhibit (4) (f) in Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1998.)
(4) (c) Second Amendment to Postpetition Loan and Security Agreement
dated July 1, 1999. (Incorporated by reference to Exhibit
(4) (e) in Registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 1999.)
(4) (d) Third Amendment to Postpetition Loan and Security Agreement
dated December 17, 1999.
(4) (e) 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) 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
l0-Q for June 30, 1996.)
(10) (b) 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) (c) Restated Employment Agreement dated as of January 13, 1999
between Laclede Steel Company and Michael H. Lane.
(10) (d) 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.)
- 21 -
<PAGE> 22
(10) (e) 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) (f) Consulting Agreement dated November 23, 1998 between Argus
Management Corporation, Thomas E. Brew, Jr. and Laclede
Steel Company. (Incorporated by reference to Exhibit (10)
(j) in Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998.)
(22) 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
NONE
- 22 -
<PAGE> 23
LACLEDE STEEL COMPANY AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 205 $ 192
Accounts receivable - less allowances of $2,849 in 1999
and $3,172 in 1998 37,956 39,761
Prepaid expenses 4,130 1,936
Inventories:
Finished 34,298 37,871
Semi-finished 7,082 11,595
Raw materials 4,627 3,478
Supplies 11,593 12,922
--------- ----------
Total inventories 57,600 65,866
--------- ----------
Total current assets 99,891 107,755
--------- ----------
NON-CURRENT ASSETS:
Intangible pension costs 5 12,271
Other 6,348 7,118
--------- ----------
Total non-current assets 6,353 19,389
--------- ----------
PLANT AND EQUIPMENT - At cost:
Land 1,253 1,544
Buildings 26,418 27,784
Machinery and equipment 190,656 191,250
--------- ----------
218,327 220,578
Less accumulated depreciation 134,500 131,531
--------- ----------
Total plant and equipment 83,827 89,047
--------- ----------
TOTAL $ 190,071 $ 216,191
========= ==========
</TABLE>
See notes to consolidated financial statements.
- 23 -
<PAGE> 24
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT 1999 1998
- ------------------------------------- ---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 10,421 $ 56,357
Accrued compensation 4,162 5,400
Current portion of long-term debt 61,877 106,048
Accrued costs of pension plans - 15,000
Other 2,955 3,684
---------- ----------
Total current liabilities 79,415 186,489
---------- ----------
NON-CURRENT LIABILITIES:
Accrued costs of pension plans - 57,328
Accrued postretirement medical benefits - 73,470
Other 6,392 1,923
---------- ----------
Total non-current liabilities 6,392 132,721
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
---------- ----------
LIABILITIES SUBJECT TO COMPROMISE:
Accounts payable and accrued expenses 50,294 -
Accrued costs of pension plans 40,341 -
Accrued postretirement medical benefits 70,626 -
Long-term debt 25,990 -
Other 2,999 -
---------- ----------
Total liabilities subject to compromise 190,250 -
---------- ----------
STOCKHOLDERS' DEFICIT:
Convertible preferred stock, no par value, authorized
2,000,000 shares; issued and outstanding 416,667 shares
(liquidation preference of $6,250) 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 59,420 59,482
Accumulated deficit (120,472) (99,119)
Accumulated other comprehensive loss (25,058) (63,506)
---------- ----------
Total stockholders' deficit (85,986) (103,019)
---------- ----------
TOTAL $ 190,071 $ 216,191
========== ==========
</TABLE>
See notes to consolidated financial statements.
- 24 -
<PAGE> 25
LACLEDE STEEL COMPANY AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FISCAL YEAR ENDED SEPTEMBER 30, 1999, THE NINE-MONTH TRANSITION PERIOD ENDED
SEPTEMBER 30, 1998, AND THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
(nine months)
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES $ 241,582 $ 232,289 $ 325,029
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of products sold (includes $6,166 related to periodic
Pension cost recorded in excess of current service costs in 1999) 224,953 233,585 299,570
Selling, general and administrative expenses 11,482 10,466 13,654
Depreciation 6,251 5,081 7,696
Interest expense (contractual interest - $8,365 in 1999) 6,910 8,183 10,046
Asset impairments and other charges (credits) 7,177 27,646 (987)
---------- ---------- ----------
Total costs and expenses 256,773 284,961 329,979
---------- ---------- ----------
Reorganization costs 6,052 - -
---------- ---------- ----------
LOSS BEFORE INCOME TAXES (21,243) (52,672) (4,950)
PROVISION (BENEFITS) FOR INCOME TAXES 110 31,140 (1,943)
---------- ---------- ----------
NET LOSS (21,353) (83,812) (3,007)
PREFERRED STOCK DIVIDEND REQUIREMENT (62) (281) (375)
---------- ---------- ----------
(contractual dividends - $375 in 1999)
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS (21,415) (84,093) (3,382)
OTHER COMPREHENSIVE INCOME (LOSS) NET OF INCOME TAXES:
Minimum pension liability adjustment 38,448 (40,027) 7,238
---------- ---------- ----------
COMPREHENSIVE INCOME (LOSS) $ 17,033 $ (124,120) $ 3,856
========== ========== ==========
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (5.28) $ (20.73) $ (0.83)
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
- 25 -
<PAGE> 26
LACLEDE STEEL COMPANY AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FISCAL YEAR ENDED SEPTEMBER 30, 1999, THE NINE MONTH TRANSITION PERIOD ENDED
SEPTEMBER 30, 1998, AND THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CONVERTIBLE PREFERRED STOCK (416,667 shares issued) $ 83 $ 83 $ 83
--------- ---------- ---------
COMMON STOCK (4,056,140 shares issued) 41 41 41
--------- ---------- ---------
CAPITAL IN EXCESS OF PAR VALUE:
Beginning balance 59,482 59,763 60,138
Dividend requirement on convertible preferred stock (62) (281) (375)
--------- ---------- ---------
Ending balance 59,420 59,482 59,763
--------- ---------- ---------
ACCUMULATED DEFICIT:
Beginning balance (99,119) (15,307) (12,300)
Net loss (21,353) (83,812) (3,007)
--------- ---------- ---------
Ending balance (120,472) (99,119) (15,307)
--------- ---------- ---------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Beginning balance (63,506) (23,479) (30,717)
Other comprehensive income (loss) 38,448 (40,027) 7,238
--------- ---------- ---------
Ending balance (25,058) (63,506) (23,479)
--------- ---------- ---------
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY $ (85,986) $ (103,019) $ 21,101
========= ========== =========
</TABLE>
See notes to consolidated financial statements.
- 26 -
<PAGE> 27
LACLEDE STEEL COMPANY AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS FISCAL YEAR ENDED SEPTEMBER 30, 1999, THE
NINE-MONTH TRANSITION PERIOD ENDED SEPTEMBER 30, 1998, AND THE YEAR ENDED
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
(nine months)
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (21,353) $ (83,812) $ (3,007)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation 6,251 5,081 7,696
Reorganization items 6,052 - -
Asset impairments and other charges (credits) 11,738 25,260 (987)
Change in deferred income taxes - 31,010 (2,279)
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 1,805 521 (1,510)
Inventories 8,266 16,940 3,504
Accounts payable, accrued expenses and other assets 4,366 12,961 (2,983)
Pension cost greater than (less than) funding 7,031 (1,066) (4,977)
Accrued postretirement medical benefits (2,844) (2,394) (3,918)
---------- ---------- ----------
Net cash provided by (used in) operating activities before Reorganization Items 21,312 4,501 (8,461)
Operating Cash Flow from Reorganization Items -
Bankruptcy related professional fees paid (2,342) - -
---------- ---------- ----------
Net cash provided by (used in) operating activities 18,970 4,501 (8,461)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,510) (3,848) (3,016)
Proceeds from sale of assets 834 4,818 10,972
---------- ---------- ----------
Net cash provided by (used in) investing activities (676) 970 7,956
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayments) under revolving credit loan (18,181) (4,087) 390
Proceeds from term loan - - 4,079
Payments on long-term debt - (1,378) (3,329)
Payment of financing costs (100) - (592)
---------- ---------- ----------
Net cash provided by (used in) financing activities (18,281) (5,465) 548
---------- ---------- ----------
CASH:
Net increase during the year 13 6 43
At beginning of year 192 186 143
---------- ---------- ----------
At end of year $ 205 $ 192 $ 186
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 7,198 $ 8,309 $ 10,057
Income tax payments (refunds) - net (6,800) 130 337
</TABLE>
See notes to consolidated financial statements.
- 27 -
<PAGE> 28
LACLEDE STEEL COMPANY AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1999, NINE-MONTH TRANSITION PERIOD ENDED SEPTEMBER 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997.
1. BANKRUPTCY PROCEEDINGS
On November 30, 1998, as a result of deterioration in steel demand and
selling prices, recurring losses, capital deficiency and funding
requirements of its defined benefit pension plans, Laclede Steel Company
and subsidiaries (the "Company") filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Code"). The Company is operating as debtors-in-possession under the Code,
which protects it from its creditors pending reorganization under the
jurisdiction of the Bankruptcy Court. As a debtors-in-possession, the
Company is authorized to operate its business but may not engage in
transactions outside the ordinary course of business without approval of
the Bankruptcy Court. A statutory creditors committee has been appointed in
this Chapter 11 case. As part of the Chapter 11 reorganization process, the
Company has attempted to notify all known or potential creditors of the
Chapter 11 filing for the purpose of identifying all prepetition claims
against the Company.
In the Chapter 11 case, substantially all of the liabilities as of the
filing date are subject to settlement under a plan of reorganization.
Generally, actions to enforce or otherwise effect repayment of all
prepetition liabilities as well as all pending litigation against the
Company are stayed while the Company continues its business operations as
debtors-in-possession. Schedules have been filed by the Company with the
Bankruptcy Court setting forth the assets and liabilities of the debtors as
of the filing date as reflected in the Company's accounting records.
Differences between amounts reflected in such schedules and claims filed by
creditors will be investigated and amicably resolved or adjudicated before
the Bankruptcy Court. The ultimate amount and settlement terms for such
liabilities are subject to a plan of reorganization, and accordingly, are
not presently determinable.
Under the Bankruptcy Code, the Company may elect to assume or reject real
estate leases, employment contracts, personal property leases, service
contracts and other executory pre-petition contracts, subject to Bankruptcy
Court review. The Company cannot presently determine or reasonably estimate
the ultimate liability that may result from rejecting leases or from filing
of claims for any rejected contracts, and no provisions have been made for
these items.
The Company expects the Pension Benefit Guaranty Corporation ("PBGC") to
assume its obligations under its defined benefit pension plans for its
salaried and hourly employees, which would result in the PBGC becoming one
of its largest unsecured creditors. The termination of these plans will be
an integral part of the plan of reorganization. As of November 30, 1998,
the Company had a significant unfunded obligation related to these pension
plans. The Company has made no contributions to the pension plans since
filing Chapter 11 on the basis that the Company believes prepetition
pension obligations can only be paid with Bankruptcy Court approval or as
part of a plan of reorganization. The disposition of the Company's
postretirement medical obligations has not as yet been determined and these
obligations have been included as liabilities subject to compromise.
Pursuant to the provisions of the Bankruptcy Code, the Company continues to
incur the cost of the postretirement medical plans. The Bankruptcy Court
has approved the payment of certain prepetition liabilities such as
employee wages and benefits. The Bankruptcy Court has also allowed for the
retention of legal and financial professionals. These professional fees
represent the majority of reorganization items recorded in the consolidated
statements of operations in 1999 and, to the extent unpaid, are liabilities
not subject to compromise.
- 28 -
<PAGE> 29
At the time of filing Chapter 11, the Company's receivables, inventory, and
certain plant and equipment were pledged as collateral under a Loan and
Security Agreement with a bank group. Subsequent to the filing, with the
approval of the Bankruptcy Court, the Company entered into an amended Loan
And Security Agreement with BankAmerica (the "DIP Facility"), which
provides for borrowing up to $85 million. The DIP Facility provides for
revolving credit based on eligible receivables and inventory similar to the
previous Loan and Security Agreement. In addition, virtually all assets of
the Company have been granted as collateral to the Loan and Security
Agreement, except for certain assets of Laclede Chain Manufacturing
Company. See Note 6 for further description.
The Company's consolidated financial statements have been prepared in
accordance with the American Institute of Certified Public Accountants
(AICPA) Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code". In addition the consolidated
financial statements have been prepared using accounting principles
applicable to a going concern, which contemplates the realization of assets
and the payment of liabilities in the ordinary course of business. As a
result of the Chapter 11 filing, such realization of assets and liquidation
of liabilities is subject to uncertainty. The financial statements include
reclassifications made to reflect the liabilities which have been deferred
under the Chapter 11 proceedings as "Liabilities Subject to Compromise".
Certain accounting and business practices have been adopted that are
applicable to companies that are operating under Chapter 11.
The Company's goal is to file a plan of reorganization in early 2000 and
have it confirmed by the Bankruptcy Court by the middle of 2000. The
completion and acceptance of the plan of reorganization by the Company's
creditors are an integral part of the Company's continued existence. While
management believes the Company has made adequate provision for the
liabilities to be incurred in connection with Chapter 11 claims, there can
be no assurance as to the amount of the ultimate liabilities, the impact of
such liabilities on a plan of reorganization or how such liabilities will
be treated in a plan of reorganization. The Company's continued existence
is also dependent on its ability to achieve future profitable operations,
the assumption of the Company's obligations under its defined benefit
plans by the PBGC, and continued compliance with all debt covenants under
the DIP Facility.
2. NATURE OF OPERATIONS
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.
3. CHANGE IN FISCAL YEAR
Effective September 30, 1998 the Company changed its year-end from
December 31 to September 30. The consolidated statements of operations and
comprehensive income (loss), stockholders' deficit, and cash flows are
presented for the fiscal year ended September 30, 1999, the nine-month
transition period ended September 30, 1998 and the year ended December 31,
1997.
- 29 -
<PAGE> 30
4. 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 subsidiaries. All
intercompany accounts and transactions have been eliminated.
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.
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:
<TABLE>
<S> <C>
Buildings and improvements 20 to 45 years
Machinery and equipment 4 to 25 years
Office furniture and equipment 2 to 10 years
</TABLE>
Depreciation is computed on the straight-line method for financial
reporting purposes.
IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER INTANGIBLE ASSETS - Management
periodically reviews the carrying value of its long-lived tangible and
intangible assets to determine if an impairment has occurred or whether
changes in circumstances 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. See Note 8 for further discussion of
impairment charges.
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 5 for further discussion and a description of
significant temporary differences.
PER SHARE DATA AND PREFERRED STOCK DIVIDENDS - Per share amounts for the
fiscal year ended September 30, 1999, the nine-month transition period
ended September 30, 1998, and the year ended December 31, 1997 have been
calculated based on weighted average shares outstanding of 4,056,140. Net
loss per common share was computed by dividing the net loss, after
deducting convertible preferred dividend requirements of $62,000 in 1999,
$281,000 in 1998, and $375,000 in 1997 by the weighted average shares
outstanding. Per share amounts do not reflect the impact of additional
shares of the convertible preferred stock of 1,954,168 as to do so would be
antidilutive.
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.
- 30 -
<PAGE> 31
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.
CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS - The Company
manufactures steel from steel scrap purchased in the open market from
numerous scrap suppliers and generated in the course of its steel
production. Since it does not produce its own raw materials, the Company is
subject to the fluctuation in prices and availability of scrap.
Approximately 48% of the Company's employees are covered by a collective
bargaining agreement, which expires in September 2001. In connection with
the development of a reorganization plan while under the protection of the
Bankruptcy Court, the Company is negotiating with the United Steelworkers
of America, representing workers at the Alton Plant, regarding the
amendment and extension of the collective bargaining agreement.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Trade accounts receivable, trade
accounts payable and accrued liabilities are financial instruments for
which the carrying value approximates fair value because of the short-term
maturity of these instruments. The Company's notes receivable and debt
approximate fair market value due to the interest rates included in the
notes receivable and debt which approximate current market rates for
similar instruments. As a result of the Company's Chapter 11 filing, a
limited market has developed for the trading of financial instruments
included as liabilities subject to compromise. Since the market for such
claims against the Company under Chapter 11 is not well developed, no
reliable source of market price is available.
5. INCOME TAXES
FASB Statement No. 109, Accounting for Income Taxes, requires that deferred
tax assets be reduced by a valuation allowance if it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. In evaluating deferred tax assets as of December 31, 1997,
management believed that Company-wide cost reductions and productivity
improvements previously implemented would return the Company to
profitability during 1998, as discussed further below. During the
nine-month transition period ended September 30, 1998, significant
operating losses caused management to no longer believe that operating
income would be sufficient to realize the Company's tax benefits.
Consequently, a valuation allowance of $72.5 million was recorded, of which
$48.3 million was reflected in the provision for income taxes and the
remaining amount was reflected as an adjustment to the minimum pension
liability, reported as a reduction of stockholder's equity (deficit).
As of December 31, 1997, management believed that it was more likely than
not that all of the net operating loss ("NOL") carryforwards would by
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, were largely offset by the existing
taxable temporary differences relating to accelerated depreciation which
were scheduled to reverse within the carryforward period.
Furthermore, any recorded deferred tax assets associated with these future
tax benefits which would be offset by the reversal of the accelerated
depreciation were 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 believed 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
- 31 -
<PAGE> 32
write-offs. The Company has had a history of generating NOL carryforwards
and then utilizing such NOL carryforwards to reduce regular income taxes in
future periods. Therefore, management believed that no valuation allowance
was necessary for the deferred tax assets at December 31, 1997.
Federal and state income taxes are associated with operating income (loss),
as well as other comprehensive income (loss) (additional minimum pension
liabilities). The Company's provision for (benefit from) income taxes for
both statement of operations and other comprehensive income (loss) is as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Nine-Month
Year Transition Period Year
Ended Ended Ended
September 30, September 30, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Current and deferred taxes,
exclusive of valuation allowance $ (7,186) $ (17,205) $ (1,943)
Valuation allowance 7,296 48,345 --
--------- --------- --------
Total $ 110 $ 31,140 $ (1,943)
OTHER COMPREHENSIVE INCOME (LOSS):
Current and deferred taxes, exclusive
of valuation allowance 14,610 (9,742) $ 4,436
Valuation allowance (14,610) 24,132 --
--------- --------- --------
Total -- 14,390 4,436
--------- --------- --------
TOTAL $ 110 $ 45,530 $ 2,493
========= ========= ========
</TABLE>
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
Fiscal Nine-Month
Year Transition Period Year
Ended Ended Ended
September 30, September 30, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current state income tax provision $ 110 $ 130 $ 336
Deferred income tax benefit (exclusive of the
effect of the valuation allowance) (7,296) (17,335) (2,279)
Increase in valuation allowance for deferred tax 7,296 48,345 -
--------- --------- --------
Provision (benefit) for income taxes $ 110 $ 31,140 $ (1,943)
========= ========= ========
</TABLE>
- 32 -
<PAGE> 33
Deferred tax assets and liabilities are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
Fiscal Nine-Month
Year Transition Period
Ended Ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Deferred tax assets:
Pension liabilities $ 15,311 $ 22,561
Postretirement medical benefits 26,838 27,919
Net operating loss and alternative minimum tax carryovers 38,709 40,429
Allowances on receivables 1,083 1,205
Other 4,791 5,102
----------- -----------
Total deferred tax assets $ 86,732 $ 97,216
----------- -----------
Deferred tax liabilities:
Depreciation (21,569) (24,739)
----------- -----------
Net deferred tax asset 65,163 72,477
Valuation allowance (65,163) (72,477)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
</TABLE>
In connection with the Alternative Minimum Tax Rules ("AMT"), the Company
had available AMT credit carryforwards of approximately $2.5 million, which
may be used indefinitely to reduce regular federal income taxes.
Additionally, for regular tax purposes, the Company had available as of
September 30, 1999, NOL carryforwards of approximately $95.3 million, $67.7
million after carryback of specified losses in connection with Section 172
of the Internal revenue Code as discussed below. These NOL carryforwards
expire in various amounts from 2008 through 2019.
Section 172 on the Internal Revenue Code ("Code") allows a 10-year
carryback for specified liability losses, as defined. During 1998 and 1999,
the Company filed federal and state refund claims based upon the carryback
of $27.6 million of specified liability losses from the tax years December
31, 1995 through September 30, 1998. The carryback claims, if fully
recovered, would provide a current tax benefit of approximately $10.1
million. In addition, if the carryback claims are fully recovered the
Company's regular tax NOL carryforwards will be approximately $67.7 million
and additional deferred tax assets would be recharacterized from tax loss
carryforwards to alternative minimum tax credit carryforwards. However,
Section 172 of the Code is an unsettled area of the law and the amount of
refunds that will ultimately be recovered will not be determinable until
the completion of the final examination of the refund claims by the
Internal Revenue Service. During the year ended September 30, 1999, the
Company received refunds of $6.8 million from the Internal Revenue Service
and the State of Missouri in connection with the carryback claims, but the
Company has not as yet recognized this potential tax benefit in the
Consolidated Statement of operations. If the aforementioned carryback
claims are not ultimately recovered, an NOL carryforward of approximately
$95.3 million would be available as of September 30, 1999.
- 33 -
<PAGE> 34
The applicable statutory federal income tax rate of 34% for the fiscal year
ended September 30, 1999, the nine-month transition period ended September
30, 1998, and the year ended December 31, 1997 is reconciled to the
effective income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Nine-Month
Year Transition Year
Ended Period Ended Ended
September 30, September 30, December 31,
1999 1998 1997
------------- -------------- ------------
<S> <C> <C> <C>
Federal income tax credit computed at statutory tax rate $ (7,223) $ (17,908) $ (1,651)
Change in valuation allowance 7,296 48,345 --
State income taxes net 110 -- (399)
Other (73) 703 107
--------- --------- --------
Provision (benefit) for income taxes $ 110 $ 31,140 $ (1,943)
========= ========= ========
</TABLE>
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"). Although the Company believes that the
transactions consummated pursuant to the Purchase Agreement between Ivaco
and Birmingham Steel on September 26, 1997, in which Birmingham Steel
acquired approximately 25% of the Company's common stock from Ivaco, 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.
There are numerous and complex tax issues associated with the Company's
filing for protection under Chapter 11 of the Bankruptcy Code and the
future reorganization, such as potential abandonment of assets, discharge
of indebtedness or sale of property. The impact of these tax issues will
effect the amount of tax attribute carryforwards and deferred taxes;
however, such impact cannot be determined at this time.
- 34 -
<PAGE> 35
6. DEBT
The components of the Company's debt are as follows (in thousands):
<TABLE>
<CAPTION>
September 30
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
SECURED DEBT:
Bank Loan and Security Agreement:
Revolving Loan $ 55,221 $ 72,429
Term Loan 6,656 7,629
---------- ----------
61,877 80,058
UNSECURED AND UNDERSECURED DEBT:
Solid Waste Disposal Revenue Bonds:
8.375% Bonds 5,905 5,905
8.500% Bonds 9,430 9,430
8% Pollution Control Revenue Bonds 8,040 8,040
8% Industrial development Revenue Bonds 615 615
Notes payable 2,000 2,000
---------- ----------
Total Debt 87,867 106,048
Less: Debt Classified as Current 61,877 106,048
---------- ----------
Unsecured and Undersecured Debt
Classified as Subject to Compromise $ 25,990 $ --
========== ==========
</TABLE>
SECURED DEBT - At September 30, 1998, the Company had a Loan and Security
Agreement with its banks, which had been amended and restated to provide a
total credit facility, subject to a borrowing base formula, of up to $85.0
million and a term loan of $7.6 million. Interest on the Revolving Loan was
payable at either prime plus 2% or a Eurodollar rate, at the Company's
option. Interest on the Term Loan was payable at either prime plus 2-1/2%
or a Eurodollar rate, also at the Company's option. Under the terms of the
Loan and Security Agreement, the Company granted security interests in
accounts receivable and inventory to the participating banks. The Term Loan
was secured by certain plant and equipment.
In connection with the Company's bankruptcy filing, the Bankruptcy Court
authorized the Company to borrow funds under an amended and restated Loan
and Security Agreement (the "DIP Facility"). The DIP Facility provides for
revolving credit based on eligible accounts receivable and inventory
similar to the previous Loan and Security Agreement. At September 30, 1999
the Company had approximately $61.9 million outstanding under the facility
and approximately $8.1 million of unused available funds. In connection
with an amendment to the DIP Facility approved in December 1999 the
termination date was extended to June 30, 2000.
- 35 -
<PAGE> 36
Interest is payable monthly on postpetition revolving loans which bear
interest, at the Company's option, at a floating rate (which is based on 2%
plus the Bank of America reference rate ("Prime") or a Eurodollar rate at
the Company's option) which was approximately 10% at September 30, 1999.
As security for all postpetition obligations and prepetition liabilities,
virtually all assets of the Company and subsidiaries have been granted as
collateral to the Loan and Security Agreement, except for certain assets of
Laclede Chain Manufacturing Company described below.
In connection with the Loan and Security Agreement, as amended, the Company
must maintain compliance with several restrictive financial covenants,
including the maintenance of specified levels of operating cash flow and
minimum operating contributions from the Alton Steel operations, as
defined.
UNSECURED AND UNDERSECURED DEBT - As part of the modifications to the Loan
and Security Agreement in existence at September 30, 1998, the Company
received in 1997 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.
Effective May 22, 1995 a subsidiary of the Company entered into a Note
Agreement for $2,000,000 bearing interest of Citibank NY Prime rate plus
1%. Principal is due upon the original maturity date of May 22, 2001 and
interest is payable monthly. At September 30, 1999 the interest rate was
9.5%.
In connection with the Pollution Control Bonds, the Company is required to
comply with various covenants relating to limits on liabilities as defined
in the Bond Agreement dated October 1, 1976. At September 30, 1998, the
Company was not in compliance with these covenants. Additionally, the
Company failed to make the required payments and consequently, effective as
of October 1, 1998, the Company was in default under the Agreement.
The Company was party to a Paying Agent Agreement in which the Paying Agent
assisted the Company in purchasing certain raw material. The terms of this
agreement required the Company to pay a commission of 1.5% on all purchases
plus a fee on the invoice amount. Amounts purchased under this agreement
were included in accounts payable subject to compromise and amounted to
$9,877,000 as of September 30, 1999 and 1998 and $5,984,000 as of December
31, 1997. As of September 30, 1998, the Paying Agent has terminated this
agreement.
In accordance with the Bankruptcy Code and AICPA Position 90-7 the Company
has not accrued interest on Unsecured and Undersecured Debt since the
bankruptcy filing on November 30, 1998.
Pursuant to the bankruptcy proceedings, and giving consideration to the
defaults on several of the agreements at September 30, 1998 all outstanding
debt was classified as current. At September 30, 1999 all unsecured and
undersecured outstanding debt of the Company is subject to compromise.
- 36 -
<PAGE> 37
7. EMPLOYEE BENEFITS
DEFINED BENEFIT PENSION PLANS - The Company has several noncontributory
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. Annual
pension plan funding has been based on the range of deductible
contributions permitted by ERISA regulations, taking into account the
Company's income tax situation.
As a result of its filing under Chapter 11 on November 30, 1998, the
Company is not permitted by the Bankruptcy Court, to make contributions to
the pension plans related to prepetition liabilities. Due to the size of
the underfunding of the hourly and salaried pension plans, the Company
expects the plans will be terminated and the pension obligations assumed by
the PBGC. Accordingly, in accordance with SFAS No. 88, due to the
probability of plan terminations the Company has recorded a curtailment
loss of approximately $11.7 million in fiscal 1999, representing prior
service costs and unamortized transition obligations (See Note 8). The
Company continues to record the periodic pension costs as set forth in SFAS
No. 87, of which $6.2 million is in excess of current service cost. Neither
the amounts recorded as curtailment loss or periodic pension cost in excess
of current service costs for the hourly and salaried plans will ever be
funded because of the expected plan terminations.
The components of net periodic pension cost are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Nine-Month
Year Transition Period Year
Ended Ended Ended
September 30, 1999 September 30, 1998 December 31, 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
Service cost $ 1,462 $ 1,265 $ 1,742
Interest cost on projected benefit
obligation 12,812 10,184 13,710
Expected return on plan assets (10,853) (8,778) (12,068)
Net amortization of:
Unrecognized transition obligation 62 1,398 1,584
Unrecognized net loss 3,906 2,456 3,419
Unrecognized prior service costs 239 1,255 1,307
--------- --------- ---------
Net periodic pension cost 7,628 7,780 9,694
Settlement and curtailment losses
recognized 11,738 5,813 --
--------- --------- ---------
Total net periodic pension cost $ 19,366 $ 13,593 $ 9,694
========= ========= =========
</TABLE>
Included in total pension cost for the nine-month transition period ended
September 30, 1998 is an expense of $5.8 million recognized in connection
with the write-off of all remaining deferred costs of the Company's Key
Employee Retirement Plan. As discussed in Note 8, several officers of the
Company retired or terminated services during the period. In addition, any
remaining deferred cost associated with the Plan was charged to expense as
a result of the change in the actuarial calculation relating to estimated
future service years for the two employees remaining in the Plan at
September 30, 1998.
- 37 -
<PAGE> 38
The projected benefit obligations at September 30, 1999 and 1998 were
determined using assumed discount rates of 7.75% and 6.75%, respectively.
For all plans other than the Laclede Hourly Employees Pension 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 for such plan. The
weighted average assumed long-term rate of return on the market-related
value of plan assets was 10% for 1999 and 1998, and 9.9% for 1997.
A summary of the funded status and changes in the funded status of the
Plans, is as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Nine-Month
Year Transition Period
Ended Ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period $ 195,974 $ 200,760
Service cost 1,462 1,265
Interest cost 12,812 10,184
Actuarial losses (gains) (10,239) 14,871
Benefits paid (24,081) (31,106)
----------- -----------
Benefit obligation at end of period $ 175,928 $ 195,974
=========== ===========
Change in plan assets:
Fair value of plan assets at beginning of period $ 123,035 $ 148,706
Actual return (loss) on plan assets 34,858 (4,169)
Employer contribution 600 9,604
Benefits paid (24,081) (31,106)
----------- -----------
Fair value of plan assets at end of period $ 134,412 $ 123,035
=========== ===========
Funded status $ (41,515) $ (72,939)
Unrecognized net transition obligation (asset) (525) 4,931
Unrecognized actuarial loss 26,806 64,951
Unrecognized prior service cost 5 6,589
----------- -----------
Net amount recognized $ (15,229) $ 3,532
=========== ===========
Amounts recognized in the consolidated balance sheet consist of:
Prepaid pension cost (reflected in other non-
current assets) $ 49 $ 83
Accrued benefit liability (40,341) (72,328)
Intangible asset 5 12,271
Accumulated other comprehensive income 25,058 63,506
----------- -----------
Net amount recognized $ (15,229) $ 3,532
=========== ===========
</TABLE>
- 38 -
<PAGE> 39
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $174.9 million, $173.5 million
and $133.2 million, respectively, as of September 30, 1999, and $200.6
million, $198.8 million and $119.0 million, respectively, as of
September 30, 1998.
In accordance with SFAS No. 87, the Company has recorded an additional
minimum pension liability for underfunded plans of $25.1 million at
September 30, 1999 and $75.8 million at September 30, 1998, representing
the excess of unfunded accumulated benefit obligations over previously
recorded pension cost liabilities. The reduction in minimum pension
liability at September 30, 1999 from September 30, 1998 is primarily due to
investment performance of plan assets, with the actual return on assets
substantially exceeding the assumed rate of return. The increase in the
assumed discount rate used to determine the accumulated benefit obligation
from 6.75% to 7.75% also caused a substantial reduction in the minimum
pension liability.
The minimum pension liability 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
(deficit). This charge amounted to $25.1 million at September 30, 1999. As
of September 30, 1998, $63.5 million of the excess minimum pension
liability resulted in a charge to equity. A valuation allowance for the
corresponding deferred tax asset resulting from the additional minimum
liability was recorded in 1999 and 1998 as it did not appear likely that
the deferred tax assets will be realized under present circumstances (See
Note 5).
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 matching contribution
regardless of the level of Company profitability. Company contributions for
the year ended September 30, 1999 amounted to $99,000, for the nine-month
transition period ended September 30, 1998 amounted to $167,000, and for
the year ended December 31, 1997 amounted to $259,000.
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.
- 39 -
<PAGE> 40
The components of net periodic postretirement medical benefit costs are as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Nine-Month
Year Transition Year
Ended Period Ended Ended
September 30, September 30, December 31,
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Service cost $ 473 $ 327 $ 452
Interest cost 3,712 2,872 3,731
Amortization of unrecognized prior service
credits (960) (719) (960)
Amortization of unrecognized net gain (699) (599) (1,420)
-------- -------- --------
Net periodic costs $ 2,526 $ 1,881 $ 1,803
======== ======== ========
</TABLE>
A summary of the changes in the status of the plans is as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal Nine-Month
Year Transition
Ended Period Ended
September 30, September 30,
1999 1998
----------- ------------
<S> <C> <C>
Benefit obligations at beginning of period $ 57,607 $ 55,750
Service cost 473 327
Interest cost 3,712 2,872
Actuarial (gains) losses (35) 2,933
Benefits paid (5,353) (4,275)
---------- ----------
Benefit obligations at end of period $ 56,404 $ 57,607
========== ==========
Funded status $ (56,404) $ (57,607)
Unrecognized actuarial gain (8,056) (8,737)
Unrecognized prior service credit (6,166) (7,126)
---------- ----------
Accrued post-retirement benefit obligation $ (70,626) $ (73,470)
========== ==========
</TABLE>
The assumed discount rates used to measure the accumulated postretirement
benefit obligation were 7.75% at September 30, 1999 and 6.75% at September
30, 1998. The assumed future health care cost trend rates for the September
30, 1999 and 1998 calculations were 6.36% and 7.14%, gradually declining
over a five-year period to 3.25%. In 2003 and later years, a one percentage
point increase in the health care trend rates would have increased the
aggregate of the service and interest cost components of the net periodic
postretirement benefit cost by $517,000 for the year ended
- 40 -
<PAGE> 41
September 30, 1999, $444,000 for the nine-month transition period ended
September 30, 1998 and $477,000 for the year ended December 31, 1997, and
would have increased the accumulated postretirement benefit obligation by
$5.5 million as of September 30, 1999 and $5.6 million as of September 30,
1998.
A one percentage point decrease in the health care trend rates would have
decreased the aggregate of the service and interest cost components of the
net periodic postretirement benefit cost by $460,000 for the year ended
September 30, 1999, $390,000 for the nine-month transition period ended
September 30, 1998, and $428,000 for the year ended December 31, 1997,
respectively, and would have decreased the accumulated postretirement
benefit obligation by $5.0 million as of September 30, 1999 and by
$5.1 million as of September 30, 1998.
8. ASSET IMPAIRMENT, OTHER CHARGES AND CREDITS (In Thousands)
<TABLE>
<CAPTION>
Fiscal Nine-Month
Year Transition Year
Ended Period Ended Ended
September 30, September 30, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Lawsuit Settlement $ (4,561) $ - $ -
Curtailment Loss - Pension (See Note 7) 11,738 - -
Impairment Loss
- HTMR Facility - 15,362 -
- Memphis Plant - 4,650 -
Executive Retirements and Other - 7,634 -
Gain on Sale of Tubing Operation - - (987)
-------- -------- -------
$ 7,177 $ 27,646 $ (987)
======== ======== =======
</TABLE>
Due to the probability that the hourly and salaried pension plans will be
terminated by the PBGC, the Company has recorded an $11.7 million
curtailment loss in the year ended September 30, 1999. (See Note 7). The
Company recorded income of $4.6 million in fiscal 1999 from settlements in
connection with class action lawsuits involving electrode manufacturers.
In December 1997, the Company idled its High Temperature Metal Recovery
("HTMR") facility after the facility was damaged in an accident. This
facility was previously used to dispose of the EAF dust generated in the
Melt Shop at the Alton Plant. Subsequent to the accident, the Company
disposed of the EAF dust through alternative methods. During 1998,
management completed an evaluation of the HTMR facility to determine the
economic feasibility of repairing and operating the unit, and determined
that the HTMR facility currently could not function on an economically
feasible basis. As there is a limited market for this type of facility, the
entire carrying cost of $15.4 million was written off and recorded as an
impairment loss.
In June 1998, management implemented its program to consolidate the wire
operations at its Fremont facility and to shut down the Memphis Wire Plant.
In connection with the shut down, the Company recorded a charge of
approximately $6.0 million of which $4.6 million is reflected in the
accompanying consolidated statements of operations as asset impairments and
other charges. The
- 41 -
<PAGE> 42
impairment loss on property, plant and equipment reflects the difference
between the carrying value at the time of write-off of approximately $6.3
million and an estimated fair value less costs to sell of approximately
$2.2 million. Operations have ceased and the majority of the assets have
been sold. Net proceeds of approximately $2.0 million have been received in
connection with such sales. Also included in the charge is $0.5 million
relating to the write-off of goodwill associated with this operation. The
remaining write-off associated with the closing of the Memphis Wire Plant
of approximately $1.4 million relates to inventory losses and termination
shutdown costs incurred which have been reflected in cost of products sold.
Professional fees associated with the Company's potential restructuring
were also recorded in the nine-month transition period ended September 30,
1998. The Company recorded charges of approximately $6.4 million in
connection with the retirement severance of several officers of the Company
during the nine-month transition period ended September 30, 1998. Included
in this charge is approximately $5.8 million in primarily noncash
settlement and curtailment expenses relating to the Company's Key Employee
Retirement Plan.
In February 1997, the Company sold the assets of its electric resistance
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 $11.0 million.
This transaction resulted in a gain on sale of equipment of approximately
$1.0 million. The Company used the funds from the sale to improve its
working capital position.
9. COMMITMENTS AND CONTINGENCIES:
The Company has operating leases for office space and certain equipment
through 2007. Future minimum lease commitments required under these leases
are as follows (in thousands):
<TABLE>
<CAPTION>
Lease
Commitments
----------------------------------------
<S> <C>
2000 $ 4,816
2001 3,887
2002 1,636
2003 1,404
2004 817
Thereafter 938
-------
TOTAL $13,498
=======
</TABLE>
Rent expense under all leases in 1999, 1998, and 1997 was $5.2 million,
$4.9 million and $4.3 million, respectively. In connection with its
reorganization under the Bankruptcy Code, the Company rejected its lease
for space for corporate offices in the Metropolitan Square Building and now
leases space at 440 North Fourth Street in downtown St. Louis under a lease
expiring on November 30, 2001, with an option to extend to November 30,
2004. A decision with respect to the assumption, rejection or assignment of
other leases in accordance with the Bankruptcy Code has not as yet been
made by the Company.
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 $4.0 million
cash and a note receivable for approximately $3.6 million which was
- 42 -
<PAGE> 43
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. In August
1998, the Company made a late payment on the lease, allowing the lessor to
draw upon a letter of credit in the amount of $1.5 million. Management
expects to renegotiate the terms for acquiring the Ladle Metallurgy
Facility in connection with the Bankruptcy proceedings.
There are various claims pending involving the Company with respect to
environmental, hazardous substances, product liability and other matters
arising out of the routine conduct of the business. Such claims which arose
prior to November 30, 1998 are subject to automatic stay of the Bankruptcy
Code. The Company believes it has meritorious defenses and the ultimate
disposition of such matters will not materially affect its financial
position or results of operations.
In August 1998, the Company announced that, in accordance with its Labor
Agreement, it planned to discontinue operation of its 22" Mill at its
Alton, Illinois Plant. Since the announcement, the Company has continued to
operate the mill, primarily as a result of the decline in scrap prices,
which has made the operation of the 22" Mill more economical.
On January 14, 1999 the Company announced, in accordance with its Labor
Agreement, it had given formal notice to the United Steelworkers of America
of its intention to permanently discontinue the operations of its Alton,
Illinois Tube Mill. Although the Company informed officials of the Union of
its intention, at this date the Company is continuing to explore other
alternatives with the Union.
Shutdown of the Alton 22" Mill and Tube Mill could affect the employment of
certain employees of the Alton Plant. Management is negotiating with the
Union to reach a decision as to the future of these facilities during the
bankruptcy proceedings.
10. PREFERRED STOCK
In July 1996, the Company issued 416,667 shares of Series A 6% convertible
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 $6,007,000. 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 (which total $875,000 or $2.10 per share) before
payment is made to holders of common stock. The Company has not accrued
dividends on the preferred stock since the bankruptcy filing. As of
September 30, 1999 and 1998, Birmingham Steel and Ivaco, Inc. each owned
approximately 44% of the issued shares of convertible preferred stock.
11. RELATED PARTY TRANSACTIONS
The Company has transactions in the normal course of business with Ivaco
Inc. or affiliated companies. As of September 30, 1999 Ivaco Inc. owned
approximately 25% of the Company's outstanding common stock. For the year
ended September 30, 1999 and nine-month transition period ended September
30, 1998, the Company purchased rods at market prices totaling $2,979,000
and $1,024,000, respectively, from affiliates of Ivaco. Prior to January 1,
1998, the Company was self-insured for workers' compensation liabilities.
Ivaco Inc. issued a $4.0 million guaranty bond covering such liabilities.
- 43 -
<PAGE> 44
The Company also has transactions in the normal course of business with
Birmingham Steel or affiliated companies. As of September 30, 1999
Birmingham Steel beneficially owned approximately 25% of the Company's
outstanding common stock. In 1998 the Company purchased rods and
participated in rod conversion arrangements with affiliates of Birmingham
Steel at market prices, which totaled $3,508,000. In 1999 such purchases
totaled $6,346,000. Also in 1997, an affiliate of Birmingham Steel
purchased semi-finished steel from the Company at market prices totaling
$643,000.
12. INFORMATION BY PRODUCT LINE
The Company operates in one business segment as a manufacturer of carbon
and alloy steel products. Its primary product lines consist of pipe and
tubular products, wire, hot rolled bars and welded chain. The following
table presents, for the periods indicated, the Company's revenue by product
class (in thousands):
<TABLE>
<CAPTION>
Fiscal Nine-Month Transition Year
Year Ended Period Ended Ended
September 30, 1999 September 30, 1998 December 31, 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
Pipe And tubular $ 83,045 $ 82,463 $ 123,512
Hot Rolled 99,198 102,207 122,861
Wire 26,788 27,410 48,104
Chain 32,551 20,209 30,552
--------- --------- ---------
Total $ 241,582 $ 232,289 $ 325,029
========= ========= =========
</TABLE>
- 44 -
<PAGE> 45
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
In its quarterly financial statements for the first three quarters of 1999, the
Company only recognized the portion of pension expense under its defined benefit
pension plans attributable to employee current service cost. Amounts in excess
of current service costs will not be funded because of expected plan
terminations. Subsequently, the Company determined that because of the
probability of plan terminations a pension curtailment loss of $11.7 million
should be recognized as a first quarter charge in 1999. It was also determined
that the entire amount of net periodic pension cost calculated in accordance
with Statement of Financial Accounting Standards No. 87 should be recognized in
fiscal 1999, even though amounts in excess of current service costs will not be
funded. As a result, the 1999 quarterly results of operations have been restated
from amounts previously reported. The results of operations by quarter for 1999
and 1998 were as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 AS PREVIOUSLY REPORTED 1999 AS RESTATED
--------------------------------------- -----------------------------------------------------
DEC 31 MAR 31 JUN 30 DEC 31 MAR 31 JUN 30 SEP 30
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 68,108 $ 59,901 $ 56,354 $ 68,108 $ 59,901 $ 56,354 $ 57,219
Cost of products sold 62,501 53,079 50,762 62,953 54,434 52,117 55,449
-------- -------- -------- --------- --------- --------- ---------
Net sales less cost of
products sold $ 5,607 $ 6,822 $ 5,592 $ 5,155 $ 5,467 $ 4,237 $ 1,770
======== ======== ======== ========= ========= ========= =========
Net loss $ (766) $ (1,073) $ (1,627) $ (12,956) $ (2,428) $ (2,982) $ (2,987)
======== ======== ======== ========= ========= ========= =========
Basic and fully diluted
net loss
per share $ (0.21) $ (0.29) $ (0.37) $ (3.21) $ (0.60) $ (0.73) $ (0.74)
======== ======== ======== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------
MAR 31 JUN 30 SEP 30
------ ------ ------
<S> <C> <C> <C>
Net sales $ 84,555 $ 76,840 $ 70,894
Cost of products sold 77,638 78,069 77,878
-------- -------- --------
Net sales less cost of
products sold $ 6,917 $ (1,229) $ (6,984)
======== ======== ========
Net loss $ (2,038) $(65,468) $(16,306)
======== ======== ========
Basic and fully diluted net
loss per share $ (0.53) $ (16.16) $ (4.04)
======== ======== ========
</TABLE>
- 45 -
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Laclede Steel Company and Chapter 11 Trustee of
Laclede Steel Company:
We have audited the accompanying consolidated balance sheets of Laclede Steel
Company and Subsidiaries (Debtors-in-Possession) as of September 30, 1999 and
1998, and the related consolidated statements of operations and comprehensive
income (loss), stockholders' equity (deficit) and cash flows for the year ended
September 30, 1999, the nine month transition period ended September 30, 1998
and year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 at September 30, 1999 and 1998, and the results of their operations
and their cash flows for the year ended September 30, 1999, the nine month
transition period ended September 30, 1998 and year ended December 31, 1997, in
conformity with generally accepted accounting principles.
As discussed in Note 1, on November 30, 1998, the Company filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code. The accompanying
consolidated financial statements do not purport to reflect or provide for the
consequences of the bankruptcy proceedings. In particular, such consolidated
financial statements do not purport to show (a) as to assets, their realizable
value on a liquidation basis or their availability to satisfy liabilities; (b)
as to prepetition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (d) as to operations, the effect of any changes that may be made
in its business.
- 46 -
<PAGE> 47
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company's bankruptcy filing, recurring losses and capital deficiency raise
substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also discussed in Note 1. The
consolidated financial statements do not include adjustments that might result
from the outcome of this uncertainty.
Deloitte & Touche LLP
St. Louis, Missouri
December 27, 1999
- 47 -
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
January 6, 2000 /s/ Thomas E. Brew, Jr.
_______________________ __________________________________________________
Date Thomas E. Brew, Jr.
President
Principal Executive Officer
January 6, 2000 /s/ Michael H. Lane
_______________________ __________________________________________________
Date Michael H. Lane
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
Director
Pursuant to the requirements of the Securities and 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.
January 3, 2000 /s/ Wayne P. E. Mang
_______________________ __________________________________________________
Date Wayne P. E. Mang
Chairman of the Board
January 6, 2000 /s/ Philip R. Morgan
_______________________ __________________________________________________
Date Philip R. Morgan
Director
December 30, 1999 /s/ Robert H. Quenon
_______________________ __________________________________________________
Date Robert H. Quenon
Director
December 28, 1999 /s/ George H. Walker III
_______________________ __________________________________________________
Date George H. Walker III
Director
- 48 -
<PAGE> 1
EXHIBIT (4) (d)
AMENDMENT NO. 3
TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 3 dated as of December 17, 1999 (this "Amendment") is
entered into among BANK OF AMERICA, NATIONAL ASSOCIATION ("B of A"), as
successor to BankAmerica Business Credit, Inc., Bank of America, National Trust
and Savings Association and NationsBank, N.A., and GMAC COMMERCIAL CREDIT LLC, a
New York limited liability company ("GMAC"), as successor to BNY Financial
Corporation, formerly known as Bank of New York Commercial Corporation, (B of A
and GMAC and their respective successors and assigns being sometimes hereinafter
referred to collectively as the "Lenders" and each of B of A and GMAC and its
successors and assigns being sometimes hereinafter referred to individually as a
"Lender"), B of A (as successor to BankAmerica Business Credit, Inc. and Bank of
America, National Trust and Savings Association), as agent for the Lenders (in
such capacity as agent, the "Agent"), LACLEDE STEEL COMPANY, a Delaware
corporation, as debtor and debtor-in-possession (the "Parent"), LACLEDE CHAIN
MANUFACTURING COMPANY, a Delaware corporation, as debtor and
debtor-in-possession ("Laclede Chain"), and LACLEDE MID AMERICA INC., an Indiana
corporation, as debtor and debtor-in-possession ("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 December 1, 1998, as amended by
Amendment No. 1 dated as of December 23, 1998 and Amendment No. 2 dated as of
July 1, 1999 (such Loan and Security Agreement, as so amended, the "Loan
Agreement," capitalized terms used herein without definition having the meanings
given such terms in the Loan Agreement, as amended by this Amendment); 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 4 below, the Loan Agreement is
amended as follows:
(a) Section 1.1 is amended by deleting the definitions of "Agreed
Pre-Petition Outstanding Balance" and "Inventory Sublimit Amount."
(b) Section 1.1 is further amended by amending and restating the definition
of "Bank of America" as follows:
"Bank of America" means Bank of America, National Association, a national
banking association, or any successor entity thereto.
(c) Section 1.1 is further amended by amending and restating the definition
of "Base Rate Loan" as follows:
<PAGE> 2
"Base Rate Loan" means a Post-Petition Revolving Loan or Post-Petition
Term Loan during any period in which it bears interest at the rate provided
in Section 3.1(i).
(d) Section 1.1 is further amended by amending and restating the definition
of "LIBOR Loan" as follows:
"LIBOR Loan" means a Post-Petition Revolving Loan or Post-Petition
Term Loan during any period in which it bears interest at the rate provided
in Section 3.1(ii).
(e) Section 1.1 is further amended by amending and restating clause (a) of
the definition of "Maximum Revolver Amount" as follows:
(a) the lesser of
(i) the Revolver Facility minus the amount of Term Loans outstanding
at such time and the amount of any Pre-Petition Obligations
outstanding at such time; or
(ii) (A) eighty-five percent (85.0%) of the Net Amount of the Eligible
Accounts; plus (B) the lesser of (1) sixty-five percent (65.0%) of the
value of Net Eligible Inventory; and (2) $38,500,000; provided, that
the amount of Revolving Loans based upon Eligible Inventory consisting
of supplies shall be limited to the Supplies Inventory Sublimit
Amount; plus (C) the amount of the Additional Facility at such time
minus (D) the amount of Pre-Petition Revolving Loans outstanding at
such time;
(f) Section 1.1 is further amended by adding the following definitions in
alphabetical order:
"Post-Petition Term Loans" means Term Loans made pursuant to this
Agreement.
"Pre-Petition Term Loans" means Term Loans made pursuant to the
Original Agreement.
"Supplies Inventory Sublimit Amount" means the amount set forth below
for the period indicated:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Effective date of Amendment
No. 3 hereto through
December 31, 1999 $ 6,000,000
January 2000 6,000,000
February 2000 5,750,000
March 2000 5,500,000
April 2000 5,250,000
May 2000 5,000,000
June 2000 4,750,000
</TABLE>
In determining the Eligibility Inventory that is subject to the Supplies
Inventory Sublimit Amount, zinc and pipe couplings will be treated as raw
materials rather than supplies.
(g) Section 1.1 is further amended by amending and restating the definition
of "Stated Termination Date" as follows:
<PAGE> 3
"Stated Termination Date" means June 30, 2000.
(h) Section 1.1 is further amended by amending and restating the
definition of "Term Loans" as follows:
"Term Loans" means, collectively, Pre-Petition Term Loans and
Post-Petition Term Loans.
(i) Section 3.1 is amended and restated as follows:
3.1 Interest Rates. All outstanding Post-Petition Obligations shall
bear interest on the unpaid principal amount thereof (including, to the
extent permitted by law, on interest thereon not paid when due) from the
date made until paid in full in cash at a rate determined by reference to
the Base Rate or the LIBO Rate and Sections 3.1(i) or (ii), as applicable,
but not to exceed the Maximum Rate described in Section 3.4. Subject to the
provisions of Section 3.2, any of the Post-Petition Revolving Loans or
Post-Petition Term Loans may be converted into, or continued as, Base Rate
Loans or LIBOR Loans in the manner provided in Section 3.2. If at any time
Post-Petition Revolving Loans or Post-Petition Term Loans are outstanding
with respect to which notice has not been delivered to the Agent in
accordance with the terms of this Agreement specifying the basis for
determining the interest rate applicable thereto, then those Post-Petition
Revolving Loans or Post-Petition Term Loans shall be Base Rate Loans and
shall bear interest at a rate determined by reference to the Base Rate
until notice to the contrary has been given to the Agent and such notice
has become effective. Except as otherwise provided herein, the outstanding
Post-Petition Obligations shall bear interest as follows:
(i) For all Post-Petition Revolving Loans, Post-Petition Term Loans
and other Post-Petition Obligations which are not LIBOR Loans, then at a
fluctuating per annum rate to two percent (2.00%) plus the Base Rate;
(ii) For all Post-Petition Revolving Loans and Post-Petition Term
Loans which are LIBOR Loans, then at a per annum rate equal to four percent
(4.00%) plus the LIBO Rate determined for the applicable Interest Period.
Each change in the Base Rate shall be reflected in the interest rate
described in (i) above as of the effective date of such change. All
interest charges shall be computed on the basis of a year of 360 days and
actual days elapsed. Except as otherwise provided herein, (a) interest
accrued on each LIBOR Loan shall be payable in arrears on the first day of
each month hereafter, and (b) interest accrued on the Base Rate Loans will
be payable in arrears on the first day of each month hereafter.
(j) Subsection (a) of Section 3.2 is amended and restated as follows:
(a) Subject to the provisions of Section 3.3, (i) the Borrowers shall
have the option to convert all or any part of the outstanding Post-Petition
Revolving Loans or Post-Petition Term Loans, in a minimum amount of
$5,000,000 and integral multiples of $5,000,000 in excess of that amount,
from Base Rate Loans to LIBOR Loans at any time; (ii) the Borrowers shall
have the option to convert all or any part of the outstanding Post-Petition
Revolving Loans or Post-Petition Term Loans from LIBOR Loans to Base Rate
Loans on the expiration of the Interest Period applicable thereto; and
(iii) the Borrowers shall have the option, on the expiration of the
Interest Period applicable to any outstanding LIBOR Loan, to continue all
or any portion of such LIBOR Loan equal to $5,000,000 and integral
multiples of $5,000,000 in excess of that amount, as a LIBOR Loan;
provided, however, that no outstanding Loans may be converted into or
continued as LIBOR Loans when any Default or Event of Default has occurred
and is continuing. Any
<PAGE> 4
conversion or continuation made with respect to less than the entire
outstanding balance of the Post-Petition Revolving Loans or
Post-Petition Term Loans must be applied pro rata to the Revolving
Loans or Term Loans, as applicable, according to the outstanding
principal balance of each Revolving Loan or each Term Loan.
(k) Section 4.2 is amended and restated as follows:
4.2 Scheduled Payments and Mandatory Prepayments of the Term
Loans. The Borrowers shall make monthly principal payments on the
Post-Petition Term Loans in the aggregate amount of $70,000, due and
payable on the first day of each calendar month, commencing on January
1, 2000, until the earlier of (a) the Stated Termination Date, or (b)
the payment in full of the Post-Petition Term Loans. In addition,
prepayments on the Term Loans shall be required to be made as provided
in Sections 5.11(c), 8.5(c), 8.6(b) and 8.9(b). In addition, after the
Additional Facility has been reduced to zero, (1) if any amounts are
received with respect to items (a), (b), or (f) on Exhibit D, then 50%
of such amounts shall be applied to the prepayment of the Term Loans,
applying such amounts ratably to the installments of the Term Loans in
the inverse order of maturity, and (2) if any Net Proceeds of the
Electrode Settlement are received such that the amount of all Net
Proceeds of the Electrode Settlement at such time is in excess of
$2,500,000, then 100% of such excess Net Proceeds shall be applied to
the prepayment of the Term Loans, applying such amounts ratably to the
installments of the Term Loans in the inverse order of maturity.
(l) Section 4.5 is amended by amending and restating clause
"second" as follows:
second, from and after the entry of the Final Order, through and
including December 31, 1999, to make Adequate Protection Payments;
(m) Section 4.5 is further amended by amending and restating
clause "fourth" as follows:
fourth, until the outstanding Pre-Petition Obligations have been paid
in full, to pay the principal of the Pre-Petition Revolving Loans;
(n) The last sentence of Section 8.9(b) is amended and restated
as follows:
Upon any such sale or other disposition, the entire amount of Net
Proceeds shall be applied on the date of such sale or disposition to
the repayment of the Term Loans, and if the Term Loans have been
repaid in full, to any other Post-Petition Obligations then
outstanding.
(o) Section 8.24 is amended and restated as follows:
8.24 Cash Available for Fixed Charges. The Borrowers will
maintain Cash Available for Fixed Charges, determined as of the end of
each period listed below for the period indicated, of not less than
the following:
<TABLE>
<CAPTION>
Cash Available for
Period Fixed Charges
------ -------------
<S> <C>
Ten month period ending 9/30/99 $ (100,000)
Thirteen month period ending 12/31/99 $ 1,400,000
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Cash Available for
Period Fixed Charges
------ -------------
<S> <C>
Sixteen month period ending 3/31/00 $ 2,100,000
Nineteen month period ending 6/30/00 $ 2,900,000
</TABLE>
In determining Cash Available for Fixed Charges, non-cash pension
expense other than service costs will not be deducted from net
earnings.
(p) Section 8.25 is amended and restated as follows:
8.25 Direct Contribution. The Direct Contribution of the Alton
Steel Operations will not be less than the following amounts for the
following periods:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Nine months ending 9/30/99 $ (1,500,000)
Twelve months ending 12/31/99 $ (1,700,000)
Fifteen months ending 3/31/00 $ 1,000,000
Eighteen months ending 6/30/00 $ 1,500,000
</TABLE>
In determining Direct Contribution, non-cash pension expense other
than service costs will not be deducted from net income.
(q) Section 13.11 is amended to delete the wire transfer
instructions for NB, and Section 14.7 is amended to delete the address
provision for NB.
Section 2. Bank of America Reorganization. As a result of the
distribution of the assets of BankAmerica Business Credit, Inc. to
Bank of America National Trust and Savings Association (the name of
which was subsequently changed to Bank of America, National
Association), and the merger of NationsBank, N.A. with and into Bank
of America, National Association with the surviving entity in such
merger being Bank of America, National Association, all references to
BankAmerica Business Credit, Inc., BABC, Bank of America National
Trust and Savings Association, Bank of America, NationsBank, N.A. and
NB contained in the Loan Agreement shall hereafter be deemed to be
references to Bank of America, National Association.
Section 3. Pre-Petition Revolving Loans, Pre-Petition Term Loans
and Adequate Protection Payments. The Agent, the Lenders and the
Borrowers hereby agree that on the date upon which this Amendment
shall become effective, the Borrowers shall borrow (a) Post-Petition
Revolving Loans to repay in full the Pre-Petition Revolving Loans, and
(b) Post-Petition Term Loans to repay in full the Pre-Petition Term
Loans, so that as of such date, the balance of the Pre-Petition
Obligations shall be zero, and the Borrowers hereby direct the Lenders
to advance such Post-Petition Revolving Loans and Post-Petition Term
Loans on such effective date. In addition, the Agent, the Lenders and
the Borrowers agree that any Adequate Protection Payments received by
the Agent or the Lenders pursuant to the Loan Agreement shall be
applied first, to pay any interest due on the Pre-Petition
Obligations, including interest accrued after the Petition Date at the
rates set forth under the Loan Agreement and second, to reduce the
principal amount due on the Term Loans. The Borrowers shall make the
final Adequate Protection Payment on December 31, 1999, after which
date the Borrowers shall not be required to make any further Adequate
Protection Payments; provided, that the right of the Borrowers to
cease making Adequate Protection Payments is without prejudice to, and
does not constitute a waiver of, expressly or implicitly,
<PAGE> 6
the right of the Lenders hereafter to request additional adequate protection of
their interests in the Collateral or relief from or modification of the
automatic stay under Section 362 of the Bankruptcy Code. The Borrowers shall
make monthly principal payments on the Post-Petition Term Loans in the aggregate
amount of $70,000, due and payable on the first day of each calendar month,
commencing on January 1, 2000, until the earlier of (a) the Stated Termination
Date, or (b) the payment in full of the Post-Petition Term Loans.
Section 4. Conditions to Amendment. This Amendment shall become effective
upon (a) 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 Lender shall
promptly execute six applicable signature pages hereof and deliver such pages to
the Agent), and (b) entry by the Bankruptcy Court of a final order acceptable to
the Agent approving the terms hereof, and such order being in full force and
effect and (unless waived by the Agent) not subject to reversal, stay,
modification, amendment or appeal.
Section 5. 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 6. 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 7. 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 8. 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 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.
<PAGE> 7
Section 10. Parties, Successors and Assigns. This Amendment shall be
binding upon and shall inure to the benefit of the Borrowers, the Agent, each
Lender, and their respective successors and assigns.
Section 11. Severability. To the extent any provision of this Amendment is
not enforceable under applicable law, such provision shall be deemed null and
void and shall have no effect on the remaining portions of the Amendment.
Section 12. Construction of Amendment. Each party hereto has cooperated in
the drafting and preparation of this Amendment and, as a result, this Amendment
shall not be construed against any party. This Amendment may be amended or
modified only by a written agreement signed by the parties hereto. This
Amendment may be executed in counterparts, each of which when so executed and
delivered shall be deemed an original but all such counterparts together shall
constitute one and the same instrument.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of December 17, 1999.
LACLEDE STEEL COMPANY, as
Debtor and Debtor-in-Possession
By:_______________________________
Vice President
LACLEDE CHAIN MANUFACTURING COMPANY, as
Debtor and Debtor-in-Possession
By:________________________________
Vice President
LACLEDE MID AMERICA INC., as
Debtor and Debtor-in-Possession
<PAGE> 9
By:________________________________
Vice President
BANK OF AMERICA, NATIONAL ASSOCIATION,
(as successor to BankAmerica Business
Credit, Inc. and Bank of America National
Trust and Savings Association), as the
Agent
By:________________________________
Vice President
BANK OF AMERICA, NATIONAL ASSOCIATION,
(as successor to BankAmerica Business
Credit, Inc., Bank of America National
Trust and Savings Association and
NationsBank, N.A.), as a Lender
By:________________________________
Vice President
GMAC COMMERCIAL CREDIT LLC, (as successor
to BNY Financial Corporation, formerly
known as The Bank of New York Commercial
Corporation), as a Lender
By:________________________________
Vice President
<PAGE> 1
EXHIBIT (10)(c)
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and
entered into as of the 13th day of January, 1999, by and between LACLEDE STEEL
COMPANY, debtor in possession, a Delaware corporation ("Employer"), and MICHAEL
H. LANE ("Employee").
WHEREAS, Employee and Employer previously entered into an employment
agreement as of the 30th day of July, 1996 which was further amended on March
24, 1998 and July 29, 1998 (the "Original Employment Agreement"); and
WHEREAS, Employee and Employer desire to amend and restate the
Original Employment Agreement in its entirety, pursuant to this Amended and
Restated Employment Agreement; and
WHEREAS, Employee desires to be employed by Employer and
Employer desires to employ Employee under the terms and conditions set forth in
this Amended and Restated Employment Agreement; and
WHEREAS, it is Employer's intention to employ Employee upon
the terms and conditions herein, which recognize and compensate Employee for the
obligations of Employee undertaken hereunder, including specifically, but not by
way of limitation, the agreement of Employee not to compete with the business of
Employer, as provided in paragraph 9(b) (see page 8), for the period provided in
paragraph 9(a) upon the termination of Employee's employment by Employer for any
reason; it being understood and agreed that Employee is employed by Employer to
protect and expand the business of Employer;
NOW, THEREFORE, in consideration of the foregoing and the
promises and agreements herein contained, the parties agree as follows:
1. Employment. Employer hereby employs Employee, and
Employee hereby accepts such employment from Employer upon the terms and
conditions hereinafter set forth. This Amended and Restated Employment Agreement
supersedes the Original Employment Agreement.
<PAGE> 2
2. Term of Employment. The term of Employee's employment
under this Agreement shall be for the period commencing January 13, 1999, and
continuing through December 31, 2000. Subsequent to such term this Agreement
shall continue in full force and effect until either party shall give ninety
(90) days written notice of termination, in which case this Agreement shall
terminate on the ninetieth (90th) day following the giving of such notice to the
other party. In addition, this Agreement shall terminate on the occurrence of
any of the following events:
(a) Whenever Employer and Employee shall mutually
agree in writing to terminate Employee's employment by Employer;
(b) Upon the death of Employee;
(c) For "cause," which shall mean Employee's
dishonesty or unlawful acts committed in connection with the business of
Employer, and which results in substantial gain or profit to Employee.
(d) At Employer's option and by action of Employer's
Board of Directors on thirty (30) days' written notice in the event of
Employee's Disability (defined as the failure substantially to discharge
Employee's duties as defined under this Agreement for ninety (90) consecutive
days or one hundred twenty (120) days (whether or not consecutive) in any twelve
(12) month period, as a result of an injury, disease, sickness or other physical
or mental incapacity). A determination of Employee's Disability shall be made by
a qualified medical doctor licensed to practice in the State of Missouri chosen
by Employer subject to Employee's approval, which approval shall not be
unreasonably withheld. Employee shall consent to be examined by Employer's
medical doctor and shall consent to allow Employee's medical doctor to discuss
Employee's medical condition with Employer. Notwithstanding anything to the
contrary contained herein, Employee's Disability shall not be deemed to have
commenced until full coverage with respect to such Disability shall have been
approved by Employer's disability insurance carrier and payment under Employer's
group disability policy for such Disability shall have commenced.
3. Title and Duties of Employee. Employee's title shall be
Executive Vice President and Chief Financial Officer. During Employee's
employment by Employer, Employee shall serve Employer to the best of Employee's
ability and shall perform such duties as are typically performed by the Chief
<PAGE> 3
Financial Officer of Employer. Employee agrees to devote Employee's time and
efforts to the business of Employer (except for usual vacations and reasonable
time for attention to personal affairs so long as Employee's performance
hereunder is not adversely affected thereby), and to be loyal and faithful at
all times, constantly endeavoring to improve Employee's ability and knowledge of
the business of Employer in an effort to increase the value of Employee's
services for the mutual benefit of Employee and Employer.
4. Compensation and Benefits Other than Life Insurance.
(a) Employer agrees to pay Employee for Employee's
services during the term of Employee's employment hereunder. Employee's base
salary shall be the greater of (i) an annual rate of Two Hundred Forty-Three
Thousand Five Hundred Dollars ($243,500.00) or (ii) the highest annual base
salary authorized by the Board of Directors after the date hereof. Employee's
base salary shall be due and payable in twelve (12) equal monthly installments.
Additionally, during the term of Employee's employment by Employer hereunder,
Employee's compensation shall be reviewed and may be increased and/or Employee
may be paid additional or special compensation including without limitation
stock options, stock appreciation rights and other incentive compensation, or
bonuses (based on the earnings of Employer, the performance of Employee or
otherwise) from time to time by the mutual agreement of Employee and Employer,
as determined by the Board of Directors of Employer. In addition, during the
term of this Agreement, Employee shall receive 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
in all events shall include Employee's leased automobile, Employee's tax
assistance program and Employee's health and disability insurance benefits.
(b) In the event of the termination of Employee's
employment either (i) by Employee for any reason including death or Disability,
or (ii) by Employer without "cause" (as defined in paragraph 2 herein), Employee
shall be paid incentive compensation for the fiscal year in which such
termination occurred in an amount equal to the product of (a) the amount of
incentive compensation to which he would have been entitled for such fiscal year
had there been no termination of employment and
<PAGE> 4
(b) a fraction, the numerator of which is the number of days of such fiscal year
in which Employee remained in the employment of Employer and the denominator of
which is 365.
(c) After Employee's termination of employment
Employee shall participate in the Laclede Retired Salaried Employee Medical
Plan, as such plan may be amended by Employer or any replacement plan as may
exist from time to time.
(d) After Employee's termination of employment
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 Employee Medical Plan, as such plan
may be amended by Employer or any replacement plan as may exist from time to
time.
(e) Notwithstanding anything contained in Employee's
Key Employee Retirement Agreement with Employer (Employee's "KERP") or this
Agreement, Employer and Employee agree that on the first business day after
Employee ceases for any reason to be a full time employee of Employer
(Employee's "KERP Payment Date") Employer shall authorize in writing the Trustee
of Employee's KERP to pay to Employee in a lump sum in kind all amounts owed to
Employee pursuant to Employee's KERP. Until Employee's KERP Payment Date,
Employee shall be considered an active employee of Employer.
5. Severance Payment.
If (i) Employee remains in the employ of Employer
through December 31, 2000, (ii) Employer terminates Employee's employment
without cause (as defined in paragraph 2(c) herein), or (iii) Employer, without
Employee's written consent, reduces Employee's responsibility or changes
Employee's title, then in addition to all other amounts due Employee, whether
under this Agreement or otherwise, Employer shall pay to Employee as severance
in a lump sum an amount equal to Employee's annual base salary as defined in
paragraph 4(a) herein. Such amount shall be paid on Employee's last day of
employment with Employer.
6. Life Insurance Benefits.
(a) During the term of this Agreement, Employer shall
be obligated to keep in force life insurance on the life of Employee in the
amount of Six Hundred Thousand Dollars
<PAGE> 5
($600,000.00) which will consist of permanent insurance on the life of Employee
owned by Employee or his designee.
(b) In the event of the termination of Employee's
employment either (i) by Employee for any reason, or (ii) by Employer without
"cause" (as defined in paragraph 2(c) herein), Employer agrees to keep in force
such permanent life insurance set forth in subparagraph (a) of this paragraph 6
for the duration of Employee's life. Employer may fulfill this obligation by
satisfying the premium requirement so that such permanent insurance is fully
paid under the terms of such permanent insurance policy. Employer's obligation
to pay permanent life insurance premiums under this subparagraph (b) will
survive the term of this Agreement.
(c) In the event of the termination of Employee's
employment by Employer for "cause" (as defined in paragraph 2(c) herein), then
Employer's obligation to pay premiums under this paragraph 6 will cease.
(d) Employer agrees to reimburse Employee for any tax
due on the annual permanent insurance premium paid by Employer.
(e) The amount of insurance described in subparagraph
(a) may be increased by the Board of Directors.
7. Termination. In the event of the termination of
Employee's employment by Employer, without "cause" (as defined in paragraph 2(c)
herein), then, in lieu of any further salary payment pursuant to paragraph 4(a)
herein, Employer agrees to pay Employee for the remaining term of this Agreement
at an annual rate equal to the average of Employee's "compensation" for the
three fiscal years preceding the year of such termination. For this purpose the
term "compensation" means Employee's base salary in effect for a particular year
plus the incentive compensation received by Employee with respect to services
rendered in such year whether or not such incentive compensation is actually
paid in such year. Amounts described above due Employee under this paragraph 7
shall be due and payable for the duration of the remaining term in equal monthly
installments. In addition to the foregoing, Employer shall continue, for the
duration of the remaining term, to provide Employee with such additional fringe
benefits to which Employee was entitled as of the day immediately prior to the
date of such termination. Nothing in this
<PAGE> 6
paragraph 7 shall reduce or otherwise effect Employee's right to the benefits
set forth in paragraph 4(c), (d) and (e) herein and Employee's severance payment
set forth in paragraph 5 herein.
8. Extent of Services. Employee shall devote Employee's
time, attention and energy to the business of Employer, and shall not during the
term of this Agreement, or any extension hereof, without Employer's consent, be
engaged in any other business activity whether or not such business activity is
pursued for gain, profit or other pecuniary advantage; but nothing contained
herein shall be construed as preventing Employee from investing his assets in
such form or manner as will not require any service on the part of Employee in
the operation of the affairs of the corporations or other entities in which
Employee may invest his assets.
9. Covenants of Employee.
(a) During the term of Employee's employment with
Employer, and for a period of one (1) year after the termination of such
employment, for whatever reason, except for the termination of Employee's
employment under circumstances which constitute a violation by Employer of the
provisions of this Agreement, Employee covenants and agrees that Employee will
not (except as required in Employee's duties to Employer), in any manner
directly or indirectly:
(i) Disclose or divulge to any person, entity, firm or
company whatsoever, or use for Employee's own benefit or the benefit of any
other person, entity, firm or company directly or indirectly, in competition
with the business of Employer, as the same may exist at the date of such
cessation, any proprietary business methods, customer lists, supplier lists,
business plans or other information or data of Employer, without regard to
whether all of the foregoing matters will otherwise be deemed confidential,
material or important, the parties hereto stipulating that as between them, the
same are important, material and confidential and greatly affect the effective
and successful conduct of the business and the goodwill of Employer, and that
any breach of the terms of this subparagraph (i) shall be a material breach of
this Agreement;
(ii) Solicit, divert, take away or interfere with any
of the customers, trade, business, patronage, employees or agents of Employer;
<PAGE> 7
(iii) Engage, directly or indirectly, either personally
or as an employee, partner, associate, officer, manager, agent, advisor,
consultant or otherwise, or by means of any corporate or other entity or device,
in any business competitive with the business of Employer.
(b) For purposes hereof, a business will be deemed
competitive if (i) such business involves the manufacture and sale of steel, or
any other business which is competitive, during or as of the date of cessation
of Employee's employment, with any business then being conducted by Employer or
as to which Employer has at such time formulated definitive plans to enter; and
(ii) such business makes substantial sales of products competitive with those of
Employer in any of the States of Missouri, Illinois, Indiana, Iowa, Michigan and
Ohio.
(c) All of the covenants on behalf of Employee
contained in this paragraph 0 shall be construed as agreements independent of
any other provision of this Agreement, and the existence of any claim or cause
of action against Employer, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by Employer of these
covenants.
(d) It is the intention of the parties to restrict the
activities of Employee under this paragraph 9 only to the extent necessary for
the protection of legitimate business interests of Employer, and the parties
specifically covenant and agree that should any of the clauses or provisions set
forth herein, under any set of circumstances not now foreseen by the parties, be
held by a court of competent jurisdiction to be illegal, invalid or
unenforceable under present or future laws effective during the term of this
Agreement, then and in that event, it is the intention of the parties hereto
that, in lieu of each such clause or provision of this paragraph 9, there shall
be substituted or added, and there is hereby substituted or added, terms to such
illegal, invalid or unenforceable clause or provision as may be legal, valid and
enforceable.
10. Expenses. In addition to compensation paid to Employee
under paragraph 4 hereof, during the period of Employee's employment, Employer
will pay directly or reimburse Employee for reasonable and necessary expenses
incurred by Employee in the interest of the business of Employer. All such
expenses paid by Employee will be reimbursed by Employer upon presentation by
Employee, from time to time, of an itemized account of such expenditures,
accompanied by appropriate receipts or other
<PAGE> 8
evidence of payment to the extent necessary to permit the deductibility thereof
for Federal income tax purposes.
11. Documents. Employee agrees that all documents,
instruments, drawings, plans, contracts, proposals, records, notebooks,
invoices, statements and correspondence, including all copies thereof, relating
to the business of Employer, other than purely personal documents, shall be the
property of Employer; and upon the cessation of Employee's employment with
Employer, for whatever reason, all of the same then in Employee's possession,
whether prepared by Employee or others, will be left with or immediately
delivered to Employer.
12. Remedies. It is agreed that any material breach or
evasion of any of the terms of this Agreement by Employee will result in
immediate and irreparable injury to Employer and will authorize recourse to
injunction and/or specific performance as well as to all other legal or
equitable remedies to which Employer may be entitled. No remedy conferred by any
of the specific provisions of this Agreement is intended to be exclusive of any
other remedy, and each and every remedy shall be cumulative and shall be in
addition to every other remedy whether given hereunder or not or whether
hereafter existing at law or in equity, by statute or otherwise. The election of
any one or more remedies by Employer or Employee shall not constitute a waiver
of the right to pursue other available remedies at any time or cumulatively from
time-to-time.
13. Severability. All agreements and covenants herein
contained are severable, and in the event any of them shall be held to be
invalid or unenforceable by any court of competent jurisdiction, this Agreement
shall continue in full force and effect and, subject to paragraph 9(d) hereof,
shall be interpreted as if such invalid agreement or covenant were not contained
herein.
14. Waiver or Modification. No amendment, waiver or
modification of this Agreement or of any covenant, condition or limitation
herein contained shall be valid unless in writing and duly executed by the party
to be charged therewith, and no evidence of any amendment, waiver or
modification shall be offered or received in evidence in any proceeding,
arbitration or litigation between the parties hereto arising out of or affecting
this Agreement, or the rights or obligations of the parties hereunder, unless
such amendment, waiver or modification is in writing, duly executed as
aforesaid, and the parties further agree that the provisions of this paragraph
may not be waived or modified except as
<PAGE> 9
herein set forth. Failure of Employee or Employer to exercise or otherwise act
with respect to any rights granted hereunder in the event of a breach of any of
the terms or conditions hereof by the other party, shall not be construed as a
waiver of such breach, nor prevent Employee or Employer from thereafter
enforcing strict compliance with any and all of the terms and conditions hereof.
15. Fees and Expenses. If Employee is the prevailing party,
Employer shall pay all of Employee's reasonable legal fees and related expenses
(including the costs of experts, evidence and counsel) incurred by Employee as a
result of (i) Employee's termination of employment (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination of
employment) or (ii) Employee's seeking to obtain or enforce any right or benefit
provided by this Agreement or by any other plan or arrangement maintained by
Employer under which Employee is or may be entitled to receive benefits.
16. Notices. All notices, requests, demands or other
communications hereunder ("Notice") shall be in writing and shall be given by
registered or certified mail, return receipt requested:
if to Employer to:
Laclede Steel Company
Attn: Thomas E. Brew, Jr.
President
15th Floor
One Metropolitan Square
St. Louis, Missouri 63102
and, if to Employee, to:
Michael H. Lane
3708 Sunset Chase
St. Louis, Missouri 63127
or to such other addresses as to which the parties hereto give Notice in
accordance with this paragraph 16.
16. Construction. This Agreement shall be governed by and
construed and interpreted according to the laws of the State of Missouri,
notwithstanding the place of execution hereof, nor the performance of any acts
in connection herewith or hereunder in any other jurisdiction. For all purposes
hereof, reference to Employer shall include each and every subsidiary and
affiliated company of Employer.
<PAGE> 10
17. Assignability. The services to be performed by Employee
hereunder are personal in nature and therefore Employee shall not assign his
rights or delegate his obligations under this Agreement, and any attempted or
purported assignment or delegation not herein permitted shall be null and void.
18. Successors. Subject to the provisions of paragraph 9,
this Agreement shall be binding upon and shall inure to the benefit of
Employer and Employee and their respective heirs, executors, administrators,
legal representatives, successors and assigns.
19. Prior Employment Agreements. Any prior Employment
Agreement between Employer and Employee is hereby terminated by mutual
agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
------------------------------
MICHAEL H. LANE
"Employee"
LACLEDE STEEL COMPANY
By____________________________
Thomas E. Brew, Jr, President
"Employer"
<PAGE> 1
EXHIBIT (22)
SUBSIDIARIES OF REGISTRANT
--------------------------
Laclede Chain Manufacturing Company - wholly-owned.
Laclede Mid-America Inc. - 96.66% owned.
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<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
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<CURRENT-LIABILITIES> 79,415
<BONDS> 87,867
0
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<OTHER-SE> (86,110)
<TOTAL-LIABILITY-AND-EQUITY> 190,071
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<CGS> 224,953
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<INCOME-PRETAX> (21,243)
<INCOME-TAX> 110
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<NET-INCOME> (21,353)
<EPS-BASIC> (5.28)
<EPS-DILUTED> (5.28)
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