SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
_ OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _________________
Commission file number 0-22206
NIAGARA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-3182820
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
667 MADISON AVENUE, NEW YORK, NEW YORK 10021
-------------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 317-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS
BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO .
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS
PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL
NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF
THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. YES X NO .
AS OF MARCH 25, 1998, THE AGGREGATE MARKET VALUE OF THE VOTING
STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY
$72,846,488 (ASSUMES OFFICERS, DIRECTORS AND ALL STOCKHOLDERS HOLDING 5% OF
THE OUTSTANDING SHARES ARE AFFILIATES).
THERE WERE 9,997,455 SHARES OF THE REGISTRANT'S COMMON STOCK
OUTSTANDING AS OF MARCH 25, 1998.
DOCUMENTS INCORPORATED BY REFERENCE: THE ITEMS COMPRISING PART
III HEREOF (ITEMS 10, 11, 12 AND 13) ARE INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S PROXY STATEMENT FOR ITS 1998 ANNUAL MEETING OF STOCKHOLDERS OR
WILL BE FILED BY AMENDMENT TO THIS FORM 10-K.
PART I
ITEM 1. BUSINESS.
CORPORATE HISTORY
Niagara Corporation (formerly International Metals Acquisition
Corporation), a Delaware corporation ("Niagara"), was organized on April
27, 1993 with the objective of acquiring an operating business engaged in
the metals processing and distribution industry or metals-related
manufacturing industry.
On August 16, 1995, Niagara purchased all outstanding shares of
capital stock of Niagara LaSalle Corporation, formerly Niagara Cold Drawn
Corp. ("Niagara LaSalle"), a leading manufacturer of cold drawn steel bars
in the northeast and southeast regions of the United States,
for $10,744,045 in cash.
On January 31, 1996, Niagara LaSalle purchased all outstanding shares
of capital stock of Southwest Steel Company, Inc. ("Southwest"), a
manufacturer of cold drawn steel bars servicing the southwest region of the
United States. As consideration for such shares, Niagara LaSalle paid
$1,920,000 in cash and $1,156,773 principal amount of Niagara LaSalle
promissory notes guaranteed by Niagara. In connection with this
acquisition, Niagara LaSalle discharged $8,518,691 of Southwest
indebtedness and Niagara guaranteed $898,000 of Southwest indebtedness. On
November 24, 1997, Niagara LaSalle settled certain claims against the
former Southwest stockholders by paying $525,000 in full satisfaction of
all amounts owing under the $1,156,773 principal amount of promissory notes
issued in connection with the acquisition.
During 1996, southwest moved its operations from Tulsa, Oklahoma to a
new facility in Midlothian, Texas. On November 1, 1996, Southwest was
merged into Niagara LaSalle.
On April 18, 1997, Niagara LaSalle purchased from Quanex Corporation
("Quanex") all outstanding shares of capital stock of LaSalle Steel Company
("LaSalle," and, collectively with Niagara and Niagara LaSalle, the
"Company"), one of the largest domestic producers of cold drawn steel. In
consideration for the sale of such shares (i) Niagara LaSalle paid Quanex
$65,500,000 in cash at the closing and (ii) Quanex or Niagara LaSalle, as
the case may be, agreed to pay the other an amount based on changes in
LaSalle's stockholder's equity between October 31, 1996 and March 31, 1997,
as reflected on LaSalle's balance sheets as of such dates. On July 2, 1997,
Niagara and Niagara LaSalle submitted to Quanex a statement disputing
certain amounts reflected on the balance sheet of LaSalle as of March 31,
1997 submitted by Quanex. This balance sheet indicated that, based on
changes in LaSalle's stockholder's equity between October 31, 1996 and
March 31, 1997, Niagara LaSalle owed Quanex $2,154,000. In accordance with
the LaSalle stock purchase agreement, the parties submitted their
respective claims to an independent accounting firm for binding
arbitration. Pursuant to the decision in such arbitration, Niagara
LaSalle's payment to Quanex was reduced to $1,371,000, which amount was
paid on January 26, 1998. The LaSalle stock purchase agreement also
provided that Quanex or Niagara LaSalle, as the case may be, pay the other
an amount based on cash activity in the intercompany account between Quanex
and LaSalle from April 1, 1997 through April 18, 1997.
The acquisition of LaSalle and the refinancing of existing Niagara
LaSalle indebtedness was financed pursuant to (i) a revolving credit and
term loan agreement with Niagara LaSalle and LaSalle (guaranteed by
Niagara), providing for a $50,000,000 three-year revolving credit facility
and a $40,000,000 eight-year term loan and (ii) the issuance and sale of
$20,000,000 aggregate principal amount of 12.5% senior subordinated notes
of Niagara LaSalle due April 18, 2005 (the "Subordinated Notes"). In
connection with this financing, the purchasers of the Subordinated Notes
were issued 285,715 shares of Niagara Common Stock.
On October 31, 1997, Niagara exercised its right to redeem on
December 9, 1997 (which date was extended to December 11, 1997) all of its
then outstanding and unexercised Redeemable Common Stock Purchase Warrants
("Warrants") at $.01 per Warrant. As a result of this call for redemption,
the Warrants could not be exercised after the redemption date. Each
outstanding Warrant entitled the holder to purchase from Niagara, prior to
the exercise deadline, one share of Niagara Common Stock at an exercise
price of $5.50. Of the 6,050,000 Warrants outstanding prior to the call for
redemption, 6,042,990 were exercised resulting in $33,236,445 in gross
proceeds to Niagara and the issuance of 6,042,990 shares of Niagara Common
Stock. The Company used approximately $21.8 million of such proceeds to
prepay, at 107% plus accrued interest, the Subordinated Notes.
PRODUCTS
Following the acquisition of LaSalle, Niagara, through its
wholly-owned subsidiaries, became the largest independent producer of cold
drawn steel bars in the United States. The manufacture of these bars
involves several steps. Hot-rolled steel bars are cleaned of mill scale by
a process that involves shotblasting the surface of the bars with hardened
steel shot. After shotblasting, the bars are mechanically drawn, or pulled,
through a tungsten carbide die containing an orifice one-sixteenth of an
inch smaller in cross-section than the size of the hot-rolled bar. Drawing
the hot-rolled steel bar in this manner elongates the bar and creates a
quality micro-finished surface. The bars are then cut to length and
straightened. As an additional step, bars may be turned and/or ground to
very close tolerance levels. This process produces steel bars with (i) a
smooth and shiny surface, (ii) uniform shape, with close size tolerance,
(iii) enhanced strength characteristics and (iv) improved machinability.
These characteristics are essential for many industrial applications.
Niagara LaSalle manufactures round bars, ranging from one-quarter
inch to six inches in diameter, and rectangular, square and hexagonal bars
in a variety of sizes, the majority of which are drawn in sizes one-quarter
inch to 6 inches thick and up to 15 inches wide. The bars are produced in
lengths from 10 to 20 feet, with most being 10 to 12 feet in length.
Niagara LaSalle's products include (i) cold drawn bars which are used in
machining applications, automotive and appliance shafts, screw machine
parts and machinery guides, (ii) turned, ground and polished bars which are
used in precision shafting and (iii) drawn, ground and polished bars which
are used in chrome-plated hydraulic cylinder shafts.
LaSalle is a technological leader in the development of specialized
cold drawn steel products, having obtained numerous foreign and domestic
patents throughout its history. LaSalle pioneered the large drawbenches
commonly used in cold finishing today and developed the principle of
stress-relieving cold finished steel bars. LaSalle employs a number of
advanced processing techniques in the manufacture of value-added steel bars
including thermal treatment and chrome plating. In addition to cold drawn
bars, LaSalle's products include (i) custom cut bars shipped on a
"just-in-time" basis which are used in steering columns and shock
absorbers, (ii) stress relieved bars which are used in high strength
shafting, gears and drive mechanisms, (iii) quench and tempered bars which
are used in high strength bolting and high impact rod cylinders and (iv)
chrome plated bars which are used in hydraulic and pneumatic cylinders.
CUSTOMERS
The Company sells its products primarily to steel service centers,
which accounted for approximately 77% of sales during 1997, with the
balance of sales to original equipment manufacturers ("OEMs") and the screw
machine industry. Steel service centers purchase and warehouse large
quantities of standardized steel products which are then sold directly to
OEMs. OEMs use cold drawn steel bars in a wide range of products. The
Company concentrates its sales efforts on steel service centers, which
purchase relatively standardized products on a regular basis. By focusing
on this market, the Company attempts to minimize the risk of holding
obsolete inventory.
The Company has approximately 650 active customers in the United
States and Canada and is not dependent upon any one geographical market.
For 1997, the Company's 10 largest customers (by tons shipped) represented
approximately 63% of sales, and its 3 largest customers, Alro Steel
Corporation, A.M. Castle & Co. and Earle M. Jorgensen Co., represented
approximately 41% of sales. The loss of any of the three largest customers
would have a material adverse effect on sales.
MARKETING
The Company markets its products through salaried in-house sales
personnel and sales representatives compensated on a commission-only basis.
Such in-house personnel and sales representatives cover all of the United
States and certain regions of Canada.
STRATEGY
The Company's business strategy focuses on improving product quality
and customer service and on maintaining strict cost controls. With the
acquisition of LaSalle, the Company offers a full product line on a
national level.
The Company seeks to obtain a competitive advantage through its
ability to supply customers on a timely basis with an extensive range of
sizes and shapes of high quality cold drawn steel bars. In this regard, the
Company maintains finished goods inventories of the most commonly ordered
sizes and shapes.
In order to improve profitability, the Company has chosen to
specialize on higher margin and value-added products. In addition, the
Company is implementing a system of inventory management to supply more
efficiently multiple locations of steel service center companies.
RAW MATERIALS
The Company purchases raw materials, which consists of hot-rolled
steel bars, from integrated steel mills and mini-mills. The cost of
hot-rolled steel bars purchased from mini-mills is primarily dependent on
the price of scrap steel. Since the price of scrap steel is subject to
substantial price fluctuations, the price of hot-rolled steel bars is
subject to similar fluctuations. The Company obtains raw material from both
domestic and foreign suppliers and is generally able to pass along to
customers increases in the price of hot-rolled steel bars.
COMPETITION
The cold drawn steel bar market is highly competitive, based on
price, product quality and customer service. The Company's strategy is to
seek to remain competitive on price and surpass its competitors in product
quality and customer service. Its principal competitors are domestic
companies, including both integrated and independent cold drawn steel bar
producers.
The Company believes that the ability to offer a full line of cold
finished bar products and the proximity of facilities to major steel
service center markets are key competitive factors in the industry. Close
geographic proximity to customers results in reduced freight costs and
faster delivery of customer orders. The cold drawn steel industry allocates
freight costs among suppliers and customers based on an "equalizing" system
whereby the customer pays freight cost equal to that of the nearest
supplier. The Company's five manufacturing facilities (located in Buffalo,
New York; Chattanooga, Tennessee; Midlothian, Texas; and Hammond and
Griffith, Indiana) provide close proximity to many customers.
The Company competes in a narrow segment of the steel industry, but
its business is affected by conditions within the broader steel industry
and in particular the automotive and machine tool industries. Consequently,
a significant downturn in the broader steel industry (which generally
results from a downturn in the U.S. economy as a whole) or the automotive
or machine tool industries may result in a similar downturn in the cold
drawn steel bar market and have an adverse effect on the Company.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 645
persons. It believes that its relationship with its employees is good. All
of LaSalle's 275 hourly employees at its Hammond, Indiana facility as of
such date were covered by a collective bargaining agreement with The
Progressive Steelworker's of Hammond, Inc. which expires on May 17, 1998.
All of LaSalle's 25 hourly employees at its Griffith, Indiana facility as
of such date were covered by a collective bargaining agreement with the
United Steel Workers of America and its local affiliate which expires on
February 19, 2000.
ITEM 2. PROPERTIES.
NIAGARA
Niagara utilizes approximately 5,000 square feet of headquarters
space in New York, New York under a lease expiring in March 2001.
NIAGARA LASALLE
Niagara LaSalle operates manufacturing facilities in Buffalo, New
York; Chattanooga, Tennessee; and Midlothian, Texas. Niagara LaSalle owns
the 207,000 square foot Buffalo facility, leases the 92,000 square foot
Chattanooga facility and owns the 115,000 square foot Midlothian facility.
The Chattanooga lease expires in May 1998. Niagara LaSalle has entered into
a letter agreement to continue leasing this facility through November 30,
2009. The agreement gives Niagara LaSalle options to renew the lease
through November 30, 2019 and also provides that Niagara LaSalle may
terminate the lease beginning December 1, 2004.
LASALLE
LaSalle operates manufacturing facilities in Hammond, Indiana and
Griffith, Indiana. LaSalle owns the 550,000 square foot Hammond facility
and the 45,900 square foot Griffith facility.
Management considers these five manufacturing facilities, which
operated at approximately 75% of capacity in 1997, suitable for its current
operations.
ITEM 3. LEGAL PROCEEDINGS.
ENVIRONMENTAL MATTERS
Under applicable state and federal laws, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), Niagara LaSalle and LaSalle may be responsible for costs
required to remove or remediate previously disposed wastes or hazardous
substances at locations owned or operated by them or at locations owned or
operated by third parties where they, or a company from which they acquired
assets, arranged for the disposal of such materials. Claims for such costs
have been made against LaSalle with respect to four such third-party sites.
Management believes that, in three cases, the volumes of waste allegedly
attributable to LaSalle and the share of costs for which it may be liable
are de minimis. In the fourth case, LaSalle has received an insurance
settlement in an amount that exceeds the financial contribution it has been
required to make to date. Because liability under CERCLA and analogous
state laws is generally joint and several and because further remediation
work may be required at these sites, LaSalle may be required to contribute
additional funds. However, based on its volumetric share of wastes disposed
and the participation of other potentially liable parties, management does
not believe that LaSalle's share of additional costs will have a material
adverse effect on the Company's business or financial position.
SOUTHWEST
On May 8, 1996, pursuant to the provisions of the Southwest stock
purchase agreement, Niagara LaSalle asserted indemnification claims in the
aggregate amount of approximately $1,300,000 against the former Southwest
stockholders. On May 22, 1996, Niagara LaSalle brought an action in the
Supreme Court of the State of New York, Erie County, captioned Niagara Cold
Drawn Corp. v. Handrahan, et al., against such stockholders relating to
these claims. On June 28, 1996, this action was removed to the U.S.
District Court for the Western District of New York. On November 24, 1997,
the parties entered into a settlement agreement, pursuant to which Niagara
LaSalle paid $525,000 to the former Southwest stockholders in full
satisfaction of all amounts owing under the $1,156,773 principal amount of
promissory notes issued in connection with the acquisition, and the action
was dismissed with prejudice. Joseph Handrahan, a former Southwest
stockholder and a defendant in this action, is a Vice President of Niagara
LaSalle.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Niagara's Common Stock is traded on the Nasdaq National Market. The
following table sets forth the range of high and low sales prices by
quarter for 1996 and 1997.
HIGH LOW
1996
January 1 through March 31......... 7 4 1/4
April 1 through June 30............ 6 5/8 4 1/8
July 1 through September 30........ 61/2 4 1/4
October 1 through December 31...... 5 3/8 3 7/8
1997
January 1 through March 31......... 6 1/4 4 1/8
April 1 through June 30............ 6 3/4 4 5/8
July 1 through September 30........ 10 5 1/4
October 1 through December 31...... 11 1/4 8
As of March 25, 1998, there were 39 registered holders of Niagara
Common Stock.
Niagara has not declared or paid any dividends on its Common Stock
since its inception. The payment of dividends is conditioned on Niagara's
earnings, which are dependent on the earnings of its subsidiaries, capital
requirements and general financial condition. Pursuant to its revolving
credit and term loan agreement, Niagara LaSalle is subject to restrictions
on its ability to declare dividends to Niagara. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Liquidity and Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED DECEMBER 31,
--------------------------------------
1995(1) 1996(2) 1997(3)
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 17,035 $ 74,810 $ 204,962
Cost of products sold.............. 15,541 66,114 180,532
Gross profit....................... 1,493 8,695 24,430
Selling, general and
administrative expenses.......... 1,265 5,706 12,450
Interest income.................... 628 100 160
Other income....................... -- 126 187
Interest expense................... 272 1,536 5,874
Income taxes....................... 240 615 2,479
Net income before extraordinary
loss............................... 344 1,064 3,974
Extraordinary loss on early
extinguishment
of debt.......................... -- -- 2,062
Net income after extraordinary loss 344 1,064 1,912
Net income per share (basic)
(Before extraordinary loss)..... $ .10 $ .30 $ .94
Net income per share (diluted)
(Before extraordinary loss)..... $ .10 $ .30 $ .78
Net income per share (basic)....... $ .10 $ .30 $ .45
Net income per share (diluted)..... $ .10 $ .30 $ .38
Weighted average common shares
outstanding (basic)............. 3,500 3,603 4,247
Weighted average common shares
outstanding (diluted)........... 3,500 3,603 5,095
AT DECEMBER 31,
--------------------------------------
1995 1996 1997
(in thousands)
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 2,187 $ 1,588 $ 13,207
Trade accounts receivable.......... 4,239 5,953 21,660
Inventories........................ 14,744 14,446 35,190
Property, plant and equipment, net. 12,745 21,649 89,163
Goodwill, net...................... -- 2,543 2,177
TOTAL ASSETS....................... 34,593 47,348 166,520
Trade accounts payable............. 4,787 4,110 20,985
Accrued expenses................... 3,212 3,690 8,679
Current maturities of long-term
debt............................... 733 1,662 3,498
Long-term debt, less current
maturities......................... 6,969 18,075 59,184
Accrued pension and
post-retirement benefits
outstanding ..................... -- -- 14,537
Deferred income taxes.............. 3,914 3,805 5,726
TOTAL LIABILITIES.................. 20,131 31,821 114,523
STOCKHOLDERS' EQUITY .............. $ 14,462 $ 15,526 51,996
- ---------------
(1) Includes the results of Niagara LaSalle for the period from August
17, 1995 to December 31, 1995.
(2) Includes the results of Niagara LaSalle for the entire year, and the
results of Southwest from February 1, 1996.
(3) Includes the results of Niagara LaSalle for the entire year, and the
results of LaSalle from April 1, 1997.
NIAGARA LASALLE (PREDECESSOR COMPANY)
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995(1)
(in thousands)
STATEMENT OF OPERATIONS DATA:
Net sales..........................$ 36,681 $ 45,593 $ 50,506
Cost of products sold.............. 32,484 40,873 44,386
Gross profit....................... 4,197 4,720 6,120
Selling, general and administrative
expenses......................... 2,636 2,707 2,904
Employment expense-management
options............................ -- -- 1,666
Operating income................... 1,561 2,013 1,550
Other Income -- -- 17
Interest expense................... 636 711 771
Income before income taxes and
extraordinary
loss on early extinguishment of
debt............................. 925 1,302 795
Income taxes....................... 361 480 270
Extraordinary loss on early
extinguishment of
debt............................. -- -- --
Net income.........................$ 564 $ 822 $ 525
AT DECEMBER 31, AT AUGUST 16,
-------------------- ------------
1993 1994 1995(2)
(in thousands)
BALANCE SHEET DATA:
Current assets.....................$ 10,325 $ 13,533 $ 18,257
Current liabilities................ 5,625 8,427 11,118
Working capital.................... 4,700 5,106 7,139
Property plant and equipment, net . 6,838 6,810 6,829
Total assets....................... 17,179 20,355 25,103
Long-term debt and capital lease
obligations (excluding current
portion)........................... 6,320 6,088 6,266
Total liabilities.................. 12,850 15,365 17,384
Redeemable preferred stock......... 560 453 251
Stockholders' equity...............$ 3,769 $ 4,537 $ 6,268
(1)- Derived from combining results of operations prior to acquisition by
Niagara (January 1 to August 16, 1995) with results from after such
acquisition (August 17 to December 31, 1995).
(2)- Acquisition date by Niagara.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
Niagara was organized in April of 1993. With the acquisition of
Niagara LaSalle in August 1995, Niagara entered the cold drawn steel bar
industry. With plants in Buffalo, New York and Chattanooga, Tennessee,
Niagara LaSalle had an established position in the northeast and southeast
regions of the United States cold drawn steel bar market.
In January 1996, Niagara LaSalle acquired Southwest. During 1996,
Southwest completed construction of a new plant outside of Dallas, Texas
and relocated its Tulsa, Oklahoma operations to this new facility. With
this acquisition, Niagara gained an established position in the southwest
region of the United States because Southwest was the leading cold drawn
steel bar producer servicing that area.
In April 1997, Niagara LaSalle acquired LaSalle, which has plants in
Hammond and Griffith, Indiana. This acquisition gave Niagara LaSalle a
strong market position in the midwest region of the United States and
broadened Niagara LaSalle's product range by adding thermal treated and
chrome plated bars.
With the acquisition of LaSalle, Niagara became the largest
independent producer of cold drawn steel bars in the United States. The
geographic position of Niagara's plants creates competitive advantages
because of freight savings and the ability to supply efficiently multiple
locations of steel service centers.
During the fourth quarter of 1997, nearly all of Niagara's 6,050,000
Warrants were exercised resulting in approximately $33.2 million in gross
proceeds to the Company. This significantly strengthened the Company's
balance sheet by enabling it to prepay, with approximately $21.8 million of
such proceeds, the Subordinated Notes in their entirety and by increasing
total stockholders' equity to approximately $52 million.
The hourly employees at LaSalle's Hammond, Indiana facility are
covered by a collective bargaining agreement which expires on May 17, 1998.
If a new agreement is not reached, a work stoppage could result and have a
negative impact on financial results.
RESULTS OF OPERATIONS
The following year-to-year comparisons reflect certain
reclassifications, primarily relating to delivery costs, for 1995 and 1996.
Net sales for 1995 and 1996 are stated after reduction for delivery costs.
Previously, such costs had been included as a component of selling, general
and administrative expenses. This reclassification resulted in no change to
income from operations for these periods and was made to conform to current
year presentation. In addition, comparisons of 1996 to 1995 reflect the
results of the Company for 1996 and the predecessor company, Niagara
LaSalle, for all of 1995.
Year ended December 31, 1997 compared with December 31, 1996
Net sales for the twelve months ended December 31, 1997 were
$204,962,133, an increase of $130,152,613, or 174.0%, over the same period
in 1996. This increase was primarily due to sales attributable to LaSalle.
Cost of sales for the twelve months ended December 31, 1997 was
$180,532,223, an increase of $114,417,738, or 173.1%, over the same period
in 1996. This increase was attributable to increased volume following the
acquisition of LaSalle. Gross margins for the twelve months ended December
31, 1997 increased by 0.3% over the same period in 1996 due to greater
emphasis on higher margin and value-added products.
Selling, general and administrative expenses increased by $6,743,856
to $12,449,505, or 6.1%, of sales in the twelve months ended December 31,
1997 compared to 7.6% for the same period in 1996. The dollar increase was
due to increased sales, and the decline as a percentage of sales was caused
by the consolidation of the Niagara LaSalle and LaSalle sales forces and
personnel reductions at LaSalle.
Interest expense increased by $4,337,477 to $5,874,194 primarily due
to higher levels of borrowing incurred in financing the acquisition of
LaSalle.
In 1997, Niagara LaSalle issued the Subordinated Notes. Net proceeds
from the sale of the Subordinated Notes, together with borrowings under the
revolving credit and term loan agreement, were used to finance the
acquisition of LaSalle and refinance existing Niagara LaSalle indebtedness.
In connection with the prepayment of the Subordinated Notes, the Company
was required to write off unamortized debt issuance costs and incurred a
prepayment charge in the aggregate amount of approximately $3,326,000. The
resultant one time, after-tax charge amounted to approximately $2,062,000.
The Subordinated Notes and prepayment charge were paid from the proceeds of
the Warrants exercised during the fourth quarter of 1997.
Income before the extraordinary loss on the early extinguishment of
the debt for the twelve months ended December 31, 1997 was $3,974,503, an
increase of $2,910,643, or 273.6%, from the same period in 1996. This
increase was due primarily to the addition of LaSalle's results from April
1, 1997.
Net income for the twelve months ended December 31, 1997 was
$1,912,318, an increase of $848,458, or 79.8%, from the same period in
1996. This increase was due primarily to the addition of LaSalle's results
from April 1, 1997.
Year ended December 31, 1996 compared with December 31, 1995
Net sales for the twelve months ended December 31, 1996 were
$74,809,520, an increase of $24,304,035, or 48.1%, over the same period in
1995. This increase was primarily due to sales attributable to Southwest.
Cost of sales for the twelve months ended December 31, 1996 was
$66,114,485, an increase of $21,729,170, or 49.0%, over the same period in
1995. This increase was attributable to increased volume following the
acquisition of Southwest. Gross margins for the twelve months ended
December 31, 1996 decreased by 0.5% over the same period in 1995 due to
pricing pressures.
Selling, general and administrative expenses increased by $2,801,545
to $5,705,649, or 7.6%, of sales in the twelve months ended December 31,
1996 compared to 5.8% for the same period in 1995. This increase was caused
by increased costs associated with the increased volume, increased Canadian
goods and services taxes and duties resulting from increased Canadian sales
and increased depreciation and amortization associated with the step-up in
basis of Niagara LaSalle's fixed assets.
Interest expense increased by $765,445 to $1,536,717 primarily due to
higher levels of borrowing incurred in financing the acquisition of
Southwest.
Net income for the twelve months ended December 31, 1996 was
$1,063,860, an increase of $538,483, or 102.5%, from the same period in
1995. This increase was due primarily to the inclusion of Niagara LaSalle's
results for a full year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term liquidity requirement or day-to-day
operating expenses have been, and is expected to continue to be, funded by
cash provided by operations and borrowings under its revolving credit
facility. The Company's principal long-term liquidity requirement has been
and is expected to continue to be the funding of capital expenditures to
modernize, improve and expand the facilities, machinery and equipment of
Niagara LaSalle and LaSalle. Capital expenditures for the year ending
December 31, 1997 were $5,572,754 compared to $4,418,944 for the same
period in 1996. This increase in expenditures was largely due to the
installation of a new production line at the Midlothian facility. The
Company anticipates spending approximately $3,000,000 for capital
expenditures during 1998.
Cash flow of the Company provided by operations was $9,333,468 for
the year ended December 31, 1997, which included the cash flow of Niagara
LaSalle for the entire year and the cash flow of LaSalle from April 1,
1997. The cash flow of the Company provided by operations was $4,831,940
for the year ended December 31, 1996, which included the cash flow of
Niagara LaSalle for the entire year and the cash flow of Southwest from
February 1, 1996. This $4,501,528 increase, or 93.1%, from the prior year
is largely attributable to an increase of $848,958 in net income and an
increase of $3,687,545 in depreciation and amortization. Net proceeds from
financing activities of $75,098,436 were used to acquire LaSalle
($67,240,000) and to acquire fixed assets ($5,572,754). Cash and cash
equivalents at December 31, 1997 was $13,207,077, an increase of
$11,619,150 as compared to December 31, 1996.
On April 18, 1997 and in connection with the acquisition of LaSalle,
Niagara LaSalle and LaSalle entered into a revolving credit and term loan
agreement (the "Credit Agreement") with Manufacturers and Traders Trust
Company ("M&T"), CIBC Inc., National City Bank, National Bank of Canada and
the Prudential Insurance Company of America, and Niagara LaSalle terminated
its previously existing credit agreements with M&T. The Credit Agreement
provides for a $50,000,000 three-year revolving credit facility and a
$40,000,000 eight-year term loan. The obligations of Niagara LaSalle and
LaSalle under the Credit Agreement are guaranteed by Niagara and secured by
substantially all of the assets and a pledge of all outstanding capital
stock of Niagara LaSalle and LaSalle.
Principal of the term loan under the Credit Agreement amortizes in
monthly installments that commence on November 1, 1997 and end on April 1,
2004. The principal repayment installments on the term loan escalate
throughout its term. Interest on the term loan is payable in monthly
installments either at the LIBOR rate (for a period specified by Niagara
LaSalle from time to time) plus 285 basis points, or M&T's prime rate plus
50 basis points. Revolving credit loans made pursuant to the Credit
Agreement are based on a percentage of eligible accounts receivable and
inventory and will mature on April 17, 2000. Interest on such loans is
payable in monthly installments and is either 250 basis points above the
LIBOR rate (for a period specified by Niagara LaSalle from time to time) or
M&T's prime rate plus 25 basis points.
The Credit Agreement carries restrictions on, among other things,
indebtedness, liens, capital expenditures, dividends, asset dispositions
and changes in control of Niagara LaSalle and LaSalle, and requires minimum
levels of net worth through maturity. Also included in this agreement are
requirements regarding the ratio of consolidated current assets to
consolidated current liabilities and the ratio of net income before
interest, taxes, depreciation and amortization to cash interest expense.
Niagara LaSalle is currently in compliance with all of these requirements.
Note and stock purchase agreements were entered into on April 18,
1997, by and among Niagara, Niagara LaSalle, LaSalle and, respectively, The
Prudential Insurance Company of America, The Equitable Life Assurance
Society of the United States and United States Fidelity and Guaranty
Company (collectively, the "Note and Stock Purchase Agreements") providing
for, among other things, the issuance and sale of the Subordinated Notes.
In connection with this financing, the purchasers of the Subordinated Notes
were issued 285,715 shares of Niagara Common Stock.
On October 31, 1997, Niagara exercised its right to redeem all of its
then outstanding and unexercised Warrants. Each outstanding Warrant
entitled the holder to purchase from Niagara, prior to the exercise
deadline, one share of Niagara Common Stock at an exercise price of $5.50.
Of the 6,050,000 Warrants outstanding prior to the call for redemption,
6,042,990 were exercised resulting in $33,236,445 in gross proceeds to
Niagara and the issuance of 6,042,990 shares of Niagara Common Stock. The
Company used approximately $21.8 million of such proceeds to prepay, at 107%
plus accrued interest, the Subordinated Notes.
At December 31, 1997, Niagara LaSalle had borrowed $21,800,000 under
its revolving credit facility and had approximately $20,000,000 in
available credit thereunder. Working capital of the Company at December 31,
1997 and 1996 was $38,746,722 and $12,087,913, respectively.
YEAR 2000 COMPLIANCE
The Company is in the process of modifying and upgrading its computer
software applications and systems which the Company expects will
accommodate the "Year 2000" dating changes necessary to permit correct
recording of year dates for 2000 and later years. The Company does not
expect that the cost of this process will be material to its financial
condition or results of operations. The Company believes that it will be
able to achieve compliance by the end of 1998, and does not currently
anticipate any material disruption in its operations as the result of any
failure by the Company to be in compliance. The Company does not currently
have any information concerning the compliance status of its suppliers and
customers.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" which establishes standards for reporting
and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS No. 130 requires that all items that
are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information which supersedes SFAS No. 14, "Financial Reporting
Segments of a Business Enterprise," establishes standards for the way that
public enterprises report information about operating segments in interim
financial statements issued to the public. It also establishes standards
for disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance.
Both of these new standards are effective for financial statements
for periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. The adoption of these
standards is not expected to impact the Company's financial statements or
disclosures.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which
standardizes the disclosure requirements for pensions and other
postretirement benefits. Due to the recent issuance of this standard,
management has been unable to fully evaluate the extent of future financial
statement disclosures that may be required.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a
new "safe harbor" for certain forward-looking statements. The factors
discussed under "Risk Factors" in Niagara's Post-Effective Amendment No. 3
to its Registration Statement No. 33-64682, among others, could cause
actual results to differ materially from those contained in forward-looking
statements made in this Form 10-K, including, without limitation, in
"Business" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," in future filings by Niagara with the
Commission, in the Company's press releases and in oral statements made by
authorized officers of the Company. When used in this Form 10-K, the words
"estimate," "project," "anticipate," "expect," "intend," "believe" and
other similar expressions are intended to identify forward-looking
statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Page
NIAGARA CORPORATION AND SUBSIDIARIES:
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..... 14
BALANCE SHEETS......................................... 15
STATEMENTS OF OPERATIONS............................... 16
STATEMENTS OF STOCKHOLDERS' EQUITY..................... 17
STATEMENTS OF CASH FLOWS............................... 18
NOTES TO FINANCIAL STATEMENTS.......................... 19
NIAGARA LASALLE CORPORATION (FORMERLY NIAGARA COLD
DRAWN CORP.) IS CONSIDERED A PREDECESSOR COMPANY AND
THE INFORMATION DISCLOSED HEREIN IS AS OF AND PRIOR
TO THE DATE THE DATE OF ACQUISITION BY NIAGARA
CORPORATION (AUGUST 16, 1995):
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS... 40
STATEMENTS OF OPERATIONS............................. 41
STATEMENT OF CASH FLOWS.............................. 42
NOTES TO FINANCIAL STATEMENTS........................ 43
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Niagara Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of Niagara
Corporation and Subsidiaries (the "Company") as of December 31, 1996 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Niagara
Corporation and Subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
March 6, 1998
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
BALANCE SHEETS
==========================================================================================
December 31, 1996 1997
- ------------------------------------------------------------------------------------------
ASSETS
CURRENT:
<S> <C> <C>
Cash and cash equivalents $ 1,587,927 $ 13,207,077
Trade accounts receivable, net of allowance for
doubtful accounts of $233,000 and $727,000
(Notes 6 and 13) 5,952,896 21,660,230
Inventories (Notes 4 and 6) 14,446,473 35,189,568
Deferred income taxes (Note 12) - 1,401,000
Other current assets 253,078 1,822,354
- ------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 22,240,374 73,280,229
PROPERTY, PLANT AND EQUIPMENT, NET (NOTES 5 AND 6) 21,649,219 89,162,776
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF $76,030
AND $145,013 (NOTE 3) 2,543,294 2,177,125
DEFERRED FINANCING COSTS, NET OF ACCUMULATED
AMORTIZATION OF $73,792 IN 1997 - 701,208
OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION OF
$82,680 AND $277,361 914,928 1,198,528
- ------------------------------------------------------------------------------------------
$ 47,347,815 $ 166,519,866
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT:
Accounts payable $ 6,470,358 $ 20,984,715
Accrued expenses 1,809,064 8,679,723
Due to Quanex Corporation (Note 3(b)) - 1,371,000
Current maturities of long-term debt (Note 6) 1,662,039 3,498,069
Deferred income taxes (Note 12) 211,000 -
TOTAL CURRENT LIABILITIES 10,152,461 34,533,507
OTHER:
Long-term debt, less current maturities (Note 6) 18,075,147 59,184,388
Accrued pension cost (Note 7) - 1,845,900
Accrued post-retirement welfare benefits (Note 8) - 12,691,000
Deferred income taxes (Note 12) 3,594,000 5,726,000
Other noncurrent liabilities - 542,669
- ------------------------------------------------------------------------------------------
TOTAL OTHER LIABILITIES 21,669,147 79,989,957
- ------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 10, 11 AND 15)
STOCKHOLDERS' EQUITY (NOTES 2, 9 AND 11):
Preferred stock, $.001 par value - 500,000 shares
authorized; none outstanding - -
Common stock, $.001 par value - 15,000,000 shares
authorized; 3,668,750 and 9,997,455 outstanding 3,669 9,998
Additional paid-in capital 15,560,127 50,111,675
Retained earnings (deficit) (37,589) 1,874,729
- ------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 15,526,207 51,996,402
- ------------------------------------------------------------------------------------------
$ 47,347,815 $ 166,519,866
==========================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
=======================================================================================
<S> <C> <C> <C>
Year ended December 31, 1995(a) 1996(b) 1997(c)
- ---------------------------------------------------------------------------------------
NET SALES (NOTES 1 AND 13) $ 17,035,038 $ 74,809,520 $204,962,133
COST OF PRODUCTS SOLD (NOTE 14) 15,541,996 66,114,485 180,532,223
- ---------------------------------------------------------------------------------------
GROSS PROFIT 1,493,042 8,695,035 24,429,910
OPERATING EXPENSES:
Selling, general and administrative 1,264,687 5,705,649 12,449,505
- ---------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 228,355 2,989,386 11,980,405
INTEREST INCOME 628,375 100,244 160,048
INTEREST EXPENSE (272,312) (1,536,717) (5,874,194)
- ---------------------------------------------------------------------------------------
OTHER INCOME - 126,147 187,244
INCOME BEFORE TAXES AND
EXTRAORDINARY LOSS 584,418 1,679,060 6,453,503
TAXES ON INCOME (NOTE 12) 240,000 615,200 2,479,000
- ---------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS 344,418 1,063,860 3,974,503
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT, NET
OF INCOME TAX BENEFIT OF $1,264,000
(NOTE 17) - - (2,062,185)
- ---------------------------------------------------------------------------------------
NET INCOME $ 344,418 $ 1,063,860 $ 1,912,318
=======================================================================================
EARNINGS PER SHARE (BASIC):
Income before extraordinary loss $ .10 $ .30 $ .94
Extraordinary loss - - $ (.49)
- ---------------------------------------------------------------------------------------
Net income per share (basic) $ .10 $ .30 $ .45
=======================================================================================
EARNINGS PER SHARE (DILUTED):
Income before extraordinary loss $ .10 $ .30 $ .78
Extraordinary loss - - (.40)
- ---------------------------------------------------------------------------------------
Net income per share (diluted) $ .10 $ .30 $ .38
=======================================================================================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (NOTE 16):
Basic 3,500,000 3,602,818 4,246,925
Diluted 3,500,000 3,602,818 5,095,350
=======================================================================================
- ---------
(a) Includes the results of Niagara LaSalle for the period from
August 17, 1995 to December 31, 1995.
(b) Includes the results of Niagara LaSalle for the entire year, and the
results of Southwest from February 1, 1996.
(c) Includes the results of Niagara LaSalle for the entire year and the
results of LaSalle from April 1, 1997.
=======================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
==============================================================================================================================
Years ended December 31, 1995, 1996 and 1997
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------ Additional Retained Total
Number of paid-in earnings stockholders'
shares Amount capital (deficit) equity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 2,925,001 $2,925 $12,524,073 $(1,344,423) $11,182,575
Accretion to redemption value of common stock
subject to possible
redemption through August 16, 1995 - - - (101,444) (101,444)
Reclassification of common stock subject to
possible redemption 574,999 575 3,036,223 - 3,036,798
Net income - - - 344,418 344,418
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 3,500,000 3,500 15,560,296 (1,101,449) 14,462,347
Shares issued (Note 2) 168,750 169 (169) - -
Net income - - - 1,063,860 1,063,860
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 3,668,750 3,669 15,560,127 (37,589) 15,526,207
Shares issued (a) 285,715 286 1,321,146 - 1,321,432
Shares issued (b) (Note 2) 6,042,990 6,043 33,230,402 - 33,236,445
Net income - - - 1,912,318 1,912,318
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 9,997,455 $9,998 $50,111,675 $ 1,874,729 $51,996,402
=============================================================================================================================
</TABLE>
- ---------
(a) On April 18, 1997, Niagara issued 285,715 shares of Common Stock in
connection with the subordinated debt portion of the financing for the
acquisition of LaSalle.
(b) Proceeds from exercise of Warrants during December 1997 (Note 2).
==============================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Niagara Corporation
and Subsidiaries
Statements of Cash Flows
(Note 19)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year ended December 31, 1995(a) 1996(b) 1997(c)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 344,418 $ 1,063,860 $ 1,912,318
- -----------------------------------------------------------------------------------------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 472,663 1,846,058 5,533,603
Noncash portion of extraordinary loss -- -- 662,185
Gain on sale of property -- (124,773) --
Accrued post-retirement welfare benefits -- -- 150,000
Provision for doubtful accounts 36,000 68,991 88,905
Deferred income taxes 216,000 229,000 520,000
Accrued pension costs -- -- (566,100)
Other -- -- (13,529)
Interest on U.S. Government securities
in trust fund (507,473) -- --
Changes in assets and liabilities,
net of effects from purchase of
Niagara LaSalle in 1995, Southwest
in 1996 and LaSalle in 1997:
(Increase) decrease in accounts
receivable (83,599) 1,131,906 3,144,270
Decrease in inventories 640,288 3,516,779 3,433,310
Increase in other assets (98,613) (169,909) (1,868,179)
Decrease in trade accounts payable,
accrued expenses and other
noncurrent liabilities (3,390,808) (2,729,972) (3,663,315)
- -----------------------------------------------------------------------------------------------
Total adjustments (2,715,542) 3,768,080 7,421,150
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (2,371,124) 4,831,940 9,333,468
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property -- 551,000 --
Acquisition of Niagara LaSalle, net
of cash acquired (11,862,766) -- --
Acquisition of Southwest, net of
cash acquired -- (2,354,289) --
Acquisition of LaSalle, net of cash
acquired -- -- (67,240,000)
Acquisition of fixed assets (293,661) (4,418,944) (5,572,754)
Deferred acquisition costs (115,000) -- --
Cumulative maturities of U.S. Government
securities deposited in trust fund 89,592,484 -- --
Cumulative maturities of U.S. Government
securities reinvested in trust fund (74,400,900) -- --
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 2,920,157 (6,222,233) (72,812,754)
- -----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock warrants -- -- 33,236,445
Net borrowings under revolving line of
credit 998,445 (31,960) --
Proceeds from long-term debt -- 9,998,963 81,800,000
Repayment of long-term debt (297,338) (9,051,147) (38,372,928)
Financing costs -- (124,533) (1,565,081)
- -----------------------------------------------------------------------------------------------
Net cash provided by financing
activities 701,107 791,323 75,098,436
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 1,250,140 (598,970) 11,619,150
Cash and cash equivalents, beginning of
year 936,757 2,186,897 1,587,927
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,186,897 $ 1,587,927 $ 13,207,077
- -----------------------------------------------------------------------------------------------
</TABLE>
- -------------
(a) Includes the cash flows of Niagara LaSalle for the period from August
17, 1995 to December 31, 1995.
(b) Includes the cash flows of Niagara LaSalle for the entire year, and
the cash flows of Southwest from February 1, 1996.
(c) Includes the cash flows of Niagara LaSalle for the entire year and
the cash flows of LaSalle from April 1, 1997.
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
=============================================================================
1. SUMMARY OF Organization and Business Operations
ACCOUNTING
POLICIES
Niagara Corporation ("Niagara") was incorporated
in Delaware on April 27, 1993 with the objective
of acquiring an operating business in the metals
processing and distribution industry or
metals-related manufacturing industry.
Niagara consummated an initial public offering on
August 20, 1993 and raised net proceeds of
$15,295,100 and, as discussed in Note 3, has made
acquisitions of cold drawn steel bar producers
since that date.
Niagara, through its subsidiaries, Niagara
LaSalle Corporation (formerly Niagara Cold Drawn
Corp) ("Niagara LaSalle"), and LaSalle Steel
Company ("LaSalle," and together with Niagara and
Niagara LaSalle, the "Company"), operates from
five principal locations: Buffalo (New York);
Chattanooga (Tennessee); Midlothian (Texas); and
Hammond and Griffith (Indiana). Niagara's
subsidiaries produce cold drawn steel bars for
steel service centers and original equipment
manufacturers throughout North America. The
Company competes in a narrow sector of the steel
industry and its business is affected by
conditions within the broader steel and machine
tool industries. It grants trade credit to its
customers consistent with industry practice.
Earnings Per Share
In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share," which replaced the
calculation of primary and fully diluted earnings
per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects
of options, warrants and convertible securities.
Diluted earnings per share includes all such
dilutive effects and, as such, is very similar to
the previously reported fully diluted earnings
per share. All earnings per share amounts for all
periods have been presented, and where
appropriate, restated to conform to SFAS No. 128
requirements.
Cash Equivalents
For purposes of the statements of cash flows, the
Company considers cash equivalents to consist of
all short-term highly liquid debt instruments
which are readily convertible into cash at par
value (cost). Cash equivalent investments were
$1,370,981 and $12,359,973 at December 31, 1996
and 1997, respectively.
Revenue Recognition
Revenue from the sale of products is recorded at
the time the goods are shipped. Net delivery
costs are classified as a reduction of sales.
Inventories
Inventories are stated at the lower of cost or
market, with cost being determined using the
last-in, first-out (LIFO) method.
Property, Plant and Equipment
Property, Plant and Equipment Property, plant
and equipment is stated at cost.
Additions to property, plant and equipment are
stated at cost and include expenditures for new
facilities and those which substantially increase
the useful lives of existing property, plant and
equipment. Maintenance, repairs and minor
renewals are expensed as incurred.
The Company provides for depreciation of
property, plant and equipment at rates designed
to amortize such equipment over their useful
lives. Depreciation is computed on the
straight-line method using lives of 3 to 15 years
on machinery and equipment and furniture and
fixtures, and 10 to 20 years on buildings and
improvements and leasehold improvements.
OTHER CURRENT ASSETS
Other current assets at December 31, 1997
includes a $600,000 loan due from a related
party. This loan bears interest at a rate of
5.68% and is due in December 1998.
Intangible Assets Niagara
LaSalle has a Power Authority of New York Power
Replacement Agreement which provides for low cost
energy and is included in other assets. The
agreement is being amortized on a straight-line
basis over 10 years.
Deferred financing costs are being amortized on a
straight-line basis over the term of the related
debt, which is seven years.
Goodwill represents the excess of the cost of
purchased businesses over the fair value of the
net assets acquired. Amortization is computed
using the straight-line method over 30 years.
Evaluating Recoverability of Long-Lived Assets
The Company reviews the carrying values of its
long-lived and identifiable intangible assets for
possible impairment whenever events or changes in
circumstances indicate that the carrying amount
of the assets may not be recoverable. The Company
assesses recoverability of these assets by
estimating future nondiscounted cash flows. Any
long-lived assets held for disposal are reported
at the lower of their carrying amounts or fair
value less cost to sell. No impairments have been
recorded through December 31, 1997.
Income Taxes
Deferred income taxes are recognized for the tax
consequences of temporary differences between the
financial reporting bases and the tax bases of
the Company's assets and liabilities in
accordance with SFAS No. 109. Valuation
allowances are established when necessary to
reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax
payable for the period and the change during the
period in deferred tax assets and liabilities.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
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.
Reclassifications
Certain reclassifications, primarily relating to
delivery costs, have been made to prior year
amounts to conform to current year presentation.
Net sales for 1995 and 1996 are stated after
reduction for delivery costs. Previously, such
costs had been included as a component of
selling, general and administrative expenses.
This reclassification resulted in no change to
income from operations for these periods.
Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation". SFAS
No. 123 encourages entities to adopt the fair
value method in place of the provisions of
Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees, for
all arrangements under which employees receive
shares of stock or other equity instruments of
the employer or the employer incurs liabilities
to employees in amounts based on the price of
its stock. The Company has not adopted the fair
value method encouraged by SFAS No. 123 and will
continue to account for such transactions in
accordance with APB No. 25.
New Accounting Standards Not Yet Adopted
In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income," which
establishes standards for reporting and display
of comprehensive income, its components and
accumulated balances. Comprehensive income is
defined to include all changes in equity except
those resulting from investments by owners and
distributions to owners. Among other
disclosures, SFAS No. 130 requires that all
items that are required to be recognized under
current accounting standards as components of
comprehensive income be reported in a financial
statement that is displayed with the same
prominence as other financial statements.
SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which
supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," establishes
standards for the way that public enterprises
report information about operating segments in
interim financial statements issued to the
public. It also establishes standards for
disclosures regarding products and services,
geographic areas and major customers. SFAS No.
131 defines operating segments as components of
an enterprise about which separate financial
information is available that is evaluated
regularly by the chief operating decision maker
in deciding how to allocate resources and in
assessing performance.
Both of these new standards are effective for
financial statements for periods beginning after
December 15, 1997 and require comparative
information for earlier years to be restated.
The adoption of these standards is not expected
to impact the Company's financial statements or
disclosures.
In February 1998, the FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other
Postretirement Benefits," which standardizes the
disclosure requirements for pensions and other
postretirement benefits. Due to the recent
issuance of this standard, management has been
unable to fully evaluate the extent of future
financial statement disclosures that may be
required.
2. PUBLIC OFFERING AND On August 20, 1993, Niagara sold 2,875,000 units
SUBSEQUENT COMMON ("Units") in an initial public offering (the
STOCK ISSUANCES "Offering"). Each Unit consisted of one share of
Niagara Common Stock, par value $.001 per share,
and two Redeemable Common Stock Purchase
Warrants ("Warrants"). Each Warrant entitled the
holder to purchase from Niagara, until the close
of business on August 13, 2000, one share of
Niagara Common Stock at an exercise price of
$5.50, subject to adjustment in certain
circumstances. The Warrants were redeemable at a
price of $.01 per Warrant upon 30 days' notice
in the event that the last sale price of the
Common Stock was at least $10.00 per share for
20 consecutive trading days ending on the third
day prior to the date on which notice of
redemption is given.
In 1993, Niagara issued an aggregate of $150,000
of promissory notes to certain accredited
investors. These notes bore interest at the rate
of 10% per annum and were repaid on the
consummation of the Offering with accrued
interest thereon. The investors were issued
300,000 warrants (valued at a nominal amount)
which were (following Niagara's acquisition of
Niagara LaSalle) identical to the Warrants.
On May 22, 1996, Niagara issued 168,750 shares
of its Common Stock in exchange for unit
purchase options (the "Purchase Options") issued
to the underwriters of the Offering. The
Purchase Options were exercisable until August
13, 1998 for an aggregate of 250,000 units at
$9.00 per unit (subject, in each case, to
certain antidilution adjustments), with each
unit consisting of one share of Niagara Common
Stock and two warrants, with each warrant
exercisable for one share of Niagara Common
Stock at $6.60.
On April 18, 1997, Niagara issued 285,715 shares
of its Common Stock in connection with the
subordinated debt portion of the financing for
the acquisition of LaSalle. (See Note 3.)
On October 31, 1997, Niagara exercised its right
to redeem on December 9, 1997 (which date was
extended to December 11, 1997) all of its then
outstanding and unexercised Warrants at $.01 per
Warrant. As a result of such action, the
Warrants could not be exercised after the
redemption date. Of the 6,050,000 Warrants
outstanding, 6,042,990 were exercised prior to
the exercise deadline, resulting in $33,236,445
in gross proceeds to Niagara and the issuance of
6,042,990 shares of Niagara Common Stock.
3. ACQUISITIONS OF (a) Acquisitions of Niagara LaSalle and Southwest
NIAGARA LASALLE,
SOUTHWEST AND On August 16, 1995, Niagara acquired all of
LASALLE the issued and outstanding common and
preferred stock of Niagara LaSalle for
$10,744,045 in cash. Concurrent with this
acquisition, which was approved by Niagara's
stockholders, the shares of Niagara Common Stock
subject to redemption totalling $3,036,798 were
reclassified as additional paid-in capital since
no shares were redeemed. This acquisition was
accounted for as a purchase, and the financial
statements include the results of Niagara
LaSalle from this acquisition date.
The purchase price of Niagara LaSalle, including
certain transaction expenses of $1,174,377, was
$11,918,422. Niagara LaSalle's stockholder's
equity at August 16, 1995 was $6,519,678. After
giving effect to this excess and a $3,309,000
deferred tax liability, the purchase price for
Niagara LaSalle exceeded the book value of
Niagara LaSalle's stockholder's equity by
approximately $8,708,000. As a result of this
acquisition, Niagara's net operating loss
carryforward at August 16, 1995 of approximately
$1,150,000 was able to be utilized. The tax
benefit of this loss (which was previously fully
reserved by a valuation allowance) totaled
approximately $460,000. This amount was recorded
as a deferred tax asset at the date of the
acquisition of Niagara LaSalle. Approximately
$1,000,000 of this loss was utilized as of
December 31, 1995 and the remainder was utilized
in 1996 to reduce current tax liabilities. In
accordance with SFAS No. 109, "Accounting for
Income Taxes," the tax benefit received from
this utilization was reflected as a reduction of
the deferred tax asset rather than a reduction
in tax expense in the statement of operations.
On January 31, 1996, Niagara LaSalle entered
into a stock purchase agreement with the
stockholders of Southwest Steel Company, Inc.
("Southwest"), a manufacturer of cold drawn
steel bars, pursuant to which, and
simultaneously therewith, Niagara LaSalle
purchased all of the outstanding capital stock
of Southwest for $1,920,000 in cash and
$1,156,773 principal amount of promissory notes
guaranteed by Niagara. In connection with this
acquisition, Niagara LaSalle discharged
$8,518,691 of Southwest indebtedness and Niagara
guaranteed $898,000 of Southwest indebtedness to
a former Southwest stockholder. The acquisition
was accounted for as a purchase and financed by
a $12,000,000 term loan and the utilization of a
portion of Niagara LaSalle's revolving line of
credit. The financial statements include the
results of Southwest from February 1, 1996.
The Southwest purchase price, including certain
transaction expenses of $524,270, together with
assumed liabilities of $350,063, totaled
$3,951,106. Southwest's stockholders' equity at
January 31, 1996 was $1,071,782. The $2,879,324
excess has been allocated to goodwill and is
being amortized on a straight-line basis over 30
years. During 1996, Southwest moved its
operations from Tulsa, Oklahoma to a new
facility in Midlothian, Texas. Southwest was
merged into Niagara LaSalle on November 1, 1996
and, since then, has operated as a division of
Niagara LaSalle.
On May 8, 1996, pursuant to the provisions of
the Southwest stock purchase agreement, Niagara
LaSalle asserted indemnification claims in the
aggregate amount of approximately $1,300,000
against the former Southwest stockholders. On
May 22, 1996, Niagara LaSalle brought an action
against such stockholders relating to these
claims. On November 24, 1997, the parties
entered into a settlement agreement, pursuant to
which Niagara LaSalle paid $525,000 to the
former Southwest stockholders in full
satisfaction of all amounts owing under the
$1,156,773 principal amount of promissory notes
issued to such individuals in connection with
the acquisition. The difference between the
principal amount of the promissory notes and the
settlement amount, after related expenses,
reduced the amount of goodwill recorded relating
to the acquisition of Southwest.
Pro forma results of operations for 1995, as if
both acquisitions had occurred January 1, 1995,
are unaudited and are detailed below. Pro forma
adjustments primarily include additional
depreciation and amortization on the excess
purchase price allocated to property, plant and
equipment and intangible assets (Niagara
LaSalle) and goodwill (Southwest), elimination
of interest income on the portion of Niagara's
investment in U.S. government securities
deposited in a trust fund and liquidated upon
consummation of the acquisition of Niagara
LaSalle, elimination of the Niagara LaSalle
employment expense (exercise of management
options), additional accrual of salaries for
Niagara management, elimination of merger costs
on terminated transactions prior to the
acquisition of Niagara LaSalle, elimination of
other nonrecurring items and provision for
income taxes. This pro forma financial data does
not purport to be indicative of the results
which actually could have been obtained had such
transactions been completed as of the assumed
date. Information has not been presented for
1996 since the pro forma results reflecting
Southwest were not materially different from the
accompanying financial statements.
Year ended December 31, 1995
---------------------------------------------------
Net sales $84,654,000
Net income 882,000
Net income per share (basic and .25
diluted)
===================================================
(b) Acquisition of LaSalle
On April 18, 1997, Niagara and Niagara
LaSalle entered into a stock purchase
agreement with Quanex Corporation
("Quanex"), pursuant to which, and at a
closing occurring simultaneously therewith,
Niagara LaSalle purchased from Quanex all of
the outstanding shares of capital stock of
LaSalle Steel Company ("LaSalle"). Pursuant
to the LaSalle stock purchase agreement and
in consideration for the sale of the LaSalle
shares (i) Niagara LaSalle paid Quanex
$65,500,000 in cash at the closing and (ii)
Quanex or Niagara LaSalle, as the case may
be, agreed to pay the other an amount based
on changes in LaSalle's stockholder's equity
between October 31, 1996 and March 31, 1997
as reflected on LaSalle's balance sheets as
of such dates. The LaSalle stock purchase
agreement also provided that Quanex or
Niagara LaSalle, as the case may be, pay the
other an amount based on cash activity in
the intercompany account between Quanex and
LaSalle from April 1, 1997 through April 18,
1997.
On July 2, 1997, Niagara and Niagara LaSalle
submitted to Quanex a statement disputing
certain amounts reflected on the March 31,
1997 balance sheet of LaSalle submitted by
Quanex. This balance sheet indicated that,
based on changes in LaSalle's stockholder's
equity between October 31, 1996 and March
31, 1997, Niagara LaSalle owed Quanex
$2,154,000. In accordance with the LaSalle
stock purchase agreement, the parties
submitted their respective claims to an
independent accounting firm for binding
arbitration. Pursuant to the decision in
such arbitration, Niagara LaSalle's payment
to Quanex was reduced to $1,371,000. This
amount was paid in January 1998.
The acquisition of LaSalle was accounted for
as a purchase, and the financial statements
include the results of LaSalle from April 1,
1997. The purchase price, including
acquisition costs and other estimated
liabilities as of the acquisition date, was
approximately $68,000,000. The purchase
price exceeded LaSalle's stockholder's
equity by approximately $56,000,000 and,
based on an appraisal, the excess was
primarily allocated to property, plant and
equipment. The fair value of assets acquired
was approximately $110,000,000 and was
allocated primarily to property, plant and
equipment ($67,000,000), inventories
($24,000,000) and accounts receivable
($19,000,000).
The acquisition of LaSalle and the
refinancing of existing Niagara LaSalle
indebtedness was financed pursuant to (i) a
revolving credit and term loan agreement
with Niagara LaSalle and LaSalle (guaranteed
by Niagara), providing for a $50,000,000
three-year revolving credit facility and a
$40,000,000 eight-year term loan and (ii)
the issuance and sale of $20,000,000
aggregate principal amount of 12.5% senior
subordinated notes of Niagara LaSalle due
April 18, 2005 (the "Subordinated Notes").
In connection with the subordinated debt
portion of this financing, the purchasers of
these notes were issued 285,715 shares of
Niagara Common Stock. (See Note 2.) The fair
value of these shares ($1,321,000) was
charged to deferred debt issuance costs.
Pro forma results of operations, assuming
the acquisition had occurred on January 1,
1996, are unaudited and detailed below. Pro
forma adjustments primarily include
additional depreciation and amortization on
excess purchase price allocated to property,
plant, equipment and additional interest
expense related to debt incurred for the
acquisition.
This pro forma data does not purport to be
indicative of the results which actually
would have been obtained had such
transactions been completed as of the
assumed dates or of the results which may be
obtained in the future.
Year ended December 31, 1996 1997
-----------------------------------------------
Net sales 233,560,000 $249,211,000
Income before extra-
ordinary loss 304,000 3,759,000
Net income 304,000 1,697,000
Income per share -
before extraordinary
loss (basic) .08 .89
Income per share -
before extraordinary
loss (diluted) .08 .74
Net income per share
(basic) .08 .40
Net income per share
(diluted) .08 .33
===============================================
4. INVENTORIES Inventories consisted of the following:
December 31, 1996 1997
----------------------------------------------------
Raw materials $6,302,827 $13,179,052
Work-in-process 1,252,278 5,984,649
Finished goods 6,891,368 16,025,867
----------------------------------------------------
$ 14,446,473 $35,189,568
====================================================
5. PROPERTY, PLANT AND Property, plant and equipment consisted of the
EQUIPMENT following:
December 31, 1996 1997
----------------------------------------------------
Land, buildings and
improvements $ 7,447,214 $24,354,077
Leasehold improvements 717,095 748,877
Machinery and equipment 15,026,487 69,596,920
Furniture and fixtures 571,924 1,567,601
----------------------------------------------------
Total 23,762,720 96,267,475
Less: Accumulated
depreciation and
amortization 2,113,501 7,104,699
----------------------------------------------------
$21,649,219 $89,162,776
====================================================
6. LONG-TERM DEBT The long-term debt consisted of the following:
December 31, 1996 1997
Term note payable - bank,
maturing in monthly
installments of interest
only through October 1997,
followed by monthly
installments of principal
plus interest from
November 1997 through
March 2004. Beginning
November 1, 1997 through
April 1, 1998, the monthly
installments of principal
are $166,666. The monthly
principal payment is
adjusted annually each
subsequent May 1, with the
final installment due and
payable on April 1, 2004.
Interest is calcu lated at
either the LIBOR rate plus
285 basis points or the
bank's prime rate plus 50
basis points (effec tive
rate of 8.7875% at
December 31, 1977) $ - $39,666,668
Secured bank revolving
line of credit up to
$50,000,000 due April 17,
2000, limited to a portion
of the value of eligible
accounts receivable and
inventories. Interest is
payable in monthly install
ments at either the LIBOR
rate plus 250 basis points
or the bank's prime rate
plus 25 basis points
(effec tive rate of 8.75%
on $11,800,000 and 8.4805%
on $10,000,000 at December
31, 1997) - 21,800,000
Note payable - former
Southwest stockholder,
maturing $64,143 annually
on January 31, through
2010, plus interest at
8.5%, guaranteed by
Niagara (Note 3) 898,000 833,857
Note payable - former
Southwest stockholder,
maturing $33,333 annually
on April 17, through 2005,
plus interest at 10% 300,000 266,667
Term note payable - bank,
paid in full in 1997 12,000,000 -
Secured bank revolving
line of credit up to
$14,000,000, paid in full
in 1997 5,146,579 -
Notes payable - former
Southwest shareholders,
settled in 1997 (Note 3) 1,156,773 -
Other notes payable 235,834 115,265
----------------------------------------------------
19,737,186 62,682,457
Less: Current maturities
of long-term debt 1,662,039 3,498,069
----------------------------------------------------
$18,075,147 $59,184,388
====================================================
The revolving line of credit and term loan
agreement is collateralized by substantially all
of the assets of Niagara LaSalle and LaSalle and
guaranteed by Niagara. This agreement contains,
among other things, certain financial covenants
relating to current ratio, tangible net worth,
and interest coverage ratio, and restrictions on
capital expenditures, new indebtedness, operating
leases and dividends.
Approximate maturities of long-term debt over the
next five years are as follows:
Year ended December 31,
----------------------------------------------------
1998 $ 3,498,000
1999 4,794,000
2000 27,564,000
2001 6,764,000
2002 7,764,000
====================================================
7. PENSION PLANS AND LaSalle sponsors two contributory defined benefit
RETIREMENT BENEFITS pension plans, which cover substantially all
employees of LaSalle. The hourly employees' plan
pays benefits to employees at retirement using
formulas based upon years of service and job
classification. The salaried employees' pension
plan pays benefits to employees at retirement
using formulas based upon compensation and
credited service. Effective April 18, 1997, the
salaried plan was amended to discontinue all
benefit accruals following October 31, 1997.
Since the original intent at the time of the
acquisition of LaSalle was to discontinue benefit
accruals under this plan, no curtailment
accounting was required under SFAS No. 88;
rather, the adjustment to the plan was recorded
as an acquisition adjustment.
The plans' funded status as of December 31, 1997
was approximately as follows:
Salaried Hourly
Plan Plan Total
---------------------------------------------------
Assets available
for benefits $ 8,420,000 $ 9,681,000 $18,101,000
----------------------------------------------------
Projected benefit
obligation:
Vested (7,867,000) (9,313,000)(17,180,000)
Nonvested (398,000) (1,956,000) (2,354,000)
-----------------------------------------------------
Accumulated
benefit
obligation (8,265,000)(11,269,000)(19,534,000)
Effect of
future
salary in-
creases (163,000) (102,000) (265,000)
------------------------------------------------------
Total projected
benefit obliga-
tion (8,428,000)(11,371,000)(19,799,000)
------------------------------------------------------
Assets less than
projected
benefit
obligation (8,000) (1,690,000) (1,698,000)
Unrecognized
accumulated
(gain) loss (192,900) 45,000 (147,900)
-----------------------------------------------------
Accrued pension
cost $ (200,900)$(1,645,000)$ (1,845,900)
======================================================
The projected unit credit method was used to
determine the actuarial present value of the
accumulated benefit obligation and the projected
benefit obligation. For the initial period ended
December 31, 1997, the discount rate was 7.5% and
the expected long-term rate of return on assets
was 10%. The assumed rate of increase in future
compensation levels was 3% for the hourly plan.
The plan invests primarily in marketable equity
and debt securities.
Net pension costs for the above-defined benefit
plans were as follows:
Period April 1, 1997 to December 31, 1997
-----------------------------------------------------
Benefits earned during the year $ 696,000
Interest cost on projected benefit
obligation (1,037,000)
Actual return on plan assets (1,396,000)
Deferred gain on assets 148,000
-----------------------------------------------------
Total $ 485,000
=====================================================
The Company maintains a contributory salary
deferral retirement plan (401(k)) for all
employees other than those subject to a collective
bargaining agreement. Under the terms of this
plan, participants may elect to defer up to 15% of
their earnings. During 1997, this plan was amended
to change the matching portion for employee
elective deferrals to a 100% match for the first
3% of employee contributions and a 50% match for
the next 2% of employee contributions, and to
provide for an additional employer contribution
equal to 2% of earnings. During 1996, Niagara
LaSalle matched 25% of the participant's
contributions to this plan, up to a maximum of 4%
of the participant's earnings.
LaSalle maintains a contributory salary deferral
retirement plan (401(k)) for its union employees.
This plan provides for a 25% match of the first 5%
of employee contributions.
All contributions under these plans are subject to
the limitations of Section 401 of the Internal
Revenue Code and the requirements of the Employee
Retirement Income Security Act of 1974. Total
expense related to these plans was approximately
$288,000 and $25,000 for the years ended December
31, 1997 and 1996, respectively. The funds are
invested primarily in annuity contracts.
8. POST-RETIREMENT LaSalle provides certain health care and life
BENEFITS insurance benefits for eligible retired employees.
OTHER THAN PENSIONS Employees may become eligible for those benefits if
they reach the normal retirement age while working
for LaSalle. LaSalle continues to fund benefit
costs on a pay-as-you-go basis and, for the period
from April 1, 1997 to December 31, 1997, LaSalle
made benefit payments totalling $682,000.
The following table sets forth the funded status
of LaSalle's projected post-retirement benefits
other than pensions, reconciled with amounts shown
in the balance sheet at:
December 31, 1997
-----------------------------------------------------
Accumulated post-retirement benefit
obligation:
Retirees $ (7,359,000)
Fully eligible active plan parti-
cipants (1,522,000)
Other active plan participants (3,582,000)
------------------------------------------------------
Accumulated post-retirement benefit
obligation in excess of plan
assets (12,463,000)
Unrecognized net gain from past
experience different from that
assumed 10,000
Other (238,000)
------------------------------------------------------
Accrued post-retirement welfare benefit
liability $(12,691,000)
======================================================
Net periodic post-retirement benefit
cost:
Service cost-benefits attributed to
service during the period $ 152,000
Interest cost on accumulated post-
retirement benefit cost 680,000
------------------------------------------------------
Net periodic post-retirement benefit
cost $ 832,000
======================================================
The assumed health care cost trend rate was 5%.
The assumed discount rate used to measure the
accumulated post-retirement benefit obligation was
7.5% at December 31, 1997.
The health care cost trend rate assumption has a
significant effect on the amount of the obligation
and periodic cost recorded. For example, if the
health care cost trend rate assumptions were
increased by 1%, the accumulated post-retirement
benefit obligation as of December 31, 1997 would
be increased by 14.1%. The effect of this change
on the sum of the service cost and interest cost
for the initial period ended December 31, 1997
would be an increase of 16.3%.
9. PREFERRED STOCK Niagara is authorized to issue 500,000
shares of Preferred Stock, par value $.001 per
share, with such designations, voting and other
rights and preferences as may be determined from
time to time by its Board of Directors.
10. LEASE COMMITMENTS Niagara leases office space under an operating
lease and Niagara LaSalle leases equipment and its
Chattanooga, Tennessee facility under operating
leases. At December 31, 1997, future minimum
payments under noncancellable operating leases are
approximately as follows:
Operating lease
----------------------------------------------------
1998 $ 349,000
1999 275,000
2000 469,000
2001 259,000
2002 190,000
Thereafter 1,364,000
----------------------------------------------------
Total minimum lease payments $2,906,000
====================================================
Rent expense under operating leases was
approximately $63,000, $449,000 and $458,000 for
the years ended December 31, 1995, 1996 and 1997,
respectively.
11. STOCK OPTION PLAN The Company has a stock option plan which provides
that the Compensation Committee of Niagara's Board
of Directors may grant options to the Company's
officers, directors, employees and independent
contractors for up to 1,500,000 shares of Niagara
Common Stock.
The Company applies APB Opinion 25, "Accounting
for Stock Issued to Employees," and related
Interpretations in accounting for this plan. Under
APB Opinion 25, no compensation cost was
recognized because the exercise price of Niagara's
employee stock options equaled the market price of
the underlying stock on the date of grant.
FASB Statement 123, "Accounting for Stock-Based
Compensation," requires the Company to provide pro
forma information regarding net income and
earnings per share as if compensation cost for the
Company's stock option plan had been determined in
accordance with the fair value method prescribed
in FASB Statement 123. The Company estimates the
fair value of each stock option at the grant date
by using the Black-Scholes option-pricing model
with the following weighted average assumptions
used for grants in 1995, 1996 and 1997: dividend
yield of -0- percent; expected volatility of 20
percent for 1995 and 1996 and 37.3% for 1997;
risk-free interest rates of 6.6 percent; expected
lives of 10 years and a discount due to
marketability and dilution of 28, 28 and 22
percent in 1995, 1996 and 1997, respectively.
Under the accounting provisions of FASB Statement
123, the Company's net income and earnings per
share would have been reduced to the pro forma
amounts indicated below:
1995 1996 1997
-----------------------------------------------------
Net income:
As reported $344,418 $1,063,860 $1,912,318
Pro forma 250,368 798,133 1,494,881
Net income per
share (basic):
As reported .10 .30 .45
Pro forma .08 .22 .35
Net income per share
(diluted):
As reported .10 .30 .38
Pro forma .08 .22 .29
====================================================
A summary of the status of the Company's stock
option plan as of December 31, 1995, 1996 and
1997, and changes during the years ending on
those dates, is presented below:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1996 December 31, 1997
----------------- ----------------- -----------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year - $ - 520,000 $5.75 815,000 $5.66
Granted 520,000 5.75 295,000 5.50 375,000 5.72
Exercised - - - - - -
Forfeited - - - - - -
-------------------------------------------------------------------------------------------
Outstanding at end of year 520,000 5.75 815,000 $5.66 1,190,000 $5.68
-------------------------------------------------------------------------------------------
Options exercisable at
year-end - - 254,666 $5.70 485,332 $5.69
-------------------------------------------------------------------------------------------
Weighted average fair
value of options granted
during the year $2.14 $1.47 $2.78
</TABLE>
NIAGARA CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The following table summarizes information about
stock options outstanding at December 31, 1997.
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------- ----------------------
Weighted
average Weighted Weighted
Number remaining average Number average
Range of Outstanding contractual exercise exercisale exercise
exercise prices at 12/31/97 life price at 12/31/97 price
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$5.50 to $8.50 1,190,000 9 years $5.68 485,332 $5.69
</TABLE>
12. INCOME TAXES The provision for Federal and state income
tax expense was comprised of the following:
<TABLE>
<S> <C> <C> <C>
Year ended December 31, 1995 1996 1997
------------------------------------------------------------
Current:
Federal $12,000 $352,200 $1,801,000
State 12,000 34,000 158,000
------------------------------------------------------------
24,000 386,200 1,959,000
------------------------------------------------------------
Deferred:
Federal 208,000 207,000 425,000
State 8,000 22,000 95,000
------------------------------------------------------------
216,000 229,000 520,000
------------------------------------------------------------
Total income taxes $240,000 $615,200 $2,479,000
</TABLE>
At December 31, deferred tax assets (liabilities)
consisted of the following:
<TABLE>
<S> <C> <C>
December 31, 1996 1997
----------------------------------------------------------------------
New York State investment tax credits $ 427,000 $ 667,000
Inventory reserves -- 446,000
Post-retirement benefit obligations -- 399,000
Accrued expenses deductible when paid 182,000 1,260,000
Inventory capitalization 159,000 92,000
Allowance for doubtful accounts 89,000 281,000
----------------------------------------------------------------------
Gross deferred tax assets 857,000 3,145,000
Valuation allowance for deferred tax
assets (427,000) (667,000)
----------------------------------------------------------------------
Net deferred tax assets 430,000 2,478,000
----------------------------------------------------------------------
Pushdown adjustment for property,
plant, equipment and intangibles (2,379,000) (2,173,000)
Book versus tax depreciation of
property, plant and equipment (1,215,000) (3,951,000)
Pushdown adjustment for inventories (641,000) (629,000)
Other -- (50,000)
----------------------------------------------------------------------
Gross deferred tax liabilities (4,235,000) (6,803,000)
----------------------------------------------------------------------
Net deferred tax liabilities $(3,805,000) $(4,325,000)
</TABLE>
Included in the accompanying balance sheets as
follows:
<TABLE>
<S> <C> <C>
1996 1997
---------------------------------------------------------------
Current asset for deferred
income taxes -- 1,401,000
Current liability for deferred
income taxes (211,000) --
Noncurrent liability for
deferred income taxes (3,594,000) (5,726,000)
----------------------------------------------------------------
Net deferred tax liabilities $(3,805,000) $(4,325,000)
</TABLE>
At December 31, 1997, Niagara LaSalle had New
York State investment tax credit carryforwards
of approximately $667,000, which may be
available to offset certain future state income
taxes. These credits expire through 2005. A
valuation allowance has been provided for these
tax credits. A reconciliation of the statutory
Federal income tax rate and effective rate as a
percentage of pre-tax income was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ----------------- --------------------
Amount % Amount % Amount %
----------------------- ---------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate $199,000 34.0 $591,000 34.0 $2,194,000 34.0
State income taxes,
net of Federal
income tax benefit 13,000 2.0 37,000 3.0 167,000 2.6
Goodwill amortization -- -- 30,000 3.0 118,000 1.8
Other, including prior
year overaccrual 28,000 5.0 (42,800) (3.0) -- --
----------------------- ---------------- ----------------- --------------------
Effective tax rate $240,000 41.0 $615,200 37.0 $2,479,000 38.4
</TABLE>
13. MAJOR CUSTOMERS The Company had three customers in 1997 to which
sales were approximately 27%, 8% and 6% of total
sales. Accounts receivable from these major
customers represented approximately 39% of
aggregate accounts receivable at December 31,
1997. Sales to two customers during 1996 were
approximately 25% and 18% of total sales.
Accounts receivable outstanding from these major
customers represented approximately 46% of
aggregate accounts receivable at December 31,
1996. Sales to three customers during 1995 were
approximately 25%, 22% and 10% of total sales.
14. MAJOR SUPPLIER The Company had one supplier in 1997 which
accounted for approximately 37% of the Company's
total purchases.
15. COMMITMENTS AND Niagara LaSalle and LaSalle are subject to
CONTINGENCIES Federal, state and local environmental laws and
regulations concerning, among other matters,
water emissions and waste disposal. Management
believes that Niagara LaSalle and LaSalle are
currently in material compliance with all
applicable environmental laws and regulations.
Under applicable state and Federal laws,
including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980
as amended ("CERCLA"), LaSalle may be
responsible for parts of the costs required to
remove or remediate previously disposed wastes
or hazardous substances at the locations LaSalle
owns or operates or at which it arranged for
disposal of such materials. The costs are
largely covered by insurance. Management
believes any settlement of these matters will
not have a material adverse effect on the
Company's financial position.
Under the Company's insurance programs, coverage
is obtained for catastrophic exposures as well
as those risks required to be insured by law or
contract. It is the policy of the Company to
retain a portion of certain expected losses
related primarily to workers' compensation,
physical loss to property, business interruption
resulting from such loss and comprehensive
general, product, vehicle, medical and life
benefits and liability. Provisions for losses
expected under these programs are recorded based
upon the Company's estimates of the aggregate
liability, actual and estimated, for claims.
Such estimates utilize certain actuarial
assumptions followed in the insurance industry
and are included in accrued expenses.
Niagara LaSalle and its parent, Niagara, have
entered into employment contracts with certain
officers of Niagara LaSalle. The contracts,
which expire in January 1999 and August 2000,
provide minimum salary levels, adjusted annually
for cost-of-living changes, as well as incentive
bonuses and Niagara stock options. The aggregate
contract commitment for future minimum salaries
at December 31, 1997 was approximately
$1,054,000.
The hourly labor force of LaSalle's Hammond
facility, representing approximately 73% of
LaSalle's personnel, is covered by a collective
bargaining agreement which expires in May 1998.
16. EARNINGS PER SHARE The following table sets forth the calculation
of weighted average common shares outstanding
for the calculation of basic and diluted
earnings per share:
<TABLE>
<S> <C> <C> <C>
December 31, 1995 1996 1997
-----------------------------------------------------------------
Weighted average shares
(for basic earnings
per share) 3,500,000 3,602,818 4,246,925
Effect of dilutive
securities:
Warrants and employee
stock options -- -- 848,425
-----------------------------------------------------------------
Adjusted weighted
average shares and
assumed conversion
(for diluted earnings
per share) 3,500,000 3,602,818 5,095,350
</TABLE>
17. EXTRAORDINARY ITEM In 1997, Niagara LaSalle sold the Subordinated
Notes. Net proceeds from the sale, together with
borrowings under the revolving credit and term
loan agreement, were used to finance the
acquisition of LaSalle. (See Note 3)
In December 1997, in connection with the prepayment
of the Subordinated Notes, the Company was
required to write off unamortized debt issuance
costs and incur a prepayment charge in the
aggregate amount of approximately $3,326,000.
The resultant one time, after-tax charge
amounted to approximately $2,062,000. The
Subordinated Notes and prepayment charge were
paid by Niagara from the proceeds of the
Warrants exercised during the fourth quarter of
1997. (See Note 2)
18. DISCLOSURE ABOUT The following methods and assumptions were used
FAIR VALUE OF to estimate the fair value of each class of
FINANCIAL financial instruments for which it is practicable
INSTRUMENTS to estimate that value.
The carrying amounts of cash, trade accounts
receivable and current liabilities approximate
fair value because of the short maturity of
these instruments.
The carrying amount of debt approximates fair
value because the interest rates on these
instruments fluctuate with market interest rates
or are based on current rates offered to the
Company for debt with similar terms and
maturities.
19. SUPPLEMENTAL CASH Interest paid during 1995, 1996 and 1997 was
FLOW INFORMATION approximately $243,000, $1,357,000 and
$5,637,000, respectively.
Income tax payments made during 1995, 1996 and
1997 totaled approximately $1,000, $86,500 and
$512,000, respectively.
As discussed in Note 3(a), Niagara acquired all
the capital stock of Niagara LaSalle for
$11,918,000 in 1995. In connection with this
acquisition, net assets were acquired as
follows:
<TABLE>
<S> <C>
Fair value of Niagara LaSalle assets acquired $ 30,502,000
Liabilities assumed 18,584,000)
--------------------------------------------------------------
Net assets acquired $ 11,918,000
</TABLE>
As discussed in Note 3(a), Niagara LaSalle
acquired all of the capital stock of Southwest
for $3,951,000 in 1996. In connection with this
acquisition, net assets were acquired as
follows:
<TABLE>
<S> <C>
Fair value of Southwest assets acquired $ 13,529,000
Liabilities assumed (12,457,000)
---------------------------------------------------------
Net assets acquired $ 1,072,000
</TABLE>
As discussed in Note 3(b), Niagara LaSalle
acquired all of the capital stock of LaSalle for
$68,183,000 in 1997. In connection with this
acquisition, net assets were acquired as
follows:
<TABLE>
<S> <C>
Fair value of LaSalle assets acquired $ 110,351,000
Liabilities assumed (42,168,000)
---------------------------------------------------------
Net assets acquired $ 68,183,000
</TABLE>
Noncash investing and financing activities
consist of the following:
<TABLE>
<S> <C> <C>
1996 1997
-------------------------------------------------------------------------
Deferred debt issuance costs recorded
as additional paid-in capital (Note 3(b)) $ -- $ 1,321,432
-------------------------------------------------------------------------
Adjustments arising from settlement with
former Southwest stockholders (Note 3(a)):
Decrease in goodwill -- $ 310,715
Decrease in accounts receivable -- 89,491
Decrease in inventory -- 81,595
-------------------------------------------------------------------------
Decrease in long-term debt $ -- $ 481,801
-------------------------------------------------------------------------
Investment in LaSalle financed by
amount due to Quanex Corporation $ -- $ 933,000
-------------------------------------------------------------------------
Goodwill financed by debt $ 1,156,773 $ --
</TABLE>
Report Of Independent Certified Public Accountants
To The Stockholder And Board Of Directors
Niagara LaSalle Corporation
Buffalo, New York
We have audited the accompanying statements of operations and cash flows
for the period from January 1, 1995 to August 16, 1995 for Niagara LaSalle
Corporation (formerly Niagara Cold Drawn Corp.). 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 audit.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of Niagara Lasalle Corporation's
operations and its cash flows for the period from January 1, 1995 to August
16, 1995 in conformity with generally accepted accounting principles.
/S/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
March 8, 1996
NIAGARA LASALLE CORPORATION
(FORMERLY NIAGARA COLD DRAWN CORP.)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Memorandum only
Period from ---------------
January 1, Year ended
1995 to August 16, December 31,
1995(a) 1995(b)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES (NOTE 6) $33,470,447 $50,505,485
COST OF PRODUCTS SOLD 28,843,319 44,385,315
- -------------------------------------------------------------------------------------------
GROSS PROFIT 4,627,128 6,120,170
- -------------------------------------------------------------------------------------------
EXPENSES:
Selling, general and administrative 2,472,410 2,904,104
Employment expense - management options (Note 2) 1,666,327(c) 1,666,327(c)
Interest expense 498,960 771,272
- -------------------------------------------------------------------------------------------
TOTAL EXPENSES 4,637,697 5,341,703
- -------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (10,569) 778,467
OTHER INCOME, NET -- 16,910
- -------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXE S (10,569) 795,377
INCOME TAXES (NOTE 4) -- 270,000
- -------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (10,569) $ 525,377
</TABLE>
- -----------
(a) Acquisition date by Niagara.
(b) This information is unaudited and is provided for informational
purposes only to provide for comparisons. The 1995 amounts
were derived from combining Niagara LaSalle's results of
operations prior to the acquisition by Niagara (January 1 to August
16, 1995) with the results after the acquisition by Niagara (August
17 to December 31, 1995).
(c) Payment due in accordance with purchase agreement.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
NIAGARA LASALLE CORPORATION
(FORMERLY NIAGARA COLD DRAWN CORP.)
STATEMENT OF CASH FLOWS
(NOTE 8)
Period from January 1, 1995 to August 16, 1995(a)
- ---------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,569)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 495,185
Increase in allowance for doubtful
accounts 8,494
Increase in inventories (4,272,038)
Increase in trade accounts receivable (26,892)
Increase in trade accounts payable,
accrued expenses and accrued
compensation 3,137,441
Net change in other current assets
and liabilities (63,860)
- ---------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (732,239)
- ---------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (514,018)
- ---------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt (631,239)
Capital contribution 1,666,327
Proceeds from long-term debt 1,211,692
Net payments under revolving line of credit (323,063)
Payments of dividends (313,384)
Payments of redeemable preferred stock (212,371)
Redemption of redeemable preferred stock (126,442)
- ---------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,271,520
- ---------------------------------------------------------------------
NET INCREASE IN CASH 25,263
CASH, BEGINNING OF PERIOD 30,393
- ---------------------------------------------------------------------
CASH, END OF PERIOD $ 55,656
- -------------
(a) Acquisition date by Niagara.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
NIAGARA LASALLE CORPORATION
(FORMERLY NIAGARA COLD DRAWN CORP.)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF Organization
SIGNIFICANT
ACCOUNTING POLICIES Niagara LaSalle Corporation (formerly Niagara
Cold Drawn Corp.) ("Niagara LaSalle") is a
Delaware corporation and, through August 16,
1995, operated from its two principal locations
in Buffalo, New York and Chattanooga, Tennessee.
Through August 16, 1995, Niagara LaSalle was a
wholly owned subsidiary of Adage, Inc.
("Adage"). On August 16, 1995, Niagara
Corporation, formerly International Metals
Acquisition Corporation ("Niagara"), acquired
all of the issued and outstanding common and
preferred stock of Niagara LaSalle for
$10,744,045 in cash.
Business Activity
Niagara LaSalle produces cold drawn steel bars
for steel service centers and original equipment
manufacturers throughout North America. Niagara
LaSalle competes in a narrow sector of the steel
industry and its business is affected by
conditions within the broader steel and machine
tool industries. Niagara LaSalle grants trade
credit to its customers consistent with industry
practice.
Revenue Recognition
Revenue from the sale of products is recorded at
the time the goods are shipped. Net delivery
costs are classified as a reduction of sales.
Income Taxes
Deferred income taxes are recognized for the tax
consequences of temporary differences between
the financial reporting bases and the tax bases
of Niagara LaSalle's assets and liabilities in
accordance with Statement of Financial
Accounting Standards No. 109. Valuation
allowances are established when necessary to
reduce deferred tax assets to the amount
expected to be realized. Income tax expense is
the tax payable for the period and the change
during the period in deferred tax assets and
liabilities.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
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.
Reclassifications
Net sales for 1995 are stated after reduction
for delivery costs. Previously, such costs had
been included as a component of selling, general
and administrative expenses. This
reclassification resulted in no change to
operating income (loss).
2. EMPLOYMENT EXPENSE - In accordance with the purchase agreement for the
MANAGEMENT OPTIONS acquisition of Niagara LaSalle, on August 16,
1995, Niagara LaSalle's former majority
stockholder, Adage, paid $1,666,327 to certain
senior management of Niagara LaSalle in
satisfaction of such individuals' rights under
their existing stock option and employment
agreements. Niagara LaSalle treated this payment
as a contribution of additional paid-in capital
and compensation to management which is
reflected as employment expense - management
options on Niagara LaSalle's financial
statements for the period from January 1 to
August 16, 1995.
3. RELATED PARTY During the period from January 1 to August 16,
TRANSACTIONS 1995, Niagara LaSalle incurred approximately
$50,000 of freight and shipping charges to a
related party.
During the period from January 1 to August 16,
1995, Niagara LaSalle incurred $62,500 in
management fees from its prior parent, Adage.
4. INCOME TAXES Niagara LaSalle had been included in the
consolidated Federal income tax return of its
parent, Adage. The provision for Federal income
taxes is calculated on the separate company
basis.
5. RETIREMENT PLANS Niagara LaSalle maintains a contributory salary
deferral retirement plan (401(k)) for all of its
employees. Under the terms of the plan,
participants may elect to defer up to 15% of
their earnings. Niagara LaSalle matches 25% of
the participant's contribution, up to a maximum
of 4% of the participant's earnings. All
contributions are subject to the limitations of
Section 401 of the Internal Revenue Code and the
requirements of the Employee Retiree Income
Security Act of 1974. Total expense related to
this plan for the period from January 1 to
August 16, 1995 was approximately $13,000. The
funds are invested in annuity contracts.
6. MAJOR CUSTOMERS Niagara LaSalle had three customers during the
period from January 1 to August 16, 1995 to
which sales were approximately 25%, 22% and 10%
of Niagara LaSalle's total sales.
7. COMMITMENTS AND Niagara LaSalle is subject to Federal,state and
CONTINGENCIES local environmental laws and regulations
concerning, among other matters, water emissions
and waste disposal. Management believes that
Niagara LaSalle is in material compliance with
all applicable environmental laws and
regulations.
Under Niagara LaSalle's insurance programs,
coverage is obtained for catastrophic exposures,
as well as those risks required to be insured by
law or contract. It is the policy of Niagara
LaSalle to retain a portion of certain expected
losses related primarily to workers'
compensation, physical loss to property,
business interruption resulting from such loss
and comprehensive general, product, vehicle,
medical and life benefits and liability.
Provisions for losses expected under these
programs are recorded based upon Niagara
LaSalle's estimates of the aggregate liability,
actual and estimated, for claims. Such estimates
utilize certain actuarial assumptions followed
in the insurance industry and are included in
accrued expenses.
8. SUPPLEMENTAL CASH Interest paid during the period from January 1 to
FLOW INFORMATION August 16, 1995 was approximately $521,000.
Income taxes paid during the period from January
1 to August 16, 1995 was approximately $1,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
THE INFORMATION REQUIRED BY ITEM 10 IS CONTAINED IN, AND INCORPORATED
HEREIN BY REFERENCE FROM, THE SECTION ENTITLED "ELECTION OF DIRECTORS" OF
THE REGISTRANT'S PROXY STATEMENT FOR ITS 1998 ANNUAL MEETING OF
STOCKHOLDERS FILED WITH THE COMMISSION (THE "PROXY STATEMENT"), OR WILL
BE FILED BY AMENDMENT TO THIS FORM 10-K.
ITEM 11. EXECUTIVE COMPENSATION
THE INFORMATION REQUIRED BY ITEM 11 IS CONTAINED IN, AND INCORPORATED
HEREIN BY REFERENCE FROM, THE SECTION ENTITLED "EXECUTIVE COMPENSATION" OF
THE PROXY STATEMENT, OR WILL BE FILED BY AMENDMENT TO THIS FORM 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
THE INFORMATION REQUIRED BY ITEM 12 IS CONTAINED IN, AND INCORPORATED
HEREIN BY REFERENCE FROM, THE SECTION ENTITLED "SECURITY OWNERSHIP OF
DIRECTORS AND EXECUTIVE OFFICERS" OF THE PROXY STATEMENT, OR WILL BE FILED
BY AMENDMENT TO THIS FORM 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE INFORMATION REQUIRED BY ITEM 13 IS CONTAINED IN, AND INCORPORATED
HEREIN BY REFERENCE FROM, THE SECTION ENTITLED "ELECTION OF DIRECTORS --
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" OF THE PROXY STATEMENT, OR
WILL BE FILED BY AMENDMENT TO THIS FORM 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.
(a) List of Documents filed as a part of this Report:
1. Financial Statements. Financial Statements filed as part of
this Report on Form 10-K are listed in Item 8 on Page 13.
2. Financial Statement Schedules
Schedule I is filed as part of this Report on Form 10-K
Beginning on Page S-1 hereof.
3. Exhibits
(b) Reports on Form 8-K.
1. The Registrant filed Amendment No. 2 on Form 8-K/A, dated
October 27, 1997, amending and restating in its entirety Item 7
of Form 8-K, dated May 2, 1997, as amended by Form 8-K/A, dated
July 2, 1997, relating to the acquisition of LaSalle.
2. The Registrant filed its Report on Form 8-K, dated November 6,
1997, reporting under Items 5 and 7 the call for redemption of
the Warrants.
3. The Registrant filed its Report on Form 8-K, dated December 22,
1997, reporting under Items 5 and 7 the extension of the
Warrant redemption date and the results of the Warrant
exercise.
(c) EXHIBITS
+3.1 Registrant's Restated Certificate of Incorporation, as
amended on May 16, 1996.
*3.2 Registrant's By-laws.
*4.1 Form of Common Stock Certificate.
*4.2 Form of Redeemable Common Stock Purchase Warrant Certificate.
**4.3 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Registrant, dated as of August 13, 1993.
***4.4 Notice of Redemption of Redeemable Common Stock Purchase
Warrant
+++4.5 Revolving Credit and Term Loan Agreement, dated as of April 18,
1997, by and among Niagara Cold Drawn Corp., LaSalle Steel
Company, Manufacturers and Traders Trust Company (individually
and as Agent), CIBC Inc. and National City Bank (the "Credit
Agreement").
4.6 First Amendment to the Credit Agreement, dated as of September
4, 1997.
4.7 Second Amendment to the Credit Agreement, effective as of
December 31, 1997.
+++4.8 Form of Note and Stock Purchase Agreement, dated as of April
18, 1997, by and among the Registrant, Niagara Cold Drawn
Corp., LaSalle Steel Company and each of The Prudential
Insurance Company of America, The Equitable Life Assurance
Society of the United States and United States Fidelity and
Guaranty Company.
+++4.9 Stockholders Agreement, dated as of April 18, 1997, among the
Registrant, Niagara Cold Drawn Corp., Michael J. Scharf, The
Prudential Insurance Company of America, The Equitable Life
Assurance Society of the United States and United States
Fidelity and Guaranty Company.
!10.1 Stock Purchase Agreement by and among Niagara Cold Drawn
Corp. and the stockholders of
Southwest Steel Company, Inc., dated January 31, 1996.
!!10.2 Form of Promissory Note made by Niagara Cold Drawn Corp.,
dated January 31, 1996.
!!10.3 Form of Guaranty made by the Registrant, dated January 31,
1996.
!!10.4 Amended and Restated Promissory Note made by Southwest Steel
Company, Inc. in favor of the Cohen Family Revocable Trust,
u/t/a dated June 15, 1988, in the principal amount of $898,000,
dated January 31, 1996.
!!10.5 Guaranty, made by the Registrant in favor of the Cohen Family
Revocable Trust, u/t/a dated June 15, 1988, dated January 31,
1996.
!!!10.6 UPO Exchange Agreement by and among the Registrant and GKN
Securities Corp., Roger Gladstone, David M. Nussbaum, Robert
Gladstone, Richard Buonocore, Debra L. Schondorf, Andrea B.
Goldman, Ira S. Greenspan and Barington Capital Corp., L.P.
!!!!10.7 International Metals Acquisition Corporation 1995 Stock Option
Plan.
++10.8 First Amendment to the International Metals Acquisition
Corporation 1995 Stock Option Plan, dated October 5, 1996.
+++10.9 Stock Purchase Agreement, dated April 18, 1997, by and among
the Registrant, Niagara Cold Drawn Corp. and Quanex
Corporation.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
- --------------------------
+ Incorporated by reference to exhibit 3.1 filed with the
Registrant's Report on Form 10-Q for the quarter ended June 30,
1996.
* Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-64682.
** Incorporated by reference to exhibit 4.4 filed with the
Registrant's Report on Form 10-K for the fiscal year ended December
31, 1993.
*** Incorporated by reference to exhibit 4.1 filed with the
Registrant's Report on Form 8-K, dated November 6, 1997.
! Incorporated by reference to exhibits filed with the Registrant's
Report on Form 8-K, dated February 13, 1996.
!! Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-K for the year ended December 31, 1995.
!!! Incorporated by reference to exhibit 10.1 to the Registrant's
Report on Form 8-K, dated May 30, 1996.
!!!! Incorporated by reference to Annex A to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on May 16,
1996.
++ Incorporated by reference to exhibit 10.10 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1996.
+++ Incorporated by reference to exhibits filed with the Registrant's
Report on Form 8-K, dated May 2, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on
the 27th day of March, 1998.
NIAGARA CORPORATION
By: /s/ Michael J. Scharf
-----------------------------
Michael J. Scharf
Chairman of the Board
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Michael J. Scharf Chairman of the Board, March 27, 1998
- ----------------------- President and Chief
Michael J. Scharf Executive Officer
/s/ Raymond Rozanski Vice President, March 27, 1998
- ----------------------- Chief Financial and
Raymond Rozanski Principal Accounting
Officer
/s/ Gilbert D. Scharf Secretary and Director March 27, 1998
- ------------------------
Gilbert D. Scharf
/s/ Gerald L. Cohn Director March 27, 1998
- -----------------------
Gerald L. Cohn
/s/ Andrew R. Heyer Director March 27, 1998
- -----------------------
Andrew R. Heyer
/s/ Douglas T. Tansill Director March 27, 1998
- ------------------------
Douglas T. Tansill
NIAGARA CORPORATION AND SUBSIDIARIES
INDEX
=============================================================================
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS S-2
FINANCIAL STATEMENT SCHEDULE I:
CONDENSED FINANCIAL INFORMATION OF REGISTRANT:
BALANCE SHEETS S-3
STATEMENTS OF INCOME S-4
STATEMENTS OF STOCKHOLDERS' EQUITY S-5
STATEMENTS OF CASH FLOWS S-6
NOTES TO CONDENSED FINANCIAL STATEMENTS S-7
FINANCIAL STATEMENT SCHEDULE II:
VALUATION AND QUALIFYING ACCOUNTS S-8
ALL OTHER SCHEDULES HAVE BEEN OMITTED BECAUSE THEY ARE INAPPLICABLE OR NOT
REQUIRED OR THE INFORMATION IS INCLUDED IN THE CONSOLIDATED FINANCIAL
STATEMENTS OR THE NOTES THERETO.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Niagara Corporation
New York, New York
The audits referred to in our report dated March 6, 1998 relating to the
financial statements of Niagara Corporation and subsidiaries (the
"Company"), which is contained in Item 8 of Form 10-K, included the audits
of the financial statement schedules listed in the accompanying index.
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based upon our audits.
In our opinion, such financial statement schedules present fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
March 6, 1998
NIAGARA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
==============================================================================
December 31, 1996 1997
- ------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents $ 1,370,981 $ 12,360,083
Other current assets 74,100 1,485,084
- ------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,445,081 13,845,167
INVESTMENT IN AND NET ADVANCES TO
SUBSIDIARIES 14,448,444 38,712,201
OTHER ASSETS, NET 204,507 675,966
- ------------------------------------------------------------------------------
$ 16,098,032 $ 53,233,334
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ - $ 57,246
Accrued expenses 571,825 1,179,686
- ------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 571,825 1,236,932
- ------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (SEE NOTES
10, 11 AND 15 TO THE CONSOLIDATED
FINANCIAL STATEMENTS)
STOCKHOLDERS' EQUITY (SEE NOTES 2 AND 9 TO
THE CONSOLIDATED FINANCIAL STATEMENTS):
Preferred stock, $.001 par value -
500,000 shares authorized, none
outstanding - -
Common stock, $.001 par value -
15,000,000 shares authorized,
3,668,750 and 9,997,455 outstanding 3,669 9,998
Additional paid-in capital 15,560,127 50,111,675
Retained earnings (deficit) (37,589) 1,874,729
- ------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 15,526,207 51,996,402
- ------------------------------------------------------------------------------
$ 16,098,032 $ 53,233,334
==============================================================================
See accompanying notes to condensed financial statements.
NIAGARA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
=============================================================================
Year ended December 31, 1995 1996 1997
- -----------------------------------------------------------------------------
REVENUES:
Management fees from subsidiaries
(Note 2) $ 168,750 $ 450,000 $1,125,000
EXPENSES:
Selling, general and administrative
expenses 984,833 1,014,496 1,217,817
- ------------------------------------------------------------------------------
(816,083) (564,496) (92,817)
OTHER INCOME:
Equity in net income of
subsidiaries 535,946 1,314,218 1,910,600
Interest income 594,555 74,338 94,535
- ------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX
RECOVERIES 314,418 824,060 1,912,318
INCOME TAX RECOVERIES 30,000 239,800 -
- ------------------------------------------------------------------------------
NET INCOME $ 344,418 $1,063,860 $1,912,318
==============================================================================
EARNINGS PER SHARE - BASIC:
Net income per share - basic $ .10 $ .30 $ .45
==============================================================================
EARNINGS PER SHARE - DILUTED:
Net income per share - diluted $ .10 $ .30 $ .38
==============================================================================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (SEE NOTE 16 TO THE
CONSOLIDATED FINANCIAL STATEMENTS):
Basic 3,500,000 3,602,818 4,246,925
Diluted 3,500,000 3,602,818 5,095,350
==============================================================================
See accompanying notes to condensed financial statements.
<TABLE>
<CAPTION>
NIAGARA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF STOCKHOLDERS' EQUITY
=============================================================================================================
Years ended December 31, 1995, 1996 and 1997
- -------------------------------------------------------------------------------------------------------------
Common stock
--------------------- Additional Retained
Number of paid-in earnings
shares Amount capital (deficit) Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 2,925,001 $ 2,925 $ 12,524,073 $ (1,344,423) $ 11,182,575
Accretion to redemption value of
common stock subject to possible
redemption through August 16, 1995 - - - (101,444) (101,444)
Reclassification of common stock
subject to possible redemption 574,999 575 3,036,223 - 3,036,798
Net income - - - 344,418 344,418
- --------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 3,500,000 3,500 15,560,296 (1,101,449) 14,462,347
Shares issued 168,750 169 (169) - -
Net income - - - 1,063,860 1,063,860
- --------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 3,668,750 3,669 15,560,127 (37,589) 15,526,207
Shares issued (a) 285,715 286 1,321,146 - 1,321,432
Shares issued (b) 6,042,990 6,043 33,230,402 - 33,236,445
Net income - - - 1,912,318 1,912,318
- --------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 9,997,455 $ 9,998 $ 50,111,675 $ 1,874,729 $ 51,996,402
==============================================================================================================
</TABLE>
- ---------
(a) On April 18, 1997, Niagara issued 285,715 shares of Common Stock
in connection with the subordinated debt portion of the financing for
the acquisition of LaSalle.
(b) Proceeds from exercise of Warrants during the fourth quarter of 1997.
==============================================================================
See accompanying notes to condensed financial statements.
<TABLE>
<CAPTION>
NIAGARA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
============================================================================================
<S> <C> <C> <C>
Year ended December 31, 1995 1996 1997
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 344,418 $ 1,063,860 $ 1,912,318
- --------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization 5,364 17,112 19,622
Equity in net income of subsidiaries (535,946) (1,314,218) (1,910,600)
Interest on U.S. Government securities in
trust fund (507,473) - -
Increase in other assets (123,100) (158,537) (1,824,065)
Increase (decrease) in accounts payable
and accrued expenses (1,189,352) 238,792 587,107
- --------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (2,350,507) (1,216,851) (3,127,936)
- --------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING
ACTIVITIES (2,006,089) (152,991) (1,215,618)
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiaries, net (11,979,080) - (21,400,000)
Advances, subsidiaries - (619,200) 368,275
Cumulative maturities of U.S. Government
securities deposited in trust fund 89,592,484 - -
Cumulative maturities of U.S. Government
securities reinvested in trust fund (74,400,900) - -
- --------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 3,212,504 (619,200) (21,031,725)
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock
warrants - - 33,236,445
- --------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,206,415 (772,191) 10,989,102
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 936,757 2,143,172 1,370,981
- --------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,143,172 $ 1,370,981 $ 12,360,083
============================================================================================
</TABLE>
See accompanying notes to condensed financial statements.
NIAGARA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. STATEMENT OF The accompanying condensed financial statements have
ACCOUNTING been prepared by Niagara Corporation ("Niagara")
pursuant to the rules and regulations of the
securities and exchange commission. Certain informa-
tion and footnote disclosures normally included in
financial statements prepared in accordance with
generally accepted accounting principles have been
condensed or omitted pursuant to these rules and
regulations. It is, therefore, suggested that
these condensed financial statements be read in
conjunction with the consolidated financial
statements and notes thereto.
2. RESTRICTIONS ON Niagara's subsidiary, Niagara LaSalle Corporation
DISTRIBUTIONS ("Niagara LaSalle"), which was acquired on August
16, 1995, has a revolving line of credit and
term loan agreement with a bank which contains
certain restrictions on the payment of
dividends. Niagara is entitled, however, to
receive management fees from Niagara LaSalle
and, in the years ended December 31, 1995, 1996
and 1997, $168,750, $450,000 and $1,125,000,
respectively, of such management fees were
included as revenues in the accompanying
condensed financial statements, but have been
eliminated in the consolidated financial
statements.
<TABLE>
<CAPTION>
NIAGARA CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
===========================================================================================================================
Years ended December 31, 1995, 1996 and 1997
- ---------------------------------------------------------------------------------------------------------------------------
Additions
-----------------------------
Balance at Charged to Balance at end
beginning costs and of
of year Other expenses Deductions year
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $233,000 $397,000(3) $ 101,000 $ 4,000(4) $727,000
===========================================================================================================================
DECEMBER 31, 1996:
Allowance for doubtful accounts $184,000 $168,000(2) $ 51,000 $ 170,000(4) $233,000
DECEMBER 31, 1995:
Allowance for doubtful accounts $ - $171,000(1) $ 27,000 $ 14,000(4) $184,000
===========================================================================================================================
</TABLE>
- ---------
(1) Balance in allowance for doubtful accounts for Niagara LaSalle at
date of acquisition (August 16, 1995).
(2) Balance in allowance for doubtful accounts for Southwest at date of
acquisition (January 31, 1996).
(3) Balance in allowance for doubtful accounts for LaSalle at date of
acquisition (April 1, 1997).
(4) Accounts written off.
==============================================================================
EXHIBIT INDEX
+3.1 Registrant's Restated Certificate of Incorporation, as
amended on May 16, 1996.
*3.2 Registrant's By-laws.
*4.1 Form of Common Stock Certificate.
*4.2 Form of Redeemable Common Stock Purchase Warrant Certificate.
**4.3 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Registrant, dated as of August 13, 1993.
***4.4 Notice of Redemption of Redeemable Common Stock Purchase
Warrant
+++4.5 Revolving Credit and Term Loan Agreement, dated as of April
18, 1997, by and among Niagara Cold Drawn Corp., LaSalle Steel
Company, Manufacturers and Traders Trust Company (individually
and as Agent), CIBC Inc. and National City Bank (the "Credit
Agreement").
4.6 First Amendment to the Credit Agreement, dated as of September
4, 1997.
4.7 Second Amendment to the Credit Agreement, effective as of
December 31, 1997.
+++4.8 Form of Note and Stock Purchase Agreement, dated as of April
18, 1997, by and among the Regis trant, Niagara Cold Drawn
Corp., LaSalle Steel Company and each of The Prudential
Insurance Company of America, The Equitable Life Assurance
Society of the United States and United States Fidelity and
Guaranty Company.
+++4.9 Stockholders Agreement, dated as of April 18, 1997, among the
Registrant, Niagara Cold Drawn
Corp., Michael J. Scharf, The Prudential Insurance Company of
America, The Equitable Life
Assurance Society of the United States and United States
Fidelity and Guaranty Company.
!10.1 Stock Purchase Agreement by and among Niagara Cold Drawn
Corp. and the stockholders of Southwest Steel Company, Inc.,
dated January 31, 1996.
!!10.2 Form of Promissory Note made by Niagara Cold Drawn Corp.,
dated January 31, 1996.
!!10.3 Form of Guaranty made by the Registrant, dated January 31,
1996.
!!10.4 Amended and Restated Promissory Note made by Southwest Steel
Company, Inc. in favor of the Cohen Family Revocable Trust,
u/t/a dated June 15, 1988, in the principal amount of $898,000,
dated January 31, 1996.
!!10.5 Guaranty, made by the Registrant in favor of the Cohen Family
Revocable Trust, u/t/a dated June 15, 1988, dated January 31,
1996.
!!!10.6 UPO Exchange Agreement by and among the Registrant and GKN
Securities Corp., Roger Gladstone, David M. Nussbaum, Robert
Gladstone, Richard Buonocore, Debra L. Schondorf, Andrea B.
Goldman, Ira S. Greenspan and Barington Capital Corp., L.P.
!!!!10.7 International Metals Acquisition Corporation 1995 Stock
Option Plan.
++10.8 First Amendment to the International Metals Acquisition
Corporation 1995 Stock Option Plan, dated October 5, 1996.
+++10.9 Stock Purchase Agreement, dated April 18, 1997, by and among
the Registrant, Niagara Cold Drawn Corp. and Quanex Corporation.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
- --------------------------
+ Incorporated by reference to exhibit 3.1 filed with the
Registrant's Report on Form 10-Q for the quarter ended June 30,
1996.
* Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-64682.
** Incorporated by reference to exhibit 4.4 filed with the
Registrant's Report on Form 10-K for the fiscal year ended December
31, 1993.
*** Incorporated by reference to exhibit 4.1 filed with the
Registrant's Report on Form 8-K, dated November 6, 1997.
! Incorporated by reference to exhibits filed with the Registrant's
Report on Form 8-K, dated February 13, 1996.
!! Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-K for the year ended December 31, 1995.
!!! Incorporated by reference to exhibit 10.1 to the Registrant's
Report on Form 8-K, dated May 30, 1996.
!!!! Incorporated by reference to Annex A to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on May 16,
1996.
++ Incorporated by reference to exhibits to the Registrant's Report
on Form 10-K for the fiscal year ended December 31, 1996.
+++ Incorporated by reference to exhibits filed with the Registrant's
Report on Form 8-K, dated May 2, 1997.
EXHIBIT 4.6
=============================================================================
FIRST AMENDMENT
TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
DATED AS OF APRIL 18, 1997
BY AND AMONG
NIAGARA COLD DRAWN CORP.,
LASALLE STEEL COMPANY
AND
MANUFACTURERS AND TRADERS TRUST COMPANY,
CIBC INC.
AND
NATIONAL CITY BANK
AND
MANUFACTURERS AND TRADERS TRUST COMPANY, AS AGENT
------------------------------------------
Dated as of September 4, 1997
============================================================================
WHEREAS, NIAGARA COLD DRAWN CORP., a Delaware corporation,
having its principal office at 110 Hopkins Street, Buffalo, New York,
("NCDC"), LASALLE STEEL COMPANY, a Delaware corporation, having its
principal office at 1412 150th Street, Hammond, Indiana ("LaSalle") (NCDC
and LaSalle being collectively referred to as the "Borrowers", and indi
vidually as a "Borrower"), MANUFACTURERS AND TRADERS TRUST COMPANY, a New
York banking corporation having its principal office at One M&T Plaza,
Buffalo, New York ("M&T"), CIBC INC., a Delaware banking corporation having
its principal office at 425 Lexington Avenue, New York, New York ("CIBC")
and NATIONAL CITY BANK, a national banking association having its principal
office at National City Center, 1900 East Ninth Street, Cleveland, Ohio
("National"), and M&T, as administra tive, collateral and documentation
agent for the Banks (M&T to be referred to in such capacity as "Agent"),
are parties to a Revolving Credit and Term loan Agreement dated as of April
18, 1997 (the "Credit Agreement"); and
WHEREAS, THE PRUDENTIAL INSURANCE COMPANY OF AMER ICA, a New
Jersey mutual insurance company having an office at One Gateway Center,
Newark, New Jersey ("Prudential") and THE NATIONAL BANK OF CANADA, a
Canadian chartered bank having a domestic branch at 125 West 55th Street,
New York, New York ("NBC"), became parties to the Credit Agreement by
assignment of portions of the credit commitments of various parties thereto
(M&T, CIBC, National, Prudential and NBC being col lectively referred to
herein as the "Banks", individually as a "Bank"); and
WHEREAS, the Borrowers have requested that the Agent and the
Banks amend, and the Agent and the Banks have agreed to amend, certain
provisions of the Credit Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
A. The following definitions shall be added to the Credit Agreement:
"Prime Revolver Loan": the outstanding and unpaid principal
balance of each Revolving Credit Loan bearing interest at the Adjusted
Prime Rate pursuant to Subsections 2.1(c)(ii) or 2.1(c)(iii), and shall
specifically include each Swingline Loan.
"Swingline Bank": for the purposes of this Agree ment and
Subsection 2.1(c)(iii) specifically, M&T.
"Swingline Loan": each Prime Revolver Loan that is borrowed on
the same date as requested by a Borrower, pursu ant to Subsection
2.1(c)(iii).
B. Subsection 2.1(c) of the Credit Agreement shall be deleted in its
entirety and replaced with the following:
(c) Notice and Manner of Borrowing.
(i) LIBOR Rate Loans. Each Borrower request ing a
Revolving Credit Loan that will be a LIBOR Rate Loan shall give the Agent
notice (a "Notice of Borrowing", in the form of Exhibit B hereto) at least
three (3) Business Days prior to the date it desires such LIBOR Rate Loan
to be made, specifying: (A) The date on which such LIBOR Rate Loan will be
advanced (such Loan's "Borrowing Date"); (B) the principal amount of such
LIBOR Rate Loan; and (C) the duration of the LIBOR Rate Period elected by
such Borrower in such Notice of Borrowing. Each Notice of Borrowing for a
LIBOR Rate Loan shall be irrevocable and shall be given to the Agent by not
later than 11:00 a.m. (Eastern Standard Time or Eastern Daylight Savings
Time, as the case may be) on the day which is not less than the number of
Business Days specified above for such notice. Each Borrowing Date shall be
a Business Day, and for LIBOR Rate Loans shall be the proposed commence
ment date of the applicable LIBOR Rate Period of such LIBOR Rate Loan.
After receiving a Notice of Borrowing for a LIBOR Rate Loan, the Agent
shall promptly notify each Bank by telephone of such Notice of Borrowing
and such Bank's Propor tionate Revolving Credit Commitment for the
principal amount of such LIBOR Rate Loan. Each Bank shall, before 11:00
a.m. (Eastern Standard Time or Eastern Daylight Savings Time, as the case
may be) on the Borrowing Date, deposit with the Agent such Bank's
Proportionate Revolving Credit Commitment for the principal amount of such
LIBOR Rate Loan in immedi ately available funds. Upon fulfillment of all
applicable conditions set forth herein and after receipt by the Agent of
such funds, the Agent shall pay or deliver all funds so received to the
order of the Borrower that delivered the Notice of Borrowing at the
Principal Office of the Agent. Each LIBOR Rate Loan which does not utilize
the Revolving Credit Commitment in full shall be in an amount of not less
than One Hundred Thousand Dollars ($100,000) and, if in an amount greater
than One Hundred Thousand Dollars ($100,000), shall be in whole multiples
of Fifty Thousand Dollars ($50,000).
(ii) Prime Revolver Loans. Each Borrower requesting a Revolving
Credit Loan that will be a Prime Revolver Loan (other than a Swingline
Loan, as described in Subsection 2.1(c)(iii), below) shall give the Agent a
Notice of Borrowing at least one (1) Business Day prior to the date it
desires such Prime Revolver Loan to be made, specifying: (A) the date on
which such Prime Revolver Loan will be ad vanced (such Loan's "Borrowing
Date"); and (B) the principal amount of such Prime Revolver Loan. Each
Notice of Borrowing for a Prime Revolver Loan shall be irrevocable and
shall be given to the Agent by not later than 11:00 a.m. (Eastern Standard
Time or Eastern Daylight Savings Time, as the case may be) on a Business
Day which is not less than the number of Business Days specified above for
such notice. After receiving a Notice of Borrowing for a Prime Revolver
Loan, the Agent shall promptly notify each Bank by telephone of such Notice
of Borrowing and such Bank's Proportionate Re volving Credit Commitment for
the principal amount of such Prime Revolver Loan. Each Bank shall, before
11:00 a.m. (Eastern Standard Time or Eastern Daylight Savings Time, as the
case may be) on the Borrowing Date, deposit with the Agent such Bank's
Proportionate Revolving Credit Commitment for the principal amount of such
Prime Revolver Loan in immediately available funds. Upon fulfillment of all
appli cable conditions set forth herein and after receipt by the Agent of
such funds, the Agent shall pay or deliver all funds so received to the
order of the Borrower that delivered the Notice of Borrowing at the
Principal Office of the Agent. Each Prime Revolver Loan which does not
utilize the Revolving Credit Commitment in full shall be in an amount of
not less than Fifty Thousand Dollars ($50,000) and, if in an amount greater
than Fifty Thousand Dollars ($50,000), shall be in whole multiples of Ten
Thousand Dollars ($10,000).
(iii) Swingline Loans.
(A) Notwithstanding the provisions of
Subsection 2.1(c)(ii), above, each Borrower may from time to time request
the Swingline Bank to consider making a Prime Revolver Loan that will be a
Swingline Loan to such Borrower. Each Borrower requesting a Swingline Loan
shall give the Agent and the Swingline Bank a Notice of Borrowing on the
date on which the Borrower desires such Swingline Loan to be made (such
Loan's "Borrowing Date"), specifying (I) the principal amount of such
Swingline Loan, (II) the aggregate amount of Swingline Loans outstanding,
both before and after giving effect to such Swingline Loan, and (III) such
Swingline Loan's Borrowing Date. Each Notice of Borrowing with respect to a
Swingline Loan shall be irrevocable and shall be given to the Agent and the
Swingline Bank by not later than 11:00 a.m. (Eastern Standard Time or
Eastern Daylight Savings Time, as the case may be) on a Business Day.
(B) Any decision to make a Swingline
Loan to a Borrower shall be in the sole and absolute discre tion of the
Swingline Bank, and the Swingline Bank shall review each request for a
Swingline Loan on a case-by-case basis. The Swingline Bank shall not make a
Swingline Loan if it has actual notice, or has received notice from the
Agent, any Bank or a Borrower, that an Event of Default has occurred and is
continuing. Other than instances in which the Swingline Bank has actual
notice, or has received notice from the Agent, any Bank or a Borrower, that
an Event of Default has occurred and is continuing, in the event the
Swingline Bank does not approve a Borrower's request for a Swingline Loan,
the Notice of Borrowing delivered to the Agent request ing a Swingline Loan
shall be treated as a Notice of Borrow ing for a Prime Revolver Loan
pursuant to the provisions of Subsection 2.1(c)(ii), above, and such
requested loan's Borrowing Date shall be deemed to be the earliest
Borrowing Date provided for Prime Revolver Loans following delivery of such
Notice of Borrowing to the Agent pursuant to such Sub section. This
Agreement does not constitute a commitment, and the Swingline Bank shall
not have any obligation, to make any Swingline Loan.
(C) Each Swingline Loan shall be in an
amount of not less than Fifty Thousand Dollars ($50,000) and, if in an
amount greater than Fifty Thousand Dollars ($50,000), shall be in whole
multiples of Ten Thousand Dol lars ($10,000). No Swingline Loan shall (I)
be in an amount greater than Five Million Dollars ($5,000,000), or (II)
either individually or when aggregated with all other Swingline Loans,
exceed the amount of the Swingline Bank's Proportionate Revolving Credit
Commitment.
(D) If, after receiving a Notice of
Borrowing with respect to a Swingline Loan, and upon such Borrower's
fulfillment of all applicable conditions set forth herein, the Swingline
Bank elects to make a Swingline Loan available to the Borrower requesting
such Loan, the Swingline Bank shall (I) notify such Borrower by 1:00 p.m.
(Eastern Standard Time or Eastern Daylight Savings Time, as the case may
be) on the specified Borrowing Date of such election, (II) pay or deliver
all funds so requested by such Borrower in the Notice of Borrowing by the
end of business on such Swingline Loan's Borrowing Date at the Principal
Office of the Agent, and (III) promptly notify the Agent of such Swingline
Loan.
(E) After receiving notice of a
Swingline Loan from the Swingline Bank, the Agent shall promptly notify
each Bank by telephone of such Swingline Loan and of such Bank's
Proportionate Revolving Credit Commitment for the principal amount of such
Swingline Loan. Each Bank (other than the Swingline Bank) shall, before
11:00 a.m. (Eastern Standard Time or Eastern Daylight Savings Time, as the
case may be) on the Business Day immediately following the Borrowing Date
of a Swingline Loan, deposit with the Agent such Bank's Proportionate
Revolving Credit Commitment for the principal amount of such Swingline Loan
in immedi ately available funds. After receipt by the Agent of such funds,
the Agent shall pay or deliver all funds so received to the order of the
Swingline Bank to the account designated by the Swingline Bank for the
receipt of such funds, and each amount paid by a Bank to the Agent for the
account of the Swingline Bank shall constitute such Bank's Proportionate
Revolving Credit Commitment with respect to such Swingline Loan for
purposes of this Agreement and the Revolving Credit Note.
(F) Upon one (1) Business Day's written
notice to the Agent and the other Banks, any Bank (including the Swingline
Bank) may elect to discontinue to honor any Notice of Borrowing with
respect to a Swingline Loan deliv ered to the Swingline Bank and the Agent
after such notice. In such event, the Agent and other Banks shall elect to
either (I) terminate the availability of Swingline Loans to the Borrowers
after the date of such notice, or (II) negoti ate with the Borrowers an
alternate method of making Swingline Loans (or an equivalent form of
credit) available to the Borrowers upon terms and conditions satisfactory
to the Banks.
c. The last sentence of Subsection 2.3(a)(i) of the Credit Agreement
shall be deleted in its entirety and re placed with the following:
Interest on each LIBOR Rate Loan shall be payable in arrears in
immediately available funds to the Agent at the Agent's Principal Office
(I) for LIBOR Rate Periods of less than ninety (90) days, on the last day
of such LIBOR Rate Period, and (II) for LIBOR Rate Periods of greater than
ninety (90) days, [a] at the end of the ninety (90) day period beginning
with the commencement of such LIBOR Rate Period, [b] at the end of each
succeeding ninety (90) day period, and [c] on the last day of such LIBOR
Rate Period.
D. The last sentence of Subsection 2.3(a)(ii) of the Credit Agreement
shall be deleted in its entirety and re placed with the following:
Interest on each Prime Revolver Loan shall be payable in
arrears in immediately available funds to the Agent at the Agent's
Principal Office (A) if such Loan's Revolving Credit Termination Date falls
after the end of the calendar month in which such Loan is made, (I) no
later than the last day of the calendar month in which the Loan is made,
and (II) no later than the last day of the calendar month which includes
such Loan's Revolving Credit Termination Date, (B) if such Loan's Revolving
Credit Termination Date falls within the same calendar month as the month
in which the Loan is made, no later than the last day of such calendar
month, or (C) if such Prime Revolver Loan is prepaid pursuant to the
provisions of Subsection 2.4(b), on the date that such pre payment is made
to Agent.
E. The first two (2) sentences of Subsection 2.7 of the Credit
Agreement shall be deleted in their entirety and replaced with the
following:
Unless the Agent shall have received notice from a Bank prior
to the Borrowing Date of any Revolving Credit Loan that such Bank will not
make available to the Agent the amount of such Bank's Proportionate
Revolving Credit Commit ment with respect to such Loan, the Agent may
assume that such Bank (a) if a LIBOR Rate Loan or a Prime Revolver Loan
(other than a Swingline Loan) has made such amount available to the Agent
on such Loan's Borrowing Date, or (b) if a Swingline Loan, will make such
amount available to the Agent on the day immediately following such Loan's
Borrowing Date. If and to the extent any Bank does not make the amount of
its Proportionate Revolving Credit Commitment available to the Agent as
described above, such Bank agrees to repay to the Agent forthwith on demand
such corresponding amount together with interest and administrative charges
thereon, for each day such amount is made available to the Borrowers until
such amount is repaid to the Agent, at the customary rates set by the Agent
for the correction of errors among banks.
F. All capitalized terms used herein, unless otherwise defined
herein, have the same meaning provided therefor in the Credit Agreement.
G. The amendments set forth herein are limited pre cisely as written
and shall not be deemed to (a) be a consent to or a waiver of any other
term or condition of the Credit Agreement or any of the documents referred
to therein, or (b) prejudice any right or rights which the Agent or any
Bank may now have or may have in the future under or in connection with the
Credit Agreement or any documents referred to therein. Whenever the Credit
Agreement is referred to in the Credit Agreement or in any of the
instruments, agreements or other documents or papers executed and delivered
in connec tion therewith, it shall be deemed to mean the Credit Agree ment
as modified by this First Amendment.
H. This First Amendment may be executed by one or more the parties to
this First Amendment on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered by their respective duly
authorized officers as of the date first above written.
NIAGARA COLD DRAWN CORP.
By: /s/ Raymond Rozanski
-----------------------------------------
Name: Raymond Rozanski
Title: Executive Vice President
LASALLE STEEL COMPANY
By: /s/ Raymond Rozanski
-----------------------------------------
Name: Raymond Rozanski
Title: Executive Vice President
MANUFACTURERS AND TRADERS TRUST COMPANY
By: /s/ Robert J. Kush
----------------------------------------
Name: Robert J. Kush
Title: Vice President
CIBC INC.
By: /s/ William J. Koslo, Jr.
---------------------------------------
Name: William J. Koslo, Jr.
Title: Director
NATIONAL CITY BANK
By: /s/ Carlton Saisson
---------------------------------------
Name: Carlton Saisson
Title: Vice President
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By: /s/ Kevin J. Kraska
---------------------------------------
Name: Kevin J. Kraska
Title: Vice President
THE NATIONAL BANK OF CANADA
By: /s/ Robert Uhrig
--------------------------------------
Name: Robert Uhrig
Title: Vice President and Manager
By: /s/ Mark J. Nigro
--------------------------------------
Name: Mark J. Nigro
Title: Vice President
MANUFACTURERS AND TRADERS TRUST COMPANY,
AS AGENT
By: /s/ Robert J. Kush
-------------------------------------
Name: Robert J. Kush
Title: Vice President
EXHIBIT 4.7
============================================================================
SECOND AMENDMENT
TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
DATED AS OF APRIL 18, 1997
BY AND AMONG
NIAGARA LASALLE CORPORATION
(FORMERLY NIAGARA COLD DRAWN CORP.),
LASALLE STEEL COMPANY
AND
MANUFACTURERS AND TRADERS TRUST COMPANY,
CIBC INC.
AND
NATIONAL CITY BANK
AND
MANUFACTURERS AND TRADERS TRUST COMPANY, AS AGENT
------------------------------------------
Effective as of December 31, 1997
=============================================================================
WHEREAS, NIAGARA LASALLE CORPORATION (formerly NIAGARA COLD
DRAWN CORP.), a Delaware corporation, having its principal office at 110
Hopkins Street, Buffalo, New York, ("NCDC"), LASALLE STEEL COMPANY, a
Delaware corporation, having its principal office at 1412 150th Street,
Hammond, Indiana ("LaSalle") (NCDC and LaSalle being collectively referred
to as the "Borrowers", and individually as a "Borrower"), MANUFACTUR ERS
AND TRADERS TRUST COMPANY, a New York banking corporation having its
principal office at One M&T Plaza, Buffalo, New York ("M&T"), CIBC INC., a
Delaware banking corporation having its principal office at 425 Lexington
Avenue, New York, New York ("CIBC") and NATIONAL CITY BANK, a national
banking association having its principal office at National City Center,
1900 East Ninth Street, Cleveland, Ohio ("National"), and M&T, as
administrative, collateral and documentation agent for the Banks (M&T to be
referred to in such capacity as "Agent"), are parties to a Revolving Credit
and Term loan Agreement dated as of April 18, 1997 (the "Original
Agreement"); and
WHEREAS, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New
Jersey mutual insurance company having an office at One Gateway Center,
Newark, New Jersey ("Prudential") and THE NATIONAL BANK OF CANADA, a
Canadian chartered bank having a domestic branch at 125 West 55th Street,
New York, New York ("NBC"), became parties to the Credit Agreement by
assignment of portions of the credit commitments of various parties thereto
(M&T, CIBC, National, Prudential and NBC being collec tively referred to
herein as the "Banks", and individually as a "Bank"); and
WHEREAS, the Borrowers, the Banks and the Agent amended the
Original Agreement with a First Amendment dated as of September 4, 1997
(the "First Amendment") for the purpose, among other things, of providing
"Swingline Loans" (as de scribed in the First Amendment) under the credit
facilities provided in the Original Agreement (the Original Agreement
together with the First Amendment to be collectively referred to as the
"Credit Agreement"); and
WHEREAS, the Borrowers have requested that the Agent and the
Banks amend certain provisions of the Credit Agreement in order to permit
the Borrowers to apply the "1993 Warrant Forced Exercise Net Proceeds
Amount" to the repayment of the outstanding and unpaid principal amount of
the "Revolving Credit Note" (as such terms are defined in the Credit Agree
ment), and to revise the terms of the Credit Agreement with respect to
dividends, and the Agent and the Banks have agreed to amend the Credit
Agreement accordingly.
NOW, THEREFORE, the parties hereto hereby agree as follows:
A. All references in the Agreement to "Niagara Cold Drawn Corp."
shall be changed to refer to "Niagara LaSalle Corporation (formerly Niagara
Cold Drawn Corp.)".
B. A new definition, "Excess Warrant Proceeds", shall be
added as follows:
"Excess Warrant Proceeds": the amount by which the
1993 Warrant Forced Exercise Net Proceeds Amount exceeds the
Subordinated Debt Warrant Prepayment.
C. A new definition, "Subordinated Debt Warrant Prepay ment", shall
be added as follows:
"Subordinated Debt Warrant Prepayment": the aggre
gate amount of the 1993 Warrant Forced Exercise Net Proceeds
Amount payable to the holders of the 12.5% Subordinated Notes
upon the occurrence of a 1993 Warrant Call Option Event.
D. Section 2.2(d) of the Credit Agreement shall be deleted in its
entirety.
E. A new Section 2.11 shall be added to the Credit Agreement as
follows:
2.11 Mandatory Principal Repayment from Excess Warrant Exercise
Proceeds. Notwithstanding anything to the contrary in this Agreement, in
the Revolving Credit Note or in the Term Loan Note, in addition to any
scheduled repayments of principal to be made by the Borrowers, in the event
of a 1993 Warrant Call Option Event and corresponding payment of the
Subordinated Debt Warrant Prepayment to the holders of the 12.5%
Subordinated Notes, the Borrowers shall apply the entire amount of the
Excess Warrant Proceeds to either:
(a) repay the outstanding and unpaid principal
balance of the Revolving Credit Note; or
(b) prepay the outstanding and unpaid principal balance of the
Term Loan Note, in which case the amount of the Excess Warrant Proceeds
shall be used to reduce the install ments of the principal amount of the
Term Loan Note pro rata.
F. If the amount of the Excess Warrant Proceeds is used to repay a
LIBOR Rate Loan, the amount of such repayment shall not be limited to a
whole multiple of $100,000 as required by the provisions of Section 2.4 of
the Agreement. The Borrowers shall apply the Excess Warrant Proceeds to
repay the outstand ing and unpaid principal balance of the Revolving Credit
Note or to prepay the outstanding and unpaid principal balance of the Term
Loan Note as described in Paragraph E, above, no later than ten (10)
Business Days after execution of this Second Amendment.
G. All references to Subsection 2.2(d) of the Credit Agreement shall
be changed to refer to "Subsection 2.11".
H. Section 6.12 of the Credit Agreement shall be deleted in its
entirety and replaced with the following:
6.12 Dividends. Declare or pay, or permit any of the Subsidiaries of
the Borrowers to declare or pay, Dividends to any Person that is not a
Borrower or a Subsidiary of a Bor rower; provided, however, that nothing in
this Subsection 6.12 shall be deemed to prohibit the Borrowers and their
Subsidiar ies from making any payment (in the form of a Dividend or
otherwise) (a) in respect of operating charges or management
fees assessed by Niagara to the extent the aggregate amount of all such
payments for operating charges and/or management fees does not exceed, in
any Fiscal Year, One Million Three Hundred Fifty Thousand Dollars
($1,350,000), or (b) to Niagara to the extent the amount of any such
payment does not exceed, either individually or when aggregated with all
such other payments made to Niagara pursuant to this Subsection 6.12(b)
(and specifically excluding any payment made to Niagara pursuant to the
provisions of Subsection 6.12(a) above), the amount of the Excess Warrant
Proceeds applied to repay the outstanding and unpaid principal amount of
the Revolving Credit Note, or to prepay the outstanding and unpaid
principal amount of the Term Loan Note, pursuant to the provisions of
Subsection 2.11 hereof.
I. This Second Amendment shall be effective as of
December 31, 1997.
J. All capitalized terms used herein, unless otherwise
defined herein, have the same meaning provided therefor in the Credit
Agreement.
K. The amendments set forth herein are limited precisely as written
and shall not be deemed to (a) be a consent to or a waiver of any other
term or condition of the Credit Agreement or any of the documents referred
to therein, or (b) prejudice any right or rights which the Agent or any
Bank may now have or may have in the future under or in connection with the
Credit Agreement or any documents referred to therein. Whenever the Credit
Agreement is referred to in the Credit Agreement or in any of the
instruments, agreements or other documents or papers executed and delivered
in connection therewith, it shall be deemed to mean the Credit Agreement as
modified by this Second Amendment.
L. The Borrowers hereby represent and warrant, jointly and severally,
that upon giving effect to the terms and provisions of this Second
Amendment no default or Event of Default shall have occurred and be
continuing under the terms of the Credit Agreement.
M. This Second Amendment may be executed by one or more the parties
to this Second Amendment on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered by their
respective duly authorized officers.
NIAGARA LASALLE CORPORATION
By: /s/ Raymond Rozanski
---------------------------------------
Name: Raymond Rozanski
Title: Executive Vice President
LASALLE STEEL COMPANY
By: /s/ Raymond Rozanski
---------------------------------------
Name: Raymond Rozanski
Title: Executive Vice President
MANUFACTURERS AND TRADERS TRUST COMPANY
By: /s/ Robert J. Kush
---------------------------------------
Name: Robert J. Kush
Title: Vice President
CIBC INC.
By: /s/ Ibor Zaluckyj
---------------------------------------
Name: Ibor Zaluckyj
Title: Executive Director, CIBC
Oppenheimer Corp., as Agent
NATIONAL CITY BANK
By: /s/ Brian J. Cullina
---------------------------------------
Name: Brian J. Cullina
Title: Vice President
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/ Yvonne Guajardo
---------------------------------------
Name: Yvonne Guajardo
Title: Vice President
THE NATIONAL BANK OF CANADA
By: /s/ Robert Uhrig
---------------------------------------
Name: Robert Uhrig
Title: Vice President and Manager
By: /s/ Mark J. Nigro
---------------------------------------
Name: Mark J. Nigro
Title: Vice President
MANUFACTURERS AND TRADERS TRUST COMPANY,
AS AGENT
By: /s/ Robert J. Kush
---------------------------------------
Name: Robert J. Kush
Title: Vice President
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Niagara LaSalle Corporation
LaSalle Steel Company
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMA-
TION EXTRACTED FROM THE FINANCIAL STATEMENTS OF
NIAGARA CORPORATION AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,207,077
<SECURITIES> 0
<RECEIVABLES> 22,387,230
<ALLOWANCES> 727,000
<INVENTORY> 35,189,568
<CURRENT-ASSETS> 73,280,229
<PP&E> 96,267,475
<DEPRECIATION> 7,104,699
<TOTAL-ASSETS> 166,519,866
<CURRENT-LIABILITIES> 34,533,507
<BONDS> 50,184,388
<COMMON> 9,998
0
0
<OTHER-SE> 51,986,404
<TOTAL-LIABILITY-AND-EQUITY> 166,519,866
<SALES> 204,962,133
<TOTAL-REVENUES> 204,962,133
<CGS> 180,532,223
<TOTAL-COSTS> 180,532,223
<OTHER-EXPENSES> 12,449,505
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,874,194
<INCOME-PRETAX> 6,453,503
<INCOME-TAX> 2,479,000
<INCOME-CONTINUING> 3,974,503
<DISCONTINUED> 0
<EXTRAORDINARY> 2,062,185
<CHANGES> 0
<NET-INCOME> 1,912,318
<EPS-PRIMARY> .45
<EPS-DILUTED> .38
</TABLE>
