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, 1998
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 22, 1999, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $48,675,214
(assumes the registrant's officers, directors and all stockholders holding
5% of outstanding shares are affiliates).
There were 9,511,575 shares of the Registrant's Common Stock
outstanding as of March 22, 1999.
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 1999 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 of the 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 of the 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 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.
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 and, since then, has operated as a division of
Niagara LaSalle.
On April 18, 1997, Niagara LaSalle purchased from Quanex Corporation
("Quanex") all of the 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 bars.
In consideration for the sale of such shares, Niagara LaSalle paid Quanex
$65,500,000 in cash at the closing and an additional $1,371,000, which
amount was paid on January 26, 1998, based on changes in LaSalle's
stockholder's equity between October 31, 1996 and March 31, 1997. Niagara
LaSalle also paid Quanex 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 the subordinated debt portion of 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 such action, 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.
During the fourth quarter of 1997, the Company used approximately $21.8
million of such proceeds to prepay, at 107% plus accrued interest, the
Subordinated Notes. During the first quarter of 1998, the Company used
another $10 million of such proceeds to reduce the balance due under its
revolving credit facility.
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 its sales during 1998, 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 1998, the Company's 10 largest customers (by tons shipped) represented
approximately 60% of sales, and its 3 largest customers, Alro Steel
Corporation, Earle M. Jorgensen Co. and Joseph T. Ryerson and Sons, Inc.
represented approximately 39% of sales. The loss of any of these 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
Management'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 line of products on a
national level.
Management seeks to obtain a competitive advantage through the
Company's 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, management has chosen to
specialize on higher margin and value-added products. In addition, the
Company has implemented a system of inventory management to supply more
efficiently multiple locations of steel service center companies.
The Company upgraded its internal computer systems in four of its
five manufacturing facilities during 1998. This upgrade allowed the Company
to centralize all of its internal business functions at these facilities
and will allow the Company to more efficiently meet customer requirements.
RAW MATERIALS
The Company purchases raw materials, which consist of hot-rolled
steel bars, from mini-mills and integrated steel mills. The cost of
hot-rolled steel bars purchased from mini-mills is primarily dependent on
the price of scrap steel. The cost of such bars purchased from integrated
steel mills is dependent on a number of factors including demand, the price
of scrap steel and the volume and price of foreign imports. The Company
obtains raw material from both domestic and foreign suppliers.
COMPETITION
The cold drawn steel bar market is highly competitive, based on
price, product quality and customer service. Management's strategy is to
seek to remain competitive on price and surpass the Company's competitors
in product quality and customer service. The Company's principal
competitors are domestic companies, including both integrated and
independent cold drawn steel bar producers.
Management 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 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, 1998, the Company employed approximately 675
persons. All of LaSalle's 294 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 July
18, 2001. All of LaSalle's 22 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. During 1998, operations were impacted by a
nine-week strike by the hourly workers at LaSalle's Hammond, Indiana
facility that began on May 18, 1998. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Results of
Operations."
ITEM 2. PROPERTIES.
NIAGARA
Niagara utilizes approximately 5,000 square feet of space for its
headquarters in New York, New York under a lease expiring on December 31,
2007.
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 initial term of the Chattanooga lease extends through November 30,
2009. Niagara LaSalle may extend the term of this lease for an additional
10 years and may terminate this lease beginning on 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 70% of capacity in 1998, suitable for its current
operations.
ITEM 3. LEGAL PROCEEDINGS.
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 the waste
allegedly attributable to LaSalle and the share of costs for which it may
be liable are de minimis. At two of these sites, LaSalle has entered into
de minimis settlement agreements resolving the pending claims of liability,
which settlement agreements are awaiting judicial or administrative
approval. In the fourth case, LaSalle has entered into an agreement with a
group of other companies alleged to be responsible for remediation of the
site in an effort to share proportionately the costs of remediation.
LaSalle and this group of companies have also signed an Administrative
Order on Consent with the United States Environmental Protection Agency and
agreed to perform a limited remediation at the site. LaSalle has received
an insurance settlement in an amount that largely covers the financial
contributions it has been required to make for these sites through December
31, 1998. 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 the additional costs will have a material
adverse effect on the Company's financial position or results of
operations.
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 1997 and 1998.
HIGH LOW
---- ---
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
1998
January 1 through March 31......... 10 1/8 7 7/8
April 1 through June 30............ 12 8 5/8
July 1 through September 30........ 10 5 3/4
October 1 through December 31...... 7 3/8 4 1/8
As of March 22, 1999, there were 41 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.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1995(1) 1996(2) 1997 (3) 1998
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Net sales.......................... $ 17,035 $ 74,810 $ 204,962 $ 207,547
Cost of products sold.............. 15,541 66,114 180,532 177,340
Gross profit....................... 1,493 8,695 24,430 30,207
Selling, general and
administrative expenses.......... 1,265 5,706 12,450 15,645
Interest income.................... 628 100 160 172
Other income....................... - 126 187 195
Interest expense................... 272 1,536 5,874 4,154
Income taxes....................... 240 615 2,479 4,265
Income before extraordinary loss... 344 1,064 3,974 6,510
Extraordinary loss on early
extinguishment
of debt.......................... - -- 2,062 --
Net income ........................ 344 1,064 1,912 6,510
Net income per share (basic)
(before extraordinary loss)..... $ .10 $ .30 $ .94 $ .66
Net income per share (diluted)
(before extraordinary loss)..... $ .10 $ .30 $ .78 $ .64
Net income per share (basic)....... $ .10 $ .30 $ .45 $ .66
Net income per share (diluted)..... $ .10 $ .30 $ .38 $ .64
Weighted average common shares
outstanding (basic)............. 3,500 3,603 4,247 9,880
Weighted average common shares
outstanding (diluted)........... 3,500 3,603 5,095 10,250
---------------------------------------------------
At December 31,
---------------------------------------------------
1995 1996 1997 1998
---- ----- ---- ----
(in thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 2,187 $ 1,588 $ 13,207 $ 441
Trade accounts receivable, net..... 4,239 5,953 21,660 13,360
Inventories........................ 14,744 14,446 35,190 30,132
Property, plant and equipment, net. 12,745 21,649 89,163 89,749
Goodwill, net...................... - 2,543 2,177 2,100
TOTAL ASSETS....................... 34,593 47,348 166,520 139,429
Trade accounts payable............. 4,787 4,110 20,985 14,107
Accrued expenses................... 3,212 3,690 8,679 6,555
Current maturities of long-term
debt............................... 733 1,662 3,498 4,797
Long-term debt, less current
maturities......................... 6,969 18,075 59,184 41,572
Accrued pension and other
postretirement
benefits......................... - -- 14,537 10,303
Deferred income taxes.............. 3,914 3,805 5,726 7,357
TOTAL LIABILITIES.................. 20,131 31,821 114,523 84,899
STOCKHOLDERS' EQUITY .............. $ 14,462 $ 15,526 $ 51,996 $ 54,531
</TABLE>
- -------------------
(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,
------------------------------
1994 1995(1)
---- ----
(in thousands)
STATEMENT OF OPERATIONS DATA:
Net sales......................... $ 45,593 $ 50,506
Cost of products sold............. 40,873 44,386
Gross profit...................... 4,720 6,120
Selling, general and
administrative
expenses........................ 2,707 2,904
Employment expense-management
options........................... -- 1,666
Operating income.................. 2,013 1,550
Other Income...................... -- 17
Interest expense.................. 711 771
Income before income taxes........ 1,302 795
Income taxes...................... 480 270
Net income........................ $ 822 $ 525
At December 31, At August 16,
---------------------------------
1994 1995(2)
---- ----
(in thousands)
BALANCE SHEET DATA:
Current assets.................... $ 13,533 $ 18,257
Current liabilities............... 8,427 11,118
Working capital................... 5,106 7,139
Property plant and equipment, net 6,810 6,829
Total assets...................... 20,355 25,103
Long-term debt and capital lease
obligations (excluding current
portion).......................... 6,088 6,266
Total liabilities................. 15,365 17,384
Redeemable preferred stock........ 453 251
Stockholders' equity.............. $ 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 in Midlothian, 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 at year end. During
the first quarter of 1998, the Company used another $10 million of such
proceeds to reduce the balance due under its revolving credit facility.
RESULTS OF OPERATIONS
Results of operations for the year ended December 31, 1998 were
impacted by a nine-week strike by the hourly workers at LaSalle's Hammond,
Indiana facility that began on May 18, 1998. Although the Hammond facility
continued production during the strike through the efforts of supervisors
and replacement workers, output was at a significantly reduced level and
sales from this facility were at approximately 50% of pre-strike levels.
The strike ended on July 20, 1998 following a vote by striking workers to
accept LaSalle's proposal for a new three-year collective bargaining
agreement. The impact of the strike at the Hammond facility continued into
the fourth quarter of 1998 as the necessity of continuing to train
permanent replacement workers reduced production levels. Management
believes that operating costs at the Hammond facility will be reduced under
the new agreement.
During 1998, business conditions during the year in parts of Asia,
Latin America and the former Eastern bloc countries were characterized by
instability and decline which resulted in an increase of both low-priced
imports of competing products (principally hot-rolled steel products) and
imports of low-priced manufactured products which utilize the Company's
products. In addition, raw material and competing product capacity
expansion increased during this period. Management believes that while such
developments more directly and significantly affected the market for
hot-rolled steel products, they also negatively impacted prices and
weakened demand for the Company's products during the year.
Year ended December 31, 1998 compared with December 31, 1997
Net sales for the twelve months ended December 31, 1998 were
$207,546,526, an increase of $2,584,393, or 1.3%, over the same period in
1997. This increase was primarily due to the addition of sales of LaSalle
for the entire period in 1998 as compared to only the last three quarters
in 1997. Management estimates that sales were adversely affected by between
$15 and $20 million during the second half of 1998 due primarily to reduced
production at the Company's Hammond, Indiana facility during the nine-week
strike, lengthy training periods for permanent replacement workers at this
facility and the loss of market share during such period.
Cost of products sold for the twelve months ended December 31, 1998
was $177,339,749, a decrease of $3,192,474, or 1.8%, over the same period
in 1997. This decrease was due primarily to the reduction in LaSalle's
postretirement benefit obligations (which reduced cost of products sold for
1998 by $3,320,000). Gross margins for the twelve months ended December 31,
1998 increased by 2.6% over the same period in 1997 due to the reduction in
LaSalle's postretirement benefit obligations and the continued greater
emphasis on higher margin value-added products. Gross margins for 1998 were
adversely affected by the reduced sales volume in the second half of the
year following the strike.
Selling, general and administrative expenses increased by $3,195,197
to $15,644,702, or 7.5%, of sales in the twelve months ended December 31,
1997 compared to 6.1% for the same period in 1997. This increase was due
primarily to the inclusion of LaSalle's selling, general and administrative
expenses for the full period in 1998 as compared to only the last three
quarters in 1997 (which was offset, in part, by a decrease in costs
resulting from the consolidation of selling and administration functions at
Niagara LaSalle and LaSalle), the additional administrative expenses
associated with the strike, and costs associated with the upgrade of the
Company's computer systems. These increases were partially offset by a
reduction in expenses relating to the reduction in LaSalle's postretirement
benefit obligations (which reduced selling, general and administrative
expenses for 1998 by $1,629,000). Selling, general and administrative
expenses for 1998 were adversely affected as a percentage of sales by the
reduced sales volume in the second half of the year following the strike.
Interest expense decreased by $1,720,209 to $4,153,985 primarily due
to reduced levels of borrowing.
Net income for the twelve months ended December 31, 1998 was
$6,510,106, an increase of $4,597,788, or 240%, from the same period in
1997. This increase was due primarily to the inclusion of LaSalle's results
for the full period in 1998 as compared to only the last three quarters in
1997, the extraordinary loss in 1997 of $2,062,185 due to the early
extinguishment of debt and an increase in net income of $3,019,000 million
resulting from the curtailment of LaSalle's postretirement benefit
obligations. Net income for 1998 was also positively affected by interest
savings resulting from the reduction of debt following the redemption of
the Warrants in December 1997 and improved margins from the continued
emphasis on value-added products. Management estimates that net income for
the twelve months ended December 31, 1998 was adversely affected by between
$2.0 and $2.6 million due to the effects of the strike. Net income for the
twelve months ended December 31, 1998 increased by $4,812,654, or 284%, as
compared to pro-forma net income (see Note 3 to the Financial Statements)
for the twelve months ended December 31, 1997. This increase resulted
primarily from the foregoing factors as well as the reduced earnings of
LaSalle in the first quarter of 1997 as compared to the same period in
1998.
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 products sold 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 $2,062,185. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term liquidity requirement for day-to-day
operating expenses has 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, 1998 were $6,859,081 compared to $5,572,754 for the same
period in 1997. This increase in expenditures was largely due to an
increase in the purchase of new production equipment and the upgrade of the
Company's computer systems. The Company anticipates spending approximately
$7,000,000 for capital expenditures during 1999.
Cash flows provided by operations were $14,676,621 for the year ended
December 31, 1998 as compared to $9,333,468 for the year ended December 31,
1997. Cash flows for 1998 included the cash flows of LaSalle for the entire
year as compared to only the last three quarters in 1997. This $5,343,153
increase, or 57%, from the prior year is largely attributable to an
increase in net income, which was offset, in part, by the decrease in
LaSalle's postretirement benefit obligations (which itself was offset by
the increase in deferred taxes associated with this decrease). Cash flows
for the year ended December 31, 1998 were enhanced by a decrease in
accounts receivable and inventory, which was offset, in part, by decreases
in accounts payable and accrued expenses. Cash and cash equivalents at
December 31, 1998 was $440,654, a decrease of $12,766,423 as compared to
December 31, 1997. The significant amount of cash at December 31, 1997
resulted from proceeds from the exercise of the Warrants in the fourth
quarter of 1997 and was applied to long-term debt in the first quarter of
1998.
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 commenced 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 235 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 200 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 was in compliance with all of these requirements as of
December 31, 1998.
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.
During the fourth quarter of 1997, the Company used approximately $21.8
million of such proceeds to prepay in their entirety, at 107% plus accrued
interest, the Subordinated Notes. During the first quarter of 1998, the
Company used another $10 million of such proceeds to reduce the balance due
under its revolving credit facility.
On May 20, 1998, Niagara's Board of Directors authorized the
repurchase, from time to time, of up to one million shares of Niagara
Common Stock in open market and privately negotiated transactions. Such
repurchases are subject to market and other conditions and financed with
internally generated funds or borrowings under the revolving credit
facility. Shares of Niagara Common Stock repurchased are held as treasury
stock and are available for use in the Company's benefit plans and for
general corporate purposes. During the year ended December 31, 1998,
Niagara repurchased 485,880 shares of its Common Stock at a cost of
$2,899,965.
At December 31, 1998, Niagara LaSalle had borrowed $9,000,000 under
its revolving credit facility and had approximately $20,000,000 in
available credit thereunder. Working capital of the Company at December 31,
1998 and 1997 was $20,414,031 and $38,746,722, respectively.
YEAR 2000 READINESS DISCLOSURE
The Company could be adversely affected if the computer and other
systems, machinery, equipment and applications which it or its suppliers,
customers or service providers use does not properly accommodate the "Year
2000" dating changes necessary to permit the recording of year dates for
2000 and later years. Management does not anticipate any material
disruption in the Company's operations as a result of this issue. However,
because of the reliance on and involvement of a great many third parties in
this regard, disruptions in the Company's operations could occur which may
have a material effect on the Company's results of operations.
In 1998, the Company upgraded its internal computer systems in four
of its five plants at a cost of approximately $1,000,000. This upgrade
allowed the Company to centralize all of its internal business functions at
these facilities. Based on assurances from the manufacturers of the
upgraded system's hardware and software, management does not expect that
this system will suffer any interruption or performance degradation as a
result of the Year 2000.
Engineering firms are assessing the Company's machinery, equipment,
applications and other systems for Year 2000 readiness. This assessment has
been substantially completed at three of the Company's five plants and is
scheduled to be completed by April 30, 1999. Management plans to take all
appropriate steps to correct the problems identified by such firms or to
minimize the impact of any interruptions or performance degradations caused
by the Year 2000. Management has budgeted $60,000 for this assessment and
any needed corrective actions, approximately $25,000 of which had been
expended as of December 31, 1998.
The Company has inquired into the Year 2000 readiness status of its
suppliers, customers and essential service providers and, based on their
responses, is developing contingency plans to prepare for any Year 2000
related issues they identify.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which requires
companies to recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. The Company does not presently enter into any transactions involving
derivative financial instruments and, accordingly, does not anticipate the
new standard will have any effect on its financial statements.
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 "safe
harbor" for certain forward-looking statements. Some of the statements in
this Form 10-K, including, without limitation, those made under "BUSINESS"
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" may constitute forward-looking statements. When used
in this Form 10-K, the words "may," "will," "should," "could," "expects,"
"plans," "anticipates," "intends," " believes," "estimates," "predicts,"
"projects," "potential," or "continue" and other similar expressions are
intended to identify such forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors that may
cause the Company's actual results to be materially different from those
expressed or implied by such forward-looking statements or in future
filings by Niagara with the Securities and Exchange Commission, in the
Company's press releases and in oral statements made by authorized officers
of the Company. Such factors include, among other things:
o Cyclicality - The Company's products are used in the automotive and
machine tool industries, among others. As a result, demand for such
products is closely tied to the economic cycles that drive these
businesses. For this reason, the Company's financial performance has
been, and will likely continue to be, cyclical in nature.
o Competition From Larger, Vertically Integrated Companies - The
Company's largest competitors are vertically integrated with both
hot-rolling and cold drawing capabilities. This integration could
result in lower raw material costs to these competitors. See
"BUSINESS -- Competition."
o Expiration of Union Contracts - LaSalle's hourly employees at its
Hammond and Griffith, Indiana facilities are covered by collective
bargaining agreements, which expire on July 18, 2001 and February 19,
2000, respectively. There is no assurance that the Company will be
able to negotiate new agreements on favorable economic terms. In such
event, the Company may experience work stoppages or other labor
difficulties. See "BUSINESS -- Employees."
o Foreign Imports - The presence of low-priced imports of competing
products and low-priced manufactured products which utilize the
Company's products could affect the market for the Company's
products. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Results of Operations."
o Environmental Matters - Niagara LaSalle and LaSalle are subject to
extensive federal, state and local environmental laws and regulations
concerning the discharge of materials into the environment and the
removal or remediation of environmental contamination 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. While the costs of
complying with the current regulations and the Company's
share of remediation expenses at locations where Niagara LaSalle or
LaSalle has been identified as a responsible party have not adversely
affected the Company in any material respect, there is no assurance
that substantial additional costs will not be required as a result of
more stringent regulations, an increase in the Company's share of
remediation costs or the discovery of additional contamination at the
Company's facilities or at other locations for which the Company
would be responsible. See "LEGAL PROCEEDINGS."
o Year 2000 Compliance - The Company could be adversely affected if it
experiences a disruption in its operations due to its inability or
the inability of its suppliers, customers or service providers to
comply with the "Year 2000" dating changes necessary to permit the
recording of year dates for 2000 and later years. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-- Year 2000 Readiness Disclosure."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants....... 16
Balance Sheets........................................... 17
Statements of Operations................................. 18
Statements of Stockholders' Equity....................... 19
Statements of Cash Flows................................. 20
Notes to Financial Statements............................ 21
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, 1997 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1998. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Niagara
Corporation and Subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
March 17, 1999
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
BALANCE SHEETS
- ---------------------------------------------------------------------------------------
December 31, 1997 1998
- ---------------------------------------------------------------------------------------
Assets
Current:
<S> <C> <C>
Cash and cash equivalents $ 13,207,077 $ 440,654
Trade accounts receivable, net of allowance for
doubtful accounts of $727,000
and $789,000 (Notes 6 and 12) 21,660,230 13,360,290
Inventories (Notes 4 and 6) 35,189,568 30,131,877
Deferred income taxes (Note 11) 1,401,000 494,000
Other current assets 1,822,354 1,446,130
- ---------------------------------------------------------------------------------------
Total current assets 73,280,229 45,872,951
Property, plant and equipment, net (Notes 5, 6 and 14) 89,162,776 89,748,881
Goodwill, net of accumulated amortization of
$145,013 and $222,545 (Note 3(a)) 2,177,125 2,099,593
Deferred financing costs, net of accumulated amortization
of $73,792 and $184,480 701,208 590,520
Intangible pension asset (Note 7) - 526,000
Other assets, net of accumulated amortization of $277,361
and $414,213 1,198,528 591,075
- ---------------------------------------------------------------------------------------
$166,519,866 $139,429,020
========================================================================================
Liabilities and Stockholders' Equity
Current:
Accounts payable $ 20,984,715 $14,106,608
Accrued expenses 8,679,723 6,555,103
Due to Quanex Corporation (Note 3(b)) 1,371,000 -
Current maturities of long-term debt (Note 6) 3,498,069 4,797,209
- ---------------------------------------------------------------------------------------
Total current liabilities 34,533,507 25,458,920
Other:
Long-term debt, less current maturities (Note 6) 59,184,388 41,572,250
Accrued pension cost (Note 7) 1,845,900 4,664,337
Other accrued postretirement benefits (Note 7) 12,691,000 5,638,639
Deferred income taxes (Note 11) 5,726,000 7,357,000
Other noncurrent liabilities 542,669 207,331
- ---------------------------------------------------------------------------------------
Total liabilities $114,523,464 $84,898,477
- ---------------------------------------------------------------------------------------
Commitments and contingencies (Notes 9, 10 and 14)
Stockholders' equity (Notes 2, 8 and 10):
Preferred stock, $.001 par value - 500,000 shares
authorized; none outstanding - -
Common stock, $.001 par value - 15,000,000 shares
authorized; 9,997,455 issued 9,998 9,998
Additional paid-in capital 50,111,675 50,111,675
Retained earnings 1,874,729 8,384,835
Accumulated other comprehensive income - (1,076,000)
- ---------------------------------------------------------------------------------------
51,996,402 57,430,508
Treasury stock, at cost, 485,880 shares - (2,899,965)
- ---------------------------------------------------------------------------------------
Total stockholders' equity 51,996,402 54,530,543
- ---------------------------------------------------------------------------------------
$166,519,866 $139,429,020
=======================================================================================
See accompanying notes to financial statements.
NIAGARA CORPORATION
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------
Year ended December 31, 1996(a) 1997(b) 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales (Note 12) $74,809,520 $204,962,133 $207,546,526
Cost of products sold (Notes 7 and 13) 66,114,485 180,532,223 177,339,749
- ------------------------------------------------------------------------------------
Gross profit 8,695,035 24,429,910 30,206,777
Operating expenses:
Selling, general and administrative
(Note 7) 5,705,649 12,449,505 15,644,702
- ------------------------------------------------------------------------------------
Operating income 2,989,386 11,980,405 14,562,075
Interest income 100,244 160,048 172,076
Interest expense (1,536,717) (5,874,194) (4,153,985)
Other income 126,147 187,244 194,940
- ------------------------------------------------------------------------------------
Income before income taxes and
extraordinary loss 1,679,060 6,453,503 10,775,106
Income taxes (Note 11) 615,200 2,479,000 4,265,000
- ------------------------------------------------------------------------------------
Income before extraordinary loss 1,063,860 3,974,503 6,510,106
Extraordinary loss on early extinguishment
of debt, net of income tax benefit of
$1,264,000 (Note 16) - (2,062,185) -
- ------------------------------------------------------------------------------------
Net income $1,063,860 $1,912,318 $6,510,106
====================================================================================
Earnings per share (basic):
Income before extraordinary loss $ 0.30 $ 0.94 $ 0.66
Extraordinary loss - (.49) -
- ------------------------------------------------------------------------------------
Net income per share (basic) $ 0.30 $ 0.45 $ 0.66
====================================================================================
Earnings per share (diluted):
Income before extraordinary loss $ 0.30 $ 0.78 $ 0.64
Extraordinary loss - (.40) -
- ------------------------------------------------------------------------------------
Net income per share (diluted) $ 0.30 $ 0.38 $ 0.64
====================================================================================
Weighted average common shares
outstanding (Note 15):
Basic 3,602,818 4,246,925 9,879,528
Diluted 3,602,818 5,095,350 10,249,954
====================================================================================
- ------------------
(a) Includes the results of Niagara LaSalle for the entire year, and the
results of Southwest from February 1, 1996.
(b) 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, 1996, 1997 and 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common stock Retained other Treasury Total
Number Additional earnings comprehensive stock, stockholders'
of shares Amount paid-in capital (deficit) income at cost equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $3,500,00 $ 3,500 $15,560,296 $(1,101,449) $ - $ - $14,462,347
Shares issued (Note 2) 168,750 169 (169) - - - -
Net income for the year - - - 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 for the year - - - 1,912,318 - - 1,912,318
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 9,997,455 9,998 50,111,675 1,874,729 - - 51,996,402
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for the year - - - 6,510,106 - - 6,510,106
Minimum pension liability adjustment
($1,764,000,
net of tax benefit of $688,000) - - - - (1,076,000) - (1,076,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 5,434,106
- ---------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, at cost (c) - - - - - (2,899,965) (2,899,965)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 9,997,455 $ 9,998 $ 50,111,675 $ 8,384,835 $(1,076,000) $(2,899,965) $54,530,543
=================================================================================================================================
- ----------------------
(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 (Notes 2 and 3(b)).
(b) Proceeds from exercise of Warrants during December 1997 (Note 2).
(c) During the year ended December 31, 1998, Niagara repurchased 485,880 shares of its Common Stock at a cost of
$2,899,965. The shares repurchased are held as treasury stock.
=================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Niagara Corporation
and Subsidiaries
Statements of Cash Flows
(Note 18)
=====================================================================================
Year ended December 31, 1996 (a) 1997 (b) 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,063,860 $1,912,318 $6,510,106
- -------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,846,058 5,533,603 6,615,662
Noncash portion of extraordinary loss - 662,185 -
Gain on sale of property (124,773) - -
Provision for doubtful accounts 68,991 88,905 61,151
Deferred income taxes 229,000 520,000 3,226,000
Accrued pension costs - (566,100) 523,437
Other accrued postretirement benefits - 150,000 (7,052,361)
Miscellaneous - (13,529) -
Changes in assets and liabilities, net of
effects from purchase of Southwest in 1996
and LaSalle in 1997:
Decrease in accounts receivable 1,131,906 3,144,270 8,238,789
Decrease in inventories 3,516,779 3,433,310 5,057,691
Decrease in other current assets - - 381,224
(Increase) decrease in other
assets (169,909) (1,868,179) 452,987
Decrease in accounts payable,
accrued expenses and other
noncurrent liabilities (2,729,972) (3,663,315) (9,338,065)
- -------------------------------------------------------------------------------------
Total adjustments 3,768,080 7,421,150 8,166,515
- -------------------------------------------------------------------------------------
Net cash provided by
operating activities 4,831,940 9,333,468 14,676,621
- -------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property 551,000 - -
Acquisition of Southwest, net of cash
acquired (2,354,289) - -
Acquisition of LaSalle, net of cash
acquired - (67,240,000) (1,371,000)
Acquisition of equipment (4,418,944) (5,572,754) (6,859,081)
- -------------------------------------------------------------------------------------
Net cash used in investing
activities (6,222,233) (72,812,754) (8,230,081)
- --------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of Warrants - 33,236,445 -
Net borrowings under revolving line of
credit (31,960) - -
Proceeds from long-term debt 9,998,963 81,800,000 -
Repayment of long-term debt (9,051,147) (38,372,928) (16,312,998)
Financing costs (124,533) (1,565,081) -
Payments to acquire treasury stock - - (2,899,965)
- --------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 791,323 75,098,436 (19,212,963)
- --------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (598,970) 11,619,150 (12,766,423)
cash and cash equivalents, beginning of year 2,186,897 1,587,927 13,207,077
- --------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $1,587,927 $13,207,077 $440,654
======================================================================================
- --------------------
(a) Includes the cash flows of Niagara LaSalle for the entire year, and
the cash flows of Southwest from February 1, 1996.
(b) 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.
</TABLE>
NIAGARA CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. Summary of Organization and Business Operations
Significant
Accounting Niagara Corporation ("Niagara") was incorporated in
Policies 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"), are Delaware corporations
and operate from five 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 (the "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 $12,359,973 and
$20,098 at December 31, 1997 and 1998, 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 is stated at cost.
Additions to property, plant and equipment are
stated at cost and include expenditures for new
facilities and those costs 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 assets 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, 1998 includes a
$500,000 loan due from a related party. This loan
bears interest at a rate of 5.68% and is due in
December 1999.
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, 1998.
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.
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.
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 ("APB") 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.
Comprehensive Income
The Company has adopted 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. Comprehensive income
is displayed in the Statements of Stockholders'
Equity.
Pension and Other Postretirement Benefits
The Company has adopted the provisions of SFAS No.
132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits", which standardizes
the disclosure requirements for pensions and other
postretirement benefits. Comparative disclosures for
1997 have been restated to conform with the current
year's presentation.
2. Public Offering On August 20, 1993, Niagara sold 2,875,000 units
and Subsequent ("Units") in an initial public offering (the
Common Stock "Offering"). Each Unit consisted of one share of
Issuances 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
was given.
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(b)).
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 then 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)Acquisition of Southwest
Southwest and
LaSalle On January 31, 1996, Niagara LaSalle purchased all
of the outstanding shares of capital stock of
Southwest Steel Company, Inc. ("Southwest"), a
manufacturer of cold drawn steel bars, 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. Pro forma results of operations assuming the
acquisition had occurred on January 1, 1996 have not
been presented, since the pro forma results were not
materially different from the accompanying financial
statements.
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.
Southwest's Tulsa, Oklahoma facilities were closed
during 1996, and its operations were moved 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 November 24, 1997, 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 amount paid,
after related expenses, reduced the amount of
goodwill recorded relating to the acquisition of
Southwest.
(b)Acquisition of LaSalle
On April 18, 1997, Niagara LaSalle purchased from
Quanex Corporation ("Quanex") all of the outstanding
shares of capital stock of LaSalle, one of the
largest domestic producers of cold drawn steel bars.
In consideration for the sale of such shares,
Niagara LaSalle paid Quanex $65,500,000 in cash at
the closing and an additional $1,371,000, which
amount was paid on January 26, 1998, based on
changes in LaSalle's stockholder's equity between
October 31, 1996 and March 31, 1997. Niagara LaSalle
also paid Quanex an amount based on cash activity in
the intercompany account between Quanex and LaSalle
from April 1, 1997 through April 18, 1997.
The financial statements include the results of
LaSalle from April 1, 1997. Accordingly, LaSalle's
results are included in the year ended December 31,
1998, but are only included from April 1, 1997 for
the year ended December 31, 1997.
The acquisition of LaSalle was accounted for as a
purchase. 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 the
Subordinated 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 (see Note 16) and credited to
equity.
Pro forma results of operations, assuming the
acquisition of LaSalle 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.
<TABLE>
<CAPTION>
Year ended December 31, 1996 1997
----------------------------------------------------------------------
<S> <C> <C>
Net sales $233,560,000 $249,211,000
Income before extraordinary 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 at December 31,
1997 and 1998:
December 31, 1997 1998
----------------------------------------------------------------------
<S> <C> <C>
Raw materials $13,179,052 7,824,023
Work-in-process 5,984,649 4,588,895
Finished goods 16,025,867 17,718,959
----------------------------------------------------------------------
$35,189,568 $30,131,877
======================================================================
5. Property, Plant Property, plant and equipment consisted of the following
And Equipment at December 31, 1997 and 1998:
December 31, 1997 1998
----------------------------------------------------------------------
Land, buildings and improvements $24,354,077 $24,446,401
Leasehold improvements 748,877 1,391,909
Machinery and equipment 69,596,920 75,597,659
Furniture and fixtures 1,567,601 1,684,028
----------------------------------------------------------------------
Total 96,267,475 103,119,997
Less: Accumulated depreciation
and amortization 7,104,699 13,371,116
----------------------------------------------------------------------
$89,162,776 $89,748,881
======================================================================
6. Long-Term Debt The long-term debt consisted of the following at
December 31, 1997 and 1998:
December 31, 1997 1998
---------------------------------------------------------------------
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 calculated at either
the LIBOR rate plus 235 basis points
or the bank's prime rate plus 50 basis
points (effective rate of 7.925% at
<S> <C> <C> <C>
December 31, 1998) $39,666,668 $36,333,340
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 installments at either the
LIBOR rate plus 200 basis points or
the bank's prime rate plus 25 basis
points (effective rate of 8.00% on
$4,000,000 and 7.575% on $5,000,000
at December 31, 1998) 21,800,000 9,000,000
Note payable - former Southwest
stockholder, maturing $64,143 annually
on January 31, through 2010, plus
interest at 8.5%, guaranteed by
Niagara (Note 3(a)) 833,857 769,714
Note payable - former Southwest stockholder,
maturing $33,333 annually on April 17,
through 2005, plus interest at 10% 266,667 233,334
Other notes payable 115,265 33,071
----------------------------------------------------------------------
62,682,457 46,369,459
Less: Current maturities of
long-term debt 3,498,069 4,797,209
----------------------------------------------------------------------
$59,184,388 $41,572,250
======================================================================
</TABLE>
The obligations of Niagara LaSalle and LaSalle under
the revolving credit and term loan 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. This
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.
Approximate maturities of long-term debt over the
next five years are as follows:
Year ended December 31,
--------------------------------------------------------
1999 $ 4,797,000
2000 14,764,000
2001 6,764,000
2002 7,764,000
2003 8,764,000
========================================================
7. Pension Plans LaSalle sponsors two contributory defined benefit
And other pension plans which cover certain employees of
Postretirement LaSalle, as well as various retiree health and
Benefits welfare programs providing postretirement benefits
for eligible employees hired prior to certain
specified dates.
LaSalle's benefit plans were revised in 1998 to
effect several changes in benefits. These changes,
primarily curtailments, relate to the level of
benefits, the shifting of the responsibility for
future health care cost increases to retirees, the
permanent layoff or early retirement of certain
participants and the freezing of the retiree welfare
program. The net effect of these changes in the 1998
Statement of Income was to reduce expenses by an
aggregate of $4,949,000 (see Note 19). This
reduction is reflected as a reduction of (i)
$3,320,000 to cost of products sold and (ii)
$1,629,000 to selling, general and administrative
expenses.
The following tables provide a reconciliation of the
changes in the plans' benefit obligations and fair
value of assets over the two-year period ending
December 31, 1998, and a statement of the funded
status as of December 31 of both years:
<TABLE>
<CAPTION>
Pension benefits Other benefits
----------------------- -------------------------
1997 1998 1997 1998
- ----------------------------------------------------------------------------------
Reconciliation of benefit obligation
<S> <C> <C> <C> <C>
Obligation at January 1 $18,730,000 $19,799,000 $12,541,000 $12,463,000
Service cost 696,000 449,000 152,000 107,000
Interest cost 1,037,000 1,559,000 680,000 763,000
Plan amendments - 899,000 - -
Actuarial (gain) loss (2,000) 1,398,000 - 191,000
Benefit payments (662,000) (1,220,000) (910,000) (988,000)
Curtailments - (869,000) - (7,299,000)
Termination benefits - 1,636,000 - 246,000
- ----------------------------------------------------------------------------------
Obligation at December 31 $19,799,000 $23,651,000 $12,463,000 $5,483,000
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
Pension benefits Other benefits
--------------------- ------------------------
1997 1998 1997 1998
- --------------------------------------------------------------------------------------
Reconciliation of fair value of
plan assets
Fair value of plan assets at
<S> <C> <C> <C> <C>
January 1 $16,318,000 $18,101,000 $ - $ -
Actual return on plan assets 1,394,000 820,000 910,000 988,000
Employer contributions 1,051,000 1,609,000 - -
Benefit payments (662,000) (1,220,000) (910,000) (988,000)
- --------------------------------------------------------------------------------------
Fair value of plan assets at
December 31 $18,101,000 $19,310,000 $ - $ -
======================================================================================
Funded status
Funded status at
December 31 $(1,698,000) $(4,341,000) $(12,463,000) $(5,483,000)
Unrecognized prior service
cost - 526,000 - -
Unrecognized (gain) loss (147,900) 1,445,663 (228,000) (155,639)
- --------------------------------------------------------------------------------------
Net amount recognized $(1,845)900) $(2,369,337) $(12,691,000) $(5,638,639)
======================================================================================
The following table provides the amounts recognized in the Company's
Balance Sheets at December 31, 1997 and 1998:
Pension benefits Other benefits
--------------------- ------------------------
1997 1998 1997 1998
- --------------------------------------------------------------------------------------
Prepaid benefit cost $ - $ 5,000 $ - $ -
Accrued benefit liability (1,845,900) (4,664,337) (12,691,000) (5,638,6)
Intangible asset - 526,000 - -
Accumulated other comprehensive
income, pretax - 1,764,000 - -
- --------------------------------------------------------------------------------------
Net amount recognized $(1,845,900) $(2,369,337) $(12,691,000) (5,638,639)
======================================================================================
</TABLE>
LaSalle's hourly pension plan was the Company's only
pension plan with an accumulated benefit obligation in
excess of plan assets. This plan's accumulated benefit
obligation was $11,371,000 and $15,613,000 at December
31, 1997 and 1998, respectively. Plan assets for this
plan were $9,681,000 and $10,870,000 at December 31,
1997 and 1998, respectively. LaSalle's plans for
postretirement benefits other than pensions have no
plan assets. The aggregate benefit obligations for
such plans is $12,463,000 and $5,483,000 as of
December 31, 1997 and 1998, respectively.
The following table provides the components of net
periodic benefit cost for LaSalle's plans for fiscal
years 1997 and 1998:
Pension benefits Other benefits
-------------------------- -------------------------
1997 1998 1997 1998
- -------------------------------------------------------------------------------
Service cost $ 696,000 $ 449,000 $152,000 $107,000
Interest cost 1,037,000 1,559,000 680,000 763,000
Expected return on
plan assets (1,248,000) (1,885,000) - -
Amortization of
prior service cost - 24,000 - -
- -------------------------------------------------------------------------------
Net periodic
benefit cost 485,000 147,000 832,000 870,000
Curtailment/settlement/
termination benefits
(gain) loss - 1,985,000 - (6,934,000)
Net periodic benefit
cost after curtailments
and settlements $485,000 $2,132,000 $832,000 $(6,064,000)
===============================================================================
The amount included within other comprehensive
income arising from a change in the additional
minimum pension liability was $-0- and $1,076,000
(net of tax) for 1997 and 1998, respectively.
LaSalle provides certain health care and life
insurance benefits for eligible retired employees.
Employees may become eligible for such 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.
The assumptions used in the measurement of LaSalle's
benefit obligation are shown in the following table:
<TABLE>
<CAPTION>
Pension benefits Other benefits
-------------------------- -------------------------
1997 1998 1997 1998
- -----------------------------------------------------------------------------------
Weighted average assumptions
as of December 31:
Discount rate:
Used for determination of
<S> <C> <C> <C> <C>
expense 7.5% 7.5% 7.5% 7.5%
Used for determination
of year-end liability 7.5 7.0 7.5 7.0
Expected return on plan
assets 10.0 10.0 N/A N/A
Rate of compensation 3.0 3.0 N/A N/A
increase
===================================================================================
</TABLE>
Since the responsibility for future health care cost
increases under LaSalle's postretirement benefit plans
shifted to retirees during 1998, a zero percent health
care cost trend rate was assumed.
The Company maintains a contributory salary deferral
retirement plan (401(k)) for all employees of the
Company 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. In addition, 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 $622,000
for the years ended December 31, 1997 and 1998,
respectively. The funds are invested primarily in
annuity contracts.
8. 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.
9. Lease Niagara leases office space under an operating lease
Commitments expiring in December 2007 and Niagara LaSalle leases
equipment and its Chattanooga, Tennessee facility
under operating leases expiring through November 2009.
At December 31, 1998, future minimum payments under
noncancellable operating leases were approximately as
follows:
---------------------------------------------------------
1999 $ 275,000
2000 469,000
2001 485,000
2002 491,000
2003 491,000
Thereafter 2,379,000
---------------------------------------------------------
Total minimum lease payments $4,590,000
=========================================================
Rent expense under operating leases was approximately
$449,000, $458,000 and $418,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
10. Stock Option The Company has a stock option plan which provides that
Plan 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 2,500,000 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 that the Company provide pro
forma information regarding net income and earnings
per share as if the compensation cost for the
Company's stock option plan had been determined in
accordance with the fair value method prescribed in
such statement. 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 1996,
1997 and 1998: dividend yield of 0%; expected
volatility of 20% for 1996, 37.3% for 1997 and 1998;
risk-free interest rates of 6.6%; expected lives of 10
years and a discount due to marketability and dilution
of 28%, 22% and 0% in 1996, 1997 and 1998,
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:
1996 1997 1998
- ------------------------------------------------------------------------------
Net income:
As reported $1,063,860 $1,912,318 $6,510,106
Pro forma 798,133 1,494,881 6,037,295
Net income per share (basic):
As reported .30 .45 .66
Pro forma .22 .35 .61
Net income per share (diluted):
As reported .30 .38 .64
Pro forma .22 .29 .59
==============================================================================
<TABLE>
<CAPTION>
===============================================================================================================
A summary of the status of the Company's stock option plan as of December 31, 1996, 1997 and
1998, and changes during the years ending on those dates, is presented below:
December 31, 1996 December 31, 1997 December 31, 1998
--------------------- ---------------------- ---------------------
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 1,190,000 $ 5.68
Granted 295,000 5.50 375,000 5.72 85,000 5.50
Exercised - - - - - -
Cancelled and reissued - - - - (25,000) (8.50)
- ---------------------------------------------------------------------------------------------------------------
Outstanding at end of year 815,000 5.66 1,190,000 $5.68 1,250,000 $ 5.61
Options exercisable at year-end 254,666 5.70 485,332 $5.69 751,000 $ 5.64
Weighted average fair value of options
granted during the year $1.47 $2.78 $ - $ 2.80
===============================================================================================================
The following table summarizes information about stock options outstanding at December 31, 1998.
Options outstanding Options exercisable
----------------------------- ---------------------------
Weighted
Number average Weighted Number Weighted
Range of outstanding remaining average exercisable average
exercise at 12/31/98 contractual exercise at 12/31/98 exercise
prices life price price
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$5.50 to $5.75 1,250,000 8 yrs $5.61 751,000 $5.64
=====================================================================================
</TABLE>
11. Income Taxes The provision for federal and state income tax expense
was comprised of the following:
Year ended December 31, 1996 1997 1998
- ------------------------ ----------- ----------- -----------
Current:
Federal $352,200 $1,801,000 $ 887,000
State 34,000 158,000 152,000
- ----------------------------------------------------------------
386,200 1,959,000 1,039,000
- ----------------------------------------------------------------
Deferred:
Federal 207,000 425,000 2,622,000
State 22,000 95,000 604,000
- ----------------------------------------------------------------
229,000 520,000 3,226,000
- ----------------------------------------------------------------
Total income taxes $615,200 $2,479,000 $4,265,000
================================================================
At December 31, 1997 and 1998, deferred tax assets (liabilities)
consisted of the following:
December 31, 1997 1998
- --------------------------------- ------------- -----------
Federal alternative minimum tax
credit carryforwards $ - $1,785,000
Postretirement benefit
obligations 399,000 924,000
Accrued expenses deductible
when paid 1,260,000 843,000
Inventory reserves 446,000 837,000
Accrued minimum pension liability - 688,000
New York State investment tax
credits 667,000 667,000
Allowance for doubtful accounts 281,000 305,000
Uniform capitalization in ending
tax inventory 92,000 81,000
Other - 11,000
- -------------------------------------------------------------------
Gross deferred tax assets 3,145,000 6,141,000
Valuation allowance for deferred
tax assets (667,000) (667,000)
- -------------------------------------------------------------------
Net deferred tax assets 2,478,000 5,474,000
- --------------------------------------------------------------------
Tax depreciation greater than
book depreciation of property,
plant and equipment (3,951,000) (5,846,000)
Pushdown adjustment for
property, plant, equipment
and intangibles (2,173,000) (4,919,000)
Pushdown adjustment for
inventories (629,000) (1,572,000)
Other (50,000) -
Gross deferred tax liabilities (6,803,000) (12,337,000)
- ---------------------------------------------------------------------
Net deferred tax liabilities $(4,325,000) $ (6,863,000)
=====================================================================
Deferred taxes are included in the accompanying Balance Sheets as
follows:
1997 1998
- ---------------------------------------------------------------
Current asset for deferred
income taxes $ 1,401,000 $ 494,000
Noncurrent liability for
deferred income taxes (5,726,000) (7,357,000)
Net deferred tax liabilities $(4,325,000) $(6,863,000)
===============================================================
At December 31, 1998, the Company had available
federal alternative minimum tax credit carryforwards
of approximately $1,785,000 which do not expire and
can be used to offset future years' regular tax to
the extent it exceeds alternative minimum tax.
At December 31, 1998, 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:
1996 1997 1998
---------------- ----------------- ---------------
Amount % Amount % Amount %
- ------------------------------------------------------------------------------
Tax at statutory
rate $591,000 34.0% $2,194,000 34.0% $3,664,000 34.0%
State income
taxes net of
federal income
tax benefit 37,000 3.0 167,000 2.6 481,000 4.5
Goodwill amortization
and other 30,000 3.0 118,000 1.8 120,000 1.1
Other, including
prior year
overaccrual (42,800) (3.0) - - - -
- -----------------------------------------------------------------------------
Effective tax rate $615,200 37.0% $2,479,000 38.4% $4,265,000 39.6%
=============================================================================
12. Major The Company had two customers in 1996 to which sales
Customers were approximately 25% and 18% of total sales.
Sales to three customers during 1997 were
approximately 27%, 8% and 6% of total sales.
Accounts receivable outstanding from these major
customers represented approximately 39% of aggregate
accounts receivable at December 31, 1997.
Sales to three customers in 1998 were approximately
21%, 9% and 9% of total sales. Accounts receivable
from these major customers represented approximately
38% of aggregate accounts receivable at December 31,
1998.
13. Major Supplier The Company had one supplier from which purchases
were approximately 37% and 29% of total purchases in
1997 and 1998, respectively.
14. Commitments and Commitments
Contingencies
At December 31, 1998, the Company is committed to
purchase approximately $2,800,000 of machinery and
equipment.
Niagara LaSalle and Niagara have entered into
employment contracts with certain of their officers.
These contracts, which expire in January 1999,
August 2000 and March 2001, 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, 1998,
excluding bonuses and stock options, was
approximately $985,000.
Contingencies
Niagara LaSalle and LaSalle are subject to 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"), Niagara LaSalle and LaSalle may be
responsible for parts of the costs required to
remove or remediate previously disposed wastes or
hazardous substances at the locations they own or
operate or at the locations which they arranged for
disposal of such materials. The costs incurred
through December 31, 1998 have been largely covered
by insurance. Management believes any resolution of
these matters will not have a material adverse
effect on the Company's financial position or
operations.
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 which relate 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.
15. Earnings per The following table sets forth the calculation of
Share weighted average common shares outstanding for the
calculation of basic and diluted earnings per share:
December 31, 1996 1997 1998
- ------------------------------------------------------------------------------
Weighted average shares
(for basic earnings per share) 3,602,818 4,246,925 9,879,528
Effect of dilutive securities:
Warrants and employee stock
options - 848,425 370,426
- ------------------------------------------------------------------------------
Adjusted weighted 3,602,818 5,095,350 10,249,954
average shares and
assumed conversion (for
diluted earnings per share)
==============================================================================
16. Extraordinary In 1997, Niagara LaSalle sold the Subordinated Notes.
Item 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(b)).
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).
17. Disclosure About The following methods and assumptions were used to
Fair Value of estimate the fair value of each class of financial
Financial instruments for which it is practicable to estimate
Instruments 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.
18. Supplemental Interest paid during the years ended December 31,
Cash 1996, 1997 and 1998 was approximately $1,357,000,
Flow $5,637,000 and $4,306,000, respectively.
Information
Income tax payments made during the years ended
December 31, 1996, 1997 and 1998 totaled
approximately $86,500, $512,000 and $2,194,000,
respectively.
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:
- ------------------------------------------------------------
Fair value of Southwest assets acquired $ 13,529,000
Liabilities assumed (12,457,000)
- ------------------------------------------------------------
Net assets acquired $ 1,072,000
============================================================
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:
- ------------------------------------------------------------
Fair value of LaSalle assets acquired $110,351,000
Liabilities assumed (42,168,000)
- ------------------------------------------------------------
Net assets acquired $ 68,183,000
============================================================
Noncash investing and financing activities consist
of the following:
1996 1997 1998
- ----------------------------------------------------------------------
Adjustment of minimum pension
liability (Note 7):
Prepaid benefit cost $ - $ - $ 5,000
Intangible asset - - 526,000
Deferred tax asset - - 688,000
Accumulated other
comprehensive
income, net of tax - - 1,076,000
- ----------------------------------------------------------------------
Accrued pension cost $ - $ - $2,295,000
======================================================================
Deferred debt issuance
costs recorded as
additional paid-in
capital (Note 3(b)) $ - $1,321,432 $ -
======================================================================
Adjustments arising from
satisfaction of Southwest
notes (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 $ - $ -
======================================================================
19. Fourth quarter On July 19, 1998, following a nine-week strike, the
Adjustment hourly workers at LaSalle's Hammond, Indiana facility
voted to accept a new three-year collective
bargaining agreement. Among other things, this
agreement provides for a curtailment of certain
pension costs and other postretirement benefits. The
net effect of these curtailments (as discussed in
Note 7) was to reduce the Company's obligations by
$1,746,000 during the quarter ended September 30,
1998 and $3,203,000 during the quarter ended
December 31, 1998, for an aggregate reduction of
$4,949,000 for 1998. This reduction increased net
income by $1,065,000 for the quarter ended September
30, 1998 and $1,954,000 for the quarter ended
December 31, 1998, for an aggregate increase to net
income of $3,019,000 for 1998.
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 will be contained in, and is
incorporated herein by reference from, the section entitled "Election of
Directors" of the Registrant's Proxy Statement for its 1999 Annual Meeting
of Stockholders to be 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 will be contained in, and is
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 will be contained in, and is
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 will be contained in, and is
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 15.
2. Financial Statement Schedules
Schedules I and II are filed as part of this Report on Form
10-K beginning on page S-1 hereof.
(b) Reports on Form 8-K.
None.
(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 Third Amendment to the Credit Agreement, effective May 15, 1998.
4.9 Fourth Amendment to the Credit Agreement, effective as of
December 1, 1998.
++++++4.10 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.
++++++4.11 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.
4.12 Amended and Restated Promissory Note, dated December 15, 1998,
made by Gilbert D. Scharf in favor of Niagara Corporation.
!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 Employment Agreement, dated August 16, 1995, between
International Metals Acquisition Corporation, Niagara
Cold Drawn Corp. and Frank Archer.
10.3 Employment Agreement, dated August 16, 1995, between
International Metals Acquisition Corporation, Niagara
Cold Drawn Corp. and Raymond Rozanski.
!!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, dated May 15, 1996, 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 Second Amendment to the Niagara Corporation 1995 Stock Option
Plan, dated June 8, 1998.
++10.10 Niagara Corporation Employee Stock Purchase Plan.
++++++10.11 Stock Purchase Agreement, dated April 18, 1997, by and among the
Registrant, Niagara Cold Drawn Corp. and
Quanex Corporation.
10.12 First Amendment to Lease, dated May 4, 1998, between Niagara
LaSalle Corporation and North American Royalties, Inc.
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 Annexes to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on July 7,
1998.
+++ Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1997.
* 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 4.8 to the Registrant's Report
on Form 10-Q for the quarter ended June 30, 1998.
+++++ 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
30th day of March, 1999.
NIAGARA CORPORATION
By: /s/ Michael Scharf
------------------------------------
Michael 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.
Chairman of the Board,
/s/ Michael Scharf President and Chief Executive March 30, 1999
- ----------------------- Officer
Michael Scharf
Vice President,
Chief Financial and
/s/ Raymond Rozanski Principal Accounting March 30, 1999
- ----------------------- Officer
Raymond Rozanski
/s/ Gilbert D. Scharf Secretary and Director March 30, 1999
- ------------------------
Gilbert D. Scharf
/s/ Frank Archer Director March 30, 1999
- -----------------------
Frank Archer
/s/ Gerald L. Cohn Director March 30, 1999
- -----------------------
Gerald L. Cohn
/s/ Andrew R. Heyer Director March 30, 1999
- -----------------------
Andrew R. Heyer
/s/ Douglas T. Tansill Director March 30, 1999
- ------------------------
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 17, 1999 relating to the
consolidated 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 17, 1999
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
=================================================================================
December 31, 1997 1998
- ---------------------------------------------------------------------------------
Assets
Current:
<S> <C> <C>
Cash and cash equivalents $12,360,083 $ 100,135
Other current assets 1,485,084 1,267,247
- ---------------------------------------------------------------------------------
Total current assets 13,845,167 1,367,382
Property and equipment, net - 136,550
Investment in and net advances to subsidiaries 38,712,201 53,289,297
Other assets, net 675,966 80,352
- ---------------------------------------------------------------------------------
$53,233,334 $54,873,581
=================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 57,246 $ -
Accrued expenses 1,179,686 343,038
- ---------------------------------------------------------------------------------
Total current liabilities 1,236,932 343,038
- ---------------------------------------------------------------------------------
Commitments and contingencies (see Notes 9, 10 and
14 to the consolidated financial statements)
Stockholders' equity (see Notes 2, 8 and 10 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,
9,997,455 issued 9,998 9,998
Additional paid-in capital 50,111,675 50,111,675
Retained earnings 1,874,729 8,384,835
Accumulated other comprehensive income - (1,076,000)
- ---------------------------------------------------------------------------------
51,996,402 57,430,508
Treasury stock, at cost, 485,880 shares - (2,899,965)
- ---------------------------------------------------------------------------------
Total stockholders' equity 51,996,402 54,530,543
- ---------------------------------------------------------------------------------
$53,233,334 $54,873,581
=================================================================================
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
=============================================================================================
Year ended December 31, 1996 1997 1998
- ---------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C>
Management fees from subsidiaries (Note 2) $ 450,000 $1,125,000 $1,350,000
Expenses:
Selling, general and administrative expenses 1,014,496 1,217,817 2,405,744
- ---------------------------------------------------------------------------------------------
(564,496) (92,817) (1,055,744)
Other income:
Equity in net income of subsidiaries 1,314,218 1,910,600 7,040,774
Interest income 74,338 94,535 172,076
- ---------------------------------------------------------------------------------------------
Income before income tax recoveries 824,060 1,912,318 6,157,106
Income Tax Recoveries 239,800 - 353,000
- ---------------------------------------------------------------------------------------------
Net income $1,063,860 $1,912,318 $6,510,106
=============================================================================================
Earnings per share (basic):
- ---------------------------------------------------------------------------------------------
Net income per share (basic) $ 0.30 $ 0.45 $ 0.66
=============================================================================================
Earnings per share (diluted):
- ---------------------------------------------------------------------------------------------
Net income per share (diluted) $ 0.30 $ 0.38 $ 0.64
=============================================================================================
Weighted average common shares outstanding
(see note 15 to the consolidated
financial statements):
basic 3,602,818 4,246,925 9,879,528
diluted 3,602,818 5,095,350 10,249,954
=============================================================================================
See accompanying notes to condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF STOCKHOLDERS' EQUITY
==========================================================================================================================
Years ended December 31, 1996, 1997 and 1998
- --------------------------------------------------------------------------------------------------------------------------
Common stock Accumulated
---------------------- Additional Retained other Treasury
Number of paid-in earnings comprehensive stock,
shares Amount capital (deficit) income at cost Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,500,000 $3,500 $15,560,296 $(1,101,449) $ - $ - $14,462,347
Shares issued 168,750 169 (169) - - - -
Net income for the year - - - 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 for the year - - - 1,912,318 - - 1,912,318
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 9,997,455 9,998 50,111,675 1,874,729 - - 51,996,402
- ------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for the year - - - 6,510,106 - - 6,510,106
Minimum pension liability
adjustment ($1,764,000, net
of tax benefit of $688,000) - - - - (1,076,000) - (1,076,000)
- ------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 5,434,106
- ------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, at
cost (c) - - - - - (2,899,965) (2,899,965)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 9,997,455 $9,998 $50,111,675 $8,384,835 $(1,076,000) $(2,899,965) $54,530,543
==========================================================================================================================
- ----------------------
(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.
(c) During the year ended December 31, 1998, Niagara repurchased 485,880 shares of its Common Stock at a cost
of $2,899,965. The shares repurchased are held as treasury stock.
==========================================================================================================================
See accompanying notes to condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
NIAGARA CORPORATION
AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
=======================================================================================
Year ended December 31, 1996 1997 1998
- ---------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $1,063,860 $1,912,318 $6,510,106
- ---------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization 17,112 19,622 18,204
Equity in net income of subsidiaries (1,314,218 (1,910,600) (7,040,774)
(Increase) decrease in other assets (158,537) (1,824,065) 688,837
Increase (decrease) in accounts
payable and accrued expenses 238,792 587,107 (1,246,787)
- ----------------------------------------------------------------------------------------
Total adjustments (1,216,851) (3,127,936) (7,580,520)
- ----------------------------------------------------------------------------------------
Net cash used in operating activities (152,991) (1,215,618) (1,070,414)
- ----------------------------------------------------------------------------------------
Cash flows from investing activities
Acquisition of property and equipment - - (137,140)
Investment in subsidiaries, net - (21,400,000) -
Advances, subsidiaries (619,200) 368,275 (8,152,429)
- ---------------------------------------------------------------------------------------
Net cash used in investing activities (619,200) (21,031,725) (8,289,569)
- ----------------------------------------------------------------------------------------
Cash Flows from financing activities:
Proceeds from exercise of Warrants - 33,236,445 -
Payments to acquire Treasury Stock - - (2,899,965)
- ----------------------------------------------------------------------------------------
Net Cash Provided by (used in)
financing activities - 33,236,445 (2,899,965)
- ----------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash
Equivalents (772,191) 10,989,102 (12,259,948)
Cash and Cash Equivalents, Beginning of Year 2,143,172 1,370,981 12,360,083
- ----------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $1,370,981 $12,360,083 $ 100,135
</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")
Policy pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain
information 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, 1996, 1997 and 1998, $450,000,
$1,125,000 and $1,350,000, respectively, of such
management fees were included as revenues in the
accompanying condensed financial statement 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, 1996, 1997 and 1998
- -----------------------------------------------------------------------------------------
Additions
-----------------------
Balance at Charged to Balance at
beginning costs and end of
of year Other expenses Deductions year
- ---------------------------- ----------- ----------- ----------- ------------ -----------
December 31, 1998:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $ 727,000 $ - $ 62,000 $ - $ 789,000
=========================================================================================
December 31, 1997:
Allowance for doubtful
accounts $ 233,000 $397,000(2) $101,000 $ 4,000(3) $ 727,000
=========================================================================================
December 31, 1996:
Allowance for doubtful
accounts $ 184,000 $168,000(1) $ 51,000 $170,000(3) $ 233,000
=========================================================================================
- ------------------
(1) Balance in allowance for doubtful accounts for Southwest at date of acquisition
(January 31, 1996).
(2) Balance in allowance for doubtful accounts for LaSalle at date of acquisition
(April 1, 1997).
(3) Accounts written off.
=========================================================================================
</TABLE>
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 Third Amendment to the Credit Agreement, effective May 15, 1998.
4.9 Fourth Amendment to the Credit Agreement, effective as of
December 1, 1998.
++++++4.10 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.
++++++4.11 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.
4.12 Amended and Restated Promissory Note, dated December 15, 1998,
made by Gilbert D. Scharf in favor of Niagara Corporation.
!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 Employment Agreement, dated August 16, 1995, between
International Metals Acquisition Corporation, Niagara
Cold Drawn Corp. and Frank Archer.
10.3 Employment Agreement, dated August 16, 1995, between
International Metals Acquisition Corporation, Niagara
Cold Drawn Corp. and Raymond Rozanski.
!!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, dated May 15, 1996, 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 Second Amendment to the Niagara Corporation 1995 Stock Option
Plan, dated June 8, 1998.
++10.10 Niagara Corporation Employee Stock Purchase Plan.
++++++10.11 Stock Purchase Agreement, dated April 18, 1997, by and among the
Registrant, Niagara Cold Drawn Corp. and Quanex Corporation.
10.12 First Amendment to Lease, dated May 4, 1998, between Niagara
LaSalle Corporation and North American Royalties, Inc.
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 Annexes to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on July 7,
1998.
+++ Incorporated by reference to exhibits filed with the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1997.
* 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 4.8 to the Registrant's Report
on Form 10-Q for the quarter ended June 30, 1998.
+++++ 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.
EXHIBIT 4.9
FOURTH 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 1, 1998
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"), 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 administrative,
collateral and documentation agent (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 Original Agreement by
assignment of portions of the credit commitments of various parties thereto
(M&T, CIBC, National, Prudential and NBC being collectively 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 described in the First Amendment) under the credit
facilities provided in the Original Agreement; and
WHEREAS, the Borrowers, the Banks and the Agent amended the
Original Agreement with a Second Amendment dated as of December 31, 1997
(the "Second Amendment") for the purpose, among other things, of permitting
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 Original
Agreement), and to revise the terms of the Original Agreement with respect
to dividends; and
WHEREAS, the Borrowers, the Banks and the Agent amended the
Original Agreement with a Third Amendment effective as of May 15, 1998 (the
"Third Amendment") (the Original Agreement together with the First
Amendment, the Second Amendment and the Third Amendment to be collectively
referred to as the "Credit Agreement") for the purpose, among other things,
of reducing the interest payable with respect to "LIBOR Rate Loans" (as
defined in the Credit Agreement), and to provide for the further reduction
of the interest payable with respect to LIBOR Rate Loans upon the
conclusion of a new union agreement covering employees in Hammond, Indiana;
and
WHEREAS, the Borrowers have requested the Agents and the Banks
to amend certain provisions of the Credit Agreement to increase by One
Million Dollars ($1,000,000) the amount of permitted "Capital Expenditures"
(as defined in the Credit Agreement) that may be made by the Borrowers in
any "Fiscal Year" (as defined in the Credit Agreement).
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Section 6.4 shall be deleted in its entirety and replaced
with the following:
6.4 Capital Expenditures. Make or incur any obligation to
make Capital Expenditures exceeding Seven Million Dollars
($7,000,000) in the aggregate for the Borrowers and their
Subsidiaries during any Fiscal Year.
2. This Fourth Amendment shall be effective as of December 1,
1998.
3. All capitalized terms used herein, unless otherwise defined
herein, have the same meaning provided therefor in the Credit Agreement.
4. 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 Fourth Amendment.
5. The Borrowers hereby represent and warrant, jointly and
severally, that upon giving effect to the terms and provisions of this
Fourth Amendment no default or Event of Default shall have occurred and be
continuing under the terms of the Credit Agreement.
6. This Fourth Amendment may be executed by one or more of the
parties to this Fourth 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 Fourth
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/ Ihor Zaluckyj
---------------------------
Name: Ihor Zaluckyj
Title: Executive Director
CIBC Oppenheimer Corp., AS AGENT
NATIONAL CITY BANK
By: /s/ Joshua R. Sosland
--------------------------
Name: Joshua R. Sosland
Title: Account Officer
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/ R. Uhrig
---------------------------
Name: R. Uhrig
Title: Vice President and Manager
By: /s/ Michael Brace
-----------------------------
Name: Michael Brace
Title: Marketing Officer
MANUFACTURERS AND TRADERS TRUST
COMPANY, AS AGENT
By: /s/ Robert J. Kush
--------------------------
Name: Robert J. Kush
Title: Vice President
EXHIBIT 4.12
AMENDED AND RESTATED
PROMISSORY NOTE
$500,000 December 15, 1998
FOR VALUE RECEIVED, the undersigned, Gilbert D. Scharf (the
"Maker"), hereby promises to pay to the order of Niagara Corporation (the
"Payee"), the principal amount of Five Hundred Thousand Dollars ($500,000),
together with interest thereon as provided herein, payable at such location
and on such dates as are set forth below.
Interest on the unpaid principal amount hereof shall accrue at
the rate of five and 68/100 percent (5.68%) per annum from and after
December 8, 1998. Interest shall be payable, with respect to any principal
amounts paid or prepaid, at the time of such payment or prepayment.
The principal and interest on this Amended and Restated
Promissory Note are payable in full on December 4, 1999, provided, however,
that the Maker may, at any time, prepay all or part of the unpaid principal
amount hereof without premium or penalty.
The Maker shall make installment payments of principal within
five (5) days following the sale of any shares of Niagara Common Stock
owned by him (including through living trusts) made from and after the date
hereof until this Note shall have been paid in full in amounts equal to the
proceeds from such sales.
Payments of principal and interest are to be made in lawful
money of the United States of America to 667 Madison Avenue, 11th Floor,
New York, New York 10021 or as the Payee may designate in writing to the
Maker.
If any voluntary or involuntary proceeding shall be commenced
seeking to have an order for relief entered against the Maker as a debtor
or to adjudicate the Maker a bankrupt or insolvent, or seeking
reorganization, adjustment, liquidation, dissolution or composition of the
Maker or the Maker's debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking appointment of
a receiver or trustee for the Maker, and such proceeding shall remain
undismissed and unstayed for a period of sixty (60) days after the Maker
has received notice thereof, then the unpaid principal amount of this
Amended and Restated Promissory Note and all interest accrued to such date
shall become immediately due and payable without the necessity of any
presentment, demand, protest or any other notice of any kind, all of which
are hereby expressly waived by the Maker.
This Amended and Restated Promissory Note shall bind the Maker
and his successors and assigns and shall inure to the benefit of the Payee
and its successors and assigns.
No delay, omission or waiver on the part of the Payee in
exercising any right hereunder shall operate as a waiver of such right or
any other right of the Payee at the same or at any prior or subsequent
time.
No amendment, modification or waiver of this Amended and
Restated Promissory Note, nor consent to any departure therefrom, shall be
effective unless in writing and signed by the Payee.
This Amended and Restated Promissory Note shall be construed in
accordance with and governed by the laws of the State of New York without
regard to its conflicts of law principles.
This Amended and Restated Promissory Note is being issued by
the Maker to the Payee in exchange for the Promissory Note issued by the
Maker to the Payee dated December 5, 1997 in the principal amount of
$600,000.
IN WITNESS WHEREOF, this Amended and Restated Promissory Note
has been duly executed and delivered by the undersigned on the date first
written above.
/s/ Gilbert D. Scharf
---------------------------------
Gilbert D. Scharf
EXHIBIT 10.2
August 16, 1995
Frank Archer
68 Brier Hill Road
Orchard Park, New York 14127
Dear Frank:
This letter (this "Agreement") will confirm that International
Metals Acquisition Corporation ("IMAC") has offered and you have accepted
the position of President of Niagara Cold Drawn Corp. (the "Company") on
the terms and conditions set forth below.
1. The term of your employment shall commence on the date
hereof and continue for a period of five (5) years (the "Employment
Period"), unless sooner terminated pursuant to the provisions set forth
below.
2. You agree to use your best efforts to promote the interests
of the Company and to devote your full business time and energies to the
business and affairs of the Company. You agree to perform such services as
are customary to your position and as shall from time to time be assigned
to you by the Board of Directors of the Company (the "Board") or its
designees.
3. While employed by the Company, your annual salary shall be
no less than $175,000.00, less applicable federal, state and local
deductions, payable in accordance with the Company's customary payroll
practices. Beginning in 1997, your annual salary shall be increased each
year while you are employed by the Company, effective as of each January 1,
by the percentage, if any, by which the Consumer Price Index for all urban
consumers in all cities (as published in the BNA Labor Relations Reporter)
(the "CPI") shall have risen during the immediately preceding calendar
year. If, as of any such January 1, the CPI for the previous year is
unavailable, your salary shall be adjusted retroactively when such CPI
becomes available.
4. While employed by the Company, you shall be eligible to
participate in all Company employee benefit plans and arrangements (the
"Plans"), including medical and dental plans of the Company, which are made
generally available to employees of the Company, in accordance with the
terms and provisions thereof. In the event that at any time while you are
employed by the Company, the Plans, as then in effect, provide benefits to
you which are not substantially equivalent to the benefits which you
currently enjoy (your "Current Benefits"), the Company shall provide you
with additional benefits such that your aggregate benefits while employed
by the Company are substantially equivalent to your Current Benefits.
5. While employed by the Company, the Company shall (i) furnish
you with a luxury automobile in accordance with the policies of the Company
as established by the Board, (ii) reimburse you for all Company related
business expenses in connection with the use of such automobile and (iii)
pay your membership dues in a country club. In addition, while employed by
the Company, you shall receive life insurance coverage and other fringe
benefits at least as favorable to those benefits enjoyed by you and your
family as of the date hereof, and shall receive such other fringe benefits
provided to the executive officers of the Company that may be authorized
from time to time by the Board in its sole discretion.
6. You shall be entitled to three weeks of paid vacation for
each calendar year you are employed by the Company hereunder (prorated for
any portion of a calendar year).
7. While employed by the Company, the Company shall reimburse
you for reasonable business expenses incurred by you on behalf of the
Company in the performance of your responsibilities and duties under this
Agreement.
8. (a) Imediately following the execution of this Agreement,
and subject to stockholder approval of the 1995 IMAC Stock Option Plan 'the
"Option Plan"), you shall be granted incentive stock options to purchase
200,000 shares of IMAC Common Stock, par value $0.001 per share, pursuant
to such plan (the "ISOs"). IMAC shall submit the Option Plan for
stockholder approval at the next meeting of its stockholders. The Option
Plan (and your related Stock Option Agreement) shall provide for ISOs on
terms consistent with the terms described herein. The exercise price of the
ISOs shall be the greater of (i) $5.50 per share or (ii) the fair market
value of the underlying shares as of the date of grant (as defined in the
Option Plan). Subject to stockholder approval, twenty percent (20%) of the
ISOs shall vest and become exercisable on the date of grant, and subject to
the provisions of paragraph 11 hereof, an additional 20% shall vest and
become exercisable on each of the next four anniversaries of the date of
grant. Notwithstanding the prior sentence, and subject to initial
stockholder approval of the Option Plan, in the event of a change in
control of the Company (as defined in the Option Plan), all outstanding
ISOs shall immediately vest and become exercisable. Unless exercised
pursuant to this paragraph 8 or cancelled pursuant to paragraph 11 hereof,
the ISOs shall expire on the tenth (10th) anniversary of the date of grant.
(b) Following shareholder approval of the Option Plan,
IMAC shall register the shares issuable under such plan and cause such
shares to be reported on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or listed on any national securities
exchange on which shares of IMAC's Common Stock then trade.
9. While employed by the Company, you shall be entitled to cash
bonuses determined by the Compensation Committee of the Board of Directors
of IMAC.
10. (a) IMAC may terminate your employment with the Company at
any time, without prior notice, for any of the following reasons: (i) your
willful failure to follow the reasonable directions communicated to you by
the Board or its designees; (ii) your engaging in conduct which is
materially injurious to IMAC, the Company, their subsidiaries or
affiliates, or any of their respective customer or supplier relationships,
momentarily or otherwise; (iii) your engaging in any act of fraud,
misappropriation or embezzlement or any act which would constitute a
felony; or (iv) your material breach of this Agreement.
(b) If, as a result of your incapacity due to physical or
mental illness, you shall have been absent from the full-time performance
of your duties hereunder for three consecutive months or for four months
within any twelve-month period, your employment with the Company may be
terminated by IMAC without further notice.
(c) IMAC, in its sole discretion, may terminate your employment
with the Company at any time for any reason other than those stated in
paragraphs 10(a) or 10(b) hereof upon thirty (30) days prior written
notice.
11. (a) If your employment with the Company is terminated by
IMAC pursuant to paragraph 10(a) hereof (i) you shall receive your salary
through the date of termination and (ii) (x) all ISOs which are vested and
exercisable as of the date of termination shall remain so for a period of
ninety (90) days from such date, after which all such ISOs that have not
theretofore been exercised shall be cancelled and forfeited and (y) all
other ISOs shall be cancelled and forfeited effective as of the date of
termination. Except as set forth in this paragraph 11(a), neither IMAC nor
the Company shall have any further obligations to you under this Agreement.
(b) If your employment with the Company is terminated by
IMAC pursuant to paragraph 10(b) hereof or by your death (i) you (or your
personal representative, guardian or the representative of your estate)
shall continue to receive your salary (offset by any payments you receive
pursuant to the Company's disability plans and arrangements) through the
end of the Employment Period or for a period of six months, whichever is
shorter, payable in accordance with the Company's customary payroll
practices and (ii) (x) all ISOs which are vested and exercisable as of the
date of termination shall remain so through the end of the Employment
Period or for a period of six months, whichever is shorter, after which all
such ISOs that have not theretofore been exercised shall be cancelled and
forfeited and (y) all other ISOs shall be cancelled and forfeited effective
as of the date of termination. Except as set forth in this paragraph 11(b),
neither IMAC nor the Company shall have any further obligations to you,
your estate, personal representative, guardian, or your beneficiaries under
this Agreement.
(c) If your employment with the Company is terminated by
IMAC pursuant to paragraph 10(c) hereof, (i) you shall continue to receive
your salary (including any increases in such salary arising pursuant to
increases in the CPI in the manner set forth in paragraph 3 hereof) through
the end of the Employment Period, payable in accordance with the Company's
customary payroll practices, (ii) subject to your compliance with
paragraphs 12(c) and 12(d) hereof, you shall receive an amount equal to
one-half of your annual base salary (as in effect immediately prior to your
date of termination), payable over the one-year period following the
expiration of the Employment Period in accordance with the Company's
customary payroll practices, (iii) you shall continue to participate in the
Plans and receive life insurance coverage, in accordance with paragraphs 4
and 5 hereof and to the extent permissible under the terms of such plans,
through the end of the Employment Period, (iv) be furnished with an
automobile pursuant to paragraph 5 hereof through the end of the Employment
Period, (v) be reimbursed for your membership dues in a country club
through the end of the Employment Period and (vi)(x) all outstanding ISOs
granted pursuant to this Agreement shall immediately vest and become
exercisable and (y) all such ISOs which have not theretofore been exercised
shall cancel and be forfeited one year thereafter. Except as set forth in
this paragraph 11(c), neither IMAC nor the Company shall have any further
obligations to you under this Agreement.
(d) During the period you are receiving any payments or
benefits under paragraph 11(c) hereof, you agree promptly to notify IMAC
upon your acceptance of any other employment. During any such other
employment, upon your eligibility for any employee benefits provided by
your new employer, you shall no longer be eligible to participate in any
Plans or other Company benefit arrangements.
12. (a) You acknowledge that during your employment with the
Company or any of its subsidiaries, you may have had, or may have, access
to confidential information with respect to all of the lines of business of
the Company, including product information, information concerning
customers, brokers, suppliers, and other confidential information relating
to the development, manufacture, storage, shipment, marketing and sale of
products by the Company (all such information, other than information which
at the time is generally available to others in the industry or generally
known to the public other than as a result of a disclosure by you, is
hereinafter referred to as "Confidential Information"). You agree that
except as required by your duties under this Agreement (or except as
authorized in writing by IMAC or required pursuant to legal or
administrative process) you will not use or disclose to anyone at any time
during or after the Employment Period any Confidential Information obtained
by you in the course of your employment with the Company.
(b) You will not, so long as you are employed by the
Company, engage in Competition with the Company. For purposes of this
Agreement, "Competition" by you shall mean your engaging in, or otherwise
directly or indirectly being employed by or acting as a consultant or
lender to, or being a director, officer, employee, principal, agent,
stockholder, member, owner or partner of, or permitting your name to be
used in connection with the activities of any other business or
organization anywhere in the United States which competes, directly or
indirectly, with the business of (i) the company or (ii) any other business
of IMAC in which you become actively involved, in each case as the same
shall be constituted at any time during your employment; provided, however,
that for purposes of this Agreement, "Competition" shall not include your
holding passive investments of not more than 1% of the outstanding shares
of any entity reported, listed or traded on NASDAQ or on a national
securities exchange.
(c) For the period provided in paragraph 12(d) hereof, you
will not, directly or indirectly, on your behalf or for the benefit of any
other person or entity do any of the following: (i) engage in Competition;
(ii) solicit, accept any business from, or perform any services for, any
customer of the Company which is or was a customer of the Company at the
time of such termination or was a customer of the Company at any time
within one year prior to such termination; (iii) cause or induce or attempt
to cause or induce any customer or supplier of the Company to withdraw any
business from the Company; (iv) solicit or accept from any prospective
customer or supplier of the Company any business or service which was
solicited on behalf of the Company by you, or by any other employee of the
Company; (v) cause or induce or attempt to cause or induce any employee of
the Company to terminate his or her employment with the Company, or advise
or recommend to any other person that they employ or solicit for employment
any employee of the Company; or (vi) otherwise interfere with the business
or accounts of the Company.
(d) The covenants set forth in paragraph 12(c) hereof
shall terminate (i) in the event your employment with the Company is
terminated by you, one year after the expiration of the Employment Period
or three years after such termination, whichever is shorter, (ii) in the
event your employment with the Company is terminated pursuant to paragraphs
10(b) or 10(c) hereof, one year after the payments in respect of your
salary thereunder (excluding payments made pursuant to paragraph 11(c)(ii)
hereof) are discontinued and (iii) in the event your employment with the
Company is terminated pursuant to paragraph 10(a) of this Agreement, one
year after the expiration of the Employment Period.
(e) You acknowledge that the services to be rendered by
you to the Company are of a unique, special and extraordinary character,
which gives this Agreement a peculiar value to the Company, the loss of
which may not be reasonably or adequately compensated for by damages in an
action at law, and that a material breach or threatened breach by you of
any of the provisions contained in this paragraph 12 will cause the Company
irreparable injury. You therefore agree that the Company shall be entitled,
in addition to any other right or remedy, to a temporary, preliminary and
permanent injunction, without the necessity of proving the inadequacy of
monetary damages or the posting of any bond or security, enjoining or
restraining you from any such violation or threatened violation.
(f) You acknowledge and agree that the enforcement of the
covenants in this paragraph 12 will not deprive you of your ability to earn
a livelihood. You further acknowledge and agree that due to the uniqueness
of your services and the confidential nature of the information you will
possess, the covenants set forth herein are reasonable and necessary for
the protection of the business and the goodwill of the Company.
13. Any notices required by this Agreement shall be in writing
and shall be deemed to have been given when delivered or mailed by United
States certified mail, return receipt requested, postage prepaid, as
follows:
if to Frank Archer:
68 Brier Hill Road
Orchard Park, New York 14127
if to IMAC:
Michael Scharf
President
International Metals Acquisition
Corporation
667 Madison Avenue
New York, New York 10021
or to such other address as either party may furnish to the other in
writing in accordance with this paragraph. Notices of change of address
shall only be effective upon receipt.
14. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its
conflict of laws principles.
15. This Agreement sets forth the entire agreement and
understanding of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements, arrangements and understandings
among any of the Company, IMAC and you with respect to such subject matter.
This Agreement can be modified only by a writing signed by both you and
IMAC. If any provision of this Agreement shall be held to be void or
unenforceable, the remainder of this Agreement shall nevertheless remain in
full force and effect. This Agreement shall inure to the benefit of and be
binding upon IMAC's successors and assigns.
If this letter correctly sets forth our agreement regarding
your employment with the Company, please execute the enclosed duplicate
copy and return such copy to IMAC.
Very truly yours,
International Metals
Acquistion Corporation
By: /s/ Michael Scharf
-----------------------
Michael Scharf
President
Niagara Cold Drawn
Corp.
By: /s/ Michael Scharf
------------------------
Michael Scharf
Chairman
Agreed to this 16th day
of August 1995
/s/ Frank Archer
- -------------------------
Frank Archer
EXHIBIT 10.3
August 16, 1995
Raymond Rozanski
11 New Amsterdam Avenue
Buffalo, New York 14216
Dear Ray:
This letter (this "Agreement") will confirm that International
Metals Acquisition Corporation ("IMAC") has offered and you have accepted
the position of Executive Vice President of Niagara Cold Drawn Corp. (the
"Company") on the terms and conditions set forth below.
1. The term of your employment shall commence on the date
hereof and continue for a period of five (5) years (the "Employment
Period"), unless sooner terminated pursuant to the provisions set forth
below.
2. You agree to use your best efforts to promote the interests
of the Company and to devote your full business time and energies to the
business and affairs of the Company. You agree to perform such services as
are customary to your position and as shall from time to time be assigned
to you by the Board of Directors of the Company (the "Board") (or its
designees) or the President of the Company.
3. While employed by the Company, your annual salary shall be
no less than $175,000.00, less applicable federal, state and local
deductions, payable in accordance with the Company's customary payroll
practices. Beginning in 1997, your annual salary shall be increased each
year while you are employed by the Company, effective as of each January 1,
by the percentage, if any, by which the Consumer Price Index for all urban
consumers in all cities (as published in the BNA Labor Relations Reporter)
(the "CPI") shall have risen during the immediately preceding calendar
year. If, as of any such January 1, the CPI for the previous year is
unavailable, your salary shall be adjusted retroactively when such CPI
becomes available.
4. While employed by the Company, you shall be eligible to
participate in all Company employee benefit plans and arrangements (the
"Plans"), including medical and dental plans of the Company, which are made
generally available to employees of the Company, in accordance with the
terms and provisions thereof. In the event that at any time while you are
employed by the Company, the Plans, as then in effect, provide benefits to
you which are not substantially equivalent to the benefits which you
currently enjoy (your "Current Benefits"), the Company shall provide you
with additional benefits such that your aggregate benefits while employed
by the Company are substantially equivalent to your Current Benefits.
5. While employed by the Company, the Company shall (i) furnish
you with a luxury automobile in accordance with the policies of the Company
as established by the Board, (ii) reimburse you for all Company related
business expenses in connection with the use of such automobile and (iii)
pay your membership dues in a country club (including your initiation fee
therein). In addition, while employed by the Company, you shall receive
life insurance coverage and other fringe benefits at least as favorable to
those benefits enjoyed by you and your family as of the date hereof, and
shall receive such other fringe benefits provided to the executive officers
of the Company that may be authorized from time to time by the Board in its
sole discretion.
6. You shall be entitled to three weeks of paid vacation for
each calendar year you are employed by the Company hereunder (prorated for
any portion of a calendar year).
7. While employed by the Company, the Company shall reimburse
you for reasonable business expenses incurred by you on behalf of the
Company in the performance of your responsibilities and duties under this
Agreement.
8. (a) Immediately following the execution of this Agreement,
and subject to stockholder approval of the 1995 IMAC Stock Option Plan (the
"Option Plan"), you shall be granted incentive stock options to purchase
200,000 shares of IMAC Common Stock, par value $0.001 per share, pursuant
to such plan (the "ISOs"). IMAC shall submit the Option Plan for
stockholder approval at the next meeting of its stockholders. The Option
Plan (and your related Stock Option Agreement) shall provide for ISOs on
terms consistent with the terms described herein. The exercise price of the
ISOs shall be the greater of (i) $5.50 per share or (ii) the fair market
value of the underlying shares as of the date of grant (as defined in the
Option Plan). Subject to stockholder approval, twenty percent (20%) of the
ISOs shall vest and become exercisable on the date of grant, and subject to
the provisions of paragraph 11 hereof, an additional 20% shall vest and
become exercisable on each of the next four anniversaries of the date of
grant. Notwithstanding the prior sentence, and subject to initial
stockholder approval of the Option Plan, in the event of a change in
control of the Company (as defined in the Option Plan), all outstanding
ISOs shall immediately vest and become exercisable. Unless exercised
pursuant to this paragraph 8 or cancelled pursuant to paragraph 11 hereof,
the ISOs shall expire on the tenth (10th) anniversary of the date of grant.
(b) Following shareholder approval of the Option Plan,
IMAC shall register the shares issuable under such plan and cause such
shares to be reported on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or listed on any national securities
exchange on which shares of IMAC's Common Stock then trade.
9. While employed by the Company, you shall be entitled to cash
bonuses determined by the Compensation Committee of the Board of Directors
of IMAC.
10. (a) IMAC may terminate your employment with the Company at
any time, without prior notice, for any of the following reasons: (i) your
willful failure to follow the reasonable directions communicated to you by
the Board or its designees or by the President of the Company; (ii) your
engaging in conduct which is materially injurious to IMAC, the Company,
their subsidiaries or affiliates, or any of their respective customer or
supplier relationships, monetarily or otherwise; (iii) your engaging in any
act of fraud, misappropriation or embezzlement or any act which would
constitute a felony; or (iv) your material breach of this Agreement.
(b) If, as a result of your incapacity due to physical or
mental illness, you shall have been absent from the full-time performance
of your duties hereunder for three consecutive months or for four months
within any twelve-month period, your employment with the Company may be
terminated by IMAC without further notice.
(c) IMAC, in its sole discretion, may terminate your
employment with the Company at any time for any reason other than those
stated in paragraphs 10(a) or 10(b) hereof upon thirty (30) days prior
written notice.
11. (a) If your employment with the Company is terminated by
IMAC pursuant to paragraph 10(a) hereof (i) you shall receive your salary
through the date of termination and (ii) (x) all ISOs which are vested and
exercisable as of the date of termination shall remain so for a period of
ninety (90) days from such date, after which all such ISOs that have not
theretofore been exercised shall be cancelled and forfeited and (y) all
other ISOs shall be cancelled and forfeited effective as of the date of
termination. Except as set forth in this paragraph 11(a), neither IMAC nor
the Company shall have any further obligations to you under this Agreement.
(b) If your employment with the Company is terminated by
IMAC pursuant to paragraph 10(b) hereof or by your death (i) you (or your
personal representative, guardian or the representative of your estate)
shall continue to receive your salary (offset by any payments you receive
pursuant to the Company's disability plans and arrangements) through the
end of the Employment Period or for a period of six months, whichever is
shorter, payable in accordance with the Company's customary payroll
practices and (ii) (x) all ISOs which are vested and exercisable as of the
date of termination shall remain so through the end of the Employment
Period or for a period of six months, whichever is shorter, after which all
such ISOs that have not theretofore been exercised shall be cancelled and
forfeited and (y) all other ISOs shall be cancelled and forfeited effective
as of the date of termination. Except as set forth in this paragraph 11(b),
neither IMAC nor the Company shall have any further obligations to you,
your estate, personal representative, guardian, or your beneficiaries under
this Agreement.
(c) If your employment with the Company is terminated by
IMAC pursuant to paragraph 10(c) hereof, (i) you shall continue to receive
your salary (including any increases in such salary arising pursuant to
increases in the CPI in the manner set forth in paragraph 3 hereof) through
the end of the Employment Period, payable in accordance with the Company's
customary payroll practices, (ii) subject to your compliance with
paragraphs 12(c) and 12(d) hereof, you shall receive an amount equal to
one-half of your annual base salary (as in effect immediately prior to your
date of termination), payable over the one-year period following the
expiration of the Employment Period in accordance with the Company's
customary payroll practices, (iii) you shall continue to participate in the
Plans and receive life insurance coverage, in accordance with paragraphs 4
and 5 hereof and to the extent permissible under the terms of such plans,
through the end of the Employment Period, (iv) be furnished with an
automobile pursuant to paragraph 5 hereof through the end of the Employment
Period, (v) be reimbursed for your membership dues in a country club
through the end of the Employment Period and (vi)(x) all outstanding ISOs
granted pursuant to this Agreement shall immediately vest and become
exercisable and (y) all such ISOs which have not theretofore been exercised
shall cancel and be forfeited one year thereafter. Except as set forth in
this paragraph 11(c), neither IMAC nor the Company shall have any further
obligations to you under this Agreement.
(d) During the period you are receiving any payments or
benefits under paragraph 11(c) hereof, you agree promptly to notify IMAC
upon your acceptance of any other employment. During any such other
employment, upon your eligibility for any employee benefits provided by
your new employer, you shall no longer be eligible to participate in any
Plans or other Company benefit arrangements.
12. (a) You acknowledge that during your employment with the
Company or any of its subsidiaries, you may have had, or may have, access
to confidential information with respect to all of the lines of business of
the Company, including product information, information concerning
customers, brokers, suppliers, and other confidential information relating
to the development, manufacture, storage, shipment, marketing and sale of
products by the Company (all such information, other than information which
at the time is generally available to others in the industry or generally
known to the public other than as a result of a disclosure by you, is
hereinafter referred to as "Confidential Information"). You agree that
except as required by your duties under this Agreement (or except as
authorized in writing by IMAC or required pursuant to legal or
administrative process) you will not use or disclose to anyone at any time
during or after the Employment Period any Confidential Information obtained
by you in the course of your employment with the Company.
(b) You will not, so long as you are employed by the
Company, engage in Competition with the Company. For purposes of this
Agreement, "Competition" by you shall mean your engaging in, or otherwise
directly or indirectly being employed by or acting as a consultant or
lender to, or being a director, officer, employee, principal, agent,
stockholder, member, owner or partner of, or permitting your name to be
used in connection with the activities of any other business or
organization anywhere in the United States which competes, directly or
indirectly, with the business of (i) the Company or (ii) any other business
of IMAC in which you become actively involved, in each case as the same
shall be constituted at any time during your employment; provided, however,
that for purposes of this Agreement, "Competition" shall not include your
holding passive investments of not more than 1% of the outstanding shares
of any entity reported, listed or traded on NASDAQ or on a national
securities exchange.
(c) For the period provided in paragraph 12(d) hereof, you
will not, directly or indirectly, on your behalf or for the benefit of any
other person or entity do any of the following: (i) engage in Competition;
(ii) solicit, accept any business from, or perform any services for, any
customer of the Company which is or was a customer of the Company at the
time of such termination or was a customer of the Company at any time
within one year prior to such termination; (iii) cause or induce or attempt
to cause or induce any customer or supplier of the Company to withdraw any
business from the Company; (iv) solicit or accept from any prospective
customer or supplier of the Company any business or service which was
solicited on behalf of the Company by you, or by any other employee of the
Company; (v) cause or induce or attempt to cause or induce any employee of
the Company to terminate his or her employment with the Company, or advise
or recommend to any other person that they employ or solicit for employment
any employee of the Company; or (vi) otherwise interfere with the business
or accounts of the Company.
(d) The covenants set forth in paragraph 12(c) hereof
shall terminate in the event your employment with the Company is terminated
by you, one year after the expiration of the Employment Period or three
years after such termination, whichever is shorter, (ii) in the event your
employment with the Company is terminated pursuant to paragraphs 10(b) or
10(c) hereof, one year after the payments in respect of your salary
thereunder (excluding payments made pursuant to paragraph 11(c)(ii) hereof)
are discontinued and (iii) in the event your employment with the Company is
terminated pursuant to paragraph 10(a) of this Agreement, one year after
the expiration of the Employment Period.
(e) You acknowledge that the services to be rendered by
you to the Company are of a unique, special and extraordinary character,
which gives this Agreement a peculiar value to the Company, the loss of
which may not be reasonably or adequately compensated for by damages in an
action at law, and that a material breach or threatened breach by you of
any of the provisions contained in this paragraph 12 will cause the Company
irreparable injury. You therefore agree that the Company shall be entitled,
in addition to any other right or remedy, to a temporary, preliminary and
permanent injunction, without the necessity of proving the inadequacy of
monetary damages or the posting of any bond or security, enjoining or
restraining you from any such violation or threatened violation.
(f) You acknowledge and agree that the enforcement of the
covenants in this paragraph 12 will not deprive you of your ability to earn
a livelihood. You further acknowledge and agree that due to the uniqueness
of your services and the confidential nature of the information you will
possess, the covenants set forth herein are reasonable and necessary for
the protection of the business and the goodwill of the Company.
13. Any notices required by this Agreement shall be in writing
and shall be deemed to have been given when delivered or mailed by United
States certified mail, return receipt requested, postage prepaid, as
follows:
if to Raymond Rozanski:
11 New Amsterdam Avenue
Buffalo, New York 14216
if to IMAC:
Michael Scharf
President
International Metals Acquisition
Corporation
667 Madison Avenue
New York, New York 10021
or to such other address as either party may furnish to the other in
writing in accordance with this paragraph. Notices of change of address
shall only be effective upon receipt.
14. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its
conflict of laws principles.
15. This Agreement sets forth the entire agreement and
understanding of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements, arrangements and understandings
among any of the Company, IMAC and you with respect to such subject matter.
This Agreement can be modified only by a writing signed by both you and
IMAC. If any provision of this Agreement shall be held to be void or
unenforceable, the remainder of this Agreement. shall nevertheless remain
in full force and effect. This Agreement shall inure to the benefit of and
be binding upon IMAC's successors and assigns.
If this letter correctly sets forth our agreement regarding
your employment with the Company, please execute the enclosed duplicate
copy and return such copy to IMAC.
Very truly yours,
International Metals
Acquisition Corporation
By: /s/ Michael Scharf
---------------------------
Michael Scharf
President
Niagara Cold Drawn
Corp.
By: /s/ Michael Scharf
--------------------------
Michael Scharf
Chairman
Agreed to this 16th day
of August 1995
/s/ Raymond Rozanski
- -------------------------------
Raymond Rozanski
EXHIBIT 10.12
FIRST AMENDMENT TO LEASE
"Extension of Term"
By the mutual execution of this Amendment, the parties hereto agree to
amend the Lease by & between North American Royalties, Inc. ("Landlord")
and Niagara Cold Drawn Corporation ("Tenant") dated March 1, 1988, for the
premises known as 92,746.7 square foot steel building located on land at
3217 Alton Park Boulevard, Chattanooga Tennessee, (the "Lease") as follows:
I. Subject to the provisions of Articles II, III, and IV hereof, the
term of the Lease shall be extended for a period of eleven and
one-half (11 & 1/2) years, to commence on June 1, 1998 and end on
November 30, 2009 (the "Initial Extension Term"), at the rental rates
set forth below:
A. No rent shall be due for the first eighteen (18) months of the
Initial Extension Term (June 1, 1998 through November 30, 1999).
B. Commencing December 1, 1999 and terminating November 30, 2004, Tenant
shall pay Landlord an annual rent of One Hundred Eighty Nine Thousand
Nine Hundred Ninety-Six and 00/100 ($189,996.00) Dollars, in equal
monthly installments of Fifteen Thousand Eight Hundred Thirty-Three
and 00/100 ($15,833.00) Dollars.
C. Commencing December 1, 2004 and terminating November 30, 2009, Tenant
shall pay Landlord and annual rent of One Hundred Ninety-Nine
Thousand Nine Hundred Ninety-Two and 00/100 ($199,992.00) Dollars, in
equal monthly installments of Sixteen Thousand Six Hundred Sixty-Six
and 00/100 ($16,666.00) Dollars.
II. If Tenant has not exercised its right of termination under Article IV
hereof by the expiration of the Initial Extension Term, Tenant shall
have the option to extend the Lease beyond the Initial Extension Term
for an additional five (5) years (the "First Option Term") at the
rental rate set forth below:
Commencing December 1, 2009 and terminating November 30, 2014,
Tenant shall pay Landlord an annual rent of Two Hundred Ten
Thousand and 00/100 ($210,000.00) Dollars, in equal monthly
installments of Seventeen Thousand Five Hundred and 00/100
($17,500.00) Dollars.
III. If Tenant has exercised its option in Article II, above, and has not
exercised its right of termination under Article IV by the expiration
of the First Option Term, Tenant shall have the further option to
extend the Lease for an additional five (5) years (the "Second Option
Term") at the rental rate set forth below:
Commencing December 1, 2014 and terminating November 30, 2019,
Tenant shall pay Landlord an annual rent of Two Hundred
Nineteen Thousand Nine Hundred Ninety-Six and 00/100
($219,996.00) Dollars,
in equal monthly installments of Eighteen Thousand Three
Hundred Thirty-Three and 00/100 ($18,333.00) Dollars.
IV. Notwithstanding any other provision hereof, the Tenant shall have the
right to terminate the Lease at any time after November 30, 2004
during the Initial Extension Term upon payment to Landlord of an
amount determined as follows:
Date of Termination Termination Payment
November 30, 2004 through November 29, 2005 $270,000
November 30, 2005 through November 29, 2006 $216,000
November 30, 2006 through November 29, 2007 $162,000
November 30, 2007 through November 29, 2008 $108,000
On or after November 30, 2008 $ 54,000
Such payment shall be made within fifteen (15) days of the date of
termination. The parties agree that this payment is not a penalty,
but instead represents liquidated damages to Landlord for early
termination of the Lease by Tenant.
V. The name of Tenant shall be changed to Niagara LaSalle
Corporation to reflect the company's name change.
VI. The south and southwest boundaries of Tenant's leased d premises
shall be marginally extended to the limits of Landlord's property (of
which the existing leased premises are a part) at the southwest
corner of the leased premises along the Southern Railroad
Right-of-Way (as indicated on Exhibit "A" hereto). Tenant shall be
allowed to improve this addition to the leased premises by clearing,
grading, paving, fencing, or constructing those improvements deemed
necessary for Tenant's continued business operations, all at Tenant's
sole expense. All such improvements must be done within the limits of
any and all applicable governmental ordinances and/or zoning
requirements.
VII. The cranes and craneways purchased and installed by Landlord for
Tenant's benefit under Article 39 of the Lease is being amortized
over the original term of the Lease and will be fully paid for with
Tenant's May 1998 rent payment. Landlord hereby agrees to execute,
promptly after such payment (i) all such documents as Tenant may
reasonably request, conveying good, valid and marketable title (free
of all liens and encumbrances) to such cranes and craneways and to
deliver the same to Tenant and (ii) an appropriate UCC termination
statement with respect to each of the financing statements and other
liens filed by Landlord with respect to Tenant's interest in such
crane and craneways, and deliver evidence of filing the same to
Tenant.
VIII. Except for the foregoing, the Lease shall remain in full force and
effect in accordance with its terms.
AGREED:
North American Royalties, Inc. Niagara LaSalle Corporation
By: /s/ Harry J. Faulkner III By: /s/ Raymond Rozanski
--------------------------- -------------------------
Title: Vice President-Legal Title: Executive Vice President
Date: 4/30/98 Date: 5/4/98
Witness: /s/ Paul Mallchok Witness: /s/ Ian Cudmore
Exhibit A
Map of Landlord's Property
Intentionally Omitted
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Niagara LaSalle Corporation
LaSalle Steel Company
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THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION 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> Year
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 440,654
<SECURITIES> 0
<RECEIVABLES> 14,149,290
<ALLOWANCES> 789,000
<INVENTORY> 30,131,877
<CURRENT-ASSETS> 45,872,951
<PP&E> 103,119,997
<DEPRECIATION> 13,371,116
<TOTAL-ASSETS> 139,429,020
<CURRENT-LIABILITIES> 25,458,920
<BONDS> 41,572,250
<COMMON> 9,998
0
0
<OTHER-SE> 54,520,545
<TOTAL-LIABILITY-AND-EQUITY> 139,429,020
<SALES> 207,546,526
<TOTAL-REVENUES> 207,546,526
<CGS> 177,339,749
<TOTAL-COSTS> 177,339,749
<OTHER-EXPENSES> 15,644,702
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,153,985
<INCOME-PRETAX> 10,775,106
<INCOME-TAX> 4,265,000
<INCOME-CONTINUING> 6,510,106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,510,106
<EPS-PRIMARY> .66
<EPS-DILUTED> .64
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