UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 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 0-14061
STEEL TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0712014
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15415 Shelbyville Road, Louisville, KY 40245
(Address of principal executive offices)
Registrant's telephone number, including area code 502-245-2110
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days. YES X NO .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendments to this
Form 10-K. [X]
Aggregate market value of the voting stock (which consists solely
of shares of Common Stock) held by non-affiliates of the
registrant as of December 11, 1998, computed by reference to the
closing price of the registrant's Common Stock, as quoted in the
NASDAQ National Market System on such date: $71,571,144.
Number of shares of the registrant's Common Stock outstanding at
December 11, 1998: 11,451,383.
Portions of the registrant's annual report to shareholders for
the fiscal year ended September 30, 1998 are incorporated by
reference into Part II. Portions of the definitive proxy
statement furnished to shareholders of the registrant in
connection with the annual meeting of shareholders to be held on
January 28, 1999 are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
GENERAL
Steel Technologies Inc. ("the Company") was incorporated under
the laws of the state of Kentucky in 1971 as Southern Strip
Steel, Inc. In June 1985, the name of the corporation was
changed to Steel Technologies Inc.
The Company is an intermediate steel processor engaged in the
business of processing flat rolled steel to specified close
tolerances in response to orders from industrial customers who
require steel of precise thickness, width, temper, finish and
shape for their manufacturing purposes. The Company purchases
commercial tolerance steel in coils up to 72 inches in width from
major steel mills, processing it to the precise thickness, width,
temper, finish and shape specified by its customers. The
processed steel is distributed from plants located in Indiana,
Kentucky, Maryland, Michigan, North Carolina, Ohio in the U.S.
and one plant in Mexico. The Company has customers in 35 states
primarily in the East, Midwest and South, as well as into Mexico
and Canada. The Company's principal processed products are: hot-
rolled strip and sheet, high strength low alloy strip and sheet,
hot-rolled pickle and oil and coated strip and sheet, pickling of
hot-rolled black coils, blanking and cut-to-length processing of
coil steel, cold-rolled strip and sheet, cold-rolled one-pass
strip, and high carbon and alloy strip and sheet.
Intermediate steel processors occupy a niche between the primary
steel producers and industrial customers who need processed steel
for their end-product manufacturing purposes. The primary
producers have historically emphasized the sale of commercial
tolerance steel to large volume purchasers and have generally
viewed the intermediate steel processor as an integral part of
this customer base. Furthermore, end-product manufacturers have
increasingly sought to purchase steel with closer tolerances, on
shorter lead times, and with more reliable and more frequent
delivery than the primary producers can efficiently provide.
Additionally, most manufacturers are not willing to commit to the
investment in technology, equipment and inventory required to
further process the steel for use in their manufacturing
operations. These industry forces have created a market in which
the strength of the Company's business is based upon its
capability to process steel to more precise specifications and to
service the steel purchasing and delivery requirements of its
customers more expeditiously than the primary producers.
STEEL PROCESSING
The Company maintains a substantial inventory of coiled steel
purchased from the primary producers and mini-mills. This steel,
purchased as a continuous sheet, typically 36 to 72 inches wide,
between .015 and .625 inches thick, and rolled into a 10 to 25-
ton coil--is known as "commercial tolerance" because its ranges
of thickness, width and temper are established by general
industry standards which may not be of sufficient quality for the
manufacturing purposes of the Company's customers. By purchasing
various kinds of steel in large quantities and at predetermined
intervals, the Company attempts to purchase its raw materials at
the lowest competitive prices for the quality purchased.
Customer orders are entered in a computerized order entry system,
and appropriate inventory is then selected and scheduled for
processing in accordance with the customer's specified delivery
date. The Company attempts to maximize yield from its inventory
by scheduling customer orders to use to the fullest extent
practicable the purchased widths of its coils. One of the first
processing functions involves the pickling of hot rolled black
coil steel. This process is a cleaning process that improves the
quality of hot rolled steel by removing the scale on the surface
of the steel and prepares the hot rolled steel for further
processing. Pickling is performed on both a toll basis as well
as on hot rolled steel which is owned by the Company and will be
further processed. The next processing function typically
involves slitting coils to specified widths subject to close
tolerances. After slitting, the processed product is ready for
either delivery to the customer or additional processing.
Many of the Company's orders involve an additional process known
as "cold reduction." Cold reduction reduces the thickness of the
steel to a customer's specification by passing the steel through
a set of rolls under pressure. This process significantly
increases the value added by the Company to the product. During
the rolling process the edges of the steel may also be
conditioned into square, full round or partially round shapes.
After cold reduction, it is sometimes necessary to subject the
rolled steel to high temperatures for long periods of time in
order to "anneal" or soften the steel. This annealing capability
is accomplished in the Company's own furnaces and is particularly
suitable for high carbon and alloy strip orders. After
annealing, orders are then ready for additional slitting and cold
reduction and subsequent shipment to the customer.
The Company has achieved high quality and productivity levels
through its commitment to modern and efficient equipment used to
perform the pickling, slitting, cold reduction, annealing and
blanking processes. The Company's pickling facility is capable
of high volume pickling, leveling, coating and slitting of hot
rolled steel to greater than industry standards. The Company's
slitting lines are capable of maintaining width tolerances of +/-
.002 inches. The Company has computerized all of its rolling
equipment, which has improved its capability to deliver flat
rolled steel products processed to closer than standard
tolerances. The Company's computerized rolling mills are capable
of maintaining thickness tolerances of +/-.0003 inches.
Computers monitor thickness during the cold reduction process,
rapidly adjusting roll position to maintain the proper tolerance
as the steel passes through the rolling mill. The computers also
provide both visual displays and documented records of the
thickness maintained throughout the entire coil. Annealing is
accomplished in high convection bell furnaces. These furnaces
feature extraordinary thermal consistency, rapid water cooling
and advanced atmosphere controls for good surface cleanliness of
the rolled steel product. The Company's blanking lines are
capable of producing blanks from coils up to 84 inches in width
and maximum gauge of .25 inches thick. Flatness of the steel is
controlled by an automatic hydraulic leveler and diagnostic
equipment that continually monitors the steel during processing
to minimize scrap and provide up-to-the minute production
information.
QUALITY CONTROL
The ability to obtain high quality steel from its suppliers on a
consistent basis is critical to the Company's business. In the
past five years, about 97.9% of the raw material has conformed to
the purchasing requirements. Most of the nonconforming raw
material is diverted to less critical applications. The Company,
through its technical services department, has instituted strict
quality control measures to assure that the quality of purchased
raw materials will allow the Company to meet the specifications
of its customers and to reduce the costs of production
interruptions resulting from poor quality steel. Physical,
chemical, and metallographic analyses are performed on selected
raw materials to verify that their mechanical and dimensional
properties, cleanliness, surface characteristics, and chemical
content are acceptable. Similar analyses are conducted on
processed steel on a selected basis before delivery to the
customer. The Company also uses statistical process control
techniques to monitor its slitting and cold reduction processes
so management can document to customers that required tolerances
have been continuously maintained throughout processing. This
close attention to product quality has enabled the Company to
limit the amount of customer returns and allowances to less than
1.15% of sales in each of the last three years ended 1998, 1997,
and 1996. The Company's technical services department and its
metallurgical laboratory are located in the research and
development engineering and technology center in Shelbyville,
Kentucky.
MARKETING
The Company's marketing staff consists of sales personnel located
in Alabama, Illinois, Indiana, Iowa, Kentucky, Michigan, North
Carolina, Ohio, Pennsylvania, South Carolina, Tennessee,
Wisconsin, and Mexico. In addition to cultivating additional
business from existing customers and developing new accounts,
these sales personnel are responsible for identifying market
trends in their assigned areas. The marketing staff is supported
by an Executive Vice President, three regional Vice Presidents-
Sales, and by the Company's technical services department which
develops application engineering ideas. The Company is frequently
requested to recommend the type of steel which can best serve a
customer's specific needs.
CUSTOMERS AND DISTRIBUTION
The Company produces to customer order rather than for inventory.
Although some blanket orders are taken for periods of up to one
year, such blanket orders represent a projection of anticipated
customer requirements and do not become firm orders until the
customer calls for delivery of specified quantities of particular
products at specified times. The Company is therefore required
to maintain a substantial inventory of raw materials to meet the
short lead times and just-in-time delivery requirements of many
of its customers. Customers typically place firm orders for
delivery within two to three weeks. The Company's backlog of
firm orders at November 30, 1998 was $39,000,000,approximately 7%
higher than the $36,504,000 at November 30, 1997.
The Company processes steel for sale to a variety of industrial
customers, including those in the automotive, automotive supply,
appliance, lawn and garden, machinery and office equipment
industries. In fiscal 1998, 1997, and 1996 sales to the
automotive industry directly accounted for 10%, 10% and 10% of
the Company's sales, respectively; sales to the automotive supply
industry accounted for 50%, 55% and 64%, respectively. The
Company believes its long-term relationships with its major
customers are a significant factor in its business.
The Company supplies processed steel to approximately 800 active
accounts. These customers are generally located within 300 miles
of one of the Company's plants. The location of Company
facilities near a great number of customers permits the efficient
distribution of the Company's products by truck. Independent
trucking companies afford a convenient and expeditious means for
shipping approximately two-thirds of the Company's products to
its customers. The Company also maintains a small number of
tractor-trailer trucks to provide flexible delivery service to
those customers who do not arrange for their own shipping needs.
SUPPLIERS
In 1998, the Company obtained its steel for processing from a
number of primary producers and mini-mills including AK Steel
Corporation, Gallatin Steel Company, LTV Steel Company, Rouge
Steel company and Weirton Steel Corporation. The Company obtains
its raw material requirements by ordering steel possessing
specified physical qualities and alloy content. By purchasing in
large quantities at predetermined intervals, the Company attempts
to purchase its raw materials at the lowest competitive prices
for the quality purchased. The Company believes that it is not
dependent on any one of its suppliers for raw materials and that
its relationships with its suppliers are good.
JOINT VENTURES
In April 1987, the Company formed Mi-Tech Steel, Inc., (Mi-Tech
Steel) a 50% owned corporate joint venture with Mitsui Steel
Development Co., Inc. Mi-Tech Steel was established to own and
operate high-volume steel slitting facilities to serve Japanese
and domestic automotive and appliance parts manufacturers located
in the United States. The initial processing facility was opened
in December 1987 in Murfreesboro, Tennessee. In January 1990, a
second Mi-Tech Steel processing facility opened in Greensburg,
Indiana. A third processing facility, the first for Mi-Tech Steel
with pickling capabilities opened in December 1997 in Decatur,
Alabama. Steel Technologies is providing management services for
the Mi-Tech Steel operations.
In October 1990, Processing Technology, Inc., was established.
The Company holds a 5% investment in the common stock of this
corporate joint venture with LTV Steel Company and Mitsui Steel
Development Co., Inc. Processing Technology operates facilities
in Perrysburg, Ohio and Burns Harbor, Indiana, which process flat
rolled steel and provide steel storage principally for LTV Steel
Company. Both facilities began operations in fiscal 1992.
COMPETITION
Steel processing is highly competitive. The Company primarily
competes with a number of other intermediate steel processors who
are capable of processing steel to closer than standard
tolerance. The primary characteristics of competition
encountered by the Company are quality of product, reliability of
delivery and price.
ENVIRONMENTAL MATTERS
The Company's manufacturing facilities are subject to many
existing and proposed federal, state and foreign regulations
designed to protect the environment. Presently, the Company has
no knowledge of any pending or threatened litigation or
administrative proceeding against the Company involving
environmental matters. Management believes the Company's
manufacturing facilities are in compliance with applicable
federal, state and foreign environmental regulations, and is not
presently aware of any fact or circumstance which would require
the expenditure of material amounts for environmental compliance
in the future.
EMPLOYEES
As of October 31, 1998, the Company employed 904 people,
including 124 at the Canton plant, 92 at the Clinton plant, 32
at the Elkton plant, 121 at the Eminence plant, 108 at the Ghent
plant, 4 at the Peru plant, 147 at the Portage plant, 49 at the
Willoughby plant and 105 at the Mexico plant. There are 83
employees at its Corporate Office in Louisville and 20 employees
at its Engineering facility in Shelbyville. There are 19 sales
personnel located in their respective market areas. The hourly
employees in the company's Canton, Michigan facility are
represented by the United Auto Workers under a collective
bargaining agreement. In October 1998, the hourly employees
decertified the United Steel Workers' Union at the Portage,
Indiana plant. The Company has never experienced a significant
work stoppage and considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company's principal processing plants are as follows:
Production Plant Date Opened/ Production
Plant Location Capacity Size Acquired Capabilities
- -------------- ---------- ----- ------------ ------------
Eminence, Kentucky 150,000 tons 140,000 sq.ft. 1971 S,R,A,B
Portage, Indiana 210,000 tons 220,000 sq.ft. 1987 S,R,A
Elkton, Maryland 60,000 tons 60,000 sq.ft. 1989 S,R
Canton, Michigan 210,000 tons 190,000 sq.ft. 1991 S,R,A
Peru, Indiana 40,000 tons 40,000 sq.ft. 1992 S
Monterrey, Mexico 60,000 tons 26,000 sq.ft. 1994 S,R,C
Ghent, Kentucky 500,000 tons 205,000 sq.ft. 1995 S,P
Clinton, North Carolina 126,000 tons 109,600 sq.ft. 1997 S,C
Willoughby, Ohio 60,000 tons 42,500 sq.ft. 1998 S,C
S=Slitting
R=Cold Reduction
A=Annealing
P=Pickling and Leveling
C=Cut to Length
B=Blanking
Seven of the Company's nine processing plants are owned by the
Company. In 1997, the Company entered into ten-year operating
lease agreements for the processing plants in North Carolina. In
1998, the Company entered into a one-year operating lease
agreement for the processing plant in Ohio with an option to
purchase prior to the expiration of the lease agreement. During
1998, the Company sold approximately 712,000 tons of processed
steel from its manufacturing plants. In addition, the Ghent
pickling facility processed approximately 208,000 tons of
material owned by others. The remaining facilities processed an
additional 77,000 tons of material owned by others.
The engineering division, technical services and metallurgical
lab located in Shelbyville, Kentucky occupies a 35,000 square
foot building owned by the Company.
The Company's executive offices are located in Louisville,
Kentucky in a 30,000 square foot building owned by the Company.
Mi-Tech Steel currently operates two high volume steel slitting
operations and one high volume pickling and slitting operation.
The Murfreesboro, Tennessee plant and Greensburg, Indiana Plant
consist of 30,000 and 160,000 square feet respectively. The Mi-
Tech Steel Alabama facility, a wholly-owned subsidiary of Mi-Tech
Steel, Inc., in Decatur, Alabama consists of two facilities
comprising a total of 160,000 square feet.
All operating properties are in good repair and in suitable
condition for the purposes for which they are used. The
Company's Elkton, Maryland processing plant and the executive
office building are subject to outstanding mortgages covering
certain long-term financing arrangements.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, positions held and ages of
all the executive officers of the Company:
Name Age Title
Merwin J. Ray 69 Chairman of the Board and
Chief Executive Officer
Bradford T. Ray 40 President and Chief
Operating Officer
Michael J. Carroll 41 Executive Vice President
Howard F. Bates, Jr. 52 Vice President-Technical
Services
Joseph P. Bellino 48 Chief Financial Officer and
Treasurer
Officers are elected annually by and serve at the discretion of
the Board of Directors. Messrs. Merwin Ray, Bradford Ray, Howard
Bates and Michael Carroll are members of the Company's Board of
Directors.
Mr. Merwin J. Ray has served as Chairman of the Board of the
Company since its incorporation in 1971, and as Chief Executive
Officer since May 1985. He previously held the position of
President of the Company from 1971 until May 1985. Mr. Merwin J.
Ray is the father of Bradford T. Ray, President and Chief
Operating Officer of the Company.
Mr. Bradford T. Ray has served as President and Chief Operating
Officer since November 1994. He previously held the positions of
Executive Vice President from April 1993 to November 1994 and
Vice President-Manufacturing of the Company from January 1987 to
April 1993.
Mr. Michael J. Carroll has served as Executive Vice President
since January 1995. He previously held the positions of Senior
Vice President-Sales from April 1993 to January 1995 and Vice
President-Sales from July 1987 to April 1993.
Mr. Howard F. Bates, Jr. has served as Vice President-Technical
Services since November 1981. From August 1977 to November 1981,
he held the position of Manager of Technical Services.
Mr. Joseph P. Bellino has served as Chief Financial Officer and
Treasurer of the Company since October 1997. He previously held
the position of President of Beacon Capital Advisors Company from
1996 to 1997. From 1989 to 1995, Mr. Bellino served as President
of Rhawn Enterprises, Inc.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information required for Item 5 is incorporated by reference
herein, pursuant to General Instruction G(2), from the
information provided under the section entitled "Market Price and
Dividend Information" on page 12 of the Company's annual report
to shareholders for the year ended September 30, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The information required for Item 6 is incorporated by reference
herein, pursuant to General Instruction G(2), from the
information provided under the section entitled "Selected
Financial Data" on page 11 of the Company's annual report to
shareholders for the year ended September 30, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required for Item 7 is incorporated by reference
herein, pursuant to General Instruction G(2), from the
information provided under the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" on pages 13 through 17 of the Company's annual report
to shareholders for the year ended September 30, 1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company is exposed to market risks related to changes in
interest rates. To manage interest rate exposures, the Company
uses fixed and variable debt as well as interest rate swap. The
Company does not enter into derivative financial instrument
transactions for speculative purposes.
The following table summarizes principal cash flows and related
interest rates of the Company's long-term debt at September 30,
1998 by expected maturity dates. The weighted average interest
rate of the fixed debt is based on the actual average rates. The
weighted average interest rate of the variable debt is based on
actual rates at September 30, 1998. The variable rate debt
consists primarily of an $80,000,000 line of credit. While the
line of credit matures during fiscal 2000, the Company
anticipates extending this arrangement for the foreseeable
future. Additionally, the table sets forth the notional amount
and weighted average interest rates of the Company's interest
rate swap by expected maturity. The receive rate is based on the
rate for the September 30, 1998 settlement date based on a 90-day
LIBOR rate. The notional amount of the swap is $30,000,000 and
the fair value is approximately $1,084,000. The fair value of the
swap is based on discounted quarterly cash flows using implied
forward rates in the yield curve of the 90-day LIBOR at the
reporting date. The fair market value of the swap is considered a
forward looking statement. Implied forward rates should not be
considered a predictor of actual future interest rates.
Amounts in thousands except for interest rates
<TABLE>
Market
1999 2000 2001 2002 2003 Thereafter Total Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt
(fixed) $9,003 $ 5,991 $5,991 $5,991 $5,726 $11,400 $44,102 $43,874
Weighted average
interest rates 7.63% 8.30% 8.30% 8.39% 8.52%
Long-term debt
(variable) $ 100 $49,100 $ 100 $ 100 $ 100 $ 3,800 $53,300 $53,300
Weighted average
interest rates 6.99% 6.99% 4.20% 4.20% 4.20% 4.20%
Variable to
fixed swaps $30,000(1) $30,000 $1,084
Pay rate 5.60% 5.60%
Receive rate 5.69% -
Counterparty
option to
cancel swap $750(1)
</TABLE>
(1) The swap matures on September 30, 2008 unless the bank exercises
its option to terminate the swap at anytime after September 30, 2003.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Steel
Technologies Inc. and Subsidiaries on pages 13 through 29 and
Report of Independent Accountants on page 31 are included in the
Company's annual report to shareholders for the year ended
September 30, 1998, and the section entitled "Selected Quarterly
Financial Data" on page 12 thereof are incorporated herein by
reference.
Consolidated Balance Sheets-September 30, 1998 and 1997
Consolidated Statements of Income-Years ended September 30,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity-Years ended
September 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows-Years ended September 30,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), the information required by
Item 10 is incorporated by reference herein from the material
under the section entitled "Election of Directors" contained on
pages 3 through 6, and "Election of Directors Section 16(a)
Beneficial Ownership Reporting Compliance" on page 8 in the
Company's definitive proxy statement filed with the Securities
and Exchange Commission related to the annual meeting of
shareholders of Steel Technologies Inc. to be held on January 28,
1999. The information regarding Executive Officers required by
Item 401 of Regulation S-K is included in Part I hereof under the
section entitled "Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), the information required by
Item 11 is incorporated by reference herein from the material
under the sections entitled "Election of Directors - Compensation
of Directors" contained on page 8 and "Executive Compensation"
contained on pages 10 through 11 in the Company's definitive
proxy statement filed with the Securities and Exchange Commission
related to the Company's annual meeting of shareholders to be
held on January 28, 1999.
Information appearing in the sections entitled "Compensation
Committee Report on Executive Compensation" and "Performance
Graph" contained on pages 11 through 13 in the Company's
definitive proxy statement filed with the Securities and Exchange
Commission related to the Company's annual meeting of
shareholders to be held on January 28, 1999 shall not be deemed
to be incorporated by reference in this report, notwithstanding
any general statement contained herein incorporating portions of
such proxy statement by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pursuant to General Instruction G(3), the information required by
Item 12 is incorporated by reference herein from the material
under the sections entitled "Voting Securities" contained on
pages 2 and 3 and "Election of Directors" contained on pages 3
through 7 in the Company's definitive proxy statement filed with
the Securities and Exchange Commission related to the Company's
annual meeting of shareholders to be held on January 28, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), the information required by
Item 13 is incorporated by reference herein from the material
under the sections entitled "Certain Transactions" contained on
page 10 and "Election of Directors" contained on pages 3 through
7 in the Company's definitive proxy statement filed with the
Securities and Exchange Commission related to the Company's
annual meeting of shareholders to be held on January 28, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) The response to this portion of Item 14 is submitted as
a separate section of this report--See List of
Financial Statements under Item 8.
(a) (2) The following consolidated financial statement schedule
of Steel Technologies Inc. and Subsidiaries is included
in a separate section of this report, following the
index to exhibits on page E-1:
Valuation and Qualifying Accounts - Schedule II
Report of Independent Accountants
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have
been omitted.
(a) (3) Listing of Exhibits--See Index to Exhibits contained
herein on page E-1 of this report. The index to
exhibits specifically identifies each management
contract or compensatory plan required to be filed as
an Exhibit to this Form 10-K.
(b) No report on Form 8-K was filed for the quarter ended
September 30, 1998.
(c) Exhibits filed with this report are attached hereto.
Page E-1
STEEL TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1998
Ref. Exhibit
# # Description
- --- ------ -------------------------------------------
(a) 3.1 Restated Articles of Incorporation of
the Registrant
(a) 3.2 First Articles of Amendment to Restated
Articles of Incorporation of the Registrant
(d) 3.3 Second Articles of Amendment to Restated
Articles of Incorporation of the Registrant
(e) 3.4 Third Articles of Amendment to Restated
Articles of Incorporation of the Registrant
(e) 3.5 Amended By-Laws of the Registrant
(h) 10.1 Amended and Restated Loan Agreement
dated as of March 26, 1997, between the
Registrant and PNC Bank, Kentucky, Inc.,
National City Bank of Kentucky, NBD Bank,
N.A., and SunTrust Bank, Nashville, N.A.
(i) 10.1(a) First Amendment dated October 10,
1997, between the Registrant and PNC Bank,
Kentucky, Inc., Inc., National City Bank,
Kentucky, NBD Bank, N.A., and SunTrust Bank,
Nashville, N.A.
10.1(b) Second Amendment to Amended dated
October 12, 1998 and Restated Loan Agreement
and First Amendment to letter Agreement
between the registrant and PNC Bank, National
Association, National City Bank of Kentucky,
NBD Bank, N.A. and SunTrust Bank, Nashville,
N.A.
(f) 10.2 Note Agreement dated as of March 1,
1995, between the Registrant and Principal
Mutual Life Insurance Company, Lincoln
National Investment Management Company,
Jefferson-Pilot Life Insurance Company and
Northern Life Insurance Company
(f) 10.2 Request for Consent to Amendment of Note
Agreement
(f) 10.2 Request for Consent to Second Amendment
of Note Agreement
(c) 10.3(a) Incentive Stock Option Plan of the
Registrant*
(b) 10.3(b) Amendment #1, dated April 7, 1987
to the Incentive Stock Option Plan of the
Registrant*
(f) 10.3(c) Registrant's 1995 Stock Option Plan*
(h) 10.4 Stock Purchase Agreement between
Registrant and Shareholders of Atlantic Coil
Processing, Inc. effective April 1, 1997.
(d) 10.5 Revised Employee Bonus Plan of the Registrant*
(b) 10.6(a) Joint Venture Agreement dated March
30, 1987 between Mitsui & Co., LTD., Mitsui
& Co. (U.S.A.), Inc., Mitsui Steel
Development Co., Inc., and the Registrant
(d) 10.6(b) Amendment #1, dated February 28,
1989 to the Joint Venture Agreement dated
March 30, 1987 between Mitsui & Co., LTD.,
Mitsui & Co. (U.S.A.), Inc., Mitsui Steel
Development Co., Inc., and the Registrant
(d) 10.7(a) Loan Agreement dated as of November
1, 1989 between the County Commissioners of
Cecil County, Maryland and the Registrant
relating to Economic Development Revenue
Bonds
(d) 10.7(b) Reimbursement, Credit and Security
Agreement dated as of November 1, 1989
between Citizens Fidelity Bank and Trust
Company and the Registrant relating to
Economic Development Revenue Bonds
(e) 10.8 Joint Venture Agreement dated October
16, 1990 among Mitsui Steel Development Co.,
Inc. and LTV Steel Company, Inc. and the
Registrant
(e) 10.9 Form of Indemnification Agreement
between the Registrant and its Directors *
(i) 10.10 Steel Technologies Inc. Restated
Retirement Savings Plan
(g) 10.11 Collective Bargaining Agreement
between the United Auto Workers and Steel
Technologies Inc.
(g) 10.12 Nonemployee Directors Stock Plan*
10.13 Confirmation of Interest Rate Swap
Transaction dated July 31, 1998 between the
Registrant and SunTrust Bank, Atlanta.
10.14 Stock Purchase Agreement between
Registrant and Stockholders of Roberts Steel
Company effective July 1, 1998.
13 1998 Annual Report to Shareholders,
filed herewith. The annual report shall not
be deemed to be filed with the Commission
except to the extent that information is
specifically incorporated by reference herein
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants
27 Financial Data Schedule
Alphabetic filed exhibit reference:
(a) Incorporated herein by reference to exhibits filed with the
Company's Form S-2 Registration Statement under the Securities
Act of 1933 (No. 33-24209), which became effective September 28,
1988.
(b) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-K (file # 0-14061) for the
fiscal year ended September 30, 1987.
(c) Incorporated herein by reference to exhibits filed with the
Company's Form S-1 Registration Statement under the Securities
Act of 1933 (No. 2-98617), which became effective August 27,
1985.
(d) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-K (file # 0-14061) for the
fiscal year ended September 30, 1989.
(e) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-K (file # 0-14061) for the
fiscal year ended September 30, 1990.
(f) Incorporated herein by reference to exhibits filed with the
Company's Quarterly Report on Form 10-Q (file # 0-14061) for the
quarter ended March 31, 1995.
(g) Incorporate herein by reference to exhibits filed with the
Company's Annual Report of Form 10-K (file # 0-14061) for the
fiscal year ended September 30, 1996.
(h) Incorporated herein by reference to exhibits filed with the
Company's Quarterly Report on Form 10-Q (file # 0-14061) for the
quarter ended March 31, 1997.
(i) Incorporated herein by reference to exhibits filed with the
Company's Annual Report on Form 10-K (File #0-14061) for the
fiscal year ended September 30, 1997.
* Indicates management contract or compensatory plan and
arrangement
STEEL TECHNOLOGIES INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Deductions Period
<S> <C> <C> <C> <C>
Year Ended September 30, 1998:
Allowance for doubtful accounts $928,958 $190,300 $180,421(A) $938,837
Year Ended September 30, 1997:
Allowance for doubtful accounts $874,772 $587,000 $532,814(A) $928,958
Year Ended September 30, 1996:
Allowance for doubtful accounts $855,000 $269,300 $249,528(A) $874,772
</TABLE>
(A) Uncollectible accounts charged off, less recoveries.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Steel Technologies Inc.
Our audit of the consolidated financial statements referred to in
our report dated October 26, 1998 appearing on page 31 of the
1998 Annual Report to Shareholders of Steel Technologies Inc. and
subsidiaries (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the consolidated financial statement
schedules listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this consolidated financial statement schedule presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.
PricewaterhouseCoopers LLP
Louisville, Kentucky
October 26, 1998
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.
STEEL TECHNOLOGIES INC.
Dated: 12/23/98 By: /s/ Joseph P. Bellino
--------------------------------
Joseph P. Bellino
Chief Financial Officer,
and Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Date Title
/s/ Merwin J. Ray 12/23/98 Chairman of the Board of Directors
- ---------------------- Chief Executive Officer
Merwin J. Ray (Principal Executive Officer)
/s/ Bradford T. Ray 12/23/98 Director, President and Chief
- ---------------------- Operating Officer
Bradford T. Ray
/s/ Howard F. Bates, Jr. 12/23/98 Director and Vice President-
- ------------------------ Technical Services
Howard F. Bates, Jr.
/s/ Michael J. Carroll 12/23/98 Director and Executive Vice
- ---------------------- President
Michael J. Carroll
/s/ Ralph W. McIntyre 12/23/98 Director
- ----------------------
Ralph W. McIntyre
/s/ Andrew J. Payton 12/23/98 Director
- ----------------------
Andrew J. Payton
/s/ William E. Hellmann 12/23/98 Director
- ----------------------
William E. Hellmann
/s/ Dale L. Armstrong 12/23/98 Director
- ---------------------
Dale L. Armstrong
/s/ Jimmy Dan Conner 12/23/98 Director
- ---------------------
Jimmy Dan Conner
EXHIBIT 10.1(b)
SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
AND FIRST AMENDMENT TO LETTER AGREEMENT
---------------------------------------
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN
AGREEMENT AND FIRST AMENDMENT TO LETTER AGREEMENT (this "Second
Amendment") is made and entered into as of October 12, 1998,
by and among [i] STEEL TECHNOLOGIES INC., a Kentucky corporation,
with principal office and place of business in Louisville,
Kentucky (the "Borrower"); [ii][a] PNC BANK, NATIONAL
ASSOCIATION, a national banking association, successor by merger
to PNC Bank, Kentucky, Inc., a Kentucky banking corporation, with
principal office and place of business in Louisville, Kentucky
("PNC"), [b] NATIONAL CITY BANK OF KENTUCKY, a national banking
association, with principal office and place of business in
Louisville, Kentucky ("National City"), [c] NBD BANK, N.A., a
national banking association, with principal office and place of
business in Indianapolis, Indiana ("NBD"), and [d] SUNTRUST BANK,
NASHVILLE, N.A., a national banking association, with principal
office and place of business in Nashville, Tennessee ("Suntrust")
(each of PNC, National City, NBD and Suntrust is hereinafter
individually referred to as a "Bank", and all of the same are
hereinafter collectively referred to as the "Banks"); [iii] PNC
in its capacity as agent for the Banks (in such capacity, the
"Agent"); [iv] WABASH STEEL CORPORATION, an Indiana corporation
("Wabash"); and [v] STEEL TECHNOLOGIES CAROLINAS, INC., a North
Carolina corporation, formerly known as Steel Technologies North
Carolina, Inc., a corporation that had changed to that name from
its previous name of Atlantic Coil Processing, Inc. ("STCI")
PRELIMINARY STATEMENTS
----------------------
A. Borrower, the Banks and the Agent are parties to a
certain Amended and Restated Loan Agreement, dated as of March
26, 1997 (the "Loan Agreement") (certain capitalized terms used
in this Second Amendment have the meanings set forth for them in
the Loan Agreement unless expressly otherwise defined herein),
pursuant to which, among other things, the Banks established the
Revolver and the Line of Credit in favor of Borrower, and PNC
established the Swing Line Loan Commitment in favor of Borrower.
B. Pursuant to that certain First Amendment to
Amended and Restated Loan Agreement, dated as of October 10, 1997
(the "First Amendment"), Borrower requested [i] that PNC extend
the Swing Line Loan Commitment Termination Date from October 10,
1997, until October 12, 1998, and [ii] that the Banks [a] extend
the Line of Credit Commitment Termination Date from October 10,
1997 until October 12, 1998, [b] extend the Revolving Loan
Commitment Termination Date from October 11, 1999 until October
11, 2000, [c] increase the maximum permitted aggregate
outstanding principal amount of the Revolver from $30,000,000 to
$55,000,000, [d] reduce the then existing Pricing Levels, [e]
establish additional Pricing Levels as set forth in the First
Amendment, and [f] modify certain financial covenants applicable
under the Loan Agreement, and PNC and the other Banks agreed to
do so subject to and in accordance with the provisions of the
First Amendment, and Borrower, the Banks and the Agent modified
the Loan Agreement otherwise as set forth in the First Amendment.
C. Borrower, the Banks and the Agent are parties to a certain letter
agreement dated as of June 25, 1998 (the "Letter Agreement"), pursuant to
which, among other things, [i] the Banks consented to the acquisition by
the Borrower, through its wholly-owned subsidiary Steel Technologies Ohio,
Inc., formerly known as Southern Strip Steel Columbus, Inc., of 100% of the
stock of Roberts Steel Company, an Ohio corporation (the "Roberts
Acquisition"), [ii] the Banks made an advance of the Revolving Loans in the
amount of $13,200,000.00, [iii] the Borrower agreed to deliver to the Banks
a Request for Revolving Loan in accordance with, and as otherwise provided
in, the Loan Agreement for the purpose of funding the Roberts Acquisition,
and [iv] the Borrower agreed to deliver to the Banks certain documents and
instruments described in the Letter Agreement (the "Letter Agreement
Documents") within 120 days from the date of the Letter Agreement.
D. Borrower has now requested [i] that the Banks extend the Line of
Credit Commitment Termination Date from October 12, 1998, until January 10,
1999, [ii] that PNC extend the Swing Line Loan Commitment Termination Date
from October 12, 1998, until January 10, 1999, and [ii] that the Banks
extend the time within which the Borrower must deliver the Letter Agreement
Documents from October 23, 1998 to November 30, 1998, and PNC and the other
Banks agreed to do so subject to and in accordance with the provisions of
this Second Amendment, and Borrower, the Banks and the Agent have agreed to
modify the Loan Agreement and the Letter Agreement otherwise as hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the mutuality, receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed as follows:
ARTICLE 1
---------
AMENDMENTS TO LOAN AGREEMENT
----------------------------
Subject to delivery to the Agent of each of the "Second Amendment
Documents" more particularly described in Article 3 of this Second
Amendment and fulfillment to the satisfaction of the Agent and the Banks of
each of the other conditions described in Article 3 of this Second
Amendment, the Loan Agreement is hereby amended as follows:
1.1 The Line of Credit Commitment Termination Date, which prior to
the effectiveness of this Article 1 of this Second Amendment is October 12,
1998 as provided in Section 1.75 of the Loan Agreement, is extended to and
shall be January 10, 1999.
1.2 The Swing Line Loan Commitment Termination Date, which prior to
the effectiveness of this Article 1 to the this Second Amendment is October
12, 1998 as provided in Section 1.116 of the Loan Agreement, is extended to
and shall be January 10, 1999.
ARTICLE 2
---------
AMENDMENT TO LETTER AGREEMENT
-----------------------------
Subject to delivery to the Agent of each of the "Second Amendment
Documents" more particularly described in Article 3 of this Second
Amendment and fulfillment to the satisfaction of the Agent and the Banks of
each of the other conditions described in Article 3 of this Second
Amendment, the Letter Agreement is hereby amended by deleting the words
"within 120 days from the date of this Letter Agreement" in each place in
which they appear in the Letter Agreement and substituting in each case the
words "on or before November 30, 1998."
ARTICLE 3
---------
CONDITIONS PRECEDENT
--------------------
3.1 The modifications to the Loan Agreement described in Article 1 of
this Second Amendment and the modifications to the Letter Agreement
described in Article 2 of this Second Amendment shall become effective on
that date (the "Effective Date") on which each of the following documents
(collectively, the "Second Amendment Documents") has been executed by each
of the parties to them and delivered to the Agent, on behalf of the Banks,
and when the Agent determines to its satisfaction that each other condition
set forth below has been fulfilled:
A. This Second Amendment, duly executed by the Borrower, STCI,
Wabash, Agent and each of the Banks;
B. Certified Resolutions of the Board of Directors of the
Borrower, authorizing the execution and delivery by Borrower of this Second
Amendment;
C. Certified Resolutions of the Board of Directors of STCI,
authorizing the execution and delivery by STCI of this Second Amendment;
and
D. Certified Resolutions of the Board of Directors of Wabash,
authorizing the execution and delivery by Wabash of this Second Amendment.
ARTICLE 4
---------
OTHER STIPULATIONS
4.1 Upon the Effective Date, the provisions of Article 1 and Article
2 of this Second Amendment shall become effective and modify or supersede
and replace the applicable provisions of the Loan Agreement and the Letter
Agreement recited as being modified by them. From and after the Effective
Date each reference to the "Loan Agreement" and the "Letter Agreement" or
words of like import shall mean and be deemed a reference to, as
applicable, the Loan Agreement and Letter Agreement as modified by this
Second Amendment but, except as modified by this Second Amendment and the
other Second Amendment Documents, the Loan Agreement, the Letter Agreement,
and the other Loan Instruments shall remain in full force and effect in the
same form as existed immediately prior to the Effective Date.
4.2 If each of the Second Amendment Documents has not been fully
executed and delivered to the Agent on or before October 12, 1998, this
Second Amendment shall be voidable at any time prior to the delivery of
each of such Second Amendment Documents upon notice given by Borrower to
the Banks or by notice given by the Agent, acting at the direction of the
Requisite Banks, to the Borrower.
4.3 This Second Amendment and the other Second Amendment Documents
contain the final, complete and exclusive agreement of the parties to them
with regard to their subject matter, may not be amended except in writing
signed by each of the parties to them, shall be binding upon and inure to
the benefit of the respective successors and assigns of each of the parties
to them (subject to applicable provisions of, as applicable, the Loan
Agreement and the Letter Agreement), and shall be construed in accordance
with and otherwise governed in all respects by the laws of the Commonwealth
of Kentucky. This Second Amendment may be executed in counterparts, and
all counterparts collectively shall constitute but one original document.
Borrower hereby agrees to reimburse the Agent for all costs and expenses
incurred by the Agent in connection with the preparation, negotiation,
documentation, execution and delivery of this Second Amendment and the
other Second Amendment Documents, including but not limited to the
reasonable fees of legal counsel to Agent.
4.4 STCI and Wabash join in this Second Amendment for the purpose of
consenting to the provisions of the foregoing Second Amendment, and each of
STCI and Wabash confirm and agree that its respective obligations under, as
applicable, the Atlantic Guaranty Agreement and the Wabash Guaranty
Agreement, relating to the Line of Credit and the Swing Line Loan mentioned
in the foregoing Second Amendment shall be unimpaired by this Second
Amendment and that neither STCI nor Wabash has any defenses or set offs
against the Banks or the Agents, or their respective officers, directors,
employees, agents or attorneys with respect to, as applicable, the Atlantic
Guaranty Agreement and the Wabash Guaranty Agreement and that all of the
terms, conditions and covenants in the Atlantic Guaranty Agreement and the
Wabash Guaranty Agreement remain unaltered and in full force and effect and
are hereby ratified and confirmed. By joining in this Second Amendment,
STCI and Wabash also certify that the representations and warranties of
each made in, as applicable, the Atlantic Guaranty Agreement and the Wabash
Guaranty Agreement are true and correct.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as of the day and year first above written.
(the "Borrower")
STEEL TECHNOLOGIES INC.
By:
-------------------------------
(signature)
Name:
-----------------------------
(type or print)
Title:
----------------------------
(type or print)
("Wabash")
WABASH STEEL CORPORATION
By:
-------------------------------
(signature)
Name:
-----------------------------
(type or print)
Title:
----------------------------
(type or print)
("STCI")
STEEL TECHNOLOGIES CAROLINAS,
INC.
By:
--------------------------------
(signature)
Name:
------------------------------
(type or print)
Title:
-----------------------------
(type or print)
("PNC")
PNC BANK, NATIONAL ASSOCIATION, a
national banking association, successor by
merger to PNC Bank, Kentucky, Inc., a
Kentucky banking corporation
By:
-------------------------------
(signature)
Name:
-----------------------------
(type or print)
Title:
----------------------------
(type or print)
Address: PNC Bank, National Association
500 West Jefferson Street
Louisville, KY 40202
Attn: Ralph A. Phillips
Vice President
Telephone: (502) 581-4543
Telecopy: (502) 581-2302
("National City")
NATIONAL CITY BANK OF KENTUCKY
By:
--------------------------------
(signature)
Name:
------------------------------
(type or print)
Title:
-----------------------------
(type or print)
Address: 101 South Fifth Street
Louisville, KY 40202
Attn: Deroy Scott
Vice President
Telephone: (502) 581-7821
Telecopy: (502) 581-4424
("NBD")
NBD BANK, N.A.
By:
-------------------------------
(signature)
Name:
-----------------------------
(type or print)
Title:
----------------------------
(type or print)
Address: One Indiana Square
Suite 7028
Indianapolis, IN 46266
Attn: Randall K. Stephens
Telephone: (317) 266-6704
Telecopy: (317) 266-6042
("SunTrust")
SUNTRUST BANK, NASHVILLE, N.A.
By:
-------------------------------
(signature)
Name:
-----------------------------
(type or print)
Title:
----------------------------
(type or print)
Address: 201 Fourth Avenue North
Third Floor
Nashville, TN 37219
Attn: Scott T. Corley
Vice President
Telephone: (615) 748-5719
Telecopy: (615) 748-5269
(collectively, the "Banks")
(the "Agent")
PNC BANK, NATIONAL ASSOCIATION, a
national banking association, successor by
merger to PNC Bank, Kentucky, Inc., a
Kentucky banking corporation, in its capacity
as Agent
By:
-------------------------------
(signature)
Name:
-----------------------------
(type or print)
Title:
----------------------------
(type or print)
EXHIBIT 10.13
Confirmation of Interest Rate Swap Transaction
Mr. Joe Bellino
Steel Technologies Inc.
15415 Shelbyville Road
Lousiville, KY 40245
Ph#: 502-245-2110
Fax#: 502-245-3821
REF: 4580/5059
Dear Mr. Bellino:
The purpose of this letter agreement is to set forth the
terms and conditions of the Rate Swap Transaction entered into
between Steel Technologies, Inc. ("Counterparty") and SunTrust
Bank, Atlanta ("SunTrust") on the Trade Date specified below (the
"Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the ISDA Master Agreement to be
entered into by the parties hereto.
The definitions and provisions contained in the 1991 ISDA
Definitions (the "Definitions") published by the International
Swap Dealers Association, Inc. ("ISDA") are incorporated by
reference into this Confirmation. In the event of any
inconsistency between the Definitions and this Confirmation, this
Confirmation will govern.
1. This Confirmation supplements, forms a part of, and is
subject to the ISDA Master Agreement (a "Swap Agreement"), as
amended and supplemented from time to time, between you and
SunTrust. All provisions contained or incorporated by reference
in the Swap Agreement shall govern this Confirmation except as
expressly modified below. Prior to the execution and delivery of
such Swap Agreement, this Confirmation alone shall constitute a
complete and binding agreement with respect to the Transaction.
Each party is hereby advised, and each such party
acknowledges, that the other party has engaged in (or refrained
from engaging in) substantial financial transactions and has
taken other material actions in reliance upon the parties' entry
in the Transaction to which this Confirmation relates on the
terms and conditions set forth below.
This Confirmation will be governed by and construed in
accordance with the laws of the State of New York without
reference to choice of law doctrine.
2. The terms of the particular Transaction to which this
Confirmation relates are as follows:
Type of Transaction: Rate Swap
Notional Amount: US $30,000,000.00
Trade Date: July 31, 1998
Effective Date: August 4, 1998
Termination Date: September
30, 2008, with adjustment in
accordance with the Modified
Following Business Day
Convention.
Fixed Amounts:
Fixed Rate Payer: Counterparty
Fixed Rate Payer Payment
Dates: The 30th day of each
March, June, September and
December, beginning September
30, 1998, through and including
the Termination Date, subject to
adjustment in accordance with
the Modified Following Business
Day Convention.
Fixed Rate: 5.60% per annum
Fixed Rate Day Count
Fraction: Actual/360
Floating Amounts:
Floating Rate Payer: SunTrust
Floating Rate Payer Payment
Dates: The 30th day of each
March, June, September and
December, beginning September
30, 1998, through and including
the Termination Date, subject
to adjustment in accordance
with the Modified Following
Business Day Convention.
Floating Rate for initial
Calculation Period: 5.6875%
Designated Maturity: Three
month
Floating Rate Option: USD-
LIBOR-BBA
Spread: Inapplicable
Floating Rate Day Count
Fraction: Actual/360
Reset Dates: The first day of
each Floating Rate Payer
Calculation Period.
Calculation Agent: SunTrust
Business Days: New York
3. Other Provisions
a) Counterparty agrees to provide a certificate of signing
authority and incumbency with respect to the individual
executing this Confirmation as well as a Corporate
Resolution authorizing Counterparty to enter into this
Transaction. This provision will constitute an additional
Agreement for the purpose of Section 3 of the Swap
Agreement.
b) By signing this confirmation, Counterparty acknowledges
they have received and understand the SunTrust Bank, Atlanta
"Terms of Dealing for OTC Risk Management Transactions" and
the "Risk Disclosure Statement for OTC Risk Management
Transactions".
c) "Loan Agreement" shall mean "First Amendment to Amended
and Restated Loan Agreement among STEEL TECHNOLOGIES INC.
("Borrower") and PNC BANK, KENTUCKY, INC. NBD BANK, N.A.
SUNTRUST BANK, NASHVILLE, N.A. NATIONAL CITY BANK OF
KENTUCKY October 10, 1997", as amended and restated,
supplemented or otherwise modified.
d) SunTrust shall have the right, but not the obligation,
to terminate ("Option to Terminate") this Transaction on any
Payment Date beginning with the Payment Date of September
30, 2003, through and including June 30, 2008, subject to
adjustment in accordance with the Modified Following
Business Day Convention ("Optional Terminate Date"). In
order to exercise its Option to Terminate, SunTrust shall
notify Counterparty two New York Business Days prior to the
Optional Termination Date by telephone which notice shall be
deemed to be irrevocable and shall be confirmed in writing
(which writing may be transmitted by facsimile) by SunTrust
to Counterparty no later than the following Business Day.
Upon exercise by SunTrust of its Option to Terminate as
aforesaid, all rights and obligations arising out of this
Transaction following the Optional Termination Date shall be
deemed to have been terminated and both parties shall be
under no further liability to each other with respect to the
Transaction. The amount payable on the Optional Termination
Date will be the amount that would, had this Transaction not
been terminated, have been paid by SunTrust or Counterparty
as the case may be.
e) SunTrust shall have the right to terminate this
Transaction at the bid side value as determined in good
faith by the Calculation Agent on October 15, 2003, subject
to adjustment in accordance with the Modified Following
Business Day Convention, with two New York Business Days
notification to Counterparty.
4. Account Details:
Payment to Counterparty:
[PLEASE ADVISE]
Depository:
ABA #: 083-000-108
Favor of: Steel Technologies, Inc.
Account No.: 30-9521-4936
Payment to SunTrust:
SunTrust Bank, Atlanta
ABA# 061000104
FBO: Bond Wire Clearing
Account #: 9088-0000-95
Attn: Financial Risk Management, Operations
5. Offices
(a) The Office of Counterparty for the Transaction is its
Louisville office; and
(b) The Office of SunTrust for the Transaction is its
Atlanta office.
Please confirm that the foregoing correctly sets forth the
terms of our agreement by signing this copy of this Confirmation
and faxing it back to us at the following fax number: 404-658-
4835, Attn: Leslie Bales, or please call us at 404-588-8652. A
counter-signed copy will be forwarded to you upon us receiving
your faxed copy.
By signing below, you also acknowledge and agree that we
have explained to you the risks involved in this Transaction,
which risks include but are not limited to the following:
-- Market Risk: the risk that the Transaction may
increase or decrease in value with a change in, among
other things, interest rates or the yield curve; and
-- Liquidity Risk: the risk that the Transaction
cannot be closed out or disposed of quickly at or near
its value.
You further acknowledge and agree that you understand these
risks and the Transaction as a whole, that you are capable of
managing the risks associated with this Transaction, that the
risks involved in this Transaction are consistent with your
financial goals, policies and procedures, and risk tolerance, and
that you have determined that this Transaction is appropriate for
you.
Very truly yours,
SunTrust Bank, Atlanta
By:
--------------------------
Name:
--------------------------
Title:
-------------------------
By:
--------------------------
Name:
--------------------------
Title:
-------------------------
Accepted and Confirmed as
Of the Date First Written:
Steel Technologies, Inc.
By:
------------------------
Name:
----------------------
Title:
---------------------
By:
------------------------
Name:
----------------------
Title:
---------------------
EXHIBIT 10.14
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made, entered
into, and effective the 1st
day of July, 1998 by and
between, James E. Witkowski
("Witkowski"), and Richard H.
Barrett ("Barrett")
(collectively the "Sellers")
and Steel Technologies Inc., a
Kentucky corporation (the
"Buyer").
PRELIMINARY STATEMENTS
----------------------
Sellers desire to sell, and Buyer desires to purchase, all
and not less than all of the issued and outstanding shares of
common stock (the "Common Stock") of Roberts Steel Company, an
Ohio corporation ("Roberts" or the "Company"), for the
consideration and on the terms set forth in this Agreement.
Roberts is engaged in the business of steel processing and
providing steel processing services (the "Business").
The parties, intending to be legally bound, agree as
follows:
ARTICLE 1
---------
PURCHASE AND SALE OF STOCK
--------------------------
SECTION 1.1 Sale of Stock. Subject to the terms and
-------------
conditions of this Agreement, at the Closing, Sellers will sell
and transfer the Common Stock to Buyer, and Buyer will purchase
the Common Stock from Sellers.
SECTION 1.2 Purchase Price. The purchase price (the
--------------
"Purchase Price") for all the outstanding Common Stock shall be
Six Million Four Hundred Thousand Dollars ($6,400,000) as
described in Section 1.3(a) and (b) and contingent earn-out
amounts as described in Section 1.3(c) and (d), and any
additional amount as described in Section 1.3(e).
SECTION 1.3 Payment of Purchase Price. The Purchase
-------------------------
Price shall be paid as follows:
(a) The aggregate amount of Five Million Two Hundred
Thousand Dollars ($5,200,000) delivered at Closing by bank
cashier's or certified check payable to the order of (or by wire
transfer to accounts specified by) Barrett and Witkowski,
respectively: Three Million Two Hundred Thousand Dollars
($3,200,000) to Witkowski and Two Million Dollars ($2,000,000) to
Barrett.
(b) the aggregate amount of One Million Two Hundred
Thousand Dollars ($1,200,000) delivered at Closing by Buyer's
promissory note in the form of Exhibit A (the "Promissory Note")
payable to Barrett. If Net Shareholders' Equity as defined in
Section 9.6 is not at least Two Million Two Hundred Thousand
Dollars ($2,200,000) as of the date of closing, the Promissory
Note shall be reduced by the amount that Net Shareholders' Equity
is less than Two Million Two Hundred Thousand Dollars
($2,200,000) not to exceed a reduction of Two Hundred Thousand
Dollars ($200,000).
(c) Cash Earn-Out - As additional consideration, One
-------------
Million Dollars ($1,000,000) in the aggregate would be available
to Sellers based on the Sellers retaining a substantial amount of
Core Business (as explained in Schedule 1.3(c)). Each selling
shareholder would receive equal amounts of the additional
consideration, if earned. Such consideration shall be considered
additional purchase price. Specifically, if Roberts retains Core
Business of at least Three Million Eight Hundred Thousand Dollars
($3,800,000) (which is comparable to the Four Million Twenty
Thousand One Hundred Seventy Dollars ($4,020,170) reported on
Roberts' financial statements for the year ended December 31,
1997), using generally accepted accounting principles
consistently applied, for the July 1, 1998 to June 30, 1999 time
period, Sellers shall earn Five Hundred Thousand Dollars
($500,000) in the aggregate. If Core Business is at least equal
to or greater than Three Million Eight Hundred Dollars
($3,800,000) in the July 1, 1999 to June 30, 2000 time period,
Sellers shall earn an additional Five Hundred Thousand Dollars
($500,000) in the aggregate (collectively "Cash Earn-Out").
Payment shall occur within forty-five (45) days following the end
of the year used for computation purposes.
(d) Stock Earn-Out - As further additional
--------------
consideration, should Roberts achieve a minimum of Four Million
Five Hundred Thousand Dollars ($4,500,000) in Core Business for
either of the July 1, 1998 to June 30, 1999 or the July 1, 1999
to June 30, 2000 time periods ("Time Periods"), Sellers shall
each receive Five Thousand Dollars ($50,000) per time period
achieved. Payment shall be in the form of Buyer's common shares.
Should the Sellers achieve a minimum Five Million Dollars
($5,000,000) in Core Business during either of these Time
Periods, Sellers shall each receive One Hundred Thousand Dollars
($100,000), instead of Fifty Thousand Dollars ($50,000), for each
of these Time Periods in which Core Business exceeds Five Million
Dollars ($5,000,000), with payment in the form of Buyer's common
shares (collectively "Stock Earn-Out"). Said common shares shall
be issued within forty-five (45) days following the end of the
year used for computation purposes and Sellers will inform Buyer
30 days prior to issuance whether the shares will be retained for
more than one year.
(i) In the event that either or both Sellers
inform Buyer that they have decided to retain the shares for one
year, the Sellers acknowledge and agree that all shares, if any,
of Steel Technologies common stock issued as payment for the
Stock Earn-Out will not, on the date of delivery thereof, have
been registered under the Securities Act of 1993, as amended (the
"Securities Act"), or any state securities laws, and will
constitute "restricted securities" within the meaning of Rule 144
under the Act. The Sellers further acknowledge and agree that
each certificate evidencing such shares shall bear a legend
referring to the restrictions on resale imposed by the applicable
federal securities laws.
(ii) In the event that either or both Sellers
inform Buyer 30 days prior to issuance that they have decided not
to retain the shares for one year, Buyer has the option to either
make any Stock Earn-Out payment in cash or in stock. If Buyer
elects to pay in stock, Buyer covenants and agrees that it will
file, immediately following each delivery, if any, of shares of
common stock in payment for the Stock Earn-Out, and use its best
efforts to obtain the prompt effectiveness of, a registration
statement under the Securities Act to register for public resale
all of such shares, so that such shares may be offered and sold
by or for the account of the respective Sellers, from time to
time as market conditions permit, on the Nasdaq Stock Market or
otherwise, at prices and on terms then prevailing or in
negotiated transactions. Buyer will give Sellers Notice and
opinion of counsel when and that the shares may be traded. Buyer
will maintain the effectiveness of such registration statements,
if any, until such time as the Steel Technologies common stock
may be sold by the Sellers pursuant to the terms and conditions
of Rule 144 under the Securities Act. If during the time Buyer
is required to maintain the effectiveness of a registration
statement under this Section, Buyer shall be engaged in a
transaction with respect to which disclosure would be required in
such registration statement, but for which financial or other
information necessary for such required disclosure is not then
available to Buyer, or with respect to which Buyer's Board of
Directors shall have determined that disclosure at such time
could have an adverse effect on the Buyer or its business or
prospects, then Buyer shall be entitled to notify the Sellers
that no sales may be made pursuant to the registration statement
for up to ninety (90) days.
(e) Excess Net Shareholders' Equity - In the event
-------------------------------
that Net Shareholders' Equity as defined in Section 9.6 is
greater than Two Million Two Hundred Thousand Dollars
($2,200,000) on June 30, 1998, Buyer shall retain the amount over
Two Million Two Hundred Thousand Dollars ($2,200,000) ("Excess
Shareholders' Equity") as reserves against uncollectable accounts
receivables. Any amount remaining in the Excess Shareholders'
Equity reserves account as determined by generally accepted
accounting principles consistently applied on November 1, 1998
shall be paid to Sellers. Each selling shareholder would receive
equal amounts of the additional consideration, if earned. Such
consideration shall be considered additional purchase price.
ARTICLE 2
---------
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
---------------------------------------------
As an inducement to the Buyer to enter into this Agreement
and to consummate the transactions contemplated hereby, the
Sellers, jointly and severally, unless specifically noted,
represent and warrant to the Buyer as follows:
SECTION 2.1 Ownership of Stock. Each Seller individually
------------------
represents and warrants as to himself that, conditioned upon the
consummation of the transactions contemplated hereunder, he owns
the shares of Common Stock listed opposite his name on Schedule
--------
2.1 hereto, free and clear of all pledges, security interests,
- ---
liens, charges, encumbrances, equities, claims, options or
limitations of every kind ("Claims"), and that the delivery to
the Buyer at Closing of the Common Stock owned by such Seller
pursuant to the provisions of this Agreement will transfer to the
Buyer valid title thereto, free and clear of all Claims.
SECTION 2.2 Authority Relative to this Agreement. Each
------------------------------------
Seller individually represents and warrants as to himself and,
conditioned upon the consummation of the transactions
contemplated hereunder, (a) that such Seller has full legal
power, capacity and authority to execute, deliver and perform
this Agreement, and, to the extent applicable to such Seller, the
Exhibits and Schedules hereto and the other documents and
instruments contemplated hereby (collectively, this Agreement,
the Exhibits and Schedules hereto, and the other documents and
instruments contemplated hereby shall constitute the "Documents")
and to consummate the transactions contemplated hereby and
thereby, and (b) that, to the extent applicable to such Seller
and when duly and validly executed and delivered by all parties,
the Documents will be enforceable against such Seller in
accordance with their terms, subject to bankruptcy,
reorganization, insolvency and other similar laws affecting the
enforcement of creditors' rights in general.
SECTION 2.3 Foreign Person. Each Seller individually
--------------
represents and warrants as to himself that he is not a foreign
person as that term is defined in Section 1445(f)(3) of the Code
and applicable regulations.
SECTION 2.4 Organization, Qualification and Corporate
-----------------------------------------
Power. The Company is a corporation duly organized and validly
- -----
existing under the laws of the State of Ohio. The Company is not
qualified to do business as a foreign corporation in any other
state. The nature of the Business does not require Company to be
qualified in any other jurisdiction where the failure to be so
qualified would have a material adverse effect on the business or
properties of the Company. Sellers have made available to the
Buyer complete and correct copies of the Articles of
Incorporation and Bylaws of the Company as currently in effect.
The Company has the corporate power and authority to own, lease,
operate and hold its properties and to carry on its business as
now conducted.
SECTION 2.5 Capitalization. The Company has authorized
--------------
capital consisting of One Thousand (1000) shares of common stock
of which Eight Hundred Ten (810) shares are issued and
outstanding and One Hundred Ninety (190) shares are held as
treasury stock. All of the outstanding shares of the Company
have been duly authorized and validly issued and are fully paid
and nonassessable. None of the outstanding shares of the Company
have been issued in violation of any preemptive right. There
are, conditioned upon the consummation of the transactions
contemplated hereunder, no outstanding options, warrants, rights,
calls, commitments, conversion rights, rights of exchange, plans
or other agreements of any character providing for the purchase,
issuance or sale of any shares of capital stock of the Company,
other than as contemplated by this Agreement.
SECTION 2.6 Subsidiaries and Investments. The Company
----------------------------
has no subsidiaries and does not own, directly or indirectly, any
capital stock or other equity or ownership or proprietary
interest in any other corporation, partnership, association,
trust, joint venture or other entity.
SECTION 2.7 Books and Records. The minute books of the
-----------------
Company, which have been made available to the Buyer and its
representatives, contain alone, or in conjunction with other
corporate books and records which have been made available to
Buyer, records accurate in all material respects of all meetings
of and corporate actions or written consents by the shareholders
and Board of Directors of the Company. The Company does not have
any of its records, systems, controls, data or information
recorded, stored, maintained, operated or otherwise wholly or
partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto
and therefrom) are not under the exclusive ownership and direct
control of the Company and/or its attorneys, accountants and
professional advisors.
SECTION 2.8 Financial Statements. Sellers have
--------------------
previously furnished to the Buyer, and attached hereto as
Schedule 2.8 are the Company's Financial Statements with
- ------------
Independent Auditor's Report for Year Ended December 31, 1997,
1996, 1995 and 1994 and reviewed Financial Statements for the
month ended May 31, 1998 (collectively the "Financial
Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles
consistently applied and were prepared from the books and records
of the Company. Such books and records are complete and correct,
accurately reflect all transactions of the Business and have been
made available to the Buyer for examination. Since May 31,
1998, except as permitted under this Agreement and except for
changes in the ordinary course of business consistent with past
practice (i) there has been no adverse change in the assets,
liabilities or financial conditions of the Company from that
reflected in the Financial Statements; and (ii) none of the
business, prospects, financial condition, operations or property
of the Company have been adversely affected by any occurrence or
development, individually or in the aggregate, whether or not
insured against. The Sellers have made available to Buyer all
material facts relating to the preparation of the Financial
Statements.
SECTION 2.9 Labor and Employee Relations. The Company is
----------------------------
not a party to or bound by any collective bargaining agreement
with any labor organization, group or association covering any of
its employees, and, to the knowledge of Sellers, there is not any
current attempt to organize the Company's employees by any
Person, unit or group seeking to act as their bargaining agent.
Except as set forth on Schedule 2.9, to the knowledge of Sellers,
(i) there are no pending or threatened charges (by employees,
their representatives or governmental authorities) of unfair
labor practices or of employment discrimination or of any other
wrongful action with respect to any aspect of employment of any
person employed or formerly employed by the Company; (ii) no
union representation election relating to employees of the
Company has been scheduled by any governmental agency or
authority, no organizational effort is being made with respect to
any of such employees, and there is no investigation of the
Company's employment policies or practices by any governmental
agency or authority pending or threatened; and (iii) the Company
is not currently involved in labor negotiations with any unit or
group seeking to become the bargaining unit for any employees of
the Company. The Company has not experienced any work stoppages,
and, to the knowledge of Sellers, no work stoppage is planned.
SECTION 2.10 Real Property. The Company owns the real
-------------
property as described in Schedule 2.10. Roberts has, or on the
-------------
Closing Date will have, good, valid and marketable fee simple
title to the Real Property indicated on Schedule 2.10 as being
owned by it, free and clear of all mortgages, liens, security
interests and other encumbrances. There are no outstanding
options or rights of first refusal to purchase the Real Property,
or any portion thereof or interest therein. The Real Property
constitutes all the fee and leasehold interests in real property
held for use in connection with, necessary for the conduct of, or
otherwise material to, the Business. There are no eminent domain
or other similar proceedings pending or threatened affecting any
portion of the Real Property. There is no writ, injunction,
decree, order or judgment outstanding, nor any action, claim,
suit or proceeding, pending or threatened, relating to the
ownership, lease, use, occupance or operation by any Person of
any Real Property. The use and operation of the Real Property in
the conduct of the Business does not violate in any material
respect any instrument of record or agreement affecting the Real
Property. There is no violation of any covenant, condition,
restriction, easement or order of any governmental authority
having jurisdiction over such property or of any other Person
entitled to enforce the same affecting the Real Property or the
use or occupancy thereof.
SECTION 2.11 Powers of Attorney; Absence of Limitations on
-----------------------------------
----------
Competition; Guarantees.
-----------------------
Except as set forth in Schedule 2.11, (i) no power of
-------------
attorney or similar authorization given by the Company presently
is in effect or outstanding; (ii) no contract or agreement to
which the Company is a party or is bound or to which the
Company's properties or assets is subject limits the freedom of
the Company to compete in any line of business or with any
Person; and (iii) the Company is not a party to or bound by any
guarantee of any debt or obligation of any other Person.
SECTION 2.12 Significant Customers. Set forth on Schedule
--------------------- --------
2.12 is a true and correct list of the Company's ten largest
- ----
customers for the most recent 12-month period ending December 31,
1997 together with the amount of services attributable to such
customers expressed in dollars and as a percentage of Company's
total sales and services for such period. None of the customers
identified on Schedule 2.12 has terminated or, to the knowledge
-------------
of Sellers, threatened to terminate or materially reduce its
request for services of the Company during the period covered by
such schedule.
SECTION 2.13 Governmental Approvals. Except as set forth
----------------------
on Schedule 2.13, no registration or filing with, or consent or
-------------
approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary
for the valid execution, delivery and performance by Sellers of
this Agreement.
SECTION 2.14 Validity, Etc. Except as set forth on
--------------
Schedule 2.14, neither the execution and delivery of this
- -------------
Agreement or the other Documents, the consummation of the
transactions contemplated hereby or thereby, nor the performance
of this Agreement or the other Documents in compliance with the
terms and conditions hereof and thereof by the Sellers will (i)
violate, conflict with or result in any breach of any trust
agreement, Articles of Incorporation, bylaw, judgment, decree,
order, statute or regulation applicable to the Company, (ii)
violate, conflict with or result in a breach, default or
termination or give rise to any right of termination,
cancellation or acceleration of the maturity of any payment date
of any of the obligations of the Company or increase or otherwise
materially affect the obligations of the Company under any law,
rule, regulation or any judgment, decree, order, governmental
permit, license or order or any of the terms, conditions or
provisions of any mortgage, indenture, note, license, agreement
or other instrument or obligation related to the Company's
ability to consummate and perform the transactions contemplated
hereby or thereby, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained in writing and provided to
the Buyer or will be obtained in writing and provided to Buyer at
or prior to Closing or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Company.
SECTION 2.15 Absence of Adverse Change; Conduct of
-------------------------------------
Business. During the period from March 31, 1998 to and including
- --------
the date of this Agreement, except as set forth on Schedule 2.15,
-------------
or except as permitted and contemplated under this Agreement, the
Company has not (i) except for previously existing bank lines of
credit borrowed or agreed to borrow any material amount of funds
or incurred any liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise), (ii) guaranteed or
agreed to guarantee any obligations of others, (iii) canceled any
indebtedness owing to it or any claims that it might have
possessed, waived any material rights of substantial value or
except as to sale of goods in the ordinary course of business,
sold, leased, encumbered, transferred or otherwise disposed of,
or agreed to sell, lease, encumber, or otherwise dispose of its
assets or permitted any of its assets to be subjected to any
mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind, (iv) made any capital
expenditure over Twenty Five Thousand Dollars ($25,000) or
commitment therefor, (v) declared or paid any bonus dividend or
made any distribution on any shares of its capital stock, or
redeemed, purchased or otherwise acquired any shares of its
capital stock or any option, warrant or other right to purchase
or acquire any such shares, (vi) except for previously existing
bank lines of credit increased its indebtedness for borrowed
money, or made any loan to any Person, (vii) written off as
uncollectible any notes or accounts receivable, (viii) made any
material change in any method of accounting or auditing practice,
(ix) made any payment or payments to any person, firm, or entity
other than to reduce or eliminate liabilities which Roberts would
make in the normal and ordinary course of business, (x) increased
the wages or other compensation to salaried employees without
Buyer's consent, (xi) failed to maintain current property,
casualty, and liability insurance on Roberts' assets and
operations, (xii) entered into any contract with a customer in
excess of Five Hundred Thousand ($500,000), (xiii) contracted to
sell any buildings, facilities, equipment or machinery, (xiv)
otherwise conducted its business or entered into any transaction,
except in the usual and ordinary manner, or (xv) agreed, whether
or not in writing, to do any of the foregoing.
SECTION 2.16 Certain Practices. Each Seller individually
-----------------
represents and warrants as to himself; each Seller individually
represents and warrants, to his knowledge, as to the other
Sellers; and the Sellers represent, jointly and severally, to the
knowledge of Sellers as to the directors, officers and employees
of the Company other than Sellers that, that neither such Seller,
the other Seller nor the Company's directors, officers or
employees other than Sellers have, directly or indirectly, used
any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political
activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; violated any
provision of the Foreign Corrupt Practices Act of 1977, as
amended.
SECTION 2.17 Compliance with Law; Licenses and Permits.
-----------------------------------------
To Seller's knowledge, except as set forth on Schedule 2.17, the
-------------
Company has complied with all laws, ordinances, legal
requirements, rules, regulations and orders applicable to it, its
operations, properties, assets, products and services. To
Seller's knowledge, there are no facts or circumstances which may
result in institution of any discrimination action, suit, claim
or legal or administrative proceeding or investigation against
the Company based upon race, color, religion, gender, disability
or national origin. Except as set forth on Schedule 2.17, there
-------------
is no existing law, rule, regulation or order, nor, to Seller's
knowledge, any proposed law, rule, regulation or order, whether
Federal, state or local, directly applicable to it which would
prohibit or materially restrict the Buyer from, or otherwise
materially adversely affect the Buyer in, conducting the Business
in the manner heretofore conducted by the Company in any
jurisdiction in which the Business is now conducted. The Company
possesses all franchises, permits, licenses, certificates and
consents required from any governmental or regulatory authority
in order for the Company to carry on its business as currently
conducted and to own and operate its properties and assets as now
owned and operated where the failure to possess any such
franchise, permit, license, certificate or consent would have an
adverse affect on the business or properties of the Company. All
of such licenses and permits are set forth on Schedule 2.17.
-------------
SECTION 2.18 Employee Benefits.
-----------------
(a) Set forth on Schedule 2.18 is a list of all
-------------
pension, profit sharing, retirement, deferred compensation,
stock purchase, stock option, incentive, bonus, vacation,
severance, disability, hospitalization, medical insurance, life
insurance, fringe benefit, welfare and other employee benefit
plans, programs or arrangements pursuant to which the Company or
its ERISA Affiliates provides (directly or indirectly,
individually or jointly through others) benefits or compensation
to or on behalf of employees or former employees of the Company
or its ERISA Affiliates, whether formal or informal, whether or
not written ("Employee Plan"). The Sellers have furnished a copy
of each Employee Plan and a copy of any related materials. The
Company will maintain the benefits listed on Schedule 2.18 in
-------------
full force and effect through the Effective Date and maintain
such benefits so as to allow Buyer at Buyer's option, to continue
such benefits beyond the Effective Date. Except as set forth on
Schedule 2.18, the Buyer shall not have any obligation or
- -------------
liability of any kind or nature for any compensation or benefits
of any kind or nature to the employees or consultants of the
Company for services rendered prior to the Effective Date.
(b) Each Employee Plan covering any present or former
employee of the Company which is subject to the continuation
health coverage requirements of Section 4980B of the Code or
Section 601 of ERISA or any applicable state law has complied
with all such requirements for continuation coverage.
(c) There are no actions, suits or claims pending
(other than routine claims for benefits) or to the knowledge of
Sellers threatened against or with respect to any Employee Plan
or the assets of any Employee Plan.
(d) Each Employee Plan (and the related trust or
funding vehicle, if any) has been administered and maintained in
accordance with its terms and with applicable law. Except as set
forth on Schedule 2.18(d), each Employee Plan which is intended
----------------
to be qualified under Section 401 of the Code and each amendment
to such plan is subject to a favorable determination letter from
the Internal Revenue Service and each such plan has at all times
been maintained, by its terms and in operation, in accordance
with Section 401 of the Code. The assets of each Employee Plan
which is not funded through the general assets of the Company are
at least equal to the liabilities under such Employee Plan, and
all assets of each Employee Plan are shown on the books and
records of such Employee Plan at fair market value. No Employee
Plan has unfunded liabilities that are not accurately and fully
reflected on the Company's Financial Statement.
(e) Neither the Company nor any of its ERISA
Affiliates is or has been a participant in, or is or has been
obligated to maintain or to make contributions to, a multi-
employer plan (within the meaning of ERISA Section 3(37) and
ERISA Section 4001(a)(3)) or an Employee Plan which is subject to
Title IV of ERISA. Neither the Company nor any ERISA Affiliate
has sponsored, contributed to or been obligated under Title I or
IV of ERISA to contribute to a "defined benefit plan" (as defined
in ERISA Section 3(35)). Except as set forth on Schedule
2.18(e), the Company is not obligated to provide post-retirement
medical benefits or any other unfunded post-retirement welfare
benefits to or on behalf of any persons whatsoever (except the
benefits pursuant to the continuation health coverage
requirements under Section 4980B of the Code, ERISA Section 601,
or applicable state law).
(f) Neither the Company nor its ERISA Affiliates is
subject to and, to the knowledge of Sellers, no facts exist which
could subject the Company or any of its ERISA Affiliates to, any
liability whatsoever which is directly or indirectly related to
any Employee Plan, including, but not limited to, liability for
benefit payments or related claims, any liability for any tax or
related penalty under the Code, or liability for any damages or
penalties arising under Title I or Title IV of ERISA. No
reportable event under Section 4043 of ERISA has occurred.
(g) Termination of or withdrawal from any Employee
Plan immediately after the Closing would not subject the Buyer to
any liability, tax or penalty whatsoever.
(h) The execution or performance of the transactions
contemplated by this Agreement will not create, accelerate or
increase any obligations under the Employee Plans, including any
obligation to make any payment which would not be deductible as
an excess golden parachute payment under Section 280G of the
Code.
(i) All contributions to or under each Employee Plan
and all expenses of each Employee Plan are fully deductible for
income tax purposes for the taxable year for which such
contributions are made or such expenses are paid. All
contributions to or under each Employee Plan have been made when
due under the terms of such Employee Plan in accordance with
applicable law.
(j) Neither the Company nor its ERISA Affiliates have
entered into any contract, agreement or arrangement (whether oral
or written) under which the Company or its ERISA Affiliates have
assumed any liability relating to their clients' retirement
plans, nor have the Company and/or its ERISA Affiliates made any
verbal representations that the use of any employees of the
Company or its ERISA Affiliates would have no adverse consequence
on such client retirement plans.
(k) For purposes of this Section 2.18, the term
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the term "ERISA Affiliate" shall mean each
trade or business (whether or not incorporated) which together
with the Company is treated as a single employer under Section
414(b), (c), (m), (o) or (t) of the Code.
SECTION 2.19 Fixed Assets. Schedule 2.19 contains a list
------------ -------------
of all of Company's fixed assets, which list is true and complete
as to all fixed assets valued over Ten Thousand Dollars ($10,000)
whether owned or leased, as of the date reflected in Schedule
--------
2.19. Except as shown on Schedule 2.19 the Company has good
- ---- -------------
title to all of its fixed assets, free and clear of all claims,
liens, mortgages, charges and encumbrances. All of the Company's
fixed assets, whether owned or leased, are reasonably adequate
and usable for the purposes for which they are currently used
and, ordinary wear and tear excepted, are in good operating
condition and repair and have been properly maintained.
SECTION 2.20 Insurance. The Company is, and will be
---------
through the Effective Date, insured with insurers in respect of
its properties, assets and businesses as set forth on the
attached Schedule 2.20. Schedule 2.20 lists the insurance
------------- -------------
coverage carried by the Company, which insurance will remain in
full force and effect with respect to all events occurring prior
to the Effective Date. Except as set forth on Schedule 2.20, the
-------------
Company (i) has not failed to give any notice or present any
claim under any such policy or binder in due and timely fashion,
(ii) has not received notice of cancellation or non-renewal of
any such policy or binder, (iii) has not received notice of any
threatened or proposed cancellation or non-renewal of any such
policy or binder, and (iv) has not received notice of any
insurance premiums which will be materially increased in the
future. There are no outstanding claims under any such policy as
to which the insurer has disclaimed liability.
SECTION 2.21 Accounts Receivable.
-------------------
(a) The accounts receivable of the Company shown on
the Financial Statements as of December 31, 1997 and May 31,
1998, or as shall be shown on the Closing Balance Sheet
(collectively the "Accounts Receivable") represent or will
represent genuine accounts arising from sales actually made or
services actually performed in the ordinary course of business.
Unless paid prior to the Effective Date, to Seller's knowledge,
the Accounts Receivable are or will be as of the Effective Date
fully collectable and not subject to counterclaim or set-off
(except to the extent that collectablity thereof may be subject
to or affected by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, or other laws relating to
or affecting the rights of credits generally) within 120 days of
the Effective Date without resort to litigation in an aggregate
amount not less than the aggregate amount at which they are
carried on the Closing Balance Sheet, net of aggregate reserves
therefore and net of credits not reflected on the Closing Balance
Sheet, if any, for returns or adjustments thereafter arising in
the ordinary course of business and consistent with past
practice.
(b) Buyer shall cause Company to use all commercially
reasonable efforts consistent with Company's past practices to
collect the Accounts Receivable (which shall not be deemed to
require instituting litigation or using a collection agency).
(c) In the event Buyer asserts an indemnification
claim pursuant to Section 1.3(e) with respect to a breach of
Seller's representations and warranties as to Accounts Receivable
then Buyer shall cause Company to assign such receivable to
Sellers when and in such amounts actually paid to Buyer by
Sellers.
SECTION 2.22 Outstanding Contracts. Schedule 2.22 sets
--------------------- -------------
forth as of the date hereof a reasonable summary description of
all contracts, agreements, commitments, licenses and franchises,
which involve obligations or commitments by the Company of Twenty
Five Thousand Dollars ($25,000) or more and are not cancelable by
the Company without penalty within 30 days and not otherwise
scheduled in a more specific schedule of this Agreement
(collectively "Contracts"), whether written or oral, relating to
the Company. Sellers have delivered or made available to the
Buyer true, correct and complete copies of all of the Contracts
specified on Schedule 2.22 which are in writing, and such
-------------
schedule sets forth a reasonable summary description of all
Contracts which are not in writing. All of the Contracts are in
full force and effect and enforceable in accordance with their
terms, except to the extent that the enforceability thereof may
be subject to or affected by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium, or other laws
relating to or affecting the rights of creditors generally.
Except as set forth on Schedule 2.22 as of the date hereof, the
-------------
Company and, to the knowledge of Sellers, each other party
thereto has materially performed all the obligations required to
be performed by it, has received no notice of default and is not
in default (with due notice or lapse of time or both) under any
of the Contracts. The Company has no present expectation or
intention of not fully performing all its obligations under each
of the Contracts, and Sellers have no knowledge of any breach or
anticipated breach by the other party to any of the Contracts to
which the Company is a party. Except as set forth on Schedule
--------
2.22, none of the Contracts has been terminated; no notice has
- ----
been given by any party thereto of any alleged default by any
party thereunder; and Sellers have received no notice of any
intention or right of any party to declare another party to any
of the Contracts to be in default and, to the knowledge of
Sellers, no party intends to declare another party to the
Contracts in default. Except as set forth on Schedule 2.22,
-------------
there exists no actual or, to the knowledge of Sellers,
threatened termination or cancellation or material limitation of
the business relationship of the Company by any party to any of
the Contracts.
SECTION 2.23 Outstanding Leases. Schedule 2.23 sets forth
------------------ -------------
a description of each agreement by which the Company leases the
building, cranes, equipment and other items used in connection
with the Business (collectively, the "Leases"). Sellers have
delivered or made available to the Buyer true, correct and
complete copies of the Leases specified on Schedule 2.23. All
-------------
rents due under the Leases have been paid. The Leases are in
full force and effect and enforceable in accordance with their
terms, except to the extent that the enforceability thereof may
be subject to or affected by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium, or other laws
relating to or affecting the rights of creditors generally.
Except as set forth on Schedule 2.23, the Company and to the
-------------
knowledge of Sellers, each other party thereto has performed all
the material obligations required to be performed by it, has
received no notice of default and is not in default (with due
notice or lapse of time or both) under the Leases.
SECTION 2.24 Proprietary Information of Third Parties.
----------------------------------------
Except as disclosed on Schedule 2.24, no third party has claimed
-------------
or, to the knowledge of Sellers, has reason to claim that any
Person employed by or consulting with the Company ("Related
Person") has (i) violated or may be violating any of the terms or
conditions of such person's employment, non-competition or
non-disclosure agreement with such third party, (ii) disclosed or
may be disclosing or utilized or may be utilizing any trade
secret or proprietary information or documentation of such third
party, or (iii) interfered or may be interfering in the
employment relationship between such third party and any of its
present or former employees. No third party has requested
information from the Company which reasonably suggests that such
a claim might be contemplated. Except as disclosed on Schedule
--------
2.25, to the knowledge of Sellers, no Related Person has employed
- ----
or proposes to employ any trade secret or any information or
documentation proprietary to any former employer and, no Related
Person has violated any confidential relationship which such
person may have had with any third party in connection with the
development, or sale of any service of the Company.
SECTION 2.25 Transactions With Affiliates. Except as set
----------------------------
forth on Schedule 2.25, to the knowledge of Sellers, no director,
-------------
officer or shareholder of the Company, or member of the family of
any such person, or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of
any such person, has a beneficial interest greater than 5% or is
an officer, director, trustee, partner or holder of any equity
interest greater than 5%, is a party to any transaction with the
Company, including any contract, agreement or other arrangement
providing for the employment of, furnishing of services by,
rental of real or personal property from or otherwise requiring
payments or involving other obligations to any such person or
firm.
SECTION 2.26 Absence of Undisclosed Liabilities.
----------------------------------
(a) Except as and to the extent of the amounts
specifically reflected or reserved against in the December 31,
1997 Financial Statement or May 31, 1998, or except as set forth
on Schedule 2.26, to Seller's knowledge, the Company has no
-------------
liabilities or obligations of any nature whatsoever due or to
become due, accrued, absolute, contingent or otherwise of the
type required to be reflected in financial statements in
accordance with GAAP, except for liabilities and obligations
incurred since the date thereof in the ordinary course of
business and consistent with past practice and liabilities and
obligations permitted and contemplated under this Agreement. To
the knowledge of Sellers and subject to the exceptions set forth
in the prior sentence, there is no reasonable basis for the
assertion against the Company of any liability or obligation of
the type required to be reflected in Financial Statements in
accordance with GAAP, not fully reflected or reserved against in
the Financial Statements.
(b) The Company is not bound by any agreement, or,
subject to any charter or other corporate restriction or any
legal requirement which has a material adverse effect on the
business of the Company.
SECTION 2.27 Taxes. Except as set forth on Schedule 2.27,
----- -------------
all federal, state, local and foreign tax returns and tax reports
required to be filed by the Company on or before the date hereof
have been timely filed with the appropriate governmental agencies
in all jurisdictions in which such returns and reports are
required to be filed and all amounts shown as owing thereon have
been paid or accrued in the financial records of the Company.
All taxes (including, without limitation, income, accumulated
earnings, property, sales, use, franchise, value added, fuel,
employees' income withholding and social security taxes) which
have become due or payable or are required to be collected by the
Company or are otherwise attributable to any periods ending on or
before the Effective Date and all interest and penalties thereon,
whether disputed or not, have been paid or will be paid in full
or adequately reflected on the Closing Balance Sheet or the
Company's books and records in accordance with generally accepted
accounting principles on, or prior to or as of the Effective
Date. Except as set forth on Schedule 2.27, all deposits
-------------
required by law to be made by the Company with respect to
employees' withholding taxes have been duly made, and as of the
Effective Date all such deposits due will have been made in
accordance with past practices. The Company has delivered to the
Buyer true and complete copies of all of Company's state and
federal income tax returns for the fiscal periods ended December
31, 1994, 1995, 1996 and 1997 and all reports and results of
income tax audits, if any, related thereto. Except as set forth
on Schedule 2.27, no examination of any tax return of the Company
-------------
is currently in progress. There are no outstanding agreements or
waivers extending the statutory period of limitations applicable
to any such tax return.
SECTION 2.28 Litigation. Except as set forth on Schedule
---------- --------
2.28, there is no (i) action, suit, claim, proceeding or
- ----
investigation pending or, to the knowledge of Sellers, threatened
against the Company (whether or not such Company is a party or
prospective party thereto), at law or in equity, or before or by
any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, which if a determination is rendered against the Company
would materially impact the Company, (ii) arbitration proceeding
pending against the Company or (iii) governmental inquiry pending
or, to the knowledge of Sellers, threatened against the Company.
The Company has not received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed, from
a legal standpoint, to any liability or disadvantage which may be
material to the business, financial condition, operations or
property of the Company. There are no outstanding orders, writs,
judgments, injunctions or decrees served upon the Company by any
court, governmental agency or arbitration tribunal against the
Company. To the knowledge of Sellers, there are no facts or
circumstances which may result in institution of any action,
suit, claim or legal, administrative or arbitration proceeding or
investigation against the Company or the transactions
contemplated hereby. The Company is not in default with respect
to any order, writ, injunction or decree known to and applicable
to it or served upon it from any court or of any Federal, state,
municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign. Except
as disclosed on Schedule 2.28, there is no action or suit by the
-------------
Company pending or threatened against others.
SECTION 2.29 Environmental Matters.
---------------------
(a) Compliance. To Seller's knowledge, the Company
----------
and J.R. Properties are in compliance with all applicable laws,
rules, regulations, orders, ordinances, judgments and decrees of
all governmental authorities with respect to all environmental
statutes, rules and regulations the absence of compliance with
respect to which would have a material adverse affect on Company.
Except as set forth on Schedule 2.29, the Company and J.R.
-------------
Properties have not received notice of, nor do Sellers have
knowledge of, any past, present or future events, conditions,
circumstances, activities, practices, incidents or actions of the
Company or the Company's predecessors, either collectively,
individually or severally, which may interfere with or prevent
continued compliance with, or which may give rise to any common
law or legal liability or otherwise form the basis of any claim,
action, suit, proceeding, hearing, or investigation, based on or
related to the disposal, storage, handling, manufacture,
processing, distribution, use, treatment or transport, or the
emission, discharge, release or threatened release into the
environment, of any Substance. As used in this Section 2.29, the
term "Substance" or "Substances" shall mean any pollutant,
contaminant, hazardous substance, hazardous material, hazardous
waste or toxic waste, as defined in any presently enacted
federal, state or local statute or any regulation that has been
promulgated pursuant thereto. No part of any of the Leased
Parcels has been listed or proposed for listing on the National
Priorities List established by the United States Environmental
Protection Agency, or any other corresponding list by any state
or local authorities.
(b) Environmental Substance Liability. Except as set
---------------------------------
forth on Schedule 2.29, no event has occurred or condition exists
-------------
or operating practice has been or is being employed that could
give rise to liability on the part of the Company or J.R.
Properties, either at the present time or in the future, for any
losses, liabilities, damages (whether consequential or
otherwise), settlements, penalties, interest, including any such
liability on account of the right of any governmental or private
entity or person, and including closure expenses, costs of
assessment, containment, removal, or response (other than
monitoring or transportation or disposal of materials required to
be transported or disposed of in the ordinary course of business
consistent with past practice) arising under any rule or federal,
state, or local statute, or any regulation that has been
promulgated pursuant thereto, or common law (as all of the same
presently exist and are presently construed) as a result of or in
connection with the following (collectively the "Hazardous
Activities"):
(A) the handling, storage, use, transportation or
disposal of any Substances in or near or from
the Leased Parcels;
(B) the handling, storage, use, transportation or
disposal of any Substances by the Company or
its predecessors which Substances were a
product, by-product or otherwise resulted
from the operations conducted by or on behalf
of the Company or its predecessors;
(C) any intentional or unintentional emission,
discharge or release of any Substances in or
near or from facilities into or upon the air,
surface water, ground water or land or any
disposal, handling, manufacturing,
processing, distribution, use, treatment, or
transport of such Substances in or near or
from facilities by or on behalf of the
Company or its predecessors; or
(D) the presence of any toxic or hazardous
building materials (including but not limited
to friable asbestos or similar substances) in
any facilities of the Company, including but
not limited to the inclusion of such
materials in the exterior and interior walls,
floors, ceilings, tile, insulation or any
other portion of building structures.
(c) Environmental Permits. The Company and J.R.
---------------------
Properties have obtained and hold all registrations, permits,
licenses, and approvals issued by or on behalf of any federal,
state or local governmental body or agency if any ("Environmental
Permits") that are required in connection with the operation by
the Company of the Leased Parcels, the discharge or emission of
Substances by the Company from the Leased Parcels or the
generation, treatment, storage, transportation, or disposal of
any such Substances by the Company. Such Environmental Permits,
which are described on Schedule 2.29, are currently effective and
-------------
reasonably sufficient for the operation of the Leased Parcels and
the business of the Company as currently conducted and intended
by the Company to be conducted. The Company is in compliance
with all terms and conditions of the Environmental Permits, and
is also in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables contained in those laws or provisions
or contained in any regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or
approved thereunder and applicable to the Company the absence of
compliance therewith would have an adverse effect on the Company.
(d) Deliveries. Seller has delivered to Buyer true
----------
and complete copies and results of any reports, studies,
analyses, tests, or monitoring possessed or initiated by Seller
pertaining to Substances or Hazardous Activities in, on, or under
the Leases Parcels or concerning compliance by Seller or any
other Person for whose conduct they are or may be held
responsible under environmental statutes, rules and regulations.
(e) Environmental Hold Harmless. Notwithstanding the
---------------------------
foregoing representation and warranty as set forth in this
Section 2.29, buyer acknowledges that buyer has investigated
through its due diligence and has assisted seller in a "Phase
One" environmental study regarding all environmental issues
relative to the real property which is part of this transaction,
and buyer is satisfied with its findings relative to the
environmental condition of the property, and specifically
acquires the property "as is". Buyer further acknowledges herein
that it indemnifies and holds the sellers harmless from and
against all claims, actions, or cause of actions, arising out of
buyer's purchase and acquisition of the real property which is a
part of this transaction. Further, buyer acknowledges and agrees
that this "as is" purchase of the real property, along with the
indemnification and hold harmless of the sellers relative
thereto, was negotiated and was an integral part of the terms and
conditions accepted by both the buyer and the seller hereto.
SECTION 2.30 Broker's or Finder's Fees. No agent, broker,
-------------------------
person or firm acting on behalf of Sellers or the Company is, or
will be, entitled to any commission or broker's or finder's fees
from the Sellers or the Company, or from any person controlling,
controlled by or under common control with the Sellers or the
Company, in connection with any of the transactions contemplated
herein.
SECTION 2.31 Inventories. All of the Company's inventory
-----------
reflected on the December 31, 1997 or May 31, 1998 Financial
Statement or thereafter acquired prior to the date hereof (and
not subsequently sold in the ordinary course of business)
consists of items of a quality and quantity saleable in the
ordinary course of the Company's Business (excepting customary
waste, scrap and returns consistent with past practices) as
quality goods at prices having a value at least equal to the
amount reflected on the December 31, 1997 or May 31, 1998
Financial Statement, except as to obsolete and below standard
quality inventory, the value of which has been written down on
the Company's books of account to realizable market value. All
items of inventory are valued on the December 31, 1997 or May 31,
1998 Financial Statement at the lower of cost or estimated
realizable market value, in accordance with generally accepted
accounting principles. The inventories and supplies for the
Business are at reasonably adequate levels for the continuation
of the Business in the ordinary course.
SECTION 2.32 Disclosure. All Documents delivered or to be
----------
delivered by or on behalf of the Sellers in connection with this
Agreement and the transactions contemplated hereby are true,
complete and correct. Neither this Agreement, nor any of the
other Documents contains any untrue statement of a material fact
or omits a material fact necessary to make the statements made by
Sellers herein or therein, in light of the circumstances in
which made, not misleading. There is no fact known to the
Sellers which has specific application to the Company and
materially and adversely affects the business or financial
condition of the Company or its properties or assets, which has
not been set forth in the Documents.
ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
As an inducement to the Sellers to enter into this Agreement
and to consummate the transactions contemplated hereby, the Buyer
represents and warrants to the Sellers as follows:
SECTION 3.1 Organization. Steel Technologies Inc. is a
------------
corporation duly organized, validly existing and in good
standing under the laws of the State of Kentucky and is duly
qualified to transact business as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a
material adverse impact on the Buyer's ability to purchase the
Common Stock pursuant to the Documents and perform its
obligations under the Documents.
SECTION 3.2 Corporate Power and Authority. The Buyer has
-----------------------------
the absolute and unrestricted right and authority to execute,
deliver and perform the Documents. The execution, delivery and
performance of the Documents contemplated hereby and the
consummation and performance of the transactions contemplated
hereby and thereby have been duly authorized and approved by all
necessary corporate action of the Buyer. Upon the Buyer's
execution and delivery of the Documents, the Documents will
constitute the legal, valid and binding obligation of the Buyer
enforceable against the Buyer in accordance with their terms,
subject to bankruptcy, reorganization, insolvency and other
similar laws affecting the enforcement of creditor's rights in
general.
SECTION 3.3 No Conflict. Neither the execution and
-----------
delivery by the Buyer the Documents, the consummation by
the Buyer of the transactions contemplated hereby or thereby, nor
the performance by the Buyer of the Documents in compliance with
the terms and conditions hereof and thereof will not (i) violate,
conflict with or result in any breach of any trust agreement,
articles of incorporation, bylaw, judgment, decree, order,
statute or regulation applicable to the Buyer, (ii) violate,
conflict with or result in a breach of or default (or give rise
to any right of termination, cancellation or acceleration) under
any law, rule or regulation or any judgment, decree, order,
governmental permit, license or order or any of the terms,
conditions or provisions of any mortgage, indenture, note,
license, agreement or other instrument to which the Buyer is a
party, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer.
SECTION 3.4 Acquisition of Stock for Investment. The
-----------------------------------
Buyer is acquiring the shares of Common Stock for investment and
not with a view toward, or for sale in connection with, any
distribution thereof, nor with any present intention of
distributing or selling such shares of Common Stock. The Buyer
agrees that such shares of Common Stock may not be sold,
transferred, offered for sale, pledged, hypothecated or otherwise
disposed of without registration under the Securities Act of
1933, as amended, except pursuant to an exemption from
registration available under such Act. Buyer will not sell,
offer to sell or solicit offers to buy any of the shares of
Common Stock in violation of the Securities Act of 1933 or the
securities law of any state. Buyer understands that the shares
of Common Stock have not been registered under federal or any
state's securities laws.
SECTION 3.5 Broker's or Finder's Fees. No agent, broker,
-------------------------
person or firm acting on behalf of the Buyer is, or will be,
entitled to any commission or broker's or finder's fees from the
Buyer, or from any person controlling, controlled by or under
common control with the Buyer, in connection with any of the
transactions contemplated herein.
SECTION 3.6 Financial Statements. Buyer has delivered to
--------------------
Sellers true and complete copies of Buyer's consolidated
financial statement for fiscal year ended September 30, 1997 with
independent auditor's report. Such Financial Statement has been
prepared in accordance with generally accepted accounting
principles consistently applied and were prepared from the books
and records of Buyer. Such books and records are complete and
correct in all material respects, accurately reflect all material
transactions of Buyer, and have been made available to the
Sellers for examination. Since September 30, 1997, (i) there
has been no material change in the assets, liabilities or
financial condition of Buyer from that reflected in such
Financial Statement except for changes in the ordinary course of
business consistent with past practice and which have not been
materially adverse, and (ii) none of the business, financial
conditions, operations or property of Buyer has been materially
adversely affected by any occurrence, individually or in the
aggregate, whether or not insured against.
SECTION 3.7 Buyer's Public Documents. Buyer has
------------------------
delivered to the Sellers true and complete copies of (i) Buyer's
annual report on form 10-K for the year ended September 30, 1997;
(ii) Buyer's quarterly report on form 10-Q for the quarter ended
March 31, 1998; (iii) Buyer's 1997 annual report to shareholders;
and (iv) Buyer's definitive proxy statement relating to its 1998
annual shareholders meeting.
SECTION 3.8 Disclosure. All Documents delivered or to be
----------
delivered by or on behalf of the Buyer in connection with this
Agreement and the transactions contemplated hereby are true,
complete and correct in every material respect. Neither this
Agreement, nor any of the other Documents contains any untrue
statement of a material fact or omits a material fact necessary
to make the statements made by Buyer herein or therein, in light
of the circumstances in which made, not misleading. There is no
fact known to the Buyer which has specific application to Buyer
and may have a material adverse affect on the Buyer's ability to
perform its obligations under the Documents, which has not been
set forth in the Documents.
SECTION 3.9 Due Diligence Investigation. The buyer has
---------------------------
done an exhaustive "due diligence" investigation relative to all
of the representations and warranties of the Seller including but
not limited to the financial condition of the company, and
environmental matters involving the real estate which is part of
the assets being acquired; further, that the seller and the
seller's professionals including but not limited to its
accountant and attorney along with Seller's employees have
cooperated to the fullest extent with the buyer; and further that
the buyer through this diligence investigation is completely
satisfied with its findings and determinations to the extent that
information disclosed is true, accurate, and complete.
ARTICLE 4
---------
COVENANTS AND AGREEMENTS
-------------------------
SECTION 4.1 Cooperation. Each of the parties hereto
-----------
shall use their best efforts in good faith to perform and fulfill
all conditions and obligations to be fulfilled or performed by it
hereunder to the end that the transactions contemplated hereby
will be fully and timely consummated.
SECTION 4.2 Best Efforts. Sellers and Buyer shall each
------------
use their best efforts to procure upon reasonable terms and
conditions all consents and approvals, completion of all filings,
all registrations and certificates, and satisfaction of all other
requirements prescribed by law which are necessary for the
consummation of the transactions contemplated by this Agreement
and the Buyer's ownership and operation of the Company's Business
after the Effective Date. Prior to the Closing Date, the Sellers
will use their best efforts to preserve Company's relationships
with its employees, customers and others having business
relationships with the Company.
SECTION 4.3 Tax Returns. The Company shall cause to be
-----------
prepared and timely filed, at its sole expense, all of Company's
required tax returns for all periods ending on or prior to the
Effective Date.
SECTION 4.4 Investigations. Sellers shall give Buyer and
--------------
its employees, accountants, attorneys and other authorized
representatives full access during all reasonable times to all
the premises, properties, books and records, and furnish Buyer
with such financial and operating data, analyses and other
information of any kind respecting Company's business and
properties as Buyer shall from time to time request. Any
investigation shall be conducted in a manner which does not
unreasonably interfere with business operations.
SECTION 4.5 Conduct of Business in the Ordinary Course.
------------------------------------------
Sellers shall cause the Company to conduct its business only in
the ordinary course from the date thereof through Closing. By
way of amplification and not limitation, except as otherwise
provided herein, Sellers shall cause the Company, without the
prior written consent of Buyer, not to do any of the following
except as permitted and contemplated by this Agreement:
(i) borrow or agree to borrow any amount of funds or incur any
liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise), or guarantee or agree to guarantee any
obligations of others, (ii) cancel any indebtedness owing to it
or any claims that it might possess, waive any material rights of
substantial value or sell, lease, encumber, transfer or otherwise
dispose of, or agree to sell, lease, encumber, or otherwise
dispose of its assets or permit any of its assets to be subjected
to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind, (iii) make any capital
expenditure or commitment therefor, (iv) declare or pay any
dividend or make any distribution on any shares of its capital
stock or redeem, purchase or otherwise acquire any shares of its
capital stock or any option, warrant or other right to purchase
or acquire any such shares, (v) increase its indebtedness for
borrowed money or make any loan to any Person, (vi) write off as
uncollectible any notes or accounts receivable, (vii) make any
material change in any method of accounting or auditing practice,
(viii) make any payment or payments to any person, firm, or
entity other than to reduce or eliminate liabilities which
Roberts would make in the normal and ordinary course of business,
(ix) increase the wages or other compensation to salaried
employees without Buyer's consent, (x) fail to maintain current
property, casualty, and liability insurance on Roberts' assets
and operations, (xi) enter into any contract with a customer in
excess of Five Hundred Thousand Dollars ($500,000) without notice
and discussion with Buyer, (xii) contract to sell any buildings,
facilities, equipment or machinery without Buyer's consent,
(xiii) otherwise conduct its business or enter into any
transaction, except in the usual and ordinary manner, or
(xiv) agree, whether or not in writing, to do any of the
foregoing.
SECTION 4.6 Preservation of Business. Sellers shall
------------------------
cause the Company to use its best efforts to preserve the
possession and control of all of its assets and Business, to
preserve the goodwill of its customers and others with whom it
has business relations, and to do nothing to impair its ability
to keep and preserve its Business as it exists on the date of
this Agreement.
SECTION 4.7 Sellers' Notification of Material Changes and
---------------------------------------------
Litigation. Sellers shall provide Buyer with prompt written
- ----------
notice, accompanied by a reasonably detailed description and
analysis, (a) of any material adverse, or to the knowledge of
Sellers, potentially material adverse change in the condition,
earnings or business of Company, (b) of any event or condition of
any character (whether actual or, to the knowledge of Sellers,
threatened) pertaining to the financial condition, business or,
to the knowledge of Sellers, assets of Company that has
materially and adversely affected, or has a substantial
possibility of materially and adversely affecting any of such
financial condition, business or assets, or causing any of such
business to be carried on materially less profitably than prior
to the date of this Agreement, and (c) of all claims, regulatory
proceedings and litigation (whether actual or, to the knowledge
of Sellers, threatened and whether or not material) against or
involving Company or (where such actual or threatened claims,
regulatory proceedings or litigation arise in connection with
actions taken or alleged to be taken by any officer, employer or
director of Company in any capacity as an officer, employee or
director of Company). Such adverse or potentially adverse
material changes or such claims, proceedings or litigation shall
include, without limitation, any adverse or potentially adverse
material change in or any litigation arising in connection with
any item or matter reported on any schedule, exhibit or document
delivered by Sellers to Buyer in connection with this Agreement.
SECTION 4.8 Buyer's Notification of Material Changes and
--------------------------------------------
Litigation. Buyer shall provide Sellers with prompt written
- ----------
notice, accompanied by a reasonably detailed description and
analysis, (a) of any material adverse, or to the knowledge of
Buyer, potentially material adverse change in the condition,
earnings or business of Company, (b) of any event or condition of
any character (whether actual or, to the knowledge of Buyer,
threatened) pertaining to the financial condition, business or
assets of Buyer, and (c) of all claims, regulatory proceedings
and litigation (whether actual or, to the knowledge of Buyer,
threatened) against or involving Buyer or (where such actual or
threatened claims, regulatory proceedings or litigation arise in
connection with actions taken or alleged to be taken by any
officer, employer or director of Buyer in any capacity as an
officer, employee or director of Buyer), all in the case that
such event has a substantial possibility of materially and
adversely affecting the ability of Buyer to perform its
obligations under the Documents.
ARTICLE 5
---------
CONDITIONS TO THE BUYER'S OBLIGATIONS
-------------------------------------
The obligation of the Buyer to make deliveries to the
Sellers pursuant to Section 1.3 hereof and to consummate the
other transactions contemplated hereby is subject to the
satisfaction, on or before the Closing Date, of the following
conditions each of which may be waived by the Buyer in its sole
discretion:
SECTION 5.1 Intra-Company Debt. All indebtedness of the
------------------
Company and Sellers to the other and all indebtedness of other
directors, officers and employees of the Company to the Company
shall have been repaid in full and the Sellers shall have
delivered to the Buyer a certificate, dated the Closing Date, to
such effect.
SECTION 5.2 Representations, Warranties and Covenants.
-----------------------------------------
The representations and warranties of Sellers herein contained
shall be true in all respects as stated herein, both when made
and with the same effect as though made again as of the Closing
Date except to the extent of changes permitted by the terms of
this Agreement or where specifically applicable to the date as to
which made. Sellers shall have performed all obligations and
complied with all covenants required by this Agreement to be
performed or complied with by Sellers prior to the Closing Date.
In addition, Sellers shall have delivered to Buyer their
certificate dated as of the Closing Date, to the effect that,
except as disclosed in the certificate, they do not know of any
breach of any representation or warranty made by Sellers in this
Agreement or any failure to perform any covenant made by the
Seller of Sellers where made jointly and severally herein.
SECTION 5.3 Consents. Except as set forth on
--------
Schedule 5.3, all requisite governmental approvals and consents
- ------------
of third parties identified on such schedule or otherwise
identified by the Sellers as required to be received to prevent
any material license, permit or agreement relating to the
Business from terminating prior to its scheduled termination, as
a result of the consummation of the transactions contemplated
hereby, shall have been obtained.
SECTION 5.4 Employment Agreement. James E. Witkowski has
--------------------
entered into an Employment Agreement with the Company in
substantially the form attached hereto as Exhibit B(1) (the
"Employment Agreement").
SECTION 5.4.1 Employment Agreement. Richard H. Barrett has
--------------------
entered into an Employment Agreement with the Company in
substantially the form attached hereto as Exhibit B(2)(the
"Employment Agreement").
SECTION 5.5 Noncompetition Agreement. James E. Witkowski,
------------------------
has entered into a Noncompetition Agreement with Buyer and
Company in substantially the form attached hereto as Exhibit C(1)
(the "Noncompetition Agreement").
SECTION 5.5.1 Noncompetition Agreement. Richard H. Barrett
------------------------
has entered into a Noncompetition Agreement with Buyer and
Company in substantially the form attached hereto as Exhibit C(2)
(the "Noncompetition Agreement").
SECTION 5.5.2 Lease and Contract Termination. J.R.
------------------------------
Properties and Roberts Steel Company have terminated the Lease
and Contract.
SECTION 5.5.3 Operating Lease. J.R. Properties has entered
---------------
into an Operating Lease with Company in substantially the form
attached hereto as Exhibit D (the "Operating Lease").
SECTION 5.5.4 Stock Redemption Agreement Termination.
--------------------------------------
Richard H. Barrett and James E. Witkowski have terminated the
Stock Redemption Agreement entered into on March 22, 1996.
SECTION 5.6 No Actions, Suits or Proceedings. As of the
--------------------------------
Closing Date, no action, suit, investigation or proceeding
brought by any person, corporation, governmental agency or other
entity shall be pending or, to the knowledge of the Sellers,
threatened, before any court or governmental body (i) to
restrain, prohibit, restrict or delay, or to obtain damages or a
discovery order in respect of this Agreement or the consummation
of the transactions contemplated hereby, or (ii) which has had or
may have a materially adverse effect on the condition, financial
or otherwise, or prospects of the Company. No order, decree or
judgment of any court or governmental body shall have been issued
restraining, prohibiting, restricting or delaying, the
consummation of the transactions contemplated by this Agreement.
No insolvency proceeding of any character including without
limitation, bankruptcy, receivership, reorganization, dissolution
or arrangement with creditors, voluntary or involuntary,
affecting the Company shall be pending, and the Company shall not
have taken any action in contemplation of, or which would
constitute the basis for, the institution of any such proceedings
and the Sellers shall have delivered to the Buyer a certificate,
dated the Closing Date, to such effect.
SECTION 5.7 Opinion of Counsel to the Sellers. The Buyer
---------------------------------
shall have received from counsel to Sellers ("Counsel to
Sellers"), an opinion, dated as of the Closing Date, in form and
substance reasonably satisfactory to Buyer, and to the following
effect:
(a) The Company is a corporation duly organized and
validly existing under the laws of the State of Ohio. The
Company is not qualified to do business as a foreign corporation
in any other state. To the knowledge of Counsel to Sellers, the
nature of the Company's business does not require Company to be
licensed or qualified in any other jurisdiction where the failure
to be so qualified would have a material adverse affect on the
business or properties of the Company. The Company has the
corporate power and authority to own, lease, operate and hold its
properties and to carry on its business as now conducted;
(b) To the knowledge of Counsel to Sellers, (i) each
Seller has full legal power, capacity and authority to execute
and deliver the Documents and to consummate the transactions
contemplated thereby; and (ii) the Documents have been duly and
validly executed and delivered by each Seller and constitute the
legal, valid and binding obligation of each such Seller,
enforceable against such Seller in accordance with their terms
subject to bankruptcy, reorganization, insolvency and other
similar laws affecting the enforcement of creditor's rights in
general and to general principals of equity (regardless of
whether considered in a proceeding in equity or an action at
law);
(c) The Company has authorized capital consisting of
One Thousand (1000) shares of common stock, of which Eight
Hundred Ten (810) shares are issued and outstanding and One
Hundred Ninety (190) shares are held as treasury stock. All of
the outstanding shares of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. None of
the outstanding shares of the Company have been issued in
violation of any preemptive right. To the knowledge of Counsel
to Sellers, there are no outstanding options, warrants, rights,
calls, commitments, conversion rights, rights of exchange, plans
or other agreements of any character providing for the purchase,
issuance or sale of any shares of capital stock of the Company,
other than as contemplated by this Agreement;
(d) To the knowledge of Counsel to Sellers, the
Company has no subsidiaries and does not own, directly or
indirectly, any capital stock or other equity or ownership or
proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity and it has been
disclosed to Buyer that Witkowski owns Ameritech and Barrett owns
Chris Industries, a dormant corporation;
(e) No registration or filing with, or consent or
approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary
for the valid execution, delivery and performance by Sellers of
this Agreement;
(f) To the knowledge of Counsel to Sellers, except as
disclosed on the Schedules hereto, there is no (i) action, suit,
claim, proceeding or investigation pending or threatened against
or affecting the Company (whether or not such Company is a party
or prospective party thereto), at law or in equity, or before or
by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign which if a determination is rendered against
the Company would materially impact the Company, (ii) arbitration
proceeding pending relating to the Company or (iii) governmental
inquiry pending or threatened against or involving the Company,
and there is no basis for any of the foregoing. To the knowledge
of Counsel to Sellers, the Company has not received any opinion
or memorandum or legal advice from legal counsel to the effect
that it is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to the business, prospects,
financial condition, operations, property or affairs of the
Company. To the knowledge of Counsel to Sellers, there are no
outstanding orders, writs, judgments, injunctions or decrees
served upon the Company by any court, governmental agency or
arbitration tribunal against the Company. To the knowledge of
Counsel to Sellers, there are no facts or circumstances which may
result in institution of any action, suit, claim or legal,
administrative or arbitration proceeding or investigation
against, involving or affecting the Company or the transactions
contemplated hereby. To the knowledge of Counsel to Sellers,
except as disclosed on the Schedules hereto, the Company is not
in default with respect to any order, writ, injunction or decree
known to or served upon it from any court or of any Federal,
state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign.
To the knowledge of Counsel to Sellers, except as disclosed on
the Schedules hereto, there is no action or suit by the Company
pending or threatened against others;
(g) The Employment Agreements have been duly executed
and delivered by, and constitute the legal, valid and binding
obligation of each Employee thereunder, enforceable against him
in accordance with its terms subject to bankruptcy,
reorganization, insolvency and other similar laws affecting the
enforcement of creditor's rights in general and to general
principals of equity (regardless of whether considered in a
proceeding in equity or an action at law);
(h) The Noncompetition Agreements have been duly
executed and delivered by, and constitute the legal, valid and
binding obligation of each Seller thereunder, enforceable against
him in accordance with its terms subject to bankruptcy,
reorganization, insolvency and other similar laws affecting the
enforcement of creditor's rights in general and to general
principals of equity (regardless of whether considered in a
proceeding in equity or an action at law); and
(i) The Lease and Contract Termination and the
Operating Lease have been duly executed and delivered by, and
constitute the legal valid and binding obligation of J.R.
Properties, enforceable in accordance with its terms, subject to
bankruptcy, reorganization, insolvency and other similar laws
affecting the enforcement of creditor's rights in general and to
general principals of equity (regardless of whether considered in
a proceeding in equity or an action at law); and
(j) The Stock Redemption Agreement Termination has
been duly executed and is effectively terminated in accordance
with its terms.
(k) The execution and delivery of the Documents, the
consummation of the transactions contemplated hereby and thereby,
and the performance of the Documents in compliance with the terms
and conditions hereof and thereof by the Sellers will not, to the
knowledge of Counsel to Sellers, (i) violate, conflict with or
result in any breach of any trust agreement, articles of
incorporation, bylaw, judgment, decree, order, statute or
regulation applicable to the Company, (ii) violate, conflict with
or result in a breach, default or termination or give rise to any
right of termination, cancellation or acceleration of the
maturity of any payment date of any of the obligations of the
Company or increase or otherwise affect the obligations of the
Company under any law, rule, regulation or any judgment, decree,
order, governmental permit, license or order or any of the terms,
conditions or provisions of any mortgage, indenture, note,
license, agreement or other instrument or obligation related to
the Company or to the Seller's ability to consummate the
transactions contemplated hereby or thereby, except for such
defaults (or rights of termination, cancellation or acceleration)
as to which requisite waivers or consents have been obtained in
writing and provided to the Buyer, or (iii) violate any order,
writ, injunction, decree, statute, rule or regulation applicable
to the Company.
SECTION 5.8 Investigation Satisfactory. The Buyer shall
--------------------------
be satisfied in all respects with the results of its
investigation of the properties, customers, prospects and affairs
of the Sellers and the Company.
SECTION 5.9 Closing Documents. The Sellers shall have
-----------------
delivered all of the resolutions, certificates, documents and
instruments required by this Agreement.
SECTION 5.10 Approval of the Buyer and Its Counsel. All
-------------------------------------
actions, proceedings, consents, instruments and documents
required to be delivered by, or at the behest or direction of,
the Sellers hereunder or incident to their performance hereunder,
and all other related matters, shall be reasonably satisfactory
as to form and substance to the Buyer and its counsel.
SECTION 5.11 Release of Claims. The Claims set forth on
-----------------
Schedule 2.1 shall have been released in full to Buyer's
satisfaction.
ARTICLE 6
---------
CONDITIONS TO THE SELLERS' OBLIGATIONS
--------------------------------------
The obligation of the Sellers to transfer the Common Stock
to the Buyer and to consummate the other transactions
contemplated hereby is subject to the satisfaction, on or before
the Closing Date, of the following conditions, each of which may
be waived by the Sellers in their sole discretion:
SECTION 6.1 Representations, Warranties and Covenants.
-----------------------------------------
The representations and warranties of Buyer herein contained
shall be true in all respects as stated herein, both when made
and with the same effect as though made again as of the Closing
Date except to the extent of changes permitted by the terms of
this Agreement or except for breaches of representations and
warranties which would not have a material adverse effect on the
Buyer's ability to pay its obligations under this Agreement.
Buyer shall have performed all obligations and complied with all
covenants required by this Agreement to be performed or complied
with by Buyer prior to the Closing Date. In addition, Buyer
shall have delivered to Sellers its certificate dated as of the
Closing Date and signed by one of its officers, to the effect
that, except as disclosed in the certificate, he does not know of
any breach of any representation or warranty made by Buyer in
this Agreement, or of any failure to perform any covenant made by
Buyer herein or to satisfy any condition to Buyer's obligations
to effect the transactions contemplated by this Agreement which
would have a material adverse effect on the Buyer's ability to
pay its obligations under this Agreement.
SECTION 6.2 No Actions, Suits or Proceedings. As of the
--------------------------------
Closing Date, no action, suit, investigation or proceeding
brought by any person, corporation, governmental agency or other
entity shall be pending or, to the knowledge of the parties to
this Agreement, threatened, before any court or governmental body
to restrain, prohibit, restrict or delay, or to obtain damages or
a discovery order in respect of this Agreement or the
consummation of the transactions contemplated hereby. No order,
decree or judgment of any court or governmental body shall have
been issued restraining, prohibiting, restricting or delaying,
the consummation of the transactions contemplated by this
Agreement. No insolvency proceeding of any character including
without limitation, bankruptcy, receivership, reorganization,
dissolution or arrangement with creditors, voluntary or
involuntary, affecting the Buyer shall be pending, and the Buyer
shall not have taken any action in contemplation of, or which
would constitute the basis for, the institution of any such
proceedings and Buyer shall have delivered to Sellers a
certificate, dated Closing Date, to such effect.
SECTION 6.3 Closing Payments. Buyer shall have delivered
----------------
the closing payments required by Section 1.3(a).
SECTION 6.4 Promissory Note. Buyer shall have duly
---------------
executed and delivered the Promissory Note in the form set forth
in Exhibit A.
SECTION 6.5 Employment Agreements. The Company shall have
---------------------
entered into the Employment Agreements with James E. Witkowski
and in the form set forth in Exhibit B(1).
SECTION 6.6 Employment Agreements. Company shall have
---------------------
entered into the Employment Agreement with Richard H. Barrett, in
the form attached hereto as Exhibit B(2).
SECTION 6.7 Noncompetition Agreements. Buyer and Company
-------------------------
shall have entered into the Noncompetition Agreement with James
E. Witkowski in substantially the form attached hereto as Exhibit
C(1).
SECTION 6.8 Noncompetition Agreements. Buyer and Company
-------------------------
shall have entered into the Noncompetition Agreement with Richard
H. Barrett in substantially the form attached hereto as Exhibit
C(2).
SECTION 6.9 Operating Lease. The Company shall have
---------------
entered into the Operating Lease with J.R. Properties in
substantially the form attached hereto as Exhibit D.
SECTION 6.10 Opinion of Counsel to Buyer. The Sellers
---------------------------
shall have received from John M. Baumann, Jr. counsel to Buyer,
an opinion dated as of the Closing Date, in form and substance
reasonably satisfactory to Sellers, and to the following effect:
(a) Steel Technologies Inc. is a corporation duly
organized, validly existing and in good standing under the laws
of the Commonwealth of Kentucky and is duly qualified to transact
business as a foreign corporation in each jurisdiction in which
the failure to so qualify would have a material adverse impact on
the Buyer's ability to pay its obligations under this Agreement;
(b) The Buyer has the corporate power and authority to
execute, deliver and perform the Agreement and the other
Documents. The execution, delivery and performance of the
Agreement and the other Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and
validly executed and delivered by Buyer and constitute the legal,
valid and binding obligations of Buyer enforceable against Buyer
in accordance with their terms subject to bankruptcy,
reorganization, insolvency and other similar laws affecting the
enforcement of creditor's rights in general and to general
principals of equity (regardless of whether considered in a
proceeding in equity or an action at law); and
(c) The execution and delivery of the Agreement and
the other Documents, the consummation of the transactions
contemplated hereby and thereby, and the performance of the
Agreement and such other agreements in compliance with the terms
and conditions hereof and thereof by the Buyer will not (i)
violate, conflict with or result in any breach of any trust
agreement, articles of incorporation, bylaw, judgment, decree,
order, statute or regulation applicable to the Buyer, (ii)
violate, conflict with or result in a breach of or default (or
give rise to any right of termination, cancellation or
acceleration) under any law, rule or regulation or any judgment,
decree, order, governmental permit, license or order or any of
the terms, conditions or provisions of any mortgage, indenture,
note, license, agreement or other instrument to which the Buyer
is a party, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer.
SECTION 6.11 Closing Documents. The Buyer shall have
-----------------
delivered all of the resolutions, certificates, documents and
instruments required by this Agreement.
SECTION 6.12 Approval of the Sellers and Their Counsel.
-----------------------------------------
All actions, proceedings, consents, instruments and documents
required to be delivered by, or at the behest or direction of,
the Buyer hereunder or incident to its performance hereunder, and
all other related matters, shall be reasonably satisfactory as to
form and substance to the Sellers and their counsel.
ARTICLE 7
---------
THE CLOSING AND CERTAIN CLOSING DELIVERIES
------------------------------------------
SECTION 7.1 Time and Place of Closing. Upon the terms
-------------------------
and subject to the satisfaction or waiver of the conditions
contained in this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place
at the offices of Steel Technologies Inc., Louisville, Kentucky
at 9:00 am on July 1, 1998 or on such other date and time as may
be mutually agreed upon by the parties (the "Closing Date"). The
transactions contemplated by this Agreement shall be effective as
of the close of business (the "Effective Time") on June 30, 1998
(the "Effective Date").
SECTION 7.2 Deliveries by the Sellers. At the Closing,
-------------------------
the Sellers will deliver or cause the Company to deliver to the
Buyer the following:
(a) Stock certificates representing all of the issued
and outstanding shares of Common Stock owned by the Sellers duly
endorsed in blank or duly executed instruments of transfer and
any other documents that are necessary to transfer to the Buyer
good and title to all issued and outstanding shares of Common
Stock;
(b) The stock books, stock ledgers, minute books, and
other corporate records of the Company;
(c) Resignations dated the Closing Date of all of the
directors and officers of the Company as designated by the Buyer;
(d) All required consents of third parties to the sale
conveyance, transfer, assignment and delivery of the Common Stock
of the Company hereunder;
(e) A certificate of the Secretary of the Company
certifying as of the Closing Date (i) a true, correct, and
complete copy of the Articles of Incorporation of the Company and
all amendments thereto as in effect on the Closing Date; (ii)
a true, correct, and complete copy of the bylaws of the Company
and all amendments thereto as in effect on the Closing Date; and
(iii) Certificate of Existence from the Ohio Secretary of State;
(f) The certificate of the Sellers required by
Sections 5.2 and 5.6;
(g) The affidavit of each Seller certifying as to his
non-foreign status in accordance with Section 1445(b)(2) of the
Code;
(h) The Employment Agreements required by Section 5.4
and 5.4.1 above;
(i) The Noncompetition Agreements required by Section
5.5 and 5.5.1 above;
(j) The Lease and Contract Termination required by
Section 5.5.2 above;
(k) The Operating Lease required by Section 5.5.3
above;
(l) The Stock Redemption Agreement Termination
required by Section 5.5.4 above;
(m) The Opinion of Sellers' Counsel required by
Section 5.7 above;
(n) A Release from each Seller which releases the
Company from any and all claims, known or unknown, contingent or
direct, which he may have against the Company as of the Closing
Date, other than claims arising under this Agreement and the
other Documents and the transactions contemplated hereby;
(o) All other documents, instruments and writings
required to be delivered by the Sellers at or prior to the
Closing Date pursuant to this Agreement or the other Documents or
otherwise required in connection herewith.
SECTION 7.3 Deliveries by the Buyer. At the
-----------------------
Closing, the Buyer will deliver the following to or for the
account of Sellers:
(a) The Closing Payments required by Section 1.3(a)
above;
(b) The Promissory Note required by Section 1.3(b);
(c) The Employment Agreements required by Section 5.4
and 5.4.1;
(d) the Noncompetition Agreements required by Section
5.5 and 5.5.1 above;
(e) The Operating Lease required by Section 5.5.3;
(f) The Opinion of Buyer's Counsel required by Section
5.7 above;
(g) All other documents, instruments and writings
required to be delivered by the Buyer at or prior to the Closing
Date pursuant to this Agreement or the other Documents or
otherwise required in connection herewith.
ARTICLE 8
---------
TERMINATION
-----------
SECTION 8.1 Breaches. Buyer may, in addition to other
--------
remedies which may be available, upon prior written notice,
terminate this Agreement prior to closing in the event either
Seller materially breaches any representation, warranty or
covenant in this Agreement or upon the failure and nonwaiver of
any condition precedent set out in Article 5 unless within ten
(10) days after the written notice from the Buyer, such Seller
shall have cured such breach or failure to the reasonable
satisfaction of Buyer. Sellers may, in addition to other
remedies which may be available, upon prior written notice,
terminate this Agreement prior to closing in the event Buyer
materially breaches any representation, warranty or covenant in
this Agreement or upon the failure and nonwaiver of any condition
precedent set out in Article 6 unless within ten (10) days after
the written notice from Sellers, Buyer shall have cured such
breach or failure to the reasonable satisfaction of Sellers.
ARTICLE 9
---------
SURVIVAL; INDEMNIFICATION AND OFFSET
------------------------------------
SECTION 9.1 Survival. All representations and warranties
--------
in this Agreement and the other Documents shall survive the
Closing of the purchase of the Common Stock contemplated hereby
for a period of three years except that (a) claims, if any,
asserted in writing prior to such year identified as a claim for
indemnification pursuant to this Article shall survive until
finally resolved and satisfied in full, (b) tax claims arising
from a breach of Sections 2.27, shall survive for the full period
of the applicable statute of limitations, and until finally
resolved and satisfied in full if asserted on or prior to the
expiration of any such period, and (c) contingent liabilities
claims arising from a breach of Section 2.21, 2.26 and 2.28 shall
the closing for a period of one year.
SECTION 9.2 Indemnification by the Sellers. Subject to
------------------------------
the terms herein, the Sellers shall indemnify, defend, and hold
the Company and the Buyer and their successors and assigns (the
"Sellers' Indemnitees") harmless (which indemnification shall be
several with regard to individual representations and warranties
and joint and several with regard to joint and several
representations and warranties) from, against and with respect to
any claim, liability, obligation, loss, damage, assessment,
judgment, cost and expense of any kind or character (the
"Damages"), arising out of or attributable to:
(a) Any breach of any representation or warranty of
the Sellers contained in this Agreement except Section 2.29;
(b) Any failure by the Sellers to perform or observe,
or to have performed or observed, in full, any agreement to be
performed or observed by any of them under this Agreement except
Section 2.29;
(c) Any additional tax liability for examinations of
any tax returns of the Company in progress as of the Effective
Date.
(d) Any taxes due or assessed against the Company for
periods ending on or prior to the Effective Date.
Provided, however, that Sellers' Indemnities for
indemnification related to Sections 2.21, 2.26, and 2.28 shall be
limited to Two Hundred Fifty Thousand Dollars ($250,000) of the
first year's Cash Earn-Out, if any, to be withheld from any Cash
Earn-Out earned. Buyer's offset claims will be subject to notice
to Sellers and a reasonable opportunity to cure prior to offset.
SECTION 9.3 Notice to Sellers, Etc. If any of the
-----------------------
matters as to which the Sellers' Indemnitees are entitled to
receive indemnification under Section 9.2 should entail
litigation with or claims asserted by parties other than the
Sellers, the Sellers shall be given prompt notice thereof.
SECTION 9.4 Indemnification by the Buyer. The Buyer
----------------------------
shall indemnify, defend, and hold the Sellers and their heirs,
executors, and legal representatives (the "Buyer's Indemnitees")
harmless from, against and with respect to any claim, liability,
obligation, loss, damage, assessment, judgment, cost and expense
of any kind or character (the "Damages"), arising out of or
attributable to:
(a) Any breach of any representation or warranty of
the Buyer contained in this Agreement;
(b) Any failure by the Buyer to perform or observe,
or to have performed or observed, in full, any agreement or
condition to be performed or observed by it under any of the
Documents;
SECTION 9.5 Notice to the Buyer, Etc. If any of the
-------------------------
matters as to which the Buyer's Indemnitees are entitled to
receive indemnification under Section 9.4 should entail
litigation with or claims asserted by parties other than the
Buyer, the Buyer shall be given prompt notice thereof.
SECTION 9.6 Promissory Note Offset. Barrett acknowledges
----------------------
and agrees that the Buyer shall be entitled to offset against up
to Two Hundred Thousand ($200,000) of the Promissory Note under
the following conditions:
(a) As soon as practicable but within thirty (30) days
after the Closing Date, Company shall cause Ronald L. Simkoff,
CPA, an independent accountant, to prepare a balance sheet of the
Company immediately prior to the Effective Time (the "Closing
Balance Sheet") setting forth the Net Shareholders' Equity of the
Company using accrual accounting and in conformance with
generally accepted accounting principles consistently applied
(the "Net Shareholders' Equity") to be completed within forty-
five (45) days of engagement. A copy of the Closing Balance
Sheet shall be promptly furnished to Buyer and Sellers within
sixty (60) days of the Closing Date. For purposes of this
Section, "Net Shareholders' Equity" shall mean the net
shareholder equity at the Closing Date determined in accordance
with generally accepted accounting principles applied on a
consistent basis.
(b) In the event that Net Shareholders' Equity is not at
least Two Million Two Hundred Thousand Dollars ($2,200,000) on
the Closing Date, the Promissory Note shall be reduced by the
amount that Net Shareholders' Equity is less than Two Million Two
Hundred Thousand Dollars ($2,200,000) with said reduction not to
exceed a reduction of the Promissory Note of Two Hundred Thousand
Dollars ($200,000).
ARTICLE 10
----------
MISCELLANEOUS
-------------
SECTION 10.1 Knowledge of Sellers. Where any
--------------------
representation or warranty contained in this Agreement is
expressly qualified by reference to the knowledge of Sellers,
each Seller confirms that the representation or warranty is
correct to his best knowledge and that he has made due and
diligent inquiry of the Company's President, and Vice President
as to the matters that are the subject of such representations
and warranties.
SECTION 10.2 Knowledge of Buyer. Where any representation
------------------
or warranty contained in this Agreement is expressly qualified by
reference to the knowledge of Buyer, Buyer confirms that it has
made due and diligent inquiry of its President as to the matters
that are the subject of such representations and warranties.
SECTION 10.3 "Person" Defined. "Person" shall mean and
----------------
include an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a
government or other department or agency thereof.
SECTION 10.4 "1997 Financial Statement" Defined. "1997
----------------------------------
Financial Statement" shall mean the Company's Financial Statement
for Year Ended December 31, 1997 with Independent Auditor's
Report.
SECTION 10.5 Knowledge of Sellers' Counsel. Where any
-----------------------------
opinion of Sellers' counsel contained in this Agreement is stated
to be based upon knowledge, the following definition shall apply:
the term "to knowledge of Seller's counsel" means counsel
reasonably believes that opinion, representation or warranty to
be true, has no actual knowledge or notice that such opinion,
representation or warranty is inaccurate or incomplete, has made
inquiry of Sellers as to the accuracy and completeness of such
opinion, representation or warranty and has relied upon Sellers'
assurance of accuracy and completeness of such opinion,
representation or warranty, but has no knowledge of any facts or
circumstances which would render reliance thereon unjustified
without further inquiry.
SECTION 10.6 Notices. All notices, requests, consents and
-------
other communications hereunder shall be in writing, shall be
addressed to the receiving party's address set forth below or to
such other address as a party may designate by notice hereunder,
and shall be either (i) delivered by hand, (ii) sent by
recognized overnight courier, (iii) made by telecopy or facsimile
transmission, or (iv) sent by registered or certified mail,
return receipt requested, postage prepaid.
If to the Buyer:
Bradford T. Ray
Steel Technologies Ohio, Inc.
15415 Shelbyville Road
Louisville, KY 40245
Fax: 502/245-3821
With a copy to:
John M. Baumann, Jr., Esq.
Steel Technologies Ohio, Inc.
15415 Shelbyville Road
Louisville, KY l 40245
Fax: 502/245-0542
If to Sellers:
Personal and Confidential
-------------------------
Richard H. Barrett
c/o Roberts Steel Company
2220 Joseph Lloyd Parkway
Willoughby, OH 44096
Fax: 440/946-4970
Personal and Confidential
-------------------------
James E. Witkowski
c/o Roberts Steel Company
Personal & Confidential
2220 Joseph Lloyd Parkway
Willoughby, OH 44096
Fax: 440/946-4970
With copy to:
Leonard F. Carr, Esq.
Carr, Feneli, & Carbone
1392 S.O.M. Center Road
Mayfield Heights, OH 44124
Fax: 440/473-0166
All notices, requests, consents and other communications
hereunder shall be deemed to have been given (i) if by hand, at
the time of the delivery thereof to the receiving party at the
address of such party set forth above, (ii) if sent by overnight
courier, on the next business day following the day such notice
is delivered to the courier service, (iii) if made by telecopy or
facsimile transmission, at the time that receipt thereof has been
acknowledged by electronic confirmation or otherwise, or (iv) if
sent by registered or certified mail, on the fifth business day
following the day such mailing is sent. The address of any party
herein may be changed at any time by written notice to the
parties.
SECTION 10.7 Entire Agreement. This Agreement and the
----------------
other Documents embody the entire agreement and understanding
between the parties hereto with respect to the subject matter
hereof and supersede all prior oral or written agreements and
understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any
kind not expressly set forth in the other Documents shall affect,
or be used to interpret, change or restrict, the express terms
and provisions of this Agreement.
SECTION 10.8 Modifications and Amendments. The terms and
----------------------------
provisions of this Agreement may be modified or amended only by
written agreement executed by all parties hereto.
SECTION 10.9 Assignment/Binding Effect. Neither this
-------------------------
Agreement, nor any right hereunder, may be assigned by any of the
parties hereto without the prior written consent of the other
parties. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their respective heirs,
personal representatives, successors and permitted assigns.
SECTION 10.10 Parties in Interest. Nothing in this
-------------------
Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement. Nothing in this Agreement
shall be construed to create any rights or obligations except
among the parties hereto, and no person or entity shall be
regarded as a third-party beneficiary of this Agreement.
SECTION 10.11 Governing Law. This Agreement and the rights
-------------
and obligations of the parties hereunder shall be construed in
accordance with and governed by the internal laws of the State of
Ohio without giving effect to the conflict of law principles
thereof.
SECTION 10.12 Arbitration. Any dispute or difference
-----------
between the parties hereto arising out of or relating to this
Agreement shall be finally settled by arbitration in accordance
with the Commercial Rules of the American Arbitration Association
by a qualified arbitrator. The Sellers, jointly, and the Buyer
shall each choose and pay for an American Arbitration arbitrator
who will thereupon agree upon a qualified arbitrator to decide
the dispute. If either the Sellers or the Buyer fails to choose
an arbitrator within thirty (30) days after notice of
commencement of arbitration or if the two arbitrators fail to
choose a third arbitrator within thirty (30) days after their
appointment, the American Arbitration Association shall, upon the
request of any party to the dispute or difference, appoint the
arbitrator or arbitrators to constitute or complete the panel as
the case may be. Arbitration proceedings hereunder may be
initiated by either the Seller, jointly, or the Buyer making a
written request to the American Arbitration Association, together
with any appropriate filing fee, at the office of the American
Arbitration Association in Cleveland, Ohio. All arbitration
proceedings shall be held in Cleveland, Ohio. Any order or
determination of the arbitral tribunal shall be final and binding
upon the parties to the arbitration that may be entered in any
court having jurisdiction, and shall provide the prevailing
party's reasonable attorneys fees and arbitrator fee be paid by
the non-prevailing party.
SECTION 10.13 Severability. In the event that any arbitral
------------
tribunal of competent jurisdiction shall finally determine that
any provision, or any portion thereof, contained in this
Agreement shall be void or unenforceable in any respect, then
such provision shall be deemed limited to the extent that such
arbitral tribunal determines it enforceable, and as so limited
shall remain in full force and effect. In the event that such
arbitral tribunal shall determine any such provision, or portion
thereof, wholly unenforceable, the remaining provisions of this
Agreement shall nevertheless remain in full force and effect.
SECTION 10.14 Interpretation. The parties hereto
--------------
acknowledge and agree that: (i) the rule of construction to the
effect that any ambiguities are resolved against the drafting
party shall not be employed in the interpretation of this
Agreement, and (ii) the terms and provisions of this Agreement
shall be construed fairly as to all parties hereto and not in
favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.
SECTION 10.15 Headings and Captions. The headings and
---------------------
captions of the various subdivisions of this Agreement are for
convenience of reference only and shall in no way modify, or
affect, or be considered in construing or interpreting the
meaning or construction of any of the terms or provisions hereof.
SECTION 10.16 Exhibits and Schedules. All Exhibits and
----------------------
Schedules attached hereto and/or referenced herein are
incorporated herein. All disclosures on any Schedules are deemed
disclosures for purposes of all Schedules notwithstanding the
absence of express reference language or, at times, the inclusion
of express reference language.
SECTION 10.17 Reliance. The parties hereto agree that,
--------
notwithstanding any right of any party to this Agreement to
investigate the affairs of any other party to this Agreement, the
party having such right to investigate shall have the right to
rely fully upon the representations and warranties of the other
party expressly contained herein.
SECTION 10.18 Expenses. Except as otherwise set forth
--------
hereinafter, each party shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or
others engaged by such party, specifically excluding the cost of
the Phase I environmental and building appraisal) incurred in
connection with this Agreement and the transactions contemplated
hereby whether or not the transactions contemplated hereby are
consummated. Notwithstanding the foregoing, Company shall pay up
to Fifteen Thousand Dollars ($15,000) of legal, accounting and
professional expenses attributable to the transactions
contemplated hereunder for services rendered or expenses incurred
on or after April 30, 1998 and the Sellers shall be responsible
for any amount of such costs and expenses in excess of Fifteen
Thousand Dollars ($15,000).
SECTION 10.19 Gender. All pronouns and any variation
------
thereof shall be deemed to refer to the masculine, feminine,
neuter, singular, or plural as the identity of the person or
entity or the context may require.
SECTION 10.20 Publicity. Except by the mutual agreement
---------
between the Sellers and Buyer, no party shall issue any press
release or otherwise make any public statement with respect to
the execution of, or the transactions contemplated by, this
Agreement except as may be required by law.
SECTION 10.21 Counterparts. This Agreement may be executed
------------
in one or more counterparts, and by different parties hereto on
separate counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
[Remainder of this page has been intentionally left blank]
IN WITNESS WHEREOF, the Buyer has caused this Agreement to
be executed by its duly authorized officer and each Seller has
executed this Agreement all as of the day and year first above
written.
BUYER:
STEEL TECHNOLOGIES INC.
By:
---------------------------------------
Bradford T. Ray
President and Chief Operating Officer
SELLERS:
ROBERTS STEEL COMPANY
------------------------------------------
Richard H. Barrett
Shareholder
------------------------------------------
James E. Witkowski
Shareholder
EXHIBIT 13
1998 ANNUAL REPORT TO SHAREHOLDERS
Steel Technologies Inc.
Selected Financial Data
(Amounts in thousands, except per share data)
<TABLE>
Years ended September 30
----------------------------------------------------------
INCOME STATEMENT DATA 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $383,907 $ 345,624 $ 294,161 $ 252,730 $ 241,160
Cost of goods sold 339,811 308,448 253,845 222,121 210,131
Gross profit 44,096 37,176 40,316 30,609 31,029
Selling, general and
administrative expenses 22,144 19,989 18,811 16,185 14,544
Equity in net income
of unconsolidated
corporate joint venture 537 1,609 1,672 1,414 1,437
Operating income 22,489 18,796 23,177 15,838 17,922
Income before income taxes 16,410 13,123 18,169 11,298 16,606
Net income 9,803 8,502 11,686 7,423 10,512
Diluted earnings per
common share $ 0.82 $ 0.71 $ 0.97 $ 0.61 $ 0.85
Diluted weighted average
number of common
shares outstanding 11,989 12,057 12,064 12,227 12,392
Basic earnings per
common share $ 0.82 $ 0.71 $ 0.98 $ 0.61 $ 0.87
Basic weighted average
number of common
shares outstanding 11,942 11,976 11,980 12,147 12,150
Cash dividends per
common share $ 0.10 $ 0.10 $ 0.09 $ 0.08 $ 0.07
</TABLE>
<TABLE>
September 30
----------------------------------------------------------
BALANCE SHEET DATA 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $ 80,319 $ 90,317 $ 65,265 $ 53,385 $ 70,511
Total assets 266,481 257,510 217,141 194,730 200,413
Long-term debt 88,300 97,190 67,260 68,645 60,805
Shareholders' equity 113,676 108,829 101,361 92,997 87,638
</TABLE>
<TABLE>
Years ended September 30
----------------------------------------------------------
OTHER DATA 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital expenditures, including
acquisitions and investments
in joint ventures $ 25,414 $ 25,341 $ 6,473 $ 37,914 $ 24,481
Shareholders' equity per
common share 9.81 9.07 8.47 7.67 7.21
Depreciation and amortization 11,860 10,500 9,535 7,157 5,030
</TABLE>
Net income per share data for prior periods has been restated to
reflect the adoption of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share".
QUARTERLY FINANCIAL DATA (Unaudited)
Steel Technologies Inc.
Selected Quarterly Financial Data
(Amounts in thousands, except per share data)
<TABLE>
Fiscal Year 1998 First Second Third Fourth
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 96,449 $101,287 $ 96,389 $ 89,782
Gross profit 10,398 12,108 11,883 9,707
Net income 2,491 3,234 2,857 1,221
Diluted earnings per common share $0.21 $0.27 $0.24 $0.10
Basic earnings per common share $0.21 $0.27 $0.24 $0.10
Fiscal Year 1997 First Second Third Fourth
- -------------------------------------------------------------------------
Sales $ 78,030 $ 79,799 $101,082 $ 86,713
Gross profit 9,404 8,271 10,840 8,661
Net income 2,463 1,736 2,764 1,539
Diluted earnings per common share $0.20 $0.14 $0.23 $0.13
Basic earnings per common share $0.21 $0.15 $0.23 $0.13
</TABLE>
MARKET PRICE AND DIVIDEND INFORMATION
Market Price and Dividend Information:
The Company's common stock trades on The Nasdaq Stock Market
under the symbol STTX. At October 31, 1998, there were
approximately 547 shareholders of record. The Company's
current dividend policy provides for semiannual payments
of cash dividends. The following table shows cash dividends
and high and low prices for the common stock for each
quarter of fiscal 1998 and 1997. Nasdaq National Market
System quotations are based on actual transactions.
<TABLE>
Stock Price
-------------------
Fiscal Year 1998 High Low Dividends
- -----------------------------------------------------------
<S> <C> <C> <C>
First Quarter $13.000 $ 8.875 $ 0.05
Second Quarter $12.250 $10.625
Third Quarter $13.813 $ 9.563 $ 0.05
Fourth Quarter $11.000 $ 6.625
Stock Price
--------------------
Fiscal Year 1997 High Low Dividends
- ------------------------------------------------------------
First Quarter $13.625 $12.125 $ 0.05
Second Quarter $13.625 $10.250
Third Quarter $12.000 $ 9.250 $ 0.05
Fourth Quarter $13.500 $10.563
</TABLE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
When used in the following discussion, the word "expects" and
other similar expressions are intended to identify forward-
looking statements, which are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ
materially from those projected. Specific risks and uncertainties
include, but are not limited to, general business and economic
conditions; cyclicality of demand in the steel industry,
specifically in the automotive market; work stoppages, risks of
year 2000 nonompliance or other business interruptions affecting
automotive manufacturers; competitive factors such as pricing and
availability of steel; reliance on key customers; and potential
equipment malfunctions. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as
of the date thereof. The Company undertakes no obligation to
republish revised forward-looking statements to reflect the
occurrence of unanticipated events or circumstances after the
date hereof.
Sales
($ in millions)
1994 241
1995 253
1996 294
1997 346
1998 384
Shareholders' Equity
($ in millions)
1994 88
1995 93
1996 101
1997 109
1998 114
EBITDA*
($ in millions)
1994 23
1995 23
1996 33
1997 29
1998 34
*Earnings before interest, taxes, depreciation
and amortization.
RESULTS OF OPERATIONS - FISCAL 1998 COMPARED TO FISCAL 1997
Steel Technologies posted sales of $383,907,000 in fiscal 1998,
an increase of 11% from 1997 sales of $345,624,000. Atlantic Coil
Processing (ACP) which was acquired on April 1, 1997, and is now
known as Steel Technologies Carolinas, generated $50,000,000 in
sales for fiscal 1998 compared to $25,500,000 for the six months
of operations during fiscal 1997. The Roberts Steel Company (now
a wholly owned subsidiary of Steel Technologies Ohio) acquisition
on July 1, 1998 added $5,000,000 of revenues for the fourth
quarter of 1998. Sales of existing Steel Technologies core steel
processing operations remained comparable to the previous year.
Tons shipped in 1998 increased by 18% while the average selling
price of steel declined approximately 6% from a year ago.
Revenues were adversely affected, mostly during the last quarter
of fiscal 1998, by approximately $14,000,000 as a result of the
General Motors strike. The Company focuses significant resources
on the automotive industry and generates a major portion of
business from selling manufacturing component parts to the
automotive industry. The Company continues to increase market
share and to develop a substantial amount of new business with
both existing and new customers.
The capital investments completed in recent years added new
capacity and increased the products and services offered to
customers, creating new business opportunities and enhancing
market share. In fiscal year 1998, the Company completed the
start-up of the blanking operations of the Eminence, Kentucky
manufacturing facility, expanded the Mexican operating capacity
with additional steel processing equipment, and added a slitting
line at the Ghent, Kentucky facility.
The gross profit margin increased to 11.5% in 1998 compared to
10.8% in 1997 as a result of customer and product mix
improvements, increased productivity, a slight reduction in raw
materials prices and other operating cost reductions. The Company
expects stable and, in some cases, weakening in pricing of raw
materials, especially in hot rolled steel, as new domestic
steelmaking capacity additions and steel imports enter the
market. However, should raw material prices increase, margins
would be negatively impacted in the event that corresponding
sales price increases are not passed on to customers. The
production cost efficiencies associated with anticipated higher
sales volumes is expected to positively impact gross margin.
Additionally, the pickling facility and blanking lines are
expected to increase the amount of higher margin toll processing
revenue. Toll processing, primarily of customer-owned steel,
generates higher gross margin percentages than the traditional
processing of company-owned steel.
Steel Technologies continues to actively manage the level at
which selling, general and administrative expenses are added to
the cost structure. Sales, general and administrative costs
increased at 11% in fiscal 1998, about the same rate as sales
increases of 11% for the current year. Sales, general and
administrative expenses were 5.8% of sales in 1998 and 1997,
respectively.
The Company's share of the income of Mi-Tech Steel, Inc., an
unconsolidated corporate joint venture, was $537,000 in 1998 and
$1,609,000 in 1997. The slower than expected start up of the
Decatur, Alabama operation and certain other factors affecting
customer orders impacted Mi-Tech Steel's profitability as
compared to 1997.
Interest expense increased to $6,079,000 in 1998 from $5,673,000
in 1997. The increase is the result of higher average borrowings
used to finance capital projects and the acquisition of Steel
Technologies Ohio.
The effective income tax rate was approximately 39.5% in 1998 and
35.2% in 1997. The increase is attributable to a lower
percentage of overall earnings from the Mi-Tech Steel joint
venture which are not fully taxable to the Company.
RESULTS OF OPERATIONS - Fiscal 1997 Compared to Fiscal 1996
The Company posted sales of $345,624,000 in fiscal 1997, an
increase of 17% from 1996 sales of $294,161,000. The revenues in
fiscal 1997 benefited from the inclusion of $25,500,000 of
revenues from Steel Technologies Carolinas. Revenues from the
existing core steel processing operations increased approximately
$26,000,000 or 9% in fiscal 1997 As a result of the Steel
Technologies Carolinas acquisition and market share gains, tons
shipped in 1997 increased by 20% while the average selling price
compared to fiscal 1996 declined approximately 3%.
The gross profit margin decreased to 10.8% in 1997 compared to
13.7% in 1996 as a result of increases in the purchase price of
raw materials from the primary steel mills. These purchase price
increases were not fully offset by selling price increases to
customers. During 1997, a number of steel mills experienced
temporary production problems and work stoppages which negatively
impacted the available supply of raw materials.
Sales increased 17% in fiscal 1997, while selling, general and
administrative costs increased 6% in fiscal 1996. Selling,
general and administrative expenses were 5.8% and 6.4% of sales
in 1997 and 1996, respectively.
The Company's share of the net income of Mi-Tech Steel, Inc. was
$1,609,000 in 1997 and $1,672,000 in 1996. The equity income
decrease was principally the result of lower steel margins which
offset the higher sales levels achieved in 1997.
Interest expense increased to $5,673,000 in 1997 from $5,008,000
in 1996. The increase is the result of higher average borrowings
used to finance the acquisition of Steel Technologies Carolinas,
capital additions and working capital needs of the Company in
1997.
The Company's effective income tax rate was 35.2% in 1997
compared to 35.7% in 1996. The lower rate in 1997 is reflective
of the higher percentage of the Company's overall earnings
generated by the Mi-Tech Steel joint venture.
Liquidity and Capital Resources
At September 30, 1998, Steel Technologies had $80,319,000 of
working capital, maintained a current ratio of 2.6:1 and had
total debt at 46% of total capitalization. The Company continues
to manage the levels of accounts receivable, inventories and
other working capital items in relation to the trends in sales
and overall market. In fiscal 1998 the combination of increased
sales levels and more effective inventory management resulted in
increased inventory turnover and contributed to the generation of
$34,636,000 of cash flows from operations.
The Company expects sales trends to remain strong in the 1999
fiscal year based on current backlog and order activity. Cash
flows from operations and available borrowing capabilities are
expected to meet the working capital needs associated with the
higher sales levels.
Capital expenditures for 1998 totaled $14,186,000 excluding
amounts for acquisitions and investments in joint ventures. Steel
Technologies expanded production and processing capacity and
added new processing capabilities over the last few years. The
capital additions for all facilities, including current
construction of the Berkley, South Carolina facility and
expansion of Steel Technologies Ohio are expected to approximate
$12,000,000 for fiscal 1999. The cash flows from operations and
proceeds from long-term debt financed the 1998 capital
expenditures.
Investing activities in 1998 reflects the purchase of 100% of the
common stock of Roberts Steel Company (now a wholly owned
subsidiary of Steel Technologies Ohio) for approximately
$14,800,000 in cash, notes and assumption of liabilities. The
Company funded the transaction by borrowing approximately
$11,300,000 on the line of credit, issuing a $1,200,000 note
payable to a former shareholder and assuming $2,300,000 in
liabilities of Roberts.
Steel Technologies maintains an equity investment of
approximately $8,739,000 in its Mexican subsidiary. In April
1998, the Company increased the ownership from 80% to 90%. In
fiscal 1998, the Company invested approximately $3,100,000 for
additional production equipment and expansion of the existing
production facility in Mexico. The inflation rate in Mexico over
the period ended September 30, 1998 and 1997 was over 100%,
resulting in the Mexican economy being considered hyper-
inflationary for financial reporting. Accordingly, the Company
uses the monetary/non-monetary method of accounting. The impact
on the Company's profitability is limited to the effect of
currency fluctuations related to net monetary assets, which at
September 30, 1998, was approximately $3,088,000. Due to the
cost of hedging currency risks, the Company did not enter into
any hedging arrangements.
The Company maintains an investment, principally in the preferred
stock of Processing Technology, Inc., a corporate joint venture.
The Company periodically evaluates the possible conversion of the
preferred stock investment into common stock of Processing
Technology, Inc. The decision to convert the investment to common
stock will be based upon the joint venture attaining certain
financial criteria established by Steel Technologies. Upon
conversion, the Company would be obligated to guarantee a
proportionate share, currently approximately $8,700,000 of the
joint venture's loan and lease commitments. The conversion is not
expected to occur in the near term.
Pursuant to a joint venture agreement, Steel Technologies has
guaranteed $8,250,000 of the bank financing required for working
capital purpose of Mi-Tech Steel, Inc. Mi-Tech Steel had
significant expenditures in 1998 and 1997 to construct a pickling
and slitting facility in Decatur, Alabama. To participate
equally with the joint venture partner in the financing of this
project, Steel Technologies contributed $5,000,000 of additional
equity in 1997. On October 19, 1998, the Company contributed an
additional $600,000 in equity to Mi-Tech Steel for the start-up
of a steel processing facility in San Diego, California.
Steel Technologies believes that it has sufficient liquidity and
available capital resources to meet expected needs. As of
September 30, 1998, the line of credit was $80,000,000. The line
of credit along with funds generated from operations are expected
to be sufficient to finance the capital expenditure plans as well
as the working capital of the fiscal year. At this time the
company has no known material obligations, commitments or demands
which must be met beyond the next twelve months other than the
ten year notes and the line of credit. The ten year notes require
principal payments beginning in fiscal 1999 and the line of
credit is expected to be renewed at the end of the term. The
Company intends to use any additional funds for growth, including
strategic acquisitions, investment in joint venture, construction
of new plant capacity and investment in production and processing
capabilities. The form of such financing may vary depending upon
the prevailing market and related conditions, and may include
short or long-term borrowings or the issuance of debt or equity
securities.
At September 30, 1998, Steel Technologies had $88,300,000 in long-
term debt outstanding. Under various debt agreements, the Company
agreed to maintain specified levels of working capital and net
worth, maintain certain ratios and limit the addition of
substantial debt. The Company is in compliance with all of its
loan covenants, and none of these covenants would restrict the
completion of currently planned capital expenditures or
acquisitions.
During 1998, Steel Technologies entered into an interest rate
swap agreement to reduce the risk of interest rate variability.
Under the contract, the Company agrees with another party to
exchange quarterly the difference between variable-rate and fixed-
rate amounts calculated on a notional principal amount of
$30,000,000.
On January 22, 1998, the Board of Directors approved a plan under
which Steel Technologies may repurchase up to 500,000 shares of
its common stock over the next three years. Subsequently, on
September 30, 1998, the Company increased the number of shares
authorized to be repurchased under the stock repurchase program
from 500,000 to 1,500,000. Shares may be purchased from time to
time at prevailing prices in open market transactions, subject to
market conditions, share price and other considerations. As of
October 26, 1998, the Company repurchased approximately 530,000
shares of common stock at prevailing market prices. By September
30, 1998, 421,000 shares were repurchased.
Steel Technologies believes all manufacturing facilities are in
compliance with applicable federal and state environmental
regulations. The Company is not presently aware of any fact or
circumstance which would require the expenditure of material
amounts for environmental compliance.
YEAR 2000 COMPLIANCE
Steel Technologies' Year 2000 project (the Project) addresses the
issue of using two digits, rather than four, to define the
century. Any programs with a time sensitive software may
recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or systems failures.
The Project focuses primarily in the following areas:
infrastructure, applications, manufacturing, and third-party
suppliers and customers. Steel Technologies has contracted
Electronic Data Systems (EDS) to manage the Project and make the
necessary remediations.
The Project addresses six phases: inventorying of Year 2000
compliance items; assessing priorities to identified items;
determining the materiality of the Year 2000 compliance items;
repairing or replacing material items not Year 2000 compliant;
testing material items; and implementing contingency and business
continuation plans for each Company location.
The infrastructure section consists of hardware and systems
software other than application software. The Company estimates
that approximately 90 percent of the testing, remediating,
upgrading or replacing of hardware and systems software was
completed as of September 30, 1998. The remaining 10 percent of
the infrastructure section is expected to be completed by March
31, 1999.
The application software section includes both the conversion of
application software that is not Year 2000 compliant and, where
applicable, the replacement of software. The assessment shows
that less than 10 percent of the inventoried items has a Year
2000 exposure. As of September 30, 1998, 80 percent of
application software was tested and remedied. The Company expects
to complete the testing no later than March 31, 1999.
The manufacturing section of the Project relates to the hardware,
software and associated embedded computer chips that are used in
the operation of all facilities. The Company estimates that 10
percent of the manufacturing equipment is dependent on date
sensitive software and that 80 percent of the manufacturing
equipment will be Year 2000 compliant by September 30, 1999.
The third party suppliers and customers section includes the
process of identifying and prioritizing critical suppliers and
customers and communicating with them about their plans and
progress in addressing the Year 2000 problem. Detailed
evaluations of the most critical third parties have been
initiated as of September 30, 1998.
Contingency planning for all areas is scheduled to begin in
January 1999 and be completed by March 1999.
The total cost related to becoming Year 2000 compliant is not
expected to be material to the Company's financial position. The
acquisition of a mid-range computer in 1995 minimized the
exposure to Year 2000 problems. The estimated cost of the Year
2000 Project is approximately $250,000 of which approximately
$50,000 was expensed as of September 30, 1998.
The failure to correct a material Year 2000 problem could result
in an interruption in, or failure of, certain normal business
activities or operations. Such failures could materially and
adversely affect the Company's results of operations, liquidity
and financial condition. Due to the general uncertainty inherent
in the Year 2000 problem, resulting mostly from the uncertainty
of the Year 2000 readiness of third-party suppliers and
customers, the Company is unable to determine at this time
whether the consequences of Year 2000 failures will have a
material impact on the Company's results of operations, liquidity
or financial condition. The Year 2000 Project is expected to
significantly reduce the Company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000
compliance and readiness of its material external agents. The
Company believes that, with the completion of the Project as
scheduled, the possibility of significant interruptions of normal
operations should be reduced.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". During
1998, The FASB released SFAS No. 133, "Accounting for Derivatives
Instruments and Hedging Activities." Also during 1998, Statement
of Position No, 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for internal use" and No, 98-5
"Reporting on the Cost of Start-up Activities" were issued.
Except with respect to SFAS No. 133, the Company expects that the
adoption of these standards will not have a material impact on
the financial statements. The Company has not yet determined
whether the adoption of SFAS No. 133 will have a material impact
on the financial statements.
STEEL TECHNOLOGIES INC.
Consolidated Balance Sheets
<TABLE>
September 30, September 30,
ASSETS (Amounts in thousands) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,778 $ 3,467
Trade accounts receivable,
less allowance doubtful
accounts: 1998-$939; 1997-$929 47,907 43,110
Inventories 76,523 81,086
Deferred income taxes 1,621 1,714
Prepaid expenses and other assets 748 896
--------------------------
Total current assets 131,577 130,273
--------------------------
Property, plant and equipment, at cost:
Land and improvements 5,632 5,309
Buildings and improvements 44,796 42,217
Machinery and equipment 113,354 98,620
Construction in progress 4,224 7,054
--------------------------
168,006 153,200
Less accumulated depreciation and
amortization 61,375 49,404
--------------------------
106,631 103,796
--------------------------
Investments in corporate joint ventures 18,163 17,626
--------------------------
Goodwill, net of amortization 9,060 5,147
--------------------------
Other assets 1,050 668
--------------------------
$ 266,481 $ 257,510
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,925 $ 32,605
Accrued liabilities 6,231 5,156
Long-term debt due within one year 9,102 2,195
--------------------------
Total current liabilities 51,258 39,956
--------------------------
Long-term debt 88,300 97,190
--------------------------
Deferred income taxes 13,247 11,535
--------------------------
Commitments and contingencies - -
--------------------------
Shareholders' equity:
Preferred stock, no par value;
authorized shares: 500,000 shares;
none outstanding - -
Common stock, no par value;
authorized shares: 20,000,000;
issued and outstanding shares:
11,582,293 in 1998 and
11,994,760 in 1997 16,928 16,893
Treasury stock at cost,
421,000 shares (3,792) -
Additional paid-in capital 4,909 4,909
Retained earnings 97,071 88,467
Foreign currency translation
adjustment (1,440) (1,440)
--------------------------
113,676 108,829
--------------------------
$ 266,481 $ 257,510
==========================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
STEEL TECHNOLOGIES INC.
Consolidated Statements of Income
(Amounts in thousands, except per share)
<TABLE>
For the Years Ended September 30
1998 1997 1996
<S> <C> <C> <C>
Sales $ 383,907 $ 345,624 $ 294,161
Cost of goods sold 339,811 308,448 253,845
----------------------------------------
Gross profit 44,096 37,176 40,316
Selling, general and administrative expenses 22,144 19,989 18,811
Equity in net income of unconsolidated
corporate joint venture 537 1,609 1,672
----------------------------------------
Operating income 22,489 18,796 23,177
Interest expense 6,079 5,673 5,008
----------------------------------------
Income before income taxes 16,410 13,123 18,169
Provision for income taxes 6,607 4,621 6,483
----------------------------------------
Net income $ 9,803 $ 8,502 $ 11,686
========================================
Diluted weighted average number of
common shares outstanding 11,989 12,057 12,064
========================================
Diluted earnings per common share $ 0.82 $ 0.71 $ 0.97
========================================
Basic weighted average number of
common shares outstanding 11,942 11,976 11,980
========================================
Basic earnings per common share $ 0.82 $ 0.71 $ 0.98
========================================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
STEEL TECHNOLOGIES INC.
Consolidated Statements of Shareholders' Equity
(Amounts in thousands, except per share)
For the Years Ended September 30, 1998, 1997 and 1996
<TABLE>
Common Stock Treasury Stock
------------------- ----------------- Additional Retained
Shares Amount Shares Amount Paid-In Capital Earnings
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, October 1, 1995 12,117 $ 18,214 $ 4,909 $70,554
Net income
Net issuance of common
stock under incentive
stock option plan 9 18
Cash dividends on common
stock ($.09 per share) (1,079)
Purchase and retirement of
common stock (164) (1,570)
Foreign currency translation
adjustment
-----------------------------------------------------------------
Balances, September 30, 1996 11,962 16,662 4,909 81,161
Net income 8,502
Net issuance of common
stock under incentive
stock option plan 33 231
Cash dividends on common
stock ($.10 per share) (1,196)
Foreign currency translation
adjustment
-----------------------------------------------------------------
Balances, September 30, 1997 11,995 16,893 - - 4,909 88,467
Net income 9,803
Net issuance of common
stock under incentive
stock option plan 8 35
Repurchase of common stock
under stock repurchase
program (421) 421 $ (3,792)
Cash dividends on common
stock ($.10 per share) (1,199)
-----------------------------------------------------------------
Balances, September 30, 1998 11,582 $ 16,928 421 $ (3,792) $ 4,909 $97,071
================================================================================================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
STEEL TECHNOLOGIES INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
<TABLE>
For the Years ended September 30
--------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,803 $ 8,502 $ 11,686
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 11,573 10,364 9,484
Amortization 287 136 51
Deferred income taxes 1,805 1,637 1,644
Equity in net income of corporate joint venture (537) (1,609) (1,672)
Loss (gain) on sale of assets 5 4 (475)
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable (2,175) 610 (8,499)
Inventories 10,571 (15,123) (15,770)
Prepaid expenses and other assets 288 (1,141) 1,420
Accounts payable 1,514 (5,816) 11,018
Accrued liabilities 1,502 (125) 2,440
- --------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 34,636 (2,561) 11,327
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (14,186) (9,481) (6,473)
Proceeds from sale of property, plant and equipment - 7 737
Acquisition, net of cash acquired (11,228) (10,860) -
Investment in unconsolidated joint venture - (5,000) -
- --------------------------------------------------------------------------------------------------
Net cash used in investing activities (25,414) (25,334) (5,736)
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 12,000 28,500 6,014
Principal payments on long-term debt (15,183) (385) (7,399)
Cash dividends on common stock (1,199) (1,196) (1,079)
Repurchase of common stock (3,792) - (1,570)
Net issuance of common stock under stock option plans 35 231 18
- --------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (8,139) 27,150 (4,016)
- --------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 228 (6) (55)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,311 (751) 1,520
Cash and cash equivalents, beginning of year 3,467 4,218 2,698
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 4,778 $ 3,467 $ 4,218
==================================================================================================
Supplemental Cash Flow Disclosures:
Cash payments for interest 6,294 $ 5,652 $ 5,143
==================================================================================================
Cash payments for taxes 4,532 $ 3,693 $ 3,245
==================================================================================================
</TABLE>
<TABLE>
<S> <C> <C>
Supplemental Schedule of Noncash Investing and Financing Activities:
Fair value of assets acquired, net of cash acquired of
$457 and $8 respectively $ 14,810 $ 19,600
Liabilities assumed 3,582 8,740
---------- ----------
Net cash paid 11,228 10,860
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of the Business: Steel Technologies Inc. is an
intermediate steel processor engaged in the business of
processing flat rolled steel to specified thickness, width,
temper and finish requirements for customers' manufacturing
processes. A majority of its sales are to industrial customers
in North America manufacturing component parts for use in the
automotive industry.
Principles of Consolidation: The consolidated financial
statements include the accounts of Steel Technologies Inc. and
its majority-owned subsidiaries (the Company). The Company's
investments in corporate joint ventures are accounted for by the
cost or equity method based on the percentage of common ownership
and control. All significant intercompany transactions have been
eliminated.
Cash and Cash Equivalents: Cash and cash equivalents includes
highly liquid investments with an original maturity of three
months or less. The carrying value of cash equivalents
approximate fair value due to the short-term maturity of the
securities.
Inventories: Inventories are valued at the lower of cost or
market. Cost is determined using the specific identification
method for all inventories.
Depreciation and Amortization: Depreciation is computed by the
straight-line method with the following estimated useful lives:
Buildings and improvements 20-45 years
Machinery and equipment 3-12 years
When properties are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the
accounts with any resulting gain or loss reflected in income.
Maintenance and repairs are expensed in the year incurred. The
Company capitalizes interest costs as part of the cost of
constructing major facilities. Interest costs of $328,000,
$202,000 and $122,000 were capitalized in 1998, 1997 and 1996,
respectively.
In the event that facts and circumstances indicate that the
carrying amount of an asset or group may be impaired, an
evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's
carrying amount to determine if a write-down to market value or
discounted cash flow value is required.
Revenue Recognition: The Company recognizes revenue when goods
are shipped.
Earnings Per Common Share: Earnings per share for all periods
presented have been calculated and presented in accordance with
SFAS No. 128, "Earnings Per Share". Basic earnings per share
excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company.
Foreign Currency Translation: Prior to January 1, 1997 the
monetary assets and liabilities of the Mexican subsidiary were
translated into U.S. dollars at the year-end rate of exchange and
revenues and expenses were translated at average rates of
exchange in effect during the period. Resulting translation
adjustments were accumulated in a separate component of
shareholders' equity. Foreign currency transaction gains and
losses were included in net income when incurred. Effective
January 1, 1997, the Company changed to the monetary/non-monetary
method of accounting for foreign currency translation as the
Mexican economy is now considered hyper-inflationary for
financial reporting purposes. The hyper-inflationary method
requires non-monetary assets and liabilities to be translated at
historical rates of exchange and the functional currency to be
U.S. dollars.
Derivative Instrument. The Company utilizes an interest rate swap
to hedge exposure to fluctuations in variable interest rates. The
interest differential to be paid or received on an interest rate
swap is recognized as an adjustment to interest expense as the
differential occurs. The interest differential not yet settled in
cash is reflected in the accompanying consolidated balance sheet
as a receivable or payable under the appropriate current asset or
liability caption. If an interest rate swap position was to be
terminated, the gain or loss realized upon termination would be
deferred and amortized to interest expense over the remaining
term of the underlying debt instrument intended to modify or
would be recognized immediately if the underlying debt instrument
was settled prior to maturity.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
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.
2. ACQUISITIONS:
On July 1, 1998, the Company completed the purchase of 100% of
the common stock of Roberts Steel Company (Roberts) for
approximately $14,800,000 in cash, notes and assumption of
liabilities. The Company funded the transaction by borrowing
approximately $11,300,000 on the line of credit, issuing a
$1,200,000 note payable to a former Roberts shareholder and
assuming $2,300,000 in liabilities of Roberts.
On April 1, 1997, the Company completed the purchase of 100% of
the common stock of Atlantic Coil Processing, Inc. (ACP) for
approximately $19,625,000 in cash, notes and assumption of
liabilities. The Company funded the transaction by borrowing
approximately $10,900,000 on the line of credit, issuing a
$3,625,000 note payable to the former ACP shareholders and
assuming $5,100,000 in liabilities of ACP.
The excess of the purchase price over the acquired net assets has
been recorded as goodwill and is being amortized over 30 years.
The acquisitions have been recorded under the purchase method of
accounting, with the operating results of Roberts and ACP being
included in the Company's consolidated financial statements since
the date of acquisition.
3. INVENTORIES:
Inventories at September 30 consist of:
<TABLE>
September 30
------------
(Amounts in thousands) 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Raw materials $66,033 $67,463
Finished goods and work in process 10,490 13,623
-----------------
$76,523 $81,086
-----------------
</TABLE>
4. INVESTMENTS IN UNCONSOLIDATED CORPORATE JOINT VENTURES:
Mi-Tech Steel, Inc. owns and operates high-volume steel slitting
facilities to serve Japanese and domestic automotive and
appliance parts manufacturers in the United States. Summarized
condensed financial information of Mi-Tech Steel, Inc., a fifty
percent owned corporate joint venture accounted for by the equity
method follows:
<TABLE>
September 30
------------
BALANCE SHEET: (Amounts in thousands) 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Assets:
Currents assets $45,803 $45,922
Liabilities:
Current liabilities $35,345 $50,862
Long-term liabilities 25,883 1,244
</TABLE>
<TABLE>
For the Years Ended
September 30
-----------------------------
INCOME STATEMENT 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net sales $131,795 $109,482 $94,992
Net income $1,074 $3,219 $3,345
</TABLE>
The Company has various transactions with Mi-Tech Steel, Inc.
Included in operating income of the Company are management,
construction and other fees, interest earned on advances and
equity from the joint venture earnings totaling $1,463,000,
$2,970,000 and $2,248,000 in 1998, 1997 and 1996, respectively.
The Company is a guarantor of up to $8,250,000 of Mi-Tech bank
borrowings. The borrowings consist of a term note payable and a
revolving line of credit due on September 15, 2003 in the case of
the term loan and due December 31, 1999 in the case of the
revolving line of credit. The notes payable bear variable rates
of interest which at September 30, 1998 were 6.50% and 7.13%. The
lender has the ability to call the debt if debt covenants are
violated. The Company's equity in undistributed net income of Mi-
Tech Steel, Inc. were $8,110,000 and $7,573,000 at September 30,
1998 and 1997 respectively.
The Company maintains an investment of approximately $1,000,000,
principally in preferred stock of Processing Technology Inc., a
corporate joint venture accounted for by the cost method. The
Company periodically evaluates the possible conversion of its
preferred stock investment into common stock of Processing
Technology, Inc. The Company's decision to convert its
investment to common stock will be based upon the joint venture
attaining certain financial criteria established by Steel
Technologies and approval by its joint venture partners. Upon
conversion, the Company would be obligated to guarantee a
proportionate share, currently approximately $8,700,000, of the
joint venture's loan and lease commitments.
5. LONG-TERM DEBT:
Long-term debt at September 30 consists of the following:
<TABLE>
(Amount in thousands) 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Notes payable, unsecured, interest $40,000 $40,000
due monthly at 8.52%
Notes payable to bank, unsecured under 49,000 50,000
current line of credit; interest rates
at September 30, 1998 ranged
from 6.70% to 6.98%
Variable rate industrial development 4,300 4,400
revenue bonds payable in annual
installments through November 1, 2014;
interest rate at September 30, 1998 was 4.20%
Notes payable at 7.00%, unsecured, 1,812 3,625
payable in annual installments through
April 1, 1999
Mortgage notes payable in installments 1,067 1,333
through 2003; interest rates averaging 8.15%
Note payable at 6.50%, unsecured, 1,200 -
payable on April 1, 1999
All other debt 23 27
------------------
97,402 99,385
Less amount due within one year 9,102 2,195
------------------
$88,300 $97,190
</TABLE>
In April 1995, the Company entered into a $40,000,000 private
note placement. Annual principal payments of $5,720,000 begin
March 1, 1999 and continue through March 1, 2005.
Steel Technologies has a $80,000,000 line of credit agreement
with various variable options on the interest rate, none of which
are greater than the bank's prime. In October 1998, the Company
extended the term on a $25,000,000 portion of the bank line of
credit through January 10, 1999. The remaining $55,000,000
portion of the bank line of credit is due on October 11, 2000.
The aggregate amounts of all long-term debt to be repaid for the
five years following September 30, 1998, are: 1999, $9,102,000;
2000, $6,091,000; 2001, $55,091,000; 2002, $6,092,000; and 2003,
$5,826,000. Provisions contained in the Company's various debt
agreements require the Company to maintain specified levels of
net worth, maintain certain financial ratios and limit the
addition of substantial debt. The Company estimates that the
fair value of fixed interest debt instruments approximate
$43,874,000 at September 30, 1998. The fair value of the
Company's debt is estimated based on quoted market rates or
current rates offered to the Company on comparable remaining
maturities. The carrying value of the fixed interest rate debt
is $44,102,000.
6. INTEREST RATE SWAPS:
The interest rate swap was entered into with the objective of
reducing the Company's exposure to interest rate risk. During
1998, the Company entered into an interest rate swap to
effectively convert a portion of the variable rate bank line of
credit to a fixed rate. Reset dates and the floating rate index
on the swap match those of the underlying bank debt. Accordingly,
any market risk or opportunity associated with the swap is offset
by the opposite market impact on the related debt. Credit risk
from the swap agreement is dependent both on the movement in
interest rates and the possibility of non-payment by swap
counterparties. The Company mitigates credit risk by only
entering into a swap agreement with high credit-quality
counterparties. On August 4, 1998, the Company entered into
interest rate swap with notional amounts of $30,000,000. Under
the contract, the Company agrees with another party to exchange
quarterly the difference between variable-rate and fixed-rate
amounts calculated on notional principal amount. The swap matures
at various dates through 2008 unless the counterparty exercises
an option to cancel the swap effective in 2003. The fair market
value of the swap and the option to cancel the swap at September
30 1998 through maturity are a liability of $1,084,000 and
$750,000, respectively.
7. SHAREHOLDERS' EQUITY:
In April 1998, the Company adopted a shareholder rights plan by
declaring a dividend of one right for each share of common stock
outstanding payable to shareholders of record on May 14, 1998.
Each right entitles shareholders to buy one one-hundredth of a
share of series A junior participating preferred stock for $50
per share. The rights may be exercised only if a person or group
acquires 20% or more of the outstanding shares of common stock or
announces a tender offer or exchange offer that would result in
ownership of 20% or more of the common stock. The rights
currently trade with the Company's common stock and may be
redeemed by the Board of Directors for one cent per right until
they become exercisable, and thereafter under certain
circumstances. The rights expire in 2008.
The Company's Articles of Incorporation authorized 500,000 shares
of no par value preferred Stock, of which 200,000 shares have
been reserved and designated Series A 1998 A junior participating
preferred stock for possible issuance under the Company's
shareholder rights plan. As of September 30, 1998, no preferred
shares have been issued.
During 1998, the Board of Directors authorized the repurchase, at
management's discretion, up to 1,500,000 shares of the Company's
stock. The Company's repurchase of shares of common stock are
recorded as treasury stock and result in a reduction of
Shareholder's Equity. The Company purchased 421,000 shares for an
aggregate of $3,792,000 as of September 30, 1998.
8. RETIREMENT PLAN:
The Company maintains a 401(k) defined contribution pension plan.
Annual expense provisions are based upon the level of employee
participation as the plan requires the Company to match a certain
portion of the employees' contribution. Total retirement plan
expense was $513,000 in 1998, $513,000 in 1997 and $470,000 in
1996. The Company follows the policy of funding retirement plan
contributions as accrued.
9. INCOME TAXES:
Provision for income taxes consists of the following:
<TABLE>
For the years ended September 30
--------------------------------
(Amounts in thousands) 1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $3,915 $2,311 $3,974
State and Local 887 673 865
------------------------------
4,802 2,984 4,839
------------------------------
Deferred:
Federal 1,692 1,481 1,433
State and Local 113 156 211
------------------------------
1,805 1,637 1,644
------------------------------
$6,607 $4,621 $6,483
------------------------------
</TABLE>
Deferred income taxes are recorded at currently enacted rates and
result from temporary differences in the recognition of revenues
and expenses for tax and financial statement purposes. The
primary temporary differences giving rise to the Company's
deferred tax assets and liabilities are as follows:
<TABLE>
September 30
------------
1998 1997
---- ----
(Amounts in thousands) Assets Liabilities Assets Liabilities
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accelerated depreciation $10,986 $10,349
Inventory capitalization $928 $1,099
Provision for doubtful accounts 354 354
Non deductible liabilities 339 261
Other, net 2,261 1,186
--------------------------------------
$1,621 $13,247 $1,714 $11,535
</TABLE>
A reconciliation of the provision for income taxes with
amounts computed by applying the federal statutory income
tax rate before income taxes follows:
<TABLE>
For the Years Ended September 30
--------------------------------
1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Provision at federal statutory rate 34.0% 34.0% 35.0%
Increases (decreases) resulting from:
State and local income taxes, net of
federal income tax benefit 4.8 4.7 4.1
Equity in net income of unconsolidated
corporate joint venture (1.1) (3.7) (2.6)
Other 1.8 0.2 (0.8)
------------------------------
39.5% 35.2% 35.7%
------------------------------
</TABLE>
10. STOCK OPTION PLANS:
Under its employee stock option plans, the Company may grant
employees incentive stock options to purchase shares at not less
than 100% of market value at date of grant or non-qualified stock
options at a price determined by the Compensation Committee.
Generally, options are exercisable at the rate of 20% a year
beginning one year from date of grant and expire ten years from
the date of grant.
The Company applies APB Opinion 25, "Accounting for Stock Issued
to Employees", and related interpretations in accounting for its
plans. Generally, the exercise price of options awarded under
these plans has been equal to the fair market value of the
underlying common stock on the date of grant. Accordingly, no
compensation expense has been recognized of its stock-based
compensation plans. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair
value at the grant date for awards under these plans consistent
with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation, net income and earnings per share would have been
reduced to the pro forma amounts indicated in the table below.
<TABLE>
(Amounts in thousands except
per share data) 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net income-as reported $9,803 $8,502 $11,686
Net income-pro forma $9,533 $8,397 $11,575
Diluted net income per share-
as reported $0.82 $0.71 $0.98
Diluted net income per share-
pro forma $0.80 $0.70 $0.97
Basic net income per share
As reported $0.82 $0.71 $0.97
Basic net income per share
Pro forma $0.80 $0.70 $0.96
</TABLE>
The pro forma effects on net income for 1998 and 1997 are not
representative of the pro forma effect on net income in future
years because they do not take into consideration pro forma
compensation expense related to grants made prior to 1996. The
fair value of options granted during 1998, 1997 and 1996 is
$5.37, $5.90 and $4.65 per share, respectively.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following assumptions:
<TABLE>
1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 0.8% 0.8% 0.7%
Expected stock price volatility 42.9% 42.4% 45.9%
Weighted average risk-free
interest rate 5.7% 6.5% 5.2%
Expected life of options (years) 7.0 7.0 7.0
</TABLE>
The summary of the status of all of the Company's stock incentive
plans as of September 30, 1998, 1997 and 1996 and changes during
the years then ended is presented below:
<TABLE>
Range of Weighted
Shares Option Average
Under Prices Exercise
Plans Per Share Price
- ----------------------------------------------------------------
<S> <C> <C> <C>
Balance September 30, 1995 535,325 $6.67 - $11.73 $9.95
Granted 110,000 $11.63 - $12.79 $11.84
Exercised (17,700) $6.67 - $ 6.87 $6.84
-----------------------------------
Balance, September 30, 1996 627,625 $6.67 - $12.79 $10.37
Granted 5,000 $11.63 $11.63
Exercised (103,725) $6.67 - $10.67 $9.88
Canceled (14,650) $10.00 - $11.00 $10.21
-----------------------------------
Balance, September 30, 1997 514,250 $6.67 - $12.79 $10.49
Granted 205,000 $11.25 - $12.00 $11.94
Exercised (22,500) $6.67 - $11.63 $8.49
Canceled (73,750) $10.67 - $11.73 $11.60
-----------------------------------
Balance, September 30, 1998 623,000 $6.67 - $12.79 $10.81
-----------------------------------
</TABLE>
The following table summarizes information about stock options
outstanding at September 30, 1998:
<TABLE>
Options Outstanding: Options Exercisable:
- -----------------------------------------------------------------------------------------
Weighted
Average Weighted
Range of Number Remaining Average Number Weighted
Exercise Outstanding Contracted Exercise Exercisable Exercise
Prices at 9/30/98 Life Price at 9/30/98 Price
- -----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$6.67-$10.08 105,000 1.3 years $8.23 105,000 $ 8.23
$10.09-$12.79 518,000 7.0 years $11.33 231,600 $10.95
$6.67- $12.79 623,000 6.1 years $10.81 336,600 $10.10
</TABLE>
At September 30, 1998 and 1997, shares available for
granting of stock options under the Company's stock
option plans were 88,000 and 285,000 shares, respectively.
All unexercised options expire not later than the
year 2008.
11. NET INCOME PER SHARE COMPUTATIONS:
The following is a reconciliation of the
numerator of the basic and diluted per share
computations:
<TABLE>
For the years ended September 30
(Amounts in thousands, except per share data) 1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 9,803 $ 8,502 $11,686
---------------------------------------
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 11,942 11,976 11,908
Plus: dilutive effect of stock options 47 81 84
---------------------------------------
Adjusted weighted average shares 11,989 12,057 12,064
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 11,942 11,976 11,908
---------------------------------------
Net income per share data;
Diluted $0.82 $0.71 $0.97
---------------------------------------
Basic $0.82 $0.71 $0.98
---------------------------------------
</TABLE>
Options to purchase 363,500, 76,250, and 20,000 shares for the
years ended September 30, 1998, 1997, and 1996 respectively were
excluded from the calculation above because the exercise prices
on the options were greater than the average market price for the
periods.
12. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 130,
"Reporting Comprehensive Income." SFAS No. 130 requires
companies to classify items defined as "other comprehensive
income" by their nature in a financial statement, and to display
the accumulated balance of their comprehensive income separately
from retained earnings and additional paid-in capital in the
equity section of the balance sheet. The adoption of SFAS No. 130
will not have a material impact on our consolidated financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segment of an Enterprise and Related Information" SFAS No. 131
establishes the standards public enterprises report financial and
descriptive information about operating segments. The Company
does not expect adoption of this statement will have a material
impact on the financial statements.
During 1998, Statement of Position No. 98-1 "Accounting for the
Costs of Computer Software Developed or Obtained for Internal
Use" and No. 98-5 "Reporting on the Costs of Start-up Activities"
were issued. These statements are effective for years beginning
after December 15, 1998. The company currently capitalizes
certain costs of software acquired for internal use and has no
significant expenses capitalized related to start-up activities.
As a result, the Company expects that the adoption of these
standards will not have a significant impact on future earnings.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivatives Instruments and Hedging Activities". SFAS No. 133
requires the recognition at fair market value of derivative
instruments and hedging activities as either assets or
liabilities in the statement of financial position. The Company
has not yet determined whether the adoption of the statement will
have a material impact on the financial statements.
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
STEEL TECHNOLOGIES INC.
Board of Directors and Shareholders
Steel Technologies Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income and shareholders'
equity and cash flows present fairly, in all material respects,
the financial position of Steel Technologies Inc. and its
subsidiaries at September 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years
in the period ended September 30, 1998, in conformity with
generally accepted accounting principles. 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 of these
statements in accordance with generally accepted auditing
standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
Louisville, Kentucky
October 26, 1998
EXHIBIT 21.1
STEEL TECHNOLOGIES INC.
SUBSIDIARIES AND AFFILIATES
<TABLE>
Percentage of
Names Under Voting Secur-
Jurisdiction of Which Business ities Owned by
Name Incorporation Transacted Registrant
<S> <S> <S> <C>
Wabash Steel Corporation Indiana Wabash Steel Corporation 100%
(Formerly Southern Strip Steel-
Peru, Inc.)
Steel Technologies Carolinas, Inc. North Carolina Steel Technologies Carolinas 100%
(formerly Steel Technologies
North Carolina, Inc.)
Steel Technologies Ohio, Inc. Ohio Steel Technologies Ohio 100%
(formerly Southern Strip Steel-
Columbus, Inc)
Roberts Steel Company Ohio Roberts Steel 100%
Steel Technologies de Mexico Mexico Steel Technologies de Mexico 90%
(formerly Transformadora y
Commercializadora de
Metales, S.A. de C.V.)
Mi-Tech Steel, Inc. Delaware Mi-Tech Steel, Inc. 50%
Processing Technology, Inc. * Delaware Processing Technology, Inc. 5%
</TABLE>
* Steel Technologies Inc. also owns shares of Processing Technology,
Inc., non-voting preferred stock. The Company continues to evaluate
the possible conversion of its preferred shares into common shares
of Processing Technology, Inc. If converted, Steel Technologies Inc.,
including the 5% interest currently held, would own 33% of the
outstanding common shares of Processing Technology, Inc.
EXHIBIT 23.1
STEEL TECHNOLOGIES INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Steel Technologies Inc. and Subsidiaries on Form S-8
(File Nos. 333-66318, 333-21279 and 333-21359) of our reports
dated October 26, 1998, on our audits of the consolidated
financial statements and financial statement schedule of Steel
Technologies Inc. and Subsidiaries as of September 30, 1998 and
1997 and for the years ended September 30, 1998, 1997 and 1996,
which reports are incorporated by reference and included in this
Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Louisville, Kentucky
December 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet at September 30, 1998 and condensed
consolidated statement of income for the fiscal year ended September 30, 1998
and related footnotes and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,778
<SECURITIES> 0
<RECEIVABLES> 48,846
<ALLOWANCES> (939)
<INVENTORY> 76,523
<CURRENT-ASSETS> 131,577
<PP&E> 168,006
<DEPRECIATION> (61,375)
<TOTAL-ASSETS> 266,481
<CURRENT-LIABILITIES> 51,258
<BONDS> 88,300
0
0
<COMMON> 16,928
<OTHER-SE> 100,540
<TOTAL-LIABILITY-AND-EQUITY> 266,481
<SALES> 383,907
<TOTAL-REVENUES> 383,907
<CGS> 339,811
<TOTAL-COSTS> 339,811
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 588
<INTEREST-EXPENSE> 6,079
<INCOME-PRETAX> 16,410
<INCOME-TAX> 6,607
<INCOME-CONTINUING> 9,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,803
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
</TABLE>
