<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
COMMISSION FILE NUMBER 0-14404
LONE STAR TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
5501 LBJ FREEWAY, SUITE 1200
DALLAS, TEXAS 75240
214/386-3981
I.R.S. EMPLOYER IDENTIFICATION NUMBER: 75-2085454
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- -------------------
Common Stock, par value $1.00 Nasdaq
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 amendment to this
Form 10-K. [ ]
As of February 15, 1995, the number of shares of common stock outstanding was
20,412,070. The aggregate market value of common stock (based upon the closing
price on the Nasdaq Stock Market on that date) held by non-affiliates of the
registrant was approximately $143 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's Proxy Statement for its 1995 Annual Meeting of
Shareholders are incorporated by reference into Part III hereof.
===============================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. BUSINESS...................................................... 3
ITEM 2. PROPERTIES.................................................... 8
ITEM 3. LEGAL PROCEEDINGS............................................. 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS............... 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS................................... 10
ITEM 6. SELECTED FINANCIAL DATA....................................... 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.............. 11
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA........................................ 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE........................ 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT............................................. 32
ITEM 11. EXECUTIVE COMPENSATION........................................ 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................ 32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K....................................... 32
ITEM 15. SIGNATURES.................................................... 35
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Lone Star Technologies, Inc.'s ("LST") operating subsidiary, Lone Star Steel
Company ("Steel"), serves two business segments: oilfield products and
services, comprised of casing, tubing, and line pipe, are manufactured and
marketed globally to the oil and gas drilling industry; and, industrial products
consist of specialty tubing and flat rolled steel which are manufactured and
provided to general industrial markets.
LST, a management and holding company, was incorporated in Delaware in 1986 and
became the holding company of Steel, pursuant to Steel's merger with a wholly
owned subsidiary of LST. In 1991, Steel emerged from bankruptcy, having
operated as debtor in possession under Chapter 11 of the U.S. Bankruptcy Code
since 1989. Under the Plan of Reorganization, a major creditor group received
19.5 percent of the common equity of Steel. LST's consolidated balance sheets
reflect this reduction of equity ownership in Steel by including "minority
interest in Steel" in the liability section, and LST's consolidated statements
of earnings are adjusted by the minority interest participation in Steel's
earnings or losses.
In August, 1988, LST acquired, for $48 million, the stock of American Federal
Bank, F.S.B. ("AFB"), a newly created, federally chartered savings bank. In
November, 1993, LST sold the stock of AFB to Guaranty Federal Bank, F.S.B.
("GFB") for $155.7 million, of which LST received $135.7 million in cash on the
sale date and $5.0 million in November, 1994. Fifteen million dollars remain in
escrow to provide for payment of certain claims that could be filed by GFB under
the terms of the sale agreement. The accompanying consolidated financial
statements reflect AFB as a discontinued operation.
LINES OF BUSINESS INFORMATION
In the last three years, segment revenues were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
$ % $ % $ %
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Oilfield products and services 215.2 60 210.8 63 171.0 62
Industrial products 141.8 40 121.7 37 106.6 38
----- --- ----- --- ----- ---
Consolidated total 357.0 100 332.5 100 277.6 100
===== === ===== === ===== ===
</TABLE>
Additional segment information is included in Note B to the consolidated
financial statements.
OILFIELD PRODUCTS AND SERVICES. Steel manufactures, markets, stores, and
transports oil country tubular goods ("OCTG") and line pipe.
OCTG manufactured by Steel includes a wide size and chemistry range of
electric resistance welded ("ERW") high-quality casing and tubing for oil and
gas drilling and production. Casing, about 75 percent of all OCTG tonnage sold
by Steel, is the structural retainer for the walls of oil and gas wells. It
also serves to prevent pollution of nearby water reservoirs and to prevent
contamination of a well's production. Casing is generally not removed after it
has been installed. Production tubing is installed within the casing to convey
oil and gas to the surface.
3
<PAGE>
Demand for OCTG is affected by drilling activity which is driven by customers'
expectations of future oil and gas prices and political factors such as energy
and trade policies. Domestic drilling activity was essentially unchanged in
1994 from the prior year, according to the average number of rigs operating in
this country as measured by Baker Hughes. Steel's open orders for OCTG at
December 31, 1994, were unchanged from the year-ago level. Steel continued its
efforts to penetrate global markets, and 7 percent of its shipments in 1994 were
used outside the lower 48 United States. Removal of trade barriers,
specifically the North American Free Trade Agreement, should create positive
market opportunities for Steel, although the near-term impact is expected to be
minor.
LINE PIPE manufactured by Steel ranges in diameter from 2 3/8" to 16" and is
used to gather and transport oil and gas from the well site to storage or
refining facilities. Approximately 3 percent of Steel's line pipe shipments
were exported in 1994.
OTHER SERVICES. Transportation, storage, and other services are provided by
Steel's subsidiaries.
SALES AND DISTRIBUTION. The domestic OCTG sales distribution network consists
of 13 non-exclusive distributors who maintain product inventory and provide
delivery to major and independent oil and gas companies that explore for oil and
natural gas. Line pipe is also sold through distributors. Internationally,
OCTG is sold through distribution channels as well as directly to end users.
The largest single customer and the ten largest customers of Steel's OCTG in
1994 accounted for 9 percent and 40 percent of total shipments, respectively.
About 74 percent of the oil and gas wells drilled in the United States in 1994
were located in Texas, Oklahoma, Kansas, Louisiana, and New Mexico, all within
750 miles of Steel's mill in Lone Star, Texas, and the majority of Steel's
oilfield products were sold for use in these states.
RAW MATERIALS AND INVENTORIES. OCTG and line pipe are generally produced to
fill specific orders and, accordingly, Steel maintains the majority of its
inventory in the form of raw materials, work in process, or finished goods
earmarked for specific orders. Steel purchases slabs and steel scrap used in
the manufacture of its products. The availability of steel to meet production
needs tightened in 1994, and it was often necessary for Steel to commit to
purchase steel up to 120 days prior to having orders.
COMPETITION. OCTG and line pipe are sold in highly competitive markets, and
sales and earnings are affected by price, cost and availability of raw
materials, oil and gas drilling activity, and general economic conditions.
Steel offers a wide range of sizes and chemistries and, based on shipment data
compiled by the American Iron & Steel Institute, Steel believes that it is one
of the largest domestic suppliers of OCTG. Users of OCTG base their purchase
decisions on four factors: availability, price, quality, and service. Steel
believes that it is competitive in all of these areas. LST's revenues are not
seasonal.
Two distinct markets exist for OCTG, and Steel serves both. Deep critical wells
require high-performance OCTG that can sustain enormous pressure as measured by
burst strength, collapse strength, and yield strength. The major oil companies
and independents who conduct drilling programs of this nature emphasize quality
and compliance with specific standards. Steel, with its full-body normalized
ERW products which meet American Petroleum Institute Standards, competes with
seamless OCTG in this market. Operators who drill shallower wells generally
purchase OCTG on the basis of price and availability because those wells require
less expensive products without superior performance characteristics. Steel
competes in this market, which is served primarily by producers of seam-annealed
ERW and seamless OCTG, with its full range of Lone Star-R- products as well as
with its Wildcat-TM- brand of OCTG. Several domestic manufactures produce
limited lines of OCTG, and a number of foreign manufacturers produce
4
<PAGE>
OCTG for export to the United States. Imported OCTG represented an estimated
one-fourth of the supply available to the domestic OCTG market during the past
two years. Members of the domestic steel pipe and tube industry have recently
filed trade cases against foreign producers who are believed to be dumping their
products into the domestic marketplace. If successful, the impact of these
cases could reduce the volume of imports in 1995 and beyond.
INDUSTRIAL PRODUCTS. Steel manufactures and markets specialty tubing and flat
rolled steel.
SPECIALTY TUBING includes a wide array of high-quality, custom-made steel
tubular products which require critical tolerances, precise dimensional control,
and special metallurgical properties. Steel's specialty tubing products range
in size from 7/8" to 15 1/2" in outside diameter and are made from a variety of
combinations of chemical compositions, thermal treatments, mechanical
properties, and surface finishes. The products are used in the manufacture of
automotive, construction, and farm equipment and in industrial applications such
as hydraulic cylinders, stabilizers and intrusion devices, machine parts,
bearing races, downhole pump barrels, and printing rollers. Steel produces most
of its specialty tubing by the drawn over mandrel ("DOM") process which uses a
drawbench to pull tubing through a die and over a mandrel to form tubular
products of the desired inside and outside diameter, wall thickness, and surface
finish.
Demand for specialty tubing, sensitive to general economic conditions as
evidenced by the variety of industrial markets served, has improved during the
past year. Steel's open orders at December 31, 1994, were up 23 percent from
the prior year due to expanding markets and increased market share domestically,
and Steel continued its pursuit of global opportunities, particularly in the
European and Pacific Rim markets.
FLAT ROLLED STEEL is used by Steel in the manufacture of tubular products, and
it is also sold to fabricators of large diameter transmission pipe, storage
tanks, rail cars, and a variety of other construction and industrial products.
SALES AND DISTRIBUTION. Domestically, specialty tubing is marketed and sold
through 18 non-exclusive distributors known as steel service centers and, to a
lesser extent, directly to end users. Specialty tubing products have detailed
design specifications and in some cases long lead times, making annual contracts
an efficient mechanism for large purchasers. The largest single user and the
ten largest customers of Steel's specialty tubing in 1994 accounted for 3
percent and 17 percent, respectively, of total shipments. Approximately 60
percent of Steel's specialty tubing was sold into the Southern and Midwestern
regions of the United States. Internationally, the majority of Steel's
specialty tubing is currently sold directly to end users. Exports accounted for
approximately 17 percent and 11 percent of Steel's specialty tubing shipments in
1994 and 1993, respectively.
Flat rolled steel products are sold directly to end users or through
distributors, primarily in the Southwestern region of the United States.
RAW MATERIALS AND INVENTORIES. Raw materials are readily available from
multiple sources. Production is generally scheduled to meet specific orders
and, accordingly, inventory is managed to minimize the amount of finished goods
on hand. Work-in-process inventories are maintained in order to provide
flexibility in responding to customer needs.
COMPETITION. Based on shipment data compiled by the Steel Tube Institute,
Steel believes that it is one of the three largest producers of DOM specialty
tubing products. Steel is the only fully
5
<PAGE>
integrated DOM producer in the United States. One of Steel's drawbenches, among
the largest in the world, enables it to produce DOM products in a greater size
range than its competitors. Because these products are made to end-user
specification and often require just-in-time delivery, only small quantities are
imported into the United States. In contrast to the OCTG market, seamless and
ERW specialty tubing products differ in their applications. ERW is preferred
for many mechanical tubing applications because its consistent wall thickness
requires less machining in the finishing process. Seamless tubes are used
primarily in heavy gauge applications such as boiler and pressure tubing.
Flat rolled steel is sold in highly competitive markets. Sales and earnings are
affected by the cost of raw materials, use by Steel in tubular production,
demand by outside customers, and general economic conditions. LST's revenues
are not seasonal.
RESEARCH, DEVELOPMENT, AND PATENTS
Steel conducts limited research and development activities at its metallurgical
laboratory in East Texas. Its patents do not significantly affect financial
results.
EMPLOYEES
At December 31, 1994, Steel employed 1,592 people, of whom 1,131 were members of
two unions represented by three bargaining units. The majority of union workers
are represented by the United Steelworkers of America under a contract which
expires in June, 1996. Management considers its relationship with the
Steelworkers to be good.
FOREIGN OPERATIONS
Steel conducts no manufacturing operations outside the United States. Export
sales to destinations outside the United States were approximately $25.5
million, $20.6 million, and $26.5 million for the years 1994, 1993, and 1992,
respectively.
ENVIRONMENTAL
Steel's operating activities are governed by numerous environmental laws, which
are regulated by state and federal agencies. The three major areas of
regulation are air quality, water quality, and solid and hazardous waste
management.
RELATIONSHIP OF FEDERAL AND STATE REGULATION. The United States Environmental
Protection Agency ("EPA") is responsible for implementing and enforcing federal
environmental laws. In Texas, the environmental regulatory agency is the Texas
Natural Resource Conservation Commission ("TNRCC"). The TNRCC was formed in
1993 pursuant to a merger between the Texas Water Commission, responsible for
water quality and solid and hazardous waste management, and the Texas Air
Control Board which had exclusive authority over air quality.
Most federal environmental statutes expressly provide for state assumption of
responsibility when it can be demonstrated that the state program is as
stringent as the federal program; however, the EPA retains authority to enforce
the program if the state fails to do so.
6
<PAGE>
Texas is authorized to implement the federal hazardous waste program under the
Resource Conservation and Recovery Act ("RCRA") and the federal air quality
program under the Clean Air Act. The Texas air quality program also requires
all new or modified facilities that may emit any air contaminant to obtain a
permit which imposes limitations on each emission.
Texas has not yet been delegated authority to implement the federal water
quality program under the Clean Water Act. Therefore, dual federal and state
water quality programs exist in Texas, requiring companies such as Steel to
obtain both a federal permit and a state permit to discharge wastewater into
state waters.
In addition, Texas has state environmental programs that supplement and operate
independently of the federal environmental programs. Texas has established its
own program for the regulation of municipal and industrial solid wastes under
the Texas Solid Waste Disposal Act. Steel's operations generate wastes that are
regulated as industrial solid waste under this program.
AIR quality is governed by the federal Clean Air Act and the Texas Clean Air
Act. The TNRCC has primary responsibility for implementing and enforcing the
federal law through the state program. The Texas State Implementation Plan
implements, maintains, and enforces the National Ambient Air Quality Standards
established by the EPA for particulate matter, sulfur dioxide, carbon monoxide,
nitrogen oxide, ozone, and lead, as well as the other federal air quality
programs. Emission sources at Steel's facilities are regulated by a combination
of individual permit limitations and statewide standards. Sources which existed
before the implementation of the state permitting requirements are registered
with the TNRCC as "grandfathered sources" and are not required to obtain a
permit. If, however, a grandfathered source is modified in a manner that
increases the amount or changes the character of air contaminants emitted into
the atmosphere, it becomes subject to permitting requirements.
Steel does not believe that the 1990 amendments to the federal Clean Air Act
will significantly impact its operations over the next two years. The amendment
with the greatest potential to impact the steelmaking industry requires the EPA
to establish emission standards for certain hazardous substances based on
maximum achievable control technology. However, until the EPA promulgates the
regulations for the iron and steel manufacturing source category and the related
electric arc furnace ("EAF") operation source category, Steel cannot determine
the impact of this amendment on its operations. The EPA has set November 15,
1997, as its deadline for promulgating emission standards for these source
categories.
Steel is presently in substantial compliance with the conditions of its permits
and applicable standards. Steel recently received approval from the TNRCC for a
permit amendment to install a baghouse to serve as an additional air pollution
control device for its EAFs. The new facility is now under construction.
WATER quality is governed by the federal Clean Water Act, implemented by the
EPA, and the state Water Code, implemented by the TNRCC. Steel is required to
have two separate permits to discharge wastewater from each of its outfalls: a
National Pollution Discharge Elimination System permit issued by the EPA and a
wastewater discharge permit issued by the TNRCC. The regulatory emphasis on
water and wastewater is directed at the control of effluent toxicity.
With respect to both the federal and state wastewater discharge permits, Steel
and the regulators have been engaged in ongoing discussions regarding the
applicability of the state water quality standards for lead. In August, the
TNRCC granted Steel a three-year variance to the state water quality standards
for lead, issued Steel a renewal state water permit with lead
7
<PAGE>
limits based on this variance, and proposed a site-specific standard for lead
consistent with the variance. Also, the EPA recently issued Steel a draft
renewal federal permit with lead limits based on the state variance. Steel thus
believes that it will be possible to achieve substantial compliance with both
its state and federal wastewater discharge permits without requiring material
expenditures.
SOLID AND HAZARDOUS WASTE management is governed by the Texas Solid Waste
Disposal Act and RCRA. The TNRCC has primary responsibility for implementing
and enforcing the federal law through the state program.
Solid waste, some of which is now classified as hazardous, has been generated by
Steel since it began operation. As with similar mills in the industry, Steel's
EAF generates dust containing lead, chromium, and cadmium. Until 1988, Steel
disposed of the EAF dust and other wastes in on-site management units. Steel
does not store hazardous waste and no longer disposes of waste on site. Wastes
are now shipped off-site to commercial facilities for disposal or reclamation.
In the past, Steel operated solid waste management units for the storage and
disposal of non-hazardous and hazardous wastes. These sites include four
land-based RCRA waste management units and a fifth site that is not subject to
RCRA. Steel has submitted to the TNRCC a closure plan for the site not subject
to RCRA, a pond previously used for storing an acidic waste, and Steel is
closing it as a non-hazardous facility. Two sites subject to RCRA, the plant's
landfill and a site that received air pollution sludge, have been closed in
accordance with requirements of RCRA and corresponding state regulations. These
sites are subject to post-closure care obligations, including ground-water
monitoring, for up to thirty years. The remaining two sites have been closed by
removal ("clean closure") in accordance with requirements of RCRA and
corresponding state regulations. Steel is seeking to limit the duration of
future post-closure, ground-water monitoring at these facilities based on the
clean closure. The TNRCC will issue Steel a permit for the facilities requiring
post-closure care. Steel projects the actual cost during the thirty-year
post-closure period for its various facilities to be approximately $1 million.
ITEM 2. PROPERTIES
Steel conducts its operations at facilities on a 2,000-acre site in East Texas.
The original facilities, constructed in the 1940's, have been expanded and
modernized, and include two EAF's with capacity of approximately 500,000 ingot
tons per year; two rolling mills, a "two-high" mill that rolls the EAF ingots
into slabs and a "four-high" single stand reversing Steckel mill that produces
flat rolled coils; two pipe welding mills; six drawbenches, including the
largest specialty tubing drawbench in the United States; heat treating
facilities; numerous types of ultrasonic and electromagnetic testing and
inspection equipment; finishing facilities at which tubular goods are threaded
and couplings are applied; and, various support facilities including a shortline
railroad and other transportation and storage facilities. Steel's and LST's
headquarters are located in leased facilities in Dallas, Texas.
Steel's annual productive capacity approximates 425,000 slab tons, 1,250,000
coil tons, and 1,000,000 pipe tons. In 1994, the EAF and specialty tubing
facilities operated at 90 - 100 percent of capacity, while the rolling mills and
pipe mills generally operated at 55 percent or less.
LST and certain minority shareholders of Steel agreed to fund up to $23 million
for a capital expenditure program. Steel issues 6 percent cumulative
convertible preferred stock to its participating shareholders as funds are
advanced. Included in the program is a significant
8
<PAGE>
expansion of Steel's capacity to manufacture specialty tubing products. The
balance of the expenditures will be used to upgrade Steel's capability to
manufacture tubular products for use in the energy sector. This program began
in early 1995, is scheduled to be completed in mid-1996, and had no impact on
1994 results.
Under current and projected market conditions, Steel believes that the
facilities have sufficient capacity to meet production needs for several years.
In addition to the manufacturing facilities, Steel owns 20,000 acres in Texas
and 3,000 acres in Oklahoma which were purchased primarily for iron ore or coal
reserves, and mineral interests on an additional 12,000 acres in Oklahoma and
60,000 acres in Texas. No minerals have been recovered from these properties
for many years because their use is no longer required in Steel's operations.
ITEM 3. LEGAL PROCEEDINGS
Steel filed a Petition for Review with the United States Court of Appeals for
the Fifth Circuit in 1992 seeking judicial review of certain conditions in an
EPA permit governing Steel's wastewater discharges. The EPA is the only other
party to this proceeding which was brought by Steel under statutory provisions
that permit private parties to seek judicial review of administrative agency
decisions.
LST and its subsidiaries are parties to a number of lawsuits and controversies
which are not discussed in this document. As to the legal proceedings not
discussed, it is the opinion of management, based upon analysis of known facts
and circumstances and reports from legal counsel, that LST and its subsidiaries
are not parties to any legal proceeding, which is material to them taken as a
whole, other than ordinary routine litigation incidental to their business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
LST's Common Stock trades on Nasdaq National Market System under the symbol
LSST. The following table summarizes the range of trading prices by quarter for
the last two years (in $):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
1994 High 9 1/8 8 1/2 7 1/4 7 7/8
Low 7 3/8 6 3/4 6 5 3/4
1993 High 6 1/4 9 3/8 10 3/4 10 7/8
Low 3 1/2 5 1/2 8 1/8 6 1/2
</TABLE>
As of February 15, 1995, LST had approximately 5,300 common shareholders of
record. LST has paid no dividends on its Common Stock since becoming a public
company and is not expected to declare dividends in the foreseeable future.
In 1988, LST sold one million shares of Series A nonvoting convertible
cumulative preferred stock, $1.00 par value ("Series A Preferred stock"), for
$49.6 million in cash. The Series A Preferred stock carried a $50.00 per share
liquidation preference, plus any unpaid dividends, and became redeemable in cash
at the option of LST after September, 1993. No dividends were declared,
accrued, or paid, and cumulative dividends in arrears at January 1, 1994,
approximated $18.8 million. In February, 1994, LST redeemed this stock and
extinguished all dividend obligations related to it for $51.7 million.
ITEM 6. SELECTED FINANCIAL DATA ($ in millions, except share and employee data)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
----- ----- ----- ----- ----- ------ ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . 357.0 332.5 277.6 318.9 318.4 290.3 484.2 372.8 196.7 391.7 450.2
Oilfield revenues . . . . . . 215.2 210.8 171.0 218.3 212.6 150.9 306.5 241.7 111.9 341.5 278.9
Industrial revenues . . . . . 141.8 121.7 106.6 100.6 105.8 139.4 177.7 131.1 84.8 50.2 171.3
Gross earnings (loss) . . . . . 12.8 6.3 8.7 28.7 34.7 (8.1) 9.7 24.6 (44.3) (25.4) 17.0
Steel - SG & A . . . . . . . . (13.8) (15.4) (16.4) (22.6) (23.9) (30.9) (30.0) (17.4) (24.2) (29.8) (24.8)
LST - SG & A . . . . . . . . . (2.4) (1.5) (1.2) (5.2) (6.9) (10.1) (4.1) (3.3) -- -- --
Steel special (charge) credit . -- -- -- -- -- (148.2) (15.4) -- 51.9 (164.0) --
Operating earnings (loss) . . . (3.4) (10.6) (8.9) 0.9 3.9 (197.3) (39.8) 3.9 (16.6) (219.2) (7.8)
Steel - interest and other . . (1.7) (2.7) 0.9 3.1 5.4 (1.0) (5.9) (3.3) (1.3) 0.8 (13.4)
LST - interest and other . . . 0.3 (3.1) (3.7) (2.2) (0.3) (2.0) (4.1) (1.1) -- -- --
Minority interest . . . . . . . 1.0 2.3 1.3 0.2 -- -- -- -- -- -- --
Earnings (loss) from
continuing operations . . . . (3.8) (14.1) (10.4) 2.0 9.0 (200.3) (49.8) (0.5) (17.9) (218.4) (21.2)
Net earnings (loss) . . . . . . 1.2 (7.2) 0.1 2.0 45.6 (191.4) (40.2) 0.6 (9.7) (117.1) (10.4)
Net earnings (loss) per
common share . . . . . . . . (0.04) (0.35) 0.01 0.10 2.25 (9.50) (2.01) 0.03 (0.49) (5.87) (0.52)
Shares outstanding (millions) . 20.4 20.3 20.3 20.3 20.3 20.1 20.0 20.0 19.9 19.9 19.9
Current assets . . . . . . . . 180.8 235.6 87.0 72.5 217.9 204.1 234.2 261.3 147.8 152.0 238.6
Total assets . . . . . . . . . 345.7 411.2 364.1 341.0 491.5 454.8 680.3 646.8 466.3 480.2 663.5
Current liabilities . . . . . . 53.4 57.9 41.5 40.5 56.1 69.6 73.6 125.3 59.3 88.7 112.9
Total liabilities and
minority interest . . . . . . 249.6 267.8 207.2 184.2 337.1 346.2 382.1 358.8 177.3 181.5 230.7
Equity . . . . . . . . . . . . 96.1 143.4 156.9 156.8 154.4 108.6 298.2 288.0 289.0 298.7 432.8
Cash provided from
(used by) operations . . . . (2.2) (15.3) (17.1) 17.2 8.1 38.0 (25.6) (38.2) 3.7 43.1 34.0
Capital expenditures . . . . . 7.0 5.8 11.5 12.4 2.9 6.7 18.6 6.6 7.9 27.0 22.2
Depreciation . . . . . . . . . 11.4 11.0 9.4 8.2 7.8 17.8 17.7 17.3 17.2 27.7 26.9
Employees . . . . . . . . . . . 1,592 1,688 1,560 1,392 1,574 1,415 1,477 2,305 1,463 4,021 4,335
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
LST's revenues are derived from Steel's two business segments: oilfield
products and services and industrial products.
PRODUCTS AND MARKETS. The oilfield products and services business includes
the manufacture and marketing of OCTG, the casing and tubing used in oil and gas
well drilling and production, and line pipe which is used to gather and
transport oil and gas from the well site to storage or refining facilities.
Steel is one of the largest domestic producers and suppliers of OCTG, based on
data compiled by the American Iron & Steel Institute. OCTG represents
three-fourths of Steel's oilfield products volume as measured in tonnage, and
exports have ranged from 6 to 13 percent of this segment's shipments during the
last three years.
Demand for oilfield products is generally affected by customers' expectations of
future oil and gas prices and political factors such as energy and trade
policies. A key indicator of domestic demand is the average number of drilling
rigs operating in the United States which, during the last three years, has been
historically low. According to Baker Hughes, the rig average in 1994, 1993, and
1992 was 775, 755, and 717, respectively. Demand is also affected by the amount
of oilfield products imported into this country as well as available industry
inventories. Imported OCTG has represented approximately one-fourth of the
total supply during the past two years, up from 12 percent in 1992, much of
which was supplied by manufacturers who dump their products in this country.
Trade cases have been filed by domestic producers to curtail this practice. The
effect of available inventory, which is believed to be low, has been
insignificant in the marketplace in the past three years. Recent volatility of
oil and gas prices has created uncertainty with respect to the timing and extent
of a recovery in the energy sector. This instability has eroded customer
confidence in the longer-term outlook for energy prices and has caused some
drilling projects to be deferred. International markets are volatile and have
been weakened by the uncertain conditions that exist in the former Soviet Union
and China, both major oil producers and users of oilfield pipe.
Steel's industrial products segment includes two product groups: specialty
tubing and flat rolled steel. Specialty tubing consists of a wide array of
high-quality, custom-made steel tubular products requiring critical tolerances,
precise dimensional control, and special metallurgical properties. These
products are used in the further manufacture of automotive, construction, and
other industrial equipment such as hydraulic cylinders, stabilizers and
intrusion devices, and machine parts.
Steel's primary emphasis in the industrial products segment is the specialty
tubing market. Demand for specialty tubing, sensitive to general economic
conditions as evidenced by the variety of industrial markets served, has
continued to improve during the past year. Steel is one of the largest domestic
producers of specialty tubing, based on shipment data compiled by the Steel Tube
Institute. International shipments increased to 17 percent of specialty tubing
shipments in 1994 from 11 percent in 1993 and 1992. The recent devaluation of
the peso is not expected to impact Steel's business opportunities in Mexico in
the near term.
Steel's participation in the flat rolled steel commodity market is limited to
the Southwestern region and is affected by factors such as price, capacity
utilization, and raw material costs. Flat rolled steel produced by Steel is
either further processed by Steel in the manufacture of tubular products or is
shipped to customers for the manufacture of a variety of commercial and
industrial products. Flat rolled steel is sold in a highly competitive market,
with price and availability primarily determining customer purchase decisions.
11
<PAGE>
MANUFACTURING. Steel's plant is a capital intensive, integrated facility. As
such, its operating costs are sensitive to changes in production volumes, the
price of purchased raw materials, and energy costs. Steel attempts to adjust
its cost structure to correspond with current production levels while
maintaining excess capacity for potential use; however, the cost of purchased
materials fluctuates with changing market conditions which are beyond Steel's
control. Capacity utilization currently ranges from nearly 100 percent in the
EAF and specialty tubing facilities to 55 percent or less in other areas.
Purchased steel scrap and slabs, in combination with energy sources, account for
nearly half of Steel's overall costs. In 1994, those costs increased
approximately 8 percent.
LST and certain minority shareholders of Steel have agreed to fund up to $23
million for a capital expenditure program during 1995 and early 1996. Included
in the program is a significant expansion of Steel's capacity to manufacture
specialty tubing products. The balance of the expenditures will be used to
upgrade Steel's capability to manufacture tubular products for use in the energy
sector.
RESULTS OF OPERATIONS
Consolidated revenues reported in the statements of earnings are as follows ($
million):
<TABLE>
<CAPTION>
1994 1993 1992
-------- --------- ---------
$ % $ % $ %
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Oilfield products and services 215.2 60 210.8 63 171.0 62
Industrial products 141.8 40 121.7 37 106.6 38
----- --- ----- --- ----- ---
Consolidated total 357.0 100 332.5 100 277.6 100
===== === ===== === ===== ===
</TABLE>
1994 COMPARED WITH 1993
LST's 1994 consolidated net revenues increased 7 percent to $357.0 million from
$332.5 million, due to a 2 percent increase in oilfield products to $215.2
million and a 17 percent increase in industrial products to $141.8 million.
Volume accounted for the rise in oilfield revenues while the growth in
industrial products was attributable to price and product mix.
Operating losses of $3.4 million in 1994 versus $10.6 million in 1993 reflect an
increase of $6.5 million in gross earnings and a decrease of $0.7 million in
selling, general, and administrative expense. This improvement plus increased
interest and other income resulted in a loss from continuing operations of $3.8
million, or $0.19 per share, reduced from $14.1 million, or $0.69 per share, in
1993.
Net earnings in 1994 were $1.2 million compared to net losses of $7.2 million in
the prior year. The 1994 net results include a $5 million gain on the sale of
AFB. Net results in 1993 include earnings from discontinued operations of $16.5
million which relate to AFB prior to its sale in November, 1993, and an
extraordinary charge of $9.6 million which represents Steel's obligation to fund
medical and death benefits of assigned retirees and eligible dependents of the
United Mine Workers of America ("UMWA").
Also in 1994, Steel increased the discount rate used to calculate the present
value of its pension obligation from 7 1/2 percent to 8 1/2 percent. This
action increased consolidated equity by $3.1 million, net of minority interest.
Per share earnings in 1994 were adjusted downward by $0.10 to reflect the
preferred stock redemption described in the Financial Condition and in Note D.
The net loss per share available to common shareholders of $0.04 in 1994
compares to $0.35 in the prior year.
12
<PAGE>
Prior to the 1993 sale, AFB earned $21.2 million. As a result of recognizing
only the $135.7 million in proceeds received at the time of the sale, LST
experienced a loss of $4.7 million on the disposition which reduced the reported
1993 earnings from discontinued operations to $16.5 million. The remaining $20
million in sale proceeds was placed in escrow to provide for possible future
claims by GFB as permitted under the sale agreement. In 1994, LST received $5
million of those funds, and $15 million remain in escrow.
1993 COMPARED WITH 1992
LST's 1993 consolidated revenues were $332.5 million, earnings before an
extraordinary item were $2.4 million, or $0.12 per share, and consolidated
net losses were $7.2 million, or $0.35 per share. In 1992, consolidated
revenues were $277.6 million, earnings before an accounting change were
$7.2 million, or $0.36 per share, and net earnings were $0.1 million, or
$0.01 per share. Earnings from discontinued operations of $16.5 million in
1993 and $17.6 million in 1992 relate to AFB, which was sold in November, 1993,
and are included in the net results.
The extraordinary item in 1993 of $9.6 million, net of minority interest in
Steel, relates to Steel's future obligation to fund medical and death benefits
of assigned retirees and eligible dependents of the UMWA under the Coal Industry
Retiree Health Benefit Act of 1992. This government-imposed liability was
unexpected as Steel has conducted no mining operations in more than 30 years and
it had previously fully funded its obligation.
In 1993, Steel decreased the discount rate used to calculate the present value
of its pension obligation from 9 percent to 7 1/2 percent. This action
decreased net equity by $6.6 million.
The accounting change in 1992 of $7.1 million, net of minority interest, is
attributable to Steel's adoption of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which requires employers to accrue the anticipated cost of retiree
health care benefits.
The 20 percent increase in Steel's 1993 revenues over the prior year was
comprised of a 23 percent increase in oilfield products to $210.8 million and a
14 percent increase in industrial products to $121.7 million. In both segments,
the revenue increases were attributable primarily to volume.
A 28 percent decrease in gross earnings reflects the higher cost of purchased
raw materials that could not be absorbed through product pricing. This
situation primarily affected the oilfield products segment. Although domestic
drilling activity was up 5 percent from the all-time low level of 1992 as
evidenced by the number of rigs in operation as measured by Baker Hughes,
uncertainties with respect to future oil prices have caused many projects to be
deferred or canceled. During the fourth quarter of 1993, the price of West
Texas Intermediate crude oil fell more than 25 percent. Confidence in oil and
gas prices must be restored throughout the industry before a meaningful
improvement in this segment's operations can be expected.
In the industrial products segment, the recent performance and outlook are
somewhat brighter. A strengthening economy and continuing adaptation of Steel's
tubular products to new applications are contributing to the relative success of
this segment.
Despite a 4 percent decrease in selling, general, and administrative expense in
1993 compared to the prior year, operating losses increased 19 percent to $10.6
million. Interest expense increased in 1993, reflecting the higher borrowings
necessary to fund Steel's operations and working capital requirements.
13
<PAGE>
Prior to the sale, AFB earned $21.2 million in 1993, compared to $17.6 million
in 1992. As a result of recognizing only the $135.7 million in sale proceeds
received at the time of the sale, LST experienced a loss of $4.7 million on the
disposition which reduced the reported 1993 earnings from discontinued
operations to $16.5 million. The remaining $20 million in sale proceeds was
placed in escrow to provide for possible future claims by GFB. Funds released
from escrow in the future will be recognized as income in the periods received.
FINANCIAL CONDITION
LST has no direct business operations other than Steel or significant sources
of cash other than from short-term investments or the sale of securities. Steel
is restricted from paying cash dividends under the terms of its revolving credit
agreement; however, LST is reimbursed by Steel for a portion of its operating
costs as provided under the terms of a cost-sharing agreement.
In November, 1993, LST sold AFB for $155.7 million, of which LST received $135.7
million on the date of the sale and $5 million in November, 1994. Fifteen
million dollars remain in escrow to provide payment for certain claims that may
be filed by the purchaser as permitted under the sale agreement.
At December 31, 1994, LST had available cash and short-term investments of $82.8
million.
In 1988, LST sold one million shares of Series A Preferred stock for $49.6
million. As of January 1, 1994, the cumulative but undeclared and unaccrued
dividends approximated $18.8 million. In February, 1994, LST redeemed all of
its Series A Preferred stock and extinguished all related dividend obligations
for $51.7 million.
In November, 1994, LST and certain minority shareholders of Steel agreed to fund
up to $23 million for a capital expenditure program. Steel issues 6 percent
cumulative convertible preferred stock to its participating shareholders as
funds are advanced to finance the program. LST's participation in the program
amounts to 89.753 percent. The program began in January, 1995, is scheduled to
be completed in mid-1996, and had no impact on 1994 results.
The Steel preferred stock to be issued to LST and the other participating
shareholders will have a designated value equal to the amount of the funds
advanced, will pay quarterly dividends at the rate of 6 percent per year on that
value, and will require its mandatory redemption by Steel, unless earlier
redeemed or converted, on January 3, 2002, in cash, at the designated value plus
any unpaid dividends. Prior to redemption of the stock, dividends may be paid
in cash, although currently prohibited by the terms of the revolving credit
agreement, or in additional preferred shares.
These preferred shares will be convertible into Steel common stock prior to
redemption at the rate of one share of common stock for each $10,000 of
designated value (subject to anti-dilution provisions).
In addition, as a result of an earlier unrelated transaction, LST holds warrants
to purchase 241.5 shares of Steel common stock, and other Steel shareholders
hold warrants to purchase 58.5 shares at $33,358 per share (subject to
anti-dilution provisions). The warrants are exercisable at any time until
December 31, 1998.
Steel presently has a total of 1,000 shares of common stock outstanding of which
LST holds 80.5 percent. Depending upon warrant exercises and preferred share
conversions, this percentage could change.
14
<PAGE>
LST periodically purchases steel slabs which are consigned to Steel to be used
in its production of tubular products. Steel pays LST as the slabs are used or
within ninety days, whichever occurs first. This program's structure is
consistent with those previously established with third parties. During 1994,
LST's slab purchases amounted to approximately $38 million.
It is currently anticipated that the remainder of the proceeds from the sale of
AFB will be used by LST for general corporate purposes, which could include
further investment in Steel or such other uses as may reasonably be determined
by the Board of Directors to be in the best interest of LST and its
shareholders. LST believes it has and will continue to have adequate funds to
meet its operating requirements.
Steel requires capital primarily to fund general working capital needs and
capital expenditures. Principal sources of funds include cash generated by
operations, borrowings, and equity financing.
Steel has a revolving credit agreement under which it can borrow the lesser of
$55.0 million (increased to $65.0 million for 1995 and beyond) or an amount
based upon eligible accounts receivable and inventories which secure the
borrowings. At December 31, 1994, borrowings totaled $39.0 million on an
available borrowing base of $50.8 million. The interest rate on borrowings is
prime plus 1.75 percent which, at year end, was 10.25 percent. Steel also pays
a fee of 0.5 percent on the unused portion of the credit facility. The
three-year agreement, entered into in March, 1993, contains various restrictive
covenants, including requirements to maintain certain financial ratios. Steel's
ability to continue to meet the covenants is largely dependent upon a variety of
external factors, including market conditions and costs of purchased materials.
In March, 1993, Steel also borrowed $4.6 million at 8.08 percent to be repaid in
equal monthly installments through March, 1997.
Steel believes that funds generated by operations, its borrowing capacity under
the revolving credit agreement, and capital contributions from its shareholders,
will provide the liquidity necessary to fund its cash requirements in 1995.
Adequate liquidity in the longer term is dependent on a recovery in the energy
sector and/or Steel's ability to obtain raw material at lower cost which will be
necessary for Steel to achieve an improvement in profitability.
Steel's defined benefit pension plans cover its bargaining unit employees. At
December 31, 1994, the projected obligation exceeded the plans' assets by $33.7
million. Steel's annual pension expense, including amortization of the excess
obligation, approximates $4.2 million.
The Coal Industry Retiree Health Benefit Act of 1992 burdened Steel with an
obligation to fund future medical and death benefits of certain UMWA retirees
and dependents. An extraordinary charge of $9.6 million, net of minority
interest, was recognized in 1993 to reflect future payments which are assessed
annually. The 1994 payment amounted to $1.0 million, and the 1995 payment is
expected to approximate $0.5 million. Steel is making these payments under
protest and has filed suit in Federal District Court to question the validity of
the Act.
Steel's operations are subject to compliance and permitting requirements of
various governmental agencies with regard to environmental and other matters,
the laws and regulations over which generally are becoming more restrictive.
The primary oversight agencies include the TNRCC and the EPA. Steel has entered
into specific agreements with these agencies to conduct numerous environmental
studies and to develop plans to ensure continuous compliance with applicable
laws and regulations. Steel believes that the cost of maintaining compliance
with environmental requirements will fall within its contemplated operating and
capital expenditure plans, averaging $2 - $3 million annually in the foreseeable
future.
15
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................................. 16
Consolidated Statements of Cash Flows,
for the years ended December 31, 1994, 1993, and 1992............... 17
Consolidated Statements of Earnings,
for the years ended December 31, 1994, 1993, and 1992............... 18
Consolidated Balance Sheets at December 31, 1994 and 1993................. 19
Notes to Consolidated Financial Statements ............................... 20
Schedule III - Condensed Financial Information............................ 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Lone Star Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of LST (a Delaware
corporation) and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
the three years ended December 31, 1994. These financial statements and the
schedule referred to below are the responsibility of LST's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of LST and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for the three years ended December 31, 1994, in
conformity with generally accepted accounting principles.
Effective January 1, 1992, LST changed its method of accounting for
postretirement health care benefits, as discussed in Note J.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not a part
of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 6, 1995
16
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
----------------------
1994 1993 1992
----- ------ ------
<S> <C> <C> <C>
Beginning cash and cash equivalents . . . . . . . . . $140.4 $ 11.5 $ 8.7
----- ----- -----
Cash flows from operating activities:
Loss from continuing operations before income tax . (3.8) (14.1) (10.4)
Minority interest in Steel . . . . . . . . . . . . . (1.0) (2.3) (1.3)
Depreciation and amortization . . . . . . . . . . . 11.4 11.0 9.4
Accounts receivable . . . . . . . . . . . . . . . . (10.8) (6.2) (10.3)
Inventories . . . . . . . . . . . . . . . . . . . . 7.0 (13.9) (1.2)
Accounts payable and accrued liabilities . . . . . . (4.6) 16.4 1.0
Other assets, postretirement benefit obligations,
and other noncurrent liabilities . . . . . . . . . (0.4) (6.2) (4.3)
----- ----- -----
Net cash used by operating activities . . . . . . . . (2.2) (15.3) (17.1)
----- ----- -----
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . (7.0) (5.8) (11.5)
Short-term investments . . . . . . . . . . . . . . . (41.0) -- --
Sale of discontinued operations . . . . . . . . . . -- 135.7 --
Gain on sale of discontinued operations . . . . . . 5.0 -- --
Other . . . . . . . . . . . . . . . . . . . . . . . 2.0 (0.6) 2.8
----- ----- -----
Net cash provided (used) by investing activities . . . (41.0) 129.3 (8.7)
----- ----- -----
Cash flows from financing activities:
Net change in borrowings under revolving credit
agreement . . . . . . . . . . . . . . . . . . . . . (2.8) 10.8 18.9
Redemption of Series A Preferred stock and
payment of dividend . . . . . . . . . . . . . . . (51.7) -- --
Installment note borrowing . . . . . . . . . . . . . -- 4.6 --
Installment note repayment . . . . . . . . . . . . . (1.0) (0.8) --
Stock issuance . . . . . . . . . . . . . . . . . . . 0.1 0.3 --
Dividend received from discontinued operations . . . -- -- 9.7
----- ----- -----
Net cash provided (used) by financing activities . . . (55.4) 14.9 28.6
----- ----- -----
Net increase (decrease) in cash and cash equivalents . (98.6) 128.9 2.8
----- ----- -----
Ending cash and cash equivalents . . . . . . . . . . . $41.8 $140.4 $11.5
===== ====== =====
</TABLE>
17
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except share data)
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . $ 357.0 $ 332.5 $ 277.6
Cost of goods sold . . . . . . . . . . . . . . . (344.2) (326.2) (268.9)
------- ------- -------
Gross earnings . . . . . . . . . . . . . . . . 12.8 6.3 8.7
Selling, general, and administrative expenses . . (16.2) (16.9) (17.6)
------- ------- -------
Operating loss . . . . . . . . . . . . . . . . (3.4) (10.6) (8.9)
Other income, net . . . . . . . . . . . . . . . . 2.5 0.3 2.7
Interest income . . . . . . . . . . . . . . . . . 4.3 0.9 0.3
Interest expense . . . . . . . . . . . . . . . . (8.2) (7.0) (5.8)
Minority interest in Steel . . . . . . . . . . . 1.0 2.3 1.3
------- ------- -------
Loss from continuing operations before
income tax . . . . . . . . . . . . . . . . . . (3.8) (14.1) (10.4)
Income tax . . . . . . . . . . . . . . . . . . . - - -
------- ------- -------
Loss from continuing operations . . . . . . . . (3.8) (14.1) (10.4)
Earnings from and gain on sale of discontinued
operations . . . . . . . . . . . . . . . . . . 5.0 16.5 17.6
------- ------- -------
Earnings before extraordinary item . . . . . . 1.2 2.4 7.2
UMWA benefit plan . . . . . . . . . . . . . . . . - (9.6) -
------- ------- -------
Earnings (loss) before change in accounting
principle . . . . . . . . . . . . . . . . . . 1.2 (7.2) 7.2
Change in accounting principle . . . . . . . . . - - (7.1)
------- ------- -------
Net earnings (loss) . . . . . . . . . . . . . . $ 1.2 $ (7.2) $ 0.1
======= ======= =======
Per common share:
Loss from continuing operations . . . . . . . . $ (0.19) $ (0.69) $ (0.51)
Earnings from and gain on sale of discontinued
operations . . . . . . . . . . . . . . . . . . 0.25 0.81 0.87
Earnings before extraordinary item and
change in accounting principle . . . . . . . 0.06 0.12 0.36
Adjustment for redemption of Series A
Preferred stock . . . . . . . . . . . . . . . (0.10) - -
Net earnings (loss) available to common
shareholders . . . . . . . . . . . . . . . . . $ (0.04) $ (0.35) $ 0.01
======= ======= =======
</TABLE>
18
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . $ 41.8 $140.4
Short-term investments . . . . . . . . . . . 41.0 -
Accounts receivable, net . . . . . . . . . . 54.9 44.1
Current inventories, net . . . . . . . . . . 41.4 48.4
Other current assets . . . . . . . . . . . . 1.7 2.7
------ ------
Total current assets . . . . . . . . . . . . . 180.8 235.6
Property, plant, and equipment, net . . . . . 130.7 135.2
Other noncurrent assets . . . . . . . . . . . 34.2 40.4
------ ------
Total assets . . . . . . . . . . . . . . . . . $345.7 $411.2
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable . . . . . . . . . . . . . . $ 31.2 $37.6
Accrued liabilities . . . . . . . . . . . . 21.0 19.2
Current portion of long-term debt . . . . . 1.2 1.1
------ ------
Total current liabilities . . . . . . . . . . 53.4 57.9
------ ------
Long-term debt . . . . . . . . . . . . . . . 90.6 94.5
Postretirement benefit obligations . . . . . 42.0 45.8
Other noncurrent liabilities . . . . . . . . 49.8 55.6
Minority interest in Steel . . . . . . . . . 13.8 14.0
------ ------
Total liabilities . . . . . . . . . . . . . . . 249.6 267.8
------ ------
Commitments and Contingencies (See Note K) . . - -
Shareholders' equity:
Series A Preferred stock (authorized: 1.2
shares, issued: none and 1.0 shares,
respectively); shown at face value . . . . . - 49.6
Common stock, $1 par value
(authorized: 40.0 shares, issued:
20.4 shares) . . . . . . . . . . . . . . . . 20.4 20.4
Capital surplus . . . . . . . . . . . . . . . 158.9 158.8
Minimum pension liability adjustment . . . . (3.5) (6.6)
Retained deficit . . . . . . . . . . . . . . (78.8) (77.9)
Treasury stock (0.05 shares), at cost . . . . (0.9) (0.9)
------ ------
Total shareholders' equity . . . . . . . . . . 96.1 143.4
------ ------
Total liabilities and shareholders' equity . . $345.7 $411.2
====== ======
</TABLE>
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lone Star Technologies, Inc. ("LST") is a management and holding company whose
operating subsidiary Lone Star Steel Company ("Steel") manufactures and markets
products and services to the oil and gas drilling industry and to the general
industrial sector.
ACCOUNTING POLICIES - NOTE A
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of LST and its subsidiaries, with American Federal Bank, F.S.B.
("AFB") presented as a discontinued operation. Intercompany transactions are
eliminated in consolidation.
INVESTMENTS IN DEBT SECURITIES. LST's cash equivalents include U. S.
Government debt obligations and corporate debt obligations rated A-1 P-1 or
higher with original maturities of less than 90 days. Short-term investments
consist of U. S. Government debt obligations with original maturities of up to
one year. In 1994, LST adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." Under
this statement, investments are classified as held-to-maturity and recorded at
cost or classified as held for sale or trading securities and recorded at market
value. LST's cash equivalents and short-term investments are classified as
held-to-maturity because LST has the intent and ability to hold them to
maturity. At December 31, 1994, LST's carrying amounts of cash equivalents and
short-term investments approximated market value. LST does not invest in or
hedge exposures through the use of derivative financial instruments. As a
result, the provisions of Statement of Financial Accounting Standards No. 119,
"Disclosure about Derivative Financial Instruments," have no impact on LST's
financial disclosures. At December 31, 1994, investments in debt securities at
amortized cost consisted of $76.6 million in U. S. Government debt obligations
and $6.2 million in corporate debt obligations rated A-1 P-1 or higher.
INVENTORIES of Steel are stated at the lower of cost (principally last-in,
first-out "LIFO") or market value and include raw materials, labor, and
overhead. Inventories at LST are stated at the lower of cost (principally
first-in, first out "FIFO") or market value and consist of steel slabs.
PROPERTY, PLANT, AND EQUIPMENT are stated at cost. Depreciation is provided
on the straight-line method.
INCOME TAXES. LST files a consolidated federal income tax return. In 1993,
LST adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," ("SFAS No. 109") which requires an asset and liability approach
for financial accounting and income tax reporting. Deferred tax liabilities or
assets are recognized for the estimated future tax effects attributable to
temporary differences and carryforwards and are adjusted whenever tax rates or
other provisions of income tax statutes change. Prior to 1993, income taxes
were recognized in accordance with Accounting Principles Board Opinion No. 11.
POSTEMPLOYMENT BENEFITS. Effective January 1, 1994, LST adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," ("SFAS No. 112") which requires, under certain
conditions, accrual accounting for obligations such as termination and medical
benefits for former employees. Because LST has historically accrued for such
obligations, the adoption of SFAS No. 112 was not material to the current year
operations.
20
<PAGE>
MINORITY INTEREST. The 19.5 percent minority ownership in Steel is included
in the liabilities section of LST's consolidated balance sheets, and results are
adjusted in the consolidated statements of earnings to reflect participation of
the minority ownership in Steel's earnings or losses.
RECLASSIFICATION AND RESTATEMENT. The accompanying consolidated financial
statements and schedule have been restated to reflect AFB as a discontinued
operation, and certain 1993 and 1992 balances have been reclassified to conform
to the 1994 presentation.
LINES OF BUSINESS - NOTE B
Steel's operations include the oilfield products and services segment which
manufactures tubular products and provides technical, warehousing, and other
services; and the industrial products segment which manufactures specialty
tubing and flat rolled steel. The manufacture of these products uses several
common facilities and shares administrative support. Accordingly, certain costs
and assets are allocated and may not reflect each line of business as if it were
operated separately. ($ in millions; unaudited)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1993 1992
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
OILFIELD PRODUCTS AND SERVICES
Net revenues 215.2 210.8 171.0
Operating losses (12.1) (13.4) (11.2)
Identifiable assets 149.2 162.8 152.6
Capital expenditures 4.3 3.8 7.5
Depreciation and amortization 7.1 7.3 6.1
INDUSTRIAL PRODUCTS
Net revenues 141.8 121.7 106.6
Operating earnings 8.9 4.3 3.5
Identifiable assets 91.5 86.6 81.4
Capital expenditures 2.7 2.0 4.0
Depreciation and amortization 4.3 3.7 3.3
CORPORATE AND OTHER NON-SEGMENTS
Net revenues - - -
Operating losses (0.2) (1.5) (1.2)
Identifiable assets 105.0 161.8 13.4
Net assets of discontinued operations - - 116.7
TOTAL FROM CONTINUING OPERATIONS
Net revenues 357.0 332.5 277.6
Operating losses (3.4) (10.6) (8.9)
Total assets 345.7 411.2 364.1
Capital expenditures 7.0 5.8 11.5
Depreciation and amortization 11.4 11.0 9.4
</TABLE>
The majority of Steel's sales are made through distributors. Sales to the two
largest distributors represented 12 percent and 10 percent of 1994 revenues, 12
percent and 11 percent of 1993 revenues, and 12 percent and 11 percent of 1992
revenues. Direct foreign revenues were approximately 7 percent of the total in
1994, 6 percent in 1993, and 10 percent in 1992.
21
<PAGE>
ADDITIONAL BALANCE SHEET INFORMATION - NOTE C ($ in millions)
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Inventories
Finished goods 28.6 31.2
Work in process 36.2 38.4
Raw materials 3.5 2.6
Materials, supplies and other 23.0 23.9
------ ------
Total inventories before LIFO valuation reserve 91.3 96.1
Reserve to reduce inventories to LIFO value (39.7) (37.5)
------ ------
Total inventories 51.6 58.6
Amount included in other noncurrent assets (10.2) (10.2)
------ ------
Net current inventories 41.4 48.4
====== ======
Property, plant, and equipment
Land and land improvements 12.0 12.0
Buildings, structures, and improvements 12.4 12.7
Machinery and equipment 249.8 246.1
Construction in progress 7.0 3.9
------ ------
Total property, plant, and equipment 281.2 274.7
Less accumulated depreciation and amortization (150.5) (139.5)
------ ------
Property, plant, and equipment, net 130.7 135.2
====== ======
Other noncurrent assets
Funds held in escrow 15.0 20.0
Inventory (supplies and spare parts) 10.2 10.2
Other 9.0 10.2
------ ------
Total other noncurrent assets 34.2 40.4
====== ======
Current accrued liabilities
Accrued compensation 6.1 5.7
Property taxes 3.8 3.7
Warranty reserves 2.4 2.1
Environmental reserves 2.0 2.0
Pension 1.4 1.6
Other 5.3 4.1
------ ------
Total current accrued liabilities 21.0 19.2
====== ======
Other noncurrent liabilities
Environmental reserves 14.7 16.0
UMWA liability 10.4 11.2
Deferred gain on sale of discontinued operations 15.0 20.0
Other reserves 9.7 8.4
------ ------
Total other noncurrent liabilities 49.8 55.6
====== ======
</TABLE>
Accounts receivable are stated net of allowance for doubtful accounts of $1.9
million and $1.8 million at December 31, 1994 and 1993, respectively.
Approximately $78.8 million and $88.5 million of total inventories before the
LIFO valuation reserve were accounted for on the LIFO basis at December 31, 1994
and 1993, respectively. Non-LIFO inventories are stated at the lower of cost or
market. The amount of total inventories before LIFO valuation reserve
approximates inventory replacement cost. During 1994, a reduction in inventory
resulted in the depletion of previous LIFO inventory layers, the financial
effect of which was not significant to net results.
22
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - NOTE D ($ in millions)
<TABLE>
<CAPTION>
MINIMUM
SERIES A PENSION
PREFERRED COMMON CAPITAL LIABILITY RETAINED TREASURY
STOCK STOCK SURPLUS ADJUSTMENT (DEFICIT) STOCK TOTAL
-------- ------ ------- ---------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 . . . . . 49.6 20.4 158.5 (70.8) (0.9) 156.8
Net earnings . . . . . . . . . . . . -. -. -. -. 0.1 -. 0.1
----- ---- ----- ---- ----- ---- -----
Balance, December 31, 1992 . . . . . 49.6 20.4 158.5 - (70.7) (0.9) 156.9
Net loss . . . . . . . . . . . . . . - - - - (7.2) - (7.2)
Employee benefit plan stock issuance - - 0.3 - - - 0.3
Pension liability adjustment . . . . -. -. -. (6.6) -. -. (6.6)
----- ---- ----- ---- ----- ---- -----
Balance, December 31, 1993 . . . . . 49.6 20.4 158.8 (6.6) (77.9) (0.9) 143.4
Employee benefit plan stock issuance - - 0.1 - - - 0.1
Pension liability adjustment . . . . - - - 3.1 - - 3.1
Redemption of preferred stock. . . . (49.6) - - - (2.1) - (51.7)
Net earnings . . . . . . . . . . . . -. -. -. -. 1.2 -. 1.2
----- ---- ----- ---- ----- ---- -----
Balance, December 31, 1994 . . . . . -. 20.4 158.9 (3.5) (78.8) (0.9) 96.1
===== ==== ===== ==== ===== ==== =====
</TABLE>
PREFERRED STOCK. In 1988, LST sold one million shares of Series A nonvoting
convertible cumulative preferred stock, $1.00 par value, ("Series A Preferred
stock") for $49.6 million. No dividends were declared, accrued, or paid and at
January 1, 1994, the cumulative dividends in arrears approximated $18.8 million.
In February, 1994, LST redeemed the Series A stock and extinguished all dividend
obligations related to it, for $51.7 million. Earnings per share in 1994 were
adjusted downward by $0.10 to reflect the $2.1 million difference between the
amount paid and the carrying amount.
DEBT - NOTE E ($ in millions)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994 1993
- --------------- ---------------- ----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
LST convertible subordinated debentures . 50.0 40.0 50.0 44.0
Steel revolving credit . . . . . . . . . 39.0 39.0 41.8 41.8
Steel 48-month installment note . . . . . 2.8 2.8 3.8 3.8
---- ---- ---- ----
Total debt . . . . . . . . . . . . . . 91.8 81.8 95.6 89.6
less current installments . . . . . . (1.2) (1.2) (1.1) (1.1)
---- ---- ---- ----
Total long-term debt . . . . . . . . . 90.6 80.6 94.5 88.5
==== ==== ==== ====
</TABLE>
The $50 million, 8 percent convertible subordinated debentures are due in 2002
and may be converted at any time into shares of LST common stock. The
conversion price, initially set at $24.25 per share, is subject to antidilution
provisions. Fair value of the debentures is estimated based upon quotes from
brokers.
Steel has a revolving credit agreement under which it can borrow the lesser of
$55.0 million (increased to $65.0 million) or an amount based upon eligible
accounts receivable and inventories which secure the borrowings. At December
31, 1994, borrowings totaled $39.0 million on an available borrowing base of
$50.8 million. The interest rate on borrowings was prime plus 1.75 percent
which, at year end, was 10.25 percent. Steel also pays a fee of 0.5 percent on
the unused portion of the credit facility. The three-year agreement, entered
into in March, 1993, contains various restrictive covenants, including
requirements to maintain certain financial ratios. Steel's ability to continue
to meet the covenants is largely dependent upon a variety of external factors,
including market conditions and costs of purchased materials. In March, 1993,
Steel also borrowed $4.6 million at 8.08 percent to be repaid in equal monthly
installments through March, 1997.
23
<PAGE>
Steel believes that funds generated by operations, its borrowing capacity under
the revolving credit agreement, and temporary advances from its shareholders or
other sources, will provide the liquidity necessary to fund operations and
certain capital expenditures in the short term. However, adequate liquidity in
the longer term is dependent on a recovery in the energy sector and/or a
reduction in raw material costs which will be necessary for Steel to achieve an
improvement in profitability.
At December 31, 1994, debt maturities are as follows: 1995, 1.2 million; 1996,
$40.3 million; 1997, $0.3 million; and thereafter, $50 million.
Cash paid for interest during 1994, 1993, and 1992 was $4.1 million, $2.9
million, and $1.7 million, respectively, by Steel; and $4.0 million in each of
the last three years by LST.
CHANGE IN COMMON SHARES OUTSTANDING - NOTE F
<TABLE>
<CAPTION>
ISSUED TREASURY STOCK OUTSTANDING
---------- -------------- -----------
<S> <C> <C> <C>
Balance, December 31, 1992 . . 20,369,951 (48,616) 20,321,335
Employee benefit plans . . . 66,485 - 66,485
---------- ------- ----------
Balance, December 31, 1993 . . 20,436,436 (48,616) 20,387,820
Employee benefit plans . . . 24,250 - 24,250
---------- ------- ----------
Balance, December 31, 1994 . . 20,460,686 (48,616) 20,412,070
========== ======== ==========
</TABLE>
NET EARNINGS PER SHARE - NOTE G
The computation of primary earnings per share is based on the weighted average
number of shares of common stock and common stock equivalents, including
exercisable stock options, assumed to be outstanding during the year. The
numbers of shares used in 1994, 1993, and 1992 were approximately 20.4 million.
For all three years, the effect of potentially dilutive shares on fully diluted
earnings per share was either antidilutive or not significant. Earnings per
share in 1994 were adjusted downward by $0.10 to reflect the redemption of
Series A stock, described in Note D.
INCOME TAXES - NOTE H
LST adopted SFAS No. 109 effective January 1, 1993, which requires an asset and
liability approach for income taxes. Previously, LST reported taxes in
accordance with Accounting Principles Board Opinion No. 11. There was no
current or deferred income tax expense or benefit for 1994, 1993, or 1992. A
reconciliation of computed income taxes to actual income taxes follows ($ in
millions):
<TABLE>
<CAPTION>
1994 1993 1992
---- ------ ------
<S> <C> <C> <C>
Losses from continuing operations
before income tax . . . . . . . . . . . . . (3.8) (14.1) (10.4)
==== ===== =====
Federal income tax statutory rate . . . . . 35.% 35.% 34.%
==== ===== =====
Income tax benefit at statutory rates . . . 1.3 4.9 3.5
Minority interest . . . . . . . . . . . . . 0.3 0.8 0.4
Net operating loss for which no benefit
is recognized . . . . . . . . . . . . . . . (1.6) (5.7) (3.9)
---- ----- -----
Income taxes . . . . . . . . . . . . . . . -. -. -.
==== ===== =====
</TABLE>
24
<PAGE>
The sources of deferred taxes and the tax effect of each for 1992 ($ in
millions):
<TABLE>
<S> <C>
Depreciation and amortization . . . . . . . . . . . . . . . . . . (0.9)
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4
Deferred tax attributable to net operating loss carryforwards . . (1.0)
----
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . -.
====
</TABLE>
The adoption of SFAS No. 109 resulted in a net deferred tax asset at January 1,
1993, of $85.7 million, less a valuation allowance of the same amount, with no
recorded effect on the consolidated statements of earnings. The following table
discloses the components of the deferred tax amounts at December 31, 1994 and
1993 ($ in millions):
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Deferred tax assets
Temporary differences
Postretirement benefit accruals . . . . . 12.9 13.9
Environmental reserves . . . . . . . . . . 5.7 6.1
UMWA liability . . . . . . . . . . . . . . 3.7 4.0
Deferred gains . . . . . . . . . . . . . . 4.9 6.5
Other expense accruals and reserves . . . 7.1 6.6
Inventories . . . . . . . . . . . . . . . 7.4 8.3
Other . . . . . . . . . . . . . . . . . . 0.6 0.6
----- ------
42.3 46.0
Net operating loss carryforwards . . . . . . 92.3 89.8
----- ------
Total deferred tax assets . . . . . . . 134.6 135.8
Deferred tax liability - temporary difference
for basis in and depreciation of property,
plant, and equipment . . . . . . . . . . . . . (35.4) (34.5)
----- ------
Net deferred tax assets . . . . . . . . . . . . 99.2 101.3
Less valuation allowance . . . . . . . . . . . (99.2) (101.3)
----- ------
Net deferred tax amount . . . . . . . . . . . . -. -.
===== ======
</TABLE>
At December 31, 1994, LST had federal tax net operating loss carryforwards
("NOL's") of approximately $271 million, a portion of which is related to AFB
and subject to regulatory audit. If not utilized, the NOL's will expire between
2000 and 2009, and their future availability may be limited if LST or a member
of the consolidated group experiences an ownership change of more than 50
percentage points, as defined by IRS regulations. LST's common stock is
publicly traded and management cannot assure that future trading will not result
in an ownership change, as defined, which would limit availability of the NOL's.
EXTRAORDINARY ITEMS - NOTE I
COAL INDUSTRY RETIREE HEALTH BENEFIT ACT OF 1992
The Coal Industry Retiree Health Benefit Act of 1992 ("Act") created a benefit
plan fund to provide medical and death benefits to certain United Mine Workers
of America ("UMWA") retirees and eligible dependents. The legislation was
prompted by the occurrence of operating deficits in benefit trusts previously
established by agreements between the UMWA and various coal operators
represented by the Bituminous Coal Operators' Association, Inc. Steel has not
operated coal mines for more than 30 years and had previously fully funded the
agreed upon defined contributions to the benefit trusts. However, Steel was
notified in 1993 that under the Act it will be liable for additional current and
future costs for certain assigned beneficiaries.
25
<PAGE>
Based on this information and actuarial assumptions, an extraordinary charge of
$9.6 million, net of minority interest, was recognized in 1993 to reflect the
total estimated future payments related to the Act. Payments are assessed
annually and will be made over an extended period for as long as there may be
eligible beneficiaries. Steel is making these payments under protest and has
filed suit in Federal District Court to question the validity of the Act.
EMPLOYEE BENEFIT PLANS - NOTE J
CAPITAL ACCUMULATION PLAN. LST and Steel have defined contribution plans
available to substantially all full-time employees. Participants may make
voluntary pretax contributions to the plans, and the employer contributes within
specified limits. Employer contributions totaled $0.7 million in each of the
last three years.
STOCK OPTION PLAN. LST has a long-term incentive plan which provides for the
issuance of up to 2,700,000 shares of common stock to key employees and outside
directors through the granting of incentive and nonqualified stock options,
stock appreciation rights, restricted stock grants, and performance unit grants.
The option price is not less than the market price on the date of grant.
Options are generally exercisable for ten years with one-fourth of the shares
becoming exercisable on the first anniversary of the grant date and an
additional one-fourth becoming exercisable on each of the next three
anniversaries. If a change of control of LST occurs before an option's fourth
anniversary, the option may be exercised earlier. Following is a summary of
stock option activity during 1994 and 1993:
<TABLE>
<CAPTION>
SHARES UNDER OPTION PRICE RANGE ($)
------------------- ---------------
<S> <C> <C>
Outstanding, December 31, 1992 . . . 779,156 2.59 - 17.38
Granted in 1993 . . . . . . . . . 277,000 5.88 - 8.81
Exercised in 1993 . . . . . . . . (66,485) 3.06 - 8.50
Canceled in 1993 . . . . . . . . (123,754) 3.63 - 16.13
--------
Outstanding, December 31, 1993 . . . 865,917 2.59 - 17.38
Granted in 1994 . . . . . . . . . - -
Exercised in 1994 . . . . . . . . (24,250) 3.06 - 6.81
Canceled in 1994 . . . . . . . . (17,020) 3.06 - 16.13
--------
Outstanding, December 31, 1994 . 824,647 2.59 - 17.38
========
</TABLE>
At December 31, 1994, 1,487,778 shares were available for grant and 538,897
shares were exercisable. Pursuant to a separate management contract arranged
prior to the spin-off of LST from its former parent, LST's former chief
executive officer was granted a separate, nonqualified option with stock
appreciation rights for 500,000 shares of common stock at $7.89 per share.
During 1993, 80 percent of the option was exercised in the form of stock
appreciation rights. The remaining 20 percent is fully exercisable and expires
in 1995.
POSTRETIREMENT HEALTH CARE PLAN. Steel sponsors an unfunded, defined benefit,
postretirement health care plan ("Health Care Plan") for most of its bargaining
unit employees and a limited number of non-bargaining unit retirees eligible
under special early retirement programs. Health Care Plan benefits are provided
to eligible retirees until they reach the age of 65, at which time coverage
terminates. Steel accrues for the anticipated cost of retirees' health care
benefits in accordance with Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pension" ("SFAS
106"). Steel implemented SFAS No. 106 in 1992 and the full transition
obligation of $7.1 million, net of minority interest, is included in the 1992
consolidated statement of earnings as the cumulative effect of the change in
accounting principle.
26
<PAGE>
Net retiree health care benefits expense for 1994, 1993, and 1992, included the
following components ($ in millions):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost - health care benefits earned . . . 0.5 0.4 0.4
Interest cost on unfunded accumulated
benefit obligation . . . . . . . . . . . . . . . 0.8 0.8 0.8
--- --- ---
Total retiree health care benefits expense . . 1.3 1.2 1.2
=== === ===
</TABLE>
The annual rate of increase in per capita costs of covered health care benefits
was assumed to gradually decrease from 12 percent to an ultimate trend rate of 7
percent by the year 2004. An increase of 1 percent per year in the assumed
medical cost trend rate would have resulted in an additional obligation of $1.1
million for accumulated benefits at December 31, 1994, and an additional $0.2
million in the aggregate of the 1994 service cost and interest cost components.
Weighted average discount rates of 8.5 percent at December 31, 1994, and 7.5
percent at December 31, 1993, were used to determine the accumulated obligation.
The following table sets forth the Health Care Plan's unfunded status and the
amounts recognized in the consolidated balance sheets at December 31, 1994 and
1993 ($ in millions):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Accumulated benefit obligation
Retirees . . . . . . . . . . . . . . . . . . . . . 1.8 1.6
Active plan participants - fully eligible . . . . 0.3 0.3
Active plan participants - not fully eligible . . 8.3 9.2
---- ----
Unfunded accumulated benefit obligation . . . . . . . 10.4 11.1
Unrecognized net gain (loss) . . . . . . . . . . . . 0.8 (0.7)
---- ----
Net benefit obligation recognized in consolidated
balance sheet . . . . . . . . . . . . . . . . . . 11.2 10.4
Amount included in current accrued liabilities . . . (0.8) (0.8)
---- ----
Amount included in long-term postretirement
benefit obligations . . . . . . . . . . . . . . . 10.4 9.6
==== ====
</TABLE>
PENSION PLAN. Steel has defined benefit pension plans covering its bargaining
unit employees. Retirement benefits are based on years of service at
progressively increasing flat-rate amounts. A special lump-sum payment equal to
13 weeks of vacation pay is made upon retirement. Steel's policy is to fund the
minimum contribution each year as required by applicable regulations. The
measurement dates for determining the plans' assets and obligations were
November 30, 1994, and December 31, 1993. At December 31, 1994 and 1993, the
plans' funded status and amounts recognized in the consolidated balance sheets
were as follows ($ in millions):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation . . . . . . . . . . . . . . 64.5 72.0
===== =====
Accumulated benefit obligation . . . . . . . . . . . 68.1 75.8
===== =====
Projected benefit obligation . . . . . . . . . . . . 68.8 76.3
Plans' assets at fair value . . . . . . . . . . . . . . (35.1) (37.9)
----- -----
Projected benefit obligation in excess of
plans' assets . . . . . . . . . . . . . . . . . . . . . 33.7 38.4
Unrecognized net gain (loss) . . . . . . . . . . . . . . (5.3) (9.1)
Unrecognized net obligation at January 1, 1986 . . . . . (6.1) (7.1)
Adjustment required to recognize minimum liability . . . 10.7 15.6
----- -----
Pension liability recognized in consolidated
balance sheets . . . . . . . . . . . . . . . . . . . . 33.0 37.8
Amount recorded in current accrued liabilities . . . . . (1.4) (1.6)
----- -----
Amount included in long-term postretirement
benefit obligation . . . . . . . . . . . . . . . . . . 31.6 36.2
===== =====
</TABLE>
27
<PAGE>
In determining the projected benefit obligation, the weighted average discount
rate was assumed to be 8.5 percent at November 30, 1994, and 7.5 percent at
December 31, 1993. The expected long-term rate of return on assets was assumed
to be 9 percent and the annual increase in compensation rate was assumed to be 5
percent for both years. In accordance with Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions," Steel has recorded an
adjustment, as shown in the above table, to recognize a minimum pension
liability. Offsetting this liability at December 31, 1994, was a noncurrent
intangible asset of $6.3 million and a reduction of shareholders' equity of $3.5
million net of minority interest, with no recorded tax benefit assumed. The
December 31, 1993, adjustment resulted in an offsetting $7.4 million intangible
asset and an $6.6 million net equity reduction. The plans' assets consist
primarily of short-term money market investments, government and corporate
obligations, real estate, and public market equity securities.
Net pension expense in 1994, 1993, and 1992 was as follows ($ in millions):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned . . . . . . . . . 0.9 0.7 0.7
Interest cost on projected benefit obligation . 5.5 5.6 5.7
Return on plan assets . . . . . . . . . . . . . 0.9 (3.9) (2.6)
Gain (loss) deferred . . . . . . . . . . . . . . (4.1) 0.7 (0.6)
Amortization of initial unrecognized
obligation . . . . . . . . . . . . . . . . . . 1.0 1.0 1.0
---- ---- ----
Total pension expense . . . . . . . . . . . . . 4.2 4.1 4.2
==== ==== ====
</TABLE>
PROFIT SHARING PLAN. Effective July 1, 1993, Steel implemented a profit
sharing plan for substantially all employees. The plan provides for payment of
a specified percentage of Steel's quarterly operating earnings. Steel's
contribution for 1994 was $0.1 million and there was no contribution for 1993.
COMMITMENTS AND CONTINGENCIES - NOTE K
As a steel facility, Steel's operations are subject to numerous environmental
laws. The three major areas of regulation are air quality, water quality, and
solid and hazardous waste management. The primary governmental oversight
agencies include the Texas Natural Resource Conservation Commission and the
Environmental Protection Agency. Steel has agreements with these agencies to
conduct numerous environmental studies and to develop plans to ensure continuous
compliance with applicable laws and regulations. Steel is engaged in various
ongoing environmental studies, monitoring programs, and capital projects.
Estimated expenditures for certain remediation programs are included in accrued
liabilities and other noncurrent liabilities as shown in Note C. Steel believes
that its environmental expenditures will continue to fall within its
contemplated operating and capital plans.
Steel leases equipment under various operating leases. Rental expense totaled
$3.3 million, $3.0 million, and $2.7 million in 1994, 1993, and 1992,
respectively. Future minimum lease payments under noncancellable operating
leases are as follows: 1995, $1.3 million; 1996, $0.9 million; 1997, $0.5
million; 1998, $0.3 million; 1999, $0.3 million; and, thereafter, $0.1 million.
LST and its subsidiaries are parties to a number of lawsuits and controversies
which are not discussed herein. It is the opinion of management of LST and its
operating companies, based upon their analysis of known facts and circumstances
and reports from legal counsel, that these matters will have no material effect
on the results of operations or financial condition of LST and its subsidiaries,
taken as a whole.
28
<PAGE>
SALE OF AFB - NOTE L
In November, 1993, LST sold the stock of AFB, one of its operating subsidiaries,
to Guaranty Federal Bank, f.s.b. ("GFB"). The accompanying consolidated
financial statements have been restated to reflect AFB as a discontinued
operation. The sale price was $155.7 million, of which LST received $135.7
million in cash on the date of the sale and $5 million in November, 1994.
Prior to the sale, AFB earned $21.2 million in 1993 and $17.6 million in 1992.
As a result of recognizing only the $135.7 million received at the time of the
sale, LST experienced a loss of $4.7 million on the disposition which reduced
the reported 1993 earnings from discontinued operations to $16.5 million.
Escrowed funds, included in other noncurrent assets, currently amount to $15
million to provide payment for certain claims that may be filed by GFB as
permitted under the sale agreement. As these funds are released to LST, they
are recognized as income in the periods received.
QUARTERLY FINANCIAL SUMMARY - NOTE M
($ in millions, except share amounts; quarterly amounts unaudited):
<TABLE>
<CAPTION>
QUARTER
---------------------------
FIRST SECOND THIRD FOURTH TOTAL YEAR
----- ------ ----- ------ ----------
<S> <C> <C> <C> <C> <C>
1994
Revenues . . . . . . . . . . . . . . . . . . 81.1 84.8 89.2 101.9 357.0
Gross earnings . . . . . . . . . . . . . . . 1.6 2.0 1.3 7.9 12.8
Earnings (loss) from continuing operations . (2.6) (2.6) (1.3) 2.7 (3.8)
Gain on sale of assets . . . . . . . . . . . - - - 5.0 5.0
Net earnings (loss) . . . . . . . . . . . . (2.6) (2.6) (1.3) 7.7 1.2
PER COMMON SHARE:
Earnings (loss) from continuing
operations . . . . . . . . . . . . . . . . (0.13) (0.13) (0.06) 0.13 (0.19)
Gain on sale of assets . . . . . . . . . . - - - 0.25 0.25
Adjustment for redemption of Series A
Preferred stock* . . . . . . . . . . . . . (0.10) - - - (0.10)
Net earnings (loss)*. . . . . . . . . . . . (0.23) (0.13) (0.06) 0.38 (0.04)
1993
Revenues . . . . . . . . . . . . . . . . . . 77.8 79.1 85.0 90.6 332.5
Gross earnings (loss) . . . . . . . . . . . 3.6 2.2 0.7 (0.2) 6.3
Loss from continuing operations . . . . . . (2.1) (3.2) (4.4) (4.4) (14.1)
Earnings from discontinued operations . . . 1.9 8.0 3.5 3.1 16.5
Earnings (loss) before extraordinary
item . . . . . . . . . . . . . . . . . . . (0.2) 4.8 (0.9) (1.3) 2.4
Extraordinary item . . . . . . . . . . . . . - - - (9.6) (9.6)
Net earnings (loss) . . . . . . . . . . . . (0.2) 4.8 (0.9) (10.9) (7.2)
PER COMMON SHARE:
Loss from continuing operations . . . . . . (0.10) (0.16) (0.22) (0.21) (0.69)
Earnings from discontinued operations . . . 0.09 0.40 0.17 0.15 0.81
Earnings (loss) before extraordinary item . (0.01) 0.24 (0.05) (0.06) 0.12
Net earnings (loss) . . . . . . . . . . . . (0.01) 0.24 (0.05) (0.53) (0.35)
* The first quarter 1994 amounts have been restated from the previously
reported amounts to reflect an adjustment to net earnings (loss) per common
shareholder for the redemption of the Series A Preferred stock discussed in
Note D.
</TABLE>
29
<PAGE>
RELATED PARTY TRANSACTIONS - NOTE N
In November, 1994, LST and certain minority shareholders of Steel agreed to fund
up to $23 million for a capital expenditure program. Steel issues 6 percent
cumulative convertible preferred stock to its participating shareholders as
funds are advanced. Included in the program is a significant expansion of
Steel's capacity to manufacture specialty tubing products. The balance of the
expenditures will be used to upgrade Steel's capability to manufacture tubular
products for use in the energy sector. LST's participation in the program
amounts to 89.753 percent. The program began in 1995, is scheduled to be
completed in mid-1996, and had no impact on 1994 results.
The Steel preferred stock to be issued to LST and the other participating
shareholders will have a designated value equal to the amount of the funds
advanced, will pay quarterly dividends at the rate of 6 percent per year on that
value, and will require its mandatory redemption by Steel, unless earlier
redeemed or converted, on January 3, 2002, in cash, at the designated value plus
any unpaid dividends. Prior to redemption of the stock, dividends may be paid
in cash, although currently prohibited by the terms of the revolving credit
agreement, or in additional preferred shares.
LST periodically purchases steel slabs which are consigned to Steel to be used
in its production of tubular products. Steel pays LST as the slabs are used or
within ninety days, whichever occurs first. This program's structure is
consistent with those previously established with third parties. During 1994,
LST's slab purchases amounted to approximately $38 million. Intercompany
transactions related to this program are eliminated in consolidation.
30
<PAGE>
LONE STAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Schedule III - Condensed Financial Information of Registrant
(Parent Company Only)
($ in millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
CONDENSED STATEMENT OF CASH FLOWS 1994 1993 1992
- --------------------------------- ------ ------ -----
<S> <C> <C> <C>
Net (earnings) loss . . . . . . . . . . . . . 1.2 (7.2) 0.1
Minority interest in Steel . . . . . . . . . . (1.0) 4.6 3.1
Other . . . . . . . . . . . . . . . . . . . . (11.3) (4.5) (9.5)
------ ------ -----
Net cash used in operating activities . . . (11.1) (7.1) (6.3)
Net cash provided by investing activities . (36.0) 135.7 -
Net cash provided by financing activities . (51.6) 0.3 9.7
------ ------ -----
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . $(98.7) $128.9 $ 3.4
====== ====== =====
YEAR ENDED DECEMBER 31,
--------------------------
CONDENSED STATEMENT OF EARNINGS 1994 1993 1992
- ------------------------------- ------ ------ ------
<S> <C> <C> <C>
General and administrative . . . . . . . . . . (0.8) (1.5) (1.2)
Other income, net . . . . . . . . . . . . . . 0.6 - -
Interest income (expense), net . . . . . . . . 0.3 (3.1) (3.7)
Minority interest in Steel . . . . . . . . . . 1.0 4.6 3.1
Earnings (loss) of operating subsidiary . . . (4.9) (23.7) (15.7)
Discontinued operations and gain on sale . . . 5.0 16.5 17.6
----- ----- -----
Net earnings (loss) . . . . . . . . . . . $ 1.2 $(7.2) $ 0.1
===== ===== =====
AS OF DECEMBER 31,
------------------
CONDENSED BALANCE SHEET 1994 1993
- ----------------------- ---- ----
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . 41.7 140.4
Short-term investments . . . . . . . . . . . . . . . . 41.0 -
Funds held in escrow . . . . . . . . . . . . . . . . . 15.0 20.0
Investment in Steel . . . . . . . . . . . . . . . . . . 70.9 71.9
Other assets . . . . . . . . . . . . . . . . . . . . . 13.8 1.3
------ ------
Total assets . . . . . . . . . . . . . . . . . . . $182.4 $233.6
====== ======
Debt . . . . . . . . . . . . . . . . . . . . . . . . . 50.0 50.0
Deferred gain on sale of discontinued operations . . . 15.0 20.0
Minority interest in Steel . . . . . . . . . . . . . . 13.8 14.0
Other liabilities . . . . . . . . . . . . . . . . . . . 7.5 6.2
----- -----
Total liabilities . . . . . . . . . . . . . . . . . 86.3 90.2
Series A Preferred stock (authorized: 1.2 shares,
issued: none and 1.0, respectively); shown at
face value . . . . . . . . . . . . . . . . . . . . . . - 49.6
Common stock, $1 par value (authorized: 40.0 shares,
issued: 20.4 and 20.4, respectively) . . . . . . . . 20.4 20.4
Capital surplus . . . . . . . . . . . . . . . . . . . . 158.9 158.8
Minority pension liability adjustment . . . . . . . . . (3.5) (6.6)
Retained deficit . . . . . . . . . . . . . . . . . . . (78.8) (77.9)
Treasury stock (0.05 common shares, at cost) . . . . . (0.9) (0.9)
----- -----
Total shareholders' equity . . . . . . . . . . . . 96.1 143.4
----- -----
Total liabilities and shareholders' equity . . . 182.4 233.6
===== =====
</TABLE>
See accompanying notes.
31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this item is contained in LST's proxy statement for
the 1995 Annual Meeting of Shareholders, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item is contained in LST's proxy statement for
the 1995 Annual Meeting of Shareholders, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item with respect to beneficial owners of more
than 5 percent of outstanding common stock and to directors and executive
officers is contained in LST's proxy statement for the 1995 Annual Meeting of
Shareholders, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this item with respect to directors and executive
officers is contained in LST's proxy statement for the 1995 Annual Meeting of
Shareholders, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1 Financial Statements - The following Consolidated Financial Statements are
filed as part of this report:
- Report of Independent Public Accountants
- Consolidated Statements of Cash Flows -
for the years ended December 31, 1994, 1993, and 1992
- Consolidated Statements of Earnings -
for the years ended December 31, 1994, 1993, and 1992
- Consolidated Balance Sheets at December 31, 1994 and 1993
- Notes to Consolidated Financial Statements
2 Schedule III - Condensed Financial Information of Registrant
Note: All schedules not filed herein for which provision is made under rules of
Regulation S-X have been omitted as not applicable or not required or the
information required has been included in the notes to the consolidated
financial statements.
32
<PAGE>
3 Index to Exhibits
DESCRIPTION
3.1 Certificate of Incorporation of Registrant (incorporated by reference to
Exhibit 3(a) to Form S-4 Registration Statement of LST as filed on April
4, 1986, File No. 33-4581); Certificate of Amendment to Certificate of
Incorporation dated September 30, 1986, (incorporated by reference to
Exhibit 3(b) of Form 10-K of LST as filed on April 7, 1989).
3.2 Agreement and Plan of Merger dated March 6, 1986, among Steel, a Texas
corporation, LST, a Delaware corporation, and Lone Star Steel Company
Merging Corporation, a Delaware corporation (incorporated by reference to
Exhibit II to Form S-4 Registration Statement of LST as filed on April 4,
1986, File No. 33-4581).
3.3 By-Laws as adopted March 6, 1986, as amended effective September 30, 1986,
(incorporated by reference to Exhibit 3(d) of Form 10-K of LST as filed on
April 7, 1989).
4.1 Statement of Resolution establishing Cumulative Preferred Stock, Series A
(par value $1 per share), dated September 9, 1988, (incorporated by
reference to Exhibit 3(c) of Form 10-K of LST as filed on April 7, 1989).
4.2 LST Indenture with Bankers Trust Company, Trustee, with respect to
$50,000,000 8% Convertible Subordinated Debentures Due 2002 (Eurobonds),
dated August 26, 1987, (incorporated by reference to Exhibit 4(c) of Form
10-K of LST as filed on April 7, 1989).
10.1 Amended 1985 Long-Term Incentive Plan (incorporated by reference to
Exhibit A of Proxy Statement of LST as filed on October 22, 1993).
10.2 LST Corporate Improvement Incentive Program adopted October 9, 1990,
(incorporated by reference to Exhibit 10(s) to Form 10-K as filed on March
15, 1991).
10.3 Contingent Severance Policy agreement dated October 23, 1989, between LST
and Rhys J. Best, Vice President and Treasurer.
10.4 Contingent Severance Policy agreement dated October 23, 1989, between LST
and Judith A. Murrell, Vice President - Corporate Relations (incorporated
by reference to Exhibit 10(k) to Form 10-K as filed on April 2, 1990).
10.5 Employment and Contingent Severance Policy agreements dated November 20,
1989, between LST and James T. Dougherty, Vice President and General
Counsel (incorporated by reference to Exhibit 10(l) to Form 10-K as filed
on April 2, 1990).
10.6 Employment Agreement dated June 2, 1989, between LST and John P. Harbin,
Chairman of the Board, President, and Chief Executive Officer
(incorporated by reference to Exhibit 10(m) to Form 10-K as filed on April
2, 1990).
10.7 Steel Employee Stock Purchase Plan (incorporated by reference to Exhibit
10(m) of Amendment No. 1 to Form S-1 Registration Statement of Steel as
filed on April 15, 1985, File No. 2-95858).
10.8 Financing Agreement dated March 2, 1993, between The CIT Group/Business
Credit, Inc. and Steel (incorporated by reference to Exhibit 10(af) to
Form 10-K as filed on March 15, 1993); Amendment agreement dated February
14, 1994, (related to Financing Agreement dated March 2, 1993).
10.9 Loan and Security Agreement dated March 22, 1993 between Steel and the CIT
Group Equipment Financing, Inc.
10.10 Amendment Agreement dated December 22, 1994, (related to Financing
Agreement dated March 2, 1993, between The CIT Group/Business Credit, Inc.
and Steel incorporated by reference to Exhibit 10(af) to Form 10-K as
filed on March 15, 1993).
10.11 Agreement dated November 2, 1994, among Steel, LST, and certain minority
holders of Steel regarding participation in the First Capital Project by
acquiring convertible preferred stock of Steel.
10.12 Stockholders and Registration Rights Agreement among Steel, LST, and
Minority Shareholders of Steel, dated May 16, 1991, (incorporated by
reference to Exhibit 10(p) to Form 10-K filed on March 5, 1992).
33
<PAGE>
10.13 Cost Sharing Agreement between Steel and LST, dated May 16,1991,
(incorporated by reference to Exhibit 10(p) to Form 10-K filed on March 5,
1992); Amendment to the Cost Sharing Agreement dated May 16, 1991, between
LST and Steel dated March 2, 1993, (incorporated by reference to Exhibit
10(ai) to Form 10-K as filed on March 15, 1993).
10.14 Tax Allocation and Indemnification Agreement dated May 16, 1991, between
Steel and LST (incorporated by reference to Exhibit 10(r) to Form 10-K
filed on March 5, 1992); Amendment to Tax Allocation and Indemnification
Agreement dated May 16, 1991, among LST, Steel, and Steel subsidiaries
dated March 2, 1993, (incorporated by reference to Exhibit 10(ah) to Form
10-K as filed on March 15, 1993).
10.15 Asset Purchase Agreement by and among Zink and Affiliates, the Sellers,
and Koch Engineering Company, Inc., Buyer, dated September 18, 1989,
(incorporated by reference to Exhibit 7(c) of Form 8-K as filed on October
19, 1989).
10.16 Stock Purchase Agreement, Assistance Agreement, Capital Maintenance
Agreement, and Subordination Agreement regarding the acquisition by LST of
AFB dated August 18, 1988, (incorporated by reference to Form 8 (Amendment
No. 3 to Form 8-K) dated January 11, 1989); Amendment No. 1 to the
Assistance Agreement of August 18, 1988, dated August 31, 1990,
(incorporated by reference to Exhibit 10(q) to Form 10-K as filed on March
15, 1991); Settlement Agreement and Second Amendment to Assistance
Agreement dated September 30, 1992, among the FDIC, as Manager, the RTC,
AFB, and LSST (incorporated by reference to Exhibit 10(ab) to Form 10-K as
filed on March 15, 1993).
10.17 Agreement and Plan of Merger dated March 25, 1992, as amended by First
Amendment to Agreement and Plan of Merger dated April 15, 1992, between
AFB and Americity (incorporated by reference to Form 8-K dated July 14,
1992).
10.18 Holdback Escrow Agreement dated July 1, 1992, among Americity, AFB, Bank
One, Texas, as Agent, and James C. Jarocki, as Shareholder Representative
(incorporated by reference to Exhibit 10(x) to Form 10-K as filed on March
15, 1993).
10.19 Letter Agreement dated July 1, 1992, among AFB, Americity, and the FDIC,
as Manager, (regarding assignment and assumption of the Termination
Agreement and Tax Benefits Cancelation Agreement) (incorporated by
reference to Exhibit 10(y) to Form 10-K as filed on March 15, 1993);
Termination Agreement dated December 18, 1991, among Americity, the FDIC,
as Manager, and the RTC (terminating Assistance Agreement of November 18,
1988, between Americity and the FSLIC) (incorporated by reference to
Exhibit 10(z) to Form 10-K as filed on March 15, 1993); Tax Benefits
Cancelation Agreement dated December 18, 1991 among Americity, the FDIC,
as Manager, and the RTC (incorporated by reference to Exhibit 10(aa) to
Form 10-K as filed on March 15, 1993).
10.20 Stock Purchase Agreement and Agreement and Plan of Reorganization by and
among Guaranty Federal Bank, f.s.b., Guaranty Holdings, Inc. I, LST, and
LSST Financial Services Corporation, dated February 16, 1993, First
Amendment to Stock Purchase Agreement and Agreement and Plan of
Reorganization, dated April 2, 1993, Second Amendment to Stock Purchase
Agreement and Agreement and Plan of Reorganization, dated August 31, 1993,
and Third Amendment to Stock Purchase Agreement and Agreement and Plan of
Reorganization, dated September 30, 1993, (incorporated by reference to
Exhibit B of Proxy Statement of LST as filed October 22, 1993).
10.21 Holdback Escrow Agreement to Stock Purchase Agreement and Agreement and
Plan of Reorganization, dated November 12, 1993, (incorporated by
reference to Exhibit C of Proxy Statement of LST as filed October 22,
1993).
22 List of Subsidiaries.
25 Powers of Attorney.
27 Financial Data Schedule
(b) Reports on Form 8-K:
DATE OF REPORT DATE FILED DESCRIPTION
- -------------- ---------- -----------
None.
34
<PAGE>
ITEM 15. 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.
LONE STAR TECHNOLOGIES, INC.
Date: February 15, 1995 By: /s/ JUDITH A. MURRELL
---------------------
(Judith A. Murrell)
Vice President -
Corporate Relations,
Principal Accounting
Officer, and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JOHN P. HARBIN Chairman, Director, and February 15, 1995
- --------------------------, Chief Executive Officer
(John P. Harbin)
/s/ CHARLES L. BLACKBURN* Director February 15, 1995
- --------------------------,
(Charles L. Blackburn)
/s/ DEAN P. GUERIN* Director February 15, 1995
- --------------------------,
(Dean P. Guerin)
/s/ FREDERICK B. HEGI, JR.* Director February 15, 1995
- --------------------------,
(Frederick B. Hegi, Jr.)
/s/ WILLIAM C. MCCORD* Director February 15, 1995
- --------------------------,
(William C. McCord)
/s/ JAMES E. MCCORMICK* Director February 15, 1995
- --------------------------,
(James E. McCormick)
*By: /s/ JUDITH A. MURRELL
---------------------
(Judith A. Murrell, Attorney-in-Fact)
35
<PAGE>
Exhibit 10.3
Page 1 of 1
Lone Star Technologies, Inc.
2200 West Mockingbird Lane
P. O. Box 35888
Dallas, TX 75235-0888
October 23, 1989
Mr. Rhys J. Best
Vice President and Treasurer
Lone Star Technologies, Inc.
Dear Rhys:
In recognition of the valuable service rendered to Lone Star Technologies, Inc.
(the "Corporation") and in consideration of your continued employment, the
Corporation is pleased to announce the implementation of the following
Contingent Severance Policy. This policy shall take effect in the event you are
terminated for any reason other than misconduct within two (2) years after any
sale, acquisition or liquidation (whether in bankruptcy proceedings or
otherwise) of the Corporation or transfer of the majority of the assets of the
Corporation.
1) In the event your employment is terminated within the two (2) year period as
described above, you will receive twelve (12) months of salary at the rate
applicable as of the date of sale, acquisition, liquidation or transfer.
2) Termination for reasons other than misconduct include (i) any change in your
functions, duties or responsibilities, which change would cause your position
with the Corporation to become of less dignity, responsibility or importance
than the position held at the time of the sale, acquisition, liquidation or
transfer; (ii) any requirement that you relocate to another city other than that
in which you resided prior to the sale, acquisition, liquidation or transfer;
and (iii) any layoff, reduction in force, suspension or termination for reasons
other than misconduct on your part.
Sincerely yours,
Lone Star Technologies, Inc.
By: /s/ John P. Harbin
-------------------------
John P. Harbin, Chairman of
the Board, President and
Chief Executive Officer
Accepted and agreed:
By: /s/ Rhys J. Best
-------------------
Rhys J. Best
<PAGE>
Exhibit 10.9
Page 1 of 19
The CIT Group
LOAN AND SECURITY AGREEMENT
SECTION 1. DEFINITIONS.
All capitalized terms which are not defined herein are defined in Rider A
attached hereto and made a part hereof ("RIDER A"). Accounting terms not
specifically defined shall be construed in accordance with generally accepted
accounting principles.
SECTION 2. AMOUNT AND TERMS OF LOANS; GRANT OF SECURITY INTEREST.
Subject to the terms and conditions hereof, Lender agrees to make Loans to
Debtor from time to time, in the amount described in paragraph 2 of Rider A.
Each Loan shall be evidenced by Debtor's Note which shall contain the repayment
terms and shall bear interest from the date thereof on the unpaid principal
amount thereof at the Interest Rate set forth in paragraph 3 of Rider A until
such amount shall become due and payable (whether at the stated maturity
thereof, by acceleration or otherwise).
As security for the prompt and complete payment and performance when due of
all the Obligations and in order to induce Lender to enter into this Agreement
and make the Loans and to extend other credit from time to time to Debtor,
whether under this Agreement or otherwise, Debtor hereby grants to Lender a
first priority security interest in all Debtor's right, title and interest in,
to and under the Collateral, and a second priority security interest in all
Debtor's right, title and interest in, to and under Accounts and Inventory.
SECTION 3. CONDITIONS OF BORROWING.
Lender shall not be required to make any Loan hereunder unless on the
Closing Date thereof all legal matters with respect to, and all legal documents
executed in connection with, the contemplated transactions are satisfactory to
Lender and all of the following conditions are met to the satisfaction of Lender
(except that (a) and (b) are required in connection with the initial Loan only):
(a) Lender has received a satisfactory Secretary's and Incumbency Certificate
certified by Debtor's Secretary or Assistant Secretary; (b) if Lender has
required that the Loans be guaranteed, Lender shall have received (i) a
Guaranty, duly executed by each Guarantor, and (ii) a satisfactory Secretary's
and Incumbency Certificate certified by each corporate Guarantor's Secretary or
Assistant Secretary; (c) Debtor has executed and delivered to Lender the Note
evidencing, and a Supplement describing the Equipment to be financed by, such
Loan; (d) the Equipment being financed by such Loan is satisfactory to Lender,
has been delivered to, and accepted by, Debtor, and Lender has received
satisfactory evidence that the Equipment is insured in accordance with the
provisions hereof and that the Cost thereof has been, or concurrently with the
making of the Loan shall be, fully paid; (e) Lender has received copies of the
invoices and bills of sale, if any, with respect to any new Equipment being
financed by such Loan; (f) all filings, recordings and other actions (including
the obtaining of landlord and/or mortgagee waivers) deemed necessary or
desirable by Lender in order to perfect a first (and only) priority security
interest in the Equipment being financed by such Loan have been duly effected,
and all fees, taxes and other charges relating to such filings and recordings
have been paid by Debtor; (g) the representations and warranties contained in
this Agreement and any Guaranty are true and correct with the same effect as if
made on and as of such date, and no Default or Event of Default is in existence
on such date or shall occur as a result of such Loan; (h) in the sole judgment
of Lender, there has been no material adverse change in the financial condition,
business or operations of Debtor or any Guarantor from the date referred to in
paragraph 4(a) of Rider A; and (i) Lender has received from Debtor and each
Guarantor such other documents and information as Lender has reasonably
requested.
1
<PAGE>
Exhibit 10.9
Page 2 of 19
SECTION 4. REPRESENTATIONS AND WARRANTIES.
In order to induce Lender to enter into this Agreement and to make each
Loan, Debtor represents and warrants to Lender that: (a) Debtor is a corporation
duly organized, validly existing and in good standing under the laws of its
State of Incorporation, has the necessary authority and power to own the
Equipment and its other assets and to transact the business in which it is
engaged, is duly qualified to do business in each jurisdiction where the
Equipment is located and its chief executive office is located at the address
set forth in paragraph 7 of Rider A; (b) Debtor has full power, authority and
legal right to execute and deliver this Agreement and the Notes, to perform its
obligations hereunder and thereunder, to borrow hereunder and to grant the
security interest created hereby; (c) this Agreement has been (and each Note
when executed and delivered shall have been) duly authorized, executed and
delivered by Debtor and constitutes (and each Note when executed and delivered
shall constitute) a legal, valid and binding obligation of Debtor enforceable in
accordance with its terms except as such rights may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity; (d) the execution, delivery and
performance by Debtor of this Agreement and the Notes do not and will not
violate any provision of any applicable law or regulation or of any judgment,
order, or the like of any court or governmental instrumentality, and will not
violate any provision of, or cause a default under, any loan or other agreement,
or any contract or judgment to which Debtor is a party or which is binding upon
Debtor or any of its assets; (e) Debtor is not in default under any material
contract or judgment to which Debtor is a party or which is binding upon Debtor
or upon any of its assets; (f) Debtor has filed all Federal, State and local tax
returns that are required to be filed and has paid all taxes as shown on said
returns and all assessments received by it to the extent such taxes and
assessments have become due other that those which are being contested in good
faith by Debtor and by appropriate proceedings and as to which appropriate
reserves are being maintained in accordance with generally accepted accounting
principles and so long as such proceedings operate during the pendency thereof
to prevent the sale, forfeiture, or loss of the Collateral, and Debtor does not
have any knowledge of any actual or proposed deficiency or additional assessment
in connection therewith; (g) there is no action, suit, investigation or
proceeding pending or threatened against or affecting Debtor or any of its
assets which involves any of the Equipment or any of the contemplated
transactions hereunder or which, if adversely determined, could have a material
adverse effect on Debtor's business, operations or financial condition; and (h)
on each Closing Date, Debtor shall have good and marketable title to the
Equipment being financed on such date and lender shall have a perfected first
(and only) Lien on such Equipment.
SECTION 5. COVENANTS.
Debtor covenants and agrees that from and after the date hereof and so long
as the Commitment or any of the Notes is outstanding:
A. It will: (1) promptly give written notice to Lender of the occurrence
of any Event of Loss; (2) observe all material requirements of any governmental
authorities relating to the conduct of its business, to the performance of its
obligations hereunder, to the use, operation or ownership of the Equipment, or
to its other properties or assets, maintain its existence as a legal entity and
obtain and keep in full force and effect all rights, franchises, licenses and
permits which are necessary to the proper conduct of its business, and pay all
fees, taxes, assessments and governmental charges or levies imposed upon any of
the Equipment unless such amounts are not yet due or are being contested in good
faith by appropriate proceeding; (3) at any reasonable time or times, permit
Lender or its authorized representative to inspect the Equipment and, following
the occurrence and during the continuation of an Event of Default, to inspect
the books and records of Debtor; (4) in accordance with generally accepted
accounting principles, keep proper books of record and account in which entries
will be made
2
<PAGE>
Exhibit 10.9
Page 3 of 19
of all dealings or transactions in relation to its business and activities; (5)
furnish to Lender the following financial statements, all in reasonable detail,
prepared in accordance with generally accepted accounting principles applied on
a basis consistently maintained throughout the period involved, (a) as soon as
available, but not later than 120 days after the end of each fiscal year, its
consolidated balance sheets as at the end of such fiscal year, and its
consolidated statements of profit and loss and consolidated statements of cash
flow and all footnotes for such fiscal year together with comparative
information for the prior fiscal year, audited by Arthur Andersen and Company or
other certified public accountants acceptable to Lender; (b) as soon as
available, but not later than 90 days after the end of each of the first three
quarterly periods of each fiscal year, its consolidated balance sheets as at the
end of such quarterly period and its consolidated statements profit and loss and
consolidated statements of cash flow for such quarterly period and for the
portion of the fiscal year then ended together with comparative information for
the prior comparable period, certified as to their accuracy by its President,
Vice President, Treasurer or Controller; and (c) promptly, such additional
financial and other information as Lender may from time to time reasonably
request; (6) promptly, at Debtor's expense, execute and deliver to Lender such
instruments and documents, and take such action, as Lender may from time to time
reasonably request in order to carry out the intent and purpose of this
Agreement and to establish and protect the rights, interests and remedies
created, or intended to be created, in favor of Lender hereby, including,
without limitation, the execution, delivery, recordation and filing of financing
statements (hereby authorizing lender, in such jurisdictions where such action
is authorized by law, to effect any such recordation or filing of financing
statements without Debtor's signature, and to file as valid financing statements
in applicable financing statement records, photocopies or carbon copies hereof,
of the Supplements and of any other financing statement executed in connection
herewith); (7) warrant and defend its good and marketable title to the
Equipment, and Lender's perfected first (and only) Priority security interest in
the Collateral, against all claims and demands whatsoever (hereby agreeing that
the Equipment shall be and at all times remain separately identifiable personal
property and shall not become part of any real estate), and will, at its
expense, take such action (including the obtaining and recording of waivers) as
may be necessary to prevent any other Person from acquiring any lien on the
Equipment; (8) at Debtor's expense, if requested by lender in writing, attach to
the Equipment a notice satisfactory to Lender disclosing Lender's security
interest in the Equipment; (9) at Debtor's expense, maintain the Equipment in as
good a condition as such Equipment is on the date hereof, normal wear and tear
excepted and furnish all parts, replacements and servicing required therefor so
that the value, condition and operating efficiency thereof will at all times be
maintained, normal wear and tear excepted, and any repairs, replacements and
parts added to the Equipment in connection with any repair or maintenance or
with any improvement, change, addition or alteration shall immediately, without
further act, become part of the Equipment and subject to the security interest
created by this Agreement; and (10) obtain and maintain at all times on the
Collateral, at Debtor's expense, "All-Risk" physical damage and, if required by
Lender, liability insurance (including bodily injury and property damage) in
such amounts, against such risks, in such form and with such insurers as shall
be satisfactory to Lender; provided, however, that the amount of physical damage
insurance shall not be less than the then aggregate outstanding principal amount
of the Notes. All physical damage insurance policies shall be made payable to
Lender as its interest may appear; if liability insurance is required by Lender,
the liability insurance policies shall name Lender as an additional insured.
Debtor shall maintain and deliver to Lender the original certificates of
insurance or other documents satisfactory to lender prior to policy expiration
or upon Lender's request, but Lender shall bear no duty or liability to
ascertain the existence or adequacy of such insurance. Each insurance policy
shall, among other things, require that the insurer give
Lender at least 30 days' prior written notice of any alteration in the terms of
such policy or the cancellation thereof and that the interests of Lender be
continued insured regardless of any
3
<PAGE>
Exhibit 10.9
Page 4 of 19
breach of or violation by Debtor of any warranties, declarations or conditions
contained in such insurance policy. The insurance maintained by the Debtor
shall be primary with no other insurance maintained by Lender (if any)
contributory.
B. It will not: (1) sell, convey, transfer, exchange, lease or otherwise
relinquish possession or dispose of any of the Collateral or attempt or offer to
do any of the foregoing; provided, however, that the foregoing shall not apply
to Equipment which is worn-out, useless or obsolete if such Equipment is
replaced by substitute equipment acceptable to Lender, which substitute
equipment shall have a value equal to or higher than the Equipment it replaces;
(2) create, assume or suffer to exist any Lien upon the Collateral except for
the security interest created hereby; (3) liquidate or dissolve; (4) change the
form of organization or its business; or (5) without thirty (30) days prior
written notice to Lender, change its name or its chief executive office; (6)
move (or in the case of titled vehicles, change the principal base of) any of
the Equipment from the location specified on the Supplement relating thereto
without the prior written consent of Lender; or (7) make or authorize any
improvement, change, addition or alteration to the Equipment which would impair
its originally intended function or use or its value.
SECTION 6. EVENTS OF DEFAULT; REMEDIES.
The following events shall each constitute an "EVENT OF DEFAULT" hereunder:
(a) Debtor shall fail to pay any Obligation within 10 days after the same
becomes due (whether at the stated maturity, by acceleration or otherwise); (b)
any representation or warranty made by Debtor in this Agreement, or made by any
Guarantor in any Guaranty, or made by Debtor or any Guarantor in any document,
certificate or financial or other statement now or hereafter furnished by Debtor
or any Guarantor in connection with this Agreement, any Guaranty or any Loan
shall at any time prove to be untrue or misleading in any material respect as of
the time when made; (c) Debtor shall fail to observe any covenant, condition or
agreement contained in Sections 5.A (10) or 5.B hereof or in paragraphs 5 or 6
(b) of Rider A; (d) Debtor shall fail to observe or perform any other covenant
or condition contained in this Agreement, and such failure shall continue
unremedied for a period of 30 days after the earlier of the date on which Debtor
obtains knowledge of such failure or the date on which notice thereof shall be
given by Lender to Debtor; (e) Debtor or any Guarantor or any subsidiary of any
of them shall default in the payment of, or other performance under, any
obligation (in excess of $250,000.00) for payment or lease (whether or not
capitalized) or any guarantee to any Person beyond the period of grace, if any,
provided with respect thereto; (f) a complaint in bankruptcy or for arrangement
or reorganization or for relief under any insolvency law is filed by or against
Debtor or any Guarantor (and when filed against Debtor or any Guarantor is in
effect for 45 days) or Debtor or any Guarantor admits its inability to pay its
debts as they mature; or (g) any Guarantor shall fail to observe or perform any
of the terms or conditions of its respective Guaranty, or any Guaranty shall
cease to be in full force and effect or shall be declared to be null and void,
or the validity or enforceability thereof shall be contested by any Guarantor or
any Guarantor shall deny that such Guarantor has any further liability to Lender
with respect thereto, or any individual Guarantor shall die or become
incompetent.
If an Event of Default shall occur, Lender may, by notice of default given
to Debtor, do any one or more of the following: (a) terminate the Commitment
and/or (b) declare the Notes to be due and payable whereupon the principal
amount of the Notes, together with accrued interest thereon and all other
amounts owing under this Agreement and the Notes, shall become immediately due
and payable without presentment, demand, protest, notice of intent to
accelerate, notice of acceleration or other notice of any kind, all of which are
hereby expressly waived (and in the case of any Event of Default specified in
clause (f) of the above paragraph, such acceleration of the Notes shall be
automatic, without any notice by Lender). In addition,
4
<PAGE>
Exhibit 10.9
Page 5 of 19
if an Event of Default shall occur and be continuing, Lender may exercise all
other rights and remedies available to it, whether under this Agreement, under
any other instrument of agreement securing, evidencing or relating to the
Obligations, under the Code, or otherwise available at law or in equity.
Without limiting the generality of the foregoing, Debtor agrees that in any such
event, Lender, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon Debtor or any other Person (all and each of
which demands, advertisements and notices are hereby expressly waived), may
forthwith do any one or more of the following: collect, receive, appropriate and
realize upon the Collateral or any part thereof, and sell, lease, assign, give
an option or options to purchase or otherwise dispose of and deliver, the
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales at such places and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption of Debtor, which right or equity is hereby expressly
released. Debtor further agrees, at Lender's request, to assemble (at Debtor's
expense) the Collateral and make it available to Lender at Debtor's premises in
Lone Star, Texas. Lender shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale (after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care, safekeeping or otherwise of any or all of the Collateral or in any way
relating to the rights of Lender hereunder, including attorney's fees and legal
expenses) to the payment in whole or in part of the Obligations, in such order
as Lender may elect. Debtor agrees that Lender need not give more than 10 days'
notice of the time and place of any public sale or of the time after which a
private sale may take place and that such notice is reasonable notification of
such matters. Debtor shall be liable for any deficiency if the proceeds of any
sale or disposition of the Collateral are insufficient to pay all amounts to
which Lender is entitled. Debtor agrees to pay all costs of Lender, including
attorneys' fees, incurred with respect to collection of any of the Obligations
and enforcement of any of Lender's rights hereunder. To the extent permitted
by law, Debtor hereby waives presentment, demand, protest or any notice (except
as expressly provided in this Section 6) of any kind in connection with this
Agreement or any Collateral.
SECTION 7. MISCELLANEOUS
No failure or delay by Lender in exercising any right, remedy or privilege
hereunder or under any Note shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy or privilege. No right or remedy in this Agreement is
intended to be exclusive but each shall be cumulative and in addition to any
other remedy referred to herein or otherwise available to Lender at law or in
equity; and the exercise by Lender of any one or more of such remedies shall not
preclude the simultaneous or later exercise by Lender of any or all such other
remedies. No express or implied waiver by Lender of an Event of Default shall
in any way be or be construed to be a waiver or any other subsequent Event of
Default. The acceptance by Lender of any regular installment payment or any
other sum owing hereunder shall not (a) constitute a waiver of any Event of
Default in existence at the time, regardless of Lender's knowledge or lack of
knowledge thereof at the time of such acceptance, and (b) constitute a waiver of
any Event of Default unless Lender shall have agreed in writing to waive the
Event of Default.
All notices, requests and demands to or upon any party hereto shall be
deemed duly given or made when sent by telecopier, by hand, by overnight mail
against receipt or when deposited in the United States mail, first class postage
prepaid, addressed to such party at its address (or
5
<PAGE>
Exhibit 10.9
Page 6 of 19
telecopier number) set forth in paragraph 7 of Rider A or such other address or
telecopier number as may be hereafter designated in writing by such party to the
other party hereto.
Debtor agrees, whether or not the contemplated transactions are
consummated, (A) to pay or reimburse Lender for (i) all expenses of Lender in
connection with the documentation thereof; (ii) all fees, taxes and expenses of
whatever nature incurred in connection with the creation, preservation and
protection of Lender's security interest in the Equipment, including, without
limitation, all filing and Lien search fees, payment or discharge of any taxes
or Liens upon, or in respect to, the Equipment, and all other fees and expenses
in connection with protecting or maintaining the Equipment or in connection with
defending or prosecuting any actions, suits or proceedings arising out of, or
related to, the Equipment; and (iii) all costs and expenses (including legal
fees and disbursements) of Lender in connection with the enforcement of this
Agreement and the Notes, and (B) to pay, and to indemnify and hold Lender
harmless from and against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, suits, out-of-pocket costs, expenses
(including legal expenses) or disbursements of any kind or nature whatsoever
arising out of or with respect to this Agreement, the Equipment or Lender's
interest therein, including, without limitation, the execution, delivery,
enforcement, performance or administration of this Agreement and the Notes and
the manufacture, purchase, ownership, possession, use, selection, operation or
condition of the Equipment or any part thereof (the foregoing being referred to
as the "indemnified liabilities"), provided, that Debtor shall have no
obligation hereunder with respect to indemnified liabilities arising from the
gross negligence or willful misconduct of Lender. If Debtor fails to perform or
comply with any of its agreements contained in this Agreement and Lender shall
itself perform, comply or cause performance or compliance, the expenses of
Lender so incurred, together with interest thereon at the Late Charge Rate,
shall be payable by Debtor to Lender on demand and until such payment is made
shall constitute Obligations hereunder. The agreements and indemnities
contained in this paragraph shall survive termination of this Agreement and
payment of the Notes.
The Agreement contains the full, final and exclusive statement of the
agreement between Lender and Debtor related to the contemplated transactions,
and neither this Agreement, nor any terms hereof, may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of a change, waiver, discharge or
termination is sought.
This Agreement shall be binding upon, and inure to the benefit of, Debtor
and Lender and their respective successors and assigns, except that Debtor may
not assign or transfer its rights hereunder or any interest herein without the
prior written consent of Lender.
Headings of sections and paragraphs are for convenience only, are not part
of this Agreement and shall not be deemed to affect the meaning or construction
of any of the provisions hereof. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability shall not invalidate or render unenforceable such provision in
any other jurisdiction.
Debtor hereby authorizes Lender to correct patent errors and to fill in
such blanks as serial numbers and dates herein and in the Notes, Supplements and
in any document executed in connection herewith.
6
<PAGE>
Exhibit 10.9
Page 7 of 19
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, DEBTOR HEREBY
IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION IN CONNECTION WITH THIS
AGREEMENT MAY BE INSTITUTED IN THE COURTS OF THE STATE OF NEW YORK, IN THE
COUNTY OF NEW YORK OR THE UNITED STATES COURTS FOR THE SOUTHERN DISTRICT OF NEW
YORK, AS LENDER MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
DEBTOR HEREBY IRREVOCABLY ACCEPTS AND SUBMITS TO, FOR ITSELF AND IN RESPECT OF
ITS PROPERTY, THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT, AND TO ALL
PROCEEDINGS IN SUCH COURTS. DEBTOR AND LENDER, IN ANY LITIGATION RELATING TO OR
IN CONNECTION WITH THIS AGREEMENT AND ANY NOTE IN WHICH THEY SHALL BE ADVERSE
PARTIES, WAIVE TRIAL BY JURY.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered by their duly authorized officers as of March 22, 1993.
Lender: Debtor:
THE CIT GROUP/EQUIPMENT FINANCING, INC., LONE STAR STEEL COMPANY
a NEW YORK corporation a DELAWARE corporation
By: /s/ Joseph M. Pitch By: /s/ R. W. Arp
----------------------- ----------------------
Title: Vice President Title: Ex V/P
------------------- -------------------
7
<PAGE>
Exhibit 10.9
Page 8 of 19
THE CIT GROUP
Rider A to
Loan and Security Agreement
1. DEFINITIONS. As used in the referenced Loan and Security Agreement, the
following terms shall have the following defined meanings (applicable to both
singular and plural forms), unless the context otherwise requires:
"AGREEMENT": "hereof", "hereto", "hereunder" and words of similar meaning:
the referenced Loan and Security Agreement including this Rider A and any other
rider, schedule and exhibit executed by Debtor and Lender in connection
herewith, as from time to time amended, modified or supplemented.
"BUSINESS DAY": a day other than a Saturday, Sunday or legal holiday under
the laws of the State of New York.
"CLOSING DATE": each date on which a Loan is made.
"CODE": the Uniform Commercial Code as from time to time in effect in any
applicable jurisdiction.
"COLLATERAL": the Equipment and the Proceeds thereof.
"COMMITMENT": Lender's obligation to make Loans in the aggregate principal
amount stated in paragraph 2 of this Rider A.
"COST": with respect to any item of new Equipment, the seller's invoiced
purchase price therefor (after giving effect to any discount or other reduction)
payable by Debtor, and all other amounts payable by Debtor and approved by
lender in connection with the acquisition or installation of the Equipment or,
with respect to any item of used Equipment for any Event of Loss, such amount of
insurance paid by the insurance company. The Cost shall be set forth in the
applicable Supplement.
"DEFAULT": any event which with notice, lapse of time, or both would
constitute an Event of Default.
"EQUIPMENT": any and all items of property which are listed on Supplements,
together with all accessories, parts, repairs, replacements, substitutions,
attachments, modifications, additions, improvements, upgrades and accessions of,
to or upon such items of property, now or hereafter acquired.
"EVENT OF DEFAULT": as set forth in Section 6 of the Agreement.
"EVENT OF LOSS": with respect to any item of Equipment, (i) the actual or
constructive loss or loss of use thereof, due to theft, destruction, damage
beyond repair or to an extent which makes repair uneconomical, or (ii) the
condemnation, confiscation or seizure thereof, or requisition of title thereto,
or use thereof, by any Person.
"GUARANTOR": any and all guarantors of Debtor's Obligations under this
Agreement and the Notes.
"GUARANTY": an agreement, in form and substance satisfactory to Lender,
made by each Guarantor in favor of Lender guaranteeing the payment and
performance of any and all Obligations.
"INSTALLMENT PAYMENT DATE": with respect to any Note, each date on which a
regular installment of principal is due.
"INTEREST RATE": as set forth in paragraph 3 of this Rider A.
"LATE CHARGE RATE": a rate per annum equal to the lower of 6% over the
Treasury Rate and 18%, but not to exceed the highest rate permitted by
applicable law.
"LIENS": liens, mortgages, security interests, pledges, title retentions,
financing statements or other encumbrances of any kind whatsoever, excluding
liens arising by operation of law which secure amounts not yet due or amounts
being contested in good faith by appropriate proceedings.
"LOAN": each loan made pursuant to this Agreement.
1
<PAGE>
Exhibit 10.9
Page 9 of 19
"NOTE": each promissory note executed and delivered by Debtor pursuant
hereto, satisfactory in form and substance to Lender.
"OBLIGATIONS": all indebtedness and liabilities of Debtor to Lender, now
existing or hereafter incurred under, arising out of, or in connection with,
this Agreement or any Note; and any and all other present and future
indebtedness, obligations and liabilities of any kind whatsoever of Debtor to
Lender, whether direct or indirect, joint or several, absolute or contingent,
liquidated or unliquidated, secured or unsecured, matured or unmatured and
whether originally contracted with Lender or otherwise acquired by Lender.
"PARENT COMPANY": any Person having beneficial ownership (directly or
indirectly) of 25% or more of Debtor's shares of voting stock.
"PERSON": an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
"PREPAYMENT PERCENTAGE": on the date of the required prepayment or
acceleration of any Note pursuant to the Agreement, the product obtained by
multiplying 5% by a fraction, the numerator of which is the number of
Installment Payment Dates remaining as of the date of prepayment (including the
Installment Payment Date, if an, on which prepayment is made) and the
denominator of which is twenty-four (24).
"PROCEEDS": the meaning assigned to it in the Code, and in any event,
including, without limitation, (i) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Debtor from time to time with respect
to any of the Equipment; (ii) any and all payments made, or due and payable from
time to time, in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Equipment by any Person; (iii)
any and all accounts arising out of, a sale or lease of, or chattel paper
evidencing a lease of, any of the Equipment; and (iv) any and all other rents or
profits or other amounts from time to time paid or payable in connection with
any of the Equipment.
"PROHIBITED TRANSACTION": a transaction described in paragraph 6(b)(i),
(ii) or (iii) of this Rider A.
"PROHIBITED TRANSACTION FEE": on the date of the required prepayment of the
Notes pursuant to the provisions of paragraph 6(b) of this Rider A, the product
obtained by multiplying 5% by a fraction, the numerator of which is the number
of Installment Payment Dates remaining as of the date of prepayment (including
the Installment Payment Date, if any, on which prepayment is made) and the
denominator of which is the total number of Installment Payment Dates.
"PRIME RATE": the rate publicly announced from time to time as the prime
rate of Chemical Bank ("CB"); the Prime Rate shall be determined by Lender at
the close of business on the 15th day of each calendar month (if the 15th day is
not a Business Day then on the first preceding Business Day), and shall become
effective as of the first day of the calendar month succeeding such
determination and shall continue in effect to, and including the last day of
said calendar month. The Prime Rate is not intended to be the lowest rate of
interest charged by CB in connection with extensions of credit to debtors.
"SUPPLEMENT": each supplement executed and delivered by Debtor pursuant
hereto, satisfactory in form and substance to Lender.
SEE ATTACHED SCHEDULE 1 TO THIS RIDER A FOR DEFINITIONS OF ACCOUNTS AND
INVENTORY.
2. LOAN AND COMMITMENT. The aggregate principal amount of all Loans shall not
exceed $4,600,000.00. Each Loan shall be in a principal amount of not less than
$250,000.00. Lender's Commitment shall terminate on March 31, 1993.
3. INTEREST RATE. The interest rate per annum on the unpaid principal amount
of each Loan shall be as follows (check one):
2
<PAGE>
Exhibit 10.9
Page 10 of 19
X Float-to-Fix: a rate per annum equal to 4.00% above the Treasury Rate. The
- -- "Treasury Rate" shall mean, with respect to each Loan made hereunder, the
rate per annum equal to the yield to maturity for the U.S. Treasury
Security having a remaining term to maturity closest to the average life of
the Loan as at (and shall be fixed as of) the close of business of the 3rd
Business Day prior to the making of such Loan hereunder as reported on page
5 ("U.S. Treasury and Money Markets") of the information ordinarily
provided by Telerate Systems Incorporated.
__ Floating: a rate per annum equal to _____% above the Prime Rate.
__ Fixed: a rate per annum equal to _____%.
4. ADDITIONAL REPRESENTATIONS AND WARRANTIES. As further inducement to Lender
to enter into this Agreement and to make each Loan, Debtor represents and
warrants to Lender that:
(a) All financial statements of Debtor and any Guarantor which have been
delivered to Lender have been prepared in accordance with generally accepted
accounting principles consistently applied, and present fairly Debtor's and any
Guarantor's respective financial position as at, and the results of its
operations for, the periods ended on the respective dates thereof, and there has
been no material adverse change in Debtor's or any Guarantor's financial
condition, business or operations since December 31, 1992.
(b) Debtor has not changed its name in the last five years or done business
under any other name except as follows:
East Texas Steel Facilities, Inc.
(c) (Applicable only if the voting stock of Debtor is privately held.) The
shares of voting stock of Debtor are presently held by the Persons listed below
in the percentages listed below:
LONE STAR TECHNOLOGIES, INC. - 80.5%
OTHER PARTIES - 19.5%
5. FINANCIAL COVENANTS. Debtor agrees that so long as any Note remains
outstanding and unpaid, Debtor shall not, directly or indirectly, permit: (a)
the ratio of its consolidated current assets to its consolidated current
liabilities to be less than 1.0 to 1.0 at the end of any fiscal quarter; (b) its
consolidated net worth (defined as consolidated assets minus consolidated
liabilities) at any time to be less than $100,000,000; (c) the ratio of its
total liabilities to its consolidated tangible net worth to exceed 1.50 to 1.00
at the end of any fiscal quarter; and (d) for the immediately preceding four (4)
consecutive fiscal quarters, the ratio of its net income excluding extraordinary
gains and non-recurring income, plus depreciation/amortization less dividends to
the current portion of its long term debt and capitalized lease obligations to
be less than 1.0 to 1.0 as at the end of any fiscal quarter.
6. PREPAYMENT. (a) Should any item of Equipment suffer an Event of Loss,
Debtor shall make a prepayment on the corresponding Note within 30 days
thereafter. The amount to be prepaid (the "PREPAID PRINCIPAL AMOUNT") shall be
the unpaid principal amount of such Note multiplied by a fraction the numerator
of which is the Cost of the item of Equipment which suffered the Event of Loss
and the denominator of which is the original principal amount of the Note less
the Cost of each item of Equipment which previously suffered an Event of loss or
for which a prepayment has otherwise previously been made. There shall be paid,
together with the Prepaid Principal Amount, (i) interest accrued thereon to the
date of prepayment, (ii) all other amounts then due and owing hereunder and
under the Notes. Provided no Default or Event of Default has occurred and is
continuing hereunder, instead of making a prepayment
3
<PAGE>
Exhibit 10.9
Page 11 of 19
hereunder, Debtor may use the proceeds of insurance to purchase substitute
equipment acceptable to Lender.
(b) A Prohibited Transaction may be consummated only with Lender's prior
written consent. Not less than twenty (20) Business Days prior to the date the
proposed Prohibited Transaction is expected to be consummated, Debtor shall give
Lender written notice of the proposed Prohibited Transaction. In the event
Lender does not consent to the Prohibited Transaction and the Prohibited
Transaction is nonetheless to be consummated, Debtor shall, on or prior to the
date the Prohibited Transaction is to be consummated, prepay the outstanding
principal under all Notes together with (1) all interest accrued thereon, (2)
any other amounts then due and owing hereunder or under the Notes, and (3) an
amount equal to the product of the Prohibited Transaction Fee and the
outstanding principal amount of the Notes. A "PROHIBITED TRANSACTION" shall be
one in which: (i) Debtor enters into any transaction of merger or consolidation
where it shall not be the surviving corporation; or (ii) Debtor sells, transfers
or otherwise disposes of all or any substantial part of its assets other than in
the ordinary course of business; or (iii) Debtor's Parent Company ceases to own
at lease 66.67% of Debtor's outstanding shares of voting stock.
(c) On any Installment Payment Date occurring on or after the 12th
Installment Payment Date with respect to the last Note executed hereunder,
Debtor may, at its option, on at lease 30 days' prior written notice to Lender,
prepay all, but not less than all, of the outstanding principal under all Notes
executed hereunder together with (i) all interest accrued thereon to the date of
prepayment, (ii) all other amounts then due and owing hereunder or under the
Notes, (iii) an amount equal to the product of the outstanding principal under
all Notes and the Prepayment Percentage for prepayments made on or after the
24th Installment Payment Date, and (iv) an amount equal to the product of the
outstanding principal under all notes and 6% for prepayments occurring on or
after the 12th Installment Payment Date and or on before the 23rd Installment
Payment Date defined as consolidated assets minus consolidated liabilities;
(d) Except as provided in (a)(b) or (c) of this paragraph 6, the Notes may
not be prepaid in whole or in part.
7. ADDRESSES FOR NOTICE PURPOSES AND DEBTOR'S CHIEF EXECUTIVE OFFICE.
Lender: Debtor:
THE CIT GROUP/EQUIPMENT FINANCING, INC. LONE STAR STEEL COMPANY
Address: Address:
1211 Avenue of the Americas,21st Floor 5501 LBJ Freeway, Suite 1200
New York, New York 10036 Dallas, Texas 75240
Telecopier No. (212) 536-1385 Telecopier No. (214) 770-6411
Attn: Vice President/Credit Attn: Executive VP - Finance
8. COMMITMENT FEE. Lender acknowledges receipt from Debtor of a non-
refundable commitment fee in the amount of $46,000.00 (the "COMMITMENT FEE").
THE PROVISIONS SET FORTH IN THIS RIDER A ARE INCORPORATED IN AND MADE A PART OF
THE LOAN AND SECURITY AGREEMENT BETWEEN LENDER AND DEBTOR DATED AS OF MARCH 22,
1993.
Lender: Debtor:
THE CIT GROUP/EQUIPMENT FINANCING, INC., LONE STAR STEEL COMPANY
a NEW YORK corporation
By: /s/ Joseph M. Pitch By: /s/ R. W. Arp
----------------------- ----------------------
Title: Vice President Title: Ex V/P
------------------- -------------------
4
<PAGE>
Exhibit 10.9
Page 12 of 19
SCHEDULE 1 TO RIDER A
to
LOAN AND SECURITY AGREEMENT
1. The following definitions are hereby inserted in appropriate alphabetical
order in Section 1 of Rider A:
"ACCOUNTS": Debtor's present and future accounts (as defined in the Code
as in effect in the State of Texas) and any other accounts receivable, and any
and all instruments, documents, contract rights, chattel paper and general
intangibles relating thereto, unpaid seller's rights, returned and repossessed
goods, all rights to the goods represented by the foregoing and all cash and
non-cash proceeds thereof.
"INVENTORY": Debtor's present and hereafter acquired inventory (as defined
in the Code as in effect in the State of Texas) and all additions, substitutions
and replacements thereof, wherever located, together with all goods (other than
equipment) and materials used or usable in manufacturing, processing, packaging
or shipping same; in all stages of production - from raw material through work-
in-process to finished goods - and all proceeds of whatever sort.
2. The following is hereby inserted as Section 5.A (11) of the Agreement:
(11) Debtor will furnish to Lender as soon as available, but in any event
not later than 90 days after the end of each quarterly period thereof, a
certificate signed by the Debtor's President, Vice President, Controller or
Treasurer certifying to the best of such persons knowledge that Debtor is in
compliance with all financial ratio covenants contained in any documents
evidencing a loan or similar financial obligation to which it is a party, or if
it is not in compliance, the nature of such noncompliance or default, and the
status thereof. The statement shall set forth the actual calculations of any
financial covenants.
3. The following is hereby inserted as additional Event of Default in Section
6 of the Agreement:
(h) Debtor or any Guarantor or any subsidiary of any of them shall default
in the payment of, or other performance under, any obligation for payment or
lease (whether or not capitalized) or any guarantee to Lender or any of Lender's
affiliates or subsidiaries beyond the period of grace, if any, provided with
respect thereto;
Lender: Debtor:
THE CIT GROUP/EQUIPMENT FINANCING, INC., LONE STAR STEEL COMPANY
a NEW YORK corporation
By: By: /s/ R. W. Arp
----------------------------- ----------------------
Title: Title: Ex V/P
-------------------------- -------------------
1
<PAGE>
Exhibit 10.9
Page 13 of 19
THE CIT GROUP
SUPPLEMENT
This supplement is executed and delivered by Lone Star Steel Company
("Debtor") pursuant to the terms of a Loan and Security Agreement ("Agreement")
dated as of March 22, 1993 between Debtor and THE CIT GROUP/EQUIPMENT FINANCING,
INC. ("CIT"). Terms defined in the Agreement shall have the respective meanings
given to them in the Agreement unless otherwise defined herein or unless the
context otherwise requires.
1. Debtor hereby affirms that as set forth in Section 2 of the Agreement,
CIT has a first (and only) Lien on and security interest in the items of
personal property ("Unit of Equipment") set forth below:
SEE ATTACHED SCHEDULE A
2. Debtor hereby represents and warrants that the above described items of
personal property have been delivered to it, duly assembled and in good working
order at Highway 259 South, Lone Star, Texas 75668.
3. Debtor hereby affirms that the representations and warranties set forth
in Section 4 of the Agreement are true and correct as of the date hereof.
3/31/93
4. Debtor hereby affirms that CIT has made a Loan to it secured by the above
described Unit of Equipment, which Loan is evidenced by a Note, in the principal
amount of $4,600,000.00 dated 3/31/93.
Debtor:
LONE STAR STEEL COMPANY
By: R.W. Arp
Title: Ex V/P
SCHEDULE A TO SUPPLEMENT
1). New Bronx 6 CR 11-BW Heavy Duty Pipe Straightening Machine.
2). Ultrasonic Full Body Inspection Facility
Modified DAPCO Ultrasonic inspection machine, 4.5" - 16" OD Pipe, 50'
max length. 90 to 250 pcs per 8 hr. turn.
3). Turbo-Generators
No. 1: 15,000 KW, 13,800 volts, 400 PSI Steam, GE Serial No. 6881166.
No. 2: 15,625 KW, 7,400 volts, 400 PSI Steam, GE Serial No. 8328440.
4). Scanning Electron Miscroscope
JEOL USA Inc. model JSM 840-I
Magnification; 10x - 30,000x, acceleration voltage 0.2Kv - 1Kv in 0.2kv
steps. 1kv - 40kv in 1kv steps. With x-ray analyzer, 16 million
samples/channel.
5). Electric Arc Furnace Transformers
EAF T5: 40 MVA, 138 KV Primary, 34.5 KV Secondary Outdoor, mineral oil
filled. FPE.
EAF T6: 40 MVA, 138 KV Primary, 34.5 KV Secondary Outdoor, mineral oil
filled. FPE.
#6 Furnace Transformer: 30 MVA, 34.5 KV Primary, 500 volt Secondary,
mineral oil filled, water cooled. Westinghouse.
1
<PAGE>
Exhibit 10.9
Page 14 of 19
#7 Furnace Transformer: 30 MVA, 34.5 KV Primary, 500 volt Secondary,
mineral oil filled, water cooled. Westinghouse.
6). Hot Metal Cranes (4)
Crane #73: Whiting 85' span. Main hoist 100 ton, Aux Hoist 25 ton.
Crane #151: P&H 85' span. Main hoist 100 ton, Aux Hoist 25 ton.
Cranes #15, 16: (2) Morgan No.'s 6754, 6755. Built 1951. 67 Ft. Span,
Main hoist 275 ton. Aux Hoist 50 ton. Aux trolley hoist 15 ton.
7). EAF Baghouse
Fuller GATX 232,000 CFM @ 250 deg F. Positive pressure, reverse air.
8). Mazak NC Pipe Threader
Mazak Powermaster Chucker w/Mazatrol t-32-2/CNC Control. Threads 7" - 16"
40/60 HP.
9). Taiyo Seiki NC Pipe Threaders (2)
No. KY6537N Fanuc CNC Controls, Threads 4 1//2" - 13 5/8". 60 Hp.
10). Pipe Induction Normalizing Lines (2)
No. 1 Mill: Ajax Magnethermic 180 tons/hr. 7" - 16" 150 FPM, 2000 deg. F.
48 Megawatts.
No. 2 Mill: Ajax Magnethermic 112 tons/hr. 7.25" 150 FPM, 2000 deg. F. 28
Megawatts.
11). Large Wheel Loaders
Caterpillar
WL034 980C 63X2042
WL059 988B 50W3451
WL177 988B 50W1565
WL178 988B 50W1623
WL183 988B 50W2704
WL184 988B 50W2873
WL187 988B 50W3024
WL190 988B 50W3282
WL202 988B 50W3268
WL209 988B 50W3322
WL215 988B 50W3326
WL235 988B 50W6714
WL236 988B 50W2126
WL237 988B 50W3959
WL290 988B 50W5360
Fiat-Allis
WL324 945B 15M01995
WL326 945B 15M01996
Terex
WL064 72-81 56720
12). Medium Wheel Loaders
Caterpillar
WM207 930 41K8495
WM214 966C 76J13765
WM304 950 49U03465
WM312 966C 76J28885
Terex
WM069 72-21B 70588
2
<PAGE>
Exhibit 10.9
Page 15 of 19
13). Large Forklifts
Clark
FL256 C500-Y300D Y2030-56-4355
Taylor Machine
FL188 TY-520M S-GO-14072
FL203 TY-520M S-GO-14780
14). Medium Forklifts
Caterpillar
FM984 V225 70Y00854
Clark FM289 C500-Y155D Y1015-243-4220
Taylor Machine
FM136 Y-15-WS S-11-12050
FM137 Y-15-WS S-11-12051
FM174 Y-15-WS S-11-11167
FM179 Y-15-WS S-11-12865
FM393 Y-12-WS S-10-11016
FM396 Y-30-WOM S-42-11695
FM583 Y-12-WS S-10-14101
15). Small Forklifts
Clark
FS071 C500-Y60D Y685-0024-6165FA
FS076 C500-Y60D Y685-0023-6165FA
FS088 C500-YS80D Y685-026-6165
FS089 DPS27 GP138-8-6205
FS090 C500-YS80D Y###-##-####FA
FS091 DPS27 GP138-9-6205FA
FS165 C500-Y60D Y685-670-4845
FS166 IT-80D IT581-0039-4915
FS186 C500-YS80D Y685-219-3961
FS252 C500-Y60D Y685-671-4845
FS263 C500-Y55D Y355-161-4322
FS264 C500-Y55D Y355-160-4322
FS271 C500-Y60D Y685-152-4426
FS278 C500-Y55D Y355-900-4324
FS279 C500-Y55D Y355-1701-4323
FS280 C500-Y55D Y355-1132-4324
FS291 C500-Y55D Y355-1131-4324
FS379 C500-Y60D Y685-328-4245
FS630 IT-80D IT581-102-4251
FS713 C500-Y60D Y685-147-3576
16). Large Hydraulic Cranes
Galion
HL197 150H Series A 7926
HL813 125A 3964
Grove
HL362 RT58 651060
HL420 RT58 4446
HL421 RT60S 34778 CRT 6057
HL445 RT58 39085
3
<PAGE>
Exhibit 10.9
Page 16 of 19
THE CIT GROUP
PROMISSORY NOTE
$4,600,000.00 New York, New York, MARCH 31, 1993
FOR VALUE RECEIVED, LONE STAR STEEL COMPANY ("Debtor") promises to pay to the
order of THE CIT GROUP/EQUIPMENT FINANCING, INC. ("CIT"), at such address as CIT
may designate, in lawful money of the United States, the principal sum of FOUR
MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($4,600,000.00) together with
interest in like money on the principal sum remaining unpaid from time to time
from the date of this Note until due and payable (whether as stated, by
acceleration or otherwise) at the rate of EIGHT AND 08/100 percent (8.08%) per
annum, said principal and interest to be paid in FORTY-EIGHT (48) consecutive
monthly installments, commencing on THE LAST DAY OF APRIL, 1993 with the
following installments on the same day of each month thereafter until payment in
full of this Note. Each such installment shall be a level payment of principal
and interest in the amount of $112,462.43. Each such installment shall be
applied first to the payment of any unpaid interest on the principal sum and
then to payment of principal. Interest shall be calculated on the basis of a
360-day year consisting of twelve 30-day months. Any amount not paid when due
under this Note shall bear late charges thereon, calculated at the Late Charge
Rate, from the due date thereof until such amount shall be paid in full. Any
payment received after the maturity of any installment of principal shall be
applied first to the payment of unpaid late charges, second to the payment of
any unpaid interest on said principal, and third to the payment of principal.
This Note is one of the Notes referred to in the Loan and Security Agreement
dated as of MARCH 22, 1993 between Debtor and CIT (herein, as the same may from
time to time be amended, supplemented or otherwise modified, called the
"Agreement"), is secured as provided in the Agreement, and is subject to
prepayment only as provided therein, and the holder hereof is entitled to the
benefits thereof.
Terms defined in the Agreement shall have the same meaning when used in this
Note, unless the context shall otherwise require.
Debtor hereby waives presentment, demand of payment, notice of dishonor,
notice of intention to accelerate, notice of acceleration and any and all other
notices or demands in connection with the delivery, acceptance, performance,
default or enforcement of this Note and hereby consents to any extensions of
time, renewals, releases of any party to this Note, waivers or modifications
that may be granted or consented to by the holder of this Note.
Upon the occurrence of any one or more of the Events of Default specified in
the Agreement, the amounts then remaining unpaid on this Note, together with any
interest accrued, may be declared to be (or, with respect to certain Events of
Default, automatically shall become) immediately due and payable as provided
therein.
In the event that any holder shall institute any action for the enforcement
or the collection of this Note, there shall be immediately due and payable, in
addition to the unpaid balance hereof, all late charges and all costs and
expenses of such action, including attorneys' fees. Debtor and CIT in any
litigation relating to or in connection with this Note in which they shall be
adverse parties waive trial by jury.
Debtor agrees that its liabilities hereunder are absolute and unconditional
without regard to the liability of any other party, and that no delay on the
part of the holder hereof in exercising any power or right hereunder shall
operate as a waiver thereof; nor shall any single
1
<PAGE>
Exhibit 10.9
Page 17 of 19
or partial exercise of any power or right hereunder preclude other or further
exercise thereof or the exercise of any other power or right.
If at any time this transaction would be usurious under applicable law, then
regardless of any provision contained in the Agreement, in this Note or in any
other agreement made in connection with this transaction, it is agreed that (a)
the total of all consideration which constitutes interest under applicable law
that is contracted for, charged or received upon the Agreement, this Note or any
such other agreement shall under no circumstances exceed the maximum rate of
interest authorized by applicable law and any excess shall be credited to Debtor
and (b) if CIT elects to accelerate the maturity of, or if CIT permits Debtor to
prepay the indebtedness described in, this Note, any amounts which because of
such action would constitute interest may never include more than the maximum
rate of interest authorized by applicable law and any excess interest, if any,
shall be credited to Debtor automatically as of the date of acceleration or
prepayment.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
LONE STAR STEEL COMPANY
-----------------------
By: /s/ R. W. Arp
--------------
Title: Ex V/P
---------
(CORPORATE SEAL)
2
<PAGE>
Exhibit 10.9
Page 18 of 19
The CIT Group/
Business Credit
2110 Walnut Hill Lane, Suite 220
Irving, Texas 75038
214 580-2760
March 30, 1993
Lone Star Steel Company
5501 LBJ Freeway
Suite 1200
Dallas, Texas 75380-3546
Gentlemen:
Reference is made to the Financing Agreement between us dated March 2, 1993,
as amended (the "Financing Agreement"). Capitalized terms used herein and
defined in the Financing Agreement shall have the same meanings as set forth
therein unless otherwise specifically defined herein.
You have advised us that you wish to (i) enter into a certain $4,600,000 term
loan agreement with The CIT Group/Equipment Financing, Inc. ("CITEF") and borrow
up to $4,600,000 thereunder, (ii) have such loan (the "Equipment Loan") and all
associated obligations to CITEF guarantied by your subsidiary, Texas & Northern
Railway Company ("TNRC"), (iii) secure the Equipment Loan by granting liens to
CITEF on that portion of your "Equipment" (as defined in the Financing Agreement
and herein so called) which is more fully described as the CIT/EF Equipment in
the Intercreditor Agreement by and among the Company, CITBC and CITEF attached
hereto as Exhibit A (herein the "Intercreditor Agreement") and have TNRC secure
its guaranty (the "TNRC Guaranty") by granting liens to CITEF on some or all of
its Equipment (collectively, the "Equipment Liens"), and (iv) additionally
secure the Equipment Loan by granting junior and subordinate liens to CITEF on
your "Accounts" and "Inventory" as defined in the Intercreditor Agreement (the
"Second Liens").
This letter is to confirm our consent to (a) your entering into such term
loan agreement, your borrowing of the Equipment Loan, and your granting of the
Equipment Liens and the Second Liens, and (b) TNRC's giving of the TNRC Guaranty
and its granting of the Equipment Liens. This letter further confirms our
agreement that (x) the Equipment Loan shall hereafter constitute "Permitted
Indebtedness" under the Financing Agreement, (y) the Equipment Liens and the
Second Liens shall hereafter constitute "Permitted Encumbrances" under the
Financing Agreement, and (z) none of the foregoing transactions with CITEF shall
constitute a Default or Event of Default under the Financing Agreement. The
consents and agreements which we are making in this paragraph shall not be
effective, however, until you and CITEF execute and deliver to us the
Intercreditor Agreement.
We further confirm to, and agree with, you that the payment of dividends by
your subsidiaries to you, as allowed in clause (a) of paragraph 10(g) of Section
7 of the Financing Agreement is not otherwise prohibited by paragraph 19 of
Section 7 of the Financing Agreement.
1
<PAGE>
Exhibit 10.9
Page 19 of 19
Except as set forth above, no other change in or waiver of the terms,
provisions or conditions of the Financing Agreement is intended or implied.
This letter shall not constitute a waiver by us of any other existing Default or
Event of Default (whether or not we have knowledge thereof), and shall not
constitute a waiver of any other future Default or Event of Default.
If the foregoing is in accordance with your understanding of our agreement
kindly so indicate by signing and returning the enclosed copy of this letter.
THE CIT GROUP/BUSINESS CREDIT, INC.
By:_____________________________________
Title:
Read and Agreed to:
LONE STAR STEEL COMPANY
By:___________________________________
Title:
2
<PAGE>
Exhibit 10.10
Page 1 of 3
The CIT Group/
Business Credit
2110 Walnut Hill Lane, Suite 220
Irving, Texas 75038
214 580-2760
AMENDMENT AGREEMENT
as of December 22, 1994
Lone Star Steel Company
5501 LBJ Freeway, Suite 1200
Dallas, Texas 75380-3546
Gentlemen:
Reference is made to the Financing Agreement between us dated March 2, 1993, as
amended (the "Financing Agreement"). Capitalized terms used herein and defined
in the Financing Agreement shall have the same meanings as set forth in said
Financing Agreement unless otherwise specifically defined herein.
Effective immediately or earlier as stated in Paragraph 6(ii) below, pursuant to
mutual understanding, the Financing Agreement shall be, and hereby is, amended
as follows:
1. The definition of "Line of Credit" as contained in Section 1 of
the Financing Agreement shall be, and hereby is, amended by
increasing the dollar amount as contained therein from
"$55,000,000" to "$65,000,000".
2. The definition of "Net Worth" as contained in Section 1 of the
Financing Agreement shall be, and hereby is, amended by the
addition thereto of the following:
"Notwithstanding any provision to the contrary contained herein,
solely with respect to the period commencing on 1-1-95 through and
including 12-31-95 Net Worth shall be determined by excluding the
effect of any preferred stock issued during such period to
evidence a cash contribution to capital."
3. Paragraph 9 of Section 7 of the Financing Agreement shall be, and
hereby is, amended by deleting the entries under the headings
"Fiscal Period" and "Net Worth" for the period from 1-1-95 through
and including 12-31-95 and inserting the following in lieu
thereof:
"From 1-1-95 through and including 3-31-95 $98,000,000.00
From 4-1-95 through and including 6-30-95 $98,000,000.00
From 7-1-95 through and including 9-30-95 $100,000,000.00
From 10-1-95 through and including 12-31-95 $104,000,000.00"
<PAGE>
Exhibit 10.10
Page 2 of 3
4. Paragraph 11 of Section 7 of the Financing Agreement shall be, and
hereby is, amended by deleting therefrom the entries under the
headings "Period" and "Amount" for the period 1-1-95 through and
including 12-31-95 and during each calendar year thereafter" and
inserting the following in lieu thereof:
"1-1-95 through and including 12-31-95 $20,000,000.00"
5. Paragraph 13 of Section 7 of the Financing Agreement shall be, and
hereby is, amended by deleting therefrom the entries under the
headings "Fiscal Quarter Ending" and "Ratio" for the Fiscal
Quarters ending 12-31-94, 3-31-95, 6-30-95,
9-30-95, and 12-31-95.
6. Paragraph 15 of Section 7 of the Financing Agreement shall be, and
hereby is, amended by:
(i) amending the entry under the heading "Period Ending" for 12-
31-94 to read as follows:
"12-31-94 ($3,400,000) loss"
(ii) the addition thereto at the end thereof of the following four
(4) entries under the heading "Period Ending" and "EBIT":
"3-31-95 ($500,000) loss
6-30-95 $1,300,000
9-30-95 $4,500,000
12-31-95 $9,500,000"; and
(iii) As of January 1, 1994, deleting the parenthetical clause as
it appears therein in its entirety and inserting the following in
lieu thereof:
"(calculated for each such period on a cumulative basis from the
beginning of the year during which such period ends through the
date such period ends)".
In consideration of our execution of the foregoing amendment you agree to pay to
us an additional Loan Facility Fee in the amount of $105,000.00. Such fee is
due and payable on the date hereof and may, at our option, be charged to your
Revolving Loan Account on the date hereof.
Except as set forth hereinabove, no other change in, or waiver of the terms,
provisions and conditions of the Financing Agreement is intended or implied. If
the foregoing is in accordance with your understanding of our agreement kindly
so indicate by signing and returning the enclosed copy of this letter. We have
asked each of the guarantors to sign below to confirm their respective
agreements that the guaranties and security agreements executed by each in our
favor shall continue in full force and effect notwithstanding the foregoing
amendments.
<PAGE>
Exhibit 10.10
Page 3 of 3
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC.
By: /s/ Kimberly S. Cochran
----------------------------
Title: AVP
Read and Agreed to:
LONE STAR STEEL COMPANY
By: /s/ R.W. Arp
----------------------
Title: Ex V/P
LONE STAR LOGISTICS, INC.
T & N LONE STAR WAREHOUSE CO.
TEXAS & NORTHERN RAILWAY COMPANY
FORT COLLINS PIPE COMPANY
TEXAS SPECIALTY FLAT-ROLLED, INC.
LONE STAR STEEL INTERNATIONAL, INC.
By: /s/ R.W. Arp
----------------------
Title: Director
of each of the above companies
<PAGE>
AGREEMENT Exhibit 10.11
Page 1 of 13
This Agreement is entered into this 2nd day of November, 1994, among Lone
Star Steel Company ("LSS"), Lone Star Technologies, Inc. ("LST"), Merced
Partners Limited Partnership ("Merced") and TCW Special Credits Fund, TCW
Special Credits Fund II, TCW Special Credits Fund IIb, Weyerhaeuser Company
Master Pension Trust, and Inland Steel Industries Pension Trust (the "TCW
Holders").
WHEREAS, LST and the TCW Holders have indicated their interest in
participating in financing the acquisition and as necessary the installation of
certain equipment and production facilities for LSS (the "First Capital
Project") by acquiring convertible preferred stock of LSS, and subsequently
Merced has indicated its interest and will acquire from LST some of the
convertible preferred stock that LST acquires; and
WHEREAS, the parties hereto now desire to enter into the further agreements
herein with respect to those matters.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree for themselves and their successors
and assigns as follows:
1. LST and the TCW Holders agree that the preferred stock that is to be
issued to them each time LST or any of the TCW Holders makes an advance of funds
to LSS for the First Capital Project will in all material respects be issued as
provided in and have the same terms or substantially the same terms as set forth
in the attached schedule of preferred stock terms. The advances for which such
preferred stock may be issued will not exceed in aggregate $23,000,000. The
issuance of such preferred stock is subject to the receipt of the requisite
approval necessary therefor under the Stockholders and Registration Rights
Agreement dated May 16, 1991 (the "1991 Stockholders Agreement") among the
parties hereto and the other shareholders of LSS, and LSS, LST, Merced, and the
TCW Holders agree to cooperate with one another in seeking such approval and in
taking any other corporate action by LSS, not yet completed, necessary to
authorize such preferred stock and to enable the issuance of shares of such
stock as soon as possible.
2. Each time preferred stock is issued to LST as provided above, LST will
sell to Merced and Merced will purchase from LST, shares of such preferred
stock equal to 1.087% of the total shares that are issued at such time to LST
and the TCW Holders, and Merced will pay LST, upon transfer of those shares to
Merced, an amount equal to 1.087% of the total advance that was made to the
First Capital Project at that time for which such total number of shares were
issued to LST and the TCW Holders. Each sale of preferred stock to Merced shall
occur immediately after the shares to be sold are issued to LST, and LST each
time will transfer to Merced good, valid, and legal title to the shares being
sold, free and clear of liens, claims, and encumbrances.
3. LSS, LST, Merced, and the TCW Holders agree to cooperate with one
another and exercise their best efforts to cause the amendment of the 1991
Stockholders Agreement so that such agreement will provide that Merced and the
TCW Holders will be entitled to the benefit of the provisions of Appendix I of
the 1991 Stockholders Agreement as regards the registration of shares of common
stock of LSS that are issued to them upon their exercise of the warrants that
were issued to any of them prior hereto or upon their conversion of any
preferred stock mentioned above that may be issued (or in the case of Merced,
sold) to them (such common stock collectively, the "New Shares"), just the same
as if such shares of common stock had been expressly included in that agreement
along with and as part of the other shares of common stock originally accorded
registration rights under the 1991 Stockholders Agreement. If, notwithstanding
their best efforts to do so, LSS, LST, Merced, and the TCW Holders are unable to
cause the amendment of the 1991 Stockholders Agreement as set forth above, LSS,
LST, Merced, and the TCW Holders shall enter into a new agreement with respect
to the New Shares
- 1 -
<PAGE>
Exhibit 10.11
Page 2 of 13
containing provisions substantially the same as those contained in Appendix 1 of
the 1991 Stockholders Agreement (the "New Agreement"), except that the New
Agreement shall provide that any demand registration thereunder shall be
effected simultaneously with a demand registration initiated under the 1991
Stockholders Agreement. Notwithstanding the foregoing, if any demand
registration under the New Agreement which is sought to be effected
simultaneously with a demand registration under the 1991 Stockholders Agreement
that involves an underwritten public offering is not able to be effected because
of an objection of the managing underwriter of such public offering,
notwithstanding the good faith efforts of Merced and the TCW Holders (which the
New Agreement will provide they will exercise) to have the demand registration
under the New Agreement effected simultaneously with the demand registration in
connection with such public offering, then the New Agreement shall provide that
another demand registration of New Shares pursuant to rights in the New
Agreement as respects the New Shares substantially the same as those contained
in Section 5.1 of the 1991 Stockholders Agreement shall be available in order to
replace that demand registration that was denied.
4. LST, Merced, and the TCW Holders understand that it is not expected
that the preferred stock of LSS that would be issued (or in the case of Merced,
sold) to them pursuant hereto, the above described warrants that were issued
before, or the common stock that could be acquired upon conversion of the
preferred stock or the exercise of those warrants will upon issuance or at any
foreseeable time be registered under the Securities Act of 1933, as amended (the
"1933 Act"), and LST, Merced, and each of the TCW Holders each represents and
warrants to each other party to this Agreement that the preferred stock, those
warrants and any such common stock that is acquired by it will be acquired for
investment purposes and not with a view to the sale or distribution of any
thereof, except in compliance with federal and state securities laws.
5. LST and each of the TCW Holders agree among themselves that in the
event either LST or any of the TCW Holders should advance funds towards the
First Capital Project, for which the preferred stock is to be issued as provided
above, LST and the TCW Holders shall immediately make such adjusting payments
between one another as are necessary, so that immediately after any such
advances and any adjusting payments are made, LST will have advanced (including
taking into account any adjusting payments) 90.84% of the funds advanced by LST
and the TCW Holders in total to LSS for the First Capital Project and the TCW
Holders will have advanced (including taking into account any adjusting
payments) 9.16% of those funds. The preferred stock that is to be issued to LST
and the TCW Holders pursuant hereto when any advance is made to LSS for the
First Capital Project will always be issued in the ratio such that 90.84% of the
total shares to be issued at any such time will be issued to LST and 9.16% of
the total shares to be issued at any such time will be issued to the TCW
Holders.
6. The references in this Agreement to shares of preferred stock will be
deemed to refer to both whole shares and to fractional shares as applicable.
7. This Agreement constitutes the entire agreement and understanding of
the parties hereto in respect of the subject matter contained herein, and there
are no restrictions, promises, representations, warranties, covenants, or
undertakings with respect to the subject matter hereof, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties hereto with respect to the
subject matter hereof.
8. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware applicable to agreements made to be performed
entirely in such State, except for paragraph 2, which shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made to be performed entirely in such State.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
- 2 -
<PAGE>
Exhibit 10.11
Page 3 of 13
LONE STAR STEEL COMPANY
By: /s/ Rhys J. Best
----------------------------
Its: President
----------------------------
LONE STAR TECHNOLOGIES, INC.
By: /s/ John P. Harbin
-----------------------------
Chairman and Chief Executive Officer
TCW SPECIAL CREDITS FUND
By: TCW Special Credits, its GP
By: TCW Asset Management Co., it MD
By: /s/ Richard Masson
-------------------------------
Its: Managing Director
By: /s/ Kenneth Liang
-------------------------------
Its: Vice President
TCW SPECIAL CREDITS FUND II
By: TCW Special Credits, its GP
By: TCW Asset Management Co., it MD
By: /s/ Richard Masson
-------------------------------
Its: Managing Director
By: /s/ Kenneth Liang
-------------------------------
Its: Vice President
TCW SPECIAL CREDITS FUND IIb
By: TCW Special Credits, its GP
By: TCW Asset Management Co., it MD
By: /s/ Richard Masson
-------------------------------
Its: Managing Director
By: /s/ Kenneth Liang
-------------------------------
Its: Vice President
WEYERHAEUSER COMPANY MASTER PENSION TRUST
By: TCW Special Credits, its IA
By: TCW Asset Management Co., it MGP
By: /s/ Richard Masson
-------------------------------
Its: Managing Director
By: /s/ Kenneth Liang
-------------------------------
Its: Vice President
INLAND STEEL INDUSTRIES PENSION TRUST
By: TCW Special Credits, its IA
By: TCW Asset Management Co., it MGP
By: /s/ Richard Masson
-------------------------------
Its: Managing Director
By: /s/ Kenneth Liang
--------------------------------
Its: Vice President
MERCED PARTNERS LIMITED PARTNERSHIP
By: EBF & Associates, L.P., GP
By: Global Capital Management Inc., GP
By: /s/ Michael Frey
--------------------------------
- 3 -
<PAGE>
Exhibit 10.11
Page 4 of 13
SCHEDULE OF PREFERRED STOCK TERMS
CERTIFICATE OF THE POWERS, DESIGNATIONS, PREFERENCES, AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE
CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THERETO, OF THE
PREFERRED STOCK, SERIES A
(PAR VALUE $1.00 PER SHARE)
LONE STAR STEEL COMPANY
-----------------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
-----------------------------
The Undersigned DOES HEREBY CERTIFY that the following resolution was duly
adopted on October 7, 1994, by the Board of Directors of Lone Star Steel Company
(the "Board of Directors"), a Delaware corporation (hereinafter called the
"Corporation"), to become effective upon the next business day following the
date the amendment to its Certificate of Incorporation as set forth in the
attached form of Certificate of Amendment (attachment 1 hereto) becomes
effective, pursuant to authority conferred upon the Board of Directors by the
provisions of the Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), of the Corporation:
RESOLVED, that pursuant to the authority vested in the Board of Directors
by Article Fourth of the Certificate of Incorporation a series of preferred
stock of the Corporation be, and hereby is, created out of the authorized but
unissued shares of the preferred stock of the Corporation, such series to be
designated Preferred Stock, Series A (the "preferred stock"), to consist of
three hundred seventy-five (375) shares, par value $1.00 per share, of which the
preferences and relative and other rights, and the qualifications, limitations
or restrictions thereof, shall be (in addition to those set forth in the
Certificate of Incorporation) as follows:
1. AMOUNT OF ISSUANCE. To the extent the common stockholders of the
Corporation identified below, who have expressed their willingness to assist in
the financing of the acquisition and as necessary the installation of certain
equipment and production facilities for the Corporation (the "First Capital
Project"), advance funds towards that project, those common stockholders, to
wit: Lone Star Technologies, Inc. ("LST"), and TCW Special Credits Fund, TCW
Special Credits Fund II, TCW Special Credits Fund IIb, Weyerhaeuser Company
Master Pension Trust, and Inland Steel Industries Pension Trust (the "TCW
Holders"), will receive, each time that funds are advanced to the Corporation
for the First Capital Project, and the Corporation will issue, each such time,
in total to LST and the TCW Holders on the date each advance is made, that
number of shares (and/or fractions of shares) of preferred stock as equal the
number derived, when the total advance is divided by One Hundred Thousand and
No/100 Dollars ($100,000.00), such that, for each One Hundred Thousand and
No/100 Dollars ($100,000.00) advanced, one (1) whole share will be issued. Of
the total shares of the preferred stock to be issued each time shares are to be
issued as provided above, 90.84% of the total shares to be issued will be issued
to LST and 9.16% of the total shares to be issued will be issued to the TCW
Holders. The total shares issuable to the TCW Holders, each time shares are to
be issued to them, shall be issued individually among them as the TCW Holders
shall direct. The "Dollar Value" of the shares of preferred stock shall be One
Hundred Thousand and No/100 Dollars ($100,000.00) per share, and as
proportionately adjusted downward shall be the "Dollar Value" of fractional
shares. Each share of preferred stock shall have a par value of One and No/100
- 1 -
<PAGE>
Exhibit 10.11
Page 5 of 13
Dollar ($1.00) per whole share, and the entire series of preferred stock shall
consist of three hundred seventy-five (375) authorized shares. Fractional
shares may be issued. The foregoing provisions of this paragraph will inure to
the benefit of the respective successors to LST and each of the TCW Holders so
that such successors upon advances of funds being made for the First Capital
Project will be entitled to receive the preferred stock which the party they
succeeded otherwise would have been entitled to receive under the foregoing
provisions. Unless the context indicates otherwise, herein the references to
"preferred stock" refer to this Preferred Stock, Series A, and not to any other
preferred stock.
2. ISSUANCE DATE. The preferred stock will be issued in the number of
shares (or fractions of shares) to LST and the TCW Holders as provided above, as
and when each advance is made by any of them to fund the First Capital Project.
While the shares of the preferred stock will be issued by the Corporation when
the advances are made, certificates for the shares of such preferred stock will
be delivered to the shareholders entitled thereto for the preceding calendar
quarter based upon the advances to fund the First Capital Project made during
that quarter each January 1, April 1, July 1, and October 1 after September 30,
1994. In addition, shares of the preferred stock may be issued in payment of
dividends as provided under paragraph 3 below, and the shares of preferred stock
to be issued as dividends will be issued, in each case, when the dividend that
the stock is to pay, is, pursuant to action of the Board of Directors, to be
paid, and the share certificates for such stock will be furnished at the same
time by the Corporation to the holders entitled thereto.
3. DIVIDENDS.
(a) The holders of preferred stock will be entitled to
a cumulative dividend at the rate of six percent
(6%) per annum on the Dollar Value of the shares
of preferred stock issued and outstanding accruing
from the date of issuance. No dividends of any
kind or other distributions are permitted to be
paid or made on Corporation's common stock at any
time while any preferred stock is outstanding.
(b) As to any share of preferred stock, commencing on
the January 1, April 1, July 1, or October 1 first
to occur after such stock is issued, and for each
succeeding quarterly period ending immediately
prior to each succeeding January 1, April 1, July
1, and October 1, the holder of such stock shall
be entitled to receive, when and as declared as
herein-after provided, out of funds legally
available for that purpose, cash dividends of one
and one-half percent (1.5%) of the Dollar Value of
each share or fractional share held (prorated for
the first such dividend period at the rate of one
and one-half percent (1.5%) per quarter accruing
from the actual issue date to the end of that
dividend period), and no more. All dividends
shall be payable in arrears, when and as declared
by the Board of Directors. Each such dividend
shall be paid to the holders of record of the
preferred stock as their names appear on the share
register of the Corporation on the date set as the
record date for such dividend. Dividends on
account of arrears for any past dividend periods
may be declared and paid at any time without
reference to any dividend payment date, to holders
of record on a date, not exceeding thirty (30)
calendar days preceding the payment date thereof,
as may be fixed by the Board of Directors.
(c) To the extent, on any dividend payment date, the
holders of the preferred stock shall not have
received the full dividends for all periods ended
up to that date provided for in the other
provisions of
- 2 -
<PAGE>
Exhibit 10.11
Page 6 of 13
this paragraph 3, then such dividends shall
cumulate, whether or not declared and irrespective
of whether such dividends could have been paid for
such periods under applicable law. It is
understood that no dividends may be paid in
respect of the preferred stock prior to January 1,
1995 (although dividends will accrue on the
preferred stock outstanding prior to that date).
(d) If at any time the Corporation pays less than the
total amount of dividends then accrued and payable
with respect to the preferred stock, such payment
shall be distributed ratably among the holders of
the preferred stock. Any payment made by the
Corporation on the unpaid cumulative dividends, if
less than the total amount of such dividends,
shall be applied first to those dividends that
have been accrued for the longest time.
(e) The Corporation may at any time to the extent it
so elects, declare that dividends on the preferred
stock which have accrued will be payable in shares
of preferred stock of a Dollar Value equal to the
dividends to be paid with such stock. Any holder
of preferred stock on which a cash dividend has
been declared and before it is paid may elect to
similarly have the Corporation pay any such
dividend to the holder, to the extent the holder
elects, in preferred stock of the Dollar Value
equal to the dividend the holder has elected to be
so paid.
4. REDEMPTION.
(a) The Corporation may, provided the Board of
Directors has adopted a resolution approving such
action, redeem the preferred stock, in whole or in
part, in cash, at any time by paying the holder or
holders of the shares to be redeemed (i) the
Dollar Value of such stock and (ii) all accrued
and unpaid dividends through the date of
redemption on the shares to be redeemed (including
a pro rated dividend based on the number of days
elapsed from the last day of the most recent
completed quarterly dividend period through the
redemption date). Each holder of stock redeemed
shall be entitled to payment of that part of the
total amount described above for all the redeemed
stock as is attributable to his redeemed stock.
If the Board of Directors has authorized a
redemption which, when authorized, was of less
than all of the outstanding shares of the
preferred stock, and because of subsequent
conversions of the preferred stock since then,
amounts to more than the actual outstanding shares
on the Redemption Date or, if applicable, the
Final Redemption Date, the Board of Directors'
authorization shall be deemed amended to the
number of such outstanding shares on the
Redemption Date or, if applicable, the Final
Redemption Date which shall be the number
authorized for redemption. Any redemption of the
preferred stock outstanding shall be accomplished
by redeeming from each holder of record all or a
fraction of each holder's shares, the numerator of
which is the total number of shares to be redeemed
as authorized by the Board of Directors or as
deemed amended as provided above, and the
denominator of which is the total number of shares
of preferred stock outstanding on the Redemption
Date or, if applicable, the Final Redemption Date.
- 3 -
<PAGE>
Exhibit 10.11
Page 7 of 13
(b) On January 3, 2002, the Corporation shall be
obligated to redeem the preferred stock
outstanding as a mandatory redemption in whole for
cash. The redemption price shall be equal to the
Dollar Value of the shares redeemed together with
any accrued but unpaid dividends on such shares to
and including the date of redemption, as specified
in clauses (i) and (ii) of paragraph 4(a). If
less than all of the outstanding shares of the
preferred stock can be redeemed under applicable
law, such shares shall be redeemed pro rata or by
lot as determined by the Board of Directors in its
sole discretion to the maximum extent permitted by
applicable law, and the remaining shares shall be
redeemed as and when they can be redeemed under
law.
(c) Notice of every proposed redemption of the
preferred stock shall be sent by or on behalf of
the Corporation, by first class mail, postage
prepaid, to the holders of record of the shares to
be redeemed at their respective addresses as they
shall appear on the records of the Corporation,
not less than thirty (30) days nor more than sixty
(60) days prior to the date fixed for redemption
(the "Redemption Date") (i) notifying such holders
of the election of the Corporation to redeem such
shares and of the Redemption Date and (ii) stating
the place or places at which the shares called for
redemption shall, upon presentation and surrender
of the certificates evidencing such shares, be
redeemed, and the redemption price therefor, and
(iii) stating the name and address of any
redemption agent selected by the Corporation if
other than the Corporation, and the name and
address of the Corporation's transfer agent for
the preferred stock. The Corporation may act as
the transfer agent for the preferred stock.
(d) The Corporation may act as the redemption agent to
redeem the preferred stock or appoint as its agent
for such purpose a bank or trust company in good
standing, organized under the laws of the United
States of America or any jurisdiction thereof, and
having capital, surplus and undivided profits
aggregating at least Twenty Million and No/100
Dollars ($20,000,000.00), and may appoint any one
or more additional such agents which shall in each
case be a bank or trust company in good standing
organized under the laws of the United States of
America or of any jurisdiction thereof, having an
office or offices in the City of Dallas, Texas, or
such other place as shall have been designated by
the Corporation, and having capital, surplus, and
undivided profits aggregating at least Twenty
Million and No/100 Dollars ($20,000,000.00). The
Corporation or such bank or trust company is
hereinafter referred to as the "Redemption Agent."
Following such appointment and prior to any
redemption, the Corporation shall deliver to the
Redemption Agent irrevocable written instructions
authorizing the Redemption Agent, on behalf and at
the expense of the Corporation, to cause such
notice of redemption to be duly mailed as herein
provided as soon as practicable after receipt of
such irrevocable instructions and in accordance
with the above provisions. All funds necessary
for the redemption shall be deposited with the
Redemption Agent in trust at least one (1)
business day prior to the Redemption Date, for the
pro rata benefit of the holders of the shares so
called for redemption, so as to be and continue to
be available therefor. Neither failure to mail
any such notice to one (1) or more such holders
nor any defect in any notice shall affect the
- 4 -
<PAGE>
Exhibit 10.11
Page 8 of 13
sufficiency of the proceedings for redemption as
to other holders.
(e) If notice of redemption shall have been given as
hereinbefore provided, and the Corporation shall
not default in the payment of the redemption
price, then each holder of shares called for
redemption shall be entitled to all preferences
and relative and other rights accorded by this
resolution until and including the day immediately
prior to the Redemption Date. If the Corporation
shall default in making payment or delivery as
aforesaid on the Redemption Date, then each holder
of the shares called for redemption shall be
entitled to all preferences and relative and other
rights accorded by this resolution until and
including the day immediately prior to the date
(the "Final Redemption Date") when the Corporation
makes payment as aforesaid to the holders of the
preferred stock. From and after the Redemption
Date or, if the Corporation shall default in
making payment or delivery as aforesaid, the Final
Redemption Date, the shares called for redemption
shall no longer be deemed to be outstanding, and
all rights of the holders of such shares shall
cease and terminate, except the right of the
holders of such shares, upon surrender of
certificates therefor, to receive amounts to be
paid hereunder. The deposit of monies in trust
with the Redemption Agent shall be irrevocable
except that the Corporation shall be entitled to
receive from the Redemption Agent the interest or
other earnings, if any, earned on any monies so
deposited in trust, and the holders of any shares
redeemed shall have no claim to such interest or
other earnings, and any balance of monies so
deposited by the Corporation and unclaimed by the
holders of the preferred stock entitled thereto at
the expiration of two (2) years from the
Redemption Date (or the Final Redemption Date, as
applicable) shall be repaid, together with any
interest or other earnings thereon, to the
Corporation, and after any such repayment, the
holders of the shares entitled to the funds so
repaid to the Corporation shall look only to the
Corporation for such payment, without interest.
5. VOTING RIGHTS. The preferred stock issued and outstanding will
possess voting rights only to the extent required by law and as provided herein.
If and to the extent the preferred stock may be entitled to vote on any matter,
each whole share of the preferred stock voting shall be counted as one (1) vote
and the fractional shares voting will be counted as fractional votes, in each
case the fractional vote will be the same as the fraction of a share that is
voting, except that in any case when the preferred stock is voting on any matter
with the common stock, each share or fractional share of the preferred stock
voting will be counted as having the same vote as the shares of common stock
into which that preferred stock could be converted at the time of voting.
6. LIQUIDATION PREFERENCE AND MERGER.
(a) In the event of the voluntary or involuntary
liquidation, dissolution, or other winding up of
the affairs of the Corporation, prior to any
payment or distribution to the holders of the
Corporation's common stock or with respect to any
other stock which is not to receive assets of the
Corporation before receipt by the holders of the
preferred stock of the full amount they are to
receive as provided in this subparagraph the
holders of the preferred stock shall be entitled
to receive for the preferred stock an amount equal
to (with each holder entitled to that
- 5 -
<PAGE>
Exhibit 10.11
Page 9 of 13
part of such amount as is attributable to his
shares) (i) the Dollar Value of the preferred
stock outstanding and (ii) all accrued and unpaid
dividends through the date of liquidation,
dissolution or other winding up of the affairs of
the Corporation (including a pro rated dividend
based on the number of days elapsed from the last
day of the most recent completed quarterly
dividend period through the date of liquidation,
dissolution or winding up of the affairs of the
Corporation).
(b) The amount payable pursuant to paragraph 6(a)
shall be paid in cash to the extent available to
the Corporation and to the extent not so in
property taken at its fair value as determined by
the Board of Directors. If such payment shall
have been made in full to the holders of the
preferred stock, the remaining assets and funds of
the Corporation shall be distributed among the
holders of common or other stock remaining
outstanding of the Corporation according to their
respective shares and priorities.
(c) In the event of the liquidation, dissolution, or
winding up of the affairs of the Corporation as
described in paragraph 6(a), the holders of the
preferred stock will share in the assets, funds,
and property of the Corporation on a parity with
or junior to, as the case may be, any other stock
of the Corporation which is to share on a parity
with or prior to the preferred stock under such
circumstances in accordance with the provisions of
the Certificate of Incorporation or Certificate of
Designation related to that other stock.
(d) The Corporation will not, without first obtaining
the affirmative vote or written consent of the
holders of not less than 92% of the shares of
preferred stock outstanding at the time,
consolidate or merge with another corporation or
corporations (other than any mergers or
consolidations of the Corporation with any of its
subsidiaries, whether owned directly or indirectly
by the Corporation, which mergers and
consolidations this paragraph 6(d) will not apply
to) or sell, lease, transfer or otherwise dispose
of, in one transaction or a series of related
transactions, all or substantially all of its
assets without first paying the holders of the
preferred stock outstanding the same amount
through the date of the merger, consolidation,
sale, lease, transfer, or other disposition as is
provided in clauses (i) and (ii) of paragraph 6(a)
through the date of liquidation, dissolution, or
winding up and in accordance with paragraph 6(b).
7. CONVERSION.
(a) Each whole share of preferred stock will be
convertible at any time after issuance by the
holder into 10 shares of common stock of the
Corporation, or as such number is adjusted
pursuant to the following provisions, such number
as stated above and as it may be adjusted to be
ratably reduced downward for fractional shares
outstanding of the preferred stock. The number of
shares of common stock into which the preferred
stock is convertible is based on a conversion
price of $10,000 per share of common stock. Such
price shall be ratably adjusted to reflect any
change in the number of shares of common stock
into which the preferred stock is convertible
pursuant to the
- 6 -
<PAGE>
Exhibit 10.11
Page 10 of 13
provisions of paragraph 7(b). In addition, if
after the date hereof the Corporation shall, at
any time while the preferred stock remains
outstanding, otherwise than as a result of any of
the events as described in paragraph 7(b) issue
any (i) shares of common stock, or (ii) securities
that are convertible into or exchangeable for
common stock, or (iii) options, warrants or other
rights to acquire common stock, in any case
described under clause (i), (ii), or (iii), at a
price of less than $10,000 per share of common
stock or, after such price has been adjusted from
$10,000 per share pursuant to the foregoing
provisions or the following provisions of this
paragraph 7(a), at a price less than the amount to
which such $10,000 may previously have been
appropriately adjusted pursuant to the foregoing
provisions or the following provisions of this
paragraph 7(a), then each whole share of preferred
stock will be convertible at any time thereafter
by the holder into the number of shares of common
stock of the Corporation based upon a new
conversion price equal to the lowest issuance,
conversion, exchange, or exercise price, as the
case may be, for the common stock pursuant to
clause (i), (ii), or (iii) above, adjusting such
price appropriately for any events described in
paragraph 7(b). Fractional shares of preferred
stock may be converted on a ratable basis at such
new adjusted conversion price. Each holder may
convert his preferred stock in whole or in such
part (including fractional shares) as he chooses
when he converts the stock.
(b) If at any time after September 30, 1994 and prior
to the conversion of the preferred stock the
Corporation shall have effected a common stock
split or the outstanding common stock of the
Corporation shall have been subdivided or combined
into a greater or lesser number of shares or
shares of its common stock shall have been
distributed as a dividend on any class of its
stock, and after giving effect to any prior
adjustments under paragraph 7(a) and this
paragraph 7(b), the number of shares of common
stock into which each share of preferred stock can
be converted shall be increased or decreased to
reflect proportionately the increase or decrease
in the number of shares of common stock
outstanding.
(c) Upon the occurrence of any event which requires
any of the adjustments provided for above, then
and in each such case the Corporation shall give
notice thereof to the holders of the preferred
stock, which notice shall state the increase or
decrease, if any, in the number of shares of
common stock into which the preferred stock shall
be convertible, setting forth in reasonable detail
the method of calculation and the facts upon which
such calculation is based.
(d) In case after September 30, 1994, at any time:
(i) the Corporation shall offer for
subscription pro rata to the holders of the common
stock any additional shares of stock of any class
or other rights;
(ii) there shall be any capital reorganization
of the Corporation, or reclassification of the
common stock, or consolidation or merger of the
Corporation with or into (other than with a wholly
owned subsidiary), or sale of all or substantially
all of its assets to, another corporation or
- 7 -
<PAGE>
Exhibit 10.11
Page 11 of 13
entity; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the
Corporation;
then, in each such case, the Corporation shall
give to the holders of the preferred stock (a)
notice of the date on which the books of the
Corporation shall close or a record shall be taken
for determining the holders of common stock
entitled to receive any such subscription rights
or for determining the holders of common stock
entitled to vote in respect of any such
reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or
winding-up and (b) in the case of any such
reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or
winding-up, notice of the date (or, if not then
known, a reasonable approximation thereof by the
Corporation) when the same shall take place. Such
notice shall also specify the date on which the
holders of common stock shall be entitled to
receive such subscription rights or to exchange
their common stock for stock or other securities
or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up, as the
case may be. Such notice shall be given at least
twenty (20) days prior to the record date or the
date on which the Corporation's books are closed
in respect thereof. Failure to give any such
notice or any defect therein shall not affect the
validity of the proceedings referred to in clause
(i), (ii), and (iii) above.
(e) Any accrued and unpaid dividends on the preferred
stock being converted (with the current quarterly
dividend for the quarter during which the
conversion occurs being paid in an amount prorated
to the date of conversion) shall either be paid
within five (5) days of the conversion to the
converting preferred stock holder in cash or in an
additional number of whole and/or fractional
shares of common stock equal to the number of
common shares that would have been issued had the
total amount of those dividends which were not
paid in cash represented an equivalent Dollar
Value of additional preferred stock converted
along with the preferred stock that was actually
converted by the holder.
(f) The certificate for the shares of the preferred
stock being converted will be surrendered to the
Corporation, and if less than all shares of the
preferred stock represented by a certificate are
converted, a certificate for the number of shares
not converted, which shall have a Dollar Value
commensurate with that number of shares, shall be
returned to the holder.
8. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall
at all times reserve and keep available out of its authorized, but unissued,
shares of common stock, solely for the purpose of effecting the conversion of
the shares of the preferred stock, such number of its shares of common stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the preferred stock and to effect the exercise of all
rights, warrants, and options to purchase common stock; and if at any time the
number of authorized, but unissued, shares of common stock shall not be
sufficient to effect the conversion of all then outstanding shares of the stock,
and such other convertible stock or securities and rights,
- 8 -
<PAGE>
Exhibit 10.11
Page 12 of 13
warrants, and options, the Corporation will take such corporate action as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of common stock to such number of shares as shall be sufficient
for such purpose.
9. NOTICES. Any notice required by the provisions hereof to be given to
any holders of shares of the preferred stock shall be deemed given upon the
earlier of actual receipt, or seventy-two (72) hours after the same has been
deposited in the United States mail, by certified or registered mail, return
receipt requested, postage prepaid, and addressed to the holder of record at his
address appearing on the books of the Corporation.
10. ISSUANCE TAX. The issuance of certificates for common stock upon the
conversion of preferred stock shall be made without charge to the converting
holder of the preferred stock for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of the preferred stock converted
therefor.
11. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by
law, the shares of preferred stock shall not have any preferences or relative,
participating, optional or other special rights, other than those specifically
set forth herein and in the Corporation's Certificate of Incorporation. The
shares of preferred stock shall have no preemptive or subscription rights.
12. AMENDMENT, ETC. In addition to any other rights provided by law, so
long as any preferred stock is outstanding, the Corporation, without first
obtaining the affirmative vote or written consent of the holders of not less
than ninety two percent (92%) of the shares of preferred stock outstanding at
the time, will not:
(a) amend or repeal any provision of, or add any
provision to, the Certificate of Incorporation,
the Certificate of Designations related to the
preferred stock, or By-Laws if such action would
materially adversely change the preferences,
rights, privileges or powers of, or the
restrictions provided for the benefit of, the
preferred stock, or increase or decrease the
number of shares of preferred stock authorized
hereby; or
(b) authorize or increase the authorized number of
shares of any series or class of stock, which
would be entitled to receive dividends or other
distributions at any time in preference to the
preferred stock before any of the dividends under
paragraph 3 hereof for that period and all past
quarterly dividend periods prior to such time have
been paid on the preferred stock, or would be
entitled to receive assets upon the liquidation,
dissolution, or winding up of the affairs of the
Corporation in preference to the preferred stock
before any of the assets the preferred stock is to
receive under those circumstances have been
received, except that a merger or consolidation of
the Corporation into another corporation or
corporations pursuant to which the holders of the
preferred stock are to receive stock of the
surviving corporation or corporations with
substantially the same preferences, rights,
privileges, powers, and restrictions for the
benefit of such holders as the preferred stock of
the Corporation will not be deemed an event that
falls within this subparagraph or subparagraph (a)
immediately above.
- 9 -
<PAGE>
Exhibit 10.11
Page 13 of 13
13. HEADINGS OF SUBDIVISIONS. The headings of the various paragraphs
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
14. SEVERABILITY OF PROVISIONS. If any right, preference, or limitation
of the preferred stock set forth herein is invalid, unlawful or incapable of
being enforced by reason of any rule of law or public policy, all other rights,
preferences, and limitations set forth herein which can be given effect without
the invalid, unlawful or unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right, preference or
limitation herein set forth shall be deemed dependent upon any other such right,
preference or limitation unless so expressed herein.
15. STATUS OF REACQUIRED SHARES. Shares of preferred stock which have
been issued and reacquired by the Corporation in any manner or converted shall
be canceled, and will no longer have the status of authorized shares of
preferred stock or be capable of being issued.
16. SINGULAR, PLURAL, ETC. Herein, unless the context is to the contrary,
references to the singular shall include the plural, to the masculine shall
include the feminine and the neuter, and to shares of stock shall include
fractional shares, and VICE VERSA, and, unless the context is otherwise,
references to the holder of stock shall mean the record holder and references to
the voting or the consent of the holders of such stock shall mean the record
holders of the stock as of the record date set by the Board of Directors for
such vote or consent.
IN WITNESS WHEREOF, Lone Star Steel Company has caused this Certificate to
be duly executed this 9th day of November, 1994.
LONE STAR STEEL COMPANY
By:__________________________________________
__________________________________________
__________________________________________
ATTEST:
______________________________________________
- 10 -
<PAGE>
Exhibit 22
Page 1 of 1
SUBSIDIARIES OF LONE STAR TECHNOLOGIES, INC.
I. Environmental Holdings, Inc.
A. Zinkanada, Inc.
B. Zinklahoma, Inc.
II. Lone Star Steel Company
A. Fort Collins Pipe Company
B. Lone Star Logistics, Inc.
C. Lone Star Steel International, Inc.
D. Rotac, Inc.
E. T & N Lone Star Warehouse Co.
F. Texas & Northern Railway Company
G. Texas Specialty Flat Rolled Incorporated
III. Conexas, Inc.
IV. Extrusion Research Institute, Ltd.
<PAGE>
Exhibit 25
Page 1 of 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned hereby irrevocably constitutes and appoints JOHN P.
HARBIN and JUDITH A. MURRELL, or either of them, as the true and lawful agents
and attorneys-in-fact of the undersigned (the "Attorneys-in-Fact"), each with
full power to appoint a substitute or substitutes to act hereunder, to execute
and deliver for and on behalf of the undersigned the Annual Report of Lone Star
Technologies, Inc. on Form 10-K (including any amendments thereto) to be filed
with the Securities and Exchange Commission pursuant to the Securities and
Exchange Act of 1934 for the fiscal year ended December 31, 1994. The
undersigned hereby ratifies and confirms all that the Attorneys-in-Fact, or any
substitute or substitutes, may do by virtue of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney at
Dallas, Texas on this 15th day of February, 1995.
--------
/s/ Dean P. Guerin
------------------------
Dean P. Guerin
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, Nancy Scott , a Notary Public in and for the State of
------------------
Texas, on this day did personally appear Dean P. Guerin , known to me to be
------------------
the person whose name is subscribed to the foregoing Power of Attorney, and
acknowledged to me that he executed such Power of Attorney for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 15th day of February,
---------
1995.
/s/ Nancy Scott
---------------------
Notary Public, State of Texas
(SEAL)
My Commission Expires: May 31, 1996
<PAGE>
Exhibit 25
Page 2 of 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned hereby irrevocably constitutes and appoints JOHN P.
HARBIN and JUDITH A. MURRELL, or either of them, as the true and lawful agents
and attorneys-in-fact of the undersigned (the "Attorneys-in-Fact"), each with
full power to appoint a substitute or substitutes to act hereunder, to execute
and deliver for and on behalf of the undersigned the Annual Report of Lone Star
Technologies, Inc. on Form 10-K (including any amendments thereto) to be filed
with the Securities and Exchange Commission pursuant to the Securities and
Exchange Act of 1934 for the fiscal year ended December 31, 1994. The
undersigned hereby ratifies and confirms all that the Attorneys-in-Fact, or any
substitute or substitutes, may do by virtue of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney at
Dallas, Texas on this 15th day of February, 1995.
--------
/s/ William C. McCord
-----------------------------
William C. McCord
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, Nancy Scott , a Notary Public in and for the State of
-----------------
Texas, on this day did personally appear William C. McCord , known to me to
----------------------
be the person whose name is subscribed to the foregoing Power of Attorney, and
acknowledged to me that he executed such Power of Attorney for the purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 15th day of February, 1995.
------
/s/ Nancy Scott
---------------------
Notary Public, State of Texas
(SEAL)
My Commission Expires: May 31, 1996
<PAGE>
Exhibit 25
Page 3 of 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned hereby irrevocably constitutes and appoints JOHN P.
HARBIN and JUDITH A. MURRELL, or either of them, as the true and lawful agents
and attorneys-in-fact of the undersigned (the "Attorneys-in-Fact"), each with
full power to appoint a substitute or substitutes to act hereunder, to execute
and deliver for and on behalf of the undersigned the Annual Report of Lone Star
Technologies, Inc. on Form 10-K (including any amendments thereto) to be filed
with the Securities and Exchange Commission pursuant to the Securities and
Exchange Act of 1934 for the fiscal year ended December 31, 1994. The
undersigned hereby ratifies and confirms all that the Attorneys-in-Fact, or any
substitute or substitutes, may do by virtue of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney at
Dallas, Texas on this 15th day of February, 1995.
--------
/s/ Charles L. Blackburn
--------------------------------
Charles L. Blackburn
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, Nancy Scott , a Notary Public in and for the State of
-----------------
Texas, on this day did personally appear Charles L. Blackburn , known to
---------------------------
me to be the person whose name is subscribed to the foregoing Power of Attorney,
and acknowledged to me that he executed such Power of Attorney for the purposes
and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 15th day of February, 1995.
------
/s/ Nancy Scott
---------------------
Notary Public, State of Texas
(SEAL)
My Commission Expires: May 31, 1996
<PAGE>
Exhibit 25
Page 4 of 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned hereby irrevocably constitutes and appoints JOHN P.
HARBIN and JUDITH A. MURRELL, or either of them, as the true and lawful agents
and attorneys-in-fact of the undersigned (the "Attorneys-in-Fact"), each with
full power to appoint a substitute or substitutes to act hereunder, to execute
and deliver for and on behalf of the undersigned the Annual Report of Lone Star
Technologies, Inc. on Form 10-K (including any amendments thereto) to be filed
with the Securities and Exchange Commission pursuant to the Securities and
Exchange Act of 1934 for the fiscal year ended December 31, 1994. The
undersigned hereby ratifies and confirms all that the Attorneys-in-Fact, or any
substitute or substitutes, may do by virtue of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney at
Dallas, Texas on this 15th day of February, 1995.
--------
/s/ Frederick B. Hegi, Jr.
--------------------------------
Frederick B. Hegi, Jr.
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, Nancy Scott , a Notary Public in and for the State of
------------------
Texas, on this day did personally appear Frederick B. Hegi, Jr. , known to
---------------------------
me to be the person whose name is subscribed to the foregoing Power of Attorney,
and acknowledged to me that he executed such Power of Attorney for the purposes
and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 15th day of February, 1995.
-------
/s/ Nancy Scott
---------------------
Notary Public, State of Texas
(SEAL)
My Commission Expires: May 31, 1996
<PAGE>
Exhibit 25
Page 5 of 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned hereby irrevocably constitutes and appoints JOHN P.
HARBIN and JUDITH A. MURRELL, or either of them, as the true and lawful agents
and attorneys-in-fact of the undersigned (the "Attorneys-in-Fact"), each with
full power to appoint a substitute or substitutes to act hereunder, to execute
and deliver for and on behalf of the undersigned the Annual Report of Lone Star
Technologies, Inc. on Form 10-K (including any amendments thereto) to be filed
with the Securities and Exchange Commission pursuant to the Securities and
Exchange Act of 1934 for the fiscal year ended December 31, 1994. The
undersigned hereby ratifies and confirms all that the Attorneys-in-Fact, or any
substitute or substitutes, may do by virtue of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney at
Dallas, Texas on this 15th day of February, 1995.
--------
/s/ James E. McCormick
---------------------------
James E. McCormick
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, Nancy Scott , a Notary Public in and for the State of
-----------------
Texas, on this day did personally appear James E. McCormick , known to me
-------------------------
to be the person whose name is subscribed to the foregoing Power of Attorney,
and acknowledged to me that he executed such Power of Attorney for the purposes
and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 15th day of February, 1995.
-------
/s/ Nancy Scott
----------------------
Notary Public, State of Texas
(SEAL)
My Commission Expires: May 31, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 42
<SECURITIES> 41
<RECEIVABLES> 57
<ALLOWANCES> 2
<INVENTORY> 41
<CURRENT-ASSETS> 181
<PP&E> 281
<DEPRECIATION> 150
<TOTAL-ASSETS> 346
<CURRENT-LIABILITIES> 53
<BONDS> 0
<COMMON> 20
0
0
<OTHER-SE> 76
<TOTAL-LIABILITY-AND-EQUITY> 346
<SALES> 357
<TOTAL-REVENUES> 357
<CGS> 344
<TOTAL-COSTS> 360
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (4)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4)
<DISCONTINUED> 5
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1
<EPS-PRIMARY> (0.04)<F1>
<EPS-DILUTED> 0
<FN>
<F1>D-40 In 1994, LST redeemed all outstanding Series A stock and
extinguished all related dividend obligations. Earnings per share were
adjusted downward by 0.10 to reflect the difference between the amount paid
and the carrying amount.
</FN>
</TABLE>
