FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
-----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to __________________.
Commission File No. 0-16254
STEEL OF WEST VIRGINIA, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 55-0684304
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
17th Street and 2nd Avenue, Huntington, West Virginia 25703
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(Address of principal executive offices, zip code)
(304) 696 - 8200
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes (x) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant based on the closing price on March 1, 1996: $54,867,278
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of March 1, 1996: 6,086,060 shares of Common
Stock, par value $.01 per share.
Documents incorporated by reference:
Registrant's Proxy Statement to be
filed pursuant to Regulation 14A within
120 days after the end of Registrant's
fiscal year covered by this Form 10-K Part III
- --------------------------------------- -------------------------
(Document) (Part of Form 10-K
into which Document
incorporated)
<PAGE>
TABLE OF CONTENTS
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Page
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PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . 10
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 12
Item 8. Financial Statements and Supplementary Data . . . . . . . 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . 18
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . 18
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . 18
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . 18
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES . . . . . . . 25
ii
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STEEL OF WEST VIRGINIA, INC.
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PART I
Item 1. Business
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GENERAL
Steel of West Virginia, Inc. (the "Company") owns and operates a
steel mini-mill and steel fabrication facility in Huntington, West Virginia
as well as a steel fabrication facility in Memphis, Tennessee. The
Company's Huntington facility custom designs and manufactures finished
steel products on a cost-effective basis by melting steel scrap in electric
arc furnaces and continuously casting the steel into strands of specified
lengths and widths known as billets. The billets are reheated and then
moved through the Company's rolling mills to form engineered shapes known
as specialty steel sections. Unlike most other mini-mills, the Company
frequently performs additional finishing operations on these sections at
both of its facilities (such as hole-punching, shotblasting, welding and
painting) to create custom-finished products which are generally placed
directly into its customers' assembly operations.
The Company's specialty steel sections and custom-finished
products (together, "Finished Products") are sold to selected niche markets
and represent over 90% of the Company's total sales. Finished Products
include cross-members and sub-frame sections ("Trailer Steel Products")
used in the construction of truck trailers; mast sections and hanger bars
for industrial lift trucks; guardrail post; light rails, mine ties and
related accessories for the mining industries; frame sections and cleats
for off-highway construction equipment (such as bulldozers and graders);
and other miscellaneous steel products. The Company is the dominant
producer of Trailer Steel Products in the United States and has a leading
position in certain of its niche markets for its other Finished Products.
The Company enjoys a number of competitive advantages. As a
mini-mill, the Company recycles steel from scrap, resulting in lower
production costs compared to integrated steel mills, which produce steel by
processing iron ore and other raw materials in blast furnaces. The
Company's location in a scrap surplus region near its major customers
reduces raw material and transportation costs, allows for closer customer
contact and enables the Company and its customers to maintain lower
inventory levels. West Virginia's abundant supply of coal, used in
producing electricity which is integral to the Company's production
process, helps to keep energy costs relatively low. In addition, the
Company's flexible manufacturing capabilities enable it to meet demand for
a variety of custom-order products, resulting in its obtaining a larger
share of its major customers' business.
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The Company's business strategy is to maintain its strong
position in each of the markets for its Finished Products by continuing to
produce high quality products on a cost-effective basis and to identify and
capture additional niche markets where it can profitably supply Finished
Products. The Company believes that the majority of its Finished Products
will continue to command higher less volatile prices and profit margins
than commodity steel products. The Company believes that this business
strategy has enabled it to operate at a profit and has left it well
positioned to benefit from any future improvement in the economy.
The Company's mini-mill was acquired in 1982 by SWVA, Inc.
("SWVA"), which was organized by a group of investors including certain
members of the Company's management. The Company was organized in the
State of Delaware by members of management and a private investment firm
specializing in leveraged buy-out acquisitions. This group acquired all of
the capital stock of SWVA in December 1986. Since then, SWVA has been a
wholly-owned operating subsidiary. In October 1987 the Company sold 1.6
million shares of its Common Stock in an initial public offering. In
February 1993, the Company completed an underwritten public offering (the
"1993 Public Offering") pursuant to which it sold an additional 1.94
million shares of Common Stock and 2.66 million shares were sold by certain
non-employee stockholders of the Company.
The Company's other wholly-owned subsidiary, Marshall Steel, Inc.
("Marshall") located in Memphis, Tennessee, was acquired in April 1993.
Marshall fabricates special steel sections for the truck trailer industry.
Since August 1993, SWVA has been the primary supplier of hot rolled steel
sections to Marshall, having replaced the previous offshore supplier.
The Company's executive offices are located at 17th Street and
2nd Avenue, Huntington, West Virginia, 25703, and its telephone number is
(304) 696-8200. Unless the context otherwise requires, the term the
"Company" refers to Steel of West Virginia, Inc., SWVA and Marshall on a
consolidated basis.
MANUFACTURING OPERATIONS
The Company recycles steel at the Huntington facility by melting
steel scrap in two 70-ton electric arc furnaces and adding a variety of
alloys to make different grades of steel according to customer
specifications. The refined molten steel is then ladled into a three-
strand continuous caster from which it emerges as continuous strands with a
cross-section ranging from approximately 16 to 64 square inches. The
strands are cut into billets of specified lengths which are moved into the
Company's rolling mills where they are reheated to approximately 2,300
degrees Fahrenheit and fed through a series of rollers to reduce their size
and form them into specialty steel sections. These sections emerge from
the rolling mills, are allowed to cool uniformly on a cooling bed, and
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are cut to custom lengths. The sections produced by the Company are
composed of carbon and low alloy high-strength steels.
Depending on an individual customer's needs, many of the sections
are then hole-punched, shotblasted, welded or painted. These custom-
finishing operations are done to customer specifications, and often were
originally performed by the Company's customers directly but can be done
more cost-effectively by the Company. The custom-finished products are
generally placed directly into the customers' assembly operations.
The annual equipment capacity of the melt shop furnaces and
caster is approximately 260,000 tons, of which the Company produced 251,000
tons of billets in 1995 which constituted 96.5% of its equipment capacity.
The annual capacity of Finished Products from the Company's rolling mills
is 260,000 tons. The Company produced 187,000 tons of Finished Products
in 1995 which constituted 71.9% of its capacity. As a result, the Company
has generally been able to produce all the billets it requires in its
rolling operations, and the Company believes that it has the ability to
increase its annual production of Finished Products to capacity without
upgrading or increasing the capacity of its furnaces or caster. The
Company has also generally been able to produce additional billets for sale
to help cover fixed costs. The market for billets, however, is subject to
intense competition and their profitability is contingent on, among other
things, production costs including electricity rates and the Company's
production schedules for Finished Products.
The Company transports its products by common carrier, generally
shipping by truck and occasionally by rail and barge transportation. The
Huntington location has railroad sidings and a barge loading facility.
CAPITAL IMPROVEMENTS AND EXPANSION
The Company's expenditures for required capital replacements are
currently anticipated to average approximately $1,000,000 annually over the
next several years. However, the Company plans to increase capacity and
productivity over the next several years by continuing to modernize the
Huntington facility and possibly through strategic acquisitions, although
such expenditures will be subject to available funds and approval by the
Company's Board of Directors. In late 1993, the Company's Board of
Directors approved the first phase of a plant expansion and modernization
program which was completed in late 1994. The project included the
upgrading of one of the plant's rolling mills, as well as the installation
of an automated fabrication system to punch, weld and powder paint truck
trailer cross members.
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PRODUCTS
Trailer Steel Products are used in the assembly of trailers for
highway transport. These products include cross-members, which are steel
mini-beams providing floor support in truck trailers, and subframe sections
which are beams attached to the undersides of truck trailers allowing cargo
weight to be redistributed evenly over the wheels. Sales of Trailer Steel
Products represented approximately 51%, 50%, and 47% of total net sales of
the Company during the last three fiscal years ending December 31, 1995.
The Company is the dominant producer of such products in the United States.
The Company also produces mast sections and hanger bars for
industrial lift trucks and narrow aisle hand-operated trucks, as well as
rail components used primarily in coal mining, including light rails, mine
ties which support the rails, and joint bars used to join rail sections.
In addition, the Company produces frame sections and cleats used in off-
highway equipment (such as bulldozers and graders). The Company has a
leading position in certain of its niche markets. The Company also
produces sections used in automotive lifts, transit systems, containers,
bridges, guardrail posts, rack sections and, depending upon production
costs and its other production schedules, billets.
The Company manufactures most of its products to customer
specifications, and in many instances provides custom-finishing operations.
Due to the custom nature of its Finished Products, the Company generally
maintains a minimum of Finished Product inventory.
The Company regularly investigates the market potential of new
products. Products that the Company has identified for future growth
include roof channels for mines, guardrail posts, and rack sections used in
warehousing applications. Of these products, the Company shipped 6,400
tons of guardrail post and 190 tons of roof channel in 1995. Management
believes that the total market for these products is 90,000 tons for
guardrail post, 60,000 tons for rack sections and 10,000 tons for roof
channel, and that the Company's modernization project will enhance its
ability to penetrate these markets, although there can be no assurance that
it will be able to do so.
CUSTOMERS
The Company sells to approximately 200 customers, and in the year
ended December 31, 1995, no single customer accounted for more than 10% of
the Company's net sales. The Company is a leading supplier of certain
products to most equipment manufacturers in the truck trailer, off-highway
equipment and mining industries. The Company currently has no long-term
agreements with its customers, and there can be no assurance that any of
the Company's customers will continue to purchase any specific product or
quantity.
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MARKETING
Senior management of the Company is directly involved in sales to
new customers, and in sales of new products to existing customers. The
Company's sales efforts cover all of the continental United States and
certain foreign markets, although during 1995 exports constituted less than
5% of the Company's net sales. The Company services the ongoing needs of
its customers through three in-house sales representatives at its
Huntington facility and two in-house sales representatives at its Memphis
facility.
COMPETITION AND OTHER MARKET FACTORS
The Company believes that there are many factors which
distinguish it from other steel producers and that its Finished Products
are less volatile in their pricing than commodity steel products.
Nonetheless, both the domestic steel industry and the Company's business
are highly cyclical in nature. Because the Company's net sales are
affected by the performance of the economy as a whole, net sales for 1991
were substantially lower than in 1992 and 1993. While the Company's net
sales in 1994 and 1995 increased substantially over net sales in 1993 in
part due to the improved economy, there can be no assurance that the
Company will continue to benefit from any such improvement.
The domestic and foreign steel industries are characterized by
intense competition. The Company has identified competition from the
following sources: (1) in its truck trailer market, the Company faces
competition from two North American mills; (2) in its industrial truck
market, the Company competes with Japanese, British, West German and
Italian producers who offer similar products; (3) in its mining industry
market, the Company encounters competition from foreign producers and
domestic manufacturers of cold-rolled mine ties; and (4) in its off-highway
equipment market, the Company competes with Italian, Japanese and British
manufacturers. Despite this competition, the Company is the dominant
producer of Trailer Steel Products in the United States and has a leading
position in certain of its niche markets for its other principal products.
Although management believes that its lower production costs, close
involvement with customers and the Company's geographical location are
among its competitive advantages, there can be no assurance that such
competition will not have an adverse effect on the Company in the future.
Many of the Company's customers are in mature businesses.
Accordingly, any material increase in tonnage sales of Finished Products by
the Company would likely be the result of continued improvement in the
economy as a whole, an increased share of the market for existing products
or sales by the Company of new products. The Company regularly
investigates the market potential of new products. However, no assurance
can be given that the
5
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Company will be successful in manufacturing and selling such products.
Until recently, overall consumption of steel products in the
United States did not grow with the economy as a whole. While the
operations of domestic steel producers have been scaled back through
corporate reorganizations or as a result of bankruptcy proceedings, there
still exists, taking into account current levels of imports, significant
excess capacity in the domestic steel industry as a whole. While the
Company believes that the nature of its Finished Products and its other
competitive advantages distinguish it from other steel producers, there can
be no assurance that such excess capacity will not have an adverse effect
on the Company in the future.
Many steel producers which are currently competitors of the
Company or which could enter the Company's markets have financial resources
substantially greater than those available to the Company. The cost of
steel scrap, the principal raw material used in the Company's mill, is
subject to market conditions largely beyond the control of the Company.
See "Raw Materials."
BACKLOG AND SEASONALITY
Due to the nature of its operations, the Company generally fills
orders within 21 days. This enables the Company's customers to maintain
low inventory levels. At December 31, 1995, the Company had firm orders
for 50,654 tons representing approximately $31,650,000, as compared with
52,900 tons representing approximately $30,512,000 at December 31, 1994.
The Company does not believe backlog is a significant indicator of future
sales.
The Company's Huntington, West Virginia operations occasionally
shut down for maintenance on a staggered basis over a two week period in
the summer and for one week in the fourth quarter. The Company's
operations are not otherwise subject to seasonal fluctuations in sales.
RAW MATERIALS
The principal raw material used in the Company's steel mill is
ferrous scrap derived from, among other sources, junked automobiles,
structural steel and machines. The purchase of steel scrap is subject to
market conditions largely beyond the control of the Company. However, the
Company is located in a scrap surplus region, and therefore typically
maintains less than a one month supply of scrap, which keeps inventory
costs to a minimum. The Company has also supplemented scrap with a mix of
direct reduced iron when it was economical to do so. Historically, price
fluctuations of scrap have not had a material impact due to the Company's
ability, in most instances, to pass through increases in the cost of scrap
to its customers in the form of higher prices or surcharges. Although one
scrap dealer supplies between 30% and 35%
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of the Company's requirements, the Company believes that a number of
adequate sources of scrap and other raw materials that it uses are readily
available.
The Company's manufacturing processes consume large amounts of
energy in the form of electricity, which the Company purchases from
American Electric Power and Memphis Light, Gas and Water. The cost of
electric power was approximately 6.8% of the cost of goods sold for 1995.
West Virginia's abundant supply of coal, used in producing electricity,
helps keep energy costs relatively low. The Company's two major power
supply contracts with American Electric Power automatically continue until
such time as either party gives the other 12 months written notice of
cancellation. Under both agreements, the Company may use electricity at
any hour of the day or night, provided that the electricity supplier may
impose a surcharge on the Company if it exceeds certain specified levels of
use. One of the agreements also provides that the electricity supplier may
interrupt the Company's use during times of peak demand, although it is
required to provide at least 145 hours of electricity during each calendar
week, a level which the Company believes would be adequate to avoid any
significant impact on its operations at currently foreseeable levels. See
"Business -- Manufacturing Operations" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
EMPLOYEES
As of December 31, 1995, the Company employed 589 people, of
which approximately 82% were members of the United Steelworkers of America.
The Company believes its relations with its employees are generally good.
The Company's current collective bargaining agreement at the Huntington,
West Virginia facility expires in June 1999 provided that, under the terms
of the agreement, during the 45-day period prior to June 7, 1996 the
Company and the union have agreed to conduct "normal negotiations", and if
all issues are not resolved by the end of that period either party may
notify the other that the collective bargaining agreement will terminate on
December 6, 1996. Under this agreement, all employees are salaried, there
are no time clocks or job descriptions, and the Company utilizes only two
basic classifications for production and maintenance personnel (steelmaker,
and trade and craft). The Company believes that its wage rates are
competitive with other mini-mills. However, there can be no assurance
regarding the outcome of any future negotiations with the Company's union.
The Company maintains a profit-sharing plan for both bargaining
unit and non-bargaining unit employees pursuant to which a percentage of
pre-tax profits are allocated to a profit-sharing fund and a cash bonus.
See Note H of the Notes to Consolidated Financial Statements of the
Company.
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In contrast to the retiree health insurance commonly provided in
the domestic steel industry, the Company offers no material postretirement
employee health care benefits or other benefit program subject to
accounting under the provisions of Statement of Financial Accounting
Standards No. 106 -- "Employers' Accounting for Postretirement Benefits
other than Pensions" which became effective in 1993. Under informal
arrangements, the Company currently provides postemployment health care
benefits to each person who becomes disabled, is not expected to return to
the active work force and is not covered by another health insurance plan.
As of December 31, 1995, 20 such disabled former employees had been
identified as current or potential recipients of this benefit. The
expected cost of such benefits has been accrued in accordance with
Statement of Financial Accounting Standards No. 112 -- "Employers'
Accounting for Postemployment Benefits."
ENVIRONMENTAL & REGULATORY MATTERS
The Company is subject to federal, state and local environmental
laws and regulations concerning, among other matters, wastewater discharge,
air emissions and furnace dust disposal. As with similar mills in the
industry, the Company's furnaces are classified as generating hazardous
waste because they produce certain types of dust containing lead, zinc and
cadmium. The Company currently collects and handles such wastes through
contracts with a company which reclaims, from the waste dust, certain
materials and recycles or disposes of the remainder. The Company believes
it is in substantial compliance with applicable environmental laws and
regulations. Notwithstanding such compliance, if damage to persons or
property or contamination of the environment has been or is caused by the
conduct of the Company's business or by hazardous substances or wastes used
in, generated or disposed of by the Company, the Company may be held liable
for such damages and be required to pay the cost of investigation and
remediation of such contamination. The amount of such liability, as to
which the Company is self-insured, could be material. Changes in federal
or state laws, regulations or requirements or discovery of unknown
conditions could require additional expenditures by the Company.
The Company's operations are subject to the federal Clean Air Act
which provides for regulation, through state implementation of federal
requirements, of the emission of certain air pollutants. It is expected
that the Environmental Protection Agency will promulgate industry-wide
standards and technology requirements for the control of emissions of
particular regulated air pollutants that may impose more stringent
requirements on the Company's operations beginning in the future. The
Company will continue to monitor these evolving laws and regulations and
will plan and budget, as appropriate, for any such additional capital and
operating expenditures that may be required to upgrade or install new or
additional pollution control equipment and secure additional or modified
permits. There can be no assurance that these evolving
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federal requirements will not require the Company to make material
expenditures in the future.
Item 2. Properties
----------
Set forth below is certain information with respect to the
Company's properties. The Company believes that its two facilities, which
are located on approximately 42 acres of land owned by the Company in
downtown Huntington, West Virginia, adjacent to rail lines and the Ohio
River, and approximately 4 acres of land owned by the Company in Memphis,
Tennessee, adjacent to the Mississippi River, are well maintained, in good
condition and are adequate and suitable for its operating needs. All of
the Company's Huntington, West Virginia properties are currently subject to
a first mortgage in favor of the Company's senior lender and the Memphis,
Tennessee properties are pledged to the Company's senior lender.
Approximate
Huntington, WV Facility Square Footage
----------------------- --------------
Rolling Mills 309,000
Furnaces and Caster 88,500
Machine Shop, Fabrication Facilities 115,075
and Miscellaneous Facilities
Administrative, Engineering and Sales Offices 45,600
Memphis, TN Facility
--------------------
Fabrication Facility 38,400
Administrative and Sales Offices 2,600
Item 3. Legal Proceedings
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None.
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Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
-------------------------------------
The Company's common stock trades on the Nasdaq National Market
tier of The Nasdaq Stock MarketSM under the symbol: SWVA. The following
table sets forth, for the fiscal periods indicated, the high and low last
sales prices of the Common Stock (without retail markups, markdowns or
commissions) on the NASDAQ National Market System.
High Low
1995
Fourth Quarter . . . . . . . . . . . . . . . $10 5/8 $ 8 3/8
Third Quarter . . . . . . . . . . . . . 13 1/2 8 3/4
Second Quarter . . . . . . . . . . . . . 12 1/4 11
First Quarter . . . . . . . . . . . . . 12 1/2 11
1994
Fourth Quarter . . . . . . . . . . . . . $13 $ 8 1/4
Third Quarter . . . . . . . . . . . . . . . 13 1/4 12 1/4
Second Quarter . . . . . . . . . . . . . . . 13 1/4 10 1/2
First Quarter . . . . . . . . . . . . . . . 14 3/4 10 3/4
On March 1, 1996, there were approximately 209 holders of record
of the Company's Common Stock, and the Company believes there are
approximately 1,532 beneficial shareholders.
The Company paid no cash dividends in 1994 or 1995 and currently
intends to retain all earnings to support the development of its business
rather than paying dividends on its Common Stock. Certain of the Company's
debt instruments restrict the payment of dividends by SWVA to the Company
to no more than 50% of SWVA's prior year's net income, subject to
limitations for maintenance of certain net worth and working capital
levels. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note E of the Notes to Consolidated
Financial Statements of the Company.
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Item 6. Selected Financial Data
-----------------------
The following selected financial data for each of the five years
in the period ended December 31, 1995, are derived from the Consolidated
Financial Statements of the Company. The data should be read in
conjunction with the Consolidated Financial Statements, related Notes and
other financial information included herein.
<TABLE><CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- --------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales . . . . . . . . . . . . . . . . . . . $129,341 $124,229 $106,354 $ 82,537 $ 71,478
Cost of sales . . . . . . . . . . . . . . . . . 107,191 103,327 88,698 64,359 58,391
Gross profit . . . . . . . . . . . . . . . . . 22,150 20,902 17,656 18,178 13,087
-------- -------- -------- --------- --------
Gross profit margin . . . . . . . . . . . . . 17.1% 16.8% 16.6% 22.0% 18.3%
Selling and administrative expenses . . . . . . 5,018 5,454 4,432 4,587 4,592
-------- -------- -------- --------- --------
Operating income . . . . . . . . . . . . . . . 17,132 15,448 13,224 13,591 8,495
Interest expense . . . . . . . . . . . . . . . 1,642 898 1,624 3,507 4,163
Other expense (income) . . . . . . . . . . . . (227) 94 (692) 460 (304)
-------- -------- -------- --------- --------
Income before income taxes . . . . . . . . . . 15,717 14,456 12,292 9,624 4,636
Income taxes . . . . . . . . . . . . . . . . . 6,253 5,662 5,156 4,766 2,308
-------- -------- -------- --------- --------
Net income . . . . . . . . . . . . . . . . . . $ 9,464 $ 8,794 $ 7,136 $ 4,858 $ 2,328
======== ======== ======== ========= ========
Net income per common share . . . . . . . . . . $ 1.40 $ 1.24 $ 1.03 $ .94 $ .45
Common shares outstanding(1) . . . . . . . . . 6,782 7,091 6,930 5,155 5,155
BALANCE SHEET DATA (END OF PERIOD):
Working capital (deficit) . . . . . . . . . . . $ 15,514 $ 10,516 $ 14,569 $ 6,877 $(12,034)(2)
Total assets . . . . . . . . . . . . . . . . . 95,123 94,174 80,721 68,946 68,243
Current liabilities . . . . . . . . . . . . . . 18,960 20,211 17,183 17,442 32,399(2)
Long-term debt . . . . . . . . . . . . . . . . 11,978 11,542 10,211 24,181 14,514(2)
Stockholders' equity . . . . . . . . . . . . . 55,415 53,934 45,140 20,317 15,459
</TABLE>
- --------------------
(1)
Weighted average number of common and common equivalent shares
outstanding.
(2)
Prior to its amendment on September 30, 1992, the Company's senior loan
agreement provided that it could be terminated by the Company's lender
in 1992.
Accordingly, at December 31, 1991, the entire $21.5 million then
outstanding was included in current liabilities. Under subsequent
amendment, the loan is not fully repayable until January 1, 1998.
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
GENERAL
The Company believes that there are many factors that distinguish
it from other steel producers and the majority of its Finished Products are
less volatile in their pricing than commodity steel products. Nonetheless,
both the domestic steel industry and the Company's business are highly
cyclical in nature. Management believes that the Company's lower net sales
during 1991 were a result of generally poor economic conditions during that
period. Management believes that the 1994 and 1995 results are more
indicative of the Company's performance during periods of a stronger
economy.
In March 1993, the Company voluntarily prepaid $5 million of its
senior term loans with a portion of the Company's net proceeds of the 1993
Public Offering and the remainder of such term loans were amended to reduce
interest rates. During 1994 the Company amended its senior credit
agreement to permit the Company to borrow $6 million in 1994 under a new
"Capital Expenditure Line" of credit. The February 1994 Amendment also
reduced the interest rates on all borrowings under the financing agreement.
In 1994 and 1995, the Company's Board of Directors authorized
management to buy back up to 1,200,000 shares of its common stock from time
to time. During 1995 the Company purchased 755,300 shares.
12
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentages of net sales
represented by certain income and expense items and the tonnage sales for
the periods indicated.
YEAR ENDED
DECEMBER 31
------------------------
1995 1994 1993
---- ---- ----
NET SALES 100.0% 100.0% 100.0%
COST OF SALES 82.9 83.2 83.4
----- ----- -----
GROSS PROFIT 17.1 16.8 16.6
SELLING AND ADMINISTRATIVE EXPENSES 3.9 4.4 4.2
----- ----- -----
OPERATING INCOME 13.2 12.4 12.4
INTEREST EXPENSE 1.3 .7 1.5
OTHER EXPENSE (INCOME) (0.2) .1 ( .6)
----- ----- -----
INCOME BEFORE INCOME TAXES 12.1 11.6 11.5
INCOME TAXES 4.8 4.5 4.8
----- ----- -----
NET INCOME 7.3% 7.1% 6.7%
===== ===== =====
TONNAGE SALES (in thousands of tons) 212.7 214.1 206.4
===== ===== =====
YEAR ENDED DECEMBER 31, 1995, COMPARED WITH
YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales for 1995 increased by $5.1 million (4.1%)
---------
from $124.2 million in 1994 to $129.3 million in 1995, primarily due to an
increase in the tonnage of Finished Products shipped, coupled with
selective price increases. Total tonnage sales decreased by 1,462 tons
(.7%) to 212,652 tons in 1995, reflecting a 2,783 ton increase in the sale
of Finished Products, and a 4,245 ton decrease in the sale of billets.
The average selling price per ton for Finished Products increased by $22
(3.4%) to $664 in 1995, while the average selling price per ton for billets
increased by $9 (3.8%) to $249 in 1995.
Cost of Sales. Cost of sales for 1995 increased by $3.9 million
-------------
(3.7%) from $103.3 million in 1994 to $107.2 million in 1995. This
increase was principally due to the increase in Finished Product tonnage
sales coupled with higher raw material prices, depreciation and maintenance
expense. As a percentage of
13
<PAGE>
net sales, cost of sales decreased from 83.2% in 1994 to 82.9% in 1995.
For a description of fluctuations in the price of raw materials, see
"Business -- Raw Materials."
Gross Profit. As a result of the above, gross profit for 1995
------------
increased by $1.2 million (6.0%) from $20.9 million in 1994 to $22.1
million in 1995. As a percentage of net sales, gross profit for 1995
increased from 16.8% in 1994 to 17.1% in 1995 as a result of increased
higher margin Finished Product sales.
Selling and Administrative Expenses. Selling and administrative
-----------------------------------
expenses for 1995 were $5.0 million compared to $5.5 million in 1994.
Lower selling and administrative expenses were incurred due to lower
salaries and professional fees. As a percentage of net sales, selling and
administrative expenses decreased from 4.4% in 1994 to 3.9% in 1995.
Operating Income. For the reasons described above, operating
----------------
income increased by $1.6 million (10.9%) from $15.5 million in 1994 to
$17.1 million in 1995. As a percentage of net sales, operating income
increased to 13.2% in 1995 from 12.4% in 1994.
Interest Expense and Other Expense (Income). Interest expense
-------------------------------------------
for 1995 increased by $744,000 (82.9%) from $898,000 in 1994 to $1,642,000
in 1995. This increase was attributed to the debt incurred during the
Company's plant expansion and modernization program. Other expense
(income) changed by $321,000 from $94,000 of expense in 1994 to $227,000 of
income in 1995. This was principally due to reduced losses from the
disposal of fixed assets.
Net Income. As a result of the above, net income for 1995
----------
increased by $670,000 (7.6%) from $8.8 million in 1994 to $9.5 million in
1995. As a percentage of net sales, net income increased from 7.1% in 1994
to 7.3% in 1995.
Year Ended December 31, 1994, Compared with
Year Ended December 31, 1993
Net Sales. Net sales for 1994 increased by $17.8 million (16.8%)
---------
from $106.4 million in 1993 to $124.2 million in 1994, primarily due to an
increase in the tonnage of Finished Products shipped, which include
shipments by Marshall for the entire period in 1994 (See Note A of the
Notes to Consolidated Financial Statements) coupled with selective price
increases. Total tonnage sales increased by 7,734 tons (3.7%) to 214,114
tons in 1994, reflecting a 21,254 ton increase in the sale of Finished
Products, and a 13,520 ton decrease in the sale of billets. The average
selling price per ton for Finished Products increased by $40 (6.6%) to $642
in 1994, while the average selling price per ton for billets increased by
$25 (11.6%) to $240 in 1994.
14
<PAGE>
Cost of Sales. Cost of sales for 1994 increased by $14.6 million
-------------
(16.5%) from $88.7 million in 1993 to $103.3 million in 1994. This
increase was principally due to the increase in total tonnage sales coupled
with higher raw material prices, depreciation and mill roll expense. As a
percentage of net sales, cost of sales decreased from 83.4% in 1993 to
83.2% in 1994. For a description of fluctuations in the price of raw
materials, see "Business -- Raw Materials."
Gross Profit. As a result of the above, gross profit for 1994
------------
increased by $3.2 million (18.4%) from $17.7 million in 1993 to $20.9
million in 1994. As a percentage of net sales, gross profit for 1994
increased from 16.6% in 1993 to 16.8% in 1994 as a result of increased
higher margin Finished Product sales.
Selling and Administrative Expenses. Selling and administrative
-----------------------------------
expenses for 1994 were $5.5 million compared to $4.4 million in 1993.
Higher selling and administrative expenses were incurred due to a full 12
months of operations of Marshall coupled with higher legal and professional
fees. As a percentage of net sales, selling and administrative expenses
increased from 4.2% in 1993 to 4.4% in 1994.
Operating Income. For the reasons described above, operating
----------------
income increased by $2.3 million (16.8%) from $13.2 million in 1993 to
$15.5 million in 1994. As a percentage of net sales, operating income
remained unchanged from the 12.4% in 1993.
Interest Expense and Other Expense (Income). Interest expense
-------------------------------------------
for 1994 decreased by $726,000 (44.7%) from $1.6 million in 1993 to
$900,000 in 1994. This reduction was a result of both lower interest rates
and the reduction of principal amount outstanding due to the scheduled
amortization of principal and the capitalization of interest expense on the
Company's plant expansion and modernization program. Other expense
(income) changed by $786,000 from $692,000 of income in 1993 to $94,000 of
expense in 1994. This was due to the losses from the disposal of fixed
assets offset by income from scrap sales and mill roll expense
reimbursement.
Net Income. As a result of the above and a lower effective
----------
income tax rate, net income for 1994 increased by $1.7 million (23.2%) from
$7.1 million in 1993 to $8.8 million in 1994. As a percentage of net
sales, net income increased from 6.7% in 1993 to 7.1% in 1994.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to provide funds from its operations,
together with funds available under the terms of the Company's $10,000,000
revolving line of credit, historically have been sufficient to meet the
Company's short-term liquidity needs. The total borrowing capacity under
the revolving credit line is governed by a formula based on levels of
accounts receivable and inventory. Cash provided from operations
approximated $8.8 million, $16.3 million and $7.9 million during each of
the three years ended December 31, 1995, 1994, and 1993, respectively.
During this same time period, average annual borrowings against the
revolving line of credit have been less than $1 million and at December 31,
1995, the Company had $4.1 million of the revolving credit line available
for borrowing.
In early 1993, the Company completed the sale of 1,936,942 newly
issued shares of Common Stock resulting in $17,687,000 proceeds to the
Company that were used to voluntarily prepay $13 million of the Company's
term indebtedness and provide sufficient funds to complete its $4.6 million
acquisition of Marshall. Also during 1993, the Company embarked on a plan
to significantly expand and modernize its Huntington facility. This
project, completed in late 1994, resulted in the Company expending nearly
$20.6 million for capital improvements in 1994. Including these
expenditures, the Company's level of annual average capital expenditures
has historically approximated $5.2 million. Accordingly, during 1994 the
Company amended its senior credit agreement to permit the Company to borrow
$6 million in 1994 under a new "Capital Expenditure Line" of credit. The
terms of the loan amendment also enabled the Company to then reduce the
interest rates on its existing revolving credit line and term loans
outstanding from the greater of 7% or 3/4% over prime and the greater of 7%
or 1% over prime, respectively, to the Chemical Bank prime rate or LIBOR
plus 1-3/4%; reduce the annual revolving credit line commitment fee from
1/2% to 1/8% of the unused balance; and extend the term of the revolving
credit line to January 1, 1998. In addition, the amendment permits the
Company to convert up to $7 million of its indebtedness to a fixed interest
rate.
On January 1, 1998 the Company's senior lender may terminate all
of the Company's loans. Assuming payment of all scheduled amortization
until then, only a portion of the amount drawn down against the Capital
Expenditure Line, together with any borrowings against the revolving credit
line, would be outstanding at such date. The Company is currently in
compliance with the covenants of its loan agreements, and is not aware of
any reason why it would not be able to refinance its indebtedness at its
scheduled term.
The Company's expenditures for required capital replacements are
currently anticipated to average approximately $1 million annually over the
next several years. Management has no
16
<PAGE>
reason to believe that internally generated cash flow, together with
borrowings under its Capital Expenditure Line and revolving credit line,
will not be sufficient to meet the Company's ongoing liquidity needs. Other
discretionary capital spending and strategic acquisitions, if any, would
also place demands on the Company's longer-term liquidity position. Such
expenditures and acquisitions would be subject to availability of funds and
approval by the Company's Board of Directors.
IMPACT OF INFLATION
In recent years, the Company has not experienced any material
adverse effects from inflation due to its historical ability to pass price
increases through to its customers. The Company's principal cost
components are steel scrap, labor and energy. Scrap is purchased pursuant
to monthly contracts. Scrap prices are subject to volatility, although the
Company endeavors to recoup the higher scrap prices through a scrap
surcharge. The current collective bargaining agreement is scheduled to
expire in June 1999 subject to the right of both parties to terminate the
agreement on December 6, 1996 if, as provided in the agreement, the "normal
negotiations" between the parties during the 45-day period prior to June 7,
1996 do not result in a resolution of all open issues. See "Business --
Employees." The Company's two major power supply contracts with American
Electric Power automatically continue until such time as either party gives
the other 12 months written notice of cancellation. See "Business --
Competition and Other Market Factors," "-- Raw Materials" and "--
Manufacturing Operations."
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In contrast to the retiree health insurance commonly provided in
the domestic steel industry, the Company offers no material postretirement
employee healthcare or other benefit program subject to accounting under
the provisions of Statement of Financial Accounting Standards No. 106 --
"Employers' Accounting for Postretirement Benefits Other than Pensions,"
which became effective in 1993. Under informal arrangements, the Company
currently provides postemployment health care benefits to each person who
becomes disabled, is not expected to return to the active work force and is
not covered by another health insurance plan. As of December 31, 1995, 20
such disabled former employees have been identified as current or potential
recipients of this benefit. The expected cost of such benefits has been
accrued in accordance with the provisions of Statement of Financial
Accounting Standards No. 112 -- "Employers' Accounting for Postemployment
Benefits."
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 121 -- "Accounting
for the Impairment of Long-Lived Assets and for the Long-Lived Assets to Be
Disposed Of," which must be adopted for fiscal years beginning after
December 15, 1995. This statement requires impairment losses to be
recorded on long-lived assets used
17
<PAGE>
in operations, including related goodwill, when impairment indicators are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying value. The Company will adopt
this statement effective January 1, 1996. The Company continually analyzes
new processes and equipment that would allow the Company to produce
products on a cost-effective basis so as to enable the Company to maintain
its strong position in each of its niche markets and expand into related
markets. This could result in material write-offs if new production
processes or equipment are identified and installed or certain present
processes become impaired.
In October 1995 the FASB issued Statement of Financial Accounting
Standards No. 123 -- "Accounting for Stock-Based Compensation" effective in
1996. This statement permits, and the Company intends to continue to use,
the "intrinsic" value method, as set forth in Accounting Principles Board
Opinion Number 25, for determining compensation cost associated with the
Company's stock option plans. Under this method, stock-based compensation
expense is determined on the first date that both the number of shares the
employee is entitled to receive and the exercise price are known, in an
amount equivalent to the excess of the market price over the exercise
price. Statement No. 123 encourages the use of the "fair value" method
that results in compensation expense being measured at the date options are
granted, and reported as a charge against operations over the exercise
period. The new pronouncement will require the Company to make additional
disclosures about its stock option plans, including the pro forma
disclosures of net income and earnings per share, as if the "fair value"
based method of accounting had been applied. The Company anticipates
adopting this statement in the first quarter of 1996.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The financial statements and schedules and report of independent
auditors thereon listed in Item 14(a)(1) and (a)(2) hereof are incorporated
herein by reference and are filed as part of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
------------------------------------------------
Not applicable.
PART III
The information required by Part III (Items 10 through 13) is
incorporated herein by reference to the captions "Principal Stockholders",
"Election of Directors" and "Executive Compensation" in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A within
120 days after the end of the Company's fiscal year covered by this report.
18
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
---------------------------------------
(a) Documents filed as part of this Report:
(1) The following consolidated financial statements of
Registrant and its subsidiaries are included in
Item 8 of this report on Form 10-K:
Page
----
Report of Independent Auditors. F-1
Consolidated Balance Sheets - December 31, 1995, F-2
and December 31, 1994.
Consolidated Statements of Income - years ended F-3
December 31, 1995, December 31, 1994, and December
31, 1993.
Consolidated Statements of Cash Flows - years F-4
ended December 31, 1995, December 31, 1994 and
December 31, 1993.
Notes to Consolidated Financial Statements. F-5
(2) Financial Statement Schedules for the years ended
December 31, 1995, December 31, 1994, and December
31, 1993.
The following consolidated financial statement
schedules of Registrant and its subsidiaries are
included pursuant to Item 14 (d):
Page
----
Schedule I - Condensed Financial Information of Registrant S-1
Schedule II - Valuation and Qualifying Accounts S-4
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.
19
<PAGE>
(3) Exhibits
3.1 Certificate of Incorporation of Steel of West Virginia, Inc. (the
"Company"), as amended (filed herewith).
3.2 By-Laws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-1,
No. 33-16845).
4.1 Financing Agreement ("Financing Agreement"), dated December 30,
1986, between The CIT Group/Business Credit, Inc. ("CIT") and
SWVA, Inc. (formally Steel of West Virginia, Inc.) and Charter
Acquisition Corporation ("Acquisition") (incorporated by reference
to Exhibit 10.2 to the Company's Registration Statement on Form S-
1, No. 33-16845).
4.1(a) Amendment to the Financing Agreement, dated August 27, 1987
("Amendment No. 1") (incorporated by reference to Exhibit 10.8 to
the Company's Registration Statement on Form S-1, No. 33-16845).
4.1(b) Amendment to the Financing Agreement, dated September 27, 1989
("Amendment No. 2") (incorporated by reference to Exhibit 28(a) to
the Company's Current Report on Form 8-K, No. 0-16254, filed on
October 10, 1989).
4.1(c) Amendment to the Financing Agreement, dated September 30, 1992
("Amendment No. 3") (incorporated by reference to Exhibit 28(b) to
the Company's Quarterly Report on Form 10-Q, No. 0-16254, filed on
October 13, 1992).
4.1(d) Amendment to the Financing Agreement, dated March 17, 1993
("Amendment No. 4") (incorporated by reference to Exhibit 4.1(d)
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, No. 0-16254).
4.1(e) Amendment to the Financing Agreement, dated February 25, 1994
("Amendment No. 5").
4.1(f) Amendment to the Financing Agreement, dated December 30, 1994
("Amendment No. 6").
4.1(g) Amendment to the Financing Agreement, dated February 28, 1996
("Amendment No. 7") (filed herewith).
4.2 Term Promissory Note (the "Original Promissory Note") issued by
Acquisition in favor of CIT, dated December 30, 1986 (incorporated
by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1, No. 33-16845).
4.2(a) Amendment, dated September 27, 1989 (the "Original Promissory Note
Amendment"), to the Original Promissory Note (incorporated by
reference to Exhibit 28(f) to the Company's Current Report on Form
8-K, No. 0-16254, filed on October 10, 1989).
4.3 Promissory Note, dated September 27, 1989 ("Note 2"), in the
principal amount of $26,922,000 issued by SWVA in favor of CIT
(incorporated by reference to Exhibit 28(c) to the Company's
Current Report on Form 8-K, No. 0-16254, filed on October 10,
1989).
4.4 Promissory Note, dated September 30, 1992 ("Note 3"), in the
principal amount of $6,500,000 issued by SWVA in favor of CIT
(incorporated by reference to Exhibit 28(b) to the Company's
Quarterly Report on Form 10-Q, No. 0-16254, filed on October 13,
1992).
20
<PAGE>
4.5 Promissory Note, dated July 11, 1994 ("Note 4") in the principal
amount of $6,000,000 issued by SWVA in favor of CIT.
4.6 Guaranty, dated December 30, 1986 (the "Guaranty"), by the Company
in favor of CIT relating to loan from CIT to Acquisition
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1, No. 33-16845).
4.7 Guaranty, dated June 9, 1993 (the "Marshall Guaranty"), by
Marshall Steel, Inc. ("Marshall") in favor of CIT (incorporated by
reference to Exhibit 4.1(d) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, No. 0-16254).
4.8 Security Agreement, dated June 9, 1993 (the "Security Agreement"),
by Marshall in favor of CIT (incorporated by reference to Exhibit
4.1(d) to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, No. 0-16254).
4.9 Pledge Agreement, dated September 26, 1989 (the "Pledge
Agreement"), by the Company in favor of CIT (incorporated by
reference to Exhibit 4.6 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992, No. 0-16254).
4.10 Deed of Trust, Assignment of Leases and Rents and Security
Agreement, dated December 30, 1986 (the "Mortgage"), by SWVA in
favor of CIT (incorporated by reference to Exhibit 4.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, No. 0-16254).
4.10(a) First Amendment of Deed of Trust, Assignment of Leases and Rents
and Security Agreement, dated September 27, 1989 ("Mortgage
Amendment No. 1") (incorporated by reference to Exhibit 4.7(a) to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, No. 0-16254).
4.10(b) Second Amendment of Deed of Trust, Assignment of Leases and Rents
and Security Agreement, dated September 30, 1992 (incorporated by
reference to Exhibit 28(c) to the Company's Quarterly Report on
Form 10-Q, No. 0-16254, filed on October 13, 1992) ("Mortgage
Amendment No. 2").
4.11 Negative Pledge Agreement, dated June 7, 1993 (the "Negative
Pledge Agreement"), by Marshall in favor of CIT (incorporated by
reference to Exhibit 4.1(d) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, No. 0-16254).
10.1 The Financing Agreement (see Exhibit 4.1).
10.1(a) Amendment No. 1 (see Exhibit 4.1(a)).
10.1(b) Amendment No. 2 (see Exhibit 4.1(b)).
10.1(c) Amendment No. 3 (see Exhibit 4.1(c)).
10.1(d) Amendment No. 4 (see Exhibit 4.1(d)).
10.1(e) Amendment No. 5 (see Exhibit 4.1(e)).
10.1(f) Amendment No. 6 (see Exhibit 4.1(f)).
10.1(g) Amendment No. 7 (see Exhibit 4.1(g)).
10.2 The Original Promissory Note (see Exhibit 4.2).
21
<PAGE>
10.2(a) The Original Promissory Note Amendment (see Exhibit 4.2(a)).
10.3 Note 2 (see Exhibit 4.3).
10.4 Note 3 (see Exhibit 4.4).
10.5 Note 4 (see Exhibit 4.5).
10.6 The Guaranty (see Exhibit 4.6).
10.7 The Marshall Guaranty (see Exhibit 4.7).
10.8 The Security Agreement (see Exhibit 4.8).
10.9 The Pledge Agreement (see Exhibit 4.9).
10.10 The Mortgage (see Exhibit 4.10).
10.10(a) Mortgage Amendment No. 1 (see Exhibit 4.10(a)).
10.10(b) Mortgage Amendment No. 2 (see Exhibit 4.10(b)).
10.11 The Negative Pledge Agreement (see Exhibit 4.11).
10.12 Sidetrack Agreement, dated June 24, 1983, between SWVA and the
Chesapeake and Ohio Railroad Company ("C&O") (incorporated by
reference to Exhibit 10.25 to the Company's Registration Statement
on Form S-1, No. 33-16845).
10.13 Lease, dated November 1, 1979, between SWVA's predecessor and C&O,
as amended by a letter dated March 2, 1983 (incorporated by
reference to Exhibit 10.36 to the Company's Registration Statement
on Form S-1, No. 33-16845).
10.14(a) Agreement, dated August 30, 1993, between SWVA and Appalachian
Power Company ("Appalachian").
10.14(b) License Agreement, dated September 29, 1992, between SWVA and
Appalachian (incorporated by reference to Exhibit 10.38 to the
Company's Registration Statement on Form S-1, No. 33-55952).
10.14(c) Agreement, dated November 24, 1992, between SWVA and Appalachian
(incorporated by reference to Exhibit 10.39 to the Company's
Registration Statement on Form S-1, No. 33-55952).
10.15* Employment Agreement, dated as of January 1, 1992, between SWVA
and Robert L. Bunting, Jr. (incorporated by reference to Exhibit
10.42 to the Company's Registration Statement on Form S-1, No. 33-
55952).
10.15(a)* Amendment No. 1 to Employment Agreement dated as of August 5,
1993, between SWVA and Robert L. Bunting, Jr. (incorporated by
reference to Exhibit 4.1(d) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, No. 0-16254).
10.16* Management Bonus Plan, effective as of October 1, 1984, for the
benefit of SWVA's eligible employees (incorporated by reference to
Exhibit 10.42 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, No. 0-16254).
____________
* Required to be filed pursuant to Item 14(c) of Form 10-K.
22
<PAGE>
10.17* Management Retirement Plan, effective as of October 1, 1984, by
the Company on behalf of its management employees (including
Amendment No. I and Amendment No. II, each dated January 27, 1989)
(incorporated by reference to Exhibit 10.49 to the Company's
Annual Report on Form 10-K, No. 016254, filed on March 29, 1990).
10.18 Collective Bargaining Agreement, dated June 7, 1993, between SWVA
and the United Steelworkers of America, AFL-CIO (the "Union")
(incorporated by reference to Exhibit 10.26 to the Company's
Current Report on Form 8-K, No. 0-016254, filed on June 9, 1993).
10.19 Collective Bargaining Unit Bonus Plan, effective as of October 1,
1984, for the benefit of SWVA's eligible employees (incorporated
by reference to Exhibit 10.46 to the Company's Registration
Statement on Form S-1, No. 33-16845).
10.20 Collective Bargaining Unit Retirement Plan, effective June 2,
1990, between SWVA and the Union (incorporated by reference to
Exhibit 10.46 to the Company's Registration Statement on Form S-1,
No. 33-55952).
10.21 Indemnification and Contribution Agreement between the Company and
certain Selling Stockholders (incorporated by reference to Exhibit
10.29 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992, No. 0-16254).
10.22 Underwriting Agreement among the Company, certain selling
stockholders and Wheat, First Securities, Inc., dated January 25,
1993 (incorporated by reference to Exhibit 10.30 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992, No. 0-16254).
10.23 1995 Employee Stock Option Plan (filed herewith).
10.24 1995 Non-Employee Director Stock Option Plan (filed herewith).
11.1 Statement re Computation of Per Share Earnings (filed herewith).
21 Subsidiaries of the Company (incorporated by reference to Exhibit
22 to the Company's Registration Statement on Form S-1, No. 33-
16845).
28 Delaware General Corporation Law, Sections 102(b)-(7) and 145 (1)
(incorporated by reference to Exhibit 28 to the Company's
Registration Statement on Form S-1, No. 33-16845).
(b) Reports on Form 8-K:
None.
____________
* Required to be filed pursuant to Item 14(c) of Form 10-K.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
STEEL OF WEST VIRGINIA, INC.
March 8, 1996 By: /s/ Robert L. Bunting, Jr.
----------------------------------------
Robert L. Bunting, Jr.
President, Chief Executive
Officer and Chairman of the
Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Robert L. Bunting, Jr. President, Chief Executive March 8, 1996
- ---------------------------- Officer and Chairman of
Robert L. Bunting, Jr. the Board (Principal
Executive Officer)
/s/ Timothy R. Duke Vice President, Treasurer March 8, 1996
- ---------------------------- and Chief Financial
Timothy R. Duke Officer (Principal
Financial and Accounting
Officer)
/s/ Stephen A. Albert Director March 8, 1996
- ----------------------------
Stephen A. Albert
/s/ Albert W. Eastburn Director March 8, 1996
- ----------------------------
Albert W. Eastburn
/s/ Daniel N. Pickens Director March 8, 1996
- ----------------------------
Daniel N. Pickens
/s/ Paul E. Thompson Director March 8, 1996
- ----------------------------
Paul E. Thompson
24
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Consolidated Financial Statements Page
- ---------------------------------- ----
Report of Independent Auditors..................................... F-1
Consolidated Balance Sheets - December 31, 1995,
and December 31, 1994............................................ F-2
Consolidated Statements of Income - years ended
December 31, 1995, December 31, 1994, and
December 31, 1993................................................ F-3
Consolidated Statements of Cash Flows - years ended
December 31, 1995, December 31, 1994, and
December 31, 1993................................................ F-4
Notes to Consolidated Financial Statements......................... F-5
Financial Statement Schedules
- -----------------------------
Schedule I - Condensed Financial Information
of Registrant..................................... S-1
Schedule II - Valuation and Qualifying
Accounts.......................................... S-4
25
<PAGE>
ERNST & YOUNG LLP 900 United Center Phone: 304 343 8971
500 Virgina Street East (25301) Fax: 304 343 9383
P.O. Box 2906
Charleston, West Virgina 25330
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Steel of West Virginia, Inc.
We have audited the accompanying consolidated balance sheets of Steel of
West Virginia, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income and cash flows for each of
the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedules listed in the Index at Item
14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules 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 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 Steel of West Virginia, Inc. and subsidiaries at December 31,
1995, 1994 and 1993, and the consolidated results of their operations and
cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Charleston, West Virginia
January 19, 1996
<PAGE>
CONSOLIDATED BALANCE SHEETS
STEEL OF WEST VIRGINIA, INC. AND SUBSIDIARIES
(In thousands, except share data)
December 31
1995 1994
--------------------
ASSETS
CURRENT ASSETS
Cash $ 100 $ 1,400
Receivables, net of allowances of $692 and $379 13,148 11,097
Inventories 17,095 15,846
Deferred income taxes 3,110 2,143
Other current assets 1,021 241
---------- --------
TOTAL CURRENT ASSETS 34,474 30,727
Property, plant, and equipment 40,807 43,011
Goodwill 19,134 19,817
Other assets 708 619
---------- --------
TOTAL ASSETS $95,123 $94,174
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 647 $ 757
Accounts payable 5,045 7,894
Accrued payroll and benefits payable 5,240 5,029
Income taxes payable 117 41
Other current liabilities 2,026 1,630
Current maturities of long-term debt 5,885 4,860
---------- --------
TOTAL CURRENT LIABILITIES 18,960 20,211
Long-term debt 11,978 11,542
Deferred income taxes 8,005 7,728
Other long-term liabilities 765 759
---------- --------
TOTAL LIABILITIES 39,708 40,240
STOCKHOLDERS' EQUITY
Common stock, $.01 par value: 12,000,000 voting
shares authorized, 7,091,360 issued and
outstanding 71 71
Paid-in capital 26,597 26,597
Treasury stock (7,983) 0
Retained earnings 36,730 27,266
---------- --------
TOTAL STOCKHOLDERS' EQUITY 55,415 53,934
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $95,123 $94,174
========== ========
See notes to consolidated financial statements.
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
STEEL OF WEST VIRGINIA, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
Year Ended December 31
1995 1994 1993
-----------------------------------
Net sales $129,341 $124,229 $106,354
Cost of sales 107,191 103,327 88,698
----------- ---------- ----------
GROSS PROFIT 22,150 20,902 17,656
Selling and administrative expenses 5,018 5,454 4,432
Interest expense 1,642 898 1,624
Other (income) expense (227) 94 (692)
----------- ---------- ----------
INCOME BEFORE INCOME TAXES 15,717 14,456 12,292
Income taxes 6,253 5,662 5,156
----------- ---------- ----------
NET INCOME $ 9,464 $ 8,794 $ 7,136
=========== ========== ==========
NET INCOME PER COMMON SHARE $ 1.40 $ 1.24 $ 1.03
=========== ========== ==========
See notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
STEEL OF WEST VIRGINIA, INC. AND SUBSIDIARIES
(In thousands)
Year Ended December 31
1995 1994 1993
-----------------------------------
CASH PROVIDED BY
Operations:
Net income $ 9,464 $ 8,794 $ 7,136
Adjustments for items not
affecting funds from
operations:
Depreciation and amortization 6,046 4,954 4,308
Loss on disposal of assets 368 1,070 184
Deferred income taxes (690) (101) 75
Other (83) 523 132
----------- ---------- ----------
15,105 15,240 11,835
Working capital changes related to
operations:
Receivables (2,051) (945) (905)
Inventories (1,249) (123) (2,374)
Other current assets (801) 56 (167)
Accounts payable (2,849) 2,678 (247)
Accrued payroll and benefits
payable 211 (12) 603
Accrued income taxes 76 (545) (605)
Other current liabilities 396 (96) (202)
----------- ---------- ----------
(6,267) 1,013 (3,897)
----------- ---------- ----------
TOTAL CASH PROVIDED BY OPERATIONS 8,838 16,253 7,938
Investment activities:
Additions to property, plant, and
equipment (3,361) (20,596) (3,120)
Acquisition of Marshall Steel, Inc. (4,617)
----------- ---------- ----------
CASH (USED FOR) INVESTMENT ACTIVITIES (3,361) (20,596) (7,737)
Financing activities:
Revolving credit loan 5,875
Long-term debt repayments (4,860) (4,000) (16,264)
Proceeds from debt issue 301 6,000
Purchase of treasury stock (7,983)
Proceeds from sale of common stock 17,687
----------- ---------- ----------
CASH (USED FOR) PROVIDED BY FINANCING
ACTIVITIES (6,667) 2,000 1,423
----------- ---------- ----------
(DECREASE) INCREASE IN CASH (1,190) (2,343) 1,624
Cash (overdraft) net, beginning of year 643 2,986 1,362
----------- ---------- ----------
CASH (OVERDRAFT) NET, END OF YEAR $ (547) $ 643 $ 2,986
=========== ========== ==========
See notes to consolidated financial statements.
F-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STEEL OF WEST VIRGINIA, INC. AND SUBSIDIARIES
December 31, 1995
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Business Operations: Steel of West Virginia, Inc. (the Company) conducts
- -------------------
its operations through two wholly-owned subsidiaries, SWVA, Inc. and
Marshall Steel, Inc. (acquired on April 8, 1993). The Company operates a
steel mini-mill and two steel fabrication facilities for the manufacture
and distribution of special steel sections and steel billets in a single
business segment. The Company is a supplier of products principally to
domestic equipment manufacturers serving the truck-trailer, industrial lift
truck, off-highway equipment, and mining industries with many of these
customers being mature businesses. No single customer accounts for more
than 10% of the Company's net sales, and the Company's operations are tied
closely to general economic conditions. Principal suppliers to the Company
include scrap metal producers and electric power generating utilities. In
addition, a significant portion of the Company's labor force is represented
by the United Steelworkers of America under the terms of a collective
bargaining agreement. As is similar with other mini-mills in the industry,
the Company is subject to federal, state and local environmental laws and
regulations concerning, among other matters, wastewater discharge, air
emissions and furnace dust disposal.
Basis of Presentation: The preparation of financial statements in
- ---------------------
conformity with generally accepted accounting principles requires that
management make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates. The consolidated financial
statements include the accounts of Steel of West Virginia, Inc. and its
wholly-owned subsidiaries. All significant intercompany transactions and
investments have been eliminated.
Financial Instruments: Financial instruments that could potentially
- ---------------------
subject the Company to credit risk are trade accounts receivable. As of
December 31, 1995 and 1994, the Company's accounts receivable from
customers in its principal markets approximated $11,065,000 and $9,646,000.
Trade credit is extended by the Company based on an evaluation of the
customer's financial condition and generally collateral is not required.
Credit losses are provided for in the financial statements, and have
consistently been immaterial and within management's expectations.
Management believes that all significant financial instruments of the
Company are reported in the financial statements at carrying values that
approximate market values.
Inventories: Inventories are stated at the lower of cost or market. Cost
- -----------
is primarily determined by the last-in, first-out (LIFO) method. Mill
rolls, which are included in manufacturing supplies, are expensed when
placed in service.
Property, Plant and Equipment: Property, plant and equipment is stated on
- -----------------------------
the basis of cost. Depreciation for financial statement purposes is
computed on the straight-line basis over the estimated useful life of the
asset. Principal service lives for the assets of the Company are:
buildings--up to 30 years; machinery and equipment--up to 12 years; and
furniture and fixtures--up to 5 years.
In March, 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for the
Long-Lived Assets to Be Disposed Of" that requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present and estimated cash flows from those assets are less
than the assets' carrying value. The Company will adopt Statement No. 121
in the first quarter of 1996. The Company continually analyzes new
processes and equipment that would allow the Company to produce products on
a cost-effective basis so as to enable the Company to maintain its strong
position in each of its niche markets and expand into related markets.
This could result in material write-offs if new production
F-5
<PAGE>
processes or equipment are identified and installed or certain present
processes become impaired.
Income Taxes: The Company adopted Financial Accounting Standards Board
- ------------
Statement SFAS No. 109, "Accounting for Income Taxes," ("SFAS 109") in the
first quarter of 1993, and, as permitted under this new accounting
standard, did not restate any prior year financial statements. In
accordance with SFAS 109, deferred income taxes are recognized under the
"liability method" and are provided for temporary differences between the
financial reporting and income tax bases of the Company's assets and
liabilities using the tax rates anticipated to be in effect when the
corresponding taxes will be paid or refunded.
Goodwill: The excess of cost over the fair market value of net assets
- --------
acquired (goodwill) is being amortized on a straight-line basis over
periods ranging from 15 to 40 years. Accumulated amortization approximated
$4,534,000 and $3,851,000 at December 31, 1995 and 1994, respectively. The
carrying value of goodwill is periodically reviewed based upon an
assessment of operations of the acquired entity. Management is not aware
of any facts or circumstances indicating that the carrying value of
goodwill has been impaired.
Stock-based Compensation: The Company determines compensation cost
- ------------------------
associated with its stock option plans using the "intrinsic" value method
set forth in Accounting Principles Board Opinion No. 25. Under this
method, stock-based compensation expense is measured on the first date that
both the number of shares the employee is entitled to receive and the
exercise price are known, in an amount equivalent to the excess of the
market price over the exercise price. In October 1995, the FASB issued
Statement No. 123 -- "Accounting for Stock-Based Compensation." This
statement, effective in 1996, permits, and the Company intends, to continue
its present accounting practice, but will require additional disclosures
about the Company's stock-based compensation plans, including pro forma
disclosures of net income and earnings per share as if the "fair value"
based method of accounting for stock-based compensation had been applied.
The Company anticipates adopting Statement No. 123 in the first quarter of
1996.
Net Income Per Common Share: Net income per common share is calculated
- ---------------------------
based on the 6,782,127, 7,091,360, and 6,929,948 weighted average number of
common shares and common share equivalents outstanding during the years
ended December 31, 1995, 1994, and 1993, respectively.
NOTE B--INVENTORIES
Inventories consist of the following (in thousands):
December 31
1995 1994
----------------
Raw materials $ 2,013 $ 1,908
Work-in-process 6,089 4,846
Finished goods 10,633 10,372
Manufacturing supplies 3,288 2,750
------- -------
22,023 19,876
Less LIFO reserve 4,928 4,030
------- -------
$17,095 $15,846
======= =======
F-6
<PAGE>
NOTE C--PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following (in thousands):
December 31
1995 1994
----------------
Land $ 1,355 $ 1,355
Buildings 3,965 3,644
Machinery and equipment 60,882 59,397
Furniture and fixtures 632 622
Construction-in-process 930 168
------- -------
67,764 65,186
Less accumulated depreciation 26,957 22,175
------- -------
$40,807 $43,011
======= =======
NOTE D--OTHER CURRENT LIABILITIES
Other current liabilities consist of the following (in thousands):
December 31
1995 1994
----------------
Accrued taxes, other than income taxes $ 1,326 $ 1,268
Other accrued liabilities 700 362
------- -------
$ 2,026 $ 1,630
======= =======
NOTE E--CREDIT ARRANGEMENTS
The Company entered into a senior financing agreement on December 30, 1986,
as subsequently amended, that provides for revolving credit borrowings and
term loans. During 1994, the Company amended its senior credit agreement
to permit the Company to borrow $6 million in 1994 under a new "Capital
Expenditure Line" of credit, and extend the term of the revolving credit
line to January 1, 1998. The loan amendment also enabled the Company to
reduce the interest rates on its existing revolving credit line and term
loans outstanding from the greater of 7% or 3/4% over prime and the greater
of 7% or 1% over prime, respectively, to the Chemical Bank prime rate or
LIBOR plus 1-3/4%; and reduce the annual revolving credit line commitment
fee from 1/2% to 1/8% of the unused balance. In addition, the amendment
permits the Company to convert up to $7 million of its indebtedness to a
fixed interest rate. The senior credit agreement may be terminated by the
Company or, on or after January 1, 1998 and upon 90 days written notice, by
the lender.
A summary of indebtedness under the Company's credit arrangements consists
of the following (in thousands):
December 31
1995 1994
-----------------
Term loan II $ 4,740 $ 7,636
Term loan III 1,807 2,911
Capital Expenditure Line 5,140 6,000
Revolver 5,875 -
Other notes payable 301 -
Unamortized debt financing costs - (145)
------- -------
TOTAL 17,863 16,402
Less current maturities of long-term debt 5,885 4,860
------- -------
$11,978 $11,542
======= =======
Amounts outstanding under the term loan portion of the senior financing
agreement are scheduled to be repaid in quarterly principal installments
totaling as follows: 1996--$5,000,000; 1997--$1,547,050. The Capital
Expenditure Line
F-7
<PAGE>
portion of the loan agreement is required to be repaid in 27 quarterly
principal installments of $215,000, beginning January 1, 1995, with a final
principal payment of $195,000. As of December 31, 1995, the revolving
credit line loan balance, due January 1, 1998, was $5,875,000, and the
unused borrowing availability approximated $4,125,000.
Interest is paid monthly in accordance with the Company's lending agreement
and approximated $1,411,000, $1,087,000, and $2,074,000 during the years
ended December 31, 1995, 1994, and 1993, respectively. The weighted
average interest rate on short-term borrowings during the years ended
December 31, 1995, 1994, and 1993 approximated 7.8%, 6.6%, and 7.0%,
respectively.
The Company's senior lending agreement contains various restrictive
covenants, including that the Company must maintain specified levels of
working capital and net worth (as defined in the agreement). In addition,
capital expenditures and dividends are limited to the annual amounts set
forth in the agreement. At December 31, 1995, the Company's retained
earnings available for dividends in 1996 is $4,710,000. As a result of the
lending agreement, substantially all of the Company's property, plant, and
equipment, inventory and accounts receivable are subject to a third party's
security interests.
NOTE F--SELF INSURANCE
The Company is self-insured at its Huntington, West Virginia facility for
employees' medical care costs and workers' compensation claims up to
certain specified dollar limits. The Company has excess coverage provided
by the West Virginia Workers' Compensation Fund (a state agency) for
certain work-related injuries. In connection with the self-insured
workers' compensation program, the Company has obtained an irrevocable
standby letter of credit in the amount of $1,000,000 (through July 1996).
Under the medical care program, the Company is insured by a private carrier
for individual claims in excess of specific dollar limits. At its Memphis,
Tennessee facility, the Company is insured through a private carrier for
medical care costs and workers' compensation claims. A liability has been
established for those illnesses and injuries occurring on or before
December 31, 1995, for which an amount of expected loss could be reasonably
estimated. Costs and expenses for medical care and workers' compensation
during the years ended December 31, 1995, 1994 and 1993 approximated
$5,579,000, $4,815,000, and $5,144,000, respectively.
Under informal arrangements, the Company currently provides post-employment
health care benefits to each person who becomes disabled, is not expected
to return to the active work force and is not covered by another health
insurance plan. The expected cost of such benefits is accrued in amounts
which are reasonably estimable upon a determination that such costs are
probable of occurring, and included in the costs and expenses for medical
care and workers' compensation disclosed above. In contrast to the retiree
health insurance commonly provided in the domestic steel industry, the
Company offers no material postretirement employee health care or other
benefit program subject to accounting under the provisions of Statement of
Financial Accounting Standards No. 106--"Employers' Accounting for
Postretirement Benefits Other Than Pensions," which became effective in
1993.
The Company is subject to federal and state environmental laws and
regulations concerning, among other matters, air emissions, furnace dust
disposal, and waste water effluents. Estimated costs to be incurred in
connection with environmental matters are accrued when the prospect of
incurring cost for testing or remedial action is deemed probable.
Management is not aware of any asserted or unasserted claims or regulatory
actions against the Company, and accordingly no provision for such matters
has been reflected in the Company's financial statements.
NOTE G--STOCKHOLDERS' EQUITY
In February 1993, the Company completed the sale of 1,936,942 newly issued
shares of its voting common stock resulting in net proceeds to the Company
of $17,687,000. In addition, certain of the Company's stockholders,
together with the Company's senior lender, simultaneously completed the
sale of 2,663,058 shares of previously outstanding, but unregistered shares
of the Company's common
F-8
<PAGE>
stock. The Company bore the entire costs of registering and issuing all of
the shares of common stock, except for underwriters' commissions relative
to the sale of the previously outstanding shares. The proceeds to the
Company were used to voluntarily prepay its subordinated indebtedness, and
provide approximately $9,057,000 of additional funds for general corporate
purposes, of which $5,000,000 was used to voluntarily prepay a portion of
the Company's senior debt.
In 1994 and 1995, the Company's Board of Directors authorized management to
buy back up to 1,200,000 shares of its common stock from time to time.
During 1995 the Company purchased 755,300 shares at a cost of $7,983,000.
On March 16, 1995, the Board of Directors adopted and the stockholders
subsequently approved the Management Option Plan and the Director Option
Plan (Plans). These plans provide that options to acquire shares of the
Company's Common Stock (Options) may be granted to officers, key employees
and directors of the Company or its designated subsidiaries. Under the
Plans, an option holder must be employed or be a director one year from the
grant date to vest in the ability to exercise the option.
A summary of transactions in the plans are as follows:
1995
-------
Options granted during and outstanding at end of year 79,500
Option price $11 5/8
At December 31, 1995, under vesting provisions of the plans, no options
were exercisable.
NOTE H--PROFIT-SHARING AND BONUS COSTS
The Company has bonus and retirement arrangements at its Huntington, West
Virginia facility for both bargaining unit and non-bargaining unit
employees which, in effect, are defined contribution profit-sharing plans
qualified under Internal Revenue Code Section 501. The Company is required
to contribute an amount equal to the lesser of $125 per bargaining unit
employee per month or 17% of pre-tax profit, as defined, to a retirement
trust for the future benefit of the union employees. The amount, if any,
that 17% of pre-tax profits exceeds the retirement contribution, is
required to be paid to the bargaining unit employees on a semi-annual basis
as a cash bonus.
Substantially all non-bargaining unit employees of the Company are entitled
to receive a semi-annual cash bonus equal to the amount paid to bargaining
unit employees computed on a per employee basis. Additionally, the Company
contributes an amount, equal to the lesser of 5% of non-bargaining wages or
a lower percentage if 17% of pre-tax profits is less than the $125 per
month per bargaining unit employee contribution, for the future retirement
benefit of the non-bargaining unit employees.
Costs related to cash bonuses and amounts set aside for retirement benefits
under the profit-sharing plans approximated $3,746,000 and $953,000 during
1995, $3,310,000 and $942,000 during 1994, and $2,890,000 and $888,000
during 1993. Contributions to the retirement accounts in 1995, 1994 and
1993 were $946,000, $937,000, and $870,000, respectively. The Company has
complied with all funding requirements under the terms of the retirement
trusts.
F-9
<PAGE>
NOTE I--INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
December 31
1995 1994
Deferred tax assets--current: ----------------------
Bad debt and sales allowances $ 290 $ 218
Bonus accruals 554 459
Self-insurance 1,685 1,671
Other 727 307
Total current deferred tax assets 3,256 2,655
--------- --------
Deferred tax liabilities--current:
Inventory costing 146 512
--------- ---------
Net deferred tax assets--current $ 3,110 $ 2,143
========= =========
Deferred tax liabilities--noncurrent:
Differences in basis of fixed assets
arising from purchase accounting
and accelerated depreciation $ 8,005 $ 7,728
--------- ---------
Total long-term deferred tax liabilities $8,005 $7,728
========= =========
The provision for income taxes consists of the following (in thousands):
Year Ended December 31
1995 1994 1993
-----------------------------------------
Federal--current $5,916 $5,061 $3,916
Federal--deferred (639) (16) 68
State--current 1,027 702 1,165
State-deferred (51) (85) 7
---------- ---------- ----------
$6,253 $5,662 $5,156
========== ========== ==========
A reconciliation of statutory federal income tax rates to the Company's
effective income tax rates is as follows:
Year Ended December 31
1995 1994 1993
------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
State income tax provision net
of federal tax benefits 4.0 2.8 6.2
Amortization of goodwill 1.3 1.4 1.6
Other, net (.5) 0.0 (.9)
-------- -------- --------
Effective income tax rate 39.8% 39.2% 41.9%
======== ======== ========
Income taxes paid approximated $7,254,000, $6,307,000, and $5,284,000
during the years ended December 31, 1995, 1994 and 1993, respectively.
F-10
<PAGE>
NOTE J--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1995 and 1994:
Three Months Ended
December 31 September 30 June 30 March 31
--------------------------------------------------
(In thousands, except per share amounts)
1995
- ----
Net Sales $32,249 $32,551 $31,641 $32,900
Cost of goods sold 26,800 26,789 26,043 27,559
Net income 2,307 2,449 2,513 2,195
Net income per common share .36 .37 .36 .31
1994
- ----
Net sales $30,351 $34,106 $31,410 $28,362
Cost of goods sold 25,435 28,630 26,146 23,116
Net income 2,026 2,160 2,480 2,128
Net income per common share .29 .30 .35 .30
Primary and fully dilutive per share amounts are the same. Per share
amounts in 1995 are based upon weighted average number of shares
outstanding for the quarters ended March 31, June 30, September 30, and
December 31 of 7,091,360, 6,951,693, 6,630,260 and 6,455,193, respectively.
Per share amounts in 1994 are based upon 7,091,360 weighted average number
of shares outstanding for all quarters.
F-11
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Steel of West Virginia, Inc.
December 31
CONDENSED BALANCE SHEETS (000'S) 1995 1994
------------------------
CURRENT ASSETS
Cash $ 0 $ 13
NONCURRENT ASSETS
Investments in and advances to
wholly-owned subsidiaries 55,171 53,762
Other assets 294 165
---------- ----------
TOTAL ASSETS $55,465 $53,940
========== ==========
LIABILITIES
Accrued payroll and benefits payable $ 0 $ 6
Other liabilities 50 0
---------- ----------
TOTAL LIABILITIES 50 6
EQUITY
Common Stock 71 71
Paid-in Capital 26,597 26,597
Treasury Stock (7,983) 0
Retained Earnings 36,730 27,266
---------- ----------
TOTAL EQUITY 55,415 53,934
---------- ----------
TOTAL LIABILITIES AND EQUITY $55,465 $53,940
========== ==========
Year Ended December 31
CONDENSED STATEMENT OF INCOME (000'S) 1995 1994 1993
-----------------------------------
REVENUES
Interest Income $ 198 $ 212 $ 237
EXPENSES
Amortization 61 81 81
Administrative 33 91 0
---------- ---------- ---------
Income before income taxes
and equity in undistributed
earnings of wholly-owned
subsidiaries 104 40 156
32 15 42
Income taxes ---------- ---------- ---------
Income before equity in
undistributed earnings of wholly-owned
subsidiaries 72 25 114
Equity in undistributed earnings of
wholly-owned subsidiaries 9,392 8,769 7,022
---------- ---------- ---------
NET INCOME $ 9,464 $ 8,794 $ 7,136
S-1
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(CONTINUED)
Steel of West Virginia, Inc.
Year Ended December 31
CONDENSED STATEMENT OF CASH FLOWS (000'S) 1995 1994 1993
--------------------------------
CASH (USED FOR) PROVIDED BY OPERATIONS $ (13) $ 127 $ 0
Investment activities:
Investment in Steel Ventures, Inc. 0 (23) 0
Investment in Marshall Steel, Inc. 0 0 (1,000)
---------- ---------- --------
CASH (USED FOR) INVESTMENT ACTIVITIES 0 (23) (1,000)
Financing activities:
Advances from subsidiaries 7,983 (91) 0
Advances to subsidiaries 0 (16,687)
Purchase of treasury stock (7,983) 0 0
Proceeds from sale of common stock 0 0 17,687
---------- ---------- --------
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES 0 (91) 1,000
(DECREASE) INCREASE IN CASH (13) 13 0
Cash, beginning of year 13 0 0
---------- ---------- --------
CASH, END OF YEAR $ 0 $ 13 $ 0
========== ========== ========
See note to condensed financial statements of registrant.
S-2
<PAGE>
NOTE A TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
Basis of Presentation: The investments in wholly owned subsidiaries are
- ---------------------
stated at cost plus equity in undistributed earnings of those subsidiaries.
Parent company only statements should be read in conjunction with the
Company's consolidated financial statements and notes thereto.
Guarantee: The Company serves as Guarantor for all of the indebtedness
- ---------
incurred by its wholly owned subsidiary, SWVA, Inc. under the terms of a
senior credit agreement dated December 30, 1986, as amended and more fully
described in Note E to the Company's consolidated financial statements. At
December 31, 1995, the total amount outstanding under the terms of this
agreement was $17,562,000. The primary source of funds for any regular
dividends declared by the Company is dividends received from its
subsidiaries. SWVA, Inc.'s lending agreement limits the amount of
dividends it may pay to the Company to 50% of its net income for the
preceding year, subject to further limitations relating to minimum levels
of SWVA, Inc. working capital and net worth. At December 31, 1995, the
Company's retained earnings available for dividends in 1996 is $4,710,000.
S-3
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Steel of West Virginia, Inc.
BALANCE AT CHARGED TO CHARGED DEDUC- BALANCE
BEGINNING COSTS AND TO OTHER TIONS AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (1) PERIOD
- -------------- -------------- ------------- ------------- ----------- ----------
(000'S)
Year ended December 31, 1995:
ALLOWANCE FOR $350 $55 $405
BAD DEBTS
Year ended December 31, 1994:
ALLOWANCE FOR $318 $32 $350
BAD DEBTS
Year ended December 31, 1993:
ALLOWANCE FOR $300 $18 $318
BAD DEBTS
(1) - Accounts receivable charged against the allowance
S-4
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
CHARTER STEEL, INC.
I, THE UNDERSIGNED, in order to form a corporation for the
purposes hereinafter stated, under and pursuant to the provisions of the
General Corporation Law of the State of Delaware, do hereby certify as
follows:
FIRST: The name of the corporation is Charter Steel, Inc.
SECOND: The registered office of the corporation is to be
located at 229 South State Street, in the City of Dover, in the County of
Kent, in the State of Delaware. The name of its registered agent at that
address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.
Without limiting in any manner the scope and generality of the
foregoing, it is hereby provided that the corporation shall have the power
to do all and everything necessary suitable and proper for the
accomplishment of any of the purposes or the attainment of any of the
objects or the furtherance of any of the powers of which a corporation may
be organized under the General Corporation Law of the State of Delaware,
either alone or in association with other corporations, firms or
individuals, and to do every other act or acts, thing or things incidental
or appurtenant to or growing out of or connected with the corporation's
business or powers or any part or parts thereof, provided the same be not
inconsistent with said General Corporation Law; and shall have the power to
conduct and carry on its business, or any part thereof, and to have one or
more offices, and to exercise any or all of its corporate powers and
rights, in the State of Delaware, and in the various other states,
territories, colonies and dependencies of the United States, in the
District of Columbia, and in all or any foreign countries.
A-2
<PAGE>
FOURTH: The total number of shares of stock which the
corporation is authorized to issue is One Thousand (1,000) shares of Common
Stock, par value of $.01 per share.
FIFTH: The name and address of the sole incorporator are as
follows:
Name Address
Marilynn K. Beatty 488 Madison Avenue
New York, New York 10022
SIXTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the corporation, and for
further definition, limitation and regulation of the powers of the
corporation and its directors and stockholders:
1. The number of directors of the corporation shall be such
as from time to time shall be fixed by, or in the manner provided in
the by-laws. Election of directors need not be by ballot unless the
by-laws so provide.
2. The Board of Directors shall have power without the
assent or vote of the stockholders:
(a) To make, alter, amend, change, add or repeal all the
by-laws of the corporation; to fix and vary the amount to be
reserved for any proper purpose, to authorize and cause to be
executed mortgages and liens upon all or any part of the
property of the corporation; to determine the use and disposition
of any surplus or net profits; and to declare dividends; to fix
the record date and the date for the payment of any dividends;
and
(b) To determine from time to time whether and to what
extent, and at what times and places, and under what conditions
and regulations, the accounts and books of the corporation (other
than the stock ledger) or any of them, shall be open to the
inspection of the stockholders.
3. The directors in their discretion may submit any contract
or act for approval or ratification by the written consent of the
stockholders, or at any annual meeting of the stockholders or at any
special meeting of
A-3
<PAGE>
the stockholders called for the purpose of considering any such act or
contract, and any contract or act that shall be approved or ratified
by the written consent or vote of the holders of a majority of the
stock of the corporation (which in the case of a meeting is
represented in person or by proxy at such meeting, provided a lawful
quorum of stockholders be there represented in person or by proxy)
shall be as valid and as binding upon the corporation and upon all the
stockholders as though it had been approved or ratified by every
stockholder of the corportion, whether or not the contract or act
would otherwise be open to legal attack because of the directors'
interest, or for any other reason.
4. In addtion to the powers and authorities herinbefore or
by statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the corporation; subject, nevertheless,
to the provisions of the statutes of Delaware, of this certificate,
and to any by-laws from time to time made by the stockholders;
provided, however, that no by-laws so made shall invalidate any prior
act of the directors which would have been valid if such by-laws had
not been made.
5. No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal
benefit.
SEVENTH: The corporation shall, to the full extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as
amended from time to time, indemnify all persons whom it may indemnify
pursuant thereto.
EIGHTH: Whenever a compromise or arrangement is proposed between
the corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the applicaiton
in a summary way of the corporation or any creditor or stockholders thereof
or on the application of any receiver or receivers
A-4
<PAGE>
appointed for the corporation under the provisions of Section 291 of Title
8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for the corporation under the
provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class
of stockholders of the corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the corporation, as the case
may be, agree to any compromise or arrangement and the said reorganization
of the corporation as a consequence of such compromise or arrangement, the
said compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been made, be
binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the corporation, as the case may
be, and also on the corporation.
NINTH: The corporation reserves the right to amend, alter,
change or repeal an provision contained in this certificate of
incorporation in the manner now or hereafter prescribed by law, and all
rights and powers conferred herein on stockholders, directors and officers
are subject to this reserved power.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 7th
day of November, 1986.
/s/Marilynn K. Beatty
------------------------
Marilynn K. Beatty
Sole Incorporator
A-5
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CHARTER STEEL, INC.
It is hereby certified that:
1. The name of the corporation (herein called the "Corporation")
is Charter Steel, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking Article "FOURTH" thereof and by substituting in lieu of
said Article the following new Article:
"FOURTH: The total number of shares of stock which the
Corporation is authorized to issue is Twenty thousand (20,000) shares of
Common Stock, par value of $.01 per share.
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of
Section 241 of the General Corporation Law of the State of Delaware by
unanimous written consent of the sole Incorporator dated December 12, 1986,
said amendment having been duly adopted by the sole Incorporator prior to
the election of any directors of the Corporation and prior to the receipt
of any payment for any of the Corporation's stock.
IN WITNESS WHEREOF, Charter Steel, Inc. has caused this
Certificate to be signed by its sole Incorporator this 12th day of
December, 1986.
CHARTER STEEL, INC.
/s/Marilynn K. Beatty
------------------------
Marilynn K. Beatty
Sole Incorporator
A-7
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CHARTER STEEL, INC.
It is hereby certified that:
1. The name of the corporation (herein called the "Corporation")
is Charter Steel, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking Article "FOURTH" thereof and by substituting in lieu of
said Article the following new Article:
"FOURTH: The total number of shares of stock which the
corporation is authorized to issue is Forty thousand (40,000) shares
of Common Stock of which (a) twenty thousand (20,000) shall be
designated Class A Common Stock with a par value of $.01 per share and
shall entitle the holders thereof to one (1) vote per share, and (b)
twenty thousand (20,000) shall be designated class B Common Stock with
a par value of $.01 per share and shall not entitle the holders
thereof to any voting rights with respect thereto. Every reference in
the General Corporation Law of the State of Delaware, this Certificate
of Incorporation or by the By-Laws of the corporation to a majority or
other proportion or percentage of capital stock shall refer to a
majority or other proportion or percentage of the aggregate votes of
the outstanding shares of Class A Common Stock. In every other
respect, the rights and privileges of the shares of Class A Common
Stock and Class B Common Stock shall be identical. A holder or shares
of Class B Common Stock other than the initial holder thereof, shall
have the right at any time and from time to time upon notice to the
corporation to convert such shares into shares of Class A Common Stock
on the basis of one share of Class A Common Stock for each share of
Class B Common stock so converted. Shares of Class B Common Stock
which shall have been converted into shares of Class A Common Stock
shall thereafter not be issued by the
A-9
<PAGE>
corporation. At such time as all shares of Class B Common Stock shall
have been converted into shares of Class A Common Stock, then (i) no
shares of Class B Common Stock shall thereafter be issued by the
corporation; (ii) the Class A common Stock shall thereafter be
designated "Common Stock"; and (iii) the total number of shares of
capital stock which the corporation shall thereafter be authorized to
issue shall be changed to 40,000 shares of Common Stock, without
designation as to class."
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of
Section 241 of the General Corporation Law of the State of Delaware by
unanimous written consent of the sole Incorporator dated December 19, 1986,
said amendment having been duly adopted by the sole Incorporator prior to
the election of any directors of the Corporation and prior to the receipt
of any payment for any of the Corporation's stock.
IN WITNESS WHEREOF, CHARTER STEEL, INC. has caused this
Certificate to be signed by its sole Incorporator this 19th day of
December, 1986.
CHARTER STEEL, INC.
/s/Marilynn K. Beatty
------------------------
Marilynn K. Beatty
Sole Incorporator
A-10
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CHARTER STEEL, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Charter Steel, Inc.
2. The Certificate of Incorporation of the Corporation
is hereby amended by striking out Article "FIRST" thereof and
by substituting in lieu of said Article, the following new
Article:
"FIRST: The name of the Corporation is Steel of West
Virginia, Inc."
3. The Certificate of Incorporation of the Corporation
is hereby amended by striking out Article "FOURTH" thereof and
by substituting in lieu of said Article, the following new
Article:
"FOURTH: The total number of shares of capital
stock that may be issued by the Corporation is Eight Million
Five Hundred Thousand (8,500,000.) shares of which (a)
8,000,000. shares shall be common stock, par value $0.1 per
share, which shall be designated Common Stock ("Voting Common
Shares"), and (b) 500,000 shares shall be common stock,
par value $.01 per share, which shall be designated Non-voting
Common Stock ("Non-voting Common Shares") (the Voting Common
Shares and Non-voting Common Shares shall hereinafter
collectively be referred to as "Common Shares"). Each of
the currently outstanding shares of Class A Common Stock, par
value $.01 per share, shall be automatically converted and
split into three hundred forty (340) Voting Common Shares and
the currently outstanding shares of Class B Common Stock, par
Value $.01 per share, shall be automatically converted and
split into three hundred forty (340) Non-voting Common Shares;
with the result that (i) the 9,280 currently outstanding
shares of Class A Common Stock shall be converted and split
into a total of 3,156,200 shares of Common Stock and (ii) the
A-12
<PAGE>
720 currently outstanding shares of Class B Common Stock shall
be converted and split into a total of 244,800 shares of Non-
voting Common Stock. No fractional Common Shares of scrip
representing fractional shares shall be issued upon such
automatic conversion, but in lieu thereof, there shall be paid
an amount in cash at the rate of $1.382 per share.
The designations, rights, powers and preferences of, and
the qualifications, limitations and restrictions on, the
shares of each such series of Common Shares of the Corporation
are as follows:
1. Dividends. Dividends may be paid upon the
---------
outstanding Common Shares (on a pro rata basis among all such
shares outstanding as of the record date fixed by the Board of
Directors for the relevant dividend) from time to time when
and as declared by the Board of Directors out of any funds
legally available therefor.
2. Liquidation. Upon any liquidation, dissolution or
-----------
winding up of the affairs of the Corporation, the then holders
of record of the outstanding Common Shares shall be entitled
to receive pro rata any and all assets of the Corporation re-
maining available for distribution.
3. Voting Rights. Except as otherwise provided by the
-------------
Delaware General Corporation Law or any other applicable
statute or by any express provision of this Certificate:
(a) the holders of record of Voting Common Shares
shall be entitled to one vote for each share for the election
of directors and upon all other matters submitted to a vote of
the stockholders of the Corporation:
(b) the holders of record of Non-voting Common
Shares shall not be entitled to notice of, or to attend or
vote at, any annual or special meeting of the stockholders of
the Corporation.
Except as other wise provided in this Section 3 or in
Sections 4, 5 and 6 below, Common Shares of each series shall
have the identical rights, powers and preferences and be sub-
ject to the identical qualifications, limitations and
restrictions.
4. Optional Conversion of Non-voting Common Shares into
----------------------------------------------------
Voting Common Shares
--------------------
(a) Each holder of one or more Non-voting Common
Shares shall have the right, at that holder's option, to con-
vert those Non-voting Common Shares into Voting Common Shares
A-13
<PAGE>
at the rate of one Non-voting Common Share for one Voting Com-
mon Share, subject to and in accordance with the terms and
conditions of this Section 4; provided, however, that no such
--------- --------
holder of Non-voting Common Shares that is a Regulated Person
shall be entitled to effect any such conversion thereof if the
conversion would cause that holder to be in violation of any
rules or regulations of the Board of Governors of the Federal
Reserve System as shall be in effect and applicable to that
holder at the time of the proposed conversion (the "Bank
Regulations"). For the purposes hereof, the term "Regulated
Person" shall mean an entity that is subject to regulation by
the Board of Governors of the Federal Reserve System. In
connection with any such conversion of Non-voting Common
Shares, the holder proposing to effect that conversion shall
provide to the Corporation, together with the notice of
conversion required pursuant to Section 4(c) below, a
certificate confirming either that it is not a Regulated
Person or that the conversion would not cause it to be in
violation of the Bank Regulations, together with such
supporting information as the Corporation shall reasonably
require to confirm the accuracy of that certificate.
(b) Non-voting Common Shares shall be convertible into
fully paid and non-assessable Voting Common Shares at the rate
herein specified, without payment or adjustment for any
dividends declared and unpaid on the Non-voting Common Shares
surrendered for conversion to the date of conversion. Any
such declared and unpaid dividends shall constitute a debt of
the Corporation, payable without interest to the converting
holder on the date fixed by the Board of Directors as the
record date for such dividend.
(c) To convert some or all of his Non-voting Common
Shares into Voting Common Shares, the holder thereof shall
surrender to the Corporation the certificate(s) evidencing
those Non-voting Common Shares, duly endorsed to the Corpora-
tion or in blank, and shall give written notice to the
Corporation that he elects to convert the same into Voting
Common Shares and the name(s) in which the holder wishes the
certificate(s) evidencing the shares issuable upon such
conversion to be issued. As soon as reasonable practicable
thereafter, the Corporation shall deliver to that holder, or
to his nominee(s), one or more certificates evidencing the
number of shares to which the holder shall be entitled as
aforesaid. Non-voting Common Shares shall be deemed to have
been converted as of the date of surrender thereof for
conversion as aforesaid, and the person(s) entitled to receive
the shares issuable upon such conversion shall be treated for
all purposes as the record holder(s) of those shares on that
date, and each such share shall be deemed outstanding on that
date.
A-14
<PAGE>
(d) The issuance of certificates evidencing Voting Common
Shares upon Conversion of Non-voting Common Shares shall be made without
charge to the converting holder for any tax in respect of the issuance of
such certificates; provided, however, 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 upon any such conversion of any
certificate representing shares in a name other than that of the holder of
the Non-Voting Common Shares so converted, and the Corporation shall not be
required to issue or deliver such certificates unless or until the
person(s) requesting the issuance thereof shall have established to the
satisfaction of the Corporation that such tax has been paid.
(e) The Corporation shall at all times reserve and keep
available out of its authorized but unissued Voting Common Shares, solely
for the purpose of effecting the conversion of Non-voting Common Shares
pursuant to this Section 4 and Section 5 below, the full number of whole
Voting Common Shares then deliverable upon the conversion of all of the
Non-voting Common Shares convertible into Voting Common Shares at the time
outstanding.
5. Automatic Conversion of Non-voting Common Shares into
-----------------------------------------------------
Voting Common Shares.
- --------------------
(a) Non-voting Common Shares shall be automatically
converted, on a one-for-one basis, into fully paid and nonassessable Voting
Common Shares (i) upon the sale of any such shares pursuant to a public
offering registered under the Securities Act of 1933 (the "Act"), (ii) upon
the sale of any such shares in a broker's transaction or a transaction
directly with a market maker within the meaning of Rule 144 under the Act
(a"Permitted Sale") or (iii) with respect to the shares of andy holder of
Non-voting Common Shares, act such time as the total number of Voting
Common Shares and Non-voting Common Shares of such holder would represent
less than 5% of the total number of Voting Common Shares outstanding,
taking into account the number of Voting Common Shares which will be held
upon the conversion of the Non-voting Common Shares to Voting Common
Shares. Each of the events described in clauses (i), (ii), and (iii)
herein shall hereinafter be referred to as a "Conversion Event".
(b) Upon the occurrence of a Conversion Event,
holders of Non-voting Common Shares shall surrender for cancellation to the
Corporation the certificate(s) which, immediately prior to a Conversion
Event, represented outstanding Non-voting Common Shares and, in the case of
a Permitted Sale, a certificate confirming that such shares were obtained
in a
A-15
<PAGE>
Permitted Sale, together with such supporting information as the
Corporation shall reasonably require to confirm the accuracy of the
certificate. As soon as reasonably practicable after the surrender of said
certificate(s), the Corporation shall deliver to the holder of such
certificate(s), or to his nominee(s), one or more certificates evidencing
the number of Voting Common Shares into which those Non-Voting Common
Shares shall have been automatically converted as a result of such
Conversion Event. No payment or adjustment shall be made for any
dividends declared and unpaid on the Non-voting Common Shares surrendered
to the date of such Conversion Event. Any such declared and unpaid
dividends shall constitute a debt of the Corporation, payable without
interest to the holder of the converted Non-voting Common Shares on the
date fixed by the Board of Directors as the record date for such dividend.
The Voting Common Shares into which the Non-voting Common Shares shall be
converted as a result of a Conversion Event shall be deemed to have been
issued at the time of the Conversion Event.
6. Automatic Conversion of Voting Common Shares into Non-voting
------------------------------------------------------------
Common Shares
- -------------
(a) In the event that the amount of Voting Common Shares
held by Regulated Person is in an amount equal to or greater than 5% of
the total number of Voting Common Shares outstanding, an amount of such
Regulated Person's Voting Common Shares sufficient to bring such Regulated
Person's holdings of Voting Common Shares to less than 5% shall be
automatically converted, on a one-for-one basis, into fully paid and non-
assessable Non-voting Common Shares which event shall hereinafter be
referred to as a "Subsequent Conversion Event.": and
(b) Upon such occurrence of a Subsequent Conversion Event,
holders of Voting Common Shares shall surrender for cancellation to the
Corporation the certificate(s) which, immediately prior to a Subsequent
Conversion Event, represented outstanding Voting Common Shares together with
such supporting information as the Corporation shall reasonably require to
confirm the accuracy of the certificate. As soon as reasonably practicable
after the surrender of said certificate(s), the Corporation shall deliver
to the holder of such certificate(s), or to his nominee(s), one or more
certificates evidencing the number of Non-voting Common Shares into which
those Voting Common Shares shall have been automatically converted pursuant
to Section 6 (a) hereof. No payment or adjustment shall be made for any
dividends declared and unpaid on the Voting Common Shares surrendered to
the date of such Subsequent Conversion Event. Any such declared and unpaid
dividends shall constitute a debt of the Corporation, payable
A-16
<PAGE>
without interest to the holder of the converted Voting Common Shares on the
date fixed by the Board of Directors as the record date for such dividend.
The Non-voting Common Shares into which the Voting Common Shares shall be
converted pursuant to Section 6 (a) hereof as a result of a Subsequent
Conversion Event shall be deemed to have been issued at the time of the
Subsequent Conversion Event."
4. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware by
unanimous written consent of the Board of Directors and by written consent
of the holders of a majority of the outstanding stock of the Corporation
pursuant to Section 228(c) of the General Business law, written notice of
the adoption of the amendments herein having been given to those
stockholders who have not consented in written notice of the adoption of
the amendments herein having been given to those stockholders who have not
consented in writing thereto.
IN WITNESS WHEREOF, Charter Steel, Inc. has caused this certificate
to be signed by its Chairman of the Board and attested by its Secretary
this 24 th day of August, 1987.
-----
CHARTER STEEL, INC>
By: /s/ Patricia R. Merrick
-------------------------
Patricia R. Merrick
Chairman of the Board
ATTEST
/s/ Eric M. Mencher
- ----------------------
Eric M. Mencher
Assistant Secretary
A-17
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
STEEL OF WEST VIRGINIA, INC.
The undersigned corporation, in order to amend its Certificate of
Incorporation, hereby certifies as follows:
FIRST: The name of the corporation is:
Steel of West Virginia, Inc.
SECOND: The corporation hereby amends its Certificate of Incorporation as
follows:
Paragraph FOURTH of the Certificate of Incorporation, relating to the capital
stock of the corporation is hereby amended to read, in its entirety, as follows:
FOURTH: The total number of shares of capital stock that the corporation
shall have authority to issue is twelve million (12,000,000) shares of Common
Stock, par value $.01 per share.
THIRD: The amendment effected herein was authorized by vote of a majority of
stockholders at the annual meeting of stockholders of the corporation pursuant
to Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the statements
made herein are true under the penalties of perjury, this 16th day of
November, 1995.
By: /s/ Timothy R. Duke
---------------------------
Name: Timothy R. Duke
Title: Vice President
ATTESTED AND ACKNOWLEDGED:
/s/ Stephen A. Albert
- ---------------------------
Name: Stephen A. Albert
Title: Secretary
Exhibit 4.1(g)
[THE CIT GROUP LETTERHEAD]
[LOGO]
February 28, 1996
SWVA, Inc.
17th Street and 2nd Avenue
Huntington, WV 25726
Gentlemen:
Reference is made to the Financing Agreement between us dated December
30, 1986, 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.
Based upon the most recent financial information available to us, it
appears that you may have exceeded the maximum amount of inter-company
loans and/or advances permitted to be made to Marshall Steel, Inc. under
Section 6, Paragraph 12G of the Financing Agreement. We hereby confirm our
agreement that the foregoing action shall not constitute, or be deemed to
constitute a Default and/or Event of Default under, or violation of, the
terms provisions or conditions of the Financing Agreement.
It is further agreed that, effective immediately, the Financing Agreement
shall be, and hereby is, amended as follows:
(1) The definition of "Line of Credit" in Section 1, of the Financing
Agreement shall be, and hereby is, amended in its entirety to read as
follows:
"Line of Credit shall mean the sum of $15,000,000."
--------------
(2) Section 6, paragraph 12G of the Financing Agreement shall be, and
hereby is, amended by increasing the dollar amounts of "$1,500,000" and
"$10,000,000" respectively as they appear in clause (ii) of such paragraph
to "$2,500,000" and "$15,000,000" respectively.
<PAGE>
In addition, we hereby confirm our agreement to waive payment of any
Mandatory Prepayment that may be due pursuant to Section 3, Paragraph 5 of
the Financing Agreement based upon Surplus Cash for the fiscal year ending
December 31, 1995, and we further confirm that failure to make any such
payment shall not constitute or be deemed to constitute a Default or Event
of Default under or violation of, the terms, provisions or conditions of
the Financing Agreement.
In consideration of (i) our execution of this agreement and (ii) the
preparation of this agreement by our in-house legal department and
facilities you agree to pay us an Accommodation/Documentation Fee of
$10,000. Such fee shall be due and payable on the date hereof and may (at
our option) be charged to your Revolving Loan Account on the date thereof.
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 of any other existing Default or
Event of Default (whether or not we have knowledge thereof) and shall not
constitute a waiver of any future Default or Event of Default. The
effectiveness of the foregoing is subject to (x) Marshall Steel, Inc.
signing below to confirm its agreement that the dollar limitation on its
guaranty of your Obligations to us shall be, and hereby is, increased from
"$1,500,000" to "$2,500,000"; and (y) Steel of West Virginia, Inc. and
Marshall Steel, Inc. signing below to confirm that their respective
guaranties of your Obligations to us shall continue in full force and
effect in accordance with, and subject to, the respective terms and
provisions thereof (as amended hereby), notwithstanding the foregoing
amendment. 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: /s/ Robert Bernier
----------------------
Title: Vice President
Read and Agreed to:
SWVA, INC.
<PAGE>
By: /s/ Timothy R. Duke
--------------------
Title: VP & CFO
Confirmed:
STEEL OF WEST VIRGINIA, INC.
By: /s/ Timothy R. Duke
--------------------
Title: VP & CFO
MARSHALL STEEL, INC.
By: /s/ Timothy R. Duke
--------------------
Title: VP & CFO
Exhibit 10.23
___________________________________________________________________________
STEEL OF WEST VIRGINIA, INC.
1995 EMPLOYEE STOCK OPTION PLAN
___________________________________________________________________________
April 1, 1995
<PAGE>
Table of Contents
-----------------
Page
I. Purposes of the Plan . . . . . . . . . . . . . . . . . . . . . . . 1
II. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
III. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . 4
IV. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . 4
A. Duties of the Committee . . . . . . . . . . . . . . . . . . . 4
B. Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . 4
C. Indemnification . . . . . . . . . . . . . . . . . . . . . . . 5
D. Meetings of the Committee . . . . . . . . . . . . . . . . . . 5
E. Determinations . . . . . . . . . . . . . . . . . . . . . . . 5
V. Shares; Adjustment Upon Certain Events . . . . . . . . . . . . . . 5
A. Shares to be Delivered; Fractional Shares . . . . . . . . . . 5
B. Number of Shares . . . . . . . . . . . . . . . . . . . . . . 6
C. Adjustments; Recapitalization, etc. . . . . . . . . . . . . . 6
VI. Awards and Terms of Options . . . . . . . . . . . . . . . . . . . 7
A. Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
B. Exercise Price . . . . . . . . . . . . . . . . . . . . . . . 7
C. Number of Shares . . . . . . . . . . . . . . . . . . . . . . 7
D. Exercisability . . . . . . . . . . . . . . . . . . . . . . . 7
E. Acceleration of Exercisability . . . . . . . . . . . . . . . 8
F. Exercise of Options. . . . . . . . . . . . . . . . . . . . . 9
G. Incentive Stock Option Limitations. . . . . . . . . . . . . . 10
VII. Effect of Termination of Employment . . . . . . . . . . . . . . . 10
A. Death, Disability, Retirement, etc. . . . . . . . . . . . . . 10
B. Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
C. Cancellation of Options . . . . . . . . . . . . . . . . . . . 11
VIII. Nontransferability of Options . . . . . . . . . . . . . . . . 11
IX. Rights as a Stockholder . . . . . . . . . . . . . . . . . . . . . 11
X. Termination, Amendment and Modification . . . . . . . . . . . . . 12
General Amendments and Termination . . . . . . . . . . . . . . . . 12
XI. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 13
i
<PAGE>
Page
----
XII. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . 13
A. Right to Terminate Employment . . . . . . . . . . . . . . . . 13
B. Purchase for Investment . . . . . . . . . . . . . . . . . . . 13
C. Trusts, etc. . . . . . . . . . . . . . . . . . . . . . . . . 13
D. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
E. Severability of Provisions . . . . . . . . . . . . . . . . . 14
F. Payment to Minors, Etc. . . . . . . . . . . . . . . . . . . . 14
G. Headings and Captions . . . . . . . . . . . . . . . . . . . . 14
H. Controlling Law . . . . . . . . . . . . . . . . . . . . . . . 14
I. Other Benefits . . . . . . . . . . . . . . . . . . . . . . . 14
J. Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
K. Section 162(m) Deduction Limitation . . . . . . . . . . . . . 15
L. Section 16(b) of the Act . . . . . . . . . . . . . . . . . . 15
XIII. Issuance of Stock Certificates;
Legends; Payment of Expenses . . . . . . . . . . . . . . . . . . . 15
A. Stock Certificates . . . . . . . . . . . . . . . . . . . . . 15
B. Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
C. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . 15
XIV. Listing of Shares and Related Matters . . . . . . . . . . . . . . 15
XV. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . 16
Form of Option Agreement . . . . . . . . . . . . . . . . . . . . Exhibit A
ii
<PAGE>
Steel of West Virginia, Inc.
1995 Employee Stock Option Plan
I. Purposes of the Plan
--------------------
The purposes of this 1995 Employee Stock Option Plan (the "Plan")
are to enable Steel of West Virginia, Inc. (the "Company") and Designated
Subsidiaries (as defined herein) to attract, retain and motivate certain
employees who are important to the success and growth of the business of
the Company and Designated Subsidiaries and to create a long-term mutuality
of interest between such employees and the stockholders of the Company by
granting the options to purchase Common Stock (as defined herein).
II. Definitions
-----------
In addition to the terms defined elsewhere herein, for purposes
of this Plan, the following terms will have the following meanings when
used herein with initial capital letters:
A. "Act" means the Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated thereunder.
B. "Board" means the Board of Directors of the Company.
C. "Cause" means that the Committee shall have determined that
any of the following events has occurred: (1) an act of fraud,
embezzlement, misappropriation of business or theft committed by a
Participant in the course of his or her employment or any intentional or
grossly negligent misconduct of a Participant which injures the business or
reputation of the Company or Designated Subsidiaries; (2) intentional or
grossly negligent damage committed by a Participant to the property of the
Company or Designated Subsidiaries; (3) a Participant's willful failure or
refusal to perform the customary duties and responsibilities of his or her
position with the Company or Designated Subsidiaries; (4) a Participant's
material breach of any covenant, condition or obligation required to be
performed by him or her pursuant to this Plan, the Option Agreement or any
other agreement between him or her and the Company or Designated
Subsidiaries or a Participant's intentional or grossly negligent violation
of any material written policy of the Company or Designated Subsidiaries;
or (5) commission by a Participant of a felony or a crime or act involving
moral turpitude that brings the Company or Designated Subsidiaries into
public disrepute. Cause shall be deemed to exist as of the date any of the
above events occur even if the Committee's determination
<PAGE>
is later and whether or not such determination is made before or after
Termination of Employment.
D. "Code" means the Internal Revenue Code of 1986, as amended.
E. "Committee" means such committee, if any, appointed by the
Board to administer the Plan, consisting of two or more directors as may be
appointed from time to time by the Board each of whom, unless otherwise
determined by the Board, shall be disinterested persons as defined in Rule
16b-3 promulgated under Section 16(b) of the Act and outside directors as
defined in Section 162(m) of the Code. If the Board does not appoint a
committee for this purpose, "Committee" means the Board.
F. "Common Stock" means the common stock of the Company, par
value $.01 per share, any Common Stock into which the Common Stock may be
converted and any Common Stock resulting from any reclassification of the
Common Stock.
G. "Company" means Steel of West Virginia, Inc., a Delaware
corporation.
H. "Designated Subsidiary" means any corporation that is
defined as a subsidiary corporation in Section 424(f) of the Code. An
entity shall be deemed a Designated Subsidiary only for such periods as the
requisite ownership relationship is maintained.
I. "Disability" means a permanent and total disability,
rendering a Participant unable to perform the duties performed by the
Participant for the Company or Designated Subsidiaries by reason of
physical or mental disability for a period of four consecutive months, or
for a period of more than an aggregate of six months in any twelve month
period. A Disability shall only be deemed to occur at the time of the
determination by the Committee of the Disability.
J. "Fair Market Value" shall mean, for purposes of this Plan,
unless otherwise required by any applicable provision of the Code or any
regulations issued thereunder, as of any date, the last sales prices
reported for the Common Stock on the applicable date, (i) as reported by
the principal national securities exchange in the United States on which it
is then traded, or (ii) if not traded on any such national securities
exchange, as quoted on an automated quotation system sponsored by the
National Association of Securities Dealers, or if the sale of the Common
Stock shall not have been reported or quoted on such date, on the first day
prior thereto on which the Common Stock was reported or quoted. If the
Common Stock is not readily tradeable on a national securities exchange or
any system sponsored by the National Association of Securities Dealers, its
Fair Market Value shall be set by the Committee based upon its assessment
of the cash price that would be paid between a fully informed buyer and
seller under no compulsion to buy or sell (without giving effect to any
discount for a minority interest or any restrictions on transferability or
any lack of liquidity of the stock).
2
<PAGE>
K. "Incentive Stock Option" shall mean any Option awarded under
this Plan intended to be and designated as an "Incentive Stock Option"
within the meaning of Section 422 of the Code.
L. "Key Employee" means any person who is an officer or other
valuable employee of the Company or a Designated Subsidiary, as determined
by the Committee in its sole discretion. A Key Employee may, but need not,
be an officer of the Company or a Designated Subsidiary.
M. "Non-Qualified Stock Option" shall mean any Option awarded
under this Plan that is not an Incentive Stock Option.
N. "Option" means the right to purchase one Share at a
prescribed purchase price on the terms specified in the Plan.
O. "Participant" means a Key Employee who is granted Options
under the Plan which Options have not expired.
P. "Person" means any individual or entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of
such Person as the context may require.
Q. "Retirement" means a Termination of Employment at or after
age 65 (or, with the consent of the Committee, any age between age 55 and
65).
R. "Securities Act" means the Securities Act of 1933, as
amended, and all rules and regulations promulgated thereunder.
S. "Share" means a share of Common Stock.
T. "Ten Percent Shareholder" shall mean a person owning Common
Stock of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company as defined in
Section 422 of the Code.
U. "Termination of Employment" with respect to an individual
means that individual is no longer actively employed by the Company or a
Designated Subsidiary on a full-time basis, irrespective of whether or not
such employee is receiving salary continuance pay, is continuing to
participate in other employee benefit programs or is otherwise receiving
severance type payments. In the event an entity shall cease to be a
Designated Subsidiary, there shall be deemed a Termination of Employment of
any individual who is not otherwise an employee of the Company or another
Designated Subsidiary at the time the entity ceases to be a Designated
Subsidiary. A Termination of Employment shall not include a leave of
absence approved for purposes of the Plan by the Committee.
3
<PAGE>
III. Effective Date
--------------
The Plan shall become effective on April 1, 1995 (the "Effective
Date"), subject to its approval by the stockholders of the Company in
accordance with Rule 16b-3 promulgated under the Act within one year after
the Plan is adopted by the Board of Directors of the Company. Grants of
Options by the Committee under the Plan may be made on or after the
Effective Date of the Plan, including retroactively, provided that, if the
Plan is not approved by the stockholders of the Company as provided in the
preceding sentence, all Options which have been granted by the Committee
shall be null and void. No Options may be exercised prior to the approval
of the Plan by the stockholders of the Company as aforesaid.
IV. Administration
--------------
A. Duties of the Committee. The Plan shall be administered and
-----------------------
interpreted by the Committee. The Committee shall have full authority to
interpret the Plan and to decide any questions and settle all controversies
and disputes that may arise in connection with the Plan; to establish,
amend and rescind rules for carrying out the Plan; to administer the Plan,
subject to its provisions; to select Participants in, and grant Options
under, the Plan; to determine the terms, exercise price and form of
exercise payment for each Option granted under the Plan; to determine the
consideration to be received by the Company in exchange for the grant of
the Options; to determine whether and to what extent Incentive Stock
Options and Non-Qualified Stock Options, or any combination thereof, are to
be granted hereunder to one or more Key Employees to prescribe the form or
forms of instruments evidencing Options and any other instruments required
under the Plan (which need not be uniform) and to change such forms from
time to time; and to make all other determinations and to take all such
steps in connection with the Plan and the Options as the Committee, in its
sole discretion, deems necessary or desirable. The Committee shall not be
bound to any standards of uniformity or similarity of action,
interpretation or conduct in the discharge of its duties hereunder,
regardless of the apparent similarity of the matters coming before it. Any
determination, action or conclusion of the Committee shall be final,
conclusive and binding on all parties. Anything in the Plan to the
contrary notwithstanding, no term of this Plan relating to Incentive Stock
Options shall be interpreted, amended or altered, nor shall any discretion
or authority granted under the Plan be so exercised, so as to disqualify
the Plan under Section 422 of the Code, or, without the consent of the
Participants affected, to disqualify any Incentive Stock Option under such
Section 422.
B. Advisors. The Committee may employ such legal counsel,
--------
consultants and agents as it may deem desirable for the administration of
the Plan, and may rely upon any advice or opinion received from any such
counsel or consultant and any computation received from any such consultant
or agent. Expenses incurred by the Committee in the engagement of such
counsel, consultant or agent shall be paid by the Company.
4
<PAGE>
C. Indemnification. To the maximum extent permitted by
---------------
applicable law, no officer of the Company or member or former member of the
Committee or of the Board shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted under it.
To the maximum extent permitted by applicable law or the Certificate of
Incorporation or By-Laws of the Company and to the extent not covered by
insurance, each officer and member or former member of the Committee or of
the Board shall be indemnified and held harmless by the Company against any
cost or expense (including reasonable fees of counsel reasonably acceptable
to the Company) or liability (including any sum paid in settlement of a
claim with the approval of the Company), and advanced amounts necessary to
pay the foregoing at the earliest time and to the fullest extent permitted,
arising out of any act or omission to act in connection with the Plan,
except to the extent arising out of such officer's, member's or former
member's own fraud or bad faith. Such indemnification shall be in addition
to any rights of indemnification the officers, members or former members
may have as directors under applicable law or under the Certificate of
Incorporation or By-Laws of the Company or Designated Subsidiary.
Notwithstanding anything else herein, this indemnification will not apply
to the actions or determinations made by an individual with regard to
Options granted to him or her under this Plan.
D. Meetings of the Committee. The Committee shall adopt such
-------------------------
rules and regulations as it shall deem appropriate concerning the holding
of its meetings and the transaction of its business. Any member of the
Committee may be removed from the Committee at any time either with or
without cause by resolution adopted by the Board, and any vacancy on the
Committee may at any time be filled by resolution adopted by the Board.
All determinations by the Committee shall be made by the affirmative vote
of a majority of its members. Any such determination may be made at a
meeting duly called and held at which a majority of the members of the
Committee are in attendance in person or through telephonic communication.
Any determination set forth in writing and signed by all the members of the
Committee shall be as fully effective as if it had been made by a majority
vote of the members at a meeting duly called and held.
E. Determinations. Each determination, interpretation or other
--------------
action made or taken pursuant to the provisions of this Plan by the
Committee shall be final, conclusive and binding for all purposes and upon
all persons, including, without limitation, the Participants, the Company
and Designated Subsidiaries, directors, officers and other employees of the
Company and Designated Subsidiaries, and the respective heirs, executors,
administrators, personal representatives and other successors in interest
of each of the foregoing.
V. Shares; Adjustment Upon Certain Events
--------------------------------------
A. Shares to be Delivered; Fractional Shares. Shares to be
-----------------------------------------
issued under the Plan shall be made available, at the sole discretion of
the Board, either from authorized but unissued Shares or from issued Shares
reacquired by the Company and
5
<PAGE>
held in treasury. No fractional Shares will be issued or transferred upon
the exercise of any Option. In lieu thereof, the Company shall pay a cash
adjustment equal to the same fraction of the Fair Market Value of one Share
on the date of exercise.
B. Number of Shares. Subject to adjustment as provided in this
----------------
Article V, the maximum aggregate number of Shares that may be issued under
the Plan shall be 430,000. If Options are for any reason canceled, or
expire or terminate unexercised, the Shares covered by such Options shall
again be available for the grant of Options, subject to the foregoing
limit.
C. Adjustments; Recapitalization, etc. The existence of the
----------------------------------
Plan and the Options granted hereunder shall not affect in any way the
right or power of the Board or the stockholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change
in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of bonds, debentures, preferred or
prior preference stocks ahead of or affecting Common Stock, the dissolution
or liquidation of the Company or Designated Subsidiaries, any sale or
transfer of all or part of its assets or business or any other corporate
act or proceeding. The Committee may make or provide for such adjustments
in the maximum number of Shares specified in Article V(B), in the number of
Shares covered by outstanding Options granted hereunder, and/or in the
Purchase Price (as hereinafter defined) applicable to such Options or such
other adjustments in the number and kind of securities received upon the
exercise of Options, as the Committee in its sole discretion may determine
is equitably required to prevent dilution or enlargement of the rights of
Participants or to otherwise recognize the effect that otherwise would
result from any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company,
merger, consolidation, spin-off, reorganization, partial or complete
liquidation, issuance of rights or warrants to purchase securities or any
other corporate transaction or event having an effect similar to any of the
foregoing. In the event of a merger or consolidation in which the Company
is not the surviving entity or in the event of any transaction that results
in the acquisition of substantially all of the Company's outstanding Common
Stock by a single person or entity or by a group of persons and/or entities
acting in concert, or in the event of the sale or transfer of all of the
Company's assets (the foregoing being referred to as "Acquisition Events"),
then the Committee may in its sole discretion terminate all outstanding
Options effective as of the consummation of the Acquisition Event by
delivering notice of termination to each Participant at least 20 days prior
to the date of consummation of the Acquisition Event; provided that, during
the period from the date on which such notice of termination is delivered
to the consummation of the Acquisition Event, each Participant shall have
the right to exercise in full all the Options that are then outstanding
(without regard to limitations on exercise otherwise contained in the
Options) but contingent on occurrence of the Acquisition Event, and,
provided that, if the Acquisition Event does not take place within a
specified period after giving such notice for any reason whatsoever, the
notice and exercise shall be null and void. Except as hereinbefore
expressly provided, the issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of
6
<PAGE>
any class, for cash, property, labor or services, upon direct sale, upon
the exercise of rights or warrants to subscribe therefor or upon conversion
of shares or other securities, and in any case whether or not for fair
value, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number and class of shares and/or other securities or
property subject to Options theretofore granted or the Purchase Price (as
hereinafter defined).
VI. Awards and Terms of Options
---------------------------
A. Grant. The Committee may grant Non-Qualified Stock Options
-----
or Incentive Stock Options, or any combination thereof to Key Employees.
To the extent that the maximum number of authorized Shares with respect to
which Options may be granted are not granted in a particular calendar year
to a Participant (beginning with the year in which the Participant receives
his or her first grant of Options hereunder), such ungranted Options for
any year shall increase the maximum number of Shares with respect to which
Options may be granted to such Participant in subsequent calendar years
during the term of the Plan until used. To the extent that any Option does
not qualify as an Incentive Stock Option (whether because of its provisions
or the time or manner of its exercise or otherwise), such Option or the
portion thereof which does not qualify, shall constitute a separate Non-
Qualified Stock Option. Each Option shall be evidenced by an Option
agreement (the "Option Agreement") in such form as the Committee shall
approve from time to time.
B. Exercise Price. The purchase price per Share (the "Purchase
--------------
Price") deliverable upon the exercise of a Non-Qualified Stock Option shall
be determined by the Committee and set forth in a Participant's Option
Agreement, provided that the Purchase Price shall not be less than the par
value of a Share. The Purchase Price deliverable upon the exercise of an
Incentive Stock Option shall be determined by the Committee and set forth
in a Participant's Option Agreement but shall be not less than 100% of the
Fair Market Value of a Share at the time of grant; provided, however, if an
Incentive Stock Option is granted to a Ten Percent Shareholder, the
Purchase Price shall be no less than 110% of the Fair Market Value of a
Share.
C. Number of Shares. The Option Agreement shall specify the
----------------
number of Options granted to the Participant, as determined by the
Committee in its sole discretion.
D. Exercisability. Except as otherwise provided herein or in
--------------
the Option Agreement, each Option granted under this Plan shall be
exercisable on and after the first anniversary of the date as of which such
Option is granted, and at the time of grant the Committee shall specify on
what terms the Options granted shall be exercisable, provided that the
Committee may at any time accelerate the time at which all or any part of
the Options may be exercised and may waive any other conditions to
exercise. No Option shall be exercisable after the expiration of ten years
from the date of grant; provided,
7
<PAGE>
however, the term of an Incentive Stock Option granted to a Ten Percent
Shareholder may not exceed five years. Each Option shall be subject to
earlier termination as provided in Article VII below.
E. Acceleration of Exercisability.
------------------------------
All Options granted and not previously exercisable shall
become fully exercisable immediately upon the later of a Change of
Control (as defined herein). For this purpose, a "Change of Control"
shall be deemed to have occurred upon:
(a) an acquisition after the Effective Date by any
individual, entity or group (within the meaning of Section 13d-3
or 14d-1 of the Act) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Act) of more than 30% of the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors, including, but not limited to, by merger,
consolidation or similar corporate transaction or by purchase;
excluding, however, the following: (x) any such acquisition by
the Company or Designated Subsidiaries or (y) any such
acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or Designated
Subsidiaries; or
(b) the approval of the stockholders of the Company of
(i) a complete liquidation or dissolution of the Company or (ii)
the sale or other disposition of more than 80% of the assets of
the Company and Designated Subsidiaries on a consolidated basis
(determined under generally accepted accounting principles as
determined in good faith by the Committee); excluding, however,
such a sale or other disposition to a corporation with respect to
which, following such sale or other disposition, (x) more than
70% of the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors will be then beneficially owned, directly
or indirectly, by the individuals and entities who were the
beneficial owners of the outstanding Shares immediately prior to
such sale or other disposition, (y) no Person (other than the
Company, Designated Subsidiaries, and any employee benefit plan
(or related trust) of the Company or Designated Subsidiaries or
such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly,
70% or more of the outstanding Shares) will beneficially own,
directly or indirectly, 70% or more of the combined voting power
of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (z)
individuals who were members of the board prior to such sale or
other disposition will constitute at least a majority of the
members of the board of directors of such corporation.
8
<PAGE>
(c) within any 24 month period beginning on or after
the Effective Date, the persons who were directors of the Company
immediately before the beginning of such period ("Incumbent
Directors") shall cease (for any reason other than death) to
constitute at least a majority of the Board or the board of
directors of any successor to the Company, provided that, any
director who was not a director as of the date hereof shall be
deemed to be an Incumbent Director if such director was elected
to the Board by, or on the recommendation of or with approval of,
at least two-thirds of the directors who qualified as Incumbent
Directors either actually or by prior operation of this
subsection, unless such election, recommendation or approval was
a result of an actual or threatened election contest of the type
contemplated by Regulation 14a-11 promulgated under the Exchange
Act or any successor provision.
F. Exercise of Options.
-------------------
1. A Participant may elect to exercise one or more Options
by giving written notice to the Committee of such election and of the
number of Options such Participant has elected to exercise,
accompanied by payment in full of the aggregate Purchase Price for the
number of Shares for which the Options are being exercised.
2. Shares purchased pursuant to the exercise of Options
shall be paid for at the time of exercise as follows:
(a) in cash or by check, bank draft or money order
payable to the order of Company;
(b) if the Shares are traded on a national securities
exchange, through the delivery of irrevocable instructions to a
broker to deliver promptly to the Company an amount equal to the
aggregate Purchase Price; or
(c) on such other terms and conditions as may be
acceptable to the Committee (which may include payment in full or
in part by the transfer of Shares which have been owned by the
Participant for at least six months or the surrender of Options
owned by the Participant) and in accordance with applicable law.
3. Upon receipt of payment, the Company shall deliver to
the Participant as soon as practicable a certificate or certificates
for the Shares then purchased.
9
<PAGE>
G. Incentive Stock Option Limitations. To the extent that the
----------------------------------
aggregate Fair Market Value (determined as of the time of grant) of the
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Participant during any calendar year under the
Plan and/or any other stock option plan of the Company or any subsidiary or
parent corporation (within the meaning of Section 424 of the Code) exceeds
$100,000, such Options shall be treated as Options which are not Incentive
Stock Options.
To the extent permitted under Section 422 of the Code, or the
applicable regulations thereunder or any applicable Internal Revenue
Service pronouncement, if (i) a Participant's employment with the Company
or Designated Subsidiary is terminated by reason of death, Disability,
Retirement or termination without Cause, and (ii) the portion of any
Incentive Stock Option that would be exercisable during the post-
termination period specified under Article VII but for the $100,000
limitation currently contained in Section 422(d) of the Code, is greater
than the portion of such Stock Option that is immediately exercisable as an
`incentive stock option' during such post-termination period under Section
422, such excess shall be treated as a Non-Qualified Stock Option. If the
exercise of an Incentive Stock Option is accelerated for any reason, any
portion of such Option that is not exercisable as an Incentive Stock Option
by reason of the $100,000 limitation contained in Section 422(d) of the
Code shall be treated as a Non-Qualified Stock Option.
Should any of the foregoing provisions not be necessary in order
for the Stock Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may amend the Plan
accordingly, without the necessity of obtaining the approval of the
shareholders of the Company, except as otherwise required by law.
VII. Effect of Termination of Employment
-----------------------------------
A. Death, Disability, Retirement, etc. Except as otherwise
-----------------------------------
provided in the Participant's Option Agreement, upon Termination of
Employment other than for Cause, all outstanding Options then exercisable
and not exercised by the Participant prior to such Termination of
Employment (and any Options not previously exercisable but made exercisable
by the Committee at or after the Termination of Employment) shall remain
exercisable by the Participant (or in the case of death, by the
Participant's estate or by the person given authority to exercise such
Options by the Participant's will or by operation of law) until the
expiration of the Option in accordance with the terms of the Plan and
grant.
B. Cause. Upon the Termination of Employment of a Participant
-----
for Cause, or if the Company or a Designated Subsidiary obtains or
discovers information after Termination of Employment that such Participant
had engaged in conduct that would have justified a Termination of
Employment for Cause during employment, all
10
<PAGE>
outstanding Options of such Participant shall immediately terminate and
shall be null and void.
C. Cancellation of Options. Except as otherwise provided in
-----------------------
Article VI(E), no Options that were not exercisable during the period of
employment shall thereafter become exercisable upon a Termination of
Employment for any reason or no reason whatsoever, and such options shall
terminate and become null and void upon a Termination of Employment, unless
the Committee determines in its sole discretion that such Options shall be
exercisable.
VIII. Nontransferability of Options
-----------------------------
No Option shall be transferable by the Participant otherwise than
by will or under applicable laws of descent and distribution, and during
the lifetime of the Participant may be exercised only by the Participant or
his or her guardian or legal representative. An option shall also be
transferable under a domestic relations order that is a "qualified domestic
relations order", as defined in Section 414(p) of the Code, but may
thereafter not be further transferred except as provided in the prior
sentence (with the alternate payee under such order being substituted for
"Participant"). In addition, except as provided above, no Option shall be
assigned, negotiated, pledged or hypothecated in any way (whether by
operation of law or otherwise), and no Option shall be subject to
execution, attachment or similar process. Upon any attempt to transfer,
assign, negotiate, pledge or hypothecate any Option, or in the event of any
levy upon any Option by reason of any execution, attachment or similar
process contrary to the provisions hereof, such Option shall immediately
terminate and become null and void. Notwithstanding the "qualified
domestic relations order" exception above, an Incentive Stock Option shall
not be transferable except as permitted under Code Section 422(b)(5) and a
Nonqualified Stock Option shall not be transferable unless (i) such
transfer is not considered a disposition within the meaning of Code Section
83 or (ii) such Option is not immediately exercisable in full on the date
of grant.
IX. Rights as a Stockholder
-----------------------
A Participant (or a permitted transferee of an Option) shall have
no rights as a stockholder with respect to any Shares covered by such
Participant's Option until such Participant (or permitted transferee) shall
have become the holder of record of such Shares, and no adjustments shall
be made for dividends in cash or other property or distributions or other
rights in respect to any such Shares, except as otherwise specifically
provided in this Plan.
11
<PAGE>
X. Termination, Amendment and Modification
---------------------------------------
General Amendments and Termination. The Plan shall terminate at
----------------------------------
the close of business on the fifth anniversary of the Effective Date (the
"Termination Date"), unless terminated sooner as hereinafter provided, and
no Option shall be granted under the Plan on or after that date. The
termination of the Plan shall not terminate any outstanding Options that by
their terms continue beyond the Termination Date. At any time prior to the
Termination Date, the Committee may amend or terminate the Plan or suspend
the Plan in whole or in part.
The Committee may at any time, and from time to time, amend, in
whole or in part, any or all of the provisions of the Plan (including any
amendment deemed necessary to ensure that the Company may comply with any
regulatory requirements referred to in Article XII), or suspend or
terminate it entirely, retroactively or otherwise; provided, however, that,
-------- -------
unless otherwise required by law or specifically provided herein, the
rights of a Participant with respect to Options granted prior to such
amendment, suspension or termination, may not, be materially impaired
without the consent of such Participant and, provided further, without the
approval of the stockholders of the Company entitled to vote, no amendment
may be made which would (i) materially increase the aggregate number of
shares of Common Stock that may be issued under this Plan (except by
operation of Article V); (ii) decrease the minimum Purchase Price of any
Option or (iii) extend the maximum option period.
The Committee may amend the terms of any Option granted,
prospectively or retroactively, but, subject to Article VI above or as
otherwise provided herein, no such amendment or other action by the
Committee shall materially impair the rights of any Participant without the
Participant's consent. No modification of an Option shall adversely affect
the status of an Incentive Stock Option as an incentive stock option under
Section 422 of the Code. Notwithstanding the foregoing, however, no such
amendment may, without the approval of the stockholders of the Company,
effect any change that would require stockholder approval under applicable
law.
This Plan and any Options granted hereunder shall terminate and
be void if this Plan does not receive the approval of the stockholders of
the Company that may be required under Rule 16b-3 promulgated under the Act
within one year after the Plan is adopted by the Board of Directors of the
Company. Except as otherwise required by law, or as provided in this Plan,
no termination, amendment or modification of this Plan may, without the
consent of the Participant or the permitted transferee of his or her
Option, alter or impair the rights and obligations arising under any then
outstanding Option.
12
<PAGE>
XI. Use of Proceeds
---------------
The proceeds of the sale of Shares subject to Options under the
Plan are to be added to the general funds of Company and used for its
general corporate purposes as the Board shall determine.
XII. General Provisions
------------------
A. Right to Terminate Employment. Neither the adoption of the
-----------------------------
Plan nor the grant of Options shall impose any obligation on the Company or
Designated Subsidiaries to continue the employment of any Participant, nor
shall it impose any obligation on the part of any Participant to remain in
the employ of the Company or Designated Subsidiaries.
B. Purchase for Investment. If the Board or the Committee
-----------------------
determines that the law so requires, the holder of an Option granted
hereunder shall, upon any exercise or conversion thereof, execute and
deliver to the Company a written statement, in form satisfactory to the
Company, representing and warranting that such Participant is purchasing or
accepting the Shares then acquired for such Participant's own account and
not with a view to the resale or distribution thereof, that any subsequent
offer for sale or sale of any such Shares shall be made either pursuant to
(i) a Registration Statement on an appropriate form under the Securities
Act, which Registration Statement shall have become effective and shall be
current with respect to the Shares being offered and sold, or (ii) a
specific exemption from the registration requirements of the Securities
Act, and that in claiming such exemption the holder will, prior to any
offer for sale or sale of such Shares, obtain a favorable written opinion,
satisfactory in form and substance to the Company, from counsel acceptable
to the Company as to the availability of such exception.
C. Trusts, etc. Nothing contained in the Plan and no action
------------
taken pursuant to the Plan (including, without limitation, the grant of any
Option thereunder) shall create or be construed to create a trust of any
kind, or a fiduciary relationship, between the Company and any Participant
or the executor, administrator or other personal representative or
designated beneficiary of such Participant, or any other persons. Any
reserves that may be established by the Company in connection with the Plan
shall continue to be part of the general funds of the Company, and no
individual or entity other than the Company shall have any interest in such
funds until paid to a Participant. If and to the extent that any
Participant or such Participant's executor, administrator or other personal
representative, as the case may be, acquires a right to receive any payment
from the Company pursuant to the Plan, such right shall be no greater than
the right of an unsecured general creditor of the Company.
13
<PAGE>
D. Notices Any notice to the Company required by or in respect
-------
of this Plan will be addressed to the Company at 17th Street and 2nd
Avenue, Huntington, West Virginia 25703, Attention: Chief Financial
Officer, or such other place of business as shall become the Company's
principal executive offices from time to time. Each Participant shall be
responsible for furnishing the Committee with the current and proper
address for the mailing to such Participant of notices and the delivery to
such Participant of agreements, Shares and payments. Any such notice to
the Participant will, if the Company has received notice that the
Participant is then deceased, be given to the Participant's personal
representative if such representative has previously informed the Company
of his status and address (and has provided such reasonable substantiating
information as the Company may request) by written notice under this
Section. Any notice required by or in respect of this Plan will be deemed
to have been duly given when delivered in person or when dispatched by
telegram or one business day after having been dispatched by a nationally
recognized overnight courier service or three business days after having
been mailed by United States registered or certified mail, return receipt
requested, postage prepaid. The Company assumes no responsibility or
obligation to deliver any item mailed to such address that is returned as
undeliverable to the addressee and any further mailings will be suspended
until the Participant furnishes the proper address.
E. Severability of Provisions. If any provisions of the Plan
--------------------------
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions of the Plan, and the Plan shall be
construed and enforced as if such provisions had not been included.
F. Payment to Minors, Etc. Any benefit payable to or for the
-----------------------
benefit of a minor, an incompetent person or other person incapable of
receipt thereof shall be deemed paid when paid to such person's guardian or
to the party providing or reasonably appearing to provide for the care of
such person, and such payment shall fully discharge the Committee, the
Company and their employees, agents and representatives with respect
thereto.
G. Headings and Captions. The headings and captions herein are
---------------------
provided for reference and convenience only. They shall not be considered
part of the Plan and shall not be employed in the construction of the Plan.
H. Controlling Law. The Plan shall be construed and enforced
---------------
according to the laws of the State of Delaware.
I. Other Benefits. No payment under this Plan shall be
--------------
considered compensation for purposes of computing benefits under any
retirement plan of the Company or a Designated Subsidiary nor affect any
benefits under any other benefit plan now or subsequently in effect under
which the availability of benefits is related to the level of compensation.
14
<PAGE>
J. Costs. The Company shall bear all expenses included in
-----
administering this Plan, including expenses of issuing Common Stock
pursuant to any Options hereunder.
K. Section 162(m) Deduction Limitation. The Committee at any
-----------------------------------
time may in its sole discretion limit the number of Options that can be
exercised in any taxable year of the Company, to the extent necessary to
prevent the application of Section 162(m) of the Code (or any similar or
successor provision), provided that the Committee may not postpone the
earliest date on which Options can be exercised beyond the last day of the
stated term of such Options.
L. Section 16(b) of the Act. All elections and transactions
------------------------
under the Plan by persons subject to Section 16 of the Exchange Act
involving shares of Common Stock are intended to comply with all exemptive
conditions under Rule 16b-3 promulgated under the Act. The Committee may
establish and adopt written administrative guidelines, designed to
facilitate compliance with Section 16(b) of the Act, as it may deem
necessary or proper for the administration and operation of the Plan and
the transaction of business thereunder.
XIII. Issuance of Stock Certificates;
Legends; Payment of Expenses
----------------------------
A. Stock Certificates. Upon any exercise of an Option and
------------------
payment of the exercise price as provided in such Option, a certificate or
certificates for the Shares as to which such Option has been exercised
shall be issued by the Company in the name of the person or persons
exercising such Option and shall be delivered to or upon the order of such
person or persons.
B. Legends. Certificates for Shares issued upon exercise of an
-------
Option shall bear such legend or legends as the Committee, in its sole
discretion, determines to be necessary or appropriate to prevent a
violation of, or to perfect an exemption from, the registration
requirements of the Securities Act or to implement the provisions of any
agreements between Company and the Participant with respect to such Shares.
C. Payment of Expenses. The Company shall pay all issue or
-------------------
transfer taxes with respect to the issuance or transfer of Shares, as well
as all fees and expenses necessarily incurred by the Company in connection
with such issuance or transfer and with the administration of the Plan.
XIV. Listing of Shares and Related Matters
-------------------------------------
If at any time the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the grant of Options or
15
<PAGE>
the award or sale of Shares under the Plan, no Option grant shall be
effective and no Shares will be delivered, as the case may be, unless and
until such listing, registration, qualification, consent or approval shall
have been effected or obtained, or otherwise provided for, free of any
conditions not acceptable to the Board.
XV. Withholding Taxes
-----------------
The Company shall have the right to require prior to the issuance
or delivery of any shares of Common Stock payment by the Participant of any
Federal, state or local taxes required by law to be withheld.
The Committee may permit any such withholding obligation to be
satisfied by reducing the number of shares of Common Stock otherwise
deliverable. A person required to file reports under Section 16(a) of the
Exchange Act with respect to securities of the Company may elect to have a
sufficient number of shares of Common Stock withheld to fulfill such tax
obligations (hereinafter a "Withholding Election") only if the election
complies with such conditions as are necessary to prevent the withholding
of such shares from being subject to Section 16(b) of the Exchange Act. To
the extent necessary under then current law, such conditions shall include
the following: (x) the Withholding Election shall be subject to the
approval of the Committee and (y) the Withholding Election is made (i)
during the period beginning on the third business day following the date of
release for publication of the quarterly or annual summary statements of
sales and earnings of the Company and ending on the twelfth business day
following such date or is made in advance but takes effect during such
period, (ii) six (6) months before the stock award becomes taxable, or
(iii) during any other period in which a Withholding Election may be made
under the provisions of Rule 16b-3 promulgated under the Act. Any fraction
of a share of Common Stock required to satisfy such tax obligations shall
be disregarded and the amount due shall be paid instead in cash by the
Participant.
16
<PAGE>
Exhibit A
---------
STEEL OF WEST VIRGINIA, INC.
OPTION AGREEMENT
PURSUANT TO THE
1995 EMPLOYEE STOCK OPTION PLAN
-------------------------------------
AGREEMENT, dated ____________, 1995 by and between Steel of West Virginia,
Inc. (the "Company") and ___________________ (the "Participant").
Preliminary Statement
- ---------------------
The Committee of the Board of Directors of the Company (the "Committee"),
pursuant to the Company's 1995 Employee Stock Option Plan, annexed hereto
as Exhibit A (the "Plan"), has authorized the granting to the Participant,
as a Key Employee (as defined in the Plan), of a [nonqualified stock
option] [incentive stock option] (the "Option") to purchase the number of
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), set forth below. The parties hereto desire to enter into this
Agreement in order to set forth the terms of the Option.
Accordingly, the parties hereto agree as follows:
1. Tax Matters. [No part of the Option granted hereby is
-----------
intended to qualify as an "incentive stock option" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").] [The Option
granted hereby is intended to qualify as an "incentive stock option" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").]
2. Grant of Option. Subject in all respects to the Plan and
---------------
the terms and conditions set forth herein and therein, the Participant is
hereby granted the Option to purchase from the Company up to _______ Shares
(as defined in the Plan), at a price per Share of $_________ (the "Option
Price").
3. Vesting. The Option may be exercised by the Participant, in
-------
whole or in part, at any time or from time to time on and after the first
anniversary of the date of grant and prior to the expiration of the Option
as provided herein and in the Plan.
Upon the occurrence of a Change of Control (as defined in the
Plan), the Option shall immediately become exercisable with respect to all
Shares subject thereto, regardless of whether the Option has vested with
respect to such Shares.
<PAGE>
4. Termination. Unless terminated as provided in the Plan, the
-----------
Option shall expire on the tenth anniversary of this grant.
5. Restriction on Transfer of Option. Except as provided in
---------------------------------
the Plan with regard to a "qualified domestic relations order" as defined
in Section 414(p) of the Internal Revenue Code, the Option granted hereby
is not transferable otherwise than by will or under the applicable laws of
descent and distribution and during the lifetime of the Participant may be
exercised only by the Participant or the Participant's guardian or legal
representative. In addition, the Option shall not be assigned, negotiated,
pledged or hypothecated in any way (whether by operation of law or
otherwise), and the Option shall not be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, negotiate, pledge
or hypothecate the Option, or in the event of any levy upon the Option by
reason of any execution, attachment or similar process contrary to the
provisions hereof, the Option shall immediately become null and void.
6. Rights as a Stockholder. The Participant shall have no
-----------------------
rights as a stockholder with respect to any Shares covered by the Option
until the Participant shall have become the holder of record of the Shares,
and no adjustments shall be made for dividends in cash or other property,
distributions or other rights in respect of any such Shares, except as
otherwise specifically provided for in the Plan.
7. Provisions of Plan Control. This Agreement is subject to
--------------------------
all the terms, conditions and provisions of the Plan, including, without
limitation, the amendment provisions thereof, and to such rules,
regulations and interpretations relating to the Plan as may be adopted by
the Committee and as may be in effect from time to time. Any capitalized
term used but not defined herein shall have the meaning ascribed to such
term in the Plan. The annexed copy of the Plan is incorporated herein by
reference. If and to the extent that this Agreement conflicts or is
inconsistent with the terms, conditions and provisions of the Plan, the
Plan shall control, and this Agreement shall be deemed to be modified
accordingly.
8. Notices. Any notice or communication given hereunder shall
-------
be in writing and shall be deemed to have been duly given when delivered in
person, when dispatched by Telegram or one business day after having been
dispatched by a nationally recognized courier service or three business
days after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid, to the appropriate party
at the address set forth below (or such other address as the party shall
from time to time specify in accordance with Article XII(D) of the Plan.):
If to the Company, to:
Steel of West Virginia, Inc.
17th Street and 2nd Avenue
Huntington, West Virginia 25703
Attention: Chief Financial Officer
2
<PAGE>
If to the Participant, to:
the address indicated on the signature page at the end of
this Agreement.
9. No Obligation to Continue Employment. This Agreement does
------------------------------------
not guarantee that the Company or any Designated Subsidiary will employ the
Participant for any specific time period, nor does it modify in any respect
the Company's or any Designated Subsidiary's right to terminate or modify
the Participant's employment or compensation.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date and year first above written.
STEEL OF WEST VIRGINIA, INC.
By:
---------------------------------
Authorized Officer
------------------------------------
[PARTICIPANT]
Address:
3
Exhibit 10.24
___________________________________________________________________________
STEEL OF WEST VIRGINIA, INC.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
___________________________________________________________________________
April 1, 1995
<PAGE>
Table of Contents
-----------------
Page
----
I. Purposes of the Plan . . . . . . . . . . . . . . . . . . . . . . . 1
II. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
III. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . 2
IV. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . 3
A. Duties of the Committee . . . . . . . . . . . . . . . . . . . 3
B. Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . 3
C. Indemnification . . . . . . . . . . . . . . . . . . . . . . . 3
D. Meetings of the Committee . . . . . . . . . . . . . . . . . . 4
E. Determinations . . . . . . . . . . . . . . . . . . . . . . . 4
F. Disinterested Directors . . . . . . . . . . . . . . . . . . . 4
V. Shares; Adjustment Upon Certain Events . . . . . . . . . . . . . . 4
A. Shares to be Delivered; Fractional Shares . . . . . . . . . . 4
B. Number of Shares . . . . . . . . . . . . . . . . . . . . . . 4
C. Adjustments; Recapitalization, etc. . . . . . . . . . . . . . 4
VI. Awards and Terms of Options . . . . . . . . . . . . . . . . . . . 6
A. Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
B. Date of Grant . . . . . . . . . . . . . . . . . . . . . . . . 6
C. Option Agreement . . . . . . . . . . . . . . . . . . . . . . 7
D. Option Terms . . . . . . . . . . . . . . . . . . . . . . . . 7
E. Expiration. . . . . . . . . . . . . . . . . . . . . . . . . . 7
F. Acceleration of Exercisability . . . . . . . . . . . . . . . 7
VII. Effect of Termination of Directorship . . . . . . . . . . . . . . 8
A. Death, Disability or Otherwise Ceasing to be a Director . . . 8
C. Cancellation of Options . . . . . . . . . . . . . . . . . . . 9
VIII. Nontransferability of Options . . . . . . . . . . . . . . . . 9
IX. Rights as a Stockholder . . . . . . . . . . . . . . . . . . . . . 9
X. Termination, Amendment and Modification . . . . . . . . . . . . . 10
XI. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
<PAGE>
Page
----
XII. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . 11
A. Right to Terminate Directorship . . . . . . . . . . . . . . . 11
B. Trusts, etc. . . . . . . . . . . . . . . . . . . . . . . . . 11
C. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
D. Severability of Provisions . . . . . . . . . . . . . . . . . 12
E. Payment to Minors, Etc. . . . . . . . . . . . . . . . . . . . 12
F. Headings and Captions . . . . . . . . . . . . . . . . . . . . 12
G. Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
H. Controlling Law . . . . . . . . . . . . . . . . . . . . . . . 12
I. Section 16(b) of the Act . . . . . . . . . . . . . . . . . . 12
XIII. Issuance of Stock Certificates;
Legends; Payment of Expenses . . . . . . . . . . . . . . . . . . . 12
A. Stock Certificates . . . . . . . . . . . . . . . . . . . . . 12
B. Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
C. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . 13
XIV. Listing of Shares and Related Matters . . . . . . . . . . . . . . 13
XV. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . 13
Form of Option Agreement . . . . . . . . . . . . . . . . . . . . Exhibit A
ii
<PAGE>
Steel of West Virginia, Inc.
1995 Non-Employee Director Stock Option Plan
I. Purposes of the Plan
--------------------
The purposes of this 1995 Non-Employee Director Stock Option Plan
(the "Plan") are to enable Steel of West Virginia, Inc. (the "Company") to
attract, retain and motivate the directors who are important to the success
and growth of the business of the Company and to create a long-term
mutuality of interest between the directors and the stockholders of the
Company by granting the directors options to purchase Common Stock (as
defined herein).
II. Definitions
-----------
In addition to the terms defined elsewhere herein, for purposes
of this Plan, the following terms will have the following meanings when
used herein with initial capital letters:
A. "Act" means the Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated thereunder.
B. "Board" means the Board of Directors of the Company.
C. "Cause" means that a court of competent jurisdiction shall
have determined that the Participant shall have committed a breach of the
Participant's fiduciary duty to the Company or a Designated Subsidiary.
D. "Code" means the Internal Revenue Code of 1986, as amended
(or any successor statute).
E. "Committee" means the Board or a duly appointed committee of
the Board to which the Board has delegated its power and functions
hereunder.
F. "Common Stock" means the common stock of the Company, par
value $.01 per share, any Common Stock into which the Common Stock may be
converted and any Common Stock resulting from any reclassification of the
Common Stock.
G. "Company" means Steel of West Virginia, Inc., a Delaware
corporation.
<PAGE>
H. "Designated Subsidiary" means a corporation that is defined
as a subsidiary corporation in Section 424(f) of the Code. Any entity
shall be deemed a Designated Subsidiary only for such periods as the
required ownership relationship is maintained.
I. "Eligible Director" means a director of the Company who is
not an active employee of the Company or any Designated Subsidiary,
including any director who is an officer of the Company but who is
receiving no compensation as an employee from the Company or any Designated
Subsidiary.
J. "Fair Market Value" shall mean, for purposes of this Plan,
unless otherwise required by any applicable provision of the Code or any
regulations issued thereunder, as of any date, the last sales prices
reported for the Common Stock on the applicable date, (i) as reported by
the principal national securities exchange in the United States on which it
is then traded, or (ii) if not traded on any such national securities
exchange, as quoted on an automated quotation system sponsored by the
National Association of Securities Dealers, or if the sale of the Common
Stock shall not have been reported or quoted on such date, on the first day
prior thereto on which the Common Stock was reported or quoted.
K. "Option" means the right to purchase one Share at a
prescribed purchase price on the terms specified in the Plan.
L. "Participant" means an Eligible Director who is granted
Options under the Plan which Options have not expired.
M. "Person" means any individual or entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of
such Person as the context may require.
N. "Securities Act" means the Securities Act of 1933, as
amended, and all rules and regulations promulgated thereunder.
O. "Share" means a share of Common Stock.
P. "Termination of Directorship" with respect to an individual
means that individual is no longer acting as a director of the Company.
III. Effective Date
--------------
The Plan shall become effective as of April 1, 1995 (the
"Effective Date"), subject to its approval by the stockholders of the
Company in accordance with Rule 16b-3 under the Act within one year after
the Plan is adopted by the Board. Grants of Options under the Plan will be
made on or after the Effective Date of the Plan, provided that, if
2
<PAGE>
the Plan is not approved by the stockholders of the Company as provided in
the preceding sentence, all Options which have been granted pursuant to the
terms of the Plan shall be null and void. No Options may be exercised
prior to the approval of the Plan by the stockholders of the Company as
aforesaid.
IV. Administration
--------------
A. Duties of the Committee. The Plan shall be administered by
-----------------------
the Committee. The Committee shall have full authority to interpret the
Plan and to decide any questions and settle all controversies and disputes
that may arise in connection with the Plan; to establish, amend and rescind
rules for carrying out the Plan; to administer the Plan, subject to its
provisions; to prescribe the form or forms of instruments evidencing
Options and any other instruments required under the Plan and to change
such forms from time to time; and to make all other determinations and to
take all such steps in connection with the Plan and the Options as the
Committee, in its sole discretion, deems necessary or desirable. The
Committee shall not be bound to any standards of uniformity or similarity
of action, interpretation or conduct in the discharge of its duties
hereunder, regardless of the apparent similarity of the matters coming
before it. Any determination, action or conclusion of the Committee shall
be final, conclusive and binding on all parties.
B. Advisors. The Committee may employ such legal counsel,
--------
consultants and agents as it may deem desirable for the administration of
the Plan, and may rely upon any advice or opinion received from any such
counsel or consultant and any computation received from any such consultant
or agent. Expenses incurred by the Committee in the engagement of such
counsel, consultant or agent shall be paid by the Company.
C. Indemnification. To the maximum extent permitted by
---------------
applicable law, no officer of the Company or member or former member of the
Committee or of the Board shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted under it.
To the maximum extent permitted by applicable law and the Certificate of
Incorporation or By-Laws of the Company and to the extent not covered by
insurance, each officer and member or former member of the Committee or of
the Board shall be indemnified and held harmless by the Company against any
cost or expense (including reasonable fees of counsel reasonably acceptable
to the Company) or liability (including any sum paid in settlement of a
claim with the approval of the Company), and advanced amounts necessary to
pay the foregoing at the earliest time and to the fullest extent permitted,
arising out of any act or omission to act in connection with the Plan,
except to the extent arising out of such officer's, member's or former
member's own fraud or bad faith. Such indemnification shall be in addition
to any rights of indemnification the officers, members or former members
may have as directors or officers under applicable law or under the
Certificate of Incorporation or By-Laws of the Company. Notwithstanding
anything else herein, this indemnification will not apply to
3
<PAGE>
actions or determinations by an individual with regard to Options granted
to him or her under this Plan.
D. Meetings of the Committee. The Committee shall adopt such
-------------------------
rules and regulations as it shall deem appropriate concerning the holding
of its meetings and the transaction of its business. All determinations by
the Committee shall be made by the affirmative vote of a majority of its
members. Any such determination may be made at a meeting duly called and
held at which a majority of the members of the Committee are in attendance
in person or through telephonic communication. Any determination set forth
in writing and signed by all the members of the Committee shall be as fully
effective as if it had been made by a majority vote of the members at a
meeting duly called and held.
E. Determinations. Each determination, interpretation or other
--------------
action made or taken pursuant to the provisions of this Plan by the
Committee shall be final, conclusive and binding for all purposes and upon
all persons, including, without limitation, the Participants, the Company,
directors, officers and other employees of the Company, and the respective
heirs, executors, administrators, personal representatives and other
successors in interest of each of the foregoing.
F. Disinterested Directors. Notwithstanding the foregoing,
-----------------------
the Committee may not take any action which would cause any Eligible
Director to cease to be a "disinterested person" for purposes of Rule 16b-3
promulgated under the Act, as then in effect or any successor provisions
("Rule 16b-3"), with regard to any stock option or other equity plan of the
Company.
V. Shares; Adjustment Upon Certain Events
--------------------------------------
A. Shares to be Delivered; Fractional Shares. Shares to be
-----------------------------------------
issued under the Plan shall be made available, at the sole discretion of
the Board, either from authorized but unissued Shares or from issued Shares
reacquired by the Company and held in treasury. No fractional Shares will
be issued or transferred upon the exercise of any Option nor will any
compensation be paid with regard to fractional shares.
B. Number of Shares. Subject to adjustment as provided in this
----------------
Article V, the maximum aggregate number of Shares that may be issued under
the Plan shall be 70,000. Where Options are for any reason cancelled, or
expire or terminate unexercised, the Shares covered by such Options shall
again be available for the grant of Options, within the limits provided by
the preceding sentence.
C. Adjustments; Recapitalization, etc. The existence of this
-----------------------------------
Plan and the Options granted hereunder shall not affect in any way the
right or power of the Board or the stockholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change
in the Company's capital structure or its
4
<PAGE>
business, any merger or consolidation of the Company, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting Common
Stock, the dissolution or liquidation of the Company or any sale or transfer
of all or part of its assets or business, or any other corporate act or
proceeding, in which case the provisions of this Article V(C) shall govern
outstanding Options:
1. The Shares with respect to which Options may be granted are
Shares of Common Stock as presently constituted, but, if and whenever the
Company shall effect a subdivision, recapitalization or consolidation of
Shares or the payment of a stock dividend on Shares without receipt of
consideration, the aggregate number and kind of shares of capital stock
issuable under this Plan shall be proportionately adjusted, and each holder
of a then outstanding Option shall have the right to purchase under such
Option, in lieu of the number of Shares as to which the Option was then
exercisable but on the same terms and conditions of exercise set forth in
such Option, the number and kind of shares of capital stock which he or she
would have owned after such subdivision, recapitalization, consolidation or
dividend if immediately prior thereto he had been the holder of record of
the number of Shares as to which such Option was then exercisable.
2. If the Company merges or consolidates with one or more
corporations and the Company shall be the surviving corporation, thereafter
upon exercise of an Option theretofore granted, the Participant shall be
entitled to purchase under such Option in lieu of the number of Shares as
to which such Option shall then be exercisable, but on the same terms and
conditions of exercise set forth in such Option, the number and kind of
shares of capital stock or other property to which the Participant would
have been entitled pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or consolidation, the
Participant had been the holder of record of the number of Shares as to
which such Option was then exercisable.
3. If the Company shall not be the surviving corporation in any
merger or consolidation, or if the Company is to be dissolved or
liquidated, then, unless the surviving corporation assumes the Options or
substitutes new Options which are determined by the Board in its sole
discretion to be substantially similar in nature and equivalent in terms
and value for Options then outstanding, upon the effective date of such
merger, consolidation, liquidation or dissolution, any unexercised Options
shall expire without additional compensation to the holder thereof;
provided, that, the Committee shall deliver notice to each Participant at
least 20 days prior to the date of consummation of such merger,
consolidation, dissolution or liquidation which would result in the
expiration of the Options and during the period from the date on which such
notice of termination is delivered to the consummation of the merger,
consolidation, dissolution or liquidation, each Participant shall have the
right to exercise in full effective as of such consummation all the Options
that are then outstanding (without regard to limitations on exercise
otherwise contained in the Options other than the requirements of Article
III) but contingent on occurrence of the merger, consolidation, dissolution
or liquidation, and, provided that, if the contemplated transaction does
not take place within a 90-day period after giving such notice for any
reason whatsoever, the notice, accelerated
5
<PAGE>
vesting and exercise shall be null and void and if and when appropriate new
notice shall be given as aforesaid. Notwithstanding the foregoing, the
Options held by persons subject to Section 16(b) of the Act that would not
have vested under the Plan except pursuant to Article VI(F) prior to the
effective date of such merger, consolidation, liquidation or dissolution
shall not expire on such date but shall expire 30 days after they would
have otherwise vested under the Plan and shall after the effective date of
such merger, consolidation, liquidation or dissolution represent only the
right to receive the number and kind of shares of capital stock or other
property to which the Participant would have been entitled if immediately
prior to the effective date of such merger, consolidation, liquidation or
dissolution the Participant had been the holder of record of the number of
Shares as to which such Option was then exercisable.
4. If as a result of any adjustment made pursuant to the
preceding paragraphs of this Article V(C), any Participant shall become
entitled upon exercise of an Option to receive any shares of capital stock
other than Common Stock, then the number and kind of shares of capital
stock so receivable thereafter shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock set forth in this Article V(C).
5. Except as hereinbefore expressly provided, the issuance by
the Company of shares of stock of any class or securities convertible into
shares of stock of any class, for cash, property, labor or services, upon
direct sale, upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares or other securities, and in any case whether
or not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of Shares subject to
Options theretofore granted or the purchase price per Share.
VI. Awards and Terms of Options
---------------------------
A. Grant. Without further action by the Board or the
-----
stockholders of the Company, each Eligible Director on each Annual Date of
Grant (as hereinafter defined) shall be automatically granted options to
purchase 2,000 shares, subject to the terms of the Plan, provided that no
such Option shall be granted if on the date of grant the Company has
liquidated, dissolved or merged or consolidated with another entity in such
a manner that it is not the surviving entity (unless the Plan has been
assumed by such surviving entity with regard to future grants).
B. Date of Grant. Annual Grants shall be made annually on the
-------------
Effective Date and each anniversary thereof (the "Annual Date of Grant")
commencing as of April 1, 1995, provided that if such date in any year is a
date on which the national securities exchange or automated quotation
system on which the Common Stock is traded is not open for trading, the
grant shall be made on the first day thereafter on which the relevant
exchange or quotation system is open for trading. Notwithstanding the
6
<PAGE>
foregoing, in the event no Fair Market Value can be determined pursuant to
the provisions hereof, no Annual Grant shall be made for such fiscal year.
C. Option Agreement. Options shall be evidenced by Option
----------------
agreements in substantially the form annexed hereto as Exhibit A as
modified from time to time.
D. Option Terms:
------------
1. Exercise Price. The purchase price per share ("Purchase
--------------
Price") deliverable upon the exercise of an Option shall be 100% of
the Fair Market Value of such Share at the time of the grant of the
Option, or the par value of the Share, whichever is the greater.
2. Period of Exercisability. Except as otherwise provided
------------------------
herein, each Option granted under this Plan shall be exercisable on
and after the first anniversary of the date on which such Option is
granted.
3. Procedure for Exercise. A Participant electing to exercise
----------------------
one or more Options shall give written notice to the Secretary of the
Company of such election and of the number of Options he or she has
elected to exercise. Shares purchased pursuant to the exercise of
Options shall be paid for at the time of exercise in cash or by
delivery of unencumbered Shares owned by the Participant for at least
six months (or such longer period as required by applicable accounting
standards to avoid a charge to earnings) or a combination thereof.
E. Expiration. Except as otherwise provided herein, if not
----------
previously exercised each Option shall expire upon the tenth anniversary of
the date of the grant thereof.
F. Acceleration of Exercisability.
------------------------------
All Options granted and not previously exercisable shall become
fully exercisable immediately upon the later of a Change of Control (as
defined herein). Article (V)(C) shall also apply to the extent, if any, it
is applicable. For this purpose, a "Change of Control" shall be deemed to
have occurred upon:
(a) an acquisition after the Effective Date by any
individual, entity or group (within the meaning of Section 13(d)(3) or
(14)(d)(1) of the Act) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Act) of more than 30% of the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors, including,
but not limited to, by merger, consolidation or similar corporate
transaction or by purchase; excluding, however, the following:
(x) any such acquisition by the Company or Designated Subsidiaries, or
(y) any such
7
<PAGE>
acquisition by an employee benefit plan (or related trust) sponsored
or maintained by the Company or Designated Subsidiaries; or
(b) the approval of the stockholders of the Company of
(i) a complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of more than 30% of the assets of the
Company and Designated Subsidiaries on a consolidated basis
(determined under generally accepted accounting principles in
accordance with prior practice); excluding, however, such a sale or
other disposition to a corporation with respect to which, following
such sale or other disposition, (x) more than 70% of the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors
will be then beneficially owned, directly or indirectly, by the
individuals and entities who were the beneficial owners of the
outstanding Shares immediately prior to such sale or other
disposition, (y) no Person (other than the Company, Designated
Subsidiaries, and any employee benefit plan (or related trust) of the
Company or Designated Subsidiaries or such corporation and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 70% or more of the outstanding
Shares) will beneficially own, directly or indirectly, 70% or more of
the combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors and (z) individuals who were members of the board
immediately prior to the sale or other disposition will constitute at
least a majority of the members of the board of directors of such
corporation.
(c) within any 24 month period beginning on or after the
Effective Date, the persons who were directors of the Company
immediately before the beginning of such period ("Incumbent
Directors") shall cease (for any reason other than death) to
constitute at least a majority of the Board or the board of directors
of any successor to the Company, provided that, any director who was
not a director as of the date hereof shall be deemed to be an
Incumbent Director if such director was elected to the Board by, or on
the recommendation of or with approval of, at least two-thirds of the
directors who qualified as Incumbent Directors either actually or by
prior operation of this subsection, unless such election,
recommendation or approval was a result of an actual or threatened
election contest of the type contemplated by Regulation 14a-11
promulgated under the Exchange Act or any successor provision.
VII. Effect of Termination of Directorship
-------------------------------------
A. Death, Disability or Otherwise Ceasing to be a Director.
-------------------------------------------------------
Except as otherwise provided herein, upon Termination of Directorship,
other than for Cause, all outstanding Options then exercisable and not
exercised by the Participant prior to such Termination of Directorship
shall remain exercisable by the Participant or, in the case of death, by
the Participant's estate or by the person given authority to exercise such
8
<PAGE>
Options by his or her will or by operation of law, until the expiration of
the Option in accordance with the terms of the Plan and grant.
B. Cause. Upon Termination of Directorship for Cause, all
-----
outstanding Options of such Participant shall immediately terminate and
shall be null and void.
C. Cancellation of Options. No Options that were not
-----------------------
exercisable during the period such person serves as a director shall
thereafter become exercisable upon a Termination of Directorship for any
reason or no reason whatsoever, and such options shall terminate and become
null and void upon a Termination of Directorship.
VIII. Nontransferability of Options
-----------------------------
Except as provided in the following sentence, no Option shall be
transferable by the Participant otherwise than by will or under applicable
laws of descent and distribution and during the lifetime of the Participant
may be exercised only by the Participant or his or her guardian or legal
representative. An Option shall also be transferable under a domestic
relations order that is a "qualified domestic relations order", as defined
in section 414(p) of the Code, but may thereafter not be further
transferred except as provided in the prior sentence (with the alternate
payee under such order being substituted for "Participant"). In addition,
except as provided above, no Option shall be assigned, negotiated, pledged
or hypothecated in any way (whether by operation of law or otherwise), and
no Option shall be subject to execution, attachment or similar process.
Upon any attempt to transfer, assign, negotiate, pledge or hypothecate any
Option, or in the event of any levy upon any Option by reason of any
execution, attachment or similar process contrary to the provisions hereof,
such Option shall immediately terminate and become null and void.
Notwithstanding the "qualified domestic relations order" exception above,
an Option shall not be transferable unless (i) such transfer is not
considered a disposition within the meaning of Code Section 83 or (ii) such
Option is not immediately exercisable in full on the date of grant.
IX. Rights as a Stockholder
-----------------------
A Participant (or a permitted transferee of an Option) shall have
no rights as a stockholder with respect to any Shares covered by such
Participant's Option until such Participant (or permitted transferee) shall
have become the holder of record of such Shares, and no adjustments shall
be made for dividends in cash or other property or distributions or other
rights in respect to any such Shares, except as otherwise specifically
provided in this Plan.
9
<PAGE>
X. Termination, Amendment and Modification
---------------------------------------
The Plan shall terminate at the close of business on the fifth
anniversary of the Effective Date (the "Termination Date"), unless
terminated sooner as hereinafter provided, and no Option shall be granted
under the Plan on or after that date. The termination of the Plan shall
not terminate any outstanding Options that by their terms continue beyond
the Termination Date. The Committee at any time or from time to time may
amend this Plan to effect (i) amendments necessary or desirable in order
that this Plan and the Options shall conform to all applicable laws and
regulations, and (ii) any other amendments deemed appropriate, provided
that no such amendment may be made if either the authority to make such
amendment or the amendment would cause the Eligible Directors to cease to
be "disinterested persons" with regard to this Plan or any other stock
option or other equity plan of the Company for purposes of Rule 16b-3 under
the Act, and further provided that the provisions of the Plan relating to
the amount, price and timing of, and eligibility for, awards shall not be
amended more than once every six (6) months except to comport with changes
in the Code and the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder. Notwithstanding the foregoing, the
Committee may not effect any amendment that would require the approval of
the stockholders of the Company under Rule 16b-3 unless such approval is
obtained. In no event, unless no longer required as a condition of
compliance with the requirements of Rule 16b-3 under the Act, shall the
Committee without the approval of stockholders normally entitled to vote
for the election of directors of the Company:
1. increase the number of Shares available for grants under
this Plan;
2. reduce the minimum exercise price at which any Option may be
exercised;
3. change the requirements as to eligibility for participation
under this Plan;
4. change the number of Options to be granted or the date on
which such Options are to be granted; or
5. materially increase the benefits accruing to Participants
hereunder.
This Plan may be amended or terminated at any time by the
stockholders of the Company.
This Plan and any Options granted hereunder shall terminate and
be void if this Plan does not receive the approval of the stockholders of
the Company that may be required under Rule 16b-3 under the Act within one
year after the Plan is adopted by the Board of Directors of the Company.
Except as otherwise required by law or as provided in this plan, no
termination, amendment or modification of this Plan may,
10
<PAGE>
without the consent of the Participant or the permitted transferee of his
or her Option, alter or impair the rights and obligations arising under any
then outstanding Option.
XI. Use of Proceeds
---------------
The proceeds of the sale of Shares subject to Options under the
Plan are to be added to the general funds of the Company and used for its
general corporate purposes as the Board shall determine.
XII. General Provisions
------------------
A. Right to Terminate Directorship. This Plan shall not impose
-------------------------------
any obligations on the Company to retain any Participant as a director nor
shall it impose any obligation on the part of any Participant to remain as
a director of the Company.
B. Trusts, etc. Nothing contained in the Plan and no action
------------
taken pursuant to the Plan (including, without limitation, the grant of any
Option thereunder) shall create or be construed to create a trust of any
kind, or a fiduciary relationship, between the Company and any Participant
or the executor, administrator or other personal representative or
designated beneficiary of such Participant, or any other persons. Any
reserves that may be established by the Company in connection with the Plan
shall continue to be part of the general funds of the Company, and no
individual or entity other than the Company shall have any interest in such
funds until paid to a Participant. If and to the extent that any
Participant or such Participant's executor, administrator or other personal
representative, as the case may be, acquires a right to receive any payment
from the Company pursuant to the Plan, such right shall be no greater than
the right of an unsecured general creditor of the Company.
C. Notices. Any notice to the Company required by or in
-------
respect of this Plan will be addressed to the Company at 17th Street and
2nd Avenue, Huntington, West Virginia 25703, Attention: Chief Financial
Officer, or such other place of business as shall become the Company's
principal executive offices from time to time. Each Participant shall be
responsible for furnishing the Committee with the current and proper
address for the mailing to such Participant of notices and the delivery to
such Participant of agreements, Shares and payments. Any such notice to
the Participant will, if the Company has received notice that the
Participant is then deceased, be given to the Participant's personal
representative if such representative has previously informed the Company
of his or her status and address (and has provided such reasonable
substantiating information as the Company may request) by written notice
under this Section. Any notice required by or in respect of this Plan will
be deemed to have been duly given when delivered in person or when
dispatched by telegram or one business day after having been dispatched by
a nationally recognized overnight courier service or three business days
after having been mailed by United States registered or certified mail,
11
<PAGE>
return receipt requested, postage prepaid. The Company assumes no
responsibility or obligation to deliver any item mailed to such address
that is returned as undeliverable to the addressee and any further mailings
will be suspended until the Participant furnishes the proper address.
D. Severability of Provisions. If any provisions of the Plan
--------------------------
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions of the Plan, and the Plan shall be
construed and enforced as if such provisions had not been included.
E. Payment to Minors, Etc. Any benefit payable to or for the
-----------------------
benefit of a minor, an incompetent person or other person incapable of
receipt thereof shall be deemed paid when paid to such person's guardian or
to the party providing or reasonably appearing to provide for the care of
such person, and such payment shall fully discharge the Committee, the
Company and their employees, agents and representatives with respect
thereto.
F. Headings and Captions. The headings and captions herein are
---------------------
provided for reference and convenience only. They shall not be considered
part of the Plan and shall not be employed in the construction of the Plan.
G. Costs. The Company shall bear all expenses included in
-----
administering this Plan, including expenses of issuing Common Stock
pursuant to any Options hereunder.
H. Controlling Law. The Plan shall be construed and enforced
---------------
according to the laws of the State of Delaware.
I. Section 16(b) of the Act. All elections and transactions
------------------------
under the Plan by persons subject to Section 16 of the Act involving shares
of Common Stock are intended to comply with all exemptive conditions under
Rule 16b-3 under the Act. To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and
void. The Committee may establish and adopt written administrative
guidelines, designed to facilitate compliance with Section 16(b) of the
Act, as it may deem necessary or proper for the administration and
operation of the Plan and the transaction of business thereunder.
XIII. Issuance of Stock Certificates;
Legends; Payment of Expenses
----------------------------
A. Stock Certificates. Upon any exercise of an Option and
------------------
payment of the exercise price as provided in such Option, a certificate or
certificates for the Shares as to which such Option has been exercised
shall be issued by the Company in the name of the person or persons
exercising such Option and shall be delivered to or upon the
12
<PAGE>
order of such person or persons, subject, however, in the case of Options
exercised pursuant to Section V(C)3 hereof, to the merger, consolidation,
dissolution or liquidation triggering the rights under that Section.
B. Legends. Certificates for Shares issued upon exercise of an
-------
Option shall bear such legend or legends as the Committee, in its sole
discretion, determines to be necessary or appropriate to prevent a
violation of, or to perfect an exemption from, the registration
requirements of the Securities Act or to implement the provisions of any
agreements between the Company and the Participant with respect to such
Shares.
C. Payment of Expenses. The Company shall pay all issue or
-------------------
transfer taxes with respect to the issuance or transfer of Shares, as well
as all fees and expenses necessarily incurred by the Company in connection
with such issuance or transfer and with the administration of the Plan.
XIV. Listing of Shares and Related Matters
-------------------------------------
If at any time the Board or the Committee shall determine in its
sole discretion that the listing, registration or qualification of the
Shares covered by the Plan upon any national securities exchange or under
any state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the grant of Options or the award or sale of Shares under
the Plan, no Option grant shall be effective and no Shares will be
delivered, as the case may be, unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained, or
otherwise provided for, free of any conditions not acceptable to the Board.
XV. Withholding Taxes
-----------------
The Company shall have the right to require, prior to the
issuance or delivery of any shares of Common Stock, payment by the
Participant of any Federal, state or local taxes required by law to be
withheld.
13
<PAGE>
Exhibit A
---------
STEEL OF WEST VIRGINIA, INC.
OPTION AGREEMENT
PURSUANT TO THE
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
--------------------------------------------------
[Eligible Director]
Dear ________:
Preliminary Statement
- ---------------------
As a director of Steel of West Virginia, Inc. (the "Company") on the Annual
Date of Grant and pursuant to the terms of the Steel of West Virginia, Inc.
1995 Non-Employee Director Stock Option Plan, annexed hereto as Exhibit 1
(the "Plan"), you, as an Eligible Director (as defined in the Plan), have
been automatically granted a nonqualified stock option (the "Option") to
purchase the number of shares of the Company's common stock, par value $.01
per share (the "Common Stock"), set forth below.
The terms of the grant are as follows:
1. Tax Matters. No part of the Option granted hereby is
-----------
intended to qualify as an "incentive stock option" under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Grant of Option. Subject in all respects to the Plan and
---------------
the terms and conditions set forth herein and therein including, without
limitation, the provisions requiring shareholder approval, you are hereby
granted an Option to purchase from the Company up to 2,000 Shares (as
defined in the Plan), at a price per Share of $_________ (the "Option
Price").
3. Vesting. The Option may be exercised by you, in whole or in
-------
part, at any time or from time to time on and after the first anniversary
of the date of grant and prior to the expiration of the Option as provided
herein and in the Plan. Upon the occurrence of a Change of Control (as
defined in the Plan), the Option shall immediately become exercisable with
respect to all Shares subject thereto, regardless of whether the Option has
vested with respect to such Shares upon the later of such Change of Control
and approval of the Plan by the stockholders of the Company.
4. Termination. Unless terminated as provided in the Plan, the
-----------
Option shall expire on the tenth anniversary of this grant.
<PAGE>
5. Restriction on Transfer of Option. Except as provided in
---------------------------------
the Plan with regard to a "qualified domestic relations order", as defined
in Section 414(p) of the Internal Revenue Code, the Option granted hereby
is not transferable otherwise than by will or under the applicable laws of
descent and distribution and during your lifetime may be exercised only by
you or your guardian or legal representative. In addition, the Option
shall not be assigned, negotiated, pledged or hypothecated in any way
(whether by operation of law or otherwise), and the Option shall not be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, negotiate, pledge or hypothecate the Option, or in the
event of any levy upon the Option by reason of any execution, attachment or
similar process contrary to the provisions hereof, the Option shall
immediately become null and void.
6. Rights as a Shareholder. You shall have no rights as a
-----------------------
shareholder with respect to any Shares covered by the Option until you
shall have become the holder of record of the Shares, and no adjustments
shall be made for dividends in cash or other property, distributions or
other rights in respect of any such Shares, except as otherwise
specifically provided for in the Plan.
7. Provisions of Plan Control. This grant is subject to all
--------------------------
the terms, conditions and provisions of the Plan and to such rules,
regulations and interpretations relating to the Plan as may be adopted by
the Committee and as may be in effect from time to time. Any capitalized
term used but not defined herein shall have the meaning ascribed to such
term in the Plan. The annexed copy of the Plan is incorporated herein by
reference. If and to the extent that this grant conflicts or is
inconsistent with the terms, conditions and provisions of the Plan, the
Plan shall control, and this grant shall be deemed to be modified
accordingly.
8. Notices. Any notice or communication given hereunder shall
-------
be in writing and shall be deemed to have been duly given when delivered in
person when dispatched by Telegram or one business day after having been
dispatched by a nationally recognized courier service or three business
days after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid, to the appropriate party
at the address (or, in the case of notice to the Company, facsimile number)
set forth below (or such other address as the party shall from time to time
specify in accordance with Article XII(D) of the Plan.):
If to the Company, to:
Steel of West Virginia, Inc.
17th Street and 2nd Avenue
Huntington, West Virginia 25703
Attention: Chief Financial Officer
2
<PAGE>
If to you, to:
the address indicated on the signature page at the end of
this grant.
Sincerely,
STEEL OF WEST VIRGINIA, INC.
By:__________________________
Authorized Officer
Accepted:
- -----------------------------
[PARTICIPANT]
Address:
3
Exhibit 11.1
Computation of Earnings Per Share Data
The following formulas were used to calculate the earnings per
share data shown in the Consolidated Statements of Income and Retained
Earnings for the year ended December 31, 1995 and December 31, 1994
included in this Report.
Calculation
-----------
Year Ended
- ----------
December 31, 1995 Net Income Net Income = $9,464,000 = $1.40
per common ----------------------- ----------
share Weighted average shares 6,782,127
of Common Stock for the
period
December 31, 1995 Net Income Net Income = $8,794,000 = $1.24
per common ----------------------- ----------
share Weighted average shares 7,091,360
of Common Stock for the
period
For purposes of calculating earnings per share, there were 6,782,127 and
7,091,360 weighted number of common shares outstanding during the twelve
month periods ending December 31, 1995 and 1994. Effective April 1, 1995,
the Company granted options of 79,500 shares of common stock. As of
December 31, 1995, these common stock equivalents are not included in the
earnings per share calculation as they have an anti-dilutive effect.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1995
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 13,148
<ALLOWANCES> 692
<INVENTORY> 17,095
<CURRENT-ASSETS> 34,474
<PP&E> 67,764
<DEPRECIATION> (26,957)
<TOTAL-ASSETS> 95,123
<CURRENT-LIABILITIES> 18,960
<BONDS> 11,978
0
0
<COMMON> 71
<OTHER-SE> 55,344
<TOTAL-LIABILITY-AND-EQUITY> 95,123
<SALES> 129,341
<TOTAL-REVENUES> 129,341
<CGS> 107,191
<TOTAL-COSTS> 107,191
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 55
<INTEREST-EXPENSE> 1,642
<INCOME-PRETAX> 15,717
<INCOME-TAX> 6,253
<INCOME-CONTINUING> 9,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,464
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.40
</TABLE>
