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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended September 30, 1995
Commission File No. 0-17362
BLISS & LAUGHLIN INDUSTRIES INC.
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 36-2607304
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
281 EAST 155TH STREET HARVEY, ILLINOIS 60426
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 312/264-1800
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Securities registered pursuant to Section 12(b) of the Act:
NONE
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Securities registered pursuant to 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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(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
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As of November 1, 1995, approximately 1,270,000 shares of Common Stock held by
non-affiliates were outstanding and the aggregate market value of such shares of
the Common Stock of Registrant was approximately $11,113,000. As of November 1,
1995, 3,969,518 shares of Common Stock were outstanding.
Documents incorporated by reference: See page 2.
Exhibit index located at pages 63-67
Contains 136 total pages (including exhibits).
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DOCUMENTS INCORPORATED BY REFERENCE
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PART OF FORM 10-K
PART IV
Item 14 - Exhibits, Financial Statement Schedules Exhibits as specified in
and Reports on Form 8-K Item 14 of this Report.
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Compensation Philosophy
and Compensation Committee Report" and "Company Performance" will not be deemed
to be filed or to be proxy soliciting material or incorporated by reference in
any prior or future filings by the Company under the Securities Act of 1933 or
the Securities Exchange Act of 1934, unless specifically otherwise provided in
any such filing.
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BLISS & LAUGHLIN INDUSTRIES INC.
PART I
ITEM 1. BUSINESS.
GENERAL
Bliss & Laughlin Industries Inc. (the "Registrant" or the "Company"),
through its subsidiaries Bliss & Laughlin Steel Company, an Illinois corporation
("BLSC"), and Canadian Drawn Steel Company Inc., a corporation organized under
the laws of Canada ("CDSC"), manufactures and markets cold finished steel bars
used by various manufacturers for shafting requirements or parts that will be
machined for electrical, industrial, automotive and agricultural equipment,
machinery and appliances. More than 60% of the Company's net sales in its
fiscal year ended September 30, 1995 ("fiscal 1995") were related to products
with an end use in the machinery industry. Unless otherwise indicated, as used
herein, the term "machinery industry" includes industrial equipment and tools.
The Company offers the widest range of grades, sizes and shapes of cold
finished steel bars in the industry, and believes it is one of the largest
producers of these products in the United States. CDSC is one of Canada's
largest producers of cold finished steel bars. The Company sells its products
to approximately 800 primary customers. The total market for cold finished
steel bars is characterized by many very small manufacturers (e.g., screw
machine shops) which cannot be directly serviced by the Company due to their
small unit requirements. To serve this market the Company has concentrated on
serving the steel service center industry which warehouses steel and sells in
smaller quantities than the Company. Approximately 50% of the Company's net
sales in fiscal 1995 were to steel service centers.
Based upon fiscal 1995's results, BLSC's share of the United States
domestic shipments for cold finished steel bars was approximately 11%.
According to the Company's marketing information, the four largest United States
producers -- Republic Engineered Steels, Inc. (formerly LTV Steel) ("Republic"),
Nucor Cold Finish, a division of Nucor Corporation ("Nucor"), BLSC, and LaSalle
Steel Company, a subsidiary of Quanex Corporation ("LaSalle") -- comprise
approximately 50% of the total United States market. Based upon fiscal 1995's
results, CDSC's share of the Canadian market is in excess of 34%. Historically,
CDSC and Union Drawn Steel Company have shared approximately 70% of the Canadian
market.
The Company's claim of offering the widest range of grades, sizes and
shapes of cold finished steel bars in the industry is based on the Company's
knowledge of the marketplace and the competitors operating within this market.
A comparison of BLSC's product range to that of its competitors shows that the
Company offers the widest range of cold finished steel bars in the industry, as
follows:
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<TABLE>
<CAPTION>
REPUBLIC NUCOR
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<S> <C> <C>
Rounds: 1/4" through 9" 3/8" through 3-1/2"
Hexagons: 1/4" through 2-1/2" 7/16" through 1-7/16"
Squares: 1/4" through 4" 7/16" through 2"
Flats: Through 3" thick, through 14" wide Through 1" thick, through 6" wide
Thermal: Anneal, Stress Relieve, Normalize None
Processes: Drawing, Turning, Grinding Drawing, Turning, Grinding
BLSC LASALLE
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Rounds: 3/16" through 9-1/4" 1/4" through 7"
Hexagons: 1/4" through 4" 1/4" through 4"
Squares: 1/4" through 6" 1/4" through 4"
Flats: Through 4" thick, through 14-5/8" wide Through 3" thick, through 12" wide
Thermal: Anneal, Stress Relieve, Normalize Anneal, Stress Relieve
Processes: Drawing, Turning, Grinding Drawing, Turning, Grinding
</TABLE>
The Company's manufacturing facilities are located in Harvey and Batavia,
Illinois; Medina, Ohio; Cartersville, Georgia and Hamilton, Ontario, Canada.
The Company has manufacturing operations located in each of the principal
regional markets for cold finished steel bars in the United States.
The name "Bliss & Laughlin" has been associated with the production of high
quality cold finished steel bars for over 100 years. Organized as a partnership
in 1891, the Company's operations were reorganized in 1919 as a corporation
known as "Bliss & Laughlin, Incorporated." That corporation changed its name
several times and after 1982 was known as "AXIA Incorporated" ("AXIA"). Prior
to October 1984, AXIA manufactured and sold cold finished steel bars through its
Bliss & Laughlin Steel division.
In October 1984, substantially all the assets and certain liabilities of
the Bliss & Laughlin Steel division of AXIA were transferred to BLSC, then a
wholly-owned subsidiary of AXIA, and 81% of BLSC's common stock was purchased by
the senior management of that division in a leveraged acquisition. In October
1987, AXIA's remaining debt and equity interests in BLSC were redeemed in full
by BLSC.
Bliss & Laughlin Industries Inc. is a holding company incorporated in
Delaware in November 1988 in connection with a 400-for-1 share exchange (the
"Share Exchange") with the former shareholders of its subsidiary, BLSC. In
December 1988, 850,000 shares of the Company's Common Stock were publicly sold
at $10.50 per share. Of these shares, 145,441 shares were sold by current
stockholders and 704,559 shares were sold by the Company. Net proceeds realized
from the sale by the Company were approximately $6,500,000. These proceeds were
used to retire a portion of the Company's then bank revolving line of credit.
In May 1990, the Company sold 1,559,759 newly issued shares of its Common
Stock at a price of $12 per share for a total purchase price of $18,717,108 to
Stelco Inc. ("Stelco"), a
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major Canadian steel company. The Company, through a subsidiary, simultaneously
purchased substantially all the assets (except accounts receivable) of Stelco's
Canadian Drawn Steel Company business unit ("Canadian Drawn") for an aggregate
purchase price of $12,393,048. The remaining $6,324,060 of proceeds from the
transaction was utilized by the Company to reduce its bank debt. The Company
has conducted the business of Canadian Drawn, through its Canadian subsidiary,
in substantially the same manner as it was conducted by Canadian Drawn prior to
the consummation of the above transactions.
The Company entered into an Agreement and Plan of Merger dated as of
September 16, 1995 (the "First Merger Agreement") with BRW Steel Corporation
("BRW") and B&L Acquisition Corporation ("Merger Sub"). Subsequently, as of
October 4, 1995, the Company entered into an Amended Agreement and Plan of
Merger dated as of October 4, 1995, which was further amended on October 18,
1995 (the "Merger Agreement") with BRW and Merger Sub, pursuant to which,
among other things, (i) Merger Sub will be merged with and into the Company,
with the Company being the Surviving Corporation in the merger (the
"Merger"), and (ii) each outstanding share of Common Stock of the Company
(the "Common Stock"), except for certain shares, will be cancelled and
converted into the right to receive $9.50 in cash, without interest (the
"Merger Consideration"). BRW has advised the Company that, in connection with
the Merger, BRW is contemplating a holding company structure pursuant to
which it would become a wholly owned subsidiary of such newly formed holding
company. For additional information relating to the ownership structure of
BRW, see "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Proposed Merger"
under Item 13 of this Report.
The Company has set December 19, 1995 as the record date for the
determination of Stockholders of the Company who are entitled to notice of,
and to vote at, the Special Meeting of Stockholders of the Company called for
January 18, 1996, to consider and vote upon the Merger Agreement and the
transactions contemplated thereby, and at any postponement or adjournment
thereof. The Company presently intends on December 21, 1995 to mail to its
Stockholders of record as of December 19, 1995 the Company's definitive proxy
soliciting material for such Special Meeting of Stockholders. The closing of
the Merger is currently scheduled to be held on or before January 31, 1996,
provided that the Company's Stockholders approve the Merger by the requisite
number of votes and BRW obtains its proposed financing for the Merger. See
Item 13 of this Report for additional information concerning the Merger
Agreement and the transactions contemplated thereby, including other
agreements made in connection therewith.
The address of the Company's principal executive office is 281 East 155th
Street, Harvey, Illinois 60426, and its telephone number is (312) 264-1800.
Unless otherwise indicated, all references herein to the "Company" relate to
Bliss & Laughlin Industries Inc. and its subsidiaries, BLSC and CDSC.
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BUSINESS STRATEGY
The Company follows a long established business strategy that seeks to
capitalize on the Company's competitive strengths: production and distribution
of the widest range of products in the cold finished steel bar industry;
emphasis on sales of higher-margin specialty products; continued penetration of
the steel service center market; geographic proximity of plants to customers and
suppliers; efficiency gains through increased productivity and the use of
technologically advanced equipment; and the development of a world class quality
standard of performance based on a system of continuous improvement. The
Company is not able to quantify costs which result from its business strategy
because it is fundamental to all aspects of the Company's business.
RANGE OF PRODUCTS
The Company offers the widest range of grades, sizes and shapes of cold
finished steel bars in the industry, including higher-margin specialty
products, such as thermally-treated steel products. Production of large cold
finished steel bars requires greater technical skill and more sophisticated
and costly manufacturing equipment than production of standard size bars.
For most of these specialty products, the Company has only two or three
domestic competitors, and in some instances the Company is the sole domestic
producer of such specialty products. The Company believes that its specialty
products permit increased access to the steel service center market.
STEEL SERVICE CENTER MARKET
The Company intends to continue emphasizing sales to steel service centers,
which represent a growing market for cold finished steel bars in both Canada and
the United States. Steel service centers are wholesalers of steel products
which resell such products to various end users. The Company currently
maintains the most commonly used cold finished steel bar items in its inventory.
This inventory, together with the Company's ability to produce the widest range
of grades, sizes and shapes of cold finished steel bars in the industry, enables
the Company to fill almost any order. This capability in both the United States
and Canadian plants has enabled the Company to increase its sales of both
standard and specialty products and to attain significant market share in the
steel service center market in the United States and Canada. Steel service
centers accounted for a substantial portion of the Company's shipments:
approximately 50% in the United States and 47% in Canada. See "Business --
Marketing and Distribution."
GEOGRAPHIC MARKETS
Although the Company ships its products throughout the United States and
Canada, the Company believes that proximity of plants to customers and suppliers
is a key competitive factor in the industry. Close geographic proximity results
in reduced shipping costs and quicker delivery of customer orders. The Company
currently focuses its marketing efforts in regional
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markets which represent a substantial majority of the demand for cold
finished steel bars in the United States and Canada. The Chicago area, where
the Company maintains a supporting inventory of finished products and has two
plants, has been for many years the center for the central warehouses of the
major steel service companies. The Ohio plant is strategically located in
the center of the machined parts industry and is a strong supplier to that
industry. The Georgia facility is positioned in the center of a strong and
growing southeastern service center and automotive parts market. The
Hamilton, Ontario plant is positioned in the major steel consuming market of
Canada. For information regarding export sales and amounts of net sales, and
identifiable assets attributable to the Company's geographic areas, see Note
16 of Notes to Consolidated Financial Statements.
EFFICIENCY GAINS AND IMPROVED COSTING
The Company's capital equipment is among the most sophisticated in the
industry and is continually being upgraded. Particular attention has been given
to upgrading mechanical handling systems so that product is automatically
conveyed on transfer tables from process to process rather than being
transported by overhead cranes. During fiscal 1994 the Company started a number
of capital projects in the Harvey, Illinois plant that upon completion in fiscal
1996 will reduce its manufacturing costs.
During fiscal 1993 the Company started two major projects to maximize the
efficient use of its capital assets and to direct its efforts to the most
favorable combination of products and customers. The first project is a new
Business Operating System which will provide a state-of-the-art system for
complete enterprise resource planning and control. The system uses the most
modern technology available and tightly integrates most elements of business.
In practice, the whole process from the quotation of an order to its final
shipment can be handled with minimal paper and coordinated with thousands of
other orders in process. Most other business functions such as accounting,
human resources, engineering and distribution are overlaid and integrated with
the system. The result is a complete system providing instant access to
information, faster decision making, improved production control and efficiency,
better inventory coverage and utilization and substantial improvement in
responding to customers' needs and expectations.
In fiscal 1994 the Company completed several phases of the new Business
Operating System including the corporate financials, general ledger and accounts
payable systems. Also, portions of the purchasing system have been completed
and integrated with accounts payable, resulting in better cost control and
efficiencies. Other modules scheduled for completion in fiscal 1996 include
order entry to manufacturing, completion of the purchasing system, an order
entry/receivables system and a bar code data collection system. The projects
completed in fiscal 1994, and those in progress in fiscal 1995 and planned for
completion in fiscal 1996, have and will be mostly completed with Company
personnel.
The second of these projects is an Activity-Based Costing ("ABC") system
which will replace a standard cost system. The new system provides much more
highly refined and pin-pointed cost data. It identifies activities to design,
manufacture and deliver product and then
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applies costs to each activity through appropriate assignments. It measures
resource consumption by tracking costs to products and customers and results
in a powerful tool to isolate problems and opportunities within the product
and customer mix. The ABC system will integrate with the Business Operating
System.
In fiscal 1994 the ABC system modeling was completed for the Harvey,
Illinois plant. During fiscal years 1994 and 1995, the ABC system pin-pointed
and helped the Company achieve manufacturing cost reductions as well as
increased margins. The model analysis resulted in the development of a
comprehensive cost reduction program. Cost reductions have been achieved in
fiscal 1995 through automation of material handling systems as well as process
and tooling improvements. In addition, the ABC system generated modifications
to the inventory control system which will generate an inventory reduction.
COLD FINISHED STEEL BARS
Cold finished steel bars are a high quality processed steel used in
machined and shafting products that require superior straightness, tolerance,
finish and mechanical properties. Cold finished steel bars are produced from
hot rolled steel bars and steel coils by a process which cleans (descales),
draws and straightens the raw material and cuts it to specific lengths.
There are four characteristics of cold finished steel bars which
distinguish the product from other steel bars. These characteristics are (1) a
smooth and shiny surface or finish; (2) uniform shape, with close size
tolerance; (3) superior strength; and (4) machinability.
The primary end use market for the cold finished steel bars produced by the
Company is the machinery industry. The end users of the Company's cold finished
steel bars incorporate the bars in a wide range of products used in a broad
spectrum of the economy. These products are found in electrical and non-
electrical machinery of all types and are also used in automotive and
agricultural markets. In the machinery industry, the Company's products are
used in the manufacture of gears, power shafts, base plates, guides, jigs,
fixtures and hydraulic cylinders. In the automobile, truck, tractor and off-
road vehicle industries, the Company's products are used in spark plugs,
steering gears, shock absorbers, starter motors and alternators, and a variety
of other parts. In the agricultural market, products incorporating cold
finished steel bars are used in power transmission shafts and fluid power
mechanisms that control and drive equipment.
PRODUCTS
Cold finished steel bars are generally classified by finish, with
subclassifications based on shape and size. The Company believes that it
offers the widest range of sizes and shapes in the cold finished steel bar
industry. The shapes and sizes of bars produced by the Company include round
bars from 3/16 inch to 9-1/4 inches in diameter; square bars from 1/4 inch to
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6 inches square; flat bars from 3/8 inch to 4 inches thick and from 1 inch to
14-5/8 inches wide; and hexagonal bars from 1/4 inch to 4 inches.
The four basic classes of cold finished steel bars are (1) cold drawn;
(2) turned and polished; (3) turned, ground and polished; and (4) drawn, turned,
ground and polished. The following is a description of the cold finished steel
bar products produced by the Company, along with the typical uses of such
products:
COLD DRAWN steel bars are hot rolled bars which are descaled by bombarding
the surface with hardened steel shot ("shot blasting"); drawn (pulled) through a
tungsten carbide die (which compresses the surface, elongates the bar and
renders it smooth and shiny); and straightened and cut to length. Typical uses
of these bars include machining applications, automotive and appliance shafts,
screw machine parts and machinery guides.
TURNED AND POLISHED steel bars are produced by removing the surface of hot
rolled steel bars with a revolving cutting tool (the turning process), then
rotating the turned bar through rollers that straighten and polish the surface.
These bars are typically used in induction hardened parts and spline shafts.
TURNED, GROUND AND POLISHED steel bars are produced in the same manner as
turned and polished steel bars, with the addition of a grinding process which
improves the surface to very close tolerances. These bars are used principally
in precision shafting.
DRAWN, TURNED, GROUND AND POLISHED steel bars are produced in the same
manner as turned, ground and polished steel bars, with the addition of a drawing
process for physical strength and machinability. These bars are typically used
in chrome plated hydraulic cylinder shafts.
The Company also thermally treats both cold finished steel bars and hot
rolled steel bars. The Company's thermally treated steel products include
stress relieved products such as FIRE-BAR-Registered Trademark-, a proprietary
product offering high strength combined with machinability.
COMPETITION
The Company competes primarily on the basis of price, quality and customer
service, including prompt shipment of orders. There is intense competition in
the markets for most of the Company's products. The Company's United States
competitors include Republic and diversified domestic corporations having
substantially greater assets than the Company, some of which are a division or
subsidiary of steel companies which also produce hot rolled products, including
Nucor Corporation and Quanex Corporation. The Company's Canadian competitors
include Union Drawn Steel Company and Laurel Steel Inc.
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The Company also competes in the United States with foreign producers of
cold finished steel bars who have generally been unable to establish a
significant domestic market presence due to the increasing use in the United
States of low cost continuous cast raw material in the production of commodity
cold finished bars. This is demonstrated by the fact that, although in the
United States cold finished steel bar imports constituted approximately 13% of
domestic consumption during 1995 (a decrease from 22% in 1985), in Canada such
imports constituted approximately 35% of domestic consumption (an increase from
15.8% in 1985). There can be no assurance, however, that economic changes will
not result in increased foreign competition in the Company's United States and
Canadian markets.
RAW MATERIALS AND SOURCES OF SUPPLY
The Company believes it is among the largest United States and Canadian
purchasers of hot rolled steel bars (the principal raw material used in the
manufacture of cold finished steel bars) for use in the manufacture of cold
finished steel bars. Raw materials are currently available from a number of
suppliers in North America. The Company has not experienced any shortages or
significant delays in delivery of raw materials. Historically, hot rolled
bars have been readily available in North America from a large number of
suppliers, principally basic steel mills and mini-mills, and the Company
believes that adequate supplies will continue to be available. During fiscal
1995, the Company purchased approximately 246,000 tons of hot rolled bars
from approximately 52 suppliers. Imported steel bars accounted for
approximately 18% of the Company's United States steel bar purchases in the
past fiscal year. The price of most hot rolled bars is primarily dependent
upon the price of scrap steel and alloy additives, which are subject to
cyclical price fluctuations.
The Company's manufacturing processes are not energy intensive, and for
fiscal 1995, total energy costs for the Company were less than 2% of its cost of
sales.
MARKETING AND DISTRIBUTION
During fiscal 1995, the Company sold cold finished steel bars to
approximately 800 primary customers in the United States and Canada. The
Company's products are shipped to customers primarily by common carrier truck,
with the customer paying shipping charges. Customer orders are directed to the
Company's distribution facilities at its Harvey, Illinois; Medina, Ohio;
Cartersville, Georgia; and Hamilton, Ontario locations. The Company's products
are marketed by Company salespersons and independent sales agents. Sales of the
Company's products are not seasonal.
The Company's customers include both manufacturers and steel service
centers. Steel service centers are wholesalers of steel products that resell
the products to various end users. Steel service centers represent a growing
market in both the United States and Canada for cold finished steel bars, in
large part because of the rising inventory costs experienced by the end
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users of these products. Between 1984 and 1995, the percentage of total
tonnage of the Company's products shipped to steel service centers in the
United States increased from approximately 32% to approximately 50%. Steel
service centers are also the principal purchasers of the Company's
higher-margin specialty products in both the United States and Canada.
The five largest customers of the Company accounted for less than 25% of
the Company's total sales in fiscal 1995. The loss of any of these accounts
could have an adverse effect on the Company's operations.
EMPLOYEES
As of September 30, 1995, the Company had 474 full-time employees, of whom
141 were salaried and 333 were hourly. All production employees at the
Company's Harvey, Illinois facility are covered by a collective bargaining
agreement expiring on November 30, 1998. All production employees at the
Company's Medina, Ohio facility are covered by a separate collective bargaining
agreement expiring in October 1997, and all hourly employees at the Company's
Hamilton, Ontario facility are covered by a collective bargaining agreement that
expires on July 31, 1996. The production employees at the Company's Batavia and
Cartersville facilities are non-union. The Company believes that its employee
relations are good.
PATENTS, TRADEMARKS AND TRADE NAMES
The Company maintains two patents and several trademarks and trade names,
none of which are material to the Company's business. The loss of any or all of
these patents, trademarks and trade names would not have a material adverse
effect on the Company's business.
BACKLOG
The Company's backlog of orders scheduled for future delivery within six
months was approximately $39,700,000 as of September 30, 1995, as compared to
approximately $48,900,000 as of September 30, 1994. The Company believes that
backlog is not a significant factor in its business. The Company estimates that
substantially all of the September 30, 1995 backlog will be shipped by March 31,
1996.
ENVIRONMENTAL MATTERS
In August 1995, BLSC received a request for information from the U.S.
Environmental Protection Agency ("EPA") pursuant to section 104(e) of CERCLA
with respect to a federal
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investigation and potential remediation of two hazardous waste treatment
sites in Kansas City, Kansas and Kansas City, Missouri. In 1985, BLSC shipped
ten capacitors from its Harvey, Illinois facility to these sites for
disposal. These capacitors held approximately 88 gallons of oil that may have
contained polychlorinated biphenyls. At this time, BLSC has not received any
further correspondence from the EPA and has not been named as a potentially
responsible party under CERCLA at either of these sites; however, there can
be no assurance at this time that further action by the EPA will not occur.
The Company has not estimated the amount of liability it may incur in
connection with this disposal. The Company understands that the EPA has
identified approximately 1,300 customers of these treatment sites, which
operated for several years. The Company does not believe that BLSC's exposure
to material expenditures is substantial.
The domestic steel industry is subject to a broad range of Federal and
State and local environmental laws and regulations, including those governing
discharges into the air and water, the handling and disposal of solid and
hazardous wastes, the remediation of soil and groundwater contaminated by
petroleum products or hazardous substances or wastes, and the health and
safety of employees. CDSC, the Company's Canadian subsidiary, is also
subject to Canadian federal, provincial, regional and municipal
environmental laws and regulations. The Company believes it is currently
in substantial compliance with all applicable material environmental
laws and regulations and does not anticipate any substantial
additional capital expenditures for environmental control facilities in
the near future. However, there can be no assurance that the Company
will not be required to incur significant costs related to environmental
compliance that could have a material adverse effect on the Company's
financial condition and results of operations.
Some of the steel processing operations presently conducted by BLSC
commenced over 100 years ago by the predecessor of BLSC and included
properties which over the years were sold by BLSC's predecessors. Given the
nature and geographic diversity of its current and its predecessors' former
operations, it is possible that claims could be asserted against BLSC or the
Company in the future based upon current property ownership of BLSC or the
Company and by historical operations by its predecessors. However, BLSC has
received an indemnification from the former owner and operator of such
properties for certain environmental claims or liabilities relating to
activities at BLSC's Harvey and Batavia, Illinois, and Medina, Ohio
properties prior to October 23, 1984, when BLSC succeeded to ownership of
such properties, and for certain environmental claims or liabilities relating
to such properties that were sold by BLSC's predecessors. There can be no
assurance that such former owner and operator will meet its obligations under
the indemnification arrangements or that there will not be future
contamination for which the Company might be fully liable and that may
require the Company to incur significant costs that could have a material
adverse effect on the Company's financial condition and results of operations.
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CREDIT AGREEMENTS
On January 28 and December 9, 1994, the Company entered into amendments
to its Revolving Credit Agreement with The Northern Trust Company
("Northern") and LaSalle National Bank ("LaSalle Bank") (collectively the
"Lenders") that provides the Company with up to $20,000,000 under a revolving
credit facility. Under the Agreement, the Company may borrow an amount
(subject to the lending limit) equal to the sum of 80 percent of eligible
accounts receivable and 50 percent of eligible inventory. Advances of credit
under the credit facility are payable on January 26, 1996.
While the Company believes that its future financing needs will be
provided by BRW if the Merger is consummated, in the event the Merger is not
consummated by January 26, 1996, or thereafter, the Company believes that it
could continue or renew its existing revolving credit facilities, or replace
them, on similar terms.
The interest on the revolving credit facility is computed at either
Northern's prime rate and/or LIBOR based rates (the London interbank offering
rate) at the option of the Company. Interest is payable monthly for advances at
the prime rate, or at the end of a 30-, 60- or 90-day period for advances at
LIBOR based rates. Funds available, but unused, bear interest at 1/2 percent
per annum.
Debt outstanding under the credit facility is collateralized by accounts
receivable, inventory and equipment of the Company, excluding the assets of
CDSC, and a first mortgage on the Company's Batavia, Illinois property. The
restrictive covenants imposed by the credit facility require, among other
things, the Company, on a consolidated basis, to limit capital expenditures in
any fiscal year to $3,500,000 and maintain at all times a ratio of total
liabilities to tangible net worth not in excess of 1.8:1 from September 30, 1995
and at all times thereafter and a minimum tangible net worth (excluding
cumulative translation adjustments) of at least $28,250,000 from September 30,
1995 and at all times thereafter. Under the terms of such financing agreements,
the Company is prohibited from paying cash dividends in an amount that exceeds
25 percent of the Company's net income for the preceding fiscal year.
In December 1988, the Company secured $3,600,000 of borrowing by the
issuance of tax exempt industrial revenue bonds through the Development
Authority of Cartersville, Georgia. For information regarding the terms and
maturity date of the bonds see Note 6 of Notes to Consolidated Financial
Statements. The proceeds from the sale of these bonds have been used to
partially fund the construction and equipping of the Company's manufacturing
plant in Cartersville. In accordance with the loan agreement between BLSC and
the Development Authority of Cartersville, Northern (which replaced Bayerische
Vereinsbank A/G in December 1991) has issued an irrevocable letter of credit in
the amount of $3,852,000. Of this total amount, $3,600,000 will be available to
pay the principal on these bonds and $252,000 (210 days at a rate of 12 percent)
is available to pay interest when it becomes due on these bonds. The Company
and Northern have entered into a Letter of Credit Reimbursement Agreement. As a
result, the full amount of $3,852,000 reduces the maximum amount currently
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<PAGE>
available from the Lenders under the Company's revolving credit facility to
$16,148,000. Pursuant to the Letter of Credit Reimbursement Agreement with
Northern, the Company has agreed to pay Northern an amount equal to all amounts
drawn under the letter of credit on the day on which a drawing is paid plus
interest on all amounts owed by the Company from the date such amounts are due
and payable until payment thereof in full, at a fluctuating interest rate per
annum equal to Northern's reference rate (prime rate) plus 1.75 percent. There
have been no amounts drawn under this letter of credit. The letter of credit
must be renewed on an annual basis in December of each year and Northern charges
an annual fee of 7/8 of 1 percent for the letter of credit payable quarterly in
arrears.
The Company has a workers compensation insurance program based upon a
deductible program. In accordance with the program, Northern issued an
irrevocable letter of credit to the Hartford Fire Insurance Company in
December 1993 for $666,000. In November 1994 this letter of credit was
increased to $775,000. The full amount of all letters of credit issued by
Northern, or $4,627,000, reduces the maximum amount available under the
revolving credit line.
On April 28, 1994, the Company's CDSC subsidiary entered into an
agreement with NBD Bank, Canada ("NBD"), which provided up to $5,800,000
(U.S.) under a revolving demand credit facility. On March 28, 1995, the
agreement was renewed through April 30, 1996, and the available facility was
increased to $7,000,000 (U.S.). The facility is unsecured; however, the
agreement contains a negative pledge clause which prohibits CDSC from
encumbering its assets to secure any other indebtedness, excepting specific
liens that are limited to the property financed by the lienholder. The
restrictive covenants in the agreement include a CDSC minimum tangible net
worth, computed based on Canadian GAAP, of $10,000,000 (Canadian), a maximum
ratio of total liabilities to tangible net worth of 1.2 to 1, and a minimum
working capital of $3,000,000 (Canadian). Also, under the agreement, NBD must
approve all mergers, acquisitions or changes in ownership. Interest rates
for Canadian dollars are at the Canadian prime rate or the NBD's cost of
funds plus 1%. Interest rates for U.S. dollars are at the U.S. prime rate or
LIBOR based rates.
The Company is in full compliance with all covenants of each credit
agreement.
During fiscal 1995, the Company's liquidity improved due to its
profitability. The Company's capital expenditures were slightly higher than
its depreciation in fiscal 1995, and this pattern is expected to continue in
fiscal 1996. The Company believes that its existing credit facilities, as
continued, renewed or replaced, will be more than adequate for fiscal 1996.
ITEM 2. PROPERTIES.
The Company's principal executive office, along with its largest
manufacturing facility, is located in Harvey, Illinois, approximately 20 miles
south of Chicago. The Harvey facility consists of 24,000 square feet of office
space and 307,000 square feet of manufacturing and storage space on a 12 acre
site. The Company operates four additional manufacturing facilities,
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<PAGE>
one in each of the following locations: Medina, Ohio; Batavia, Illinois;
Cartersville, Georgia; and Hamilton, Ontario, Canada. The Medina facility
consists of 126,000 square feet of manufacturing, storage and office space on
an 11 acre site approximately 30 miles south of Cleveland. The Batavia
facility consists of 41,000 square feet of enclosed manufacturing and office
space. The Batavia facility also includes an additional 20,000 square feet
of roof-covered but unenclosed space which is used for storage of hot rolled
steel coils. The Batavia facility is located on a five acre site
approximately 45 miles west of Chicago.
During fiscal 1989, the Company completed the construction and equipping of
a 92,000 square foot manufacturing facility on a 16 acre site in Cartersville,
Georgia, approximately 40 miles north of Atlanta. Total capital expenditures
for constructing and equipping the Cartersville facility were approximately
$6,731,000.
Financing for the purchase, construction and equipping of the Cartersville
facility was partially provided for by $3,600,000 from the issuance of tax
exempt industrial revenue bonds through the Development Authority of
Cartersville, Georgia and by the Company's line of credit.
The Hamilton, Ontario facility, which was purchased by the Company from
Stelco in May 1990, consists of 135,000 square feet of manufacturing and office
space on a five-acre site in southwest Hamilton.
The Company believes that its five operating facilities contain some of the
most sophisticated equipment in the cold finished steel bar industry. The
Company's equipment includes high capacity computer controlled machines that
result in operating efficiencies, including what it believes to be the largest
capacity straightener-polisher and one of the largest coil-to-bar machines
(which draws bars from steel coil) in the industry, the latter of which is
believed to produce the largest range of sizes of cold finished steel bars in
the industry. The Company also has a 650,000 pound drawbench, believed to be
the largest in the industry, which can draw round bars up to 6 inches in
diameter. In addition, the Company's five operating facilities contain
shipping, mobile and mill cranes, furnaces, blasters, drawbenches, automatic bar
makers, turning mills, saws, shears, straighteners, grinders, polishers and
other equipment used in the production of cold finished steel bars.
The Company believes that the production capacity of its five existing
plants is approximately 360,000 tons per year, based upon the Company's current
product mix. The Company believes that its facilities are generally sufficient
to meet its present and foreseeable business needs.
All of the Company's real property and production facilities are owned by
the Company. The Company's equipment is subject to a security agreement. See
"Business -- Credit Agreements" and Note 6 of Notes to Consolidated Financial
Statements. The Cartersville real property is subject to a first mortgage that
was granted by the Company in connection with borrowings made pursuant to the
issuance of the tax exempt industrial revenue bonds.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The following matters have arisen out of or in connection with the
Merger Agreement and the bidding process relating thereto.
STELCO LAWSUIT
On September 22, 1995, Stelco (which owns 1,598,759 shares of Common
Stock or approximately 40.3% of the outstanding shares of Common Stock of the
Company) filed a lawsuit in the United States District Court for the Northern
District of Illinois, No. 95 C 5426 (the "Stelco Lawsuit"), against certain
present and former officers and key employees of the Company, certain of
their spouses and trustees of certain trusts established for the benefit of
their families (collectively the "Option Agreement Stockholders") for various
relief relating to a Right of First Refusal and Standstill Agreement dated as
of May 11, 1990, among the Option Agreement Stockholders, the Company and
Stelco (the "First Refusal Agreement"). The Option Agreement Stockholders
collectively own 1,520,759 shares of Common Stock (approximately 38.3% of the
outstanding shares of Common Stock). Pursuant to the First Refusal
Agreement, on September 16, 1995, the Option Agreement Stockholders gave
notice jointly to Stelco of their desire to transfer all their shares of
Common Stock of the Company to Merger Sub pursuant to a Stock Option
Agreement dated as of September 16, 1995 among the Option Agreement
Stockholders, BRW and Merger Sub (the "First Option Agreement") and the First
Merger Agreement. Under the First Option Agreement, subject to certain
conditions, the Option Agreement Stockholders granted to Merger Sub an
irrevocable option to purchase an aggregate of 774,059 shares of Common Stock
(approximately 19.5% of the outstanding shares of Common Stock) (the
"Optioned Shares") beneficially owned by the Option Agreement Stockholders.
Subsequently, the parties to the First Option Agreement entered into an
Amended Stock Option Agreement dated as of October 4, 1995, as further
amended as of October 18, 1995 (the "Option Agreement") with respect to the
same Optioned Shares. For additional information concerning the Merger, the
Merger Agreement and the Option Agreement, see Items 1, 12 and 13 of this
Report.
The Company was not named as a defendant in the Stelco Lawsuit. Stelco's
motion for a temporary restraining order was denied on September 22, 1995.
Thereafter, the Option Agreement Stockholders withdrew the notice that they
had previously given and provided the information that Stelco had requested.
The Stelco Lawsuit was dismissed without prejudice and with the consent of
the Option Agreement Stockholders on December 6, 1995. On November 30, 1995,
the Option Agreement Stockholders gave a notice jointly to Stelco of their
desire to transfer all their shares of Common Stock to Merger Sub pursuant to
the Option Agreement and the Merger Agreement and Stelco did not exercise its
right to purchase such shares within the time period specified in the First
Refusal Agreement. Stelco has not advised the Company how it intends to vote
its shares of Common Stock in connection with the Merger.
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<PAGE>
DELAWARE LAWSUIT
On September 29, 1995, before the Company announced that it had reached
agreement with BRW on the Merger at $9.50 per share, Robert Strougo, an
alleged stockholder, filed a complaint, purportedly on behalf of himself and
all other stockholders of the Company, in the Court of Chancery of the State
of Delaware in and for New Castle County, Civil Action No. 14587 (the
"Delaware Lawsuit"), against the Company and each member of the Company's
Board of Directors. The Delaware Lawsuit originally claimed, among other
things, that the First Merger Agreement at $7.75 per share, which was
publicly announced on September 18, 1995, was unfair to the Company's
stockholders, that the First Merger Agreement was being advanced through
unfair procedures, and that the individual directors had not sought to
maximize stockholder value, thus breaching their fiduciary duties to the
Company's stockholders, in approving the First Merger Agreement. The
complaint also suggested that an $8.25 offer received by the Company from
International Metals Acquisition Corporation was inadequate. On October 20,
1995, the plaintiff amended the complaint to attack the Merger as currently
structured on the same grounds as alleged in the original complaint, and on
the additional ground that the directors had breached their fiduciary duty by
agreeing to the termination fee provision in the Merger Agreement. The
plaintiff seeks injunctive relief against the Merger and unspecified damages.
The directors of the Company believe they have meritorious defenses to
the lawsuit and intend to defend the lawsuit vigorously. While the Company
and its directors believe strongly that the plaintiff will be unsuccessful in
gaining any form of relief, there can be no assurance that the court will not
grant relief, including damages. Moreover, it is currently not possible to
estimate reasonably the amount of any such damages.
OTHER
A bidder stated through its legal counsel that it may consider filing
suit to enjoin the Merger and/or to seek damages on account of certain
provisions of the Merger Agreement and the Company's actions during the
bidding process. This bidder since has stated that it does not intend to
pursue acquisition of the Company at this time. In addition, BRW has alleged
that the Company has breached certain provisions of the Merger Agreement and
that it is reserving its rights with respect thereto. The Company and its
directors deny that they have done or have failed to do anything to breach
the Merger Agreement or which could be actionable by such bidder, but there
can be no assurance that, in the event such bidder or BRW were to pursue
legal action with respect to their allegations, a court would not grant
relief, including damages. It is currently not possible to estimate
reasonably the amount of any such damages.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of shareholders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended September 30, 1995.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's shares of Common Stock are traded on the NASDAQ National
Market (the "NASDAQ NM") under the symbol "BLIS." The following table
presents quarterly high and low bid quotations of the shares of Common Stock
as reported on the NASDAQ NM. These quotations reflect inter-dealer prices,
without retail markups, markdowns or commissions and may not necessarily
represent actual transactions.
PRICES
----------------
RANGE OF
BID QUOTATIONS
----------------
HIGH LOW
---- ---
Fiscal year ended September 30, 1993
First Quarter . . . . . . . . . . . . . $3-1/2 $2-5/8
Second Quarter . . . . . . . . . . . . . 3-3/4 2-3/4
Third Quarter . . . . . . . . . . . . . 3-1/2 3
Fourth Quarter . . . . . . . . . . . . . 3-1/2 2-3/4
Fiscal year ended September 30, 1994
First Quarter . . . . . . . . . . . . . 3-3/4 2-1/2
Second Quarter . . . . . . . . . . . . . 4-1/4 2-3/4
Third Quarter . . . . . . . . . . . . . 6-1/4 3-3/4
Fourth Quarter . . . . . . . . . . . . . 6 5
Fiscal year ended September 30, 1995
First Quarter . . . . . . . . . . . . . 7-1/4 4-3/4
Second Quarter . . . . . . . . . . . . . 6-1/2 4-7/8
Third Quarter . . . . . . . . . . . . . 6-3/4 5
Fourth Quarter . . . . . . . . . . . . . 8-5/8 5-1/2
Fiscal year ended September 30, 1996
First Quarter through December 14, 1995. 9-3/4 7-3/4
On September 15, 1995, the last trading day prior to the public
announcement of the First Merger Agreement, the high and low sales prices for
a share of Common Stock were $7.75 and $7.00, respectively. On October 4,
1995, the last trading day prior to the public announcement of the Merger
Agreement, the only sale price for a share of Common Stock was $8.00. On
December 14, 1995, the high and low sales prices for a share of Common Stock
were both $8.50.
As of September 30, 1995 there were approximately 100 holders of record,
and the Company estimates approximately 500 beneficial owners, of the Company's
shares of Common Stock.
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<PAGE>
The Company has not paid cash dividends on its shares of Common Stock
and currently intends to retain all earnings to support the development of
its business. Under the terms of its loan agreement with Northern and
LaSalle Bank, the Company is currently restricted from paying cash dividends
in an amount that exceeds, during any fiscal year, 25 percent of the
Company's net income for the immediately preceding fiscal year. See Notes 2
and 6 of Notes to Consolidated Financial Statements.
COMPANY PERFORMANCE
STOCKHOLDER RETURN COMPARISON
The following graph compares, as of September 30th of the last five
years, the value of $100.00 invested on September 30, 1990 in the Company's
shares of Common Stock, the Standard & Poor's ("S&P") 500 Stock Index, and
the S&P Steel Industry Composite Index, including the reinvestment of any and
all dividends. Since there is no nationally recognized line-of-business
index consisting solely of cold finished steel bar producers (the business of
the Company), and since it is difficult to identify companies that might be
considered "peer" companies, the Board of Directors has approved the use of
the S&P Steel Industry Composite Index for purposes of this performance
comparison. The S&P Steel Industry Composite Index was selected since it
represents the industry within which the Company operates. The Company's
fiscal year ends on September 30.
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<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG BLISS & LAUGHLIN INDUSTRIES INC., THE S & P 500 INDEX
AND THE S & P STEEL INDEX
[GRAPH]
DOLLARS
BLISS & LAUGHLIN INDUSTRIES INC. S&P 500 S&P STEEL
Sep-90 100 100 100
Sep-91 70 131 129
Sep-92 53 146 132
Sep-93 70 165 207
Sep-94 100 171 266
Sep-95 158 221 189
* $100 INVESTED ON 09/30/90 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical consolidated financial
information of the Company for each of its last five fiscal years. The
following financial information should be read in conjunction with the
historical consolidated financial statements and notes thereto of the Company
included elsewhere in this Report and in conjunction with "INFORMATION REGARDING
THE COMPANY -- Management's Discussion and Analysis of Financial Condition and
Results of Operations."
21
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data: (In thousands)
Net Sales . . . . . . . . . . . . . . . . . . . . . . . $169,372 $152,435 $136,923 $121,677 $114,528
Cost of Sales . . . . . . . . . . . . . . . . . . . . 148,093 136,173 127,923 111,507 107,545
Gross profit . . . . . . . . . . . . . . . . . . . . . 21,279 16,262 9,000 10,170 6,983
Selling and administrative expenses . . . . . . . . . . 11,687 11,367 9,807 8,918 9,223
Operating income (loss) . . . . . . . . . . . . . . . 9,592 4,895 (807) 1,252 (2,240)
Interest expense, net . . . . . . . . . . . . . . . . 1,508 1,266 1,035 814 1,422
Income (loss) before provision for
income taxes and cumulative effect
of change in accounting principle . . . . . . . . . 7,820 3,631 (1,836) 654 (3,662)
Income tax (provision) benefit . . . . . . . . . . . . (2,608) (866) (594) (357) 1,265
Net income (loss) before cumulative effect
of change in accounting principle . . . . . . . . . 5,212 2,765 (2,430) 297 (2,397)
Cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . -- 813(1) (1,789)(1) -- --
Net income (loss) . . . . . . . . . . . . . . . . . . 5,212 3,578 (4,219) 297 (2,397)
Share Data:
Average shares outstanding (thousands) . . . . . . . . 3,970 3,970 3,970 3,970 3,970
Net income (loss) per share . . . . . . . . . . . . . 1.31 .90 (1.06) .07 (.60)
Book value per common share . . . . . . . . . . . . . 7.55 6.23 5.35 6.58 6.80
Cash dividends per share . . . . . . . . . . . . . . . -- -- -- -- --
Financial Position at Year-end: (thousands)
Working capital . . . . . . . . . . . . . . . . . . . $15,972 $ 10,437 $ 8,158 $ 11,040 $ 11,486
Total assets . . . . . . . . . . . . . . . . . . . . . 71,870 67,739 68,995 57,963 57,645
Short-term debt . . . . . . . . . . . . . . . . . . . . 13,900 16,550 19,000 10,000 10,000
Long-term debt . . . . . . . . . . . . . . . . . . . . 3,600 3,600 3,600 3,600 3,600
Stockholders' equity . . . . . . . . . . . . . . . . . 29,968 24,722 21,219 26,115 27,003
Other Data:
Addition to property, plant and equipment (thousands) $ 2,144 $ 1,949 $ 1,612 $ 1,238 $ 1,215
Employees at year-end . . . . . . . . . . . . . . . . 474 437 439 407 419
Net sales per employee (thousands) . . . . . . . . . . 357 349 312 299 273
Financial Ratios:
Total liabilities/equity . . . . . . . . . . . . . . . 1.4 1.7 2.3 1.2 1.1
Total debt/equity . . . . . . . . . . . . . . . . . . .6 .8 1.1 .5 .5
Net sales/total assets . . . . . . . . . . . . . . . . 2.4 2.3 2.0 2.1 2.0
</TABLE>
(1) Consists of a cumulative effect of change in accounting principle related
to the adoption of SFAS No. 109: Accounting for Income Taxes in 1994 and
a cumulative effect of change in accounting principle related to the
adoption of SFAS No. 106: Employers' Accounting for Post-Retirement
Benefits Other than Pensions in 1993.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL
The cold-finished steel bar industry, like the rest of the steel
industry as a whole, is highly cyclical, and is affected by production
overcapacity and intense competition, as well as general economic conditions.
The cold finished steel bar industry has historically been characterized by
over-capacity which has created pricing pressure on producers. This pricing
pressure is exacerbated by the fact that cold-finished bar is a commodity
product with little opportunity for differentiation. From a competitive
standpoint, these market dynamics place a premium on a competitors' ability
to produce at a low cost. Many domestic steel producers and processors,
including the Company, suffered losses during the recession that began in
1990 as a result of a downturn in industries upon which the steel industry is
highly dependent, such as the automotive and machinery industries, which also
are highly cyclical and directly affected by, among other things, the level
of consumer confidence and general economic conditions. As the U.S. economy
emerged from the most recent recession, the steel industry, including the
cold-finished steel bar market, experienced a significant resurgence in
demand. During the twelve months ended September 30, 1995, the Company was
able to obtain several price increases for its products, without experiencing
a commensurate increase in its cost of raw materials. As a result, the
Company's gross margins improved throughout the year. Management does not
expect this trend to higher gross margins to continue during fiscal 1996, and
management's view is that the Company's strong recent operating performance
may be reflective of the industry being at or near the peak in the current
business cycle. Downturns in industries comprising the end user markets for
the Company's products could have a material adverse effect on the Company's
financial condition and results of operations.
During 1995, net sales increased by 11.1%. The gross profit as a
percentage of revenues increased to 12.6% in 1995 from 10.7% in 1994. The
increase was primarily attributable to improved pricing versus material
costs, increased volume and internal manufacturing efficiencies.
In the fiscal year ended September 30, 1995, the Company was profitable in
all four quarters with total net income for the fiscal year of $5,212,000 as
compared to $3,578,000 in the prior year. The income is primarily attributable
to improved margins, increased volumes and internal efficiencies.
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<PAGE>
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for 1995 were $169,372,000, an increase of $16,937,000 or 11.1%
from 1994. The increase in net sales is attributable to increased tonnage
volume amounting to $10,562,000 ($3,878,000 Canadian Drawn Steel Company Inc.
("CDSC")) and increased sell prices generating an additional $6,375,000
($2,269,000 CDSC).
Cost of sales for 1995 was $148,093,000, an increase of $11,920,000 or
8.8% over 1994. The increase is primarily attributable to increased volume.
As a percentage of net sales, cost of sales decreased by 1.9%. Gross margin
increased in 1995 primarily due to higher sell prices discussed above, and
increased volume of $1,634,000 ($565,000 CDSC) offset in part by higher raw
material cost of $3,969,000 ($1,527,000 CDSC).
Selling and administrative expenses for 1995 amounted to $11,687,000, an
increase of $320,000 or 2.8% from 1994. The increase is primarily due to wages
and benefits of $238,000. As a percentage of net sales, selling and
administrative expenses decreased to 6.9% from 7.5% in 1994.
Interest expense, net, increased in 1995 by $242,000, or 19.1% from 1994.
The increase was primarily attributable to increased interest rates. Interest
expenses, net, as a percentage of net sales, was .9% compared to .8% in 1994.
Other income/expense amounted to $264,000 of expense in 1995 compared to
$2,000 of income in 1994. Included in 1995 is $265,000 of legal expense and
professional fees due to the proposed merger with BRW Steel Corporation ("BRW").
The tax provision in 1995 amounted to $2,608,000 compared to $866,000 in
1994. The 1995 provision includes a partial offset to the domestic tax
provision due to the expected utilization of the remaining net operating loss
carryforward. The 1994 tax provision consisted primarily of a provision for
foreign taxes, while the domestic income tax provision was offset by the
expected utilization of a net operating loss carryforward.
Net income of $5,212,000 in 1995 compares to net income of $3,578,000 in
1994. Included in the 1994 net income is a one-time credit of $813,000 for
adoption of SFAS No. 109: Accounting for Income Taxes. The increase in net
income is primarily attributable to a higher gross margin of $5,017,000 offset
in part due to an increase in the tax provision of $1,742,000, increased selling
and administrative expenses of $320,000, increased interest expense of $242,000
and other expenses of $265,000 related to the proposed merger with BRW.
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<PAGE>
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales for 1994 were $152,435,000, an increase of $15,512,000 or 11.3%
from 1993. The increase in net sales is attributable to increased tonnage
volume amounting to $8,831,000 ($3,040,000 CDSC) and increased sell prices
generating an additional $6,681,000 ($858,000 CDSC).
Cost of sales for 1994 was $136,173,000, an increase of $8,250,000 or 6.4%
over 1993. The increase is primarily attributable to increased volume. As a
percentage of net sales, cost of sales decreased by 4.1%. Gross margin
increased in 1994 primarily due to higher prices discussed above, increased
volume contributing $984,000 ($481,000 CDSC), and lower labor and overhead costs
of $534,000 ($442,000 CDSC), offset by higher raw material costs of $794,000
($947,000 CDSC).
Selling and administrative expenses for 1994 amounted to $11,367,000, an
increase of $1,560,000, or 15.9% from 1993. The increase is primarily due to
wages and benefits of $1,631,000 of which $1,030,000 was for profit sharing and
management supplemental incentive compensation, higher depreciation and
amortization of $123,000 due to the purchase of software and hardware for the
new information system and $101,000 of higher agents commissions due to
increased sales; these increases were offset in part by lower professional fees
of $286,000.
Interest expense, net, increased in 1994 by $231,000, or 22.3% from 1993.
The increase was primarily attributable to increased average borrowing and
higher interest rates. Interest expense, net, as a percentage of net sales, was
.8% in 1994 unchanged from 1993.
The tax provision in 1994 amounted to $866,000 compared to $594,000 in
1993. The 1994 amount consists of a provision for foreign taxes while the
domestic income tax provision was offset by the expected utilization of a net
operating loss carryforward.
The net income of $3,578,000 in 1994 compares to a net loss of
$4,219,000 in 1993. Included in the 1994 net income is a one-time credit of
$813,000 for adoption of SFAS No. 109: Accounting for Income Taxes; included
in the 1993 loss is a one-time charge of $1,789,000 for adoption of SFAS No.
106: Employers' Accounting for Post-Retirement Benefits Other than Pensions.
The increase in income is primarily attributable to accounting changes
totalling $2,602,000, a higher gross margin of $7,262,000, offset in part due
to higher selling and administrative costs of $1,560,000 and higher interest
expense of $231,000.
FISCAL 1993 COMPARED TO FISCAL 1992
Net sales for 1993 were $136,923,000 representing an increase of 12.5%
from 1992. The increase in net sales is primarily attributable to volume
amounting to $13,296,000 ($3,613,000 CDSC).
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<PAGE>
Cost of sales for 1993 was $127,923,000, an increase of $16,416,000 or
14.7% over 1992 (compared to a 12.5% sales increase). The increase is
primarily attributable to volume. As a percentage of net sales, cost of sales
in 1993 was 93.4%, compared to 91.6% in 1992, or an increase of 1.8%. Gross
margin decreased in 1993 from 1992 primarily due to higher material costs of
$2,715,000 ($641,000 CDSC) offset in part by higher prices of $1,950,000
($353,000 CDSC),a write down of slow moving inventory by BLSC of $680,000,
and higher labor and overhead expenses of $1,063,000 ($494,000 favorable
CDSC) offset by higher volume of $1,418,000 ($252,000 CDSC).
Selling and administrative expense for 1993 amounted to $9,807,000, an
increase of $889,000 or 10% from 1992. The increase is primarily attributable
to professional fees and employee training expenses of approximately $520,000
for installation of a new Business Operating System and an Activity-Based
Costing System, wages and benefits or $273,000, and agents' commissions
expense of $203,000. As a percentage of net sales, selling and administrative
expenses decreased to 7.2% from 7.3% in 1992.
Interest expense, net, increased in 1993 by $221,000, or 27.0%, from
1992. The increase was primarily attributable to increased borrowings.
Interest expense, net, as a percentage of net sales, increased to .8% from
.7% in 1992.
The tax provision in 1993 amounted to $594,000 compared to $357,000 in
1992. The 1993 amount consisted of a provision for foreign taxes.
The net loss of $4,219,000 in 1993 compares to net income of $297,000 in
1992. Included in the net loss is a one-time charge of $1,789,000 resulting
from the adoption of SFAS No. 106: Employers' Accounting for Post-Retirement
Benefits Other than Pensions. Lower gross margin of $1,170,000 and higher
interest cost of $221,000 also contributed to the loss. In 1992, other income
(before taxes) included $70,000 from the sale of a small parcel of land and
$146,000 from the sale of used machinery by BLSC compared to other income
(before taxes) of $6,000 in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1995, was $15,972,000 compared to
$10,437,000 at September 30, 1994. The increase is primarily attributable to
decreases in borrowing and an increase in inventory to support increased sales
volume.
On January 28 and December 9, 1994, the Company entered into amendments to
its revolving credit agreement with The Northern Trust Company ("Northern") and
LaSalle National Bank ("LaSalle") which provides up to $20,000,000 under a
revolving credit facility. The revolving credit facility is secured by the
Company's accounts receivable, inventories and equipment, excluding CDSC's
assets, and a first mortgage on the Company's Batavia, Illinois property. Among
other things, the restrictive covenants include limits on capital expenditures,
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<PAGE>
a minimum tangible net worth (excluding cumulative translation adjustments) of
at least $28,250,000 at September 30, 1995 and at all times thereafter, a
maximum ratio of total liabilities to tangible net worth is limited to at least
1.8 to 1 at September 30, 1995 and at all times thereafter, and prohibitions on
paying cash dividends in an amount that exceeds 25 percent of the Company's net
income for the preceding fiscal year. Interest on the revolving credit
facility is computed at the prime rate and/or a LIBOR (London Interbank
Offering Rate) based rate at the option of the Company. Funds available
but unused bear interest at the rate of 1/2% per annum. Advances of credit
under this credit facility are payable on January 26, 1996.
While the Company believes that its future financing needs will be
provided by BRW if the Merger is consummated, in the event the Merger is not
consummated by January 26, 1996, or thereafter, the Company believes that it
could continue or renew its existing revolving credit facilities, or replace
them, on similar terms.
On April 28, 1994 the Company's CDSC subsidiary entered into an
agreement with NBD Bank, Canada ("NBD"), which provided up to $5,800,000
(U.S.) under a revolving demand credit facility. On March 28, 1995, the
agreement was renewed through April 30, 1996, and the available facility was
increased to $7,000,000 (U.S.). The facility is unsecured; however, the
agreement contains a negative pledge clause which prohibits CDSC from
encumbering its assets to secure any other indebtedness, excepting specific
liens that are limited to the property financed by the lienholder. The
restrictive covenants in the agreement include a CDSC minimum tangible net
worth, computed based Canadian GAAP, of $10,000,000 (Canadian), a maximum
ratio of total liabilities to tangible net worth of 1.2 to 1, and a minimum
working capital of $3,000,000 (Canadian). Interest rates for Canadian dollars
are at the Canadian prime rate or NBD's cost of funds plus 1%. Interest rates
for U.S. dollars are at the U.S. Prime rate or LIBOR based rates. Also, under
the agreement, NBD must approve all mergers, acquisitions or changes in
ownership.
The interest rate on loans outstanding at September 30, 1995, ranged from
6.91% to 7.125% on loans based on LIBOR. Of the total loans outstanding at
September 30, 1995 against the revolving credit agreements, $300,000 was
borrowed at prime rate.
In December 1988, BLSC secured $3,600,000 of borrowing by the issuance
of Tax Exempt Industrial Revenue Bonds through the Development Authority of
Cartersville, Georgia, to partially finance the construction and equipping of
the Cartersville plant. The interest rate on the bonds is a weekly interest
rate representing the minimum rate of interest which, in the opinion of the
Remarketing Agent, would be necessary to sell the bonds in a secondary
market. The interest rates paid on these bonds varied from 3.15% to 5.85%
during fiscal year 1995 and was 4.65% at September 30, 1995. The Company
must fund a bond sinking fund for purposes of retiring the bonds. Principal
payments of $300,000 are due on each December 1 beginning in the year 2009
and continuing through 2012. Payments of $400,000 are then due on each
December 1 through the year 2018.
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<PAGE>
In accordance with the loan agreement between BLSC and the Development
Authority of Cartersville, Georgia, Northern has issued an irrevocable letter of
credit in the amount of $3,852,000. Of this total amount, $3,600,000 is
available to pay principal on the Bonds and $252,000 is available to pay
interest when it becomes due. Northern has also issued a $666,000
irrevocable letter of credit to support workers compensation insurance reserves
in 1994. In 1995, Northern increased the letter of credit to $775,000.
At September 30, 1995, the available portion of all revolving credit
facilities after adjusting for outstanding letters of credit amounted to
$8,473,000. In the aggregate, $58,686,000 of assets are utilized to secure all
borrowings.
During the year ended September 30, 1995, capital expenditures were
approximately $2,144,000. During the fiscal years ending September 30, 1994 and
1993, capital expenditures were approximately $1,949,000 and $1,612,000,
respectively. The Company expects to invest approximately $2,500,000 in
capital equipment during fiscal year 1996 and an amount in future years
similar to that in recent years. The Company believes that existing working
capital, funds from operations, and current and future borrowings will be
adequate to meet its anticipated capital requirements.
INFLATION
The Company believes that inflation has not had a material adverse effect
on its results of operations. The Company has experienced increased costs of
hot rolled steel, energy, salaries and benefits and general and administrative
expenses, but, for the most part, has been able to either offset such increases
through productivity and efficiency gains or pass them through to its customers
by increasing sales prices of its products.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this Item, the "Index to Financial
Statements," as well as the Financial Statements, appears elsewhere in this
Report, commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no such changes or disagreements.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
INFORMATION REGARDING OFFICERS AND DIRECTORS
The following table sets forth certain information with regard to the
directors and all executive officers of the Company as of November 1, 1995:
<TABLE>
<CAPTION>
EXPIRATION
OF TERM
OF COMPANY DIRECTOR
NAME AGE POSITION DIRECTORSHIP SINCE
- ---- --- -------- ------------ --------
<S> <C> <C> <C> <C>
Gregory H. Parker(1)(3) . . . . . . . 62 Director (Class III), 1998 Annual 1988
Chairman, President Meeting
and Chief Executive
Officer of the Company
and BLSC, and Chief
Executive Officer of
CDSC
Anthony J. Romanovich(1)(3) . . . . . 56 Director (Class II) and 1997 Annual 1988
Senior Vice President Meeting
of the Company and
BLSC
George Binnie(1)(3)(4) . . . . . . . 65 Director (Class I) of the 1996 Annual 1992
Company and BLSC Meeting
Karl H. Reitz(2) . . . . . . . . . . 59 Director (Class II) of the 1997 Annual 1993
Company and BLSC Meeting
Roger G. Fein(2) . . . . . . . . . . 55 Director (Class II) of the 1997 Annual 1988
Company and BLSC Meeting
Charles P. McLarnon(4) . . . . . . . 62 Director (Class I) of the 1996 Annual 1988
Company and BLSC Meeting
Dennis W. Sheehan(2)(4) . . . . . . . 61 Director (Class III) of the 1998 Annual 1988
Company and BLSC Meeting
Paul J. Austgen . . . . . . . . . . . 44 Vice President, Finance,
Secretary and
Treasurer of the
Company and BLSC
Richard M. Bogdon . . . . . . . . . . 64 Vice President of Human
Resources of BLSC
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXPIRATION
OF TERM
OF COMPANY DIRECTOR
NAME AGE POSITION DIRECTORSHIP SINCE
- ---- --- -------- ------------ --------
<S> <C> <C> <C> <C>
Gerald E. Brady . . . . . . . . . . . 57 Vice President of BLSC
Michael A. DeBias . . . . . . . . . . 60 Vice President of
Purchasing of BLSC
Kenneth B. Morris . . . . . . . . . . 53 Vice President,
Cartersville
Operations of BLSC
Chester J. Pucilowski . . . . . . . . 65 Vice President, Medina
Operations of BLSC
R. James Barnett . . . . . . . . . . 56 President and Director of
CDSC
</TABLE>
- -----------------------------------
(1) Member of Directors' Stock Option Committee
(2) Member of Human Resources Committee
(3) Member of Employees' Stock Option Committee
(4) Member of Audit Committee
GREGORY H. PARKER has served as Chairman, President and Chief Executive
Officer of BLSC, and as a director of BLSC, since it became independently owned
in October 1984, and has held the same positions with the Company since its
formation in November 1988. Mr. Parker has been the Chief Executive Officer of
CDSC since it became a subsidiary of the Company in May 1990 and was a director
of CDSC from May 1990 until July 24, 1995.
ANTHONY J. ROMANOVICH became Senior Vice President of the Company and BLSC
in October 1989. From October 1984 through September 1989, Mr. Romanovich
served as Vice President, Commercial of BLSC, a position he also held with the
Company from its formation in November 1988. Since October 1984, Mr. Romanovich
has served as a director of BLSC, a position he has also held with the Company
since its formation in November 1988.
GEORGE BINNIE, a director of the Company and BLSC since April 1992, and
a director of CDSC from April 1992 until July 24, 1995, is, pursuant to an
agreement with the Company, one of Stelco's designees to serve as a director
of the Company and its subsidiaries. See "Compensation Committee Interlocks
and Insider Participation." Mr. Binnie served as Vice-President of Stelco
from May 1991 through December 1992, when he retired as an officer of Stelco.
Since January 1993 he has served as a consultant to Stelco and, he currently
serves as a director of three Stelco subsidiaries and as a member of the
Management Committee of Moly-Cop Canada, which is a Stelco venture. Mr.
Binnie has been employed by Stelco for over 40 years. From January 1988
until May 1991, he was Vice-President and Controller of Stelco
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<PAGE>
Steel, a division of Stelco. He has also been a member of the Boards of
Directors of various Stelco subsidiaries and ventures.
KARL H. REITZ, a director of the Company and BLSC since November 1993, and
a director of CDSC from November 1993 until July 24, 1995, is, pursuant to an
agreement with the Company, one of Stelco's designees to serve as a director of
the Company and its subsidiaries. See "Compensation Committee Interlocks and
Insider Participation." Mr. Reitz has been employed by Stelco for over 38
years. In 1994 he became Vice President, Manufactured Products Group of Stelco,
which includes its wire, fastener and pipe business units. From 1993 to 1994,
Mr. Reitz was Vice President of the Wire and Wire Products Group of Stelco,
which includes its wire and fastener business units. For the prior five years,
he was Vice President and General Manager of Stelwire, Stelco's wire business
unit. Mr. Reitz has been a director of Torcad Limited, a Stelco joint venture,
since 1988.
ROGER G. FEIN has been a partner in the Chicago, Illinois law firm of
Wildman, Harrold, Allen & Dixon since January 1992. For more than 18 years
prior thereto, Mr. Fein was a partner in the Chicago, Illinois law firm of
Arvey, Hodes, Costello & Burman, a firm that he was affiliated with for 24
years. His prior law firm had served as general counsel to BLSC since it became
independently owned in October 1984 and to the Company since its formation in
November 1988. He has been a director of BLSC since November 1987 and a
director of the Company since November 1988. Mr. Fein is also Chairman Emeritus
of the Securities Advisory Committee to the Secretary of State of Illinois and
has served on that Committee since 1973.
CHARLES P. MCLARNON is President and owner of McLarnon Enterprises, Inc., a
company he founded in 1987, and is currently involved in acquisition and buyout
activities. Mr. McLarnon has been a director of BLSC since August 1988 and a
director of the Company since November 1988.
DENNIS W. SHEEHAN has served as Chairman, President, Chief Executive
Officer and a director of AXIA Incorporated ("AXIA") since 1984. BLSC was a
subsidiary of AXIA until October 1984, when it became independently owned. From
October 1984 to October 1987, Mr. Sheehan served as a director of BLSC.
Mr. Sheehan rejoined BLSC's Board of Directors in August 1988 and has served as
a director of the Company since November 1988.
PAUL J. AUSTGEN has served as Vice President, Finance, Secretary and
Treasurer of the Company and BLSC since October 1, 1995. From August 1995
through September 1995 Mr. Austgen served as Controller of the Company.
Prior to that, Mr. Austgen had been employed by Inland Steel Corporation for
22 years. He was Treasurer and Chief Operating Officer of Inland Steel
Administrative Service Company from January 1992 to January 1994 and
Director-Internal Audit from January 1990 through December 1991.
RICHARD M. BOGDON has been an officer of BLSC since October 1984 and has
served as Vice President of Human Resources of BLSC since May 1988.
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<PAGE>
GERALD E. BRADY has served as Vice President of BLSC since October 1984.
MICHAEL A. DEBIAS has served as Vice President of Purchasing of BLSC since
December 1984.
KENNETH B. MORRIS has served as Vice-President, Cartersville Operations of
BLSC since November 1992. From January 1989 to November 1992, Mr. Morris was
General Manager of BLSC's Cartersville Operations.
CHESTER J. PUCILOWSKI has served as Vice President, Medina Operations of
BLSC since October 1984.
R. JAMES BARNETT has served as President of CDSC since May 1990. Prior to
that, Mr. Barnett had been employed by Stelco for 26 years. He was General
Manager of Stelco's Canadian Drawn Steel Company business unit from October 1988
to May 1990. Mr. Barnett became the sole director of CDSC on July 24, 1995.
The officers of the Company are elected at each annual meeting of the Board
of Directors of the Company and its subsidiaries and, subject to the terms of
their Employment Agreement, if any, serve at the discretion of the Board of
Directors of the Company and its subsidiaries.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The Board of Directors is responsible for the overall affairs of the
Company. To assist it in carrying out its duties, the Board of Directors has
delegated certain authority to several committees. The committees of the Board
of Directors of the Company consist of the Audit Committee, the Human Resources
Committee, the Employees' Stock Option Committee and the Directors' Stock Option
Committee.
The function of the Audit Committee is to review and make recommendations
regarding engagement of an independent public accounting firm; the scope of the
independent auditor's audit procedures; the adequacy and implementation of
internal audit controls; and such other matters relating to the Company's
financial affairs as the Audit Committee deems desirable. The members of the
Audit Committee are George Binnie, Charles P. McLarnon and Dennis W. Sheehan.
The Audit Committee held one meeting during the last fiscal year.
The Human Resources Committee (formerly known as the Compensation
Committee) is responsible for recommending to the Board of Directors the
salary and other compensation of the principal officers of the Company and
its subsidiaries. The members of the Human Resources Committee are Karl H.
Reitz, Roger G. Fein and Dennis W. Sheehan. The Human Resources Committee
held one meeting during the last fiscal year.
The Employees' Stock Option Committee is responsible for administering
the Employees' Incentive Stock Option Plan. The members of the Employees'
Stock Option Committee are
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<PAGE>
Gregory H. Parker, Anthony J. Romanovich and George Binnie. The Employees'
Stock Option Committee held no meetings during the last fiscal year.
The Directors' Stock Option Committee is responsible for administering the
Directors' Stock Option Plan. The members of the Directors' Stock Option
Committee are Gregory H. Parker, Anthony J. Romanovich and George Binnie. The
Directors' Stock Option Committee held no meetings during the last fiscal year.
During the last fiscal year, the Board of Directors held seven meetings.
During fiscal 1995, all the directors attended all the meetings of the Board and
the Committees of which they were members.
DIRECTORS' COMPENSATION
During the last fiscal year, each director who is not an employee of the
Company and who is not a director as a Stelco designee received annual
remuneration of $13,500, plus $500 for each meeting of the Board of Directors
attended. Non-employee directors who serve as a committee chairman receive
$1,000 per year for each committee chaired. In addition, non-employee directors
who serve on committees receive $250 for each committee meeting attended if such
meeting takes place on a day other than the day of a regularly scheduled Board
of Directors meeting. During the last fiscal year, all committee meetings were
held on the day of a regularly scheduled Board of Directors meeting. Directors
who are employees of the Company receive neither annual remuneration for
services as a director nor any additional fees for attending meetings of the
Board of Directors or committees. The remuneration of directors is paid on a
consolidated basis for services as a director of the Company and all of its
subsidiaries. Joint meetings of the Company and its subsidiaries or successive
meetings held on the same day are considered as one meeting for determining the
meeting fee. During the last fiscal year, all meetings of the Boards of
Directors of the Company and BLSC were held on the same day. Pursuant to an
agreement with the Company, directors who are designees of Stelco are treated as
employee directors and do not receive any remuneration for services as a
director of the Company and its subsidiaries. See "Compensation Committee
Interlocks and Insider Participation." The Company reimburses all directors for
travel and other necessary business expenses incurred in the performance of
their services for the Company.
Non-employee directors may elect to have all or any part of their
directors' remuneration deferred under the Directors' Deferred Compensation
Plan (the "Plan") of the Company. Under the Plan, participating directors
have the option of having the deferred amount credited to an interest account
or a stock equivalency account. The accounts are unfunded and are credited
on the last day of the month in which the deferred remuneration is earned.
For interest accounts, the director's account receives a bookkeeping credit
in the amount of the director's deferred remuneration. Such deferred
remuneration is retained by the Company with interest thereon accrued and
compounded monthly at the prime rate charged by the Company's principal
lender from time to time. For stock equivalency accounts, the director's
account is credited with "share units," the number of which are determined by
dividing the amount of deferred
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<PAGE>
remuneration allocated to the stock equivalency account by the closing price
per share of Common Stock of the Company on the date deferred remuneration is
credited to the account (or if the shares are not traded on that day, then by
the closing price on the last preceding day on which the shares were traded).
A stock equivalency account will be credited with dividends as if the
account had been invested in shares of Common Stock of the Company. A
participant in the Plan has the right to payment of the account, generally,
upon ceasing to be a member of the Board of Directors, attaining age 65, or
upon disability or death. The director may elect to receive either a lump
sum payment or payment in up to 10 annual installments. At the election of
the participant, the value of a stock equivalency account may be received
either in cash or in shares of Common Stock of the Company. In the event of
a participant's death, payment of any remaining balance of credited amounts
will be made to a designated beneficiary. In certain cases, participating
directors may receive a distribution of deferred amounts in the event of
substantial financial hardship. In the event of a change in control of the
Company, or the Company's termination of the Plan, participating directors
may elect to receive a lump sum distribution within five days of the
occurrence of either of such events. Charles P. McLarnon is currently
participating in the Plan. As of September 30, 1995, the number of units in
Mr. McLarnon's stock equivalency account is 4,790.466.
DIRECTORS' STOCK OPTION PLAN
In 1988, the Company's Board of Directors and stockholders adopted a
Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan
provides for the grant of non-statutory stock options to directors of the
Company who are not employees of the Company or any of its subsidiaries.
Further, pursuant to an agreement with the Company, the directors who are Stelco
designees have permanently waived any right to participate in the Directors'
Plan. See "Compensation Committee Interlocks and Insider Participation." The
exercise price of directors' options will be equal to the fair market value per
share of the Company's Common Stock on the date of grant.
The Directors' Plan is administered by the Directors' Stock Option
Committee of the Board of Directors, which consists of three directors who
either (i) are officers of the Company and therefore not eligible to
participate in the Directors' Plan or (ii) have permanently waived any right
to participate in the Directors' Plan. That Committee determines when
options are granted and the number of shares of Common Stock subject to each
option granted under the Directors' Plan. A total of up to 65,000 shares of
Common Stock of the Company are reserved for issuance upon exercise of
options granted under the Directors' Plan. All options granted under the
Directors' Plan will vest over a four year period from the date of grant with
25% of the options becoming first exercisable on each anniversary of the date
of grant. Options granted under the Directors' Plan are exercisable, to the
extent vested, for a term of 10 years from the date of grant, and are not
transferable during the lifetime of the optionee. In the event the director
is removed for cause, his options will terminate. In the event a director's
service terminates for any other reason, the director may exercise his
directors' options, to the extent vested, for a limited period of time after
termination of services. If a non-employee director becomes an employee of
the Company or any of its subsidiaries, all his options will immediately
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<PAGE>
terminate. In addition, all outstanding directors' options will vest
immediately upon a change in control (as defined in the Directors' Plan) of
the Company that has not been approved by the Board of Directors of the
Company.
On December 15, 1988, the Company granted options to purchase an aggregate
of 30,000 shares of its Common Stock to its three eligible non-employee
directors (10,000 shares each) pursuant to the Directors' Plan, at an exercise
price of $10.50 per share. On May 11, 1990, the Company granted the same three
directors additional options to purchase up to 5,000 shares each, at an exercise
price of $5.50 per share.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission ("SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) reports
they file.
Based solely upon a review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that during the fiscal year ended September 30, 1995, its
officers, directors and greater than ten-percent beneficial owners complied with
all applicable Section 16(a) filing requirements.
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY AND COMPENSATION COMMITTEE REPORT
GENERAL. The executive compensation program is administered by the
Human Resources Committee of the Board of Directors (the "Committee") which
is comprised of the individuals listed below who are all non-employee,
independent directors of the Company. The Committee is responsible for all
compensation matters for the Company's senior management except for stock
options, which is the responsibility of the Employees' Stock Option Committee.
Annual compensation for the Company's executive officers, other than
Gregory H. Parker (the Chairman of the Board, President and Chief Executive
Officer of the Company), is recommended to the Committee by Mr. Parker, reviewed
by the Committee and the Committee's recommendations are then presented to the
Board of Directors for approval. Mr. Parker's judgment and discretion are used
in making his recommendations to the Committee and, neither
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<PAGE>
he nor the Committee use a weighting system for different factors considered.
The Committee normally meets formally at least once a year.
POLICY AND OBJECTIVES. Recognizing its role as a key representative of the
stockholders, the Committee seeks to promote the interests of stockholders by
attempting to align management's remuneration, benefits and perquisites with the
economic well-being of the Company. Since the achievement of operational
objectives should, over time, represent the primary determinant of share price,
the Committee links elements of compensation of executive officers and certain
key employees with the Company's operating performance. In this way, objectives
under a variety of compensation programs should eventually reflect the overall
performance of the Company. By adherence to the above program, the compensation
process should provide for enhancement of shareholder value. Basically, the
Committee seeks the successful implementation of the Company's business strategy
by attracting and retaining talented managers motivated to accomplish these
stated objectives. The Committee attempts to be fair and competitive in its
view of compensation. Thus rewards involve both business and individual
performance. The key ingredients of the program consist of base salary, annual
cash incentives and long range incentives consisting of stock options.
BASE SALARY. Base salaries for the chief executive officer, as well as
other executive officers of the Company, are determined by comparing salary data
for similar positions in companies that match the Company's size in sales and
earnings. Validation of this data has, at times, been performed by an
independent nationally-recognized compensation consultant. Generally, the
performance of each executive officer is evaluated annually and salary
adjustments are based on various factors including revenue attained, earnings,
cash flow, new product development, market appreciation for the Company's
publicly traded shares of Common Stock, reduction of debt, personal performance
and position in the salary survey range. The Committee approves base salary
adjustments for the six executive officers listed herein and certain other
senior managers.
CASH INCENTIVE COMPENSATION. To reward performances, the chief
executive officer and other executive officers are eligible for cash bonuses
under the Merit Increase Earn-out, Profit Sharing and Supplemental Incentive
Compensation Programs. The actual amounts of incentive compensation paid to
each executive officer is predicated on an assessment of each participant's
relative role in achieving certain defined financial objectives of the
Company as well as each such person's contributions of a strategic nature in
maximizing shareholder value. Such assessments and financial objectives are
reviewed at least annually and changed when deemed appropriate.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. The compensation of Mr. Parker,
the Company's Chairman, President and Chief Executive Officer, is determined
using a similar process and philosophy as all other executive officers of the
Company. However, the Committee also considers Mr. Parker's ownership of a
significant number of the outstanding shares of Common Stock of the Company, his
being ineligible to participate in the Company's Employees' Incentive Stock
Option Plan, and his many years of dedicated service and leadership
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<PAGE>
during both good and difficult business environments. The Chairman of the
Committee considers competitive compensation data in concert with his
assessment of Mr. Parker's performance and contributions to the Company and
recommends the components for Mr. Parker's annual compensation for the
Committee's consideration. The Committee's recommendations are then
presented to the Board of Directors for approval. As with all executive
officer compensation recommendations, there is no specific formulaic tie
between the Company's stated goals and performance; instead, judgment and
discretion are used in making recommendations.
In evaluating compensation for Mr. Parker for the Company's 1995 fiscal
year, the Committee reviewed his existing compensation arrangements and both
Company and individual performance. The Committee's decision not to increase
his base salary took into consideration the Company's financial performance for
the prior three fiscal years, all components of his compensation, including the
opportunity to earn incentive compensation, and the fact that no increases in
base salary were recommended for other executive officers of the Company.
SUMMARY. After reviewing all of its existing compensation programs, the
Committee believes that the total compensation program for executive officers of
the Company is competitive with the compensation programs provided by other
similar organizations taking into consideration the size and complexity of the
Company and the specific responsibilities of the executive officers.
The Human Resources Committee:
Dennis W. Sheehan, Chairman
Roger G. Fein
Karl H. Reitz.
The tables which follow and the accompanying narrative reflect the
decisions covered by the above discussion.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth information concerning the compensation
paid to the Company's Chairman of the Board, President and Chief Executive
Officer and the Company's five other most highly compensated executive
officers for services in all capacities to the Company during the last three
completed fiscal years ending September 30, 1995 (Fiscal Years 1993, 1994 and
1995):
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
-------------------------------------------- --------------------------------
Awards Payouts
---------------------- --------
Securities
Other Restricted Underlying
Annual Stock Options/ LTIP All Other
Name and Salary Bonus(1) Compensation(2) Awards SARs Payouts Compensation(3)
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gregory H. Parker 1995 $235,000 $143,350 -- -0- None -0- $22,935
Chairman, President and Chief 1994 235,000 132,540 -- -0- None -0- 32,565
Executive Officer of the 1993 235,000 8,812 -- -0- None -0- 32,796
Company and BLSC, and Chief
Executive Officer of CDSC
Anthony J. Romanovich 1995 145,000 80,113 -- -0- None -0- 14,257
Senior Vice President of the 1994 145,000 74,277 -- -0- None -0- 16,139
Company and BLSC 1993 145,000 5,437 -- -0- None -0- 14,908
George W. Fleck 1995 115,000 63,538 -- -0- None -0- 10,266
Vice President, Finance, 1994 115,000 58,809 -- -0- None -0- 12,340
Secretary and Treasurer of the 1993 115,000 4,312 -- -0- None -0- 11,668
Company and BLSC
Gerald E. Brady 1995 110,000 60,775 -- -0- None -0- 7,961
Vice President of BLSC 1994 110,000 56,348 -- -0- None -0- 9,064
1993 110,000 2,062 -- -0- None -0- 8,291
Michael A. DeBias 1995 100,000 55,250 -- -0- None -0- 7,825
Vice President of Purchasing 1994 100,000 51,225 -- -0- None -0- 9,067
of BLSC 1993 100,000 3,750 -- -0- None -0- 8,487
R. James Barnett* 1995 125,000 69,050 -- -0- None -0- -0-
President of CDSC 1994 125,000 64,020 -- -0- None -0- -0-
1993 125,000 8,437 -- -0- None -0- -0-
- ----------------------------------------
</TABLE>
* All amounts shown in this table (and elsewhere) for Mr. Barnett are in
Canadian dollars. The average exchange rates for conversion to United
States dollars were .727, .737 and .785 for Fiscal Years 1995, 1994 and
1993, respectively.
(1) MERIT INCREASE EARN-OUT PROGRAM. Starting in Fiscal Year 1993, the Company
converted its annual merit increase review program to a Merit Increase
Earn-Out Program for certain officers and key employees. Under this
program, merit increases are completely or partially replaced by quarterly
payments which are based on actual cumulative performance to the business
plan established for the year. For Fiscal Years 1993, 1994 and 1995, merit
increases under this program could not exceed 15% of base salary.
The Merit Increase Earn-Out Program payouts made for Fiscal Years 1995,
1994 and 1993, respectively, are as follows: Mr. Parker, $35,250,
$35,250 and $8,812; Mr. Romanovich, $21,750, $21,750 and $5,437; Mr.
Fleck, $17,250, $17,250 and $4,312; Mr. Brady, $16,500, $16,500 and
$2,062; Mr. DeBias, $15,000, $15,000 and $3,750; and Mr. Barnett,
$18,741, $18,741 and $8,437.
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<PAGE>
PROFIT SHARING PROGRAM. The Company has a Profit Sharing Program (the
"Profit Sharing Program") for all non-bargaining unit employees. The terms
of the Profit Sharing Program are determined on an annual basis by the
Board of Directors, which administers the Profit Sharing Program. Payments
made under the Profit Sharing Program for Fiscal Years 1995 and 1994,
respectively, are as follows: Mr. Parker, $27,025 and $24,323;
Mr. Romanovich, $16,675 and $15,008; Mr. Fleck, $13,225 and $11,903;
Mr. Brady, $12,650 and $11,385; Mr. DeBias, $11,500 and $10,350; and
Mr. Barnett, $14,374 and $12,937. No profit sharing was earned for Fiscal
Year 1993.
SUPPLEMENTAL INCENTIVE COMPENSATION PROGRAM. During the Company's last
three fiscal years, many key management employees of the Company, including
all the executive officers of the Company named in the Summary Compensation
Table, participated in the Company's Supplemental Incentive Compensation
Program (the "Incentive Program"). The terms of the Incentive Program are
determined on an annual basis by the Board of Directors, which administers
the Incentive Program. For Fiscal Years 1993, 1994 and 1995, the Incentive
Program provided for the potential payment of cash awards depending upon,
among other factors, the degree to which certain specified income levels
had been attained during that fiscal year. Each participating employee was
assigned to a category that determined the maximum bonus awardable to such
employee.
Payments made pursuant to the Incentive Program for Fiscal Years 1995 and
1994, respectively, are as follows: Mr. Parker, $81,075 and $72,967;
Mr. Romanovich, $41,688 and $37,519; Mr. Fleck, $33,063 and $29,756;
Mr. Brady, $31,625 and $28,463; Mr. DeBias, $28,750 and $25,875; and
Mr. Barnett, $35,935 and $32,342. No bonus was earned under the Incentive
Program for Fiscal Year 1993. The Incentive Program is not based on the
price of the Company's shares of Common Stock.
(2) While all the executive officers named in the Summary Compensation Table
enjoy certain perquisites and other personal benefits, such perquisites and
other personal benefits do not exceed the lesser of $50,000 or 10% of the
total salary and bonus reported for the named executive. In accordance
with the rules of the Securities and Exchange Commission, such amounts have
been omitted.
(3) The amounts shown in this column pertain to the following:
SPLIT DOLLAR LIFE INSURANCE PROGRAM. In 1988, BLSC entered into a Split
Dollar Life Insurance Agreement with Messrs. Parker, Romanovich, Fleck,
Brady and DeBias and certain other executive officers and key employees of
BLSC whereby the premiums on the corresponding insurance policies are paid
by BLSC. Under the Agreement, such persons have each executed a collateral
assignment of their policies. BLSC, as assignee, is entitled to recover
the aggregate premium payments it made through any combination of (i)
borrowing against the policies, (ii) the cash surrender value of the
policies if the policies should be surrendered and (iii) payment in the
event of the insured's death.
-39-
<PAGE>
Set forth under this column for Messrs. Parker, Romanovich, Fleck, Brady
and DeBias is the total of (i) the amount of the total annual premium paid
by the Company for these policies representing the economic benefit to the
executive for term insurance death benefit coverage (the amount reportable
as taxable income to the executive) and (ii) the projected actuarial value
of the benefit provided by the remainder of the premium paid by the Company
using an interest-free term loan approach to measure the benefit received
annually by the executive for the use of the money the Company provides in
paying the premium. Those amounts which are included under this column for
Fiscal Years 1995, 1994 and 1993, respectively, are as follows: Mr. Parker,
$21,735, $31,365 and $31,946; Mr. Romanovich, $13,057, $14,939 and $14,058;
Mr. Fleck, $9,066, $11,140 and $10,818; Mr. Brady, $6,761, $7,864 and
$7,441; and Mr. DeBias, $6,625, $7,867 and $7,637.
R. James Barnett was not an employee of the Company when this program was
entered into and he does not participate in it. However, Mr. Barnett
participates in CDSC's defined benefit pension plan described under "CDSC
Pension Plan" hereinafter and, as therein explained, the amount of the
annual contribution respective to each individual participant is not
separately calculated.
SALARY SAVINGS PLAN. The Company maintains a salary savings plan for all
BLSC employees who are not covered by a collective bargaining agreement.
The salary savings plan is a 401(k) plan that serves as the pension plan
for such employees. In Fiscal Years 1995 and 1994, the Company contributed
$200 per participant plus 60% of the first $1,000 of a participant's
contribution and 40% of the second $1,000 of the participant's
contribution. For Fiscal Year 1993, the Company contributed $100 per
participant plus 50% of the first $1,000 of a participant's contribution
and 25% of the second $1,000 of the participant's contribution. During
Fiscal Years 1995, 1994 and 1993, the Company contributed an aggregate of
$1,200, $1,200 and $850, respectively, to the accounts of Messrs. Parker,
Romanovich, Fleck, Brady and DeBias pursuant to this plan. Those amounts
are included under this column.
EMPLOYMENT AGREEMENTS
GENERAL. In May 1990 each of the executive officers of the Company
named in the Summary Compensation Table (each an "Executive") entered into an
employment agreement (collectively, the "Employment Agreements") with the
Company, BLSC or CDSC, as appropriate. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS -- Stelco and -- Interests Of Certain Persons In The Merger --
Employment Agreements" under Item 13 of this Report for additional
information relating to the Employment Agreements and a First Refusal
Agreement entered into concurrently with the Employment Agreements.
The term of each Executive's employment under his Employment Agreement
commenced on May 11, 1990 and continued until December 31, 1994. Thereafter,
each Executive's employment automatically continues unless such employment is
terminated in accordance with
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<PAGE>
the terms of the Employment Agreement. The Employment Agreements include,
among other things, customary confidentiality and non-compete provisions, and
certain severance payment provisions that are discussed in detail below and
which become applicable upon, among other things, termination of employment
under certain circumstances, including following a "Change in Control."
TERMINATION. The Executive's employment under the Employment Agreement may
be terminated without any breach of the Employment Agreement under the following
circumstances:
(a) automatically upon the Executive's death;
(b) by the Company in the case of permanent disability, which is defined
as being absent for more than five-sixths of any consecutive six-month
period and thereafter failure, within 30 days after written notice of
termination, to return to work;
(c) by the Company, after notice and an opportunity to be heard, for
"Cause," as defined in the Employment Agreement;
(d) by the Executive if as a result of the Executive's proven incapacity
due to physical or mental illness, the Executive shall have been absent
for more than five-sixths of any consecutive six-month period so that he
is unable to perform substantially all of his duties;
(e) by the Executive for "Good Reason," which is defined to include the
exercise by the Executive of his right to terminate his employment within
180 days following a "Change in Control," the material breach of the
Employment Agreement by the Company and its failure to cure after
notice, any purported termination of the Executive's employment which does
not comply with any required notice provisions, and, in the case of each
of the Executive's (except for R. James Barnett), any material breach by
Stelco or its affiliates of the First Refusal Agreement which breach is not
cured after notice by the Executive to Stelco;
(f) by the Company (i) after giving the Executive at least 24 months prior
written notice of its intent to terminate the Employment Agreement, or
(ii) in the event the Executive's (except for R. James Barnett) ownership
of shares of Common Stock of the Company is reduced by 25% or more from the
amount owned by such Executive when the Employment Agreement was entered
into, then after giving the Executive at least 18 months prior written
notice of its intent to terminate the Employment Agreement; and
(g) by the Executive after giving the Company at least six months prior
written notice of his intent to terminate the Employment Agreement.
R. James Barnett is not a party to the First Refusal Agreement and did
not own any shares of Common Stock of the Company when his Employment
Agreement was entered into.
-41-
<PAGE>
For purposes of the Employment Agreements, a "Change in Control" shall
be deemed to have occurred if (i) any Stockholder or group of Stockholders
acting in concert (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934), or any of their respective affiliates and associates,
elects or are elected a majority of the Board of Directors of the Company,
(ii) any third party or third parties acting in concert (within the meaning
of Section 13(d) of the Securities Exchange Act of 1934), or any of their
respective affiliates and associates, become the owner of a majority of any
outstanding class of securities entitled to vote for the election of
directors, (iii) any cessation of the majority of the Company's business or
sale of all or substantially all the assets of the Company, on a consolidated
basis, or (iv) any merger in which the Company is not the survivor or any
consolidation or share exchange or similar transaction. Notwithstanding
clauses (i) and (ii) of the preceding sentence, a Change in Control does not
include, for purposes of the Employment Agreements, any vote for a majority
of directors by, or majority stock ownership by, Stelco or any group of which
the Executive is then a member.
The consummation of the Merger would be a Change in Control under the
Employment Agreements. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS --
Interests of Certain Persons in the Merger -- Employment Agreements" under
Item 13 of this Report.
COMPENSATION AND SEVERANCE PAY IN CERTAIN SITUATIONS. The Executive shall
receive full compensation (less disability benefits for the first six months)
during periods of disability until his employment is terminated. If his
employment is properly terminated as a result of permanent disability, the
Executive shall receive an amount equal to three times his then annual
compensation in one lump sum. Further, on a pro rata basis, accrued benefits
under the Company's Supplemental Incentive Compensation Program (the "Incentive
Program") are also payable.
If the Executive's employment is terminated by death, the Company shall pay
the Executive's beneficiary an amount equal to three times the Executive's then
annual compensation in one lump sum plus the pro rata accrued benefits under the
Incentive Program. The Company has purchased key man life insurance to fund
this obligation.
If the Executive's employment is terminated by the Company for "Cause" or
if the Executive resigns voluntarily (other than for "Good Reason" as
explained below), the Executive shall only receive full
compensation to the date of termination and no severance pay or benefits under
the Incentive Program.
If: (i) the Executive's employment is terminated by the Company in
breach of the Employment Agreement, (ii) the Executive terminates his
employment for "Good Reason," (iii) the Company terminates the Executive's
employment pursuant to certain notice provisions, or (iv) the Company
terminates the Executive's employment pursuant to Stelco's request under
certain circumstances, then in each such event the Executive shall receive
full compensation through the date of termination and either (a) severance
pay in an amount equal to three times the Executive's then annual salary in
one lump sum or (b) if the Executive's employment is
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<PAGE>
terminated by the Company pursuant to certain notice provisions, then the
Executive shall be paid semi-monthly installments of compensation (of the
same amount of compensation in effect immediately prior to termination) for a
period of three years (one year in the case of R. James Barnett). If the
Executive's employment is terminated by the Company in breach of the
Employment Agreement, or if the Executive terminates his employment for "Good
Reason," then in each such event the Company shall also pay all other
damages, legal fees and expenses resulting from such breach. In addition,
the Executive shall receive any earned performance bonus under the Incentive
Program. Finally, notwithstanding any provisions of the Employment Agreement
to the contrary, in no event shall the Executive as the consequence of
termination upon a "Change in Control" be entitled to receive amounts of
compensation in excess of three times the "base amount" of his compensation
if such excess severance pay would constitute a "parachute payment" as the
terms "base amount" and "parachute payment" are defined in Section 280G of
the Internal Revenue Code of 1986 and the regulations thereunder, as amended
from time to time.
INDEMNIFICATION BY STELCO. Stelco shall indemnify the Company, and
guarantee to the Executive the Company's obligations to the Executive, in the
event of termination of the Executive's employment under certain circumstances.
EMPLOYEES' STOCK OPTION PLAN
In 1988, the Company's Board of Directors and stockholders adopted an
Employees' Incentive Stock Option Plan (the "Option Plan"), which was amended in
1992. The Option Plan provides for the grant of incentive stock options
("ISOs"), non-statutory stock options ("NSOs" or collectively with ISOs,
"Options") and stock appreciation rights ("SARs") to key employees of the
Company or its subsidiaries. ISOs are intended to qualify as "incentive stock
options" under the Internal Revenue Code of 1986. In general, SARs permit a
holder of an Option to surrender the Option and to receive a cash payment from
the Company in an amount equal to the difference between the exercise price of
the Option surrendered and the fair market value of the shares of Common Stock
covered by the Option surrendered.
The Option Plan is administered by the Employees' Stock Option Committee
of the Board of Directors. Members of that Committee and members of the
Company's Directors' Stock Option Committee are not eligible to participate
in the Option Plan. Gregory H. Parker and Anthony J. Romanovich are not
eligible to participate in the Option Plan because they are members of both
the Employees' Stock Option Committee and the Directors' Stock Option
Committee. The Committee determines the employees to whom Options or SARs
are granted, the number of shares of Common Stock subject to each Option or
SAR, the date or dates upon which each Option or SAR may be exercised and
other terms and conditions thereof. A total of up to 130,000 shares of
Common Stock of the Company are reserved for issuance upon exercise of
Options or SARs. Options may be granted until November 1998 and are
exercisable for a period of up to 10 years from the date of grant. Options
are generally not transferable and terminate upon the optionee's termination
of employment, except that under certain circumstances an optionee may
exercise an Option for a limited period after termination of
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<PAGE>
employment. The Company may cancel any Options or SARs held by an employee
fired for cause. All outstanding Options and SARs will vest immediately upon
any change in control of the Company (as defined in the Option Plan) that has
not been approved by the Board of Directors of the Company.
The exercise price of ISOs will be equal to or in excess of the fair
market value per share of the Company's Common Stock on the date of grant.
The exercise price of NSOs will be equal to or in excess of 85% of the fair
market value per share of Common Stock of the Company on the date of grant.
Upon exercise of an Option, the exercise price must be paid to the Company in
cash.
The Option Plan provides that ISOs may not be granted to any employee who
beneficially owns 10% or more of the voting stock of the Company or any
subsidiary, unless the exercise price of such ISO is equal to at least 110% of
the fair market value per share of the Company's Common Stock on the date the
ISO is granted and it is not exercisable after five years from the date of
grant.
R. James Barnett is the only executive officer of the Company named in the
Summary Compensation Table who has been granted any options pursuant to the
Option Plan. On May 11, 1990, the Company granted ISOs to purchase shares of
its Common Stock to 36 key employees, at an exercise price of $5.50 per share,
including ISOs to purchase up to 5,000 shares to Mr. Barnett. All such options
vested over a four year period from the date of grant with 25% of the options
becoming first exercisable on each anniversary of the date of grant, and will be
exercisable, to the extent vested, for a term of 10 years from the date of
grant.
No stock options or SARs were granted or awarded in Fiscal Years 1995, 1994
and 1993.
The following table sets forth further information relating to stock
options.
-44-
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS/SARS AT
OPTIONS/SARS AT FISCAL FISCAL YEAR-END ($)
VALUE YEAR-END (#) -------------------
SHARES ACQUIRED REALIZED ------------ EXERCISABLE/
NAME ON EXERCISE (#) ($)(2) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE(3)
---- --------------- -------- ------------------------- ---------------------
<S> <C> <C> <C> <C>
Gregory H. Parker . . . . . . None None None $-0-
Anthony J. Romanovich . . . . None None None -0-
George W. Fleck . . . . . . . None None None -0-
Gerald E. Brady . . . . . . . None None None -0-
Michael A. DeBias . . . . . . None None None -0-
R. James Barnett . . . . . . None None 5,000/-0- $11,875/$-0-
</TABLE>
(1) No SARs have ever been awarded under the Option Plan.
(2) An individual, upon exercise of an option, does not receive cash equal to
the amount (if any) contained in the Value Realized column of this table.
Instead, the amounts, if any, contained in the Value Realized column
reflect the increase in the price of the Company's shares of Common Stock
covered by the option from the option award date to the option exercise
date. No cash is realized until the shares received upon exercise of an
option are sold.
(3) Based upon the last closing sale price of $7.875 in Fiscal Year 1995 on the
NASDAQ National Market System, at the end of Fiscal Year 1995 all of the
outstanding options referred to in the above table were "in-the-money"
(i.e., the exercise price of $5.50 per share was lower than the market
price of $7.875 per share; the difference between those prices is the value
shown in this column for the underlying unexercised options).
As a general matter, whether or not financial benefit will be derived from
the exercise of stock options depends on the relationship between the market
price of the underlying securities and the exercise price of the options and on
the optionee's own investment decisions. To the extent that options have an
exercise price above the market price ("out-of-the-money"), such options may
ultimately confer no financial benefit to the optionee as they may expire before
they can be exercised profitably. Similarly, options "in-the-money" on a given
date can become "out-of-the-money" due to price fluctuations in the stock
market. For these reasons, the Company believes that placing a current value on
outstanding options is highly speculative and that any such valuations may not
represent the true benefit, if any, that may be realized by an optionee. The
Company is not aware of any formula which will determine with reasonable
accuracy a present value based on future unknown or volatile factors.
-45-
<PAGE>
No executive officer named in the Summary Compensation Table sold shares
of the Company's Common Stock in Fiscal Year 1995.
CDSC PENSION PLAN
PENSION PLAN TABLE*
FOR CDSC PENSION PLAN
<TABLE>
<CAPTION>
Years of Service(1)
---------------------------------------------------------
Remuneration(2) 15 20 25 30 35
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$125,000 $25,725 $34,300 $42,875 $51,450 $60,025
150,000 25,725 34,300 42,875 51,450 60,025
175,000 25,725 34,300 42,875 51,450 60,025
200,000 25,725 34,300 42,875 51,450 60,025
</TABLE>
*All amounts shown in the Pension Plan Table are in Canadian dollars. The
average exchange rate for conversion to United States dollars was .727 for the
Company's Fiscal Year 1995. The Pension Plan Table sets forth the estimated
annual retirement benefits payable under CDSC's Pension Plan upon retirement at
the normal retirement age of 65.
(1) "Years of Service" means years of credited service with CDSC as
provided in CDSC's Pension Plan.
(2) "Remuneration" under CDSC's Pension Plan means a plan member's highest
five years average remuneration preceding retirement. For purposes of
CDSC's Pension Plan, remuneration includes a plan member's base salary
and payouts under the Company's Merit Increase Earn-Out Program, but
excludes payouts under the Company's Profit Sharing Program and
Incentive Program.
CDSC has a defined benefit pension plan (the "CDSC Pension Plan") for
its salaried employees who have completed two years of service, including R.
James Barnett, the only executive officer named in the Summary Compensation
Table who is eligible to participate in the CDSC Pension Plan. An
individual's years of participation in the CDSC Pension Plan plus the
eligibility years are used in determining the amount of such individual's
benefits under the CDSC Pension Plan. If a participant terminates employment
with less than two years of membership in the CDSC Pension Plan, other than
by reason of retirement, death or total and permanent disability, no pension
payments or other benefits will be received under the CDSC Pension Plan.
-46-
<PAGE>
CDSC contributes to the CDSC Pension Plan each year the amount
actuarially determined to be necessary to provide sufficient funds to pay all
benefits due under the CDSC Pension Plan. Employees make no contributions
under the CDSC Pension Plan. The amount of the contribution respective to
each individual participant is not separately calculated.
Pension legislation in Ontario requires all pensions to be payable in the
form of a 60% joint survivor benefit if the plan member has a spouse at the date
of retirement. The benefit amounts referred to in the Pension Plan Table and
below are straight life annuity amounts which would decrease if the CDSC Pension
Plan member receives a joint survivor benefit on retirement.
The maximum pension payable under the CDSC Pension Plan is $1,715
multiplied by the plan member's years of credited service to a maximum of 35
years of credited service for a maximum annual pension of $60,025.
The estimated annual benefit payable to R. James Barnett under the CDSC
Pension Plan upon retirement at the normal retirement age of 65 (on March 31,
2004), when he would have 40 years of credited service, is $60,025. As of
September 30, 1995, for purposes of the CDSC Pension Plan, Mr. Barnett had 32
and 4/12ths years of credited service and his highest five years average
remuneration is approximately $133,550.
All of the above amounts regarding the CDSC Pension Plan are in Canadian
dollars.
Neither the Company nor BLSC have any defined benefit or actuarial pension
plan for salaried employees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock of the Company as of September 30, 1995, by
(i) each of the executive officers and directors of the Company and (ii) all
executive officers and directors of the Company as a group. Information with
respect to beneficial ownership is based upon information furnished by such
persons or contained in filings made with the Securities and Exchange
Commission.
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<PAGE>
<TABLE>
<CAPTION>
Number of Shares
of Common Stock
of the Company Percent of
Name Beneficially Owned(1)(2) Class(2)
- ---- ------------------------ ------------
<S> <C> <C>
Gregory H. Parker(1)(3)(6)(8)(10). . . . . . . . . . . 479,729 12.1%
Anthony J. Romanovich(1)(4)(10). . . . . . . . . . . . 210,532 5.3
George W. Fleck(1)(10) . . . . . . . . . . . . . . . . 191,892 4.8
Gerald E. Brady(1)(10) . . . . . . . . . . . . . . . . 115,281 2.9
Michael A. DeBias(10). . . . . . . . . . . . . . . . . 115,281 2.9
R. James Barnett(2). . . . . . . . . . . . . . . . . . 5,442 *
Roger G. Fein(2)(5)(7)(8)(10). . . . . . . . . . . . . 20,000 *
Charles P. McLarnon(2)(5)(8)(11) . . . . . . . . . . . 21,390 *
Dennis W. Sheehan(2)(5). . . . . . . . . . . . . . . . 35,000 *
George Binnie(9) . . . . . . . . . . . . . . . . . . . None -0-
Karl H. Reitz(9) . . . . . . . . . . . . . . . . . . . None -0-
All directors and executive officers of the Company
as a group including the persons named above
(14 persons)(1)(2)(10)(11) . . . . . . . . . . . . . 1,378,028 34.2
</TABLE>
- -----------------------------
* Less than 1% of the outstanding shares of the Company's Common Stock.
(1) Ownership of shares of Common Stock shown for Messrs. Parker, Romanovich,
Fleck and Brady, and for all directors and executive officers of the
Company as a group, includes shares of Common Stock of the Company not held
directly by them but held by or for the benefit of (i) their spouses or
(ii) a trust, the beneficiaries of which are members of Mr. Parker's
family, as to which they have neither investment power nor voting power.
See notes (3) and (4) to the table under "Security Ownership of Principal
Stockholders" below under this Item for an explanation of shares included
that are not held directly by Messrs. Parker and Romanovich. In addition,
shares were held by or for the benefit of such spouses and trust of the
following persons and the directors and executive officers as a group in
the amounts indicated: Mr. Fleck -- 50,000 shares (held by spouse);
Mr. Brady -- 45,000 shares (held by spouse); and all directors and
executive officers as a group (including all of such individuals named) --
425,000 shares.
(2) The numbers of shares of Common Stock shown in the above table for
Messrs. Barnett, Fein, McLarnon and Sheehan, and for all directors and
executive officers of the Company as a group, and the percentages of shares
of Common Stock shown for them in the above table, are based on the
assumption that currently outstanding stock options covering shares of
Common Stock which were exercisable within 60 days of September 30, 1995
had been exercised as follows: Mr. Barnett -- 5,000 shares (granted
pursuant to the Company's Employees' Incentive Stock Option Plan); and as
explained in note (5) below, Mr. Fein -- 15,000 shares, Mr. McLarnon --
15,000 shares and
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<PAGE>
Mr. Sheehan -- 15,000 shares; and all directors and executive officers as
a group (including all of such named individuals) -- 56,000 shares. The
persons named and the members of such group disclaim any beneficial
ownership of the shares of Common Stock subject to those options.
(3) See notes (3) and (5) to the table under "Security Ownership of Principal
Stockholders" below under this Item.
(4) See notes (4) and (5) to the table under "Security Ownership of Principal
Stockholders" below under this Item.
(5) Includes 15,000 shares of Common Stock that may be purchased by each of
Messrs. Fein, McLarnon and Sheehan upon the exercise of presently
exercisable options granted pursuant to the Company's Directors' Stock
Option Plan.
(6) See note (3) to the table under "Security Ownership of Principal
Stockholders" below under this Item.
(7) Includes 5,000 shares of Common Stock held in a self-directed individual
retirement account, the beneficiary of which is Mr. Fein, who has the
power of investment direction over such retirement trust; but does not
include the 150,000 shares of Common Stock beneficially owned by the
trust described in note (3) to the table under "Security Ownership of
Principal Stockholders" below under this Item.
(8) Does not include any of the 187,000 shares of Common Stock beneficially
owned by the Bliss & Laughlin Steel Company Pension Plans Stock Investment
Trust, the beneficiaries of which are certain BLSC employees.
Messrs. Gregory H. Parker, Roger G. Fein and Charles P. McLarnon, directors
of the Company, are the trustees of this trust and have sole voting and
investment power with respect to these shares of Common Stock, subject to
direction from the Board of Directors of BLSC. Messrs. Parker, Fein and
McLarnon disclaim any beneficial ownership of such shares.
(9) Messrs. Binnie and Reitz, directors of the Company and BLSC, are, pursuant
to an agreement with the Company, designees of Stelco to serve as directors
of the Company and BLSC. See Item 13 of this Report. See also notes (1)
and (5) to the table under "Security Ownership of Principal Stockholders"
below under this Item for information regarding the ownership by Stelco of
shares of Common Stock of the Company.
(10) See note (6) to the table under "Security Ownership of Principal
Stockholders" below under this Item. Each Option Agreement Stockholder
named therein is deemed, pursuant to Rule 13d-5(b)(1) under the Exchange
Act, to have acquired beneficial ownership as of September 16, 1995 (the
date of the original stock option agreement among the Option Agreement
Stockholders, BRW Steel Corporation and B&L Acquisition Corporation) of all
shares of Common Stock beneficially owned by the Option Agreement
Stockholders
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as a group. The shares of Common Stock reflected in the above table do not
include such shares. The Option Agreement Stockholders disclaim beneficial
ownership of shares of Common Stock not owned by themselves, their
respective spouses or trusts for the benefit of themselves or their
families.
(11) The numbers and shares of Common Stock shown in the above table for Mr.
McLarnon and for all directors and executive officers of the Company as a
group include 4,790 shares of Common Stock that Mr. McLarnon may elect to
receive pursuant to the terms of the Directors' Deferred Compensation Plan
(the "Plan"). The percentages of shares of Common Stock owned by Mr.
McLarnon and by all directors and executive officers of the Company as a
group are based on the assumption that if Mr. McLarnon elects to receive
shares of Common Stock pursuant to the Plan, the Company would, as
permitted by the Plan, purchase existing shares of Common Stock on the
open market to deliver to Mr. McLarnon rather than issue new shares of
Common Stock to him.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1995, by each person
or group that is known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of its Common Stock. Information with respect to
beneficial ownership is based upon information furnished by such Stockholder or
contained in filings made with the Securities and Exchange Commission.
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<TABLE>
<CAPTION>
Number of Shares
of Common Stock
of the Company Percent
Name and Address of Beneficial Owner Beneficially Owned of Class
- ------------------------------------ ------------------ --------
<S> <C> <C>
Stelco Inc.(1)(5). . . . . . . . . . . . . . . . . . . . . . 1,598,759 40.3%
Stelco Tower
100 King Street West
Hamilton, Ontario, Canada L8P 1A2
B&L Acquisition Corporation(2)(5)(6)
4 Northshore Center
Pittsburgh, PA 15212. . . . . . . . . . . . . . . . . . . . 774,059 19.5
Gregory H. Parker(3)(5)(6) . . . . . . . . . . . . . . . . . 479,729 12.1
281 East 155th Street
Harvey, IL 60426
Anthony J. Romanovich(4)(5)(6) . . . . . . . . . . . . . . . 210,532 5.3
281 East 155th Street
Harvey, IL 60426
Option Agreement Stockholders as a group(2)(5)(6). . . . . . 1,520,759 38.3
c/o Bliss & Laughlin Industries Inc.
281 East 155th Street
Harvey, IL 60426
</TABLE>
- -----------------------------
(1) As reported to the Company by Stelco, pursuant to Amendment No. 1 to its
Schedule 13D dated October 1, 1990. The shares of Common Stock
beneficially owned by Stelco are directly owned by Stelco Enterprises
Corp., an indirectly wholly-owned Delaware subsidiary of Stelco.
(2) Pursuant to a Stock Option Agreement dated as of September 16, 1995, as
amended and superseded by an Amended Stock Option Agreement dated as of
October 4, 1995 and an Amendment No. 1 thereto dated October 18, 1995 (the
"Option Agreement"), the Option Agreement Stockholders granted to B&L
Acquisition Corporation ("Merger Sub") an option to acquire an aggregate of
774,059 of the 1,520,759 shares of Common Stock collectively owned by the
Option Agreement Stockholders. See "OPTION AGREEMENT" under Item 13 of
this Report and note (6) below. See notes (3), (4) and (6) below as to the
number of shares of Common Stock of Messrs. Parker and Romanovich, their
spouses and a trust for the benefit of members of Mr. Parker's family
included in the number of shares covered by the Option Agreement.
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(3) Includes (a) 50,000 shares of Common Stock owned by Mr. Parker's spouse,
and (b) 150,000 shares of Common Stock beneficially owned by a trust, the
beneficiaries of which are members of Mr. Parker's family. With respect to
(b), Roger G. Fein, as trustee of the trust, is the record holder of these
shares and has sole voting and investment power with respect to these
shares. Messrs. Parker and Fein disclaim any beneficial ownership of such
shares. The address of the trust is c/o Roger G. Fein, 225 West Wacker
Drive, Chicago, Illinois 60606. Does not include any shares of Common
Stock beneficially owned by the BLSC Pension Plans Stock Investment Trust.
Does not include the shares of Common Stock of any Option Agreement
Stockholder other than those of Mr. Parker, his spouse and the trust for
the benefit of members of his family. Of those shares of Mr. and
Mrs. Parker and such trust, 244,179 are subject to the Option Agreement.
See also note (8) to the table under "Security Ownership of Management"
above under this Item.
(4) Includes 53,000 shares of Common Stock owned by Mr. Romanovich's spouse.
Does not include the shares of Common Stock of any Option Agreement
Stockholder other than those of Mr. Romanovich and his spouse. Of those
shares of Mr. and Mrs. Romanovich, 107,159 are subject to the Option
Agreement.
(5) All of the shares included as being beneficially owned by Stelco, the
Option Agreement Stockholders, and Messrs. Parker and Romanovich are
subject to a Right of First Refusal and Standstill Agreement, dated May 11,
1990, by and among the Company, Stelco and the Option Agreement
Stockholders. See Item 13 of this Report.
(6) The Option Agreement Stockholders are the following persons and trusts:
(i) Messrs. Gregory H. Parker, Anthony J. Romanovich, Gerald E. Brady,
Michael A. DeBias, Richard M. Bogdon, Chester J. Pucilowski and Richard W.
Ressler, who are current officers or a key employee of the Company or
BLSC, and, in addition, Messrs. Parker and Romanovich are directors of the
Company and BLSC, (ii) Messrs. George W. Fleck and Carl H. Laib, who are
former officers or key employees of the Company or BLSC, (iii) F.
Elizabeth Parker, Barbara A. Romanovich, Carole A. Brady, Phyllis Bogdon,
Geraldine Pucilowski and Joan E. Fleck, who are spouses of the above-named
current or former officers or key employees of the Company or BLSC, (iv)
Roger G. Fein, as Trustee of the Gregory H. Parker Irrevocable Family
Trust under Trust Agreement dated October 31, 1988 (see note (3) above as
to the 150,000 shares of Common Stock beneficially owned by this trust) --
Mr. Fein is a director of the Company and BLSC, and (v) William P.
Daugherty, as Trustee of the William P. Daugherty Trust dated May 11, 1989,
and Ellen L. Daugherty, as Trustee of the Ellen L. Daugherty Trust dated
May 11, 1989, Mr. Daugherty is a former officer of the Company and Ellen L.
Daugherty is his spouse. The Option Agreement Stockholders have entered
into an Option Agreement with BRW Steel Corporation and B&L Acquisition
Corporation pertaining to an aggregate of 774,059 of their shares of Common
Stock (representing 19.5% of the issued and outstanding shares of Common
Stock) and have filed a Schedule 13D pertaining thereto. Of these shares,
244,179 and
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<PAGE>
107,159 are included in the table entries for Messrs. Parker and
Romanovich, respectively. See notes (3) and (4) above. The Option
Agreement Stockholders disclaim beneficial ownership of shares not owned by
themselves, their respective spouses or trusts for benefit of themselves or
their families. All of the shares of Common Stock owned by the Option
Agreement Stockholders are also subject to the First Refusal Agreement.
See Item 13 of this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
STELCO
In May 1990, pursuant to stockholder approval, the Company consummated
the transactions contemplated by an Agreement of Purchase and Sale dated
January 26, 1990 (the "Purchase Agreement"), by and among Stelco, one of
Canada's leading steel producers, the Company, and the Company's wholly-owned
subsidiaries, CDSC and BLSC. Pursuant to the Purchase Agreement, the Company
issued 1,559,759 shares of its Common Stock to Stelco, at a price of $12 per
share, for a total purchase price of $18,717,108, and CDSC, for a purchase
price of $12,393,048, purchased substantially all of the assets (excluding
accounts receivable relating to products shipped prior to closing) of
Stelco's Canadian Drawn Steel Company business unit ("Canadian Drawn").
Canadian Drawn's business was the manufacture and sale of cold finished steel
bars. The shares of the Company's Common Stock purchased pursuant to the
Purchase Agreement (which are directly owned by Stelco Enterprises Corp., an
indirectly wholly-owned Delaware subsidiary of Stelco) constituted
approximately 39.3% of the then outstanding shares of the Company's
Common Stock.
Pursuant to the Purchase Agreement, Stelco has agreed for as long as
Stelco is a stockholder of the Company plus one year after disposition of its
last share of the Company's Common Stock, whichever is later, not to compete
with the Company in the cold finished steel bar business. Further, the
Purchase Agreement provides that the Company has a right of first refusal,
for as long as Stelco owns at least 15% of the issued and outstanding shares
of the Company's Common Stock, to effect any proposed United States
acquisition by Stelco of a business engaged in the manufacture of cold
finished steel bars and in those instances where Stelco desires to expand its
opportunities and other businesses in the United States through the Company.
Further, as contemplated by the Purchase Agreement, a Right of First
Refusal and Standstill Agreement (the "First Refusal Agreement") was executed
at closing by the Company, Stelco and certain present and former officers and
key employees of the Company, certain of their spouses and trustees of
certain trusts established for the benefit of their families (who are
collectively referred to in this Report as the "Option Agreement
Stockholders"). The First Refusal Agreement provides, among other things,
for Stelco representation on the Company's
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Board of Directors (as well as on the Boards of Directors of the Company's
subsidiaries), and reciprocal rights of first refusal among Stelco and the
Option Agreement Stockholders with respect to the sale or transfer of shares
of the Company's Common Stock. The Option Agreement Stockholders consist of
the original 10 stockholders of the Company (i.e., the stockholders of the
Company prior to its initial public offering of its shares of Common Stock in
December 1988), their spouses (if shares of the Company's Common Stock have
been transferred to them) and trustees of trusts established for the benefit
of such stockholders, their spouses or their families. The Option Agreement
Stockholders include, among others, Messrs. Parker, Romanovich, Fleck, Brady,
DeBias, Pucilowski and Bogdon and their respective spouses. For information
with regard to certain of those Option Agreement Stockholders, their
positions with the Company and its subsidiaries and their shareholdings, see
Items 10 and 12 of this Report.
Pursuant to the First Refusal Agreement, Stelco has designated George
Binnie and Karl H. Reitz as its choices for directors of the Company and
BLSC. Messrs. Binnie and Reitz are Class I and Class II directors,
respectively, whose terms expire at the time of the Company's 1996 and 1997
annual meeting of stockholders, respectively, or when their successors shall
have been duly elected and qualified.
During fiscal 1995, Stelco provided certain raw materials to the Company
for an aggregate purchase price of $14,560,000. The Company's purchases of
materials from Stelco amounted to an aggregate of $76,300,000 for fiscal
years 1990 through 1995. The Company believes that such purchases were on
terms at least as favorable to the Company as those it would have received
from unaffiliated suppliers of such raw materials.
See also "LEGAL PROCEEDINGS -- STELCO LAWSUIT" under Item 3 of this
Report, "EXECUTIVE COMPENSATION -- Employment Agreements" under Item 11 of
this Report and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT -- Security Ownership of Principal Stockholders" under Item 12 of
this Report.
MISCELLANEOUS
The Company has retained Wildman, Harrold, Allen & Dixon as its legal
counsel. Roger G. Fein, a member of the Company's Board of Directors, is a
partner of Wildman, Harrold, Allen & Dixon. With the consent of the
Company's Board of Directors, such law firm represented the Option Agreement
Stockholders in a lawsuit filed by Stelco which is described above in answer
to Item 3 of this Report. See also Item 12 of this Report for information
regarding Mr. Fein's shareholdings.
Messrs. Karl H. Reitz and Roger G. Fein are members of the Company's Human
Resources Committee.
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<PAGE>
All transactions with related parties occurring prior to the date of this
Report have been approved or ratified by all disinterested members of the Board
of Directors of the Company. Any future transactions, including loans, with
directors, officers, key employees or affiliates of the Company will be made
only if the transaction has been approved by a majority of the Board of
Directors and a majority of the then disinterested members of the Board of
Directors and is on terms no less favorable than could have been obtained from
unaffiliated third parties and is for a bona fide business purpose.
PROPOSED MERGER
Pursuant to the Merger Agreement with BRW and Merger Sub, among other
things, (i) Merger Sub will be merged with and into the Company, with the
Company being the Surviving Corporation in the Merger, and (ii) each
outstanding share of Common Stock of the Company (the "Common Stock") (other
than shares held as treasury shares by the Company, shares held by BRW and
its affiliates and shares held by dissenting stockholders) will be cancelled
and converted into the right to receive $9.50 in cash, without interest (the
"Merger Consideration"). See "BUSINESS -- General" under Item 1 of this
Report for additional information concerning the Merger.
BRW has advised the Company as to its following ownership structure. BRW
is currently controlled by BRW Steel Holdings, L.P. ("BRWSH"). The unionized
employees of BRW will receive a minority equity stake in BRW pursuant to
BRW's collective bargaining agreement with the United Steelworkers of
America. BRWSH is a limited partnership, the general partner of which is BRW
Partners, Inc. ("BRWPI"). BRWPI is owned by Messrs. Robert B. McKeon, Thomas
J. Campbell and Kenneth R. Brotman, all of whom are directors of BRW and
principals of Veritas Capital Inc., a merchant banking firm headquartered in
New York, New York. Pursuant to the organizational documents of BRWPI, all
material actions to be taken by BRWPI as general partner of BRWSH require the
approval of Mr. McKeon and either Mr. Campbell or Mr. Brotman. BRWSH's
address is c/o Veritas Capital Inc., 10 East 50th Street, New York, New York
10022.
OPTION AGREEMENT
BRW conditioned its entering into the First Merger Agreement upon
obtaining an agreement from certain Stockholders of the Company providing
for, among other things, such Stockholders' grant to Merger Sub of an option
to purchase up to 774,059 shares of Common Stock (approximately 19.5% of the
outstanding shares of Common Stock), a commitment of those Stockholders to
vote in favor of the Merger, and payment to BRW by such Stockholders of a
cancellation fee under certain circumstances, including Stelco's exercise of
its right of first refusal under the First Refusal Agreement. Accordingly, to
induce BRW to enter into the First Merger Agreement, the Option Agreement
Stockholders, who collectively own 1,520,759 shares of Common Stock
(approximately 38.3% of the outstanding shares of Common Stock), entered
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into a stock option agreement dated as of September 16, 1995 (the "First
Option Agreement") with BRW and Merger Sub, granting Merger Sub an option to
purchase 774,059 of their shares of Common Stock at a price of $7.75 price
per share, the same price per share that would have been payable to all
Stockholders pursuant to the First Merger Agreement. The First Option
Agreement also required the Stockholders who are parties thereto to vote
their 774,059 shares of Common Stock that are subject to the First Option
Agreement for the approval and adoption of the First Merger Agreement and the
transactions contemplated thereby, and provided for such Stockholders to pay
to Merger Sub, under certain circumstances (including Stelco's exercise of
its right of first refusal under the First Refusal Agreement), an aggregate
cancellation fee of $1,250,000 and to reimburse BRW and Merger Sub and their
affiliates for their expenses of up to $250,000 incurred in connection with
the proposed merger and the transactions contemplated thereby. In connection
with entering into the Merger Agreement, BRW, Merger Sub and the Option
Agreement Stockholders entered into an Amended Stock Option Agreement dated
as of October 4, 1995, as further amended on October 18, 1995 (the "Option
Agreement") to reflect the new $9.50 price per share payable to all
Stockholders pursuant to the Merger Agreement. The Option Agreement, which
superseded the First Option Agreement, generally includes the same provisions
(other than the price per share) as were contained in the First Option
Agreement, including the Stockholders' agreement to vote 774,059 of their
shares of Common Stock for the Merger Agreement and to pay a cancellation fee
under certain circumstances. The Option Agreement Stockholders are the 10
original Stockholders of the Company and certain of their spouses and
trustees of certain trusts established for the benefit of their families.
Those persons are also parties to the First Refusal Agreement entered into
among such persons, the Company and Stelco. The names of, and other
information regarding, the Option Agreement Stockholders are set forth in
Note (6) to the table under "Security Ownership of Principal Stockholders"
under Item 12 of this Report. See also "Security Ownership of Management"
under Item 12 of this Report.
Subject to certain conditions described below, each Option Agreement
Stockholder granted to Merger Sub an irrevocable option (the "Option") to
purchase certain shares of Common Stock beneficially owned by such Option
Agreement Stockholder for a price per share equal to the Merger Consideration
($9.50 per share), or any higher price paid for a share of Common Stock in
the Merger or in any other merger with the Company and BRW or Merger Sub or
pursuant to a tender offer by BRW or Merger Sub. In the aggregate, 774,059
shares of Common Stock (approximately 19.5% of the outstanding shares of
Common Stock) are subject to the Option Agreement (such shares are
hereinafter referred to as the "Optioned Shares"). Each Option Agreement
Stockholder has delivered his or her Optioned Shares to LaSalle National
Trust, N.A., as escrow agent (the "Escrow Agent") pursuant to a Stockholder
Escrow Agreement dated as of September 19, 1995, as amended as of October 4,
1995, among such Option Agreement Stockholder, Merger Sub and the Escrow
Agent.
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EXERCISE OF OPTION; RESALE BY THE OPTION AGREEMENT STOCKHOLDERS
Merger Sub may exercise the Option with respect to all of the Optioned
Shares at any time from the date of the Option Agreement until the earlier of
January 31, 1996 or the termination of the Merger Agreement due to a material
breach by Merger Sub of its obligations under the Merger Agreement, provided
that: (a) Stelco has not purchased the Optioned Shares pursuant to the
exercise of Stelco's right of first refusal under the First Refusal
Agreement, (b) no preliminary or permanent injunction or other order issued
by any court of competent jurisdiction shall be in effect which would
prohibit the purchase or delivery of the Optioned Shares, and (c) the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act shall have
expired with respect to such purchase and delivery. If, prior to October 4,
1996, any Option Agreement Stockholder (or his or her assignee) or the
Company enters into an agreement to sell or exchange all or substantially all
of the shares of Common Stock of the Company (including any such sale or
exchange pursuant to a merger, tender or exchange offer) held by such Option
Agreement Stockholder to or with a third party, such Option Agreement
Stockholder shall pay to Merger Sub an amount equal to 50% of (a) the
difference between the aggregate consideration received by such Option
Agreement Stockholder (net of expenses) with respect to his Optioned Shares
in such transaction and (b) the product of $7.75 multiplied by the number of
Optioned Shares sold or exchanged by such Option Agreement Stockholder.
VOTING OF SHARES
The Option Agreement Stockholders have agreed to vote all of their Optioned
Shares on matters as to which each such Option Agreement Stockholder is entitled
to vote at a meeting of the Stockholders of the Company, as follows: (i) in
favor of approval and adoption of the Merger Agreement and the transactions
contemplated thereby, (ii) not in favor of any action or agreement which would
result in a material breach of any covenant, representation or warranty or any
other obligation of the Company under the Merger Agreement, and (iii) against
any action or agreement which would impede, interfere with, or attempt to
discourage, the Merger.
COVENANTS OF THE OPTION AGREEMENT STOCKHOLDERS
During the term of the Option Agreement, each Option Agreement
Stockholder has agreed not to (i) sell, transfer, pledge, assign or otherwise
dispose of, or enter into any contract, option or other transfer, pledge,
assignment or other disposition of, any Optioned Shares, except that (a) if
required by the terms of the First Refusal Agreement, such Option Agreement
Stockholder may sell the Optioned Shares to Stelco pursuant to Stelco's
exercise of its rights under the First Refusal Agreement or (b) the Option
Agreement Stockholder, upon at least three days prior written notice to
Merger Sub and upon expiration of any rights Stelco may have to purchase the
Optioned Shares under the First Refusal Agreement, may sell or transfer the
Optioned Shares to a purchaser or transferee that is a citizen of the United
States of America or Canada, who does not intend to engage in a change of
control transaction with the Company,
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and who executes with Merger Sub an agreement containing the same terms as
the Option Agreement; (ii) acquire any additional shares of Common Stock of
the Company without the prior consent of Merger Sub, other than pursuant to
the exercise of existing stock options or similar rights; (iii) enter into a
voting agreement with respect to any Optioned Shares; or (iv) initiate
discussions or engage in negotiations with any person or entity (other than
Merger Sub) concerning any possible acquisition of the Optioned Shares or any
possible merger, purchase of assets, purchase of stock or similar
transactions involving the Company or any major asset of the Company.
The Option Agreement Stockholders have agreed to use their best efforts to
cause the restrictions on transfer and the rights of first refusal applicable to
the Optioned Shares to terminate, so as to cause such Option Agreement
Stockholder's obligations under the Option Agreement to become unconditional and
to permit the sale to Merger Sub of the Optioned Shares. The Option Agreement
Stockholders also agreed to furnish Merger Sub with copies of all information,
correspondence and other documents furnished to or by Stelco or its counsel by
or to the Option Agreement Stockholders, the Company or their counsel (as the
case may be), and to promptly inform Merger Sub of all actions taken by the
Option Agreement Stockholders or Stelco with respect to compliance with the
First Refusal Agreement including efforts to dispose of or settle the Stelco
Lawsuit. See Legal Proceedings under Item 3 of this Report.
RESALE PROVISIONS
Under certain circumstances, Merger Sub, the Company and the Surviving
Corporation in the Merger may have monetary obligations to the Option
Agreement Stockholders in the event of a resale of the Optioned Shares or
certain transactions involving the Company or the Surviving Corporation. If,
before the earlier of the Effective Time or October 4, 1996, Merger Sub
enters into an agreement to sell or exchange all or substantially all of the
shares of Common Stock of the Company held by Merger Sub or an affiliate of
Merger Sub to or with an unaffiliated third party, Merger Sub will pay to
each Option Agreement Stockholder an amount equal to 50% of the difference
between (a) the aggregate consideration (net of expenses) received by Merger
Sub in the transaction with respect to the Optioned Shares and (b) the
product of $9.50 multiplied by the number of such Option Agreement
Stockholder's Optioned Shares. If, after the Effective Time and prior to
October 4, 1996, Merger Sub, the Company or the Surviving Corporation enters
into an agreement to (i) sell or exchange all or substantially all of the
shares of Common Stock of the Company or the Surviving Corporation to or
with, or (ii) merge or consolidate the Company or the Surviving Corporation
with, or (iii) sell substantially all of the assets of the Company or the
Surviving Corporation to, an unaffiliated third party, then Merger Sub, the
Company and the Surviving Corporation will jointly pay to each Option
Agreement Stockholder an amount equal to 50% of such Option Agreement
Stockholder's pro rata share of the difference between (y) the Aggregate
Transaction Value (as defined in Section 5(e) of the Option Agreement)
received from such transaction and (z) $62,000,000.
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CANCELLATION FEE
In the event that (a) Stelco exercises its rights under the First
Refusal Agreement to purchase all of the Optioned Shares, or (b) before
January 31, 1996 the Board of Directors of the Company terminates the Merger
Agreement pursuant to the exercise of its fiduciary duties relating to an
offer from a Qualified Bidder (as defined in the Merger Agreement) and a
transaction is subsequently consummated, or (c) before January 31, 1996 a
tender or exchange offer shall have been commenced to acquire 20% or more of
the shares of Common Stock at a price in excess of $9.50, which tender or
exchange offer is subsequently consummated, then each Option Agreement
Stockholder must pay to Merger Sub a cash cancellation fee equal to such
Option Agreement Stockholder's pro rata share of the sum of (x) $1,250,000
plus (y) all out-of-pocket fees and expenses (not to exceed $250,000)
incurred by Merger Sub, BRW or their affiliates in connection with the Merger
and the Option Agreement. The Option Agreement does not provide for Merger
Sub to pay any cancellation fee to the Option Agreement Stockholders under
any circumstances.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain of the officers and directors of the Company have interests in the
Merger that are in addition to or different from the interests of Stockholders
of the Company generally, as described below.
EMPLOYMENT AGREEMENTS
If the Merger is consummated, Messrs. Gregory H. Parker (Chairman,
President and Chief Executive Officer and a Director of the Company and
BLSC), Anthony J. Romanovich (Senior Vice President and a Director of the
Company and BLSC), Gerald E. Brady (Vice President of BLSC), Michael A.
DeBias (Vice President of Purchasing of BLSC), Chester J. Pucilowski (Vice
President, Medina Operations of BLSC), and R. James Barnett (President of
CDSC) (each an "Executive") are entitled to certain rights under change of
control provisions (collectively, the "Change of Control Provisions") in
their Employment Agreements (collectively, the "Employment Agreements") if
their employment with the Company is terminated by them or by the Company, as
described below. The Change of Control Provisions were designed, among other
things, to provide the Executive with protection against the involuntary
termination of his employment by Stelco if Stelco obtained control of the
Company, unless the Executive voluntarily elected to terminate his
employment. Although Richard M. Bogdon (Vice President of Human Resources of
BLSC) is a party to an Employment Agreement, he has entered into a
termination agreement with the Company pursuant to which his employment will
terminate on December 31, 1995, and the Change of Control Provisions will not
apply to him with regard to the Merger. George W. Fleck, formerly Vice
President, Finance, Secretary and Treasurer of the Company, was a party to an
Employment Agreement. However, Mr. Fleck retired effective as of the close
of business on September 30, 1995.
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GENERAL. The Employment Agreements were entered into on May 11, 1990 in
connection with certain other above described transactions with Stelco. See
"Employment Agreements" under Item 11 for a description of the Employment
Agreements.
The consummation of the Merger would be a "Change in Control" under the
Employment Agreements. Accordingly, each Executive may voluntarily terminate
his Employment Agreement for "Good Reason", at his election within 180 days
following the Change in Control, whereupon severance payments would be due to
such Executive in an amount equal to three times (one time in the case of R.
James Barnett) his then annual compensation in one lump sum. Based on the
current annual base salaries of such Executives, the aggregate amount of such
payments currently is estimated (without giving effect to any reduction
pursuant to Section 28OG of the Code) to be approximately $2,019,000 plus
$125,000 (Canadian), of which the estimated amounts payable to Messrs.
Parker, Romanovich, Brady, DeBias, Pucilowski and Barnett upon termination
are $705,000, $435,000, $330,000, $300,000, $249,000 and $125,000 (Canadian),
respectively. No member of the Board of Directors will receive any severance
compensation as result of the Merger, except for the severance, if any,
payable to Messrs. Parker and Romanovich pursuant to their Employment
Agreements.
No arrangement has been made between BRW or Merger Sub and the executive
officers of the Company and its subsidiaries with respect to continued
employment as officers or employees of the Surviving Corporation in the
Merger following completion of the Merger or with respect to purchase of
stock in BRW or its affiliates or future benefits (other than those provided
for in the Employment Agreements), although some informal discussions have
been held with regard to certain of these matters.
STOCK OPTIONS AND STOCK EQUIVALENCY UNITS
All outstanding stock options granted to directors, officers and
employees under either the Company's Directors' Stock Option Plan or the
Company's Employees' Incentive Stock Option Plan that are outstanding
immediately prior to the Effective Time shall be cancelled in exchange for
the right to receive from the Company a cash payment equal to the product of
(a) the positive difference (if any) between $9.50 and the per share exercise
price for such option, multiplied by (b) the number of shares of Common Stock
issuable upon exercise of such option. As of the date hereof, there are
outstanding options to purchase 37,500 shares of Common Stock under the
Employees' Incentive Stock Option Plan, and 15,000 shares of Common Stock
under the Directors' Stock Option Plan, which are exercisable at a price per
share less than $9.50 and, thus entitling the holders thereof to such
payment. All of such outstanding options entitling holders to such
cancellation payment have an exercise price of $5.50 per share, have been
outstanding for more than five years, and are fully vested. None of the
Executives who have Employment Agreements hold any stock options, except for
Mr. Barnett, who holds options to purchase 5,000 shares of Common Stock.
Accordingly, all such officers and employees as a group (including Mr.
Barnett), and Mr. Barnett, individually, will have the right to receive
$150,000 and $20,000, respectively, for cancellation of those stock
-60-
<PAGE>
options if the Merger is consummated. Messrs. Roger G. Fein, Charles P.
McLarnon and Dennis W. Sheehan, the outside independent, non-Stelco
affiliated directors of the Company, each hold options to purchase 5,000
shares of Common Stock exercisable at $5.50 per share under the Directors'
Stock Option Plan. Accordingly, if the Merger is consummated, each of Messrs.
Fein, McLarnon and Sheehan will have the right to receive $20,000 for
cancellation of those stock options.
There are outstanding options to purchase an additional 55,000 shares of
Common Stock under the Employees' Incentive Stock Option Plan and an additional
30,000 shares of Common Stock under the Directors' Stock Option Plan. However,
the exercise price of those options exceeds $9.50 per share and, therefore, the
holders of such options will not be entitled to any cancellation payment
therefor.
At the Effective Time, each outstanding stock equivalency account of the
Company under the Directors' Deferred Compensation Plan shall be cancelled in
exchange for the right to receive from the Company a cash payment equal to the
product of (a) $9.50 multiplied by (b) the number of units (including fractional
units) equivalent to shares of Common Stock in such stock equivalency account.
Charles P. McLarnon is the only director who has a stock equivalency account.
As of September 30, 1995, the number of units in Mr. McLarnon's stock
equivalency account is 4,790.466. Therefore, if the Merger is consummated,
Mr. McLarnon will be entitled to receive a payment of $45,510 for those units.
HOLDINGS OF COMPANY COMMON STOCK
Certain officers and directors of the Company, the Option Agreement
Stockholders, individually and as a group (which includes certain officers and
directors of the Company and certain of their spouses and the trustee of a trust
for the benefit of the family of one officer), and Stelco have significant
holdings of shares of Common Stock. The Option Agreement Stockholders as a
group collectively own 1,520,759 shares of Common Stock, or approximately 38.3%
of the issued and outstanding shares of Common Stock. In addition, the Bliss &
Laughlin Steel Company Pension Plans Stock Investment Trust ("Pension Trust")
owns 187,000 shares of Common Stock, or approximately 4.7% of the issued and
outstanding shares of Common Stock. The beneficiaries of the Pension Trust are
certain BLSC employees. The Option Agreement Stockholders and the Pension Trust
acquired all of their shares of Common Stock, and Stelco acquired 39,000 of its
1,598,759 shares of Common Stock, at a cost substantially below $9.50 per share.
In connection with the Merger, the holders of these shares of Common Stock, as
all other Stockholders, will have their shares of Common Stock cancelled and
converted into the right to receive $9.50 per share. See Item 12 of this
Report for additional information regarding the shareholdings of management
and principal stockholders of the Company.
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<PAGE>
INDEMNIFICATION AND INSURANCE
Pursuant to the Merger Agreement, BRW has agreed that it shall, and
shall cause Merger Sub, the Company and the Surviving Corporation to, jointly
and severally, indemnify, defend and hold harmless the Indemnified Parties
(as defined below), to the full extent permitted under and in accordance with
Delaware law or the laws of the jurisdictions under which the Company's
subsidiaries are incorporated, the Certificate of Incorporation or By-Laws of
the Company or its subsidiaries, as applicable, or applicable indemnification
agreements in effect at the date of the Merger Agreement (to the extent
consistent with applicable law), against (a) all losses, claims, damages or
liabilities arising out of actions or omissions occurring at or prior to the
Effective Time ("Losses") arising under Environmental Laws (as defined in the
Merger Agreement), until the death of all Indemnified Parties, and (b) all
other Losses, until the later of (i) five years after the Effective Time or
(ii) the final resolution of all Losses and payment of all expenses incurred
in the defense of any action or suit. "Indemnified Parties" means the
present and former officers and directors of the Company and present and
former officers and directors of the subsidiaries of the Company who, at the
date of the Merger Agreement, would be indemnified under the By-Laws of the
Company or its subsidiaries or who have indemnity agreements with the Company
and the estates, descendants, heirs and beneficiaries of the estates of all
such officers and directors. BRW has also agreed to use its best efforts to
include the Indemnified Parties in any directors' and officers' insurance
policy BRW may obtain, provided that the additional cost of adding the
Indemnified Parties does not equal or exceed the cost of such insurance
policy without the Indemnified Parties.
The Company's Certificate of Incorporation provides that, to the fullest
extent permitted by the Delaware General Corporation Law (the "DGCL"), a
director of the Company shall not be liable to the Company or the Stockholders
for monetary damages for breach of fiduciary duty as a director. This provision
in the Certificate of Incorporation does not eliminate or limit the liability of
a director for (a) any breach of the director's duty of loyalty to the Company
or the Stockholders, (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) payment of dividends
or purchases or redemptions of the Company's stock that are unlawful under the
DGCL, or (d) any transaction from which the director derived an improper
personal benefit.
The Company's By-Laws provide that the Company shall, to the fullest extent
permitted by law, indemnify any present or former director or key officer (as
defined below) of the Company and pay or reimburse litigation expenses incurred
by any such person, against an undertaking by such person to repay such expenses
if it is ultimately determined that such person is not entitled to
indemnification. A "key officer" means the Chairman of the Board of Directors,
the President and any Vice President of the Company.
The Company also entered into indemnification agreements, effective as
of November 1, 1988, with the following persons who are present or former
directors of the Company: Messrs. Gregory H. Parker, Anthony J. Romanovich,
Roger G. Fein, Charles P. McLarnon, Dennis W. Sheehan, and George W. Fleck.
These indemnification agreements provide for the
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<PAGE>
indemnification of the aforementioned individuals and their respective heirs,
executors and administrators against certain liabilities and for the
advancement of expenses to them in connection with indemnifiable events, to
the fullest extent permitted by Delaware law.
See "LEGAL PROCEEDINGS" under Item 3 of this Report for information
concerning litigation and other matters involving the Company and its
directors.
OPTION AGREEMENT PROVISIONS
Messrs. Parker, Romanovich, Brady, DeBias and Pucilowski, who are officers
of the Company, and certain of their spouses and the trustee of a trust for the
benefit of one of their families, are among those who are Option Agreement
Stockholders and parties to the Option Agreement and the First Refusal
Agreement.
See "OPTION AGREEMENT" above under this Item 13 for details concerning
the Option Agreement, particularly the provisions dealing with an option
cancellation fee, resale by The Option Agreement Stockholders and other
resale provisions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The financial statements of the Company as listed in the
Index to Financial Statements of Bliss & Laughlin Industries
Inc. and Subsidiaries on page F-1.
2. Financial Statement Schedules
None.
3. Exhibits
The Exhibits to this Report on Form 10-K filed herewith are
listed below in (c).
(b) REPORTS ON FORM 8-K
There have been no current reports on Form 8-K filed by the
Company during the last quarter of the period covered by this
Report.
-63-
<PAGE>
(c) EXHIBITS
3(a) Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1, Registration No. 33-25421.
3(b) By-laws of the Company, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1990.
3(c) Amended Article II, Section 2.8 of the By-laws of the
Company, effective as of July 24, 1995.
4(a) Specimen Common Stock Certificate of the Registrant,
incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1, Registration
No. 33-25421.
10(a) Inducement Agreement dated June 9, 1988 by and between the
Development Authority of Cartersville (Georgia) and Bliss &
Laughlin Steel Company, incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement on
Form S-1, Registration No. 33-25421.
10(b) Loan Agreement, dated as of December 1, 1988, between
Development Authority of Cartersville and Bliss & Laughlin
Steel Company, incorporated by reference to Exhibit 10(e) of
the Company's Annual Report on Form 10-K for the year ended
September 30, 1989.
10(c) Indenture of Trust, dated as of December 1, 1988, between
Development Authority of Cartersville and Security Pacific
National Trust Company (New York), as Trustee, incorporated
by reference to Exhibit 10(f) to the Company's Annual Report
on Form 10-K for the year ended September 30, 1989.
10(d) Letter of Credit Reimbursement Agreement, dated as of
December 5, 1991, between Bliss & Laughlin Steel Company and
The Northern Trust Company relating to $3,600,000
Development Authority of Cartersville Tax Exempt Adjustment
Mode Industrial Development Revenue Bonds, Series 1988
(Bliss & Laughlin Steel Company Project), incorporated by
reference to Exhibit 10(i) to the Company's Annual Report on
Form 10-K for the year ended September 30, 1992.
10(e) Security Deed and Security Agreement, dated as of
December 1, 1988, from Bliss & Laughlin Steel Company to
Security Pacific National Trust Company (New York) and
Bayerische Vereinsbank AG (Union Bank of
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<PAGE>
Bavaria), incorporated by reference to Exhibit 10(h)
of the Company's Annual Report on Form 10-K for the year
ended September 30, 1989.
10(f) Amendment to Security Deed and Security Agreement from
Bliss & Laughlin Steel Company to Security Pacific National
Trust Company (New York), Bayerische Vereinsbank AG (Union
Bank of Bavaria) and the Northern Trust Company dated as of
December 5, 1991, incorporated by reference to Exhibit 10(k)
to the Company's Annual Report on Form 10-K for the year
ended September 30, 1992.
10(g) Purchase Agreement dated July 29, 1987, by and among Bliss &
Laughlin Steel Company, AXIA Incorporated and New Axia
Holding Corporation and related letter to Bliss & Laughlin
Steel Company from Axia Incorporated and New Axia Holding
Corporation dated October 30, 1987, incorporated by
reference to Exhibit 10.8 to the Company's Registration
Statement on Form S-1, Registration No. 33-25421.
10(h) Bliss & Laughlin Industries Inc. Employees' Incentive Stock
Option Plan, incorporated by reference to Exhibit 10.13 to
the Company's Registration Statement on Form S-1,
Registration No. 33-25421.
10(i) Bliss & Laughlin Industries Inc. Directors' Stock Option
Plan, incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1, Registration
No. 33-25421.
10(j) Bliss & Laughlin Industries Inc. Employees' Stock Purchase
Plan, amended and restated as of March 1, 1989, incorporated
by reference to Exhibit 10(p) of the Company's Annual Report
on Form 10-K for the year ended September 30, 1989.
10(k) Bliss & Laughlin Steel Company Split Dollar Life Insurance
Plan, incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1, Registration
No. 33-25421.
10(l) Form of Agreement for Indemnification by and between the
Company and its directors, incorporated by reference to
Exhibit 10.17 to the Company's Registration Statement on
Form S-1, Registration No. 33-25421.
10(m) Agreement of Purchase and Sale, dated January 26, 1990, by
and among Stelco Inc., the Company, Canadian Drawn Steel
Company Inc. and Bliss & Laughlin Steel Company,
incorporated by reference to Appendix A to the Company's
Proxy Statement dated April 17, 1990.
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<PAGE>
10(n) Right of First Refusal and Standstill Agreement, dated
May 11, 1990, by and among Stelco Inc., the Company and
certain management stockholders of the Company, incorporated
by reference to Appendix C to the Company's Proxy Statement
dated April 17, 1990.
10(o) Employment Agreement, dated as of May 11, 1990, by and
between the Company and Gregory H. Parker, incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended September 30, 1990.
10(p) Employment Agreement, dated as of May 11, 1990, by and
between the Company and Anthony J. Romanovich, incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended September 30, 1990.
10(q) Employment Agreement, dated as of May 11, 1990, by and
between the Company and George W. Fleck, incorporated by
reference to the Company's Annual Report on Form 10-K
for the year ended September 30, 1990.
10(r) Revolving Credit Agreement, dated as of January 29, 1993
among Bliss & Laughlin Steel Company, as the Borrower, The
Northern Trust Company and LaSalle National Bank, as the
Lenders, and The Northern Trust Company, as Agent for the
Lenders, and Exhibit C thereto, being the Guaranty of
Bliss & Laughlin Industries Inc., incorporated by reference
to the Company's Annual Report on Form 10-K for the year
ended September 30, 1994.
10(s) First Amendment to Revolving Credit Agreement, dated as of
January 28, 1994 among Bliss & Laughlin Steel Company, The
Northern Trust Company and LaSalle National Bank, and
Exhibit D thereto, being the First Amendment to Guaranty of
Bliss & Laughlin Industries Inc., incorporated by reference
to the Company's Annual Report on Form 10-K for the year
ended September 30, 1994.
10(t) Second Amendment to Revolving Credit Agreement, dated as of
December 9, 1994 among Bliss & Laughlin Steel Company, The
Northern Trust Company and LaSalle National Bank, and
Exhibit C thereto, being the Second Amendment to Guaranty of
Bliss & Laughlin Industries Inc., incorporated by reference
to the Company's Annual Report on Form 10-K for the year
ended September 30, 1994.
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<PAGE>
10(u) Bliss & Laughlin Industries Inc. Directors' Deferred
Compensation Plan effective as of March 1, 1994,
incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1994.
10(v) Amended Agreement and Plan of Merger dated as of October 4,
1995, by and among the Company, BRW Steel Corporation and
B&L Acquisition Corporation.
10(w) Amendment No. 1 to Amended Agreement and Plan of Merger
dated as of October 18, 1995, by and among the Company, BRW
Steel Corporation and B&L Acquisition Corporation.
10(x) Form of Amended Stock Option Agreement dated as of October
4, 1995, by and among B&L Acquisition Corporation, BRW
Steel Corporation and certain management stockholders of
the Company.
10(y) Form of Amendment No. 1 to Amended Stock Option Agreement
dated as of October 18, 1995, by and among B&L Acquisition
Corporation, BRW Steel Corporation and certain management
stockholders of the Company.
21 Subsidiaries of the Company, incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
September 30, 1990.
-67-
<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.
BLISS & LAUGHLIN INDUSTRIES INC.
By: /s/ GREGORY H. PARKER
--------------------------------------------
Gregory H. Parker,
Chief Executive Officer
By: /s/ PAUL J. AUSTGEN
--------------------------------------------
Paul J. Austgen,
Chief Financial Officer
Date: December 15, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ GREGORY H. PARKER
--------------------------------------------
Gregory H. Parker, Director
December 15, 1995
/s/ ANTHONY J. ROMANOVICH
--------------------------------------------
Anthony J. Romanovich, Director
December 15, 1995
/s/ KARL H. REITZ
--------------------------------------------
Karl H. Reitz, Director
December 15, 1995
/s/ GEORGE BINNIE
--------------------------------------------
George Binnie, Director
December 15, 1995
/s/ ROGER G. FEIN
--------------------------------------------
Roger G. Fein, Director
December 15, 1995
/s/ CHARLES P. MCLARNON
--------------------------------------------
Charles P. McLarnon, Director
December 15, 1995
/s/ DENNIS W. SHEEHAN
--------------------------------------------
Dennis W. Sheehan, Director
December 15, 1995
-68-
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income and Loss for the years ended
September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Common Stockholders' Equity for the years
ended September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets as of September 30, 1995 and 1994. . . . . . . . F-4
Consolidated Statements of Cash Flows for the years ended
September 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . F-6
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS OF BLISS & LAUGHLIN INDUSTRIES INC.:
We have audited the accompanying consolidated balance sheets of BLISS & LAUGHLIN
INDUSTRIES INC. (a Delaware corporation) AND SUBSIDIARIES as of September 30,
1995 and 1994, and the related consolidated statements of income and loss,
common stockholders' equity and cash flows for each of the three years in the
period ended September 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bliss & Laughlin Industries
Inc. and Subsidiaries as of September 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 8 to the financial statements, effective October 1,
1993, the Company changed its method of accounting for income taxes.
Additionally, as discussed in Note 7 to the financial statements, effective
October 1, 1992, the Company changed its method of accounting for
postretirement benefits other than pensions.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois,
November 10, 1995
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND LOSS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
NET SALES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 169,372 $ 152,435 $ 136,923
COST OF SALES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (148,093) (136,173) (127,923)
---------- ---------- -----------
Gross Profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,279 $ 16,262 $ 9,000
SELLING EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,759) (2,672) (2,462)
ADMINISTRATIVE EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . (8,928) (8,695) (7,345)
---------- ---------- -----------
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . $ 9,592 $ 4,895 $ (807)
INTEREST EXPENSE, net. . . . . . . . . . . . . . . . . . . . . . . . . (1,508) (1,266) (1,035)
OTHER INCOME (EXPENSE), net. . . . . . . . . . . . . . . . . . . . . . (264) 2 6
---------- ---------- -----------
Income (loss) before provision for income taxes and cumulative
effect of change in accounting principle. . . . . . . . . . . . . . $ 7,820 $ 3,631 $ (1,836)
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . . . . (2,608) (866) (594)
---------- ---------- -----------
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE. . . . . . . . . . . . . . . . . . . . . . . . $ 5,212 $ 2,765 $ (2,430)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. . . . . . . . . . ---- 813 (1,789)
---------- ---------- -----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,212 $ 3,578 $ (4,219)
---------- ---------- -----------
---------- ---------- -----------
PER SHARE DATA
Net income (loss) per share before cumulative effect of change
in Accounting Principle . . . . . . . . . . . . . . . . . . . . . . $1.31 $.70 $(.61)
Cumulative effect of change in Accounting Principle . . . . . . . . ---- .20 (.45)
----- ---- ------
Net income (loss) per share . . . . . . . . . . . . . . . . . . . . $1.31 $.90 $(1.06)
----- ---- ------
----- ---- ------
</TABLE>
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARES OUTSTANDING)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
-------------------------------- --------------------
ADDITIONAL CUMULATIVE
SHARES PAID-IN SHARES RETAINED TRANSLATION
OUTSTANDING AMOUNT CAPITAL OUTSTANDING AMOUNT EARNINGS ADJUSTMENT TOTAL
----------- ------ ---------- ----------- ------ -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE September 30, 1992 . . . . . . 3,969,518 $40 $25,229 -- $ -- $ 1,612 $ (766) $26,115
1993 net loss. . . . . . . . . . -- -- -- -- -- (4,219) -- (4,219)
Cumulative translation
adjustment . . . . . . . . . . . -- -- -- -- -- -- (677) (677)
----------- ------ ---------- ----------- ------ -------- --------- -------
BALANCE September 30, 1993 . . . . . . 3,969,518 $40 $25,229 -- $ -- $(2,607) $(1,443) $21,219
1994 net income. . . . . . . . . -- -- -- -- -- $ 3,578 -- 3,578
Cumulative translation
adjustment . . . . . . . . . . . -- -- -- -- -- -- (75) (75)
----------- ------ ---------- ----------- ------ -------- --------- --------
BALANCE September 30, 1994 . . . . . . 3,969,518 $40 $25,229 -- $ -- $ 971 $(1,518) $24,722
1995 net income. . . . . . . . . -- -- -- -- -- $ 5,212 -- $ 5,212
Cumulative translation
adjustment . . . . . . . . . . . -- -- -- -- -- -- 34 34
----------- ------ ---------- ----------- ------ -------- --------- -------
BALANCE September 30, 1995 . . . . . . 3,969,518 $40 $25,229 -- $ -- $ 6,183 $(1,484) $29,968
----------- ------ ---------- ----------- ------ -------- --------- -------
----------- ------ ---------- ----------- ------ -------- --------- -------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-3
<PAGE>
CONSOLIDATED BALANCE SHEETS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES
AS OF SEPTEMBER 30, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994
------- -------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 918 $ 926
Accounts receivable, less allowances of $397 in 1995 and $355 in 1994 . . . . 18,670 18,466
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,001 27,255
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,389 837
------- -------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $50,978 $47,484
------- -------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,720 $ 1,680
Buildings and building improvements . . . . . . . . . . . . . . . . . . . . . 9,623 9,165
Machinery and other equipment . . . . . . . . . . . . . . . . . . . . . . . . 20,683 19,030
------- -------
$32,026 $29,875
Accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . (14,804) (13,032)
------- -------
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . $17,222 $16,843
------- -------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,670 $ 3,412
------- -------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $71,870 $67,739
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,900 $16,550
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,379 13,965
Accounts payable-Stelco . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,031 1,203
Payroll and other accrued liabilities . . . . . . . . . . . . . . . . . . . . 5,182 4,530
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514 799
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . $35,006 $37,047
------- -------
NONCURRENT RETIREMENT BENEFITS LIABILITY . . . . . . . . . . . . . . . . . . . . 1,948 1,959
------- -------
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,348 $ 411
------- -------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,600 $ 3,600
------- -------
COMMITMENTS AND CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . . . .
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; authorized 1,500,000 shares; no
shares outstanding in 1995 or 1994. . . . . . . . . . . . . . . . . . . . . . $ -- $ --
Common stock, $.01 par value; authorized 6,000,000 shares; issued and
outstanding 3,969,518 in 1995 and 1994. . . . . . . . . . . . . . . . . . . . 40 40
Additional paid-in capital--common stock. . . . . . . . . . . . . . . . . . . 25,229 25,229
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,183 971
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . (1,484) (1,518)
------- -------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . $29,968 $24,722
------- -------
Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . $71,870 $67,739
------- -------
------- -------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,212 $ 3,578 $(4,219)
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities--
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 1,764 1,616 1,506
Provision for losses on accounts receivable. . . . . . . . . . . . . . (72) 99 97
Decrease (Increase) in prepaid pension cost. . . . . . . . . . . . . . 23 (14) 12
Decrease (Increase) in current assets--
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . (127) (486) (3,247)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,733) 2,310 (8,441)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . (550) 40 (290)
(Increase) in other assets. . . . . . . . . . . . . . . . . . . . . . . . . (281) (362) (91)
Increase (Decrease) in current liabilities--
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 (3,241) 4,206
Payroll and other accrued liabilities. . . . . . . . . . . . . . . . . 651 1,567 436
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . (286) (46) 582
(Decrease) Increase in noncurrent retirement benefits liability . . . . . . (11) (73) 1,901
Increase (Decrease) in deferred income taxes. . . . . . . . . . . . . . . . 934 (481) 83
------- ------- --------
Net cash provided for (used for) operating activities. . . . . . . . . $ 4,761 $ 4,507 $ (7,465)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment . . . . . . . . . . . . . . . . . (2,144) (1,949) (1,612)
------- ------- --------
Net cash used for investing activities . . . . . . . . . . . . . . . . $(2,144) $(1,949) $ (1,612)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) receipts under revolving credit agreements. . . . . . . . . $(2,650) $(2,448) $ 9,000
------- ------- --------
Net cash (used for) provided by financing activities . . . . . . . . . $(2,650) $(2,448) $ 9,000
------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . $ 25 $ (11) $ 185
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . $ (8) $ 99 $ 108
CASH AND CASH EQUIVALENTS, beginning of year . . . . . . . . . . . . . . . . . . 926 827 719
------- ------- --------
CASH AND CASH EQUIVALENTS, end of year . . . . . . . . . . . . . . . . . . . . . $ 918 $ 926 $ 827
------- ------- --------
------- ------- --------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid during the year . . . . . . . . . . . . . . . . . . . . . . . $ 1,942 $ 1,277 $ 1,079
Income taxes paid (refunds received) during the year. . . . . . . . . . . . $ 2,537 $ 16 $ (63)
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994 AND 1993
(1) THE COMPANY:
In 1990, Bliss & Laughlin Industries Inc. ("BLI") created Canadian Drawn Steel
Company Inc. ("CDSC") as a wholly owned subsidiary. On May 11, 1990, BLI,
through CDSC, purchased substantially all the assets of the Canadian Drawn Steel
Company business unit of Stelco Inc. ("Canadian Drawn"). After the purchase,
BLI owned 100% of the common stock of Bliss & Laughlin Steel Company ("BLSC")
(an Illinois corporation) and CDSC (a Canadian corporation). The financial
statements reflect the consolidated financial position and results of operations
of BLI, BLSC and, since May 11, 1990, the results of operations for CDSC
(collectively, the "Company"). Substantially all of the assets of the Company
are in BLSC and CDSC, the operating subsidiaries.
(2) SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes primarily cash as well as highly liquid
investments purchased with maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market and include the costs of
material, labor and factory overhead. The last-in, first-out ("LIFO") method is
used to determine the cost of BLSC inventories. Under the LIFO method, current
costs are charged to cost of sales for the year. The first-in, first-out
("FIFO") method is used to determine the cost of CDSC inventories. Inventories
recorded under the LIFO method were $22,181,000, or 74%, in 1995 and
$19,557,000, or 72%, in 1994; the remainder of inventory is recorded under the
FIFO method.
PROPERTY AND DEPRECIATION
Property, plant and equipment are stated at cost. Depreciation for financial
reporting purposes is provided principally on the straight-line method over
the estimated useful lives of the assets. The average life of plant and
equipment acquired before October 30, 1984, is 25 years for buildings and 7
years for machinery and equipment. For assets acquired after October 30,
1984, the average lives are 40 years for buildings and 12 years for machinery
and equipment. Purchased software is capitalized and amortized over 5 years.
Accelerated methods and lives are used for income tax purposes.
Expenditures for maintenance and repairs which do not significantly increase
the life or efficiency of the asset are charged to expense when incurred.
Expenditures for renewals and betterments are capitalized and depreciated
over the shorter of their estimated useful lives or the remaining useful life
of the asset to which they relate. The net gain or loss on property
replaced, retired or otherwise disposed of is recognized in the period
incurred.
INCOME TAXES
The provision for income taxes is based on pretax income reported in the
consolidated financial statements, including those items for which actual tax
payment or tax benefit is deferred to future years. Effective October 1,
1993, the Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109: Accounting for Income Taxes. SFAS No. 109
utilizes the liability method of accounting for deferred income taxes.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share is computed based on the weighted average
number of shares of common stock outstanding and common stock equivalents
during the respective years. The weighted average number of shares used for
computing earnings (loss) per share was 3,975,153 for fiscal year 1995 and
3,969,518 for
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES, CONTINUED
(2) SIGNIFICANT ACCOUNTING POLICIES: (Continued)
fiscal years 1994 and 1993, respectively. Common stock equivalents were
anti-dilutive in fiscal years 1994 and 1993.
LINE OF BUSINESS SEGMENTS
Substantially all of the Company's business is the production and
distribution of cold finished steel bars through regional facilities in the
United States and Canada.
TRANSLATION OF FOREIGN CURRENCIES
The Company translates foreign currency financial statements of its Canadian
subsidiary by translating balance sheet accounts at the current exchange rate
and income statement accounts at the weighted average exchange rate for the
year. The resulting translation adjustments are included in stockholders'
equity. Gains and losses on foreign currency transactions and the related
tax effects are immaterial and are reflected in net income (loss).
CONSOLIDATION
The consolidated financial statements include all majority-owned
subsidiaries. All significant intercompany transactions of consolidated
subsidiaries have been eliminated.
DIVIDENDS
The Company has not paid cash dividends on its common stock and currently
intends to retain all anticipated earnings for the foreseeable future to support
the development of its business. Under the terms of its financing agreement
(see Note 6), the Company is prohibited from paying cash dividends in an amount
that exceeds 25% of the Company's net income for the preceding fiscal year.
(3) PENSIONS:
BLSC maintains pension plans covering substantially all hourly employees of
the Harvey, Illinois, and Medina, Ohio, plants. Employees of the Batavia,
Illinois, and Cartersville, Georgia, plants are not covered. Benefits are
based on years of service and employee's age at termination. CDSC maintains
pension plans covering substantially all employees. Benefits for the
salaried employees' plan are based on an average salary for the five most
recent years prior to retirement. Benefits for the bargaining unit
employees' plan are based on years of service. The Company's policy is to
fund pension cost in accordance with the requirements of the Employee
Retirement Income Security Act of 1974.
The components of the net periodic pension cost are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . . . . . . . $ 300,000 $ 408,000 $ 417,000
Interest cost on projected benefit obligations . . . . 1,152,000 1,088,000 1,051,000
Actual return on plan assets . . . . . . . . . . . . . (1,209,000) (1,195,000) (1,538,000)
Net amortization (deferral) . . . . . . . . . . . . . . (169,000) (153,000) 323,000
------------ ------------ ------------
Net periodic pension cost . . . . . . . . . . . . . . . $ 74,000 $ 148,000 $ 253,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES, CONTINUED
(3) PENSIONS: (CONTINUED)
The following table sets forth the plan's funded status and amount of prepaid
(accrued) pension cost recognized in the Company's consolidated balance sheets
at September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Accumulated benefit obligation-
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,009,000 $834,000 $11,918,000 $608,000
Nonvested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379,000 82,000 428,000 70,000
----------- -------- ----------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,388,000 916,000 12,346,000 678,000
Effect of projected future salary increases. . . . . . . . . . . . . 736,000 22,000 600,000 0
----------- -------- ----------- --------
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . 14,124,000 938,000 12,946,000 678,000
Plan assets, at fair market value. . . . . . . . . . . . . . . . . . 15,742,000 789,000 14,000,000 651,000
----------- -------- ----------- --------
Plan assets in excess of (less than) projected benefit
obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,618,000 (149,000) 1,054,000 (27,000)
Unrecognized prior service cost. . . . . . . . . . . . . . . . . . . 520,000 159,000 844,000 88,000
Unrecognized transition net assets being amortized over
10 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64,000) (23,000) (278,000) (35,000)
Unrecognized actuarial and investment losses . . . . . . . . . . . . 471,000 63,000 809,000 33,000
Additional minimum liability . . . . . . . . . . . . . . . . . . . . - (178,000) - (85,000)
----------- -------- ----------- --------
Prepaid (accrued) pension cost recognized in the
consolidated balance sheet. . . . . . . . . . . . . . . . . . . . . $2,545,000 $(128,000) $2,429,000 $(26,000)
---------- --------- ---------- --------
---------- --------- ---------- --------
</TABLE>
For the BLSC plans, the weighted averaged assumed discount rate used in
determining the actuarial present value of projected benefit obligations was
7.75% and 8.75% in 1995 and 1994, respectively; the long-term anticipated rate
of return was 8.5% in 1995 and 1994. For the CDSC plans, the weighted average
assumed discount rate was 8.5% and the long-term anticipated rate of return was
8.5% in 1995 and 1994. The assumed rate of increase in future compensation
levels for determining the actuarial present value of projected benefit
obligation for CDSC's salaried employees' plan was 6% in 1995 and 1994. At
September 30, 1995, the plan assets for all plans were invested in units of
various trust funds administered by a trustee.
In accordance with SFAS No. 87: Employers' Accounting for Pensions, the Company
has recorded an additional minimum pension liability of $178,000 at
September 30, 1995.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES, CONTINUED
(4) COMMITMENTS AND CONTINGENCIES:
The Company, as any other manufacturing company, is from time to time subject to
investigations, claims, and lawsuits arising out of the normal course of its
business, including those which may relate to commercial transactions as well as
environmental matters.
In the opinion of management none of the current legal proceedings will have
a material adverse effect on the Company's consolidated financial position or
results of operations. Additionally, the Company does not believe its
exposure to material expenditures is substantial with respect to any known
environmental claims or liabilities.
On September 29, 1995, a class action suit was filed by an alleged
stockholder against the Company and each member of the Company's Board of
Directors for alleged breach of fiduciary duty in approving the merger
agreement publicly announced on September 18, 1995 by and among the Company,
BRW Steel Corporation ("BRW") and B&L Acquisition Corporation, a wholly-owned
subsidiary of BRW ("Merger Sub"). The suit alleges that the merger agreement
was being advanced through unfair procedures and that the Company's Board of
Directors had not sought to maximize stockholder value. Additionally, the
complaint alleges that an $8.25 per share offer received from International
Metals Acquisition Corporation was inadequate. The suit was amended on
October 20, 1995, to include the provisions of the amended merger agreement
which was entered into as of October 4, 1995, by and among the Company, BRW
and Merger Sub and provides for a $9.50 price per share in the merger. The
amended complaint alleges the same grounds as the original complaint and in
addition alleges that the directors had breached their fiduciary duty by
agreeing to the termination fee provision in the amended merger agreement.
The plaintiff seeks injunctive relief against the proposed merger and
unspecified damages.
The directors believe they have meritorious defenses to the lawsuit and
intend to defend the lawsuit vigorously. While the Company and its directors
believe strongly that the plaintiff will be unsuccessful in gaining any form
of relief, there can be no assurance that the court will not grant relief,
including damages. Moreover, it is currently not possible to estimate
reasonably the amount of any such damages.
On September 29, 1995, Stelco filed a lawsuit against certain present and
former officers and key employees of the Company and their respective
beneficial owners of shares of common stock of the Company. The lawsuit was
subsequently dismissed without prejudice. The Company was not named as a
defendant in this lawsuit.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES, CONTINUED
(5) INVENTORIES:
Inventories consisted of the following at September 30:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Rough steel and work in process. . . . . . . $15,457,000 $14,188,000
Finished steel . . . . . . . . . . . . . . . 17,592,000 $15,779,000
LIFO reserve . . . . . . . . . . . . . . . . (3,048,000) (2,712,000)
----------- -----------
$30,001,000 $27,255,000
----------- -----------
----------- -----------
</TABLE>
During 1995, certain inventory quantities were increased resulting in the
creation of a new LIFO cost layer. Had the LIFO method not been used, cost of
sales would have been lower by approximately $53,000 in 1995 and higher by
approximately $10,000 in 1994. Capitalized costs included in inventory consist
of material, labor and factory overhead. Factory overhead is calculated using
uniform capitalization rules.
(6) FINANCING ARRANGEMENTS:
The Company's indebtedness as of September 30, 1995 and 1994, was composed of
the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Revolving credit . . . . . . . . . . . . . . . . . . $13,900,000 $16,550,000
----------- -----------
----------- -----------
Long-term debt-Industrial Revenue Bonds. . . . . . . $ 3,600,000 $ 3,600,000
----------- -----------
----------- -----------
</TABLE>
Borrowings during the years were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Short-term bank borrowings--
Maximum month-end borrowings . . . . . . . . . . . . . . $ 20,643,000 $ 20,150,000 $ 19,000,000
Average month-end borrowings . . . . . . . . . . . . . . 18,066,000 18,379,000 15,137,000
Weighted average interest rate for the fiscal year . . . 7.4% 6.4% 4.4%
Weighted average interest rate at year-end . . . . . . . 7.1% 7.1% 4.6%
Total borrowings--
Average month-end borrowings. . . . . . . . . . . . . . $ 21,666,000 $ 21,979,000 $ 18,737,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
On January 28 and December 9, 1994, the Company entered into amendments to
its revolving credit agreement with The Northern Trust Company ("Northern")
and LaSalle National Bank, which provides up to $20,000,000 under a revolving
credit facility. The revolving credit facility is secured by the Company's
accounts receivable, inventories and equipment, excluding CDSC's assets, and
a first mortgage on the Company's Batavia, Illinois property. Among other
things, the restrictive covenants include limits on capital expenditures, a
minimum tangible net worth (excluding cumulative translation adjustments) of
at least $28,250,000 at September 30, 1995 and at all times thereafter, a
maximum ratio of total liabilities to tangible net worth is limited to at
least 1.8 to 1 at September 30, 1995 and at all times thereafter, and
prohibitions on paying cash dividends in an amount that exceeds 25 percent of
the Company's net income for the preceding fiscal year. Interest on the
revolving credit facility is computed at the prime rate and/or a LIBOR based
rate at the option of the Company. Funds available but unused bear interest
at the rate of 1/2% per annum. Advances of credit under this credit facility
are payable on January 26, 1996.
On April 28, 1994, the Company's CDSC subsidiary entered into an agreement
with NBD Bank, Canada, which provided up to $5,800,000 (U.S.) under a
revolving demand credit facility. On March 28, 1995, the agreement was
renewed through April 30, 1996, and the available facility was increased to
$7,000,000 (U.S.). The facility is unsecured; however, the agreement contains
a negative pledge clause which
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES, CONTINUED
(6) FINANCING ARRANGEMENTS: (CONTINUED)
prohibits CDSC from encumbering its assets to secure any other indebtedness,
excepting specific liens that are limited to the property financed by the
lienholder. The restrictive covenants in the agreement include a CDSC
minimum tangible net worth, computed based on Canadian GAAP, of $10,000,000
(Canadian), a maximum ratio of total liabilities to tangible net worth of 1.2
to 1, and a minimum working capital of $3,000,000 (Canadian). Under the
agreement, NBD must approve all mergers, acquisitions or changes in
ownership. Interest rates for Canadian dollars are at the Canadian prime
rate or the NBD's cost of funds plus 1%. Interest rates for U.S. dollars are
at the U.S. prime rate or LIBOR based rates.
The interest rate on loans outstanding at September 30, 1995, ranged from 6.91%
to 7.125% on loans based on LIBOR. Of the total loans outstanding at
September 30, 1995 against the revolving credit agreements, $300,000 was
borrowed at prime rate.
In December 1988, BLSC secured $3,600,000 of borrowings by the issuance of Tax
Exempt Industrial Revenue Bonds through the Development Authority of
Cartersville, Georgia, to partially finance the construction and equipping of
the Cartersville plant. The interest rate on the bonds is a weekly interest
rate representing the minimum rate of interest which, in the opinion of the
Remarketing Agent, would be necessary to sell the bonds in a secondary market.
The interest rates paid on these bonds varied from 3.15% to 5.85% during fiscal
year 1995 and was 4.65% at September 30, 1995. The Company must fund a bond
sinking fund for purposes of retiring the bonds. Principal payments of $300,000
are due on each December 1 beginning in the year 2009 and continuing through
2012. Payments of $400,000 are then due on each December 1 through the year
2018.
In accordance with the loan agreement between BLSC and the Development Authority
of Cartersville, Georgia, Northern has issued an irrevocable letter of credit in
the amount of $3,852,000. Of this total amount, $3,600,000 is available to pay
principal on the Bonds and $252,000 is available to pay interest when it becomes
due. Northern has also issued a $666,000 irrevocable letter of credit to
support workers compensation insurance reserves in 1994. In 1995, Northern
increased the letter of credit to $775,000.
At September 30, 1995, the available portion of all revolving credit facilities
after adjusting for outstanding letters of credit amounted to $8,473,000. In
the aggregate, $58,686,000 of assets are utilized to secure all borrowings.
The Company is in full compliance with all covenants of each credit agreement.
(7) POSTEMPLOYMENT RETIREMENT BENEFIT:
The Company sponsors a defined benefit post retirement plan for health care and
life insurance that covers most full-time employees. The plan pays stated
percentages of most necessary medical expenses incurred by retirees, after
subtracting payments by Medicare or other providers and after a stated
deductible has been met. Participants become eligible for the benefits if they
retire from the Company after reaching age 55 with 10 or more years of service.
The plan is contributory, with retiree contributions adjusted annually. The
Company does not fund this plan.
The Company adopted SFAS No. 106: Employers' Accounting for Post-retirement
Benefits Other Than Pensions, as of October 1, 1992 for BLSC. This standard
requires that the expected cost of these
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES, CONTINUED
(7) POSTEMPLOYMENT RETIREMENT BENEFIT: (CONTINUED)
post-retirement benefits must be
charged to expense during the years that the employees render service. The
Company elected to immediately recognize the transition obligation as of
October 1, 1992. Accordingly, the Company recognized a cumulative effect of a
change in accounting principle of $1,789,000 ($.45 per share). The effect of
this change in accounting was to decrease 1993 pretax income by $142,000. Prior
to fiscal 1993, the Company recognized post-retirement health care costs in the
year that the benefits were paid.
The following table sets forth the funded status of the plan, reconciled to the
accrued post-retirement benefit cost recognized in the Company's consolidated
balance sheet as of September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Accumulated post-retirement benefit obligation ("APBO")--. . . . . . .
Retirees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 952,000 $ 1,142,000
Fully eligible active plan participants . . . . . . . . . . . . . 244,000 219,000
Other active plan participants. . . . . . . . . . . . . . . . . . 1,145,000 891,000
----------- -----------
Accrued post-retirement benefit costs. . . . . . . . . . . . . . . . . $ 2,341,000 $ 2,252,000
----------- -----------
----------- -----------
Net periodic post-retirement benefit cost for 1995 and 1994 included the following components:
Service cost of benefits earned. . . . . . . . . . . . . . . . . . . . $ 57,000 $ 60,000
Interest on APBO . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,000 177,000
----------- -----------
Net periodic post-retirement benefit cost. . . . . . . . . . . . . . . $ 245,000 $ 237,000
----------- -----------
----------- -----------
</TABLE>
For measurement purposes, a 14.0% annual rate of increase in the per capita cost
of covered health care claims was assumed for 1996; the rate was assumed to
decrease by 1/2 of 1% per year to 7%, and remain at that level thereafter. To
illustrate the health care cost trend on amounts reported, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated post-retirement benefit obligation as of September 30,
1995, by approximately $158,000 and the aggregate of the service and interest
cost components of net post-retirement health care cost for the year then ended
by $22,000. The weighted-average discount rate used in determining the
accumulated post-retirement benefit obligation was 7.75%.
Additionally, the CDSC subsidiary of the Company is required to adopt the
provisions of SFAS No. 106 for the 1996 fiscal year. Based on preliminary
actuarial estimates, the Company expects the accumulated post-retirement benefit
obligation to be approximately $2,000,000. The cost of providing these
benefits, which was not significant for the years 1995, 1994 and 1993, is
currently recognized as expense when paid. The Company has not yet determined
the method of adoption.
(8) INCOME TAXES:
Effective October 1, 1993, the Company adopted SFAS No. 109: Accounting for
Income Taxes. SFAS No. 109 requires financial statements to reflect deferred
income taxes for the future tax consequences of events recognized in different
years for financial reporting and tax reporting purposes. This accounting
change
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES, CONTINUED
(8) INCOME TAXES: (CONTINUED)
increased 1994 net income by $813,000 ($.20 per share). The financial
statements for years prior to 1994 have not been restated to reflect the
adoption of this standard.
Components of deferred income taxes as of September 30, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
ASSETS (LIABILITIES) 1995 1994
------------ ------------
<S> <C> <C>
Federal Net Operating Loss Carryforwards . . . . . $ -- $ 756,000
Post-retirement benefits . . . . . . . . . . . . . 743,000 754,000
Tax in excess of Book depreciation . . . . . . . . (1,299,000) (1,228,000)
Other. . . . . . . . . . . . . . . . . . . . . . . 235,000 67,000
Canadian Deferred Income Tax . . . . . . . . . . . (538,000) (411,000)
------------ -----------
$ (859,000) $ (62,000)
Less: Valuation allowance . . . . . . . . . . . . -- (349,000)
------------ -----------
Deferred Income Taxes, Net . . . . . . . . . . . . $ (859,000) $ (411,000)
------------ -----------
------------ -----------
</TABLE>
The Company recorded a valuation allowance as of September 30, 1994 equal to
100% of the domestic portion of the net deferred tax asset. During 1995, the
valuation allowance decreased by $349,000 due to management's belief that the
net deferred tax assets will reverse during periods in which the Company will
generate net taxable income and fully utilize the remaining net operating
loss carryforward.
The income tax provision (benefit) components for the fiscal years 1995, 1994
and 1993 were composed of:
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- ---------
<S> <C> <C> <C>
Current provision (benefit)--
Federal. . . . . . . . . . . . . . . . . . . . . . $ 1,620,000 $ 24,000 $ --
State. . . . . . . . . . . . . . . . . . . . . . . 128,000 -- (25,000)
Foreign. . . . . . . . . . . . . . . . . . . . . . 1,208,000 $ 842,000 480,000
--------- --------- ---------
$ 2,956,000 $ 866,000 $ 455,000
Deferred (prepaid) provision relating to--
Tax over book depreciation . . . . . . . . . . . . 207,000 271,000 94,000
Prepaid pension benefits . . . . . . . . . . . . . (66,000) (10,000) 2,000
Uniform cost capitalization. . . . . . . . . . . . -- 32,000 22,000
Accrued vacation benefits. . . . . . . . . . . . . (111,000) (2,000) (24,000)
Other, net . . . . . . . . . . . . . . . . . . . . (29,000) (18,000) 45,000
Valuation Allowance. . . . . . . . . . . . . . . . (349,000) (273,000) --
--------- --------- ---------
$(348,000) $ -- $ 139,000
--------- --------- ---------
Income tax provision (benefit) . . . . . . . . . . $2,608,000 $ 866,000 $ 594,000
---------- --------- ---------
---------- --------- ---------
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES, CONTINUED
(8) INCOME TAXES: (CONTINUED)
A reconciliation between the statutory federal income tax rate and the effective
income tax rate recorded is shown below:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax rates . . . . . . . . . . . . . . . . . . . . 35% 35% 35%
---------- ---------- ----------
---------- ---------- ----------
Statutory federal provision (benefit). . . . . . . . . . . . . . . . . . . $2,737,000 $1,271,000 $ (643,000)
State provision (benefit), net of federal tax effect . . . . . . . . . . . 83,000 -- (16,000)
Utilization of NOL carryforward and valuation allowance change . . . . . . (349,000) (552,000) --
Foreign tax rate differential. . . . . . . . . . . . . . . . . . . . . . . 79,000 123,000 60,000
Unbenefitted NOL carryforward. . . . . . . . . . . . . . . . . . . . . . . -- -- 1,062,000
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,000 24,000 131,000
---------- ---------- ----------
$2,608,000 $ 866,000 $ 594,000
---------- ---------- ----------
---------- ---------- ----------
Effective income tax rates . . . . . . . . . . . . . . . . . . . . . . . . 33.4% 23.9% --
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(9) LEASES:
The Company leases trucks and other miscellaneous equipment for various lease
terms, none of which exceeds five years. Lease agreements frequently include
renewal options and usually require that the Company pay for insurance and
maintenance expense.
Property, plant and equipment includes costs associated with capital leases of
$59,000 and $0 as of September 30, 1995 and 1994, respectively. Accumulated
depreciation includes amortization associated with these capital leases of
$12,000 and $0 as of September 30, 1995 and 1994, respectively. Capital lease
amortization is included in depreciation expense.
Rental payments for operating leases are charged to cost of operations in the
period incurred. Rental expense for operating leases were $265,000, $278,000
and $344,000 for the years ended September 30, 1995, 1994 and 1993,
respectively. Future minimum lease payments for all leases at September 30,
1995, total $547,000.
(10) SUPPLEMENTAL INFORMATION:
Interest income in each of the three years ended September 30, 1995, is
insignificant and has been netted against interest expense on the consolidated
statements of income. The following additional supplemental information is
provided for the three years ended September 30:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation . . . . . . . . . . . . . . $1,594,000 $1,486,000 $1,440,000
Amortization on Capitalized Software . . 170,000 130,000 66,000
Maintenance and repairs. . . . . . . . . 3,866,000 3,157,000 3,252,000
</TABLE>
(11) SALARY SAVINGS AND PROFIT SHARING PLANS:
The Company maintains a Salary Savings Plan for all nonbargaining unit domestic
employees. The Company contributes $200 per participant per plan year plus 60%
of the first $1,000 of a participant's contribution and 40% of the second $1,000
of the participant's contribution. The Company also maintains a Salary Savings
Plan for all Harvey, Illinois, bargaining unit employees.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES, CONTINUED
(11) SALARY SAVINGS AND PROFIT SHARING PLANS: (CONTINUED)
The Company contributes $100 per participant per plan year. Provisions under
both of these plans were $163,000, $138,000 and $102,000 for the years ended
September 30, 1995, 1994 and 1993, respectively.
Effective December 1988, the Company established a salary savings plan for all
Medina, Ohio, bargaining unit employees. The Company does not make
contributions to this plan.
Effective October 1, 1987, the Company established a profit sharing plan for all
nonbargaining unit employees. The profit sharing amount is based upon the
Company's income before taxes and profit sharing expenses and may range up to
10% of each participant's base salary. Provisions under this plan were
$663,000, $558,000 and $0 for the years ended September 30, 1995, 1994 and 1993,
respectively.
(12) STOCK OPTION PLANS:
Effective December 15, 1988, the Company established an Employee Incentive Stock
Option Plan ("ISOP") and a nonstatutory Directors' Stock Option Plan ("DSOP").
A total of up to 130,000 and 65,000 shares of common stock of the Company are
reserved for issuance upon exercise of options under the ISOP and DSOP,
respectively. On December 15, 1988, pursuant to the ISOP, 30 key employees were
granted options to purchase a specific number of shares. The number of shares
exercisable per employee ranges from 1,000 to 4,000. On December 15, 1988,
pursuant to the DSOP, the three directors of the Company who are not employees
of the Company were granted options to purchase 10,000 shares each.
Effective May 11, 1990, the Company granted additional options to 36 key
employees to purchase shares of common stock pursuant to the ISOP. The number
of shares exercisable per employee ranges from 500 to 5,000. Also effective
May 11, 1990, the Company granted options to the three directors of the Company,
who are not employees, to purchase 5,000 shares each of common stock pursuant to
the DSOP.
For both plans, the options granted to employees and directors became
exercisable on the first anniversary date of the grant dates, December 15, 1989,
and May 11, 1991, respectively, and vested and became exercisable over a four-
year period from the grant dates, with 25% of the options becoming exercisable
on each anniversary of the grant dates. To the extent vested, the options shall
be exercisable for a term of 10 years from the grant dates. The exercise price
per share of common stock for the 1988 options is $10.50, the initial offering
price per share of the Company's common stock. The exercise price per share of
common stock for the 1990 options is $5.50, the closing price per share of the
Company's common stock as reported on the NASDAQ National Market System on
May 11, 1990. No options were granted or exercised in 1995 or 1994.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES, CONTINUED
(12) STOCK OPTION PLANS: (CONTINUED)
Below is a summary of options for both plans as of September 30, 1995 and 1994:
<TABLE>
<CAPTION>
ISOP DSOP
---------------------- ----------------------
FISCAL YEAR FISCAL YEAR
---------------------- ----------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Outstanding, October 1 . . . . . . . . . . . 97,000 97,000 45,000 45,000
Forfeited. . . . . . . . . . . . . . . . . . 10,500 -- -- --
Outstanding, September 30. . . . . . . . . . 86,500 97,000 45,000 45,000
Exercisable, September 30:
Options @ $10.50. . . . . . . . . . . . 49,000 56,000 30,000 30,000
Options @ $5.50 . . . . . . . . . . . . 37,500 41,000 15,000 15,000
Total exercisable . . . . . . . . . . . 86,500 97,000 45,000 45,000
Available for grant, September 30. . . . . . 43,500 33,000 20,000 20,000
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
(13) SUPPLEMENTAL INCENTIVE COMPENSATION PLAN:
Approximately 28 key management employees of the Company, including all
executive officers of the Company, participate in the Company's Supplemental
Incentive Compensation Plan (the "Incentive Plan"). The Incentive Plan provides
for payment of cash awards depending upon, among other factors, the degree to
which certain specified income levels have been attained during the Company's
fiscal year. Provisions under this plan were $468,000, $472,000 and $0 for the
years ended September 30, 1995, 1994 and 1993.
(14) SPLIT DOLLAR LIFE INSURANCE:
In September 1988, BLSC entered into a split dollar life insurance agreement
with each of the three executive officers of the Company and certain other
officers and key employees of BLSC whereby the premiums on the corresponding
insurance policies are paid by BLSC. Under the agreement, such persons have
each executed a collateral assignment of their policies. BLSC, as assignee, is
entitled to recover the aggregate premium payments made by it through any
combination of (1) borrowing against the policies, (2) the cash surrender value
of the policies if the policies should be surrendered and (3) payment in the
event of the insured's death. Premiums paid for the coverage were $211,000 in
1995 and $253,000 in 1994 and 1993.
(15) ALLOWANCE FOR DOUBTFUL ACCOUNTS:
An analysis of the allowance for doubtful accounts for fiscal years 1995, 1994
and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of year . . . . . . . . . . . . . . $ 355,000 $ 533,000 $ 507,000
Provision charged to income . . . . . . . . . . . (72,000) (41,000) 72,000
Accounts written off, net of recoveries . . . . . 114,000 (137,000) (46,000)
------------ ------------ ------------
Balance, end of year . . . . . . . . . . . . . . . . . $ 397,000 $ 355,000 $ 533,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLISS & LAUGHLIN INDUSTRIES INC. AND SUBSIDIARIES, CONTINUED
(16) GEOGRAPHIC INFORMATION:
The majority of the Company's business is conducted in the Great Lakes Region.
The Company operates four plants in that region, three in the United States and
one in Canada. The decision on which plant to use to source a product sale is
based on the nature of the product, the availability of each plant to produce
the product, the relative proximity of the plant to the source of raw material
and the ultimate customer and other factors.
Summary financial information by geographic area included in the consolidated
financial statements for the years ended September 30, 1995, 1994 and 1993, is
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net Sales --
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $130,860 $120,327 $108,909
Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,512 32,108 28,014
-------- -------- --------
Total consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . $169,372 $152,435 $136,923
-------- -------- --------
-------- -------- --------
Income (loss) before income taxes and cumulative effect of
change in accounting principle --
Income (loss) from North American operations. . . . . . . . . . . . . . . . $ 10,213 $ 5,495 $ (260)
General Corporate expense . . . . . . . . . . . . . . . . . . . . . . . . . (2,393) (1,864) (1,576)
-------- -------- --------
Total consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,820 $ 3,631 $ (1,836)
-------- -------- --------
-------- -------- --------
Identifiable assets --
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,896 $ 49,654 $ 51,878
Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,974 18,085 17,117
-------- -------- --------
Total consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,870 $ 67,739 $ 68,995
-------- -------- --------
-------- -------- --------
</TABLE>
Export sales included in the United States sales approximated $2,710,000,
$2,319,000 and $551,000 for 1995, 1994 and 1993, respectively. Export sales
included in Canada sales approximated $9,041,000, $7,126,000 and $2,979,000 for
1995, 1994 and 1993, respectively. Intercompany sales were insignificant in all
years presented and have been eliminated from the above totals. In fiscal year
1995, there were no sales to one customer which exceeded 10% of total sales.
(17) SUBSEQUENT EVENT:
On October 20, 1995 the Company submitted preliminary proxy soliciting materials
to the Securities and Exchange Commission for the solicitation of proxies to
vote upon a proposal to approve and adopt the plan of merger contemplated under
the October 4, 1995 Amended Agreement and Plan of Merger ("Merger Agreement") by
and among the Company, BRW Steel Corporation, a Delaware corporation ("BRW"),
and B&L Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of BRW ("Merger Subsidiary"). The original merger agreement was
entered into as of September 16, 1995 and publicly announced on September 18,
1995. Pursuant to the Merger Agreement, the Merger Subsidiary will be merged
with and into the Company, with the Company being the surviving corporation,
each outstanding share of the Company's common stock (except for certain shares
held as treasury shares by the Company, shares held by BRW and its affiliates
and shares held by dissenting shareholders, as further defined in the Merger
Agreement), will be cancelled and converted into the right to receive $9.50 in
cash.
The Merger Agreement can be terminated under certain conditions further defined
in the Merger Agreement or if the merger is not consummated on or before
January 31, 1996. The Company has agreed to pay BRW a termination fee of
$3,000,000, plus an amount not to exceed $400,000 for costs and expenses, if the
Merger Agreement is terminated pursuant to certain conditions in the Merger
Agreement.
F-17
<PAGE>
(17) SUBSEQUENT EVENT: (Continued)
Further, consummation of the Merger Agreement would constitute a change of
control under employment agreements held by certain officers and directors of
the Company, which would allow such officers and directors to terminate those
employment agreements. If such terminations are exercised, it could cost the
Company approximately $2,000,000 in severance costs. Additionally, if the
Merger Agreement is consummated, options under the Company's stock option plans
become fully vested and exercisable. Pursuant to the Merger Agreement,
certain outstanding stock options and the stock equivalency account under the
Directors' Deferred Compensation Plan will be cancelled in exchange for cash
payments.
F-18
<PAGE>
EXHIBIT 3(c) TO FORM 10-K FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 1995
THE FOLLOWING WAS ADOPTED BY THE
BOARD OF DIRECTORS OF BLISS & LAUGHLIN INDUSTRIES INC.
ON JULY 24, 1995
- --------------------------------------------------------------------------------
RESOLVED, that Article II, Section 2.8 of the By-Laws of this Corporation
be and it hereby is amended in its entirety to read as follows:
"Section 2.8. Quorum; Vote Required for Action. At all meetings
of the Board of Directors a majority of the whole Board shall
constitute a quorum for the transaction of business. Except in cases
in which the certificate of incorporation or these by-laws otherwise
provide, the vote of a majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board of
Directors. If less than a quorum are present, a majority of those
directors present may adjourn the meeting from time to time until a
quorum is present. A director who is present at a meeting of the
Board of Directors at which action on any corporate matter is taken
shall be conclusively presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or
unless he shall file a written dissent to such action with the person
acting as secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting."
<PAGE>
EXHIBIT 10(v)
TO FORM 10-K FOR
THE FISCAL YEAR ENDED
SEPTEMBER 30, 1995
AMENDED AGREEMENT AND PLAN OF MERGER
THIS AMENDED AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
October 4, 1995, by and among BRW STEEL CORPORATION, a Delaware corporation
("BarCo"), B & L ACQUISITION CORPORATION, a Delaware corporation and a wholly
owned subsidiary of BarCo ("Sub"), and BLISS & LAUGHLIN INDUSTRIES INC., a
Delaware corporation (the "Company"),
W I T N E S S E T H:
WHEREAS, BarCo, Sub and the Company are parties to the Agreement and Plan
of Merger dated September 16, 1995 (the "Existing Merger Agreement") pursuant to
which BarCo has agreed to acquire all of the outstanding shares of the Company's
Common Stock, $.01 par value per share (the "Shares"), at a price of $7.75 per
share; and
WHEREAS, the Board of Directors of BarCo has determined that it is in the
best interests of BarCo and its stockholders for Sub to acquire all of the
outstanding Shares at a revised price of $9.50 per share, net to the
stockholders of the Company in cash, in accordance with the terms and conditions
of this Agreement; and
WHEREAS, the Company, BarCo and Subsidiary have mutually agreed to amend
the Existing Merger Agreement in consideration of the execution and delivery of
this Agreement and the payment by the Company to BarCo of $1,000,000; and
WHEREAS, the Board of Directors of the Company have received the opinion
of The Chicago Corporation that the price per share to be received by
stockholders of the Company in the Merger (as defined in Section 1.2) is fair to
such stockholders from a financial point of view; and
WHEREAS, the Board of Directors of the Company believes that the Merger is
in the best interests of its stockholders; and
WHEREAS, the respective Boards of Directors of BarCo, Sub and the Company
have each determined that it is advisable to merge Sub with and into the Company
pursuant to this Agreement with the result that the Company shall become a
wholly owned subsidiary of BarCo.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and covenants herein contained, BarCo, Sub and the
Company, intending to be legally bound, hereby agree as follows:
<PAGE>
ARTICLE 1
THE MERGER
1.1 COMPANY ACTION.
(a) The Company hereby consents to (i) the Merger, and (ii) at BarCo's
election, a tender offer for any and all Shares at a price per Share of $9.50 or
higher, net to the seller in cash on terms and conditions no less favorable to
tendering stockholders than those terms provided for herein to close the Merger
under this Agreement (the "Tender Offer"). The Company hereby represents that
on October 3, 1995, its board of directors (the "Board of Directors") approved
the Merger and the Tender Offer and approved recommending approval of the Merger
and this Agreement by the Company's stockholders. The Company further
acknowledges and represents that the Board of Directors' approval of the Merger,
the Tender Offer, this Agreement, the transactions contemplated hereby and the
consummation thereof do not and will not fall within paragraph (A) of Article
Ninth of the Company's Certificate of Incorporation or otherwise cause the
stockholder vote required for approval of the Merger and this Agreement and the
transactions contemplated hereby to be greater than the minimum vote required
under Section 251(c) of the Delaware General Corporation Law (the "Delaware
Law") provided that Sub and BarCo have not taken and do not take any action to
make either of them an "Interested Stockholder" as defined in Article Ninth
except pursuant to the Tender Offer.
1.2 THE MERGER.
(a) Subject to the terms and conditions hereof, at the Effective Time
(as such term is defined in Section 1.2(b)), Sub will be merged with and into
the Company (the "Merger") in accordance with Delaware Law, the separate
existence of Sub (except as may be continued by operation of law) shall cease
and the Company shall continue as the surviving corporation in the Merger (the
"Surviving Corporation").
(b) At the Closing, the parties hereto shall cause the Merger to be
consummated by filing with the Secretary of State of Delaware an appropriate
agreement or certificate of merger (the "Merger Document") in such form as is
required by, and executed in accordance with, the relevant provisions of the
Delaware Law and with this Agreement (the date and time of such filing being
referred to herein as the "Effective Time"). The Merger shall have the effects
set forth in Section 259 of the Delaware Law.
A closing of the Merger (the "Closing") shall take place (i) at Veritas
Capital, Inc., Ten East Fiftieth Street, New York, New York, at 12:00 noon,
local time, on the date on which the last of the conditions set forth in Section
5 is fulfilled or waived (subject to applicable law), or (ii) at such other time
and place and on such other date as BarCo and a majority of the directors of the
Company shall agree (the "Closing Date").
-2-
<PAGE>
1.3 CONVERSION OF SHARES. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Sub, the Company or the holder of any of the following
securities:
(a) Each Share then issued and outstanding, other than (i) Shares then
held, directly or indirectly, by BarCo, Sub or any direct or indirect subsidiary
of BarCo, or (ii) Shares held in the Company's treasury, or (iii) Dissenting
Shares (as such term is defined in Section 1.4) shall be converted into and
represent the right to receive (as provided in Section 1.5) $9.50 net in cash or
such higher price as may be paid in the Tender Offer, without any interest
thereon (such amount of cash being referred to herein as the "Merger
Consideration");
(b) Each Share then held, directly or indirectly, by BarCo, Sub or any
direct or indirect subsidiary of BarCo shall be canceled and retired without
payment of any consideration therefor;
(c) Each Share held in the Company's treasury shall be canceled and
retired without payment of any consideration therefor;
(d) Each issued and outstanding share of common stock, par value $.01
per share, of Sub shall be converted into and become one validly issued, fully
paid and nonassessable share of common stock of the Surviving Corporation;
(e) Each of the Company's issued and outstanding stock options shall be
converted into the right to receive at Closing cash representing the positive
difference (if any) of $9.50 net in cash or such higher price as may be paid in
the Tender Offer and the exercise price of such option multiplied by the number
of Shares covered by such option; and
(f) Each outstanding stock equivalency account of the Company under the
Directors' Deferred Compensation Plan shall be converted into the right to
receive at Closing cash in the amount of $9.50 for each unit equivalent to one
Share.
1.4 DISSENTING SHARES. Shares held by a stockholder who has not
voted such Shares in favor of the Merger and with respect to which such
stockholder becomes entitled to payment of the fair value of his Shares pursuant
to the provisions of Section 262 of the Delaware Law ("Dissenting Shares"),
shall not be converted into, or represent the right to receive, or be
exchangeable for, the Merger Consideration unless and until such holder shall
have failed to perfect or shall have effectively withdrawn or lost the right to
appraisal and payment of the fair value of such Shares pursuant to the
provisions of such Section 262. If such holder shall have failed to perfect or
shall have effectively withdrawn or lost such right, then, as of the Effective
Time, or the occurrence of the event which causes the failure to perfect or the
effective withdrawal or loss of such right, whichever last occurs, such holder's
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive, and be exchangeable (as provided in
Section 1.5) for, the Merger Consideration.
-3-
<PAGE>
1.5 PAYMENT.
(a) Pursuant to an agreement (the "Disbursing Agent Agreement") to be
entered into on or before the Closing Date between BarCo and Sub and a
disbursing agent (the "Disbursing Agent") which shall be a commercial bank with
capital of at least $100,000,000, Sub or the Surviving Corporation shall from
time to time deposit with the Disbursing Agent such cash as the Disbursing Agent
shall require pursuant to this Section 1.5.
(b) As soon as practicable after the Effective Time, the Disbursing
Agent shall send a notice and a transmittal form to each holder of certificates
formerly evidencing Shares (other than certificates formerly representing Shares
to be canceled pursuant to Sections 1.3(b) and 1.3(c)) advising such holder of
the effectiveness of the Merger and the procedure for surrendering to the
Disbursing Agent (who may appoint forwarding agents with the approval of BarCo)
such certificates for exchange into the Merger Consideration. Each holder of
certificates theretofore evidencing Shares, upon proper surrender thereof to the
Disbursing Agent together with and in accordance with such transmittal form,
shall be entitled to receive in exchange therefor the Merger Consideration
deliverable in respect of the Shares theretofore evidenced by the certificates
so surrendered. Upon such proper surrender, the Disbursing Agent shall
promptly, but in any event no later than three (3) business days after such
proper surrender, deliver the Merger Consideration. Until properly surrendered,
certificates formerly evidencing Shares shall be deemed for all purposes to
evidence only the right to receive the Merger Consideration.
(c) If the Merger Consideration (or any portion thereof) is to be
delivered to a person other than the person in whose name the certificates
surrendered in exchange therefor are registered, it shall be a condition to the
payment of such Merger Consideration that the certificates so surrendered shall
be properly endorsed or accompanied by appropriate stock powers and otherwise in
proper form for transfer and that such transfer otherwise be proper. Sub shall
pay to the Disbursing Agent any transfer or other taxes payable by reason of the
foregoing or establish to the satisfaction of the Disbursing Agent that such
taxes have been paid or are not required to be paid. No interest will be paid
or accrued on the Merger Consideration payable on the surrender of any such
certificates.
(d) In the event any certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen or destroyed, the Surviving Corporation
will, subject to the following sentence, issue in exchange for such lost, stolen
or destroyed certificate the Merger Consideration deliverable in respect thereof
as determined in accordance with this Article 1. Sub may, in its sole
discretion and as a condition precedent to the issuance of the Merger
Consideration in exchange therefor, require the owner of such lost, stolen or
destroyed certificate to give the Surviving Corporation a bond in such sum as it
may reasonably direct as indemnity against any claim that may be made against
the Surviving Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
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1.6 NO FURTHER RIGHTS. From and after the Effective Time, holders of
certificates formerly evidencing Shares shall cease to have any rights as
stockholders of the Company, except as provided herein or by law.
1.7 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of Shares
shall thereafter be made.
1.8 CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS. The Certificate
of Incorporation and Bylaws of the Company in effect immediately prior to the
Effective Time (except as such Certificate of Incorporation may be amended
pursuant to the Merger Document) shall be the Certificate of Incorporation and
Bylaws of the Surviving Corporation until thereafter amended as provided therein
and under the Delaware Law. The directors of the Company immediately prior to
the Effective Time shall be the directors of the Surviving Corporation, in each
case until their successors are duly elected and qualified.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF BARCO AND SUB
BarCo and Sub hereby jointly and severally represent and warrant to the
Company that:
2.1 ORGANIZATION. Each of BarCo and Sub is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted.
2.2 AUTHORIZATION AND VALIDITY OF AGREEMENTS. Each of BarCo and Sub
has all requisite corporate power and authority to enter into this Agreement and
to perform its respective obligations hereunder. The execution, delivery and
performance by each of BarCo and Sub of this Agreement and all other agreements
and documents contemplated hereby, and the consummation by each of BarCo and Sub
of the transactions contemplated hereby and thereby, have been duly authorized
by all necessary corporate action on the part of each of BarCo and Sub. This
Agreement and all other agreements and documents contemplated hereby, have been
or will be duly executed and delivered by BarCo and Sub and are and will be
valid and binding obligations of BarCo and Sub enforceable against BarCo and Sub
in accordance with their respective terms.
2.3 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICT WITH INSTRUMENTS TO
WHICH BARCO OR SUB IS PARTY. Neither the execution and delivery of this
Agreement and all other agreements and documents contemplated hereby, nor the
performance by BarCo or Sub of their respective obligations hereunder will (a)
violate the charter or bylaws of BarCo or Sub; (b) assuming satisfaction of the
requirements set forth in clause (c) below, violate any provision of law
applicable to BarCo or Sub; (c) except for (i) requirements under the Exchange
Act,
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(ii) requirements, if any, arising out of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "Hart-Scott Act"), and (iii) the
filing of the Merger Document in accordance with the Delaware Law, require any
consent, approval, filing or notice under any provision of law applicable to
BarCo or Sub or any of BarCo's other subsidiaries; or (d) require any consent,
approval or notice under, or violate or constitute a default under, or permit
the termination of any provision of, or result in the acceleration of the
maturity or performance of any obligation of, or result in the creation or
imposition of any lien upon any properties, assets or businesses of, BarCo or
Sub or any of BarCo's other subsidiaries under, any note, bond, indenture,
mortgage, deed of trust, lease, franchise, permit, authorization, license,
contract, instrument or other agreement or commitment, or any order, judgment or
decree, to which BarCo or Sub or any of BarCo's other subsidiaries is a party or
by which it or any of its assets or properties is bound or encumbered, which in
any of the foregoing cases would have a material adverse effect on BarCo and its
subsidiaries taken as a whole or would prohibit or interfere with the
consummation of the Merger by BarCo or Sub.
2.4 GUARANTY. BarCo hereby agrees to fully and unconditionally
guarantee the performance by Sub and by any assignee of Sub of all of Sub's
representations, warranties, covenants and undertakings set forth in this
Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to BarCo and Sub that except as
previously furnished to BarCo in writing:
3.1 ORGANIZATION. The Company and each of its Subsidiaries (as such
term is defined in Section 3.3) is a corporation duly organized, validly
existing and, to the best of the Company's knowledge, in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of the Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified will not
have a material adverse effect on the financial condition, results of operations
or business of the Company and its Subsidiaries taken as a whole. The Company
has previously delivered to BarCo true and complete copies of its Certificate of
Incorporation and Bylaws, as amended to the date hereof.
3.2 CAPITALIZATION. The authorized capital stock of the Company
consists of (a) 6,000,000 shares of the Company's Common Stock, $.01 par value
per share ("Company Common Stock"), of which 3,969,518 are issued and
outstanding and (b) 1,500,000 shares of the Company's Preferred Stock, $1.00 par
value per share, none of which are issued and
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outstanding. The Company has reserved (i) 65,000 shares of Company Common Stock
for issuance under its Directors' Stock Option Plan, as amended to date, of
which options to purchase 45,000 shares have been granted, no options have been
exercised, and no options have expired or have been forfeited and (ii) 130,000
shares of Company Common Stock for issuance under its Employee Incentive Stock
Option Plan, as amended to date, of which options to purchase 114,000 shares
have been granted, no options have been exercised and options to purchase 21,500
shares have expired or have been forfeited. Except for the foregoing, and
except for its obligations regarding stock equivalency accounts under the
Directors' Deferred Compensation Plan, there are not now, and at the Closing
Date, the Company will not have, any outstanding options, warrants, convertible
securities, calls, subscriptions or other rights or agreements or commitments of
any character obligating the Company or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock or other securities of the Company
or any of its Subsidiaries. All issued and outstanding shares of Company Common
Stock are validly issued, fully paid, nonassessable and free of preemptive
rights.
3.3 SUBSIDIARIES. As used herein, the term "Subsidiaries" shall mean
Canadian Drawn Steel Company Inc. and Bliss & Laughlin Steel Company. The
Company is, directly or indirectly, the record and beneficial owner of all of
the outstanding shares of capital stock of each of the Subsidiaries, there are
no irrevocable proxies with respect to such shares and no equity securities of
any of the Subsidiaries are or may become required to be issued for any reason
including, without limitation, by reason of any options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for, shares of any
capital stock of any Subsidiary, and there are no contracts, commitments,
understandings or arrangements by which any Subsidiary is bound to issue
additional shares of its capital stock or securities convertible into or
exchangeable for such shares. All of such shares so owned by the Company or any
of its Subsidiaries are validly issued, fully paid and nonassessable and, to the
best of the Company's knowledge, are owned by it free and clear of any material
claim, lien, encumbrance or agreement with respect thereto.
3.4 AUTHORIZATION AND VALIDITY OF AGREEMENTS. The Company has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder (subject, in the case of performance of this
Agreement, to obtaining any necessary approval of its stockholders). The
execution, delivery and performance by the Company of this Agreement and the
consummation by it of the transactions contemplated hereby have been duly
authorized by the Board of Directors and no other corporate action on the part
of the Company is necessary to authorize the execution and delivery by the
Company of this Agreement and the consummation by it of the transactions
contemplated hereby (subject to obtaining the necessary approval of its
stockholders). This Agreement has been duly executed and delivered by the
Company and is a valid and binding obligation of the Company.
3.5 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICT WITH INSTRUMENTS TO
WHICH THE COMPANY IS PARTY. Neither the execution and delivery of this
Agreement nor the performance by the Company of its obligations hereunder will
(a) violate the charter documents, bylaws or other organizational documents of
the Company or any of its Subsidiaries;
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(b) assuming satisfaction of the requirements set forth in clause (c) below,
violate any provision of law applicable to the Company or its Subsidiaries; (c)
except for (i) requirements under the Exchange Act, (ii) requirements, if any,
arising out of the Hart-Scott Act, and (iii) the filing of the Merger Document
in accordance with the Delaware Law, require any consent, approval, filing or
notice under any provision of law applicable to the Company or its Subsidiaries;
(d) except as required under any existing bank loan agreement, a copy of which
has been provided to BarCo, require any consent, approval or notice under, or
violate, or be in conflict with or constitute a default under or permit the
termination of any provision of, or result in the acceleration of the maturity
or performance of or result in the creation or imposition of any lien upon any
properties, assets or businesses of the Company or its Subsidiaries under any
note, bond, indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument or other agreement or commitment,
or any order, judgment or decree to which the Company or any of its Subsidiaries
is a party or by which any of them or any of their assets or properties is bound
or encumbered, which in any of the foregoing cases would have a material adverse
effect on the Company and its Subsidiaries taken as a whole or would prohibit or
materially interfere with the consummation of the Merger by the Company.
3.6 LEGAL PROCEEDINGS. Except as set forth in the Company Commission
Filings (as such term is defined in Section 3.7) as of the date hereof and in
the Company's audited consolidated financial statements for the fiscal year
ended September 30, 1994, there is no suit, action, proceeding or investigation
pending or, to the best knowledge of the Company, threatened against or
involving the Company or any of its Subsidiaries, properties or rights, which,
if adversely determined, would have, either individually or in the aggregate, a
material adverse effect on the financial condition, results of operations or
business of the Company and its Subsidiaries taken as a whole, nor is there any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against the Company or any of its Subsidiaries having any such effect. Neither
the Company nor any of its Subsidiaries is in violation of any term of any
judgment, decree, injunction, rule or order outstanding against it which would
have, either individually or in the aggregate, a material adverse effect on the
financial condition, results of operations or business of the Company and its
Subsidiaries taken as a whole.
3.7 COMPANY COMMISSION FILINGS; FINANCIAL STATEMENTS. As of the
respective dates of their filing with the Commission, all reports, statements
(including the Proxy Statement), registration statements and other filings
(including all notes, exhibits and schedules thereto and documents incorporated
by reference therein) filed by the Company with the Commission (such reports,
statements, registration statements and other filings, together with any
amendments thereto, being sometimes collectively referred to as the "Company
Commission Filings") and the Company's audited consolidated financial statements
dated September 30, 1994 did not contain, at the time of the filing thereof, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading, provided that the
Company shall not be responsible and shall have no liability for information
provided to it by BarCo or Sub for inclusion in any Company Commission Filing.
Each of the audited
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consolidated financial statements and unaudited interim financial statements
(including any related notes or schedules) included in the Company Commission
Filings was prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes or schedules thereto) and fairly presented the financial position of the
Company and its consolidated Subsidiaries as at the dates thereof and the
results of their operations and changes in financial position for the periods
then ended, subject, in the case of unaudited interim financial statements, to
normal year-end adjustments. Neither the Company nor any of its Subsidiaries
has any liabilities or obligations on a consolidated basis, either accrued or
contingent (to the extent required to be reflected or disclosed in financial
statements in accordance with generally accepted accounting principles), and
whether due or to become due, which, individually or in the aggregate, (a) have
not been reflected in the audited consolidated balance sheet for the year ended
September 30, 1994 (the "Balance Sheet") or disclosed in the notes to the
audited financial statements relating thereto; or (b) do not consist of
liabilities of the kind specified or referred to in the Company's audited
financial statements for the fiscal year ended September 30, 1994 which have
been incurred by the Company and its Subsidiaries in the ordinary course of
business since the date thereof, except for its liabilities or obligations
undertaken in connection with this Agreement.
3.8 CONDUCT OF BUSINESS IN THE ORDINARY COURSE; ABSENCE OF CERTAIN
CHANGES AND EVENTS. Except as disclosed in the Company Commission Filings
filed as of the date hereof and the Company's audited consolidated financial
statements for the fiscal year ended September 30, 1994 previously delivered to
BarCo and except for changes affecting the steel bar industry or the economy
generally, since September 30, 1994, there has not been, occurred or arisen,
whether or not in the ordinary course of business:
(a) any material adverse change in the financial condition, results of
operations or business of the Company and its Subsidiaries taken as a whole; or
(b) any damage or destruction in the nature of a casualty loss, whether
covered by insurance or not, materially and adversely affecting any property or
business of the Company or its Subsidiaries taken as a whole; or
(c) any declaration, setting aside or payment of a dividend (whether in
cash, stock or property) in respect of the capital stock of the Company or any
of its Subsidiaries (other than a wholly owned Subsidiary); or
(d) any actual or, to the knowledge of the Company, threatened strike
(whether asserted or unasserted) or other labor trouble or dispute involving
employees of the Company or its Subsidiaries which materially and adversely
affects the financial condition, results of operations or business of the
Company and its Subsidiaries taken as a whole; or
(e) any borrowing or lending of money or guarantee of any obligation by
the Company or any of its Subsidiaries, except in the ordinary course of
business; or
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(f) any application, amendment, termination, renewal based on false and
misleading disclosures or failure to renew with respect to, any agreement or
insurance policy which has a material adverse effect on the financial condition,
results of operations or business of the Company and its Subsidiaries taken as a
whole; or
(g) any disposition of any material (on a consolidated basis) properties
or assets used in the business of the Company or its Subsidiaries, except sales
from inventory made in the ordinary course of business; or
(h) to the best of the Company's knowledge, any violation of or conflict
with any applicable laws, statutes, orders, rules and regulations promulgated or
judgment entered by any federal, state, county, local or foreign court or
governmental authority which, individually or in the aggregate, materially and
adversely affects the financial condition, results of operations or business of
the Company and its Subsidiaries taken as a whole; or
(i) except as previously disclosed in writing to BarCo, any notice of
any violation, inquiry or investigation by any governmental authority that
materially and adversely affects the financial condition, results of operations
or business of the Company and its Subsidiaries taken as a whole.
3.9 PATENTS, TRADEMARKS, ETC. To the best of the Company's
knowledge, the Company or its Subsidiaries have sufficient right, title and
interest in all Intangible Property Rights necessary for the business of the
Company and its Subsidiaries as now conducted, or the Company is able to obtain
such rights on terms which will not adversely affect its business. When used in
this Agreement, the term "Intangible Property Rights" means all United States
and foreign letters patent and pending applications, patent and "know-how"
licenses (or similar agreements), trade name and trademark registrations and
pending applications, service mark registrations and pending applications and
copyright registrations, those trade names and common law trademarks which are
currently in use by the Company or any of its Subsidiaries, and unregistered
copyrights directed to publications in current circulation by the Company or any
of its Subsidiaries now owned in whole or in part by the Company or any of its
Subsidiaries or under which the Company or any of its Subsidiaries is licensed
and the trade secrets and other proprietary information of the Company and its
Subsidiaries.
3.10 TAX MATTERS. Except where the failure of one or more of the
following representations would not have a material adverse effect on the
financial condition, results of operations or business of the Company and its
Subsidiaries taken as a whole: (a) all returns, reports and declarations for
franchise or income taxes required to be filed by the Company and its
Subsidiaries with the Internal Revenue Service and each applicable State have
been so filed; (b) all sales, use or value added taxes or assessments (including
interest and penalties) have been fully paid or adequately provided for in the
audited financial statements for the fiscal year ended September 30, 1994,
except where the failure to have so paid or provided for such taxes or
assessments or any other irregularities with respect to such taxes or
assessments would not result in a monetary obligation of the Company or its
Subsidiaries in excess of $25,000 in the
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aggregate; (c) for tax periods not closed by the applicable statute of
limitations, no issues have been asserted against the Company or its
Subsidiaries in a revenue agent's report or other written document by the
Internal Revenue Service or by any taxing authority in any State in connection
with any of the returns, reports and declarations filed with the Internal
Revenue Service or appropriate governmental agencies in such State; (d) no
waivers of statutes of limitation are currently outstanding nor are any requests
for such waivers pending with respect to the Company or its Subsidiaries; (e)
all required payroll and employment taxes and withholding of income, employment
and payroll taxes attributable to employees of the Company and its Subsidiaries
have been properly determined, withheld and paid on a timely basis to the
appropriate federal, state or local governmental agency or adequately provided
for in the audited financial statement for the fiscal year ended September 30,
1994; (f) the United States federal income tax returns in respect to the Company
and its Subsidiaries for the fiscal year ended September 30, 1991 and thereafter
have not been examined by the Internal Revenue Service; nor is any such
examination pending; and (g) neither the Company nor its Subsidiaries has filed
any consent or agreement under section 341(f) of the Internal Revenue Code of
1986, as amended (the "Code") (or corresponding provisions of any applicable
foreign, state, county or local law).
3.11 INSURANCE. The Company maintains insurance policies for the
assets and operations of the Company and its Subsidiaries in amounts deemed
adequate by the Company, in each case issued by insurers of recognized national
standing. True and correct copies of the foregoing policies will be delivered
to BarCo within five (5) business days of the date hereof.
3.12 EMPLOYMENT RELATIONS. There (a) is no unfair labor practice
complaint against the Company pending before the National Labor Relations Board,
(b) is no labor strike, dispute, slowdown or stoppage pending or, to the best
knowledge of the Company, threatened against or involving the employees of the
Company, (c) except as set forth on Schedule 3.12, is no labor union that claims
to represent the employees of the Company, (d) is pending no grievance that
might have a material adverse effect upon the Company and its Subsidiaries
considered as a whole, and no pending arbitration proceeding arising out of or
under any collective bargaining agreement of the Company and no claim therefor
has been asserted which, in either case, might have a material adverse effect
upon the Company and its Subsidiaries considered as whole, (e) except as set
forth on Schedule 3.12, is no collective bargaining agreement that is in effect
or is currently being negotiated (or pending) by the Company with respect to its
employees, and (f) has not been any labor difficulty giving rise to a material
adverse effect experienced by the Company and its Subsidiaries considered as
whole during the last three calendar years. To the best of its knowledge, the
Company has not taken or failed to take any action that could form the basis for
a valid claim or charge of an unfair labor practice or discriminatory employment
practice under any federal, state or local law or regulation relating to
labor-management relations or employment discrimination that could have a
material adverse effect on the Company and its Subsidiaries considered as a
whole.
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3.13 ENVIRONMENTAL MATTERS.
(a) To the best of its knowledge the Company possesses all necessary
permits, licenses and other approvals and authorizations for its operations that
are required under Environmental Laws and that it is in compliance with such
permits, licenses, approvals and authorizations. "ENVIRONMENTAL LAWS" means
all federal, state and local laws, ordinances, rules and regulations relating to
or regulating human health or safety or environmental matters, or protection of
the environment, or pollution or contamination of the air, soil, surface water,
or groundwater. The Company is and since October 30, 1984 has been in
compliance with all applicable Environmental Laws except where non-compliance
would not have a material adverse effect on the financial condition of the
Company and its Subsidiaries considered as a whole.
(b) The Company is not subject to any outstanding order, demand, action
or claim from any person or entity pursuant to, nor has the Company received any
written notice from any person or entity of any violations of or alleged
violations of, any Environmental Law.
(c) Except as disclosed on Schedule 3.13(c), since October 30, 1984, the
Company has not owned or leased storage tanks (whether above ground or
underground).
(d) Since October 30, 1984, the Company has not caused or permitted
the Release of any Hazardous Substance onto and is unaware of any Hazardous
Substance present on the properties owned, operated or leased by the Company.
"HAZARDOUS SUBSTANCE" means those substances as defined by Section 101(14) of
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"), 42 U.S.C. Section 9601(14), and its implementing
regulations or any other applicable Environmental Law. "RELEASE" means any
spilling, leaking, pumping, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing into the environment of hazardous
substances into or through soil, air, surface water or groundwater that is
required to be reported pursuant to Section 103(a) of CERCLA, 42 U.S.C.
Section 9603(a), and its implementing regulations or any other applicable
Environmental Law.
(e) There are no disposal sites for Hazardous Wastes under any
Environmental Law located on the real estate now or previously owned, occupied
or leased by the Company. "HAZARDOUS WASTE" means any waste as defined by
Section 1004(5) of the Resource Conservation and Recovery Act, 42 U.S.C. Section
6903(5), and its implementing regulations. To the best of its knowledge, and
except as disclosed on Schedule 3.13(e) the Company is not liable or a
responsible party or potentially liable or responsible party at any Superfund
site.
3.14 OPINION OF FINANCIAL ADVISOR The Company has received the
opinion of The Chicago Corporation to the effect that, as of the date hereof,
the consideration to be received by the holders of the Shares in the Merger is
fair to such holders from a financial point of view.
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ARTICLE 4
COVENANTS
4.1 PROXY STATEMENT. The Company shall file, no later than ten
business days after the date of this Agreement (and shall use its best efforts
to file sooner, if practicable), with the Commission under the Exchange Act, and
shall use its best efforts to have cleared by the Commission, and no later than
five business days after such clearance shall mail to its stockholders, a proxy
statement or information statement, as appropriate, and all amendments and
supplements thereto required by law (the "Proxy Statement"), with respect to the
Special Meeting (as such term is defined in Section 4.2). Each of BarCo, Sub
and the Company represent that the information supplied or to be supplied for
inclusion by BarCo, Sub or the Company in the Proxy Statement, as the case may
be, will not, at the time the Proxy Statement is filed with the Commission, at
the time it is mailed to stockholders of the Company or at the time of the
Special Meeting be false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements
therein not misleading. The Proxy Statement shall contain the recommendation of
the Board of Directors that stockholders approve the Merger; provided, however,
that nothing in this Section 4.1 shall require the Board of Directors to act or
refrain from acting in any manner which the Board of Directors in good faith
determines could violate its fiduciary duties under applicable law, subject,
however, to the provisions of Sections 4.3 and 6.1(c)(ii) hereof.
4.2 MEETING OF STOCKHOLDERS OF THE COMPANY. As soon as practicable,
the Company shall take all action necessary, in accordance with Delaware Law and
its Certificate of Incorporation and Bylaws, to convene a meeting of its
stockholders (the "Special Meeting") as promptly as practicable to consider and
vote on the Merger and to vote on this Agreement. The stockholder vote or
consent required for approval of the Merger and this Agreement shall be no
greater than that provided for by Delaware Law, the Company's Certificate of
Incorporation or its Bylaws. The Company shall use its best efforts to solicit
from stockholders of the Company proxies in favor of the approval of this
Agreement and to take all other action necessary or, in the reasonable judgment
of BarCo, helpful to secure a vote of stockholders in favor of the Merger and to
approve this Agreement; provided, however, that nothing in this Section 4.2
shall require the Board of Directors to act or refrain from acting in any manner
which the Board of Directors in good faith determines could violate its
fiduciary duties under applicable law, subject, however, to the provisions of
Sections 4.3 and 6.1(c)(ii) hereof. At the Special Meeting, BarCo and each
subsidiary of BarCo shall vote, or cause to be voted, all of the Shares then
owned by BarCo or such affiliate in favor of the Merger and this Agreement. The
Company will notify BarCo both orally and in writing at least 24 hours prior to
the mailing of the Proxy Statement to the stockholders of the Company of its
intent to mail the Proxy Statement. Anything to the contrary contained herein
notwithstanding, the Company shall not include in the Proxy Statement any
information with respect to BarCo or its affiliates or associates, the form and
content of which information shall not have been approved by BarCo prior to such
inclusion, subject to requirements of applicable law (but in any event only
after the Company has consulted with BarCo in advance). If required by
applicable law, BarCo and the
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Company shall file with the Commission and make available to the Company's
stockholders, as required by applicable law, a joint Schedule 13E-3 (the
"Schedule 13E-3") with respect to the Special Meeting and the Merger. Each of
BarCo, Sub and the Company represent that information supplied or to be supplied
for inclusion by BarCo, Sub or the Company, as the case may be, in any Proxy
Statement and the Schedule 13E-3 will not, at the time of the filing thereof
with the Commission and at the time of the mailing thereof to stockholders and
at the date of the Special Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not misleading and BarCo, Sub and the Company agree promptly
to correct any such information provided by them for use in a Proxy Statement
and/or a Schedule 13E-3 which shall have become false or misleading in any
material respect and take all steps necessary to cause such documents as so
corrected to be filed with the Commission and to be disseminated to holders of
Shares, in each case as and to the extent required by applicable law. The
Company agrees that any Proxy Statement filed by it, and the Company and BarCo
agree that any Schedule 13E-3 filed by them, shall comply as to form in all
material respects with the provisions of applicable law.
4.3 ACQUISITION PROPOSALS. Between the date of this Agreement and
the Effective Time:
(a) neither the Company nor any of the Subsidiaries may, directly or
indirectly, and each will instruct and otherwise cause the officers, directors,
employees, agents or advisors or other representatives or consultants of the
Company, including without limitation, The Chicago Corporation, not to,
encourage, solicit, initiate, engage or participate in discussions or
negotiations with, or provide information to, any person or entity (other than
BarCo or Sub or subsidiaries, affiliates or representatives of any of the
foregoing) in connection with any tender offer, exchange offer, merger,
consolidation, business combination, sale of substantial assets, sale of
securities, liquidation, dissolution or similar transaction involving the
Company or any of the Subsidiaries (any such proposal, offer or other
transaction being hereinafter referred to as an "Alternative Proposal"), and
(b) the Company will notify BarCo immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, it;
PROVIDED, HOWEVER, that nothing contained in this Section 4.3 shall require
the Board of Directors of the Company to act, or refrain from acting in
connection with (i) taking and disclosing to the Company's stockholders a
position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange
Act, or (ii) taking any action or non-action prohibited by clause (a) above, or
from furnishing information and access to any person or entity the Board of
Directors determines in good faith may become a Qualified Bidder (as hereinafter
defined) making an unsolicited request therefor, or engaging in and
participating in discussions and negotiations with any such person or entity, if
the Company's Board of Directors determines in its good faith judgment that the
failure to so act or refrain from acting could violate its fiduciary duties
under applicable law. Any termination by the Company of this Agreement or entry
by
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the Company into any agreement with respect to an Alternative Proposal in
connection with this Section 4.3 shall be governed by Section 6.1(c)(ii) of this
Agreement. "Qualified Bidder" shall mean a person or entity (A) whose
Alternative Proposal is only subject to ordinary and customary conditions for
consummation and is not subject to any condition as to financing and (B) who
submits an Alternative Proposal in writing no later than 30 days from the date
of this Agreement.
4.4 INTERIM OPERATIONS. During the period from the date of this
Agreement to the Effective Time, except as specifically contemplated by this
Agreement or otherwise as consented to or approved in writing by BarCo:
(a) The business of the Company and each of its Subsidiaries shall be
conducted only in the ordinary and usual course of business and consistent with
past practice;
(b) The Company shall use reasonable efforts to preserve intact the
business organization of the Company and each of its Subsidiaries, to keep
available the services of its and their present officers and key employees in
good standing, and to preserve the goodwill of those having business
relationships with it and its Subsidiaries;
(c) Neither the Company nor any Subsidiary shall amend its charter
documents or similar governing documents;
(d) Except for Shares issuable upon exercise of currently outstanding
stock options under the Company's Directors' Stock Option Plan and Employees'
Incentive Stock Option Plan or issuable pursuant to the Company's Directors'
Deferred Compensation Plan, neither the Company nor any Subsidiary shall
authorize for issuance, issue or deliver any additional debt or equity
securities or any class or series thereof or any securities convertible into the
same or issue or grant any right, option or other commitment for the issuance of
any of the foregoing securities;
(e) Neither the Company nor any Subsidiary shall split, combine,
reclassify or otherwise modify the terms and provisions of any of its debt or
equity securities or declare, set aside or pay any dividend (whether in cash,
stock or property) in respect of its debt or equity securities or redeem or
otherwise acquire any of its debt or equity securities except as contemplated
hereby;
(f) Neither the Company nor any Subsidiary shall dispose of or acquire
any material properties or assets except in the ordinary course of business;
(g) Neither the Company nor any Subsidiary shall enter into or amend any
consulting agreements or other agreements with employees, increase the
compensation payable or to become payable by it to any of its officers,
employees or agents over the amount payable as of the date of this Agreement,
adopt or amend any employee benefit plan or arrangement, or make any advances to
employees (other than advances for reimbursable expenses) except with respect
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to any of the above, such as are generally consistent with the Company's
existing guidelines and are made in the ordinary course of business; provided,
however, the Company shall be authorized to negotiate and execute the renewal of
the union contract or contracts at its Harvey, Illinois facility with such terms
as the Company, using its commercially reasonable judgment, may determine;
(h) Neither the Company nor any Subsidiary shall borrow or enter into
any agreements to borrow money or guarantee or agree to guarantee the
obligations of others, excluding (i) any amounts borrowed, net of any
repayments, in the ordinary course of business pursuant to and in accordance
with the terms and conditions of its existing lines of credit as the same may be
reasonably amended, modified or extended hereafter by the Company using its
commercially reasonable judgment and (ii) guarantees, net of the extinguishment
of any existing guarantees, of the debt of the Subsidiaries of the Company;
(i) Except as contemplated hereby, neither the Company nor any
Subsidiary shall directly or indirectly redeem, purchase or otherwise acquire,
commit to acquire or change the terms of any of its debt or equity securities or
any class or series thereof or any securities convertible into the same or
directly or indirectly terminate or reduce or commit to terminate or reduce any
bank line of credit or the availability of any funds under any other loan or
financing agreement; provided, however, that the Company or any Subsidiary may
exercise any option or right to repurchase securities issued pursuant to a
Company or Subsidiary benefit plan at a price at or below the Merger
Consideration for Shares; and provided, further, that the Company may borrow
under existing credit facilities under the terms existing as of the date hereof
as the same may be reasonably amended, modified or extended hereafter by the
Company using its commercially reasonable judgment;
(j) Neither the Company nor any Subsidiary shall fail to pay or
otherwise satisfy its monetary obligations as they become due, except where the
consequences of failure to pay are not material to the Company and its
Subsidiaries considered as a whole;
(k) Neither the Company nor any Subsidiary shall cancel, materially
amend or fail to renew any insurance policy; and
(l) Neither the Company nor any Subsidiary shall agree in writing or
otherwise to take any of the foregoing actions set forth in clauses (b) through
(k) above or take any actions which would make any representation or warranty in
this Agreement untrue or incorrect in any material respect.
4.5 ACCESS AND INFORMATION.
(a) Subject to and in accordance with the terms of those certain letters
dated July 24, 1995 and July 28, 1995 between BarCo and the Company (the
"Confidentiality Agreement"), relating to the exchange of information between
the parties and certain other matters, the Company has previously afforded (and
will afford prior to the termination of this Agreement)
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to BarCo and to BarCo's accountants, counsel and other representatives full
access in a reasonable manner throughout the period prior to the Effective Time
to all of its properties, books, contracts, commitments and records, and has
furnished (and will furnish) to BarCo and BarCo's accountants, counsel and other
representatives all information concerning its business, properties and
personnel, including certain proprietary and confidential information of the
disclosing party, as BarCo has requested (or may reasonably request). The
Company shall furnish BarCo with drafts of any proposed filings with the
Commission as the same are distributed internally within the Company as well as
copies of such reports and documents concurrently upon their filing with the
Commission.
(b) Any furnishing of information pursuant hereto or any investigation
by either party shall not affect that party's right to rely on the
representations and warranties made by the other party in this Agreement.
Except as otherwise provided by law, BarCo, the Company and Sub each agrees to
maintain all information received pursuant to the terms of this Agreement and
the Confidentiality Agreement in accordance with the terms and conditions of the
Confidentiality Agreement.
(c) In the event that between the date hereof and the Effective Date any
federal, state, local or foreign governmental authority shall commence any
examination, review, investigation, action, suit or proceeding against the
Company or BarCo with respect to the Merger, the party as to which such
examination, review, investigation, action, suit or proceeding is commenced
shall give prompt notice thereof to the other party, shall keep the other party
informed as to the status thereof and have access to and be consulted in
connection with any document filed or provided to such governmental authority in
connection with such examination, review, investigation, action, suit or
proceeding.
4.6 CERTAIN ACTIONS, FILINGS AND CONSENTS. Subject to the terms and
conditions hereof, each of the parties hereto agrees to use all reasonable
efforts promptly to take, or cause to be taken, all actions and to do, or cause
to be done, all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement, including using all
reasonable efforts promptly to obtain all necessary waivers, consents and
approvals and effect all necessary registrations and filings, including, but not
limited to, (a) filings under the Hart-Scott Act, including responses to
requests for additional information, and (b) submissions of information
requested by government authorities. Each of the parties hereto shall cooperate
with one another in determining whether any filings are required to be made or
consents, approvals, permits or authorizations are required to be obtained under
any other federal, state or foreign law or regulation or any consents, approvals
or waivers are required to be obtained from other parties to loan agreements or
other contracts material to the Company's business in connection with the
consummation of the Merger and in making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any
such consents, permits, authorizations, approvals or waivers. Provided,
however, that nothing in this Section 4.6 shall require the Board of Directors
to act or refrain from acting in any manner which the Board of Directors in good
faith determines could violate its fiduciary duties under applicable law,
subject, however, to the provisions of Sections 4.3 and 6.1(c)(ii) hereof.
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4.7 EXPENSES. Except as set forth in Section 6.2, whether or not the
transactions contemplated by this Agreement are consummated and made effective,
all expenses incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses.
4.8 OPINION OF COUNSEL. Two (2) business days prior to the Effective
Date, BarCo and Sub shall have received from Wildman, Harrold, Allen & Dixon,
counsel to the Company, an opinion, dated the date of delivery, reasonably
satisfactory to BarCo and Sub, substantially to the effect of Section 3.2.
4.9 DIRECTORS, AND OFFICERS, INSURANCE AND INDEMNIFICATION. (a) With
respect to all losses, claims, damages or liabilities arising out of actions or
omissions occurring at or prior to the Effective Time (collectively "Losses")
arising under Environmental Laws, until the death of all indemnified Parties (as
defined below), and (b) with respect to all other Losses, until the later of (i)
five (5) years after the Effective Time or (ii) the final resolution of all
Losses and payment of all expenses described below, BarCo shall, and shall cause
the Sub, the Company and the Surviving Corporation to, jointly and severally,
indemnify, defend and hold harmless the present and former officers and
directors of the Company and present and former officers and directors of the
Subsidiaries who presently would be indemnified under the Bylaws of the Company
or its Subsidiaries or who have indemnity agreements with the Company and the
estates, descendants, heirs and beneficiaries of the estates, of all such
officers and directors (an "Indemnified Party" and collectively the "Indemnified
Parties") against all Losses to the full extent permitted under and in
accordance with Delaware law, or the law of the jurisdictions under which the
Subsidiaries are incorporated, as appropriate, or the Certificate of
Incorporation or Bylaws of the Company or the Subsidiaries, as applicable, or
applicable indemnification agreements in effect at the date hereof (to the
extent consistent with applicable law), including provisions relating to
advances of expenses incurred in the defense of any action or suit. BarCo shall
use its best efforts to include the Indemnified Parties in any directors' and
officers' insurance policy BarCo may obtain, provided the additional cost of
adding the Indemnified Parties does not equal or exceed the cost of such
officers' and directors' insurance policy without the Indemnified Parties.
4.10 RELEASE. As of the execution and delivery of this Agreement,
BarCo and Sub shall execute and deliver an instrument releasing the Company and
the Subsidiaries, and their respective affiliates, successors, assigns,
officers, directors, agents, representatives, advisors, attorneys and employees
from any claims, liabilities, damages and causes of action arising from any
breach or alleged breach of the Existing Merger Agreement, the Stock Option
Agreements each dated as of September 16, 1995, among certain stockholders of
the Company ("Option Stockholders"), BarCo and Sub and the Stockholder Escrow
Agreements dated as of September 19, 1995, among Sub, the Option Stockholders
and LaSalle National Trust, N.A. as escrow agent, in each case based upon acts
or omissions occurring prior to the date of this Agreement.
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4.11 RESALE. Sub agrees that, if prior to the first anniversary of
the date of this Agreement, Sub or any assignee of Sub, the Company or the
Surviving Corporation enters into an agreement to (i) sell or exchange all or
substantially all of the Common Stock of the Company or the Surviving
Corporation to or with, (ii) merge or consolidate the Company or the Surviving
Corporation with, or (iii) sell substantially all the assets of the Company or
the Surviving Corporation to, an unaffiliated third party, Sub or any assignee
of Sub, the Company and the Surviving Corporation will jointly promptly use
their commercially reasonable efforts to jointly promptly pay each stockholder
of the Company whose Shares were converted pursuant to Section 1.3(a) hereof
(including any stockholder that enters into a Stock Option Agreement with BarCo
and Sub as provided in such Stock Option Agreement), each option holder entitled
to payment under Section 1.3(e) hereof and each person entitled to payment under
Section 1.3(f) hereof an amount equal to fifty percent (50%) of the product of
(y) the difference between the Aggregate Transaction Value (as defined below)
for such subsequent transaction and $62,000,000 and (z) a fraction, the
numerator of which is the number equal to the total of (A) the number of Shares
of the stockholder of the Company whose Shares were converted pursuant to
Section 1.3(a) hereof, plus (B) the number of Shares covered by stock options
for which such person (or an option holder not included in (A) of this clause)
was entitled to payment under Section 1.3(e), plus (C) the number of Share
equivalents for which such person (or a participant in the Directors' Deferred
Compensation Plan not included in (A) of this clause) was entitled to payment
under Section 1.3(f) and the denominator of which is the number equal to the
total of (1) the number of Shares issued and outstanding as of the Effective
Time plus (2) the number of Shares underlying stock options for which the option
holder is entitled to payment under Section 1.3(e) hereof plus (3) the number of
Share equivalents for which the participant under the Directors' Deferred
Compensation Plan is entitled to payment under Section 1.3(f) hereof. For the
purposes of this Section 4.11, "Aggregate Transaction Value" shall mean the sum
of the aggregate consideration received by the sellers in the transaction
(reduced by the present value of any future or contingent obligations retained
by the sellers) plus the aggregate liabilities assumed by the acquiring party in
the transaction. If the consideration received by the Sub or any assignee of
the Sub, the Company or the Surviving Corporation is other than cash, the amount
due the stockholder under this Section 4.11 may be paid in like kind
consideration or in cash.
4.12 BEST EFFORTS. Each of BarCo and Sub shall use its best efforts
to consummate the transactions contemplated hereby.
ARTICLE 5
CONDITIONS
5.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The respective
obligations of each party hereto under this Agreement to consummate the Merger
shall be subject to the fulfillment at or prior to the Effective Time of the
following conditions:
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(a) APPROVAL OF STOCKHOLDERS. The approval of the stockholders of
the Company referred to in Section 4.2 shall have been obtained, if required by
applicable law or by the Company's Certificate of Incorporation or Bylaws.
(b) LEGAL PROCEEDINGS. No preliminary or permanent injunction or
other order, decree or ruling issued by a court of competent jurisdiction or by
a governmental, regulatory or administrative agency or commission nor any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority shall be in effect, which would prevent the consummation
of the Merger; provided, however, that the parties shall use their best efforts
to seek to obtain the removal of any such order, decree or ruling.
(c) ANTITRUST. The Hart-Scott Act waiting period has expired.
5.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company under this Agreement to consummate the Merger shall
be subject to the following conditions: (a) the fairness opinion issued by the
Company's investment advisors shall be reconfirmed as of the Effective Time and
(b) the Company shall have received a letter or letters from a valuation firm
acceptable to the Company (which acceptance shall not be unreasonably withheld)
as to the solvency of the Company and its Subsidiaries and the Surviving
Corporation on a consolidated basis after giving effect to BarCo's proposed
Financing and the transactions contemplated by this Agreement.
ARTICLE 6
MISCELLANEOUS
6.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether or not it has been approved by the stockholders
of the Company:
(a) By the mutual written consent of a majority of the Board of
Directors of the Company and the Board of Directors of BarCo;
(b) By BarCo:
(i) if the Company shall have (A) withdrawn or modified publicly
its approval or recommendation of this Agreement or the Merger including
by the approval of any offer by any other person or (B) taken any public
position inconsistent with such approval or recommendation or failed to
reconfirm publicly such approval or recommendation within ten (10)
business days of a request for such reconfirmation by BarCo or Sub; or if
the Board of Directors shall have resolved to do any of the foregoing; or
(ii) if any corporation, partnership, person, other entity or group
(as defined in Section 13(d)(3) of the Exchange Act) other than BarCo or
Sub or any of their respective
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subsidiaries shall have become the beneficial owner of forty-five percent
(45%) or more of the Shares; or
(iii) except for the claims alleged as of the date hereof in the
pending lawsuit No. 95 C 5426 in the U.S. District Court for the Northern
District of Illinois, if Stelco Inc. shall have taken any legal action, or
taken any actions or engaged in transactions which have or in the
reasonable judgment of BarCo will have the effect of preventing the Merger
or the transactions contemplated hereby from being consummated on or
before January 15, 1996, other than failing to vote for the transaction;
or
(iv) if a tender or exchange offer shall have been commenced by any
third party to acquire twenty percent (20%) or more of the capital stock
of the Company at a price in excess of $9.50 per share; or
(v) if on the date hereof or at any time prior to the Effective
Date, the representation and warranty of the Company contained in Section
3.13 shall not be true and correct or the Company shall have breached in
any material respect or failed to perform in any material respect any of
its obligations, covenants or agreements under this Agreement or any of
the representations and warranties of the Company set forth in this
Agreement (other than the representation and warranty contained in Section
3.13) shall not be true and correct in any material respect; or
(vi) if in BarCo's reasonable discretion the results of BarCo's
environmental due diligence review of the Company are unsatisfactory and
BarCo has so notified the Company within three (3) weeks from the date
hereof; or
(vii) the conditions to the obligations of BarCo set forth in
Article 5 have not been satisfied by January 15, 1996;
(c) By the Company:
(i) if the Closing shall not have taken place by January 15, 1996;
or
(ii) (A) if (a) a Qualified Bidder makes a bona fide offer on or
before 30 days from the date of this Agreement, (b) the Company's Board of
Directors determines in its good faith judgment and in the exercise of its
fiduciary duties that such offer is more favorable to the Company's
stockholders than the Merger, and (c) the Company gives BarCo at least 5
calendar days prior written notice of its intent to terminate this
Agreement under this Section 6.1(c)(ii); or (B) if the Company elects not
to close due to the non-receipt of the fairness opinion from its
investment advisor referred to in Section 5.2; PROVIDED, HOWEVER, that
the termination right provided in this Section 6.1(c)(ii) is conditioned
upon payment to BarCo of the Cancellation Fee provided in Sections 6.2(a)
upon termination; and provided further that such termination right will
terminate as to such offer referred to in this Section 6.1(c)(ii)(A) if,
within such 5-day
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period, BarCo notifies the Company that it will match, in all material
respects, the terms and provisions of such other offer (whereupon the
parties will execute an appropriate amendment hereto); or
(iii) if the conditions to the obligations of the Company set forth
in Article 5 have not been satisfied by January 15, 1996; or
(iv) if on the date hereof or at any time prior to the consummation
of the Merger or any amendment or extension thereof, the representations
and warranties of BarCo and Sub contained in this Agreement shall not be
true and correct which shall materially impair BarCo's or Sub's ability to
perform this Agreement or BarCo and Sub shall have breached in any
material respect or failed to perform in any material respect any of their
obligations, covenants or agreements under this Agreement which shall
materially impair BarCo's or the Sub's ability to perform this Agreement;
(d) By either BarCo or the Company:
(i) if a court of competent jurisdiction or a governmental,
regulatory or administrative agency or commission shall have issued an
order, decree or ruling or taken any other action, in each case
restraining, enjoining or otherwise prohibiting the Merger which is still
in effect on January 15, 1996; or
(ii) if Stelco Inc. shall have exercised all of its rights of first
refusal under Section 3.3 or matching rights under Section 3.4 of the
Right of First Refusal and Standstill Agreement dated May 11, 1990 with
respect to all shares of common stock of the Company held by the
Management Stockholders as defined in such Agreement.
In the event of such termination and abandonment, no party to this
Agreement (or any of its directors or officers) shall have any liability or
further obligation to any other party to this Agreement, other than pursuant to
Section 4.5(c) or 6.2 hereof, or in the case of signers thereto, the Stock
Option Agreement and the Confidentiality Agreement, except that nothing herein
will relieve any party from liability for any breach of this Agreement prior to
such termination; PROVIDED, HOWEVER, that (i) following the payment by BarCo
to the Company of the Company Damages Amount pursuant to Section 6.2, or (ii)
following the payment by the Company to BarCo of the Cancellation Fee pursuant
to Section 6.2, the party making such payment and its respective officers,
directors, affiliates and associates shall have no liability or further
obligation to the recipient of such payment, other than pursuant to Section 6.2,
except for any liability or obligation for any intentional breach of this
Agreement; and provided further, however, in the event BarCo does not obtain
financing for any reason, such failure will not be deemed an intentional breach.
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6.2 EXPENSE AND CANCELLATION PAYMENT.
(a) If the Board of Directors of the Company terminates this Agreement
and abandons the Merger pursuant to Section 6.1(c)(ii), or if the Board of
Directors of BarCo or Sub terminates this Agreement and abandons the Merger
pursuant to Section 6.1(b)(iii) or (iv), then BarCo shall receive from the
Company as liquidated damages the sum (the "Cancellation Fee") of (i) $3,000,000
and (ii) the amount, not to exceed $400,000, of all costs and expenses incurred
by BarCo and Sub relating to this Agreement, the transactions contemplated
hereby and the financing therefor, including without limitation, the reasonable
amount of the following: the fees, disbursements and charges of counsel to
BarCo and Sub and any financing source for which BarCo or any of its affiliates
is responsible, financial advisory fees, accounting fees and expenses, due
diligence costs, and all other out-of-pocket fees, costs and expenses.
Notwithstanding any other provision hereof, the Company will not have the right
to terminate this Agreement under Section 6.1(c)(ii) unless the Cancellation Fee
has been paid in full contemporaneously therewith.
(b) Each of the parties acknowledges that the agreement contained in
this Section 6.2 is an integral part of the transactions contemplated in this
Agreement, and that, without such agreement, the Company, BarCo and Sub would
not enter into this Agreement; accordingly, if the Company or Barco or Sub, as
the case may be, fails promptly to pay the amount due pursuant to this Section
6.2, and, in order to obtain such payment, the Company, on the one hand, or
BarCo or Sub, on the other hand, commences a suit against the Company or Barco
or Sub, as the case may be, to collect the fee provided for herein, the Company
shall pay to BarCo or Sub, or BarCo or Sub shall pay to the Company, as the case
may be, its reasonable costs and expenses (including reasonable attorneys' fees)
in connection with such suit, together with interest on the amount of such fee
at the prime rate publicly announced by Bank of America NT & SA on the date such
payment was required to be made, provided that the Company, on the one hand, or
BarCo or Sub, on the other hand, ultimately prevails by final judgment in such
suit.
(c) If the Board of Directors of the Company terminates this Agreement
and abandons the Merger on account of the failure by BarCo to consummate the
Merger by January 15, 1996 and all other conditions set forth in Article 5
hereof are satisfied, then the Company shall receive from BarCo as liquidated
damages the sum (the "Company Damages Amount") of $2,000,000, unless BarCo shall
have previously terminated under Sections 6.1(b) or (d) hereof.
6.3 WAIVER AND AMENDMENT. Any provision of this Agreement may be
waived at any time by the party which is, or whose stockholders are, entitled to
the benefits hereof and this Agreement may be amended or supplemented at any
time; provided, however, that, (a) any such waiver, amendment or supplement by
the Company shall be effective as against the Company only if approved by a
majority of the Board of Directors of the Company and (b) after this Agreement
has been adopted by the stockholders of the Company, no such amendment shall
reduce the amount or change the consideration to be paid to the stockholders or
alter or change any of the terms or conditions of this Agreement if such
alteration or change would adversely
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affect the stockholders of the Company. No such waiver, amendment or supplement
shall be effective unless in writing and signed by the party or parties sought
to be bound thereby.
6.4 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement shall survive the consummation
of the Merger.
6.5 AGREEMENT TO DEFEND. In the event any claim, action, suit,
investigation or any legal, administrative or other proceeding is commenced by
any governmental body or other person which questions the validity or legality
of the transactions contemplated by this Agreement, or seeks to enjoin, restrain
or prohibit such transactions, or seeks damages in connection therewith, whether
before or after the Effective Time, the parties hereto agree as determined by
their respective Boards of Directors in their reasonable discretion, to the
fullest extent permissible by law, to cooperate and use their best efforts to
vigorously defend against and respond thereto.
6.6 BROKERAGE FEES AND COMMISSIONS. Except for The Chicago
Corporation, the Company hereby represents and warrants to BarCo and Sub with
respect to the Company, and BarCo and Sub hereby represent and warrant to the
Company with respect to BarCo and Sub, that no person or entity is entitled to
receive from the Company or BarCo or Sub, respectively, any investment banking,
brokerage or finder's fee or fees for financial consulting or financial advisory
services in connection with this Agreement or the transactions contemplated
hereby.
6.7 PUBLIC ANNOUNCEMENTS. Neither BarCo nor Sub nor the Company will
issue any press release or otherwise make any public statement with respect to
the Merger without the prior approval of the other party (which approval shall
not be unreasonably withheld), except such as may be required by law or by
obligations pursuant to any listing agreement with any national securities
exchange or by NASDAQ (but only after BarCo, Sub or the Company, as the case may
be, shall have consulted with the other party in advance regarding the form and
substance of such press release or statement).
6.8 SECTION HEADINGS. The descriptive headings contained herein are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.9 FIDUCIARY DUTIES. Anything in this Agreement to the contrary
notwithstanding, nothing in this Agreement shall require the Board of Directors
to act, or refrain from acting, in the future in any manner which the Board of
Directors in good faith determines could violate its fiduciary duties under
applicable law, subject, however, to the provisions of Sections 4.3 and
6.1(c)(ii) hereof.
6.10 NOTICES. All notices or other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally
or by FAX or sent by registered or certified mail, postage prepaid, with return
receipt requested, addressed as follows and shall be effective only on receipt:
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If to BarCo or Sub, to: BRW Steel Corporation
c/o Veritas Capital, Inc.
Ten East Fiftieth Street
New York, New York 10022
Attention: Co-Chairman
With copies to: Pillsbury Madison & Sutro
1050 Connecticut Avenue, N.W., #1200
Washington, D.C. 20036
Attention: Ken M. Brown
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Robert A. Profusek, Esq.
If to the Company, to: Bliss & Laughlin Industries Inc.
281 East 155th Street
Harvey, Illinois 60426
Attention: President
With copies to: Company's Counsel
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive, #3000
Chicago, Illinois 60606-1229
Attention: Roger G. Fein
6.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall be deemed to be one and the same instrument.
6.12 APPLICABLE LAW. This Agreement and the legal relations between
the parties hereto shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to the conflict of laws rules
thereof.
6.13 ENTIRE AGREEMENT. This Agreement amends the Agreement and Plan
of Merger dated as of September 16, 1995, by and among BarCo, Sub and the
Company, and constitutes the entire agreement of the parties with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, of the parties with respect to such
subject matter (other than the Confidentiality Agreement).
6.14 JURISDICTION. Any judicial proceeding brought against any of the
parties to this Agreement with respect to any dispute arising out of this
Agreement or any matter related hereto may be brought in the courts of the State
of Illinois located in Chicago, Illinois, or in the United
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States District Courts in Chicago, Illinois, and, by execution and delivery of
this Agreement, each of the parties to this Agreement accepts the exclusive
jurisdiction of such courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement. The foregoing consents
shall not constitute general consents to service of process in the State of
Illinois for any purpose except as provided above and shall not be deemed to
confer rights to any Person other than the respective parties to this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first above
written.
BRW STEEL CORPORATION
By: /s/ Robert B. McKeon
----------------------------------
Co-Chairman
B & L ACQUISITION CORPORATION
By: /s/ Robert B. McKeon
----------------------------------
Its: President
BLISS & LAUGHLIN INDUSTRIES INC.
By: /s/ Gregory H. Parker
----------------------------------
President, Chief Executive Officer and
Chairman of the Board
- 26 -
<PAGE>
EXHIBIT 10(w)
TO FORM 10-K FOR
THE FISCAL YEAR ENDED
SEPTEMBER 30, 1995
AMENDMENT NO. 1 TO AMENDED AGREEMENT AND PLAN OF MERGER
This AMENDMENT NO. 1 TO AMENDED AGREEMENT AND PLAN OF MERGER dated as
of October 18, 1995 (this "AMENDMENT") is among BRW STEEL CORPORATION, a
Delaware corporation ("BARCO"), B & L ACQUISITION CORPORATION, a Delaware
corporation and a wholly owned subsidiary of BarCo ("SUB"), and BLISS & LAUGHLIN
INDUSTRIES INC., a Delaware corporation (the "COMPANY");
W I T N E S S E T H:
WHEREAS, BarCo, Sub and the Company are parties to the Amended
Agreement and Plan of Merger dated as of October 4, 1995 (the "MERGER
AGREEMENT") pursuant to which BarCo has agreed to acquire all of the outstanding
shares of the Company's Common Stock, $.01 par value per share, at a price of
$9.50 per share;
WHEREAS, the Merger Agreement provides that the Company shall file, no
later than October 18, 1995, with the Securities and Exchange Commission
("COMMISSION") under the Securities Exchange Act of 1934, a proxy statement or
information statement, as appropriate (the "PROXY STATEMENT");
WHEREAS, BarCo, Sub and the Company have agreed to extend the time by
which the Proxy Statement must be filed with the Commission to October 20, 1995;
WHEREAS, the Merger Agreement provides that BarCo and the Company may
terminate the Merger Agreement if the conditions to the obligations of the
parties have not been satisfied or the Closing shall not have otherwise taken
place by January 15, 1996;
WHEREAS, BarCo, Sub and the Company have agreed to extend the date by
which conditions must be satisfied and the Closing shall have occurred to
January 31, 1996; and
WHEREAS, BarCo, Sub and the Company have agreed to certain other
matters incidental to the consummation of the transactions contemplated by the
Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained and other good and valuable consideration had
and received, the parties to the Merger Agreement hereby agree as follows:
<PAGE>
SECTION 1. DEFINED TERMS. All capitalized terms used and not
otherwise defined herein have the meanings assigned to such terms in the Merger
Agreement.
SECTION 2. AMENDMENTS TO MERGER AGREEMENT. The Merger Agreement
is hereby amended as follows:
2.02. SECTION 4.1 of the Merger Agreement is hereby amended by
amending and restating the first sentence of such section in its entirety as
follows:
"The Company shall file, no later than October 20, 1995, with the
Commission under the Exchange Act, and shall use its best efforts to
have cleared by the Commission, and no later than five business days
after such clearance shall mail to its stockholders, a proxy statement
or information statement, as appropriate, and all amendments and
supplements thereto required by law (the "Proxy Statement"), with
respect to the Special Meeting (as such term is defined in
Section 4.2)."
2.02. SECTION 6.1(b)(vii) of the Merger Agreement is hereby
amended by amending and restating such section in its entirety as follows:
"(vii) the conditions to the obligations of BarCo set forth in
Article 5 have not been satisfied by January 31, 1996;"
2.03. SECTION 6.1(c)(i) of the Merger Agreement is hereby amended
by amending and restating such section in its entirety as follows:
"(i) if the Closing shall not have taken place by January 31, 1996;
or"
2.04. SECTION 6.1(c)(iii) of the Merger Agreement is hereby
amended by amending and restating such section in its entirety as follows:
"(iii) if the conditions to the obligations of the Company set forth
in Article 5 have not been satisfied by January 31, 1996; or"
2.05. SECTION 6.1(d)(i) of the Merger Agreement is hereby amended
by amending and restating such section in its entirety as follows:
"(i) if a court of competent jurisdiction or a governmental,
regulatory or administrative agency or commission shall have issued an
order, decree or ruling or taken any other action, in each case
restraining, enjoining or otherwise prohibiting the Merger which is
still in effect on January 31, 1996; or"
-2-
<PAGE>
2.06. SECTION 6.2(c) of the Merger Agreement is hereby amended by
amending and restating such section in its entirety as follows:
"(c) if the Board of Directors of the Company terminates this
Agreement and abandons the Merger on account of the failure by BarCo
to consummate the Merger by January 31, 1996 and all other conditions
set forth in Article 5 hereof are satisfied, then the Company shall
receive from BarCo as liquidated damages the sum (the "Company Damages
Amount") of $2,000,000, unless BarCo shall have previously terminated
under Sections 6.1(b) or (d) hereof."
SECTION 3. DISBURSING AGENT. BarCo, Sub and the Company hereby
select United States Trust Company of New York as the Disbursing Agent under
Section 1.5 of the Merger Agreement.
SECTION 4. EMPLOYMENT AGREEMENTS. From and after the Effective
Time, the Surviving Corporation shall assume and agree to perform the Employment
Agreements, dated May 11, 1990, between the Company and each of the executives
of the Company who are parties thereto, each as in effect as of October 4, 1995
(the "Employment Agreements") in the same manner and to the same extent that the
Employer (as defined in the Employment Agreements) would be required to perform
if the Merger had not taken place.
SECTION 5. MISCELLANEOUS.
5.01. APPLICABLE LAW. This Amendment and the legal relations
between the parties hereby shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to the conflict of laws rules
thereof.
5.02. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which together shall be deemed to be one and the same instrument.
5.03. SECTION HEADINGS. The descriptive headings contained herein
are for convenience of reference only and shall not effect in any way the
meaning or interpretation of this Amendment.
5.04. RATIFICATION. The Merger Agreement as hereby amended is in
all respects ratified and confirmed, and all of the rights and powers created
thereby or thereunder shall be and remain in full force and effect.
-3-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered by the duly authorized officers of the parties hereto on the date
first above written.
BRW STEEL CORPORATION
By: /s/ Robert B. McKeon
------------------------------------------
Co-Chairman
B & L ACQUISITION CORPORATION
By: /s/ Robert B. McKeon
------------------------------------------
President
BLISS & LAUGHLIN INDUSTRIES INC.
By: /s/ Gregory H. Parker
------------------------------------------
President, Chief Executive Officer
and Chairman of the Board
-4-
<PAGE>
EXHIBIT 10(x)
TO FORM 10-K FOR THE
FISCAL YEAR ENDED
SEPTEMBER 30, 1995
FORM OF
AMENDED STOCK OPTION AGREEMENT
THIS AMENDED STOCK OPTION AGREEMENT (this "Agreement"), dated as of
October 4, 1995, by and among B&L ACQUISITION CORPORATION, a Delaware
corporation (the "Purchaser"), BRW STEEL CORPORATION, a Delaware corporation
("Parent"), and the Management Stockholders (who are individually named on
Schedule A hereto) of the Company (as defined below) who are parties to that
certain First Refusal Agreement (as defined in Section 2) (each Management
Stockholder, a "Stockholder"; collectively all the Management Stockholders, the
"Stockholders"), being the owner of certain shares of common stock, $.01 par
value per share (the "Common Stock"), of BLISS & LAUGHLIN INDUSTRIES INC., a
Delaware corporation (the "Company").
WHEREAS, the Purchaser, Parent and the Company are concurrently herewith
entering into an Amended Agreement and Plan of Merger dated as of the date
hereof (the "Merger Agreement"), which provides, upon the terms and subject to
the conditions thereof, for the merger of the Purchaser with and into the
Company (the "Merger").
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, the Purchaser desires to acquire an option from the Stockholders to
purchase an aggregate of 774,059 shares of Common Stock of the Company. The
number of such shares pertaining to each Stockholder is set forth opposite the
Stockholder's name on Schedule A hereto ( as to each Stockholder, the "Shares");
and in order to induce the Purchaser to proceed with the Merger, the
Stockholders desire to grant an option to the Purchaser to purchase the Shares,
all upon the terms and conditions of this Agreement.
WHEREAS, the taking of various steps which are necessary in order to
accomplish the Merger will require the Purchaser and the Company to spend
significant sums of money and use substantial amounts of time of their key
employees.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto,
intending legally to be bound, do hereby agree as follows:
1. GRANT OF STOCK OPTION. The Stockholder hereby grants to the Purchaser
an exclusive and irrevocable option (the "Stock Option") to purchase during a
period commencing on the date hereof (the "Option Commencement Date"), subject
to the provisions of Section 3 below, and ending on the Termination Date
(hereinafter defined), the Shares at a price per share of $9.50, or any higher
price paid by Purchaser for a share of Common Stock of the Company in the Merger
or any other merger of the Company with Purchaser or Parent or in a tender offer
by Purchaser or Parent for shares of common stock of the Company, payable as
provided in Section 3 below (the "Purchase Price"). The Option Price shall be
paid in cash at the Closing (as hereinafter defined).
<PAGE>
2. EXERCISE OF STOCK OPTION. Provided that (a) Stelco Inc. ("Stelco")
has not purchased the Shares pursuant to the exercise of Stelco's rights under
Section 3.3 or 3.4 of the Right of First Refusal and Standstill Agreement dated
May 11, 1990 (the "First Refusal Agreement") (such purchase a "First Refusal
Purchase"), (b) no preliminary or permanent injunction or other order issued by
any federal or state court of competent jurisdiction in the Untied States of
America shall be in effect which would prohibit the purchase or delivery of
Shares hereunder and (c) any applicable waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 (the "HSR Act") shall have expired
with respect to such purchase and delivery, the Purchaser may exercise the Stock
Option, in whole, at any time or from time to time, from the Option Commencement
Date until that date (the "Termination Date") which is the earlier of
(i) January 15, 1996, or (ii) termination of the Merger Agreement due to a
material breach by the Purchaser of its obligations under the Merger Agreement.
Stockholder agrees that if, prior to the first anniversary of the date of this
Agreement, the Stockholder or any assignee of the Stockholder or the Company
enters into an agreement to sell or exchange all or substantially all of the
Common Stock of the Company held by the Stockholder or any affiliate of the
Stockholder to or with a third party (including any such sale or exchange
pursuant to a merger, or a tender or exchange offer), Stockholder or any
assignee of the Stockholder will promptly pay Purchaser an amount equal to fifty
percent (50%) of the difference between the Subsequent Share Price (as defined
below) received for the Shares in such subsequent transaction and the product of
$7.75 and the number of Shares. For the purposes of this Section 2, "Subsequent
Share Price" shall mean the sum of the aggregate consideration received by the
Stockholder or any assignee of the Stockholder in the transaction reduced by the
expenses and out-of-pocket fees incurred by Stockholder or its affiliates or on
their behalf in connection with the sale of the Shares. If the Stockholder or
any assignee of the Stockholder or the Company receives consideration other than
cash, the Stockholder may elect to pay the amount due the Purchaser under this
Section 2 in like kind consideration or in cash. Prior to the Termination Date,
other than as permitted in Section 4 below, the Stockholder will not take, and
will refrain from taking, any action which would have the effect of preventing
or disabling the Stockholder from delivering the Shares to the Purchaser upon
exercise of the Stock Option or from otherwise performing its obligations under
this Agreement. Anything in this Agreement to the contrary notwithstanding,
this Stock Option may not be exercised and no Stockholder may transfer his, her
or its Shares hereunder unless all Shares of all Stockholders are purchased and
acquired, it being understood and agreed that the payment of the Purchase Price
for all Shares of all Stockholders shall be an express condition to the purchase
of any Shares of any individual Stockholder hereunder.
3. DELIVERY OF SHARES; ESCROW ARRANGEMENTS; PAYMENT FOR SHARES. The
Stockholders have delivered in escrow to LaSalle National Trust, N.A. (the
"Escrow Agent") pursuant to Stockholder Escrow Agreements dated as of
September 19, 1995 by and among the Purchaser, each Stockholder and the Escrow
Agent, (i) duly executed share certificates representing the Shares accompanied
by stock powers endorsed in blank and with signatures guaranteed and such other
documents as may be reasonably necessary to transfer record ownership of Shares
into the Purchaser's name on the stock transfer books of the Company or
(ii) book confirmation of the transfer of Shares to the account of the Escrow
Agent or its
-2-
<PAGE>
nominee with the Depository Trust Company. If this Agreement is terminated, the
unpurchased Shares and any certificates for the unpurchased shares and related
stock powers and other documents shall be returned to the Stockholder within two
business days following such termination; provided, however, if a cancellation
fee and expenses are owed under Section 14 hereof, the Shares shall remain in
the account of the Escrow Agent until the Stockholder has paid such cancellation
fee and expenses in full. The Stockholder and Purchaser agree to enter into an
Amendment No. 1 to Stockholder Escrow Agreement with the Escrow Agent,
substantially in the form of Attachment A hereto. At any Closing hereunder, the
Purchaser shall deliver an aggregate principal amount of $9.50, or any higher
price paid by Purchaser for a share of Common Stock of the Company in the Merger
or any other merger of the Company with Purchaser or Parent or in a tender offer
by Purchaser or Parent for shares of common stock of the Company, times the
number of Shares being purchased (the "Exercised Option Shares") in cash or a
certified or cashier's check or by wire transfer of immediately available funds
to a bank account designated by the Escrow Agent (the "Purchase Price"), for
distribution to Stockholder in compliance with the terms of the Escrow
Agreement.
4. COVENANTS OF THE STOCKHOLDER. Except in accordance with the
provisions of this Agreement, the Stockholder agrees, until the Termination
Date, not to:
(a) sell, transfer, pledge, assign or otherwise dispose of, or enter
into any contract, option or other transfer, pledge, assignment or other
disposition of, any Shares, except that (i) if required by the terms of the
First Refusal Agreement, the Stockholder may sell the Shares to Stelco
pursuant to a First Refusal Purchase, or (ii) the Stockholder, upon a
minimum of three (3) days prior written notice to the Purchaser and upon
expiration of any rights Stelco may have to purchase the Shares under the
First Refusal Agreement, may sell or transfer the Shares to a purchaser or
transferee that is a citizen of the United States of America or Canada and
executes with the Purchaser an agreement containing the same terms hereof;
provided, however, that no sale or transfer shall be permitted hereunder to
any purchaser or transferee that Parent believes, in its reasonable
judgment, intends or may intend to engage in any transaction which may
involve a change of control such as a merger, reorganization or acquisition
of the Company, other than the transactions contemplated by the Merger
Agreement or this Agreement;
(b) acquire any additional shares of Common Stock without the prior
written consent of Purchaser other than pursuant to the exercise of
existing stock options or similar rights;
(c) enter into a voting agreement with respect to any Shares; or
(d) directly or indirectly, initiate discussions or engage in
negotiations with any corporation, partnership, person or other entity or
group (other than Purchaser) concerning any possible acquisition of the
Shares or any possible merger, purchase of
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<PAGE>
assets, purchase of stock or similar transactions involving the Company or any
major asset of the Company.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND PARENT. The
Purchaser and Parent jointly and severally hereby represent and warrant to the
Stockholder as follows:
(a) AUTHORITY RELATIVE TO THIS AGREEMENT. The Purchaser and Parent
each is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Purchaser and Parent each has
full corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. This Agreement has
been duly authorized by all necessary corporate action on the part of the
Purchaser and Parent, has been validly executed and delivered by a duly
authorized officer of the Purchaser and Parent, and constitutes a valid and
binding agreement of the Purchaser and Parent, enforceable against the
Purchaser and Parent in accordance with its terms.
(b) NO APPROVALS OR NOTICES REQUIRED; NO CONFLICT WITH INSTRUMENTS TO
WHICH PURCHASER OR PARENT IS PARTY. The execution and delivery of this
Agreement and the performance by Parent or Purchaser of their respective
obligations hereunder will not (i) violate the charter or bylaws of Parent
or Purchaser; (ii) assuming satisfaction of the requirements set forth in
clause (iii) below, violate any provision of law applicable to Parent or
Purchaser; (iii) except for (1) requirements under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and requirements, if any,
arising out of the HSR Act, require any consent, approval, filing or notice
under any provision of law applicable to Parent or Purchaser or any of
Parent's other subsidiaries; or (iv) require any consent, approval or
notice under, or violate or constitute a default under, or permit the
termination of any provision of, or result in the acceleration of the
maturity or performance of any obligation of, or result in the creation or
imposition of any lien upon any properties, assets or businesses of, Parent
or Purchaser or any of Parent's other subsidiaries under, any note, bond,
indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument or other agreement or
commitment, or any order, judgment or decree, to which Parent or Purchaser
or any of Parent's other subsidiaries is a party or by which Parent,
Purchaser or any of Parent's other subsidiaries or any of the assets or
properties of Parent, Purchaser or any of Parent's other subsidiaries is
bound or encumbered, which in any of the foregoing cases would have a
material adverse effect on Parent and its subsidiaries taken as a whole or
would prohibit or interfere with the consummation of this Agreement.
(c) DISTRIBUTION. The Purchaser will acquire the Shares upon
exercise of the Stock Option for its own account and not with a view to any
resale or distribution thereof and will not sell the Shares unless such
Shares are registered under the Securities Act of 1933 (the "Securities
Act") or unless an exemption from registration is available.
-4-
<PAGE>
(d) RESALE PRIOR TO THE EFFECTIVE TIME. Purchaser agrees that, if
prior to the earlier of the Effective Time (as defined in the Merger
Agreement) or the first anniversary of the date of this Agreement, the
Purchaser or any assignee of the Purchaser or the Company enters into an
agreement to sell or exchange all or substantially all of the Common Stock
of the Company held by the Purchaser or an affiliate of the Purchaser to or
with an unaffiliated third party, Purchaser or any assignee of the
Purchaser will promptly pay Stockholder an amount equal to fifty percent
(50%) of the difference between the Subsequent Share Price (as defined
below) received for such subsequent transaction and the product of $9.50
times the number of Shares. For the purposes of this Section 5(d),
"Subsequent Share Price" shall mean the sum of the aggregate consideration
received by the Purchaser or any assignee of the Purchaser in the
transaction attributable to the Shares reduced by the expenses and out of
pocket fees incurred by Purchaser or its affiliates or on their behalf in
connection with the sale of the Shares. If the Purchaser or any assignee
of the Purchaser receives consideration other than cash, the Purchaser may
elect to pay the amount due the Stockholder under this Section 5(d) in like
kind consideration or in cash.
(e) RESALE SUBSEQUENT TO THE EFFECTIVE TIME. Subsequent to the
Effective Time, Purchaser agrees that, if prior to the first anniversary of
the date of this Agreement, the Purchaser or any assignee of the Purchaser,
the Company or the Surviving Corporation (as defined in the Merger
Agreement) enters into an agreement to (i) sell or exchange all or
substantially all of the Common Stock of the Company or the Surviving
Corporation to or with, or (ii) merge or consolidate the Company or the
Surviving Corporation to, an unaffiliated third party, Purchaser or any
assignee of the Purchaser, the Company and the Surviving Corporation will
jointly promptly pay Stockholder an amount equal to fifty percent (50%) of
the product of (y) the difference between the Aggregate Transaction Value
(as defined below) received for such subsequent transaction and $62,000,000
and (z) a fraction, the numerator of which is the number of Shares and the
denominator of which is the number equal to the total of (1) the number of
shares of Common Stock of the Company issued and outstanding as of the
Effective Time plus (2) the number of shares of Common Stock of the Company
underlying stock options for which the option holder is entitled to payment
under Section 1.3(e) of the Merger Agreement plus (3) the number of share
equivalents for which the participant under the Directors' Deferred
Compensation Plan is entitled to payment under Section 1.3(f) of the Merger
Agreement. For the purposes of this Section 5(e), "Aggregate Transaction
Value" shall mean the sum of the aggregate consideration received by the
sellers in the transaction (reduced by the present value of any future or
contingent obligations retained by the sellers) plus the aggregate
liabilities assumed by the acquiring party in the transaction. If the
Purchaser or any assignee of the Purchaser, the Company or the Surviving
Corporation receives consideration other than cash, the Purchaser may elect
to pay the amount due the Stockholder under this Section 5(e) in like kind
consideration or in cash.
-5-
<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
represents and warrants to the Purchaser the following:
(a) TITLE TO SHARES. The Stockholder has good and marketable title
to the Shares, not subject to any hypothecation, pledge or lien, with no
restrictions on voting rights and other incidents of record and beneficial
ownership incident thereto, and the absolute right to grant Purchaser the
option to purchase the Shares and the right to sell and transfer the Shares
to the Purchaser free and clear of all claims, liens, pledges, security
interests, restrictions or encumbrances of any nature whatsoever, except
for the restrictions under the First Refusal Agreement. Solely for the
purposes of this Agreement and the Merger, Stockholder hereby waives and
agrees not to assign his rights of first refusal under all First Refusal
Agreements to which he or it and other stockholders of the Company are
parties, provided that such waiver and agreement not to assign terminate
when this Agreement terminates. On consummation of the transactions
contemplated by this Agreement in accordance with the terms hereof, the
Purchaser will acquire good and marketable title to the Shares free and
clear of all claims, liens, pledges, security interests, resolutions or
encumbrances of any nature whatsoever except for the rights of first
refusal held by other Stockholders of the Company under First Refusal
Agreements.
(b) AUTHORIZATION AND VALIDITY. The Stockholder has the power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement constitutes a valid and
binding agreement of the Stockholder, enforceable in accordance with its
terms.
(c) COMPLIANCE WITH INSTRUMENTS. Neither the execution or delivery
of this Agreement nor the consummation by the Stockholder of the
transactions contemplated hereby will violate any provisions of any law
applicable to the Stockholder or agreement to which the Stockholder is a
party, except for any rights of first refusal held by other Stockholders of
the Company under First Refusal Agreements.
(d) SUPPORT OF MERGER. The Stockholder agrees that he will vote all
of his Shares in favor of the Merger Agreement at any Stockholders Meeting
at which it is discussed, and at any adjournment thereof; provided however,
that Stockholder shall not have to vote in favor of the Merger Agreement if
it has been terminated.
7. COMPANY ACTIONS. If the Stockholder is a director of the Company or
an officer or stockholder of the Company that is a reporting person under
Section 16 of the Exchange Act, the Stockholder agrees to use his best efforts
during the term of this Agreement to prevent the Company, its Board of
Directors, its officers and its subsidiaries from:
(a) issuing additional capital stock except pursuant to existing
option plans or arrangements;
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<PAGE>
(b) approving a stock split, reverse stock split, recapitalization,
or other similar action which would result in an overall adjustment of the
number of outstanding shares of the Company's Common Stock;
(c) increasing the dividend on the Company's Common Stock;
(d) issuing additional stock options or appreciation rights;
(e) selling any assets, except in the normal course of business and
except for assets presently under contract for sale; and
(f) issuing or incurring additional debt, except in the normal course
of business.
8. HSR FILING. Promptly after the date hereof, and from time to time
thereafter if necessary, the Purchaser and each Stockholder if required shall
file with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice all required pre-merger notification and report
forms and other documents and exhibits required to be filed under the HSR Act to
permit the purchase of the Shares subject to the Stock Option.
9. UNITARY TRANSACTION. The parties hereto intend that this Agreement
and the Merger Agreement shall constitute a single unified transaction for the
acquisition of the Company by Purchaser. In accordance with that intention,
Purchaser represents the following:
(a) Purchaser was not an affiliate of and had no affiliation with the
Company at any time prior to the execution of this Agreement and the Merger
Agreement or the prior Agreement and Plan of Merger and prior Stock Option
Agreement both dated September 16, 1995;
(b) Purchaser shall purchase all shares of Common Stock pursuant to
this Agreement and the Merger Agreement at the same price per share; and
(c) Purchaser shall make no attempt to change the management of,
alter the operation of, or exercise control over the Company prior to the
Effective Time or termination of the Merger Agreement.
10. CERTAIN UNDERTAKINGS.
(a) The Stockholder hereby agrees that, during the term of this
Agreement, at any meeting of the stockholders of the Company, however
called, and in any action by written consent of the stockholders of the
Company, the Stockholder shall (a) vote the Shares in favor of the Merger;
(b) not vote the Shares in favor of any action or agreement which would
result in a breach in any material respect of any covenant, representation
or warranty or any other obligation of the Company under the Merger
-7-
<PAGE>
Agreement; and (c) vote the Shares against any action or agreement which
would impede, interfere with or attempt to discourage the Merger,
including, but not limited to: (i) any extraordinary corporate
transaction, such as a merger, reorganization or liquidation involving the
Company or any of its subsidiaries; (ii) a sale or transfer of a material
amount of assets of the Company or any of its subsidiaries; (iii) any
change in the management or board of directors of the Company, except as
otherwise agreed to in writing by Purchaser; (iv) any material change in
the present capitalization or dividend policy of the Company; or (v) any
other material change in the Company's corporate structure or business;
provided however, that Stockholder shall not have to take any action
specified above in this Section 10 if the Merger Agreement has been
terminated by Purchaser or Parent.
(b) Each Stockholder shall use its best efforts to cause the
restrictions on transfer and the rights of first refusal applicable to such
Stockholder's Shares under the First Refusal Agreement to terminate, so as
to cause such Stockholder's obligations under this Agreement to become
unconditional and to permit the sale to Purchaser of such Stockholder's
Shares hereunder. The Stockholders shall furnish Purchaser with copies of
all information, correspondence and other documents furnished to or by
Stelco or its counsel by or to the Stockholders, the Company or their
counsel (as the case may be), and shall promptly inform Purchaser of all
actions taken by the Stockholders or Stelco with respect to compliance with
the First Refusal Agreement, including efforts to dispose of or settle the
pending lawsuit No. 95 C 5426 in the U.S. District Court for the Northern
District of Illinois.
11. ADJUSTMENTS. In the event of any increase or decrease or other change
in the Common Stock by reason of stock dividends, split-up, recapitalizations,
combinations, exchanges of shares or the like, the number of shares of Common
Stock subject to the Stock Option and the per Share Purchase Price shall be
equitably adjusted appropriately.
12. LEGEND. As soon as practicable after the execution of this Agreement,
the Stockholder shall cause the following legend to be placed on the
certificates representing the Shares:
"The Shares of common stock represented by this certificate
are subject to an Amended Stock Option Agreement, dated as
of October 4, 1995, with B & L Acquisition Corporation and
BRW Steel Corporation."
Upon termination of this Agreement Stockholder will remove such legend on
any Shares returned to him; and Purchaser will cooperate therewith.
13. GUARANTEE: Parent hereby fully and unconditionally guarantees each
and every representation, warranty and obligation of the Purchaser hereunder and
of any assignee of the Purchaser.
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<PAGE>
14. CANCELLATION FEE. (a) If Stelco exercises its rights under the First
Refusal Agreement to purchase the Shares, or (b) if prior to January 15, 1996
the Board of Directors of the Company terminates the Merger Agreement pursuant
to Section 6.1(c)(ii) of the Merger Agreement and a transaction is subsequently
consummated, or (c) if prior to January 15, 1996 a tender or exchange offer
shall have been commenced by any party to acquire twenty percent (20%) or more
of the capital stock of the Company at a price in excess of $9.50, which tender
or exchange offer is subsequently consummated, then, upon consummation of
Stelco's purchase with respect to clause (a) above or within five (5) business
days of the consummation of the transaction in the case of clause (b) or (c)
above, the Stockholder shall pay to the Purchaser, a cash cancellation fee equal
to the product of (i) the sum of one million two hundred fifty thousand dollars
($1,250,000) plus all out of pocket fees and expenses incurred by Purchaser,
Parent or their affiliates or on their behalf in connection with the Merger and
the transactions contemplated hereby (such out of pocket fees and expenses not
to exceed two hundred fifty thousand dollars ($250,000)) and (ii) a fraction,
the numerator of which is the number of Shares and the denominator of which is
774,059.
15. REMEDIES. The parties agree that the Purchaser would be irreparably
damaged if for any reason the Stockholder failed to deliver any of the Shares
upon exercise of the Stock Option or to perform any of its other obligations
under this Agreement, and that the Purchaser would not have an adequate remedy
at law for money damages in such event. Accordingly, the Purchaser shall be
entitled to specific performance and injunctive and other equitable relief to
enforce the performance hereof by the Stockholder. This provision is without
prejudice to any other Stockholder. This provision is without prejudice to any
other rights that the Purchaser may have against the Stockholder for any failure
to perform its obligations under this Agreement.
16. ENTIRE AGREEMENT; ASSIGNMENT; AMENDMENT. This Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, of the parties with respect to such subject matter. Purchaser may assign
any or all of its rights and obligations hereunder to any wholly-owned affiliate
of Purchaser or Parent. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
17. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
18. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be furnished by hand
delivery, by telegram or telex or FAX, or by mail (registered or certified,
postage prepaid, return receipt requested) to the parties at the addresses set
forth below or, if to the Escrow Agent, at its address set forth in the Escrow
Agreement. Any such notice shall be deemed duly given upon the date it is
actually received
-9-
<PAGE>
by the party to whom notice is intended to be given or is actually delivered at
its address as shown below or, if to the Escrow Agent, at its address set forth
in the Escrow Agreement:
If to the Purchaser or Parent:
B&L Acquisition Corporation
4 Northshore Center
Pittsburgh, PA 15212
Attention: President
With a copy to:
BRW Steel Corporation
c/o Veritas Capital, Inc.
Ten East Fiftieth Street
New York, NY 10022
Attention: Co-Chairman
-and-
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, NY 10022
Attention: Robert A. Profusek, Esq.
If to the Stockholder:
At the address set forth for the Stockholder on Schedule B
hereto.
With a copy to the Company at:
Bliss & Laughlin Industries Inc.
281 East 155th Street
Harvey, IL 60426
Attention: President
With copies to:
Company's Counsel
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive, #3000
Chicago, Illinois 60606
Attention: Roger G. Fein
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
-10-
<PAGE>
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware, without reference to
principles of conflicts of laws.
20. DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
21. PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person or entity any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
22. TIME OF THE ESSENCE. The parties agree that time shall be of the
essence in the performance of obligations hereunder.
23. BROKERS. Each party hereby represents and warrants to the other that
no broker or finder claiming through him is entitled to a fee in connection with
the sale of Shares hereunder, except for The Chicago Corporation whose fee will
be paid by the Company.
24. AGREEMENTS WITH OTHER STOCKHOLDERS. Purchaser agrees that if it
executes a Stock Option Agreement with any other stockholder of the Company
having terms more favorable to such stockholder than the terms of this Agreement
are to Stockholder, it will promptly amend this Agreement to include such more
favorable terms. Stockholder hereby appoints as his lawful attorney-in-fact
Gregory H. Parker to execute any and all notices and other communications under
the First Refusal Agreement as such attorney-in-fact shall execute in his sole
discretion.
25. JURISDICTION. Any judicial proceeding brought against any of the
parties to this Agreement with respect to any dispute arising out of this
Agreement or any matter related hereto may be brought in the courts of the State
of Illinois located in Chicago, Illinois, or in the United States District Court
in Chicago, Illinois, and, by execution and delivery of this Agreement, each of
the parties to this Agreement accepts the exclusive jurisdiction of such courts,
and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement. The foregoing consents shall not constitute
general consents to service of process in the State of Illinois for any purpose
except as provided above and shall not be deemed to confer rights to any Person
other than the respective parties to this Agreement.
26. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its duly authorized representative, all as of the day
and year first above written.
BRW STEEL CORPORATION
By:
----------------------------
Title:
----------------------------
B & L ACQUISITION CORPORATION
By:
----------------------------
Title:
----------------------------
STOCKHOLDER
By:
----------------------------
Title:
----------------------------
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<PAGE>
SCHEDULE A
Name of Stockholder Number of Shares
- ------------------- ----------------
Gregory H. Parker. . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,380
Roger G. Fein, as Trustee of the Gregory H. Parker
Irrevocable Family Trust under Trust Agreement
dated October 31, 1988 . . . . . . . . . . . . . . . . . . . . . . .76,349
F. Elizabeth Parker. . . . . . . . . . . . . . . . . . . . . . . . . . . .25,450
Anthony J. Romanovich. . . . . . . . . . . . . . . . . . . . . . . . . . .80,183
Barbara A. Romanovich. . . . . . . . . . . . . . . . . . . . . . . . . . .26,976
George W. Fleck. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72,222
Joan E. Fleck. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25,450
Gerald E. Brady. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35,773
Carole A. Brady. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22,905
William P. Daugherty, as Trustee of the
William P. Daugherty Trust dated May 11, 1989. . . . . . . . . . . .33,228
Ellen L. Daugherty, as Trustee of the
Ellen L. Daugherty Trust dated May 11, 1989. . . . . . . . . . . . .25,450
Michael A. DeBias. . . . . . . . . . . . . . . . . . . . . . . . . . . . .58,677
Chester J. Pucilowski. . . . . . . . . . . . . . . . . . . . . . . . . . .29,665
Geraldine Pucilowski . . . . . . . . . . . . . . . . . . . . . . . . . . .29,013
Richard M. Bogdon. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21,480
Phyllis Bogdon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10,180
Carl H. Laib . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29,339
Richard W. Ressler . . . . . . . . . . . . . . . . . . . . . . . . . . . .29,339
------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 774,059
-------
-------
<PAGE>
SCHEDULE B
Gregory H. Parker
20091 Tam O Shanter
Olympia Fields, IL 60461
F. Elizabeth Parker
20091 Tam O Shanter
Olympia Fields, IL 60461
Roger G. Fein, as Trustee of the Gregory H. Parker
Irrevocable Trust dated October 31, 1988
225 W. Wacker Drive, #3000
Chicago, IL 60606
Anthony J. Romanovich
2530 Glen Eagles Drive
Olympia Fields, IL 60461
Barbara A. Romanovich
2530 Glen Eagles Drive
Olympia Fields, IL 60461
George W. Fleck
1109 Brassie
Flossmoor, IL 60422
Joan E. Fleck
1109 Brassie
Flossmoor, IL 60422
Gerald E. Brady
1745 Winola Court
Naperville, IL 60565
Carole A. Brady
1745 Winola Court
Naperville, IL 60565
William P. Daugherty, as Trustee of the
William P. Daugherty Trust dated May 11, 1989
3452 Huntington Terrace
Crete, IL 60417
<PAGE>
Ellen L. Daugherty, as Trustee of the
Ellen L. Daugherty Trust dated May 11, 1989
3452 Huntington Terrace
Crete, IL 60417
Michael A. DeBias
7132 West 64th Place
Chicago, IL 60638
Richard M. Bogdon
2029 Dorchester Lane
Schererville, IN 46375
Phyllis Bogdon
2029 Dorchester Lane
Schererville, IN 46375
Carl H. Laib
11588 96th Avenue
St. John, IN 46373
Richard W. Ressler
5156 Andrus Avenue
North Olmsted, OH 44070
Chester J. Pucilowski
860 Smokerise Drive
Medina, OH 44256
Geraldine Pucilowski
860 Smokerise Drive
Medina, OH 44256
-2-
<PAGE>
ATTACHMENT A
AMENDMENT NO. 1 TO STOCKHOLDER ESCROW AGREEMENT
This is Amendment No. 1 dated as of October 4, 1995 ("Amendment No. 1") to
the Stockholder Escrow Agreement dated as of September 19, 1995 by and among the
persons listed on Schedule A thereto ("Stockholder"), B & L Acquisition
Corporation ("Purchaser") and LaSalle National Trust, N.A., as escrow agent (the
"Escrow Agent").
WHEREAS, Stockholder, Purchaser and Escrow Agent are parties to the
Stockholder Escrow Agreement dated as of September 19, 1995 (the "Escrow
Agreement"); and
WHEREAS, Purchaser and Stockholder have entered into Amendment No. 1 dated
as of October 4, 1995 to the Stock Option Agreement dated as of September 16,
1995 and, pursuant thereto, an Amended Stock Option Agreement dated as of
October 4, 1995, and wish to conform the Escrow Agreement thereto;
NOW THEREFORE, the parties hereto agree as follows:
(1) The definition of "Option Agreement" in Recital A to, and throughout,
the Escrow Agreement hereby is amended to refer to the "Amended Stock
Option Agreement dated as of October 4, 1995."
(2) The Escrow Agent acknowledges receipt of 33,328 and 25,450 Shares,
respectively, from William P. Daugherty as Trustee of the William P.
Daugherty Trust dated May 11, 1989 and Ellen L. Daugherty, as Trustee
of the Ellen L. Daugherty Trust dated May 11, 1989 (collectively, the
"Daugherty Shares").
(3) The Escrow Agent acknowledges that prior to October 4, 1995 it
delivered to Mr. Gregory H. Parker his 58,678 Shares placed in escrow
by him pending receipt by the Escrow Agent of the Daugherty Shares.
(4) The Escrow Agent shall re-issue the share certificate of the
Stockholder that it is now holding in escrow pursuant to the Escrow
Agreement (referred to as the "Option Shares Certificate" in the
Escrow Agreement) so as to set forth thereon the legends set forth in
Exhibit 1 hereto.
(5) Except as specifically provided otherwise in this Amendment No. 1, the
parties hereby confirm all the terms and provisions of the Escrow
Agreement.
(6) This Amendment No. 1 may be executed in counterparts, each of which
shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
Stockholder Escrow Agreement dated as of September 19, 1995 to be executed and
delivered on the date first written above.
B & L ACQUISITION CORPORATION
By
---------------------------
Title
------------------------
Name
-------------------------
STOCKHOLDER
By
---------------------------
ESCROW AGENT
By
---------------------------
Title
------------------------
Name
-------------------------
-2-
<PAGE>
EXHIBIT 10(y)
TO FORM 10-K FOR THE
FISCAL YEAR ENDED
SEPTEMBER 30, 1995
FORM OF
AMENDMENT NO. 1 TO AMENDED STOCK OPTION AGREEMENT
This is Amendment No. 1 dated as of October 18, 1995 ("Amendment No. 1") to
the Amended Stock Option Agreement dated as of October 4, 1995 (the "Amended
Stock Option Agreement"), by and among B & L Acquisition Corporation (the
"Purchaser"), BRW Steel Corporation ("Parent") and the Management Stockholders
individually named on Schedule A thereto (each an "Option Stockholder" or
collectively, the "Option Stockholders") of Bliss & Laughlin Industries Inc.
(the "Company").
WHEREAS, the Purchaser, Parent and the Company have entered into Amendment
No. 1 dated as of October 18, 1995 to the Amended Agreement and Plan of Merger
dated as of October 4, 1995 (the "Merger Agreement"), to, among other things,
change the date by which certain events need to occur from January 15, 1996 to
January 31, 1996, and in connection therewith the parties hereto have agreed to
amend the Amended Stock Option Agreement to conform it to such changed date.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement and Amendment No. 1
thereto, the parties hereto, intending legally to be bound, do hereby agree as
follows:
1. Sections 2 and 14 of the Amended Stock Option Agreement are
hereby amended by deleting "January 15, 1996" wherever it
appears in those Sections and substituting "January 31,
1996" in lieu thereof.
2. Except as amended by this Amendment No. 1, all the terms and
provisions of the Amended Stock Option Agreement shall
remain in full force and effect.
3. This Amendment No. 1 may be executed in counterparts, each
of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties has caused this Amendment No. 1 to
the Amended Stock Option Agreement dated as of October 4, 1995 to be executed on
its behalf by its duly authorized representative, all as of the day and year
first above written.
BRW STEEL CORPORATION B & L ACQUISITION CORPORATION
By: By:
------------------------------ -------------------------------------
Title: Title:
--------------------------- ----------------------------------
STOCKHOLDER STOCKHOLDER
By: By:
----------------------------- -------------------------------------
Title: Title:
--------------------------- ----------------------------------
