<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Year Ended December 31, 1996
-----------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23320
-------
OLYMPIC STEEL, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-1245650
- -------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5096 Richmond Road, Bedford Heights, Ohio 44146
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 292-3800
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, without par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
As of March 6, 1997, the aggregate market value of voting stock held by
nonaffiliates of the registrant based on the closing price at which such stock
was sold on The NASDAQ Stock Market on such date approximated $141,248,000. The
number of shares of Common Stock outstanding as of March 6, 1997 was 10,692,000.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant intends to file with the Securities and Exchange Commission a
definitive Proxy Statement pursuant to Regulation 14A of the Securities Exchange
Act of 1934 within 120 days of the close of its fiscal year ended December 31,
1996, portions of which document shall be deemed to be incorporated by reference
in Part I and Part III of this Annual Report on Form 10-K from the date such
document is filed.
================================================================================
PAGE 1 OF 88
Exhibit Index Appears on Page 35
<PAGE> 2
PART I
ITEM 1. BUSINESS
THE COMPANY
The Company is a leading steel service center that processes and
distributes flat-rolled carbon, stainless and tubular steel products from 11
facilities in six midwestern and eastern states. The Company operates as an
intermediary between steel producers and manufacturers that require processed
steel for their operations. The Company purchases flat-rolled steel typically
from steel producers and responds to its customers' needs by processing steel to
customer specifications and by providing critical inventory and just-in-time
delivery services. Such services reduce customers' inventory levels, as well as
save time, labor and expense for customers, thereby reducing their overall
production costs. The Company's services include both traditional service center
processes of cutting-to-length, slitting, shearing and roll forming and higher
value-added processes of blanking, tempering and plate burning.
The Company is organized into regional operations with domestic
processing and distribution facilities in Connecticut, Pennsylvania, Ohio,
Michigan, Illinois and Minnesota, servicing a diverse base of over 3,400 active
customers located throughout the midwestern, eastern and southern United States.
The Company maintains a southern sales office in Greenville, South Carolina. Its
international sales office is located in Pittsburgh, Pennsylvania and services
customers primarily in Mexico and Puerto Rico.
The Company is incorporated under the laws of the State of Ohio. The
Company's executive offices are located at 5096 Richmond Road, Cleveland, Ohio
44146. Its telephone number is (216) 292-3800.
INDUSTRY OVERVIEW
The steel industry is comprised of three types of entities: steel
producers, intermediate steel processors and steel service centers. Steel
producers have historically emphasized the sale of steel to volume purchasers
and have generally viewed intermediate steel processors and steel service
centers as part of their customer base. However, all three entities can compete
for certain customers who purchase large quantities of steel. Intermediate steel
processors tend to serve as processors in large quantities for steel producers
and major industrial consumers of processed steel, including automobile and
appliance manufacturers.
Services provided by steel service centers can range from storage and
distribution of unprocessed metal products to complex, precision value-added
steel processing. Steel service centers respond directly to customer needs and
emphasize value-added processing of flat-rolled steel and plate pursuant to
specific customer demands, such as cutting-to-length, slitting, shearing, roll
forming, shape correction and surface improvement, blanking, tempering, plate
burning and stamping. These processes produce steel to specified lengths,
widths, shapes and surface characteristics through the use of specialized
equipment. Steel service centers typically have lower cost structures and
provide services and value-added processing not otherwise available from steel
producers.
End product manufacturers and other steel distributors have
increasingly sought to purchase steel on shorter lead times and with more
frequent and reliable deliveries than can normally be provided by steel
producers. Steel service centers generally have lower labor costs than steel
producers and consequently process steel on a more cost-effective basis. In
addition, due to this lower cost structure, steel service centers are able to
handle orders in quantities smaller than would be economical for steel
producers. The net results to customers purchasing products from steel service
centers are lower inventory levels, lower overall cost of raw materials and
decreased manufacturing time and operating expense. The Company believes that
the increasing prevalence of just-in-time inventory needs has made the
value-added inventory, processing and delivery functions performed by steel
service centers increasingly important.
PAGE 2 of 88
<PAGE> 3
CORPORATE HISTORY
The Company was founded in 1954 as a general steel service center. In
the early 1970's, Michael Siegal (CEO) and Bruce Adelstein (VP-Operations), sons
of two of the principals, began working at the Company. At the end of 1983, they
completed the purchase of the Company, assumed management control and, as part
of an effort to broaden the management base for future expansion, hired David
Wolfort (COO) as general manager. In 1987, Louis Schneeberger (CFO) joined the
Company as chief financial officer.
After acquiring control of the Company, management changed the
Company's business strategy from a focus on warehousing and distributing steel
from a single facility with no major processing equipment to a focus on growth,
geographic and customer diversity and value-added processing. An integral part
of the Company's growth has been the acquisition and start-up of several
processing and sales operations.
In March 1994, the Company completed an initial public offering of 4
million shares of its Common Stock (the IPO), which generated net proceeds of
$57.0 million. Most of the net proceeds of the IPO were used to reduce
borrowings under its revolving credit agreement, which allowed the Company to
continue to fund its growth, including the 1995 acquisition of Lafayette Steel
and its expansion projects in Cleveland and Minneapolis. In August 1996, the
Company completed a follow-on offering of 2.1 million shares of its Common Stock
(the Offering). The $49.1 million of net proceeds from the Offering were used to
repay outstanding bank debt.
BUSINESS STRATEGY
The Company believes that the steel service center and processing
industry continues to be driven by four primary trends: consolidation of
industry participants; increased outsourcing of manufacturing processes by
domestic manufacturers; shift by customers to fewer and larger suppliers; and
increased customer demand for higher quality products and services.
In recognition of these industry dynamics, the Company has focused its
business strategy on achieving profitable growth through the acquisition of
service centers and related businesses and investments in higher value-added
processing equipment and services, while continuing its commitment to expanding
and improving its sales force and information systems. In addition, the Company
plans to expand into new domestic and international markets, increase sales to
existing customers and aggressively pursue new customers. Olympic believes its
depth of management, strategically located facilities, advanced information
systems, reputation for quality and customer service, extensive and experienced
sales force and supplier relationships provide a strong foundation for
implementation of its strategy. Key elements of the Company's strategy are set
forth below.
ACQUISITIONS. It is the Company's strategy to continue to make
selective acquisitions of profitable or turnaround steel service centers and
related businesses. Since 1987, the Company has made four major acquisitions of
other steel service centers:
In January 1995, the Company completed the acquisition of
Lafayette Steel for approximately $52.3 million. The acquisition has
provided the Company an entry to the automotive industry. Lafayette
Steel is a Detroit-based service center and toll processor primarily
serving Michigan, Illinois, Indiana and Ohio. Lafayette Steel's 14
major pieces of processing equipment, including eight presses, have
enabled the Company to broaden its value-added processes by offering
first stage blanking to its existing and prospective customers. Since
the acquisition, Olympic has made significant operational changes. From
a purchasing perspective, Lafayette Steel has benefited from Olympic's
critical mass, purchasing discipline, and inventory management. From a
personnel standpoint, several key changes have been made to complement
the existing management team. These initial changes have focused on
internal functions such as plant operations, information systems,
financial controls, and sales management. The Company recently
completed a 71,000 square foot expansion of its warehouse, at an
estimated cost of approximately $6.1 million. The expansion is expected
to result in a significant reduction in outside storage and freight
costs commencing in the second quarter of 1997.
PAGE 3 of 88
<PAGE> 4
Eastern Steel & Metal Company ("Eastern Steel") had ceased
operations prior to its purchase by the Company in 1990. The
acquisition provided the Company with access to the eastern market, as
well as Eastern Steel's processing equipment and its distribution
facility that included seven major pieces of processing equipment. In
addition, the acquisition provided the Company's Philadelphia operation
with processing support. Olympic has supported the operation by
purchasing and upgrading its processing equipment and providing working
capital.
In 1990, Olympic purchased Juster Steel, Inc., a profitable
steel service center in Minneapolis, Minnesota, to expand into the
upper midwest and farmbelt states. Two of the former owners and
executive officers are now the general managers for the Company's
Minneapolis operation. The Company has added sales and other personnel
and invested capital to purchase and upgrade major processing equipment
and facilities, including a new plate processing facility which was
completed in 1995. During 1996 the Company purchased additional new
equipment for the plate facility. The Minneapolis operation currently
has 20 major pieces of processing equipment.
In 1987, the Company acquired Viking Steel Company ("Viking
Steel"), located in Chicago. Prior to the acquisition, Viking Steel's
sales had decreased significantly for several years. The acquisition
broadened the Company's geographic coverage through expansion into the
Chicago market, the largest steel consuming market in the United
States, and extended its product line into stainless steel. Olympic
replaced the original management team, purchased a new cut-to-length
line, purchased a second facility in Schaumburg, Illinois during 1992,
and added plate processing equipment to the Schaumburg facility in
1996.
The Company's strategy is to continue to expand geographically by
making acquisitions, primarily east of the Rocky Mountains, with a particular
focus on the southeastern and southern United States.
INVESTMENT IN VALUE-ADDED PROCESSING EQUIPMENT. An integral part of the
Company's growth has been the purchase of major processing equipment and
construction of facilities. Olympic will continue to invest to support its
growth through the addition of major equipment for its existing facilities. The
Company's philosophy is that equipment purchases should be driven by customer
demand. When the results of sales and marketing efforts to, and communication
with, existing and potential customers indicate that there is sufficient
customer demand for a particular product or service, the Company will purchase
the equipment to satisfy that demand.
In 1987, the Company constructed a facility to house its first major
piece of processing equipment, a heavy gauge, cut-to-length line. Since that
time, the Company has added approximately 60 major pieces of processing
equipment. Certain equipment was purchased directly from equipment manufacturers
while the balance was acquired in the Company's acquisitions of other steel
service centers and related businesses.
Over the past two years, the Company has more than doubled its plate
processing capacity. The Company completed a $7.4 million expansion project in
Minneapolis in early 1995. The project included the construction of a new
112,200 square foot plate processing facility to house laser, plasma and oxygen
burning tables and shot blasting equipment. This investment in plate processing
equipment will enable the Company to respond to an accelerating trend of
domestic manufacturers outsourcing certain manufacturing processes and will
allow the Company to further increase its higher value-added processing
services. The Company believes it is among the largest processors and
distributors of steel plate in the United States. Since the response to the
Company's new plate burning capabilities exceeded expectations, the Company
purchased an additional plasma burning table and an additional laser burning
table for the Minneapolis plate processing facility during the fourth quarter of
1996. Two other plate burning tables also were added in the Chicago and
Philadelphia facilities in 1996.
PAGE 4 of 88
<PAGE> 5
In response to customer demands for higher tolerances and flatness
specifications, the Company purchased a four-high 1/2" by 72" temper mill and
heavy gauge cut-to-length line with a recoil option based on a customized
design. The new equipment, which is housed in a 127,000 square foot building
that was constructed on property adjoining the Company's Cleveland facilities,
is one of only few of its kind in the United States and incorporates
state-of-the-art technology and unique design specifications. The new equipment
permits the Company to process steel to a more uniform thickness and flatness,
upgrades the quality and consistency of certain of the Company's products and
increases the Company's processing capacity by 120,000 tons per year. The new
facility was constructed at a cost of $18.1 million. Start-up operations
commenced in January 1996 and the facility was operating at full capacity during
the third quarter of 1996. The new equipment has been designed to enable the
Company to produce tempered sheet or coil to customer specifications in smaller
quantities than is available from other sources. By offering customers greater
flexibility with respect to order size, the Company believes it can capture
additional market share.
The expansion of plate processing capacity at the Minneapolis,
Philadelphia and Chicago facilities, and the addition of the new temper mill
facility in Cleveland, were made in response to the growing trend among capital
equipment manufacturers to outsource non-core production processes, such as
plate processing, and to concentrate on engineering, design and assembly. The
Company expects to further benefit from this trend and will continue to purchase
new equipment and upgrade existing equipment to meet this demand.
In January 1997, the Company announced the formation of Olympic Laser
Processing (OLP), a joint venture with the U.S. Steel Group of USX Corporation.
OLP is expected to begin processing laser-welded steel parts for the automotive
industry in 1998. At the same time, the Company also placed an order for a new
$3.5 million tube mill which is expected to replace three of the existing four
mills currently operating in Cleveland. The new mill is expected to become
operational in early 1998. In addition, Olympic is also evaluating the
possibility of constructing a second temper mill facility in the Midstates
Region of the United States, in response to demand for tempered product by
agricultural equipment manufacturers located in the region.
SALES AND MARKETING. The Company believes that its commitment to
quality, service and just-in-time delivery has enabled it to build and maintain
strong customer relationships, while expanding its geographic growth through the
continued upgrading and addition of sales personnel. The Company believes it has
among the largest and most experienced sales force in the industry which is a
significant competitive advantage. The Company's sales force has grown to
approximately 125 from 80 at the beginning of 1994. The efforts of these
individuals translate into approximately 300 direct daily sales calls to
customers in virtually all states in the continental United States. The
continuous interaction between the Company's sales force and active and
prospective customers provides the Company with valuable market information and
sales opportunities, including opportunities for outsourcing and increased
sales.
The Company's sales efforts are further supported by metallurgical
engineers and technical service personnel, who have specific expertise in carbon
and stainless steel and alloy plate.
In the international market, the Company's objective is to service
foreign customers by matching their steel requirements to a specific primary
steel producer. The Company functions as the sales arm of primary producers,
giving them access to customers that they might otherwise not sell or service.
This approach differs from the typical international steel trader that
emphasizes large commodity shipments. Although the Company works principally
with domestic steel producers, it continues to develop relationships with
foreign steel producers. All international sales and payments are made in United
States dollars. International sales were approximately 5.6% of net sales in
1996, and less than 5% of total net sales in both 1995 and 1994.
In January 1997, the Company invested $4 million in Olympic Continental
Resources (OCR), a joint venture with Atlas Iron Processors, Inc. (Atlas) and
Uwe T. Schmidt, OCR's Chief Executive Officer. OCR buys, sells and trades
ferrous and non-ferrous metals and alternate iron products to steel mills and
scrap processors. The venture acquired the business activities previously
conducted by Thyssen Continental Resources LLC, a joint venture between Thyssen
Inc. and Atlas that had revenues of $145 million for fiscal 1996. Olympic has
a 45% share interest in OCR, which is headquartered in Cleveland, Ohio. OCR's
operating results will be included in the Company's 1997 financial statements
accounted for under the equity method.
PAGE 5 of 88
<PAGE> 6
DEPTH OF MANAGEMENT. The Company attributes a portion of its success
to the depth of its management. In addition to the four principal executive
officers, the Company's management team includes three regional vice presidents
and ten general managers, its MIS Director and its Treasurer - Corporate
Controller. Members of the management team have a diversity of backgrounds
within the steel industry, including management positions at steel producers and
other steel service centers. They average 23 years of experience in the steel
industry and 9 years with the Company. This depth of management allows the
Company to pursue and implement its growth strategy.
PRODUCTS, PROCESSING SERVICES, AND QUALITY STANDARDS
The Company maintains a substantial inventory of coil and plate steel
generally purchased from steel producers. Coil is in the form of a continuous
sheet, typically 36 to 96 inches wide, between 0.015 and 0.625 inches thick, and
rolled into 10 to 30 ton coils. Because of the size and weight of these coils
and the equipment required to move and process them into smaller sizes, such
coils do not meet the requirements, without further processing, of many
customers. Plate is typically thicker than coil and is processed by laser,
plasma or oxygen burning.
Customer orders are entered into computerized order entry systems, and
appropriate inventory is then selected and scheduled for processing in
accordance with the customer's specified delivery date. The Company attempts to
maximize yield by combining customer orders for processing each purchased coil
to the fullest extent practicable.
The Company's services include both traditional service center
processes of cutting-to-length, slitting, shearing and roll forming and higher
value-added processes of blanking, tempering and plate burning to process steel
to specified lengths, widths and shapes pursuant to specific customer orders.
Cutting-to-length involves cutting steel along the width of the coil. Slitting
involves cutting steel to specified widths along the length of the coil.
Shearing is the process of cutting sheet steel, while roll forming is the
process in which flat rolled coils are formed into tubing. Blanking cuts the
steel into specific shapes with close tolerances. Tempering improves the
uniformity of the thickness and flatness of the steel through a cold rolling
process. Plate burning is the process of cutting steel into specific shapes and
sizes.
The following table sets forth the major pieces of processing equipment
used by geographic location.
<TABLE>
<CAPTION>
Processing Cleveland Chicago Detroit Minneapolis Connecticut Philadelphia Total
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(a) (b) (b)
<S> <C> <C> <C> <C> <C> <C> <C>
Cutting-to-length /
Decoiling 3 1 3 3 3 -- 13
Blanking -- -- 8 -- -- -- 8
Tempering 1 -- -- -- -- -- 1
Plate processing 2 1 -- 7 2 3 15
Slitting -- -- 3 2 3 -- 8
Shearing 1 1 -- 7 2 -- 11
Roll forming 4 -- -- -- -- -- 4
Shot blasting -- -- -- 1 -- -- 1
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 11 3 14 20 10 3 61
---------- ---------- ---------- ---------- ---------- ---------- ----------
<FN>
(a) Consists of four facilities.
(b) Consists of two facilities.
</TABLE>
The Company's quality control system establishes controls and
procedures covering all aspects of its products from the time the material is
ordered through receipt, processing and shipment to the customer. These controls
and procedures encompass periodic supplier audits, inspection criteria,
traceability and certification. From time to time, the Company has undergone
quality audits by certain of its customers and has met all requirements of those
customers. In addition, the Philadelphia and Minneapolis operations are both ISO
9002 certified, while certain of the Company's other operations are currently
seeking to obtain the ISO certification. Lafayette Steel is one of only a few
domestic service centers to earn Ford's Q1 quality rating. A quality testing lab
was constructed adjacent to the new temper mill facility in Cleveland.
PAGE 6 of 88
<PAGE> 7
CUSTOMERS AND DISTRIBUTION
The Company processes steel for sale to over 3,400 domestic and foreign
customers. The Company has a diversified customer and geographic base, which
reduces the cyclicality of its business. The top 20 customers accounted for less
than 21% and 23% of net sales in 1996 and 1995, respectively. In addition, the
Company's largest customer accounted for less than 5% and 6% of net sales in
1996 and 1995, respectively. Major domestic customers include automobile
manufacturers and stampers, manufacturers of transportation equipment, material
handling equipment, electrical machinery, storage tanks, food service equipment,
construction equipment, agricultural equipment and appliances, general and plate
fabricators, and steel service centers. Sales to the three largest U.S.
automobile manufacturers and their suppliers, made principally by the Company's
Lafayette Steel operation, and sales to other steel service centers, accounted
for approximately 23% and 13%, respectively, of the Company's net sales in 1996,
and 25% and 11% of net sales in 1995.
While the Company ships products throughout the United States, most of
its customers are located in the midwestern, eastern and southern regions of the
United States. Most domestic customers are located within a 250-mile radius of
one of the Company's processing facilities, thus enabling an efficient delivery
system capable of handling a high frequency of short lead-time orders. The
Company transports most of its products directly to customers via independent
trucking firms, although the Company also owns and operates some trucks in
different locations to facilitate short-distance, multi-stop deliveries.
International products are shipped either directly from the steel producers to
the customer or to an intermediate processor, and then to the customer by rail,
truck or ocean carrier.
The Company produces its processed steel products to specific customer
orders as well as for stock. Many of the Company's customers commit to purchase
on a regular basis with the customer notifying the Company of specific release
dates as the processed products are required. Customers typically notify the
Company of release dates anywhere from a just-in-time basis up to three weeks
before the release date. Therefore, the Company is required to carry sufficient
inventory of raw materials to meet the short lead time and just-in-time delivery
requirements of its customers.
SUPPLIERS
Olympic concentrates on developing relationships with high-quality
domestic integrated and mini mills, as well as foreign steel producers, and
becoming an important customer to such producers. The Company is a major
customer of flat-rolled coil and plate for many of its principal suppliers, but
is not dependent on any one supplier. The Company purchases in bulk from steel
producers in quantities that are efficient for such producers. This enables the
Company to maintain a continued source of supply at what it believes to be
competitive prices. Olympic believes the accessibility and proximity of its
facilities to major domestic steel producers will continue to be an important
factor in maintaining strong relationships with them.
The Company purchases flat-rolled steel for processing at regular
intervals from a number of domestic and foreign producers of primary steel,
including LTV Corporation, U.S. Steel Corporation, National Steel Corporation,
Bethlehem Steel, Rouge Steel, Geneva Steel and Citisteel. The Company believes
that its relationships with its suppliers are good. The Company has no long-term
commitments with any of its suppliers.
COMPETITION
The principal markets served by the Company are highly competitive.
The Company competes with other regional and national steel service centers,
single location service centers and, to a certain degree, steel producers and
intermediate steel processors on a regional basis. The Company has different
competitors for each of its products and within each region. The Company
competes on the basis of price, product selection and availability, customer
service, quality and geographic proximity. Certain of the Company's competitors
have financial and operating resources in excess of those of the Company.
PAGE 7 of 88
<PAGE> 8
With the exception of certain Canadian operations, foreign steel
service centers are not a material factor in the Company's principal domestic
markets. The Company competes for international sales with many domestic and
foreign steel traders and producers, none of whom dominates or controls the
international markets served by the Company. Many of these international
competitors are also suppliers to the Company.
MANAGEMENT INFORMATION SYSTEMS
Information systems are a critical component of Olympic's growth
strategy. The Company has invested, and will continue to invest, in the advanced
technologies and human resource training required in this area. The Company
believes that its information systems provide it with a significant competitive
advantage. The Company's information systems focus on the following core
application areas:
INVENTORY MANAGEMENT. The Company's information systems track the
status of inventories in all locations on a daily basis. This real-time
information is essential in allowing the Company to closely monitor its
inventory and to continue to improve its inventory turns.
DIFFERENTIATED SERVICES TO CUSTOMERS. The Company's information
services allow it to provide value-added services to customers, including
quality control monitoring and reporting, just-in-time inventory management and
shipping services and on-line order status information.
ADVANCED CUSTOMER INTERACTION. The Company is actively pursuing
opportunities to streamline the cost and time associated with customer and
supplier communications, including electronic data interchange, direct links
from Olympic to key customer information systems and access to information
through the Internet.
INTERNAL COMMUNICATIONS. The Company believes that the continuous
interaction between its sales force and its customer base provides Olympic with
valuable market information and sales opportunities. Transactions are summarized
continuously and the systems generate reports that allow management to monitor
operational performance, as well as the performance for any particular customer.
EMPLOYEES
At December 31, 1996, the Company employed 952 people. Approximately
330 of the Company's hourly plant personnel at the Minneapolis and Lafayette
Steel facilities are represented by four separate collective bargaining units.
Collective bargaining agreements with these units expire in 1998 and 1999. The
Company has never experienced a work stoppage and believes that its relationship
with its employees is good.
SERVICE MARKS, TRADE NAMES AND PATENTS
The Company conducts its business under the name "Olympic Steel." A
provision of federal law grants exclusive rights to the word "Olympic" to the
U.S. Olympic Committee. The U.S. Supreme Court has recognized, however, that
certain users may be able to continue to use the word based on long-term and
continuous use. The Company has used the name Olympic Steel since 1954, but is
prevented from registering the name "Olympic" and from being qualified to do
business as a foreign corporation under that name in certain states. In such
states, the Company has registered under different names, including "Oly Steel"
and "Olympia Steel." The Company's wholly-owned subsidiary, Olympic Steel
Lafayette, Inc., does business in certain states under the names "Lafayette
Steel and Processing" and "Lafayette Steel."
PAGE 8 of 88
<PAGE> 9
GOVERNMENT REGULATION
The Company's operations are governed by many laws and regulations,
including those relating to workplace safety and worker health, principally the
Occupational Safety and Health Act and regulations thereunder. The Company
believes that it is in material compliance with these laws and regulations and
does not believe that future compliance with such laws and regulations will have
a material adverse effect on its results of operations or financial condition.
ENVIRONMENTAL
The Company's facilities are subject to certain federal, state and
local requirements relating to the protection of the environment. The Company
believes that it is in material compliance with all environmental laws, does not
anticipate any material expenditures to meet environmental requirements and does
not believe that compliance with such laws and regulations will have a material
adverse effect on its results of operations or financial condition.
CYCLICALITY IN THE STEEL INDUSTRY; IMPACT OF CHANGING STEEL PRICES
The principal raw material used by the Company is flat-rolled carbon
and stainless steel that the Company typically purchases from steel producers.
The steel industry as a whole is cyclical, and at times pricing and availability
in the steel industry can be volatile due to numerous factors beyond the control
of the Company, including general, domestic and international economic
conditions, labor costs, production levels, competition, import duties and
tariffs and currency exchange rates. This volatility can significantly affect
the availability and costs of raw materials for the Company.
Steel service centers maintain substantial inventories of steel to
accommodate the short lead times and just-in-time delivery requirements of their
customers. Accordingly, the Company purchases steel in an effort to maintain its
inventory at levels that it believes to be appropriate to satisfy the
anticipated needs of its customers based upon historic buying practices,
contracts with customers and market conditions. The Company's commitments for
steel purchases are generally at prevailing market prices in effect at the time
the Company places its orders. The Company has no long-term, fixed-price steel
purchase contracts. When raw material prices increase, competitive conditions
will influence how much of the steel price increases can be passed on to the
Company's customers. When raw material prices decline, customer demands for
lower prices could result in lower sale prices and, as the Company uses existing
steel inventory, lower margins. Changing steel prices therefore could adversely
affect the Company's net sales, gross margins and net income.
CYCLICALITY OF DEMAND; SALES TO THE AUTOMOTIVE INDUSTRY
Certain of the Company's products are sold to industries that
experience significant fluctuations in demand based on economic conditions or
other matters beyond the control of the Company. The Company's diversified
customer and geographic base reduce such cyclicality; however, no assurance can
be given that the Company will be able to increase or maintain its level of
sales in periods of economic stagnation or downturn.
Sales of the Company's products for use in the automotive industry
accounted for approximately 23% of the Company's net sales in 1996 and
approximately 25% in 1995. Such sales include sales directly to automotive
manufacturers and to manufacturers of automotive components and parts. The
automotive industry experiences significant fluctuations in demand based on
numerous factors such as general economic conditions and consumer confidence.
The automotive industry is also subject, from time to time, to labor problems.
The contracts between the United Automobile Workers ("UAW") and the Canadian
Auto Workers ("CAW") and General Motors Corporation, Chrysler Corporation and
The Ford Motor Company in both the United States and Canada were extended in
1996. There can be no assurance, however, that the new agreements will preclude
future work stoppages. Any prolonged disruption in business arising from work
stoppages by automotive manufacturers could have a material adverse effect on
the Company's results of operations.
PAGE 9 of 88
<PAGE> 10
FORWARD-LOOKING INFORMATION
This document contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. When used in this
document, the words "expect," "believe," "estimated," "project" and similar
expressions are intended to identify forward-looking statements, which are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks, uncertainties
and assumptions including, but not limited to, those identified above; potential
equipment malfunction; equipment installation and construction delays; the
adequacy of computer system investments; the successes of joint ventures; and
the availability of acquisition opportunities. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those expected, believed, estimated or
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The Company
undertakes no obligation to republish revised forward-looking statements to
reflect the occurrence of unanticipated events or circumstances after the date
hereof.
PAGE 10 of 88
<PAGE> 11
ITEM 2. PROPERTIES
The Company believes that its properties are strategically situated
relative to its customers and each other, allowing the Company to support
customers from multiple locations. This permits the Company to provide inventory
and processing services which are available at one operation but not another.
Steel is shipped from the most advantageous facility, regardless of where the
order was taken. The facilities are located in the hubs of major steel
consumption markets, and within a 250-mile radius of most of the Company's
customers, a distance approximating the one-day driving and delivery limit for
truck shipments. The following table sets forth certain information concerning
the Company's properties:
<TABLE>
<CAPTION>
SQUARE OWNED OR
OPERATION LOCATION FEET FUNCTION LEASED
--------- -------- ---- -------- ------
<S> <C> <C> <C> <C>
Cleveland Bedford Heights, 127,000 Corporate headquarters and coil Owned
Ohio(1) processing and distribution center
Bedford Heights, 121,500 Coil processing, distribution center Owned
Ohio(1) and offices
Bedford Heights, 59,500 Plate processing and distribution Leased(2)
Ohio(1) center
Cleveland, Ohio 118,500 Roll form processing, distribution Owned
center and offices
Minneapolis Plymouth, Minnesota 196,800 Coil processing, distribution center Owned
and offices
Plymouth, Minnesota 112,200 Plate processing, distribution center Owned
and offices
Lafayette Detroit, Michigan 256,000 Coil processing, distribution center Owned
and offices
Connecticut Milford, Connecticut 134,000 Coil and plate processing, Owned
distribution center and offices
Chicago Schaumburg, Illinois 80,500 Plate processing, distribution center
and offices
Elk Grove Village, 48,000 Coil processing and distribution center Owned
Illinois
Philadelphia Lester, Pennsylvania 92,500 Plate processing, distribution center Leased
and offices
- -----------------
<FN>
(1) The Bedford Heights facilities are all adjacent properties.
(2) This facility is leased from a related party pursuant to the terms of
a triple net lease for $195,300 per year. The lease expires in June
2000, subject to two ten-year renewal options.
</TABLE>
The Company also has a sales office in Greenville, South Carolina. Its
international sales office is located in Pittsburgh, Pennsylvania. All of the
properties listed in the table as owned are subject to mortgages securing
industrial revenue bonds, taxable rate notes and the Company's credit agreement.
Management believes that the Company will be able to accommodate its capacity
needs for the immediate future at its existing facilities.
PAGE 11 of 88
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various legal actions that it believes are
ordinary in nature and incidental to the operation of its business. In the
opinion of management, the outcome of the proceedings to which the Company is
currently a party will not have a material adverse effect upon its operations or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
This information is included in this Report pursuant to Instruction 3
of Item 401(b) of Regulation S-K. The following is a list of the executive
officers of the Company and a brief description of their business experience.
Each executive officer will hold office until his successor is chosen and
qualified.
Michael D. Siegal, age 44, has served as President and Chief Executive
Officer of the Company since 1984, and as Chairman of the Board of Directors
since January 1, 1994. He has been employed by the Company in a variety of
capacities since 1974. Mr. Siegal is a member of the Executive Committee for the
Steel Service Center Institute (SSCI). He is also a member of the American Iron
and Steel Institute, presently serving on its Associate Member Committee. He
served as National Chairman of Israel Bonds during the period 1991-1993 and
presently serves as a member of the Executive Committee of the Development
Corporation for Israel and as budget chairman for the Cleveland Jewish Community
Federation. He is a member of the Board of Directors of American National Bank
(Cleveland, Ohio) and the Cleveland Lumberjacks, a professional hockey team.
R. Louis Schneeberger, age 42, has served as Chief Financial Officer
and director of the Company since 1987. Prior to that time, Mr. Schneeberger was
employed by Arthur Andersen LLP for ten years, concentrating on mergers,
acquisitions, and auditing. He is also Chairman of the Board of Directors of
Royal Appliance Mfg. Co. (a New York Stock Exchange listed company that is an
assembler and distributor of vacuum cleaners and other floor care products), a
certified public accountant, a trustee of the Achievement Center for Children,
and a member of the Business Advisory Council of Kent State University.
David A. Wolfort, age 44, has served as Chief Operating Officer since
1995 and a director of the Company since 1987. He previously served as Vice
President - Commercial from 1987 to 1995, after having joined the Company in
1984 as General Manager. Mr. Wolfort's duties include the management of all
sales, purchasing and operational aspects of each region. Prior to joining the
Company, Mr. Wolfort spent eight years with Sharon Steel, a primary steel
producer, in a variety of sales assignments, including General Manager-Field
Sales, Sharon Steel Products and was a steel fellow with the American Iron and
Steel Institute. Mr. Wolfort is the past president of SSCI's Northern Ohio
Chapter and is presently Vice Chairman of its Governmental Affairs Committee and
a National Chapter Director. He is also a trustee of Health Hill Hospital for
Children.
Bruce S. Adelstein, age 43, serves as Vice President - Operations. He
has served as a Vice President and a director of the Company since 1984. He has
been employed by the Company in a variety of operating capacities since 1972.
Mr. Adelstein's duties include the supervision of steel processing, corporate
regional steel purchasing and specific regional sales.
PAGE 12 of 88
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on NASDAQ under the symbol "ZEUS."
The following table sets forth, for each quarter in the two year period ended
December 31, 1996, the high and low sales prices of the Company's Common Stock
on NASDAQ:
<TABLE>
<CAPTION>
HIGH LOW
---------------- -----------------
<S> <C> <C>
1995
First quarter...................... 11.50 9.50
Second quarter..................... 11.00 9.00
Third quarter...................... 10.88 8.88
Fourth quarter..................... 10.13 7.50
1996
First quarter...................... 10.88 8.50
Second quarter..................... 28.63 10.13
Third quarter...................... 30.25 22.38
Fourth quarter..................... 29.75 20.25
</TABLE>
HOLDERS OF RECORD
On March 6, 1997, the Company believed there were approximately 12,000
beneficial holders of the Company's Common Stock.
DIVIDENDS
The Company presently retains all of its earnings, and anticipates that
all of its future earnings will be retained to finance the expansion of its
business and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future. Any determination to pay cash dividends in the future
will be at the discretion of the Board of Directors after taking into account
various factors, including the Company's financial condition, results of
operations, current and anticipated cash needs, plans for expansion and
restrictions under the Company's credit agreements.
PAGE 13 of 88
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected data of the Company for each of
the five years in the period ended December 31, 1996. The data presented should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto included elsewhere in this report.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(in thousands, except per share data)
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Tons sold
Direct 1,022 931 685 618 565
Toll 150 155 10 3 2
Total 1,172 1,086 695 621 567
Net sales $560,062 $554,469 $381,906 $313,810 $275,415
Cost of sales 436,553 446,513 304,777 250,707 220,626
Gross margin 123,509 107,956 77,129 63,103 54,789
Operating expenses 93,127 85,855 58,836 50,519 46,635
Operating income 30,382 22,101 18,293 12,584 8,154
Interest expense 4,301 10,746 3,761 4,480 4,699
Receivable securitization expense 3,393 107 -- -- --
Income before taxes 22,688 11,248 14,532 8,104 3,455
Income taxes 8,569 4,504 5,834 -- --
Reinstatement of deferred income taxes (a) -- -- 7,800 -- --
Net income 14,119 6,744 898 8,104 3,455
Net income per share (b) $ 1.50 $ 0.78 $ 0.12
Weighted average shares outstanding (b) 9,427 8,600 7,778
Pro forma net income (c) $ 9,049 $ 7,376
Pro forma net income per share (d) $ 1.05 $ 0.86
Pro forma weighted average
shares outstanding (d) 8,600 8,600
Balance Sheet Data:
Current assets $152,255 $124,371 $155,178 $123,787 $105,196
Current liabilities 36,267 31,226 37,767 48,930 29,381
Working capital 115,988 93,145 117,411 74,857 75,815
Total assets 241,130 202,072 200,987 151,947 133,102
Total debt 64,582 98,540 93,437 95,330 83,970
Shareholders' equity 137,327 73,984 67,240 9,347 20,993
<FN>
(a) Effective January 1, 1994, the Company changed its income tax status
from an S corporation to a C corporation. This change required a
reinstatement of deferred income taxes as a one-time charge of $7,800
to 1994 earnings.
(b) Shares outstanding and net income per share data prior to 1994 is not
meaningful and therefore has not been presented.
(c) Unaudited pro forma net income reflects: (i) the reduction in interest
expense resulting from the application of net proceeds from the sale of
4 million shares of Common Stock on March 17, 1994, (ii) the reduction
of certain compensation expense, net of additional costs to be incurred
as a public company, and (iii) assumes the Company is subject to income
tax as a C corporation.
(d) Unaudited pro forma net income per share has been calculated by
dividing pro forma net income by 8,600 shares, the number of shares
outstanding after the March 1994 initial public offering date.
</TABLE>
PAGE 14 of 88
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's results of operations are affected by numerous external
factors, such as general economic and political conditions, competition, and
steel pricing and availability.
Olympic sells a broad range of products, many of which have different
gross margins. Moreover, products that have more value-added processing
generally have a greater gross margin. Accordingly, the Company's overall gross
margin is affected by product mix and the amount of processing performed, as
well as volatility in selling prices and material purchase costs. With the
acquisition of Lafayette Steel as of January 1, 1995, the Company performs toll
processing of customer-owned steel. Toll processing, substantially all of which
is performed by Lafayette Steel, generally results in lower selling prices and
gross margin dollars per ton but higher gross margin percentages than the
Company's historical direct sales.
Financing costs include interest expense on debt and costs associated
with the $65 million three year accounts receivable securitization program which
commenced in December 1995 (the Financing Costs). Interest rates paid by the
Company under its credit agreement are generally based on prime or LIBOR plus a
premium (the Premium) determined quarterly, which varies based on the Company's
operating performance and financial leverage. Receivable securitization costs
are based on commercial paper rates calculated on the amount of receivables
sold.
In March 1994, the Company completed its initial public offering of 4
million shares of its Common Stock (the IPO), which generated net proceeds of
$57.0 million. In August 1996, the Company completed a follow-on stock offering
of 2.1 million shares of common stock (the Offering). The net proceeds from the
Offering, which totaled $49.1 million, were used to repay outstanding bank
debt.
The Company sells certain products internationally, primarily in Mexico
and Puerto Rico. All international sales and payments are made in United States
dollars. These sales historically involve the Company's direct representation of
steel producers and may be covered by letters of credit or trade receivable
insurance. Typically, international sales are more transactional in nature with
lower gross margins than domestic sales. Domestic steel producers generally
supply domestic customers before meeting foreign demand, particularly during
periods of supply constraints. As a result, domestic and international sales
tend to be countercyclical.
Because the Company conducts its operations generally on the basis of
short-term orders, backlog is not a meaningful indicator of future performance.
RESULTS OF OPERATIONS
The following table sets forth certain income statement data expressed
as a percentage of net sales:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 77.9 80.5 79.8
------ ------ ------
Gross margin 22.1 19.5 20.2
Operating expenses 16.6 15.5 15.4
------ ------ ------
Operating income 5.4 4.0 4.8
Interest and receivable securitization expense 1.4 2.0 1.0
------ ------ ------
Income before taxes 4.1 2.0 3.8
Income taxes 1.5 0.8 1.5
Reinstatement of deferred income taxes 0.0 0.0 2.0
------ ------ ------
Net income 2.5% 1.2% 0.2%
====== ====== ======
</TABLE>
PAGE 15 of 88
<PAGE> 16
1996 COMPARED TO 1995
Tons sold increased 7.9% to 1,172 thousand in 1996 from 1,086 thousand
in 1995. Tons sold in 1996 include 1,022 thousand from direct sales and 150
thousand from toll processing, compared with 931 thousand from direct sales and
155 thousand from toll processing in 1995. All but one of the Company's
operations achieved increases in tons sold in 1996.
Net sales increased by $5.6 million, or 1.0%, to $560.1 million from
$554.5 million in 1995, despite a 6.4% decline in average selling prices. The
largest decline in average selling prices related to stainless steel products.
International sales represented 5.6% of consolidated net sales in 1996, compared
to 4.7% in 1995.
As a percentage of net sales, gross margin increased to 22.1% from
19.5% last year. The increase is attributable to the impact of centralized steel
purchasing efforts, improved inventory turns, and an increase in higher
value-added processing in 1996.
As a percentage of net sales, operating expenses increased to 16.6% in
1996 from 15.5% in 1995. The increase is primarily attributable to lower average
selling prices in 1996. On a per ton basis, operating expenses remained
constant, totaling $79 in both 1996 and 1995. Operating expenses in 1996 include
incremental costs associated with the new Cleveland temper mill and Minneapolis
plate processing facilities, expansion of plate processing capabilities in
Philadelphia, the addition and training of a third shift at the Minneapolis coil
processing facility and increased management information systems expenditures.
Financing Costs decreased 29.1% to $7.7 million in 1996 from $10.9
million in 1995. The decrease is attributable to lower average borrowings
outstanding in 1996, primarily as a result of the Offering and lower average
inventory levels. The decrease was further effected by lower borrowing rates in
1996 and rate savings associated with the receivable securitization program
implemented in December 1995. Overall effective borrowing rates decreased to
7.1% in 1996 from 7.7% in 1995 as a result of lower prime and LIBOR rates and
lower Premiums in the current year. Premiums for the quarter commencing March 1,
1997, will continue to be 0% for prime and .75% for LIBOR.
Income before taxes increased $11.4 million, or 101.7%, to $22.7
million in 1996 from $11.2 million in 1995. Income taxes computed on 1996
earnings represented 37.8% of pre-tax income or $8.6 million versus 40.0% or
$4.5 million last year. The decrease in income taxes as a percentage of pretax
income is attributable to the implementation of tax planning strategies in 1996.
Income taxes for 1997 are expected to approximate the 1996 percentage.
Net income increased to $14.1 million or $1.50 per share in 1996, from
$6.7 million, or $.78 per share in 1995. As a result of the Offering, weighted
average shares outstanding increased from 8.6 million in 1995 to 9.4 million in
1996. Total shares outstanding since the Offering have approximated 10.7
million.
1995 COMPARED TO 1994
Tons sold increased 56.4% to 1,086 thousand in 1995 from 695 thousand
in 1994. Tons sold in 1995 include 931 thousand from direct sales and 155
thousand from toll processing, compared with 685 thousand from direct sales and
10 thousand from toll processing in 1994.
Net sales increased by $172.6 million, or 45.2%, to $554.5 million in
1995 from $381.9 million in 1994. The increase was primarily attributable to the
inclusion of Lafayette Steel's results of operations in 1995. All but one of the
Company's other operations achieved net sales increases in 1995. International
sales, which were less than 5% of total net sales in both 1995 and 1994, nearly
tripled between years as a result of domestic steel producers seeking foreign
markets for their products during the last half of 1995.
As a percentage of net sales, gross margin decreased to 19.5% from
20.2% in 1994. The decrease is attributable to the impact of Lafayette Steel,
which had gross margins lower than the Company's other domestic operations, and
an increase in the comparatively lower margin international sales, offset by
higher gross margins from the Company's other domestic operations.
PAGE 16 of 88
<PAGE> 17
As a percentage of net sales, operating expenses remained relatively
constant between years. Operating expenses include start-up costs related to the
Cleveland temper mill and Minneapolis plate processing facilities in 1995.
Interest expense increased $7.0 million to $10.7 million in 1995 from
$3.8 million in 1994. The increase was attributable to higher average borrowings
associated with the Lafayette Steel acquisition, the effect of higher priced
steel in inventory in 1995, and higher effective borrowing rates. Overall
effective borrowing rates increased to 7.7% in 1995 from 5.7% in 1994 as a
result of increases in the prime rate and LIBOR in 1995, and higher Premiums.
Premiums in 1995 ranged from .25% to 1% for prime, and 1.25% to 2% for LIBOR.
Income before taxes decreased $3.3 million, or 22.6%, to $11.2 million
in 1995 from $14.5 million in 1994. Income taxes computed on 1995 earnings
represented 40.0% of pre-tax income or $4.5 million versus 40.1% or $5.8 million
in 1994. A one-time $7.8 million charge to record deferred income taxes
associated with the IPO was also recorded in 1994.
Net income totaled $6.7 million or $.78 per share in 1995, compared to
$.9 million, or $.12 per share in 1994 after recording the reinstatement of
deferred income taxes. Excluding the reinstatement of deferred income taxes in
1994, net income would have been $1.12 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirement is to fund its growth,
including strategic acquisitions, the purchase and upgrading of processing
equipment and services, the construction and upgrading of related facilities and
additional working capital. The Company uses cash generated from operations,
long-term debt obligations, proceeds from the Company's accounts receivable
securitization program and leasing transactions to fund these requirements.
Historically, the Company has used revolving credit borrowings under its bank
credit facility to finance its working capital requirements and has financed
acquisitions and capital additions from the proceeds of long-term indebtedness
or leases.
Net cash from operating activities primarily represents net income plus
non-cash charges for depreciation and amortization, and changes in working
capital. During 1996, $20.2 million of cash generated from net income and
non-cash charges was offset by $20.1 million of cash used for working capital
purposes.
Working capital at December 31, 1996 increased $22.8 million or 24.5%
from the end of the prior year. The increase is primarily attributable to a
$25.3 million increase in inventory offset in part by a $10.0 million increase
in accounts payable resulting from foreign inventory purchases received at the
end of 1996.
As of December 31, 1996, $55.0 million of eligible receivables were
sold under the Company's accounts receivable securitization program, compared to
$53.7 million at December 31, 1995. The amount of trade receivables sold by the
Company typically changes monthly depending upon the level of defined eligible
receivables available for sale at each month end.
Net cash used for investing activities in 1996 consisted of $15.5
million of capital expenditures, primarily related to the construction of a
71,000 square foot expansion of Lafayette Steel's existing facility, completion
of the temper mill facility, processing equipment purchased under a lease buyout
option, additional plasma burning tables, upgrading the Company's information
systems, and construction of additional office space. Significant investing
activities for 1997 include $6.0 million in capital contributions for two joint
ventures and the purchase of a new $3.5 million tubing mill, which is
anticipated to become operational in 1998. The Company is also evaluating the
possibility of constructing a second temper mill facility in the Midstates
Region of the United States, and developing a more significant presence in the
Southeast Region of the country.
Cash flows from financing activities in 1996 consisted of $49.1 million
of net proceeds from the Offering, offset by net debt repayments of $33.6
million.
PAGE 17 of 88
<PAGE> 18
At December 31, 1996, the Company's bank group credit agreement
consists of an unsecured revolving credit component of $50 million and letter of
credit commitments of approximately $76.1 million (the Credit Facility). In
January 1997, the revolving credit component was increased to $60 million. The
Credit Facility, which matures on June 30, 1999, contains restrictive covenants
which require minimum net worth levels, maintenance of certain financial ratios
and limitations on capital expenditures. The Company is in compliance with all
covenants. At December 31, 1996, approximately $3.5 million in unused revolving
credit borrowing availability existed under the Credit Facility.
The Company believes that funds available under the Credit Facility,
other credit and financing agreements and funds generated from operations will
be sufficient to provide the Company with the liquidity necessary to fund its
anticipated working capital requirements and capital expenditure requirements
over the next 12 months. Capital requirements are subject to change as business
conditions warrant and opportunities arise. In connection with its internal and
external expansion strategies, the Company may from time to time seek additional
funds to finance other new facilities and significant improvements to processing
equipment to respond to customers' demands.
EFFECTS OF INFLATION
Inflation generally affects the Company by increasing the cost of
personnel, processing equipment, purchased steel, and borrowings under the
various credit agreements. The Company does not believe that inflation has had a
material effect on its operating income over the periods presented. However, it
has and could have a material effect on interest expense based on inflation's
impact on amounts borrowed and prime and LIBOR borrowing rates.
PAGE 18 of 88
<PAGE> 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
the Board of Directors of
Olympic Steel, Inc.:
We have audited the accompanying consolidated balance sheets of Olympic
Steel, Inc. (an Ohio corporation) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. 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 Olympic Steel, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Cleveland, Ohio,
February 3, 1997.
PAGE 19 OF 88
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS
OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Net sales $ 560,062 $ 554,469 $ 381,906
Cost of sales 436,553 446,513 304,777
--------- --------- ---------
Gross margin 123,509 107,956 77,129
Operating expenses
Warehouse and processing 29,881 28,307 19,806
Administrative and general 25,089 21,345 14,090
Distribution 16,585 16,155 11,734
Selling 13,475 13,692 9,466
Occupancy 3,769 3,092 1,906
Depreciation and amortization 4,328 3,264 1,834
--------- --------- ---------
Total operating expenses 93,127 85,855 58,836
--------- --------- ---------
Operating income 30,382 22,101 18,293
Interest expense 4,301 10,746 3,761
Receivable securitization expense 3,393 107 --
--------- --------- ---------
Income before taxes 22,688 11,248 14,532
Income taxes 8,569 4,504 5,834
Reinstatement of deferred income taxes -- -- 7,800
--------- --------- ---------
Net income $ 14,119 $ 6,744 $ 898
========= ========= =========
Net income per share $ 1.50 $ 0.78 $ 0.12
========= ========= =========
Weighted average shares outstanding 9,427 8,600 7,778
Pro forma income data (unaudited):
Income before taxes $ 14,532
Supplemental pro forma adjustments:
Interest savings 501
Reduction in compensation 83
Income taxes (6,067)
---------
Pro forma net income $ 9,049
=========
Pro forma net income per share $ 1.05
=========
Pro forma weighted average shares outstanding 8,600
</TABLE>
The accompanying notes are an integral part of these statements.
PAGE 20 of 88
<PAGE> 21
OLYMPIC STEEL, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
1996 1995
----------- ---------
ASSETS
<S> <C> <C>
Cash $ 2,018 $ 1,884
Accounts receivable 9,483 7,405
Inventories 138,238 112,986
Prepaid expenses and other 2,516 2,096
--------- ---------
Total current assets 152,255 124,371
--------- ---------
Property and equipment 93,954 78,452
Accumulated depreciation (14,954) (10,886)
--------- ---------
Net property and equipment 79,000 67,566
--------- ---------
Goodwill 9,875 10,135
--------- ---------
Total assets $ 241,130 $ 202,072
========= =========
LIABILITIES
Current portion of long-term debt $ 1,869 $ 4,768
Accounts payable 25,267 15,220
Accrued payroll 4,610 2,922
Accrued and deferred income taxes 280 3,246
Other accrued liabilities 4,241 5,070
--------- ---------
Total current liabilities 36,267 31,226
--------- ---------
Revolving credit agreement 46,457 51,338
Industrial revenue bonds 8,405 9,565
Taxable rate notes 7,200 7,900
Term loans 651 24,969
--------- ---------
Total long-term debt 62,713 93,772
--------- ---------
Deferred income taxes 4,823 3,090
--------- ---------
Total liabilities 103,803 128,088
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, without par value, 5,000 shares authorized,
no shares issued or outstanding -- --
Common stock, without par value, 20,000 shares authorized,
10,692 and 8,600 issued and outstanding in 1996 and 1995, respectively 106,319 57,095
Retained earnings 31,008 16,889
--------- ---------
Total shareholders' equity 137,327 73,984
--------- ---------
Total liabilities and shareholders' equity $ 241,130 $ 202,072
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
PAGE 21 of 88
<PAGE> 22
OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 14,119 $ 6,744 $ 898
Adjustments to reconcile net income to net
cash from (used for) operating activities-
Depreciation and amortization 4,328 3,264 1,834
Long-term deferred income taxes 1,733 (1,713) 4,803
-------- -------- --------
20,180 8,295 7,535
Changes in working capital:
Accounts receivable (2,388) 54,076 (7,018)
Inventories (25,252) 24,310 (23,713)
Prepaid expenses and other (420) (165) (491)
Accounts payable 10,047 (27,590) 109
Accrued payroll and other accrued liabilities 859 959 2,648
Accrued and deferred income taxes (2,966) (134) 2,980
-------- -------- --------
(20,120) 51,456 (25,485)
-------- -------- --------
Net cash from (used for) operating activities 60 59,751 (17,950)
-------- -------- --------
Cash flows from investing activities:
Acquisition of Lafayette Steel (including working capital of $28,532) -- (52,345) --
Temper mill facility and equipment (1,411) (7,979) (8,689)
Plate facility and processing equipment (1,419) (2,063) (5,327)
Lafayette Steel facility expansion (4,445) -- --
Purchase of previously leased processing equipment (1,855) -- --
Tubing facility and equipment -- (1,448) (1,401)
Other capital expenditures, net (6,372) (1,249) (1,653)
-------- -------- --------
Net cash used for investing activities (15,502) (65,084) (17,070)
-------- -------- --------
Cash flows from financing activities:
Revolving credit agreement (4,881) (8,414) (18,233)
Net proceeds from sale of common stock 49,100 -- 56,995
Proceeds from stock options exercised 124 -- --
Proceeds from term loans and IRB's -- 16,100 18,000
Repayments of term loans, IRB's, and taxable rate notes (28,767) (3,468) (1,660)
Unexpended industrial revenue bond funds -- 2,281 (2,281)
S corporation dividends paid -- -- (17,500)
-------- -------- --------
Net cash from financing activities 15,576 6,499 35,321
-------- -------- --------
Cash:
Net increase 134 1,166 301
Beginning balance 1,884 718 417
-------- -------- --------
Ending balance $ 2,018 $ 1,884 $ 718
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
PAGE 22 of 88
<PAGE> 23
OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS
---------- ---------
<S> <C> <C>
Balance at December 31, 1993 $ 100 $ 9,247
Net income -- 898
Net proceeds from sale of 4,000 shares of common stock 56,995 --
-------- --------
Balance at December 31, 1994 57,095 10,145
Net income -- 6,744
-------- --------
Balance at December 31, 1995 57,095 16,889
NET INCOME -- 14,119
NET PROCEEDS FROM SALE OF 2,084 SHARES OF COMMON STOCK 49,100 --
EXERCISE OF 8 STOCK OPTIONS 124 --
-------- --------
BALANCE AT DECEMBER 31, 1996 $106,319 $ 31,008
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
PAGE 23 of 88
<PAGE> 24
OLYMPIC STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(dollars in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Olympic Steel, Inc. and its wholly-owned subsidiaries (collectively the Company
or Olympic), after elimination of intercompany accounts and transactions.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CONCENTRATION RISKS
The Company is a major customer of flat-rolled coil and plate steel for many of
its principal suppliers, but is not dependent on any one supplier. In 1996, the
Company purchased approximately 18% of its total steel requirements from a
single supplier.
INVENTORIES
Inventories are stated at the lower of cost or market and include the cost of
purchased steel, internal and external processing and freight. Cost is
determined using the specific identification method.
PROPERTY AND EQUIPMENT, AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives ranging from 3 to 30 years.
GOODWILL AND AMORTIZATION
Goodwill includes the cost in excess of fair value of the net assets acquired
and is being amortized on a straight-line method over 40 years. In the event
that facts and circumstances indicate that the value of goodwill or other
long-lived assets may be impaired, the Company evaluates recoverability to
determine if a write-down to market value is required. Goodwill amortization
expense totaled $260 in both 1996 and 1995. Amortization expense in 1994 totaled
$132 and related to a covenant not to compete agreement that expired in 1994.
Accumulated amortization of goodwill totaled $520 and $260 at December 31, 1996
and 1995, respectively.
REVENUE RECOGNITION
Revenue is recognized when steel is shipped to the customer. Sales returns and
allowances are treated as reductions to sales and are provided for based on
historical experience and current estimates.
INCOME TAXES
In the first quarter of 1994, 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 and deferred taxes are determined
based on the estimated future tax effects of differences between the financial
and tax bases of assets and liabilities given the provisions of enacted tax
laws.
EARNINGS PER SHARE
Earnings per share has been calculated based on the weighted average number of
shares outstanding. Shares outstanding were 4.6 million from January 1, 1994
through March 16, 1994, 8.6 million from March 17, 1994 through August 8, 1996
and 10.7 million since August 9, 1996. Primary and fully diluted earnings per
share are the same as the effect of dilutive outstanding stock options is
immaterial.
PAGE 24 of 88
<PAGE> 25
2. PUBLIC OFFERINGS OF COMMON STOCK:
--------------------------------
The Company completed its initial public offering of 4 million common shares in
March, 1994. The $56,995 of net proceeds were used to pay a $17,500 final S
corporation dividend, and the remaining proceeds were used to repay $39,495 of
borrowings under the revolving credit agreement. In August, 1996, the Company
completed the sale of an additional 2.1 million shares of common stock. The net
proceeds of $49,100 were used to repay borrowings outstanding under the
Company's bank credit agreements.
3. ACQUISITION:
-----------
Effective January 1, 1995, the Company completed the acquisition of
substantially all of the assets and assumed certain liabilities of Lafayette
Steel Company (Lafayette Steel). Lafayette Steel is an intermediate steel
processor headquartered in Detroit, Michigan, primarily serving the automotive
industry.
The final purchase price totaled $69,833 and exceeded the net book value of the
assets acquired by $13,000. The adjusted cash portion of the purchase price,
including fees and expenses and the repayment of $30,069 of Lafayette Steel's
existing bank debt, totaled $52,345.
The acquisition has been accounted for as a purchase and, accordingly, assets
and liabilities are reflected at estimated fair values. The final purchase price
allocation resulted in goodwill of $10,395, which is being amortized over 40
years.
The following unaudited pro forma condensed statement of income for 1994 gives
effect to the acquisition of Lafayette Steel as if it had occurred on January 1,
1994. The pro forma information is based upon the historical financial
statements of Olympic Steel and Lafayette Steel, giving effect to the
acquisition under the purchase method of accounting. The pro forma financial
information has been prepared by Olympic's management based upon the audited
financial statements of Lafayette Steel. This pro forma information is presented
in response to applicable accounting rules relating to business acquisitions. It
is not necessarily indicative of the actual results that would have been
achieved had the acquisition occurred as of January 1, 1994, and is not
necessarily indicative of future results of the combined companies.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
OLYMPIC LAFAYETTE ADJUSTMENTS OLYMPIC
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 381,906 $ 148,996 $ - $ 530,902
COST OF SALES 304,777 127,603 (1,888) (A) 430,492
----------- ----------- ----------- -----------
GROSS MARGIN 77,129 21,393 1,888 100,410
OPERATING EXPENSES 58,836 22,441 (1,282) (B) 79,995
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 18,293 (1,048) 3,170 20,415
INTEREST EXPENSE 3,761 2,194 949 (C) 6,904
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME 14,532 (3,242) 2,221 13,511
TAXES
INCOME TAXES 5,834 - (410) (D) 5,424
REINSTATEMENT OF DEFERRED
INCOME TAXES 7,800 - - 7,800
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 898 $ (3,242) $ 2,631 $ 287
=========== =========== =========== ===========
NET INCOME PER SHARE $ 0.12 $ 0.04
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 7,778 7,778
=========== ===========
<FN>
(a) Reflects restatement of inventory from LIFO to the specific identification
costing method.
(b) To reduce shareholder and executive compensation and benefits, to reduce
depreciation expense for the difference between historical cost and the
fair value of assets acquired, to reduce certain professional fees,
including those relating to the acquisition, and to record goodwill
amortization.
(c) To record interest expense relating to incremental debt incurred for the
acquisition.
(d) To record an income tax benefit for Lafayette Steel's pre-tax loss, after
giving effect to pro forma adjustments, at Olympic's 1994 effective income
tax rate.
</TABLE>
PAGE 25 of 88
<PAGE> 26
4. ACCOUNTS RECEIVABLE:
-------------------
On December 19, 1995, the Company entered into a three-year agreement to sell,
on a revolving basis, through its wholly-owned entity, Olympic Steel Receivables
LLC, an undivided interest in a designated pool of its trade accounts
receivable. The maximum amount of receivables that can be sold is $65,000, with
the amount sold at any month end measurement date dependent upon the level of
defined eligible receivables. The Company, as agent for the purchaser of the
receivables, retains collection and administrative responsibilities for the
participating interests sold. As collections reduce the receivables included in
the pool, the Company may sell additional undivided interests in new receivables
up to the $65,000 limit. The amount of receivables sold by the Company typically
will change monthly depending upon the level of defined eligible receivables
available for sale each month end.
As of December 31, 1996 and 1995, $55,000 and $53,671, respectively, of
receivables were sold and reflected as a reduction of accounts receivable in the
accompanying consolidated balance sheets. Proceeds from the initial sale were
used to reduce borrowings under the Company's revolving credit agreement and are
reflected as operating cash flows in the accompanying 1995 consolidated
statement of cash flows. Costs of the program, which primarily consist of the
purchaser's financing cost of issuing commercial paper backed by the
receivables, totaled $3,393 in 1996 and $107 in 1995, and have been classified
as Receivable Securitization Expense in the accompanying consolidated statements
of income.
Accounts receivable are presented net of allowances for doubtful accounts of
$485 and $811 as of December 31, 1996 and 1995, respectively. Bad debt expense
totaled $268 in 1996, $763 in 1995, and $362 in 1994.
5. PROPERTY AND EQUIPMENT:
----------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
Land and improvements $ 8,037 $ 7,128
Buildings and improvements 40,105 25,975
Machinery and equipment 37,292 22,588
Furniture and fixtures 3,315 2,039
Computer equipment 3,604 2,817
Vehicles 378 358
Construction in progress 1,223 17,547
-------- --------
93,954 78,452
Less accumulated depreciation (14,954) (10,886)
-------- --------
Total property and equipment $ 79,000 $ 67,566
======== ========
</TABLE>
Construction in progress at December 31, 1996 primarily consists of material
handling equipment to be added to a blanking press in 1997 and management
information system enhancements in-process. Construction in progress at December
31, 1995 primarily related to the Cleveland temper mill facility and equipment
which became fully operational in 1996.
PAGE 26 of 88
<PAGE> 27
6. REVOLVING CREDIT AGREEMENT:
--------------------------
The Company has been operating under various multi-bank revolving credit
agreements for many years. As of December 31, 1996, the facility consisted of an
unsecured revolving credit component of $50,000, and letter of credit
commitments of $76,141. Letters of credit are collateralized by the respective
assets financed. On January 24, 1997, the credit agreement was amended to
increase the revolving credit availability to $60,000 and to authorize the
Company's investment in two joint ventures. The agreement matures on June 30,
1999. Each year, the Company may request to extend its maturity date one year
with the approval of the bank group.
The revolving credit agreement balance includes $5,487 and $9,768 of checks
issued that have not cleared the bank as of December 31, 1996 and 1995,
respectively.
The Company has the option to borrow based on the agent bank's base rate or the
London Interbank Offered Rate (LIBOR). The interest rate changes every three
months based on the Company's operating performance and leverage ratio. As of
December 31, 1996, the interest rates were base plus 0% or LIBOR plus .75%. The
effective interest rate for credit agreement borrowings amounted to 7.5% in
1996, 7.9% in 1995, and 5.6% in 1994. Interest on the base rate option is
payable quarterly in arrears while interest on the LIBOR option is payable at
the end of the LIBOR interest period, which ranges from one to six months. The
agreement also includes a commitment fee of .25% of the unused portion of the
revolver which is payable quarterly in arrears.
7. TAXABLE RATE NOTES:
------------------
In October 1993, the Company completed a $10,000 refinancing of its real estate
in Minneapolis, Minnesota; Milford, Connecticut; Elk Grove Village, Illinois;
and Cleveland, Ohio. The refinancing was in the form of taxable rate notes. The
term of the notes is 15 years with annual principal payments of $700 for the
first 10 years and $600 for years 11 through 15. As of December 31, 1996, $7,900
was outstanding. The notes are backed by a three year bank letter of credit,
expiring October 15, 1999, and are secured by a first mortgage on the Chicago,
Connecticut and Minneapolis land and buildings and a second mortgage on certain
Cleveland real estate. The interest rate changes each week based on the taxable
rate note market. As of December 31, 1996, the effective interest rate was 7.4%.
8. INDUSTRIAL REVENUE BONDS:
------------------------
The long-term portion of industrial revenue bonds at December 31, 1996 and 1995,
consisted of the following:
<TABLE>
<CAPTION>
Effective Interest
Description of Bonds Rate at 12/31/96 1996 1995
-------------------- ---------------- ---------- ----------
<S> <C> <C> <C>
$6,000 variable rate bonds due 1995 through 2004 6.8% $4,200 $4,800
$2,660 variable rate bonds due 1992 through 2004 6.1% 1,505 1,715
$4,800 variable rate bonds due 1992 through 2004 6.5% 2,700 3,050
---------- ----------
$8,405 $9,565
---------- ----------
</TABLE>
These bonds are backed by standby letters of credit, expiring June 30, 1999 with
the revolving credit bank group which has a first lien on certain land, building
and equipment.
PAGE 27 of 88
<PAGE> 28
9. SCHEDULED DEBT MATURITIES, INTEREST, DEBT CARRYING VALUES AND COVENANTS:
-----------------------------------------------------------------------
Scheduled maturities of all long-term debt for the years succeeding December 31,
1996 are $1,869 in 1997, $2,444 in 1998, $1,870 in both 1999 and 2000, $1,875 in
2001 and $8,197 thereafter.
The overall effective interest rate for all debt amounted to 7.1% in 1996, 7.7%
in 1995, and 5.7% in 1994. Interest paid totaled $4,628, $11,823, and $3,843 for
the years ended December 31, 1996, 1995 and 1994, respectively. Amounts paid
relative to the accounts receivable securitization program totaled $3,236 in
1996. Interest expense of $92, $1,021 and $208 was capitalized in 1996, 1995 and
1994, respectively, in conjunction with constructing and equipping new
facilities.
Management believes the carrying values of its long-term debt approximate their
fair values, as each of the Company's debt arrangements bear interest at rates
that vary based on a bank's base rate, LIBOR, the short-term tax exempt revenue
bond index or taxable rate note market.
Under its debt agreements, the Company is subject to certain covenants such as
minimum net worth, capital expenditure limitations, and interest coverages. The
Company was in compliance with all covenants as of December 31, 1996.
10. INCOME TAXES:
------------
Prior to January 1, 1994, the Company was treated as an S corporation. In
connection with the initial public offering, the Company terminated its S
corporation election and became fully subject to federal and state income
taxation as a C corporation. As a result, deferred income tax liabilities of
$7,800 as of January 1, 1994 were reinstated and included in income tax expense
in 1994.
The components of the Company's net deferred tax liability at December 31 are as
follows:
<TABLE>
<CAPTION>
Asset / (Liability) 1996 1995
------------------- -------- -------
<S> <C> <C>
Accrued income taxes $ (681) $(2,092)
Current deferred income taxes:
LIFO inventory reserves (583) (1,842)
Other temporary items 984 688
------- -------
Total current deferred income taxes 401 (1,154)
------- -------
Accrued and deferred income taxes (280) (3,246)
------- -------
Long-term deferred income taxes:
Goodwill (1,365) --
LIFO inventory reserve (1,167) (1,655)
Tax in excess of book depreciation (2,291) (1,435)
------- -------
Total long-term deferred income taxes (4,823) (3,090)
------- -------
Total current and deferred income taxes $(5,103) $(6,336)
======= =======
</TABLE>
The following table reconciles the U.S. federal statutory rate to the Company's
effective tax rate:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local taxes, net of federal benefit 2.5 4.4 5.0
All other, net 0.3 0.6 0.1
---- ---- ----
Effective income tax rate 37.8% 40.0% 40.1%
---- ---- ----
</TABLE>
The tax provision includes a current provision of $9,266, $6,443 and $8,024, and
a deferred benefit of $697, $1,939 and $2,190 in 1996, 1995 and 1994,
respectively. Income taxes paid in 1996, 1995 and 1994, totaled $10,113, $6,191
and $5,944, respectively.
PAGE 28 of 88
<PAGE> 29
11. RETIREMENT PLANS:
----------------
The Company has several retirement plans consisting of a profit-sharing plan and
a 401(k) plan covering all non-union employees, and two separate 401(k) plans
covering all union employees.
Company contributions for the non-union profit-sharing plan are in discretionary
amounts as determined annually by the Board of Directors. For each of the last
three years, Company contributions were 4% of each eligible employee's W-2
earnings. The non-union 401(k) retirement plan allows eligible employees to
contribute up to 10% of their W-2 earnings. The Company contribution is
determined annually by the Board of Directors and is based on a percentage of
eligible employees' contributions. For each of the last three years, the Company
matched one half of each eligible employee's contribution.
Company contributions for each of the last three years for the union plans were
3% of eligible W-2 wages plus one half of the first 4% of each employee's
contribution.
Retirement plan expense amounted to $2,001, $1,762, and $1,035 for the years
ended December 31, 1996, 1995, and 1994, respectively.
12. STOCK OPTIONS:
-------------
In January 1994, the Stock Option Plan (Option Plan) was adopted by the Board of
Directors and approved by the shareholders of the Company. Pursuant to the
provisions of the Option Plan, key employees of the Company, non-employee
directors and consultants may be offered the opportunity to acquire shares of
Common Stock by the grant of stock options, including both incentive stock
options (ISOs) and nonqualified stock options. ISOs are not available to
non-employee directors or consultants. A total of 450,000 shares of Common Stock
has been reserved for options under the Option Plan. The purchase price of a
share of Common Stock pursuant to an ISO will not be less than the fair market
value of a share of Common Stock at the grant date. Options vest over a period
of five years at a rate of 20% per year commencing on the first anniversary of
the date of grant, and expire 10 years after the date of grant. The Option Plan
will terminate on January 5, 2004. Termination of the Option Plan will not
affect outstanding options.
During 1996, 1995 and 1994, nonqualified options to purchase 12,500, 20,000 and
120,000 shares, respectively, were issued under the Option Plan to the Company's
key employees and outside directors, all at an exercise price of $15.50 per
share. During 1996, options to purchase 8,000 shares were exercised. Options to
purchase 144,500 shares were outstanding at December 31, 1996.
In 1996, the Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Black-Scholes option-pricing model was used to determine that
the pro forma impact of compensation expense from options granted was
immaterial.
PAGE 29 of 88
<PAGE> 30
13. COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Company leases certain warehouses, sales offices and processing equipment
under long-term lease agreements. The leases are classified as operating and
expire at various dates through 2004. In some cases the leases include options
to extend. Rent expense was $2,634, $2,873 and $2,512 for the years ended
December 31, 1996, 1995 and 1994, respectively.
Future minimum lease payments as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 2,008
1998 1,764
1999 1,430
2000 921
2001 687
Thereafter 1,518
----------
$ 8,328
==========
</TABLE>
The Company is a defendant in various legal proceedings and claims that arise in
the ordinary course of business. In the opinion of management, the outcome of
the proceedings to which the Company is currently a party will not have a
material adverse effect upon its operations or financial position.
14. RELATED PARTY TRANSACTIONS:
--------------------------
A related entity handles a portion of the freight activity for the Company's
Cleveland division. Payments to this entity approximated $3,117, $3,199, and
$2,880 for the years ended December 31, 1996, 1995 and 1994, respectively. There
is no common ownership or management of this entity with the Company. Another
related entity owns one of the Cleveland warehouses and leases it to the Company
at an annual rental of $195. The lease expires June 2000 and has two remaining
renewal options of 10 years each.
15. SUBSEQUENT EVENTS:
-----------------
In January 1997, the Company completed the formation of Olympic Continental
Resources LLC (OCR), a joint venture with Atlas Iron Processors, Inc. (Atlas)
and Uwe T. Schmidt, OCR's Chief Executive Officer. OCR buys, sells and trades
ferrous and non-ferrous metals and alternate iron products to steel mills and
scrap processors. The venture acquired the business activities previously
conducted by Thyssen Continental Resources LLC, a joint venture between Thyssen
Inc. and Atlas that had profitable revenues of $145,000 for fiscal 1996. The
Company made a $4,000 cash investment for its 45% ownership share in OCR and
guarantees up to $10,000 of outstanding debt under OCR's $35,000 revolving bank
credit facility. Olympic's investment in OCR will be accounted for under the
equity method.
On January 20, 1997, the Company and the U.S. Steel Group of USX Corporation,
announced that the two companies will form a joint venture to process laser
welded sheet steel blanks. The joint venture will be owned 50% by each of the
companies and will conduct business as Olympic Laser Processing (OLP). OLP plans
to construct a new facility initially equipped with two laser welding lines.
Production is expected to begin in 1998. The investment in OLP will be accounted
for under the equity method.
PAGE 30 of 88
<PAGE> 31
16. UNAUDITED PRO FORMA INFORMATION:
-------------------------------
Unaudited pro forma net income for the year ended December 31, 1994 reflects (i)
the reduction in interest expense resulting from the application of net proceeds
from the sale of 4 million shares of Common Stock on March 17, 1994 (the
Offering), to repay approximately $39,495 of indebtedness with a weighted
average interest rate of 6.0% in 1994, (ii) the reduction of compensation
expense for officers and certain retiring employees net of additional costs to
be incurred as a public company and (iii) assumes the Company is subject to
income tax as a C corporation, and excludes the one-time $7,800 income tax
charge for the reinstatement of deferred income taxes resulting from the change
in the Company's income tax status from an S corporation to a C corporation.
Unaudited pro forma net income per share has been calculated by dividing pro
forma net income by the number of shares outstanding after the Offering.
PAGE 31 of 88
<PAGE> 32
SUPPLEMENTARY FINANCIAL INFORMATION
UNAUDITED QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1ST 2ND 3RD 4TH YEAR
- ---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $142,589 $146,697 $134,971 $135,805 $560,062
Gross margin 30,926 32,815 30,403 29,365 123,509
Operating income 7,719 9,545 7,263 5,855 30,382
Income before taxes 5,427 7,219 5,516 4,526 22,688
Net income $ 3,256 $ 4,331 $ 3,530 $ 3,002 $ 14,119
Net income per share $ 0.38 $ 0.50 $ 0.36 $ 0.28 $ 1.50
Weighted average shares outstanding 8,600 8,600 9,801 10,689 9,427
Market price of common stock: (a)
High $ 10.88 $ 28.63 $ 30.25 $ 29.75 $ 30.25
Low 8.50 10.13 22.38 20.25 8.50
1995 1ST 2ND 3RD 4TH YEAR
- ---- ---------- ---------- ---------- ---------- ----------
Net sales $149,058 $142,095 $132,673 $130,643 $554,469
Gross margin 30,012 27,343 24,887 25,714 107,956
Operating income 7,717 5,713 4,269 4,402 22,101
Income before taxes 5,150 2,866 1,375 1,857 11,248
Net income $ 3,067 $ 1,721 $ 835 $ 1,121 $ 6,744
Net income per share $ 0.36 $ 0.20 $ 0.10 $ 0.13 $ 0.78
Weighted average shares outstanding 8,600 8,600 8,600 8,600 8,600
Market price of common stock: (a)
High $ 11.50 $ 11.00 $ 10.88 $ 10.13 $ 11.50
Low 9.50 9.00 8.88 7.50 7.50
<FN>
(a) Represents high and low closing quotations as reported by NASDAQ.
</TABLE>
PAGE 32 of 88
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by Item 10 as to the Directors of the Registrant will be
incorporated herein by reference to the information set forth under the caption
"Election of Directors" in the Registrant's definitive proxy statement for its
April 24, 1997 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 will be incorporated herein by reference to the
information set forth under caption "Executive Officers' Compensation" in the
Registrant's definitive proxy statement for its April 24, 1997 Annual Meeting
of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 12 will be incorporated herein by reference to the
information set forth under the caption "Security Ownership of Management" in
the Registrant's definitive proxy statement for its April 24, 1997 Annual
Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 will be incorporated herein by reference to the
information set forth under the caption "Related Transactions and Compensation
Interlocks" in the Registrant's definitive proxy statement for its April 24,
1997 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IN PART II, ITEM 8:
Report of Independent Public Accountants
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994
Consolidated Statements of Shareholders' Equity for the Years Ended December
31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES. All schedules have been omitted since
the required information is not present or not present in amounts sufficient
to require submission of the schedule, or because the information required
is included in the financial statements including notes thereto.
(a)(3) EXHIBITS. The Exhibits filed herewith are set forth on the Index to
Exhibits filed as part of this report.
(b) REPORTS ON FORM 8-K. No reports were filed on Form 8-K during the fourth
quarter of 1996.
PAGE 33 of 88
<PAGE> 34
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.
OLYMPIC STEEL, INC.
March 7, 1997 By: /s/ R. Louis Schneeberger
-------------------------------------------
R. Louis Schneeberger,
Chief Financial Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities indicated
and on the 7th day of March, 1996.
March 7, 1997 /s/ Michael D. Siegal *
-------------------------------------------
Michael D. Siegal
President, Chairman of the Board
and Chief Executive Officer
March 7, 1997 /s/ R. Louis Schneeberger *
-------------------------------------------
R. Louis Schneeberger
Chief Financial Officer
and Director
March 7, 1997 /s/ David A. Wolfort *
-------------------------------------------
David A. Wolfort
Chief Operating Officer
and Director
March 7, 1997 /s/ Bruce S. Adelstein *
-------------------------------------------
Bruce S. Adelstein
Vice President - Operations
and Director
March 7, 1997 /s/ Richard T. Marabito *
-------------------------------------------
Richard T. Marabito
Treasurer and Corporate Controller
(Principal Accounting Officer)
March 7, 1997 /s/ Martin H. Elrad *
-------------------------------------------
Martin H. Elrad, Director
March 7, 1997 /s/ Thomas M. Forman *
-------------------------------------------
Thomas M. Forman, Director
March 7, 1997 /s/ Janice M. Margheret *
-------------------------------------------
Janice M. Margheret, Director
* The undersigned, by signing his name hereto, does sign and execute this Annual
Report on Form 10-K pursuant to the Powers of Attorney executed by the
above-named officers and Directors of the Company and filed with the Securities
and Exchange Commission on behalf of such officers and Directors.
By: /s/ R. Louis Schneeberger March 7, 1997
---------------------------------------
R. Louis Schneeberger, Attorney-in-Fact
Page 34 of 88
<PAGE> 35
OLYMPIC STEEL, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Document Sequential Page No.
------- ----------------------- -------------------
<S> <C> <C>
3.1(i) Amended and Restated Articles of Incorporation *
3.1(ii) Amended and Restated Code of Regulations *
4.1 Credit Agreement dated October 4, 1996 by and among the Registrant, three **
banks and National City Bank, Agent
4.2 First Amendment to Credit Agreement dated January 24, 1997 by and among the 36-38
Registrant, three banks and National City Bank, Agent
4.4 Receivables Purchase Agreement dated December 19, 1995 among the Registrant, ***
Olympic Steel Receivables LLC, Olympic Steel Receivables, Inc. and Clipper
Receivables Corporation as Purchaser
4.5 Purchase and Sale Agreement dated December 19, 1995 among the Registrant, ***
Olympic Steel Lafayette, Inc. and Olympic Steel Receivables LLC
Information concerning certain of the Registrant's other long-term debt is
set forth in Notes 7 and 8 of Notes to Consolidated Financial Statements.
The Registrant hereby agrees to furnish copies of such instruments to the
Commission upon request.
10.1 Olympic Steel, Inc. Stock Option Plan *
10.2 Lease, dated as of July 1, 1980, as amended, between S.M.S. Realty Co., a *
lessor, and the Registrant, as lessee, relating to one of the Cleveland
facilities
10.4 Lease, dated as of November 30, 1987, as amended, between Tinicum Properties *
Associates L.P., as lessor, and the Registrant, as lessee, relating to
Registrant's Lester, Pennsylvania facility
10.5 Executive and General Managers Bonus Plans *
10.6 Tax Indemnification Agreement among the Registrant and each of its principal *
shareholders
10.7 Contract Carrier Contract for Transportation Services, dated January 1, 1991, *
between Bedford Trucking Company and the Registrant
10.8 Operating Agreement of Olympic Continental Resources, L.L.C. by and among
Thyssen-Continental Resources LLC, Olympic Steel Trading, Inc. and Uwe T. 39-83
Schmidt
21 List of subsidiaries 84
23 Consent of Arthur Andersen LLP 85
24 Directors and Officers Powers of Attorney 86
27 Financial Data Schedule (EDGAR Filing Only)
<FN>
* Incorporated by reference to the Exhibit with the same exhibit number
included in Registrant's Registration Statement on Form S-1 (No. 33-73992)
filed with the Commission on January 12, 1994.
** Incorporated by reference to an Exhibit included in Registrant's Form 10-Q
filed with the Commission on November 4, 1996.
*** Incorporated by reference to an Exhibit included in Registrant's Form 10-K
filed with the Commission on March 29, 1996.
</TABLE>
Page 35 of 88
<PAGE> 1
Exhibit 4.2
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of January
24, 1997, (this "First Amendment"), is by and among OLYMPIC STEEL, INC., an Ohio
corporation ("Borrower"), and NATIONAL CITY BANK ("NCB") and the other Banks
signatory hereto or that become parties to the Credit Agreement hereafter
identified by amendment or supplement thereto ("Banks") and NATIONAL CITY BANK,
as agent for the Banks (in that capacity, "NCB-Agent").
RECITALS
--------
A. Borrower, the Banks and NCB-Agent have entered into a
Credit Agreement, dated as of October 4, 1996, pursuant to which Borrower may
obtain, among other things, (i) loans ratably from the Banks that are on a
revolving credit basis and (ii) subject LCs issued by NCB in which the Banks
agree to ratably share the obligations in respect thereof, in each case until
the expiration date.
B. Borrower and the Banks desire to amend the Credit Agreement
in order to increase the amount of the commitments by the Banks for subject
revolving credit loans and additional subject LCs by Ten Million Dollars
($10,000,000) and to permit Borrower to make certain joint venture investments
and guarantees of indebtedness of the joint venture entities.
AGREEMENT
---------
Accordingly, the parties have agreed and do hereby agree as
follows:
1. Subsection 2A.01 SUBJECT REVOLVING LOANS AND LETTERS OF CREDIT
AMOUNTS of the Credit Agreement shall be deleted in its entirety and the
following shall be substituted in place thereof:
2A.01 SUBJECT REVOLVING CREDIT LOANS AND LETTERS OF CREDIT
AMOUNTS -- The aggregate amount of the commitments by the Banks for
subject revolving credit loans and additional subject LCs shall be
Sixty Million Dollars ($60,000,000). The aggregate amount of the
subject commitments for the subject revolving credit loans and
additional subject LCs may be reduced from time to time pursuant to
subsection 2A.03 and the subject commitments may be terminated pursuant
to Section 5B. The aggregate amount of the subject commitments by the
Banks for existing subject LCs as of January 24, 1997 is Nine Million,
Eight Hundred Forty Thousand, Eight Hundred Thirty-Six Dollars
($9,840,836) but that amount may be reduced from time to time pursuant
to subsection 2A.03 and the subject commitments may be terminated
pursuant to section 5B. The amount of each Bank's subject commitment to
make subject revolving credit loans to Borrower and to participate in
respect of additional subject LCs and existing subject LCs (subject to
such reduction or termination), and the proportion (expressed as a
percentage) that it bears to all of the subject commitments, is set
forth opposite the Bank's name on Schedule 2A.01 hereto dated January
24, 1997.
2. Notwithstanding the negative covenant limitations of Section 3D.01,
no event of default under the Agreement shall be deemed to have occurred by
reason of either of the following transactions for which this First Amendment
shall constitute a supplemental schedule.
(i) Borrower's equity investment, through its wholly-owned
subsidiary, Olympic Steel Trading, Inc., of sums not exceeding
$4,000,000 to obtain and maintain not
Page 36 of 88
<PAGE> 2
less than a 45% membership interest in a joint venture entity,
Olympic Continental Resources, L.L.C., an Ohio limited
liability company, formed to engage in the business of buying,
selling and bidding for metals and alternative iron products,
the other members of such entity being Continental Resources
Limited Liability Company and Uwe T. Schmidt; and
(ii) Borrower's equity investment, through a wholly-owned
subsidiary, of sums not exceeding $2,000,000 to obtain and
maintain not less than a 50% membership interest in a joint
venture entity, OLP,LLC, a Michigan limited liability company
(dba Olympic Laser Processing), formed to conduct laser
welding operations with the other member being USX Corporation
or a subsidiary thereof.
3. Notwithstanding the negative covenant limitation of subsection
3D.02, no event of default under the Agreement shall be deemed to have occurred
by reason of either of the following transactions:
(i) Borrower's guaranty of payment of indebtedness of Olympic
Continental Resources, L.L.C. to National City Commercial
Finance, Inc. and Mellon Bank, N.A. in an amount not exceeding
$10,000,000.00, plus interest and costs of collection.
(ii) Borrower's guaranty of payment of indebtedness of OLP,LLC in
an amount not greater than fifty percent (50%) of such
indebtedness with the amount guaranteed by Borrower in no
event exceeding $10,000,000.00, plus interest and costs of
collection.
4. Contemporaneously with Borrower's execution of this First Amendment,
Borrower shall execute and deliver to each Bank a subject note in principal
amount equal to the dollar amount of such bank's aggregate subject commitment
therefor in Section 2A.01.
5. Borrower restates and reaffirms all of its representations and
warranties set forth in Section 4B of the Credit Agreement as of the date
hereof.
6. This First Amendment and the modifications set forth herein shall be
and become effective as of the date hereof.
7. This First Amendment may be executed in one or more counterparts,
each counterpart to be executed by Borrower, by NCB-Agent and by one or more or
all of the Banks. Each such executed counterpart shall be deemed to be an
executed original for all purposes but all such counterparts taken together
shall constitute one agreement, which agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof.
8. This First Amendment hereby may be executed by representatives of
the Banks using facsimile signatures and facsimiled signature pages shall in all
respects be binding on all parties hereto and thereto as if such signature pages
were originally delivered. Original signature pages for all facsimiled signature
pages shall be delivered to the parties hereto not later than January 31, 1997.
Page 37 of 88
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the date first above written.
NATIONAL CITY BANK, AGENT OLYMPIC STEEL, INC.
By: /s/ Donald B. Hayes, Jr. By: /s/ Richard T. Marabito
------------------------------ -------------------------------
Donald B. Hayes, Jr. Richard T. Marabito
Vice President Treasurer
NATIONAL CITY BANK
By: /s/ Donald B. Hayes, Jr.
------------------------------
Donald B. Hayes, Jr.
Vice President
COMERICA BANK MELLON BANK, N.A.
By: /s/ Brian T. Dragon By: /s/ Michael C. Haines
------------------------------ -------------------------------
Brian T. Dragon Michael C. Haines
Account Officer Officer
Page 38 of 88
<PAGE> 1
EXHIBIT 10.8
OPERATING AGREEMENT OF
OLYMPIC CONTINENTAL RESOURCES, L.L.C.
By and Among
THYSSEN-CONTINENTAL RESOURCES LIMITED LIABILITY COMPANY,
OLYMPIC STEEL TRADING, INC.
and
UWE T. SCHMIDT
PAGE 39 of 88
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PRELIMINARY STATEMENT.............................................................................................1
ARTICLE I - ORGANIZATION..........................................................................................2
SECTION 1.1 - NAME.......................................................................................2
SECTION 1.2 - PURPOSES OF BUSINESS.......................................................................2
SECTION 1.3 - PLACE OF BUSINESS..........................................................................3
SECTION 1.4 - REGISTERED OFFICE OF THE COMPANY...........................................................3
SECTION 1.5 - EFFECTIVE DATE AND TERM....................................................................3
SECTION 1.6 - NAME, ADDRESS AND PROFITS INTERESTS OF MEMBERS.............................................3
SECTION 1.7 - NAME AND ADDRESS OF REGISTERED AGENT.......................................................3
SECTION 1.8 - DEFINITIONS................................................................................3
(a) AFFILIATE..............................................................................4
(b) AGREEMENT..............................................................................4
(c) ATLAS PARTIES..........................................................................4
(d) ATLAS OWNERSHIP CHANGE.................................................................4
(e) AUDITED CLOSING STATEMENT..............................................................4
(f) AUDITED NET BOOK VALUE.................................................................4
(g) BANKRUPTCY.............................................................................4
(h) CAPITAL ACCOUNT........................................................................5
(i) CAPITAL CONTRIBUTION...................................................................5
(j) CAPITAL TRANSACTION....................................................................5
(k) CASH FLOW..............................................................................6
(l) CAUSE..................................................................................6
(m) CODE...................................................................................6
(n) CONTRIBUTION DATE......................................................................6
(o) DISABILITY.............................................................................6
(p) EVENT OF WITHDRAWAL....................................................................7
(q) FAIR MARKET VALUE......................................................................7
(r) FORMATION DATE.........................................................................7
(s) LIQUIDATION............................................................................7
(t) LIQUIDATION PROCEEDS...................................................................7
(u) MAJORITY IN INTEREST...................................................................7
(v) MANAGING MEMBER........................................................................8
(w) MEMBER.................................................................................8
(x) MEMBERSHIP INTEREST....................................................................8
(y) NON-MANAGING MEMBER....................................................................8
(z) OLYMPIC PARTIES........................................................................8
(aa) PERSON.................................................................................8
(bb) PROFITS INTEREST.......................................................................8
(cc) REGULATIONS............................................................................8
(dd) RELATED PARTY..........................................................................8
(ee) STIPULATED RATE........................................................................8
(ff) THIRD PARTY............................................................................8
</TABLE>
i
PAGE 40 of 88
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
(gg) WITHOUT CAUSE..........................................................................9
ARTICLE II - CAPITAL CONTRIBUTIONS................................................................................9
SECTION 2.1 - REQUIRED CAPITAL CONTRIBUTIONS.............................................................9
(a) CAPITAL CONTRIBUTIONS..................................................................9
(b) LIMITED ASSUMPTION AGREEMENTS.........................................................10
(c) ADDITIONAL CAPITAL CONTRIBUTIONS......................................................10
(d) RESTATEMENT OF INTEREST...............................................................11
(e) RIGHTS OF CREDITORS...................................................................11
SECTION 2.2 - CAPITAL ACCOUNTS..........................................................................11
(a) MAINTENANCE OF CAPITAL ACCOUNTS.......................................................11
(b) INCREASES.............................................................................11
(c) DECREASES.............................................................................11
(d) TRANSFER OF INTEREST..................................................................11
SECTION 2.3 - RETURN OF CONTRIBUTIONS; DISSOLUTION OF THE COMPANY
12
ARTICLE III - ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS....................................................12
SECTION 3.1 - CASH DISTRIBUTIONS........................................................................12
(a) DISTRIBUTIONS OF CASH FLOW............................................................12
(b) DISTRIBUTIONS OF CAPITAL TRANSACTIONS.................................................12
(c) INCOME TAX DISTRIBUTIONS..............................................................12
(d) DISTRIBUTION OF LIQUIDATION PROCEEDS..................................................13
SECTION 3.2 - ALLOCATION OF PROFITS AND LOSSES..........................................................13
SECTION 3.3 - ACCOUNTING................................................................................13
ARTICLE IV - MANAGEMENT OF COMPANY...............................................................................13
SECTION 4.1 - MANAGEMENT OF COMPANY.....................................................................13
SECTION 4.2 - DECISIONS OF THE MANAGING MEMBERS.........................................................14
SECTION 4.3 - OFFICERS AND OTHER MATTERS................................................................14
(a) ELECTION AND DESIGNATION OF OFFICERS..................................................14
(b) TERM OF OFFICE; VACANCIES.............................................................14
(c) PRESIDENT.............................................................................14
(d) VICE PRESIDENTS.......................................................................15
(e) SECRETARY.............................................................................15
(f) TREASURER.............................................................................15
(g) OTHER OFFICERS........................................................................15
(h) DELEGATION OF AUTHORITY AND DUTIES....................................................15
SECTION 4.4 - MEETINGS OF MEMBERS.......................................................................15
SECTION 4.5 - VOTING RIGHTS OF MEMBERS..................................................................16
SECTION 4.6 - CHECKING OR SAVINGS ACCOUNTS..............................................................16
ARTICLE V - POWERS, DUTIES, LIABILITIES,
COMPENSATION AND DECISIONS OF THE MANAGING MEMBERS......................................................16
SECTION 5.1 - POWERS OF THE MANAGING MEMBERS............................................................16
SECTION 5.2 - DUTIES OF MANAGING MEMBERS................................................................18
</TABLE>
ii
PAGE 41 of 88
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
SECTION 5.3 - LIABILITIES AND INDEMNIFICATION OF
THE MANAGING MEMBERS...........................................................................19
SECTION 5.4 - RELIANCE ON ACTS OF MANAGING MEMBERS......................................................20
SECTION 5.5 - COMPENSATION OF THE MANAGING
MEMBERS AND AFFILIATES.........................................................................20
SECTION 5.6 - LIMITATIONS OF THE MANAGING MEMBERS.......................................................21
SECTION 5.7 - APPOINTMENT OF TAX MATTERS MEMBER.........................................................21
ARTICLE VI - TRANSFER OF INTEREST AND WITHDRAWAL OF A MEMBER.....................................................23
SECTION 6.1 - TRANSFER BY MEMBER........................................................................23
(a) RESTRICTION ON TRANSFER OR ASSIGNMENT.................................................23
(b) PERMITTED TRANSFERS TO FAMILY.........................................................23
(c) PERMITTED TRANSFERS BY THE OLD COMPANY OR OLYMPIC TRADING.............................23
SECTION 6.2 - WITHDRAWAL OF NON-MANAGING MEMBERS........................................................24
SECTION 6.3 - PROHIBITED TRANSFERS......................................................................24
SECTION 6.4 - DEATH, BANKRUPTCY, INCOMPETENCY
OF A NON-MANAGING MEMBER.......................................................................24
SECTION 6.5 - SPECIAL TRANSFER PROVISIONS FOR SCHMIDT...................................................25
(a) RIGHT TO PURCHASE SCHMIDT'S INTEREST..................................................25
(b) RIGHT TO REPURCHASE AND RIGHT TO REQUIRE REPURCHASE OF
SCHMIDT'S INTEREST....................................................................26
(c) METHOD OF PAYMENT OF PURCHASE PRICE...................................................26
(d) MANAGING MEMBERS' DRAG-ALONG RIGHTS...................................................27
(e) SCHMIDT'S TAG-ALONG RIGHTS............................................................28
SECTION 6.6 - WITHDRAWAL OF A MANAGING MEMBER...........................................................29
(a) ELECTION TO TERMINATE.................................................................29
(b) ELECTION TO CONTINUE COMPANY..........................................................29
(c) CHANGES TO ATLAS......................................................................30
(d) CHANGES TO OLYMPIC....................................................................30
(e) BANKRUPTCY OF MANAGING MEMBER.........................................................30
SECTION 6.7 - INTERIM MANAGING MEMBER...................................................................31
SECTION 6.8 - OFFERS TO RESOLVE DEADLOCK................................................................31
ARTICLE VII - AMENDMENTS.........................................................................................32
SECTION 7.1 - AUTHORITY TO AMEND........................................................................32
ARTICLE VIII - POWER OF ATTORNEY.................................................................................33
SECTION 8.1 - POWER OF ATTORNEY.........................................................................33
SECTION 8.2 - SURVIVAL OF POWER.........................................................................33
ARTICLE IX - TERMINATION OF THE COMPANY..........................................................................34
SECTION 9.1 - ELECTION TO TERMINATE AND DISSOLVE........................................................34
(a) EVENTS CAUSING DISSOLUTION............................................................34
(b) SALE OF ASSETS........................................................................34
(c) ABSENCE OF MANAGING MEMBER............................................................35
</TABLE>
iii
PAGE 42 of 88
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
SECTION 9.2 - PROCEEDS OF LIQUIDATION...................................................................35
(a) DEBTS.................................................................................35
(b) RESERVES..............................................................................35
(c) CAPITAL ACCOUNTS......................................................................35
SECTION 9.3 - FAIR MARKET VALUE DISTRIBUTIONS...........................................................35
SECTION 9.4 - FINAL ACCOUNTING..........................................................................35
ARTICLE X - MISCELLANEOUS........................................................................................36
SECTION 10.1 - EFFECT OF ELECTION.......................................................................36
SECTION 10.2 - GOVERNING LAW............................................................................36
SECTION 10.3 - COUNTERPARTS.............................................................................36
SECTION 10.4 - AGREEMENT FOR FURTHER EXECUTION..........................................................36
SECTION 10.5 - ENTIRE AGREEMENT.........................................................................37
SECTION 10.6 - SEVERABILITY.............................................................................37
SECTION 10.7 - NOTICE...................................................................................37
SECTION 10.8 - CAPTION..................................................................................38
SECTION 10.9 - NUMBER AND GENDER........................................................................38
SECTION 10.10 - BINDING EFFECT..........................................................................38
SECTION 10.11 - INCORPORATION BY REFERENCE..............................................................38
SECTION 10.12 - NO STATE LAW PARTNERSHIP................................................................38
SECTION 10.13 - NO LIABILITY TO THIRD PARTIES...........................................................38
SECTION 10.14 - RIGHTS OF CREDITORS AND THIRD
PARTIES UNDER AGREEMENT........................................................................39
</TABLE>
iv
PAGE 43 of 88
<PAGE> 6
OPERATING AGREEMENT OF
----------------------
OLYMPIC CONTINENTAL RESOURCES, L.L.C.
-------------------------------------
THIS OPERATING AGREEMENT ("Agreement") of OLYMPIC CONTINENTAL
RESOURCES, L.L.C., an Ohio limited liability company (the "Company") formed
pursuant to Chapter 1705 of the Ohio Revised Code (the "Act"), is entered into
as of the 1st day of January, 1997, by and among THYSSEN-CONTINENTAL RESOURCES
LIMITED LIABILITY COMPANY, a Delaware limited liability company ("Old Company"),
the sole members of which are Atlas Iron Processors, Inc., a Florida corporation
("Atlas") and Atlas-Continental Resources Corporation, an Ohio corporation
("ACR"), OLYMPIC STEEL TRADING, INC., an Ohio corporation ("Olympic Trading"),
which is a wholly-owned subsidiary of Olympic Steel, Inc., an Ohio corporation
("Olympic Steel"), and UWE T. SCHMIDT ("Schmidt") (the Old Company, Olympic
Trading and Schmidt are collectively referred to as the "Members" and
individually as a "Member"), such execution to evidence the mutual agreement of
the Members to implement an Operating Agreement under the provisions of the Act,
for the purposes and upon the terms and conditions hereinafter set forth.
Reference to an Article, Section, or paragraph means an Article, Section or
paragraph of this Agreement, unless otherwise specified.
PRELIMINARY STATEMENT
---------------------
The Company was formed pursuant to Articles of Organization filed in
the Office of the Ohio Secretary of State on December 27, 1996. The Members
desire to form the Company for the purposes more particularly described below in
Section 1.2 involving (unless otherwise agreed to by the Managing Members)
selling and trading metal and all related activities.
ACR and Thyssen, Inc., a Delaware corporation ("Thyssen") were the sole
members of the Old Company, which was organized in 1995. The Old Company
conducted operations involving (i) the purchase, sale and trading of processed
or unprocessed metal in "free trading" trading transactions; (ii) the sourcing
and sale of processed or unprocessed metal in "back to back" transactions; and
(iii) the purchase of processed or unprocessed metal for resale in "back to
back" transactions (the "Business"), which operations are similar to those to be
conducted by the Company. Schmidt managed the day-to-day operations of the
Business.
Prior to the date of this Agreement, Atlas acquired Thyssen's interest
in the Old Company, having determined that the operation of the Old Company
could be more
PAGE 44 of 88
<PAGE> 7
effectively performed with Olympic Trading, a wholly-owned subsidiary of Olympic
Steel, and Schmidt through the formation of the Company. Thus, as of the date of
this Agreement the sole members of the Old Company are Atlas and ACR.
ARTICLE I
---------
ORGANIZATION
------------
SECTION 1.1 - NAME.
- -------------------
The name of the Company is Olympic Continental Resources, L.L.C.
SECTION 1.2 - PURPOSES OF BUSINESS.
- -----------------------------------
The Company is being formed to engage in the following activities:
i. the purchase, sale and trading of processed or
unprocessed metal in "free trading" transactions with
customers, whether or not Affiliates of a Member;
ii. the sourcing and sale of processed or unprocessed
metal in "back to back" transactions to Atlas,
Olympic or their Affiliates or others; and
iii. the purchase of processed or unprocessed metal from
Atlas, Olympic or their Affiliates for resale to
customers in "back to back" transactions.
For purposes of this Agreement: (i) a "back to back" transaction means
one in which the Company's obligations to customers and suppliers (including a
Member or Affiliate of a Member) to purchase and sell, or sell and purchase,
processed or unprocessed metal are substantially the same under the relevant
contracts (except for the purchase price or terms of payment) so that the
Company does not have any material liability, obligation or exposure to any
other party to the transaction unless a part to one of the contracts defaults in
payment or performance under such contract and (ii) a "free trading" transaction
means one in which the Company purchases metal for its own account and then
resells the metal in a separate transaction.
Except for nominal warehousing of inventories, the Company shall not
own, lease, control or operate any facility for the processing or storage of
metal or take any metal on a consignment basis, unless agreed upon by the
Managing Members.
Except as restricted herein, the Company is authorized to engage in:
(i) any lawful acts or activities that are permitted for limited liability
companies under the laws of the State of Ohio and that are necessary or
desirable for conducting the authorized activities of the
2
PAGE 45 of 88
<PAGE> 8
Company described above and (ii) any other lawful business activity approved by
the Managing Members.
SECTION 1.3 - PLACE OF BUSINESS.
- --------------------------------
The location of the principal place of business of the Company shall be
30050 Chagrin Boulevard, Suite 220, Pepper Pike, Ohio 44124, or at such other
substituted or additional places of business as may be designated by the
Managing Members.
SECTION 1.4 - REGISTERED OFFICE OF THE COMPANY.
- -----------------------------------------------
The address of the Company's Registered Office in the State of Ohio is
30050 Chagrin Boulevard, Suite 220, Pepper Pike, Ohio 44124. All interested
persons may direct requests for copies of this Operating Agreement and any
Bylaws of the Company to a Managing Member at the Company's Registered Office.
SECTION 1.5 - EFFECTIVE DATE AND TERM.
- --------------------------------------
This Agreement shall be effective as of the date hereof, continuing for
a perpetual term, unless earlier dissolved and terminated pursuant to the Act or
any other provisions of this Agreement. The Managing Members shall cause the
Company to file such documents as may be required to permit the Company to carry
on its business in the State of Ohio and any other jurisdiction in which the
Company desires to conduct business.
SECTION 1.6 - NAME, ADDRESS AND PROFITS INTERESTS OF MEMBERS.
- -------------------------------------------------------------
The names, addresses, Capital Contributions, and Profits Interests of
the Members shall be as set forth on EXHIBIT A attached hereto and made a part
hereof, and EXHIBIT A shall be amended as may be necessary or appropriate by the
Managing Members. A Member's Profits Interest in the Company shall mean a
Member's share of Profits and Losses. A Profits Interest may sometimes be
expressed as a percentage.
SECTION 1.7 - NAME AND ADDRESS OF REGISTERED AGENT.
- ---------------------------------------------------
The Company's Agent for service of process, as required under Section
1705.06 of the Act, shall be Olympic Steel Trading, Inc. The Agent's address is
5096 Richmond Road, Cleveland, Ohio 44146.
SECTION 1.8 - DEFINITIONS.
- --------------------------
For purposes of this Agreement and the Appendix, the terms and phrases
listed below shall be defined as follows:
3
PAGE 46 of 88
<PAGE> 9
(a) AFFILIATE. "Affiliate" or "Affiliated Person" means, when used with
reference to a specified Person, (i) any Person who directly or indirectly,
controls or is controlled by, or is under common control with the specified
Person; (ii) any Person who is an officer, director, employee, trustee or
partner of, or serves in a similar capacity with respect to the specified
Person, or of which the specified Person is an officer, director, employee,
trustee or partner, or with respect to which the specified Person serves in a
similar capacity; (iii) any Person who, directly or indirectly, is the
beneficial owner of ten percent (10%) or more of any class of equity securities
or partnership or limited liability company interests of, or otherwise has a
substantial beneficial interest in, the specified Person or of which the
specified Person is directly or indirectly the owner of ten percent (10%) or
more of any class of equity securities or partnership or limited liability
company interests or in which the specified Person has a substantial beneficial
interest; and (iv) any relative of the specified Person (and for this purpose, a
relative means a Person's spouse, lineal descendants, ancestors, siblings,
sons-in-law or daughters-in-law).
(b) AGREEMENT. "Agreement" means this Operating Agreement as amended,
modified, supplemented, or restated from time to time, and includes all
Appendices and Exhibits attached hereto.
(c) ATLAS PARTIES. "Atlas Parties" means the Old Company, Atlas, ACR
and any Related Party of Atlas or ACR.
(d) ATLAS OWNERSHIP CHANGE. "Atlas Ownership Change" means any of the
following events: (i) an event that results in Anthony Giordano, Jr. no longer
owning at least 24% of the combined voting power of Atlas stock then
outstanding, (ii) an event that results in Anthony Giordano, Jr. no longer
owning at least 24% of the combined voting power of ACR stock then outstanding,
(iii) Anthony Giordano, Sr., Anthony Giordano, Jr., David Giordano and Monica
Saponaro no longer owning in the aggregate more than 50% of the combined voting
power of Atlas stock then outstanding, (iv) Anthony Giordano, Sr., Anthony
Giordano, Jr., David Giordano and Monica Saponaro no longer owning in the
aggregate more than 50% of the combined voting power of ACR stock then
outstanding, or (v) the Old Company having a member other than Atlas or ACR.
(e) AUDITED CLOSING STATEMENT. "Audited Closing Statement" means the
closing balance sheet of the Old Company, as of December 31, 1996, prepared in
accordance with generally accepted accounting principles, and as audited by
Ernst & Young.
(f) AUDITED NET BOOK VALUE. "Audited Net Book Value" means the adjusted
book value of the Contributed Atlas Assets less the value of the Assumed
Liabilities, each as shown on the Audited Closing Statement.
(g) BANKRUPTCY. "Bankruptcy" means, with respect to a Member, the
occurrence of one of the following events:
4
PAGE 47 of 88
<PAGE> 10
(i) the Member makes an assignment for the benefit of
creditors;
(ii) the Member files a voluntary petition in bankruptcy;
(iii) the Member is adjudicated a bankrupt or insolvent;
(iv) the Member files a petition or answer in any
reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar
relief proceeding under any law or rule that seeks
for the Member any of those types of relief;
(v) the Member files an answer or other pleading
admitting or failing to contest the material
allegations of a petition filed against him in any
proceeding seeking the relief described in division
(iv) of this definition;
(vi) a period of sixty (60) days has elapsed after the
commencement against the Member of any proceeding
seeking the relief described in division (iv) of this
definition, and the proceeding has not been
dismissed; a period of ninety (90) days has elapsed
after the appointment of a trustee, receiver, or
liquidator for the Member or for all or any
substantial part of the Member's properties without
the Member's consent or acquiescence, and the
appointment has not been vacated or stayed; or a
period of ninety (90) days has elapsed after the
expiration of that stay, and the appointment has not
been vacated.
(h) CAPITAL ACCOUNT. "Capital Account" means an individual account
maintained by the Company for each Member, which shall be established and
maintained by the Company in accordance with the Regulations under Code Section
704(b). No interest shall be paid on or charged against the balance in such
account. A Member's Capital Account shall initially be equal to the amount of
the Member's Capital Contribution.
(i) CAPITAL CONTRIBUTION. "Capital Contribution" means the total amount
of cash and property contributed to the Company by a Member (and the predecessor
holder of the Interests of such Member), the value of which shall be as stated
on Exhibit A.
(j) CAPITAL TRANSACTION. "Capital Transaction" means any of the
following: (i) a sale, exchange, transfer, assignment, or other disposition of
all or a portion of any Company asset (but not including sales in the ordinary
course of business of inventory, operating equipment or furniture, fixtures and
equipment); (ii) any financing or refinancing of, or with respect to, any
Company asset; (iii) any condemnation proceeds or deeding in lieu of
condemnation of all or a portion of any Company asset; (iv) a collection in
respect of property, hazard, or casualty insurance (but not business
interruption insurance) or any
5
PAGE 48 of 88
<PAGE> 11
damage award except to the extent proceeds are used to repair or replace the
assets so damaged or destroyed; or (v) any transaction capital in nature, and
specifically including, but not limited to, the distribution to the Members of
Capital Contributions.
(k) CASH FLOW. "Cash Flow" of the Company with respect to any period
means all cash receipts of the Company from any source (including cash from
operations, compensation, or fees but excluding Capital Contributions of
Members) less the portion thereof: (i) used to pay cash disbursements in
connection with the Company's activities (including but not limited to, debt
service, operating expenses, compensation, fees and reimbursements paid to the
Members or their Affiliates in accordance with Articles IV and V and the
repayment of loans made by a Member to the Company, plus accrued interest), and
(ii) used to establish such reserves for capital improvements, working capital,
or otherwise, as the Managing Members shall deem to be reasonably necessary or
appropriate in their absolute discretion in the efficient conduct of the
business of the Company; except, however, that Cash Flow shall not include any
proceeds from Capital Transactions or Liquidation Proceeds.
(l) CAUSE. "Cause" means: (i) material breach by Schmidt of (A) any of
his obligations in any employment agreement with the Company, (B) the
Indemnification Agreement, or (C) this Agreement, which is not cured within the
time provided in such agreement; or (ii) fraud, embezzlement, defalcation, or
misappropriation of funds or other property of the Company.
(m) CODE. "Code" means the United States Internal Revenue Code of 1986,
as amended.
(n) CONTRIBUTION DATE. "Contribution Date" means the date on which the
Old Company and Olympic Trading are required to make their respective initial
Capital Contributions to the Company, which is the first day after both of the
following conditions are satisfied:
(i) the Company obtains a secured revolving credit facility in the
maximum principal amount of Thirty-Five Million Dollars
($35,000,000.00); and
(ii) Atlas has acquired Thyssen's interest in the Old Company.
(o) DISABILITY. "Disability" means any physical or mental condition
that (i) prevents the specified individual from performing the individual's
then-existing duties and obligations as an employee of the Company, Olympic
Steel or Atlas, as the case may be, for more than one hundred eighty (180)
consecutive days as determined by an independent physician designated by the
Company; or (ii) causes an absence of more than one hundred eighty (180)
consecutive days in duration from such duties.
6
PAGE 49 of 88
<PAGE> 12
(p) EVENT OF WITHDRAWAL. An "Event of Withdrawal" means an event
described in Section 1705.15 of the Act (or if such Act is amended, then the
successor provision of the Act) which includes death, insanity, bankruptcy,
retirement, resignation or expulsion of a Member.
(q) FAIR MARKET VALUE. "Fair Market Value" means when used with
reference to a Membership Interest, the fair market value of the Interest based
on the Company as a going concern and determined by, unless the purchaser and
seller otherwise agree between themselves, an appraisal conducted by an
appraiser mutually acceptable to the purchaser and seller. If the parties fail
to agree upon a single appraiser, then the purchaser and seller shall each
appoint one appraiser and the two persons so appointed shall appoint a third
appraiser. The median appraisal of the three appraisers shall determine the fair
market value price. If either party fails or refuses to appoint an appraiser
within ten (10) days after the notice exercising the sale or purchase right was
given, the one appraiser appointed shall determine the fair market value price
in good faith. If there is only one (1) appraiser appointed, the purchaser and
seller shall share equally the cost of such appraiser. If there is more than one
(1) appraiser appointed, each party shall bear the cost of the appraiser
appointed by him and the parties shall share equally the cost of the third
appraiser. The appraisal shall be completed within sixty (60) days after the
appraiser(s) is appointed. In determining the Fair Market Value of any
Membership, no discount shall be made that is attributable to the Interest being
a Non-Managing Membership Interest or a minority Membership Interest and the
value of each such Interest shall be based upon the value of such Interest as if
the entire Business was sold and the allocations provided in Section 2.1(c) of
the Tax Appendix to the Operating Agreement were made.
(r) FORMATION DATE. "Formation Date" means the effective date of this
Agreement, which is January 1, 1997.
(s) LIQUIDATION. "Liquidation" means when used with reference to the
Company, the event and/or act which occurs the earlier of (i) the date upon
which the Company is terminated under Code Section 708(b)(1)(A), or (ii) the
date upon which the Company ceases to be a going concern.
(t) LIQUIDATION PROCEEDS. "Liquidation Proceeds" means the proceeds and
assets available for distribution to creditors and Members upon or pursuant to
the termination and Liquidation of the Company, including the proceeds available
from the sale of all or substantially all of the Company's assets.
(u) MAJORITY IN INTEREST. "Majority in Interest" or "majority of the
Membership Interests" shall mean those Members owning at least fifty-one percent
(51%) of the outstanding Membership interests in profits and capital of the
Company owned by those Members entitled to vote on such matter, within the
meaning of Rev. Proc. 94-46.
7
PAGE 50 of 88
<PAGE> 13
(v) MANAGING MEMBER. A "Managing Member" is a Member who is designated
a Managing Member in Article IV, and who is responsible for managing, or
participating in the management of, the Company, and any successor of a Managing
Member who is appointed as a Managing Member in accordance with the provisions
of this Agreement.
(w) MEMBER. A "Member" means a Person who is named in this Agreement as
a Member owning a Membership Interest, and any Person who later becomes a Member
pursuant to the provisions of this Agreement.
(x) MEMBERSHIP INTEREST. A "Membership Interest" means a Member's
Capital Account and share of Profits, Losses, cash distributions and other
economic rights in the Company.
(y) NON-MANAGING MEMBER. A "Non-Managing Member" is a Member who does
not participate in the management of the Company.
(z) OLYMPIC PARTIES. "Olympic Parties" means Olympic Trading, Olympic
Steel and any Related Party of Olympic Steel.
(aa) PERSON. "Person" means any individual, partnership, limited
liability company, corporation, trust, estate, or other entity, as the context
may require, and as more fully set forth in Section 1705.01(k) of the Act.
(bb) PROFITS INTEREST. The "Profits Interest" is the percentage set
forth opposite the respective Member's name on Exhibit A. A Member's Profits
Interest in the Company shall mean a Member's share of Profits and Losses of the
Company.
(cc) REGULATIONS. "Regulations" means the Income Tax Regulations issued
by The United States Treasury Department, as the same may be amended from time
to time.
(dd) RELATED PARTY. "Related Party" means any entity (i) in which such
Person is, directly or indirectly, the beneficial owner of more than fifty
percent (50%) of the equity interests (e.g. stock, partnership interests,
limited liability company interests) in terms of both vote and value or (ii)
which is, directly or indirectly, the beneficial owner of more than fifty
percent (50%) of the equity interests (e.g. stock, partnership interests,
limited liability company interests) of such Person in terms of both vote and
value.
(ee) STIPULATED RATE. The "Stipulated Rate" means one percent (1%) over
the rate of interest publicly announced as the "base rate" of interest by
National City Bank ("Bank") (or its successor) and will float on a daily basis.
(ff) THIRD PARTY. "Third Party" means any person who is not an Olympic
Party or an Atlas Party.
8
PAGE 51 of 88
<PAGE> 14
(gg) WITHOUT CAUSE. "Without Cause" means termination of employment by
the Company for any reason other than Cause, death, or Disability or resignation
by Schmidt from employment as a result of acts of the employer that constitute
"constructive discharge" under common law or a material breach by the Company of
its obligations to Schmidt under any employment agreement, the Indemnification
Agreement or this Agreement that is not timely cured pursuant to the terms of
such agreement.
ARTICLE II
----------
CAPITAL CONTRIBUTIONS
---------------------
SECTION 2.1 - REQUIRED CAPITAL CONTRIBUTIONS.
- ---------------------------------------------
(a) CAPITAL CONTRIBUTIONS. The Members' initial Capital Contributions
to the Company are specified on EXHIBIT A attached hereto and made a part hereof
and consist of the following:
(i) The Old Company contributes assets of the Old Company
identified on Schedule 1 hereto (the "Contributed
Atlas Assets"). In connection with the contribution
by the Old Company of the Contributed Atlas Assets,
the Company assumes only the liabilities specifically
identified on Schedule 2 hereto ("Assumed
Liabilities"). Taking into account the Assumed
Liabilities, the Capital Contribution of Atlas is One
Million Two Hundred Fifty Thousand Dollars
($1,250,000).
(ii) Olympic Trading contributes Four Million Dollars
($4,000,000) of cash to the Company; and
(iii) Schmidt contributes Two Hundred Fifty Thousand
Dollars ($250,000) of cash to the Company.
The Old Company and Olympic Trading agree to satisfy their initial
Capital Contribution no later than the Contribution Date. Schmidt agrees to pay
his initial Capital Contribution as soon as possible after the Contribution Date
and if paid after the Contribution Date, Schmidt's obligation to make his
Capital Contribution shall be evidenced by a one-year Cognovit Promissory Note
in the form attached hereto as "EXHIBIT B" with interest thereon payable to the
Company at the Stipulated Rate for the period from the Formation Date through
the date such Capital Contribution is paid. Schmidt shall pay interest on the
Cognovit Promissory Note at least quarterly during the calendar year. Any
Company distributions otherwise allocable to Schmidt shall be applied to the
unpaid portion of his Capital Contribution obligation and interest thereon.
Except as specified in this Agreement, no Member will be obligated to make an
additional Capital Contribution to the Company to restore a deficit Capital
Account balance or otherwise, and no Member will be personally
9
PAGE 52 of 88
<PAGE> 15
liable for the debts and liabilities of the Company, except such debts as may be
specifically agreed to by such Members.
(b) LIMITED ASSUMPTION AGREEMENTS. No member shall be obligated to
personally guarantee or assume any portion of a Company obligation. However, the
Managing Members may agree from time to time to severally (not jointly and
severally) guarantee 50% of certain Company obligations and in such a case
Schmidt shall indemnify each Managing Member for any payment the Managing Member
is required to make under the guarantee in an amount that bears the same ratio
to the Payment as Schmidt's Profits Interest in the Company bears to all Profits
Interests of the Company. Any payments the Managing Members and Schmidt are
required to make under this Section 2.1(b) shall be treated as loans to the
Company. Prior to making any distributions to the Members pursuant to Sections
3.1 and 9.2(c), the Company must repay such loans on a pro rata basis in
proportion to the outstanding balances of such loans owed to each Member.
(c) ADDITIONAL CAPITAL CONTRIBUTIONS. The Managing Members in their
sole discretion may request additional Capital Contributions from the Members
for the purposes of paying Company expenses, expanding the Company's business,
making additional investments, paying debt service, or for any other reason. In
such a case, the Managing Members shall send written notification (the "Capital
Call") to each Member specifying the reason for such additional Capital
Contributions, the amount desired, each Member's share thereof, and the due date
of such additional Capital Contributions. Each Member's share of the additional
contribution shall be pro rata in proportion to their respective Profits
Interests. The Member to whom such request is sent shall have the right, but not
the obligation, to make such additional Capital Contributions.
If the Member desires to make additional Capital Contributions, such
Member shall deliver such Capital Contribution by the due date specified in the
Capital Call, and if such Member does not desire to make a further Capital
Contribution, such Member shall so notify the Managing Members in writing by the
date established for such notification by the Managing Members. Notwithstanding
the foregoing, if a Member has previously agreed to make additional Capital
Contributions to the Company, nothing in this Section 2.1(c) shall be construed
to negate such prior agreement or excuse such Member from making such additional
Capital Contributions.
If a Member fails to make an additional Capital Contribution to the
Company as requested in the Capital Call, then the remaining Members shall be
entitled, but not obligated, to make up for the shortfall by making additional
Capital Contributions. In addition, one or more Members may loan the Company
such funds to make up for the shortfall or the Managing Members, in their
discretion, may sell additional Company Interests to other Persons. The Managing
Members shall determine in their discretion how to make up for any such
shortfall, as well as the Persons from whom such Capital Contributions or loans
are accepted.
10
PAGE 53 of 88
<PAGE> 16
(d) RESTATEMENT OF INTEREST. If one or more Members (the
"Noncontributing Members") fails to make an additional Capital Contribution
pursuant to the provisions of Section 2.1(c), then the Profits Interests of the
Noncontributing Members, and those Members or other Persons making the
additional Capital Contribution shall be adjusted, at the sole and absolute
discretion of the Managing Members, to fairly account for the additional Capital
Contribution.
(e) RIGHTS OF CREDITORS. The Managing Members authority and power to
request Members to make additional Capital Contributions shall not confer any
rights in favor of any creditor to request such additional Capital Contributions
or to demand the Managing Members to require any additional Capital
Contributions from the Members. No Person other than the Managing Members shall
have the power or authority to: (1) require the Managing Members to request
additional Capital Contributions, debt guarantees, or assumptions from the
Members unless the Managing Members specifically so agree; or (2) succeed to the
Managing Members power and authority to make such requests, without the express
consent of the Managing Members.
SECTION 2.2 - CAPITAL ACCOUNTS.
- -------------------------------
(a) MAINTENANCE OF CAPITAL ACCOUNTS. An individual Capital Account will
be maintained by the Company for each Member, and no interest will be paid on or
charged against the balance in such account. The Capital Accounts of the Members
shall be maintained in accordance with the Regulations issued pursuant to
Section 704(b) of the Code.
(b) INCREASES. Each Member's Capital Account shall be increased by the
Member's: Capital Contributions; distributive share of Company Profits or items
thereof which are allocated to such Member pursuant to this Agreement; and all
other amounts that are required pursuant to the Regulations under Code Section
704(b). For purposes of this Agreement, a Member's Capital Contribution shall be
equal to the amount of cash, plus the fair market value of property contributed
to the Company, net of any liabilities that the Company assumes or to which such
property is subject.
(c) DECREASES. Each Member's Capital Account shall be decreased by: any
distributions to the Member of cash or property to the extent of the net fair
market value thereof (net of any liabilities which the Member assumes to which
such property is subject); distributive share of Company Losses or items thereof
which are allocated to such Member pursuant to this Agreement; the Member's
distributive share of any expenditures described in Section 705(a)(2)(B) of the
Code; and such other items as are required pursuant to the Regulations under
Code Section 704(b).
(d) TRANSFER OF INTEREST. If a Member transfers all or any portion of
the Member's Membership Interest to another Person pursuant to Article VI of
this Agreement, the Capital
11
PAGE 54 of 88
<PAGE> 17
Account (or ratable portion thereof) that is attributable to the transferred
Interest shall be transferred to the transferee.
SECTION 2.3 - RETURN OF CONTRIBUTIONS; DISSOLUTION OF THE COMPANY.
- ------------------------------------------------------------------
No Member shall be entitled to a return of any portion of any Capital
Contribution except as specifically provided in this Agreement. Except as
provided herein, no Member shall, in the capacity as a Member, have the right or
authority to cause the dissolution of the Company.
ARTICLE III
-----------
ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS
-----------------------------------------------
SECTION 3.1 - CASH DISTRIBUTIONS.
- ---------------------------------
(a) DISTRIBUTIONS OF CASH FLOW. After repaying all loans made by the
Members to the Company, the Cash Flow held by the Company and not required in
the operation of the Company's business (including the establishment of
reasonable reserves) will be distributed to the Members, from time to time, at
the discretion of the Managing Members. No Member shall be entitled to make
withdrawals from such Member's Capital Account or from the Company's capital,
except to the extent of distributions made pursuant to this Section 3.1. Except
as provided in this Agreement or as agreed to by the Managing Members, no Member
shall receive compensation for services rendered to the Company. All
distributions of the Cash Flow shall be made among the Members pro rata in
proportion to their respective Profits Interests, as identified on Exhibit A.
(b) DISTRIBUTIONS OF CAPITAL TRANSACTIONS. After repaying all loans
made by the Members to the Company, the proceeds from Capital Transactions held
by the Company and not required in the operation of the Company's business
(including the establishment of reasonable reserves) will be distributed to the
Members, from time to time, at the discretion of the Managing Members. All
distributions of proceeds from Capital Transactions will be made among the
Members pro rata in proportion to their respective Capital Account balances,
after giving effect to all Capital Contributions, distributions, allocations and
all other adjustments to all Members' Capital Account balances for all periods.
(c) INCOME TAX DISTRIBUTIONS. Notwithstanding anything to the contrary
in Section 3.1(a) and (b) of this Agreement, the Company must make annual
distributions of cash ("Income Tax Distributions") that in the aggregate equal
to forty percent (40%) of the Company's taxable income and gain (net of
deductions and credit) for the preceding calendar year, reduced by any taxable
income for the preceding calendar year that is specially allocated to a Member
under Code Section 704(c) with respect to contributed property. Such amounts
will be distributed at such times and in such amounts as the Managing Members
shall determine. Anything to the contrary herein notwithstanding, no
distributions
12
PAGE 55 of 88
<PAGE> 18
may be made to any Member pursuant to this Section 3.1(c) at any time when
payments on any Company obligation shall be considered delinquent or if such
payment would cause the Company to default on any Company obligation. Whether
such delinquency or default shall occur will be determined by the Managing
Members. All distributions under this Section 3.1(c) will be made among the
Members in proportion to their respective shares of taxable income and gain as
determined for purposes of this Section 3.1(c).
(d) DISTRIBUTION OF LIQUIDATION PROCEEDS. Liquidation Proceeds shall be
distributed in accordance with Section 9.2.
SECTION 3.2 - ALLOCATION OF PROFITS AND LOSSES.
- -----------------------------------------------
Profits and Losses shall be allocated among the Members in accordance
with the provisions of the Appendix attached hereto.
SECTION 3.3 - ACCOUNTING.
- -------------------------
The Company's books will be kept on an accrual basis and otherwise in
accordance with generally accepted accounting principles consistently applied.
One of the "Big 6" accounting firms that the Managing Members appoint will audit
the Company's books annually. The fiscal and taxable year of the Company shall
be the calendar year. On or before the seventy-fifth (75th) day following the
end of the Company's taxable year, the Managing Members shall use their
reasonable efforts to provide the Members: (a) such information as is necessary
for the preparation by the Members of their federal income tax return and State
income or other tax returns; and (b) annual financial statements and such other
information as, in the judgment of the Managing Members, is reasonably necessary
to advise the Members of the results of the operation of the Company.
ARTICLE IV
----------
MANAGEMENT OF COMPANY
---------------------
SECTION 4.1 - MANAGEMENT OF COMPANY.
- ------------------------------------
(a) The Managing Members are vested with the power to manage, control,
and make all decisions affecting the business and assets of the Company, except
as otherwise provided herein. The initial Managing Members shall be the Old
Company and Olympic Trading.
Although referred to as "Managing Members" throughout this Agreement,
the foregoing are serving as Members of the Company not managers.
13
PAGE 56 of 88
<PAGE> 19
(b) If a Managing Member is adjudicated as bankrupt or files a Notice
of Withdrawal as a Managing Member, the remaining Managing Members shall serve
as the sole Managing Members. If there are no remaining Managing Members, a
Majority in Interest of the remaining Members may elect successor Managing
Members (who are Members) who shall be vested with all powers, rights,
responsibilities and duties as set forth herein, as amended from time to time in
writing, with respect to the initial Managing Members.
SECTION 4.2 - DECISIONS OF THE MANAGING MEMBERS.
- ------------------------------------------------
All decisions, consents, and approvals under this Agreement to be made
by the Managing Members shall be made by their unanimous vote and each Managing
Member shall have an equal vote in all Company matters before the Managing
Members. However, notwithstanding the foregoing, the actions and decisions
specified in Section 5.6 shall require the unanimous decision of all Members. It
shall not be necessary for the Managing Members or the Members to conduct a
meeting for the purpose of making Company decisions.
SECTION 4.3 - OFFICERS AND OTHER MATTERS.
- -----------------------------------------
(a) ELECTION AND DESIGNATION OF OFFICERS. The Managing Members may
elect a President, a Secretary, a Treasurer, one or more Vice Presidents, one or
more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers as the Managing Members may deem necessary. No one of the officers need
be a Managing Member. Any two or more offices may be held by the same person,
but no officer shall execute, acknowledge, or verify any instrument in more than
one capacity if the instrument is required to be executed, acknowledged, or
verified by two or more officers.
(b) TERM OF OFFICE; VACANCIES. Each officer of the Company shall hold
office until the officer's successor is elected or until the officer's earlier
resignation, removal from office, or death. The Managing Members may remove any
officer at any time with or without cause by a majority vote of the Managing
Members then in office. Any vacancy in any office may be filled by the Managing
Members.
(c) PRESIDENT. Subject to directions of the Managing Members, the
President shall have general executive supervision over the day-to-day
operations of the property, business, and affairs of the Company. All other
officers of the Company shall report to the President and shall be subject to
the direction of the President. Within sixty (60) days prior to the beginning of
each calendar year after 1997, the President shall submit to the Managing
Members for their approval an annual operating and capital expenditure budget of
the Company ("Budget") for such calendar year. The President shall submit the
Budget for 1997 by the Contribution Date to the Managing Members for approval.
The President may execute all authorized deeds, mortgages, bonds, contracts, and
other obligations in the name of the Company and shall have such other authority
and shall perform such other duties as
14
PAGE 57 of 88
<PAGE> 20
may be determined by the Managing Members. The Managing Members hereby appoint
Schmidt as the initial President of the Company.
(d) VICE PRESIDENTS. The Vice Presidents, if any, shall, respectively,
have such authority and perform such duties as may be determined by the Managing
Members.
(e) SECRETARY. The Secretary, if any, shall keep the minutes of
meetings of the Members and of the Managing Members. The Secretary shall keep
such additional corporate records as may be required by the Managing Members,
shall give notices of meetings of the Members and of meetings of the Managing
Members required by law or by this Operating Agreement or otherwise, and shall
have such authority and shall perform such other duties as may be determined by
the Managing Members.
(f) TREASURER. Unless the authority is granted by the Managing Members
to another financial officer, the Treasurer, if any, shall receive and have
control over all money, notes, bonds, securities of other corporations, and
similar property belonging to the Company, and shall do with this property as
may be ordered by the Managing Members. The Treasurer shall keep accurate
financial accounts and hold them open for the inspection and examination of the
Members and shall have such authority and shall perform such other duties as may
be determined by the Managing Members.
(g) OTHER OFFICERS. The Assistant Secretaries and Assistant Treasurers,
if any, and any other officers whom the Managing Members may elect shall,
respectively, have such authority and perform such duties as may be determined
by the Managing Members.
(h) DELEGATION OF AUTHORITY AND DUTIES. The Managing Members are
authorized to delegate the authority and duties of any officer to any other
officer and generally to control the action of the officers and to require the
performance of duties in addition to those mentioned herein.
SECTION 4.4 - MEETINGS OF MEMBERS.
- ----------------------------------
The Managing Members may from time to time call meetings of the
Members. The Managing Members shall send written notice to each Member of each
such meeting at least fifteen (15) days, but not longer than forty-five (45)
days, prior to such meeting. All such meetings shall be held within the
continental United States The Members shall be entitled to attend and discuss
issues on the agenda for such meetings. The Managing Members shall endeavor to
provide an agenda for each such meeting, and such agenda may include a review of
the financial results of the Company.
15
PAGE 58 of 88
<PAGE> 21
SECTION 4.5 - VOTING RIGHTS OF MEMBERS.
- ---------------------------------------
Each Member shall have the right to vote in Company matters in the same
percentage as set forth on EXHIBIT A as their Profits Interest as adjusted by
Section 2.1(d).
SECTION 4.6 - CHECKING OR SAVINGS ACCOUNTS.
- -------------------------------------------
The funds of the Company shall be deposited in its name in such
checking accounts, savings accounts, or money market funds as shall be
designated by the Managing Members. All withdrawals from such accounts or
investments shall be made upon checks, drafts, or withdrawal forms signed by any
Managing Member, President, or any agent of the Company who is designated by the
Managing Members to sign checks, drafts, or other such instruments, provided
that the expense has been approved by the Managing Members or the President in
accordance with Article V.
ARTICLE V
---------
POWERS, DUTIES, LIABILITIES,
----------------------------
COMPENSATION AND DECISIONS OF THE MANAGING MEMBERS
--------------------------------------------------
SECTION 5.1 - POWERS OF THE MANAGING MEMBERS.
- ---------------------------------------------
Subject to the limitations imposed by the Act and this Agreement, the
Managing Members, in their full and exclusive discretion, shall manage and
control and make all fundamental and general policy decisions affecting the
Business and assets of the Company. Additionally, no act shall be taken, amount
expended, decision made or obligation incurred by the Company, the Members, or
any officer of the Company regarding any matter listed below unless and until
approved by unanimous consent of the Managing Members:
(a) approve or exercise each contract, or renewal or extension of
any existing contract, for purchase, sale or trade of metal
(including Company inventories) involving more than $150,000
or expected to remain in effect for more than 6 months,
excluding any transaction covered by credit insurance or that
constitutes a "back to back" transaction;
(b) extend credit to customers or others except within guidelines
or limits previously approved by the Managing Members.
(c) approve an annual operating and capital expenditure budget
("Budget") of the Company as required to be submitted to the
Managing Members pursuant to Section 4.3(c) by the President;
(d) make any material modification of, or change in, the Budget
previously approved by the Managing Members;
16
PAGE 59 of 88
<PAGE> 22
(e) make any expenditure or incur any obligation for an item or
category separately specified or described in the Budget where
the amount to be expended for that item or category exceeds
the amount budgeted for it by more than ten percent (10%);
(f) make any capital expenditure, or sell, pledge or create a lien
or security interest on, any asset (excluding Company
inventories sold in the ordinary course of business with any
necessary approval described in subsection (a) above) with a
value of more than $25,000 in each instance, unless already
authorized in the Budget;
(g) specify and revise the authority, responsibilities and duties
of the President and other officers of the Company;
(h) hire non-clerical employees in addition to those previously
employed by the Old Company;
(i) approve or materially modify any retirement, life, medical,
dental and other fringe benefit program for Company officers
or employees;
(j) approve or renew each material contract of the Company with
sales representatives, agents, consultants, managerial
employees or professional advisors (including the Company's
accountants or attorneys);
(k) approve and enter into any financing, refinancing, extension,
modification or waiver of Company obligations or commitments;
(l) create or revise cash or other reserves, select or vary
depreciation and accounting methods and make other decisions
with respect to treatment of various transactions for federal
or state income or other tax purposes or other financial
purposes not otherwise specifically provided for in this
Agreement;
(m) approve, vary or change any portion of the insurance program
for the Company;
(n) institute any legal action by or on behalf of the Company;
(o) grant any power of attorney;
(p) cause or permit the Company to enter into, modify or continue
any contract or arrangement with a Member or any Affiliate of
a Member except to the extent expressly permitted by this
Agreement;
17
PAGE 60 of 88
<PAGE> 23
(q) make any other decision or action that is not in the normal
course of business or that would materially affect the
Company, one or both of the Members or the Company's assets or
operations;
(r) admit additional Members to the Company; and
(s) enter into transactions with Affiliates of the Atlas Parties,
the Olympic Parties, or Schmidt (including hiring relatives of
officers of the Atlas Parties, the Olympic Parties or of
Schmidt).
Any Managing Member may singularly execute, acknowledge and deliver any
and all instruments to effectuate any of the foregoing, provided that such
actions have been duly approved and authorized by the Managing Members pursuant
to this Agreement. Other than with respect to Schmidt, the Managing Members
shall be permitted to retain confidential information concerning the Company and
have no obligation to make such information available to the other Members in
accordance with Section 1705.22 of the Act.
SECTION 5.2 - DUTIES OF MANAGING MEMBERS.
- -----------------------------------------
(a) The Managing Members shall manage or cause to be managed the
affairs of the Company in a prudent and businesslike manner and shall devote
such part of their time to Company affairs as is reasonably necessary for the
conduct of such affairs; PROVIDED, HOWEVER, that it is expressly understood and
agreed that no Managing Member shall be required to devote such Member's entire
time or attention to the business of the Company.
(b) In carrying out their obligations, the Managing Members shall:
(i) Maintain complete and accurate records of all property
(real and personal) owned or leased by the Company and complete and
accurate books of account (containing such information as shall be
necessary to record allocations and distributions);
(ii) Cause to be prepared and filed the tax returns of the
Company;
(iii) Cause to be filed such other documents and take such
other acts as may be required by law to qualify and maintain the
Company as a limited liability company under the laws of the State of
Ohio;
(iv) Cause to be furnished to each Member, at the Company's
expense, monthly balance sheets and income statements showing the
financial condition and results of operations of the Company within
twenty (20) days following the end of the month for which the
statements are provided;
18
PAGE 61 of 88
<PAGE> 24
(v) Maintain at the principal office of the Company all of the
following:
(A) A current list of the name and last business or
residence address of each Member set forth in alphabetical
order;
(B) A copy of the Articles of Organization and all
Amendments to it, together with executed copies of any powers
of attorney pursuant to which the Articles or Amendments
thereto have been executed;
(C) A copy of this Operating Agreement, all
Amendments to it, and executed copies of any written powers of
attorney pursuant to which this Operating Agreement and any
Amendments thereto have been executed;
(D) Copies of the Company's federal, state and local
income tax returns and reports, if any, for the three (3) most
recent years; and
(E) Copies of any financial statements of the Company
for the three (3) most recent years.
(c) All records required to be kept pursuant to Section 5.2(b) shall be
subject to audit, inspection, and copying by any Member or the Member's duly
authorized representative, at the reasonable request and expense of any such
Member during ordinary business hours.
SECTION 5.3 - LIABILITIES AND INDEMNIFICATION OF THE MANAGING MEMBERS.
- ----------------------------------------------------------------------
(a) Except as otherwise provided in this Agreement or in the
Indemnification Agreement by and between the Company, the Old Company Atlas,
ACR, Olympic Trading, Olympic Steel and Schmidt ("Indemnification Agreement"),
in carrying out their duties hereunder, no Managing Member shall be liable to
the Company or any other Member for any actions taken in good faith and
reasonably believed to be in the best interests of the Company, or for errors of
judgment, but shall only be liable to the Company if such Managing Member shall
be adjudicated by a court of competent jurisdiction that the Member's action or
failure to act involved fraud, willful misconduct, gross negligence or material
breach of that Person's obligations under this Agreement or other material
breach of that Person's fiduciary duties.
(b) Except as otherwise provided in this Agreement or the
Indemnification Agreement, no Managing Member shall be liable for the return of
the Capital Contributions of any Member, nor for a loss of investment or loss
from the operation of the Company.
19
PAGE 62 of 88
<PAGE> 25
(c) Except as otherwise provided in this Agreement or in the
Indemnification Agreement, the Company shall and does hereby agree, to the
fullest extent permitted by law, to defend, indemnify, and hold harmless the
Company's officers and Members and their respective shareholders, members,
partners, directors, officers, employees and agents (the "Indemnified Persons"),
from and against any and all liability, cost, expense, or damage incurred or
sustained by reason of any act or omission in the conduct of the business of the
Company, regardless of whether acting pursuant to their discretionary or
explicit authority hereunder; PROVIDED, HOWEVER, the Company shall not indemnify
an Indemnified Person or hold that Person harmless with respect to any of the
foregoing incurred in connection with such an Indemnified Person's fraud,
willful misconduct, gross negligence or material breach of that Person's
obligations under this Agreement or other material breach of that Person's
fiduciary duties. In particular, and without limitation of the foregoing, the
Indemnified Persons shall be entitled to indemnification by the Company against
the reasonable expenses, including attorneys' fees and costs through any and all
trial and appellate levels, actually and necessarily incurred in connection with
the defense of any suit or action to which they, or any of them, is a party by
reason of that Person's position as a Member (or a shareholder, director,
officer, employee or agent thereof), to the fullest extent permitted under law.
Any expenses or other amounts incurred or to be incurred by an Indemnified
Person in connection with a proceeding as to which indemnification is, or may
be, applicable under this Section 5.3(c) may be paid by the Company in advance
of the final disposition of the proceedings upon receipt of a binding written
agreement to repay said expenses or other amounts in the event it is finally
adjudicated that such indemnification is not proper. If repayment is required,
then all such sums advanced and to be repaid shall bear interest at the
Stipulated Rate from the date of disbursement, and the paying party shall pay
all collection costs of the Company, if any, including attorneys' fees and
costs.
SECTION 5.4 - RELIANCE ON ACTS OF MANAGING MEMBERS.
- ---------------------------------------------------
No financial institutions or any other person, firm or corporation
dealing with the Managing Members shall be required to ascertain whether any of
them are acting in accordance with this Agreement, and such financial
institution or such other person, firm or corporation shall be protected in
relying solely upon the deed, transfer or assurance of, and the execution of
such instrument or instruments by such Managing Members.
SECTION 5.5 - COMPENSATION OF THE MANAGING MEMBERS AND AFFILIATES.
- ------------------------------------------------------------------
The Managing Members shall not be entitled to any compensation from the
Company. However, the Managing Members shall be entitled to reimbursement for
all reasonable expenses incurred by them in connection with the Company's
business.
20
PAGE 63 of 88
<PAGE> 26
SECTION 5.6 - LIMITATIONS OF THE MANAGING MEMBERS.
- --------------------------------------------------
Without the Consent of all of the Members, the Managing Members shall
have no authority or power to:
(a) Do any act in contravention of this Agreement;
(b) Except as otherwise permitted in this Agreement, do any act which
would make it impossible to carry on the ordinary business of the Company;
(c) Admit a Person as a Managing Member, other than as provided in this
Agreement;
(d) Possess Company property or assign the rights of the Company
therein for other than a Company purpose; or
(e) Take any action with respect to the assets or property of the
Company that does not primarily benefit the Company, including, among other
things, the commingling of Company funds with the funds of any other Person;
(f) Borrow from the Company any money, funds or other assets of the
Company; or
(g) Amend this Agreement except as expressly permitted hereby;
SECTION 5.7 - APPOINTMENT OF TAX MATTERS MEMBER.
- ------------------------------------------------
(a) Olympic Trading is hereby designated, pursuant to Code Section
6231(a)(7), as the Company's Tax Matters Member ("TMM"), and is responsible for
acting as the liaison between the Company and the Internal Revenue Service
("Service") and as the coordinator of the Company's actions pursuant to a
Service tax audit of the Company. The TMM shall also act as the coordinator of
the Company's actions pursuant to any other Federal, state, regional and/or
local tax audit. The TMM shall continue to serve as TMM until the earliest to
occur of the following events:
(i) The TMM is no longer willing or able to serve;
(ii) The TMM no longer owns a Membership interest in the
Company; or
(iii) The Managing Members remove the appointed TMM and
designate a new TMM.
Upon the occurrence of (i) or (ii) above, the Managing Members shall select a
new TMM.
21
PAGE 64 of 88
<PAGE> 27
(b) The TMM shall have the authority to take the following actions:
(i) Furnish to the Service, when properly requested pursuant
to the Code, the names, addresses, profits, interest and taxpayer
identification number of each Person who or which was a Member in the
Company at any time during the Company's taxable year;
(ii) Keep each Member informed of all administrative and
judicial proceedings for the adjustment, at the Company level, of
Company items;
(iii) Extend the period of limitations for making assessments
against the Company;
(iv) After receipt from the Service of a notice of a final
Company administrative adjustments:
(A) File a petition for a readjustment of Company
items for such taxable year with the Tax Court, the U. S.
District Court of the United States for the district in which
the Company's principal place of business is located, or the
Claims Court as determined by the TMM; and
(B) Enter into binding settlement agreements with the
Service with regard to Company items as provided in Code
Section 6224(c)(3).
(c) In furtherance of the duties of the TMM described in this
Agreement, the TMM shall be reimbursed by the Company for all expenses, costs
and liabilities reasonably expended or incurred by the TMM.
(d) The Company shall indemnify and reimburse the TMM for all expenses,
including legal and accounting fees, claims, liabilities, losses and damages
incurred in connection with any administrative or judicial proceeding with
respect to the tax liability of the Members. The payment of all such expenses
shall be made before any distributions are made by the Company. No Member shall
have any obligation to provide funds for such purpose. The taking of any action
and the incurring of any expense by the TMM in connection with any such
proceeding, except to the extent required by law, is a matter in the sole
discretion of the TMM and the provisions on limitations of liability of Members
and indemnification set forth in this Agreement shall be fully applicable to the
TMM in its capacity as such.
22
PAGE 65 of 88
<PAGE> 28
ARTICLE VI
----------
TRANSFER OF INTEREST AND WITHDRAWAL OF A MEMBER
-----------------------------------------------
SECTION 6.1 - TRANSFER BY MEMBER.
- ---------------------------------
(a) RESTRICTION ON TRANSFER OR ASSIGNMENT. Except as provided in this
Article VI or the Indemnification Agreement, the Membership Interest owned by a
Member shall not be transferable or assignable (except that Schmidt may
collaterally assign his Membership Interest to a lending institution to finance
his Capital Contribution) to any person and any attempted transfer or assignment
shall be ineffective to transfer or assign any such Interest, unless the
Managing Members owning at least a Majority in Interest (or such greater
percentage as may be required by law) consent in writing to the transfer or
assignment. Except as provided in Section 6.1(c) or the Indemnification
Agreement, upon the transfer or assignment of a Member's Interest, the
transferee or assignee shall not become a Member, without the written consent of
the nontransferring Managing Members. An assignee or transferee who has not been
admitted to the Company as a Member shall have only the right to receive the
share of Profits, Losses, cash distributions, Capital Account, and Liquidation
Proceeds attributable to the transferred Membership Interests (collectively,
"Economic Rights"), but shall not have the right to vote on any matter, bind the
Company to any agreement, participate in management, review the Company's books
and records, or any other right, except as specifically permitted by law.
(b) PERMITTED TRANSFERS TO FAMILY. Schmidt may, without the consent of
any other Member, transfer a portion, or all, of his Membership Interest by
gift, bequest, sale or exchange to or for the benefit of any family member. For
purposes of this Section 6.1(b), a family member means Schmidt's spouse or
lineal descendants. In addition, a family member shall be deemed to include a
corporation, partnership, limited liability company, or trust whose
shareholders, partners, members, or beneficiaries are Schmidt and/or his spouse
or lineal descendants. No Person to whom a transfer is made pursuant to this
Section 6.1(b) shall become a Member without the consent of the Managing
Members, except that Schmidt may assign his Membership Interest to a corporation
wholly-owned by him, and such corporation shall thereupon become a Non-Managing
Member and shall remain a Member as long as Schmidt retains control of such
corporation.
(c) PERMITTED TRANSFERS BY THE OLD COMPANY OR OLYMPIC TRADING. The Old
Company or Olympic Trading may, without the consent of any other Member,
transfer a portion, or all of their respective Membership Interests to Atlas
Parties or Olympic Parties, provided that the transferring Member agrees to
remain subject to all obligations under this Agreement and the Indemnification
Agreement as if no transfer had occurred. Upon a transfer pursuant to the
preceding sentence of less than all of the transferor's Membership Interest, the
transferee shall automatically become a Non-Managing Member of the Company,
unless the transferor designates the transferee to assume the transferor's
capacity
23
PAGE 66 of 88
<PAGE> 29
as a Managing Member, in which case the transferee shall automatically become a
Managing Member of the Company in substitution of the transferor.
SECTION 6.2 - WITHDRAWAL OF NON-MANAGING MEMBERS.
- -------------------------------------------------
A Non-Managing Member shall not be entitled to withdraw from the
Company unless (a) such withdrawal is in connection with a transfer or
assignment of the Interest owned by such Member in accordance with all of the
terms and conditions of this Article VI, or (b) a Member abandons the Member's
Interest by notifying the Managing Members in writing prior to the date of
abandonment. Notwithstanding any other provision of this Agreement, no
Non-Managing Member shall be entitled to receive any payment or distribution
from the Company in connection with the Member's withdrawal from the Company,
except as specifically set forth in this Agreement.
SECTION 6.3 - PROHIBITED TRANSFERS.
- -----------------------------------
Notwithstanding any other provision of this Agreement, no Non-Managing
Member's Interest or any portion thereof shall be transferable or assignable to
the extent that any such transfer or assignment: (a) would result in the
termination of the Company for federal income tax purposes (except with the
consent of the Managing Members), (b) would increase the likelihood that the
Company would be treated as a corporation for tax purposes, (c) would violate
any federal or state securities laws, or (d) is made to a minor or to a Person
who is incompetent or insane; and any attempted assignment in violation hereof
shall be ineffective to transfer any such Interest. Any transfer, sale,
assignment, pledge, encumbrance, mortgage or disposition of a Member's Interest
in the Company in contravention of this Agreement (a "Prohibited Transfer")
shall be null and void and if a Member attempts to make a Prohibited Transfer,
then the Managing Members shall be entitled to take any and all action which may
be necessary or appropriate to defeat or prevent the Prohibited Transfer.
SECTION 6.4 - DEATH, BANKRUPTCY, INCOMPETENCY OF A NON-MANAGING MEMBER.
- -----------------------------------------------------------------------
Upon the death, termination, bankruptcy, dissolution, adjudication of
incompetency or insanity, or occurrence of an Event of Withdrawal (except a
voluntary withdrawal) of a Non-Managing Member, the Interest owned by the
deceased, terminated, bankrupt, dissolved, incompetent, or insane Non-Managing
Member (the "Withdrawn Member") shall be transferred to or devolve upon the
heirs, devisees, representatives, beneficiaries, successors, assigns, or estate
of the Withdrawn Member (as may be appropriate). Any Person succeeding to the
Interest of a Withdrawn Member shall promptly notify the Managing Members of
that Person's name, mailing address, federal tax identification number, and the
date of acquisition or transfer of the applicable Membership Interest. However,
no Person succeeding to the Interest of a Non-Managing Member upon the events
specified in this Section 6.4 shall become a Member without the consent of at
least a
24
PAGE 67 of 88
<PAGE> 30
Majority in Interest of the Managing Members. The death of a Non-Managing Member
shall not terminate the Company, but the Company shall continue in existence
until it is dissolved, terminated, and liquidated under Article IX or as
required by law.
SECTION 6.5 - SPECIAL TRANSFER PROVISIONS FOR SCHMIDT.
- ------------------------------------------------------
(a) RIGHT TO PURCHASE SCHMIDT'S INTEREST. The Company shall have the
right (but not the obligation) upon the occurrence (and any time thereafter) of
any one of the events of Schmidt's death, Disability, termination for Cause from
employment at the Company, or resignation from employment at the Company (other
than resignation from employment at the Company Without Cause) to require
Schmidt and any "family member" of Schmidt, within the meaning of Section 6.1(c)
("Permitted Transferee") (Schmidt and Permitted Transferee's of Schmidt referred
to individually as a "Schmidt Party" and collectively as "Schmidt Parties") to
sell their Membership Interests to the Company ("Call Option"). The Call Option
shall be exercised by giving written notice to the Schmidt Parties ("Call
Notice"). The purchase price for the interest purchased for exercise of the Call
Option shall be paid pursuant to the terms of Section 6.5(c) and equal to the
following amounts identified with each triggering event:
(i) In the event of Schmidt's death or Disability, the
purchase price will be:
(1) if the Call Notice is given within two (2)
years of the Formation Date, the Capital
Account balance of the Schmidt Party as of
the date the Call Notice is given;
(2) if the Call Notice is given after two (2)
years of the Formation Date, the Fair Market
Value of the Membership Interest of the
Schmidt Party as of the date the Call Notice
is given.
(ii) In the event of Schmidt's termination for Cause from
employment at the Company or resignation from
employment at the Company, the purchase price will
be:
(1) if the Call Notice is given within two (2)
years of the Formation Date, 50% of the
Capital Account balance of the Schmidt Party
as of the date the Call Notice is given;
(2) if the Call Notice is given after two (2)
years of the Formation Date, the greater of
(i) 80% of the Fair Market Value of the
Membership Interest of the Schmidt Party or
(ii) the Capital Account balance of the
Membership Interest of the Schmidt Party as
of the date the Call Notice is given.
25
PAGE 68 of 88
<PAGE> 31
(b) RIGHT TO REPURCHASE AND RIGHT TO REQUIRE REPURCHASE OF SCHMIDT'S
INTEREST.
(i) TERMINATION WITHOUT CAUSE. If Schmidt's employment at
the Company is terminated Without Cause, the Company
agrees to purchase and the Schmidt Parties agree to
sell their Membership Interests in the Company for
their Fair Market Value as of the date Schmidt's
employment was terminated upon either party (i.e. the
Schmidt Party or the Company) exercising this right
by giving the other party notice within sixty (60)
days after Schmidt's employment is so terminated. The
purchase price will be paid in cash at the closing,
and the closing will occur not later than thirty (30)
days after the Fair Market Value of the Interest is
determined.
(ii) PUT OPTION RIGHT ON DEATH OR DISABILITY. Upon the
occurrence of either Schmidt's death or Disability,
the Schmidt Parties shall have the right to require
the Company to purchase the Membership Interests of
the Schmidt Parties ("Put Option"). The Put Option
must be exercised by giving written notice to the
Company ("Put Notice") within sixty (60) days after
death or Disability. The purchase price for the
interest purchased for exercise of the Put Option
shall be paid pursuant to the terms of Section 6.5(c)
and equal the following amounts:
(A) if the Put Notice is given within two (2)
years of the Formation Date, the Capital
Account balance of the Schmidt Party as of
the date the Put Notice is given;
(B) if the Put Notice is given after two (2)
years of the Formation Date, the Fair Market
Value of the Membership Interest of the
Schmidt Party as of the date the Put Notice
is given.
(c) METHOD OF PAYMENT OF PURCHASE PRICE. Within sixty (60) days
following the giving of a Call Notice or Put Notice or, in a case where the
purchase price is based on Fair Market Value, thirty (30) days after Fair Market
Value is determined, the Company will pay the purchase price for the subject
Membership Interests as follows:
(i) If a Call Option or Put Option is exercised in the
event of Schmidt's death and the Company owns a life
insurance policy on the life of Schmidt with proceeds
payable to the Company (or is the beneficiary of a
life insurance policy on the life of Schmidt), then
the net proceeds thereof shall be used for the
purpose of paying the purchase price for the subject
Membership Interests. If the amount of such insurance
proceeds is insufficient to fund the full purchase
price, then the remainder of the purchase price shall
be paid by execution and delivery
26
PAGE 69 of 88
<PAGE> 32
of a promissory note as described in Section
6.5(c)(iii). If the proceeds of life insurance are
not received prior to the date the Membership
Interests are required to be acquired, then the
purchase shall be consummated as provided in Section
6.5(c)(iii) and the promissory note described therein
shall be prepaid (to the extent of the net insurance
proceeds) when the insurance proceeds are received.
(ii) If a Call Option or Put Option is exercised in the
event of Schmidt's Disability and the Company owns a
disability insurance policy on the life of Schmidt
with proceeds payable to the Company (or is the
beneficiary of a disability insurance policy on the
life of Schmidt), then the net proceeds thereof shall
be used for the purpose of paying the purchase price
for the subject Membership Interests. If the net
amount of such insurance proceeds is insufficient to
fund the full purchase price, then the remainder of
the purchase price shall be paid by execution and
delivery of a promissory note as described in Section
6.5(c)(iii). If the proceeds of disability insurance
are not received prior to the date the Shares are
required to be acquired, then the purchase shall be
consummated as provided in Section 6.5(c)(iii), and
the promissory note described therein shall be
prepaid (to the extent of the net insurance proceeds)
when the insurance proceeds are received.
(iii) The remainder of the purchase price for the
Membership Interests will be evidenced by delivery of
a Subordinated Term Promissory Note (the "Note") in
the form attached hereto as EXHIBIT "C", payment of
which shall be in (A) twenty-four (24) equal monthly
installments if the triggering event was the death or
disability of Schmidt, and (B) sixty (60) equal
monthly installments if the triggering event was
Schmidt's termination for Cause from employment at
the Company or resignation from employment at the
Company. Payment on the Note will be guaranteed by
Olympic Steel and Atlas.
(d) MANAGING MEMBERS' DRAG-ALONG RIGHTS. If the Olympic Parties and the
Atlas Parties (collectively, the "Control Parties") propose to transfer 50% or
more of the Membership Interests that include 50% or more of the Profits
Interests of the Company to a Third Party ("Control Transfer") the Control
Parties have the right to require the Schmidt Parties to sell to the Third Party
the amount of Membership Interests that is in the same proportion to the total
Membership Interests then owned by the Schmidt Parties as the amount of
Membership Interests then being sold by the Control Parties bears to the
aggregate amount of Membership Interests then owned by the Control Parties.
(i) The consideration to be received by each Schmidt Party for
each Membership Interest sold pursuant to this Section 6.5(d) will be
the same
27
PAGE 70 of 88
<PAGE> 33
consideration to be received by the Control Parties for an identical
Membership Interest representing the same amount of Profits Interests
and Capital Account balance (but excluding all consideration paid or to
be paid for actual services rendered or to be rendered at fair market
rates) and the terms and conditions of the sales by each Schmidt Party
shall be the same as for the Control Parties. The costs and expenses of
the Control Transfer transaction borne by the Control Parties and the
Schmidt Parties collectively will be paid by all such selling Members
on a proportionate basis based on their relative Profits Interest.
(ii) The Control Parties will cause the terms of the Control
Transfer to be reduced to writing and will provide a written notice
(the "Control Transfer Notice") of such Control Transfer to the Schmidt
Parties. The Control Transfer Notice will contain notice of the
exercise of the Control Parties' rights pursuant to this Paragraph
6.5(d), the consideration for the Interest to be paid by the Third
Party purchaser, the identity of the Third Party purchaser, and the
other terms and conditions of the Control Transfer. Within fifteen (15)
days following the date the Control Transfer Notice is given, each
Schmidt Party will deliver to the Control Parties, or to the
representative of the Control Parties designated in the Control
Transfer Notice all documents required to be executed in connection
with such Control Transfer or, if such delivery is not permitted by
applicable law, an unconditional agreement to deliver such instruments
pursuant to Section 6.5(d) at the closing of such Control Transfer
against delivery to such Schmidt Party of the consideration therefor.
(iii) If, within one hundred eighty (180) days after the
Control Parties give the Control Transfer Notice, the sale pursuant to
the Control Transfer has not been completed, the Control Parties will
return to the Schmidt Parties all documents that the Schmidt Parties
delivered for the sale pursuant to this Section 6.5(d) and all
restrictions contained in this Agreement will again be in effect.
(e) SCHMIDT'S TAG-ALONG RIGHTS. If the Control Parties propose to
transfer 50% or more of the Membership Interests that include 50% or more of the
Profits Interests of the Company to a Third Party and the Control Parties do not
exercise the drag-along rights provided in Section 6.5(d), the Control Parties
must notify the Schmidt Parties in writing ("Tag-Along Notice") of such intended
transfer at least thirty (30) days prior to the proposed consummation of such
transfer, which notice will contain all of the terms of the transfer, including,
without limitation, the name and address of the prospective purchaser(s), the
purchase price (but excluding any consideration paid or to be paid for actual
services rendered or to be rendered at fair market rates) and other terms and
conditions of payment (or the basis for determining the purchase price and other
terms and conditions), and including all extraordinary compensation or other
extraordinary payments to be paid in connection with such transfer, and the date
on or about which such sale is to be consummated.
28
PAGE 71 of 88
<PAGE> 34
(i) Within thirty (30) days after the Tag-Along
Notice is given, the Schmidt Parties may notify (collectively,
the "Participation Notice") the Control Parties that they
collectively will sell Membership Interests held by each of
them on the same terms as set forth in the Tag-Along Notice.
The Membership Interests of each Schmidt Party that may be
sold to the Third Party shall be no greater than the amount
that results in the Membership Interests of the Schmidt
Parties being sold to the Third Party being in the same
proportion to the total Membership Interests then held by the
Schmidt Parties as the amount of Membership Interests then
owned by the Control Parties being sold to the Third Party
bears to the aggregate amount of Membership Interests then
owned by the Control Parties.
(ii) If the Control Parties receive the Participation
Notice from the Schmidt Parties in a timely manner, they will
cause the Third Party to include the Schmidt Parties in the
agreement of sale referred to in the Tag-Along Notice.
(iii) Any Participation Notice given pursuant to this
Section 6.5(e), when taken together with the Tag-Along Notice
given by the Control Parties, will constitute a binding legal
agreement on the terms and conditions therein set forth,
subject to the consummation of the transactions described in
the Tag- Along Notice, it being understood that any material
modification, amendment, variance or other change by the
Control Parties of the terms and conditions set forth in the
Tag-Along Notice, other than as provided in this Agreement,
will be of no force and effect unless consented to in writing
by each of the Schmidt Parties.
SECTION 6.6 - WITHDRAWAL OF A MANAGING MEMBER.
- ----------------------------------------------
(a) ELECTION TO TERMINATE. Excluding a transfer of a Managing Member's
Interest permitted under this Agreement or the Indemnification Agreement or
unless the Managing Members or Members otherwise agree pursuant to Section
6.6(b), after the occurrence of an Event of Withdrawal of a Managing Member (the
"Withdrawing Managing Member"), the Company shall be dissolved, terminated and
liquidated pursuant to the provisions of Article IX. No Managing Member shall be
entitled to receive any payment or distribution from the Company in connection
with the Member's withdrawal from the Company, except as specifically set forth
in this Agreement.
(b) ELECTION TO CONTINUE COMPANY. Notwithstanding the provisions of
Section 6.5(a), if after the occurrence of an Event of Withdrawal of a Managing
Member, at least a Majority in Interest of the remaining Managing Members agree
within ninety (90) days after the occurrence of such Event of Withdrawal to
continue the Company, then the Company shall not be dissolved, but shall be
continued. Upon the occurrence of an Event of
29
PAGE 72 of 88
<PAGE> 35
Withdrawal of the last remaining Managing Member, a Majority in Interest of the
remaining Members within ninety (90) days after the occurrence of such Event of
Withdrawal, may elect to continue the business of the Company and designate a
new Managing Member ("Substituted Managing Member") who consents to and accepts
such designation as of the date of such Event. If a Substituted Managing Member
is appointed the Member shall own the Member's Interest on the terms and
conditions set forth herein with respect to a Managing Member. Should at least a
Majority in Interest of the remaining Members not elect to appoint a Substituted
Managing Member and continue the business, then the Company's business shall be
wound up and the Company shall be liquidated pursuant to the provisions of
Article IX.
(c) CHANGES TO ATLAS. Upon the occurrence (and any time thereafter) of
any one of the events of the death or Disability of Anthony Giordano, Jr. or an
Atlas Ownership Change, Atlas shall notify Olympic within fifteen (15) days of
the occurrence of such event and Olympic shall have the right (but not the
obligation) to either: (i) purchase all of the Membership Interests of Atlas
Parties, or (ii) sell all of the Membership Interests of Olympic Parties to
Atlas (collectively, the "Change Option"). The Change Option shall be exercised
by giving written notice to Atlas ("Election Notice"). The purchase price for
the Membership Interests to be sold pursuant to this right will be equal to the
Fair Market Value of the Interests as of the date the Election Notice is given.
The purchase price will be paid in cash at the closing and the closing will
occur not later than thirty (30) days after the Fair Market Value of the
Membership Interest is determined.
(d) CHANGES TO OLYMPIC. In the event that any two of Messrs. Louis
Schneeberger, Michael Siegal and David Wolfort die, suffer a Disability or no
longer serve as officers of Olympic Steel, Olympic shall notify Atlas within
fifteen (15) days of the occurrence of such event and Atlas shall have the right
(but not the obligation) to either: (i) purchase all of the Membership Interests
of Olympic Parties, or (ii) sell all of the Membership Interests of Atlas
Parties to Olympic (collectively, the "Change Option"). The Change Option shall
be exercised by giving written notice to Olympic ("Election Notice"). The
purchase price for the Membership Interests to be sold pursuant to this right
will be equal to the Fair Market Value of the Interests as of the date the
Election Notice is delivered. The purchase price will be paid in cash at the
closing and the closing will occur not later than thirty (30) days after the
Fair Market Value of the Membership Interest is determined.
(e) BANKRUPTCY OF MANAGING MEMBER. Upon the occurrence of an event of
Bankruptcy with respect to any of the Atlas Parties or any of the Olympic
Parties (the "Bankrupt Party"), then the Atlas Parties or the Olympic Parties,
whichever is the affiliated group to which the Bankruptcy event did not occur
(the "Non-Bankrupt Party"), shall have the right (but not the obligation) to
purchase the Membership Interest of the Bankrupt Party and any Related Party of
the Bankrupt Party by giving written notice of exercise of this right
("Bankruptcy Purchase Notice"). The purchase price for the Interests sold
pursuant to this right will be equal to the Fair Market Value of the Interest as
of the date the Bankruptcy
30
PAGE 73 of 88
<PAGE> 36
Purchase Notice is delivered. The purchase price will be paid in cash at the
closing and the closing will occur not later than thirty (30) days after the
Fair Market Value of the Membership Interest is determined.
(f) Nothing contained in this Section 6.5 is intended to prohibit
Members from agreeing upon terms and conditions for the purchase by the Company
or any Member(s) of the interest of any Member in the Company desiring to
retire, withdraw or resign, in whole or in part, as a Member (on such terms and
conditions as may be agreed upon by the selling Member and the Company or the
remaining Member(s) as the case may be).
SECTION 6.7 - INTERIM MANAGING MEMBER.
- --------------------------------------
From the date of the Event of Withdrawal of the last remaining Managing
Member and, if applicable, until a Substituted Managing Member has been
appointed, approved and succeeds to the Managing Member's position of the last
remaining Withdrawing Managing Member, the Members shall by the affirmative vote
of those Members owning a Majority in Interest designate an interim Managing
Member to operate the Company, and the Interim Managing Member shall be one of
the Members.
SECTION 6.8 - OFFERS TO RESOLVE DEADLOCK.
- -----------------------------------------
(a) In the event an irreconcilable difference of opinion shall occur
between the Managing Members, the Managing Members shall use their best efforts
and take all reasonable measures to resolve the same, which shall include a
"cooling off" period of at least thirty (30) days that commences the day
following delivery of written notice by a Managing Member to the other Managing
Member of the initiation of such period ("Cooling Off Period"). If such efforts
are unsuccessful, either Managing Member may invoke the procedures set forth in
Section 6.8(b) upon expiration of the Cooling Off Period.
(b) In such case, the Managing Member invoking this Section 6.8(b) (the
"Offering Member") shall make the offers described in this Section to the other
Managing Member (the "Offeree Member"), and both Members shall comply with the
terms of this Section. The offers shall set forth a stated value for the
interests of all Members in the Company (the "Stated Value"), and shall be (a) a
written offer to sell to the Offeree Member the entire Membership Interest owned
by the Offering Member and Related Parties, at a price equal to the portion of
the Stated Value that would be distributed in respect of such Membership
Interests upon a winding up pursuant to Section 9.2(c) hereof, and upon terms
set forth in such offer, and (b) a simultaneous written offer to purchase the
entire Membership Interest owned by the Offeree Member and Related Parties at a
price equal to the portion of the Stated Value that would be distributed in
respect of the Offeree Member's and Related Parties' Interest upon a winding up
pursuant to Section 9.2(c) hereof, and upon the same terms.
31
PAGE 74 of 88
<PAGE> 37
Within sixty (60) days after of such offers are given, the Offeree
Member shall by written notice to the Offering Member ("Election Notice")
either: (i) accept one of the two offers and reject the other or (ii) obtain an
offer from a Third Party to purchase the Company, which the other Members shall
be required to grant their consent. The Election Notice shall state the time and
place of closing of the purchase, which shall be not more than ninety (90) days
after the date of the Election Notice, and transfer of Membership Interests (or
assets) and payment shall take place at such closing. If the Offeree Member does
not accept one such offer within sixty (60) days, it shall be deemed to have
accepted the offer of the Offering Member to purchase the Offeree Member's
entire Membership Interest, and closing, transfer of Membership Interest and
payment shall take place 90 days after such initial 60-day period expires.
After the second anniversary of the Contribution Date, the price offered to
purchase or sell the Atlas Parties' Membership Interest, will be no less than
45% of the aggregate Capital Account balances of the Company's Members as of the
date the offers are given by the Offering Member.
(c) If both Managing Members invoke this Section 6.8(b), the offers
that are given first shall control and if given on the same date, the offers
that provide the highest Stated Value shall control.
ARTICLE VII
-----------
AMENDMENTS
----------
SECTION 7.1 - AUTHORITY TO AMEND.
- ---------------------------------
(a) Except as otherwise specifically provided elsewhere in this
Agreement or by law, amendments to this Agreement shall require the affirmative
vote or written agreement of all Members.
(b) Notwithstanding the provisions set forth in Section 7.1(a), the
Managing Members may amend this Agreement without the consent of the Members:
(i) if such amendment is solely for the purpose of
clarification and does not change the substance hereof, or
(ii) if such amendment is, in the reasonable judgment of the
Managing Members, necessary or appropriate to satisfy requirements of
the Code or Regulations with respect to the Company or of any federal
or state securities laws or regulations. In this respect, and
notwithstanding any other provision of this Agreement, the Managing
Members may allocate Profits and/or Losses, or items thereof, among the
Members in any manner which may be necessary or appropriate to satisfy
the requirements of the Code and the Regulations thereunder.
32
PAGE 75 of 88
<PAGE> 38
ARTICLE VIII
------------
POWER OF ATTORNEY
-----------------
SECTION 8.1 - POWER OF ATTORNEY.
- --------------------------------
Each of the Members irrevocably constitutes and appoints the Managing
Members, or any of them their true and lawful attorney in such Member's name,
place and stead to make, execute, aver, acknowledge, deliver and file:
(a) Any certificates or other instruments which may be required to be
filed by the Company under the laws of the State of Ohio, or in any jurisdiction
in which the President or Members shall deem it advisable to file;
(b) Any documents, certificates or other instruments, including,
without limiting the generality of the foregoing, any and all amendments and
modifications of this Agreement that have been approved by the Members, and by
way of extension, and not in limitation, to do all such other things as shall be
necessary to continue and to carry on the business of the Company, including, to
the extent permitted by law, the power to ratify the execution and delivery of
notes or instruments authorizing the confession of judgment against the Company;
and
(c) All documents, certificates or other instruments which may be
required to effectuate the dissolution and termination of the Company or the
organization of any new limited liability company occasioned by the withdrawal
of a Member as hereinbefore provided.
The power of attorney hereby granted shall not constitute a waiver of,
or be used to avoid, the rights of the Members to approve certain amendments to
this Agreement pursuant to Article VII hereof or be used in any other manner
inconsistent with the status of the Company as a limited liability company.
SECTION 8.2 - SURVIVAL OF POWER.
- --------------------------------
It is expressly intended by the Members, that the foregoing power of
attorney is coupled with an interest, is irrevocable, and shall survive the
death, bankruptcy or dissolution of a Member. The foregoing power of attorney
shall survive the delivery of an assignment by any of the Member of such
Member's entire Interest in the Company, except that where an assignee of such
entire Interest has become a Member, then the foregoing power of attorney of the
assignor Member shall survive the delivery of such assignment for the sole
purpose of enabling those persons designated in Section 8.1 hereof to execute,
acknowledge and file any and all instruments necessary to effectuate such
substitution.
33
PAGE 76 of 88
<PAGE> 39
ARTICLE IX
----------
TERMINATION OF THE COMPANY
--------------------------
SECTION 9.1 - ELECTION TO TERMINATE AND DISSOLVE.
- -------------------------------------------------
(a) EVENTS CAUSING DISSOLUTION. The Company shall be dissolved,
terminated, and liquidated, and its affairs wound-up, upon the first to occur of
the following events:
(i) The expiration of the term of the Company as set
forth in Section 1.5;
(ii) The sale of all, or substantially all, of the assets
of the Company;
(iii) The decision of the Managing Members to dissolve,
terminate, and liquidate the Company as herein
specified; and
(iv) The occurrence of an Event of Withdrawal of a
Managing Member (other than a transfer of a Managing
Member's Interest permitted under this Agreement or
the Indemnification Agreement) where the remaining
Managing Members do not elect to continue the Company
or, upon an Event of Withdrawal of the last Managing
Member where the remaining Members do not elect to
continue the Company's business pursuant to Section
6.6.
(b) SALE OF ASSETS. Upon the occurrence of an event that causes the
dissolution, termination and Liquidation of the Company under Section 9.1(a),
the Managing Members shall proceed with the winding up and Liquidation of the
Company. The Managing Members shall liquidate the Company's assets and
distribute them in the manner and in accordance with the priorities set forth in
Section 9.2. If the Managing Members determine that an immediate sale would
cause undue loss to the Company (because the sale price is too low or the terms
of sale are inadequate or for any other reason), then in order to avoid such
loss, the Managing Members may, to the extent not prohibited by the Act and
after giving notice to all Members, either defer Liquidation of and withhold
from distribution any assets of the Company except those necessary to satisfy
the Company's debts, obligations and operating expenses or distribute the assets
to the Members in kind. The Company shall not terminate until the Company assets
have been distributed in the manner set forth in Section 9.2 and the Certificate
of Dissolution has been filed with the Secretary of State, as provided in
Section 1705.43(B) of the Act. Prior to the termination of the Company, its
business and the rights, duties, and interests of the Company shall continue to
be governed by this Agreement. If the Company is to be dissolved, terminated,
and liquidated because of the occurrence of an Event of Withdrawal of a Member,
the Withdrawing Member shall have no vote with respect to any Company matter,
and shall not participate in any management decisions arising after the
occurrence of an Event of Withdrawal. Rather, the power to
34
PAGE 77 of 88
<PAGE> 40
render such decisions and govern the Company shall be vested in the
Trustee-in-Liquidation, pursuant to Section 9.1(c).
(c) ABSENCE OF MANAGING MEMBER. If for any reason there are no Managing
Members, or they refuse to serve, or are incapable of or prevented by this
Agreement from serving, a Majority in Interest may appoint a
Trustee-in-Liquidation who shall serve to wind up the affairs of and liquidate
the Company.
SECTION 9.2 - PROCEEDS OF LIQUIDATION.
- --------------------------------------
Upon the dissolution, termination, and Liquidation of the Company, the
Liquidation Proceeds shall be applied and distributed in the following order of
priority:
(a) DEBTS. To the payment of the debts and liabilities of the Company
(including any and all fees and loans payable to one or more Members) in the
order of priority as provided by law, and the expense of Liquidation;
(b) RESERVES. To establish reserves which the President (or the
Trustee-in-Liquidation) may deem reasonably necessary for any contingent,
foreseen or unforeseen liabilities or obligations of the Company;
(c) CAPITAL ACCOUNTS. The remaining balance, if any, shall then be
distributed to the Members in an amount equal to and in satisfaction of the
positive balance of each Member's Capital Account on the date of the Company's
termination, after giving effect to all Capital Contributions, distributions,
allocations, and all other adjustments to all Members' Capital Account balances
for all periods.
SECTION 9.3 - FAIR MARKET VALUE DISTRIBUTIONS.
- ----------------------------------------------
If the assets are to be distributed in kind to the Members, the value
of such assets shall be adjusted pursuant to the Regulations under Code Section
704(b) and such assets shall be distributed at their respective fair market
values. Furthermore, each Member's Capital Account shall be adjusted to reflect
what such Member's Capital Account would be if the Company were to sell all of
such assets at their respective fair market values and allocated the Profits or
Losses among the Members in accordance with the provisions of the Appendix.
SECTION 9.4 - FINAL ACCOUNTING.
- -------------------------------
Each Member shall be furnished with a statement reviewed by the
Company's accountants, which shall set forth the Profits and/or Losses generated
upon the sale or exchange of the Company's properties; the allocation of such
Profits and Losses among the Members; the Company's proceeds received from the
sale or exchange of its properties; any revaluations of Company property; the
assets and liabilities of the Company; and the amount
35
PAGE 78 of 88
<PAGE> 41
distributed or distributable to each Member, as of the date of the Liquidation.
Upon compliance with the foregoing distribution plan, the Members shall cease to
be such, and the President and/or the Trustee-in-Liquidation if no Managing
Member serves, shall execute and cause to be filed a Certificate of Dissolution
of the Company and any and all other documents necessary with respect to the
termination and cancellation of the Company.
ARTICLE X
---------
MISCELLANEOUS
-------------
SECTION 10.1 - EFFECT OF ELECTION.
- ----------------------------------
In the event a party elects or is required to purchase or sell
Membership Interests pursuant to a Section of this Agreement, then the
transaction shall be consummated pursuant to the Section under which the
transaction was initially elected or required to be made, regardless of whether
subsequent events occur which would otherwise cause the applicability of other
Sections giving rise to an elected or required purchase or sale of Membership
Interests.
SECTION 10.2 - GOVERNING LAW.
- -----------------------------
The Company and this Agreement shall be governed by, and construed in
accordance with, the laws of the State of Ohio.
SECTION 10.3 - COUNTERPARTS.
- ----------------------------
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original and all of which shall constitute one agreement, and
the signature of any party to any counterpart shall be deemed to be a signature
to, and may be appended to, any other counterpart.
SECTION 10.4 - AGREEMENT FOR FURTHER EXECUTION.
- -----------------------------------------------
At any time or times upon the request of the Managing Member, the
Members agree to sign, acknowledge the Articles of Organization, this Operating
Agreement, and/or amendments thereto, whenever such amendment or cancellation is
required by law, to sign or acknowledge similar certificates or affidavits or
certificates of fictitious firm name, trade name or the like (and any amendments
or cancellations thereof) required by the laws of Ohio or any other jurisdiction
in which the Company does, or proposes to do, business, and cause the filing of
any of the same for record wherever such filing shall be required by law. This
Section 10.4 shall not prejudice or affect the rights of Members to approve
certain amendments to the Agreement pursuant to Article VII hereof.
36
PAGE 79 of 88
<PAGE> 42
SECTION 10.5 - ENTIRE AGREEMENT.
- --------------------------------
This Agreement contains the entire understanding among the parties and
supersedes any prior understanding and agreements between them respecting the
within subject matter. There are no representations, agreements, arrangements or
understandings, oral or written, between or among the parties hereto relating to
the subject matter of this Agreement which are not fully expressed herein or in
the Articles of Organization.
SECTION 10.6 - SEVERABILITY.
- ----------------------------
This Agreement is intended to be performed in accordance with, and only
to the extent permitted by, all applicable laws, ordinances, rules and
regulations of the jurisdictions in which the Company does business. If any
provisions of this Agreement or the application thereto to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law.
SECTION 10.7 - NOTICE.
- ----------------------
Notices to Members or to the Company shall be deemed to have been given
when mailed, by prepaid certified mail or any overnight delivery service,
addressed as set forth in this Agreement, or as set forth in any notice of
change of address previously given in writing by the addressee to the addressor:
To the Members: See Exhibit A
(With, in the case of Schmidt: a copy to:
Lawrence M. Bell, Esq.
Benesch, Friedlander, Coplan & Aronoff
200 Public Square
2300 BP America Building
Cleveland, Ohio 44114
To the Company: Olympic Continental Resources, L.L.C.
30050 Chagrin Blvd.
Pepper Pike, OH 44124
37
PAGE 80 of 88
<PAGE> 43
To the Agent: Olympic Steel Trading, Inc.
5096 Richmond Road
Cleveland, OH 44146
SECTION 10.8 - CAPTION.
- -----------------------
Any paragraph titles or captions contained in this Agreement are for
convenience only and shall not be deemed part of the context of this Agreement.
SECTION 10.9 - NUMBER AND GENDER.
- ---------------------------------
All of the terms and words used in this Agreement regardless of the
number and gender in which they are used, shall be deemed and construed to
include any other number, singular or plural, and any other gender, masculine,
feminine or neuter, as the context or sense of this Agreement or any paragraph
or clause herein may require, the same as if such words had been fully and
properly written in such number and gender.
SECTION 10.10 - BINDING EFFECT.
- -------------------------------
The parties hereto hereby agree that the obligations entered into
herein shall be valid and binding upon their respective representatives,
successors and assigns (where permitted).
SECTION 10.11 - INCORPORATION BY REFERENCE.
- -------------------------------------------
The recitals and all exhibits to this Agreement are hereby incorporated
as if rewritten in their entirety.
SECTION 10.12 - NO STATE LAW PARTNERSHIP.
- -----------------------------------------
The Members intend that the Company not be a partnership (including,
without limitation, a limited partnership) or joint venture, and that no Member
be a partner or joint venturer of any other Member, for any purposes other than
federal and state tax purposes, and that this Agreement not be construed to
suggest otherwise.
SECTION 10.13 - NO LIABILITY TO THIRD PARTIES.
- ----------------------------------------------
No Member shall be liable as such for the liabilities of the Company.
The failure of the Company to observe any formalities or requirements relating
to the exercise of its powers or management of its business or affairs under
this Agreement or the Act shall not be grounds for imposing personal liability
on the Members for liabilities of the Company.
38
PAGE 81 of 88
<PAGE> 44
SECTION 10.14 - RIGHTS OF CREDITORS AND THIRD PARTIES UNDER AGREEMENT.
- ----------------------------------------------------------------------
This Agreement is entered into among the Company and the Members for
the exclusive benefit of the Company, its Members, and their successors and
assignees. The Agreement is expressly not intended for the benefit of any
creditor of the Company or any other person. Except and only to the extent
provided by applicable statute, no creditor or third party shall have any rights
under the Agreement or any agreement between the Company and any Member with
respect to any capital contribution or otherwise.
(THIS SPACE INTENTIONALLY LEFT BLANK.)
39
PAGE 82 of 88
<PAGE> 45
IN WITNESS WHEREOF, each of the parties hereto has executed and sworn
to this Agreement.
MANAGING MEMBERS:
THYSSEN-CONTINENTAL
RESOURCES LIMITED LIABILITY
COMPANY, a Delaware limited liability
company
By: Its Managing Member
By:
------------------------------
OLYMPIC STEEL TRADING, INC.,
an Ohio corporation
By:
-----------------------------------
Michael Siegal, President
NON-MANAGING MEMBER:
-----------------------------------
UWE T. SCHMIDT
This document prepared by:
David R. Tavolier, Esq.
Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.
The Tower at Erieview, Suite 2600
1301 East Ninth Street
Cleveland, Ohio 44114-1824
(216) 696-3311
40
PAGE 83 of 88
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF OLYMPIC STEEL, INC.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF ORGANIZATION % OWNERSHIP
- ------------------ --------------------- -----------
<S> <C> <C>
Olympia International, Inc. U.S. Virgin Islands 100%
Olympic Steel Lafayette, Inc. Ohio 100%
Olympic Steel Minneapolis, Inc. Minnesota 100%
Olympic Steel Receivables, Inc. Delaware 100%
Olympic Steel Receivables LLC Delaware 100% *
Olympic Steel Trading, Inc. Ohio 100%
Oly Steel Welding, Inc. Michigan 100%
Olympic Continental Resources, LLC Ohio 45%**
OLP, LLC Michigan 50%***
<FN>
* Owned 100% by Olympic Steel, Inc. and Olympic Steel Receivables, Inc.
** Owned 45% by Oylmpic Steel Trading, Inc.
*** Owned 50% by Oly Steel Welding, Inc.
</TABLE>
PAGE 84 of 88
<PAGE> 1
EXHIBIT 23
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the incorporation of our
report dated February 3, 1997, included in this Form 10-K, into the Company's
previously filed Form S-8 Registration Statement File No. 333-10679.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Cleveland, Ohio
March 7, 1997
PAGE 85 of 88
<PAGE> 1
EXHIBIT 24
POWERS OF ATTORNEY
------------------
OLYMPIC STEEL, INC.
-------------------
KNOW ALL MEN BY THESE PRESENTS, that OLYMPIC STEEL, INC., an Ohio
corporation, and each person whose name is signed below hereby constitute and
appoint Michael D. Siegal, R. Louis Schneeberger and Richard T. Marabito their
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for and on behalf of Olympic Steel, Inc. and the undersigned
Directors and officers of Olympic Steel, Inc., and each of such Directors and
officers, to sign Olympic Steel, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, any or all amendments thereto, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting such attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters and hereby ratifying and
confirming all that such attorneys-in-fact and agents or their substitute or
substitutes may do or cause to be done by virtue hereof.
This Power of Attorney of Olympic Steel, Inc., and the Directors and
officers of Olympic Steel, Inc. may be executed in multiple counterparts, each
of which shall be deemed an original with respect to the person executing it.
IN WITNESS WHEREOF, this Power of Attorney has been signed at
__________________, _____________ this _____ day of March, 1997.
<TABLE>
<CAPTION>
OLYMPIC STEEL, INC.
<S> <C>
By: /s/ R. Louis Schneeberger
R. Louis Schneeberger,
Chief Financial Officer
DIRECTORS AND OFFICERS:
/s/ Bruce S. Adelstein /s/ R. Louis Schneeberger
- ---------------------------------- ------------------------------------
Bruce S. Adelstein, R. Louis Schneeberger,
Vice President - Operations and Director Chief Financial Officer and Director
/s/ Martin H. Elrad /s/ Michael D. Siegal
- ---------------------------------- ------------------------------------
Martin H. Elrad, Director Michael D. Siegal, President, Chief
Executive Officer and Chairman of the Board
/s/ Thomas M. Forman /s/ David A. Wolfort
- ---------------------------------- ------------------------------------
Thomas M. Forman, Director David A. Wolfort,
Chief Operating Officer and Director
/s/ Janice M. Margheret /s/ Richard T. Marabito
- ---------------------------------- ------------------------------------
Janice M. Margheret, Director Richard T. Marabito, Treasurer
and Corporate Controller
(Principal Accounting Officer)
</TABLE>
PAGE 86 of 88
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,018
<SECURITIES> 0
<RECEIVABLES> 9,483
<ALLOWANCES> 0
<INVENTORY> 138,238
<CURRENT-ASSETS> 152,255
<PP&E> 93,954
<DEPRECIATION> (14,954)
<TOTAL-ASSETS> 241,130
<CURRENT-LIABILITIES> 36,267
<BONDS> 17,474
<COMMON> 106,319
0
0
<OTHER-SE> 31,008
<TOTAL-LIABILITY-AND-EQUITY> 241,130
<SALES> 560,062
<TOTAL-REVENUES> 560,062
<CGS> 436,553
<TOTAL-COSTS> 436,553
<OTHER-EXPENSES> 93,127
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,301
<INCOME-PRETAX> 22,688
<INCOME-TAX> 8,569
<INCOME-CONTINUING> 14,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,119
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.50
</TABLE>
