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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, 1997
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( ) 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
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(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, 1998, 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 $147,103,000. The
number of shares of Common Stock outstanding as of March 6, 1998 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,
1997, 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.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
THE COMPANY
The Company is a leading North American steel service center that
processes and distributes flat-rolled carbon, stainless and tubular steel
products from 12 facilities in seven midwestern and eastern states. The Company
is constructing its thirteenth facility in Bettendorf, Iowa, and has invested in
two joint ventures with facilities located in Michigan. 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, Georgia, Pennsylvania,
Ohio, Michigan, Illinois and Minnesota, servicing a diverse base of over 3,600
active customers located throughout the midwestern, eastern and southern United
States. A facility is also under construction in Iowa, which is expected to be
completed by the end of 1998. 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 delivery requirements has made the
value-added inventory, processing and delivery functions performed by steel
service centers increasingly important.
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CORPORATE HISTORY
The Company was founded in 1954 by the Siegal family as a general steel
service center. Michael Siegal (CEO), the son of one of the founders, began
working at the Company in the early 1970s and became President and CEO at the
end of 1983. In an effort to broaden the management base for future expansion,
David Wolfort (COO) was hired as general manager at the end of 1983, and Louis
Schneeberger (CFO) joined the Company as chief financial officer in 1987.
The new management team 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). 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 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, processors, and related businesses, the formation of joint
ventures, 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,
processors and related businesses. Since 1987, the Company has made five major
acquisitions of other steel service centers or processors:
Effective June 1, 1997, the Company acquired Southeastern
Metal Processing, Inc. and Southeastern Transshipping Realty
(Southeastern) for approximately $13.7 million. Southeastern, which
historically operated as a metals toll processor and storage operation,
is located near Atlanta, Georgia. The acquisition provides the Company
with a physical presence in the southeastern market to support its
existing sales office in Greenville, South Carolina. Southeastern has
five major pieces of processing equipment and a 202,250 square foot
facility, which allows the Company to now service its southern
customers with an expanded product and processing base on a
just-in-time delivery basis.
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In January 1995, the Company completed the acquisition of
Lafayette Steel for approximately $52.3 million. The acquisition
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 and personnel
changes, and in 1997, completed a 71,000 square foot expansion of its
warehouse. A new cut-to-length line is also being installed at
Lafayette, which will replace two decoilers acquired in the
acquisition. The plant expansion and new equipment are expected to
improve productivity and reduce expenses.
Eastern Steel & Metal Company ("Eastern Steel") had ceased
operations prior to its purchase by the Company in June 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 January 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 operations. The Company has added sales and other personnel
and invested capital to purchase and upgrade major processing equipment
and facilities, including a temper mill facility currently under
construction in Iowa, and a plate processing facility completed in
1995. During 1997, the Minneapolis operations also purchased a
cut-to-length line, plate processing equipment and a slitter to be
installed in Iowa, which will bring its total to 23 major pieces of
processing equipment once the Iowa facility becomes operational in
1998.
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, with a particular focus on the central and southern United
States.
INVESTMENTS IN JOINT VENTURES. In 1997, the Company diversified its
selling and processing capabilities by entering into three joint venture
relationships:
In January 1997, the Company invested $4 million for its 45%
interest in Olympic Continental Resources (OCR), a joint venture with
Atlas Iron Processors, Inc. (Atlas) and 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 has
expanded the Company's presence as an international steel commodities
trader, and presents opportunities for Olympic in the rapidly
consolidating scrap industry.
In April 1997, the Company formed Olympic Laser Processing
(OLP), a 50% joint venture with the U.S. Steel Group of USX
Corporation. OLP is constructing a new facility in Michigan and
initially equipping it with two laser-welding lines. Production of
laser-welded sheet steel blanks for the automotive industry is expected
to begin in the second half of 1998. Demand for laser-welded parts is
rapidly expanding due to benefits of reduced auto body weight.
<PAGE> 5
In December 1997, the Company invested $147 thousand for its
49% interest in Trumark Steel & Processing (TSP), a joint venture
formed in Michigan with Michael J. Guthrie and Carlton L. Guthrie (the
Guthries). The Guthries are also the executive officers of Trumark
Inc., a privately held supplier of metal stamped assemblies to the
automotive industry located in Michigan. TSP was formed to support the
flat-rolled steel requirements of the automotive industry as a Minority
Business Enterprise.
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 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 69 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.
In response to customer demands for higher tolerances and flatness
specifications, the Company purchased a customized four-high 1/2" by 72" temper
mill and heavy gauge cut-to-length line, housed in a 127,000 square foot
building constructed on property adjoining the Company's Cleveland facilities.
The facility began operating at full capacity in the third quarter of 1996. It
is one of only few of its kind in the United States and incorporates
state-of-the-art technology and unique design specifications. The 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
enables 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 has captured additional market share. The new facility and equipment, which
was constructed at a cost of $18.1 million, has increased the Company's annual
processing capacity by more than 120,000 tons.
Customer response to this equipment has been so strong, especially by
agricultural equipment manufacturers and plate fabricators located in the
central states region, that the Company broke ground in August 1997 for a new,
190,000 square foot temper mill, sheet processing, and plate burning facility in
Bettendorf, Iowa. Construction and equipping of the new facility is expected to
be completed by the end of 1998, at a projected cost of approximately $22
million.
Over the past three years, the Company has significantly expanded its
plate processing capacity. In 1995, the Company constructed a $7.4 million,
112,200 square foot facility in Minneapolis which houses laser, plasma and
oxygen burning tables and shot blasting equipment. Response to the Minneapolis
plate burning capabilities has exceeded expectations, leading the Company to
purchase two additional plasma and one additional laser burning tables for the
Minneapolis plate processing facility. Two other plate burning tables also were
added in the Chicago and Philadelphia facilities in 1996. These investments in
plate processing equipment have allowed 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.
In addition to the plate burning and temper mill investments described
above, during 1997 the Company also invested in a new tube mill and end
finishing equipment in Cleveland, a new cut-to-length line in Detroit, a
cut-to-length line for Minneapolis and a slitter for Iowa. The cut-to-length
line became operational in the fourth quarter of 1997. The new tube mill and the
cut-to-length line in Detroit are expected to become operational in the first
half of 1998. The new tube mill will replace three older mills, which in
aggregate will be sold at an amount in excess of net book value.
The expansion of the Company's plate processing and tempering
capabilities 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.
<PAGE> 6
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 135 from 80 at the beginning of 1994. The efforts of these
individuals translate into more than 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 and logistics 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 have represented less than 6% of net sales
in each of the last three years.
DEPTH OF MANAGEMENT. The Company attributes a portion of its success
to the depth of its management. In addition to the three principal executive
officers, the Company's management team includes three regional vice presidents
and thirteen 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 26 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.
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 most 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 and welded. 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.
<PAGE> 7
The following table sets forth the major pieces of processing equipment
used by geographic location.
<TABLE>
<CAPTION>
(a) (b) (b) (c)
Processing Cleveland Chicago Detroit Minneapolis Iowa Southeastern Connecticut Philadelphia Total
---------- --------- ------- ------- ----------- ----- ------------ ----------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cutting-to-length 3 1 3 (d) 4 1 3 (f) 3 -- 18
Blanking -- -- 8 -- -- -- -- -- 8
Tempering 1 -- -- -- 1 -- -- -- 2
Plate processing 2 1 -- 8 -- -- 2 3 16
Slitting -- -- 3 2 1 2 3 -- 11
Shearing 1 1 -- 7 -- -- 2 -- 11
Roll forming 3 (e) -- -- -- -- -- -- -- 3
Shot blasting -- -- -- 1 -- -- -- -- 1
--------- --------- -------- ---------- --------- ----------- ---------- ---------- -------
Total 10 3 14 22 3 5 10 3 70
--------- --------- -------- ---------- --------- ----------- ---------- ---------- -------
<FN>
(a) Consists of four facilities.
(b) Consists of two facilities.
(c) Facility is under construction and equipment listed is not yet operational.
One burning table will be upgraded and moved from Minneapolis to Iowa in
1998.
(d) In process of installing a new cut-to-length line which will replace two
decoilers listed.
(e) In process of installing a new roll forming mill
which will replace two of the mills listed.
(f) In process of upgrading one of the cut-to-length lines.
</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, and is also QS-9000
certified. A quality testing lab was constructed adjacent to the temper mill
facility in Cleveland.
CUSTOMERS AND DISTRIBUTION
The Company processes steel for sale to over 3,600 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 20% and 21% of net sales in 1997 and 1996, respectively. In addition, the
Company's largest customer accounted for less than 4% and 5% of net sales in
1997 and 1996, respectively. Major domestic customers include manufacturers and
fabricators of transportation and material handling equipment, automobiles,
construction and farm machinery, storage tanks, environmental equipment,
appliances, food service and electrical equipment, as well as 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 12%, respectively, of the Company's net sales in 1997,
and 23% and 13% of net sales in 1996.
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.
<PAGE> 8
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, Nucor Corporation, North Star BHP 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.
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 resources 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 its ability to
quickly and efficiently share information across its operations is critical to
the Company's success. The Company continues to invest in various communications
and workgroup technologies which enables employees to remain effective and
responsive as the Company grows.
<PAGE> 9
YEAR 2000 COMPLIANCE. The Company has established processes to evaluate
and manage the risks and costs associated with ensuring its software and
application systems will properly recognize and process the year 2000 and
beyond. Based upon initial assessments, the Company expects its systems will be
Year 2000 compliant by 1999 at a cost that will not be material to its financial
statements. The Company is also communicating with its suppliers, customers,
financial institutions, and others with which it does business to coordinate the
Year 2000 conversion process. There can be no assurances that the Company will
not be adversely impacted by the Year 2000 problem as it relates to its
dependencies on others' systems with which the Company does business.
EMPLOYEES
At December 31, 1997, the Company employed 1,010 people. Approximately
345 of the Company's hourly plant personnel at the Minneapolis and Lafayette
Steel facilities are represented by four separate collective bargaining units.
The two collective bargaining agreements at Lafayette and the agreement covering
the Minneapolis coil facility personnel expire on June 30, 1998 and September
30, 1998, respectively. The agreement covering the Minneapolis plate processing
facility personnel expires March 31, 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," and the Company's operation in
Georgia does business under the name "Southeastern Metal Processing."
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.
<PAGE> 10
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 both 1997 and
1996. 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. 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.
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," "plan" 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 facility
construction delays; the adequacy of computer system investments and the impact
of Year 2000 issues; 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, projected or
planned. 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> 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
Southeastern Winder, Georgia 202,250 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. A 190,000
square foot coil and plate processing facility is also under construction in
Bettendorf, Iowa. All of the properties listed in the table as owned are subject
to mortgages securing industrial revenue bonds, taxable rate notes, term loans
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> 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 45, 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. He served as National Chairman of Israel Bonds during the
period 1991-1993 and presently serves as Vice Chairman of the Executive
Committee of the Development Corporation for Israel and as an officer 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 43, 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 and Treasurer of the Achievement Centers
for Children, and a member of the Business Advisory Council of Kent State
University.
David A. Wolfort, age 45, 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.
<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, 1997, the high and low closing prices of the Company's Common Stock
on NASDAQ:
<TABLE>
<CAPTION>
HIGH LOW
---------- -----------
<S> <C> <C>
1997
First quarter ................ $ 26.13 $16.50
Second quarter ............... 17.50 13.63
Third quarter ................ 21.38 15.38
Fourth quarter ............... 16.75 12.38
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, 1998, the Company believed there were approximately 7,000
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> 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, 1997. 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)
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Tons sold
Direct 1,111 1,022 931 685 618
Toll 238 150 155 10 3
Total 1,349 1,172 1,086 695 621
Net sales $608,076 $560,062 $554,469 $381,906 $313,810
Cost of sales 483,071 436,553 446,513 304,777 250,707
Gross margin 125,005 123,509 107,956 77,129 63,103
Operating expenses 102,898 93,127 85,855 58,836 50,519
Operating income 22,107 30,382 22,101 18,293 12,584
Income from joint ventures, net of start-up costs 11 -- -- -- --
Interest expense 4,172 4,301 10,746 3,761 4,480
Receivable securitization expense 3,791 3,393 107 -- --
Income before taxes 14,155 22,688 11,248 14,532 8,104
Income taxes 5,308 8,569 4,504 5,834 --
Reinstatement of deferred income taxes(a) -- -- -- 7,800 --
Net income 8,847 14,119 6,744 898 8,104
Net income per share(b) $0.83 $1.50 $0.78 $0.12
Weighted average shares outstanding(b) 10,692 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 $142,175 $152,255 $124,371 $155,178 $123,787
Current liabilities 37,126 36,267 31,226 37,767 48,930
Working capital 105,049 115,988 93,145 117,411 74,857
Total assets 265,534 241,130 202,072 200,987 151,947
Total debt 79,924 64,582 98,540 93,437 95,330
Shareholders' equity 146,174 137,327 73,984 67,240 9,347
<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> 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.
The Company's 1997 results include the results of the Company's
Southeastern operation (Southeastern), the net assets of which were acquired
effective June 1, 1997. Southeastern has historically operated as a metals toll
processor, and is located near Atlanta, Georgia.
Olympic sells a broad range of products, many of which have different
gross margins. 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. The Company performs
toll processing of customer-owned steel, the majority of which is performed by
its Lafayette Steel and Southeastern operations. Toll processing generally
results in lower selling prices and gross margin dollars per ton but higher
gross margin percentages than the Company's historical direct sales.
During 1997, the Company invested in three joint ventures, Olympic
Continental Resources (OCR), which buys, sells and trades ferrous and
non-ferrous metals and alternate iron products to steel mills and scrap
processors; Olympic Laser Processing (OLP), a company formed to process laser
welded sheet steel blanks for the automotive industry; and Trumark Steel &
Processing (TSP), a company formed in December 1997, to support the flat-rolled
steel requirements of the automotive industry as a Minority Business Enterprise.
OLP is constructing a new facility and initially equipping it with two
laser-welding lines. Production is expected to begin in the second half of 1998.
Start-up costs for both OLP and TSP are being expensed as incurred, and are
expected to continue in 1998. The Company guarantees portions of outstanding
debt under each of the joint venture companies' bank credit facilities. The
Company's 45% interest in OCR, 50% interest in OLP and 49% interest in TSP are
accounted for under the equity method.
Financing costs include interest expense on debt and costs associated
with the Company's 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 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.
<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth certain income statement data expressed
as a percentage of net sales:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 79.4 77.9 80.5
------ ------ ------
Gross margin 20.6 22.1 19.5
Operating expenses 16.9 16.6 15.5
------ ------ ------
Operating income 3.6 5.4 4.0
Interest and receivable securitization expense 1.3 1.4 2.0
------ ------ ------
Income before taxes 2.3 4.1 2.0
Income taxes 0.9 1.5 0.8
------ ------ ------
Net income 1.5% 2.5% 1.2%
====== ====== ======
</TABLE>
1997 COMPARED TO 1996
Tons sold increased 15.1% to 1,349 thousand in 1997 from 1,172 thousand
in 1996. Tons sold in 1997 include 1,111 thousand from direct sales and 238
thousand from toll processing, compared with 1,022 thousand from direct sales
and 150 thousand from toll processing in 1996. All of the Company's domestic
operations achieved increases in tons sold in 1997. Substantially all of the
increase in tolling tons is attributable to Southeastern.
Net sales increased by $48 million, or 8.6%, to $608.1 million from
$560.1 million in 1996. Average selling prices declined 5.7%, primarily due to
an increased proportion of tolling sales in 1997, and the continued decline in
direct average selling prices related to stainless steel products. International
sales were less than 6% of net sales in both 1997 and 1996.
As a percentage of net sales, gross margin decreased to 20.6% from
22.1% last year. The decrease was primarily the result of 1997 market
conditions, which did not allow increased prices for steel to be fully recovered
in the selling cycle.
On a per ton basis, operating expenses decreased 4% to $76.27 from
$79.44 in 1996. As a percentage of net sales, operating expenses increased to
16.9% in 1997 from 16.6% in 1996. The increase as a percentage of net sales is
due to the impact of lower average selling prices and increased warehouse and
depreciation expense in 1997. The increase in warehouse and depreciation expense
primarily relates to the Southeastern acquisition; the Cleveland temper mill
facility; completion of the Lafayette plant expansion; and continued investment
in management information systems.
Income from the OCR joint venture in 1997 totaled $449 thousand.
Olympic's share of OLP and TSP start-up costs in 1997 totaled $429 thousand and
$9 thousand, respectively.
Financing Costs increased 3.5% to $8.0 million in 1997 from $7.7
million in 1996. Average borrowings outstanding in 1997 increased primarily as a
result of higher inventory levels, the acquisition of Southeastern, and capital
expenditures. Overall effective borrowing rates decreased to 6.7% in 1997 from
7.1% in 1996. Lower Premiums as a result of the Offering favorably impacted
effective borrowing rates for 1997. Premiums for the quarter commencing March 1,
1998, will remain at 1% over LIBOR. Costs associated with the accounts
receivable securitization program increased slightly in 1997 as a result of
higher commercial paper rates.
Income before taxes totaled $14.2 million in the current year compared
to $22.7 million in 1996. Income taxes computed on 1997 earnings represented
37.5% of pre-tax income or $5.3 million versus 37.8% or $8.6 million last year.
<PAGE> 17
Net income totaled $8.8 million or $.83 per share in 1997, compared to
$14.1 million or $1.50 per share in 1996. As a result of the Offering, weighted
average shares outstanding increased from 9.4 million in 1996 to 10.7 million in
1997.
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 in 1996
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% in 1996
from 19.5% in 1995. The increase was 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 was 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
included 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 was 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 1996.
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 in 1995. The decrease in income taxes as a percentage of pretax
income was attributable to the implementation of tax planning strategies in
1996.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirement is to fund its growth,
including strategic acquisitions and joint ventures, 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, equity offerings, 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.
<PAGE> 18
Net cash from operating activities primarily represents net income plus
non-cash charges for depreciation, amortization and income from joint ventures,
net of start-up costs, as well as changes in working capital. During 1997, $25.5
million of net cash was provided from operating activities, consisting of $16
million of cash generated from net income and non-cash charges and $9.5 million
of cash from working capital components.
Working capital at December 31, 1997 decreased $10.9 million from the
end of the prior year. The decrease is primarily attributable to a $6 million
decrease in inventory and a $3.8 million decrease in accounts receivable.
As of December 31, 1997, $64 million of eligible receivables were sold
under the Company's accounts receivable securitization program, compared to $55
million at December 31, 1996. 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. In July 1997, the Company
amended its receivable securitization agreement to increase the maximum amount
of receivables available for sale from $65 million to $70 million. The term of
the agreement was also extended to July 31, 2000.
Net cash used for investing activities in 1997 totaled $38 million,
consisting of $13.7 million for the June acquisition of Southeastern, $6.2
million for investments in the three joint ventures, and $18.1 million in
capital expenditures, including completion of a 71,000 square foot expansion of
Lafayette Steel's existing facility, deposits for a new tube mill in Cleveland,
expected to become operational in the first half of 1998, and deposits made for
a new facility and equipment to be located in Bettendorf, Iowa. The Company
plans to invest more than $22 million for the construction and equipping of the
190,000 square foot Iowa facility which will house a second temper mill and
cut-to-length line, a slitter, and multiple pieces of plate burning equipment.
The plate processing equipment and slitter are expected to be operational by the
end of the first half of 1998, while the temper mill and cut-to-length line is
expected to be operational by the end of 1998. In 1997, the Company also made
expenditures to purchase a new cut-to-length line for its Lafayette operation, a
used cut-to-length line for the Minneapolis coil processing facility and a new
plasma burner for the Minneapolis plate processing facility.
Cash flows from financing activities in 1997 consist of net borrowings
under the Company's revolving credit agreement and proceeds from a new $10
million secured bank term loan used to finance the fixed asset portion of the
Southeastern acquisition, offset by scheduled payments under other existing
long-term debt agreements.
The Company amended its bank credit agreement in May and July, 1997
(the Credit Facility). The amendments increased the unsecured revolving credit
availability from $60 million to $68 million, added a secured $17 million term
loan component to finance the construction and equipping of the new Iowa
facility, extended the agreement expiration date to June 30, 2000, and added a
fourth bank to the bank group. The Credit Facility also includes letter of
credit commitments, which totaled approximately $80 million at December 31,
1997, and 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.
As of December 31, 1997, approximately $25.2 million was available
under the Company's revolving credit and accounts receivable securitization
facilities, and $5.5 million was borrowed under the $17 million Iowa term loan.
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, acquisitions and significant improvements
to processing equipment to respond to customers' demands.
<PAGE> 19
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.
YEAR 2000 COMPLIANCE
The Company has established processes to evaluate and manage the risks
and costs associated with ensuring its software and application systems will
properly recognize and process the year 2000 and beyond. Based upon initial
assessments, the Company expects its systems will be Year 2000 compliant by 1999
at a cost that will not be material to its financial statements. The Company is
also communicating with its suppliers, customers, financial institutions, and
others with which it does business to coordinate the Year 2000 conversion
process. There can be no assurances that the Company will not be adversely
impacted by the Year 2000 problem as it relates to its dependencies on others'
systems with which the Company does business.
<PAGE> 20
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, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Cleveland, Ohio,
February 2, 1998.
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands, except per share data)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales $608,076 $560,062 $554,469
Cost of sales 483,071 436,553 446,513
-------- -------- --------
Gross margin 125,005 123,509 107,956
Operating expenses
Warehouse and processing 33,579 29,881 28,307
Administrative and general 27,458 25,089 21,345
Distribution 18,046 16,585 16,155
Selling 13,745 13,475 13,692
Occupancy 4,067 3,769 3,092
Depreciation and amortization 6,003 4,328 3,264
-------- -------- --------
Total operating expenses 102,898 93,127 85,855
-------- -------- --------
Operating income 22,107 30,382 22,101
Income from joint ventures, net of start-up costs 11 - -
-------- -------- --------
Income before interest and taxes 22,118 30,382 22,101
Interest expense 4,172 4,301 10,746
Receivable securitization expense 3,791 3,393 107
-------- -------- --------
Income before taxes 14,155 22,688 11,248
Income taxes 5,308 8,569 4,504
-------- -------- --------
Net income $ 8,847 $ 14,119 $ 6,744
======== ======== ========
Net income per share $ 0.83 $ 1.50 $ 0.78
======== ======== ========
Weighted average shares outstanding 10,692 9,427 8,600
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 22
OLYMPIC STEEL, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
ASSETS
<S> <C> <C>
Cash $ 1,748 $ 2,018
Accounts receivable 6,417 9,483
Inventories 132,230 138,238
Prepaid expenses and other 1,780 2,516
--------- ---------
Total current assets 142,175 152,255
--------- ---------
Property and equipment 124,292 93,954
Accumulated depreciation (20,301) (14,954)
--------- ---------
Net property and equipment 103,991 79,000
--------- ---------
Goodwill 13,278 9,875
Investments in joint ventures 6,090 -
--------- ---------
Total assets $ 265,534 $ 241,130
========= =========
LIABILITIES
Current portion of long-term debt $ 3,722 $ 1,869
Accounts payable 24,266 25,267
Accrued payroll 3,618 4,610
Other accrued liabilities 5,520 4,521
--------- ---------
Total current liabilities 37,126 36,267
--------- ---------
Revolving credit agreement 48,809 46,457
Term loans 20,148 7,851
Industrial revenue bonds 7,245 8,405
--------- ---------
Total long-term debt 76,202 62,713
--------- ---------
Deferred income taxes 6,032 4,823
--------- ---------
Total liabilities 119,360 103,803
--------- ---------
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 issued and outstanding 106,319 106,319
Retained earnings 39,855 31,008
--------- ---------
Total shareholders' equity 146,174 137,327
--------- ---------
Total liabilities and shareholders' equity $ 265,534 $ 241,130
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 23
OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,847 $ 14,119 $ 6,744
Adjustments to reconcile net income to net
cash from (used for) operating activities-
Depreciation and amortization 6,003 4,328 3,264
Long-term deferred income taxes 1,209 1,733 (1,713)
Income from joint ventures, net of start-up costs (11) - -
-------- -------- --------
16,048 20,180 8,295
Changes in working capital:
Accounts receivable 3,829 (2,388) 54,076
Inventories 6,008 (25,252) 24,310
Prepaid expenses and other 910 (420) (165)
Accounts payable (1,165) 10,047 (27,590)
Accrued payroll and other accrued liabilities (128) (2,107) 825
-------- -------- --------
9,454 (20,120) 51,456
-------- -------- --------
Net cash from operating activities 25,502 60 59,751
-------- -------- --------
Cash flows from investing activities:
Acquisitions of Southeastern and Lafayette (13,689) - (52,345)
Equipment purchases and deposits (12,611) (3,477) (3,633)
Investments in joint ventures (6,222) - -
Facility purchase and construction (4,297) (10,411) (7,775)
Other capital expenditures, net (1,195) (1,614) (1,331)
-------- -------- --------
Net cash used for investing activities (38,014) (15,502) (65,084)
-------- -------- --------
Cash flows from financing activities:
Revolving credit agreement 2,352 (4,881) (8,414)
Borrowing (repayment) of term loans and IRB's 9,890 (28,767) 14,913
Net proceeds from sale of common stock and stock options exercised - 49,224 -
-------- -------- --------
Net cash from financing activities 12,242 15,576 6,499
-------- -------- --------
Cash:
Net change (270) 134 1,166
Beginning balance 2,018 1,884 718
-------- -------- --------
Ending balance $ 1,748 $ 2,018 $ 1,884
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 24
OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS
------------ ------------
<S> <C> <C>
Balance at December 31, 1994 $ 57,095 $ 10,145
Net income - 6,744
------------ ------------
Balance at December 31, 1995 57,095 16,889
Net proceeds from sale of 2,084 shares of common stock 49,100 -
Exercise of 8 stock options 124 -
Net income - 14,119
------------ ------------
Balance at December 31, 1996 106,319 31,008
NET INCOME - 8,847
------------ ------------
BALANCE AT DECEMBER 31, 1997 $ 106,319 $ 39,855
============ ============
</TABLE>
<PAGE> 25
OLYMPIC STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(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.
Investments in the Company's three joint ventures are accounted for under the
equity method. Certain amounts in the 1996 and 1995 consolidated financial
statements have been reclassified to conform to the 1997 presentation.
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. The Company
purchased approximately 22% and 18% of its total steel requirements from a
single supplier in 1997 and 1996, respectively.
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 $353 in 1997, and $260 in both 1996 and 1995. Accumulated
amortization of goodwill totaled $873 and $520 at December 31, 1997 and 1996,
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.
EARNINGS PER SHARE
Earnings per share has been calculated based on the weighted average number of
shares outstanding. Shares outstanding were 8.6 million through August 8, 1996
and 10.7 million since August 9, 1996. The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which became effective for financial statements for periods ending after
December 15, 1997. The implementation of SFAS No. 128 had no effect on the
Company's earnings per share data. Basic and diluted earnings per share are the
same, as the effect of dilutive outstanding stock options is immaterial.
<PAGE> 26
2. PUBLIC OFFERINGS OF COMMON STOCK:
---------------------------------
The Company completed its initial public offering of 4 million common shares in
March, 1994. 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. ACQUISITIONS:
-------------
Effective June 1, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Southeastern Metal Processing, Inc. and
Southeastern Transshipping Realty (Southeastern). Southeastern operated as a
metals toll processor and is located near Atlanta, Georgia. The preliminary
purchase price, which is subject to post-closing adjustments and includes
assumed liabilities, totaled approximately $17,200. The adjusted cash portion of
the purchase price, including fees and expenses and the repayment of $2,500 of
Southeastern's bank debt, approximated $13,700. The acquisition has been
accounted for as a purchase and, accordingly, assets and liabilities are
reflected at estimated fair values. The preliminary purchase price allocation
resulted in goodwill of approximately $3,700 which is being amortized over 40
years.
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.
4. INVESTMENTS IN JOINT VENTURES:
------------------------------
In January 1997, the Company completed the formation of Olympic Continental
Resources LLC (OCR), a joint venture with Atlas Iron Processors, Inc. (Atlas)
and 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. The Company made a $4,000 cash investment for
its 45% ownership share in OCR. The Company and Atlas each jointly and severally
guarantee 50% of OCR's outstanding debt under its $35,000 revolving bank credit
facility, up to a maximum of $10,000. OCR revolving credit debt outstanding at
December 31, 1997 totaled $14,102.
In April 1997, the Company and the U.S. Steel Group of USX Corporation (USS)
formed Olympic Laser Processing (OLP), a joint venture to process laser welded
sheet steel blanks for the automotive industry. OLP is owned 50% by each of the
companies. OLP is constructing a new facility and initially equipping it with
two laser-welding lines. Production is expected to begin in the second half of
1998. OLP start-up costs are being expensed as incurred. The Company and USS
each contributed $2,000 in cash to OLP during the first half of 1997 and each
guarantees, on a several basis, 50% of OLP's outstanding debt under its $20,000
bank loan agreement. OLP debt outstanding at December 31, 1997 totaled $8,900.
In December 1997, the Company, Michael J. Guthrie and Carlton L. Guthrie (the
Guthries) completed the formation of Trumark Steel & Processing, LLC (TSP), a
joint venture to support the flat-rolled steel requirements of the automotive
industry. The Guthries are also the executive officers of Trumark Inc., a
privately held supplier of metal stamped assemblies to the automotive industry
located in Michigan. The Company made a $147 cash contribution to TSP for its
49% ownership interest in the venture. The Company and the Guthries severally
guarantee outstanding debt under TSP's $3,880 credit facility in proportion to
each member's ownership interest. TSP debt outstanding at December 31, 1997
totaled $1,899.
<PAGE> 27
5. ACCOUNTS RECEIVABLE:
--------------------
In December 1995, the Company entered into an 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. In
July 1997, the agreement was amended to increase the maximum amount of
receivables available for sale from $65,000 to $70,000, and the term of the
agreement was extended to July 31, 2000. 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 $70,000 limit. The amount of receivables sold by the
Company typically will change monthly depending upon the level of defined
eligible receivables available for sale at each month end settlement date.
As of December 31, 1997 and 1996, $64,000 and $55,000, 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 $3,791 in 1997, $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
$506 and $485 as of December 31, 1997 and 1996, respectively. Bad debt expense
totaled $155 in 1997, $268 in 1996 and $763 in 1995.
6. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Land and improvements $ 8,755 $ 8,037
Buildings and improvements 46,974 40,105
Machinery and equipment 45,066 37,292
Furniture and fixtures 3,834 3,315
Computer equipment 4,448 3,604
Vehicles 344 378
Construction in progress 14,871 1,223
------------ ------------
124,292 93,954
Less accumulated depreciation (20,301) (14,954)
------------ ------------
Net property and equipment $ 103,991 $ 79,000
============ ============
</TABLE>
Construction in progress at December 31, 1997 primarily consists of the
construction and equipping of the Iowa temper mill facility, installation of a
new tube mill in Cleveland and a new cut-to-length line in Detroit. Construction
in progress at December 31, 1996 primarily consisted of material handling
equipment and management information system enhancements.
7. REVOLVING CREDIT AGREEMENT:
--------------------------
The Company has been operating under various multi-bank revolving credit
agreements for many years. As of December 31, 1997, the facility consisted of an
unsecured revolving credit component of $68,000, a $17,000 term loan component
for the construction and equipping of the Iowa temper mill facility (the Iowa
Term Loan) and letter of credit commitments of $80,048. The respective assets
financed collateralize the Iowa Term Loan and the letters of credit. The
agreement matures on June 30, 2000. Each year, the Company may request to extend
its maturity date one year with the approval of the bank group.
<PAGE> 28
The revolving credit agreement balance includes $5,199 and $5,487 of checks
issued that have not cleared the bank as of December 31, 1997 and 1996,
respectively.
The Company has the option to borrow based on the agent bank's base rate or
London Interbank Offered Rates (LIBOR) plus a premium (the Premium). The Premium
is determined every three months based on the Company's operating performance
and leverage ratio. As of December 31, 1997, the interest rates were base or
LIBOR plus 1.0%. The effective interest rate for revolving credit borrowings
amounted to 7.0% in 1997, 7.5% in 1996 and 7.9% in 1995. 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
portions of the revolver and Iowa Term Loan, payable quarterly in arrears.
8. TERM LOANS:
-----------
In May, 1997, the Company entered into a $10,000 loan agreement with a domestic
bank to finance the fixed asset portion of the Southeastern acquisition. The
loan agreement includes a 10 year $3,500 term loan component, and a seven year
$6,500 term loan component (the Southeastern Term Loans). The term loans are
secured by the real estate and equipment acquired from Southeastern and are
repayable in quarterly installments that commenced September 1, 1997. Interest
is charged at LIBOR plus 1%.
In 1993, the Company completed a $10,000 refinancing of certain of its real
estate in Minnesota, Connecticut, Illinois, and Ohio 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. The notes are backed by
a three year bank letter of credit, expiring October 15, 2000, and are secured
by mortgages on the real estate financed. The interest rate changes each week
based on the taxable rate note market.
The Iowa Term Loan allows draws to be made through December 30, 1998 and
requires annual principal repayments of 10% of the amount borrowed to commence
May 30, 1999.
The long-term portion of term loans at December 31, 1997 and 1996, consisted of
the following:
<TABLE>
<CAPTION>
Effective Interest
Description Rate at 12/31/97 1997 1996
------------ ---------------- ---------- ----------
<S> <C> <C> <C>
Southeastern Term Loans 7.4% $8,081 $ --
Taxable rate notes 7.2% 6,500 7,200
Iowa Term Loan draws at 12/31/97 7.4% 5,500 --
Other 4.0% 67 651
---------- ----------
$20,148 $7,851
---------- ----------
</TABLE>
9. INDUSTRIAL REVENUE BONDS:
-------------------------
The long-term portion of industrial revenue bonds at December 31, 1997 and 1996,
consisted of the following:
<TABLE>
<CAPTION>
Effective Interest
Description of Bonds Rate at 12/31/97 1997 1996
-------------------- ---------------- ---------- ----------
<S> <C> <C> <C>
$6,000 variable rate bonds due 1995 through 2004 5.7% $3,600 $4,200
$4,800 variable rate bonds due 1992 through 2004 5.5% 2,350 2,700
$2,660 variable rate bonds due 1992 through 2004 5.4% 1,295 1,505
---------- ----------
$7,245 $8,405
---------- ----------
</TABLE>
These bonds are backed by standby letters of credit, expiring June 30, 2000 with
the revolving credit bank group, which has a first lien on certain land,
building and equipment.
<PAGE> 29
10. SCHEDULED DEBT MATURITIES, INTEREST, DEBT CARRYING VALUES AND COVENANTS:
------------------------------------------------------------------------
Scheduled maturities of all long-term debt for the years succeeding December 31,
1997 are $3,722 in 1998, $3,150 in both 1999 and 2000, $3,155 in 2001, $3,161 in
2002 and $9,277 thereafter. These scheduled maturities exclude the Iowa Term
Loan, which allows draws for up to $17,000 to be made through December 30, 1998.
The overall effective interest rate for all debt amounted to 6.7% in 1997, 7.1%
in 1996, and 7.7% in 1995. Interest paid totaled $4,579, $4,628, and $11,823 for
the years ended December 31, 1997, 1996 and 1995, respectively. Amounts paid
relative to the accounts receivable securitization program totaled $3,736 in
1997 and $3,236 in 1996. Interest expense of $156, $92, and $1,021 was
capitalized in 1997, 1996 and 1995, respectively, in connection 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, 1997.
11. INCOME TAXES:
-------------
The components of the Company's net deferred tax liability at December 31 are as
follows:
<TABLE>
<CAPTION>
Asset / (Liability) 1997 1996
------------------- ------------ -------------
<S> <C> <C>
Accrued income taxes $ (695) $ (681)
Current deferred income taxes:
LIFO inventory reserves (583) (583)
Other temporary items 942 984
------------ ------------
Total current deferred income taxes 359 401
------------ ------------
Accrued and deferred income taxes (336) (280)
------------ ------------
Long-term deferred income taxes:
Goodwill (1,483) (1,365)
LIFO inventory reserve (583) (1,167)
Tax in excess of book depreciation (4,112) (2,291)
Other temporary items 146 --
------------ ------------
Total long-term deferred income taxes (6,032) (4,823)
------------ ------------
Total current and deferred income taxes $ (6,368) $ (5,103)
============ ============
</TABLE>
The following table reconciles the U.S. federal statutory rate to the Company's
effective tax rate:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local taxes, net of federal benefit 2.0 2.5 4.4
All other, net 0.5 0.3 0.6
----------- ----------- ------------
Effective income tax rate 37.5% 37.8% 40.0%
----------- ----------- ------------
</TABLE>
The tax provision includes a current provision of $4,495, $9,266, and $6,443,
and a deferred expense or (benefit) of $813, ($697), and ($1,939) in 1997, 1996
and 1995, respectively. Income taxes paid in 1997, 1996 and 1995, totaled
$4,459, $10,113, and $6,191, respectively.
<PAGE> 30
12. 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 $2,258, $2,001, and $1,762 for the years
ended December 31, 1997, 1996, and 1995, respectively.
13. 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 1997, 1996 and 1995, nonqualified options to purchase 8,000, 12,500, and
20,000 shares, respectively, were issued under the Option Plan to the Company's
outside directors and certain key employees. All options have been issued at an
exercise price of $15.50 per share, except for the 1997 options, which were
issued at $14.63 per share. Since adoption of the Option Plan, options to
purchase 8,000 shares have been exercised, all during 1996. Options to purchase
152,500 shares were outstanding at December 31, 1997, of which 74,500 were
exercisable.
In 1996, the Company adopted the disclosure-only provisions of SFAS 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 in both 1996 and 1997.
<PAGE> 31
14. 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 $2,175, $2,634, and $2,873 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Future minimum lease payments as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 2,078
1999 1,760
2000 1,213
2001 937
2002 763
Thereafter 1,073
--------------
$ 7,824
==============
</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.
15. RELATED PARTY TRANSACTIONS:
---------------------------
A related entity handles a portion of the freight activity for the Company's
Cleveland division. Payments to this entity approximated $2,906, $3,117, and
$3,199 for the years ended December 31, 1997, 1996 and 1995, 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.
<PAGE> 32
SUPPLEMENTARY FINANCIAL INFORMATION
UNAUDITED QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1ST 2ND 3RD 4TH YEAR
- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $149,473 $157,595 $145,223 $155,785 $608,076
Gross margin 30,643 32,392 30,145 31,825 125,005
Operating income 5,526 6,227 5,094 5,260 22,107
Income before taxes 3,911 4,304 2,744 3,196 14,155
Net income $ 2,445 $ 2,689 $ 1,715 $ 1,998 $ 8,847
Net income per share $ 0.23 $ 0.25 $ 0.16 $ 0.19 $ 0.83
Weighted average shares outstanding 10,692 10,692 10,692 10,692 10,692
Market price of common stock: (a)
High $ 26.13 $ 17.50 $ 21.38 $ 16.75 $ 26.13
Low 16.50 13.63 15.38 12.38 12.38
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
<FN>
(a) Represents high and low closing quotations as reported by NASDAQ.
</FN>
</TABLE>
<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 22, 1998 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 the caption "Executive Officers' Compensation" in
the Registrant's definitive proxy statement for its April 22, 1998 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 22, 1998 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 22,
1998 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,
1997, 1996 and 1995
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995
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 1997.
<PAGE> 34
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 (a)
3.1(ii) Amended and Restated Code of Regulations (a)
4.1 Credit Agreement dated October 4, 1996 by and among the Registrant, three (b)
banks and National City Bank, Agent
4.2 First Amendment to Credit Agreement dated January 24, 1997 by and among the (d)
Registrant, three banks and National City Bank, Agent
4.3 Second Amendment to Credit Agreement, dated May 30, 1997 (f)
4.4 Third Amendment to Credit Agreement, dated July 14, 1997 (f)
4.5 Receivables Purchase Agreement dated December 19, 1995 among the Registrant, (c)
Olympic Steel Receivables LLC, Olympic Steel Receivables, Inc. and Clipper
Receivables Corporation as Purchaser
4.6 Second Amendment to Receivables Purchase Agreement, dated July 14, 1997 (f)
4.7 Purchase and Sale Agreement dated December 19, 1995 among the Registrant, (c)
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 (a)
10.2 Lease, dated as of July 1, 1980, as amended, between S.M.S. Realty Co., a (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 (a)
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 (a)
10.7 Contract Carrier Contract for Transportation Services, dated January 1, 1991, (a)
between Bedford Trucking Company and the Registrant
10.8 Operating Agreement of Olympic Continental Resources, L.L.C. by and among (d)
Thyssen-Continental Resources LLC, Olympic Steel Trading, Inc. and Uwe T.
Schmidt
10.9 Operating Agreement of OLP, LLC, dated April 4, 1997, by and between the U.S. (e)
Steel Group of USX Corporation and Oly Steel Welding, Inc.
</TABLE>
<PAGE> 35
OLYMPIC STEEL, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Document Sequential Page No.
------- ----------------------- -------------------
<S> <C> <C>
10.10 Asset Purchase Agreement by and among Olympic Steel, Inc. and Southeastern (f)
Metal Processing, Inc. and Southeastern Transshipping Realty and Jerry O.
Kirkland, Gene L. James, Orvin Flint, and Michael Miniea, dated May 30, 1997.
10.11 Operating Agreement of Trumark Steel & Processing, LLC, dated December 12, 37-62
1997, by and among Michael J. Guthrie, Carlton L. Guthrie and Oly Steel
Welding, Inc.
10.12 Settlement Agreement and Mutual Release, dated January 30, 1998, by and 63-70
between Bruce S. Adelstein and Olympic Steel, Inc.
21 List of Subsidiaries 71
23 Consent of Arthur Andersen LLP 72
24 Directors and Officers Powers of Attorney 73
27 Financial Data Schedule (EDGAR Filing Only)
<FN>
(a) 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.
(b) Incorporated by reference to an Exhibit included in Registrant's Form 10-Q filed with the Commission
on November 4, 1996.
(c) Incorporated by reference to an Exhibit included in Registrant's Form 10-K filed with the Commission
on March 29, 1996.
(d) Incorporated by reference to an Exhibit included in Registrant's Form 10-K filed with the Commission
on March 7, 1997.
(e) Incorporated by reference to an Exhibit included in Registrant's Form 10-Q filed with the Commission
on May 2, 1997.
(f) Incorporated by reference to an Exhibit included in Registrant's Form 10-Q filed with the Commission
on August 5, 1997.
</FN>
</TABLE>
<PAGE> 36
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 9, 1998 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 BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES
INDICATED AND ON THE 9TH DAY OF MARCH, 1998.
<TABLE>
<S> <C>
March 9, 1998 /s/ Michael D. Siegal *
-----------------------
Michael D. Siegal
President, Chairman of the Board
and Chief Executive Officer
March 9, 1998 /s/ R. Louis Schneeberger *
---------------------------
R. Louis Schneeberger
Chief Financial Officer
and Director
March 9, 1998 /s/ David A. Wolfort *
----------------------
David A. Wolfort
Chief Operating Officer
and Director
March 9, 1998 /s/ Suren A. Hovsepian *
------------------------
Suren A. Hovsepian
Vice President and Director
March 9, 1998 /s/ Richard T. Marabito *
-------------------------
Richard T. Marabito
Treasurer and Corporate Controller
(Principal Accounting Officer)
March 9, 1998 /s/ Martin H. Elrad *
---------------------
Martin H. Elrad, Director
March 9, 1998 /s/ Thomas M. Forman *
------------------------
Thomas M. Forman, Director
March 9, 1998 /s/ Janice M. Margheret *
-------------------------
Janice M. Margheret, Director
</TABLE>
* 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.
<TABLE>
<S> <C>
By: /s/ R. Louis Schneeberger March 9, 1998
---------------------------------------------
R. Louis Schneeberger, Attorney-in-Fact
</TABLE>
<PAGE> 1
Exhibit 10.11
ASSET PURCHASE AGREEMENT
------------------------
By and Between
TRUMARK STEEL & PROCESSING, LLC
a Michigan limited liability company
("Buyer")
and
LAVOY INVESTORS, LTD.,
an Ohio limited liability company
("Seller")
December 12, 1997
<PAGE> 2
INDEX
ARTICLE I
DEFINITIONS.........................................................1
ARTICLE II
SALE AND PURCHASE OF ASSETS.........................................3
2.1 DESCRIPTION OF ASSETS......................................3
2.2 NON-ASSUMPTION OF LIABILITIES..............................5
2.3 PURCHASE PRICE AND MANNER OF PAYMENT.......................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER............................6
3.1 OWNERSHIP OF ASSETS........................................7
3.2 ORGANIZATION, QUALIFICATION, AND AUTHORITY OF SELLER.......7
3.3 TITLE TO PROPERTIES; LIENS, CONDITIONS OF PROPERTIES.......8
3.4 CHANGES....................................................9
3.5 INTELLECTUAL PROPERTY......................................9
3.6 [RESERVED]................................................10
3.7 CONTRACTS AND COMMITMENTS.................................10
3.8 LITIGATION; JUDGMENTS AND CONSENT DECREES.................10
3.9 EMPLOYEE RELATIONS........................................10
3.10 EMPLOYEE BENEFITS.........................................11
3.11 COMPLIANCE WITH LAW/GOVERNMENTAL AUTHORIZATIONS...........12
3.12 ENVIRONMENTAL AND OSHA MATTERS............................12
3.13 PAYMENT OF TAXES..........................................14
3.14 INSURANCE.................................................15
3.15 AGENTS AND EMPLOYEES......................................15
3.16 FINDER'S FEE..............................................15
ARTICLE IV
COVENANTS OF SELLER................................................16
4.1 CONDUCT OF BUSINESS.......................................16
4.2 ASSIGNMENT OF LEASES AND CONTRACTS........................18
4.3 BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS.......18
4.4 CONSUMMATION OF AGREEMENT.................................18
4.5 COOPERATION...............................................18
4.6 REGULATORY FILINGS........................................18
4.7 INJUNCTIONS...............................................18
4.8 TAXES.....................................................18
4.9 TERMINATION OF EMPLOYMENT BY TOLEDO PICKLING..............18
<PAGE> 3
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER............................20
5.1 ORGANIZATION OF BUYER.....................................20
5.2 AUTHORITY OF BUYER........................................20
5.3 FINDER'S FEE..............................................21
5.4 LITIGATION................................................21
ARTICLE VI
COVENANTS OF BUYER.................................................21
6.1 BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS.......21
6.2 CONSUMMATION OF AGREEMENT.................................21
6.3 COOPERATION...............................................22
6.4 REGULATORY FILINGS........................................22
6.5 INJUNCTIONS...............................................22
6.6 ACCESS TO RECORDS AND FILES...............................22
ARTICLE VII
REMITTANCE OF FUNDS................................................22
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER.................................23
8.1 REPRESENTATIONS; WARRANTIES; COVENANTS....................23
8.2 DELIVERY OF SCHEDULES AND EXHIBITS........................23
8.3 DAMAGE OR DESTRUCTION.....................................23
8.4 NO OTHER MATERIAL ADVERSE CHANGE..........................23
8.5 CONSENTS..................................................24
8.6 INJUNCTIONS...............................................24
8.7 TRANSFER OF REAL PROPERTY.................................24
8.8 FINANCING/CONSENT OF LENDER...............................24
8.9 OPERATING AGREEMENT.......................................24
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF SELLER................................24
9.1 REPRESENTATIONS, WARRANTIES, COVENANTS....................24
9.2 DELIVERY OF DOCUMENTS.....................................24
9.3 INJUNCTIONS...............................................25
9.4 TRANSFER OF REAL PROPERTY.................................25
ARTICLE X
INDEMNIFICATION....................................................25
ii
<PAGE> 4
10.1 INDEMNIFICATION BY SELLER.................................25
10.2 INDEMNIFICATION BY BUYER..................................26
10.3 THIRD PARTY CLAIM AGAINST BUYER OR SELLER.................27
10.4 TIME LIMITATIONS..........................................27
ARTICLE XI
TERMINATION........................................................28
11.1 GENERALLY.................................................28
11.2 RIGHT TO PROCEED..........................................28
ARTICLE XII
CLOSING OF TRANSACTION.............................................29
12.1 CLOSING...................................................29
12.2 CLOSING DOCUMENTS.........................................29
12.3 RISK OF LOSS..............................................30
ARTICLE XIII
MISCELLANEOUS......................................................30
13.1 BINDING EFFECT............................................30
13.2 RECITALS; EXHIBITS AND SCHEDULES..........................30
13.3 GOVERNING LAW.............................................30
13.4 NOTICES...................................................30
13.5 FURTHER ASSURANCES........................................32
13.6 ENTIRE AGREEMENT..........................................32
13.7 WAIVERS...................................................32
13.8 HEADINGS..................................................32
13.9 SEVERABILITY..............................................32
13.10 COUNTERPARTS..............................................32
13.11 PUBLIC ANNOUNCEMENT.......................................32
13.12 TIME OF THE ESSENCE.......................................32
13.13 ARBITRATION...............................................33
iii
<PAGE> 5
EXHIBITS
Exhibit A Schedule of Personal Property
Exhibit B General Assignment and Bill of Sale
Exhibit C Allocation of Purchase Price
3.2 Permits and Licenses
3.2C List of Consents Required
3.3C Schedule of Leases
3.3D Schedule of Liens
3.7 Contracts and Commitments
3.8 Litigation; Judgments and Consent Decrees
3.9 Grievances, Arbitrations, Unfair Labor Charges or Practices
3.10 Employee Benefit Plans
3.12 Environmental Disclosure Schedule
3.14 Schedule of Insurance
3.15 Agents and Employees
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
------------------------
THIS AGREEMENT (the "Agreement") made and entered as of December 12,
1997, by and between LAVOY INVESTORS, LTD., an Ohio limited liability company
(the "Seller") and TRUMARK STEEL & PROCESSING, LLC, a Michigan limited liability
company, (the "Buyer") is to evidence the following agreements and
understandings:
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller owns and leases a facility operated by its tenant,
Toledo Pickling & Steel Sales, Inc., an Ohio corporation ("Toledo Pickling") as
a processing steel service center (the "Business") in Bedford Township, Michigan
on the Real Property (hereinafter defined) under the name "Temperance Steel",
and the Seller owns certain assets which it leases in connection with Toledo
Pickling's Business;
WHEREAS, Seller desires to sell, and Buyer desires to purchase, certain
of Seller's assets and properties located at or relating to the Real Property,
upon the terms and conditions hereinafter set forth;
WHEREAS, the Real Property will be purchased from Seller pursuant to
the terms of a Real Property Purchase Agreement;
NOW THEREFORE, in exchange for the mutual promises contained herein and
for other good and valuable consideration, the receipt, adequacy and sufficiency
of which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
"Affiliate" when used with respect to Seller includes, but is not
limited to: (1) the spouse or child of any direct or indirect member of Seller
("Owner"); (2) any corporation, partnership, trust, or other entity (whether or
not incorporated), directly or indirectly, through one or more intermediaries,
that is controlled by, or under common control with, Seller or any Owner; (3)
any officer, director, or employee of Seller, or his spouse or child; (4) any
person who is a member in any relationship or similar form of unincorporated
business association with any person or entity referred to above; and (5) any
entity required to be aggregated with any entity referred to above under Code
Sections 414(b), (c) and (m).
1
<PAGE> 7
"Assumed Liabilities" shall have the meaning ascribed in Section 2.2
hereto.
"Buyer's Product Liability Obligations" means any claims for product
liability (whether for bodily injury or death or property loss or damage or
otherwise) arising from any occurrence on and after the Effective Date.
"Closing Date" or "Effective Date" means the date upon which the
closing of the transaction contemplated hereby ("Closing") will occur, which
shall be on or before December 12, 1997.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985.
"Code" means the Internal Revenue Code of 1986, as amended to date.
"Contracts" shall mean all contracts listed on EXHIBIT "3.7" and all
contracts that, due to their size or term, are not required in Section 3.7 to be
listed on EXHIBIT "3.7".
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means Port Lawrence Title & Trust Company, Toledo, Ohio,
which shall act as escrow agent pursuant to Section 7 of the Real Property
Purchase Agreement.
"Gamma X-Ray Gauge" means the unit of equipment owned by Seller and
manufactured by Gamma Instruments, Inc., of Aurora, Illinois, Source Model
Number GR-100, Serial Number 950401.
"Injunction" means any injunction, decree or similar order which
prohibits the consummation of the transaction contemplated by this Agreement.
"Intellectual Property" includes, but is not limited to: all trade
secrets (as defined in the Uniform Trade Secrets Act, as adopted in the State of
Ohio), patents, patent applications, trade names, trademarks, and service marks
(whether registered or unregistered) and all copyrights (registered or
unregistered), licensed or owned by Seller and used in connection with the
Business.
"Plan" or "Plans" means each pension, profit-sharing, cafeteria,
medical reimbursement, 401(k), retirement, deferred compensation, stock option,
incentive, vacation, hospitalization, medical, disability or life insurance,
severance, termination, bonus or other employee benefit plan, contract,
arrangement, or understanding of Seller or Toledo Pickling
2
<PAGE> 8
or any person, corporation, partnership, or other entity required to be
aggregated with, or treated as the same employer as, Seller or Toledo Pickling
under ERISA or the Code (an "ERISA Affiliate"), whether or not covered by ERISA
or qualified within the meaning of Section 401(a) of the Code, and whether
single-employer or multi-employer. The Plans shall include, but are not limited
to Toledo Pickling's 401(K), Profit-Sharing, Cafeteria, Medical/Dental, life
insurance/disability plans, as more particularly described in EXHIBIT "3.11".
"Real Property" means all of the land and buildings owned by the
Partnership, including, but not limited to, the property located at 222 LaVoy
Road, Bedford Township, Michigan, at which Seller operates the Business and as
more fully described in the Real Property Purchase Agreement.
"Real Property Purchase Agreement" means the Real Property Purchase
Agreement of even date herewith between Buyer and Seller pursuant to which Buyer
shall purchase the Real Property from Seller.
"Seller's Product Liability Obligations" means any claims for product
liability (whether for bodily injury or death or property loss or damage or
otherwise) arising from any occurrence before the Effective Date.
"Seller's Warranty Claims" means all warranty or other contract claims
by Seller whether implied, express or otherwise, or refunds against third party
manufacturers, vendors, carriers or utilities.
"WARN" means the Worker Adjustment Retraining Notification Act of 1988.
ARTICLE II
SALE AND PURCHASE OF ASSETS
---------------------------
2.1 DESCRIPTION OF ASSETS.
A. Subject to the terms and conditions of this Agreement, Seller agrees
to sell, convey, transfer, assign, and deliver to Buyer, and Buyer agrees to
purchase from Seller, free and clear of all mortgages, security interests,
liens, charges and other encumbrances, the
3
<PAGE> 9
following rights, properties and assets (other than the Excluded Assets
identified in Section 2.1C below), of any kind, character and description,
whether tangible, intangible, real, personal or mixed, the following
(collectively the "Assets"):
(i) All right and interest of Seller in and to the Real Property;
(ii) All of Seller's personal property relating to the "Temperance
Steel" Business or used in the operation of the Business (all
of which is located at 222 LaVoy Road, Bedford Township,
Michigan) including, but not limited to, all furnishings,
furniture, supplies, the Gamma X-Ray Gauge and other equipment
and cranes, including without limitation, the personal
property more particularly described in EXHIBIT "A" attached
hereto (collectively, the "Personal Property") but expressly
excluding all scrap and other steel inventory, fax and copy
machines, and other Excluded Assets, as defined herein);
(iii) All contracts, agreements, licenses, permits,
Intellectual Property, and any other intangible property or
interest associated with or useful in the operation of the
Real Property or the maintenance and use of the Personal
Property (collectively, the "Intangible Property"); PROVIDED,
HOWEVER, that Buyer, in its sole and absolute discretion, may
elect not to acquire any or all of the Intangible Property;
and
(iv) All of Seller's Warranty Claims which relate to the Personal
Property purchased from Seller.
B. The Assets constituting the personal property to be conveyed
hereunder shall be conveyed to Buyer by execution and delivery of a General
Assignment and Bill of Sale in the form attached hereto as EXHIBIT "B".
C. Except as expressly set forth in Section 2.1A, Buyer is not
purchasing any of the following Assets of Seller, all of which are hereinafter
referred to as the "Excluded Assets". The Excluded Assets include, but are not
limited to, the following:
(i) Cash, bank accounts, deposits (except for the $1,800 Michigan
Gas Utility deposit) and securities, and cash equivalents;
(ii) Accounts receivable;
(iii) Prepaid expenses;
4
<PAGE> 10
(iv) All steel scrap and other steel inventory;
(v) All fax machines and copy machines; PROVIDED, HOWEVER, that
Buyer shall have the continued exclusive right to use such
machines, subject to the terms and conditions of any
applicable Contract, until such time as Buyer purchases or
installs its own fax and copy machines at the "Temperance
Steel" facility; and
(vi) The scrap box and dumpster located at the "Temperance Steel"
facility;
(vii) Two (2) computer terminals and keyboards located at the
"Temperance Steel" facility (Seller acknowledges that Buyer
shall have the sole right and discretion to designate which
two (2) terminals and keyboards shall be part of the Excluded
Assets);
(vii) The three (3) word processing printers located at the
"Temperance Steel" facility.
(ix) The coffee maker located at the "Temperance Steel" facility;
(x) The propane cage and propane tanks located at the "Temperance
Steel" facility;
(xi) 15,000 lb. Hyster (towmotor) 5750A, Serial #A024D04776B,
PROVIDED, HOWEVER, that Buyer shall have the continued
exclusive right to use said towmotor pursuant to a letter
agreement by and between Buyer and Northern Steel Transport,
an Affiliate of Seller and the owner of said equipment; and
(xii) Such of Seller's Intangible Property as Buyer, in its sole
discretion, elects not to acquire hereunder.
2.2 NON-ASSUMPTION OF LIABILITIES. Buyer and Seller agree that Buyer is
not purchasing, assuming, or accepting any debts, liabilities or obligations
whatsoever of Seller, contingent or non-contingent, liquidated or unliquidated,
asserted or unasserted (the "Excluded Liabilities"), all of which remain the
debts, liabilities, and obligations of Seller.
5
<PAGE> 11
2.3 PURCHASE PRICE AND MANNER OF PAYMENT.
A. On the Closing Date, upon the satisfaction of the terms and
conditions contained herein, Seller shall sell, assign and convey the Assets to
Buyer, and Buyer shall purchase the Assets.
B. The purchase price (the "Purchase Price") for the Assets (including
the Real Property) shall be Two Million One Hundred Eighty Thousand Dollars
($2,180,000).
C. The Purchase Price will be paid by Buyer to the Escrow Agent in the
manner described in Section 10 of the Real Property Purchase Agreement.
D. The parties hereto covenant and agree that the Purchase Price shall
be allocated as provided on EXHIBIT "C" (the "Allocation"), which reflects the
fair market value of the Assets in accordance with the provisions of Section
1060 of the Internal Revenue Code of 1986, as amended. Buyer and Seller agree to
prepare and file all tax returns (including, if applicable, Form 8594) in a
manner consistent with the Allocation and will not in connection with the filing
of such returns make any allocation of the Purchase Price which is contrary to
the Allocation. The Buyer and the Seller agree to consult with each other with
respect to all issues related to such Allocation in connection with any tax
audits.
E. Real estate taxes, installments of special assessments, if any, and
personal property taxes, if any, with respect to the Assets to be conveyed to
Buyer pursuant hereto shall be prorated through the Closing Date in the manner
set forth herein and, with respect solely to the Real Property, as set forth in
Section 9 of the Real Property Purchase Agreement. Buyer shall be solely
responsible for any personal property taxes with lien assessment dates at any
time after the Closing Date; Seller shall be solely responsible for any personal
property taxes due in respect of any period (or portion thereof) prior to the
Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
In order to induce Buyer to purchase the Assets hereunder, Seller
hereby makes the following representations and warranties, each of which shall
be true and correct on the execution hereof except as otherwise specified
herein, and will be true and correct on the Closing Date.
6
<PAGE> 12
3.1 OWNERSHIP OF ASSETS. Seller is or on the Closing Date will be, the
owner of the Assets, and Seller shall transfer the Assets to Buyer, free and
clear of any mortgages, pledges, equities, liens, charges, encumbrances,
covenants, conditions, or other restrictions, except as otherwise provided in
the Real Property Purchase Agreement.
3.2 ORGANIZATION, QUALIFICATION, AND AUTHORITY OF SELLER.
A. Seller is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Ohio. Seller has
full power and authority to own or lease its properties and to conduct its
businesses in the manner and the places where such properties are owned or
leased and such business is conducted. Seller possesses all permits and licenses
from state, local, or Federal agencies or subdivisions necessary to operate the
Business, all of which are in full force and effect and a list of which is
attached hereto upon execution as EXHIBIT "3.2", all of which are transferable
and shall be transferred to Buyer hereunder except as disclosed on EXHIBIT
"3.2".
B. As of the Closing Date, the execution and delivery of this
Agreement, and the performance of the obligations by Seller under this
Agreement: (i) will not violate, contravene, be in conflict with, result in a
breach of or constitute (with or without notice or lapse of time or both) a
default under: (a) any provision of law; (b) any order, rule or regulation of
any court, arbitrator or other agency of government; (c) any provision of the
Operating Agreement of Seller; and (d) any material lease, indenture, agreement
or other instrument to which Seller or its properties or assets is or may be
bound; and (ii) will not result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon the Assets.
C. Seller has the right, power, legal capacity, and authority to enter
into and perform its obligations under this Agreement, and except as listed on
the "List of Consents Required" attached hereto as EXHIBIT "3.2C", no consent,
approval or authorization of, or registration, declaration, or filing with any
governmental authority (federal, state, or local, domestic or foreign), lending
institution or other third party is required in connection with the execution
and delivery by Seller of this Agreement or its performance of, or compliance
with, the terms, provisions, and conditions hereof.
D. All necessary actions of the Members and Managers of Seller have
been taken to authorize Seller to execute and deliver this Agreement, the Real
Property Purchase Agreement and the other documents contemplated hereby. This
Agreement, the Real Property Purchase Agreement and each related document
constitute the valid and binding obligations of Seller, each enforceable in
accordance with its respective terms, subject to
7
<PAGE> 13
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights or by general
principles of equity.
3.3 TITLE TO PROPERTIES; LIENS, CONDITIONS OF PROPERTIES.
A. REAL PROPERTY. The representations and warranties of Seller
contained in the Real Property Purchase Agreement are true and correct and are
incorporated herein by reference. Seller does not own or lease real property
except for the Real Property and Seller is not a party to any agreement to
acquire real property or any interest therein. The existing written real
property lease between Seller and Toledo Pickling with respect to the Real
Property will be terminated at Closing.
B. PERSONAL PROPERTY. Attached hereto as EXHIBIT "A" is the Schedule of
Personal Property that completely and accurately describes all machinery,
equipment, cranes and all other tangible Personal Property (excluding inventory)
which are to be included in the Assets. Each of the items of Personal Property
denoted with an asterisk (*) on the Schedule of Personal Property is, and on the
Closing Date will be, in good working condition and repair, ordinary wear and
tear excepted, with no known defects, and fully usable in the ordinary course of
business; all other items of said personal property is and on the Closing Date
will be in reasonable operating condition and repair, ordinary wear and tear
excepted, with no known defects, and fully usable in the ordinary course of
business (excepting routine maintenance for breakdowns in the ordinary course).
As of the Closing Date and except for such personal property subject to the
leases listed on the Schedule of Leases, Seller will have good and marketable
title to its Personal Property free and clear of all liens and encumbrances
whatsoever. All of the Assets constituting Personal Property is, and on the
Closing Date will be, located on the Real Property.
C. LEASES. All the leases under which Seller leases personal property
are described in the schedule of leases ("Schedule of Leases") attached hereto
as EXHIBIT "3.3C". All of Seller's leases of personal property are valid,
subsisting and assignable and no default (or event with which the passage of
time will constitute a default) exists thereunder. The existing lease between
Seller and Toledo Pickling for certain of the Personal Property will be
terminated at Closing. Buyer is not assuming any of Seller's leases for Personal
Property.
D. LIENS. Attached hereto as EXHIBIT "3.3D" is the schedule of liens
("Schedule of Liens") which lists all liens, conditional sales agreements,
security interests, pledges, charges, or mortgages to which Seller is a party
(as debtor or secured party). All of such liens to which Seller is a party as
debtor will be satisfied or released on or before the Closing Date. Except as
disclosed on such Exhibit, none of the Assets is subject to any mortgage,
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pledge, lien, conditional sales agreement, security agreement, encumbrance, or
other charge. Seller is not in default (nor is there an event with which the
passage of time will constitute a default) under any such agreements.
3.4 CHANGES.
A. Since September 15, 1997, there has been no change in the location
of the Assets or any material adverse change in the condition of any of the
Assets. Each item of Personal Property owned by Seller (including, but not
limited to, the items listed on EXHIBIT "A") on September 15, 1997 and which was
observed by or made available for observation by Buyer's representatives on
September 15, 1997, other than the Excluded Assets, is included among the
Assets, and no such item has been removed, sold or transferred by Seller.
B. Since September 15, 1997, neither Seller nor Toledo Pickling has,
with respect to the Assets or the Business:
(i) mortgaged, pledged or subjected to any lien, charge or any
other encumbrance, any portion of the Assets, except for liens
for current property taxes not yet due and payable or for
current liens to which after acquired property became subject;
(ii) sold, assigned or transferred any of the Assets;
(iii) made or granted any bonus or any wage or salary increase to
any employee or group of employees except in the ordinary
course of business;
(iv) made any capital expenditures or commitments therefor that
aggregate in excess of Twenty-Five Thousand Dollars ($25,000);
(v) entered into any labor agreement or commitment;
(vi) suffered any material damage, destruction or casualty loss to
the Assets, whether or not covered by insurance; or
(vii) agreed, whether in writing or otherwise to do any of the
actions described in this Section 3.5B.
3.5 INTELLECTUAL PROPERTY. Neither Seller, Toledo Pickling nor any
Affiliate of Seller owns, uses or holds any trade names, trademarks, service
marks, or copyrights in connection with the Business other than the trade name
"Temperance Steel". Neither Seller,
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Toledo Pickling nor any Affiliate of Seller has received any notification, and
has no knowledge, that it has infringed, nor is now infringing, on any trade
name, trademark, service mark, or copyright belonging to any other person, firm,
or corporation. To the best of Seller's knowledge, neither Seller, Toledo
Pickling nor any Affiliate of Seller is infringing and has not infringed on any
patent or other right belonging to any person, firm, or corporation nor has
Seller received notice of any infringement.
3.6 [RESERVED]
3.7 CONTRACTS AND COMMITMENTS. EXHIBIT "3.7" contains a true and
complete list and description of all personal property leases, warehouse
agreements, licensing agreements, and any other contracts and commitments (other
than purchase orders and sales orders, loan agreements, labor and employment
agreements or employee benefit plans or agreements) with respect to the Business
or the Assets as of the date of this Agreement that are not cancelable on thirty
(30) days or less notice without any further obligation thereunder or which
involve a total liability on the part of Seller or Toledo Pickling thereunder
exceeding Ten Thousand Dollars ($10,000) per contract or lease. True and correct
copies, or written summaries, if oral, of all the leases, contracts,
commitments, agreements, understandings or other obligations, written and oral,
relating to the Business or the Assets and listed on EXHIBIT "3.7" have been
delivered to Buyer. Neither Seller, Toledo Pickling or any Affiliate of Seller
is in default (whether with the giving of notice, the passage of time or both)
under any of the contracts, leases or other commitments or obligations listed on
such Exhibit. The execution of this Agreement and the consummation of the
transactions contemplated hereby will not give rise to a right of termination by
any party thereto.
3.8 LITIGATION; JUDGMENTS AND CONSENT DECREES. Except as disclosed on
EXHIBIT "3.8" attached hereto, with respect to the Business or Assets, no
litigation is pending or, to the best of Seller's knowledge, threatened against
Seller, Toledo Pickling or any Affiliate and no litigation is pending or
threatened by Seller, Toledo Pickling or Affiliate. EXHIBIT "3.8" also sets
forth, with respect to the Business, all product liability claims, workers'
compensation, unemployment compensation, and all age, race, religion or other
discrimination claims, whether such claims were dismissed, settled, or otherwise
resolved, against Seller, Toledo Pickling or Affiliate since January 1, 1994.
Neither Seller, Toledo Pickling or any Affiliate is subject to any judgment,
ruling, injunction, order or agreement with any court, arbitrator or regulatory
authority restricting or adversely affecting the conduct of the Business or
Seller's ownership of the Assets.
3.9 EMPLOYEE RELATIONS. Except as disclosed in EXHIBIT "3.9", with
respect to the Business, there has not been, since January 1, 1996, nor to
Seller's knowledge is there
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currently threatened, any grievances, arbitrations, unfair labor charges or
practices filed against Toledo Pickling with the National Labor Relations Board
or any comparable federal, state or local board, agency or commission, or any
claims, including but not limited to any claims brought before the Equal
Employment Opportunity Commission or under any act, local, state, federal civil
rights laws or any other law, rule or regulation relating to employment. Since
January 1, 1996, with respect to the "Temperance Steel" Business, Toledo
Pickling has complied with all laws relating to the employment of labor,
including, but not limited to, any provisions thereof relating to equal
employment opportunities, civil rights, working conditions, wages, hours, COBRA,
WARN, and the payment of social security and similar taxes, and is not liable
for any arrearage of wages or any taxes or penalties for failure to comply with
any of the foregoing. Neither Seller, Toledo Pickling or any Affiliate is a
party to any collective bargaining agreement with respect to the Business. No
unions or other collective bargaining units have been, or are required to be,
certified or recognized by Seller or Toledo Pickling as representing its
employees at the Temperance Steel facility, and no union organized efforts exist
with respect to any employees of the Business conducted at the Real Property.
Seller represents and warrants that Toledo Pickling has taken all
actions necessary, including but not limited to any notice required to be given
to its employees, local, state or federal government agencies, to comply with
COBRA and any other local or state laws applicable to the transactions
contemplated by this Agreement. Copies of all such notices have been delivered
to Buyer.
3.10 EMPLOYEE BENEFITS. Set forth on EXHIBIT "3.10" is a list of each
Plan. Except as set forth on EXHIBIT "3.10", with respect to the "Temperance
Steel" Business, neither Seller nor Toledo Pickling maintains or contributes to
any "employee benefit plan" (as defined in ERISA) or any other profit sharing,
incentive bonus, deferred compensation, welfare, pension, retirement, severance,
holiday, vacation, tuition reimbursement, health benefit or other similar plan,
program, agreement, arrangement or practice. Neither Seller nor Toledo Pickling
has any liability with respect to any Plan including, but not limited to, any
"accumulated funding deficiency," as defined in ERISA, and all contributions
required to be made under each such Plan have been made by the due date thereof.
Each Plan and each Plan sponsor identified on EXHIBIT "3.10" are in compliance
in all material respects with ERISA, the Internal Revenue Code of 1986, as
amended (the "Code"), and the rules and regulations promulgated thereunder.
Without limiting the generality of the foregoing, there have been no prohibited
transactions (as defined in ERISA) or breaches of the duties imposed by ERISA
upon fiduciaries of the Plans such that any Plan sponsor could incur any
liability in respect thereof, and all filings with governmental authorities and
all notices to participants in such plans required by ERISA, the Code and the
rules and regulations promulgated
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thereunder to be made or given have been timely made or given. There are no
suits or claims pending or, to Seller's knowledge, threatened against any Plan
or any Plan sponsor, and to Seller knowledge, there is no basis for any such
suit or claim. Except with respect to vested or accrued benefits of participants
under the Plans, the Plan sponsor has reserved all rights necessary to amend or
terminate, on a prospective basis, each of the Plans without the consent of any
other person. Seller has delivered or caused to be made available to Buyer true,
complete and correct copies of all Plans, trust agreements, Plan amendments,
Plan descriptions and other Plan documents with respect to the Plans.
To Seller's knowledge, with respect to the Business, all group health
plans of Seller, Toledo Pickling and any ERISA Affiliate have been operated in
material compliance with the group health plan continuation coverage
requirements of Section 162(i) (as in effect immediately prior to the Technical
and Miscellaneous Revenue Act of 1988) and 4980B of the Code to the extent such
requirements are applicable.
3.11 COMPLIANCE WITH LAW/GOVERNMENTAL AUTHORIZATIONS. Seller and Toledo
Pickling have complied, and have conducted its business in accordance with all
applicable statutes, laws, regulations, rules and other requirements of all
federal, state and local governmental authorities having jurisdiction over
Seller and Toledo Pickling applicable to the Assets other than statutes, laws,
regulations and other requirements relating to tax, employment, employee benefit
and environmental and OSHA matters (which are the subject of specific
representations and warranties hereunder and, with respect to OSHA and
environmental matters, under the Real Property Purchase Agreement), except where
the failure to so comply has not had and does not have a material adverse effect
on the Assets and/or the ownership thereof by Buyer following the Closing.
3.12 ENVIRONMENTAL AND OSHA MATTERS.
A. IN GENERAL. Except as set forth in EXHIBIT "3.12" (the Environmental
Disclosure Schedule), with respect to the Business and the Assets, each of
Seller and Toledo Pickling is in full compliance with all applicable
Environmental Laws (as defined below), which compliance includes, but is not
limited to, the possession by Seller and Toledo Pickling of all permits and
other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof. Except as set forth in
EXHIBIT "3.12", with respect to the Business and the Assets, neither Seller,
Toledo Pickling, nor any Affiliate has received any communication (written or
oral), whether from a governmental authority, citizens' group, employee or
otherwise, that alleges that Seller, Toledo Pickling or any Affiliate is not in
such full compliance, and there are no circumstances that may prevent or
interfere with such full compliance in the future. All
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governmental authorizations currently held by Seller or Toledo Pickling with
respect to the Real Property pursuant to the Environmental Laws are identified
on EXHIBIT "3.12".
B. NO CLAIMS. Except as set forth in EXHIBIT "3.12", there is no
Environmental Claim (as defined below) pending or, to Seller's knowledge,
threatened against Seller, Toledo Pickling or any Affiliate or, to the knowledge
of Seller, against any person or entity whose liability for any Environmental
Claim Seller has or may have retained or assumed either contractually or by
operation of law. Except as set forth in EXHIBIT "3.12", there are no past or
present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge, generation,
treatment, storage, management, disposal or arrangement for disposal of any
Materials of Environmental Concern (as defined below), that could form the basis
of any Environmental Claim against Seller or any Affiliate or, to Seller's
knowledge, against any person or entity whose liability for any such
Environmental Claim Seller has or may have retained or assumed either
contractually or by operation of law.
C. ABSENCE OF EVENTS OR CONDITIONS. Without in any way limiting the
generality of the foregoing, to Seller's knowledge: (i) all on-site and off-site
locations relating to the Business where Seller, Toledo Pickling or any
Affiliate has treated, stored, disposed or arranged for the storage, treatment
or disposal of Materials of Environmental Concern are identified in EXHIBIT
"3.12", (ii) all underground storage tanks, and the capacity and contents of
such tanks, located now or in the past on the Real Property, leased or
controlled by Seller are identified in EXHIBIT "3.12", (iii) except as set forth
in EXHIBIT "3.12", there is no asbestos contained in or forming part of any
building, building component, structure or office space owned, leased or
controlled by Seller, (iv) except as set forth in EXHIBIT "3.12", no
polychlorinated biphenyls (PCBs) are or have been used, stored, treated or
disposed of at any property owned, leased or controlled by Seller, (v) neither
Seller, Toledo Pickling, any predecessor owner of the Real Property or other
party has filed any notice under any federal law or under any law of the State
of Michigan reporting a spill or release of Materials of Environmental Concern
into the environment at, on, into or from the Real Estate; (vi) no lien
asserting any claim or liability in favor of any governmental entity for (A) any
liability under federal or state environmental laws or regulations, or (B)
damages arising from or costs incurred by such governmental entity in response
to a release of Materials of Environmental Concern into the environment is
presently pending against or attached to the Real Property.
D. NO CAPITAL EXPENDITURES REQUIRED FOR COMPLIANCE. No capital or other
expenditures are required to bring the Assets or Seller into compliance with any
currently applicable Environmental Laws.
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E. CERTAIN DEFINITIONS. For purposes of this Section, the following
definitions apply:
"Environmental Claim" means any claim, action, cause of action,
investigation, demand or notice (written or oral) by any person or entity
alleging potential liability (including, without limitation, potential liability
for or requirement to incur investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries,
or penalties) arising out of, based on or resulting from (i) the presence, or
release or threatened release into the environment, of any Materials of
Environmental Concern at any location, whether or not owned or operated by
Seller or (ii) circumstances forming the basis of any violation, or alleged
violation, of or any claim pursuant to any Environmental Law.
"Environmental Laws" means all federal, state, local and foreign laws
and regulations relating to pollution, protection of human health or safety, or
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), including, without limitation,
The Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) 42 U.S.C. Sections 9601 ET SEQ., The Resource Conservation and Recovery
Act (RCRA), 42 U.S.C. Sections 6901 ET SEQ., The Federal Water Pollution Control
Act (FWPCA), 33 U.S.C. Sections 1251 ET SEQ., The Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1802 ET SEQ., The Toxic Substances
Control Act, 15 U.S.C. Sections 2601 ET SEQ., The Clean Air Act, 42 U.S.C.
Sections 7401 ET SEQ., Occupational Safety and Health Act, 29. U.S.C. Sections
651 ET SEQ., regulations promulgated thereunder, state, county, municipal or
local counterparts of the foregoing federal laws and regulations, and any other
applicable federal, state, county, municipal, local or other laws and
regulations relating to emissions, discharges, releases or threatened releases
of Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern.
"Materials of Environmental Concern" means chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products,
including, without limitation, any hazardous substances, wastes or materials as
defined by any Environmental Laws or any substances regulated by any
Environmental Law.
3.13 PAYMENT OF TAXES. Seller has filed and will continue to file all
applicable Federal, state, regional and/or local income, excise or franchise tax
and informational returns, real estate tax returns, sales and use tax returns,
F.I.C.A. returns, Workers Compensation returns and other tax and informational
returns required to be filed by it and has paid all taxes
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owing by Seller, including both the employee and employer portion of the
F.I.C.A. taxes, income, excise, and franchise taxes, and workers compensation
premiums, except taxes which have not yet accrued or otherwise become due and
payable and except as may, in the future, be contested in good faith
proceedings. Neither the Internal Revenue Service nor any other taxing authority
is now asserting or to the best of Seller's knowledge, threatening to assert
against Seller any deficiency or claim for additional taxes or interest thereon
or penalties in connection therewith.
Seller has not executed or filed with the Internal Revenue Service or
any other taxing authority (whether domestic or foreign) any agreement extending
the period for assessment or collection of income taxes, nor is Seller a party
to any pending action or proceeding, nor to the best of Seller's knowledge is
any action or proceeding threatened, by any governmental authority for
assessment or collection of taxes. No claims for assessment or collection of
taxes has been asserted against Seller and Seller does not know of any proposed
tax assessment against Seller.
3.14 INSURANCE. Attached hereto as EXHIBIT "3.14", is the Schedule of
Insurance, which lists all insurance policies and arrangements of Seller,
including the name of the insurer, the insured, the beneficiary, the policy
number, the amount of the coverage, and the dates of commencement and
termination. Seller has maintained (and paid all premiums thereon when due) and
now maintains: (i) insurance on the Assets of a type customarily insured,
covering property damage by fire or other casualty; and (ii) adequate, in its
reasonable business judgment, insurance protection against all liabilities,
claims, and risks against which it is customary to insure general public
liability. Seller has not been refused any insurance with respect to any of the
Assets, nor has its coverage been limited, by any insurance carrier to which it
has applied for any such insurance or with which it has carried insurance since
January 1, 1996.
3.15 AGENTS AND EMPLOYEES. Seller has no employees. To be attached
hereto as EXHIBIT "3.15" at the Closing is a complete list of the names and
addresses of all employees of Toledo Pickling at the "Temperance Steel" facility
stating the rates of compensation payable to each of them, the duties performed
by each of them, and which employees are currently on layoff. No employee of
Toledo Pickling is subject to any confidentiality, non-disclosure or any other
type of employment contract or non-compete agreement with Toledo Pickling or to
the best of Seller's knowledge, any other company.
3.16 FINDER'S FEE. Neither Seller nor its members has incurred or
become liable for any broker's commission or finder's fee relating to, or in
connection with, the transactions
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contemplated by this Agreement or taken any action whatsoever to cause Buyer to
incur or become liable for any such commission or fee.
ARTICLE IV
COVENANTS OF SELLER
-------------------
In order to induce Buyer to enter into this Agreement and perform its
obligations hereunder, Seller hereby makes the covenants and agreements set
forth in this ARTICLE IV.
4.1 CONDUCT OF BUSINESS. Until the Closing, Seller will do, or will
cause Toledo Pickling to do, the following with respect to the Assets and the
"Temperance Steel" plant unless Buyer shall otherwise consent in writing:
A. Seller shall and shall cause Toledo Pickling to do the following:
(i) at its expense, maintain the Real Property and the Personal
Property in its present order and condition, make all
necessary repairs and replacements and deliver the Assets on
the Closing Date in substantially the same condition they are
in on the date of this Agreement, reasonable wear and tear and
damage by fire and other casualty excepted, keep in full force
and effect insurance policies insuring the Real Property and
the Personal Property for the full replacement value thereof
and promptly notify Buyer of any fire or other casualty
affecting the Real Property or the Personal Property;
(ii) deliver to Buyer, promptly after receipt by Seller,
copies of all correspondence, documents and/or notices
received by Seller relevant to any of the Assets, including,
without limitation, notices of violation issued by
governmental authorities with respect to the Real Property
received by Seller after the date of this Agreement; and
B. Refrain, and cause Toledo Pickling to refrain, from the following:
(i) removing from the Real Property, or making any purchase,
sale, transfer, assignment, or disposition of any asset or
property or waiving any right of material value therein, other
than the sale of inventory in the ordinary course of business
and the Excluded Assets;
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(ii) mortgaging, pledging, subjecting to a lien or otherwise
encumbering any of or the Assets except liens for current
property taxes not yet due and payable and current liens to
which after acquired property became subject;
(iii) granting any bonus or any wage or salary increase to any
employee or shareholder or group of employees;
(iv) granting any increase in any employee benefit plan or
arrangement (except in accordance with past custom and
practice), or amending or terminating any existing employee
benefit plan or arrangement or adopting any new employee
benefit plan or arrangement (except for the termination
amendment and any amendments in connection therewith of the
Plans);
(v) making any capital expenditures or commitments therefor that
aggregate in excess of Twenty-Five Thousand Dollars ($25,000);
(vi) entering into any other material transaction other than in the
ordinary course of business;
(vii) entering into any new labor agreement or commitment.
C. Use its best efforts to keep intact its business organization; to
cause Toledo Pickling, to the extent within Seller's control, to retain Toledo
Pickling's present employees at the Temperance facility (other than such
employees, if any, who have been advised by Buyer or Seller that Buyer as of the
Closing Date will not be extending an offer of employment thereto);
D. Have in effect and maintain at all times all insurance of the kind,
in the amount, and with the insurers set forth in the Schedule of Insurance
attached hereto as EXHIBIT "3.14";
E. Permit Buyer and its authorized representatives to have at
reasonable times full access to all of Seller's properties, assets, records,
contracts, and documents relating to the Personal Property and the Real
Property, and furnish to Buyer or its authorized representative such other
information as Buyer may from time to time reasonably request; and
F. Not take any action, or omit to take any action, which would cause a
breach of or default under any of Seller's material Contracts.
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4.2 ASSIGNMENT OF LEASES AND CONTRACTS. Seller is not assigning and
Buyer is not assuming any of Seller's leases or contracts.
4.3 BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Between the
date hereof and the Closing, promptly upon the occurrence of, or promptly upon
Seller becoming aware of the impending or threatened occurrence of, any event
which would cause or constitute a breach, or would have caused or constituted a
breach had such event occurred or been known to Seller prior to the date hereof,
of any of the representations, warranties or covenants of Seller contained in
this Agreement, Seller shall give detailed written notice thereof to Buyer and
shall use its best efforts to prevent or promptly remedy the same.
4.4 CONSUMMATION OF AGREEMENT. Seller shall use its best efforts to
perform and fulfill all conditions and obligations on its part to be performed
and fulfilled under this Agreement.
4.5 COOPERATION. Seller shall use its best efforts to cause the Closing
to occur on or before December 12, 1997 and shall not undertake any course of
action inconsistent with such intended result.
4.6 REGULATORY FILINGS. Seller shall promptly take all actions
necessary to make each filing it is required to make with any governmental
agency or authority as a condition to or consequence of the consummation of this
Agreement, and shall use its best efforts to assist Buyer in making such
required filings.
4.7 INJUNCTIONS. If any United States court having jurisdiction over
Seller issues or otherwise promulgates any Injunction, Seller shall use its best
efforts to have such Injunction dissolved or otherwise eliminated as promptly as
possible; PROVIDED, HOWEVER, that the foregoing provision shall not require
Seller to take any action other than to pursue the litigation diligently and in
good faith.
4.8 TAXES. Seller covenants and agrees that it will prepare and file
all tax returns required to be filed by it including, without limitation,
payroll, workers compensation, state and federal unemployment tax returns and
pay all amounts due thereunder. Without limiting the generality of the
immediately preceding sentence, Seller agrees to issue to each of its Temperance
Steel employees final W-2 Reports for services performed up to the Closing Date.
4.9 TERMINATION OF EMPLOYMENT BY TOLEDO PICKLING. Seller shall cause
Toledo Pickling to terminate the employment of all of the employees of at the
Temperance Steel
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facility immediately prior to the effective time of the transaction contemplated
by this Agreement on the Closing Date, so that at the effective time, Toledo
Pickling shall employ no one in the Business. Toledo Pickling shall bear all
resulting liabilities, if any, caused by or arising from such termination,
including, but not limited to:
(i) severance pay;
(ii) accrued wages or vacation pay;
(iii) sick leave;
(iv) unemployment compensation;
(v) claims for back pay and/or reinstatement;
(vi) claims for contributions or benefits under the provisions of
any Plan;
(vii) claims asserting the right to participate in any medical
insurance program under COBRA or comparable state law;
(viii) any funding or withdrawal liability relating to any Plan; and
(ix) any and all claims arising out of employment on or prior to
the Closing Date.
Seller hereby agrees that it will not notify, promise, represent,
advise or otherwise communicate to any employee that Buyer will be hiring any or
all such employees or otherwise make any offer of employment on behalf of Buyer,
and will cause Toledo Pickling to refrain from doing any of the foregoing.
The parties acknowledge that prior to the date hereof, Buyer has
notified Seller that Buyer may desire to enter into arrangements for the
employment by Buyer of (or other association of Buyer with) one or more of the
individuals listed in EXHIBIT "3.15", as such employees of Toledo Pickling may
be potentially relevant to Buyer's business, and Buyer agrees to notify Toledo
Pickling prior to extending any offer of employment or other association to any
of the aforementioned individuals or to any other employee of Toledo Pickling,
Buyer may, but shall not be obligated pursuant to this Agreement or for any
other reason to, offer full or part-time employment or other association (i.e.,
consulting) after the Closing Date to any of the aforementioned individuals or
to any other present or future employees of Toledo Pickling on such terms and
conditions as Buyer, it its sole discretion,
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may determine. Buyer may communicate with the present employees or agents of
Toledo Pickling prior to the Closing upon reasonable prior notice to Toledo
Pickling. Toledo Pickling shall cooperate with Buyer in all reasonable respects
in connection with any offers of employment or other association that Buyer may
make to Seller's employees and to transition any such employees from Seller's
employment to possible association with Buyer, and Seller and Toledo Pickling,
jointly and severally, covenant and agree, for a period of one (1) year
following the Closing Date, not to hire, offer to hire, or otherwise solicit,
directly or indirectly, through an Affiliate or otherwise, any of the current
employees of Seller or Toledo Pickling at the Temperance Steel facility whom
Buyer indicates to Seller prior to Closing it intends to hire.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer, in order to induce Seller to sell the Assets to Buyer hereunder,
hereby makes the following representations and warranties, each of which shall
be true and correct on the execution hereof except as otherwise specified herein
and will be true and correct on the Closing Date.
5.1 ORGANIZATION OF BUYER. Buyer is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State of
Michigan with full corporate power to own or lease its properties and to conduct
its business.
5.2 AUTHORITY OF BUYER.
A. All necessary action, corporate or otherwise, has been taken by
Buyer to authorize the execution, delivery, and performance of this Agreement
and the other documents contemplated hereby.
B. As of the Closing Date, the execution and delivery of this
Agreement, and the performance of the obligations by Buyer under this Agreement
will not violate, contravene, be in conflict with, result in a breach of or
constitute (with or without notice or lapse of time or both) a default under:
(i) any provision of law; (ii) any order, rule or regulation of any court,
arbitrator or other agency of government; (iii) any provision of the Articles of
Organization or Operating Agreement of Buyer; or (iv) any lease, indenture,
agreement or other instrument to which Buyer or its properties or assets is or
may be bound.
C. Buyer has the right, power, legal capacity, and authority to enter
into and to and perform its obligations under this Agreement, and except for the
consent of Buyer's
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lenders under its revolving credit loan and the mortgage loan financing
commitment described in Section 8.8, no consent, approval or authorization of,
or registration, declaration, or filing with any governmental authority
(federal, state or local, domestic or foreign), collective bargaining unit,
lending institution or other third party is required in connection with the
execution and delivery by Buyer of this Agreement or its performance of, or
compliance with, the terms, provisions and conditions hereof.
D. This Agreement constitutes the valid and binding obligation of Buyer
enforceable in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights or by general principles of equity.
5.3 FINDER'S FEE. Buyer has not incurred nor become liable for any
broker's commission or finder's fee relating to, or in connection with, the
transactions contemplated by this Agreement or taken any action whatsoever to
cause Seller to incur or become liable for any such commission or fee.
5.4 LITIGATION. No litigation is pending or, to the best of Buyer's
knowledge, threatened against Buyer which could prevent it from entering into,
or performing its obligations under, this Agreement.
ARTICLE VI
COVENANTS OF BUYER
------------------
Buyer, in order to induce Seller to enter into this Agreement and to
perform the obligations hereunder, hereby makes the covenants and agreements set
forth in this ARTICLE VI.
6.1 BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Between the
date hereof and the Closing, promptly upon the occurrence of, or promptly upon
Buyer becoming aware of the impending or threatened occurrence of, any event
which would cause or constitute a breach, or would have caused or constituted a
breach had such event occurred or been known to Buyer prior to the date hereof,
of any of the representations, warranties or covenants of Buyer contained in
this Agreement, Buyer shall give detailed written notice thereof to Seller and
shall use its best efforts to prevent or promptly remedy the same.
6.2 CONSUMMATION OF AGREEMENT. Buyer shall use its best efforts to
perform and fulfill all conditions and obligations on its part to be performed
and fulfilled under this Agreement.
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6.3 COOPERATION. Buyer shall use its best efforts to cause the Closing
to occur on or before December 12, 1997, and shall not undertake any course of
action inconsistent with such intended result.
6.4 REGULATORY FILINGS. Buyer shall promptly take all actions necessary
to make each filing it is required to make with any governmental agency or
authority as a condition to or consequence of the consummation of this
Agreement, and shall use its best efforts to assist Seller in making such
required filings.
6.5 INJUNCTIONS. If any United States court having jurisdiction over
Buyer issues or otherwise promulgates any Injunction, Buyer shall use its best
efforts to have such Injunction dissolved or otherwise eliminated as promptly as
possible, PROVIDED, HOWEVER, that the foregoing provision shall not require
Buyer to dispose of any of its assets or business or to agree to any restriction
on its ownership, acquisition or disposition of assets or the conduct of its
business or take any action other than to pursue the litigation diligently and
in good faith.
6.6 ACCESS TO RECORDS AND FILES. For a period of three (3) years after
the Closing Date, Buyer shall preserve and grant to Seller reasonable access to,
and the right to make copies and extracts of, such books, accounts, records, and
other similar information transferred to Buyer pursuant to the terms of this
Agreement, for any reasonable purposes of Seller. Notwithstanding the foregoing,
at any time which is at least one (1) year following the Closing Date, Buyer
shall have the right to destroy any of such books, accounts, records, and other
similar information that do not pertain to tax or accounting matters provided
that Buyer gives Seller at least forty-five (45) days advance written notice of
Buyer's intent to destroy. During such forty-five (45) day period, Seller shall
have the right to copy at its sole expense or to take possession of all or any
part of the books, accounts, records, or other similar information to be
destroyed.
ARTICLE VII
REMITTANCE OF FUNDS
-------------------
Each party agrees to promptly remit to the other, in the form received,
all funds belonging to the other, whether received from customers, utility
companies, vendors, taxing authorities, or otherwise.
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ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER
----------------------------------
Buyer's obligations to consummate this Agreement and the transaction
contemplated hereby are subject to the fulfillment, prior to or at the Closing,
of the following conditions precedent:
8.1 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the
representations, warranties and covenants of Seller contained herein shall be
true and correct in all respects as though made on and as of the date hereof and
the Closing Date. Seller shall, on or before the Closing, have performed all of
its obligations hereunder which by the terms hereof are to be performed on or
before the Closing. Seller shall have delivered to Buyer an officer's
certificate of Seller dated as of the Closing Date to the foregoing effect.
8.2 DELIVERY OF SCHEDULES AND EXHIBITS. Seller shall have delivered to
Buyer all of the Exhibits and Schedules required to be delivered by Seller on or
before the Closing Date, in form and substance satisfactory to Buyer in its sole
and absolute discretion.
8.3 DAMAGE OR DESTRUCTION. There shall not have been any material
damage to or destruction of the Assets (whether or not covered by insurance)
("Material Damage"); PROVIDED HOWEVER, that should Buyer elect not to terminate
this Agreement following the occurrence of Material Damage to any of the Assets,
Buyer shall have the right to any and all proceeds of insurance payable in
respect of such Material Damage, and Seller will promptly file and diligently
pursue such insurance claim and cooperate with Buyer with respect thereto.
8.4 NO OTHER MATERIAL ADVERSE CHANGE. Since the date of execution of
the Letter of Intent between the parties relating to the transactions
contemplated hereunder, there has not been:
(i) any event or condition that materially and adversely
affects the Assets; and
(ii) any labor dispute with respect to employees of Seller at
the Temperance Steel facility who render services to Toledo Pickling,
other than routine grievance matters that are not in the aggregate,
material, except such disputes as arise from this Agreement and the
performance of Seller's obligations hereunder.
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8.5 CONSENTS. Seller shall have received all consents necessary to
transfer the Assets to Buyer hereunder.
8.6 INJUNCTIONS. There shall not be in effect any Injunctions.
8.7 TRANSFER OF REAL PROPERTY. The Closing contemplated hereunder and
the Closing contemplated under the Real Property Purchase Agreement shall occur
simultaneously.
8.8 FINANCING/CONSENT OF LENDER. Buyer shall have obtained the consent
of Buyer's institutional lenders to the consummation of the transactions
described in this Agreement, and Buyer shall have obtained a commitment for
mortgage financing of the acquisition of the Assets in an amount upon terms and
conditions and from a lender satisfactory to Buyer in its sole discretion.
8.9 OPERATING AGREEMENT. Oly Steel Welding, Inc., a Michigan
corporation, and Michael Guthrie and Carlton Guthrie shall have entered into an
Operating Agreement, and each of such parties shall have made the initial
capital contribution required to be made thereunder.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF SELLER
-----------------------------------
Seller's obligations to consummate this Agreement and the transactions
contemplated hereby are subject to the fulfillment, prior to or at the Closing,
of the following conditions precedent:
9.1 REPRESENTATIONS, WARRANTIES, COVENANTS. Each of the
representations, warranties and covenants of Buyer contained in ARTICLE V, and
the covenants contained in ARTICLE VI, shall be true and correct in all respects
as though made on and as of the Closing Date. Buyer shall, on or before the
Closing, have performed all of its obligations hereunder which by the terms
hereof are to be performed on or before the Closing. Buyer shall have delivered
to Seller an officer's certificate of Buyer dated as of the Closing Date to the
foregoing effect.
9.2 DELIVERY OF DOCUMENTS. All documents to be delivered by Buyer
pursuant to this Agreement shall have been executed and delivered to Seller in
form and substance satisfactory to Seller in its sole and absolute discretion.
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9.3 INJUNCTIONS. There shall not be in effect any Injunctions.
9.4 TRANSFER OF REAL PROPERTY. The Closing contemplated hereunder and
the Closing contemplated under the Real Property Purchase Agreement shall occur
simultaneously.
ARTICLE X
INDEMNIFICATION
---------------
10.1 INDEMNIFICATION BY SELLER. Seller hereby agrees to indemnify,
defend and hold harmless Buyer and its direct and indirect members, managers,
officers, employees, agents and assigns at all times from and after the date of
this Agreement and the Closing Date, against, and in respect of any and all
damage, loss, deficiency, cost and/or expense, including reasonable attorneys',
accountants' and other professional fees arising from or relating to:
(i) any misrepresentation, omission, breach of warranty,
representation or covenant, or non-fulfillment of any
obligation on the part of Seller under this Agreement, any
certificate, Schedule or Exhibit, or other instrument
furnished to Buyer in connection with this Agreement;
(ii) the activities, operations, debts, liabilities, choses in
action or claims of any nature, absolute or contingent
(including, but not limited to obligations for taxes and
interest and penalties thereon) of Seller, Toledo Pickling or
any Affiliate of Seller;
(iii) any claims, violations or alleged violations by Seller,
Toledo Pickling or any Affiliate of Seller (which, for
purposes of this Article X and Section 3.12, includes Northern
Steel Transport Company, an Ohio corporation of which Richard
Clair and James Clair were the majority owners) of any laws,
statutes, codes, ordinances, rules, or regulations whether
foreign, state, federal, or local, including but not limited
to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Resource Conservation
and Recovery Act of 1976, as amended, OSHA, COBRA and WARN;
(iv) the filing (or failure to file) or payment (or non-payment) of
any taxes by Seller, Toledo Pickling or any Affiliate of
Seller, pursuant to any federal, state, local, or foreign
income tax, excise or franchise tax, ad valorem, sales and use
tax, payroll tax, F.I.C.A. taxes, real property tax, Michigan
Single Business Tax, personal property tax, or any
deficiencies in any taxes payable by or on behalf of Seller,
together with any fees, penalties, fines, assessments, charges
and other charges
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resulting from Seller's, Toledo Pickling's or any Affiliate's failure
to timely file or pay any such tax;
(v) arising from or relating to any and all claims, grievances
or arbitrations and/or judgments for unfair labor practices
for acts committed by Seller before the Closing Date whether
filed prior to, on, or after the Closing Date with the
National Labor Relations Board or any comparable federal,
state, or local board, agency, or commission, or any state or
federal court;
(vi) any liabilities of Seller not expressly assumed
by Buyer hereunder;
(vii) the infringement or alleged infringement by Seller of
any patent, Trade Secret, trademark, trade name, service mark,
copyright right, or proprietary interest of others;
(viii) any and all suits, actions, liabilities, losses,
obligations, penalties or claims arising under or resulting
from any Plan, whether or not imposed or arising prior to the
Closing Date, including, without limitation, any suit, action,
liability, loss, obligation, penalty or claim arising out of
the allegation or imposition of successor employer status upon
Buyer;
(ix) Seller's Product Liability Obligations;
(x) the failure by Seller, Toledo Pickling, or any Affiliate
of Seller to qualify to do business as a foreign limited
liability company, foreign partnership, or foreign
corporation in the State of Michigan; and
(xi) any and all actions, suits, proceedings, demands,
assessments, penalties, fines, judgments, costs and legal and
other expenses incident to any of the foregoing.
10.2 INDEMNIFICATION BY BUYER.
A. Buyer agrees to indemnify, defend, and hold harmless Seller and its
directors, officers, shareholders, employees, agents, and assigns at all times
from and after the date of this Agreement against, and in respect of, any and
all damage, loss, deficiency, cost, and/or expense, including reasonable
attorneys' or accountants' fees arising from or relating to:
(i) any misrepresentation, omission, breach of warranty, representation
or covenant, or non-fulfillment of any obligation on the part of Buyer
under this
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Agreement, any certificate, Schedule or Exhibit, or other instrument
furnished to Seller in connection with this Agreement;
(ii) Buyer's Product Liability Obligations;
(iii) any claims, violations or alleged violations by Buyer of any
laws, statutes, codes, ordinances, rules, or regulations
whether foreign, state, federal, or local, including but not
limited to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the
Resource Conservation and Recovery Act of 1976, as amended,
OSHA, COBRA, ERISA and WARN, [which arise from any conduct or
act of Buyer occurring on or after the Closing Date];
PROVIDED, HOWEVER, that Buyer shall not be required to
indemnify Seller in the event, and to the extent, such conduct
or act is a continuation of Seller's own unlawful conduct or
act; and
(iv) any and all actions, suits, proceedings, demands,
assessments, penalties, fines, judgments, costs and legal and
other expenses incident to any of the foregoing.
10.3 THIRD PARTY CLAIM AGAINST BUYER OR SELLER. If any claim is made by
a third party against Buyer or Seller which would result in a right to
indemnification hereunder ("Indemnified Party"), then the Indemnified Party
shall give prompt written notice to the other party ("Indemnifying Party")
stating in reasonable detail the nature of the claim and attaching a copy of the
claim. Within ten (10) business days after receipt of such notice, the
Indemnifying Party shall notify the Indemnified Party whether or not it intends
to undertake the defense of the claim. If the Indemnifying Party undertakes the
defense of the claim, the Indemnifying Party shall select counsel reasonably
satisfactory to the Indemnified Party and after such selection, any additional
attorneys' fees incurred by the Indemnified Party shall not be subject to
indemnification hereunder; PROVIDED, HOWEVER, that the Indemnified Party may
participate, at its own expense, in the defense of the claim. If the
Indemnifying Party fails to undertake the defense of the claim within said ten
(10) day period, the Indemnified Party shall undertake the defense thereof, in
which case all costs and expenses relating to the defense including but not
limited to reasonable attorneys' fees incurred by the Indemnified Party shall be
the obligation of the Indemnifying Party subject to indemnification by the
Indemnifying Party hereunder.
10.4 TIME LIMITATIONS. The indemnity obligations of Seller contained in
Section 10.1(i) based solely on the breach by Seller of any representation or
warranty contained in Article III shall expire twenty-four (24) months after the
Closing Date except for the indemnity obligations arising out of a breach by
Seller of any representation or warranty contained in Section 3.1, 3.2 (other
than 3.2B(i)(d) and 3.2C), 3.3A, the second last sentence
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of Section 3.3B, 3.3D, 3.12 and 3.13, which obligations shall extend for the
maximum period of time permitted by law. The foregoing time limitations shall
not apply with respect to those pending claims for indemnification for which
written notice was given by Buyer to Seller within the applicable time period.
ARTICLE XI
TERMINATION
-----------
11.1 GENERALLY. This Agreement may be terminated on or before the
Closing Date:
(i) by the mutual written consent of Seller and Buyer;
(ii) by Buyer, if there has been a material violation or
breach by Seller of any of Seller's agreements,
representations or warranties contained in this Agreement
which has not been waived in writing;
(iii) by Seller, if there has been a material violation or
breach by Buyer of any of Buyer's agreements, representations
or warranties contained in this Agreement which has not been
waived in writing; or
(iv) by either party in the event the Closing has not occurred
by December 15, 1997 (unless extended by written agreement of
the parties).
11.2 RIGHT TO PROCEED. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in ARTICLE VII hereof have
not been satisfied, Buyer shall have the right to waive one or more conditions
precedent and proceed with the transactions contemplated hereby without waiving
any of its other rights hereunder, and if any of the conditions specified in
ARTICLE VIII hereof have not been satisfied, Seller shall have the right to
waive one or more conditions precedent and proceed with the transactions
contemplated hereby without waiving any of its other rights hereunder; PROVIDED,
HOWEVER, that if a party shall so elect to proceed, such party shall not
thereafter attempt to hold the other party responsible for damages, liabilities,
losses, or expenses resulting from the condition or conditions waived and such
other party shall not be responsible for such damage, liabilities, losses or
expenses.
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ARTICLE XII
CLOSING OF TRANSACTION
----------------------
12.1 CLOSING. The Closing shall take place on the Closing Date at the
offices of Spengler Nathanson P.L.L., 608 Madison Avenue, Toledo, Ohio 43604 at
10:00 a.m. local time or such other place and time as the parties shall agree.
12.2 CLOSING DOCUMENTS.
A. DOCUMENTS TO BE PROVIDED BY SELLER. At the Closing, Seller shall
deliver to Buyer the following, authorizing the execution and delivery of this
Agreement and all other documents being entered into by Seller related to, or
arising from, this Agreement:
(1) General Assignment and Bill of Sale;
(2) A certificate of the Secretary of Seller containing: (i) a
certified copy of the Articles of Organization of Seller; and (ii) resolutions
of Members and Managers authorizing the execution and delivery of this Agreement
and the other documents being entered into by Seller;
(3) Certificate of Existence of Seller from the Secretary of State of
the State of Ohio dated not more than fifteen (15) days before the Closing Date;
(4) Schedule of Agents and Employees;
(5) Executed Real Property Purchase Agreement, all applicable deeds,
and all other documents and instruments to be delivered to Buyer pursuant to the
Real Property Purchase Agreement;
(6) Valid, recordable releases of and UCC termination statements with
respect to all liens, charges, or encumbrances against the Assets; and
(7) Such other documents which Buyer reasonably deems necessary to
effectuate the transactions contemplated by this Agreement.
B. DOCUMENTS TO BE PROVIDED BY BUYER. At the Closing, Buyer shall
deliver to Seller, or to the Escrow Agent, as applicable, the following:
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(1) Checks or wire transfer of immediately available federal funds for
the cash amount due under Section 2.3C;
(2) Certified Resolutions of the Members of Buyer authorizing the
execution and delivery of the Agreement;
(3) Purchase Price Allocation;
(4) Certificate of Existence from the Michigan Department of Commerce
dated not more than fifteen (15) days prior to the Closing Date; and
(5) Such other documents which Seller reasonably deems necessary to
effectuate the transactions contemplated by this Agreement.
12.3 RISK OF LOSS. Risk of Loss with respect to the Assets shall pass
to Buyer effective as of 11:59 p.m. local time December 12, 1997.
ARTICLE XIII
MISCELLANEOUS
-------------
13.1 BINDING EFFECT. Seller may not assign or transfer any rights,
interests or obligations hereunder and any attempt to do so shall be null and
void and of no force or effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
13.2 RECITALS; EXHIBITS AND SCHEDULES. The recitals contained at the
beginning of this Agreement, and all Schedules and Exhibits attached hereto
shall be deemed an integral part of this Agreement and shall be incorporated
herein by reference. The Exhibits and Schedules hereto shall be delivered
separately upon execution hereof or on the Closing Date and initialed by the
parties hereto and shall be deemed delivered under this Agreement.
13.3 GOVERNING LAW. This Agreement is made and entered into, and shall
be governed by, and construed in accordance with, the laws of the State of Ohio.
13.4 NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be either: (1) personally delivered; (2)
mailed by certified mail, return receipt requested; or (3) overnight courier
addressed as follows:
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<PAGE> 36
To Buyer: Michael D. Siegal, President
Oly Steel Welding, Inc.
5096 Richmond Road
Bedford Heights, Ohio 44146
Fax: (216) 292-3974
With a simultaneous
copy to: Michael J. Guthrie and
Carlton Guthrie
c/o Trumark, Inc.
1820 Sunset Avenue
Lansing, Michigan 48917
Fax: (517) 482-9942
And to: Marc H. Morgenstern, Esq.
Kahn, Kleinman, Yanowitz &
Arnson Co., L.P.A.
The Tower at Erieview, Suite 2600
Cleveland, Ohio 44114
(Fax): (216) 696-1009
And to: Warren Cameron Faust & Asciutto, P.C.
2161 Corners Parkway
Okemos, Michigan 48864
Attn: Owen J. Faust, Esq.
(FAX): (517) 349-3311
To Seller: LaVoy Investors, Ltd.
P.O. Box 3395
Toledo, Ohio 43607-3395
(Fax): (419) 259-4496
Attn: William Ciralsky
With a simultaneous
copy to: Joel Levine, Esq.
Spengler Nathanson
608 Madison Avenue
Suite 1000
Toledo, Ohio 43604-1169
(Fax): (419) 241-8599
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or to such other address as either party notifies the other by certified mail.
Notice shall be deemed given when personally delivered or when deposited in the
United States mail or with the overnight courier.
13.5 FURTHER ASSURANCES. Buyer and Seller each agree that it will, at
any time and from time to time, do, execute, acknowledge and deliver all such
further acts, deeds, assignments, transfers, conveyances, powers of attorneys
and assurances as may be required for the better assigning, transferring,
granting, conveying, or assuring to Buyer, or its successors or assigns, any or
all of the Assets.
13.6 ENTIRE AGREEMENT. Except for the Real Property Purchase Agreement
or the other agreements or instruments executed by the parties hereto in
connection herewith, this Agreement, together with its Exhibits, constitutes the
entire agreement among the parties pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations, and discussions whether oral or written.
13.7 WAIVERS. No waiver of any of the provisions of this Agreement
shall constitute a waiver of any other provisions (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
13.8 HEADINGS. Section, paragraph and subparagraph headings are not to
be considered part of this Agreement; they are included solely for convenience
and are not intended to be full or accurate descriptions of the contents hereof.
13.9 SEVERABILITY. All clauses of this Agreement are distinct and
severable and if any clause shall be held to be invalid or illegal, that shall
not affect the validity or legality of the remainder of the Agreement.
13.10 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original for all purposes,
but all of which shall constitute one and the same instrument.
13.11 PUBLIC ANNOUNCEMENT. Except as otherwise may be required by
applicable law, all public notices and all other publicity concerning the
negotiation and consummation of the transaction contemplated by the parties
hereto shall be released or communicated jointly through the Closing Date.
13.12 TIME OF THE ESSENCE. Time is of the essence in the performance of
the terms and conditions of this Agreement.
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13.13 ARBITRATION. Any dispute arising between the parties hereto shall
be resolved by arbitration in Cleveland, Ohio (or such other location as
otherwise agreed) in accordance with the Rules of the American Arbitration
Association, and the award of the arbitrator(s) shall be final and binding upon
the parties. In the event a demand for arbitration is filed pursuant hereto, the
parties shall have the same rights to discovery under the Ohio Rules of Civil
Procedure as if the dispute had been filed as an original action in an Ohio
Court of original jurisdiction, and any Court located in Cleveland, Ohio or
elsewhere shall have jurisdiction and shall be authorized to enforce said rights
as if the entire dispute were pending before said Court. All parties consent,
agree and submit to Ohio personal jurisdiction. Each of the parties waives any
defense of inconvenient forum to the maintenance of an action in the
above-referenced courts in Ohio.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
LAVOY INVESTORS, LTD. TRUMARK STEEL & PROCESSING, LLC
By: /s/ Richard P. Clair By: /s/ Carlton Guthrie
-------------------------------- ----------------------------------
Title: Member Title: Member
----------------------------- -------------------------------
By: /s/ William Ciralsky
--------------------------------
Title: Member
-----------------------------
Signatory to this Agreement solely for purposes of joining in the
representations and warranties contained in Sections 3.5, 3.7, 3.8, 3.9, 3.10,
3.11, 3.12, and 3.15 and each of the covenants, agreements and undertakings
contained in Sections 4.1 and 4.9.
TOLEDO PICKLING & STEEL SALES, INC.
By: /s/ William Ciralsky
-----------------------------------------
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<PAGE> 1
EXHIBIT 10.12
SETTLEMENT AGREEMENT
AND MUTUAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE ("Agreement") made and
entered into by and between BRUCE S. ADELSTEIN ("Adelstein") and OLYMPIC STEEL,
INC. (an Ohio corporation, which together with its subsidiaries, divisions and
affiliated corporations is collectively referred to as "OSI") evidences the
following agreements:
WHEREAS, Adelstein was employed by OSI as Vice President - Operations
and currently serves as a Director of OSI; and
WHEREAS, on or about August 29, 1997, OSI terminated the employment of
Adelstein; and
WHEREAS, on or about December 15, 1997, Adelstein filed suit in the
Cuyahoga County Court of Common Pleas against OSI and Michael Siegal, the same
being entitled "Bruce S. Adelstein v. Olympic Steel, Inc., et al." and known as
case number 345272 alleging, among other claims, wrongful breach of his
employment contract and breach of fiduciary duty (hereinafter the "Litigation");
and
WHEREAS, OSI and Siegal have expressly and continuously denied the
validity and merit of each claim that has been asserted by Adelstein; and
WHEREAS, it is deemed prudent and advisable to avoid the uncertainty
and burden of further litigation and to settle and forever resolve disputes and
claims that Adelstein claims or may claim in the future on account of or in
connection with any acts or omissions of OSI and/or Michael Siegal or any of its
or their privies, prior to the date of this Agreement in connection with or
arising out of Adelstein's employment with OSI and disputes and claims that OSI
and/or Siegal claims or may claim in the future on account of or in connection
with any acts or omissions of Adelstein prior to the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
undertakings contained herein and other valuable consideration, the receipt,
adequacy and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. RESIGNATION. Simultaneously with the execution of this Agreement,
Adelstein shall deliver to the Secretary of OSI his written resignation as a
director of OSI effective as of the date hereof. Said resignation shall be in
the form of Exhibit "A" attached. By executing this Agreement, Adelstein
acknowledges that he ceased to be an officer or employee of OSI
1
<PAGE> 2
as of August 29, 1997. In addition, Adelstein covenants and agrees to resign as
an officer, director and/or employee of all OSI subsidiaries, divisions and
affiliates effective as of the date of this Agreement. Simultaneously with the
execution of this Agreement, Adelstein shall also deliver his written
resignation as a Trustee of OSI's profit sharing and 401(k) plans (hereinafter
the "Plans"). Said resignation shall be in the form of Exhibit "B" attached and
will be effective as of the date hereof.
2. INDEMNITY. OSI will indemnify and hold harmless Adelstein from and
against any loss, cost, liability, charge, expenses, claim, demand, or cause of
action resulting from, relating to or arising out of Adelstein's actions or
inactions as a Trustee of the Plans. OSI further confirms that, subject to the
terms therein set forth, Adelstein shall be entitled to the benefit of Article V
of the Code of Regulations of OSI providing for indemnity and defense of a
former employee, officer and director who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action, suit, or
proceeding.
3. PAYMENT OF FUNDS TO ADELSTEIN.
a. Eight (8) days after the execution and delivery of this Agreement,
provided the same has not been revoked in writing by Adelstein as provided in
paragraph 15 of this Agreement, OSI agrees to pay Adelstein the sum of Seven
Hundred Fifty Thousand Dollars ($750,000.00), payable as follows:
(1) At the expiration of the revocation period stated herein,
One Hundred Seventy-Five Thousand Dollars ($175,000.00);
(2) On July 1,1998, One Hundred Twenty-Five Thousand Dollars
($125,000.00);
(3) On January 1, 1999, One Hundred Twelve Thousand Five
Hundred Dollars ($112,500.00);
(4) On July 1, 1999, One Hundred Twelve Thousand Five Hundred
Dollars ($112,500.00);
(5) On January 1, 2000, One Hundred Twelve Thousand Five
Hundred Dollars ($112,500.00); and
(6) A final payment on July 1, 2000, One Hundred Twelve
Thousand Five Hundred Dollars ($112,500.00);
2
<PAGE> 3
and, in the event Adelstein shall die prior to receipt of full payment
hereunder, the unpaid installments shall be paid to Adelstein's wife, Cindy, if
living, otherwise to the executor or administrator of his estate.
b. Adelstein understands and agrees that OSI will withhold
federal, state and local income taxes from the installment payments due
hereunder as well as any other amounts required by law.
4. FORGIVENESS OF CLAIMS BV OSI. In addition to the consideration
stated in paragraph 3 above, OSI hereby forgives any claims against Adelstein
for receivables owed OSI, Adelstein's personal cellular telephone charges which
have been paid by OSI, Adelstein's car allowance advance, Adelstein's travel
allowance advance and the unamortized balance, if any, of the insurance premium
of the life insurance policy referred to in paragraph 5 on Adelstein's life.
5. LIFE INSURANCE. Simultaneously with the execution of this Agreement,
OSI agrees to assign to Adelstein all of its right, title and interest, if any,
in a certain life insurance policy on Adelstein's life issued by the
Metropolitan Life Insurance Company in the face amount of Five Million Dollars
($5,000,000), which policy expired on December 31, 1997, the same being policy
number 960-150-024A. From and after December 31, 1997, Adelstein shall be
responsible for all future premiums on said policy.
6. TERMINATION OF RELATIONSHIP. Adelstein agrees that this Agreement
completely and irrevocably terminates his employment relationship with OSI and
expressly waives and relinquishes any claim for reinstatement or rehire either
on a preferential basis or otherwise.
7. MEDICAL BENEFITS/RETIREMENT PLAN BENEFITS. Adelstein acknowledges
that he is currently participating in OSI's comprehensive health care insurance
programs or plans at Adelstein's cost as authorized under COBRA. Adelstein shall
be permitted to continue participating in said programs or plans as provided by
law. OSI agrees to cooperate with Adelstein, to do all things reasonably
necessary, consistent with the terms of the Plans and the law, and to encourage
the administrator and trustee thereof to facilitate and expedite Adelstein's
withdrawal and/or "rollover" of all benefits to which he is entitled under the
Plans and under any other employee pension benefit plan at any time sponsored by
OSI.
8. REPRESENTATION OF ADELSTEIN/OSI. Adelstein represents and warrants
to OSI that during the thirty months prior to the termination of his employment
with OSI he has not knowingly taken or omitted to take any action upon which a
material Business Related Claim, as defined herein, could be asserted against
OSI. A "Business Related Claim" shall mean and refer to a claim asserted against
OSI prior to March 1, 2000 (a) by any past or current employee alleging a
violation of any federal or state anti-discrimination laws or (b) by persons not
employed by OSI, by business entities which are not subsidiaries or affiliates
3
<PAGE> 4
of OSI or by any governmental agency, which claim is based solely upon acts or
omissions of Adelstein effected without the actual knowledge and participation
of any other executive officer or director of OSI who is employed by OSI on the
date of this agreement and no other claims. A claim shall be a "Business Related
Claim" only if the amount thereof is in excess of $50,000 (the "Minimum Amount")
exclusive of claims for exemplary damages, interest, penalties, attorney fees or
costs and then only if the relevant statute of limitations has not expired at
the time such claim is asserted. A claim shall cease to be a Business Related
Claim at such time as the relevant statute of limitations has expired if prior
thereto suit has not been commenced against OSI on such claim. A claim for which
OSI maintained insurance coverage under which OSI, without regard to deductibles
or co-insurance provisions, would be entitled to indemnity against loss or
liability shall not constitute a Business Related Claim except to the extent
such insurance coverage would be substantially impaired by the release of
Adelstein pursuant to this Agreement or to the extent of any deductible or
co-insurance (if such amount exceeds the Minimum Amount). A claim which is based
upon an act or omission of Adelstein as a member of the Board of Directors of
OSI or as a Trustee or Co-Trustee of an employee benefit plan sponsored or
maintained by OSI, shall not constitute a Business Related Claim.
OSI shall give Adelstein written notice of the assertion of any claim
which is or could be deemed to be a Business Related Claim within thirty days
after OSI is made aware of such claim.
Nothing set forth in this paragraph 8 shall constitute an admission of
liability by Adelstein, a waiver of any defenses or claims which Adelstein may
assert, or an agreement by Adelstein to defend or indemnify OSI or a basis for
the setoff or suspension of any payments due Adelstein under this Agreement.
OSI represents and warrants to Adelstein that as of the date of this
Agreement it has no knowledge, actual or constructive, of any Business Related
Claim, as herein defined, or of any other claim which has been or may be
asserted against OSI arising out of or in connection with any act or omission of
Adelstein.
9. RELEASES OF CLAIMS AND COVENANT NOT TO SUE.
a. Subject to the obligation of OSI to make the payments
required in paragraph 3, above, Adelstein for himself and his heirs, executors,
administrators, personal representatives, successors and assigns hereby
completely and forever releases, discharges and acquits OSI, its subsidiaries,
divisions, and affiliated corporations, its or their respective officers
(including the officer named in the Litigation), directors, shareholders,
agents, employees, successors, and assigns, from any and all claims, demands,
damages, actions, causes of action or suits at law or in equity, contract or
tort, of whatsoever kind or nature, including, by way of example and not by way
of limitation, all claims which Adelstein has,
4
<PAGE> 5
had or may have of whatever kind or nature arising out of Adelstein's employment
and/or termination of employment with OSI to the date of this Agreement;
provided, however, that this release shall not extend to any claim Adelstein may
have against OSI resulting from a breach of any of the representations,
warranties or covenants made by OSI under this Agreement or to any claim which
Adelstein may assert against the directors and/or officers of OSI as a
shareholder of OSI derivatively on behalf of OSI with respect to matters
occurring after the date of this Agreement. For purposes of this Agreement, "all
claims" shall include, without limitation, all claims of any kind, whether known
or unknown, anticipated or unanticipated, past or present, or contingent or
fixed as of the date of this Agreement. "All claims" shall specifically include
but is not limited to the following: (i) claims arising out of Adelstein's
employment and/or termination of employment with OSI; (ii) claims and causes of
action under the Age Discrimination and Employment Act, the Older Workers'
Benefit Protection Act, the Americans with Disabilities Act, Title VII of the
Civil Rights Act, the Older Benefit Workers Protection Act, the Ohio Civil
Rights Act, and claims under any other federal, state or local law, statute or
regulation, dealing with employment; (iii) claims for wrongful or unjust
discharge, breach of contract, whether express or implied, promissory estoppel,
negligence or intentional conduct; negligence or intentional infliction of
emotional distress, defamation, breach of any implied covenant of good faith or
fair dealing, at common law or otherwise; (iv) claims for compensation in the
nature of wages, salary, bonuses, commissions, director fees, trustee fees,
travel and car allowance, fringe benefits, vacation pay, severance pay, back
pay, front pay, attorney fees, costs, business or other expenses or otherwise;
(v) claims under Employment Agreement dated December 31, 1983 or any amendment
or successor agreement thereto; and (vi) claims set forth in the pending
Litigation.
b. Adelstein covenants and agrees that he will never institute
any claim or charge of employer discrimination with any governmental agency or
sue OSI concerning any claims relating to Adelstein's employment and/or
termination of employment with OSI.
c. OSI, its subsidiaries, divisions and affiliated
corporations and Siegal, for himself and his heirs, executors, administrators,
personal representatives and assigns, hereby completely and forever release,
discharge and acquit Adelstein, his heirs, executors, personal representatives,
successors and assigns from any and all claims, demands, causes of action or
suits at law or in equity, contract or tort, of whatsoever kind or nature, which
OSI and/or Siegal has, had or may have against Adelstein to the date of this
Agreement; provided, however, that this release shall not extend to any claim
OSI may have as a result of the breach of any of the representations, warranties
or covenants made by Adelstein under this Agreement. For purposes of this
Agreement "all claims" shall include, without limitation, all claims of any
kind, whether known or unknown, anticipated or unanticipated, past or present,
or contingent or fixed as of the date of this Agreement.
5
<PAGE> 6
10. DISMISSAL OF PENDING LITIGATION. Subject to the provisions of
paragraph 15, Adelstein agrees to dismiss with prejudice the above-mentioned
Litigation pending in the Cuyahoga County Court of Common Pleas. Eight (8) days
after the execution and delivery of this Agreement, provided the same has not
been revoked in writing by Adelstein as provided in paragraph 15, Adelstein
agrees to file, or to deliver to counsel for OSI for filing, a judgment entry of
dismissal in the form attached as Exhibit "C."
11. COSTS AND ATTORNEY FEES. Each party shall be responsible for his or
its separate costs, expenses, attorneys' fees or otherwise.
12. CONFIDENTIALITY. The parties agree to maintain the terms and
conditions of this Agreement in strict confidence and agree that the terms and
conditions of this Agreement shall not be disclosed to third parties who are not
a party to this Agreement. Notwithstanding the within, nothing herein shall
prevent the parties from furnishing such information to their or its respective
attorneys, accountants, or as may be required by court order or pursuant to a
judicial summons or subpoena, or in any filings, prospectus, action or reports
which may be required by the Securities and Exchange Commission, and/or state
securities divisions or bureaus.
13. ADEA. Adelstein recognizes and understands that, by executing this
Agreement, he shall be releasing OSI from any and all claims that he now has, or
may have, under the federal Age Discrimination in Employment Act of 1967, 29
U.S.C. 621, et seq., as amended ("ADEA"), by reason of any matter or thing
arising out of, or in any way connected with, directly or indirectly, any acts
or omissions which have occurred prior to and including the date of this
Agreement.
14. "CONSIDERATION PERIOD". OSI hereby notifies Adelstein of his right
to consult with his chosen legal counsel before signing this Agreement. OSI
shall afford, and Adelstein acknowledges receiving, not less than twenty-one
(21) calendar days in which to consider this Agreement to insure that his
execution of this Agreement is knowing and voluntary. In signing below,
Adelstein expressly acknowledges that he has had at least twenty-one (21) days
to consider this Agreement and that his execution of same is with full knowledge
of the consequences thereof and is of his own free will.
15. "REVOCATION PERIOD"; ADEA. Both OSI and Adelstein agree and
recognize that, for a period of seven (7) calendar days following Adelstein's
execution of this Agreement, Adelstein may revoke this Agreement as to his
release of ADEA claims by providing written notice revoking the same, within the
seven (7) day period, to Olympic Steel, Inc., c/o Mr. Michael Siegal, President,
5096 Richmond Road, Bedford Heights, Ohio 44146.
16. CONFIDENTIAL INFORMATION. Except for information which is already
in the public domain, Adelstein shall at all times hold in strictest confidence
any and all information which
6
<PAGE> 7
was treated as confidential by OSI. Adelstein shall not be deemed to have
violated the foregoing covenant based upon the use of knowledge and/or
information acquired or accumulated by him in the course of his many years of
activity in the steel business and employment by OSI.
17. COMPROMISE OF DISPUTED CLAIMS. The parties acknowledge and agree
that this Agreement is made as part of a compromise of disputed claims. The
parties further acknowledge that the acceptance of the terms of this Agreement
shall not be construed or deemed to be evidence of any admission of any fact,
liability, matter or thing and that OSI continues to deny all claims made by and
liability to Adelstein.
18. COOPERATION. Adelstein covenants and agrees that upon the written
request of OSI, he will timely cooperate with OSI with respect to: (a) the
provisions of any business information or data reasonably needed by OSI to
conduct its business; (b) the defense of any threatened or actual claim made by
any customer, supplier, employee or other third party against OSI; (c) he will
testify and be available for deposition in any cause as a witness, if necessary;
and (d) as may be required to comply with legal process. Adelstein agrees to
respond to such other reasonable requests calculated to comply with the terms of
this Agreement. Further, the parties agree to execute all documents reasonably
approved by their counsel as necessary to effectuate the terms of this
Agreement.
19. NON-DISPARAGEMENT. The parties covenant and agree that neither they
nor OSI's executive officers and directors shall make any statements, written or
oral, to any third party which disparages, criticizes, discredits or otherwise
operates to the detriment of Adelstein and/or OSI, and/or his or its business
reputation and/or goodwill.
20. NON-INTERFERENCE. Adelstein covenants and agrees that from and
after the execution of this Agreement and until December 31, 1999, neither he
nor any business entity in which he has a financial interest, shall, without the
prior written consent of OSI, induce or attempt to induce or solicit any
employee or other representative of OSI, or of its subsidiaries, divisions
and/or affiliated corporations to terminate his, her or its employment
relationship with OSI. It is expressly agreed that the employment of a former
employee or representative of OSI by Adelstein or a business entity in which
Adelstein has a financial interest more than sixty days after that former
employee or representative voluntarily terminates his, her or its employment
relationship with OSI shall not be a violation of this Agreement.
21. INVALIDITY. The parties to this Agreement agree that the invalidity
or unenforceability of any one provision or part of this Agreement shall not
render any other provisions or parts hereof invalid or unenforceable and that
such other provisions or parts shall remain in full force and effect.
7
<PAGE> 8
22. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto, and there are no understandings between the parties
other than those specifically and expressly set forth in this Agreement. This
Agreement shall not be amended or modified in any manner except upon written
agreement by the parties.
23. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same Agreement. The signature of any party
to any counterpart, including any facsimile thereof, may be appended to any
other counterpart and when so appended shall constitute an original. The parties
further agree that upon request counterparts of this Agreement bearing original
signatures (as opposed to facsimile signatures) shall be exchanged.
24. PRESS RELEASE. Except if required by law, neither party shall issue
a press release regarding the terms of this Agreement.
25. SEC REPORTS. The parties acknowledge that as a holder of more than
5% of the outstanding shares of Common Stock of OSI and as a former director and
officer of the Company, Adelstein has and has had various reporting obligations
under the Securities Exchange Act of 1934, as amended, pertaining to his
ownership of OSI shares. Adelstein agrees that he is solely responsible for
filing such reports and has been solely responsible for such reports since
August 31, 1997.
26. GOVERNING LAWS. This Agreement shall be governed and interpreted
pursuant to the laws of the State of Ohio.
27. BINDING EFFECT. This Agreement shall inure to the benefit of not
only the parties but their respective heirs, successors, assigns, subsidiaries,
affiliates, parents, officers, directors, employees, shareholders, agents,
attorneys, and representatives and shall be binding not only upon the parties
but also the aforesaid respective privies.
28. MISCELLANEOUS. The parties hereby acknowledge and agree that:
a. The terms and benefits stated herein constitutes sufficient
consideration for this Agreement in that there are benefits which they may not
have received had they not signed this document; and
b. They have VOLUNTARILY and KNOWINGLY signed this Agreement
with full understanding of its terms and conditions after first consulting their
respective attorneys, Fred J. Arnoff, Esq. and Morlee A. Rothchild, Esq.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have represented to one another that
they have carefully read the foregoing terms of this Agreement, that they know
and understand the contents of this Agreement, that they have authority to
execute this Agreement, that they have undertaken to sign the same as their own
respective free act and deed having declared their intention to be bound
contractually by all such terms and conditions, and do hereby execute and
deliver this Agreement as of the date appearing below.
WITNESSED BY:
/s/ Jerald L. Goldstein /s/ Bruce S. Adelstein
- ------------------------------------ -------------------------
Jerald L. Goldstein Bruce S. Adelstein
/s/ Fred J. Arnoff Date: January 30, 1998
- ------------------------------------ ----------------
Fred J. Arnoff
"Adelstein"
OLYMPIC STEEL, INC.
/s/ Laura Zick By: /s/ Michael D. Siegel
- ------------------------------------ -------------------------
Laura Zick Michael D. Siegel, CEO
/s/ Morlee A. Rothchild Date: January 30, 1998
- ------------------------------------ ----------------
Morlee A. Rothchild
"OSI"
/s/ Laura Zick /s/ Michael D. Siegel
- ------------------------------------ -------------------------
Laura Zick Michael D. Siegel
/s/ Morlee A. Rothchild Date: January 30, 1998
- ------------------------------------ ----------------
Morlee A. Rothchild
"Siegal"
9
<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% (a)
Olympic Steel Trading, Inc. Ohio 100%
Oly Steel Welding, Inc. Michigan 100%
Olympic Steel Iowa, Inc. Iowa 100% (b)
Olympic Continental Resources LLC Ohio 45% (c)
OLP LLC Michigan 50% (d)
Trumark Steel & Processing LLC Michigan 49% (e)
</TABLE>
(a) Owned 100% by Olympic Steel, Inc. and Olympic Steel Receivables, Inc.
(b) Owned 100% by Olympic Steel Minneapolis, Inc.
(c) Owned 45% by Olympic Steel Trading, Inc.
(d) Owned 50% by Oly Steel Welding, Inc.
(e) Owned 49% by Oly Steel Welding, Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the incorporation of our
report dated February 2, 1998, included in this Form 10-K, into the Company's
previously filed Form S-8 Registration Statement File No.
333-10679.
Arthur Andersen LLP
Cleveland, Ohio
March 9, 1998
<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, 1997, 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
Cleveland, Ohio this 9th day of March, 1998.
<TABLE>
<S> <C>
OLYMPIC STEEL, INC.
By: /s/ R. Louis Schneeberger
-------------------------
R. Louis Schneeberger,
Chief Financial Officer
DIRECTORS AND OFFICERS:
/s/ Martin H. Elrad /s/ R. Louis Schneeberger
- ---------------------------------- -------------------------
Martin H. Elrad, Director R. Louis Schneeberger,
Chief Financial Officer and Director
/s/ Thomas M. Forman /s/ Michael D. Siegal
- ---------------------------------- -------------------------
Thomas M. Forman, Director Michael D. Siegal, President, Chief
Executive Officer and Chairman of the Board
/s/ Suren A. Hovsepian /s/ David A. Wolfort
- ---------------------------------- -------------------------
Suren A. Hovsepian, David A. Wolfort,
Vice President and Director 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>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,748
<SECURITIES> 0
<RECEIVABLES> 6,417
<ALLOWANCES> 0
<INVENTORY> 132,230
<CURRENT-ASSETS> 142,175
<PP&E> 124,292
<DEPRECIATION> (20,301)
<TOTAL-ASSETS> 265,534
<CURRENT-LIABILITIES> 37,126
<BONDS> 17,467
0
0
<COMMON> 106,319
<OTHER-SE> 39,855
<TOTAL-LIABILITY-AND-EQUITY> 265,534
<SALES> 608,076
<TOTAL-REVENUES> 608,076
<CGS> 483,071
<TOTAL-COSTS> 483,071
<OTHER-EXPENSES> 102,898
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,172
<INCOME-PRETAX> 14,155
<INCOME-TAX> 5,308
<INCOME-CONTINUING> 8,847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,847
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
