10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1994 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-3855 Laclede Steel Company (Exact name of Registrant as specified in its charter) Delaware 43-0368310 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Metropolitan Square 211 North Broadway St. Louis, Missouri 63102 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (314) 425-1400 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None None Securities registered pursuant to Section 12(g) of the Act: $13.33 par value, Common Stock (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months 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. [X] At the date of filing of this report there were 4,056,140 shares of $13.33 par value common stock outstanding. At February 15, 1995 the aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $24,518,000. Documents Incorporated by Reference Definitive Proxy Statement for the 1995 Annual Meeting of Stockholders is incorporated herein by reference in Part III. PART I Item 1. Business. (a) General Development of Business Laclede Steel Company is a low cost manufacturer of a wide range of carbon and alloy steel products, including pipe and tubular products, hot rolled products (primarily special quality bars), rod and wire products, and welded chain. The Company enjoys a competitive advantage due to its business strategy of vertically integrating its modernized steelmaking operations with low cost finishing facilities. The Company has lower steelmaking costs afforded by "mini-mill" technology and converts its semi-finished steel into a variety of products through its finishing plants. Each of the Company's downstream facilities is strategically located near its end markets, is specialized by product to optimize efficiency, and benefits from lower employment costs per ton. The Company is one of only three full-line domestic producers of continuous weld pipe in the United States. In addition, the Company believes it is a dominant North American producer of oil tempered wire, which is used for applications such as mechanical springs and overhead garage door springs. Oil tempered wire has metallurgical properties that typically command a price premium over commodity grades of wire, and therefore produces higher profit margins. The Company's manufactured and imported chain products give it a significant position in the truck and automobile tire chain and the hardware and industrial chain markets. The Company's special quality bars are primarily sold to forgers for finishing into a variety of products. Due to favorable energy costs and modernized facilities, the Company is a low cost producer of semi-finished steel at the Alton, Illinois Plant, which has a rated annual steelmaking capacity of over 850,000 tons. The Alton Plant supplies nearly all of the semi-finished steel used to finish products at the Company's downstream facilities. In accordance with the Company's business strategy, over the last ten years the Company has acquired or leased five additional finishing facilities, constructed a new finishing facility and relocated much of its labor-intensive work to lower cost labor areas. The Company has modified its continuous caster to minimize its reliance on the ingot process for production of tubular products and therefore experiences significantly lower pipe production costs. At December 31, 1994 Ivaco Inc. of Montreal, Canada owned 2,018,650 shares of the Company's common stock or 49.8% of the total number of shares outstanding. An agreement between the Company and Ivaco Inc. reached in 1991, provides that the Company would take the necessary action to cause four designees of Ivaco to be seated on the Company's nine member Board of Directors. On January 22, 1993 the Company was advised that Ivaco is exploring the possibility of disposing of its interest in Laclede Steel Company. - 2 - (b) Financial Information The following table sets forth certain financial information relating to Registrant's operations: Year Ended December 31, (Thousands of Dollars) 1994 1993 1992 Net Sales $341,289 $328,766 $274,468 Earnings (Loss) Before Cumulative Effect of Change in Accounting Principle $ 4,462 $ 3,107 $ (7,547) Cumulative Effect of Change in Accounting Principle for Postretirement Medical Benefits, Net of Tax -- (46,543) -- Net Earnings (Loss) $ 4,462 $(43,436) $ (7,547) Identifiable Assets $343,251 $349,814 $312,142 (c) Description of Business The following table lists the Company's wide range of steel products: Pipe and Tubular Products: Continuous Weld Pipe - A53 Standard and Extra Heavy - API 5L Line Pipe - CW 55 Tubing - Fence Pipe Electric Resistance Weld Tubing - A500 Structural Hot Rolled Products: - Carbon and Alloy SBQ Bars - Forging Billets - Special Shapes Rod and Wire Products: Cold Drawn Wire - High Carbon - Oil Tempered - Low Carbon - Annealed Wire and Rod Chain: - Welded Chain - 3 - The following table presents, for the years indicated, the percentage of the Company's total sales by product class: Product 1994 1993 1992 Pipe and tube 40.1% 35.7% 34.9% Hot Rolled 29.2 30.3 31.8 Rod and wire 18.5 22.9 23.4 Chain 8.9 9.2 8.9 Other 3.3 1.9 1.0 Total 100% 100% 100% Pipe and Tubular Products. The Company's pipe and tubular products are comprised of continuous butt weld ("CBW") pipe and electric resistance weld ("ERW") tubing, which are sold in the U.S. and Canada to distributors and manufacturers. Pipe and tubular products are produced and finished at the Company's Alton Plant; Benwood, West Virginia; Fairless Hills, Pennsylvania; and Vandalia, Illinois Facilities. Prior to 1993, the majority of the Company's CBW pipe was finished at the Alton Plant or at the Fairless Facility, as discussed below. While semi-finished pipe continues to be produced at the Alton Plant, in 1993 the Company moved the majority of the Alton Plant's finishing operations to the Company's new, lower cost Vandalia Facility. By the end of 1993, the majority of CBW pipe was no longer finished at the Alton Plant. The Company is one of only three producers of CBW pipe in the United States, due in part to the Company's long-term lease from former competitor USX Corporation of its pipe manufacturing facilities at the Fairless Facility. The Company believes that the addition of the Fairless Facility provides lower cost pipe making capacity as well as a stronger geographic balance than most of its competitors. The Company has made considerable progress towards its goal of becoming the low cost producer of tubular products in North America and is planning the final modifications in the Melt Shop at the Alton Plant that will allow the Company to shift its entire production of steel used in pipe making from the ingot process to continuous cast. - 4 - Hot Rolled Products. The Company's hot rolled products are produced at the Alton Plant and consist primarily of special quality ("SBQ") bars sold to manufacturers to be cold drawn or forged. Demand is currently strong for the Company's SBQ products. The Company's goal in this area is to increase shipments of higher quality products with higher profit margins. In late 1992, the Company successfully completed the installation of an electromagnetic stirring device intended to improve the surface quality of its SBQ products. Rod and Wire Products. The Company is a major manufacturer of rod and wire products. These products include high and low carbon wire, oil tempered wire, and annealed wire and rod. The Company believes it is a dominant participant in the oil tempered wire market. Wire products are currently manufactured and finished at the Company's Alton, Memphis, Tennessee and Fremont, Indiana Facilities. The Fremont Facility, which is the Company's state-of-the-art, stand-alone oil tempered wire facility, has completed the final stage of expansion. The Company has moved the majority of wire production from the Alton Plant to the Fremont Facility, which has lower operating costs. Chain Products. Laclede Chain, one of the Company's wholly owned subsidiaries, produces chain products from rods produced at the Alton Plant and also imports a significant amount of chain from the Far East. Laclede Chain generated in excess of $30 million in sales in 1994, approximately half of which was attributable to sales of anti-skid devices for trucks and automobiles. The balance of the Company's chain products sales is in the hardware and industrial chain business. At December 31, 1994 the Company had a sales backlog of over $25 million. This backlog does not have significant seasonal variation. Long-term sales commitments do not represent a significant portion of the business. Because of its size in relation to the industry and its diversified product mix, in periods of normal demand, the Company expects to operate near full steelmaking capacity. For further information and also for discussion of future capital expenditure plans, please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). Research and development activities of the Company have not been material. The Company manufactures steel from steel scrap generated in the course of its steel production and purchased in the open market from numerous scrap suppliers. Since it does not produce its own raw materials, the Company is subject to the fluctuation in prices and availability of scrap. - 5 - The Company's business strategy has been to modernize its basic steelmaking facilities at the Alton Plant while growing and modernizing its lower cost, downstream finishing facilities. The Company believes that the major elements of this strategy are currently in place. In 1984, after the installation of a new management team the year before, the Company commenced a business strategy that included the expansion and modernization of its existing facilities, the acquisition of new facilities, the relocation of finishing operations, and the relocation of labor- intensive work to lower operating cost areas. This repositioning, which was substantially completed by the end of 1993, was designed to reduce the Company's production costs while expanding its production capacity and market share. The center of the Company's business is the Alton Plant, which has the advantages of a central location, low utility costs, and good sources for raw materials. In addition, the Alton Plant provides the necessary strategic flexibility to manufacture the grades of steel needed to produce the Company's various products. Utilizing that flexibility, the Company has acquired, expanded or constructed decentralized finishing facilities that can utilize the output of the Alton Plant while reducing the costs of finishing processes. Each of the Company's downstream facilities is strategically located near its end markets, is specialized by product to optimize efficiency, and benefits from lower employment costs per ton. The Company began its business strategy with the acquisition of a chain manufacturer in northwestern Missouri in 1984. In furtherance of its business strategy, since 1984 the Company has acquired four additional facilities and constructed one new facility. Most notable among these new and/or expanded facilities are the Company's lease of the pipe manufacturing facilities at the Fairless Facility, the Company's expanded oil tempered wire operations at the Fremont Facility, and the construction of the Vandalia Facility, a tubular finishing plant. At the Fairless Facility, the Company enjoys a favorable long-term lease, lower costs of operation and lower employment costs. Operations at the Fairless Facility began in May 1992, and have achieved an annual production rate in excess of 50,000 tons. The Fremont Facility was expanded in order to handle the majority of oil tempered wire volume previously produced at the Alton Plant's wire mill. Relatively minor amounts of oil tempered wire are produced at the Alton and Memphis Plants. The Vandalia Facility, constructed in 1992, processes semi-finished pipe produced at the Alton Plant. - 6 - Capital Improvements. While the Company has expanded and improved its downstream finishing facilities, it also completed two important capital improvements to the steelmaking operations at the Alton Plant: the addition of electromagnetic stirring to improve the surface quality of SBQ products and a modification to the Company's continuous caster discussed below. The primary objective of both of these improvements was to substantially reduce production costs, but each also provides access to new markets. The caster modification added the capability to cast a slab suitable for the production of the majority of pipe sizes. Previously, all pipe skelp, which is the intermediate rolled strip used as input material for pipe production, was produced from ingots, passing through a blooming mill before entering the 22" rolling mill at the Alton Plant. The modified caster adds the capability to feed continuous cast slabs directly into the 22" rolling mill and the Fairless Facility's 18" rolling mill. In 1994 the Company produced 67% of its total steel output by the continuous cast process, compared to 45% in 1993. The Company has begun a major new capital program to become a 100% cast steel producer in 1996. Competition Price sensitivity in markets for the Company's products is driven by competitive factors and the cost of steel production. Domestic. The Company faces competition from regional mini-mill companies and fully integrated steel mills, and such competition can be expected to continue. However, the Company believes its emphasis on producing higher grade steel products, its competitive production costs, substantially completed repositioning, established market positions, diverse product lines, and strategic geographic locations will all enable the Company to continue to compete effectively in its markets. Foreign. The Company also faces competition from foreign steel producers. However, in recent years a declining U.S. dollar, increased efficiency in the U.S. steel industry and voluntary restraint agreements with foreign steel producers have improved the competitive position of U.S. steel companies, including the Company. Environmental Matters In general, the Company is subject to a broad range of federal, state and local environmental regulations, including those governing discharges into the air and water, the handling and disposal of solid and/or hazardous wastes and the remediation of contamination associated with the release of hazardous substances. The domestic steel industry, including the - 7 - Company, has spent substantial amounts to comply with these requirements. Although the Company believes it is in substantial compliance with the various environmental regulations applicable to its business, there can be no assurance that future changes in environmental regulations will not require the Company to incur significant costs in order to comply with such future regulations. Specifically, like all electric arc furnace (EAF) steel producers, the Company generates EAF dust as part of the steelmaking process. For some time, the EPA has classified EAF dust as a designated hazardous waste. Over the past decade, the Company has accumulated approximately 145,000 tons of this material on site at the Alton Plant, pending development of technology for economical treatment. Currently, approximately 45,000 tons of EAF dust are located in a building at the Alton Plant (the "Indoor Pile") and the remaining 100,000 tons are piled outdoors at the Alton Plant (the "Outdoor Pile"). The Company believes that it has remained in compliance with EPA regulations during this period of accumulation and believes that it continues to be in compliance with current EPA regulations. In 1989, the Company reached an agreement with Elkem Technology ("Elkem") to construct the High Temperature Metals Recovery (HTMR) System at the Alton Plant, intended to treat newly generated EAF dust as well as the existing storage piles. In 1990 the Company completed the permanent financing for this facility through the issuance of $25 million in Solid Waste Disposal Revenue Bonds. In the second quarter of 1993 the Company was advised by Elkem that the HTMR System would not be able to meet its original goals, including the recovery of prime western grade zinc, which was an essential criterion under the Company's agreement with Elkem and, accordingly, commissioning of the facility would cease. On May 17, 1993, the Company and Elkem negotiated a settlement of the original contract, under which Elkem refunded $13.6 million to the Company and relinquished control of and legal title to the HTMR System. Under provisions of the related Bond Agreement financing the project, funds recovered from Elkem were deposited in trust in the Bond Project Fund and used to modify the HTMR System. The remaining $8.1 million of unused funds were used to prepay a portion of the Bonds under the terms of the Bond indenture. The Company's investment in the HTMR System at December 31, 1994 is approximately $15.7 million. If the HTMR System is not economical relative to alternative EAF dust disposal methods, then ultimately it may have limited use. In this event, which management considers unlikely, the Company's investment in the HTMR System may be impaired, requiring an accounting charge. - 8 - The Company has filed a modified closure plan for disposition of existing EAF dust piles which provides for the closure of all piles in place at the location of the Outdoor Pile. It appears that the cost of this plan will approximate the $3.8 million liability existing at December 31, 1994 for the disposal of the existing EAF dust. While management believes the modified closure plan represents the best available alternative, approval by the IEPA is not assured and considerable time may be required to resolve the issues involved. However, based on other closure plans accepted by the environmental regulatory authorities in other states for companies in situations similar to that of the Company's, as well as the IEPA's initial reaction, management believes that the modified closure plan will ultimately be permitted. In the event that the proposed modification is not ultimately permitted by the IEPA, the Company would likely incur closure costs greater than the amount recorded. Employees. As of December 31, 1994, the Company employed approximately 1,900 employees, 350 of whom are classified as management, administrative and sales personnel. The Company's 950 hourly employees at the Alton Plant are covered by a collective bargaining agreement that expires in September of 1997. The compensation for the majority of the Company's employees is based partially on productivity in accordance with various incentive plans. None of the Company's other employees is covered by a collective bargaining agreement. The Company has never experienced a strike, and it believes that its relations with its employees are good. Item 2. Properties. The Company's steelmaking facilities are located on a 400-acre site in Alton, Illinois, and consist of two electric furnaces with a combined rated production capacity of over 850,000 net tons per year, a continuous bloom casting facility, a roughing mill and 14-inch bar mill, soaking pits, bloom rolling mill, billet rolling mill, 8-inch bar mill, rod mill, 22-inch strip mill, facilities for the manufacture of continuous butt-weld pipe and wire finishing facilities. The Company also has a rail-water terminal at Alton, a pipe finishing plant in Vandalia, Illinois, a chain manufacturing plant in Maryville, Missouri, a wire mill in Memphis, Tennessee, a wire oil tempering facility in Fremont, Indiana and an electric resistance weld tubing mill in Benwood, West Virginia. The Company operates a pipe mill in Bucks County, Pennsylvania which is leased from USX Corporation. The lease expires September 30, 1996 with options to renew until September 30, 2006. The Company's property is well maintained and adequate for efficient production of its existing product line. The majority of the Company's properties are owned in fee. For its executive offices the Company presently leases space in the Metropolitan Square Building in downtown St. Louis under a lease expiring on April 30, 2004. - 9 - Item 3. Legal Proceedings. There are various claims pending involving the Company and its subsidiaries with respect to environmental, hazardous substance, product liability, personal injury, and other matters arising out of the routine conduct of it business. The Company believes it has meritorious defenses with respect to all claims and litigation and the ultimate disposition of such matters will not materially affect its financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. NONE * * * * * * The executive officers of the Company and their ages are as follows: Name Age Position John B. McKinney 62 President, Chief Executive Officer and Director Michael H. Lane 52 Vice President-Finance, Treasurer and Secretary J. William Hebenstreit 49 Vice President-Operations Larry J. Schnurbusch 48 Vice President-Administration H. Bruce Nethington 53 Vice President-Human Resources John B. McKinney was elected President and Chief Executive Officer of the Company in January 1983. Mr. McKinney has been a director of the Company since 1981 and is also a director of Boatmen's Trust Company and The Automobile Club of Missouri. Michael H. Lane was elected Vice President- Finance, Treasurer and Secretary of the Company in 1983. J. William Hebenstreit was elected Vice President- Operations of the Company in 1983. Larry J. Schnurbusch was elected Vice President- Administration in 1993. Prior to 1993, he served as Director of Corporate Administration of the Company. H. Bruce Nethington was elected Vice President- Human Resources in 1993. Prior to 1993, he served as Director of Industrial Relations of the Company. * * * * * * - 10 - PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. Laclede's common stock is traded on the NASDAQ National Market System and the symbol is LCLD. As of January 15, 1995 there were approximately 610 stockholders of record. Market Price Range 1994 1993 Quarter High Low High Low First $18-3/4 $15-1/4 $25-1/4 $16-1/2 Second $16-3/4 $12-3/4 $25-1/4 $21 Third $14-3/4 $11-1/2 $22 $15-3/4 Fourth $12-1/2 $ 9-3/4 $16-3/4 $13-3/4 Dividends Per Share Paid on Common Stock 1994 1993 NONE NONE Item 6. Selected Financial Data. Five-Year Financial Summary (In Thousands of Dollars Except Per Share Data) 1994 1993 1992 1991 1990 Net Sales $341,289 $328,766 $274,468 $260,938 $287,344 Earnings (Loss) Before Cumulative Effect of Change in Accounting Principle $ 4,462 $ 3,107 $ (7,547)* $ (8,332) $ 4,876 Net Earnings (Loss) $ 4,462 $(43,436) $ (7,547)* $ (8,332) $ 4,876 Net Earnings (Loss) per share $ 1.10 $ (10.71) $ (1.86)* $ (2.05) $ 1.20 Other Financial Data Total assets $343,251 $349,814 $312,142 $301,724 $305,845 Working capital 88,906 88,833 83,403 85,823 101,399 Capital expenditures 14,747 12,782 19,845 16,149 25,339 Long-term debt 100,801 100,926 103,908 93,179 95,127 Stockholders' equity 53,743 42,590 98,013 108,671 117,671 Stockholders' equity per share $ 13.25 $ 10.50 $ 24.16 $ 26.79 $ 29.14 Cash dividends per share $ -- $ -- $ -- $ .20 $ .40 * Includes special charges which reduced net earnings by $11.6 million or $2.86 per share. - 11 - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Operating Results 1992 to 1994 Net earnings for 1994 of $4.5 million represent a 44% increase over 1993 earnings before the cumulative effect of a change in accounting principle of $3.1 million. As discussed in Note 5 to the Consolidated Financial Statements, effective January 1, 1993 the Company adopted the new accounting standard for postretirement medical benefits which resulted in the recording of a one-time after tax charge of $46.5 million. As a result of this accounting change the Company incurred a net loss for the year 1993 of $43.4 million. The consolidated net loss for 1992 was $7.5 million which includes after-tax special charges of $11.6 million as discussed below under "Steel Operations". The change in net sales for the last three fiscal years is analyzed as follows: (In Thousands) 1994 Vs. 1993 1993 Vs. 1992 1992 Vs. 1991 Increase in net sales $12,523 $54,298 $13,530 Comprised of: Increase (Decrease) in volume $(14,044) $42,575 $19,227 Increase (Decrease) in price $ 26,567 $11,723 $(5,697) Steel Operations Net sales in 1994 increased by $12.5 million or 3.8% from 1993, reflecting a significant increase in average selling prices partially offset by a lower volume of tons shipped. Cost of products sold increased by $8.7 million or 2.9%, primarily as a result of higher costs for the Company's basic raw material, ferrous scrap. Net sales in 1993 increased by $54.3 million or 19.8% from 1992, as a result of a 15.0% increase in steel shipments and an increase in average sales prices of about 4.3%. Cost of products sold increased by $53.9 million or 22.1% in 1993. The increase in cost of products sold is proportionately higher than the increase in 1993 steel shipments, primarily as a result of higher scrap costs. As overall demand for steel has increased, the Company has experienced a sharp rise in the price of scrap. The average scrap usage cost in 1994 and 1993 each represents an increase over the prior year of approximately 25%. The high demand for steel is evident in Industry production statistics with the estimated percentage of capacity utilization increasing from 82% in 1992 to 89% in 1993 and 91% in 1994. - 12 - However, there are also other factors affecting the supply of scrap that could be considered structural changes, including the growth in electric furnace production which is almost totally dependent on ferrous scrap as a raw material. Electric furnaces now account for approximately 38% of domestic steel production. In both 1993 and 1994 the Company was able to recover the increased scrap costs through higher selling prices for its products. Management believes that price increases implemented in the first quarter of 1995 will continue to minimize the effect of higher scrap costs. Because of its size in relation to the steel industry, as well as its diverse product mix, under normal economic conditions the Company is able to operate at high levels of capacity utilization. The $46.5 million charge for postretirement medical benefits in 1993 is net of $28.5 million in deferred tax benefits. Non-current assets at December 31, 1994 includes $21.7 million in net deferred income taxes. In recording these deferred tax benefits, no valuation allowance was deemed necessary as a result of management's evaluation of the likelihood that all of the deferred tax assets will be realized. In making this evaluation management considered historical earnings trends and the impact which changes in operations are expected to have on future earnings. Additionally, consideration was given to the inherent long-term nature of the Company's most significant deferred tax asset for the related postretirement benefit obligations other than pensions ($31.7 million at December 31, 1994), for which recovery upon payment is expected to be spread over many future years. The general level of historical earnings, along with expected improvements in future earnings as a result of actions taken by management to implement its strategic plan for various cost reductions, is expected to be sufficient to allow for utilization of all recorded net deferred income tax assets, including net operating loss and minimum tax carryovers, as they reverse or within the related expiration periods. In 1993 the Company successfully initiated a change in its Melt Shop at the Alton Plant which has had a significant effect on the cost of Tubular Products. Historically the Company had used the continuous cast process on about 40% of its raw steel production. This lower cost cast steel had been targeted primarily for the special bar quality business and, to a lesser extent, some of the rod and wire business. The Company modified its continuous caster in order to produce slabs to be used in the production of skelp for tubular products. This change in process enables the Company to use cast steel for - 13 - production of the majority of its tubular products, resulting in a significant savings when compared to the ingot process. In 1994 the Company produced 67% of its steel by the continuous cast process. In the second quarter of 1992 the Company recorded pre-tax special charges of $14.5 million for restructuring of wire operations and $4.2 million for estimated environmental costs related to the processing of accumulated electric arc furnace dust. These special charges reduced after-tax net earnings by $11.6 million. The restructuring cost provision related to the Company's decision to increase the capacity of the Fremont Plant by installation of new equipment, and to close the Alton wire facility. For additional discussion of this restructuring charge as well as the provision for environmental costs also see "Divisions and Subsidiaries" and "Liquidity and Capital Resources". In order to comply with EPA regulations, since 1991 the Company has incurred costs for outside processing of currently generated electric arc furnace dust, pending completion and operation of the High Temperature Metals Recovery (HTMR) facility at the Alton Plant. Such costs amounted to $.7 million in 1992, $2.1 million in 1993, and $2.3 million in 1994. See Note 6 to the Consolidated Financial Statements and "Liquidity and Capital Resources" for further discussion. Increases in selling, general and administrative expenses in 1993 compared to 1992 were primarily a result of higher salaried employment costs. The increase in interest expense in 1994 is primarily the result of an increase in short- term interest rates. In 1994 the Company recorded a gain of $1.1 million related to the sale of various items of steel mill equipment. Higher depreciation expense each year is a result of increased capital expenditure levels. General inflation and changing prices have not had a significant effect on the Company's sales and revenues, which are more related to factors such as domestic steel capacity, currency levels, demand for the Company's products, and the impact of foreign steel imports. Imported steel typically has the greatest impact on the Company's tubular products. Divisions and Subsidiaries The Company operates a cold drawn wire mill in Memphis, Tennessee and an oil tempered wire facility in Fremont, Indiana. The Memphis Plant has not had a significant impact on Company operating results since its acquisition in 1985. Prior to 1991 the Fremont Plant accounted for less than 20% of the Company's oil tempered wire production. In 1991 the Company increased the capacity of the Fremont Plant with the installation of two new state-of-the-art oil tempering lines. In the second - 14 - quarter of 1992 the Company made a decision to further expand oil tempering capacity at Fremont to include all size ranges. The 1992 restructuring charge referred to under "Steel Operations" relates to this decision. A substantial portion of the Wire Operations at the Alton Plant were shut down in 1994. The Company's wholly-owned subsidiary, Laclede Chain Manufacturing Company, operates a manufacturing plant in Maryville, Missouri and a warehouse and sales operation in Portland, Oregon. The Laclede Chain operation made a significant contribution to consolidated earnings in the years 1992-1994, particularly in the fourth quarter of the year when tire chain sales were seasonally strong. Laclede's Benwood, West Virginia Plant manufactures electric weld resistance tubular products for the structural pipe industry. This tubing is made using skelp from the Alton Plant. Shipments of ERW pipe, which began slowly in 1990 have been increasing since. Operating results of the Benwood facility improved substantially in 1994 as a result of higher volume, sales price increases, lower cost skelp produced from continuous cast steel at the Alton Plant, and productivity improvements. In 1991, Laclede completed an agreement with USX Corporation to purchase the pipe inventory and lease the Pipe Mill Operations located at the Fairless Works in Bucks County, Pennsylvania. The Company successfully began operation of one of the two continuous weld mills with the production and shipment of a substantial quantity of tubular products from this low cost facility in the second half of 1992. Shipments of continuous weld pipe from the Fairless Plant increased significantly in 1993 and remained at approximately the same level in 1994. In 1992 the Company constructed a tubular finishing plant in Vandalia, Illinois. The Vandalia facility processes semi-finished pipe produced at the Alton Pipe Mill. Shipping from the Vandalia Plant began in the second half of 1992. In 1993 the Company completed the equipment installation and transfer of all planned finishing operations from the Alton Plant to this low cost processing plant. In 1994 the majority of Laclede's continuous weld pipe shipments were made from either the Fairless or Vandalia Plant. Liquidity and Capital Resources At December 31, 1994 the Company had $88.9 million in net working capital with the ratio of current assets to current liabilities at 2.5 to 1. In 1994 the Company reduced total long and short-term bank debt by $6.8 million. Outstanding Revenue Bonds were reduced by $9.4 million including the prepayment of the Solid Waste Disposal Revenue Bonds discussed below. - 15 - For the years 1994 and 1993 earnings before the cumulative effect of a change in accounting principle plus depreciation and the change in deferred taxes generated $ 13.8 million and $11.9 million in cash flow, respectively. Despite the net loss of $7.5 million for 1992, $13.4 million in cash was generated, after adding special charges and depreciation and deducting deferred taxes. Inventories increased by $5.0 million in 1994, primarily as a result of increasing scrap costs, including its effect on semi-finished and finished inventory costs. Accounts payable at December 31, 1994 was $11.6 million higher than the balance at the beginning of the year, reflecting higher inventory levels of scrap. For the three years ended December 31, 1994 inventories increased by $3.4 million, while in the same period $22.6 million was contributed to the Company's pension trust funds. In September 1994 the Company entered into a new five-year Loan and Security Agreement with three banks which provides for a total availability of up to $95 million. This Agreement replaced an $80 million Revolving Credit Agreement which was due to expire in September 1995. At December 31, 1994 $75.7 million in borrowings and $2.6 million in letters of credit were outstanding under the Loan and Security Agreement. At the beginning of 1995 the interest rate under the Agreement ranges between 8.1% and 9.5%. In February 1995 the Agreement was amended to increase the revolving credit maximum availability from $85 million to $95 million. See Note 4 to the Consolidated Financial Statements for details of the Loan and Security Agreement. Management believes that internally generated funds and its new banking arrangements will be adequate to finance all planned capital expenditures, which will be approximately $15.0 million in 1995. In the second quarter of 1993 the Company was advised by Elkem Technology that the High Temperature Metals Recovery (HTMR) System to process electric furnace dust at the Alton Plant would not be able to meet its original goal to recover prime western grade zinc from the dust. Accordingly, management negotiated a settlement of the contract with Elkem and the Company received a refund of $13.6 million, as well as title to the HTMR System. The Company is in the final stages of modifying the facility in order to treat current generation of dust economically and in accordance with EPA standards. A portion of the funds received from Elkem together with additional Company funds is being used to complete this modification of the HTMR System. The remaining refund from Elkem of $8.1 million was applied as a prepayment of a portion of the outstanding Solid Waste Disposal Revenue Bonds in 1994. Refer to Note 6 to the Consolidated Financial Statements for additional discussion of these issues. - 16 - The Company presently is not paying dividends on its common stock. Restoration of common stock dividends will depend on various factors including an improvement in business conditions and sustained profitability. The Company knows of no other trends, demands, commitments, events or uncertainties that will or are likely to materially affect its liquidity. Item 8. Financial Statements and Supplementary Data. The index to the Financial Statements of the Company and the independent auditors' report of Deloitte & Touche LLP appear on pages 18 and 39. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. NONE PART III As permitted by General Instruction G, with the exception of information on Executive Officers of the Registrant set forth in Part I hereof, information required in Part III is incorporated by reference to the definitive proxy statement of Registrant for the 1995 Annual Meeting which the Registrant will file with the Commission no later than April 30, 1995. - 17 - PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Documents Filed as Part of This Report The following is an index of the financial statements and schedules included in this Report. (1) Financial Statements LACLEDE STEEL COMPANY AND SUBSIDIARIES Page Consolidated Statements of Operations and Retained Earnings for the years ended December 31, 1994, 1993 and 1992 . . . 21 Consolidated Balance Sheets, December 31, 1994 and 1993 . . 22 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . 24 Notes to Consolidated Financial Statements . . . . . . . . . 25 Independent Auditors' Report on Financial Statements . . . . 39 (2) Consolidated Financial Statement Schedules NONE - 18 - (3) Exhibits The following is an index of the exhibits included in this Report or incorporated herein by reference. (3)(a) Registrant's Certificate of Incorporation as amended October 7, 1988. (Incorporated by reference to Exhibit (3)(a) in Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) (3)(b) By-laws of Registrant amended May 22, 1987. (Incorporated by reference to Exhibit (3)(b) in Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) (4)(a) Registrant's Loan and Security Agreement dated as of September 7, 1994. (Incorporated by reference to Exhibit (4)(a) in Registrant's quarterly report on Form 10-Q for September 30, 1994.) (4)(b) First Amendment dated February 15, 1995 to Registrant's Loan and Security Agreement. (10)(a)* Discretionary incentive compensation plan for Executive Officers of the Registrant. (Incorporated by reference to Exhibit (10)(a) in Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) (10)(b)* 1989 Stock Appreciation Rights Plan for Officers of the Registrant. (Incorporated by reference to Exhibit A of Registrant's Proxy Statement for the 1989 Annual Meeting of the Stockholders). (10)(c)* Employment Agreements dated October 19, 1994, between the Registrant and Messrs. John B. McKinney, Michael H. Lane, J. William Hebenstreit. H. Bruce Nethington and Larry J. Schnurbusch. (10)(d) Stock Purchase Agreement dated October 5, 1980 between Registrant and Ivaco Inc. (Incorporated by reference to Exhibit (10)(e) in Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) (10)(e)* Key Employee Retirement Plan. (Incorporated by reference to section entitled Benefit Plans from Registrant's Proxy Statement for the 1995 Annual Meeting of the Stockholders). - 19 - (22) Subsidiaries of Registrant. NOTE Copies of exhibits will be supplied upon written request and payment of the Registrant's fee of $.25 per page requested. * Represents management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (b) Reports on Form 8-K During the quarter ended December 31, 1994, no reports on Form 8-K were filed by Registrant. - 20 - LACLEDE STEEL COMPANY AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings (In Thousands of Dollars except Per Share Amounts)
Year Ended December 31, 1994 1993 1992 NET SALES $ 341,289 $ 328,766 $ 274,468 COSTS AND EXPENSES: Cost of products sold 306,351 297,670 243,806 Selling, general and administrative expenses 14,039 13,755 12,290 Depreciation 7,625 7,464 7,165 Interest expense, net 6,940 4,866 4,679 Special charges: Restructuring of operations ---- ---- 14,500 Environmental costs ---- ---- 4,200 Gain on sale of equipment (1,103) ---- ---- Total costs and expenses 333,852 323,755 286,640 EARNINGS (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 7,437 5,011 (12,172) PROVISION (CREDIT) FOR INCOME TAXES 2,975 1,904 (4,625) EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 4,462 3,107 (7,547) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE FOR POSTRETIREMENT MEDICAL BENEFITS, NET OF TAX ---- (46,543) ---- NET EARNINGS (LOSS) 4,462 (43,436) (7,547) RETAINED EARNINGS AT BEGINNING OF YEAR 3,360 46,796 54,343 RETAINED EARNINGS AT END OF YEAR $ 7,822 $ 3,360 $ 46,796 PER SHARE DATA: Earnings (loss) before cumulative effect of change in accounting principle $ 1.10 $ 0.77 $ (1.86) Cumulative effect of change in accounting principle for postretirement medical benefits, net of tax ---- (11.48) ---- Net earnings (loss) $ 1.10 $ (10.71) $ (1.86) See Notes to Consolidated Financial Statements.
- 21 - Consolidated Balance Sheets Assets (In Thousands of Dollars except Per Share Amounts)
December 31, 1994 1993 CURRENT ASSETS: Cash and cash equivalents $ 159 $ 894 Bond funds in trust ---- 9,700 Accounts receivable, less allowances of $2,635 in 1994 and $2,366 in 1993 45,587 46,527 Prepaid expenses 1,202 351 Income taxes recoverable 546 596 Inventories: Finished 45,407 50,165 Semi-finished 26,193 22,617 Raw materials 15,853 9,515 Supplies 15,013 15,129 Total inventories 102,466 97,426 Total current assets 149,960 155,494 NON-CURRENT ASSETS: Intangible assets 21,101 23,252 Bond funds in trust 2,385 5,474 Prepaid pension contributions 17,795 15,713 Deferred income taxes 21,726 27,083 Other 3,522 1,654 Total non-current assets 66,529 73,176 PLANT AND EQUIPMENT, AT COST: Land 1,615 1,614 Buildings 29,559 29,173 Machinery and equipment 225,063 212,871 256,237 243,658 Less - accumulated depreciation 129,475 122,514 Net plant and equipment 126,762 121,144 TOTAL ASSETS $ 343,251 $ 349,814
- 22 - Liabilities and Stockholders' Equity
December 31, 1994 1993 CURRENT LIABILITIES: Accounts payable $ 36,462 $ 25,421 Accrued compensation 9,798 8,788 Current portion of long-term debt 2,484 10,981 Notes payable to banks ---- 7,500 Accrued costs of pension plans 9,830 9,963 Other 2,480 4,008 Total current liabilities 61,054 66,661 NON-CURRENT LIABILITIES: Accrued costs of pension plans 41,413 54,287 Accrued postretirement medical benefits 79,180 77,801 Other 7,060 7,549 LONG-TERM DEBT 100,801 100,926 COMMITMENTS AND CONTINGENCIES - NOTE 10 ---- ---- STOCKHOLDERS' EQUITY: Preferred stock without par value, authorized 2,000,000 shares with none issued ---- ---- Common stock, $13.33 par value, authorized 5,000,000 shares, issued and outstanding 4,056,140 shares 54,081 54,081 Capital in excess of par 247 247 Retained earnings 7,822 3,360 Minimum pension liability adjustment (8,407) (15,098) Total stockholders' equity 53,743 42,590 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 343,251 $ 349,814 See Notes to Consolidated Financial Statements.
- 23 - Consolidated Statements of Cash Flows (In Thousands of Dollars)
Year Ended December 31, 1994 1993 1992 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 4,462 $ (43,436) $ (7,547) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Cumulative effect of change in accounting principle for postretirement medical benefits ---- 46,543 ---- Depreciation 7,625 7,464 7,165 Gain on sale of equipment (1,103) ---- ---- Special charges ---- ---- 18,700 Change in deferred income taxes 1,708 1,303 (4,886) Changes in assets and liabilities that provided (used) cash: Accounts receivable 940 (5,897) (5,291) Inventories (5,040) (1,959) 3,553 Accounts payable and accrued expenses 11,601 (7,197) (5,169) Pension cost less than funding (2,742) (5,723) (448) Accrued postretirement medical benefits 1,379 2,732 ---- Net cash provided by (used in) operating activities 18,830 (6,170) 6,077 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of equipment 1,000 ---- ---- Capital expenditures (14,747) (11,358) (17,632) Net cash used in investing activities (13,747) (11,358) (17,632) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowing (repayments) under revolving credit agreem (16,412) 15,500 11,000 Proceeds from term loan 10,000 ---- ---- Payments on long-term debt (9,710) (929) (289) Proceeds from (additions to) bond funds in trust 12,789 (11,707) 2,691 Refund under contract for HTMR facility ---- 13,600 ---- Payment of financing costs (2,485) ---- ---- Net cash provided by (used in) financing activities $ (5,818) $ 16,464 $ 13,402 CASH AND CASH EQUIVALENTS: Net increase (decrease) during the year $ (735) $ (1,064) $ 1,847 At beginning of year 894 1,958 111 At end of year $ 159 $ 894 $ 1,958 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest (net of amount capitalized) $ 7,147 $ 4,760 $ 4,704 Income taxes paid (refunded) $ 1,218 $ 1,010 $ (2,196) See Notes to Consolidated Financial Statements.
- 24 - Note 1 Business and Accounting Policies: Laclede Steel Company is in the business of manufacturing carbon for markets throughout the United States and Canada. The Company's policies are summarized as follows: Principles of Consolidation The consolidated financial statements include the accounts of Laclede Steel Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Cash Equivalents The Company considers all highly liquid debt instruments with a maturity of three months or less at date of purchase to be cash equivalents. Inventories Inventories of finished and semi-finished products, raw materials and supplies are stated at the lower of cost, predominantly moving average, or market. Market determination is based on the net realizable value of the total of the components of each major category of inventory. Plant and Equipment Plant and equipment, consisting primarily of steel making and related facilities, are carried at cost. Major renewals and betterments are capitalized, while replacements, rebuilding costs and repairs are charged to operations. The cost of normal retirements is charged to accumulated depreciation and salvage realized, if any, is credited thereto. Depreciation The Company follows the policy of providing for depreciation of plant and equipment by charging operations with amounts sufficient to amortize the cost over their estimated useful lives. Depreciation is computed on the straight-line method for financial reporting purposes. Accelerated depreciation methods are used for tax purposes. Income Taxes Deferred income taxes are provided for the temporary differences between the tax basis of the Company's assets and liabilities and their financial reporting amounts at each year end, utilizing currently enacted tax rates. See Note 3 for details of significant temporary differences. - 25 - Earnings Per Share Earnings per common share are based on the weighted average shares outstanding during the year. Weighted average shares outstanding were 4,056,140 for 1994, 1993 and 1992. Note 2 Intangible Assets: In accordance with FASB Statement No. 87, "Employers' Accounting for Pensions," the Company has recorded an intangible asset of $18,550,000 at December 31, 1994 and $20,557,000 at December 31, 1993. See Note 5 for further discussion. Intangible assets also include the excess of the purchase price of acquisitions over the fair value of the net assets acquired and these amounts are amortized on a straight-line basis over 25 years. Note 3 Income Taxes: Effective January 1, 1993 the Company adopted FASB Statement No. 109. "Accounting for Income Taxes". This statement requires the use of the asset and liability approach for financial accounting and reporting for income taxes. Adoption of this statement did not have a material effect on the Company's financial position or results of operations. The provision for income taxes represents an effective combined federal and state tax rate of 40% for 1994 and 38% for 1993 and 1992. The provision (credit) for income taxes consists of the following (thousands of dollars): 1994 1993 1992 Current income taxes $ 1,268 $ 601 $ 261 Deferred income taxes 1,707 1,303 (4,886) $ 2,975 $ 1,904 $ (4,625) In 1993 deferred taxes were recorded in the amount of $28,526,00 as a result of the change in accounting principle for postretirement medical benefits. Recognition of this tax benefit resulted in a net deferred tax asset on the consolidated balance sheets. No valuation allowance was deemed necessary as a result of management's evaluation of the likelihood that all of the deferred tax assets will be realized. - 26 - Deferred tax assets and liabilities are comprised of the following at December 31 (thousands of dollars): 1994 1993 Deferred tax liabilities: Depreciation $ (27,064) $ (25,146) Accrued costs of pension plans (327) -- Total deferred tax liabilities (27,391) (25,146) Deferred tax assets: Minimum pension liability adjustment 5,605 9,254 Postretirement medical benefits 31,672 31,120 Active employee benefit liabilities 2,550 2,356 Environmental costs 1,524 1,764 Allowances on receivables 967 826 Net operating loss and alternative minimum tax carryovers 5,901 5,095 Accrued costs of pension plans -- 765 Other 898 1,049 Total deferred tax assets 49,117 52,229 Net deferred tax assets $ 21,726 $ 27,083 Deferred income taxes (asset) were decreased in 1994 by $3,650,000, and increased in 1993 by $7,348,000 and in 1992 by $1,906,000 as a result of the tax effects of the minimum pension liability adjustment. These amounts are not reflected in the tax provisions of either year. See Note 5 for further discussion. The applicable statutory federal income tax rate of 34% for each of the three years is reconciled to the effective income tax rate as follows (thousands of dollars): 1994 1993 1992 Federal income tax provision (credit) computed at statutory tax rate $ 2,529 $ 1,704 $ (4,138) Amortization of intangible assets 58 60 47 State income taxes, net 388 140 (534) Provision (credit) for income taxes $ 2,975 $ 1,904 $ (4,625) - 27 - Note 4 Debt: Long-term debt consists of the following at December 31 (thousands of dollars): 1994 1993 Bank Loan and Security Agreement: Revolving Loan $66,088 $ -- Term Loan 9,642 -- Bank Revolving Credit Agreement -- 75,000 Solid Waste Disposal Revenue Bonds: 7.25% Bonds due August 1, 1994 -- 275 7.5% Bonds due August 1, 1995 295 295 8.375% Bonds due from 1996 to 2008 6,930 6,930 8.5% Bonds due from 2009 to 2020 9,430 17,500 8% Pollution Control Revenue Bonds due October 1, 2001 (annual sinking fund payments began in 1993) 10,020 10,680 8% Industrial Development Revenue Bonds due October 1, 2001 (annual sinking fund payments began in 1992) 835 890 11% Industrial Revenue Bonds due in monthly installments until March 1, 1995 45 337 103,285 111,907 Less amounts payable within one year 2,484 10,981 $100,801 $100,926 In September 1994 the Company entered into a new five-year Loan and Security Agreement with three banks consisting of an $85,000,000 Revolving Loan and a $10,000,000 Term Loan, payable monthly over five years. The new facility replaces the $80 million Revolving Credit Agreement. Interest on the new Revolving Loan is payable at either prime plus 1/2% or a Eurodollar rate, at the Company's option. Interest on the Term Loan is payable at either prime plus 1% or a Eurodollar rate, also at the Company's option. At December 31, 1994, the interest rates ranged from 8.1% to 9.5%. In October 1994 the Company entered into a two-year interest rate cap agreement covering $40,000,000 in borrowings, which limits interest costs if LIBOR rates reach 7%. - 28 - Under terms of the Loan and Security Agreement the Company granted security interests in accounts receivable and inventory to the participating banks to support the Revolving Loan. The Term Loan is secured by certain Plant and Equipment. The most restrictive provisions of the Company's loan agreements, as amended, include the following: A. The Company shall maintain net worth, as defined, of not less than $18,600,000 plus 50% of consolidated net earnings after August 1994. As of December 31, 1994 the Company's consolidated net worth exceeded the minimum required amount by $3,052,000. B. The Company shall maintain a consolidated fixed charge coverage ratio, as defined, of not less than 1.1 to 1.0, calculated at the end of each quarter for the preceding four quarters. For the four quarters ended December 31, 1994 the calculated consolidated fixed charge coverage ratio was 1.42 to 1.0. C. Payment of cash dividends is limited to 50% of cumulative net earnings after December 31, 1993. As of December 31, 1994 $2,231,000 is available for dividends. In 1990 the Company completed the permanent financing for its electric furnace flue dust treatment facility by the issuance of $25,000,000 in Solid Waste Disposal Revenue Bonds through the Southwestern Illinois Development Authority. The Bonds were issued with an average life in excess of 20 years and an average interest rate of approximately 8.5%. As discussed further in Note 6 $8,070,000 in bonds outstanding were retired in 1994. The Company has no compensating balance arrangements. Excluding the Revolving Loan, aggregate maturities of long-term borrowings at December 31, 1994 for the next five years are as follows: 1995 $2,484,000 1996 2,459,000 1997 2,484,000 1998 2,514,000 1999 5,066,000 The Company estimates that the fair value of its long-term debt in the aggregate approximates the carrying value at December 31, 1994 and 1993. - 29 - Note 5 Employee Benefits: DEFINED BENEFIT PENSION PLANS - The Company has several non-contributory defined benefit pension plans providing retirement benefits for substantially all employees. Benefits under the plans are primarily based on years of service and employee's compensation prior to retirement. Annual pension plan funding is based on the range of deductible contributions permitted by ERISA regulations, taking into account the Company's current income tax situation. The components of pension cost are as follows (thousands of dollars): 1994 1993 1992 Service cost $ 2,021 $ 1,904 $ 1,814 Interest cost on projected benefit obligation 13,340 14,219 13,932 Actual return on plan assets 4,322 (11,409) (7,988) Net amortization and deferral (14,003) 205 (2,781) Net periodic pension cost 5,680 4,919 4,977 Curtailment loss recognized -- -- 5,828 Total pension cost $ 5,680 $ 4,919 $10,805 In the second quarter of 1992 the Company recorded a restructuring cost provision which included a $5,828,000 curtailment loss related to planned work force reductions. See Note 6 to the Consolidated Financial Statements for additional discussion. The projected benefit obligations at December 31, 1994 and 1993 were determined using assumed discount rates of 8.75% and 7.25%, respectively. The assumed discount rate is based on market conditions and reflects annuity purchase rates available to theoretically settle plan obligations. For all plans other than the Alton Plant Hourly Employees' Plan, the assumed rate of increase in compensation levels was 2% for all years. Reflecting the Labor Agreement for Alton hourly employees, a 3% rate of increase in compensation was assumed for 1993 and 1% thereafter. The weighted average assumed long-term rate of return on the market-related value of plan assets was 11.7% for all years, reflecting the performance on fund investments which consist of common stocks and fixed income securities. - 30 - A summary of the funded status of the plans is as follows (thousands of dollars):
December 31 1994 1993 Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits Benefits Exceed Assets Total Benefits Exceed Assets Total Actuarial present value of accumulated benefit obligation: Vested $ (40,394) $(105,317) $(145,711) $(49,832) $(123,390) $(173,222) Non-Vested (1,534) (6,280) (7,814) (1,980) (8,456) (10,436) Total $ (41,928) $(111,597) $(153,525) $(51,812) $(131,846) $(183,658) Projected benefit obligation $ (43,279) $(111,943) $(155,222) $(52,643) $(132,671) $(185,314) Plan assets at fair value 43,830 61,956 105,786 53,693 68,615 122,308 Projected benefit obligation (in excess of) less than plan assets 551 (49,987) (49,436) 1,050 (64,056) (63,006) Unrecognized net (asset) obligation at transition date, January 1, 1987 (1,151) 12,233 11,082 (1,315) 13,981 12,666 Unrecognized losses, net 14,524 14,357 28,881 13,762 25,180 38,942 Unrecognized prior service cost 2,280 6,307 8,587 1,205 6,565 7,770 Adjustment required to recognize minimum liability -- (32,562) (32,562) -- (44,909) (44,909) Net pension cost recorded on balance sheet $ 16,204 $ (49,652) $ (33,448) $ 14,702 $ (63,239) $ (48,537)
- 31 - In accordance with FASB Statement No. 87, the Company has recorded an additional minimum pension liability for underfunded plans of $32,562,000 at December 31, 1994 and $44,909,000 at December 31, 1993, representing the excess of unfunded accumulated benefit obligations over previously recorded pension cost liabilities. A corresponding amount is recognized as an intangible asset except to the extent that these additional liabilities exceed related unrecognized prior service cost and net transition obligation, in which case the increase in liabilities is charged directly to stockholders' equity. As of December 31, 1994, $14,012,000 of the excess minimum pension liability resulted in a charge to equity, net of income taxes, of $8,407,000. As of December 31, 1993, the excess minimum liability was $24,352,000 and the after-tax charge to equity was $15,098,000. PROFIT SHARING PLAN - The Company maintains a defined contribution profit sharing thrift plan covering a majority of its salaried employees. Company contributions for 1994 amounted to $684,000 and for 1993 amounted to $652,000. There was no profit sharing contribution for 1992. POSTRETIREMENT MEDICAL BENEFIT PLANS - In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for active and retired employees. A significant portion of the Company's employees may become eligible for the retiree benefits if they reach retirement age while working for the Company. Effective January 1, 1993 the Company adopted FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", which requires accounting for the cost of retiree medical benefits other than pensions on an accrual basis. Implementation of this new standard also requires the recognition of a transition obligation based on the aggregate amount that would have been accrued in prior years had the new standard been in effect for those years. In accordance with this new standard the Company elected to recognize the entire transition obligation as of January 1, 1993 and, accordingly, recorded a non cash charge of $46,543,000, after recognition of $28,526,000 in deferred tax benefits. The components of net periodic postretirement medical benefit costs are as follows (thousands of dollars): 1994 1993 Service cost $ 846 $ 759 Interest cost 5,658 6,612 Net periodic cost 6,504 7,371 Recognition of transition obligation -- 75,069 Total cost $ 6,504 $82,440 Prior to 1993, the costs of medical benefits for retired employees were expensed as incurred, and totaled $4,318,000 for 1992. The actual postretirement medical benefits paid amounted to $5,439,000 in 1994 and $4,863,000 in 1993. - 32 - A summary of the status of the plans is as follows (thousands of dollars): December 31, December 31, 1994 1993 Accumulated postretirement benefit obligation (APBO): Retirees $ (41,390) $ (42,651) Fully eligible active employees (15,709) (18,252) Other active employees (13,944) (18,560) Total (71,043) (79,463) Fair value of plan assets -- -- Funded status (71,043) (79,463) Unrecognized net (gain) loss (8,137) 1,662 Accrued postretirement benefit cost $ (79,180) $ (77,801) The assumed discount rate used to measure the APBO was 8.75% at December 31, 1994, and 7.25% at December 31, 1993. The assumed future health care cost trend rate is approximately 9.5%, gradually declining to 3.25% in nine years. A one percentage point increase in the assumed health care cost trend rates for each future year would have increased the aggregate of the service and interest cost components of the net periodic postretirement benefit cost by $607,000 for 1994 and $716,000 for 1993, and would have increased the APBO by $5,924,000 as of December 31, 1994 and by $7,237,000 as of December 31, 1993. STOCK APPRECIATION RIGHTS PLANS - In March 1989, the Board of Directors adopted the 1989 Stock Appreciation Rights Plan for Non-Officers and the 1989 Stock Appreciation Rights Plan for Officers. The Board granted 54,800 rights in 1989, 40,500 rights in 1990, 44,700 rights in 1991 and 13,000 rights in 1992 under the Non-Officer Plan and 60,800 rights in 1989, 50,500 rights in 1990, 48,700 rights in 1991 and 16,000 rights in 1992 under the Officer Plan. The remaining unexercised 1989 grants expired in 1994. The exercise price under both Plans is $15.00 for 1990 grants, $9.50 for 1991 grants and $14.75 for 1992 grants. As of December 31, 1994, 20,750 rights under the Officer Plan and 19,150 rights under the Non-Officer Plan had not been exercised. Compensation expense of $849,000 and $926,000 was recorded in 1993 and 1992, respectively, for the excess of market price over grant prices on the Company's Stock Appreciation Rights Plans. - 33 - Note 6 Special Charges: Restructuring of Wire Operations - In the second quarter of 1992 the Board of Directors approved management's recommendation to increase the capacity of the Fremont, Indiana Plant by installation of new equipment at that location, and to close the Alton, Illinois wire facility. Therefore, in 1992 the Company recorded a restructuring cost provision totaling $14,500,000 ($8,990,000 after taxes). The cost provision consisted principally of pension costs related to planned work force reductions, write-down of equipment to estimated realizable value, and abnormal operating costs to be absorbed during the transition period. The wire restructuring was completed in 1994. Environmental Costs - In connection with its Melt Shop operations the Company generates electric furnace dust, which the Environmental Protection Agency (EPA) has designated as a hazardous waste. Prior to August 1988, with EPA approval, the Company had temporarily stored electric furnace dust on site at the Alton Plant. In 1988 the EPA issued new regulations requiring the Company to treat electric furnace dust prior to disposition or permanent storage. In 1989 the Company reached an agreement with Elkem Technology to construct a High Temperature Metals Recovery (HTMR) System at the Alton Plant intended to treat newly generated dust as well as the existing storage pile, and reclaim zinc in the process. Management's studies at the time indicated that the amount of zinc recoveries from the process would substantially reduce or even offset the facility's cost of operations. The total cost of this project was estimated at $25,000,000, however, the final capital cost was to be based on performance tests prior to the Company's assuming control of the operation. In the second quarter of 1992, management updated its original economic study of the HTMR System. As a result of this evaluation the Company recorded a cost provision in the second quarter of $4,200,000 ($2,604,000 after taxes) which represented the then estimated cost of processing previously accumulated dust in the HTMR System when it is fully operational. In the second quarter of 1993 the Company was advised by Elkem Technology that the HTMR System would not be able to meet its original goals, including the recovery of prime western grade zinc, which is an essential criterion under the contract, and accordingly, commissioning of the facility would cease. On May 17, 1993, the Company and Elkem Technology negotiated a settlement - 34 - of the original contract, under which Elkem refunded $13,600,000 to the Company and relinquished control of and legal title to the HTMR System. The Company is in the final stages of modifying the facility in order to treat current generation of dust economically, and in accordance with EPA standards. A portion of the funds received from Elkem together with additional Company funds is being used to complete this modification of the HTMR System. The remaining refund from Elkem of $8,070,000 was applied as a prepayment of a portion of the outstanding Solid Waste Disposal Revenue Bonds in 1994. Refer to Note 4 to the Consolidated Financial Statements for additional discussion of these issues. The Company's investment in the HTMR System at December 31, 1994 is approximately $15,700,000. The Company's prior closure plan, approved by the Illinois Environmental Protection Agency (IEPA), is based upon utilization of the HTMR System to process existing electric furnace dust piles. However, because the HTMR System did not meet its original goal and is being modified to treat only current generation of dust, the Company developed a modified closure plan. This plan provides for the closure of existing electric furnace dust piles in place. Based on estimates provided by an independent consultant it appears that the cost of this plan will not exceed the $3,800,000 amount included in non-current liabilities at December 31, 1994 for the disposal of the existing EAF dust. Implementation of the Company's modified closure plan requires approval of the IEPA. Management held initial discussions with the IEPA, and based on a favorable response to the Company's proposal at this preliminary meeting, the Company filed a modified closure plan. While management believes such modified closure plan represents the best available alternative, approval by the IEPA is not assured and considerable time may be required to resolve the issues involved. However, based on other closure plans accepted by the environmental regulatory authorities in other states for companies in similar situations to that of the Company's, as well as the IEPA's reaction, management believes that the modified closure plan will ultimately be permitted. In the event that the proposed modification is not ultimately permitted by the IEPA, the Company would likely incur closure costs greater than the amount of the special charge recorded in the second quarter of 1992. - 35 - Note 7 Common Stock: Ivaco, Inc. of Montreal, Canada presently owns 2,108,650 shares of the Company's common stock or 49.8% of the total number of shares outstanding. An agreement between the Company and Ivaco, Inc. provides that the Company shall take the necessary action to cause four designees of Ivaco to be seated on the Company's nine-member Board of Directors and gives certain rights to Ivaco with respect to new shares offered by the Company. In January 1993 the Company was advised that Ivaco is exploring the possibility of disposing of its interest in Laclede Steel Company. This step is being taken as part of Ivaco's overall plan to reduce debt and strengthen its financial position. Note 8 Interest Expense, Net: Interest expense capitalized in 1994, 1993 and 1992 was $2,148,000, $2,014,000 and $1,754,000, respectively. The majority of this interest relates to the Solid Waste Disposal Revenue Bond funds used to finance the construction of the HTMR facility. - 36 - Note 9 Quarterly Results of Operations: (Unaudited) The results of operations by quarter for 1994 and 1993 were as follows (in thousands of dollars except per share data):
QUARTER ENDED 1994 1993 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Net sales $84,697 $80,559 $85,308 $90,725 $ 76,034 $79,190 $85,272 $88,270 Cost of products sold 77,614 72,457 77,153 79,127 68,512 72,077 78,029 79,052 Net sales less cost of products sold $ 7,083 $ 8,102 $ 8,155 $11,598 $ 7,522 $ 7,113 $ 7,243 $ 9,218 Net earnings before cumulative effect of change in accounting principle $ 127 $ 862 $ 763 $ 2,710 $ 883 $ 696 $ 296 $ 1,232 Net earnings (loss) $ 127 $ 862 $ 763 $ 2,710 $(45,660)* $ 696 $ 296 $ 1,232 Net earnings (loss) per share $ 0.03 $ 0.21 $ 0.19 $ 0.67 $ (11.26)* $ 0.17 $ 0.07 $ 0.31 *Includes cumulative effect of change in accounting principle which reduced net earnings by $46.5 million or $11.48 per share.
- 37 - Note 10 Commitments And Contingencies: The Company has non-cancelable operating leases for office space and certain equipment through 2004. Future minimum lease commitments required under these leases are as follows: 1995 $2,504,000 1996 2,226,000 1997 1,873,000 1998 1,739,000 1999 1,459,000 Thereafter 5,023,000 TOTAL $14,824,000 Rent expense under all leases in 1994, 1993 and 1992 was $2,578,000, $2,333,000 and $1,816,000, respectively. There are various claims pending involving the Company and its subsidiaries with respect to environmental, hazardous substance and other matters arising out of the routine conduct of the business. Such claims either have not been reduced to litigation or if suit has been filed are in the discovery stage. Therefore the total liability on pending claims at December 31, 1994, if any, cannot be determined. The Company believes it has meritorious defenses with respect to all claims and litigation and the ultimate disposition of such matters will not materially affect its financial position or results of operations. - 38 - INDEPENDENT AUDITORS' REPORT To The Board Of Directors And Stockholders Of Laclede Steel Company: We have audited the accompanying consolidated balance sheets of Laclede Steel Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations and retained earnings and of cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the 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, such consolidated financial statements present fairly, in all material respects, the financial position of Laclede Steel Company and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 5 to the Consolidated Financial Statements, effective January 1, 1993, the Company changed its method of accounting for postretirement medical benefits to conform with Statement of Financial Accounting Standards No. 106. Deloitte & Touche LLP January 23, 1995 St. Louis, Missouri - 39 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. March 7, 1995 /s/ John B. McKinney Date John B. McKinney President Principal Executive Officer Director March 7, 1995 /s/ Michael H. Lane Date Michael H. Lane Vice President-Finance Treasurer and Secretary (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this amendment has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates includes. March 15, 1995 /s/ Donald F. Gunning Date Donald F. Gunning Director March 15, 1995 /s/ A. William Hager Date A. William Hager Director March 15, 1995 /s/ E. Lawrence Keyes, Jr. Date E. Lawrence Keyes, Jr. Director March 15, 1995 /s/ Robert H. Quenon Date Robert H. Quenon Director March 15, 1995 /s/ Lawrence K. Roos Date Lawrence K. Roos Director March 15, 1995 /s/ Edwin J. Spiegel, Jr. Date Edwin J. Spiegel, Jr. Director March 21, 1995 /s/ Lester Varn, Jr. Date Lester Varn, Jr. Director March 16, 1995 /s/ George H. Walker III Date George H. Walker III Director EX-4.B 2 AMENDMENT NO. 1 EXHIBIT (4)(b) TO LOAN AND SECURITY AGREEMENT DATED AS OF SEPTEMBER 7, 1994 THIS AMENDMENT NO. 1 dated as of February 15, 1995 (this "Amendment") is entered into among BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation ("BABC"), THE BANK OF NEW YORK COMMERCIAL CORPORATION, a New York corporation ("BNYCC"), THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national banking association ("Boatmen's") (BABC, BNYCC and Boatmen's and their respective successors and assigns being sometimes hereinafter referred to collectively as the "Lenders" and each of BABC, BNYCC and Boatmen's and its successors and assigns being sometimes hereinafter referred to individually as a "Lender"), BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, as agent for the Lenders (in such capacity as agent, the "Agent"), LACLEDE STEEL COMPANY, a Delaware corporation (the "Parent"), and LACLEDE CHAIN MANUFACTURING COMPANY, a Delaware corporation ("Laclede Chain"), and LACLEDE MID AMERICA INC., an Indiana corporation ("Laclede Mid America") (the Parent, Laclede Chain and Laclede Mid America being sometimes hereinafter referred to collectively as the "Borrowers" and each of the Parent, Laclede Chain and Laclede Mid America being sometimes hereinafter referred to individually as a "Borrower"). Capitalized terms used herein but not defined herein shall have the meanings provided in the Loan Agreement. W I T N E S S E T H : WHEREAS, the Borrowers, the Lenders and the Agent are parties to a certain Loan and Security Agreement dated as of September 7, 1994 (the "Loan Agreement"); and WHEREAS, the Borrowers, the Lenders and the Agent have agreed to amend the Loan Agreement on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises set forth above, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrowers, the Lenders and the Agent hereby agree as follows: Section 1. Amendment of the Loan Agreement. Effective as of February 21, 1995, subject to the fulfillment of the conditions precedent set forth in Section 2 below, the Loan Agreement is hereby amended as follows: (a) The definition of "Capital Expenditures" contained in Section 1.1 is hereby deleted in its entirety and the following definition is substituted therefor: "Capital Expenditures" means, for any fiscal period, (a) the cost of any fixed asset or improvement, or replacement, substitution, or addition thereto, acquired during such period and having a useful life of more than one year, including, without limitation, those costs arising in connection with the direct or indirect acquisition of such assets by way of increased product or service charges or offset items or in connection with a Capital Lease plus (b) the amount of any cash expended during such period in consummating any Quasi Asset Acquisition; provided, that Capital Expenditures shall be deemed not to include (i) the cost, up to a maximum amount of $5,300,000 of purchasing and implementing a new ladle furnace and related melt shop and rolling mill Equipment for the Parent's Alton steel mill plant located in Alton, Illinois (provided, that any such cost in excess of $5,300,000 would constitute Capital Expenditures); (ii) the cost of acquiring the Fairless Hills Equipment; (iii) any expenditure in connection with the High Temperature Metals Recovery System Facility located at the Parent's Alton steel mill plant located in Alton, Illinois, to the extent such expenditure is financed in whole by funds derived from the Solid Waste Disposal Bonds; (iv) the cost, up to a maximum amount of $2,000,000, of any fixed asset or improvement, or replacement, substitution or addition thereto, purchased, directly or indirectly, with monies received by Laclede Mid America under the terms and conditions of that certain Asset Purchase Agreement, dated as of November 7, 1994, between Laclede Mid America and Leggett & Platt, Incorporated, a Missouri corporation, a copy of which Asset Purchase Agreement has been provided to the Agent (provided, that any such cost in excess of $2,000,000 would constitute Capital Expenditures); and (v) the cost, up to a maximum amount of $3,000,000, of any fixed asset or improvement, or replacement, substitution or addition thereto, purchased, directly or indirectly, with monies derived from (A) the sale, for an amount not to exceed $1,000,000, of up to three percent (3%) of the common stock of Laclede Mid America to Nissho Iwai American Corporation, or one of its affiliates, and/or (B) a loan, in an amount not to exceed $2,000,000, by Nissho Iwai American Corporation, or one of its affiliates, to Laclede Mid America (provided, that any such cost in excess of $3,000,000 would constitute Capital Expenditures). (b) The definition of "Revolver Facility" contained in Section 1.1 is hereby deleted in its entirety and the following definition is substituted therefor: "Revolver Facility" means $95,000,000 or the agreement by the Lenders and the Agent to provide Revolving Loans and Letters of Credit up to such amount subject to the terms of this Agreement, as the context may require. (c) The amount of "$95,000,000" appearing in the first sentence of Section 2.1 is hereby deleted in its entirety and the amount of $105,000,000 is substituted therefor. (d) Section 2.2(k) is amended to add the following provisions immediately following the section heading of such Section and prior to the provisions contained in subsection (i) thereof: The Agent and the Lenders hereby agree that, except in the case of Settlement Loans and Agent Advances, each Lender's funded portion of the Revolving Loans is intended to be equal at all times to such Lender's Pro Rata Share of the outstanding Revolving Loans. The Agent and the Lenders agree (which agreement shall not be for the benefit of or enforceable by any Borrower) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Revolving Loans, the Settlement Loans and the Agent Advances shall take place on a periodic basis in accordance with the following provisions: (e) Section 2.2(k) is further amended to delete the first sentence of subsection (i) thereof and to substitute the following therefor: The Agent shall request settlement ("Settlement") with the Lenders on a weekly basis, or on a more frequent basis if so determined by the Agent, with respect to (1) each outstanding Settlement Loan, (2) each outstanding Agent Advance, and (3) collections received, by notifying the other Lenders by telecopy, telephone or other similar form of transmission, of such requested Settlement, no later than 11:00 a.m. (San Francisco, California time) on the date of such requested Settlement (the "Settlement Date"). (f) Section 2.2(k) is further amended to add the following provisions as subsection (iv) thereof: (iv) If any payments are received by the Agent which, in accordance with the terms of this Agreement would be applied to the reduction of the Revolving Loans, and no Settlement Loans or Agent Advances are then outstanding, the Agent may pay over such amounts to BABC for application to BABC's Pro Rata Share of such Revolving Loans. If, as of any Settlement Date, collections received since the then immediately preceding Settlement Date have been applied to BABC's Pro Rata Share of the Revolving Loans other than Settlement Loans and Agent Advances, as provided for in the immediately preceding sentence, BABC shall pay to the Agent, for the accounts of the Lenders, to be applied to the outstanding Revolving Loans of such Lenders, an amount such that each Lender shall have outstanding, as of such Settlement Date, after giving effect to such payments, its Pro Rata Share of such Revolving Loans; provided, that the Agent may net payments due from BABC pursuant to this sentence against payments due to BABC pursuant to Section 2.2(k)(i) on the applicable Settlement Date, and require either BABC or the other Lenders, as applicable, to make only the amount of the payment due after such netting. As of each Settlement Date, BABC with respect to Settlement Loans, the Agent with respect to Agent Advances, and each Lender with respect to the Revolving Loans other than Settlement Loans and Agent Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the actual average daily amount of funds employed by BABC, the Agent and the other Lenders since the immediately preceding Settlement Date. (g) Section 8.12 is deleted in its entirety and the following is substituted therefor: 8.12 Guaranties. Neither the Parent nor any of its Subsidiaries shall make, issue or become liable on any Guaranty, except (a) Guaranties in favor of the Agent, and (b) a Guaranty by the Parent, made on an unsecured basis and pursuant to documentation in form and substance satisfactory to the Agent and the Majority Lenders, of a loan in a principal amount not to exceed $2,000,000, to be extended to Laclede Mid America by Nissho Iwai American Corporation, or one of its affiliates, incident to improvements being undertaken by Laclede Mid America at its Fremont, Indiana plant, to facilitate the production of high tensile oil tempered wire for cold wound suspension springs. Section 2. Conditions to Amendment. This Amendment shall become effective upon the receipt by the Agent of the following: (a) an amendment fee in the amount of $100,000, which fee shall be distributed by the Agent to the Lenders in accordance with their Pro Rata Shares; (b) six (6) counterparts of this Amendment, executed by each Borrower and each Lender; (c) an executed mortgage modification agreement with respect to the Mortgage, and endorsement to the applicable title insurance policy, in each case in form and substance satisfactory to the Agent and the Majority Lenders; (d) a Secretary's Certificate certifying board of directors' resolutions for each Borrower, in form and substance satisfactory to the Agent and the Majority Lenders; and (e) a certificate signed by the President or a Vice President and the Chief Financial Officer or Treasurer of each Borrower, in form and substance satisfactory to the Agent and the Majority Lenders. Section 3. Commitments. Upon the effectiveness of this Amendment, the amount of each Lender's Commitment shall be that set forth beside such Lender's name under the heading "Commitment" on the signature pages of this Agreement. Such amount may thereafter be adjusted in accordance with the terms of the Loan Agreement. Section 4. Representations and Warranties. Each Borrower hereby represents and warrants that (i) this Amendment constitutes a legal, valid and binding obligation of such Borrower, enforceable against such Borrower in accordance with its terms, (ii) the representations and warranties contained in the Loan Agreement are correct in all material respects as though made on and as of the date of this Amendment, and (iii) no Event of Default has occurred and is continuing. Section 5. Reference to and Effect on the Loan Agreement. (a) Upon the effectiveness of this Amendment, each reference in the Loan Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like import shall mean and be a reference to the Loan Agreement, as amended hereby, and each reference to the Loan Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Loan Agreement shall mean and be a reference to the Loan Agreement, as amended hereby. (b) Except as specifically amended above, the Loan Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or the Lenders under the Loan Agreement, nor constitute a waiver of any provision of the Loan Agreement, except as specifically set forth herein. Section 6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Section 7. Governing Law. This Amendment shall be governed by and construed in accordance with the internal laws (as opposed to the conflicts of laws provisions) of the State of Illinois. Section 8. Section Titles. The section titles contained in this Amendment are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of February 15, 1995. LACLEDE STEEL COMPANY By: Vice President LACLEDE CHAIN MANUFACTURING COMPANY By: Vice President LACLEDE MID AMERICA INC. By: Vice President BANKAMERICA BUSINESS CREDIT, INC., as the Agent By: Vice President Commitment: $71,842,100 BANKAMERICA BUSINESS CREDIT, INC., as a Lender By: Vice President Commitment: $27,631,600 THE BANK OF NEW YORK COMMERCIAL CORPORATION, as a Lender By: Vice President Commitment: $ 5,526,300 THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, as a Lender By: Vice President EX-10.C 3 EMPLOYMENT AGREEMENT EXHIBIT (10)(c) THIS EMPLOYMENT AGREEMENT is made and entered into as of the 19TH day of October 1994, by and between LACLEDE STEEL COMPANY, a Delaware corporation ("Employer"), and JOHN B. McKINNEY ("Employee"). WHEREAS, Employee desires to be employed by Employer and Employer desires to employ Employee under the terms and conditions set forth in this Agreement; and WHEREAS, it is Employer's intention to employ Employee upon the terms and conditions herein, which recognize and compensate Employee for the obligations of Employee undertaken hereunder, including specifically, but not by way of limitation, the agreement of Employee not to compete with the business of Employer, as provided in paragraph 8(a)(iii) (see page 13), for the period provided in paragraph 8(a) upon the termination of Employee's employment by Employer for any reason; it being understood and agreed that Employee is employed by Employer to protect and expand the business of Employer; NOW, THEREFORE, in consideration of the foregoing and the promises and agreements herein contained, the parties agree as follows: 1. Employment. Employer hereby employs Employee, and Employee hereby accepts such employment from Employer upon the terms and conditions hereinafter set forth. 2. Term of Employment. The term of Employee's employment under this Agreement shall be for the period commencing October 19, 1994, and continuing through August 2, 1999, or upon the earlier occurrence of any of the following events: (a) Whenever Employer and Employee shall mutually agree in writing to terminate Employee's employment by Employer; (b) Upon the death of Employee; (c) For "cause," which shall mean Employee's dishonesty or unlawful acts committed in connection with the business of Employer, and which results in substantial gain or profit to Employee. (d) At Employer's option and by action of Employer's Board of Directors on thirty (30) days' written notice in the event of Employee's Disability (defined as the failure substantially to discharge Employee's duties as defined under this Agreement for ninety (90) consecutive days or one hundred twenty (120) days (whether or not consecutive) in any twelve (12) month period, as a result of an injury, disease, sickness or other physical or mental incapacity). A determination of Employee's Disability shall be made by a qualified medical doctor licensed to practice in the State of Missouri chosen by Employer subject to Employee's approval, which approval shall not be unreasonably withheld. Employee shall consent to be examined by Employer's medical doctor and shall consent to allow Employee's medical doctor to discuss Employee's medical condition with Employer. Notwithstanding anything to the contrary contained herein, Employee's Disability shall not be deemed to have commenced until full coverage with respect to such Disability shall have been approved by Employer's disability insurance carrier and payment under Employer's group disability policy for such Disability shall have commenced. 3. Duties of Employee. During Employee's employment by Employer, Employee shall serve Employer to the best of Employee's ability and shall perform such duties as are typically performed by a president and chief executive officer of a steel manufacturing corporation with operations similar to Employer. Employee agrees to devote Employee's time and efforts to the business of Employer (except for usual vacations and reasonable time for attention to personal affairs so long as Employee's performance hereunder is not adversely affected thereby), and to be loyal and faithful at all times, constantly endeavoring to improve Employee's ability and knowledge of the business of Employer in an effort to increase the value of Employee's services for the mutual benefit of Employee and Employer. 4. Compensation. (a) Employer agrees to pay Employee for Employee's services during the term of Employee's employment hereunder. Employee's base salary shall be the greater of (i) an annual rate of Three Hundred Sixty-Four Thousand Five Hundred ($364,500.00) or (ii) the highest annual base salary authorized by the Board of Directors after the date hereof. Employee's base salary shall be due and payable in twelve (12) equal monthly installments. Additionally, during the term of Employee's employment by Employer hereunder, Employee's compensation shall be reviewed and may be increased and/or Employee may be paid Additional or special compensation including without limitation stock options, stock appreciation rights and other incentive compensation, or bonuses (based on the earnings of Employer, the performance of Employee or otherwise) from time to time by the mutual agreement of Employee and Employer, as determined by the Board of Directors of Employer. In addition, during the term of this Agreement, Employee shall receive such fringe benefits as are made available by Employer from time to time to other employees of Employer at Employee's level of employment. (b) In the event of the termination of Employee's employment either (i) by Employee for any reason including death or Disability, or (ii) by Employer without "cause" (as defined in paragraph 2 herein) or by Employer for any reason during the "Change of Control Period" (as defined in paragraph 5(b) herein), Employee shall be paid incentive compensation for the fiscal year in which such termination occurred in an amount equal to the product of (a) the amount of incentive compensation to which he would have been entitled for such fiscal year had there been no termination of employment and (b) a fraction, the numerator of which is the number of days of such fiscal year in which Employee remained in the employment of Employer and the denominator of which is 365. 5. Life Insurance Benefits. (a) During the term of this Agreement, Employer shall be obligated to keep in force life insurance on the life of Employee in the amount of One Million Seven Hundred Ten Thousand Seven Hundred Twenty Dollars ($1,710,720.00), Eight Hundred Thousand Dollars ($800,000.00) of which will consist of permanent insurance on the life of Employee owned by Employee or his designee. (b) In the event of the termination of Employee's employment either (i) by Employee for any reason, or (ii) by Employer without "cause" (as defined in paragraph 2 herein), or by Employer for any reason during the period commencing with the date of a Change of Control (as defined in Paragraph 6(b)) and ending the earlier of (a) twenty-four months following the Change of Control, or (b) August 2, 1999, (the "Change of Control Period"), Employer agrees to keep in force the permanent life insurance set forth in subparagraph (a) of this paragraph 5 for the duration of Employee's life. Employer may fulfill this obligation by satisfying the premium requirement so that such permanent insurance is fully paid under the terms of such permanent insurance policy. Employer's obligation to pay permanent life insurance premiums under this subparagraph (b) will survive the term of this Agreement. (c) In the event of the termination of Employee's employment by Employer for "cause" (as defined in paragraph 2 herein), other than during the Change of Control Period, then Employer's obligation to pay premiums under this paragraph 5 will cease. (d) Employer agrees to reimburse Employee for any tax due on the annual permanent insurance premium paid by Employer. (e) The amount of insurance described in subparagraph (a) may be increased by the Board of Directors. 6. Termination. (a) In the event of the termination of Employee's employment by Employer, without "cause" (as defined in paragraph 2 herein), then, in lieu of any further salary payment pursuant to paragraph 4(a) herein, Employer agrees to pay Employee for the remaining term of this Agreement at an annual rate equal to the average of Employee's "compensation" for the three fiscal years preceding the year of such termination. For this purpose the term "compensation" means Employee's base salary in effect for a particular year plus the incentive compensation received by Employee with respect to services rendered in such year whether or not such incentive compensation is actually paid in such year. Amounts described above due Employee under this paragraph 6(a) shall be due and payable for the duration of the remaining term in equal monthly installments. In addition to the foregoing, Employer shall continue, for the duration of the remaining term, to provide Employee with such additional fringe benefits to which Employee was entitled as of the day immediately prior to the date of such termination. (b) In the event of a Change of Control, (as hereinafter defined) Employee may terminate his employment hereunder at any time during the period commencing six months following the Change of Control and ending the earlier of (a) twenty-four months following the Change of Control or (b) August 2, 1999. If (a) Employee shall terminate his employment during such period for any reason other than death or Disability, (b) Employer shall terminate Employee's employment during the Change of Control Period for any reason, or (c) Employee terminates his employment during the first six (6) months of the Change of Control Period for Good Reason as hereinafter defined, Employer shall pay to Employee upon such termination of employment, in a single lump cash sum, an amount equal to the lesser of (a) Two Million Nine Hundred Thousand Dollars ($2,900,000.00) or (b) One Dollar ($1.00) less than 300% of Employee's Base Amount as hereinafter defined. Such payment shall be in lieu of further salary payments under paragraph 4(a) or payments (other than retirement and deferred compensation payments) under paragraph 6(a). Notwithstanding anything to the contrary contained herein, nothing in this Agreement shall relieve Employer of its obligation of providing Employee with all retirement benefits in accordance with the terms of all retirement and deferred compensation plans in which Employee participates including, without limitation, Employer's obligation under Section IV of the Key Employee Retirement Agreement between Employer and Employee maintained pursuant to the Laclede Steel Company Key Employee Retirement Plan. The term "Good Reason" shall mean the failure of Employer to comply with the following requirement: During the Change of Control Period, (i) Employee's base salary, position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held or exercised by or assigned to Employee at any time during the 90-day period immediately preceding the date of the Change of Control and (ii) Employee's services shall be performed at the location where Employee was employed immediately preceding the date of the Change of Control. The term "Base Amount" shall mean Employee's average annual compensation from Employer (as reported on Form W-2) for the five consecutive calendar years ending with the calendar year immediately preceding the Change of Control. The term "Change of Control" shall mean a change of control of a nature that would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), or any comparable successor provisions. Without limiting the foregoing, a "Change of Control" also means for purposes of this Agreement, regardless of its meaning under the provisions of the Exchange Act: (i) The purchase or other acquisition (other than from Employer) by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Exchange Act (excluding, for this purpose, Employer or its subsidiaries or any employee benefit plan of Employer or its subsidiaries), of beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either the then outstanding shares of common stock or the combined voting power of Employer's then outstanding voting securities entitled to vote in the election of directors; or (ii) The receipt of proxies for the election of directors of Employer in opposition to management's slate of nominees which proxies aggregate more than 40% of the then outstanding voting stock of Employer; or (iii) Individuals who, as of the date hereof, constitute the Board of Directors of Employer (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board, provided that any person (other than a person whose election or nomination or whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of Employer, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) who becomes a director subsequent to the date hereof whose election, or nomination for election by Employer's shareholders, was approved by a vote of at least three-quarters of the directors then comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iv) Approval by the stockholders of Employer of a reorganization, merger, or consolidation, in each case, with respect to which persons who were the stockholders of Employer immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of Employer or of the sale of all or substantially all of the assets of Employer. (c) In the event of a determination that payments under paragraph 6(b), together with any other payments which Employee has a right to receive from Employer constitute a "payment" within the meaning of Section 280G(b)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), then Employer shall pay to Employee, in a lump sum, an amount equal to the sum of (i) any excise tax that would be imposed by Section 4999 of the Code and payable by Employee, and (ii) an additional amount which, when added to the amount of the excise tax payable, equals an aggregate payment sufficient to pay all federal, state and local income taxes due on the aggregate payment, including interest and penalties, and leave a net amount equal to the excise tax payable. For purposes of this paragraph, the term "determination" means (i) a decision by the Tax Court which has become final, as defined in Section 7481 of the Code or (ii) a judgment, decree, or other order by any court of competent jurisdiction which has become final. Employer shall pay all reasonable legal fees incurred in connection with a determination on this issue. If both Employer and Employee elect to forego a court proceeding on this issue, Employer agrees to pay Employee the amount set forth in this paragraph 6(c) without a determination and to pay all reasonable legal fees incurred prior to such election. 7. Extent of Services. Employee shall devote Employee's time, attention and energy to the business of Employer, and shall not during the term of this Agreement, or any extension hereof, without Employer's consent, be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage; but nothing contained herein shall be construed as preventing Employee from investing his assets in such form or manner as will not require any service on the part of Employee in the operation of the affairs of the corporations or other entities in which Employee may invest his assets. 8. Covenants of Employee. (a) During the term of Employee's employment with Employer, and for a period of one (1) year after the termination of such employment, for whatever reason, except for the termination of Employee's employment under circumstances which constitute a violation by Employer of the provisions of this Agreement, Employee covenants and agrees that Employee will not (except as required in Employee's duties to Employer), in any manner directly or indirectly: (i) Disclose or divulge to any person, entity, firm or company whatsoever, or use for Employee's own benefit or the benefit of any other person, entity, firm or company directly or indirectly, in competition with the business of Employer, as the same may exist at the date of such cessation, any proprietary business methods, customer lists, supplier lists, business plans or other information or data of Employer, without regard to whether all of the foregoing matters will otherwise be deemed confidential, material or important, the parties hereto stipulating that as between them, the same are important, material and confidential and greatly affect the effective and successful conduct of the business and the goodwill of Employer, and that any breach of the terms of this subparagraph (i) shall be a material breach of this Agreement; (ii) Solicit, divert, take away or interfere with any of the customers, trade, business, patronage, employees or agents of Employer; (iii) Engage, directly or indirectly, either personally or as an employee, partner, associate, officer, manager, agent, advisor, consultant or otherwise, or by means of any corporate or other entity or device, in any business competitive with the business of Employer. (b) For purposes hereof, a business will be deemed competitive if (i) such business involves the manufacture and sale of steel, or any other business which is competitive, during or as of the date of cessation of Employee's employment, with any business then being conducted by Employer or as to which Employer has at such time formulated definitive plans to enter; and (ii) such business makes substantial sales of products competitive with those of Employer in any of the States of Missouri, Illinois, Indiana, Iowa, Michigan and Ohio. (c) All of the covenants on behalf of Employee contained in this paragraph 8 shall be construed as agreements independent of any other provision of this Agreement, and the existence of any claim or cause of action against Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Employer of these covenants. (d) It is the intention of the parties to restrict the activities of Employee under this paragraph 8 only to the extent necessary for the protection of legitimate business interests of Employer, and the parties specifically covenant and agree that should any of the clauses or provisions set forth herein, under any set of circumstances not now foreseen by the parties, be held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, then and in that event, it is the intention of the parties hereto that, in lieu of each such clause or provision of this paragraph 8, there shall be substituted or added, and there is hereby substituted or added, terms to such illegal, invalid or unenforceable clause or provision as may be legal, valid and enforceable. 9. Expenses. In addition to compensation paid to Employee under paragraph 4 hereof, during the period of Employee's employment, Employer will pay directly or reimburse Employee for reasonable and necessary expenses incurred by Employee in the interest of the business of Employer. All such expenses paid by Employee will be reimbursed by Employer upon presentation by Employee, from time to time, of an itemized account of such expenditures, accompanied by appropriate receipts or other evidence of payment to the extent necessary to permit the deductibility thereof for Federal income tax purposes. 10. Documents. Employee agrees that all documents, instruments, drawings, plans, contracts, proposals, records, notebooks, invoices, statements and correspondence, including all copies thereof, relating to the business of Employer, other than purely personal documents, shall be the property of Employer; and upon the cessation of Employee's employment with Employer, for whatever reason, all of the same then in Employee's possession, whether prepared by Employee or others, will be left with or immediately delivered to Employer. 11. Remedies. It is agreed that any material breach or evasion of any of the terms of this Agreement by Employee will result in immediate and irreparable injury to Employer and will authorize recourse to injunction and/or specific performance as well as to all other legal or equitable remedies to which Employer may be entitled. No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy whether given hereunder or not or whether hereafter existing at law or in equity, by statute or otherwise. The election of any one or more remedies by Employer or Employee shall not constitute a waiver of the right to pursue other available remedies at any time or cumulatively from time-to-time. 12. Severability. All agreements and covenants herein contained are severable, and in the event any of them shall be held to be invalid or unenforceable by any court of competent jurisdiction, this Agreement shall continue in full force and effect and, subject to paragraph 8(d) hereof, shall be interpreted as if such invalid agreement or covenant were not contained herein. 13. Waiver or Modification. No amendment, waiver or modification of this Agreement or of any covenant, condition or limitation herein contained shall be valid unless in writing and duly executed by the party to be charged therewith, and no evidence of any amendment, waiver or modification shall be offered or received in evidence in any proceeding, arbitration or litigation between the parties hereto arising out of or affecting this Agreement, or the rights or obligations of the parties hereunder, unless such amendment, waiver or modification is in writing, duly executed as aforesaid, and the parties further agree that the provisions of this paragraph may not be waived or modified except as herein set forth. Failure of Employee or Employer to exercise or otherwise act with respect to any rights granted hereunder in the event of a breach of any of the terms or conditions hereof by the other party, shall not be construed as a waiver of such breach, nor prevent Employee or Employer from thereafter enforcing strict compliance with any and all of the terms and conditions hereof. 14. Fees and Expenses. If Employee is the prevailing party, Employer shall pay all of Employee's reasonable legal fees and related expenses (including the costs of experts, evidence and counsel) incurred by Employee as a result of (i) Employee's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment) or (ii) Employee's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by Employer under which Employee is or may be entitled to receive benefits. 15. Notices. All notices, requests, demands or other communications hereunder ("Notice") shall be in writing and shall be given by registered or certified mail, return receipt requested: if to Employer to: Laclede Steel Company Attn: Michael H. Lane 15th Floor One Metropolitan Square St. Louis, Missouri 63102 and, if to Employee, to: John B. McKinney 19 Picardy St. Louis, Missouri 63124 or to such other addresses as to which the parties hereto give Notice in accordance with this paragraph 15. 16. Construction. This Agreement shall be governed by and construed and interpreted according to the laws of the State of Missouri, notwithstanding the place of execution hereof, nor the performance of any acts in connection herewith or hereunder in any other jurisdiction. For all purposes hereof, reference to Employer shall include each and every subsidiary and affiliated company of Employer. 17. Assignability. The services to be performed by Employee hereunder are personal in nature and therefore Employee shall not assign his rights or delegate his obligations under this Agreement, and any attempted or purported assignment or delegation not herein permitted shall be null and void. 18. Successors. Subject to the provisions of paragraph 17, this Agreement shall be binding upon and shall inure to the benefit of Employer and Employee and their respective heirs, executors, administrators, legal representatives, successors and assigns. 19. Prior Employment Agreements. Any prior Employment Agreement between Employer and Employee is hereby terminated by mutual agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ______________________________ JOHN B. McKINNEY "Employee" LACLEDE STEEL COMPANY By____________________________ Michael H. Lane, Vice President, Treasurer and Secretary "Employer" EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of the 19th day of October 1994, by and between LACLEDE STEEL COMPANY, a Delaware corporation ("Employer"), and JOSEPH W. HEBENSTREIT ("Employee"). WHEREAS, Employee desires to be employed by Employer and Employer desires to employ Employee under the terms and conditions set forth in this Agreement; and WHEREAS, it is Employer's intention to employ Employee upon the terms and conditions herein, which recognize and compensate Employee for the obligations of Employee undertaken hereunder, including specifically, but not by way of limitation, the agreement of Employee not to compete with the business of Employer, as provided in paragraph 8(a)(iii) (see page 12), for the period provided in paragraph 8(a) upon the termination of Employee's employment by Employer for any reason; it being understood and agreed that Employee is employed by Employer to protect and expand the business of Employer; NOW, THEREFORE, in consideration of the foregoing and the promises and agreements herein contained, the parties agree as follows: 20. Employment. Employer hereby employs Employee, and Employee hereby accepts such employment from Employer upon the terms and conditions hereinafter set forth. 21. Term of Employment. The term of Employee's employment under this Agreement shall be for the period commencing October, 1994, and continuing through August 2, 1999, or upon the earlier occurrence of any of the following events: (a) Whenever Employer and Employee shall mutually agree in writing to terminate Employee's employment by Employer; (b) Upon the death of Employee; (c) For "cause," which shall mean Employee's dishonesty or unlawful acts committed in connection with the business of Employer, and which results in substantial gain or profit to Employee. (d) At Employer's option and by action of Employer's Board of Directors on thirty (30) days' written notice in the event of Employee's Disability (defined as the failure substantially to discharge Employee's duties as defined under this Agreement for ninety (90) consecutive days or one hundred twenty (120) days (whether or not consecutive) in any twelve (12) month period, as a result of an injury, disease, sickness or other physical or mental incapacity). A determination of Employee's Disability shall be made by a qualified medical doctor licensed to practice in the State of Missouri chosen by Employer subject to Employee's approval, which approval shall not be unreasonably withheld. Employee shall consent to be examined by Employer's medical doctor and shall consent to allow Employee's medical doctor to discuss Employee's medical condition with Employer. Notwithstanding anything to the contrary contained herein, Employee's Disability shall not be deemed to have commenced until full coverage with respect to such Disability shall have been approved by Employer's disability insurance carrier and payment under Employer's group disability policy for such Disability shall have commenced. 22. Duties of Employee. During Employee's employment by Employer, Employee shall serve Employer to the best of Employee's ability and shall perform such duties as are typically performed by the Employer's executive officer with principal responsibility of managing the Employer's manufacturing operations. Employee agrees to devote Employee's time and efforts to the business of Employer (except for usual vacations and reasonable time for attention to personal affairs so long as Employee's performance hereunder is not adversely affected thereby), and to be loyal and faithful at all times, constantly endeavoring to improve Employee's ability and knowledge of the business of Employer in an effort to increase the value of Employee's services for the mutual benefit of Employee and Employer. 23. Compensation. (a) Employer agrees to pay Employee for Employee's services during the term of Employee's employment hereunder. Employee's base salary shall be the greater of (i) an annual rate of Two Hundred Forty-Three Thousand Five Hundred Dollars ($243,500.00) or (ii) the highest annual base salary authorized by the Board of Directors after the date hereof. Employee's base salary shall be due and payable in twelve (12) equal monthly installments. Additionally, during the term of Employee's employment by Employer hereunder, Employee's compensation shall be reviewed and may be increased and/or Employee may be paid additional or special compensation including without limitation stock options, stock appreciation rights and other incentive compensation, or bonuses (based on the earnings of Employer, the performance of Employee or otherwise) from time to time by the mutual agreement of Employee and Employer, as determined by the Board of Directors of Employer. In addition, during the term of this Agreement, Employee shall receive such fringe benefits as are made available by Employer from time to time to other employees of Employer at Employee's level of employment. (b) In the event of the termination of Employee's employment either (i) by Employee for any reason including death or Disability, or (ii) by Employer without "cause" (as defined in paragraph 2 herein) or by Employer for any reason during the "Change of Control Period" (as defined in paragraph 5(b) herein), Employee shall be paid incentive compensation for the fiscal year in which such termination occurred in an amount equal to the product of (a) the amount of incentive compensation to which he would have been entitled for such fiscal year had there been no termination of employment and (b) a fraction, the numerator of which is the number of days of such fiscal year in which Employee remained in the employment of Employer and the denominator of which is 365. 24. Life Insurance Benefits. (a) During the term of this Agreement, Employer shall be obligated to keep in force life insurance on the life of Employee in the amount of One Million Fourteen Thousand Dollars ($1,014,000.00), Six Hundred Thousand Dollars ($600,000.00) of which will consist of permanent insurance on the life of Employee owned by Employee or his designee. (b) In the event of the termination of Employee's employment either (i) by Employee for any reason, or (ii) by Employer without "cause" (as defined in paragraph 2 herein), or by Employer for any reason during the period commencing with the date of a Change of Control (as defined in Paragraph 6(b)) and ending the earlier of (a) twenty-four months following the Change of Control, or (b) August 2, 1999 (the "Change of Control Period") Employer agrees to keep in force the permanent life insurance set forth in subparagraph (a) of this paragraph 5 for the duration of Employee's life. Employer may fulfill this obligation by satisfying the premium requirement so that such permanent insurance is fully paid under the terms of such permanent insurance policy. Employer's obligation to pay permanent life insurance premiums under this subparagraph (b) will survive the term of this Agreement. (c) In the event of the termination of Employee's employment by Employer for "cause" (as defined in paragraph 2 herein), other than during the Change of Control Period, then Employer's obligation to pay premiums under this paragraph 5 will cease. (d) Employer agrees to reimburse Employee for any tax due on the annual permanent insurance premium paid by Employer. (e) The amount of insurance described in subparagraph (a) may be increased by the Board of Directors. 25. Termination. (a) In the event of the termination of Employee's employment by Employer, without "cause" (as defined in paragraph 2 herein), then, in lieu of any further salary payment pursuant to paragraph 4(a) herein, Employer agrees to pay Employee for the remaining term of this Agreement at an annual rate equal to the average of Employee's "compensation" for the three fiscal years preceding the year of such termination. For this purpose the term "compensation" means Employee's base salary in effect for a particular year plus the incentive compensation received by Employee with respect to services rendered in such year whether or not such incentive compensation is actually paid in such year. Amounts described above due Employee under this paragraph 6(a) shall be due and payable for the duration of the remaining term in equal monthly installments. In addition to the foregoing, Employer shall continue, for the duration of the remaining term, to provide Employee with such additional fringe benefits to which Employee was entitled as of the day immediately prior to the date of such termination. (b) In the event of a Change of Control, (as hereinafter defined) Employee may terminate his employment hereunder at any time during the period commencing six months following the Change of Control and ending the earlier of (a) twenty-four months following the Change of Control or (b) August 2, 1999. If (a) Employee shall terminate his employment during such period for any reason other than death or Disability, (b) Employer shall terminate Employee's employment during the Change of Control Period for any reason, or (c) Employee terminates his employment during the first six (6) months of the Change of Control Period for Good Reason as hereinafter defined, Employer shall pay to Employee upon such termination of employment, in a single lump cash sum, an amount equal to the lesser of (a) One Million Four Hundred Thousand Dollars ($1,400,000.00) or (b) One Dollar ($1.00) less than 300% of Employee's Base Amount as hereinafter defined. Such payment shall be in lieu of further salary payments under paragraph 4(a) or payments (other than retirement and deferred compensation payments) under paragraph 6(a). Notwithstanding anything to the contrary contained herein, nothing in this Agreement shall relieve Employer of its obligation of providing Employee with all retirement benefits in accordance with the terms of all retirement and deferred compensation plans in which Employee participates including, without limitation, Employer's obligation under Section IV of the Key Employee Retirement Agreement between Employer and Employee maintained pursuant to the Laclede Steel Company Key Employee Retirement Plan. The term "Good Reason" shall mean the failure of Employer to comply with the following requirement: During the Change of Control Period, (i) Employee's base salary, position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held or exercised by or assigned to Employee at any time during the 90-day period immediately preceding the date of the Change of Control and (ii) Employee's services shall be performed at the location where Employee was employed immediately preceding the date of the Change of Control. The term "Base Amount" shall mean Employee's average annual compensation from Employer (as reported on Form W-2) for the five consecutive calendar years ending with the calendar year immediately preceding the Change of Control. The term "Change of Control" shall mean a change of control of a nature that would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), or any comparable successor provisions. Without limiting the foregoing, a "Change of Control" also means for purposes of this Agreement, regardless of its meaning under the provisions of the Exchange Act: (i) The purchase or other acquisition (other than from Employer) by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Exchange Act (excluding, for this purpose, Employer or its subsidiaries or any employee benefit plan of Employer or its subsidiaries), of beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either the then outstanding shares of common stock or the combined voting power of Employer's then outstanding voting securities entitled to vote in the election of directors; or (ii) The receipt of proxies for the election of directors of Employer in opposition to management's slate of nominees which proxies aggregate more than 40% of the then outstanding voting stock of Employer; or (iii) Individuals who, as of the date hereof, constitute the Board of Directors of Employer (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board, provided that any person (other than a person whose election or nomination or whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of Employer, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) who becomes a director subsequent to the date hereof whose election, or nomination for election by Employer's shareholders, was approved by a vote of at least three-quarters of the directors then comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iv) Approval by the stockholders of Employer of a reorganization, merger, or consolidation, in each case, with respect to which persons who were the stockholders of Employer immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of Employer or of the sale of all or substantially all of the assets of Employer. (c) In the event of a determination that payments under paragraph 6(b), together with any other payments which Employee has a right to receive from Employer constitute a "payment" within the meaning of Section 280G(b)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), then Employer shall pay to Employee, in a lump sum, an amount equal to the sum of (i) any excise tax that would be imposed by Section 4999 of the Code and payable by Employee, and (ii) an additional amount which, when added to the amount of the excise tax payable, equals an aggregate payment sufficient to pay all federal, state and local income taxes due on the aggregate payment, including interest and penalties, and leave a net amount equal to the excise tax payable. For purposes of this paragraph, the term "determination" means (i) a decision by the Tax Court which has become final, as defined in Section 7481 of the Code or (ii) a judgment, decree, or other order by any court of competent jurisdiction which has become final. Employer shall pay all reasonable legal fees incurred in connection with a determination on this issue. If both Employer and Employee elect to forego a court proceeding on this issue, Employer agrees to pay Employee the amount set forth in this paragraph 6(c) without a determination and to pay all reasonable legal fees incurred prior to such election. 26. Extent of Services. Employee shall devote Employee's time, attention and energy to the business of Employer, and shall not during the term of this Agreement, or any extension hereof, without Employer's consent, be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage; but nothing contained herein shall be construed as preventing Employee from investing his assets in such form or manner as will not require any service on the part of Employee in the operation of the affairs of the corporations or other entities in which Employee may invest his assets. 27. Covenants of Employee. (a) During the term of Employee's employment with Employer, and for a period of one (1) year after the termination of such employment, for whatever reason, except for the termination of Employee's employment under circumstances which constitute a violation by Employer of the provisions of this Agreement, Employee covenants and agrees that Employee will not (except as required in Employee's duties to Employer), in any manner directly or indirectly: (i) Disclose or divulge to any person, entity, firm or company whatsoever, or use for Employee's own benefit or the benefit of any other person, entity, firm or company directly or indirectly, in competition with the business of Employer, as the same may exist at the date of such cessation, any proprietary business methods, customer lists, supplier lists, business plans or other information or data of Employer, without regard to whether all of the foregoing matters will otherwise be deemed confidential, material or important, the parties hereto stipulating that as between them, the same are important, material and confidential and greatly affect the effective and successful conduct of the business and the goodwill of Employer, and that any breach of the terms of this subparagraph (i) shall be a material breach of this Agreement; (ii) Solicit, divert, take away or interfere with any of the customers, trade, business, patronage, employees or agents of Employer; (iii) Engage, directly or indirectly, either personally or as an employee, partner, associate, officer, manager, agent, advisor, consultant or otherwise, or by means of any corporate or other entity or device, in any business competitive with the business of Employer. (b) For purposes hereof, a business will be deemed competitive if (i) such business involves the manufacture and sale of steel, or any other business which is competitive, during or as of the date of cessation of Employee's employment, with any business then being conducted by Employer or as to which Employer has at such time formulated definitive plans to enter; and (ii) such business makes substantial sales of products competitive with those of Employer in any of the States of Missouri, Illinois, Indiana, Iowa, Michigan and Ohio. (c) All of the covenants on behalf of Employee contained in this paragraph 8 shall be construed as agreements independent of any other provision of this Agreement, and the existence of any claim or cause of action against Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Employer of these covenants. (d) It is the intention of the parties to restrict the activities of Employee under this paragraph 8 only to the extent necessary for the protection of legitimate business interests of Employer, and the parties specifically covenant and agree that should any of the clauses or provisions set forth herein, under any set of circumstances not now foreseen by the parties, be held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, then and in that event, it is the intention of the parties hereto that, in lieu of each such clause or provision of this paragraph 8, there shall be substituted or added, and there is hereby substituted or added, terms to such illegal, invalid or unenforceable clause or provision as may be legal, valid and enforceable. 28. Expenses. In addition to compensation paid to Employee under paragraph 4 hereof, during the period of Employee's employment, Employer will pay directly or reimburse Employee for reasonable and necessary expenses incurred by Employee in the interest of the business of Employer. All such expenses paid by Employee will be reimbursed by Employer upon presentation by Employee, from time to time, of an itemized account of such expenditures, accompanied by appropriate receipts or other evidence of payment to the extent necessary to permit the deductibility thereof for Federal income tax purposes. 29. Documents. Employee agrees that all documents, instruments, drawings, plans, contracts, proposals, records, notebooks, invoices, statements and correspondence, including all copies thereof, relating to the business of Employer, other than purely personal documents, shall be the property of Employer; and upon the cessation of Employee's employment with Employer, for whatever reason, all of the same then in Employee's possession, whether prepared by Employee or others, will be left with or immediately delivered to Employer. 30. Remedies. It is agreed that any material breach or evasion of any of the terms of this Agreement by Employee will result in immediate and irreparable injury to Employer and will authorize recourse to injunction and/or specific performance as well as to all other legal or equitable remedies to which Employer may be entitled. No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy whether given hereunder or not or whether hereafter existing at law or in equity, by statute or otherwise. The election of any one or more remedies by Employer or Employee shall not constitute a waiver of the right to pursue other available remedies at any time or cumulatively from time-to-time. 31. Severability. All agreements and covenants herein contained are severable, and in the event any of them shall be held to be invalid or unenforceable by any court of competent jurisdiction, this Agreement shall continue in full force and effect and, subject to paragraph 8(d) hereof, shall be interpreted as if such invalid agreement or covenant were not contained herein. 32. Waiver or Modification. No amendment, waiver or modification of this Agreement or of any covenant, condition or limitation herein contained shall be valid unless in writing and duly executed by the party to be charged therewith, and no evidence of any amendment, waiver or modification shall be offered or received in evidence in any proceeding, arbitration or litigation between the parties hereto arising out of or affecting this Agreement, or the rights or obligations of the parties hereunder, unless such amendment, waiver or modification is in writing, duly executed as aforesaid, and the parties further agree that the provisions of this paragraph may not be waived or modified except as herein set forth. Failure of Employee or Employer to exercise or otherwise act with respect to any rights granted hereunder in the event of a breach of any of the terms or conditions hereof by the other party, shall not be construed as a waiver of such breach, nor prevent Employee or Employer from thereafter enforcing strict compliance with any and all of the terms and conditions hereof. 33. Fees and Expenses. If Employee is the prevailing party, Employer shall pay all of Employee's reasonable legal fees and related expenses (including the costs of experts, evidence and counsel) incurred by Employee as a result of (i) Employee's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment) or (ii) Employee's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by Employer under which Employee is or may be entitled to receive benefits. 34. Notices. All notices, requests, demands or other communications hereunder ("Notice") shall be in writing and shall be given by registered or certified mail, return receipt requested: if to Employer to: Laclede Steel Company Attn: John B. McKinney 15th Floor One Metropolitan Square St. Louis, Missouri 63102 and, if to Employee, to: Joseph W. Hebenstreit 10 Hunter's Point O'Fallon, Illinois 62269-0452 or to such other addresses as to which the parties hereto give Notice in accordance with this paragraph 15. 35. Construction. This Agreement shall be governed by and construed and interpreted according to the laws of the State of Missouri, notwithstanding the place of execution hereof, nor the performance of any acts in connection herewith or hereunder in any other jurisdiction. For all purposes hereof, reference to Employer shall include each and every subsidiary and affiliated company of Employer. 36. Assignability. The services to be performed by Employee hereunder are personal in nature and therefore Employee shall not assign his rights or delegate his obligations under this Agreement, and any attempted or purported assignment or delegation not herein permitted shall be null and void. 37. Successors. Subject to the provisions of paragraph 17, this Agreement shall be binding upon and shall inure to the benefit of Employer and Employee and their respective heirs, executors, administrators, legal representatives, successors and assigns. 38. Prior Employment Agreements. Any prior Employment Agreement between Employer and Employee is hereby terminated by mutual agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ______________________________ JOSEPH W. HEBENSTREIT "Employee" LACLEDE STEEL COMPANY By____________________________ John B. McKinney, President "Employer" EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of the 19th day of October 1994, by and between LACLEDE STEEL COMPANY, a Delaware corporation ("Employer"), and MICHAEL H. LANE ("Employee"). WHEREAS, Employee desires to be employed by Employer and Employer desires to employ Employee under the terms and conditions set forth in this Agreement; and WHEREAS, it is Employer's intention to employ Employee upon the terms and conditions herein, which recognize and compensate Employee for the obligations of Employee undertaken hereunder, including specifically, but not by way of limitation, the agreement of Employee not to compete with the business of Employer, as provided in paragraph 8(a)(iii) (see page 13), for the period provided in paragraph 8(a) upon the termination of Employee's employment by Employer for any reason; it being understood and agreed that Employee is employed by Employer to protect and expand the business of Employer; NOW, THEREFORE, in consideration of the foregoing and the promises and agreements herein contained, the parties agree as follows: 39. Employment. Employer hereby employs Employee, and Employee hereby accepts such employment from Employer upon the terms and conditions hereinafter set forth. 40. Term of Employment. The term of Employee's employment under this Agreement shall be for the period commencing October 19, 1994, and continuing through August 2, 1999 or upon the earlier occurrence of any of the following events: (a) Whenever Employer and Employee shall mutually agree in writing to terminate Employee's employment by Employer; (b) Upon the death of Employee; (c) For "cause," which shall mean Employee's dishonesty or unlawful acts committed in connection with the business of Employer, and which results in substantial gain or profit to Employee. (d) At Employer's option and by action of Employer's Board of Directors on thirty (30) days' written notice in the event of Employee's Disability (defined as the failure substantially to discharge Employee's duties as defined under this Agreement for ninety (90) consecutive days or one hundred twenty (120) days (whether or not consecutive) in any twelve (12) month period, as a result of an injury, disease, sickness or other physical or mental incapacity). A determination of Employee's Disability shall be made by a qualified medical doctor licensed to practice in the State of Missouri chosen by Employer subject to Employee's approval, which approval shall not be unreasonably withheld. Employee shall consent to be examined by Employer's medical doctor and shall consent to allow Employee's medical doctor to discuss Employee's medical condition with Employer. Notwithstanding anything to the contrary contained herein, Employee's Disability shall not be deemed to have commenced until full coverage with respect to such Disability shall have been approved by Employer's disability insurance carrier and payment under Employer's group disability policy for such Disability shall have commenced. 41. Duties of Employee. During Employee's employment by Employer, Employee shall serve Employer to the best of Employee's ability and shall perform such duties as are typically performed by the Vice President/Finance and Chief Financial Officer of Employer. Employee agrees to devote Employee's time and efforts to the business of Employer (except for usual vacations and reasonable time for attention to personal affairs so long as Employee's performance hereunder is not adversely affected thereby), and to be loyal and faithful at all times, constantly endeavoring to improve Employee's ability and knowledge of the business of Employer in an effort to increase the value of Employee's services for the mutual benefit of Employee and Employer. 42. Compensation. (a) Employer agrees to pay Employee for Employee's services during the term of Employee's employment hereunder. Employee's base salary shall be the greater of (i) an annual rate of Two Hundred Forty-Three Thousand Five Hundred Dollars ($243,500.00) or (ii) the highest annual base salary authorized by the Board of Directors after the date hereof. Employee's base salary shall be due and payable in twelve (12) equal monthly installments. Additionally, during the term of Employee's employment by Employer hereunder, Employee's compensation shall be reviewed and may be increased and/or Employee may be paid additional or special compensation including without limitation stock options, stock appreciation rights and other incentive compensation, or bonuses (based on the earnings of Employer, the performance of Employee or otherwise) from time to time by the mutual agreement of Employee and Employer, as determined by the Board of Directors of Employer. In addition, during the term of this Agreement, Employee shall receive such fringe benefits as are made available by Employer from time to time to other employees of Employer at Employee's level of employment. (b) In the event of the termination of Employee's employment either (i) by Employee for any reason including death or Disability, or (ii) by Employer without "cause" (as defined in paragraph 2 herein) or by Employer for any reason during the "Change of Control Period" (as defined in paragraph 5(b) herein), Employee shall be paid incentive compensation for the fiscal year in which such termination occurred in an amount equal to the product of (a) the amount of incentive compensation to which he would have been entitled for such fiscal year had there been no termination of employment and (b) a fraction, the numerator of which is the number of days of such fiscal year in which Employee remained in the employment of Employer and the denominator of which is 365. 43. Life Insurance Benefits. (a) During the term of this Agreement, Employer shall be obligated to keep in force life insurance on the life of Employee in the amount of One Million Fourteen Thousand Dollars ($1,014,000.00), Six Hundred Thousand Dollars ($600,000.00) of which will consist of permanent insurance on the life of Employee owned by Employee or his designee. (b) In the event of the termination of Employee's employment either (i) by Employee for any reason, or (ii) by Employer without "cause" (as defined in paragraph 2 herein), or by Employer for any reason during the period commencing with the date of a Change of Control (as defined in Paragraph 6(b)) and ending the earlier of (a) twenty-four months following the Change of Control, or (b) August 2, 1999, (the "Change of Control Period"), Employer agrees to keep in force the permanent life insurance set forth in subparagraph (a) of this paragraph 5 for the duration of Employee's life. Employer may fulfill this obligation by satisfying the premium requirement so that such permanent insurance is fully paid under the terms of such permanent insurance policy. Employer's obligation to pay permanent life insurance premiums under this subparagraph (b) will survive the term of this Agreement. (c) In the event of the termination of Employee's employment by Employer for "cause" (as defined in paragraph 2 herein), other than during the Change of Control Period, then Employer's obligation to pay premiums under this paragraph 5 will cease. (d) Employer agrees to reimburse Employee for any tax due on the annual permanent insurance premium paid by Employer. (e) The amount of insurance described in subparagraph (a) may be increased by the Board of Directors. 44. Termination. (a) In the event of the termination of Employee's employment by Employer, without "cause" (as defined in paragraph 2 herein), then, in lieu of any further salary payment pursuant to paragraph 4(a) herein, Employer agrees to pay Employee for the remaining term of this Agreement at an annual rate equal to the average of Employee's "compensation" for the three fiscal years preceding the year of such termination. For this purpose the term "compensation" means Employee's base salary in effect for a particular year plus the incentive compensation received by Employee with respect to services rendered in such year whether or not such incentive compensation is actually paid in such year. Amounts described above due Employee under this paragraph 6(a) shall be due and payable for the duration of the remaining term in equal monthly installments. In addition to the foregoing, Employer shall continue, for the duration of the remaining term, to provide Employee with such additional fringe benefits to which Employee was entitled as of the day immediately prior to the date of such termination. (b) In the event of a Change of Control, (as hereinafter defined) Employee may terminate his employment hereunder at any time during the period commencing six months following the Change of Control and ending the earlier of (a) twenty-four months following the Change of Control or (b) August 2, 1999. If (a) Employee shall terminate his employment during such period for any reason other than death or Disability, (b) Employer shall terminate Employee's employment during the Change of Control Period for any reason, or (c) Employee terminates his employment during the first six (6) months of the Change of Control Period for Good Reason as hereinafter defined, Employer shall pay to Employee upon such termination of employment, in a single lump cash sum, an amount equal to the lesser of (a) One Million Four Hundred Thousand Dollars ($1,400,000.00) or (b) One Dollar ($1.00) less than 300% of Employee's Base Amount as hereinafter defined. Such payment shall be in lieu of further salary payments under paragraph 4(a) or payments (other than retirement and deferred compensation payments) under paragraph 6(a). Notwithstanding anything to the contrary contained herein, nothing in this Agreement shall relieve Employer of its obligation of providing Employee with all retirement benefits in accordance with the terms of all retirement and deferred compensation plans in which Employee participates including, without limitation, Employer's obligation under Section IV of the Key Employee Retirement Agreement between Employer and Employee maintained pursuant to the Laclede Steel Company Key Employee Retirement Plan. The term "Good Reason" shall mean the failure of Employer to comply with the following requirement: During the Change of Control Period, (i) Employee's base salary, position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held or exercised by or assigned to Employee at any time during the 90-day period immediately preceding the date of the Change of Control and (ii) Employee's services shall be performed at the location where Employee was employed immediately preceding the date of the Change of Control. The term "Base Amount" shall mean Employee's average annual compensation from Employer (as reported on Form W-2) for the five consecutive calendar years ending with the calendar year immediately preceding the Change of Control. The term "Change of Control" shall mean a change of control of a nature that would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), or any comparable successor provisions. Without limiting the foregoing, a "Change of Control" also means for purposes of this Agreement, regardless of its meaning under the provisions of the Exchange Act: (i) The purchase or other acquisition (other than from Employer) by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Exchange Act (excluding, for this purpose, Employer or its subsidiaries or any employee benefit plan of Employer or its subsidiaries), of beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either the then outstanding shares of common stock or the combined voting power of Employer's then outstanding voting securities entitled to vote in the election of directors; or (ii) The receipt of proxies for the election of directors of Employer in opposition to management's slate of nominees which proxies aggregate more than 40% of the then outstanding voting stock of Employer; or (iii) Individuals who, as of the date hereof, constitute the Board of Directors of Employer (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board, provided that any person (other than a person whose election or nomination or whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of Employer, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) who becomes a director subsequent to the date hereof whose election, or nomination for election by Employer's shareholders, was approved by a vote of at least three-quarters of the directors then comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iv) Approval by the stockholders of Employer of a reorganization, merger, or consolidation, in each case, with respect to which persons who were the stockholders of Employer immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of Employer or of the sale of all or substantially all of the assets of Employer. (c) In the event of a determination that payments under paragraph 6(b), together with any other payments which Employee has a right to receive from Employer constitute a "payment" within the meaning of Section 280G(b)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), then Employer shall pay to Employee, in a lump sum, an amount equal to the sum of (i) any excise tax that would be imposed by Section 4999 of the Code and payable by Employee, and (ii) an additional amount which, when added to the amount of the excise tax payable, equals an aggregate payment sufficient to pay all federal, state and local income taxes due on the aggregate payment, including interest and penalties, and leave a net amount equal to the excise tax payable. For purposes of this paragraph, the term "determination" means (i) a decision by the Tax Court which has become final, as defined in Section 7481 of the Code or (ii) a judgment, decree, or other order by any court of competent jurisdiction which has become final. Employer shall pay all reasonable legal fees incurred in connection with a determination on this issue. If both Employer and Employee elect to forego a court proceeding on this issue, Employer agrees to pay Employee the amount set forth in this paragraph 6(c) without a determination and to pay all reasonable legal fees incurred prior to such election. 45. Extent of Services. Employee shall devote Employee's time, attention and energy to the business of Employer, and shall not during the term of this Agreement, or any extension hereof, without Employer's consent, be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage; but nothing contained herein shall be construed as preventing Employee from investing his assets in such form or manner as will not require any service on the part of Employee in the operation of the affairs of the corporations or other entities in which Employee may invest his assets. 46. Covenants of Employee. (a) During the term of Employee's employment with Employer, and for a period of one (1) year after the termination of such employment, for whatever reason, except for the termination of Employee's employment under circumstances which constitute a violation by Employer of the provisions of this Agreement, Employee covenants and agrees that Employee will not (except as required in Employee's duties to Employer), in any manner directly or indirectly: (i) Disclose or divulge to any person, entity, firm or company whatsoever, or use for Employee's own benefit or the benefit of any other person, entity, firm or company directly or indirectly, in competition with the business of Employer, as the same may exist at the date of such cessation, any proprietary business methods, customer lists, supplier lists, business plans or other information or data of Employer, without regard to whether all of the foregoing matters will otherwise be deemed confidential, material or important, the parties hereto stipulating that as between them, the same are important, material and confidential and greatly affect the effective and successful conduct of the business and the goodwill of Employer, and that any breach of the terms of this subparagraph (i) shall be a material breach of this Agreement; (ii) Solicit, divert, take away or interfere with any of the customers, trade, business, patronage, employees or agents of Employer; (iii) Engage, directly or indirectly, either personally or as an employee, partner, associate, officer, manager, agent, advisor, consultant or otherwise, or by means of any corporate or other entity or device, in any business competitive with the business of Employer. (b) For purposes hereof, a business will be deemed competitive if (i) such business involves the manufacture and sale of steel, or any other business which is competitive, during or as of the date of cessation of Employee's employment, with any business then being conducted by Employer or as to which Employer has at such time formulated definitive plans to enter; and (ii) such business makes substantial sales of products competitive with those of Employer in any of the States of Missouri, Illinois, Indiana, Iowa, Michigan and Ohio. (c) All of the covenants on behalf of Employee contained in this paragraph 8 shall be construed as agreements independent of any other provision of this Agreement, and the existence of any claim or cause of action against Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Employer of these covenants. (d) It is the intention of the parties to restrict the activities of Employee under this paragraph 8 only to the extent necessary for the protection of legitimate business interests of Employer, and the parties specifically covenant and agree that should any of the clauses or provisions set forth herein, under any set of circumstances not now foreseen by the parties, be held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, then and in that event, it is the intention of the parties hereto that, in lieu of each such clause or provision of this paragraph 8, there shall be substituted or added, and there is hereby substituted or added, terms to such illegal, invalid or unenforceable clause or provision as may be legal, valid and enforceable. 47. Expenses. In addition to compensation paid to Employee under paragraph 4 hereof, during the period of Employee's employment, Employer will pay directly or reimburse Employee for reasonable and necessary expenses incurred by Employee in the interest of the business of Employer. All such expenses paid by Employee will be reimbursed by Employer upon presentation by Employee, from time to time, of an itemized account of such expenditures, accompanied by appropriate receipts or other evidence of payment to the extent necessary to permit the deductibility thereof for Federal income tax purposes. 48. Documents. Employee agrees that all documents, instruments, drawings, plans, contracts, proposals, records, notebooks, invoices, statements and correspondence, including all copies thereof, relating to the business of Employer, other than purely personal documents, shall be the property of Employer; and upon the cessation of Employee's employment with Employer, for whatever reason, all of the same then in Employee's possession, whether prepared by Employee or others, will be left with or immediately delivered to Employer. 49. Remedies. It is agreed that any material breach or evasion of any of the terms of this Agreement by Employee will result in immediate and irreparable injury to Employer and will authorize recourse to injunction and/or specific performance as well as to all other legal or equitable remedies to which Employer may be entitled. No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy whether given hereunder or not or whether hereafter existing at law or in equity, by statute or otherwise. The election of any one or more remedies by Employer or Employee shall not constitute a waiver of the right to pursue other available remedies at any time or cumulatively from time-to-time. 50. Severability. All agreements and covenants herein contained are severable, and in the event any of them shall be held to be invalid or unenforceable by any court of competent jurisdiction, this Agreement shall continue in full force and effect and, subject to paragraph 8(d) hereof, shall be interpreted as if such invalid agreement or covenant were not contained herein. 51. Waiver or Modification. No amendment, waiver or modification of this Agreement or of any covenant, condition or limitation herein contained shall be valid unless in writing and duly executed by the party to be charged therewith, and no evidence of any amendment, waiver or modification shall be offered or received in evidence in any proceeding, arbitration or litigation between the parties hereto arising out of or affecting this Agreement, or the rights or obligations of the parties hereunder, unless such amendment, waiver or modification is in writing, duly executed as aforesaid, and the parties further agree that the provisions of this paragraph may not be waived or modified except as herein set forth. Failure of Employee or Employer to exercise or otherwise act with respect to any rights granted hereunder in the event of a breach of any of the terms or conditions hereof by the other party, shall not be construed as a waiver of such breach, nor prevent Employee or Employer from thereafter enforcing strict compliance with any and all of the terms and conditions hereof. 52. Fees and Expenses. If Employee is the prevailing party, Employer shall pay all of Employee's reasonable legal fees and related expenses (including the costs of experts, evidence and counsel) incurred by Employee as a result of (i) Employee's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment) or (ii) Employee's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by Employer under which Employee is or may be entitled to receive benefits. 53. Notices. All notices, requests, demands or other communications hereunder ("Notice") shall be in writing and shall be given by registered or certified mail, return receipt requested: if to Employer to: Laclede Steel Company Attn: John B. McKinney 15th Floor One Metropolitan Square St. Louis, Missouri 63102 and, if to Employee, to: Michael H. Lane 7350 Westover Colonial Lane St. Louis, Missouri 63119 or to such other addresses as to which the parties hereto give Notice in accordance with this paragraph 15. 54. Construction. This Agreement shall be governed by and construed and interpreted according to the laws of the State of Missouri, notwithstanding the place of execution hereof, nor the performance of any acts in connection herewith or hereunder in any other jurisdiction. For all purposes hereof, reference to Employer shall include each and every subsidiary and affiliated company of Employer. 55. Assignability. The services to be performed by Employee hereunder are personal in nature and therefore Employee shall not assign his rights or delegate his obligations under this Agreement, and any attempted or purported assignment or delegation not herein permitted shall be null and void. 56. Successors. Subject to the provisions of paragraph 17, this Agreement shall be binding upon and shall inure to the benefit of Employer and Employee and their respective heirs, executors, administrators, legal representatives, successors and assigns. 57. Prior Employment Agreements. Any prior Employment Agreement between Employer and Employee is hereby terminated by mutual agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ______________________________ MICHAEL H. LANE "Employee" LACLEDE STEEL COMPANY By____________________________ John B. McKinney, President "Employer" EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of the 19th day of October 1994, by and between LACLEDE STEEL COMPANY, a Delaware corporation ("Employer"), and H. BRUCE NETHINGTON ("Employee"). WHEREAS, Employee desires to be employed by Employer and Employer desires to employ Employee under the terms and conditions set forth in this Agreement; and WHEREAS, it is Employer's intention to employ Employee upon the terms and conditions herein, which recognize and compensate Employee for the obligations of Employee undertaken hereunder, including specifically, but not by way of limitation, the agreement of Employee not to compete with the business of Employer, as provided in paragraph 8(a)(iii) (see page 12), for the period provided in paragraph 8(a) upon the termination of Employee's employment by Employer for any reason; it being understood and agreed that Employee is employed by Employer to protect and expand the business of Employer; NOW, THEREFORE, in consideration of the foregoing and the promises and agreements herein contained, the parties agree as follows: 58. Employment. Employer hereby employs Employee, and Employee hereby accepts such employment from Employer upon the terms and conditions hereinafter set forth. 59. Term of Employment. The term of Employee's employment under this Agreement shall be for the period commencing October 19, 1994, and continuing through August 2, 1999, or upon the earlier occurrence of any of the following events: (a) Whenever Employer and Employee shall mutually agree in writing to terminate Employee's employment by Employer; (b) Upon the death of Employee; (c) For "cause," which shall mean Employee's dishonesty or unlawful acts committed in connection with the business of Employer, and which results in substantial gain or profit to Employee. (d) At Employer's option and by action of Employer's Board of Directors on thirty (30) days' written notice in the event of Employee's Disability (defined as the failure substantially to discharge Employee's duties as defined under this Agreement for ninety (90) consecutive days or one hundred twenty (120) days (whether or not consecutive) in any twelve (12) month period, as a result of an injury, disease, sickness or other physical or mental incapacity). A determination of Employee's Disability shall be made by a qualified medical doctor licensed to practice in the State of Missouri chosen by Employer subject to Employee's approval, which approval shall not be unreasonably withheld. Employee shall consent to be examined by Employer's medical doctor and shall consent to allow Employee's medical doctor to discuss Employee's medical condition with Employer. Notwithstanding anything to the contrary contained herein, Employee's Disability shall not be deemed to have commenced until full coverage with respect to such Disability shall have been approved by Employer's disability insurance carrier and payment under Employer's group disability policy for such Disability shall have commenced. 60. Duties of Employee. During Employee's employment by Employer, Employee shall serve Employer to the best of Employee's ability and shall perform such duties as are typically performed by Employer's employee responsible for Human Resources, Collective Bargaining and Labor Relations. Employee agrees to devote Employee's time and efforts to the business of Employer (except for usual vacations and reasonable time for attention to personal affairs so long as Employee's performance hereunder is not adversely affected thereby), and to be loyal and faithful at all times, constantly endeavoring to improve Employee's ability and knowledge of the business of Employer in an effort to increase the value of Employee's services for the mutual benefit of Employee and Employer. 61. Compensation. (a) Employer agrees to pay Employee for Employee's services during the term of Employee's employment hereunder. Employee's base salary shall be the greater of (i) an annual rate of One Hundred Sixty-Seven Thousand Five Hundred Dollars ($167,500.00) (ii) the highest annual base salary authorized by Employer for Employee after the date hereof. Employee's base salary shall be due and payable in twelve (12) equal monthly installments. Additionally, during the term of Employee's employment by Employer hereunder, Employee's compensation shall be reviewed and may be increased and/or Employee may be paid additional or special compensation including without limitation stock options, stock appreciation rights and other incentive compensation, or bonuses (based on the earnings of Employer, the performance of Employee or otherwise) from time to time by the mutual agreement of Employee and Employer, as determined by Employer. In addition, during the term of this Agreement, Employee shall receive such fringe benefits as are made available by Employer from time to time to other employees of Employer at Employee's level of employment. (b) In the event of the termination of Employee's employment either (i) by Employee for any reason including death or Disability, or (ii) by Employer without "cause" (as defined in paragraph 2 herein) or by Employer for any reason during the "Change of Control Period" (as defined in paragraph 5(b) herein), Employee shall be paid incentive compensation for the fiscal year in which such termination occurred in an amount equal to the product of (a) the amount of incentive compensation to which he would have been entitled for such fiscal year had there been no termination of employment and (b) a fraction, the numerator of which is the number of days of such fiscal year in which Employee remained in the employment of Employer and the denominator of which is 365. 62. Life Insurance Benefits. (a) During the term of this Agreement, Employer shall be obligated to keep in force life insurance on the life of Employee in the amount of Three Hundred Ninety-Five Thousand Dollars ($395,000.00), Three Hundred Thousand Dollars ($300,000.00) of which will consist of permanent insurance on the life of Employee owned by Employee or his designee. (b) In the event of the termination of Employee's employment either (i) by Employee for any reason, or (ii) by Employer without "cause" (as defined in paragraph 2 herein), or by Employer for any reason during the period commencing with the date of a Change of Control (as defined in Paragraph 6(b)) and ending the earlier of (a) twenty-four months following the Change of Control, or (b) August 2, 1999, (the "Change of Control Period"), Employer agrees to keep in force the permanent life insurance set forth in subparagraph (a) of this paragraph 5 for the duration of Employee's life. Employer may fulfill this obligation by satisfying the premium requirement so that such permanent insurance is fully paid under the terms of such permanent insurance policy. Employer's obligation to pay permanent life insurance premiums under this subparagraph (b) will survive the term of this Agreement. (c) In the event of the termination of Employee's employment by Employer for "cause" (as defined in paragraph 2 herein), other than during the Change of Control Period, then Employer's obligation to pay premiums under this paragraph 5 will cease. (d) Employer agrees to reimburse Employee for any tax due on the annual permanent insurance premium paid by Employer. (e) The amount of insurance described in subparagraph (a) may be increased by the Board of Directors. 6. Termination. (a) In the event of the termination of Employee's employment by Employer, without "cause" (as defined in paragraph 2 herein), then, in lieu of any further salary payment pursuant to paragraph 4(a) herein, Employer agrees to pay Employee for the remaining term of this Agreement at an annual rate equal to the average of Employee's "compensation" for the three fiscal years preceding the year of such termination. For this purpose the term "compensation" means Employee's base salary in effect for a particular year plus the incentive compensation received by the Employee with respect to services rendered in such year whether or not such incentive compensation is actually paid in such year. Amounts described above due Employee under this paragraph 6(a) shall be due and payable for the duration of the remaining term in equal monthly installments. In addition to the foregoing, Employer shall continue, for the duration of the remaining term, to provide Employee with such additional fringe benefits to which Employee was entitled as of the day immediately prior to the date of such termination. (b) If (a) Employer shall terminate Employee's employment for any reason during the period commencing with the date of a Change of Control (as hereinafter defined) and ending the earlier of (i) twenty-four months after the Change of Control, or (ii) August 2, 1999 (the "Change of Control Period"), or (b) Employee shall terminate his employment during the Change of Control Period for Good Reason as hereinafter defined, Employer shall pay to Employee upon such termination of employment, in a single lump cash sum, an amount equal to the lesser of (a) Three Hundred Fifty Thousand Dollars ($350,000) or (b) One Dollar ($1.00) less than 300% of Employee's Base Amount as hereinafter defined. Such payment shall be in lieu of further salary payments under paragraph 4(a) or payments (other than retirement and deferred compensation payments) under paragraph 6(a). Notwithstanding anything to the contrary contained herein, nothing in this Agreement shall relieve Employer of its obligation of providing Employee with all retirement benefits in accordance with the terms of all retirement and deferred compensation plans in which Employee participates, including without limitation, Employer's obligation under Section IV of the Key Employee Retirement Agreement between Employer and Employee maintained pursuant to the Laclede Steel Company Key Employee Retirement Plan. The term "Good Reason" shall mean the failure of Employer to comply with the following requirement: During the Change of Control Period, (i) Employee's base salary, position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held or exercised by or assigned to Employee at any time during the 90-day period immediately preceding the date of the Change of Control and (ii) Employee's services shall be performed at the location where Employee was employed immediately preceding the date of the Change of Control. The term "Base Amount" shall mean Employee's average annual compensation from Employer (as reported on Form W-2) for the five consecutive calendar years ending with the calendar year immediately preceding the Change of Control. The term "Change of Control" shall mean a change of control of a nature that would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), or any comparable successor provisions. Without limiting the foregoing, a "Change of Control" also means for purposes of this Agreement, regardless of its meaning under the provisions of the Exchange Act: (i) The purchase or other acquisition (other than from Employer) by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Exchange Act (excluding, for this purpose, Employer or its subsidiaries or any employee benefit plan of Employer or its subsidiaries), of beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either the then outstanding shares of common stock or the combined voting power of Employer's then outstanding voting securities entitled to vote in the election of directors; or (ii) The receipt of proxies for the election of directors of Employer in opposition to management's slate of nominees which proxies aggregate more than 40% of the then outstanding voting stock of Employer; or (iii) Individuals who, as of the date hereof, constitute the Board of Directors of Employer (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board, provided that any person (other than a person whose election or nomination or whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of Employer, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) who becomes a director subsequent to the date hereof whose election, or nomination for election by Employer's shareholders, was approved by a vote of at least three-quarters of the directors then comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iv) Approval by the stockholders of Employer of a reorganization, merger, or consolidation, in each case, with respect to which persons who were the stockholders of Employer immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of Employer or of the sale of all or substantially all of the assets of Employer. (c) In the event of a determination that payments under paragraph 6(b), together with any other payments which Employee has a right to receive from Employer constitute a "payment" within the meaning of Section 280G(b)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), then Employer shall pay to Employee, in a lump sum, an amount equal to the sum of (i) any excise tax that would be imposed by Section 4999 of the Code and payable by Employee, and (ii) an additional amount which, when added to the amount of the excise tax payable, equals an aggregate payment sufficient to pay all federal, state and local income taxes due on the aggregate payment, including interest and penalties, and leave a net amount equal to the excise tax payable. For purposes of this paragraph, the term "determination" means (i) a decision by the Tax Court which has become final, as defined in Section 7481 of the Code or (ii) a judgment, decree, or other order by any court of competent jurisdiction which has become final. Employer shall pay all reasonable legal fees incurred in connection with a determination on this issue. If both Employer and Employee elect to forego a court proceeding on this issue, Employer agrees to pay Employee the amount set forth in this paragraph 6(c) without a determination and to pay all reasonable legal fees incurred prior to such election. 7. Extent of Services. Employee shall devote Employee's time, attention and energy to the business of Employer, and shall not during the term of this Agreement, or any extension hereof, without Employer's consent, be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage; but nothing contained herein shall be construed as preventing Employee from investing his assets in such form or manner as will not require any service on the part of Employee in the operation of the affairs of the corporations or other entities in which Employee may invest his assets. 8. Covenants of Employee. (a) During the term of Employee's employment with Employer, and for a period of one (1) year after the termination of such employment, for whatever reason, except for the termination of Employee's employment under circumstances which constitute a violation by Employer of the provisions of this Agreement, Employee covenants and agrees that Employee will not (except as required in Employee's duties to Employer), in any manner directly or indirectly: (i) Disclose or divulge to any person, entity, firm or company whatsoever, or use for Employee's own benefit or the benefit of any other person, entity, firm or company directly or indirectly, in competition with the business of Employer, as the same may exist at the date of such cessation, any proprietary business methods, customer lists, supplier lists, business plans or other information or data of Employer, without regard to whether all of the foregoing matters will otherwise be deemed confidential, material or important, the parties hereto stipulating that as between them, the same are important, material and confidential and greatly affect the effective and successful conduct of the business and the goodwill of Employer, and that any breach of the terms of this subparagraph (i) shall be a material breach of this Agreement; (ii) Solicit, divert, take away or interfere with any of the customers, trade, business, patronage, employees or agents of Employer; (iii) Engage, directly or indirectly, either personally or as an employee, partner, associate, officer, manager, agent, advisor, consultant or otherwise, or by means of any corporate or other entity or device, in any business competitive with the business of Employer. (b) For purposes hereof, a business will be deemed competitive if (i) such business involves the manufacture and sale of steel, or any other business which is competitive, during or as of the date of cessation of Employee's employment, with any business then being conducted by Employer or as to which Employer has at such time formulated definitive plans to enter; and (ii) such business makes substantial sales of products competitive with those of Employer in any of the States of Missouri, Illinois, Indiana, Iowa, Michigan and Ohio. (c) All of the covenants on behalf of Employee contained in this paragraph 8 shall be construed as agreements independent of any other provision of this Agreement, and the existence of any claim or cause of action against Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Employer of these covenants. (d) It is the intention of the parties to restrict the activities of Employee under this paragraph 8 only to the extent necessary for the protection of legitimate business interests of Employer, and the parties specifically covenant and agree that should any of the clauses or provisions set forth herein, under any set of circumstances not now foreseen by the parties, be held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, then and in that event, it is the intention of the parties hereto that, in lieu of each such clause or provision of this paragraph 8, there shall be substituted or added, and there is hereby substituted or added, terms to such illegal, invalid or unenforceable clause or provision as may be legal, valid and enforceable. 9 Expenses. In addition to compensation paid to Employee under paragraph 4 hereof, during the period of Employee's employment, Employer will pay directly or reimburse Employee for reasonable and necessary expenses incurred by Employee in the interest of the business of Employer. All such expenses paid by Employee will be reimbursed by Employer upon presentation by Employee, from time to time, of an itemized account of such expenditures, accompanied by appropriate receipts or other evidence of payment to the extent necessary to permit the deductibility thereof for Federal income tax purposes. 10. Documents. Employee agrees that all documents, instruments, drawings, plans, contracts, proposals, records, notebooks, invoices, statements and correspondence, including all copies thereof, relating to the business of Employer, other than purely personal documents, shall be the property of Employer; and upon the cessation of Employee's employment with Employer, for whatever reason, all of the same then in Employee's possession, whether prepared by Employee or others, will be left with or immediately delivered to Employer. 11. Remedies. It is agreed that any material breach or evasion of any of the terms of this Agreement by Employee will result in immediate and irreparable injury to Employer and will authorize recourse to injunction and/or specific performance as well as to all other legal or equitable remedies to which Employer may be entitled. No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy whether given hereunder or not or whether hereafter existing at law or in equity, by statute or otherwise. The election of any one or more remedies by Employer or Employee shall not constitute a waiver of the right to pursue other available remedies at any time or cumulatively from time-to-time. 12. Severability. All agreements and covenants herein contained are severable, and in the event any of them shall be held to be invalid or unenforceable by any court of competent jurisdiction, this Agreement shall continue in full force and effect and, subject to paragraph 8(d) hereof, shall be interpreted as if such invalid agreement or covenant were not contained herein. 13 Waiver or Modification. No amendment, waiver or modification of this Agreement or of any covenant, condition or limitation herein contained shall be valid unless in writing and duly executed by the party to be charged therewith, and no evidence of any amendment, waiver or modification shall be offered or received in evidence in any proceeding, arbitration or litigation between the parties hereto arising out of or affecting this Agreement, or the rights or obligations of the parties hereunder, unless such amendment, waiver or modification is in writing, duly executed as aforesaid, and the parties further agree that the provisions of this paragraph may not be waived or modified except as herein set forth. Failure of Employee or Employer to exercise or otherwise act with respect to any rights granted hereunder in the event of a breach of any of the terms or conditions hereof by the other party, shall not be construed as a waiver of such breach, nor prevent Employee or Employer from thereafter enforcing strict compliance with any and all of the terms and conditions hereof. 14. Fees and Expenses. If Employee is the prevailing party, Employer shall pay all of Employee's reasonable legal fees and related expenses (including the costs of experts, evidence and counsel) incurred by Employee as a result of (i) Employee's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment) or (ii) Employee's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by Employer under which Employee is or may be entitled to receive benefits. 15. Notices. All notices, requests, demands or other communications hereunder ("Notice") shall be in writing and shall be given by registered or certified mail, return receipt requested: if to Employer to: Laclede Steel Company Attn: John B. McKinney 15th Floor One Metropolitan Square St. Louis, Missouri 63102 and, if to Employee, to: H. Bruce Nethington 1130 South Geyer Road St. Louis, Missouri 63122 or to such other addresses as to which the parties hereto give Notice in accordance with this paragraph 15. 16. Construction. This Agreement shall be governed by and construed and interpreted according to the laws of the State of Missouri, notwithstanding the place of execution hereof, nor the performance of any acts in connection herewith or hereunder in any other jurisdiction. For all purposes hereof, reference to Employer shall include each and every subsidiary and affiliated company of Employer. 17. Assignability. The services to be performed by Employee hereunder are personal in nature and therefore Employee shall not assign his rights or delegate his obligations under this Agreement, and any attempted or purported assignment or delegation not herein permitted shall be null and void. 18. Successors. Subject to the provisions of paragraph 17, this Agreement shall be binding upon and shall inure to the benefit of Employer and Employee and their respective heirs, executors, administrators, legal representatives, successors and assigns. 19. Prior Employment Agreements. Any prior Employment Agreement between Employer and Employee is hereby terminated by mutual agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ______________________________ H. BRUCE NETHINGTON "Employee" LACLEDE STEEL COMPANY By____________________________ John B. McKinney, President "Employer" EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of the 19th day of October 1994, by and between LACLEDE STEEL COMPANY, a Delaware corporation ("Employer"), and LARRY J. SCHNURBUSCH ("Employee"). WHEREAS, Employee desires to be employed by Employer and Employer desires to employ Employee under the terms and conditions set forth in this Agreement; and WHEREAS, it is Employer's intention to employ Employee upon the terms and conditions herein, which recognize and compensate Employee for the obligations of Employee undertaken hereunder, including specifically, but not by way of limitation, the agreement of Employee not to compete with the business of Employer, as provided in paragraph 8(a)(iii) (see page 12), for the period provided in paragraph 8(a) upon the termination of Employee's employment by Employer for any reason; it being understood and agreed that Employee is employed by Employer to protect and expand the business of Employer; NOW, THEREFORE, in consideration of the foregoing and the promises and agreements herein contained, the parties agree as follows: 63. Employment. Employer hereby employs Employee, and Employee hereby accepts such employment from Employer upon the terms and conditions hereinafter set forth. 64. Term of Employment. The term of Employee's employment under this Agreement shall be for the period commencing October 19, 1994, and continuing through August 2, 1999, or upon the earlier occurrence of any of the following events: (a) Whenever Employer and Employee shall mutually agree in writing to terminate Employee's employment by Employer; (b) Upon the death of Employee; (c) For "cause," which shall mean Employee's dishonesty or unlawful acts committed in connection with the business of Employer, and which results in substantial gain or profit to Employee. (d) At Employer's option and by action of Employer's Board of Directors on thirty (30) days' written notice in the event of Employee's Disability (defined as the failure substantially to discharge Employee's duties as defined under this Agreement for ninety (90) consecutive days or one hundred twenty (120) days (whether or not consecutive) in any twelve (12) month period, as a result of an injury, disease, sickness or other physical or mental incapacity). A determination of Employee's Disability shall be made by a qualified medical doctor licensed to practice in the State of Missouri chosen by Employer subject to Employee's approval, which approval shall not be unreasonably withheld. Employee shall consent to be examined by Employer's medical doctor and shall consent to allow Employee's medical doctor to discuss Employee's medical condition with Employer. Notwithstanding anything to the contrary contained herein, Employee's Disability shall not be deemed to have commenced until full coverage with respect to such Disability shall have been approved by Employer's disability insurance carrier and payment under Employer's group disability policy for such Disability shall have commenced. 65. Duties of Employee. During Employee's employment by Employer, Employee shall serve Employer to the best of Employee's ability and shall perform such duties as are typically performed by Employer's employee responsible for its engineering, purchasing and energy policies. Employee agrees to devote Employee's time and efforts to the business of Employer (except for usual vacations and reasonable time for attention to personal affairs so long as Employee's performance hereunder is not adversely affected thereby), and to be loyal and faithful at all times, constantly endeavoring to improve Employee's ability and knowledge of the business of Employer in an effort to increase the value of Employee's services for the mutual benefit of Employee and Employer. 66. Compensation. (a) Employer agrees to pay Employee for Employee's services during the term of Employee's employment hereunder. Employee's base salary shall be the greater of (i) an annual rate of One Hundred Seventy-Eight Thousand Dollars ($178,000.00) or (ii) the highest annual base salary authorized by Employer for Employee after the date hereof. Employee's base salary shall be due and payable in twelve (12) equal monthly installments. Additionally, during the term of Employee's employment by Employer hereunder, Employee's compensation shall be reviewed and may be increased and/or Employee may be paid additional or special compensation including without limitation stock options, stock appreciation rights and other incentive compensation, or bonuses (based on the earnings of Employer, the performance of Employee or otherwise) from time to time by the mutual agreement of Employee and Employer, as determined by Employer. In addition, during the term of this Agreement, Employee shall receive such fringe benefits as are made available by Employer from time to time to other employees of Employer at Employee's level of employment. (b) In the event of the termination of Employee's employment either (i) by Employee for any reason including death or Disability, or (ii) by Employer without "cause" (as defined in paragraph 2 herein) or by Employer for any reason during the "Change of Control Period" (as defined in paragraph 5(b) herein), Employee shall be paid incentive compensation for the fiscal year in which such termination occurred in an amount equal to the product of (a) the amount of incentive compensation to which he would have been entitled for such fiscal year had there been no termination of employment and (b) a fraction, the numerator of which is the number of days of such fiscal year in which Employee remained in the employment of Employer and the denominator of which is 365. 67. Life Insurance Benefits. (a) During the term of this Agreement, Employer shall be obligated to keep in force life insurance on the life of Employee in the amount of Six Hundred Twenty-Two Thousand Dollars ($622,000.00), Three Hundred Thousand Dollars ($300,000.00) of which will consist of permanent insurance on the life of Employee owned by Employee or his designee. (b) In the event of the termination of Employee's employment either (i) by Employee for any reason, or (ii) by Employer without "cause" (as defined in paragraph 2 herein), or by Employer for any reason during the period commencing with the date of a Change of Control (as defined in Paragraph 6(b)) and ending the earlier of (a) twenty-four months following the Change of Control, or (b) August 2, 1999, (the "Change of Control Period"), Employer agrees to keep in force the permanent life insurance set forth in subparagraph (a) of this paragraph 5 for the duration of Employee's life. Employer may fulfill this obligation by satisfying the premium requirement so that such permanent insurance is fully paid under the terms of such permanent insurance policy. Employer's obligation to pay permanent life insurance premiums under this subparagraph (b) will survive the term of this Agreement. (c) In the event of the termination of Employee's employment by Employer for "cause" (as defined in paragraph 2 herein), other than during the Change of Control Period, then Employer's obligation to pay premiums under this paragraph 5 will cease. (d) Employer agrees to reimburse Employee for any tax due on the annual permanent insurance premium paid by Employer. (e) The amount of insurance described in subparagraph (a) may be increased by the Board of Directors. 6. Termination. (a) In the event of the termination of Employee's employment by Employer, without "cause" (as defined in paragraph 2 herein), then, in lieu of any further salary payment pursuant to paragraph 4(a) herein, Employer agrees to pay Employee for the remaining term of this Agreement at an annual rate equal to the average of Employee's "compensation" for the three fiscal years preceding the year of such termination. For this purpose the term "compensation" means Employee's base salary in effect for a particular year plus the incentive compensation received by the Employee with respect to services rendered in such year whether or not such incentive compensation is actually paid in such year. Amounts described above due Employee under this paragraph 6(a) shall be due and payable for the duration of the remaining term in equal monthly installments. In addition to the foregoing, Employer shall continue, for the duration of the remaining term, to provide Employee with such additional fringe benefits to which Employee was entitled as of the day immediately prior to the date of such termination. (b) If (a) Employer shall terminate Employee's employment for any reason during the period commencing with the date of a Change of Control (as hereinafter defined) and ending the earlier of (i) twenty-four months after the Change of Control, or (ii) August 2, 1999 (the "Change of Control Period"), or (b) Employee shall terminate his employment during the Change of Control Period for Good Reason as hereinafter defined, Employer shall pay to Employee upon such termination of employment, in a single lump cash sum, an amount equal to the lesser of (a) Five Hundred Fifty Thousand Dollars ($550,000) or (b) One Dollar ($1.00) less than 300% of Employee's Base Amount as hereinafter defined. Such payment shall be in lieu of further salary payments under paragraph 4(a) or payments (other than retirement and deferred compensation payments) under paragraph 6(a). Notwithstanding anything to the contrary contained herein, nothing in this Agreement shall relieve Employer of its obligation of providing Employee with all retirement benefits in accordance with the terms of all retirement and deferred compensation plans in which Employee participates, including without limitation, Employer's obligation under Section IV of the Key Employee Retirement Agreement between Employer and Employee maintained pursuant to the Laclede Steel Company Key Employee Retirement Plan. The term "Good Reason" shall mean the failure of Employer to comply with the following requirement: During the Change of Control Period, (i) Employee's base salary, position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held or exercised by or assigned to Employee at any time during the 90-day period immediately preceding the date of the Change of Control and (ii) Employee's services shall be performed at the location where Employee was employed immediately preceding the date of the Change of Control. The term "Base Amount" shall mean Employee's average annual compensation from Employer (as reported on Form W-2) for the five consecutive calendar years ending with the calendar year immediately preceding the Change of Control. The term "Change of Control" shall mean a change of control of a nature that would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), or any comparable successor provisions. Without limiting the foregoing, a "Change of Control" also means for purposes of this Agreement, regardless of its meaning under the provisions of the Exchange Act: (i) The purchase or other acquisition (other than from Employer) by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Exchange Act (excluding, for this purpose, Employer or its subsidiaries or any employee benefit plan of Employer or its subsidiaries), of beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either the then outstanding shares of common stock or the combined voting power of Employer's then outstanding voting securities entitled to vote in the election of directors; or (ii) The receipt of proxies for the election of directors of Employer in opposition to management's slate of nominees which proxies aggregate more than 40% of the then outstanding voting stock of Employer; or (iii) Individuals who, as of the date hereof, constitute the Board of Directors of Employer (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board, provided that any person (other than a person whose election or nomination or whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of Employer, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) who becomes a director subsequent to the date hereof whose election, or nomination for election by Employer's shareholders, was approved by a vote of at least three-quarters of the directors then comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iv) Approval by the stockholders of Employer of a reorganization, merger, or consolidation, in each case, with respect to which persons who were the stockholders of Employer immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of Employer or of the sale of all or substantially all of the assets of Employer. (c) In the event of a determination that payments under paragraph 6(b), together with any other payments which Employee has a right to receive from Employer constitute a "payment" within the meaning of Section 280G(b)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), then Employer shall pay to Employee, in a lump sum, an amount equal to the sum of (i) any excise tax that would be imposed by Section 4999 of the Code and payable by Employee, and (ii) an additional amount which, when added to the amount of the excise tax payable, equals an aggregate payment sufficient to pay all federal, state and local income taxes due on the aggregate payment, including interest and penalties, and leave a net amount equal to the excise tax payable. For purposes of this paragraph, the term "determination" means (i) a decision by the Tax Court which has become final, as defined in Section 7481 of the Code or (ii) a judgment, decree, or other order by any court of competent jurisdiction which has become final. Employer shall pay all reasonable legal fees incurred in connection with a determination on this issue. If both Employer and Employee elect to forego a court proceeding on this issue, Employer agrees to pay Employee the amount set forth in this paragraph 6(c) without a determination and to pay all reasonable legal fees incurred prior to such election. 7. Extent of Services. Employee shall devote Employee's time, attention and energy to the business of Employer, and shall not during the term of this Agreement, or any extension hereof, without Employer's consent, be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage; but nothing contained herein shall be construed as preventing Employee from investing his assets in such form or manner as will not require any service on the part of Employee in the operation of the affairs of the corporations or other entities in which Employee may invest his assets. 8. Covenants of Employee. (a) During the term of Employee's employment with Employer, and for a period of one (1) year after the termination of such employment, for whatever reason, except for the termination of Employee's employment under circumstances which constitute a violation by Employer of the provisions of this Agreement, Employee covenants and agrees that Employee will not (except as required in Employee's duties to Employer), in any manner directly or indirectly: (i) Disclose or divulge to any person, entity, firm or company whatsoever, or use for Employee's own benefit or the benefit of any other person, entity, firm or company directly or indirectly, in competition with the business of Employer, as the same may exist at the date of such cessation, any proprietary business methods, customer lists, supplier lists, business plans or other information or data of Employer, without regard to whether all of the foregoing matters will otherwise be deemed confidential, material or important, the parties hereto stipulating that as between them, the same are important, material and confidential and greatly affect the effective and successful conduct of the business and the goodwill of Employer, and that any breach of the terms of this subparagraph (i) shall be a material breach of this Agreement; (ii) Solicit, divert, take away or interfere with any of the customers, trade, business, patronage, employees or agents of Employer; (iii) Engage, directly or indirectly, either personally or as an employee, partner, associate, officer, manager, agent, advisor, consultant or otherwise, or by means of any corporate or other entity or device, in any business competitive with the business of Employer. (b) For purposes hereof, a business will be deemed competitive if (i) such business involves the manufacture and sale of steel, or any other business which is competitive, during or as of the date of cessation of Employee's employment, with any business then being conducted by Employer or as to which Employer has at such time formulated definitive plans to enter; and (ii) such business makes substantial sales of products competitive with those of Employer in any of the States of Missouri, Illinois, Indiana, Iowa, Michigan and Ohio. (c) All of the covenants on behalf of Employee contained in this paragraph 8 shall be construed as agreements independent of any other provision of this Agreement, and the existence of any claim or cause of action against Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Employer of these covenants. (d) It is the intention of the parties to restrict the activities of Employee under this paragraph 8 only to the extent necessary for the protection of legitimate business interests of Employer, and the parties specifically covenant and agree that should any of the clauses or provisions set forth herein, under any set of circumstances not now foreseen by the parties, be held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, then and in that event, it is the intention of the parties hereto that, in lieu of each such clause or provision of this paragraph 8, there shall be substituted or added, and there is hereby substituted or added, terms to such illegal, invalid or unenforceable clause or provision as may be legal, valid and enforceable. 9 Expenses. In addition to compensation paid to Employee under paragraph 4 hereof, during the period of Employee's employment, Employer will pay directly or reimburse Employee for reasonable and necessary expenses incurred by Employee in the interest of the business of Employer. All such expenses paid by Employee will be reimbursed by Employer upon presentation by Employee, from time to time, of an itemized account of such expenditures, accompanied by appropriate receipts or other evidence of payment to the extent necessary to permit the deductibility thereof for Federal income tax purposes. 10. Documents. Employee agrees that all documents, instruments, drawings, plans, contracts, proposals, records, notebooks, invoices, statements and correspondence, including all copies thereof, relating to the business of Employer, other than purely personal documents, shall be the property of Employer; and upon the cessation of Employee's employment with Employer, for whatever reason, all of the same then in Employee's possession, whether prepared by Employee or others, will be left with or immediately delivered to Employer. 11. Remedies. It is agreed that any material breach or evasion of any of the terms of this Agreement by Employee will result in immediate and irreparable injury to Employer and will authorize recourse to injunction and/or specific performance as well as to all other legal or equitable remedies to which Employer may be entitled. No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy whether given hereunder or not or whether hereafter existing at law or in equity, by statute or otherwise. The election of any one or more remedies by Employer or Employee shall not constitute a waiver of the right to pursue other available remedies at any time or cumulatively from time-to-time. 12. Severability. All agreements and covenants herein contained are severable, and in the event any of them shall be held to be invalid or unenforceable by any court of competent jurisdiction, this Agreement shall continue in full force and effect and, subject to paragraph 8(d) hereof, shall be interpreted as if such invalid agreement or covenant were not contained herein. 13 Waiver or Modification. No amendment, waiver or modification of this Agreement or of any covenant, condition or limitation herein contained shall be valid unless in writing and duly executed by the party to be charged therewith, and no evidence of any amendment, waiver or modification shall be offered or received in evidence in any proceeding, arbitration or litigation between the parties hereto arising out of or affecting this Agreement, or the rights or obligations of the parties hereunder, unless such amendment, waiver or modification is in writing, duly executed as aforesaid, and the parties further agree that the provisions of this paragraph may not be waived or modified except as herein set forth. Failure of Employee or Employer to exercise or otherwise act with respect to any rights granted hereunder in the event of a breach of any of the terms or conditions hereof by the other party, shall not be construed as a waiver of such breach, nor prevent Employee or Employer from thereafter enforcing strict compliance with any and all of the terms and conditions hereof. 14. Fees and Expenses. If Employee is the prevailing party, Employer shall pay all of Employee's reasonable legal fees and related expenses (including the costs of experts, evidence and counsel) incurred by Employee as a result of (i) Employee's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment) or (ii) Employee's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by Employer under which Employee is or may be entitled to receive benefits. 15. Notices. All notices, requests, demands or other communications hereunder ("Notice") shall be in writing and shall be given by registered or certified mail, return receipt requested: if to Employer to: Laclede Steel Company Attn: John B. McKinney 15th Floor One Metropolitan Square St. Louis, Missouri 63102 and, if to Employee, to: Larry J. Schnurbusch 12248 Winrock St. Louis, Missouri 63141 or to such other addresses as to which the parties hereto give Notice in accordance with this paragraph 15. 16. Construction. This Agreement shall be governed by and construed and interpreted according to the laws of the State of Missouri, notwithstanding the place of execution hereof, nor the performance of any acts in connection herewith or hereunder in any other jurisdiction. For all purposes hereof, reference to Employer shall include each and every subsidiary and affiliated company of Employer. 17. Assignability. The services to be performed by Employee hereunder are personal in nature and therefore Employee shall not assign his rights or delegate his obligations under this Agreement, and any attempted or purported assignment or delegation not herein permitted shall be null and void. 18. Successors. Subject to the provisions of paragraph 17, this Agreement shall be binding upon and shall inure to the benefit of Employer and Employee and their respective heirs, executors, administrators, legal representatives, successors and assigns. 19. Prior Employment Agreements. Any prior Employment Agreement between Employer and Employee is hereby terminated by mutual agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ______________________________ LARRY J. SCHNURBUSCH "Employee" LACLEDE STEEL COMPANY By____________________________ John B. McKinney, President "Employer" EX-22 4 EXHIBIT (22) Subsidiaries of Registrant 1. Laclede Consulting Services Limited - wholly-owned. 2. Laclede Chain Manufacturing Company - wholly-owned. 3. Laclede Mid America Inc. - wholly-owned. 4. Laclede Pipe Company - wholly-owned. EX-27 5
5 1,000 DEC-31-1994 JAN-1-1994 DEC-30-1994 YEAR 159 0 48,222 2,635 102,466 149,960 256,237 129,475 343,251 61,054 100,801 0 0 54,081 (338) 343,251 341,289 341,289 306,351 313,976 14,039 300 6,940 7,437 2,975 0 0 0 0 4,462 1.10 1.10