-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E3mIFlL3sLFhvyGKXUviN02g0+u01vgVt4rJ4ITQQVHB1Q5LFrtnGi6v1RVPp1Eb dGUnyonoJS0lity2okNrXQ== 0000057187-98-000001.txt : 19980401 0000057187-98-000001.hdr.sgml : 19980401 ACCESSION NUMBER: 0000057187-98-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LACLEDE STEEL CO /DE/ CENTRAL INDEX KEY: 0000057187 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 430368310 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-03855 FILM NUMBER: 98583414 BUSINESS ADDRESS: STREET 1: ONE METROPOLITAN SQ STREET 2: 211 N BROADWY CITY: ST LOUIS STATE: MO ZIP: 63102 BUSINESS PHONE: 3144251400 MAIL ADDRESS: STREET 1: ONE METROPOLITAN SQ CITY: ST LOUIS STATE: MO ZIP: 63102 10-K 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, 1997 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: $.01 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 any amendment to this Form 10-K. [X] At the date of filing of this report there were 4,056,140 shares of $.01 par value common stock outstanding. At February 20, 1998 the aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $7,299,000. Documents Incorporated by Reference NONE PART I Item 1. Business. (a) General Development of Business Laclede Steel Company is a manufacturer of a wide range of carbon and alloy steel products, including pipe and tubular products, hot rolled products (primarily special quality bars), wire products, and welded chain. The Company converts its semi-finished steel into products through its rolling mills and finishing plants. The Company produces wire products and welded chain utilizing rods purchased on the open market. Each of the Company's finishing facilities is located near its end markets and is specialized by product to optimize efficiency. The Company is one of three full-line domestic producers of continuous weld pipe in the United States. In addition, the Company believes it is an important 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. The Company produces semi-finished steel at its Alton, Illinois Plant. With the completion of a Ladle Furnace facility in the second quarter of 1996 the Company now produces all of its steel by the more efficient continuous cast method. Annual steelmaking capacity is estimated at 780,000 net tons. Through 1995, the Alton Plant had supplied nearly all of the semi-finished steel used to finish products at the Company's downstream facilities. The Company began purchasing rods for its two wire mills and the welded chain operations in the second quarter of 1996. Over the last twelve 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. On February 10, 1997 the Company sold the assets of its electric weld structural tubing operation located in Benwood, West Virginia. Sales of structural tubing accounted for approximately 6% of consolidated net sales in 1996. At December 31, 1996 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. On September 26, 1997, a subsidiary of Ivaco Inc. sold one-half of the Ivaco investment in the Company to Midwest Holdings, Inc., a wholly-owned subsidiary of Birmingham Steel Corporation ("Midwest Holdings"). The securities of the Company sold consisted of 1,009,325 common shares and 183,334 shares of the Company's Series A preferred stock. The preferred shares are convertible into 859,834 common - 2 - shares of the Company. The transaction was effected through the sale of a wholly-owned subsidiary of Ivaco which contained such shares to Midwest Holdings. In connection with the transaction Ivaco, among other things, gave Midwest Holdings the voting rights on Ivaco's remaining investment in the Company's common stock and, in any additional common stock Ivaco may own as a result of the conversion of Ivaco's remaining Series A preferred stock, subject to certain limitations. In addition, Ivaco agreed not to sell any portion of its remaining investment in the Company prior to September 24, 1998 and has provided Midwest Holdings with a limited right of first refusal with respect to such interests until September 24, 2002. At December 31, 1997 Birmingham Steel Corporation and affiliates owned 1,029,325 shares of the Company's common stock or 25.4% of the total number of shares outstanding and Ivaco Inc. owned 1,009,325 shares or 24.9% of the outstanding shares. (b) Financial Information The following table sets forth certain financial information relating to Registrant's operations: Year Ended December 31, (Thousands of Dollars) 1997 1996 1995 Net Sales $325,029 $335,381 $320,350 Net Loss $ (3,007) $ (9,985) $(10,137) Identifiable Assets $313,820 $331,110 $349,778 (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 - Coupling Stock - Fence Pipe - Rigid Conduit Shells Hot Rolled Products: Carbon and Alloy SBQ Bars Forging Billets Special Shapes Special Processing Wire Products: Cold Drawn Wire - High Carbon - Low Carbon Heat Treated Wire - Carbon Oil Tempered - Alloy Oil Tempered - Annealed Chain: Welded Chain - 3 - The following table presents, for the years indicated, the percentage of the Company's total sales by product class: Product 1997 1996 1995 Pipe and tube 38.0% 41.1% 40.8% Hot Rolled 37.8 35.1 34.7 Wire 14.8 13.6 16.4 Chain 9.4 10.2 8.1 Total 100% 100% 100% Pipe and Tubular Products. The Company's tubular products consist primarily of continuous butt weld ("CBW") pipe which is sold in the U.S. and Canada to distributors and manufacturers. Pipe products are produced and finished at the Company's Alton and Fairless Hills, Pennsylvania Plants and finished at the Vandalia, Illinois Facility. 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 Vandalia Facility. By the end of 1993, the majority of CBW pipe was no longer finished at the Alton Plant. In February 1997 the Company sold the assets of its electric resistance weld tubing operation located in Benwood, West Virginia. This product accounted for approximately 6% of consolidated net sales in 1996. The Company is one of only three full line 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. In 1996 the Company completed the planned modifications to the Melt Shop at the Alton Plant by installation of a Ladle Furnace Facility that allowed the Company to shift the remaining portion of its steel production used in pipe making from the ingot process to the more efficient continuous cast method. 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. Wire Products. The Company is a major manufacturer of wire products. These products include high and low carbon wire, oil tempered wire, and annealed wire. The Company believes it is an important participant in the oil tempered wire market. Wire - 4 - products are currently manufactured and finished at the Company's Memphis, Tennessee and Fremont, Indiana Facilities. The Fremont Facility is the Company's stand-alone oil tempered wire plant which the Company believes to be a state-of-the-art facility. The Fremont Plant has begun producing oil tempered wire for automobile suspension springs and for brake springs. This is a recently developed new product which is expected to have a positive effect on profitability. Chain Products. Laclede Chain, one of the Company's wholly owned subsidiaries, produces welded chain and also imports a significant amount of chain for resale. Laclede Chain generated in excess of $30 million in sales in 1997, approximately 47% 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, 1997 and 1996 the Company had a sales backlog of over $30 million. This backlog does not have significant seasonal variation. Long-term sales commitments do not represent a significant portion of the business. 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. See Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) for additional discussion. 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. In the months ahead management will be reviewing all of the operations to develop a plan to improve the long-term profit- ability of the Company and maximize our cash flow. The Company will also be exploring alternatives to strengthen the balance sheet of the Company. The Company began its business expansion with the acquisition of a chain manufacturer in northwestern Missouri in 1984. 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. 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 - 5 - tempered wire are produced at the Memphis Plant. The Vandalia Facility processes semi-finished pipe produced at the Alton Plant. In 1996 the Company completed a planned restructuring of the steelmaking facilities at the Alton Plant. The Company's Ladle Furnace Facility became operational in the second quarter of 1996 and all steel is now produced using the more efficient continuous cast method. In connection with this restructuring, the Company shut down its Blooming Mill and Rod Mill operations. The shutdown of these facilities, together with the move to 100% continuous cast steel, have resulted in more efficient operations at the Alton Plant. In 1996 the Company began purchasing the rod requirements for its wire operations on the open market resulting in reduced costs and improved quality. In February 1997, the Company sold the assets of its electric weld structural and mechanical tubing operation, located in Benwood, West Virginia. After collection of a related note receivable, cash proceeds from the sale of these assets, which consist primarily of equipment and inventory, totaled approximately $11.0 million. The Company used the funds from the sale to improve its working capital position. Sale of these assets did not affect the Company's primary tubular business, continuous weld pipe. Capital Improvements. While the Company has expanded and improved its downstream finishing facilities, it has also completed important capital improvements to the steelmaking operations at the Alton Plant. The primary objective of these improvements was to substantially reduce production costs and provide access to new markets. For further information and for discussion of future capital expenditure plans, please refer to MD&A. Competition The Company believes that the principal competitive factors affecting its business are price, quality and customer service. 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. Moreover, the addition of new sheet capacity in the industry has had and will continue to have a favorable impact on production costs of the Company's tubular product competitors. The Company also expects increased competition in its bar product business as announced increases in capacity materialize. Foreign. The Company also faces competition from foreign steel producers. Foreign competition may increase in the future, due to factors such as changes in currency exchange rates, repeal - 6 - of duties on foreign-produced steel or the enactment of restrictive or burdensome regulations or taxes that affect domestic but not foreign steel manufacturers. Many foreign steel producers are owned, controlled or subsidized by their governments and their decisions with respect to production and sales may be influenced more by political and economic policy considerations than by prevailing market conditions. 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 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 a period of years, the Company accumulated approximately 145,000 tons of this material on-site at the Alton Plant, pending development of technology for economical treatment. The Company has received approval of a modified closure plan for disposition of this existing EAF dust with the Illinois EPA which provides for the closure of all piles in place. In December 1997, the Company idled its High Temperature Metal Recovery facility ("HTMR") after the facility became inoperable due to an accident. This facility was used to dispose of the Company's EAF dust generated in the Alton Facility. During 1998, management plans to dispose of the EAF dust through alternative methods. Management plans to evaluate the HTMR facility periodically to determine the economic feasibility of repairing and operating the unit. Employees. As of December 31, 1997, the Company employed approximately 1,475 employees, 300 of whom are classified as management, administrative and sales personnel. The Company's 685 hourly employees at the Alton Plant are covered by a collective bargaining agreement that expires in September of 2001. None of the Company's other employees are covered by a collective bargaining agreement. The Company has never experienced a strike, and it believes that its relations - 7 - with its employees are good. The compensation for the majority of the Company's employees is based partially on productivity in accordance with various incentive plans. 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 780,000 net tons per year, a ladle metallurgy facility, a continuous bloom casting facility, a roughing mill and 14-inch bar mill, 8-inch bar mill, 22-inch strip mill and facilities for the manufacture of continuous butt-weld pipe. The Company also has a pipe finishing plant in Vandalia, Illinois, a chain manufacturing plant in Maryville, Missouri, a wire mill in Memphis, Tennessee and a wire oil tempering facility in Fremont, Indiana. The Company operates a pipe mill in Bucks County, Pennsylvania which is leased from USX Corporation. The lease expires September 30, 2001 with an option to renew until September 30, 2006. The Company's property is well maintained and adequate for 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. 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. At the annual meeting of the stockholders held on December 16, 1997 the following directors were elected: Name Number of Votes Joseph Alvarado 3,722,425 Robert A. Garvey 3,722,875 Michael H. Lane 3,719,818 William R. Lucas, Jr. 3,722,425 Wayne P. E. Mang 3,722,425 John B. McKinney 3,719,368 Philip R. Morgan 3,723,675 Robert H. Quenon 3,722,211 George H. Walker III 3,721,361 - 8 - 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 1998 there were approximately 550 stockholders of record. Market Price Range 1997 1996 Quarter High Low High Low First $ 5 $ 3-1/8 $ 8 $ 5-1/2 Second 4-5/8 3-5/8 8-1/4 5-3/8 Third 5-3/16 3-1/2 6-3/8 4 Fourth 6 3-7/8 4-1/2 2-3/4 Dividends Per Share Paid on Common Stock 1997 1996 None None Payment of dividends on common stock is limited by the Company's Loan and Security Agreement. See Note 4 to the Company's Consolidated Financial Statements. In addition, the Certificate of Designation for the Company's outstanding Series A Preferred Stock provides that the Company shall not declare or pay any dividends on the Company's common stock unless full cumulative dividends have been paid or declared on the Series A Preferred Stock. At this date, full cumulative dividends have not been paid or declared on the Series A Preferred Stock. On July 30, 1996, the Company sold 416,667 shares of Series A Preferred Stock to Ivaco Inc. and the executive officers of the Company for an aggregate sales price of approximately $6,250,000. There were no underwriters and no underwriting discount or commission and the net proceeds to the Company, after expenses, was $6,090,000. The sale of the Series A Preferred Stock to Ivaco Inc. and the executive officers of the Company was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) as a transaction not involving any public offering because of the limited number of offerees, each of whom was a sophisticated investor and fully informed as to the risks involved. On October 28, 1996, at a special meeting of stockholders, the Company's stockholders approved a recapitalization of the Series A Preferred Stock such that each share of the preferred stock became convertible into the Company's Common Stock at the option of the holder at a conversion price of $3.20 into 4.69 shares of common stock. - 9 - Item 6. Selected Financial Data.
Five-Year Financial Summary (In Thousands of Dollars Except Per Share Data) 1997 1996 1995 1994 1993 Net Sales $325,029 $335,381 $320,350 $341,289 $328,766 Earnings (Loss) Before Cumulative Effect of Change in Accounting Principle* $ (3,007) $ (9,985) $(10,137) $ 4,462 $ 3,107 Net Earnings (Loss)* $ (3,007) $ (9,985) $(10,137) $ 4,462 $(43,436) Basic and Diluted Net Earnings (Loss) per share* $ (0.83) $ (2.50) $ (2.50) $ 1.10 $ (10.71) Other Financial Data Total assets $313,820 $331,110 $349,778 $343,251 $349,814 Working capital 55,899 62,001 87,759 88,906 88,833 Capital expenditures 3,016 10,726 13,847 14,747 12,782 Long-term debt 109,157 107,889 118,791 100,801 100,926 Stockholders' equity 21,101 17,245 16,518 53,743 42,590 Stockholders' equity per share $ 5.20 $ 4.25 $ 4.07 $ 13.25 $ 10.50 Cash dividends per share $ -- $ -- $ -- $ -- $ --
* Includes restructuring, asset impairment and other charges which reduced net earnings in 1996 by $1.0 million or $.24 per share and in 1995 by $11.4 million or $2.81 per share. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Operating Results 1995 to 1997 The net loss for 1997 was $3.0 million. In the first quarter of 1997 the Company realized an after-tax gain of $.6 million on the sale of its Benwood Facility. The net loss for 1996 was $10.0 million which included a $1.6 million ($1.0 million after tax) charge for an early retirement incentive in the fourth quarter discussed in Notes 5 and 6 to the Consolidated Financial Statements. Net earnings for 1995 were $1.3 million before the effect of restructuring, asset impairment and other charges described in Note 6 to the Consolidated Financial Statements. The net loss for 1995 was $10.1 million after deducting the $11.4 million after-tax effect of the special charges. - 10- The change in net sales for the last three fiscal years is analyzed as follows: (In Thousands) 1997 Vs. 1996 1996 Vs. 1995 1995 Vs.1994 Increase (Decrease) in net sales $(10,352) $ 15,031 $(20,939) Comprised of: Increase (Decrease) in volume $(13,107) $ 32,192 $(24,788) Increase (Decrease) in price $ 2,755 $(17,161) $ 3,849 In 1997 net sales decreased by $10.4 million compared to 1996 reflecting a 3.4% decrease in steel shipments and an overall increase in sales prices. Lower shipments are primarily a result of the sale of the Benwood electric weld structural tubing operation. The overall increase in sales prices reflects an improved product mix in shipments of continuous weld pipe and higher prices for oil tempered wire. SBQ bar prices, which began to decline in 1995, remained at lower levels throughout 1997. Cost of products sold decreased by $17.4 million in 1997 versus 1996 reflecting the 3.4% decline in shipments, the effect of cost reductions implemented in late 1996, and lower costs for the Company's basic raw material, ferrous scrap. The Company also continued to benefit from the productivity gains which it began to experience in most of its operations in the second half of 1996. The Company's 1997 fourth quarter results, however, were affected by negotiations with the Steelworkers' Union for a new contract at the Alton Plant. During the first half of October hourly employees at the Alton Plant worked without a contract while the Company continued negotiations with the Union. During the period significant non-recurring expenses were incurred in preparation for a potential strike. While the Company and the Union were able to reach an agreement without a work stoppage, the uncertain situation contributed to poor productivity in October. In the fourth quarter of 1997 the Company also recorded inventory write-downs of $3.4 million, primarily related to tubular products and semi-finished steel. This adjustment, which reduces the carrying cost to estimated net realizable value, was based on a review of year-end inventory. Net sales increased by $15.0 million in 1996 over 1995 resulting from a 13.5% increase in tons shipped offset by a 5.4% reduction in selling prices. Cost of products sold increased by $30.3 million reflecting the higher volume of shipments in 1996 and a change in the mix of products sold. - 11 - In 1995 net sales decreased by $20.9 million as a result of a 6.4% reduction in steel shipments. While sales prices declined in the second half of 1995, average prices for the year were slightly higher than 1994. Cost of products sold decreased by 6.4% compared to 1994, reflecting lower volume. As discussed below, production costs in 1995 include the effects of further increases in the cost of the Company's basic raw material, ferrous scrap. In 1995 scrap prices were 3.4% higher than 1994. In 1996 and 1997 scrap prices declined, with average scrap prices in 1997 about 4% lower than 1995. In addition to demand for steel, there are 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. In the first half of 1995, the Company was able to recover the increased scrap costs through higher selling prices for its products. In the second half of 1995 and in 1996, declining sales prices had a negative impact on product margins. In December 1995 a decision was made leading to a restructuring of the steelmaking facilities at the Alton Plant. As a result of this decision, accounting charges totaling $9.8 million after taxes were recorded in the fourth quarter of 1995. These charges, which are primarily non-cash in nature, include recognition of impairment loss for equipment, retirement costs for affected employees, and adjustments of rod and wire inventories to market value. The Company also recognized a charge of $1.6 million, after taxes, related to inventory write-downs in its tubular product operations. This inventory adjustment, which reduced the carrying cost to net realizable value, reflected higher production costs together with significant reductions in selling prices for tubular products. Pressure on sales prices in 1995 was caused by lower prices for sheet steel, the raw material for the Company's competitors in the pipe market. The Company's Ladle Furnace Facility became operational in the second quarter of 1996 and all steel is now produced using the more efficient continuous cast method. The Company ceased production of rods, and began purchasing requirements for its wire operations on the open market, at a significant reduction in costs. In connection with this restructuring, in 1996 the Company also shut down its Blooming Mill and Rod Mill operations. The shutdown of these facilities, together with the move to 100% continuous cast steel, results in more efficient operations at - 12 - the Alton Plant. These actions, however, resulted in production inefficiencies and higher costs early in the year. These inefficiencies continued after the start-up of the Ladle Furnace until August 1996 when the Company began to experience progress in the form of lower steelmaking costs. Selling, general and administrative expenses were lower in 1997 primarily as a result of reductions in the salaried workforce. The 1997 decrease in interest expense is due to a decrease in average borrowings outstanding. The increase in interest expense in 1996 over 1995 reflects an increase in the average borrowings outstanding and a slightly higher average rate of interest. In the second quarter of 1995 the Company completed the sale of approximately 3% of the common stock of its subsidiary, Laclede Mid America, Inc. Accordingly a non-taxable gain of $728,000 representing the excess of the sales price over the net book value of the stock sold, is included in the results for 1995. Higher depreciation expense in 1995 is a result of increased capital expenditure levels. Reduced depreciation in 1996 reflects the shutdown of the Blooming Mill and Rod Mill at the Alton Plant. General inflation has 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. In 1998 the Fremont Plant expects to increase its production of certain higher grades of oil tempered wire, utilizing technology developed in connection with the project to produce wire for suspension springs. 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 fourth quarter of 1996. Fourth quarter 1997 results for Laclede Chain were substantially below expectations. This is a direct result of unusually mild weather in the Northwest in November and December, and its impact on traction chain sales. - 13 - Under an agreement with USX Corporation the Company leases the Pipe Mill Operations located at the Fairless Works in Bucks County, Pennsylvania. Shipments of continuous weld pipe from the Fairless Plant represented 36% of tubular products sales in 1997. The Company also operates a tubular finishing plant in Vandalia, Illinois. The Vandalia facility processes semi-finished pipe produced at the Alton Pipe Mill. Shipments of continuous weld pipe from the Vandalia Plant represented 44% of tubular products sales in 1997. Liquidity and Capital Resources In the year 1997 operating activities used $8.5 million in cash. This compares to 1996 when $11.8 million was provided, reflecting a large decrease in inventories and an increase in accounts payable. Contributions to Company pension plans totaled $14.7 million in 1997, $15.0 million in 1996 and $11.3 million in 1995. In 1995 operating activities used $4.9 million in cash. Significant expenditures also included capital expenditures of $3.0 million in 1997, $10.7 million in 1996 and $13.8 million in 1995. In February 1997 the Company completed the sale of its electric weld structural and mechanical tubing operation, located in Benwood, West Virginia. After collection of a related note receivable, cash proceeds from the sale of these assets, which consisted primarily of equipment and inventory, were approximately $11.0 million. Net working capital decreased by $6.1 million during the year and the ratio of current assets to current liabilities was 1.8 to 1.0 at December 31, 1997. In the third quarter of 1997 the Company reached an agreement with its lenders for an increase in availability under the Loan and Security Agreement of approximately $13.0 million, the majority of which was applied as a reduction in trade accounts payable. The Company has periodically amended its Loan and Security Agreement to modify financial covenants relating to operating results and net worth. The most recent amendment was effective March 27, 1998. In the event further amendment to financial covenants is necessary in the future, there can be no assurance that the Company will be able to obtain such amendment. The Company is also required to comply with various covenants related to limits on liability as defined in the Pollution Control Revenue Bonds. At December 31, 1997, the Company was in compliance with these covenants. As part of the modifications to the Restated Loan and Security Agreement previously mentioned, in 1997 the Company received the approval of parties to the Solid Waste Revenue Bonds to eliminate certain negative financial covenants contained therein and to substitute therefore certain collateral. Subsequent to that substitution, the only remaining negative financial covenant with respect to - 14 - the Solid Waste Revenue Bonds is that the Company may not without the prior written consent of the Issuer of the Bonds (i) borrow from its subsidiary, Laclede Chain Manufacturing Company, or (ii) take cash advances from Laclede Chain Manufacturing Company, except to the extent that the aggregate principal amount of all such borrowings and cash advances at any one time do not exceed $7.0 million. Collateral granted to the Trustee of the Solid Waste Revenue Bonds for the benefit of the bondholders consists of (i) all of the issued and outstanding shares of Laclede Chain Manufacturing Company and (ii) all of Laclede Chain Manufacturing Company's machinery and equipment now owned or thereafter acquired. As of December 31, 1997, the Company is in compliance with the remaining negative covenant contained in the Solid Waste Revenue Bonds. During 1998 the Company anticipates capital expenditures of approximately $6.0 million, and contributions to pension plans of $13.6 million. Assuming that the Company is able to (i) maintain its existing level of sales, (ii) avoid sales price decreases and (iii) capture savings from productivity improvements, the Company will generate sufficient cash flow to finance its 1998 liquidity requirements including the above referenced expenditures. If the Company is unable to maintain its existing level of sales and current pricing or if the Company's productivity improvements fail to produce positive financial results, the Company may not generate sufficient cash flow to finance its 1998 liquidity requirements. In such event, the Company would evaluate other methods of generating cash flow such as the sale of significant businesses or assets and refinancing transactions. There can be no assurance, however, that any such alternative could be successfully completed. In July 1996, the Company issued a total of $6.25 million in Series A Preferred Stock to its largest stockholder, Ivaco Inc., and to executive officers of the Company. On October 28, 1996, at a special meeting of the stockholders, an amendment was approved to the Company's Certificate of Incorporation which reduced the par value of each share of common stock from $13.33 per share to $0.01 per share and increased the number of authorized common stock shares from 5,000,000 shares to 25,000,000 shares. The stockholders also approved the recapitalization of the Company's Series A 6% preferred stock to convertible preferred stock. At such time each share of the preferred stock became convertible into common stock at the option of the holder at a conversion price of $3.20 into 4.69 shares of common stock. In connection with the sale of Series A Preferred Stock to Ivaco Inc. and to executive officers of the Company, the Company was required to use its best efforts to obtain stockholder approval of the amendment to the Company's Certificate of Incorporation. In addition such approval was necessary in order for the Company to pursue a rights offering to all of the Company's stockholders, entitling all such stockholders to subscribe for Series A Preferred Stock (the "Rights Offering"). - 15 - The Company, however, has postponed the Rights Offering until it improves its operating results. In this regard the Company implemented a number of cost reduction and productivity improvement programs that improved 1997 results, and continues to study cost reduction options. The Company does not presently intend to proceed with the Rights Offering until operating results have reached satisfactory levels and a long-term strategic plan has been developed. There can be no assurance when or if the Company will proceed with a Rights Offering. At December 31, 1997, $76.5 million in borrowings were outstanding under the Company's revolving credit facility, and unused availability totaled $5.2 million. Amounts available under this facility were utilized early in the first quarter of 1998 to cover outstanding short-term commitments, primarily trade accounts payable. In 1996 the Company experienced higher than expected retirements from its hourly workforce at the Alton Plant. This was particularly the result of restructuring of operations and early retirement incentives offered in late 1996. In addition in October 1997 the Company negotiated a new Labor Agreement for hourly employees at the Alton Plant, which includes an increase in pension benefits. Despite the negative effect which these factors have on pension costs, the Company does not anticipate an increase in required plan contributions in 1998. A planned change in the actuarial method of recognizing gains in the market value of pension plan assets will have a favorable impact on 1998 funding requirements, which should approximate the 1997 level. Current actuarial projections indicate that if the Company continues to make its required minimum quarterly contributions, the Plan's funded percentage will increase and future minimum funding requirements will decline somewhat from 1997 and 1998 levels. Under the new actuarial method with respect to the market value of pension plan assets, however, any material decrease in the market value of pension plan assets could have a material adverse effect on the Company's future pension funding requirements. There can be no assurance that the Company could fund such requirements. As discussed in Note 3 to the Consolidated Financial Statements, at December 31, 1997 the Company has net deferred tax assets of $45.4 million. For tax purposes, the Company had available as of December 31, 1997, net operating loss ("NOL") carryforwards for regular federal income tax purposes of approximately $68,100,000. These NOL carryforwards expire as follows: 2008 $ 7,600,000 2009 900,000 2010 14,900,000 2011 27,200,000 2012 17,500,000 - 16 - Additionally, in conjunction with the Alternative Minimum Tax Rules ("AMT"), the Company had available AMT credit carryforwards of approximately $2,500,000, which may be used indefinitely to reduce regular federal income taxes. Management believes that it is more likely than not that all of the NOL carryforwards will be utilized prior to their expiration. The NOL carryforwards, as well as the existing deductible temporary differences, with the exception of differences relating to the minimum pension liability adjustment and the postretirement benefits, are largely offset by the existing taxable temporary differences relating to accelerated depreciation which will reverse within the carryforward period. Furthermore, any recorded deferred tax assets associated with these future tax benefits which would not be offset by the reversal of the accelerated depreciation are expected to be realized by the achievement of future profitable operations. The Company experienced profitable operations in 1993, 1994 and 1995, exclusive of nonrecurring/unusual charges in connection with restructuring and modifying the operations of the Company. While the Company experienced significant operating losses in 1996, management believes 1997 would have been a profitable year were it not for the unanticipated losses associated with the union contract negotiations, the related decrease in productivity in the periods surrounding the termination of the contract and the year-end inventory write-offs. Additionally, management currently expects operations in 1998 to return to profitability. The Company operates in a highly cyclical industry and consequently has had a history of generating operating profits over an average business cycle despite periods of operating losses within a cycle. Consequently, the Company has had a history of generating NOL carryforwards and then utilizing such NOL carryforwards to reduce regular income taxes in future periods. During the period 1981 to 1984 the Company utilized $2,700,000 of NOL carryforwards to reduce federal income taxes. Thus, management believes that no valuation allowance is necessary for these deferred tax assets at this time. The Company has recorded deferred tax benefits associated with postretirement obligations and additional minimum pension liabilities of approximately $45,000,000 as of December 31, 1997. The Company should have deductible differences for tax purposes which greatly exceed the corresponding deductions for financial reporting purposes in future years. These liabilities, which are based on actuarial calculations, are expected to be paid and deductible over the remaining lives of current and retired employees. Any tax losses in future years associated with these deductible payments will be subject to the 15-year NOL carryforward period provided under current tax law. Because of the extremely long period of time that is available to realize these future tax benefits, a valuation allowance for these deferred tax assets is not deemed necessary. - 17 - In making these determinations regarding the ultimate realization of the deferred tax assets, the Company is governed by the provisions of FAS 109, which requires that when management is relying on future taxable income to support the position that no valuation allowance is necessary, projections of future operations must be substantially based on historical operating results, as adjusted for unusual/nonrecurring items. Management believes the Company-wide cost reductions and productivity improvements implemented in the last two years will return the Company to profitability in 1998. However, if operating losses should occur in fiscal 1998, it would represent the fourth successive loss year on an unadjusted basis, and under the provisions of FAS 109, a valuation allowance would likely be required and such valuation allowance would possibly be required on the entire deferred tax asset of $45,400,000. A valuation allowance of this magnitude would eliminate the Company's net worth and under the current Bank Loan and Security Agreement, result in a violation of the Company's net worth covenant in such agreement. Under Section 382 of the Internal Revenue Code of 1986, as amended, if the percentage of stock (by value) of a corporation (the "Loss Corporation") that is owned by one or more "five-percent shareholders" has increased by more than 50 percentage points over the lowest percentage of stock owned by the same shareholders during a three year testing period (an "Ownership Change"), the use of pre-ownership change net operating losses of the Loss Corporation following such Ownership Change will be limited based on the value of the Loss Corporation immediately before the Ownership Change occurs (a "Section 382 Limitation"). As of December 31, 1997, the Company had a deferred tax asset of approximately $30,000,000 related to net operating loss and alternative minimum tax carryovers. Although the Company believes that the transactions consummated pursuant to the Purchase Agreement between Ivaco and Birmingham Steel on September 26, 1997 should not result in an Ownership Change, future transactions involving persons who are not or who during the ensuing thirty-six month period become "five-percent shareholders" as defined in Section 382 may trigger an Ownership Change. If such an Ownership Change occurs, the Company's use of its existing net operating loss carryovers at such time will be subject to a Section 382 Limitation based on the value of the Company on the date of such an Ownership Change. Depending on the size of such net operating loss carryovers at such time the limitation could have a material adverse effect on the Company's financial statements. Year 2000 Matters The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a - 18 - system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. In 1996, the Company initiated a conversion from existing accounting software to programs that are year 2000 compliant. Management believes that the year 2000 issue will not pose significant operational problems for its computer systems. As a result, all costs associated with this conversion are being expensed as incurred and are not expected to have a material adverse effect on the results of operations. The conversion is expected to be completed in 1998. Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The foregoing Management's Discussion and Analysis and other portions of this report on Form 10-K, contain various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Sections 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events, including the following: statements regarding the overall demand for steel; statements regarding the ability to maintain sales prices; statements regarding productivity improvement programs; statements regarding the Company's profitability; statements regarding future borrowing capacity; and statements regarding future pension funding requirements. In addition, statements containing expressions such as "believes," "anticipates" or "expects" used in the Company's periodic reports on Forms 10-K, 10-Q and 8-K filed with the SEC are intended to identify forward-looking statements. Forward-looking statements by the Company and its management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise. The Company cautions that these and similar statements included in this report and in previously filed periodic reports including reports filed on Forms 10-K, 10-Q and 8-K and further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statement, including, without limitation, the following: decline in sales prices for steel products; increases in the cost of steel scrap; failure to obtain significant benefits from the Company's cost reduction and productivity improvement programs; increased domestic or foreign steel competition and decreases in the market value of the Company's qualified pension plan assets. 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 27 and 53. - 19 - Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. NONE PART III Item 10. Directors and Executive Officers of the Company. (a) Certain information with respect to each of the directors of the Company is set forth below, including any positions they hold with the Company and their business experience the past five years: Name, Age, Other Positions with the Company, Served as Principal Occupation and Directorships of a Director Other Companies Since Joseph Alvarado, 45. . . . . . . . . . . . . . . 1997 Executive Vice President-Commercial of Birmingham Steel Corporation ("Birmingham Steel") (mini-mill steel producer) (1997 to date); President, Inland Steel Bar Company (steel bar producer) (1995 to 1997); Vice President & General Manager-Sales & Marketing, Inland Steel Bar Company (1988 to 1994). Robert A. Garvey, 60. . . . . . . . . . . . . . 1997 Chairman of the Board and Chief Executive Officer of Birmingham Steel (mini-mill steel producer) (January 5, 1996 to date); President of North Star Steel (1984 to 1996). Director of Birmingham Steel. Michael H. Lane, 55 . . . . . . . . . . . . . . 1997 Vice President-Finance, Treasurer and Secretary of the Company (January 1983 to date). William R. Lucas, Jr., 42 . . . . . . . . . . . 1997 Executive Vice President-Administration and General Counsel of Birmingham Steel (mini- mill steel producer) (1996 to date); Executive Vice President & General Counsel of Birmingham Steel (1995-1996); Managing Partner of Lightfoot, Franklin, White & Lucas (law firm) (1990 to 1995). Wayne P. E. Mang, 60 . . . . . . . . . . . . . 1997 President and Chief Operating Officer, Russel Metals (steel product processor and distributor) (1982 to 1997). Director of Wainbee Ltd. and Maverick Tube Corporation. - 20 - Name, Age, Other Positions with the Company, Served as Principal Occupation and Directorships of a Director Other Companies Since Philip R. Morgan, 49 . . . . . . . . . . . . . 1997 President and Chief Executive Officer, Morgan Construction Company (supplier of steel rolling mill technology and equipment) (1986 to date). Robert H. Quenon, 69 . . . . . . . . . . . . . 1992 Mining Consultant (1991 to date); Chairman of the Board, Federal Reserve Bank of St. Louis (1993 to 1995); Chairman (1990 to 1991) and President and Chief Executive Officer (1983 to 1990) of Peabody Holding Company, Inc. (coal mining and sales); Director of Ameren Corporation and Newmont Gold Co. George H. Walker III, 66 . . . . . . . . . . . 1990 Chairman of the Board, Stifel Financial Corp. (investment banking firm) and its principal subsidiary, Stifel, Nicolaus & Company, Incorporated (stock brokerage firm) (1979 to date); Director of Laidlaw Corp. and EAC Corporation The executive officers of the Company and their ages are as follows: Name Age Position John B. McKinney 65 President, Chief Executive Officer and Director-Retired in February 1998 Thomas E. Brew, Jr. 55 President and Chief Executive Officer effective February 26, 1998 Michael H. Lane 55 Vice President-Finance, Treasurer and Secretary J. William Hebenstreit 52 Vice President-Operations Larry J. Schnurbusch 51 Vice President-Administration H. Bruce Nethington 56 Vice President-Human Resources John B. McKinney was elected President and Chief Executive Officer of the Company in January 1983. Mr. McKinney was a director of the Company from 1981 until he retired in February 1998. - 21 - Thomas E. Brew, Jr. of Argus Management Corporation was elected President and Chief Executive Officer by the Board of Directors on February 26, 1998. Mr. Brew has been Executive Vice President of Argus Management Corporation (a consulting firm) since July 1997. From November 1994 until July 1997 Mr. Brew was President, CEO and Chairman of the Board of Directors of Kurzweil Applied Intelligence, Inc. (a software development company). Prior to 1994 Mr. Brew served as Executive Vice President of Argus Management Corporation. Michael H. Lane was elected Vice President-Finance, Treasurer and Secretary of the Company in 1983. Mr. Lane was elected to the Board of Directors in 1997. 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. Item 11. Executive Compensation. The following table presents summary information concerning compensation for services rendered to the Company during each of the last three fiscal years by those persons who at December 31, 1997 were the Chief Executive Officer and the other executive officers.
Summary Compensation Table Annual Compensation Other Annual All Other Name and Bonus Compensation Compensation Principal Position Year Salary($) ($)(1) ($)(2) ($)(3) John B. McKinney(4) 1997 $364,500 $ -- $ 29,025 $39,761 President and Chief 1996 364,500 -- 288,923 39,471 Executive Officer 1995 364,500 -- 562,528 36,848 J. W. Hebenstreit 1997 $243,504 $ -- $ 10,223 $17,746 Vice President- 1996 243,504 -- 156,875 17,678 Operations 1995 243,504 -- 312,005 12,915 Michael H. Lane(5) 1997 $243,504 $ -- $ 13,101 $19,773 Vice President- 1996 243,504 -- 190,293 19,767 Finance, Treasurer 1995 243,504 -- 339,222 14,964 and Secretary Larry J. Schnurbusch 1997 $178,008 $ -- $ 75,724 $11,477 Vice President- 1996 178,008 -- 122,503 11,431 Administration 1995 178,008 -- 125,771 6,943 H. Bruce Nethington 1997 $167,508 $ -- $ 45,929 $13,282 Vice President- 1996 167,508 -- 121,596 13,282 Human Resources 1995 167,508 -- 145,307 8,921
(1) No bonuses were earned under the Company's Discretionary Incentive Compensation Plan for 1997, 1996 or 1995. - 22 - (2) Amounts reported as Other Annual Compensation consist primarily of income tax payments related to Company contributions to the Key Employee Retirement Plan. Such contributions represent taxable income to Plan participants and, under the terms of the Plan, the Company is obligated to reimburse participants for the payment of such taxes. Certain perquisites which the executive officers received in 1995, 1996 and 1997 the aggregate amount of which did not exceed the lesser of $50,000 or 10% of any such officer's salary and bonus, are not included in other Annual Compensation. (3) The amounts shown represent life insurance premiums paid by the Company on behalf of the executive officers and matching amounts paid by the Company under the profit sharing plan. (4) Mr. McKinney retired from the Company on February 28, 1998. (5) Mr. Lane has entered into an amendment to his employment agreement with the Company, see "Employment Contracts" below. The Company did not grant any stock appreciation rights or stock options in 1997 and all aspects of prior plans have expired. Benefit Plans The Company maintains the Laclede Salaried Employees' Pension Plan (the "Pension Plan"), a defined benefit plan which provides a monthly pension to salaried employees of the Company (excluding employees covered by a collective bargaining agreement) who retire or terminate with vested rights in accordance with the provisions of the Pension Plan. Benefits are based upon years of credited service and covered compensation, offset by the participant's Primary Insurance Amount under the Federal Social Security Act. The Company also maintains the Key Employee Retirement Plan (the "Supplement Plan"), the purpose of which is to provide additional retirement income to certain key employees of the Company, including certain of the executive officers. Under the Supplement Plan, the eligible employees were guaranteed that the total amount received by them each year during retirement from the Pension Plan, Federal Social Security and the Supplement Plan would be equal to 70% of the average of their highest aggregate three consecutive calendar year salary and bonus during their last 10 years of employment with the Company ("Salary Level"), assuming retirement at age 60. In connection with a Company-wide cost reduction program initiated in 1996, in October 1996 the executive officers agreed to a reduction in retirement benefits under the Supplement Plan by a change in the percentage of Salary Level benefits from 70 to 65%. If the employee retires prior to age 60, the applicable percentage of the Salary Level will be reduced 2.5% for each year of retirement age below age 60. - 23 - The aggregate annual benefits payable pursuant to the Pension Plan, the Supplement Plan and Federal Social Security at various assumed salary levels and retirement ages are summarized as follows:
Estimated Annual Retirement Benefit at the Respective Ages Listed Salary Level* 50 53 56 60 175,000 . . . . . . . . . . . . . $ 85,313 $ 93,844 $102,375 $113,750 225,000 . . . . . . . . . . . . . 109,688 120,656 131,625 146,250 275,000 . . . . . . . . . . . . . 134,063 147,469 160,875 178,750 325,000 . . . . . . . . . . . . . 158,438 174,281 190,125 211,250 375,000 . . . . . . . . . . . . . 182,813 201,094 219,375 243,750 425,000 . . . . . . . . . . . . . 207,188 227,906 248,625 276,250 475,000 . . . . . . . . . . . . . 231,563 254,719 277,875 308,750 525,000 . . . . . . . . . . . . . 255,938 281,531 307,125 341,250 575,000 . . . . . . . . . . . . . 280,313 308,344 336,375 373,750 625,000 . . . . . . . . . . . . . 304,688 335,156 365,625 406,250 675,000 . . . . . . . . . . . . . 329,063 361,969 394,875 438,750
* Salary level assumes the average of the highest average aggregate three consecutive calendar year earnings for eligible executive officers during the last ten years of their employment. Messrs. McKinney, Hebenstreit, Lane, Schnurbusch and Nethington have accumulated 41, 30, 25, 29 and 30 credited years of service, respectively. The current salary level for each of the executive officers eligible for benefits under the Supplement Plan is: Mr. McKinney, $547,243; Mr. Hebenstreit $326,193; Mr. Lane, $326,193; Mr. Schnurbusch, $221,627; and Mr. Nethington, $193,919. Upon termination of employment, a covered employee or his beneficiary at any time prior to commencement of benefits under the Supplement Plan may select the payment of all benefits due under the Supplement Plan in one lump sum payment. The Supplement Plan's funds are held and invested by a trustee. As a result of Mr. Nethington's planned retirement on April 30, 1998, the Company will be obligated to make an additional aggregate payment of approximately $530,000 to Mr. Nethington, which Mr. Nethington and the Company have agreed will be paid in five monthly installments. In addition the Company will reimburse Mr. Nethington for amounts necessary to cover taxes incurred on account of benefits payable under the Supplement Plan. Pursuant to the November 14, 1990 amendment to the Supplement Plan (the "1990 Amendment") the funds held under the Supplement Plan for Messrs. McKinney, Hebenstreit and Lane were transferred to separate trusts under which the employees participating in the Supplement Plan were the direct beneficiaries. Because such trusts are fully funded, the Company will have no further payment requirements as a result of the retirement of Mr. McKinney and the anticipated termination of employment of Mr. Lane. The Company also maintains the Laclede Steel Company Salaried Employees' Profit Sharing Plan (the "Profit Sharing Plan") for the purposes of encouraging eligible employees to develop initiative and productivity and providing the employees - 24 - with additional retirement benefits. The Profit Sharing Plan is intended to qualify as a cash deferred compensation arrangement under Section 401(k) of the Internal Revenue Code. Salaried employees of the Company are eligible to participate in the Profit Sharing Plan. Compensation of Directors Directors who are not otherwise employed by the Company receive a $1,125 monthly retainer and a per diem fee of $1,125, plus expenses, for Board or committee meetings attended. Directors who are not otherwise employed by the Company, who are members of the Shareholder Value Enhancement Committee receive a $500 monthly retainer fee. The Chairman of the Board receives a $2,250 monthly retainer fee. Employment Contracts Messrs. McKinney, Hebenstreit, Lane, Schnurbusch and Nethington each has an employment agreement with the Company (the "Employment Agreements"). Although Mr. McKinney left the Company on February 28, 1998, the Company will continue to pay his annual salary of $364,500 and benefits through August 2, 1999, the termination date of his Employment Agreement. On March 24, 1998, Mr. Lane and the Company entered into an amendment to his Employment Agreement providing that Mr. Lane will continue as Vice President-Finance, Treasurer and Secretary of the Company until the earlier of September 20, 1998 or a date determined by the President of the Company. After termination of his employment, the Company will continue to pay Mr. Lane his minimum annual salary of $243,500 and benefits until the later of August 2, 1999 or twelve months from Mr. Lane's termination date. Effective July 30, 1996 the Employment Agreement of Mr. Hebenstreit provides for a minimum salary of $243,500 for his services as Vice President-Operations. Also effective July 30, 1996, Mr. Schnurbusch's Employment Agreement provides for a minimum salary of $178,000 for his services as Vice President-Administration. The Employment Agreements for Messrs. Hebenstreit and Schnurbusch continue through August 2, 1999. Mr. Nethington's Employment Agreement provides for a minimum salary of $167,500 which will be paid until April 30, 1998, the date of his retirement from the Company. Item 12. Security Ownership of Certain Beneficial Owners and Management. The following information is furnished with respect to each person known by management of the Company to be the beneficial owner of more than 5% of the outstanding Common Stock of the Company, each director of the Company, each executive officer of the Company and all directors and executive officers as a group. The information is furnished as of March 3, 1998. - 25 -
Shares of Series A Shares of Preferred Common Stock Stock Name and Address of Beneficially Percent of Beneficially Percent of Beneficial Owner Owned (1) Class Owned(1) Class Birmingham Steel Corporation (2) 2,038,650 50.26% (3) 366,667 88.00% 1000 Urban Center Drive, Suite 300 Birmingham, AL 35242 Ivaco Inc. (2) . . . . . . 1,009,325 24.88% (3) 183,333 44.00% Place Mercantile 770 rue Sherbrooke ouest Montreal, Quebec, Canada H3A 1G1 Joseph Alvarado (4). . . . 100 * -- -- Robert A. Garvey (4) . . . 375 * -- -- J. W. Hebenstreit . . . . 10,000 * 21,667 5.20% Michael H. Lane . . . . . 10,600 * 5,000 1.20% William R. Lucas, Jr. (4). 100 * -- -- Wayne P. E. Mang . . . . . 100 * -- -- Thomas E. Brew, Jr. . . . -- * -- -- Philip R. Morgan . . . . . 1,000 * -- -- H. Bruce Nethington . . . 1,000 * 5,000 1.20% Robert H. Quenon . . . . . 300 * -- -- Larry J. Schnurbusch . . . 7,730 * 5,000 1.20% George H. Walker III . . . 1,000 (5) * -- -- All Directors and Executive Officers as a Group (12 persons) . . . . . . . 32,305 * 36,667 8.8%
* Represents less than one percent of the outstanding Common Stock of the Company. (1) Beneficial ownership of shares, as determined in accordance with applicable Securities and Exchange Commission rules, includes shares as to which a person directly or indirectly has or shares voting power and/or investment power. Unless otherwise indicated, each holder has sole voting and investment power over the shares reported. (2) On September 26, 1997, a subsidiary of Ivaco Inc. ("Ivaco"), sold one-half of the Ivaco investment in the Company to a wholly-owned subsidiary of Birmingham Steel Corporation ("Midwest Holdings"). The securities of the Company sold consisted of 1,009,325 common shares and 183,334 shares of the Company's Series A preferred stock. The preferred shares are convertible into 859,834 common shares of the Company. The transaction was effected through the sale of a wholly-owned subsidiary of Ivaco which contained such shares to Midwest Holdings. In connection with the transaction Ivaco, among other things, gave Midwest Holdings the voting rights on Ivaco's remaining investment in the Company's common stock and, in any additional common stock Ivaco may own as a result of the conversion of Ivaco's remaining Series A preferred stock, subject to certain limitations. In addition, Ivaco agreed not to sell any portion of its remaining investment in the Company prior to September 24, 1998 and has provided Midwest Holdings with a limited right - 26 - of first refusal with respect to such interests until September 24, 2002. This information is based upon Schedule 13D forms of Ivaco and Birmingham Steel, filed on September 30, 1997 and October 6, 1997, respectively. (3) Pursuant to Securities and Exchange Commission rules, the Ivaco shares subject to the proxy referred to in footnote (2) above are reflected as owned by both Ivaco and Birmingham Steel. (4) Mr. Garvey is Chairman of the Board and Chief Executive Officer of Birmingham Steel. Messrs. Alvarado and Lucas are executive officers of Birmingham Steel. As a result of such positions, such individuals may be deemed beneficial owners of the Company shares beneficially owned by Birmingham Steel. Each of these individuals disclaims such beneficial ownership. (5) Does not include 1,000 shares of Common Stock owned by Mr. Walker's wife. Mr. Walker disclaims beneficial ownership of such shares. Item 13. Certain Relationships and Related Transactions. In 1997, the Company engaged Stifel, Nicolaus & Company, Incorporated to assist in obtaining approval of changes to financial covenants and collateral arrangements on its Solid Waste Revenue Bonds. Mr. George H. Walker III, a Company Director, is the Chairman of the Board of Stifel Financial Corporation, the parent of Stifel, Nicolaus & Company, Incorporated. The Company paid a fee for these services of approximately $70,000. 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 for the years ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . 31 Consolidated Balance Sheets, December 31, 1997 and 1996 . . 32 - 27 - Page Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995. . . . . . . . 34 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . 35 Notes to Consolidated Financial Statements . . . . . . . . 36 Independent Auditors' Report on Financial Statements. . . . 53 (2) Consolidated Financial Statement Schedules NONE (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 restated October 28 1996. (Incorporated by reference to Exhibit (3) in Registrant's Quarterly Report on Form 10-Q for September 30, 1996.) (3)(b) By-laws of Registrant amended December 19, 1997. (4)(a) Registrant's Loan and Security Agreement dated as of September 7, 1994 amended and restated as of August 20, 1997. (Incorporated by reference to Exhibit (4)(a) in Registrant's Quarterly Report on Form 10-Q for September 30, 1997.) (4)(b) First Amendment dated December 30, 1997 to the Company's Restated Loan and Security Agreement. (4)(c) Second amendment effective March 27, 1998 to the Company's Restated Loan and Security Agreement. (4)(d) Certificate of Designation of Series A Preferred Stock dated July 30, 1996. (Incorporated by reference to Exhibit (4)(i) in the Registrant's Quarterly Report on Form 10-Q for June 30, 1996.) (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.) - 28 - (10)(b) Stock Purchase Agreement dated July 30, 1996 between Ivaco Inc. and Laclede Steel Company. (Incorporated by reference to Exhibit (10)(a) of Registrant's Quarterly Report on Form 10-Q for June 30, 1996.) (10)(c) Management Stock Purchase Agreements dated July 30, 1996 between Laclede Steel Company and John B. McKinney, Michael H. Lane, J. William Hebenstreit, Larry J. Schnurbusch and H. Bruce Nethington. (Incorporated by reference to Exhibit (10)(b) of Registrant's Quarterly Report on Form 10-Q for June 30, 1996.) (10)(d) Restated Employment Agreements dated as of July 30, 1996 between Laclede Steel Company and John B. McKinney, Michael H. Lane, J. William Hebenstreit, Larry J. Schnurbusch and H. Bruce Nethington. (Incorporated by reference to Exhibit (10)(c) of Registrant's Quarterly Report on Form 10-Q dated June 30, 1996.) (10)(e) Amendment dated as of March 24, 1998 to the Restated Employment Agreement between Laclede Steel Company and Michael H. Lane. (10)(f) Registration Rights Agreement dated July 30, 1996 between Laclede Steel Company and Ivaco Inc., John B. McKinney, Michael H. Lane, J. William Hebenstreit, Larry J. Schnurbusch and H. Bruce Nethington. (Incorporated by reference to Exhibit (10)(d) of Registrant's Quarterly Report on Form 10-Q dated June 30, 1996.) (10)(g) Restated Key Employee Retirement Plan dated October 16, 1996. (Incorporated by reference to Exhibit (10)(g) in Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) (10)(h) Asset Purchase Agreement dated January 10, 1997 between Excaliber Tubular Corporation and Laclede Steel Company. (Incorporated by reference to Exhibit (10)(h) in Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) - 29 - (21) Subsidiaries of Registrant. Instruments with respect to long-term debt issues have been omitted where the amount of securities authorized under such instruments does not exceed 10% of the total consolidated assets of the Registrant. Registrant hereby agrees to furnish a copy of any such instrument to the Commission upon its request. NOTE Copies of exhibits will be supplied upon written request and payment of the Registrant's fee of $.25 per page requested. (b) Reports on Form 8-K Form 8-K reporting on Item 1 - Change in Control of Registrant under a Purchase Agreement dated as of September 26, 1997 was filed on October 3, 1997. Form 8-K reporting on Item 1 - Change in Control of Registrant filed on October 14, 1997 reporting that on October 8, 1997 the Company appointed three of Birmingham Steel's executive officers to the Board of Directors of the Company. - 30 - LACLEDE STEEL COMPANY AND SUBSIDIARIES Consolidated Statements of Operations (In Thousands of Dollars except Per Share Amounts)
Year Ended December 31, 1997 1996 1995 NET SALES $ 325,029 $ 335,381 $ 320,350 COSTS AND EXPENSES: Cost of products sold 299,570 316,954 286,632 Selling, general and administrative expenses 13,654 14,201 14,209 Depreciation 7,696 7,743 8,151 Interest expense, net 10,046 11,163 10,125 Restructuring, asset impairment and other charges ---- 1,559 18,422 Gain on sale of subsidiary stock ---- ---- (728) Gain on sale of facility (987) ---- ---- Total costs and expenses 329,979 351,620 336,811 LOSS BEFORE INCOME TAXES (4,950) (16,239) (16,461) INCOME TAX BENEFITS (1,943) (6,254) (6,324) NET LOSS $ (3,007) $ (9,985) $ (10,137) PREFERRED STOCK DIVIDEND REQUIREMENT (375) (156) ---- NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (3,382) $ (10,141) $ (10,137) BASIC AND DILUTED NET LOSS PER SHARE $ (0.83) $ (2.50) $ (2.50)
See Notes to Consolidated Financial Statements. - - 31 - LACLEDE STEEL COMPANY AND SUBSIDIARIES Consolidated Balance Sheets Assets (In Thousands of Dollars)
December 31, 1997 1996 CURRENT ASSETS: Cash and cash equivalents $ 186 $ 143 Accounts receivable, less allowances of $2,412 in 1997 and $2,428 in 1996 40,282 38,772 Prepaid expenses 1,238 443 Inventories: Finished 45,823 46,631 Semi-finished 18,166 23,540 Raw materials 4,681 5,218 Supplies 14,136 14,720 Total inventories 82,806 90,109 Total current assets 124,512 129,467 NON-CURRENT ASSETS: Intangible pension asset 14,652 14,464 Other intangible assets 2,119 2,263 Bond funds in trust 2,385 2,385 Prepaid pension contributions 5,441 5,766 Deferred income taxes 45,400 47,557 Notes receivable 3,396 3,600 Other 4,897 4,104 Total non-current assets 78,290 80,139 PLANT AND EQUIPMENT, AT COST: Land 1,499 1,589 Buildings 27,681 28,591 Machinery and equipment 210,490 215,444 239,670 245,624 Less - accumulated depreciation 128,652 124,120 Net plant and equipment 111,018 121,504 TOTAL ASSETS $ 313,820 $ 331,110
- - 32 - Liabilities and Stockholders' Equity
December 31, 1997 1996 CURRENT LIABILITIES: Accounts payable $ 42,682 $ 41,293 Accrued compensation 6,269 6,780 Current portion of long-term debt 2,356 2,484 Accrued costs of pension plans 13,577 14,049 Other 3,729 2,860 Total current liabilities 68,613 67,466 NON-CURRENT LIABILITIES: Accrued costs of pension plans 36,864 53,181 Accrued postretirement medical benefits 75,864 79,782 Other 2,221 5,547 114,949 138,510 LONG-TERM DEBT 109,157 107,889 COMMITMENTS AND CONTINGENCIES - NOTE 9 ---- ---- STOCKHOLDERS' EQUITY: Preferred stock, no par value, authorized 2,000,000 shares; issued and outstanding 416,667 shares 83 83 Common stock, $.01 par value, authorized 25,000,000 shares; issued and outstanding 4,056,140 shares 41 41 Capital in excess of par 59,763 60,138 Accumulated deficit (15,307) (12,300) Minimum pension liability adjustment (23,479) (30,717) Total stockholders' equity 21,101 17,245 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 313,820 $ 331,110
See Notes to Consolidated Financial Statements. - - 33 - LACLEDE STEEL COMPANY AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (In Thousands of Dollars)
Year Ended December 31, 1997 1996 1995 Preferred stock (416,667 shares issued) Beginning balance $ 83 $ -- $ -- Sale of convertible preferred stock -- 83 -- Ending balance 83 83 -- Common stock - $0.01 par value (4,056,140 shares issued) Beginning balance 41 54,081 54,081 Reduction in par value of common stock -- (54,040) -- Ending balance 41 41 54,081 Capital in excess of par value Beginning balance 60,138 247 247 Sale of convertible preferred stock -- 6,007 -- Reduction in par value of common stock -- 54,040 -- Dividend requirement on convertible preferred stock (375) (156) -- Ending balance 59,763 60,138 247 Retained earnings (deficit) Beginning balance (12,300) (2,315) 7,822 Net loss (3,007) (9,985) (10,137) Ending balance (15,307) (12,300) (2,315) Minimum pension liability Beginning balance (30,717) (35,495) (8,407) Change 7,238 4,778 (27,088) Ending balance (23,479) (30,717) (35,495) Total Stockholders' Equity at End of Year $ 21,101 $ 17,245 $ 16,518
See Notes to Consolidated Financial Statements. - - 34 - LACLEDE STEEL COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows (In Thousands of Dollars)
Year Ended December 31, 1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,007) $ (9,985) $ (10,137) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 7,696 7,743 8,151 Gain on sale of subsidiary stock ---- ---- (728) Gain on sale of facility (987) ---- ---- Restructuring, asset impairment and other charges ---- 1,559 18,422 Change in deferred income taxes (2,279) (6,424) (6,185) Changes in assets and liabilities that provided (used) cash: Accounts receivable (1,510) (1,485) 8,300 Inventories 3,504 17,173 (12,483) Accounts payable and accrued expenses (2,983) 10,306 (8,861) Pension cost less than funding (4,977) (5,429) (2,526) Accrued postretirement medical benefits (3,918) (1,649) 1,162 Net cash provided by (used in) operating activities (8,461) 11,809 (4,885) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (3,016) (10,726) (13,847) Proceeds from sale of assets 10,972 4,000 ---- Net cash provided by (used in) investing activities 7,956 (6,726) (13,847) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowing (repayments) under revolving credit loan 390 (8,415) 18,453 Proceeds from term loan 4,079 ---- ---- Proceeds from long-term debt ---- ---- 2,000 Payments on long-term debt (3,329) (2,462) (2,488) Proceeds from sale of stock of subsidiary ---- ---- 1,000 Proceeds from issuance of convertible preferred stock ---- 6,090 ---- Payment of financing costs (592) (314) (231) Net cash provided by (used in) financing activities 548 (5,101) 18,734 CASH AND CASH EQUIVALENTS: Net increase (decrease) during the year 43 (18) 2 At beginning of year 143 161 159 At end of year $ 186 $ 143 $ 161 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest (net of amount capitalized) $ 10,057 $ 10,476 $ 10,209 Income tax payments (refunds), net $ 337 $ (1,317) $ 794
See Notes to Consolidated Financial Statements. - - 35 - Notes to Consolidated Financial Statements Note 1 Nature of Operations: Laclede Steel Company and Subsidiaries (the Company) is a manufacturer of carbon and alloy steel products, including pipe products, hot rolled products, wire products and welded chain. The Company's continuous butt weld pipe is sold in the U.S. and Canada to distributors and manufacturers. Hot rolled products consist primarily of special quality bars sold to manufacturers to be cold drawn or forged. Wire products include high and low carbon wire, oil tempered wire used for mechanical springs, overhead door springs, automotive suspension and brake springs, and annealed wire and rod. Laclede Chain Manufacturing Company, a wholly-owned subsidiary, produces chain products and also imports a significant amount of chain. Approximately one-half of the chain business is attributable to sales of anti-skid devices for trucks and automobiles and the balance is in sales of hardware and industrial chain. Note 2 Accounting Policies: The Company's significant accounting 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 steelmaking 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. - 36 - 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 the following estimated useful lives: Buildings and improvements 20 to 45 years Machinery and equipment 4 to 25 years Office furniture and equipment 6 to 10 years Depreciation is computed on the straight-line method for financial reporting purposes. Impairment of Long-Lived Assets In 1995 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The general requirements of this statement are applicable to the properties and intangible assets of the Company and require impairment to be considered whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. See Note 6 for discussion of asset impairment charges in 1995. Other Intangible Assets Other intangible assets 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. Management periodically reviews the value of its intangible assets to determine if an impairment has occurred or whether changes have occurred that would require a revision to the remaining useful life. In making such determination, management evaluates the performance, on an undiscounted basis, of the underlying operations or assets which give rise to such amount. Based on this review, management does not believe that any such impairment has occurred. 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. - 37 - Per Share Data and Preferred Stock Dividends Per share amounts for 1997, 1996 and 1995 have been calculated based on weighted average shares outstanding of 4,056,140. Net loss per share in 1997 and 1996 was computed by dividing the net loss, after deducting convertible preferred dividend requirements of $375,000 in 1997 and $156,000 in 1996, by the weighted average shares outstanding. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain Significant Estimates Amounts reported for pensions and postretirement medical benefits and their related deferred tax assets are subject to significant fluctuation due to changes in interest rates. Estimates of environmental remediation-related obligations are discussed in Note 9. Current Vulnerability Due to Certain Concentrations 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. Approximately 58% of the Company's production employees are covered by a collective bargaining agreement, which expires in September 2001. Note 3 Income Taxes: The provision for income taxes represents an effective combined federal and state tax rate of 39% for 1997 and 1996 and 38% for 1995. See the reconciliation of these tax rates to the statutory rate below. The provision (credit) for income taxes consists of the following (thousands of dollars): 1997 1996 1995 Current income taxes $ 336 $ 170 $ (139) Deferred income taxes (2,279) (6,424) (6,185) $ (1,943) $(6,254) $ (6,324) - 38 - Deferred tax assets were decreased in 1997 by $4,436,000 and in 1996 by $2,929,000 and increased in 1995 by $16,151,000, as a result of the tax effects of the minimum pension liability adjustment. These amounts are not reflected in the tax provision of these years. See Note 5 for further discussion. Deferred tax assets and liabilities are comprised of the following at December 31 (thousands of dollars): 1997 1996 Deferred tax liabilities: Depreciation $(29,621) $ (28,549) Accrued costs of pension plans (4,689) (2,490) Total deferred tax liabilities (34,310) (31,039) Deferred tax assets: Minimum pension liability adjustment 14,390 18,826 Postretirement medical benefits 30,801 31,361 Active employee benefit liabilities 2,460 2,566 Environmental costs 114 1,199 Allowances on receivables 979 954 Net operating loss and alternative minimum tax carryovers 29,981 21,832 Other 985 1,858 Total deferred tax assets 79,710 78,596 Net deferred tax assets $ 45,400 $ 47,557 For tax purposes, the Company had available as of December 31, 1997, net operating loss ("NOL") carryforwards for regular federal income tax purposes of approximately $68,100,000. These NOL carryforwards expire as follows: 2008 $ 7,600,000 2009 900,000 2010 14,900,000 2011 27,200,000 2012 17,500,000 Additionally, in conjunction with the Alternative Minimum Tax Rules ("AMT"), the Company had available AMT credit carryforwards of approximately $2,500,000, which may be used indefinitely to reduce regular federal income taxes. Management believes that it is more likely than not that all of the NOL carryforwards will be utilized prior to their expiration. The NOL carryforwards, as well as the existing deductible temporary differences, with the exception of differences relating to the minimum pension liability adjustment and the postretirement medical benefits, are largely offset by the existing taxable temporary differences relating to accelerated depreciation which will reverse within the carryforward period. - 39 - Furthermore, any recorded deferred tax assets associated with these future tax benefits which would not be offset by the reversal of the accelerated depreciation are expected to be realized by the achievement of future profitable operations. The Company experienced profitable operations in 1993, 1994 and 1995, exclusive of nonrecurring/unusual charges in connection with restructuring and modifying the operations of the Company. While the Company experienced significant operating losses in 1996, management believes 1997 would have been a profitable year were it not for the unanticipated losses associated with the union contract negotiations, the related decrease in productivity in the periods surrounding the termination of the contract and the year-end inventory write-offs. Additionally, management currently expects operations in 1998 to return to profitability. The Company operates in a highly cyclical industry and consequently has had a history of generating operating profits over an average business cycle despite periods of operating losses within a cycle. Consequently, the Company has had a history of generating NOL carryforwards and then utilizing such NOL carryforwards to reduce regular income taxes in future periods. During the period 1981 to 1984 the Company utilized $2,700,000 of NOL carryforwards to reduce federal income taxes. Management believes that no valuation allowance is necessary for these deferred tax assets at this time. The Company has recorded deferred tax benefits associated with postretirement obligations and additional minimum pension liabilities of approximately $45,000,000 as of December 31, 1997. The Company should have deductible differences for tax purposes which greatly exceed the corresponding deductions for financial reporting purposes in future years. These liabilities, which are based on actuarial calculations, are expected to be paid and deductible over the remaining lives of current and retired employees. Any tax losses in future years associated with these deductible payments will be subject to the 15-year NOL carryforward period provided under current tax law. Because of the extremely long period of time that is available to realize these future tax benefits, a valuation allowance for these deferred tax assets is not deemed necessary. In making these determinations regarding the ultimate realization of the deferred tax assets, the Company is governed by the provisions of FAS 109, which requires that when management is relying on future taxable income to support the position that no valuation allowance is necessary, projections of future operations must be substantially based on historical operating results, as adjusted for unusual/nonrecurring items. Management believes the Company-wide cost reductions and productivity improvements implemented in the last two years will return the Company to profitability in 1998. However, if operating losses - 40 - should occur in fiscal 1998, it would represent the fourth successive loss year on an unadjusted basis, and under the provisions of FAS 109, a valuation allowance would likely be required and such valuation allowance would possibly be required on the entire deferred tax asset of $45,400,000. A valuation allowance of this magnitude would eliminate the Company's net worth and under the current Bank Loan and Security Agreement, result in a violation of the Company's net worth covenant in such agreement. 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): 1997 1996 1995 Federal income tax credit computed at statutory tax rate $ (1,651) $(5,503) $(5,604) Non-taxable gain on sale of subsidiary stock -- -- (277) State income taxes, net (399) (819) (542) Other 107 68 99 Credit for income taxes $ (1,943) $(6,254) $(6,324) Under Section 382 of the Internal Revenue Code of 1986, as amended, if the percentage of stock (by value) of a corporation (the "Loss Corporation") that is owned by one or more "five-percent shareholders" has increased by more than 50 percentage points over the lowest percentage of stock owned by the same shareholders during a three year testing period (an "Ownership Change"), the use of pre-ownership change net operating losses of the Loss Corporation following such Ownership Change will be limited based on the value of the Loss Corporation immediately before the Ownership Change occurs (a "Section 382 Limitation"). As of December 31, 1997, the Company had a deferred tax asset of approximately $30,000,000 related to net operating loss and alternative minimum tax carryovers. Although the Company believes that the transactions consummated pursuant to the Purchase Agreement between Ivaco and Birmingham Steel on September 26, 1997 should not result in an Ownership Change, future transactions involving persons who are not or who during the ensuing thirty-six month period become "five-percent shareholders" as defined in Section 382 may trigger an Ownership Change. If such an Ownership Change occurs, the Company's use of its existing net operating loss carryovers at such time will be subject to a Section 382 Limitation based on the value of the Company on the date of such an Ownership Change. Depending on the size of such net operating loss carryovers at such time the limitation could have a material adverse effect on the Company's financial statements. - 41 - Note 4 Debt: Long-term debt consists of the following at December 31 (thousands of dollars): 1997 1996 Bank Loan and Security Agreement: Revolving Loan $76,516 $ 76,126 Term Loan 8,582 6,777 Note Payable Due December 31, 2001 2,000 2,000 Solid Waste Disposal Revenue Bonds: 8.375% Bonds due from 1996 to 2008 6,275 6,615 8.5% Bonds due from 2015 to 2020 9,430 9,430 8% Pollution Control Revenue Bonds due October 1, 2001 (annual sinking fund payments began in 1993) 8,040 8,700 8% Industrial Development Revenue Bonds due October 1, 2001 (annual sinking fund payments began in 1992) 670 725 111,513 110,373 Less amounts payable within one year 2,356 2,484 $109,157 $107,889 The Company has a Loan and Security Agreement with three banks, expiring in September 2002, which has been amended and restated to provide a total credit facility of up to $100,000,000. At December 31, 1997 the Term Loan balance was $8,582,000 and the Revolving Loan maximum commitment was $91,418,000 depending on borrowing base availability. The December 31, 1997 amount available of $5,200,000 under the revolving credit facility was utilized early in the first quarter of 1998 to cover outstanding short-term commitments, primarily trade accounts payable. Interest on the Revolving Loan is payable at either prime plus 1-1/2% or a Eurodollar rate, at the Company's option. Interest on the Term Loan is payable at either prime plus 2% or a Eurodollar rate, also at the Company's option. At December 31, 1997, the interest rates ranged from 9.2% to 10.5%. Interest on the $2,000,000 note payable is at prime plus 1% and was 9.5% at December 31, 1997. - 42 - 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 Company has periodically amended its Loan and Security Agreement to modify financial covenants relating to operating results and net worth. The most recent amendment was effective March 27, 1998 when covenant violations relating to 1997 were waived, and provisions relating to periods subsequent to 1997 were amended, as shown below. Based on management's projections of future operations, management believes it will be able to maintain compliance with the financial covenants and ratios throughout 1998. The Company has received several waivers and amendments from its banks in the past and while management believes it will be able to receive waivers or amendments in the future, should the need arise, there are no assurances that such waivers or amendments will be forthcoming. The most restrictive provisions of the Company's loan agreements, as amended, include the following: A. The Company shall maintain specified consolidated adjusted net worth levels as follows: March 31, 1998 $26,000,000 June 30, 1998 26,000,000 September 30, 1998 29,000,000 December 31, 1998 31,600,000 Thereafter, as defined in the Loan and Security Agreement. As of December 31, 1997 consolidated adjusted net worth, as defined in the Loan and Security Agreement, was $28,205,000. B. The Company will also maintain a Consolidated Fixed Charge Coverage Ratio, as defined, determined as of the end of each quarter. C. Payment of cash dividends on common stock is limited to 50% of cumulative net earnings after March 31, 1994. As of December 31, 1997 no funds are available for dividends on common stock and such funds are not likely to be available in the foreseeable future. The Company is also required to comply with various covenants relating to limits on liabilities as defined in the Pollution Control Revenue Bonds. At December 31, 1997, the Company was in compliance with these covenants. As part of the modifications to the Restated Loan and Security Agreement - 43 - previously mentioned, in 1997 the Company received the approval of parties to the Solid Waste Revenue Bonds to eliminate certain negative financial covenants contained therein and to substitute therefore certain collateral. Subsequent to that substitution, the only remaining negative financial covenant with respect to the Solid Waste Revenue Bonds is that the Company may not without the prior written consent of the Issuer of the Bonds (I) borrow from its subsidiary, Laclede Chain Manufacturing Company, or (ii) take cash advances from Laclede Chain Manufacturing Company, except to the extent that the aggregate principal amount of all such borrowings and cash advances at any one time do not exceed $7,000,000. Collateral granted to the Trustee of the Solid Waste Revenue Bonds for the benefit of the bondholders consists of (i) all of the issued and outstanding shares of Laclede Chain Manufacturing Company and (ii) all of Laclede Chain Manufacturing Company's machinery and equipment now owned or thereafter acquired. As of December 31, 1997, the Company is in compliance with the remaining negative covenant contained in the Solid Waste Revenue Bonds. The Company has no compensating balance arrangements. Excluding the Revolving Loan, aggregate maturities of long-term borrowings at December 31, 1997 for the next five years are as follows: 1998 $ 2,356,000 1999 2,411,000 2000 2,461,000 2001 10,241,000 2002 4,008,000 The Company estimates that the fair value of its long-term debt in the aggregate approximates the carrying value at December 31, 1997 and 1996. The Company is party to a Paying Agent Agreement in which the Paying Agent assists the Company in purchasing certain raw material. The terms of this agreement require the Company to pay a commission of 1.5% on all purchases plus a fee on the invoice amount. Amounts purchased under this agreement are included in accounts payable and amounted to $5,984,000 and $3,270,000 as of December 31, 1997 and 1996, respectively. Note 5 Employee Benefits: Defined Benefit Pension Plan - 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. - 44 - 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): 1997 1996 1995 Service cost $ 1,742 $ 2,111 $ 1,538 Interest cost on projected benefit obligation 13,710 13,868 14,767 Actual return on plan assets (25,675) (19,996) (22,502) Net amortization and deferral 19,917 13,596 14,921 Net periodic pension cost 9,694 9,579 8,724 Curtailment loss recognized -- 1,559 2,966 Total pension cost $ 9,694 $11,138 $ 11,690 In the fourth quarter of 1996 the Company presented an early retirement incentive offer to certain hourly employees at the Alton Plant. Approximately 90 employees elected to accept the offer and retired during the quarter. In accordance with applicable accounting standards, the Company recorded a non-cash charge of $1,559,000 representing a pension curtailment loss and the cost of special termination benefits. In the fourth quarter of 1995 the Company recorded a special restructuring charge which included a $2,966,000 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, 1997 and 1996 were determined using assumed discount rates of 7.25% and 6.75%, 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 average assumed rate of increase in compensation levels was 2% for all years. Reflecting the Labor Agreement for Alton hourly employees, a 1% rate of increase in compensation was assumed for all years. The weighted average assumed long-term rate of return on the market-related value of plan assets was 9.9% for 1997, 9.8% for 1996 and 9.9% for 1995. - 45 - A summary of the funded status of the plans is as follows (thousands of dollars):
December 31 1997 1996 Assets ExceedAccumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits Benefits Exceed Assets Total Benefits Exceed Assets Total Actuarial present value of accumulated benefit obligation: Vested $ (7,384) $(179,470) $(186,854) $ (6,658) $(182,949) $(189,607) Non-Vested (348) (8,256) (8,604) (367) (5,013) (5,380) Total $ (7,732) $(187,726) $(195,458) $ (7,025) $(187,962) $(194,987) Projected benefit obligation $ (11,176) $(189,584) $(200,760) $ (9,386) $(190,657) $(200,043) Plan assets at fair 11,374 137,332 148,706 9,320 121,013 130,333 value Projected benefit obligation(in excess of) less than plan assets 198 (52,252) (52,054) (66) (69,644) (69,710) Unrecognized net obligation at transition date, January 1, 1987 251 6,078 6,329 315 7,599 7,914 Unrecognized losses, net 4,803 40,598 45,401 5,426 53,362 58,788 Unrecognized prior service cost 189 7,655 7,844 (168) 5,720 5,552 Adjustment required to recognize minimum liability -- (52,520) (52,520) -- (64,008) (64,008) Net pension cost recorded on balance sheet $ 5,441 $ (50,441) $ (45,000) $ 5,507 $ (66,971) $ (61,464)
- 46 - In accordance with FASB Statement No. 87, the Company has recorded an additional minimum pension liability for underfunded plans of $52,520,000 at December 31, 1997 and $64,008,000 at December 31, 1996, 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. The principal cause of the reduction in underfunded pension liability is actual return on plan assets in excess of the assumed rate of return in 1997. As of December 31, 1997, the excess minimum liability was $37,869,000 and the after-tax charge to equity was $23,479,000. As of December 31, 1996, $49,543,000 of the excess minimum pension liability resulted in a charge to equity, net of income taxes, of $30,717,000. Profit Sharing Plan - The Company maintains a defined contribution profit sharing thrift plan covering a majority of its salaried employees. In 1996 the Plan was amended to provide for a minimum Company contribution regardless of the level of Company profitability. Company contributions for 1997 amounted to $259,000 and for 1996 amounted to $272,000. There was no profit sharing contribution for 1995. 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. The components of net periodic postretirement medical benefit costs are as follows (thousands of dollars): 1997 1996 1995 Service cost $ 452 $ 698 $ 638 Interest cost 3,731 4,522 5,708 Amortization of unrecognized prior service credits (960) -- -- Amortization of unrecognized net gain (1,420) (1,265) (215) Net periodic cost 1,803 3,955 6,131 Curtailment loss recognized -- -- 1,089 Total cost $ 1,803 $3,955 $ 7,220 - 47 - The reduction in cost in 1996 was due to favorable claims experience in prior years. The 1997 cost reduction resulted from both plan and assumption changes. The actual postretirement medical benefits paid amounted to $5,721,000 in 1997, $5,603,000 in 1996 and $4,969,000 in 1995. See Note 6 for discussion of curtailment loss. A summary of the status of the plans is as follows (thousands of dollars): December 31, December 31, 1997 1996 Accumulated postretirement benefit obligation (APBO): Retirees $ (43,249) $ (37,100) Fully eligible active employees (5,131) (9,044) Other active employees (7,370) (7,692) Total (55,750) (53,836) Fair value of plan assets -- -- Funded status (55,750) (53,836) Unrecognized prior service credits (7,845) (8,805) Unrecognized net gain (12,269) (17,141) Accrued postretirement benefit cost $ (75,864) $ (79,782) The increase in APBO as of December 31, 1997 relates to recent unfavorable claims experience. The assumed discount rate used to measure the APBO was 7.25% at December 31, 1997 and 1996. The assumed future health care cost trend rate for the December 31, 1997 and 1996 calculations is 7.9%, gradually declining to 3.25%. 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 $477,000 for 1997, $480,000 for 1996 and $603,000 for 1995, and would have increased the APBO by $5,455,000 as of December 31, 1997 and $4,302,000 as of December 31, 1996. Note 6 Restructuring, Asset Impairment and Other Charges: In the fourth quarter of 1996 the company presented an early retirement incentive offer to certain hourly employees at the Alton Plant. Approximately 90 employees elected to accept the offer and retired during the quarter. In accordance with - 48- applicable accounting standards, the Company recorded a non-cash charge of $1,559,000 ($951,000 after taxes), representing a pension curtailment loss and the cost of special termination benefits. In December 1995, the Company recorded a non-cash charge of $18,422,000 ($11,422,000 after taxes), relating to the restructuring of its operations, asset impairments and inventory write-offs. This charge was primarily the result of a decision to initiate the final phase of the Company's strategic plan, leading to a restructuring of the steelmaking facilities at the Alton Plant. The new Ladle Furnace Facility became operational in the second quarter of 1996 and all steel is now produced using the more efficient continuous cast method. The Company also ceased production of rods, and began purchasing requirements for its wire operations on the open market, at a significant reduction in costs. In connection with this restructuring, the Company also shut down its Blooming Mill and Rod Mill operations. As a result of this decision, non-cash accounting charges totaling $15,780,000 were recorded, which are included in the $18,422,000 charge mentioned above. These charges include $6,190,000 for recognition of impairment loss for equipment and $4,565,000 for employee termination benefits and pension and postretirement benefit curtailment losses. In addition inventories relating to these operations have been written down by $5,025,000 to reduce their carrying cost to their net realizable value. The Company also recognized a charge of $2,642,000 related to inventory write-downs in its tubular product operations, which are also part of the $18,422,000 charge. This inventory adjustment, which reduces the carrying cost to net realizable value, reflects higher second half production costs together with significant reductions in selling prices for tubular products during 1995. Note 7 Interest Expense, Net: Interest expense capitalized in 1996 and 1995 was $323,000 and $484,000, respectively. No interest was capitalized in 1997. - 49 - Note 8 Quarterly Results of Operations (Unaudited): The results of operations by quarter for 1997 and 1996 were as follows (in thousands of dollars except per share data):
QUARTER ENDED 1997 1996 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31 Net sales $80,846 $78,722 $85,788 $79,673 $80,975 $86,436 $83,630 $84,340 Cost of products sold 73,870 71,180 77,163 77,357 76,058 83,245 80,836 76,815 Net sales less cost of products sold $ 6,976 $ 7,542 $ 8,625 $ 2,316 $ 4,917 $ 3,191 $ 2,794 $ 7,525 Net earnings (loss) $ 135 $ 9 $ 521 $(3,672) $(2,031) $(3,045) $(3,390) $(1,519) Basic and fully diluted net earnings (loss) per share $ 0.01 $ (0.02) $ 0.11 $ (0.93) $ (0.50) $ (0.75) $ (0.84) $ (0.41)
Note 9 Commitments And Contingencies: The Company has non-cancelable operating leases for office space and certain equipment through 2007. Future minimum lease commitments required under these leases are as follows: 1998 $4,890,000 1999 4,635,000 2000 4,412,000 2001 3,037,000 2002 1,577,000 Thereafter 3,020,000 TOTAL $21,571,000 Rent expense under all leases in 1997, 1996 and 1995 was $4,254,000, $3,528,000 and $2,777,000, respectively. In 1996 the Company entered into a sale and leaseback transaction with a third party for the Ladle Metallurgy Facility at Alton. The third party agreed to purchase the equipment in 1996 for approximately $4,000,000 cash and a note receivable for approximately $3,600,000 which was paid in January 1998 to complete the lease transaction. The lease term is for five years starting August 1, 1996 and continuing until June 30, 2001 with an option to purchase the equipment at the expiration date. - 50 - 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, 1997, 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. 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. The Company developed a modified closure plan which was approved by the Illinois EPA. This plan provided for the closure of existing electric furnace dust piles in place, and the project was completed in 1997. Because the project was completed at less than the cost reserve previously established, a credit for $994,000 was recorded in the fourth quarter of 1997. Idled Property In December 1997, the Company idled its High Temperature Metal Recovery facility ("HTMR") after the facility became inoperable due to an accident. This facility was used to dispose of the Company's EAF dust generated in the Alton Facility. During 1998, management plans to dispose of the EAF dust through alternative methods. Management plans to evaluate the HTMR facility periodically to determine the economic feasibility of repairing and operating the unit. If it is determined that the HTMR unit cannot function on an economically feasible basis in the future, it is unlikely that the asset would support its current carrying value which was approximately $15,300,000 as of December 31, 1997, and a corresponding impairment write-down may be necessary. Retirements Executive retirements, including CEO John B. McKinney, in the first half of 1998 will result in non-cash charges of approximately $3,000,000 ($1,800,000 after recognition of tax benefits). Note 10 Preferred Stock: In July 1996 the Company issued 416,667 shares of Series A 6% preferred stock to Ivaco Inc. and the executive officers of the Company for $6,090,000, after expenses. This transaction resulted in an increase in capital in excess of par value of - 51 - $6,006,667. On October 28, 1996, at a special meeting of the stockholders, an amendment was approved to the Company's Certificate of Incorporation which reduced the par value of each share of common stock from $13.33 per share to $.01 per share and increased the number of authorized common stock shares from 5,000,000 shares to 25,000,000 shares. The stockholders also approved the recapitalization of the Company's Series A 6% preferred stock. At such time each share of the preferred stock became convertible into common stock at the option of the holder at a conversion price of $3.20 into 4.69 shares of common stock. In the event of voluntary or involuntary liquidation of the Company, the holders of shares of Series A Preferred Stock are entitled to receive liquidating distributions in the amount of $15.00 per share plus accrued and unpaid dividends before payment is made to holders of common stock. Note 11 Benwood Sale: In February 1997, the Company sold the assets of its electric weld structural and mechanical tubing operation, located in Benwood, West Virginia. Cash proceeds from the sale of these assets, which consist primarily of equipment and inventory, totaled approximately $11,000,000. The Company used the funds from the sale to improve its working capital position. Sale of these assets will not affect the Company's primary tubular business, continuous weld pipe. Note 12 Related-Party Transactions: The Company has transactions in the normal course of business with Ivaco Inc. or affiliated companies. As of December 31, 1997 Ivaco Inc. owned 24.88% of the Company's outstanding common stock. In 1997 the Company purchased rods at market prices totaling $5,502,000 from affiliates of Ivaco. Prior to 1998, the Company participated in an insurance purchasing arrangement with Ivaco. Under the terms of this arrangement Ivaco purchased insurance on behalf of the Company and billed the Company for this insurance. Amounts paid by the Company for this insurance amounted to $1,156,000, $1,521,000 and $1,341,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The Company also has transactions in the normal course of business with Birmingham Steel or affiliated companies. As of December 31, 1997 Birmingham Steel beneficially owned 50.26% of the Company's outstanding common stock which includes the voting rights on the Ivaco investment discussed above. In 1997 the Company purchased rods and participated in rod conversion arrangements with affiliates of Birmingham Steel at market prices, which totaled $3,508,000. Also in 1997, an affiliate of Birmingham Steel purchased semi-finished steel from the Company at market prices totaling $643,000. - 52 - 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, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Deloitte & Touche LLP March 27, 1998 St. Louis, Missouri - 53 - 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 30, 1998 /s/ Thomas E. Brew, Jr. Date Thomas E. Brew, Jr. President Principal Executive Officer March 30, 1998 /s/ Michael H. Lane Date Michael H. Lane Vice President-Finance Treasurer and Secretary (Principal Financial and Accounting Officer) Director 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 indicated. March 30, 1998 /s/ Wayne P. E. Mang Date Wayne P. E. Mang Chairman of the Board March 30, 1998 /s/ Joseph Alvarado Date Joseph Alvarado Director March 30, 1998 /s/ Robert A. Garvey Date Robert A. Garvey Director March 30, 1998 /s/ William R. Lucas, Jr. Date William R. Lucas, Jr. Director March 28, 1998 /s/ Philip R. Morgan Date Philip R. Morgan Director March 30, 1998 /s/ Robert H. Quenon Date Robert H. Quenon Director March 23, 1998 /s/ George H. Walker III Date George H. Walker III Director EX-3.2 2 BY-LAWS AMENDED 12/19/97 Effective December 19, 1997 BY-LAWS OF LACLEDE STEEL COMPANY ARTICLE I Offices The general offices of the Company shall be in the City of St. Louis, State of Missouri, unless the Board of Directors shall otherwise determine. ARTICLE II Stockholders Meetings Section 1. Annual Meeting. The annual meeting of the stockholders of the Company for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held in each year on such date as shall be specified by the Board of Directors, but, unless so specified, shall be held on the third Thursday in May in each year if not a legal holiday and, if a legal holiday, then on the next succeeding business day. The annual meeting of stockholders shall be held at the general offices of the Company in St. Louis, Missouri and shall be convened at 9:00 a.m. unless the Board of Directors shall specify a different place at which the meeting shall be held or a different hour at which the meeting shall be convened. Section 2. Special Meetings. Special meetings of the stockholders may be called by the President or by resolution of the Board of Directors whenever deemed necessary. In addition, special meetings of the stockholders may be called upon the condition, by the person or persons and for the purpose specified in Section 1 of Article III of these By-Laws. The business transacted at any special meeting of the stockholders shall be confined to the purpose or purposes specified in the notice therefor and to matters germane thereto. Special meetings of the stockholders shall be held at the general offices of the Company and shall be convened at 9:00 a.m. unless the Board of Directors or the President or other person or persons, as the case may be, calling the meeting shall specify a different place at which the meeting shall be held or a different hour at which the meeting shall be convened. Section 3. Notice. Notice of each meeting of the stockholders stating the place, the date and the hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be mailed or caused to be mailed not less than ten days nor more than fifty days before the date of the meeting by the Secretary at the direction of the president or the Board of Directors or the person or persons calling the meeting, to each stockholder of record entitled to vote at such meeting at his address as it appears on the records of the Company. Notice may be waived, and the presence of any stockholder in person or by proxy at any meeting shall constitute a waiver of notice of such meeting except where a stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 4. Quorum. A majority of the outstanding shares entitled to vote at a meeting represented in person or by proxy shall constitute a quorum at a meeting of the stockholders. Every decision of a majority of the shares present, in person or by proxy, entitled to vote, provided a quorum is present, shall be valid as a corporate act unless by reason of the particular nature of such action a different vote is required by law or by the Certificate of Incorporation of the Company. Section 5. Adjournment. Any meeting of the stockholders may adjourn from time to time until its business is completed. In the absence of a quorum, a majority of the shares represented in person or by proxy shall have the right successively to adjourn the meeting to a specified date. Any business which may have been transacted at the meeting at which the adjournment is taken, may be transacted at the adjourned meeting. No notice need be given of an adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, provided that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 6. Voting. At all meetings of the stockholders each outstanding share shall be entitled to one vote on each matter submitted to a vote, but no share belonging to the Company shall be voted. In all elections for Directors of the Company each stockholder shall be entitled to as many votes as shall equal the number of votes which (except for this provision) he would be entitled to cast for the election of Directors with respect to his shares of stock multiplied by the number of Directors to be elected and he may cast all such votes for a single Director or may distribute them among the number to be voted for, or any two or more of them, as he may see fit. A stockholder may vote either in person or by proxy executed in writing by the stockholder or by his attorney-in-fact. No proxy shall be valid after three years from the date of its execution unless otherwise provided in the proxy. Section 7 . List of Stockholders. At least ten (10) days before each meeting of the stockholders the Secretary of the Company shall make a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to examination of any stockholder, for any purpose germane to the meeting during ordinary business hours, for at least ten (10) days prior to the meeting at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. Section 8. Inspectors. At any meeting of the stockholders at which Directors are to be elected or vote of the stockholders is to be taken on any proposition, the President or other person presiding at such meeting may appoint not less than two persons, who are not Directors, inspectors to receive and canvass the votes given at such meeting, and certify the results to him. In all cases where the right to vote upon any share or shares shall be questioned, it shall be the duty of the inspectors, if any, or persons conducting the vote to require the stock ledger of the Company as evidence of shares held and the question shall be determined in accordance with said stock ledger. Section 9. Presiding Officer. The Chairman of the Board shall preside at all meetings of the stockholders. In the absence of the Chairman, the Board of Directors may designate a substitute chairman to preside at any meeting of stockholders. At any meeting of stockholders, the Chairman, or in his absence, the substitute chairman, if any, appointed by the Board of Directors, may, from time to time, during such meeting, appoint a temporary chairman to preside temporarily at such meeting. Section 10. Special Meetings Called by Stockholders. A Special Meeting of Stockholders may also be called by holders (the "Requesting Holders") representing at least 25% of the outstanding shares entitled to vote at any annual meeting of the stockholders or at any special meeting of the stockholders. In order to exercise this right, the Requesting Holders must give notice (the "Notice") to the Secretary of the Company, setting forth (i) the subject matter to be considered at the Special Meeting (ii) the proposed record date (the "Record Date") for the special Meeting (which shall be a least 15 days after delivery of the Notice), (iii) the proposed date (the "Meeting Date") for the Special Meeting and (iv) such other information as the Requesting Holders shall reasonably request to be included in the Proxy Statement, Notice of Special Meeting and Proxy (the "Proxy Materials") to be prepared by the Company in connection with the Special Meeting. The business conducted at the Special Meeting shall be limited to the matters set forth in the Notice. The Special Meeting shall be held at the general offices of the Company unless another place within the City of St. Louis shall be set by the Company, and shall be convened at 9:00 A.M. (local time). The Company shall file with the Securities and Exchange Commission (the "SEC") no later than 10 days after the Company receives the Notice, preliminary Proxy Material (and use its best efforts to file definitive Proxy Materials as soon as possible thereafter) or, if no preliminary Proxy Materials are required to be filed, definitive Proxy Material, which Proxy Material shall contain in all material respects the request or requests of the Requesting Holders as set forth in the Notice. No later than two business days after the definitive Proxy Materials are filed with the SEC, the Company shall send the Proxy Materials to all stockholders of record on the Record Date. The Company shall comply with all applicable laws relating to the Special Meeting. If the number of days between the date of the mailing of the proxy Materials and the Meeting Date is less than 30 days, the Company shall notify the Requesting Holders and the Meeting Date shall be moved to the 30th day (or, if not a business day, the next business day thereafter) following the commencement of the mailing of the Proxy Materials to stockholders unless the Requesting Holders request that the Meeting Date remain unchanged from the date set forth in the Notice. If the Company is unable to comply as a matter of law with the Record Date or the Meeting Date, the Company shall change such date to the first business day thereafter as is legally permissible. Notwithstanding any provision in the By-laws to the contrary, this Section 10 of Article II may only be amended, altered or repealed by a vote of holders of 75% of the outstanding shares entitled to vote at any annual meeting of the stockholders or at any special meeting of the stockholders called for that purpose; provided, however, the Requesting Holders may waive any obligation of the Company hereunder with respect to the Special Meeting called by such Requesting Holders. ARTICLE III Board of Directors Section 1. Number, Tenure and Vacancies. The property and business of the Company shall be controlled and managed by a Board of Directors. The Board of Directors shall consist of nine (9) persons who are stockholders of the Company. Each director shall hold office until the annual meeting of the stockholders next succeeding his election and until his successor shall be elected and qualified. Election of directors shall be by written ballot. Vacancies on the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors, shall be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy or to fill a newly created directorship shall hold office until the next annual meeting, and until his successor shall be elected and qualified. If at any time, by reason of death or resignation or other cause, the Company shall have no directors in office, then any officer or stockholder, or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders for the purpose of electing directors. Notice of such special meeting shall be given by the person or persons calling the meeting herein before provided. Section 2. Regular Meetings of Directors. Regular meetings of the Board of Directors shall be held on such dates as the Board of Directors may, from time to time, determine. No notice of any regular meeting of the Board of Directors need be given. Section 3. Special Meetings. Special meetings of the Board of Directors may be called by the President any time and special meetings shall be called by the President or the Secretary upon the written request of any four Directors specifying the purpose or purposes for such special meeting. Written notice of all special meetings of the Board of Directors stating the time, place and purpose of the meeting shall be mailed on a date which is at least one day before the date of the meeting and addressed to each Director at his address as it appears on the records of the Company. Attendance of a Director at any special meeting shall constitute a waiver of notice thereof except where a Director attends the meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. A Director, either prior to or after any meeting, may waive notice thereof, whether or not he attends the meeting, and such waiver may be in writing or by telegram. Section 4. Quorum. A majority of the Board of Directors shall be required to be present at any meeting to constitute a quorum for the transaction of business and, except as otherwise specifically provided in these By-Laws, the concurring vote of at least a majority of the Directors at a meeting at which a quorum is present shall be required to determine all questions coming before the Board. In the absence of a quorum the Directors present shall have the right successively to adjourn the meeting to a specified date and no notice need be given of such adjournment. Members of the Board of Directors may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can here each other, and such participation in a meeting shall constitute presence in person at such meeting. Section 5. Presiding Officer. The Board shall by majority vote select a member of the Board of Directors to serve as Chairman of the Board and to preside at all meetings of the Board of Directors. In the absence of the Chairman, the Board of Directors may designate a substitute chairman to preside at any meeting of the Board of Directors. At any meeting of the Board of Directors, the Chairman, or in his absence, the substitute chairman designated by the Board of Directors, may, from time to time, during such meetings, appoint a temporary chairman to preside at such meetings. Section 6. Consents. Any action required or permitted to be taken at any meeting of the Board of Directors, may be taken without a meeting if all the members of the Board of Directors consent thereto in writing, provided that the writing or writings shall be filed with the minutes of the proceedings of the Board of Directors. Section 7. Compensation. Directors as such shall receive such compensation as the Board of Directors may from time to time determine. Section 8. Fixing Record Date. In order to determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of shares of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. ARTICLE IV Officers Section 1. Number. The officers of the Company shall consist of a President, one or more Vice Presidents, a Secretary, an Assistant Secretary, a Treasurer, and an Assistant Treasurer, and in addition to the above-named officers such other officers as the Board of Directors may, from time to time, designate. Section 2. Term. The officers shall hold office for a period of one year or until their successors have been duly elected and qualified, provided, however, that any officer or agent elected by the Board of Directors may be removed by the Board and any such officer or agent, other than the President, may be removed by the President, whenever in its or his judgment the best interest of the Company will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person removed. Any vacancy occurring among officers may be filled at any time by the Board of Directors. Section 3. Consolidation of Offices. Any two or more offices, except President and a Vice President, President and Secretary, Secretary and Assistant Secretary, and Treasurer and Assistant Treasurer, may be held by the same person. Section 4. Election. All officers shall be elected at the first meeting of the Board of Directors held after the annual meeting of the stockholders, or as soon thereafter as possible. Section 5. Compensation. Officers shall receive such compensation as may be fixed, from time to time, by the Board of Directors and the fact that any officer shall also be a Director shall not preclude his receiving compensation for his services as an officer. ARTICLE V Duties of Officers Section 1. President. The President shall be a stockholder and a member of the Board of Directors. He shall be the chief executive officer of the Company and shall exercise general management over the affairs of the Company and its property, subject to control by the Board of Directors. He shall exercise such other powers and perform such other duties as are prescribed by law, by these By-Laws, or by the Board of Directors and as are ordinarily incident to the office of President. Section 2. Vice President or Vice Presidents. The Vice President or Vice Presidents shall exercise such powers and perform such duties as may be elsewhere prescribed by these By-laws and as may be prescribed, from time to time, by the Board of Directors or by the President. Section 3. Secretary. The Secretary shall keep the minutes of all meetings of the stockholders and of the Board of Directors, and shall attend to the giving and serving of all notices as may be required by law or by these By-Laws. He shall have in his custody the seal of the Company and shall affix the same to deed, contracts and other instruments requiring the seal when duly signed on behalf of the Company and he shall exercise such other powers and perform such other duties as may be elsewhere prescribed in these By-Laws and as may be prescribed, from time to time, by the Board of Directors or by the President and as are ordinarily incident to the office of the Secretary. Section 4. Assistant Secretary. The Assistant Secretary shall perform the duties of the Secretary in the event of the death, disability or absence of the Secretary and shall exercise such other powers and perform such other duties as may be elsewhere prescribed in these By-Laws and as may be prescribed, from time to time, by the Board of Directors or the President. Section 5. Treasurer. The Treasurer shall have charge of all books of account, funds, evidences of indebtedness and other securities of the Company and shall deposit the funds belonging to the Company in the name of the Company in such banks or trust companies as may be designated by the Board of Directors. He shall keep full and accurate accounts of all transactions of the Company and of money received and paid out. He shall make such reports to the stockholders, the Board of Directors and the president as they may respectively direct. He shall exercise such other powers and perform such other duties as may be elsewhere prescribed in these By-Laws and as may be prescribed, from time to time, by the Board of Directors or by the President and as are ordinarily incident to the office of the Treasurer. Section 6. Assistant Treasurer. The Assistant Treasurer shall perform the duties of the Treasurer in the event of the death, disability or absence of the Treasurer, and shall exercise such other powers and perform such other duties as may be elsewhere prescribed in these By-Laws and as may be prescribed, from time to time, by the Board of Directors or President. Section 7. Additional Officers. The additional officers designated by the Board of Directors shall exercise such powers and perform such duties as may be prescribed, from time to time, by the Board of Directors or the President and as are ordinarily incident to the office held by such additional officers. Section 8. Bonds. At the option of the Board of Directors, the Treasurer or any other officer shall be required to give bond for the faithful performance of his duties. ARTICLE VI Fiscal Year The fiscal year of the Company shall commence on the first day of January in each year. ARTICLE VII Certificates of Stock and Transfers Section 1. Certificates. Each stockholder shall be entitled to a certificate, certifying the number and character of shares owned by him. The certificates shall be in such form as shall be approved by the Board of Directors and shall be signed by, or in the name of the Company, by the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and sealed with the seal of the Company, which seal may be facsimile, engraved or printed. The signatures of the officers of the company may be facsimile on any stock certificates which are countersigned by the Company's transfer agent or the Company's registrar. The certificates, as they are issued, shall be consecutively numbered and registered in the order of their issuance and shall be entered on the stock transfer books of the Company as they are issued. Proper records shall be kept which shall show the name and address of the owner of each certificate and the number of shares issued to each stockholder and, in the case of cancellation, shall show the date of such cancellation. Section 2. Transfers. The shares of stock shall be transferable only upon the books of the Company. Every transfer shall be by the holder thereof in person or by attorney upon surrender and cancellation of the outstanding certificates for the shares so transferred and upon proof satisfactory to the Company that the person presenting such certificate is legally entitled to transfer the same. Section 3. Lost Certificates. In the event of the loss, theft, or destruction of any stock certificate, a new certificate may be issued only upon compliance with the following conditions. The owner of such lost, stolen, or destroyed certificate shall file with the Secretary an affidavit stating the number of the certificate, the number of shares represented thereby, the facts with regard to the ownership of the certificate, and the circumstances surrounding its loss, theft, or destruction. The Secretary shall present such affidavit to the Board of Directors and if the Board of Directors shall be satisfied that such certificate has been lost, stolen or destroyed and that a new certificate ought to be issued in lieu thereof, the Board of Directors may order a new certificate to be issued to such owner upon his filing with the Company either (a) a bond in such penal sum and with such conditions and such surety as the Board of Directors may prescribe, indemnifying the Company, its Directors and officers against all expense, damage or liability which may be occasioned by the issuance of a new certificate, or (b) a certificate of the surety in a lost security blanket bond, which bond shall have been previously approved by the Board of Directors, assuming liability under such bond, in such penal sum as the Board of Directors may prescribe, with respect to the issuance of a new certificate in lieu of the one alleged to have been lost, stolen, or destroyed. Section 4. Transfer and Registration Agents. The Board of Directors may appoint a transfer agent or agents who shall have and exercise supervision over the transfer of shares of stock and the issuance of stock certificates, subject to such conditions and regulations as the Board of Directors may prescribe; and the Board of Directors may appoint a registrar who shall register all transfers of shares of stock and the issuance of stock certificates, subject to such conditions and regulations as the Board shall prescribe. ARTICLE VIII Seal The corporate seal of the Company shall be in circular form and bear the name of the Company arranged on the outer edge, with the word "Seal" and the word "Delaware" also appearing thereon. ARTICLE IX Amendments to By-Laws These By-Laws, or any of them, may be amended, altered or repealed and new By-Laws adopted either (a) by the stockholders, (i) by vote of the holders of two-thirds (2/3) of the outstanding shares entitled to vote at any annual meeting of the stockholders or at any special meeting of the stockholders called for that purpose in the case of an amendment, alteration or repeal of this Article IX or of Section 1 of Article III of these By-Laws, and (ii) by vote of the holders of a majority of the outstanding shares entitled to vote at any annual meeting of the stockholders or at any special meeting of the stockholder called for that purpose in any other case, or (b) by the Board of Directors, by vote of a three-fourths majority of the whole board of Directors of the Company except that the Board of Directors may not alter, amend or repeal Article IX or Section 1 of Article III of these By-Laws. ARTICLE X Indemnification of Directors and Others Section 1. Actions, Suits or Proceedings Other Than By or in the Right of the Company. The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or on the right of the Company) by reason of the fact that he is or was or has agreed to become a director, officer, employee or agent of the Company, or is or was serving or has agreed to serve at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges, expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonable incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Actions or Suits By or in the Right of the Corporation. The company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the company to procure a judgment in its favor by reason of the fact that he is or was or has agreed to become a director, officer, employee or agent of the Company, or is or was serving or has agreed to serve at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges, and expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection with the defense or settlement of such action or suit and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such costs, charges and expenses which the Court of Chancery or such other court shall deem proper. Section 3. Indemnification for Costs, Charges and Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that a director, officer, employee or agent of the Company has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of and claim, issue or matter therein, he shall be indemnified against all costs, charges and expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith. Section 4. Determination of Right to Indemnification. Any indemnification under Sections 1 and 2 of this Article (unless ordered by a court) shall be paid by the company unless a determination is made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders, that indemnification of the director, officer, employee or agent is not proper in the circumstances because he has not met the applicable standard of conduct set forth in Sections 1 and 2 of this Article. Section 5. Advance of Costs, Charges and Expenses. Costs, charges and expenses (including attorneys' fees) incurred by a person referred to in Sections 1 and 2 of this Article in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding provided, however, that the payment of such costs, charges and expenses incurred by a director or officer in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer) in advance of the final disposition of such action, suit or proceeding shall be made only upon receipt of an undertaking by or on behalf of such director or officer to repay all amounts so advanced in the event that it shall ultimately be determined that such director of officer is not entitled to be indemnified by the Company as authorized in this Article. Such costs, charges and expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. The Board of Directors may, in the manner set forth above, and upon approval of such director, officer, employee or agent of the Company, authorize the Company's counsel to represent such person, in any action, suit or proceeding, whether or not the company is a party to such action, suit or proceeding. Section 6. Procedure for Indemnification. Any indemnification under Sections 1, 2 and 3, or advance of costs, charges and expenses under Section 5 of this Article, shall be made promptly, and in any event within 60 days, upon the written request of the director, officer, employee or agent. The right to indemnification or advances as granted by this Article shall be enforceable by the director, officer, employee or agent in any court of competent jurisdiction, if the Company denies such request, in whole or in part, or if no disposition thereof is made within 60 days. Such person's costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the Company. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under Section 5 of this Article where the required undertaking, if any, has been received by the Company) that the claimant has not met the standard of conduct set forth in Sections 1 and 2 of the Article but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, its independent legal counsel, and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 or 2 of this Article, nor the fact that there has been an actual determination by the Company (including its Board of Directors, independent legal counsel and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 7. Other Rights; Continuation of Right to Indemnification. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under any law (common or statutory), agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and to action in another capacity while holding such office or while employed by or acting as agent for the Company and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification under this Article shall be deemed to be a contract between the Company and each director, officer, employee or agent of the Company who serves or served in such capacity at any time while this Article is in effect. Any repeal or modification of this Article or any repeal or modification of relevant provisions of the Delaware General Corporation law or any other applicable laws shall not in any way diminish any rights to indemnification of such director, officer, employee or agent or the obligations of the company arising thereunder. Section 8. Savings Clause. If this Article or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify each director, officer, employee and agent of the Company as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including any action by or in the right of the Company, to the full extent permitted by any applicable portion of the company's Articles of Incorporation or of this Article which shall not have been invalidated and to the full extent permitted by applicable law. EX-4.1 3 AMENDMENT TO LOAN AGREEMENT AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT DATED AS OF SEPTEMBER 7, 1994 AMENDED AND RESTATED AS OF AUGUST 20, 1997 THIS AMENDMENT NO. 1 dated as of December 30, 1997 (this "Amendment") is entered into among BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation ("BABC"), BNY FINANCIAL CORPORATION, a New York corporation ("BNY") formerly known as The Bank of New York Commercial Corporation, NATIONSBANK, N.A., a national banking association ("NB") (BABC, BNY and NB and their respective successors and assigns being sometimes hereinafter referred to collectively as the "Lenders" and each of BABC, BNY and NB 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"), 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"). 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 and amended and restated as of August 20, 1997 (the "Loan Agreement," capitalized terms used herein without definition having the meanings given such terms in 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. Subject to the fulfillment of the conditions precedent set forth in Section 3 below, the Loan Agreement is amended as follows: (a) The definition of Consolidated Earnings contained in Section 1.2 is amended to delete the words "performance fee referred to in Section 3.10" in their entirety and to substitute the words "fee payable pursuant to Amendment No. 1 hereto dated December 30, 1997" therefor. (b) Section 4.2 (Termination of Revolver Facility) is amended to delete the amount (i) "$950,000" in the chart contained therein and to substitute the amount "$1,250,000" therefor, and (ii) "$750,000" in the chart contained therein and to substitute the amount "$1,050,000" therefor. (c) Section 8.24 (Consolidated Fixed Charge Coverage Ratio) is amended to delete the period "01/01/97-12/31/97" and corresponding ratio "0.80 to 1.00" from the chart contained therein. (d) Section 8.25 is hereby amended and restated as follows: 8.25 Consolidated Adjusted Net Worth. The Borrowers will maintain a Consolidated Adjusted Net Worth, determined as of the last day of each fiscal quarter in each Fiscal Year, in an amount which is not less than the sum of (a) the aggregate amount of any contributions to the capital of the Parent made after February 26, 1997 plus (b) the amount indicated opposite each of the following dates: Quarter Ending Date Amount 03/31/97 $31,000,000 06/30/97 $31,000,000 09/30/97 $31,500,000 12/31/97 $30,000,000 03/31/98 $30,000,000 06/30/98 $30,000,000 09/30/98 $30,700,000 12/31/98 $31,600,000 In addition, the pre-tax loss for the Parent and its consolidated Subsidiaries for the Fiscal Year ending December 31, 1997, determined in accordance with GAAP (but excluding gain or loss arising from extraordinary items) and reported on the Financial Statements, shall not exceed $1,750,000. Beginning with the fiscal quarter ending March 31, 1999, the Borrowers will maintain a Consolidated Adjusted Net Worth, calculated as of the last day of each fiscal quarter in each Fiscal Year, of not less than the sum of (a) the aggregate amount of any contributions to the capital of the Parent made after February 26, 1997, plus (b) $31,600,000, plus (c) an amount (to the extent greater than zero and without deduction for any losses) equal to the sum of (i) fifty percent (50.0%) of the amount by which Consolidated Adjusted Net Worth at December 31, 1998 exceeds $31,600,000, plus (ii) fifty percent (50.0%) of Consolidated Net Earnings for each Fiscal Year thereafter. Section 2. Waiver. Subject to the fulfillment of the conditions precedent set forth in Section 3 below, the Lenders and the Agent hereby waive any right to receive a performance fee pursuant to the terms of Section 3.10 of the Loan Agreement. Section 3. Conditions to Amendment. This Amendment shall become effective upon the satisfaction of the following conditions precedent: (a) receipt by the Agent by facsimile transmission of a counterpart of this Amendment executed by each Borrower and each Lender, and execution of this Amendment by the Agent (provided, that each Borrower and each Lenders shall promptly execute six applicable signature pages hereof and deliver such pages to the Agent); and (b) receipt by the Agent, for the ratable account of the Lenders, of a fee in the amount of $250,000. 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. Legal Fees. The Borrowers agree to pay to the Agent, for its benefit, on demand, all costs and expenses that the Agent pays or incurs in connection with the negotiation, preparation, consummation, administration, enforcement and termination of this Amendment, including, without limitation, the allocated costs of the Agent's in-house counsel fees. Section 9. 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 December 30, 1997. 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 BANKAMERICA BUSINESS CREDIT, INC., as a Lender By:________________________________ Vice President BNY FINANCIAL CORPORATION, as a Lender By:________________________________ Vice President NATIONSBANK, N.A., as a Lender By:________________________________ Vice President EX-4.2 4 AMENDMENT TO LOAN AGREMENT AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT DATED AS OF SEPTEMBER 7, 1994 AMENDED AND RESTATED AS OF AUGUST 20, 1997 THIS AMENDMENT NO. 2 dated as of March 27, 1998 (this "Amendment") is entered into among BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation ("BABC"), BNY FINANCIAL CORPORATION, a New York corporation ("BNY") formerly known as The Bank of New York Commercial Corporation, NATIONSBANK, N.A., a national banking association ("NB") (BABC, BNY and NB and their respective successors and assigns being sometimes hereinafter referred to collectively as the "Lenders" and each of BABC, BNY and NB 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"), 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"). 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, amended and restated as of August 20, 1997 and amended by that certain Amendment No. 1 dated as of December 23, 1997 (the "Loan Agreement," capitalized terms used herein without definition having the meanings given such terms in 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. Subject to the fulfillment of the conditions precedent set forth in Section 3 below, the Loan Agreement is amended as follows: (a) Section 8.24 is amended and restated as follows: 8.24 Consolidated Fixed Charge Coverage Ratio. The Borrowers will maintain a Consolidated Fixed Charge Coverage Ratio, determined as of the end of each period listed below, for the period indicated of not less than the ratio indicated opposite such period: Period Ratio 01/01/98 - 03/31/98 0.45 to 1.00 01/01/98 - 06/30/98 0.55 to 1.00 01/01/98 - 09/30/98 0.65 to 1.00 01/01/98 - 12/31/98 0.80 to 1.00 01/01/99 - 03/31/99 0.90 to 1.00 01/01/99 - 06/30/99 0.90 to 1.00 01/01/99 - 09/30/99 0.80 to 1.00 01/01/99 - 12/31/99 0.90 to 1.00 01/01/00 - 03/31/00 0.95 to 1.00 01/01/00 - 06/30/00 0.95 to 1.00 01/01/00 - 09/30/00 0.85 to 1.00 01/01/00 - 12/31/00 0.95 to 1.00 and commencing on 03/31/01 and as of the last day of each fiscal quarter in each Fiscal Year thereafter, for the twelve-month period ending on such date 0.95 to 1.00 For purposes of this Section 8.24, the Consolidated Fixed Charge coverage Ratio shall be calculated without giving effect to a noncash charge to the Parent's earnings and net worth during 1998, not to exceed $3,000,000, for the early retirement of two key employees. (b) Section 8.25 is amended and restated as follows: 8.25 Consolidated Adjusted Net Worth. The Borrowers will maintain a Consolidated Adjusted Net Worth, determined as of the last day of each fiscal quarter in each Fiscal Year, in an amount which is not less than the sum of (a) the aggregate amount of any contributions to the capital of the Parent made after February 26, 1997 plus (b) the amount indicated opposite each of the following dates: Quarter Ending Date Amount 03/31/98 $26,000,000 06/30/98 $26,000,000 09/30/98 $29,000,000 12/31/98 $31,600,000 Beginning with the fiscal quarter ending March 31, 1999, the Borrowers will maintain a Consolidated Adjusted Net Worth, calculated as of the last day of each fiscal quarter in each Fiscal Year, of not less than the sum of (a) the aggregate amount of any contributions to the capital of the Parent made after February 26, 1997, plus (b) $31,600,000, plus (c) an amount (to the extent greater than zero and without deduction for any losses) equal to the sum of (i) fifty percent (50.0%) of the amount by which Consolidated Adjusted Net Worth at December 31, 1998 exceeds $31,600,000, plus (ii) fifty percent (50.0%) of Consolidated Net Earnings for each Fiscal Year thereafter. For purposes of this Section 8.25, the Consolidated Adjusted Net Worth shall be calculated without giving effect to a noncash charge to the Parent's earnings and net worth during 1998, not to exceed $3,000,000, for the early retirement of two key employees. Section 2. Waiver; Margin Increase. (a) Subject to the fulfillment of the conditions precedent set forth in Section 3 below, the Lenders and the Agent hereby waive the Event of Default arising from the Borrowers' failure pursuant to Section 8.25 to (i) have a Consolidated Adjusted Net Worth, in accordance with such Section, as of December 31, 1997, of not less than $30,000,000 (provided, that such Consolidated Adjusted Net Worth shall not be less than $28,000,000), and (ii) have a pre-tax loss, in accordance with such Section, for the Fiscal Year ending December 31, 1997, of not more than $1,750,000 (provided, that such pre-tax loss shall not exceed $4,900,000). (b) Effective as of April 1, 1998, each of the Margins shall be increased by one half of one percent (0.50%) per annum. (i) (A) In the event that the Borrowers shall have (i) a Consolidated Fixed Charge Coverage ratio (calculated in accordance with Section 8.24, as amended by this Amendment) for the period 01/01/98 - 06/30/98, of not less than 0.61 to 1.00, and (ii) Consolidated Adjusted Net Worth (calculated in accordance with Section 8.25, as amended by this Amendment), determined as of 06/30/98, of not less $26,914,000, each of such increased Margins shall be reduced by one quarter of one percent (0.25%) per annum, effective on August 1, 1998. (B) In the event that the Borrowers shall not qualify for the reduction described in the immediately preceding subparagraph (i)(A), such reduction shall become effective on November 1, 1998 in the event that the Borrowers shall have (i) a Consolidated Fixed Charge Coverage ratio (calculated in accordance with Section 8.24, as amended by this Amendment) for the period 01/01/98 - 09/30/98, of not less than 0.69 to 1.00, and (ii) Consolidated Adjusted Net Worth (calculated in accordance with Section 8.25, as amended by this Amendment), determined as of 09/30/98, of not less $29,861,000. (ii) In addition to the maximum reduction of one quarter of one percent (0.25%) per annum pursuant to the foregoing subparagraph (i), such increased Margins shall be reduced by one quarter of one percent (0.25%) per annum on the first day of the first calendar month following the Agent's receipt of financial statements as of the end of a fiscal quarter demonstrating that the Borrowers would be in compliance with Sections 8.24 and 8.25 of the Loan Agreement, as such Sections existed prior to this Amendment (but calculated without giving effect to a noncash charge to the Parent's earnings and net worth during 1998, not to exceed $3,000,000, for the early retirement of two key employees). Section 3. Conditions to Amendment. This Amendment shall become effective upon the receipt by the Agent by facsimile transmission of a counterpart of this Amendment executed by each Borrower and each Lender, and execution of this Amendment by the Agent (provided, that each Borrower and each Lenders shall promptly execute six applicable signature pages hereof and deliver such pages to the Agent). 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. Legal Fees. The Borrowers agree to pay to the Agent, for its benefit, on demand, all costs and expenses that the Agent pays or incurs in connection with the negotiation, preparation, consummation, administration, enforcement and termination of this Amendment, including, without limitation, the allocated costs of the Agent's in-house counsel fees. Section 9. 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 March 27, 1998. 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 BANKAMERICA BUSINESS CREDIT, INC., as a Lender By:________________________________ Vice President BNY FINANCIAL CORPORATION, as a Lender By:________________________________ Vice President NATIONSBANK, N.A., as a Lender By:________________________________ Vice President EX-10.5 5 EMPLOYMENT AGREEMENT AMENDMENT AMENDMENT TO RESTATED EMPLOYMENT AGREEMENT THIS AMENDMENT TO RESTATED EMPLOYMENT AGREEMENT ("Amendment") is made and entered into as of the 24th day of March, 1998, by and between LACLEDE STEEL COMPANY, a Delaware corporation ("Employer"), and MICHAEL H. LANE ("Employee"). WHEREAS, Employee and Employer previously entered into an employment agreement as of the 19th day of October, 1994 that was most recently restated on the 30th day of July, 1996 ("Restated Employment Agreement"); and WHEREAS, Employee and Employer desire to amend the Restated Employment Agreement by making the amendments stated herein and as amended, to reaffirm Employee's Restated Employment Agreement; and WHEREAS, Employee and Employer desire to set forth the terms of Employee's continued employment with Employer and the terms of the separation of Employee from Employer's employ at the end of such employment; NOW, THEREFORE, in consideration of the foregoing and the promises and agreements herein contained, the parties agree as follows: A. Employee shall continue as Vice-President Finance, Treasurer & Secretary and as Chief Financial Officer. B. The term of Employee's employment under Employee's Restated Employment Agreement is changed to the earlier of (a) one hundred eighty (180) days from the date of this Amendment or (b) such earlier date as shall be determined by the President of Employer by giving written notice to Employee. In either case the date of the termination of Employee's Restated Employment Agreement is hereafter referred to as Employee's "Agreement Termination Date." Notwithstanding Employee's Agreement Termination Date or anything contained in Employee's Key Employee Retirement Agreement with Employer (Employee's "KERP"), Employer and Employee agree that Employee shall receive a lump sum payment of Employee's Accrued Benefit on the later of August 2, 1999 or twelve (12) months after Employee's Agreement Termination Date (Employee's "KERP Payment Date"). Until Employee's KERP Payment Date, Employee shall be considered an active employee of Employer. C. Until Employee's Agreement Termination date, Employer shall continue to pay Employee monthly compensation of $20,292.00 ("Monthly Payment" and in the plural "Monthly Payments") reduced by applicable employment taxes, at the same time and in the same manner as Employer pays its other officers. D. During Employee's employment with Employer, Employer shall provide Employee with such fringe benefits as are made available by Employer from time to time to other employees of Employer at Employee's level of employment; provided however, that benefits paid to Employee shall in all events include Employee's leased automobile, Employee's tax assistance program, health and disability insurance (collectively the "Benefits"). E. After Employee's Agreement Termination Date Employer shall pay Employee Monthly Payments (or in the case of a period of less than one month, the pro rata portion of the Monthly Payment for such period based on a thirty (30) day month) for the greater period of (a) each month from Employee's Agreement Termination Date through August 2, 1999, or (b) each month for twelve (12) months from Employee's Agreement Termination Date. The total of such Monthly Payments, as applicable, are hereafter referred to as the "Sum of Monthly Payments". If Employee remains in the employ of Employer for at least one hundred eighty (180) days from the date of this Amendment then in lieu of paying the Monthly Payments to Employee each month as set forth above, the Sum of Monthly Payments shall be paid in two (2) equal installments. In such case, the first installment shall be paid on the first working day after Employee's Agreement Termination Date and the final installment shall be paid three (3) months after Employee's Agreement Termination Date. Monthly Payments and the Sum of Monthly Payments shall be reduced only by applicable employment taxes normally deducted from Employee's wages. F. Employee shall be entitled to receive the Benefits through Employee's KERP Payment Date. G. After Employee's KERP Payment Date Employee shall be eligible to participate in the Laclede Retired Salaried Medical Plan, as such Plan may be amended from time to time by Employer. H. After Employee's KERP Payment Date medical benefits now payable for the benefit of Employee's dependent daughter, Kelly Lane, under the Laclede Salaried Employee Medical Plan, as referenced in the attached letter from General American Life Insurance Company, shall be provided under the Laclede Retired Salaried Medical Plan, as such Plan may be amended from time to time, so long as such benefits are recommended by General American Life Insurance Company or its independent case manager, or the successors of either of them. I. Any notice to Employer hereunder shall be addressed as follows: Laclede Steel Company Attn: President 15th Floor One Metropolitan Square St. Louis, Missouri 63102 Any notice to Employee hereunder shall be made addressed as follows: Michael H. Lane 3708 Sunset Chase St. Louis, Missouri 63127 J. Except as expressly amended by this Amendment the Restated Employment Agreement is hereby ratified in all respects. If any provision of this Amendment is inconsistent with any provision of the Restated Employment Agreement, then this Amendment shall govern. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. ____________________________ MICHAEL H. LANE "Employee" LACLEDE STEEL COMPANY By: _________________________ Thomas E. Brew, Jr., President "Employer" EX-21 6 SUBSIDIARIES EXHIBIT (21) Subsidiaries of Registrant Laclede Chain Manufacturing Company - wholly-owned. Laclede Mid America Inc. - 96.66% owned. EX-27 7
5 1,000 DEC-31-1997 JAN-1-1997 DEC-31-1997 12-MOS 186 0 42,694 2,412 82,806 124,512 239,670 128,652 313,820 68,613 109,157 0 83 41 20,977 313,820 325,029 325,029 296,230 302,939 13,654 (32) 10,046 (4,950) (1,943) (3,007) 0 0 0 (3,007) (0.83) (0.83)
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