-----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, Eb6zqgNFCmI5AuCIz1anXjaaM8TsF3JjiWSwK+B8jnq65GF3f2r2XkaJlkNqNhSJ ovGb83WtG/AD8yrFfsguyw== 0000950112-96-000927.txt : 19960327 0000950112-96-000927.hdr.sgml : 19960327 ACCESSION NUMBER: 0000950112-96-000927 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEEL OF WEST VIRGINIA INC CENTRAL INDEX KEY: 0000820960 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 550684304 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16254 FILM NUMBER: 96538780 BUSINESS ADDRESS: STREET 1: 17TH ST & 2ND AVE CITY: HUNTINGTON STATE: WV ZIP: 25703 BUSINESS PHONE: 3046968200 MAIL ADDRESS: STREET 1: 17TH STREET & 2ND AVENUE CITY: HUNTINGTON STATE: WV ZIP: 25703 10-K 1 STEEL OF WEST VIRGINIA, INC. FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 ----------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______________ to __________________. Commission File No. 0-16254 STEEL OF WEST VIRGINIA, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 55-0684304 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 17th Street and 2nd Avenue, Huntington, West Virginia 25703 ----------------------------------------------------------- (Address of principal executive offices, zip code) (304) 696 - 8200 ---------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share -------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes (x) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock held by non-affiliates of the Registrant based on the closing price on March 1, 1996: $54,867,278 Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of March 1, 1996: 6,086,060 shares of Common Stock, par value $.01 per share. Documents incorporated by reference: Registrant's Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of Registrant's fiscal year covered by this Form 10-K Part III - --------------------------------------- ------------------------- (Document) (Part of Form 10-K into which Document incorporated) TABLE OF CONTENTS ----------------- Page ---- PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . 9 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 9 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . 10 PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . 10 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 12 Item 8. Financial Statements and Supplementary Data . . . . . . . 18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . 18 PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 18 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . 18 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . 18 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . 18 PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . 19 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES . . . . . . . 25 ii STEEL OF WEST VIRGINIA, INC. ---------------------------- PART I Item 1. Business -------- GENERAL Steel of West Virginia, Inc. (the "Company") owns and operates a steel mini-mill and steel fabrication facility in Huntington, West Virginia as well as a steel fabrication facility in Memphis, Tennessee. The Company's Huntington facility custom designs and manufactures finished steel products on a cost-effective basis by melting steel scrap in electric arc furnaces and continuously casting the steel into strands of specified lengths and widths known as billets. The billets are reheated and then moved through the Company's rolling mills to form engineered shapes known as specialty steel sections. Unlike most other mini-mills, the Company frequently performs additional finishing operations on these sections at both of its facilities (such as hole-punching, shotblasting, welding and painting) to create custom-finished products which are generally placed directly into its customers' assembly operations. The Company's specialty steel sections and custom-finished products (together, "Finished Products") are sold to selected niche markets and represent over 90% of the Company's total sales. Finished Products include cross-members and sub-frame sections ("Trailer Steel Products") used in the construction of truck trailers; mast sections and hanger bars for industrial lift trucks; guardrail post; light rails, mine ties and related accessories for the mining industries; frame sections and cleats for off-highway construction equipment (such as bulldozers and graders); and other miscellaneous steel products. The Company is the dominant producer of Trailer Steel Products in the United States and has a leading position in certain of its niche markets for its other Finished Products. The Company enjoys a number of competitive advantages. As a mini-mill, the Company recycles steel from scrap, resulting in lower production costs compared to integrated steel mills, which produce steel by processing iron ore and other raw materials in blast furnaces. The Company's location in a scrap surplus region near its major customers reduces raw material and transportation costs, allows for closer customer contact and enables the Company and its customers to maintain lower inventory levels. West Virginia's abundant supply of coal, used in producing electricity which is integral to the Company's production process, helps to keep energy costs relatively low. In addition, the Company's flexible manufacturing capabilities enable it to meet demand for a variety of custom-order products, resulting in its obtaining a larger share of its major customers' business. 1 The Company's business strategy is to maintain its strong position in each of the markets for its Finished Products by continuing to produce high quality products on a cost-effective basis and to identify and capture additional niche markets where it can profitably supply Finished Products. The Company believes that the majority of its Finished Products will continue to command higher less volatile prices and profit margins than commodity steel products. The Company believes that this business strategy has enabled it to operate at a profit and has left it well positioned to benefit from any future improvement in the economy. The Company's mini-mill was acquired in 1982 by SWVA, Inc. ("SWVA"), which was organized by a group of investors including certain members of the Company's management. The Company was organized in the State of Delaware by members of management and a private investment firm specializing in leveraged buy-out acquisitions. This group acquired all of the capital stock of SWVA in December 1986. Since then, SWVA has been a wholly-owned operating subsidiary. In October 1987 the Company sold 1.6 million shares of its Common Stock in an initial public offering. In February 1993, the Company completed an underwritten public offering (the "1993 Public Offering") pursuant to which it sold an additional 1.94 million shares of Common Stock and 2.66 million shares were sold by certain non-employee stockholders of the Company. The Company's other wholly-owned subsidiary, Marshall Steel, Inc. ("Marshall") located in Memphis, Tennessee, was acquired in April 1993. Marshall fabricates special steel sections for the truck trailer industry. Since August 1993, SWVA has been the primary supplier of hot rolled steel sections to Marshall, having replaced the previous offshore supplier. The Company's executive offices are located at 17th Street and 2nd Avenue, Huntington, West Virginia, 25703, and its telephone number is (304) 696-8200. Unless the context otherwise requires, the term the "Company" refers to Steel of West Virginia, Inc., SWVA and Marshall on a consolidated basis. MANUFACTURING OPERATIONS The Company recycles steel at the Huntington facility by melting steel scrap in two 70-ton electric arc furnaces and adding a variety of alloys to make different grades of steel according to customer specifications. The refined molten steel is then ladled into a three- strand continuous caster from which it emerges as continuous strands with a cross-section ranging from approximately 16 to 64 square inches. The strands are cut into billets of specified lengths which are moved into the Company's rolling mills where they are reheated to approximately 2,300 degrees Fahrenheit and fed through a series of rollers to reduce their size and form them into specialty steel sections. These sections emerge from the rolling mills, are allowed to cool uniformly on a cooling bed, and 2 are cut to custom lengths. The sections produced by the Company are composed of carbon and low alloy high-strength steels. Depending on an individual customer's needs, many of the sections are then hole-punched, shotblasted, welded or painted. These custom- finishing operations are done to customer specifications, and often were originally performed by the Company's customers directly but can be done more cost-effectively by the Company. The custom-finished products are generally placed directly into the customers' assembly operations. The annual equipment capacity of the melt shop furnaces and caster is approximately 260,000 tons, of which the Company produced 251,000 tons of billets in 1995 which constituted 96.5% of its equipment capacity. The annual capacity of Finished Products from the Company's rolling mills is 260,000 tons. The Company produced 187,000 tons of Finished Products in 1995 which constituted 71.9% of its capacity. As a result, the Company has generally been able to produce all the billets it requires in its rolling operations, and the Company believes that it has the ability to increase its annual production of Finished Products to capacity without upgrading or increasing the capacity of its furnaces or caster. The Company has also generally been able to produce additional billets for sale to help cover fixed costs. The market for billets, however, is subject to intense competition and their profitability is contingent on, among other things, production costs including electricity rates and the Company's production schedules for Finished Products. The Company transports its products by common carrier, generally shipping by truck and occasionally by rail and barge transportation. The Huntington location has railroad sidings and a barge loading facility. CAPITAL IMPROVEMENTS AND EXPANSION The Company's expenditures for required capital replacements are currently anticipated to average approximately $1,000,000 annually over the next several years. However, the Company plans to increase capacity and productivity over the next several years by continuing to modernize the Huntington facility and possibly through strategic acquisitions, although such expenditures will be subject to available funds and approval by the Company's Board of Directors. In late 1993, the Company's Board of Directors approved the first phase of a plant expansion and modernization program which was completed in late 1994. The project included the upgrading of one of the plant's rolling mills, as well as the installation of an automated fabrication system to punch, weld and powder paint truck trailer cross members. 3 PRODUCTS Trailer Steel Products are used in the assembly of trailers for highway transport. These products include cross-members, which are steel mini-beams providing floor support in truck trailers, and subframe sections which are beams attached to the undersides of truck trailers allowing cargo weight to be redistributed evenly over the wheels. Sales of Trailer Steel Products represented approximately 51%, 50%, and 47% of total net sales of the Company during the last three fiscal years ending December 31, 1995. The Company is the dominant producer of such products in the United States. The Company also produces mast sections and hanger bars for industrial lift trucks and narrow aisle hand-operated trucks, as well as rail components used primarily in coal mining, including light rails, mine ties which support the rails, and joint bars used to join rail sections. In addition, the Company produces frame sections and cleats used in off- highway equipment (such as bulldozers and graders). The Company has a leading position in certain of its niche markets. The Company also produces sections used in automotive lifts, transit systems, containers, bridges, guardrail posts, rack sections and, depending upon production costs and its other production schedules, billets. The Company manufactures most of its products to customer specifications, and in many instances provides custom-finishing operations. Due to the custom nature of its Finished Products, the Company generally maintains a minimum of Finished Product inventory. The Company regularly investigates the market potential of new products. Products that the Company has identified for future growth include roof channels for mines, guardrail posts, and rack sections used in warehousing applications. Of these products, the Company shipped 6,400 tons of guardrail post and 190 tons of roof channel in 1995. Management believes that the total market for these products is 90,000 tons for guardrail post, 60,000 tons for rack sections and 10,000 tons for roof channel, and that the Company's modernization project will enhance its ability to penetrate these markets, although there can be no assurance that it will be able to do so. CUSTOMERS The Company sells to approximately 200 customers, and in the year ended December 31, 1995, no single customer accounted for more than 10% of the Company's net sales. The Company is a leading supplier of certain products to most equipment manufacturers in the truck trailer, off-highway equipment and mining industries. The Company currently has no long-term agreements with its customers, and there can be no assurance that any of the Company's customers will continue to purchase any specific product or quantity. 4 MARKETING Senior management of the Company is directly involved in sales to new customers, and in sales of new products to existing customers. The Company's sales efforts cover all of the continental United States and certain foreign markets, although during 1995 exports constituted less than 5% of the Company's net sales. The Company services the ongoing needs of its customers through three in-house sales representatives at its Huntington facility and two in-house sales representatives at its Memphis facility. COMPETITION AND OTHER MARKET FACTORS The Company believes that there are many factors which distinguish it from other steel producers and that its Finished Products are less volatile in their pricing than commodity steel products. Nonetheless, both the domestic steel industry and the Company's business are highly cyclical in nature. Because the Company's net sales are affected by the performance of the economy as a whole, net sales for 1991 were substantially lower than in 1992 and 1993. While the Company's net sales in 1994 and 1995 increased substantially over net sales in 1993 in part due to the improved economy, there can be no assurance that the Company will continue to benefit from any such improvement. The domestic and foreign steel industries are characterized by intense competition. The Company has identified competition from the following sources: (1) in its truck trailer market, the Company faces competition from two North American mills; (2) in its industrial truck market, the Company competes with Japanese, British, West German and Italian producers who offer similar products; (3) in its mining industry market, the Company encounters competition from foreign producers and domestic manufacturers of cold-rolled mine ties; and (4) in its off-highway equipment market, the Company competes with Italian, Japanese and British manufacturers. Despite this competition, the Company is the dominant producer of Trailer Steel Products in the United States and has a leading position in certain of its niche markets for its other principal products. Although management believes that its lower production costs, close involvement with customers and the Company's geographical location are among its competitive advantages, there can be no assurance that such competition will not have an adverse effect on the Company in the future. Many of the Company's customers are in mature businesses. Accordingly, any material increase in tonnage sales of Finished Products by the Company would likely be the result of continued improvement in the economy as a whole, an increased share of the market for existing products or sales by the Company of new products. The Company regularly investigates the market potential of new products. However, no assurance can be given that the 5 Company will be successful in manufacturing and selling such products. Until recently, overall consumption of steel products in the United States did not grow with the economy as a whole. While the operations of domestic steel producers have been scaled back through corporate reorganizations or as a result of bankruptcy proceedings, there still exists, taking into account current levels of imports, significant excess capacity in the domestic steel industry as a whole. While the Company believes that the nature of its Finished Products and its other competitive advantages distinguish it from other steel producers, there can be no assurance that such excess capacity will not have an adverse effect on the Company in the future. Many steel producers which are currently competitors of the Company or which could enter the Company's markets have financial resources substantially greater than those available to the Company. The cost of steel scrap, the principal raw material used in the Company's mill, is subject to market conditions largely beyond the control of the Company. See "Raw Materials." BACKLOG AND SEASONALITY Due to the nature of its operations, the Company generally fills orders within 21 days. This enables the Company's customers to maintain low inventory levels. At December 31, 1995, the Company had firm orders for 50,654 tons representing approximately $31,650,000, as compared with 52,900 tons representing approximately $30,512,000 at December 31, 1994. The Company does not believe backlog is a significant indicator of future sales. The Company's Huntington, West Virginia operations occasionally shut down for maintenance on a staggered basis over a two week period in the summer and for one week in the fourth quarter. The Company's operations are not otherwise subject to seasonal fluctuations in sales. RAW MATERIALS The principal raw material used in the Company's steel mill is ferrous scrap derived from, among other sources, junked automobiles, structural steel and machines. The purchase of steel scrap is subject to market conditions largely beyond the control of the Company. However, the Company is located in a scrap surplus region, and therefore typically maintains less than a one month supply of scrap, which keeps inventory costs to a minimum. The Company has also supplemented scrap with a mix of direct reduced iron when it was economical to do so. Historically, price fluctuations of scrap have not had a material impact due to the Company's ability, in most instances, to pass through increases in the cost of scrap to its customers in the form of higher prices or surcharges. Although one scrap dealer supplies between 30% and 35% 6 of the Company's requirements, the Company believes that a number of adequate sources of scrap and other raw materials that it uses are readily available. The Company's manufacturing processes consume large amounts of energy in the form of electricity, which the Company purchases from American Electric Power and Memphis Light, Gas and Water. The cost of electric power was approximately 6.8% of the cost of goods sold for 1995. West Virginia's abundant supply of coal, used in producing electricity, helps keep energy costs relatively low. The Company's two major power supply contracts with American Electric Power automatically continue until such time as either party gives the other 12 months written notice of cancellation. Under both agreements, the Company may use electricity at any hour of the day or night, provided that the electricity supplier may impose a surcharge on the Company if it exceeds certain specified levels of use. One of the agreements also provides that the electricity supplier may interrupt the Company's use during times of peak demand, although it is required to provide at least 145 hours of electricity during each calendar week, a level which the Company believes would be adequate to avoid any significant impact on its operations at currently foreseeable levels. See "Business -- Manufacturing Operations" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." EMPLOYEES As of December 31, 1995, the Company employed 589 people, of which approximately 82% were members of the United Steelworkers of America. The Company believes its relations with its employees are generally good. The Company's current collective bargaining agreement at the Huntington, West Virginia facility expires in June 1999 provided that, under the terms of the agreement, during the 45-day period prior to June 7, 1996 the Company and the union have agreed to conduct "normal negotiations", and if all issues are not resolved by the end of that period either party may notify the other that the collective bargaining agreement will terminate on December 6, 1996. Under this agreement, all employees are salaried, there are no time clocks or job descriptions, and the Company utilizes only two basic classifications for production and maintenance personnel (steelmaker, and trade and craft). The Company believes that its wage rates are competitive with other mini-mills. However, there can be no assurance regarding the outcome of any future negotiations with the Company's union. The Company maintains a profit-sharing plan for both bargaining unit and non-bargaining unit employees pursuant to which a percentage of pre-tax profits are allocated to a profit-sharing fund and a cash bonus. See Note H of the Notes to Consolidated Financial Statements of the Company. 7 In contrast to the retiree health insurance commonly provided in the domestic steel industry, the Company offers no material postretirement employee health care benefits or other benefit program subject to accounting under the provisions of Statement of Financial Accounting Standards No. 106 -- "Employers' Accounting for Postretirement Benefits other than Pensions" which became effective in 1993. Under informal arrangements, the Company currently provides postemployment health care benefits to each person who becomes disabled, is not expected to return to the active work force and is not covered by another health insurance plan. As of December 31, 1995, 20 such disabled former employees had been identified as current or potential recipients of this benefit. The expected cost of such benefits has been accrued in accordance with Statement of Financial Accounting Standards No. 112 -- "Employers' Accounting for Postemployment Benefits." ENVIRONMENTAL & REGULATORY MATTERS The Company is subject to federal, state and local environmental laws and regulations concerning, among other matters, wastewater discharge, air emissions and furnace dust disposal. As with similar mills in the industry, the Company's furnaces are classified as generating hazardous waste because they produce certain types of dust containing lead, zinc and cadmium. The Company currently collects and handles such wastes through contracts with a company which reclaims, from the waste dust, certain materials and recycles or disposes of the remainder. The Company believes it is in substantial compliance with applicable environmental laws and regulations. Notwithstanding such compliance, if damage to persons or property or contamination of the environment has been or is caused by the conduct of the Company's business or by hazardous substances or wastes used in, generated or disposed of by the Company, the Company may be held liable for such damages and be required to pay the cost of investigation and remediation of such contamination. The amount of such liability, as to which the Company is self-insured, could be material. Changes in federal or state laws, regulations or requirements or discovery of unknown conditions could require additional expenditures by the Company. The Company's operations are subject to the federal Clean Air Act which provides for regulation, through state implementation of federal requirements, of the emission of certain air pollutants. It is expected that the Environmental Protection Agency will promulgate industry-wide standards and technology requirements for the control of emissions of particular regulated air pollutants that may impose more stringent requirements on the Company's operations beginning in the future. The Company will continue to monitor these evolving laws and regulations and will plan and budget, as appropriate, for any such additional capital and operating expenditures that may be required to upgrade or install new or additional pollution control equipment and secure additional or modified permits. There can be no assurance that these evolving 8 federal requirements will not require the Company to make material expenditures in the future. Item 2. Properties ---------- Set forth below is certain information with respect to the Company's properties. The Company believes that its two facilities, which are located on approximately 42 acres of land owned by the Company in downtown Huntington, West Virginia, adjacent to rail lines and the Ohio River, and approximately 4 acres of land owned by the Company in Memphis, Tennessee, adjacent to the Mississippi River, are well maintained, in good condition and are adequate and suitable for its operating needs. All of the Company's Huntington, West Virginia properties are currently subject to a first mortgage in favor of the Company's senior lender and the Memphis, Tennessee properties are pledged to the Company's senior lender. Approximate Huntington, WV Facility Square Footage ----------------------- -------------- Rolling Mills 309,000 Furnaces and Caster 88,500 Machine Shop, Fabrication Facilities 115,075 and Miscellaneous Facilities Administrative, Engineering and Sales Offices 45,600 Memphis, TN Facility -------------------- Fabrication Facility 38,400 Administrative and Sales Offices 2,600 Item 3. Legal Proceedings ----------------- None. 9 Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ------------------------------------- The Company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock MarketSM under the symbol: SWVA. The following table sets forth, for the fiscal periods indicated, the high and low last sales prices of the Common Stock (without retail markups, markdowns or commissions) on the NASDAQ National Market System. High Low 1995 Fourth Quarter . . . . . . . . . . . . . . . $10 5/8 $ 8 3/8 Third Quarter . . . . . . . . . . . . . 13 1/2 8 3/4 Second Quarter . . . . . . . . . . . . . 12 1/4 11 First Quarter . . . . . . . . . . . . . 12 1/2 11 1994 Fourth Quarter . . . . . . . . . . . . . $13 $ 8 1/4 Third Quarter . . . . . . . . . . . . . . . 13 1/4 12 1/4 Second Quarter . . . . . . . . . . . . . . . 13 1/4 10 1/2 First Quarter . . . . . . . . . . . . . . . 14 3/4 10 3/4 On March 1, 1996, there were approximately 209 holders of record of the Company's Common Stock, and the Company believes there are approximately 1,532 beneficial shareholders. The Company paid no cash dividends in 1994 or 1995 and currently intends to retain all earnings to support the development of its business rather than paying dividends on its Common Stock. Certain of the Company's debt instruments restrict the payment of dividends by SWVA to the Company to no more than 50% of SWVA's prior year's net income, subject to limitations for maintenance of certain net worth and working capital levels. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note E of the Notes to Consolidated Financial Statements of the Company. 10 Item 6. Selected Financial Data ----------------------- The following selected financial data for each of the five years in the period ended December 31, 1995, are derived from the Consolidated Financial Statements of the Company. The data should be read in conjunction with the Consolidated Financial Statements, related Notes and other financial information included herein.
Year Ended December 31, -------------------------------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- --------- -------- (In thousands, except per share data) INCOME STATEMENT DATA: Net sales . . . . . . . . . . . . . . . . . . . $129,341 $124,229 $106,354 $ 82,537 $ 71,478 Cost of sales . . . . . . . . . . . . . . . . . 107,191 103,327 88,698 64,359 58,391 Gross profit . . . . . . . . . . . . . . . . . 22,150 20,902 17,656 18,178 13,087 -------- -------- -------- --------- -------- Gross profit margin . . . . . . . . . . . . . 17.1% 16.8% 16.6% 22.0% 18.3% Selling and administrative expenses . . . . . . 5,018 5,454 4,432 4,587 4,592 -------- -------- -------- --------- -------- Operating income . . . . . . . . . . . . . . . 17,132 15,448 13,224 13,591 8,495 Interest expense . . . . . . . . . . . . . . . 1,642 898 1,624 3,507 4,163 Other expense (income) . . . . . . . . . . . . (227) 94 (692) 460 (304) -------- -------- -------- --------- -------- Income before income taxes . . . . . . . . . . 15,717 14,456 12,292 9,624 4,636 Income taxes . . . . . . . . . . . . . . . . . 6,253 5,662 5,156 4,766 2,308 -------- -------- -------- --------- -------- Net income . . . . . . . . . . . . . . . . . . $ 9,464 $ 8,794 $ 7,136 $ 4,858 $ 2,328 ======== ======== ======== ========= ======== Net income per common share . . . . . . . . . . $ 1.40 $ 1.24 $ 1.03 $ .94 $ .45 Common shares outstanding(1) . . . . . . . . . 6,782 7,091 6,930 5,155 5,155 BALANCE SHEET DATA (END OF PERIOD): Working capital (deficit) . . . . . . . . . . . $ 15,514 $ 10,516 $ 14,569 $ 6,877 $(12,034)(2) Total assets . . . . . . . . . . . . . . . . . 95,123 94,174 80,721 68,946 68,243 Current liabilities . . . . . . . . . . . . . . 18,960 20,211 17,183 17,442 32,399(2) Long-term debt . . . . . . . . . . . . . . . . 11,978 11,542 10,211 24,181 14,514(2) Stockholders' equity . . . . . . . . . . . . . 55,415 53,934 45,140 20,317 15,459
- -------------------- (1) Weighted average number of common and common equivalent shares outstanding. (2) Prior to its amendment on September 30, 1992, the Company's senior loan agreement provided that it could be terminated by the Company's lender in 1992. Accordingly, at December 31, 1991, the entire $21.5 million then outstanding was included in current liabilities. Under subsequent amendment, the loan is not fully repayable until January 1, 1998. 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ------------------------------------------------- GENERAL The Company believes that there are many factors that distinguish it from other steel producers and the majority of its Finished Products are less volatile in their pricing than commodity steel products. Nonetheless, both the domestic steel industry and the Company's business are highly cyclical in nature. Management believes that the Company's lower net sales during 1991 were a result of generally poor economic conditions during that period. Management believes that the 1994 and 1995 results are more indicative of the Company's performance during periods of a stronger economy. In March 1993, the Company voluntarily prepaid $5 million of its senior term loans with a portion of the Company's net proceeds of the 1993 Public Offering and the remainder of such term loans were amended to reduce interest rates. During 1994 the Company amended its senior credit agreement to permit the Company to borrow $6 million in 1994 under a new "Capital Expenditure Line" of credit. The February 1994 Amendment also reduced the interest rates on all borrowings under the financing agreement. In 1994 and 1995, the Company's Board of Directors authorized management to buy back up to 1,200,000 shares of its common stock from time to time. During 1995 the Company purchased 755,300 shares. 12 RESULTS OF OPERATIONS The following table sets forth the percentages of net sales represented by certain income and expense items and the tonnage sales for the periods indicated. YEAR ENDED DECEMBER 31 ------------------------ 1995 1994 1993 ---- ---- ---- NET SALES 100.0% 100.0% 100.0% COST OF SALES 82.9 83.2 83.4 ----- ----- ----- GROSS PROFIT 17.1 16.8 16.6 SELLING AND ADMINISTRATIVE EXPENSES 3.9 4.4 4.2 ----- ----- ----- OPERATING INCOME 13.2 12.4 12.4 INTEREST EXPENSE 1.3 .7 1.5 OTHER EXPENSE (INCOME) (0.2) .1 ( .6) ----- ----- ----- INCOME BEFORE INCOME TAXES 12.1 11.6 11.5 INCOME TAXES 4.8 4.5 4.8 ----- ----- ----- NET INCOME 7.3% 7.1% 6.7% ===== ===== ===== TONNAGE SALES (in thousands of tons) 212.7 214.1 206.4 ===== ===== ===== YEAR ENDED DECEMBER 31, 1995, COMPARED WITH YEAR ENDED DECEMBER 31, 1994 Net Sales. Net sales for 1995 increased by $5.1 million (4.1%) --------- from $124.2 million in 1994 to $129.3 million in 1995, primarily due to an increase in the tonnage of Finished Products shipped, coupled with selective price increases. Total tonnage sales decreased by 1,462 tons (.7%) to 212,652 tons in 1995, reflecting a 2,783 ton increase in the sale of Finished Products, and a 4,245 ton decrease in the sale of billets. The average selling price per ton for Finished Products increased by $22 (3.4%) to $664 in 1995, while the average selling price per ton for billets increased by $9 (3.8%) to $249 in 1995. Cost of Sales. Cost of sales for 1995 increased by $3.9 million ------------- (3.7%) from $103.3 million in 1994 to $107.2 million in 1995. This increase was principally due to the increase in Finished Product tonnage sales coupled with higher raw material prices, depreciation and maintenance expense. As a percentage of 13 net sales, cost of sales decreased from 83.2% in 1994 to 82.9% in 1995. For a description of fluctuations in the price of raw materials, see "Business -- Raw Materials." Gross Profit. As a result of the above, gross profit for 1995 ------------ increased by $1.2 million (6.0%) from $20.9 million in 1994 to $22.1 million in 1995. As a percentage of net sales, gross profit for 1995 increased from 16.8% in 1994 to 17.1% in 1995 as a result of increased higher margin Finished Product sales. Selling and Administrative Expenses. Selling and administrative ----------------------------------- expenses for 1995 were $5.0 million compared to $5.5 million in 1994. Lower selling and administrative expenses were incurred due to lower salaries and professional fees. As a percentage of net sales, selling and administrative expenses decreased from 4.4% in 1994 to 3.9% in 1995. Operating Income. For the reasons described above, operating ---------------- income increased by $1.6 million (10.9%) from $15.5 million in 1994 to $17.1 million in 1995. As a percentage of net sales, operating income increased to 13.2% in 1995 from 12.4% in 1994. Interest Expense and Other Expense (Income). Interest expense ------------------------------------------- for 1995 increased by $744,000 (82.9%) from $898,000 in 1994 to $1,642,000 in 1995. This increase was attributed to the debt incurred during the Company's plant expansion and modernization program. Other expense (income) changed by $321,000 from $94,000 of expense in 1994 to $227,000 of income in 1995. This was principally due to reduced losses from the disposal of fixed assets. Net Income. As a result of the above, net income for 1995 ---------- increased by $670,000 (7.6%) from $8.8 million in 1994 to $9.5 million in 1995. As a percentage of net sales, net income increased from 7.1% in 1994 to 7.3% in 1995. Year Ended December 31, 1994, Compared with Year Ended December 31, 1993 Net Sales. Net sales for 1994 increased by $17.8 million (16.8%) --------- from $106.4 million in 1993 to $124.2 million in 1994, primarily due to an increase in the tonnage of Finished Products shipped, which include shipments by Marshall for the entire period in 1994 (See Note A of the Notes to Consolidated Financial Statements) coupled with selective price increases. Total tonnage sales increased by 7,734 tons (3.7%) to 214,114 tons in 1994, reflecting a 21,254 ton increase in the sale of Finished Products, and a 13,520 ton decrease in the sale of billets. The average selling price per ton for Finished Products increased by $40 (6.6%) to $642 in 1994, while the average selling price per ton for billets increased by $25 (11.6%) to $240 in 1994. 14 Cost of Sales. Cost of sales for 1994 increased by $14.6 million ------------- (16.5%) from $88.7 million in 1993 to $103.3 million in 1994. This increase was principally due to the increase in total tonnage sales coupled with higher raw material prices, depreciation and mill roll expense. As a percentage of net sales, cost of sales decreased from 83.4% in 1993 to 83.2% in 1994. For a description of fluctuations in the price of raw materials, see "Business -- Raw Materials." Gross Profit. As a result of the above, gross profit for 1994 ------------ increased by $3.2 million (18.4%) from $17.7 million in 1993 to $20.9 million in 1994. As a percentage of net sales, gross profit for 1994 increased from 16.6% in 1993 to 16.8% in 1994 as a result of increased higher margin Finished Product sales. Selling and Administrative Expenses. Selling and administrative ----------------------------------- expenses for 1994 were $5.5 million compared to $4.4 million in 1993. Higher selling and administrative expenses were incurred due to a full 12 months of operations of Marshall coupled with higher legal and professional fees. As a percentage of net sales, selling and administrative expenses increased from 4.2% in 1993 to 4.4% in 1994. Operating Income. For the reasons described above, operating ---------------- income increased by $2.3 million (16.8%) from $13.2 million in 1993 to $15.5 million in 1994. As a percentage of net sales, operating income remained unchanged from the 12.4% in 1993. Interest Expense and Other Expense (Income). Interest expense ------------------------------------------- for 1994 decreased by $726,000 (44.7%) from $1.6 million in 1993 to $900,000 in 1994. This reduction was a result of both lower interest rates and the reduction of principal amount outstanding due to the scheduled amortization of principal and the capitalization of interest expense on the Company's plant expansion and modernization program. Other expense (income) changed by $786,000 from $692,000 of income in 1993 to $94,000 of expense in 1994. This was due to the losses from the disposal of fixed assets offset by income from scrap sales and mill roll expense reimbursement. Net Income. As a result of the above and a lower effective ---------- income tax rate, net income for 1994 increased by $1.7 million (23.2%) from $7.1 million in 1993 to $8.8 million in 1994. As a percentage of net sales, net income increased from 6.7% in 1993 to 7.1% in 1994. 15 LIQUIDITY AND CAPITAL RESOURCES The Company's ability to provide funds from its operations, together with funds available under the terms of the Company's $10,000,000 revolving line of credit, historically have been sufficient to meet the Company's short-term liquidity needs. The total borrowing capacity under the revolving credit line is governed by a formula based on levels of accounts receivable and inventory. Cash provided from operations approximated $8.8 million, $16.3 million and $7.9 million during each of the three years ended December 31, 1995, 1994, and 1993, respectively. During this same time period, average annual borrowings against the revolving line of credit have been less than $1 million and at December 31, 1995, the Company had $4.1 million of the revolving credit line available for borrowing. In early 1993, the Company completed the sale of 1,936,942 newly issued shares of Common Stock resulting in $17,687,000 proceeds to the Company that were used to voluntarily prepay $13 million of the Company's term indebtedness and provide sufficient funds to complete its $4.6 million acquisition of Marshall. Also during 1993, the Company embarked on a plan to significantly expand and modernize its Huntington facility. This project, completed in late 1994, resulted in the Company expending nearly $20.6 million for capital improvements in 1994. Including these expenditures, the Company's level of annual average capital expenditures has historically approximated $5.2 million. Accordingly, during 1994 the Company amended its senior credit agreement to permit the Company to borrow $6 million in 1994 under a new "Capital Expenditure Line" of credit. The terms of the loan amendment also enabled the Company to then reduce the interest rates on its existing revolving credit line and term loans outstanding from the greater of 7% or 3/4% over prime and the greater of 7% or 1% over prime, respectively, to the Chemical Bank prime rate or LIBOR plus 1-3/4%; reduce the annual revolving credit line commitment fee from 1/2% to 1/8% of the unused balance; and extend the term of the revolving credit line to January 1, 1998. In addition, the amendment permits the Company to convert up to $7 million of its indebtedness to a fixed interest rate. On January 1, 1998 the Company's senior lender may terminate all of the Company's loans. Assuming payment of all scheduled amortization until then, only a portion of the amount drawn down against the Capital Expenditure Line, together with any borrowings against the revolving credit line, would be outstanding at such date. The Company is currently in compliance with the covenants of its loan agreements, and is not aware of any reason why it would not be able to refinance its indebtedness at its scheduled term. The Company's expenditures for required capital replacements are currently anticipated to average approximately $1 million annually over the next several years. Management has no 16 reason to believe that internally generated cash flow, together with borrowings under its Capital Expenditure Line and revolving credit line, will not be sufficient to meet the Company's ongoing liquidity needs. Other discretionary capital spending and strategic acquisitions, if any, would also place demands on the Company's longer-term liquidity position. Such expenditures and acquisitions would be subject to availability of funds and approval by the Company's Board of Directors. IMPACT OF INFLATION In recent years, the Company has not experienced any material adverse effects from inflation due to its historical ability to pass price increases through to its customers. The Company's principal cost components are steel scrap, labor and energy. Scrap is purchased pursuant to monthly contracts. Scrap prices are subject to volatility, although the Company endeavors to recoup the higher scrap prices through a scrap surcharge. The current collective bargaining agreement is scheduled to expire in June 1999 subject to the right of both parties to terminate the agreement on December 6, 1996 if, as provided in the agreement, the "normal negotiations" between the parties during the 45-day period prior to June 7, 1996 do not result in a resolution of all open issues. See "Business -- Employees." The Company's two major power supply contracts with American Electric Power automatically continue until such time as either party gives the other 12 months written notice of cancellation. See "Business -- Competition and Other Market Factors," "-- Raw Materials" and "-- Manufacturing Operations." IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In contrast to the retiree health insurance commonly provided in the domestic steel industry, the Company offers no material postretirement employee healthcare or other benefit program subject to accounting under the provisions of Statement of Financial Accounting Standards No. 106 -- "Employers' Accounting for Postretirement Benefits Other than Pensions," which became effective in 1993. Under informal arrangements, the Company currently provides postemployment health care benefits to each person who becomes disabled, is not expected to return to the active work force and is not covered by another health insurance plan. As of December 31, 1995, 20 such disabled former employees have been identified as current or potential recipients of this benefit. The expected cost of such benefits has been accrued in accordance with the provisions of Statement of Financial Accounting Standards No. 112 -- "Employers' Accounting for Postemployment Benefits." In March 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 the Long-Lived Assets to Be Disposed Of," which must be adopted for fiscal years beginning after December 15, 1995. This statement requires impairment losses to be recorded on long-lived assets used 17 in operations, including related goodwill, when impairment indicators are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying value. The Company will adopt this statement effective January 1, 1996. The Company continually analyzes new processes and equipment that would allow the Company to produce products on a cost-effective basis so as to enable the Company to maintain its strong position in each of its niche markets and expand into related markets. This could result in material write-offs if new production processes or equipment are identified and installed or certain present processes become impaired. In October 1995 the FASB issued Statement of Financial Accounting Standards No. 123 -- "Accounting for Stock-Based Compensation" effective in 1996. This statement permits, and the Company intends to continue to use, the "intrinsic" value method, as set forth in Accounting Principles Board Opinion Number 25, for determining compensation cost associated with the Company's stock option plans. Under this method, stock-based compensation expense is determined on the first date that both the number of shares the employee is entitled to receive and the exercise price are known, in an amount equivalent to the excess of the market price over the exercise price. Statement No. 123 encourages the use of the "fair value" method that results in compensation expense being measured at the date options are granted, and reported as a charge against operations over the exercise period. The new pronouncement will require the Company to make additional disclosures about its stock option plans, including the pro forma disclosures of net income and earnings per share, as if the "fair value" based method of accounting had been applied. The Company anticipates adopting this statement in the first quarter of 1996. Item 8. Financial Statements and Supplementary Data ------------------------------------------- The financial statements and schedules and report of independent auditors thereon listed in Item 14(a)(1) and (a)(2) hereof are incorporated herein by reference and are filed as part of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ------------------------------------------------ Not applicable. PART III The information required by Part III (Items 10 through 13) is incorporated herein by reference to the captions "Principal Stockholders", "Election of Directors" and "Executive Compensation" in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the end of the Company's fiscal year covered by this report. 18 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K --------------------------------------- (a) Documents filed as part of this Report: (1) The following consolidated financial statements of Registrant and its subsidiaries are included in Item 8 of this report on Form 10-K: Page ---- Report of Independent Auditors. F-1 Consolidated Balance Sheets - December 31, 1995, F-2 and December 31, 1994. Consolidated Statements of Income - years ended F-3 December 31, 1995, December 31, 1994, and December 31, 1993. Consolidated Statements of Cash Flows - years F-4 ended December 31, 1995, December 31, 1994 and December 31, 1993. Notes to Consolidated Financial Statements. F-5 (2) Financial Statement Schedules for the years ended December 31, 1995, December 31, 1994, and December 31, 1993. The following consolidated financial statement schedules of Registrant and its subsidiaries are included pursuant to Item 14 (d): Page ---- Schedule I - Condensed Financial Information of Registrant S-1 Schedule II - Valuation and Qualifying Accounts S-4 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 19 (3) Exhibits 3.1 Certificate of Incorporation of Steel of West Virginia, Inc. (the "Company"), as amended (filed herewith). 3.2 By-Laws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, No. 33-16845). 4.1 Financing Agreement ("Financing Agreement"), dated December 30, 1986, between The CIT Group/Business Credit, Inc. ("CIT") and SWVA, Inc. (formally Steel of West Virginia, Inc.) and Charter Acquisition Corporation ("Acquisition") (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S- 1, No. 33-16845). 4.1(a) Amendment to the Financing Agreement, dated August 27, 1987 ("Amendment No. 1") (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, No. 33-16845). 4.1(b) Amendment to the Financing Agreement, dated September 27, 1989 ("Amendment No. 2") (incorporated by reference to Exhibit 28(a) to the Company's Current Report on Form 8-K, No. 0-16254, filed on October 10, 1989). 4.1(c) Amendment to the Financing Agreement, dated September 30, 1992 ("Amendment No. 3") (incorporated by reference to Exhibit 28(b) to the Company's Quarterly Report on Form 10-Q, No. 0-16254, filed on October 13, 1992). 4.1(d) Amendment to the Financing Agreement, dated March 17, 1993 ("Amendment No. 4") (incorporated by reference to Exhibit 4.1(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, No. 0-16254). 4.1(e) Amendment to the Financing Agreement, dated February 25, 1994 ("Amendment No. 5"). 4.1(f) Amendment to the Financing Agreement, dated December 30, 1994 ("Amendment No. 6"). 4.1(g) Amendment to the Financing Agreement, dated February 28, 1996 ("Amendment No. 7") (filed herewith). 4.2 Term Promissory Note (the "Original Promissory Note") issued by Acquisition in favor of CIT, dated December 30, 1986 (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1, No. 33-16845). 4.2(a) Amendment, dated September 27, 1989 (the "Original Promissory Note Amendment"), to the Original Promissory Note (incorporated by reference to Exhibit 28(f) to the Company's Current Report on Form 8-K, No. 0-16254, filed on October 10, 1989). 4.3 Promissory Note, dated September 27, 1989 ("Note 2"), in the principal amount of $26,922,000 issued by SWVA in favor of CIT (incorporated by reference to Exhibit 28(c) to the Company's Current Report on Form 8-K, No. 0-16254, filed on October 10, 1989). 4.4 Promissory Note, dated September 30, 1992 ("Note 3"), in the principal amount of $6,500,000 issued by SWVA in favor of CIT (incorporated by reference to Exhibit 28(b) to the Company's Quarterly Report on Form 10-Q, No. 0-16254, filed on October 13, 1992). 20 4.5 Promissory Note, dated July 11, 1994 ("Note 4") in the principal amount of $6,000,000 issued by SWVA in favor of CIT. 4.6 Guaranty, dated December 30, 1986 (the "Guaranty"), by the Company in favor of CIT relating to loan from CIT to Acquisition (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, No. 33-16845). 4.7 Guaranty, dated June 9, 1993 (the "Marshall Guaranty"), by Marshall Steel, Inc. ("Marshall") in favor of CIT (incorporated by reference to Exhibit 4.1(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, No. 0-16254). 4.8 Security Agreement, dated June 9, 1993 (the "Security Agreement"), by Marshall in favor of CIT (incorporated by reference to Exhibit 4.1(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, No. 0-16254). 4.9 Pledge Agreement, dated September 26, 1989 (the "Pledge Agreement"), by the Company in favor of CIT (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, No. 0-16254). 4.10 Deed of Trust, Assignment of Leases and Rents and Security Agreement, dated December 30, 1986 (the "Mortgage"), by SWVA in favor of CIT (incorporated by reference to Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, No. 0-16254). 4.10(a) First Amendment of Deed of Trust, Assignment of Leases and Rents and Security Agreement, dated September 27, 1989 ("Mortgage Amendment No. 1") (incorporated by reference to Exhibit 4.7(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, No. 0-16254). 4.10(b) Second Amendment of Deed of Trust, Assignment of Leases and Rents and Security Agreement, dated September 30, 1992 (incorporated by reference to Exhibit 28(c) to the Company's Quarterly Report on Form 10-Q, No. 0-16254, filed on October 13, 1992) ("Mortgage Amendment No. 2"). 4.11 Negative Pledge Agreement, dated June 7, 1993 (the "Negative Pledge Agreement"), by Marshall in favor of CIT (incorporated by reference to Exhibit 4.1(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, No. 0-16254). 10.1 The Financing Agreement (see Exhibit 4.1). 10.1(a) Amendment No. 1 (see Exhibit 4.1(a)). 10.1(b) Amendment No. 2 (see Exhibit 4.1(b)). 10.1(c) Amendment No. 3 (see Exhibit 4.1(c)). 10.1(d) Amendment No. 4 (see Exhibit 4.1(d)). 10.1(e) Amendment No. 5 (see Exhibit 4.1(e)). 10.1(f) Amendment No. 6 (see Exhibit 4.1(f)). 10.1(g) Amendment No. 7 (see Exhibit 4.1(g)). 10.2 The Original Promissory Note (see Exhibit 4.2). 21 10.2(a) The Original Promissory Note Amendment (see Exhibit 4.2(a)). 10.3 Note 2 (see Exhibit 4.3). 10.4 Note 3 (see Exhibit 4.4). 10.5 Note 4 (see Exhibit 4.5). 10.6 The Guaranty (see Exhibit 4.6). 10.7 The Marshall Guaranty (see Exhibit 4.7). 10.8 The Security Agreement (see Exhibit 4.8). 10.9 The Pledge Agreement (see Exhibit 4.9). 10.10 The Mortgage (see Exhibit 4.10). 10.10(a) Mortgage Amendment No. 1 (see Exhibit 4.10(a)). 10.10(b) Mortgage Amendment No. 2 (see Exhibit 4.10(b)). 10.11 The Negative Pledge Agreement (see Exhibit 4.11). 10.12 Sidetrack Agreement, dated June 24, 1983, between SWVA and the Chesapeake and Ohio Railroad Company ("C&O") (incorporated by reference to Exhibit 10.25 to the Company's Registration Statement on Form S-1, No. 33-16845). 10.13 Lease, dated November 1, 1979, between SWVA's predecessor and C&O, as amended by a letter dated March 2, 1983 (incorporated by reference to Exhibit 10.36 to the Company's Registration Statement on Form S-1, No. 33-16845). 10.14(a) Agreement, dated August 30, 1993, between SWVA and Appalachian Power Company ("Appalachian"). 10.14(b) License Agreement, dated September 29, 1992, between SWVA and Appalachian (incorporated by reference to Exhibit 10.38 to the Company's Registration Statement on Form S-1, No. 33-55952). 10.14(c) Agreement, dated November 24, 1992, between SWVA and Appalachian (incorporated by reference to Exhibit 10.39 to the Company's Registration Statement on Form S-1, No. 33-55952). 10.15* Employment Agreement, dated as of January 1, 1992, between SWVA and Robert L. Bunting, Jr. (incorporated by reference to Exhibit 10.42 to the Company's Registration Statement on Form S-1, No. 33- 55952). 10.15(a)* Amendment No. 1 to Employment Agreement dated as of August 5, 1993, between SWVA and Robert L. Bunting, Jr. (incorporated by reference to Exhibit 4.1(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, No. 0-16254). 10.16* Management Bonus Plan, effective as of October 1, 1984, for the benefit of SWVA's eligible employees (incorporated by reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, No. 0-16254). ____________ * Required to be filed pursuant to Item 14(c) of Form 10-K. 22 10.17* Management Retirement Plan, effective as of October 1, 1984, by the Company on behalf of its management employees (including Amendment No. I and Amendment No. II, each dated January 27, 1989) (incorporated by reference to Exhibit 10.49 to the Company's Annual Report on Form 10-K, No. 016254, filed on March 29, 1990). 10.18 Collective Bargaining Agreement, dated June 7, 1993, between SWVA and the United Steelworkers of America, AFL-CIO (the "Union") (incorporated by reference to Exhibit 10.26 to the Company's Current Report on Form 8-K, No. 0-016254, filed on June 9, 1993). 10.19 Collective Bargaining Unit Bonus Plan, effective as of October 1, 1984, for the benefit of SWVA's eligible employees (incorporated by reference to Exhibit 10.46 to the Company's Registration Statement on Form S-1, No. 33-16845). 10.20 Collective Bargaining Unit Retirement Plan, effective June 2, 1990, between SWVA and the Union (incorporated by reference to Exhibit 10.46 to the Company's Registration Statement on Form S-1, No. 33-55952). 10.21 Indemnification and Contribution Agreement between the Company and certain Selling Stockholders (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, No. 0-16254). 10.22 Underwriting Agreement among the Company, certain selling stockholders and Wheat, First Securities, Inc., dated January 25, 1993 (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, No. 0-16254). 10.23 1995 Employee Stock Option Plan (filed herewith). 10.24 1995 Non-Employee Director Stock Option Plan (filed herewith). 11.1 Statement re Computation of Per Share Earnings (filed herewith). 21 Subsidiaries of the Company (incorporated by reference to Exhibit 22 to the Company's Registration Statement on Form S-1, No. 33- 16845). 28 Delaware General Corporation Law, Sections 102(b)-(7) and 145 (1) (incorporated by reference to Exhibit 28 to the Company's Registration Statement on Form S-1, No. 33-16845). (b) Reports on Form 8-K: None. ____________ * Required to be filed pursuant to Item 14(c) of Form 10-K. 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STEEL OF WEST VIRGINIA, INC. March 8, 1996 By: /s/ Robert L. Bunting, Jr. ---------------------------------------- Robert L. Bunting, Jr. President, Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date ---------- ----- ---- /s/ Robert L. Bunting, Jr. President, Chief Executive March 8, 1996 - ---------------------------- Officer and Chairman of Robert L. Bunting, Jr. the Board (Principal Executive Officer) /s/ Timothy R. Duke Vice President, Treasurer March 8, 1996 - ---------------------------- and Chief Financial Timothy R. Duke Officer (Principal Financial and Accounting Officer) /s/ Stephen A. Albert Director March 8, 1996 - ---------------------------- Stephen A. Albert /s/ Albert W. Eastburn Director March 8, 1996 - ---------------------------- Albert W. Eastburn /s/ Daniel N. Pickens Director March 8, 1996 - ---------------------------- Daniel N. Pickens /s/ Paul E. Thompson Director March 8, 1996 - ---------------------------- Paul E. Thompson 24 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES Consolidated Financial Statements Page - ---------------------------------- ---- Report of Independent Auditors..................................... F-1 Consolidated Balance Sheets - December 31, 1995, and December 31, 1994............................................ F-2 Consolidated Statements of Income - years ended December 31, 1995, December 31, 1994, and December 31, 1993................................................ F-3 Consolidated Statements of Cash Flows - years ended December 31, 1995, December 31, 1994, and December 31, 1993................................................ F-4 Notes to Consolidated Financial Statements......................... F-5 Financial Statement Schedules - ----------------------------- Schedule I - Condensed Financial Information of Registrant..................................... S-1 Schedule II - Valuation and Qualifying Accounts.......................................... S-4 25 ERNST & YOUNG LLP 900 United Center Phone: 304 343 8971 500 Virgina Street East (25301) Fax: 304 343 9383 P.O. Box 2906 Charleston, West Virgina 25330 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders Steel of West Virginia, Inc. We have audited the accompanying consolidated balance sheets of Steel of West Virginia, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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 presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Steel of West Virginia, Inc. and subsidiaries at December 31, 1995, 1994 and 1993, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Charleston, West Virginia January 19, 1996 CONSOLIDATED BALANCE SHEETS STEEL OF WEST VIRGINIA, INC. AND SUBSIDIARIES (In thousands, except share data) December 31 1995 1994 -------------------- ASSETS CURRENT ASSETS Cash $ 100 $ 1,400 Receivables, net of allowances of $692 and $379 13,148 11,097 Inventories 17,095 15,846 Deferred income taxes 3,110 2,143 Other current assets 1,021 241 ---------- -------- TOTAL CURRENT ASSETS 34,474 30,727 Property, plant, and equipment 40,807 43,011 Goodwill 19,134 19,817 Other assets 708 619 ---------- -------- TOTAL ASSETS $95,123 $94,174 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft $ 647 $ 757 Accounts payable 5,045 7,894 Accrued payroll and benefits payable 5,240 5,029 Income taxes payable 117 41 Other current liabilities 2,026 1,630 Current maturities of long-term debt 5,885 4,860 ---------- -------- TOTAL CURRENT LIABILITIES 18,960 20,211 Long-term debt 11,978 11,542 Deferred income taxes 8,005 7,728 Other long-term liabilities 765 759 ---------- -------- TOTAL LIABILITIES 39,708 40,240 STOCKHOLDERS' EQUITY Common stock, $.01 par value: 12,000,000 voting shares authorized, 7,091,360 issued and outstanding 71 71 Paid-in capital 26,597 26,597 Treasury stock (7,983) 0 Retained earnings 36,730 27,266 ---------- -------- TOTAL STOCKHOLDERS' EQUITY 55,415 53,934 ---------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $95,123 $94,174 ========== ======== See notes to consolidated financial statements. F-2 CONSOLIDATED STATEMENTS OF INCOME STEEL OF WEST VIRGINIA, INC. AND SUBSIDIARIES (In thousands, except per share amounts) Year Ended December 31 1995 1994 1993 ----------------------------------- Net sales $129,341 $124,229 $106,354 Cost of sales 107,191 103,327 88,698 ----------- ---------- ---------- GROSS PROFIT 22,150 20,902 17,656 Selling and administrative expenses 5,018 5,454 4,432 Interest expense 1,642 898 1,624 Other (income) expense (227) 94 (692) ----------- ---------- ---------- INCOME BEFORE INCOME TAXES 15,717 14,456 12,292 Income taxes 6,253 5,662 5,156 ----------- ---------- ---------- NET INCOME $ 9,464 $ 8,794 $ 7,136 =========== ========== ========== NET INCOME PER COMMON SHARE $ 1.40 $ 1.24 $ 1.03 =========== ========== ========== See notes to consolidated financial statements. F-3 CONSOLIDATED STATEMENTS OF CASH FLOWS STEEL OF WEST VIRGINIA, INC. AND SUBSIDIARIES (In thousands) Year Ended December 31 1995 1994 1993 ----------------------------------- CASH PROVIDED BY Operations: Net income $ 9,464 $ 8,794 $ 7,136 Adjustments for items not affecting funds from operations: Depreciation and amortization 6,046 4,954 4,308 Loss on disposal of assets 368 1,070 184 Deferred income taxes (690) (101) 75 Other (83) 523 132 ----------- ---------- ---------- 15,105 15,240 11,835 Working capital changes related to operations: Receivables (2,051) (945) (905) Inventories (1,249) (123) (2,374) Other current assets (801) 56 (167) Accounts payable (2,849) 2,678 (247) Accrued payroll and benefits payable 211 (12) 603 Accrued income taxes 76 (545) (605) Other current liabilities 396 (96) (202) ----------- ---------- ---------- (6,267) 1,013 (3,897) ----------- ---------- ---------- TOTAL CASH PROVIDED BY OPERATIONS 8,838 16,253 7,938 Investment activities: Additions to property, plant, and equipment (3,361) (20,596) (3,120) Acquisition of Marshall Steel, Inc. (4,617) ----------- ---------- ---------- CASH (USED FOR) INVESTMENT ACTIVITIES (3,361) (20,596) (7,737) Financing activities: Revolving credit loan 5,875 Long-term debt repayments (4,860) (4,000) (16,264) Proceeds from debt issue 301 6,000 Purchase of treasury stock (7,983) Proceeds from sale of common stock 17,687 ----------- ---------- ---------- CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (6,667) 2,000 1,423 ----------- ---------- ---------- (DECREASE) INCREASE IN CASH (1,190) (2,343) 1,624 Cash (overdraft) net, beginning of year 643 2,986 1,362 ----------- ---------- ---------- CASH (OVERDRAFT) NET, END OF YEAR $ (547) $ 643 $ 2,986 =========== ========== ========== See notes to consolidated financial statements. F-4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STEEL OF WEST VIRGINIA, INC. AND SUBSIDIARIES December 31, 1995 NOTE A--SIGNIFICANT ACCOUNTING POLICIES Business Operations: Steel of West Virginia, Inc. (the Company) conducts - ------------------- its operations through two wholly-owned subsidiaries, SWVA, Inc. and Marshall Steel, Inc. (acquired on April 8, 1993). The Company operates a steel mini-mill and two steel fabrication facilities for the manufacture and distribution of special steel sections and steel billets in a single business segment. The Company is a supplier of products principally to domestic equipment manufacturers serving the truck-trailer, industrial lift truck, off-highway equipment, and mining industries with many of these customers being mature businesses. No single customer accounts for more than 10% of the Company's net sales, and the Company's operations are tied closely to general economic conditions. Principal suppliers to the Company include scrap metal producers and electric power generating utilities. In addition, a significant portion of the Company's labor force is represented by the United Steelworkers of America under the terms of a collective bargaining agreement. As is similar with other mini-mills in the industry, the Company is subject to federal, state and local environmental laws and regulations concerning, among other matters, wastewater discharge, air emissions and furnace dust disposal. Basis of Presentation: The preparation of financial statements in - --------------------- conformity with generally accepted accounting principles requires that management make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements include the accounts of Steel of West Virginia, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and investments have been eliminated. Financial Instruments: Financial instruments that could potentially - --------------------- subject the Company to credit risk are trade accounts receivable. As of December 31, 1995 and 1994, the Company's accounts receivable from customers in its principal markets approximated $11,065,000 and $9,646,000. Trade credit is extended by the Company based on an evaluation of the customer's financial condition and generally collateral is not required. Credit losses are provided for in the financial statements, and have consistently been immaterial and within management's expectations. Management believes that all significant financial instruments of the Company are reported in the financial statements at carrying values that approximate market values. Inventories: Inventories are stated at the lower of cost or market. Cost - ----------- is primarily determined by the last-in, first-out (LIFO) method. Mill rolls, which are included in manufacturing supplies, are expensed when placed in service. Property, Plant and Equipment: Property, plant and equipment is stated on - ----------------------------- the basis of cost. Depreciation for financial statement purposes is computed on the straight-line basis over the estimated useful life of the asset. Principal service lives for the assets of the Company are: buildings--up to 30 years; machinery and equipment--up to 12 years; and furniture and fixtures--up to 5 years. In March, 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to Be Disposed Of" that requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and estimated cash flows from those assets are less than the assets' carrying value. The Company will adopt Statement No. 121 in the first quarter of 1996. The Company continually analyzes new processes and equipment that would allow the Company to produce products on a cost-effective basis so as to enable the Company to maintain its strong position in each of its niche markets and expand into related markets. This could result in material write-offs if new production F-5 processes or equipment are identified and installed or certain present processes become impaired. Income Taxes: The Company adopted Financial Accounting Standards Board - ------------ Statement SFAS No. 109, "Accounting for Income Taxes," ("SFAS 109") in the first quarter of 1993, and, as permitted under this new accounting standard, did not restate any prior year financial statements. In accordance with SFAS 109, deferred income taxes are recognized under the "liability method" and are provided for temporary differences between the financial reporting and income tax bases of the Company's assets and liabilities using the tax rates anticipated to be in effect when the corresponding taxes will be paid or refunded. Goodwill: The excess of cost over the fair market value of net assets - -------- acquired (goodwill) is being amortized on a straight-line basis over periods ranging from 15 to 40 years. Accumulated amortization approximated $4,534,000 and $3,851,000 at December 31, 1995 and 1994, respectively. The carrying value of goodwill is periodically reviewed based upon an assessment of operations of the acquired entity. Management is not aware of any facts or circumstances indicating that the carrying value of goodwill has been impaired. Stock-based Compensation: The Company determines compensation cost - ------------------------ associated with its stock option plans using the "intrinsic" value method set forth in Accounting Principles Board Opinion No. 25. Under this method, stock-based compensation expense is measured on the first date that both the number of shares the employee is entitled to receive and the exercise price are known, in an amount equivalent to the excess of the market price over the exercise price. In October 1995, the FASB issued Statement No. 123 -- "Accounting for Stock-Based Compensation." This statement, effective in 1996, permits, and the Company intends, to continue its present accounting practice, but will require additional disclosures about the Company's stock-based compensation plans, including pro forma disclosures of net income and earnings per share as if the "fair value" based method of accounting for stock-based compensation had been applied. The Company anticipates adopting Statement No. 123 in the first quarter of 1996. Net Income Per Common Share: Net income per common share is calculated - --------------------------- based on the 6,782,127, 7,091,360, and 6,929,948 weighted average number of common shares and common share equivalents outstanding during the years ended December 31, 1995, 1994, and 1993, respectively. NOTE B--INVENTORIES Inventories consist of the following (in thousands): December 31 1995 1994 ---------------- Raw materials $ 2,013 $ 1,908 Work-in-process 6,089 4,846 Finished goods 10,633 10,372 Manufacturing supplies 3,288 2,750 ------- ------- 22,023 19,876 Less LIFO reserve 4,928 4,030 ------- ------- $17,095 $15,846 ======= ======= F-6 NOTE C--PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment consists of the following (in thousands): December 31 1995 1994 ---------------- Land $ 1,355 $ 1,355 Buildings 3,965 3,644 Machinery and equipment 60,882 59,397 Furniture and fixtures 632 622 Construction-in-process 930 168 ------- ------- 67,764 65,186 Less accumulated depreciation 26,957 22,175 ------- ------- $40,807 $43,011 ======= ======= NOTE D--OTHER CURRENT LIABILITIES Other current liabilities consist of the following (in thousands): December 31 1995 1994 ---------------- Accrued taxes, other than income taxes $ 1,326 $ 1,268 Other accrued liabilities 700 362 ------- ------- $ 2,026 $ 1,630 ======= ======= NOTE E--CREDIT ARRANGEMENTS The Company entered into a senior financing agreement on December 30, 1986, as subsequently amended, that provides for revolving credit borrowings and term loans. During 1994, the Company amended its senior credit agreement to permit the Company to borrow $6 million in 1994 under a new "Capital Expenditure Line" of credit, and extend the term of the revolving credit line to January 1, 1998. The loan amendment also enabled the Company to reduce the interest rates on its existing revolving credit line and term loans outstanding from the greater of 7% or 3/4% over prime and the greater of 7% or 1% over prime, respectively, to the Chemical Bank prime rate or LIBOR plus 1-3/4%; and reduce the annual revolving credit line commitment fee from 1/2% to 1/8% of the unused balance. In addition, the amendment permits the Company to convert up to $7 million of its indebtedness to a fixed interest rate. The senior credit agreement may be terminated by the Company or, on or after January 1, 1998 and upon 90 days written notice, by the lender. A summary of indebtedness under the Company's credit arrangements consists of the following (in thousands): December 31 1995 1994 ----------------- Term loan II $ 4,740 $ 7,636 Term loan III 1,807 2,911 Capital Expenditure Line 5,140 6,000 Revolver 5,875 - Other notes payable 301 - Unamortized debt financing costs - (145) ------- ------- TOTAL 17,863 16,402 Less current maturities of long-term debt 5,885 4,860 ------- ------- $11,978 $11,542 ======= ======= Amounts outstanding under the term loan portion of the senior financing agreement are scheduled to be repaid in quarterly principal installments totaling as follows: 1996--$5,000,000; 1997--$1,547,050. The Capital Expenditure Line F-7 portion of the loan agreement is required to be repaid in 27 quarterly principal installments of $215,000, beginning January 1, 1995, with a final principal payment of $195,000. As of December 31, 1995, the revolving credit line loan balance, due January 1, 1998, was $5,875,000, and the unused borrowing availability approximated $4,125,000. Interest is paid monthly in accordance with the Company's lending agreement and approximated $1,411,000, $1,087,000, and $2,074,000 during the years ended December 31, 1995, 1994, and 1993, respectively. The weighted average interest rate on short-term borrowings during the years ended December 31, 1995, 1994, and 1993 approximated 7.8%, 6.6%, and 7.0%, respectively. The Company's senior lending agreement contains various restrictive covenants, including that the Company must maintain specified levels of working capital and net worth (as defined in the agreement). In addition, capital expenditures and dividends are limited to the annual amounts set forth in the agreement. At December 31, 1995, the Company's retained earnings available for dividends in 1996 is $4,710,000. As a result of the lending agreement, substantially all of the Company's property, plant, and equipment, inventory and accounts receivable are subject to a third party's security interests. NOTE F--SELF INSURANCE The Company is self-insured at its Huntington, West Virginia facility for employees' medical care costs and workers' compensation claims up to certain specified dollar limits. The Company has excess coverage provided by the West Virginia Workers' Compensation Fund (a state agency) for certain work-related injuries. In connection with the self-insured workers' compensation program, the Company has obtained an irrevocable standby letter of credit in the amount of $1,000,000 (through July 1996). Under the medical care program, the Company is insured by a private carrier for individual claims in excess of specific dollar limits. At its Memphis, Tennessee facility, the Company is insured through a private carrier for medical care costs and workers' compensation claims. A liability has been established for those illnesses and injuries occurring on or before December 31, 1995, for which an amount of expected loss could be reasonably estimated. Costs and expenses for medical care and workers' compensation during the years ended December 31, 1995, 1994 and 1993 approximated $5,579,000, $4,815,000, and $5,144,000, respectively. Under informal arrangements, the Company currently provides post-employment health care benefits to each person who becomes disabled, is not expected to return to the active work force and is not covered by another health insurance plan. The expected cost of such benefits is accrued in amounts which are reasonably estimable upon a determination that such costs are probable of occurring, and included in the costs and expenses for medical care and workers' compensation disclosed above. In contrast to the retiree health insurance commonly provided in the domestic steel industry, the Company offers no material postretirement employee health care or other benefit program subject to accounting under the provisions of Statement of Financial Accounting Standards No. 106--"Employers' Accounting for Postretirement Benefits Other Than Pensions," which became effective in 1993. The Company is subject to federal and state environmental laws and regulations concerning, among other matters, air emissions, furnace dust disposal, and waste water effluents. Estimated costs to be incurred in connection with environmental matters are accrued when the prospect of incurring cost for testing or remedial action is deemed probable. Management is not aware of any asserted or unasserted claims or regulatory actions against the Company, and accordingly no provision for such matters has been reflected in the Company's financial statements. NOTE G--STOCKHOLDERS' EQUITY In February 1993, the Company completed the sale of 1,936,942 newly issued shares of its voting common stock resulting in net proceeds to the Company of $17,687,000. In addition, certain of the Company's stockholders, together with the Company's senior lender, simultaneously completed the sale of 2,663,058 shares of previously outstanding, but unregistered shares of the Company's common F-8 stock. The Company bore the entire costs of registering and issuing all of the shares of common stock, except for underwriters' commissions relative to the sale of the previously outstanding shares. The proceeds to the Company were used to voluntarily prepay its subordinated indebtedness, and provide approximately $9,057,000 of additional funds for general corporate purposes, of which $5,000,000 was used to voluntarily prepay a portion of the Company's senior debt. In 1994 and 1995, the Company's Board of Directors authorized management to buy back up to 1,200,000 shares of its common stock from time to time. During 1995 the Company purchased 755,300 shares at a cost of $7,983,000. On March 16, 1995, the Board of Directors adopted and the stockholders subsequently approved the Management Option Plan and the Director Option Plan (Plans). These plans provide that options to acquire shares of the Company's Common Stock (Options) may be granted to officers, key employees and directors of the Company or its designated subsidiaries. Under the Plans, an option holder must be employed or be a director one year from the grant date to vest in the ability to exercise the option. A summary of transactions in the plans are as follows: 1995 ------- Options granted during and outstanding at end of year 79,500 Option price $11 5/8 At December 31, 1995, under vesting provisions of the plans, no options were exercisable. NOTE H--PROFIT-SHARING AND BONUS COSTS The Company has bonus and retirement arrangements at its Huntington, West Virginia facility for both bargaining unit and non-bargaining unit employees which, in effect, are defined contribution profit-sharing plans qualified under Internal Revenue Code Section 501. The Company is required to contribute an amount equal to the lesser of $125 per bargaining unit employee per month or 17% of pre-tax profit, as defined, to a retirement trust for the future benefit of the union employees. The amount, if any, that 17% of pre-tax profits exceeds the retirement contribution, is required to be paid to the bargaining unit employees on a semi-annual basis as a cash bonus. Substantially all non-bargaining unit employees of the Company are entitled to receive a semi-annual cash bonus equal to the amount paid to bargaining unit employees computed on a per employee basis. Additionally, the Company contributes an amount, equal to the lesser of 5% of non-bargaining wages or a lower percentage if 17% of pre-tax profits is less than the $125 per month per bargaining unit employee contribution, for the future retirement benefit of the non-bargaining unit employees. Costs related to cash bonuses and amounts set aside for retirement benefits under the profit-sharing plans approximated $3,746,000 and $953,000 during 1995, $3,310,000 and $942,000 during 1994, and $2,890,000 and $888,000 during 1993. Contributions to the retirement accounts in 1995, 1994 and 1993 were $946,000, $937,000, and $870,000, respectively. The Company has complied with all funding requirements under the terms of the retirement trusts. F-9 NOTE I--INCOME TAXES Significant components of the Company's deferred tax liabilities and assets are as follows (in thousands): December 31 1995 1994 Deferred tax assets--current: ---------------------- Bad debt and sales allowances $ 290 $ 218 Bonus accruals 554 459 Self-insurance 1,685 1,671 Other 727 307 Total current deferred tax assets 3,256 2,655 --------- -------- Deferred tax liabilities--current: Inventory costing 146 512 --------- --------- Net deferred tax assets--current $ 3,110 $ 2,143 ========= ========= Deferred tax liabilities--noncurrent: Differences in basis of fixed assets arising from purchase accounting and accelerated depreciation $ 8,005 $ 7,728 --------- --------- Total long-term deferred tax liabilities $8,005 $7,728 ========= ========= The provision for income taxes consists of the following (in thousands): Year Ended December 31 1995 1994 1993 ----------------------------------------- Federal--current $5,916 $5,061 $3,916 Federal--deferred (639) (16) 68 State--current 1,027 702 1,165 State-deferred (51) (85) 7 ---------- ---------- ---------- $6,253 $5,662 $5,156 ========== ========== ========== A reconciliation of statutory federal income tax rates to the Company's effective income tax rates is as follows: Year Ended December 31 1995 1994 1993 ------------------------------ Federal statutory tax rate 35.0% 35.0% 35.0% State income tax provision net of federal tax benefits 4.0 2.8 6.2 Amortization of goodwill 1.3 1.4 1.6 Other, net (.5) 0.0 (.9) -------- -------- -------- Effective income tax rate 39.8% 39.2% 41.9% ======== ======== ======== Income taxes paid approximated $7,254,000, $6,307,000, and $5,284,000 during the years ended December 31, 1995, 1994 and 1993, respectively. F-10 NOTE J--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 1995 and 1994: Three Months Ended December 31 September 30 June 30 March 31 -------------------------------------------------- (In thousands, except per share amounts) 1995 - ---- Net Sales $32,249 $32,551 $31,641 $32,900 Cost of goods sold 26,800 26,789 26,043 27,559 Net income 2,307 2,449 2,513 2,195 Net income per common share .36 .37 .36 .31 1994 - ---- Net sales $30,351 $34,106 $31,410 $28,362 Cost of goods sold 25,435 28,630 26,146 23,116 Net income 2,026 2,160 2,480 2,128 Net income per common share .29 .30 .35 .30 Primary and fully dilutive per share amounts are the same. Per share amounts in 1995 are based upon weighted average number of shares outstanding for the quarters ended March 31, June 30, September 30, and December 31 of 7,091,360, 6,951,693, 6,630,260 and 6,455,193, respectively. Per share amounts in 1994 are based upon 7,091,360 weighted average number of shares outstanding for all quarters. F-11 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT Steel of West Virginia, Inc. December 31 CONDENSED BALANCE SHEETS (000'S) 1995 1994 ------------------------ CURRENT ASSETS Cash $ 0 $ 13 NONCURRENT ASSETS Investments in and advances to wholly-owned subsidiaries 55,171 53,762 Other assets 294 165 ---------- ---------- TOTAL ASSETS $55,465 $53,940 ========== ========== LIABILITIES Accrued payroll and benefits payable $ 0 $ 6 Other liabilities 50 0 ---------- ---------- TOTAL LIABILITIES 50 6 EQUITY Common Stock 71 71 Paid-in Capital 26,597 26,597 Treasury Stock (7,983) 0 Retained Earnings 36,730 27,266 ---------- ---------- TOTAL EQUITY 55,415 53,934 ---------- ---------- TOTAL LIABILITIES AND EQUITY $55,465 $53,940 ========== ========== Year Ended December 31 CONDENSED STATEMENT OF INCOME (000'S) 1995 1994 1993 ----------------------------------- REVENUES Interest Income $ 198 $ 212 $ 237 EXPENSES Amortization 61 81 81 Administrative 33 91 0 ---------- ---------- --------- Income before income taxes and equity in undistributed earnings of wholly-owned subsidiaries 104 40 156 32 15 42 Income taxes ---------- ---------- --------- Income before equity in undistributed earnings of wholly-owned subsidiaries 72 25 114 Equity in undistributed earnings of wholly-owned subsidiaries 9,392 8,769 7,022 ---------- ---------- --------- NET INCOME $ 9,464 $ 8,794 $ 7,136 S-1 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED) Steel of West Virginia, Inc. Year Ended December 31 CONDENSED STATEMENT OF CASH FLOWS (000'S) 1995 1994 1993 -------------------------------- CASH (USED FOR) PROVIDED BY OPERATIONS $ (13) $ 127 $ 0 Investment activities: Investment in Steel Ventures, Inc. 0 (23) 0 Investment in Marshall Steel, Inc. 0 0 (1,000) ---------- ---------- -------- CASH (USED FOR) INVESTMENT ACTIVITIES 0 (23) (1,000) Financing activities: Advances from subsidiaries 7,983 (91) 0 Advances to subsidiaries 0 (16,687) Purchase of treasury stock (7,983) 0 0 Proceeds from sale of common stock 0 0 17,687 ---------- ---------- -------- CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES 0 (91) 1,000 (DECREASE) INCREASE IN CASH (13) 13 0 Cash, beginning of year 13 0 0 ---------- ---------- -------- CASH, END OF YEAR $ 0 $ 13 $ 0 ========== ========== ======== See note to condensed financial statements of registrant. S-2 NOTE A TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT Basis of Presentation: The investments in wholly owned subsidiaries are - --------------------- stated at cost plus equity in undistributed earnings of those subsidiaries. Parent company only statements should be read in conjunction with the Company's consolidated financial statements and notes thereto. Guarantee: The Company serves as Guarantor for all of the indebtedness - --------- incurred by its wholly owned subsidiary, SWVA, Inc. under the terms of a senior credit agreement dated December 30, 1986, as amended and more fully described in Note E to the Company's consolidated financial statements. At December 31, 1995, the total amount outstanding under the terms of this agreement was $17,562,000. The primary source of funds for any regular dividends declared by the Company is dividends received from its subsidiaries. SWVA, Inc.'s lending agreement limits the amount of dividends it may pay to the Company to 50% of its net income for the preceding year, subject to further limitations relating to minimum levels of SWVA, Inc. working capital and net worth. At December 31, 1995, the Company's retained earnings available for dividends in 1996 is $4,710,000. S-3 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Steel of West Virginia, Inc. BALANCE AT CHARGED TO CHARGED DEDUC- BALANCE BEGINNING COSTS AND TO OTHER TIONS AT END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (1) PERIOD - -------------- -------------- ------------- ------------- ----------- ---------- (000'S) Year ended December 31, 1995: ALLOWANCE FOR $350 $55 $405 BAD DEBTS Year ended December 31, 1994: ALLOWANCE FOR $318 $32 $350 BAD DEBTS Year ended December 31, 1993: ALLOWANCE FOR $300 $18 $318 BAD DEBTS (1) - Accounts receivable charged against the allowance S-4 EX-3.1 2 Exhibit 3.1 CERTIFICATE OF INCORPORATION OF CHARTER STEEL, INC. I, THE UNDERSIGNED, in order to form a corporation for the purposes hereinafter stated, under and pursuant to the provisions of the General Corporation Law of the State of Delaware, do hereby certify as follows: FIRST: The name of the corporation is Charter Steel, Inc. SECOND: The registered office of the corporation is to be located at 229 South State Street, in the City of Dover, in the County of Kent, in the State of Delaware. The name of its registered agent at that address is The Prentice-Hall Corporation System, Inc. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. Without limiting in any manner the scope and generality of the foregoing, it is hereby provided that the corporation shall have the power to do all and everything necessary suitable and proper for the accomplishment of any of the purposes or the attainment of any of the objects or the furtherance of any of the powers of which a corporation may be organized under the General Corporation Law of the State of Delaware, either alone or in association with other corporations, firms or individuals, and to do every other act or acts, thing or things incidental or appurtenant to or growing out of or connected with the corporation's business or powers or any part or parts thereof, provided the same be not inconsistent with said General Corporation Law; and shall have the power to conduct and carry on its business, or any part thereof, and to have one or more offices, and to exercise any or all of its corporate powers and rights, in the State of Delaware, and in the various other states, territories, colonies and dependencies of the United States, in the District of Columbia, and in all or any foreign countries. A-2 FOURTH: The total number of shares of stock which the corporation is authorized to issue is One Thousand (1,000) shares of Common Stock, par value of $.01 per share. FIFTH: The name and address of the sole incorporator are as follows: Name Address Marilynn K. Beatty 488 Madison Avenue New York, New York 10022 SIXTH: The following provisions are inserted for the management of the business and for the conduct of the affairs of the corporation, and for further definition, limitation and regulation of the powers of the corporation and its directors and stockholders: 1. The number of directors of the corporation shall be such as from time to time shall be fixed by, or in the manner provided in the by-laws. Election of directors need not be by ballot unless the by-laws so provide. 2. The Board of Directors shall have power without the assent or vote of the stockholders: (a) To make, alter, amend, change, add or repeal all the by-laws of the corporation; to fix and vary the amount to be reserved for any proper purpose, to authorize and cause to be executed mortgages and liens upon all or any part of the property of the corporation; to determine the use and disposition of any surplus or net profits; and to declare dividends; to fix the record date and the date for the payment of any dividends; and (b) To determine from time to time whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the corporation (other than the stock ledger) or any of them, shall be open to the inspection of the stockholders. 3. The directors in their discretion may submit any contract or act for approval or ratification by the written consent of the stockholders, or at any annual meeting of the stockholders or at any special meeting of A-3 the stockholders called for the purpose of considering any such act or contract, and any contract or act that shall be approved or ratified by the written consent or vote of the holders of a majority of the stock of the corporation (which in the case of a meeting is represented in person or by proxy at such meeting, provided a lawful quorum of stockholders be there represented in person or by proxy) shall be as valid and as binding upon the corporation and upon all the stockholders as though it had been approved or ratified by every stockholder of the corportion, whether or not the contract or act would otherwise be open to legal attack because of the directors' interest, or for any other reason. 4. In addtion to the powers and authorities herinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the corporation; subject, nevertheless, to the provisions of the statutes of Delaware, of this certificate, and to any by-laws from time to time made by the stockholders; provided, however, that no by-laws so made shall invalidate any prior act of the directors which would have been valid if such by-laws had not been made. 5. No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. SEVENTH: The corporation shall, to the full extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as amended from time to time, indemnify all persons whom it may indemnify pursuant thereto. EIGHTH: Whenever a compromise or arrangement is proposed between the corporation and its creditors or any class of them and/or between the corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the applicaiton in a summary way of the corporation or any creditor or stockholders thereof or on the application of any receiver or receivers A-4 appointed for the corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, agree to any compromise or arrangement and the said reorganization of the corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the corporation, as the case may be, and also on the corporation. NINTH: The corporation reserves the right to amend, alter, change or repeal an provision contained in this certificate of incorporation in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on stockholders, directors and officers are subject to this reserved power. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 7th day of November, 1986. /s/Marilynn K. Beatty ------------------------ Marilynn K. Beatty Sole Incorporator A-5 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CHARTER STEEL, INC. It is hereby certified that: 1. The name of the corporation (herein called the "Corporation") is Charter Steel, Inc. 2. The Certificate of Incorporation of the Corporation is hereby amended by striking Article "FOURTH" thereof and by substituting in lieu of said Article the following new Article: "FOURTH: The total number of shares of stock which the Corporation is authorized to issue is Twenty thousand (20,000) shares of Common Stock, par value of $.01 per share. 3. The amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 241 of the General Corporation Law of the State of Delaware by unanimous written consent of the sole Incorporator dated December 12, 1986, said amendment having been duly adopted by the sole Incorporator prior to the election of any directors of the Corporation and prior to the receipt of any payment for any of the Corporation's stock. IN WITNESS WHEREOF, Charter Steel, Inc. has caused this Certificate to be signed by its sole Incorporator this 12th day of December, 1986. CHARTER STEEL, INC. /s/Marilynn K. Beatty ------------------------ Marilynn K. Beatty Sole Incorporator A-7 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CHARTER STEEL, INC. It is hereby certified that: 1. The name of the corporation (herein called the "Corporation") is Charter Steel, Inc. 2. The Certificate of Incorporation of the Corporation is hereby amended by striking Article "FOURTH" thereof and by substituting in lieu of said Article the following new Article: "FOURTH: The total number of shares of stock which the corporation is authorized to issue is Forty thousand (40,000) shares of Common Stock of which (a) twenty thousand (20,000) shall be designated Class A Common Stock with a par value of $.01 per share and shall entitle the holders thereof to one (1) vote per share, and (b) twenty thousand (20,000) shall be designated class B Common Stock with a par value of $.01 per share and shall not entitle the holders thereof to any voting rights with respect thereto. Every reference in the General Corporation Law of the State of Delaware, this Certificate of Incorporation or by the By-Laws of the corporation to a majority or other proportion or percentage of capital stock shall refer to a majority or other proportion or percentage of the aggregate votes of the outstanding shares of Class A Common Stock. In every other respect, the rights and privileges of the shares of Class A Common Stock and Class B Common Stock shall be identical. A holder or shares of Class B Common Stock other than the initial holder thereof, shall have the right at any time and from time to time upon notice to the corporation to convert such shares into shares of Class A Common Stock on the basis of one share of Class A Common Stock for each share of Class B Common stock so converted. Shares of Class B Common Stock which shall have been converted into shares of Class A Common Stock shall thereafter not be issued by the A-9 corporation. At such time as all shares of Class B Common Stock shall have been converted into shares of Class A Common Stock, then (i) no shares of Class B Common Stock shall thereafter be issued by the corporation; (ii) the Class A common Stock shall thereafter be designated "Common Stock"; and (iii) the total number of shares of capital stock which the corporation shall thereafter be authorized to issue shall be changed to 40,000 shares of Common Stock, without designation as to class." 3. The amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 241 of the General Corporation Law of the State of Delaware by unanimous written consent of the sole Incorporator dated December 19, 1986, said amendment having been duly adopted by the sole Incorporator prior to the election of any directors of the Corporation and prior to the receipt of any payment for any of the Corporation's stock. IN WITNESS WHEREOF, CHARTER STEEL, INC. has caused this Certificate to be signed by its sole Incorporator this 19th day of December, 1986. CHARTER STEEL, INC. /s/Marilynn K. Beatty ------------------------ Marilynn K. Beatty Sole Incorporator A-10 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CHARTER STEEL, INC. It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is Charter Steel, Inc. 2. The Certificate of Incorporation of the Corporation is hereby amended by striking out Article "FIRST" thereof and by substituting in lieu of said Article, the following new Article: "FIRST: The name of the Corporation is Steel of West Virginia, Inc." 3. The Certificate of Incorporation of the Corporation is hereby amended by striking out Article "FOURTH" thereof and by substituting in lieu of said Article, the following new Article: "FOURTH: The total number of shares of capital stock that may be issued by the Corporation is Eight Million Five Hundred Thousand (8,500,000.) shares of which (a) 8,000,000. shares shall be common stock, par value $0.1 per share, which shall be designated Common Stock ("Voting Common Shares"), and (b) 500,000 shares shall be common stock, par value $.01 per share, which shall be designated Non-voting Common Stock ("Non-voting Common Shares") (the Voting Common Shares and Non-voting Common Shares shall hereinafter collectively be referred to as "Common Shares"). Each of the currently outstanding shares of Class A Common Stock, par value $.01 per share, shall be automatically converted and split into three hundred forty (340) Voting Common Shares and the currently outstanding shares of Class B Common Stock, par Value $.01 per share, shall be automatically converted and split into three hundred forty (340) Non-voting Common Shares; with the result that (i) the 9,280 currently outstanding shares of Class A Common Stock shall be converted and split into a total of 3,156,200 shares of Common Stock and (ii) the A-12 720 currently outstanding shares of Class B Common Stock shall be converted and split into a total of 244,800 shares of Non- voting Common Stock. No fractional Common Shares of scrip representing fractional shares shall be issued upon such automatic conversion, but in lieu thereof, there shall be paid an amount in cash at the rate of $1.382 per share. The designations, rights, powers and preferences of, and the qualifications, limitations and restrictions on, the shares of each such series of Common Shares of the Corporation are as follows: 1. Dividends. Dividends may be paid upon the --------- outstanding Common Shares (on a pro rata basis among all such shares outstanding as of the record date fixed by the Board of Directors for the relevant dividend) from time to time when and as declared by the Board of Directors out of any funds legally available therefor. 2. Liquidation. Upon any liquidation, dissolution or ----------- winding up of the affairs of the Corporation, the then holders of record of the outstanding Common Shares shall be entitled to receive pro rata any and all assets of the Corporation re- maining available for distribution. 3. Voting Rights. Except as otherwise provided by the ------------- Delaware General Corporation Law or any other applicable statute or by any express provision of this Certificate: (a) the holders of record of Voting Common Shares shall be entitled to one vote for each share for the election of directors and upon all other matters submitted to a vote of the stockholders of the Corporation: (b) the holders of record of Non-voting Common Shares shall not be entitled to notice of, or to attend or vote at, any annual or special meeting of the stockholders of the Corporation. Except as other wise provided in this Section 3 or in Sections 4, 5 and 6 below, Common Shares of each series shall have the identical rights, powers and preferences and be sub- ject to the identical qualifications, limitations and restrictions. 4. Optional Conversion of Non-voting Common Shares into ---------------------------------------------------- Voting Common Shares -------------------- (a) Each holder of one or more Non-voting Common Shares shall have the right, at that holder's option, to con- vert those Non-voting Common Shares into Voting Common Shares A-13 at the rate of one Non-voting Common Share for one Voting Com- mon Share, subject to and in accordance with the terms and conditions of this Section 4; provided, however, that no such --------- -------- holder of Non-voting Common Shares that is a Regulated Person shall be entitled to effect any such conversion thereof if the conversion would cause that holder to be in violation of any rules or regulations of the Board of Governors of the Federal Reserve System as shall be in effect and applicable to that holder at the time of the proposed conversion (the "Bank Regulations"). For the purposes hereof, the term "Regulated Person" shall mean an entity that is subject to regulation by the Board of Governors of the Federal Reserve System. In connection with any such conversion of Non-voting Common Shares, the holder proposing to effect that conversion shall provide to the Corporation, together with the notice of conversion required pursuant to Section 4(c) below, a certificate confirming either that it is not a Regulated Person or that the conversion would not cause it to be in violation of the Bank Regulations, together with such supporting information as the Corporation shall reasonably require to confirm the accuracy of that certificate. (b) Non-voting Common Shares shall be convertible into fully paid and non-assessable Voting Common Shares at the rate herein specified, without payment or adjustment for any dividends declared and unpaid on the Non-voting Common Shares surrendered for conversion to the date of conversion. Any such declared and unpaid dividends shall constitute a debt of the Corporation, payable without interest to the converting holder on the date fixed by the Board of Directors as the record date for such dividend. (c) To convert some or all of his Non-voting Common Shares into Voting Common Shares, the holder thereof shall surrender to the Corporation the certificate(s) evidencing those Non-voting Common Shares, duly endorsed to the Corpora- tion or in blank, and shall give written notice to the Corporation that he elects to convert the same into Voting Common Shares and the name(s) in which the holder wishes the certificate(s) evidencing the shares issuable upon such conversion to be issued. As soon as reasonable practicable thereafter, the Corporation shall deliver to that holder, or to his nominee(s), one or more certificates evidencing the number of shares to which the holder shall be entitled as aforesaid. Non-voting Common Shares shall be deemed to have been converted as of the date of surrender thereof for conversion as aforesaid, and the person(s) entitled to receive the shares issuable upon such conversion shall be treated for all purposes as the record holder(s) of those shares on that date, and each such share shall be deemed outstanding on that date. A-14 (d) The issuance of certificates evidencing Voting Common Shares upon Conversion of Non-voting Common Shares shall be made without charge to the converting holder for any tax in respect of the issuance of such certificates; provided, however, that the Corporation shall not be --------- --------- required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery upon any such conversion of any certificate representing shares in a name other than that of the holder of the Non-Voting Common Shares so converted, and the Corporation shall not be required to issue or deliver such certificates unless or until the person(s) requesting the issuance thereof shall have established to the satisfaction of the Corporation that such tax has been paid. (e) The Corporation shall at all times reserve and keep available out of its authorized but unissued Voting Common Shares, solely for the purpose of effecting the conversion of Non-voting Common Shares pursuant to this Section 4 and Section 5 below, the full number of whole Voting Common Shares then deliverable upon the conversion of all of the Non-voting Common Shares convertible into Voting Common Shares at the time outstanding. 5. Automatic Conversion of Non-voting Common Shares into ----------------------------------------------------- Voting Common Shares. - -------------------- (a) Non-voting Common Shares shall be automatically converted, on a one-for-one basis, into fully paid and nonassessable Voting Common Shares (i) upon the sale of any such shares pursuant to a public offering registered under the Securities Act of 1933 (the "Act"), (ii) upon the sale of any such shares in a broker's transaction or a transaction directly with a market maker within the meaning of Rule 144 under the Act (a"Permitted Sale") or (iii) with respect to the shares of andy holder of Non-voting Common Shares, act such time as the total number of Voting Common Shares and Non-voting Common Shares of such holder would represent less than 5% of the total number of Voting Common Shares outstanding, taking into account the number of Voting Common Shares which will be held upon the conversion of the Non-voting Common Shares to Voting Common Shares. Each of the events described in clauses (i), (ii), and (iii) herein shall hereinafter be referred to as a "Conversion Event". (b) Upon the occurrence of a Conversion Event, holders of Non-voting Common Shares shall surrender for cancellation to the Corporation the certificate(s) which, immediately prior to a Conversion Event, represented outstanding Non-voting Common Shares and, in the case of a Permitted Sale, a certificate confirming that such shares were obtained in a A-15 Permitted Sale, together with such supporting information as the Corporation shall reasonably require to confirm the accuracy of the certificate. As soon as reasonably practicable after the surrender of said certificate(s), the Corporation shall deliver to the holder of such certificate(s), or to his nominee(s), one or more certificates evidencing the number of Voting Common Shares into which those Non-Voting Common Shares shall have been automatically converted as a result of such Conversion Event. No payment or adjustment shall be made for any dividends declared and unpaid on the Non-voting Common Shares surrendered to the date of such Conversion Event. Any such declared and unpaid dividends shall constitute a debt of the Corporation, payable without interest to the holder of the converted Non-voting Common Shares on the date fixed by the Board of Directors as the record date for such dividend. The Voting Common Shares into which the Non-voting Common Shares shall be converted as a result of a Conversion Event shall be deemed to have been issued at the time of the Conversion Event. 6. Automatic Conversion of Voting Common Shares into Non-voting ------------------------------------------------------------ Common Shares - ------------- (a) In the event that the amount of Voting Common Shares held by Regulated Person is in an amount equal to or greater than 5% of the total number of Voting Common Shares outstanding, an amount of such Regulated Person's Voting Common Shares sufficient to bring such Regulated Person's holdings of Voting Common Shares to less than 5% shall be automatically converted, on a one-for-one basis, into fully paid and non- assessable Non-voting Common Shares which event shall hereinafter be referred to as a "Subsequent Conversion Event.": and (b) Upon such occurrence of a Subsequent Conversion Event, holders of Voting Common Shares shall surrender for cancellation to the Corporation the certificate(s) which, immediately prior to a Subsequent Conversion Event, represented outstanding Voting Common Shares together with such supporting information as the Corporation shall reasonably require to confirm the accuracy of the certificate. As soon as reasonably practicable after the surrender of said certificate(s), the Corporation shall deliver to the holder of such certificate(s), or to his nominee(s), one or more certificates evidencing the number of Non-voting Common Shares into which those Voting Common Shares shall have been automatically converted pursuant to Section 6 (a) hereof. No payment or adjustment shall be made for any dividends declared and unpaid on the Voting Common Shares surrendered to the date of such Subsequent Conversion Event. Any such declared and unpaid dividends shall constitute a debt of the Corporation, payable A-16 without interest to the holder of the converted Voting Common Shares on the date fixed by the Board of Directors as the record date for such dividend. The Non-voting Common Shares into which the Voting Common Shares shall be converted pursuant to Section 6 (a) hereof as a result of a Subsequent Conversion Event shall be deemed to have been issued at the time of the Subsequent Conversion Event." 4. The amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by unanimous written consent of the Board of Directors and by written consent of the holders of a majority of the outstanding stock of the Corporation pursuant to Section 228(c) of the General Business law, written notice of the adoption of the amendments herein having been given to those stockholders who have not consented in written notice of the adoption of the amendments herein having been given to those stockholders who have not consented in writing thereto. IN WITNESS WHEREOF, Charter Steel, Inc. has caused this certificate to be signed by its Chairman of the Board and attested by its Secretary this 24 th day of August, 1987. ----- CHARTER STEEL, INC> By: /s/ Patricia R. Merrick ------------------------- Patricia R. Merrick Chairman of the Board ATTEST /s/ Eric M. Mencher - ---------------------- Eric M. Mencher Assistant Secretary A-17 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF STEEL OF WEST VIRGINIA, INC. The undersigned corporation, in order to amend its Certificate of Incorporation, hereby certifies as follows: FIRST: The name of the corporation is: Steel of West Virginia, Inc. SECOND: The corporation hereby amends its Certificate of Incorporation as follows: Paragraph FOURTH of the Certificate of Incorporation, relating to the capital stock of the corporation is hereby amended to read, in its entirety, as follows: FOURTH: The total number of shares of capital stock that the corporation shall have authority to issue is twelve million (12,000,000) shares of Common Stock, par value $.01 per share. THIRD: The amendment effected herein was authorized by vote of a majority of stockholders at the annual meeting of stockholders of the corporation pursuant to Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, we hereunto sign our names and affirm that the statements made herein are true under the penalties of perjury, this 16th day of November, 1995. By: /s/ Timothy R. Duke --------------------------- Name: Timothy R. Duke Title: Vice President ATTESTED AND ACKNOWLEDGED: /s/ Stephen A. Albert - --------------------------- Name: Stephen A. Albert Title: Secretary EX-4.1(G) 3 Exhibit 4.1(g) [THE CIT GROUP LETTERHEAD] [LOGO] February 28, 1996 SWVA, Inc. 17th Street and 2nd Avenue Huntington, WV 25726 Gentlemen: Reference is made to the Financing Agreement between us dated December 30, 1986, as amended (the "Financing Agreement"). Capitalized terms used herein and defined in the Financing Agreement shall have the same meanings as set forth therein unless otherwise specifically defined herein. Based upon the most recent financial information available to us, it appears that you may have exceeded the maximum amount of inter-company loans and/or advances permitted to be made to Marshall Steel, Inc. under Section 6, Paragraph 12G of the Financing Agreement. We hereby confirm our agreement that the foregoing action shall not constitute, or be deemed to constitute a Default and/or Event of Default under, or violation of, the terms provisions or conditions of the Financing Agreement. It is further agreed that, effective immediately, the Financing Agreement shall be, and hereby is, amended as follows: (1) The definition of "Line of Credit" in Section 1, of the Financing Agreement shall be, and hereby is, amended in its entirety to read as follows: "Line of Credit shall mean the sum of $15,000,000." -------------- (2) Section 6, paragraph 12G of the Financing Agreement shall be, and hereby is, amended by increasing the dollar amounts of "$1,500,000" and "$10,000,000" respectively as they appear in clause (ii) of such paragraph to "$2,500,000" and "$15,000,000" respectively. In addition, we hereby confirm our agreement to waive payment of any Mandatory Prepayment that may be due pursuant to Section 3, Paragraph 5 of the Financing Agreement based upon Surplus Cash for the fiscal year ending December 31, 1995, and we further confirm that failure to make any such payment shall not constitute or be deemed to constitute a Default or Event of Default under or violation of, the terms, provisions or conditions of the Financing Agreement. In consideration of (i) our execution of this agreement and (ii) the preparation of this agreement by our in-house legal department and facilities you agree to pay us an Accommodation/Documentation Fee of $10,000. Such fee shall be due and payable on the date hereof and may (at our option) be charged to your Revolving Loan Account on the date thereof. Except as set forth above no other change in or waiver of, the terms, provisions or conditions of the Financing Agreement is intended or implied. This letter shall not constitute a waiver of any other existing Default or Event of Default (whether or not we have knowledge thereof) and shall not constitute a waiver of any future Default or Event of Default. The effectiveness of the foregoing is subject to (x) Marshall Steel, Inc. signing below to confirm its agreement that the dollar limitation on its guaranty of your Obligations to us shall be, and hereby is, increased from "$1,500,000" to "$2,500,000"; and (y) Steel of West Virginia, Inc. and Marshall Steel, Inc. signing below to confirm that their respective guaranties of your Obligations to us shall continue in full force and effect in accordance with, and subject to, the respective terms and provisions thereof (as amended hereby), notwithstanding the foregoing amendment. If the foregoing is in accordance with your understanding of our agreement kindly so indicate by signing and returning the enclosed copy of this letter. THE CIT GROUP/BUSINESS CREDIT, INC. By: /s/ Robert Bernier ---------------------- Title: Vice President Read and Agreed to: SWVA, INC. By: /s/ Timothy R. Duke -------------------- Title: VP & CFO Confirmed: STEEL OF WEST VIRGINIA, INC. By: /s/ Timothy R. Duke -------------------- Title: VP & CFO MARSHALL STEEL, INC. By: /s/ Timothy R. Duke -------------------- Title: VP & CFO EX-10.23 4 Exhibit 10.23 ___________________________________________________________________________ STEEL OF WEST VIRGINIA, INC. 1995 EMPLOYEE STOCK OPTION PLAN ___________________________________________________________________________ April 1, 1995 Table of Contents ----------------- Page I. Purposes of the Plan . . . . . . . . . . . . . . . . . . . . . . . 1 II. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 III. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . 4 IV. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . 4 A. Duties of the Committee . . . . . . . . . . . . . . . . . . . 4 B. Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . 4 C. Indemnification . . . . . . . . . . . . . . . . . . . . . . . 5 D. Meetings of the Committee . . . . . . . . . . . . . . . . . . 5 E. Determinations . . . . . . . . . . . . . . . . . . . . . . . 5 V. Shares; Adjustment Upon Certain Events . . . . . . . . . . . . . . 5 A. Shares to be Delivered; Fractional Shares . . . . . . . . . . 5 B. Number of Shares . . . . . . . . . . . . . . . . . . . . . . 6 C. Adjustments; Recapitalization, etc. . . . . . . . . . . . . . 6 VI. Awards and Terms of Options . . . . . . . . . . . . . . . . . . . 7 A. Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 B. Exercise Price . . . . . . . . . . . . . . . . . . . . . . . 7 C. Number of Shares . . . . . . . . . . . . . . . . . . . . . . 7 D. Exercisability . . . . . . . . . . . . . . . . . . . . . . . 7 E. Acceleration of Exercisability . . . . . . . . . . . . . . . 8 F. Exercise of Options. . . . . . . . . . . . . . . . . . . . . 9 G. Incentive Stock Option Limitations. . . . . . . . . . . . . . 10 VII. Effect of Termination of Employment . . . . . . . . . . . . . . . 10 A. Death, Disability, Retirement, etc. . . . . . . . . . . . . . 10 B. Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 C. Cancellation of Options . . . . . . . . . . . . . . . . . . . 11 VIII. Nontransferability of Options . . . . . . . . . . . . . . . . 11 IX. Rights as a Stockholder . . . . . . . . . . . . . . . . . . . . . 11 X. Termination, Amendment and Modification . . . . . . . . . . . . . 12 General Amendments and Termination . . . . . . . . . . . . . . . . 12 XI. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 13 i Page ---- XII. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . 13 A. Right to Terminate Employment . . . . . . . . . . . . . . . . 13 B. Purchase for Investment . . . . . . . . . . . . . . . . . . . 13 C. Trusts, etc. . . . . . . . . . . . . . . . . . . . . . . . . 13 D. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 E. Severability of Provisions . . . . . . . . . . . . . . . . . 14 F. Payment to Minors, Etc. . . . . . . . . . . . . . . . . . . . 14 G. Headings and Captions . . . . . . . . . . . . . . . . . . . . 14 H. Controlling Law . . . . . . . . . . . . . . . . . . . . . . . 14 I. Other Benefits . . . . . . . . . . . . . . . . . . . . . . . 14 J. Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 K. Section 162(m) Deduction Limitation . . . . . . . . . . . . . 15 L. Section 16(b) of the Act . . . . . . . . . . . . . . . . . . 15 XIII. Issuance of Stock Certificates; Legends; Payment of Expenses . . . . . . . . . . . . . . . . . . . 15 A. Stock Certificates . . . . . . . . . . . . . . . . . . . . . 15 B. Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 C. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . 15 XIV. Listing of Shares and Related Matters . . . . . . . . . . . . . . 15 XV. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . 16 Form of Option Agreement . . . . . . . . . . . . . . . . . . . . Exhibit A ii Steel of West Virginia, Inc. 1995 Employee Stock Option Plan I. Purposes of the Plan -------------------- The purposes of this 1995 Employee Stock Option Plan (the "Plan") are to enable Steel of West Virginia, Inc. (the "Company") and Designated Subsidiaries (as defined herein) to attract, retain and motivate certain employees who are important to the success and growth of the business of the Company and Designated Subsidiaries and to create a long-term mutuality of interest between such employees and the stockholders of the Company by granting the options to purchase Common Stock (as defined herein). II. Definitions ----------- In addition to the terms defined elsewhere herein, for purposes of this Plan, the following terms will have the following meanings when used herein with initial capital letters: A. "Act" means the Securities Exchange Act of 1934, as amended, and all rules and regulations promulgated thereunder. B. "Board" means the Board of Directors of the Company. C. "Cause" means that the Committee shall have determined that any of the following events has occurred: (1) an act of fraud, embezzlement, misappropriation of business or theft committed by a Participant in the course of his or her employment or any intentional or grossly negligent misconduct of a Participant which injures the business or reputation of the Company or Designated Subsidiaries; (2) intentional or grossly negligent damage committed by a Participant to the property of the Company or Designated Subsidiaries; (3) a Participant's willful failure or refusal to perform the customary duties and responsibilities of his or her position with the Company or Designated Subsidiaries; (4) a Participant's material breach of any covenant, condition or obligation required to be performed by him or her pursuant to this Plan, the Option Agreement or any other agreement between him or her and the Company or Designated Subsidiaries or a Participant's intentional or grossly negligent violation of any material written policy of the Company or Designated Subsidiaries; or (5) commission by a Participant of a felony or a crime or act involving moral turpitude that brings the Company or Designated Subsidiaries into public disrepute. Cause shall be deemed to exist as of the date any of the above events occur even if the Committee's determination is later and whether or not such determination is made before or after Termination of Employment. D. "Code" means the Internal Revenue Code of 1986, as amended. E. "Committee" means such committee, if any, appointed by the Board to administer the Plan, consisting of two or more directors as may be appointed from time to time by the Board each of whom, unless otherwise determined by the Board, shall be disinterested persons as defined in Rule 16b-3 promulgated under Section 16(b) of the Act and outside directors as defined in Section 162(m) of the Code. If the Board does not appoint a committee for this purpose, "Committee" means the Board. F. "Common Stock" means the common stock of the Company, par value $.01 per share, any Common Stock into which the Common Stock may be converted and any Common Stock resulting from any reclassification of the Common Stock. G. "Company" means Steel of West Virginia, Inc., a Delaware corporation. H. "Designated Subsidiary" means any corporation that is defined as a subsidiary corporation in Section 424(f) of the Code. An entity shall be deemed a Designated Subsidiary only for such periods as the requisite ownership relationship is maintained. I. "Disability" means a permanent and total disability, rendering a Participant unable to perform the duties performed by the Participant for the Company or Designated Subsidiaries by reason of physical or mental disability for a period of four consecutive months, or for a period of more than an aggregate of six months in any twelve month period. A Disability shall only be deemed to occur at the time of the determination by the Committee of the Disability. J. "Fair Market Value" shall mean, for purposes of this Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, as of any date, the last sales prices reported for the Common Stock on the applicable date, (i) as reported by the principal national securities exchange in the United States on which it is then traded, or (ii) if not traded on any such national securities exchange, as quoted on an automated quotation system sponsored by the National Association of Securities Dealers, or if the sale of the Common Stock shall not have been reported or quoted on such date, on the first day prior thereto on which the Common Stock was reported or quoted. If the Common Stock is not readily tradeable on a national securities exchange or any system sponsored by the National Association of Securities Dealers, its Fair Market Value shall be set by the Committee based upon its assessment of the cash price that would be paid between a fully informed buyer and seller under no compulsion to buy or sell (without giving effect to any discount for a minority interest or any restrictions on transferability or any lack of liquidity of the stock). 2 K. "Incentive Stock Option" shall mean any Option awarded under this Plan intended to be and designated as an "Incentive Stock Option" within the meaning of Section 422 of the Code. L. "Key Employee" means any person who is an officer or other valuable employee of the Company or a Designated Subsidiary, as determined by the Committee in its sole discretion. A Key Employee may, but need not, be an officer of the Company or a Designated Subsidiary. M. "Non-Qualified Stock Option" shall mean any Option awarded under this Plan that is not an Incentive Stock Option. N. "Option" means the right to purchase one Share at a prescribed purchase price on the terms specified in the Plan. O. "Participant" means a Key Employee who is granted Options under the Plan which Options have not expired. P. "Person" means any individual or entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person as the context may require. Q. "Retirement" means a Termination of Employment at or after age 65 (or, with the consent of the Committee, any age between age 55 and 65). R. "Securities Act" means the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder. S. "Share" means a share of Common Stock. T. "Ten Percent Shareholder" shall mean a person owning Common Stock of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company as defined in Section 422 of the Code. U. "Termination of Employment" with respect to an individual means that individual is no longer actively employed by the Company or a Designated Subsidiary on a full-time basis, irrespective of whether or not such employee is receiving salary continuance pay, is continuing to participate in other employee benefit programs or is otherwise receiving severance type payments. In the event an entity shall cease to be a Designated Subsidiary, there shall be deemed a Termination of Employment of any individual who is not otherwise an employee of the Company or another Designated Subsidiary at the time the entity ceases to be a Designated Subsidiary. A Termination of Employment shall not include a leave of absence approved for purposes of the Plan by the Committee. 3 III. Effective Date -------------- The Plan shall become effective on April 1, 1995 (the "Effective Date"), subject to its approval by the stockholders of the Company in accordance with Rule 16b-3 promulgated under the Act within one year after the Plan is adopted by the Board of Directors of the Company. Grants of Options by the Committee under the Plan may be made on or after the Effective Date of the Plan, including retroactively, provided that, if the Plan is not approved by the stockholders of the Company as provided in the preceding sentence, all Options which have been granted by the Committee shall be null and void. No Options may be exercised prior to the approval of the Plan by the stockholders of the Company as aforesaid. IV. Administration -------------- A. Duties of the Committee. The Plan shall be administered and ----------------------- interpreted by the Committee. The Committee shall have full authority to interpret the Plan and to decide any questions and settle all controversies and disputes that may arise in connection with the Plan; to establish, amend and rescind rules for carrying out the Plan; to administer the Plan, subject to its provisions; to select Participants in, and grant Options under, the Plan; to determine the terms, exercise price and form of exercise payment for each Option granted under the Plan; to determine the consideration to be received by the Company in exchange for the grant of the Options; to determine whether and to what extent Incentive Stock Options and Non-Qualified Stock Options, or any combination thereof, are to be granted hereunder to one or more Key Employees to prescribe the form or forms of instruments evidencing Options and any other instruments required under the Plan (which need not be uniform) and to change such forms from time to time; and to make all other determinations and to take all such steps in connection with the Plan and the Options as the Committee, in its sole discretion, deems necessary or desirable. The Committee shall not be bound to any standards of uniformity or similarity of action, interpretation or conduct in the discharge of its duties hereunder, regardless of the apparent similarity of the matters coming before it. Any determination, action or conclusion of the Committee shall be final, conclusive and binding on all parties. Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of the Participants affected, to disqualify any Incentive Stock Option under such Section 422. B. Advisors. The Committee may employ such legal counsel, -------- consultants and agents as it may deem desirable for the administration of the Plan, and may rely upon any advice or opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company. 4 C. Indemnification. To the maximum extent permitted by --------------- applicable law, no officer of the Company or member or former member of the Committee or of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. To the maximum extent permitted by applicable law or the Certificate of Incorporation or By-Laws of the Company and to the extent not covered by insurance, each officer and member or former member of the Committee or of the Board shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Company) or liability (including any sum paid in settlement of a claim with the approval of the Company), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with the Plan, except to the extent arising out of such officer's, member's or former member's own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the officers, members or former members may have as directors under applicable law or under the Certificate of Incorporation or By-Laws of the Company or Designated Subsidiary. Notwithstanding anything else herein, this indemnification will not apply to the actions or determinations made by an individual with regard to Options granted to him or her under this Plan. D. Meetings of the Committee. The Committee shall adopt such ------------------------- rules and regulations as it shall deem appropriate concerning the holding of its meetings and the transaction of its business. Any member of the Committee may be removed from the Committee at any time either with or without cause by resolution adopted by the Board, and any vacancy on the Committee may at any time be filled by resolution adopted by the Board. All determinations by the Committee shall be made by the affirmative vote of a majority of its members. Any such determination may be made at a meeting duly called and held at which a majority of the members of the Committee are in attendance in person or through telephonic communication. Any determination set forth in writing and signed by all the members of the Committee shall be as fully effective as if it had been made by a majority vote of the members at a meeting duly called and held. E. Determinations. Each determination, interpretation or other -------------- action made or taken pursuant to the provisions of this Plan by the Committee shall be final, conclusive and binding for all purposes and upon all persons, including, without limitation, the Participants, the Company and Designated Subsidiaries, directors, officers and other employees of the Company and Designated Subsidiaries, and the respective heirs, executors, administrators, personal representatives and other successors in interest of each of the foregoing. V. Shares; Adjustment Upon Certain Events -------------------------------------- A. Shares to be Delivered; Fractional Shares. Shares to be ----------------------------------------- issued under the Plan shall be made available, at the sole discretion of the Board, either from authorized but unissued Shares or from issued Shares reacquired by the Company and 5 held in treasury. No fractional Shares will be issued or transferred upon the exercise of any Option. In lieu thereof, the Company shall pay a cash adjustment equal to the same fraction of the Fair Market Value of one Share on the date of exercise. B. Number of Shares. Subject to adjustment as provided in this ---------------- Article V, the maximum aggregate number of Shares that may be issued under the Plan shall be 430,000. If Options are for any reason canceled, or expire or terminate unexercised, the Shares covered by such Options shall again be available for the grant of Options, subject to the foregoing limit. C. Adjustments; Recapitalization, etc. The existence of the ---------------------------------- Plan and the Options granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting Common Stock, the dissolution or liquidation of the Company or Designated Subsidiaries, any sale or transfer of all or part of its assets or business or any other corporate act or proceeding. The Committee may make or provide for such adjustments in the maximum number of Shares specified in Article V(B), in the number of Shares covered by outstanding Options granted hereunder, and/or in the Purchase Price (as hereinafter defined) applicable to such Options or such other adjustments in the number and kind of securities received upon the exercise of Options, as the Committee in its sole discretion may determine is equitably required to prevent dilution or enlargement of the rights of Participants or to otherwise recognize the effect that otherwise would result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, merger, consolidation, spin-off, reorganization, partial or complete liquidation, issuance of rights or warrants to purchase securities or any other corporate transaction or event having an effect similar to any of the foregoing. In the event of a merger or consolidation in which the Company is not the surviving entity or in the event of any transaction that results in the acquisition of substantially all of the Company's outstanding Common Stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of all of the Company's assets (the foregoing being referred to as "Acquisition Events"), then the Committee may in its sole discretion terminate all outstanding Options effective as of the consummation of the Acquisition Event by delivering notice of termination to each Participant at least 20 days prior to the date of consummation of the Acquisition Event; provided that, during the period from the date on which such notice of termination is delivered to the consummation of the Acquisition Event, each Participant shall have the right to exercise in full all the Options that are then outstanding (without regard to limitations on exercise otherwise contained in the Options) but contingent on occurrence of the Acquisition Event, and, provided that, if the Acquisition Event does not take place within a specified period after giving such notice for any reason whatsoever, the notice and exercise shall be null and void. Except as hereinbefore expressly provided, the issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of 6 any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor or upon conversion of shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number and class of shares and/or other securities or property subject to Options theretofore granted or the Purchase Price (as hereinafter defined). VI. Awards and Terms of Options --------------------------- A. Grant. The Committee may grant Non-Qualified Stock Options ----- or Incentive Stock Options, or any combination thereof to Key Employees. To the extent that the maximum number of authorized Shares with respect to which Options may be granted are not granted in a particular calendar year to a Participant (beginning with the year in which the Participant receives his or her first grant of Options hereunder), such ungranted Options for any year shall increase the maximum number of Shares with respect to which Options may be granted to such Participant in subsequent calendar years during the term of the Plan until used. To the extent that any Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), such Option or the portion thereof which does not qualify, shall constitute a separate Non- Qualified Stock Option. Each Option shall be evidenced by an Option agreement (the "Option Agreement") in such form as the Committee shall approve from time to time. B. Exercise Price. The purchase price per Share (the "Purchase -------------- Price") deliverable upon the exercise of a Non-Qualified Stock Option shall be determined by the Committee and set forth in a Participant's Option Agreement, provided that the Purchase Price shall not be less than the par value of a Share. The Purchase Price deliverable upon the exercise of an Incentive Stock Option shall be determined by the Committee and set forth in a Participant's Option Agreement but shall be not less than 100% of the Fair Market Value of a Share at the time of grant; provided, however, if an Incentive Stock Option is granted to a Ten Percent Shareholder, the Purchase Price shall be no less than 110% of the Fair Market Value of a Share. C. Number of Shares. The Option Agreement shall specify the ---------------- number of Options granted to the Participant, as determined by the Committee in its sole discretion. D. Exercisability. Except as otherwise provided herein or in -------------- the Option Agreement, each Option granted under this Plan shall be exercisable on and after the first anniversary of the date as of which such Option is granted, and at the time of grant the Committee shall specify on what terms the Options granted shall be exercisable, provided that the Committee may at any time accelerate the time at which all or any part of the Options may be exercised and may waive any other conditions to exercise. No Option shall be exercisable after the expiration of ten years from the date of grant; provided, 7 however, the term of an Incentive Stock Option granted to a Ten Percent Shareholder may not exceed five years. Each Option shall be subject to earlier termination as provided in Article VII below. E. Acceleration of Exercisability. ------------------------------ All Options granted and not previously exercisable shall become fully exercisable immediately upon the later of a Change of Control (as defined herein). For this purpose, a "Change of Control" shall be deemed to have occurred upon: (a) an acquisition after the Effective Date by any individual, entity or group (within the meaning of Section 13d-3 or 14d-1 of the Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of more than 30% of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, including, but not limited to, by merger, consolidation or similar corporate transaction or by purchase; excluding, however, the following: (x) any such acquisition by the Company or Designated Subsidiaries or (y) any such acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or Designated Subsidiaries; or (b) the approval of the stockholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of more than 80% of the assets of the Company and Designated Subsidiaries on a consolidated basis (determined under generally accepted accounting principles as determined in good faith by the Committee); excluding, however, such a sale or other disposition to a corporation with respect to which, following such sale or other disposition, (x) more than 70% of the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners of the outstanding Shares immediately prior to such sale or other disposition, (y) no Person (other than the Company, Designated Subsidiaries, and any employee benefit plan (or related trust) of the Company or Designated Subsidiaries or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 70% or more of the outstanding Shares) will beneficially own, directly or indirectly, 70% or more of the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (z) individuals who were members of the board prior to such sale or other disposition will constitute at least a majority of the members of the board of directors of such corporation. 8 (c) within any 24 month period beginning on or after the Effective Date, the persons who were directors of the Company immediately before the beginning of such period ("Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of any successor to the Company, provided that, any director who was not a director as of the date hereof shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with approval of, at least two-thirds of the directors who qualified as Incumbent Directors either actually or by prior operation of this subsection, unless such election, recommendation or approval was a result of an actual or threatened election contest of the type contemplated by Regulation 14a-11 promulgated under the Exchange Act or any successor provision. F. Exercise of Options. ------------------- 1. A Participant may elect to exercise one or more Options by giving written notice to the Committee of such election and of the number of Options such Participant has elected to exercise, accompanied by payment in full of the aggregate Purchase Price for the number of Shares for which the Options are being exercised. 2. Shares purchased pursuant to the exercise of Options shall be paid for at the time of exercise as follows: (a) in cash or by check, bank draft or money order payable to the order of Company; (b) if the Shares are traded on a national securities exchange, through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the aggregate Purchase Price; or (c) on such other terms and conditions as may be acceptable to the Committee (which may include payment in full or in part by the transfer of Shares which have been owned by the Participant for at least six months or the surrender of Options owned by the Participant) and in accordance with applicable law. 3. Upon receipt of payment, the Company shall deliver to the Participant as soon as practicable a certificate or certificates for the Shares then purchased. 9 G. Incentive Stock Option Limitations. To the extent that the ---------------------------------- aggregate Fair Market Value (determined as of the time of grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year under the Plan and/or any other stock option plan of the Company or any subsidiary or parent corporation (within the meaning of Section 424 of the Code) exceeds $100,000, such Options shall be treated as Options which are not Incentive Stock Options. To the extent permitted under Section 422 of the Code, or the applicable regulations thereunder or any applicable Internal Revenue Service pronouncement, if (i) a Participant's employment with the Company or Designated Subsidiary is terminated by reason of death, Disability, Retirement or termination without Cause, and (ii) the portion of any Incentive Stock Option that would be exercisable during the post- termination period specified under Article VII but for the $100,000 limitation currently contained in Section 422(d) of the Code, is greater than the portion of such Stock Option that is immediately exercisable as an `incentive stock option' during such post-termination period under Section 422, such excess shall be treated as a Non-Qualified Stock Option. If the exercise of an Incentive Stock Option is accelerated for any reason, any portion of such Option that is not exercisable as an Incentive Stock Option by reason of the $100,000 limitation contained in Section 422(d) of the Code shall be treated as a Non-Qualified Stock Option. Should any of the foregoing provisions not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should any additional provisions be required, the Committee may amend the Plan accordingly, without the necessity of obtaining the approval of the shareholders of the Company, except as otherwise required by law. VII. Effect of Termination of Employment ----------------------------------- A. Death, Disability, Retirement, etc. Except as otherwise ----------------------------------- provided in the Participant's Option Agreement, upon Termination of Employment other than for Cause, all outstanding Options then exercisable and not exercised by the Participant prior to such Termination of Employment (and any Options not previously exercisable but made exercisable by the Committee at or after the Termination of Employment) shall remain exercisable by the Participant (or in the case of death, by the Participant's estate or by the person given authority to exercise such Options by the Participant's will or by operation of law) until the expiration of the Option in accordance with the terms of the Plan and grant. B. Cause. Upon the Termination of Employment of a Participant ----- for Cause, or if the Company or a Designated Subsidiary obtains or discovers information after Termination of Employment that such Participant had engaged in conduct that would have justified a Termination of Employment for Cause during employment, all 10 outstanding Options of such Participant shall immediately terminate and shall be null and void. C. Cancellation of Options. Except as otherwise provided in ----------------------- Article VI(E), no Options that were not exercisable during the period of employment shall thereafter become exercisable upon a Termination of Employment for any reason or no reason whatsoever, and such options shall terminate and become null and void upon a Termination of Employment, unless the Committee determines in its sole discretion that such Options shall be exercisable. VIII. Nontransferability of Options ----------------------------- No Option shall be transferable by the Participant otherwise than by will or under applicable laws of descent and distribution, and during the lifetime of the Participant may be exercised only by the Participant or his or her guardian or legal representative. An option shall also be transferable under a domestic relations order that is a "qualified domestic relations order", as defined in Section 414(p) of the Code, but may thereafter not be further transferred except as provided in the prior sentence (with the alternate payee under such order being substituted for "Participant"). In addition, except as provided above, no Option shall be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and no Option shall be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate any Option, or in the event of any levy upon any Option by reason of any execution, attachment or similar process contrary to the provisions hereof, such Option shall immediately terminate and become null and void. Notwithstanding the "qualified domestic relations order" exception above, an Incentive Stock Option shall not be transferable except as permitted under Code Section 422(b)(5) and a Nonqualified Stock Option shall not be transferable unless (i) such transfer is not considered a disposition within the meaning of Code Section 83 or (ii) such Option is not immediately exercisable in full on the date of grant. IX. Rights as a Stockholder ----------------------- A Participant (or a permitted transferee of an Option) shall have no rights as a stockholder with respect to any Shares covered by such Participant's Option until such Participant (or permitted transferee) shall have become the holder of record of such Shares, and no adjustments shall be made for dividends in cash or other property or distributions or other rights in respect to any such Shares, except as otherwise specifically provided in this Plan. 11 X. Termination, Amendment and Modification --------------------------------------- General Amendments and Termination. The Plan shall terminate at ---------------------------------- the close of business on the fifth anniversary of the Effective Date (the "Termination Date"), unless terminated sooner as hereinafter provided, and no Option shall be granted under the Plan on or after that date. The termination of the Plan shall not terminate any outstanding Options that by their terms continue beyond the Termination Date. At any time prior to the Termination Date, the Committee may amend or terminate the Plan or suspend the Plan in whole or in part. The Committee may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirements referred to in Article XII), or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, -------- ------- unless otherwise required by law or specifically provided herein, the rights of a Participant with respect to Options granted prior to such amendment, suspension or termination, may not, be materially impaired without the consent of such Participant and, provided further, without the approval of the stockholders of the Company entitled to vote, no amendment may be made which would (i) materially increase the aggregate number of shares of Common Stock that may be issued under this Plan (except by operation of Article V); (ii) decrease the minimum Purchase Price of any Option or (iii) extend the maximum option period. The Committee may amend the terms of any Option granted, prospectively or retroactively, but, subject to Article VI above or as otherwise provided herein, no such amendment or other action by the Committee shall materially impair the rights of any Participant without the Participant's consent. No modification of an Option shall adversely affect the status of an Incentive Stock Option as an incentive stock option under Section 422 of the Code. Notwithstanding the foregoing, however, no such amendment may, without the approval of the stockholders of the Company, effect any change that would require stockholder approval under applicable law. This Plan and any Options granted hereunder shall terminate and be void if this Plan does not receive the approval of the stockholders of the Company that may be required under Rule 16b-3 promulgated under the Act within one year after the Plan is adopted by the Board of Directors of the Company. Except as otherwise required by law, or as provided in this Plan, no termination, amendment or modification of this Plan may, without the consent of the Participant or the permitted transferee of his or her Option, alter or impair the rights and obligations arising under any then outstanding Option. 12 XI. Use of Proceeds --------------- The proceeds of the sale of Shares subject to Options under the Plan are to be added to the general funds of Company and used for its general corporate purposes as the Board shall determine. XII. General Provisions ------------------ A. Right to Terminate Employment. Neither the adoption of the ----------------------------- Plan nor the grant of Options shall impose any obligation on the Company or Designated Subsidiaries to continue the employment of any Participant, nor shall it impose any obligation on the part of any Participant to remain in the employ of the Company or Designated Subsidiaries. B. Purchase for Investment. If the Board or the Committee ----------------------- determines that the law so requires, the holder of an Option granted hereunder shall, upon any exercise or conversion thereof, execute and deliver to the Company a written statement, in form satisfactory to the Company, representing and warranting that such Participant is purchasing or accepting the Shares then acquired for such Participant's own account and not with a view to the resale or distribution thereof, that any subsequent offer for sale or sale of any such Shares shall be made either pursuant to (i) a Registration Statement on an appropriate form under the Securities Act, which Registration Statement shall have become effective and shall be current with respect to the Shares being offered and sold, or (ii) a specific exemption from the registration requirements of the Securities Act, and that in claiming such exemption the holder will, prior to any offer for sale or sale of such Shares, obtain a favorable written opinion, satisfactory in form and substance to the Company, from counsel acceptable to the Company as to the availability of such exception. C. Trusts, etc. Nothing contained in the Plan and no action ------------ taken pursuant to the Plan (including, without limitation, the grant of any Option thereunder) shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and any Participant or the executor, administrator or other personal representative or designated beneficiary of such Participant, or any other persons. Any reserves that may be established by the Company in connection with the Plan shall continue to be part of the general funds of the Company, and no individual or entity other than the Company shall have any interest in such funds until paid to a Participant. If and to the extent that any Participant or such Participant's executor, administrator or other personal representative, as the case may be, acquires a right to receive any payment from the Company pursuant to the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. 13 D. Notices Any notice to the Company required by or in respect ------- of this Plan will be addressed to the Company at 17th Street and 2nd Avenue, Huntington, West Virginia 25703, Attention: Chief Financial Officer, or such other place of business as shall become the Company's principal executive offices from time to time. Each Participant shall be responsible for furnishing the Committee with the current and proper address for the mailing to such Participant of notices and the delivery to such Participant of agreements, Shares and payments. Any such notice to the Participant will, if the Company has received notice that the Participant is then deceased, be given to the Participant's personal representative if such representative has previously informed the Company of his status and address (and has provided such reasonable substantiating information as the Company may request) by written notice under this Section. Any notice required by or in respect of this Plan will be deemed to have been duly given when delivered in person or when dispatched by telegram or one business day after having been dispatched by a nationally recognized overnight courier service or three business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid. The Company assumes no responsibility or obligation to deliver any item mailed to such address that is returned as undeliverable to the addressee and any further mailings will be suspended until the Participant furnishes the proper address. E. Severability of Provisions. If any provisions of the Plan -------------------------- shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions of the Plan, and the Plan shall be construed and enforced as if such provisions had not been included. F. Payment to Minors, Etc. Any benefit payable to or for the ----------------------- benefit of a minor, an incompetent person or other person incapable of receipt thereof shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Company and their employees, agents and representatives with respect thereto. G. Headings and Captions. The headings and captions herein are --------------------- provided for reference and convenience only. They shall not be considered part of the Plan and shall not be employed in the construction of the Plan. H. Controlling Law. The Plan shall be construed and enforced --------------- according to the laws of the State of Delaware. I. Other Benefits. No payment under this Plan shall be -------------- considered compensation for purposes of computing benefits under any retirement plan of the Company or a Designated Subsidiary nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability of benefits is related to the level of compensation. 14 J. Costs. The Company shall bear all expenses included in ----- administering this Plan, including expenses of issuing Common Stock pursuant to any Options hereunder. K. Section 162(m) Deduction Limitation. The Committee at any ----------------------------------- time may in its sole discretion limit the number of Options that can be exercised in any taxable year of the Company, to the extent necessary to prevent the application of Section 162(m) of the Code (or any similar or successor provision), provided that the Committee may not postpone the earliest date on which Options can be exercised beyond the last day of the stated term of such Options. L. Section 16(b) of the Act. All elections and transactions ------------------------ under the Plan by persons subject to Section 16 of the Exchange Act involving shares of Common Stock are intended to comply with all exemptive conditions under Rule 16b-3 promulgated under the Act. The Committee may establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Act, as it may deem necessary or proper for the administration and operation of the Plan and the transaction of business thereunder. XIII. Issuance of Stock Certificates; Legends; Payment of Expenses ---------------------------- A. Stock Certificates. Upon any exercise of an Option and ------------------ payment of the exercise price as provided in such Option, a certificate or certificates for the Shares as to which such Option has been exercised shall be issued by the Company in the name of the person or persons exercising such Option and shall be delivered to or upon the order of such person or persons. B. Legends. Certificates for Shares issued upon exercise of an ------- Option shall bear such legend or legends as the Committee, in its sole discretion, determines to be necessary or appropriate to prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act or to implement the provisions of any agreements between Company and the Participant with respect to such Shares. C. Payment of Expenses. The Company shall pay all issue or ------------------- transfer taxes with respect to the issuance or transfer of Shares, as well as all fees and expenses necessarily incurred by the Company in connection with such issuance or transfer and with the administration of the Plan. XIV. Listing of Shares and Related Matters ------------------------------------- If at any time the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the grant of Options or 15 the award or sale of Shares under the Plan, no Option grant shall be effective and no Shares will be delivered, as the case may be, unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Board. XV. Withholding Taxes ----------------- The Company shall have the right to require prior to the issuance or delivery of any shares of Common Stock payment by the Participant of any Federal, state or local taxes required by law to be withheld. The Committee may permit any such withholding obligation to be satisfied by reducing the number of shares of Common Stock otherwise deliverable. A person required to file reports under Section 16(a) of the Exchange Act with respect to securities of the Company may elect to have a sufficient number of shares of Common Stock withheld to fulfill such tax obligations (hereinafter a "Withholding Election") only if the election complies with such conditions as are necessary to prevent the withholding of such shares from being subject to Section 16(b) of the Exchange Act. To the extent necessary under then current law, such conditions shall include the following: (x) the Withholding Election shall be subject to the approval of the Committee and (y) the Withholding Election is made (i) during the period beginning on the third business day following the date of release for publication of the quarterly or annual summary statements of sales and earnings of the Company and ending on the twelfth business day following such date or is made in advance but takes effect during such period, (ii) six (6) months before the stock award becomes taxable, or (iii) during any other period in which a Withholding Election may be made under the provisions of Rule 16b-3 promulgated under the Act. Any fraction of a share of Common Stock required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant. 16 Exhibit A --------- STEEL OF WEST VIRGINIA, INC. OPTION AGREEMENT PURSUANT TO THE 1995 EMPLOYEE STOCK OPTION PLAN ------------------------------------- AGREEMENT, dated ____________, 1995 by and between Steel of West Virginia, Inc. (the "Company") and ___________________ (the "Participant"). Preliminary Statement - --------------------- The Committee of the Board of Directors of the Company (the "Committee"), pursuant to the Company's 1995 Employee Stock Option Plan, annexed hereto as Exhibit A (the "Plan"), has authorized the granting to the Participant, as a Key Employee (as defined in the Plan), of a [nonqualified stock option] [incentive stock option] (the "Option") to purchase the number of shares of the Company's common stock, par value $.01 per share (the "Common Stock"), set forth below. The parties hereto desire to enter into this Agreement in order to set forth the terms of the Option. Accordingly, the parties hereto agree as follows: 1. Tax Matters. [No part of the Option granted hereby is ----------- intended to qualify as an "incentive stock option" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").] [The Option granted hereby is intended to qualify as an "incentive stock option" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").] 2. Grant of Option. Subject in all respects to the Plan and --------------- the terms and conditions set forth herein and therein, the Participant is hereby granted the Option to purchase from the Company up to _______ Shares (as defined in the Plan), at a price per Share of $_________ (the "Option Price"). 3. Vesting. The Option may be exercised by the Participant, in ------- whole or in part, at any time or from time to time on and after the first anniversary of the date of grant and prior to the expiration of the Option as provided herein and in the Plan. Upon the occurrence of a Change of Control (as defined in the Plan), the Option shall immediately become exercisable with respect to all Shares subject thereto, regardless of whether the Option has vested with respect to such Shares. 4. Termination. Unless terminated as provided in the Plan, the ----------- Option shall expire on the tenth anniversary of this grant. 5. Restriction on Transfer of Option. Except as provided in --------------------------------- the Plan with regard to a "qualified domestic relations order" as defined in Section 414(p) of the Internal Revenue Code, the Option granted hereby is not transferable otherwise than by will or under the applicable laws of descent and distribution and during the lifetime of the Participant may be exercised only by the Participant or the Participant's guardian or legal representative. In addition, the Option shall not be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and the Option shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate the Option, or in the event of any levy upon the Option by reason of any execution, attachment or similar process contrary to the provisions hereof, the Option shall immediately become null and void. 6. Rights as a Stockholder. The Participant shall have no ----------------------- rights as a stockholder with respect to any Shares covered by the Option until the Participant shall have become the holder of record of the Shares, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such Shares, except as otherwise specifically provided for in the Plan. 7. Provisions of Plan Control. This Agreement is subject to -------------------------- all the terms, conditions and provisions of the Plan, including, without limitation, the amendment provisions thereof, and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time. Any capitalized term used but not defined herein shall have the meaning ascribed to such term in the Plan. The annexed copy of the Plan is incorporated herein by reference. If and to the extent that this Agreement conflicts or is inconsistent with the terms, conditions and provisions of the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly. 8. Notices. Any notice or communication given hereunder shall ------- be in writing and shall be deemed to have been duly given when delivered in person, when dispatched by Telegram or one business day after having been dispatched by a nationally recognized courier service or three business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, to the appropriate party at the address set forth below (or such other address as the party shall from time to time specify in accordance with Article XII(D) of the Plan.): If to the Company, to: Steel of West Virginia, Inc. 17th Street and 2nd Avenue Huntington, West Virginia 25703 Attention: Chief Financial Officer 2 If to the Participant, to: the address indicated on the signature page at the end of this Agreement. 9. No Obligation to Continue Employment. This Agreement does ------------------------------------ not guarantee that the Company or any Designated Subsidiary will employ the Participant for any specific time period, nor does it modify in any respect the Company's or any Designated Subsidiary's right to terminate or modify the Participant's employment or compensation. IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. STEEL OF WEST VIRGINIA, INC. By: --------------------------------- Authorized Officer ------------------------------------ [PARTICIPANT] Address: 3 EX-10.24 5 Exhibit 10.24 ___________________________________________________________________________ STEEL OF WEST VIRGINIA, INC. 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN ___________________________________________________________________________ April 1, 1995 Table of Contents ----------------- Page ---- I. Purposes of the Plan . . . . . . . . . . . . . . . . . . . . . . . 1 II. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 III. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . 2 IV. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A. Duties of the Committee . . . . . . . . . . . . . . . . . . . 3 B. Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . 3 C. Indemnification . . . . . . . . . . . . . . . . . . . . . . . 3 D. Meetings of the Committee . . . . . . . . . . . . . . . . . . 4 E. Determinations . . . . . . . . . . . . . . . . . . . . . . . 4 F. Disinterested Directors . . . . . . . . . . . . . . . . . . . 4 V. Shares; Adjustment Upon Certain Events . . . . . . . . . . . . . . 4 A. Shares to be Delivered; Fractional Shares . . . . . . . . . . 4 B. Number of Shares . . . . . . . . . . . . . . . . . . . . . . 4 C. Adjustments; Recapitalization, etc. . . . . . . . . . . . . . 4 VI. Awards and Terms of Options . . . . . . . . . . . . . . . . . . . 6 A. Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 B. Date of Grant . . . . . . . . . . . . . . . . . . . . . . . . 6 C. Option Agreement . . . . . . . . . . . . . . . . . . . . . . 7 D. Option Terms . . . . . . . . . . . . . . . . . . . . . . . . 7 E. Expiration. . . . . . . . . . . . . . . . . . . . . . . . . . 7 F. Acceleration of Exercisability . . . . . . . . . . . . . . . 7 VII. Effect of Termination of Directorship . . . . . . . . . . . . . . 8 A. Death, Disability or Otherwise Ceasing to be a Director . . . 8 C. Cancellation of Options . . . . . . . . . . . . . . . . . . . 9 VIII. Nontransferability of Options . . . . . . . . . . . . . . . . 9 IX. Rights as a Stockholder . . . . . . . . . . . . . . . . . . . . . 9 X. Termination, Amendment and Modification . . . . . . . . . . . . . 10 XI. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 11 i Page ---- XII. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . 11 A. Right to Terminate Directorship . . . . . . . . . . . . . . . 11 B. Trusts, etc. . . . . . . . . . . . . . . . . . . . . . . . . 11 C. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 D. Severability of Provisions . . . . . . . . . . . . . . . . . 12 E. Payment to Minors, Etc. . . . . . . . . . . . . . . . . . . . 12 F. Headings and Captions . . . . . . . . . . . . . . . . . . . . 12 G. Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 H. Controlling Law . . . . . . . . . . . . . . . . . . . . . . . 12 I. Section 16(b) of the Act . . . . . . . . . . . . . . . . . . 12 XIII. Issuance of Stock Certificates; Legends; Payment of Expenses . . . . . . . . . . . . . . . . . . . 12 A. Stock Certificates . . . . . . . . . . . . . . . . . . . . . 12 B. Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 C. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . 13 XIV. Listing of Shares and Related Matters . . . . . . . . . . . . . . 13 XV. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . 13 Form of Option Agreement . . . . . . . . . . . . . . . . . . . . Exhibit A ii Steel of West Virginia, Inc. 1995 Non-Employee Director Stock Option Plan I. Purposes of the Plan -------------------- The purposes of this 1995 Non-Employee Director Stock Option Plan (the "Plan") are to enable Steel of West Virginia, Inc. (the "Company") to attract, retain and motivate the directors who are important to the success and growth of the business of the Company and to create a long-term mutuality of interest between the directors and the stockholders of the Company by granting the directors options to purchase Common Stock (as defined herein). II. Definitions ----------- In addition to the terms defined elsewhere herein, for purposes of this Plan, the following terms will have the following meanings when used herein with initial capital letters: A. "Act" means the Securities Exchange Act of 1934, as amended, and all rules and regulations promulgated thereunder. B. "Board" means the Board of Directors of the Company. C. "Cause" means that a court of competent jurisdiction shall have determined that the Participant shall have committed a breach of the Participant's fiduciary duty to the Company or a Designated Subsidiary. D. "Code" means the Internal Revenue Code of 1986, as amended (or any successor statute). E. "Committee" means the Board or a duly appointed committee of the Board to which the Board has delegated its power and functions hereunder. F. "Common Stock" means the common stock of the Company, par value $.01 per share, any Common Stock into which the Common Stock may be converted and any Common Stock resulting from any reclassification of the Common Stock. G. "Company" means Steel of West Virginia, Inc., a Delaware corporation. H. "Designated Subsidiary" means a corporation that is defined as a subsidiary corporation in Section 424(f) of the Code. Any entity shall be deemed a Designated Subsidiary only for such periods as the required ownership relationship is maintained. I. "Eligible Director" means a director of the Company who is not an active employee of the Company or any Designated Subsidiary, including any director who is an officer of the Company but who is receiving no compensation as an employee from the Company or any Designated Subsidiary. J. "Fair Market Value" shall mean, for purposes of this Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, as of any date, the last sales prices reported for the Common Stock on the applicable date, (i) as reported by the principal national securities exchange in the United States on which it is then traded, or (ii) if not traded on any such national securities exchange, as quoted on an automated quotation system sponsored by the National Association of Securities Dealers, or if the sale of the Common Stock shall not have been reported or quoted on such date, on the first day prior thereto on which the Common Stock was reported or quoted. K. "Option" means the right to purchase one Share at a prescribed purchase price on the terms specified in the Plan. L. "Participant" means an Eligible Director who is granted Options under the Plan which Options have not expired. M. "Person" means any individual or entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person as the context may require. N. "Securities Act" means the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder. O. "Share" means a share of Common Stock. P. "Termination of Directorship" with respect to an individual means that individual is no longer acting as a director of the Company. III. Effective Date -------------- The Plan shall become effective as of April 1, 1995 (the "Effective Date"), subject to its approval by the stockholders of the Company in accordance with Rule 16b-3 under the Act within one year after the Plan is adopted by the Board. Grants of Options under the Plan will be made on or after the Effective Date of the Plan, provided that, if 2 the Plan is not approved by the stockholders of the Company as provided in the preceding sentence, all Options which have been granted pursuant to the terms of the Plan shall be null and void. No Options may be exercised prior to the approval of the Plan by the stockholders of the Company as aforesaid. IV. Administration -------------- A. Duties of the Committee. The Plan shall be administered by ----------------------- the Committee. The Committee shall have full authority to interpret the Plan and to decide any questions and settle all controversies and disputes that may arise in connection with the Plan; to establish, amend and rescind rules for carrying out the Plan; to administer the Plan, subject to its provisions; to prescribe the form or forms of instruments evidencing Options and any other instruments required under the Plan and to change such forms from time to time; and to make all other determinations and to take all such steps in connection with the Plan and the Options as the Committee, in its sole discretion, deems necessary or desirable. The Committee shall not be bound to any standards of uniformity or similarity of action, interpretation or conduct in the discharge of its duties hereunder, regardless of the apparent similarity of the matters coming before it. Any determination, action or conclusion of the Committee shall be final, conclusive and binding on all parties. B. Advisors. The Committee may employ such legal counsel, -------- consultants and agents as it may deem desirable for the administration of the Plan, and may rely upon any advice or opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company. C. Indemnification. To the maximum extent permitted by --------------- applicable law, no officer of the Company or member or former member of the Committee or of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. To the maximum extent permitted by applicable law and the Certificate of Incorporation or By-Laws of the Company and to the extent not covered by insurance, each officer and member or former member of the Committee or of the Board shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Company) or liability (including any sum paid in settlement of a claim with the approval of the Company), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with the Plan, except to the extent arising out of such officer's, member's or former member's own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the officers, members or former members may have as directors or officers under applicable law or under the Certificate of Incorporation or By-Laws of the Company. Notwithstanding anything else herein, this indemnification will not apply to 3 actions or determinations by an individual with regard to Options granted to him or her under this Plan. D. Meetings of the Committee. The Committee shall adopt such ------------------------- rules and regulations as it shall deem appropriate concerning the holding of its meetings and the transaction of its business. All determinations by the Committee shall be made by the affirmative vote of a majority of its members. Any such determination may be made at a meeting duly called and held at which a majority of the members of the Committee are in attendance in person or through telephonic communication. Any determination set forth in writing and signed by all the members of the Committee shall be as fully effective as if it had been made by a majority vote of the members at a meeting duly called and held. E. Determinations. Each determination, interpretation or other -------------- action made or taken pursuant to the provisions of this Plan by the Committee shall be final, conclusive and binding for all purposes and upon all persons, including, without limitation, the Participants, the Company, directors, officers and other employees of the Company, and the respective heirs, executors, administrators, personal representatives and other successors in interest of each of the foregoing. F. Disinterested Directors. Notwithstanding the foregoing, ----------------------- the Committee may not take any action which would cause any Eligible Director to cease to be a "disinterested person" for purposes of Rule 16b-3 promulgated under the Act, as then in effect or any successor provisions ("Rule 16b-3"), with regard to any stock option or other equity plan of the Company. V. Shares; Adjustment Upon Certain Events -------------------------------------- A. Shares to be Delivered; Fractional Shares. Shares to be ----------------------------------------- issued under the Plan shall be made available, at the sole discretion of the Board, either from authorized but unissued Shares or from issued Shares reacquired by the Company and held in treasury. No fractional Shares will be issued or transferred upon the exercise of any Option nor will any compensation be paid with regard to fractional shares. B. Number of Shares. Subject to adjustment as provided in this ---------------- Article V, the maximum aggregate number of Shares that may be issued under the Plan shall be 70,000. Where Options are for any reason cancelled, or expire or terminate unexercised, the Shares covered by such Options shall again be available for the grant of Options, within the limits provided by the preceding sentence. C. Adjustments; Recapitalization, etc. The existence of this ----------------------------------- Plan and the Options granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its 4 business, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting Common Stock, the dissolution or liquidation of the Company or any sale or transfer of all or part of its assets or business, or any other corporate act or proceeding, in which case the provisions of this Article V(C) shall govern outstanding Options: 1. The Shares with respect to which Options may be granted are Shares of Common Stock as presently constituted, but, if and whenever the Company shall effect a subdivision, recapitalization or consolidation of Shares or the payment of a stock dividend on Shares without receipt of consideration, the aggregate number and kind of shares of capital stock issuable under this Plan shall be proportionately adjusted, and each holder of a then outstanding Option shall have the right to purchase under such Option, in lieu of the number of Shares as to which the Option was then exercisable but on the same terms and conditions of exercise set forth in such Option, the number and kind of shares of capital stock which he or she would have owned after such subdivision, recapitalization, consolidation or dividend if immediately prior thereto he had been the holder of record of the number of Shares as to which such Option was then exercisable. 2. If the Company merges or consolidates with one or more corporations and the Company shall be the surviving corporation, thereafter upon exercise of an Option theretofore granted, the Participant shall be entitled to purchase under such Option in lieu of the number of Shares as to which such Option shall then be exercisable, but on the same terms and conditions of exercise set forth in such Option, the number and kind of shares of capital stock or other property to which the Participant would have been entitled pursuant to the terms of the agreement of merger or consolidation if, immediately prior to such merger or consolidation, the Participant had been the holder of record of the number of Shares as to which such Option was then exercisable. 3. If the Company shall not be the surviving corporation in any merger or consolidation, or if the Company is to be dissolved or liquidated, then, unless the surviving corporation assumes the Options or substitutes new Options which are determined by the Board in its sole discretion to be substantially similar in nature and equivalent in terms and value for Options then outstanding, upon the effective date of such merger, consolidation, liquidation or dissolution, any unexercised Options shall expire without additional compensation to the holder thereof; provided, that, the Committee shall deliver notice to each Participant at least 20 days prior to the date of consummation of such merger, consolidation, dissolution or liquidation which would result in the expiration of the Options and during the period from the date on which such notice of termination is delivered to the consummation of the merger, consolidation, dissolution or liquidation, each Participant shall have the right to exercise in full effective as of such consummation all the Options that are then outstanding (without regard to limitations on exercise otherwise contained in the Options other than the requirements of Article III) but contingent on occurrence of the merger, consolidation, dissolution or liquidation, and, provided that, if the contemplated transaction does not take place within a 90-day period after giving such notice for any reason whatsoever, the notice, accelerated 5 vesting and exercise shall be null and void and if and when appropriate new notice shall be given as aforesaid. Notwithstanding the foregoing, the Options held by persons subject to Section 16(b) of the Act that would not have vested under the Plan except pursuant to Article VI(F) prior to the effective date of such merger, consolidation, liquidation or dissolution shall not expire on such date but shall expire 30 days after they would have otherwise vested under the Plan and shall after the effective date of such merger, consolidation, liquidation or dissolution represent only the right to receive the number and kind of shares of capital stock or other property to which the Participant would have been entitled if immediately prior to the effective date of such merger, consolidation, liquidation or dissolution the Participant had been the holder of record of the number of Shares as to which such Option was then exercisable. 4. If as a result of any adjustment made pursuant to the preceding paragraphs of this Article V(C), any Participant shall become entitled upon exercise of an Option to receive any shares of capital stock other than Common Stock, then the number and kind of shares of capital stock so receivable thereafter shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock set forth in this Article V(C). 5. Except as hereinbefore expressly provided, the issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to Options theretofore granted or the purchase price per Share. VI. Awards and Terms of Options --------------------------- A. Grant. Without further action by the Board or the ----- stockholders of the Company, each Eligible Director on each Annual Date of Grant (as hereinafter defined) shall be automatically granted options to purchase 2,000 shares, subject to the terms of the Plan, provided that no such Option shall be granted if on the date of grant the Company has liquidated, dissolved or merged or consolidated with another entity in such a manner that it is not the surviving entity (unless the Plan has been assumed by such surviving entity with regard to future grants). B. Date of Grant. Annual Grants shall be made annually on the ------------- Effective Date and each anniversary thereof (the "Annual Date of Grant") commencing as of April 1, 1995, provided that if such date in any year is a date on which the national securities exchange or automated quotation system on which the Common Stock is traded is not open for trading, the grant shall be made on the first day thereafter on which the relevant exchange or quotation system is open for trading. Notwithstanding the 6 foregoing, in the event no Fair Market Value can be determined pursuant to the provisions hereof, no Annual Grant shall be made for such fiscal year. C. Option Agreement. Options shall be evidenced by Option ---------------- agreements in substantially the form annexed hereto as Exhibit A as modified from time to time. D. Option Terms: ------------ 1. Exercise Price. The purchase price per share ("Purchase -------------- Price") deliverable upon the exercise of an Option shall be 100% of the Fair Market Value of such Share at the time of the grant of the Option, or the par value of the Share, whichever is the greater. 2. Period of Exercisability. Except as otherwise provided ------------------------ herein, each Option granted under this Plan shall be exercisable on and after the first anniversary of the date on which such Option is granted. 3. Procedure for Exercise. A Participant electing to exercise ---------------------- one or more Options shall give written notice to the Secretary of the Company of such election and of the number of Options he or she has elected to exercise. Shares purchased pursuant to the exercise of Options shall be paid for at the time of exercise in cash or by delivery of unencumbered Shares owned by the Participant for at least six months (or such longer period as required by applicable accounting standards to avoid a charge to earnings) or a combination thereof. E. Expiration. Except as otherwise provided herein, if not ---------- previously exercised each Option shall expire upon the tenth anniversary of the date of the grant thereof. F. Acceleration of Exercisability. ------------------------------ All Options granted and not previously exercisable shall become fully exercisable immediately upon the later of a Change of Control (as defined herein). Article (V)(C) shall also apply to the extent, if any, it is applicable. For this purpose, a "Change of Control" shall be deemed to have occurred upon: (a) an acquisition after the Effective Date by any individual, entity or group (within the meaning of Section 13(d)(3) or (14)(d)(1) of the Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of more than 30% of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, including, but not limited to, by merger, consolidation or similar corporate transaction or by purchase; excluding, however, the following: (x) any such acquisition by the Company or Designated Subsidiaries, or (y) any such 7 acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or Designated Subsidiaries; or (b) the approval of the stockholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of more than 30% of the assets of the Company and Designated Subsidiaries on a consolidated basis (determined under generally accepted accounting principles in accordance with prior practice); excluding, however, such a sale or other disposition to a corporation with respect to which, following such sale or other disposition, (x) more than 70% of the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners of the outstanding Shares immediately prior to such sale or other disposition, (y) no Person (other than the Company, Designated Subsidiaries, and any employee benefit plan (or related trust) of the Company or Designated Subsidiaries or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 70% or more of the outstanding Shares) will beneficially own, directly or indirectly, 70% or more of the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (z) individuals who were members of the board immediately prior to the sale or other disposition will constitute at least a majority of the members of the board of directors of such corporation. (c) within any 24 month period beginning on or after the Effective Date, the persons who were directors of the Company immediately before the beginning of such period ("Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of any successor to the Company, provided that, any director who was not a director as of the date hereof shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with approval of, at least two-thirds of the directors who qualified as Incumbent Directors either actually or by prior operation of this subsection, unless such election, recommendation or approval was a result of an actual or threatened election contest of the type contemplated by Regulation 14a-11 promulgated under the Exchange Act or any successor provision. VII. Effect of Termination of Directorship ------------------------------------- A. Death, Disability or Otherwise Ceasing to be a Director. ------------------------------------------------------- Except as otherwise provided herein, upon Termination of Directorship, other than for Cause, all outstanding Options then exercisable and not exercised by the Participant prior to such Termination of Directorship shall remain exercisable by the Participant or, in the case of death, by the Participant's estate or by the person given authority to exercise such 8 Options by his or her will or by operation of law, until the expiration of the Option in accordance with the terms of the Plan and grant. B. Cause. Upon Termination of Directorship for Cause, all ----- outstanding Options of such Participant shall immediately terminate and shall be null and void. C. Cancellation of Options. No Options that were not ----------------------- exercisable during the period such person serves as a director shall thereafter become exercisable upon a Termination of Directorship for any reason or no reason whatsoever, and such options shall terminate and become null and void upon a Termination of Directorship. VIII. Nontransferability of Options ----------------------------- Except as provided in the following sentence, no Option shall be transferable by the Participant otherwise than by will or under applicable laws of descent and distribution and during the lifetime of the Participant may be exercised only by the Participant or his or her guardian or legal representative. An Option shall also be transferable under a domestic relations order that is a "qualified domestic relations order", as defined in section 414(p) of the Code, but may thereafter not be further transferred except as provided in the prior sentence (with the alternate payee under such order being substituted for "Participant"). In addition, except as provided above, no Option shall be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and no Option shall be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate any Option, or in the event of any levy upon any Option by reason of any execution, attachment or similar process contrary to the provisions hereof, such Option shall immediately terminate and become null and void. Notwithstanding the "qualified domestic relations order" exception above, an Option shall not be transferable unless (i) such transfer is not considered a disposition within the meaning of Code Section 83 or (ii) such Option is not immediately exercisable in full on the date of grant. IX. Rights as a Stockholder ----------------------- A Participant (or a permitted transferee of an Option) shall have no rights as a stockholder with respect to any Shares covered by such Participant's Option until such Participant (or permitted transferee) shall have become the holder of record of such Shares, and no adjustments shall be made for dividends in cash or other property or distributions or other rights in respect to any such Shares, except as otherwise specifically provided in this Plan. 9 X. Termination, Amendment and Modification --------------------------------------- The Plan shall terminate at the close of business on the fifth anniversary of the Effective Date (the "Termination Date"), unless terminated sooner as hereinafter provided, and no Option shall be granted under the Plan on or after that date. The termination of the Plan shall not terminate any outstanding Options that by their terms continue beyond the Termination Date. The Committee at any time or from time to time may amend this Plan to effect (i) amendments necessary or desirable in order that this Plan and the Options shall conform to all applicable laws and regulations, and (ii) any other amendments deemed appropriate, provided that no such amendment may be made if either the authority to make such amendment or the amendment would cause the Eligible Directors to cease to be "disinterested persons" with regard to this Plan or any other stock option or other equity plan of the Company for purposes of Rule 16b-3 under the Act, and further provided that the provisions of the Plan relating to the amount, price and timing of, and eligibility for, awards shall not be amended more than once every six (6) months except to comport with changes in the Code and the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. Notwithstanding the foregoing, the Committee may not effect any amendment that would require the approval of the stockholders of the Company under Rule 16b-3 unless such approval is obtained. In no event, unless no longer required as a condition of compliance with the requirements of Rule 16b-3 under the Act, shall the Committee without the approval of stockholders normally entitled to vote for the election of directors of the Company: 1. increase the number of Shares available for grants under this Plan; 2. reduce the minimum exercise price at which any Option may be exercised; 3. change the requirements as to eligibility for participation under this Plan; 4. change the number of Options to be granted or the date on which such Options are to be granted; or 5. materially increase the benefits accruing to Participants hereunder. This Plan may be amended or terminated at any time by the stockholders of the Company. This Plan and any Options granted hereunder shall terminate and be void if this Plan does not receive the approval of the stockholders of the Company that may be required under Rule 16b-3 under the Act within one year after the Plan is adopted by the Board of Directors of the Company. Except as otherwise required by law or as provided in this plan, no termination, amendment or modification of this Plan may, 10 without the consent of the Participant or the permitted transferee of his or her Option, alter or impair the rights and obligations arising under any then outstanding Option. XI. Use of Proceeds --------------- The proceeds of the sale of Shares subject to Options under the Plan are to be added to the general funds of the Company and used for its general corporate purposes as the Board shall determine. XII. General Provisions ------------------ A. Right to Terminate Directorship. This Plan shall not impose ------------------------------- any obligations on the Company to retain any Participant as a director nor shall it impose any obligation on the part of any Participant to remain as a director of the Company. B. Trusts, etc. Nothing contained in the Plan and no action ------------ taken pursuant to the Plan (including, without limitation, the grant of any Option thereunder) shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and any Participant or the executor, administrator or other personal representative or designated beneficiary of such Participant, or any other persons. Any reserves that may be established by the Company in connection with the Plan shall continue to be part of the general funds of the Company, and no individual or entity other than the Company shall have any interest in such funds until paid to a Participant. If and to the extent that any Participant or such Participant's executor, administrator or other personal representative, as the case may be, acquires a right to receive any payment from the Company pursuant to the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. C. Notices. Any notice to the Company required by or in ------- respect of this Plan will be addressed to the Company at 17th Street and 2nd Avenue, Huntington, West Virginia 25703, Attention: Chief Financial Officer, or such other place of business as shall become the Company's principal executive offices from time to time. Each Participant shall be responsible for furnishing the Committee with the current and proper address for the mailing to such Participant of notices and the delivery to such Participant of agreements, Shares and payments. Any such notice to the Participant will, if the Company has received notice that the Participant is then deceased, be given to the Participant's personal representative if such representative has previously informed the Company of his or her status and address (and has provided such reasonable substantiating information as the Company may request) by written notice under this Section. Any notice required by or in respect of this Plan will be deemed to have been duly given when delivered in person or when dispatched by telegram or one business day after having been dispatched by a nationally recognized overnight courier service or three business days after having been mailed by United States registered or certified mail, 11 return receipt requested, postage prepaid. The Company assumes no responsibility or obligation to deliver any item mailed to such address that is returned as undeliverable to the addressee and any further mailings will be suspended until the Participant furnishes the proper address. D. Severability of Provisions. If any provisions of the Plan -------------------------- shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions of the Plan, and the Plan shall be construed and enforced as if such provisions had not been included. E. Payment to Minors, Etc. Any benefit payable to or for the ----------------------- benefit of a minor, an incompetent person or other person incapable of receipt thereof shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Company and their employees, agents and representatives with respect thereto. F. Headings and Captions. The headings and captions herein are --------------------- provided for reference and convenience only. They shall not be considered part of the Plan and shall not be employed in the construction of the Plan. G. Costs. The Company shall bear all expenses included in ----- administering this Plan, including expenses of issuing Common Stock pursuant to any Options hereunder. H. Controlling Law. The Plan shall be construed and enforced --------------- according to the laws of the State of Delaware. I. Section 16(b) of the Act. All elections and transactions ------------------------ under the Plan by persons subject to Section 16 of the Act involving shares of Common Stock are intended to comply with all exemptive conditions under Rule 16b-3 under the Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void. The Committee may establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Act, as it may deem necessary or proper for the administration and operation of the Plan and the transaction of business thereunder. XIII. Issuance of Stock Certificates; Legends; Payment of Expenses ---------------------------- A. Stock Certificates. Upon any exercise of an Option and ------------------ payment of the exercise price as provided in such Option, a certificate or certificates for the Shares as to which such Option has been exercised shall be issued by the Company in the name of the person or persons exercising such Option and shall be delivered to or upon the 12 order of such person or persons, subject, however, in the case of Options exercised pursuant to Section V(C)3 hereof, to the merger, consolidation, dissolution or liquidation triggering the rights under that Section. B. Legends. Certificates for Shares issued upon exercise of an ------- Option shall bear such legend or legends as the Committee, in its sole discretion, determines to be necessary or appropriate to prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act or to implement the provisions of any agreements between the Company and the Participant with respect to such Shares. C. Payment of Expenses. The Company shall pay all issue or ------------------- transfer taxes with respect to the issuance or transfer of Shares, as well as all fees and expenses necessarily incurred by the Company in connection with such issuance or transfer and with the administration of the Plan. XIV. Listing of Shares and Related Matters ------------------------------------- If at any time the Board or the Committee shall determine in its sole discretion that the listing, registration or qualification of the Shares covered by the Plan upon any national securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the grant of Options or the award or sale of Shares under the Plan, no Option grant shall be effective and no Shares will be delivered, as the case may be, unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Board. XV. Withholding Taxes ----------------- The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock, payment by the Participant of any Federal, state or local taxes required by law to be withheld. 13 Exhibit A --------- STEEL OF WEST VIRGINIA, INC. OPTION AGREEMENT PURSUANT TO THE 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN -------------------------------------------------- [Eligible Director] Dear ________: Preliminary Statement - --------------------- As a director of Steel of West Virginia, Inc. (the "Company") on the Annual Date of Grant and pursuant to the terms of the Steel of West Virginia, Inc. 1995 Non-Employee Director Stock Option Plan, annexed hereto as Exhibit 1 (the "Plan"), you, as an Eligible Director (as defined in the Plan), have been automatically granted a nonqualified stock option (the "Option") to purchase the number of shares of the Company's common stock, par value $.01 per share (the "Common Stock"), set forth below. The terms of the grant are as follows: 1. Tax Matters. No part of the Option granted hereby is ----------- intended to qualify as an "incentive stock option" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. Grant of Option. Subject in all respects to the Plan and --------------- the terms and conditions set forth herein and therein including, without limitation, the provisions requiring shareholder approval, you are hereby granted an Option to purchase from the Company up to 2,000 Shares (as defined in the Plan), at a price per Share of $_________ (the "Option Price"). 3. Vesting. The Option may be exercised by you, in whole or in ------- part, at any time or from time to time on and after the first anniversary of the date of grant and prior to the expiration of the Option as provided herein and in the Plan. Upon the occurrence of a Change of Control (as defined in the Plan), the Option shall immediately become exercisable with respect to all Shares subject thereto, regardless of whether the Option has vested with respect to such Shares upon the later of such Change of Control and approval of the Plan by the stockholders of the Company. 4. Termination. Unless terminated as provided in the Plan, the ----------- Option shall expire on the tenth anniversary of this grant. 5. Restriction on Transfer of Option. Except as provided in --------------------------------- the Plan with regard to a "qualified domestic relations order", as defined in Section 414(p) of the Internal Revenue Code, the Option granted hereby is not transferable otherwise than by will or under the applicable laws of descent and distribution and during your lifetime may be exercised only by you or your guardian or legal representative. In addition, the Option shall not be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and the Option shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate the Option, or in the event of any levy upon the Option by reason of any execution, attachment or similar process contrary to the provisions hereof, the Option shall immediately become null and void. 6. Rights as a Shareholder. You shall have no rights as a ----------------------- shareholder with respect to any Shares covered by the Option until you shall have become the holder of record of the Shares, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such Shares, except as otherwise specifically provided for in the Plan. 7. Provisions of Plan Control. This grant is subject to all -------------------------- the terms, conditions and provisions of the Plan and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time. Any capitalized term used but not defined herein shall have the meaning ascribed to such term in the Plan. The annexed copy of the Plan is incorporated herein by reference. If and to the extent that this grant conflicts or is inconsistent with the terms, conditions and provisions of the Plan, the Plan shall control, and this grant shall be deemed to be modified accordingly. 8. Notices. Any notice or communication given hereunder shall ------- be in writing and shall be deemed to have been duly given when delivered in person when dispatched by Telegram or one business day after having been dispatched by a nationally recognized courier service or three business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, to the appropriate party at the address (or, in the case of notice to the Company, facsimile number) set forth below (or such other address as the party shall from time to time specify in accordance with Article XII(D) of the Plan.): If to the Company, to: Steel of West Virginia, Inc. 17th Street and 2nd Avenue Huntington, West Virginia 25703 Attention: Chief Financial Officer 2 If to you, to: the address indicated on the signature page at the end of this grant. Sincerely, STEEL OF WEST VIRGINIA, INC. By:__________________________ Authorized Officer Accepted: - ----------------------------- [PARTICIPANT] Address: 3 EX-11.1 6 Exhibit 11.1 Computation of Earnings Per Share Data The following formulas were used to calculate the earnings per share data shown in the Consolidated Statements of Income and Retained Earnings for the year ended December 31, 1995 and December 31, 1994 included in this Report. Calculation ----------- Year Ended - ---------- December 31, 1995 Net Income Net Income = $9,464,000 = $1.40 per common ----------------------- ---------- share Weighted average shares 6,782,127 of Common Stock for the period December 31, 1995 Net Income Net Income = $8,794,000 = $1.24 per common ----------------------- ---------- share Weighted average shares 7,091,360 of Common Stock for the period For purposes of calculating earnings per share, there were 6,782,127 and 7,091,360 weighted number of common shares outstanding during the twelve month periods ending December 31, 1995 and 1994. Effective April 1, 1995, the Company granted options of 79,500 shares of common stock. As of December 31, 1995, these common stock equivalents are not included in the earnings per share calculation as they have an anti-dilutive effect. EX-27 7 ART.5 FDS FOR FISCAL-YEAR-END 10-K
5 1,000 12-MOS DEC-31-1994 DEC-31-1995 100 0 13,148 692 17,095 34,474 67,764 (26,957) 95,123 18,960 11,978 0 0 71 55,344 95,123 129,341 129,341 107,191 107,191 0 55 1,642 15,717 6,253 9,464 0 0 0 9,464 1.40 1.40
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