SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934 - For the fiscal year ended December 31, 2002
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Commission file number 1-3919
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Keystone Consolidated Industries, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 37-0364250
- --------------------------------- ---------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5430 LBJ Freeway, Suite 1740
Three Lincoln Centre, Dallas, TX 75240-2697
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 458-0028
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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 $1.00 per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes No X
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The aggregate market value of the 5,077,977 shares of voting stock held by
nonaffiliates of the Registrant, as of June 28, 2002 (the last business day of
the Registrant's most-recently completed second fiscal quarter), was
approximately $5.1 million.
As of March 31, 2003, 10,068,450 shares of common stock were outstanding.
Documents incorporated by reference
-----------------------------------
None.
This Amendment No. 1 to the Annual Report on Form 10-K for the year ended
December 31, 2002 of Keystone Consolidated Industries, Inc. ("Keystone") is
filed to include the information required by Items 10, 11, 12 and 13 of Part III
of Form 10-K.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
Keystone's Restated Certificate of Incorporation currently provides for
Keystone's board of directors (the "Board of Directors") to be divided into
three classes. The bylaws of Keystone provide that the Board of Directors shall
consist of not less than five and not more than nine persons, as determined by
the Board of Directors from time to time. The Board of Directors has currently
set the number of directors at six. The Board of Directors is divided into three
classes, with each class currently consisting of two directors whose terms
expire at successive annual meetings. Keystone's current Board of Directors is
composed of Dr. Thomas E. Barry and William Spier, whose current terms are
scheduled to expire in 2003; Paul M. Bass, Jr. and J. Walter Tucker, Jr., whose
current terms are scheduled to expire in 2004; and Glenn R. Simmons and Steven
L. Watson, whose current terms are scheduled to expire in 2005.
A proposal to amend Keystone's Restated Certificate of Incorporation to
eliminate the classification of the Board of Directors ("Proposal 1") is to be
presented to Keystone's stockholders for approval at Keystone's 2003 annual
meeting of stockholders. If Proposal 1 is approved, this year's nominees, Dr.
Thomas E. Barry and William Spier, if elected, will be elected for terms
expiring in 2004 and all other Keystone directors will serve for terms expiring
in 2004. If Proposal 1 is not approved, this year's nominees, if elected, will
be elected for terms expiring in 2006 and all other Keystone directors will
serve for their current terms.
Set forth below is certain information concerning the directors of
Keystone.
THOMAS E. BARRY Director since 1989
Dr. Barry, age 59, is vice president for executive affairs at Southern
Methodist University and has been a professor of marketing in the Edwin L. Cox
School of Business at Southern Methodist University since prior to 1998. Dr.
Barry is also a director of Valhi, Inc. ("Valhi"), a publicly held diversified
holding company affiliated with Keystone. Dr. Barry is a nominee for a term
expiring at the 2006 annual meeting of stockholders (or at the 2004 annual
meeting of stockholders if Proposal 1 is approved).
WILLIAM SPIER Director since 1996
Mr. Spier, age 68, is president and chairman of Sutton Holding Corp., a
private investment firm, and has served in such capacity since prior to 1998.
Mr. Spier is chairman of the board of Empire Resources, Inc. and has served in
such capacity since September 1999. Mr. Spier is a nominee for a term expiring
at the 2006 annual meeting of stockholders (or at the 2004 annual meeting of
stockholders if Proposal 1 is approved).
PAUL M. BASS, JR. Director since 1989
Mr. Bass, age 67, is vice chairman of First Southwest Company, a privately
owned investment banking firm, and has served in such capacity since prior to
1998. Mr. Bass is also a director of CompX International Inc. ("CompX"), a
manufacturer of ergonomic computer support systems, precision ball bearing
slides and security products that is affiliated with Valhi, and chairman of the
board of MACC Private Equities Inc. Mr. Bass is currently serving as chairman of
the board of trustees of Southwestern Medical Foundation. Mr. Bass' term as a
director expires at the 2004 annual meeting of stockholders.
GLENN R. SIMMONS Director since 1986
Mr. Simmons, age 75, is chairman of the board of Keystone and has served in
such capacity since prior to 1998. Since prior to 1998, Mr. Simmons has served
as vice chairman of the board of directors of Contran Corporation, a privately
owned diversified holding company that is the parent corporation of Valhi and
Keystone ("Contran"). Mr. Simmons has been a director of Contran and an
executive officer and/or director of various companies related to Contran since
prior to 1998. He is vice chairman of the board of Valhi, chairman of the board
of CompX, a director of NL Industries, Inc. ("NL"), a titanium dioxide pigments
company that is affiliated with Valhi; and a director of Titanium Metals
Corporation ("TIMET"), a company engaged in the titanium metals industry that is
affiliated with Valhi. Valhi, CompX, NL and TIMET may be deemed to be affiliates
of Keystone. Mr. Simmons' term as a director expires at the 2005 annual meeting
of stockholders (or at the 2004 annual meeting of stockholders if Proposal 1 is
approved).
J. WALTER TUCKER, JR. Director since 1971
Mr. Tucker, age 77, is vice chairman of the board of Keystone and has served in
such capacity since prior to 1998. Mr. Tucker has served as a director,
president and chief executive officer of Tucker & Branham, Inc., a privately
owned real estate, mortgage banking and insurance firm since prior to 1998. Mr.
Tucker is also a director of Valhi. Since prior to 1998, he has also been an
executive officer and/or director of various companies related to Valhi and
Contran. Mr. Tucker's term as a director expires at the 2004 annual meeting of
stockholders.
STEVEN L. WATSON Director since 2000
Mr. Watson, age 52, has been president and a director of Valhi and Contran
since 1998 and chief executive officer of Valhi since 2002. Prior to 1998, he
served as vice president and secretary of Valhi and Contran. He is also a
director of CompX, NL and TIMET. Mr. Watson has served as an executive officer
and/or director of various companies related to Valhi and Contran since 1980.
Mr. Watson's term as a director expires at the 2005 annual meeting of
stockholders (or at the 2004 annual meeting of stockholders if Proposal 1 is
approved).
EXECUTIVE OFFICERS
In addition to Glenn R. Simmons as chairman of the board and J. Walter
Tucker, Jr. as vice chairman, the following are currently executive officers of
Keystone:
DAVID L. CHEEK, age 53, is president and chief executive officer of
Keystone and has served in such capacities since April 2003. He was president
and chief operating officer from October 2001 to April 2003. Mr. Cheek has
served as president, Keystone Steel & Wire, a division of Keystone, since March
2000 and was vice president of manufacturing, Keystone Steel & Wire, from March
1999 to March 2000. He was vice president of operations, Atlantic Steel,
Atlanta, Georgia from 1996 to 1999.
BERT E. DOWNING, JR., age 46, is vice president, chief financial officer,
corporate controller and treasurer of Keystone and has served in such capacities
since December 2002. He served as vice president - corporate controller and
treasurer since May 2001, as vice president and corporate controller since March
2000, and as corporate controller since prior to 1998.
SANDRA K. MYERS, age 59, has served as corporate secretary of Keystone and
as executive secretary of Contran since prior to 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Keystone's executive officers, directors and persons who own more than 10% of a
registered class of Keystone's equity securities to file reports of ownership
with the SEC and Keystone. Based solely on the review of the copies of such
reports filed with the SEC, Keystone believes that for 2002 its executive
officers, directors and 10% stockholders complied with all applicable filing
requirements under Section 16(a).
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION OF DIRECTORS
Directors of Keystone receive an annual retainer of $15,000, a fee of $750
per day for each Board of Directors meeting and/or committee meeting attended,
and reimbursement for reasonable expenses incurred in attending Board of
Directors and/or committee meetings. Messrs. Glenn R. Simmons and Steven L.
Watson resumed receiving fees for serving as directors in April 2002. The
Keystone Consolidated Industries, Inc. 1997 Long-Term Incentive Plan provides
for awards or grants of stock options, stock appreciation rights, restricted
stock, performance grants and other awards to key individuals, including
directors, performing services for Keystone or its subsidiaries. Under the 1997
Long-Term Incentive Plan, directors are annually granted stock options
exercisable for 1,000 shares of Keystone common stock, par value $1.00 per share
(the "Common Stock"). These options have an exercise price equal to the closing
sales price per share of Common Stock on the date of grant, have a term of ten
years and fully vest on the first anniversary of the date of grant. The
directors waived their rights to their 2002 annual grant of stock options, and,
accordingly, no annual grants were made in 2002. In addition to serving as
directors, Messrs. Simmons, Watson and Tucker provide consulting services to
Keystone. Keystone pays Contran for the consulting services provided by Messrs.
Simmons and Watson pursuant to Intercorporate Services Agreements approved
periodically between Contran and Keystone (each an "Intercorporate Services
Agreement"). Keystone pays Tucker & Branham, Inc. for the consulting services
provided by Mr. Tucker. See Item 13 - Certain Relationships and Related
Transactions.
EXECUTIVE COMPENSATION
The Summary Compensation Table set forth below provides information
concerning annual and long-term compensation paid by Keystone for services
rendered in all capacities to Keystone and its subsidiaries during 2002, 2001
and 2000 by each of the most highly compensated individuals who were executive
officers of Keystone at December 31, 2002 (the "named executive officers"). For
amounts Keystone incurred that were attributable to the services Glenn R.
Simmons provided Keystone in 2002, 2001 and 2000 under Intercorporate Services
Agreements, see Item 13 - Certain Relationships and Related Transactions.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation (1)
---------------
Awards
Annual Compensation ---------------
---------------------------------- Shares
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation (1) Options (#) Compensation
- -------------------------- ------ ------------- --------- ------------------ --------------- ---------------
David L. Cheek (2)....... 2002 $ 250,000 $ -0- $ -0- -0- $ 2,709 (3)
President and Chief 2001 203,388 -0- -0- -0- 1,534 (3)
Executive Officer 2000 173,269 -0- 235,280 (4) 27,000 3,400 (3)
Bert E. Downing, Jr....... 2002 200,000 -0- -0- -0- 35 (3)
Vice President, Chief 2001 170,000 -0- -0- -0- 1,918 (3)
Financial Officer, 2000 170,000 -0- -0- 15,000 4,758 (3)
Corporate Controller
and Treasurer
- --------------
(1) An amount for other annual compensation is disclosed only if the amount for
other annual compensation exceeds the level required for reporting pursuant
to Securities and Exchange Commission (the "SEC") rules.
(2) Mr. Cheek became an executive officer of Keystone as of March 24, 2000.
(3) All other compensation for the last three years for each of the following
named executive officers consisted of (i) Keystone's matching contributions
pursuant to Keystone's 401(k) Plan; and (ii) accruals to unfunded reserve
accounts attributable to certain limits under the Internal Revenue Code of
1986, as amended (the "Code"), with respect to the 401(k) Plan and
Keystone's pension plan, which amounts are payable upon the named executive
officer's retirement, the termination of his employment with Keystone or to
his beneficiaries upon his death; as follows:
Unfunded Reserve Account Accruals
--------------------------------------------------
Employer's Account Accruals Related Interest Accruals
401(k) to 401(k) and Pension Above 120% of the AFR
Named Executive Officer Year Contributions (a) Plan Limitations Rate (b) Total
- --------------------- ----- ----------------- ------------------------ ---------------------- -------------
David L. Cheek 2002 $ -0- $ 2,697 $ 12 $ 2,709
2001 -0- 1,534 -0- 1,534
2000 3,400 -0- -0- 3,400
Bert E. Downing, Jr. 2002 -0- -0- 35 35
2001 -0- 1,845 73 1,918
2000 3,400 1,311 47 4,758
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(a) Keystone did not make a matching contribution to the 401(k) plan for
2002 or 2001. Keystone's matching contribution to the 401(k) plan for
2000 was made in cash.
(b) The agreements for these unfunded reserve accounts provide that the
balance of such accounts accrue credits in lieu of interest compounded
quarterly. Pursuant to SEC rules, the amounts shown represent the
portion of the credit accruals to the unfunded reserve accounts that
exceeds 120% of the applicable federal long-term rate as prescribed by
the Code (the "AFR Rate"). The AFR Rate used for such computations was
the AFR Rate in effect on December 31, 2002, 2001 and 2000, for the
date that the credit accruals for 2002, 2001 and 2000, respectively,
were credited to the unfunded reserve account.
(4) Mr. Cheek's other annual compensation consists of certain relocation
expenses Keystone paid on his behalf, which includes an amount to pay his
related income taxes on Keystone's payment of certain of his relocation
expenses.
No Grants of Stock Options or Stock Appreciation Rights. Keystone did not
grant any stock options or stock appreciation rights ("SARs") during 2002.
Stock Option Exercises and Holdings. The following table provides
information, with respect to the named executive officers, concerning the value
of unexercised stock options for Common Stock held as of December 31, 2002. In
2002, no named executive officer exercised any stock options. Keystone has not
granted any SARs.
DECEMBER 31, 2002 OPTION VALUES
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Name December 31, 2002 (#) at December 31, 2002 (1)
- -------------------- ----------------------------- -------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
David L. Cheek 33,000 9,000 $ -0- $ -0-
Bert E. Downing, Jr. 37,000 5,000 -0- -0-
- ----------
(1) The values shown in the table are based on the $.53 per share closing price
of the Common Stock on December 31, 2002, as reported by the OTC Bulletin
Board, less the exercise price of the options.
Pension Plan. Keystone maintains a qualified, noncontributory defined
benefit plan which provides defined retirement benefits to various groups of
eligible employees including executive officers. Normal retirement age under
Keystone's pension plan is age 65. The defined benefit for salaried employees,
including officers, is based on a straight life annuity. An individual's monthly
benefit is the sum of the following: (a) for credited service prior to January
1, 1981, the amount determined by his or her average monthly cash compensation
for the five years of his or her highest earnings prior to January 1, 1981,
multiplied by 1.1%, multiplied by the years of credited service, plus (b) for
each year of service between 1980 and 1989, the amount determined by the sum of
1.2% multiplied by his or her average monthly cash compensation that year up to
the social security wage base and 1.75% multiplied by his or her average monthly
cash compensation that year in excess of the social security wage base, plus (c)
for each year subsequent to 1989, the amount determined by 1.2% multiplied by
his or her average monthly cash compensation that year, but not less than $14.00
per month.
The estimated annual benefits payable upon retirement at normal retirement
age for each of the named executive officers, assuming continued employment with
Keystone until normal retirement age at current salary levels are: David L.
Cheek, $36,847; and Bert E. Downing, Jr., $59,921.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is or has been an officer or
employee of Keystone or any of its subsidiaries.
REPORT ON EXECUTIVE COMPENSATION
Compensation Committee Report. During 2002, Keystone's chairman of the
board (the "COB") and/or the Compensation Committee (the "Committee")
administered matters regarding compensation of executive officers. The Committee
is comprised of directors who are neither officers nor employees of Keystone or
its subsidiaries.
It is Keystone's policy that employee compensation, including compensation
to executives, be at a level which allows Keystone to attract, retain, motivate
and reward individuals of training, experience and ability who can lead Keystone
in accomplishing its goals. It is also the Committee's policy that compensation
programs maintain a strong risk/reward ratio, with a significant component of
cash compensation being tied to Keystone's financial results, creating a
performance-oriented environment that rewards employees for achieving pre-set
financial performance levels. It is Keystone's policy to structure compensation
arrangements to be deductible for federal income tax purposes under applicable
provisions of the Code.
During 2002, Keystone's compensation program with respect to its executive
officers consisted of three components: base salary, incentive bonus, including
deferred compensation and stock option awards.
Base Salary. The COB and/or the Committee reviews base salaries for
executives at least annually. Base salaries for all salaried employees,
including executive officers of Keystone, have been established on a
position-by-position basis. Keystone's management conducts annual internal
reviews of salary levels in an attempt to rank base salary and job value of each
position. The ranges of salaries for comparable positions considered by
management were based upon management's general business knowledge and no
specific survey, study or other analytical process was utilized to determine
such ranges. Additionally, no specific companies' or groups of companies'
compensation were compared with that of Keystone, nor was an attempt made to
identify or otherwise quantify the compensation paid by the companies that
served as a basis for such individuals' general business knowledge. Base salary
levels are generally not increased except in instances of (i) promotions, (ii)
increases in responsibility or (iii) unwarranted discrepancies between job value
and the corresponding base salary. Keystone considers general base salary
increases from time to time when competitive factors so warrant. Over a period
of years, base salaries are designed to be below the median annual cash
compensation for comparable executives, but when combined with the other
components of compensation create a competitive or above median total
compensation package.
Incentive Bonus Program. Awards under Keystone's incentive bonus program
represent a significant portion of an executive's potential annual cash
compensation and are awarded at the discretion of the COB and/or the Committee.
Annual performance reviews are an important factor in determining management's
recommendation which is primarily based on each individual's performance and, to
a lesser extent, on Keystone's overall performance. No specific financial or
budget tests were applied in the measurement of individual performance. The
executive officer's performance is typically measured by the ability the
executive officer demonstrates in performing, in a timely and cost efficient
manner, the functions of the executive officer's position. Keystone's overall
performance is typically measured by Keystone's historical financial results. No
specific overall performance measures were used and there is no specific
relationship between overall Company performance and an executive officer's
incentive bonus.
Stock Options/Restricted Stock. An integral part of Keystone's total
compensation program is non-cash incentive awards in the form of stock options,
stock appreciation rights and restricted stock granted to executives. Stock
option grants, in particular, are considered an essential element of Keystone's
total compensation package for the executives. The Committee believes that stock
options, stock appreciation rights and restrictive stock awards provide an
earnings opportunity based on Keystone's success measured by Common Stock
performance. Additionally, awards establish an ownership perspective and
encourage the retention of executives. Incentive stock options are granted at a
price not less than 100% of the fair market value of such stock on the date of
grant. The exercise price of all options and the length of period during which
the options may be exercised are determined by the Compensation Committee. The
Compensation Committee also considers the number of stock options already
outstanding in granting new stock options. The Compensation Committee did not
grant any stock options in 2002.
The following individuals in the capacities indicated submit the foregoing
report:
Glenn R. Simmons Dr. Thomas E. Barry Paul M. Bass, Jr.
Chairman of the Board Chairman of the Member of the
Compensation Committee Compensation Committee
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly change in the
cumulative total stockholder return on Common Stock against the cumulative total
return of the S&P 500 Stock Index and the S&P Steel Index from December 31, 1997
to December 31, 2002. The graph shows the value at December 31 of each year
assuming an original investment of $100 and the reinvestment of dividends to
stockholders.
Comparison of Five Year Cumulative Total Stockholder Return Among
Keystone Consolidated Industries, Inc. Common Stock, the S&P 500
Index and the S&P Steel Index
[Performance Graph Goes Here]
December 31,
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1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- --------
Keystone $100 $ 68 $ 49 $ 11 $ 5 $ 4
S&P 500 Index 100 129 156 141 125 97
S&P 500 Steel Index 100 87 95 60 77 59
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF MANAGEMENT
As of the April 11, 2003, the record date for Keystone's 2003 annual
meeting of stockholders (the "Record Date"), Keystone's directors, the named
executive officers and the directors and executive officers as a group,
beneficially owned, as defined by the rules of the SEC, the shares of Common
Stock shown in the following table.
Common Stock
----------------------------------------
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership (1) Class (1)(2)
- -------------------------------------------------------------------- ------------------------ ------------
Thomas E. Barry..................................................... 9,000 (3)(4) *
Paul M. Bass, Jr.................................................... 14,000 (3)(4) *
David L. Cheek...................................................... 42,000 (3)(4) *
Bert E. Downing, Jr................................................. 44,007 (3)(4) *
Glenn R. Simmons.................................................... 255,150 (3)(4)(5) 2.5%
William Spier....................................................... 386,262 (3) 3.8%
J. Walter Tucker, Jr................................................ 160,450 (3)(4) 1.6%
Steven L. Watson.................................................... 3,250 (3)(4) *
All directors and executive officers as a group (9 persons) ...... 939,719 (3)(4)(5) 9.1%
- --------------------
* Less than 1%.
(1) All beneficial ownership is sole and direct except as otherwise set forth
herein. Information as to the beneficial ownership of Common Stock has
either been furnished to Keystone by or on behalf of the indicated persons
or is taken from reports on file with the SEC. The number of shares and
percentage of ownership of Common Stock for each person or group assumes
the exercise by such person or group (exclusive of the exercise by others)
of stock options that such person or group may exercise within 60 days
subsequent to the Record Date.
(2) The percentages are based on 10,068,450 shares of Common Stock outstanding
as of the Record Date.
(3) The shares of Common Stock shown as beneficially owned by such person or
group include the following number of shares such person or group has the
right to acquire upon the exercise of stock options granted pursuant to
Keystone's various stock option plans that such person or group may
exercise within 60 days subsequent to the Record Date:
Shares of
Common
Stock
Issuable
Upon the
Exercise
of Stock
Options On
or Before
Name of Beneficial Owner June 10, 2003
-------------------------------------------------------------------------- -------------------
Thomas E. Barry........................................................... 7,000
Paul M. Bass, Jr.......................................................... 7,000
David L. Cheek............................................................ 42,000
Bert E. Downing, Jr....................................................... 42,000
Glenn R. Simmons.......................................................... 139,500
William Spier............................................................. 7,000
J. Walter Tucker, Jr...................................................... 7,000
Steven L. Watson.......................................................... 1,000
All other executive officers of Keystone as a group (1 person)............ 22,000
(4) Excludes certain shares that such individual may be deemed to indirectly
and beneficially own as to which such individual disclaims beneficial
ownership. See footnote (2) to the "Security Ownership of Certain
Beneficial Owners" table for a description of such excluded shares.
(5) Glenn R. Simmons is a brother of Harold C. Simmons. See footnote (2) to the
"Security Ownership of Certain Beneficial Owners" table.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table and footnotes set forth the stockholders known to
Keystone to be beneficial owners, as defined by regulations of the SEC, of more
than 5% of the outstanding shares of Common Stock as of the Record Date. The
table and footnotes also set forth the shares of Keystone's Series A 10%
Cumulative Convertible Pay-In-Kind Preferred Stock, stated value $1,000 and no
par value per share (the "Series A Preferred Stock"), Contran and its
subsidiaries beneficially own as of the Record Date. See footnote (2) below for
information concerning individuals and entities that may be deemed to own
indirectly and beneficially those shares of Common Stock that Contran, Valhi and
NL directly and indirectly hold.
Common and
Series A
Common Stock Series A Preferred Stock Preferred
------------------------------------ ------------------------------- Stock
Amount and Amount and Combined
Nature of Nature of Percent
Beneficial Percent of Beneficial Percent of of
Beneficial Owner Ownership (1) Class (1) Ownership (1) Class (1) Class (1)
- ---------------------------- -------------- ---------- ------------- ----------- -----------
Contran Corporation and subsidiaries:
Contran Corporation (2) 4,109,159 (3) 40.8% 54,956 (3) 92.5% 75.0%
Valhi, Inc. (2) 326,364 (3) 3.2% -0- (3) -0-% 1.4%
NL Industries, Inc. (2) 326,050 (3) 3.2% -0- (3) -0-% 1.4%
--------- ------
4,761,573 (3) 47.3% 54,956 (3) 92.5% 77.7%
- --------------------
(1) The percentages are based on 10,068,450 shares of Common Stock and 59,399
shares of Series A Preferred Stock outstanding as of the Record Date.
Subject to Keystone's Restated Certificate of Incorporation, each share of
Series A Preferred Stock entitles its holder to convert such share into 250
shares of Common Stock (a conversion price equivalent to $4.00 per share of
the stated value). Currently, however, Keystone's Restated Certificate of
Incorporation only allows for the issuance of 12,000,000 shares of Common
Stock, of which 10,068,450 are currently issued and outstanding and Contran
alone has the right to convert all of its shares of Series A Preferred
Stock into an aggregate of 13,739,000 shares of Common Stock. As a result,
Keystone is seeking stockholder approval of a proposal to be presented at
Keystone's 2003 annual meeting of stockholders to increase Keystone's
authorized Common Stock to allow for the full conversion of the currently
outstanding Series A Preferred Stock ("Proposal 2"). Except as otherwise
provided by law, a share of Series A Preferred Stock does not entitle its
holder to voting rights. The combined percent of class assumes the approval
of Proposal 2 and the full conversion of only Contran's shares of Series A
Preferred Stock. The terms of the Series A Preferred Stock are set forth in
Exhibit 3.2 to this Annual Report on Form 10-K for the year ended December
31, 2002. All information is taken from or based upon ownership filings
made by such persons with the SEC or upon information provided by such
persons.
(2) The business address of Contran and Valhi is Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas 75240-2697. The business address of NL
is Two Greenspoint Plaza, 16825 Northchase Drive, Suite 1200, Houston,
Texas 77060-2544.
Contran, Valhi, NL, the Harold Simmons Foundation, Inc. (the "Foundation"),
The Combined Master Retirement Trust (the "Master Trust") and the spouse of
Harold C. Simmons are the direct holders of approximately 40.8%, 3.2%,
3.2%, 1.9%, 0.3% and 0.1%, respectively, of the outstanding Common Stock.
Contran is also the direct holder of approximately 92.5% of the outstanding
Series A Preferred Stock, which is convertible into approximately 57.7% of
the outstanding Common Stock assuming only Contran's conversion of all of
its Series A Preferred Stock and the approval of Proposal 2.
Valhi, Tremont LLC ("Tremont") and the spouse of Harold C. Simmons are the
direct holders of approximately 63.2%, 21.4% and 0.1%, respectively, of the
outstanding common stock of NL. Valhi is the sole member of Tremont.
Valhi Group, Inc. ("VGI"), National City Lines, Inc. ("National"), Contran,
the Foundation, the Contran Deferred Compensation Trust No. 2 (the "CDCT
No. 2") and the Master Trust are the direct holders of 77.6%, 9.1%, 2.9%,
1.3%, 0.4% and 0.1%, respectively, of the outstanding common stock of
Valhi. National, NOA, Inc. ("NOA") and Dixie Holding Company ("Dixie
Holding") are the direct holders of approximately 73.3%, 11.4% and 15.3%,
respectively, of the outstanding common stock of VGI. Contran and NOA are
the direct holders of approximately 85.7% and 14.3%, respectively, of the
outstanding common stock of National. Contran and Southwest Louisiana Land
Company, Inc. ("Southwest") are the direct holders of approximately 49.9%
and 50.1%, respectively, of the outstanding common stock of NOA. Dixie Rice
Agricultural Corporation, Inc. ("Dixie Rice") is the direct holder of 100%
of the outstanding common stock of Dixie Holding. Contran is the holder of
100% of the outstanding common stock of Dixie Rice and approximately 88.9%
of the outstanding common stock of Southwest.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of certain children and grandchildren of Harold
C. Simmons (the "Trusts"), of which Mr. Simmons is the sole trustee. As
sole trustee of the Trusts, Mr. Simmons has the power to vote and direct
the disposition of the shares of Contran stock held by the Trusts. Mr.
Simmons, however, disclaims beneficial ownership of any Contran shares that
the Trusts hold.
The Foundation directly holds approximately 1.9% of the outstanding shares
of Common Stock and 1.3% of the outstanding shares of Valhi common stock.
The Foundation is a tax-exempt foundation organized for charitable
purposes.
The Master Trust directly holds approximately 0.3% of the outstanding
shares of Common Stock and 0.1% of the outstanding shares of Valhi common
stock. Valhi established the Master Trust as a trust to permit the
collective investment by master trusts that maintain the assets of certain
employee benefit plans Valhi and related companies adopt. Mr. Simmons is
the sole trustee of the Master Trust and a member of the trust investment
committee for the Master Trust. Mr. Simmons is a participant in one or more
of the employee benefit plans that invest through the Master Trust.
Harold C. Simmons is the chairman of the board of NL, Tremont, Valhi, VGI,
National, NOA, Dixie Holding, Dixie Rice, Southwest, Contran and the
Foundation.
By virtue of the holding of the offices, the stock ownership and his
services as trustee, all as described above, Mr. Simmons may be deemed to
control such entities, and Mr. Simmons and certain of such entities may be
deemed to possess indirect beneficial ownership of the shares of Common
Stock or Series A Preferred Stock directly held by certain of such other
entities. Mr. Simmons, however, disclaims beneficial ownership of the
shares of Common Stock or Series A Preferred Stock beneficially owned,
directly or indirectly, by any of such entities, except to the extent of
his vested beneficial interest, if any, in any shares of Common Stock the
Master Trust directly holds.
Harold C. Simmons' spouse is the direct owner of 10,645 shares of Common
Stock and 69,475 shares of NL common stock. Mr. Simmons may be deemed to
share indirect beneficial ownership of such shares. Mr. Simmons disclaims
all such beneficial ownership.
Messrs. Barry and Tucker are directors of Valhi. Messrs. Glenn Simmons and
Watson are directors and executive officers of Valhi and Contran and
directors of NL. Messrs. Bass and Tucker are members of the trust
investment committee of the Master Trust. Messrs. David L. Cheek, Bert E.
Downing, Jr., Glenn Simmons, Harold Simmons and Watson are participants in
one or more of the employee benefit plans that invest through the Master
Trust. Each of such persons disclaims beneficial ownership of any shares of
Common Stock directly or indirectly owned by any of such entities, except
to the extent of such person's vested beneficial interest, if any, in any
shares of Common Stock the Master Trust directly holds.
The CDCT No. 2 directly holds approximately 0.4% of the outstanding Valhi
common stock. U.S. Bank National Association serves as the trustee of the
CDCT No. 2. Contran established the CDCT No. 2 as an irrevocable "rabbi
trust" to assist Contran in meeting certain deferred compensation
obligations that it owes to Harold C. Simmons. If the CDCT No. 2 assets are
insufficient to satisfy such obligations, Contran is obligated to satisfy
the balance of such obligations as they come due. Pursuant to the terms of
the CDCT No. 2, Contran (i) retains the power to vote the shares of Valhi
common stock held directly by the CDCT No. 2, (ii) retains dispositive
power over such shares and (iii) may be deemed the indirect beneficial
owner of such shares.
For purposes of calculating the outstanding shares of Valhi common stock as
of the Record Date, 1,000,000, 3,522,967 and 1,186,200 shares of Valhi
common stock held by Valmont Insurance Company, a wholly owned subsidiary
of Valhi ("Valmont"), NL and a subsidiary of NL, respectively, are excluded
from the amount of Valhi common stock outstanding. Pursuant to Delaware
corporate law, Valhi treats these excluded shares held by these majority
owned subsidiaries as treasury stock for voting purposes.
The business address of Tremont, VGI, National, NOA, Dixie Holding, the
Master Trust and the Foundation is Three Lincoln Centre, 5430 LBJ Freeway,
Suite 1700, Dallas, Texas 75240-2697. The business address of Dixie Rice is
600 Pasquiere Street, Gueydan, Louisiana 70542. The business address of
Southwest is 402 Canal Street, Houma, Louisiana 70360.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides summary information required by SEC rules as
of December 31, 2002 with respect to Keystone's equity compensation plans under
which Keystone's equity securities may be issued to employees or nonemployees
(such as directors, consultants, advisers, vendors, customers, suppliers and
lenders) in exchange for consideration in the form of goods or services. The
Keystone Consolidated Industries, Inc. 1992 Incentive Compensation Plan and the
Keystone Consolidated Industries, Inc. 1997 Long-Term Incentive Plan, both of
which have been approved by Keystone's stockholders, are the only such Keystone
equity compensation plans.
Column (A) Column (B) Column (C)
------------------ ------------------ -------------------------
Number of Securities
Remaining Available for
Future Issuance Under
Number of Securities to be Weighted-Average Equity Compensation Plans
Issued Upon Exercise of Exercise Price of (Excluding Securities
Outstanding Options, Outstanding Options, Reflected in
Plan Category Warrants and Rights Warrants and Rights Column (A))
- ---------------- ---------------------- -------------------- ------------------------
Equity compensation plans
approved by security
holders.................... 487,300 $8.18 208,000
Equity compensation plans
not approved by security
holders.................... -0- -0- -0-
Total...................... 487,300 $8.18 208,000
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As set forth in Item 12 under the caption "Security Ownership of Certain
Beneficial Owners," Harold C. Simmons, through Contran and other entities, may
be deemed to beneficially own approximately 49.6% of the outstanding Common
Stock as of the Record Date (78.7% assuming the approval of Proposal 2 and the
full conversion of only Contran's shares of Series A Preferred Stock) and,
therefore, may be deemed to control Keystone. Keystone and other entities that
may be deemed to be controlled by or affiliated with Mr. Simmons sometimes
engage in (a) intercorporate transactions such as guarantees, management and
expense sharing arrangements, shared fee arrangements, tax sharing agreements,
joint ventures, partnerships, loans, options, advances of funds on open account,
and sales, leases and exchanges of assets, including securities issued by both
related and unrelated parties, and (b) common investment and acquisition
strategies, business combinations, reorganizations, recapitalizations,
securities repurchases and purchases and sales (and other acquisitions and
dispositions) of subsidiaries, divisions or other business units, which
transactions have involved both related and unrelated parties and have included
transactions that resulted in the acquisition by one related party of a
publicly-held minority equity interest in another related party. Keystone
continuously considers, reviews and evaluates and understands that Contran and
related entities consider, review and evaluate transactions of the type
described above. Depending on the business, tax and other objectives then
relevant, it is possible that Keystone might be a party to one or more of such
transactions in the future. In connection with these activities, Keystone may
consider issuing additional equity securities or incurring additional
indebtedness. Keystone's acquisition activities have in the past and may in the
future include participation in the acquisition or restructuring activities
conducted by other companies that may be deemed to be controlled by Harold C.
Simmons. It is the policy of Keystone to engage in transactions with related
parties on terms, in the opinion of Keystone, no less favorable to Keystone than
could be obtained from unrelated parties.
No specific procedures are in place that govern the treatment of
transactions among Keystone and its related entities, although such entities may
implement specific procedures as appropriate for particular transactions. In
addition, under applicable principles of law, in the absence of stockholder
ratification or approval by directors who may be deemed disinterested,
transactions involving contracts among companies under common control must be
fair to all companies involved. Furthermore, directors owe fiduciary duties of
good faith and fair dealing to all stockholders of the companies for which they
serve.
Glenn R. Simmons, J. Walter Tucker, Jr. and Sandra K. Myers are not
salaried employees of Keystone. Keystone has contracted with Contran, on a fee
basis payable in quarterly installments, to provide certain administrative and
other services to Keystone in addition to the services of Mr. Simmons and Ms.
Myers, including consulting services of Contran executive officers pursuant to
the Intercorporate Services Agreement between Contran and Keystone, a copy of
which is included as Exhibit 10.1 in this Annual Report on Form 10-K for the
fiscal year ended December 31, 2002. The fee incurred during 2002 was
$1,025,000. During each of 2002, 2001 and 2000, the portion of the amounts
Keystone incurred pursuant to the Intercorporate Services Agreements
attributable to the services Mr. Glenn R. Simmons provided Keystone was
$219,000. Keystone compensates Tucker & Branham, Inc. for certain consulting
services of Mr. Tucker on an hourly basis as his services are requested. The
fees paid Tucker & Branham, Inc. during 2002 were $5,100.
Tall Pines Insurance Company ("Tall Pines"), Valmont and EWI RE, Inc.
("EWI") provide for or broker certain of Keystone's insurance policies. Tall
Pines is an indirect, wholly owned captive insurance company of Valhi. Valmont
is a wholly owned captive insurance company of Valhi. Parties related to Harold
C. Simmons own all of the outstanding common stock of EWI. Through December 31,
2000, a son-in-law of Harold C. Simmons managed the operations of EWI.
Subsequent to December 31, 2000, and pursuant to an amended agreement that may
be terminated with 90 days written notice by either party, this son-in-law
provides advisory services to EWI as requested by EWI, for which such son-in-law
is paid $11,875 per month and receives certain other benefits under EWI's
benefit plans. Such son-in-law is also currently chairman of the board of EWI.
Keystone generally does not compensate Tall Pines, Valmont or EWI directly for
insurance, but understands that, consistent with insurance industry practice,
Tall Pines, Valmont and EWI receive commissions for their services from the
insurance and reinsurance underwriters. During 2002, Keystone and its
subsidiaries paid approximately $2.2 million for policies provided or brokered
by Tall Pines, Valmont and/or EWI. These amounts principally include payments
for reinsurance and insurance premiums paid to unrelated third parties, but also
include commissions paid to Tall Pines, Valmont and EWI. In Keystone's opinion,
the amounts that Keystone and its subsidiaries paid for these insurance policies
are reasonable and similar to those they could have obtained through unrelated
insurance companies and/or brokers. Keystone expects that these relationships
with Tall Pines, Valmont and EWI will continue in 2003.
Dallas Compressor Company, a subsidiary of Contran, sells compressors and
related services to Keystone. During 2002, Keystone purchased products and
services from Dallas Compressor Company in the amount of $267.
Aircraft services were purchased from Valhi in the amount of $74,000 for
the year ended December 31, 2002.
During 2002, Garden Zone, a 51% owned subsidiary of Keystone, paid
approximately $60,000 to one of its other owners for accounting and financial
services.
EWP Financial LLC, a wholly owned subsidiary of Contran, has agreed to loan
Keystone up to an aggregate of $6 million through June 30, 2003. Borrowings bear
interest at the prime rate plus 3%, and are collateralized by the stock of
Engineered Wire Products, Inc., a wholly owned subsidiary of Keystone. In
addition, Keystone pays a commitment fee of .375% on the unutilized portion of
the facility. At December 31, 2002, no amounts were outstanding under the
facility, and $6 million was available for borrowing by Keystone. The
independent directors of Keystone approved the terms of this loan. During 2002,
Keystone paid Contran unused line fees of $23,000 related to this facility.
In the opinion of management and the Board of Directors, the terms of the
transactions described above were no less favorable to Keystone than those that
could have been obtained from an unrelated entity.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
(Registrant)
Date: April 29, 2003 By: /s/ Bert E. Downing, Jr.
-----------------------------------
Bert E. Downing, Jr.
Vice President, Chief Financial
Officer, Corporate Controller and
Treasurer
(Principal Financial and Accounting
Officer)
I, David L. Cheek, the President and Chief Executive Officer of Keystone
Consolidated Industries, Inc., certify that:
1) I have reviewed this Annual Report on Form 10-K/A (Amendment No. 1) of
Keystone Consolidated Industries, Inc.; and
2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report.
Date: April 29, 2003
/s/ David L. Cheek
- ------------------
David L. Cheek
President and Chief Executive Officer
I, Bert E. Downing, Jr., the Vice President, Chief Financial Officer, Corporate
Controller and Treasurer of Keystone Consolidated Industries, Inc., certify
that:
1) I have reviewed this Annual Report on Form 10-K/A (Amendment No. 1) of
Keystone Consolidated Industries, Inc.; and
2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report.
Date: April 29, 2003
/s/ Bert E. Downing, Jr.
- ------------------------
Bert E. Downing, Jr.
Vice President, Chief Financial Officer, Corporate Controller and Treasurer