<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration No. 333-51979
PROSPECTUS
DATED MAY 14, 1998
OFFER TO EXCHANGE
10 1/2% SENIOR EXCHANGE NOTES DUE 2005
FOR
ALL OUTSTANDING
10 1/2% SENIOR NOTES DUE 2005
($350,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
OF
WHX CORPORATION
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON JUNE 11, 1998, UNLESS EXTENDED
------------------------
SEE "RISK FACTORS" IMMEDIATELY FOLLOWING THE PROSPECTUS SUMMARY ON PAGE 18
FOR A DISCUSSION OF CERTAIN INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION
WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE NEW NOTES.
IF ANY HOLDER OF OLD NOTES IS AN AFFILIATE OF THE COMPANY, IS ENGAGED IN OR
INTENDS TO ENGAGE IN OR HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO
PARTICIPATE IN THE DISTRIBUTION OF THE NEW NOTES TO BE ACQUIRED IN THE EXCHANGE
OFFER, SUCH HOLDER (I) COULD NOT RELY ON THE APPLICABLE INTERPRETATIONS OF THE
COMMISSION AND (II) MUST COMPLY WITH THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT IN CONNECTION WITH ANY RESALE TRANSACTION.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS MAY 14, 1998
(Continued on next page)
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(Cover page continued)
WHX Corporation, a Delaware corporation (the "Company"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Exchange Offer"),
to exchange $1,000 principal amount of its 10 1/2% Senior Exchange Notes Due
2005 (the "New Notes") for each $1,000 principal amount of its outstanding
10 1/2% Senior Notes Due 2005 (the "Old Notes"). The offer and sale of the New
Notes have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to the Registration Statement (as defined herein) of
which this Prospectus constitutes a part. As of May 14, 1998, $350,000,000
aggregate principal amount of the Old Notes was outstanding. The Exchange Offer
is being made pursuant to the terms of the registration rights agreement (the
"Registration Rights Agreement") dated April 7, 1998, by and between the
Company, Donaldson, Lufkin & Jenrette Securities Corporation ("Donaldson, Lufkin
& Jenrette") and Citicorp Securities, Inc. ("Citicorp," together with Donaldson,
Lufkin & Jenrette, the "Initial Purchasers"), pursuant to the terms of the
Purchase Agreement dated March 31, 1998, by and between the Company and the
Initial Purchasers. The New Notes and the Old Notes are collectively referred to
herein as the "Notes." As used herein, the term "Holder" means a holder of the
Notes.
THE NOTES ARE SENIOR UNSECURED OBLIGATIONS OF THE COMPANY. WHX is a
holding company, substantially all of whose assets consist of the stock of its
subsidiaries, and, therefore, the Notes will be effectively subordinated to all
outstanding indebtedness and other liabilities, including trade payables, of
WHX's subsidiaries, which subsidiaries will not guarantee or otherwise be liable
with respect to the Notes. As of December 31, 1997, on a pro forma basis after
giving effect to the Transactions (as defined), WHX would have had approximately
$350.0 million (excluding margin borrowings) of indebtedness outstanding and
WHX's subsidiaries would have had approximately $670.5 million (excluding margin
borrowings) of indebtedness outstanding.
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the
date the Exchange Offer expires, which will be June 11, 1998, unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. The Exchange Offer is not conditioned upon any aggregate minimum principal
amount of Old Notes being tendered for exchange. However, the Exchange Offer is
subject to certain conditions, which may be waived by the Company, and to the
terms and provisions of the Registration Rights Agreement. Old Notes may be
tendered only in denominations of $1,000 aggregate principal amount and integral
multiples thereof. The Company has agreed to pay the expenses of the Exchange
Offer. See "The Exchange Offer."
Any waiver, extension or termination of the Exchange Offer will be publicly
announced by the Company through a release to the Dow Jones News Service and as
otherwise required by applicable law or regulations.
The Notes were issued in a private placement (the "April Offering") under
an indenture (the "Indenture"), dated as of April 7, 1998, by and among the
Company and Bank One Trust Company, N.A. (in such capacity, the "Trustee"). The
New Notes will be obligations of the Company and are entitled to the benefits of
the Indenture, including the accrual of interest from the time of their
issuance. The net proceeds of the April Offering were applied to fund a portion
of the Acquisition (as defined) of Handy & Harman ("H&H"), a New York
corporation, by HN Acquisition Corporation ("HN Acquisition"), a New York
corporation and a wholly-owned subsidiary of the Company.
The form and terms of the New Notes are identical in all material respects
to the form and terms of the Old Notes, except that the offer and sale of the
New Notes have been registered under the Securities Act. Any Old Notes not
tendered and accepted in the Exchange Offer will remain outstanding and will be
entitled to all the rights and preferences and will be subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the Holders of Old Notes will continue to be subject to the
existing restrictions upon transfer thereof and the Company will have no further
obligation to such Holders to provide for the registration under the Securities
Act of the offer and sale of the Old Notes held by them. Following the
completion of the Exchange Offer, none of the Notes will be entitled to the
contingent increase in interest rate provided pursuant to the Registration
Rights Agreement. See "The Exchange Offer."
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(Cover page continued)
The Notes will mature on April 15, 2005. Interest on the Notes will be paid
in cash at a rate of 10 1/2% per annum on April 15 and October 15 of each year
commencing on October 15, 1998.
The Notes will be redeemable at the option of the Company, in whole or in
part, on or after April 15, 2002, initially at 105.250% of their principal
amount, plus accrued and unpaid interest, declining to 100% of their principal
amount, plus accrued and unpaid interest on or after April 15, 2004. In
addition, upon a Change of Control (as hereinafter defined), the Company will be
required to make an offer to purchase the Notes at a purchase price equal to
101% of their principal amount plus accrued and unpaid interest and liquidated
damages, if any. See "Description the New Notes--Mandatory Redemption,"
"--Optional Redemption," and "--Repurchase at the Option of Holders."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
that New Notes issued pursuant to this Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by a Holder thereof
other than (i) a broker-dealer who purchased such Old Notes directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an "affiliate" (within the meaning
of Rule 405 of the Securities Act) of the Company, without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the Holder is acquiring the New Notes in the ordinary course of its
business and is not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the New Notes. Holders of Old
Notes who tender in the Exchange Offer with the intention to participate in a
distribution of the New Notes may not rely upon the position of the staff of the
Commission enunciated in the above-referenced no-action letters, and, in the
absence of an exemption, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Holders of Old Notes wishing to participate in the Exchange
Offer must represent to the Company in the Letter of Transmittal that such
conditions have been met.
Each broker-dealer (other than an "affiliate" of the Company) that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the consummation of the Exchange Offer, it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution." Any broker-dealer who is an
affiliate of the Company may not rely on such no-action letters and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction.
The New Notes constitute a new issue of securities with no established
trading market.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered Holders of Old Notes as of May 14, 1998.
The Company will not receive any proceeds from the Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus and the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Exchange Agent (as defined herein). This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy the New
Notes in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. The delivery of this Prospectus
shall not, under any circumstances, create any implication that the information
herein is correct at any time subsequent to its date.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Special Note Regarding Forward-Looking
Statements.......................... 4
Prospectus Summary.................... 5
Risk Factors.......................... 18
The Exchange Offer.................... 24
Use of Proceeds....................... 30
Capitalization........................ 31
Unaudited Pro Forma Consolidated
Financial Data...................... 32
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Selected Consolidated Financial
Data................................ 36
Certain Relationships and Related
Transactions; Transactions Between
the Company and Subsidiaries........ 38
Description of Principal
Indebtedness........................ 39
Description of the New Notes.......... 43
Certain U.S. Federal Income Tax
Consequences........................ 68
Plan of Distribution.................. 71
Legal Matters......................... 72
Experts............................... 72
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the New Notes offered in the
Exchange Offer. For the purposes hereof, the term "Registration Statement" means
the original Registration Statement and any and all amendments thereto. In
accordance with the rules and regulations of the Commission, this Prospectus
does not contain all of the information set forth in the Registration Statement
and the schedules and exhibits thereto. Each statement made in this Prospectus
concerning a document filed as an exhibit to the Registration Statement is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions, although all material terms of such documents are set forth
herein. For further information pertaining to the Company and the New Notes
offered in the Exchange Offer, reference is made to such Registration Statement,
including the exhibits and schedules thereto and the financial statements, notes
and schedules filed as a part thereof. The Registration Statement (and the
exhibits and schedules thereto) may be inspected and copied at the public
reference facilities maintained by the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, or
at its regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, Suite 1300, New York, New York
10048. Any interested party may obtain copies of all or any portion of the
Registration Statement and the exhibits thereto at prescribed rates from the
Public Reference Section of the Commission at its principal office at Judiciary
Plaza, 450 Fifth Street, Room 1024, Washington, D.C. 20549. In addition,
registration statements and other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly
available through the Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov.
The Company is, and upon effectiveness of this Registration Statement, will
be, subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files reports
and other information with the Commission. Such reports and other information
can be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
reports and other information may also be inspected at the offices of the New
York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New York
10005. The Company's Common Stock, $.01 par value (the "Common Stock"), Series A
Convertible Preferred Stock, $.10 par value (the "Series A Preferred Stock") and
Series B Convertible Preferred Stock, $.10 par value (the "Series B Preferred
Stock") are listed on the NYSE.
The Indenture requires the Company to file with the Commission the annual,
quarterly and other reports required by Sections 13(a) and 15(d) of the Exchange
Act. The Company will supply without cost to each Holder of Notes, and file with
the Trustee under the Indenture, copies of the audited financial statements,
quarterly reports and other reports that the Company is required to file with
the Commission pursuant to Sections 13(a) and 15(d) of the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, as amended on Form 10-K/A on April 30, 1998, Handy & Harman's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 (the "H&H 10-K")
and all other reports filed by the Company and Handy & Harman pursuant to
Section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year
ended December 31, 1997 are incorporated by reference in this Prospectus and
shall be deemed to be a part hereof. All documents filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), subsequently filed by the Company prior to the
termination of this Exchange Offer, are deemed to be incorporated by reference
in this Prospectus and shall be deemed to be a part hereof from the date of
filing of such documents.
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The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents. Written requests for such copies should
be directed to WHX Corporation at 110 East 59th Street, New York, New York
10022, Attention: Chief Financial Officer. Oral requests should be directed to
such individual (telephone number (212) 355-5200).
------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made hereby, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the securities offered hereby to any person in
any state or other jurisdiction in which such offer or solicitation is unlawful.
The delivery of this Prospectus at any time does not imply that information
contained herein is correct as of any time subsequent to its date.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE COMPANY AT 110 EAST 59TH STREET, NEW YORK, NEW YORK 10022, ATTENTION:
SECRETARY, (212) 355-5200. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE NO LATER THAN JUNE 4, 1998.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made in
this Prospectus. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, through the use of words or phrases such as
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimated," "intends," "plans," "projection" and "outlook") are not historical
facts and may be forward-looking and, accordingly, such statements involve
estimates, assumptions and uncertainties which could cause actual results to
differ materially from those expressed in the forward-looking statements.
Accordingly, any such statements are qualified in their entirety by reference
to, and are accompanied by, the factors discussed throughout this Prospectus,
and particularly in the risk factors set forth herein under "Risk Factors."
Among the key factors that have a direct bearing on the Company's results of
operations are the holding company structure of the Company and limitations on
access to cash flow, the significant outstanding indebtedness of the Company,
the impact of the Company's recently settled ten-month strike, the resumption of
steel-making operations, sensitivity of results of operations to realized steel
prices, the possible monetary and injunctive penalties in connection with an SEC
enforcement action against the Company, joint venture obligations, substantial
capital expenditure requirements, substantial employee postretirement
obligations and possible inability to merge pension plans, uncertainty of impact
of future collective bargaining agreements and possibility of strikes, among
others. These and other factors are discussed herein under "Risk Factors" and
elsewhere in this Prospectus.
The risk factors described herein could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements of the
Company made by or on behalf of the Company and investors, therefore, should not
place undue reliance on any such forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
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PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to, and should be
read in conjunction with, the more detailed information and consolidated
financial statements (including notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise indicated, the "Transactions" refer collectively to
the April Offering, the Tender Offer (as defined) and the Merger (as defined).
THE COMPANY
OVERVIEW
The Company is a holding company that has been structured to acquire and
operate a diverse group of businesses on a decentralized basis, with a corporate
staff providing strategic direction and support. The Company's primary business
currently is Wheeling-Pittsburgh Corporation (together with its consolidated
subsidiaries, "WPC"), a vertically integrated manufacturer of value-added flat
rolled steel products. The Company's other businesses include Unimast
Incorporated ("Unimast"), a leading manufacturer of steel framing and other
products for commercial and residential construction, and WHX Entertainment
Corp. ("WHX Entertainment"), a co-owner of a racetrack and video lottery
facility located in Wheeling, West Virginia. In conjunction with the Offering,
the Company acquired H&H, a diversified manufacturing company whose strategic
business segments encompass, among others, specialty wire and tubing, and
precious metals plating, stamping and fabrication. The Company believes that its
businesses are characterized by leading positions in their respective niches
resulting from low cost structures, strong managements, high quality and
service, and extensive offerings of value-added products.
The Company's business strategy is to enhance the growth and profitability
of each of its businesses and to build upon the strengths of those businesses
through product line and other strategic acquisitions. Key elements of this
strategy have been the expansion of downstream operations, reorganization of
acquired businesses, facilities expansion and the acquisition of complementary
product lines. For example, WPC has expanded its downstream operations by
acquiring several fabricating facilities to enhance profit margins and reduce
exposure to downturns in steel demand.
WHEELING-PITTSBURGH CORPORATION
WPC is a vertically integrated manufacturer of predominately value-added
flat rolled steel products. WPC sells a broad array of value-added products,
including cold rolled steel, tin and zinc-coated steels and fabricated steel
products. WPC's products are sold to the construction industry, steel service
centers, converters, processors, and the container, automotive and appliance
industries.
The Company believes that WPC is one of the low cost domestic flat rolled
steel producers. WPC's low cost structure is the result of: (i) the
restructuring of its work rules and manning requirements under its recently
negotiated, long-term collective bargaining agreement (the "New Labor
Agreement") with the United Steelworkers of America ("USWA"), which settled
WPC's ten-month strike in August 1997 (the "Strike"); (ii) the strategic balance
between its basic steel operations and its finishing and fabricating facilities;
and (iii) its efficient production of low cost, high quality metallurgical coke.
The Company believes that WPC's New Labor Agreement is one of the most
flexible in the industry. The new work rule package affords WPC substantially
greater flexibility in reducing its overall workforce and assigning and
scheduling work, thereby reducing costs and increasing efficiency. Furthermore,
WPC has achieved pre-Strike steel production levels with approximately 850 fewer
employees (a reduction of approximately 20% in its hourly workforce). Finally,
the Company believes the New Labor Agreement's five year term provides WPC with
a significant advantage, since a majority of WPC's integrated steel competitors
have labor contracts that expire in 1999.
WPC has structured its operations so that its hot strip mill and downstream
operations have greater capacity than its raw steel making operations. WPC
therefore can purchase slabs, if available at competitive prices, and ship at
greater than 100% of its internal production capacity in periods of high demand,
while
5
<PAGE> 9
maintaining the ability to curtail such purchases and still operate its basic
steel facilities at or near capacity during periods of lower demand. WPC
believes this flexibility results in enhanced profitability throughout an
economic cycle. WPC also believes that it produces metallurgical coke at a
substantially lower cost than do other coke manufacturers because of its
proximity to high quality coal reserves and its efficient coke producing plant.
This reduces WPC's costs and, if coke demand remains high, allows WPC to sell
coke profitably in the spot and contract markets.
WPC conducts its operations primarily through two operating units, its
steel division (the "Steel Division") and Wheeling Corrugating Company
("Wheeling Corrugating"). The Steel Division sells flat rolled steel products
such as hot rolled, cold rolled, coated and tin mill steel. Wheeling
Corrugating, WPC's primary downstream operation, is a leading fabricator of
roll-formed products primarily for the construction and agricultural industries.
As part of WPC's strategy to expand its downstream operations, WPC has acquired
several fabricating facilities to enhance profit margins and reduce exposure to
downturns in steel demand. Other important examples of WPC's downstream
operations are its joint venture interests in Wheeling-Nisshin Inc.
("Wheeling-Nisshin") and Ohio Coatings Company ("OCC"). Wheeling-Nisshin, in
which WPC owns a 35.7% interest, produces and ships from its state-of-the-art
production facility a diverse line of galvanized, galvannealed, galvalume and
aluminized products, principally to steel service centers and the construction
and automotive industries. OCC, in which WPC owns a 50.0% interest, operates a
new tin coating facility that commenced commercial production in January 1997.
WPC has long-term contracts to supply up to 75% of Wheeling-Nisshin's steel
requirements and approximately 90% of OCC's. These downstream operations and
joint ventures are integral to WPC's strategy of increasing shipments of higher
value-added steel products while decreasing dependence on hot rolled coils, a
lower-margin commodity steel product.
By June 30, 1998, the Company expects WPC to be producing and shipping at
its pre-Strike production levels and shipping its historical mix of products.
BUSINESS STRATEGY
WPC's business strategy includes the following initiatives:
Improve Cost Structure. The New Labor Agreement allowed WPC to eliminate
850 hourly positions (approximately 20% of its pre-Strike hourly workforce).
These reductions, combined with the significantly more flexible work rules under
the New Labor Agreement, allow it to operate at pre-Strike levels with 850 fewer
employees. As a result, WPC anticipates substantial cost savings and
productivity improvements when operating at pre-Strike production and shipment
levels. In addition, WPC has directed its capital expenditures towards upgrading
and modernizing its steelmaking facilities, with a goal toward increasing
productivity. These expenditures include modernization of its hot and cold
rolling facilities and a major reline in 1995 of its No. 5 blast furnace located
in Steubenville, Ohio. This reline increased productivity and provided WPC with
the ability to produce 100% of the hot metal necessary to satisfy its caster
production requirements from two rather than three blast furnaces. WPC's ability
to produce low cost, high quality metallurgical coke, in excess of its own
requirements, allows it to maintain its own low costs and benefits the Company
through sale of the excess coke.
Expand Production of Value-Added Products. WPC intends to continue to
expand its sale of value-added products such as coated and fabricated steels in
order to improve profit margins and reduce its exposure to commodity steel
market volatility. This strategy is evidenced by WPC's expansion of Wheeling
Corrugating and its emphasis on joint ventures, such as Wheeling-Nisshin and
OCC, which give WPC access to downstream markets through long-term supply
contracts. WPC's total shipments of value-added products as a percentage of
total shipments (including sales of Wheeling Corrugating and sales to
Wheeling-Nisshin) increased from 67.9% in 1993 to 74.3% in 1997. WPC will
continue to target strategic acquisitions and joint ventures that support WPC's
sales of value-added products.
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UNIMAST AND WHX ENTERTAINMENT
In March 1995, the Company acquired Unimast, a leading manufacturer of
steel framing and related accessories for commercial and residential building
construction. Unimast uses galvanized steel to manufacture steel framing
components for wall, floor and roofing systems, in addition to other roll formed
expanded metal construction accessories. In January 1998, Unimast expanded its
business through the acquisition of Clinch-On Products, Inc. ("Clinch-On"), a
manufacturer of steel cornerbead and trims for both the non-residential and
residential construction markets.
In October 1994, WHX Entertainment purchased a 50.0% interest in the
operations of Wheeling-Downs Racing Association ("Wheeling-Downs").
Wheeling-Downs operates a racetrack and video lottery facility located in
Wheeling, West Virginia.
HANDY & HARMAN
H&H is a diversified industrial manufacturing company with six major
business lines: (i) electronic materials; (ii) specialty wire; (iii) specialty
tubing; (iv) specialty fasteners; (v) specialty fittings and connectors for gas
and water utility distribution; and (vi) precious metals fabrication. H&H's
products are sold to the industrial electronics, semiconductor, computer,
telecommunications, automotive, home appliance, construction, utility and
medical device industries, and H&H is a leader in many of the market niches in
which it competes. For the fiscal year ended December 31, 1997, H&H had sales of
$451.1 million and EBITDA of $54.7 million.
Electronic Materials. The electronic materials group is a fully integrated
manufacturer of precision electroplated materials and stamped parts, which often
include precious and non-precious metal plated surfaces, for use in the
semiconductor, telecommunications, automotive, electronics, and computer
industries. The group offers unique "one-stop shopping" for tooling, stamping,
plating and insert molding to high technology customers and is a leader among
non-captive suppliers in the development and production of electroplated
materials for connector components.
Specialty Wire. The specialty wire group is a leading producer of wire
drawn from stainless steel and other corrosion and temperature resistant alloys,
with special expertise in fine wire diameters, and serves both domestic and
international markets for the telecommunications, automotive, chemical,
petrochemical, medical, food processing, marine, construction, aerospace and
nuclear industries.
Specialty Tubing. The specialty tubing group manufactures small diameter
stainless steel, carbon steel and specialty alloy tubing in straight lengths and
coils. It is a world leader in seamless, long coil drawing technology and is an
increasingly important supplier to the medical device industry, particularly in
tubular components for laparoscopic and endoscopic surgical instrumentation,
joint replacement and implantation applications. The stainless steel based
tubing businesses serve the semiconductor fabrication, electronics, medical,
food processing, oil field sources, petrochemical, aerospace, instrumentation
and small appliance markets. The group also specializes in welded carbon steel
tubing with a primary focus on the refrigerator condenser industry, where H&H is
a significant supplier to major refrigeration OEMs. The specialty tubing group
has achieved consistent growth and relatively high operating margins on the
strength of its product technology and quality and meaningful penetration into
higher value-added tubing segments.
Specialty Fasteners. In February 1997, H&H acquired Olympic Manufacturing
Group ("Olympic"), a leading domestic manufacturer and supplier of a broad line
of specialty fasteners and mechanical fastening systems for the commercial roof
industry. Products are sold to roofing and building products distributors
throughout the country and under private label to roofing system manufacturers.
Specialty Fittings and Connectors. Continental Industries Inc., a
subsidiary of H&H, manufactures products sold primarily to natural gas
utilities. The business unit produces a wide range of steel and plastic pipe
fittings used to connect utility main lines to service lines and sells
exothermic welding products under the thermOweld(TM) name which are used for
electrical grounds and to create permanent fused metal joints.
7
<PAGE> 11
Precious Metals Fabrication. The precious metals fabrication group is an
industry leader in the supply of precious metals and metal alloys to industrial
manufacturers and is one of the largest fabricators of wrought silver products
in the world. The group produces silver brazing materials, pastes and metal
joining products as well as fine silver, sterling silver, contact alloys,
sputtering targets, anodes and dental alloys. Key customers include the
telecommunications, electronics, heating and refrigeration equipment,
automotive, aerospace, jewelry and silversmith industries.
BUSINESS STRATEGY
H&H's business strategy includes the following initiatives:
Focus on High Margin Products and Innovative Technology. H&H has
successfully implemented a business strategy designed to reduce its exposure to
lower margin, capital intensive businesses while increasing its focus on higher
margin strategic businesses. In the past several years, H&H has exited its
precious metal refining business, yet its strong brand name and customer
recognition have enabled H&H to expand in the specialty metals products markets.
H&H also intends to continue to focus on its materials engineering expertise to
expand its production of higher value-added products. For example, H&H has made
a significant investment in its electronic materials business, which sells to
the semiconductor, computer, telecommunication and automobile electronics
markets.
Pursue Strategic Acquisitions. H&H has pursued an acquisition strategy
designed to: (i) enhance its offerings of higher-value added products; (ii)
leverage its technological capabilities; and (iii) expand its customer base. In
1997, H&H acquired Olympic, a leading manufacturer and supplier of specialty
fasteners and fastener systems for the commercial roof industry. In 1996, H&H
acquired ele Corporation, a leading manufacturer of thermoplastic and thermoset
custom molded plastics for the consumer electronics and medical instrumentation
industries. The addition of ele Corporation to its electronics materials
business has enabled H&H to offer "one-stop shopping" to its customers in the
tooling, stamping, plating and fabrication of electronic materials. Such
expertise enhances H&H's product offerings and enables it to serve a broader
range of customers. H&H will continue to evaluate add-on acquisitions for its
existing businesses as well as acquisitions of related companies that have
product offerings with high growth potential.
RECENT DEVELOPMENTS
On April 7, 1998, the Company completed a tender offer for all outstanding
shares of common stock, par value $1.00 per share (the "H&H Shares") of H&H, at
a price of $35.25 per H&H Share, net to the seller in cash (the "Tender Offer").
The Tender Offer expired at 12:00 midnight, New York City time, on Monday,
April 6, 1998. In the Tender Offer, HN Acquisition purchased 9,976,651 H&H
Shares (which amount includes 248,484 H&H Shares tendered pursuant to guarantees
of delivery (the "Guaranteed Shares")), which together with the H&H Shares then
owned by the Company, HN Acquisition, and other wholly owned subsidiaries of the
Company, constituted approximately 95.7% of the outstanding H&H Shares. The
aggregate purchase price for the H&H Shares (including the Guaranteed Shares)
pursuant to the Tender Offer was $351,676,947.70.
On April 10, 1998, HN Acquisition merged (the "Merger" and together with
the Tender Offer, the "Acquisition") with and into H&H pursuant to the Agreement
and Plan of Merger dated as of March 1, 1998 by and among H&H, the Company and
HN Acquisition, as amended (the "Merger Agreement"), with H&H being the
surviving corporation and thereby becoming a wholly-owned subsidiary of the
Company. Pursuant to the Merger Agreement, all remaining outstanding H&H Shares
(other than H&H Shares owned by H&H as treasury stock, owned by the Company or
any subsidiary of the Company, or H&H Shares held by shareholders exercising
appraisal rights under New York law) were converted into a right to receive
$35.25 in cash, without interest.
In consideration for all of the H&H Shares acquired in connection with the
Acquisition, the Company also assumed certain liabilities of H&H, including
approximately $190.9 million of indebtedness as of December 31, 1997.
Additionally, prior to the closing of the Acquisition, H&H paid approximately
$23.5
8
<PAGE> 12
million to cancel various stock options held by employees and directors of H&H
and approximately $14.1 million for certain severance payments and various other
employee related commitments relating to H&H. Other costs to the Company
relating to the Acquisition included transaction fees and expenses of $14.0
million. In addition, subsequent to the Merger, H&H may elect to refinance
$125.0 million principal amount of outstanding indebtedness together with
certain prepayment penalties related thereto. In connection with the
Acquisition, the waivers of certain lenders to maintain the H&H Revolving Credit
Facility (as defined) through June 30, 1998 were obtained. The Company intends
to obtain the consent and/or waiver of the lenders to the continuation of the
H&H Revolving Credit Facility after June 30, 1998 or replace the H&H Revolving
Credit Facility with a new credit facility on substantially similar terms,
although there can be no assurance that the Company will be successful in
obtaining a replacement credit facility on substantially similar terms. Such
debt outstanding as of December 31, 1997 approximated $58.4 million.
On April 7, 1998, the Company sold $350,000,000 principal amount of Old
Notes pursuant to the Indenture in the April Offering, the net proceeds of which
were applied to fund a portion of the Acquisition. See "Use of Proceeds."
On April 21, 1998, James G. Bradley replaced John R. Scheessele as
President and Chief Executive Officer of Wheeling-Pittsburgh Steel Corporation
("WPSC") and Paul W. Bucha replaced John R. Scheessele as Chairman of the Board
of WPSC.
WHX is a publicly traded company listed on the NYSE. The principal
executive offices of WHX are located at 110 East 59th Street, New York, New York
10022; its telephone number is (212) 355-5200.
9
<PAGE> 13
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
THE EXCHANGE OFFER......... Pursuant to the Exchange Offer, New Notes will be
issued in exchange for outstanding Old Notes
validly tendered and not withdrawn. The aggregate
principal amount of the New Notes will be equal to
that of the Old Notes and will be issued in
denominations of $1,000 in principal amount and any
integral multiple of $1,000 in excess thereof. The
Company will issue New Notes to tendering Holders
of Old Notes as promptly as practicable after the
Expiration Date.
RESALE..................... Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any Holder
thereof (other than broker-dealers, as set forth
below, and any such Holder that is an "affiliate"
(within the meaning of Rule 405 under the
Securities Act) of the Company) without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that
such New Notes are acquired in the ordinary course
of such Holder's business and that such Holder has
no arrangement or understanding with any person to
participate in the distribution of such New Notes.
Each broker-dealer (other than an affiliate of the
Company) that receives New Notes for its own
account in exchange for Old Notes that were
acquired as a result of market-making or other
trading activity must acknowledge that it will
deliver a prospectus in connection with any resale
of such New Notes. The Letter of Transmittal states
that by so acknowledging and delivering a
prospectus, such broker-dealer will not be deemed
to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to
time, may be used by such broker-dealer in
connection with resales of New Notes received in
exchange for Old Notes where such New Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it
will make this Prospectus available to any such
broker-dealer for use in connection with any such
resale. See "Plan of Distribution." Any Holder who
tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating,
in a distribution of the New Notes or who is an
affiliate of the Company may not rely on the
position of the staff of the Commission enunciated
in Exxon Capital Holdings Corporation (available
May 13, 1988) or similar no-action letters and, in
the absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with a secondary resale transaction. Failure to
comply with such requirements in such instance may
result in such Holder incurring liabilities under
the Securities Act for which the Holder is not
indemnified by the Company.
The Exchange Offer is not being made to, nor will
the Company accept surrenders for exchanges from,
Holders of Old Notes in any jurisdiction in which
this Exchange Offer or the acceptance thereof would
not be in compliance with the securities or blue
sky laws of such jurisdiction.
EXPIRATION DATE............ 5:00 p.m., New York City time, on June 11, 1998,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. Any
10
<PAGE> 14
extension, if made, will be publicly announced
through a release to the Dow Jones News Service and
as otherwise required by applicable law or
regulations.
CONDITIONS TO THE EXCHANGE
OFFER.................... The Exchange Offer is subject to certain
conditions, which may be waived by the Company. See
"The Exchange Offer--Conditions to the Exchange
Offer." The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being
tendered.
PROCEDURES FOR TENDERING
OLD NOTES................ Each Holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or a facsimile thereof,
together with the Old Notes to be exchanged and any
other required documentation to Bank One, N.A., as
Exchange Agent, at the address set forth herein and
therein. By executing a Letter of Transmittal, each
Holder will represent to the Company that, among
other things, the New Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person receiving
such New Notes, whether or not such person is the
Holder, that neither the Holder nor any such other
person has any arrangement or understanding with
any person to participate in the distribution of
such New Notes and that neither the Holder nor any
such other person is an "affiliate," as defined in
Rule 405 under the Securities Act, of the Company.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender in the Exchange Offer should contact such
registered Holder promptly and instruct such
registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner
must, prior to completing and executing the Letter
of Transmittal and delivering his Old Notes, either
make appropriate arrangements to register ownership
of the Old Notes in such owner's name or obtain a
properly completed bond power from the registered
Holder. The transfer of registered ownership may
take considerable time and may not be able to be
completed prior to the Expiration Date.
GUARANTEED DELIVERY
PROCEDURES............... Holders of Old Notes who wish to tender such Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes and
a properly completed Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date may tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Procedures for
Tendering."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES.... Subject to certain conditions (as described more
fully in "The Exchange Offer--Conditions to the
Exchange Offer"), the Company will accept for
exchange any and all Old Notes that are properly
tendered in the
11
<PAGE> 15
Exchange Offer and not withdrawn, prior to 5:00
p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer
will be delivered as promptly as practicable
following the Expiration Date.
WITHDRAWAL RIGHTS.......... Subject to the conditions set forth herein, tenders
of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date. See "The Exchange Offer--Withdrawal of
Tenders."
CERTAIN UNITED STATES
FEDERAL INCOME TAX
CONSIDERATIONS........... The exchange pursuant to the Exchange Offer should
not constitute a taxable exchange for United States
federal income tax purposes. Each such New Note
should be treated as having been originally issued
at the time the Old Note exchanged therefor was
originally issued. See "Certain United States
Federal Income Tax Considerations."
EXCHANGE AGENT............. Bank One, N.A., the Trustee under the Indenture, is
serving as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. For information
with respect to the Exchange Offer, the telephone
number for the Exchange Agent is (800) 346-5153 and
the facsimile number for the Exchange Agent is
(614) 248-5088.
See "The Exchange Offer" for more detailed information concerning the terms
of the Exchange Offer.
12
<PAGE> 16
SUMMARY DESCRIPTION OF THE NEW NOTES
The Exchange Offer applies to $350,000,000 aggregate principal amount of
Old Notes. The form and terms of the New Notes will be the same in all material
respects as the form and terms of the Old Notes, except that the offer and sale
of the New Notes will be registered under the Securities Act and, therefore, the
New Notes will not bear legends restricting the transfer thereof. Upon
consummation of the Exchange Offer, none of the Notes will be entitled to
registration rights under the Registration Rights Agreement. The New Notes will
evidence the same debt as the Old Notes, will be entitled to the benefits of the
Indenture and will be treated as a single class thereunder with any Old Notes
that remain outstanding. See "Description of the New Notes."
SECURITIES OFFERED......... $350,000,000 principal amount of 10 1/2% Senior
Notes due 2005.
MATURITY DATE.............. April 15, 2005.
INTEREST AND PAYMENT
DATES...................... The Notes bear interest at the rate of 10 1/2% per
annum, payable semi-annually on April 15 and
October 15 of each year, commencing October 15,
1998.
OPTIONAL REDEMPTION........ The Notes are redeemable at the option of the
Company, in whole or in part, on or after April 15,
2002, at the redemption prices set forth herein,
together with accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of
redemption. The Company has the option, at any time
prior to April 15, 2002, to redeem the Notes, in
whole but not in part, at a redemption price equal
to 100% of the principal amount thereof plus the
Applicable Premium, together with accrued and
unpaid interest and Liquidated Damages, if any,
thereon to the date of redemption. In addition, at
any time on or prior to April 15, 2001 in the event
of one or more Public Equity Offerings, the Company
may, subject to certain requirements, redeem up to
35% of the original aggregate principal amount of
the Notes with the net cash proceeds thereof at a
redemption price equal to 110.5% of the principal
amount thereof, together with accrued and unpaid
interest and Liquidated Damages, if any, thereon to
the date of redemption; provided that at least 65%
of the original aggregate principal amount of the
Notes remains outstanding immediately after such
redemption. See "Description of Notes--Optional
Redemption."
CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control, the
Company is required to make an offer to repurchase
all or a portion of such holder's Notes at a price
of 101% of the principal amount thereof, plus
accrued interest and Liquidated Damages, if any,
thereon to the date of repurchase. If certain
conditions are met, the sale of all of the capital
stock or all or substantially all of the assets of
WPC and its subsidiaries shall not constitute a
Change of Control. See "Description of
Notes--Repurchase at the Option of Holders--Change
of Control."
ASSET SALE PROCEEDS........ The Company is obligated in certain circumstances
to make an offer to purchase the Notes at a
purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the
repurchase date with the net cash proceeds of
certain sales or other dispositions of assets. See
"Description of Notes--Repurchase at the Option of
Holders--Asset Sales."
RANKING AND HOLDING COMPANY
STRUCTURE................ The Notes are unsecured obligations of WHX, ranking
senior in right of payment to all existing and
future subordinated indebtedness of WHX
13
<PAGE> 17
and pari passu with all existing and future senior
unsecured indebtedness of WHX. The Notes are
effectively subordinated to secured indebtedness of
WHX to the extent of the assets securing such
indebtedness. WHX is a holding company,
substantially all of whose assets consist of the
stock of its subsidiaries, and therefore, the Notes
are effectively subordinated to all outstanding
indebtedness and other liabilities, including trade
payables, of WHX's subsidiaries. As of December 31,
1997, on a pro forma basis after giving effect to
the Transactions, WHX would have had approximately
$350.0 million (excluding margin borrowings) of
indebtedness outstanding and WHX's subsidiaries
would have had $670.5 million (excluding margin
borrowings) of indebtedness outstanding. See "Risk
Factors--Holding Company Structure; Limitation on
Access to Cash Flow" and "Description of Notes."
CERTAIN COVENANTS.......... The Indenture, pursuant to which the Notes were
issued (the "Indenture"), contains certain
covenants, including, but not limited to, covenants
with respect to: (i) limitations on indebtedness
and preferred stock; (ii) limitations on restricted
payments; (iii) limitations on transactions with
affiliates; (iv) limitations on liens; (v)
limitations on sale of assets; (vi) limitations on
dividends and other payment restrictions affecting
subsidiaries; and (vii) restrictions on
consolidations, mergers and sales of assets. See
"Description of Notes--Certain Covenants."
SETTLEMENT AT DTC.......... Transfers of Notes between participants in The
Depository Trust Company ("DTC") will be effected
in the ordinary way in accordance with DTC rules
and will be settled in next-day funds.
RISK FACTORS
For a discussion of certain risks that should be considered by prospective
purchasers in connection with an investment in the Notes, including the holding
company structure of the Company and limitations on access to cash flow, the
significant outstanding indebtedness of the Company, the impact of the Company's
recently settled ten-month strike, the resumption of steel-making operations,
sensitivity of results of operations to realized steel prices, the possible
monetary and injunctive penalties in connection with an SEC enforcement action
against the Company, joint venture obligations, substantial capital expenditure
requirements, substantial employee postretirement obligations and possible
inability to merge pension plans, uncertainty of impact of future collective
bargaining agreements and possibility of strikes, among others, see "Risk
Factors."
14
<PAGE> 18
WHX CORPORATION
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain summary consolidated historical and
pro forma financial and other data of the Company. The summary consolidated
financial data for each of the five fiscal years ended December 31, 1997 have
been derived from the consolidated financial statements of the Company which
have been audited by Price Waterhouse LLP, independent accountants. The pro
forma consolidated financial and other data as of and for the fiscal year ended
December 31, 1997 are unaudited. The pro forma results of operations and other
data for the fiscal year ended December 31, 1997 give effect to the Transactions
as if they had occurred on January 1, 1997. The pro forma balance sheet data as
of December 31, 1997 give effect to the Transactions as if they had occurred on
December 31, 1997. EBITDA is operating income plus depreciation, amortization
and special charges. The Company has included EBITDA because it is commonly used
by certain investors and analysts to analyze and compare companies on the basis
of operating performance, leverage and liquidity and to determine a company's
ability to service debt. EBITDA does not represent cash flows as defined by
generally accepted accounting principles and does not necessarily indicate that
cash flows are sufficient to fund all of the Company's cash needs. EBITDA should
not be considered in isolation or as a substitute for net income (loss), cash
flows from operating activities or other measures of liquidity determined in
accordance with generally accepted accounting principles. EBITDA measures
presented may not be comparable to similarly titled measures of other companies.
The data presented below should be read in conjunction with "Selected
Consolidated Financial Data," "Unaudited Pro Forma Consolidated Financial Data,"
the consolidated financial statements and related consolidated notes thereto
included herein, the Company's 10-K for the fiscal year ended December 31, 1997,
the H&H 10-K and other publicly available information regarding H&H incorporated
by reference.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, PRO FORMA
------------------------------------------------------------- FISCAL YEAR ENDED
1993 1994 1995 1996 1997 DECEMBER 31, 1997(1)
---------- ---------- ---------- ---------- --------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales................... $1,046,795 $1,193,878 $1,364,614 $1,232,695 $ 642,096 $1,093,206
Cost of products sold
(excluding depreciation
and profit sharing)....... 876,814 979,277 1,147,899 1,096,228 720,722 1,064,608
Depreciation................ 57,069 61,514 67,700 68,956 49,445 69,155
Profit sharing.............. 4,819 9,257 6,718 -- -- --
Selling, administrative and
general expenses.......... 58,564 64,540 66,531 70,971 68,190 120,730
Special charges(2).......... -- -- -- -- 92,701 92,701
---------- ---------- ---------- ---------- --------- ----------
Operating income (loss)..... 49,529 79,290 75,766 (3,460) (288,962) (253,988)
Interest expense on debt.... 21,373 22,581 22,830 25,963 29,047 84,971
Other income................ 11,965 17,925 47,139 25,974 50,668 44,308
B & LE lawsuit settlement... -- 36,091 -- -- -- --
---------- ---------- ---------- ---------- --------- ----------
Income (loss) before taxes
and extraordinary items... 40,121 110,725 100,075 (3,449) (267,341) (294,651)
Tax provision (benefit)..... 9,400 24,360 19,014 (4,107) (93,569) (100,033)
---------- ---------- ---------- ---------- --------- ----------
Income (loss) before
extraordinary items....... 30,721 86,365 81,061 658 (173,772) 194,618
Extraordinary items(3)...... (36,953) (9,984) (3,043) -- (25,990) --
---------- ---------- ---------- ---------- --------- ----------
Net income (loss)........... (6,232) 76,381 78,018 658 (199,762) (194,618)
Dividend requirement for
preferred stock........... 4,713 13,177 22,875 22,313 20,657 20,657
---------- ---------- ---------- ---------- --------- ----------
Net income (loss) available
to common stock........... $ (10,945) $ 63,204 $ 55,143 $ (21,655) $(220,419) $ (215,275)
========== ========== ========== ========== ========= ==========
</TABLE>
15
<PAGE> 19
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, PRO FORMA
------------------------------------------------------------- FISCAL YEAR ENDED
1993 1994 1995 1996 1997 DECEMBER 31, 1997(1)
---------- ---------- ---------- ---------- --------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Cash flow from:
Operations................ $ (174,963) $ 62,293 $ 156,844 $ 104,808 $ (12,916) $ (28,771)
Investing................. (88,991) (126,044) (60,683) (39,471) (79,724) (150,873)
Financing................. 261,292 71,179 (66,579) (73,323) 58,622 94,535
EBITDA, adjusted for special
charge.................... $ 106,598 $ 140,804 $ 143,466 $ 65,496 $(146,816) $ (92,132)
Capital expenditures........ 73,652 82,020 83,282 35,436 36,779 55,239
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
ACTUAL PRO FORMA(1)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investment............ $ 582,552 $ 494,953
Margin borrowings........................................... (276,618) (276,618)
---------- ----------
Cash, cash equivalents and short-term investments, net...... $ 305,934 $ 218,335
========== ==========
Property, plant and equipment, net.......................... 738,660 833,648
Total assets................................................ 2,070,403 2,675,976
Total debt (excluding margin borrowings).................... 440,719 1,020,483
Stockholders' equity........................................ 461,876 454,881
</TABLE>
- ------------------------------
(1) Pro forma data reflects adjustments to give effect to the Transactions.
Information relating to H&H, which has been used in the calculation of the
pro forma data, has been derived from the H&H 10-K.
(2) Includes a special charge for benefits included in the New Labor Agreement
related to enhanced retirement benefits, 1997 bonuses, special assistance
payments for those not returning to work immediately and for option grants.
(3) Extraordinary items reflect the after tax effect of early retirement of debt
premiums and coal retiree medical benefits in 1993; adoption of Statement of
Financial Accounting Standard No. 112, "Accounting for Postemployment
Benefits" in 1994; coal retiree medical benefits in 1995; and early
retirement of debt premiums and coal retiree medical benefits in 1997.
16
<PAGE> 20
HANDY & HARMAN
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain summary consolidated financial and
other data of H&H for each of the three fiscal years ended December 31, 1997.
The information has been derived from the audited financial statements included
in the H&H 10-K. EBITDA is income from operations plus depreciation and
amortization from continuing operations less LIFO gains included in income from
operations plus restructuring charge. The Company has included EBITDA because it
is commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance, leverage and liquidity and to
determine a company's ability to service debt. EBITDA does not represent cash
flows as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all of the Company's
cash needs. EBITDA should not be considered in isolation or as a substitute for
net income (loss), cash flows from operating activities or other measures of
liquidity determined in accordance with generally accepted accounting
principles. This information should be read in conjunction with the H&H 10-K and
other publicly available information regarding H&H.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Sales...................................................... $427,188 $407,107 $451,110
Cost of sales.............................................. 348,737 293,572 349,411
Selling, administrative and general expenses............... 45,524 44,504 54,116
Restructuring charge....................................... 5,342 -- --
-------- -------- --------
Income from operations..................................... 27,585 69,031 47,583
Interest expense, net...................................... 12,598 9,682 14,452
Other income (expense), net................................ (701) (376) 2,920
-------- -------- --------
Income from continuing operations before income taxes and
extraordinary item....................................... 14,286 58,973 36,051
Income tax provision....................................... 6,777 25,200 15,141
-------- -------- --------
Income from continuing operations before extraordinary
item..................................................... 7,509 33,773 20,910
Extraordinary loss......................................... -- (2,889) --
Income (loss) from discontinued operations................. 11,131 (14,515) --
-------- -------- --------
Net income................................................. $ 18,640 $ 16,369 $ 20,910
======== ======== ========
OTHER DATA:
EBITDA, adjusted for restructuring charge.................. $ 43,277 $ 46,448 $ 54,684
Capital expenditures from continuing operations(1)......... 20,092 13,646 18,460
Depreciation and amortization from continuing
operations(2)............................................ 10,350 11,047 13,509
LIFO gains included in income from operations.............. -- 33,630 6,408
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1997
------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 7,259
Property, plant and equipment, net.......................... 94,988
Total assets................................................ 392,797
Total debt (including current maturities)................... 190,880
Total shareholders' equity.................................. 112,408
</TABLE>
- ------------------------------
(1) Excludes capital expenditures related to discontinued operations of $3,051
and $1,048 in the fiscal years ended December 31, 1995 and 1996,
respectively.
(2) Excludes amortization of deferred financing fees of $820, $552 and $685 for
the fiscal years ended December 31, 1995, 1996 and 1997, respectively, and
depreciation and amortization related to discontinued operations of $5,498
and $401 in the fiscal years ended December 31, 1995 and 1996, respectively.
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RISK FACTORS
Prospective investors should carefully consider the following risk factors
set forth below as well as the other information set forth in this Prospectus.
The following risk factors do not address all risks relating to the business and
operations of H&H and its subsidiaries. Prospective investors are directed to
the H&H 10-K.
HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW
WHX is a holding company with no substantial business operations or assets
of its own, other than the capital stock of its subsidiaries. WHX's assets
consist primarily of its ownership interests in WPC, Unimast, and based upon
consummation of the Acquisition, H&H. The Notes will be effectively subordinated
to all existing and future indebtedness and other liabilities of WHX's
subsidiaries, because WHX's right to receive the assets of any such affiliates
upon their liquidation or reorganization will be subordinated by operation of
law to the claims of such subsidiaries' creditors (including trade creditors),
except to the extent that WHX is itself recognized as a creditor of any such
affiliate, in which case the claims of WHX would still be subordinated to any
indebtedness of such affiliate that is senior in right of payment to WHX's
claim. WHX's subsidiaries have substantial indebtedness and other liabilities.
As of December 31, 1997, on a pro forma basis after giving effect to the
Transactions, WHX's subsidiaries would have had $1,589.7 million (excluding
margin borrowings) of indebtedness and other liabilities, including trade
payables. The instruments governing existing indebtedness of subsidiaries of the
Company, including, without limitation, the WPC 9 1/4% Notes (as defined), the
WPC Term Loan Agreement (as defined) and the WPSC Revolving Credit Facility (as
defined), limit the ability of the Company's subsidiaries to distribute to the
Company any cash or other assets, which could adversely affect the ability of
the Company to service the Notes, including payment of interest and principal
upon acceleration, at maturity or otherwise. If the Company is unable to service
its obligations on the Notes as required, it may have to refinance the Notes or
otherwise raise additional funding, and there can be no assurance that the
Company will be able to do so on acceptable terms, if at all. In addition,
future borrowings by the Company's subsidiaries, including H&H, can be expected
to contain further restrictions or prohibitions on the payment of dividends by
such subsidiaries to WHX. See "Description of Notes" and "Description of
Principal Indebtedness."
SIGNIFICANT OUTSTANDING INDEBTEDNESS OF THE COMPANY
The Company has, and after giving effect to the Merger and the Offering and
the use of proceeds therefrom will continue to have, substantial indebtedness
and debt service requirements. At December 31, 1997, after giving effect to the
Transactions, the Company's total consolidated indebtedness would have been
$1,020.5 million (excluding margin borrowings). Additionally, the Company's
subsidiaries and H&H and its subsidiaries have significant additional borrowing
capacity under their respective outstanding credit facilities. The Company's
earnings were insufficient to cover fixed charges by $267.9 million for the
fiscal year ended December 31, 1997.
The Company's level of indebtedness will have several important effects on
its future operations, including the following: (a) a significant portion of the
Company's cash flow from operations will be dedicated to the payment of interest
on and principal of its indebtedness and will not be available for other
purposes; (b) the financial covenants and other restrictions contained in the
WPC 9 1/4% Notes, the WPC Term Loan Agreement, the WPSC Revolving Credit
Facility, the H&H Revolving Credit Facility (as defined) and the H&H 7.31% Notes
(as defined) require the Company's subsidiaries and H&H, as the case may be, to
meet certain financial tests and limit its or their ability to borrow additional
funds or to dispose of assets; and (c) the Company's ability to obtain
additional financing in the future for working capital, postretirement health
care and pension funding, capital expenditures, acquisitions, general corporate
purposes or other purposes may be impaired. The Company's ability to make
scheduled payments or to refinance its debt obligations will depend upon its
future financial and operating performance, which will be affected by prevailing
economic conditions and financial, business and other factors, certain of which
are beyond its control. There can be no assurance that the Company's operating
results, cash flow and capital resources will be sufficient for payment of its
indebtedness in the future. In the absence of such operating results and
resources, the Company could face substantial liquidity problems and might be
required to dispose of material assets or operations to meet its debt
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<PAGE> 22
service and other obligations, and there can be no assurance as to the timing of
such sales or the proceeds that the Company could realize therefrom. If the
Company has difficulty in servicing its indebtedness, it may be forced to take
actions such as reducing or delaying planned expansion and capital expenditures,
selling assets, restructuring or refinancing its indebtedness or seeking
additional equity capital. There can be no assurance that any of these
strategies could be effected on satisfactory terms, if at all. See "Description
of Principal Indebtedness."
An inability of the Company's subsidiaries to meet the financial covenants
contained in their indebtedness instruments could result in an acceleration of
amounts due thereunder. In the event the Company's subsidiaries are unable to
make required payments or otherwise comply with the terms of its indebtedness,
the holders of such indebtedness could accelerate the obligations of the Company
thereunder, which could result in the Company being forced to seek protection
under applicable bankruptcy laws or in an involuntary bankruptcy proceeding
being brought against the Company. Under such circumstances, the holders of the
Notes may be adversely affected. If it becomes necessary for the Company to
refinance all or a portion of the principal of the Notes on or prior to maturity
there can be no assurance that the Company will be able to effect such
refinancing on commercially reasonable terms or at all.
A portion of the Company's outstanding indebtedness, including all
borrowings under the WPSC Revolving Credit Facility, the H&H Revolving Credit
Facility and the WPC Term Loan Agreement, bears interest at floating rates. As a
result, the Company's results of operations and ability to service its
indebtedness will be affected by future fluctuations in interest rates.
The Company intends to obtain the consent and/or waiver of the lenders to
the continuation of the H&H Revolving Credit Facility after June 30, 1998 or
replace the H&H Revolving Credit Facility with a new credit facility on
substantially similar terms, although there can be no assurance that the Company
will be successful in obtaining a replacement credit facility on substantially
similar terms.
For further information on the Company's outstanding indebtedness and
Receivables Facility (as defined), see "Certain Relationships and Related
Transactions; Transactions Between the Company and Subsidiaries," "Description
of Principal Indebtedness" and "Description of Receivables Facility."
IMPACT OF STRIKE; RESUMPTION OF OPERATIONS
The Strike has had a material adverse effect on WPC's and the Company's
results of operations and may continue to adversely affect WPC and the Company
for the near future. The Company reported losses for the fourth quarter of 1996
and each of the quarters of 1997 of $34.6 million, $40.7 million, $31.1 million,
$91.4 million and $36.5 million, respectively. Included in the losses for the
third and fourth quarters of 1997 are pre-tax charges of $88.9 and $3.8 million,
respectively, primarily associated with the costs attributable to the New Labor
Agreement. By June 30, 1998, the Company expects WPC to be producing and
shipping at its pre-Strike production levels and shipping its historical mix of
products, although there can be no assurance that delays will not occur. Until
such time, the Company anticipates that it will need to invest substantial
resources to rebuild inventories and generate accounts receivable. In addition,
there can be no assurance that WPC will return to its pre-Strike product mix or
that the Company will otherwise operate profitably.
SENSITIVITY OF RESULTS OF OPERATIONS TO REALIZED STEEL PRICES
The Company's results of operations are significantly affected by
relatively small variations (on a percentage basis) in the realized sales prices
of WPC's products, which, in turn, depend upon both the prevailing prices for
steel and the demand for particular products. During the first nine months of
1996, WPC shipped approximately 1.9 million tons, and realized an average sales
price per ton of approximately $514. A one percent decrease in this average
realized price would have resulted in a decrease in net sales and operating
income of approximately $9.8 million. WPC sells approximately 75% of its
products at spot prices (including shipments to Wheeling-Nisshin and OCC under
supply contracts at prices approximating spot prices. WPC believes its
percentage of sales at spot prices is higher than that of many of its domestic
integrated competitors. WPC therefore may be affected by steel price decreases
more quickly than many of WPC's competitors.
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<PAGE> 23
POSSIBILITY OF MONETARY AND INJUNCTIVE PENALTIES IN CONNECTION WITH SEC
ENFORCEMENT ACTION
On March 31, 1997, the Company through SB Acquisition Corp. ("SB
Acquisition"), a wholly-owned subsidiary, commenced a tender offer for shares of
Dynamics Corporation of America, Inc. ("DCA"), a NYSE-listed company. On April
14, 1997, DCA commenced an action against the Company in the United States
District Court for the District of Connecticut, alleging, among other things,
that the Company's tender offer violated Section 14(d) of the Exchange Act and
the rules thereunder (the "DCA Action"). The Company denied all allegations and
contested the action. On April 29, 1997, Judge Gerard L. Goettel of the United
States District Court, District of Connecticut, issued an order granting a
motion for a preliminary injunction filed by DCA against the Company and SB
Acquisition. The District Court found that the disclosure contained in the
Company's tender offer materials to DCA shareholders was improper because (i) it
stated that under certain circumstances the Company "may be required" to comply
with Section 912(b) of the New York Business Corporation Law and a provision in
DCA's charter, instead of disclosing that the Company "will be required" to do
so and (ii) it failed to disclose the Company's future plans in the event that
it was prohibited from merging with DCA for five years. The Court (i) directed
the Company and SB Acquisition to make "further and complete disclosures"
pertaining to those subjects described above and (ii) specified that such tender
offer be extended for an additional twenty days. This order was promptly
complied with in all respects by WHX and SB Acquisition. The DCA Action was
later discontinued by stipulation between the parties.
On April 8, 1997, the SEC entered an Order Directing Private Investigation
concerning possible violations of Sections 14(d) and 14(e) of the Exchange Act
and Rules 14d-10(a)(1) and 14e-1(b) thereunder in connection with the Company's
tender offer for DCA. The Company fully cooperated with this investigation. The
Staff of the Division of Enforcement of the SEC (the "SEC Enforcement Staff")
has advised the Company's counsel that the SEC has authorized the initiation of
administrative proceedings seeking a cease and desist order pertaining to
alleged violations of Section 14(d)(4) of the Exchange Act and Rule 14d-10(a)(1)
based on the Company's inclusion of a "record holder condition" in the DCA
tender offer. This condition was removed by the Company shortly after the tender
offer began and after the SEC had granted authority to the SEC Enforcement Staff
to seek injunctive relief. The SEC Enforcement Staff also has advised the
Company's counsel that the SEC authorized the initiation of administrative
proceedings seeking a cease and desist order and disgorgement of profits,
pertaining to alleged violations of Section 14(d)(4) of the Exchange Act and
Rules 14d-6(d) and 14d-4(c) in connection with the Company's closing of the DCA
tender offer on June 13, 1997. The SEC Enforcement Staff has asserted that the
decision to close the DCA tender offer and purchase approximately 10% of DCA's
outstanding shares was a material change in the conditions of such offer,
including its "poison pill condition," "New York Business Corporation Law
condition" (NY BCL sec.912(b)) and "interfering transaction condition," each of
which was effected without adequate notice to DCA shareholders. According to the
SEC Enforcement Staff, the tender offer's conditions precluded the Company from
closing as long as (i) DCA's "poison pill" remained in place, even if the
Company acquired shares insufficient to trigger the "poison pill", (ii) the New
York Business Corporation Law condition could affect the intended merger with
DCA, and (iii) DCA's merger agreement with another company, CTS Corporation,
remained in place. To date, no order commencing an administrative proceeding has
been filed. There can be no assurance that such a proceeding will not be
brought. If such a proceeding is brought, there can be no assurance that an
adverse decision will not be rendered, including imposition of a cease and
desist order and a disgorgement of profits.
JOINT VENTURE OBLIGATIONS
WPC has certain commitments and contingent obligations with respect to the
OCC joint venture including the following: (i) WPC is required, along with Dong
Yang Tinplate Ltd. ("Dong Yang"), to contribute additional funds to OCC to cover
its pro rata share of any cost overruns and working capital needs of OCC to the
extent that OCC is unable to otherwise finance such amounts (the Company
anticipates that its pro rata share of such funding obligations will be between
$5.0 million and $10.0 million through December 31, 1998) and (ii) WPC is
jointly and severally liable, together with Dong Yang, to contribute to OCC,
either as a loan or a capital contribution, amounts sufficient to cure certain
defaults and violations of
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<PAGE> 24
certain financial covenants of OCC under OCC's borrowing facility if such
violations should occur. The facility currently has a maximum availability of
$17.0 million. OCC is negotiating to increase such borrowing facility from $17.0
million to $20.0 million and to modify certain covenants, and in connection
therewith Dong Yang and WPC may agree to jointly and severally guarantee all of
such obligations.
SUBSTANTIAL CAPITAL EXPENDITURE REQUIREMENTS
WPC operates in a capital intensive industry. From 1993 through 1997, WPC's
capital expenditures totalled approximately $289.3 million. This level of
capital expenditures was used to maintain productive capacity, improve
productivity and upgrade selected facilities to meet competitive requirements
and maintain compliance with environmental laws and regulations, including the
Clean Air Act (as defined). The Company anticipates that WPC will fund its
capital expenditures in 1998 from cash on hand, funds available from the
Receivables Facility and the WPSC Revolving Credit Facility and funds generated
by operations. Prior to the resolution of the Strike, WPC had delayed most
capital expenditures at the Strike-affected plants. The Company anticipates that
WPC's capital expenditures will approximate depreciation, on average, over the
next few years. There can be no assurance that the Company or WPC will have
adequate funds from operations to make all required capital expenditures or that
the amount of future capital expenditures will be commensurate with historical
averages.
SUBSTANTIAL EMPLOYEE POSTRETIREMENT OBLIGATIONS; POSSIBLE INABILITY TO MERGE
PENSION PLANS
WPC has substantial financial obligations related to its employee and
retiree postretirement plans for medical and life insurance and pensions.
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" ("SFAS 106") requires accrual of
retiree medical and life insurance benefits rather than recognition of costs as
claims are paid. In accordance with SFAS 106, a liability has been established
for the present value of the estimated future unfunded medical obligations. In
addition, in accordance with the Statement of Financial Accounting Standards No.
87, "Employers' Accounting for Pensions," WPC has recognized a liability equal
to its unfunded accumulated pension benefit obligations. As of December 31,
1997, WPC had an unfunded accumulated postretirement benefit obligation for
retiree health care of approximately $301.0 million. In addition, WPC had
recorded an unfunded accumulated pension benefit obligation for its recently
implemented defined benefit pension plan ("DB Plan") of approximately $167.3
million, of which approximately 75% must be funded over the next five years.
The Company intends to merge certain H&H pension plans with certain of
WPC's pension plans (the "Pension Plan Merger") after the consummation of the
Merger. The expected result of the Pension Plan Merger, if effected, is a
substantial improvement in the funded status of WPSC's pension plans and a
reduction in WPSC's funding obligation; however the extent of such reduction
cannot be fully anticipated. There can be no assurance that the Pension Plan
Merger can be effected as anticipated. Should the Pension Plan Merger not be
effected, WPC will continue to have the existing level of unfunded pension plan
obligations. In addition, no assurance can be given that the overfunded status
of the H&H pension plans will remain at current levels.
UNCERTAINTY OF IMPACT OF FUTURE COLLECTIVE BARGAINING AGREEMENTS; POSSIBILITY OF
STRIKES
As of December 31, 1997, the USWA represented approximately 73% of the
Company's employees. In August 1997, WPC and the USWA entered into the New Labor
Agreement, which expires on September 1, 2002. There can be no assurance as to
the results of negotiations of future collective bargaining agreements, whether
future collective bargaining agreements will be negotiated without production
interruptions or the possible impact of future collective bargaining agreements,
or the negotiations thereof, on the Company's financial condition and results of
operations. In addition, there can be no assurance that strikes will not occur
in the future in connection with labor negotiations or otherwise.
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TRANSACTIONS WITH SUBSIDIARIES
WHX and WPC are jointly and severally obligated to make certain payments to
WPSC pursuant to the terms of a keepwell agreement entered into in connection
with the WPSC Revolving Credit Facility to maintain certain financial ratios of
WPC. WPC has agreed to indemnify WHX with respect to any payments made by WHX on
account of WHX's obligations under such keepwell agreement. See "Certain
Relationships and Related Transactions; Transactions between the Company and
Subsidiaries." From time to time, there may be intercompany indebtedness between
WHX and WPC, resulting from, among other things, the Tax Sharing Agreement (as
defined). To the extent WHX has net liabilities due WPC, it may ultimately be
required to satisfy such obligations. If WPC is obligated to reimburse WHX for
keepwell payments, WPC's obligation to repay such advances is subordinated to
the repayment obligations on the WPC 9 1/4% Notes.
NEED TO OBTAIN ALTERNATE FINANCING UPON A CHANGE OF CONTROL
The Indenture will provide that, upon the occurrence of any Change of
Control, the Company will be required to make a Change of Control Offer (as
defined) to purchase all or any part of each holder's Notes issued and then
outstanding under the Indenture at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase. The Company's ability to pay
cash to the holders of Notes upon a repurchase may be limited by the Company's
then existing financial resources and its ability to obtain alternative
financing. If a Change of Control were to occur, it is unlikely that the Company
would be able to repay the Notes, unless it could obtain alternate financing.
There can be no assurance that the Company would be able to obtain any such
financing on commercially reasonable terms or at all, and consequently no
assurance can be given that the Company would be able to purchase any of the
Notes tendered pursuant to a Change of Control Offer. See "Description of the
Notes--Repurchase at the Option of Holders--Change of Control."
CYCLICALITY
Historically, steel industry performance has been cyclical in nature,
reflecting changes in industry capacity as well as the cyclicality of many of
the principal markets it serves, including the automotive, appliance and
construction industries. Although total domestic steel industry capacity was
substantially reduced during the 1980s through extensive restructuring, and
demand has been particularly strong since 1993, with domestic steel industry
earnings strong during the 1994-1997 period, there can be no assurance that
demand will continue at current levels or that the addition of new minimills and
recent restarts of previously idled domestic facilities will not adversely
impact pricing and margins.
POSSIBLE FLUCTUATIONS IN THE COST OF RAW MATERIALS
WPC's operations require substantial amounts of raw materials, including
various types of iron ore pellets, steel scrap, coal, zinc, oxygen, natural gas
and electricity. The price and availability of these raw materials are subject
to steel industry and general market conditions affecting supply and demand.
Furthermore, worldwide competition in the steel industry has frequently limited
the ability of steel producers to raise finished product prices to recover
higher raw material costs. WPC's future profitability may be adversely affected
to the extent it is unable to pass on higher raw material costs to its
customers.
COMPETITION
The domestic steel industry is highly competitive. Despite significant
reductions in raw steel production capacity by major domestic producers in the
1980s, partially offset by the recent minimill capacity additions and joint
ventures, the domestic industry continues to be threatened by excess world
capacity.
WPC faces increasing competitive pressures from other domestic integrated
producers, minimills and processors. Processors compete with WPC in the areas of
slitting, cold rolling and coating. Minimills are generally smaller volume steel
producers that use ferrous scrap metals as their basic raw material. Compared to
integrated producers, minimills, which rely on less labor and capital intensive
steel production methods, have certain advantages. Since minimills typically are
not unionized, they have more flexible work rules that
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have resulted in lower employment costs per net ton shipped. Since 1989,
significant flat rolled minimill capacity has been constructed and these
minimills now compete with integrated producers in product areas that
traditionally have not faced significant competition from minimills. In
addition, there is significant additional flat rolled minimill capacity under
construction or announced with various planned commissioning dates in 1998 and
1999. Near term, these minimills and processors are expected to compete with WPC
primarily in the commodity flat rolled steel market. In the long-term, such
minimills and processors may also compete with WPC in producing value-added
products. In addition, the increased competition in commodity product markets
may influence certain integrated producers to increase product offerings to
compete with WPC's custom products.
During the early 1990s, the domestic steel market experienced significant
increases in imports of foreign produced flat rolled products. The level of
imports, however, after declining somewhat in late 1995 and early 1996,
increased in 1997. The strength of the U.S. dollar and economy, as well as the
strength of foreign economies, can significantly affect the import/export trade
balance for flat rolled steel products. The status of the trade balance may
significantly affect the ability of the new minimill capacity to come on-line
without disrupting the domestic flat rolled steel market.
Wheeling Corrugating and WPC's other fabricating operations compete in a
large number of regional markets with numerous other fabricating operations,
most of which are independent of the major integrated manufacturers. Independent
fabricators generally are able to acquire flat rolled steel products, their
basic raw material, at prevailing market prices. There are few barriers to entry
into the manufacture of fabricated products in certain individual markets
currently served by Wheeling Corrugating (although the geographic breadth of the
markets served by Wheeling Corrugating would be hard to replicate). Other
competitors, including domestic integrated producers and minimills, may decide
to manufacture fabricated products and compete with Wheeling Corrugating in its
markets. Such competition may negatively affect prices that may be obtained in
certain markets by WPC for its fabricated products. Many of Wheeling
Corrugating's competitors do not have a unionized workforce and, therefore, may
have lower operating costs than Wheeling Corrugating.
Materials such as aluminum, cement, composites, glass and plastics compete
as substitutes for steel in many markets.
COSTS OF COMPLYING WITH ENVIRONMENTAL STANDARDS
WPC and other steel producers have become subject to increasingly stringent
environmental standards imposed by Federal, state and local environmental laws
and regulations. WPC has expended, and can be expected to be required to expend
in the future, significant amounts for installation of environmental control
facilities, remediation of environmental conditions and other similar matters.
The costs of complying with such stringent environmental standards as the new
ambient air quality standards for ozone and PM2.5 as well as the climate change
treaty negotiations may cause WPC and other domestic steel producers to be
competitively disadvantaged vis-a-vis foreign steel producers and producers of
steel substitutes, who may be subject to less stringent standards. WPC has also
been identified as a potentially responsible party at five "Superfund" sites and
has been alleged to be a potentially responsible party at two other "Superfund"
sites. The Superfund law imposes strict, joint and several liability upon
potentially responsible parties.
POSSIBLE INABILITY TO RETAIN H&H MANAGEMENT
The ability of the Company to achieve its objectives in connection with the
Acquisition are subject to certain risks including, among others, the possible
inability to retain certain H&H executive personnel, potential negative effects
of diverting management resources and the possible failure to retain H&H's
customers. None of H&H's executive officers have entered into employment
agreements with the Company. If, for any reasons, such executives do not
continue to be active in management, the Company's operations could be adversely
affected.
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LACK OF A PUBLIC MARKET
The New Notes will constitute a new issue of securities with no established
trading market. The Company does not intend to list the New Notes on any United
States securities exchange or to seek approval for quotation through any
automated quotation system. The Company has been advised by the Initial
Purchasers that following completion of the Exchange Offer, the Initial
Purchasers intend to make a market in the New Notes. However, the Initial
Purchasers are not obligated to do so and any market-making activities with
respect to the New Notes may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the New Notes or as to the liquidity of or the trading market
for the New Notes. If a trading market does not develop or is not maintained,
Holders of the New Notes may experience difficulty in reselling the New Notes or
may be unable to sell them at all. If a market for the New Notes develops, any
such market may cease to continue at any time. If a public trading market
develops for the New Notes, future trading prices of the New Notes will depend
on many factors, including, among other things, prevailing interest rates, the
Company's results of operations and the market for similar securities and other
factors, including the financial condition of the Company.
CONSEQUENCES OF THE EXCHANGE OFFER TO NON-TENDERING HOLDERS OF THE OLD NOTES
In the event the Exchange Offer is consummated, the Company will not be
required to register any Old Notes not tendered and accepted in the Exchange
Offer. In such event, Holders of Old Notes seeking liquidity in their investment
would have to rely on exemptions to the registration requirements under the
Securities Act. Following the Exchange Offer, none of the Notes will be entitled
to the contingent increase in interest rate provided for (in the event of a
failure to consummate the Exchange Offer in accordance with the terms of the
Registration Rights Agreement) pursuant to the Registration Rights Agreement.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on April 7, 1998 to the Initial
Purchasers, which placed the Old Notes with certain institutional investors in
reliance on Section 4(2) of, and Rule 144A under, the Securities Act. In
connection with the sale of the Old Notes, the Company entered into the
Registration Rights Agreement, pursuant to which the Company agreed to use its
best efforts to consummate an offer to exchange the Old Notes for the New Notes
pursuant to an effective registration statement on or before August 28, 1998. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement. Unless the context requires otherwise, the term "Holder"
with respect to the Exchange Offer means any person in whose name Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered Holder, or any person whose
Old Notes are held of record by DTC who desires to deliver such Old Notes by
book-entry transfer at DTC.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any Holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on interpretations by the staff of the Commission set
forth in no-action letters issued to third parties, the Company believes that
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any Holder of such New
Notes (other than any such Holder that is an "affiliate" of the Company, within
the meaning of Rule 405 under the Securities Act and except in the case of
broker-dealers, as set forth below) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder has no arrangement or understanding with any person to participate in the
distribution of such New Notes. Any Holder who tenders in the Exchange Offer for
the purpose of participating in a distribution of the New Notes or who is an
affiliate of the Company may not rely on such interpretation by the
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<PAGE> 28
staff of the Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
By tendering in the Exchange Offer, each Holder of Old Notes will represent
to the Company that, among other things, (i) the New Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such person is such Holder, (ii)
neither the Holder of Old Notes, nor any such other person, has an arrangement
or understanding with any person to participate in the distribution of such New
Notes, (iii) if the Holder is not a broker-dealer, or is a broker-dealer but
will not receive New Notes for its own account in exchange for Old Notes,
neither the Holder, nor any such other person, is engaged in or intends to
participate in the distribution of such New Notes and (iv) neither the Holder
nor any such other person is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act or, if such Holder is an "affiliate," that
such Holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
Following the consummation of the Exchange Offer, Holders of Old Notes not
tendered will not have any further registration rights and the Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. Subject to the minimum denomination requirements of the New
Notes, the Company will issue $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of outstanding Old Notes accepted in the
Exchange Offer. Holders may tender some or all of their Old Notes pursuant to
the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000 principal amount.
The forms and terms of the New Notes will be identical in all material
respects to the forms and terms of the corresponding Old Notes, except that the
offer and sale of the New Notes will have been registered under the Securities
Act and, therefore, the New Notes will not bear legends restricting the transfer
thereof. The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange. As of May 14, 1998,
$350,000,000 aggregate principal amount of the Old Notes were outstanding. This
Prospectus, together with the Letter of Transmittal, is being sent to all
Holders as of May 14, 1998. Holders of Old Notes do not have any appraisal or
dissenters' rights under the Indenture in connection with the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the applicable rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
for the purpose of receiving the New Notes from the Company. If any tendered Old
Notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, such unaccepted Old Notes
will be returned, without expense, to the tendering Holder thereof as promptly
as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses."
25
<PAGE> 29
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
June 11, 1998, unless the Company in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. Although the Company has no
current intention to extend the Exchange Offer, the Company reserves the right
to extend the Exchange Offer at any time and from time to time by giving oral or
written notice to the Exchange Agent and by timely public announcement
communicated, unless otherwise required by applicable law or regulation, by
making a release to the Dow Jones News Service. During any extension of the
Exchange Offer, all Old Notes previously tendered pursuant to the Exchange Offer
and not withdrawn will remain subject to the Exchange Offer. The date of the
exchange of the New Notes for Old Notes will be the first NYSE trading day
following the Expiration Date.
The Company expressly reserves the right to (i) terminate the Exchange
Offer and not accept for exchange any Old Notes if any of the events set forth
below under "--Conditions to the Exchange Offer" shall have occurred and shall
not have been waived by the Company and (ii) amend the terms of the Exchange
Offer in any manner that, in its good faith judgment, is advantageous to the
Holders of the Old Notes, whether before or after any tender of the Old Notes.
Should the Company materially amend the terms of the Exchange Offer, (i) the
Company will file an amendment to the Registration Statement which will reflect
any material changes to the Exchange Offer and (ii) all Holders will be
resolicited as may be required by applicable law.
PROCEDURES FOR TENDERING
The tender to the Company of Old Notes by a Holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
Holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal signed by such
holder. A Holder of the Old Notes may tender such Old Notes by (i) properly
completing and signing a Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to a Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with any
corresponding certificate or certificates representing the Old Notes being
tendered (if in certificated form) and any required signature guarantees, to the
Exchange Agent at its address set forth in the Letter of Transmittal on or prior
to the Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in DTC whose name appears on a security listing as the owner of
Old Notes), the signature of such signer need not be guaranteed. In any other
case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered Holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" as defined by Rule 17Ad-15 under
the Exchange Act (any of the foregoing hereinafter referred to as an "Eligible
Institution"). If the New Notes and/or the Old Notes not exchanged are to be
delivered to an address other than that of the registered Holder appearing on
the register for the Old Notes, the signature in the Letter of Transmittal must
be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO
THE COMPANY.
26
<PAGE> 30
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish an account with respect
to the Old Notes at DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of Old Notes by causing
DTC to transfer such Old Notes into the Exchange Agent's account with respect to
the Old Notes in accordance with DTC's procedure for such transfer. Although
delivery of the Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an appropriate Letter of Transmittal with any
required signature guarantee and all other revised documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at the address
set forth in the Letter of Transmittal on or prior to the Expiration Date, or,
if the guaranteed delivery procedures described below are complied with, within
the time period provided under such procedures.
If the Holder desires to accept the Exchange Offer and time will not permit
a Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its office, on or prior to the Expiration Date, a letter, telegram or facsimile
transmission from an Eligible Institution setting forth the name and address of
the tendering Holder, the name(s) in which the Old Notes are registered and the
certificate number(s) of the Old Notes to be tendered, and stating that the
tender is being made thereby and guaranteeing that, within three AMEX trading
days after the date of execution of such letter, telegram or facsimile
transmission by the Eligible Institution, such Old Notes, in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Old Notes being tendered by the above-
described method are deposited with the Exchange Agent within the time period
set forth above (accompanied or preceded by a properly completed Letter of
Transmittal and any other required documents), the Company may, at its option,
reject the tender. Copies of a Notice of Guaranteed Delivery, which may be used
by Eligible Institutions for the purposes described in this paragraph, are
available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering Holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC), is received by the Exchange
Agent or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) from an Eligible Institution
is received by the Exchange Agent. Issuances of New Notes in exchange for Old
Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram
or facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against submission of a duly signed Letter of
Transmittal (and any other required documents) and deposit of the tendered Old
Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptance for exchange of which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any Old Notes. None of the Company, the Exchange Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification. Any Old Notes received by the Exchange Agent that are not
validly tendered and as to which the defects or irregularities have not been
cured or waived, or if Old Notes are submitted in an aggregate principal amount
greater than the aggregate principal amount of Old Notes being tendered by such
tendering Holder, will be returned by the Exchange Agent to the tendering
holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date and (b) to the extent permitted by applicable law, purchase
Old Notes in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers will differ from the terms of the
Exchange Offer.
27
<PAGE> 31
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire New Notes issuable
upon the exchange of such tendered Old Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Company to be necessary or desirable to complete the exchange, assignment
and transfer of tendered Old Notes or transfer ownership of such Old Notes on
the account books maintained by DTC. All authority conferred by the Transferor
will survive the death, bankruptcy or incapacity of the Transferor and every
obligation of the Transferor will be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
By executing a Letter of Transmittal, each Holder will make to the Company
the representations set forth above under the heading "--Purpose and Effect of
the Exchange Offer."
WITHDRAWAL OF TENDERS
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable, except
that Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Exchange Agent at the address set
forth in the Letter of Transmittal prior to 5:00 p.m., New York City time on the
Expiration Date. Any such notice of withdrawal must specify the holder named in
the Letter of Transmittal as having tendered Old Notes to be withdrawn, the
certificate numbers and designation of Old Notes to be withdrawn, the principal
amount of Old Notes delivered for exchange, a statement that such Holder is
withdrawing his election to have such Old Notes exchanged, and the name of the
registered Holder of such Old Notes, and must be signed by the Holder in the
same manner as the original signature on the Letter of Transmittal (including
any required signature guarantees) or be accompanied by evidence satisfactory to
the Company that the person withdrawing the tender has succeeded to the
beneficial ownership of the Old Notes being withdrawn. The Exchange Agent will
return the properly withdrawn Old Notes promptly following receipt of notice of
withdrawal. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and number
of the account at DTC to be credited with the withdrawn Old Notes or otherwise
comply with DTC procedure. All questions as to the validity of notices of
withdrawal, including time of receipt, will be determined by the Company, and
such determination will be final and binding on all parties.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue New Notes in
exchange for any properly tendered Old Notes not theretofore accepted and may
terminate the Exchange Offer, or, at its option, modify or otherwise amend the
Exchange Offer, if either of the following events occur:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority which,
in the sole judgment of the Company, would prohibit, restrict or otherwise
render illegal consummation of the Exchange Offer, or
28
<PAGE> 32
(b) there shall occur a change in the current interpretation by the
staff of the Commission which, in the Company's sole judgment, might
materially impair the Company's ability to proceed with the Exchange Offer.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Old Notes upon the occurrence of either of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Old Notes).
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in its sole discretion. The
foregoing conditions must be either satisfied or waived prior to termination of
the Exchange Offer. Any determination made by the Company concerning an event,
development or circumstance described or referred to above will be final and
binding on all parties.
EXCHANGE AGENT
Bank One, N.A. has been appointed as Exchange Agent for the Exchange Offer.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
By Mail (registered or certified mail recommended) hand delivery or overnight
courier:
Bank One, N.A.
Corporate Trust Operations
235 West Schrock Road
Westerville, Ohio 43081
By Facsimile: (614) 248-5088 Confirm by Telephone: (800) 346-5153
(For Eligible Institutions Only)
FEES AND EXPENSES
The expense of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitations
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.
The Company has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, the Letter of
Transmittal and related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees of the Company, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, New Notes, or Old
Notes for principal amounts not tendered or accepted for exchange, are to be
delivered to, or are to be issued in the name of, any person other than the
registered Holder of the Old Notes tendered or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of
29
<PAGE> 33
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in the Company's accounting records on the date of the exchange
because the exchange of the Old Notes for the New Notes is the completion of the
selling process contemplated in the issuance of the Old Notes. Accordingly, no
gain or loss for accounting purposes will be recognized. The expenses of the
Exchange Offer and the unamortized expenses related to the issuance of the Old
Notes will be amortized over the term of the New Notes.
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, shall create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) Holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to Holders of Old Notes
in such jurisdiction.
As a result of the making of the Exchange Offer, the Company will have
fulfilled a covenant contained in the Registration Rights Agreement. Holders of
the Old Notes who do not tender their Old Notes in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
limitations applicable thereto under the Indenture except for any such rights
under the Registration Rights Agreement and except that the Old Notes will not
be entitled to the contingent increase in interest rate provided for in the Old
Notes. All untendered Old Notes will continue to be subject to the restrictions
on transfer set forth in the Indenture and the Old Notes. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market, if
any, for untendered Old Notes could be adversely affected.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes as contemplated
in this Prospectus, the Company will receive in exchange Old Notes in like
principal amount, the terms of which are identical in all material respects to
the New Notes, except that the offer and sale of such New Notes will be
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. Old Notes surrendered in exchange for New
Notes will be retired and canceled and cannot be reissued. Accordingly, issuance
of the New Notes will not result in a change in the indebtedness of the Company.
The Company received gross proceeds of approximately $350.0 million from
the April Offering, the net proceeds of which were applied to fund a portion of
the Acquisition.
30
<PAGE> 34
CAPITALIZATION
The following table sets forth cash, cash equivalents and short-term
investments, debt and the consolidated capitalization of the Company as of
December 31, 1997, as adjusted to give effect to the Transactions. See "Use of
Proceeds," "Unaudited Pro Forma Consolidated Financial Data" and "Selected
Consolidated Financial Data." This table should be read in conjunction with the
consolidated financial statements and the related notes included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------------------------------
WHX H&H(1) ADJUSTMENTS PRO FORMA(1)
--------- -------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments.............................. $ 582,552 $ 7,259 $ (94,858) $ 494,953
Margin borrowings.......................... (276,618) -- -- (276,618)
--------- -------- --------- ----------
Cash, cash equivalents and short-term
investments, net......................... $ 305,934 $ 7,259 $ (94,858) $ 218,335
========= ======== ========= ==========
Total debt (excluding margin borrowings)...
Revolving credit facilities.............. $ 89,800 $ 25,000 $ 38,884(2) $ 153,684
Term loan................................ 75,000 -- -- 75,000
WPC 9 1/4% Notes......................... 273,966 -- -- 273,966
Other.................................... 1,953 33,380 -- 35,333
Industrial revenue bonds................. -- 7,500 -- 7,500
H&H 7.31% Notes.......................... -- 125,000 -- 125,000
Notes offered hereby..................... -- -- 350,000 350,000
--------- -------- --------- ----------
Total debt....................... 440,719 190,880 388,884 1,020,483
Stockholders' equity....................... 461,876 112,408 (119,403) 454,881
--------- -------- --------- ----------
Total capitalization....................... $ 902,595 $303,288 $ 269,481 $1,475,364
========= ======== ========= ==========
</TABLE>
- ------------------------------
(1) Pro forma information gives effect to the Transactions as if they had
occurred as of December 31, 1997. Information relating to H&H has been
derived from the H&H 10-K and from other publicly available information
regarding H&H incorporated by reference.
(2) Represents amounts borrowed by H&H under the H&H Revolving Credit Facility
prior to the closing of the Acquisition to make payments to cancel various
stock options held by employees and directors of H&H, to make certain
severance payments and various other employee-related commitments and to pay
certain expenses incurred in connection with the Acquisition.
31
<PAGE> 35
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data give effect
to the Acquisition by the Company of H&H in a transaction to be accounted for as
a purchase. The unaudited pro forma consolidated balance sheet is based on the
individual balance sheet of the Company appearing elsewhere in this Prospectus
and the individual balance sheet of H&H, which is publicly available, and has
been prepared to reflect the acquisition by the Company of H&H as of December
31, 1997. The unaudited pro forma consolidated statement of operations is based
on the individual statement of operations of the Company appearing elsewhere in
this Prospectus and the individual statement of operations of H&H, which is
publicly available, and combines the results of operations of the Company and of
H&H for the fiscal year ended December 31, 1997, as if the Acquisition occurred
on January 1, 1997. The unaudited pro forma consolidated financial data do not
purport to represent what the Company's results of operations or financial
position actually would have been if the Transactions had been consummated on
the dates indicated, or what such results or financial position will be for any
future period or as of any future date. EBITDA is operating income plus
depreciation, amortization and special charges. The Company has included EBITDA
because it is commonly used by certain investors and analysts to analyze and
compare companies on the basis of operating performance, leverage and liquidity
and to determine a company's ability to service debt. EBITDA does not represent
cash flows as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all of the Company's
cash needs. EBITDA should not be considered in isolation or as a substitute for
net income (loss), cash flows from operating activities or other measures of
liquidity determined in accordance with generally accepted accounting
principles. The unaudited pro forma consolidated financial data should be read
in conjunction with the Company's audited historical financial statements and
notes thereto included elsewhere in this Prospectus, the H&H 10-K and other
publicly available information regarding H&H incorporated by reference.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
WHX H&H(1) ADJUSTMENTS PRO FORMA
--------- -------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................................. $ 642,096 $451,110 $ -- $1,093,206
Cost of products sold (excluding depreciation)........ 720,722 337,478 6,408(2) 1,064,608
Depreciation and amortization......................... 49,445 13,509 6,201(3) 69,155
Selling, administrative and general expenses.......... 68,190 52,540 -- 120,730
Special charge........................................ 92,701 -- -- 92,701
--------- -------- -------- ----------
Operating income (loss)............................... (288,962) 47,583 (12,609) (253,988)
Interest expense on debt.............................. 29,047 14,452 41,472(4) 84,971
Other income.......................................... 50,668 2,920 (9,280)(5) 44,308
--------- -------- -------- ----------
Income (loss) before income taxes and extraordinary
items............................................... (267,341) 36,051 (63,361) (294,651)
Tax provision (benefit)............................... (93,569) 15,141 (21,605)(6) (100,033)
--------- -------- -------- ----------
Income (loss) before extraordinary items.............. (173,772) 20,910 (41,756) (194,618)
Dividend requirement for preferred stock.............. 20,657 -- -- 20,657
--------- -------- -------- ----------
Income (loss) before extraordinary items applicable to
common stock........................................ $(194,429) $ 20,910 $(41,756) $ (215,275)
========= ======== ======== ==========
Income (loss) per share of common stock before
extraordinary items -- basic and diluted............ $ (8.83) -- -- $ (9.77)
========= ==========
Weighted average shares of common stock outstanding --
basic and diluted................................... 22,028 -- -- 22,028
========= ==========
OTHER DATA:
Cash flow from:
Operations.......................................... $ (12,916) $ 32,897 $(48,752)(8) $ (28,771)
Investing........................................... (79,724) (71,149) --(9) (150,873)
Financing........................................... 58,622 35,913 -- 94,535
EBITDA, adjusted for special charge(7)................ $(146,816) $ 54,684 $ -- $ (92,132)
Capital expenditures.................................. 36,779 18,460 -- 55,239
Cash, cash equivalent and short-term investments...... $ 582,552 $ 7,259 $(94,858) $ 494,953
Margin borrowings..................................... (276,618) -- -- (276,618)
--------- -------- -------- ----------
Cash, cash equivalent and short-term investments,
net................................................. $ 305,934 $ 7,259 $(94,858) $ 218,335
========= ======== ======== ==========
</TABLE>
32
<PAGE> 36
FOOTNOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
- ------------------------------
(1) Certain H&H line items have been reclassified, based upon publicly available
information, to conform to WHX's financial presentation.
(2) Represents elimination of H&H LIFO liquidation gain.
(3) Represents amortization of goodwill on a straight line basis over 40 years.
(4) Represents interest expense on the Notes, amortization of related deferred
financing costs and interest on H&H borrowings used to make payments to
cancel various stock options held by employees and directors of H&H, to make
certain severance payments and various other employee-related commitments
and to pay certain expenses incurred in connection with the Acquisition.
(5) Represents reduction in investment earnings related to cash used to fund a
portion of the Acquisition.
(6) Represents income tax benefit on the above adjustments.
(7) H&H EBITDA excludes LIFO gains of $6,408, which LIFO gains are included in
cost of sales.
(8) Represents interest expense on the Notes, interest on H&H borrowings
incurred in connection with the Acquisition and a reduction in investment
earnings related to cash used to fund a portion of the Acquisition.
(9) Non-recurring adjustments to the balance sheet are presented in the
Unaudited Pro Forma Consolidated Balance Sheet on page 34 and in the
Capitalization Table on page 31.
33
<PAGE> 37
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
WHX H&H ADJUSTMENTS PRO FORMA
---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 1,002 $ 7,259 $ (6,000)(1) $ 2,261
Short-term investments.................. 581,550 -- (88,858)(2) 492,692
Trade receivables....................... 44,993 59,084 -- 104,077
Inventories............................. 284,757 77,294 107,000(3) 469,051
Prepaid expenses, deferred charges and
other current assets................. 26,581 14,611 8,462(4) 49,654
---------- -------- --------- ----------
Total current assets............ 938,883 158,248 20,604 1,117,735
---------- -------- --------- ----------
Investment in associated companies...... 80,409 3,870 -- 84,279
Property, plant and equipment, net...... 738,660 94,988 -- 833,648
Deferred income taxes................... 196,966 -- -- 196,966
Prepaid/intangible pensions............. 76,714 60,659 (69,854)(5) 67,519
Goodwill and other intangibles.......... 4,053 65,058 262,026(6) 331,137
Deferred charges and other assets....... 34,718 9,974 -- 44,692
---------- -------- --------- ----------
Total assets.................... $2,070,403 $392,797 $ 212,776 $2,675,976
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables.......................... $ 123,872 $ 36,999 $ -- $ 160,871
Short-term debt......................... 366,418 -- 38,884(7) 405,302
Deferred income taxes -- current........ 32,196 -- 44,940(8) 77,136
Other current liabilities............... 86,559 30,008 -- 116,567
Long-term debt due in one year............ 466 -- -- 466
---------- -------- --------- ----------
Total current liabilities....... 609,511 67,007 83,824 760,342
---------- -------- --------- ----------
Long-term debt............................ 350,453 190,880 350,000(9) 891,333
Pension liability......................... 166,652 -- (133,605)(5) 33,047
Other employee benefit liabilities........ 427,124 -- 8,504(10) 435,628
Other liabilities......................... 49,979 22,502 23,456(8) 95,937
---------- -------- --------- ----------
Total liabilities............... 1,603,719 280,389 332,179 2,216,287
---------- -------- --------- ----------
Redeemable common stock................... 4,808 -- -- 4,808
Stockholders' equity:
Preferred stock......................... 589 -- -- 589
Common stock............................ 193 14,611 (14,611)(11) 193
Treasury stock (at cost)................ (2,218) (45,586) 45,586(11) (2,218)
Unrealized gain on securities........... 24,237 -- (6,995)(12) 17,242
Foreign currency translation
adjustment........................... -- (1,462) 1,462(11) --
Additional paid-in capital................ 602,657 14,410 (14,410)(11) 602,657
Accumulated earnings (deficit)............ (163,582) 130,435 (130,435)(11) (163,582)
---------- -------- --------- ----------
Total stockholders' equity...... 461,876 112,408 (119,403) 454,881
---------- -------- --------- ----------
Total liabilities and
stockholders' equity.......... $2,070,403 $392,797 $ 212,776 $2,675,976
========== ======== ========= ==========
</TABLE>
(footnotes on following page)
34
<PAGE> 38
FOOTNOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
- ------------------------------
(1) Represents certain estimated H&H advisory and professional fees related to
the Acquisition.
(2) Reflects the WHX cash used to fund a portion of the purchase price of the
Acquisition and the use of the H&H Shares, valued as of December 31, 1997,
currently owned by WHX to fund a portion of the purchase price of the
Acquisition.
(3) Represents adjustment to reflect inventories at estimated fair value.
(4) Represents adjustment to reduce funded supplemental retirement benefits of
$1,700 and to reflect deferred tax benefits related to cancellation of
stock options, severance payments and other benefits of $10,162.
(5) Represents adjustment of H&H pension asset to fair value and to reflect the
merging of the WHX and H&H defined benefit pension plans, based upon the
historical actuarial assumptions of the separate plans.
(6) Represents the excess of acquisition cost over fair market value of net
assets acquired ($248,026) and deferred transaction fees and expenses
($14,000). Fixed assets have not been stated at fair value, as this
information is not readily available. The following sets forth the
calculation of additional goodwill associated with the Acquisition:
<TABLE>
<S> <C>
Purchase price.............................................. $ 431,864
Historical net assets acquired.............................. (112,408)
Fair market value adjustments............................... (93,852)
Transaction fees and expenses............................... (14,000)
H&H acquisition related fees and expenses, net of tax....... 36,422
---------
Additional goodwill......................................... $ 248,026
=========
</TABLE>
(7) Represents debt incurred by H&H to make payments to cancel various stock
options held by employees and directors of H&H, to make certain severance
payments and various other employee-related commitments and to pay certain
expenses incurred in connection with the Acquisition.
(8) Represents deferred taxes on fair market value adjustments.
(9) Represents the issuance of the Notes.
(10) Represents adjustment to reclassify historical H&H retiree medical
liabilities from prepaid pension and to reflect liability at fair value.
(11) Represents adjustment to eliminate common shareholder equity accounts of
H&H.
(12) Reflects the elimination of unrealized gain on H&H Shares held by WHX as of
December 31, 1997.
35
<PAGE> 39
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for each of the five fiscal years ended December 31, 1997. Such
information is derived from the consolidated financial statements of the Company
which have been audited by Price Waterhouse LLP, independent accountants. The
information should be read in conjunction with the consolidated financial
statements and related consolidated notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales......................... $1,046,795 $1,193,878 $1,364,614 $1,232,695 $ 642,096
Cost of products sold (excluding
depreciation and profit
sharing)........................ 876,814 979,277 1,147,899 1,096,228 720,722
Depreciation...................... 57,069 61,514 67,700 68,956 49,445
Profit sharing.................... 4,819 9,257 6,718 -- --
Selling, administrative and
general expenses................ 58,564 64,540 66,531 70,971 68,190
Special charge(1)................. -- -- -- -- 92,701
---------- ---------- ---------- ---------- ----------
Operating income (loss)........... 49,529 79,290 75,766 (3,460) (288,962)
Interest expense on debt.......... 21,373 22,581 22,830 25,963 29,047
Other income...................... 11,965 17,925 47,139 25,974 50,668
B & LE settlement................. -- 36,091 -- -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before taxes and
extraordinary items............. 40,121 110,725 100,075 (3,449) (267,341)
Tax provision (benefit)........... 9,400 24,360 19,014 (4,107) (93,569)
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
items........................... 30,721 86,365 81,061 658 (173,772)
Extraordinary items(2)............ (36,953) (9,984) (3,043) -- (25,990)
---------- ---------- ---------- ---------- ----------
Net income (loss)................. (6,232) 76,381 78,018 658 (199,762)
Dividend requirement for preferred
stock........................... 4,713 13,177 22,875 22,313 20,657
---------- ---------- ---------- ---------- ----------
Net income (loss) available to
common stock.................... $ (10,945) $ 63,204 $ 55,143 $ (21,655) $ (220,419)
========== ========== ========== ========== ==========
Income (loss) per common share
from continuing
operations -- basic............. $ 1.08 $ 2.72 $ 2.25 $ (.83) $ (8.83)
Income (loss) per common share
from continuing
operations -- assuming
dilution........................ $ 1.00 $ 2.11 $ 1.79 $ (.83) $ (8.83)
Ratio of earnings to fixed
charges(3)...................... 2.0x 4.0x 3.9x -- --
FINANCIAL POSITION:
Cash, cash equivalents and short
term investments................ $ 279,856 $ 401,606 $ 439,493 $ 482,582 $ 582,552
Margin borrowings................. -- -- -- (70,223) (276,618)
---------- ---------- ---------- ---------- ----------
Cash, cash equivalents and short
term investments, net........... $ 279,856 $ 401,606 $ 439,493 $ 412,359 $ 305,934
========== ========== ========== ========== ==========
Working capital................... 398,051 524,051 541,045 491,956 329,372
Property, plant and equipment,
net............................. 748,673 768,284 793,319 755,412 738,660
Plant additions and
improvements.................... 73,652 82,020 83,282 35,436 36,779
Total assets...................... 1,491,600 1,729,908 1,796,467 1,718,779 2,070,403
Long-term debt.................... 346,823 289,500 285,676 268,198 350,453
Stockholders' equity.............. 432,283 692,254 768,405 714,437 461,876
PRODUCTION AND SHIPMENTS:
Raw steel production -- tons...... 2,258,000 2,270,000 2,199,000 1,782,000 663,000
Shipments of steel
products -- tons................ 2,251,000 2,397,000 2,515,000 2,267,000 1,060,000
</TABLE>
36
<PAGE> 40
FOOTNOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
- ------------------------------
(1) Includes a special charge for benefits included in the New Labor Agreement
related to enhanced retirement benefits, 1997 bonuses, special assistance
payments for those not returning to work immediately and for option grants.
(2) Extraordinary items reflect the after tax effect of early retirement of debt
premiums and coal retiree medical benefits in 1993; adoption of Statement of
Financial Accounting Standard No. 112, "Accounting for Postemployment
Benefits" in 1994; coal retiree medical benefits in 1995; and retirement of
debt premiums and coal retiree medical benefits in 1997.
(3) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes, extraordinary items and
fixed charges. Fixed charges consist of interest expense and the portion of
rental expense deemed representative of the interest factor. For the years
ended December 31, 1996 and December 31, 1997, earnings were not sufficient
to cover fixed charges. Additional earnings of $15.4 million for 1996 and
$267.9 million for 1997 would have been required to achieve a ratio of 1.0x
for such periods.
37
<PAGE> 41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS;
TRANSACTIONS BETWEEN THE COMPANY AND SUBSIDIARIES
John R. Scheessele, a former officer of the Company, WPC and WPSC is a
director of Wheeling-Nisshin. Akimune Takewaka is a former director of WPSC and
Wheeling-Nisshin and was also Chairman of the Board of Wheeling-Nisshin. Paul W.
Bucha, the Chairman of the Board of WPSC, has been designated as WPSC's nominee
to the Board of Wheeling-Nisshin to replace Mr. Scheessele. Mr. Takewaka has
been replaced by Masahiko Matsueda, a director of Wheeling-Nisshin, as a
director of WPSC. James D. Hesse, a former Vice President of the Company, is
President, Chief Executive Officer and a director of Wheeling-Nisshin. The
Company currently holds a 35.7% equity interest in Wheeling-Nisshin.
In April 1998, Paul W. Bucha, a director of the Company, became Chairman of
the Board of WPSC. In connection therewith, Mr. Bucha has received options to
purchase 50,000 shares of Common Stock and will be paid a salary of $300,000 per
annum in connection with such position.
Marvin L. Olshan, a director and Secretary of the Company, is a member of
Olshan Grundman Frome & Rosenzweig LLP, which firm has been retained as outside
general counsel to the Company since January 1991. Fees received from the
Company by such firm during the fiscal year ended December 31, 1997 were
approximately $814,000.
The Company and its affiliates have in the past entered into intercompany
transactions and agreements incident to their respective businesses, and the
Company and its affiliates may enter into material transactions and agreements
from time to time in the future. In connection with the 9 1/4% Notes Offering,
the Company and its affiliates have amended certain existing agreements and have
also entered into agreements with respect to the respective obligations that
will be assumed by each party. These agreements were not the result of arm's
length negotiations between the parties. It is possible that conflicts of
interest could arise between the Company and its affiliates in certain
circumstances.
The following is a summary of certain agreements, arrangements and
transactions between the Company and its affiliates.
INDEMNIFICATION AND INTERCREDITOR AGREEMENT
Pursuant to the intercreditor, indemnification and subordinated agreement
(the "Indemnification Agreement"), WPC has agreed to indemnify WHX and hold WHX
harmless from all liabilities relating to the operations of WPC whether relating
to or arising out of occurrences prior to, on or after the closing of the 9 1/4%
Notes Offering, and other obligations assumed at the closing thereof. Similarly,
WHX has agreed to indemnify WPC and hold WPC harmless from all liabilities
relating to the operations of the business of WHX, other than the business of
WPC, whether relating to or arising out of occurrences prior to, on or after the
closing of the 9 1/4% Notes Offering. To the extent WHX is called upon to make
payments under its guarantees of certain of WPC's indebtedness, WPC will
indemnify it in respect of such payments. To the extent WPC's actions cause a
default under the WPSC Revolving Credit Facility or the termination of the
Receivables Facility or a default under any other debt instrument of WHX or
Unimast, WPC will indemnify WHX and Unimast in respect of any incremental costs
and expenses suffered by WHX or Unimast on account thereof. WPC's obligations
under the Indemnification Agreement are subordinate to its obligations under the
WPC 9 1/4% Notes. To the extent WHX's or Unimast's actions cause a default under
the WPSC Revolving Credit Facility or the termination of the Receivables
Facility or a default under any other debt instrument of WPC, WHX and Unimast
will indemnify WPC in respect of any incremental costs and expenses and damages
suffered by WPC on account thereof.
TAX SHARING AGREEMENT
WPC will be included in the consolidated federal income tax returns filed
by WHX during all periods in which it has been or will be a wholly-owned
subsidiary of WHX ("Affiliation Year"). WPC and WHX have entered into an
agreement (the "Tax Sharing Agreement") providing for the manner of determining
payments with respect to federal income tax liabilities and benefits arising in
Affiliation Years. Under the Tax Sharing
38
<PAGE> 42
Agreement, WPC will pay to WHX an amount equal to the share of WHX's
consolidated federal income tax liability, generally determined on a separate
return basis, and WHX will pay WPC for any reduction in WHX's consolidated
federal income tax liability resulting from utilization or deemed utilization of
deductions, losses and credits arising which are attributable to WPC, in each
case net of any amounts theretofore paid or credited by WHX or WPC to the other
with respect thereto. In the event that WHX's consolidated federal income tax
liability for any Affiliation Year is adjusted upon audit or otherwise, WPC will
bear any additional liability or receive any refund which is attributable to
adjustments of items of income, deduction, gain, loss or credit of WPC. WHX
shall permit WPC to participate in any audits or litigation with respect to
Affiliation Years, but WHX will otherwise have exclusive and sole responsibility
and control over any such proceedings.
ADVANCES
From time to time WHX has made advances to WPC, principally to fund working
capital needs and interest payments on debt. WPC also has made advances to WHX,
from time to time, principally to fund the payment by WHX of dividends on its
outstanding preferred stock and the working capital needs of Unimast. As of
December 31, 1997, WPC had made advances to WHX in the net amount of $28.0
million. All advances were repayable upon demand and did not bear interest. To
the extent WPC has net outstanding advances from WHX, WPC's obligations to repay
such advances will be subordinated to the repayment obligations on the WPC
9 1/4% Notes.
MANAGEMENT AGREEMENT
Pursuant to a management agreement, as amended, between WHX and WPN, of
which Ronald LaBow, the Chairman of the Board of the WHX, is the sole
stockholder and an officer and a director, WPN provides financial, management,
advisory and consulting services to the Company. In 1996 and 1997, WPN received
an annual fee of $5.5 million. In 1997, the Company granted WPN options to
acquire 1,000,000 shares of Common Stock and a cash bonus of $300,000. Such
options are held by WPN as nominee for Ronald LaBow, Stewart E. Tabin and Neale
X. Trangucci, each of whom is an officer of WPN, and each has the right to
acquire 600,000, 200,000 and 200,000 shares, respectively, of Common Stock. The
Company believes that the cost of obtaining the type and quality of services
rendered by WPN under the Management Agreement is no less favorable than the
cost at which the Company could obtain such services from unaffiliated entities.
DESCRIPTION OF PRINCIPAL INDEBTEDNESS
Immediately prior to the April Offering, WHX had no outstanding debt
obligations other than WHX's keepwell obligation under the WPSC Revolving Credit
Facility and the indemnification of the repayment of Unimast's obligation under
the WPSC Revolving Credit Facility. Set forth below are the debt obligations of
the Company and its subsidiaries subsequent to the Transactions.
PRINCIPAL INDEBTEDNESS OF WHX
10 1/2% SENIOR NOTES DUE 2005
On April 7, 1998, WHX issued $350.0 million of the Old Notes. Interest on
the Old Notes is payable semi-annually on April 15 and October 15 of each year,
commencing October 15, 1998. The Old Notes mature on April 15, 2005.
The Old Notes are redeemable at the option of WHX, in whole or in part, on
or after April 15, 2002 at specified redemption prices, plus accrued interest
and liquidated damages, if any, thereon to the date of redemption.
Upon the occurrence of a Change of Control (as defined in the Indenture),
WHX will be required to make an offer to repurchase all or any part of each
holder's Old Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages (as defined in the Indenture), if any,
thereon to the date of repurchase.
39
<PAGE> 43
The Old Notes are unsecured obligations of WHX, ranking senior in right of
payment to all existing and future subordinated indebtedness of WHX and pari
passu with all existing and future senior unsecured indebtedness of WHX. The Old
Notes are effectively subordinated to secured indebtedness of WHX to the extent
of the assets securing such indebtedness.
The Indenture, pursuant to which the Old Notes were issued contains certain
covenants, including, but not limited to, covenants with respect to: (i)
limitations on indebtedness and preferred stock; (ii) limitations on restricted
payments; (iii) limitations on transactions with affiliates; (iv) limitations on
liens; (v) limitations on sale of assets; (vi) limitations on dividends and
other payment restrictions affecting subsidiaries; and (vii) restrictions on
consolidations, mergers and sales of assets.
PRINCIPAL INDEBTEDNESS OF WPC AND ITS SUBSIDIARIES
REVOLVING CREDIT FACILITY
WPSC has entered into the WPSC Revolving Credit Facility with Citibank,
N.A. as agent. The WPSC Revolving Credit Facility provides for borrowing for
general corporate purposes of up to $150.0 million, and with a $35.0 million
sublimit for letters of credit. The WPSC Revolving Credit Facility expires May
3, 1999. Borrowings under the WPSC Revolving Credit Facility are secured
primarily by inventory of WPC and Unimast. The terms of the WPSC Revolving
Credit Facility contain various restrictive covenants, limiting among other
things, dividend payments or other distributions of assets, as defined in the
WPSC Revolving Credit Facility. Certain financial covenants associated with
leverage, net worth, capital spending, cash flow and interest coverage must also
be maintained. WPC and Unimast have each guaranteed all of the obligations of
WPSC under the WPSC Revolving Credit Facility. Borrowings outstanding under the
WPSC Revolving Credit Facility at December 31, 1997 totaled $89.8 million.
The WPSC Revolving Credit Facility bears interest, payable monthly in
arrears, at the Citibank prime rate plus 1.0% and/or a Eurodollar rate margin
plus 2.25%, but the margin over the prime rate and the Eurodollar rate can
fluctuate up or down based upon performance. The maximum prime rate margin is
1.00% and the maximum Eurodollar margin is 2.25%. The letter of credit fee is
2.25% and is also performance-based.
LETTER OF CREDIT FACILITY
WPSC also has a separate facility with Citibank, N.A. for letters of credit
up to $50.0 million. At December 31, 1997, letters of credit totaling $9.3
million were outstanding under this facility. The letters of credit are
collateralized at 105% with U.S. Government securities owned by the Company, and
are subject to an administrative charge of 0.4% per annum on the amount of
outstanding letters of credit.
WPC TERM LOAN AGREEMENT
WPC entered into the WPC Term Loan Agreement with DLJ Capital Funding,
Inc., as syndication agent, Donaldson, Lufkin & Jenrette Securities Corporation,
as arranger, Citicorp USA, Inc., as documentation agent, National City Bank, as
administrative agent, and the lenders party thereto, on November 20, 1997,
pursuant to which WPC borrowed $75.0 million. The net proceeds of the WPC Term
Loan Agreement were used, together with the net proceeds of the 9 1/4% Notes
Offering, to defease the then-outstanding WPC 9 3/8% Senior Notes and to reduce
borrowings under the WPSC Revolving Credit Facility.
The WPC Term Loan Agreement matures on November 15, 2006. Amounts
outstanding under the WPC Term Loan Agreement are expected to bear interest at
either (i) the Alternate Base Rate (as defined therein) plus 2.25% or (ii) the
LIBOR Rate (as defined therein) plus 3.25%, determined at the WPC's option. The
Company's obligations under the WPC Term Loan Agreement is guaranteed by all of
WPC's existing and future subsidiaries. WPC may prepay the obligations under the
WPC Term Loan Agreement beginning on November 15, 1998, subject to a premium of
2.0% of the principal amount thereof. Such premium declines to 1.0% on November
15, 1999 with no premium on or after November 15, 2000.
The WPC Term Loan Agreement contains certain covenants, including, but not
limited to, covenants with respect to: (i) limitations on indebtedness; (ii)
limitations on restricted payments; (iii) limitations on
40
<PAGE> 44
transactions with affiliates; (iv) limitations on liens; (v) limitations on sale
of assets; (vi) limitations on issuance and sale of capital stock of
subsidiaries; (vii) limitations on dividends and other payment restrictions
affecting subsidiaries; and (viii) restrictions on consolidations, mergers and
sales of assets.
9 1/4% SENIOR NOTES DUE 2007
On November 26, 1997, WPC issued $275.0 million of 9 1/4% Senior Notes (the
"WPC 9 1/4% Notes"). Interest on the WPC 9 1/4% Senior Notes is payable
semi-annually on May 15 and November 15 of each year, commencing May 15, 1998.
The Senior Notes mature on November 15, 2007.
The WPC 9 1/4% Notes are redeemable at the option of WPC, in whole or in
part, on or after November 15, 2002 at specified redemption prices, plus accrued
interest and liquidated damages, if any, thereon to the date of redemption.
Upon the occurrence of a Change of Control (as defined in the WPC 9 1/4%
Indenture), WPC will be required to make an offer to repurchase all or any part
of each holder's WPC 9 1/4% Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages (as defined in the WPC 9 1/4%
Indenture), if any, thereon to the date of repurchase.
The WPC 9 1/4% Notes are unsecured obligations of WPC, ranking senior in
right of payment to all existing and future subordinated indebtedness of WPC,
and pari passu with all existing and future senior unsecured indebtedness of
WPC, including borrowings under the WPC Term Loan Agreement.
The WPC 9 1/4% Notes are unconditionally and irrevocably guaranteed on a
senior basis by the guarantors, which consist of all of WPC's present and future
operating subsidiaries.
The WPC 9 1/4% Senior Notes indenture contains certain covenants,
including, but not limited to, covenants with respect to: (i) limitations on
indebtedness; (ii) limitations on restricted payments; (iii) limitations on
transactions with affiliates; (iv) limitations on liens; (v) limitations on sale
of assets; (vi) limitations on issuance and sale of capital stock of
subsidiaries; (vii) limitations on dividends and other payment restrictions
affecting subsidiaries; and (viii) restrictions on consolidations, mergers and
sales of assets.
A registration statement relating to an exchange offer for the WPC 9 1/4%
Notes under the Securities Act has been declared effective by the Commission and
the exchange offer for the WPC 9 1/4% Notes has been completed. The WPC 9 1/4%
Notes are eligible for trading in the Private Offerings, Resales and Trading
through Automated Linkages ("PORTAL") market.
PRINCIPAL INDEBTEDNESS OF H&H
H&H REVOLVING CREDIT FACILITY
H&H has a revolving credit facility (the "H&H Revolving Credit Facility")
with several financial institutions as lenders and the Bank of Nova Scotia as
administrative agent. The H&H Revolving Credit Facility provides for borrowing
for general corporate purposes of up to $200.0 million, with a $30.0 million
sublimit for letters of credit. The H&H Revolving Credit Facility expires on
September 30, 2002, subject to annual one-year extensions. Borrowings under the
H&H Revolving Credit Facility are unsecured.
The H&H Revolving Credit Facility has restrictive covenants. The H&H
Revolving Credit Facility contains customary events of default. Unless waived,
the consummation of the Tender Offer would constitute a Change of Control (as
defined in the H&H Revolving Credit Facility) and an event of default. The
occurrence of an event of default permits the lenders to declare all or a
portion of the outstanding borrowings under the H&H Revolving Credit Facility
due and payable. The lenders under the H&H Revolving Credit Facility have agreed
to waive any potential default resulting from the Acquisition through June 30,
1998. The Company intends to obtain the consent and/or waiver of the lenders to
the continuation of the H&H Revolving Credit Facility after June 30, 1998 or
replace the H&H Revolving Credit Facility with a new credit facility on
substantially similar terms, although there can be no assurance that the Company
will be successful in obtaining a replacement credit facility on substantially
similar terms. There can be no assurance that such
41
<PAGE> 45
consents and/or waivers will be obtained, and if the Company is unable to obtain
them it will be required to pay off the outstanding indebtedness. Borrowings
outstanding against the H&H Revolving Credit Facility at December 31, 1997
totaled approximately $25.0 million. The H&H Revolving Credit Facility bears
interest, payable quarterly in arrears. In addition to the indebtedness under
the H&H Revolving Credit Facility, at December 31, 1997, H&H had additional
unsecured short term borrowings of approximately $33.0 million.
H&H 7.31% NOTES
On April 17, 1997, H&H issued the H&H 7.31% Notes which are unsecured
senior notes due April 30, 2004. Cash interest is payable semi-annually in
arrears on each April 30 and October 30 of each year.
H&H may prepay amounts owed under the H&H 7.31% Notes at any time at 100%
of the principal amount so prepaid plus the Make-Whole Amount (as defined in the
agreement governing the H&H 7.31% Notes). The H&H 7.31% Notes contain certain
affirmative and negative covenants customary of agreements of this type, and
provides for customary events of default. The H&H 7.31% Notes do not contain any
"change of control" provisions, but do contain certain provisions requiring
maintenance of minimum levels of net worth and cash flow. The Company may be
required to repay the principal amount of the notes issued under the H&H 7.31%
Notes if the Company determines that the covenants set forth in the H&H 7.31%
Notes are inconsistent with the proposed operations of H&H subsequent to the
Merger and the Company was not able to cause such covenants to be amended to its
satisfaction.
DESCRIPTION OF RECEIVABLES FACILITY
In August 1994, WPC entered into an agreement to sell, up to $75.0 million
on a revolving basis, an undivided percentage ownership in a designated pool of
accounts receivable generated by WPC (the "Receivables Facility"). The
Receivables Facility expires in August 1999. In July 1995, WPC amended the
Receivables Facility to sell an additional $20.0 million on similar terms and
conditions. In October 1995, WPC entered into an agreement to include the
receivables generated by Unimast, in the pool of accounts receivable sold.
Accounts receivable at December 31, 1996 and 1997 exclude $45.0 and $69.0
million, respectively, representing accounts receivable sold with recourse
limited to the extent of uncollectible balances. Fees paid by the Company under
such agreement range from 5.76% to 8.50% of the outstanding amount of
receivables sold. Based on the Company's collection history, the Company
believes that credit risk associated with the above arrangement is immaterial.
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<PAGE> 46
DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes were issued under the Indenture among the Company and Bank
One, N.A., as Trustee (in such capacity, the "Trustee"). The New Notes will be
issued under the Indenture, which will be qualified under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), upon the effectiveness of
the Registration Statement of which this Prospectus is a part. The form and
terms of the New Notes are the same in all material respects as the form and
terms of the Old Notes, except that the offer and sale of the New Notes will
have been registered under the Securities Act and, therefore, the New Notes will
not bear legends restricting transfer thereof. Upon the consummation of the
Exchange Offer, Holders of Notes will not be entitled to registration rights
under, or the contingent increase in interest rate provided pursuant to, the
Registration Rights Agreement. The New Notes will evidence the same debt as the
Old Notes and will be treated as a single class under the Indenture with any Old
Notes that remain outstanding.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act as in effect on
the date of the Indenture. The Notes are subject to all such terms and reference
is made to the Indenture and the Trust Indenture Act for a statement thereof. A
copy of the Indenture has been filed with the Commission as an exhibit to the
Registration Statement of which this Prospectus forms a part. The following
summary, which describes certain provisions of the Indenture and the Notes, does
not purport to be complete, although all material terms of such documents are
set forth herein, and is subject to, and is qualified in its entirety by
reference to, the Indenture and the Notes, including the definitions therein of
terms not defined herein and those terms made a part thereof by the Trust
Indenture Act. Whenever particular defined terms of the Indenture not otherwise
defined herein are referred to, such defined terms are incorporated herein by
reference.
PRINCIPAL, MATURITY AND INTEREST
The Notes are or will be senior unsecured obligations of the Company,
limited in aggregate principal amount to $350,000,000 and will mature on April
15, 2005. Interest on the Notes will accrue at the rate of 10 1/2% per annum and
will be payable semi-annually in arrears on April 15 and October 15 (each, an
"Interest Payment Date"), commencing on October 15, 1998, to holders of record
on the immediately preceding April 1 and October 1. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of and interest, premium (if any) and Liquidated Damages (if any) on
the Notes will be payable at the office or agency of the Company maintained for
such purpose or, at the option of the Company, payment may be made by check
mailed to holders of the Notes at their respective addresses set forth in the
register of holders; provided, however, that all payments with respect to Notes
the holders of which have given wire transfer instructions to the Company will
be required to be made by wire transfer of immediately available funds to the
accounts specified by the holders thereof. Until otherwise designated by the
Company, the Company's office or agency will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
and integral multiples thereof.
RANKING
The Notes are or will be unsecured obligations of the Company, ranking
senior in right of payment to all existing and future subordinated indebtedness
of the Company and pari passu with all existing and future senior unsecured
indebtedness of the Company. The Notes will be effectively subordinated to
secured indebtedness of the Company to the extent of the assets securing the
indebtedness. The Company is a holding company substantially all of whose assets
consist of the stock of its Subsidiaries, and, therefore, the Notes will be
effectively subordinated to all outstanding indebtedness and other liabilities,
including trade payables, of the Company's Subsidiaries. As of December 31,
1997, on a pro forma basis after giving effect to the Transactions, the Company
would have had approximately $350.0 million (excluding margin borrowings) of
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<PAGE> 47
indebtedness outstanding, and the Company's Subsidiaries would have had
approximately $670.5 million (excluding margin borrowings) of indebtedness
outstanding.
OPTIONAL REDEMPTION
Other than pursuant to the third paragraph under this "Optional Redemption"
section, the Notes will not be redeemable at the Company's option prior to April
15, 2002. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 or more than
60 days notice to each holder of Notes to be redeemed, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the 12-month period beginning on April 15 of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002.............................................. 105.250%
2003.............................................. 102.625%
2004 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to April 15, 2001, the Company
may redeem up to 35% of the aggregate principal amount of Notes originally
issued at a redemption price (expressed as a percentage of principal amount) of
110.5% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net cash
proceeds of one or more Public Equity Offerings; provided, however, that (a) at
least 65% of the aggregate principal amount of Notes initially issued remains
outstanding immediately after the occurrence of each such redemption and (b)
notice of such redemption occurs no later than 30 days following the date of the
consummation of such Public Equity Offering.
At any time prior to April 15, 2002, the Notes may also be redeemed as a
whole but not in part at the option of the Company, upon not less than 30 nor
more than 60 days prior notice mailed by first-class mail to each Holder's
registered address, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium, accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date).
"Applicable Premium" means, with respect to a Note at any redemption date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such Note
at April 15, 2002 plus (2) all required interest payments due on such Note
through April 15, 2002, computed using a discount rate equal to the Treasury
Rate plus 50 basis points, over (B) the then outstanding principal amount of
such Note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the redemption date to April 15, 2002; provided, however, that if
the period from the redemption date to April 15, 2002 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the redemption date to April 15, 2002 is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
SELECTION AND NOTICE
In the event that less than all of the Notes are to be redeemed at any
time, selection of Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national
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<PAGE> 48
securities exchange, if any, on which the Notes are listed, or, if the Notes are
not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided, however, that no Note shall be
redeemed in a principal amount that is less than $1,000. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed and a new Note in principal amount equal to the
unredeemed portion of the original Note shall be issued in the name of the
holder thereof upon cancellation of the original Note. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders,"
the Company is not required to make any mandatory redemption of or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer (a "Change of Control Offer") to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of each holder's Notes at an offer
price in cash equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of repurchase (the "Change of Control Payment"). Within 30 days following a
Change of Control, the Company will mail a notice to each holder of Notes
describing the transaction that constitutes the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of Notes as a
result of a Change of Control.
On or before the Change of Control Payment Date, the Company will, to the
extent lawful, (a) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (b) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (c) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an officer's certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided, however, that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction. In addition, the Company
could enter into certain transactions, including acquisitions, refinancings or
other recapitalizations, that could affect the Company's capital structure or
the value of the Notes, but that would not constitute a Change of Control. The
Company's ability to repurchase Notes following a Change of Control may also be
limited by the Company's then existing financial resources.
The Company will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
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<PAGE> 49
A "Change of Control" will be deemed to have occurred upon the occurrence
of any of the following: (a) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the assets of the
Company and its Restricted Subsidiaries, taken as a whole, to any person (as
such term in used in Section 13(d)(3) of the Exchange Act), (b) the adoption of
a plan relating to the liquidation or dissolution of the Company, (c) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" or "group" (as such
terms are used in Section 13(d)(3) of the Exchange Act) other than an
underwriter or group of underwriters in an underwritten public offering becomes
the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act), directly or indirectly through one or more
intermediaries, of at least 50% of the voting power of the outstanding voting
stock of the Company, (d) the merger or consolidation of the Company with or
into another corporation with the effect that the then existing stockholders of
the Company hold less than 50% of the combined voting power of the then
outstanding voting securities of the surviving corporation of such merger or the
corporation resulting from such consolidation or (e) the first day on which more
than a majority of the members of the Board of Directors of the Company are not
Continuing Directors.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (a) was a member of the Board of
Directors of the Company on the date of original issuance of the Notes or (b)
was nominated for election to the Board of Directors of the Company with the
approval of, or whose election to the Board of Directors of the Company was
ratified by, at least a majority of the Continuing Directors who were members of
the Board of Directors of the Company at the time of such nomination or
election.
Notwithstanding the foregoing, the sale of all or a substantial portion of
the Capital Stock of WPC or all or substantially all of the assets of WPC and
its Subsidiaries shall not constitute a Change of Control if after giving effect
to such sale and the application of the net proceeds therefrom, the Company's
Adjusted Consolidated Leverage Ratio would be less than 5.0 to 1.0.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (a) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors of the Company set
forth in an officer's certificate delivered to the Trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of and (b) at least 75% of
the consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash or Cash Equivalents; provided, however, that the amount
of (i) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or such Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof) that are assumed by
the transferee of any such assets pursuant to a customary novation agreement
that releases the Company or such Restricted Subsidiary from further liability
and (ii) any securities, notes or other obligations received by the Company or
such Restricted Subsidiary from such transferee that are converted by the
Company or such Restricted Subsidiary within 60 days of receipt into cash or
Cash Equivalents (to the extent of the cash or Cash Equivalents received) shall
be deemed to be cash or Cash Equivalents for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or any such Restricted Subsidiary shall apply such Net Proceeds to
reduce Indebtedness under Permitted Working Capital Indebtedness or any other
Indebtedness of a Restricted Subsidiary of the Company (and, in the case of such
Indebtedness other than Indebtedness under Permitted Working Capital
Indebtedness, to correspondingly reduce commitments with respect thereto). To
the extent such Net Proceeds are not utilized as contemplated in the preceding
sentence, such Net Proceeds may, within 360 days after receipt thereof, be
utilized to acquire Replacement Assets; provided that such Net Proceeds may be
invested by the Company or such Restricted Subsidiary, within 360 days after
receipt thereof, in property or assets (including Capital Stock of any Person
that will become a Wholly Owned Restricted Subsidiary of the Company as a result
of such investment) not
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<PAGE> 50
constituting Replacement Assets if after giving effect to such Asset Sale and
the application of the Net Proceeds therefrom, the Company's Adjusted
Consolidated Leverage Ratio would be less than 6.0 to 1.0. Pending the final
application of any such Net Proceeds, the Company or any such Restricted
Subsidiary may otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in this paragraph will be deemed after the
expiration of the time periods set forth above to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $35.0 million, the
Company will be required to make an offer to all holders of Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase, in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
amount of Notes tendered pursuant to an Asset Sale Offer is less than the amount
that the Company is required to repurchase, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate amount of Notes
surrendered by holders thereof exceeds the amount that the Company is required
to repurchase, the Trustee shall select the Notes to be purchased on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess Proceeds
shall be reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's
Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company); (b) purchase, redeem or otherwise acquire or retire for value
(including without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company (other than any such
Equity Interests owned by the Company or any Wholly Owned Restricted Subsidiary
of the Company); (c) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value, any Indebtedness that
is subordinated in right of payment to the Notes, except a payment of interest
or principal at Stated Maturity; or (d) make any Restricted Investment (all such
payments and other actions set forth in clauses (a) through (d) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Adjusted
Consolidated Leverage Ratio test set forth in the first paragraph of the
covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(iii) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture, is less than the sum of (A)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) commencing April 1, 1998 to the end of the Company's
most recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (B) 100% of the aggregate Net Cash Proceeds received by the
Company from the issue or sale since the date of the Indenture of Equity
Interests of the Company (other than Disqualified Stock) or of Disqualified
Stock or debt securities of the Company that have been converted into such
Equity Interests (other than any such Equity Interests, Disqualified Stock
or convertible debt securities sold to a Restricted Subsidiary of the
Company and other than Disqualified Stock or convertible debt securities
that have been converted into
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<PAGE> 51
Disqualified Stock), plus (C) to the extent that any Restricted Investment
that was made after the date of the Indenture is sold for cash or Cash
Equivalents or otherwise liquidated or repaid for cash or Cash Equivalents,
the sum of (x) the initial amount of such Restricted Investment and (y) 50%
of the aggregate Net Proceeds received by the Company or any Restricted
Subsidiary of the Company in excess of the initial amount of such
Restricted Investment, plus (D) $25.0 million.
The foregoing provisions do not prohibit (a) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (b) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the Net Cash Proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such Net Cash Proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (iii)(B) of the preceding paragraph; (c) the defeasance, redemption,
repurchase, retirement or other acquisition of subordinated Indebtedness with
the Net Cash Proceeds from an incurrence of, or in exchange for, Permitted
Refinancing Indebtedness; (d) the payment of any dividend by a Restricted
Subsidiary of the Company to the holders of its Equity Interests on a pro rata
basis; (e) so long as no Default or Event of Default shall have occurred and be
continuing, the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company held by any member of the Company's
or any of its Restricted Subsidiaries' management upon the death, disability or
termination of employment of such member of management; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $750,000 in any calendar year and $3.0 million
in the aggregate; (f) the payment by the Company or any of its Restricted
Subsidiaries of management fees to WPN or any Affiliate of WPN not to exceed
$5.5 million in any calendar year, in exchange for services provided to the
Company and its Restricted Subsidiaries by WPN or any Affiliate of WPN pursuant
to any management agreement between the Company and/or any of its Restricted
Subsidiaries and WPN and/or any of its Affiliates; (g) payments permitted under
the WHX Agreements; (h) the payment of cash dividends on the Company's
convertible preferred stock outstanding, and at the dividend rate in effect, on
the date of the Indenture, provided that in the case of any such dividend
payments made subsequent to January 1, 1999, the Company may only make such
dividend payments if, at the time of such dividend payment and after giving pro
forma effect thereto, the Company's Adjusted Consolidated Leverage Ratio would
be less than 6.0 to 1.0; and (i) the direct or indirect purchase or other
acquisition of Equity Interests of H&H pursuant to or in connection with the
Tender Offer and the Merger.
In determining the amount of Restricted Payments permissible under clause
(iii) of the first paragraph of this covenant, amounts expended pursuant to
clauses (a), (e) and (h) (only with respect to dividend payments made subsequent
to January 1, 1999) of the immediately preceding paragraph shall be included as
Restricted Payments for purposes of such clause (iii).
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation. All such outstanding Investments will
be deemed to constitute Investments in an amount equal to the greater of (a) the
net book value of such Investments at the time of such designation and (b) the
fair market value of such Investments at the time of such designation. Such
designation will be permitted only if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors of the Company whose resolution with respect thereto shall be
delivered to the Trustee. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an officer's certificate
stating that such Restricted
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<PAGE> 52
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant described in this section were computed.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Indebtedness) and that the Company will not
permit any of its Restricted Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company and its Restricted Subsidiaries may
incur Indebtedness and Restricted Subsidiaries of the Company may issue shares
of Preferred Stock if the Company's Adjusted Consolidated Leverage Ratio would
have been less than 5.0 to 1, on a pro forma basis after giving effect to the
incurrence of such Indebtedness or the issuance of such Preferred Stock, as the
case may be, and the application of the net proceeds therefrom.
Notwithstanding the foregoing, the Company and, to the extent set forth
below, its Restricted Subsidiaries may incur the following (each of which shall
be given independent effect):
(a) Indebtedness of the Company under the Notes and the Indenture;
(b) Permitted Working Capital Indebtedness of the Company and its
Restricted Subsidiaries;
(c) Existing Indebtedness (other than Permitted Working Capital
Indebtedness and Indebtedness under the Letter of Credit Facility);
(d) Indebtedness of the Company and its Restricted Subsidiaries under
the Letter of Credit Facility;
(e) Capital Expenditure Indebtedness, Capitalized Lease Obligations
and purchase money Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $70.0 million
at any time outstanding;
(f) (i) Hedging Obligations of the Company and its Restricted
Subsidiaries covering Indebtedness of the Company or such Restricted
Subsidiary (which Indebtedness is otherwise permitted to be incurred under
this covenant) to the extent the notional principal amount of any such
Hedging Obligation does not exceed the principal amount of the Indebtedness
to which such Hedging Obligation relates; or (ii) repurchase agreements,
reverse repurchase agreements or similar agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United
States Government or issued by any agency thereof and backed by the full
faith and credit of the United States, in each case maturing within one
year from the date of acquisition; provided that the terms of such
agreements comply with the guidelines set forth in Federal--Financial
Agreements of Depository Institutions with Securities and Others (or any
successor guidelines), as adopted by the Comptroller of the Currency;
(g) Indebtedness of the Company and its Restricted Subsidiaries in an
aggregate principal amount not to exceed $45.0 million at any time
outstanding;
(h) Indebtedness of the Company representing guarantees of
Indebtedness incurred by one of its Restricted Subsidiaries pursuant to,
and in compliance with, another provision of this covenant;
(i) Indebtedness of the Company or any of its Restricted Subsidiaries
representing guarantees of a portion of the Indebtedness of
Wheeling-Nisshin which is not greater than the Company's or such Restricted
Subsidiary's pro rata ownership of the outstanding Equity Interests in
Wheeling-Nisshin; provided, however, that (i) in the case of a guarantee of
any such Indebtedness by the Company, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes and (ii) at the time of incurrence and after giving
effect to the Indebtedness of Wheeling-Nisshin which is being guaranteed,
the Consolidated Interest Coverage Ratio of Wheeling-Nisshin for its most
recently ended four full fiscal quarters for which internal financial
statements are available would
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<PAGE> 53
have been at least 2.00 to 1, determined on a pro forma basis as if any
additional Indebtedness had been incurred at the beginning of such four
quarter period;
(j) Indebtedness of the Company or its Restricted Subsidiaries
representing guarantees of Indebtedness of Wheeling-Nisshin required to be
made pursuant to the Letter of Undertaking not to exceed $10.0 million;
(k) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly Owned Restricted Subsidiaries; provided, however, that
(i) if the Company is the obligor on such Indebtedness, such Indebtedness
is expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Notes and (ii) (A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary of the Company shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be; and
(l) any Permitted Refinancing Indebtedness representing a replacement,
renewal, refinancing or extension of all or any portion of the Indebtedness
permitted under the first paragraph and clauses (a) and (c) of this
covenant.
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, without making effective provision for all payments due under the
Indenture and the Notes to be directly secured on an equal and ratable basis
with the obligations so secured or, in the event such Indebtedness is
subordinate in right of payment to the Notes, prior to such Indebtedness, in
each case until such time as such obligations are no longer secured by a Lien.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may create, incur, assume or suffer to exist (each of which shall be given
independent effect):
(a) Permitted Liens;
(b) Liens securing Indebtedness of Restricted Subsidiaries of the
Company (so long as the Company is not a co-obligor, guarantor or otherwise
directly liable with respect to such Indebtedness), which Indebtedness is
incurred in compliance with the Indenture;
(c) Liens to secure the payment of Capital Expenditure Indebtedness
and Capitalized Lease Obligations, provided that (i) the aggregate
principal amount of Indebtedness secured by such Liens shall not exceed the
lesser of cost or fair market value of the assets or property acquired,
constructed or improved with the proceeds of such Indebtedness and (ii)
such Liens shall not encumber any other assets or property of the Company
and its Restricted Subsidiaries unless otherwise permitted under this
covenant;
(d) Liens secured by the Capital Stock or assets of Wheeling-Nisshin
or Ohio Coatings Company to the extent required under agreements as
existing on the date of the Indenture; and
(e) Liens on accounts receivable, inventory (including Owned Precious
Metal Inventory), intangibles necessary or useful for the sale of such
inventory, and other current assets of the Company or any Restricted
Subsidiary or on Capital Stock of Subsidiaries, in each case incurred to
secure Permitted Working Capital Indebtedness.
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DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (a) (i) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, or (ii) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (b) make loans or advances to the Company or
any of its Restricted Subsidiaries or (c) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (1) Existing
Indebtedness (other than Permitted Working Capital Indebtedness) as in effect on
the date of the Indenture, (2) Permitted Working Capital Indebtedness; provided
that the restrictions contained in the agreements governing such Permitted
Working Capital Indebtedness are not more restrictive in any material respect,
taken as whole, as determined in the good faith judgment of the Board of
Directors of the Company, than those contained in the Revolving Credit Facility
as in effect on the date of the Indenture, (3) the Indenture and the Notes, (4)
applicable law, (5) any instrument governing Indebtedness or Capital Stock of a
person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any person, or the properties or
assets of any person, other than the person, or the property or assets of the
person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (6)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (7) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (c) above on the property so
acquired, (8) customary provisions in bona fide contracts for the sale of
property or assets, or (9) Permitted Refinancing Indebtedness and other
Indebtedness permitted to be incurred under the Indenture (other than Permitted
Working Capital Indebtedness), provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness or other
Indebtedness are not more restrictive in any material respect, taken as a whole,
as determined in the good faith judgment of the Board of Directors of the
Company, than the most restrictive of such provisions contained in either the
indenture governing WPC's 9 1/4% Notes or in the Revolving Credit Facility, in
each case as in effect on the date of the Indenture.
The instruments governing certain existing Indebtedness of the Company's
Restricted Subsidiaries contain, and instruments governing future Indebtedness
of the Company's Restricted Subsidiaries may contain, provisions limiting the
ability of the Company's Restricted Subsidiaries to make certain distributions
to the Company. See "Risk Factors--Holding Company Structure; Limitations on
Access to Cash Flow."
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, person or entity unless (a) the Company is the surviving
corporation or the entity or the person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia, (b) the entity or person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and the Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee, (c) immediately after such
transaction no Default or Event of Default exists and (d) except in the case of
a merger of the Company with or into a Wholly Owned Restricted Subsidiary of the
Company, the Company or the entity or person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth immediately
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after the transaction equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Adjusted Consolidated
Leverage Ratio test set forth in the first paragraph of the covenant described
above under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock." Notwithstanding the foregoing, the merger of HN Acquisition and H&H
shall be permitted.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate or any officer, director or employee of the Company
(each of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated person or, if there is no such comparable transaction, on terms that
are fair and reasonable to the Company, and (b) the Company delivers to the
Trustee (i) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $2.0
million, either (A) a resolution of the Board of Directors of the Company set
forth in an officer's certificate certifying that such Affiliate Transaction
complies with clause (a) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors of
the Company or (B) if there are no disinterested members of the Board of
Directors of the Company, an opinion as to the fairness to the Company of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing and (ii) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $5.0 million, an opinion as to
the fairness to the Company of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment banking firm of
national standing; provided, however, that the following shall be deemed not to
be Affiliate Transactions: (v) customary directors' fees, indemnification or
similar arrangements or any employment agreement or other compensation plan or
arrangement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary; (w) transactions between or among the
Company and/or its Wholly-Owned Restricted Subsidiaries; (x) transactions
pursuant to the WHX Agreements or agreements with or applicable to any of
Wheeling-Nisshin, Ohio Coatings Company, the Empire-Iron Mining Partnership or
W-P Coal Company, in each case as in effect on the date of the Indenture; (y)
Restricted Payments that are permitted pursuant to clauses (e), (f) and (g) of
the second paragraph of the covenant described under the heading "--Restricted
Payments" and Indebtedness permitted to be incurred pursuant to clauses (i) and
(j) of the second paragraph of the covenant described under the heading
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; and (z) the
merger of the pension plans of WPC and the pension plans of H&H and the merger
of HN Acquisition and H&H.
PAYMENT FOR CONSENT
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or is paid to all holders of the Notes that consent, waive
or agree to amend in the timeframe set forth in the solicitation statement
documents relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not the Company is required to do
so by the rules and regulations of the Commission, the Company will file with
the Commission (unless the Commission will not accept such
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a filing) and, within 15 days of filing, or attempting to file, the same with
the Commission, furnish to the holders of the Notes (a) all quarterly and annual
financial and other information with respect to the Company and its Subsidiaries
that would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants, and (b) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, the Company will
furnish to the holders of the Notes, prospective purchasers of the Notes and
securities analysts, upon their request, the information, if any, required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (a) default in the payment when due of interest or Liquidated Damages
on the Notes and such default continues for 30 days; (b) default in payment when
due of the principal of or premium (if any) on the Notes; (c) failure by the
Company to comply with the provisions described under the captions "--Repurchase
at the Option of Holders--Change of Control," "--Asset Sales," "--Certain
Covenants--Restricted Payments," "--Incurrence of Indebtedness and Issuance of
Preferred Stock" or "--Merger, Consolidation or Sale of Assets"; (d) failure by
the Company for 30 days after notice to comply with any of its other agreements
in the Indenture or the Notes; (e) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists or is created after the date of the Indenture, which default (i) is
caused by a failure to pay principal of or premium (if any) or interest on such
Indebtedness prior to the expiration of any grace period provided in such
Indebtedness (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10.0 million or more; (f) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $10.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; and (g) certain events of bankruptcy or
insolvency with respect to the Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, all outstanding Notes will
become due and payable without further action or notice. Holders of the Notes
may not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to April
15, 2002 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the Notes.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its
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consequences under the Indenture except a continuing Default or Event of Default
in the payment of the principal of or interest or Liquidated Damages on the
Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (a) the rights of holders of outstanding Notes to
receive payments in respect of the principal of and interest, premium (if any)
and Liquidated Damages (if any) on such Notes when such payments are due from
the trust referred to below, (b) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (c) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (d) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "--Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of and interest, premium (if any) and Liquidated Damages
(if any) on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date, (ii) in
the case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred, (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred, (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit), (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute a
default under
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any material agreement or instrument (other than the Indenture) to which the
Company or any of its Restricted Subsidiaries is a party or by which the Company
or any of its Restricted Subsidiaries is bound, (vi) the Company must have
delivered to the Trustee an opinion of counsel to the effect that the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (vii) the Company must deliver to the Trustee an officer's
certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others and (viii) the Company must deliver to the Trustee an
officer's certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder of Notes may transfer or exchange Notes in accordance with the
Indenture. The registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer
or exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided below, the Indenture or the Notes may be amended or
supplemented with the consent of the holders of at least a majority in principal
amount of the Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (a) reduce the
principal amount of Notes whose holders must consent to an amendment, supplement
or waiver, (b) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (including
as described under the caption "--Repurchase at the Option of Holders"), (c)
reduce the rate of or change the time for payment of interest on any Note, (d)
waive a Default or Event of Default in the payment of principal of or interest,
premium (if any) or Liquidated Damages (if any) on the Notes (except a
rescission of acceleration of the Notes by the holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration), (e) make any Note payable in money other than
that stated in the Notes, (f) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of holders of Notes to
receive payments of principal of or interest, premium (if any) or Liquidated
Damages (if any) on the Notes, (g) waive a redemption payment with respect to
any Note (including a payment as described under the caption "--Repurchase of
the Option of Holders"), (h) make any change in the foregoing amendment and
waiver provisions or (i) modify the ranking or priority of the Notes in any
manner adverse to the Holders.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days and apply to the Commission for permission to
continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of Notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to WHX Corporation,
attention: Treasurer.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Notes are issued in fully registered form
without interest coupons. Notes sold in offshore transactions in reliance on
Regulation S under the Securities Act will initially be represented by one or
more temporary global Notes in definitive, fully registered form without
interest coupons (each a "Temporary Regulation S Global Note") and will be
deposited with the Trustee as custodian for, and registered in the name of a
nominee of, DTC for the accounts of Euroclear and Cedel Bank. The Temporary
Regulation S Global Note will be exchangeable for one or more permanent global
Notes (each a "Permanent Regulation S Global Note"; and together with the
Temporary Regulation S Global Notes, the "Regulation S Global Note") on or after
the 40th day following the Closing Date upon certification that the beneficial
interests in such global Note are owned by non-U.S. persons. Prior to the 40th
day after the Closing Date, beneficial interests in the Temporary Regulation S
Global Note may be held only through Euroclear or Cedel Bank and any resale or
other transfer of such interests to U.S. persons shall not be permitted during
such period unless such resale or transfer is made pursuant to Rule 144A or
Regulation S and in accordance with the requirements described below.
Notes sold in reliance on Rule 144A will be represented by one or more
permanent global Notes in definitive, fully registered form without interest
coupons (each a "Restricted Global Note"; and together with the Regulation S
Global Note, the "Global Notes") and will be deposited with the Trustee as
custodian for, and registered in the name of a nominee of, DTC.
Each Global Note (and any Notes issued for exchange therefor) will be
subject to certain restrictions on transfer set forth therein as described under
"Transfer Restrictions."
Notes originally purchased by or transferred to Institutional Accredited
Investors who are not qualified institutional buyers ("Non-Global Purchasers")
will be issued Notes in registered form without interest coupons ("Certificated
Notes"). Upon the transfer of Certificated Notes initially issued to a
Non-Global Purchaser to a qualified institutional buyer or in accordance with
Regulation S, such Certificated Notes will, unless the relevant Global Note has
previously been exchanged in whole for Certificated Notes, be exchanged for an
interest in a Global Note. For a description of the restrictions on the transfer
of Certificated Notes, see "Transfer Restrictions."
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records
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maintained by DTC or its nominee (with respect to interests of participants) and
the records of participants (with respect to interests of persons other than
participants). Qualified institutional buyers may hold their interests in a
Restricted Global Note directly through DTC if they are participants in such
system, or indirectly through organizations which are participants in such
system.
Investors may hold their interests in a Regulation S Global Note directly
through Cedel Bank or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants in such system. Cedel
Bank and Euroclear will hold interests in the Regulation S Global Notes on
behalf of their participants through DTC.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with the applicable procedures of DTC, in addition to those provided for under
the Indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Issuer, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Issuer expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Issuer also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Cedel Bank will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
The Issuer expects that DTC will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Global Note is credited and only in respect of such portion
of the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the Notes, DTC will exchange the applicable Global Note for
Certificated Notes, which it will distribute to its participants and which may
be legended as set forth under the heading "Transfer Restrictions."
The Issuer understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A under the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates and certain other organizations. Indirect access to the DTC
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC, Euroclear and Cedel Bank are expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Global Note among
participants of DTC, Euroclear and Cedel Bank, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Issuer nor the Trustee will have any
responsibility for the performance
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by DTC, Euroclear or Cedel Bank or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified person, (i)
Indebtedness of any other person existing at the time such other person is
merged with or into or became a Restricted Subsidiary of such specified person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other person merging with or into or becoming a
Restricted Subsidiary of such specified person, and (ii) Indebtedness secured by
a Lien encumbering an asset acquired by such specified person at the time such
asset is acquired by such specified person.
"Adjusted Consolidated Leverage Ratio" means, with respect to any person at
any date of determination, the Consolidated Leverage Ratio of such person,
provided that clause (x) of the definition of Consolidated Leverage Ratio shall
be reduced by the aggregate amount of cash, Cash Equivalents, U.S. Government
Obligations and Triple A Rated Securities held by such person and its Restricted
Subsidiaries as of such date prior to giving effect to any Indebtedness incurred
or to be incurred or any Preferred Stock issued or to be issued, as the case may
be, on such date.
"Affiliate" of any specified Person means any other Person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with, such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a person shall
be deemed to be control, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Asset Sale" means the sale, lease, conveyance, disposition or other
transfer (a "disposition") of any properties, assets or rights (including,
without limitation, a sale and leaseback transaction or the issuance, sale or
transfer by the Company of Equity Interests of a Restricted Subsidiary) whether
in a single transaction or a series of related transactions; provided, however,
that the following transactions will be deemed not to be Asset Sales: (a) sales
of inventory (other than Owned Precious Metal Inventory) in the ordinary course
of business; (b) the sale of Owned Precious Metal Inventory in exchange for
consideration having a fair market value at least equal to that of the Owned
Precious Metal Inventory being sold; (c) the sale or transfer of Precious Metals
in connection with a Future Payables Transaction involving the same quantity of
Precious Metals so sold or transferred; (d) a disposition of assets by the
Company to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly
Owned Restricted Subsidiary of the Company to the Company or to another Wholly
Owned Restricted Subsidiary of the Company; (e) a disposition of Equity
Interests by a Wholly Owned Restricted Subsidiary of the Company to the Company
or to another Wholly Owned Restricted Subsidiary of the Company; (f) a Permitted
Investment or Restricted Payment that is permitted by the Indenture; (g) the
issuance by the Company of Equity Interests; (h) the disposition of properties,
assets or rights in any fiscal year the aggregate Net Proceeds of which are less
than $1 million; and (i) the sale of accounts receivable pursuant to the
Receivables Facility or any other receivable facility entered into by the
Company and/or its Restricted Subsidiaries in the ordinary course of business.
"Capital Expenditure Indebtedness" means Indebtedness incurred by any
person to finance the purchase or construction of any property or assets
acquired or constructed by such person which have a useful life of more than one
year so long as (a) the purchase or construction price for such property or
assets is included in "addition to property, plant or equipment" in accordance
with GAAP, (b) the acquisition or construction of such property or assets is not
part of any acquisition of a person or line of business and (c) such
Indebtedness is incurred within 90 days of the acquisition or completion of
construction of such property or assets.
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"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (a) in the case of a corporation, corporate stock,
(b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and (d) any
other interest or participation that confers on a person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
person.
"Cash Equivalents" means (a) United States dollars, (b) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (c) certificates of deposit and eurodollar
time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million, (d) repurchase obligations with a
term of not more than thirty days for underlying securities of the types
described in clauses (b) and (c) above entered into with any financial
institution meeting the qualifications specified in clause (c) above, (d)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Rating Service and in each case maturing
within six months after the date of acquisition and (e) money market mutual
funds substantially all of the assets of which are invested primarily of the
type described in the foregoing clauses (a) through (d).
"Consolidated Cash Flow" means, with respect to any person for any period,
the Consolidated Net Income of such person for such period plus, without
duplication, (a) provision for taxes based on income or profits of such person
and its Restricted Subsidiaries, to the extent that such provision for taxes was
included in computing Consolidated Net Income, plus (b) Consolidated Interest
Expense of such person and its Restricted Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing Consolidated Net Income, plus (c) depreciation and
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid, outside of the
ordinary course of business, in a prior period) and other non-cash charges of
such person and its Restricted Subsidiaries for such period, to the extent that
such depreciation, amortization and other non-cash charges (including, without
limitation, non-cash charges relating to postretirement employee benefit plans
and pension plans), were deducted in computing Consolidated Net Income, minus
(d) non-cash items increasing consolidated revenues in determining Consolidated
Net Income for such period to the extent not already reflected as an expense in
computing Consolidated Net Income, minus (e) all cash payments during such
period relating to non-cash charges and other non-cash items that were or would
have been added back in determining Consolidated Cash Flow for any prior period,
in each case, on a consolidated basis and determined in accordance with GAAP,
minus (plus) (f) any gain (or loss) realized in connection with the disposition
of any securities by such person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such person or any of its Restricted
Subsidiaries to the extent included or deducted, as the case may be, in
computing Consolidated Net Income.
"Consolidated Interest Coverage Ratio" means, with respect to any person
for any period, the ratio of the Consolidated Cash Flow of such person for such
period to the Consolidated Interest Expense of such person for such period;
provided, however, that the Consolidated Interest Coverage Ratio shall be
calculated giving pro forma effect to each of the following transactions as if
each such transaction had occurred at the beginning of the applicable
four-quarter reference period: (a) any incurrence, assumption, guarantee or
redemption by such person or any of its Restricted Subsidiaries of any
Indebtedness (including revolving credit borrowings based on the average daily
balance outstanding during the relevant period) subsequent to the commencement
of the period for which the Consolidated Interest Coverage Ratio is being
calculated but prior to the date on
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which the event for which the calculation of the Consolidated Interest Coverage
Ratio is made (the "Calculation Date"); (b) any acquisition that has been made
by such person or any of its Restricted Subsidiaries, or approved and expected
to be consummated within 30 days of the Calculation Date, including, in each
case, through a merger or consolidation, and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date (in which case
Consolidated Cash Flow for such reference period shall be calculated to include
the Consolidated Cash Flow of the acquired entities and without giving effect to
clause (c) of the proviso set forth in the definition of Consolidated Net
Income); and (c) any other transaction that may be given pro forma effect in
accordance with Article 11 of Regulation S-X as in effect from time to time; and
provided, further, that (i) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded and
(ii) the Consolidated Interest Expense attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Consolidated Interest Expense will not be
obligations of the referent person or any of its Restricted Subsidiaries
following the Calculation Date.
"Consolidated Interest Expense" means, with respect to any person for any
period, the sum, without duplication, of (a) the consolidated interest expense
of such person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), (b) any
interest expense on Indebtedness of another person that is guaranteed by such
person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such person or one of its Restricted Subsidiaries (whether or not such guarantee
of Lien is called upon), (c) the consolidated interest expense of such person
and its Restricted Subsidiaries that was capitalized during such period and (d)
the product of (i) all cash dividend payments on any series of Preferred Stock
of such person, times (ii) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rates of such person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Consolidated Leverage Ratio" means, with respect to any person at any date
of determination, the ratio of (x) the aggregate amount of all Indebtedness of
such person and its Restricted Subsidiaries plus the aggregate liquidation value
of all Preferred Stock of Restricted Subsidiaries of such person, in each case
as of the date of determination to (y) the Consolidated Cash Flow of such person
for the most recently ended four fiscal quarters for which internal financial
statements are immediately available preceding such date of determination;
provided, however, that the Consolidated Leverage Ratio shall be calculated
giving pro forma effect to each of the following transactions as if each such
transaction had occurred at the beginning of the most recently ended four fiscal
quarters for which internal financial statements are immediately available
preceding such date of determination: (a) any acquisition that has been made by
such person or any of its Restricted Subsidiaries, or approved and expected to
be consummated within 30 days of the date of determination, including, in each
case, through a merger or consolidation, and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the date of determination (in which case
Consolidated Cash Flow for such reference period shall be calculated to include
the Consolidated Cash Flow of the acquired entities and without giving effect to
clause (c) of the proviso set forth in the definition of Consolidated Net
Income); and (b) any other transaction that may be given pro forma effect in
accordance with Article 11 of Regulation S-X as in effect from time to time; and
provided, further, that the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the date of determination, shall be excluded.
"Consolidated Net Income" means, with respect to any person for any period,
the aggregate of the Net Income of such person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (a) the Net Income (but not loss) of any person that is not a
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Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent person or a Wholly Owned Restricted
Subsidiary thereof, (b) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, provided that such Net Income shall not be excluded if such
restrictions are permitted under the covenant entitled "Dividend and Other
Payment Restrictions Affecting Subsidiaries", (c) the Net Income of any person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded and (d) the cumulative effect of a change
in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any person as of any date,
the sum of (a) the consolidated equity of the common stockholders of such person
and its consolidated Restricted Subsidiaries as of such date plus (b) the
respective amounts reported on such person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
person upon issuance of such preferred stock.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures (excluding any
maturity as a result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date that is 91 days after the date on which the Notes mature or are
redeemed or retired in full; provided, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof (or of any
security into which it is convertible or for which it is exchangeable) have the
right to require the issuer to repurchase such Capital Stock (or such security
into which it is convertible or for which it is exchangeable) upon the
occurrence of an Asset Sale or a Change of Control shall not constitute
Disqualified Stock if such Capital Stock (and all such securities into which it
is convertible or for which it is exchangeable) provides that the issuer thereof
will not repurchase or redeem any such Capital Stock (or any such security into
which it is convertible or for which it is exchangeable) pursuant to such
provisions prior to compliance by the Company with the provisions of the
Indenture described under the caption "--Repurchase at the Option of
Holders--Change of Control" or "--Asset Sales," as the case may be.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (including H&H and its subsidiaries) in existence on the
date of the Indenture, including, without limitation, the Obligations of the
Company and its Restricted Subsidiaries under (i) the Close Corporation and
Shareholders Agreement of Ohio Coatings Company as existing on the date of the
Indenture and the guarantee by WPC or any Restricted Subsidiary of WPC of up to
$20 million of Indebtedness of Ohio Coatings Company under the Credit Agreement
between Ohio Coatings Company and National City Bank, Northeast, or (ii) the
Keepwell Agreement, dated December 28, 1995, between WPC, WPSC, the Company and
the lenders party thereto as existing on the date of the Indenture to the extent
permitted by the WHX Agreements, until such amounts are repaid.
"Future Payables Transaction" means, as of any date, a financing
arrangement of the Company or any Restricted Subsidiary of the Company involving
the sale of Precious Metals actually owned by the Company or any Restricted
Subsidiary as of such date and the contemporaneous purchase, on a future payment
and
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delivery basis, by the Company or such Restricted Subsidiary of a substantially
equivalent quantity of Precious Metals of the same type.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any person, the obligations of
such person under interest rate swap agreements, interest rate cap agreements,
interest rate collar agreements and other agreements or arrangements designed to
protect such person against fluctuations in interest rates.
"Indebtedness" means, with respect to any person, any indebtedness of such
person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
person prepared in accordance with GAAP, as well as Indebtedness of others
secured by a Lien on any asset of such person (whether or not such Indebtedness
is assumed by such person) and, to the extent not otherwise included, the
guarantee by such person of any Indebtedness of any other person. The amount of
any Indebtedness outstanding as of any date shall be (a) the accreted value
thereof, in the case of any Indebtedness that does not require current payments
of interest and (b) the principal amount thereof, in the case of any other
Indebtedness. Indebtedness shall not include obligations of the Company and its
Restricted Subsidiaries pursuant to postretirement employee benefit plans and
pension plans.
"Investments" means, with respect to any person, all investments by such
person in other persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees by the referent person of, and Liens on any
assets of the referent person securing, Indebtedness or other obligations of
other persons), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such person is no longer a Restricted Subsidiary of the Company,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
"Letter of Credit Facility" means the Letter of Credit Agreement, dated as
of August 22, 1994, among WPSC and Citibank, N.A., as the same may be amended,
supplemented or otherwise modified including any refinancing, refunding,
replacement or extension thereof and whether by the same or any other lender or
group of lenders, provided, that the aggregate amount of letters of credit
available may not exceed $50.0 million.
"Letter of Undertaking" means that certain letter of undertaking dated July
21, 1997 from the Company to The Sanwa Bank, Limited, as existing on the date of
the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature
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thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Cash Proceeds" means, with respect to any issuance or sale of common
stock of the Company, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' fees, broker's commissions and
consultant and any other fees actually incurred in connection with such issuance
or sale.
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (a) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) and (b)
any extraordinary or nonrecurring gain or loss, together with any related
provision or credit for taxes on such extraordinary or nonrecurring gain or
loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of (without duplication)
(a) the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, sales commissions, recording
fees, title transfer fees, title insurance premiums, appraiser fees and costs
incurred in connection with preparing such asset for sale) and any relocation
expenses incurred as a result thereof, (b) taxes paid or estimated to be payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), (c) amounts required to be applied
to the repayment of Indebtedness (other than Permitted Working Capital
Indebtedness) secured by a Lien on the asset or assets that were the subject of
such Asset Sale, (d) any reserve established in accordance with GAAP or any
amount placed in escrow, in either case for adjustment in respect of the sale
price of such asset or assets, until such time as such reserve is reversed or
such escrow arrangement is terminated, in which case Net Proceeds shall include
only the amount of the reserve so reversed or the amount returned to the Company
or its Restricted Subsidiaries from such escrow arrangement, as the case may be.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender, and (ii) with respect to which no
default (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnification, reimbursements, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Owned Precious Metal Inventory" means all Precious Metals acquired by the
Company or any Restricted Subsidiary of the Company in a Future Payables
Transaction and all Precious Metals owned by the Company or any Restricted
Subsidiary of the Company up to an aggregate amount of ounces for each type of
Precious Metal as set forth below:
<TABLE>
<S> <C>
Gold............................................. 100,998
Silver........................................... 14,749,005
Platinum......................................... 944
Palladium........................................ 49,701
</TABLE>
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company, (b) any Investment in Cash
Equivalents, U.S. Government Obligations and Triple A Rated Securities, (c) any
Investment by the Company or any Restricted Subsidiary of the Company
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in a person that is engaged in the same line of business as the Company and its
Restricted Subsidiaries were engaged in on the date of the Indenture or a line
of business or manufacturing or fabricating operation reasonably related thereto
(including any downstream steel manufacturing or processing operation or
manufacturing or fabricating operation in the construction products business) if
as a result of such Investment (i) such person becomes a Wholly Owned Restricted
Subsidiary of the Company or (ii) such person is merged, consolidated or
amalgamated with or into, or transfers of conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Restricted
Subsidiary of the Company, (d) any Investment made as a result of the receipt of
non-cash consideration from (i) an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Repurchase at
the Option of Holders--Asset Sales" or (ii) a disposition of assets that does
not constitute an Asset Sale, (e) any Investment acquired solely in exchange for
Equity Interests (other than Disqualified Stock) of the Company, (f) Investments
existing as of the date of the Indenture and (g) other Investments in any person
that is engaged in the same line of business as the Company and its Restricted
Subsidiaries were engaged in on the date of the Indenture or a line of business
or manufacturing or fabricating operation reasonably related thereto (including
any downstream steel manufacturing or processing operation or manufacturing or
fabricating operation in the construction products business) which Investment
has a fair market value (as determined by a resolution of the Board of Directors
of the Company and set forth in an officer's certificate delivered to the
Trustee), when taken together with all other investments made pursuant to this
clause (g) that are at the time outstanding, not to exceed $10.0 million.
"Permitted Liens" means (a) Liens existing as of the date of the Indenture;
(b) Liens in favor of the Company and its Restricted Subsidiaries; (c) Liens on
property of a person existing at the time such person is merged into or
consolidated with the Company or any Restricted Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
person merged into or consolidated with the Company or any of its Restricted
Subsidiaries; (d) Liens on property existing at the time of acquisition thereof
by the Company or any Restricted Subsidiary of the Company, provided that such
Liens were not incurred in contemplation of such acquisition; (e) pledges or
deposits under workmen's compensation laws, unemployment insurance laws or
similar legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which such
person is a party, or deposits to secure public statutory obligations of such
person or deposits of cash or United States Government bonds to secure surety or
appeal bonds to which such person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent in each case
incurred in the ordinary course of business (f) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently pursued, provided that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made therefor; (g)
Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $10.0 million at any one time outstanding and that (1) are not incurred
in connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (2) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary; (h) Liens securing Permitted Refinancing Indebtedness,
provided that the Company or such Restricted Subsidiary was permitted to incur
such Liens with respect to the Indebtedness so refinanced; and (i) minor
encroachments, encumbrances, easements or reservations of, or rights of others
for, rights-of-way, sewers, electric lines, telegraph and telephone lines and
other similar purposes, or zoning or other restrictions as to the use of real
properties all of which do not materially impair the value or utility for its
intended purposes of the real property to which they relate or Liens incidental
to the conduct of the business of such Person or to the ownership of its
properties.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness (other than Indebtedness under Permitted Working
Capital Indebtedness) of the Company or any of its Restricted Subsidiaries;
provided that (a) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal
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amount of (or accreted value, if applicable), plus premium, if any, and accrued
interest on, the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith), (b) such Permitted Refinancing Indebtedness has a final
maturity date no earlier than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded, (c) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness is subordinated in right of
payment to the Notes on terms at least as favorable, taken as a whole, to the
holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
and such Indebtedness shall not have any scheduled principal payment prior to
the 91st day after the final maturity date of the Notes and (d) such
Indebtedness is incurred either by the Company or by the Restricted Subsidiary
who is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; provided, however, that a Restricted Subsidiary
may guarantee Permitted Refinancing Indebtedness incurred by the Company,
whether or not such Restricted Subsidiary was an obligor or guarantor of the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded. Notwithstanding the foregoing, any extension, refinancing, renewal,
replacement, defeasance or refunding of the H&H 7.31% Notes need not comply with
clause (b) of the proviso to the immediately preceding sentence.
"Permitted Working Capital Indebtedness" means Indebtedness of the Company
and its Restricted Subsidiaries under any agreement, instrument, facility or
arrangement that is intended to provide working capital financing or financing
for general corporate purposes (including any asset securitization facility
involving the sale of accounts receivable); provided that the aggregate
outstanding amount of such Indebtedness of the Company and its Restricted
Subsidiaries, at the time of incurrence, shall not exceed the lesser of (a) the
sum of (i) 60% of the net aggregate book value of all inventory (100% of the
aggregate fair market value in the case of the Owned Precious Metal Inventory)
of the Company and its Restricted Subsidiaries at such time and (ii) 80% of the
net aggregate book value of all accounts receivable (net of bad debt expense) of
the Company and its Restricted Subsidiaries at such time and (b) the sum of (i)
$350.0 million and (ii)100% of the aggregate fair market value of the Owned
Precious Metal Inventory.
"Precious Metals" means any precious metals, including, without limitation,
gold, silver, palladium and platinum.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of such
person's preferred or preference stock, whether outstanding on the Issue Date or
issued thereafter, and including, without limitation, all classes and series of
preferred or preference stock of such person.
"Public Equity Offering" means an underwritten offering of common stock of
the Company meeting the registration requirements of the Securities Act.
"Receivables Facility" means the program for the issuance and placement
from time to time of trade receivable-backed adjustable rate securities, all as
contemplated by that certain Pooling and Servicing Agreement, dated as of August
1, 1994, between Wheeling-Pittsburgh Funding, Inc., WPSC, Bank One, Columbus,
N.A. and Wheeling-Pittsburgh Trade Receivable Master Trust and that certain
Receivables Purchase Agreement, dated as of August 1, 1994, between WPSC and
Wheeling-Pittsburgh Funding, Inc., as each may be amended, supplemented or
otherwise modified including any refunding, replacement or extension thereof.
"Replacement Assets" means (x) properties and assets (other than cash or
any Capital Stock or other security) that will be used in a business of the
Company and its Restricted Subsidiaries conducted on the date of the Indenture
or in a line of business or manufacturing or fabricating operation reasonably
related thereto (including any downstream steel processing or manufacturing
operation or manufacturing or fabricating operation in the construction products
business) or (y) Capital Stock of any person that is engaged in a business
referred to in clause (x) and that will become on the date of the acquisition
thereof a Wholly Owned Restricted Subsidiary of the Company as a result of such
acquisition.
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"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a person means any Subsidiary of such person
that is not an Unrestricted Subsidiary. As of the date of the Indenture, H&H and
its Subsidiaries shall be deemed to be Restricted Subsidiaries of the Company,
unless and until any such Subsidiary is designated by the Board of Directors of
the Company to be an Unrestricted Subsidiary in compliance with the Indenture.
"Revolving Credit Facility" means the Second Amended and Restated Credit
Agreement, dated as of December 28, 1995, among WPSC, the lenders party thereto
and Citibank, N.A. as agent, as the same may be amended, supplemented or
otherwise modified including any refinancing, refunding, replacement or
extension thereof and whether by the same or any other lender or groups of
lenders.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any person, (a) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
person or one or more of the other Subsidiaries of that person (or a combination
thereof) and (b) any partnership (i) the sole general partner or the managing
general partner of which is such person or a Subsidiary of such person or (ii)
the only general partners of which are such person or of one or more
Subsidiaries of such person (or any combination thereof).
"Tax Sharing Agreement" means the Tax Sharing Agreement between the Company
and WPC as in effect on the date of the Indenture.
"Triple A Rated Securities" means any securities having a rating of at
least AAA by Standard & Poor's Rating Service or at least Aaa by Moody's
Investors Service, Inc.
"Unimast" means Unimast Incorporated, an Ohio corporation.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a
resolution of the Board of Directors of the Company, but only to the extent that
such Subsidiary (a) has no Indebtedness other than Non-Recourse Debt, (b) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless such agreement, contract,
arrangement or understanding does not violate the terms of the Indenture
described under the caption "--Certain Covenants--Transactions with Affiliates,"
(c) is a person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (i) to subscribe
for additional Equity Interests or (ii) to maintain or preserve such person's
financial condition or to cause such person to achieve any specified levels of
operating results, in each case, except to the extent otherwise permitted by the
Indenture. Any such designation by the Board of Directors of the Company shall
be evidenced to the Trustee by filing with the Trustee a certified copy of the
resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock," the Company shall be in default of such covenant). The
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Board of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (A) such Indebtedness
is permitted under the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period, and (B) no Default or Event of Default would be in existence
following such designation. As of the date of the Indenture, the following
Subsidiaries of the Company will be designated as Unrestricted Subsidiaries: (i)
Monessen Southwestern Railway Company; (ii) Wheeling Pittsburgh Funding, Inc.;
and (iii) W-P Coal Company.
"U.S. Government Obligations" means direct, fixed-rate obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which mature (or may be put to the issuer by the holder at no
less than par) no later than the maturity date of the Notes.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"Wheeling-Nisshin" means Wheeling-Nisshin, Inc., a Delaware corporation.
"Wholly Owned Restricted Subsidiary" of any person means a Restricted
Subsidiary of such person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such person or by one or more Wholly Owned Restricted
Subsidiaries of such person.
"WHX Agreements" mean (i) the Intercreditor, Indemnification and
Subordination Agreement by and among the Company, WPC, WPSC and Unimast and (ii)
the Tax Sharing Agreement, in each case as in effect on the date of this
Indenture.
"WPC" means Wheeling-Pittsburgh Corporation, a Delaware corporation.
"WPN" means WPN Corp., a New York corporation.
"WPSC" means Wheeling-Pittsburgh Steel Corporation, a Delaware corporation.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
While all material tax consequences of the Notes are discussed below,
persons considering the purchase of Notes should consult their own tax advisors
concerning the application of United States federal income tax laws, as well as
the laws of any state, local, or other taxing jurisdiction applicable to their
particular situations.
In the opinion of Olshan Grundman Frome & Rosenzweig LLP, the United States
tax counsel to the Company, subject to the limitations set forth herein, the
following is an accurate summary of the material United States federal income
tax consequences of the purchase, ownership and disposition of the Notes. The
discussion below is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and regulations, rulings and judicial decisions
thereunder as of the date hereunder, and such authorities may be repealed,
revoked or modified possibly with retroactive effect, so as to result in U.S.
federal income tax consequences different from those discussed below. The
following discussion is limited to investors who purchase the Notes upon
original issuance at their original issue price and who will hold the Notes as
capital assets (generally, property held for investment).
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Note that is not: (i) a citizen or
resident of the United States; (ii) a corporation organized under the laws of
the United States or any political subdivision thereof or therein; (iii) an
estate, the income of which is subject to U.S. federal income tax regardless of
the source; or (iv) a trust if a court within the United States is able to
exercise primary supervision of the administration of the trust and one or more
U.S. persons have the authority to control all substantial decisions of the
trust (a "Non-U.S. Holder").
The discussion does not consider all aspects of U.S. federal income and
estate taxation that may be relevant to the purchase, ownership or disposition
of the Notes by a particular Non-U.S. Holder in light of such Holder's personal
circumstances, including holding the Notes through a partnership. For example,
persons who are partners in foreign partnerships and beneficiaries of foreign
trusts or estates who are subject to U.S. federal income tax because of their
own status, such as United States residents or foreign persons engaged in a
trade or business in the United States, may be subject to U.S. federal income
tax even though the entity is not subject to income tax on the disposition of
its Note.
For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of a Note will be considered "U.S. trade or
business income" if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business or (ii) in the case of a treaty resident,
attributable to a U.S. permanent establishment (or to a fixed base) in the
United States.
STATED INTEREST. Generally, any interest paid to a Non-U.S. Holder of a
Note that is not U.S. trade or business income will not be subject to United
States tax if the interest qualified as "portfolio interest." Generally,
interest on the Notes will qualify as portfolio interest if (i) the Non-U.S.
Holder does not actually or constructively own 10% or more of the total voting
power of all voting stock of the Company and is not a "controlled foreign
corporation" with respect to which the Company is a "related person" within the
meaning of the Code, (ii) the beneficial owner of the Note, under penalty of
perjury, certifies that it is not a United States person and such certificate
provides the beneficial owner's name and address on Form W-8 or, at the option
of the withholding agent, on a substitute form substantially similar to Form W-8
and (iii) the Non-U.S. Holder is not a bank receiving interest on an extension
of credit made pursuant to a loan agreement entered into in the ordinary course
of its trade or business. A holder must notify the Company in writing on a
timely basis of any change affecting the validity of the Form W-8.
The gross amount of payments to a Non-U.S. Holder of interest that do not
qualify for the portfolio interest exception and that are not U.S. trade or
business income will be subject to U.S. withholding tax at the rate of 30%,
unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S.
trade or business income will be taxed on a net basis at regular U.S. rates
rather than the 30% gross rate. To claim the benefit of a tax treaty or to claim
exemption from withholding because the income is U.S. trade or business income,
the Non-U.S. Holder must provide a properly executed Internal Revenue Service
Form 1001 or 4224 (or such
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successor forms as the United States Internal Revenue Service ("IRS")
designates), as applicable, prior to the payment of interest. These forms must
be periodically updated. Recently adopted Treasury Regulations which are not yet
in effect (the "Final Regulations") would alter the foregoing rules in certain
respects. In general, the Final Regulations are effective for payments made
after December 31, 1998. Under the Final Regulations, a Non-U.S. Holder that is
seeking an exemption from withholding tax on account of a treaty or on account
of the Notes being held in connection with a U.S. trade or business generally
would be required to provide IRS Form W-8. If the Notes are not actively traded,
the Non-U.S. Holder also would be required to provide a taxpayer identification
number, and may be required to provide other documentary evidence of foreign
status. The Final Regulations also contain rules concerning payments through
intermediaries. Non-U.S. Holders should consult their tax advisors concerning
the application of the Final Regulations in light of their own circumstances.
SALE, EXCHANGE OR REDEMPTION OF NOTES. Except as described below and
subject to the discussion concerning backup withholding, any gain realized by a
Non-U.S. Holder on the sale, exchange or redemption of a Note generally will not
be subject to U.S. federal income tax, unless (i) such gain is U.S. trade or
business income, (ii) subject to certain exceptions, the Non-U.S. Holder is an
individual who holds the Note as a capital asset and is present in the United
States for 183 days or more in the taxable year of the disposition, or (iii) the
Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates.
FEDERAL ESTATE TAX. Notes held (or treated as held) by an individual who
is a Non-U.S. Holder at the time of his or her death will not be subject to U.S.
federal estate tax, provided that the individual does not actually or
constructively own 10% or more of the total voting power of all voting stock of
the Company and income on the Notes was not U.S. trade or business income.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Company must report
annually to the IRS and to each Non-U.S. Holder any interest that is subject to
withholding or that is exempt from U.S. withholding tax pursuant to a tax treaty
or the portfolio interest exception. Copies of these information returns may
also be made available under the provisions of a specific treaty or agreement to
the tax authorities of the country in which the Non-U.S. Holder resides.
Under certain circumstances, the IRS requires information reporting and
backup withholding of United States federal income tax at a rate of 31% with
respect to payments to certain non-corporate Non-U.S. Holders (including
individuals). Information reporting and backup withholding will apply unless
such non-corporate Non-U.S. Holders certify to the withholding agent that the
beneficial owner of the Note is not a U.S. Holder. This certification
requirement will generally be satisfied by the certification provided to avoid
the 30% withholding tax (described above).
The payment of the proceeds of a disposition of a Note by a Non-U.S. Holder
to or through the United States office of a broker or through a non-United
States branch of a United States broker generally will be subject to information
reporting and backup withholding at a rate equal to 31% of the gross proceeds
unless the Non-U.S. Holder certifies on Form W-8 that the beneficial owner of
the Note is not a U.S. Holder or otherwise establishes an exemption. The payment
of the proceeds of a disposition of a Note by a Non-U.S. Holder to or through a
non-United States office of a non-United States broker will not be subject to
backup withholding or information reporting unless the non-United States broker
has certain United States relationships or connections.
In the case of the payment of proceeds from the disposition of Notes to or
through a non-U.S. office of a broker that is either a U.S. person or a U.S.
related person, the regulations require information reporting on the payment
unless the broker has documentary evidence in its files that the owner is a
Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is a U.S. person or a U.S. related person (absent actual knowledge that the
payee is a U.S. person).
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Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
U.S. HOLDERS
Subject to the discussion below, stated interest payable on to the Notes
will be taxable to a U.S. Holder as ordinary income when received or accrued in
accordance with such holder's regular method of tax accounting.
MARKET DISCOUNT. If a U.S. Holder purchases a Note for an amount that is
less than its stated principal amount, the amount of such difference will be
treated as "market discount" for U.S. federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market discount
rules, a U.S. Holder will be required to treat any principal payment on, or any
gain on the sale, exchange, retirement or other disposition of, a Note as
ordinary income to the extent of the market discount which has not previously
been included in income and is treated as having accrued on such Note at the
time of such payment or disposition. If a U.S. Holder makes a gift of a Note,
accrued market discount, if any, will be recognized as if such U.S. Holder had
sold such Note for a price equal to its fair market value. In addition, the U.S.
Holder may be required to defer, until the maturity of the Note or, in certain
circumstances, the earlier disposition of the Note in a taxable transaction, the
deduction of a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry such Note.
Any market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the Note,
unless the U.S. Holder elects to accrue market discount on a constant interest
method. A U.S. Holder of a Note may elect to include market discount in income
currently as it accrues (on either a straight-line basis or constant interest
method), in which case the rules described above regarding the deferral of
interest deductions will not apply. This election to include market discount in
income currently, once made, is irrevocable and applies to all market discount
obligations acquired on or after the first day of the first taxable year to
which the election applies and may not be revoked without the consent of the
Service.
AMORTIZABLE BOND PREMIUM. A U.S. Holder that purchases a Note for an
amount in excess of the sum of all amounts payable on the Note after the
purchase date other than stated interest will be considered to have purchased
the Note at a "premium." A U.S. Holder may generally elect to amortize the
premium over the remaining term of the Note on a constant yield method. The
amount amortized in any year will be treated as a reduction of the U.S. Holder's
interest income from the Note. A U.S. Holder who elects to amortize bond premium
must reduce its tax basis in the related obligation by the amount of premium
amortized during its holding period. Bond premium on a Note held by a U.S.
Holder that does not make such an election will decrease the gain or increase
the loss otherwise recognized on disposition of the Note. The election to
amortize premium on a constant yield method once made applies to all debt
obligations held or subsequently acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the IRS.
Treasury regulations recently have been issued that require a U.S. Holder
that purchases a Note on or after March 2, 1998, or any subsequent taxable year,
at a premium, and elects to amortize such premium, must amortize such premium
under a constant yield method. However, a U.S. Holder may elect to apply the new
rules to all Notes held on or after the first day of the taxable year containing
March 2, 1998.
SALE OR OTHER DISPOSITION. In general, a U.S. Holder of Notes will
recognize gain or loss upon the sale, exchange, redemption, or other taxable
disposition of such Notes measured by the difference between (a) the amount of
cash and the fair market value of property received (except to the extent
attributable to accrued interest on the Notes previously taken into account) and
(b) the U.S. Holder's tax basis in the Notes, increased by the amount of any
market discount previously included in income by the U.S. Holder and decreased
by the amount of any principal payments made on the Notes or amortizable bond
premium, if any, deducted over the term of the Notes. Subject to the market
discount rules discussed above, any such gain or loss will generally be (x)
long-term capital gain or loss, provided the Notes have been held for more than
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18 months, (y) mid-term capital gain or loss, provided the Notes have been held
for more than 12 months but not more than 18 months and (z) short-term capital
gain or loss, provided the Notes have been held for not more than 12 months. The
excess of net long-term capital gains over net short-term capital losses is
taxed at a lower rate than ordinary income for certain non-corporate taxpayers.
The distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, limitations on the deductibility
of capital losses.
BACKUP WITHHOLDING. "Backup" withholding and information reporting
requirements may apply to certain payments of principal and interest on a Note
and to certain payments of proceeds of the sale or retirement of a Note. The
Company, any agent thereof, a broker, the Trustee or any paying agent, as the
case may be, will be required to withhold tax from any payment that is subject
to backup withholding at a rate of 31% of such payment if the U.S. Holder fails
to furnish his taxpayer identification number (social security number or
employer identification number), to certify that such U.S. Holder is not subject
to backup withholding, or to otherwise comply with the applicable requirements
of the backup withholding rules. Certain U.S. Holders (including, among others,
all corporations) are not subject to the backup withholding and reporting
requirements.
PLAN OF DISTRIBUTION
Except as described below, (i) a broker-dealer may not participate in the
Exchange Offer in connection with a distribution of the New Notes, (ii) such
broker-dealer would be deemed an underwriter in connection with such
distribution and (iii) such broker-dealer would be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions. A broker-dealer may, however,
receive New Notes for its own account pursuant to the Exchange Offer in exchange
for Old Notes when such Old Notes were acquired as a result of market-making
activities or other trading activities. Each such broker-dealer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer (other than an "affiliate" of the Company) in
connection with resales of such New Notes. The Company has agreed that for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any such broker-dealer for use in
connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in a Letter of Transmittal. The Company has agreed to pay all expenses incident
to the Exchange Offer other than commissions or concessions of any brokers or
dealers and transfer taxes and will indemnify the Holders of the Old Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
The Initial Purchasers have indicated to the Company that they intend to
effect offers and sales of the New Notes in market-making transactions at
negotiated prices related to prevailing market prices at the time
71
<PAGE> 75
of sale, but is not obligated to do so and such market-making activities may be
discontinued at any time. The Initial Purchasers may act as principal or agent
in such transactions. There can be no assurance that an active market for the
New Notes will develop.
LEGAL MATTERS
Certain legal matters in connection with the Notes offered hereby will be
passed upon for the Company by Olshan Grundman Frome & Rosenzweig LLP, New York,
New York. Marvin L. Olshan, a member of Olshan Grundman Frome & Rosenzweig LLP,
is a director and Secretary of the Company. Marvin L. Olshan and other members
of Olshan Grundman Frome & Rosenzweig LLP own shares of Common Stock and hold
options to purchase Common Stock of the Company.
EXPERTS
The consolidated financial statements of WHX and its subsidiaries as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, included in this Prospectus, have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements of Wheeling-Nisshin as of December 31, 1997 and
1996, and for each of the three years ended December 31, 1997 included in this
Prospectus have been audited by Coopers & Lybrand LLP, independent accountants,
as stated in their report appearing herein.
The financial statements of H&H as of December 31, 1997 and 1996, and for
each of the three years ended December 31, 1997 included in this Prospectus in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing herein, and upon the authority of said firm as experts in
accounting and auditing.
72
<PAGE> 76
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Price Waterhouse LLP, Independent Accountants..... F-2
Consolidated Statements of Operations of WHX for the years
ended December 31, 1995, 1996 and 1997.................... F-3
Consolidated Balance Sheets of WHX as of December 31, 1996
and 1997.................................................. F-4
Consolidated Statements of Cash Flows of WHX for the years
ended December 31, 1995, 1996 and 1997.................... F-5
Notes to Consolidated Financial Statements of WHX........... F-6
Report of Coopers & Lybrand L.L.P., Independent
Accountants............................................... F-28
Consolidated Balance Sheets of Wheeling-Nisshin as of
December 31, 1997 and 1996................................ F-29
Consolidated Statements of Income of Wheeling-Nisshin for
the years ended December 31, 1997, 1996 and 1995.......... F-30
Consolidated Statements of Shareholders' Equity of
Wheeling-Nisshin for the years ended December 31, 1997,
1996 and 1995............................................. F-31
Consolidated Statements of Cash Flows of Wheeling-Nisshin
for the years ended December 31, 1997, 1996 and 1995...... F-32
Notes to Consolidated Financial Statements of
Wheeling-Nisshin.......................................... F-33
Report of KPMG Peat Marwick LLP, Independent Auditors....... F-39
Consolidated Statements of Income of Handy & Harman for the
years ended December 31, 1997, 1996 and 1995.............. F-40
Consolidated Balance Sheets of Handy & Harman as of December
31, 1997 and 1996......................................... F-41
Consolidated Statements of Shareholders' Equity of Handy &
Harman for the years ended December 31, 1997, 1996 and
1995...................................................... F-42
Consolidated Statements of Cash Flows of Handy & Harman for
the years ended December 31, 1997, 1996 and 1995.......... F-43
Summary of Significant Accounting Policies.................. F-44
Notes to Consolidated Financial Statements of Handy &
Harman.................................................... F-47
</TABLE>
F-1
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of WHX Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of cash flows present fairly,
in all material respects, the financial position of WHX Corporation and its
subsidiaries (the "Company") at December 31, 1996 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and the significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
February 10, 1998, except as to Note R
which is as of April 10, 1998
F-2
<PAGE> 78
WHX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
---------- ---------- ---------
(IN THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C>
REVENUES:
Net sales................................................. $1,364,614 $1,232,695 $ 642,096
COST AND EXPENSES:
Cost of products sold, excluding depreciation and profit
sharing................................................. 1,147,899 1,096,228 720,722
Depreciation.............................................. 67,700 68,956 49,445
Profit sharing............................................ 6,718 -- --
Selling, administrative and general expense............... 66,531 70,971 68,190
Special charge............................................ -- -- 92,701
---------- ---------- ---------
1,288,848 1,236,155 931,058
---------- ---------- ---------
Operating income (loss)................................... 75,766 (3,460) (288,962)
Interest expense on debt.................................. 22,830 25,963 29,047
Other income.............................................. 47,139 25,974 50,668
---------- ---------- ---------
Income (loss) before taxes and extraordinary item......... 100,075 (3,449) (267,341)
Tax provision (benefit)................................... 19,014 (4,107) (93,569)
---------- ---------- ---------
Income (loss) before extraordinary item................... 81,061 658 (173,772)
Extraordinary charge--net of tax.......................... (3,043) -- (25,990)
---------- ---------- ---------
Net income (loss)......................................... 78,018 658 (199,762)
Dividend requirement for preferred stock.................. 22,875 22,313 20,657
---------- ---------- ---------
Net income (loss) available to common stock............... $ 55,143 $ (21,655) $(220,419)
========== ========== =========
BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK
Income (loss) before extraordinary item................. $ 2.25 $ (.83) $ (8.83)
Extraordinary charge--net of tax........................ (.12) -- (1.18)
---------- ---------- ---------
Net income (loss) per share..................... $ 2.13 $ (.83) $ (10.01)
========== ========== =========
INCOME (LOSS) PER SHARE OF COMMON STOCK--ASSUMING DILUTION
Income (loss) before extraordinary item.............. $ 1.79 $ (.83) $ (8.83)
Extraordinary charge--net of tax..................... (.07) -- (1.18)
---------- ---------- ---------
Net income (loss) per share--assuming
dilution...................................... $ 1.72 $ (.83) $ (10.01)
========== ========== =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 79
WHX CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 35,020 $ 1,002
Short term investments................................. 447,562 581,550
Trade receivables, less allowances for doubtful
accounts of $1,149 and $1,108......................... 25,805 44,993
Inventories............................................ 215,402 284,757
Prepaid expenses and deferred charges.................. 13,942 26,581
---------- ----------
Total current assets.............................. 737,731 938,883
Investment in associated companies.......................... 77,403 80,409
Property, plant and equipment, at cost less accumulated
depreciation and amortization............................. 755,412 738,660
Deferred income taxes....................................... 100,157 196,966
Intangible asset--pensions.................................. -- 76,714
Deferred charges and other assets........................... 48,076 38,771
---------- ----------
$1,718,779 $2,070,403
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables......................................... $ 59,477 $ 123,872
Short term debt........................................ 70,223 366,418
Payroll and employee benefits.......................... 57,094 56,212
Federal, state and local taxes......................... 9,120 12,059
Deferred income taxes--current......................... 30,649 32,196
Interest and other..................................... 16,876 18,288
Long-term debt due in one year......................... 2,336 466
---------- ----------
Total current liabilities......................... 245,775 609,511
Long-term debt.............................................. 268,198 350,453
Pension liability........................................... -- 166,652
Other employee benefit liabilities.......................... 435,502 427,124
Other liabilities........................................... 49,096 49,979
---------- ----------
998,571 1,603,719
---------- ----------
Redeemable common stock--411 shares and 360 shares.......... 5,771 4,808
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock--$.10 par value; authorized 10,000
shares; issued and outstanding: 6,137 shares and 5,883
shares................................................ 614 589
Common stock $.01 par value; authorized 60,000 shares;
issued and outstanding; 24,328 and 19,074 shares...... 245 193
Unrealized gain on securities--available for sale...... -- 24,237
Additional paid-in capital............................. 658,123 602,657
Treasury stock--157 shares and 205 shares.............. (1,382) (2,218)
Accumulated earnings (deficit)......................... 56,837 (163,582)
---------- ----------
714,437 461,876
---------- ----------
$1,718,779 $2,070,403
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 80
WHX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 78,018 $ 658 $(199,762)
Items not affecting cash from operating activities:
Depreciation and amortization............................. 67,912 69,287 49,776
Other postretirement benefits............................. 5,522 3,505 2,322
Coal retirees' medical benefits, net of tax............... 3,043 -- 1,700
Premium on early debt retirement, net of tax.............. -- -- 24,290
Income taxes.............................................. 6,416 (6,572) (94,029)
(Gain) loss on asset dispositions......................... (7,507) 1,541 2,335
Special charges, net of current portion................... -- -- 69,137
Pension expense........................................... -- -- 9,327
Equity loss (income) in affiliated companies.............. (4,845) (9,496) 1,644
Decrease (increase) in working capital elements:
Trade receivables......................................... 47,725 50,290 (43,188)
Trade receivables sold.................................... 22,000 (22,000) 24,000
Inventories............................................... (1,336) 70,469 (69,355)
Short term investments--trading........................... (20,443) (60,125) (70,239)
Investment account borrowings............................. -- 68,841 206,649
Other current assets...................................... (5,585) 4,248 (12,639)
Other current liabilities................................. (23,557) (70,467) 69,411
Other items--net............................................ (10,519) 4,629 15,705
-------- -------- ---------
Net cash provided by (used in) operating activities......... 156,844 104,808 (12,916)
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant additions and improvements.......................... (83,282) (35,436) (36,779)
Short term investments--available for sale................ 10,190 7,920 (39,512)
Unimast acquisition....................................... (27,500) -- --
Other investments......................................... (7,353) (17,240) (7,150)
Proceeds from sales of assets............................. 44,762 2,785 1,217
Dividends from affiliated companies....................... 2,500 2,500 2,500
-------- -------- ---------
Net cash used in investing activities....................... (60,683) (39,471) (79,724)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt proceeds, net of issuance cost............. 1,079 400 340,455
Long-term debt retirement................................. (24,508) (15,246) (268,766)
Premium on early debt retirement.......................... -- -- (32,600)
Letter of credit collateralization........................ 1,094 384 16,984
Short-term borrowings (payments).......................... (510) 1,382 89,546
Proceeds from warrants exercised.......................... 2,173 5,170 --
Common stock purchases.................................... (22,594) (27,556) (55,604)
Preferred stock purchases................................. -- (15,002) (9,839)
Preferred stock dividends................................. (22,875) (22,313) (20,657)
Redemption of equity issues............................... (438) (542) (897)
-------- -------- ---------
Net cash provided by (used in) financing activities......... (66,579) (73,323) 58,622
-------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 29,582 (7,986) (34,018)
Cash and cash equivalents at beginning of year.............. 13,424 43,006 35,020
-------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 43,006 $ 35,020 $ 1,002
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 81
WHX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES
The accounting policies presented below have been followed in preparing the
accompanying consolidated financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiary companies. All significant intercompany accounts and transactions are
eliminated in consolidation. The Company uses the equity method of accounting
for investments in unconsolidated companies owned 20% or more.
BUSINESS SEGMENT
The Company is primarily engaged in one line of business and has one
industry segment, which is the making, processing and fabricating of steel and
steel products. The Company's products include hot rolled and cold rolled sheet,
and coated products such as galvanized, prepainted and tin mill sheet. The
Company also manufactures a variety of fabricated steel products including roll
formed corrugated roofing, roof deck, form deck, floor deck, bridge form, steel
framing and related accessories and other products used primarily by the
construction, highway and agricultural markets.
Through an extensive mix of products, the Company markets to a wide range
of manufacturers, converters and processors. The Company's 10 largest customers
(including Wheeling-Nisshin) accounted for approximately 33.3% of its net sales
in 1995, 30.6% in 1996 and 25.9% in 1997. Wheeling-Nisshin was the only customer
to account for more than 10% of net sales. Wheeling-Nisshin accounted for 13.8%,
11.5% and 3.9% of net sales in 1995, 1996, and 1997, respectively.
Geographically, the majority of the Company's customers are located within a
350-mile radius of the Ohio Valley.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and on deposit and highly
liquid debt instruments with original maturities of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. Short term investments are
recorded at fair market value based on trading in the public market. Redeemable
common stock is recorded at the redemption amount which is considered to
approximate fair value. See Note H for a description of fair value of debt
instruments. Unrealized investment gains and losses are recognized based on
specific identification of securities.
INVENTORIES
Inventories are stated at cost which is lower than market. Cost is
determined by the last-in first-out ("LIFO") method for substantially all
inventories.
F-6
<PAGE> 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed on the straight line and the modified units of
production methods for financial statement purposes and accelerated methods for
income tax purposes. The modified units of production method adjusts the
straight line method based on an activity factor for operating assets. Adjusted
annual depreciation is not less than 60% nor more than 110% of straight line
depreciation. Accumulated depreciation after adjustment is not less than 75% nor
more than 110% of straight line depreciation. Interest cost is capitalized for
qualifying assets during the assets' acquisition period. Capitalized interest
cost is amortized over the life of the asset.
Maintenance and repairs are charged to income. Renewals and betterments
made through replacements are capitalized. Profit or loss on property
dispositions is credited or charged to income.
PENSIONS, OTHER POSTRETIREMENT AND POSTEMPLOYMENT PLANS
The Company has a tax qualified defined benefit pension plan covering
USWA-represented hourly employees and tax qualified defined contribution pension
plans covering other hourly employees and substantially all salaried employees.
The defined benefit plan provides for a defined monthly benefit based on years
of service. The defined contribution plans provide for contributions based on a
percentage of compensation for salaried employees and a rate per hour worked for
hourly employees. Costs for the defined contribution plans are being funded
currently. Unfunded accumulated benefit obligations under the defined benefit
plan are subject to annual minimum cash funding requirements under the Employees
Retirement Income Security Act ("ERISA").
The Company sponsors medical and life insurance programs for substantially
all employees. Similar group medical programs extend to pensioners and
dependents. The management plan provides basic medical and major medical
benefits on a noncontributory basis through age 65.
STOCK-BASED COMPENSATION
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation," the Company
accounts for employee stock-based compensation under Accounting Principle Board
No. 25, "Accounting for Stock Issued to Employees."
ENVIRONMENTAL MATTERS
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study.
Such accruals are adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation obligations
are not discounted to their present value. Recoveries of environmental
remediation costs from other parties are recorded as assets when their receipt
is deemed probable.
EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128 ("SFAS 128") "Earnings per Share." Pursuant to SFAS 128, basic earnings
per share is based on the weighted average number of shares of Common Stock
outstanding during each year, excluding redeemable common shares. Diluted
earnings per share gives effect to dilutive potential common shares outstanding
during the period.
F-7
<PAGE> 83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE A--COLLECTIVE BARGAINING AGREEMENT
The Company's prior labor agreement with the USWA expired on October 1,
1996. On August 1, 1997 the Company and the USWA announced that they had reached
a tentative agreement on the terms of a new collective bargaining agreement. The
tentative agreement was ratified on August 12, 1997 by USWA-represented
employees, ending a ten month strike. The new collective bargaining agreement
provides for a defined benefit pension plan, a retirement enhancement program,
short-term bonuses and special assistance payments for employees not immediately
recalled to work and $1.50 in hourly wage increases over its term of not less
than five years. It also provides for the reduction of 850 jobs, mandatory
multicrafting as well as modification of certain work practices.
NOTE B--SPECIAL CHARGE--NEW LABOR AGREEMENT
The Company recorded a special charge of $92.7 million in 1997. The special
charge is primarily related to certain benefits included in its new collective
bargaining agreement.
The special charges included enhanced retirement benefits to be paid under
the defined benefit pension program which totaled $66.7 million and were
recorded under the provisions of Statement of Financial Accounting Standard
No.88, "Employers' Accounting For Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits" ("SFAS No. 88"), and various
other charges which totaled $26.0 million. These charges include $15.5 million
for signing and retention bonuses, $3.8 million for special assistance payments
to laid-off employees and other employee benefits and $6.7 million for the fair
value of a stock option grant to WPN Corp. for its performance in negotiating a
new labor agreement.
NOTE C--PENSIONS, OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
PENSION PROGRAMS
The Company provides defined contribution pension programs for both hourly
and salaried employees and prior to August 12, 1997 also provided a defined
contribution pension program for USWA represented employees. Tax qualified
defined contribution plans provide, in the case of hourly employees, an
increasing company contribution per hour worked based on the age of its
employees. A similar tax qualified plan for salaried employees provides defined
company contributions based on a percentage of compensation.
On August 12, 1997 the Company established a defined benefit pension plan
for USWA represented employees pursuant to a new labor agreement. The plan
includes individual participant accounts of USWA represented employees from the
hourly defined contribution plan and merges the assets of those accounts into
the defined benefit plan.
As of December 31, 1997, $127.0 million of fully vested funds are held in
trust for benefits earned under the hourly defined contribution pension plan.
Approximately 59% of the trust assets are invested in equities and 41% in fixed
income investments.
As of December 31, 1997, $35.0 million of fully vested funds are held in
trust for benefits earned under the salaried employees defined contribution
plan. Approximately 57% of the assets are invested in equities and 43% are in
fixed income investments. All plan assets are invested by professional
investment managers.
All pension provisions charged against income totaled $10.8 million, $9.3
million and $12.6 million in 1995, 1996 and 1997, respectively. In 1997, the
Company also recorded a $66.7 million charge for enhanced retirement benefits
paid under the defined benefit pension plan, pursuant to a new labor agreement.
THE DEFINED BENEFIT PLAN
The plan was established pursuant to a collective bargaining agreement
ratified on August 12, 1997. Prior to that date, benefits were provided through
a defined contribution plan, the Wheeling-Pittsburgh Steel Corporation
Retirement Security Plan ("Retirement Security Plan").
F-8
<PAGE> 84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The defined benefit pension plan covers employees represented by the USWA.
The plan also includes individual participant accounts from the Retirement
Security Plan. The assets of the Retirement Security Plan were merged into the
defined benefit pension plan as of December 1, 1997.
Since the plan includes the account balances from the Retirement Security
Plan, the plan includes both defined benefit and defined contribution features.
The gross benefit, before offsets, is calculated based on years of service and
the current benefit multiplier under the plan. This gross amount is then offset
for benefits payable from the Retirement Security Plan and benefits payable by
the Pension Benefit Guaranty Corporation from previously terminated plans.
Individual employee accounts established under the Retirement Security Plan are
maintained until retirement. Upon retirement, the account balances are converted
into monthly benefits that serve as an offset to the gross benefit, as described
above. Aggregate account balances held in trust in individual employee accounts,
which will be available upon retirement to offset the gross benefit, totaled
$121.3 million at December 31, 1997.
As part of the new labor agreement, the Company offered a limited program
of Retirement Enhancements. The Retirement Enhancement program provides for
unreduced retirement benefits to the first 850 employees who retire after
October 1, 1996. In addition, each retiring participant can elect a lump sum
payment of $25,000 or a $400 monthly supplement payable until age 62. More than
850 employees applied for retirement under this program by December 31, 1997.
The Retirement Enhancement program represented a Curtailment and Special
Termination Benefits under SFAS No. 88. The Company recorded a charge of $66.7
million in 1997 to cover the retirement enhancement program.
The Company's funding policy is to contribute annually an amount that
satisfies the minimum funding standards of ERISA.
F-9
<PAGE> 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the reconciliation of the projected benefit
obligation ("PBO") to the accrued obligation included in the Company's
consolidated balance sheet at December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Vested benefit obligation.............................. $(127,457)
Non-vested benefit..................................... (44,974)
---------
Projected benefit obligation........................... (172,431)
Plan assets at fair value.............................. 5,179
---------
Obligations in excess of plan assets................... (167,252)
Unrecognized prior service cost........................ 76,714
---------
Accrued pension costs.................................. (90,538)
Additional minimum pension liability................... (76,714)
---------
Total pension liability................................ $(167,252)
=========
Net periodic pension cost:
Service cost...................................... $ 2,278
Interest cost..................................... 4,172
Return on assets.................................. --
Amortization of prior service cost................ 2,877
---------
Net periodic pension cost......................... 9,327
Recognition of retirement enhancement program.......... 66,676
---------
Total pension cost..................................... $ 76,003
=========
Assumptions and methods
Discount rate..................................... 7%
Long term rate of return on plan assets........... 8%
Assets..................................... Market Value
Projected from January 1,
Participant census......................... 1997
</TABLE>
401-K PLAN
Effective January 1, 1994 the Company began matching salaried employee
contributions to the 401(K) plan with shares of the Company's Common Stock. The
Company matches 50% of the employees contributions. The employer contribution is
limited to a maximum of 3% of an employee's salary. At December 31, 1995, 1996
and 1997, the 401(K) plan held 115,151 shares, 190,111 shares and 275,537 shares
of the Company's Common Stock, respectively.
POSTEMPLOYMENT BENEFITS
The Company provides benefits to former or inactive employees after
employment but before retirement. Those benefits include, among others,
disability, severance and workers' compensation. The assumed discount rate used
to measure the benefit liability was 7.5% at December 31, 1995 and 1996 and 7.0%
at December 31, 1997.
OTHER POSTRETIREMENT BENEFITS
The Company sponsors postretirement benefit plans that cover both
management and hourly retirees and dependents. The plans provide medical
benefits including hospital, physicians' services and major medical expense
benefits and a life insurance benefit. The hourly employees' plans provide
non-contributory basic medical and a supplement to Medicare benefits, and major
medical coverage to which the Company
F-10
<PAGE> 86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
contributes 50% of the insurance premium cost. The management plan has provided
basic medical and major medical benefits on a non-contributory basis through age
65.
The Company accounts for these benefits in accordance with SFAS No. 106.
The cost of postretirement medical and life benefits for eligible employees are
accrued during the employee's service period through the date the employee
reaches full benefit eligibility. The Company defers and amortizes recognition
of changes to the unfunded obligation that arise from the effects of current
actuarial gains and losses and the effects of changes in assumptions. The
Company funds the plans as current benefit obligations are paid. Additionally,
in 1994 the Company began funding a qualified trust in accordance with its
collective bargaining agreement. The new collective bargaining agreement
provides for the use of those funds to pay current benefit obligations and
suspends additional funding until 2002. The following table sets forth the
reconciliation of the Accumulated Postretirement Benefit Obligation ("APBO") to
the accrued obligation included in the Company's consolidated balance sheet at
December 31, 1996 and 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Active employees not eligible for retirement......... $ 85,030 $ 54,443
Active employees eligible to retire.................. 68,300 51,841
Retirees and beneficiaries........................... 208,011 202,528
-------- --------
Accumulated postretirement benefit obligation........ 361,341 308,812
Plan assets at fair market value..................... 13,010 7,795
-------- --------
Obligations in excess of plan assets................. 348,331 301,017
Unamortized reduction in prior service cost.......... 1,806 40,486
Unamortized gain..................................... 64,303 71,942
-------- --------
Accrued postretirement benefit obligation............ $414,440 $413,445
======== ========
</TABLE>
At December 31, 1997 plan assets consisted primarily of short term
corporate notes.
The following table sets forth the components of the recorded net periodic
postretirement benefit costs.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net periodic postretirement benefit cost:
Service cost........................................... $ 3,563 $ 3,953 $ 2,488
Interest cost.......................................... 26,757 23,982 20,950
Other.................................................. (3,570) (3,888) (7,490)
------- ------- -------
Total............................................. $26,750 $24,047 $15,948
======= ======= =======
Assumptions:
Discount rate.......................................... 7.0% 7.0% 7.0%
Health care cost trend rate............................ 10.0% 9.5% 9.0%
Return on assets....................................... 8.0% 8.0% 8.0%
</TABLE>
For measurement purposes, medical costs are assumed to increase at annual
rates as stated above and declining gradually to 4.5% in 2004 and beyond. The
health care cost trend rate assumption has significant effect on the costs and
obligation reported. A 1% increase in the health care cost trend rate in each
year would result in approximate increases in the accumulated postretirement
benefit obligation of $25.1 million, and net periodic benefit cost of $4.3
million.
F-11
<PAGE> 87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
COAL INDUSTRY RETIREE HEALTH BENEFIT ACT
The Coal Industry Retiree Health Benefit Act of 1992 (the "Act") created a
new United Mine Workers of America postretirement medical and death benefit plan
to replace two existing plans which had developed significant deficits. The Act
assigns companies the remaining benefit obligations for former employees and
beneficiaries, and a pro rata allocation of benefits related to unassigned
beneficiaries ("orphans"). The Company's obligation under the Act relates to its
previous ownership of coal mining operations.
In 1995 the Social Security Administration (SSA) assigned additional
retirees and orphans to the Company. Based on the information obtained over the
past several years the Company believed the liability had been reasonably
determined and valued the liability at its net present value using a 7.5%
discount rate. After discounting the liability to present value, the net charge
to income in 1995 totaled $3.0 million. At December 31, 1997 the actuarially
determined accrued liability, discounted at 7%, covering 532 assigned retirees
and dependents and 133 orphans, totaled $10.8 million. The Company recorded an
extraordinary charge of $1.7 million (net of tax) in 1997 related to assignment
of additional orphans.
NOTE D--INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- ------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C>
INCOME TAXES BEFORE EXTRAORDINARY ITEMS
Current
Federal tax provision.................................. $ 11,600 $ 2,065 $ --
State tax provision.................................... 998 400 460
-------- ------- ---------
Total income taxes current.................................. 12,598 2,465 460
-------- ------- ---------
Deferred
Federal tax provision (benefit)........................ (35,684) (6,572) (94,029)
Pre-reorganization tax benefits recorded directly to
equity............................................... 42,100 -- --
-------- ------- ---------
Income tax provision (benefit).............................. $ 19,014 $(4,107) $ (93,569)
======== ======= =========
TOTAL INCOME TAXES
Current
Federal tax provision.................................. $ 11,600 $ 2,065 $ --
State tax provision.................................... 998 400 460
-------- ------- ---------
Total income taxes current.................................. 12,598 2,465 460
-------- ------- ---------
Deferred
Federal tax provision (benefit)........................ (37,322) (6,572) (108,024)
Pre-reorganization tax benefits recorded directly to
equity............................................... 42,100 -- --
-------- ------- ---------
Income tax provision (benefit).............................. $ 17,376 $(4,107) $(107,564)
======== ======= =========
COMPONENTS OF TOTAL INCOME TAXES
Operations.................................................. $ 19,014 $(4,107) $ (93,569)
Extraordinary items......................................... (1,638) -- (13,995)
-------- ------- ---------
Income tax provision (benefit).............................. $ 17,376 $(4,107) $(107,564)
======== ======= =========
</TABLE>
F-12
<PAGE> 88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes result from temporary differences in the financial
basis and tax basis of assets and liabilities. The type of differences that give
rise to deferred income tax liabilities or assets are shown in the following
table:
DEFERRED INCOME TAX SOURCES
<TABLE>
<CAPTION>
1996 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
ASSETS
Postretirement and postemployment employee benefits......... $ 147.1 $ 147.7
Operating loss carryforward (expiring in 2005 to 2012)...... 8.0 76.7
Minimum tax credit carryforwards (indefinite
carryforward)............................................. 49.5 49.5
Provision for expenses and losses........................... 43.3 87.0
Leasing activities.......................................... 25.2 23.8
State income taxes.......................................... 6.0 1.4
Miscellaneous other......................................... 10.5 7.5
------- -------
DEFERRED TAX ASSETS............................... $ 289.6 $ 393.6
------- -------
LIABILITIES
Property plant and equipment................................ $(158.8) $(166.1)
Inventory................................................... (35.5) (34.9)
State income taxes.......................................... (4.9) (1.0)
Miscellaneous other......................................... (.9) (6.8)
------- -------
DEFERRED TAX LIABILITY............................ $(200.1) $(208.8)
Valuation allowance......................................... (20.0) (20.0)
------- -------
DEFERRED INCOME TAX ASSET--NET.............................. $ 69.5 $ 164.8
======= =======
</TABLE>
As of December 31, 1997, for financial statement reporting purposes a
balance of approximately $29.0 million of prereorganization tax benefits exist.
These benefits will be reported as a direct addition to equity as they are
recognized. In 1995 tax benefits of $42.1 million were recognized as a direct
addition to equity. The decrease in the valuation allowance in 1995 reflects the
recognition of these tax benefits. No prereorganization tax benefits were
recognized in 1996 and 1997.
During 1994, the Company experienced an ownership change as defined by
Section 382 of the Internal Revenue Code. As the result of this event,
pre-change of control net operating losses that can be used to offset
post-change of control pretax income will be limited to approximately $32
million per year. Post-change of control net operating losses do not have an
annual offset limitation.
Total federal and state income taxes paid in 1995, 1996 and 1997 were $18.0
million, $3.5 million and $0.7 million, respectively.
Federal tax returns have been examined by the Internal Revenue Service
("IRS") through 1987. The statute of limitations has expired for years through
1993, however, the IRS can review prior years to adjust any NOL's incurred in
such years and carried forward to offset income in subsequent open years.
Management believes it has adequately provided for all taxes on income.
F-13
<PAGE> 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C>
Income (loss) before taxes and extraordinary items.... $100,075 $(3,449) $(267,341)
======== ======= =========
Tax provision (benefit) at statutory rate............. $ 35,026 $(1,207) $ (93,569)
Increase (reduction) in tax due to:
Percentage depletion............................. (973) (1,027) (1,092)
Equity earnings.................................. (1,288) (2,408) 338
State income tax net of federal effect........... 1,624 260 299
Reduction in valuation allowance net of equity
adjustment..................................... (16,300) -- --
Other miscellaneous.............................. 925 275 455
-------- ------- ---------
Tax provision (benefit)............................... $ 19,014 $(4,107) $ (93,569)
======== ======= =========
</TABLE>
NOTE E--SHORT TERM INVESTMENTS
The composition of the Company's short term investments are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
<CAPTION>
<S> <C> <C>
Trading Securities:
U.S. Treasury Securities............................... $402,125 $513,906
U.S. Government Agency Mortgage Backed Obligations..... 40,013 --
Other.................................................. 5,424 3,890
Available-for-sale securities:
Equities............................................... -- 63,754
-------- --------
$447,562 $581,550
======== ========
</TABLE>
These investments are subject to price volatility associated with any
interest bearing instrument. Fluctuations in general interest rates affect the
value of these investments.
The Company recognizes gains and losses based on specific identification of
the securities which comprise the investment balance. No available-for-sale
securities were held at December 31, 1996. At December 31, 1997 unrealized
holding gains on available-for-sale securities of $24.2 million were reported as
a separate component of stockholder's equity. Net unrealized holding gains and
losses on trading securities included in net income for 1996 and 1997 were $10.0
million loss and $17.4 million gain, respectively. At December 31, 1996 and 1997
the Company had short term margin borrowings of $68.8 million and $275.5
million, respectively, related to the short term investments.
F-14
<PAGE> 90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
-------- --------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
<S> <C> <C>
Finished products........................................... $ 66,694 $ 71,710
In-process.................................................. 59,984 106,740
Raw materials............................................... 80,147 103,735
Other materials and supplies................................ 19,476 19,811
-------- --------
226,301 301,996
LIFO reserve................................................ (10,899) (17,239)
-------- --------
$215,402 $284,757
======== ========
</TABLE>
During 1996 and 1997, certain inventory quantities were reduced, resulting
in liquidations of LIFO inventories, the effect of which decreased income by
approximately $1.2 million in 1996 and increased income by approximately $0.6
million in 1997.
NOTE G--PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
---------- ----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
<S> <C> <C>
Land and mineral properties................................. $ 26,380 $ 26,424
Buildings, machinery and equipment.......................... 1,053,237 1,069,215
Construction in progress.................................... 18,839 22,603
---------- ----------
1,098,456 1,118,242
Accumulated depreciation and amortization................... 343,044 379,582
---------- ----------
$ 755,412 $ 738,660
========== ==========
</TABLE>
The Company utilizes the modified units of production method of
depreciation which recognizes that the depreciation of steelmaking machinery is
related to the physical wear of the equipment as well as a time factor. The
modified units of production method provides for straight line depreciation
charges modified (adjusted) by the level of raw steel production. In 1996 and
1997 depreciation under the modified units of production method was $7.6 million
or 13.4% and $21.6 million or 40% respectively, less than straight line
depreciation. The 1996 and 1997 reductions in depreciation primarily reflect the
ten month strike which began October 1, 1996.
F-15
<PAGE> 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE H--LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
-------- --------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
<S> <C> <C>
Senior Unsecured Notes due 2007, 9 1/4%..................... $ -- $273,966
Term Loan Agreement due 2006, floating rate................. -- 75,000
Senior Unsecured Notes due 2003, 9 3/8%..................... 266,155 --
IRS pension tax note due 1997, 8%........................... 1,833 --
Other....................................................... 2,546 1,953
-------- --------
270,534 350,919
Less portion due within one year............................ 2,336 466
-------- --------
Total Long-Term Debt(1)........................... $268,198 $350,453
======== ========
</TABLE>
- ------------------------------
(1) The fair value of long-term debt at December 31, 1996 and December 31, 1997
was $270.2 million and $350.9 million, respectively. Fair value of long-term
debt is estimated based on trading in the public market.
Long-term debt maturing in each of the next five years is as follows: 1998,
$466; 1999, $474; 2000, $472; 2001, $272 and 2002, $259.
A summary of the financial agreements at December 31, 1997 follows:
REVOLVING CREDIT FACILITY
On December 28, 1995, WPSC entered into a Second Amended and Restated
Revolving Credit Facility ("RCF") with Citibank, N.A. as agent. The RCF, as
amended, provides for borrowings for general corporate purposes up to $150
million and a $35 million sub-limit for Letters of Credit.
The RCF expires May 3, 1999. Interest rates are based on the Citibank prime
rate plus 1.0% and/or a Eurodollar rate plus 2.25%, but the margin over the
prime rate and the Eurodollar rate can fluctuate based upon performance. A
commitment fee of .5% is charged on the unused portion. The letter of credit fee
is 2.25% and is also performance based.
Borrowings are secured primarily by 100% of the eligible inventory of WPSC,
Pittsburgh-Canfield Corporation ("PCC"), Wheeling Construction Products, Inc.
("WCPI") and Unimast, Inc. ("Unimast") and the terms of the RCF contain various
restrictive covenants, limiting among other things dividend payments or other
distribution of assets, as defined in the RCF. Unimast and Wheeling-Pittsburgh
Corporation ("WPC") are wholly-owned subsidiaries of the Company. WPSC, PCC and
WCPI are wholly-owned subsidiaries of WPC. Certain financial covenants
associated with leverage, net worth, capital spending, cash flow and interest
coverage must be maintained. WPC, PCC, WCPI and Unimast have each guaranteed all
of the obligations of WPSC under the RCF. Borrowings outstanding against the RCF
at December 31, 1997 totaled $89.8 million. No letters of credit were
outstanding under the RCF.
In August 1994 WPSC entered into a separate facility for letters of credit
up to $50 million. At December 31, 1997 letters of credit totaling $9.3 million
were outstanding under this facility. The letters of credit are collateralized
at 105% with U.S. Government securities owned by the Company, and are subject to
an administrative charge of .4% per annum on the amount of outstanding letters
of credit.
9 3/8% SENIOR NOTES DUE 2003
On November 23, 1993 WPC issued $325 million of 9 3/8% Senior Notes.
Interest on the 9 3/8% Senior Notes is payable semi-annually on May 15 and
November 15 of each year, commencing May 15, 1994. The 9 3/8% Senior Notes
mature on November 15, 2003. During 1994, the Company repurchased $54.3 million
of its outstanding 9 3/8% Senior Notes at an average price of 94% of the related
outstanding principal amount.
F-16
<PAGE> 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1996, $4.2 million of the Senior Notes were retired via the issuance
by WHX Corporation shares of its Common Stock pursuant to the terms of the
Warrants Agreement allowing holders to tender lawful debt of the Company at face
value to pay for exercise of warrants.
On November 26, 1997, WPC, under the terms of the indenture, defeased the
remaining $266.2 million 9 3/8% Senior Notes outstanding at a total cost of
$298.8 million. The 9 3/8% Senior Notes were placed into trusteeship where they
will be held until redemption on November 15, 2000.
9 1/4% SENIOR NOTES DUE 2007
On November 26, 1997 WPC issued $274 million of 9 1/4% Senior Notes.
Interest on the 9 1/4% Senior Notes is payable semi-annually on May 15 and
November 15 of each year, commencing May 15, 1998. The 9 1/4% Senior Notes
mature on November 15, 2007.
The 9 1/4% Senior Notes are redeemable at the option of WPC, in whole or in
part, on or after November 15, 2002 at specified redemption prices, plus accrued
interest and liquidated damages, if any, thereon to the date of redemption.
Upon the occurrence of a Change of Control (as defined), WPC will be
required to make an offer to repurchase all or any part of each holder's 9 1/4%
Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid
interest and liquidated damages, if any, thereon to the date of repurchase.
The 9 1/4% Senior Notes are unsecured obligations of WPC, ranking senior in
right of payment to all existing and future subordinated indebtedness of WPC,
and pari passu with all existing and future senior unsecured indebtedness of
WPC, including borrowings under the Term Loan Agreement.
The 9 1/4% Senior Notes indenture contains certain covenants, including,
but not limited to, covenants with respect to: (i) limitations on indebtedness;
(ii) limitations on restricted payments; (iii) limitations on transactions with
affiliates; (iv) limitations on liens; (v) limitations on sale of assets; (vi)
limitations on issuance and sale of capital stock of subsidiaries; (vii)
limitations on dividends and other payment restrictions affecting subsidiaries;
and (viii) restrictions on consolidations, mergers and sales of assets.
WPC has agreed to file a registration statement relating to an exchange
offer for the 9 1/4% Senior Notes under the Securities Act of 1933. The 9 1/4%
Senior Notes are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market.
TERM LOAN AGREEMENT
On November 26, 1997 WPC entered into the Term Loan Agreement with DLJ
Capital Funding Inc., as syndication agent, pursuant to which it borrowed $75
million.
Interest on the Term Loan Agreement is payable on March 15, June 15,
September 15 and December 15 as to Base Rate Loans, and with respect to LIBOR
loans on the last day of each applicable interest period, and if such interest
period shall exceed three months, at intervals of three months after the first
day of such interest period. Amounts outstanding under the Term Loan Agreement
bear interest at the Base Rate (as defined therein) plus 2.25% or the LIBO Rate
(as defined therein) plus 3.25%.
WPC's obligations under the Term Loan Agreement are guaranteed by its
present and future operating subsidiaries. WPC may prepay the obligations under
the Term Loan Agreement beginning on November 15, 1998, subject to a premium of
2.0% of the principal amount thereof. Such premium declines to 1.0% on November
15, 1999 with no premium on or after November 15, 2000.
F-17
<PAGE> 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INTEREST COST
Aggregate interest costs on long-term debt and amounts capitalized during
the three years ended December 31, 1997, are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C>
Aggregate interest expense on long-term debt................ $29,192 $28,463 $31,274
Less: Capitalized interest.................................. 6,362 2,500 2,227
------- ------- -------
Interest expense............................................ $22,830 $25,963 $29,047
======= ======= =======
Interest paid............................................... $27,873 $27,660 $29,589
======= ======= =======
</TABLE>
NOTE I--STOCKHOLDERS' EQUITY
The authorized capital stock of WHX consists of 60,000,000 shares of Common
Stock, $.01 par value, of which 19,433,614 shares (including redeemable Common
Stock, but excluding 205,100 shares of Common Stock held in treasury), were
outstanding as of December 31, 1997 and 10,000,000 shares of Preferred Stock,
$0.10 par value, of which 2,907,880 shares of Series A Convertible Preferred
Stock and 2,975,100 shares of Series B Convertible Preferred Stock were
outstanding as of December 31, 1997. In 1996 and 1997, the Company purchased
2,940,316 shares and 5,537,552 shares, respectively, of Common Stock in open
market purchases.
SERIES A CONVERTIBLE PREFERRED STOCK
In July 1993 the Company issued 3,000,000 shares of Series A Convertible
Preferred Stock for net proceeds of $145.0 million. Dividends on the shares of
the Series A Convertible Preferred Stock are cumulative, are payable quarterly
in arrears on January 1, April 1, July 1 and October 1 of each year, in an
amount equal to $3.25 per share per annum.
Each share of the Series A Convertible Preferred Stock is convertible at
the option of the holder thereof at any time into shares of Common Stock of the
Company, par value $.01 per share, at a conversion price of $15.78 per share of
Common Stock (equivalent to a conversion rate of approximately 3.1686 shares of
Common Stock for each share of Series A Convertible Preferred Stock), subject to
adjustment under certain conditions.
The Series A Convertible Preferred Stock was not redeemable prior to July
1, 1996. On and after such date, the Series A Convertible Preferred Stock is
redeemable at the option of the Company, in whole or in part, for cash,
initially at $52.275 per share and thereafter at prices declining ratably to
$50.00 per share on and after July 1, 2003, plus in each case accrued and unpaid
dividends to the redemption date. The Series A Convertible Preferred Stock is
not entitled to the benefit of any sinking fund. In 1996 and 1997 the Company
purchased and retired 92,000 shares of Series A Convertible Preferred Stock on
the open market. An additional 120 shares were converted into Common Stock.
SERIES B CONVERTIBLE PREFERRED STOCK
The Company completed a shelf registration in the amount of $550 million of
debt securities or preferred stock in August 1994. Pursuant to this shelf
registration the Company issued 3,500,000 shares of Series B Convertible
Preferred Stock in September 1994 for net proceeds of $169.8 million. Dividends
on the shares of the Series B Convertible Preferred Stock, are cumulative, are
payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each
year, in an amount equal to $3.75 per share per annum.
Each share of the Series B Convertible Preferred Stock is convertible at
the option of the holder thereof at any time into shares of Common Stock of the
Company, par value $.01 per share, at a conversion price of
F-18
<PAGE> 94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$20.40 per share of Common Stock (equivalent to a conversion rate of
approximately 2.4510 shares of Common Stock for each share of Series B
Convertible Preferred Stock), subject to adjustment under certain conditions.
The Series B Convertible Preferred Stock was not redeemable prior to
October 1, 1997. On and after such date, the Series B Convertible Preferred
Stock is redeemable at the option of the Company, in whole or in part, for cash,
initially at $52.625 per share and thereafter at prices declining ratably to
$50.00 per share on and after October 1, 2004, plus in each case accrued and
unpaid dividends to the redemption date. The Series B Convertible Preferred
Stock is not entitled to the benefit of any sinking fund. In 1996 and 1997 the
Company purchased and retired 524,900 shares of Series B Convertible Preferred
Stock in open market purchases.
REDEEMABLE COMMON STOCK
Certain present and former employees of the Company were issued preferred
shares of the Company prior to the Chapter 11 proceeding of the Company's
predecessor in exchange for wage and salary concessions. Such preferred shares
were exchanged for 1,279,935 shares of Common Stock under the Chapter 11 Plan of
Reorganization, these shares were issued to an Employee Stock Ownership Plan
("ESOP") on such employees' behalf. Beneficial owners of such shares who were
active employees on August 15, 1990 and who have either retired, died or become
disabled, or who reach 30 years of service, may sell their Common Stock to the
Company at a price of $15 or, upon qualified retirement, $20 per share. These
contingent obligations are expected to extend over many years, as participants
in the ESOP satisfy the criteria for selling shares to the Company. In addition,
each beneficiary can direct the ESOP to sell any or all of its Common Stock into
the public markets at any time; provided, however, that the ESOP will not on any
day sell in the public markets more than 20% of the number of shares of Common
Stock traded during the previous day. As of December 31, 1997, 359,739 shares of
redeemable Common Stock remained outstanding.
F-19
<PAGE> 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Changes in capital accounts are as follows: (dollars and shares in
thousands)
<TABLE>
<CAPTION>
CONVERTIBLE TREASURY
COMMON STOCK PREFERRED STOCK ACCUMULATED CAPITAL IN
--------------- --------------- ----------------- EARNINGS EXCESS OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT PAR VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995 27,229.. $272 6,500 $650 -- $ -- $ 23,349 $664,905
EIP shares sold................ 4 -- -- -- -- -- -- 57
Stock options exercised........ 24 -- -- -- -- -- -- 191
Warrants exercised............. 64 1 -- -- -- -- -- 406
401K contribution.............. 84 1 -- -- -- -- -- 952
Purchase of treasury stock..... (2,025) (20) -- -- 2,025 (22,594) -- --
Acquisition of Namasco
assets....................... 188 2 -- -- -- -- -- 1,998
Financing costs................ -- -- -- -- -- -- -- (138)
Pre-reorg. tax benefits........ -- -- -- -- -- -- -- 42,100
Preferred dividends............ -- -- -- -- -- -- (22,875) --
Net Income..................... -- -- -- -- -- -- 78,018 --
------ ---- ----- ---- ------ -------- --------- --------
Balance December 31, 1995 25,568.. 256 6,500 650 2,025 (22,594) 78,492 710,471
------ ---- ----- ---- ------ -------- --------- --------
EIP shares sold................ 5 -- -- -- -- -- -- 75
Stock options exercised........ 124 1 -- -- -- -- -- 947
Warrants exercised............. 1,477 15 -- -- -- -- -- 9,377
401K contribution.............. 94 1 -- -- -- -- -- 960
Purchase of treasury stock..... (2,940) (19) -- -- 2,940 (27,537) -- --
Retirement of treasury stock... -- (9) -- -- (4,808) 48,749 -- (48,741)
Retirement of preferred
stock........................ -- -- (363) (36) -- -- -- (14,966)
Preferred dividends............ -- -- -- -- -- -- (22,313) --
Net Income..................... -- -- -- -- -- -- 658 --
------ ---- ----- ---- ------ -------- --------- --------
Balance December 31, 1996...... 24,328 245 6,137 614 157 (1,382) 56,837 658,123
------ ---- ----- ---- ------ -------- --------- --------
EIP shares sold................ 4 -- -- -- -- -- -- 67
Stock options exercised........ 173 2 -- -- -- -- -- 1,388
WPN stock option............... -- -- -- -- -- -- -- 6,678
401K contribution.............. 107 1 -- -- -- -- -- 927
Purchase of treasury stock..... (5,538) -- -- -- 5,537 (55,602) -- --
Retirement of treasury stock... -- (55) -- -- (5,489) 54,766 -- (54,712)
Retirement of preferred
stock........................ -- -- (254) (25) -- -- -- (9,814)
Preferred dividends............ -- -- -- -- -- -- (20,657) --
Net loss....................... -- -- -- -- -- -- (199,762) --
------ ---- ----- ---- ------ -------- --------- --------
Balance December 31, 1997...... 19,074 $193 5,883 $589 205 $ (2,218) $(163,582) $602,657
====== ==== ===== ==== ====== ======== ========= ========
</TABLE>
STOCK OPTION PLAN
The Wheeling-Pittsburgh Corporation Stock Option Plan ("1991 Plan") is
intended to assist the Company in securing and retaining key employees by
allowing them to participate in the ownership and growth of the Company through
the grant of incentive and non-qualified options (collectively, the "Options")
to full-time employees of the Company and its subsidiaries. Incentive stock
options granted under the Option Plan are intended to be "Incentive Stock
Options" as defined by Section 422 of the Code.
An aggregate of 2,500,000 shares of Common Stock has been reserved for
issuance upon exercise of Options under the 1991 Plan. The 1991 Plan is
administered by a committee (the "Committee") consisting of not less than three
nonemployee members appointed by the Board of Directors. The term of Options
granted under the 1991 Plan may not exceed 10 years (five years in the case of
an incentive Option granted to an optionee owning more than 10% of the voting
stock of the Company (a "10% Holder")). The Option price for Options shall not
be less than 100% of the "fair market value" of the shares of Common Stock at
the time the Option is granted; provided, however, that with respect to an
incentive option, in the case of a 10% Holder, the
F-20
<PAGE> 96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
purchase price per share shall be at least 110% of such fair market value. The
aggregate fair market value of the shares of Common Stock as to which an
optionee may first exercise incentive stock options in any calendar year may not
exceed $100,000. Payment for shares purchased upon exercise of Options is to be
made in cash, but, at the discretion of the Committee, may be made by delivery
of other shares of Common Stock of comparable value. The 1991 Plan will
terminate on September 24, 2001 and may be terminated at any time by the Board
of Directors prior to that date.
DIRECTORS OPTION PLANS
The 1993 Directors D&O Plan (the "1993 D&O Plan") is authorized to issue
shares of Common Stock pursuant to the exercise of options with respect to a
maximum of 400,000 shares of Common Stock. The options vest over three years
from the date of grant. The 1997 Directors Stock Option Plan ("1997 D&O Plan")
is authorized to issue an additional 400,000 shares of Common Stock.
OPTION GRANTS TO WPN CORP.
On July 29, 1993 (the "Approval Date"), the Board of Directors approved the
grant of options to WPN Corp. to purchase 1,000,000 shares of Common Stock (the
"Option Grants"). The Option Grants were approved by the stockholders on March
31, 1994.
On August 4, 1997 the compensation committee of the Board of Directors
granted an option to purchase 1,000,000 shares of Common Stock to WPN Corp, at
the then market price per share, subject to stockholder approval. The Board of
Directors approved such grant on September 25, 1997, and the stockholders
approved it on December 1, 1997 (measurement date).
The options under each plan are exercisable with respect to one-third of
the shares of Common Stock issuable upon the exercise thereunder at any time on
or after the date of stockholder approval of the Option Grants. The options with
respect to an additional one-third of the shares of Common Stock may be
exercised on the first and second anniversaries of the Approval Date,
respectively. The options, to the extent not previously exercised, will expire
on April 29, 2003 and August 4, 2007, respectively.
The Company is required to record a charge for the fair value of the 1997
option grants under SFAS 123. The fair value of the option grant is estimated on
the measurement date using the Black-Scholes option-pricing model. The following
assumptions were used in the Black-Scholes calculation: expected volatility of
48.3%, risk-free interest rate of 5.83%, an expected life of 5 years and a
dividend yield of zero. The resulting estimated fair value of the shares granted
in 1997 was $6.7 million which was recorded as part of the special charge
related to the new labor agreement.
F-21
<PAGE> 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A SUMMARY OF THE OPTION PLANS:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
-------------------------------
1991 D & O WPN OPTION PRICE WEIGHTED AVERAGE
PLAN PLAN GRANTS OR RANGE OPTION PRICE
--------- ------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance 12/31/94................ 1,225,919 224,000 1,000,000 $10.897
Granted.................... -- 68,000 -- 11.00 11.000
Cancelled.................. (43,328) -- -- 6.125-14.625 9.733
Exercised.................. (24,174) -- -- 6.125-8.750 7.913
--------- ------- ---------
Balance 12/31/95................ 1,158,417 292,000 1,000,000 10.949
Granted.................... 23,000 34,000 -- 9.875-13.50 11.226
Cancelled.................. (8,423) -- -- 8.75-14.625 14.317
Exercised.................. (123,664) -- -- 6.125-8.750 7.667
--------- ------- ---------
Balance 12/31/96................ 1,049,330 326,000 1,000,000 11.054
Granted.................... 982,500 166,000 1,000,000 6.875-13.8125 11.641
Cancelled.................. (222,802) (5,334) -- 8.75-14.625 13.648
Exercised.................. (172,639) -- -- 6.125-8.75 8.048
--------- ------- ---------
Balance 12/31/97................ 1,636,389 486,666 2,000,000 $11.342
========= ======= =========
</TABLE>
Options outstanding at December 31, 1997 which are exercisable totaled 2,341,221
and have a weighted average option price of $10.918.
In 1996 the Company adopted SFAS No. 123, and elected to continue to
account for such compensation under the provisions of APB 25. Therefore, no
compensation costs have been recognized for the stock option plans in 1996 or
1997. Had the Company elected to account for stock-based compensation under the
provisions of SFAS No. 123 during 1996 and 1997, the effect on net income and
earnings per share would not be material.
EARNINGS PER SHARE
In 1997 the Company adopted SFAS No. 128, Earnings per Share. The
computation of basic earnings per common share is based upon the average shares
of Common Stock outstanding. The computation of earnings per common
share--assuming dilution in 1995 assumes conversion of preferred stock and
redeemable common stock and exercise of outstanding stock options and warrants.
In 1996 and 1997, the conversion of preferred shares and redeemable common stock
and exercise of options and warrants would have had an anti-dilutive effect.
Previously reported EPS has been restated. A reconciliation of the income and
shares used in the computation follows:
RECONCILIATION OF INCOME AND SHARES IN EPS CALCULATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(DOLLARS AND SHARES IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before extraordinary item................... $(173,772)
Less: Preferred stock dividends........................... 20,657
BASIC EPS AND DILUTED EPS
---------
Income (loss) available to common stockholders.......... $(194,429) 22,028 $(8.83)
========= ====== ======
</TABLE>
F-22
<PAGE> 98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The assumed conversion of stock options, preferred stock and redeemable common
stock would have an anti-dilutive effect on earnings per share.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(DOLLARS AND SHARES IN THOUSANDS)
<S> <C> <C> <C>
Income before extraordinary item.......................... $ 658
Less: Preferred stock dividends........................... 22,313
BASIC EPS AND DILUTED EPS
--------
Income (loss) available to common stockholders.......... $(21,655) 26,176 $(0.83)
======== ====== ======
</TABLE>
The assumed conversion of stock options, preferred stock and redeemable common
stock would have an anti-dilutive effect on earnings per share.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(DOLLARS AND SHARES IN THOUSANDS)
<S> <C> <C> <C>
Income before extraordinary item.......................... $81,061
Less: Preferred stock dividends........................... 22,875
BASIC EPS
-------
Income available to common stockholders................. $58,186 25,850 $2.25
EFFECT OF DILUTIVE SECURITIES
Options and warrants.................................... -- 821
Convertible preferred stock............................. 22,875 18,084
Redeemable common stock................................. -- 444
DILUTED EPS
------- ------
Income available to common stockholders plus assumed
conversions.......................................... $81,061 45,199 $1.79
======= ====== =====
</TABLE>
NOTE J--COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
The Company has been identified as a potentially responsible party under
the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund") or similar state statutes at several waste sites. The Company is
subject to joint and several liability imposed by Superfund on potentially
responsible parties. Due to the technical and regulatory complexity of remedial
activities and the difficulties attendant to identifying potentially responsible
parties and allocating or determining liability among them, the Company is
unable to reasonably estimate the ultimate cost of compliance with Superfund
laws. The Company believes, based upon information currently available, that the
Company's liability for clean up and remediation costs in connection with the
Buckeye reclamation will be between $3.0 and $4.0 million. At six other sites
(MIDC Glassport, United Scrap Lead, Tex-Tin, Breslube Penn, Four County Landfill
and Beazor) the Company estimates costs to aggregate up to $700,000. The Company
is currently funding its share of remediation costs.
The Company, as are other industrial manufacturers, is subject to
increasingly stringent standards relating to the protection of the environment.
In order to facilitate compliance with these environmental standards, the
Company has incurred capital expenditures for environmental control projects
aggregating $5.9 million, $6.8 million and $12.4 million for 1995, 1996 and
1997, respectively. The Company anticipates spending approximately $41.3 million
in the aggregate on major environmental compliance projects through the year
2000, estimated to be spent as follows: $13.4 million in 1998, $15.9 million in
1999 and $12.0 million
F-23
<PAGE> 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in 2000. Due to the possibility of unanticipated factual or regulatory
developments, the amount of future expenditures may vary substantially from such
estimates.
Non-current accrued environmental liabilities totaled $7.8 million at
December 31, 1996 and $10.6 million at December 31, 1997. These accruals were
initially determined by the Company in January 1991, based on all then available
information. As new information becomes available including information provided
by third parties, and changing laws and regulations, the liabilities are
reviewed and the accruals adjusted quarterly. Management believes, based on its
best estimate, that the Company has adequately provided for remediation costs
that might be incurred or penalties that might be imposed under present
environmental laws and regulations. Based upon information currently available,
including the Company's prior capital expenditures, anticipated capital
expenditures, consent agreements negotiated with Federal and state agencies and
information available to the Company on pending judicial and administrative
proceedings, the Company does not expect its environmental compliance costs and
liability costs, including the incurrence of additional fines and penalties, if
any, relating to the operation of its facilities, to have a material adverse
effect on the Company's financial condition or results of operations of the
Company. However, as further information comes into the Company's possession, it
will continue to reassess such evaluations.
NOTE K--RELATED PARTY TRANSACTION
The Chairman of the Board of the Company is the president and sole
shareholder of WPN Corp. Pursuant to a management agreement effective as of
January 3, 1991, as amended January 1, 1993 and April 11, 1994, approved by a
majority of the disinterested directors of the Company, WPN Corp. provides
certain financial, management advisory and consulting services to the Company.
Such services include, among others, identification, evaluation and negotiation
of acquisitions, responsibility for financing matters for the Company and its
subsidiaries, review of annual and quarterly budgets, supervision and
administration, as appropriate, of all the Company's accounting and financial
functions and review and supervision of reporting obligations under Federal and
state securities laws. In exchange for such services, WPN Corp. received a fixed
monthly fee of $458,333 in 1996 and 1997. In addition to the fixed monthly fee,
the Company paid a $300,000 bonus to WPN Corp. for its services in obtaining a
new five-year labor contract with significant job reductions. The management
agreement has a two year term and is renewable automatically for successive one
year periods, unless terminated by either party upon 60 days' prior written
notice.
The stockholders approved a grant of an option to purchase 1,000,000 shares
of Common Stock to WPN Corp. for their performance in obtaining a new labor
agreement. The options were valued using the Black--Scholes formula at $6.7
million and recorded as a special charge related to the labor contract.
NOTE L--OTHER INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest and investment income........................ $37,571 $19,660 $52,092
Equity income (loss).................................. 4,845 9,496 (1,644)
Sale of WP Radio assets............................... 6,718 -- --
Receivables securitization fees....................... (4,283) (4,934) (3,826)
Other, net............................................ 2,288 1,752 4,046
------- ------- -------
$47,139 $25,974 $50,668
======= ======= =======
</TABLE>
NOTE M--SALE OF RECEIVABLES
In 1994, a special purpose wholly-owned subsidiary of WPSC entered into an
agreement to sell (up to $75 million on a revolving basis) an undivided
percentage ownership in a designated pool of accounts
F-24
<PAGE> 100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
receivable generated by WPSC, WCPI and PCC. The agreement expires in August
1999. In July 1995 WPSC amended such agreement to sell an additional $20 million
on similar terms and conditions. In October 1995 WPSC entered into an agreement
to include the receivable generated by Unimast in the pool of accounts
receivable sold. Accounts receivable at December 31, 1996 and 1997 exclude $45
million and $69 million, respectively, representing uncollected accounts
receivable sold with recourse limited to the extent of uncollectible balances.
Fees paid by the Company under such agreement range from 5.76% to 8.50% of the
outstanding amount of receivables sold. Based on the Company's collection
history, the Company believes that credit risk associated with the above
arrangement is immaterial.
The Company adopted SFAS No. 125 Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, effective January 1, 1997.
The adoption of SFAS 125 did not have a material effect on the Company's
financial condition or results of operations for the year ended December 31,
1997.
NOTE N-- SEPARATE FINANCIAL STATEMENTS OF SUBSIDIARIES NOT
CONSOLIDATED AND 50 PERCENT OR LESS OWNED PERSONS.
The Company owns 35.7% of Wheeling-Nisshin. Wheeling-Nisshin had total debt
outstanding at December 31, 1996 and 1997 of approximately $25.3 million and
$18.5 million, respectively. The Company derived approximately 3.9% of its 1997
revenues from sale of steel to Wheeling-Nisshin, down from 11.5% in 1996. The
decrease in revenue reflects the effect of the strike on the Company's shipments
to Wheeling-Nisshin, Inc. The Company received dividends of $2.5 million
annually from Wheeling-Nisshin from 1995 through 1997. Audited financial
statements of Wheeling-Nisshin are presented beginning with page F-28 because it
is considered a significant subsidiary of the Company under SEC regulations.
NOTE O--EXTRAORDINARY CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Premium on early debt retirement............................ $ -- $ -- $ 32,600
Unamortized debt issuance cost.............................. -- -- 4,770
Coal retiree medical benefits............................... 4,681 -- 2,615
Income tax effect........................................... (1,638) -- (13,995)
------- ------- --------
$ 3,043 $ -- $ 25,990
======= ======= ========
</TABLE>
In November 1997 the Company paid a premium of $32.6 million to defease the
remaining $266.2 million of the 9 3/8 Senior Notes at a total cost of $298.8
million.
In 1997 a 7% discount rate was used to calculate the actuarially determined
coal retiree medical benefit liability. In 1996 and 1995 the discount rate was
7.5%. In 1997 the Company also incurred higher premiums for additional retirees
and orphans assigned in 1995. See Note C.
F-25
<PAGE> 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE P--SUPPLEMENTAL SUBSIDIARY COMPANY SUMMARIZED FINANCIAL INFORMATION
The following are summarized consolidated financial information of the
Company's major operating subsidiary, WPC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME DATA
Net sales.................................... $1,267,869 $1,110,684 $ 489,662
Cost of products sold........................ 1,059,622 988,161 585,609
Depreciation................................. 65,760 66,125 46,203
Selling, general and administrative
expense................................... 61,741 54,903 52,222
Special charge............................... -- -- 92,701
---------- ---------- ----------
Operating income (loss)...................... 80,746 1,495 (287,073)
Interest expense............................. 22,431 23,763 27,204
Other income (expense)....................... 3,234 9,476 (221)
---------- ---------- ----------
Income (loss) before tax and extraordinary
item...................................... 61,549 (12,792) (314,498)
Tax provision (benefit)...................... 3,030 (7,509) (110,035)
---------- ---------- ----------
Income before extraordinary item............. 58,519 (5,283) (204,463)
Extraordinary charge, net of tax............. (3,043) -- (25,990)
---------- ---------- ----------
Net income (loss)............................ $ 55,476 $ (5,283) $ (230,453)
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA
Assets
Current assets............................... $ 379,651 $ 267,434 $ 325,364
Non-current assets........................... 960,384 978,458 1,099,204
---------- ---------- ----------
Total assets................................... $1,340,035 $1,245,892 $1,424,568
========== ========== ==========
Liabilities and Stockholder's Equity
Current liabilities.......................... $ 231,852 $ 158,412 $ 316,195
Non-current liabilities...................... 764,412 748,993 993,661
Stockholder's equity......................... 343,771 338,487 114,712
---------- ---------- ----------
Total liabilities and stockholder's equity..... $1,340,035 $1,245,892 $1,424,568
========== ========== ==========
</TABLE>
F-26
<PAGE> 102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE Q--QUARTERLY INFORMATION (UNAUDITED)
Financial results by quarter for the two fiscal years ended December 31,
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
BASIC BASIC DILUTED
EARNINGS (LOSS) EARNINGS EARNINGS
PER SHARE (LOSS) (LOSS)
GROSS EXTRA- NET BEFORE PER SHARE PER SHARE
NET PROFIT ORDINARY INCOME EXTRAORDINARY ON NET ON NET
SALES (LOSS) CHARGE (LOSS) CHARGE INCOME INCOME
-------- -------- -------- -------- --------------- --------- ---------
(DOLLARS, EXCEPT PER SHARE, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1996
1st Quarter............. $315,493 $ 41,713 -- $ 1,159 $ (.17) $ (.17) $ (.17)
2nd Quarter............. 357,815 59,266 -- 16,830 .42 .42 .37
3rd Quarter............. 391,925 61,597 -- 17,317 .45 .45 .40
4th Quarter(1).......... 167,462 (26,109) -- (34,648) (1.60) (1.60) (1.60)
1997:(1)
1st Quarter............. 113,632 (27,520) -- (40,724) (1.92) (1.92) (1.92)
2nd Quarter............. 128,472 (17,043) -- (31,107) (1.58) (1.58) (1.58)
3rd Quarter............. 144,612 (28,314) -- (91,387) (4.49) (4.49) (4.49)
4th Quarter............. 255,380 (5,749) (25,990) (36,544) (.79) (2.11) (2.11)
</TABLE>
Diluted loss per share would be the same as basic loss per share in loss
quarters because conversion of stock options, convertible Series A and Series B
Preferred Stock or redeemable Common Stock would be anti-dilutive.
(1) The financial results of the Company for the fourth quarter of 1996 and all
four quarters of 1997 were adversely affected by the strike. Negative
impacts of the strike included the volume effect of lower production on
fixed cost absorption, higher levels of external steel purchases, start-up
costs and a higher-cost mix of products shipped.
NOTE R--SUBSEQUENT EVENT
On March 1, 1998, the Company entered into a definitive merger agreement
(the "Merger Agreement") with Handy & Harman ("H&H"), a New York Stock Exchange
listed company which is a diversified industrial manufacturing company. Pursuant
to the Merger Agreement, on April 7, 1998, HN Acquisition Corporation, a
wholly-owned subsidiary of the Company ("HN Acquisition"), completed a tender
offer for all outstanding shares of common stock, par value $1.00 per share of
H&H (the "H&H Shares"), at a price of $35.25 per H&H Share, net to the seller in
cash (the "Tender Offer").
In the Tender Offer, HN Acquisition purchased 9,976,651 H&H Shares, which
together with the H&H Shares then owned by the Company, HN Acquisition, and
other wholly-owned subsidiaries of the Company, constituted approximately 95.7%
of the outstanding H&H Shares. The aggregate purchase price for the H&H Shares
pursuant to the Tender Offer was approximately $351.7 million.
On April 10, 1998, HN Acquisition merged (the "Merger" and together with
the Tender Offer, the "Acquisition") with and into H&H pursuant to the Merger
Agreement, with H&H being the surviving corporation and thereby becoming a
wholly-owned subsidiary of the Company. Pursuant to the Merger Agreement, all
remaining outstanding H&H Shares (other than H&H Shares owned by H&H as treasury
stock, owned by the Company or any subsidiary of the Company, or H&H Shares held
by shareholders exercising appraisal rights under New York law) were converted
into a right to receive $35.25 in cash, without interest.
In consideration for all of the H&H Shares acquired in connection with the
Acquisition, the Company also assumed certain liabilities of H&H, including
approximately $190.9 million of indebtedness as of December 31, 1997.
Additionally, prior to the closing of the Acquisition, H&H paid approximately
$23.5 million to cancel various stock options held by employees and directors of
H&H and approximately $14.1 million for certain severance payments and various
other employee-related commitments relating to H&H. Other costs to the Company
relating to the Acquisition included transaction fees and expenses of
approximately $14 million.
On April 7, 1998, the Company sold $350 million principal amount of 10 1/2%
Senior Notes due 2005 in a private placement, the proceeds of which were used to
fund a portion of the Acquisition. The balance of the Acquisition was funded
through cash on hand of the Company.
F-27
<PAGE> 103
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Wheeling-Nisshin, Inc.:
We have audited the accompanying balance sheets of Wheeling-Nisshin, Inc.
(the Company) as of December 31, 1997 and 1996, and the related statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wheeling-Nisshin, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Pittsburgh, Pennsylvania
February 12, 1998
F-28
<PAGE> 104
WHEELING-NISSHIN, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 22,313 $ 19,017
Investments............................................... 28,500 19,900
Trade accounts receivable, net of allowance for bad debts
of $250 in 1997 and 1996............................... 16,364 19,765
Inventories (Note 3)...................................... 16,793 22,233
Prepaid income taxes...................................... 139 --
Deferred income taxes (Note 6)............................ 2,342 2,337
Other current assets...................................... 622 819
-------- --------
Total current assets................................... 87,073 84,071
Property, plant and equipment, net (Note 4)................. 124,787 134,174
Debt issuance costs, net of accumulated amortization of
$1,704 in 1997 and $1,617 in 1996......................... 197 284
Other assets................................................ 719 851
-------- --------
Total assets........................................... $212,776 $219,380
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 10,684 $ 21,226
Due to affiliates (Note 8)................................ 3,356 --
Accrued interest.......................................... 367 497
Accrued income taxes...................................... -- 3,183
Other accrued liabilities................................. 3,260 3,388
Accrued profit sharing.................................... 4,644 6,505
Current portion of long-term debt (Note 5)................ 6,835 6,828
-------- --------
Total current liabilities.............................. 29,146 41,627
Long-term debt, less current portion (Note 5)............... 11,645 18,487
Deferred income taxes (Note 6).............................. 25,262 24,116
Other long-term liabilities (Note 9)........................ 2,500 --
-------- --------
Total liabilities...................................... 68,553 84,230
-------- --------
Contingencies (Note 9)......................................
Shareholders' equity:
Common stock, no par value; authorized, issued and
outstanding, 7,000 shares.............................. 71,588 71,588
Retained earnings......................................... 72,635 63,562
-------- --------
Total shareholders' equity............................. 144,223 135,150
-------- --------
Total liabilities and shareholders' equity............. $212,776 $219,380
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE> 105
WHEELING-NISSHIN, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Sales................................................... $396,278 $375,658 $389,704
Cost of goods sold (Note 8)................................. 365,967 335,071 349,429
-------- -------- --------
Gross profit........................................... 30,311 40,587 40,275
Selling, general and administrative expenses................ 5,608 6,546 8,676
-------- -------- --------
Operating profit....................................... 24,703 34,041 31,599
-------- -------- --------
Other income (expense):
Interest and other income.............................. 2,203 2,539 1,717
Interest expense....................................... (1,398) (1,909) (3,729)
-------- -------- --------
805 630 (2,012)
-------- -------- --------
Income before income taxes........................ 25,508 34,671 29,587
Provision for income taxes (Note 6)......................... 9,435 13,110 11,538
-------- -------- --------
Net income........................................ $ 16,073 $ 21,561 $ 18,049
======== ======== ========
Earnings per share (Note 2)................................. $ 2.30 $ 3.08 $ 2.58
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE> 106
WHEELING-NISSHIN, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1994................................ $71,588 $37,952 $109,540
Net income.................................................. -- 18,049 18,049
Cash dividends ($1 per share)............................... -- (7,000) (7,000)
------- ------- --------
Balance at December 31, 1995................................ 71,588 49,001 120,589
Net income.................................................. -- 21,561 21,561
Cash dividends ($1 per share)............................... -- (7,000) (7,000)
------- ------- --------
Balance at December 31, 1996................................ 71,588 63,562 135,150
Net income.................................................. -- 16,073 16,073
Cash dividends ($1 per share)............................... -- (7,000) (7,000)
------- ------- --------
Balance at December 31, 1997................................ $71,588 $72,635 $144,223
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE> 107
WHEELING-NISSHIN, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 16,073 $ 21,561 $ 18,049
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 13,065 12,952 16,210
Deferred income taxes.................................. 1,141 5,330 5,449
Net change in operating assets and liabilities:
Decrease (increase) in trade accounts receivable..... 3,401 (730) (602)
Decrease (increase) in inventories................... 5,440 (3,467) 5,161
(Increase) decrease in prepaid and accrued income
taxes............................................. (3,322) (51) 1,368
Decrease (increase) in other assets.................. 197 (636) 42
(Decrease) increase in accounts payable.............. (10,542) 12,846 179
Increase (decrease) in due to affiliates............. 3,356 (6,036) (25,233)
Decrease in accrued interest......................... (130) (173) (312)
(Decrease) increase in other accrued liabilities..... (1,989) 945 4,843
-------- -------- --------
Net cash provided by operating activities......... 26,690 42,541 25,154
-------- -------- --------
Cash flows from investing activities:
Capital expenditures, net................................. (959) (1,173) (1,029)
Purchase of investments................................... (43,700) (19,900) --
Sale of investments....................................... 35,100 -- --
-------- -------- --------
Net cash used in investing activities............. (9,559) (21,073) (1,029)
-------- -------- --------
Cash flows from financing activities:
Payments on long-term debt................................ (6,835) (11,361) (32,145)
Payment of dividends...................................... (7,000) (7,000) (7,000)
-------- -------- --------
Net cash used in financing activities............. (13,835) (18,361) (39,145)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 3,296 3,107 (15,020)
Cash and cash equivalents:
Beginning of the year..................................... 19,017 15,910 30,930
-------- -------- --------
End of the year........................................... $ 22,313 $ 19,017 $ 15,910
======== ======== ========
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest............................................... $ 1,528 $ 2,082 $ 4,041
======== ======== ========
Income taxes........................................... $ 11,616 $ 7,831 $ 4,968
======== ======== ========
Supplemental schedule of noncash investing and financing
activities:
Acquisition of property, plant and equipment included in
other long-term liabilities (Note 9)................... $ 2,500 $ -- $ 290
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE> 108
WHEELING-NISSHIN, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
Wheeling-Nisshin, Inc. (the Company) is engaged in the production and
marketing of galvanized and aluminized steel products at a manufacturing
facility in Follansbee, West Virginia. Principally all of the Company's sales
are to ten trading companies located primarily in the United States. At December
31, 1997, Nisshin Holding Incorporated, a wholly-owned subsidiary of Nisshin
Steel Co., Ltd.,(Nisshin) and Wheeling-Pittsburgh Corporation
(Wheeling-Pittsburgh) owned 64.3% and 35.7% of the outstanding common stock of
the Company, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash and cash equivalents consist of general cash accounts and highly
liquid debt instruments with maturities of three months or less when purchased.
Substantially all of the Company's cash and cash equivalents are maintained at
one financial institution. No collateral or other security is provided on these
deposits, other than $100 of deposits insured by the Federal Deposit Insurance
Corporation.
Investments:
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." This statement requires that securities be classified as
trading, held-to-maturity, or available-for-sale. The Company's investments,
which consist of certificates of deposit and commercial paper, are classified as
held-to-maturity and are recorded at cost. The certificates of deposit amounted
to $28,500 and $15,000 at December 31, 1997 and 1996, respectively, and are
maintained at one financial institution. Commercial paper amounted to $4,900 at
December 31, 1996.
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method.
Property, Plant and Equipment:
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization.
Major renewals and improvements are charged to the property accounts, while
replacements, maintenance and repairs which do not improve or extend the useful
lives of the respective assets are expensed. Upon disposition or retirement of
property, plant and equipment, the cost and the related accumulated depreciation
or amortization are removed from the accounts. Gains or losses on sales are
reflected in other income.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the assets.
F-33
<PAGE> 109
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Deferred Pre-Operating Costs:
Certain costs directly related and incremental to the Company's second
production line were deferred until commencement of commercial operations in
March 1993. These costs, which were an integral part of the process of bringing
the new line into commercial production and, therefore, benefited future
periods, were being amortized using the straight-line method over a three-year
period. In 1995, management determined that they had fully recovered the
deferred pre-operating costs related to the new production line. Accordingly,
the remaining unamortized cost at December 31, 1995 of $390 was charged to
operations in 1995.
Debt Issuance Costs:
Debt issuance costs associated with long-term debt secured to finance the
construction of the Company's original manufacturing facility and the second
production line were capitalized and are being amortized using the effective
interest method over the term of the related debt.
Income Taxes:
The Company uses SFAS 109, "Accounting for Income Taxes" to recognize
deferred tax liabilities and assets for the difference between the financial
statement carrying amounts and the tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Earnings Per Share:
The Company has adopted SFAS No. 128, "Earnings Per Share" issued in
February 1997. This statement requires the disclosure of basic and diluted
earnings per share and revises the method required to calculate these amounts.
The adoption of this standard did not impact previously reported earnings per
share amounts.
Earnings per share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding during each period.
Reclassification:
In 1997, the Company reclassified cash discounts previously reported within
selling, general and administrative expense to net sales. Previous years
financial statements have been restated to conform to 1997 presentation. Cash
discounts were $1,917, $1,842, and $1,873 in 1997, 1996 and 1995, respectively.
3. INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials............................................... $ 6,089 $10,645
Finished goods.............................................. 10,704 11,588
------- -------
$16,793 $22,233
======= =======
</TABLE>
Had the Company used the first-in, first-out (FIFO) method to value
inventories, the cost of inventories would have been $1,343 lower than the LIFO
value at December 31, 1997 and $12 lower than the LIFO value at December 31,
1996. During 1997, certain inventory quantities were reduced, resulting in
liquidation of LIFO inventories, the effect of which increased net income by
approximately $839.
F-34
<PAGE> 110
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Buildings................................................... $ 34,665 $ 34,665
Land improvements........................................... 3,097 3,097
Machinery and equipment..................................... 164,893 161,723
Office equipment............................................ 3,725 3,436
-------- --------
206,380 202,921
Less accumulated depreciation and amortization.............. (82,625) (69,779)
-------- --------
123,755 133,142
Land........................................................ 1,032 1,032
-------- --------
$124,787 $134,174
======== ========
</TABLE>
Depreciation expense was $12,846, $12,715 and $13,651 in 1997, 1996, and
1995, respectively.
5. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Industrial revenue bonds for the second production line
accruing interest at .625% over the LIBOR rate, as
adjusted for periods ranging from three months to one
year, as elected by the Company. The interest rate on the
bonds at December 31, 1997 was 6.53%. The bonds are
payable in 17 equal semi-annual installments of $3,353
plus interest through March 2000.......................... $18,235 $24,941
West Virginia Economic Development Authority (WVEDA) loan
accruing interest at 4%, payable in monthly installments
of $2 including interest through January 2001............. 67 90
Capital lease obligations accruing interest at rates ranging
from 10% to 13.8%, payable in monthly installments through
January 2000.............................................. 178 284
------- -------
18,480 25,315
Less current portion........................................ 6,835 6,828
------- -------
$11,645 $18,487
======= =======
</TABLE>
The industrial revenue bonds are collateralized by substantially all
property, plant and equipment and are guaranteed by Nisshin. In addition, the
industrial revenue bonds provide that dividends may not be declared or paid
without the prior written consent of the lender. Such approval was obtained for
the dividends paid in years 1997, 1996 and 1995.
The annual maturities on all long-term debt for each of the five years
ending December 31 are: $6,835 in 1998; $6,784 in 1999; $4,848 in 2000; $13 in
2001 and $0 in 2002.
F-35
<PAGE> 111
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The provision for income taxes for the years ended December 31 consist of:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Current:
U.S. Federal......................................... $7,771 $ 7,366 $ 5,838
State................................................ 523 414 251
Deferred.................................................. 1,141 5,330 5,449
------ ------- -------
$9,435 $13,110 $11,538
====== ======= =======
</TABLE>
Reconciliation of the federal statutory and effective tax rates for 1997,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 35.0% 35.0% 35.0%
State income taxes.......................................... 1.5 1.2 0.8
Other, net.................................................. 0.5 1.6 3.2
---- ---- ----
37.0% 37.8% 39.0%
==== ==== ====
</TABLE>
The deferred tax assets and liabilities recorded on the balance sheets as
of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Accrued expenses....................................... $ 1,120 $ 1,376
Other.................................................. 1,222 961
------- -------
2,342 2,337
------- -------
Deferred tax liabilities:
Depreciation and amortization.......................... 23,781 22,491
Other.................................................. 1,481 1,625
------- -------
25,262 24,116
------- -------
$22,920 $21,779
======= =======
</TABLE>
The Company has available tax credit carryforwards of approximately $60,000
which may be used to offset up to 80% of future West Virginia state income tax
liabilities through 2003. A valuation allowance for the entire amount of the
credit has been recognized in the accompanying financial statements.
Accordingly, as the credit is utilized, a benefit is recognized through a
reduction of the current state income tax provision. Such benefit amounted to
approximately $864 in 1997, $998 in 1996 and $640 in 1995.
7. EMPLOYEE BENEFIT PLANS
Retirement Plan:
The Company has a noncontributory, defined contribution plan which covers
eligible employees. The plan provides for Company contributions ranging from 2%
to 6% of the participant's annual compensation based on their years of service.
The Company's contribution to the plan was $415 in 1997, $336 in 1996 and $266
in 1995.
Profit-Sharing Plan:
The Company has a nonqualified profit-sharing plan for eligible employees,
providing for cash distributions to the participants in years when income before
income taxes is in excess of $500. These contributions
F-36
<PAGE> 112
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
are based on an escalating scale from 5% to 15% of income before income taxes.
Profit-sharing expense was $4,644 in 1997, $6,505 in 1996 and $5,546 in 1995.
Postretirement Benefits:
In December 1996, the Company adopted a defined benefit postretirement plan
which covers eligible employees. Generally, the plan calls for a stated
percentage of medical expenses reduced by deductibles and other coverages. The
plan is currently unfunded. The postretirement benefit expense was $68 for 1997
and 1996. Accrued postretirement benefits was approximately $144 and $68 at
December 31, 1997 and 1996, respectively.
8. RELATED PARTY TRANSACTIONS
The Company has an agreement with Wheeling-Pittsburgh under which the
Company has agreed to purchase a specified portion of its required raw materials
through the year 2013. The Company purchased $24,533, $161,380 and $187,548 of
raw materials and processing services from Wheeling-Pittsburgh in 1997, 1996 and
1995, respectively. The amounts due Wheeling-Pittsburgh for such purchases are
included in due to affiliates in the accompanying balance sheets.
The Company sells products to Wheeling-Pittsburgh. Such sales totaled
$6,408, $6,511, and $5,693 in 1997, 1996, and 1995, respectively, of which $880
and $901 remained unpaid at December 31, 1997 and 1996, respectively, and are
included in trade accounts receivable in the accompanying balance sheets. The
Company also sells product to Unimast, Inc., an affiliate of
Wheeling-Pittsburgh. Such sales totaled $435, $1,537 and $1,389 in 1997, 1996
and 1995, respectively, of which $10 and $358 remained unpaid at December 31,
1997 and 1996, respectively, and were included in trade accounts receivable in
the accompanying balance sheets.
9. LEGAL MATTERS
The Company is a party to a dispute for final settlement of charges related
to the construction of its second production line. The Company had claims
asserted against it in the amount of approximately $6,900 emerging from civil
actions alleging delays on the project. In connection with the dispute, the
Company filed a separate claim for alleged damages that it had sustained in the
amount of approximately $400.
The claims were litigated in the Court of Common Pleas of Allegheny County,
Pennsylvania in a jury trial, which commenced on January 5, 1996. A verdict in
the amount of $6,700 plus interest of $1,900 was entered against the Company on
October 2, 1996. After the verdict, the plaintiffs requested the trial court to
award counsel fees in the amount of $2,422 against the Company. The motions for
counsel fees plus interest were granted by the court to the plaintiffs in June
1997.
The Company filed appeals from the judgments to the Superior Court of
Pennsylvania in 1997. Post-judgment interest will accrue during the appeal
period. Additionally, the Company has posted a bond in the amount approximating
$12,000 that will be held by the court pending the appeals. Although the Company
has been advised by its Special Counsel that it has various legal bases for
relief, litigation is subject to many uncertainties and, as such, the Company is
presently unable to predict the outcome of its appeals. The Company has recorded
a liability in the amount of $2,500 at December 31, 1997 related to these
matters, which has been capitalized in property, plant and equipment as cost
overruns in the accompanying 1997 balance sheet. If the Company is unsuccessful
in these appeals, it is at least reasonably possible that the ultimate
resolution of these matters may have a material effect on the Company's results
of operations or cash flows in the year of final determination. Any portion of
the ultimate resolution for interest, penalties and counsel fees will be charged
to results of operations.
F-37
<PAGE> 113
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. FAIR VALUE OF FINANCIAL INVESTMENTS
The estimated fair values and the methods used to estimate those values are
disclosed below:
Investments:
The fair values of commercial paper and certificates of deposit were
$28,890 and $20,145 at December 31, 1997 and 1996, respectively. These amounts
were determined based on the investment cost plus interest receivable at
December 31, 1997 and 1996.
Long-Term Debt:
Based on borrowing rates currently available to the Company for bank loans
with similar terms and maturities, fair value approximates the carrying value.
F-38
<PAGE> 114
HANDY & HARMAN AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders Handy & Harman:
We have audited the consolidated balance sheets of Handy & Harman and
Subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Handy &
Harman and Subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note 11 to the consolidated financial statements, Handy &
Harman announced on March 1, 1998 that they have entered into a definitive
merger agreement providing for the acquisition by WHX Corporation of all of the
outstanding common shares of Handy & Harman. The transaction has been
unanimously approved by the Boards of Directors of both companies.
KPMG Peat Marwick LLP
New York, New York
February 9, 1998, except as to Note 11,
which is as of March 1, 1998
F-39
<PAGE> 115
HANDY & HARMAN AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Sales............................................ $451,110,000 $407,107,000 $427,188,000
Cost of sales.................................... 349,411,000 293,572,000 348,737,000
------------ ------------ ------------
Gross profit..................................... 101,699,000 113,535,000 78,451,000
Selling, general, and administrative expenses.... 54,116,000 44,504,000 45,524,000
Restructuring charge............................. -- -- 5,342,000
------------ ------------ ------------
Income from operations........................... 47,583,000 69,031,000 27,585,000
------------ ------------ ------------
Other deductions (income):
Interest expense (net)......................... 14,452,000 9,682,000 12,598,000
Other (net).................................... (2,920,000) 376,000 701,000
------------ ------------ ------------
11,532,000 10,058,000 13,299,000
------------ ------------ ------------
Income from continuing operations before income
taxes and extraordinary item................... 36,051,000 58,973,000 14,286,000
Income tax provision............................. 15,141,000 25,200,000 6,777,000
------------ ------------ ------------
Income from continuing operations before
extraordinary item............................. 20,910,000 33,773,000 7,509,000
Extraordinary loss on early retirement of debt
(net of $2,030,000 income tax benefit)......... -- (2,889,000) --
Discontinued operations:
Loss from operations, net of income tax benefit
$1,026,000, $252,000........................ -- (1,354,000) (365,000)
Gain/(loss) on disposal, net of income
taxes/(benefit) -- ($9,190,000),
$8,220,000.................................. -- (13,161,000) 11,496,000
------------ ------------ ------------
-- (14,515,000) 11,131,000
------------ ------------ ------------
Net income....................................... $ 20,910,000 $ 16,369,000 $ 18,640,000
============ ============ ============
Earnings per share -- basic:
Income from continuing operations before
extraordinary item.......................... $ 1.75 $ 2.45 $ .53
Extraordinary loss on early retirement of
debt........................................ -- (.21) --
Discontinued operations........................ -- (1.05) .79
------------ ------------ ------------
Net income....................................... $ 1.75 $ 1.19 $ 1.32
============ ============ ============
Basic average number of shares outstanding....... 11,981,000 13,796,000 14,092,000
============ ============ ============
Earnings per share -- diluted:
Income from continuing operations before
extraordinary item.......................... $ 1.74 $ 2.44 $ .53
Extraordinary loss on early retirement of
debt........................................ -- (.21) --
Discontinued operations........................ -- (1.05) .79
------------ ------------ ------------
Net income....................................... $ 1.74 $ 1.18 $ 1.32
============ ============ ============
Diluted average number of shares outstanding..... 12,042,000 13,846,000 14,103,000
============ ============ ============
</TABLE>
The accompanying summary of significant accounting policies and notes
are an integral part of the financial statements.
F-40
<PAGE> 116
HANDY & HARMAN AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 7,259,000 $ 9,701,000
Accounts receivable, less allowance for doubtful accounts
of $1,634,000 in 1997 and $1,686,000 in 1996........... 59,084,000 51,572,000
Inventories............................................... 77,294,000 70,357,000
Prepaid expenses, deposits and other current assets....... 14,611,000 7,044,000
------------ ------------
Total current assets.............................. 158,248,000 138,674,000
------------ ------------
Investments in affiliates, at equity........................ 3,870,000 3,122,000
Property, plant and equipment............................... 218,052,000 195,623,000
Less accumulated depreciation and amortization............ 123,064,000 112,418,000
------------ ------------
94,988,000 83,205,000
Prepaid retirement costs (net).............................. 60,659,000 54,566,000
Intangibles, net of amortization............................ 65,058,000 24,818,000
Other assets................................................ 9,974,000 12,079,000
------------ ------------
$392,797,000 $316,464,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... -- $ 15,000,000
Accounts payable.......................................... $ 36,999,000 30,163,000
Futures payable........................................... -- 9,246,000
Other current liabilities................................. 30,008,000 22,429,000
------------ ------------
Total current liabilities......................... 67,007,000 76,838,000
------------ ------------
Long-term debt, less current maturities..................... 190,880,000 127,500,000
Minority interest........................................... 1,555,000 1,259,000
Deferred income taxes....................................... 20,947,000 15,261,000
Commitments.................................................
------------ ------------
Shareholders' equity:
Common stock -- par value $1; 60,000,000 shares
authorized; 14,611,432 shares issued................... 14,611,000 14,611,000
Capital surplus........................................... 14,410,000 13,432,000
Retained earnings......................................... 130,435,000 112,399,000
Foreign currency translation adjustment................... (1,462,000) (61,000)
------------ ------------
157,994,000 140,381,000
Less: Treasury stock 1997 -- 2,596,460 shares; 1996 --
2,618,421 shares -- at cost............................... 45,586,000 44,308,000
Unearned compensation.................................. -- 467,000
------------ ------------
Total shareholders' equity........................ 112,408,000 95,606,000
------------ ------------
$392,797,000 $316,464,000
============ ============
</TABLE>
The accompanying summary of significant accounting policies and notes
are an integral part of the financial statements.
F-41
<PAGE> 117
HANDY & HARMAN AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PAR FOREIGN
VALUE $1 CURRENCY TOTAL
COMMON CAPITAL RETAINED TRANSLATION TREASURY UNEARNED SHAREHOLDERS'
STOCK SURPLUS EARNINGS ADJUSTMENT STOCK COMPENSATION EQUITY
----------- ----------- ------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995... $14,611,000 $11,830,000 $ 84,114,000 $ (720,000) $ (3,491,000) $(220,000) $106,124,000
Net income................. 18,640,000 18,640,000
Dividends -- $.24 per
share.................... (3,383,000) (3,383,000)
Remeasurement and
amortization of stock
issued under 1988
long-term incentive
plan..................... 4,000 (6,000) 220,000 218,000
Stock awarded under outside
director stock option
plan (awarded
3,290 -- issued 2,852
shares).................. 34,000 14,000 48,000
Stock issued under the
incentive stock option
plan (22,800 shares)..... 165,000 115,000 280,000
Shares purchased by Company
for treasury (95,500
shares).................. (1,505,000) (1,505,000)
Translation adjustment..... (28,000) (28,000)
----------- ----------- ------------ ----------- ------------ --------- ------------
Balance, December 31,
1995..................... 14,611,000 12,033,000 99,371,000 (748,000) (4,873,000) -- 120,394,000
Net income................. 16,369,000 16,369,000
Dividends -- $.24 per
share.................... (3,341,000) (3,341,000)
Stock issued under 1988
long-term incentive plan
(62,750 shares).......... 735,000 315,000 (467,000) 583,000
Stock awarded under outside
director stock option
plan (awarded
4,194 -- issued 8,640
shares).................. 54,000 43,000 97,000
Stock issued under the
incentive stock option
plan -- net (69,889
shares).................. 610,000 243,000 853,000
Shares purchased by Company
for treasury (2,155,900
shares).................. (40,036,000) (40,036,000)
Translation adjustment..... 687,000 687,000
----------- ----------- ------------ ----------- ------------ --------- ------------
Balance, December 31,
1996..................... 14,611,000 13,432,000 112,399,000 (61,000) (44,308,000) (467,000) 95,606,000
Net income................. 20,910,000 20,910,000
Dividends -- $.24 per
share.................... (2,874,000) (2,874,000)
Amortization of stock
issued under 1988
long-term incentive plan
and forfeiture of 2,275
shares................... (27,000) (12,000) 467,000 428,000
Stock awarded under outside
director stock option
plan (awarded
4,781 -- issued 1,366
shares).................. 53,000 7,000 60,000
Stock issued under the
incentive stock option
plan -- net (112,750
shares).................. 952,000 567,000 1,519,000
Shares purchased by Company
for treasury (89,880
shares).................. (1,840,000) (1,840,000)
Translation adjustment..... (1,401,000) (1,401,000)
----------- ----------- ------------ ----------- ------------ --------- ------------
Balance, December 31,
1997..................... $14,611,000 $14,410,000 $130,435,000 $(1,462,000) $(45,586,000) -- $112,408,000
=========== =========== ============ =========== ============ ========= ============
</TABLE>
The accompanying summary of significant accounting policies and notes
are an integral part of the financial statements.
F-42
<PAGE> 118
HANDY & HARMAN AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
---------------------------------------------
YEAR ENDED DECEMBER 31, 1997 1996 1995
----------------------- ------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 20,910,000 $ 16,369,000 $ 18,640,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary loss on debt retirement................. -- 4,919,000 --
Depreciation and amortization......................... 14,194,000 12,000,000 16,668,000
Provision for doubtful accounts....................... 333,000 1,052,000 329,000
Gain on disposal of property, plant and equipment..... 8,000 68,000 91,000
(Gain)/loss on disposal of business units............. -- 8,704,000 (20,176,000)
Net prepaid retirement costs.......................... (6,093,000) (3,995,000) (2,339,000)
Equity in earnings of affiliates...................... (942,000) (421,000) (451,000)
Minority interest..................................... 296,000 -- --
Earned compensation -- 1988 long-term incentive and
outside director stock option plans................. 506,000 648,000 266,000
Restructuring and nonrecurring charges................ -- -- 8,369,000
Changes in assets and liabilities, net of effects from
acquisitions and divestitures:
Accounts receivable................................. (3,198,000) 3,659,000 3,369,000
Inventories......................................... (2,670,000) 13,227,000 (7,877,000)
Prepaid expenses and other current assets........... (6,906,000) (3,767,000) 1,210,000
Deferred charges and other assets................... 1,086,000 (1,050,000) (2,951,000)
Accounts payable and other current liabilities...... 7,853,000 (4,662,000) (1,775,000)
Federal and foreign taxes on income................. (77,000) (5,279,000) 6,730,000
Deferred income taxes............................... 7,597,000 (274,000) (17,000)
------------- ------------ ------------
Net cash provided by operating activities................. 32,897,000 41,198,000 20,086,000
------------- ------------ ------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment..... 43,000 864,000 520,000
Capital expenditures.................................... (18,460,000) (14,694,000) (23,143,000)
Acquisition, net of cash and debt acquired.............. (52,732,000) (3,700,000) --
Divestitures, net of cash sold.......................... -- 5,074,000 68,032,000
Investment in affiliates -- net......................... -- -- 478,000
Net investing activities of discontinued operations..... -- -- 24,750,000
------------- ------------ ------------
Net cash provided/(used) in investing activities.......... (71,149,000) (12,456,000) 70,637,000
------------- ------------ ------------
Cash flows from financing activities:
Short-term borrowings................................... (15,000,000) (27,199,000) 5,250,000
Net decrease in revolving credit facility............... (120,000,000) -- --
Proceeds from long-term financing....................... 183,380,000 -- --
Repayment of other long-term debt....................... -- (64,500,000) (11,750,000)
Long-term revolving credit facilities................... -- 95,000,000 (30,000,000)
Net (increase)/decrease in futures receivable........... -- 7,681,000 (7,681,000)
Net increase/(decrease) in futures payable.............. (9,246,000) 9,246,000 (37,772,000)
Dividends paid.......................................... (2,874,000) (3,341,000) (3,383,000)
Purchase of treasury stock (net)........................ (347,000) (39,174,000) (1,222,000)
Penalties paid on early retirement of debt.............. -- (4,640,000) --
Funding proceeds from joint venture partner............. -- 1,259,000 --
------------- ------------ ------------
Net cash provided/(used) in financing activities.......... 35,913,000 (25,668,000) (86,558,000)
------------- ------------ ------------
Effect of exchange rate changes on net cash............... (103,000) (10,000) (87,000)
------------- ------------ ------------
Net change in cash........................................ (2,442,000) 3,064,000 4,078,000
Cash at beginning of year................................. 9,701,000 6,637,000 2,559,000
------------- ------------ ------------
Cash at end of year....................................... $ 7,259,000 $ 9,701,000 $ 6,637,000
============= ============ ============
Cash paid during the year for:
Interest, net of contango on futures and forward
contracts............................................. $ 12,745,000 $ 12,886,000 $ 20,979,000
Income taxes............................................ $ 3,084,000 $ 20,678,000 $ 6,365,000
============= ============ ============
</TABLE>
The accompanying summary of significant accounting policies and notes are
an integral part of the financial statements.
F-43
<PAGE> 119
HANDY & HARMAN AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A: PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany items have been
eliminated. Investments in affiliates, which are 20%-50% owned companies, are
accounted for by the equity basis of accounting.
B: INVENTORIES
Precious metals inventories are valued at cost as computed under the
last-in, first-out (LIFO) method, which is lower than market. Non-precious
metals inventories are stated at the lower of cost (principally average) or
market. For precious metals inventories no segregation among raw materials, work
in process and finished goods is practicable.
C: PROPERTY, PLANT AND EQUIPMENT, AND DEPRECIATION
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided principally on the straight-line method for financial
reporting purposes and on accelerated methods for tax purposes.
D: INTANGIBLES AND AMORTIZATION
The excess of purchase price over net assets acquired in business
combinations is being amortized on the straight-line method over 40 years. The
Company uses undiscounted cash flows when evaluating annually the recoverability
of the unamortized balance for the excess of purchase price over net assets
acquired in a business combination. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are not
achieved. Purchased patents are stated at cost, which is amortized over the
respective remaining lives of the patents.
E: FUTURES CONTRACTS
Consistent with the Company's policy of maintaining constant inventory
levels under the last-in, first-out (LIFO) method of accounting, precious metals
are purchased at the same prices and quantities as shipments to customers.
Additionally, to the extent that an increase in inventory is required to support
operations, precious metals are purchased and immediately sold for future
delivery, creating a futures receivable and eliminating the economic risk of
price fluctuations. Also to the extent there is a decrease in the inventory
required to support operations, precious metals are sold and immediately
purchased for future receipt, creating a futures payable and also eliminating
the economic risk of price fluctuations.
Future sales and purchases of precious metals are excluded from sales and
cost of sales in the accompanying income statement. The related margin deposits
are included with the futures receivable/payable. The income/expense from future
sales/purchases of precious metals is amortized over the contract period and is
included in interest expense.
F: SALES
A high percentage of the sales prices for the Company's precious metals
products is the value of the precious metals content. Changes in the unit sales
price of such precious metals result in corresponding changes in sales and cost
of sales. The Company includes in both sales and cost of sales the precious
metal value of sales of fabricated products if the customer purchased the
precious metal from the Company, whether or not the precious metal is sold at
the same time as the fabricated product. In addition, certain customers choose
to do business on a "toll" basis, that is, to furnish bullion to Handy & Harman
for fabrication. When the metals are returned to the customer in fabricated
form, the customer pays only a fabrication charge, and the precious metal value
of this consignment business is not included in sales or cost of sales.
F-44
<PAGE> 120
HANDY & HARMAN AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
G: TAXES ON INCOME
The Company accounts for certain income and expense items differently for
financial reporting and income tax purposes. In accordance with SFAS No. 109
"Accounting for Income Taxes" deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities applying enacted statutory tax rates in effect for the year in
which the differences are expected to reverse.
H: EARNINGS PER SHARE
In 1997, the Company adopted SFAS No. 128 "Earnings Per Share" which
specifies the computation, presentation, and disclosure requirements for "basic"
and "diluted" earnings per share. A weighted-average number of common shares
outstanding during the period is used in both the "basic" and "diluted"
computations. The difference between the Company's basic and diluted
computations is the diluted computation includes an increase in the number of
additional shares that would be outstanding relating to the potential exercise
of stock options. The weighted-average of these additional dilutive shares
amounted to 61,000, 50,000, and 11,000 shares for 1997, 1996 and 1995,
respectively which did not have a material impact on current and previously
reported earnings per share amounts.
I: FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries have been translated at
current exchange rates, and related revenues and expenses have been translated
at average rates of exchange in effect during the year. Resulting cumulative
translation adjustments have been recorded as a separate component of
shareholders' equity.
J: FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value amounts for cash, receivables (net), and short-term
borrowings approximate carrying amounts due to the short maturities of these
instruments. The fair value of long-term debt was estimated based on the current
rates offered to the Company for debt of the same remaining maturities. The
difference between the fair value and the carrying value is not material and the
Company has no plans to retire significant portions of its long-term debt prior
to scheduled maturity.
K: LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles held, used or
disposed of are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company determined that no impairment loss need be recognized
for applicable assets of continuing operations.
L: STOCK-BASED COMPENSATION
In 1995 the Financial Accounting Standard Board issued SFAS No. 123
"Accounting for Stock-Based Compensation". SFAS No. 123 encourages, but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of
Company's stock at the date of the grant over the amount an employee must pay to
acquire stock. Refer to Note 6.
F-45
<PAGE> 121
HANDY & HARMAN AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
M: NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes new disclosures for reporting comprehensive income
and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information", which established standards for the way that segment information
is to be disclosed in the financial statements along with additional information
on products and services, geographic areas and major customers. The Company's
1998 disclosures for these two statements will be determined by the timeliness
of the Company's merger with WHX Corporation, as further described in Note 11 to
the Consolidated Financial Statements.
N: USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and related notes to financial statements. Changes in such estimates
may affect amounts reported in future periods.
O: RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements to conform to the 1997 presentation.
F-46
<PAGE> 122
HANDY & HARMAN AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ACQUISITIONS, DIVESTITURES, RESTRUCTURING AND OTHER INCOME AND
DEDUCTIONS
On February 28, 1997 the Company acquired 100% of the outstanding shares of
Olympic Manufacturing Group, Inc. for approximately $53,000,000. This
acquisition has been accounted for as a purchase; accordingly, the purchase
price has been allocated to the underlying assets and liabilities based on their
respective estimated fair values at the date of acquisition. The estimated fair
value of assets acquired was $17,500,000 and liabilities assumed was $6,500,000.
The excess of the purchase price over the fair value of the assets acquired and
liabilities assumed was approximately $42,000,000 and is being amortized over a
period of 40 years. The excess purchase price has a tax deductible basis of
approximately $10,000,000. This business is not material to the revenues of the
Company.
Included in other income/deductions for 1997 is an insurance settlement
gain of $3,000,000 and certain takeover defense costs amounting to $500,000.
On June 27, 1996 the Company acquired 100% of ele Corporation's outstanding
shares for $4,341,000. The acquisition has been accounted for as a purchase;
accordingly, the purchase price has been allocated to the underlying assets and
liabilities based on their respective estimated fair values at the date of
acquisition. The estimated fair value of assets acquired is $4,314,000 and
liabilities assumed is $3,254,000 (inclusive of $2,199,000 of debt). The excess
of the purchase price over the fair value of the assets acquired and liabilities
assumed was $3,281,000 and is being amortized over a period of 40 years. This
business is not material to the revenues of the Company.
The Company sold the Handy & Harman Refining Division in August 1996 for
which the Company received $5,074,000. Accordingly, operations for this major
division have been classified as discontinued operations. A charge associated
with exiting this business of $22,350,000 was recorded in 1996. Revenues from
this division for 1996 and 1995 were $98,934,000 and $168,309,000, respectively.
The Company sold its automotive (OEM) segment in two phases during 1995 and
recorded a net gain on its sale amounting to $19,716,000. The first phase was
the sale of this segment's cable operations on July 20, 1995 for which the
Company received cash of $3,211,000. The cable operations' working capital
retained by the Company also generated approximately $3,000,000 in cash. The
second phase was the sale of this segment's remaining operations on December 29,
1995 for which the Company received $64,821,000 (net of cash sold) with an
additional amount due of $5,246,000. Accordingly, the results of this segment
for all years presented are reported in the accompanying consolidated statement
of income as discontinued operations. Revenue from this segment for 1995 was
$150,629,000.
With the sale of GO/DAN Industries, a joint venture, and the related
receipt of $24,750,000 in September 1995, the previously discontinued operations
net assets, primarily composed of the Company's investment in and receivable
from GO/DAN Industries, were realized.
During 1995 the Company exited the karat gold fabricated product line
located in its East Providence, Rhode Island facility. A restructuring charge to
exit the business amounting to $5,342,000 was recorded as follows: employee
separation (155 employees)--$733,000, asset write-downs--$3,819,000, and other
exit costs--$790,000. This action was substantially completed at December 31,
1995. In addition to this restructuring charge, a charge of $4,207,000,
primarily asset write-downs, was recorded relating to the Company's ongoing
operation in Fairfield, Connecticut.
Included in other deductions for 1995 is a gain on the sale of the
Company's joint venture in Brazil amounting to $460,000.
F-47
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: INVENTORIES AND FEE CONSIGNMENT FACILITIES
The components of inventories at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Precious metals:
Fine and fabricated metals in various stages of
completion........................................... $22,830,000 $26,569,000
Non-precious metals:
Base metals, factory supplies and raw materials......... 25,878,000 20,993,000
Work in process......................................... 14,938,000 15,192,000
Finished goods.......................................... 13,648,000 7,603,000
----------- -----------
$77,294,000 $70,357,000
=========== ===========
</TABLE>
Other inventory information at December 31:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Precious metals stated at LIFO cost...................... $ 20,960,000 $24,763,000
------------ -----------
LIFO inventory--excess of year-end market value over LIFO
cost................................................... $106,201,000 $97,996,000
------------ -----------
Market value per ounce:
Silver................................................. $ 5.95 $ 4.73
Gold................................................... $ 287.05 $ 369.00
------------ -----------
</TABLE>
Included in continuing operations for 1997 and 1996 are profits before
taxes of $6,408,000 and $33,630,000 respectively, resulting from reduction in
the quantities of precious metal inventories valued under the LIFO method. The
after-tax effect on continuing operations for 1997 and 1996 amounted to
$3,717,000 ($.31 per basic share) and $19,260,000 ($1.40 per basic share),
respectively.
Consigned precious metal ounces due to/(from) customers and suppliers at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Silver ounces
Net open account.......................................... 2,146,000 500,000
Leased/Futures............................................ 2,495,000 9,419,000
---------- ----------
Total............................................. 4,641,000 9,919,000
---------- ----------
Gold ounces
Net open account.......................................... 17,887 14,600
Leased/Futures............................................ (58,100) 5,700
---------- ----------
Total............................................. (40,213) 20,300
========== ==========
</TABLE>
In 1994 the Company was provided a Gold and Silver Fee Consignment Facility
amounting to $250,750,000 of which $111,750,000 remained in 1996 after exiting
the karat gold business in 1995 and refining business in 1996. The Fee
Consignment Facility of $83,812,500 was for a three-year period and the
short-term Fee Consignment Facility of $27,937,500 was for 364 days. As of
December 31, 1996, 14,209,000 ounces of silver and 5,300 ounces of gold were
leased to the Company and are included in leased amounts above for 1996. On
August 29, 1997 the Company returned precious metal and canceled the Fee
Consignment facility.
F-48
<PAGE> 124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3: DEBT AND CREDIT AGREEMENTS
The Company's borrowing requirements are primarily related to the level of
working capital requirements and acquisition activity. At December 31, 1997, the
Company had outstanding short-term borrowings of $31,500,000 under short-term
uncommitted facilities. The Company's revolving credit facility and long-term
financing (see discussion below) gives the Company the ability to classify these
and other short term obligations aggregating $33,380,000 as long-term debt as of
December 31, 1997. At December 31, 1996, the Company had short-term credit
facilities of $50,000,000 and short-term borrowings of $15,000,000.
Long-term debt at December 31, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Credit facility......................................... $ 25,000,000 $120,000,000
Senior Notes (7.31%, due 2004).......................... 125,000,000 --
Industrial revenue bonds, floating rate, due
2004-2005............................................. 7,500,000 7,500,000
------------ ------------
157,500,000 127,500,000
Less installments due within year....................... -- --
------------ ------------
157,500,000 127,500,000
Reclass of short-term obligations....................... 33,380,000 --
------------ ------------
Total long-term debt.......................... $190,880,000 $127,500,000
============ ============
</TABLE>
On April 17, 1997 the Company completed unsecured long-term financing for
$125,000,000 at a fixed rate of 7.31% due 2004. On September 29, 1997 the
Company replaced its prior $200,000,000 revolving credit facility, which
provided $150,000,000 for a three year period and $50,000,000 for 364 days with
a new unsecured $200,000,000 revolving credit facility which provides
$200,000,000 for a five year period maturing in 2002, subject to annual one-year
extensions. At December 31, 1997 there was $25,000,000 borrowed under this
facility.
All the above loans have restrictive covenants. At December 31, 1997, the
Company was in compliance with all covenants.
NOTE 4: INCOME TAXES
The components of pre-tax income are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Continuing operations--domestic...................... $35,751 $ 59,090 $12,906
Continuing operations--foreign....................... 300 (117) 1,380
Extraordinary item................................... -- (4,919) --
------- -------- -------
36,051 54,054 14,286
Discontinued operations--domestic.................... -- (24,731) 19,099
------- -------- -------
Total...................................... $36,051 $ 29,323 $33,385
======= ======== =======
</TABLE>
The provision for taxes on income was comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1997
-------------------------------
CURRENT DEFERRED TOTAL
-------- -------- -------
<S> <C> <C> <C>
Continuing Operations
Federal............................................... $ 3,934 $7,209 $11,143
Foreign............................................... 182 72 254
State and local....................................... 3,429 315 3,744
-------- ------ -------
Total....................................... $ 7,545 $7,596 $15,141
======== ====== =======
</TABLE>
F-49
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------------------------------ ------------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Continuing Operations
Federal......................... $ 18,260 $ 764 $ 19,024 $ 2,653 $ 1,913 $ 4,566
Foreign......................... 676 -- 676 1,594 (386) 1,208
State and local................. 5,443 57 5,500 223 780 1,003
-------- ------- -------- -------- ------- --------
24,379 821 25,200 4,470 2,307 6,777
-------- ------- -------- -------- ------- --------
Extraordinary Item
Federal......................... (1,557) -- (1,557) -- -- --
State and local................. (473) -- (473) -- -- --
-------- ------- -------- -------- ------- --------
(2,030) -- (2,030) -- -- --
-------- ------- -------- -------- ------- --------
Discontinued Operations
Federal......................... (8,709) 843 (7,866) 7,847 (1,776) 6,071
State and local................. (2,413) 63 (2,350) 2,445 (548) 1,897
-------- ------- -------- -------- ------- --------
(11,122) 906 (10,216) 10,292 (2,324) 7,968
-------- ------- -------- -------- ------- --------
Total................. $ 11,227 $ 1,727 $ 12,954 $ 14,762 $ (17) $ 14,745
======== ======= ======== ======== ======= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 follow (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------------------------ ------------------------------------------
DEFERRED TAX DEFERRED TAX NET DEFERRED DEFERRED TAX DEFERRED TAX NET DEFERRED
ASSETS LIABILITIES LIABILITY ASSETS LIABILITIES LIABILITY
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Prepaid retirement
costs.................. $ -- $21,231 $(21,231) $ -- $19,098 $(19,098)
Property, plant and
equipment.............. -- 5,100 (5,100) -- 3,442 (3,442)
Discontinued
operations............. 1,277 -- 1,277 3,312 -- 3,312
Acquired NOL-Olympic..... 1,613 -- 1,613 -- -- --
All other................ 5,842 3,348 2,494 7,168 3,201 3,967
Foreign losses........... 1,846 -- 1,846 1,625 -- 1,625
Valuation allowance...... (1,846) -- (1,846) (1,625) -- (1,625)
------- ------- -------- ------- ------- --------
Total.......... $ 8,732 $29,679 $(20,947) $10,480 $25,741 $(15,261)
======= ======= ======== ======= ======= ========
</TABLE>
Due to the Company's current taxable income and expected future taxable
income, management believes it is more likely than not that the Company will
realize the benefit of the existing deferred tax assets other than the deferred
tax asset on foreign losses for which a valuation allowance has been provided.
Principal items making up the change in the net deferred tax liability
follow (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Prepaid retirement costs.................................... $ 2,133 $ 1,195 $ 1,293
Property, plant and equipment............................... 1,658 (1,612) (4,175)
Restructuring and discontinued operations................... 2,035 2,660 825
Foreign tax credit carryforwards............................ -- -- 495
Acquired NOL-Olympic........................................ (1,613) -- --
All other................................................... 1,473 (516) 1,545
------- ------- -------
$ 5,686 $ 1,727 $ (17)
======= ======= =======
</TABLE>
Deferred income taxes have not been provided on the undistributed earnings
of foreign subsidiaries and other foreign investments carried at equity. These
earnings have been substantially reinvested and the Company does not plan to
initiate any action that would precipitate the payment of income taxes thereon.
F-50
<PAGE> 126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The major elements contributing to the difference between the U.S. Federal
statutory tax rate and the consolidated effective tax rate for continuing
operations are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. Federal effective statutory tax rate.................. 35.0% 35.0% 35.0%
State and local income taxes, net of Federal income tax
benefit.................................................. 6.8 6.1 4.6
Valuation allowance........................................ 0.7 1.3 4.8
Net effect of foreign tax rates............................ (0.2) (0.1) 0.1
Other...................................................... (0.3) 0.4 2.9
---- ---- ----
42.0% 42.7% 47.4%
==== ==== ====
</TABLE>
NOTE 5: COMMITMENTS
Commitments at December 31, 1997 for the purchase of additional property,
plant and equipment approximated $744,000. Rent expense for 1997, 1996, and 1995
was $2,620,000, $2,885,000, and $3,591,000, respectively. Operating lease and
rental commitments for future years are as follows:
<TABLE>
<S> <C>
1998............................................ $ 1,913,000
1999............................................ 2,026,000
2000............................................ 1,889,000
2001............................................ 1,751,000
2002............................................ 1,570,000
2003 and beyond................................. 5,530,000
-----------
Total lease and rental commitments.... $14,679,000
===========
</TABLE>
NOTE 6: INCENTIVE PLANS
HANDY & HARMAN 1995 OMNIBUS STOCK INCENTIVE PLAN
(SUCCESSOR TO THE HANDY & HARMAN LONG-TERM INCENTIVE STOCK OPTION PLAN ADOPTED
IN 1991)
After incorporating 1994's remaining "shares available for option" of the
predecessor plan the combined number of shares subject to award under this
succeeding plan adopted in 1995 shall not exceed 1,000,000 shares of Common
Stock. The compensation committee of the Board of Directors may grant options,
stock appreciation rights (tandem or stand alone), shares of restricted or
phantom stock, and stock bonuses, in such amounts and with such terms and
conditions as the compensation committee shall determine, subject to the
provisions of the plan. Through 1997 only options have been awarded under the
successor and predecessor plans. Certain shares under option with a term of 3
years become exercisable based on the Company's stock attaining specified
trading prices. The remaining shares under option with terms of 7 years and 10
years become exercisable cumulatively at the rate of 50% and 25% per year (20%
for predecessor plan awarded options), respectively.
F-51
<PAGE> 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Successor and predecessor plans' transactions are as follows:
<TABLE>
<CAPTION>
SHARES UNDER OPTION WEIGHTED
SHARES -------------------------- AVERAGE
AVAILABLE RANGE OF EXERCISE
FOR OPTION SHARES PRICE PRICE
---------- -------- -------------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1995.......... 253,200 716,000 $ 9.625-16.625 $ 13.74
Increase in shares subject to
award........................... 746,800
Options granted................... (162,000) 162,000 15.125-15.438 15.13
Options exercised................. -- (22,800) 9.625-12.937 12.25
Options expired................... 28,200 (28,200) 11.313-16.625 13.67
-------- -------- -------------- -------
Balance, December 31, 1995........ 866,200 827,000 9.625-16.625 14.06
Options granted................... (260,000) 260,000 17.75-18.625 17.92
Options exercised................. -- (78,500) 9.625-16.625 12.80
Options expired................... 48,800 (48,800) 12.625-16.625 13.20
-------- -------- -------------- -------
Balance, December 31, 1996........ 655,000 959,700 9.625-18.625 15.25
Options granted................... (581,200) 581,200 16.565-22.719 21.77
Options exercised................. -- (112,750) 9.625-17.75 13.24
Options expired................... 45,050 (45,050) 12.063-17.75 15.16
-------- -------- -------------- -------
Balance, December 31, 1997........ 118,850 1,383,100 $12.563-22.719 $18.157
======== ======== ============== =======
</TABLE>
Additional information on options outstanding and options exercisable at
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------- ------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
RANGE OF AT REMAINING AVERAGE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1997 LIFE PRICE 1997 PRICE
- --------------------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$12.625 to $14.125 253,500 3 years $13.81 253,500 $13.81
$12.5625 2,000 5 years 12.56 2,000 12.56
$12.9370 72,400 6 years 12.94 50,600 12.94
$13.75 to $16.625 95,000 7 years 16.41 57,000 16.41
$15.125 to $15.438 127,250 8 years 15.14 59,250 15.14
$17.75 to $18.625 253,750 9 years 17.92 62,500 17.93
$16.565 to $22.719 579,200 6 years 21.77 50,000 22.72
--------- ------- ------ ------- ------
1,383,100 534,850
========= =======
</TABLE>
The disclosure-only method described in SFAS No. 123 "Accounting for
Stock-Based Compensation" is being used by the Company, therefore the proforma
effect of recognizing compensation cost for the above plan on net income and
earnings per share is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income--as reported..................... $20,910,000 $16,369,000 $18,640,000
Net income--proforma........................ 19,984,000 15,980,000 18,277,000
Net income per share--as reported--basic.... $ 1.75 $ 1.19 $ 1.32
Net income per share--as
reported--diluted......................... $ 1.74 $ 1.18 $ 1.32
Net income per share--proforma.............. $ 1.62 $ 1.14 $ 1.29
=========== =========== ===========
</TABLE>
F-52
<PAGE> 128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following assumptions used for the options
granted:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Expected dividend yield................................. 1.10% 1.34% 1.58%
Expected stock price volatility......................... 47.20% 27.05% 25.94%
Risk-free interest rate................................. 5.7% 6.42% 6.41%
Expected life of options................................ 6 6 6
====== ====== ======
</TABLE>
Additionally, 100% of the stock options granted in 1995 were assumed vested
as a baseline for the proforma calculations.
The effects of applying SFAS No. 123 in this proforma disclosure are not
indicative of future proforma amounts. SFAS No. 123 does not apply to awards
prior to 1995 and additional awards in future years were assumed. Assumptions
used for Company options and stock were made "as if" the purchase of the
Company, as further described in Note 11 to these consolidated financial
statements, did not occur.
Outside Director Stock Option Plan
Under the Outside Director Stock Option Plan each outside director is
awarded fully and immediately exercisable options, on an annual basis, to
purchase Common Stock at an option price of $1. The market value of the
Company's shares at date of grant less the option price is amortized to
compensation expense during the year. Transactions under this Plan are
summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Options outstanding January 1............................ 5,531 9,977 9,539
Options awarded.......................................... 4,781 4,194 3,290
Options expired.......................................... -- -- --
Options exercised........................................ (1,366) (8,640) (2,852)
------ ------ ------
Options outstanding December 31.......................... 8,946 5,531 9,977
------ ------ ------
Shares subject to award December 31...................... 62,960 67,741 71,935
====== ====== ======
</TABLE>
All options outstanding under this plan are exercisable at December 31,
1997.
1988 Long-Term Incentive Plan
Shares issued under the 1988 Long-Term Incentive Plan are in the name of
the employee, who has all the rights of a shareholder, subject to certain
restrictions or forfeitures. Of the 400,000 shares which may be awarded under
this Plan cumulative shares amounting to 142,050 were issued, of which 6,275
shares were forfeited as of December 31, 1997. The market value of shares issued
under the Plan is recorded as unearned compensation and shown as a separate
component of shareholders' equity. This compensation is amortized to expense
over the period the employees become vested.
Compensation expense for both the Outside Director Stock Option Plan and
the 1988 Long-Term Incentive Plan amounted to $506,000, $648,000 and $266,000,
in 1997, 1996 and 1995, respectively.
NOTE 7: SEGMENT INFORMATION
Information regarding the Company's industry segments and discontinued
operations is contained on page 23 under the heading "The Company's Business"
and is incorporated herein by reference.
F-53
<PAGE> 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Additional information concerning industry segments, corporate and
discontinued operations is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Depreciation and amortization expense:
Wire/Tubing............................... $ 5,678,000 $ 5,461,000 $ 5,029,000
Precious metals........................... 5,289,000 4,560,000 4,545,000
Other non-precious metal businesses....... 2,125,000 442,000 543,000
Corporate*................................ 1,102,000 1,136,000 1,053,000
Discontinued operations................... -- 401,000 5,498,000
----------- ----------- -----------
$14,194,000 $12,000,000 $16,668,000
=========== =========== ===========
</TABLE>
- ------------------------------
* Includes amortization of deferred financing fees of $685,000, $552,000, and
$820,000 in 1997, 1996 and 1995, respectively.
Property, plant and equipment additions:
<TABLE>
<S> <C> <C> <C>
Wire/Tubing............................... $ 5,653,000 $ 3,881,000 $11,378,000
Precious metals........................... 10,712,000 9,315,000 7,738,000
Other non-precious metal businesses....... 2,070,000 419,000 929,000
Corporate................................. 25,000 31,000 47,000
----------- ----------- -----------
18,460,000 13,646,000 20,092,000
Discontinued operations:.................... -- 1,048,000 3,051,000
----------- ----------- -----------
$18,460,000 $14,694,000 $23,143,000
=========== =========== ===========
</TABLE>
NOTE 8: SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
LIFE/YEARS 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
a-Property, plant and equipment:
Land..................................... $ 3,566,000 $ 3,355,000
Buildings and improvements............... 10-50 45,473,000 43,642,000
Machinery and equipment.................. 3-20 146,074,000 130,573,000
Furniture and fixtures................... 2-20 12,586,000 11,932,000
Automotive............................... 4-8 630,000 566,000
Leasehold improvements................... Lease Life 1,769,000 1,684,000
Construction in progress................. -- 7,954,000 3,871,000
------------ ------------
$218,052,000 $195,623,000
============ ============
</TABLE>
Depreciation and amortization of property, plant and equipment charged to
operations for 1997, 1996 and 1995 was $11,933,000, $10,816,000 and $15,066,000,
respectively.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
b-Intangibles (net of amortization):
Patents and other..................................... $ 818,000 $ 515,000
Excess of purchase price over net assets acquired in 64,240,000 24,303,000
business combinations..............................
----------- -----------
$65,058,000 $24,818,000
=========== ===========
</TABLE>
F-54
<PAGE> 130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: RETIREMENT PLANS AND OTHER BENEFITS
Retirement Plans
The Company and substantially all of its subsidiaries have noncontributory
defined benefit plans covering most of their employees. The benefits are based
on years of service and the employee's compensation at the time of retirement.
Contributions are made by the Company as necessary to provide assets sufficient
to meet the benefits payable to plan participants, and are determined in
accordance with applicable minimum funding standard requirements as promulgated
by the Internal Revenue Service. Such contributions are based on actuarial
computations of the amount sufficient to fund normal (current service) cost plus
an amortization of the unfunded actuarial accrued liability over periods of up
to 30 years.
The components of net periodic pension cost (credit) for 1997, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Service cost-benefits earned during the $ 2,491,000 $ 2,678,000 $ 3,582,000
period.................................
Interest cost on the projected benefits 8,029,000 7,784,000 7,974,000
obligation.............................
Return on plan assets.................... (60,494,000) (26,000,000) (37,283,000)
Net amortization and deferral............ 43,887,000 11,202,000 21,399,000
------------ ------------ ------------
Net periodic pension cost (credit)....... $ (6,087,000) $ (4,336,000) $ (4,328,000)
============ ============ ============
</TABLE>
Assumptions used in the accounting at December 31 are:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate:
Beginning of year......................................... 6.5% 6.5% 7.0%
End of year............................................... 6.5% 6.5% 6.5%
Compensation increase....................................... 5.0% 5.0% 5.0%
Expected asset return....................................... 8.5% 8.0% 8.0%
==== ==== ====
</TABLE>
The plans' funded status as of December 31 and the amounts recognized in
the accompanying financial statements are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................. $110,730,000 $107,909,000
------------ ------------
Accumulated benefit obligation........................ $115,334,000 $113,260,000
------------ ------------
Projected benefit obligation............................ $124,529,000 $119,544,000
Plan assets at fair value............................... 249,240,000 196,253,000
------------ ------------
Plan assets in excess of projected benefit obligation... 124,711,000 76,709,000
Unrecognized net (gain)/loss............................ (56,562,000) (10,974,000)
Unrecognized prior service cost......................... 1,235,000 (925,000)
Unrecognized net asset.................................. (2,889,000) (4,553,000)
------------ ------------
Prepaid pension cost.................................... $ 66,495,000 $ 60,257,000
============ ============
</TABLE>
The plans' assets are invested primarily in stocks and insurance contracts.
The Company recorded pension curtailment gains from discontinued operations
amounting to $287,000 in 1996 and $1,354,000 in 1995.
F-55
<PAGE> 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Postretirement Benefits Other Than Pensions
Certain operations of the Company provide postretirement medical benefits
to current and retired employees. Certain employees of these operations become
eligible for postretirement medical benefits after fulfilling minimum age and
service requirements.
Postretirement benefit costs were determined assuming discount rates of
6.5%, 6.5% and 7% for the years ended 1997, 1996 and 1995, respectively. The
components of net periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ----------
<S> <C> <C> <C>
Service cost...................................... $ 71,000 $134,000 $ 174,000
Interest cost..................................... 537,000 539,000 596,000
Amortization of transition obligation............. 223,000 311,000 371,000
-------- -------- ----------
$831,000 $984,000 $1,141,000
======== ======== ==========
</TABLE>
In addition, a curtailment loss of $868,000 incurred on the 1996 sale of
the refining business is included in discontinued operations.
The Company's funding policy with respect to these benefits is to pay the
amounts required to provide the benefits during each year. The following table
presents the Company's postretirement medical benefits funded status as of
December 31, 1997 and 1996.
Accumulated Postretirement Benefit Obligation:
<TABLE>
<CAPTION>
1997 1996
----------- --------------------
<S> <C> <C>
Retirees.................................................. $ 5,288,000 $ 4,414,000
Future retirees........................................... 3,216,000 4,041,000
----------- --------------------
Total accumulated postretirement benefit obligation....... 8,504,000 8,455,000
Unrecognized transition obligation........................ (3,489,000) (3,762,000)
Unrecognized actuarial gain (loss)........................ 821,000 998,000
----------- --------------------
Net postretirement benefit liability--classified with $ 5,836,000 $ 5,691,000
prepaid retirement costs................................
=========== ====================
</TABLE>
The assumed discount rate used to measure the accumulated postretirement
benefit obligation was 6.5% for 1997 and 1996. The unrecognized transition
obligation amortization period is 20 years beginning on January 1, 1991, the
implementation date.
For measurement purposes, a 15% annual rate of increase in the health care
cost trend rate was assumed for 1992 through 1994; the rate was assumed to
decrease gradually to 6% by the year 2003 and remain at that level thereafter. A
1% increase in the assumed health care trend rate would not have a significant
impact on the accumulated postretirement benefit obligation as of December 31,
1997 and 1996.
Savings Plan
The Company has a savings plan which qualifies under Section 401(k) of the
Internal Revenue Code. This savings plan allows eligible employees to contribute
from 1% to 15% of their income on a pretax basis to this savings plan. The
Company matches 50% of the first 3% of the employee's contribution. Such
matching Company contributions are invested in shares of the Company's common
stock and become immediately vested. The charge to operations for the Company's
matching contribution amounted to $548,000, $570,000, and $932,000 for 1997,
1996 and 1995, respectively.
F-56
<PAGE> 132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: COMMON STOCK PURCHASE RIGHTS
In 1989, the Board of Directors declared a dividend of one Common Stock
Purchase Right on each outstanding share of Handy & Harman Common Stock to
holders of record on February 6, 1989.
If the rights become exercisable, the rights will separate from the common
stock and each right will entitle the holder to purchase from the Company a
share of common stock at a predefined price. The rights are not exercisable
until either ten days after certain changes in ownership of the Company occurs
or ten days following the commencement of a tender offer for at least 20% of the
Company's common stock.
The rights are redeemable by the Company at a fixed price after certain
defined events or at any time prior to the expiration of the rights on January
26, 1999, if such events do not occur.
Through December 31, 1997, the Company had reserved common shares as
issuable pursuant to these rights. At the present time, the rights have no
dilutive effects on the earnings per share calculation. See Note 11 : Subsequent
Event
NOTE 11: SUBSEQUENT EVENT
On March 1, 1998 the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with WHX Corporation ("WHX") and HN Acquisition Corp.,
a wholly owned subsidiary of WHX (the "Purchaser"). Pursuant to the Merger
Agreement, the Purchaser commenced a tender offer on March 6, 1998 to purchase
all outstanding shares of the Company's common stock for $35.25 per share in
cash. Under the Merger Agreement, the tender offer will be followed by a merger
of the Purchaser with and into the Company and all shares of the Company's
common stock not purchased in the tender offer will be converted into the right
to receive $35.25 per share in cash.
On March 1, 1998 the Board amended the Rights Agreement dated as of January
26, 1989, as amended on April 25, 1996 and October 22, 1996, between the Company
and ChaseMellon Shareholder Services L.L.C. (as so amended, the "Rights
Agreement") (see Note 10 above) to prevent the Purchaser from becoming an
"Acquiring Person" and to prevent a "Triggering Event", "Stock Acquisition Date"
or "Distribution Date" (all as defined in the Rights Agreement) from occurring
as a result of the offer, the merger or other transactions contemplated by the
Merger Agreement. Consummation of the merger is expected to occur in the Spring
of 1998. The offer and merger are subject to various conditions.
F-57
