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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E)
OF THE SECURITIES EXCHANGE ACT OF 1934)
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WCI STEEL, INC.
(Name of the Issuer)
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WCI STEEL HOLDINGS, INC.
THE RENCO GROUP, INC.
(Name of Person(s) Filing Statement)
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COMMON STOCK, NO PAR VALUE, $.01 STATED VALUE
(Title of Class of Securities)
92923J109
(CUSIP Number of Class of Securities)
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DENNIS A. SADLOWSKI, ESQ.
WCI STEEL HOLDINGS, INC.
THE RENCO GROUP, INC.
C/O THE RENCO GROUP, INC.
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of Person(s) Filing Statement)
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COPY TO:
MICHAEL C. RYAN, ESQ.
CADWALADER, WICKERSHAM & TAFT
100 MAIDEN LANE
NEW YORK, NEW YORK 10038
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This Statement is filed in connection with (check the appropriate box):
a. / / The filing of solicitation materials or an information statement subject
to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities
Exchange Act of 1934.
b. / / The filing of a registration statement under the Securities Act of 1933.
c. /X/ A tender offer.
d. / / None of the above.
Check the following box if the soliciting materials statement referred to in
checking box (a) are preliminary copies. / /
CALCULATION OF FILING FEE
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TRANSACTION VALUATION AMOUNT OF FILING FEE**
<S> <C>
$56,545,000* $11,309.00
</TABLE>
* Estimated for purposes of calculating the amount of the filing fee only. The
amount assumes the purchase by WCI Steel Holdings, Inc. of 5,654,500 shares
of common stock, no par value, $.01 stated value, of WCI Steel, Inc. (the
"Shares"), at a price per Share of $10.00 net to the seller in cash. Such
number of Shares represents all of the Shares outstanding as of October 25,
1996, other than Shares held directly or indirectly by The Renco Group, Inc.
** 1/50th of 1% of Transaction valuation.
/X/ Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<TABLE>
<S> <C> <C>
Filing
Amount previously paid: $11,309.00 party: WCI Steel Holdings, Inc./The Renco Group, Inc.
Form or registration no.: Schedule
14D-1 Date filed: October 28, 1996
</TABLE>
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TENDER OFFER
This Rule 13e-3 Transaction Statement is filed by WCI Steel Holdings, Inc.,
a Delaware corporation ("Holdings"), and The Renco Group, Inc., a New York
corporation ("Renco"), that beneficially owns 30,746,900 shares of common stock,
no par value, $.01 stated value (the "Shares"), of WCI Steel, Inc., an Ohio
corporation (the "Company"), relating to the offer by Holdings to purchase all
of the outstanding Shares at $10.00 per Share, net to the seller in cash, on the
terms and subject to the conditions, and as more fully set forth in, the Offer
to Purchase, dated October 28, 1996 (the "Offer to Purchase"), and in the
related Letter of Transmittal, copies of which are attached hereto as Exhibits
(a)(1) and (a)(2), respectively (which, as may be thereafter amended,
collectively constitute the "Offer").
The cross reference sheet below is being supplied pursuant to Instruction F
to Schedule 13E-3 and shows the location in the Schedule 14D-1, filed by
Holdings and Renco with the Securities and Exchange Commission contemporaneously
herewith (the "Schedule 14D-1"), of the information required to be included in
response to Items of this Schedule 13E-3. The information in the Schedule 14D-1
is incorporated herein by reference.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings ascribed to such terms in Exhibit(d)(1) hereto, the
Offer to Purchase.
CROSS REFERENCE SHEET
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<CAPTION>
WHERE LOCATED IN THE SCHEDULE
ITEM IN SCHEDULE 13E-3 14D-1
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<S> <C> <C>
Items 1(a)-(c)................................................................ Items 1(a)-(c)
Items 1(d)-(f)................................................................ *
Item 2....................................................................... Item 2
Item 3(a)(1)................................................................. Item 3(a)
Item 3(a)(2)................................................................. Item 3(b)
Item 3(b).................................................................... *
Item 4(a).................................................................... *
Item 4(b).................................................................... **
Item 5....................................................................... Item 5
Item 6(a).................................................................... Item 4(a)
Item 6(b).................................................................... *
Item 6(c).................................................................... Item 4(b)
Item 6(d).................................................................... Item 4(c)
Item 7(a).................................................................... Item 5
Item 7(b).................................................................... **
Items 7(c)-(d)................................................................ *
Items 8(a)-(e)................................................................ *
Item 8(f).................................................................... **
Items 9(a)-(c)................................................................ *
Item 10(a)................................................................... Item 6(a)
Item 10(b)................................................................... Item 6(b)
Item 11...................................................................... Item 7
Item 12...................................................................... *
Item 13(a)................................................................... *
Items 13(b)-(c)............................................................... **
Item 14(a)................................................................... *
Item 14(b)................................................................... **
Item 15(a)................................................................... **
Item 15(b)................................................................... Item 8
Item 16...................................................................... Item 10(f)
Item 17(a)................................................................... *
Items 17(b)-(c)............................................................... Items 11(b)-(c)
Item 17(d)................................................................... *
Item 17(e)................................................................... *
Item 17(f)................................................................... Item 11(f)
</TABLE>
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* Information in response to these Items of this Schedule 13E-3 is not
required to be included in the Schedule 14D-1.
** Not applicable.
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a)-(c) The name of the issuer is WCI Steel, Inc., an Ohio corporation (the
"Company"). The address of the Company's principal executive offices is 1040
Pine Avenue, S.E., Warren, Ohio 44483-6528. The class of equity security to
which this Rule 13e-3 Transaction Statement relates is the common stock, no par
value, $.01 stated value, per share, of the Company. The information set forth
in the Offer to Purchase under "Introduction," "Special Factors--Reasons for the
Offer and the Merger," "--Purpose, Structure and Benefits of the Offer and the
Merger" and "The Tender Offer--Section 6. Price Range of the Shares; Dividends
on the Shares" is incorporated herein by reference.
(d) The information set forth under "Special Factors--Plans for the Company
after the Transactions" and "The Tender Offer--Section 6. Price Range of the
Shares; Dividends on the Shares" in the Offer to Purchase is incorporated herein
by reference.
(e) The information set forth under "Special Factors--Background" in the
Offer to Purchase is incorporated herein by reference.
(f) The information set forth under "Special Factors--Fairness of the Equity
Transactions" and "The Tender Offer--Section 6. Price Range of the Shares;
Dividends on the Shares" in the Offer to Purchase is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(g) The answer to Item 2 of the Schedule 14D-1 is incorporated herein by
reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)-(b) The answer to Item 3 of the Schedule 14D-1 is incorporated herein by
reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth under "Introduction," "Special Factors--The
Letter Agreement,"
"--Purpose, Structure and Benefits of the Offer and the Merger" and "The Tender
Offer" in the Offer to Purchase is incorporated herein by reference.
(b) None.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) The answer to Items 5(a)-(g) of the Schedule 14D-1 is incorporated
herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATIONS.
(a) The answer to Item 4 of the Schedule 14D-1 is incorporated herein by
reference.
(b) The information set forth under "The Tender Offer--Section 13. Fees and
Expenses" in the Offer to Purchase is incorporated herein by reference.
(c) The information set forth under "The Tender Offer--Section 5. Source and
Amount of Funds" and in Exhibit A hereto is incorporated herein by reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The answer to Item 5 of the Schedule 14D-1 is incorporated herein by
reference.
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(b) None.
(c) The Information set forth under "Special Factors--Background,"
"--Reasons for the Offer and the Merger," "--The Letter Agreement," "--Purpose,
Structure and Benefits of the Offer and the Merger" and "--Fairness of the
Equity Transactions" in the Offer to Purchase is incorporated herein by
reference.
(d) The information set forth under "Special Factors--Reasons for the Offer
and the Merger",
"--Purpose, Structure and Benefits of the Offer and the Merger," "--Plans for
the Company after the Transactions," "--Certain Effects of the Offer and the
Merger" and "--Certain Federal Income Tax Consequences" in the Offer to Purchase
is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(b) The Information set forth under "Special Factors--Background,"
"--Reasons for the Offer and the Merger," "--Purpose, Structure and Benefits of
the Offer and the Merger" and "--Fairness of the Equity Transactions" and under
"The Tender Offer--Section 6. Price Range of Shares; Dividends on the Shares,"
"--Section 7. Effect of the Offer on the Market for the Shares; NYSE Listing;
Exchange Act Registration and Margin Securities" and "--Section 8. Certain
Information Concerning the Company, Renco and Holdings" in the Offer to Purchase
is incorporated herein by reference.
(c) The Rule 13e-3 transaction is structured so that approval of at least a
majority of the Shares held by persons other than Renco and the directors and
executive officers of Renco and the Company, is required.
(d)-(e) The Information set forth under "Introduction," "Special
Factors--Background," "--Fairness of the Equity Transactions" and "The Tender
Offer--Section 13. Fees and Expenses" in the Offer to Purchase is incorporated
herein by reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) The information set forth under "Introduction," "Special
Factors--Background," "--Fairness of the Equity Transactions" and "--Opinion of
Gleacher NatWest; Summary of Financial Analysis" in the Offer to Purchase is
incorporated herein by reference.
(b) The information set forth under "Introduction," "Special
Factors--Background," "--Fairness of the Equity Transactions," "--Opinion of
Gleacher NatWest; Summary of Financial Analysis" and under "The Tender
Offer--Section 8. Certain Information Concerning the Company, Renco and
Holdings" in, and in Annex B to, the Offer to Purchase, is incorporated herein
by reference.
(c) The Opinion of Gleacher NatWest Inc. to the Special Committee of Board
of Directors and the Report of Gleacher NatWest Inc. to the Independent
Director, both dated October 20, 1996, will, upon request, be made available for
inspection and copying at the principal executive offices of the Company during
its regular business hours by any interested holder of Shares or any such
holder's representative who has been so designated in writing.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b) The information set forth under "Introduction," "Special
Factors--Background," "--Reasons for the Offer and the Merger," "--Fairness of
the Equity Transactions," "--Interests of Certain Persons" and "The Tender
Offer--Section 8. Certain Information Concerning the Company, Renco and
Holdings" in, and in Schedule I to, the Offer to Purchase, is incorporated
herein by reference. The Company issued 3,000 Shares to S. Daniel Abraham, a
former director of the Company, pursuant to the Company's Stock
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Plan for Outside Directors on September 26, 1996; however, such shares were
returned to the Company and cancelled upon Mr. Abraham's resignation from the
Board of Directors.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The answer to Item 7 of the Schedule 14D-1 is incorporated herein by
reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a)-(b) The information set forth under "Introduction," "Special
Factors--Background," "--Reason for the Offer and the Merger," "--Fairness of
the Equity Transactions," "--Interest of Certain Persons" and "The Tender
Offer--Section 8. Certain Information Concerning the Company, Renco and
Holdings" in the Offer to Purchase is incorporated herein by reference. No
recommendation has been made by any executive officer, director or affiliate of
the Company in support of or opposed to the Rule 13e-3 transaction, other than
the Independent Director and Renco.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTIONS.
(a) The information set forth under "Introduction," "Special
Factors--Purpose, Structure and Benefits of the Offer and the Merger,"
"--Certain Effects of the Offer and the Merger" and under "The Tender
Offer--Section 1. Terms of the Offer" and "--Section 12. Certain Legal Matters;
Regulatory Approvals" in, and in Annex A to, the Offer to Purchase is
incorporated herein by reference.
(b)-(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a)(1)-(2) The information set forth under "Special Factors--Fairness of the
Equity Transactions" and "The Tender Offer--Section 8. Certain Information
Concerning the Company, Renco and Holdings" in the Offer to Purchase is
incorporated herein by reference. The consolidated financial statements of the
Company, attached as Annex A to the Offer to Purchase, are incorporated herein
by reference.
(a)(3)-(4) The information set forth under "The Tender Offer--Section 8.
Certain Information Concerning the Company, Renco and Holdings" is incorporated
herein by reference.
(b) The information set forth under "The Tender Offer--Section 5. Source and
Amount of Funds" in the Offer to Purchase in the Offer to Purchase is
incorporated herein by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The Rule 13e-3 transaction is being conducted pursuant to the proposal
of Renco set forth in the Letter Agreement, attached as Annex D to Exhibit
(d)(1) hereto, the Offer to Purchase. In connection therewith, the Company has
cooperated with Renco and participated in negotiating and effectuating the
Transactions. The information set forth under "Introduction," "Special
Factors--Background" and "--The Letter Agreement" are incorporated herein by
reference.
(b) The answer to Item 8 of the Schedule 14D-1 is incorporated herein by
reference.
ITEM 16. ADDITIONAL INFORMATION.
The answer to Item 10 of the Schedule 14D-1 is incorporated herein by
reference.
5
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ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Commitment Letter, dated October 25, 1996, from Congress Financial
Corporation to The Renco Group, Inc.
(b)(1) Report of Gleacher NatWest Inc. to the Independent Director, dated
October 20, 1996 (with certain confidential information omitted)*.
(b)(2) Selected pages of the preliminary board report.
(c)(1) Letter, dated October 9, 1996, from The Renco Group, Inc. to the
Board of Directors of WCI Steel, Inc.
(c)(2) The information set forth under "Special Factors--Interests of
Certain Persons" in Exhibit (d)(1), the Offer to Purchase, is
incorporated herein by reference.
(d)(1) Offer to Purchase, dated October 28, 1996.
(d)(2) Letter of Transmittal.
(d)(3) Notice of Guaranteed Delivery.
(d)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(d)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(d)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(d)(7) Letter to Shareholders of the Company, dated October 28, 1996.
(d)(8) Text of Press Release issued by WCI Steel, Inc. on October 23, 1996.
(e) Sections 1701.84 and 1701.85 of the Ohio General Corporation Law
(attached as Annex A to Exhibit (d)(1), the Offer to Purchase).
(f) Not applicable.
* Confidential information has been omitted and filed separately with the
Securities and Exchange Commission pursuant to a confidential treatment request.
6
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: October 28, 1996
WCI STEEL HOLDINGS, INC.
By: /s/ ROGER L. FAY
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Name: Roger L. Fay
Title: Vice President
THE RENCO GROUP, INC.
By: /s/ ROGER L. FAY
-----------------------------------------
Name: Roger L. Fay
Title: Vice President, Finance
7
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EXHIBIT INDEX
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<CAPTION>
EXHIBIT PAGE NO.
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<S> <C> <C>
(a) Commitment Letter, dated October 25, 1996, from Congress Financial Corporation to The Renco
Group, Inc....................................................................................
(b)(1) Report of Gleacher NatWest Inc. to the Independent Director, dated October 20, 1996 (with
certain confidential information omitted)*....................................................
(b)(2) Selected pages of the preliminary board presentation..........................................
(c)(1) Letter, dated October 9, 1996, from The Renco Group, Inc. to the Board of Directors of WCI
Steel, Inc....................................................................................
(c)(2) The information set forth under "Special Factors--Interests of Certain Persons" in Exhibit
(d)(1), the Offer to Purchase, is incorporated herein by reference............................
(d)(1) Offer to Purchase, dated October 28, 1996.....................................................
(d)(2) Letter of Transmittal.........................................................................
(d)(3) Notice of Guaranteed Delivery.................................................................
(d)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees..............
(d)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees......................................................................................
(d)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.........
(d)(7) Letter to Shareholders of the Company, dated October 28, 1996.................................
(d)(8) Text of Press Release issued by WCI Steel, Inc. on October 23, 1996...........................
(e) Sections 1701.84 and 1701.85 of Ohio General Corporation Law (attached as Annex A to Exhibit
(d)(1), the Offer to Purchase.)...............................................................
(f) Not applicable................................................................................
</TABLE>
* Confidential information has been omitted and filed separately with the
Securities and Exchange Commission pursuant to a confidential treatment request.
<PAGE>
[Letterhead of Congress Financial Corporation]
October 25, 1996
The Renco Group, Inc.
45 Rockefeller Center
New York, New York 10111
Attention: Mr. Ira Leon Rennert
Gentlemen:
The Renco Group, Inc. ("Renco Group") has provided Congress Financial
Corporation ("Lender") with certain information and has discussed with Lender
the request by Renco Group for a secured loan to be made by Lender to a wholly-
owned subsidiary of the Renco Group to be formed after the date hereof in
connection with the proposed offer by WCI Steel Holdings, Inc. ("WCI Holdings")
to purchase all of the issued and outstanding shares of common stock of WCI
Steel, Inc. ("WCI"), other than the shares owned by Renco Group and Ira Rennert
(such outstanding shares other than those owned by Renco Group and Ira Rennert
being referred to herein as the "Public Shares"), at a purchase price of $10.00
per share, net to the seller in cash, without interest, upon the terms and
subject to the terms and conditions to be set forth in an Offer to Purchase (the
"Tender Offer").
Based on the information that the Renco Group has supplied to Lender,
Lender is pleased to confirm its commitment to make a secured loan to the
wholly-owned subsidiary of Renco Group to be formed, which will be known as
Renco Steel Holdings, Inc. ("Renco Steel Holdings") of up to $50,000,000,
subject to the terms and conditions set forth below.
1. PARTIES:
(a) Borrower: Renco Steel Holdings, Inc. (a to be formed wholly-owned
subsidiary of The Renco Group, Inc.)
(b) Guarantors: The Renco Group, Inc.
WCI Steel Holdings, Inc.
(c) Lender: Congress Financial Corporation
2. LOAN: A single advance (the "Loan") in an amount equal to the purchase
price for the Public Shares of WCI tendered for
<PAGE>
purchase by WCI Holding pursuant to the Tender Offer, but in no event to
exceed the lesser of $50,000,000 or the maximum amount of the dividend
which WCI is permitted to pay to its shareholder under the terms of the
Indenture with respect to the existing 10 1/2% Senior Notes due 2002 issued
by WCI.
3. USE OF PROCEEDS: The Loan provided to Renco Steel Holdings shall be used
exclusively by Renco Steel Holdings to make an equity contribution to WCI
Holdings, the proceeds of which shall be used by WCI Holdings to pay part
of the cash portion of the purchase price for the Public Shares pursuant
to the Tender Offer and to pay non-tendering shareholders pursuant to the
Merger after the proceeds of the cash equity contribution by Renco Group to
WCI Holdings referred to below have been applied to such cash portion of
the purchase price or payees.
4. INTEREST RATE: The interest rate on the Loan shall be one and three-
quarter (1 3/4%) percent per annum above the rate announced from time to
time by CoreStates Bank, N.A., as its "prime rate" and shall increase or
decrease by an amount equal to each increase or decrease in such prime
rate, effective as of the first day of the month after any such change.
After a default, interest shall be increased to three and three-quarters
(3 3/4%) percent per annum above such announced "prime rate". All interest
will be computed on the basis of a three hundred sixty (360) day year.
5. FEES. Renco Group shall pay a $125,000 commitment fee, payable in full
upon execution and return of this letter (the "Commitment Fee"), which
fee is not refundable. Such fee is in addition to interest and other
charges provided for herein. This Section shall survive the expiration or
termination of this letter.
6. MATURITY DATE: The Loan and all related obligations (including interest,
fees, costs and expenses) shall be due and payable in full on the third
(3rd) business day after the Loan is made (the "Maturity Date").
7. COLLATERAL: First and only security interests in and lien upon, and
pledges of, (a) all issued and outstanding shares of capital stock of WCI
at any time owned or held by Renco Group and WCI Holdings, and (b) all of
the assets of Renco Steel Holdings and WCI Holdings and (c) all issued
and
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outstanding shares of capital stock of WCI Holdings (all of the foregoing
being collectively, the "Collateral").
8. EXPENSES: Renco Group agrees to pay all reasonable legal and closing costs
and expenses, including attorneys' fees, in each case whether or not this
transaction closes. All such expenses shall be paid to Lender upon demand,
together with such advance funds on account of such expenses as Lender may
from time to time request. Lender shall have the right to offset such
expenses against any fees or other sums received from or on behalf of Renco
Group. This Section shall survive the expiration or termination of this
letter.
9. OTHER INFORMATION AND CONDITIONS. Compliance with all terms and
requirements of this letter are conditions precedent to the making of the
Loan. In addition, the Loan is subject to the satisfaction, in a manner
satisfactory to Lender, of the following additional terms and conditions:
(a) Lender shall continue to receive all financial information,
projections, budgets, business plans, cash flows and such other
information as Lender shall reasonably request from time to time.
(b) Execution and delivery of loan and security documents, delivery of
opinions of counsel and other agreements, documents and instruments as
may be necessary or desirable to effectuate the financing arrangements
described herein as may be determined by Lender and its counsel.
(i) Such loan documents will include, among other documents, a loan
agreement, pledge and security agreements, UCC financing
statements and the guarantee of the obligations of Renco Steel
Holdings to Lender by WCI Holdings. Contemporaneously upon the
consummation of the Merger, the guarantee shall terminate to the
extent it is not permitted under the terms of the Indenture with
respect to the 10-1/2% Senior Secured Notes due 2002 issued by
WCI or the extent the guarantees shall cause the Merger to be
prohibited under such Indenture. The opinions of counsel will
include, among other things, the opinion that the Tender Offer,
the Merger (as defined below), the Dividend (as defined below)
and the financing arrangements described herein do not, and will
not, violate any of the terms of any of the then existing
agreements of Renco Group, Renco Steel Holdings, WCI Holdings or
WCI with any other party or by which it or any of them or their
respective
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assets and properties are bound, or any applicable law or
regulation, that no court of other governmental authority has
threatened or commenced any action to prevent or void any of such
transactions, that the financing agreements create a valid and
enforceable security interest in all of the Collateral, that the
financing agreements are valid, enforceable and binding and that
Renco Group, Renco Steel Holdings, WCI Holdings and WCI have been
duly incorporated and are in good standing under the laws of
their respective states or jurisdictions of incorporation and
each state or jurisdiction where Renco Group, Renco Steel
Holdings, WCI Holdings and WCI transact business, and such other
matters as Lender may reasonably request.
(ii) Such loan documents will contain such provisions,
representations, warranties, conditions, covenants and events of
default as are satisfactory to Lender and its counsel.
(c) Execution and delivery to Lender of a definitive merger agreement, in
form and substance satisfactory to Lender, providing for the merger of
WCI with and into WCI Holdings, with WCI Holdings as the surviving
corporation (the "Merger") and the cancellation of the shares of
capital stock of WCI Holdings. WCI shall agree to pay to Renco
Steel Holdings a dividend (the "Dividend") in the amount equal to
the Loan and all other obligations of Renco Steel Holdings to Lender
immediately after consummation of the Merger.
(d) All of the issued and outstanding shares of capital stock of WCI
Holdings shall have been contributed by Renco Group to Renco Steel
Holdings, so that Renco Steel Holdings is the direct and beneficial
owner and holder of all of the issued and outstanding shares of
capital stock of WCI Holdings, free and clear of any pledge, lien,
security interest, encumbrance, claim or restriction (except in
favor of Lender).
(e) All of the issued and outstanding shares of capital stock of WCI owned
by Renco Group and Ira Rennert shall have been contributed to WCI
Holdings, so that WCI Holdings is the direct and beneficial owner and
holder of all of such shares, free and clear of any pledge, lien,
security interest, encumbrance, claim or restriction (except in favor
of Lender).
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<PAGE>
(f) WCI Holdings shall have received in cash as an equity capital
contribution not less than the amount equal to the difference between
the amount of the Loan and the amount required to be paid by WCI
Holding for the purchase price of the Public Shares pursuant to the
Tender Offer for those Public Shares which are tendered. All of the
proceeds of such equity contribution shall have been used to pay the
purchase price for the Public Shares pursuant to the Tender Offer
and expenses for the transaction.
(g) The Tender Offer shall have been commenced within five (5) days after
the date hereof. All steps required for the purchase of the Public
Shares pursuant to the Tender Offer shall have been taken except for
the actual physical delivery of the tendered Public Shares and the
payment by WCI Holdings of the purchase price therefor and all actions
and proceedings required by the Tender Offer and applicable laws and
regulations shall have been taken in accordance with the requirements
thereof and no court or other governmental authority shall have
issued, or threatened or commenced, any injunction, restraining order
or other order which seeks to prevent or void or otherwise modify any
of the transactions contemplated by the Tender Offer, the Merger, or
the Dividend. The purchase price and all other amounts payable to the
selling holders of Public Shares pursuant to the Tender Offer shall
not exceed $10.00 per share.
(h) Not less than the number of Public Shares of WCI shall have been
validly tendered and not withdrawn pursuant to the Tender Offer such
that upon the purchase of such shares by WCI Holdings, it shall
directly and beneficially own and hold not less than ninety-two
and thirty-nine one hundredths (92.39%) percent of the total number of
shares of WCI then outstanding.
(i) The proceeds of the Loan shall be disbursed directly to the paying
agent in connection with the Tender Offer and the Merger (which paying
agent shall be acceptable to Lender) and such paying agent shall agree
to promptly return such funds directly to Lender to the extent any of
such funds are not used within three (3) business days after the
receipt thereof by the paying agent to pay a portion of the purchase
price for the Public Shares pursuant to the Tender Offer or to pay the
non-tendering shareholders pursuant to terms of the Merger.
(j) Delivery of all consents, waivers, acknowledgments and other
agreements from third persons in form and substance satisfactory to
Lender, which Lender may deem necessary or desirable in order to
permit, protect and
- 5 -
<PAGE>
perfect its security interests in and liens upon the Collateral and to
permit the Tender Offer, the Merger and the Dividend.
(k) Prior to the Merger, Renco Steel Holdings shall have no assets other
than all of the issued and outstanding shares of capital stock of WCI
Holdings and no liabilities other than its indebtedness and other
obligations to Lender. Prior to the Merger, WCI Holdings shall have
no assets other than the proceeds of the cash equity contribution
described above, the proceeds of the cash equity contribution from
Renco Steel Holdings described above, the capital stock of WCI
and deferred financing and filing fees.
(l) The proposed refinancing by WCI of its existing 10 1/2% Senior Notes
due 2002 with an issue of new notes shall not occur on or about the
time of the Tender Offer.
(m) Execution and delivery of amendments to the existing credit facility
of Lender and Security Pacific Business Credit Inc. with WCI so as to
permit the Tender Offer, the Merger and the Dividend and Lender shall
have received all requisite consents and approvals to such amendments.
(n) No material adverse change in the business, operations or prospects of
Renco Steel Holdings, WCI Holdings or WCI or in the condition of the
assets of Renco Steel Holdings, WCI Holdings or WCI shall have
occurred since the date hereof. Without limiting the generality of
the foregoing, (i) no act, condition or event which would constitute
an event of default under the financing agreements to be executed in
connection with the Loan shall exist as of the closing, (ii) no
material investigation, litigation, bankruptcy or other proceedings
shall be pending or threatened against Renco Steel
Holdings, WCI Holdings or WCI and (iii) the Collateral shall not have
materially declined in value.
(o) This transaction and the events contemplated herein must close by
December 20, 1996.
This letter contains the entire commitment of Lender for this transaction
and, upon acceptance by the Renco Group, supersedes all prior proposals,
negotiations, discussions and correspondence, except for the obligations of the
Renco Group for expenses and rights of Lender to retain deposits. This
commitment may not be contradicted by evidence of any alleged oral agreement.
All prior proposals, negotiations, discussions and correspondence are merged in
the governing terms of this
- 6 -
<PAGE>
commitment, which may be amended only in writing executed by the parties hereto.
No condition of this commitment may be waived, except in writing signed by
Lender.
This letter shall be of no force and effect (except as to Sections 5 and 8
hereof) unless accepted by Renco Group and as so accepted, received by Lender by
the close of business in New York City on October 28, 1996 with payment in full
of the Commitment Fee.
This commitment is not intended for the benefit of, and may not be relied
upon by, any third party. We look forward to continuing to work with you and
your associates in this transaction.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: /s/ ANDREW W. ROBIN
-------------------
Title: Senior Vice President
-----------------------
Accepted this 25th
day of October, 1996
THE RENCO GROUP, INC.
By: /s/ Ira Leon Rennert
----------------------
Title: Chairman
--------
<PAGE>
PRESENTATION TO THE
SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
------------------------
PROJECT BUCKEYE
------------------------
OCTOBER 20, 1996
STRICTLY PRIVATE & CONFIDENTIAL
- -------------------------------------------------------------------------------
Gleacher NatWest
<PAGE>
PROJECT BUCKEYE
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ----------- ----------
<S> <C> <C>
I. Summary of the Proposed Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. Analysis of BUCKEYE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Summary Historical and Projected Financial Information . . . . . . . . . . . . . . . 3
Adjusted Summary Historical and Projected Financial Information. . . . . . . . . . . 4
Visible Shareholder Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Historical Price and Volume Information. . . . . . . . . . . . . . . . . . . . . . . 7
III. BUCKEYE Valuation Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Summary of Valuation Methodologies . . . . . . . . . . . . . . . . . . . . . . . . . 13
Purchase Price Premiums. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Summary of Selected Publicly Traded Companies. . . . . . . . . . . . . . . . . . . . 16
Valuation Based on Selected Publicly Traded Companies. . . . . . . . . . . . . . . . 18
Valuation Based on Premiums Paid in Selected Minority Squeeze-Out Transactions . . . 19
Valuation Based on Selected Merger and Acquisition Transactions. . . . . . . . . . . 20
Discounted Cash Flow Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Leveraged Recapitalization Analysis. . . . . . . . . . . . . . . . . . . . . . . . . 22
APPENDICES
- ------------
A Historical and Projected Financial Information
B Selected Publicly Traded Companies
C Selected Minority Squeeze-Out Transactions
D Selected Merger and Acquisition Transactions
</TABLE>
- -------------------------------------------------------------------------------
Gleacher NatWest
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
SUMMARY OF THE PROPOSED TRANSACTION
- - On September 24, 1996, BUCKEYE (Codename) announced that The Renco Group,
Inc. ("TRG") was considering making an offer to take the Company private.
- - On October 10, 1996, BUCKEYE announced that a subsidiary of TRG would offer
to purchase all of the outstanding shares not owned by TRG for $10.00 cash
per share through a tender offer (the "Tender Offer") as part of a
concurrent recapitalization involving a debt tender offer, new debt
issuance and dividend to TRG.
- - As of October 18, 1996, we understand that TRG has agreed to the following
terms in connection with its offer:
- A minimum condition that a majority of the public stockholders tender
their shares in the Tender Offer (the "Minimum Condition").
- The Minimum Condition cannot be waived without the consent of the
Special Committee of BUCKEYE's Board of Directors.
- The Tender Offer is not contingent upon the successful completion of
the debt tender offer or the new debt issuance.
- -------------------------------------------------------------------------------
Gleacher NatWest
-1-
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
SUMMARY OF THE PROPOSED TRANSACTION (CONT.)
($ in Millions, Except Per Share Data)
- - Purchase Price Premium Data (at $10.00 per share):
PRICE ($) / PREMIUM (%) PRIOR TO ANNOUNCEMENT(a)
------------------------------------------------------
ONE DAY ONE WEEK FOUR WEEKS
-------------- -------------- ---------------
$5.75 / 73.9% $5.375 / 86.0% $5.125 / 95.1%
- - Valuation Considerations(b):
Price Per Share $10.00
Shares Outstanding 36.404
Market Value $364.0
Plus: Total Debt 211.8
Less: Cash and Investments (156.7)
-------
Aggregate Value $419.1
-------
-------
- - Multiples:
<TABLE>
<CAPTION>
BUCKEYE PURCHASE PRICE MULTIPLES
----------------------- ------------------------
ACTUAL ADJUSTED(c) ACTUAL ADJUSTED
----------------------- ------------------------
<S> <C> <C> <C> <C>
LTM Net Sales $597.5 $677.7 0.70x 0.62x
LTM EBITDA 46.3 92.8 9.0 4.5
LTM EBIT 23.7 70.2 17.7 6.0
LTM EPS $0.09 $0.85 115.9x 11.8x
Projected FYE 10/96 EPS (Company) 0.76 0.80 13.2 12.5
Projected FYE 10/96 EPS (First Call) 0.76 0.76 13.2 13.2
Projected FYE 10/97 EPS (Company) 0.78 0.78 12.8 12.8
</TABLE>
- ----------------------------
(a) Information based on initial announcement date of September 24, 1996.
(b) Based on balance sheet data as of July 31, 1996.
(c) Adjusted to exclude the effects of the 1995 work stoppage, according to
estimates provided by BUCKEYE mangement.
- -------------------------------------------------------------------------------
Gleacher NatWest
-2-
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
SUMMARY HISTORICAL AND PROJECTED FINANCIAL INFORMATION(a)
($ in Millions, Except Per Share and Per Ton Data)
<TABLE>
<CAPTION>
FYE OCT. 31, PROJECTED FYE OCT. 31,
------------------------ LTM EST. FYE ------------------------
JULY 31, OCT. 31,
1993 1994 1995 1996 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $578.6 $709.4 $631.0 $597.5 $657.5 $674.1 $677.6 $661.5
% GROWTH 12.2% 22.6% (11.1)% -- 4.2% 2.5% 0.5% (2.4)%
Gross Profit $86.6 $134.8 $86.2 $65.1 $108.9 $108.5 $120.4 $116.1
% MARGIN 15.0% 19.0% 13.7% 10.9% 16.6% 16.1% 17.8% 17.6%
EBITDA $67.5 $99.9 $66.5 $46.3 $87.1 $87.1 $98.1 $93.6
% MARGIN 11.7% 14.1% 10.5% 7.8% 13.2% 12.9% 14.5% 14.2%
Operating Income $46.5 $80.0 $45.3 $23.7 $64.6 $63.1 $72.9 $67.2
% MARGIN 8.0% 11.3% 7.2% 4.0% 9.8% 9.4% 10.8% 10.2%
Net Income $14.2 $30.9 $15.5 $3.2 $27.7 $28.2 $34.8 $32.5
EPS $0.44 $0.95 $0.42 $0.09 $0.76 $0.78 $0.95 $0.89
Weighted Avg. Shares 30.750 32.491 36.575 36.557 36.514 36.404 36.563 36.563
Shipments (000 NT) 1,302 1,468 1,222 1,264 1,391 1,383 1,400 1,350
Sales per Ton $445 $483 $516 $473 $473 * * *
EBITDA per Ton 52 68 54 37 63 * * *
Op. Income per Ton 36 54 37 19 46 * * *
</TABLE>
- ------------------
(a) Projected financial information provided by BUCKEYE management.
* Confidential information has been omitted and filed separately with the
Securities and Exchange Commission pursuant to a confidential treatment
request.
- -------------------------------------------------------------------------------
Gleacher NatWest
-3-
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
ADJUSTED SUMMARY HISTORICAL FINANCIAL INFORMATION
($ in Millions, Except Per Share and Per Ton Data)
<TABLE>
<CAPTION>
ACTUAL ADJUSTED(a)
------------------------------------------------- --------------------------------------------------
Q4 Q1 Q2 Q3 LTM(b) Q4 Q1 Q2 Q3 LTM(b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $107.4 $148.5 $167.0 $174.7 $597.5 $175.7 $159.0 $168.3 $174.7 $677.7
Gross Profit $(13.6) $23.0 $26.3 $29.4 $65.1 $32.4 $25.2 $26.5 $29.4 $113.5
% MARGIN (12.6)% 15.5% 15.7% 16.8% 10.9% 18.5% 15.8% 15.7% 16.8% 16.7%
EBITDA $(16.4) $18.5 $20.5 $23.7 $46.3 $27.8 $20.6 $20.8 $23.7 $92.8
% MARGIN (15.3)% 12.5% 12.3% 13.6% 7.8% 15.8% 12.9% 12.3% 13.6% 13.7%
Operating Income (Loss) $(22.1) $12.8 $14.9 $18.0 $23.7 $22.1 $14.9 $15.1 $18.0 $70.2
% MARGIN (20.6)% 8.6% 8.9% 10.3% 4.0% 12.6% 9.4% 9.0% 10.3% 10.4%
Net Income (Loss) $(16.0) $4.8 $6.2 $8.1 $3.2 $10.5 $6.0 $6.3 $8.1 $31.0
EPS $(0.44) $0.13 $0.17 $0.22 $0.09 $0.29 $0.16 $0.17 $0.22 $0.85
Weighted Avg. Shares 36.572 36.563 36.563 36.530 36.557 36.572 36.563 36.563 36.530 36.557
Shipments (000 NT) 209 336 355 364 1,264 340 336 355 364 1,395
Sales Per Ton $514 $422 $471 $480 $473 $517 $473 $475 $480 $486
EBITDA Per Ton (79) 55 58 65 37 82 61 58 65 67
Op. Income Per Ton (106) 38 42 50 19 65 44 43 50 50
</TABLE>
- --------------------
(a) Adjusted to exclude the effects of the 1995 work stoppage, according to
estimates provided by BUCKEYE management.
(b) LTM = Last twelve months ended July 31, 1996.
- -------------------------------------------------------------------------------
Gleacher NatWest
-4-
<PAGE>
<TABLE>
<CAPTION>
PROJECT BUCKEYE
- ------------------------------------------------------------------------------------------------------------------------------------
ADJUSTED SUMMARY PROJECTED FINANCIAL INFORMATION(a)
($ in Millions, Except Per Share and Per Ton Data)
ACTUAL ADJUSTED(b)
---------------------------------------------------- ---------------------------------------------------
Q1 Q2 Q3 Q4E FY96E(C) Q1 Q2 Q3 Q4E FY96E(C)
------- ------- ------- ------- -------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 148.5 $ 167.0 $ 174.7 $ 167.4 $ 657.5 $ 159.0 $ 168.3 $ 174.7 $ 167.4 $ 669.4
Gross Profit $ 23.0 $ 26.3 $ 29.4 $ 30.2 $ 108.9 $ 25.2 $ 26.5 $ 29.4 $ 30.2 $ 111.3
% MARGIN 15.5% 15.7% 16.8% 18.1% 16.6% 15.8% 15.7% 16.8% 18.1% 16.6%
EBITDA $ 18.5 $ 20.5 $ 23.7 $ 24.4 $ 87.1 $ 20.6 $ 20.8 $ 23.7 $ 24.4 $ 89.4
% MARGIN 12.5% 12.3% 13.6% 14.6% 13.2% 12.9% 12.3% 13.6% 14.6% 13.4%
Operating Income $ 12.8 $ 14.9 $ 18.0 $ 18.8 $ 64.6 $ 14.9 $ 15.1 $ 18.0 $ 18.8 $ 66.8
% MARGIN 8.6% 8.9% 10.3% 11.2% 9.8% 9.4% 9.0% 10.3% 11.2% 10.0%
Net Income $ 4.8 $ 6.2 $ 8.1 $ 8.6 $ 27.7 $ 6.0 $ 6.3 $ 8.1 $ 8.6 $ 29.1
EPS $ 0.13 $ 0.17 $ 0.22 $ 0.24 $ 0.76 $ 0.16 $ 0.17 $ 0.22 $ 0.24 $ 0.80
Weighted Avg. Shares 36.563 36.563 36.530 36.402 36.514 36.563 36.563 36.530 36.402 36.514
Shipments (000 NT) 336 355 364 336 1,391 336 355 364 336 1,391
Sales Per Ton $ 442 $ 471 $ 480 $ 498 $ 473 $ 473 $ 475 $ 480 $ 498 $ 481
EBITDA Per Ton 55 58 65 72 63 61 58 65 72 64
Op. Income Per Ton 38 42 50 56 46 44 43 50 56 48
</TABLE>
____________________________________________
(a) Projected financial information provided by BUCKEYE management.
(b) Adjusted to exclude the effects of the 1995 work stoppage, according to
estimates provided by BUCKEYE management.
(c) Fiscal year ending October 31, 1996.
- -------------------------------------------------------------------------------
Gleacher NatWest
-5-
<PAGE>
PROJECT BUCKEYE
- ------------------------------------------------------------------------------
VISIBLE SHAREHOLDER PROFILE
% OF
OUTSTANDING
HOLDER SHARES OWNED SHARES
- ------------------------------------------ ---------------- -------------
TRG(a) 30,746,800 84.5%
INSIDE HOLDINGS(a):
Ira Leon Rennert (Chairman)(b) 100 *
Edward R. Caine (CEO) 25,000 *
S. Daniel Abraham (Director) 3,000 *
Justin W. D'Atri (Director/Sec'y) 300 *
Arthur W. Fried (Director) 22,700 *
Patrick T. Kenney (VP-Ops) 10,000 *
William Schwartz (Director) 4,850 *
James V. Stack (Vice Chairman) 25,000 *
Patrick G. Tatom (VP-Comm'l) 10,000 *
Bret W. Wise (VP/CFO) 11,000 *
-------------- ---------
Total 111,950 *
INSTITUTIONAL HOLDINGS(c):
Morgan Stanley 191,300 *
William D. Witter 77,200 *
Dimensional Fund 74,400 *
Mellon Bank 70,000 *
Barclays Bank 66,993 *
Others (8 Institutions) 217,300 *
-------------- ---------
Total 697,193 1.9
OTHER HOLDINGS: 4,848,457 13.3
-------------- ---------
Total(a) 36,404,400 100.0%
-------------- ---------
-------------- ---------
________________________________
* Less than 1%.
(a) As of October 10, 1996, according to information provided by BUCKEYE
management.
(b) Excludes shares held by TRG.
(c) Source: CDA Spectrum holdings as of June 30, 1996. Excludes outdated
holdings.
- -------------------------------------------------------------------------------
Gleacher NatWest
-6-
<PAGE>
PROJECT BUCKEYE
- ------------------------------------------------------------------------------
BUCKEYE - Common Stock Price and Trading Volume History
Daily: 10/16/95 to 10/16/96
[GRAPH 1]
- -------------------------------------------------------------------------------
Gleacher NatWest
-7-
<PAGE>
PROJECT BUCKEYE
- ------------------------------------------------------------------------------
BUCKEYE - Common Stock Price and Trading Volume History from the date of
BUCKEYE's Initial Public Offering
Daily: 7/14/94 to 10/16/96
[GRAPH 2]
- -------------------------------------------------------------------------------
Gleacher NatWest
-8-
<PAGE>
PROJECT BUCKEYE
- ------------------------------------------------------------------------------
BUCKEYE - Daily Indexed Common Stock Price History
Daily: 7/14/94 to 10/16/96
BUCKEYE Compared to the S&P 400 and a Composite Index of ACME
Metals, Inc., AK Steel Holdings Corp., Armco, Bethlehem Steel Corp.,
Geneva Steel Co. (Class A Shares), Inland Steel Industries, LTV
Corp., National Steel (Class B Shares), Rouge Steel, USX - U.S.
Steel, Weirton and WHX.
[GRAPH 3]
- -------------------------------------------------------------------------------
Gleacher NatWest
-9-
<PAGE>
PROJECT BUCKEYE
- ------------------------------------------------------------------------------
BUCKEYE - Volume Analysis for BUCKEYE
Common Shares Traded at Specific Prices
[GRAPH 4]
Based on Daily Closing Prices from 7/14/94 to 10/16/96
- -------------------------------------------------------------------------------
Gleacher NatWest
-10-
<PAGE>
PROJECT BUCKEYE
- -------------------------------------------------------------------------------
BUCKEYE - Volume Analysis for BUCKEYE
Common Shares Traded at Specific Prices
[GRAPH 5]
Based on Daily Closing Prices from 10/16/95 to 10/16/96
- -------------------------------------------------------------------------------
Gleacher NatWest
-11-
<PAGE>
PROJECT BUCKEYE
- ------------------------------------------------------------------------------
BUCKEYE - Volume Analysis for BUCKEYE
Common Shares Traded at Specific Prices
[GRAPH 6]
Based on Daily Closing Prices from 9/25/95 to 9/24/96
- -------------------------------------------------------------------------------
Gleacher NatWest
-12-
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
SUMMARY OF VALUATION METHODOLOGIES
- Purchase Price Premiums
- Premiums to Selected Market Prices
- Purchase Price Ratio Analysis
- Selected Publicly Traded Companies
- Selected Merger and Acquisition Transactions
- Minority Squeeze-Out Transactions
- Industry Transactions
- Discounted Cash Flow Analysis
- Leveraged Recapitalization Analysis
- -------------------------------------------------------------------------------
Gleacher NatWest
-13-
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
PREMIUMS TO SELECTED MARKET PRICES
<TABLE>
<CAPTION>
OFFER PRICE
PREMIUM
DATE STOCK PRICE (DISCOUNT)
---- ----------- -----------
<S> <C> <C> <C>
Offer Price per Share 10/10/96 $10.000 --
Closing Price One Day Prior to Offer 10/09/96 8.500 17.6%
Price One Day After Initial Announcement 09/25/96 7.000 42.9
Price on Initial Announcement Date 09/24/96 5.625 77.8
Prices Prior to Initial Announcement:
One Day 09/23/96 5.750 73.9
One Week 09/17/96 5.375 86.0
Four Weeks 08/27/96 5.125 95.1
52-Week High 09/12/96 5.875 70.2
52-Week Low 12/19/95 3.625 175.9
52-Week Average -- 5.061 97.6
All-Time High 09/19/94 12.625 (20.8)
All-Time Low 12/19/95 3.625 175.9
All-Time Average -- 6.595 51.6
IPO Price 07/14/94 10.000 0.0
</TABLE>
- -------------------------------------------------------------------------------
Gleacher NatWest
-14-
<PAGE>
PROJECT BUCKEYE
- -------------------------------------------------------------------------------
PURCHASE PRICE RATIO ANALYSIS
($ in Millions, Except Per Share Data)
<TABLE>
<CAPTION>
BUCKEYE Pre-Announce Hypothetical Purchase Price Per Share
-----------------------------------------------------
Data (a) Trading Price (b) $8.00 $9.00 $10.00 $11.00 $12.00
-------- ----------------- ------ ------- ------- -------- --------
$5.75
<S> <C> <C> <C> <C> <C> <C> <C>
Prem (Disc) to Pre-Announce Price -- 39.1% 56.5% 73.9% 91.3% 108.7%
Prem (Disc) to 52-Week High $5.88 -2.1% 36.2% 53.2% 70.2% 87.2% 104.3%
Premium to 52-Week Low 3.63 58.6% 120.7% 148.3% 175.9% 203.4% 231.0%
Shares Outstanding 36.404 36.404 36.404 36.404 36.404 36.404 36.404
Equity Value $209.3 $291.2 $327.6 $364.0 $400.4 $436.8
Plus: Outstanding Debt 211.8 211.8 211.8 211.8 211.8 211.8 211.8
Less: Cash and Equivalents (156.7) (156.7) (156.7) (156.7) (156.7) (156.7) (156.7)
------- ------- ------- ------- ------- ------- -------
Aggregate Value $264.4 $346.3 $382.8 $419.2 $455.6 $492.0
AGGREGATE VALUE MULTIPLES:
Actual LTM Sales $597.5 0.44 x 0.58 x 0.64 x 0.70 x 0.76 x 0.82 x
EBITDA 46.3 5.7 7.5 8.3 9.0 9.8 10.6
EBIT 23.7 11.2 14.6 16.2 17.7 19.2 20.8
Adj. LTM(c) Sales $677.7 0.39 x 0.51 x 0.56 x 0.62 x 0.67 x 0.73 x
EBITDA 92.8 2.8 3.7 4.1 4.5 4.9 5.3
EBIT 70.2 3.8 4.9 5.5 6.0 6.5 7.0
Actual Sales $657.5 0.40 x 0.53 x 0.58 x 0.64 x 0.69 x 0.75 x
FY 1996E EBITDA 87.1 3.0 4.0 4.4 4.8 5.2 5.6
EBIT 64.6 4.1 5.4 5.9 6.5 7.1 7.6
Adjusted(c) Sales $669.4 0.40 x 0.52 x 0.57 x 0.63 x 0.68 x 0.73 x
FY 1996E EBITDA 89.4 3.0 3.9 4.3 4.7 5.1 5.5
EBIT 66.8 4.0 5.2 5.7 6.3 6.8 7.4
P/E MULTIPLES:
Actual LTM EPS $0.09 66.7 x 92.8 x 104.3 x 115.9 x 127.5 x 139.1 x
FY 1996E EPS 0.76 7.6 10.5 11.8 13.2 14.5 15.8
FY 1997E EPS 0.78 7.4 10.3 11.5 12.8 14.1 15.4
Cal.1996E EPS 0.81 7.1 9.9 11.1 12.3 13.6 14.8
Cal.1997E EPS 0.81 7.1 9.9 11.1 12.3 13.6 14.8
Adjusted(c)LTM EPS $0.85 6.8 x 9.4 x 10.6 x 11.8 x 12.9 x 14.1 x
FY 1996E EPS 0.80 7.2 10.0 11.3 12.5 13.8 15.0
FY 1997E EPS 0.78 7.4 10.3 11.5 12.8 14.1 15.4
Cal.1996E EPS 0.82 7.0 9.8 11.0 12.2 13.4 14.6
Cal.1997E EPS 0.81 7.1 9.9 11.1 12.3 13.6 14.8
FY 1996E EPS (First Call) $0.76 7.6 x 10.5 x 11.8 x 13.2 x 14.5 x 15.8 x
</TABLE>
- ------------------------------------------------------
(a) Projected financial information provided by BUCKEYE management, unless
otherwise noted.
(b) Based on closing price one day prior to initial announcement on
September 24, 1996.
(c) Adjusted to exclude the effects of the 1995 work stoppage, according
to estimates provided by BUCKEYE management.
- -------------------------------------------------------------------------------
Gleacher NatWest
-15-
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
SUMMARY OF SELECTED PUBLICLY TRADED COMPANIES
($ in Millions)
LTM NET SALES(a) AGGREGATE VALUE(b)
- ----------------------------------- ------------------------------
1. USX-U.S. Steel $6,420 1. USX-U.S. Steel $3,408
2. Bethlehem Steel 4,732 2. Dofasco 2,027
3. Inland Steel 4,584 3. Bethlehem Steel 1,898
4. LTV Corp 4,108 4. Inland Steel 1,410
5. National Steel 2,917 5. AK Steel 1,287
6. AK Steel 2,220 6. National Steel 873
7. Dofasco 2,084 7. Armco 837
8. Armco 1,682 8. LTV Corp. 609
9. Weirton Steel 1,355 9. Geneva Steel 486
10. WHX Corp. 1,347 10. WHX Corp 426
11. Rouge Steel 1,257 11. Acme Metals 405
12. BUCKEYE (ADJUSTED)(c) 678 12. Weirton Steel 392
13. Geneva Steel 678 13. Rouge Steel 347
14. BUCKEYE (ACTUAL) 598 14. BUCKEYE(d) 264
15. Acme Metals 507
- ------------------------------------ ------------------------------
- -----------------------------
(a) LTM net sales figures reflect the last four publicly available quarters.
(b) Aggregate value includes the equity value of the companies according to
closing prices on 10/16/96 and the latest publicly available company
balance sheet information.
(c) Adjusted to exclude the effects of the 1995 work stoppage, according to
estimates provided by BUCKEYE management.
(d) Based on $5.75 per share closing price on day prior to initial announcement
on September 24, 1996.
- -------------------------------------------------------------------------------
Gleacher NatWest
-16-
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
SUMMARY OF SELECTED PUBLICLY TRADED COMPANIES (CONT.)
LTM EBITDA MARGIN(a) DEBT / TOTAL CAPITALIZATION(b)
- ------------------------------------ ------------------------------
1. Dofasco 19.7% 1. Armco 245.8%
2. AK Steel 15.6 2. BUCKEYE 74.2
3. BUCKEYE (ADJUSTED)(c) 13.7 3. Geneva Steel 71.4
4. USX-U.S. Steel 11.2 4. Weirton Steel 70.7
5. LTV Corp. 10.0 5. Acme Metals 53.6
6. WHX Corp. 9.6 6. Inland Steel 47.9
7. Geneva Steel 9.6 7. National Steel 46.0
8. Bethlehem Steel 9.5 8. USX-U.S. Steel 40.6
9. Acme Metals 8.0 9. Bethlehem Steel 32.4
10 Inland Steel 7.9 10. Dofasco 31.8
11. BUCKEYE (ACTUAL) 7.8 11. AK Steel 31.1
12. Weirton Steel 6.3 12. WHX Corp. 26.7
13. Armco 6.3 13. LTV Corp. 9.5
14. National Steel 6.1 14. Rouge Steel 0.0
15. Rouge Steel 4.3
- ------------------------------------ ------------------------------
- ------------------------------
(a) LTM margins reflect the last four publicly available quarters.
(b) Debt to total capitalization is based on the latest publicly available
balance sheet information.
(c) Adjusted to exclude the effects of the 1995 work stoppage, according to
estimates provided by BUCKEYE management.
- -------------------------------------------------------------------------------
Gleacher NatWest
-17-
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
VALUATION BASED ON SELECTED PUBLICLY TRADED COMPANIES
($ in Millions, Except Per Share Data)
<TABLE>
<CAPTION>
MULTIPLES FOR SELECTED PUBLICLY
BUCKEYE TRADED COMPANIES IMPLIED PRICE PER SHARE(a)
BUCKEYE MULTIPLES ------------------------------- ----------------------------
STATISTICS(b) (AT $5.75) MEDIAN LOW HIGH MEDIAN LOW HIGH
------------- ---------- ---------- ------- -------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACTUAL:
LTM Net Sales $597.5 0.44x 0.40x 0.15x 0.97x $5.05 $0.95 $14.41
LTM EBITDA 46.3 5.7 4.7 1.5 9.9 4.46 0.39 11.08
LTM EBIT 23.7 11.2 8.3 4.0 22.3 3.89 1.09 13.00
LTM EPS $0.09 66.7x 10.3x 7.6x 21.0x $0.93 $0.68 $1.89
Proj. Calendar 1996 EPS (Company) 0.81 7.1 12.7 7.7 19.5 10.29 6.24 15.80
Proj. Calendar 1997 EPS (Company) 0.81 7.1 11.8 7.9 19.0 9.56 6.40 15.39
AS ADJUSTED(c):
LTM Net Sales $677.7 0.39x 0.40x 0.15x 0.97x $5.93 $1.28 $16.54
LTM EBITDA 92.8 2.8 4.7 1.5 9.9 10.47 2.31 23.72
LTM EBIT 70.2 3.8 8.3 4.0 22.3 14.49 6.20 41.49
LTM EPS $0.85 6.8x 10.3x 7.6x 21.0x $8.76 $6.46 $17.85
Proj. Calendar 1996 EPS (Company) 0.82 7.0 12.7 7.7 19.5 10.41 6.31 15.99
Proj. Calendar 1997 EPS (Company) 0.81 7.1 11.8 7.9 19.0 9.56 6.40 15.39
</TABLE>
- ---------------------------------------
(a) Based on excluding net debt of $55.1 million, where applicable, and 36.4
million shares outstanding.
(b) Projected financial information provided by BUCKEYE management.
(c) Adjusted to exclude the effects of the 1995 work stoppage, according to
estimates provided by BUCKEYE management.
- -------------------------------------------------------------------------------
Gleacher NatWest
-18-
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
VALUATION BASED ON PREMIUMS PAID IN SELECTED MINORITY SQUEEZE-OUT
TRANSACTIONS(a)
<TABLE>
<CAPTION>
PREMIUMS PAID (ALL DEALS) IMPLIED PRICE PER SHARE
BUCKEYE ----------------------------- --------------------------
BUCKEYE PREMIUMS
STOCK PRICE PRIOR TO ANNOUNCEMENT: STATISTICS (AT $10.00) MEDIAN LOW HIGH MEDIAN LOW HIGH
---------- ----------- -------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Day $5.750 73.9% 24.1% (8.7)% 66.7% $7.14 $5.25 $9.59
One Week 5.375 86.0 26.0 4.2 90.0 6.77 5.60 10.21
Four Weeks 5.125 95.1 32.2 (2.6) 88.6 6.78 4.99 9.67
<CAPTION>
PREMIUMS PAID (DEALS WHERE
ACQUIROR PREVIOUSLY HELD OVER 75%) IMPLIED PRICE PER SHARE
BUCKEYE ---------------------------------- --------------------------
BUCKEYE PREMIUMS
STOCK PRICE PRIOR TO ANNOUNCEMENT: STATISTICS (AT $10.00) MEDIAN LOW HIGH MEDIAN LOW HIGH
---------- ----------- -------- ------- ------ -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Day $5.750 73.9% 25.7% (8.7)% 66.7% $7.23 $5.25 $9.59
One Week 5.375 86.0 31.8 4.2 90.0 7.08 5.60 10.21
Four Weeks 5.125 95.1 33.0 (2.6) 88.6 6.82 4.99 9.67
</TABLE>
- ----------------------------------------
(a) Source: Securities Data Company, Inc.
- -------------------------------------------------------------------------------
Gleacher NatWest
-19-
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
VALUATION BASED ON SELECTED MERGER AND ACQUISITION TRANSACTIONS
($ in Millions, Except Per Share Data)
<TABLE>
<CAPTION>
MULTIPLES FOR SELECTED M & A
BUCKEYE TRANSACTIONS IMPLIED PRICE PER SHARE(a)
BUCKEYE MULTIPLES ------------------------------- ----------------------------
STATISTICS (AT $10.00) MEDIAN LOW HIGH MEDIAN LOW HIGH
------------- ----------- ---------- ------- -------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACTUAL:
LTM Net Sales $597.5 0.70x 0.65x 0.27x 0.97x $9.15 $2.92 $14.41
LTM EBITDA 46.3 9.0 6.9 4.1 9.1 7.26 3.70 10.06
LTM EBIT 23.7 17.7 10.2 4.8 15.7 5.13 1.61 8.71
LTM EPS $0.09 115.9 13.3 7.2 25.5 1.20 0.65 2.30
AS ADJUSTED(b):
LTM Net Sales $677.7 0.62x 0.65x 0.27x 0.97x $10.59 $3.51 $16.55
LTM EBITDA 92.8 4.5 6.9 4.1 9.1 16.08 8.94 21.68
LTM EBIT 70.2 6.0 10.2 4.8 15.7 18.16 7.74 28.76
LTM EPS $0.85 11.8 13.3 7.2 25.5 11.31 6.12 21.68
<CAPTION>
PREMIUMS PAID IMPLIED PRICE PER SHARE
BUCKEYE ----------------------------- ----------------------------
BUCKEYE PREMIUMS
STOCK PRICE PRIOR TO ANNOUNCEMENT: STATISTICS (AT $10.00) MEDIAN LOW HIGH MEDIAN LOW HIGH
---------- ----------- -------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Day $5.750 73.9% 30.0% 11.8% 47.8% $7.48 $6.43 $8.50
One Week 5.375 86.0 33.8 22.8 57.7 7.19 6.60 8.48
Four Weeks 5.125 75.1 28.6 16.7 45.5 6.59 5.98 7.46
</TABLE>
- ---------------------------------------
(a) Based on excluding net debt of $55.1 million, where applicable, and 36.4
million shares outstanding.
(b) Adjusted to exclude the effects of the 1995 work stoppage, according to
estimates provided by management.
- -------------------------------------------------------------------------------
Gleacher NatWest
-20-
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
($ in Millions, Except Per Share Data)
<TABLE>
<CAPTION>
FYE OCTOBER 31,
------------------------------------------
PROJECTED CASH FLOWS (a): 1996 1997 1998 1999
------------------------------------------
<S> <C> <C> <C> <C>
Sales $657.5 $674.1 $677.6 $661.5
% Growth 4.2% 2.5% 0.5% -2.4%
Gross Profit 108.9 108.5 120.4 116.1
% Margin 16.6% 16.1% 17.8% 17.6%
EBITDA 87.1 87.1 98.1 93.6
% Margin 13.2% 12.9% 14.5% 14.2%
EBIT 64.6 63.1 72.9 67.2
% Margin 9.8% 9.4% 10.8% 10.2%
Less: Taxes at 40% (25.8) (25.3) (29.2) (26.9)
----------------------------------------------------------------------------------
EBIAT $38.7 $37.9 $43.7 $40.3
----------------------------------------------------------------------------------
Plus: Depreciation & Amortization 22.5 23.9 25.2 26.4
Plus: Non-cash Postretirement Benefits 6.5 6.3 6.3 6.3
Less: Pension Funding Requirements 0.0 0.0 (4.9) (9.8)
Less: Capital Expenditures (30.0) (45.0) (40.0) (40.0)
Less: Increase in Working Capital 5.7 1.2 (1.9) 1.4
----------------------------------------------------------------------------------
FREE CASH FLOW $43.5 $24.3 $28.4 $24.7
----------------------------------------------------------------------------------
</TABLE>
PRESENT VALUE PER SHARE (b):
<TABLE>
<CAPTION>
PERPETUAL GROWTH RATE
DISCOUNT ---------------------------------- IMPLIED PGR
RATE 1.0% 2.0% 3.0% @ $10 / SHARE
-------------- ----------------------------------- -------------------
<S> <C> <C> <C>
9.0% $6.55 $7.57 $8.93 3.4%
10.0% $5.63 $6.40 $7.41 4.5%
11.0% $4.89 $5.50 $6.26 5.6%
12.0% $4.28 $4.77 $5.37 6.6%
</TABLE>
- -----------------------------------------------------------------------------
(a) Projected financial information provided by BUCKEYE management.
(b) Present value as of November 1, 1996. Based on excluding net debt
of $67.5 million and assuming 36.4 million shares outstanding.
- -------------------------------------------------------------------------------
Gleacher NatWest
-21-
<PAGE>
PROJECT BUCKEYE
- ------------------------------------------------------------------------------
LEVERAGED RECAPITALIZATION ANALYSIS
($ IN MILLIONS)
ASSUMPTIONS
- -----------
Shares Outstanding 36.404
Dividend Per Share $3.50
Sources $ Uses $
- ----------------- -------- ---------------------- ---------
New Notes $240.0 Repurchase Sr. Notes $206.4
Existing Cash 147.6 Accrued Interest 5.4
-------- Tender Prem (111.5%) 23.7
Total $387.6 NWA Payments 13.2
Fees & Expenses 11.5
Dividend ($3.50/Share) 127.4
---------
Total $387.6
PRO FORMA CAPITALIZATION AT JULY 31, 1996
- -----------------------------------------
ACTUAL PRO FORMA
------------- -------------
Cash & Investments $156.7 $9.1
Senior Secured Notes 206.4 --
New Notes -- 240.0
Other Debt 5.4 5.4
------------- -------------
Total Debt $211.8 $245.4
Shareholders' Equity 73.5 (77.7)
Debt / Total Capital 74.2% 146.3%
Debt / LTM Adj. EBITDA 2.3 x 2.6 x
VALUATION PER SHARE BASED ON EBITDA MULTIPLES
- ---------------------------------------------
LTM Adjusted EBITDA (a) $92.8
EBITDA Multiple Range 4.0 x 4.5 x 5.0 x
----------- ---------- ---------
Aggregate Value $371.2 $417.6 $464.0
Less: New Notes (240.0) (240.0) (240.0)
Less: Existing Debt (5.4) (5.4) (5.4)
Plus: Cash 9.1 9.1 9.1
----------- ---------- ---------
Equity Value $134.8 $181.2 $227.6
Per Share $3.70 $4.98 $6.25
Plus: Dividend 3.50 3.50 3.50
----------- ---------- ---------
Total Value Per Share $7.20 $8.48 $9.75
----------- ---------- ---------
----------- ---------- ---------
VALUATION PER SHARE BASED ON CALENDAR 1997 P/E MULTIPLES
- --------------------------------------------------------
Calendar 1997 EPS (b) $0.81
Weighted Average Shares Outstanding 36.404
---------
Implied Calendar 1997 Net Income $29.5
Less: Incremental A/T Interest Expense (c) (1.4)
Less: A/T Loss of Interest Income (@ 5.13%) (4.5)
---------
Pro Forma Calendar 1997 Net Income $23.5
Pro Forma Calendar 1997 EPS $0.65
1997 P/E Multiple Range 9.0 x 10.0 x 11.0 x
------- -------- --------
Value Per Share $5.82 $6.47 $7.12
Plus: Dividend 3.50 3.50 3.50
------- -------- --------
Total Value Per Share $9.32 $9.97 $10.62
------- -------- --------
------- -------- --------
- -------------------------------------------------------
(a) Adjusted to exclude the effects of the 1995 work stoppage, based on
BUCKEYE management estimates.
(b) Projected financial information provided by BUCKEYE management.
(c) Assumes 10.0% coupon on new notes.
- -------------------------------------------------------------------------------
Gleacher NatWest
-22-
<PAGE>
PROJECT BUCKEYE
- --------------------------------------------------------------------------------
HISTORICAL AND PROJECTED FINANCIAL INFORMATION - INCOME STATEMENT
($ IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FYE OCTOBER 31,
----------------------------------------------------------------------------------------------------
ACTUAL PROJECTED (a)
1993 1994 1995 1996 1997 1998 1999
------------------------------------------ --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $578.6 $709.4 $631.0 $657.5 $674.1 $677.6 $661.5
COGS 492.0 574.6 544.8 548.6 565.6 557.2 545.4
------------------------------------------ --------------------------------------------------------
Gross Margin 86.6 134.8 86.2 108.9 108.5 120.4 116.1
D&A 21.0 19.9 21.2 22.5 23.9 25.2 26.4
SG&A 19.1 34.9 19.7 21.8 21.5 22.3 22.5
------------------------------------------ --------------------------------------------------------
EBIT 46.5 80.0 45.3 64.6 63.1 72.9 67.2
Interest Expense (23.2) (28.7) (25.8) (25.0) (24.0) (22.9) (22.9)
Interest Income 0.0 1.4 5.4 6.3 7.9 8.1 9.8
Other Income, net 0.3 0.1 0.8 0.4 0.0 0.0 0.0
------------------------------------------ --------------------------------------------------------
Pretax Income 23.6 52.8 25.8 46.2 47.1 58.0 54.1
Taxes (9.5) (21.9) (10.3) (18.5) (18.8) (23.2) (21.7)
------------------------------------------ --------------------------------------------------------
Net Income $14.2 $30.9 $15.5 $27.7 $28.2 $34.8 $32.5
------------------------------------------ --------------------------------------------------------
------------------------------------------ --------------------------------------------------------
EPS $0.44 $0.94 $0.42 $0.76 $0.78 $0.95 $0.89
Shares Outstanding 30.750 32.491 36.575 36.514 36.404 36.563 36.563
EBITDA $67.5 $99.9 $66.5 $87.1 $87.1 $98.1 $93.6
Shipments (000 NT) 1,302 1,468 1,222 1,391 1,383 1,400 1,350
Sales per Ton $444 $483 $516 $473 * * *
EBITDA per Ton 52 68 54 63 * * *
Op. Income per Ton 36 54 37 46 * * *
</TABLE>
- --------------------------------------------------------------------------
(a) Projected financial information provided by BUCKEYE management
* Confidential information has been omitted and filed separately with the
Securities and Exchange Commission pursuant to a confidential treatment
request.
- -------------------------------------------------------------------------------
Gleacher NatWest
<PAGE>
PROJECT BUCKEYE
HISTORICAL AND PROJECTED FINANCIAL INFORMATION - BALANCE SHEET
($ in Millions, Except per Share Data)
<TABLE>
<CAPTION>
FYE October 31,
- -----------------------------------------------------------------------------------------------------------------
Actual Projected (a)
1993 1994 1995 1996 1997
- -------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents $9.4 $71.4 $94.3 $144.0 $153.4
Short-term investments - - - - 12.3 - - - -
Accounts receivable 68.7 73.4 33.6 64.0 63.8
Recoverable income taxes - - - - 6.0 - - - -
Inventory 94.8 108.4 101.1 98.6 86.9
Prepaid expenses 1.4 0.4 1.4 1.2 1.2
Current deferred income taxes 4.4 13.5 11.1 8.3 8.1
-------- ------ ------ ------ ------
Total Current Assets 178.6 267.2 259.7 316.0 313.6
Property, plant and equipment 207.0 196.2 189.7 200.5 224.5
Intangible pension assets - - - - 44.0 40.2 36.4
Other assets, net 10.8 18.2 25.7 20.8 16.5
-------- ------ ------ ------ ------
Total Assets $396.3 $481.6 $519.2 $577.5 $590.9
LIABILITIES
Current portion of long-term
debt $2.2 $2.3 $2.3 $2.4 $1.3
Accounts payable 80.9 72.9 47.7 79.2 68.1
Accrued liabilities 32.3 44.4 39.6 42.6 45.5
Income taxes payable 4.4 6.9 1.6 1.6 0.4
-------- ------ ------ ------ ------
Total Current Liabilities 119.7 126.5 91.3 125.9 115.3
Long-term debt less current
portion 134.7 213.9 211.5 209.1 207.7
Deferred income taxes 5.1 9.7 10.4 9.3 8.4
Postretirement benefits 56.6 66.2 76.3 82.2 88.5
Pension benefits - - - - 44.0 47.0 49.2
Other liabilities 11.1 21.4 26.2 25.2 24.9
-------- ------ ------ ------ ------
Total Liabilities $327.2 $437.7 $459.7 $498.8 $494.0
SHAREHOLDERS' EQUITY
Preferred stock 5.0 - - - - - - - -
Common equity 64.2 43.9 59.5 78.7 96.9
-------- ------ ------ ------ ------
Total Shareholders'
Equity $69.2 $43.9 $59.5 $78.7 $96.9
Total Liabilities and Equity $396.3 $481.6 $519.2 $577.5 $590.9
-------- ------ ------ ------ ------
-------- ------ ------ ------ ------
</TABLE>
(a) Projected financial information provided by BUCKEYE management
- -------------------------------------------------------------------------------
Gleacher NatWest
<PAGE>
PROJECT BUCKEYE
- -------------------------------------------------------------------------------
SELECTED PUBLICLY TRADED COMPANIES (A)
($ in Millions, Except Per Share)
<TABLE>
<CAPTION>
Closing (Discount)/Premium to Market Value P/E Multiple
Price on ------------------------ ----------------------- ----------------------------------------
Company 10/16/96 LTM High LTM Low Equity Aggregate LTM 1996E (b) 1997E (b)
-------- -------- ------- ------ --------- --- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACME Metals Inc. $17.88 (5.9)% 30.0% $208 $405 10.4x NMx 19.0x
AK Steel Holdings Corp. 38.88 (11.9) 27.5 1,025 1,287 7.6 7.7 8.0
Armco 4.13 (36.5) 13.8 440 837 NM NM 7.9
Bethlehem Steel Corp. 8.00 (49.6) 4.9 892 1,898 17.3 19.5 19.0
Dofasco (c) 16.19 (1.2) 36.6 1,388 2,027 11.2 11.7 8.9
Geneva Steel Co. - CL A 4.13 (50.0) 50.0 63 486 NM NM 10.6
Inland Steel Industries 16.75 (42.2) 4.7 815 1,410 12.4 14.0 11.8
LTV Corp. 11.25 (29.1) 5.9 1,184 609 9.2 12.4 13.9
National Steel - CL B 9.50 (37.7) 11.8 411 873 21.0 NM 12.7
Rouge Steel 20.38 (18.9) 6.5 445 347 10.1 13.7 14.7
USX - U.S. Steel 27.88 (26.4) 15.5 2,353 3,408 9.5 13.1 9.3
Weirton 2.25 (53.8) 0.0 96 392 NM NM 11.3
WHX 9.13 (34.8) 7.4 243 426 7.6 10.1 12.5
High 21.0x 19.5x 19.0x
Low 7.6 7.7 7.9
Mean 11.6 12.8 12.3
Median 10.3 12.7 11.8
BUCKEYE (Actual) $5.75(d) (2.2)% 58.6% $209 $264 66.7x 7.1x 7.1x
BUCKEYE (Adjusted) (e) 5.75 (2.2) 58.6 209 264 6.8 7.0 7.1
<CAPTION>
Aggregate Value LTM
Projected as a Multiple of LTM -----------------------------
Div. 5 Year EPS -------------------------------- Debt/ Net EBITDA EBIT
Company Yield Growth Net Sales EBITDA EBIT Cap Sales Margin Margin
------ ---------- --------- ------ ----- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ACME Metals Inc. 0.0% NA% 0.80x 9.9x 13.7x 53.6% $507 8.0% 5.8%
AK Steel Holdings Corp. 2.1% 15.0 0.58 3.7 4.8 31.1 2,220 15.6 12.2
Armco 0.0% 6.0 0.50 7.9 16.8 245.8 1,682 6.3 3.0
Bethlehem Steel Corp. 0.0% 7.0 0.40 4.2 11.5 32.4 4,732 9.5 3.5
Dofasco (c) 3.7% NA 0.97 4.9 8.1 31.8 2,084 19.7 11.9
Geneva Steel Co. - CL A 0.0% NA 0.72 7.5 22.3 71.4 678 9.6 3.2
Inland Steel Industries 1.2% 6.0 0.31 3.9 6.4 47.9 4,584 7.9 4.8
LTV Corp. 1.1% 5.0 0.15 1.5 4.0 9.5 4,108 10.0 3.7
National Steel - CL B 1.2% 34.0 0.30 4.9 NM 46.0 2,917 6.1 1.1
Rouge Steel 0.6% NA 0.28 6.5 8.3 0.0 1,257 4.3 3.3
USX - U.S. Steel 3.6% 21.0 0.53 4.7 8.3 40.6 6,420 11.2 6.4
Weirton 0.0% NA 0.29 4.6 13.0 70.7 1,355 6.3 2.2
WHX 0.6% NA 0.32 3.3 7.7 26.7 1,347 9.6 4.1
High 3.7% 34.0% 0.97x 9.9x 22.3x 245.8% 19.7% 12.2%
Low 0.0% 5.0 0.15 1.5 4.0 0.0 4.3 1.1
Mean 1.1% 13.4 0.47 5.2 10.4 54.4 9.5 5.0
Median 0.6% 7.0 0.40 4.7 8.3 40.6 9.5 3.7
BUCKEYE (Actual) 4.9% NA 0.44x 5.7x 11.2x 74.2% $598 7.8% 4.0%
BUCKEYE (Adjusted) (e) 4.9% NA 0.39 2.8 3.8 74.2 678 13.7 10.4
</TABLE>
(a) All figures adjusted for unusual and nonrecurring items.
(b) Source: Institutional Brokerage Estimate Service mean estimate
(as of 10/11/96) calendarized for comparative purposes.
(c) Canadian GAAP.
(d) Price one day prior to initial announcement on September 24,1996.
(e) Adjusted to exclude the effects of the 1995 work stoppage, according
to estimates provided by BUCKEYE management.
- -------------------------------------------------------------------------------
Gleacher NatWest
<PAGE>
<TABLE>
PROJECT BUCKEYE
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED MINORITY SQUEEZE-OUT TRANSACTIONS
($ in Millions,Except per Share Data)
PERCENT
DATE PREVIOUSLY PERCENT
ANNOUNCED TARGET NAME ACQUIROR NAME HELD ACQUIRED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
09/26/96 General Physics Corp National Patent Development 51.9 % 48.1 %
08/26/96 Bankers Life Holding(Conseco) Conseco Inc 90.5 9.5
08/08/96 Roto-Rooter Inc(Chemed Corp) Chemed Corp 58.1 41.9
05/24/96 SyStemix Inc(Sandoz AG) Sandoz Ltd 73.0 27.0
03/29/96 Great American Mgmt & Invt Inc Equity Holdings Ltd 87.9 12.1
12/20/95 United Coasts Corp. ACMAT Corp. 84.0 16.0
09/26/95 SCOR US Corp(SCOR SA) SCOR 80.0 20.0
08/25/95 GEICO Corp(Berkshire Hathaway) Berkshire Hathaway Inc 51.0 49.0
07/28/95 Ivey Properties Inc. BAC Inc. (Belk Brothers) 50.0 50.0
07/14/95 REN Corp-USA(COBE Labs Inc) COBE Laboratories(Gambro AB) 53.0 47.0
07/06/95 Grand Gaming Corp Grand Casinos Inc 77.8 22.2
07/04/95 Jupiter National Inc(Johnston) Johnston Industries Inc 55.0 45.0
05/19/95 Bic Corp(BIC SA) BIC SA 78.0 22.0
04/07/95 LIN Bdcstg(McCaw Cellular) McCaw Cellular Commun(AT&T) 52.0 48.0
04/05/95 Club Med Inc Club Mediterranee SA 67.0 33.0
03/15/95 Ropak Corp LinPac Mouldings Ltd 54.8 39.6
02/15/95 IG Laboratories Inc Genzyme Corp 59.1 32.0
02/07/95 Rust International Inc WMX Technologies Inc 96.3 3.6
12/28/94 Fleet Mortgage Group Inc Fleet Financial Group Inc 81.0 19.0
11/02/94 Pacific Telecom(PacifiCorp) PacifiCorp 86.6 13.4
09/08/94 Contel Cellular Inc(Contel) GTE Corp 90.0 10.0
08/24/94 Castle & Cooke Homes Inc Dole Food Co Inc 81.7 17.0
07/28/94 Chemical Waste Management Inc WMX Technologies Inc 78.5 21.4
06/30/94 EB Inc(Parkway Co) Parkway Co 51.3 48.7
06/06/94 Ogden Projects Inc(Ogden Corp) Ogden Corp 84.2 15.8
03/23/94 Adia Services Inc(Adia SA) Adia SA 81.4 18.6
02/17/94 Scripps Howard Broadcasting Co. EW Scripps Co. 86.0 14.0
01/07/94 Holnam Inc(Holdernam Inc) Holderbank Financiere Glarus 95.0 5.0
09/20/93 West Point-Pepperell Inc Valley Fashions Corp 95.1 4.9
06/23/93 Comcast Cablevision of Phila Comcast Corp 92.0 8.0
01/04/93 United Medical Corp Investor Group 52.0 48.0
DATE VALUE OF PRICE/
ANNOUNCED TARGET NAME ACQUIROR NAME TRANSACTION SHARE
- ------------------------------------------------------------------------------------------------------------------------------------
09/26/96 General Physics Corp National Patent Development $26.4 $5.23
08/26/96 Bankers Life Holding(Conseco) Conseco Inc 117.2 25.00
08/08/96 Roto-Rooter Inc(Chemed Corp) Chemed Corp 88.3 41.00
05/24/96 SyStemix Inc(Sandoz AG) Sandoz Ltd 66.4 17.00
03/29/96 Great American Mgmt & Invt Inc Equity Holdings Ltd 55.6 50.00
12/20/95 United Coasts Corp. ACMAT Corp. 14.2 10.00
09/26/95 SCOR US Corp(SCOR SA) SCOR 55.4 15.25
08/25/95 GEICO Corp(Berkshire Hathaway) Berkshire Hathaway Inc 2347.0 70.00
07/28/95 Ivey Properties Inc. BAC Inc. (Belk Brothers) 82.2 32.00
07/14/95 REN Corp-USA(COBE Labs Inc) COBE Laboratories(Gambro AB) 177.7 20.00
07/06/95 Grand Gaming Corp Grand Casinos Inc 36.5 5.06
07/04/95 Jupiter National Inc(Johnston) Johnston Industries Inc 29.3 33.97
05/19/95 Bic Corp(BIC SA) BIC SA 212.6 40.50
04/07/95 LIN Bdcstg(McCaw Cellular) McCaw Cellular Commun(AT&T) 3323.4 129.90
04/05/95 Club Med Inc Club Mediterranee SA 153.4 32.00
03/15/95 Ropak Corp LinPac Mouldings Ltd 23.4 11.00
02/15/95 IG Laboratories Inc Genzyme Corp 21.4 4.76
02/07/95 Rust International Inc WMX Technologies Inc 50.5 16.35
12/28/94 Fleet Mortgage Group Inc Fleet Financial Group Inc 188.1 20.00
11/02/94 Pacific Telecom(PacifiCorp) PacifiCorp 159.0 30.00
09/08/94 Contel Cellular Inc(Contel) GTE Corp 254.3 25.50
08/24/94 Castle & Cooke Homes Inc Dole Food Co Inc 81.5 15.75
07/28/94 Chemical Waste Management Inc WMX Technologies Inc 397.4 8.85
06/30/94 EB Inc(Parkway Co) Parkway Co 12.5 17.66
06/06/94 Ogden Projects Inc(Ogden Corp) Ogden Corp 110.3 18.38
03/23/94 Adia Services Inc(Adia SA) Adia SA 35.8 36.13
02/17/94 Scripps Howard Broadcasting Co. EW Scripps Co. 115.9 82.80
01/07/94 Holnam Inc(Holdernam Inc) Holderbank Financiere Glarus 51.7 7.65
09/20/93 West Point-Pepperell Inc Valley Fashions Corp 66.3 46.00
06/23/93 Comcast Cablevision of Phila Comcast Corp 14.3 95.00
01/04/93 United Medical Corp Investor Group 11.8 9.50
DATE PREMIUM TO PRE-ANNOUNCEMENT PRICE
ANNOUNCED TARGET NAME ACQUIROR NAME 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
- ------------------------------------------------------------------------------------------------------------------------------------
09/26/96 General Physics Corp National Patent Development 19.5 % 35.0 % 39.5 %
08/26/96 Bankers Life Holding(Conseco) Conseco Inc 14.9 10.5 11.7
08/08/96 Roto-Rooter Inc(Chemed Corp) Chemed Corp 12.3 12.3 11.2
05/24/96 SyStemix Inc(Sandoz AG) Sandoz Ltd (8.7) 47.8 38.8
03/29/96 Great American Mgmt & Invt Inc Equity Holdings Ltd 2.6 4.2 3.6
12/20/95 United Coasts Corp. ACMAT Corp. 53.8 53.8 63.3
09/26/95 SCOR US Corp(SCOR SA) SCOR 37.1 35.6 38.6
08/25/95 GEICO Corp(Berkshire Hathaway) Berkshire Hathaway Inc 25.6 23.1 25.3
07/28/95 Ivey Properties Inc. BAC Inc. (Belk Brothers) 45.5 45.5 88.2
07/14/95 REN Corp-USA(COBE Labs Inc) COBE Laboratories(Gambro AB) 27.0 20.3 26.0
07/06/95 Grand Gaming Corp Grand Casinos Inc 34.9 34.9 55.7
07/04/95 Jupiter National Inc(Johnston) Johnston Industries Inc 25.8 25.8 47.7
05/19/95 Bic Corp(BIC SA) BIC SA 13.3 12.5 28.6
04/07/95 LIN Bdcstg(McCaw Cellular) McCaw Cellular Commun(AT&T) 6.9 6.7 6.7
04/05/95 Club Med Inc Club Mediterranee SA 41.4 39.9 44.6
03/15/95 Ropak Corp LinPac Mouldings Ltd 4.8 6.0 4.8
02/15/95 IG Laboratories Inc Genzyme Corp (2.4) 46.5 58.7
02/07/95 Rust International Inc WMX Technologies Inc 27.0 39.1 39.1
12/28/94 Fleet Mortgage Group Inc Fleet Financial Group Inc 19.4 18.5 18.5
11/02/94 Pacific Telecom(PacifiCorp) PacifiCorp 23.7 23.7 23.7
09/08/94 Contel Cellular Inc(Contel) GTE Corp 43.7 37.8 36.0
08/24/94 Castle & Cooke Homes Inc Dole Food Co Inc 35.5 41.6 55.6
07/28/94 Chemical Waste Management Inc WMX Technologies Inc 10.6 8.9 1.1
06/30/94 EB Inc(Parkway Co) Parkway Co 23.9 26.1 53.6
06/06/94 Ogden Projects Inc(Ogden Corp) Ogden Corp 5.8 17.6 20.5
03/23/94 Adia Services Inc(Adia SA) Adia SA 36.3 38.9 50.5
02/17/94 Scripps Howard Broadcasting Co. EW Scripps Co. 6.2 6.8 10.4
01/07/94 Holnam Inc(Holdernam Inc) Holderbank Financiere Glarus 13.3 15.5 7.4
09/20/93 West Point-Pepperell Inc Valley Fashions Corp (20.5) (19.8) (19.8)
06/23/93 Comcast Cablevision of Phila Comcast Corp 35.7 15.9 15.9
01/04/93 United Medical Corp Investor Group 49.0 52.0 49.0
</TABLE>
- -------------------------------------------------------------------------------
Gleacher NatWest
<PAGE>
<TABLE>
<CAPTION>
PROJECT BUCKEYE
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED MINORITY SQUEEZE-OUT TRANSACTIONS (CONT.)
($ in Millions,Except per Share Data)
PERCENT
DATE PREVIOUSLY PERCENT
ANNOUNCED TARGET NAME ACQUIROR NAME HELD ACQUIRED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/13/92 Brand Cos Inc Rust International Inc 55.8 % 44.0 %
08/17/92 PHLCORP Inc Leucadia National Corp 63.1 36.9
03/20/92 Belvedere Corp BLV Acquisition Corp 54.8 45.2
03/02/92 Grace Energy Corp WR Grace & Co 83.4 16.6
02/24/92 Unocal Exploration Corp Unocal Corp 96.0 4.0
02/06/92 Spelling Entertainment Inc Charter Co(American Financial) 82.3 17.7
10/16/91 American Television & Commun Time Warner 81.9 18.0
09/18/91 Arkla Exploration Co Arkla Inc 82.0 18.0
08/02/91 Envirosafe Services Inc EnviroSource Inc 62.5 37.4
07/25/91 Country Lake Foods Inc Land O' Lakes Inc 65.5 34.5
06/13/91 Weigh-Tronix(Staveley Indus) Staveley Industries PLC 55.8 44.3
05/01/91 United Artists Entertainment Tele-Communications Inc 53.2 46.0
03/01/91 Metcalf & Eddy Cos Inc Air & Water Technologies Corp 82.0 18.0
02/06/91 Hamilton Oil Corp BHP Hldgs(USA)Inc(Broken Hill) 51.7 48.3
01/25/91 Medical Management of America Investor Group 76.3 23.7
01/03/91 Ocean Drilling & Exploration Murphy Oil Corp 61.0 39.0
10/23/90 ERC Environmental and Energy Ogden Corp 61.2 38.8
08/16/90 Academy Insurance Group Inc Academy Mergerco Inc 50.0 50.0
07/31/90 Freeport-McMoRan Oil and Gas Freeport-McMoRan Inc 81.5 18.5
07/19/90 Caesars New Jersey Inc Caesars World Inc 86.6 13.4
07/12/90 TVX Broadcast Group Inc Paramount Communications 79.0 21.0
07/06/90 Mack Trucks Inc Renault Vehicules Industriels 60.0 40.0
05/17/90 DST Systems Inc Kansas City Southern Inds Inc 87.1 11.5
05/08/90 ISS International Service Sys ISS International Service A/S 66.0 34.0
03/02/90 Shearson Lehman Brothers Hldgs American Express Co 61.0 39.0
02/16/90 National Mine Service Co Anderson Mavor Investments Ltd 50.5 49.5
02/09/90 BRAE Corp. Leucadia National Corp. 58.7 41.3
01/24/90 Copperweld Corp(Imetal SA) Imetal SA 55.6 44.4
DATE VALUE OF PRICE/
ANNOUNCED TARGET NAME ACQUIROR NAME TRANSACTION SHARE
- ------------------------------------------------------------------------------------------------------------------------------------
11/13/92 Brand Cos Inc Rust International Inc $185.0 $18.75
08/17/92 PHLCORP Inc Leucadia National Corp 139.9 25.78
03/20/92 Belvedere Corp BLV Acquisition Corp 16.9 6.30
03/02/92 Grace Energy Corp WR Grace & Co 77.3 19.00
02/24/92 Unocal Exploration Corp Unocal Corp 117.5 11.68
02/06/92 Spelling Entertainment Inc Charter Co(American Financial) 43.0 7.25
10/16/91 American Television & Commun Time Warner 1699.5 82.50
09/18/91 Arkla Exploration Co Arkla Inc 92.6 15.44
08/02/91 Envirosafe Services Inc EnviroSource Inc 16.8 11.69
07/25/91 Country Lake Foods Inc Land O' Lakes Inc 22.6 15.30
06/13/91 Weigh-Tronix(Staveley Indus) Staveley Industries PLC 25.3 22.00
05/01/91 United Artists Entertainment Tele-Communications Inc 1189.0 16.19
03/01/91 Metcalf & Eddy Cos Inc Air & Water Technologies Corp 51.0 19.25
02/06/91 Hamilton Oil Corp BHP Hldgs(USA)Inc(Broken Hill) 524.3 40.00
01/25/91 Medical Management of America Investor Group 12.9 8.25
01/03/91 Ocean Drilling & Exploration Murphy Oil Corp 391.8 19.39
10/23/90 ERC Environmental and Energy Ogden Corp 33.6 15.13
08/16/90 Academy Insurance Group Inc Academy Mergerco Inc 46.8 1.33
07/31/90 Freeport-McMoRan Oil and Gas Freeport-McMoRan Inc 46.2 10.88
07/19/90 Caesars New Jersey Inc Caesars World Inc 48.4 22.58
07/12/90 TVX Broadcast Group Inc Paramount Communications 61.4 9.50
07/06/90 Mack Trucks Inc Renault Vehicules Industriels 103.7 6.25
05/17/90 DST Systems Inc Kansas City Southern Inds Inc 39.1 15.85
05/08/90 ISS International Service Sys ISS International Service A/S 15.4 12.00
03/02/90 Shearson Lehman Brothers Hldgs American Express Co 360.0 12.90
02/16/90 National Mine Service Co Anderson Mavor Investments Ltd 21.6 8.88
02/09/90 BRAE Corp. Leucadia National Corp. 23.0 6.25
01/24/90 Copperweld Corp(Imetal SA) Imetal SA 78.0 17.00
DATE PREMIUM TO PRE-ANNOUNCEMENT PRICE
ANNOUNCED TARGET NAME ACQUIROR NAME 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
- ------------------------------------------------------------------------------------------------------------------------------------
11/13/92 Brand Cos Inc Rust International Inc 4.9 % 13.6 % 4.9 %
08/17/92 PHLCORP Inc Leucadia National Corp 12.1 15.2 28.9
03/20/92 Belvedere Corp BLV Acquisition Corp 44.0 57.5 40.0
03/02/92 Grace Energy Corp WR Grace & Co 24.6 21.6 7.8
02/24/92 Unocal Exploration Corp Unocal Corp 18.3 18.3 22.9
02/06/92 Spelling Entertainment Inc Charter Co(American Financial) 52.6 45.0 45.0
10/16/91 American Television & Commun Time Warner 66.7 67.5 88.6
09/18/91 Arkla Exploration Co Arkla Inc 8.3 28.6 30.0
08/02/91 Envirosafe Services Inc EnviroSource Inc 16.9 11.3 (2.6)
07/25/91 Country Lake Foods Inc Land O' Lakes Inc 39.1 45.7 53.0
06/13/91 Weigh-Tronix(Staveley Indus) Staveley Industries PLC 41.9 41.9 44.3
05/01/91 United Artists Entertainment Tele-Communications Inc 19.9 22.2 25.7
03/01/91 Metcalf & Eddy Cos Inc Air & Water Technologies Corp 22.2 16.7 24.2
02/06/91 Hamilton Oil Corp BHP Hldgs(USA)Inc(Broken Hill) 18.5 21.2 31.1
01/25/91 Medical Management of America Investor Group 65.0 65.0 65.0
01/03/91 Ocean Drilling & Exploration Murphy Oil Corp 14.0 24.1 9.2
10/23/90 ERC Environmental and Energy Ogden Corp 37.5 44.1 44.1
08/16/90 Academy Insurance Group Inc Academy Mergerco Inc 21.1 24.7 21.1
07/31/90 Freeport-McMoRan Oil and Gas Freeport-McMoRan Inc 36.0 42.7 47.5
07/19/90 Caesars New Jersey Inc Caesars World Inc 40.0 49.3 44.5
07/12/90 TVX Broadcast Group Inc Paramount Communications 26.7 90.0 85.4
07/06/90 Mack Trucks Inc Renault Vehicules Industriels 19.0 19.0 22.0
05/17/90 DST Systems Inc Kansas City Southern Inds Inc 24.3 40.9 51.0
05/08/90 ISS International Service Sys ISS International Service A/S 54.8 60.0 60.0
03/02/90 Shearson Lehman Brothers Hldgs American Express Co (0.8) 18.6 7.5
02/16/90 National Mine Service Co Anderson Mavor Investments Ltd 20.3 12.7 9.2
02/09/90 BRAE Corp. Leucadia National Corp. 33.3 38.9 38.9
01/24/90 Copperweld Corp(Imetal SA) Imetal SA 47.8 41.7 33.3
-----------------------------------------------------------
High 66.7 % 90.0 % 88.6 %
Low (8.7) 4.2 (2.6)
All Deals Mean 26.1 31.0 33.7
Median 24.1 26.0 32.2
-----------------------------------------------------------
-----------------------------------------------------------
High 66.7 % 90.0 % 88.6 %
Low (8.7) 4.2 (2.6)
Deals Where Acquiror Mean 28.4 32.3 35.3
Previously Held Over 75% Median 25.7 31.8 33.0
-----------------------------------------------------------
Source: Securities Data Company, Inc.
Note: Summary statistics exclude West Point-Pepperell Inc./Valley Fashions transaction
</TABLE>
- -------------------------------------------------------------------------------
Gleacher NatWest
<PAGE>
PROJECT BUCKEYE
- -------------------------------------------------------------------------------
SELECTED MERGER AND ACQUISITION TRANSACTIONS (A)
($ in Millions)
<TABLE>
<CAPTION>
Date Transaction Value Agg. Value as a Multiple of LTM
Effective/ Target/ Business Description ----------------- --------------------------------
Announced Acquiror of Target Equity Aggregate Sales EBITDA EBIT
- ---------- ------------------------------------------------------------ ------- ---------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
09/19/96 CasTech Aluminum/ Producer of aluminum sheet $265.3 $312.7 0.78 x 7.9 x 10.2 x
08/19/96 Commonwealth Alum. and cable
04/02/96 Bliss & Laughlin Industries/ Manufacturer and marketer of 37.7 54.3 0.32 4.8 5.7
09/18/95 BRW Steel Corp. cold finished steel bars
01/31/96 Cressona Aluminum Co./ Manufacturer of aluminum 430.0 475.0 0.97 NA NA
10/09/95 Alumax extruded products
07/31/95 Doehler-Jarvis Inc./ Manufacturer of aluminum 104.0 218.0 0.94 NA NA
05/17/95 Harvard Industries die casting
04/03/95 Wm. R. Hubbell Steel Corp./ Manufacturer of galvanized, 21.0 39.0 0.56 NA NA
04/03/95 Gibraltar Steel Corp. galvalume and prepainted
steel products
11/23/93 American Steel & Wire/ Manufacturer of steel rod and wire 51.2 126.8 0.54 6.9 10.9
08/02/93 Birmingham Steel from semifinished steel
11/10/93 Athlone Industries Inc./ Producer of steel plate, bar 105.1 169.9 0.82 9.1 11.1
03/12/93 Allegheny Ludlum Corp. and fasteners
12/21/92 FLS Holdings Inc./ Manufacturer of steel for 9.0 176.0 0.40 4.1 7.3
06/29/92 Kyoei Steel Ltd. construction and industry uses
04/24/92 Washington Steel Corp./ Manufacturer of Stainless and NA 270.3 0.65 7.3 15.7
NA Lukens Inc other steel
04/24/92 Cyclops Industries Inc./ Manufacturer of specialty, 147.1 291.5 0.27 NM NM
09/24/91 Armco Inc. stainless and carbon steels
08/01/90 Copperweld Corp./ (b) Manufacturer of steel wire and 175.9 205.8 0.70 4.1 4.8
01/24/90 Imetal SA metal tubing
High 0.97 x 9.1 x 15.7 x
Low 0.27 4.1 4.8
Mean 0.63 6.3 9.4
Median 0.65 6.9 10.2
<CAPTION>
Equity Value as Target LTM Data
Date a Multiple of Premium Prior to Announcement Date -----------------------------
Effective/ Target/ LTM ---------------------------------- Net EBITDA EBIT
Announced Acquiror Net Income 1 Day 1 Week 4 Weeks Sales Margin Margin
- ---------- - ------------------------------ ---------- ----- ------- ------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
09/19/96 CasTech Aluminum/ 13.3x 37.8% 57.7% 45.1% $398.8 9.9% 7.7%
08/19/96 Commonwealth Alum.
04/02/96 Bliss & Laughlin Industries/ 7.2 11.8% 24.6% 22.6% 169.4 6.7% 5.7%
09/18/95 BRW Steel Corp.
01/31/96 Cressona Aluminum Co./ NA NA NA NA 490.0 NA NA
10/09/95 Alumax
07/31/95 Doehler-Jarvis Inc./ NA NA NA NA 233.0 NA NA
05/17/95 Harvard Industries
04/03/95 Wm. R. Hubbell Steel Corp./ NA NA NA NA 70.0 NA NA
04/03/95 Gibraltar Steel Corp.
11/23/93 American Steel & Wire/ 25.5 37.1% 45.5% 45.5% 235.1 7.8% 5.0%
08/02/93 Birmingham Steel
11/10/93 Athlone Industries Inc./ 18.4 22.8% 22.8% 16.7% 207.1 9.1% 7.4%
03/12/93 Allegheny Ludlum Corp.
12/21/92 FLS Holdings Inc./ NM NA NA NA 437.0 9.7% 5.5%
06/29/92 Kyoei Steel Ltd.
04/24/92 Washington Steel Corp./ NM NA NA NA 415.1 8.9% 4.1%
NA Lukens Inc
04/24/92 Cyclops Industries Inc./ NM 19.4% 25.9% 24.0% 1,094.6 1.9% 0.9%
09/24/91 Armco Inc.
08/01/90 Copperweld Corp./ (b) 8.5 47.8% 41.7% 33.3% 294.2 17.1% 14.5%
01/24/90 Imetal SA
High 25.5x 47.8% 57.7% 45.5%
Low 7.2 11.8% 22.8% 16.7%
Mean 14.6 29.5% 36.4% 31.2%
Median 13.3 30.0% 33.8% 28.6%
</TABLE>
- ----------------------------------
(a) Source: Securities Data Company, Inc. and public documents
(b) Prior to the transaction, Imetal held a majority stake in Copperweld.
For comparative purposes the figures assume that all of the outstanding
shares of Copperweld were purchased.
- -------------------------------------------------------------------------------
Gleacher NatWest
<PAGE>
SELECTED PAGES OF THE
PRELIMINARY BOARD PRESENTATION
<PAGE>
WCI STEEL, INC.
- -------------------------------------------------------------------------------
STOCK PRICE PREMIUMS FOR GOING PRIVATE TRANSACTIONS
<TABLE>
<CAPTION>
OFFER PRICE PREMIUM TO
PRICE BEFORE -----------------------------------
ANNOUNCEMENT CURRENT PRICE OFFER PRICE 1 MONTH(2) 1 WEEK(2) 1 DAY(2)
-------------- --------------- ------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
WCI $5.63 $8.00 $10.00 90.5% 86.0% 74.0%
TARGET/ACQUIROR DATE ANNOUNCED PRICE/SHARE TRANSACTION PREMIUM
- ---------------------------------- -------------- --------------- -----------------------------------
1 MONTH 1 WEEK 1 DAY
--------- -------- -------
CHEMICAL CORP/
ROTO-ROOTER INC................. 8/8/96 $41.00 13.9% 12.3% 12.3%
SYSTERNIX INC/
SANDOZ AG....................... 5/27/96 17.00 32.0% 41.7% 54.5%
APPLIED IMMUNE SCIENCES/
RHONE-POULENC RORER............. 10/18/95 11.75 46.9% 51.6% 67.9%
SCOR US CORP/
SOCIETE COMMERCIALE............. 9/26/95 15.25 32.6% 35.6% 37.1%
REN CORP/
GAMBRO SA....................... 9/13/95 20.00 35.6% 20.3% 27.0%
BIC CORP/
SOCIETE BIC..................... 5/19/95 40.50 30.1% 12.5% 13.3%
CLUB MEDITERRANEE/
CLUB MED INC.................... 4/5/95 32.00 43.8% 39.9% 41.4%
--------- -------- -------
AVERAGE(1) 33.6% 30.6% 36.2%
</TABLE>
- --------------------------------------
(1) EXCLUDING WCL
(2) PRIOR TO ANNOUNCEMENT
- ----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
<TABLE>
<CAPTION>
WCI STEEL, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
COMPARABLE COMPANY MULTIPLE ANALYSIS
INTEGRATED STEEL, COMPANIES
-----------------------------------------------------------------
LTM MULTIPLES CALENDAR EPS. MULTIPLES
----------------------------------- ----------------------------
COMPANY REVENUE ADJ. EBITDA 1996E 1997E
--------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
ACME Metals Inc. 0.8 x 8.1 x NM 18.2%
AK Steel Holding Corp. 0.6 5.3 8. x 8.3
Algoma Steel Inc. 0.5 3.3 3.0 2.4
Allegheny Ludlum 1.0 6.8 14.0 11.7
Armco 0.6 9.0 NM 7.5
Bethlehem Steel Corp. 0.3 3.6 23.8 22.2
Carpenter Tech. 0.9 5.8 10.0 8.1
Dofasco 0.9 4.8 11.3 7.9
Geneva Steel Co.-CL A 0.7 7.2 NM 4.4
Inland Steel Industries Inc. 0.3 4.1 16.0 12.4
LTV Corp. 0.1 1.2 12.8 12.9
Lukens Inc. 0.5 6.0 NM 13.6
National Steel Corp. 0.3 3.9 NM 15.2
Rouge Steel 0.3 6.9 14.5 14.7
USX-US Steel Group 0.7 NM 13.0 9.3
Weirton Steel Corp. 0.3 4.4 NM 15.8
WHX Corp. 0.3 3.3 11.4 13.7
---- ---- ----- -----
---- ---- ----- -----
Average (1) 0.5 x 5.3 x 12.3 x 11.6 x
INTEGRATED STEEL COMPANIES
-----------------------------------------------------------------
LTM MULTIPLES CALENDAR EPS. MULTIPLES
----------------------------------- ----------------------------
COMPANY REVENUE ADJ. EBITDA 1996E 1997E
--------------- ------------------ ------------- -------------
Birmingham Steel Corp. 0.9% 12.2 x 21.8 x 11.9%
Chaparral Steel 0.7 4.1 9.5 10.7
CO-Steel 0.6 7.6 NM 9.4
Commercial Metals 0.3 5.4 10.8 9.9
IPSCO Inc. 1.1 6.0 12.5 10.7
NUCOR Corp. 1.3 8.2 19.2 15.0
Oregon Steel 0.9 10.3 16.5 13.6
Quanex 0.5 4.5 12.4 10.4
Schnitzer Steel 1.0 6.4 11.6 9.3
---- ---- ----- -----
Average(1) 0.8 x 6.9 x 13.8 x 10.9 x
Total Average(1) 0.6 x 5.9 x 13.2 x 11.4 x
___________________________________
(1) Average excludes high and low.
- --------------------------------------------------------------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
</TABLE>
<PAGE>
WCI STEEL, INC.
- -------------------------------------------------------------------------------
SUMMARY TRANSACTION MULTIPLES
<TABLE>
<CAPTION> VIRGINIA IMPLIED
VIRGINIA MULTIPLES MULTIPLE
----------------------------------- ------------------------------------- ----------------
PRE-ANNOUNCEMENT
RESULTS MULTIPLE(1) ALL INTEGRATED ALL STEEL(2) $10.00
------------- ------------------ -------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
PURCHASE MULTIPLES:
- -------------------
Enterprise Value/
LTM Revenues. . . . . . . . . . $597.5 0.4x 0.5x 0.6x 0.7x
LTM Adj. EBITDA . . . . . . . . 53.0 4.9 5.3 5.9 7.9
1989-1995 Avg. Adj. EBITDA. . . 70.6 3.7 5.9
Fiscal 1996(E) Adj. EBITDA. . . 91.5 2.8 4.6
PROJECTED EPS:
- --------------
Price/
CY 1996(E) EPS. . . . . . . . . $0.72 7.8x 12.3x 13.2x 13.9x
CY 1997(E) EPS. . . . . . . . . 0.78 7.2 11.6 11.4 12.8
</TABLE>
- ----------------------------------
(1) Based on pre-announcement price of 3.625
(2) Includes integrated and minimills.
<PAGE>
WCI STEEL, INC.
- -------------------------------------------------------------------------------
IMPLIED COMMON STOCK PRICES
<TABLE>
<CAPTION> PRICE BASED UPON AVERAGE MULTIPLE
---------------------------------------------------------------------------
VIRGINIA RESULTS INTEGRATED STEEL ALL STEEL(1)
------------------ ---------------------------------------- ----------------------------------
AVG. MULT. IMPLIED PRICE AVG. MULT. IMPLIED PRICE
------------------ -------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
PURCHASE MULTIPLES:
- -------------------
Enterprise Value/
LTM Revenues. . . . . . . . . . $597.5 0.5x $7.39 0.6x $8.88
LTM Adj. EBITDA . . . . . . . . 53.0 5.3 6.25 5.9 7.13
1989-1995 Avg. Adj. EBITDA. . . 70.6 5.3 8.83 5.9 10.00
Fiscal 1996(E) Adj. EBITDA. . . 91.5 5.3 11.90 5.9 13.42
PROJECTED EPS:
- --------------
Price/
CY 1996(E) EPS. . . . . . . . . $0.72 12.3x $8.86 13.2x $9.50
CY 1997(E) EPS. . . . . . . . . 0.78 11.6 9.05 11.4 8.87
</TABLE>
- ----------------------------------
(1) Includes integrated and minimills.
<PAGE>
[The Renco Group, Inc. Letterhead]
October 9, 1996
Board of Directors
WCI Steel, Inc.
1040 Pine Avenue, S.E.
Warren, OH 44483
Gentlemen:
The Renco Group, Inc. ("Renco") hereby proposes that the Board of Directors
(the "Board") of WCI Steel, Inc. (the "Company") authorize and approve, and the
Company undertake to consummate, the following transactions which will result
in, among other things, the Company "going private".
1. EQUITY TRANSACTIONS. Simultaneous with the Debt Transactions (defined
in 3 below), a direct wholly-owned subsidiary of Renco to be formed for this
purpose ("Holdings") will commence a "going private" tender offer for all of the
issued and outstanding shares of common stock, no par value, $0.01 stated value
(the "Shares"), of the Company other than Shares owned by Renco (the "Equity
Offer"), at a price of $10.00 per Share in cash. Renco intends to contribute
its Shares to Holdings. The Equity Offer will be conditional upon such number
of Shares being validly tendered and not withdrawn prior to the expiration date
of the Equity Offer so that the number of Shares owned by Holdings would
represent not less than 90% of the total number of Shares outstanding on the
expiration date.
<PAGE>
Board of Directors -2- October 9, 1996
WCI Steel, Inc.
2. DEBT TRANSACTIONS. The Company will commence an offer (the "Debt
Tender Offer") to purchase for cash all, but not less than a majority, of its
outstanding 10 1/2% Senior Notes due 2002 (currently approximately $206 million)
(the "Existing Notes") and a related solicitation (the "Consent Solicitation")
of consents to modify certain terms of the indenture related to the Existing
Notes. The purchase price to be paid in respect of validly tendered Existing
Notes and the related consents is 111.5% of their principal amount plus accrued
but unpaid interest up to, but not including, the date of purchase.
3. On or about the same time that the Company commences the Equity Offer
and the Debt Tender Offer, the Company will place an offering of $300 million of
new senior notes (the "Debt Offering").
The Debt Tender Offer, the Consent Solicitation and the Debt Offering are
referred to collectively as the "Debt Transactions", the Equity Offer and the
Merger (defined in 5 below) are referred to collectively as the "Equity
Transactions", and the Debt Transactions and the Equity Transactions are
referred to collectively as the "Transactions".
4. The proceeds of the Debt Offering, along with the Company's available
cash, would be used to pay for the Equity Transactions, the Debt Tender Offer,
the expenses of the Equity and Debt Transactions, to make a substantial dividend
to Renco and to make certain contractual payments to certain executives of the
Company. Thereafter, the Company would be
<PAGE>
Board of Directors -3- October 9, 1996
WCI Steel, Inc.
left with a minimum amount of cash and its undrawn $100 million working capital
line of credit with Congress Financial. An outline of the sources and uses
relating to the Equity and Debt Transactions is attached.
5. Upon, and subject to, successful completion of the Equity Offer,
Holdings will effect a merger (the "Merger") of Holdings with and into the
Company, with the Company surviving the Merger as a direct wholly-owned
subsidiary of Renco. In connection with the Merger, each outstanding Share
(other than Shares owned by Holdings, Shares held in the treasury of the
Company, which will be cancelled, and Shares held by shareholders, who have
validly exercised appraisal rights under Ohio law) will be converted into the
right to receive in cash per Share, the same price paid to shareholders who
tendered their Shares pursuant to the Equity Offer.
6. The completion of the Equity Transactions and the Debt Transactions are
each subject to the successful completion of the other and each offer would be
subject to certain other conditions that are customary for comparable
transactions.
Very truly yours,
THE RENCO GROUP, INC.
By: /s/ Ira Leon Rennert
---------------------
Ira Leon Rennert
Chairman
<PAGE>
WCI STEEL, INC.
- --------------------------------------------------------------------------------
SOURCES AND USES OF FUNDS
($ IN MILLIONS)
SOURCES USES
------------------- ------------------------------
New Notes............... $300.0 Repurchase 10 1/2% Notes...... $206.4
Existing Company Cash... 124.4 Accrued Interest on
----- 10 1/2% Notes................ 5.4
Total Sources........ $424.4 Tender Premium(1)............. 23.7
----- Tender for Outstanding
----- Shares(2).................... 56.6
Dividend to Renco(3).......... 107.6
NWA Payments(4)............... 13.2
Estimated Fees and Expenses... 11.5
-----
Total Uses................. $424.4
-----
-----
- -------------------------------------
(1) Assumes tender price of 111.5. Each 1 point change in Note Tender Offer
price changes cash requirements by approximately $2.1 mm.
(2) Assumes tender price of $10.00 per share for 5,657,500 shares including
126,700 restricted shares.
(3) Dividend to Renco is $3.50 per share.
(4) Contractural payments to active employees pursuant to Net Worth
Appreciation Agreements ("NWA"). The Company is also considering to
accelerate the NWA payments to two retired executives which would require
an additional $7.3 million.
<PAGE>
OFFER TO PURCHASE FOR CASH
BY
WCI STEEL HOLDINGS, INC.
A WHOLLY-OWNED SUBSIDIARY OF THE RENCO GROUP, INC.
OF
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
OF
WCI STEEL, INC.
AT
$10.00 PER SHARE
THE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON NOVEMBER 25, 1996, UNLESS EXTENDED. TENDERS OF SHARES OF COMMON
STOCK, NO PAR VALUE, $.01 STATED VALUE (THE "SHARES"), MAY ONLY BE WITHDRAWN
UNDER THE CIRCUMSTANCES DESCRIBED IN THIS OFFER TO PURCHASE AND THE LETTER OF
TRANSMITTAL.
THE BOARD OF DIRECTORS OF WCI STEEL, INC., BASED ON THE RECOMMENDATION OF
THE INDEPENDENT DIRECTOR (AS DEFINED), HAS DETERMINED THAT EACH OF THE OFFER (AS
DEFINED) AND THE MERGER (AS DEFINED) IS FAIR TO THE COMPANY'S PUBLIC
SHAREHOLDERS (AS DEFINED), HAS APPROVED THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, AND RECOMMENDS THAT THE COMPANY'S PUBLIC
SHAREHOLDERS ACCEPT THE OFFER AND TENDER ALL OF THEIR SHARES (AS DEFINED)
PURSUANT TO THE OFFER. SEE "SPECIAL FACTORS--FAIRNESS OF THE EQUITY
TRANSACTIONS."
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT
NUMBER OF SHARES WHICH WOULD REPRESENT A MAJORITY OF THE PUBLIC SHARES (AS
DEFINED). THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER CONDITIONS CONTAINED IN
THIS OFFER TO PURCHASE. SEE "INTRODUCTION," "THE TENDER OFFER--SECTION 1. TERMS
OF THE OFFER" AND "--SECTION 12. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS."
--------------------------
IMPORTANT
Any shareholder desiring to tender all or a portion of such shareholder's
Shares should either (a) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the Letter of
Transmittal, mail or deliver it and any other required documents to the
Depositary (as defined) and either deliver the certificates for such Shares to
the Depositary along with the Letter of Transmittal or tender such Shares
pursuant to the procedures for book-entry transfer set forth in "The Tender
Offer--Section 3. Procedure for Tendering Shares" or (b) request his broker,
dealer, commercial bank, trust company or other nominee to effect the
transaction for him. Any shareholder whose Shares are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee must contact
such broker, dealer, commercial bank, trust company or other nominee if such
shareholder desires to tender such Shares.
Any shareholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available or who cannot comply with
the procedure for book-entry transfer on a timely basis should tender such
Shares by following the procedures for guaranteed delivery set forth in "The
Tender Offer--Section 3. Procedure for Tendering Shares."
Questions and requests for assistance may be directed to the Information
Agent (as defined) or the Dealer Manager (as defined) at their respective
addresses and telephone numbers set forth on the back cover of this Offer to
Purchase. Requests for additional copies of this Offer to Purchase, the Letter
of Transmittal, the Notice of Guaranteed Delivery and other related materials
may be directed to the Information Agent or to brokers, dealers, commercial
banks and trust companies.
--------------------------
The Dealer Manager for the Offer is:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY
OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
OCTOBER 28, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Introduction............................................................................................... 1
Special Factors............................................................................................ 3
Background............................................................................................... 3
Reasons for the Offer and the Merger..................................................................... 5
The Letter Agreement..................................................................................... 6
Purpose, Structure and Benefits of the Offer and the Merger.............................................. 6
Contingent Cash Consideration Rights..................................................................... 8
The Debt Transactions.................................................................................... 9
Plans for the Company after the Transactions............................................................. 9
Fairness of the Equity Transactions...................................................................... 10
Opinion of Gleacher NatWest; Summary of Financial Analysis............................................... 12
Certain Effects of the Offer and the Merger.............................................................. 17
Interests of Certain Persons............................................................................. 18
Certain Federal Income Tax Consequences.................................................................. 19
The Tender Offer........................................................................................... 20
Section 1. Terms of the Offer........................................................................... 20
Section 2. Acceptance for Payment and Payment for Shares................................................ 21
Section 3. Procedure for Tendering Shares............................................................... 22
Section 4. Withdrawal Rights............................................................................ 25
Section 5. Source and Amount of Funds................................................................... 25
Section 6. Price Range of the Shares; Dividends on the Shares........................................... 27
Section 7. Effect of the Offer on the Market for the Shares; NYSE Listing; Exchange Act Registration;
and Margin Securities........................................................................ 28
Section 8. Certain Information Concerning the Company, Renco and Holdings............................... 28
Section 9. The Merger................................................................................... 33
Section 10. Extension of the Offer; Amendments; Termination.............................................. 34
Section 11. Certain Conditions to the Offer.............................................................. 35
Section 12. Certain Legal Matters; Regulatory Approvals.................................................. 35
Section 13. Fees and Expenses............................................................................ 37
Section 14. Miscellaneous................................................................................ 38
Directors and Executive Officers of Renco and Holdings...................................................... Schedule I
Consolidated Financial Statements of the Company............................................................... Annex A
Ohio General Corporation Law Sections 1701.84 and 1701.85...................................................... Annex B
Opinion of Gleacher NatWest Inc. .............................................................................. Annex C
Letter Agreement, dated October 23, 1996, among Renco, Holdings and the Company................................ Annex D
</TABLE>
<PAGE>
To the Holders of Common Stock of
WCI Steel, Inc.
INTRODUCTION
WCI Steel Holdings, Inc., a Delaware corporation ("Holdings") and a
wholly-owned subsidiary of The Renco Group, Inc., a New York corporation
("Renco"), hereby offers to purchase all of the outstanding shares of common
stock, no par value, $.01 stated value (the "Shares"), of WCI Steel, Inc., an
Ohio corporation (the "Company" or "WCI"), at a purchase price of $10.00 per
Share (the "Offer Price"), net to the seller in cash, without interest, upon the
terms and subject to the conditions set forth in this Offer to Purchase and in
the related Letter of Transmittal (which, together with any amendments or
supplements hereto and thereto, collectively constitute the "Offer"). In
addition to the Offer Price, sellers who tender their Shares pursuant to the
Offer or whose Shares are extinguished pursuant to the Merger (as defined) will
also receive Contingent Cash Consideration Rights (as defined). The Offer Price
and the Contingent Cash Consideration Rights are collectively referred to herein
as the "Offer Consideration." See "Special Factors--Purpose, Structure and
Benefits of the Offer and the Merger."
Renco currently owns 30,746,900 Shares (including 100 Shares owned by Ira
Leon Rennert, who, with certain trusts for members of his family owns, directly
and indirectly, 95.9% of the total outstanding common stock of Renco),
representing approximately 84.47% of the total outstanding Shares. On October 9,
1996, Renco proposed to the Company a series of transactions which would include
the indirect acquisition by Renco of all of the outstanding Shares which Renco
did not currently own for a purchase price of $10.00 per Share, net to the
seller in cash. See "Special Factors--Background," "--Reasons for the Offer and
the Merger" and "--Interests of Certain Persons." Renco does not intend to
tender its Shares pursuant to the Offer, but intends, subject to successful
completion of the Offer, to contribute all of its Shares to Holdings.
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined) that number
of Shares representing a majority of the Shares (the "Public Shares" and the
holders thereof, the "Public Shareholders") not owned by Renco or the directors
and executive officers of Renco and the Company (the "Public Acceptance
Condition"). The Offer is also subject to certain other conditions. See "The
Tender Offer--Section 11. Certain Conditions to the Offer."
There are currently 36,401,400 Shares outstanding, of which 30,746,900 are
owned by Renco and 113,350 by directors and executive officers of Renco and the
Company. Accordingly, based on current ownership, for the Public Acceptance
Condition to be satisfied, 2,770,576 Public Shares would need to be tendered and
Renco's and Holdings' Shares would, together, represent not less than 92.39% of
the total number of Shares outstanding.
The purpose of the Offer is for Renco, through Holdings, to acquire all of
the outstanding Shares held by all persons other than Renco. If the Public
Acceptance Condition has been satisfied, Renco intends to cause the contribution
of the Shares owned by it to Holdings and to effect a merger (the "Merger") of
Holdings with and into the Company, with the Company surviving the Merger as a
wholly-owned subsidiary of Renco (the "Surviving Corporation"), pursuant to
which each then outstanding Share (other than Shares owned by Holdings or Renco
or Shares held in the treasury of the Company, which shall be cancelled, and
other than Shares held by shareholders who have validly exercised dissenters'
rights under the Ohio General Corporation Law (the "OGCL")) will be converted
into the right to receive the Offer Consideration. If the Public Acceptance
Condition is satisfied, the "short form" merger provisions of the OGCL (which
apply only if Renco and Holdings together own at least 90% of the outstanding
Shares) would permit the Merger to occur without the vote or consent of the
Company's shareholders. See "The Tender Offer--Section 9. The Merger." The
Merger and the Offer are collectively referred to herein as the "Equity
Transactions."
Shareholders who tender their Shares pursuant to the Offer will not be
entitled to dissenters' rights with respect to their Shares. See "Special
Factors--Purpose, Structure and Benefits of the Offer and the Merger."
<PAGE>
The Offer is being made pursuant to and in accordance with the terms of an
agreement entered into on October 23, 1996 among Renco, Holdings and the Company
(the "Letter Agreement"), a copy of which is attached hereto as Annex D. The
Letter Agreement provides, among other things, that the Public Acceptance
Condition may not be amended without the approval of the Company, after
consultation with the Independent Director (as defined). See "Special
Factors--The Letter Agreement."
If the Offer is not consummated because the Public Acceptance Condition or
any other condition to the Offer (see "The Tender Offer--Section 11. Certain
Conditions to the Offer") is not satisfied and Renco and Holdings together
continue to own less than 90% of the total number of outstanding Shares, Renco
and Holdings would not be able to effect a "short form" merger of Holdings and
the Company. In such case, Renco and/or Holdings may, subject to numerous
factors, including the availability of Shares at prices acceptable to Renco
and/or Holdings, the business condition and prospects of the Company, other
investment opportunities available to Renco and general economic and market
conditions, acquire additional Shares through privately negotiated or open
market purchases, subject to subsequent tender or exchange offers or by any
other means Renco and/or Holdings deem advisable on such terms and at such
prices as they determine (which may be more or less than the Offer Price) to
bring the ownership of Renco and Holdings together to at least 90% of the total
number of outstanding Shares and, thereafter, consummate a "short form" merger.
Such transactions, if any, are not currently contemplated by the Letter
Agreement and may be made with or without approval of the Board or any
independent committee thereof. See "Special Factors--Purpose, Structure and
Benefits of the Offer and the Merger" and "The Tender Offer--Section 9. The
Merger."
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD"), BASED IN PART ON THE
RECOMMENDATION OF THE SOLE DIRECTOR WHO WAS DEEMED INDEPENDENT FOR THE PURPOSE
OF CONSIDERING THE TERMS OF THE OFFER AND THE MERGER (THE "INDEPENDENT
DIRECTOR"), HAS DETERMINED THAT THE EQUITY TRANSACTIONS ARE FAIR TO THE
COMPANY'S PUBLIC SHAREHOLDERS, HAS APPROVED THE EQUITY TRANSACTIONS, AND
RECOMMENDS THAT EACH OF THE PUBLIC SHAREHOLDERS ACCEPT THE OFFER AND TENDER ALL
OF THEIR SHARES PURSUANT TO THE OFFER.
GLEACHER NATWEST INC. ("GLEACHER NATWEST"), THE INDEPENDENT DIRECTOR'S
FINANCIAL ADVISOR, HAS DELIVERED TO THE INDEPENDENT DIRECTOR ITS WRITTEN
OPINION, DATED OCTOBER 20, 1996, THAT THE OFFER PRICE TO BE RECEIVED BY THE
PUBLIC SHAREHOLDERS IN THE OFFER AND THE MERGER IS FAIR TO SUCH SHAREHOLDERS
FROM A FINANCIAL POINT OF VIEW. SEE ANNEX C. A COPY OF THE OPINION OF GLEACHER
NATWEST IS CONTAINED IN HOLDINGS' AND RENCO'S TENDER OFFER STATEMENT ON SCHEDULE
14D-1 (THE "SCHEDULE 14D-1") AND RULE 13E-3 TRANSACTION STATEMENT ON SCHEDULE
13E-3 (THE "SCHEDULE 13E-3"), AND IN THE COMPANY'S SOLICITATION/RECOMMENDATION
STATEMENT ON SCHEDULE 14D-9 (THE "SCHEDULE 14D-9" AND, TOGETHER WITH THE
SCHEDULE 14D-1 AND THE SCHEDULE 13E-3, THE "SCHEDULES"), ALL FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") IN CONNECTION WITH THE
OFFER, AND IS BEING FURNISHED TO THE COMPANY'S SHAREHOLDERS CONCURRENTLY
HEREWITH.
SUCH WRITTEN OPINION IS AVAILABLE FOR INSPECTION AND COPYING AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY, LOCATED AT 1040 PINE AVENUE S.E.,
WARREN, OHIO 44483-6528 DURING ITS REGULAR BUSINESS HOURS BY ANY INTERESTED
SHAREHOLDER OF THE COMPANY OR HIS REPRESENTATIVE WHO HAS BEEN SO DESIGNATED IN
WRITING.
THE INDEPENDENT DIRECTOR'S DETERMINATION THAT THE EQUITY TRANSACTIONS ARE
FAIR TO THE PUBLIC SHAREHOLDERS IS BASED ON A VARIETY OF FACTORS AND
CONSIDERATIONS. SEE "SPECIAL FACTORS--FAIRNESS OF THE EQUITY TRANSACTIONS."
As of October 23, 1996, there were a total of 152 holders of Shares of
record, and a total aggregate of 36,401,400 Shares were issued and outstanding,
of which (i) 30,746,900, or 84.47%, were owned by Renco (and Mr. Rennert, as
deemed beneficial owner of Renco's Shares through his direct and indirect
ownership of 95.9% of the outstanding common stock of Renco) and (ii) an
additional aggregate of 113,350, or 0.30%, were owned by all directors and
executive officers of Renco and the Company (other than Mr. Rennert) as a group.
The Shares owned by Renco and the directors and executive officers of Renco
2
<PAGE>
and the Company are not Public Shares and any such Shares tendered will not
count toward satisfaction of the Public Acceptance Condition.
In addition, (i) pursuant to the Company's 1994 Stock Plan for Key Employees
(the "1994 Plan"), there are outstanding 56,000 Shares issued to officers and
key employees of the Company and its subsidiaries, (ii) there are outstanding
58,000 Shares issued to certain officers of the Company in 1994 pursuant to
restricted stock grants and (iii) there are outstanding 9,700 Shares issued
pursuant to the Company's Stock Plan for Outside Directors, adopted April 5,
1994, as amended (the "Directors Plan"). Of these aggregate 123,700 Shares,
approximately 33,700 Shares are Public Shares and all except approximately 2,000
Shares are subject to restrictions on sale, assignment and hypothecation, which
restrictions the Company has released in connection with the Offer.
Each of Renco's and the Company's directors and executive officers (other
than Mr. Rennert), who own in the aggregate 113,350 Shares, has indicated their
respective intentions to tender into the Offer and not withdraw therefrom all
Shares owned by him on the date hereof or acquired by him prior to the
Expiration Date, including such Shares which may be restricted as described
above (and with respect to which the Company has released all restrictions which
would prohibit such tender).
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 to the Letter of
Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer.
Holdings will pay all charges and expenses of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), as the dealer manager (the "Dealer Manager"),
American Stock Transfer & Trust Company, as the depositary (the "Depositary"),
and Georgeson & Company Inc., as the information agent (the "Information
Agent"), incurred in connection with the Offer. See "The Tender Offer--Section
13. Fees and Expenses."
SPECIAL FACTORS
BACKGROUND
The assets and certain liabilities of the Company were acquired by the
Company on August 31, 1988 from LTV Inc. and its subsidiaries ("LTV") in a
transaction authorized by the Bankruptcy Court for the Southern District of New
York having jurisdiction over the Chapter 11 proceeding of LTV.
On December 29, 1992, the Company issued $125.0 million in principal amount
of its 12 5/8% Senior Secured Notes Due March 1, 2002 (the "1992 Notes"), the
net proceeds of which were used to repay borrowings under a credit facility
provided by Congress Financial Corporation ("Congress") and Security Pacific
Business Credit Inc.
On December 14, 1993, Renco Steel, Inc. ("RSI"), a wholly-owned subsidiary
of Renco, issued $250.0 million in principal amount of the Existing Notes (as
defined). Of the proceeds therefrom, (i) approximately $154.5 million was used
by the Company to repurchase all of the 1992 Notes at 120% of their principal
amount plus accrued interest to the date of repurchase, (ii) $86.0 million was
used by RSI to purchase all of the outstanding capital stock of the Company from
Renco and (iii) the remaining approximately $9.5 million was used to pay fees
and expenses in connection with the repurchase of the 1992 Notes and the
offering of the Existing Notes. Immediately thereafter, RSI was merged with and
into the Company and the Company assumed all of RSI's obligations under the
Existing Notes.
On July 20, 1994, the Company completed its initial public offering of
5,750,000 Shares at $10.00 per Share, and on July 14, 1994 the Company's shares
of common stock began trading on the New York Stock Exchange ("NYSE") under the
symbol "WRN." The aggregate net proceeds of the offering received by the Company
were $51.9 million, of which $6.95 million was used to redeem certain
outstanding preferred stock owned by Renco.
3
<PAGE>
On September 11, 1996, in connection with a regularly scheduled meeting with
senior management, Mr. Rennert raised for consideration the possibility of
entering into the Debt Transactions (as defined). In the course of such
discussion, it was suggested that a going private transaction might be
considered.
On September 24, 1996, the Company announced (the "Initial Announcement")
that it was considering financing alternatives, and that, at a meeting of the
Board, Mr. Rennert had informed the Board that, in connection with certain
refinancing proposals, Renco was considering making a proposal to the Board with
respect to a "going private" transaction involving the Company in which Renco
would ultimately own all of the outstanding Shares (the "Proposal"). In
anticipation of formal receipt of the Proposal, the Board requested that its
independent directors, Arthur W. Fried, William Schwartz and S. Daniel Abraham,
analyze and assess the fairness of the "going private" component of the
Proposal, including the Offer Price, and make a recommendation to the Board in
connection therewith. The Board also authorized and approved the retention of
financial advisors and special counsel by the independent directors. Shortly
thereafter, the independent directors retained Gleacher NatWest as financial
advisor and Shearman & Sterling as special counsel ("S&S"). Shortly thereafter,
William Schwartz voluntarily removed himself as an independent director in light
of his relationship as of counsel to Cadwalader, Wickersham & Taft, counsel to
the Company ("CW&T").
On October 9, 1996, Renco formally presented the Proposal to the Board,
pursuant to which (i) Holdings would offer to purchase all outstanding Shares
other than Shares owned by Renco for $10.00 per Share, (ii) upon consummation of
the Offer, Renco would contribute all of its Shares to Holdings, and (iii)
Holdings would be merged with and into the Company, with the Company surviving
as the Surviving Corporation. The Proposal was subject to the conditions that
sufficient Shares be tendered so that Renco and Holdings would together own not
less than 90% of the outstanding Shares (the "Proposed Minimum Condition") and
the success of the Debt Transactions. See "Special Factors--The Debt
Transactions."
On October 10, 1996, Mr. Fried met with representatives of Gleacher NatWest
and S&S to discuss the Proposal and to discuss Gleacher NatWest's methodology in
evaluating the Company in order to determine whether the Offer Price was fair to
its Public Shareholders from a financial point of view.
On October 10, 1996, the Company issued a press release announcing the
receipt and terms of the Proposal.
On October 11, 1996, one of the two independent directors, S. Daniel
Abraham, announced his resignation from the Board, citing the amount of time
required to serve on the Board which he had not anticipated. Later on the same
date, Mr. Fried, the Independent Director, met with representatives of S&S to
further discuss the Proposal and the resignation of Mr. Abraham.
On October 15, 1996, Mr. Fried conducted a telephonic meeting with
representatives of Gleacher NatWest, White & Case, special counsel to Gleacher
NatWest ("W&C"), and S&S to discuss the current price per share being offered by
Renco and other conditions of the Proposal, such as the Proposed Minimum
Condition and the fact that the Equity Transactions were conditioned upon the
consummation of the Debt Offering (as defined). Later on that date,
representatives of S&S, Gleacher NatWest and W&C met with representatives of
Renco and of the Company, including Bret W. Wise, Chief Financial Officer of the
Company, CW&T and DLJ, the placement agent for the proposed Debt Offering, to
discuss the Proposal, including the possibility of changing the Proposed Minimum
Condition to the Public Acceptance Condition which was achievable only if a
majority of the Public Shares were tendered in response to the Offer. In
addition, a question was raised by Gleacher NatWest as to the necessity that the
Equity Transactions be conditioned upon the consummation of the Debt
Transactions.
On October 16, 1996, Mr. Fried conducted a telephonic meeting with
representatives of Gleacher NatWest, S&S and W&C to discuss proposed
modifications to the Offer. These modifications included (i) raising the Offer
Price to $10.50 per Share and (ii) changing the Proposed Minimum Condition to
the
4
<PAGE>
Public Acceptance Condition. Gleacher NatWest contacted DLJ with the proposed
modifications and requested that they convey these modifications to Renco.
On October 17, 1996, Mr. Fried was informed that Renco had declined to
modify the terms of the Equity Transactions. Then, after a conversation with S&S
and Gleacher NatWest, Mr. Fried contacted Mr. Rennert in an attempt to negotiate
the proposed modifications with him directly. The result of these discussions
was that, although Renco still declined to raise the Offer Price, Renco did
agree (i) to change the Proposed Minimum Condition to the Public Acceptance
Condition and (ii) that the Equity Transactions would not be conditioned upon
the consummation of the Debt Transactions.
On October 18, 1996, representatives of S&S and Gleacher NatWest met with
the representatives of a Public Shareholder as a result of certain letters sent
on behalf of such Public Shareholder to CW&T on October 11, 1996 and October 17,
1996. During this meeting, the Public Shareholder's representatives made known
their views as to the fairness of the Equity Transactions.
Also, on October 18, 1996, CW&T delivered to S&S a draft of the Letter
Agreement, which set forth certain understandings of the parties thereto with
respect to the conditions and other material terms relating to the Equity
Transactions.
On October 20, 1996, the Independent Director obtained reports from Gleacher
NatWest and S&S, including the oral opinion of Gleacher NatWest as to the
fairness of the Offer Price to be received by the Public Shareholders from a
financial point of view, and after further analysis thereof, orally issued a
report to the Board (the "Report") (i) finding that, as presented, overall the
Equity Transactions were fair to the Public Shareholders, (ii) recommending that
the Equity Transactions be authorized and approved by the Board and (iii)
recommending that the Board recommend that the Public Shareholders accept the
Offer and tender all of their Shares pursuant to the Offer, each of the
foregoing subject to the execution of the Letter Agreement containing terms and
conditions satisfactory to the Independent Director. At the October 20, 1996
Board meeting, the Independent Director asked Renco to confirm representations
previously made that Renco was not in discussions with any third party with
respect to a sale of the Company and had no current intention to effect such a
sale. In response, Mr. Rennert confirmed such representations and, in addition,
offered to amend the Proposal to include the Contingent Cash Consideration
Rights.
Based on the Report and the addition of the Contingent Cash Consideration
Rights, the Board voted unanimously (with Mr. Rennert abstaining) on October 20,
1996 to authorize and approve the Equity Transactions and to recommend that the
Public Shareholders accept the Offer and tender all of their Shares pursuant to
the Offer, such recommendations subject to the execution of the Letter Agreement
containing terms and conditions satisfactory to the Independent Director.
During the period from October 20, 1996 to October 23, 1996, S&S and CW&T
continued to negotiate the terms of and conditions to the Letter Agreement. On
October 23, 1996, Mr. Fried, upon consultation with S&S, determined that the
terms of and conditions to the Letter Agreement were satisfactory to him in his
capacity as Independent Director, and Mr. Fried therefore recommended that the
Company execute the Letter Agreement. On October 23, 1996, based on the
recommendation of the Independent Director, Edward R. Caine, the Company's
President, executed the Letter Agreement on behalf of the Company.
On October 23, 1996, the Company announced that the Board approved the
proposals of Renco that the Company effect the Equity Transactions and the Debt
Transactions. On October 28, 1996, Holdings commenced the Offer.
REASONS FOR THE OFFER AND THE MERGER
Renco has determined that a "going private" transaction would provide
certain benefits to Renco and the Company, as well as the Public Shareholders.
Foremost among these benefits is the opportunity
5
<PAGE>
provided to Public Shareholders to sell their Shares at a significant premium
above the market price which existed at the time of the Initial Announcement. In
addition, the Merger will eliminate the obligations of the Company to comply
with the various reporting requirements under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), in connection with the Shares, although
the Company will agree to remain subject to the reporting requirements of the
Exchange Act in connection with the New Notes (as defined). See "Special
Factors--Fairness of the Equity Transactions" and "The Tender Offer--Section 6.
Price Range of the Shares; Dividends on the Shares."
THE LETTER AGREEMENT
On October 23, 1996, Renco and Holdings entered into the Letter Agreement
with the Company setting forth the general terms and conditions of the Equity
Transactions and the Contingent Cash Consideration Rights, as well as a summary
description of the Debt Transactions and certain customary representations and
warranties. In the Letter Agreement, the parties agreed, among other matters,
that (a) the Offer would commence as promptly as practicable after the date of
the Letter Agreement, (b) the Offer would be conditioned on the Public
Acceptance Condition being satisfied, (c) the Offer would not be conditioned
upon Renco or Holdings obtaining any future financing and (d) so long as the
foregoing conditions are satisfied, neither Renco nor Holdings would extend the
expiration of the Offer, except to the extent necessary to consummate the Equity
Transactions and the Debt Transactions simultaneously (but in no event for more
than fifteen business days) or as required by applicable law. In addition, the
parties agreed that the foregoing conditions would not be waived or altered by
Renco or Holdings unless expressly agreed to in writing by the Board after
consultation with the Independent Director.
Under the Letter Agreement, Renco agreed to contribute its Shares to
Holdings and Holdings agreed to effect the Merger within five business days
after the consummation of the Offer. Renco and Holdings agreed that if the Offer
is consummated, Renco and Holdings will cause the Merger to be consummated,
subject only to the condition that there be no injunction entered by any court
of competent jurisdiction or any other governmental authority. The parties
further agreed that the Equity Transactions are not contingent upon the success
of the Debt Transactions, but the Debt Transactions are expressly contingent
upon the success of the Equity Transactions. See Annex D.
PURPOSE, STRUCTURE AND BENEFITS OF THE OFFER AND THE MERGER
The purpose of the Offer and the Merger is for Renco, through Holdings, to
acquire, directly or indirectly, all of the outstanding Shares not currently
owned by Renco. See "Special Factors--Background" and "--Reasons for the Offer
and the Merger."
Renco, through Holdings, is making the Offer in order to acquire all of the
outstanding Shares not owned by it directly or indirectly while at the same time
affording all Public Shareholders an equal opportunity to sell their Shares at a
price which is in excess of the market price of the Shares on the last full
trading day preceding the date of the Initial Announcement. See "Special
Factors--Fairness of the Equity Transactions" and "The Tender Offer--Section 6.
Price Range of the Shares; Dividends on the Shares." If the Public Acceptance
Condition and other conditions are satisfied, Renco intends to contribute the
Shares owned by it to Holdings and to seek to effect the Merger, pursuant to
which each then outstanding Share (other than Shares owned by Holdings or Renco
or Shares held in the treasury of the Company, which shall be cancelled, and
other than Shares held by shareholders who have validly exercised dissenters'
rights under the OGCL) will be converted into the right to receive the Offer
Consideration, without interest. If Renco and Holdings together were to own 90%
or more of the total number of outstanding Shares, the "short-form" merger
provisions of the OGCL would permit the Merger to occur without the vote or
consent of the Company's shareholders.
The requirements of the OGCL and the Company's articles of incorporation and
code of regulations must be satisfied to effect a merger of Holdings and the
Company. Under the OGCL, unless a merger of
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Holdings and the Company is consummated pursuant to the "short-form" merger
provisions described above, a merger of Holdings and the Company must be
approved by the affirmative vote of the holders of two-thirds of the outstanding
Shares. The Company's articles of incorporation and code of regulations do not
(i) require that more than two-thirds of the holders of outstanding Shares
approve a merger or (ii) prohibit an owner of 90% of the Shares from effecting a
"short-form" merger.
If the Offer is not consummated because the Public Acceptance Condition or
any other condition to the Offer (see "The Tender Offer--Section 11. Certain
Conditions to the Offer") is not satisfied and Renco and Holdings together
continue to own less than 90% of the total number of outstanding Shares, Renco
and Holdings would not be able to effect a "short form" merger of Holdings and
the Company. In such case, Renco and/or Holdings may, subject to numerous
factors, including the availability of Shares at prices acceptable to Renco
and/or Holdings, the business condition and prospects of the Company, other
investment opportunities available to Renco and general economic and market
conditions, acquire additional Shares through privately negotiated or open
market purchases, subject to subsequent tender or exchange offers or by any
other means Renco and/or Holdings deem advisable on such terms and at such
prices as they determine (which may be more or less than the Offer Price) to
bring the ownership of Renco and Holdings together to at least 90% of the total
number of outstanding Shares and, thereafter, consummate a "short form" merger.
Such transactions, if any, are not currently contemplated by the Letter
Agreement and may be made with or without approval of the Board or any
independent committee thereof. See "The Tender Offer--Section 9. The Merger."
If the Merger is consummated, Public Shareholders of the Company will have
certain rights under the OGCL to seek judicially determined fair value for their
Shares, exclusive of any element of value arising from the expectation or
accomplishment of the Merger; and each then outstanding Share (other than Shares
owned by Holdings or Renco or Shares held in the treasury of the Company, which
shall be cancelled, and other than Shares held by shareholders who have validly
exercised dissenters' rights under the OGCL) will be converted into the right to
receive the Offer Consideration. Under the OGCL, dissenting shareholders who
comply with the requisite statutory procedures and who fail to reach an
agreement with the Surviving Corporation as to the fair cash value of the Shares
will be entitled to a determination and payment of the fair value of their
Shares in accordance with the OGCL. Any statutory determination of the fair
value of the Shares could be more or less than the Offer Price and could be
based upon considerations other than, or in addition to, the price paid in the
Offer or the Merger (and in any subsequent purchases), the market value of the
Shares or the Company's asset value and earning capacity. See Annex B for the
procedures required for exercising dissenters' rights in connection with the
Merger. Although holders of Shares will have certain dissenters' rights in
connection with the Merger, there are no dissenters' rights in connection with
the Offer.
If the Merger is consummated, Renco's common equity interest, directly or
indirectly, in the Company would increase to 100%, and Renco would be entitled
to all benefits resulting from that interest. These benefits include complete
management and investment discretion with regard to the future conduct of the
Company's business, all income generated by the Company and any future increase
in the Company's value. Similarly, Renco will also bear all the risk of any
losses incurred in the operation of the Company and any decrease in the value of
the Company, including losses as a result of any pending or future litigation
against the Company.
Shareholders of the Company who sell their Shares in the Offer will cease to
have any equity interest in the Company and to participate in its earnings and
any future growth. If a merger of Holdings and the Company is consummated, the
rights of all Public Shareholders as shareholders of the Company will be
terminated and these holders will not participate in the earnings or growth of
the Company after such merger. Similarly, Public Shareholders will not bear the
risk of any decrease in the value of the Company after selling their Shares in
the Offer or after a merger of Holdings and the Company.
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The primary benefit of the Equity Transactions to the holders of Shares is
that they are being afforded an opportunity to sell all of their Shares at a
price which is 73.9% over the closing market price ($5.75) of the Shares on
September 23, 1996, the last full trading day preceding the date of the Initial
Announcement of the Proposal. See "Special Factors--Background," "--Reasons for
the Offer and the Merger" and "-- Fairness of the Equity Transactions" and "The
Tender Offer--Section 6. Price Range of the Shares; Dividends on the Shares."
CONTINGENT CASH CONSIDERATION RIGHTS
In addition to the Offer Price, Public Shareholders who have tendered and
had accepted for purchase their Shares pursuant to the Offer or whose Shares are
extinguished and who receive the Offer Price per Share pursuant to the Merger,
shall also be entitled to the right to receive, per Share, without interest, a
PRO RATA portion, equal to a fraction, the numerator of which is one and the
denominator of which is the total number of Shares outstanding immediately prior
to consummation of the Equity Transactions, of the Sale Proceeds Amounts (as
defined) (the "Contingent Cash Consideration Rights").
As used herein, "Sale Proceeds Amounts" shall mean, in the aggregate: (A)
all amounts actually received by Renco or any affiliate thereof holding the
stock of WCI in connection with a (i) merger of the Company with another entity
in which the surviving corporation is not directly or indirectly controlled by
Renco or any of its affiliates, (ii) sale by the Company of all or substantially
all of its assets, or (iii) direct or indirect sale, through one or more
transactions, by Renco and/or an entity controlled by Renco of a majority of the
issued and outstanding capital stock of the Company (any of (i), (ii) or (iii),
a "Control Event"), provided (X) such Control Event is consummated or with
respect to which a definitive commitment has been entered into by the Company or
Renco, as the case may be, within 12 months from the date of consummation of the
Merger, and (Y) the proceeds from such Control Event have been actually received
by the Company or Renco, as the case may be; less the aggregate of (B) (i) the
Offer Price multiplied by the total number of Shares issued and outstanding
immediately prior to consummation of the Offer, and (ii) all fees, costs,
expenses and disbursements, legal, financial or otherwise, incurred by the
Company, Renco and/or their affiliates in connection with such Control Event. In
the event that the Sale Proceeds Amounts include any consideration other than
cash, the value of such non-cash consideration shall be determined as follows:
(A) securities which are traded on a national securities exchange or inter-
dealer quotation system shall have as the value per unit of such security, the
closing price of such unit as quoted on such exchange or system on the last
trading day before the date of consummation or agreement, as the case may be,
with respect to the Control Event, and (B) all other securities and any tangible
or intangible real or personal property shall have the value as determined in
good faith by the Board of Directors of the Company. For purposes hereof,
"control" (including the term "controlled by") means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a person or entity, whether through the ownership of voting
securities, by contract or otherwise.
Renco has no current or future plans, nor does it intend to cause,
facilitate, enter into discussions or entertain any proposal with respect to, a
Control Event. Renco has no obligation, and does not intend to incur or enter
into any obligation, to use any efforts to engage in or consummate a Control
Event, at any time or at any price, and neither Renco nor its affiliates, nor
any of their respective directors, officers or employees shall be required to
(i) solicit or consider any potential transaction which will or may involve or
result in a Control Event, or (ii) take any action, or refrain from taking any
action, of any kind or nature in order to affect the price, if any, paid to
Renco or the Company in connection with a Control Event.
The Contingent Cash Consideration Rights shall not be evidenced by a
certificate or instrument and may not be assigned, pledged, hypothecated or
otherwise transferred by the holders thereof (except by will or by operation of
the laws of descent and distribution after the death of the natural holder
thereof). In addition, the Contingent Cash Consideration Rights will not confer
upon the holders thereof any actual or contingent voting rights with respect to,
or rights to receive dividends from, Renco, the Company or any of their
affiliates.
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NOTWITHSTANDING THE FOREGOING, RENCO SHALL ONLY BE OBLIGATED TO MAKE
PAYMENTS IN RESPECT OF THE CONTINGENT CASH CONSIDERATION RIGHTS IF AND TO THE
EXTENT THAT IT, THE COMPANY, OR ANY OF THEIR RESPECTIVE AFFILIATES, AS THE CASE
MAY BE, HAS ACTUALLY RECEIVED SALE PROCEEDS AMOUNTS IN CONNECTION WITH A CONTROL
EVENT.
THE DEBT TRANSACTIONS
On October 23, 1996, the Company commenced an offer (the "Debt Tender
Offer") to purchase for cash up to all, but not less than a majority, of the
$206.4 million aggregate principal amount outstanding of its 10 1/2% Senior
Notes Due 2002 (the "Existing Notes") and a related solicitation (the "Consent
Solicitation") of consents to delete or modify certain terms of the indenture
related to the Existing Notes (the "Existing Notes Indenture"). The purchase
price to be paid in respect of validly tendered and not withdrawn Existing Notes
and the related consents is 111.5% of their principal amount plus accrued and
unpaid interest up to, but not including, the date of purchase. Subject to
consummation of the Debt Tender Offer and the Consent Solicitation (I.E.,
receipt by the Company of consents representing at least a majority in aggregate
principal amount of the Existing Notes outstanding), the Company will commence
an offering (the "Debt Offering") pursuant to Rule 144A under the Securities Act
of 1933, as amended (the "Securities Act"), of $300 million principal amount of
new Senior Secured Notes due 2006 (the "New Notes"). CONSUMMATION OF EACH OF THE
DEBT OFFERING, THE DEBT TENDER OFFER AND THE CONSENT SOLICITATION IS CONDITIONED
UPON CONSUMMATION OF THE OTHERS, AND UPON CONSUMMATION OF THE OFFER; HOWEVER,
ALTHOUGH RENCO AND THE COMPANY INTEND TO CONSUMMATE THE DEBT TRANSACTIONS (AS
DEFINED) SIMULTANEOUSLY WITH THE EQUITY TRANSACTIONS, CONSUMMATION OF THE OFFER
IS NOT CONDITIONED UPON CONSUMMATION OF THE DEBT TRANSACTIONS. SEE "THE TENDER
OFFER--SECTION 11. CERTAIN CONDITIONS TO THE OFFER." The Debt Tender Offer, the
Consent Solicitation and the Debt Offering are collectively referred to herein
as the "Debt Transactions," and, with the Equity Transactions, the
"Transactions."
PLANS FOR THE COMPANY AFTER THE TRANSACTIONS
Renco currently intends that after the Transactions, the Company will
continue to be operated substantially as it is currently being operated by its
existing management, and Renco plans to maintain the continuity of the Company's
management. Renco does not contemplate any changes in the Company's Board of
Directors prior to the consummation of a merger of Holdings and the Company.
Renco believes that the Company's business fits well with Renco's current
business and operations. Renco may, however, decide to make changes in the
operations and management of the Company in the future. Upon consummation of the
Debt Transactions, the Company plans to authorize and declare a dividend to
Renco of approximately $108.0 million, and in connection therewith, the Company
will also make certain contractual compensation payments to certain executive
officers of the Company in an aggregate amount of approximately $13.2 million.
In addition, the Company expects to make payments to two retired executive
officers of the Company within 90 days of completion of the Transactions, in an
aggregate amount estimated to be approximately $7.3 million, in settlement of
certain net worth appreciation agreements to which the Company and each such
executive officer is a party.
Except for a merger of Holdings and the Company and except as otherwise
described in this Offer to Purchase, none of the Company, Renco or Holdings has
any present plans or proposals which relate to or would result in an
extraordinary corporate transaction, such as a merger, reorganization,
liquidation, relocation of any operations of the Company or sale or transfer of
any material amount of assets involving the Company or any of its subsidiaries,
or any changes in the Company's capitalization or dividend policy or any other
changes in the Company's corporate structure or the composition of its
management.
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FAIRNESS OF THE EQUITY TRANSACTIONS
At a meeting held on October 20, 1996, the Independent Director stated his
conclusion that the Equity Transactions are fair to the Public Shareholders and
recommended that the Board (i) approve the Equity Transactions and (ii)
recommend that the Public Shareholders accept the Offer and tender all of their
Shares pursuant to the Offer. At a meeting held immediately thereafter, at which
all of the members of the Board of the Company were present, based on the
recommendation of the Independent Director, the Board (with Mr. Rennert
abstaining ) unanimously (i) determined that the Equity Transactions are fair to
the Public Shareholders and (ii) recommended that each of the Public
Shareholders accept the Offer and tender all of their Shares pursuant to the
Offer. See "Introduction" and "Special Factors-- Background."
THE INDEPENDENT DIRECTOR. In determining that the Equity Transactions are
fair to the Public Shareholders and in recommending to the Board that it (i)
approve the Equity Transactions and (ii) recommend that the Public Shareholders
accept the Offer and tender all of their Shares pursuant to the Offer, the
Independent Director considered the following factors, each of which, in the
Independent Director's view, supported his determination to recommend the Equity
Transactions:
(i) the opinion of Gleacher NatWest, delivered orally to the Independent
Director on October 20, 1996, and subsequently confirmed in writing as to
the fairness of the Offer Price to be received by the Public Shareholders
from a financial point of view, and the analyses presented to the
Independent Director by Gleacher NatWest in support of its opinion (see
"Special Factors--Opinion of Gleacher NatWest; Summary of Financial
Analysis");
(ii) the condition to the consummation of the Offer (which is not
otherwise required by the OGCL or the Company's articles of incorporation or
Code of Regulations) that a majority of the Public Shares be tendered;
(iii) the limited number of conditions to the obligations of Renco and
Holdings under the Equity Transactions, and the fact that the Offer is not
subject to or conditioned upon the consummation of the Debt Transactions or
any other financing;
(iv) the Company's financial information and historical financial
performance, as well as the informed judgment of the Independent Director,
after consideration of the financial analyses presented to the Independent
Director by Gleacher NatWest, in assessing whether or not the Offer was fair
to the Public Shareholders. In particular, the Independent Director
considered the impact of the 1995 labor contract dispute and resulting work
stoppage on the Company's historical financial performance in comparison to
the management estimate of the Company's historical financial performance,
excluding the impact of the 1995 labor contract dispute and resulting work
stoppage;
(v) the statistics reviewed by the Independent Director showing the
daily trading volume and closing price for the Shares during the period from
July 14, 1994 through and including October 16, 1996 demonstrated the
historical illiquidity of the Shares. The Independent Director viewed the
Offer as giving the Public Shareholders, particularly those holding a large
number of Shares, an opportunity to immediately realize value for their
Shares at a fixed price;
(vi) trading information reviewed by the Independent Director relating
to the Shares since the Company's initial public offering on July 14, 1994,
which showed that the trading prices for the Shares since that time had
generally been at a significant discount to the Offer Price. Further, the
Independent Director reviewed the historic trading prices for the Shares in
comparison with the performance of (A) the S&P 400 and (B) a composite index
of selected publicly traded companies with operating characteristics and/or
industry focus that Gleacher NatWest believes resemble those of the Company
during the same period;
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(vii) the history of the negotiations with respect to the Equity
Transactions that, among other things, led to the belief of the Independent
Director that $10.00 per Public Share was the best price that could be
obtained from Renco and that the Public Shareholders should be given the
opportunity to determine whether or not they wished to sell their Shares at
that price;
(viii) the Offer Price represents a premium of approximately 73.9% over
the closing price of $5.75 per Share on September 23, 1996 (the date
preceding the day of the Initial Announcement) and a premium of
approximately 97.6% over the reported average closing price of the Shares
during the 52 week period ending on the last full trading day before the
Initial Announcement;
(ix) (A) the representation of Renco that it is not in discussions with
any third party with respect to, and has no current intention to sell
control or cause the sale of, the Company or all or substantially all of its
assets (as a result of which the Independent Director did not, and did not
instruct Gleacher NatWest to, solicit third party bids for the Company) and
(B) the agreement of Renco to pay to the Public Shareholders the pro rata
share of any net proceeds in excess of $10.00 per share should any such
transaction occur within twelve months of the consummation of the Equity
Transactions; in this regard, because of the representation of Renco
described in (A) above, the Independent Director attributed no monetary
value to the rights described in (B) above; and
(x) the availability of dissenters' rights under the OGCL to dissenting
Public Shareholders in the Equity Transactions.
In light of the number and variety of factors the Independent Director
considered in connection with his evaluation of the Equity Transactions, the
Independent Director did not find it practicable to assign relative weights to
the foregoing factors. However, the Independent Director considered particularly
influential to his conclusion the factors described in clauses (i), (ii), (iii),
(iv) and (viii) above.
Although the Independent Director did consider historical trading prices of
the Shares, the Independent Director did not consider trading prices of the
Shares for the period following the Initial Announcement because he believed
that such prices reflected anticipation of the possible purchase of the Public
Shares by Renco. The Independent Director did consider the going concern value
of the Company as reflected in Gleacher NatWest's discounted cash flow analysis.
(see "Special Factors--Opinion of Gleacher NatWest; Summary of Financial
Analysis"). The Independent Director reviewed Gleacher NatWest's leveraged
recapitalization analysis and considered whether the Public Shareholders would
be better off retaining their Shares and receiving dividends from the Company
(as described in "Special Factors--Plans for the Company after the
Transactions") rather than accepting the Offer and tendering their Shares.
The Independent Director consulted with Gleacher NatWest during the course
of his work with respect to the financial analyses performed by Gleacher
NatWest. The Independent Director believes that Gleacher NatWest's analysis was
reasonable.
The Independent Director believes that the Equity Transactions are
procedurally fair because: (i) the Independent Director is a disinterested
director appointed to represent the interests of, and to negotiate on an arm's
length basis with Renco on behalf of, the Public Shareholders; (ii) the
Independent Director retained and was advised by independent legal counsel;
(iii) the Independent Director retained Gleacher NatWest as independent
financial advisor to assist him in evaluating the Proposal; (iv) the Equity
Transactions will be contingent upon a majority of the Public Shares being
tendered; (v) the consummation of the Equity Transactions will not be predicated
on the successful completion of the Debt Transactions or any other financing;
and (vi) Renco will pay to the Public Shareholders their pro rata share of the
net proceeds in excess of $10.00 per share should any sale of control of the
Company occur within twelve months of the consummation of the Equity
Transactions. In addition, the Independent Director believes that the Equity
Transactions are procedurally fair because the Offer Price and the other terms
and conditions of the Equity Transactions were the result of active arm's length
bargaining between the Independent Director and Renco.
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RENCO. Renco has not had any involvement in the Independent Director's
evaluation of the fairness of the Equity Transactions to the Public Shareholders
(other than providing information to Gleacher NatWest through its advisors) and
did not undertake any formal evaluation of its own as to such fairness. However,
Renco considered, among other things, (i) historical market prices for the
Shares, including the initial public offering price (and the fact that the Offer
Price is substantially more than the trading prices of the Shares prior to the
Initial Announcement), (ii) valuations of other selected companies, and (iii)
the range of premiums paid in selected going private transactions during the
last two years. Renco also considered the fact that the Independent Director had
received the written opinion of Gleacher NatWest addressed to the Independent
Director to the effect that, as of the date thereof, the consideration of $10.00
per Share to be received by the Public Shareholders in the Equity Transactions
are fair to the Public Shareholders from a financial point of view and the fact
that Renco determined such price on an arm's length basis with the Independent
Director, assisted by Gleacher NatWest and S&S. Renco believes that these
factors, when considered together, provide a reasonable basis for Renco to
believe, as it does, that the Equity Transactions are fair to the Public
Shareholders.
OPINION OF GLEACHER NATWEST; SUMMARY OF FINANCIAL ANALYSIS
GLEACHER NATWEST. Upon being advised of Renco's proposals in respect of the
transactions, the Independent Director retained Gleacher NatWest pursuant to an
engagement letter dated September 27, 1996 (the "Engagement Letter") to (i)
review and analyze the financial aspects of the Equity Transactions; (ii)
analyze the Company from a financial standpoint; (iii) if requested, assist the
Independent Director in negotiations; (iv) assist the Independent Director in
evaluating the Equity Transactions; and (v) if requested, render an opinion to
the Independent Director as to the fairness, from a financial point of view, of
the Equity Transactions to holders of Shares (other than Renco, Mr. Rennert and
their respective affiliates). The Independent Director retained Gleacher NatWest
because of Gleacher NatWest's reputation as an internationally recognized
investment banking firm that regularly engages in the valuation of businesses
and their securities in connection with mergers and acquisitions.
THE FOLLOWING IS A SUMMARY OF THE WRITTEN OPINION OF GLEACHER NATWEST TO THE
INDEPENDENT DIRECTOR. THE FULL TEXT OF GLEACHER NATWEST'S OPINION, WHICH SETS
FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED, AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS
ANNEX C AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF SHARES ARE URGED TO
READ THE GLEACHER NATWEST OPINION CAREFULLY AND IN ITS ENTIRETY. A COPY OF
GLEACHER NATWEST'S OCTOBER 20, 1996 WRITTEN PRESENTATION TO THE INDEPENDENT
DIRECTOR (THE "PRESENTATION") HAS BEEN FILED AS AN EXHIBIT TO EACH OF THE
SCHEDULES AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXTS OF THE WRITTEN OPINION
AND THE PRESENTATION.
GLEACHER NATWEST'S OPINION IS ADDRESSED TO THE INDEPENDENT DIRECTOR AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES WHETHER TO TENDER SHARES
PURSUANT TO THE OFFER.
On October 20, 1996, Gleacher NatWest delivered its written presentation to
the Independent Director and subsequently to the Board. In each case, Gleacher
NatWest also reviewed the information referred to below which underlies Gleacher
NatWest's financial analysis and its opinion, and, based on the analysis
referred to below, delivered its oral opinion (subsequently confirmed in its
written opinion, dated October 20, 1996) that, as of the date of such opinion,
the cash consideration to be received by the holders of Shares (other than
Renco, Mr. Rennert and their respective affiliates) is fair from a financial
point of view to such shareholders.
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Gleacher NatWest did not make or seek to obtain any appraisals of the
Company's assets in connection with its financial analysis of the Company. No
limitations were imposed by the Independent Director, the Company or Renco on
Gleacher NatWest with respect to the information reviewed or the procedures
followed by Gleacher NatWest in rendering its opinion. The Company and its
management cooperated fully with Gleacher NatWest in connection with its
investigations. As set forth in its written opinion, Gleacher NatWest assumed
and relied upon, without assuming responsibility for independent verification,
the accuracy and completeness of the information reviewed by Gleacher NatWest
for purposes of its opinion. With respect to the financial projections provided
to Gleacher NatWest by the Company, Gleacher NatWest assumed that such
projections were reasonably prepared and reflected the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company. Gleacher NatWest also assumed, based on
the information provided to Gleacher NatWest and without assuming responsibility
for the independent verification thereof, that no material undisclosed or
contingent liability exists with respect to the Company. Gleacher Natwest's
opinion is necessarily based on the economic, market, and other conditions as in
effect, and the information available to Gleacher NatWest, on October 20, 1996.
Gleacher NatWest was not requested to, and did not, solicit third party
indications of interest in acquiring all or part of the Company. Additionally,
Gleacher NatWest was informed by Renco, and in giving its opinion has relied on
such information, that Renco has no present intention to sell the Company after
consummating the Equity Transactions and that, in the event that Renco does sell
the Company within twelve months of the consummation of the Transactions, then
the holders of Shares (other than Renco, Mr. Rennert and their respective
affiliates) will be entitled to participate ratably in the amount realized by
Renco from such sale, to the extent that such amount exceeds $10.00 per Share.
In conducting its analysis and arriving at its opinion, Gleacher NatWest:
(a) reviewed the audited and unaudited financial statements for the three most
recent fiscal years and interim periods of the Company; (b) discussed the past
and current operations, financial condition and prospects of the Company with
its management and with Renco's advisors; (c) reviewed with management certain
business plans of the Company and certain financial projections prepared by, and
pertaining to, the Company; (d) reviewed the terms of the Equity Transactions
with the Company and Renco's advisors; (e) reviewed the historical market prices
and reported trading volumes of the Shares; (f) compared the price per Share
offered in the Equity Transactions to historical market prices of the Shares;
(g) compared the financial performance of the Company with, and reviewed the
prices and reported trading activity of the securities of, selected publicly
traded companies whose operating characteristics and/or industry focus Gleacher
NatWest believes resemble those of the Company; (h) reviewed the financial terms
of selected "minority squeeze-out" transactions of publicly traded companies;
(i) reviewed the financial terms of selected acquisitions of companies with
operating characteristics and/or industry focus that Gleacher NatWest believes
resemble those of the Company; (j) performed a discounted cash flow analysis of
the Company based upon the financial information provided to Gleacher NatWest by
management of the Company; (k) performed a leveraged recapitalization analysis
of the Company based upon financial information provided to Gleacher NatWest by
the management of the Company and Renco's advisors; and (l) reviewed such other
information and performed such other analyses as Gleacher NatWest deemed
appropriate.
In preparing its opinion for the Independent Director, Gleacher NatWest
performed a variety of financial and comparative analyses and considered a
variety of factors, as described below. The summary of such analyses does not
purport to be a complete description of the analyses underlying Gleacher
NatWest's opinion. The preparation of a fairness opinion is a complex analytic
process involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances, and, therefore, such an opinion is not readily
susceptible to summary description.
In arriving at its opinion, Gleacher NatWest did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each
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analysis and factor. Accordingly, Gleacher NatWest believes that its analyses
must be considered as a whole and that selecting portions of its analyses or
portions of the factors considered by it, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, Gleacher NatWest made
numerous assumptions with respect to the Company, industry performance, general
business, regulatory, economic, market and financial conditions and other
matters, many of which are beyond the control of the Company. No company,
transaction or business used in such analyses as a comparison is identical to
the Company or the Equity Transactions, nor is an evaluation of the results of
such analyses entirely mathematical; rather, it involves complex considerations
and judgments concerning financial and operating characteristics and other
factors that could affect the acquisition, public trading or other values of the
companies, business segments or transactions being analyzed. The estimates
contained in such analyses and the ranges of valuations resulting from any
particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, because such estimates are inherently subject to substantial
uncertainty, none of the Company, Gleacher NatWest or any other person assumes
responsibility for their accuracy.
The following is a summary of the material analyses performed by Gleacher
NatWest.
PREMIUMS PAID ANALYSIS. Gleacher NatWest reviewed a range of selected
historical market prices of the Shares and calculated the premiums reflected in
the Offer Price, as well as a range of hypothetical offering prices. Based on
this range of hypothetical offering prices, Gleacher NatWest also calculated the
range of multiples of the Company's historical and projected net sales; earnings
before interest, taxes, depreciation and amortization ("EBITDA"); earnings
before interest and taxes ("EBIT"); and earnings per share ("EPS"). In each
case, Gleacher NatWest calculated the relevant multiples based on the Company's
historical and projected financial information (i) on an actual basis and (ii)
as adjusted by management of the Company to eliminate the effects of a 54-day
work stoppage that affected the Company's results in the fourth quarter of
fiscal 1995 and the first two quarters of fiscal 1996 ("As Adjusted"). In
reviewing this analysis, Gleacher NatWest advised the Independent Director that
the Offer Price represented premiums of 73.9%, 86.0% and 95.1% over the market
price of the Shares one day, one week and four weeks, respectively, prior to the
Initial Announcement and a premium of 70.2% over the highest market price of the
Shares in the 52-week period immediately preceding the Initial Announcement.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Gleacher NatWest reviewed
and compared certain financial, operating and stock market information of the
Company to selected publicly traded companies whose operating characteristics
and/or industry focus Gleacher NatWest believes resemble those of the Company.
These companies included: Acme Metals, Inc.; AK Steel Holdings Corp.; Armco
Inc.; Bethlehem Steel Corp.; Dofasco Inc.; Geneva Steel Co. (Class A Common
Stock); Inland Steel Industries Inc.; LTV Corp.; National Steel Corp. (Class B
Common Stock); Rouge Steel Co.; USX Corp.--U.S. Steel Group; Weirton Steel
Corporation; and WHX Corp. (collectively, the "Selected Companies"). Gleacher
NatWest created a range of market multiples for the Selected Companies by
dividing the aggregate value (total common shares outstanding multiplied by the
closing market price per share on October 16, 1996 plus latest reported total
debt, preferred stock and minority interest minus latest reported cash and cash
equivalents) ("Aggregate Value") of each of the Selected Companies by such
company's net sales, EBITDA and EBIT for the latest four fiscal quarters as
reported in publicly available information and by dividing the closing market
price per share on October 16, 1996 by EPS for the latest four fiscal quarters
as reported in publicly available information ("LTM EPS") and as projected for
the 1996 and 1997 calendar years, as represented by the mean estimate reported
by publicly available sources. This analysis indicated that the relevant ranges
of multiples derived from the Selected Companies were (i) net sales: 0.15x to
0.97x; (ii) EBITDA: 1.5x to 9.9x; (iii) EBIT: 4.0x to 22.3x; (iv) LTM EPS: 7.6x
to 21.0x; (v) 1996 EPS: 7.7x
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to 19.5x and (vi) 1997 EPS: 7.9x to 19.0x. Gleacher NatWest determined that the
median multiples of net sales, EBITDA and EBIT for the Selected Companies for
the immediately preceding four fiscal quarters, were 0.40x, 4.7x and 8.3x,
respectively, and that the median multiples of LTM EPS, 1996 EPS and 1997 EPS
were 10.3x, 12.7x and 11.8x, respectively. Gleacher NatWest compared the
above-mentioned ranges and median multiples of the Selected Companies to the
Company's market multiples (based on the $5.75 per Share closing market price
one day prior to the Initial Announcement) on an actual basis and As Adjusted.
The Company's As Adjusted multiples of net sales, EBITDA, and EBIT for the
immediately preceding four fiscal quarters were 0.39x, 2.8x and 3.8x,
respectively, and the Company's As Adjusted multiples of LTM EPS, 1996 EPS and
1997 EPS were 6.8x, 7.0x and 7.1x, respectively. Gleacher NatWest then
calculated imputed valuation ranges of the Company by applying the As Adjusted
results of the Company to the median multiples derived from its analysis of the
Selected Companies. This analysis resulted in a range of values of the Company
of $5.93 to $14.49 per Share. In reviewing the operations of the Selected
Companies, Gleacher NatWest determined that no company was directly comparable
to the Company. After examining the ranges of multiples produced by an analysis
of the Selected Companies, discussing the operations of the Company with
management and Renco's advisors and reviewing other relevant data concerning the
Company versus the Selected Companies (including sales, relative size,
profitability and growth prospects) and the historic trading pattern of the
Shares. Gleacher NatWest concluded that on a fully-distributed basis, the shares
would most likely trade at a discount to the values implied by the median
multiples of the Selected Companies.
ANALYSIS OF SELECTED MINORITY SQUEEZE-OUT TRANSACTIONS. Gleacher NatWest
presented an analysis of the purchase prices paid in connection with selected
minority squeeze-out transactions which occurred since January 1990 (the
"Squeeze-Out Transactions"). Gleacher NatWest calculated the premium per share
paid by the acquiror in each of the Squeeze-Out Transactions as a percentage of
the stock price of the acquired company one day, one week and four weeks prior
to the original announcement of the Squeeze-Out Transaction. Gleacher NatWest
conducted its analysis both for all Squeeze-Out Transactions ("All Squeeze-Out
Transactions") and for only those Squeeze-Out Transactions in which the acquiror
already owned in excess of 75% of the issued and outstanding capital stock
immediately prior to the original announcement of the transaction ("the 75%
Squeeze-Out Transactions"). This analysis indicated that the relevant ranges of
premiums were (i) one day: (8.7)% to 66.7%; (ii) one week: 4.2% to 90.0%; and
(iii) four weeks: (2.6)% to 88.6%. Restricting the analysis to 75% Squeeze-Out
Transactions did not materially affect these ranges. Gleacher NatWest calculated
that the median premium as a percentage of the stock price of the acquired
company one day, one week and four weeks prior to the original announcement of
the Squeeze-Out Transactions was 24.1%, 26.0% and 32.2%, respectively, for All
Squeeze-Out Transactions and 25.7%, 31.8% and 33.0%, respectively, for 75%
Squeeze-Out Transactions. Gleacher NatWest compared the above-mentioned ranges
and median premiums of the Squeeze-Out Transactions to the premiums implied by
the Offer Price over the closing market price of the Shares one day, one week
and four weeks prior to the Initial Announcement. The Offer Price implied
premiums of 73.9%, 86.0% and 95.1%, respectively, over the closing market price
of the Shares one day, one week and four weeks prior to the Initial
Announcement. Gleacher NatWest then calculated the imputed valuation range of
the Company by applying the median premiums derived from its analysis of both
All Squeeze-Out Transactions and the 75% Squeeze-Out Transactions to the closing
market price of the Shares on the appropriate date. This analysis resulted in a
range of values of the Company of $6.77 to $7.23 per Share.
ANALYSIS OF SELECTED MERGERS & ACQUISITIONS TRANSACTIONS. Gleacher NatWest
analyzed the purchase prices and multiples paid or proposed to be paid in
selected merger and acquisition transactions which occurred since January 1990
using publicly available information, including CasTech Aluminum Group
Inc./Commonwealth Aluminum; Bliss & Loughlin Industries Inc./BRW Steel Corp;
Cressona Aluminum Co./Alumax Inc.; Doehler- Jarvis Inc./Harvard Industries Inc.;
William R. Hubbell Steel Corp./Gibraltar Steel Corp.; American Steel & Wire
Corp./Birmingham Steel Corp.; Athlone Industries Inc./Allegheny Ludlum Corp.;
FLS Holdings Inc./Kyoei Steel Ltd.; Washington Steel Corp./Lukens, Inc.; Cyclops
Industries Inc./Armco Inc.; and Copperweld Corp./Imetal S.A. (the "Selected
Acquisitions"). Gleacher NatWest
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selected transactions in which it believed that the acquired company had
operating characteristics and/or an industry focus which resembled those of the
Company. Gleacher NatWest calculated the Aggregate Value, based on the purchase
price, as a multiple of net sales, EBITDA and EBIT for each acquired company for
the four fiscal quarters immediately preceding the announcement of the
transaction and the per share purchase price as a multiple of EPS for the
acquired company for the four fiscal quarters immediately preceding the
announcement of the transaction. This analysis indicated that the ranges of
multiples derived from the Selected Acquisitions were (i) net sales: 0.27x to
0.97x; (ii) EBITDA: 4.1x to 9.1x; (iii) EBIT: 4.8x to 15.7x; and (iv) EPS: 7.2x
to 25.5x. The median multiples of net sales, EBITDA, EBIT and EPS were 0.65x,
6.9x, 10.2x and 13.3x, respectively. Based on the Offer Price, the Company's
multiples of net sales, EBITDA, EBIT and EPS (on an As Adjusted basis) were
0.62x, 4.5x, 6.0x and 11.8x, respectively. Gleacher NatWest then calculated the
imputed valuation ranges of the Company by applying the As Adjusted results for
the preceding four fiscal quarters of the Company to the median multiples
derived from its analysis of the Selected Acquisitions. This analysis indicated
a range of values of the Company of $10.59 to $18.16 per Share. Gleacher NatWest
also performed an analysis of the premiums paid in the Selected Acquisitions
similar to the analysis performed in respect of the Squeeze-Out Transactions.
This analysis indicated that the median premium as a percentage of the stock
price one day, one week and four weeks prior to the original announcement of the
Selected Acquisition was 30.0%, 33.8% and 28.6%, respectively. The Offer Price
represented a premium of 73.9%, 86.0% and 75.1%, respectively, above the closing
market price of the Shares one day, one week and four weeks prior to the Initial
Announcement. Gleacher NatWest then calculated the imputed valuation ranges of
the Company by applying the median premiums derived from its analysis of the
Selected Acquisitions to the closing market price of the Shares on the
appropriate date. This resulted in a range of values for the Company of $6.59 to
$7.48 per Share. In presenting its analysis of the Selected Acquisitions,
Gleacher NatWest noted that none of the acquired companies in the Selected
Acquisitions was directly comparable to the Company and that substantially all
of the Selected Acquisitions, unlike the Equity Transactions, involved a change
of control. As a result, Gleacher NatWest advised the Independent Director that
analysis of the Selected Acquisitions using the median multiples was not a
reliable indicator of the fairness of the Offer Price from a financial point of
view.
DISCOUNTED CASH FLOW ANALYSIS. Gleacher NatWest performed a discounted cash
flow analysis of the projected cash flows of the Company for the fiscal years
1997 through 1999 based in part upon certain operating and financial
assumptions, forecasts and other information provided by the management of the
Company. Using this financial information, Gleacher NatWest calculated the
projected cash flow based on projected unleveraged net income (earnings before
interest and after taxes) for the 1996 through 1999 fiscal years as adjusted
for: (i) certain projected non-cash items (such as depreciation and amortization
and non-cash post-retirement expense); (ii) forecasted capital expenditures
(including discretionary capital expenditures); (iii) forecasted non-cash
working capital requirement; and (iv) pension funding requirements. Gleacher
NatWest discounted the stream of projected cash flows back to November 1, 1996
using discount rates ranging from 9.0% to 12.0%. To estimate the residual value
of the Company at the end of the forecast, Gleacher NatWest applied a range of
perpetual growth rates of 1.0% to 3.0% to the projected fiscal year 1999 cash
flow and discounted such value estimates back to November 1, 1996 using discount
rates ranging from 9.0% to 12.0%. The range of discount rates was selected based
on a variety of factors including analysis of the estimated cost of capital, the
cyclical nature of the business of the Company, the opportunities for growth
that Gleacher NatWest believed existed for the Company, and capital structures
for companies operating in businesses similar to that in which the Company
operates. The range of perpetual growth rates was selected based on the
opportunities for growth that Gleacher NatWest, based on information provided by
management of the Company, believes exist for the Company, both independently
and relative to other participants in the Company's industry. Gleacher NatWest
then added the present values of the cash flows and the present values of the
residual value to derive a range of values of the Company of $4.28 to $8.93 per
Share.
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LEVERAGED RECAPITALIZATION ANALYSIS. Gleacher NatWest also prepared a
financial analysis of a recapitalization of the Company in which all
shareholders would receive an extraordinary cash distribution per share of
Common Stock of $3.50 (an amount equal to the dividend which Gleacher NatWest
was informed the Company will declare and pay to Renco immediately after the
consummation of the Transactions) financed with a new senior debt offering and
existing cash of the Company based in part on certain financial assumptions and
other information provided by the Company and Renco's advisors. See "Special
Factors--Plans for the Company after the Transactions." Gleacher NatWest applied
two separate methodologies to determine the implicit value to holders of Shares
of such a leveraged recapitalization. First, Gleacher NatWest applied a range of
EBITDA multiples ranging from 4.0x to 5.0x EBITDA, As Adjusted, of the Company
for the immediately preceding four fiscal quarters. This analysis indicated that
such a recapitalization transaction would have an implied value of between $7.20
and $9.75 per Share (including the payment of the $3.50 per Share dividend).
Gleacher NatWest also calculated PRO FORMA EPS for the 1997 calendar year after
giving effect to the recapitalization. Gleacher NatWest then applied a range of
price to earnings multiples of 9.0x to 11.0x PRO FORMA calendar 1997 EPS. This
analysis indicated that the recapitalization transaction would have an implied
value of between $9.32 and $10.62 per Share (including the payment of the $3.50
per Share dividend).
Gleacher NatWest advised the Independent Director that the results of the
analyses described above supported its conclusion that, as of the date of its
opinion, the consideration to be received by the holders of Shares (other than
Renco, Mr. Rennert and their respective affiliates) in the Equity Transactions
was fair from a financial point of view to such shareholders.
Pursuant to the Engagement Letter, Gleacher NatWest was paid $500,000 in
connection with the engagement. If the Equity Transactions have not been
consummated or terminated by December 31, 1996, the Company has agreed to pay
Gleacher NatWest an additional fee of $75,000 per month for each month or part
thereof after December 1996 that Gleacher NatWest is requested to render
services to the Independent Director in connection with the Equity Transactions.
The Company also has agreed to reimburse Gleacher NatWest for all reasonable
travel and other reasonable out-of-pocket expenses incurred in connection with
Gleacher NatWest's engagement under the Engagement Letter, including all
reasonable fees and disbursements of Gleacher NatWest's legal counsel and other
professional advisors. The Company has also agreed to indemnify Gleacher NatWest
and its affiliates, the respective limited and general partners, directors,
officers, agents and employees of Gleacher NatWest and its affiliates and each
other person, if any, controlling Gleacher NatWest or any of its affiliates to
the full extent lawful from and against any losses, damages, liabilities,
expenses or claims (or actions in respect thereof, including, without
limitation, shareholder and derivative actions and arbitration proceedings)
related to or otherwise arising out of the engagement contemplated by the
Engagement Letter or Gleacher NatWest's role in connection therewith (other than
losses, damages, liabilities, expenses or claims which are finally judicially
determined to have resulted from Gleacher NatWest's bad faith or gross
negligence).
EXCEPT AS DESCRIBED HEREIN, NEITHER GLEACHER NATWEST NOR ANY AFFILIATE OF
GLEACHER NATWEST HAS PERFORMED ANY INVESTMENT BANKING OR OTHER FINANCIAL
SERVICES FOR, OR HAD ANY MATERIAL FINANCIAL RELATIONSHIP WITH THE COMPANY OR
RENCO DURING THE TWO YEARS PRECEDING THE DATE HEREOF.
CERTAIN EFFECTS OF THE OFFER AND THE MERGER
The Shares are presently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing brokers to extend credit
on the collateral of the Shares. Depending upon factors similar to those
described above, following the Offer it is possible that the Shares would no
longer constitute "margin securities" for purposes of the Federal Reserve
Board's margin regulations and therefore could no longer be used as collateral
for loans made by brokers.
The Shares are currently registered under the Exchange Act. Upon
consummation of the Offer, Renco intends to seek deregistration of the Shares
under the Exchange Act upon application of the Company to the Commission, which
application should be approved if the Shares are not listed on a
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national securities exchange and there are fewer than 300 record holders of the
Shares. Termination of registration of the Shares under the Exchange Act would
substantially reduce the information required to be furnished by the Company to
its shareholders and to the Commission and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b) and the requirement of furnishing a proxy statement in connection with
shareholders' meetings pursuant to Section 14(a), no longer applicable to the
Company. Furthermore, "affiliates" of the Company and persons holding
"restricted securities" of the Company may be deprived of the ability to dispose
of such securities pursuant to Rules 144 or 144A promulgated under the
Securities Act. Once registration of the Shares under the Exchange Act is
terminated, the Shares will no longer be "margin securities" or eligible for
listing on the NYSE. It is the present intention of Renco to seek to cause the
Company to make such an application for termination of registration of the
Shares as soon as possible following the Offer if the requirements for
termination of registration are met. If registration of the Shares is not
terminated prior to the Merger, the Shares may no longer meet the requirements
of the NYSE, and registration of the Shares under the Exchange Act will be
terminated following the consummation of the Merger.
If consummated, the Equity Transactions will result in an increase of
Renco's interest in the net book value of the Company by approximately $11.4
million or approximately 15.53%, and an increase in Renco's interest in the
earnings of the Company for the nine months ended July 31, 1996 by approximately
$3.0 million, or 15.53%.
INTERESTS OF CERTAIN PERSONS
In considering the conclusion of the Board and the Independent Director that
the Equity Transactions are fair to the Public Shareholders, Public Shareholders
should be aware that Renco and Holdings have certain interests that present
actual or potential conflicts of interest in connection with the Offer. As a
result of Renco's current ownership of approximately 84.47% of the outstanding
Shares and its nominees constituting a majority of the Company's directors,
Renco may be deemed to control the Company.
Mr. Rennert is a Director and deemed owner of the Company (through his
direct or indirect beneficial ownership of 95.9% of the total number of
outstanding shares of common stock of Renco, which holds approximately 84.47% of
the total number of outstanding Shares). Under a Management Consultant
Agreement, effective October 1, 1992, as amended, between Renco and the Company,
the Company pays a monthly fee of $100,000 to Renco.
Justin W. D'Atri, Secretary and a Director of the Company, was, until his
retirement in June 1996, of counsel to the law firm of Baer Marks & Upham LLP,
which, up to such time, provided legal services to the Company, Renco and
certain other subsidiaries of Renco. Commencing July 1, 1996, Mr. D'Atri
receives $1,000 per week from Renco for certain consulting services provided by
him to Renco, of which he is Secretary and a Director.
William Schwartz, a Director of the Company, is of counsel to CW&T, which
has provided, and continues to provide, certain legal services to the Company,
Renco and certain other subsidiaries of Renco.
Pursuant to the Directors Plan, each member of the Board who is not an
officer or employee of the Company or Renco, or an affiliate of a firm regularly
rendering services to the Company, receives annually, as of May 1 in each year,
a grant of such number of Shares as has a value equal to one-half the annual
cash retainer to directors. The annual cash retainer in fiscal 1995 was $15,000
and therefore the grant for fiscal 1995 was 1,400 shares of Common Stock valued
at $7,500. In fiscal 1996, the annual cash retainer was $25,000 until September
3, 1996 at which point it was raised to $30,000 annually. Accordingly, each
director entitled to a grant received Shares valued at $12,500 in fiscal 1996.
One director is presently eligible to receive Shares pursuant to the Directors
Plan.
Shares issued pursuant to the Directors Plan are restricted such that if the
director's service ends for any reason prior to the May 1 following the date of
grant, all of the granted shares revert to the Company. If such director's
service ends after the first May 1 but prior to the second May 1 after the date
of grant, two-thirds of the shares originally granted revert to the Company, and
if such director's service ends after
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the second May 1 but prior to the third May 1 after the date of grant, one-third
of the shares originally granted revert to the Company. In connection with the
Equity Transactions, the Board has lifted the restrictions applicable to such
Shares. See "Introduction".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax consequences
of the Offer and the Merger. This summary is addressed to beneficial owners of
Shares who are (a) citizens or residents of the United States, (b) corporations
or partnerships created or organized in or under the laws of the United States
or any state, (c) estates, the income of which is subject to United States
federal income taxation regardless of its source, or (d) trusts, (i) for taxable
years beginning after December 31, 1996 (or after August 20, 1996, if the
trustee has made an applicable election), with respect to which a court within
the United States is able to exercise primary supervision over the trust's
administration and one or more United States fiduciaries have the authority to
control all of the trust's substantial decisions, or (ii) otherwise, the income
of which is subject to U.S. federal income taxation regardless of its source.
This summary addresses only owners that beneficially own Shares as capital
assets and not as part of a hedge, a "conversion transaction," or as part of
some other integrated investment. This summary is not addressed to certain
classes of owners subject to special treatment under the federal income tax laws
(for example, dealers in securities, banks, and insurance companies). This
summary is based on the tax laws of the United States in effect on the date of
this Statement, as well as judicial and administrative interpretations thereof
(in final or proposed form) available on or before such date. All of the
foregoing are subject to change, which could apply retroactively. In addition,
this summary will not apply to Shares received pursuant to the exercise of
employee stock options or otherwise as compensation, or to beneficial owners of
Shares who are not citizens or residents of the United States.
Owners of Shares should consult their tax advisors with respect to the
federal, state, local and foreign tax consequences of tendering or failing to
tender Shares.
The receipt of cash for Shares pursuant to the Offer or the Merger
(including pursuant to the exercise of appraisal rights) will be a taxable
transaction for federal income tax purposes (and also may be a taxable
transaction under applicable state, local and other income tax laws). In
general, for federal income tax purposes, an owner of Shares will recognize
capital gain or loss equal to the difference between its adjusted tax basis in
the Shares sold pursuant to the Offer or converted to cash in the Merger and the
amount of cash received therefor. Gain or loss will be long-term gain or loss
if, on the date of sale (or, if applicable, the date of the Merger), the Shares
were owned for more than one year.
Under federal income tax law, certain owners who receive cash for Shares are
required to provide the Depositary (as payor) with their correct taxpayer
identification numbers ("TIN") on the Substitute Form W-9 included as part of
the Consent and Letter of Transmittal. If the owner is an individual, the TIN is
his or her social security number. If the Depositary is provided with an
incorrect TIN, the owner may be subject to a $50 penalty imposed by the Internal
Revenue Service (the "IRS"). In addition, payments that are made to such owner
may be subject to backup withholding and reporting to the IRS. Certain owners
(including, among others, corporations) are not subject to these backup
withholding and reporting requirements. If backup withholding applies, the
Depositary is required to withhold 31% of any payment made to the owner. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax liability of persons subject to backup withholding will be offset by the
amount of tax withheld. If backup withholding results in an overpayment of
federal income taxes, a refund may be obtained from the IRS provided the
required information is furnished.
To prevent backup withholding, the owner or other payee is required to
complete the Substitute Form W-9 on the Consent and Letter of Transmittal
certifying that the TIN provided on such form is correct and that such owner or
other payee is not subject to backup withholding.
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THE TENDER OFFER
SECTION 1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), Holdings will accept for payment (and thereby purchase) all Shares
that are validly tendered prior to the Expiration Date and not withdrawn prior
to the Expiration Date in accordance with "--Section 4. Withdrawal Rights." As
used in the Offer, the term "Expiration Date" shall mean 12:00 midnight, New
York City time on November 25, 1996, unless and until Holdings, in accordance
with the terms of the Offer, shall have extended the period of time during which
the Offer is open, in which event the term "Expiration Date" shall mean the
latest time and date at which the Offer, as so extended by Holdings, shall
expire. As used in this Offer to Purchase, "business day" has the meaning set
forth in Rule 14d-1(c)(6) under the Exchange Act.
In the event that the Offer is not consummated or Holdings purchases fewer
than all outstanding Shares pursuant to the Offer, Holdings may seek to acquire
additional Shares through open market purchases, privately negotiated
transactions, or otherwise, upon such terms and conditions and at such prices as
it shall determine, which may be more or less than the Offer Price and could be
for cash or other consideration. See "Introduction."
The Offer is expressly conditioned upon, among other things, satisfaction of
the Public Acceptance Condition. See "Introduction" and "--Section 11. Certain
Conditions to the Offer." Subject to restrictions contained in the Letter
Agreement, Holdings expressly reserves the right (but shall not be obligated) to
waive any or all of the conditions of the Offer. If any of the conditions of the
Offer are not waived, subject to restrictions contained in the Letter Agreement,
or are not satisfied, Holdings may (i) extend the period during which the Offer
is open and, subject to withdrawal rights, retain all tendered Shares until the
expiration of the Offer, (ii) waive such condition and, subject to complying
with applicable rules and regulations of the Commission, accept for payment all
tendered Shares and not extend the Offer, or (iii) terminate the Offer and not
accept for payment any Shares and return all tendered Shares to tendering
shareholders. See "--Section 11. Certain Conditions to the Offer."
Subject to restrictions contained in the Letter Agreement, Holdings
expressly reserves the right, at any time or from time to time, to extend the
period of time during which the Offer is open, by giving oral or written notice
of such extension to the Depositary and by making a public announcement of such
extension. There can be no assurance that Holdings will exercise its right, to
the extent such right exists, to extend the Offer. Holdings also expressly
reserves the right, subject to applicable laws and to the restrictions contained
in the Letter Agreement (including applicable rules and regulations of the
Commission promulgated under the Exchange Act), at any time or from time to
time, (i) to delay acceptance for payment of or payment for any Shares,
regardless of whether the Shares were theretofore accepted for payment, or to
terminate the Offer and not accept for payment or pay for any Shares not
theretofore accepted for payment or paid for, upon the occurrence of any of the
conditions specified in "--Section 11. Certain Conditions to the Offer" by
giving oral or written notice of such delay in payment or termination to the
Depositary, and (ii) to amend the Offer in any respect, by giving oral or
written notice to the Depositary. Any extension, delay in payment, termination
or amendment will be followed as promptly as practicable by public announcement,
the announcement in the case of an extension to be issued no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Without limiting the manner in which Holdings may
choose to make any public announcement, Holdings will have no obligation to
publish, advertise or otherwise communicate any such announcement other than by
issuing a release to the Dow Jones News Service or as otherwise may be required
by law. The reservation by Holdings of the right to delay acceptance for payment
of or payment for Shares is subject to the provisions of Rule 14e-1(c) under the
Exchange Act, which requires that Holdings pay the consideration offered or
return the Shares deposited by or on behalf of shareholders promptly after the
termination
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<PAGE>
or withdrawal of the Offer. Any delay in acceptance for payment or payment
beyond the time permitted by applicable law will be effectuated by an extension
of the period of time during which the Offer is open.
The Commission has announced that, under its interpretation of Rules
14d-4(c) and 14d-6(d) under the Exchange Act, material changes in the terms of a
tender offer or information concerning a tender offer may require that the
tender offer be extended so that it remains open a sufficient period of time to
allow security holders to consider such material changes or information in
deciding whether or not to tender or withdraw their securities. The minimum
period during which the Offer must remain open following material changes in the
terms of the Offer or information concerning the Offer, other than a change in
price or a change in percentage of securities sought, will depend upon the facts
and circumstances, including the relative materiality of the terms or
information. If Holdings decides to increase or to decrease the consideration
offered in the Offer or, in accordance with the restrictions contained in the
Letter Agreement, to make a change in the percentage of securities sought or to
change or waive the Public Acceptance Condition and if at the time that notice
of any such changes is first published, sent or given to shareholders, the Offer
is scheduled to expire at any time earlier than the tenth business day after
(and including) the date of such notice, then the Offer will be extended at
least until the expiration of ten business days after and including the date of
such notice.
This Offer to Purchase, the related Letter of Transmittal and other relevant
materials will be mailed to record holders of Shares and will be furnished to
brokers, dealers, commercial banks, trust companies and other nominees whose
names, or the names of whose nominees, appear on the Company's shareholder list
or, if applicable, who are listed as participants in a clearing agency's
security position listing for subsequent transmittal to beneficial owners of
Shares.
SECTION 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended or, in accordance with the terms and provisions of
the Letter Agreement, the terms and conditions of any such extension or
amendment), Holdings will accept for payment (and thereby purchase) and, under
the terms of the Offer, pay for Shares that are validly tendered and not
properly withdrawn, as soon as practicable after the later of the following
dates: (i) the Expiration Date, and (ii) the date of satisfaction or waiver of
all of the conditions to the Offer as set forth herein. Holdings expressly
reserves the right, in its discretion, subject to applicable laws and
regulations, to delay acceptance for payment of or payment for Shares in order
to comply, in whole or in part, with any applicable law, government regulation
or condition contained herein. See "--Section 10. Extension of the Offer;
Amendments; Termination" and "--Section 11. Certain Conditions to the Offer."
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) certificates for such
Shares (or a timely Book-Entry Confirmation (as defined) with respect to such
Shares) and (ii) the Letter of Transmittal (or a manually signed facsimile
thereof), properly completed and duly executed with all required signature
guarantees, and all other documents required by the Letter of Transmittal. See
"--Section 3. Procedure for Tendering Shares."
For purposes of the Offer, Holdings will be deemed to have accepted for
payment (and thereby purchased) tendered Shares as, if and when Holdings gives
oral or written notice to the Depositary of its acceptance of such Shares for
payment. In all cases, payment for Shares purchased pursuant to the Offer will
be made by deposit of the purchase price therefor with the Depositary, which
will act as agent for Holdings for the purpose of receiving payment from
Holdings and transmitting payment to tendering shareholders whose Shares have
theretofore been accepted for payment. If, for any reason whatsoever, acceptance
for payment of any Shares tendered pursuant to the Offer is delayed, or Holdings
is unable to accept for payment Shares tendered pursuant to the Offer, then,
without prejudice to Holdings' rights under "--Section 10. Extension of the
Offer; Amendments; Termination," the Depositary may, nevertheless, on behalf of
Holdings, retain tendered Shares, and such Shares may not be withdrawn, except
to the
21
<PAGE>
extent that tendering holders of Shares are entitled to withdrawal rights as
described in "--Section 4. Withdrawal Rights" and as otherwise may be required
by Rule 14e-1(c) under the Exchange Act. UNDER NO CIRCUMSTANCES WILL INTEREST ON
THE OFFER PRICE BE PAID BY HOLDINGS, REGARDLESS OF ANY DELAY IN MAKING SUCH
PAYMENT.
If any tendered Shares are not purchased for any reason or if certificates
are submitted for more Shares than are tendered, certificates for such Shares
not purchased or tendered will be returned pursuant to the instructions of the
tendering shareholder (or, in the case of Shares delivered by book-entry
transfer into the Depositary's account at a Book-Entry Transfer Facility (as
defined)) pursuant to the procedures set forth in "--Section 3. Procedure for
Tendering Shares," such Shares will be credited to an account maintained at the
appropriate Book-Entry Transfer Facility as promptly as practicable following
the expiration, termination or withdrawal of the Offer.
If, prior to the Expiration Date, Holdings increases the consideration to be
paid per Share pursuant to the Offer, Holdings will pay such increased
consideration for all such Shares purchased pursuant to the Offer, whether or
not such Shares were tendered prior to such increase in consideration.
Holdings reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of its or Renco's affiliates the right to purchase
Shares tendered pursuant to the Offer, however, no such transfer or assignment
will release Holdings from its obligations under the Offer or prejudice the
rights of tendering shareholders to receive payment for Shares validly tendered
and accepted for payment pursuant to the Offer.
SECTION 3. PROCEDURE FOR TENDERING SHARES
VALID TENDERS. For Shares to be validly tendered pursuant to the Offer,
either (a) a Letter of Transmittal (or a manually signed facsimile thereof),
properly completed and duly executed, with any required signature guarantees and
any other documents required by the Letter of Transmittal, must be received by
the Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase prior to the Expiration Date and either (i) certificates
representing Shares must be received by the Depositary at any such address prior
to the Expiration Date or (ii) such Shares must be delivered pursuant to the
procedures for book-entry transfer set forth below and a Book-Entry Confirmation
must be received by the Depositary prior to the Expiration Date or (b) the
tendering shareholder must comply with the guaranteed delivery procedures set
forth below. No alternative, conditional or contingent tenders will be accepted.
BOOK-ENTRY TRANSFER. The Depositary will establish an account with respect
to the Shares at The Depository Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Offer within two business days after the date of
this Offer to Purchase. Any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of Shares by
causing the Book-Entry Transfer Facility to transfer such Shares into the
Depositary's account at the Book-Entry Transfer Facility in accordance with the
Book-Entry Transfer Facility's procedure for such transfer. However, although
delivery of Shares may be effected through book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility, the Letter of
Transmittal (or a manually signed facsimile thereof), properly completed and
duly executed, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to, and received by, the Depositary
at one of its addresses set forth on the back cover of this Offer to Purchase
prior to the Expiration Date, or the tendering shareholder must comply with the
guaranteed delivery procedures described below. The confirmation of a book-entry
transfer of Shares into the Depositary's account at the Book-Entry Transfer
Facility as described above is referred to herein as a "Book-Entry
Confirmation." DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
22
<PAGE>
SIGNATURE GUARANTEE. Signatures on Letters of Transmittal must be
guaranteed by a member firm of a registered national securities exchange
(registered under Section 6 of the Exchange Act) or of the National Association
of Securities Dealers, Inc. (the "NASD") or by a commercial bank or trust
company having an office or correspondent in the United States or by any other
"Eligible Guarantor Institution" (as defined in Rule 17Ad-15 under the Exchange
Act) (each of the foregoing constituting an "Eligible Institution"), unless the
Shares tendered thereby are tendered (i) by a registered holder of Shares who
has not completed either the box entitled "Special Delivery Instructions" or the
box entitled "Special Payment Instructions" on the Letter of Transmittal or (ii)
for the account of an Eligible Institution. See Instruction 1 of the Letter of
Transmittal. If the certificates representing Shares are registered in the name
of a person other than the signer of the Letter of Transmittal or if payment is
to be made or certificates for Shares not accepted for payment are to be issued
to a person other than the registered holder, then the certificates representing
Shares must be endorsed or accompanied by appropriate stock powers, in each case
signed exactly as the name or names of the registered holder or holders
appear(s) on the certificates, with the signatures on the certificates or stock
powers guaranteed as described above and as provided in the Letter of
Transmittal. See Instructions 1 and 5 of the Letter of Transmittal.
GUARANTEED DELIVERY. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's certificates are not immediately available or
the procedures for book-entry transfer cannot be completed on a timely basis or
time will not permit all required documents to reach the Depositary prior to the
Expiration Date, such Shares may nevertheless be tendered if all of the
following guaranteed delivery procedures are complied with:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Holdings herewith, is
received by the Depositary as provided below prior to the Expiration Date;
and
(iii) The certificates for all tendered Shares in proper form for
transfer or a Book-Entry Confirmation with respect to all tendered Shares,
together with a properly completed and duly executed Letter of Transmittal
(or a manually signed facsimile thereof) and any other documents required by
the Letter of Transmittal, are received by the Depositary within three NYSE
trading days after the date of such Notice of Guaranteed Delivery.
THE NOTICE OF GUARANTEED DELIVERY MAY BE DELIVERED BY HAND OR TRANSMITTED BY
FACSIMILE TRANSMISSION OR MAILED TO THE DEPOSITARY AND MUST INCLUDE AN
ENDORSEMENT BY AN ELIGIBLE INSTITUTION IN THE FORM SET FORTH IN SUCH NOTICE OF
GUARANTEED DELIVERY.
IN ALL CASES, SHARES SHALL NOT BE DEEMED VALIDLY TENDERED UNLESS A PROPERLY
COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED
FACSIMILE THEREOF) IS RECEIVED BY THE DEPOSITARY.
THE METHOD OF DELIVERY OF CERTIFICATES FOR SHARES, THE LETTER OF TRANSMITTAL
AND ANY OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING
SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer in all cases will be made only after timely
receipt by the Depositary of certificates for (or Book-Entry Confirmation with
respect to) such Shares, a Letter of Transmittal or a manually signed facsimile
thereof, properly completed and duly executed, with any required signature
guarantees and all other documents required by the Letter of Transmittal.
BACKUP FEDERAL INCOME TAX WITHHOLDING. To prevent backup federal income tax
withholding of 31% of the payments made to shareholders with respect to the
purchase price of Shares purchased pursuant to the Offer or the Merger, each
such shareholder must provide the Depositary with his correct TIN and
23
<PAGE>
certify that he is not subject to backup federal income tax withholding by
completing the Substitute Form W-9 included in the Letter of Transmittal. See
Instruction 8 of the Letter of Transmittal.
DETERMINATION OF VALIDITY. All questions as to the form of documents and
the validity, eligibility (including time of receipt) and acceptance for payment
of any tender of Shares pursuant to any of the procedures described above will
be determined by Holdings in its sole discretion, which determination shall be
final and binding on all parties. Holdings reserves the absolute right to reject
any or all tenders of Shares determined not to be in proper form or the
acceptance of or payment for which may, in the opinion of counsel, be unlawful.
Holdings also reserves the absolute right to waive or to amend any of the
conditions of the Offer or any defect or irregularity in any tender of Shares.
The conditions may be considered to be material to the Offer. Holdings'
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and the instructions thereto) will be final and binding on all
parties. No tender of Shares will be deemed to have been validly made until all
defects and irregularities have been cured or waived. None of Holdings, the
Company, the Dealer Manager, the Depositary, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification.
OTHER REQUIREMENTS. By executing a Letter of Transmittal, a tendering
shareholder irrevocably appoints designees of Holdings as his attorneys-in-fact
and proxies, with full power of substitution, in the manner set forth in the
Letter of Transmittal, to the full extent of such shareholder's rights with
respect to the Shares tendered by such shareholder and purchased by Holdings and
with respect to any and all other Shares or other securities issued or issuable
in respect of such Shares, on or after the date of the Offer. All such powers of
attorney and proxies shall be considered coupled with an interest in the
tendered Shares. Such appointment will be effective when, and only to the extent
that, Holdings accepts such Shares for payment. Upon such acceptance for
payment, all prior powers of attorney and proxies given by such shareholder with
respect to such Shares (and any other Shares or other securities so issued in
respect of such purchased Shares) will be revoked, without further action, and
no subsequent powers of attorney and proxies may be given (and, if given, will
not be deemed effective) by such shareholder. The designees of Holdings will be
empowered to exercise all voting and other rights of such shareholder with
respect to such Shares (and any other Shares or securities so issued in respect
of such purchased Shares) as they in their sole discretion may deem proper,
including, without limitation, in respect of any annual or special meeting of
the Company's shareholders, or any adjournment or postponement thereof, or in
connection with any action by written consent in lieu of any such meeting or
otherwise. Holdings reserves the absolute right to require that, in order for
Shares to be validly tendered, immediately upon Holdings' acceptance for payment
of such Shares, Holdings must be able to exercise full voting and other rights
with respect to such Shares, including voting at any meeting of shareholders
then scheduled.
A tender of Shares pursuant to any of the procedures described above in this
Section 3 will constitute the tendering shareholder's acceptance of the terms
and conditions of the Offer, as well as the tendering shareholder's
representation and warranty to Holdings that (a) such shareholder has a net long
position in the Shares being tendered within the meaning of Rule 14e-4 under the
Exchange Act and (b) the tender of such Shares complies with Rule 14e-4. It is a
violation of Rule 14e-4 for a person, directly or indirectly, to tender Shares
for such person's own account unless, at the time of tender, the person so
tendering (i) has a net long position equal to or greater than the amount of (x)
Shares tendered or (y) other securities immediately convertible into or
exchangeable or exercisable for the Shares tendered and such person will acquire
such Shares for tender by conversion, exchange or exercise and (ii) will cause
such Shares to be delivered in accordance with the terms of the Offer. Rule
14e-4 provides a similar restriction applicable to the tender or guarantee of a
tender on behalf of another person. Holdings' acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering shareholder and Holdings upon the terms and subject to the conditions
of the Offer.
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<PAGE>
SECTION 4. WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer are irrevocable, except as
otherwise provided in this Section 4. Shares tendered pursuant to the Offer may
be withdrawn at any time prior to the Expiration Date. If Holdings extends the
Offer, is delayed in its purchase of or payment for Shares or is unable to
purchase or pay for Shares for any reason, then, without prejudice to the rights
of Holdings hereunder, tendered Shares may be retained by the Depositary on
behalf of Holdings and may not be withdrawn except to the extent that tendering
shareholders are entitled to withdrawal rights as set forth in this Section 4.
The reservation by Holdings of the right to delay the purchase of or payment
for Shares is subject to the provisions of Rule 14e-1(c) under the Exchange Act,
which requires Holdings to pay the consideration offered or return Shares
deposited by or on behalf of shareholders promptly after the termination or
withdrawal of the Offer.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
its address set forth on the back cover of this Offer to Purchase. Any such
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If certificates evidencing Shares have been delivered or otherwise
identified to the Depositary, then prior to the release of such certificates,
the tendering shareholder must also submit the serial numbers shown on the
particular certificates evidencing the Shares to be withdrawn, and the signature
on the notice of withdrawal must be guaranteed by an Eligible Institution
(except in the case of Shares tendered for the account of an Eligible
Institution). If Shares have been tendered pursuant to the procedure for
book-entry transfer set forth in "--Section 3. Procedure for Tendering Shares,"
the notice of withdrawal must specify the name and number of the account at the
applicable Book-Entry Transfer Facility to be credited with the withdrawn
Shares. All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Holdings, in its sole discretion,
whose determination shall be final and binding on all parties. No withdrawal of
Shares shall be deemed to have been properly made until all defects and
irregularities have been cured or waived. None of Holdings, the Company, the
Dealer Manager, the Depositary, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or will incur any liability for failing to give such
notification.
Any Public Shares properly withdrawn will be deemed not validly tendered for
purposes of the Offer, but may be retendered at any subsequent time prior to the
Expiration Date by following any of the procedures described in "--Section 3.
Procedure for Tendering Shares."
SECTION 5. SOURCE AND AMOUNT OF FUNDS
If the Equity Transactions are consummated independently of the Debt
Transactions, Renco intends to form a new direct wholly-owned subsidiary
("Newco") to which it would contribute all of its shares of Holdings, and thus,
Holdings would become a direct wholly-owned subsidiary of Newco. In such event,
Newco intends to borrow approximately $50.0 million from Congress Financial
Corporation ("Congress") and to contribute such proceeds to Holdings. Holdings
would, prior to commencement of the Offer, have available cash of approximately
$7.0 million representing a capital contribution to Holdings by Renco. The
contribution by Newco to Holdings, along with Holdings' available cash, would be
used to pay the amount needed to purchase all of the outstanding Public Shares
pursuant to the Offer and the Merger. Upon consummation of the Equity
Transactions, the Company, as the surviving corporation, would pay a dividend to
Newco in the amount necessary for Newco to repay its indebtedness to Congress.
The loan from Congress will mature on the third business day after the loan is
made and will bear interest at the prime rate as announced by CoreStates Bank,
N.A., plus 1.75%. Such loan shall be secured by a pledge of the Shares owned at
any time by Renco and Holdings, the capital stock of Holdings and all of the
assets of
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<PAGE>
Newco and Holdings. Such loan is subject to customary conditions and the
agreement relating to such loan will contain customary representations and
warranties, covenants and events of default.
If all of the Transactions are consummated simultaneously, the Company
intends to loan to Holdings (the "Loan") the amount needed (approximately $56.6
million) to purchase all of the outstanding Public Shares pursuant to the Offer,
which Loan shall be made from the gross proceeds (approximately $300 million)
received by the Company pursuant to the Debt Offering and/or available cash of
the Company. Subject to consummation of the Transactions, and subject further
to, and upon effectiveness of, the Merger, the Loan will be extinguished.
On October 23, 1996, the Company commenced the Debt Tender Offer to purchase
for cash up to all of the $206.4 million aggregate principal amount outstanding
of the Existing Notes and the Consent Solicitation related to the deletion and
modification of certain terms of the Existing Notes Indenture. The purchase
price to be paid in respect of validly tendered and not properly withdrawn
Existing Notes and the related consents is 111.5% of their principal amount,
plus accrued interest up to, but not including, the date of purchase.
Consummation of the Debt Tender Offer is conditioned upon, among other things,
consummation of the Debt Offering, the Consent Solicitation (I.E., receipt by
the Company of consents representing at least a majority in aggregate principal
amount of the Existing Notes outstanding) and the Offer.
The following table sets forth the unaudited consolidated capitalization of
WCI as of July 31, 1996 and as adjusted to give effect to the Equity
Transactions and the Transactions, including, in the case of the transactions,
the application of the estimated net proceeds from the Debt Offering.
<TABLE>
<CAPTION>
AS OF JULY 31, 1996
----------------------------------------
AS ADJUSTED
FOR THE AS ADJUSTED
EQUITY FOR THE
ACTUAL TRANSACTIONS(1) TRANSACTIONS
---------- -------------- ------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Cash, cash equivalents and short-term
investments...................................... $ 156,685 $ 106,685 $ 28,263
---------- -------------- ------------
---------- -------------- ------------
Total long-term debt, including current portion.... $ 211,801 $ 211,801 $ 305,401
Total shareholders' equity (deficit)............... 73,464 23,464 (114,752)
---------- -------------- ------------
Total capitalization............................... $ 285,265 $ 235,265 $ 190,649
---------- -------------- ------------
---------- -------------- ------------
</TABLE>
- ------------------------
(1) Assumes the Equity Transactions are completed and that the Debt Transactions
are not completed.
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<PAGE>
SECTION 6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES
The Shares commenced trading on the NYSE under the symbol "WRN" on July 14,
1994. The following table sets forth, for the periods indicated, the high and
low sales prices per Share on the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1994
Third Quarter (from July 14, 1994).......................................... $ 10 3/4 $ 9 1/2
Fourth Quarter.............................................................. 12 5/8 9 3/4
1995
First Quarter............................................................... 10 1/2 6 1/2
Second Quarter.............................................................. 7 5/8 5 3/8
Third Quarter............................................................... 7 1/2 5 1/2
Fourth Quarter.............................................................. 6 1/2 4 3/8
1996
First Quarter............................................................... 5 1/4 3 3/4
Second Quarter.............................................................. 5 3/8 4 3/8
Third Quarter............................................................... 5 3/8 4 3/8
Fourth Quarter (through October 25, 1996)................................... 9 7/8 4 7/16
</TABLE>
On September 23, 1996, the last full trading day preceding the date of the
Initial Announcement, the closing price per Share on the NYSE was $5.75. On
October 9, 1996, the last full trading day before the announcement of the terms
of the Proposal, the closing price per Share on the NYSE was $8.50. On October
25, 1996, the last full trading day before the commencement of the Offer, the
closing price per share on the NYSE was $9.875. SHAREHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR THE SHARES.
Various covenants contained in the Existing Notes Indenture and in the
Company's existing $100 million revolving credit agreement prohibited the
payment by the Company of any dividends prior to December 14, 1995, after which
date the Company was permitted to pay dividends or repurchase Shares, subject to
certain restrictions under the Existing Notes Indenture. On January 26, 1996,
the Company announced that the Board would, beginning with the Board meeting on
March 11, 1996, consider declaring dividends on the Shares on a quarterly basis.
On March 11, 1996, the Company announced that the Board had authorized a
dividend payment of $.05 per Share payable April 8, 1996 to shareholders of
record on March 25, 1996, the first dividend since the Shares began trading on
the NYSE on July 14, 1994; on June 18, 1996, the Board authorized a dividend
payment of $.06 per Share payable July 15, 1996 to shareholders of record on
July 1, 1996; and on September 3, 1996, the Board authorized a dividend payment
of $.07 per Share payable October 1, 1996 to shareholders of record on September
17, 1996.
Certain additional covenants and prohibitions in connection with the
Company's indebtedness restrict the Company's ability to pay dividends.
On June 18, 1996, the Board authorized the expenditure of up to $1.2 million
for the purchase by the Company of Shares from time to time in the open market
or in negotiated transactions. As of July 24, 1996, the Company had purchased
222,300 Shares for an aggregate consideration of $1.2 million at prices ranging
from $5.00 to $5.50 per share and no additional Shares were purchased by the
Company after such date pursuant to the June 18, 1996 authorization.
On September 3, 1996, the Board authorized an additional expenditure of up
to $1.2 million for the purchase of Shares from time to time on the open market
or in negotiated transactions. As of September 12, 1996, the Company had
suspended the repurchase program authorized on September 3, 1996, without having
purchased any Shares.
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<PAGE>
SECTION 7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NYSE LISTING;
EXCHANGE ACT REGISTRATION; AND MARGIN SECURITIES
The purchase of Public Shares by Holdings pursuant to the Offer will reduce
the number of holders of Shares and the number of Shares that might otherwise
trade publicly and could adversely affect the liquidity and market value of the
remaining outstanding Public Shares.
As of October 23, 1996, there were approximately 152 holders of record of
the Shares and 36,401,400 Shares were outstanding. If, as a result of the
purchase of Shares pursuant to the Offer or otherwise, trading of the Shares on
the NYSE is discontinued, the liquidity of and market for the Shares is likely
to be adversely affected. The Company cannot predict whether or to what extent
the reduction in the number of Shares that might otherwise trade publicly would
have an adverse or beneficial effect on the market price for or marketability of
the Shares or whether it would cause future prices to be greater or less than
the Offer Price.
The Shares are currently registered under Section 12(b) of the Exchange Act.
Registration of the Shares under the Exchange Act is expected to be terminated
pursuant to Section 12(g)(4) of the Exchange Act upon application by the Company
to the Commission if the Shares are neither listed on a national securities
exchange nor held by more than 300 holders of record. Termination of
registration of the Shares under the Exchange Act would substantially reduce the
information required to be furnished by the Company to its shareholders and to
the Commission and could make certain provisions of the Exchange Act no longer
applicable to the Company such as the short-swing profit recovery provisions of
Section 16(b) of the Exchange Act, the requirement of furnishing a proxy
statement pursuant to Section 14(a) of the Exchange Act in connection with
shareholders' meetings and the related requirement of furnishing an annual
report to shareholders and the requirements of Rule 13e-3 under the Exchange Act
with respect to "going private" transactions. Furthermore, the ability of
"affiliates" of the Company and persons holding "restricted securities" of the
Company to dispose of such securities pursuant to Rules 144 or 144A promulgated
under the Securities Act, may be impaired or eliminated.
Renco intends to seek to cause the Company to terminate the registration of
the Shares under the Exchange Act as soon after the completion of the Offer as
the requirements for such termination are met. If registration of the Shares is
not terminated prior to the Merger, the registration of the Shares under the
Exchange Act will be terminated following consummation of the Merger.
The Shares are currently "margin securities" under the regulations of the
Federal Reserve Board, which has the effect, among other things, of allowing
brokers to extend credit on the collateral of the Shares. Depending upon factors
similar to those described above regarding listing and market quotations, it is
possible that, following the Offer, the Shares would no longer constitute
"margin securities" for the purposes of the margin regulations of the Federal
Reserve Board and therefore could no longer be used as collateral for loans made
by brokers. If registration of Shares under the Exchange Act were terminated,
the Shares would no longer be "margin securities" or be eligible for listing on
the NYSE.
SECTION 8. CERTAIN INFORMATION CONCERNING THE COMPANY, RENCO AND HOLDINGS
THE COMPANY. WCI is a niche oriented integrated producer of value-added,
custom steel products. The Company produces a wide range of custom flat rolled
products, including high carbon, alloy and high strength, silicon electrical,
terne coated and galvanized steel. Since fiscal 1991, custom products have
increased from 47.2% of total shipments to 59.4% in fiscal 1995, and comprised
63.8% of total shipments for the three month period ending July 31, 1996. For
the first nine months of fiscal 1996, the Company shipped approximately 1.1
million tons of steel products.
WCI produces approximately 135 grades of custom and commodity steel products
that are used in the manufacture of a wide variety of value-added products such
as saw blades, golf club shafts, lawn mower blades, drive chain links, razor
blades, hand and garden tools, electric motors, gasoline tanks, automotive
28
<PAGE>
bumpers and culvert products. These custom grades typically sell at higher
prices than commodity products, resulting in higher operating margins. Since
fiscal 1991, the price of the Company's custom products has averaged $542 per
ton, while commodity products have averaged $382 per ton. WCI's commodity steel
products consist principally of low carbon flat rolled steel.
WCI's primary customers are steel converters, steel service centers,
construction product companies, electrical equipment manufacturers and, to a
lesser extent, automobile and automotive parts manufacturers. The Company
believes that the small order quantities, narrow widths, specialized chemistries
and other metallurgical properties required to serve these customers make these
markets less attractive to larger integrated steel producers and minimills.
Moreover, most minimill competitors have not offered product in these markets
due to the complex metallurgical requirements of the custom steel grades and the
adverse effect on the productivity of their facilities when producing these
custom products.
WCI believes that it operates at a distinct competitive advantage to other
integrated steel manufacturers due to its low cost structure, its niche oriented
custom product mix and its experienced management team. While categorized as an
integrated mill, management operates WCI with the high efficiency and low
overhead cost structure of a minimill. WCI is among the lowest cost integrated
steel producers in the United States, with one of the lowest labor and overhead
costs per ton in the integrated steel industry given its wide product range. In
addition to low production costs, WCI believes that it has one of the lowest
selling, general and administrative expense structures in the industry at 3.1%
of net sales in fiscal 1995. WCI believes that the combination of these factors
has permitted WCI to generate one of the highest operating margins per net ton
in the domestic steel industry.
WCI's business strategy consists of three principal elements: (a) continue
to increase sales of custom products, thereby further improving operating
margins; (b) continue to build and maintain strong relationships with strategic
customers, targeting customers for which it can supply at least 25% of such
customers' custom steel needs; and (c) continue to improve operating efficiency
and product quality through strategic cost reduction initiatives, as well as a
significant capital investment program.
Since its inception in 1988, WCI has completed approximately $260 million of
capital investments designed to, in part, increase productivity, decrease
production costs, expand product range and improve product quality. In
particular, the Company currently is in the process of completing the initial
phase of a three to five year upgrade of its hot strip mill, the scope of which
includes enhancing essentially every element of the mill operation, including
the heating, roughing, finishing, cooling and coiling processes. When completed
in mid-1997, the first phase of the hot strip mill upgrade will significantly
improve product quality and expand WCI's product range, in addition to improving
the mill's productivity and reducing operating costs. WCI is also currently
installing a high-temperature hydrogen anneal facility to upgrade its product
mix and to meet the rising demand in the custom product market for silicon
electrical steels.
In April 1995, the Company completed a major reline of its blast furnace, a
procedure which is performed on a routine basis every eight to ten years. In
December 1991, WCI completed the installation of a twin-strand continuous slab
caster (the "Continuous Caster") and a ladle metallurgy facility (the "LMF") at
a combined cost of approximately $135 million and all of the Company's products
have been continuously cast since May 1992. The Continuous Caster substantially
reduced the Company's operating costs, dramatically improved the metallurgical
and surface qualities of its products and enabled WCI to participate in markets
where the superiority of continuously cast steel is a competitive strength. WCI
believes that as a result of the capital investments completed to date, as well
as those ongoing presently, the Company operates and will continue to maintain a
modern and efficient integrated steel mill offering a diverse product mix.
RECENT DEVELOPMENTS. Results for fiscal 1995 and the first two quarters of
fiscal 1996 were adversely impacted by a 54 day labor contract dispute and
resulting work stoppage beginning September 1, 1995
29
<PAGE>
upon the expiration of the Company's previous collective bargaining agreement
with the United Steelworkers of America (the "USWA"). In particular, WCI's order
rate, shipping volume, order backlog and net sales were significantly reduced
during the work stoppage. On October 24, 1995, the Company successfully reached
a new four year agreement with the USWA. Subsequent to entering into such
agreement, the Company undertook to reestablish its order rate and backlog over
the first two quarters of fiscal 1996. Since the Company's custom product mix
was below levels realized in fiscal 1995, WCI's net sales and operating income
were reduced during the period. Results for fiscal 1995 were also negatively
affected by the planned reline of the Company's blast furnace discussed above.
Despite the labor contract dispute, the Company has reported strong operating
results to date during fiscal 1996. For the nine months ended July 31, 1996, the
Company generated total net sales and adjusted EBITDA (earnings before interest
expense (net of interest income), income taxes and depreciation and
amortization) of $490.1 million and $67.2 million, respectively. Moreover, by
the third quarter of fiscal 1996, the Company's percentage of custom steel
products reached 63.8% of net tons shipped versus 44.4% during the first quarter
of fiscal 1996, immediately following the settlement of the labor contract
dispute. The Company believes that this rapid return to its custom product mix
reflects the Company's strong relationships with its customers and the benefits
derived from offering niche oriented custom steel products.
CERTAIN FINANCIAL INFORMATION. The ratio of earnings to fixed charges for
the Company for the fiscal years ended 1993, 1994 and 1995, respectively, and
the nine months ended July 31, 1996 was 2.0x, 2.8x, 2.0x and 2.7x, respectively.
The net book value of the Shares at October 31, 1995 and July 31, 1996 was
approximately $1.63 and $2.02 per Share, respectively.
STOCK OWNERSHIP. The following table sets forth certain information as of
September 30, 1996 regarding the beneficial ownership of Shares by Renco, each
person listed in Schedule I (as defined) and each director and each named
executive officer of the Company during the last fiscal year. Except as
otherwise noted, the persons named in the table below have sole voting and
investment power with respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
AS OF SEPTEMBER 30, 1996
---------------------------
<S> <C> <C>
NAME SHARES PERCENT
The Renco Group, Inc..................................................................... 30,746,800 84.5%
30 Rockefeller Plaza, 42nd Floor
New York, NY 10112
Ira Leon Rennert(1)...................................................................... 30,746,900 84.5%
c/o The Renco Group, Inc.
30 Rockefeller Plaza, 42nd Floor
New York, NY 10112
James V. Stack........................................................................... 25,000 *
Edward R. Caine.......................................................................... 25,000(2) *
Justin W. D'Atri......................................................................... 300(3) *
Arthur W. Fried.......................................................................... 22,700(4) *
William Schwartz......................................................................... 4,850(4) *
Patrick G. Tatom......................................................................... 10,000(2) *
Patrick T. Kenney........................................................................ 10,000(2) *
Bret W. Wise............................................................................. 11,000(5) *
Roger L. Fay............................................................................. 1,000 *
Marvin M. Koenig......................................................................... 2,500 *
John A. Siegel, Jr....................................................................... 1,000 *
</TABLE>
(FOOTNOTES APPEAR ON NEXT PAGE)
30
<PAGE>
* Less than 1%
(1) Mr. Rennert is deemed to beneficially own the Shares owned by Renco due to
the ownership by himself and six trusts established by him (but of which he
is not a trustee) for himself and members of his family of a total of 95.9%
of the outstanding Common Stock of Renco. He also owns 100 Shares of the
Company, individually, and members of his family own an additional 400
Shares in which he disclaims any beneficial interest.
(2) Represents restricted Shares granted to such executive officers and
directors and subject to forfeiture in certain events.
(3) Mr. D'Atri is one of five trustees of the six trusts referred to in note (1)
for the benefit of members of the Rennert family which hold approximately
24.3% of the stock of Renco. He disclaims beneficial ownership of the Renco
stock held by the Trusts and the stock of the Company held by Renco.
(4) Includes 3,883 restricted Shares subject to forfeiture in certain events.
(5) Includes 10,000 restricted Shares subject to forfeiture in certain events.
CERTAIN COMPANY PROJECTIONS. The Company does not as a matter of course
make public any projections or forecasts as to its future performance or
earnings, and projections discussed herein are included in this Offer to
Purchase only because such information was provided to the Independent Director
in connection with the Equity Transactions. In particular, the Company provided
to the Independent Director certain projections as to the Company's future
anticipated performance for the 1996, 1997, 1998 and 1999 fiscal years,
including (i) net sales of $657.5 million, $674.1 million, $677.6 million and
$661.5 million, respectively; (ii) operating income of $64.6 million, $63.1
million, $72.9 million, and $67.2 million, respectively; (iii) net income of
$27.7 million, $28.2 million, $34.8 million and $32.5 million, respectively;
(iv) earnings per Share of $.76, $.78, $.95 and $.89, respectively; and (v)
capital expenditures of $30 million, $45 million, $40 million and $40 million,
respectively.
THE PROJECTIONS DESCRIBED ABOVE WERE NOT PREPARED WITH A VIEW TO PUBLIC
DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
REGARDING PROJECTIONS OR FORECASTS. THE COMPANY'S INTERNAL FINANCIAL FORECASTS
(UPON WHICH THE PROJECTIONS PROVIDED TO THE INDEPENDENT DIRECTOR WERE BASED IN
PART) ARE, IN GENERAL, PREPARED SOLELY FOR INTERNAL USE IN CAPITAL BUDGETING AND
OTHER MANAGEMENT DECISIONS AND ARE SUBJECTIVE IN MANY RESPECTS AND THUS
SUSCEPTIBLE TO VARIOUS INTERPRETATIONS AND PERIODIC REVISION BASED ON ACTUAL
EXPERIENCE AND BUSINESS DEVELOPMENTS. PROJECTIONS WERE BASED ON A NUMBER OF
ASSUMPTIONS THAT ARE BEYOND THE CONTROL OF RENCO, HOLDINGS, THE COMPANY AND
THEIR RESPECTIVE FINANCIAL ADVISORS. MANY OF THE ASSUMPTIONS UPON WHICH THE
PROJECTIONS WERE BASED ARE DEPENDENT UPON ECONOMIC FORECASTING (BOTH GENERAL AND
SPECIFIC TO THE COMPANY'S BUSINESS), WHICH IS INHERENTLY UNCERTAIN AND
SUBJECTIVE, INCLUDING ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE, MARKET
PRICES FOR FLAT ROLLED STEEL PRODUCTS, THE EXPORT-IMPORT TRADE BALANCE FOR FLAT
ROLLED STEEL PRODUCTS, THE U.S. TRADE BALANCE GENERALLY, MARKET PRICES FOR AND
AVAILABILITY OF CRITICAL RAW MATERIALS, NEW TECHNOLOGIES FOR FLAT ROLLED STEEL
PRODUCTS, LABOR COSTS AND RELATIONS, ENVIRONMENTAL REGULATIONS AND ASSESSMENTS
AND OTHER MATTERS WHICH ARE BEYOND THE CONTROL OF RENCO, HOLDINGS AND THE
COMPANY. NONE OF RENCO, HOLDINGS, THE COMPANY OR THEIR RESPECTIVE FINANCIAL
ADVISORS MAKES ANY REPRESENTATION WHATSOEVER WITH RESPECT TO, NOR ASSUMES ANY
RESPONSIBILITY FOR THE ACCURACY OF, ANY OF THE PROJECTIONS DESCRIBED ABOVE.
INCLUSION OF THE FOREGOING FORECASTS SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY, RENCO, HOLDINGS, ANY OF THEIR RESPECTIVE
FINANCIAL ADVISORS OR ANY OTHER ENTITY OR PERSON THAT THE FORECASTS AND
PROJECTED RESULTS WOULD BE ACHIEVED OR AS TO ANY FUTURE EVENT, OCCURRENCE OR
NON-OCCURRENCE AND NONE OF THE FOREGOING ASSUMES ANY RESPONSIBILITY FOR THE
ACCURACY OF SUCH INFORMATION. IN ADDITION, BECAUSE THE FORECASTS AND PROJECTIONS
ARE BASED ON A NUMBER OF ASSUMPTIONS AND ARE SUBJECT TO SIGNIFICANT ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, WHICH ARE BEYOND THE CONTROL OF
RENCO, HOLDINGS, THE COMPANY AND THEIR RESPECTIVE FINANCIAL ADVISORS, THERE CAN
BE NO ASSURANCE THAT THE FORECASTS AND PROJECTIONS WILL BE REALIZED, AND ACTUAL
RESULTS MAY BE HIGHER OR LOWER THAN THOSE SHOWN, POSSIBLY BY MATERIAL AMOUNTS.
THE PROJECTIONS DESCRIBED ABOVE WERE PREPARED AND UTILIZED AS DESCRIBED
ABOVE, AND WILL NOT BE REVISED OR UPDATED TO REFLECT SUBSEQUENT EVENTS, FACTS OR
OTHER INFORMATION OF WHICH ANY PERSON OR ENTITY BECOMES AWARE.
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<PAGE>
RENCO AND HOLDINGS. Renco is incorporated in the State of New York, and is
a privately-owned investment company which engages principally in the
acquisition and operation of diversified businesses. Mr. Rennert, Chairman of
the Board and Director of the Company, is, with certain trusts for members of
his family, the direct or indirect beneficial owner of an aggregate of 95.9% of
the issued and outstanding common stock of Renco. Renco currently owns
30,746,900 Shares, representing approximately 84.47% of the total outstanding
Shares.
Holdings was incorporated in the State of Delaware on October 16, 1996 and
is a direct wholly-owned subsidiary of Renco. Holdings was formed for the
purpose of undertaking the Offer and effectuating the Merger.
Set forth below is the balance sheet for Holdings dated as of October 25,
1996.
WCI STEEL HOLDINGS, INC.
BALANCE SHEET
OCTOBER 25, 1996
ASSETS
<TABLE>
<S> <C>
Cash............................................................................ $7,000,685
Other assets.................................................................... 11,315
---------
Total assets................................................................ $7,012,000
---------
---------
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 100 shares authorized, issued and outstanding..... $ 1
Additional paid-in capital...................................................... $7,011,999
---------
Total shareholder's equity.................................................. $7,012,000
---------
---------
</TABLE>
The name, business address, present principal occupation or employment,
five-year employment history and citizenship of each director and executive
officer of Holdings and Renco are set forth in Schedule I to this Offer to
Purchase ("Schedule I").
Except as decribed in this Offer to Purchase, none of Holdings or Renco or,
to the best knowledge of Holdings or Renco, any of the persons listed in
Schedule I or any associate or majority owned subsidiary of any such persons,
beneficially owns or has a right to acquire any equity security of the Company,
and none of Holdings or Renco or, to the best knowledge of Holdings or Renco,
any of the other persons referred to above, or any of the respective directors,
executive officers or subsidiaries of any of the foregoing, has effected any
transaction in any equity security of the Company during the past 60 days;
PROVIDED, HOWEVER, that Mr. Rennert (together with Renco) owns 30,746,900
Shares, Roger L. Fay owns 1,000 Shares, Marvin M. Koenig owns 2,500 Shares, John
A. Siegel, Jr. owns 1,000 Shares and Justin W. D'Atri owns 300 shares.
Except as described in this Offer to Purchase, (i) none of Holdings or Renco
or, to the best knowledge of Holdings or Renco, any of the persons listed in
Schedule I has any contract, arrangement, understanding or relationship (whether
or not legally enforceable) with any other person with respect to any securities
of the Company, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any such
securities, joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss, or the giving or withholding of
proxies, and (ii) there have been no contacts, negotiations or transactions
between Holdings, Renco or any of their respective subsidiaries or, to the best
knowledge of Holdings or Renco, any of the persons listed on Schedule I on the
one hand, and the Company or any of its directors, officers or affiliates, on
the other
32
<PAGE>
hand, not described in this Offer to Purchase that are required to be disclosed
pursuant to the rules and regulations of the Commission.
AVAILABLE INFORMATION. The Company is subject to the informational
requirements of the Exchange Act, and in accordance therewith files reports and
other information with the Commission. Reports, proxy and information statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material also
can be reviewed through the Commission's Electronic Data Gathering, Analysis,
and Retrieval System, which is publicly available through the Commission's Web
site (http://www.sec.gov). In addition, the Shares are listed on the NYSE, and
such material can be inspected at the public reference facilities of such
exchange.
SECTION 9. THE MERGER
If the Public Acceptance Condition is satisfied, the Merger will be
consummated without a meeting or vote of shareholders of the Company in
accordance with Section 1701.801 of the OGCL; provided, however, if after the
Offer Renco and Holdings together own 90% or more of the total number of
outstanding Shares, but the Public Acceptance Condition has not been satisfied,
the Merger will not be consummated. In the event that the Public Acceptance
Condition or any other condition to the Offer is not satisfied, and subsequent
to the Offer, Holdings and Renco together continue to own less than 90% of the
total number of outstanding Shares, Holdings and/or Renco may, subject to
certain factors and considerations, acquire additional Shares through privately
negotiated or open market purchases, subject to subsequent tender or exchange
offers or by any other means Renco and/or Holdings deem advisable on such terms
and at such prices as they determine (which may be more or less that the Offer
Price) to bring the ownership of Renco and Holdings together to at least 90% of
the total number of outstanding Shares and, thereafter, consummate a "short
form" merger. Such transactions, if any, are not currently contemplated by the
Letter Agreement and may be made with or without approval of the Board or any
independent committee thereof. See "Introduction" and "Special Factors--Purpose,
Structure and Benefits of the Offer and the Merger."
Subject to satisfaction of the conditions of the Equity Transactions,
including the Public Acceptance Condition, and in accordance with the OGCL,
Holdings will be merged with and into the Company. Following the Merger, the
separate corporate existence of Holdings will cease and the Company will
continue as the Surviving Corporation and will succeed to and assume all the
rights and obligations of Holdings in accordance with the OGCL.
Upon effectiveness of the Merger, each issued and outstanding Share (other
than Shares owned by Holdings or Renco or Shares held in the treasury of the
Company, which will be canceled, and other than Shares held by shareholders who
have validly exercised appraisal rights under the OGCL) will, by virtue of the
Merger, be converted into the right to receive the Offer Price, payable to the
holder thereof upon surrender of the certificates representing such Shares, and
the Contingent Cash Consideration Rights.
A certificate of merger will be duly filed with the Secretary of State of
the State of Ohio as soon as practicable after the expiration of, and subject to
successful completion of, the Offer. If the Public Acceptance Condition is
satisfied, the Merger will be consummated without a meeting or vote of
shareholders in accordance with the "short-form" merger provisions of Section
1701.801 of the OGCL.
CONDITIONS TO THE MERGER. The obligations of Holdings, the Company and
Renco to effect the Merger are subject to the satisfaction or waiver on or prior
to the closing of the following conditions: (a) the Offer shall have been
successfully completed, and all conditions thereto, including, without
limitation, the Public Acceptance Condition, shall have been properly waived or
satisfied and (b) no temporary restraining
33
<PAGE>
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect.
SECTION 10. EXTENSION OF THE OFFER; AMENDMENTS; TERMINATION
Holdings expressly reserves the right, in its sole discretion, but in any
event, subject to the restrictions contained in the Letter Agreement, at any
time and from time to time, including upon the occurrence of any event described
in "--Section 11. Certain Conditions to the Offer," to extend the period of time
during which the Offer is open by giving oral or written notice of such
extension to the Depositary.
If Holdings, subject to the Letter Agreement, elects to decrease the number
of Shares being sought or increase or decrease the consideration offered in the
Offer to holders of Shares and, if at the time that notice of such increase or
decrease is first published, sent or given to holders of Shares in the manner
specified below, the Offer is scheduled to expire at any time earlier than the
expiration of a period ending on the tenth business day from (and including) the
date that the notice is first so published, sent or given, then the Offer will
be extended until the expiration of this period of ten business days. For
purposes of the Offer, "business day" means any day other than a Saturday,
Sunday or a Federal holiday, and consists of the time period from 12:01 a.m.
through 12:00 Midnight, New York City time.
Holdings also expressly reserves the right, subject to the Letter Agreement,
(i) to extend the period of time during which the Offer is open and thereby
delay acceptance for payment of and the payment for any Shares or to terminate
the Offer and not accept for payment or pay for any Shares not accepted for
payment or paid for upon the occurrence of any of the events specified in
"--Section 11. Certain Conditions to the Offer," by giving oral or written
notice to the Depositary, and (ii) at any time, or from time to time, to amend
the Offer in any respect. The rights reserved by Holdings in this paragraph are
in addition to Holdings' right to terminate the Offer pursuant to "--Section 11.
Certain Conditions to the Offer". Any extension of the period during which the
Offer is open, delay in acceptance or payment, termination or amendment of the
Offer will be followed, as promptly as practicable, by public announcement
thereof, the announcement in the case of an extension to be issued not later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. Without limiting the obligation of
Holdings under applicable law (including Rule 14d-4(c) and Rule 14d-6(d) under
the Exchange Act) or the manner in which Holdings may choose to make any public
announcement, Holdings currently intends to make announcements by issuing a
press release to the Dow Jones News Service and making any appropriate filing
with the Commission.
If Holdings extends the Offer, or if Holdings (whether before or after its
acceptance for payment of Shares) is delayed in its payment of Shares or is
unable to pay for Shares pursuant to the Offer for any reason, then, without
prejudice to Holdings' rights under the Offer, the Depositary may retain
tendered Shares on behalf of Holdings, and those Shares may not be withdrawn
except to the extent tendering stockholders are entitled to withdrawal rights as
described in "--Section 4. Withdrawal Rights." The ability of Holdings to delay
payment of Shares which Holdings has accepted for payment is limited by Rule
14d-4(c) under the Exchange Act, however, which requires that Holdings pay the
consideration offered or return the securities deposited by or on behalf of the
holders of securities promptly after the termination or withdrawal of the Offer.
If Holdings makes a material change in the terms of the Offer or the
information concerning the Offer or if it waives a material condition of the
Offer, Holdings will disseminate additional tender offer materials and extend
the Offer if and to the extent required by Rules 14d-4(c) and 14d-6(d) under the
Exchange Act or otherwise. The minimum period during which an offer must remain
open following material changes in the terms of the offer or information
concerning the offer, other than a change in price or a change in percentage of
securities sought, will depend upon the facts and circumstances, including the
relative materiality of the terms or information changes. With respect to a
change in price or a change in
34
<PAGE>
percentage of securities sought, a minimum ten business day period is required
to allow for adequate dissemination to shareholders and investor response.
SECTION 11. CERTAIN CONDITIONS TO THE OFFER
Notwithstanding any other term of the Offer or the Merger, Holdings shall
not be required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to Holdings' obligation to pay for or return tendered Shares after the
termination or withdrawal of the Offer), to pay for any Shares tendered pursuant
to the Offer unless the Public Acceptance Condition shall have been satisfied.
Furthermore, notwithstanding any other term of the Offer, Holdings shall not be
required to accept for payment or, subject as aforesaid, to pay for any Shares
not theretofore accepted for payment or paid for, and may terminate or amend the
Offer if, at any time on or after the date hereof, and before the acceptance of
such Shares for payment or the payment therefor, any of the following conditions
exists:
(a) there shall be any temporary restraining order, preliminary or permanent
injunction or other order by any governmental authority seeking to restrain or
prohibit the making or consummation of the Offer or the Letter Agreement;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to the
Offer or the Merger, or any other action shall be taken by any governmental
authority or court, that is reasonably likely to result, directly or indirectly,
in any of the consequences referred to in paragraph (a) above;
(c) there shall have occurred any change or effect (or any development that,
insofar as can reasonably be foreseen, is likely to result in any change or
effect) that is materially adverse to the business, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole;
(d) there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on the NYSE (excluding any coordinated
trading halt triggered solely as a result of a specified decrease in a market
index), (ii) any extraordinary or material adverse change in the financial
markets in the United States, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iv) any
limitation (whether or not mandatory) by any governmental authority on, or other
event that materially affects, the extension of credit by banks or other lending
institutions, (v) a commencement of a war or armed hostilities or other national
or international calamity directly involving the armed forces of the United
States or (vi) in the case of any of the foregoing existing on or after the date
hereof, a material acceleration or worsening thereof;
(e) the Board or the Independent Director shall have withdrawn or modified
in a way adverse to Renco, Holdings or the Company its approval or
recommendation of the Equity Transactions; or
(f) the Letter Agreement shall have been terminated in accordance with its
terms;
which, in the reasonable good faith judgment of Renco and Holdings, and
regardless of the circumstances giving rise to any such condition, makes it
inadvisable to proceed with such acceptance for payment or payment.
SECTION 12. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
DISSENTERS' RIGHTS. No dissenters' rights are available to holders of
Shares in connection with the Offer. However, if the Merger is consummated,
holders of Shares will have certain rights under Section 1701.85 of the OGCL to
dissent and demand judicial determination of, and payment in cash for, the fair
value of their Shares. Such rights, if the statutory procedures are complied
with, could lead to a judicial determination of the fair value (excluding any
element of value arising from accomplishment or expectation of the Merger)
required to be paid in cash to such dissenting holders for their Shares. Any
such
35
<PAGE>
judicial determination of the fair value of Shares could be based upon
considerations other than or in addition to the price paid in the Offer and the
market value of the Shares, including asset values and the investment value of
the Shares. The value so determined could be more or less than the Offer Price.
If any holder of Shares who exercises dissenters' rights under Section
1701.85 of the OGCL fails to perfect, or effectively withdraws or loses his
right to judicial determination of fair value of his Shares, as provided in the
OGCL, the Shares of such holder will be converted into the Offer Price in
accordance with the Merger. A shareholder may withdraw his demand for such
judicial determination by delivery to Holdings of a written withdrawal of his
demand therefor.
Failure to follow the steps required by Section 1701.85 of the OGCL for
perfecting appraisal rights may result in the loss of such rights. See Annex B.
REGULATORY APPROVALS. Renco is not aware of any license or regulatory
permit that appears to be material to the business of the Company and its
subsidiaries, taken as a whole, that might be adversely affected by Holdings'
acquisition of Shares as contemplated herein or of any approval or other action
by any governmental authority that would be required for the acquisition or
ownership of Shares by the Company as contemplated herein. Should any such
approval or other action be required, Renco currently contemplates that such
approval or other action will be sought, except as described below under
"--State Takeover Laws." While, Holdings does not presently intend to delay the
acceptance for payment of or payment for Shares tendered pursuant to the Offer
pending the outcome of any such matter, there can be no assurance that any such
approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that failure to obtain any such approval or
other action might not result in consequences adverse to the Company's business
or that certain parts of the Company's business might not have to be disposed of
if such approvals were not obtained or such other actions were not taken or in
order to obtain any such approval or other action. If certain types of adverse
action are taken with respect to the matters discussed below, Holdings could
decline to accept for payment or pay for any Shares tendered. See "--Section 11.
Certain Conditions to the Offer" for certain conditions to the Offer.
LITIGATION. There is, to the knowledge of Renco and Holdings, no pending or
threatened litigation in connection with the Proposal or the Transactions.
STATE TAKEOVER LAWS. A number of states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, shareholders, executive offices or places of business in such states. In
EDGAR V. MITE CORP., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which involved state securities laws that made
the takeover of certain corporations more difficult, imposed a substantial
burden on interstate commerce and therefore was unconstitutional. In CTS CORP.
V. DYNAMICS CORP. OF AMERICA, however, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquirer from voting on the affairs of a target corporation without prior
approval of the remaining shareholders, provided that such laws were applicable
only under certain conditions.
Renco, Holdings and the Company do not believe that any state takeover
statutes apply to the Offer or the Merger. None of the Company, Holdings or
Renco has currently complied with any state takeover statute or regulation, nor
does any of them intend to do so. The Company reserves the right to challenge
the applicability or validity of any state law purportedly applicable to the
Offer or the Merger and nothing in this Offer to Purchase or any action taken in
connection with the Offer or the Merger is intended as a waiver of such right.
If it is asserted that any state takeover statute is applicable to the Offer or
the Merger and an appropriate court does not determine that it is inapplicable
or invalid as applied to the Offer or the Merger, the Company might be required
to file certain information with, or to receive approvals from, the relevant
state authorities, and Holdings might be unable to accept for payment or pay for
Shares tendered
36
<PAGE>
pursuant to the Offer, or be delayed in consummating the Offer or the Merger. In
such case, Holdings may not be obligated to accept for payment or pay for any
Shares tendered pursuant to the Offer.
STATE DISCLOSURE LAWS. Section 1707.041 of the OGCL ("Section 041")
provides that no control bid for any securities of a subject company shall be
made pursuant to a tender offer until the offeror files with the Ohio Division
of Securities (the "Division") the information prescribed in division (A)(2) of
Section 041. That information is generally included in the Offer to Purchase. A
subject company means an issuer that (A) owns or controls assets within Ohio
that have a fair market value of at least one million dollars or satisfies
certain other criteria and (B) either (i) more than ten percent of its
beneficial or record equity security holders are resident in Ohio, (ii) more
than ten percent of its equity securities are owned beneficially or of record by
residents in Ohio or (iii) more than one thousand of its beneficial or record
equity security holders are resident in Ohio. Holdings intends to make a filing
containing all material information required under Section 041 with the
Division. Within three calendar days of the date of filing by Holdings, the
Division may by order summarily suspend continuation of the control bid if the
Division determines that all the information has not been provided by the
offeror or the control bid materials provided to offerees do not provide full
information to offerees of all material information concerning the control bid,
which suspension shall remain in effect until a hearing held by the Division
within ten calendar days of the date on which the suspension is imposed.
ANTITRUST. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), acquisitions may not be consummated unless
information has been furnished to the Federal Trade Commission and the Antitrust
Division of the Department of Justice and certain waiting period requirements
have been satisfied. Renco, Holdings and the Company believe, however, that the
HSR Act is not applicable to the Equity Transactions because Renco owns in
excess of 50% of the outstanding Shares, and that neither the Offer nor the
Merger will violate antitrust laws.
SECTION 13. FEES AND EXPENSES
DLJ is acting as Dealer Manager in connection with the Offer, as well as in
connection with the Debt Tender Offer, and is acting as initial purchaser in the
Debt Offering, and has provided certain financial advisory services to Holdings
in connection therewith. Holdings has agreed to reimburse DLJ for all out-
of-pocket expenses incurred thereby in connection therewith, including the
reasonable fees of its counsel, and to indemnify DLJ and certain related persons
against certain liabilities and expenses, including certain liabilities under
the federal securities laws.
The Independent Director has retained the services of Gleacher NatWest to
act as financial advisor. The Company has agreed to pay a fee of $500,000 to
Gleacher NatWest and to reimburse Gleacher NatWest for all out-of-pocket
expenses incurred thereby in connection therewith, including the reasonable fees
of its counsel, W&C, and to indemnify Gleacher NatWest and certain related
persons against certain liabilities and expenses, including certain liabilities
under the federal securities laws. In addition, the Independent Director has
retained independent counsel, S&S, and the Company has agreed to pay the
reasonable fees of such counsel. The foregoing out-of-pocket expenses are
estimated to be approximately $100,000.
Holdings has retained Georgeson & Company Inc. to act as the Information
Agent, and American Stock Transfer & Trust Company to act as the Depositary, in
connection with the Offer. The Information Agent and the Depositary each will
receive reasonable and customary compensation for its services, will be
reimbursed for certain reasonable out-of-pocket expenses and will be indemnified
against certain liabilities and expenses in connection therewith, including
certain liabilities under the federal securities laws.
Except as set forth in this Section 13, neither the Company nor Holdings
will pay any fees or commissions to any broker or dealer or other person for
soliciting tenders of Shares pursuant to the Offer. Brokers, dealers, commercial
banks and trust companies will be reimbursed by Holdings for customary mailing
and handling expenses incurred by them in forwarding the offering materials to
their customers.
37
<PAGE>
The estimated costs and fees of Holdings in connection with the Offer are as
follows:
<TABLE>
<S> <C>
Legal Fees........................................................ $ 150,000
Printing and Mailing Expenses..................................... 50,000
Filing Fees....................................................... 11,315
Depositary Fees................................................... 10,000
Information Agent Fees............................................ 3,750
Miscellaneous..................................................... 24,935
---------
Total......................................................... $ 250,000
---------
---------
</TABLE>
In addition, Renco has obtained the financing for the Equity Transactions
from Congress for which it expects to pay customary fees.
SECTION 14. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares residing in any jurisdiction in which the making of
the Offer or the acceptance thereof would not be in compliance with the
securities, blue sky or other laws or such jurisdiction. However, Holdings may,
in its discretion, take such action as it may deem necessary to make the Offer
in any jurisdiction and extend the Offer to holders of Shares in such
jurisdiction. In any jurisdiction where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer will be
deemed to be made on behalf of Holdings by the Dealer Manager or one or more
registered brokers or dealers that are licensed under the laws of such
jurisdiction.
Holdings and Renco have filed with the Commission the Schedule 13E-3 and the
Schedule 14D-1, pursuant to Sections 13(e) and 14(d)(1), and the Company has
filed with the Commission the Schedule 14D-9, pursuant to Section 14(d)(4), of
the Exchange Act, respectively, containing certain additional information with
respect to the Offer. Such schedules and any amendments thereto, including
exhibits, may be examined and copies may be obtained from the principal office
of the Commission in the manner set forth in "--Section 8. Certain Information
Concerning the Company, Renco and Holdings" (except that they will not be
available at the regional offices of the Commission).
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF HOLDINGS NOT CONTAINED IN THIS OFFER TO PURCHASE OR
IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
WCI STEEL HOLDINGS, INC.
October 28, 1996
38
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF RENCO AND HOLDINGS
A. DIRECTORS AND EXECUTIVE OFFICERS OF RENCO
The following table sets forth the name, present principal occupation or
employment and material occupations, positions, offices or employments for the
past five years of each executive officer and director of Renco. All of the
executive officers and directors of Renco are citizens of the United States,
whose present business address is The Renco Group, Inc., 30 Rockefeller Plaza,
New York, New York 10112. The present principal occupation or employment of each
of the executive officers and directors of Renco is as set forth below and,
except as set forth below, such occupation or employment has been the principal
occupation or employment for each respective director and officer for the past
five years.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------------------------- ------------------------------------------------------------------
<S> <C>
Ira Leon Rennert............................. Chairman of the Board of Directors; President
Roger L. Fay................................. Director; Vice President Finance
Marvin M. Koenig............................. Director; Executive Vice President
John A. Siegel, Jr........................... Vice President Taxation
Dennis A. Sadlowski, Esq..................... Vice President of Law. From October 1, 1976 to March 1, 1996, Vice
President, Secretary and General Counsel of Mill Master Onyx
Group, Inc.
Justin W. D'Atri, Esq........................ Director; Secretary. Practicing attorney as partner with Summit
Solomon & Feldesman (including its predecessors) from September
1981 to March 1993, and as of counsel to Baer Marks & Upham from
March 1993 until retirement in June 1996. Currently a consultant
to Renco.
</TABLE>
B. DIRECTORS AND EXECUTIVE OFFICERS OF HOLDINGS
The following table sets forth the name, present principal occupation or
employment and material occupations, positions, offices or employments for the
past five years of each executive officer and director of Holdings. All of the
executive officers and directors of Holdings are citizens of the United States,
whose present business address is c/o The Renco Group, Inc., 30 Rockefeller
Plaza, New York, New York 10112. The present principal occupation or employment
of each of the executive officers and directors of Holdings is as set forth
below and, except as set forth below, such occupation or employment has been the
principal occupation or employment for each respective director and officer for
the past five years.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------------------------- ------------------------------------------------------------------
<S> <C>
Ira Leon Rennert............................. Director; Chief Executive Officer
Roger L. Fay................................. Vice President
</TABLE>
I-1
<PAGE>
ANNEX A
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
Independent Auditor's Report....................................................................... A-2
Consolidated Balance Sheets as of October 31, 1994 and 1995 and unaudited as of
July 31, 1996.................................................................................... A-3
Consolidated Statements of Income for the years ended October 31, 1993, 1994 and 1995 and unaudited
for the nine months ended July 31, 1995 and 1996................................................. A-4
Consolidated Statements of Shareholders' Equity for the years ended October 31, 1993, 1994 and 1995
and unaudited for the nine months ended July 31, 1996............................................ A-5
Consolidated Statements of Cash Flows for the years ended October 31, 1993, 1994 and 1995 and
unaudited for the nine months ended July 31, 1995 and 1996....................................... A-6
Notes to Consolidated Financial Statements......................................................... A-7 to A-18
</TABLE>
A-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
WCI Steel, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of WCI Steel,
Inc. and subsidiaries (a majority-owned subsidiary of The Renco Group, Inc.) as
of October 31, 1995 and 1994, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended October 31, 1995. 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 WCI Steel,
Inc. and subsidiaries as of October 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended October 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 9 to the consolidated financial statements,
effective November 1, 1993, the Company changed its method of accounting for
income taxes to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Stardards No. 109, ACCOUNTING FOR
INCOME TAXES.
KPMG PEAT MARWICK LLP
Cleveland, Ohio
December 1, 1995
A-2
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- JULY 31,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents................................................. $ 71,426 $ 94,266 $ 138,633
Short-term investments.................................................... -- 12,282 18,052
Accounts receivable, less allowances for doubtful accounts of $2,400,
$2,258 and $1,700, respectively......................................... 73,429 33,616 65,652
Inventories............................................................... 108,423 101,089 81,044
Recoverable income taxes.................................................. -- 5,960 --
Deferred income taxes..................................................... 13,523 11,102 10,499
Prepaid expenses.......................................................... 353 1,372 361
--------- --------- -----------
Total current assets.................................................. 267,154 259,687 314,241
Property, plant and equipment, net.......................................... 196,212 189,733 195,033
Intangible pension asset.................................................... -- 44,028 41,157
Other assets, net........................................................... 18,230 25,711 21,516
--------- --------- -----------
Total assets.......................................................... $ 481,596 $ 519,159 $ 571,947
--------- --------- -----------
--------- --------- -----------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities
Current portion of long-term debt......................................... $ 2,253 $ 2,323 $ 2,447
Accounts payable.......................................................... 72,949 47,740 72,640
Accrued liabilities....................................................... 44,407 39,584 48,596
Income taxes.............................................................. 6,926 1,611 2,745
--------- --------- -----------
Total current liabilities............................................. 126,535 91,258 126,428
Long-term debt, excluding current portion................................... 213,855 211,531 209,354
Deferred income taxes....................................................... 9,670 10,367 9,351
Postretirement health benefits.............................................. 66,221 76,287 80,378
Pension benefits............................................................ -- 44,027 46,231
Other liabilities........................................................... 21,438 26,194 26,741
--------- --------- -----------
Total liabilities..................................................... 437,719 459,664 498,483
--------- --------- -----------
Shareholders' equity
Common stock, stated value $.01, 40,000,000 shares authorized, 36,575,500,
36,563,300 and 36,623,700 shares issued at October 31, 1994 and 1995 and
July 31, 1996, respectively............................................. 366 366 366
Treasury stock at cost, 222,300 shares.................................... -- -- (1,200)
Additional paid-in capital................................................ 300 458 534
Retained earnings......................................................... 43,211 58,671 73,764
--------- --------- -----------
Total shareholders' equity............................................ 43,877 59,495 73,464
--------- --------- -----------
Commitments and contingencies............................................... -- -- --
Total liabilities and shareholders' equity............................ $ 481,596 $ 519,159 $ 571,947
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
A-3
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED OCTOBER 31, JULY 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales.............................................. $ 578,639 $ 709,363 $ 630,990 $ 523,611 $ 490,147
Operating costs and expenses
Cost of products sold................................ 492,000 574,610 544,789 423,834 411,467
Depreciation and amortization........................ 20,978 19,868 21,178 15,504 16,960
Selling, general, and administrative expenses........ 19,144 34,889 19,675 16,827 15,939
---------- ---------- ---------- ---------- ----------
532,122 629,367 585,642 456,165 444,366
---------- ---------- ---------- ---------- ----------
Operating income................................... 46,517 79,996 45,348 67,446 45,781
---------- ---------- ---------- ---------- ----------
Other income (expense)
Interest expense..................................... (23,182) (28,709) (25,787) (19,530) (18,742)
Interest and other income, net....................... 301 1,505 6,212 4,510 4,813
---------- ---------- ---------- ---------- ----------
(22,881) (27,204) (19,575) (15,020) (13,929)
---------- ---------- ---------- ---------- ----------
Income before income taxes, extraordinary losses
and cumulative effect of change in accounting
principle........................................ 23,636 52,792 25,773 52,426 31,852
Income tax expense..................................... 9,485 21,939 10,313 21,007 12,740
---------- ---------- ---------- ---------- ----------
Income before extraordinary losses and cumulative
effect of change in accounting principle......... 14,151 30,853 15,460 31,419 19,112
Extraordinary losses on early retirement of debt, net
of income taxes...................................... -- (20,214) -- -- --
Cumulative effect of change in accounting for income
taxes................................................ -- 834 -- -- --
---------- ---------- ---------- ---------- ----------
Net income......................................... $ 14,151 $ 11,473 $ 15,460 $ 31,419 $ 19,112
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Income per common share
Income before extraordinary losses and cumulative
effect of change in accounting principle........... $ .44 $ .94 $ .42 $ .86 $ .52
Extraordinary losses on early retirement of debt, net
of income taxes.................................... -- (.62) -- -- --
Cumulative effect of change in accounting for income
taxes................................................ -- .02 -- -- --
---------- ---------- ---------- ---------- ----------
Net income per common share............................ $ .44 $ .34 $ .42 $ .86 $ .52
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Dividends paid per common share........................ -- -- -- -- $ .11
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
A-4
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1993, 1994, AND 1995 AND
THE NINE MONTHS ENDED JULY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PREFERRED COMMON TREASURY PAID-IN RETAINED SHAREHOLDERS'
STOCK STOCK STOCK CAPITAL EARNINGS EQUITY
----------- ---------- --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
Balance at October 31, 1992.............. $ 5,000 $ 10,000 $ -- $ -- $ 36,974 $ 51,974
Net income............................... -- -- -- -- 14,151 14,151
Cancellation and elimination of
previously declared and unpaid
dividends on common stock.............. -- -- -- -- 3,043 3,043
----------- ---------- --------- ----------- ---------- -------------
Balance at October 31, 1993.............. 5,000 10,000 -- -- 54,168 69,168
Net income............................... -- -- -- -- 11,473 11,473
Capital contribution..................... -- -- -- 4,001 -- 4,001
Common stock split and change to stated
value of $.01 per share................ -- (9,693) -- 9,693 -- --
Issuance of common stock................. -- 58 -- 51,826 -- 51,884
Predecessor basis adjustment............. -- -- -- (65,520) (20,480) (86,000)
Redemption of preferred stock, including
dividends of $1,950.................... (5,000) -- -- -- (1,950) (6,950)
Other.................................... -- 1 -- 300 -- 301
----------- ---------- --------- ----------- ---------- -------------
Balance at October 31, 1994.............. -- 366 -- 300 43,211 43,877
Net income............................... -- -- -- -- 15,460 15,460
Other.................................... -- -- -- 158 -- 158
----------- ---------- --------- ----------- ---------- -------------
Balance at October 31, 1995.............. $ -- $ 366 -- $ 458 $ 58,671 $ 59,495
Net Income............................... -- -- -- -- 19,112 19,112
Dividends paid on common stock........... -- -- -- -- (4,019) (4,019)
Purchase of treasury stock............... -- -- (1,200) -- -- (1,200)
Other.................................... -- -- -- 76 -- 76
----------- ---------- --------- ----------- ---------- -------------
Balance at July 31, 1996................. -- 366 (1,200) 534 73,764 73,464
----------- ---------- --------- ----------- ---------- -------------
----------- ---------- --------- ----------- ---------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
A-5
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED OCTOBER 31, ENDED JULY 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................. $ 14,151 $ 11,473 $ 15,460 $ 31,419 $ 19,112
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization............................ 20,978 19,868 19,713 14,869 14,763
Amortization of deferred blast furnace maintenance
costs.................................................. -- -- 1,465 635 2,197
Amortization of financing costs.......................... 1,827 2,272 2,180 1,636 1,637
Postretirement health benefits........................... 9,269 9,607 10,066 7,505 4,091
Pension benefits......................................... -- -- -- -- 5,075
Provision for losses on accounts receivable.............. 1,200 812 117 117 (558)
Deferred income taxes.................................... (1,084) (3,738) 3,118 2,826 (413)
Extraordinary losses..................................... -- 33,803 -- -- --
Cumulative effect of change in accounting principle...... -- (834) -- -- --
Expenses paid by Parent net of related tax benefit....... -- 4,000 -- -- --
Other.................................................... 4,027 720 (836) (1,020) (78)
Cash provided (used) by changes in certain assets and
liabilities
Accounts receivable.................................. (9,023) (5,524) 39,696 8,767 (31,478)
Inventories.......................................... (1,452) (13,670) 7,334 13,145 20,045
Prepaid expenses and other assets.................... 232 1,012 (1,031) 344 1,372
Accounts payable..................................... 636 (7,960) (25,209) (2,221) 24,900
Accrued liabilities.................................. 11,782 12,134 (4,823) 3,970 9,012
Income taxes payable and recoverable, net............ 6,255 2,572 (11,275) (168) 7,094
Other liabilities.................................... 1,769 10,375 4,756 2,951 547
--------- --------- --------- --------- ---------
Net cash provided by operating activities.......... 60,567 76,922 60,731 84,775 77,318
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment............... (14,639) (8,387) (14,575) (12,552) (20,406)
Deferred blast furnace maintenance costs................. -- (5,984) (11,598) (11,391) --
Gross proceeds from the sale of assets................... -- -- 2,818 2,818 497
Purchase of short-term investments, net.................. -- -- (12,282) -- (5,770)
--------- --------- --------- --------- ---------
Net cash used by investing activities................ (14,639) (14,371) (35,637) (21,125) (25,679)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principle payments of long-term debt..................... (44,764) (170,750) (2,254) (1,960) (2,053)
Dividends paid on common shares.......................... -- -- -- -- (4,019)
Purchases of treasury stock.............................. -- -- -- -- (1,200)
Repayments under revolving credit facility............... (107,856) -- -- -- --
Proceeds from issuance of long-term debt................. 125,000 250,000 -- -- --
Net proceeds from issuance of common stock............... -- 51,884 -- -- --
Redemption of preferred stock, including cumulative
dividends.............................................. -- (6,950) -- -- --
Predecessor basis adjustment............................. -- (86,000) -- -- --
Premiums paid on early retirement of debt................ (500) (26,656) -- -- --
Financing costs paid..................................... (9,161) (12,019) -- -- --
--------- --------- --------- --------- ---------
Net cash used by financing activities................ (37,281) (491) (2,254) (1,960) (7,272)
--------- --------- --------- --------- ---------
Net increase in cash and cash equivalents.................. 8,647 62,060 22,840 61,690 44,367
Cash and cash equivalents at beginning of year............. 719 9,366 71,426 71,426 94,266
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of year................... $ 9,366 $ 71,426 $ 94,266 $ 133,116 $ 138,633
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosure of cash flow information...........
Cash paid for interest................................... $ 15,797 $ 25,383 $ 23,718 $ 12,644 $ 11,811
Cash paid for income taxes............................... 4,315 11,561 18,471 18,348 6,071
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
A-6
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JULY 31, 1996 AND FOR THE
NINE MONTHS ENDED JULY 31, 1995 AND 1996, IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
WCI Steel, Inc. (Company) is a majority-owned subsidiary of The Renco Group,
Inc. (Renco or Parent).
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany profits,
transactions, and balances have been eliminated in consolidation.
(b) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and short-term investments
with maturities of three months or less from the date of acquisition.
(c) SHORT-TERM INVESTMENTS
Short-term investments consist of United States government or agency issues
which have maturities of less than one year but greater than three months when
purchased. These investments are stated at cost plus accrued interest which
approximates market value.
(d) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the last-in, first-out (LIFO) method.
(e) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is
calculated on the straight-line method over the estimated useful lives of the
assets. Expenditures for normal repairs and maintenance are charged to expense
as incurred.
(f) OTHER ASSETS
Other assets include deferred financing costs which are amortized using the
effective yield method over the term of the related financing and deferred blast
furnace maintenance costs which are amortized using the straight-line method
over a six-year period.
(g) INCOME TAXES
The Company is included in the consolidated income tax return of Renco.
Under the terms of the present tax sharing agreement with Renco, income taxes
are allocated to the Company on a separate return basis, except that
transactions between the Company, its subsidiaries, Renco and Renco's other
subsidiaries are accounted for on a cash basis and the Company does not receive
the benefit of net operating tax loss carryforwards, unless such tax losses were
a result of timing differences between the Company's accounting for tax and
financial reporting purposes.
A-7
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JULY 31, 1996 AND FOR THE
NINE MONTHS ENDED JULY 31, 1995 AND 1996, IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES (Statement 109), which
supersedes Statement No. 96, ACCOUNTING FOR INCOME TAXES. The Company previously
accounted for income taxes under APB No. 11, having elected not to adopt
Statement No. 96 prior to its required effective date. Statement 109 changed the
Company's method of accounting for income taxes from the deferred method
required under APB No. 11 to the asset and liability method. Under the deferred
method, annual income tax expense was matched with pretax accounting income by
providing deferred taxes at current tax rates for timing differences between the
determination of net income for financial reporting and tax purposes. The
objective of the asset and liability method is to establish deferred tax assets
and liabilities for the temporary differences between the financial reporting
basis and the tax basis of the Company's assets and liabilities at enacted tax
rates expected to be in effect when such amounts are realized or settled.
(h) ENVIRONMENTAL COMPLIANCE COSTS
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial expenditures are probable, and the cost can be
reasonably estimated. Generally, the timing of these accruals coincides with the
earlier of completion of a feasibility study or the Company's development of, or
commitment to, a plan of action based on the then known facts.
(i) NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income, less
cumulative preferred stock dividends prior to redemption in July 1994, by the
weighted average common shares outstanding during the period. Preferred
dividends amounted to $400,000 in 1994 and $600, 000 in 1993. The weighted
average common shares outstanding were 30,750,000 in 1993, 32,491,103 in 1994,
36,575,227 in 1995, 36,576,444 for the nine months ended July 31, 1995 and
36,552,069 for the nine months ended July 31, 1996.
(j) SIGNIFICANT CUSTOMER
Sales to the Company's largest customer were 8.1%, 9.9%, 10.0% and 9.3% of
net sales during 1993, 1994, 1995 and the nine months ended July 31, 1996
respectively.
(k) USE OF ESTIMATES IN PREPARATION OF 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
A-8
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JULY 31, 1996 AND FOR THE
NINE MONTHS ENDED JULY 31, 1995 AND 1996, IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) RECLASSIFICATIONS
Certain items in the consolidated financial statements for 1993 and 1994
have been reclassified to conform to the 1995 presentation.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31
---------------------- JULY 31,
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Raw materials........................................... $ 22,711 $ 41,471 $ 30,785
Finished and semi-finished product...................... 90,339 65,979 57,807
Supplies................................................ 613 571 380
---------- ---------- -----------
113,663 108,021 88,972
Less LIFO reserve....................................... 5,240 6,932 7,928
---------- ---------- -----------
$ 108,423 $ 101,089 $ 81,044
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
OCTOBER 31
---------------------- JULY 31,
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Land and improvements................................... $ 623 $ 585 $ 540
Buildings............................................... 25,315 24,965 25,594
Machinery and equipment................................. 257,524 252,988 251,643
Construction in progress................................ 6,328 4,043 21,159
---------- ---------- -----------
289,790 282,581 298,936
Less accumulated depreciation........................... 93,578 92,848 103,903
---------- ---------- -----------
$ 196,212 $ 189,733 195,033
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
A-9
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JULY 31, 1996 AND FOR THE
NINE MONTHS ENDED JULY 31, 1995 AND 1996, IS UNAUDITED)
(4) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31
-------------------- JULY 31,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Senior Notes with interest at 10.5% payable
semiannually, due 2002..................... $ 206,400 $ 206,400 206,400
Revolving Credit Facility (Revolver) with
interest at prime plus 1.75% (10.5% at
October 31, 1995) payable monthly.......... -- -- --
Other........................................ 9,708 7,454 5,401
--------- --------- -----------
216,108 213,854 211,801
Less current portion of long-term debt....... 2,253 2,323 2,447
--------- --------- -----------
$ 213,855 $ 211,531 209,354
--------- --------- -----------
--------- --------- -----------
</TABLE>
On December 29, 1992, the Company issued $125,000,000, 12.625% senior
secured notes (Notes) due in the year 2002. The proceeds from this offering were
used to repay certain outstanding long-term debt, cover transaction costs, and
decrease the balance of the Company's revolving credit facility. On December 14,
1993, Renco Steel, Inc. (RSI), a wholly owned subsidiary of Renco, completed the
sale of $250,000,000, 10.5% senior notes (Senior Notes) due 2002, which were
guaranteed on a senior basis by the Company. The Senior Notes are secured by a
first priority lien on substantially all of the Company's property, plant and
equipment, excluding the assets of its subsidiaries. The proceeds from the
Senior Notes were used to enable RSI to acquire all of the outstanding capital
stock of the Company for $86,000,000 from Renco (Acquisition), and to retire the
Company's then outstanding 12.625% Notes at a rate of $1,200 per $1,000
principal amount outstanding plus accrued interest, and to cover transaction
costs.
Immediately upon completion of the sale of the Senior Notes and the
Acquisition, RSI was merged with and into the Company (Merger) and, accordingly,
the Senior Notes became a direct obligation of the Company. RSI was incorporated
on September 10, 1993 and was subsequently capitalized with $1,000. RSI had no
operations from its inception through the date of the Merger. The Acquisition
and the Merger have been accounted for as a combination of entities under common
control and, accordingly, the amount paid by RSI to acquire the Company has been
reflected as a reduction of the Company's shareholders' equity. Upon completion
of the above transactions, Renco paid $6,000,000 of bonuses to certain
executives of the Company. The bonuses are reflected as compensation in the
Company's statement of operations in fiscal 1994 and as a capital contribution,
net of income taxes.
The Company recognized extraordinary losses totalling $20,214,000 net of
income tax benefits of $13,589,000 on the early retirement of the Notes and the
repurchase of a portion of the Senior Notes in connection with the Company's
initial public stock offering discussed in Note 13. The extraordinary losses
consist primarily of premiums paid on the early retirement of debt and
accelerated amortization of deferred financing costs.
The Company has a $100,000,000 Revolver secured by and subject to eligible
inventories and receivables as defined, reduced by any outstanding letters of
credit. The Revolver is subject to an annual
A-10
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JULY 31, 1996 AND FOR THE
NINE MONTHS ENDED JULY 31, 1995 AND 1996, IS UNAUDITED)
(4) LONG-TERM DEBT (CONTINUED)
commitment fee of .5 of 1% of the unused balance payable monthly. There were no
borrowings outstanding under the Revolver as of or during the year or nine
months ended October 31, 1995 and July 31, 1996, respectively. The Revolver,
which expires December 29, 1996, also provides for up to an aggregate amount of
$10,000,000 in letters of credit. The Company had $88,086,000 available under
the Revolver at October 31, 1995 based on the then existing level of eligible
accounts receivable and inventory with approximately $9,630,000 in letters of
credit outstanding. The Revolver is subject to a penalty of $1,000,000 if
terminated, without being refinanced with the same lender, prior to December 29,
1996 (see Note 15).
The Company's debt agreements contain certain financial and other covenants,
including maintenance of specified levels of net worth as defined, working
capital, and debt service and limitations on capital expenditures. Additional
covenants limit payments affecting subsidiaries, purchases of the Company's
common stock, transactions with affiliates, sale/leaseback transactions,
impairment of security interest, consolidations, mergers and transfer of the
Company's assets. As of December 14, 1995, the Company is permitted to declare
and pay dividends, purchase its common stock, and to make other transactions
with affiliates provided no condition of default exists or will exist, the
Company meets a specified fixed charge coverage ratio, and the accumulated
amount of such transactions is no greater than fifty percent (50%) of the
consolidated net income (less 100% of any consolidated net loss) earned for
periods subsequent to October 31, 1995 when taken as a single accounting period
less management fees paid to Renco for the same period.
Aggregate principal payments on long-term debt for the five years subsequent
to October 31, 1995 are as follows: $2,348,000 in 1996, $2,448,000 in 1997,
$1,320,000 in 1998, $116,000 in 1999 and $122,000 in 2000. The fair value of the
Senior Notes was $199,950,000 at October 31, 1995 based on quoted market prices.
(5) ACCRUED LIABILITIES
Accrued liabilities included employment related costs of $26,830,000 and
$25,140,000 at October 31, 1994 and 1995, respectively and $27,846,000 at July
31, 1996.
(6) EMPLOYEE COMPENSATION PLANS
The Company has a profit sharing plan for the benefit of all bargained for
employees and a variable compensation plan for the benefit of substantially all
salaried employees. The amount of compensation due under these plans is based on
the Company's pretax income as defined under the agreements in effect. Total
expense under the plans was $6,488,000, $15,297,000 and $8,455,000 for the years
ended October 31, 1993, 1994, and 1995, respectively and $12,010,000 and
$7,520,000 for the nine months ended July 31, 1995 and 1996, respectively.
In addition, the Company has deferred compensation agreements with certain
management employees, which are based on changes in the net worth of the
Company, as defined. For the years ended October 31, 1993, 1994, and 1995, the
Company expensed approximately $1,737,000, $9,902,000, and
A-11
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JULY 31, 1996 AND FOR THE
NINE MONTHS ENDED JULY 31, 1995 AND 1996, IS UNAUDITED)
(6) EMPLOYEE COMPENSATION PLANS (CONTINUED)
$2,638,000, respectively, under these plans and $3,615,000 and $2,224,000 for
the nine months ended July 31, 1995 and 1996, respectively.
(7) PENSION PLANS
The Company has defined contribution retirement plans that cover
substantially all employees. Contributions under the plans are based on employee
age and compensation and aggregated approximately $5,002,000, $4,953,000 and
$4,988,000 for the years ended October 31, 1993, 1994, and 1995, respectively
and $3,779,000 and $4,005,000 for the nine months ended July 31, 1995 and 1996,
respectively.
During 1995, the Company adopted a defined benefit pension plan in
connection with a new four-year collective bargaining agreement with the United
Steelworkers of America. The plan, which covers substantially all bargained for
employees, provides minimum pension benefits based on age, years of service and
benefits provided under the Company's defined contribution plan and a
predecessor company's defined benefit plan. The Company intends to make future
contributions to the plan in amounts that at least meet the minimum funding
requirements of ERISA and the Internal Revenue Code.
The following table sets forth the funded status of the plan at October 31,
1995:
<TABLE>
<CAPTION>
Actuarial present value of benefit obligations (dollars in thousands):
<S> <C>
Accumulated benefit obligation, including vested benefits of $49,531........... $ 58,028
---------
---------
Projected benefit obligation................................................... $ 58,528
Plan assets at fair value...................................................... 14,001
---------
Projected benefit obligation in excess of plan assets.......................... (44,527)
Unrecognized prior service cost................................................ 44,528
Additional minimum liability................................................... (44,028)
---------
Accrued pension cost........................................................... $ (44,027)
---------
---------
</TABLE>
Statement of Financial Accounting Standards No. 87, EMPLOYERS' ACCOUNTING
FOR PENSIONS, requires the Company to recognize a minimum pension liability
equal to the amount by which the actuarial present value of the accumulated
benefit obligation exceeds the fair value of the plan assets. Accordingly, the
Company has recognized a liability in the amount of $44,027,000 at October 31,
1995. A corresponding amount is recognized as an intangible asset to the extent
of the unrecognized prior service cost. An intangible asset of $44,028,000 was
recognized at October 31, 1995 representing unrecognized prior service cost.
An assumed discount rate of 6.5% and an expected return on plan assets of
7.5% were used for purposes of valuing the benefits under the defined benefit
pension plan.
(8) POSTRETIREMENT HEALTH BENEFITS
The Company provides postretirement health care and life insurance benefits
to employees who retire from the Company upon meeting certain age and length of
service eligibility requirements.
A-12
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JULY 31, 1996 AND FOR THE
NINE MONTHS ENDED JULY 31, 1995 AND 1996, IS UNAUDITED)
(8) POSTRETIREMENT HEALTH BENEFITS (CONTINUED)
The following table sets forth the plan's accumulated postretirement benefit
obligation:
<TABLE>
<CAPTION>
OCTOBER 31
--------------------
1994 1995
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
Accumulated postretirement benefit obligation
Retirees........................................................... $ 15,126 $ 16,663
Fully eligible active plan participants............................ 39,997 34,492
Other active participants.......................................... 37,540 43,087
--------- ---------
92,663 94,242
Unrecognized prior service cost resulting from plan amendments..... (13,449) (11,867)
Unrecognized net loss from past experience different from that
assumed and from changes in assumptions.......................... (12,993) (6,088)
--------- ---------
Accrued postretirement benefit cost................................ $ 66,221 $ 76,287
--------- ---------
--------- ---------
</TABLE>
The accumulated postretirement benefit obligation was determined using a
discount rate of 7.0% in 1995 (8.0% in 1994) and an assumed health care cost
trend rate of 8% in 1996, gradually declining to 5% after 2003. Assuming a 1%
increase in the health care cost trend rate, the accumulated postretirement
benefit obligation at October 31, 1995 would increase by $17,607,000 along with
an increase in the 1995 service and interest cost components of $1,457,000.
Net periodic postretirement benefit costs included the following components:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost.................................................... $ 2,209 $ 2,419 $ 2,562
Interest cost................................................... 6,052 6,035 7,007
Net amortization and deferral................................... 1,637 1,866 1,025
--------- --------- ---------
Net periodic postretirement benefit cost........................ $ 9,898 $ 10,320 $ 10,594
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's policy had been to fund claims as incurred. Total claims paid
during the years ended October 31, 1993, 1994 and 1995 were $629,000, $713,000,
and $528,000, respectively. In connection with the new four-year collective
bargaining agreement with the United Steelworkers of America, the Company has
agreed to establish a trust to begin funding postretirement health care and life
insurance benefits for substantially all hourly employees. The Company has
agreed to make an initial contribution of $2,000,000 to the trust and to
contribute a minimum of $1,525,000 per year beginning in 1996. The Company will
continue to pay current claims as incurred until the trust assets exceed 50% of
the accumulated postretirement benefit obligation for the hourly employees
included in the plan.
A-13
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JULY 31, 1996 AND FOR THE
NINE MONTHS ENDED JULY 31, 1995 AND 1996, IS UNAUDITED)
(9) INCOME TAXES
The provision for income tax expense (benefit) is comprised of the
following:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Federal income taxes
Current...................................................... $ 7,071 $ 19,419 $ 5,770
Deferred..................................................... 523 (2,105) 2,662
State income taxes
Current...................................................... 1,068 5,573 1,427
Deferred..................................................... 823 (948) 454
--------- --------- ---------
Provision for income taxes..................................... $ 9,485 $ 21,939 $ 10,313
--------- --------- ---------
--------- --------- ---------
</TABLE>
In addition to the above income taxes, the Company recognized $13,589,000 of
current income tax benefits in 1994 related to extraordinary losses on the early
retirement of debt (see Note 4).
A reconciliation between income tax expense reported and income tax expense
computed by applying the federal statutory rate to income before income taxes,
extraordinary losses and cumulative effect of change in accounting principle,
follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Income taxes at federal statuary rate........................ $ 8,232 $ 18,477 $ 9,020
State income taxes, net of federal income tax benefit........ 1,232 3,006 1,223
Other........................................................ 21 456 70
--------- --------- ---------
$ 9,485 $ 21,939 $ 10,313
--------- --------- ---------
--------- --------- ---------
</TABLE>
Under Statement 109, deferred tax assets are recognized in the period in
which they arise and a valuation allowance is established to reduce those
deferred tax assets if it is "more likely than not" that the related tax
benefits will not be realized in the future. Total deferred tax assets amounted
to approximately $46,222,000 and $47,727,000 as of October 31, 1994 and 1995;
the most significant items comprising the deferred tax assets were
postretirement health benefits of $16,678,000 and $20,936,000, compensation
accruals of $11,334,000 and $10,102,000, and alternative minimum tax credit
carryforwards of $4,510,000 and $4,028,000. Total deferred tax liabilities
amounted to approximately $42,369,000 and $46,992,000 as of October 31, 1994 and
1995, consisting primarily of deferred taxes on inventory of $3,507,000 and
$3,065,000 and fixed assets of $38,796,000 and $43,861,000. The Company had no
valuation allowance for realization of deferred tax assets as of October 31,
1994 or 1995.
Tax effects of the principal timing differences between income for financial
reporting and tax reporting for 1993 were as follows: Excess tax over book
depreciation of $11,025,000, accruals (primarily for employee benefits) not
currently deductible for tax purposes of ($6,325,000), accounts receivable
A-14
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JULY 31, 1996 AND FOR THE
NINE MONTHS ENDED JULY 31, 1995 AND 1996, IS UNAUDITED)
(9) INCOME TAXES (CONTINUED)
allowances not currently deductible for tax purposes ($323,000), book over tax
inventory of $864,000, and alternative minimum tax of ($3,061,000).
As a result of the tax sharing agreement discussed in Note 1(g), the
Company's recoverable income taxes of $5,960,000 at October 31, 1995 is due from
Renco.
As discussed in Note 1(g), the Company adopted Statement 109 effective
November 1, 1993, and recognized a cumulative benefit of $834,000 as a change in
accounting principle. Prior years' financial statements have not been restated
to apply the provisions of Statement 109.
(10) LEASES
The Company leases a portion of its operating and data processing equipment.
Minimum future lease payments under noncancelable operating leases are
$1,157,000, $961,000, $835,000, $699,000, and $590,000 for the years ending
October 31, 1996, 1997, 1998, 1999 and 2000, respectively and $182,000
thereafter. Rent expense for noncancelable operating leases amounted to
approximately $482,000, $805,000, and $1,033,000 for the years ended October 31,
1993, 1994, and 1995, respectively and $738,000 and $911,000 for the nine months
ended July 31, 1995 and 1996, respectively.
(11) AGREEMENT WITH THE RENCO GROUP, INC.
The Company has a management services agreement with Renco under which Renco
provides certain management services to the Company. Under terms of this
agreement, the Company is charged a monthly fee of $100,000. The term of this
agreement extends to October 31, 1998. Total expense for management services
fees amounted to $1,200,000 for each of the years ended October 31, 1993, 1994,
and 1995 and $900,000 for the nine months ended July 31, 1995 and 1996. At
October 31, 1994 and 1995, and July 31, 1996, $480,000, $480,000 and $180,000,
respectively was owed to Renco for management services fees.
In connection with the issuance of certain indebtedness and renegotiation of
the Revolver during 1993, the Company paid Renco $4,500,000 related to
transaction costs.
(12) COMMITMENTS AND CONTINGENCIES
At October 31, 1995, the Company was committed to spend approximately
$41,712,000 for data processing services over the remaining 6.5 years of its
management information systems facilities management agreement and approximately
$101,200,000 in 1996 and $4,108,000 thereafter on raw material purchase
commitments.
The Company and other industrial companies have, in recent years, become
subject to increasingly demanding environmental standards imposed by federal,
state and local environmental laws and regulations. It is the policy of the
Company to endeavor to comply with applicable environmental laws and
regulations. A liability has been established for an amount, which the Company
believes is adequate, based on information currently available, to cover the
costs of remedial actions it will likely be required to take to comply with
existing environmental laws and regulations.
A-15
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JULY 31, 1996 AND FOR THE
NINE MONTHS ENDED JULY 31, 1995 AND 1996, IS UNAUDITED)
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
On June 29, 1995, the Department of Justice, on behalf of the Environmental
Protection Agency (EPA), filed an action against WCI under the Clean Water Act
in the United States District Court for the Northern District of Ohio. The
action alleges numerous violations of the Company's National Pollution Discharge
Elimination System permit alleged to have occurred during the years 1989 through
1995, inclusive, and seeks civil penalties not to exceed the statutory maximum
of $25,000 per day per violation. On August 25, 1995, the Company filed for
dismissal of certain of the alleged violations. The court has not taken action
on the Company's submittal. The Company believes that imposition of the
statutory maximum penalty for the alleged violations is unlikely based upon past
judicial penalties imposed under the Clean Water Act, and that it has defenses
to liability. However, no assurance can be given that the Company will not be
found to have liability and, if it has liability, that the statutory maximum
penalty will not be imposed. If the statutory maximum penalty or a similarly
substantial penalty were imposed, it could have a material adverse effect on the
Company. The Company is continuing to negotiate with the EPA toward a settlement
of this matter.
The Company has obtained a Resource Conservation and Recovery Act ("RCRA")
storage permit for waste pickle liquor at its' Warren facility acid regeneration
plant. As a provision of the permit, the Company will be required to undertake a
corrective action program with respect to historical material handling practices
at the Warren facility. The Company has developed and submitted a workplan for
the first investigation step of the corrective action program, the RCRA Facility
Investigation ("RFI"), to the EPA and is presently negotiating the scope of the
RFI with the EPA. The final scope of the corrective action required to remediate
or reclaim any contamination that may be present at the Warren facility is
dependent upon the findings of the RFI and the development and approval of a
corrective action program. Accordingly, the Company is unable at this time to
estimate the final cost of the corrective action program or the period over
which such costs may be incurred.
In addition to the above matters, the Company is contingently liable with
respect to lawsuits and other claims incidental to the ordinary course of its
operations. Although the outcome of the above described matters, to the extent
they exceed applicable reserves, could have a material adverse effect on the
future operating results of the Company in a particular quarterly or annual
period, the Company believes that the effect of such matters will not have a
material adverse effect on the Company's consolidated financial position.
(13) INITIAL PUBLIC STOCK OFFERING
In July 1994, the Company completed an initial public offering (IPO) of
5,750,000 common shares (including overallotment shares) at $10.00 per share.
The net proceeds of the IPO (after deducting offering transaction expenses and
underwriting discounts of $5,616,000 in the aggregate) were $51,884,000, of
which $6,950,000 was used to repurchase all of the outstanding preferred stock
of the Company including cumulative dividends, and the remainder was used to
repurchase $43,600,000 aggregate principal amount Senior Notes (see note 4).
In connection with the IPO, the Company's board of directors and sole
shareholder approved an amendment to the Company's charter increasing the number
of authorized common shares to 40,000,000, without par value, at a stated value
of $.0l per common share, and declared a 41,000 to 1 common stock
A-16
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JULY 31, 1996 AND FOR THE
NINE MONTHS ENDED JULY 31, 1995 AND 1996, IS UNAUDITED)
(13) INITIAL PUBLIC STOCK OFFERING (CONTINUED)
split, which resulted in 30,750,000 shares outstanding immediately before the
IPO. All share and per share amounts stated herein have been adjusted to reflect
the common stock split. In addition, in connection with the IPO, 74,000
restricted shares were issued to certain management employees.
(14) SELECTED QUARTERLY DATA (UNAUDITED)
The following is a summary of unaudited quarterly results for the years
ended October 31, 1994 and 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1994 JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
- ---------------------------------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales....................................................... $ 158,546 $ 174,548 $ 183,223 $ 193,046
Gross margin.................................................... 29,624 32,943 36,134 36,052
Income before extraordinary losses and cumulative effect of
change in accounting principle................................ 3,745 8,879 7,166 11,063
Net income (loss)............................................... $ (13,606) $ 8,879 $ 5,137 $ 11,063
Income (loss) per common share..................................
Income before extraordinary losses and cumulative effect of
change in accounting principle................................ $ .12 $ .28 $ .22 $ .30
Net income (loss) per common share.............................. $ (.45) $ .28 $ .16 $ .30
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1995 JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
- ------------------------------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales.................................................... $ 175,099 $ 177,770 $ 170,742 $ 107,379
Gross margin (loss).......................................... 33,850 34,229 31,698 (13,576)
Net income (loss)............................................ 10,909 11,139 9,371 (15,959)
Net income (loss) per common share........................... $ .30 $ .30 $ .26 $ (.44)
</TABLE>
During the three months ended October 31, 1995, the Company experienced a 54
day labor contract dispute and resulting work stoppage. The negative gross
margin and the net loss for the quarter resulted principally from excess
production costs and expenses related to idling equipment during the work
stoppage, including salary and benefit costs, bonuses paid to hourly and
salaried employees upon conclusion of the work stoppage, and lower shipping
volume.
Income per common share calculations for each of the quarters are based on
the weighted average number of common shares outstanding for each period, and
the sum of the quarters may not necessarily be equal to the full year income per
share amount.
(15) SUBSEQUENT EVENTS (UNAUDITED)
During August 1996, the Company amended its $100 million Revolver. This
amendment extended the expiration date to December 29, 1999, reduced the
interest rate to prime plus 0.5% or, at the Company's option, a Eurodollar based
rate, increased to $20,000,000 the aggregate amount of letters of credit
available and modified certain financial covenants. The Revolver, as amended, is
subject to a penalty of $500,000 it terminated, without being refinanced with
the same lender, prior to December 29, 1998 and $250,000 if terminated prior to
December 29, 1999.
A-17
<PAGE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(INFORMATION AS OF JULY 31, 1996 AND FOR THE
NINE MONTHS ENDED JULY 31, 1995 AND 1996, IS UNAUDITED)
(15) SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
On March 29, 1996, the Department of Justice on behalf of the EPA,
instituted a civil action against the Company under the Clean Air Act in the
United States District Court for the Northern District of Ohio. The action
alleges violations by the Company of the work practice, inspection and notice
requirements for the demolition and renovation of the National Emission Standard
for Hazardous Air Pollutants for Asbestos and also violations of the particulate
standard and the opacity limits applicable to the Company's facilities in
Warren, Ohio. The action seeks a civil penalty not to exceed the statutory
maximum of $25,000 per day per violation and also seeks an injunction against
continuing violations. The Company believes that imposition of the statutory
maximum penalty for the alleged violations is unlikely based upon past judicial
penalties imposed under the Clean Air Act and that it has defenses to liability.
However, no assurance can be given that the Company will not be found to have
liability and, if it has liability, that the statutory maximum penalty will not
be imposed. If the statutory maximum penalty or a similarly substantial penalty
were imposed, it could have a material adverse effect on the Company. The
Company is negotiating with the EPA toward a settlement of this matter.
On January 23, 1996, two retired employees instituted an action against the
Company in the United States District Court for the Northern District of Ohio
alleging in substance that certain distributions made by the Company to
employees and benefit plans violated certain agreements, the Employee Retirement
Income Security Act, the National Labor Relations Act and common law. The
plaintiffs seek declaratory and injunctive relief and damages. Plaintiffs have
brought this action as a class action; however, the court has not ruled as to
whether this action is properly maintainable as a class action. The Company
denies the plaintiffs' allegations of liability and has filed for dismissal of
the action. The court has not yet ruled on the Company's motion.
On April 5, 1996, an employee instituted an action for damages against the
Company in the Court of Common Pleas, Trumbull County, Ohio alleging that, under
Ohio common law, her privacy rights were violated and that she has been
subjected to sexual harassment. In July 1996, the plaintiff moved for an order
permitting her to amend her complaint to add new party plaintiffs alleging a
claim under only the privacy rights cause of action. The Company denies
plaintiff's allegations of liability and has opposed the motion to amend the
complaint. The court has not yet ruled on the plantiff's motion. Discovery is
underway, and no substantive motions have been made.
A-18
<PAGE>
ANNEX B
1701.84 DISSENTING SHAREHOLDERS ENTITLED TO RELIEF.--THE FOLLOWING ARE
ENTITLED TO RELIEF AS DISSENTING SHAREHOLDERS UNDER SECTION 1701.85 OF THE
REVISED CODE:
(A) Shareholders of a domestic corporation that is being merged or
consolidated into a surviving or new entity, domestic for foreign, pursuant to
section 1701.78, 1701.781, 1701.79, 1701.781, or 1701.801 of the Revised Code;
(B) In the case of a merger into a domestic corporation, shareholders of the
surviving corporation who under section 1701.78 of the Revised Code are entitled
to vote on the adoption of an agreement of merger, but only as to the shares so
entitling them to vote;
(C) Shareholders, other than the parent corporation, of a domestic
subsidiary corporation that is being merged into the domestic or foreign parent
corporation pursuant to section 1701.80 of the Revised Code;
(D) In the case of a combination or a majority share acquisition,
shareholders of the acquiring corporation who under section 1701.83 of the
Revised Code are entitled to vote on such transaction, but only as to the shares
so entitling them to vote;
(E) Shareholders of a domestic subsidiary corporation into which is being
merged one or more domestic or foreign corporations pursuant to section 1701.801
of the Revised Code.
1701.85 RELIEF FOR DISSENTING SHAREHOLDERS; QUALIFICATION; PROCEDURES.--
(A)(1) A SHAREHOLDER OF A DOMESTIC CORPORATION IS ENTITLED TO RELIEF AS A
DISSENTING SHAREHOLDER IN RESPECT OF THE PROPOSALS DESCRIBED IN SECTIONS
1701.74, 1701.76, AND 1701.84 OF THE REVISED CODE, ONLY IN COMPLIANCE WITH THIS
SECTION.
(2) If the proposal must be submitted to the shareholders of the corporation
involved, the dissenting shareholder shall be a record holder of the shares of
the corporation as to which he seeks relief as of the date fixed for the
determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.80 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such
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<PAGE>
endorsed certificates to the dissenting shareholder. A dissenting shareholder's
failure to deliver such certificates terminates his rights as a dissenting
shareholder, at the option of the corporation, exercised by written notice sent
to the dissenting shareholder within twenty days after the lapse of the
fifteen-day period, unless a court for good cause shown otherwise directs. If
shares represented by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the record
holder of uncertificated securities, the corporation shall make an appropriate
notation of the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred, any new
certificate issued for the shares shall bear the legend required for
certificated securities as provided in this paragraph. A transferee of the
shares so endorsed, or of uncertificated securities where such notation has been
made, acquires only such rights in the corporation as the original dissenting
holder of such shares had immediately after the service of a demand for payment
of the fair cash value of the shares. A request under this paragraph, by the
corporation is not an admission by the corporation that the shareholder is
entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to
B-2
<PAGE>
such payment. In the case of holders of shares represented by certificates,
payment shall be made only upon and simultaneously with the surrender to the
corporation of the certificates representing the shares for which the payment is
made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken, and,
in the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be willing to accept and that a willing
buyer who is under no compulsion to purchase would be willing to pay, but in no
event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay fair
cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section, unless
the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally enjoined or
prevented from carrying it out, or the shareholders rescind their adoption, of
the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent of the
corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder nor
the corporation filed or joined in a complaint under division (B) of this
section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand until
either the termination of the rights and obligations arising from it or the
purchase of the shares by the corporation, all other rights accruing from such
shares, including voting and dividend or distribution rights, are suspended. If
during the suspension, any dividend or distribution is paid in money upon shares
of such class or any dividend, distribution, or interest is paid in money upon
any securities issued in extinguishment of or in substitution for such shares,
an amount equal to the dividend, distribution, or interest which, except for the
suspension, would have been payable upon such shares or securities, shall be
paid to the holder of record as a credit upon the fair cash value of the shares.
If the right to receive fair cash value is terminated other than by the purchase
of the shares by the corporation, all rights of the holder shall be restored and
all distributions which, except for the suspension, would have been made shall
be made to the holder of record of the shares at the time of termination.
B-3
<PAGE>
ANNEX C
October 20, 1996
[LETTERHEAD OF GLEACHER NATWEST INC.]
Special Committee of Board of Directors
WCI Steel, Inc.
1040 Pine Avenue, Southeast
Warren, Ohio 44483-6528
Dear Sir:
We understand that WCI Steel, Inc. ("WCI" or the "Company") is contemplating
entering into a definitive agreement (the "Letter Agreement") with The Renco
Group, Inc. ("Renco") and a wholly-owned subsidiary of Renco (the "Subsidiary")
pursuant to which the Subsidiary will commence a tender offer (the "Offer") for
all of the issued and outstanding shares of the common stock, par value $0.01,
of the Company (the "Common Stock"), other than shares of Common Stock owned by
Renco and Ira Leon Rennert, at a price of $10.00 per share in cash. We
additionally understand that the consummation of the Offer will (i) be
conditioned upon the tender of a majority of the shares of Common Stock held by
holders other than (x) Renco, Mr. Rennert and their respective affiliates and
(y) the Company's directors and executive officers (the "Minimum Condition"),
which condition may not be waived without the consent of the Special Committee,
(ii) not be conditioned upon either Renco or the Subsidiary obtaining any future
financing, and (iii) be conditioned upon other conditions customary to
transactions of this type. We further understand that, pursuant to the Letter
Agreement, after consummating the Offer, Renco and the Subsidiary will cause the
Subsidiary to be merged with and into the Company (the "Merger" and, together
with the Offer, the "Transactions") and the Company will survive the Merger as a
direct wholly-owned subsidiary of Renco. We further understand that, pursuant to
the Letter Agreement, the holders of any issued and outstanding shares of Common
Stock not tendered in the Offer (other than Renco, the Subsidiary and holders of
shares of Common Stock who have validly exercised appraisal rights under the
Ohio General Corporation Law) will receive $10.00 per share in cash in the
Merger.
You have asked for our opinion as to whether the cash consideration offered
by Renco to holders of Common Stock (other than Renco, Mr. Rennert and their
respective affiliates) is fair from a financial point of view to such holders.
For the purposes of the opinion set forth herein, we have:
1. reviewed the audited and unaudited financial statements for the
three most recent fiscal years and interim periods of WCI;
2. discussed the past and current operations, the financial condition
and the prospects of the Company with the management of WCI and
Renco's advisors;
3. reviewed with the management of WCI certain business plans of the
Company and certain financial projections prepared by and pertaining
to WCI;
4. reviewed the terms of the proposed Transactions with WCI and Renco's
advisors;
5. reviewed the historical market prices and reported trading volumes
of the Common Stock;
6. compared the price per share offered in the Transactions to
historical market prices of the Common Stock;
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<PAGE>
7. compared the financial performance of WCI with, and reviewed the
prices and reported trading activity of the securities of, certain
publicly traded companies whose operating characteristics and/or
industry focus we believe resemble those of WCI;
8. reviewed the financial terms of selected minority squeeze-out
transactions of publicly traded companies;
9. reviewed the financial terms of selected acquisitions of companies
whose operating characteristics and/or industry focus we believe
resemble those of WCI;
10. performed a discounted cash flow analysis of WCI based upon the
financial information provided to us by the management of WCI;
11. performed a leveraged recapitalization analysis of WCI based upon
financial information provided to us by the management of WCI and
Renco's advisors; and
12. reviewed such other information and performed such other analyses as
we have deemed appropriate.
We have assumed and relied upon, without assuming responsibility for
independent verification, the accuracy and completeness of the information
reviewed by us for purposes of this opinion. With respect to the financial
projections provided to us, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgments of the
management of WCI as to the future financial performance of WCI. We have also
assumed, based upon the information which has been provided to us and without
assuming responsibility for independent verification thereof, that no material
undisclosed or contingent liability exists with respect to WCI. Our opinion is
based necessarily on the economic, market, and other conditions as in effect on,
and the information made available to us as of, the date hereof. We have not
been requested to, and did not, solicit third party indications of interest in
acquiring all or part of the Company. Additionally, we have been informed by
Renco, and have relied with your permission on such information, that Renco has
no present intention to sell the Company after consummating the Transactions and
that, in the event that Renco does sell the Company within twelve months of the
consummation of the Transactions, then the holders of shares of Common Stock at
the time of the consummation of the Transactions (other than Renco, Mr. Rennert
and their respective affiliates) will be entitled to participate ratably in the
net amount realized by Renco from such sale, to the extent that such amount
exceeds $10.00 per share of Common Stock.
WCI acknowledges that the opinion and any advice or materials provided by
Gleacher NatWest Inc. ("Gleacher NatWest") in connection with its engagement
hereunder is intended for the benefit and use of the Special Committee of Board
of Directors in considering the transaction to which the opinion, advice or
materials relate and the Company agrees that no such opinion, advice or material
shall be used for any other purpose or be reproduced, disseminated, quoted or
referred to at any time, in any manner or for any purpose, nor shall any public
references to Gleacher NatWest be made by or on behalf of the Company, in each
case without Gleacher NatWest's prior written consent. This letter does not
constitute a recommendation to any holder of Common Stock with respect to
whether to tender shares of Common Stock pursuant to the Offer.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the cash consideration to be received by the holders of Common
Stock (other than Renco, Mr. Rennert and their respective affiliates) in the
proposed Transactions is fair from a financial point of view to such holders.
Very truly yours,
GLEACHER NATWEST INC.
[SIG]
C-2
<PAGE>
ANNEX D
[LETTERHEAD OF THE RENCO GROUP, INC. AND WCI STEEL HOLDINGS, INC.]
October 23, 1996
Board of Directors
WCI Steel, Inc.
1040 Pine Avenue, S.E.
Warren, Ohio 44483-6528
Gentlemen:
In consideration of the agreement of the Board of Directors (the "Board") of
WCI Steel, Inc. (the "Company") to authorize and approve, and the Company to
undertake to consummate, the following transactions which will result in, among
other things, the Company "going private" (which agreement is evidenced by the
Company's signature below), The Renco Group, Inc. ("Renco") and WCI Steel
Holdings, Inc., a direct wholly-owned subsidiary of Renco ("Holdings"), each
hereby represent, covenant and agree as follows:
1. EQUITY TENDER OFFER. Holdings will commence a "going private" tender
offer as promptly as practicable after the date hereof, but in no event later
than five business days after the initial public announcement of Holdings'
intention to commence such tender offer, for all of the issued and outstanding
shares of common stock, no par value, $.01 stated value (the "Shares"), of the
Company other than Shares owned by Renco, at a price of $10.00 per Share in cash
(the "Equity Tender Offer"). The Equity Tender Offer will be conditioned upon a
majority of the Shares not owned by Renco or directors and executive officers of
Renco or the Company (the "Public Shares") being validly tendered and not
withdrawn prior to the expiration date of the Equity Tender Offer (the "Public
Acceptance Condition"). The Equity Tender Offer will be further conditioned upon
such other usual and customary conditions as may be agreed upon by Renco and
Holdings, on the one hand, and the Company after consultation with the
Independent Director (as defined), on the other hand, prior to the commencement
of the Equity Tender Offer. The Equity Tender Offer will not be conditioned upon
either Renco or Holdings obtaining any future financing. So long as the
aforementioned conditions to the Equity Tender Offer are satisfied, neither
Renco nor Holdings will extend the expiration date of the Equity Tender Offer,
except to the extent reasonably necessary to consummate the Transactions (as
defined) simultaneously, but in no event for more than fifteen business days, or
as required by applicable law. None of the foregoing may be waived or altered by
Renco or Holdings unless expressly agreed to in writing by the Board after
consultation with the Company's independent director who assessed and analyzed
the fairness of the Equity Transactions (as defined) (the "Independent
Director").
2. THE MERGER. As soon as practicable after the successful completion of
the Equity Tender Offer, but in no event later than five business days
thereafter, Renco will contribute its Shares to Holdings, and Holdings will
effect a merger of Holdings with and into the Company (the "Merger"), pursuant
to Section 1701.80 of the Ohio General Corporation Law (the "OGCL"), with the
Company surviving the Merger as a direct or indirect wholly-owned subsidiary of
Renco. In connection with the Merger, each outstanding
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<PAGE>
Share (other than Shares owned by Holdings, Shares held in the treasury of the
Company, which will be canceled, and Shares held by shareholders who have
validly exercised appraisal rights under the OGCL) will be converted into the
right to receive in cash per Share, the same price paid to shareholders who
tendered their Shares pursuant to the Equity Tender Offer. Renco and Holdings
hereby agree that if the Equity Tender Offer is consummated, Renco and Holdings
will cause the Merger to be consummated, subject only to the condition that no
injunction shall have been enacted, issued or entered by any federal or state
court of competent jurisdiction or any other governmental authority or agency;
PROVIDED, HOWEVER, that the parties will use their best efforts to cause any
such injunction to be vacated or lifted.
3. DEBT TENDER OFFER. By its letter dated October 9, 1996, Renco proposed
that the Company (a) commence an offer (the "Debt Tender Offer") to purchase for
cash up to all, but not less than a majority, of its outstanding 10 1/2% Senior
Notes Due 2002 (the "Existing Notes") and a related solicitation (the "Consent
Solicitation") of consents to modify certain terms of the indenture related to
the Existing Notes and (b) place $300 million of new senior notes (the "Debt
Offering").
The Debt Tender Offer, the Consent Solicitation and the Debt Offering are
referred to collectively as the "Debt Transactions," the Equity Tender Offer and
the Merger are referred to collectively as the "Equity Transactions" and the
Debt Transactions and the Equity Transactions are referred to collectively as
the "Transactions."
4. TIMING AND CONDITIONS. The Equity Transactions and the Debt
Transactions are expected to be completed contemporaneously. Although the Equity
Transactions are not contingent upon the success of the Debt Transactions, the
Debt Transactions are expressly contingent upon the success of the Equity
Transactions.
5. FUTURE SALE OF WCI. If within twelve months after consummation of the
Merger (a)(i) the Company is merged with another entity and the surviving
corporation of such Merger is not controlled by Renco, (ii) the Company sells
all or substantially all of its assets, (iii) Renco and/or an entity controlled
by Renco directly or indirectly sells, through one or more transactions, a
majority of the capital stock of the Company or (iv) Renco or the Company enters
into a definitive agreement with respect to any of the foregoing and the
transaction contemplated thereby is thereafter consummated and (b) in any such
event, Renco realizes, and actually receives proceeds representing, value in
excess of the value per Share represented by the Equity Tender Offer, Renco
would at that time pay the allocable difference to the holders of the Public
Shares who sold their Shares, or whose Shares were extinguished, in the Equity
Transactions. The foregoing shall be set forth in greater detail in the Offer to
Purchase in connection with the Equity Tender Offer, as reasonably acceptable to
the Independent Director. For purposes of this Section, "control" (including the
term "controlled by") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a person or
entity, whether through the ownership of voting securities, by contract or
otherwise.
6. REPRESENTATIONS AND WARRANTIES OF RENCO AND HOLDINGS.
(a) CORPORATE ORGANIZATION. Each of Renco and Holdings is a
corporation duly organized, validly existing and in good standing under the
laws of the States of New York and Delaware, respectively, and has the
requisite power and authority and all necessary governmental approvals to
own, lease and operate its properties and to carry on its business as it is
now being conducted, except where the failure to be so organized, existing
or in good standing or to have such power, authority and governmental
approvals would not, individually or in the aggregate, have a material
adverse affect on the business or operations of Renco and Holdings and their
respective subsidiaries taken as a whole.
D-2
<PAGE>
(b) AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Renco and Holdings
has all necessary corporate power and authority to perform its obligations
hereunder and to consummate the Equity Tender Offer and the Merger. The
execution and delivery of this Agreement and the consummation by Renco and
Holdings of the Equity Tender Offer and the Merger have been duly and
validly authorized by all necessary corporate action and no other corporate
proceedings on the part of Renco and Holdings are necessary to consummate
the Equity Tender Offer and the Merger (other than, with respect to the
Merger, the filing and recordation of appropriate merger documents as
required by the OGCL). This Agreement has been duly and validly executed by
Renco and Holdings and, assuming the due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding obligation
of each of Renco and Holdings enforceable against each of Renco and Holdings
in accordance with its terms.
(c) NO CONFLICT; REQUIRED FILINGS AND CONSENT.
(i) The execution and delivery of this Agreement by Renco and
Holdings do not, and the performance of this Agreement by Renco and
Holdings will not, (A) conflict with or violate the charter or bylaws of
either Renco or Holdings, (B) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Renco or Holdings or
by which any property or asset of either of them is bound or affected or
(C) result in any breach of or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance
on any property or asset of Renco or Holdings pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Renco or Holdings is
a party or by which Renco or Holdings or any property or asset of either
of them is bound or affected, except for any such conflicts, violations,
breaches, defaults or other occurrences which would not, individually or
in the aggregate, have a material adverse affect on the business or
operations of Renco or Holdings and their respective subsidiaries taken
as a whole.
(ii) The execution and delivery of this Agreement by Renco and
Holdings does not, and the performance of this Agreement by Renco and
Holdings will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory
authority, domestic or foreign, except (A) for applicable requirements,
if any, of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), state securities and takeover laws, and filings and recordation of
appropriate merger documents as required by the OGCL and (B) where
failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not prevent or materially
delay consummation of the Equity Tender Offer or the Merger, or otherwise
prevent Renco or Holdings from performing their respective obligations
under this Agreement.
(d) FINANCING. The financing for the Equity Tender Offer and the
Merger is available from the Company's available cash, and to the extent not
available therefrom, will be made available by Renco prior to commencement
of the Equity Tender Offer and through a loan from a third party.
(e) OFFER DOCUMENTS. The Offer to Purchase and other related documents
used in connection with the Equity Tender Offer (the "Offer Documents") will
not, at the time the Offer Documents are filed with the SEC or are first
published, sent or given to shareholders of the Company, as the case may be,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements made therein, in the light of the circumstances under which
they are made, not misleading. Notwithstanding the foregoing, Renco and
Holdings make no representations or warranty with respect to any information
supplied by the
D-3
<PAGE>
Company or any of its representatives which is contained in the Offer
Documents. The Offer Documents shall comply in all material respects as to
form with the requirements of the Exchange Act and the rules and regulations
thereunder.
(f) NO SOLICITATION. Neither Renco nor Holdings is currently, or has
any intention of, directly or indirectly, through any officer, director,
agent or otherwise, soliciting, initiating or encouraging the submission of
any proposal or offer from any person relating to the acquisition of any
equity interest in the Company (other than pursuant to the Equity Tender
Offer), participating in any negotiations regarding, or furnishing to any
other person any information with respect to, or otherwise cooperating in
any way with, or assisting or participating in, facilitating or encouraging,
any effort or attempt by any other person to do or seek any of the
foregoing.
7. GENERAL.
(a) SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any
other remedy at law or equity.
(b) GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State with regard to its
principles of conflicts of law. All actions and proceedings arising out of
or relating to this Agreement shall be heard and determined in any New York
state or federal court sitting in the City of New York.
(c) HEADINGS. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement.
D-4
<PAGE>
(e) WAIVERS AND AMENDMENT. This Agreement may be amended or modified,
and the terms and conditions hereof may be waived, only be a written
instrument signed by the parties hereto or, in the case of a waiver, by the
party waiving compliance.
<TABLE>
<S> <C> <C>
Very truly yours,
THE RENCO GROUP, INC.
By: /s/ IRA LEON RENNERT
-----------------------------------------
Ira Leon Rennert
CHAIRMAN
WCI STEEL HOLDINGS, INC.
By: /s/ IRA LEON RENNERT
-----------------------------------------
Ira Leon Rennert
CHAIRMAN
</TABLE>
<TABLE>
<S> <C> <C> <C>
Agreed to and accepted:
WCI STEEL, INC.
By: /s/ EDWARD R. CAINE
-----------------------------------------
Name: Edward R. Caine
Title: President and Chief Executive
Officer
</TABLE>
D-5
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for Shares and
any other required documents should be sent or delivered by each shareholder of
the Company or his broker, dealer, commercial bank, trust company or other
nominee to the Depositary, at one of the addresses set forth below:
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
FACSIMILE TRANSMISSION:
(718) 234-5001
CONFIRM BY TELEPHONE:
(718) 921-8200
BY MAIL OR HAND/OVERNIGHT DELIVERY:
American Stock Transfer
& Trust Company
40 Wall Street
46th Floor
New York, New York 10005
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and other tender offer materials may be obtained from the
Information Agent as set forth below and will be furnished promptly at Holdings'
expense. You may also contact your broker, dealer, commercial bank, trust
company or other nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, New York 10005
BANKS AND BROKERS CALL COLLECT:
(212) 440-9800
ALL OTHERS CALL TOLL FREE:
1-800-223-2064
The Dealer Manager for the Offer is:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
(212) 892-4753
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
WCI STEEL, INC.
PURSUANT TO
THE OFFER TO PURCHASE, DATED OCTOBER 28, 1996
THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON NOVEMBER 25,
1996 (THE "EXPIRATION DATE"), UNLESS EXTENDED. TENDERS OF SHARES OF COMMON
STOCK, NO PAR VALUE, $.01 STATED VALUE (THE "SHARES"), MAY ONLY BE WITHDRAWN
UNDER THE CIRCUMSTANCES DESCRIBED IN THE OFFER TO PURCHASE AND HEREIN.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C>
FACSIMILE TRANSMISSION: BY MAIL OR HAND/OVERNIGHT DELIVERY
(718) 234-5001 American Stock Transfer & Trust Company
for eligible institutions 40 Wall Street
CONFIRM BY TELEPHONE: 46th Floor
(718) 921-8200 New York, New York 10005
</TABLE>
<TABLE>
<S> <C> <C>
DESCRIPTION OF SHARES TENDERED
<CAPTION>
Name(s) and Address(es) of holder(s) Shares Tendered (Attach additional schedule, if
(Please fill in, if blank, exactly as name(s) appear(s) on Shares) necessary)*
<S> <C> <C>
<CAPTION>
(1) (2) (3)
<S> <C> <C>
<CAPTION>
Total Number
Certificate Number(s) of Shares Tendered
<S> <C> <C>
Total
</TABLE>
* Completion of this Letter of Transmittal will constitute the tender of all
Shares delivered.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION VIA
FACSIMILE OR TELEX, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE
READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE THE OFFER CONSIDERATION (AS
DEFINED) PURSUANT TO THE TENDER OFFER MUST VALIDLY TENDER THEIR SHARES TO THE
DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE.
This Letter of Transmittal should be used only to tender the Shares of WCI
Steel, Inc., an Ohio corporation (the "Company"), pursuant to the offer to
purchase for cash (the "Offer") by WCI Steel Holdings, Inc., a Delaware
corporation ("Holdings"), of all of the outstanding shares of common stock, no
par value, $.01 stated value, of the Company (the "Shares") pursuant to the
Offer to Purchase, dated October 28, 1996 (as the same may be amended or
supplemented from time to time, the "Statement").
<PAGE>
This Letter of Transmittal is to be used (a) if Shares are to be physically
delivered to the Depositary or (b) if delivery of Shares is to be made by
book-entry transfer to the account maintained by the Depositary at The
Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant
to the procedures set forth in the Statement under the caption "Procedure for
Tendering Shares--Book-Entry Transfer." Delivery of documents to the Book-Entry
Transfer Facility does not constitute deliver to the Depositary.
Holders whose Shares are not available or who cannot deliver their Shares
and all other documents required hereby to the Depositary on or prior to the
Expiration Date nevertheless may tender their Shares in accordance with the
guaranteed delivery procedures set forth in the Statement under the caption
"Procedure for Tendering Shares-- Guaranteed Delivery." See Instruction 2
herein.
THE OFFER IS NOT BEING MADE TO (NOR WILL THE SURRENDER OF SHARES FOR
PURCHASE BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH
THE MAKING OR ACCEPTANCE OF THE OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS
OF SUCH JURISDICTION.
All capitalized terms used herein and not otherwise defined herein shall
have the respective meanings ascribed to such terms in the Statement.
HOLDERS WHO WISH TO TENDER THEIR SHARES MUST COMPLETE THE BOX BELOW ENTITLED
"METHOD OF DELIVERY," COMPLETE COLUMNS (1) THROUGH (3) IN THE BOX ON THE COVER
ENTITLED "DESCRIPTION OF SHARES TENDERED" AND SIGN IN THE APPROPRIATE BOX BELOW.
HOLDERS WHO COMPLETE THIS LETTER OF TRANSMITTAL WILL BE DEEMED TO HAVE TENDERED
ALL SHARES LISTED IN THE BOX ON THE COVER HEREOF.
<PAGE>
METHOD OF DELIVERY
/ / CHECK HERE IF CERTIFICATES FOR TENDERED SHARES ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK- ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE
BOOK-ENTRY TRANSFER FACILITY SPECIFIED ABOVE AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _________________________________________
Name of Book-Entry Transfer Facility:
/ / The Depository Trust Company
Account Number: _______________ Transaction Code Number: ______________
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Owner(s): ________________________________________
Window Ticket Number (if any): _________________________________________
Date of Execution of Notice of Guaranteed Delivery: ____________________
Name of Eligible Institution which Guaranteed Delivery: ________________
IF DELIVERED BY THE BOOK-ENTRY TRANSFER FACILITY, CHECK BOX OF
BOOK-ENTRY TRANSFER FACILITY:
/ / The Depository Trust Company
Account Number: _______________ Transaction Code Number: _______________
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
By execution hereof, the undersigned hereby acknowledges receipt of the
Offer to Purchase, dated October 28, 1996 (the "Statement"), and this related
Letter of Transmittal and the instructions hereto (this "Letter of Transmittal")
in connection with (a) the offer (the "Offer") by WCI Steel Holdings, Inc.
("Holdings") to purchase for cash all of the outstanding shares of common stock,
no par value, $.01 stated value (the "Shares") of WCI Steel, Inc. (the
"Company") at a price (the "Offer Price") equal to $10.00 per Share, on the
terms and subject to the conditions and as more fully set forth in, the
Statement.
All capitalized terms used herein and not otherwise defined herein shall
have the respective meanings ascribed to such terms in the Statement.
Upon the terms and subject to the conditions of the Offer, the undersigned
hereby tenders to Holdings the Shares indicated above.
Subject to, and effective upon, the acceptance for payment of the Shares
tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon
the order of, Holdings all right, title and interest in and to, and any and all
claims in respect of or arising or having arisen as a result of the
undersigned's status as a holder of, all Shares tendered hereby. The undersigned
hereby irrevocably constitutes and appoints the Depositary as the true and
lawful agent and attorney-in-fact of the undersigned with respect to such
Shares, with full power of substitution (such power of attorney being deemed to
be an irrevocable power coupled with an interest) to (a) deliver such Shares, or
transfer ownership of such Shares on the account books maintained by DTC,
together with all accompanying evidences of transfer and authenticity, to or
upon the order of Holdings, (b) present such Shares for transfer on the
register, and (c) receive all benefits and otherwise all rights of beneficial
ownership of such Shares, all in accordance with the terms of the Offer.
Tenders of Shares pursuant to the Offer may be withdrawn, subject to the
procedures described in Section 4 of the Statement and Instruction 4 herein, at
any time until the Expiration Date. Tenders of any Shares also may be withdrawn
if the Offer is terminated without any Shares being purchased thereunder, or as
otherwise provided herein or in the Statement.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby, and that when such Shares are accepted for purchase by Holdings,
Holdings will acquire good, marketable and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances, and that none of
such Shares will be subject to any adverse claim or right. The undersigned, upon
request, will execute and deliver all additional documents deemed by the
Depositary or Holdings to be necessary or desirable to complete the sale,
assignment and transfer of the Shares tendered hereby.
The undersigned understands that tenders of Shares pursuant to any of the
procedures described in Section 3 of the Statement and the instructions herein
will constitute the undersigned's acceptance of the terms and conditions of the
Offer. Purchaser's acceptance of such Shares for purchase will constitute a
binding agreement between the undersigned and Holdings upon the terms and
subject to the conditions of the Offer. All authority conferred or agreed to be
conferred by this Letter of Transmittal shall survive the death or incapacity of
the undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, executors, administrators, successors, assigns, trustees in
bankruptcy and other legal representatives.
<PAGE>
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," the Depositary will issue the check for the Offer Price with
respect to Shares accepted for purchase, and return any certificates for Shares
not tendered or not accepted for purchase, in the name(s) of the registered
holder(s) appearing above in the box entitled "Description of Shares Tendered."
Similarly, unless otherwise indicated herein in the box entitled "Special
Delivery Instructions," the Depositary will mail the check for the Offer Price
with respect to Shares accepted for purchase, together with any certificates for
Shares not tendered or not accepted for purchase (and any accompanying
documents, as appropriate) to the address(es) of the registered holder(s)
appearing above in the box entitled "Description of Shares Tendered." If both
the "Special Payment Instructions" box and the "Special Delivery Instructions"
box are completed, the Depositary will issue the check for the Offer Price with
respect to any Shares accepted for purchase and return any certificates for
Shares not tendered or not accepted for purchase in the name(s) of, and will
mail the check and any such Shares not tendered or not accepted for purchase to,
the person(s) at the address(es) so indicated. The undersigned recognizes that
Holdings has no obligations pursuant to the "Special Payment Instructions" box
or "Special Delivery Instructions" box provisions of this Letter of Transmittal
to transfer any Shares from the name of the registered holder(s) thereof if
Holdings does not accept for purchase any of the principal amount of such
Shares.
<PAGE>
SIGN HERE
(TO BE COMPLETED BY ALL TENDERING
HOLDERS OF SHARES REGARDLESS OF WHETHER
SHARES ARE BEING PHYSICALLY DELIVERED HEREWITH)
X ______________________________________________________________________________
X ______________________________________________________________________________
(Signature(s) of holder(s) or Authorized Signatory)
Must be signed by the registered holder(s) of Shares exactly as their
name(s) appear(s) on certificate(s) for the Shares or by person(s) authorized to
become registered holder(s) by endorsements and documents transmitted with this
Letter of Transmittal. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation, agent or other person
acting in a fiduciary or representative capacity, please provide the following
information and see Instruction 5 herein.
Name(s): _______________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title): _________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No.: ___________________________________________________
SIGNATURE GUARANTEE
(SEE INSTRUCTIONS 1 AND 5 BELOW)
________________________________________________________________________________
(Name of Eligible Institution Guaranteeing Signature(s))
________________________________________________________________________________
(Address, including Zip Code, and Telephone No., including area code, of Firm)
________________________________________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Printed Name)
________________________________________________________________________________
(Title)
Date: , 1996
<PAGE>
<TABLE>
<CAPTION>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificates for To be completed ONLY if certificates for
Shares not tendered or not accepted for Shares not tendered or not accepted for
purchase and/or the check for the Offer Price purchase and/or the check for the Offer Price
are to be issued in the name of someone other are to be sent to someone other than the
than the undersigned, or if Shares are to be undersigned at an address other than that
returned by credit to an account maintained shown above.
by the Book-Entry Transfer Facility.
<S> <C> <C> <C> <C>
Issue Check and/or Shares to: Deliver Check and/or Shares to:
Name: Name:
(Please Print) (Please Print)
Address: Address:
Zip Code Zip Code
Taxpayer Identification Number Taxpayer Identification Number
(YOU MUST ALSO COMPLETE (YOU MUST ALSO COMPLETE
SUBSTITUTE FORM W-9 BELOW.) SUBSTITUTE FORM W-9 BELOW.)
Credit unaccepted Shares tendered by
book-entry transfer to:
/ / The Depository Trust Company
account set forth below
(DTC ACCOUNT NUMBER)
<CAPTION>
<S> <C>
</TABLE>
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE
OFFER
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal or
a notice of withdrawal must be guaranteed by an Eligible Institution, unless (a)
this Letter of Transmittal is signed by the registered holder(s) of the Shares
(which term, for purposes of this Letter of Transmittal, shall include any
participant in one of the Book-Entry Transfer Facilities whose name appears on a
security listing as the owner of the Shares) tendered herewith and neither the
"Special Payment Instructions" box nor the "Special Delivery Instructions" box
of this Letter of Transmittal has been completed or (b) such Shares are tendered
for the account of an Eligible Institution. See Instruction 5 herein.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be used only if Shares tendered
hereby are to be forwarded herewith. All physically tendered Shares (or
confirmation of book-entry transfer of such Shares into the Depositary's account
with the Book-Entry Transfer Facility), together with a properly completed and
validly executed Letter of Transmittal (or facsimile thereof) and any other
documents required by this Letter of Transmittal must be received by the
Depositary at one of its addresses set forth on the cover page hereof on or
prior to the Expiration Date (except as otherwise provided pursuant to the
Notice of Guaranteed Delivery). If Shares are forwarded to the Depositary in
multiple deliveries, a properly completed and validly executed Letter of
Transmittal must accompany each such delivery.
Tenders of Shares in the Offer will be accepted on or prior to the
Expiration Date in the manner described in the preceding paragraph and otherwise
in compliance with this Letter of Transmittal. Alternative, conditional or
contingent tenders of Shares will not be considered valid.
If a holder desires to tender Shares pursuant to the Offer and (a)
certificates representing such Shares are not immediately available or (b) time
will not permit this Letter of Transmittal, certificates representing such
Shares and all other required documents to reach the Depositary on or prior to
the Expiration Date, such holder may effect a tender of Shares in accordance
with the guaranteed delivery procedure set forth in Section 7 of the Statement
under the caption "Guaranteed Delivery."
Pursuant to such procedure:
(a) such tender must be made by or through an Eligible Institution:
(b) on or prior to the Expiration Date, the Depositary must have
received from such Eligible Institution, at one of the addresses of the
Depositary set forth on the cover page hereof, a properly completed and
validly executed Notice of Guaranteed Delivery (by telegram, telex,
facsimile, mail or hand delivery), substantially in the form provided
herewith, that contains a signature guaranteed by an Eligible Institution in
the form set forth in the Notice of Guaranteed Delivery, unless such tender
is for the account of an Eligible Institution (in which case no signature
guarantee shall be required) and setting forth the name(s) and address(es)
of the registered holder(s), and the principal amount of Shares being
tendered, and stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the date of
the Notice of Guaranteed Delivery, this Letter of Transmittal validly
executed (or a facsimile thereof), together with certificates evidencing the
Shares (or confirmation of book-entry transfer of such Shares into the
Depositary's account with the Book-Entry Transfer Facility), and any
required signature guarantee and any other documents required by this Letter
of Transmittal and the instructions thereto, will be deposited by such
Eligible Institution with the Depositary; and
(c) this Letter of Transmittal or a facsimile hereof, properly completed
and validly executed, with any required signature guarantees, the Shares in
proper form for transfer (or confirmation of book-entry transfer of such
Shares into the Depositary's account with the Book-Entry Transfer Facility)
and all other documents required by this Letter of Transmittal must be
received by the Depositary within three New York Stock Exchange trading days
after the date of such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, the purchase of the Shares
pursuant to the Offer will in all cases be made only after timely receipt by the
Depositary of certificates for such Shares and this Letter of Transmittal (or
facsimile there) in respect thereof, properly completed and duly executed,
together with any required signature guarantees and any other documents required
by the Statement and this Letter of Transmittal.
<PAGE>
The method of delivery of this Letter of Transmittal, the Shares and all
other required documents to the Depositary is at the election and risk of the
tendering holder, and the delivery will be deemed made only when actually
received by the Depositary. Instead of effecting delivery by mail, it is
recommended that tendering holders use an overnight or hand delivery service. If
such delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. In all cases, the mailing should be made
sufficiently in advance of the Expiration Date to permit delivery to the
Depositary prior to such date. No alternative, conditional or contingent tenders
of Shares will be accepted. By execution of this Letter of Transmittal (or a
facsimile hereof), all tendering holders waive any right to receive any notice
of the acceptance of their Shares for payment.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, withdrawal and revocation of tendered Shares will be
resolved by Holdings, whose determination will be final and binding. Holdings
reserves the absolute right to reject any or all tenders and withdrawals of
Shares that are not in proper form or the acceptance of which would, in the
opinion of Holdings or counsel for Holdings, be unlawful. Holdings also reserves
the right to waive any irregularities or conditions of tender, as to particular
Shares. Purchaser's interpretation of the terms and conditions of the Offer
(including the instructions in this Letter of Transmittal) will be final and
binding. Unless waived, any irregularities in connection with tenders and
withdrawals of Shares must be cured within such time as Holdings shall
determine. Tenders and withdrawals of Shares will not be deemed to have been
made until such irregularities have been cured or waived. Any Shares received by
the Depositary that are not properly tendered or delivered and to which the
irregularities have not been cured or waived will be returned by the Depositary
to the tendering holder unless otherwise provided in this Letter of Transmittal
as soon as practicable following the Expiration Date.
None of Holdings, the Depositary, the Dealer Manager or any other person
shall be obligated to give notification of defects or irregularities in any
tender, withdrawal, delivery or revocation or shall incur any liability for
failure to give any such notification.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the certificate numbers of the Shares and the
number of Shares tendered should be listed on a separate schedule and attached
hereto.
4. WITHDRAWAL OF TENDERS. Tenders of Shares may be withdrawn at any time
until the Expiration Date. Tendered Shares may not be withdrawn on after the
Expiration Date. Tenders of any Shares may also be withdrawn if the Offer is
terminated without any Shares being purchased thereunder. In the event of
termination of the Offer, the Shares tendered pursuant thereto will be returned
to the tendering holder promptly.
Holders who wish to exercise their right of withdrawal with respect to the
Offer must give written notice of withdrawal delivered by mail or hand delivery
or facsimile transmission, which notice must be received by the Depositary at
one of its addresses set forth on the front cover of this Letter of Transmittal
on or prior to the time provided in the immediately preceding paragraph. In
order to be effective, a notice of withdrawal must specify the name of the
person who deposited the Shares to be withdrawn (the "Depositor"), the name in
which the Shares are registered, if different from that of the Depositor, and
the number of Shares to be withdrawn. If certificates have been delivered or
otherwise identified (through confirmation of book-entry transfer of such
Shares) to the Depositary, the name of the registered holder and the certificate
number or numbers relating to such Shares withdrawn also must be furnished to
the Depositary as aforesaid prior to the physical release of the certificates
for the withdrawn Shares (or, in the case of Shares transferred by book-entry
transfer, the name and number of the account of the Book-Entry Transfer Facility
to be credited with withdrawn Shares. The notice of withdrawal must be signed by
the holder in the same manner as this Letter of Transmittal (including, in any
case, any required signature guarantees) or be accompanied by evidence
satisfactory to Holdings that the person withdrawing the tender has succeeded to
the beneficial ownership of such Shares. Withdrawals of tenders of Shares may
not be rescinded and any Shares withdrawn thereafter will be deemed not validly
tendered for purposes of the Offer. However, properly withdrawn Shares may be
retendered by following the procedures described elsewhere herein, at any time
prior to the Expiration Date.
Shares properly withdrawn will thereafter be deemed not validly tendered for
purposes of the Offer; PROVIDED, HOWEVER, that withdrawn Shares may be
retendered on or prior to the Expiration Date.
<PAGE>
If Holdings extends the Offer, in accordance with the terms and provisions
set forth in the Letter Agreement, is delayed in its acceptance for purchase of
Shares or is unable to purchase Shares pursuant to the Offer, for any reason,
then, without prejudice to Purchaser's rights under the Offer, the Depositary
may, subject to applicable law, retain tendered Shares on behalf of Holdings,
and such Shares may not be withdrawn (subject to Rule 14e-1 under the Exchange
Act, which requires that Holdings deliver the consideration offered or return
the Shares deposited by or on behalf of the holders of Shares promptly after the
termination or withdrawal of the Offer), except to the extent that tendering
holders are entitled to withdrawal rights as described herein.
If Holdings shall decide, in accordance with the terms and provisions set
forth in the Letter Agreement, to decrease the amount of Shares being sought in
the Offer or to increase or decrease the consideration offered to the holders of
Shares, and if, at the time that notice of such increase or decrease is first
published, sent or given to holders of Shares in the manner specified in the
Statement, the Offer is scheduled to expire at any time earlier than the
expiration for a period ending on the tenth Business Day from and including the
date that such notice is first so published, sent or given, the Offer will be
extended for such purposes until the expiration of such period for ten Business
Days. As used in the Statement, "Business Day" has the meaning set forth in Rule
14d-1 under the Exchange Act. In addition, if the Offer is amended in a manner
determined by Holdings to constitute a material adverse change to the holders of
Shares, Holdings promptly will disclose such amendment in a public announcement
and will extend the Offer for a period deemed by it to be adequate to permit
holders to properly deliver or withdraw their Shares.
All questions as to the validity, form and eligibility (including the time
of receipt) of notices of withdrawal or revocation will be determined by
Holdings, whose determination will be final and binding on all parties. None of
Holdings, the Depositary, the Dealer Manager, or any other person will be under
any duty to give notification of any defects or irregularities in any notice of
withdrawal or revocation or incur any liability for failure to give any such
notification.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond to the name(s) as written on
the face of the Shares without alteration, enlargement or any other change
whatsoever.
IF THIS LETTER OF TRANSMITTAL IS EXECUTED BY A HOLDER OF SHARES WHO IS NOT
EITHER (a) THE REGISTERED HOLDER OR (b) THE AGENT THEREOF DULY APPOINTED BY
WRITTEN PROXY DELIVERED TO THE DEPOSITARY, THEN THE REGISTERED HOLDER MUST SIGN
THE CONSENT SET FORTH ABOVE WITH THE SIGNATURE OF SUCH REGISTERED HOLDER
GUARANTEED BY AN ELIGIBLE INSTITUTION.
If any Shares tendered hereby are owned of record by two or more persons,
all such persons must sign this Letter of Transmittal.
If any Shares tendered hereby are registered in the names of different
holders, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal, and any necessary accompanying documents, as there are
different registrations of such Shares.
If this Letter of Transmittal is signed by the registered holder of Shares
tendered hereby, no endorsements of such Shares or separate stock powers are
required, unless payment is to be made to, or Shares not tendered or not
accepted for purchase are to be issued in the name of, a person other than the
registered holder(s), in which case the Shares tendered hereby must be endorsed
or accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Shares. Signatures on such
Shares and stock powers must be guaranteed by an Eligible Institution. See
Instruction 1 herein.
Endorsements on certificates of Shares or signatures on bond powers required
by this Instruction 5 must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any stock powers are signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and proper evidence satisfactory to Holdings of
such person's authority so to act must be submitted with this Letter of
Transmittal.
<PAGE>
6. TRANSFER TAXES. Except as otherwise provided in this Instruction 6,
Holdings will pay all transfer taxes with respect to the payment for and
transfer of Shares pursuant to the Offer. If, however, payment of the Offer
Consideration is to be made to, or Shares not tendered or not accepted for
purchase are to be issued in the name of, a person other than the registered
holder(s), the amount of any transfer taxes (whether imposed on the registered
holders(s), such other person or otherwise) payable on account of the transfer
to such other person will be deducted from the Offer Consideration unless
evidence satisfactory to Holdings of the payment of such taxes, or exemption
therefrom, is submitted. Except as provided in this Instruction 6, it will not
be necessary for transfer tax stamps to be affixed to the certificate(s)
representing Shares tendered hereby.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTION. If a check for the payment of
the Offer Consideration with respect to any Shares tendered hereby is to be
issued, Shares not tendered or not accepted for payment are to be issued in the
name of a person other than the person(s) signing this Letter of Transmittal or
if such check or any such Shares is to be sent to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal but at an address other than that shown in the box
entitled "Description of Shares Tendered," the appropriate boxes in this Letter
of Transmittal must be completed. If no such instructions are given, the Offer
Consideration and/or Shares not accepted for purchase or not tendered, as the
case may be, will be sent to the person signing this Letter of Transmittal, or
at Purchaser's option, by crediting the account at DTC designated in the box
entitle "Special Payment Instructions."
8. TAXPAYER IDENTIFICATION NUMBER. Each tendering holder is required to
provide the Depositary with the holder's correct taxpayer identification number
("TIN"), generally, the holder's Social Security or Federal Employer
Identification number, on Substitute Form W-9, which is provided under
"Important Tax Information" below, and to certify whether such person is subject
to backup withholding of federal income tax.
A holder must cross out item (2) in the certification box of Form W-9 if
such holder is subject to backup withholding. Failure to provide the information
on the Substitute Form W-9 may subject the tendering holder to 31% federal
income tax backup withholding on the payments made to the holder or other payee
with respect to Shares purchased pursuant to the Offer. The box in Part II of
the form should be checked if the tendering holder has not been issued a TIN and
has applied for a TIN or intends to apply for a TIN in the near future. If the
box in Part II is checked and the Depositary is not provided with a TIN within
60 days, thereafter the Depositary will hold 31% of all such payments of the
Offer Consideration until a TIN is provided to the Depositary.
9. CONFLICT. In the event of any conflict between the terms of the Statement
and the terms of this Letter of Transmittal, the terms of the Statement will
control.
10. WAIVER OF CONDITIONS. Holdings reserves the absolute right, subject to
applicable law, to amend in any respect or waive any of the specified conditions
in the Offer in the case of any particular Shares.
11. MUTILATED, LOST, STOLEN OR DESTROYED SHARES. If a holder of Shares
desires to tender Shares pursuant to the Offer, but any such Share has been
mutilated, lost, stolen or destroyed, such holder should write to or telephone
the Company, at the address listed below, concerning the procedures for
obtaining replacement certificates for such Shares, arranging for
indemnification or any other matter that requires handling by the Company.
WCI Steel, Inc.
1040 Pine Avenue, S.E.
Warren, Ohio 44483-6528
Attention: Mr. Paul Santuzzi, Treasurer
12. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Statement and this Letter of Transmittal, may be directed to the Dealer Manager
at its address and telephone number set forth on the back cover of the enclosed
Statement.
IMPORTANT TAX INFORMATION
Under the federal income tax law, a holder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payor)
with such holder's correct TIN on Substitute Form W-9 below. If such holder is
an individual, the TIN is his or her social security number. If the Depositary
is not provided with the correct TIN, a $50 penalty may be imposed by the
Internal Revenue Service, and payments of Offer Consideration may be subject to
backup withholding.
<PAGE>
Certain tendering holders of Shares (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. Exempt holders of Shares should indicate
their exempt status on Substitute Form W-9. In order for a foreign individual to
qualify as an exempt recipient, such individual must submit a statement, signed
under penalties of perjury, attesting to such individual's exempt status. Forms
of such statements can be obtained from the Depositary. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the holder or other payee. Backup withholding is not an
additional federal income tax. Rather, the federal income tax liability of a
person subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to Shares
accepted for payment pursuant to the Offer, the tendering holder of Shares is
required to notify the Depositary for such holder's correct TIN by completing
the Substitute Form W-9 below, certifying that the TIN provided on the
Substitute Form W-9 is correct (or that such holder is awaiting a TIN) and that
such tendering holder of Shares is not subject to backup withholding because:
(a) such holder is exempt from backup withholding, or (b) such holder of Shares
has not been notified by the Internal Revenue Service that such holder of Shares
is subject to backup withholding as a result of a failure to report all interest
or dividends or (c) the Internal Revenue Service has notified such holder of
Shares that such holder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The holder of Shares is required to give the Depositary the TIN (i.e.,
social security number or employer identification number) of the holder of the
Shares tendered hereby. If the Shares are held in more than one name or are not
held in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number of Substitute Form W-9" for
additional guidance on which number to report.
<PAGE>
PAYER'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
SUBSTITUTE Part I--PLEASE PROVIDE YOUR TIN --------------------------------
Form W-9 IN THE BOX AT RIGHT AND CERTIFY Social Security Number
Department of the Treasury BY SIGNING AND DATING BELOW. OR
Internal Revenue Service Employer Identification Number
Payer's Request for Taxpayer
Identification Number (TIN)
</TABLE>
CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because: (a) I am exempt from
backup withholding; or (b) I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup withholding as a result of
failure to report all interest or dividends, or (c) the IRS has notified me
that I am no longer subject to backup withholding.
<TABLE>
<S> <C> <C>
PART II--AWAITING TIN / / PART III--EXEMPT / /
</TABLE>
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
under-reporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item (2). If you are exempt
from backup withholding, check the box in Part III.
Signature ______________________________________ Date________________________
<TABLE>
<S> <C> <C>
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN)
Please fill out your name and address below:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address (Number and street)
- --------------------------------------------------------------------------------
City, State and Zip Code
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER AND THE
SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
II OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number to the payor by the time of
payment, 31% of all reportable payments made to me will be withheld until I
provide a number and that, if I do not provide my taxpayer identification number
within 60 days, such retained amounts shall be remitted to the IRS as backup
withholding.
Signature _____________________________________ Date ________________________
</TABLE>
<PAGE>
NOTICE OF GUARANTEED DELIVERY
TO TENDER SHARES OF COMMON STOCK
OF
WCI STEEL, INC.
PURSUANT TO
THE OFFER TO PURCHASE, DATED OCTOBER 28, 1996
This Notice of Guaranteed Delivery or a form substantially equivalent hereto
must be used to accept the offer (the "Offer") by WCI Steel Holdings, Inc., a
Delaware corporation ("Holdings"), to purchase for cash all of the outstanding
shares of common stock, no par value, $.01 stated value (the "Shares"), of WCI
Steel, Inc. (the "Company"), if (a) certificates representing the Shares are not
immediately available or (b) time will not permit the Shares and all other
required documents to reach the Depositary on or prior to the Expiration Date.
This form may be delivered by an Eligible Institution by mail or hand delivery
or transmitted, via facsimile, telegram or telex to the Depositary as set forth
below. All capitalized terms used herein but not otherwise defined herein shall
have the respective meanings ascribed to such terms in the Offer to Purchase,
dated October 28, 1996 (the "Statement").
THE OFFER IS NOT BEING MADE TO (NOR WILL THE SURRENDER OF SHARES BE ACCEPTED
FROM OR ON BEHALF OF) HOLDERS OF SHARES IN ANY JURISDICTION IN WHICH THE MAKING
OR ACCEPTANCE OF THE OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH
JURISDICTION.
THE TENDER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON NOVEMBER
25, 1996, UNLESS EXTENDED. TENDERS OF SHARES OF COMMON STOCK, NO PAR VALUE,
$.01 STATED VALUE (THE "SHARES"), MAY ONLY BE WITHDRAWN UNDER THE
CIRCUMSTANCES DESCRIBED IN THE OFFER TO PURCHASE AND THE LETTER OF
TRANSMITTAL.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
FACSIMILE TRANSMISSION:
(718) 234-5001
for eligible institutions
CONFIRM BY TELEPHONE:
(718) 921-8200
BY MAIL OR HAND/OVERNIGHT DELIVERY:
American Stock Transfer & Trust Company
40 Wall Street
46th Floor
New York, New York 10005
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE TRANSMISSION OR TELEX, OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tender(s) to Holdings and deliver(s) to Holdings the
Shares set forth below, pursuant to the guaranteed delivery procedures set forth
in "Section 3. Procedure for Tendering Shares" of the Statement under the
caption "GUARANTEED DELIVERY."
Subject to and effective upon acceptance for purchase of the Shares tendered
herewith, the undersigned hereby sells, assigns and transfers to or upon the
order of Holdings all right, title and interest in and to, and any and all
claims in respect of or arising or having arisen as a result of the
undersigned's status as a holder of, all Shares tendered hereby. In the event of
a termination of the Offer, the Shares tendered pursuant thereto will be
promptly returned to the tendering holder thereof.
The undersigned hereby represents and warrants that the undersigned accepts
the terms and conditions of the Statement and the Letter of Transmittal, has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and that Holdings will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The undersigned will, upon request, execute
and delivery any additional documents deemed by the Depositary or Holdings to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
<TABLE>
<S> <C>
PLEASE SIGN AND COMPLETE
Signature(s) of Registered Holder(s) Address(es): -------------------------------
or Authorized Signatory: -------------------------------------------
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- -------------------------------------------
Name(s) of Registered Holder(s): Area Code and Telephone No.:
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- If Shares will be delivered by a book-entry
Number of Shares Tendered: transfer, check trust company:
- ------------------------------------------- / / The Depository Trust Company
Certificate No(s). of Shares (if available): Transaction Code No.: ---------------------
- ------------------------------------------- Depository Account No.: --------------------
- -------------------------------------------
</TABLE>
2
<PAGE>
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Shares exactly as their name(s) appear(s) on the Shares or by
person(s) authorized to become registered holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature
is by a trustee, guardian, attorney-in-fact, officer of a corporation,
executor, administrator, agent or other representative, such person must
provide the following information:
PLEASE PRINT NAME(S) AND ADDRESS(ES)
<TABLE>
<S> <C>
Name(s): -------------------------------------------------------------------------
-------------------------------------------------------------------------
Capacity: -------------------------------------------------------------------------
-------------------------------------------------------------------------
Address(es): -------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the
Stock Exchanges Medallion Program or another "Eligible Guarantor
Institution" as defined in Rule 17Ad-15 under the Securities Act of 1934, as
amended, hereby guarantees that, within three New York Stock Exchange
trading days from the date of this Notice of Guaranteed Delivery, a properly
completed and validly executed Consent and Letter of Transmittal (or a
facsimile thereof), together with Notes tendered hereby in proper form for
transfer (or confirmation of the book-entry transfer of such Notes into the
Depositary's account at a Book-Entry Transfer Facility, pursuant to the
procedures for book-entry transfer set forth in Section 7 of the Statement
under the caption "Guaranteed Delivery") and all other required documents
will be deposited by the undersigned with the Depositary at one of its
addresses set forth above.
<TABLE>
<S> <C>
Name of Firm: --------------------------- ------------------------------------------
Authorized Signature
Address: --------------------------------- Name: ----------------------------------
- ------------------------------------------ Title:
------------------------------------
Area Code and Telephone No.: Date: ------------------------------------
- ---------------
</TABLE>
DO NOT SEND SHARES WITH THIS FORM. ACTUAL SURRENDER OF SHARES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND VALIDLY
EXECUTED CONSENT AND LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
3
<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 PARK AVENUE
NEW YORK, NEW YORK 10172
WCI STEEL HOLDINGS, INC.
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
OF
WCI STEEL, INC.
PURSUANT TO
THE OFFER TO PURCHASE, DATED OCTOBER 28, 1996
THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON NOVEMBER 25,
1996 (THE "EXPIRATION DATE"), UNLESS EXTENDED. TENDERS OF SHARES OF COMMON
STOCK, NO PAR VALUE, $.01 STATED VALUE (THE "SHARES"), MAY ONLY BE WITHDRAWN
UNDER THE CIRCUMSTANCES DESCRIBED IN THE OFFER TO PURCHASE AND THE LETTER OF
TRANSMITTAL.
To Brokers, Dealers, Commercial Banks, Trust
Companies and other Nominees:
We have been appointed by WCI Steel Holdings, Inc., a Delaware corporation
("Holdings"), to act as the Dealer Manager in connection with Purchaser's offer
to purchase (the "Offer") for cash all of the outstanding shares of common
stock, no par value, $.01 stated value (the "Shares"), of WCI Steel, Inc., an
Ohio corporation, at a price per Share of $10.00 (the "Offer Price"), on the
terms and subject to the conditions and as more fully set forth in, the Offer to
Purchase, dated October 28, 1996 (the "Statement"), and in the related Letter of
Transmittal.
Enclosed herewith are copies of the following documents:
1. The Statement;
2. The Letter of Transmittal for your use and for the information of
your clients, together with guidelines of the Internal Revenue Service for
Certification of Taxpayer Identification Number on Substitute Form W-9
providing information relating to backup federal income tax withholding;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents cannot be delivered to the
Depositary (as defined in the Statement) on or prior to the Expiration Date;
4. A form of letter which may be sent to your clients for whose account
you hold the Shares in your name or in the name of a nominee, with space
provided for obtaining such clients' instructions with regard to the Offer;
and
5. A return envelope addressed to the Depositary.
PLEASE NOTE THAT THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON NOVEMBER 25, 1996 UNLESS EXTENDED (THE "EXPIRATION DATE"). WE URGE YOU
TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE.
Other than as disclosed in the Statement, Holdings will not pay any fees or
commissions to any broker or dealer or other person for soliciting tenders of
the Shares pursuant to the Offer. You will be reimbursed for customary mailing
and handling expenses incurred by you in forwarding the enclosed materials to
your clients.
<PAGE>
Additional copies of the enclosed materials may be obtained from the Dealer
Manager, at its address and telephone number set forth on the back cover of the
enclosed Statement.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF HOLDINGS, THE DEPOSITARY OR THE DEALER MANAGER
OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER NOT CONTAINED
IN THE STATEMENT OR THE LETTER OF TRANSMITTAL.
2
<PAGE>
WCI STEEL HOLDINGS, INC.
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
OF
WCI STEEL, INC.
THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON NOVEMBER 25,
1996 (THE "EXPIRATION DATE"), UNLESS EXTENDED. TENDERS OF SHARES OF COMMON
STOCK, NO PAR VALUE, $.01 STATED VALUE (THE "SHARES"), MAY ONLY BE WITHDRAWN
UNDER THE CIRCUMSTANCES DESCRIBED IN THE OFFER TO PURCHASE AND THE LETTER OF
TRANSMITTAL.
October 28, 1996
To Our Clients:
Enclosed for your consideration is the Offer to Purchase, dated October 28,
1996 (the "Statement"), and related form of Letter of Transmittal and
instructions thereto (the "Letter of Transmittal") relating to the offer (the
"Offer") by WCI Steel Holdings, Inc., a Delaware corporation ("Holdings") and a
wholly-owned subsidiary of The Renco Group, Inc., a New York corporation
("Renco"), to purchase for cash all of the issued and outstanding shares of
common stock, no par value, $.01 stated value (the "Shares") of WCI Steel, Inc.,
an Ohio corporation, at a price per Share of $10.00 (the "Offer Price").
Consummation of the Offer is on the terms and subject to certain conditions
set forth more fully in the Statement. Capitalized terms used herein but not
otherwise defined herein shall have the respective meanings ascribed to such
terms in the Statement.
WE ARE THE REGISTERED HOLDER OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER
OF ANY SUCH SHARES WITH RESPECT THERETO CAN BE MADE ONLY BY US AS THE REGISTERED
HOLDER AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED
TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD
BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish us to tender any
or all such Shares held by us for your account pursuant to the terms and
conditions set forth in the Statement and in the Letter of Transmittal. We urge
you to read carefully the Statement and the Letter of Transmittal before
instructing us to tender your Shares.
Your instructions to us should be forwarded as promptly as possible in order
to permit us to tender the Shares on your behalf in accordance with the
provisions of the Offer. The Offer will expire at 12:00 midnight, New York City
time, on November 25, 1996, unless extended (the "Expiration Date"). Shares
tendered pursuant to the Offer may only be withdrawn under the circumstances
described in the Statement.
Your attention is directed to the following:
1. The Offer is for all outstanding Shares.
2. Consummation of the Offer is conditioned upon, among other things,
satisfaction of the Public Acceptance Condition.
3. Tendering holders may withdraw their tender at any time before the
Expiration Date.
4. Any transfer taxes incident to the transfer of Shares from the
tendering holder to Holdings will be paid by Holdings, except as provided in
the Statement and in Instruction 6 in Letter of Transmittal.
5. The Offer is not being made to (nor will the surrender of Shares for
purchase be accepted from or on behalf of) holders in any jurisdiction in
which the making or acceptance of the Offer would not be in compliance with
the laws of such jurisdiction.
<PAGE>
6. The acceptance for purchase of Shares validly tendered and not
validly withdrawn and the payment of the Offer Price will be made as
promptly as practicable after the Expiration Date. Subject to rules
promulgated pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), however, Holdings expressly reserves the right to delay
acceptance of any of the Shares or to terminate the Offer and not accept for
purchase any Shares not theretofore accepted if any of the conditions set
forth in the Statement under the caption "Certain Conditions to the Offer"
shall not have been satisfied or waived by Holdings. Holdings will pay the
Offer Price for Shares pursuant to the Offer promptly following acceptance
of the Shares.
7. Holdings expressly reserves the right, subject to applicable law and
the terms of the Offer, including the Letter Agreement, (a) to delay
acceptance for purchase of any Shares or, regardless of whether such Shares
were theretofore accepted for purchase, to delay the purchase of any Shares
pursuant to the Offer and to terminate the Offer and not accept for purchase
any Shares not theretofore accepted for purchase, upon the failure of any of
the conditions to the Offer specified herein and in the Statement to be
satisfied, by giving oral or written notice of such delay or termination to
the Depositary, and (b) at any time, or from time to time, and subject to
the rules promulgated pursuant to the Exchange Act, to amend the Offer in
any respect. Except as otherwise provided in the Statement, withdrawal
rights with respect to Shares tendered pursuant to the Offer will not be
extended or reinstated as a result of an extension or amendment of the
Offer. the reservation by Holdings of the right to delay acceptance for
purchase of Shares is subject to the provisions of Rule 14e-1(c) under the
Exchange Act, which requires that Holdings pay the consideration offered or
return the Shares deposited by or on behalf of holders thereof promptly
after the termination or withdrawal of the Offer.
8. Consummation of the Offer may have adverse consequences to
non-tendering holders of Shares, including that the reduced amount of
outstanding Shares as a result of the Offer may adversely affect the trading
market, liquidity and market price of the Shares.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing and returning to us the
instruction form that follows.
2
<PAGE>
WCI STEEL HOLDINGS, INC.
INSTRUCTIONS REGARDING THE
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
OF
WCI STEEL, INC.
THE UNDERSIGNED ACKNOWLEDGE(S) RECEIPT OF YOUR LETTER AND THE ENCLOSED
DOCUMENTS REFERRED TO THEREIN RELATING TO THE OFFER.
THIS WILL INSTRUCT YOU WHETHER TO TENDER THE SHARES INDICATED BELOW HELD BY
YOU FOR THE ACCOUNT OF THE UNDERSIGNED PURSUANT TO THE TERMS OF AND CONDITIONS
SET FORTH IN THE STATEMENT AND THE LETTER OF TRANSMITTAL.
Box 1 / / Please tender the Shares held by you for my account.
Box 2 / / Please do not tender any Shares held by you for my account.
<TABLE>
<S> <C>
Date, 1996
Number of Shares* Signature(s)
Please print name(s) here
Please type or print address
Area Code and Telephone Number
Taxpayer Identification or Social Security Number
My Account Number with You
</TABLE>
- ------------------------
* UNLESS OTHERWISE INDICATED, SIGNATURE(S) HEREON BY BENEFICIAL OWNER(S) SHALL
CONSTITUTE AN INSTRUCTION TO THE NOMINEE TO TENDER ALL SHARES.
3
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two hyphens, I.E.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen, I.E., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
GIVE THE GIVE THE
SOCIAL SECURITY EMPLOYER IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF: FOR THIS TYPE OF ACCOUNT: NUMBER OF:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying number
of the personal representative
or trustee unless the legal
entity itself is not
designated in the account
title.)(5)
2. Two or more individuals The actual owner of the 10. Corporate account The corporation
(joint account) account or, if combined funds,
the first individual on the
account(1)
3. Husband and wife (joint The actual owner of the 11. Religious, charitable, or The organization
account) account or, if joint funds, educational organization
the first individual on the account
account(1)
4. Custodian account of a The minor(2) 12. Partnership account held The partnership
minor (Uniform Gift to in the name of the business
Minors Act)
5. Adult and minor (joint The adult or, if the minor is 13. Association, club, or The organization
account) the only contributor, the other tax-exempt
minor(1) organization
6. Account in the name of The ward, minor, or 14. A broker or registered The broker or nominee
guardian or committee for a incompetent person(3) nominee
designed ward, minor, or
incompetent person
7. (a) The usual revocable The grantor-trustee(1) 15. Account with the The public entity
savings trust account Department of Agriculture
(grantor is also trustee) in the name of a public
(b) So-called trust account The actual owner(1) entity (such as a State or
that is not a legal or valid local government, school
trust under State law district, or prison) that
receives agricultural
program payments
8. Sole proprietorship account The owner(4)
</TABLE>
- ------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following (Section references are to the Internal Revenue Code):
- - A corporation
- - A financial institution
- - An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under Section 403(b)(7).
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free government bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file a Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A, and 6050N, and the regulations under those sections.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividend, interest,
or other payments to give taxpayer identification numbers to payers who must
report the payments to IRS. The IRS uses the numbers for identification purposes
and to help verify the accuracy of tax returns. Payers must be given the numbers
whether or not recipients are required to file a tax return. Payers must
generally withhold 31% of taxable interest, dividend, and certain other payments
to a payee who does not furnish a taxpayer identification number to a payer.
Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you fail to
include any portion of an includible payment for interest, dividends or
patronage dividends in gross income, such failure is strong evidence of
negligence. If negligence is shown, you will be subject to a penalty of 20% on
any portion of an underpayment attributable to that failure.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
[LETTERHEAD OF WCI STEEL, INC.]
October 28, 1996
Dear Shareholder:
On behalf of the Board of Directors (the "Board of Directors") of WCI Steel,
Inc. (the "Company"), I am pleased to inform you that WCI Steel Holdings, Inc.,
a Delaware corporation ("Holdings") and a wholly-owned subsidiary of The Renco
Group, Inc., a New York corporation ("Renco"), has offered to purchase all of
the outstanding shares of common stock of the Company (the "Shares") at a price
of $10.00 per Share in cash to the Company's shareholders. Holdings has today
commenced a cash tender offer at the $10.00 per Share price for all outstanding
Shares (the "Offer"). Subject to successful completion of the Offer, and certain
other conditions, the Offer is to be followed by a merger (the "Merger") of
Holdings with and into the Company in which each Share not tendered, and
therefore not purchased by Holdings in the Offer, will be automatically
converted into the right to receive the same $10.00 in cash.
Your Board of Directors, based on the recommendation of the independent
director, has determined that each of the Offer and the Merger is fair to the
Company's shareholders other than Renco and the directors and executive officers
of Renco and the Company (the "Public Shareholders"), has approved the Offer and
the Merger, and recommends that the Public Shareholders accept the Offer and
tender all of their Shares to Holdings pursuant to the Offer.
In arriving at its recommendation, the Board of Directors carefully
considered a number of factors more fully described in the Schedule 14D-9 of the
Company (which has been filed with Securities and Exchange Commission) and in
the Offer to Purchase of Holdings, dated October 28, 1996 (the "Offer to
Purchase"), enclosed herewith, including the recommendation of the independent
director who evaluated the Offer and the Merger and the opinion of Gleacher
NatWest Inc., financial advisor to the independent director, to the effect that
the $10.00 per Share cash consideration to be received by Public Shareholders in
the Offer and the Merger is fair, from a financial point of view, to such Public
Shareholders.
Accompanying this letter is the Offer to Purchase, together with related
materials, including a letter of transmittal to be used in tendering your
Shares. These documents set forth more fully the terms and conditions of the
Offer and provide instructions as to how to tender your Shares. The Board of
Directors and I urge you to read the enclosed materials carefully before making
your decision with respect to tendering your shares to Holdings.
On behalf of the Board of Directors,
/s/ Ira Leon Rennert
Ira Leon Rennert
Chairman of the Board
WCI Steel, Inc.
1040 Pine Avenue, SE
Warren, OH 44483-6528
(330) 841-8000
<PAGE>
WCI STEEL
NEWS RELEASE
--------------------------------------------------------------------------
CONTACTS:
MEDIA, Jack Walter, Director-Corporate Affairs
(330) 841-8216
WCI STEEL BOARD RECOMMENDS "GOING PRIVATE" AND
REFINANCING PROPOSALS OF RENCO
WARREN, OHIO (October 23, 1996) -- WCI Steel, Inc. (NYSE: WRN) announced
today that its board of directors approved, subject to certain modifications,
the proposal from The Renco Group, Inc. that WCI go "private" as previously
announced on October 10, 1996. The purchase price for the outstanding public
shares not owned by Renco will be $10 per share.
The independent director who analyzed and assessed the fairness of the
"going private" proposal had recommended that the board of directors approve a
modified proposal, based in part on the opinion of his financial advisor,
Gleacher NatWest Inc., that the cash consideration to be received by the public
shareholders is fair from a financial point of view to such shareholders.
The "going private" transaction will substantially reflect Renco's original
proposal, as modified as a result of discussions with the independent director.
The "going private" tender offer will be conditioned upon the tender of a
majority of the outstanding publicly-owned shares, but will not be conditioned
upon the success of the debt tender and refinancing transaction discussed below.
In addition, although Renco has advised WCI that it has no current intention to
sell WCI, Renco has agreed that if within one year of the consummation of the
"going private" transaction Renco were to agree to sell WCI and realize value
after
<PAGE>
expenses in excess of the value represented by the $10 per share offer, Renco
would at that time pay the allocable difference to the public shareholders whose
shares were acquired in the "going private" transaction.
The board of directors also approved the proposal from Renco that WCI offer
to purchase all, but not less than a majority, of its outstanding 10 1/2% Senior
Notes Due 2002, conduct a related solicitation of consents to modify certain
terms of the indenture relating to such notes and, at the same time, place an
offering of $300 million of new senior notes as previously announced on
October 10, 1996. The tender price for the 10 1/2% Senior Notes will be 111.5
percent of their principal amount plus accrued interest.
The new senior notes would be privately placed and will not be registered
under the Securities Act of 1933, as amended, and may not be offered or sold in
the United States absent registration or an applicable exemption from
registration requirements.
Although the "going private" transaction is independent of the debt tender
and refinancing transaction, the debt tender and refinancing transaction are
contingent on the success of the "going private" transaction. If all of the
transactions are successful, WCI expects to complete them contemporaneously.
WCI Steel is an integrated flat-rolled steel producer with an emphasis on
custom carbon, alloy and electrical steel products. WCI offers approximately
135 grades of high-quality steel used by strip converters, steel service
centers, electrical equipment manufacturers and the automotive and construction
industries.
# # #
2
