<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1997
REGISTRATION NOS. 333-19781
333-19781-01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
ISSUER OF SENIOR NOTES REGISTERED HEREBY
AK STEEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3312 31-1401455
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
GUARANTOR OF SENIOR NOTES REGISTERED HEREBY
AK STEEL HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3312 31-1401455
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
703 CURTIS STREET
MIDDLETOWN, OHIO 45043
(513) 425-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
RICHARD E. NEWSTED
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AK STEEL CORPORATION
703 CURTIS STREET
MIDDLETOWN, OHIO 45043
(513) 425-5000
(NAME AND ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies of communications to:
STEPHEN H. COOPER, ESQ.
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153-0119
(212) 310-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY 10, 1997
AK Steel Corporation
OFFER TO EXCHANGE ITS 9 1/8% SENIOR NOTES DUE 2006, WHICH ARE FULLY AND
UNCONDITIONALLY GUARANTEED BY AK STEEL HOLDING CORPORATION AND HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT, FOR ITS 9 1/8% SENIOR
NOTES DUE 2006, WHICH ARE FULLY AND UNCONDITIONALLY
GUARANTEED BY AK STEEL HOLDING CORPORATION AND HAVE NOT
BEEN SO REGISTERED.
-----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MARCH ,
1997, UNLESS EXTENDED.
-----------
AK Steel Corporation ("AK Steel"), a Delaware corporation, hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $550,000,000 aggregate principal amount of its new 9
1/8% Senior Notes due 2006 (the "New Notes"), which are fully and
unconditionally guaranteed by AK Steel Holding Corporation ("Holding") and have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), for a like principal amount of its outstanding 9 1/8% Senior Notes due
2006 (the "Old Notes"), which are fully and unconditionally guaranteed by
Holding but have not been so registered. The terms of the New Notes are
identical in all material respects to the Old Notes, except for certain
transfer restrictions relating to the Old Notes. The New Notes will evidence
the same indebtedness as the Old Notes and will be issued pursuant to, and
entitled to the benefits of, the same Indenture that governs the Old Notes (the
"Indenture"). As used herein, the term "Notes" means the Old Notes and the New
Notes, treated as a single class.
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on March , 1997
unless extended (as so extended, the "Expiration Date"). Tenders of Old Notes
may be withdrawn at any time prior to the Expiration Date. The Exchange Offer
is not conditioned upon any minimum principal amount of Old Notes being
tendered for exchange pursuant to the Exchange Offer. The Exchange Offer is
subject to certain other customary conditions. See "The Exchange Offer."
The Notes are not redeemable, prior to December 15, 2001, except that, until
December 15, 1999, the Company may redeem, at its option, up to $175.0 million
aggregate principal amount of the Notes at the redemption prices set forth
herein plus accrued interest to the date of redemption with the net proceeds of
one or more Public Equity Offerings (as defined) if at least $375.0 million of
the principal amount of the Notes remains outstanding after each such
redemption. On or after December 15, 2001, the Notes are redeemable at the
option of the Company, in whole or in part, at the redemption prices set forth
herein plus accrued interest to the date of redemption. Upon a Change in
Control (as defined), each holder of Notes may require the Company to
repurchase such Notes at 101% of the principal amount thereof plus accrued
interest to the date of repurchase. See "Description of the Notes."
The New Notes will be, and the Old Notes currently are, senior unsecured
obligations of AK Steel ranking pari passu with other senior unsecured Debt (as
defined) of AK Steel and senior to all Subordinated Obligations (as defined).
At September 30, 1996, the aggregate amount of senior indebtedness of AK Steel,
as adjusted to give effect to the issuance of the Old Notes, was $875 million.
The guarantee of the New Notes by Holding is an unsecured senior obligation of
Holding ranking pari passu with other senior unsecured indebtedness of Holding.
The holder of each Old Note accepted for exchange will receive a New Note
having a principal amount equal to that of the surrendered Old Note. The New
Notes will bear interest from the most recent date to which interest has been
paid on the Old Notes or, if no interest has been paid on the Old Notes, from
December 17, 1996. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
of Old Notes accepted for exchange will not receive any payment in respect of
accrued interest on such Old Notes. Old Notes not tendered or not accepted for
exchange will continue to accrue interest from and after the date of
consummation of the Exchange Offer.
The Old Notes were issued and sold on December 17, 1996 in a transaction
exempt from the registration requirements of the Securities Act and may not be
offered or sold in the United States unless so registered or pursuant to an
applicable exemption under the Securities Act. The New Notes are being offered
hereunder in order to satisfy certain obligations of the Company and Holding
contained in the Registration Rights Agreement (as defined). Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") as set forth in no-action letters issued to third parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a holder that is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act),
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement or
understanding with any person to participate in a distribution of such New
Notes. However, the Company has not sought a no-action letter with respect to
the Exchange Offer and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer. Each holder of Old Notes, other than a broker-dealer, must acknowledge
that it is not engaged in, and does not intend to engage or participate in, a
distribution of New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. Each broker-dealer that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. For a period of 180 days
after the Expiration Date (as defined herein), the Company will make copies of
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Old Notes, the Company will promptly return
the Old Notes to the holders thereof. See "The Exchange Offer."
SEE "RISK FACTORS", BEGINNING ON PAGE 11, FOR A DESCRIPTION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY HOLDERS BEFORE DECIDING TO TENDER THEIR OLD NOTES
IN THE EXCHANGE OFFER.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is February , 1997.
<PAGE>
AVAILABLE INFORMATION
AK Steel and Holding have filed with the Commission a registration statement
on Form S-4 (herein, together with all amendments and exhibits, referred to as
the "Registration Statement") under the Securities Act with respect to the New
Notes offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the New
Notes offered hereby, reference is made to the Registration Statement. Any
statements made in this Prospectus concerning the provisions of certain
documents are not necessarily complete and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement otherwise filed with the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Registration Statement, the exhibits forming a part thereof
and the reports, proxy statements and other information filed by the Company
with the Commission in accordance with the Exchange Act may be inspected,
without charge, at the Public Reference Section of the Commission located at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60601-2511. Copies of all or any portion of the material may be
obtained from the Public Reference Section of the Commission upon payment of
the prescribed fees. In addition, the Company's common stock is listed on the
New York Stock Exchange and material filed by the Company may be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
The Company will furnish holders of the New Notes with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year. The Company will also furnish such holders such other reports as it may
determine or as may be required by law. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding reporting companies under the Exchange Act, including the Company,
at http://www.sec.gov. In addition, if the Company ceases in the future to be
subject to the reporting requirements of the Exchange Act, the Company will be
required under the Indenture to continue to file with the Commission, and to
furnish holders of the New Notes with, the information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, which has been filed with the Commission (File No. 1-13696), is
hereby incorporated by reference in this Prospectus.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Exchange Offer contemplated hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, including any beneficial owner, on the
written or oral request of such person, a copy of any and all of the documents
referred to above which have been or may be incorporated in this Prospectus by
reference, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference therein. Requests for such copies
should be directed to the Corporate Secretary of AK Steel Corporation at its
principal executive offices, which are located at 703 Curtis Street,
Middletown, Ohio 45043 (telephone number (513) 425-5000).
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements (including the notes thereto) appearing elsewhere in this Prospectus
or incorporated herein by reference. Unless otherwise indicated, industry data
contained in this Prospectus have been derived from publicly-available sources,
including industry trade journals and filings with the Securities and Exchange
Commission (the "Commission"), which AK Steel has not independently verified
but believes to be reliable. As used herein, except as the context otherwise
may require, the "Company" means and includes Holding, AK Steel and Holding's
other consolidated subsidiaries, and the term "Notes" means the Old Notes and
the New Notes, treated as a single class.
THE COMPANY
AK Steel is the most profitable integrated steel producer in the United
States, with an industry-leading operating profit per ton of $46 for 1994, $74
for 1995 and $60 for 1996. Most significantly, the gap between these results
and the average operating profit per ton reported by the other five major
domestic integrated producers has steadily widened from $25 in 1994 to $40 in
1995 and $45 in 1996.
The Company concentrates on the production of premium quality coated, cold
rolled and hot rolled carbon steel primarily for sale to the automotive,
appliance, construction and manufacturing markets. The Company also cold rolls
and aluminum coats stainless steel for automotive industry customers. In 1996,
the Company had net sales of $2.3 billion, net income of $145.9 million and
earnings before interest, taxes, depreciation and amortization ("EBITDA") of
$368.5 million.
At the core of the Company's profitability is an experienced, results-
oriented management team that focuses on continuously increasing productivity,
reducing costs and improving product quality while continually striving to
improve safety and health in the workplace. Since arriving in mid-1992, the new
management team has reconfigured the Company's production facilities,
eliminating eleven redundant operating units, significantly increasing the
operating rates on remaining equipment and reducing operating costs throughout
the organization. Product quality and reliability have been improved, enabling
the Company to increase its sales of value-added coated and cold rolled
products to the high-end automotive, appliance, construction and manufacturing
markets.
The results of these efforts have been significant. Each of the Company's key
production units has achieved double-digit percentage increases in average
monthly production since 1992 through a combination of improved operating and
maintenance practices, targeted capital investments and focused production
planning. The Company's tandem cold mill has increased average monthly
production by over 84% from 132,600 tons in 1992 to 244,300 tons in 1996.
Average monthly production from the Company's coating lines has increased over
80% from 93,400 tons in 1992 to 168,100 tons in 1996.
The Company has increased its total annual shipments from 2,989,000 tons in
1992 to 4,383,000 tons in 1996, an increase of nearly 47%. Enhanced
productivity rates on its tandem cold mill and coating lines have allowed the
Company to increase its shipments of value-added coated and cold rolled
products from 1,668,000 tons (representing 56% of total shipments) in 1992 to
2,683,600 tons (or 61% of total shipments) in 1996. Increased production of
premium quality coated and cold rolled products has enabled the Company to
focus its commercial efforts on the most demanding requirements of the
automotive, appliance, construction and manufacturing markets. In 1992, 43% of
the Company's total shipments, or 1,288,000 tons, served customers in those
markets. In 1996, 59% of the Company's total shipments, or 2,578,000 tons,
served those markets.
The Company has earned a reputation, particularly among high-end customers,
for consistent product quality and superior service, receiving numerous
customer quality awards. In August 1996, the Company earned registration under
the ISO 9002 international quality standard and certification under the QS 9000
quality assurance program used by domestic automotive manufacturers.
3
<PAGE>
Management believes that increased profitability can best be achieved by
expanding the Company's capacity to produce and sell high-margin coated
products while correspondingly reducing its shipments of lower margin hot
rolled products. The improved performance of the Company's existing tandem cold
mill and its five existing coating lines has been a major factor in the
Company's ability to increase its production of high-margin coated products.
However, all of these facilities are operating at full capacity and the
opportunities for further increasing their productivity are limited.
Accordingly, the Company plans to construct a new, state-of-the-art finishing
facility (the "New Facility") that when fully operational in 1999, will
eliminate the existing bottleneck in the Company's cold rolling and coating
operations, enable the Company to better satisfy the growing demand within the
automotive industry for coated products, particularly galvannealed products,
expand the Company's presence in the stainless steel market, and significantly
reduce the Company's exposure to the lower margin and increasingly competitive
market for hot rolled products.
THE NEW FACILITY
The New Facility, together with the Company's existing tandem cold mill and
coating lines, will enable the Company to further process all of the hot rolled
carbon steel that it produces, as well as additional quantities of hot band
that it will purchase from other producers. The New Facility also will enable
the Company to significantly expand its presence in the stainless steel market.
The Company will continue to sell certain premium grades of hot rolled carbon
steel when appropriate in light of customer demand.
The New Facility, to be located on a currently undeveloped 1,700-acre site in
Spencer County, Indiana near the Ohio River community of Rockport, will consist
of a continuous cold rolling mill designed to cold reduce carbon steel hot band
in widths up to 80 inches at an estimated rate of 500 tons per hour and
stainless steel hot band in widths up to 60 inches, a hot dip galvanizing line
with a projected capacity of approximately 800,000 tons per year, a continuous
carbon and stainless steel pickling line, a stainless steel annealing and
pickling line, hydrogen annealing facilities and a temper mill.
The Company plans to produce approximately 1,400,000 tons of cold rolled
carbon steel annually at the New Facility, of which approximately 800,000 tons
are expected to be hot dip galvanized. Galvanized steel, including galvannealed
material, is particularly desired by the automotive industry and is associated
with the highest margins of all flat rolled carbon steel products. Primarily as
a result of the expanding requirements of the U.S.-based production facilities
of foreign automotive manufacturers, demand by automotive manufacturers for
galvanized steel has grown from 4.3 million tons in 1992 to 6.0 million tons in
1995, an increase of nearly 40%. Existing domestic production capacity is
insufficient to fully satisfy this growing demand. Additional facilities
recently completed, as well as those announced and scheduled to come on line
within the next few years, are capable of processing material in widths of only
60 inches or less and are targeted primarily to the construction market. The
Company's existing facilities are capable of producing coated carbon steel
products up to 76 inches wide. The hot dip galvanizing line at the New Facility
will produce coated products in widths up to 80 inches, a width currently not
produced in the United States. These products will be targeted to automotive
customers who will benefit from the manufacturing and design flexibility of
larger width steel.
The Company currently cold rolls and aluminum coats approximately 75,000 tons
per year of Series 400 stainless steel for sale primarily to manufacturers of
automotive exhaust systems. The New Facility will enable the Company to
substantially increase its shipments of Series 400 stainless steel and to cold
roll and sell Series 300 stainless steel, which is used in restaurant and
kitchen equipment and medical appliances, as well as in the oil refining,
chemical production and food processing industries. Both of these products are
associated with substantially higher margins than coated carbon steel. Hot
rolled stainless steel coils in both series will be purchased from other
producers for finishing. The Company plans to finish an aggregate of
approximately 385,000 tons of stainless steel annually at the New Facility.
During 1995, domestic consumption of flat rolled stainless steel totalled
nearly 1.6 million tons. According to industry analysts, domestic consumption
is projected to continue to grow steadily at a compounded annual rate of 5%.
Approximately 22% of the flat rolled stainless steel consumed in the United
States in 1995 was produced abroad, although two domestic producers have
announced planned capacity expansions aggregating
4
<PAGE>
approximately 335,000 tons per year. The Company believes that there is
sufficient projected demand for high quality flat rolled stainless steel to
absorb this additional capacity as well as the projected capacity of the New
Facility.
Construction and start-up of the various major components of the New Facility
will be independent of each other and will be staggered over a period of
approximately three years. The first production component to begin commercial
operation will be the galvanizing line, which is projected to be at full
production of anticipated customer requirements of 800,000 tons per year
beginning in December 1998. The continuous cold mill is scheduled to achieve
its targeted production of cold rolled carbon steel in March 1999, and the
other facilities are expected to begin full commercial production at various
times between June 1999 and December 1999. The staggered start-up of the
various components of the New Facility should also enable the Company to begin
generating revenue from the New Facility prior to the end of the construction
period.
The cost of constructing and equipping the New Facility, currently estimated
at $1.1 billion, is being financed with the proceeds from the sale of the Old
Notes, together with proceeds from the sale of $250.0 million aggregate
principal amount of AK Steel's Senior Secured Notes Due 2004 (the "Secured
Notes") and approximately $300.0 million of the Company's own cash resources.
See "Use of Proceeds."
THE EXCHANGE OFFER
Securities Offered.......... Up to $550,000,000 aggregate principal amount of
AK Steel's 9 1/8% Senior Notes Due 2006, which
are fully and unconditionally guaranteed by Hold-
ing and have been registered under the Securities
Act (the "New Notes"). The terms of the New Notes
and the Old Notes are identical in all material
respects (including principal amount, interest
rate and maturity) to, and evidence the same in-
debtedness as, the Old Notes for which they may
be exchanged, except that the Old Notes have not
been registered under the Securities Act and, ac-
cordingly, are not freely-transferable.
The Exchange Offer.......... The New Notes are being offered in exchange for a
like principal amount of Old Notes. The issuance
of the New Notes is intended to satisfy obliga-
tions of the Company contained in a Registration
Rights Agreement, dated December 12, 1996 (the
"Registration Rights Agreement"), between the
Company and CS First Boston and Goldman, Sachs &
Co., the Initial Purchasers of the Old Notes (the
"Initial Purchasers"). For procedures for
tendering the Old Notes pursuant to the Exchange
Offer, see "The Exchange Offer."
Tenders, Expiration Date;
Withdrawal................. The Exchange Offer will expire at 5:00 P.M., New
York City time, on March , 1997, or such later
date and time to which it may be extended (as so
extended, the "Expiration Date"). A tender of Old
Notes pursuant to the Exchange Offer may be with-
drawn at any time prior to the Expiration Date.
Any Old Note not accepted for exchange for any
reason will be returned without expense to the
tendering holder thereof as promptly as practica-
ble after the expiration or termination of the
Exchange Offer.
Federal Income Tax The exchange of Old Notes for New Notes pursuant
Consequences............... to the Exchange Offer should not result in any
income, gain or loss to the holders or the Com-
pany for federal income tax purposes. See "Cer-
tain Federal Income Tax Consequences."
5
<PAGE>
Use of Proceeds............. There will be no proceeds to the Company from the
Exchange Offer.
Exchange Agent.............. The Bank of New York is serving as the Exchange
Agent in connection with the Exchange Offer.
Shelf Registration Under certain circumstances, certain holders of
Statement.................. Notes (including holders who are not permitted to
participate in the Exchange Offer or who may not
freely resell New Notes received in the Exchange
Offer) may require the Company to file, and use
its reasonable best efforts to cause to become
effective, a shelf registration statement under
the Securities Act that would cover reoffers and
resales of Notes by such holders. See "Descrip-
tion of the Notes--Exchange Offer; Registration
Rights."
Conditions to the Exchange The Exchange Offer is not conditioned on any min-
Offer...................... imum principal amount of Old Notes being tendered
for exchange. The Exchange Offer is subject to
certain other customary conditions, each of which
may be waived by the Company. See "The Exchange
Offer--Certain Conditions to the Exchange Offer."
Consequences of Failure to Holders of Old Notes who do not exchange their
Exchange................... Old Notes for New Notes pursuant to the Exchange
Offer will continue to be subject to the restric-
tions on transfer of such Old Notes as set forth
in the legend thereon as a consequence of the of-
fer and sale of the Old Notes pursuant to exemp-
tions from, or in transactions not subject to,
the registration requirements of the Securities
Act. In general, the Old Notes may not be offered
or sold unless registered under the Securities
Act, except pursuant to an available exemption
from, or in a transaction not subject to, the Se-
curities Act and applicable state securities
laws. The Company does not currently anticipate
that it will register Old Notes under the Securi-
ties Act. Based on interpretations by the staff
of the Commission, as set forth in no-action let-
ters issued to third parties, the Company be-
lieves that New Notes issued pursuant to the Ex-
change Offer in exchange for Old Notes may be of-
fered for resale, resold or otherwise transferred
by holders thereof (other than a holder that is
an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, pro-
vided that such New Notes are acquired in the or-
dinary course of such holder's business and that
such holder, other than a broker-dealer, has no
arrangement with any person to participate in the
distribution of such New Notes. However, the Com-
mission has not considered the Exchange Offer in
the context of a no-action letter and there can
be no assurance that the staff of the Commission
would make a similar determination with respect
to the Exchange Offer as in such other circum-
stances. Each holder of Old Notes, other than a
broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a
distribution of such New Notes and has no ar-
rangement or understanding to participate in a
distribution of New Notes. Each broker-dealer
that receives New Notes for its own account in
exchange for Old Notes must acknowledge that such
Old Notes were acquired by such broker-dealer as
a result of market-making activities or other
trading activities and that it will deliver a
prospectus in connection with any resale of such
New Notes. See "Plan of Distribution."
6
<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
Maturity Date............... December 15, 2006.
Interest Rate............... The New Notes will bear interest at the rate of 9
1/8% per annum, the same rate as applicable to
the Old Notes; provided, that if the Exchange Of-
fer is not consummated by June 16, 1997, the New
Notes will bear additional interest at the rate
of 0.50% per annum from and including June 16,
1997 until but excluding the date of consummation
of the Exchange Offer.
Interest Payment Dates...... June 15 and December 15 of each year, commencing
June 15, 1997. The New Notes will bear interest
from the most recent date to which interest has
been paid on the Old Notes or, if no interest has
been paid on the Old Notes, from December 17,
1996.
Optional Redemption......... The Notes are not redeemable prior to December
15, 2001, except that, until December 15, 1999,
AK Steel may redeem, at its option, up to $175.0
million aggregate principal amount of the Notes
at the redemption price set forth herein plus ac-
crued interest to the date of redemption with the
net proceeds of one or more Public Equity Offer-
ings if at least $375.0 million aggregate princi-
pal amount of the Notes remains outstanding after
each such redemption. On or after December 15,
2001, the Notes are redeemable at the option of
AK Steel, in whole or in part, at the redemption
prices set forth herein plus accrued interest to
the date of redemption.
Mandatory Redemption........ None.
Change in Control........... Upon a Change in Control (as defined) and subject
to certain conditions, each holder of Notes may
require AK Steel to repurchase such holder's
Notes at 101% of the principal amount thereof
plus accrued interest to the Change in Control
Payment Date (as defined).
Guarantee................... Payment of the principal of and interest on the
Old Notes is, and payment of the principal of and
interest on the New Notes will be, uncondition-
ally guaranteed on a senior basis by Holding (the
"Holding Guarantee").
Ranking..................... The Old Notes are, and the New Notes will be, se-
nior unsecured obligations of AK Steel, ranking
pari passu with all other senior unsecured in-
debtedness of AK Steel, including $325 million
aggregate principal amount of AK Steel's 10 3/4%
Senior Notes Due 2004 (the "10 3/4% Notes") and
senior to all Subordinated Obligations (as de-
fined). The Holding Guarantee of the New Notes
will be an unsecured senior obligation of Holding
and will rank pari passu with all other senior
unsecured indebtedness of Holding, including its
guarantees of the Old Notes, the 10 3/4% Notes
and the Secured Notes. See "Risk Factors--Factors
Relating to the Notes--Ranking," "Description of
the Notes--Ranking" and "Description of Certain
Indebtedness."
Certain Covenants........... The Indenture under which the Old Notes were, and
the Notes will be, issued limits, among other
things, (i) the incurrence of liens on assets of
AK Steel and its subsidiaries; (ii)
sale/leaseback transactions; (iii) the issuance
of additional Debt (as defined herein) by AK
Steel; (iv) the issuance of Debt and Preferred
Equity Interests (as defined herein) by AK
Steel's subsidiaries; (v) the payment of divi-
dends on, and redemption of, capital stock of AK
Steel and its
7
<PAGE>
subsidiaries, the redemption of certain subordi-
nated obligations of AK Steel and the making of
investments; (vi) the issuance and sale of equity
interests of AK Steel's subsidiaries; (vii) dis-
tributions from AK Steel's subsidiaries; (viii)
sales of assets, including stock of AK Steel's
subsidiaries; (ix) transactions with affiliates;
(x) lines of business; (xi) consolidations, merg-
ers and transfers of all or substantially all as-
sets; and (xii) activities and liabilities of
Holding. However, all of these limitations are
subject to a number of important qualifications.
See "Description of the Notes--Certain Cove-
nants."
Use of Proceeds............. The Company will not receive any proceeds from
the Exchange Offer. The net proceeds from the
sale of the Old Notes, together with proceeds
from the sale of the Secured Notes and approxi-
mately $300.0 million of the Company's own cash
resources, are being used to finance the cost of
constructing and equipping the New Facility.
Exchange Offer; Holders of New Notes (other than as set forth be-
Registration Rights........ low) will not be entitled to any registration
rights with respect to the New Notes. Pursuant to
the Registration Rights Agreement, the Company
has agreed, for the benefit of the holders of Old
Notes, to file a registration statement under the
Securities Act with respect to an exchange offer
for the Old Notes. The Registration Statement of
which this Prospectus is a part constitutes the
exchange offer registration statement referred to
in the Registration Rights Agreement. Under cer-
tain circumstances described in the Registration
Rights Agreement, certain holders of Notes (in-
cluding holders who may not participate in the
Exchange Offer or who may not freely resell New
Notes received in the Exchange Offer) may require
the Company to file, and use reasonable best ef-
forts to cause to become effective, a shelf reg-
istration statement under the Securities Act that
would cover resales of Notes by such holders. See
"Description of the Notes--Exchange Offer; Regis-
tration Rights."
RISK FACTORS
Holders of the Old Notes should consider carefully all of the information set
forth in this Prospectus and, in particular, the information set forth under
"Risk Factors" before making a decision to tender their Old Notes for exchange
pursuant to the Exchange Offer.
8
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER TON DATA)
The following summary historical consolidated financial data have been
derived from, and should be read in conjunction with, the consolidated
financial statements of the Company and the selected historical consolidated
financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... $2,016.6 $2,257.3 $2,301.8
Cost of products sold............................. 1,655.2 1,768.1 1,846.5
Selling and administrative expenses............... 113.7 116.5 114.7
Depreciation...................................... 70.7 74.6 76.1
Special charges and unusual items(1).............. (15.9) -- --
Operating profit.................................. 192.9 298.1 264.5
Interest expense.................................. 48.2 35.6 39.8
Income before income taxes and extraordinary
item............................................. 152.0 281.5 237.0
Provision (benefit) for income taxes(2)........... (120.5) 12.9 91.1
Net income........................................ $ 257.6 $ 268.6 $ 145.9
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, and short-term
investments...................................... $ 261.8 $ 312.8 $ 739.3
Working capital................................... 443.5 489.8 1,005.1
Total assets...................................... 1,933.2 2,115.5 2,650.8
Current portion of long-term debt................. -- -- --
Long-term debt (excluding current portion)........ 330.0 325.0 875.0
Current portion of pension and postretirement
benefit obligations.............................. 110.3 0.1 0.1
Long-term pension and postretirement benefit
obligations (excluding current portion).......... 638.3 655.7 564.9
Stockholders' equity(3)........................... $ 449.0 $ 674.2 $ 777.0
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
OTHER DATA:
Ratio of earnings to combined fixed charges(4):
Actual.......................................... 3.6x 5.5x 4.6x
Pro forma(5).................................... 2.1x
EBITDA(6)......................................... $ 271.9 $ 433.7 $ 368.5
Ratio of EBITDA to interest expense(7):
Actual.......................................... 5.3x 7.7x 6.9x
Pro forma(5).................................... 2.9x
Operating profit per ton (excluding special
charges and unusual items)....................... $ 46 $ 74 $ 60
Capital investments............................... $ 87.5 $ 175.7 $ 141.6
Flat rolled shipments (thousands of tons)......... 3,875 4,051 4,383
Man hours per ton shipped......................... 3.78 3.26 3.02
Number of employees at end of period.............. 5,991 5,762 5,808
</TABLE>
- --------
Footnotes appear on following page.
9
<PAGE>
(1) The $15.9 million for 1994 represents the gain from the sale of the
Company's equity interests in Southwestern Ohio Steel ("SOS") and Nova
Steel ("Nova").
(2) Includes a tax benefit of $120.3 million in 1994 associated with
recognition of a deferred tax asset related to postretirement benefits.
(3) Stockholders' equity at December 31, 1994 reflects reductions to equity of
$39.3 million (net of tax), related to the establishment of additional
pension plan liability. As of December 31, 1995, the Company had fully
funded its pension plan liability on an accumulated benefit obligation
basis and eliminated the reduction to stockholders' equity.
(4) For the purpose of calculating the ratio of earnings to combined fixed
charges, (i) earnings consist of income (loss) before income taxes,
extraordinary items and effects of accounting change, the distributed
income of less than 50%-owned affiliates, plus fixed charges and (ii)
combined fixed charges consist of interest, whether expensed or
capitalized, and preferred stock dividends.
(5) The pro forma ratios of earnings to combined fixed charges and EBITDA to
interest expense for the year ended December 31, 1996 reflect the pro forma
interest expense on the Notes and the Secured Notes as if those securities
had been outstanding in full during the entire period and without giving
effect to any assumed return on the interim investment of the proceeds from
those securities. For purposes of computing pro forma interest expense, the
Company has assumed an average annual rate of interest on the Secured Notes
of 8.98%, and that estimated expenses of $2.1 million associated with
issuance of the Notes and the Secured Notes are amortized to interest
expense. Accordingly, pro forma interest expense for the year ended
December 31, 1996 reflects the following additional items:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Secured Notes:
Interest expense...................................... $22.5
Amortized issuance costs.............................. 0.6
Notes:
Interest expense...................................... 48.1
Amortized issuance costs.............................. 1.5
-----
Total............................................... $72.7
=====
</TABLE>
(6) EBITDA represents earnings (loss) before interest expense, provision for
income taxes, depreciation and amortization and is presented herein because
it is a widely accepted indicator of a company's ability to service debt.
EBITDA does not represent net income or cash flow from operations as those
items are defined by generally accepted accounting principles, should not
be considered by holders of the Notes as an alternative to net income and
does not necessarily indicate whether cash flows will be sufficient to fund
cash needs. Under the Indenture governing the Notes, subject to certain
exceptions, the Company may not incur additional indebtedness unless the
pro forma consolidated EBITDA coverage ratio would be greater than 2.5 to
1.0. See "Description of the Notes--Limitation on Debt." As defined in the
Indenture, EBITDA excludes non-cash post-employment benefits other than
pensions and certain special charges. These exclusions reflect the fact
that (i) a component of retiree medical expense is a non-cash item
(representing an estimate of future medical costs) and (ii) certain of the
Company's special charges are non-cash items. Under the Indenture, to the
extent that these special charges become cash charges they will be included
in the calculation of EBITDA. See "Description of the Notes--Certain
Definitions."
(7) Interest expense consists of interest, whether expensed or capitalized,
amortization of debt issuance costs and preferred stock dividends.
10
<PAGE>
RISK FACTORS
Holders of the Old Notes should consider carefully all of the information
set forth in this Prospectus and, in particular, should evaluate the following
risks before tendering their Old Notes for exchange pursuant to the Exchange
Offer. The risk factors set forth below (other than those set forth under "--
Consequences of Failure to Exchange") are generally applicable to the Old
Notes as well as the New Notes.
FACTORS RELATING TO THE COMPANY
Substantial Leverage
As a consequence of the issuance of the Old Notes the Company has
substantial indebtedness. That indebtedness will increase upon issuance of the
Secured Notes. (See "Description of Certain Indebtedness -- The Secured
Notes.") The degree to which the Company is leveraged could affect its ability
to service its indebtedness, to make certain capital investments, to take
advantage of certain business opportunities or to obtain additional financing.
The Company believes that it will be able to make its principal and interest
payments, as and when required, from funds derived from its operations and
will be able to comply with its debt covenants. However, unexpected declines
in the Company's future business, declines in steel prices, increases in costs
or the inability to borrow additional funds for its operations if and when
required could impair the Company's ability to meet its debt service
obligations and, therefore, could adversely affect its business and future
prospects.
The New Facility
The construction, equipping and start-up of production at any new, major
manufacturing facility is associated with a number of risks, including risks
of delay in receipt of necessary permits, materials and supplies, delay and
unanticipated technical difficulties in the construction process and in the
installation of critical components and unexpected problems in initiating
operations, realizing targeted operating speeds and production capacity and
product specifications and consistency. Accordingly, there can be no assurance
that the costs of constructing, equipping and operating the New Facility will
not exceed the Company's current estimates, that the New Facility will be
completed, commence operations or reach full production within the Company's
currently projected schedule or that it will enable the Company to meet its
planned levels of annual production. If additional financing is required as a
result of cost overruns or delays, there can be no assurance that such
financing will be available on terms acceptable to the Company, if at all.
As noted elsewhere in this Prospectus, the Company is currently cold
rolling, aluminum coating and marketing Series 400 stainless steel, at an
annual rate of approximately 75,000 tons, for use in automotive exhaust
systems. The New Facility is intended, in part, to enable the Company to
substantially expand its presence in the market for flat rolled stainless
steel, which is associated with higher margins than carbon steel. Total
domestic consumption of flat rolled stainless steel was nearly 1.6 million
tons in 1995. The Company intends to cold roll and finish approximately
385,000 tons of stainless steel per year at the New Facility. However, as
noted below under "Factors Relating to the Steel Industry--Competition,"
because the high margins associated with stainless steel significantly reduce
the relative impact of shipping costs on the producer, the domestic market for
stainless steel is far more vulnerable to foreign imports and the adverse
effects of a strengthening U.S. dollar than the market for carbon steel. The
Company believes it has the requisite metallurgical expertise to produce high
quality, cold rolled stainless steel efficiently and economically and that the
market for its stainless steel products will include many of the automotive
and appliance industry customers to which it currently sells its carbon steel
products. Nevertheless, there can be no assurance that the Company will be
successful in its efforts to profitably produce and sell its targeted quantity
of flat rolled stainless steel. In addition, its ability to compete
effectively with other domestic and foreign producers of flat rolled stainless
steel will depend, in major part, on its ability to develop and deploy a
marketing and sales force with experience and credibility in the stainless
steel marketplace.
Reliance on the Automotive Industry
The Company's sales directly to the automotive market accounted for
approximately 42%, 47%, 50% and 55% of its net sales in 1993, 1994, 1995 and
1996. Shipments to General Motors Corporation ("General
11
<PAGE>
Motors"), the Company's largest customer in each of the past four years,
accounted for approximately 23%, 22%, 20% and 17% of net sales in 1993, 1994,
1995 and 1996, respectively. In addition, a substantial amount of the
Company's sales to steel distributors and converters consists of products that
are resold (in original or modified form) to the automotive industry. See
"Business--Customers."
The Company's strategy is dependent upon continued growth in demand for
premium quality coated and cold rolled carbon and stainless steel products,
particularly from the automotive industry. The domestic automotive industry
has historically experienced significant fluctuations in demand, based on such
factors as general economic conditions, interest rates and consumer
confidence. In addition, strikes, lock-outs, work stoppages or other
production interruptions in the automotive industry can adversely affect the
demand for the Company's products. Since the beginning of 1994, automotive
industry demand for flat rolled coated steel products has been high, with
consumption of galvanized and galvannealed material increasing from
approximately 4.3 million tons in 1992 to approximately 6.0 million tons in
1995. A major factor contributing to this growth has been the increase in
construction and operation of U.S.-based production facilities by foreign
automotive manufacturers. Although several foreign manufacturers have
announced plans to expand their production facilities in the United States,
there can be no assurance that demand for the Company's coated and stainless
products, including those to be produced at the New Facility, will remain high
or continue to grow.
Labor Relations
As of December 31, 1996, the Company had approximately 5,800 active
employees, of whom approximately 57% were represented by the Armco Employees
Independent Federation, Inc. (the "AEIF"), 19% by the United Steelworkers of
America (the "USWA") and 6% by the Oil, Chemical and Atomic Workers Union (the
"OCAW"). The AEIF represents all hourly employees and certain non-exempt
salaried employees at the Middletown Works. The USWA represents hourly
steelmaking employees and certain non-exempt salaried employees at the Ashland
Works. The OCAW represents hourly employees at the Ashland Works coke
manufacturing facility. In 1994, the USWA sought to become the collective
bargaining representative of the hourly employees at the Middletown Works, but
a majority of those employees voted to retain the AEIF as their
representative. No assurance can be given that the USWA will not seek to
represent the Middletown Works' employees at some future date.
The Company's agreement with the AEIF is effective through February 29,
2000. Its agreement with the OCAW expires October 1, 1997. The expiration date
of its agreement with the USWA is presently the subject of dispute, with the
Company asserting that the agreement is effective until March 30, 2000 and the
USWA asserting that the agreement will expire March 28, 1997. No prediction
can be made as to whether or when this dispute will be resolved or as to the
possible consequences thereof.
FACTORS RELATING TO THE NOTES
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the offer and sale of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act. In general, the Old Notes may not be offered or sold unless
registered under Securities Act, except pursuant to an available exemption
from, or in a transaction that is otherwise not subject to, the Securities
Act. The Company does not currently anticipate that it will register the Old
Notes under the Securities Act. See "Description of the Notes -- Exchange
Offer; Registration Rights." Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued to third parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than a holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery
12
<PAGE>
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course or such holder's business and that such holder, other than
a broker-dealer, has no arrangement or understanding with any person to engage
or participate in the distribution of such New Notes. However, the Commission
has not considered the Exchange Offer in the context of a no-action letter and
there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer as in such other
circumstances. Each holder of Old Notes, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage or
participate in, a distribution of such New Notes and has no arrangement or
understanding to engage or participate in a distribution of New Notes. If any
holder is an affiliate of the Company or is engaged in or intends to engage in
or has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such holder (i)
many not rely on the applicable interpretations of the staff of the Commission
and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes pursuant to the Exchange Offer must acknowledge that such Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities and that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
Ranking
The Old Notes currently are, and the New Notes will be, senior unsecured
obligations of AK Steel, ranking pari passu with all other senior indebtedness
of AK Steel, including the Secured Notes and the 10 3/4% Notes, and senior to
all Subordinated Obligations (as defined). Holders of the Secured Notes, as
well as holders of future secured indebtedness of AK Steel permitted under the
Indenture, will have claims with respect to the assets constituting collateral
that are prior to the claims of holders of the Notes. Subject to certain
limitations set forth in the Indenture, AK Steel will be able to incur
additional indebtedness. See "Description of the Notes."
Any claim of AK Steel and its creditors, including the holders of the Notes,
to the assets of any of AK Steel's subsidiaries upon any liquidation or
reorganization of that subsidiary will be subject to the prior claims of that
subsidiary's creditors, including trade creditors of that subsidiary.
Accordingly, the Old Notes are, and the New Notes will be, effectively
subordinated to the creditors of AK Steel's subsidiaries to the extent those
subsidiaries are not Guarantor Subsidiaries (as defined). See "Description of
the Notes--Note Guarantees." The Indenture provides for, under certain limited
circumstances, additional indebtedness of AK Steel's subsidiaries. See
"Description of the Notes--Certain Covenants."
The Holding Guarantee will be an unsecured senior obligation of Holding and
will rank pari passu with other senior unsecured indebtedness of Holding,
including its guarantees of the Old Notes, the Secured Notes and the 10 3/4%
Notes. The principal asset of Holding is all of the outstanding shares of
Common Stock of AK Steel, and virtually all of Holding's operations are
conducted through AK Steel. In the Indenture, Holding has agreed not to engage
in any activities other than holding the outstanding shares of securities of
AK Steel as well as those activities incidental to its status as a public
company, and not to incur any liabilities other than those relating to its
guarantees of the Notes, the 10 3/4% Notes and certain other indebtedness of
AK Steel. See "Description of the Notes--Certain Covenants--Restrictive
Covenant of Holding."
Limited Support for Holding Guarantee
Holding, the issuer of the Holding Guarantee, is a holding company that
derives all of its operating income and cash flow from AK Steel and its
subsidiaries and whose only material asset is the outstanding shares of Common
Stock of AK Steel. The Indenture contains a covenant restricting Holding from
holding any assets other than securities of AK Steel. See "Description of the
Notes--Certain Covenants--Restrictive Covenant of Holding." Accordingly, the
ability of Holding to perform on the Holding Guarantee will be dependent on
the financial condition and net worth of AK Steel.
13
<PAGE>
Limitation on Change in Control and Certain Dispositions
The Indenture requires AK Steel, in the event of a Change in Control, to
repurchase any Notes that holders thereof desire to have repurchased at 101%
of the principal amount thereof plus accrued interest to the Change in Control
Payment Date. The Indenture also requires that the net available cash proceeds
of certain asset sales be used to repurchase those Notes that holders desire
to have repurchased at par. See "Description of the Notes--Change in Control
Offer" and "--Certain Covenants--Limitation on Sales of Assets and Equity
Interests of Subsidiaries." Similar provisions are contained in the Indenture
governing the 10 3/4% Notes. There can be no assurance that AK Steel will have
the financial resources necessary to purchase the Notes and the 10 3/4% Notes
upon a Change in Control.
Lack of Public Market for the Notes
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued on December 17, 1996 to a limited number of institutional
investors and are eligible for trading in the Private Offerings, Resale and
Trading through Automated Linkages (PORTAL) Market, the National Association
of Securities Dealers' screenbased, automated market for trading of securities
eligible for resale under Rule 144A under the Securities Act. To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for the remaining untendered Old Notes could be adversely affected.
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes, or
the ability of holders of the New Notes to sell their New Notes or the price
at which such holders may be able to sell their New Notes. If such a market
were to develop, the New Notes could trade at prices that may be higher or
lower than their principal amount or purchase price, depending on many
factors, including prevailing interest rates, the Company's operating results
and the market for similar securities. Each Initial Purchaser has advised the
Company that it currently intends to make a market in the New Notes. The
Initial Purchasers are not obligated to do so, however, and any market-making
with respect to the New Notes may be discontinued at any time without notice.
Therefore, there can be no assurance as to the liquidity of any trading market
for the New Notes or that an active public market for the New Notes will
develop. The Company does not intend to apply for listing or quotation of the
New Notes on any securities exchange or stock market.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Notes will not
be subject to similar disruptions. Any such disruptions may have an adverse
effect on holders of the Notes, or, if issued, the Exchange Notes.
FACTORS RELATING TO THE STEEL INDUSTRY
Competition
Competition within the steel industry is intense. In the sale of flat rolled
carbon steel the Company competes primarily on the basis of product quality,
responsiveness to customer needs and price with other integrated steel
producers and, to a lesser extent, mini-mills. Mini-mills have increased their
ability to produce higher quality products, which has enabled them to become
more competitive with integrated steel producers and, in periods of weak
demand, has increased pressure on prices and margins. Moreover, U.S. carbon
steel producers have historically faced significant competition from foreign
producers, although the weakness of the U.S. dollar relative to certain
foreign currencies has dampened this competition in the United States in
recent years. The highly competitive nature of the industry, combined with
excess production capacity for hot rolled and non-premium grades of cold
rolled carbon steel, may in the future exert downward pressure on prices.
Upon completion of the New Facility, the Company will substantially expand
its capacity to cold roll and finish stainless steel. The stainless steel
sector is highly competitive and has seen significant capacity additions,
particularly in overseas markets. Generally, imports have been a far more
significant factor in the stainless steel market than the carbon steel market,
representing 22%, 23% and 22% of the domestic flat rolled stainless steel
market in 1993, 1994 and 1995, respectively. In part, the higher level of
imports of stainless steel is a reflection
14
<PAGE>
of its substantially higher margins, which significantly reduce the relative
impact of shipping costs on the producer. There has been an increase in the
capacity of foreign producers in recent years, resulting in downward pressure
on domestic prices. It is difficult to predict the amount of stainless steel
that will be imported into the U.S. in the future. Increased domestic and
foreign production capacity and growth in imports will likely result in
greater competition and have a negative impact on prices. The ability of the
Company to operate profitably in this environment will depend on its ability
to produce high quality stainless steel at a cost that is equal to or below
that of the other principal producers.
Cyclicality
Historically, the steel industry has been cyclical in nature, reflecting the
cyclicality of many of the principal markets it serves, including the
automotive, appliance and construction industries, and changes in total
industry capacity. Although total domestic steel industry capacity was
substantially reduced during the 1980s through extensive restructuring, and
demand has been particularly strong since 1993, there can be no assurance that
demand will continue at current levels or that recent restarts of previously
idled domestic facilities and the addition of new mini-mills will not
adversely impact pricing and margins.
Environmental Regulation
Domestic steel producers, including the Company, are subject to stringent
federal, state, and local laws and regulations relating to the protection of
human health and the environment. The Company, like other domestic steel
producers, has expended, and can be expected to expend in the future,
substantial amounts for compliance with these environmental laws and
regulations. See "Business--Environmental Matters."
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds from the sale of the Old Notes, approximately $535.3 million,
together with proceeds from the sale of $250.0 million aggregate principal
amount of the Secured Notes, are being used to finance the approximately $1.1
billion cost of constructing and equipping the New Facility, with the balance
of such costs being funded with the Company's own cash resources. It is
anticipated that most of these costs will be incurred during the second half
of 1997 and the first half of 1998. Pending such application, the proceeds
have been invested in short-term, interest-bearing obligations.
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
at December 31, 1996 and as adjusted to give effect to the sale of the Secured
Notes. The information presented below should be read in conjunction with the
consolidated financial statements of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
HISTORICAL AS ADJUSTED
---------- -----------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
Cash and short-term investments......................... $ 739.3 $ 984.5
======== ========
Long-term debt(1):
Senior Secured Notes Due 2004......................... -- $ 250.0
10 3/4% Senior Notes Due 2004......................... $ 325.0 325.0
9 1/8% Senior Notes Due 2006.......................... 550.0 550.0
-------- --------
Total long-term debt................................ 875.0 1,125.0
-------- --------
Stockholders' equity:
Preferred stock--authorized 25,000,000 shares;
7,479,674 shares issued; 4,845,774 shares
outstanding.......................................... 0.1 0.1
Common stock--authorized 75,000,000 shares; 27,258,834
shares issued; 26,619,950 shares outstanding......... 0.3 0.3
Additional paid-in capital............................ 708.9 708.9
Treasury stock--at cost--638,884 shares of Common
Stock................................................ (21.5) (21.5)
Retained earnings..................................... 89.2 89.2
-------- --------
Total stockholders' equity.......................... 777.0 777.0
-------- --------
Total capitalization................................ $1,652.0 $1,902.0
======== ========
</TABLE>
- --------
(1) At December 31, 1996, the Company had no short-term debt outstanding and no
current obligations in respect of its long-term debt.
16
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER TON DATA)
The following selected consolidated financial data for each of the five
years in the period ended December 31, 1996 have been derived from the
Company's audited consolidated financial statements.
The selected historical consolidated financial data presented herein are
qualified in their entirety by, and should be read in conjunction with, the
consolidated financial statements of the Company, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Risk Factors"
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Net sales...................... $1,404.5 $1,594.5 $2,016.6 $2,257.3 $2,301.8
Cost of products sold.......... 1,318.6 1,380.3 1,655.2 1,768.1 1,846.5
Selling and administrative ex-
penses........................ 118.6 111.2 113.7 116.5 114.7
Depreciation................... 87.3 73.5 70.7 74.6 76.1
Special charges and unusual
items (2)..................... 379.3 17.6 (15.9) -- --
-------- -------- -------- -------- --------
Total operating costs.......... 1,903.8 1,582.6 1,823.7 1,959.2 2,037.3
Operating profit (loss)(2)..... (499.3) 11.9 192.9 298.1 264.5
Interest expense............... 46.4 58.1 48.2 35.6 39.8
Other income................... 3.1 3.5 7.3 19.0 12.3
-------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
items......................... (542.6) (42.7) 152.0 281.5 237.0
Provision (benefit) for income
taxes(3)...................... (10.6) -- (120.5) 12.9 91.1
-------- -------- -------- -------- --------
Income (loss) before extraordi-
nary items.................... (532.0) (42.7) 272.5 268.6 145.9
Extraordinary items(4)......... (12.1) -- (14.9) -- --
-------- -------- -------- -------- --------
Net income (loss).............. $ (544.1) $ (42.7) $ 257.6 $ 268.6 $ 145.9
======== ======== ======== ======== ========
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Cash, cash equivalents, and
short-term investments........ $ 1.2 $ 144.2 $ 261.8 $ 312.8 $ 739.3
Working capital (deficit)...... (14.9) 55.9 443.5 489.8 1,005.1
Total assets................... 1,425.0 1,518.7 1,933.2 2,115.5 2,650.8
Current portion of long-term
debt.......................... 104.6 130.8 -- -- --
Long-term debt (excluding
current portion).............. 563.3 598.6 330.0 325.0 875.0
Current portion of pension and
post-retirement benefit
obligations................... 59.1 93.8 110.3 0.1 0.1
Long-term pension and post-
retirement benefit obligations
(excluding current portion)... 785.6 922.8 638.3 655.7 564.9
Partners' capital
(deficit)/stockholders'
equity(5)..................... $ (449.7) $ (586.2) $ 449.0 $ 674.2 $ 777.0
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OTHER DATA:(1)
Ratio of earnings to combined
fixed charges(6):
Actual(7)..................... -- -- 3.6x 5.5x 4.6x
Pro forma(8).................. 2.1x
EBITDA(9)...................... $ (329.5) $ 132.6 $ 271.9 $ 433.7 $ 368.5
Ratio of EBITDA to interest
expense (10):
Actual........................ -- 2.2x 5.3x 7.7x 6.9x
Pro forma(8).................. 2.9x
Operating profit (loss) per ton
(excluding special charges and
unusual items)................ $ (39) $ 9 $ 46 $ 74 $ 60
Capital investments............ $ 86.2 $ 40.2 $ 87.5 $ 175.7 $ 141.6
Flat rolled shipments
(thousands of tons)........... 2,989 3,419 3,875 4,051 4,383
Man hours per ton shipped...... 5.93 4.20 3.78 3.26 3.02
Number of employees at end of
period........................ 7,433 6,404 5,991 5,762 5,808
</TABLE>
- -------
Footnotes appear on following page.
17
<PAGE>
- --------
(1) Holding and AK Steel were formed effective March 29, 1994 as a result of
the recapitalization of Armco Steel Company, L.P. (the "Partnership"),
which was a joint venture of Armco Inc. and Kawasaki Steel Corporation.
Accordingly, data for years prior to 1994 are derived from the financial
statements of the Partnership.
(2) The operating loss for 1992 includes special charges of $379.3 million
relating to the restructuring of the Company's operating facilities, the
shutdown of its hot-rolling mill at the Ashland Works, workforce
reductions and related costs, as well as the write-off of the Company's
investment in Eveleth Expansion Company ("Eveleth"). The operating profit
for 1993 includes special charges and unusual items of $17.6 million
relating to fixed asset write offs and related disposal costs as well as
other miscellaneous charges. The operating profit for 1994 includes a gain
of $15.9 million from the sale of the Company's equity interests in SOS
and Nova.
(3) Includes a tax benefit of $120.3 million in 1994 associated with
recognition of a deferred tax asset related to post-retirement benefits.
(4) The extraordinary item of $12.1 million in 1992 related to charges
associated with compliance with the Coal Retiree Benefit Act. The
extraordinary item of $14.9 million in 1994 consisted of charges
associated with the prepayment of certain outstanding debt.
(5) Partners' deficit at December 31, 1993 and stockholders' equity at
December 31, 1994 reflect reductions to equity of $113.2 million and $39.3
million (net of tax), respectively, related to the establishment of
additional pension plan liability. As of December 31, 1995, the Company
had fully funded its pension plan liability on an accumulated benefit
obligation basis and eliminated the reduction to stockholders' equity.
(6) For the purpose of calculating the ratio of earnings to combined fixed
charges, (i) earnings consist of income (loss) before income taxes,
extraordinary items and effects of accounting change, the distributed
income of less than 50%-owned affiliates, plus combined fixed charges and
(ii) combined fixed charges consist of interest, whether expensed or
capitalized, and preferred stock dividends.
(7) Earnings were insufficient to cover combined fixed charges in 1992 and
1993 by $546.0 million and $46.1 million, respectively. The deficiency of
earnings to combined fixed charges in those years was calculated as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1992 1993
------------ ------------
<S> <C> <C>
Pre-tax loss................................... $ (542.6) $ (42.7)
Interest expenses.............................. 46.4 58.1
Other income (expense)......................... 1.3 (1.4)
------------ -----------
Earnings (loss)................................ (494.9) 14.0
Combined fixed charges......................... 51.1 60.1
------------ -----------
Deficiency..................................... $ (546.0) $ (46.1)
============ ===========
</TABLE>
(8) The pro forma ratios of earnings to combined fixed charges and EBITDA to
interest expense for the year ended December 31, 1996 reflect the pro
forma interest expense on the Old Notes and the Secured Notes as if those
securities had been outstanding in full during the entire period and
without giving effect to any assumed return on the interim investment of
the proceeds from those securities. For purposes of computing pro forma
interest expense, the Company has assumed an average annual rate of
interest on the Secured Notes of 8.98% and that estimated expenses of $2.1
million associated with issuance of the Notes and the Secured Notes are
amortized to interest expense. Accordingly, pro forma interest expense for
the year ended December 31, 1996 reflects the following additional items:
18
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Secured Notes:
Interest expense...................................... $22.5
Amortized issuance costs.............................. 0.6
Old Notes:
Interest expense...................................... 48.1
Amortized issuance costs.............................. 1.5
-----
Total............................................... $72.7
=====
</TABLE>
(9) EBITDA represents earnings (loss) before interest expense, provision for
income taxes, depreciation and amortization and is presented herein
because it is a widely accepted indicator of a company's ability to
service debt. EBITDA does not represent net income or cash flow from
operations as those items are defined by generally accepted accounting
principles, should not be considered by holders of the Notes as an
alternative to net income and does not necessarily indicate whether cash
flows will be sufficient to fund cash needs. Under the Indenture governing
the Notes, subject to certain exceptions, the Company may not incur
additional indebtedness unless the pro forma consolidated EBITDA coverage
ratio would be greater than 2.5 to 1.0. See "Description of the Notes--
Certain Covenants--Limitation on Debt." As defined in the Indenture,
EBITDA excludes non-cash postretirement benefits other than pensions and
certain special charges. These exclusions reflect the fact that (i) a
component of retiree medical expense is a non-cash item (representing an
estimate of future medical costs) and (ii) certain of the Company's
special charges are non-cash items. Under the Indenture, to the extent
that these special charges become cash charges they will be included in
the calculation of EBITDA. See "Description of the Notes--Certain
Definitions."
(10) Interest expense consists of interest, whether expensed or capitalized,
amortization of debt issuance costs and preferred stock dividends.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
In 1993, as the U.S. economy and the domestic automotive industry emerged
from a recession that began in 1989, the domestic steel industry experienced a
significant resurgence in demand. This increase in demand enabled domestic
integrated steel producers to achieve higher shipments and to obtain price
increases for many of their major product lines. In the case of the Company,
the benefits of increased demand were accompanied by a significant increase in
the productivity of its operations, a corresponding reduction in its operating
costs and a substantial increase in its ability to produce and sell higher
margin value-added products.
As a result of these factors, the Company's shipments, revenues and net
income have increased significantly since the end of 1992. Most important, the
Company has realized a significant and continuing improvement in its operating
profit per ton, a key industry measure of profitability, from $9 for the year
ended December 31, 1993 to $60 for the year ended December 31, 1996.
As more fully discussed under "The New Facility," after commencement of full
commercial production at the New Facility, the Company expects its shipments
of cold rolled, coated and stainless steel products to increase significantly
from current levels. Although increased shipments of these products would
continue the shift of the Company's product mix away from lower margin hot
rolled products, the Company will continue to sell certain grades of hot
rolled carbon steel when appropriate in light of customer demand.
The principal components of the New Facility are scheduled to commence full
production of their targeted capabilities at various dates over a thirteen-
month period beginning December 1998. Although the Company will not be
generating significant revenues from the New Facility prior to December 1998,
the Company will incur interest expense relating to the Notes and the Secured
Notes from their respective dates of issuance.
1996 COMPARED TO 1995
Net sales increased 2% in 1996 over 1995. Flat rolled product sales
increased 5.0% or $108.2 million. However, due to the shutdown of two of the
coke oven batteries at the Company's Middletown Works in December 1995, sales
of merchant coke decreased $58.8 million. A decline in flat rolled steel
prices during 1996 for sales made on a contract basis, which account for
approximately 70% of sales, was more than offset by an increase in flat rolled
tonnage shipped coupled with an improving product mix and series of price
increases on non-contract sales. The following table sets forth the percentage
of the Company's net sales attributable to various markets for the years
indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Automotive.............. 47% 50% 55%
Appliance, Construction
and Manufacturing...... 16% 16% 15%
Distributors and Con-
verters................ 37% 34% 30%
</TABLE>
Sales of higher margin coated products in 1996 were 15% higher than in 1995.
This increase was largely attributable to improved productivity of the
Company's coating facilities as a result of significant capital investments
during 1995. The emphasis on production of coated products resulted in a
decrease in sales of cold rolled products, as an increased percentage of the
output from the Company's Middletown Works cold rolling mill was allocated to
its coating facilities in order to maximize shipments of coated products.
Operating profit in 1996 totalled $264.5 million, or $60 per ton shipped,
compared to $298.1 million or $74 per ton shipped in 1995. The reduction was
primarily due to reduced selling prices, increased raw material costs and an
unplanned blast furnace outage at the Middletown Works in December 1996. The
Company continues to
20
<PAGE>
emphasize productivity gains and quality enhancements as the primary
components of its cost reduction efforts. Manhours per net ton shipped
continued to improve, declining to 3.02 for the year of 1996 from 3.26 for
1995.
Interest expense in 1996 increased 11%, or $4.2 million, over 1995,
reflecting a reduction of $3.0 million in capitalized interest and the
issuance in December 1996 of the Notes.
The total income tax provision was $91.1 million, the components of which
are described in Note 3 to the consolidated financial statements included
elsewhere in this Prospectus.
Net income for 1996 totalled $145.9 million compared to $268.6 million for
the same period of 1995. Because the Company attained full book taxpayer
status in 1996, its book tax rate was 38.4% compared to 4.7% for 1995. On a
comparably taxed basis, net income for 1995 would have been $173.5 million.
Earnings per fully diluted share for 1996 were $4.70, compared to a reported
$8.14 ($5.26 on a comparably taxed basis) for 1995.
1995 COMPARED TO 1994
Net sales for 1995 exceeded those for 1994 by approximately 12%. This
increase reflects an increase in shipments from 3,875,000 tons in 1994 to
4,051,000 tons in 1995, higher average selling prices and an improved product
mix. Net sales to affiliates decreased due to the sale of SOS and Nova in
1994.
The following table sets forth the percentage of the Company's net sales
attributable to various markets for the indicated years:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Automotive.................................................... 42% 47% 50%
Appliance, Construction and Manufacturing..................... 14% 16% 16%
Distributors and Converters................................... 44% 37% 34%
</TABLE>
The Company's shipment mix continued to show improvement. The high-end
market segments (automotive, appliance, construction and manufacturing)
accounted for 55% of tons shipped for 1995, an increase of 3% compared to
1994. Shipments to the automotive market increased nearly 15% to 1.6 million
tons. Coated and uncoated cold rolled steel, both high-end products, accounted
for 65% of tons shipped, compared to 56% in 1994. In addition, the Company
completed capital improvement projects on its Middletown Works continuous
caster, electrogalvanizing line and hot dip galvanizing line which have
increased the capacity to produce value-added products for the high-end
market.
Output at each of the Company's major production units continued to improve
during 1995. Significant productivity gains occurred at the continuous
casters, cold strip mill and several coating lines. Man hours per ton shipped
improved to 3.26 during 1995, compared to 3.78 in 1994, despite a more labor
intensive value-added product mix.
Primarily as a result of increased shipments and higher average selling
prices, as well as continued cost reductions and productivity improvement
efforts, operating profit for 1995 increased 68% to $298.1 million compared to
1994 operating profit of $177.0 million (excluding unusual items recorded in
1994), or $74 per ton in 1995 compared to $46 per ton in 1994.
Interest expense decreased 26%, or $12.6 million, reflecting the full effect
in 1995 of the Company's recapitalization at the beginning of the second
quarter of 1994. Other income increased 160%, or $11.7 million, primarily due
to interest income on short-term investments.
The total income tax provision for 1995 was $12.9 million, the components of
which are described in Note 3 to the consolidated financial statements
included elsewhere herein.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
General. The Company's current liquidity needs are primarily for capital
investment and working capital requirements. After giving effect to the sale
of the Secured Notes, the Company believes it has adequate resources to
address its operating, capital investment, employee benefit and debt service
requirements from cash flows from operations, cash, cash equivalents and
permitted borrowings. In the event of unanticipated reductions in cash flows
from operations, the Company would seek additional debt or equity financing,
although there can be no assurance that such financing will be available when
needed or, if available, will be obtainable on terms that are favorable to the
Company.
Year Ended December 31, 1996. On December 17, 1996, the Company completed
arrangements for $800.0 million of debt financing for the construction of the
New Facility. The Company issued $550.0 million of the Old Notes and entered
into definitive agreements for the private sale beginning in June of 1997 of
an aggregate of $250.0 million of the Secured Notes, which will be
collateralized by the hot dip galvanizing and galvannealing line and the
continuous cold mill at the New Facility. Pending completion of these
facilities (presently anticipated for December 1998 and March 1999,
respectively), the Company is prohibited from granting liens on its
inventories.
At December 31, 1996, the Company had $739.3 million in cash, cash
equivalents and short term investments and $119.4 million of financing
available under its $125.0 million accounts receivable purchase credit
facility. During 1996 cash flow from operations generated $86.3 million. Cash
flows from net income were partially offset as the Company contributed a total
of $100.0 million to a trust established to prefund health care benefits for
both active and retired employees, contributed $25.0 million to its pension
trust and paid profit sharing bonuses of $34.6 million.
Cash flows used in investing activities totalled $185.1 million of which
$53.6 million was associated with the New Facility.
Cash flows from financing activities generated $484.9 million as the net
proceeds from the issuance of $550.0 million of the Notes were partially
offset as the Company paid cash dividends of $28.7 million and utilized $39.2
million for open market purchases of its equity securities during 1996.
Year Ended December 31, 1995. The Company's cash, cash equivalents and
short-term investment position increased by $51.0 million during 1995. Cash
flows from operations generated $300.1 million. The Company contributed $93.0
million to its pension trust and $70.0 million to the healthcare benefits
trust, made capital investments of $175.7 million and used $73.8 million for
open market purchases of its equity securities.
Year Ended December 31, 1994. The Company's cash, cash equivalents and
short-term investment position increased by $117.6 million during 1994. Cash
flows from operating activities totalled $153.9 million. During 1994, the
Company generated $979.0 million from financing activities, consisting
primarily of the net proceeds of the initial public offering of its Common
Stock, the public offering of its 10 3/4% Notes and the subsequent public
offering of $230 million of its 7.0% Convertible Preferred Stock. The Company
repaid $629.4 million of outstanding debt, contributed $315.7 million to its
pension trust and made capital investments of $87.5 million.
Anticipated Debt Service Requirements. The Company's long term debt at
December 31, 1996 totalled $875.0 million, and consisted of $325.0 million
principal amount of its 10 3/4% Notes and $550.0 million principal amount of
the Old Notes, neither of which is subject to amortization prior to maturity.
During 1997, the Company will issue $250.0 million aggregate principal amount
of its Secured Notes, which will be repayable in four successive annual
installments of $62.5 million commencing in December 2001. After giving effect
to the issuance of the Secured Notes, the Company will have outstanding an
aggregate of $1,125.0 million of long-term debt. Interest expense for 1996
totalled $39.8 million and is expected to total $89.7 million in 1997 and
$107.6 million in 1998 through 2001 and to decline ratably thereafter to $90.7
million in 2004. For financial reporting purposes, a portion of the interest
on the Notes and the Secured Notes during the period of construction of the
New Facility will be capitalized and amortized over a period of years.
22
<PAGE>
Capital Investments. In addition to the projected $1.1 billion cost of
constructing and equipping the New Facility, the Company anticipates annual
capital investments of approximately $100.0 million to maintain the
competitiveness and efficiency of its existing facilities and to assure its
compliance with applicable safety and environmental standards. Capital
investments, excluding the New Facility, totalled $88.0 million during 1996.
At December 31, 1996, commitments for future capital investments, excluding
the New Facility but including those made to assure environmental compliance,
totalled approximately $41.0 million, all of which will be funded in 1997. In
addition, at December 31, 1996, the Company had outstanding commitments for
the constructing and equipping of the New Facility under contracts aggregating
$420.9 million; however, the Company's maximum aggregate liability in the
event of cancellation of these contracts is limited to $33.9 million. Peak
capital investment is expected to occur between the second half of 1997 and
the first half of 1998, declining steadily thereafter until final completion
of the New Facility in December 1999. The Company will use approximately
$300.0 million of its own cash and cash generated from operations to
supplement the financing of the New Facility.
EMPLOYEE BENEFIT OBLIGATIONS
The Company's pension plans are fully funded on an accumulated benefit
obligation basis in accordance with generally accepted accounting principles
as of December 31, 1996. Funding levels in the near term (three to five years)
are expected to be minimal. The Company also has available a pension funding
credit balance of $342.0 million that can be used to meet future pension
funding requirements, if any, although there are no present plans to do so.
At December 31, 1996, the Company's liability for postretirement benefits
other than pensions totalled $564.9 million. Effective June 30, 1995, the
Company established a health care trust as a means of prefunding this
liability. As of December 31, 1996, the Company had contributed approximately
$170.0 million to this trust. Effective January 1, 1996, the Company began
paying benefits from the trust, but it has reimbursed the trust for current
benefit payments. Together with the earnings on trust investments, the balance
of the trust at December 31, 1996 was $194.8 million which is equivalent to
approximately two and a half years of active and retiree health care benefit
payments.
23
<PAGE>
BUSINESS
GENERAL
AK Steel is the most profitable integrated steel producer in the United
States, with an industry-leading operating profit per ton of $46 for 1994, $74
for 1995 and $60 for 1996. Most significantly, the gap between these results
and the average operating profit per ton reported by the other five major
domestic integrated producers has steadily widened from $25 in 1994 to $40 in
1995 and $45 in 1996.
The Company concentrates on the production of premium quality coated, cold
rolled and hot rolled carbon steel primarily for sale to the automotive,
appliance, construction and manufacturing markets. The Company also cold rolls
and aluminum coats stainless steel for automotive industry customers. In 1996,
the Company had net sales of $2.3 billion, net income of $145.9 million and
EBITDA of $368.5 million.
At the core of the Company's profitability is an experienced, results-
oriented management team that focuses on continuously increasing productivity,
reducing costs and improving product quality while continually striving to
improve safety and health in the workplace. Since arriving in mid-1992, the
new management team has reconfigured the Company's production facilities,
eliminating eleven redundant operating units, significantly increasing the
operating rates on remaining equipment and reducing operating costs throughout
the organization. Product quality and reliability have been improved, enabling
the Company to increase its sales of value-added coated and cold rolled
products to the high-end automotive, appliance, construction and manufacturing
markets.
The results of these efforts have been significant. Each of the Company's
key production units has achieved double-digit percentage increases in average
monthly production since 1992 through a combination of improved operating and
maintenance practices, targeted capital investments and focused production
planning. The Company's tandem cold mill has increased average monthly
production by over 84% from 132,600 tons in 1992 to 244,300 tons in 1996.
Average monthly production from the Company's coating lines has increased over
80% from 93,400 tons in 1992 to 168,100 tons in 1996.
The Company has increased its total annual shipments from 2,989,000 tons in
1992 to 4,383,000 tons in 1996, an increase of nearly 47%. Enhanced
productivity rates on its tandem cold mill and coating lines have allowed the
Company to increase its shipments of value-added coated and cold rolled
products from 1,668,000 tons (representing 56% of total shipments) in 1992 to
2,683,600 tons (or 61% of total shipments) in 1996. Increased production of
premium quality coated and cold rolled products has enabled the Company to
focus its commercial efforts on the most demanding requirements of the
automotive, appliance, construction and manufacturing markets. In 1992, 43% of
the Company's total shipments, or 1,288,000 tons, served customers in those
markets. In 1996, 59% of the Company's total shipments, or 2,578,000 tons,
served those markets.
The Company has earned a reputation, particularly among high-end customers,
for consistent product quality and superior service, receiving numerous
customer quality awards. In August 1996, the Company earned registration under
the ISO 9002 international quality standard and certification under the QS
9000 quality assurance program used by domestic automotive manufacturers.
The Company currently conducts operations at its Middletown Works in
Middletown, Ohio, and its Ashland Works in Ashland, Kentucky. Coke
manufacturing plants, blast furnaces, basic oxygen furnaces and continuous
casters are located at both of these facilities. The Company's hot rolling
mill, cold rolling mill, pickling lines, annealing facilities and temper mills
as well as four of its coating lines are located at the Middletown Works, and
one additional coating line is located at the Ashland Works.
CUSTOMERS
The Company's principal customers are in the automotive, appliance,
construction and manufacturing markets. The Company also sells its products to
distributors and converters.
24
<PAGE>
Since 1992, the Company's marketing efforts have been increasingly directed
toward those customers whose exacting requirements for on-time delivery,
technical support and the highest quality coated and cold rolled products
justify commensurate pricing. The Company believes that its enhanced product
quality and delivery capabilities, and its emphasis on customer technical
support and product planning, are critical factors in its ability to serve
this segment of the market.
The following table sets forth the percentage of the Company's net sales
attributable to various markets:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Automotive..................................... 44% 42% 47% 50% 55%
Appliance, Construction and Manufacturing...... 16% 14% 16% 16% 15%
Distributors and Converters.................... 40% 44% 37% 34% 30%
</TABLE>
Consistent with management's strategy of concentrating on the high-end of
the flat rolled carbon steel market, shipments to the automotive market have
increased steadily since 1992. A major factor contributing to this increase
has been the growth in the number of U.S.-based plants of foreign automotive
manufacturers, whose production of cars and light trucks in North America has
increased from 1.2 million vehicles in 1989 to 2.4 million vehicles in 1996.
The Company supplies coated, cold rolled and hot rolled steel to nearly all of
these producers and is a major supplier to General Motors, Ford and Chrysler.
Shipments to General Motors, the Company's largest customer, accounted for
approximately 23%, 22%, 20% and 17% of net sales in 1993, 1994, 1995 and 1996,
respectively. No other customer accounted for more than 10% of net sales for
these periods.
The Company also is a supplier of cold rolled and coated steel to the
appliance, construction and manufacturing markets, consisting principally of
the home appliance market, heating, ventilation and air conditioning market
and lighting industries. Shipments to these markets accounted for
approximately 15% of net sales in 1996.
Distributors and converters, the third category of the Company's customers,
purchase primarily hot rolled and cold rolled products and may process these
further or simply sell them directly to third parties. Sales generally are
made on a spot market basis, with quality and delivery capability also being
factors in obtaining orders.
The New Facility, when fully operational, will enable the Company to
substantially increase its production of the premium grades of coated and cold
rolled steel most desired by its high-end customers, particularly the
automotive market. In addition, the New Facility will enable the Company to
further penetrate the market for flat rolled stainless steel, which is
associated with higher margins, less cyclicality and more favorable growth
characteristics than the carbon steel market. See "The New Facility."
RAW MATERIALS
The principal raw materials and commodities required in the Company's
manufacturing operations are coal, iron ore, electricity, natural gas, oxygen,
scrap metal, limestone and other commodity materials, all of which are
purchased at competitive or prevailing market prices. Adequate sources of
supply exist for all of the Company's material requirements.
As more fully described under "The New Facility," following start-up of
production at the New Facility in 1999, the Company expects to supplement its
own production of carbon steel hot band with purchases from third parties and
to satisfy its stainless steel hot band requirements for the New Facility in a
similar manner. Management believes adequate sources of supply exist and will
continue to exist for both types of material, but intends to enter into long-
term contracts with several producers to assure availability.
EMPLOYEES
As of December 31, 1996, the Company had approximately 5,800 active
employees, of whom approximately 57% were represented by the Armco Employees
Independent Federation, Inc. (the "AEIF"), 19%
25
<PAGE>
by the United Steelworkers of America (the "USWA") and 6% by the Oil, Chemical
and Atomic Workers Union (the "OCAW"). The AEIF represents all hourly
employees and certain non-exempt salaried employees at the Middletown Works.
The USWA represents hourly steelmaking employees and certain non-exempt
salaried employees at the Ashland Works. The OCAW represents hourly employees
at the Ashland Works coke manufacturing facility. In 1994, the USWA sought to
become the collective bargaining representative of the hourly employees at the
Middletown Works, but a majority of those employees voted to retain the AEIF
as their representative. No assurance can be given that the USWA will not seek
to represent the Middletown Works' employees at some future date.
The Company's agreement with the AEIF is effective through February 29,
2000. Its agreement with the OCAW expires October 1, 1997. The expiration date
of its agreement with the USWA is presently the subject of dispute, with the
Company asserting that the agreement is effective until March 30, 2000 and the
USWA asserting that the agreement will expire March 28, 1997. No prediction
can be made as to whether or when this dispute will be resolved or as to the
possible consequences thereof.
LEGAL PROCEEDINGS
In addition to the items discussed below, the Company and its subsidiaries
are also involved in routine litigation, environmental proceedings, and claims
pending with respect to matters arising out of the normal conduct of the
business. In management's opinion, the ultimate liability resulting from all
claims, individually or in the aggregate, will not materially affect the
Company's consolidated financial position, results of operations or cash
flows.
As a result of a 1991 inspection of the Ashland Works' cokemaking operations
by the United States Environmental Protection Agency (the "EPA") and the
Kentucky Department of Environmental Protection alleging mishandling of
certain regulated materials, the Company has entered into non-binding
mediation with the Kentucky Cabinet for Natural Resources.
Federal regulations promulgated pursuant to the Clean Water Act impose
categorical pretreatment limits on the concentrations of various constituents
in coke plant wastewaters prior to discharge into publicly owned treatment
works ("POTW"). Due to concentrations of ammonia and phenol in excess of these
limits at the Middletown Works, the Company, through the Middletown POTW,
petitioned the EPA for "removal credits," a type of compliance exemption,
based on the Middletown POTW's satisfactory treatment of the Company's
wastewater for ammonia and phenol. The EPA declined to review the Company's
application on the grounds that it had not yet promulgated new sludge
management rules. The Company thereupon sought and obtained from the Federal
District Court for the Southern District of Ohio an injunction prohibiting the
EPA from instituting enforcement action against the Company for noncompliance
with the pretreatment limitations, pending the EPA's promulgation of the
applicable sludge management regulations. Although the Company is unable to
predict the outcome of this matter, if the EPA eventually refuses to grant the
Company's request for removal credits, the Company could incur additional
costs to construct pretreatment facilities at the Middletown Works.
In January 1996, an action was filed in the Court of Common Pleas of Butler
County, Ohio on behalf of four named plaintiffs who purport to represent a
class of plaintiffs consisting of all hourly employees at the Company's
Middletown Works and all hourly employees of independent contractors working
at the facility since June 1992. The complaint has twice been amended to add
three additional plaintiffs. The plaintiffs allege negligence and intentional
tort and seek compensatory and punitive damages in an unspecified amount for
alleged dangerous working conditions at the Company's Middletown Works. In
April 1996, plaintiffs moved to certify a class action. The Company has
vigorously opposed this motion and has filed motions to dismiss the suit in
whole and in part. In September 1996, all pending motions were argued to the
Court. No rulings have been rendered to date.
In April 1996, an action was filed in the United States District Court,
Southern District of Ohio by a number of former employees of the Company
seeking certain pension and postretirement benefits which they allege were
wrongly denied them when the Company outsourced their positions.
26
<PAGE>
In May 1996, an action was filed in the United States District Court,
Southern District of Ohio by several plaintiffs under the citizen action suit
provisions of federal environmental laws alleging violations of those laws as
well as state claims in connection with the accidental release of coke oven
gas from the Company's Middletown Works in January 1996. The Company has filed
a motion to dismiss all federal claims and the matter has been fully briefed
and presented to the Court, where a decision is now pending.
ENVIRONMENTAL MATTERS
Domestic steel producers, including the Company, are subject to stringent
federal, state and local laws and regulations relating to the protection of
human health and the environment.
The Company has expended the following for environmental related capital
investments and environmental compliance:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Environmental related capital
investments............................ $36.6 $16.4 $26.7 $19.1 $ 6.1
Environmental compliance costs.......... 37.7 43.3 46.4 51.7 53.6
</TABLE>
The Clean Air Act Amendments of 1990 (the "Amendments") imposed new
standards designed to reduce air emissions. The Amendments have directly
affected many of the Company's operations, particularly its coke oven
batteries. As of December 31, 1996, the Company has incurred $67.3 million in
capital investments to bring its coke operations into compliance with the
Amendments' requirements. The Company does not expect capital investments for
compliance with these requirements to be material in the near future.
The Company does not anticipate any material impact on its future recurring
operating costs or profitability as a result of its compliance with current
environmental regulations. Moreover, the Company believes that since all
domestic steel producers operate under the same set of environmental
regulations, the Company is under no competitive disadvantage resulting from
compliance with such regulations.
Environmental Remediation
The Company and its predecessors have been conducting steel manufacturing
and related operations for over 90 years. Although the Company believes that
its predecessors utilized operating practices that were standard in the
industry at the time, hazardous materials may have been released in or under
currently- or previously-operated sites. Although the Company does not have
sufficient information to estimate its potential liability in connection with
any potential future remediation, it believes that if any such remediation is
required, it will occur over an extended period of time.
Pursuant to the Resource Conservation and Recovery Act ("RCRA"), which
governs the treatment, handling and disposal of hazardous waste, the EPA and
authorized state environmental agencies may conduct inspections of RCRA-
regulated facilities to identify areas where there have been releases of
hazardous waste or hazardous constituents into the environment and order the
facilities to take corrective action to remediate such releases. The
Middletown Works and the Ashland Works are subject to RCRA inspections by
environmental regulators. While the Company cannot predict the future actions
of these regulators, the potential exists for required corrective action at
these facilities.
Under the authority of the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the EPA and state environmental
authorities have conducted site investigations at certain of the Company's
facilities, portions of which previously had been used for disposal of
currently regulated materials. While the results of these investigations are
still pending, the Company could, in the future, be directed to incur
27
<PAGE>
costs for remedial activities at the former disposal areas. Given the
uncertain status of these investigations, however, the Company currently is
unable to predict if and when such costs might arise or, if they should arise,
their magnitude.
Environmental Proceedings
In May 1996, an action was commenced against the Company in the United
States District Court, Southern District of Ohio, Western Division, on behalf
of eleven named plaintiffs seeking declaratory and injunctive relief and both
compensatory and punitive damages as a consequence of an underground coke oven
gas line leak at the Middletown Works.
Under the authority of CERCLA, the Kentucky Department of Environmental
Protection conducted a comprehensive review of the waste management control
systems and handling practices at the Ashland Works coke department and steel
making facility in July, August and September 1991. As a result of this
inspection, the Kentucky Natural Resources and Environmental Protection
Cabinet instituted an administrative proceeding against the Company in
November 1993, alleging certain regulatory violations. The Company is
vigorously contesting these allegations. To date, the EPA has not indicated
whether it will seek additional penalties for these or other alleged
violations as a result of the above inspection.
In March 1991, the Ohio Environmental Protection Agency notified the Company
that it had referred to the Ohio Attorney General for potential enforcement
action certain alleged violations of Ohio's hazardous waste regulations at the
Middletown Works. Although the Company believes it has a strong basis for
contesting the alleged violations, it is in the process of negotiating a
consent order with the Ohio Attorney General that will address the State's
concerns.
In addition to the foregoing matters, the Company is or may be involved in
legal proceedings with various regulatory authorities that may require the
Company to pay fines relating to violations of environmental laws and
regulations, comply with more rigorous standards or other requirements, and
incur capital and operating expenses to meet such obligations.
The Company does not believe that the ultimate disposition of the foregoing
proceedings, individually or in the aggregate, will have a material adverse
effect on its financial condition, results of operations or cash flows.
28
<PAGE>
THE NEW FACILITY
OVERVIEW
The New Facility, together with the Company's existing tandem cold mill and
coating lines, will enable the Company to further process all of the hot
rolled carbon steel that it produces, as well as additional quantities of hot
band that it will purchase from other producers. The New Facility also will
enable the Company to significantly expand its presence in the stainless steel
market. The Company will continue to sell certain premium grades of hot rolled
carbon steel when appropriate in light of customer demand.
The New Facility, to be located on a currently undeveloped 1,700-acre site
in Spencer County, Indiana near the Ohio River community of Rockport, and to
be named Rockport Works, will consist of a state-of-the-art continuous cold
rolling mill, a hot dip galvanizing line, a continuous carbon and stainless
steel pickling line, a stainless steel annealing and pickling line, hydrogen
annealing facilities and a temper mill. Together with the Company's existing
tandem cold mill, the New Facility, when fully operational, will enable the
Company to cold roll all of the hot band it produces, as well as additional
quantities of hot band that it will purchase from other producers. All of this
material will be pickled, cold reduced and either annealed, tempered and
shipped as cold rolled product or galvanized or galvannealed and shipped as
coated product.
The Company currently cold rolls and aluminum coats approximately 75,000
tons per year of Series 400 stainless steel for sale primarily to
manufacturers of automotive exhaust systems. The New Facility will enable the
Company to substantially increase its shipments of Series 400 stainless steel
and to cold roll and sell Series 300 stainless steel, which is used in
restaurant and kitchen equipment and medical appliances, as well as the oil
refining, chemical production and food processing industries. Both of these
products are associated with substantially higher margins than coated carbon
steel. Hot rolled stainless steel coils in both series will be purchased from
other producers for processing at the New Facility. The Company believes that
there is and, for the forseeable future, there will be an adequate supply of
hot rolled stainless steel coils available for purchase in the open market.
Management expects that the New Facility, when fully operational, will
increase the Company's total shipments by nearly 16%, with shipments of
higher-margin stainless steel and coated and cold rolled carbon steel growing
from 61% in 1996 to 90% of the Company's total carbon steel product mix.
PRINCIPAL COMPONENTS
The New Facility will consist of the following major units:
. Continuous cold mill. At the heart of the New Facility will be a 60,000
horsepower continuous cold mill, designed to cold reduce carbon steel hot
bands up to 80 inches in width at an estimated rate of 500 tons per hour.
A laser welder will join separate coils of hot band into a single strip,
which will be fed into a horizontal accumulator to allow the mill to
operate continuously as additional coils are welded to the strip. The
mill will also cold reduce stainless steel hot bands and cold bands in
widths up to 60 inches on a continuous basis. Cold rolling of both carbon
and stainless steel will be subject to continuous variable crown
management to assure precise product gauge and shape.
. Hot dip galvanizing line. This coating line will be capable of producing
the premium grades of galvanized and galvannealed steel desired by the
automotive market in widths up to 80 inches, a width currently
unavailable from any domestic producer. After cleaning, a continuous
strip of cold rolled carbon steel will enter a radiant tube furnace, free
of oxygen contamination, where new heating control technology will permit
instant adjustments for changes in material size and grade, resulting in
higher yield and quality consistency throughout the final coil. Nitrogen
finishing coating knives will assure precise coating weights. Material to
be galvannealed will also pass through an electrical induction furnace,
providing the precise heating necessary to control the alloy composition.
The unit will include a skin pass mill for shape control and an in-line
roll coater for organic and chemical coatings for additional corrosion
protection or paint pretreatment. The exit portion of the unit will
include a two-sided, in-line inspection station to permit both vertical
and horizontal inspection.
29
<PAGE>
. Continuous carbon and stainless steel pickling line. This unit cleans and
flattens carbon and Series 400 stainless steel hot band in preparation
for cold rolling. An advanced laser welder will join separate coils of
carbon hot band up to 80 inches in width and stainless steel hot band up
to 60 inches in width into a continuous strip. The strip will then be
passed through a tension leveler to enhance its flatness and surface
quality and promote descaling. Finally, the strip will be descaled in a
shallow hydrochloric acid bath in high-turbulence tanks.
. Continuous stainless steel annealing and pickling line. This unit cleans,
flattens and improves the physical qualities of stainless steel hot band
in preparation for cold rolling and shipment. Coils up to 60 inches in
width will be joined by a laser welder, proceed to an accumulator and
then enter a direct-fired annealing furnace and electrolytic and chemical
pickling operation to assure consistent mechanical properties and surface
cleanliness. Tension levelers and a skin pass mill will then produce
material ready for shipment or further processing through the continuous
cold mill.
. Hydrogen annealing facilities. High flow furnaces and rapid cooling will
assure that cold rolled carbon steel coils have consistent mechanical
properties and surface cleanliness.
. Temper mill. Cold rolled carbon steel will be subjected to computer
controlled hydraulic roll bending and continuous variable crown
management to assure surface quality and flatness for the most stringent
applications.
The New Facility also will include advanced storage, packaging, loading and
unloading facilities. The 1,700-acre site will be sufficient to permit future
expansion.
MARKETING STRATEGY
Carbon Steel
Galvanized steel, including galvannealed material, is particularly desired
by the automotive industry because of its superior corrosion resistance and
formability characteristics, and is associated with the highest margins of all
flat rolled carbon steel products. Demand for these products has been growing
steadily, primarily as a result of the expanding requirements of the U.S.-
based production facilities of foreign automotive manufacturers. In 1989,
foreign manufacturers produced 1.2 million cars and light trucks in North
America. In 1995, this number had increased to 2.3 million, a compound annual
growth rate of 8.8%. Over the past three years, the automotive industry's
demand for galvanized and galvannealed steel, primarily for exposed automotive
applications, has increased nearly 40%, from 4.3 million tons in 1992 to 6.0
million tons in 1995.
Management believes there currently is insufficient domestic capacity to
fully satisfy this growing demand from the automotive industry for quality
galvanized and galvannealed steel. Additional facilities recently completed
and those announced and scheduled to come on line within the next few years
are capable of processing materials only in widths of 60 inches or less, and
are targeted primarily to the construction market. To the knowledge of
management, there has been no announcement of new capacity targeted to the
market for exposed automotive steel. The cold mill and hot dip galvanizing
line at the New Facility, which will process material in widths up to 80
inches, is specifically targeted to this market. Wider material permits the
automotive manufacturer to produce more one-piece body panels, reducing the
costs associated with joining separate pieces to produce a single panel.
Management intends to produce approximately 800,000 tons of galvanized and
galvannealed material annually at the New Facility.
In 1996, because of the capacity limitations of its existing tandem cold
mill, the Company allocated an increased percentage of the output of that mill
to its recently expanded coating lines, reducing its shipments of cold rolled
material to approximately 80% of the 1995 level. Management believes there is
and will continue to be unfulfilled demand for cold rolled product, which,
although having lower margins than coated material, is associated with higher
margins and more stable pricing than hot rolled steel. New planned cold
rolling facilities recently announced by other domestic producers, including
several mini-mills, will employ reversing mill technology, which, unlike the
Company's existing tandem cold mill and the proposed continuous cold mill at
the
30
<PAGE>
New Facility, are not physically able to maintain the stable and uniform
operating conditions needed to impart the mechanical properties and surface
quality needed, or to produce the greater widths desired, for exposed
automotive applications. Management intends to produce approximately 600,000
tons of cold rolled product annually at the New Facility.
Stainless Steel
During 1995, domestic consumption of flat rolled stainless steel totalled
nearly 1.6 million tons, of which approximately 500,000 tons consisted of
Series 400 stainless steel, with the balance consisting primarily of Series
300 stainless steel. Although domestic consumption on a per capita basis has
increased in recent years, it remains substantially below that of other major
industrial nations. According to industry analysts, domestic consumption is
projected to continue to grow steadily at a compounded annual rate of 5%.
Approximately 22% of the flat rolled stainless steel sold in the United
States in 1995 was produced abroad. Two domestic producers have announced
planned capacity expansions aggregating approximately 335,000 tons per year.
The Company believes that there is sufficient projected demand for high
quality flat rolled stainless steel to absorb this additional capacity as well
as the projected capacity of the New Facility.
The New Facility will cold roll and finish both Series 400 and Series 300
stainless steel in widths up to 60 inches. Series 400 stainless steel is
primarily employed for high-temperature, high-corrosion environments, such as
automotive exhaust systems. Series 300 stainless, which includes nickel within
the alloy to increase its hardness, surface quality and impact resistance, has
applications in the manufacturing of restaurant and kitchen equipment and
medical appliances, as well as in the oil refining, chemical production and
food processing industries.
The Company is currently cold rolling and aluminum coating Series 400
stainless steel at its Middletown Works at the rate of approximately 75,000
tons per year. Because of its metallurgical properties, stainless steel must
be cold reduced at slower speeds than carbon steel and, therefore, requires
two and sometimes three passes through the rolling mill to achieve the same
gauge that can be realized by only a single pass of carbon steel.
Nevertheless, the rolling technology employed at the Company's existing tandem
cold mill and to be employed at its proposed continuous cold mill is expected
to permit far more efficient and less costly reduction than is possible with
the technology currently used by most domestic stainless producers. The
Company plans initially to cold roll and finish Series 400 and Series 300
stainless steel at the New Facility at annual rates of approximately 200,000
tons and 185,000 tons, respectively.
CONSTRUCTION AND START-UP
Construction and equipping of the New Facility, including acquisition and
development of the site and all required support facilities, is expected to
cost approximately $1.1 billion. To effectively manage equipment lead times
and requirements during the construction period, and reduce risks,
construction and start-up of the various major components of the New Facility
will be independent of each other and will be staggered over a period of
approximately three years. Funding requirements for the project will begin in
the first quarter of 1997, peak in the second half of 1997 and the first half
of 1998, tapering off steadily thereafter through the end of 1999.
The first production component to begin commercial operation will be the
galvanizing line, which is projected to be at full production of anticipated
customer shipment levels of approximately 800,000 tons per year, beginning in
December 1998. The continuous cold mill is scheduled to achieve its targeted
production of cold rolled carbon steel in March 1999. The hydrogen annealing
facilities and the temper mill are expected to be capable of supporting
approximately 600,000 tons per year of cold rolled product shipments by June
1999. The continuous carbon and stainless steel pickling line is scheduled to
be at its targeted production level in September 1999. Lastly, the continuous
stainless steel annealing and pickling line is scheduled to be at its targeted
annual customer shipment levels of 200,000 tons of Series 400 stainless and
185,000 tons of Series 300 stainless in December 1999. The staggered start-up
of the various components of the New Facility should also enable the Company
to begin generating revenue from the New Facility prior to the end of the
construction period.
31
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and principal position with the
Company of each of its executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Richard M. Wardrop,
Jr..................... 51 Chairman, Chief Executive Officer and President
Mark G. Essig........... 39 Executive Vice President--Commercial
Richard E. Newsted...... 39 Senior Vice President, Chief Financial Officer
Thomas C. Graham, Jr. .. 42 Vice President--Research and Design Engineering
John G. Hritz........... 42 Vice President, General Counsel and Secretary
Alan H. McCoy........... 45 Vice President--Public Affairs
Ronald S. Mulhauser..... 61 Vice President--Purchasing and Transportation
James W. Stanley........ 52 Vice President--Safety and Health
James L. Wainscott...... 39 Vice President and Treasurer
James F. Walsh.......... 43 Vice President--Manufacturing
Donald B. Korade........ 54 Controller
Allen Born.............. 63 Director
John A. Georges......... 65 Director
Dr. Bonnie Guiton Hill.. 55 Director
Robert H. Jenkins....... 53 Director
Lawrence A. Leser....... 61 Director
Robert E. Northam....... 66 Director
Cyrus Tang.............. 67 Director
James A. Thomson,
Ph.D. ................. 52 Director
</TABLE>
Richard M. Wardrop was elected Chairman of the Board effective January 27,
1997. Mr. Wardrop was elected a director of the Company on March 2, 1995 and
on May 17, 1995 he was elected Chief Executive Officer in addition to his role
as President. He had been President and Chief Operating Officer of the Company
since April 7, 1994, having previously served from June 1992 as Vice
President--Manufacturing of the Partnership. Prior to joining the Partnership,
Mr. Wardrop served from January 1992 to May 1992 as Corporate Vice President,
Engineering & Purchasing, of Washington Steel Corporation, from July 1990 to
December 1991 as Consultant to the President for Quigley Company, Inc., a
subsidiary of Pfizer, Inc., and from February 1988 to June 1990 as General
Manager, Mon Valley Works, U.S. Steel Corporation.
Mark G. Essig has been Executive Vice President--Commercial since April
1994. Mr. Essig joined the Partnership in July 1992 as Vice President,
Employee Relations and Assistant to the President and was named Vice
President, Sales and Marketing in April 1993. Mr. Essig was Vice President and
Chief Financial Officer of Washington Steel Corporation from July 1991 to June
1992.
Richard E. Newsted has been Senior Vice President, Chief Financial Officer
of the Company since August 1994. In addition, he was Treasurer from August
1994 through March 1995. From January 1993 until June 1994, Mr. Newsted was
Vice President, Chief Financial Officer and Secretary and from May 1991 to
December 1992, Vice President, Finance and Treasurer of National Steel
Corporation.
Thomas C. Graham, Jr. joined the Company as its Vice President--Research and
Design Engineering in June 1996. From early 1994 until that date, he was
General Manager Sales--Construction for National Steel Corporation, having
previously held various positions in Project Engineering, Process and
Technology, and Operations Management at that company.
32
<PAGE>
John G. Hritz has been Vice President, General Counsel and Secretary since
August 1996. Mr. Hritz joined the Company in 1989 as counsel in the law
department, and was named Assistant General Counsel in 1993 and Assistant
Secretary in 1994. Since June 1996, Mr. Hritz also has had responsibility for
the Company's employee and labor relations.
Alan H. McCoy was elected Vice President--Public Affairs in January 1997.
Since March 1994 he served as General Manager--Public Relations. Prior to
that, Mr. McCoy held various positions within the Public Relations Department.
Ronald S. Mulhauser has been Vice President--Purchasing and Transportation
of the Company since August 1994. For more than ten years prior to joining the
Company, Mr. Mulhauser held various purchasing and management positions with
U.S. Steel Corporation.
James W. Stanley was named Vice President--Safety and Health in January
1996. Prior to joining the Company, Mr. Stanley held various management
positions with the U.S. Department of Labor's Occupational Safety and Health
Administration since its inception in 1971.
James L. Wainscott was named Vice President and Treasurer in April 1995. For
more than ten years prior to joining the Company, Mr. Wainscott held various
financial positions with National Steel Corporation.
James F. Walsh was named Vice President--Manufacturing in January 1996. Mr.
Walsh joined the Partnership in January 1993 as Manager, Maintenance
Technology, and in April 1994 was named General Manager, Middletown Works. He
was elected Vice President--Research and Design Engineering in August 1995.
From 1987 to 1993 Mr. Walsh held various management positions at Qualimatrix,
Inc.
Donald B. Korade has been Controller since September 1995. Mr. Korade was
Assistant Controller--Financial Accounting from June 1989 to September 1995.
Allen Born was elected a director of the Company on March 2, 1995. He is
Chairman and Chief Executive Officer of Alumax Inc., having served in those
positions since November 1993. For more than five years prior thereto he
served as Chairman and Chief Executive Officer of Amax Inc. Mr. Born also is a
director of Amax Gold Inc., Cyprus-Amax Minerals Company, the National Mining
Association, the Aluminum Association and the International Primary Aluminum
Institute.
John A. Georges has been a director of the Company since April 7, 1994. He
is Senior Managing Director of Windward Capital Partners, LLP. He is the
Retired Chairman and Chief Executive Officer of International Paper Company,
having served in that position from 1985 to March 1996. He is also a director
of International Paper Company, Ryder System Inc., and Warner-Lambert Company.
Mr. Georges is a member of The Business Council and a member of the Trilateral
Commission. He is President of the University of Illinois Foundation.
Dr. Bonnie Guiton Hill has been a director of the Company since April 7,
1994. She was Dean of the McIntire School of Commerce at the University of
Virginia from July 1992 to January 1997. She served as Secretary of the State
and Consumer Services Agency for the State of California from April 1991 to
June 1992. From September 1990 to March 1991, Dr. Hill was the President and
Chief Executive Officer of Earth Conservation Corporation. From April 1989 to
September 1990, she served as Director of the United States Office of Consumer
Affairs and Special Advisor to the President for Consumer Affairs, and has
previously served as the Assistant Secretary of the United States Department
of Education and as Vice-Chair of the United States Postal Rate Commission.
She also is a director of Niagara Mohawk Corporation, Hershey Foods
Corporation, Louisiana-Pacific Corporation, Crestar Financial Corporation and
the NASD Regulations Board.
Robert H. Jenkins was elected a director of the Company effective January
24, 1996. He is President and Chief Executive Officer of Sundstrand
Corporation having been named to this position in September 1995. For more
than five years prior thereto, Mr. Jenkins was employed by Illinois Tool Works
as its Executive Vice President and in other senior management positions. Mr.
Jenkins also serves as a member of the boards of trustees of the Manufacturers
Alliance and the National Association of Manufacturers.
33
<PAGE>
Lawrence A. Leser was elected a director of the Company on May 17, 1995 and
is Chairman of the E.W. Scripps Company. Mr. Leser was elected Chairman in
August 1994 and was also Chief Executive Officer of the E.W. Scripps Company
from July 1985 to May 1996. Mr. Leser also serves as a director of Union
Central Life Insurance Company and is a Trustee of Xavier University and a
member of the National Advisory Board of The Chase Manhattan Bank.
Robert E. Northam has been a director of the Company since April 7, 1994. He
retired as Executive Vice President and Chief Financial Officer of J.C. Penney
Company, Inc. in January 1996, having served in that position since February
1982. He also served in the office of the chairman of J.C. Penney Company,
Inc. from June 1992 until his retirement. Mr. Northam also serves as a
director of Best Products Company, Inc.
Cyrus Tang has been a director of the Company since April 7, 1994. Since
1971, he has served as President and Chief Executive Officer of Tang
Industries, Inc., which, together with its affiliates of which National
Materials Limited Partnership is one, operates various businesses, including
steel distribution and processing, metal stamping and fabrication, ferrous and
non-ferrous scrap trading and processing, aluminum die casting, extrusions and
recycling, wood and steel office furniture manufacturings and pharmaceuticals.
James A. Thomson, Ph.D. was elected a director of the Company on March 18,
1996. He is the President and Chief Executive Officer of The Rand Corporation,
having served in that capacity since August 1989. He also serves as director
of Texas Biotechnology. Dr. Thomson is a member of the Council on Foreign
Relations in New York, the International Institute for Strategic Studies in
London, the governing board of the Los Angeles World Affairs Council, and the
Council of Economic Advisors to the Governor of California.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit and Finance Committee, a
Compensation Committee, a Public Affairs Committee and a Nominating and
Governance Committee. The Board may establish such additional committees as it
deems advisable.
The functions of the Audit and Finance Committee are to recommend to the
Board of Directors the appointment of the independent public accountants of
the Company, review and approve the scope and fees of the annual audit and
review the results thereof with the Company's independent accountants. The
Audit and Finance Committee also assists the Board in fulfilling its fiduciary
responsibilities relating to accounting and reporting policies, practices and
procedures, and reviews the continuing effectiveness of the Company's business
ethics and conflicts of interest policies. The current members of the Audit
and Finance Committee are Mr. Georges (Chairperson), Mr. Northam, Mr. Tang and
Mr. Born.
The functions of the Compensation Committee are to review and recommend to
the Board of Directors compensation of the principal officers, review the
duties and responsibilities of the Company's principal officers, review
compensation and personnel policies, administer the Company's Stock Incentive
Plan (as described below) and certain other employee benefit plans, and review
and make recommendations to the Board with respect to the Company's incentive
compensation plans, pension and savings plans and its employee retirement and
benefit policies and plans. The current members of the Compensation Committee
are Mr. Northam (Chairperson), Mr. Born, Mr. Leser and Dr. Hill.
The functions of the Public Affairs Committee are to review and make
recommendations to the Board of Directors regarding the Company's policies and
practices related to public affairs, including its policies with respect to
environmental compliance, employee safety and health, and equal employment
opportunity. The current members of the Public Affairs Committee are Dr. Hill
(Chairperson), Mr. Georges, Mr. Jenkins and Dr. Thomson.
The functions of the Nominating and Governance Committee are to review and
make recommendations to the Board of Directors regarding the size,
organization, membership requirements, compensation and other practices and
policies of the Board. The current members of the Nominating and Governance
Committee are Mr. Leser (Chairperson), Mr. Tang, Mr. Jenkins and Dr. Thomson.
34
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes that are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on March , 1997; provided, however, that if the Company,
in its sole discretion, has extended the period of time during which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended.
As of the date of this Prospectus, $550,000,000 aggregate principal amount
of Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about February , 1997, to all holders
of Old Notes known to the Company. The Company's obligation to accept Old
Notes for exchange pursuant to the Exchange Offer is subject to certain
customary conditions as set forth below under "--Certain Conditions to the
Exchange Offer."
The Company expressly reserves the right, at any time and from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby to delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the holders of the Old Notes as described
below. During any such extension, all Old Notes previously tendered will
remain subject to the Exchange Offer and may be accepted for exchange by the
Company. Any Old Notes not accepted for exchange for any reason will be
returned without expense to the tendering holders thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of $1,000
or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions to the Exchange
Offer specified below under "--Certain Conditions to the Exchange Offer." The
Company will give oral or written notice of any extension, amendment, non-
acceptance or termination to the holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
PROCEDURES FOR TENDERING OLD NOTES
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. The tender to the Company of Old Notes by a holder thereof as
set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a holder who
wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to The
Bank of New York (the "Exchange Agent") at one of the addresses set forth
below under "Exchange Agent" on or prior to the Expiration Date. In addition,
either (i) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal, (ii) a timely confirmation of a
book-entry transfer ("a Book-Entry Confirmation") of such Old Notes, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange
Agent prior to the Expiration Date, or (iii) the holder must comply with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD
NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL,
35
<PAGE>
IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
Any beneficial owner of Old Notes whose Old Notes are registered in the name
of a broker, dealer, commercial bank, trust company, or other nominee and who
wishes to tender such Old Notes in the Exchange Offer should contact the
registered holder promptly and instruct such registered holder to tender on
such beneficial owner's behalf. If such beneficial owner wishes to tender on
its own behalf, such owner must, prior to completing and executing the Letter
of Transmittal and delivering such beneficial owner's Old Notes, either make
appropriate arrangements to register ownership of such Old Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal Rights"), as the case may be, must be guaranteed (see
"--Guaranteed Delivery Procedures") unless the Old Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of these Old
Notes who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for
the account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guaranties must be by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Program or the Stock Exchanges
Medallion Program (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder exactly as the name or names of the
registered holder or holders appear on the Old Notes with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Notes not properly tendered or the acceptance of which might,
in the judgment of the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Old Notes either before
or after the Expiration Date (including the right to waive the ineligibility
of any holder who seeks to tender Old Notes in the Exchange Offer). The
interpretation by the Company of the terms and conditions of the Exchange
Offer as to any particular Old Notes either before or after the Expiration
Date (including the Letter of Transmittal and the instructions thereto) shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such reasonable period of time as the Company shall determine.
None of the Company, the Exchange Agent or any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability
for failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted with the Letter of Transmittal.
By tendering Old Notes for exchange, each holder will represent to the
Company that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, and
that neither the holder nor such other person has any arrangement or
understanding with any person to engage or participate in a distribution
36
<PAGE>
of the New Notes. If any holder or any such other person is an "affiliate", as
defined under Rule 405 of the Securities Act, of the Company or is engaged in
or intends to engage in, or has an arrangement or understanding with any
person to participate in, a distribution of such New Notes to be acquired
pursuant to the Exchange Offer, such holder or any such other person (i) may
not rely on the applicable interpretation of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-
dealer that receives New Notes for its own account in exchange for Old Notes,
where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company will be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive as set forth below under "Description of the Notes--Book-Entry,
Delivery and Form" a New Note having a principal amount equal to that of the
surrendered Old Note. Accordingly, registered holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the
most recent date to which interest has been paid on the Old Notes or, if no
interest has been paid, from December 17, 1996. Old Notes accepted for
exchange will cease to accrue interest from and after the date of consummation
of the Exchange Offer. Holders whose Old Notes are accepted for exchange will
not receive any payment in respect of accrued interest on such Old Notes
otherwise payable on any interest payment date for which the record date
occurs on or after consummation of the Exchange Offer. If the Exchange Offer
is not consummated by June 17, 1997, the Notes will bear additional interest
of 0.5% per annum from and including June 17, 1997 until but excluding the
date of consummation of the Exchange Offer. Old Notes not tendered or not
accepted for exchange will continue to accrue interest from and after the date
of consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount
than the holder desires to exchange, such unaccepted or non-exchanged Old
Notes will be returned without expense to the tendering holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
procedures described below, such non-exchanged Old Notes will be credited to
an account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through
37
<PAGE>
book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal or a facsimile thereof, with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and
received by the Exchange Agent at the addresses set forth below under "--
Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) on or prior to 5:00 P.M., New York
City time, on the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of the Old Notes and the amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteed that within three
New York Stock Exchange ("NYSE") trading days after the date of execution of
the Notice of Guaranteed Delivery, the certificates for all physically
tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation,
as the case may be, and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent, and (iii) the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution within three NYSE trading days after the
date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at one of
the addresses set forth below under "--Exchange Agent." Any such notice of
withdrawal must specify the name of the person having tendered the Old Notes
to be withdrawn, identify the Old Notes to be withdrawn (including the
principal amount of such Old Notes), and (where certificate for Old Notes have
been transmitted) specify the name in which such Old Notes are registered, if
different from that of the withdrawing holder. If certificates for Old Notes
have been delivered or otherwise identified to the Exchange Agent, then, prior
to the release of such certificates the withdrawing holder must also submit
the serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution in which case such guarantee
will not be required. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination will be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon
as practicable after withdrawal, rejection of tender of termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "--Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, and subject to
its obligations pursuant to the Registration Rights Agreement, the Company
shall not be required to accept for exchange, or to issue New Notes
38
<PAGE>
in exchange for, any Old Notes, and may terminate or amend the Exchange Offer,
if, at any time before the acceptance of such New Notes for exchange, any of
the following events shall occur:
(i) any injunction, order or decree shall have been issued by any court
or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(ii) the Exchange Offer will violate any applicable law or any applicable
interpretation of the staff of the Commission.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company in whole or in part at any time and from time to time
in its sole discretion. The failure by the Company at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order is threatened by the Commission or in effect
with respect to the Registration Statement of which this Prospectus is a part
or the qualification of the Indenture under the Trust Indenture Act of 1939,
as amended.
The Exchange Offer is not conditioned on any minimum principal amount of Old
Notes being tendered for exchange.
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests or Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
The Bank of New York, Exchange Agent
By Mail:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Enrique Lopez,
Reorganization Section -- 7 East
By Hand or Overnight Courier:
The Bank of New York
101 Barclay Street
New York, New York 10286
Securities Window, Street Level
Attention: Enrique Lopez,
Reorganization Section -- 7 East
By Facsimile:
(212) 571-3080
Confirm by Telephone:
(212) 815-2742
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
39
<PAGE>
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $100,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act. The Company does not currently anticipate
that it will register Old Notes under the Securities Act. See "Description of
the Notes--Exchange Offer; Registration Rights." Based on interpretations by
the staff of the Commission, as set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by a holder thereof (other than a holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary
course or such holder's business and such holder, other than a broker-dealer,
has no arrangement or understanding with any person to engage or participate
in a distribution of such New Notes. However, the Commission has not
considered the Exchange Offer in the context of a no-action letter request by
the Company and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer as in
such other circumstances. Each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of such New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. If any holder is an affiliate of
the Company or is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holder (i) may not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes pursuant to the Exchange
Offer must acknowledge that such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities and that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
40
<PAGE>
DESCRIPTION OF THE NOTES
The Old Notes were issued under an Indenture dated as of December 17, 1996
(the "Indenture") among AK Steel, Holding and The Bank of New York, as trustee
(the "Trustee"). The New Notes also will be issued under the Indenture. The
Old Notes and the New Notes will be treated as a single class of securities
under the Indenture.
The following is a summary of certain provisions of the Indenture and the
Notes. A copy of the Indenture, including the form of the Notes, has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part.
The following summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the
Indenture, including the definitions therein of certain terms and those terms
made a part of the Indenture by the Trust Indenture Act of 1939, as amended.
Certain terms used herein and in the Indenture are defined below under "--
Certain Definitions." As used herein, the term "Notes" means the New Notes and
the Old Notes, treated as a single class. Capitalized terms used but not
otherwise defined herein have the respective meanings ascribed to them in the
Indenture.
GENERAL
The Notes are senior unsecured obligations of AK Steel, limited to $550.0
million in aggregate principal amount and will mature on December 15, 2006.
The New Notes will bear interest at the rate per annum shown on the cover page
of this Prospectus from December 17, 1996 or from the most recent Interest
Payment Date (as defined) to which interest on the Old Notes has been paid,
payable semi-annually on June 15 and December 15 (each an "Interest Payment
Date") of each year, commencing June 15, 1997 to each Person in whose name a
Note is registered at the close of business on the preceding June 1 or
December 1, as the case may be. Accordingly, registered holders of New Notes
on the relevant record date for the first Interest Payment Date following the
consummation of the Exchange Offer will receive interest from the most recent
Interest Payment Date to which interest has been paid on the Old Notes or, if
no interest has been paid, from December 17, 1996. Old Notes accepted for
exchange will cease to accrue interest from and after the date of the
consummation of the Exchange Offer. Holders whose Old Notes are accepted for
exchange will not receive any payment in respect of interest on such Old Notes
otherwise payable on any Interest Payment Date for which the record date
occurs on or after the consummation of the Exchange Offer. Interest on the
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
For so long as Notes are represented by a Global Security (as defined), all
payments made in respect of those Notes (including principal, premium, if any,
and interest) will be payable by the Paying Agent (as defined) to The
Depository Trust Company, New York, New York (the "Depository"), or its
nominee, by wire transfer of immediately available funds for payment to its
participants for subsequent disbursement to the beneficial owners. See "--
Book-Entry, Delivery and Form." AK Steel will make all payments in respect of
a certificated Note (including principal, premium, if any, and interest) by
mailing a check to the address of the registered holder thereof; provided,
however, that payments on the Notes may also be made, in the case of a holder
of certificated Notes of at least $1,000,000 aggregate principal amount, by
wire transfer to a U.S. dollar account maintained by the payee with a bank in
the United States if such holder elects payment by wire transfer by giving
written notice to the Trustee or the Paying Agent to such effect designating
such account no later than 30 days immediately preceding the relevant due date
for payment (or such other date as the Trustee may accept in its discretion).
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and whole multiples thereof. No service charge will be
made for any registration of transfer or exchange of Notes, but AK Steel may
require payment of a sum sufficient to cover any taxes, assessments or other
governmental charges payable in connection therewith.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note.
41
<PAGE>
The interest rate on the Notes is subject to increase in certain
circumstances if the Registration Statement ceases to be effective as further
described under "--Exchange Offer; Registration Rights."
OPTIONAL REDEMPTION
The Notes will be redeemable at AK Steel's option, at any time on or after
December 15, 2001 as a whole or from time to time in part, upon not less than
30 nor more than 60 days' notice mailed to each holder of Notes to be redeemed
at the holder's address appearing in the register, at the following redemption
prices (expressed as percentages of principal amount) if redeemed during the
12-month period beginning December 15 of the years indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001.......................................................... 104.56%
2002.......................................................... 103.04%
2003.......................................................... 101.52%
2004 and thereafter........................................... 100.00%
</TABLE>
together in the case of any such redemption with accrued interest (if any) to
the redemption date.
Notwithstanding the foregoing, at any time and from time to time prior to
December 15, 1999, AK Steel may redeem up to $175.0 million aggregate
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings, at a redemption price of 109.125% of the principal amount thereof
plus accrued interest to the redemption date; provided, however that at least
$375.0 million aggregate principal amount of the Notes remains outstanding
after each such redemption.
If less than all of the Notes are to be redeemed, the Notes will be chosen
for redemption by the Trustee and the Depository on a pro rata basis or by lot
or by a method that complies with applicable legal and securities exchange
requirements.
CHANGE IN CONTROL OFFER
Under the Indenture, within 30 days following any Change in Control, AK
Steel shall notify the Trustee and each holder in writing of the occurrence of
the Change in Control and shall make an offer to repurchase (the "Change in
Control Offer") the Notes for cash at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest thereon to and
including the Change in Control Payment Date (as defined below) (such price,
the "Change in Control Payment Price") on the Change in Control Payment Date.
The "Change in Control Payment Date" shall be a date no earlier than 45 days
nor later than 60 days from the date the Change in Control Offer is mailed. AK
Steel shall purchase all Notes properly tendered in the Change in Control
Offer and not withdrawn in accordance with the procedures set forth in the
Indenture. The Change in Control Offer shall state, among other things, the
procedures that holders must follow to accept the Change in Control Offer.
If a Change in Control Offer is made, there can be no assurance that AK
Steel will have funds sufficient to pay the Change in Control Payment Price
for all the Notes that might be delivered by holders seeking to accept the
Change in Control Offer. See "Risk Factors--Factors Relating to the Company--
Substantial Leverage." The failure of AK Steel to repurchase Notes in
accordance with this provision constitutes an Event of Default. See "--Events
of Default."
AK Steel will comply with the applicable tender offer rules, including Rule
14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change in Control Offer. The existence of a
holder's right to require AK Steel to repurchase such holder's Notes upon a
Change in Control may deter a third party from acquiring AK Steel in a
transaction that constitutes a Change in Control.
42
<PAGE>
RANKING
The Old Notes are, and the New Notes will be, senior unsecured obligations
of AK Steel ranking pari passu with other senior unsecured Debt of AK Steel
and senior to all Subordinated Obligations. At September 30, 1996, after
giving pro forma effect to the sale of the Old Notes and the Secured Notes,
the aggregate amount of senior indebtedness of AK Steel would have been
approximately $1,125.0 million. AK Steel will have the ability to incur
additional senior indebtedness, subject to certain limitations contained in
the Indenture. See "--Certain Covenants--Limitation on Liens" and "--
Limitation on Debt."
The Holding Guarantee will be an unsecured senior obligation of Holding and
will rank pari passu with other senior unsecured indebtedness of Holding,
including its guarantee of the Old Notes, the Secured Notes and the 10 3/4%
Notes. The principal asset of Holding is all of the outstanding shares of
securities of AK Steel, and virtually all of Holding's operations are
conducted through AK Steel. In the Indenture, Holding has agreed not to engage
in any activities other than holding the outstanding securities of AK Steel as
well as those activities incidental to its status as a public company, and not
to incur any liabilities other than those relating to its guarantees of the
Notes and certain other indebtedness of AK Steel as well as those liabilities
incidental to its status as a public company. See "--Certain Covenants--
Restrictive Covenant of Holding."
NOTE GUARANTEES
Holding and any Person that becomes a Subsidiary (other than a Non-Recourse
Subsidiary) after the date on which the Old Notes were originally issued (see
"--When AK Steel or Any of Its Subsidiaries May Merge or Transfer Assets")
will guarantee on a joint and several basis the payment and performance by AK
Steel of the Obligations (the "Note Guarantees") and will pay all expenses
(including, without limitation, fees and disbursements of counsel) paid or
incurred by the Trustee or the holders in enforcing their rights under the
Note Guarantees. Each of the Note Guarantees will be a senior unsecured
obligation of the Person providing such Note Guarantee, and will rank pari
passu with other senior unsecured Debt of such Guarantor.
Claims of creditors of the Subsidiaries, including trade creditors, will
have priority over the equity interests of AK Steel and creditors of AK Steel,
including holders of the Notes. Although holders of the Notes will be direct
creditors of each Guarantor Subsidiary by virtue of the Note Guarantees,
existing or future creditors of a Guarantor Subsidiary could attempt to avoid
or subordinate Note Guarantees, in whole or in part, under fraudulent
conveyance laws. To the extent any Note Guarantee is avoided as a fraudulent
conveyance or held unenforceable for any other reason with respect to any
Notes, the holders thereof would cease to be creditors of such Guarantor
Subsidiary and would be solely creditors of AK Steel and of any Guarantor
Subsidiary whose Note Guarantee was not voided or held unenforceable.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes will be issued in the form of a
global certificate (the "Global Security"). The Global Security will be
deposited with, or on behalf of, the Depository and registered in the name of
the Depository or its nominee. Except as set forth below, the Global Security
may be transferred, in whole and not in part, only to the Depository or
another nominee of the Depository. Investors may hold their beneficial
interests in the Global Security directly through the Depository if they have
an account with the Depository or indirectly through organizations which have
accounts with the Depository.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Depository's participants include securities brokers and
dealers (which may include the Initial
43
<PAGE>
Purchasers), banks, trust companies, clearing corporations and certain other
organizations. Access to the Depository's book-entry system is also available
to others such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, whether
directly or indirectly.
Upon the issuance of the Global Security, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the New
Notes represented by such Global Security to the accounts of participants.
Ownership of beneficial interests in the Global Security will be limited to
participants or persons that may hold interests through participants.
Ownership of beneficial interests in the Global Security will be shown on, and
the transfer of those ownership interests will be effected only through,
records maintained by the Depository (with respect to participants' interests)
and such participants (with respect to the owners of beneficial interests in
the Global Security other than participants). The laws of some jurisdictions
may require that certain purchasers of securities take physical delivery of
such securities in definitive form. Such limits and laws may impair the
ability to transfer or pledge beneficial interests in the Global Security.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Security, the Depository or such nominee, as the case may
be, will be considered the sole legal owner and holder of the related New
Notes for all purposes of such New Notes and the Indenture. Except as set
forth below, owners of beneficial interests in the Global Security will not be
entitled to have the New Notes represented by the Global Security registered
in their names, will not receive or be entitled to receive physical delivery
of certificated Notes in definitive form and will not be considered to be the
owners or holders of any New Notes under the Global Security. The Company
understands that, under existing industry practice, in the event an owner of a
beneficial interest in the Global Security desires to take any action that the
Depository, as the holder of the Global Security, is entitled to take, the
Depository would authorize the participants to take such action, and the
participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions
of beneficial owners owning through them.
Payment of principal of and interest on New Notes represented by the Global
Security registered in the name of and held by the Depository or its nominee
will be made to the Depository or its nominee, as the case may be, as the
registered owner and holder of the Global Security.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Security, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Security
as shown on the records of the Depository or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in the
Global Security held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants. Neither the Company nor the Initial Purchasers will have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the Global
Security for any New Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for any other
aspect of the relationship between the Depository and its participants or the
relationship between such participants and the owners of beneficial interests
in the Global Security owning through such participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the Global Security may not be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of
such Depository to such Depository or another nominee of such Depository.
Beneficial owners of New Notes registered in the name of the Depository or
its nominee will be entitled, upon request, to be issued New Notes in
definitive certificated form.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Security among participants of
the Depository, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Trustee nor the Company will have any responsibility for the performance
by the Depository or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
44
<PAGE>
CERTIFICATED NOTES
The New Notes represented by the Global Security are exchangeable for
certificated New Notes in definitive form of like tenor as such New Notes in
denominations of U.S. $1,000 and integral multiples thereof if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for the Global Security or if at any time the Depository ceases to
be a clearing agency registered under the Exchange Act, (ii) the Company in
its discretion at any time determines not to have all of the New Notes
represented by the Global Security or (iii) a default entitling the holders of
the New Notes to accelerate the maturity thereof has occurred and is
continuing. Any Note that is exchangeable pursuant to the preceding sentence
is exchangeable for certificated New Notes issuable in authorized
denominations and registered in such names as the Depository shall direct.
Subject to the foregoing, the Global Security is not exchangeable, except for
a Global Security of the same aggregate denomination to be registered in the
name of the Depository or its nominee.
EXCHANGE OFFER; REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company agreed, for the
benefit of the holders of the Notes, that the Company will, at its cost, (i)
to file the Registration Statement of which this Prospectus is a part with the
Commission on or before February 17, 1997, (ii) to use its reasonable efforts
to cause the Registration Statement to be declared effective under the
Securities Act no later than May 16, 1997 and (iii) upon the effectiveness of
the Registration Statement, to commence the Exchange Offer and to keep the
Exchange Offer open for not less than 20 business days (or longer if required
by applicable law) after the date notice of the Exchange Offer is mailed to
the holders of the Old Notes.
In the event the Exchange Offer is not consummated by June 16, 1997, or, in
accordance with the Registration Rights Agreement, or if either of the Initial
Purchasers or any affiliate thereof so requests with respect to Old Notes held
by it following consummation of the Registered Exchange Offer as part of an
unsold allotment from the original offering of the Old Notes, or if any holder
of Old Notes is not eligible by reason of any law or any rules, policies or
pronouncements of the Commission or other governmental authority (including
any self-regulatory organization) to participate in the Exchange Offer or does
not receive freely tradeable New Notes in the Exchange Offer, the Company
will, at its own cost, (a) as promptly as practicable (but in no event more
than 30 days after having been so required or so requested), file a
registration statement (a "Shelf Registration Statement") covering resales of
the Old Notes or the New Notes, as the case may be, (b) use its reasonable
efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act and (c) keep the Shelf Registration Statement
effective for a period of three years from the effectiveness thereof or such
shorter period that will terminate when all of the Notes covered by the Shelf
Registration Statement have been sold pursuant thereto. In the event a Shelf
Registration Statement is filed, the Company will, among other things, provide
to each holder for whom such Shelf Registration Statement was filed copies of
the prospectus that is a part of the Shelf Registration Statement, notify each
such holder when the Shelf Registration Statement has become effective and
take certain other actions as are required to permit unrestricted resales of
the Notes that are the subject of such Shelf Registration Statement. A holder
selling Notes pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to purchasers, will be subject to certain of the
civil liability provisions of the Securities Act in connection with such sales
and will be bound by those provisions of the Registration Rights Agreement
that are applicable to such holder (including certain indemnification
obligations).
The Registration Rights Agreement provides that if (i) by June 16, 1997,
neither the Exchange Offer has been consummated nor the Shelf Registration
Statement has been declared effective or (ii) after either the Registration
Statement of which this Prospectus is a part or the Shelf Registration
Statement is declared effective, such registration statement thereafter ceases
to be effective or usable (subject to certain exceptions) in connection with
resales of Notes in accordance with and during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (i)
through (ii) a "Registration Default"), additional interest will accrue on the
Notes at the rate of 0.50% per annum from and including the date on which any
such Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. Such interest is payable in addition to
any other interest payable from time to time with respect to the Notes.
45
<PAGE>
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an Exhibit to the Registration
Statement of which this Prospectus forms a part.
CERTAIN COVENANTS
The Indenture contains certain covenants, including the ones summarized
below, which covenants will be applicable (unless waived or amended) so long
as any of the Notes are outstanding.
Commission Reports. Notwithstanding that Holding may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, Holding
shall file with the Commission and provide the Trustee and Holders with such
annual reports and such information, documents and other reports specified in
Sections 13 and 15(d) of the Exchange Act.
Limitation on Liens. AK Steel shall not, and shall not permit any Subsidiary
to, create or permit to exist any Lien upon any of its property or assets, now
owned or hereafter acquired, securing any obligation unless concurrently with
the creation of such Lien effective provision is made to secure the Notes
equally and ratably with such obligation for so long as such obligation is so
secured; provided that if such obligation is a Subordinated Obligation, the
Lien securing such obligation shall be subordinated and junior to the Lien
securing the Notes with the same or lesser relative priority as such
Subordinated Obligation shall have with respect to the Notes. The preceding
restriction shall not require AK Steel or any Subsidiary to equally and
ratably secure the Notes if the Lien consists of the following:
(i) Liens created by the Indenture, Liens existing as of the date on
which the Notes were originally issued and Liens to secure Debt in respect
of the Secured Notes as described under "Description of Certain
Indebtedness--The Secured Notes";
(ii) Permitted Liens;
(iii) Liens to secure Debt issued by AK Steel for the purpose of
financing all or a part of the purchase price of assets or property
acquired or constructed in the ordinary course of business after the date
on which the Notes were originally issued; provided, however, that (a) the
aggregate principal amount (or accreted value in the case of Debt issued at
a discount) of Debt so issued shall not exceed the lesser of cost or Fair
Market Value, as determined in good faith by the Board of Directors of
Holding, of the assets or property so acquired or constructed, (b) either
(1) the Debt secured by such Liens shall have been permitted to be issued
under clause (iv) of "Limitation on Debt" or (2) additional Debt secured by
such Liens, at the time of determination on a pro forma basis, would not
exceed, in the case of Normal Replacement Assets, 50%, or in the case of
Special Assets, 100%, of the aggregate principal amount of Debt which AK
Steel would have been permitted to issue at such time under the
Consolidated EBITDA Coverage Ratio as set forth in the first paragraph of
"Limitation on Debt" at an interest rate equal to the rate of interest on
the additional Debt to be secured by such Liens and (c) such Liens shall
not encumber any other assets or property of AK Steel or any of its
Subsidiaries other than such assets or property or any improvement on such
assets or property and shall attach to such assets or property within 90
days of the construction or acquisition of such assets or property;
(iv) Liens on the assets or property of a Subsidiary existing at the time
such Subsidiary became a Subsidiary and not issued as a result of (or in
connection with or in anticipation of) such Subsidiary becoming a
Subsidiary; provided, however, that such Liens do not extend to or cover
any other property or assets of AK Steel or any of its other Subsidiaries;
(v) Liens on the Inventory or Accounts Receivable of AK Steel or any
Significant Subsidiary that is a Guarantor Subsidiary securing Debt under
any Permitted Credit Facility; provided that any Lien on Intangible
Property shall limit the rights of the holder of such Lien to the use of
such Intangible Property to manufacture, process and sell the Inventory
with respect to which such holder has a Lien;
46
<PAGE>
(vi) Liens securing industrial revenue or pollution control bonds issued
by AK Steel; provided, however, that (a) the aggregate principal amount of
Debt secured by such Liens shall not exceed the lesser of cost or Fair
Market Value, as determined in good faith by the Board of Directors of
Holding, of the assets or property so financed, and (b) such Liens do not
encumber any other property or assets of AK Steel or any of its
Subsidiaries;
(vii) Liens securing Debt issued to refinance Debt which has been secured
by a Lien permitted under the Indenture and is permitted to be refinanced
under the Indenture; provided, however, that such Liens do not extend to or
cover any property or assets of AK Steel or any of its Subsidiaries not
securing the Debt so refinanced, and the principal amount (or accreted
value) of the Debt so secured is not increased except as otherwise
permitted pursuant to the Indenture;
(viii) Liens on the Equity Interests, assets or property of a Non-
Recourse Subsidiary securing Non-Recourse Debt; or
(ix) Liens securing Debt which, together with all other Debt secured by
Liens (excluding Debt secured by Liens permitted by clauses (i) through
(viii) above) at the time of determination do not exceed $100.0 million;
provided, however, that the Attributable Debt in connection with
Sale/Leaseback Transactions permitted under clause (iii) of "Limitation on
Sale/Leaseback Transactions" will be included in the determination and
treated as Debt secured by a Lien not otherwise permitted by clauses (i)
through (viii) above.
For the avoidance of ambiguity, it is understood that Liens referred to in
clauses (i) through (ix) of this covenant description may secure, in addition
to the principal of and premium (if any) on Debt referred to in such clauses,
interest and all other obligations on and in respect of such Debt.
Limitation on Sale/Leaseback Transactions. AK Steel shall not, and shall not
permit any Subsidiary to, enter into, Guarantee or otherwise become liable
with respect to any Sale/Leaseback Transaction unless at least one of the
following conditions is satisfied:
(i) the lease is between AK Steel and a Wholly Owned Guarantor
Subsidiary, or between Wholly Owned Guarantor Subsidiaries; provided,
however, that upon either (a) the transfer or other disposition by such
Wholly Owned Guarantor Subsidiary of any such lease to a Person other than
AK Steel or another Wholly Owned Guarantor Subsidiary or (b) the issuance,
sale, lease, transfer or other disposition of Equity Interests (including
by consolidation or merger) of such Wholly Owned Guarantor Subsidiary to a
Person other than AK Steel or another such Wholly Owned Guarantor
Subsidiary, the provisions of this clause (i) shall no longer be applicable
to such lease and such lease shall be deemed for purposes of this paragraph
to constitute the entering into of such Sale/Leaseback Transaction by the
parties thereto;
(ii) AK Steel or such Subsidiary under clauses (ii) through (viii) of
"Limitation on Liens" could create a Lien on the property to secure Debt in
an amount at least equal to the Attributable Debt in respect of such
Sale/Leaseback Transaction and AK Steel or such Subsidiary, as the case may
be, receives consideration at least equal to the Fair Market Value, as
determined in good faith by the Board of Directors of Holding, of the
property transferred;
(iii) AK Steel or such Subsidiary could create a Lien under clause (ix)
of "Limitation on Liens" above on the property to secure Debt at least
equal to the Attributable Debt in respect of such Sale/Leaseback
Transaction and AK Steel or such Subsidiary, as the case may be, receives
consideration at least equal to the Fair Market Value, as determined in
good faith by the Board of Directors of Holding, of the property
transferred; or
(iv) the Sale/Leaseback Transaction is treated as an Asset Disposition
and all the conditions of "Limitation on Sales of Assets and Equity
Interests of Subsidiaries" are satisfied with respect to such
Sale/Leaseback Transaction (without giving effect to the exceptions for Net
Available Cash in amounts less than $25.0 million or $10.0 million, as set
forth in the last paragraph of "Limitation on Sales of Assets and Equity
Interests of Subsidiaries").
47
<PAGE>
Limitation on Debt. AK Steel shall not issue, directly or indirectly, any
Debt unless, immediately after giving effect to the issuance of such Debt and
the receipt and application of the proceeds thereof, the pro forma
Consolidated EBITDA Coverage Ratio would be greater than 2.5 to 1.0.
Notwithstanding the foregoing limitation, AK Steel may issue the following
Debt:
(i) The Notes, the Secured Notes, Debt issued by AK Steel pursuant to
Permitted Credit Facilities and Guarantees by AK Steel of obligations in
respect of bonds or notes (in an aggregate principal amount not exceeding
$60.0 million) payable solely from the proceeds of (a) taxes payable by AK
Steel on real or depreciable personal property relating to the New Facility
or (b) charges payable by AK Steel for sewer and water services relating to
the New Facility and, to the extent that such taxes or charges are
insufficient to make such payments, payments under such Guarantees
(provided that the payments under such bonds or notes or such Guarantees
are not required to be prefunded by more than an aggregate amount equal to
one year of debt service on such bonds or notes and are not subject to
acceleration by the express terms thereof or otherwise);
(ii) Debt issued by AK Steel owed to and held by a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of
any Equity Interests that results in such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any transfer of such Debt (other than to
another Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the issuance of such Debt by AK Steel;
(iii) The Notes issued by AK Steel and Debt issued in exchange for, or
the proceeds of which are used to refund or refinance, any Debt permitted
by this clause (iv); provided, however, that (a) the principal amount of
the Debt so issued shall not exceed the principal amount of the Debt so
exchanged, refunded or refinanced, and (b) the Debt so issued (1) shall not
mature prior to the Stated Maturity of the Debt so exchanged, refunded or
refinanced and (2) shall have an Average Life equal to or greater than the
remaining Average Life of the Debt so exchanged refunded or refinanced;
(iv) Debt issued by AK Steel, whether or not secured by a Lien,
constituting all or a part of the purchase price of assets or property
acquired or constructed in the ordinary course of business after the date
on which the Notes were originally issued; provided, however, that Debt
issued under this clause (iv) in any calendar year shall not exceed in
aggregate principal amount the sum of (a) $50.0 million for each of 1997,
1998 and 1999, and $35.0 million for each calendar year from and including
2000 to and including 2005 plus (b) the excess of the aggregate principal
amount otherwise permitted to be issued under this clause (iv) in all
previous calendar years to and including the calendar year in which the
Notes were originally issued over the aggregate principal amount actually
issued by AK Steel during such period under this clause (iv) and Debt
issued by AK Steel in exchange for, or the proceeds of which are used to
refund or refinance, any then outstanding Debt permitted by this clause
(iv); provided, however, that (1) the principal amount of the Debt so
issued shall not exceed the principal amount of the Debt so exchanged,
refunded or refinanced, and (2) the Debt so issued (A) shall not mature
prior to the Stated Maturity of the Debt so exchanged, refunded or
refinanced and (B) shall have an Average Life equal to or greater than the
remaining Average Life of the Debt so exchanged, refunded or refinanced;
(v) Debt (other than Debt described in clause (i), (ii), (iii) or (iv) of
this covenant description) outstanding on the date on which the Notes were
originally issued, and Debt issued by AK Steel in exchange for, or the
proceeds of which are used to refund or refinance, any Debt permitted by
this clause (v) or permitted as described in the first paragraph of
"Limitation on Debt"; provided, however, that (a) the principal amount of
the Debt so issued shall not exceed the principal amount of the Debt so
exchanged, refunded or refinanced and (b) the Debt so issued (1) shall not
mature prior to the Stated Maturity of the Debt so exchanged, refunded or
refinanced and (2) shall have an Average Life equal to or greater than the
remaining Average Life of the Debt so exchanged, refunded or refinanced;
(vi) Obligations of AK Steel pursuant to (a) interest rate swap or
similar agreements designed to protect AK Steel against fluctuations in
interest rates in respect of Debt of AK Steel to the extent the
48
<PAGE>
notional principal amount of such obligation does not exceed the aggregate
principal amount of the Debt to which such interest rate contracts relate,
and (b) foreign exchange or commodity hedge, exchange or similar agreements
designed to protect AK Steel against fluctuations in foreign currency
exchange rates or commodity prices in respect of foreign exchange or
commodity exposures incurred by AK Steel in the ordinary course of its
business; or
(vii) Debt (not otherwise permitted to be issued pursuant to clauses (i)
through (vi) of this covenant description) in an aggregate principal amount
which, together with (a) any other outstanding Debt issued by AK Steel
pursuant to this clause (vii) and (b) Debt issued and Preferred Equity
Interests then outstanding and issued by Subsidiaries pursuant to clause
(viii) of "Limitation on Debt and Preferred Equity Interests of
Subsidiaries," does not exceed $100.0 million.
Notwithstanding the foregoing, AK Steel shall not issue any Debt if the
proceeds thereof are used, directly or indirectly, to repay, prepay, redeem,
defease, retire, refund or refinance any Subordinated Obligations unless such
Debt shall be subordinated to the Notes to at least the same extent as such
Subordinated Obligations.
Limitation on Debt and Preferred Equity Interests of Subsidiaries. AK Steel
shall not permit any Subsidiary to issue, directly or indirectly, any Debt or
Preferred Equity Interests except:
(i) Debt or Preferred Equity Interests issued to and held by AK Steel or
a Wholly Owned Subsidiary; provided, however, that (a) any subsequent
issuance or transfer of any Equity Interests that results in any such
Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or (b) any
subsequent transfer of such Debt or Preferred Equity Interests (other than
to AK Steel or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the issuance of such Debt or Preferred Equity Interests by the
issuer thereof;
(ii) Debt or Preferred Equity Interests, other than any described in
clause (i), outstanding on the date on which the Notes were originally
issued;
(iii) Debt or Preferred Equity Interests of a Subsidiary issued and
outstanding on or prior to the date on which such Subsidiary became a
Subsidiary (other than Debt or Preferred Equity Interests issued as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary);
(iv) Debt or Preferred Equity Interests issued in exchange for, or the
proceeds of which are used to refund or refinance, Debt or Preferred Equity
Interests referred to in clause (ii) or (iii); provided, however, (a) the
principal amount or liquidation value of such Debt or Preferred Equity
Interests so issued shall not exceed the principal amount or the
liquidation value of the Debt or Preferred Equity Interests so refunded or
refinanced and (b) the Debt or Preferred Equity Interests so issued (1)
shall have a Stated Maturity later than the Stated Maturity of the Debt or
Preferred Equity Interests being exchanged or refinanced and (2) shall have
an Average Life equal to or greater than the remaining Average Life of the
Debt or Preferred Equity Interests being exchanged or refinanced;
(v) Non-Recourse Debt or Preferred Equity Interests of a Non-Recourse
Subsidiary issued after the date on which the Notes were originally issued;
provided, however, that if any such Debt or Preferred Equity Interests
thereafter ceases to be Non-Recourse Debt or Preferred Equity Interests of
a Non-Recourse Subsidiary, then such event will be deemed to constitute the
issuance of such Debt or Preferred Equity Interests by the issuer thereof;
(vi) Guarantees of the Notes or any other Debt as permitted in clause
(iii) of "Limitation on Debt" above;
(vii) Guarantees issued by any Guarantor Subsidiary of any Debt issued by
AK Steel as permitted under "Limitation on Debt" above; or
(viii) Debt or Preferred Equity Interests not otherwise permitted to be
issued pursuant to clauses (i) through (vii) above, which, together with
(a) any other outstanding Debt or Preferred Equity Interests issued
pursuant to this clause (viii) and (b) Debt issued by AK Steel pursuant to
clause (vii) under "Limitation on Debt," does not exceed $60.0 million.
49
<PAGE>
Limitation on Restricted Payments. Holding shall not, and shall not permit
any Subsidiary of Holding to, directly or indirectly, (i) declare or pay any
dividend or make any distribution on or in respect of, or make any
distribution to the holders of, Equity Interests of Holding (except dividends
or distributions payable solely in its Non-Convertible Equity Interests or in
options, warrants or other rights to acquire its Non-Convertible Equity
Interests and except dividends or distributions payable to a Wholly Owned
Guarantor Subsidiary), (ii) purchase, redeem or otherwise acquire or retire
for value any Equity Interests of Holding, (iii) declare or pay any dividend
or make any distribution on or in respect of, or make any distribution to
holders of, Equity Interests of any Subsidiary of Holding (other than with
respect to any such Equity Interests held by Holding, AK Steel, any Wholly
Owned Guarantor Subsidiary or any Wholly Owned Non-Recourse Subsidiary) or
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of any Subsidiary of Holding (other than such Equity Interests held by
Holding, AK Steel, any Wholly Owned Guarantor Subsidiary or any Wholly Owned
Non-Recourse Subsidiary), (iv) purchase, repurchase, redeem, defease or
otherwise acquire or retire for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Subordinated Obligations
(other than the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of
the date of acquisition), or (v) make any Investment other than Permitted
Investments (any such dividend, distribution, purchase, redemption,
repurchase, defeasance, other acquisition, retirement or Investment being
herein referred to as a "Restricted Payment") if:
(a) a Default shall have occurred and be continuing (or would result
therefrom);
(b) upon giving effect to such Restricted Payment, on a pro forma basis,
AK Steel is not able to issue an additional $1.00 of Debt pursuant to the
Consolidated EBITDA Coverage Ratio as set forth in the first paragraph of
"Limitation on Debt"; or
(c) upon giving effect to such Restricted Payment, the aggregate amount
of such Restricted Payment and all other Restricted Payments since the date
on which the Notes were originally issued would exceed the sum of (1) 50%
of the Consolidated Net Income of Holding accrued during the period
(treated as one accounting period) from the first day of the first month of
the fiscal quarter in which the Notes were originally issued through the
last full fiscal quarter for which quarterly or annual financial statements
are available prior to the date of such Restricted Payment (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of such
deficit), plus (2) the aggregate Net Cash Proceeds received by AK Steel
from the issue or sale of its Equity Interests (other than Redeemable
Equity Interests or Exchangeable Equity Interests) subsequent to the date
on which the Notes were originally issued (other than to a Subsidiary of AK
Steel or an employee stock ownership plan or similar trust), plus (3) the
aggregate Net Cash Proceeds received by AK Steel from the issue or sale of
its Equity Interests (other than Redeemable Equity Interests or
Exchangeable Equity Interests) to an employee stock ownership plan
subsequent to the date on which the Notes were originally issued, provided,
that, if such employee stock ownership plan issues any Debt only to the
extent that any such proceeds are equal to any increase in the Consolidated
Net Worth of Holding resulting from principal repayments made by such
employee stock ownership plan with respect to Debt issued by it to finance
the purchase of such Equity Interests, plus (4) the amount by which
consolidated Debt of AK Steel is reduced on Holding's balance sheet upon
the conversion or exchange (other than by a Subsidiary), subsequent to the
date on which the Notes were originally issued, of any Debt of AK Steel or
any of its Subsidiaries convertible or exchangeable for Equity Interests
(other than Redeemable Equity Interests or Exchangeable Equity Interests)
of AK Steel (less the amount of any cash, or other property, distributed by
AK Steel or any of its Subsidiaries upon such conversion or exchange).
So long as no Default shall have occurred and be continuing (or would result
therefrom), the foregoing limitations on Restricted Payments shall not
prohibit (A) any purchase or redemption of Equity Interests of Holding or
Subordinated Obligations made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Equity Interests of Holding (other than
Redeemable Equity Interests or Exchangeable Equity Interests and other than
Equity Interests issued or sold to a Subsidiary or an employee stock ownership
plan); provided,
50
<PAGE>
however, that (x) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments and (y) the Net Cash Proceeds
from such sale shall be excluded from clauses (c)(2) and (c)(3) of the
preceding paragraph; (B) any purchase or redemption of Subordinated
Obligations (other than Redeemable Equity Interests) made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Debt of AK Steel
other than to a Subsidiary; provided, however, that such Debt (x) shall be
subordinated to the Notes to at least the same extent as the Subordinated
Obligations so exchanged, purchased or redeemed, (y) shall have a Stated
Maturity later than the Stated Maturity of the Notes and (z) shall have an
Average Life greater than the remaining Average Life of the Notes; provided
further, however, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments; (C) any purchase or
redemption of Subordinated Obligations from Net Available Cash to the extent
permitted under "Limitation on Sales of Assets and Equity Interests of
Subsidiaries"; provided, however, that such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments; (D)
dividends paid within 60 days after the date of declaration if at such date of
declaration such dividend would have complied with this provision; provided,
however, that at the time of payment of such dividend, no Default shall have
occurred and be continuing (or would result therefrom); provided further,
however, that such dividend shall be included in the calculation of the amount
of Restricted Payments; (E) any repurchase by Holding of employee stock
granted under an employee stock option plan; provided, however, that the
aggregate amount of such repurchase in any calendar year shall not exceed $1.0
million per employee and the aggregate amount of all repurchases in any
calendar year shall not exceed $5.0 million (it being understood that the
excess of any such amounts permitted to be expended under this clause (E)
during any calendar year over the amount actually expended during such period
shall not be carried forward); provided further, however, that such repurchase
shall be included in the calculation of the amount of Restricted Payments; or
(F) any purchase, repurchase, redemption, defeasance or other acquisition by
any Non-Recourse Subsidiary of Non-Recourse Debt of such Non-Recourse
Subsidiary; provided, however, that the amount of such purchase, repurchase,
redemption, defeasance or other acquisition shall be excluded in the
calculation of the amount of Restricted Payments.
So long as none of the conditions described above in clauses (a) and (b)
exists, the foregoing limitations on Restricted Payments shall not prohibit
the declaration and payment of one or more dividends on or before December 31,
1998 in an aggregate amount not to exceed $50,000,000; provided, however, that
all such dividends shall be excluded in the calculation of the amount of
Restricted Payments.
Limitation on Issuance and Sale of Equity Interests of Subsidiaries. AK
Steel shall not permit any Subsidiary to issue or sell any Equity Interests to
any Person, or permit any Person in either case, other than AK Steel and its
Subsidiaries, to own or hold an interest, other than any interest owned or
held on the date on which the Notes were originally issued by a Person other
than AK Steel and its Subsidiaries, in any Equity Interests, of any Subsidiary
(other than a Non-Recourse Subsidiary or a JV Subsidiary); provided, however,
that the foregoing limitation shall not apply to (i) the sale of all but not
less than all of the Equity Interests of any Subsidiary made in accordance
with "Limitation on Sales of Assets and Equity Interests of Subsidiaries,"
(ii) issuances of Preferred Equity Interests permitted pursuant to clauses
(iii), (v) and (vii) under the heading "Limitation on Debt and Preferred
Equity Interests of Subsidiaries," and (iii) the ownership or holding of an
interest by any Person, other than AK Steel and its Subsidiaries, in any
Equity Interests of any Subsidiary issued pursuant to clause (ii) above.
Limitation on Restrictions on Distributions from Subsidiaries. AK Steel
shall not, and shall not permit any Subsidiary to, create or permit to exist
or become effective any consensual encumbrance or restriction on the ability
of any Subsidiary to (i) pay dividends or make any other distributions on its
Equity Interests or pay any Debt or other obligation owed to AK Steel or any
Subsidiary, (ii) make any Investment in AK Steel or any Subsidiary or (iii)
transfer any of its property or assets to AK Steel or any Subsidiary.
Notwithstanding the foregoing, AK Steel may, and may permit any Subsidiary
of AK Steel to, suffer to exist any such encumbrance or restriction (a)
pursuant to an agreement in effect at or entered into on the date on which the
Notes were originally issued, (b) with respect to a Subsidiary pursuant to an
agreement relating to any
51
<PAGE>
Debt issued by such Subsidiary on or prior to the date on which such
Subsidiary became a Subsidiary (other than Debt issued as consideration in, or
to provide all or any portion of the funds utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary) and outstanding on such date, (c) pursuant to
an agreement effecting a refinancing of Debt issued pursuant to an agreement
referred to in clause (a) or (b) or contained in any amendment to an agreement
referred to in clause (a) or (b), provided, however, that the encumbrances and
restrictions contained in any such refinancing agreement or amendment are no
less favorable to the holders of Notes than encumbrances and restrictions
contained in such agreements, (d) consisting of customary nonassignment
provisions in leases governing leasehold interests to the extent such
provisions restrict the transfer of the lease, (e) in the case of clause (iii)
above, restrictions contained in security agreements securing Debt of a
Subsidiary otherwise permitted under the Indenture, to the extent such
restrictions restrict the transfer of the property subject to such security
agreements or (f) relating to a Non-Recourse Subsidiary.
Limitation on Sales of Assets and Equity Interests of Subsidiaries. AK Steel
shall not, and shall not permit any Subsidiary (other than Non-Recourse
Subsidiaries) to, make any Asset Disposition unless:
(i) AK Steel or such Subsidiary receives consideration at the time of
such Asset Disposition at least equal to the Fair Market Value, as
determined in good faith by the Board of Directors of Holding (including as
to the value of all non-cash consideration), of the shares and assets
subject to such Asset Disposition and at least 75% of such consideration is
in the form of cash or Cash Equivalents; and
(ii) An amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by AK Steel or such Subsidiary, as the case may be,
(a) first, to the extent AK Steel elects (or is required by the terms of
any Debt), to prepay, repay or purchase Debt (other than any Redeemable
Equity Interests or Non-Recourse Debt) of AK Steel, such Subsidiary or a
Wholly Owned Guarantor Subsidiary (in each case other than Debt owed to AK
Steel or an Affiliate of AK Steel) within 60 days from the later of the
date of such Asset Disposition or the receipt of such Net Available Cash;
(b) second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (a), at AK Steel's election, to the
investment by AK Steel or such Subsidiary or any Wholly Owned Guarantor
Subsidiary in assets to replace the assets that were the subject of such
Asset Disposition or an asset that (as determined by the Board of Directors
of Holding) will be used in the business of AK Steel and the Wholly Owned
Guarantor Subsidiaries existing on the date on which the Notes were
originally issued or in businesses reasonably related thereto, in each case
within the later of one year from the date of such Asset Disposition or the
receipt of such Net Available Cash; and (c) third, to the extent of the
balance of such Net Available Cash after application in accordance with
clauses (a) and (b), to make an offer to purchase Notes at par; provided,
however, that in connection with any prepayment, repayment or purchase of
Debt pursuant to clause (a) above, AK Steel shall cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased.
Notwithstanding the requirement in clause (i) above that at least 75% of
consideration consist of cash or Cash Equivalents, AK Steel and its
Subsidiaries may make one or more Asset Dispositions for which the
consideration, in addition to the non-cash consideration permitted by such
clause, consists of or includes (A) non-cash consideration, the aggregate Fair
Market Value (as determined in good faith by the Board of Directors of
Holding) of which, for all Asset Dispositions made after the date on which the
Notes were originally issued, does not exceed $10.0 million, and (B) non-cash
consideration, the aggregate Fair Market Value (as determined in good faith by
the Board of Directors of Holding) of which, for all Asset Dispositions made
after the date on which the Notes were originally issued, does not exceed
$50.0 million, consisting of the cancellation of Debt of AK Steel or any
Subsidiary existing on the date on which the Notes were originally issued;
provided, however, that in connection with any such cancellation of Debt, AK
Steel or such Subsidiary shall cause the related loan commitment (if any) to
be permanently reduced in an amount equal to the principal so canceled.
Notwithstanding the provisions of clause (ii) above, in the event that the
Net Available Cash resulting from any Asset Disposition is less than $25.0
million, the application of an amount equal to such Net Available Cash in
accordance with this Section may be deferred until such time as such Net
Available Cash from any prior or
52
<PAGE>
subsequent Asset Dispositions not otherwise applied in accordance with this
Section, is at least equal to $25.0 million. In the event that the Net
Available Cash resulting from any Asset Disposition, after giving effect to
clauses (a) and (b) above, is less than $10.0 million, the application of such
amount equal to such Net Available Cash to make an offer to purchase Notes in
accordance with clause (c) may be deferred until such time as such Net
Available Cash, together with Net Available Cash from any prior or subsequent
Asset Dispositions not otherwise applied in accordance with this Section, is
at least equal to $10.0 million. Pending application of Net Available Cash
pursuant to this Section, such Net Available Cash shall be invested in Cash
Equivalents. To the extent any portion of the amount of Net Available Cash
remains after compliance with this Section, and provided that all holders of
Notes have been given the opportunity to tender their Notes for repurchase as
provided in clause (c) above, AK Steel may use such remaining amount for
general corporate purposes.
Limitation on Transactions with Affiliates. AK Steel shall not, and shall
not permit any Subsidiary to, conduct any business or enter into any
transaction or series of similar transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of AK Steel or any legal or beneficial owner of 5% or more of any
class of Equity Interests of Holding or with an Affiliate of any such owner
(other than a Wholly Owned Subsidiary or any employee stock ownership plan for
the benefit of AK Steel or a Subsidiary's employees) unless the terms of such
business, transaction or series of transactions are (i) set forth in writing,
(ii) not less favorable to AK Steel or such Subsidiary, as the case may be,
than terms that would be obtainable at the time for a comparable transaction
or series of similar transactions in arms-length dealings with an unrelated
third Person, (iii) if such business or transaction or series of transactions
involves in excess of (a) $5.0 million, the Board of Directors of Holding has,
by resolution, determined in good faith that such business or transaction or
series of transactions meets the criteria set forth in clause (ii) above, and
(b) $25.0 million and as to which there are no disinterested directors, AK
Steel has obtained an opinion of a nationally recognized expert with
experience in appraising the terms and conditions of the type of business or
transaction or series of transactions stating that such business or
transaction or series of transactions is fair (from a financial point of view)
to AK Steel or such Subsidiary, as the case may be; provided, however, that
the provisions of this paragraph do not apply to performance of contractual
obligations with respect to Eveleth Mines existing as of the date of the
Indenture under which the Notes were originally issued.
Lines of Business. AK Steel shall not, and shall not permit any of its
Subsidiaries to, enter into any business, either directly or through any
Subsidiary, except for those businesses in which AK Steel and its Subsidiaries
were engaged on the date on which the Notes were originally issued or
businesses reasonably related thereto.
Restrictive Covenant of Holding. Holding (i) shall not engage in any
activities or hold any assets other than (a) holding 100% of the Equity
Interests of AK Steel and debt securities of AK Steel that were held by
Holding at the date of the Indenture and (b) those activities incidental to
maintaining its status as a public company, and (ii) it will not incur any
liabilities other than liabilities relating to the Holding Guarantee or any
Guarantees by Holding of any Permitted Credit Facility, any other Debt of AK
Steel or any Debt of any Significant Subsidiary that is Guaranteed by AK Steel
and any other obligations or liabilities incidental to holding 100% of the
Equity Interests of AK Steel and those liabilities incidental to its status as
a public company; provided, however, that, for purposes of this covenant, the
term "liabilities" shall not include any liability for the declaration and
payment of dividends on any Equity Interests of Holding; and provided further,
however, that if Holding merges into AK Steel, this "Restrictive Covenant of
Holding" shall no longer be applicable.
CERTAIN DEFINITIONS
Certain terms to be defined in the Indenture are summarized below. Reference
is made to the Indenture for the full definition of all such terms, as well as
any other terms used herein for which no definition is provided.
"Accounts Receivable" means any and all accounts, contract rights, chattel
paper, instruments, documents, general intangibles and other obligations of
any kind relating to the sale or lease of goods and the rendering of services,
all rights relating thereto, all deposit accounts containing the proceeds
thereof, all books and records relating thereto and the proceeds thereof.
53
<PAGE>
"Affiliate" of any specified Person means (i) any other Person that,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified Person or (ii) any other Person who is a director
or officer (a) of such specified Person, (b) of any Subsidiary of such
specified Person or (c) of any Person described in clause (i) above. For
purposes of this definition, control of a Person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) of Equity
Interests of a Subsidiary (other than directors' qualifying shares), property
or other assets (each referred to for the purposes of this definition as a
"disposition") by AK Steel or any of its Subsidiaries, including any
disposition by means of a merger, consolidation or similar transaction, other
than (i) a disposition by AK Steel or a Subsidiary to AK Steel or a Wholly
Owned Guarantor Subsidiary, (ii) a disposition of property or assets at Fair
Market Value (as determined in good faith by the Board of Directors of
Holding) in the ordinary course of business, (iii) a disposition of obsolete
assets in the ordinary course of business, (iv) a disposition that constitutes
a Restricted Payment or a Sale/Leaseback Transaction, (v) a sale of Accounts
Receivable under a Permitted Credit Facility and (vi) a transfer of Accounts
Receivable that constitutes a Permitted Investment under clause (e) or (f) of
the definition of Permitted Investments.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as of
the date of determination, the present value (discounted at the lower of the
interest rate of such Sale/Leaseback Transaction and the interest rate borne
by the Notes, compounded annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Debt, the quotient obtained by dividing (i) the sum of the products of the
numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such Debt multiplied by the amount
of such principal payment by (ii) the sum of all such principal payments.
"Board of Directors" of a Person means the Board of Directors of that Person
or any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day that is not a Saturday, a Sunday or a day on
which banking institutions are required to close in the State of New York.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of
a balance sheet of such Person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; and the Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of
a penalty.
"Cash Equivalents" means:
(i) Investments in U.S. Government Obligations maturing within 365 days
of the date of acquisition thereof;
(ii) Investments in certificates of deposit or Eurodollar deposits
maturing within 365 days of the date of acquisition thereof issued by a
bank or trust company which is organized under the laws of the United
States or any state thereof and which has a combined capital and surplus of
at least $1.0 billion and rated at least A3 by Moody's Investors Service,
Inc.;
(iii) Investments in repurchase agreements, involving Investments in U.S.
Government Obligations or other Cash Equivalents entered into with any
bank, trust company or investment bank rated at least A- and A-1 by
Standard & Poor's and at least A3 and P-1 by Moody's Investors Service,
Inc.;
54
<PAGE>
(iv) Investments in commercial paper maturing not more than 90 days from
the date of acquisition thereof and rated at least A-1 by Standard & Poor's
and at least P-1 by Moody's Investors Service, Inc. issued by a corporation
(except AK Steel or an Affiliate of AK Steel) that is organized under the
laws of any state of the United States or the District of Columbia; and
(v) Investments in money market accounts or funds whose assets consist
solely of cash or Cash Equivalents.
"Change in Control" means the occurrence of any of the following events:
(i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the beneficial owner (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have "beneficial ownership" of all shares that any such Person has the
right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 40% of the
total voting power of the Voting Equity Interests of Holding; provided,
however, that the Person shall not be deemed the "beneficial owner" of
shares tendered pursuant to a tender or exchange offer made by that Person
or any Affiliate of that Person until the tendered shares are accepted for
purchase or exchange;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Holding
(together with any new directors whose election by such Board of Directors
of Holding, or whose nomination for election by the shareholders of
Holding, as the case may be, was approved by a vote of 66 2/3% of the
directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the Board of
Directors of Holding then in office; or
(iii) Holding fails to own 100% of the Equity Interests of AK Steel;
provided, however, that it shall not be deemed a Change in Control if
Holding merges into AK Steel except that, in such case, AK Steel shall be
substituted for Holding for purposes of this definition of "Change in
Control" and clause (iii) shall no longer be applicable.
"Consolidated EBITDA Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that (a) if AK Steel or any Subsidiary has
issued any Debt since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
EBITDA Coverage Ratio is an issuance of Debt, or both, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Debt as if such Debt had been issued on the first day
of such period and the discharge of any other Debt repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Debt as if such
discharge had occurred on the first day of such period, (b) if since the
beginning of such period AK Steel or any Subsidiary shall have made any Asset
Disposition, the EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive) directly attributable to the assets that are the
subject of such Asset Disposition for such period, or increased by an amount
equal to the EBITDA (if negative), directly attributable thereto for such
period, and Consolidated Interest Expense for such period shall be reduced by
an amount equal to the Consolidated Interest Expense directly attributable to
any Debt of AK Steel or any Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to AK Steel and its continuing Subsidiaries
in connection with such Asset Dispositions for such period (or, if the Equity
Interests of any Subsidiary are sold, the Consolidated Interest Expense for
such period directly attributable to the Debt of such Subsidiary to the extent
AK Steel and its continuing Subsidiaries are no longer liable for such Debt
after such sale), (c) if since the beginning of such period AK Steel or any
Subsidiary (by merger or otherwise) shall have made an Investment in any
Subsidiary (or any Person that becomes a Subsidiary) or an acquisition of
assets, including any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, that constitutes all
or substantially all of an operating unit of a business, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto (including the issuance of any Debt) as if such
Investment or acquisition occurred on the first day of such period, and (d) if
since the beginning of such period any Person (that subsequently became a
Subsidiary or
55
<PAGE>
was merged with or into AK Steel or any Subsidiary since the beginning of such
period) shall have made any Asset Disposition or any Investment that would
have required an adjustment pursuant to clause (b) or (c) above if made by AK
Steel or a Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition or Investment occurred on the first day
of such period. For purposes of this definition, whenever pro forma effect is
to be given to an acquisition of assets, the amount of income or earnings
relating thereto, and the amount of Consolidated Interest Expense associated
with any Debt issued in connection therewith, the pro forma calculations shall
be determined in good faith by a responsible financial or accounting Officer
of AK Steel. If any Debt bears a floating rate of interest and is being given
pro forma effect, the interest on such Debt shall be calculated as if the rate
in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Protection Agreement
applicable to such Debt if such Interest Rate Protection Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of Holding and its consolidated Subsidiaries (other than Non-Recourse
Subsidiaries), including (i) interest expense attributable to capital leases,
(ii) amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) non-cash interest payments, (v) commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) net costs under Interest Rate Protection Agreements
(including amortization of fees), (vii) Preferred Equity Interests dividends
or distributions in respect of all Preferred Equity Interests held by Persons
other than AK Steel or a Wholly Owned Subsidiary, (viii) interest allocated in
connection with investments in discontinued operations and (ix) interest
actually paid by Holding or any of its consolidated Subsidiaries (other than
Non-Recourse Subsidiaries) under any guarantee of Debt or other obligation of
any other Person.
"Consolidated Net Income" means, for any period, the net income (or loss) of
Holding and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(i) any net income (or loss) of any Person if such Person is not a
Subsidiary of AK Steel, except that AK Steel's equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Person during such period to AK Steel or a Subsidiary (other than a Non-
Recourse Subsidiary) as a dividend or other distribution (subject, in the
case of a dividend or other distribution to a Subsidiary, to the
limitations contained in clause (iii) below);
(ii) any net income (or loss) of any Person acquired by AK Steel or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(iii) any net income of any Subsidiary if such Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Subsidiary, directly or indirectly, to AK
Steel, except that (A) AK Steel's equity in the net income of any such
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Subsidiary during such period to AK Steel or another Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to another Subsidiary, to the limitation contained in this
clause) and (B) AK Steel's equity in a net loss of any such Subsidiary for
such period shall be included in determining such Consolidated Net Income;
(iv) any gain or loss realized upon the sale or other disposition of any
property, plant or equipment of AK Steel or its consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) that is not sold or
otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Equity Interests of
any Person;
(v) any net income (or loss) of any Non-Recourse Subsidiary, except that
AK Steel's equity in the net income of any such Non-Recourse Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Non-Recourse
Subsidiary during such period to AK Steel as a dividend or other
distribution; and
(vi) the cumulative effect of a change in accounting principles.
56
<PAGE>
"Consolidated Net Tangible Assets" of any Person means the total assets of
such Person and its consolidated subsidiaries after deducting therefrom all
intangible assets, current liabilities (excluding any thereof which are by
their terms extendible or renewable at the option of the obligor thereon to a
time more than 12 months after the time as of which the amount thereof is
being computed) and minority interests, if any, in any assets of such Person's
subsidiaries.
"Consolidated Net Worth" of any Person means the total of the amounts shown
on the balance sheet of such Person and its consolidated subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles, as of the end of the most recent fiscal quarter of such
Person ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated
value of all outstanding Equity Interests of such Person plus (ii) paid-in
capital or capital surplus relating to such Equity Interests plus (iii) any
retained earnings or earned surplus less (a) any accumulated deficit, (b) any
amounts attributable to Redeemable Equity Interests and (c) any amounts
attributable to Exchangeable Equity Interests.
"Debt" of any Person means, without duplication,
(i) the principal of and premium (if any) in respect of (a) indebtedness
of such Person for money borrowed and (b) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Redeemable Equity
Interests (but excluding any accrued dividends);
(vi) all obligations of such Person under interest rate swap or similar
agreements, or foreign currency or commodity hedge, exchange or similar
agreements of such Person;
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; and
(viii) all obligations of the type referred to in clauses (i) through
(vii) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"EBITDA" for any period means the Consolidated Net Income of Holding for
such period (but without giving effect to adjustments, accruals, deductions or
entries resulting from purchase accounting, extraordinary losses or gains and
any gains or losses from any Asset Dispositions), plus (a) the following to
the extent deducted in calculating such Consolidated Net Income: (i) income
tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense,
(iv) amortization expense, (v) the non-cash portion of postretirement benefits
other than pensions, (vi) special charges taken after December 31, 1996 in
respect of which Holding has delivered to
57
<PAGE>
the Trustee (A) an Officers' Certificate setting forth estimates, made in good
faith by a responsible financial or accounting Officer of Holding, of the cash
costs estimated, at the time such special charges are recorded, to be paid
during any period for such special charges and containing an undertaking of
Holding to deliver to the Trustee, as soon as practicable after Holding
determines that such estimates are not appropriate, a supplemental Officers'
Certificate setting forth appropriate adjustments to such estimates and (B)
together with any Officers' Certificate or supplemental Officers' Certificate
referred to in clause (A), a report prepared by Holding's independent auditors
setting forth the procedures performed by such auditors in connection with
such special charges and the related cash costs estimated to be paid during
any period for such charges minus (b) to the extent not deducted in
calculating such Consolidated Net Income, cash costs estimated to be paid
during such period for special charges taken during any period as set forth in
the Officers' Certificate most recently delivered to the Trustee in respect of
such special charges pursuant to clause (a)(vi) of this definition.
"Equity Interests" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) corporate stock or other equity participations, including
partnership interests, whether general or limited, including any Preferred
Equity Interests.
"Exchangeable Equity Interests" of any Person means any Equity Interest
which is exchangeable for or convertible into another security (other than any
Equity Interest of such Person which is neither an Exchangeable Equity
Interest nor a Redeemable Equity Interest).
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt or other obligation of any other
Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation of such other Person
(whether such obligation to purchase or pay such Debt or other obligation of
such other Person arises by virtue of partnership arrangements, or by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Debt or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided,
however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor Subsidiary" means any Subsidiary (other than a Non-Recourse
Subsidiary) that executes a supplement to the Indenture pursuant to which such
Subsidiary jointly and severally unconditionally guarantees the due and
punctual payment and performance of the Obligations and assumes the other
obligations of a Guarantor Subsidiary pursuant to the Indenture, in the manner
provided by the Indenture.
"Interest Rate Protection Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement
designed to protect AK Steel or any Subsidiary against fluctuations in
interest rates.
"Inventory" of any Person means any and all inventory of any kind of such
Person, including without limitation any or all of the following: inventory,
merchandise, goods and other tangible personal property that are held for sale
or lease by such Person; all materials used or consumed in the business of
such Person, but excluding from the foregoing equipment of such Person; all
trademarks, servicemarks, trade names and similar intangible property owned or
used by such Person in its business, together with the goodwill of the
business symbolized thereby and all rights relating thereto ("Intangible
Property"); and all books and records relating to the foregoing and the
proceeds thereof.
"Investment" in any Person means any loan or advance to, any acquisition of
Equity Interests, equity interest, obligation or other security of, or capital
contribution or other investment in, such Person.
58
<PAGE>
"Issue" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Debt or Equity Interests of a Person existing
at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be issued by such
Subsidiary at the time it becomes a Subsidiary.
"JV Subsidiary" means a Guarantor Subsidiary which (i) was created or became
a Subsidiary after the date on which the Notes were originally issued and (ii)
has not acquired any assets directly or indirectly from AK Steel or any
Subsidiary, other than (a) cash constituting a Restricted Payment or (b)
assets, in an Asset Disposition, which were acquired by AK Steel and its
Subsidiaries within one year prior to such Asset Disposition.
"Lien" means any mortgage, pledge, security interest, conditional sale or
other title retention agreement or other similar lien or encumbrance of any
kind.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and
when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to
such properties or assets or received in any other noncash form) therefrom, in
each case net of all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, provincial, foreign
and local taxes required to be accrued as a liability under generally accepted
accounting principles, as a consequence of such Asset Disposition, and in each
case net of all payments made on any Debt that is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any lien
upon or other security agreement of any kind with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from
such Asset Disposition, and net of all distributions and other payments
required to be made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition.
"Net Cash Proceeds" with respect to any issuance or sale of Equity Interests
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Convertible Equity Interests" means, with respect to any Person, any
non-convertible Equity Interests of such Person and any Equity Interests of
such Person convertible solely into non-convertible Equity Interests of such
Person; provided, however, that Non-Convertible Equity Interests shall not
include any Redeemable Equity Interests or Exchangeable Equity Interests.
"Non-Recourse Debt" means Debt or that portion of Debt (i) issued to a
Person other than Holding, AK Steel or any Subsidiary (other than a Non-
Recourse Subsidiary) and (ii) no default with respect to which (including any
rights which the holders thereof may have to take enforcement action against a
Non-Recourse Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Debt of Holding, AK Steel or any Subsidiary (other than a
Non-Recourse Subsidiary) to declare a default on such other Debt or cause the
payment thereof to be accelerated or payable prior to its Stated Maturity.
"Non-Recourse Subsidiary" means a Subsidiary of AK Steel in respect of any
obligation of which neither Holding, AK Steel nor any Subsidiary (other than
another Non-Recourse Subsidiary) has issued a Guarantee, and which (i) has not
acquired any assets directly or indirectly from Holding, AK Steel or any
Subsidiary (other than (a) cash constituting a Restricted Payment and (b)
Accounts Receivable that have been sold or otherwise transferred to such
Subsidiary in an Accounts Receivable financing for AK Steel or such other
Subsidiary), (ii) only owns properties acquired after the date on which the
Notes were originally issued and (iii) has no Debt other than Non-Recourse
Debt and Debt issued to AK Steel or a Significant Subsidiary which constitutes
a Permitted Investment under (e) of the definition of Permitted Investment.
"Normal Replacement Assets" means any assets other than Special Assets.
59
<PAGE>
"Obligations" means the principal of, premium, if any, and interest on the
Notes and all other amounts due and payable under the Indenture and the Notes
and all other obligations and liabilities of AK Steel whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter issued, which may arise under, out of or in connection with the
Indenture and the Notes or any other documents made, delivered or given in
connection therewith, whether on account of principal, premium, if any,
interest, reimbursement obligations, fees, indemnities, costs, expenses
(including without limitation all fees and disbursements of counsel to the
Trustee or the holders for which AK Steel has become obligated pursuant to the
terms of the Indenture) or otherwise whether or not an allowable claim against
AK Steel under the Bankruptcy Law or otherwise enforceable against AK Steel,
and including, in any event, interest and other liabilities accruing or
arising after the filing by or against AK Steel of a petition under the
Bankruptcy Law or that would have so accrued or arisen but for the filing of
such a petition.
"Permitted Credit Facility" or "Facilities" means any agreement or
agreements providing for (i) the making of a loan or loans or the advancing of
credit, (ii) the sale of Accounts Receivable of AK Steel or any Significant
Subsidiary under any asset securitization facility or other financing facility
for the financing of Accounts Receivable of AK Steel or any Significant
Subsidiary or (iii) the issuance of letters of credit and/or the creation of
bankers' acceptances, under which the aggregate amount that may be issued or
otherwise obtained, in the case of clauses (i), (ii) and (iii), is based upon
eligible Accounts Receivable and eligible Inventory and the aggregate
principal amount of Debt, or (in the case of clause (ii)) aggregate
Investments outstanding, excluding Permitted Investments under clause (e) or
(f) of the definition of "Permitted Investments" in respect of any such asset
securitization facility, shall not at any time exceed the greater of (i) $75.0
million and (ii) an amount equal to (1) 100% of the book value of the
consolidated Accounts Receivable of AK Steel and its Significant Subsidiaries
that are Guarantor Subsidiaries or Non-Recourse Subsidiaries plus (2) 100% of
the book value (excluding last-in-first-out reserves) of the consolidated
Inventory of AK Steel and its Subsidiaries that are Guarantor Subsidiaries,
minus (3) the aggregate principal amount of outstanding Debt secured by any
Accounts Receivable or Inventory of AK Steel or any of its Subsidiaries, other
than Debt outstanding under any Permitted Credit Facility, minus (4) other
outstanding Investments (other than Debt under a Permitted Credit Facility or
Debt described in (3) above or Permitted Investments under (e) and (f) of the
definition of "Permitted Investments") under any asset securitization or
similar facility in respect of Accounts Receivable or Inventory of AK Steel or
any of its Subsidiaries.
"Permitted Investments" means:
(a) Cash Equivalents;
(b) Investments in AK Steel or a Wholly Owned Guarantor Subsidiary (or
any Person which will become a Wholly Owned Guarantor Subsidiary as a
result of such Investment);
(c) loans and reasonable advances to employees of AK Steel or its
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business;
(d) Investments in obligations the interest on which is excluded from
income for Federal income tax purposes and that have been issued or
guaranteed by any state of the United States of America, the District of
Columbia or the Commonwealth of Puerto Rico or any political subdivision,
agency, authority or instrumentality of any of the foregoing, provided,
that at the date of acquisition of any such obligation (i) its remaining
life to maturity shall be less than one year and (ii) the issuer or
guarantor thereof shall have a short-term debt rating of at least A-1 from
Standard & Poor's and at least P-1 from Moody's Investors Service, Inc.;
(e) Investments resulting from the transfer of Accounts Receivable of AK
Steel or its Significant Subsidiaries that are Guarantor Subsidiaries to a
Non-Recourse Subsidiary, the only business of which is the acquisition and
financing of such Accounts Receivable under a Permitted Credit Facility;
(f) Investments resulting from the transfer of Accounts Receivable of AK
Steel or its Significant Subsidiaries that are Guarantor Subsidiaries (or
Non-Recourse Subsidiaries) to a trust, the only purpose of which is the
acquisition and financing of such Accounts Receivable, provided that the
aggregate amount of
60
<PAGE>
outstanding Debt issued by such trust to, and outstanding Investments in
such trust made by, Persons other than AK Steel and its Significant
Subsidiaries that are Guarantor Subsidiaries or Non-Recourse Subsidiaries
shall not at any time exceed the greater of (i) $75.0 million and (ii) an
amount equal to (1) 85% of the book value of the consolidated Accounts
Receivable of AK Steel and its Significant Subsidiaries that are Guarantor
Subsidiaries or Non-Recourse Subsidiaries plus (2) 100% of the book value
(excluding last-in-first-out reserves) of the consolidated Inventory of AK
Steel and its Subsidiaries that are Guarantor Subsidiaries, minus (3) the
aggregate principal amount of outstanding Debt secured by any Accounts
Receivable or Inventory of AK Steel or any of its Subsidiaries, other than
to the extent included in clause (4) below, minus (4) other outstanding
Investments (other than Investments in such trust) under any asset
securitization or similar facility in respect of Accounts Receivable or
Inventory of AK Steel or any of its Subsidiaries; and
(g) until December 31, 1999, Investments, not to exceed $200.0 million at
any time, in publicly traded debt obligations issued or guaranteed by a
corporation (other than AK Steel) organized under the laws of any state of
the United States of America and subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, provided that (i) such debt
obligations are acquired by AK Steel in the open market and not directly
from the issuer thereof or an affiliate of such issuer or from an
underwriter thereof, (ii) such debt obligations, at the date of acquisition
thereof by AK Steel, shall have a remaining life to maturity of not more
than five years, shall provide for payments of principal and interest
solely in cash and shall be rated at least BB by Standard & Poor's and Ba2
by Moody's Investors Service, Inc. and (iii) not more than $15.0 million of
such Investments at any time shall consist of debt obligations issued or
guaranteed by the same corporation and not more than 20% of such
Investments at any time shall consist of debt obligations issued or
guaranteed by corporations within the same industry (as determined by
Primary Standard Industrial Classification Code).
"Permitted Liens" means, with respect to any Person, (a) pledges or deposits
by such Person under workers' compensation laws, unemployment insurance laws
or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Debt) or leases to which
such Person is a party, or deposits to secure public or statutory obligations
of such Person or deposits or cash or United States government bonds to secure
surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case incurred in the ordinary course of business; (b) Liens imposed by
law, such as carriers', warehousemen's and mechanics' Liens, in each case for
sums not yet due or being contested in good faith by appropriate proceedings;
or other Liens arising out of judgments or awards against such Person with
respect to which such Person shall then be proceeding with an appeal or other
proceedings for review or time for appeal has not yet expired; (c) Liens for
property taxes not yet subject to penalties for non-payment or which are being
contested in good faith by appropriate proceedings; (d) Liens in favor of
issuers of surety bonds or letters of credit issued pursuant to the request of
and for the account of such Person in the ordinary course of its business;
provided, however, that such letters of credit do not constitute Debt; (e)
survey exceptions, encumbrances, easements or reservations of, or rights of
others for, licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real properties or liens incidental to the conduct of the
business of such Person or to the ownership of its properties which were not
incurred in connection with Debt and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use
in the operation of the business of such Person; (f) Liens securing an
Interest Rate Protection Agreement so long as the related Debt is, and is
permitted to be under the Indenture, secured by a Lien on the same property
securing the Interest Rate Protection Agreement; and (g) leases and subleases
of real property which do not interfere with the ordinary conduct of the
business of AK Steel or any of its Subsidiaries, and which are made on
customary and usual terms applicable to similar properties.
"Preferred Equity Interests" as applied to the Equity Interests of any
Person means Equity Interests of any class or classes (however designated)
which is preferred as to the payment of dividends or distributions, or as to
the distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over Equity Interests of any other class of such
Person.
61
<PAGE>
"Public Equity Offering" means an underwritten primary public offering of
common stock of Holding pursuant to an effective registration statement under
the Securities Act.
"Redeemable Equity Interests" means any Equity Interest that by its terms or
otherwise is required to be redeemed on or prior to the first anniversary of
the Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time on or prior to the first anniversary of the Stated
Maturity of the Notes.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby AK Steel or a Subsidiary transfers such
property to a Person and AK Steel or a Subsidiary leases it from such Person.
"Significant Subsidiary" means (i) any domestic Subsidiary of AK Steel
(other than a Non-Recourse Subsidiary) that, at the time of determination,
either (a) had assets that, as of the date of the Holding's most recent
quarterly consolidated balance sheet, constituted at least 5% of Holding's
total assets on a consolidated basis as of such date, or (b) had revenues for
the 12-month period ending on the date of Holding's most recent quarterly
consolidated statement of income which constituted at least 5% of Holding's
total revenues on a consolidated basis for such period, (ii) any foreign
Subsidiary (other than a Non-Recourse Subsidiary) of AK Steel that at the time
of determination either (a) had assets which, as of the date of Holding's most
recent quarterly consolidated balance sheet, constituted at least 5% of
Holding's total assets on a consolidated basis as of such date, in each case
determined in accordance with generally accepted accounting principles or (b)
had revenues for the 12-month period ending on the date of Holding's most
recent quarterly consolidated statement of income which constituted at least
5% of Holding's total revenues on a consolidated basis for such period, or
(iii) any Subsidiary (other than a Non-Recourse Subsidiary) of AK Steel that,
if merged with all Defaulting Subsidiaries of AK Steel, would at the time of
determination either (a) have had assets which, as of the date of Holding's
most recent quarterly consolidated balance sheet, would have constituted at
least 10% of Holding's total assets on a consolidated basis as of such date or
(b) have had revenues for the 12-month period ending on the date of Holding's
most recent quarterly consolidated statement of income which would have
constituted at least 10% of Holding's total revenues on a consolidated basis
for such period (each such determination being made in accordance with
generally accepted accounting principles). "Defaulting Subsidiary" means any
Subsidiary of AK Steel (other than a Non-Recourse Subsidiary) with respect to
which a Default has occurred.
"Special Assets" means a capital asset, or series of related capital assets,
with an aggregate purchase price in excess of $20.0 million that enhances the
competitiveness or productivity of the business of AK Steel and its
Subsidiaries or is required so that AK Steel and its Subsidiaries will be able
to remain in compliance with all material requirements of applicable law.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred).
"Subordinated Obligation" means any Debt of AK Steel (whether outstanding on
the date on which the Notes were originally issued or thereafter issued) which
is subordinate or junior in right of payment to the Notes.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
Equity Interests or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, through one or more intermediaries, or both, by such
Person. Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" shall refer to a Subsidiary or Subsidiaries of AK Steel.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the payment
of which the full faith and credit of the United States of America is pledged
and which are not callable at the issuer's option.
62
<PAGE>
"Voting Equity Interests" of a corporation or other entity means all classes
of Equity Interests of a corporation or other entity then outstanding and
normally entitled to vote in the election of directors or other governing body
of such corporation or other entity.
"Wholly Owned Guarantor Subsidiary" means any Wholly Owned Subsidiary that
is a Guarantor Subsidiary.
"Wholly Owned Subsidiary" of a Person means a Subsidiary of such Person
(other than a Non-Recourse Subsidiary) all the Equity Interests (other than
non-voting, money market preferred shares) of which (other than directors'
qualifying shares) are owned by such Person or another Wholly Owned Subsidiary
of such Person. Unless otherwise qualified, all references to a "Wholly Owned
Subsidiary" or to "Wholly Owned Subsidiaries" shall refer to a Wholly Owned
Subsidiary or Wholly Owned Subsidiaries of AK Steel.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(i) default in any payment of interest on any Note when the same becomes
due and payable, and such default continues for a period of 30 days;
(ii) default in the payment of the principal of any Note when the same
becomes due and payable at its Stated Maturity, upon redemption, upon
declaration or otherwise;
(iii) failure to redeem or purchase Notes when required pursuant to the
Indenture and the Notes;
(iv) failure to (a) comply with the covenant described under "--When AK
Steel or Any of Its Subsidiaries May Merge or Transfer Assets," (b) make or
consummate an Offer in accordance with the provisions of "--Certain
Covenants--Limitation on Sales of Assets and Equity Interests of
Subsidiaries" or (c) make or consummate a Change in Control Offer in
accordance with the provisions of "--Change in Control Offer";
(v) failure to observe or comply with any of the agreements in the Notes
or the Indenture (other than those referred to in clauses (i), (ii), (iii)
or (iv) above), which continues for 60 days after there has been given to
AK Steel by the Trustee or to AK Steel and the Trustee by the holders of at
least 25% in principal amount of Notes then outstanding a written notice
specifying such failure;
(vi) Debt of AK Steel or any Significant Subsidiary is not paid within
any applicable grace period after final maturity or is accelerated by the
holders thereof because of a default, and the total amount of such Debt
unpaid or accelerated exceeds $10.0 million or its foreign currency
equivalent;
(vii) any Note Guarantee issued by Holding or any Significant Subsidiary
ceases to be in full force and effect other than in accordance with its
terms, or Holding or any Significant Subsidiary or any Person acting on
behalf of Holding or such Significant Subsidiary shall deny or disaffirm
its obligations under its Note Guarantee;
(viii) certain events in bankruptcy, insolvency or reorganization with
respect to Holding, AK Steel or any Significant Subsidiary; and
(ix) any judgment or decree for the payment of money in excess of $10.0
million is rendered against Holding, AK Steel or any Significant Subsidiary
and is not discharged and either (a) an enforcement proceeding has been
commenced by any creditor upon such judgment or decree or (b) there is a
period of 60 days following such judgment during which such judgment or
decree is not discharged, waived or the execution thereof stayed.
If an Event of Default shall occur and be continuing, either the Trustee or
the holders of at least 25% in principal amount of the Notes then outstanding
may accelerate the maturity of all Notes and thereupon the principal of,
premium, if any, and any accrued and unpaid interest on the Notes shall become
due and payable immediately; provided, that in the case of any bankruptcy,
insolvency or reorganization Event of Default, such amount shall become
immediately due and payable without any declaration or other act on the part
of the Trustee or any holder. The holders of at least a majority in principal
amount of the then outstanding Notes may, under
63
<PAGE>
certain circumstances, rescind such acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all Events of
Default, other than the nonpayment of accelerated principal of, premium, if
any, and interest on Notes, have been cured or waived as provided in the
Indenture. The holders of at least a majority in principal amount of the then
outstanding Notes may waive any past default under the Indenture, except a
default in the payment of principal, premium or interest on a Note or default
with respect to certain covenants under the Indenture.
Subject to provisions for the indemnification of the Trustee, the holders of
at least a majority in principal amount of the Notes will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee, subject to certain limitations contained in the Indenture.
No holder of any Note will have any right to pursue any remedy with respect
to the Indenture or the Notes unless (i) such holder shall have previously
given to the Trustee written notice of a continuing Event of Default, (ii) the
holders of at least 25% in principal amount of the Notes shall have made
written request to the Trustee to pursue the remedy, (iii) such holder shall
have offered the Trustee reasonable indemnity against any liability, (iv) the
Trustee shall have failed to comply with the request within 60 days after the
receipt of such request and the offer of indemnity, and (v) no written
direction inconsistent with such request shall have been given to the Trustee
during such 60-day period by the holders of at least a majority in principal
amount of the Notes.
AK Steel and the Guarantors will be required to furnish to the Trustee
annually a statement as to the performance by AK Steel and such Guarantor of
certain of the obligations under the Indenture and as to any default in such
performance. Upon becoming aware of any default, AK Steel and each Guarantor
will be required to deliver an Officers' Certificate to the Trustee setting
forth the details of such default and the action which Holding, AK Steel or
any Guarantor proposes to take with respect thereto.
MODIFICATION AND WAIVER
Amendments of the Indenture or the Notes may be made by AK Steel, the
Guarantors and the Trustee with the consent of the holders of at least a
majority in principal amount of the Notes; provided, however, that no such
modification or amendment may, without the consent of the holder of each Note
affected thereby, (i) reduce the amount of Notes whose holders must consent to
an amendment, (ii) reduce the rate or extend the interest payment time of any
Note, (iii) reduce the principal amount of or extend the Stated Maturity of
any Note, (iv) reduce the premium payable upon redemption or change the time
at which any Note may be redeemed, (v) change the currency of payment of any
Note, (vi) make any change in the provisions concerning waiver of Defaults by
holders of the Notes or the rights of holders to receive payments of principal
or interest, (vii) make any change in provisions regarding Change in Control,
or (viii) make any change in this provision.
Without the consent of any holder of the Notes, AK Steel, the Guarantors and
the Trustee may amend the Indenture or the Notes (i) to cure any ambiguity,
omission, defect or inconsistency, (ii) to comply with, among other things,
the provisions discussed under "--When AK Steel or Any of Its Subsidiaries May
Merge or Transfer Assets," (iii) to provide for uncertificated Notes in
addition to or in place of certificated Notes as provided in the Indenture
(iv) to add guarantees with respect to the Securities, (v) to add to the
covenants of AK Steel or the Guarantors for the benefit of the holders or to
surrender any right or power conferred upon AK Steel or the Guarantors in the
Indenture, (vi) to reflect the release or addition of a Guarantor pursuant to
the terms of the Indenture, (vii) to comply with any requirements of the
Commission in connection with qualifying the Indenture under the Trust
Indenture Act, or (viii) to make any change that does not adversely affect the
rights of any holder of the Notes.
WHEN AK STEEL OR ANY OF ITS SUBSIDIARIES MAY MERGE OR TRANSFER ASSETS
AK Steel shall not (i) consolidate with or merge with or into any other
Person, (ii) permit any other Person to consolidate with or merge into (a) AK
Steel or (b) any of its Subsidiaries in a transaction in which such Subsidiary
(or successor Person) remains (or becomes) a Subsidiary, (iii) directly or
indirectly, transfer, convey,
64
<PAGE>
sell, lease or otherwise dispose of all or substantially all of its properties
and assets, (iv) directly or indirectly, (a) acquire Equity Interests or other
ownership interests of any other Person, other than as a Permitted Investment
as defined in clause (e) of the definition of Permitted Investments, such that
such Person becomes a Subsidiary or (b) purchase, lease or otherwise acquire
all or substantially all of the property and assets of any Person or any
existing business (whether existing as a separate entity, subsidiary,
division, unit or otherwise) of any Person, or (v) permit any of its
Subsidiaries to enter into any such transaction unless:
(1) AK Steel or such Subsidiary shall be the continuing entity or the
resulting, surviving or transferee Person (if not AK Steel or such
Subsidiary) shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
such Person shall expressly assume, by an indenture supplemental to the
Indenture, executed and delivered to the Trustee, all the obligations of AK
Steel or such Subsidiary, as the case may be, under the Notes and the
Indenture;
(2) Immediately after giving effect to such transaction (and treating any
Debt which becomes an obligation of the resulting, surviving or transferee
Person or any Subsidiary as a result of such transaction as having been
issued by such Person or such Subsidiary at the time of such transaction),
no Default shall have occurred and be continuing;
(3) Immediately after giving effect to such transaction, on a pro forma
basis, AK Steel (or the resulting, surviving or transferee Person (if not
AK Steel)) would be able to issue at least $1.00 of Debt pursuant to the
Consolidated EBITDA Coverage Ratio set forth in the first paragraph of "--
Certain Covenants--Limitation on Debt";
(4) Immediately after giving effect to such transaction, Holding shall
have Consolidated Net Worth which is not less than the Consolidated Net
Worth of Holding immediately prior to such transaction;
(5) Each Guarantor, unless it is the other party to the transactions
described above, shall expressly confirm, by an indenture supplemental to
the Indenture, executed and delivered to the Trustee, that its Guarantee
shall apply to such Person's obligations under the Notes; and
(6) AK Steel shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indentures (if any) comply with the
Indenture;
provided, however, that clauses (3) and (4) shall not apply to (A) the
consolidation or merger of any Wholly Owned Subsidiary with or into any other
Wholly Owned Subsidiary or AK Steel, (B) the transfer, conveyance, sale, lease
or other disposal (including any disposition by means of a merger,
consolidation or similar transaction) of all or substantially all of the
properties or assets of a Non-Recourse Subsidiary or a Subsidiary which is not
a Significant Subsidiary or (C) the merger of Holding into AK Steel.
If after the date on which the Notes were originally issued any Person shall
become a Subsidiary (other than a Non-Recourse Subsidiary), such Person shall
(a) unconditionally guarantee, by an indenture supplemental to the Indenture,
executed and delivered to the Trustee, all of AK Steel's obligations under the
Notes on the terms set forth in the Indenture and (b) deliver to the Trustee
an Opinion of Counsel stating that such supplemental indenture has been duly
authorized and constitutes the enforceable obligations of such Person.
DEFEASANCE
AK Steel at any time may terminate all its obligations under the Notes and
the Indenture ("legal defeasance"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the Notes, to replace mutilated, destroyed, lost or stolen
Notes and to maintain a registrar and paying agent in respect of the Notes. AK
Steel at any time may terminate its obligations under the covenants described
under "--Certain Covenants" and "--Change in Control Offer" above ("covenant
defeasance"). AK Steel may exercise the legal defeasance option
notwithstanding the prior exercise of the covenant defeasance option. If AK
Steel exercises the legal defeasance option, payment of the Notes may not be
accelerated because of an Event of Default. If AK Steel exercises the covenant
defeasance option, payment of the Notes may not be accelerated because of
certain Events of Default by AK Steel specified in clause (iv) or (v) of the
first paragraph of "Events of Default" above.
65
<PAGE>
In order to exercise its defeasance options, AK Steel must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal of, premium, if any, and
interest on the Notes to maturity or redemption, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
opinion of counsel to the effect that holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
defeasance had not occurred (and, in the case of legal defeasance only, such
opinion of counsel must be based on a ruling of the Internal Revenue Service
or other change in applicable federal income tax law).
CONCERNING THE TRUSTEE
The Trustee may become owner or pledgee of Notes and may otherwise deal with
either Holding or Affiliates of Holding with the same rights it would have if
it were not Trustee.
The Indenture provides that in case an Event of Default shall occur and be
continuing, the Trustee will exercise the rights and powers vested in it by
the Indenture and use the same degree of care and skill in their exercise as a
prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs.
The Bank of New York also serves as Trustee under the indenture governing AK
Steel's 10 3/4% Notes.
GOVERNING LAW
The rights and duties of AK Steel, Holding and the Trustee under the
Indenture, the Notes, the Note Guarantees and the Registration Rights
Agreement are governed by the law of the State of New York.
66
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
THE SECURED NOTES
An aggregate of $250.0 million principal amount of Secured Notes will be
issued, of which $92.5 million will be issued in June 1997, $20.0 million will
be issued in September 1997 and $137.5 million will be issued no earlier than
December 1997. An aggregate of $87.5 million principal amount of the Secured
Notes, of which $80.0 million will be issued in June 1997 and $7.5 million
will be issued no earlier than December 1997, will bear interest at a rate of
8.98% per annum. The remaining $162.5 million of Secured Notes will bear
interest at a fixed annual rate equal to the yield on the 5.75% U.S. Treasury
Note due August 2003 reported at 10:00 a.m., New York City time, on the second
business day immediately preceding the date of issuance of such Secured Notes
plus 2.73%. The principal of the Secured Notes will be payable in four
consecutive annual installments of $62.5 million commencing in December 2001
with the final installment due in December 2004. The Secured Notes will be
secured by a first priority lien on the continuous cold mill and hot dip
galvanizing line at the New Facility and a first mortgage on the approximately
three acres of land upon which those two components of the New Facility will
be constructed. Until construction of those two units is completed, the
Secured Notes will prohibit AK Steel from granting any liens on any of its
inventories, whether or not permitted to do so under the Indenture governing
the Notes offered hereby or the indenture governing the 10 3/4% Notes. The
Secured Notes may be prepaid, in whole or in part, at any time, at AK Steel's
option, at 100% of their principal amount plus a customary "make-whole"
premium.
The Secured Notes will be subject to the terms of a Note Purchase Agreement,
dated December 17, 1996, between the Company and the purchasers of the Secured
Notes, containing covenants substantially similar to those contained in the
Indenture with respect to limitations on, among other things, (i) liens, (ii)
sale/leaseback transactions, (iii) the incurrence of debt and the issuance of
preferred equity interests by AK Steel's subsidiaries, (iv) transactions with
affiliates, (v) dividends and other restricted payments, (vi) sales of assets,
including stock of subsidiaries, (vii) lines of business, (viii) restrictions
on distributions from AK Steel's subsidiaries and (ix) mergers and
consolidations. In addition, the Note Purchase Agreement requires that AK
Steel maintain (i) Consolidated Net Worth (as defined therein) of not less
than the sum of $500.0 million plus an aggregate amount equal to 25% of
Consolidated Net Income (as defined) for each completed fiscal year beginning
after December 31, 1996 and (ii) a ratio of Consolidated Debt (as defined) to
Consolidated Capitalization (as defined) of not more than .65 to 1.00 through
December 31, 2001 and .55 to 1.00 thereafter until repayment in full of the
Secured Notes. The Secured Notes also will be subject to events of default
that are substantially similar to those applicable to the Notes. A copy of the
form of the Note Purchase Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
THE 10 3/4% NOTES
The 10 3/4% Notes, of which $325.0 million aggregate principal amount are
outstanding, are non-callable prior to April 1, 1999. Thereafter, the 10 3/4%
Notes are callable at the option of AK Steel at an initial redemption price of
104.031% of their principal amount, declining annually thereafter to 100%
beginning April 1, 2002 together with accrued interest to the redemption date.
The 10 3/4% Notes include Change in Control repurchase provisions that are
identical to those applicable to the Notes and have the benefit of a guarantee
by Holding that is identical to the Holding Guarantee. The indenture relating
to the 10 3/4% Notes (a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part) contains
covenants substantially similar to those contained in the Indenture, including
limitations on, among other things, (i) liens, (ii) sale/leaseback
transactions, (iii) the incurrence of additional debt, (iv) the incurrence of
debt and the issuance of equity interests by AK Steel's subsidiaries, (v)
restrictions on distributions from AK Steel's subsidiaries, (vi) sales of
assets, including subsidiary stock, (vii) dividends and other restricted
payments, (viii) transactions with affiliates, (ix) lines of business, (x)
mergers and consolidations and (xi) activities and liabilities of Holding. The
10 3/4% Notes also are subject to events of default that are identical to
those applicable to the Notes.
67
<PAGE>
ACCOUNTS RECEIVABLE FACILITY
A wholly-owned special purpose subsidiary of AK Steel is party to a
Receivables Purchase and Servicing Agreement with a group of banks, providing
for an aggregate financing commitment of $125.0 million, inclusive of up to
$40.0 million of letters of credit. The banks' commitments will expire
December 1, 2000. This subsidiary purchases accounts receivable of AK Steel
and funds those purchases with cash collections on the purchased accounts
receivable and the proceeds realized from selling interests in those accounts
receivable to the participating banks. AK Steel acts as servicer of the
accounts receivable sold to its subsidiary, including processing of
collections. At December 31, 1996, the participating banks had no interests in
any outstanding accounts receivable of AK Steel and the subsidiary held a pool
of eligible accounts receivable that was sufficient to fully utilize the
available commitment. A copy of the Receivables Purchase and Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
68
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion summarizes certain of the material U.S.
federal income tax aspects of the acquisition, ownership and disposition of
the New Notes. This discussion is a summary for general information only and
does not consider all aspects of U.S. federal income tax that may be relevant
to the purchase, ownership, and disposition of the New Notes by a prospective
holder in light of that holder's personal circumstances. This discussion also
does not address the federal income tax consequences of ownership of New Notes
not held as capital assets within the meaning of Section 1221 of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), or the federal income
tax consequences to investors subject to special treatment under the federal
income tax laws, such as dealers in securities or foreign currency, tax-exempt
entities, banks, thrifts, insurance companies, persons that hold the New Notes
as part of a "straddle," a "hedge" against currency risk or a "conversion
transaction," persons that have a "functional currency" other than the U.S.
dollar, and investors in pass-through entities. In addition, this discussion
is generally limited to the tax consequences to initial holders. It does not
describe any tax consequences arising out of the tax laws of any state, local
or foreign jurisdiction.
This discussion is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing are subject to change, possibly on a retroactive basis and any such
change could affect the continuing validity of this discussion.
PROSPECTIVE HOLDERS OF NEW NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE APPLICATION OF FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF
ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION TO THEIR PARTICULAR
SITUATIONS.
U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Note that is (i) a citizen or resident
(as defined in Section 7701(b)(1) of the Code) of the United States,
(ii) a corporation organized under the laws of the United States or any
political subdivision thereof or therein, or (iii) an estate or trust, the
income of which is subject to U.S. federal income tax regardless of the source
(a "U.S. Holder"). Certain U.S. federal income tax consequences relevant to a
holder other than a U.S. Holder (a "Non-U.S. Holder") are discussed separately
below.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be a taxable exchange for federal income tax purposes. As a result,
there should be no federal income tax consequences to holders exchanging the
Old Notes for New Notes pursuant to the Exchange Offer. The Company is
obligated to pay additional interest to the holders of Notes under certain
circumstances described elsewhere in this Prospectus. Such payments should be
taxable to a U.S. Holder at the time it accrues or is received in accordance
with such holder's method of accounting.
STATED INTEREST
Interest on a New Note will be taxable to a U.S. Holder as ordinary interest
income at the time it accrues or is received in accordance with such holder's
method of accounting for tax purposes.
MARKET DISCOUNT
If a New Note is acquired at a "market discount," some or all of any gain
realized upon a sale or other disposition or payment at maturity, or some or
all of a partial principal payment, of such New Note may be treated as
ordinary income, as described below. For this purpose, "market discount" is
the excess (if any) of the stated redemption price at maturity over the
purchase price, subject to a statutory de minimis exception. Unless a U.S.
Holder has elected to include the market discount in income as it accrues, any
gain realized on any subsequent disposition of such New Note (other than in
connection with certain nonrecognition transactions) or payment at maturity,
or some or all of any partial principal payment with respect to such New Note,
will be treated as ordinary income to the extent of the market discount that
is treated as having accrued during the period such Note was held.
69
<PAGE>
The amount of the market discount treated as having accrued will be
determined either (i) on a ratable basis by multiplying the market discount
times a fraction, the numerator of which is the number of days the New Note
was held by the U.S. Holder and the denominator of which is the total number
of days after the date such U.S. Holder acquired the New Note up to and
including the date of its maturity, or (ii) if the U.S. Holder so elects, on a
constant interest rate method. A U.S. Holder may make that election with
respect to any Note but, once made, such election is irrevocable.
In lieu of recharacterizing gain upon disposition as ordinary income to the
extent of accrued market discount at the time of disposition, a U.S. Holder of
a New Note acquired at a market discount may elect to include market discount
in income currently, through the use of either the ratable inclusion method or
the elective constant interest method. Once made, the election to include
market discount in income currently applies to all Notes and other obligations
of the U.S. Holder that are purchased at a market discount during the taxable
year for which the election is made, and all subsequent taxable years of the
U.S. Holder, unless the Internal Revenue Service (the "Service") consents to a
revocation of the election. If an election is made to include market discount
in income currently, the basis of the New Note in the hands of the U.S. Holder
will be increased by the market discount thereon as it is included in income.
Unless a U.S. Holder who acquires a New Note at a market discount elects to
include market discount in income currently, such U.S. Holder may be required
to defer deductions for any interest paid on indebtedness allocable to such
New Notes in an amount not exceeding the deferred income until such income is
realized.
BOND PREMIUM
If a U.S. Holder purchases a New Note and immediately after the purchase the
adjusted basis of the New Note exceeds the sum of all amounts payable on the
instrument after the purchase date (other than qualified stated interest) the
New Note has "bond premium." A U.S. Holder may elect to amortize such bond
premium over the remaining term of such Note (or, in certain circumstances,
until an earlier call date).
If bond premium is amortized, the amount of interest that must be included
in the U.S. Holder's income for each period ending on an interest payment date
or at stated maturity, as the case may be, will be reduced by the portion of
premium allocable to such period based on the New Note's yield to maturity. If
such an election to amortize bond premium is not made, a U.S. Holder must
include the full amount of each interest payment in income in accordance with
its regular method of accounting and will receive a tax benefit from the
premium only in computing its gain or loss upon the sale or other disposition
or payment of the principal amount of the New Note.
An election to amortize premium will apply to amortizable bond premium on
all New Notes and other bonds, the interest on which is includible in the U.S.
Holder's gross income, held at the beginning of the U.S. Holder's first
taxable year to which the election applies or thereafter acquired, and may be
revoked only with the consent of the Service.
SALE, EXCHANGE OR REDEMPTION OF NEW NOTES
Upon the disposition of a New Note by sale, exchange or redemption, the U.S.
Holder will generally recognize gain or loss equal to the difference between
(i) the amount realized on the disposition (other than amounts attributable to
accrued interest) and (ii) the U.S. Holder's tax basis in the New Note. A U.S.
Holder's tax basis in a New Note generally will equal the cost of the New Note
(net of accrued interest) to the U.S. Holder increased by amounts includible
in income as market discount (if the holder elects to include market discount
on a current basis) and reduced by any amortized bond premium and any payments
other than payments of qualified stated interest made on such New Note.
Assuming the New Note is held as a capital asset, such gain or loss (except
to the extent that the market discount rules otherwise provide) will generally
constitute capital gain or loss and will be long-term capital gain or loss if
the U.S. Holder has held such New Note for longer than one year.
70
<PAGE>
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under the Code, a U.S. Holder of a New Note may be subject, under certain
circumstances, to information reporting and/or backup withholding at a 31%
rate with respect to cash payments in respect of interest or the gross
proceeds from dispositions thereof. This withholding applies only if the
holder (i) fails to furnish its social security or other taxpayer
identification number ("TIN") within a reasonable time after a request
therefor, (ii) furnishes an incorrect TIN, (iii) fails to report interest
properly, or (iv) fails, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN provided is its
correct number and that it is not subject to backup withholding. Any amount
withheld from a payment to a U.S. Holder under the backup withholding rules is
allowable as a credit and (and may entitle such holder to a refund) against
such holder's U.S. federal income tax liability, provided that the required
information is furnished to the Service. Certain persons are exempt from
backup withholding, including corporations and financial institutions. Holders
of New Notes should consult their tax advisors as to their qualification for
exemption from withholding and the procedure for obtaining such exemption.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a New Note that is not a (i) a citizen or
resident of the United States, (ii) a corporation organized under the laws of
the United States or any political subdivision thereof or therein, or (iii) an
estate or trust, the income of which is subject to U.S. federal income tax
regardless of the source (a "Non-U.S. Holder").
This discussion does not deal with all aspects of U.S. federal income and
estate taxation that may be relevant to the purchase, ownership or disposition
of the New Notes by any particular Non-U.S. Holder in light of that Holder's
personal circumstances, including holding the New Notes through a partnership.
For example, persons who are partners in foreign partnerships and
beneficiaries of foreign trusts or estates who are subject to U.S. federal
income tax because of their own status, such as United States residents or
foreign persons engaged in a trade or business in the United States, may be
subject to U.S. federal income tax even though the entity is not subject to
income tax on the disposition of its New Note.
For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of the New Note will be considered "U.S. trade
or business income" if such income or gain is (i) effectively connected with
the conduct of a U.S. trade or business or (ii) in the case of a treaty
resident, attributable to a U.S. permanent establishment (or to a fixed base)
in the United States.
STATED INTEREST
Generally, any interest paid to a Non-U.S. Holder of a New Note that is not
"U.S. trade or business income" will not be subject to United States tax if
the interest qualifies as "portfolio interest." Generally, interest on the New
Notes will qualify as portfolio interest if (i) the Non-U.S. Holder does not
actually or constructively own 10% or more of the total voting power of all
voting stock of the Company and is not a controlled foreign corporation with
respect to which the Company is a "related person" within the meaning of the
Code, and (ii) the beneficial owner, under penalty of perjury, certifies that
the beneficial owner is not a United States person and such certificate
provides the beneficial owner's name and address.
The gross amount of payments to a Non-U.S. Holder of interest that do not
qualify for the portfolio interest exception and that are not U.S. trade or
business income will be subject to U.S. federal income tax at the rate of 30%,
unless a U.S. income tax treaty applies to reduce or eliminate withholding.
U.S. trade or business income will be taxed at regular U.S. rates rather than
the 30% gross rate. To claim the benefit of a tax treaty or to claim exemption
from withholding because the income is U.S. trade or business income, the Non-
U.S. Holder must provide a properly executed Form 1001 or 4224, as applicable,
prior to the payment of interest. The Forms 1001 and 4224 must be periodically
updated.
71
<PAGE>
SALE, EXCHANGE OR REDEMPTION OF NEW NOTES
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a New Note generally will not be subject to U.S. federal income
tax, unless (i) such gain is U.S. trade or business income, (ii) subject to
certain exceptions, the Non-U.S. Holder is an individual who holds the New
Note as a capital asset and is present in the United States for 183 days or
more in the taxable year of the disposition, or (iii) the Non-U.S. Holder is
subject to tax pursuant to the provisions of U.S. tax law applicable to
certain U.S. expatriates.
FEDERAL ESTATE TAX
Notes held (or treated as held) by an individual who is a Non-U.S. Holder at
the time of his death will not be subject to U.S. federal estate tax provided
that the individual does not actually or constructively own 10% or more of the
total voting power of all voting stock of the Company and income on the New
Notes was not U.S. trade or business income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Service and to each Non-U.S. Holder
any interest that is subject to withholding or that is exempt from U.S.
withholding tax pursuant to a tax treaty or the portfolio interest exception.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.
In the case of payments of principal on the New Notes by the Company to a
Non-U.S. Holder, the regulations provide that backup withholding and
information reporting will not apply to payments if the Holder certifies to
its non-U.S. status under penalties of perjury or otherwise establishes an
exemption (provided that neither the Company nor its paying agent has actual
knowledge that the holder is a United States person or that the conditions of
any other exemption are not, in fact, satisfied).
The payment of the proceeds from the disposition of New Notes to or through
the United States office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless the owner
certifies its non-U.S. status under penalty of perjury or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge that the Holder is a U.S. person or that the conditions of any other
exemption are not, in fact, satisfied. The payment of the proceeds from the
disposition of a New Note or through a non-U.S. office of a non-U.S. broker
that is not a U.S. related person will not be subject to information reporting
or backup withholding. For this purpose, a "U.S. related person" is (i) a
"controlled foreign corporation" for U.S. federal income tax purposes, or (ii)
a foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of
a United States trade or business.
In the case of the payment of proceeds from the disposition of New Notes to
or through a non-U.S. office of a broker that is either a U.S. person or a
"U.S. related person," regulations require information reporting on the
payment, unless the broker has documentary evidence in its files that the
owner is a Non-U.S. Holder and the broker has no knowledge to the contrary.
Backup withholding will not apply to payments made through foreign offices of
a broker that is a U.S. person or a U.S. related person (absent actual
knowledge that the payee is a U.S. person).
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
72
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such New Notes. Any broker-
dealer that resells New Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of New Notes
and any commission or concessions received by any such persons may be deemed
to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The Company has agreed, pursuant to the Registration Rights Agreement, to
pay all expenses incident to the Exchange Offer (including the expenses of one
counsel for all the holders of the Notes as a single class) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the New Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Company prepare and file
a prospectus with the securities regulatory authorities in each province where
trades of New Notes are effected. Accordingly, any resale of the Notes in
Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to
be made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the New Notes.
REPRESENTATION OF PURCHASERS
Each purchaser of New Notes in Canada who receives a purchase confirmation
will be deemed to represent to the Company and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such New Notes without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions".
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a
73
<PAGE>
result, Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws. Following a recent decision of the U.S. Supreme Court, it is possible
that Ontario purchasers will not be able to rely upon the remedies set out in
Section 12(2) of the Securities Act if the securities are being offered under
a U.S. private placement memorandum.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such person
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of New Notes to whom the Securities Act (British Columbia)
applies is advised that such purchaser is requested to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Notes acquired by such purchaser pursuant to this offering. Such report must
be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of New Notes acquired on the same date
and under the same prospectus exemption.
LEGAL MATTERS
The validity of the New Notes and certain other legal matters will be passed
upon for the Company by Weil, Gotshal & Manges LLP, New York, New York.
INDEPENDENT AUDITORS
The consolidated financial statements of AK Steel Holding Corporation as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996, included in this Prospectus, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report appearing
herein.
74
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Statements of Income for the Years Ended December 31, 1994,
1995 and 1996............................................................ F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996.............. F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996...................................................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1994, 1995
and 1996................................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of AK Steel Holding Corporation:
We have audited the accompanying consolidated balance sheets of AK Steel
Holding Corporation and Subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 22, 1997
F-2
<PAGE>
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net Sales:
Customers....................................... $1,848.0 $2,205.0 $2,280.0
Affiliates (Note 7)............................. 168.6 52.3 21.8
-------- -------- --------
Total Net Sales............................... 2,016.6 2,257.3 2,301.8
Operating Costs:
Cost of products sold (Notes 1, 7 and 11)....... 1,655.2 1,768.1 1,846.5
Selling and administrative expenses............. 113.7 116.5 114.7
Depreciation (Note 1)........................... 70.7 74.6 76.1
Special charges and unusual items (Note 9)...... (15.9) -- --
-------- -------- --------
Total Operating Costs......................... 1,823.7 1,959.2 2,037.3
-------- -------- --------
Operating Profit.................................. 192.9 298.1 264.5
Interest Expense (Note 4)......................... 48.2 35.6 39.8
Other Income...................................... 7.3 19.0 12.3
-------- -------- --------
Income Before Income Taxes and Extraordinary
Item............................................. 152.0 281.5 237.0
Current income tax provision (Note 3)............. -- 6.2 3.8
Deferred income tax provision (benefit) (Note 3).. (120.5) 6.7 87.3
-------- -------- --------
Income Before Extraordinary Item.................. 272.5 268.6 145.9
Extraordinary Item (Note 10)...................... (14.9) -- --
-------- -------- --------
Net Income........................................ 257.6 268.6 145.9
Preferred Stock Dividends (Note 2)................ 4.0 15.3 11.1
-------- -------- --------
Net Income Applicable to Common Shareholders...... $ 253.6 $ 253.3 $ 134.8
======== ======== ========
Earnings per common and common equivalent share:
(Note 2)
Primary earnings per share:
Income before extraordinary item.............. $ 10.19 $ 9.56 $ 5.07
Extraordinary item............................ (.57) -- --
Net income.................................... 9.62 9.56 5.07
Fully diluted earnings per share:
Income before extraordinary item.............. 8.30 8.14 4.70
Extraordinary item............................ (.45) -- --
Net income.................................... 7.85 8.14 4.70
Cash dividends per common share................. -- .15 .65
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
AK STEEL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 1)....................... $ 137.0 $ 523.1
Short-term investments................................... 175.8 216.2
Accounts receivable--net (Notes 1 and 4)................. 217.0 260.3
Inventories--net (Note 1)................................ 340.7 360.9
Deferred taxes (Note 3).................................. 14.8 --
Other.................................................... 1.9 5.2
-------- --------
Total Current Assets................................... 887.2 1,365.7
-------- --------
Property, plant and equipment (Note 1):
Land, land improvements and leaseholds................... 44.5 46.2
Buildings................................................ 81.2 82.3
Machinery and equipment.................................. 1,258.4 1,350.6
Construction in progress................................. 67.5 112.2
-------- --------
Total.................................................. 1,451.6 1,591.3
Less accumulated depreciation............................ (478.0) (552.7)
-------- --------
Property, plant and equipment--net....................... 973.6 1,038.6
Prepaid pension (Note 6)................................... 138.8 153.3
Other (Notes 3 and 6)...................................... 115.9 93.2
-------- --------
Total Assets........................................... $2,115.5 $2,650.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................... $ 255.9 $ 239.8
Accrued salary and wages................................. 76.8 68.4
Other accruals (Note 2).................................. 64.6 52.3
Current portion of long-term debt (Note 4)............... -- --
Current portion of pension obligation (Note 6)........... 0.1 0.1
Current portion of postretirement benefit obligation
(Note 6)................................................ -- --
-------- --------
Total Current Liabilities.............................. 397.4 360.6
-------- --------
Noncurrent Liabilities:
Long-term debt (Note 4).................................. 325.0 875.0
Pension obligation (Note 6).............................. -- --
Postretirement benefit obligation (Note 6)............... 655.7 564.9
Deferred taxes (Note 3).................................. -- 13.4
Other liabilities........................................ 63.2 59.9
Commitments and contingencies (Notes 4, 8 and 11)........ -- --
-------- --------
Total Noncurrent Liabilities........................... 1,043.9 1,513.2
-------- --------
Total Liabilities...................................... 1,441.3 1,873.8
-------- --------
Stockholders' Equity:
Preferred stock--Authorized 25,000,000 shares of $.01 par
value each; issued--7,479,674 shares; outstanding--1995,
5,915,974 shares; 1996, 4,845,774 shares (Note 2)....... 0.1 0.1
Common stock--Authorized 75,000,000 shares of $.01 par
value each; issued--1995, 26,476,297 shares; 1996,
27,258,834 shares; outstanding--1995, 25,838,862 shares;
1996, 26,619,950 shares (Note 2)........................ 0.3 0.3
Additional paid-in capital............................... 715.0 708.9
Treasury stock--common shares at cost--1995, 637,435
shares, 1996, 638,884 shares (Note 2)................... (21.5) (21.5)
Retained earnings........................................ (19.7) 89.2
-------- --------
Total Stockholders' Equity................................. 674.2 777.0
-------- --------
Total Liabilities and Stockholders' Equity................. $2,115.5 $2,650.8
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $257.6 $268.6 $145.9
------ ------ ------
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation....................................... 70.7 74.6 76.1
Loss on retirement of debt......................... 14.9 -- --
Special charges and unusual items.................. (15.9) -- --
Deferred income taxes.............................. (120.5) 6.7 87.3
Other--net......................................... 20.3 2.3 3.5
Changes in Assets and Liabilities:
Accounts and notes receivable.................... (99.1) 32.4 (42.4)
Inventories...................................... (67.9) (17.6) (20.2)
Current liabilities.............................. 59.2 67.5 (36.2)
Other assets..................................... (13.5) (30.5) (19.1)
Pension obligation............................... (272.4) (75.6) (14.4)
Postretirement benefit obligation................ 16.4 (19.8) (90.8)
Other liabilities................................ (3.7) (8.5) (3.4)
------ ------ ------
Total Adjustments.............................. (411.5) 31.5 (59.6)
------ ------ ------
Net cash flows from operating activities......... (153.9) 300.1 86.3
------ ------ ------
Cash flows from investing activities:
Capital investments.................................. (87.5) (175.7) (141.6)
Net purchase of short-term investments............... -- (175.8) (40.4)
Proceeds from sale of property, plant and equipment.. 4.3 5.8 0.3
Proceeds from sale of Eveleth notes.................. 7.7 7.7 --
Advances to investees................................ (17.1) (5.5) (5.4)
Proceeds--asset sales................................ 46.1 10.5 2.0
Other................................................ (0.3) (1.2) --
------ ------ ------
Net cash flows from investing activities......... (46.8) (334.2) (185.1)
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of common stock............... 430.9 8.1 16.6
Proceeds from issuance of preferred stock............ 223.1 -- --
Principal payments on long-term debt................. (629.4) (5.0) --
Proceeds from issuance of long-term debt............. 325.0 -- 550.0
Purchase of treasury stock........................... -- (21.5) --
Purchase of preferred stock.......................... -- (52.3) (39.2)
Preferred stock dividends paid....................... -- (16.1) (11.7)
Common stock dividends paid.......................... -- (3.9) (17.0)
Debt prepayment fees................................. (14.9) -- --
Underwriting discount and stock issuance expense..... (13.3) -- (13.8)
Other--net........................................... (3.1) -- --
------ ------ ------
Net cash flows from financing activities......... 318.3 (90.7) 484.9
------ ------ ------
Net increase (decrease) in cash and cash equivalents... 117.6 (124.8) 386.1
Cash and cash equivalents, beginning of period....... 144.2 261.8 137.0
------ ------ ------
Cash and cash equivalents, end of period............. $261.8 $137.0 $523.1
====== ====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized)............... $ 42.4 $ 33.7 $ 36.3
Income taxes....................................... 0.1 4.2 5.8
Supplemental schedule of noncash investing and fi-
nancing activities:
Seller financed capital investments................ 5.0 -- --
Value of shares of common stock issued in exchange
for debt, services rendered and Partnership inter-
ests during the Recapitalization (Note 1)......... 102.0 -- --
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN- TREASURY RETAINED
STOCK STOCK CAPITAL STOCK EARNINGS TOTAL
--------- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993, Partners'
Deficit............... $(586.2) $(586.2)
Minimum accumulated
benefit obligation--
net of tax
(Notes 3 and 6)....... 28.5 28.5
Net Income............. 257.6 257.6
Preferred stock issued,
7,479,674 shares at
$.01 par value each... $0.1 $222.2 222.3
Common stock issued,
26,061,399 shares at
$.01 par value each... $0.3 534.1 534.4
Cash dividend--
Preferred stock $.538
cash dividend in
fourth quarter....... (4.0) (4.0)
Unamortized restricted
stock (Note 2)........ (3.6) (3.6)
---- ---- ------ ------ ------- -------
Balance, December 31,
1994.................. 0.1 0.3 752.7 (304.1) 449.0
Minimum accumulated
benefit obligation--
net of tax
(Notes 3 and 6)....... 39.3 39.3
Net income............. 268.6 268.6
Stock options
exercised............. 8.1 8.1
Tax benefit from
exercise of stock
options (Note 3)...... 1.1 1.1
Purchase of stock...... (48.0) $(21.5) (4.3) (73.8)
Cash dividend:
Preferred stock $.538
cash dividend per
quarter.............. (15.3) (15.3)
Common stock $.15 cash
dividend in fourth
quarter.............. (3.9) (3.9)
Issuance of restricted
stock--net............ 2.1 2.1
Unamortized restricted
stock (Note 2)........ (1.0) (1.0)
---- ---- ------ ------ ------- -------
Balance, December 31,
1995.................. 0.1 0.3 715.0 (21.5) (19.7) 674.2
Net income............. 145.9 145.9
Stock options
exercised............. 16.6 16.6
Tax benefit from
exercise of stock
options (Note 3)...... 4.1 4.1
Tax benefit from
vesting of restricted
stock................. 0.3 0.3
Purchase of stock...... (30.3) (8.9) (39.2)
Cash dividend:
Preferred stock $.538
cash dividend per
quarter.............. (11.1) (11.1)
Common stock $.15 cash
dividend per quarter,
$.20 in fourth
quarter.............. (17.0) (17.0)
Issuance of restricted
stock--net............ 4.3 4.3
Unamortized restricted
stock (Note 2)........ (1.1) (1.1)
---- ---- ------ ------ ------- -------
Balance, December 31,
1996.................. $0.1 $0.3 $708.9 $(21.5) $ 89.2 $ 777.0
==== ==== ====== ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--AK Steel Holding Corporation ("AK Holding") and its
wholly-owned subsidiary AK Steel Corporation ("AK Steel," collectively the
"Company") were formed effective March 29, 1994 as a result of the
recapitalization of Armco Steel Company, L.P. ("the Partnership"). The
recapitalization occurred on April 7, 1994, effective as of March 29, 1994, in
a series of transactions (collectively, the "Recapitalization"), pursuant to
which (i) Armco Inc. ("Armco") and a subsidiary of Kawasaki Steel Corporation
("Kawasaki"), the limited partners of the Partnership and the owners of all of
the outstanding shares of AK Steel (the general partner of the Partnership),
transferred to AK Holding solely in exchange for Common Stock of AK Holding
(the "Common Stock"), all of the shares of AK Steel and their limited
partnership interests in the Partnership, (ii) AK Holding transferred to AK
Steel the limited partnership interests in the partnership that it acquired
from Armco and the Kawasaki subsidiary and, thereupon, AK Steel as owner of
the entire equity interest in the Partnership, succeeded by operation of law
to the assets and business of the Partnership, (iii) AK Holding consummated a
public offering of $458.4 of its Common Stock and AK Steel consummated a
public offering of $325.0 principal amount of its 10 3/4% Senior Notes Due
2004 (the "Senior Notes"), (iv) proceeds from the public offerings of the
Common Stock and Senior Notes were applied to repay $619.5 of indebtedness of
the Company, to fund a $100.0 contribution to the Company's pension trust with
the remaining $63.9 used for expenses, fees, and general corporate purposes,
and (v) AK Holding issued to an affiliate of Kawasaki additional shares of
Common Stock in exchange for a $100.0 subordinated note of the Company
previously held by that affiliate.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management estimates.
Actual results could differ from those estimates.
The results of operations and financial position of AK Steel approximates
the results of operations and financial position of AK Holding.
For comparison purposes certain 1994 and 1995 items have been reclassified
to conform with 1996 classifications.
The Company consists of the operations and accounts of the Middletown Works,
Ashland Works, Headquarters, AKSR Investments Inc. ("AKR") and AKS
Investments, Inc. and its group of wholly-owned subsidiaries, (the "AKSII
Group"). Effective December 31, 1996, AKR, formerly a Delaware Corporation,
was reorganized as an Ohio limited liability company. The Company is an
integrated steel producer of carbon flat rolled steel for the automotive,
appliance, manufacturing and other markets. The Company has one major customer
that accounted for 22%, 20% and 17% of its net sales in 1994, 1995 and 1996,
respectively.
Employees--As of December 31, 1996, the Company had approximately 5,800
active employees, of whom approximately 57% were represented by the Armco
Employees Independent Federation, Inc. (the "AEIF"), 19% by the United
Steelworkers of America (the "USWA") and 6% by the Oil, Chemical and Atomic
Workers Union (the "OCAW"). The AEIF represents all hourly employees and
certain nonexempt salaried employees at the Middletown Works. The USWA
represents hourly steelmaking employees and certain nonexempt salaried
employees at the Ashland Works. The OCAW represents hourly employees at the
Ashland Works coke manufacturing facility. In 1994, the USWA sought to become
the collective bargaining representative of the hourly employees at the
Middletown Works, but a majority of those employees voted to retain the AEIF
as their representative. No assurance can be given that the USWA will not seek
to represent the Middletown Works' employees at some future date.
The Company's agreement with the AEIF is effective through February 29,
2000. The agreement with OCAW expires October 1, 1997. The expiration date of
its agreement with the USWA is presently the subject of
F-7
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
dispute, with the Company asserting that the agreement is effective until
March 30, 2000 and the USWA asserting that the agreement will expire March 28,
1997. No prediction can be made as to whether or when this dispute will be
resolved or as to the possible consequences thereof.
Cash Equivalents--Cash equivalents include short-term, highly liquid
investments that are readily convertible to known amounts of cash and are of
an original maturity of three months or less.
Fair Value of Financial Instruments--The carrying value of the Company's
financial instruments does not differ materially from their estimated fair
value (quoted market prices) in 1995 and 1996 with the exception of the 10
3/4% Senior Notes, whose fair value approximates $363.2 and $354.2 at December
31, 1995 and 1996, respectively.
Accounts receivable--The allowance for doubtful accounts was $2.5 and $1.5
at December 31, 1995 and 1996, respectively.
Inventories--Inventories are valued at the lower of cost or market. The cost
of the majority of inventories is measured on the last in, first out ("LIFO")
method. Other inventories are measured principally at average cost.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Inventories on LIFO:
Finished and semifinished....................... $192.3 $220.4
Raw materials and supplies...................... 156.4 160.4
Adjustment to state inventories at LIFO value... (15.7) (27.3)
------ ------
Total......................................... 333.0 353.5
Other inventories................................. 7.7 7.4
------ ------
Total inventories............................. $340.7 $360.9
====== ======
</TABLE>
There was no liquidation of LIFO inventory layers in 1994, 1995 or 1996.
Investments--The Company has investments in associated companies (joint
ventures and an entity that the Company does not control). These investments
are accounted for under the equity method. Because these companies are
directly integrated in the basic steelmaking facilities, the Company includes
its proportionate share of the income (loss) of these associated companies in
cost of products sold.
Through November, Virginia Horn Taconite Company ("Virginia Horn"), a member
of the AKSII Group, owned a 56% equity interest in Eveleth Expansion Company
("Eveleth"), a partnership that produces iron ore pellets, which equates to a
35% interest in Eveleth Mines. The Company records its proportionate share of
the gains/(losses) of Eveleth in the Company's cost of goods sold which were
($10.2), ($0.2) and $5.4 in 1994, 1995 and 1996, respectively. In addition,
the Company had fully impaired its investment in Eveleth to recognize the
Company's estimate of the net realizable value of the fixed assets of Eveleth.
In December 1996, under a restructuring of Eveleth Mines, Virginia Horn
increased its ownership interest in Eveleth Mines LLC ("Evtac"), a newly
formed Minnesota limited liability company, to 40%. In connection with such
investment, Virginia Horn has certain commitments to Evtac. Because, under
Eveleth's member control agreement, Virginia Horn does not control Evtac, the
investment is accounted for under the equity method.
Property, Plant and Equipment--Plant and equipment are depreciated under the
straight line method over their estimated lives ranging from 3 to 31 years.
Maintenance and repair expenses for 1994, 1995 and 1996 were $325.6, $322.9
and $334.8 respectively.
F-8
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
2. STOCKHOLDERS' EQUITY
Preferred Stock--In October 1994, the Company completed the public offering
of 7,479,674 shares of its Convertible Preferred Stock, Shared Appreciation
Income Linked Securities (the "SAILS") which constitute a series of the
Company's Preferred Stock and rank prior to the Common Stock as to payment of
dividends and distribution of assets upon liquidation.
The SAILS earn dividends at a rate of 7% per annum of the stated value of
$30.75 per share. The dividends are cumulative from the date of original
issuance on October 15, 1994, and are payable quarterly in arrears.
The shares of SAILS are convertible into shares of Common Stock at the
option of the holder at any time prior to the mandatory conversion date of
October 15, 1998, and, unless previously redeemed, are convertible into .8621
of a share of Common Stock, equivalent to a conversion price of $35.67 per
share of Common Stock, subject to adjustment upon certain events.
On the mandatory conversion date, unless previously redeemed or converted,
each of the shares of SAILS will convert into one share of Common Stock and,
at the option of the Company, the right to receive cash or Common Stock (based
on current market price) equal to all accrued and unpaid dividends.
At any time on or after October 16, 1997 until immediately prior to the
mandatory conversion date, the Company may redeem any or all of the
outstanding SAILS.
The holders of the SAILS will not have voting rights except as required by
law and except as follows: (i) in the event that dividends on the SAILS or any
other series of Preferred Stock with like voting rights are in arrears and
unpaid for six quarterly dividend periods, and in certain other circumstances,
the holders of SAILS (voting separately as a class with holders of all other
series of outstanding Preferred Stock with like voting rights) will be
entitled to vote, on the basis of one vote for each of the SAILS, for the
election of two directors of the Company, such directors to be in addition to
the number of directors constituting the Board of Directors immediately prior
to the accrual of such right, and (ii) the holders of the SAILS will have
voting rights with respect to certain alterations of the Company's Certificate
of Incorporation and certain other matters, voting on the same basis or
separately as a series.
Common Stock--In April 1994, the Company consummated a public offering of
its $.01 par value Common Stock. The holders of Common Stock will be entitled
to receive dividends when and as dividends are declared by the Board of
Directors out of funds legally available. The holders of Common Stock are
entitled to one vote per share and are not entitled to preemptive or
subscription rights.
Dividends--The Company has paid quarterly dividends on its Common Stock
since November 15, 1995. Dividends at the rate of $0.15 per share were paid on
February 15, May 15, and August 15, 1996 and a dividend of $0.20 per share was
paid on November 15, 1996. The Company has paid and intends to continue to pay
dividends on the SAILS in accordance with the terms thereof. The declaration
and payment of cash dividends is subject to restrictions imposed by the
instruments governing its senior debt. At December 31, 1996, the Company had
adequate amounts available for the payment of cash dividends.
Stock Repurchase Plans--On October 9, 1995, the Board of Directors approved
a plan to repurchase from time to time up to $100.0 of its outstanding equity
securities. As of December 31, 1995, the Company had repurchased 637,435
shares of Common Stock for $21.5, an average of $33.62 per share to be held as
treasury stock at cost. In addition, the Company purchased and retired
1,563,700 shares of the SAILS for $52.3 at an average of $33.43 per share in
1995 and 707,600 shares of the SAILS for $26.3 at an average of $37.16 per
share in 1996, which completed the program.
F-9
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
On May 15, 1996, the Board of Directors approved a plan to repurchase from
time to time up to $100.0 of its outstanding equity securities. As of December
31, 1996, the Company had repurchased and retired 362,600 shares of the SAILS
for $12.8, an average of $35.36 per share under that plan.
Shareholder Rights Plan--On January 23, 1996, the Board of Directors adopted
a Shareholder Rights Plan pursuant to which the Board declared a dividend of
one Preferred Share Purchase Right (collectively, the "Rights") for each share
of Common Stock outstanding at the close of business on February 5, 1996. The
Rights are generally not exercisable until 10 days after any person or group
of affiliated or associated persons acquires beneficial ownership of 20% or
more of the Company's voting stock or announces a tender offer that could
result in the acquisition of 30% or more of such voting stock. Each Right,
should it become exercisable, will entitle the holder to buy 1/100th of a
share of a new series of the Company's Preferred Stock, designated as Series A
Junior Preferred Stock (the "Preferred Stock"), at an exercise price of $130.
Unless the Rights are sooner redeemed, if any person or group of affiliated
or associated persons, with certain exceptions, becomes the beneficial owner
of 20% or more of the Company's voting stock (other than pursuant to a tender
offer or exchange offer for all outstanding shares of the Company's Common
Stock that is approved by the Board of Directors with the approval of the
Continuing Directors (as defined in the Rights Plan) after taking into account
the long term value of the Company and all other factors they consider
relevant), each Right not owned by the acquirer would become exercisable for a
fraction of a share of the Company's Preferred Stock having a market value
equal to two times the exercise price of the Right.
In addition, unless the Rights are sooner redeemed or the transaction is
approved by the Board of Directors and the Continuing Directors, if the
Company were to be acquired in a merger or other business combination (in
which any share of the Company's Common Stock are changed into or exchanged
for other securities or assets), or if more than 50% of the Company's assets
or earning power were to be sold in one or a series of related transactions,
the holders of the Rights would be entitled, after the Rights become
exercisable, to buy, for each Right, such number of shares of Common Stock of
the acquiring company as have a market value equal to two times the exercise
price of the Right.
The Rights are redeemable, in whole but not in part, at the option of the
Board of Directors with the approval of a majority of the Continuing
Directors, at any time prior to the earlier of (i) the close of business on
the tenth day after a public announcement of an acquisition of beneficial
ownership of 20% or more of the Company's voting stock by any person or group
of affiliated or associated persons (or at such later date as may be
authorized by the Board of Directors and a majority of the Continuing
Directors) or (ii) at any time prior to January 23, 2006, their final
expiration date.
Common Stock Options--On January 13, 1994, the stockholders of the Company
approved the AK Steel Holding Corporation 1994 Stock Incentive Plan (the
"SIP"). The SIP, which is administered by the Compensation Committee of the
Board of Directors, permits the granting of Nonqualified Stock Options and
Restricted Stock to directors and to executive and key management employees of
the Company. This plan was amended by the Board of Directors on January 18,
1996 with approval by the stockholders on May 15, 1996. Under the original
SIP, 2,300,000 shares were reserved for issuance of which 1,916,667 shares
were reserved for stock options and 383,333 were reserved for restricted stock
awards. Under this plan as amended, the maximum number of shares reserved was
increased to 3,900,000 and the imposition of separate maximum limitations on
the number of shares available for grant of stock options and restricted stock
was eliminated. The exercise price of each option equals the market price of
the Company's Common Stock on the date of the grant. Both the restricted stock
awards and the stock options have a maximum term of 10 years and may not be
exercised earlier than six months following the date of grant (or such other
term as may be specified in the award agreement). Generally, twenty-five
percent of the shares of restricted stock awarded shall vest two years after
the grant date
F-10
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
and an additional twenty-five percent shall vest on the third, fourth and
fifth anniversaries of the grant date. The nonqualified stock options vest
thirty three percent per year over three years.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations in accounting for
this plan. The compensation cost that has been charged against income for the
restricted stock awards issued under the plan was $0.9 for 1995 and $3.2 for
1996. The Company has adopted the pro forma disclosure requirements of
Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", in the fourth quarter of 1996. Had compensation
cost for the Company's SIP been determined based on the fair value at the
grant dates for awards under the plan consistent with the method of SFAS No.
123, the Company's net income and earnings per share for 1995 and 1996 would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C> <C>
Net income (millions)............................. As reported $268.6 $145.9
Pro forma $268.2 $144.1
Primary earnings per share........................ As reported $ 9.56 $ 5.07
Pro forma $ 9.54 $ 5.01
Fully diluted earnings per share.................. As reported $ 8.14 $ 4.70
Pro forma $ 8.14 $ 4.64
</TABLE>
The fair value of the options is estimated on the grant date using a Black-
Scholes option pricing model considering the $.80 per share annual dividend
beginning the fourth quarter of 1996 and the prior annual dividend of $.60 per
share along with the following weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Expected volatility...................................... 22.3% 20.5%
Risk free interest rates................................. 6.03% 6.40%
Expected lives........................................... 5.0 yrs. 5.0 yrs.
</TABLE>
A summary of the status of the Company's option plans as of December 31,
1995 and 1996 and changes during the year is presented below:
<TABLE>
<CAPTION>
1995 1996
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
STOCK OPTIONS SHARES PRICE SHARES PRICE
------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 1,380,000 $23.88 1,438,992 $25.16
Granted.......................... 427,000 $27.98 359,000 $39.72
Exercised........................ 346,675 $23.51 692,665 $23.91
Forfeited........................ 21,333 $25.07 -- --
Outstanding at end of year....... 1,438,992 $25.16 1,105,327 $30.68
Options exercisable at year end.. 546,668 $23.84 398,006 $27.93
Weighted average fair value of
options granted during the
year............................ 427,000 $ 7.06 359,000 $10.74
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
GRANT DATE GRANT DATE
RESTRICTED STOCK SHARES FAIR VALUE SHARES FAIR VALUE
---------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Granted during year.............. 99,223 $28.04 161,622 $39.89
</TABLE>
F-11
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table summarizes information about stock options outstanding
at December 31, 1996.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ---------------------
WEIGHTED
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
RANGE OF AT REMAINING AVERAGE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1996 LIFE PRICE 1996 PRICE
-------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$23.50 to $33.49......................... 746,327 7.87 years $26.32 351,006 $26.30
$33.50 to $43.49......................... 359,000 9.38 years $39.72 47,000 $40.10
--------- -------
Total.................................. 1,105,327 398,006
========= =======
</TABLE>
Earnings Per Common Share--The computation of earnings per common share and
common equivalent shares is based upon the weighted average number of common
shares outstanding plus (in periods in which they have a dilutive effect)
common share equivalents from stock options using the treasury stock method.
Net income was reduced for preferred dividends. The fully diluted per share
computation assumes conversion of the SAILS into Common Stock using the if-
converted method and that the stock is outstanding the full year. The weighted
average number of common shares and common equivalent shares used to compute
earnings per share is:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average:
For earnings per common and common equiva-
lent share:
Common shares outstanding................. 26,064,733 26,232,806 26,354,278
Common equivalent shares.................. 276,834 346,305 238,480
Treasury stock............................ -- (63,908) --
---------- ---------- ----------
For primary earnings per share............ 26,341,567 26,515,203 26,592,758
For earnings per share assuming full dilu-
tion..................................... 32,826,287 32,987,506 31,077,452
</TABLE>
3. INCOME TAXES
The Company and its subsidiaries file a consolidated federal tax return.
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryovers.............................. $ 51.3 $ 45.0
Postretirement reserves.................................... 252.5 210.5
Other reserves............................................. 60.5 46.7
Valuation reserve.......................................... (15.4) (13.2)
------- -------
Total deferred assets.................................... 348.9 289.0
------- -------
Deferred tax liabilities:
Depreciable assets......................................... (177.1) (208.3)
Inventories................................................ (45.2) (33.1)
Pension assets............................................. (57.2) (63.3)
------- -------
Total deferred liabilities............................... (279.5) (304.7)
------- -------
Net asset (liability).................................... $ 69.4 $ (15.7)
======= =======
</TABLE>
F-12
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Temporary differences represent the cumulative taxable or deductible amounts
recorded in the consolidated financial statements in different years than
recognized in the tax returns. The postretirement benefit difference includes
amounts expensed in the consolidated financial statements for health care,
life insurance and other postretirement benefits which become deductible in
the tax return upon payment or funding in qualified trusts. Other temporary
differences represent principally various expenses accrued for financial
reporting purposes which are not deductible for tax reporting purposes until
paid. The depreciable assets temporary difference represents generally tax
depreciation in excess of financial statement depreciation. The inventory
difference relates primarily to differences in the LIFO reserve, reduced by
tax overhead capitalized in excess of book amounts. At December 31, 1995, the
Company had a regular tax net operating loss ("NOL") carryforward of $96.4 and
an alternative minimum tax ("AMT") loss carryforward of $28.2 generated in
1994. At December 31, 1996, the regular tax NOL carryover remaining was $77.2
and the AMT carryover was zero. This loss will expire in 2009 if not used by
then.
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ----- -----
<S> <C> <C> <C>
Current:
Federal.............................................. -- $ 5.9 $ 3.8
State................................................ -- 0.3 --
Deferred:
Federal.............................................. $(105.5) 4.8 77.9
State................................................ (15.0) 1.9 9.4
------- ----- -----
Total tax provision/(benefit)...................... $(120.5) $12.9 $91.1
======= ===== =====
</TABLE>
The 1995 and 1996 tax provisions include $1.1 and $4.4 of expense that
results from allocating the income tax benefit associated with stock option
exercises and restricted stock vesting directly to additional paid-in-
capital.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -----
<S> <C> <C> <C>
Income at statutory rate.......................... $ 48.0 $ 98.5 $83.0
State tax provision............................... -- 17.4 9.4
Reduction in deferred tax asset valuation
reserve.......................................... (168.9) (106.1) (2.2)
Income earned by the Partnership prior to
Recapitalization................................. (3.6) -- --
Losses limited by Internal Revenue Code Section
382 and other permanent differences.............. 4.0 3.1 0.9
------- ------- -----
Tax provision/(benefit)......................... $(120.5) $ 12.9 $91.1
======= ======= =====
</TABLE>
4. LONG-TERM DEBT AND OTHER FINANCING
On December 17, 1996, the Company completed arrangements for $800.0 of debt
financing for the construction of its Rockport Works. The Company issued
$550.0 of 9 1/8% Senior Notes Due 2006 and entered into definitive agreements
for the private sale beginning in June of 1997 of an aggregate of $250.0 of
Senior Secured Notes Due 2004 (the "Secured Notes"), which will be
collateralized by the hot dip galvanizing and galvannealing line and the
continuous cold mill at the Rockport Works. Pending completion of these
facilities (presently anticipated for December 1998 and March 1999,
respectively), the Company is prohibited from granting liens on its
inventories.
F-13
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
On December 1, 1994, the Company entered into a Receivables Purchase
Agreement with AKR. On the same date, AKR entered into a Receivables Purchase
and Servicing Agreement (the "Purchase Agreement") with a group of six banks.
Under the Purchase Agreement, the total commitment of the banks is $125.0,
including up to $40.0 in letters of credit. The Company sold substantially all
of its accounts receivable to AKR and will sell additional receivables to AKR
as they are generated. AKR will fund its purchase of receivables from cash
collections on the purchased receivables and proceeds from selling interests
in the receivables to the participating banks. The banks' commitments expire
on December 1, 2000. The Company acts as servicer of the receivables sold and
will make billings and collections in the ordinary course of business.
As of December 31, 1996, no funded interest was sold to the participating
banks, although $5.6 in letters of credit had been issued. At December 31,
1996, AKR had a sufficient pool of eligible receivables that could be sold to
utilize the available capacity of the participating banks' commitments.
At December 31, 1995 and 1996, the Company's long-term debt, less current
maturities, was as follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Senior Notes Due 2004.......................................... $325.0 $325.0
Senior Notes Due 2006.......................................... -- 550.0
------ ------
Total........................................................ $325.0 $875.0
====== ======
At December 31, 1996, the maturities of long-term debt are as follows:
1997.................................................................. --
1998.................................................................. --
1999.................................................................. --
2000.................................................................. --
2001.................................................................. --
2002 and thereafter................................................... $875.0
------
Total............................................................... $875.0
======
The Company has no involvement with derivative financial instruments.
The Company capitalized interest on projects under construction of $2.7,
$4.7 and $1.7 during 1994, 1995 and 1996, respectively.
5. OPERATING LEASES
Rental expense was $10.3, $14.1 and $12.6 for 1994, 1995 and 1996,
respectively.
At December 31, 1996, obligations to make future minimum lease payments were
as follows:
1997.................................................................. $ 0.9
1998.................................................................. 0.7
1999.................................................................. 0.2
2000.................................................................. --
2001.................................................................. --
------
Total lease obligations............................................. $ 1.8
======
</TABLE>
F-14
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
6. EMPLOYEE AND RETIREE BENEFIT PLANS
Pension Plans--The Company provides noncontributory pension benefits to all
employees. Benefits are based on the highest of several calculations including
years of service and earnings in the highest 60 consecutive months in the last
120 months prior to retirement, a minimum amount per year of service, or a
combination of both. The qualified plans are funded in accordance with the
minimum funding requirements of the Employee Retirement Income Security Act of
1974, as amended, with additional amounts contributed at the Company's
discretion. The Company's pension contributions for 1995 and 1996 were $93.0
and $25.0, respectively.
The details of the net periodic pension expense for 1994, 1995 and 1996 are
as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- ------
<S> <C> <C> <C>
Economic assumptions:
Discount rate................................... 7.50% 8.75% 7.25%
Expected long-term rate of return on assets..... 8.50% 9.50% 9.00%
Rate of future compensation increases........... 4.00% 4.00% 4.00%
Pension cost:
Cost of benefits earned during the period....... $ 14.9 $ 12.9 $ 16.2
Interest cost on the projected benefit
obligation..................................... 86.6 88.3 90.1
Actual return on plan assets.................... 11.0 (263.6) (85.0)
Net amortization and deferral................... (70.1) 181.5 (8.2)
------ ------- ------
Net periodic pension expense.................. $ 42.4 $ 19.1 $ 13.1
====== ======= ======
</TABLE>
The assumptions used to determine the plans' funded status are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Economic assumptions:
Discount rate.................................................. 7.25% 8.00%
Rate of future compensation increases.......................... 4.00% 4.00%
</TABLE>
The funded status of the plans reconciled with amounts recognized in the
Company's Consolidated Balance Sheets at December 31, 1995 and 1996 are as
follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits....................................... $1,145.6 $1,115.2
Nonvested benefits.................................... 45.2 44.7
-------- --------
Accumulated benefit obligation........................ $1,190.8 $1,159.9
======== ========
Projected benefit obligation.......................... $1,247.2 $1,210.9
Plan assets at fair value............................. 1,215.6 1,255.7
-------- --------
Reconciliation of funded status to recorded amounts:
Unfunded (overfunded) projected benefit obligation.... 31.6 (44.8)
Unrecognized prior service............................ (68.1) (61.5)
Unrecognized net loss................................. (101.4) (46.9)
Unrecognized net obligation........................... (.9) --
-------- --------
Prepaid pension cost.................................. $ (138.8) $ (153.2)
======== ========
</TABLE>
The mix of pension assets held in the pension trust are as follows:
<TABLE>
<S> <C>
Equities................................................................. 56%
Fixed income securities.................................................. 42%
Cash and cash equivalents................................................ 2%
</TABLE>
F-15
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Retiree Health Care and Life Insurance Benefits--In addition to providing
pension benefits, the Company provides certain health and life insurance
benefits for retirees. Most employees become eligible for these benefits at
retirement. For 1994, 1995 and 1996, claims paid for retiree health and life
insurance benefits amounted to $34.8, $36.2 and $37.4, respectively.
The Company records health care costs per SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which requires
accrual of retiree medical and life insurance benefits as these benefits are
earned rather than recognition of these costs as claims are paid. In 1994,
1995 and 1996 the excess of total postretirement benefit expense recorded
under SFAS No. 106 over the Company's former method of accounting for these
benefits was $16.2, $21.2 and $2.1, respectively.
Effective June 30, 1995, the Company established a Welfare Benefit Master
Plan and Trust (the "Trust") for the purpose of paying medical and life
insurance benefits to employees of the Company, retired former employees and
their eligible dependents. Effective January 1, 1996, the Company began paying
benefits from the Trust; however, the Company has continued to reimburse the
Trust for these payments. The Company may continue to reimburse the Trust for
these payments at its discretion, although no funding obligation exists.
The Company has announced changes in the retiree medical coverage for the
non-represented salary group effective December 31, 1996. The Company's
portion of the health insurance premium for post 1983 salaried retirees will
be capped at 1996 levels. This change will apply to all current and future
retirees. In addition, for post 1996 retirees in this group only, the Company
provided health benefit will be reduced by six percent for each year of
retirement prior to age 62. These changes reduced the accumulated
postretirement benefit obligation for the Company at January 1, 1996 by
approximately $45.0 and the related annual expense for 1996 by approximately
$7.0.
The following sets forth the plans' funded status, reconciled with amounts
recognized in the Company's Consolidated Balance Sheets at December 31, 1995
and 1996.
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................... $414.1 $450.6
Fully eligible active plan participants................ 75.9 75.8
Other active plan participants......................... 117.0 103.4
------ ------
Total accumulated postretirement benefit obligation.. 607.0 629.8
Fair value of plan assets................................ 45.5 136.9
------ ------
Accumulated postretirement benefit obligation in excess
of plan assets.......................................... 561.5 492.9
Prior service credit not yet recognized in net periodic
postretirement benefit cost............................. 32.8 28.9
Unrecognized net gain.................................... 61.4 43.1
------ ------
Accrued postretirement benefit cost...................... $655.7 $564.9
====== ======
<CAPTION>
1994 1995 1996
----- ------ ------
<S> <C> <C> <C>
The components of postretirement benefit costs are as
follows:
Service cost--benefits attributed to service during the
period................................................ $ 6.1 $ 5.6 $ 5.1
Interest cost on accumulated postretirement benefit ob-
ligation.............................................. 44.9 52.6 44.8
Actual return on plan assets........................... -- (4.5) (4.7)
Net of other components................................ -- 3.7 (5.7)
----- ------ ------
Net periodic postretirement benefit cost............... $51.0 $ 57.4 $ 39.5
===== ====== ======
</TABLE>
F-16
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
For measurement purposes, health care costs are assumed to increase 7.50% in
1997 grading down by 1.00% yearly to a constant level of 5.00% annual increase
for pre-65 benefits and 5.00% in 1997 with a constant rate of 5.00% for post-
65 benefits. In concluding that health care trend rates will decrease at a
rate of 1.00% per year, the Company has considered future rates of inflation,
recent movements toward managed health care programs in negotiated contracts
and the trend among larger companies toward the formation of coalitions in an
effort to reduce health care costs. The Company has finalized negotiations
with health care providers in the Cincinnati-Dayton corridor and has
implemented a managed care program for the Ashland location. The Company is
also evaluating Medicare risk contracts for its retired employees. A one (1)
percentage point increase in the assumed health care cost trend rate for each
year would increase the accumulated postretirement benefit obligation as of
January 1, 1997 by $61.3 and the aggregate of the service cost and interest
cost components of net period benefit cost for the year then ended by $5.5.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% and 8.00% for 1995 and 1996,
respectively.
7. RELATED PARTY TRANSACTIONS
On May 4, 1995, Armco Inc. ("Armco") announced it had completed the sale of
1,023,987 shares of the Company's Common Stock. With the completion of the
sale, Armco no longer owns any of the Company's stock. Sales to Armco and its
affiliates amounted to $53.1 and $32.2 during 1994 and 1995, respectively. In
addition, the Company charged Armco approximately $14.9 and $18.8 during 1994
and 1995 for its rolling services. The Company purchased stainless material in
the amount of $30.1 and $51.2 in 1994 and 1995, respectively.
The Company sold its interest in Southwestern Ohio Steel L.P. ("SOS") on
December 30, 1994. In 1994, the Company's sales to SOS were $110.2 and the
Company purchased processing services and other material of $3.7.
In the ordinary course of business, National Material Limited Partnership,
of which Cyrus Tang, a director of the Company, is President and Chief
Executive Officer, sells scrap to, and purchases steel from, the Company.
During 1994, 1995 and 1996 sales amounted to $5.4, $20.3 and $21.8 and
purchases amounted to $0.3, $0.4 and $0.6 respectively.
8. COMMITMENTS
The principal raw materials and commodities required in the Company's
manufacturing operations are coal, iron ore, electricity, natural gas, oxygen,
scrap metal, limestone and other commodity materials, all of which are
purchased at competitive or prevailing market prices. Adequate sources of
supply exist for all of the Company's raw material requirements.
At December 31, 1996, commitments for future capital investments, excluding
Rockport Works but including those made to assure environmental compliance,
totalled approximately $41.0, all of which will be funded in 1997. In
addition, at December 31, 1996, the Company had outstanding commitments for
the constructing and equipping of Rockport Works under contracts aggregating
$420.9; however, the Company's maximum aggregate liability in the event of
cancellation of these contracts is limited to $33.9.
9. SPECIAL CHARGES AND UNUSUAL ITEMS
On December 30, 1994, the Company sold its 50% equity interest in SOS and
49.15% equity interest in Nova Steel Processing to its former joint venture
partner in the two companies, Itochu Corporation, for $43.0. The sale resulted
in a gain of $15.9 which is included in Special charges and unusual items in
the Consolidated Statements of Income for the period ended December 31, 1994.
F-17
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
10. EXTRAORDINARY ITEM
In connection with the Recapitalization, during the second quarter of 1994
the Company repaid a total of $619.5 of long-term debt. This early repayment
resulted in an extraordinary loss of $14.9.
11. LEGAL, ENVIRONMENTAL MATTERS AND CONTINGENCIES
Domestic steel producers, including the Company, are subject to stringent
federal, state and local laws and regulations relating to the protection of
human health and the environment.
The Company has expended the following for environmental related capital
investments and environmental compliance:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1995 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Environmental related capital investments....... $ 26.7 $ 19.1 $ 6.1
Environmental compliance costs.................. 46.4 51.7 53.6
</TABLE>
The Clean Air Act Amendments of 1990 (the "Amendments") imposed new
standards designed to reduce air emissions. The Amendments have directly
affected many of the Company's operations, particularly its coke oven
batteries. As of December 31, 1996, the Company has incurred $67.3 in capital
investments to bring its coke operations into compliance with the Amendments'
requirements. The Company does not expect capital investments for compliance
with these requirements to be material in the near future.
In addition to the items discussed below, the Company is also involved in
routine litigation, environmental proceedings, and claims pending with respect
to matters arising out of the normal conduct of the business. In management's
opinion, the ultimate liability resulting from all claims, individually or in
the aggregate, will not materially affect the Company's consolidated financial
position, results of operations or cash flows.
As a result of a 1991 inspection of the Ashland Works' cokemaking operations
by the United States Environmental Protection Agency ("EPA") and the Kentucky
Department of Environmental Protection alleging mishandling of certain
regulated materials, the Company has entered into non-binding mediation with
the Kentucky Cabinet for Natural Resources.
Federal regulations promulgated pursuant to the Clean Water Act impose
categorical pretreatment limits on the concentrations of various constituents
in coke plant wastewaters prior to discharge into publicly owned treatment
works ("POTW"). Due to concentrations of ammonia and phenol in excess of these
limits at the Middletown Works, the Company, through the Middletown POTW,
petitioned the EPA for "removal credits," a type of compliance exemption,
based on the Middletown POTW's satisfactory treatment of the Company's
wastewater for ammonia and phenol. The EPA declined to review the Company's
application on the grounds that it had not yet promulgated new sludge
management rules. The Company thereupon sought and obtained from the Federal
District Court for the Southern District of Ohio an injunction prohibiting the
EPA from instituting enforcement action against the Company for noncompliance
with the pretreatment limitations, pending the EPA's promulgation of the
applicable sludge management regulations. Although the Company is unable to
predict the outcome of this matter, if the EPA eventually refuses to grant the
Company's request for removal credits, the Company could incur additional
costs to construct pretreatment facilities at the Middletown Works.
In January 1996, an action was filed in the Court of Common Pleas of Butler
County, Ohio on behalf of four named plaintiffs who purport to represent a
class of plaintiffs consisting of all hourly employees at the
F-18
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Company's Middletown Works and all hourly employees of independent contractors
working at the facility since June 1992. The complaint has twice been amended
to add three additional plaintiffs. The plaintiffs allege negligence and
intentional tort and seek compensatory and punitive damages in an unspecified
amount for alleged dangerous working conditions at the Company's Middletown
Works. In April 1996, plaintiffs moved to certify a class action. The Company
has vigorously opposed this motion and has filed motions to dismiss the suit
in whole and in part. In September 1996, all pending motions were argued to
the Court. No rulings have been rendered to date.
In April 1996, an action was filed in the United States District Court,
Southern District of Ohio by a number of former employees of the Company
seeking certain pension and postretirement benefits which they allege were
wrongly denied them when the Company outsourced their positions.
In May 1996, an action was filed in the United States District Court,
Southern District of Ohio by several plaintiffs under the citizen action suit
provisions of federal environmental laws alleging violations of those laws as
well as state claims in connection with the accidental release of coke oven
gas from the Company's Middletown Works in January 1996. The Company has filed
a motion to dismiss all federal claims and the matter has been fully briefed
and presented to the Court where a decision is now pending.
In May 1996, an action was commenced against the Company in the United
States District Court, Southern District of Ohio, Western Division, on behalf
of eleven named plaintiffs seeking declaratory and injunctive relief and both
compensatory and punitive damages as a consequence of an underground coke oven
gas line leak at the Middletown Works.
12. CONSOLIDATED QUARTERLY SALES AND EARNINGS (UNAUDITED)
Each quarter and the year are calculated individually and may not add to the
total for the year.
<TABLE>
<CAPTION>
1995
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $610.4 $595.9 $524.3 $526.7 $2,257.3
Gross profit....................... 125.0 135.7 120.4 108.1 489.2
Net income......................... 68.3 78.4 67.2 54.7 268.6
Primary earnings per share......... 2.44 2.81 2.37 1.94 9.56
Fully diluted earnings per share... 2.08 2.39 2.02 1.68 8.14
<CAPTION>
1996
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $558.9 $575.4 $559.3 $608.2 $2,301.8
Gross profit....................... 114.4 119.0 119.0 102.9 455.3
Net income......................... 37.0 38.5 39.7 30.7 145.9
Primary earnings per share......... 1.31 1.34 1.40 1.05 5.07
Fully diluted earnings per share... 1.20 1.24 1.28 .99 4.70
</TABLE>
F-19
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE EXCHANGE OFFER DESCRIBED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 2
Incorporation of Certain Documents by
Reference............................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 11
Use of Proceeds.......................................................... 15
Capitalization........................................................... 16
Selected Historical Consolidated
Financial Data.......................................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 24
The New Facility......................................................... 29
Management............................................................... 32
The Exchange Offer....................................................... 35
Description of the Notes................................................. 41
Description of Certain Indebtedness...................................... 67
Certain Federal Income Tax Consequences.................................. 69
Plan of Distribution..................................................... 73
Notice to Canadian Residents............................................. 73
Legal Matters............................................................ 74
Independent Auditors..................................................... 74
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO]
AK Steel Corporation
$550,000,000
9 1/8% Senior Notes Due 2006
Guaranteed on a Senior Basis by
AK Steel Holding
Corporation
PROSPECTUS
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
AK Steel Corporation (the "Registrant") is a Delaware corporation.
Subsection (b)(7) of Section 102 of the Delaware General Corporation Law (the
"DGCL"), enables a corporation in its original certificate of incorporation or
an amendment thereto to eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for
violations of the director's fiduciary duty, except (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) pursuant to Section 174 of the DGCL
(providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from
which a director derived an improper personal benefit. Article Six of the
Registrant's Amended and Restated Certificate of Incorporation has eliminated
the personal liability of directors to the fullest extent permitted by law.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit or proceeding
provided that such director or officer acted in good faith in a manner
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, provided
further that such director or officer had no reasonable cause to believe his
conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement
of such action or suit provided that such director or officer acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification may be made
in respect of any claim, issue or matter as to which such director or officer
shall have been adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all of the circumstances of the case,
such director or officer is fairly and reasonably entitled to indemnity for
such expenses which the Court of Chancery or such other court shall deem
proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification and advancement of expenses
provided for, by, or granted pursuant to, Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and empowers the corporation to purchase and maintain insurance on behalf of
any person who is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities
under Section 145.
II-1
<PAGE>
Article Seven of the Registrant's Certificate of Incorporation states that
the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to, or testifies in, any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative in nature, by reason of the fact that such person is or was a
director, officer or employee of the corporation, or is or was serving at the
request of the corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the full extend permitted by law, and the
corporation may adopt by-laws or enter into agreements with any such person
for the purpose of providing such indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 --Indenture, dated as of December 17, 1996, relating to the Company's 9
1/8% Senior Notes Due 2006 (including form of Notes).*
4.2 --Indenture, dated as of April 1, 1994, relating to the Company's 10 3/4%
Senior Notes Due 2004 (the "1994 Indenture") (incorporated herein by
reference to Exhibit 4.3 to the Company's Registration Statement on Form
S-1, No. 33-83792 ("Registration No. 33-83792").
4.3 --Supplemental Indenture, dated as of September 21, 1994, to the 1994
Indenture (incorporated herein by reference to Exhibit 4.4 to
Registration No. 33-83792).
4.4 --Supplemental Indenture, dated as of December 11, 1996, to the 1994
Indenture.*
4.5 --Form of Note Purchase Agreement, dated as of December 17, 1996, with
respect to the Company's Senior Secured Notes Due 2004.*
5 --Opinion of Weil, Gotshal & Manges LLP.**
10.1 --Joint Venture Termination Agreement, dated April 6, 1994, among Armco,
Inc., Kawasaki, Kawasaki Steel Corporation, Kawasaki Steel Investments,
Inc., the Partnership, AJV Investments Corp., KSCA, Incorporated and the
Company (incorporated herein by reference to Exhibit 10.1 to Registration
No. 33-83792).
10.2 --Employment Contract, dated as of April 4, 1994, between the Company and
Thomas C. Graham (incorporated herein by reference to Exhibit 10.13 to
Registration No. 33-83792).
10.3 --Supplemental Agreement No. 1 to Employment Agreement with Thomas C.
Graham
(incorporated herein by reference to an Exhibit to the Company's 10-Q
Report for the period ended September 30, 1995).
10.4 --Form of Executive Officer Severance Agreement.*
10.5 --Annual Management Incentive Plan (incorporated herein by reference to
Exhibit 10.15 to Registration No. 33-83792).
10.6 --1994 Stock Incentive Plan, as amended May 15, 1996 and November 21,
1996.*
10.7 --Executive Minimum and Supplemental Retirement Plan (incorporated herein
by reference to Exhibit 10.17 to Registration No. 33-83792).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8 --Registration Rights Agreement, dated as of April 7, 1994, among the
Company and certain subsidiaries of Kawasaki (incorporated herein by
reference to Exhibit 10.19 to Registration No. 33-83792).
10.9 --Registration Agreement, dated as of April 7, 1994, between the Company
and Thomas C. Graham (incorporated herein by reference to Exhibit 10.22
to Registration No. 33-38792).
10.10 --Receivables Purchase Agreement, dated as of December 1, 1994 by and
between AK Steel and AK Acquisition Receivables Ltd., as successor to AK
Steel Receivables, Inc. (incorporated herein by reference to Exhibit
10.23 to Registration No. 33-86678).
10.11 --Purchase and Servicing Agreement, dated as of December 1, 1994, among AK
Acquisition Receivables Ltd., as successor to AK Steel Receivables Inc.,
AK Steel, the institutions from time to time party thereto and PNC Bank,
Ohio, National Association (incorporated herein by reference to Exhibit
10.24 to Registration No. 33-86678).
10.11(a) --Amendment No. 1 to the Purchase and Servicing Agreement, dated as of
November 17, 1995, among AK Steel, AK Acquisition Receivables Ltd., as
successor to AK Steel Receivables, Inc., the purchasers party thereto and
PNC Bank, Ohio, National Association.*
10.11(b) --Consent, Amendment and Assumption Agreement to the Receivables Purchase
Agreement and the Purchase and Servicing Agreement, dated as of December
31, 1996, among the Company, AK Steel Receivables Inc., AK Acquisition
Receivables Ltd., AKSR Investments, Inc., the purchasers party thereto
and PNC Bank, Ohio, National Association.*
10.12 --Letter Agreement dated July 31, 1995, between the Company and Kawasaki
(incorporated herein by reference to Exhibit 10 to Post-Effective
Amendment No. 2 on Form S-3 to the Company's Registration Statement on
Form S-1, Registration No. 33-86678).
10.13 --Deferred Compensation Plan for Management (incorporated herein by
reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
10.14 --Deferred Compensation Plan for Directors (incorporated herein by
reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
10.15 --Long Term Performance Plan, as amended and restated effective November
21, 1996.**
10.16 --Exchange and Registration Rights Agreement, dated as of December 17,
1996, among the Company, CS First Boston Corporation and Goldman, Sachs &
Co.*
12 --Ratio of Earnings to Fixed Charges.**
23.1 --Consent of Deloitte & Touche LLP.**
23.2 --Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5).**
24 --Power of Attorney (included on signature pages).
25 --Statement of Eligibility on Form T-1 of The Bank of New York.**
99.1 --Form of Letter of Transmittal.**
</TABLE>
- --------
* Previously filed.
** Filed herewith.
II-3
<PAGE>
(B) SCHEDULES
All schedules are omitted as the required information is presented in the
Registrant's consolidated financial statements or related notes or such
schedules are not applicable.
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AK
STEEL CORPORATION HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF MIDDLETOWN, STATE OF OHIO.
Date: February 7, 1997 AK STEEL CORPORATION
/s/ Richard E. Newsted
By: _________________________________
RICHARD E. NEWSTED
SENIOR VICE PRESIDENT, CHIEF
FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
* Chairman, Chief February 7,
- ------------------------------------- Executive Officer 1997
RICHARD M. WARDROP, JR. and President
(Principal
Executive Officer)
Senior Vice
/s/ Richard E. Newsted President, Chief February 7,
- ------------------------------------- Financial Officer 1997
RICHARD E. NEWSTED (Principal
Financial Officer)
Controller
* (Principal February 7,
- ------------------------------------- Accounting Officer) 1997
DONALD B. KORADE
Director
* February 7,
- ------------------------------------- 1997
ALLEN BORN
Director
* February 7,
- ------------------------------------- 1997
JOHN A. GEORGES
Director
* February 7,
- ------------------------------------- 1997
DR. BONNIE GUITON HILL
Director
* February 7,
- ------------------------------------- 1997
ROBERT H. JENKINS
Director
* February 7,
- ------------------------------------- 1997
LAWRENCE A. LESER
II-5
<PAGE>
SIGNATURE TITLE DATE
Director
* February 7,
- ------------------------------------- 1997
ROBERT E. NORTHAM
Director
- -------------------------------------
CYRUS TANG
Director
* February 7,
- ------------------------------------- 1997
JAMES A. THOMSON, PH.D.
* Signed on behalf of each of the
above-mentioned individuals by
their attorney-in-fact
By:/s/ Richard E. Newsted
----------------------------------
RICHARD E. NEWSTED
ATTORNEY-IN-FACT
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AK
STEEL HOLDING CORPORATION HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF MIDDLETOWN, STATE OF OHIO.
Date: February 7, 1997 AK STEEL HOLDING CORPORATION
/s/ Richard E. Newsted
By: _________________________________
RICHARD E. NEWSTED
Senior Vice President, Chief
Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
* Chairman, Chief February 7,
- ------------------------------------- Executive Officer 1997
RICHARD M. WARDROP, JR. and President
(Principal
Executive Officer)
Senior Vice
/s/ Richard E. Newsted President, Chief February 7,
- ------------------------------------- Financial Officer 1997
RICHARD E. NEWSTED (Principal
Financial Officer)
Controller
* (Principal February 7,
- ------------------------------------- Accounting Officer) 1997
DONALD B. KORADE
Director
* February 7,
- ------------------------------------- 1997
ALLEN BORN
Director
* February 7,
- ------------------------------------- 1997
JOHN A. GEORGES
Director
* February 7,
- ------------------------------------- 1997
DR. BONNIE GUITON HILL
Director
* February 7,
- ------------------------------------- 1997
ROBERT H. JENKINS
Director
* February 7,
- ------------------------------------- 1997
LAWRENCE A. LESER
II-7
<PAGE>
SIGNATURE TITLE DATE
Director
* February 7,
- ------------------------------------- 1997
ROBERT E. NORTHAM
Director
- -------------------------------------
CYRUS TANG
Director
* February 7,
- ------------------------------------- 1997
JAMES A. THOMSON, PH.D.
* Signed on behalf of each of the
above-mentioned individuals by
their attorney-in-fact
/s/ Richard E. Newsted
By:
----------------------------------
RICHARD E. NEWSTED ATTORNEY-IN-FACT
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
4.1 --Indenture, dated as of December 17, 1996, relating to the Company's 9
1/8% Senior Notes Due 2006 (including form of Notes).*
4.2 --Indenture, dated as of April 1, 1994, relating to the Company's 10 3/4%
Senior Notes Due 2004 (the "1994 Indenture") (incorporated herein by
reference to Exhibit 4.3 to the Company's Registration Statement on Form
S-1, No. 33-83792 ("Registration No. 33-83792").
4.3 --Supplemental Indenture, dated as of September 21, 1994, to the 1994
Indenture (incorporated herein by reference to Exhibit 4.4 to
Registration No. 33-83792).
4.4 --Supplemental Indenture, dated as of December 11, 1996, to the 1994
Indenture.*
4.5 --Form of Note Purchase Agreement, dated as of December 17, 1996, with
respect to the Company's Senior Secured Notes Due 2004.*
5 --Opinion of Weil, Gotshal & Manges LLP.**
10.1 --Joint Venture Termination Agreement, dated April 6, 1994, among Armco,
Inc., Kawasaki, Kawasaki Steel Corporation, Kawasaki Steel Investments,
Inc., the Partnership, AJV Investments Corp., KSCA, Incorporated and the
Company (incorporated herein by reference to Exhibit 10.1 to Registration
No. 33-83792).
10.2 --Employment Contract, dated as of April 4, 1994, between the Company and
Thomas C. Graham (incorporated herein by reference to Exhibit 10.13 to
Registration No. 33-83792).
10.3 --Supplemental Agreement No. 1 to Employment Agreement with Thomas C.
Graham
(incorporated herein by reference to an Exhibit to the Company's 10-Q
Report for the period ended September 30, 1995).
10.4 --Form of Executive Officer Severance Agreement.*
10.5 --Annual Management Incentive Plan (incorporated herein by reference to
Exhibit 10.15 to Registration No. 33-83792).
10.6 --1994 Stock Incentive Plan, as amended May 15, 1996 and November 21,
1996.*
10.7 --Executive Minimum and Supplemental Retirement Plan (incorporated herein
by reference to Exhibit 10.17 to Registration No. 33-83792).
10.8 --Registration Rights Agreement, dated as of April 7, 1994, among the
Company and certain subsidiaries of Kawasaki (incorporated herein by
reference to Exhibit 10.19 to Registration No. 33-83792).
10.9 --Registration Agreement, dated as of April 7, 1994, between the Company
and Thomas C. Graham (incorporated herein by reference to Exhibit 10.22
to Registration No. 33-38792).
10.10 --Receivables Purchase Agreement, dated as of December 1, 1994 by and
between AK Steel and AK Acquisition Receivables Ltd., as successor to AK
Steel Receivables, Inc. (incorporated herein by reference to Exhibit
10.23 to Registration No. 33-86678).
10.11 --Purchase and Servicing Agreement, dated as of December 1, 1994, among AK
Acquisition Receivables Ltd., as successor to AK Steel Receivables Inc.,
AK Steel, the institutions from time to time party thereto and PNC Bank,
Ohio, National Association (incorporated herein by reference to Exhibit
10.24 to Registration No. 33-86678).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.11(a) --Amendment No. 1 to the Purchase and Servicing Agreement, dated as of
November 17, 1995, among AK Steel, AK Acquisition Receivables Ltd., as
successor to AK Steel Receivables, Inc., the purchasers party thereto and
PNC Bank, Ohio, National Association.*
10.11(b) --Consent, Amendment and Assumption Agreement to the Receivables Purchase
Agreement and the Purchase and Servicing Agreement, dated as of December
31, 1996, among the Company, AK Steel Receivables Inc., AK Acquisition
Receivables Ltd., AKSR Investments, Inc., the purchasers party thereto
and PNC Bank, Ohio, National Association.*
10.12 --Letter Agreement dated July 31, 1995, between the Company and Kawasaki
(incorporated herein by reference to Exhibit 10 to Post-Effective
Amendment No. 2 on Form S-3 to the Company's Registration Statement on
Form S-1, Registration No. 33-86678).
10.13 --Deferred Compensation Plan for Management (incorporated herein by
reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
10.14 --Deferred Compensation Plan for Directors (incorporated herein by
reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.15 --Long Term Performance Plan, as amended and restated effective November
21, 1996.**
10.16 --Exchange and Registration Rights Agreement, dated as of December 17,
1996, among the Company, CS First Boston Corporation and Goldman, Sachs &
Co.*
12 --Ratio of Earnings to Fixed Charges.**
23.1 --Consent of Deloitte & Touche LLP.**
23.2 --Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5).**
24 --Power of Attorney (included on signature pages).
25 --Statement of Eligibility on Form T-1 of The Bank of New York.**
99.1 --Form of Letter of Transmittal.**
</TABLE>
- --------
* Previously filed.
** Filed herewith.
<PAGE>
Exhibit 5
WEIL, GOTSHAL & MANGES LLP
A LIMITED LIABILITY PARTNERSHIP INCLUDING PROFESSIONAL CORPORATION
767 FIFTH AVENUE . NEW YORK, NY 10153-0119
(212) 310-8000
FAX: (212) 310-8007
February 10, 1997
AK Steel Corporation
AK Steel Holding Corporation
703 Curtis Street
Middletown, Ohio 45043
Ladies and Gentlemen:
We have acted as counsel to AK Steel Corporation, a Delaware
corporation ("AK Steel"), and AK Steel Holding Corporation, a Delaware
corporation ("Holding"), in connection with the preparation and filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, of a Registration Statement on Form S-4 (No. 333-19781) and one
amendment thereto (collectively, the "Registration Statement"), filed with
respect to $550,000,000 aggregate principal amount of 9-1/8% Senior Notes Due
2006 (the "Notes") of AK Steel to be issued under an Indenture, dated as of
December 17, 1996 (the "Indenture"), by and among AK Steel, Holding, as
guarantor, and The Bank of New York, as trustee (the "Trustee"). The Notes will
be unconditionally guaranteed on a senior basis by Holding pursuant to a
guarantee contained in the Indenture (the "Guarantee").
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Registration Statement, the
Indenture, the form of Note set forth in the Indenture, and such corporate
records, agreements, documents and other instruments, and such certificates or
comparable documents of public officials and of officers and representatives of
AK Steel and Holding, and have made such inquiries of such officers and
representatives as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
<PAGE>
AK Steel Corporation
AK Steel Holding Corporation
February 10, 1997
Page 2
originals of such latter documents. As to all questions of fact material to
this opinion that have not been independently established, we have relied upon
certificates or comparable documents of officers and representatives of AK Steel
and Holding. In addition, we have assumed that the Notes will be executed and
delivered substantially in the form examined by us.
Based on the foregoing, and subject to the qualifications stated herein, we
are of the opinion that:
1. The Notes have been duly authorized for issuance and, when duly
executed by AK Steel, authenticated by the Trustee pursuant to the terms of the
Indenture and delivered in exchange for securities of like tenor and principal
amount in accordance with the terms of the Indenture and as contemplated by the
Registration Statement, will be validly issued and will constitute the legally
binding obligations of AK Steel entitled to the benefits of the Indenture in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
2. The Guarantee has been duly authorized and will constitute the
legally binding obligation of Holding, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
The opinions herein are limited to the laws of the State of New York
and the corporate laws of the State of Delaware, and we express no opinion as to
the effect on the matters covered by this opinion of the laws of any other
jurisdiction.
The opinions expressed herein are rendered solely for your benefit in
connection with the transactions described herein. Those opinions may not be
used or relied upon by any other person, nor may this letter or any copies
thereof be
<PAGE>
AK Steel Corporation
AK Steel Holding Corporation
February 10, 1997
Page 3
furnished to a third party, filed with a governmental agency, quoted, cited or
otherwise referred to without our prior written consent, except that we hereby
consent to the use of this opinion as an exhibit to the Registration Statement.
We also consent to any and all references to our firm under the caption "Legal
Matters" in the Prospectus that is part of the Registration Statement.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
<PAGE>
EXHIBIT 10.15
AK STEEL CORPORATION
--------------------
LONG-TERM PERFORMANCE PLAN
--------------------------
(As Amended And Restated
Effective As Of November 21, 1996)
<PAGE>
Table Of Contents
1. Administration Of The Plan............................................ 1
2. Participation......................................................... 1
3. Bonus Opportunity Target.............................................. 1
4. Performance Periods................................................... 1
5. Payment Date.......................................................... 2
6. Peer Group............................................................ 2
7. Award Calculation..................................................... 2
a. Performance Periods Ending Before Calendar Year 2000............. 2
b. Performance Periods Ending After Calendar Year 1999.............. 2
8. Special Award Calculation............................................. 3
9. Form Of Payment....................................................... 3
a. Performance Periods Ending Before Calendar Year 2000............. 3
b. Performance Periods Ending After Calendar Year 1999.............. 3
c. Restricted Stock................................................. 4
10. Events Of Forfeiture.................................................. 4
a. No Net Income.................................................... 4
b. Death, Disability, Retirement Or Involuntary Termination
Other Than For Cause............................................. 4
c. Termination For Cause............................................ 4
d. Voluntary Termination............................................ 5
e. Removal From The Plan............................................ 5
11. Source Of Benefits.................................................... 5
12. Liability Of Officers And Members..................................... 5
13. Unsecured General Creditor............................................ 5
14. Claims Procedure...................................................... 6
15. Legal Fees And Expenses............................................... 6
16. Amendment Or Termination Of Plan...................................... 6
17. Miscellaneous......................................................... 6
a. Assignability.................................................... 6
b. Obligations To The Company....................................... 7
c. No Promise Of Continued Employment............................... 7
d. Captions......................................................... 7
e. Validity......................................................... 7
f. Applicable Law................................................... 8
i
<PAGE>
AK STEEL CORPORATION
LONG-TERM PERFORMANCE PLAN
AK Steel Corporation (the "Company") has established this AK Steel Corporation
Long-Term Performance Plan (the "Plan") to reward elected officers and selected
management employees for enhanced profitability versus a peer group of
competitors.
The Plan is a payroll practice. The Plan is not intended to be an employee
benefit plan within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA"), and the Plan shall be interpreted,
administered and enforced to the extent possible in a manner consistent with
that intent. Any obligations of the Plan shall be the joint and several
obligation of AK Steel Holding Corporation, the Company and each of their
respective subsidiaries and affiliates.
1. ADMINISTRATION OF THE PLAN
This Plan shall be administered by the Compensation Committee of the Board (the
"Administrator") and, with respect to Plan Members who are not elected officers,
by the Chairman of the Board and/or his designees (the "Executive Management
Committee" or the "EMC"). Human Resources shall maintain records of authorized
participants for each of the Performance Periods established under this Plan.
2. PARTICIPATION
Elected officers and management employees selected by the Administrator or the
EMC shall be eligible for participation in this Plan, subject to the approval
from time to time of the Administrator. Upon selection, a Plan Member shall be
eligible to participate in such Performance Periods as the Administrator or the
EMC shall determine.
3. BONUS OPPORTUNITY TARGET
A Plan Member's Bonus Opportunity Target defines the maximum percentage of a
Plan Member's annual salary that can be achieved with respect to any Performance
Period for which the Plan Member is selected for participation. The Bonus
Opportunity Target shall be applied to the Plan Member's annualized rate of
salary on the last day of the final year of the Performance Period for which the
calculation of a Performance Award is made. Awards will be prorated based on
Plan participation date.
Each Plan Member will be assigned a Bonus Opportunity Target at the time the
Plan Member is selected for participation in this Plan. A Plan Member's Bonus
Opportunity Target may be changed from time to time at the discretion of the
Administrator or, in the case of Plan Members who are not elected officers, by
the EMC.
1
<PAGE>
4. PERFORMANCE PERIODS
With the exception of a special two-year Performance Period beginning January 1,
1995, and ending December 31, 1996, each of the Plan's Performance Periods shall
generally be a period of three calendar years, with the first such three-year
period commencing on January 1, 1995, and ending on December 31, 1997.
5. PAYMENT DATE
The Performance Award Payment Date will be not more than 120 days following the
last day of the final year of the Performance Period.
6. PEER GROUP
The initial Peer Group will consist of Bethlehem, Inland, LTV, National Steel,
Nucor and U.S. Steel. The Peer Group may be modified from time to time at the
discretion of the Administrator.
7. AWARD CALCULATION
The Performance Award to be paid for each Performance Period will be a
percentage of a Plan Member's Bonus Opportunity Target based upon the Company's
operating profit per ton shipped (excluding special and unusual items) as
compared to operating profit per ton shipped (excluding special and unusual
items) of the Peer Group of competitors. The calculation of an Award shall be
prepared under the direction of and shall be approved by the Company's Chief
Financial Officer.
a. PERFORMANCE PERIODS ENDING BEFORE CALENDAR YEAR 2000
The percentage of a Plan Member's Bonus Opportunity Target to be awarded
for the Performance Periods ending in calendar years 1996, 1997, 1998 and
1999, if any, will be based upon the following chart:
2
<PAGE>
Operating Profit Per Percentage Of Bonus Opportunity Target
-------------------- --------------------------------------
Ton Shipped Based Upon Relative Performance Ranking
----------- ---------------------------------------
Ranking Versus Full Three Year Period Final Year
Peer Group Performance Award Performance Award
1 75% 75%
2 50% 50%
3 25% 25%
4 15% 15%
5 - 7 0% 0%
b. PERFORMANCE PERIODS ENDING AFTER CALENDAR YEAR 1999
The percentage of a Plan Member's Bonus Opportunity Target to be awarded
for the Performance Periods ending after calendar year 1999, if any, will
be based upon the following chart:
Operating Profit Per Percentage Of Bonus Opportunity Target
-------------------- --------------------------------------
Ton Shipped Based Upon Relative Performance Ranking
----------- ---------------------------------------
Ranking Versus Full Three Year Period Final Year
Peer Group Performance Award Performance Award
1 100% 100%
2 50% 50%
3 25% 25%
4 15% 15%
5 - 7 0% 0%
8. SPECIAL AWARD CALCULATION
For each of the Performance Periods ending before calendar year 2000, a special
award will be paid that will be equal in amount to the difference between the
Award calculated in accordance with paragraph 7a above and the amount calculated
in accordance with paragraph 7b above determined as if the paragraph 7b formula
applied for Performance Periods ending before calendar year 2000.
9. FORM OF PAYMENT
All benefits will be paid in a single lump-sum payment. The Company will
withhold such payroll or other taxes as it may determine to be necessary or
appropriate.
a. PERFORMANCE PERIODS ENDING BEFORE CALENDAR YEAR 2000
For Performance Periods ending before calendar year 2000, all benefits
determined in accordance with paragraph 7a will be paid on the Performance
Award Payment Date one hundred (100%) percent in cash. Any Special Award
payable for Performance Periods ending before calendar year 2000 and
calculated
3
<PAGE>
in accordance with paragraph 8 above may be paid on the Performance Award
Payment Date in whole shares of Restricted Stock up to a value equal to 50%
of the total Performance Award determined in accordance with paragraph 7b,
with any balance to be paid in cash.
b. PERFORMANCE PERIODS ENDING AFTER CALENDAR YEAR 1999
For Performance Periods ending after calendar year 1999, all benefits
determined in accordance with paragraph 7b will be paid on the Performance
Award Payment Date with up to fifty (50%) percent of the Performance Award
to be paid in whole shares of Restricted Stock with any balance to be paid
in cash.
c. RESTRICTED STOCK
Restricted stock shall be valued at the average of the high and the low
price of shares traded on the date the Board approves issuance of
Restricted Stock. Only whole shares shall be issued. Any fractional
shares that may be required to be paid shall be paid in cash.
Unless otherwise provided by the Board, the restrictions on shares granted
under this Plan will lapse as to 20% of those shares on each of the first,
second, third, fourth, and fifth anniversary of the date on which the
Restricted Stock award was granted. Except as modified herein, grants of
Restricted Stock shall be issued from the 1994 Stock Incentive Plan (as
amended and restated effective May 15, 1996, and November 21, 1996).
10. EVENTS OF FORFEITURE
a. NO NET INCOME
If the Company has no net income for book purposes for the last calendar
year of any Performance Period, no Award will be paid with respect to the
Performance Period ending in that calendar year. The Award for that
period, if any is due, will either be forfeited or the payment of the Award
will be deferred in the sole discretion of the Administrator.
b. DEATH, DISABILITY, RETIREMENT OR INVOLUNTARY TERMINATION FOR OTHER
THAN CAUSE
In the calendar year in which a Plan Member dies, retires, becomes totally
and permanently disabled or is involuntarily terminated for reasons other
than cause (an "Involuntary Termination"), the Plan Member shall only be
entitled to an amount equal to twice the amount of any payment due on the
Performance Award Payment Date that falls within that calendar year. The
second payment shall be
4
<PAGE>
paid on the next to occur of the payment date falling within that calendar
year or within 60 days following such Plan Member's death or other
termination of employment. Any payment made under this paragraph 10b shall
be paid in cash and in full satisfaction of all claims the Plan Member has
under this Plan.
c. TERMINATION FOR CAUSE
If a Plan Member is terminated for cause, as cause may be defined by the
Administrator, or its designee, no Award will be paid.
d. VOLUNTARY TERMINATION
Except in the case of a Plan Member's Involuntary Termination as defined in
paragraph 10b above or termination for Cause as defined in paragraph 10c
above, a Plan Member who leaves the Company's employ prior to any
Performance Award Payment Date forfeits all rights hereunder to any payment
that is or may be due on or after any such Performance Award Payment Date.
e. REMOVAL FROM THE PLAN
If a Plan Member is removed from further participation in this Plan, such
removal shall be by written notice to the Plan Member and shall be
effective as of the last day of the calendar year in which the notice is
given. In such a case, the Plan Member shall be eligible to receive the
Award that is payable for the Performance Period ending on the last day of
the calendar year in which the notice is given, but shall not be eligible
for any other Awards payable with respect to any Performance Periods that
may have commenced during the Plan Member's period of participation under
this Plan.
11. SOURCE OF BENEFITS
The Company shall pay benefits due under the terms of this Plan directly from
its assets or from any trust that the Company may choose to establish and
maintain from time to time. Nothing contained in this Plan shall give or be
deemed to give any Plan Member or any other person any interest in any property
of any such Trust or in any property of the Company, nor shall any Plan Member
or any other person have any right under this Plan not expressly provided by the
terms hereof, as such terms may be interpreted and applied by the Administrator
in its discretion.
12. LIABILITY OF OFFICERS AND PLAN MEMBERS
No past, present or future employee, officer, director or agent of AK Steel
Holding Corporation or of the Company shall be personally liable to any Plan
Member or other person to pay any benefit payable under any provision of this
Plan or for any action taken by any such person in the administration or
interpretation of this Plan.
5
<PAGE>
13. UNSECURED GENERAL CREDITOR
Any and all rights created under this Plan shall be unfunded and unsecured
contractual rights of the Plan Members against the Company. The Company's
obligation under this Plan shall be a mere promise by the Company to make the
benefit payments described herein. Plan Members shall have no legal or
equitable right, interest or other claim in any property or assets of the
Company by reason of the establishment of this Plan.
14. CLAIMS PROCEDURE
It is intended that the Administrator shall have full discretion to interpret
the Plan's terms, to resolve claims which may arise under the Plan and to amend
or terminate the Plan as it may deem to be necessary or appropriate. Any Plan
Member or other person questioning the rights of any person under the Plan shall
submit such question in writing to the Administrator, or its designate, for
resolution. No person shall have any claim or cause of action for any benefit
under this Plan until the Administrator, or its designate, has responded to such
written claim, which response shall not be unreasonably delayed. It is intended
by the Board, and each Plan Member agrees as a condition of membership, that any
judicial review of any decision hereunder shall be limited to a determination of
whether the Administrator, or its designate, acted arbitrarily or capriciously,
and that any decision of the Administrator its designate shall be enforced
unless the action taken is found by a court of competent jurisdiction to have
been arbitrary or capricious.
15. LEGAL FEES AND EXPENSES
It is the intent of the Company that no Plan Member shall be required to incur
any expenses associated with the enforcement of his or her rights under this
Plan by litigation or other legal action because the cost and expense thereof
would substantially detract from the benefits intended to be extended to a Plan
Member hereunder. If the Company fails to fulfill any of its obligations under
this Plan, then the Company irrevocably authorizes such Plan Member to retain
counsel of his or her choice, at the expense of the Company, to represent such
Plan Member in connection with the prosecution or the defense of any litigation
or other legal action, whether by or against the Trustee, the Company or any
Plan Member, officer, stockholder or other person affiliated with the Company in
any jurisdiction; and further the Company indemnifies and holds harmless the
Plan Member from any and all attorneys' and related fees and expenses incurred
by or on behalf of any such Plan Member in the prosecution or the defense of any
such matter.
16. AMENDMENT OR TERMINATION OF PLAN
The Board expressly reserves for itself and for its Administrator the right and
the power to terminate the Plan at any time. In such a case, unless the
Administrator otherwise expressly provides at the time the action is taken, no
Awards shall be paid to any Plan Member on or after the date of such action.
6
<PAGE>
17. MISCELLANEOUS
a. ASSIGNABILITY
No Plan Member shall have any right to anticipate, alienate, assign, sell,
transfer, pledge, encumber, attach, mortgage or otherwise hypothecate or
convey in advance of actual receipt the amounts, if any, payable hereunder.
No part of the amounts payable hereunder shall, prior to actual payment, be
subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance, nor shall any person have any
other claim to any benefit payable under this Plan as a result of a divorce
or the Plan Member's, or any other person's, bankruptcy or insolvency.
b. OBLIGATIONS TO THE COMPANY
If a Plan Member becomes entitled to a distribution of benefits under this
Plan, and if at such time the Plan Member has any outstanding debt,
obligation or other liability representing an amount owed to the Company,
then the Company may offset such amounts against the amount of benefits
otherwise distributable. Such determination shall be made by the
Administrator or the Board.
c. NO PROMISE OF CONTINUED EMPLOYMENT
Nothing in this Plan or in any materials describing or relating to this
Plan grants, nor should it be deemed to grant, any person any employment
right, nor does participation in this Plan imply that any person has been
employed for any specific term or duration or that any person has any right
to remain in the employ of the Company. Subject to the provisions of
paragraph 10 hereof, the Company retains the right to change or terminate
any condition of employment of any Plan Member without regard to any affect
any such change has or may have on such persons rights hereunder.
d. CAPTIONS
The captions to the articles, sections and paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or
construction of any of its provisions.
7
<PAGE>
e. VALIDITY
In the event any provision of this Plan is found by a court of competent
jurisdiction to be invalid, void or unenforceable, such provision shall be
stricken and the remaining provisions shall continue in full force and
effect.
f. APPLICABLE LAW
This Plan is subject to interpretation under federal law and, to the extent
applicable, the law of the State of Ohio.
AK Steel Corporation
AK Steel Holding Corporation
By: /s/ John G. Hritz
-------------------------------
John G. Hritz, Vice President,
General Counsel and Secretary
8
<PAGE>
EXHIBIT 12
AK STEEL CORPORATION
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1992 1993 1994 1995 1996
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Pretax income.......................... $(542.6) $(42.7) $152.0 $281.5 $237.0
Interest expense....................... 46.4 58.1 48.2 35.6 39.8
Interest factor in rent expense........ 1.2 0.8 0.8 1.1 1.0
Distributed income of less than 50%
owned affiliates...................... 0.1 (2.2) (2.3) 0.0 0.0
------- ------ ------ ------ ------
Total earnings....................... (494.9) 14.0 198.7 318.2 277.8
Total combined fixed charges......... $ 51.1 $ 60.1 $ 55.6 $ 57.5 $ 60.5
Ratio of earnings to combined fixed
charges............................... 3.6 5.5 4.6
Deficiency of earnings to fixed
charges............................... $(546.0) $(46.1)
Combined fixed charges:
Preferred dividends.................. n/a n/a 4.0 16.0 18.0
Interest expense..................... 46.4 58.1 48.2 35.6 39.8
Capitalized interest credit.......... 3.5 1.2 2.6 4.7 1.7
Interest factor in rent expense...... 1.2 0.8 0.8 1.1 1.0
------- ------ ------ ------ ------
Total combined fixed charges......... 51.1 60.1 55.6 57.5 60.5
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We Consent to the use in this Amendment No. 1 to Registration Statement
No. 333-19781 of AK Steel Holding Corporation and AK Steel Corporation of our
report dated January 22, 1997 appearing in the Prospectus, which is part of
such Registration Statement, and to the reference to us under the heading
"Independent Auditors" in such Prospectus.
Cincinnati, Ohio
February 10, 1997
<PAGE>
EXHIBIT 25
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
AK STEEL CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 31-1401455
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
703 Curtis Street
Middletown, Ohio 45043
(Address of principal executive offices) (Zip code)
______________________
AK STEEL HOLDING CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 31-1401455
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
703 Curtis Street
Middletown, Ohio 45043
(Address of principal executive offices) (Zip code)
______________________
9-1/8% Senior Notes Due 2006
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT
IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None. (See Note on page 3.)
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7A-
29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24 OF THE
COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed
with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1
filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-
1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 17th day of January, 1997.
THE BANK OF NEW YORK
By: /s/ VIVIAN GEORGES
-------------------------------
Name: VIVIAN GEORGES
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE>
Exhibit 7 to Exhibit 25
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin..................... $ 4,404,522
Interest-bearing balances............. 732,833
Securities:
Held-to-maturity securities........... 789,964
Available-for-sale securities......... 2,005,509
Federal funds sold in domestic offices
of the bank:
Federal funds sold...................... 3,364,838
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................28,728,602
LESS: Allowance for loan and
lease losses ..............584,525
LESS: Allocated transfer risk
reserve........................429
Loans and leases, net of unearned
income, allowance, and reserve...... 28,143,648
Assets held in trading accounts......... 1,004,242
Premises and fixed assets (including
capitalized leases)................... 605,668
Other real estate owned................. 41,238
Investments in unconsolidated
subsidiaries and associated
companies............................. 205,031
Customers' liability to this bank on
acceptances outstanding............... 949,154
Intangible assets....................... 490,524
Other assets............................ 1,305,839
-----------
Total assets............................ $44,043,010
===========
LIABILITIES
Deposits:
In domestic offices................... $20,441,318
Noninterest-bearing .......8,158,472
Interest-bearing .........12,282,846
In foreign offices, Edge and
Agreement subsidiaries, and IBFs...... 11,710,903
Noninterest-bearing ..........46,182
Interest-bearing .........11,664,721
Federal funds purchased in
domestic offices of the
bank:
Federal funds purchased............... 1,565,288
Demand notes issued to the U.S.
Treasury.............................. 293,186
Trading liabilities..................... 826,856
Other borrowed money:
With original maturity of one year
or less............................. 2,103,443
With original maturity of more than
one year............................ 20,766
Bank's liability on acceptances exe-
cuted and outstanding................. 951,116
Subordinated notes and debentures....... 1,020,400
Other liabilities....................... 1,522,884
-----------
Total liabilities....................... 40,456,160
-----------
EQUITY CAPITAL
Common stock............................ 942,284
Surplus................................. 525,666
Undivided profits and capital
reserves.............................. 2,129,376
Net unrealized holding gains
(losses) on available-for-sale
securities............................ ( 2,073)
Cumulative foreign currency transla-
tion adjustments...................... ( 8,403)
-----------
Total equity capital.................... 3,586,850
-----------
Total liabilities and equity
capital ........................... $44,043,010
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi Directors
Alan R. Griffith
- --------------------------------------------------------------------------------
-5-
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
AK STEEL CORPORATION
OFFER TO EXCHANGE ITS 9 1/8% SENIOR NOTES DUE 2006, WHICH ARE FULLY AND
UNCONDITIONALLY GUARANTEED BY AK STEEL HOLDING CORPORATION AND HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT, FOR ITS 9 1/8% SENIOR
NOTES DUE 2006, WHICH ARE FULLY AND UNCONDITIONALLY
GUARANTEED BY AK STEEL HOLDING CORPORATION AND HAVE
NOT BEEN SO REGISTERED.
PURSUANT TO THE PROSPECTUS, DATED FEBRUARY , 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
MARCH , 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
THE BANK OF NEW YORK, Exchange Agent
By Mail: By Hand or Overnight By Facsimile:
Courier:
THE BANK OF NEW YORK THE BANK OF NEW YORK (212) 571-3080
101 Barclay Street 101 Barclay Street
New York, New York 10286 New York, New York 10286 Confirm by Telephone:
Attention: Enrique Lopez, Securities Window, (212) 815-2742
Reorganization Section -- Street Level
7 East Attention: Enrique
Lopez,
Reorganization
Section -- 7 East
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated February , 1997 (the "Prospectus"), of AK Steel
Corporation, a Delaware corporation (the "Company"), and this Letter of
Transmittal (the "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange up to $550,000,000 aggregate principal amount of
the Company's 9 1/8% Senior Notes Due 2006 (the "New Notes"), which have been
registered under the Securities Act of 1933 (the "Securities Act"), for a like
principal amount of the Company's issued and outstanding 9 1/8% Senior Notes
Due 2006 (the "Old Notes"), which have not been so registered. Both the Old
Notes and the New Notes are fully and unconditionally guaranteed by AK Steel
Holding Corporation.
For each Old Note accepted for exchange, the registered holder of such Old
Note (collectively with all other registered holders of Old Notes, the
"Holders") will receive a New Note having a principal amount equal to that of
the surrendered Old Note. Accordingly, registered holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from December 17, 1996. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange Offer.
Holders whose Old Notes are accepted for exchange will not receive any payment
in respect of accrued interest on such Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after
consummation of the Exchange Offer.
This Letter is to be completed by a Holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for
Old Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the "Book-
Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Holders of Old
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their
Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility (a "Book-Entry Confirmation") and all other documents required by
this Letter to the Exchange Agent on or prior to the Expiration Date, must
tender their Old Notes according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. See Instruction 1. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Old Notes indicated below. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of the Company all right, title
and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim when the same are accepted by the
Company. The undersigned hereby further represents that any New Notes acquired
in exchange for Old Notes tendered hereby will have been acquired in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is the undersigned, that neither the Holder of such Old Notes
nor any such other person has an arrangement or understanding with any person
to participate in the distribution of such New Notes and that neither the
Holder of such Old Notes nor any such other person is an "affiliate" (as
defined in Rule 405 under the Securities Act) of the Company.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred
by a Holder thereof (other than a Holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
Holder's business and such Holder has no arrangement with any person to
participate in a distribution of such New Notes. However, the SEC has not
considered the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in other circumstances. If
the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New Notes
and has no arrangement or understanding to participate in a distribution of
New Notes. If any Holder is an affiliate of the Company, is engaged in or
intends to engage in, or has any arrangement or understanding with any person
to participate in, a distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such Holder could not rely on the applicable
interpretations of the staff of the SEC and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
it acknowledges that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes. However,
by so acknowledging and by delivering a prospectus, the undersigned will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instruction" below, please issue the New Notes (and, if applicable, substitute
certificates representing Old Notes for any Old Notes not exchanged) in the
name of the undersigned or, in the case of a book-entry delivery of Old Notes,
please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box
entitled "Special Delivery Instructions" below, please send the New Notes
(and, if applicable, substitute certificates representing Old Notes for any
Old Notes not exchanged) to the undersigned at the address shown above in the
box entitled "Description of Old Notes."
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX BELOW ENTITLED "DESCRIPTION OF OLD
NOTES DELIVERED" BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED OLD NOTES AS SET FORTH IN SUCH BOX.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES DELIVERED
- ----------------------------------------------------------------
NAME(S)
AND
ADDRESS OF
REGISTERED
HOLDER
(PLEASE
FILL IN, CERTIFICATE AGGREGATE PRINCIPAL AMOUNT
IF BLANK) NUMBER(S)* PRINCIPAL AMOUNT TENDERED**
- ----------------------------------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
<S> <C> <C> <C>
TOTALS:
</TABLE>
- -------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to
have tendered ALL of the Old Notes represented by the listed
certificates. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number __________________Transaction Code Number __________________
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name of Registered Holder __________________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution Which Guaranteed Delivery ______________________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number __________________Transaction Code Number ___________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE ADDITIONAL
COPIES OF THE PROSPECTUS AND ANY AMENDMENTS OR SUPPLEMENTS THERETO. (UNLESS
OTHERWISE SPECIFIED, 10 ADDITIONAL COPIES WILL BE FURNISHED.)
Name _______________________________________________________________________
Address ____________________________________________________________________
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS (SEE SPECIAL DELIVERY INSTRUCTIONS
INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certif- To be completed ONLY if certif-
icates for Old Notes not ex- icates for Old Notes not ex-
changed and/or New Notes are to changed and/or New Notes are to
be issued in the name of someone be sent to someone other than
other than the person or persons the person or persons whose sig-
whose signature(s) appear(s) on nature(s) appear(s) on this Let-
this Letter below, or if Old ter below or to such person or
Notes delivered by book-entry persons at an address other than
transfer which are not accepted shown in the box entitled "De-
for exchange are to be returned scription of Old Notes" on this
by credit to an account main- Letter above.
tained at the Book-Entry Trans-
fer Facility other than the ac-
count indicated above.
Mail New Notes and/or Old Notes
to:
Name ____________________________
Issue New Notes and/or Old Notes (PLEASE TYPE OR PRINT)
to: _________________________________
Name ____________________________ Address _________________________
(PLEASE TYPE OR PRINT) _________________________________
_________________________________ (ZIP CODE)
Address _________________________
_________________________________
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
[_]Credit unexchanged Old Notes
delivered by book-entry
transfer to the Book-Entry
Transfer Facility account set
forth below.
_________________________________
(BOOK-ENTRY TRANSFER FACILITY)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY
BOX ABOVE
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated: ____________________, 1997
X ___________________________________,
X ___________________________________,
SIGNATURE(S)
Area Code and Telephone Number: _________________________
If a holder is tendering any Old Notes, this letter must be signed by
the registered holder(s) as the name(s) appear(s) on the certificate(s)
for the Old Notes or by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith. If signature
is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth
full title. See Instruction 3.
Name:______________________________________________________________________
___________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity (full title):_____________________________________________________
Address:___________________________________________________________________
___________________________________________________________________
Telephone:_________________________________________________________________
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by an Eligible Institution: _______________________
(AUTHORIZED SIGNATURE)
___________________________________________________________________________
(TITLE)
___________________________________________________________________________
(NAME AND FIRM)
Dated: ______________________________________________________________, 1997
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER TO EXCHANGE
THE 9 1/8% SENIOR NOTES DUE 2006 OF AK STEEL CORPORATION, WHICH ARE FULLY AND
UNCONDITIONALLY GUARANTEED BY AK STEEL HOLDING CORPORATION AND HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT, FOR THE OUTSTANDING 9 1/8% SENIOR NOTES
DUE 2006 OF AK STEEL CORPORATION, WHICH ARE FULLY AND UNCONDITIONALLY
GUARANTEED BY AK STEEL HOLDING CORPORATION AND HAVE NOT BEEN SO REGISTERED.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for delivery by book-entry transfer set forth in
"The Exchange Offer--Book-Entry Transfer" section of the Prospectus.
Certificates for all physically tendered Old Notes, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter (or manually signed facsimile hereof) and any other documents
required by this Letter, must be received by the Exchange Agent at the address
set forth herein on or prior to the Expiration Date, or the tendering holder
must comply with the guaranteed delivery procedures set forth below. Old Notes
tendered hereby must be in denominations of principal amount of $1,000 and any
integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old
Notes pursuant to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Pursuant to such procedures, (i) such tender must be made through an Eligible
Institution, (ii) on or prior to 5:00 p.m., New York City time, on the
Expiration Date, the Exchange Agent must receive from such Eligible
Institution a properly completed and duly executed Letter (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Company (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the holder of Old Notes and
the amount of Old Notes tendered stating that the tender is being made thereby
and guaranteeing that within three New York Stock Exchange ("NYSE") trading
days after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by this Letter will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter, are deposited by the Eligible Institution within three NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Notes are sent by mail, it is suggested that the
mailing be registered mail, properly insured, with return receipt requested,
and made sufficiently in advance of the Expiration Date to permit delivery to
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of
Old Notes--Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box of this Letter, promptly after the
Expiration Date. All of the Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
3. SIGNATURES ON THIS LETTER, BOND POWERS AND ENDORSEMENTS, GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
<PAGE>
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this letter as there are different registrations of
certificates.
When this letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificates(s) must be
guaranteed by an Eligible Institution.
If this letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed accompanied by appropriate bond powers, in either case signed exactly
as the name or names of the registered holder or holders appear(s) on the
certificate(s) and signatures on such certificate(s) must be guaranteed by an
Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FINANCIAL INSTITUTION
(INCLUDING MOST BANKS, SAVINGS AND LOAN ASSOCIATIONS AND BROKERAGE HOUSES)
THAT IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM, THE
NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM OR THE STOCK EXCHANGES
MEDALLION PROGRAM (EACH, AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION,
PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF OLD NOTES
(WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN
THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY
POSITION LISTINGS AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED THE
BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendered holders of Old Notes should indicate in the applicable box the name
and address to which New Notes issued pursuant to the Exchange Offer and/or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. Noteholders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such Old Notes not exchanged will be returned to the name and address
of the person signing this Letter.
5. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If, however,
New Notes and/or substitute Old Notes not exchanged are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the Old Notes tendered hereby, or if tendered Old Notes
are registered in the name of any person other than the person signing this
Letter, or if a transfer tax is imposed for any reason other than the transfer
of Old Notes to the Company or its order pursuant to the Exchange Offer, the
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted
herewith, the amount of such transfer taxes will be billed to such tendering
holder and the Exchange Agent will retain possession of an amount of New Notes
with a face amount equal to the amount of such transfer taxes due by such
tendering holder pending receipt by the Exchange Agent of the amount of such
taxes.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
<PAGE>
6. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
7. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Old Notes
for exchange.
Although the Company intends to notify holders of defects or irregularities
with respect to tenders of Old Notes, neither the Company, the Exchange Agent
nor any other person shall incur any liability for failure to give any such
notice.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
9. WITHDRAWAL OF TENDERS.
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth above prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes), (iii)
be signed by the holder in the same manner as the original signature on this
Letter (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the trustee under the Indenture
register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the Exchange Offer.
Any Old Notes that have been tendered for exchange but which are not exchanged
for any reason will be returned to the holder thereof without cost to such
holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following the procedures described above at any time on or prior
to 5:00 p.m., New York City time, on the Expiration Date.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus, this Letter and other related documents
may be directed to the Exchange Agent, at (212) 815-2742.
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of New Notes is required to
provide the Company (as payor) with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 or otherwise establish a
basis for exemption from backup withholding to prevent backup withholding on
any New Notes delivered pursuant to the Exchange Offer and any payments
received in respect of the New Notes. If a holder of New Notes is an
individual, the TIN is such holder's social security number. If the Company is
not provided with the correct taxpayer identification number, a holder of New
Notes may be subject to a $50 penalty imposed by the Internal Revenue Service.
Accordingly, each prospective holder of New Notes to be issued pursuant to
Special Issuance Instructions should complete the attached Substitute Form W-
9. The Substitute Form W-9 need not be completed if the box entitled Special
Issuance Instructions has not been completed.
Certain holders of New Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt prospective holders of New Notes should
indicate their exempt status on Substitute Form W-9. A foreign individual may
qualify as an exempt recipient by submitting to the Company, through the
Exchange Agent, a properly completed Internal
<PAGE>
Revenue Service Form W-8 (which the Exchange Agent will provide upon request)
signed under penalty of perjury, attesting to the holder's exempt status. See
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of New Notes or other payee. Backup withholding
is not an additional federal income tax. Rather, the federal income tax
liability of persons 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 any New Notes delivered pursuant to the
Exchange Offer and any payments received in respect of the New Notes, each
prospective holder of New Notes to be issued pursuant to Special Issuance
Instructions should provide the Company, through the Exchange Agent, with
either: (i) such prospective holder's correct TIN by completing the form
below, certifying that the TIN provided on Substitute Form W-9 is correct (or
that such prospective holder is awaiting a TIN) and that (A) such prospective
holder has not been notified by the Internal Revenue Service that he or she is
subject to backup withholding as a result of a failure to report all interest
or dividends or (B) the Internal Revenue Service has notified such prospective
holder that he or she is no longer subject to backup withholding; or (ii) an
adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The prospective holder of New Notes to be issued pursuant to Special
Issuance Instructions is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the prospective
record owner of the New Notes. If the New Notes will be 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 on Substitute
Form W-9 for additional guidance regarding which number to report.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder
is subject to backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
tendering holder of Old Notes is a nonresident alien or foreign entity not
subject to backup withholding, such holder must give the Company a completed
Form W-8, Certificate of Foreign Status. These forms may be obtained from the
Exchange Agent. If the Old Notes are in more than one name or are not in the
name of the actual owner, such holder should consult the W-9 Guidelines for
information on which TIN to report. If such holder does not have a TIN, such
holder should consult the W-9 Guidelines for instructions on applying for a
TIN, check the box in Part 2 of the Substitute Form W-9 and write "applied
for" in lieu of its TIN. Note: Checking this box and writing "applied for" on
the form means that such holder has already applied for a TIN or that such
holder intends to apply for one in the near future. If such holder does not
provide its TIN to the Company within 60 days, backup withholding will begin
and continue until such holder furnishes its TIN to the Company.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: THE BANK OF NEW YORK
PART I--PLEASE PROVIDE YOUR
TIN IN THE BOX AT RIGHT AND TIN: _________________
CERTIFY BY SIGNING AND Social Security Number
DATING BELOW. or Employer
Identification Number
SUBSTITUTE --------------------------------------------------------
FORM W-9 PART II--TIN Applied for [_]
CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY
THAT:
DEPARTMENT OF --------------------------------------------------------
THE TREASURY (1) The number shown on this form is my correct
INTERNAL Taxpayer Identification Number (or I am waiting
REVENUE for a number to be issued to me);
SERVICE (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; and
PAYOR'S REQUEST (3) any other information provided on this form is
FOR TAXPAYER true and correct.
IDENTIFICATION
NUMBER ("TIN")
AND CERTIFICATION
Signature: _____________ Date: ______
- --------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup
withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 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 by the
time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide a number.
______________________________________ ____________________________________
Signature Date
