<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO. 1-13696.
AK STEEL HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
31-1401455
DELAWARE (I.R.S. EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
703 CURTIS STREET, MIDDLETOWN, OHIO 45043
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
Registrant's telephone number, including area code: (513) 425-5000.
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
------------------- ------------------------------
<S> <C>
COMMON STOCK $.01 PAR VALUE NEW YORK STOCK EXCHANGE
10 3/4% SENIOR NOTES DUE 2004 NEW YORK STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Aggregate market value of the registrant's voting stock held by non-
affiliates at January 22, 1998: $894,263,776.
At January 22, 1998 there were 60,762,130 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required to be furnished pursuant to Part III of this Form
10-K will be set forth in, and incorporated by reference from, the
registrant's definitive proxy statement for the annual meeting of stockholders
to be held May 21, 1998, (the "1997 Proxy Statement"), which will be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the fiscal year ended December 31, 1997.
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<PAGE>
AK STEEL HOLDING CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 4
Item 3. Legal Proceedings................................................. 4
Item 4. Submission of Matters to a Vote of Security Holders............... 5
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 6
Item 6. Selected Financial Data........................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 9
Item 8. Financial Statements and Supplementary Data....................... 13
Item 9. Changes in and Disagreements with Accountants..................... 31
Item 10. Directors and Executive Officers of the Registrant................ 31
Item 11. Executive Compensation............................................ 31
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 31
Item 13. Certain Relationships and Related Transactions.................... 31
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K.. 32
</TABLE>
i
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PART I
ITEM 1. BUSINESS.
GENERAL
AK Steel Holding Corporation, through its wholly-owned subsidiary, AK Steel
Corporation (collectively, the "Company"), is a fully-integrated producer of
flat rolled steel. 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. During 1997, the Company's shipments totalled 4,646,800 tons, of
which 2,874,800 tons, or approximately 62%, consisted of value-added coated
and cold rolled carbon steel products, as well as approximately 70,000 tons of
aluminum coated stainless steel.
The Company has earned a reputation, particularly among high-end customers,
for consistent product quality and superior service, receiving numerous
customer quality awards. The Company is registered under the ISO 9002
international quality standard and certified under the QS 9000 quality
assurance program used by domestic automotive manufacturers.
OPERATIONS
The Company currently conducts operations at its Middletown Works in
Middletown, Ohio, and its Ashland Works in Ashland, Kentucky. In November
1996, the Company announced plans to construct its Rockport Works, a state-of-
the-art finishing facility currently being constructed on a 1,700 acre site in
Spencer County, Indiana, near the Ohio River community of Rockport. For
further information with respect to these facilities, see Item 2. Properties.
CUSTOMERS
The Company's principal customers are in the automotive, appliance,
construction and manufacturing markets. The Company also sells its products to
distributors and convertors.
The Company's marketing efforts are principally directed toward those
customers who require on-time delivery, technical support and the highest
quality coated and cold rolled products. 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,
--------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Automotive.................................................... 50% 55% 56%
Appliance, Construction and Manufacturing..................... 16% 15% 16%
Distributors and Convertors................................... 34% 30% 28%
</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 in recent years. A major factor contributing to this
increase has been the growth in the number of U.S.-based plants of foreign
automotive manufacturers. 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 20%, 17% and 18% of net sales in
1995, 1996 and 1997, respectively. No other customer accounted for more than
10% of net sales for any of these years.
1
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The appliance, construction and manufacturing markets consist principally of
the home appliance market, heating, ventilation and air conditioning market
and the lighting industry. Distributors and convertors, the third category of
the Company's primary markets, purchase primarily hot rolled and cold rolled
products and may process these further or sell them directly to third parties.
Sales generally are made on a spot market basis.
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 raw material requirements.
EMPLOYEES
As of December 31, 1997, the Company had approximately 5,800 active
employees, of whom approximately 55% 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.
The Company's existing labor contracts are scheduled to expire as follows:
AEIF--February 29, 2000, USWA--September 1, 2000, and OCAW--April 1, 2001.
COMPETITION
The Company competes with domestic and foreign flat-rolled carbon steel
producers and producers of plastics, aluminum and other materials that can be
used in place of flat-rolled carbon steel in manufactured products. Price,
service, delivery and quality are the primary competitive factors faced by the
Company, and vary in importance according to the category of product and
customer requirements.
Domestic steel producers face significant competition from foreign producers
who typically have lower labor costs. In addition, many foreign steel
producers are owned, controlled or subsidized by their governments and their
decisions with respect to production and sales may be influenced more by
political and economic policy considerations than by prevailing market
conditions.
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,
------------
1995 1996 1997
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Environmental related capital investments................. $19.1 $ 6.1 $ 4.3
Environmental compliance costs............................ 51.7 53.6 52.9
</TABLE>
2
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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, 1997, 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 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 United
States Environmental Protection Agency ("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"), 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 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
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
steelmaking 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
3
<PAGE>
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.
ITEM 2. PROPERTIES.
The Company's corporate headquarters is located in Middletown, Ohio. 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. All of these facilities are owned and
together comprise approximately 3,700 acres of land.
The Rockport Works, currently under construction, is located on a 1,700 acre
site in Spencer County, Indiana near the Ohio river community of Rockport. The
facility will consist of a state-of-the-art continuous cold rolling mill, a
hot dip galvanizing and galvannealing line, a continuous carbon and stainless
steel pickling line, a stainless steel annealing and pickling line, hydrogen
annealing facilities and a temper mill. The first production component to
begin commercial operation will be the hot dip galvanizing and galvannealing
line, which is projected to start-up during the third quarter of 1998. The
continuous cold mill is scheduled to start-up during the first quarter of 1999
with the remaining facilities coming on line in a staggered fashion during the
balance of 1999.
ITEM 3. LEGAL PROCEEDINGS.
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 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
additional named plaintiffs. The plaintiffs allege
4
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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. The Company has filed motions to dismiss the suit
in whole and in part. No rulings have been rendered to date on these motions.
In March 1997, the Court granted plaintiffs' motion to certify a class. The
Company's appeal of this decision was denied by the appellate court in June
1997. The Company has further appealed this decision to the Ohio Supreme Court
and a decision is pending. In April 1997, the Company commenced a separate
lawsuit in the United States District Court, Southern District of Ohio,
seeking a permanent injunction staying the state court case and seeking a
declaration that the state court case is preempted by federal law. On August
21, 1997, the federal court denied the motion for an injunction and ordered
the parties to brief the question of its jurisdiction to hear the case.
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. On May 30,
1997, the Company filed a motion for summary judgment seeking dismissal of the
case and a decision is pending.
In May 1996, an action was commenced against the Company in the United
States District Court, Southern District of Ohio, 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. In March 1997, the court granted the Company's motion to
dismiss all federal law claims. Subsequently, the Company entered into a
settlement agreement with all plaintiffs on their pending state law claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, age and principal position with the
Company of each of its executive officers as of January 23, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Richard M. Wardrop,
Jr..................... 52 Chairman of the Board and Chief Executive Officer
James L. Wareham........ 58 President
Richard E. Newsted...... 40 Executive Vice President, Chief Financial Officer
Michael P. Christy...... 41 Vice President, Purchasing and Financial Analysis
Thomas C. Graham, Jr.... 43 Vice President, Research and Design Engineering
Brenda S. Harmon........ 46 Vice President, Human Resources
John G. Hritz........... 43 Vice President, General Counsel and Secretary
Alan H. McCoy........... 46 Vice President, Public Affairs
James W. Stanley........ 53 Vice President, Safety and Health
James L. Wainscott...... 40 Vice President and Treasurer
James F. Walsh.......... 44 Vice President, Manufacturing
Donald B. Korade........ 55 Controller
</TABLE>
Richard M. Wardrop, Jr. 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.
James L. Wareham was named President in March 1997. Since 1992 Mr. Wareham
was Chairman, President and Chief Executive Officer of Wheeling Pittsburgh
Steel Corporation as well as President of WHX Corporation, the parent company
of Wheeling Pittsburgh Steel Corporation.
5
<PAGE>
Richard E. Newsted was named Executive Vice President, Chief Financial
Officer in May 1997. Prior to that he had 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 of
National Steel Corporation.
Michael P. Christy was elected Vice President, Purchasing and Financial
Analysis in January 1998. Mr. Christy was named Director, Purchasing and
Financial Analysis in May 1997 after having served as Director, Financial
Planning and Analysis since June 1996. Prior to that Mr. Christy held various
positions in finance, planning and operations at National Steel Corporation.
Thomas C. Graham, Jr. has been Vice President, Research and Design
Engineering since 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.
Brenda S. Harmon was elected Vice President, Human Resources in January of
1998. Mrs. Harmon has been General Manager, Human Resources since September
1996, after having been named Corporate Manager, Human Resources in March
1995. Prior to that Mrs. Harmon held various positions within the Company's
Human Resources Department.
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 has been Vice President, Public Affairs since January 1997.
From March 1994 until that date Mr. McCoy served as General Manager, Public
Relations. Prior to that Mr. McCoy held various positions within the Company's
Public Relations Department.
James W. Stanley has been Vice President, Safety and Health since 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 has been Vice President and Treasurer since 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 has been Vice President, Manufacturing since 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 until September
1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been listed on the New York Stock Exchange
since April 5, 1995 (symbol: AKS). In October 1997, the Company's Board of
Directors authorized a two-for-one stock split of its outstanding Common Stock
effective November 17, 1997 and a 25% increase in the Company's Common Stock
dividend to an annual indicated rate of $.50 per share on a post-split basis.
The table below sets forth, for
6
<PAGE>
the calendar quarters indicated, the reported high and low sale prices of the
Common Stock, as adjusted for the two-for-one stock split:
<TABLE>
<CAPTION>
1996 HIGH LOW
---- --------- ---------
<S> <C> <C>
First Quarter.......................................... $20 1/2 $16 1/2
Second Quarter......................................... $22 1/16 $18 15/16
Third Quarter.......................................... $21 7/16 $17 7/8
Fourth Quarter......................................... $21 1/4 $17 3/8
<CAPTION>
1997 HIGH LOW
---- --------- ---------
<S> <C> <C>
First Quarter.......................................... $20 11/16 $17 1/2
Second Quarter......................................... $22 3/16 $17 3/4
Third Quarter.......................................... $24 1/32 $20 9/16
Fourth Quarter......................................... $22 5/8 $16 1/8
</TABLE>
As of January 22, 1998, there were 60,762,130 shares of Common Stock
outstanding and held of record by 219 stockholders. Because many of these
shares were held by depositories, brokers and other nominees, the number of
record holders is not representative of the number of beneficial holders.
On October 9, 1995, the Board of Directors approved a plan to repurchase,
from time to time, up to $100.0 million of its outstanding equity securities.
Pursuant to this plan, in 1995 the Company repurchased and is holding in its
treasury 1,274,870 shares (on a post-split basis) of Common Stock for $21.5
million, an average of $16.81 per share. In addition, the Company repurchased
and retired 1,563,700 shares of its Convertible Preferred Stock, Stock
Appreciation Income Linked Securities ("SAILS") (2,696,132 post-split Common
Stock equivalents) for $52.3 million, an average of $33.43 per SAILS, and in
1996 an additional 707,600 SAILS (1,220,044 post-split Common Stock
equivalents) were purchased and retired for $26.2 million, an average of
$37.16 per SAILS. The last purchases under this plan were completed in April
1996.
On May 15, 1996, the Board of Directors approved a second plan to
repurchase, from time-to-time, up to an additional $100.0 million of its
outstanding equity securities. Pursuant to this plan, in 1997 the Company
repurchased and is holding in its treasury 1,409,050 shares (on a post split
basis) of its Common Stock for $26.7 million, an average of $18.96 per share.
In addition, in 1996, the Company repurchased and retired 362,600 SAILS
(625,195 post-split Common Stock equivalents) for $12.8 million, an average of
$35.36 per SAILS and in 1997 the Company repurchased and retired an additional
95,000 SAILS (163,799 post-split Common Stock equivalents) for $3.1 million,
an average of $32.92 per SAILS.
On October 16, 1997, the Company redeemed its remaining outstanding
4,750,774 SAILS, in exchange for the issuance of 8,191,284 shares (on a post-
split basis) of Common Stock.
The Company has paid quarterly dividends on its Common Stock since November
15, 1995. Dividends at the post-split rate of $0.075 per share were paid on
February 15, May 15, and August 15, 1996 and a dividend of $0.10 per post-
split share was paid on November 15, 1996. In 1997, dividends at the post-
split rate of $0.10 were paid on February 15, May 15, August 15 and a dividend
of $0.125 was paid on November 15. The declaration and payment of cash
dividends is subject to restrictions imposed by the instruments governing its
senior debt. At December 31, 1997, the Company had adequate amounts available
for the payment of cash dividends.
7
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical consolidated financial data for each of
the five years in the period ended December 31, 1997 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 and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
(1)
Net sales...................... $1,594.5 $2,016.6 $2,257.3 $2,301.8 $2,440.5
-------- -------- -------- -------- --------
Cost of products sold.......... 1,380.3 1,655.2 1,768.1 1,846.5 1,964.5
Selling and administrative
expenses...................... 111.2 113.7 116.5 114.7 114.8
Depreciation................... 73.5 70.7 74.6 76.1 79.8
Special charges and unusual
items (2)..................... 17.6 (15.9) -- -- --
-------- -------- -------- -------- --------
Total operating costs.......... 1,582.6 1,823.7 1,959.2 2,037.3 2,159.1
-------- -------- -------- -------- --------
Operating profit (2)........... 11.9 192.9 298.1 264.5 281.4
Interest expense............... 58.1 48.2 35.6 39.8 76.3
Other income................... 3.5 7.3 19.0 12.3 36.4
-------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
items......................... (42.7) 152.0 281.5 237.0 241.5
Provision (benefit) for income
taxes (3)..................... -- (120.5) 12.9 91.1 90.6
-------- -------- -------- -------- --------
Income (loss) before
extraordinary items........... (42.7) 272.5 268.6 145.9 150.9
Extraordinary items (4)........ -- (14.9) -- -- --
-------- -------- -------- -------- --------
Net income (loss).............. $ (42.7) $ 257.6 $ 268.6 $ 145.9 $ 150.9
======== ======== ======== ======== ========
Basic earnings per share: (5)
Income before extraordinary
items....................... n/a $ 5.13 $ 4.82 $ 2.57 $ 2.59
Extraordinary items.......... n/a (0.28) -- -- --
Net income................... n/a 4.85 4.82 2.57 2.59
Diluted earnings per share: (5)
Income before extraordinary
items....................... n/a 4.17 4.09 2.35 2.43
Extraordinary items.......... n/a (0.23) -- -- --
Net income................... n/a 3.94 4.09 2.35 2.43
Cash dividend per common share
(5)........................... n/a n/a .075 .325 .425
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (1)
Cash, cash equivalents and
short-term investments........ $ 144.2 $ 261.8 $ 312.8 $ 739.3 $ 606.1
Working capital................ 55.9 443.5 489.8 1,005.1 658.2
Total assets................... 1,518.7 1,933.2 2,115.5 2,650.8 3,084.3
Current portion of long-term
debt.......................... 130.8 -- -- -- --
Long-term debt (excluding
current portion).............. 598.6 330.0 325.0 875.0 997.5
Current portion of pension and
postretirement benefit
obligations................... 93.8 110.3 0.1 0.1 0.1
Long-term pension and
postretirement benefit
obligations (excluding current
portion)...................... 922.8 638.3 655.7 564.9 554.1
Stockholders' equity (6)....... (586.2) 449.0 674.2 777.0 879.6
</TABLE>
8
<PAGE>
- --------
(1) AK Steel Holding and AK Steel were formed effective March 29, 1994, as a
result of a recapitalization of Armco Steel Company, L.P. (the
"Partnership"), which was a joint venture of Armco Inc. and Kawasaki Steel
Corporation. Accordingly, data for 1993 is derived from the financial
statements of the Partnership.
(2) 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 gain of $15.9 million from the sale of the Company's equity
interests in Southwestern Ohio Steel, L.P. and Nova Steel Processing.
(3) Includes a tax benefit of $120.3 million in 1994 associated with
recognition of the deferred tax asset related to postretirement benefits.
(4) The extraordinary item of $14.9 million in 1994 consists of charges
associated with the prepayment of certain outstanding debt.
(5) The historical per share amounts have been restated for a two-for-one
Common Stock split effective November 17, 1997. The Company has adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" ("EPS"). The effect of this standard on the EPS calculation was
not material.
(6) Stockholders' equity at December 31, 1993 and 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 an 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
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.
1997 COMPARED TO 1996
Net sales increased 6% in 1997 over 1996 with coated and cold rolled
shipments accounting for 75% of total product sales. The Company continues to
focus on the automotive market with record shipments and sales during 1997.
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,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Automotive.............. 50% 55% 56%
Appliance, Construction
and Manufacturing...... 16% 15% 16%
Distributors and
Convertors............. 34% 30% 28%
</TABLE>
Operating profit in 1997 totalled $281.4 million, or $61 per ton shipped,
compared to $264.5 million or $60 per ton shipped in 1996. Reductions in
selling prices and increases in raw materials and energy costs were offset as
the Company continues to 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 2.83 for the year of 1997 from 3.02
for 1996.
Interest expense, net of capitalized interest of $20.9 million, totalled
$76.3 million in 1997 compared to $39.8 million in 1996. The increase in
interest expense is attributable primarily to the issuance in December 1996 of
$550.0 million of 9 1/8% Senior Notes Due 2006 (the "9 1/8% Notes") as well as
the issuance in June and September 1997 of $92.5 million and $20.0 million,
respectively, of Senior Secured Notes Due 2004 (the "Secured Notes"). Other
income, consisting primarily of interest income, increased to $36.4 million in
1997 from $12.3 million in 1996.
9
<PAGE>
The total income tax provision was $90.6 million, the components of which
are described in Note 3 to the Consolidated Financial Statements herein. The
tax rate was 38.4% and 37.5% for 1996 and 1997, respectively.
Net income for 1997 totalled $150.9 million compared to $145.9 million for
1996. Diluted earnings per share have been calculated in compliance with the
adoption of SFAS No. 128 and adjusted for the two-for-one Common Stock split.
Diluted earnings per share for 1997 totalled $2.43 compared to $2.35 for 1996.
Many business and process control systems used in the current business
environment were designed to use only two digits in the date field and thus
may not function properly in the year 2000. Over the past several years, the
Company has been assessing and modifying its own business systems to be year
2000 compliant. The Company has a plan to achieve year 2000 compliance with
respect to its own business systems, including systems and user testing, and
does not expect the costs associated with that plan to be material. The
Company is continuing to assess its process control systems for year 2000
compliance and intends to make the necessary modifications to prevent
disruption to its operations. The Company is unable at this time to estimate
the costs of such modifications.
1996 COMPARED TO 1995
Net sales increased 2% in 1996 over 1995. Flat rolled product sales
increased 5% or $108.2 million. However, due to the shutdown of two of the
coke oven batteries at the Company's Middletown Works in December of 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
Convertors............. 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 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 $550.0 million of 9 1/8% Notes.
The total income tax provision in 1996 was $91.1 million, the components of
which are described in Note 3 to the Consolidated Financial Statements herein.
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%
10
<PAGE>
for 1995. On a comparably taxed basis, net income for 1995 would have been
$173.5 million. Diluted earnings per share for 1996, as adjusted for the
adoption of SFAS 128 and the two-for-one Common Stock split, were $2.35,
compared to a reported $4.09 ($2.64 on a comparably taxed basis) for 1995.
LIQUIDITY AND CAPITAL RESOURCES
YEAR ENDED DECEMBER 31, 1997
At December 31, 1997, the Company had $606.1 million in cash, cash
equivalents and short term investments and $109.4 million of financing
available under its $125.0 million accounts receivable purchase credit
facility. During 1997, cash flow from operations generated $472.0 million.
Operating cash flows were attributed primarily to net income, the impact of
working capital items and noncash charges for depreciation and taxes.
Cash flows used in investing activities totalled $706.3 million of which
$508.4 million was associated with the Rockport Works. Remaining capital
investments totalled $128.1 million and purchases of short-term investments
were $41.7 million.
Cash flows from financing activities generated $59.4 million. In 1997 the
Company issued an aggregate of $112.5 million of its Secured Notes with a
weighted average interest rate of 8.99%, an additional $137.5 million of the
Secured Notes were issued in January 1998 with a weighted average interest
rate of 8.51%. The Company paid $34.1 million in dividends and utilized $29.8
million for open market purchases of its equity securities during 1997.
Anticipated Debt Service
The Company's long-term debt at December 31, 1997, totalled $997.5 million,
and consisted of $325.0 million principal amount of its 10 3/4% Senior Notes
Due 2004 and $550.0 million principal amount of its 9 1/8% Notes, none of
which is subject to amortization prior to maturity, $112.5 million aggregate
principal amount of its Secured Notes, which, together with an additional
$137.5 million of Secured Notes issued in January 1998, will be repayable in
four successive annual installments of $62.5 million commencing in December
2001, and $10.0 million in tax exempt revenue bonds due on December 1, 2027.
Interest expense for 1997, net of capitalized interest of $20.9 million,
totalled $76.3 million.
Capital Investments
In addition to the projected $1.1 billion cost of constructing and equipping
Rockport Works, the Company anticipates annual capital investments of
approximately $125.0 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 Rockport Works
totalled $128.1 million during 1997. At December 31, 1997, commitments for
future capital investments, excluding Rockport Works but including those made
to assure environmental compliance, totalled approximately $61.4 million, all
of which will be funded in 1998. In addition, at December 31, 1997, the
Company had outstanding commitments for the constructing and equipping of
Rockport Works under contracts aggregating $348.5 million; however, the
Company's maximum aggregate liability in the event of cancellation of these
contracts is limited to $130.7 million. Peak capital investment is expected to
occur in the first half of 1998, declining steadily thereafter until final
completion of the facility in December of 1999. In addition to the proceeds
from issuance of its 9 1/8% Notes and Secured Notes, the Company will use
approximately $300.0 million of cash from operations to finance construction
of Rockport Works.
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, 1997. 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 $317.2 million that can be used to meet future pension
funding requirements, if any, although there are no present plans to do so.
11
<PAGE>
At December 31, 1997, the Company's liability for postretirement benefits
other than pensions totalled $554.1 million. The Company has prefunded a
portion of this liability through the establishment of a health care trust. At
December 31, 1997, the balance of the trust including the earnings on the
trust investments was $219.3 million which is equivalent to approximately
three years of active and retiree health care benefit payments.
Other
On October 8, 1997, the Company's Board of Directors authorized a two-for-
one Common Stock split that became effective November 17, 1997. Following the
stock split, approximately 62 million common shares were outstanding.
On October 16, 1997, the Company redeemed its then outstanding 4,750,774
SAILS in exchange for the issuance of 8,191,284 shares (on a post-split basis)
of Common Stock. The redemption did not dilute the interests of common
shareholders because per share earnings from the date of issuance of the SAILS
had been calculated on a diluted basis that gave effect to the mandatory
conversion feature of the SAILS. Cash requirements for the redemption were
minimal, relating only to payment for fractional shares. Redemption of the
SAILS resulted in net annual dividend cash flow savings of $6.1 million.
In October 1997, the Board of Directors also approved a 25% increase in the
Company's Common Stock dividend to an annual indicated rate of $.50 per share
on a post-split basis. A post-split quarterly dividend of $.125 per share was
paid on November 17, 1997 to shareholders of record on October 21, 1997.
YEAR ENDED DECEMBER 31, 1996
On December 17, 1996, the Company completed arrangements for $800.0 million
of debt financing for the construction of Rockport Works. On that date the
Company issued $550.0 million of 9 1/8% Notes and entered into definitive
agreements for the private sale beginning in June of 1997 of an aggregate of
$250.0 million of 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, 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 Rockport Works.
Cash flows from financing activities generated $484.9 million as the net
proceeds from the issuance of $550.0 million of the 9 1/8% 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 flow from operations generated
$300.1 million. The Company contributed $93.0 million to its pension trust and
$70.0 million to the health care benefits trust, made capital investments of
$175.7 million and used $73.8 million for open market purchases of its equity
securities.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
AK STEEL HOLDING CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. 14
Consolidated Statements of Income for the Years Ended December 31, 1995,
1996 and 1997........................................................... 15
Consolidated Balance Sheets as of December 31, 1996 and 1997............. 16
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997..................................................... 17
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997........................................ 18
Notes to Consolidated Financial Statements............................... 19
</TABLE>
13
<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, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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,
1996 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 20, 1998
14
<PAGE>
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales (Note 7).................................. $2,257.3 $2,301.8 $2,440.5
Operating Costs:
Cost of products sold (Notes 1 and 7)............. 1,768.1 1,846.5 1,964.5
Selling and administrative expenses............... 116.5 114.7 114.8
Depreciation (Note 1)............................. 74.6 76.1 79.8
-------- -------- --------
Total Operating Costs........................... 1,959.2 2,037.3 2,159.1
-------- -------- --------
Operating Profit.................................... 298.1 264.5 281.4
Interest Expense (Note 4)........................... 35.6 39.8 76.3
Other Income........................................ 19.0 12.3 36.4
-------- -------- --------
Income Before Income Taxes.......................... 281.5 237.0 241.5
Current Income Tax Provision (Note 3)............... 6.2 3.8 46.3
Deferred Income Tax Provision (Note 3).............. 6.7 87.3 44.3
-------- -------- --------
Net Income.......................................... 268.6 145.9 150.9
Preferred Stock Dividends (Note 2).................. 15.3 11.1 7.7
-------- -------- --------
Net Income Applicable to Common Shareholders........ $ 253.3 $ 134.8 $ 143.2
======== ======== ========
Earnings per share: (Note 2)*
Basic earnings per share:......................... $ 4.82 $ 2.57 $ 2.59
Diluted earnings per share........................ 4.09 2.35 2.43
Cash dividends per common share................... .075 .325 .425
</TABLE>
*Restated for two-for-one Common Stock split effective November 17, 1997.
See notes to consolidated financial statements.
15
<PAGE>
AK STEEL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 1)....................... $ 523.1 $ 348.2
Short-term investments................................... 216.2 257.9
Accounts receivable, net (Notes 1 and 4)................. 260.3 241.5
Inventories, net (Note 1)................................ 360.9 365.2
Other.................................................... 5.2 8.8
-------- --------
Total Current Assets................................... 1,365.7 1,221.6
-------- --------
Property, plant and equipment (Note 1):
Land, land improvements and leaseholds................... 46.2 47.8
Buildings................................................ 82.3 81.8
Machinery and equipment.................................. 1,350.6 1,396.4
Construction in progress................................. 112.2 693.2
-------- --------
Total.................................................. 1,591.3 2,219.2
Less accumulated depreciation............................ (552.7) (626.5)
-------- --------
Property, plant and equipment, net....................... 1,038.6 1,592.7
Prepaid pension (Note 6)................................... 153.3 159.2
Other (Note 6)............................................. 93.2 110.8
-------- --------
Total Assets........................................... $2,650.8 $3,084.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................... $ 239.8 $ 375.6
Accrued salary and wages................................. 68.4 66.1
Other accruals (Notes 2 and 3)........................... 50.0 91.9
Current portion of deferred taxes (Note 3)............... 2.3 29.7
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.............................. 360.6 563.4
-------- --------
Noncurrent Liabilities:
Long-term debt (Note 4).................................. 875.0 997.5
Pension obligation (Note 6).............................. -- --
Postretirement benefit obligation (Note 6)............... 564.9 554.1
Deferred taxes (Note 3).................................. 13.4 30.3
Other liabilities........................................ 59.9 59.4
Commitments and contingencies (Notes 4, 8 and 9)......... -- --
-------- --------
Total Noncurrent Liabilities........................... 1,513.2 1,641.3
-------- --------
Total Liabilities...................................... 1,873.8 2,204.7
-------- --------
Stockholders' Equity:*
Preferred stock, Authorized 25,000,000 shares of $.01 par
value each; issued and outstanding, 1996, 4,845,774
shares (Note 2)......................................... 0.1 --
Common stock, Authorized 75,000,000 shares of $.01 par
value each; issued, 1996, 54,517,668 shares; 1997,
63,503,718 shares; outstanding, 1996, 53,239,900 shares;
1997, 60,808,922 shares (Note 2)........................ 0.3 0.6
Additional paid-in capital............................... 708.9 716.8
Treasury stock, common shares at cost, 1996, 1,277,768;
1997, 2,694,796 shares (Note 2)......................... (21.5) (48.2)
Retained earnings........................................ 89.2 210.4
-------- --------
Total Stockholders' Equity................................. 777.0 879.6
-------- --------
Total Liabilities and Stockholders' Equity................. $2,650.8 $3,084.3
======== ========
</TABLE>
*Restated for two-for-one Common Stock split effective November 17, 1997
See notes to consolidated financial statements.
16
<PAGE>
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $268.6 $145.9 $150.9
------ ------ ------
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation....................................... 74.6 76.1 79.8
Deferred income taxes.............................. 6.7 87.3 44.3
Other, net......................................... 2.3 3.5 12.8
Changes in Assets and Liabilities:
Accounts and notes receivable.................... 32.4 (42.4) 19.0
Inventories...................................... (17.6) (20.2) (4.3)
Current liabilities.............................. 67.5 (36.2) 179.0
Other assets..................................... (30.5) (19.1) 7.7
Pension obligation............................... (75.6) (14.4) (5.9)
Postretirement benefit obligation................ (19.8) (90.8) (10.8)
Other liabilities................................ (8.5) (3.4) (0.5)
------ ------ ------
Total Adjustments.............................. 31.5 (59.6) 321.1
------ ------ ------
Net cash flows from operating activities......... 300.1 86.3 472.0
------ ------ ------
Cash flows from investing activities:
Capital investments.................................. (175.7) (141.6) (636.5)
Net purchase of short-term investments............... (175.8) (40.4) (41.7)
Purchase of long-term investments.................... (3.9) -- (26.4)
Proceeds from the sale of investments................ 2.7 -- 0.4
Proceeds from sale of property, plant and equipment.. 5.8 0.3 0.9
Proceeds from sale of Eveleth Notes.................. 7.7 -- --
Advances to investees................................ (5.5) (5.4) (3.0)
Proceeds, asset sales................................ 10.5 2.0 --
------ ------ ------
Net cash flows from investing activities......... (334.2) (185.1) (706.3)
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of common stock............... 8.1 16.6 7.0
Principal payments on long-term debt................. (5.0) -- --
Proceeds from issuance of long-term debt............. -- 550.0 122.5
Purchase of treasury stock........................... (21.5) -- (26.7)
Purchase of preferred stock.......................... (52.3) (39.2) (3.1)
Preferred stock dividends paid....................... (16.1) (11.7) (10.3)
Common stock dividends paid.......................... (3.9) (17.0) (23.8)
Underwriting discount and stock issuance expense..... -- (13.8) (6.1)
Other, net........................................... -- -- (0.1)
------ ------ ------
Net cash flows from financing activities......... (90.7) 484.9 59.4
------ ------ ------
Net increase (decrease) in cash and cash equivalents... (124.8) 386.1 (174.9)
Cash and cash equivalents, beginning of period....... 261.8 137.0 523.1
------ ------ ------
Cash and cash equivalents, end of period............. $137.0 $523.1 $348.2
====== ====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized)............... $ 33.7 $ 36.3 $ 72.1
Income taxes....................................... 4.2 5.8 42.6
</TABLE>
See notes to consolidated financial statements.
17
<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, 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 $.075 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 exer-
cise 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 $.075 cash
dividend per quarter,
$.10 in fourth quar-
ter*.................. (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
Net income.............. 150.9 150.9
Unrealized gain on mar-
ketable securities..... 2.1 2.1
Stock options exer-
cised.................. 7.0 7.0
Two-for-one Common Stock
split.................. 0.3 (0.3)
Tax benefit from exer-
cise of stock options
(Note 3)............... 1.2 1.2
Tax benefit from vesting
of restricted stock.... 0.1 0.1
Purchase of stock....... (2.8) (26.7) (0.3) (29.8)
Redemption of preferred
stock.................. (0.1) (0.1) (0.2)
Cash dividend:
Preferred stock $.538
cash dividend per
quarter............... (7.7) (7.7)
Common stock $.10 cash
dividend per quarter,
$.125 in fourth quarter* (23.8) (23.8)
Issuance of restricted
stock, net............. 6.2 6.2
Unamortized restricted
stock (Note 2)......... (3.4) (3.4)
---- ---- ------ ------ ------- ------
BALANCE, DECEMBER 31,
1997................... $ -- $0.6 $716.8 $(48.2) $ 210.4 $879.6
==== ==== ====== ====== ======= ======
</TABLE>
*Restated for two-for-one Common Stock split effective November 17, 1997
See notes to consolidated financial statements.
18
<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 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 1995 and 1996 items have been reclassified
to conform with 1997 classifications. All references to the number of common
shares and per share amounts have given effect to the two-for-one Common Stock
split effective November 17, 1997.
The Company consists of the operations and accounts of the Middletown Works,
Ashland Works, Rockport Works, Headquarters, AKSR Investments Inc. ("AKR") and
AKS Investments, Inc. and its group of wholly-owned subsidiaries, (the "AKSII
Group"). 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 20%, 17% and 18% of its net
sales in 1995, 1996 and 1997, respectively.
Employees: As of December 31, 1997, the Company had approximately 5,800
active employees, of whom approximately 55% 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.
The Company's existing labor contracts are scheduled to expire as follows:
AEIF--February 29, 2000, USWA--September 1, 2000, and OCAW--April 1, 2001.
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 1996 and 1997 with the exception of the 10
3/4% Senior Notes Due 2004 whose fair value approximates $354.2 and $347.3 at
December 31, 1996 and 1997, respectively, and the 9 1/8% Senior Notes Due 2006
("9 1/8% Notes") whose fair market value approximates $569.5 at December 31,
1997.
Accounts Receivable: The allowance for doubtful accounts was $1.5 at
December 31, 1996 and 1997.
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.
19
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Inventories on LIFO:
Finished and semifinished.................................. $220.4 $235.5
Raw materials and supplies................................. 160.4 154.2
Adjustment to state inventories at LIFO value.............. (27.3) (31.6)
------ ------
Total.................................................... 353.5 358.1
Other inventories............................................ 7.4 7.1
------ ------
Total inventories........................................ $360.9 $365.2
====== ======
</TABLE>
There was no liquidation of LIFO inventory layers in 1995, 1996 or 1997.
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 1996, 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 produced iron ore pellets, which
equated to a 35% interest in Eveleth Mines. 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. The Company's proportionate share of the gains/(losses)
of Eveleth was ($0.2) and $5.4 in 1995 and 1996 and of EVTAC was ($1.9) in
1997.
Property, Plant and Equipment: Plant and equipment are depreciated under the
straight line method over their estimated lives ranging from 3 to 31 years.
Accounting Policies: The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS"). The
effect of this standard on the EPS calculation was not material and prior
periods have been restated.
In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." These statements which are
effective for periods after December 15, 1997, expand or modify disclosures
and, accordingly, will have no impact on the Company's financial position,
results of operations or cash flows.
2.STOCKHOLDERS' EQUITY
Preferred Stock: In October 1994, the Company issued 7,479,674 shares of
Convertible Preferred Stock, Shared Appreciation Income Linked Securities (the
"SAILS") which constituted a series of the Company's Preferred Stock and
ranked prior to the Common Stock as to payment of dividends and distribution
of assets upon liquidation. The SAILS were entitled to cumulative dividends,
payable quarterly in arrears, at a rate of 7% per annum of their stated value
of $30.75 per share. Between October, 1995 and May, 1997, 2,728,900 SAILS were
repurchased and retired under the Company's share repurchase programs. On
October 16, 1997, the Company redeemed the 4,750,774 SAILS then remaining
outstanding in exchange for 8,191,284 shares (on a post-split basis) of Common
Stock.
20
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Common Stock: On November 17, the Company implemented a two-for-one stock
split of its outstanding Common Stock in the form of a 100% stock dividend,
issuing approximately 30.6 million shares pursuant thereto. The holders of
Common Stock are entitled to receive dividends when and as declared by the
Board of Directors out of funds legally available and therefore, have one vote
per share in respect of all matters and are not entitled to preemptive rights.
Dividends: The Company has paid quarterly dividends on its Common Stock
since November 15, 1995. Dividends at the post-split rate of $0.075 per share
were paid on February 15, May 15, and August 15, 1996 and a dividend of $0.10
per post-split share was paid on November 15, 1996. In 1997, dividends at the
post-split rate of $0.10 were paid on February 15, May 15, August 15 and a
dividend of $0.125 was paid on November 15. The declaration and payment of
cash dividends is subject to restrictions imposed by the instruments governing
its senior debt. At December 31, 1997, 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. Pursuant to this plan, in 1995 the Company repurchased and
is holding in its treasury 1,274,870 shares (on a post-split basis) of Common
Stock for $21.5, an average of $16.81 per share. In addition, the Company
repurchased and retired 1,563,700 SAILS (2,696,132 post-split Common Stock
equivalents) for $52.3, an average of $33.43 per SAILS, and in 1996 an
additional 707,600 SAILS (1,220,044 post-split Common Stock equivalents) were
purchased and retired for $26.2, an average of $37.16 per SAILS. The last
purchases under this plan were completed in April 1996.
On May 15, 1996, the Board of Directors approved a second plan to
repurchase, from time to time, up to an additional $100.0 of its outstanding
equity securities. Pursuant to this plan, in 1997 the Company repurchased and
is holding in its treasury 1,409,050 shares (on a post-split basis) of its
Common Stock for $26.7, an average of $18.96 per Share. In addition, in 1996
the Company repurchased and retired 362,600 SAILS (625,195 post-split Common
Stock equivalents) for $12.8, an average of $35.36 per SAILS and in 1997 the
Company repurchased and retired an additional 95,000 SAILS (163,799 post-split
Common Stock equivalents) for $3.1, an average of $32.92 per SAILS.
Stockholder Rights Plan: On January 23, 1996, the Board of Directors adopted
a Stockholder Rights Plan pursuant to which it has issued one Preferred Share
Purchase Right (collectively, the "Rights") for each share of Common Stock
outstanding. The Rights are generally not exercisable unless, and no sooner
than 10 business days after, any person or group 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. In
addition, as adjusted to reflect the two-for-one Common Stock split, each
Right entitles the holder, upon occurrence of certain specified events, to
purchase 1/200th of a share of Series A Junior Preferred Stock ("Junior
Preferred Stock") at an exercise price of $65 per share. Each share of Junior
Preferred Stock, if and when issued, will entitle the holder to 200 votes in
respect of all matters submitted to a vote of the holders of Common Stock.
Upon the occurrence of certain events, holders of the Rights would be entitled
to purchase either shares of the Company or an acquiring entity at half of
market value. The Rights are redeemable, under certain circumstances, at any
time prior to their expiration on January 23, 2006.
Common Stock Options and Restricted Stock Awards: 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 awards to directors, officers
and key management employees of the Company.
21
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Under the original SIP, 4,600,000 shares were reserved for issuance of which
3,833,334 shares were reserved for stock options and 766,666 were reserved for
restricted stock awards. In May 1996, the plan was amended to increase the
maximum number of shares covered thereby to 7,800,000 and to eliminate the
separate maximum limitations on the number of shares available for grant of
stock options and restricted stock awards. The exercise price of each option
may not be less than the market price of the Company's Common Stock on the
date of the grant. 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, 25% of the
shares covered by a restricted stock award vest two years after the date of
the award and an additional 25% vest on the third, fourth and fifth
anniversaries of the date of the award. The nonqualified stock options vest at
the rate of 33% 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
the SIP. The compensation cost that has been charged against income for the
restricted stock awards issued under the SIP was $0.9, $3.2 and $2.7 for 1995,
1996 and 1997, respectively. The Company adopted the pro forma disclosure
requirements of 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 and earnings per share been
reported consistent with the requirements of SFAS No. 128, the Company's net
income and earnings per share for 1995, 1996 and 1997 would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C> <C>
Net income.................. As reported $268.6 $145.9 $150.9
Pro forma $268.2 $144.1 $149.5
Basic earnings per share.... As reported $ 4.82 $ 2.57 $ 2.59
Pro forma $ 4.81 $ 2.54 $ 2.57
Diluted earnings per share.. As reported $ 4.09 $ 2.35 $ 2.43
Pro forma $ 4.08 $ 2.32 $ 2.41
</TABLE>
22
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations per SFAS 128 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net Income for Diluted EPS............................. $268.6 $145.9 $150.9
Preferred Dividends.................................. 15.3 11.1 7.7
------ ------ ------
Net Income for Basic EPS............................... $253.3 $134.8 $143.2
Shares for Basic EPS................................... 52.6 52.4 55.2
Dilutive Effect of Stock Options..................... 0.4 0.8 0.4
Dilutive Effect of Preferred Stock................... 12.6 8.9 6.4
------ ------ ------
Shares for Diluted EPS................................. 65.6 62.1 62.0
Basic EPS.............................................. $ 4.82 $ 2.57 $ 2.59
Diluted EPS............................................ $ 4.09 $ 2.35 $ 2.43
</TABLE>
The fair value of the options is estimated on the grant date using a Black-
Scholes option pricing model considering the appropriate dividend rates along
with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Expected volatility........................................ 20.5% 21.0%
Risk free interest rates................................... 6.40% 6.40%
Expected lives............................................. 5.0 yrs. 5.0 yrs.
</TABLE>
A summary of the status of stock options and restricted stock awards under
the SIP as of December 31, 1996 and 1997 and changes during each of those
years is presented below:
<TABLE>
<CAPTION>
1996 1997
------------------ ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
STOCK OPTIONS SHARES PRICE SHARES PRICE
------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..... 2,877,984 $12.58 2,210,654 $15.34
Granted.............................. 718,000 $19.86 554,000 $19.70
Exercised............................ 1,385,330 $11.96 490,334 $14.21
Forfeited............................ -- -- 60,000 $11.75
Outstanding at end of year........... 2,210,654 $15.34 2,214,320 $16.78
Options exercisable at year end...... 796,012 $13.97 1,187,024 $14.98
Weighted average fair value of op-
tions granted during the year....... 718,000 $ 5.37 554,000 $ 5.01
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
GRANT DATE GRANT DATE
RESTRICTED STOCK AWARDS SHARES FAIR VALUE SHARES FAIR VALUE
----------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Granted during year................... 323,244 $19.95 332,884 $19.55
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$11.75 to $17.24...... 1,057,320 6.95 yrs. $13.38 881,334 $13.20
$17.25 to $22.90...... 1,157,000 8.82 yrs. $19.88 305,690 $20.11
</TABLE>
23
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss and tax credit carryovers............. $ 49.7 $ 30.0
Postretirement reserves.................................. 210.5 206.0
Other reserves........................................... 42.0 39.4
Valuation reserve........................................ (13.2) (13.2)
------- -------
Total deferred assets.................................. 289.0 262.2
------- -------
Deferred tax liabilities:
Depreciable assets....................................... (208.3) (223.1)
Inventories.............................................. (33.1) (33.2)
Pension assets........................................... (63.3) (65.9)
------- -------
Total deferred liabilities............................. (304.7) (322.2)
------- -------
Net liability.......................................... $ (15.7) $ (60.0)
======= =======
</TABLE>
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, 1996, the
Company had a regular tax net operating loss carryforward of $114.6. At
December 31, 1997 the Company had a regular tax net operating loss carryover
of $37.4 which will expire in the years 2006 through 2008 unless previously
utilized. In addition, at December 31, 1997, the Company had unused
Alternative Minimum Tax ("AMT") credit carryovers of $16.5, which may be used
to offset future regular income tax liabilities. At December 31, 1996, the AMT
credit carryovers were $4.7. These credits can be carried forward
indefinitely.
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Current:
Federal.................................................. $ 5.9 $ 3.8 $45.1
State.................................................... 0.3 -- 1.2
Deferred:
Federal.................................................. 4.8 77.9 35.7
State.................................................... 1.9 9.4 8.6
----- ----- -----
Total tax provision.................................... $12.9 $91.1 $90.6
===== ===== =====
</TABLE>
24
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ -----
<S> <C> <C> <C>
Income at statutory rate............................ $ 98.5 $ 83.0 $84.5
State tax provision................................. 17.4 9.4 9.8
Reduction in deferred tax asset valuation reserve... (106.1) (2.2) --
Tax exempt state/local interest income.............. -- (0.7) (4.6)
Losses limited by Internal Revenue Code Section 382
and other
permanent differences.............................. 3.1 1.6 0.9
------- ------ -----
Tax provision..................................... $ 12.9 $ 91.1 $90.6
======= ====== =====
</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% Notes and entered into definitive agreements for the issuance
beginning in June of 1997 of an aggregate of $250.0 of Senior Secured Notes
Due 2004 ("Secured Notes"), which will be collateralized by the hot dip
galvanizing and galvannealing line and the continuous cold mill at the
Rockport Works when completed. Pending completion of these facilities, the
Company is prohibited from granting liens on its inventories.
On June 17, 1997, the Company made its initial issuance of an aggregate of
$92.5 of the Secured Notes, of which $80.0 bear interest at 8.98% per annum
and $12.5 bear interest at 9.05% per annum. On September 16, 1997, the Company
made its second issuance of $20.0 which bear interest at 8.98% per annum. The
remaining $137.5 of Secured Notes were issued on January 7, 1998, of which
$130.0 bear interest at 8.48% per annum and $7.5 bear interest at 8.98% per
annum.
On December 1, 1994, the Company entered into a Receivables Purchase
Agreement with AK Steel Receivables Ltd. ("AKR Ltd."). On the same date, AKR
Ltd. 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 Ltd. and will sell additional receivables to AKR Ltd. as they are
generated. AKR Ltd. 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 July 1, 2002. 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, 1997, no amounts were outstanding under the Purchase
Agreement, although $15.6 in letters of credit had been issued. At December
31, 1997, AKR Ltd. had a sufficient pool of eligible receivables that could be
sold to utilize the available capacity of the participating banks'
commitments.
At December 31, 1996 and 1997, the Company's long-term debt, less current
maturities, was as follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Senior Notes Due 2004......................................... $325.0 $325.0
Senior Notes Due 2006......................................... 550.0 550.0
Senior Secured Notes Due 2004................................. -- 112.5
Tax Exempt Financing Due 2027................................. -- 10.0
------ ------
Total....................................................... $875.0 $997.5
====== ======
</TABLE>
25
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
At December 31, 1997, the maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998.................................................................. --
1999.................................................................. --
2000.................................................................. --
2001.................................................................. --
2002.................................................................. --
2003 and thereafter................................................... $997.5
------
Total............................................................... $997.5
======
</TABLE>
The Company has not purchased and is not holding any derivative financial
instruments.
The Company capitalized interest on projects under construction of $4.7,
$1.7 and $20.9 during 1995, 1996 and 1997, respectively.
5. OPERATING LEASES
Rental expense was $14.1, $12.6 and $13.3 for 1995, 1996 and 1997,
respectively.
At December 31, 1997, obligations to make future minimum lease payments were
as follows:
<TABLE>
<S> <C>
1998................................................................... $0.8
1999................................................................... 0.3
2000................................................................... 0.1
2001................................................................... 0.1
2002................................................................... 0.1
----
Total lease obligations.............................................. $1.4
====
</TABLE>
6. EMPLOYEE AND RETIREE BENEFIT PLANS
Pension Plans: The Company provides noncontributory pension benefits to all
employees. Benefits are based on the higher 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. There was no pension contribution during 1997.
The details of the net periodic pension expense for 1995, 1996 and 1997 are
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Economic assumptions:
Discount rate................................... 8.75% 7.25% 8.00%
Expected long-term rate of return on assets..... 9.50% 9.00% 9.75%
Rate of future compensation increases........... 4.00% 4.00% 4.00%
Pension cost:
Cost of benefits earned during the period....... $ 12.9 $ 16.2 $ 13.6
Interest cost on the projected benefit
obligation..................................... 88.3 90.1 93.1
Less actual return on plan assets............... (263.6) (85.0) (262.7)
Net amortization and deferral................... 181.5 (8.2) 152.4
------ ------ -------
Net periodic pension (income) expense......... $ 19.1 $ 13.1 $ (3.6)
====== ====== =======
</TABLE>
26
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The assumptions used to determine the plans' funded status are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Economic assumptions:
Discount rate.................................................. 8.00% 7.50%
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, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits....................................... $1,115.2 $1,168.5
Nonvested benefits.................................... 44.7 46.5
-------- --------
Accumulated benefit obligation........................ $1,159.9 $1,215.0
======== ========
Projected benefit obligation.......................... $1,210.9 $1,271.9
Less plan assets at fair value........................ 1,255.7 1,422.4
-------- --------
Reconciliation of funded status to recorded amounts:
Unfunded (over funded) projected benefit obligation... (44.8) (150.5)
Unrecognized prior service............................ (61.5) (56.7)
Unrecognized net (loss) or gain....................... (46.9) 48.1
-------- --------
Prepaid pension cost.................................. $ (153.2) $ (159.1)
======== ========
</TABLE>
The mix of pension assets held in the pension trust is as follows:
<TABLE>
<S> <C>
Equities................................................................. 61%
Fixed income securities.................................................. 38%
Cash and cash equivalents................................................ 1%
</TABLE>
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 1995, 1996 and 1997, claims paid for retiree health and life
insurance benefits amounted to $36.2, $37.4 and $40.6, 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 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
$21.2 and $2.1, respectively. In 1997, the cost of claims paid exceeded the
SFAS No. 106 expense by $1.9. Payments of medical and life insurance benefits
to employees of the Company, retired former employees and their eligible
dependents continue to be made from the Welfare Benefit Master Trust
("Trust"). The Company has continued to reimburse the Trust for these payments
although no funding obligation exists.
27
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following sets forth the plans' funded status, reconciled with amounts
recognized in the Company's consolidated balance sheets at December 31, 1996
and 1997:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees....................................................... $450.6 $467.1
Fully eligible active plan participants........................ 75.8 81.4
Other active plan participants................................. 103.4 115.6
------ ------
Total accumulated postretirement benefit obligation.......... 629.8 664.1
Less fair value of plan assets................................... 136.9 187.0
------ ------
Accumulated postretirement benefit obligation in excess of plan
assets.......................................................... 492.9 477.1
Prior service credit not yet recognized in net periodic
postretirement benefit cost..................................... 28.9 25.1
Unrecognized net gain............................................ 43.1 51.9
------ ------
Accrued postretirement benefit cost.............................. $564.9 $554.1
====== ======
</TABLE>
The components of postretirement benefit costs are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Service cost--benefits attributed to service during the
period................................................. $ 5.6 $ 5.1 $ 4.8
Interest cost on accumulated postretirement benefit ob-
ligations.............................................. 52.6 44.8 48.8
Less actual return on plan assets....................... (4.5) (4.7) (26.8)
Net of other components................................. 3.7 (5.7) 11.9
----- ----- -----
Net periodic postretirement benefit cost................ $57.4 $39.5 $38.7
===== ===== =====
</TABLE>
For measurement purposes, health care costs are assumed to increase 7.50% in
1998 grading down by 1.00% yearly to a constant level of 4.50% annual increase
for pre-65 benefits and 4.50% in 1998 with a constant rate of 4.50% 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 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 1997
accumulated postretirement benefit obligation by $67.0 and the aggregate of
the service cost and interest cost components of net period benefit cost for
the year then ended by $5.8. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was 8.00% and
7.50% for 1996 and 1997, respectively.
7. RELATED PARTY TRANSACTIONS
The Company, in the ordinary course of business, sells steel to and
purchases scrap from National Material Limited Partnership, of which a
director of the Company is President and Chief Executive Officer. During 1995,
1996 and 1997 sales amounted to $20.3, $21.8 and $21.5 and purchases amounted
to $0.4, $0.6 and $1.1, 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
28
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
purchased at competitive or prevailing market prices. Adequate sources of
supply exist for all of the Company's raw material requirements.
At December 31, 1997, commitments for future capital investments, excluding
Rockport Works but including those made to assure environmental compliance,
totalled approximately $61.4, all of which will be funded in 1998. In
addition, at December 31, 1997, the Company had outstanding commitments for
the constructing and equipping of Rockport Works under contracts aggregating
$348.5.
9. 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>
1995 1996 1997
----- ---- ----
<S> <C> <C> <C>
Environmental related capital investments.................. $19.1 $6.1 $4.3
Environmental compliance costs............................. 51.7 53.6 52.9
</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, 1997, the Company has incurred $67.3 in capital
investments to bring its coke operations into compliance with the Amendments'
requirements.
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.
29
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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
additional named 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. The
Company has filed motions to dismiss the suit in whole and in part. No rulings
have been rendered to date on these motions. In March 1997, the Court granted
plaintiffs' motion to certify a class. The Company's appeal of this decision
was denied by the appellate court in June 1997. The Company has further
appealed this decision to the Ohio Supreme Court and a decision is pending. In
April 1997, the Company commenced a separate lawsuit in the United States
District Court, Southern District of Ohio, seeking a permanent injunction
staying the state court case and seeking a declaration that the state court
case is preempted by federal law. On August 21, 1997, the federal court denied
the motion for an injunction and ordered the parties to brief the question of
its jurisdiction to hear the case.
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. On May 30,
1997, the Company filed a motion for summary judgment seeking dismissal of the
case and a decision is pending.
In May 1996, an action was commenced against the Company in the United
States District Court, Southern District of Ohio, 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. In March 1997, the court granted the Company's motion to
dismiss all federal law claims. Subsequently, the Company entered into a
settlement agreement with all plaintiffs on their pending state law claims.
10. CONSOLIDATED QUARTERLY SALES AND EARNINGS (UNAUDITED)
Each quarter and the year are calculated individually and may not add to the
total for the year. The historical per share amounts have been restated for a
two-for-one Common Stock split effective November 17, 1997.
<TABLE>
<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
Basic earnings per share........... .67 .69 .71 .53 2.57
Diluted earnings per share......... .60 .62 .64 .50 2.35
<CAPTION>
1997
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $598.8 $622.6 $598.6 $620.5 $2,440.5
Gross profit....................... 117.9 121.9 116.3 119.9 476.0
Net income......................... 34.5 39.0 37.0 40.4 150.9
Basic earnings per share........... .60 .68 .64 .67 2.59
Diluted earnings per share......... .56 .63 .59 .66 2.43
</TABLE>
30
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the Company's Executive Officers is set forth in
Part I of this Annual Report pursuant to General Instruction G of Form 10-K.
The information required to be furnished pursuant to this item with respect to
Directors of the Company will be set forth under the caption "Election of
Directors" in the Company's proxy statement (the "1998 Proxy Statement") to be
furnished to stockholders in connection with the solicitation of proxies by
the Company's Board of Directors for use at the Annual Meeting of Stockholders
to be held on May 21, 1998, and is incorporated herein by reference.
The information required to be furnished pursuant to this item with respect
to compliance with Section 16(a) of the Exchange Act will be set forth under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required to be furnished pursuant to this item will be set
forth under the caption "Executive Compensation" in the 1998 Proxy Statement,
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required to be furnished pursuant to this item will be set
forth under the caption "Stock Ownership," in the 1998 Proxy Statement, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required to be furnished pursuant to this item will be set
forth under the captions "Certain Relationships and Transactions" in the 1998
Proxy Statement, and is incorporated herein by reference. See also Note 7 of
the Notes to Consolidated Financial Statements included in Item 8 hereof.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K.
(a) The list of financial statements filed as part of this report is
submitted as a separate section, the index to which is located on page 13.
(b) Reports on Form 8-K filed during the fourth quarter of 1997 were:
<TABLE>
<S> <C>
Earnings Release.......................................... October 14, 1997
Two-for-One Common Stock Split............................ October 14, 1997
</TABLE>
(c) Exhibits:
List of exhibits begins on next page.
32
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Incorporation of the Company, filed with the Secretary
of State of the State of
Delaware on December 20, 1993, as amended (incorporated herein by
reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (No. 33-74432)
("Registration No. 33-74432")).
3.2 By-laws of the Company (incorporated herein by reference to Exhibit
3.2 to Registration No. 33-74432).
3.3 Certificate of Designations, Preferences, Rights and Limitations of
Series A Junior Preferred Stock (included in Exhibit 10.19).
4.1 Indenture, dated as of December 17, 1996, relating to the Company's 9
1/8% Senior Notes Due 2006 (the "1996 Indenture") (incorporated herein
by reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-4 (No. 333-19781) ("Registration No. 333-19781").
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 (incorporated herein by reference to Exhibit 4.4 to
Registration No. 333-19781).
4.5 Form of Note Purchase Agreement, dated as of December 17, 1996, with
respect to the Company's Senior Secured Notes Due 2004 (incorporated
herein by reference to Exhibit 4.5 to Registration No. 333-19781).
10.4 Form of Executive Officer Severance Agreement (filed herewith).
10.5 Form of Executive Officer Severance Agreement--Richard M. Wardrop, Jr.
(filed herewith).
10.6 Form of Executive Officer Severance Agreement--James L. Wareham (filed
herewith).
10.7 Annual Management Incentive Plan (incorporated herein by reference to
Exhibit 10.15 to Registration No. 33-83792).
10.8 1994 Stock Incentive Plan, as amended May 15, 1996 and November 21,
1996 (incorporated herein by reference to Exhibit 10.6 to Registration
No. 333-19781).
10.9 Executive Minimum and Supplemental Retirement Plan (incorporated
herein by reference to
Exhibit 10.17 to Registration No. 33-83792).
10.10 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).
10.11 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).
10.12 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).
10.13 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 (incorporated herein by
reference to Exhibit 10.11(a) to Registration No. 333-19781).
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.14 Consent, Amendment and Assumption Agreement, dated as of December 31,
1996, to the Receivables Purchase Agreement and the Purchase and
Servicing Agreement, among the Company, AK Steel Receivables Inc., AK
Acquisition Receivables Ltd., AKSR Investments, Inc., the purchasers
party thereto and PNC Bank, Ohio, National Association (incorporated
herein by reference to Exhibit 10.11(b) to Registration No. 333-
19781).
10.15 Amendment, dated July 10, 1997, to the Receivables Purchase Agreement
and the Purchase and Servicing Agreement.
10.16 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).
10.17 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).
10.18 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).
10.19 Rights Agreement, dated as of January 23, 1996, between the Company
and the Bank of New York as predecessor to Fifth Third Bank, as Rights
Agent, with respect to the Company's Stockholder Rights Plan
(incorporated by reference to Exhibit 1 to the Company's Registration
Statement on Form 8-A under the Securities Exchange Act of 1934, as
filed with the Commission on February 5, 1996).
10.20 Substitution of The Fifth Third Bank as Successor Rights Agent and
Amendment No. 1, dated September 15, 1997, to Rights Agreement dated
as of January 23, 1996 (incorporated herein by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K, dated September 15,
1997).
10.21 Instrument of Resignation, Appointment and Acceptance, dated as of
September 15, 1997, with respect to resignation of The Bank of New
York as Trustee and appointment of The Fifth Third Bank as Successor
Trustee under the 1994 Indenture (incorporated herein by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K dated
September 15, 1997).
10.22 Instrument of Resignation, Appointment and Acceptance, dated as of
September 15, 1997, with respect to resignation of The Bank of New
York as Trustee and the appointment of The Fifth Third Bank as
Successor Trustee under the 1996 Indenture (incorporated herein by
reference to Exhibit 4.3 to the Company's Current Report on Form 8-K,
dated September 15, 1997).
10.23 Long Term Performance Plan, as amended and restated effective November
21, 1996 (incorporated herein by reference to Exhibit 10.15 to
Registration No. 333-19781).
10.24 First Amendment, dated September 18, 1997, to Deferred Compensation
Plan for Management (filed herewith).
10.25 First Amendment, dated July 17, 1997, to Executive Minimum and
Supplemental Retirement Plan (filed herewith).
10.26 Second Amendment, dated September 18, 1997, to Executive Minimum and
Supplemental Retirement Plan (filed herewith).
11.0 Statement re Computation of Per Share Earnings.
23.1 Independent Auditors' consent.
27. Financial Data Schedule.
</TABLE>
34
<PAGE>
EXHIBIT 11.0
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
See Notes 2 and 10 of the accompanying Notes to Consolidated Financial
Statements.
35
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No.
1 to Registration Statement No. 333-04505 and Post-Effective Amendment No. 4
to Registration Statement No. 33-84578 of AK Steel Holding Corporation on Form
S-8 of our report dated January 20, 1998, appearing in this Annual Report on
Form 10-K of AK Steel Holding Corporation for the year ended December 31,
1997.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 22, 1998
36
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF MIDDLETOWN, STATE OF
OHIO, ON JANUARY 22, 1998.
AK STEEL HOLDING CORPORATION
/s/ Richard E. Newsted
By: _________________________________
RICHARD E. NEWSTED EXECUTIVE VICE
PRESIDENT, CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Richard M. Wardrop, Jr. Chairman of the January 22,
- ------------------------------------- Board and Chief 1998
RICHARD M. WARDROP, JR. Executive Officer
/s/ James L. Wareham President January 22,
- ------------------------------------- 1998
JAMES L. WAREHAM
/s/ Richard E. Newsted Executive Vice January 22,
- ------------------------------------- President, Chief 1998
RICHARD E. NEWSTED Financial Officer
/s/ Donald B. Korade Controller January 22,
- ------------------------------------- 1998
DONALD B. KORADE
/s/ Allen Born Director January 22,
- ------------------------------------- 1998
ALLEN BORN
/s/ John A. Georges Director January 22,
- ------------------------------------- 1998
JOHN A. GEORGES
Director January 22,
- ------------------------------------- 1998
DR. BONNIE GUITON HILL
Director January 22,
- ------------------------------------- 1998
ROBERT H. JENKINS
/s/ Lawrence A. Leser Director January 22,
- ------------------------------------- 1998
LAWRENCE A. LESER
/s/ Robert E. Northam Director January 22,
- ------------------------------------- 1998
ROBERT E. NORTHAM
/s/ Cyrus Tang Director January 22,
- ------------------------------------- 1998
CYRUS TANG
/s/ James A. Thomson Director January 22,
- ------------------------------------- 1998
DR. JAMES A. THOMSON
37
<PAGE>
Exhibit 10.4
EXECUTIVE OFFICER SEVERANCE AGREEMENT
(as amended and restated to reflect changes
adopted by the Board on September 18, 1997)
-------------------------------------------
CONFIDENTIAL
------------
_____________, 19____
__________________
__________________
__________________
Dear _____________:
Reference is made to the agreement between us, ________________, 19___ (the
"Agreement"), setting forth the benefits to be provided to you in the event of
the termination of your employment upon the circumstances therein specified.
Upon your execution of a counterpart of this letter, the Agreement shall be
deemed amended and, as so amended, is restated in its entirety to read as
hereinafter set forth.
AK Steel Corporation ("AKS"), since its formation, has established itself as a
strong competitor in the carbon flat rolled steel industry. Continuity of the
management of AKS is a critical factor to the continued growth and success of
AKS. The Board of Directors ("Board") of AK Steel Holding Corporation
("Holding"), of which AKS is a wholly-owned subsidiary, believes it is in the
best interest of Holding and AKS to reinforce and encourage the continued
attention and dedication of key members of management to their assigned duties.
In consideration of the mutual promises contained herein, it is hereby agreed
that Holding shall cause AKS to provide and AKS shall provide to you, and you
shall receive from AKS, the benefits set forth in this Agreement if your
employment by AKS (including, for the purposes hereof, its subsidiaries and
Affiliates, as hereinafter defined) is terminated during the term of this
Agreement as provided herein.
1 . Purpose
-------
This Agreement establishes certain basic terms and conditions relating to
your employment with AKS, and special arrangements relating to the
termination of your employment with AKS for any reason other than: (i) your
voluntary retirement; (ii) your becoming totally and permanently disabled
under the AKS long-term disability plan or policy; or (iii) your death.
This Agreement supersedes all prior agreements with AKS or any predecessor
business, as well as all other AKS severance policies
<PAGE>
and practices, except to the extent incorporated or restated herein.
Notwithstanding the foregoing, neither the termination of your employment
nor anything contained in this Agreement shall have any affect upon your
rights under (i) any tax-qualified "pension benefit plan", as such term is
defined in the Employee Retirement Income Security Act of 1974, as amended
(ERISA), (ii) any "welfare benefit plan" as defined in ERISA, including by
way of illustration and not limitation, any medical, surgical or
hospitalization benefit coverage or long-term disability benefit coverage,
or (iii) any non-qualified deferred compensation arrangement, including by
way of illustration and not limitation, any non-qualified pension plan or
deferred compensation plan.
2. Employment
----------
During the term of this Agreement:
(a) you will be employed by AKS (including for this purpose any direct or
indirect subsidiary or Affiliate of AKS to which you may be
transferred) in your present position or in a position that is at
least comparable to your present position in compensation,
responsibility and stature and for which you are suited by education
and background;
(b) you will continue to be eligible to participate in any employee
benefit plan of AKS in accordance with its terms; and
(c) you will be entitled to the same treatment under any generally
applicable employment policy or practice as any other key member of
management of AKS whose position in the AKS organization is at a level
of responsibility comparable to yours.
Those plans, policies and practices that generally apply to other key
members of management of AKS will be referred to in this Agreement as your
"Employment Benefits." Your Employment Benefits may be modified from time
to time after the date hereof without violation of this Agreement if the
changes apply generally to other key members of management of AKS.
3. Term of Agreement
-----------------
This Agreement shall be deemed effective as of ____________, 19___ (the
"Effective Date") and shall continue in effect through the later of: (i)
the fifth anniversary of the Effective Date or (ii) the completion of full
payment of all benefits promised hereunder. This Agreement shall be
automatically renewed annually from and after the fifth anniversary of the
Effective Date unless written notice of non-renewal is given by you or by
AKS at least ninety (90) days prior to the expiration of the term,
including any extension thereof.
2
<PAGE>
4. Termination of Employment
-------------------------
Your employment may be terminated in accordance with any of the following
paragraphs. The date upon which the termination of your employment becomes
effective is hereinafter referred to as the "Date of Termination". The
period between the date of notice of termination and the Date of
Termination is referred to as the "Notice Period".
(a) Involuntary Termination Without Cause
-------------------------------------
AKS may terminate your employment without Cause (as defined in Section
4(b) below), but only upon written notice given to you by AKS not less
than thirty (30) days prior to the Date of Termination. During the
Notice Period, you shall continue to receive your full salary and
Employment Benefits. From and after the Date of Termination, pursuant
to this Section 4(a), you shall be entitled to those benefits provided
under Section 5.
(b) Involuntary Termination for Cause
---------------------------------
AKS may terminate your employment for Cause, but only upon written
notice, specifying the facts or circumstances constituting such Cause,
which notice may be given on or at any time prior to the Date of
Termination. For the purposes of this Section 4(b), "Cause" means a
willful engaging in gross misconduct materially and demonstrably
injurious to AKS. "Willful" means an act or omission in bad faith and
without reasonable belief that such act or omission was in or not
opposed to the best interests of AKS. From and after your Date of
Termination, pursuant to this Section 4 (b), you shall only be
entitled to those benefits provided under Section 8.
(c) Voluntary Termination Without Good Reason
-----------------------------------------
You may voluntarily terminate your employment without Good Reason (as
defined in Section 4 (d) below), but only upon written notice given to
AKS by you not less than thirty (30) days prior to the Date of
Termination. During the Notice Period, you shall continue to receive
your full salary and Employment Benefits, provided you satisfactorily
perform your duties during the Notice Period (unless relieved of those
duties by AKS). From and after the Date of Termination, pursuant to
this Section 4 (c), you shall only be entitled to those benefits
provided under Section 8.
(d) Voluntary Termination for Good Reason
-------------------------------------
You may voluntarily terminate your employment for Good Reason (as
herein defined), but only upon written notice, specifying the facts or
circumstances constituting such Good Reason, given to AKS by you at
least thirty (30) days
3
<PAGE>
prior to the Date of Termination and not more than sixty (60) days
following the occurrence of the circumstances constituting such Good
Reason. For the purposes of this Section 4(d), "Good Reason" shall
mean the occurrence, without your express written consent, of any of
the following circumstances (unless, in the case of clauses (i), (v),
(vi), (vii) or (viii) below, such circumstances are fully corrected
prior to the Date of Termination specified in the notice of
termination):
(i) the assignment to you of any duties inconsistent with your
position within AKS or a significant adverse alteration in the
nature or status of your responsibilities or the conditions of
your employment;
(ii) a reduction by AKS in your annual base salary provided,
however, that no such reduction shall reduce your benefits
under Section 5 if you have given timely notice pursuant to
this Section 4(d);
(iii) a requirement by AKS that you be based anywhere other than the
principal executive offices of AKS except for required travel
on AKS business to an extent substantially consistent with your
customary business travel obligations;
(iv) the failure of AKS to pay to you any portion of your
compensation within seven (7) days of the date such
compensation is due;
(v) the failure of AKS, at any time within 24 months following the
occurrence of a Change In Control (as defined in Section 7(b)
hereof), to continue in effect any compensation plan in which
you participated immediately prior to such Change In Control,
which plan is material to your total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or
the failure of AKS to continue your participation in such
compensation plan (or in such substitute or alternative plan)
on a basis not materially less favorable to you, both in terms
of the amount of benefits provided and the level of your
participation relative to other participants, than that
existing immediately prior to such Change In Control;
(vi) any material reduction, except to the extent permitted by
Section 2 hereof, in your Employment Benefits;
(vii) the failure of AKS to obtain a satisfactory agreement from any
successor corporation to assume and agree to perform this
Agreement, as contemplated in Section 15 hereof;
(viii) any purported termination of your employment by AKS that is not
4
<PAGE>
effected in compliance with the provisions of Section 4(a) or
4(b) hereof, as the case may be;
(ix) notice of non-renewal is given by AKS pursuant to Section 3 of
this Agreement.
If you give notice of termination for Good Reason, then, during the
Notice Period (which shall not exceed 60 days), you shall continue to
receive your full base salary and Employment Benefits as in effect
prior to the occurrence of the circumstances constituting such Good
Reason, subject to the right of AKS to make changes to your Employment
Benefits to the extent permitted by Section 2. From and after the
Date of Termination, pursuant to this Section 4 (d), you shall be
entitled to those benefits provided under Section 5.
5. Special Severance Benefits
--------------------------
(a) If your employment with AKS is involuntarily terminated by AKS without
Cause in accordance with Section 4(a) or you voluntarily terminate
your employment for Good Reason in accordance with Section 4(d), then
you shall receive the following benefits:
(i) Your base salary shall be continued in effect for a period
(hereafter, the "Severance Pay Period") of (1) 36 months from the
Date of Termination, if the notice of your termination is given
within 24 months after the occurrence of a Change In Control (as
defined in Section 7(b) below) or (2) 24 months from your Date of
Termination, if the notice of your termination is given at any
time other than within 24 months after the occurrence of a Change
In Control. The aggregate base salary payable in accordance with
this Section 5(a)(i) shall be paid to you in a single,
undiscounted, lump sum payment within ten (10) days following the
Date of Termination unless you have requested, in writing, at any
time prior to your Date of Termination to receive payments of
your base salary in regular monthly payments throughout the
Severance Pay Period.
(ii) (1) Within ten (10) days following the Date of Termination, you
will receive a lump-sum payment equal in amount to the
result obtained by application of the following formula: P =
(x) times (y) times (z), where:
P = the lump-sum payment;
(x) = twelve times your monthly base salary;
5
<PAGE>
(y) = the fraction obtained by dividing your annual
incentive compensation which was paid or is payable
to you for the immediately preceding calendar year
by your actual base salary for such year; and
(z) = 3.0 (if the notice of your termination is given
within 24 months after the occurrence of a Change
In Control, as defined in Section 7(b) hereof) or
2.0 (if the notice of your termination is given at
any time other than within 24 months after the
occurrence of a Change In Control).
(2) Within ten (10) days following the date that payment is made
to active employees of AKS, you shall receive a pro-rata
payment of the annual incentive payment you would have
received for the year in which your Date of Termination
occurs. Such payment shall be (A) pro-rated based upon your
Date of Termination and (B) otherwise calculated as an
employee in good standing at your level of participation in
effect prior to the Date of Termination and assuming 100
percent completion of any individual performance factors.
(iii) Notwithstanding any provision to the contrary in the AK Steel
Holding Corporation 1994 Stock Incentive Plan as amended or any
other similar plan of AKS or Holding (each, a "Plan"), or under
the terms of any grant, award agreement or form for exercising
any right under the Plan, you shall have the right:
(1) to exercise any stock option awarded to you under the Plan
without regard to any waiting period required by the Plan
or award agreement (but subject to a minimum six month
holding period from the date of award and any restrictions
imposed by law) from the first day of your Notice Period
until the first to occur of the third anniversary of your
Date of Termination or the date the award expires by its
terms, and
(2) to the absolute ownership of any shares of stock granted
to you under the Plan, free of any restriction on your
right to transfer or otherwise dispose of the shares (but
subject to a minimum six month holding period from the
date of grant and any restrictions imposed by law),
regardless of whether entitlement to the shares is
contingent or absolute by the terms of the grant; and the
Board shall take such action within
6
<PAGE>
the Notice Period as is necessary or appropriate to
eliminate any restriction on your ownership of, or your
right to sell or assign, any such shares; and further
provided that if the Board should fail or refuse to take
such action, AKS shall pay you, in exchange for such
shares, no later than ten (10) days after the Date of
Termination, an amount in cash equal to the greatest
aggregate market value of the shares during the Notice
Period.
You agree, for a period of six (6) months after your Termination
Date, to continue to comply with all AKS and Holding policies and
directives related to trading in Holding stock which were in
effect prior to your notice of termination. If your compliance
with such policies and directives precludes you from exercising
any stock options or selling any shares of stock described in
paragraphs (1) and (2) above for a period of more than sixty (60)
days from the first day of your Notice Period, then AKS will pay
you in cash the difference between the average share price during
the Notice Period and, if less, the actual share price received
by you at the time of sale provided you have completed such sale
within sixty (60) days from your first opportunity to do so. The
average sale price during the Notice Period will be determined by
averaging the highest share price and the lowest share price
during the Notice Period. Any such differential payment will be
paid to you within thirty (30) days after you provide written
notice to AKS requesting such payment. Such notice is to be
directed to the attention of the Secretary of AKS and contain the
relevant stock transaction dates and actual share price
information.
(iv) During the Severance Pay Period your Employment Benefits shall be
continued, subject to the right of AKS to make any changes to
your Employment Benefits permitted in accordance with Section 2;
provided, however, that you shall not:
(1) accumulate vacation pay for periods after the Date of
Termination;
(2) first qualify for sickness and accident plan benefits by
reason of an accident occurring or a sickness first
manifesting itself after the Date of Termination;
(3) be eligible to continue to make contributions to any
Internal Revenue Code Section 401(k) plan maintained by AKS
or qualify for a share of any employer contribution made to
any tax-qualified defined contribution plan; or
7
<PAGE>
(4) be eligible to accumulate service for pension plan purposes;
and
provided, further, that if, during the Severance Pay Period, you are
(and for so long as you remain) employed by any other employer, the
obligations of AKS to continue to provide you with life, disability
and medical, hospital and other health insurance benefits shall be
limited solely to those benefits necessary to assure that, together
with the corresponding benefits provided to you by your new employer,
you receive total benefits comparable to those to which you were
entitled at the Date of Termination.
(v) You shall qualify for full COBRA health benefit continuation
coverage upon the expiration of the Severance Pay Period.
(vi) You shall be entitled, at no cost to you, to full executive
outplacement assistance with an agency selected by AKS.
(b) If your employment with AKS is involuntarily terminated by AKS without
Cause in accordance with Section 4(a), or if at any time after a
Change in Control you voluntarily terminate your employment with AKS
(or any Affiliate, any successor of AKS, or any entity which as a
result of the completion of the transactions causing a Change in
Control becomes affiliated with AKS) for Good Reason (as defined in
Section 4(d)), within ten (10) days following the Date of Termination
you will receive, in addition to any benefits you may be entitled to
under Section 5(a) above, a lump sum payment in an amount equal to
the benefit you would be entitled to under the AK Steel Corporation
Executive Minimum and Supplemental Retirement Plan as amended (the
"EMSRP") determined as if (i) your Vesting Date (as defined under the
EMSRP) had occurred prior to the Date of Termination (if it has not
already occurred as of the Date of Termination) and (ii) you had
attained age 60 prior to the Date of Termination (if you have not
already attained age 60 as of the Date of Termination). The amount of
any such additional benefit shall be calculated as of the Date of
Termination in accordance with the benefit formula under the EMSRP (as
if you had attained age 60, or your actual age if greater), and the
payment of such benefit shall be in lieu of any payment under the
EMSRP.
(c) Voluntary termination of your employment with AKS for Good Reason
under Section 4(d) shall not be considered a voluntary termination
under the AK Steel Deferred Compensation Plan (the "DCP").
Accordingly, if you terminate your employment with AKS for Good Reason
under Section 4(d), you will be fully vested in the interest credited
to your account under the DCP and will be paid your entire account at
such time as provided under the DCP.
8
<PAGE>
(d) You shall not be required to mitigate the amount of any payment
provided for in this Section 5 by seeking other employment or
otherwise, nor shall the amount of any payment or benefits provided
for in this Section 5 be reduced by any compensation or benefits
earned by you as the result of employment by another employer (except
as expressly provided in Section 5(a)(iv) above) or by retirement
benefits, or be offset against any amount claimed to be owed by you to
AKS or any of its Affiliates or successors.
(e) For purposes of calculating any amount due under this Agreement the
effect of any deferral of income shall be disregarded and all sums due
shall be calculated as if no such deferral had been made.
6. Certain Tax Matters
-------------------
(a) If any of the payments provided to you pursuant to Section 5 hereof
(the "Contract Payments") or any other portion of the Total Payments
(as defined below) becomes subject at any time to the tax (the "Excise
Tax") imposed by section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), AKS shall pay to you at the time specified in
section 6(b) below, an additional amount (the "Gross-Up Payment") such
that the net amount retained by you, after deduction of the Excise Tax
on any Contract Payments and/or other Total Payments, any federal and
state and local income tax and Excise Tax upon the payment(s) provided
for by this paragraph, and any interest, penalties or additions to tax
payable by you with respect thereto, shall be equal to the present
value of the Contract Payments and such other Total Payments. For
purposes of determining whether any of the foregoing payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any
other payments or benefits received or to be received by you in
connection with a Change In Control or the termination of your
employment (whether such payments are Contract Payments or are payable
pursuant to the terms of any other plan, arrangement or agreement with
AKS, Holding or any of their respective Affiliates or successors, any
person whose actions result in a Change In Control or any corporation
which, as a result of the completion of the transactions causing a
Change In Control, will become affiliated with AKS or Holding within
the meaning of section 1504 of the Code (such other payments, together
with the Contract Payments, the "Total Payments")) shall be treated as
"parachute payments" within the meaning of section 28OG(b)(2) of the
Code, and all "excess parachute payments" within the meaning of
section 28OG(b)(1) shall be treated as subject to the Excise Tax,
except to the extent that, in the opinion of tax counsel selected by
AKS' independent auditors and acceptable to you ("Tax Counsel"), the
Total Payments (in whole or in part) do not constitute parachute
payments, or such excess parachute payments are otherwise not subject
to the Excise Tax, (ii) the amount of the Total Payments that shall be
treated as subject to the Excise
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<PAGE>
Tax shall be equal to the lesser of (1) the total amount of the Total
Payments or (2) the amount of excess parachute payments within the
meaning of sections 28OG(b)(1) (after applying clause (i) hereof), and
(iii) the value of any noncash benefits or any deferred payment or
benefit shall be determined by AKS' independent auditors in accordance
with the principles of sections 28OG(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment(s), you
shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation applicable to individuals in the
calendar year in which the Gross-Up Payment(s) is (are) to be made and
state and local income taxes at the highest marginal rates of taxation
applicable to individuals as are in effect in the state and locality
of your residence in the calendar year in which the Gross-Up
Payment(s) is (are) to be made, net of the maximum reduction in
federal income taxes that could be obtained from deduction of such
state and local taxes. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account
hereunder, you shall repay to AKS at the time that the amount of such
reduction in Excise Tax is finally determined the portion of the
Gross-Up Payment attributable to such reduction (plus the portion of
the Gross-Up Payment attributable to the Excise Tax and federal and
state and local income tax imposed on the Gross-Up Payment being
repaid by you if such repayment results in a federal and state and
local income tax deduction), plus interest on the amount of such
repayment at the applicable federal rate (as defined in section
1274(d) of the Code). In the event that the Excise Tax is determined
to exceed the amount taken into account hereunder (including by reason
of any payment the existence or amount of which cannot be determined
at the time of the Gross-up Payment), AKS shall make an additional
Gross-Up payment in respect of such excess (plus any interest payable
with respect to such excess) at the time that the amount of such
excess is finally determined.
(b) The Gross-up Payment(s) provided for in section 6(a) above shall be
made not later than the tenth day following the Date of Termination
or, with respect to any portion of the Excise Tax not determined on or
before such date to be due, upon the imposition of such portion of the
Excise Tax; provided, however, that if the amounts of such payments
cannot be finally determined on or before such date, AKS shall pay to
you on such day an estimate, as determined in good faith by AKS, of
the minimum amount of such payments and shall pay the remainder of
such payments (together with interest at the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth day after the Date
of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently finally determined to have
been due, such excess shall constitute a loan by the Corporation to
you, payable on the tenth day after demand by the Corporation
(together with interest at the rate provided in section 1274(b)(2)(B)
of the Code).
10
<PAGE>
(c) In the event of any change in, or further interpretation of, sections
28OG or 4999 of the Code and the regulations promulgated thereunder,
you shall be entitled, by written notice to AKS, to request an opinion
of Tax Counsel regarding the application of such change to any of the
foregoing, and AKS shall use its best efforts to cause such opinion to
be rendered as promptly as practicable. All fees and expenses of Tax
Counsel incurred in connection with this Agreement shall be borne by
AKS.
7. Definitions
-----------
For purposes of this Agreement the following terms shall have the following
meanings:
(a) "Affiliate" of any specified person means (i) any other person which,
---------
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 of officer (1) of such specified person, (2) of any
subsidiary of such specified person or (3) 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.
(b) "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
Securities Exchange Act of 1934, as amended (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 a 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 (together with
any new directors whose election by such Board, 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
11
<PAGE>
for any reason to constitute a majority of the Board then in
office; or
(iii) Holding fails to own 100% of the outstanding stock of AKS;
provided, however, that it shall not be deemed a Change in
-------- -------
Control if Holding merges into AKS except that, in such case,
AKS shall be substituted for Holding for purposes of this
definition of "Change in Control" and this clause (iii) shall
not longer be applicable.
(c) "Voting Equity Interests" of a corporation means all classes of stock
-----------------------
then outstanding and normally entitled to vote in the election of
directors or other governing body of such corporation.
8. Benefits Upon Voluntary Termination or Termination for Cause
------------------------------------------------------------
Upon your Date of Termination for Cause in accordance with Section 4(b) or
your Date of Termination without Good Reason in accordance with Section
4(c), all benefits under this Agreement will be void, but, you nevertheless
shall be eligible for any benefits provided in accordance with the plans
and practices of AKS which are applicable to employees generally.
9. Arbitration
-----------
Any dispute under this Agreement (except for disputes arising under
Sections 10 and 12 below) shall be submitted to binding arbitration subject
to the rules of the American Arbitration Association. Except as
hereinafter provided, AKS and you shall each bear your own attorney's fees
and shall share equally the cost of arbitration. However, if you prevail
in a challenge by you to AKS' assertion of the existence of Cause for
termination or in a challenge by AKS to your assertion of the existence of
Good Reason for termination, you shall be reimbursed by AKS for all
reasonable costs or expenses incurred by you in such challenge, including
reasonable attorney's fees.
10. Confidentiality
---------------
You will not disclose to any person or use for the benefit of yourself or
any other person any confidential or proprietary information of AKS without
the prior written consent of an elected officer of AKS. Upon your
termination of employment, you will return to AKS all written or
electronically stored memoranda, notes, plans, records, reports or other
documents of any kind or description (including all copies in any form
whatsoever) relating to the business of AKS.
11. Conflicts of Interest
---------------------
You agree for so long as you are employed by AKS to avoid dealings and
situations which would create the potential for a conflict of interest with
AKS. In this regard,
12
<PAGE>
you agree to comply with the AKS policy regarding conflicts of interest.
12. Covenant Not to Compete
-----------------------
During the term of this Agreement, and for a period of one year following
your Date of Termination for any reason other than for Cause pursuant to
Section 4 (b) you agree not to be employed by, or serve as director of or
consultant or advisor to, any business engaged directly or indirectly in
the melting, hot rolling, cold rolling, or coating of carbon or stainless,
flat rolled steel, or that is reasonably likely to engage in such business
during the one-year period following your termination of employment;
provided however, if a Change in Control occurs, the foregoing restriction
----------------
applicable to the one year period following your Date of Termination shall
lapse and be null and void.
13. Notice
------
Notices required or permitted under this Agreement shall be in writing and
shall be deemed to have been given when personally delivered or mailed by
United States certified mail, return receipt requested, postage prepaid,
addressed to the intended recipient at its or his address first above
written. Notices to AKS shall be marked for the attention of the Chief
Executive Officer of AKS.
14. Modification; Waiver
--------------------
No provision of this Agreement may be waived, modified or discharged except
pursuant to a written instrument signed by you and the Chairman of the
Board or the Chief Executive Officer of AKS.
15. Successors; Binding Agreement
-----------------------------
(a) AKS and Holding will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of AKS to expressly
assume and agree to perform this Agreement in the same manner and to
the same extent that AKS would be required to perform it if no such
succession had taken place. Failure of AKS or Holding to obtain such
assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement.
(b) This Agreement shall inure to the benefit of and be enforceable by you
and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should
die while any amount would still be payable to you hereunder had you
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee, or, if there is no such devisee,
legatee or designee, to your estate.
13
<PAGE>
16. Validity; Counterparts
----------------------
This Agreement shall be governed by and construed under the law of the
State of Delaware. The validity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any other
provision hereof. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
Sincerely,
AK STEEL HOLDING CORPORATION
By:
----------------------------------
Accepted and agreed to this _____ day
__________________, 19___.
___________________________________
AK STEEL CORPORATION
By:
----------------------------------
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<PAGE>
Exhibit 10.5
CHIEF EXECUTIVE OFFICER
SEVERANCE AGREEMENT
(as amended and restated to reflect changes
adopted by the Board on September 18, 1997)
-------------------------------------------
______________, 19___
____________________
____________________
____________________
Dear _____________:
Reference is made to your Executive Officer Severance Agreement, dated
___________, 19___ (the "Agreement"), setting forth the benefits to be provided
to you in the event of the termination of your employment upon the circumstances
therein specified. Upon your execution of a counterpart of this letter, the
Agreement shall be deemed amended and, as so amended, is restated in its
entirety to read as hereinafter set forth.
AK Steel Corporation ("AKS"), since its formation, has established itself as a
strong competitor in the carbon flat rolled steel industry. Continuity of the
management of AKS is a critical factor to the continued growth and success of
AKS. The Board of Directors ("Board") of AK Steel Holding Corporation
("Holding"), of which AKS is a wholly-owned subsidiary, believes it is in the
best interest of Holding and AKS to reinforce and encourage the continued
attention and dedication of key members of management to their assigned duties.
In consideration of the mutual promises contained herein, it is hereby agreed
that Holding shall cause AKS to provide and AKS shall provide to you, and you
shall receive from AKS, the benefits set forth in this Agreement if your
employment by AKS (including, for the purposes hereof, its subsidiaries and
Affiliates, as hereinafter defined) is terminated during the term of this
Agreement as provided herein.
1 . Purpose
-------
This Agreement establishes certain basic terms and conditions relating to
your employment with AKS, and special arrangements relating to the
termination of your employment with AKS for any reason other than: (i) your
voluntary retirement; (ii) your becoming totally and permanently disabled
under the AKS long-term disability plan or policy; or (iii) your death.
This Agreement supersedes all prior agreements with AKS or any predecessor
business, as well as all other AKS severance policies and practices, except
to the extent incorporated or restated herein. Notwithstanding the
foregoing, neither the termination of your employment nor anything
contained
<PAGE>
in this Agreement shall have any affect upon your rights under (i) any tax-
qualified "pension benefit plan", as such term is defined in the Employee
Retirement Income Security Act of 1974, as amended (ERISA), (ii) any
"welfare benefit plan" as defined in ERISA, including by way of
illustration and not limitation, any medical, surgical or hospitalization
benefit coverage or long-term disability benefit coverage, or (iii) any
non-qualified deferred compensation arrangement, including by way of
illustration and not limitation, any non-qualified pension plan or deferred
compensation plan.
2. Employment
----------
During the term of this Agreement:
(a) you will be employed by AKS (including for this purpose any direct or
indirect subsidiary or Affiliate of AKS to which you may be
transferred) in your present position or in a position that is at
least comparable to your present position in compensation,
responsibility and stature and for which you are suited by education
and background;
(b) you will continue to be eligible to participate in any employee
benefit plan of AKS in accordance with its terms; and
(c) you will be entitled to the same treatment under any generally
applicable employment policy or practice as any other key member of
management of AKS whose position in the AKS organization is at a level
of responsibility comparable to yours.
Those plans, policies and practices that generally apply to other key
members of management of AKS will be referred to in this Agreement as your
"Employment Benefits." Your Employment Benefits may be modified from time
to time after the date hereof without violation of this Agreement if the
changes apply generally to other key members of management of AKS.
3. Term of Agreement
-----------------
This Agreement shall be deemed effective as of ____________, 19___ (the
"Effective Date") and shall continue in effect through the later of: (i)
the fifth anniversary of the Effective Date or (ii) the completion of full
payment of all benefits promised hereunder. This Agreement shall be
automatically renewed annually from and after the fifth anniversary of the
Effective Date unless written notice of non-renewal is given by you or by
AKS at least ninety (90) days prior to the expiration of the term,
including any extension thereof.
2
<PAGE>
4. Termination of Employment
-------------------------
Your employment may be terminated in accordance with any of the following
paragraphs. The date upon which the termination of your employment becomes
effective is hereinafter referred to as the "Date of Termination". The
period between the date of notice of termination and the Date of
Termination is referred to as the "Notice Period".
(a) Involuntary Termination Without Cause
-------------------------------------
AKS may terminate your employment without Cause (as defined in Section
4(b) below), but only upon written notice given to you by AKS not less
than thirty (30) days prior to the Date of Termination. During the
Notice Period, you shall continue to receive your full salary and
Employment Benefits. From and after the Date of Termination, pursuant
to this Section 4(a), you shall be entitled to those benefits provided
under Section 5.
(b) Involuntary Termination For Cause
---------------------------------
AKS may terminate your employment for Cause, but only upon written
notice, specifying the facts or circumstances constituting such Cause,
which notice may be given on or at any time prior to the Date of
Termination. For the purposes of this Section 4(b), "Cause" means a
willful engaging in gross misconduct materially and demonstrably
injurious to AKS. "Willful" means an act or omission in bad faith and
without reasonable belief that such act or omission was in or not
opposed to the best interests of AKS. From and after your Date of
Termination, pursuant to this Section 4(b), you shall only be entitled
to those benefits provided under Section 8.
(c) Voluntary Termination Without Good Reason
-----------------------------------------
You may voluntarily terminate your employment without Good Reason (as
defined in Section 4(d) below), but only upon written notice given to
AKS by you not less than thirty (30) days prior to the Date of
Termination. During the Notice Period, you shall continue to receive
your full salary and Employment Benefits, provided you satisfactorily
perform your duties during the Notice Period (unless relieved of those
duties by AKS). From and after the Date of Termination, pursuant to
this Section 4(c), you shall only be entitled to those benefits
provided under Section 8.
(d) Voluntary Termination For Good Reason
-------------------------------------
You may voluntarily terminate your employment for Good Reason (as
herein defined), but only upon written notice, specifying the facts or
circumstances constituting such Good Reason, given to AKS by you at
least thirty (30) days prior to the Date of Termination and not more
than sixty (60) days following
3
<PAGE>
the occurrence of the circumstances constituting such Good Reason. For
the purposes of this Section 4(d), "Good Reason" shall mean the
occurrence, without your express written consent, of any of the
following circumstances (unless, in the case of clauses (i), (v),
(vi), (vii) or (viii) below, such circumstances are fully corrected
prior to the Date of Termination specified in the notice of
termination):
(i) the assignment to you of any duties inconsistent with your
position within AKS or a significant adverse alteration in the
nature or status of your responsibilities or the conditions of
your employment;
(ii) a reduction by AKS in your annual base salary provided,
however, that no such reduction shall reduce your benefits
under Section 5 if you have given timely notice pursuant to
this Section 4(d);
(iii) a requirement by AKS that you be based anywhere other than the
principal executive offices of AKS except for required travel
on AKS business to an extent substantially consistent with your
customary business travel obligations;
(iv) the failure of AKS to pay to you any portion of your
compensation within seven (7) days of the date such
compensation is due;
(v) the failure of AKS, at any time within 24 months following the
occurrence of a Change In Control (as defined in Section 7(b)
hereof), to continue in effect any compensation plan in which
you participated immediately prior to such Change In Control,
which plan is material to your total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or
the failure of AKS to continue your participation in such
compensation plan (or in such substitute or alternative plan)
on a basis not materially less favorable to you, both in terms
of the amount of benefits provided and the level of your
participation relative to other participants, than that
existing immediately prior to such Change In Control;
(vi) any material reduction, except to the extent permitted by
Section 2 hereof, in your Employment Benefits;
(vii) the failure of AKS to obtain a satisfactory agreement from any
successor corporation to assume and agree to perform this
Agreement, as contemplated in Section 15 hereof;
(viii) any purported termination of your employment by AKS that is not
effected in compliance with the provisions of Section 4(a) or
4(b) hereof, as the case may be;
4
<PAGE>
(ix) notice of non-renewal is given by AKS pursuant to Section 3 of
this Agreement.
If you give notice of termination for Good Reason, then, during the
Notice Period (which shall not exceed 60 days), you shall continue to
receive your full base salary and Employment Benefits as in effect
prior to the occurrence of the circumstances constituting such Good
Reason, subject to the right of AKS to make changes to your Employment
Benefits to the extent permitted by Section 2. From and after the
Date of Termination, pursuant to this Section 4(d), you shall be
entitled to those benefits provided under Section 5.
(e) Voluntary Termination After A Change In Control
-----------------------------------------------
You may voluntarily terminate your employment, with or without Good
Reason, during the thirty (30)-day period immediately following the
date on which a Change In Control occurs, but only upon written notice
given to AKS by you during such 30-day period specifying the Date of
Termination which, unless otherwise agreed by you and AKS, shall not
be less than thirty (30) days nor more than sixty (60) days following
such Change In Control. During the Notice Period, you shall continue
to receive your full salary and Employment Benefits, provided you
satisfactorily perform your duties during the Notice Period (unless
relieved of those duties by AKS). From and after the Date of
Termination, pursuant to this Section 4(e), you shall be entitled to
those benefits provided under Section 5.
5. Special Severance Benefits
--------------------------
(a) If your employment with AKS is involuntarily terminated by AKS without
Cause in accordance with Section 4(a), you voluntarily terminate your
employment for Good Reason in accordance with Section 4(d), or you
voluntarily terminate your employment after a Change In Control in
accordance with Section 4(e), then you shall receive the following
benefits:
(i) Your base salary shall be continued in effect for a period
(hereafter, the "Severance Pay Period") of (1) 36 months from the
Date of Termination, if the notice of your termination is given
within 24 months after the occurrence of a Change In Control or
(2) 24 months from your Date of Termination, if the notice of
your termination is given at any time other than within 24 months
after the occurrence of a Change In Control. The aggregate base
salary payable in accordance with this Section 5(a)(i) shall be
paid to you in a single, undiscounted, lump sum payment within
ten (10) days following the Date of Termination unless you have
requested, in writing, at any time prior to your Date of
Termination to receive payments of your
5
<PAGE>
base salary in regular monthly payments throughout the Severance
Pay Period.
(ii) (1) Within ten (10) days following the Date of Termination, you
will receive a lump-sum payment equal in amount to the
result obtained by application of the following formula: P =
(x) times (y) times (z), where:
P = the lump-sum payment;
(x) = twelve times your monthly base salary;
(y) = the fraction obtained by dividing your annual
incentive compensation which was paid or is
payable to you for the immediately preceding
calendar year by your actual base salary for such
year; and
(z) = 3.0 (if the notice of your termination is given
within 24 months after the occurrence of a Change
In Control) or 2.0 (if the notice of your
termination is given at any time other than within
24 months after the occurrence of a Change in
Control).
(2) Within ten (10) days following the date that payment is made
to active employees of AKS, you shall receive a pro-rata
payment of the annual incentive payment you would have
received for the year in which your Date of Termination
occurs. Such payment shall be (A) pro-rated based upon your
Date of Termination and (B) otherwise calculated as an
employee in good standing at your level of participation in
effect prior to the Date of Termination and assuming 100
percent completion of any individual performance factors.
(iii) Notwithstanding any provision to the contrary in the AK Steel
Holding Corporation 1994 Stock Incentive Plan as amended or any
other similar plan of AKS or Holding (each, a "Plan"), or under
the terms of any grant, award agreement or form for exercising
any right under the Plan, you shall have the right:
(1) to exercise any stock option awarded to you under the Plan
without regard to any waiting period required by the Plan
or award agreement (but subject to a minimum six month
holding period from the date of award and any restrictions
imposed by law) from the first day of your Notice Period
until
6
<PAGE>
the first to occur of the third anniversary of your Date
of Termination or the date the award expires by its terms,
and
(2) to the absolute ownership of any shares of stock granted to
you under the Plan, free of any restriction on your right to
transfer or otherwise dispose of the shares (but subject to
a minimum six month holding period from the date of grant
and any restrictions imposed by law), regardless of whether
entitlement to the shares is contingent or absolute by the
terms of the grant; and the Board shall take such action
within the Notice Period as is necessary or appropriate to
eliminate any restriction on your ownership of, or your
right to sell or assign, any such shares; and further
provided that if the Board should fail or refuse to take
such action, AKS shall pay you, in exchange for such shares,
no later than ten (10) days after the Date of Termination,
an amount in cash equal to the greatest aggregate market
value of the shares during the Notice Period.
You agree, for a period of six (6) months after your Termination
Date, to continue to comply with all AKS and Holding policies and
directives related to trading in Holding stock which were in
effect prior to your notice of termination. If your compliance
with such policies and directives precludes you from exercising
any stock options or selling any shares of stock described in
paragraphs (1) and (2) above for a period of more than sixty (60)
days from the first day of your Notice Period, then AKS will pay
you in cash the difference between the average share price during
the Notice Period and, if less, the actual share price received
by you at the time of sale provided you have completed such sale
within sixty (60) days from your first opportunity to do so. The
average sale price during the Notice Period will be determined by
averaging the highest share price and the lowest share price
during the Notice Period. Any such differential payment will be
paid to you within thirty (30) days after you provide written
notice to AKS requesting such payment. Such notice is to be
directed to the attention of the Secretary of AKS and contain the
relevant stock transaction dates and actual share price
information.
(iv) During the Severance Pay Period your Employment Benefits shall be
continued, subject to the right of AKS to make any changes to
your Employment Benefits permitted in accordance with Section 2;
provided, however, that you shall not:
(1) accumulate vacation pay for periods after the Date of
Termination;
7
<PAGE>
(2) first qualify for sickness and accident plan benefits by
reason of an accident occurring or a sickness first
manifesting itself after the Date of Termination;
(3) be eligible to continue to make contributions to any
Internal Revenue Code Section 401(k) plan maintained by AKS
or qualify for a share of any employer contribution made to
any tax-qualified defined contribution plan; or
(4) be eligible to accumulate service for pension plan purposes;
and
provided, further, that if, during the Severance Pay Period,
you are (and for so long as you remain) employed by any
other employer, the obligations of AKS to continue to
provide you with life, disability and medical, hospital and
other health insurance benefits shall be limited solely to
those benefits necessary to assure that, together with the
corresponding benefits provided to you by your new employer,
you receive total benefits comparable to those to which you
were entitled at the Date of Termination.
(v) You shall qualify for full COBRA health benefit continuation
coverage upon the expiration of the Severance Pay Period.
(vi) You shall be entitled, at no cost to you, to full executive
outplacement assistance with an agency selected by AKS.
(b) If your employment with AKS is involuntarily terminated by AKS without
Cause in accordance with Section 4(a), or if at any time after a
Change In Control you voluntarily terminate your employment with AKS
(or any Affiliate, any successor of AKS, or any entity which as a
result of the completion of the transactions causing a Change In
Control becomes affiliated with AKS) for Good Reason (as defined in
Section 4(d)) or after a Change In Control in accordance with Section
4(e), within ten (10) days following the Date of Termination you will
receive, in addition to any benefits you may be entitled to under
Section 5(a) above, a lump sum payment in an amount equal to the
benefit you would be entitled to under the AK Steel Corporation
Executive Minimum and Supplemental Retirement Plan as amended (the
"EMSRP") determined as if (i) your Vesting Date (as defined under the
EMSRP) had occurred prior to the Date of Termination (if it has not
already occurred as of the Date of Termination) and (ii) you had
attained age 60 prior to the Date of Termination (if you have not
already attained age 60 as of the Date of Termination). The amount of
any such additional benefit shall be calculated as of the Date of
Termination in accordance with the benefit formula under the EMSRP (as
if you had attained
8
<PAGE>
age 60, or your actual age if greater), and the payment of such
benefit shall be in lieu of any payment under the EMSRP.
(c) Voluntary termination of your employment with AKS for Good Reason
under Section 4(d) or Section 4(e) shall not be considered a voluntary
termination under the AK Steel Deferred Compensation Plan (the "DCP").
Accordingly, if you terminate your employment with AKS for Good Reason
under Section 4(d) or after a Change In Control under Section 4(e),
you will be fully vested in the interest credited to your account
under the DCP and will be paid your entire account at such time as
provided under the DCP.
(d) You shall not be required to mitigate the amount of any payment
provided for in this Section 5 by seeking other employment or
otherwise, nor shall the amount of any payment or benefits provided
for in this Section 5 be reduced by any compensation or benefits
earned by you as the result of employment by another employer (except
as expressly provided in Section 5(a)(iv) above) or by retirement
benefits, or be offset against any amount claimed to be owed by you to
AKS or any of its Affiliates or successors.
(e) For purposes of calculating any amount due under this Agreement the
effect of any deferral of income shall be disregarded and all sums due
shall be calculated as if no such deferral had been made.
6. Certain Tax Matters
-------------------
(a) If any of the payments provided to you pursuant to Section 5 hereof
(the "Contract Payments") or any other portion of the Total Payments
(as defined below) becomes subject at any time to the tax (the "Excise
Tax") imposed by section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), AKS shall pay to you at the time specified in
section 6(b) below, an additional amount (the "Gross-Up Payment") such
that the net amount retained by you, after deduction of the Excise Tax
on any Contract Payments and/or other Total Payments, any federal and
state and local income tax and Excise Tax upon the payment(s) provided
for by this paragraph, and any interest, penalties or additions to tax
payable by you with respect thereto, shall be equal to the present
value of the Contract Payments and such other Total Payments. For
purposes of determining whether any of the foregoing payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any
other payments or benefits received or to be received by you in
connection with a Change In Control or the termination of your
employment (whether such payments are Contract Payments or are payable
pursuant to the terms of any other plan, arrangement or agreement with
AKS, Holding or any of their respective Affiliates or successors, any
person whose actions result in a Change In Control or any corporation
which, as a result of the completion of the transactions causing a
Change In Control, will become affiliated with AKS or Holding within
the meaning of section 1504 of the
9
<PAGE>
Code (such other payments, together with the Contract Payments, the
"Total Payments")) shall be treated as "parachute payments" within the
meaning of section 28OG(b)(2) of the Code, and all "excess parachute
payments" within the meaning of section 28OG(b)(1) shall be treated as
subject to the Excise Tax, except to the extent that, in the opinion
of tax counsel selected by AKS' independent auditors and acceptable to
you ("Tax Counsel"), the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute payments are
otherwise not subject to the Excise Tax, (ii) the amount of the Total
Payments that shall be treated as subject to the Excise Tax shall be
equal to the lesser of (1) the total amount of the Total Payments or
(2) the amount of excess parachute payments within the meaning of
sections 28OG(b)(1) (after applying clause (i) hereof), and (iii) the
value of any noncash benefits or any deferred payment or benefit shall
be determined by AKS' independent auditors in accordance with the
principles of sections 28OG(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment(s), you shall be deemed
to pay federal income taxes at the highest marginal rate of federal
income taxation applicable to individuals in the calendar year in
which the Gross-Up Payment(s) is (are) to be made and state and local
income taxes at the highest marginal rates of taxation applicable to
individuals as are in effect in the state and locality of your
residence in the calendar year in which the Gross-Up Payment(s) is
(are) to be made, net of the maximum reduction in federal income taxes
that could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder, you shall repay to AKS
at the time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such
reduction (plus the portion of the Gross-Up Payment attributable to
the Excise Tax and federal and state and local income tax imposed on
the Gross-Up Payment being repaid by you if such repayment results in
a federal and state and local income tax deduction), plus interest on
the amount of such repayment at the applicable federal rate (as
defined in section 1274(d) of the Code). In the event that the Excise
Tax is determined to exceed the amount taken into account hereunder
(including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-up Payment), AKS shall
make an additional gross-up payment in respect of such excess (plus
any interest payable with respect to such excess) at the time that the
amount of such excess is finally determined.
(b) The Gross-up Payment(s) provided for in section 6(a) above shall be
made not later than the tenth day following the Date of Termination
or, with respect to any portion of the Excise Tax not determined on or
before such date to be due, upon the imposition of such portion of the
Excise Tax; provided, however, that if the amounts of such payments
cannot be finally determined on or before such date, AKS shall pay to
you on such day an estimate, as determined in good faith by AKS, of
the minimum amount of such payments and shall pay the remainder of
such payments (together with interest at the
10
<PAGE>
rate provided in section 1274(b)(2)(B) of the Code) as soon as the
amount thereof can be determined but in no event later than the
thirtieth day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount subsequently
finally determined to have been due, such excess shall constitute a
loan by the Corporation to you, payable on the tenth day after demand
by the Corporation (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code).
(c) In the event of any change in, or further interpretation of, sections
28OG or 4999 of the Code and the regulations promulgated thereunder,
you shall be entitled, by written notice to AKS, to request an opinion
of Tax Counsel regarding the application of such change to any of the
foregoing, and AKS shall use its best efforts to cause such opinion to
be rendered as promptly as practicable. All fees and expenses of Tax
Counsel incurred in connection with this Agreement shall be borne by
AKS.
7. Definitions
-----------
For purposes of this Agreement the following terms shall have the following
meanings:
(a) "Affiliate" of any specified person means (i) any other person which,
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 (1) of such specified person, (2) of any
subsidiary of such specified person or (3) 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.
(b) "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
Securities Exchange Act of 1934, as amended (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 a 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;
11
<PAGE>
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board (together
with any new directors whose election by such Board, 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 then in office; or
(iii) Holding fails to own 100% of the outstanding stock of AKS;
provided, however, that it shall not be deemed a Change in
-------- -------
Control if Holding merges into AKS except that, in such case,
AKS shall be substituted for Holding for purposes of this
definition of "Change in Control" and this clause (iii) shall
not longer be applicable.
(c) "Voting Equity Interests" of a corporation means all classes of stock
then outstanding and normally entitled to vote in the election of
directors or other governing body of such corporation.
8. Benefits Upon Voluntary Termination or Termination for Cause
------------------------------------------------------------
Upon your Date of Termination for Cause in accordance with Section 4(b) or
your Date of Termination without Good Reason in accordance with Section
4(c), all benefits under this Agreement will be void, but, you nevertheless
shall be eligible for any benefits provided in accordance with the plans
and practices of AKS which are applicable to employees generally.
9. Arbitration
-----------
Any dispute under this Agreement (except for disputes arising under
Sections 10 and 12 below) shall be submitted to binding arbitration subject
to the rules of the American Arbitration Association. Except as
hereinafter provided, AKS and you shall each bear your own attorney's fees
and shall share equally the cost of arbitration. However, if you prevail
in a challenge by you to AKS' assertion of the existence of Cause for
termination or in a challenge by AKS to your assertion of the existence of
Good Reason for termination, you shall be reimbursed by AKS for all
reasonable costs or expenses incurred by you in such challenge, including
reasonable attorney's fees.
10. Confidentiality
---------------
You will not disclose to any person or use for the benefit of yourself or
any other person any confidential or proprietary information of AKS without
the prior written consent of an elected officer of AKS. Upon your
termination of employment, you will return to AKS all written or
electronically stored memoranda, notes, plans,
12
<PAGE>
records, reports or other documents of any kind or description (including
all copies in any form whatsoever) relating to the business of AKS.
11. Conflicts of Interest
---------------------
You agree for so long as you are employed by AKS to avoid dealings and
situations which would create the potential for a conflict of interest with
AKS. In this regard, you agree to comply with the AKS policy regarding
conflicts of interest.
12. Covenant Not to Compete
-----------------------
During the term of this Agreement, and for a period of one year following
your Date of Termination for any reason other than for Cause pursuant to
Section 4(b) you agree not to be employed by, or serve as director of or
consultant or advisor to, any business engaged directly or indirectly in
the melting, hot rolling, cold rolling, or coating of carbon or stainless,
flat rolled steel, or that is reasonably likely to engage in such business
during the one-year period following your termination of employment;
provided however, if a Change In Control occurs, the foregoing restriction
-------- -------
applicable to the one year period following your Date of Termination shall
lapse and be null and void.
13. Notice
------
Notices required or permitted under this Agreement shall be in writing and
shall be deemed to have been given when personally delivered or mailed by
United States certified mail, return receipt requested, postage prepaid,
addressed to the intended recipient at its or his address first above
written. Notices to AKS shall be marked for the attention of the Chief
Executive Officer of AKS.
14. Modification; Waiver
--------------------
No provision of this Agreement may be waived, modified or discharged except
pursuant to a written instrument signed by you and approved by the Board.
15. Successors; Binding Agreement
-----------------------------
(a) AKS and Holding will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of AKS to expressly
assume and agree to perform this Agreement in the same manner and to
the same extent that AKS would be required to perform it if no such
succession had taken place. Failure of AKS or Holding to obtain such
assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement.
(b) This Agreement shall inure to the benefit of and be enforceable by you
and your personal or legal representatives, executors, administrators,
successors,
13
<PAGE>
heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder had you continued
to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee,
legatee or other designee, or, if there is no such devisee, legatee or
designee, to your estate.
16. Validity; Counterparts
----------------------
This Agreement shall be governed by and construed under the law of the
State of Delaware. The validity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any other
provision hereof. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
Sincerely,
AK STEEL HOLDING CORPORATION
By:
---------------------------------
Accepted and agreed to this _____ day
______________, 19___.
By:
----------------------------------
AK STEEL CORPORATION
By:
--------------------------------
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<PAGE>
Exhibit 10.6
EXECUTIVE OFFICER SEVERANCE AGREEMENT
(as amended and restated to reflect changes
adopted by the Board on September 18, 1997)
-------------------------------------------
CONFIDENTIAL
------------
_____________, 19____
__________________
__________________
__________________
Dear _____________:
Reference is made to the agreement between us, ________________, 19___ (the
"Agreement"), setting forth the benefits to be provided to you in the event of
the termination of your employment upon the circumstances therein specified.
Upon your execution of a counterpart of this letter, the Agreement shall be
deemed amended and, as so amended, is restated in its entirety to read as
hereinafter set forth.
AK Steel Corporation ("AKS"), since its formation, has established itself as a
strong competitor in the carbon flat rolled steel industry. Continuity of the
management of AKS is a critical factor to the continued growth and success of
AKS. The Board of Directors ("Board") of AK Steel Holding Corporation
("Holding"), of which AKS is a wholly-owned subsidiary, believes it is in the
best interest of Holding and AKS to reinforce and encourage the continued
attention and dedication of key members of management to their assigned duties.
In consideration of the mutual promises contained herein, it is hereby agreed
that Holding shall cause AKS to provide and AKS shall provide to you, and you
shall receive from AKS, the benefits set forth in this Agreement if your
employment by AKS (including, for the purposes hereof, its subsidiaries and
Affiliates, as hereinafter defined) is terminated during the term of this
Agreement as provided herein.
1 . Purpose
-------
This Agreement establishes certain basic terms and conditions relating to
your employment with AKS, and special arrangements relating to the
termination of your employment with AKS for any reason other than: (i) your
voluntary retirement; (ii) your becoming totally and permanently disabled
under the AKS long-term disability plan or policy; or (iii) your death.
This Agreement supersedes all prior agreements with AKS or any predecessor
business, as well as all other AKS severance policies
<PAGE>
and practices, except to the extent incorporated or restated herein.
Notwithstanding the foregoing, neither the termination of your employment
nor anything contained in this Agreement shall have any affect upon your
rights under (i) any tax-qualified "pension benefit plan", as such term is
defined in the Employee Retirement Income Security Act of 1974, as amended
(ERISA), (ii) any "welfare benefit plan" as defined in ERISA, including by
way of illustration and not limitation, any medical, surgical or
hospitalization benefit coverage or long-term disability benefit coverage,
or (iii) any non-qualified deferred compensation arrangement, including by
way of illustration and not limitation, any non-qualified pension plan or
deferred compensation plan.
2. Employment
----------
During the term of this Agreement:
(a) you will be employed by AKS (including for this purpose any direct or
indirect subsidiary or Affiliate of AKS to which you may be
transferred) in your present position or in a position that is at
least comparable to your present position in compensation,
responsibility and stature and for which you are suited by education
and background;
(b) you will continue to be eligible to participate in any employee
benefit plan of AKS in accordance with its terms; and
(c) you will be entitled to the same treatment under any generally
applicable employment policy or practice as any other key member of
management of AKS whose position in the AKS organization is at a level
of responsibility comparable to yours.
Those plans, policies and practices that generally apply to other key
members of management of AKS will be referred to in this Agreement as your
"Employment Benefits." Your Employment Benefits may be modified from time
to time after the date hereof without violation of this Agreement if the
changes apply generally to other key members of management of AKS.
3. Term of Agreement
-----------------
This Agreement shall be deemed effective as of ____________, 19___ (the
"Effective Date") and shall continue in effect through the later of:
(i) the fifth anniversary of the Effective Date or (ii) the completion of
full payment of all benefits promised hereunder. This Agreement shall be
automatically renewed annually from and after the fifth anniversary of the
Effective Date unless written notice of non-renewal is given by you or by
AKS at least ninety (90) days prior to the expiration of the term,
including any extension thereof.
2
<PAGE>
4. Termination of Employment
-------------------------
Your employment may be terminated in accordance with any of the following
paragraphs. The date upon which the termination of your employment becomes
effective is hereinafter referred to as the "Date of Termination". The
period between the date of notice of termination and the Date of
Termination is referred to as the "Notice Period".
(a) Involuntary Termination Without Cause
-------------------------------------
AKS may terminate your employment without Cause (as defined in Section
4(b) below), but only upon written notice given to you by AKS not less
than thirty (30) days prior to the Date of Termination. During the
Notice Period, you shall continue to receive your full salary and
Employment Benefits. From and after the Date of Termination, pursuant
to this Section 4(a), you shall be entitled to those benefits provided
under Section 5.
(b) Involuntary Termination for Cause
---------------------------------
AKS may terminate your employment for Cause, but only upon written
notice, specifying the facts or circumstances constituting such Cause,
which notice may be given on or at any time prior to the Date of
Termination. For the purposes of this Section 4(b), "Cause" means a
willful engaging in gross misconduct materially and demonstrably
injurious to AKS. "Willful" means an act or omission in bad faith and
without reasonable belief that such act or omission was in or not
opposed to the best interests of AKS. From and after your Date of
Termination, pursuant to this Section 4 (b), you shall only be
entitled to those benefits provided under Section 8.
(c) Voluntary Termination Without Good Reason
-----------------------------------------
You may voluntarily terminate your employment without Good Reason (as
defined in Section 4 (d) below), but only upon written notice given to
AKS by you not less than thirty (30) days prior to the Date of
Termination. During the Notice Period, you shall continue to receive
your full salary and Employment Benefits, provided you satisfactorily
perform your duties during the Notice Period (unless relieved of those
duties by AKS). From and after the Date of Termination, pursuant to
this Section 4 (c), you shall only be entitled to those benefits
provided under Section 8.
(d) Voluntary Termination for Good Reason
-------------------------------------
You may voluntarily terminate your employment for Good Reason (as
herein defined), but only upon written notice, specifying the facts or
circumstances constituting such Good Reason, given to AKS by you at
least thirty (30) days
3
<PAGE>
prior to the Date of Termination and not more than sixty (60) days
following the occurrence of the circumstances constituting such Good
Reason. For the purposes of this Section 4(d), "Good Reason" shall
mean the occurrence, without your express written consent, of any of
the following circumstances (unless, in the case of clauses (i), (v),
(vi), (vii) or (viii) below, such circumstances are fully corrected
prior to the Date of Termination specified in the notice of
termination):
(i) the assignment to you of any duties inconsistent with your
position within AKS or a significant adverse alteration in the
nature or status of your responsibilities or the conditions of
your employment;
(ii) a reduction by AKS in your annual base salary provided,
however, that no such reduction shall reduce your benefits
under Section 5 if you have given timely notice pursuant to
this Section 4(d);
(iii) a requirement by AKS that you be based anywhere other than the
principal executive offices of AKS except for required travel
on AKS business to an extent substantially consistent with your
customary business travel obligations;
(iv) the failure of AKS to pay to you any portion of your
compensation within seven (7) days of the date such
compensation is due;
(v) the failure of AKS, at any time within 24 months following the
occurrence of a Change In Control (as defined in Section 7(b)
hereof), to continue in effect any compensation plan in which
you participated immediately prior to such Change In Control,
which plan is material to your total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or
the failure of AKS to continue your participation in such
compensation plan (or in such substitute or alternative plan)
on a basis not materially less favorable to you, both in terms
of the amount of benefits provided and the level of your
participation relative to other participants, than that
existing immediately prior to such Change In Control;
(vi) any material reduction, except to the extent permitted by
Section 2 hereof, in your Employment Benefits;
(vii) the failure of AKS to obtain a satisfactory agreement from any
successor corporation to assume and agree to perform this
Agreement, as contemplated in Section 15 hereof;
(viii) any purported termination of your employment by AKS that is not
4
<PAGE>
effected in compliance with the provisions of Section 4(a) or
4(b) hereof, as the case may be;
If you give notice of termination for Good Reason, then, during the
Notice Period (which shall not exceed 60 days), you shall continue to
receive your full base salary and Employment Benefits as in effect
prior to the occurrence of the circumstances constituting such Good
Reason, subject to the right of AKS to make changes to your Employment
Benefits to the extent permitted by Section 2. From and after the
Date of Termination, pursuant to this Section 4 (d), you shall be
entitled to those benefits provided under Section 5.
5. Special Severance Benefits
--------------------------
(a) If your employment with AKS is involuntarily terminated by AKS without
Cause in accordance with Section 4(a) or you voluntarily terminate
your employment for Good Reason in accordance with Section 4(d), then
you shall receive the following benefits:
(i) Your base salary shall be continued in effect for a period
(hereafter, the "Severance Pay Period") of (1) 36 months from the
Date of Termination, if the notice of your termination is given
within 24 months after the occurrence of a Change In Control (as
defined in Section 7(b) below) or (2) 24 months from your Date of
Termination, if the notice of your termination is given at any
time other than within 24 months after the occurrence of a Change
In Control. The aggregate base salary payable in accordance with
this Section 5(a)(i) shall be paid to you in a single,
undiscounted, lump-sum payment within ten (10) days following the
Date of Termination unless you have requested, in writing, at any
time prior to your Date of Termination to receive payments of
your base salary in regular monthly payments throughout the
Severance Pay Period.
(ii) (1) Within ten (10) days following the Date of Termination, you
will receive a lump-sum payment equal in amount to the
result obtained by application of the following formula: P =
(x) times (y) times (z), where:
P = the lump-sum payment;
(x) = twelve times your monthly base salary;
(y) = the fraction obtained by dividing your annual
incentive compensation which was paid or is payable
to you for the immediately preceding
5
<PAGE>
calendar year by your actual base salary for such
year; and
(z) = 3.0 (if the notice of your termination is given
within 24 months after the occurrence of a Change
In Control, as defined in Section 7(b) hereof) or
2.0 (if the notice of your termination is given at
any time other than within 24 months after the
occurrence of a Change in Control).
(2) Within ten (10) days following the date that payment is made
to active employees of AKS, you shall receive a pro-rata
payment of the annual incentive payment you would have
received for the year in which your Date of Termination
occurs. Such payment shall be (A) pro-rated based upon your
Date of Termination and (B) otherwise calculated as an
employee in good standing at your level of participation in
effect prior to the Date of Termination and assuming 100
percent completion of any individual performance factors.
(iii) Notwithstanding any provision to the contrary in the AK Steel
Holding Corporation 1994 Stock Incentive Plan as amended or any
other similar plan of AKS or Holding (each, a "Plan"), or under
the terms of any grant, award agreement or form for exercising
any right under the Plan, you shall have the right:
(1) to exercise any stock option awarded to you under the Plan
without regard to any waiting period required by the Plan
or award agreement (but subject to a minimum six month
holding period from the date of award and any restrictions
imposed by law) from the first day of your Notice Period
until the first to occur of the third anniversary of your
Date of Termination or the date the award expires by its
terms, and
(2) to the absolute ownership of any shares of stock granted
to you under the Plan, free of any restriction on your
right to transfer or otherwise dispose of the shares (but
subject to a minimum six month holding period from the
date of grant and any restrictions imposed by law),
regardless of whether entitlement to the shares is
contingent or absolute by the terms of the grant; and the
Board shall take such action within the Notice Period as
is necessary or appropriate to eliminate any restriction
on your ownership of, or your right to sell or assign, any
such shares; and further provided that if the Board
6
<PAGE>
should fail or refuse to take such action, AKS shall pay
you, in exchange for such shares, no later than ten (10)
days after the Date of Termination, an amount in cash
equal to the greatest aggregate market value of the shares
during the Notice Period.
You agree, for a period of six (6) months after your Termination
Date, to continue to comply with all AKS and Holding policies and
directives related to trading in Holding stock which were in
effect prior to your notice of termination. If your compliance
with such policies and directives precludes you from exercising
any stock options or selling any shares of stock described in
paragraphs (1) and (2) above for a period of more than sixty (60)
days from the first day of your Notice Period, then AKS will pay
you in cash the difference between the average share price during
the Notice Period and, if less, the actual share price received
by you at the time of sale provided you have completed such sale
within sixty (60) days from your first opportunity to do so. The
average sale price during the Notice Period will be determined by
averaging the highest share price and the lowest share price
during the Notice Period. Any such differential payment will be
paid to you within thirty (30) days after you provide written
notice to AKS requesting such payment. Such notice is to be
directed to the attention of the Secretary of AKS and contain the
relevant stock transaction dates and actual share price
information.
(iv) During the Severance Pay Period your Employment Benefits shall be
continued, subject to the right of AKS to make any changes to
your Employment Benefits permitted in accordance with Section 2;
provided, however, that you shall not:
(1) accumulate vacation pay for periods after the Date of
Termination;
(2) first qualify for sickness and accident plan benefits by
reason of an accident occurring or a sickness first
manifesting itself after the Date of Termination;
(3) be eligible to continue to make contributions to any
Internal Revenue Code Section 401(k) plan maintained by AKS
or qualify for a share of any employer contribution made to
any tax-qualified defined contribution plan; or
(4) be eligible to accumulate service for pension plan purposes;
and
7
<PAGE>
provided, further, that if, during the Severance Pay Period, you are
(and for so long as you remain) employed by any other employer, the
obligations of AKS to continue to provide you with life, disability
and medical, hospital and other health insurance benefits shall be
limited solely to those benefits necessary to assure that, together
with the corresponding benefits provided to you by your new employer,
you receive total benefits comparable to those to which you were
entitled at the Date of Termination.
(v) You shall qualify for full COBRA health benefit continuation
coverage upon the expiration of the Severance Pay Period.
(vi) You shall be entitled, at no cost to you, to full executive
outplacement assistance with an agency selected by AKS.
(b) If your employment with AKS is involuntarily terminated by AKS without
Cause in accordance with Section 4(a), or if at any time after a
Change in Control you voluntarily terminate your employment with AKS
(or any Affiliate, any successor of AKS, or any entity which as a
result of the completion of the transactions causing a Change in
Control becomes affiliated with AKS) for Good Reason (as defined in
Section 4(d)), within ten (10) days following the Date of Termination
you will receive, in addition to any benefits you may be entitled to
under Section 5(a) above, a lump sum payment in an amount equal to
the benefit you would be entitled to under the AK Steel Corporation
Executive Minimum and Supplemental Retirement Plan as amended (the
"EMSRP") determined as if (i) your Vesting Date (as defined under the
EMSRP) had occurred prior to the Date of Termination (if it has not
already occurred as of the Date of Termination) and (ii) you had
attained age 60 prior to the Date of Termination (if you have not
already attained age 60 as of the Date of Termination). The amount of
any such additional benefit shall be calculated as of the Date of
Termination in accordance with the benefit formula under the EMSRP (as
if you had attained age 60, or your actual age if greater), and the
payment of such benefit shall be in lieu of any payment under the
EMSRP.
(c) Voluntary termination of your employment with AKS for Good Reason
under Section 4(d) shall not be considered a voluntary termination
under the AK Steel Deferred Compensation Plan (the "DCP").
Accordingly, if you terminate your employment with AKS for Good Reason
under Section 4(d), you will be fully vested in the interest credited
to your account under the DCP and will be paid your entire account at
such time as provided under the DCP.
(d) You shall not be required to mitigate the amount of any payment
provided for in this Section 5 by seeking other employment or
otherwise, nor shall the amount of any payment or benefits provided
for in this Section 5 be reduced
8
<PAGE>
by any compensation or benefits earned by you as the result of
employment by another employer (except as expressly provided in
Section 5(a)(iv) above) or by retirement benefits, or be offset
against any amount claimed to be owed by you to AKS or any of its
Affiliates or successors.
(e) For purposes of calculating any amount due under this Agreement the
effect of any deferral of income shall be disregarded and all sums due
shall be calculated as if no such deferral had been made.
6. Certain Tax Matters
-------------------
(a) If any of the payments provided to you pursuant to Section 5 hereof
(the "Contract Payments") or any other portion of the Total Payments
(as defined below) becomes subject at any time to the tax (the "Excise
Tax") imposed by section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), AKS shall pay to you at the time specified in
section 6(b) below, an additional amount (the "Gross-Up Payment") such
that the net amount retained by you, after deduction of the Excise Tax
on any Contract Payments and/or other Total Payments, any federal and
state and local income tax and Excise Tax upon the payment(s) provided
for by this paragraph, and any interest, penalties or additions to tax
payable by you with respect thereto, shall be equal to the present
value of the Contract Payments and such other Total Payments. For
purposes of determining whether any of the foregoing payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any
other payments or benefits received or to be received by you in
connection with a Change In Control or the termination of your
employment (whether such payments are Contract Payments or are payable
pursuant to the terms of any other plan, arrangement or agreement with
AKS, Holding or any of their respective Affiliates or successors, any
person whose actions result in a Change In Control or any corporation
which, as a result of the completion of the transactions causing a
Change In Control, will become affiliated with AKS or Holding within
the meaning of section 1504 of the Code (such other payments, together
with the Contract Payments, the "Total Payments")) shall be treated as
"parachute payments" within the meaning of section 28OG(b)(2) of the
Code, and all "excess parachute payments" within the meaning of
section 28OG(b)(1) shall be treated as subject to the Excise Tax,
except to the extent that, in the opinion of tax counsel selected by
AKS' independent auditors and acceptable to you ("Tax Counsel"), the
Total Payments (in whole or in part) do not constitute parachute
payments, or such excess parachute payments are otherwise not subject
to the Excise Tax, (ii) the amount of the Total Payments that shall be
treated as subject to the Excise Tax shall be equal to the lesser of
(1) the total amount of the Total Payments or (2) the amount of excess
parachute payments within the meaning of sections 28OG(b)(1) (after
applying clause (i) hereof), and (iii) the value of
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<PAGE>
any noncash benefits or any deferred payment or benefit shall be
determined by AKS' independent auditors in accordance with the
principles of sections 28OG(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment(s), you shall be deemed
to pay federal income taxes at the highest marginal rate of federal
income taxation applicable to individuals in the calendar year in
which the Gross-Up Payment(s) is (are) to be made and state and local
income taxes at the highest marginal rates of taxation applicable to
individuals as are in effect in the state and locality of your
residence in the calendar year in which the Gross-Up Payment(s) is
(are) to be made, net of the maximum reduction in federal income taxes
that could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder, you shall repay to AKS
at the time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such
reduction (plus the portion of the Gross-Up Payment attributable to
the Excise Tax and federal and state and local income tax imposed on
the Gross-Up Payment being repaid by you if such repayment results in
a federal and state and local income tax deduction), plus interest on
the amount of such repayment at the applicable federal rate (as
defined in section 1274(d) of the Code). In the event that the Excise
Tax is determined to exceed the amount taken into account hereunder
(including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), AKS shall
make an additional Gross-Up payment in respect of such excess (plus
any interest payable with respect to such excess) at the time that the
amount of such excess is finally determined.
(b) The Gross-up Payment(s) provided for in section 6(a) above shall be
made not later than the tenth day following the Date of Termination
or, with respect to any portion of the Excise Tax not determined on or
before such date to be due, upon the imposition of such portion of the
Excise Tax; provided, however, that if the amounts of such payments
cannot be finally determined on or before such date, AKS shall pay to
you on such day an estimate, as determined in good faith by AKS, of
the minimum amount of such payments and shall pay the remainder of
such payments (together with interest at the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth day after the Date
of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently finally determined to have
been due, such excess shall constitute a loan by the Corporation to
you, payable on the tenth day after demand by the Corporation
(together with interest at the rate provided in section 1274(b)(2)(B)
of the Code).
(c) In the event of any change in, or further interpretation of, sections
28OG or 4999 of the Code and the regulations promulgated thereunder,
you shall be entitled, by written notice to AKS, to request an opinion
of Tax Counsel
10
<PAGE>
regarding the application of such change to any of the foregoing, and
AKS shall use its best efforts to cause such opinion to be rendered as
promptly as practicable. All fees and expenses of Tax Counsel incurred
in connection with this Agreement shall be borne by AKS.
7. Definitions
-----------
For purposes of this Agreement the following terms shall have the following
meanings:
(a) "Affiliate" of any specified person means (i) any other person which,
---------
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 (1) of such specified person, (2) of any
subsidiary of such specified person or (3) 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.
(b) "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
Securities Exchange Act of 1934, as amended (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 a 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 (together with
any new directors whose election by such Board, 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 then in office; or
(iii) Holding fails to own 100% of the outstanding stock of AKS;
11
<PAGE>
provided, however, that it shall not be deemed a Change in
-------- -------
Control if Holding merges into AKS except that, in such case, AKS
shall be substituted for Holding for purposes of this definition
of "Change in Control" and this clause (iii) shall not longer be
applicable.
(c) "Voting Equity Interests" of a corporation means all classes of stock
-------------------------
then outstanding and normally entitled to vote in the election of
directors or other governing body of such corporation.
8. Benefits Upon Voluntary Termination or Termination for Cause
------------------------------------------------------------
Upon your Date of Termination for Cause in accordance with Section 4(b) or
your Date of Termination without Good Reason in accordance with Section
4(c), all benefits under this Agreement will be void, but, you nevertheless
shall be eligible for any benefits provided in accordance with the plans
and practices of AKS which are applicable to employees generally.
9. Arbitration
-----------
Any dispute under this Agreement (except for disputes arising under
Sections 10 and 12 below) shall be submitted to binding arbitration subject
to the rules of the American Arbitration Association. Except as
hereinafter provided, AKS and you shall each bear your own attorney's fees
and shall share equally the cost of arbitration. However, if you prevail
in a challenge by you to AKS' assertion of the existence of Cause for
Termination or in a challenge by AKS to your assertion of the existence of
Good Reason for Termination, you shall be reimbursed by AKS for all
reasonable costs or expenses incurred by you in such challenge, including
reasonable attorney's fees.
10. Confidentiality
---------------
You will not disclose to any person or use for the benefit of yourself or
any other person any confidential or proprietary information of AKS without
the prior written consent of an elected officer of AKS. Upon your
termination of employment, you will return to AKS all written or
electronically stored memoranda, notes, plans, records, reports or other
documents of any kind or description (including all copies in any form
whatsoever) relating to the business of AKS.
11. Conflicts of Interest
---------------------
You agree for so long as you are employed by AKS to avoid dealings and
situations which would create the potential for a conflict of interest with
AKS. In this regard, you agree to comply with the AKS policy regarding
conflicts of interest.
12
<PAGE>
12. Covenant Not to Compete
-----------------------
During the term of this Agreement, and for a period of one year following
your Date of Termination for any reason other than for Cause pursuant to
Section 4 (b) you agree not to be employed by, or serve as director of or
consultant or advisor to, any business engaged directly or indirectly in
the melting, hot rolling, cold rolling, or coating of carbon or stainless,
flat rolled steel, or that is reasonably likely to engage in such business
during the one-year period following your termination of employment;
provided however, if a Change in Control occurs, the foregoing restriction
-------- -------
applicable to the one year period following your Date of Termination shall
lapse and be null and void.
13. Notice
------
Notices required or permitted under this Agreement shall be in writing and
shall be deemed to have been given when personally delivered or mailed by
United States certified mail, return receipt requested, postage prepaid,
addressed to the intended recipient at its or his address first above
written. Notices to AKS shall be marked for the attention of the Chief
Executive Officer of AKS.
14. Modification; Waiver
--------------------
No provision of this Agreement may be waived, modified or discharged except
pursuant to a written instrument signed by you and the Chairman of the
Board or the Chief Executive Officer of AKS.
15. Successors; Binding Agreement
-----------------------------
(a) AKS and Holding will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of AKS to expressly
assume and agree to perform this Agreement in the same manner and to
the same extent that AKS would be required to perform it if no such
succession had taken place. Failure of AKS or Holding to obtain such
assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement.
(b) This Agreement shall inure to the benefit of and be enforceable by you
and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should
die while any amount would still be payable to you hereunder had you
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee, or, if there is no such devisee,
legatee or designee, to your estate.
13
<PAGE>
16. Validity; Counterparts
----------------------
This Agreement shall be governed by and construed under the law of the
State of Delaware. The validity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any other
provision hereof. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
Sincerely,
AK STEEL HOLDING CORPORATION
By:
-------------------------------------
Accepted and agreed to this _____ day
__________________, 19___.
___________________________________
AK STEEL CORPORATION
By:
-------------------------------------
14
<PAGE>
Exhibit 10.15
THIRD CONSENT AND AMENDMENT AGREEMENT
dated as of July 10, 1997
to
PURCHASE AND SERVICING AGREEMENT
dated as of December 1, 1994
among
AK STEEL CORPORATION,
as Originator and Servicer,
AK STEEL RECEIVABLES LTD.,
as Transferor
The Purchasers Party Thereto
and
PNC BANK, OHIO, NATIONAL ASSOCLATION,
as L/C Issuing Bank, as Lender
under Swing Line Advances
and as Agent for the Purchasers
<PAGE>
TABLE OF CONTENTS
Document Tab No.
- -------- -------
Third Consent and Amendment Agreement, dated as of July 10, 1997 1
Certificate of the Secretary of AK Steel Corporation 2
Certificate of the Secretary of AKSR Investments, Inc. 3
<PAGE>
================================================================================
THIRD CONSENT AND AMENDMENT AGREEMENT
dated as of July 10, 1997
to
--
PURCHASE AND SERVICING AGREEMENT
dated as of December 1, 1994
among
AK STEEL CORPORATION,
as Originator and Servicer,
AK STEEL RECEIVABLES LTD.,
as Transferor
The Purchasers Party Thereto
and
PNC BANK, OHIO, NATIONAL ASSOCIATION,
as L/C Issuing Bank, as lender under Swing Line Advances,
and as Agent for the Purchasers
================================================================================
<PAGE>
This THIRD CONSENT and AMENDMENT AGREEMENT (this "Amendment"), dated as of
---------
July 10, 1997, is made among AK STEEL CORPORATION ("AK Steel"), as
--------
Originator and Servicer, AK STEEL RECEIVABLES LTD. ("AK Ltd."), as successor
-------
to the original Transferor, the Purchasers party hereto, and PNC BANK, OHIO,
NATIONAL ASSOCIATION ("PNC"), as L/C Issuing Bank, as lender under Swing
---
Line Advances, and as Agent for the Purchasers (the "Agent").
-----
BACKGROUND
A. AK Steel, AK Ltd., the Purchasers party hereto, PNC and the Agent are
parties to a Purchase and Servicing Agreement dated as of December 1, 1994,
(as amended or otherwise modified from time to time, the "Purchase and
------------
Servicing Agreement"), pursuant to which AK Ltd. sells, and the Purchasers
-------------------
purchase, Undivided Fractional Interests in certain Transferor Receivables
and related Transferor Assets originated by AK Steel;
B. The parties hereto wish to amend the Purchase and Servicing Agreement
with respect to the Amortization Date, the L/C Facility Sub-Amount and
certain fees, as provided below.
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. Definitions. Except as otherwise defined herein, capitalized
-----------
terms shall have the meanings set forth in the Purchase and Servicing
Agreement.
SECTION 2. Consent. Each of AK Steel, AK Ltd., PNC (in all its capacities
-------
set forth on the signature pages hereto) and each Purchaser consents to and
approves the amendment of the Purchase and Servicing Agreement as set forth
herein.
SECTION 3. Certain Amendments to the Purchase and Servicing Agreement.
----------------------------------------------------------
SECTION 3.1 Amendments to Article I of Purchase and Servicing Agreement.
-----------------------------------------------------------
(A) The definition of "Adjusted Eurodollar Rate" contained in Section 1.01
is amended to read in full as follows:
""Adjusted Eurodollar Rate" shall mean, with respect to the subject
------------------------
Eurodollar Tranche and the subject Yield Period, an interest rate per annum
equal to (a) the Eurodollar Rate calculated with respect to the subject
Eurodollar Tranche and relevant Yield Period, plus (b) 0.50%."
----
<PAGE>
(B) The definition of "Amortization Date" contained in Section 1.01 is
amended to read in full as follows:
""Amortization Date" shall mean June 30, 2002, or, if earlier, the date
-----------------
specified as the Amortization Date pursuant to Section 10.01 following the
-------------
occurrence of an Early Amortization Event or by the Transferor pursuant to
Section 15.01."
-------------
(C) The definition of "Applicable Commitment Fee Percentage" contained in
Section 1.01 is amended to read in full as follows:
""Applicable Commitment Fee Percentage" shall mean, for any day, (a)
------------------------------------
0.15% per annum, if rating Level 1 applies on such day, (b) 0.20% per
annum, if Rating Level 2 applies on such day, or (c) 0.30% per annum, if
Rating Level 3 applies on such day. Each change in the Applicable
Commitment Fee Percentage resulting from a change in the Rating Level shall
become effective as of the opening of business on the date of announcement
or publication by the respective Rating Agencies of a change in such rating
or, in the absence of such announcement or publication as of the opening of
business on the effective date of such changed rating. In calculating the
Applicable Commitment Fee Percentage, Rating Level 3 shall be deemed to
apply on any day on which either (i) an Early Amortization Event shall have
occurred and be continuing, or (ii) either Rating Agency suspends or
withdraws its rating of any long-term unsecured debt issues of the
Originator."
(D) The definition of "L/C Facility Sub-Amount" contained in Section 1.01
is deleted in its entirety.
(E) The definition of "Utilization Fee" contained in Section 1.01 is
deleted in its entirety.
SECTION 3.2 Amendments to Article III of Purchase and Servicing Agreement.
-------------------------------------------------------------
(A) Section 3.02(a) is amended to read in its entirety as follows:
"(a) after giving effect to the issuance of the requested Letter of
Credit, (i) the Aggregate Participation Amount would exceed the Maximum
Invested Amount, (ii) the Required Net Pool balance would be greater than
the Net Pool Balance, or (iii) any Early Amortization Event or Potential
Early Amortization Event would exist;"
(B) Section 3.06(b) is amended to read in its entirety as follows:
"(b) Responsibilities of the L/C Issuing Bank; Issuance. The L/C
--------------------------------------------------
Issuing Bank shall determine, as of the close of business on the Business
Day
page 2
<PAGE>
immediately preceding the requested issuance date, the excess of the
Maximum Invested Amount over the Aggregate Participation Amount. If, and
only if, the face amount of the requested Letter of Credit is less than or
equal to the amount of such excess, and subject to the conditions set forth
in Article VIII hereof, the L/C Issuing Bank shall issue the
------------
Letter of Credit. In this connection, the L/C Issuing Bank may conclusively
presume that the applicable conditions set forth in Section 8.02 have been
satisfied unless the L/C Issuing ------------
Bank shall have received written notice to the contrary from the
Transferor, the Servicer, the Agent or a Purchaser."
SECTION 3.3 Amendments to Article V of Purchase and Servicing Agreement.
-----------------------------------------------------------
(A) Section 5.02(a)(ii) is amended to read in its entirety as follows:
"(ii) The Transferor shall pay to the Agent, solely for the account of
the Purchasers, a nonrefundable issuance fee for each Letter of Credit
issued hereunder, such issuance fee to be equal to 0.50% per annum payable
quarterly as provided in Section 5.04(c), on the aggregate face amount of
---------------
such Letters of Credit outstanding from time to time, for distribution to
the Purchasers in proportion to their respective participations therein,
provided, that on any day when an Early Amortization Event shall have
--------
occurred and be continuing, such fee shall accrue and be payable at the
rate of 2.0% per annum.
(B) Section 5.02(d) is deleted and replaced with the following:
"(d) [Intentionally omitted]"
SECTION 4. Representations and Warranties. Each of AK Steel and AK Ltd.
------------------------------
represents and warrants to the Agent and each Purchaser that:
(A) the execution and delivery by it of this Amendment, and the
performance of its obligations under the Purchase and Servicing Agreement,
as modified by this Amendment, are within its corporate powers or its power
as a limited liability company, as the case may be, have been duly
authorized by all necessary corporate and other action, have received all
necessary governmental and other consents and approvals, and do not and
will not contravene or conflict with or violate any Requirements of Law
applicable to AK Steel or AK Ltd. or their respective property or conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default
under, any indenture, contract, agreement, mortgage, deed of trust or other
instrument to which AK Steel or AK Ltd. is a party or by which either of
them or their properties are bound,
page 3
<PAGE>
(B) this Amendment has been duly executed and delivered by it, and the
Purchase and Servicing Agreement, as amended hereby, is its legal, valid
and binding obligation, enforceable against it in accordance with its
terms,
(C) (i) the representations and warranties made by it in the Purchase and
Servicing Agreement, without giving effect to this Amendment, are true and
correct immediately prior to this Amendment as though made at such time,
except to the extent that they specifically relate to an earlier date, and
(ii) the representations and warranties made by it in the Purchase and
Servicing Agreement will be true and correct immediately after giving
effect to this Amendment, and
(D) after giving effect to this Amendment, no Early Amortization Event or
Potential Early Amortization Event shall exist.
SECTION 5. Effectiveness. This Amendment will become effective on the date
-------------
when the Agent shall have received the following (including by facsimile
transmission):
(A) Counterparts of this Amendment executed by AK Steel, AK Ltd., PNC,
and each Purchaser;
(B) Certified resolutions of the boards of directors (or executive
committees thereof) of AK Steel and the members of AK Ltd., and a certified
resolution of the members of AK Ltd., authorizing the execution, delivery
and performance of this Amendment and of the Purchase and Servicing
Agreement as amended hereby; and
(C) Incumbency certificates showing specimen signatures and offices of
the Persons executing this Amendment on behalf of AK Steel and the members
of AK Ltd.
SECTION 6. Miscellaneous.
-------------
(A) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF OHIO.
(B) This Amendment may be executed in any number of counterparts and by
the different Parties in separate counterparts, each of which when so
executed shall be deemed to be an original, and all of which together shall
constitute one and the same agreement.
(C) Any reference to the Purchase and Servicing Agreement contained in
any notice, request, certificate or other document executed in connection
herewith shall be deemed to be a reference to the Purchase and Servicing
Agreement as amended or modified hereby. Except as expressly modified
hereby, the Purchase and Servicing Agreement is hereby ratified and
confirmed by AK Steel and AK Ltd. and remains in full force and effect.
page 4
<PAGE>
IN WITNESS WHEREOF, the Parties have caused their duly authorized
officers to execute this Amendment as of the day and year first above
written.
AK STEEL CORPORATION,
as Originator and Servicer
By: /s/ James L. Wainscott
------------------------------
Name: James L. Wainscott
Title: Vice President and Treasurer
AK STEEL RECEIVABLES LTD.
By AKSR INVESTMENTS, INC., its Managing Member
By: /s/ James L. Wainscott
-----------------------------
Name: James L. Wainscott
Title: Treasurer
and By: AKS INVESTMENTS, INC.
its only other Member
By: /s/ James L. Wainscott
-----------------------------
Name: James L. Wainscott
Title: Treasurer
PNC BANK, OHIO, NATIONAL ASSOCIATION,
as L/C Issuing Bank, as lender under Swing Line
Advances, as Agent for the Purchasers and as a
Purchaser
By: /s/ Matthew D. Tevis
-----------------------------
Name: Matthew D. Tevis
Title: Vice President
page 5
<PAGE>
NBD BANK, N.A., as a Purchaser
By: /s/ Robert A Minardi
----------------------------------
Name: Robert A. Minardi
Title: Vice President
COMERICA BANK, as a Purchaser
By: /s/ Hugh G. Porter
----------------------------------
Name: Hugh G. Porter
Title: Vice President
KEY BANK, NATIONAL ASSOCIATION (formerly called
Society National Bank), as a Purchaser
By: /s/ Thomas J. Purcell
----------------------------------
Name: Thomas J. Purcell
Title: Vice President
THE FIFTH THIRD BANK, as a Purchaser
By: /s/ A.K. Hauck
----------------------------------
Name: A.K. Hauck
Title: Vice President
STAR BANK, NATIONAL ASSOCIATION, as a Purchaser
By: /s/ Jane L. Lewin
----------------------------------
Name: Jane L. Lewin
Title: Assistant Vice President
page 6
<PAGE>
CERTIFICATE OF SECRETARY
OF
AK STEEL CORPORATION
This Certificate is furnished in connection with that certain Third
Consent and Amendment Agreement, dated as of July 9, 1997, among AK Steel
Corporation, as Originator and Servicer, AK Steel Receivables Inc., as
Transferor, the Purchasers parties thereto, and PNC Bank, Ohio, National
Association, as L/C Issuing Bank, as lender under Swing Line Advances and
as Agent for the Purchasers. Unless otherwise defined herein, capitalized
terms used in this Certificate have the meanings assigned to such terms in
the Third Consent and Amendment Agreement.
I, the undersigned, Secretary of AK STEEL CORPORATION, a Delaware
corporation (the "Corporation"), DO HEREBY CERTIFY as follows:
1. Attached hereto as Exhibit I is a true, correct and complete copy of
---------
resolutions duly adopted by the Board of Directors of the Corporation,
which resolutions have not been revoked, modified, amended or rescinded and
are still in full force and effect.
2. The persons named in Exhibit II hereto are duly elected and duly
----------
qualified officers of the Corporation holding the respective offices set
forth therein opposite their names, and the signatures set forth therein
opposite their names are their genuine signatures.
WITNESS my hand as of July 9 , 1997.
/s/ John G. Hritz
------------------------------
John G. Hritz
Secretary
I, the undersigned, Executive Vice President of AK STEEL CORPORATION, a
Delaware corporation, DO HEREBY CERTIFY that:
John G. Hritz is the duly elected and qualified Secretary of AK STEEL
CORPORATION and the signature above is such person's genuine signature.
WITNESS my hand as of July 9 , 1997.
/s/ Richard E. Newsted
------------------------------
Richard E. Newsted
Executive Vice President
<PAGE>
EXHIBIT I
---------
COPY OF THE RESOLUTIONS OF THE BOARD OF DIRECTORS
OF
AK STEEL CORPORATION
See attachment hereto.
<PAGE>
RECEIVABLES SECURITIZATION
- --------------------------
RESOLVED, that the proposed securitization (the "Receivables
Securitization") by AK Steel Corporation (the "Corporation") of its
accounts receivable together with certain contract rights and other assets
related thereto generated in connection with the sale of goods and services
to its customer base is hereby authorized and approved, and that each of
the Designated Officers is hereby authorized and directed to take any and
all actions, including those described in these resolutions, deemed
necessary or advisable in order to implement the Receivables
Securitization, subject only to any restrictions imposed by these
resolutions.
RESOLVED, that the Corporation is hereby authorized to incorporate AK
Steel Receivables Inc., a Delaware special purpose corporation ("AKR"),
and is further authorized to subscribe and pay for 100% of the issued and
outstanding capital stock of AKR pursuant to the Receivables Purchase
Agreement referred to below.
RESOLVED, that the Corporation shall sell, convey and transfer, without
recourse, to AKR from time to time all of its accounts receivable which
exist as of a date determined by the Designated Officers, or which arise
from time to time thereafter, in exchange for cash and stock, and
subordinated notes or letter of credit notes, pursuant to a Receivables
Purchase Agreement between the Corporation and AKR (the "Receivables
Purchase Agreement"), in the form and containing such terms and
<PAGE>
provisions as the officer or officers executing the same shall deem
necessary and appropriate, including without limitation certain
indemnifications relating to Deemed Collections (as defined in the
Receivables Purchase Agreement), and that the proceeds from the sales of
receivables pursuant to the Receivables Purchase Agreement shall be used
for general corporate purposes.
RESOLVED, that the Corporation is hereby authorized to enter into a
Purchase and Servicing Agreement among AKR, as Transferor, the Corporation,
as Servicer and Originator, the financial institutions parties thereto
("Purchasers"), and PNC Bank, Ohio, National Association, as Agent, L/C
Issuing Bank and Swing Line Lender (the "Purchase and Servicing
Agreement"), in the form and containing such terms and provisions as the
officer or officers executing the same shall deem necessary and
appropriate.
RESOLVED, that each of the Designated Officers of the Corporation is hereby
authorized on behalf of the Corporation to perform any act or discharge any
duty of the Corporation under or pursuant to the Purchase and Servicing
Agreement (including without limitation the Corporation's duties as
Servicer thereunder), the Receivables Purchase Agreement and any and all
ancillary agreements or documents required or contemplated thereby,
including, without limitation, to deliver any certificates, to request,
consent to and execute and deliver any waivers
2
<PAGE>
or amendments to such agreements, and to give any notices required to be
given under any of them.
RESOLVED, that each of the Designated Officers of the Corporation is each
hereby authorized to negotiate and conclude the Receivables Securitization,
including the Purchase and Servicing Agreement, the Receivables Purchase
Agreement and any and all ancillary agreements or documents required or
contemplated thereby, and are hereby authorized to take any and a11 actions
and to enter into and to execute and deliver, or cause to be executed and
delivered, such other documents, agreements or instruments as the officer
or officers executing the same may deem necessary or advisable to fully
implement the purposes of the foregoing resolutions, the authority for the
taking of such actions and the execution and delivery of such agreements,
documents and instruments to be conclusively evidenced thereby, and the
Receivables Securitization as so concluded is in all respects approved and
authorized.
RESOLVED, that the Board of Directors hereby determines in good faith that
the terms of such Receivables Purchase Agreement and Purchase and Servicing
Agreement are not less favorable to the Corporation than would be
obtainable currently for a comparable transaction or series of similar
transactions in arms-length dealings with an unrelated third party.
3
<PAGE>
GENERAL
- -------
RESOLVED, that the term "Designated Officers" as used herein shall mean the
Chief Executive Officer, the Chief Financial Officer, the Controller and
the General Counsel of the Corporation or any one of them and, for
certification purposes only, the Secretary and any Assistant Secretary.
RESOLVED, that each of the Designated Officers of the Corporation shall be,
and hereby are, authorized and directed to take, or cause to be taken, any
and all actions, and to execute and deliver in the name and on behalf of
the Corporation any and all certificates, orders, receipts, notices,
requests, demands, directions, consents, approvals, orders, applications,
agreements, undertakings, supplements, amendments, further assurances and
other instruments, documents and communications consistent with these
resolutions, as such Designated Officer may deem to be necessary or
advisable in order to carry into effect the intent of these resolutions or
to comply with the requirements of the instruments approved and authorized
by these resolutions or to effectuate fully the actions contemplated
hereby.
RESOLVED, that any actions of the Board, and of any person or persons
designated and authorized to act by the Board, which acts would have been
authorized by the foregoing resolutions, shall be, and hereby are,
severally ratified, confirmed, approved and adopted as acts in the name and
on behalf of the Corporation, and
4
<PAGE>
that any acts of the Designated Officers in respect of the matters set
forth in these resolutions shall be deemed to be acts in the name of and on
behalf of the Board and the Corporation as fully as if such acts were made
by the entire Board.
RECISION OF PRIOR RESOLUTIONS
- -----------------------------
RESOLVED, that the resolutions adopted by this Board on July 6, 1994
authorizing a Receivables Securitization and a Revolving Inventory Credit
Agreement are hereby rescinded.
5
<PAGE>
Exhibit II
----------
OFFICERS
--------
OF
--
AK STEEL CORPORATION
--------------------
Name Title Signature
---- ----- ---------
Richard E. Newsted Chief Financial Officer /s/ Richard E. Newsted
-------------------- ------------------------- ------------------------
John G. Hritz General Counsel /s/ John G. Hritz
-------------------- ------------------------- ------------------------
<PAGE>
CERTIFICATE OF SECRETARY
OF
AKSR INVESTMENTS, INC.
This Certificate is furnished in connection with that certain Third
Consent and Amendment Agreement, dated as of July 9, 1997, among AK Steel
Corporation, as Originator and Servicer, AK Steel Receivables Ltd., as
Transferor, the Purchasers parties thereto, and PNC Bank, Ohio, National
Association, as L/C Issuing Bank, as lender under Swing Line Advances and as
Agent for the Purchasers. Unless otherwise defined herein, capitalized terms
used in this Certificate have the meanings assigned to such terms in the Third
Consent and Amendment Agreement.
I, the undersigned, Secretary of AKSR INVESTMENTS, INC., an Ohio
corporation (the "Corporation"), the manager of AK STEEL RECEIVABLES LTD.
("AK Ltd."), DO HEREBY CERTIFY as follows:
1. Attached hereto as Exhibit I is a true, correct and complete copy of
---------
resolutions duly adopted by the Board of Directors of the Corporation,
which resolutions have not been revoked, modified, amended or rescinded and
are still in full force and effect.
2. The persons named in Exhibit II hereto are duly elected and duly
----------
qualified officers of the Corporation holding the respective offices set
forth therein opposite their names, and the signatures set forth therein
opposite their names are their genuine signatures.
3. Attached hereto as Exhibit III is a true, correct and complete copy of
-----------
resolutions duly adopted by all of the members of AK Ltd., which
resolutions have not been revoked, modified, amended or rescinded and are
still in full force and effect.
WITNESS my hand as of July 9, 1997.
/s/ Joseph W. Plye
-------------------------
Joseph W. Plye
Secretary
<PAGE>
I, the undersigned, President of AKSR INVESTMENTS, INC., an Ohio
corporation (the "Corporation"), the manager of AK STEEL RECEIVABLES LTD.,
DO HEREBY CERTIFY that:
Joseph W. Plye is the duly elected and qualified Secretary of AKSR
INVESTMENTS, INC. and the signature above is such person's genuine
signature.
WITNESS my hand as of July 9, 1997.
/s/ Richard E. Newsted
-------------------------------
Richard E. Newsted
President
<PAGE>
EXHIBIT I
---------
RESOLUTIONS OF THE BOARD OF DIRECTORS
-------------------------------------
OF
--
AKSR INVESTMENTS INC.
---------------------
(the "Corporation")
RESOLVED, that the Corporation, in its own capacity and as manager on
behalf of AK Steel Receivables Ltd. ("AK Ltd."), is hereby authorized and
directed to enter into a Third Consent and Amendment Agreement dated as of
July 9, 1997 (the "Amendment") among AK Steel Corporation, as Originator and
Servicer, AK Ltd., as Transferor, the Purchasers parties thereto, and PNC
Bank, Ohio, National Association ("PNC"), as L/C Issuing Bank, as lender
under Swing Line Advances and as Agent for the Purchasers (in such capacity
"Agent"), in the form and containing such terms and provisions as the
Designated Officer or Officers executing the same shall deem necessary and
appropriate.
RESOLVED, that each of the Designated Officers of the Corporation is
hereby authorized to negotiate and conclude on behalf of the Corporation and
AK Ltd. the Amendment and any and all ancillary agreements or documents
required or contemplated thereby, and are hereby authorized to take any and
all actions and to enter into and to execute and deliver, or cause to be
executed and delivered, on behalf of the Corporation and AK Ltd., such other
documents, agreements or instruments as the officer or officers executing
the same may deem necessary or advisable to fully implement the purposes of
the foregoing resolutions, the authority for the taking of such actions and
the execution and delivery of such agreements, documents and instruments to
be conclusively evidenced thereby, and such agreements and transactions as
so concluded are in all respects approved and authorized by the Board of
Directors.
RESOLVED, that the term "Designated Officers" as used herein shall mean
the President, any Vice President, the Treasurer, the Controller and the
Secretary of the Corporation or any one of them and, for certification
purposes only, the Secretary or any Assistant Secretary.
RESOLVED, that each of the Designated Officers of the Corporation shall
be, and hereby are, authorized and directed to take, or cause to be taken,
on behalf of the Corporation and AK Ltd., any and all actions, and to
execute and deliver in the name and on behalf of the Corporation, in its
own capacity and as manager of AK Ltd., any and all certificates, orders,
receipts, notices, requests, demands, directions, consents, approvals,
orders, applications, agreements, undertakings, supplements, amendments,
further assurances and other instruments, documents and communications,
consistent with these resolutions, as such Designated Officer may deem to be
necessary or advisable in order to carry into effect the intent of these
resolutions or to comply with the requirements of the instruments referred
to in these resolutions or to effectuate fully the actions contemplated
hereby.
RESOLVED, that any actions of the Board, and of any person or persons
designated and authorized to act by the Board, which acts would have been
authorized by the foregoing resolutions, shall be, and hereby are, severally
ratified, confirmed, approved and adopted as acts
<PAGE>
in the name and on behalf of the Corporation and AK Ltd.; and that any acts of
the Designated Officers in respect of the matters set forth in these resolutions
shall be deemed to be acts in the name of and on behalf of the Board and the
Corporation and AK Ltd. as fully as if such acts were made by the entire Board.
<PAGE>
Exhibit II
----------
OFFICERS
--------
OF
--
AKSR INVESTMENTS, INC.
----------------------
Name Title Signature
---- ----- ---------
Richard E. Newsted President /s/ Richard E. Newsted
- ----------------------- -------------------- ---------------------------
John G. Hritz Vice President /s/ John G. Hritz
- ----------------------- -------------------- ---------------------------
James L. Wainscott Treasurer /s/ James L. Wainscott
- ----------------------- -------------------- ---------------------------
Donn Korade Controller /s/ Donn Korade
- ----------------------- -------------------- ---------------------------
Joseph W. Plye Secretary /s/ Joseph W. Plye
- ----------------------- -------------------- ---------------------------
<PAGE>
EXHIBIT III
-----------
AK STEEL RECEIVABLES LTD.
WRITTEN CONSENT OF
MEMBERS
The undersigned, being all the members of AK Steel Receivables Ltd. (the
"Company"), hereby waive notice of a members' meeting for the consideration of
the following resolutions and hereby consent in writing, to the adoption
without a meeting of the following resolutions:
RESOLVED, that the Company, is hereby authorized and directed to enter
into a Third Consent and Amendment Agreement dated as of July 9 , 1997 (the
"Amendment") among AK Steel Corporation, as Originator and Servicer, the
Company, as Transferor, the Purchasers parties thereto, and PNC Bank, Ohio,
National Association ("PNC"), as L/C Issuing Bank, as lender under Swing
Line Advances and as Agent for the Purchasers (in such capacity "Agent"), in
the form and containing such terms and provisions as any officer of any
member of the Company executing the same shall deem necessary and
appropriate.
Dated: July 9, 1997.
AKSR INVESTMENTS, INC.
By: /s/ Richard E. Newsted
--------------------------------------
Richard E. Newsted, President
AKS INVESTMENTS, INC.
By: /s/ Richard E. Newsted
--------------------------------------
Richard E. Newsted, President
<PAGE>
EXHIBIT 10.24
FIRST AMENDMENT
TO THE
AK STEEL CORPORATION
DEFERRED COMPENSATION PLAN
Pursuant to the power of amendment reserved to AK Steel Holding
Corporation (the "Company") in Section 9.4 of the AK Steel Corporation Deferred
Compensation Plan as adopted on November 16, 1995 (the "Plan"), the Plan is
hereby amended effective retroactively to the date of inception of the Plan, as
follows:
(1) Subsection 6.1(d) is changed in its entirety to read as follows:
"(d) Thrift Plan Transfers.
By authorizing Elective Deferrals under this Plan, a Member who is
eligible to participate in the Thrift Plan shall be deemed to have authorized
the Trustee and Administrator to transfer to the Trustee under the Thrift Plan
on or before the last day of the Thrift Plan Transfer Period an amount equal to
the Thrift Plan Transfer Amount, provided such Member is employed by the Company
on the date such transfer would otherwise be made."
(2) Section 6.7 is changed in its entirety to read as follows:
"6.7 Vested Rights
Except as provided in Section 10.4, a Member's Elective Deferrals,
Matched Elective Deferrals, Other Permitted Deferrals, Company Matching
Contributions and Incentive Company Contributions shall at all times be fully
vested and nonforfeitable. Elective Deferrals, Matched Elective Deferrals and
Other Permitted Deferrals shall be credited to the Member's Account on the date
such amounts would have been paid to the Member but for the Member's election to
defer these amounts under the Plan. Any Incentive Company Contributions and
Company Matching Contributions shall be credited to the Member's Account at such
time as determined by the Administrator but not less frequently than annually.
Except as provided in Section 10.4, a Member's investment earnings
credited to the Member's Account in accordance with Section 7.2 shall at all
times be fully vested and nonforfeitable; provided however, with respect to a
Member whose employment with the Company terminates due to the Member's
voluntary resignation, such Member shall have a nonforfeitable right to such
investment earnings based on the number of years the Member was eligible to
participate under the Plan as of his Termination Date in accordance with the
following schedule:
<PAGE>
Years of Eligibility Vested Percentage
-------------------- -----------------
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%"
IN WITNESS WHEREOF, AK Steel Holding Corporation has caused this First
Amendment to be executed this 18th day of September, 1997.
AK STEEL HOLDING CORPORATION
By: /s/ John G. Hritz
-----------------------------
Title: Vice President
---------------------------
<PAGE>
EXHIBIT 10.25
FIRST AMENDMENT
TO THE
AK STEEL CORPORATION
EXECUTIVE MINIMUM AND SUPPLEMENTAL
RETIREMENT PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1996)
---------------------------------------------------------
Pursuant to the power of amendment reserved to the Board of Directors of
AK Steel Holding Corporation in Section 8.3 of the AK Steel Corporation
Executive Minimum and Supplemental Retirement Plan (as amended and restated
effective as of January 1, 1996) (the "Plan"), Section 2.17 of the Plan is
amended in its entirety to read as follows, effective as of January 1, 1997:
"2.17 'VESTING DATE'
The last to occur of the date a Member (i) completes five (5)
years of Key Management Service and (ii) completes ten (10) years of Service; or
such other date as determined by the Administrator in its sole discretion."
IN WITNESS WHEREOF, AK Steel Holding Corporation has caused this First
Amendment to be executed this 17th day of July, 1997.
AK STEEL HOLDING CORPORATION
By: /s/ John G. Hritz
-----------------------------
Title: Vice President
----------------------------
<PAGE>
EXHIBIT 10.26
SECOND AMENDMENT
TO THE
AK STEEL CORPORATION
EXECUTIVE MINIMUM AND SUPPLEMENTAL
RETIREMENT PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1996)
---------------------------------------------------------
Pursuant to the power of amendment reserved to the Board of Directors of
AK Steel Holding Corporation in Section 8.3 of the AK Steel Corporation
Executive Minimum and Supplemental Retirement Plan (as amended and restated
effective as of January 1, 1996) (the "Plan"), the Plan is amended as follows,
effective as of the date of execution of this Second Amendment:
(1) Section 2.17 (the definition of "Vesting Date") is changed by
adding the following sentence thereto:
"Notwithstanding the foregoing, in the event of a Member's death
prior to his or her Vesting Date as determined under the preceding
sentence, such Member's Vesting Date for purposes of this Plan
shall be the Member's date of death if the Member had completed at
least five (5) years of Service as of his or her date of death."
(2) Section 4.4 is added immediately following Section 4.3 to read as
follows:
"4.4 FUNDING UPON A CHANGE IN CONTROL
Upon the occurrence of a Change In Control (as defined below), the
Company shall fully fund all benefits then accrued under this Plan
by delivering assets in cash or in kind to the Trustee under the
Trust. Such funding obligation may be secured by an irrevocable
letter of credit issued to the Trustee by such bank or lending
agency as the Administrator shall approve. For purposes of this
Plan, the term "Change In Control" have the same meaning as set
forth in the Trust."
(3) Section 7.1 is changed in its entirety to read as follows:
"7.1 PAYMENT OF BENEFITS.
Except as provided in Plan Section 9.4, the Benefit to be paid in
accordance with Plan Article 6 shall be paid in a single lump-sum
payment, the amount of which shall be determined in accordance with
Plan Section 7.2 as reduced by the amount determined in accordance
with Plan Section 7.3. Payment shall be made to the Member, or in
the case of the Member's death, to the Member's designated
beneficiary, within 30 days following the Member's Termination
Date. Any
<PAGE>
designation of beneficiary shall be made by the Member on an
election form filed with the Administrator and may be changed by
the Member at any time by filing another election form
containing the revised instructions. If no beneficiary is
designated or no designated beneficiary survives the Member,
payment shall be made to the Member's surviving spouse or, if
none, to the Member's issue, per stirpes. If no spouse or issue
survives the Member, payment shall be made in a single lump-sum
to the Member's estate."
IN WITNESS WHEREOF, AK Steel Holding Corporation has caused this Second
Amendment to be executed this 18th day of September, 1997.
AK STEEL HOLDING CORPORATION
By: /s/ John G. Hritz
--------------------------
Title: Vice President
-----------------------
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AK STEEL HOLDING CORPORATION'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 348
<SECURITIES> 258
<RECEIVABLES> 242
<ALLOWANCES> 0
<INVENTORY> 365
<CURRENT-ASSETS> 1,222
<PP&E> 2,219
<DEPRECIATION> 627
<TOTAL-ASSETS> 3,084
<CURRENT-LIABILITIES> 563
<BONDS> 998
0
0
<COMMON> 1
<OTHER-SE> 879
<TOTAL-LIABILITY-AND-EQUITY> 3,084
<SALES> 2,441
<TOTAL-REVENUES> 2,441
<CGS> 1,965
<TOTAL-COSTS> 2,159
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> 242
<INCOME-TAX> 91
<INCOME-CONTINUING> 151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151
<EPS-PRIMARY> 2.59
<EPS-DILUTED> 2.43
</TABLE>
