<PAGE>
As Filed with the Securities and Exchange Commission on August 25, 1999
Registration No. 333-82035
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AK STEEL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 3312 31-1401455
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
703 Curtis Street, Middletown, Ohio 45043; (513) 425-5000
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
James L. Wainscott
Vice President, Treasurer & Chief Financial Officer
AK Steel Holding Corporation
703 Curtis Street, Middletown, Ohio 45043; (513) 425-5000
(Name, Address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Stephen H. Cooper, Esq. Jonathan C. Stapleton, Esq.
Weil, Gotshal & Manges LLP Arnold & Porter
767 Fifth Avenue 399 Park Avenue
New York, NY 10153-0119 New York, NY 10022-4690
(212) 310-8000 (212) 715-1000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement, which
relates to the issuance of common stock in the merger of Armco Inc. with and
into AK Steel Corporation, a wholly owned subsidiary of AK Steel Holding
Corporation, pursuant to the Agreement and Plan of Merger, dated as of May 20,
1999, attached as Annex A to the Joint Proxy Statement/Prospectus forming a
part of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [_]
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The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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<PAGE>
Subject to Completion, dated August 25, 1999
[AK Steel logo] [Armco logo]
JOINT PROXY STATEMENT/PROSPECTUS
Merger Proposed--Your Vote Is Very Important
AK Steel Holding Corporation and Armco Inc. have agreed to merge. The merger
is structured so that Armco Inc. will be merged into AK Steel Corporation, a
wholly owned subsidiary of AK Holding. AK Steel Corporation will be the
surviving corporation. As a result of the merger, if you are an Armco
stockholder:
. For each share of Armco common stock you own you will receive a fraction of
a share of AK Holding common stock having a market value between $7.50 and
$8.00. However, if the average closing price of AK Holding common stock is
below $22.00 during a prescribed period ending shortly before the Armco
stockholders' meeting, the market value of the fraction of a share you
receive may be below this range.
. For each share of Armco Class A $3.625 cumulative convertible preferred
stock you own you will receive one share of a new series of AK Holding
preferred stock having substantially the same rights, privileges and
restrictions as your existing Armco Class A $3.625 cumulative convertible
preferred stock.
. For each share of Armco Class A $2.10 cumulative convertible preferred stock
or Class B preferred stock you own you will receive cash in an amount equal
to the redemption value of that preferred stock, plus accrued dividends. The
redemption value of the Class A $2.10 cumulative convertible preferred stock
is $40 per share, and the redemption value of the Class B preferred stock is
$50 per share. In lieu of cash, you may elect to receive the number of
shares of AK Holding common stock you would have been entitled to receive if
you had converted your preferred stock into Armco common stock immediately
prior to the merger. However, the redemption value of your preferred stock
is greater than the value of the shares of AK Holding common stock you would
receive.
The affirmative vote of the holders of a majority of the outstanding shares
of Armco common stock and Class A preferred stock, voting as a single class, is
necessary to adopt the merger agreement. The requisite majority is to be
calculated both inclusive and exclusive of shares held by officers of Armco
elected or appointed by the Armco board of directors. The affirmative vote of
the holders of a majority of the outstanding shares of AK Holding common stock
is necessary to approve the issuance of AK Holding common stock in connection
with the merger.
We have scheduled special meetings of the holders of Armco common stock and
Class A preferred stock and the holders of AK Holding common stock to vote on
these matters. Your vote is very important. Whether or not you plan to attend
one of these meetings, please take the time to vote by completing and mailing
the enclosed proxy card to us. If you sign, date and mail your proxy card
without indicating how you want to vote, your proxy will be counted as a vote
in favor of the merger if you are an Armco stockholder and in favor of the
issuance of AK Holding common stock if you are an AK Holding stockholder.
Only stockholders of record of Armco and AK Holding as of August 25, 1999
are entitled to attend and vote at the meetings. The dates, times and places of
the meetings are as follows:
For Armco stockholders:
September 29, 1999, 10:00 a.m., local time
One Oxford Centre
301 Grand Street
Pittsburgh, Pennsylvania
For AK Holding stockholders:
September 29, 1999, 10:00 a.m., local time
Hotel duPont
11th & Market Streets
Wilmington, Delaware
AK Holding common stock is listed on the New York Stock Exchange under the
symbol AKS. Armco common stock is listed on the New York Stock Exchange under
the symbol AS. Armco Class A $2.10 cumulative convertible preferred stock is
listed on the New York Stock Exchange under the symbol ASPR. Armco Class A
$3.625 cumulative convertible preferred stock is listed on the New York Stock
Exchange under the symbol ASPRB. Armco Class B preferred stock is listed on the
New York Stock Exchange under the symbol ASPRA.
This document was first mailed to stockholders of Armco and AK Holding on
, 1999.
/s/ Richard M. Wardrop, Jr. /s/ James F. Will
Richard M. Wardrop, Jr., James F. Will,
Chairman and Chief Executive Chairman, President and
Officer Chief Executive Officer
AK Steel Holding Corporation Armco Inc.
See "Risk Factors" beginning on page 6 for a discussion of risks
that you should consider before you decide how to vote your shares.
Neither the SEC nor any state securities regulator has approved
the AK Holding common stock or preferred stock to be issued in
connection with the merger or determined if this document is accurate
or adequate. Any representation to the contrary is a criminal
offense.
, 1999
<PAGE>
TABLE OF CONTENTS
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Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... ii
SUMMARY................................................................... 1
RISK FACTORS.............................................................. 6
WHERE TO FIND MORE INFORMATION............................................ 8
SELECTED FINANCIAL DATA OF AK HOLDING AND ARMCO........................... 10
Selected Historical Consolidated Financial Data of AK Holding........... 10
Selected Historical Consolidated Financial Data of Armco................ 11
Selected Historical Consolidated AK Holding and Armco Unaudited Pro
Forma Combined Financial Data.......................................... 12
COMPARATIVE PER SHARE INFORMATION......................................... 13
COMPARATIVE MARKET VALUE INFORMATION...................................... 14
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS........................... 15
ARMCO SPECIAL MEETING..................................................... 16
Purpose of the Armco Special Meeting..................................... 16
Solicitation of Proxies.................................................. 16
Record Date; Voting Rights............................................... 16
Proxies.................................................................. 17
Required Vote............................................................ 17
Quorum................................................................... 17
Other Information........................................................ 17
AK HOLDING SPECIAL MEETING................................................ 18
Purpose of the AK Holding Special Meeting................................ 18
Solicitation of Proxies.................................................. 18
Record Date; Voting Rights............................................... 18
Proxies.................................................................. 19
Required Vote............................................................ 19
Quorum................................................................... 19
Other Information........................................................ 19
THE PARTIES TO THE MERGER................................................. 20
AK Holding and AK Steel.................................................. 20
Armco.................................................................... 20
THE MERGER................................................................ 22
Background of the Merger................................................. 22
Recommendation of the Board of Directors of Armco and Armco's Reasons
for the Merger.......................................................... 25
Opinion of Armco's Financial Advisor..................................... 26
Recommendation of the Board of Directors of AK Holding and AK Holding's
Reasons for the Merger.................................................. 37
Opinion of AK Holding's Financial Advisor................................ 38
</TABLE>
<TABLE>
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Page
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Interests of Armco Officers and Directors in the Merger.................. 43
Anticipated Accounting Treatment......................................... 45
Material Federal Income Tax Consequences of the Merger................... 46
Resale Restrictions...................................................... 48
Regulatory Filings and Approvals......................................... 49
Rights of Dissenting Stockholders........................................ 49
Stock Exchange Listing................................................... 51
THE MERGER AGREEMENT...................................................... 52
Effective Time........................................................... 52
What Armco Stockholders Will Receive in the Merger....................... 52
Bases of any Future Determination by Armco to Terminate and by AK Holding
to Increase the Exchange Ratio.......................................... 53
Armco Stock Options and Restricted Stock................................. 53
Exchange of Armco Common and Preferred Stock............................. 53
Representations and Warranties and Covenants............................. 54
Conditions to the Merger................................................. 56
Termination.............................................................. 57
Amendments............................................................... 58
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.............. 59
DESCRIPTION OF CAPITAL STOCK OF AK HOLDING................................ 67
Common Stock............................................................. 67
Preferred Stock.......................................................... 67
Stockholder Rights Plan.................................................. 69
COMPARISON OF RIGHTS OF HOLDERS OF AK HOLDING AND ARMCO COMMON STOCK...... 70
LEGAL MATTERS............................................................. 78
EXPERTS................................................................... 78
STOCKHOLDER PROPOSALS..................................................... 78
ANNEXES
Annex AAgreement and Plan of Merger, dated as of May 20, 1999, among Armco
Inc., AK Steel Holding Corporation and AK Steel Corporation..... A-1
Annex BOpinion of Salomon Smith Barney Inc., dated May 20, 1999........... B-1
Annex COpinion of Credit Suisse First Boston Corporation, dated May 20,
1999............................................................ C-1
Annex DAppraisal Rights--Section 1701.85 of the Ohio Revised Code......... D-1
Annex EAcquiring Person Statement......................................... E-1
Annex FCertificate of Designations of Series B $3.625 Cumulative
Convertible Preferred Stock..................................... F-1
</TABLE>
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<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. Why are you proposing to merge?
A. AK Steel and Armco are involved in complementary businesses. By combining
their businesses through the merger they will be able to offer a broader range
of products to an expanded group of customers, to make more efficient use of
their production facilities, to reduce their manufacturing costs and to
eliminate duplicative administrative expenses.
We believe that this merger will allow us to accelerate the long-term growth
of AK Holding and enhance its stockholder value in years to come.
Q. What is the "combined company"?
A. Armco will be merged into AK Steel and its business will be conducted by
and under the name of AK Steel. When we refer to the "combined company," we
mean the combined businesses of AK Steel and Armco after the merger.
Q. When do you expect the merger to be completed?
A. We are working toward completing the merger as quickly as possible. We
hope to complete the merger on September 30, 1999.
Q. What should stockholders do now?
A. Stockholders of each company entitled to vote should complete, sign, date
and mail their proxy card in the enclosed postage paid envelope as soon as
possible so that their shares will be voted at the meetings.
Q. Should I send in my Armco stock certificates at this time?
A. No. After the merger is completed, we will send Armco stockholders
written instructions for exchanging their stock certificates.
Q. Can I change my vote after I have mailed my signed proxy card?
A. Yes. You can change your vote at any time prior to the special meeting by
mailing a later dated, signed proxy card to us or by attending the meeting and
voting in person. In addition, an AK Holding stockholder must send a written
notice of revocation of his or her initial vote to the corporate secretary of
AK Holding.
Q. If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A. Yes, but only if you follow the directions your broker provides to you
regarding how to vote your shares.
Q. Who can help answer my questions?
A. Armco stockholders should call Innisfree M&A Incorporated at 877-750-5836
(toll free in the United States) or 212-750-5833 (call collect).
AK Holding stockholders should call Innisfree M&A Incorporated at 888-750-
5834 (toll free in the United States) or 212-750-5833 (call collect).
ii
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. For more detailed
information about the proposed merger, we encourage you to read the entire
merger agreement attached to this document as Annex A as well as the other
documents to which we have referred you. See "Where To Find More Information"
on page 8.
Armco Inc.
One Oxford Centre
301 Grant Street
Pittsburgh, PA 15219-1415
(412) 255-9800
Armco Inc. is a leading producer of stainless and electrical steels. The
stainless and electrical steel industry is a relatively small but distinct
segment of the overall steel industry that represented approximately 2% of
domestic steel tonnage but accounted for approximately 14% of domestic steel
revenues in 1998. Through its Sawhill Tubular division, Armco also manufactures
a wide range of steel pipe and tubing products for use in the construction,
industrial and plumbing markets. Armco also owns Douglas Dynamics, L.L.C., the
largest North American manufacturer of snowplows for four-wheel drive light
trucks, and an industrial park on the Houston, Texas Ship Channel. For further
information on Armco, see "The Parties to the Merger" beginning on page 20.
AK Steel Holding Corporation
703 Curtis Street
Middletown, OH 45043-0001
(513) 425-5000
AK Steel Holding Corporation, through its subsidiary, AK Steel Corporation,
is a leading integrated steel producer. AK Steel concentrates on the production
of premium quality coated, cold rolled and hot rolled carbon steel, primarily
for sale to customers in the automotive, appliance, construction and
manufacturing industries. AK Steel also cold rolls and aluminum coats stainless
steel for automotive industry customers.
For further information on AK Holding and AK Steel, see "The Parties to the
Merger" beginning on page 20.
Our Recommendations to Stockholders
Armco's board of directors believes that the merger is in the best interests
of its stockholders and recommends that holders of Armco's voting stock vote
FOR the proposal to adopt the merger agreement.
AK Holding's board of directors believes that the merger is in the best
interests of its stockholders and recommends that they vote FOR the proposal to
issue shares of AK Holding common stock in the merger.
The Meetings (pages 16 and 18)
The Armco stockholders meeting will be held on September 29, 1999. The
record date for determining Armco stockholders entitled to receive notice of
and to vote at the meeting is the close of business on August 25, 1999. On that
date, there were outstanding 111,380,485 shares of Armco common stock,
1,697,231 shares of Armco Class A $2.10 cumulative convertible preferred stock,
2,700,000 shares of Armco Class A $3.625 cumulative convertible preferred stock
and 999,900 shares of Armco Class B preferred stock.
The AK Holding stockholders meeting will be held on September 29, 1999. The
record date for determining AK Holding stockholders entitled to receive notice
of and to vote at the meeting is the close of business on August 25, 1999. On
that date, there were outstanding 59,599,757 shares of AK Holding common stock.
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Ownership of the Combined Company
Following the Merger
Based on the number of shares of Armco common stock outstanding as of the
record date for the Armco meeting, we anticipate that AK Holding will issue
approximately 30,800,000 shares of its common stock to holders of Armco common
stock in connection with the merger, assuming that the average closing price of
AK Holding common stock during the prescribed measurement period is $26.44.
Those shares will constitute approximately 34% of the outstanding shares of AK
Holding common stock after the merger.
Dividend Policy
Although the payment of dividends by AK Holding in the future will depend on
business conditions, AK Holding's financial condition, earnings and other
factors, AK Holding expects to continue to declare regularly scheduled
dividends consistent with its customary practice prior to the merger.
The Merger (page 22)
What Armco Stockholders Will Receive in the Merger (page 52)
Armco Common Stock
For each share of Armco common stock you own you will receive a fraction of
a share of AK Holding common stock having a market value between $7.50 and
$8.00. However, if the average closing price of AK Holding common stock is
below $22.00 during the ten trading days ending six trading days before the
Armco stockholders' meeting, the market value of the fraction of a share of AK
Holding common stock you receive may be below this range.
The following table illustrates the market value of the fractional share of
AK Holding common stock that you would receive assuming various average closing
prices of AK Holding common stock during the measuring period:
<TABLE>
<CAPTION>
Market
Value of
fractional
Average Closing AK Holding
Price of Common Stock
AK Holding Exchange to be
Common Stock Ratio Received
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<S> <C> <C>
30.00 .2667 $8.00
29.00 .2759 $8.00
28.21 .2836 $8.00
27.00 .2836 $7.66
26.44 .2836 $7.50
26.43 .2838 $7.50
25.00 .3000 $7.50
24.00 .3125 $7.50
23.00 .3261 $7.50
22.00* .3409 $7.50
21.00 .3409 $7.16
18.00 .3409 $6.14
</TABLE>
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* If the average closing price of AK Holding common stock is less than $22.00,
Armco has the right to call off the merger unless AK Holding agrees to
increase the fraction of a share of AK Holding common stock to be received by
holders of Armco's common stock to an amount having a market value of $7.50.
Armco Preferred Stock
. For each share of Armco Class A $3.625 cumulative convertible preferred
stock you own you will receive one share of a new series of AK Holding
preferred stock having substantially the same rights, privileges and
restrictions as your existing Armco Class A $3.625 cumulative
convertible preferred stock.
. For each share of Armco Class A $2.10 cumulative convertible preferred
stock or Class B preferred stock you own you will receive cash in an
amount equal to the redemption value of your preferred stock, plus
accrued dividends. The redemption value of the Class A $2.10 cumulative
convertible preferred stock is $40 per share, and the redemption value
of the Class B preferred stock is $50 per share. You may elect instead
to receive the number of shares of AK Holding common stock you would
have been entitled to receive if you had converted your preferred stock
into Armco common stock immediately prior to the merger. However, the
redemption value of your preferred stock is greater than the value of
the shares of AK Holding common stock you would receive if you were to
make this election.
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AK Holding Common Stock
After the merger, each share of AK Holding common stock will remain
outstanding.
Stockholder Votes Required (pages 17 and 19)
The affirmative vote of the holders of a majority of the outstanding shares
of Armco common stock and Class A preferred stock, voting as a single class, is
necessary to adopt the merger agreement. Under the terms of the merger
agreement, the requisite majority is to be calculated both inclusive and
exclusive of shares held by officers of Armco elected or appointed by Armco's
board of directors.
The affirmative vote of the holders of a majority of the outstanding shares
of AK Holding common stock is necessary to approve the issuance of AK Holding
common stock in connection with the merger. Stockholder approval is not
required for the issuance of AK Holding preferred stock in connection with the
merger.
Tax Treatment (page 46)
The merger is intended to be tax free to AK Steel, AK Holding and Armco, and
to the respective stockholders of AK Holding and Armco, for United States
federal income tax purposes, except with respect to cash received by Armco
common stockholders for fractional shares and cash received by holders of Armco
Class A $2.10 cumulative convertible preferred stock and Armco Class B
preferred stock.
Conditions to the Merger (page 55)
Consummation of the merger depends upon the satisfaction of a number of
conditions. These include:
. obtaining requisite stockholder approvals and governmental approvals;
. no law or court order prohibiting the closing of the merger or in any
way limiting the operations of the combined company following the
merger;
. delivery of legal opinions with respect to the tax free nature of the
merger; and
. obtaining requisite consents from state insurance departments having
jurisdiction over Armco's insurance subsidiaries.
Termination of the Merger Agreement (page 57)
Either Armco or AK Holding may call off the merger if:
. the merger is not closed by December 31, 1999, or, if the parties do not
close by that date solely because of a failure to obtain requisite
government consents or approvals, by March 31, 2000;
. either party fails to obtain the necessary stockholder vote;
. any law or court order prohibiting the merger or limiting the operations
of the combined company becomes final; or
. any significant governmental approval is denied.
AK Holding may call off the merger if:
. Armco enters into a binding agreement for an acquisition that offers its
stockholders greater value than the merger;
. Armco's board of directors withdraws or adversely modifies its
recommendation that its stockholders vote to adopt the merger agreement;
or
. Armco enters into or modifies any labor or collective bargaining
agreement without AK Holding's prior written consent, and AK Holding
believes that agreement or modification could reasonably be expected to
have a material adverse effect on the combined company.
Armco may call off the merger if:
. the average closing price of AK Holding common stock used to compute the
exchange ratio is less than $22.00 and AK Holding does not agree to
adjust the exchange ratio to assure a value of $7.50 per share of Armco
common stock; or
. AK Holding's board of directors withdraws or adversely modifies its
approval of the issuance of AK Holding common stock in connection with
the merger.
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. prior to the adoption of the merger agreement by Armco's stockholders,
Armco's board of directors authorizes Armco to accept a superior
proposal made by a third party and pays the termination fee described
below.
Termination Fees (page 58)
Armco must pay AK Holding a fee of $30,000,000 in cash and reimburse all of
AK Holding's expenses up to a maximum of $5,000,000 if the merger agreement is
terminated under the circumstances described on page 58.
AK Holding must pay Armco $3,500,000 in respect of Armco's expenses, subject
to a limited right of repayment, if the merger agreement is terminated under
the circumstances described on page 58.
Interests of Armco Officers and Directors in the Merger (page 43)
In considering the recommendation of the Armco board of directors in favor
of the merger, you should be aware that some members of the Armco board of
directors and management may have interests in the merger different from your
own.
Directors and Management of the Combined Company following the Merger
The current directors and officers of AK Steel will be the directors and
officers of the combined company immediately following the merger.
Regulatory Filings and Approvals (page 49)
We cannot complete the merger until we satisfy applicable requirements of
United States antitrust law and receive required approvals of state agencies
that have jurisdiction over subsidiaries of Armco that are engaged in winding
up their operations in the insurance business. We expect to satisfy these
requirements prior to our respective stockholder meetings.
Opinion of Armco's Financial Advisor (page 26)
Salomon Smith Barney Inc., Armco's financial advisor, has delivered a
written opinion to the board of directors of Armco as to the fairness, from a
financial point of view, to Armco common stockholders of the consideration to
be received by those stockholders in connection with the merger. The full text
of the written opinion of Salomon Smith Barney Inc., dated May 20, 1999, is
attached to this document as Annex B and should be read carefully in its
entirety to understand the procedures followed, assumptions made, matters
considered and limitations on the review undertaken by Salomon Smith Barney
Inc. in providing its opinion. The opinion of Salomon Smith Barney Inc. is
directed to the Armco board of directors and is not a recommendation to any
Armco stockholder as to how to vote on the merger.
Opinion of AK Holding's Financial Advisor
(page 38)
Credit Suisse First Boston Corporation, AK Holding's financial advisor, has
delivered a written opinion to the board of directors of AK Holding as to the
fairness, from a financial point of view, to AK Holding of the common stock
consideration to be paid by AK Holding in the merger. The full text of Credit
Suisse First Boston's written opinion, dated May 20, 1999, is attached to this
document as Annex C and should be read carefully in its entirety to understand
the procedures followed, assumptions made, matters considered and limitations
on the review undertaken by Credit Suisse First Boston in providing its
opinion. Credit Suisse First Boston's opinion is directed to the AK Holding
board of directors and is not a recommendation to any stockholder as to any
matter relating to the merger.
Comparison of Rights of AK Holding and Armco Stockholders (page 70)
The rights of AK Holding's stockholders are governed by Delaware law and AK
Holding's certificate of incorporation and bylaws. The rights of Armco
stockholders are governed by Ohio law and Armco's articles of incorporation and
regulations. Upon the completion of the merger, holders of Armco's common stock
and Class A $3.625 cumulative convertible preferred stock will become
stockholders of AK Holding and, after that, their
4
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rights will be governed by Delaware law and by AK Holding's certificate of
incorporation and bylaws. As a result of differences between these governing
laws and organizational documents, holders of Armco common stock will have
different rights as holders of AK Holding common stock than they now have as
Armco common stockholders. However, the terms of the new series of cumulative
convertible preferred stock to be issued by AK Holding to holders of Armco's
Class A $3.625 cumulative convertible preferred stock will be identical in all
material respects to those of that Armco preferred stock.
Appraisal Rights for Dissenting Stockholders
(page 49)
Armco Stockholders. Under Ohio law, Armco stockholders may dissent from the
merger and have the fair value of their shares paid to them in cash. To
exercise this right, those stockholders must follow required procedures,
including filing notices with Armco and not voting in favor of the merger.
AK Holding Stockholders. Under Delaware law, AK Holding stockholders will
not have any appraisal or dissenters' rights.
Anticipated Accounting Treatment (page 45)
We expect the merger to qualify as a pooling of interests for accounting
purposes. This means that AK Steel and Armco will be treated for accounting
purposes as if they had always been combined.
Listing of AK Holding Stock (page 51)
AK Holding will list the AK Holding common stock and the new series of AK
Holding preferred stock to be issued in the merger on the New York Stock
Exchange.
5
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RISK FACTORS
In evaluating the merger and the merger agreement, you should take into
account the following material risks:
Armco common stockholders could end up with less than $7.50 worth of AK
Holding common stock per share of Armco common stock.
Although the merger is designed to provide Armco common stockholders with
between $7.50 and $8.00 worth of AK Holding common stock for each of their
Armco shares, they could receive less in market value. The market value of the
AK Holding common stock received by Armco stockholders will be computed by
taking the average of the closing prices of AK Holding common stock on the New
York Stock Exchange over the ten consecutive trading days ending on the sixth
trading day prior to the Armco stockholders' meeting. At the time of the
merger, the market price of a share of AK Holding common stock could be more or
less than the average closing price upon which the exchange ratio will be
determined. If it is less, the value of the AK Holding common stock that an
Armco stockholder receives in the merger would be lower than the value
indicated in the table on page 2, and could be lower than $7.50 per share of
Armco common stock. The market value of AK Holding common stock is likely to
fluctuate based upon general market and economic conditions, AK Holding's
business and prospects and other factors.
AK Steel and Armco may not be combined successfully, which could have a
material adverse effect on our results of operations.
. If we cannot combine our operations successfully, we may experience a
material adverse effect on our business, financial condition or results
of operations. The merger involves the combining of companies that have
previously operated separately. This involves a number of risks,
including:
. demands on management related to the significant increase in size
of AK Steel after the merger;
. the diversion of management's attention to the combining of
operations;
. difficulties in the combining of operations and systems,
including plans to update systems for "Year 2000" compliance;
. difficulties in the assimilation and retention of employees;
. challenges in retaining customers; and
. potential adverse short-term effect on operating results.
. The combined company may not be able to achieve or maintain the levels
of operating efficiency that AK Steel has historically achieved.
We will have significant merger-related costs that may have a material
adverse effect on our results of operations, and we may not achieve the
expected cost savings and other benefits of the merger.
. We will have substantial costs in connection with the merger, which we
expect will have a material adverse effect on the combined company's
results of operations for the quarter in which the merger is completed.
The merger will result in a charge to operations of approximately $20.0
to $25.0 million for transaction fees and expenses. Combining our
companies will also result in other one-time charges to the results of
operations of the combined company. The actual amount of these charges
cannot be determined until the plan for combining the companies is
completed. However, we expect these costs could range from $230.0 to
$275.0 million. See "Notes to Unaudited Pro Forma Combined Financial
Data" beginning on page 66.
6
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. We expect cost savings and other benefits from the merger will exceed
those we could achieve separately. Our estimates of cost savings are
based on many assumptions, including assumptions about future sales
levels and other operating results, the availability of funds for
investment, the timing of events, general industry and business
conditions and other matters. Many of these factors are beyond our
control. Our actual cost savings, if any, could differ from our
estimates and those differences could be material. There may be
unforeseen costs and expenses or other factors that will offset the
estimated cost savings or other benefits of the merger. We also may
encounter delays in realizing these cost savings.
Our significant indebtedness could adversely affect us by reducing our
flexibility to respond to changing business and economic conditions and
increasing our borrowing costs.
. On June 30, 1999, the total outstanding combined indebtedness of Armco
and AK Steel was approximately $1.6 billion. The combined interest
expense of Armco and AK Steel for the year ended December 31, 1998 was
$84.9 million. The ratio of earnings to fixed charges as of June 30,
1999, on a pro forma combined basis, was 2.2x.
. This significant amount of indebtedness could reduce the ability of the
combined company to obtain additional financing for working capital,
acquisitions or other purposes and could make it more vulnerable to
economic downturns and competitive pressures. Our need for cash in the
future will depend on many factors that are difficult to predict. These
factors include results of our combined operations, the timing and cost
of any future acquisitions and our efforts to expand existing
operations.
. If we are unable to generate sufficient cash flow from operations in the
future to pay our debt and make necessary investments, we may be
required to:
. restructure our debt,
. sell assets or equity,
. refinance all or a portion of our existing debt,
. seek new borrowings,
. forego strategic opportunities, or
. delay, scale back or eliminate some aspects of our combined
operations.
If necessary, any of these actions could have a material negative impact
on our business, financial conditions or results of operations.
Officers and directors of Armco have agreements and other arrangements that
may create potential conflicts of interests with Armco stockholders regarding
the merger.
If you are an Armco stockholder, when you consider the recommendations of
Armco's board of directors you should be aware that some executive officers of
Armco and members of its board of directors may have interests in the merger
that are different from yours. These interests include rights to accelerated or
increased benefits under employment agreements, severance agreements and
incentive plans that may create potential conflicts with your interests. The
Armco board of directors was aware of these possible conflicts of interest when
it approved the merger. See "The Merger--Interests of Armco Officers and
Directors in the Merger" on page 43.
7
<PAGE>
WHERE TO FIND MORE INFORMATION
AK Holding and Armco file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy reports,
statements or other information filed by AK Holding and Armco at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information about
the public reference rooms. Copies of the SEC filings made by each of AK
Holding and Armco also are available to the public from commercial document
retrieval services and at the worldwide web site maintained by the SEC at
"http://www.sec.gov."
AK Holding has filed a registration statement with the SEC with respect to
the shares of AK Holding common stock, including associated stock purchase
rights and $3.625 cumulative convertible preferred stock to be issued in
connection with the merger. This document is a part of that registration
statement. In addition to serving as a proxy statement of AK Holding and Armco
for the special meetings of their respective stockholders, it also serves as a
prospectus for the shares of AK Holding to be issued in the merger. As allowed
by SEC rules, this document does not contain all the information you can find
in the registration statement or the exhibits to the registration statement.
The SEC allows us to "incorporate by reference" into this document
information contained in another document that either of our companies may have
filed separately with the SEC and that is publicly available. The information
so incorporated by reference is deemed to be part of this joint proxy
statement/prospectus, except to the extent it has been superseded by
information contained in this document. This joint proxy statement/prospectus
incorporates by reference the documents set forth below that we have previously
filed with the SEC. These documents contain important information about our
companies and their finances.
<TABLE>
<CAPTION>
AK Holding
SEC Filings
(File No. 1-13696) Period
------------------ ------
<C> <S>
Annual Report on Form 10-K, as
amended by Form 10-K/A.......... Fiscal year ended December 31, 1998
Quarterly Report on Form 10-Q, as
amended by Form 10-Q/A.......... Quarter ended March 31, 1999
Quarterly Report on Form 10-Q.... Quarter ended June 30, 1999
Current Reports on Form 8-K...... Filed on July 21, 1999
Filed on June 2, 1999
Filed on May 24, 1999
Filed on April 28, 1999
Filed on April 15, 1999
Filed on March 25, 1999
Filed on February 17, 1999
Filed on February 16, 1999
Filed on February 3, 1999
Exhibit 1 to Form 8-A............ Filed on February 5, 1996
<CAPTION>
Armco SEC Filings
(File No. 1-873-2) Period
------------------- ------
<C> <S>
Annual Report on Form 10-K....... Fiscal year ended December 31, 1998
Quarterly Report on Form 10-Q.... Quarter ended March 31, 1999
Quarterly Report on Form 10-Q.... Quarter ended June 30, 1999
Current Report on Form 8-K....... Filed on June 1, 1999
</TABLE>
We are also incorporating by reference any additional documents that either
of our companies may file with the SEC between the date of this document and
the date of the special meetings.
8
<PAGE>
In deciding how to vote your shares, you should rely only on the information
contained or incorporated by reference in this joint proxy
statement/prospectus. We have not authorized anyone to provide you with
information that is different from what is contained in this joint proxy
statement/prospectus. This joint proxy statement/prospectus is dated August ,
1999. You should not assume the information contained in this joint proxy
statement/prospectus is accurate as of any date other than that date or any
other date that this joint proxy statement/prospectus indicates.
You may obtain, without charge, copies of documents incorporated by
reference in this document by requesting them in writing or by telephone from
the appropriate party as follows:
<TABLE>
<S> <C>
Alan H. McCoy Gary R. Hildreth
Vice President, Public Affairs Secretary
AK Steel Holding Corporation Armco Inc.
703 Curtis Street One Oxford Centre
Middletown, OH 45043-0001 301 Grant Street
(513) 425-2826 Pittsburgh, PA 15219-1415
(415) 255-9800
</TABLE>
Requests for documents should be made no later than September 22, 1999 to
assure that you receive the documents before the special meetings.
9
<PAGE>
SELECTED FINANCIAL DATA OF AK HOLDING AND ARMCO
The following financial information is being provided to assist you in
analyzing the financial aspects of the merger. The historical information has
been derived from AK Holding's and Armco's audited consolidated financial
statements for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and
unaudited condensed consolidated financial statements for the six months ended
June 30, 1998 and 1999. The unaudited pro forma financial information is
presented for illustrative purposes only and is not indicative of the operating
results or financial position that would have been achieved if the merger had
been consummated at the dates indicated, nor is that information necessarily
indicative of future operating results of the combined company. All of the
information should be read in conjunction with the historical financial
statements and related notes contained in the annual, quarterly and other
reports filed with the SEC by each of AK Holding and Armco.
There is no summarized financial information included for AK Steel because
there is no substantial difference in the operations of AK Steel and AK Holding
and because the debt of AK Steel is fully and unconditionally guaranteed by AK
Holding. AK Holding has no independent operations.
Selected Historical Consolidated Financial Data of AK Holding
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $2,016.6 $2,257.3 $2,301.8 $2,440.5 $2,393.6 $1,200.2 $1,314.8
Operating profit........ 192.9 298.1 264.5 281.4 213.6 112.5 100.9
Income from continuing
operations............. $ 272.5 $ 268.6 $ 145.9 $ 150.9 $ 114.5 $ 61.8 $ 47.5
Income from continuing
operations per share of
common stock(1):
Basic.................. $ 5.13 $ 4.82 $ 2.57 $ 2.59 $ 1.93 $ 1.04 $ 0.80
Diluted................ 4.17 4.09 2.35 2.43 1.92 1.03 0.79
Cash dividends per share
of common stock(1)..... n/a 0.075 0.325 0.425 0.50 0.25 0.25
<CAPTION>
As of December 31, As of June 30,
------------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $1,933.2 $2,115.5 $2,650.8 $3,084.3 $3,306.3 $3,271.8 $3,449.0
Current portion of long-
term debt.............. -- -- -- -- -- -- --
Long-term debt
(excluding current
portion)............... 330.0 325.0 875.0 997.5 1,145.0 1,145.0 1,280.0
Current portion of
pension and
postretirement benefit
obligations............ 110.3 0.1 0.1 0.1 0.1 0.1 --
Long-term pension and
postretirement benefit
obligations (excluding
current portion)....... 638.3 655.7 564.9 554.1 572.6 566.8 584.3
Stockholders' equity.... $ 449.0 $ 674.2 $ 777.0 $ 879.6 $ 929.5 $ 893.8 $ 957.4
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data--
Ratio of earnings to
combined fixed
charges(2)............. 3.6x 5.5x 4.6x 2.9x 2.0x 2.2x 1.7x
</TABLE>
- --------
(1) On November 17, 1997, AK Holding effected a two-for-one common stock split.
Per share data for prior periods have been restated for this stock split.
(2) For the purpose of calculating the ratio of earnings to combined fixed
charges, (a) earnings consist of income before income taxes, extraordinary
items and effects of accounting changes, the distributed income of less
than 50%-owned affiliates, plus fixed charges and (b) combined fixed
charges consist of interest, whether expensed or capitalized, and preferred
stock dividends. For two of the six months in the period ended June 30,
1999, interest expense was included for both the 10 3/4% Senior Notes Due
2004 and 7 7/8% Senior Notes Due 2009.
10
<PAGE>
Selected Historical Consolidated Financial Data of Armco
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $1,437.6 $1,559.9 $1,724.0 $1,829.3 $1,706.5 $ 897.8 $ 876.1
Operating profit........ 39.2 69.0 74.7 105.4 107.6 53.1 65.2
Income from continuing
operations............. $ 65.8 $ 23.5 $ 26.0 $ 77.1 $ 109.6 $ 51.4 $ 59.0
Income from continuing
operations per share of
common stock:
Basic.................. $ 0.46 $ 0.05 $ 0.08 $ 0.55 $ 0.85 $ 0.39 $ 0.46
Diluted................ 0.46 0.05 0.08 0.55 0.81 0.38 0.43
Cash dividends per share
of common stock (1).... n/a n/a n/a n/a n/a n/a n/a
<CAPTION>
As of December 31, As of June 30,
------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $1,934.9 $1,896.6 $1,867.8 $1,881.3 $1,893.8 $ 1,827.8 $1,829.7
Current portion of long-
term debt.............. 10.5 25.8 27.2 38.2 116.9 7.0 5.9
Long-term debt
(excluding current
portion)............... 363.8 361.6 344.3 306.9 250.7 303.0 247.8
Current portion of
pension and
postretirement
benefits............... 101.8 118.6 65.7 67.9 65.4 67.9 65.4
Long-term employee
benefit obligations
(excluding current
portion)............... 1,221.9 1,165.9 1,200.2 1,178.1 898.0 914.4 882.2
Preferred stock......... 185.9 185.9 185.9 185.9 185.9 185.9 185.9
Stockholders' equity
(deficit).............. $ (218.5) $ (230.4) $ (212.0) $ (152.5) $ 178.7 $ 130.3 $ 235.5
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data--
Ratio of earnings to
combined fixed charges
(2).................... 1.2x 1.0x 1.2x 2.1x 3.0x 2.9x 3.8x
</TABLE>
- --------
(1) Armco has not paid dividends on its common stock since 1991.
(2) For the purpose of calculating the ratio of earnings to combined fixed
charges, (a) earnings consist of income before income taxes, extraordinary
items and effects of accounting changes, the distributed income of less
than 50%-owned affiliates, plus fixed charges and (b) combined fixed
charges consist of interest, whether expensed or capitalized, and preferred
stock dividends.
11
<PAGE>
Selected Historical Consolidated AK Holding and Armco Unaudited
Pro Forma Combined Financial Data
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------- -----------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales......................... $3,996.5 $4,237.4 $4,076.9 $2,082.5 $2,175.6
Operating profit.................. 334.2 384.1 363.6 149.1 163.8
Income from continuing
operations....................... $ 88.6 $ 176.6 $ 205.9 $ 83.1 $ 84.0
Income from continuing operations
per share of common stock(1):
Basic............................ $ 0.82 $ 1.86 $ 2.19 $ 0.87 $ 0.88
Diluted.......................... 0.90 1.79 2.14 0.86 0.87
Cash dividends per share of common
stock(2)......................... n/a n/a n/a n/a n/a
<CAPTION>
As of December 31, As of June 30,
-------------------------- -----------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets...................... $4,646.9 $5,020.9 $5,189.2 $5,102.8 $5,261.0
Current portion of long-term
debt............................. 27.2 38.2 116.9 7.0 5.9
Long-term debt (excluding current
portion)......................... 1,219.3 1,304.4 1,395.7 1,448.0 1,527.8
Current portion of pension and
postretirement benefit
obligations...................... 65.8 68.0 65.5 67.9 65.4
Long-term pension and
postretirement benefit
obligations
(excluding current portion)...... 1,596.2 1,560.7 1,392.1 1,393.2 1,414.0
Preferred stock................... 130.4 130.4 130.4 130.4 130.4
Stockholders equity............... $ 864.3 $ 981.1 $1,234.4 $1,157.9 $1,286.6
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------- -----------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Other Data--
Ratio of earnings to combined
fixed charges(3)................. 2.8x 2.6x 2.5x 2.5x 2.2x
</TABLE>
- --------
(1) On November 17, 1997, AK Holding effected a two-for-one common stock split.
Per share data for prior periods have been restated for this stock split.
(2) AK Holding has paid quarterly dividends on its common stock since November
15, 1995. Dividends of $0.075 per share, on a post-split basis, were paid in
each of the first three quarters of 1996. Dividends of $.10 per share, on a
post-split basis, were paid in the fourth quarter of 1996 and each of the
first three quarters of 1997. Beginning with the fourth quarter of 1997,
quarterly dividends have been paid at the rate of $0.125 per share. Armco has
not paid any dividends on its common stock since 1990. The payment of
dividends on the common stock of AK Holding in the future will be determined
by its board of directors and will depend on business conditions, AK
Holding's financial condition and earnings and other factors.
(3) For the purpose of calculating the ratio of earnings to combined fixed
charges, (a) earnings consist of income before income taxes, extraordinary
items and effects of accounting changes, the distributed income of less than
50%-owned affiliates, plus fixed charges and (b) combined fixed charges
consist of interest, whether expensed or capitalized, and preferred stock
dividends.
12
<PAGE>
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
Exchange Ratio Exchange Ratio Exchange Ratio
of .3409 of .2836 of .2759
--------------------- --------------------- ---------------------
AK Holding AK Holding AK Holding
and Armco and Armco and Armco
Unaudited Armco Unaudited Armco Unaudited Armco
AK Holding Armco Pro Forma Equivalent Pro Forma Equivalent Pro Forma Equivalent
Historical Historical Combined Pro Forma Combined Pro Forma Combined Pro Forma
Per Share Per Share Per Share Per Share Per Share Per Share Per Share Per Share
Data Data Data (1) Data(1) Data (2) Data(2) Data (3) Data(3)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31,
1996 (4)
Income from continuing
operations per share of
common stock:
Basic.................. $2.57 $0.08 $0.76 $0.26 $0.82 $0.23 $0.83 $0.23
Diluted................ 2.35 0.08 0.84 0.29 0.90 0.26 0.91 0.25
Cash dividends per share
of common stock........ 0.325
Book value per share of
common stock........... 14.83 (3.97) 8.13 2.77 8.74 2.48 8.83 2.44
Year Ended December 31,
1997
Income from continuing
operations per share of
common stock:
Basic.................. 2.59 0.55 1.74 0.59 1.86 0.53 1.88 0.52
Diluted................ 2.43 0.55 1.67 0.57 1.79 0.51 1.81 0.50
Cash dividends per share
of common stock........ 0.425
Book value per share of
common stock........... 15.93 (3.39) 9.15 3.12 9.81 2.78 9.91 2.73
Year Ended December 31,
1998
Income from continuing
operations per share of
common stock:
Basic.................. 1.93 0.85 2.05 0.70 2.19 0.62 2.21 0.61
Diluted................ 1.92 0.81 1.99 0.68 2.14 0.61 2.16 0.60
Cash dividends per share
of common stock........ 0.50
Book value per share of
common stock........... 15.67 (0.29) 11.36 3.87 12.16 3.45 12.27 3.39
Six Months Ended June
30, 1998
Income from continuing
operations per share of
common stock:
Basic.................. 1.04 0.39 0.81 0.28 0.87 0.25 0.88 0.24
Diluted................ 1.03 0.38 0.80 0.27 0.86 0.24 0.87 0.24
Cash dividends per share
of common stock........ 0.25
Book value per share of
common stock........... 15.00 (0.74) 12.05 4.11 12.87 3.65 12.99 3.58
Six Months Ended June
30, 1999
Income from continuing
operations per share of
common stock:
Basic.................. 0.80 0.46 0.82 0.28 0.88 0.25 0.89 0.25
Diluted................ 0.79 0.43 0.80 0.27 0.87 0.25 0.88 0.24
Cash dividends per share
of common stock........ 0.25
Book value per share of
common stock........... 16.14 0.23 13.39 4.56 14.31 4.06 14.45 3.99
</TABLE>
- --------
(1) Assuming the average closing price of AK Holding common stock is $22.00,
the unaudited pro forma income and book value per share of common stock
are based upon Armco stockholders receiving 0.3409 of a share of AK
Holding common stock for each share of Armco stock held. The Armco
equivalent pro forma per share data are calculated by multiplying the
unaudited pro forma combined per share data by 0.3409.
(2) Assuming the average closing price of AK Holding common stock is greater
than $26.44 but less than $28.21, the unaudited pro forma income and book
value per share of common stock are based upon Armco stockholders
receiving 0.2836 of a share of AK Holding common stock for each share of
Armco common stock held. The Armco equivalent pro forma per share data are
calculated by multiplying the unaudited pro forma combined per share data
by 0.2836.
(3) Assuming the average closing price of AK Holding common stock is $29.00,
the unaudited pro forma income and book value per share of common stock is
based upon Armco stockholders receiving 0.2759 of a share of AK Holding
common stock for each share of Armco common stock held. The Armco
equivalent pro forma per share data are calculated by multiplying the
unaudited pro forma combined per share data by 0.2759.
(4) On November 17, 1997, AK Holding effected a two-for-one common stock
split. Per share data for prior periods have been restated for this stock
split.
13
<PAGE>
COMPARATIVE MARKET VALUE INFORMATION
The following table sets forth:
1. The closing prices per share and aggregate market values of AK Holding
common stock and Armco common stock on the NYSE on May 20, 1999, the last
trading day prior to the public announcement of the proposed merger, and on
August 25, 1999, the most recent date for which prices were available prior to
printing this document; and
2. The equivalent price per share and equivalent market values of Armco
common stock, based on the exchange ratio that would apply if the average
closing price of AK Holding common stock on the ten trading days ending six
trading days before the Armco stockholders' meeting was equal to the closing
price of AK Holding common stock on the NYSE on May 20, 1999 and on August 25,
1999.
<TABLE>
<CAPTION>
AK Holding Armco Armco
Historical Historical Equivalent(1)
-------------- ------------ -------------
<S> <C> <C> <C>
On May 20, 1999
Closing price per share of common
stock............................. $23.5625 $5.625 $7.500
Market value of common stock (2)... $1,404,543,424 $626,551,155 $835,401,540
On August 25, 1999
Closing price per share of common
stock............................. $21.75 $6.625 $7.4146
Market value of common stock (2)... $1,296,294,714 $737,895,713 $825,841,744
</TABLE>
- --------
(1) The Armco equivalent data for May 20, 1999 correspond to an exchange ratio
of 0.3183, and the Armco equivalent data for August 25, 1999 corresponds to
an exchange ratio of .3409.
(2) Market values are based on 59,609,270 shares of AK Holding common stock and
111,386,872 shares of Armco common stock outstanding on a fully-diluted
basis as of May 20, 1999, and 59,599,757 shares of AK Holding common stock
and 111,380,485 shares of Armco common stock outstanding on a fully-diluted
basis as of August 25, 1999, excluding, in each case, shares held in
treasury.
Market values are likely to differ from values based on the closing stock
price. See the discussion under the heading "Armco common stockholders could
end up with less than $7.50 worth of AK Holding common stock per share of Armco
common stock" in the "Risk Factors" section of this document, which begins on
page 6.
14
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document and documents incorporated by reference in this document
contain both historical and forward-looking statements. All statements other
than statements of historical fact are, or may be deemed to be, forward-looking
statements. These forward-looking statements are only predictions and generally
can be identified by use of statements that include the words "believe,"
"expect," "anticipate," "intend," "plan," "foresee" or other similar words or
phrases. Similarly, statements that describe our objectives, plans,
projections, estimates of future results or goals also are forward-looking
statements.
In addition to the risk factors described in the preceding section, the
following important factors could affect the future results of the combined
company causing the results to differ materially from those expressed in our
forward-looking statements:
. the effect of unplanned outages with respect to operations;
. the cyclical nature of the domestic steel industry and many of the
markets it supplies, and the effect of that cyclicality on selling
prices and volume;
. the potential impact of strikes or work stoppages at facilities of
customers and suppliers;
. the sensitivity of results to changes in the purchase prices of products
and services;
. intense competition due to global steel overcapacity, including imports
and new domestic capacity over the next several years;
. the high capital requirements associated with integrated steelmaking
facilities;
. the significant costs associated with environmental controls and
remediation expenditures and the uncertainty of future environmental
requirements;
. employment matters, including costs and uncertainties associated with
collective bargaining agreements;
. the effect of customers and suppliers not becoming Year 2000 compliant
in a timely manner;
. the effect of existing and possible future lawsuits; and
. general economic and business conditions, including changes in the
condition of the capital markets and equity markets.
These factors and the risk factors described in the preceding section are
not necessarily all of the important factors that could cause actual results to
differ materially from those expressed in any of our forward-looking
statements. Other unknown or unpredictable factors could also have material
adverse effects on our future results. The forward-looking statements included
in this joint proxy statement/prospectus are made only as of the date of this
joint proxy statement/prospectus and under section 27A of the Securities Act
and section 21E of the Exchange Act, we do not have any obligation to publicly
update any forward-looking statements to reflect subsequent events or
circumstances. We cannot assure you that projected results or events will be
achieved.
15
<PAGE>
ARMCO SPECIAL MEETING
Purpose of the Armco Special Meeting
At the Armco special meeting to be held at the offices of Armco located at
One Oxford Centre, 301 Grant Street, Pittsburgh, Pennsylvania on September 29,
1999, holders of Armco common stock and Class A preferred stock will consider
and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of
May 20, 1999, among Armco Inc., AK Steel Holding Corporation and AK Steel
Corporation.
The board of directors of Armco has unanimously approved the merger and the
merger agreement and recommends that Armco stockholders vote "FOR" adoption of
the merger agreement. See "Recommendation of the Board of Directors of Armco
and Armco's Reasons for the Merger" beginning on page 25 for additional
information on the recommendation of the Armco board of directors.
Solicitation of Proxies
The solicitation of the enclosed proxy is made on behalf of the board of
directors of Armco. Solicitations of proxies will be made by mail, by
electronic telecommunications or in person. Armco has retained the services of
Innisfree M&A Incorporated to assist in the solicitation of proxies for a fee
of $7,500 plus out-of-pocket expenses. In soliciting proxies, management of
Armco may also use the services of its directors, officers and employees, who
will not receive any additional compensation for those services but who will be
reimbursed for their out-of-pocket expenses. In addition, directors, officers
and employees of AK Holding may assist Armco in soliciting proxies, but will
not receive any compensation for it. Armco will reimburse banks, brokers,
nominees, custodians and fiduciaries for their expenses in forwarding copies of
the proxy soliciting materials to the beneficial owners of the shares held of
record by those persons and in requesting authority for the execution of
proxies.
Record Date; Voting Rights
Only holders of record of Armco common stock and Class A preferred stock at
the close of business on August 25, 1999 are entitled to notice of and to vote
at the Armco special meeting.
As of the Armco record date, there were 111,380,485 outstanding shares of
Armco common stock held by approximately holders of record. Each holder of
Armco common stock is entitled to one vote per share on any matter brought
before the Armco special meeting. All shares of Armco common stock represented
by properly executed proxy cards will be voted in accordance with the
instructions indicated in those proxy cards unless those proxies have been
previously revoked. If no instructions are indicated on proxy cards that are
returned, the shares of Armco common stock represented by those proxies will be
voted in favor of adoption of the merger agreement.
As of the Armco record date, there were 1,697,231 outstanding shares of
Armco Class A $2.10 cumulative convertible preferred stock held by
approximately holders of record and 2,700,000 outstanding shares of Armco
Class A $3.625 cumulative convertible preferred stock held by approximately
holders of record. Each holder of Armco Class A preferred stock is entitled to
one vote per share on any matter brought before the Armco special meeting. All
shares of Armco Class A preferred stock represented by properly executed proxy
cards will be voted in accordance with the instructions indicated in those
proxy cards unless those proxies have been previously revoked. If no
instructions are indicated on proxy cards that are returned, the shares of
Armco Class A preferred stock represented by those proxies will be voted in
favor of adoption of the merger agreement.
Armco is not proposing any matters to come before the Armco special meeting
other than adoption of the merger agreement, and Armco has not received notice
of other proposals to be considered at the meeting. However, if any other
matters incidental to adoption of the merger agreement or conduct of the
meeting are properly presented for action at the Armco special meeting,
including a motion to adjourn the meeting to
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another time or place, the persons named in the enclosed form of proxy card
will have the discretion to vote on those matters in accordance with their best
judgment, unless authorization to do so is withheld by notation on the proxy
card. However, no proxy that is voted against the proposal to adopt the merger
agreement will be voted in favor of any adjournment of the Armco special
meeting and discretionary authority will be exercised only to the extent
permitted by applicable federal securities law and state corporate law.
Stockholders of Armco wishing to exercise their appraisal rights should
consider carefully the discussion of appraisal rights for dissenting
stockholders on page 49.
Proxies
Armco stockholders can vote by mailing a completed and signed proxy card in
the enclosed return envelope. Armco stockholders can change their vote prior to
the Armco special meeting by mailing a later dated, signed proxy card to the
same address. A stockholder who has given a proxy may revoke it at any time
prior to its exercise by signing and returning a later dated proxy card or by
voting in person at the Armco special meeting. However, mere attendance at the
Armco special meeting will not, in and of itself, have the effect of revoking
the proxy.
Required Vote
The affirmative vote of the holders of a majority of the outstanding shares
of Armco common stock and Class A preferred stock, voting as a single class, is
required to approve the merger agreement. The required majority must be
determined both inclusive and exclusive of shares held by officers of Armco
elected or appointed by the Armco board of directors. Abstentions and broker
non-votes will have the effect of a vote against the merger. Broker non-votes
are shares held by brokers or nominees that are represented at a meeting but as
to which the broker or nominee is not empowered to vote on a particular
proposal. Failure to vote will have the effect of a vote against the merger.
Quorum
The presence in person or by proxy of holders of a majority of the
outstanding shares of Armco common stock and Class A preferred stock, treated
as a single class, is necessary to constitute a quorum for the transaction of
business at the Armco special meeting. The required majority will be determined
both inclusive and exclusive of shares held by officers of Armco elected or
appointed by the Armco board of directors. Abstentions and broker non-votes are
counted for purposes of determining whether there is a quorum at the Armco
special meeting.
Other Information
On August 25, 1999, the executive officers and directors of Armco, including
their affiliates, had voting power with respect to an aggregate of shares
of Armco common stock, or approximately % of the Armco common stock then
outstanding; an aggregate of shares of Armco Class A $3.625 cumulative
convertible preferred stock, or approximately % of the Armco Class A $3.625
cumulative convertible preferred stock then outstanding; and an aggregate of
shares of Armco Class A $2.10 cumulative convertible preferred stock, or
approximately % of the Armco Class A $2.10 cumulative convertible preferred
stock then outstanding. In addition, on that date, all officers of Armco,
including its executive officers, whose shares of Armco stock must be excluded
in connection with the calculation of the required vote and quorum, had voting
power with respect to an aggregate of Armco common stock, or approximately
% of the Armco common stock then outstanding; an aggregate of shares of
Armco Class A $3.625 cumulative convertible preferred stock, or approximately
% of the Armco Class A $3.625 cumulative convertible preferred stock then
outstanding; an aggregate of shares of Armco Class A $2.10 cumulative
convertible preferred stock, or approximately % of the Armco Class A $2.10
cumulative convertible preferred stock then outstanding. Armco currently
expects that its officers and directors as well as their affiliates, will vote
all of their shares in favor of the adoption of the merger agreement.
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AK HOLDING SPECIAL MEETING
Purpose of the AK Holding Special Meeting
At the AK Holding special meeting to be held at Hotel duPont at 11th &
Market Streets, Wilmington, Delaware on September 29, 1999, AK Holding
stockholders will consider and vote upon a proposal to approve the issuance of
shares of AK Holding common stock in the merger pursuant to the terms of the
merger agreement. Stockholder approval is not required for the issuance of
preferred stock of AK Holding in the merger.
The board of directors of AK Holding has unanimously approved the merger and
the merger agreement and recommends that AK Holding stockholders vote "FOR"
approval of the issuance of AK Holding common stock in the merger. See
"Recommendation of the Board of Directors of AK Holding and AK Holding's
Reasons for the Merger" beginning on page 37 for additional information on the
recommendation of the AK Holding board of directors.
Solicitation of Proxies
The solicitation of the enclosed proxy is made on behalf of the board of
directors of AK Holding. Solicitations of proxies will be made by mail, by
electronic telecommunications or in person. AK Holding has retained the
services of Innisfree M&A Incorporated to assist in the solicitation of proxies
for a fee of $7,500 plus out-of-pocket expenses. In soliciting proxies,
management of AK Holding may also use the services of its directors, officers
and employees, who will not receive any additional compensation for those
services but who will be reimbursed for their out-of-pocket expenses. In
addition, directors, officers and employees of Armco may assist AK Holding in
soliciting proxies, but will not receive any compensation for it. AK Holding
will reimburse banks, brokers, nominees, custodians and fiduciaries for their
expenses in forwarding copies of the proxy soliciting materials to the
beneficial owners of the stock held of record by those persons and in
requesting authority for the execution of proxies.
Record Date; Voting Rights
Only holders of record of AK Holding common stock on August 25, 1999 are
entitled to notice of and to vote at the AK Holding special meeting.
As of the AK Holding record date, there were 59,599,757 outstanding shares
of AK Holding common stock held by approximately 290 holders of record. Each
holder is entitled to one vote per share on any matter brought before the AK
Holding special meeting. All shares of AK Holding common stock represented by
properly executed proxy cards will be voted in accordance with the instructions
indicated in those proxy cards, unless those proxies have been previously
revoked. If no instructions are indicated on proxy cards that are returned, the
shares represented by those proxies will be voted for approval of the issuance
of AK Holding common stock in the merger.
AK Holding is not proposing any matters to come before the AK Holding
special meeting, other than approval of the issuance of AK Holding common
stock, and AK Holding has not received notice of other proposals to be
considered at the meeting. However, if any other matters incidental to the
approval of the issuance of AK Holding common stock or the conduct of the
meeting are properly presented for action at the AK Holding special meeting,
including a motion to adjourn the meeting to another time or place, the persons
named in the enclosed form of proxy card will have the discretion to vote on
those matters in accordance with their best judgment, unless authorization to
do so is withheld by notation on the proxy card. However, no proxy that is
voted against the proposal to approve the issuance of shares of AK Holding
common stock will be voted in favor of any adjournment of the AK Holding
special meeting and discretionary authority will be exercised only to the
extent permitted by applicable federal securities and state corporate law.
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Proxies
AK Holding stockholders can vote by mailing a completed and signed proxy
card in the enclosed return envelope. AK Holding stockholders can change their
vote prior to the AK Holding special meeting by mailing a later dated, signed
proxy card to the same address. A stockholder who has given a proxy may revoke
it at any time prior to its exercise by signing and returning a later dated
proxy card or by voting in person at the AK Holding special meeting. However,
mere attendance at the AK Holding special meeting will not, in and of itself,
have the effect of revoking the proxy.
Required Vote
Under the rules of the NYSE, the approval of the issuance of the shares of
AK Holding common stock in connection with the merger requires the affirmative
vote of a majority of votes cast on the proposal, provided that the total
number of votes cast on the proposal represents a majority of the outstanding
shares of AK Holding common stock. Under NYSE requirements, abstentions are
counted as votes cast and, accordingly, will have the effect of a vote against
the share issuance. However, "broker non-votes" are not counted as votes cast
and, accordingly, will have the effect of a vote against the share issuance
only if, as a result of excluding those broker non-votes, a majority of the
outstanding shares of AK Holding common stock would not have voted on the share
issuance. Failure to return a signed proxy card or to attend the AK Holding
special meeting and vote in person will have the effect of a vote against the
share issuance only if, as a result of the exclusion of the shares not voted, a
quorum for the transaction of business at the AK Holding special meeting would
not be present.
Quorum
The presence in person or by proxy of holders of a majority of the shares of
AK Holding common stock entitled to vote is necessary to constitute a quorum
for the transaction of business at the AK Holding special meeting. Abstentions
and "broker non-votes" are counted for purposes of determining whether there is
a quorum at the AK Holding special meeting.
Other Information
On August 25, 1999, the executive officers and directors of AK Holding,
including their affiliates, had voting power with respect to an aggregate of
969,187 shares of AK Holding common stock, or approximately 1.63% of the shares
of AK Holding common stock then outstanding. AK Holding currently expects that
these directors and officers and their affiliates will vote all of their shares
in favor of the proposal.
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THE PARTIES TO THE MERGER
AK Holding and AK Steel
AK Steel Holding Corporation, through its wholly-owned subsidiary AK Steel
Corporation, is a leading integrated steel producer. For the first half of
1999, AK Steel reported operating profit per ton of $39, as well as record tons
shipped for any six-month period, reflecting the increasing benefits of its new
Rockport Works finishing facility. AK Steel concentrates on the production of
premium quality coated, cold rolled and hot rolled carbon steel primarily for
sale to customers in the automotive, appliance, construction and manufacturing
industries. AK Steel also cold rolls and aluminum coats stainless steel for
automotive industry customers.
At the core of AK Steel's profitability is an experienced, results-oriented
management team that focuses on continuously increasing productivity, reducing
costs and improving product quality while continually striving to improve
safety and health in the workplace. Since arriving in mid-1992, this management
team has reconfigured AK Steel's production facilities, increased the operating
rates on its equipment and reduced operating costs throughout the organization.
Product quality and reliability have been improved as well, enabling AK Steel
to increase its sales of value-added coated and cold rolled products to the
high-end automotive, appliance, construction and manufacturing markets.
The results of these efforts have been significant. Each of AK Steel's key
production units has achieved substantial percentage increases in average
monthly production since 1992 through a combination of improved operating and
maintenance practices, targeted capital investments and focused production
planning. The tandem cold mill at AK Steel's Middletown Works has increased
average monthly production by over 104% from 1992 to 1998. Average monthly
production from AK Steel's Middletown and Ashland coating lines has increased
over 94% over the same period.
AK Steel has increased its total annual shipments from 2,989,000 tons in
1992 to 4,601,600 tons in 1998, an increase of nearly 54%. Enhanced
productivity rates on its tandem cold mill and coating lines, together with
start-up production at its new Rockport Works, have allowed AK Steel to
increase its shipments of value-added coated and cold rolled products from
1,668,000 tons, representing 56% of total shipments, in 1992 to 3,131,600 tons,
or 68% of total shipments, in 1998 and 75% of total shipments in the first half
of 1999. Increased production of premium quality coated and cold rolled
products has enabled AK Steel to focus its commercial efforts on the technical
requirements of the most demanding customers in the automotive, appliance,
construction and manufacturing industries. In 1992, 43% of its total shipments,
or 1,288,000 tons, served customers in those industries. In 1998, 67% of its
total shipments, or 3,095,000 tons, served those industries.
Armco
Armco Inc. is a leading domestic producer of stainless and electrical
steels. The stainless and electrical steel industry is a relatively small but
distinct segment of the overall steel industry that represented approximately
2% of domestic steel tonnage but accounted for approximately 14% of domestic
steel revenues in 1998.
Armco produces and finishes flat rolled stainless and electrical steels and,
to a lesser extent, galvanized carbon steel. Unlike carbon steel, stainless and
electrical steels are generally produced in relatively small quantities
utilizing special processing techniques designed to meet more exacting
specifications and tolerances. Historically, stainless and electrical steel
products have been sold at higher prices and have generated higher average
profit margins than carbon steel products. Electrical steels have properties
that make them desirable in the generation and distribution of electricity.
Stainless steels are made with a high alloy content, which permits their use in
environments that demand exceptional hardness, toughness, strength and
resistance to heat, corrosion or abrasion, or combinations of these properties.
Major markets served are industrial machinery and
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electrical equipment, automotive, construction and service centers. In
addition, Armco has developed specialty grades of stainless steel used in
various applications, including appliance trims, kitchen utensils, cookware,
food processing and surgical instruments. Armco also produces hot-dipped
galvanized carbon steel products primarily for use in the heating, ventilation
and air conditioning market.
Armco's Sawhill Tubular division manufactures a wide range of steel pipe and
tubular products for use in the non-residential construction, industrial,
plumbing and heating markets. Armco also owns Douglas Dynamics, L.L.C., the
largest North American manufacturer of snowplows for four-wheel drive light
trucks. Douglas Dynamics sells its snowplows and ice control products under the
brand names Western(R) and Fisher(R) through independent distributors in the
United States and Canada. In addition, Armco owns Greens Port Industrial Park
on the Houston Ship Channel, which leases land, buildings and rail car storage
facilities to third parties and operates a deep water loading dock on the
channel.
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THE MERGER
Background of the Merger
AK Steel is the successor to a business that, until May 1989, was a division
of Armco. In May 1989, Armco transferred the assets of that division to a
newly-formed partnership owned equally by Armco and Kawasaki Steel Corporation.
AK Holding is the corporate successor to that partnership. Richard M. Wardrop,
Jr., the Chairman and Chief Executive Officer of AK Holding and AK Steel,
joined the partnership in June 1992 and became a senior executive officer of AK
Holding and AK Steel in March 1994. James F. Will, the Chairman, President and
Chief Executive Officer of Armco, served as Chairman of the partnership from
June 1992 until April 1994 and as a director of AK Holding and AK Steel from
March 1994 until April 1995. Armco's equity interest in AK Holding was
substantially reduced as a consequence of AK Holding's initial public offering
in April 1994 and, in April 1995, Armco sold its remaining interest in AK
Holding in the open market. Nevertheless, Armco has ongoing business dealings
with AK Steel, which continues to perform rolling services on behalf of Armco.
As a consequence, Mr. Wardrop and Mr. Will have maintained both a business and
a social relationship for more than seven years.
In February 1998, Mr. Wardrop and Mr. Will met informally to discuss
strategic issues confronting their respective companies, including the
possibility of a merger or other business combination transaction. Both
executives were encouraged by the similarity of their views about the strategic
directions open to their companies and the potential for a mutually beneficial
transaction of some kind and decided to continue discussions.
On March 26, 1998, AK Steel entered into a confidentiality agreement with
Armco and, shortly after that, began a due diligence investigation of Armco to
identify and evaluate the potential benefits and risks of a strategic
transaction between the two companies.
On April 14, 1998, May 1, 1998 and May 14, 1998, representatives of AK Steel
and Armco met to discuss a strategic transaction between the two companies.
On July 12, 1998, Mr. Wardrop, together with James L. Wainscott, Vice
President, Treasurer and Chief Financial Officer of AK Steel, met with Mr. Will
and Jerry W. Albright, Vice President and Chief Financial Officer of Armco. Mr.
Wardrop indicated that, in light of various uncertainties associated with those
subsidiaries of Armco that comprised its Financial Services Group, AK Steel was
not interested in an acquisition of Armco as an entirety, but was willing to
consider an acquisition only of those assets that comprised Armco's Specialty
Steel Division. Mr. Will advised Mr. Wardrop that he had reservations regarding
the proposal, but would consider it and discuss it with the Armco board of
directors.
On July 16, 1998, following a meeting of the board of directors of AK
Holding, Mr. Wardrop delivered to Mr. Will a written proposal for the
acquisition by AK Steel of all of the assets comprising Armco's Specialty Steel
Division and the assumption by AK Steel of selected liabilities relating to
that Division.
On July 17, 1998, Armco's board of directors met to consider the AK Steel
proposal. The board expressed reservations about the value of the proposal to
the Armco stockholders and directed Armco management to discuss it further with
AK Steel. Mr. Will advised Mr. Wardrop of the board's views.
On July 21, 1998, representatives of AK Steel and Armco, together with their
respective financial advisors, met to discuss AK Steel's proposal.
On August 14, 1998, the Armco board of directors further considered AK
Steel's proposal. Following the meeting, Mr. Will advised Mr. Wardrop that it
was the judgment of Armco's management and board of directors that a sale of
Armco's core specialty steel business, without a concurrent sale of its other
businesses, was not in the best interests of Armco's stockholders.
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On December 11, 1998, Messrs. Wardrop and Wainscott, together with other
members of AK Steel's management, met with Messrs. Will and Albright, and other
members of Armco's management, to explore the possibility of creating a joint
venture that would combine various operations of Armco's Specialty Steel
Division and AK Steel's Rockport Works finishing facility.
On December 13, 1998, January 19, 1999 and February 8, 1999, representatives
of both companies met to discuss the proposed joint venture. On March 22, 1999,
AK Steel and Armco entered into a confidentiality agreement with respect to a
potential joint venture. After entering into the confidentiality agreement,
representatives of both companies continued to have discussions regarding the
joint venture. On April 7, 1999, at a meeting held to evaluate the relative
production costs and synergies that might be obtained through a joint venture,
it became clear to the management of both companies that a joint venture would
not be in the best interests of Armco or its stockholders.
On April 18, 1999, Messrs. Wardrop and Will met again to explore whether
there remained any possibility of merging their respective businesses in their
entirety. Mr. Will informed Mr. Wardrop that Armco was considering strategic
alternatives with respect to its business, including a possible acquisition by
Armco of another company, which was not named.
On April 27, 1999, at a meeting of members of senior management of both
companies, Mr. Will stated that Armco's board had instructed its management to
pursue the acquisition of the other unnamed company. Mr. Will indicated to Mr.
Wardrop that he would be willing to entertain and present to Armco's board of
directors an offer for the acquisition by AK Steel of Armco as an entirety, if
it could be demonstrated that this acquisition would be in the best interests
of Armco's stockholders and was an opportunity superior to the other
transaction being pursued by Armco.
Shortly thereafter, AK Steel executed a restated confidentiality agreement
with Armco and began an expedited due diligence investigation to determine
whether, in light of developments subsequent to the summer of 1998, including
the possible resolution of various uncertainties associated with Armco's
Financial Services Group and the substantial appreciation in the market price
of AK Holding common stock relative to the market price of Armco common stock,
an acquisition by AK Steel of Armco in its entirety might be in the best
interest of AK Steel and its stockholders.
On May 7, 1999, at a meeting of AK Holding's board of directors, AK Steel's
management, together with representatives of Credit Suisse First Boston,
reviewed with the board of directors of AK Steel:
. AK Steel's previous efforts to acquire or arrange a joint venture with
Armco's Specialty Steel Division;
. management's analysis of a proposed acquisition of Armco as an entirety
by AK Steel, including the anticipated resolution of various
uncertainties associated with Armco's Financial Services Group;
. strategic reasons for an acquisition;
. a financial overview of various components of Armco's business; and
. the possibility of using AK Holding common stock as "currency" for an
acquisition and the resulting advantages of a tax free transaction and
pooling of interests accounting treatment.
At the conclusion of the meeting, AK Holding's board of directors authorized
Mr. Wardrop to make a formal offer to Armco for the acquisition of Armco in a
stock-for-stock merger transaction that would provide Armco common stockholders
a transaction value between $7.00 and $7.50 per share in the form of shares of
AK Holding common stock. Mr. Wardrop promptly submitted to Mr. Will a written
proposal that reflected a transaction value of $7.00 per share of Armco common
stock. During a telephone conversation that day regarding the proposal, Messrs.
Wardrop and Will reached a tentative agreement on a transaction value to Armco
common stockholders of $7.50 per share.
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Over the following week, representatives of AK Holding and Armco and their
respective legal counsel prepared and negotiated the terms of a definitive
merger agreement. Mr. Wardrop's initial proposal and the initial draft of the
merger agreement contemplated an exchange ratio to be fixed immediately prior
to signing the agreement, which might have provided Armco common stockholders a
value of more or less than $7.50 per share depending upon future changes in the
market price of AK Holding common stock. However, Armco's representatives
indicated that they were not willing to subject Armco's common stockholders to
the risk of a substantial decline in the market price of AK Holding common
stock between the date of signing the agreement and the date of consummation of
the merger, even though they would have the opportunity to benefit from any
appreciation in that market price during the same period.
On May 13, 1999, the Armco board of directors met to consider the AK Steel
proposal. The board of directors reviewed the current state of negotiations and
the draft merger agreement and considered a presentation by Salomon Smith
Barney and other matters related to the proposal. The board authorized Armco
management to continue negotiations in respect of the AK Steel proposal, with
the direction to seek alternatives to a fixed exchange ratio.
On May 13, 1999, AK Steel's management, together with representatives of
Credit Suisse First Boston and AK Steel's legal counsel, reported to the board
of directors of AK Holding on the developments in the negotiation of the merger
agreement and, in particular, the concerns of Armco's management regarding the
risks to Armco common stockholders associated with a fixed exchange ratio. The
board of directors of AK Holding authorized management to propose the use of a
collar, under which Armco stockholders would be protected from a decline in the
market price of AK Holding common stock, within a prescribed limit, and would
forego the benefits of future appreciation in the price of AK Holding common
stock above a prescribed maximum.
Shortly following the meeting of AK Holding's board of directors, AK
Holding's management, with the assistance of its legal and financial advisors,
developed a proposal for a collar mechanism, which was presented to Armco
management and agreed upon.
During the following week, representatives of Armco and AK Holding and their
respective financial and legal advisors continued to negotiate the terms of the
definitive merger agreement.
On May 20, 1999, the Armco board of directors met to consider the merger. At
the meeting:
. Armco management and representatives of its outside legal advisors
reviewed the terms of the merger agreement and updated the board of
directors on the negotiations between AK Steel and Armco since their
prior meeting;
. a representative of Armco's special Ohio legal counsel reviewed the
duties and responsibilities of the board of directors in connection with
its consideration of the proposed merger; and
. representatives of Salomon Smith Barney reviewed the financial terms of
the transaction and Salomon Smith Barney delivered its oral opinion,
subsequently confirmed in writing, to the effect that, as of that date,
the consideration to be received in the merger by Armco common
stockholders was fair, from a financial point of view, to those
stockholders.
After further discussion, Armco's board of directors:
. approved the merger and the merger agreement and authorized the
execution of the merger agreement; and
. authorized submission of the merger agreement to Armco stockholders for
adoption.
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On May 20, 1999, the AK Holding board of directors also met to consider the
merger. At the meeting:
. AK Steel management and representatives of its legal advisors reviewed
the terms of the merger agreement and updated the board on the
negotiations between AK Steel and Armco subsequent to its prior meeting;
and
. Credit Suisse First Boston representatives reviewed the financial terms
of the transaction and delivered its oral opinion, subsequently
confirmed in writing, to the effect that, as of that date and based on
the matters stated in the opinion, the common stock consideration to be
paid by AK Holding in the merger was fair, from a financial point of
view, to AK Holding.
After further discussion, AK Holding's board of directors:
. approved the merger and the merger agreement and authorized the
execution of the merger agreement; and
. authorized submission to AK Steel stockholders for their approval of a
proposal to issue shares of AK Holding common stock pursuant to the
merger agreement.
On the morning of May 21, 1999, AK Holding, AK Steel and Armco executed the
merger agreement.
Recommendation of the Board of Directors of Armco and Armco's Reasons for the
Merger
At a meeting held on May 20, 1999, Armco's board of directors:
. determined that the merger is fair and in the best interests of Armco
and its stockholders;
. approved the merger agreement; and
. recommended that Armco stockholders adopt the merger agreement.
Armco's board of directors believes the merger will:
. increase Armco's earnings potential as part of the combined company and
generate cash flow to support greater growth opportunities;
. provide a dividend to the current holders of Armco's common stock; and
. create a company with a stronger balance sheet and greater financial
flexibility than Armco alone.
In reaching its decision to approve the merger and the merger agreement and
to recommend that Armco's stockholders adopt the merger agreement, Armco's
board of directors considered a number of factors, including the following:
. The $7.50 value of the fractional share of AK Holding common stock to be
received in the merger for each share of Armco common stock represents a
premium of approximately 33.3% for Armco common stockholders, based on
the closing price of the common stock of Armco on May 19, 1999, the last
trading day prior to the meeting of the board of directors.
. The merger is expected to be tax free to common stockholders of Armco,
except with respect to cash received in lieu of fractional shares.
. The financial and other analyses presented by Salomon Smith Barney,
including its opinion delivered to the Armco board of directors at its
meeting on May 20, 1999 that, as of that date, the consideration to be
received in the merger by the holders of Armco common stock was fair,
from a financial point of view, to those holders. See "Opinion of
Armco's Financial Advisor" below.
. The results of Armco's due diligence investigation of AK Holding and
other information concerning the business, assets, capital structure,
financial performance and prospects of AK Holding and Armco.
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. The alternatives to the merger, including the prospects for Armco to
enter into alliances with other companies or merge with or acquire other
companies.
. The prospects for Armco's business on a stand-alone basis.
. The financial condition and business reputation of AK Holding and the
ability of AK Holding and Armco to complete the merger in a timely
manner.
Armco's board of directors also considered the following risks inherent in
proceeding with the merger:
. The risk that the benefits sought in the merger would not be obtained.
. The effect of the public announcement of the merger on Armco's sales,
its customer and supplier relationships, its ability to retain employees
and the trading price of Armco's common stock.
. The challenges of combining the businesses of two corporations of the
size and complexity of AK Steel and Armco, and the attendant risks of
not achieving improvement in earnings and of diverting management focus
and resources from other strategic opportunities and from operational
matters.
. The possibility that some provisions of the merger agreement, including
the $30.0 million termination fee and reimbursement of up to $5.0
million of expenses of AK Holding if the Armco board of directors were
to accept a superior acquisition proposal by a third party, might
discourage other persons interested in merging with or acquiring Armco
from making an acquisition proposal.
This discussion of the information and factors considered by Armco's board
of directors is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the merger, Armco's
board of directors did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the board of
directors may have given different weights to different factors.
Armco's board of directors recommends that the Armco stockholders vote FOR
the adoption of the merger agreement.
Opinion of Armco's Financial Advisor
Salomon Smith Barney was retained to act as financial advisor to Armco in
connection with the merger. Salomon Smith Barney rendered an oral opinion to
Armco's board of directors on May 20, 1999, subsequently confirmed by delivery
of a written opinion dated May 20, 1999, to the effect that, based upon and
subject to the considerations set forth in that opinion, as of that date, the
consideration to be received in the merger by holders of Armco common stock
was fair, from a financial point of view, to those holders.
The full text of Salomon Smith Barney's opinion, which sets forth the
assumptions made, general procedures followed, matters considered and limits
on the review undertaken, is appended to this document as Annex B. The summary
of Salomon Smith Barney's opinion set forth below is qualified in its entirety
by reference to the full text of the opinion. Armco stockholders are urged to
read the Salomon Smith Barney opinion carefully and in its entirety.
In connection with rendering its opinion, Salomon Smith Barney reviewed,
among other things, the following:
. a draft of the merger agreement;
. publicly available information concerning Armco and AK Holding;
. other financial information with respect to Armco and AK Holding,
including projections and estimates of the cost savings expected to be
derived from the merger, that were provided to Salomon Smith Barney by
Armco and AK Holding for the purposes of its analysis;
26
<PAGE>
. publicly available information, prepared by third parties, including
equity research analysts, concerning the business, operations and
financial prospects of Armco and AK Holding and the sectors in which
they operate;
. publicly available information concerning the trading of, and the
trading market for, Armco common stock and AK Holding common stock;
. publicly available information with respect to other companies that
Salomon Smith Barney believed to be comparable to Armco or AK Holding
and the trading markets for some of those other companies' securities;
and
. publicly available information concerning the nature and terms of other
transactions that Salomon Smith Barney considered relevant to its
inquiry.
Salomon Smith Barney also considered other information, financial studies,
analyses, investigations and financial, economic and market criteria that it
deemed relevant. Salomon Smith Barney also met with officers and employees of
Armco and AK Holding to discuss the information described above as well as
other matters Salomon Smith Barney believed relevant to its inquiry.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it or publicly available and
neither attempted independently to verify nor assumed any responsibility for
verifying any of that information, and further relied on assurances of
management of Armco that they were not aware of facts that would make any of
that information inaccurate or misleading. Salomon Smith Barney did not
conduct a physical inspection of any of the properties or facilities of Armco
or AK Holding, did not make or obtain or assume any responsibility for making
or obtaining any independent evaluations or appraisals of any of those
properties or facilities, and was not furnished with any evaluations or
appraisals. With respect to projections, Salomon Smith Barney relied on
estimates from the managements of Armco and AK Holding, and assumed that the
estimates had been reasonably prepared and reflected the best currently
available estimates and judgments of the managements of Armco and AK Holding
as to the future financial performance of Armco and AK Holding. Salomon Smith
Barney expressed no view with respect to the projections or the assumptions on
which they were based. Salomon Smith Barney assumed that the merger agreement,
when executed and delivered, would not contain any terms or conditions that
differed materially from the terms and conditions contained in the draft
Salomon Smith Barney reviewed, that the merger will qualify as a tax-free
reorganization for United States federal income tax purposes, and that the
merger will be consummated in accordance with the terms of the merger
agreement, without waiver of any of the conditions to the merger contained in
the merger agreement.
In conducting its analysis and arriving at its opinion, Salomon Smith
Barney considered financial and other factors that it deemed appropriate under
the circumstances including, among others, the following:
(1) the historical and current financial position and results of
operations of Armco and AK Holding;
(2) the business prospects of Armco and AK Holding;
(3) the historical and current market for the common stock of each of
Armco and AK Holding and the equity securities of other companies that
Salomon Smith Barney believed to be comparable to Armco or AK Holding; and
(4) the nature and terms of other merger and acquisition transactions
that Salomon Smith Barney believed to be relevant.
Salomon Smith Barney also took into account its assessment of general
economic, market and financial conditions as well as its experience in
connection with similar transactions and securities valuation generally.
Salomon Smith Barney was not asked to consider, and its opinion does not
address, the relative merits of the merger as compared to any alternative
business strategy that might exist for Armco. Salomon Smith Barney
27
<PAGE>
also considered the process that resulted in negotiation of the merger
agreement, including discussions with other potential acquirors. Salomon Smith
Barney's opinion necessarily was based on conditions as they existed and could
be evaluated on the date of the opinion and Salomon Smith Barney assumed no
responsibility to update or revise its opinion based upon circumstances or
events occurring after that date. Salomon Smith Barney's opinion was, in any
event, limited to the fairness, from a financial point of view, of the
consideration to be received by holders of Armco common stock in the merger and
did not address Armco's underlying business decision to effect the merger or
constitute a recommendation of the merger to Armco or a recommendation to any
holder of Armco common stock as to how that holder should vote with respect to
the merger. Salomon Smith Barney's opinion also did not constitute an opinion
or imply any conclusion as to the price at which Armco common stock would trade
following announcement of the merger or the price at which AK Holding common
stock would trade following announcement of the merger or following
consummation of the merger.
In connection with rendering its opinion, Salomon Smith Barney made a
presentation to the Armco board of directors on May 20, 1999, with respect to
the material analyses performed by Salomon Smith Barney in evaluating the
fairness of the consideration to be received in the merger by holders of Armco
common stock. The following is a summary of this presentation. The summary
includes information presented in tabular format. In order to understand fully
the financial analyses used by Salomon Smith Barney, these tables must be read
together with the text of each summary. The tables alone do not constitute a
complete description of the financial analyses. The following quantitative
information, to the extent it is based on market data, is, except as otherwise
indicated, based on market data as it existed at or prior to May 17, 1999 and
is not necessarily indicative of current or future market conditions.
Overview and Valuation of AK Holding
Salomon Smith Barney included in its presentation to Armco's board of
directors an overview of AK Holding, including historical financial
information, historical trading price information and a summary of the views of
Wall Street analysts on AK Holding. Salomon Smith Barney noted that AK Holding
common stock had traded during the prior twelve months in a range from a low of
$13.88 to a high of $28.50. Salomon Smith Barney noted that the average trading
price over the 10 trading days from May 5 through May 18, 1999 was $26.44 and
that, assuming an exchange ratio for the merger of 0.2837 and a conversion of
all Armco common stock into AK Holding common stock, the value of the
consideration received per share of Armco common stock using this average
trading price would be $7.50.
Salomon Smith Barney also performed, and summarized, analyses of the value
of AK Holding common stock utilizing three methodologies: a comparable company
analysis; a discounted cash flow analysis; and a comparable transaction
analysis.
Comparable Company Analysis. Salomon Smith Barney reviewed publicly
available financial, operating and stock market information and estimates of
future financial results published by First Call, an industry service provider
of earnings estimates based on an average of earnings estimates published by
various investment banking firms, for AK Holding and the following nine
publicly-traded carbon steel producers:
. Bethlehem Steel Corporation
. The LTV Corporation
. National Steel Corporation
. Rouge Industries, Inc.
. USX Corp
. Weirton Steel Corporation
. WHX Corporation
28
<PAGE>
. Nucor Corporation
. Steel Dynamics, Inc.
Salomon Smith Barney considered these companies to be reasonably similar to AK
Holding insofar as they participate in business segments similar to AK
Holding's business segments, but noted that none of these companies has the
same management, makeup, size and combination of businesses as AK Holding.
For AK Holding and each of the comparable companies, Salomon Smith Barney
calculated and compared, among other things:
(1) the ratio of the closing stock price on May 17, 1999 to
(a) 1999 earnings per share estimates and
(b) 2000 earnings per share estimates;
(2) the ratio of firm value to
(a) latest twelve months, sometimes referred to as LTM, revenues,
(b) latest twelve months earnings before interest, taxes,
depreciation and amortization, referred to as EBITDA, and
(c) latest twelve months earnings before interest and taxes,
referred to as EBIT;
(3) the ratio of the sum of firm value plus estimated pension and other
post-employment benefit obligations to
(a) latest twelve months earnings before interest, taxes,
depreciation, amortization and pension and other post-employment
benefit expenses, referred to as EBITDAPO, and
(b) latest twelve months earnings before interest, taxes and pension
and other post-employment benefit expenses, referred to as
EBITPO;
(4) the ratio of firm value to
(a) 1999 estimated EBITDA,
(b) 1999 estimated EBIT,
(c) 2000 estimated EBITDA and
(d) 2000 estimated EBIT; and
(5) the ratio of the sum of firm value plus estimated pension and other
post-employment benefit obligations to
(a) 1999 estimated EBITDAPO,
(b) 1999 estimated EBITPO,
(c) 2000 estimated EBITDAPO and
(d) 2000 estimated EBITPO.
29
<PAGE>
For purposes of these calculations, the firm value of a company was
calculated as the equity value of the company, based on the closing price of
its common stock on May 17, 1999, plus the book value of its debt, minority
interests, preferred stock and out-of-the-money convertible securities, less
its investments in unconsolidated affiliates and cash. The following table sets
forth the results of these calculations.
<TABLE>
<CAPTION>
Comparable Companies
-------------------------
Range Mean Median AK Holding
------------ ----- ------ ----------
<S> <C> <C> <C> <C>
Ratio of Closing Price
on May 17, 1999 to:
(a) 1999 earnings per share estimates.. 15.6x--23.6x 19.8x 20.2x 13.8x
(b) 2000 earnings per share estimates.. 5.6x--15.9x 10.1x 11.1x 9.0x
Ratio of firm value to:
(a) LTM revenues....................... 0.1x-- 2.6x 0.7x 0.5x NA
(b) LTM EBITDA......................... 1.7x--14.0x 6.1x 6.0x NA
(c) LTM EBIT........................... 6.8x--20.9x 15.0x 15.8x NA
Ratio of firm value plus post-retirement
benefit obligations to:
(a) LTM EBITDAPO....................... 4.6x--14.0x 7.6x 7.3x NA
(b) LTM EBITPO......................... 8.1x--20.9x 14.3x 14.5x NA
Ratio of firm value to:
(a) 1999 estimated EBITDA.............. 2.0x--13.3x 6.7x 6.2x 6.6x
(b) 1999 estimated EBIT................ 8.6x--29.0x 16.8x 14.7x 10.0x
(c) 2000 estimated EBITDA.............. 1.1x-- 7.2x 3.9x 3.8x 5.2x
(d) 2000 estimated EBIT................ 2.8x-- 9.5x 6.5x 7.8x 7.4x
Ratio of firm value plus post-retirement
benefit obligations to:
(a) 1999 estimated EBITDAPO............ 5.3x--10.3x 7.5x 7.2x 7.1x
(b) 1999 estimated EBITPO.............. 10.6x--23.2x 14.1x 13.0x 10.5x
(c) 2000 estimated EBITDAPO............ 2.6x-- 7.2x 5.1x 5.2x 5.7x
(d) 2000 estimated EBITPO.............. 3.1x--10.7x 8.0x 8.7x 7.9x
</TABLE>
Salomon Smith Barney did not utilize this methodology to derive a specific
value, or range of values, for AK Holding common stock, but rather utilized it
to confirm that the trading price of AK Holding common stock was consistent
with the trading price of peer firms. Salomon Smith Barney focused primarily on
the fourth and fifth categories of ratios described above and noted that the
multiples for AK Holding were generally within the range calculated for the
comparable companies, and in most instances consistent with the average or
median multiples observed.
Discounted Cash Flow Analysis. Salomon Smith Barney also performed a
discounted cash flow analysis of AK Holding using AK Holding management
projections for the years 1999 through 2001 and Armco management projections
for the extended years 2002 through 2004. Salomon Smith Barney calculated the
estimated present value of AK Holding's unlevered free cash flows for the years
1999 through 2004 and the estimated present value of the terminal value per
share of AK Holding common stock at the end of the year 2004. For purposes of
this analysis, Salomon Smith Barney utilized discount rates ranging from 9.0%
to 11.0%, and terminal values based on multiples ranging from 6.0x to 8.0x
projected year 2004 EBITDAPO. From this analysis, Salomon Smith Barney derived
a reference range of implied value per share of AK Holding common stock of
$24.03 to $31.91. Salomon Smith Barney noted that, assuming an exchange ratio
for the merger of 0.2837 and a conversion of all Armco common stock into AK
Holding common stock, the value of the consideration received per share of
Armco common stock implied by this analysis would range from $6.82 to $9.05.
Comparable Transactions Analysis. Salomon Smith Barney analyzed publicly
available financial, operating and stock market information for four selected
merger and acquisition transactions in the carbon steel producer industry since
1995. The precedent transactions reviewed were: Ispat International N.V./Inland
Steel Company; Bethlehem Steel Corporation/Lukens Inc.; The Renco Group,
Inc./WCI Steel, Inc.; and Watermill
30
<PAGE>
Ventures, Ltd./Gulf States Steel, Inc. In each case, the first-named company
represents the acquiror in the transaction and the second-named company
represents the acquired company in the transaction. No company or transaction
used in this analysis is directly comparable to AK Holding or Armco or to the
merger. Salomon Smith Barney considered the precedent transactions to provide a
reasonable basis for valuing AK Holding but noted that the limited number of
precedent transactions, and the limited comparability to the AK Holding/Armco
merger of the precedent transactions and the points at which those transactions
occurred in the business cycles of the parties to those transactions, made this
analysis somewhat less reliable.
For each of the precedent transactions, Salomon Smith Barney derived, among
other things:
(1) the premium of the transaction consideration to
(a) the closing price of the acquired stock one day prior to
announcement of the transaction and
(b) the closing price of the acquired stock 30 trading days prior to
announcement of the transaction;
(2) the ratio of the implied transaction value to
(a) the latest twelve months revenue of the acquired company,
(b) the latest twelve months EBITDA of the acquired company and
(c) the latest twelve months EBIT of the acquired company; and
(3) the ratio of the sum of the transaction value plus estimated
pension and other post-employment benefit obligations of the
acquired company to
(a) the latest twelve months EBITDAPO of the acquired company and
(b) latest twelve months EBITPO of the acquired company.
The following table sets forth the results of these calculations.
<TABLE>
<CAPTION>
Precedent Transactions
-------------------------
Range Mean Median
------------ ----- ------
<S> <C> <C> <C>
Premium of transaction price over:
(a) Day Prior Price.......................... 17.6%--71.4% 44.5% 44.5%
(b) 30 Day Prior Price....................... 66.7%--73.9% 70.3% 70.3%
Ratio of transaction value to:
(a) LTM revenue.............................. 46%--81% 63% 62%
(b) LTM EBITDA............................... 3.2x--12.3x 6.4x 5.1x
(c) LTM EBIT................................. 4.4x--59.8x 20.2x 8.3x
Ratio of transaction value plus post-retirement
benefit obligations to:
(a) LTM EBITDAPO............................. 5.0x--11.3x 7.9x 7.3x
(b) LTM EBITPO............................... 6.4x--27.3x 15.2x 11.9x
</TABLE>
31
<PAGE>
From these calculations, Salomon Smith Barney derived reference ranges of
the ratio of implied firm value, based on the purchase price per share in the
transaction, to each of (a) the latest twelve months EBITDA of the acquired
company, (b) the latest twelve months EBIT of the acquired company, (c) the
latest twelve months EBITDAPO of the acquired company, and (d) the latest
twelve months EBITPO of the acquired company. The reference ranges are set
forth in the following table.
<TABLE>
<CAPTION>
Reference
Range
--------------
<S> <C>
Ratio of Implied Firm
Value to:
(a)LTM EBITDA........... 5.0x--6.0x
(b)LTM EBIT............. 7.0x--8.0x
(c)LTM EBITDAPO......... 6.5x--7.5x
(d)LTM EBITPO........... 10.0x--11.0x
</TABLE>
Salomon Smith Barney applied these reference ranges to estimates of AK
Holding's financial performance for 1999, based on AK Holding management
estimates. From this analysis, Salomon Smith Barney derived an implied value
per share of AK Holding common stock ranging from $21.00 to $27.00. Salomon
Smith Barney noted that, assuming an exchange ratio for the merger of 0.2837
and a conversion of all shares of Armco common stock into AK Holding common
stock, the value of the consideration received per share of Armco common stock
implied by this analysis would range from $5.96 to $7.66.
Overview and Valuation of Armco
Salomon Smith Barney included in its presentation to the Armco board of
directors an overview of Armco, including historical trading price information
and a summary of the views of Wall Street analysts on Armco. Salomon Smith
Barney noted that the then current trading price of Armco common stock ($5.63)
was near the average trading price of shares of Armco common stock over the
period from January 2, 1998 through May 17, 1999 ($5.19) and over the period
May 6, 1994 through May 17, 1999 ($5.42). Salomon Smith Barney also noted that
Armco common stock had traded in a range from a low of $3.00 to a high of $6.81
during the 52-week period prior to May 17, 1999. Salomon Smith Barney noted
that this trading range was below the value of the consideration to be received
per share of Armco common stock, based on an offer price of $7.50.
Salomon Smith Barney also performed, and summarized, analyses of the value
of shares of Armco common stock utilizing three methodologies: a comparable
company analysis; a discounted cash flow analysis; and a comparable transaction
analysis.
Comparable Company Analysis. Salomon Smith Barney reviewed publicly
available financial, operating and stock market information and estimates of
future financial results published by First Call and I/B/E/S International,
another industry service provider of earnings estimates based on an average of
earnings estimates published by various investment banking firms, for Armco, AK
Holding, the following two publicly-traded North American specialty steel
producers and the following three publicly-traded international specialty steel
producers:
North American:
. Allegheny Teledyne Incorporated
. Carpenter Technology Corporation
International:
. Acerinox, S.A.
. Avesta Sheffield AB
. Boehler-Uddeholm AG
32
<PAGE>
Salomon Smith Barney considered these companies to be reasonably similar to
Armco insofar as they participate in business segments similar to Armco's
principal business segments, but noted that none of these companies has the
same management, makeup, size and combination of businesses as Armco.
For Armco and each of the comparable companies, Salomon Smith Barney
calculated and compared, among other things:
(1) the ratio of the closing stock price on May 17, 1999 to
(a) 1999 earnings per share estimates and
(b) 2000 earnings per share estimates;
(2) the ratio of firm value to
(a) latest twelve months (sometimes referred to as LTM) revenues,
(b) latest twelve months EBITDA and
(c) latest twelve months EBIT; and
(3) the ratio of the sum of firm value plus estimated pension and other
post-employment benefit obligations to
(a) latest twelve months EBITDAPO and
(b) latest twelve months EBITPO.
The following table sets forth the results of these calculations.
<TABLE>
<CAPTION>
North American International
Comparable Companies Comparable Companies
------------------------- -------------------------
Range Mean Median Range Mean Median Armco
------------ ----- ------ ------------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Closing Price
on May 17, 1999 to:
(a) 1999 earnings per
share estimates.... 13.8x--16.3x 15.0x 15.0x 10.6x--19.3x 14.9x 14.9x 7.8x
(b) 2000 earnings per
share estimates.... 9.0x--14.5x 11.9x 12.3x 9.3x--26.5x 15.9x 11.9x 6.5x
Ratio of firm value to:
(a) LTM revenues...... 1.1x--1.3x 1.2x 1.1x 0.4x--1.4x 0.8x 0.6x 0.6x
(b) LTM EBITDA........ 6.1x--8.7x 7.8x 8.4x 4.6x--11.3x 8.0x 8.0x 4.4x
(c) LTM EBIT.......... 9.4x--13.4x 11.1x 10.5x 7.2x--22.0x 14.6x 14.6x 6.6x
Ratio of firm value plus
post-retirement benefit
obligations to:
(a) LTM EBITDAPO...... 6.7x--9.5x 8.5x 9.3x NA NA NA 8.3x
(b) LTM EBITPO........ 10.8x--13.7x 12.2x 12.0x NA NA NA 12.3x
</TABLE>
Salomon Smith Barney did not utilize this methodology to derive a specific
value, or range of values, for Armco common stock, but rather utilized it to
confirm that the trading price of Armco common stock was consistent with the
trading price of peer firms. Salomon Smith Barney noted that the multiples for
Armco were generally below the range calculated for the comparable companies
overall, but generally consistent with the mean or median multiples observed
for the comparable North American companies when compared including post-
retirement benefit obligations.
Comparable Transactions Analysis. Salomon Smith Barney analyzed publicly
available financial, operating and stock market information for ten selected
merger and acquisition transactions in the stainless steel producer industry
since 1991. The precedent transactions reviewed were: Usinor/J&L Specialty
Steel, Inc.;
33
<PAGE>
Allegheny Teledyne Incorporated/Lukens Inc.; Bethlehem Steel
Corporation/Lukens Inc.; Rubicon Group plc/Calder Group Ltd.; Usinor
Sacilor/Ugine S.A.; British Steel plc/Avesta Sheffield AB; Acerinox,
S.A./National American Stainless; Allegheny Ludlum Corp./Athlone Industries,
Inc.; Lukens Inc./Washington Steel Corporation; and Armco/Cyclops Industries,
Inc. In each case, the first-named company represents the acquiror in the
transaction and the second-named company represents the acquired company in
the transaction. Salomon Smith Barney noted that these precedent transactions
were not particularly comparable to Armco or AK Holding or the merger for a
number of reasons, including the points at which these transactions occurred
in the business cycles of the parties involved.
For each of the precedent transactions, Salomon Smith Barney derived, among
other things:
(1) the premium of the transaction consideration to
(a) the closing price of the acquired stock one day prior to
announcement of the transaction and
(b) the closing price of the acquired stock 30 trading days prior to
announcement of the
transaction;
(2) the ratio of the implied transaction value to
(a) the latest twelve months revenue of the acquired company,
(b) the latest twelve months EBITDA of the acquired company and
(c) the latest twelve months EBIT of the acquired company; and
(3) the ratio of the sum of transaction value plus estimated pension and
other post-employment
benefit obligations to
(a) the latest twelve months EBITDAPO of the acquired company and
(b) the latest twelve months EBITPO of the acquired company.
The following table sets forth the results of these calculations.
<TABLE>
<CAPTION>
Precedent Transactions
---------------------------
Range Mean Median
-------------- ----- ------
<S> <C> <C> <C>
Premium of transaction price over:
(a) Day Prior Price........................ (1.7)%--100.0% 37.8% 27.0%
(b) 30 Day Prior Price..................... (2.4)%--66.7% 32.7% 25.9%
Ratio of transaction value to:
(a) LTM revenue............................ 23%--102% 71.1% 76.9%
(b) LTM EBITDA............................. 5.8x--15.3x 10.5x 10.2x
(c) LTM EBIT............................... 7.6x--34.7x 15.9x 9.8x
Ratio of transaction value plus post-
retirement benefit obligations to:
(a) LTM EBITDAPO........................... 6.1x--12.7x 10.0x 10.6x
(b) LTM EBITPO............................. 8.6x--10.3x 9.4x 9.4x
</TABLE>
In its analysis, Salomon Smith Barney focused on the ratios of transaction
value to latest twelve months EBITDA and EBIT and utilized a narrower selected
range of those ratios for the precedent transactions to derive an implied
value per share of Armco common stock ranging from $7.00 to $10.00. In light
of the limited comparability of the precedent transactions to the merger,
Salomon Smith Barney noted that it had not relied extensively on this analysis
in arriving at its opinion.
Discounted Cash Flow Analysis. Salomon Smith Barney also performed a
discounted cash flow analysis of Armco using Armco management projections for
the years 1999 through 2004. Salomon Smith Barney calculated the estimated
present value of Armco's unlevered free cash flows for the years 1999 through
2004 and the estimated present value of the terminal value per share of Armco
common stock at the end of the year
34
<PAGE>
2004. For purposes of this analysis, Salomon Smith Barney utilized discount
rates ranging from 10.0% to 12.0%, and terminal values based on multiples
ranging from 6.5x to 8.5x projected year 2004 EBITDAPO of Armco. From this
analysis, Salomon Smith Barney derived a reference range of implied equity
value per share of Armco common stock, excluding Armco's net operating loss
carryforwards, of $3.54 to $5.50, to which Salomon Smith Barney added the
estimated present value of Armco's net operating loss carryforwards, $2.51 per
share, to derive a reference range of implied value per share of Armco common
stock of $6.05 to $8.01.
Pro Forma Combination Analyses
Historical Trading Analyses. Salomon Smith Barney reviewed the relationship
between the respective daily closing prices of Armco and AK Holding common
stock during the following periods, each ending on May 17, 1999:
. Last two years
. Last twelve months
. Last six months
. Last three months
Salomon Smith Barney calculated the implied historical exchange ratio
determined by dividing the closing price per share of Armco common stock by the
closing price per share of AK Holding common stock for each trading day in
those periods. The following table shows the results of those calculations.
Historical Exchange Ratio
<TABLE>
<CAPTION>
Period: High Low Average
------- ---- ---- -------
<S> <C> <C> <C>
Last Two Years........................................... 0.38 0.17 0.26
Last Twelve Months....................................... 0.38 0.18 0.26
Last Six Months.......................................... 0.24 0.18 0.21
Last Three Months........................................ 0.24 0.18 0.21
</TABLE>
Salomon Smith Barney noted that the exchange ratio implied by the latest
closing prices of Armco and AK Holding common stock was 0.22. Salomon Smith
Barney also noted that the merger exchange ratio compared favorably with the
average historical exchange ratios during each of these periods and with the
current implied exchange ratio and the range during the more recent periods.
Contribution Analyses. Salomon Smith Barney performed analyses of the
relative contributions of each of Armco and AK Holding to the pro forma merged
entity with respect to specific market and financial data. Salomon Smith Barney
calculated the exchange ratio implied by these contributions, assuming pension
and other post-employment benefit obligations of $792 million for Armco and
$500 million for AK Holding.
The following table compares, based on historical financial data for each of
Armco and AK Holding, in the case of latest twelve month data, as of March 31,
1999, and based on Armco and AK Holding management estimates for 1999, and
without taking into account any anticipated cost savings, revenue enhancements
or other potential effects of the merger, the relative contributions of Armco
and AK Holding, respectively, to the combined entity in the following financial
categories and the exchange ratio implied by those contributions:
<TABLE>
<CAPTION>
Implied
Armco AK Holding Exchange
Contribution Contribution Ratio
------------ ------------ --------
<S> <C> <C> <C>
LTM Revenue............................. 40.6% 59.4% 0.3467
LTM EBITDA.............................. 40.3% 59.7% 0.3387
LTM EBIT................................ 40.6% 59.4% 0.3456
1998 Net Income......................... 44.5% 55.5% 0.3765
1999 Estimated Net Income............... 43.0% 57.0% 0.3542
Total Assets............................ 34.5% 65.5% 0.2981
</TABLE>
Accretion/Dilution Analysis. Salomon Smith Barney performed an analysis of
the impact of the merger on future operating earnings of the combined entity.
Salomon Smith Barney noted that the merger would initially be accretive to AK
Holding's stockholders.
35
<PAGE>
The preceding discussion is a summary of the material financial analyses
furnished by Salomon Smith Barney to Armco's board of directors but it does not
purport to be a complete description of the analyses performed by Salomon Smith
Barney or of its presentations to Armco's board of directors. The preparation
of financial analyses and fairness opinions is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. Except as discussed above with respect to the comparable
transactions analyses, Salomon Smith Barney made no attempt to assign specific
weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of all the analyses
and factors considered and determined to give its fairness opinion as described
above. Accordingly, Salomon Smith Barney believes that its analyses, and the
summary set forth above, must be considered as a whole, and that selecting
portions of the analyses and of the factors considered by Salomon Smith Barney,
without considering all of the analyses and factors, could create a misleading
or incomplete view of the processes underlying the analyses conducted by
Salomon Smith Barney and its opinion. With regard to the comparable public
company analyses summarized above, Salomon Smith Barney selected comparable
public companies on the basis of various factors, including the size of the
public company and similarity of the line of business. However, no public
company utilized as a comparison in these analyses, and no transaction utilized
as a comparison in the comparable transaction analyses summarized above, is
identical to Armco or AK Holding, any business segment of Armco or AK Holding
or the merger. As a result, these analyses are not purely mathematical, but
also take into account differences in financial and operating characteristics
of the comparable companies and other factors that could affect the transaction
or public trading value of the comparable companies and transactions to which
Armco and AK Holding, the business segments of Armco and AK Holding and the
merger are being compared. In its analyses, Salomon Smith Barney made numerous
assumptions with respect to Armco, AK Holding, industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Armco and AK Holding. Any estimates contained
in Salomon Smith Barney's analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by these analyses. Estimates of
values of companies do not purport to be appraisals or necessarily to reflect
the prices at which companies may actually be sold. Because these estimates are
inherently subject to uncertainty, none of Armco, AK Holding, the Armco board
of directors, Salomon Smith Barney or any other person assumes responsibility
if future results or actual values differ materially from the estimates.
Salomon Smith Barney's analyses were prepared solely as part of Salomon Smith
Barney's analysis of the fairness of the consideration to be received in the
merger by holders of Armco common stock and were provided to Armco's board of
directors in that connection. The opinion of Salomon Smith Barney was one of
the factors taken into consideration by Armco's board of directors in making
its determination to approve the merger agreement and the merger.
Salomon Smith Barney is an internationally recognized investment banking
firm engaged, among other things, in the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Armco selected Salomon
Smith Barney to act as its financial advisor on the basis of Salomon Smith
Barney's international reputation and Salomon Smith Barney's familiarity with
Armco. Salomon Smith Barney and its predecessors and affiliates had previously
rendered investment banking and financial advisory services to Armco, for which
they received customary compensation. In addition, in the ordinary course of
its business, Salomon Smith Barney and its affiliates may actively trade the
securities of both Armco and AK Holding for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in those securities. Salomon Smith Barney and its affiliates,
including Citigroup Inc. and its affiliates, may have other business
relationships with Armco and AK Holding.
Pursuant to Salomon Smith Barney's engagement letter, Armco has agreed to
pay Salomon Smith Barney a fee equal to approximately $6.0 million for its
services, $1.2 million of which has been paid or is payable and the payment of
the remainder is contingent upon consummation of the merger. Armco has also
agreed to reimburse Salomon Smith Barney for its reasonable travel and other
out-of-pocket expenses incurred in
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connection with its engagement, including the reasonable fees and disbursements
of its counsel, and to indemnify Salomon Smith Barney against specific
liabilities and expenses relating to or arising out of its engagement,
including liabilities under the federal securities laws.
As noted under the caption "The Merger--Recommendation of the Board of
Directors of Armco and Armco's Reasons for the Merger," the fairness opinion of
Salomon Smith Barney was only one of several factors considered by Armco's
board of directors in determining to approve the merger agreement and the
merger.
Recommendation of the Board of Directors of AK Holding and AK Holding's Reasons
for the Merger
At a meeting held on May 20, 1999, AK Holding's board of directors:
. determined that the merger is fair to and in the best interests of AK
Holding and its stockholders;
. approved the merger and the terms of the merger agreement; and
. recommended that AK Holding stockholders approve the issuance of shares
of AK Holding common stock as contemplated by the merger agreement.
AK Holding's board of directors believes the merger will:
. provide an assured, reliable source of high quality stainless substrate
that could be finished atAK Steel's new Rockport Works;
. maximize the utilization of Armco's stainless steel melt capacity;
. lower Armco's conversion costs by utilizing AK Steel's more efficient
and modern finishing facilities;
. maximize utilization of the Rockport Works to produce high quality, cold
rolled stainless steel products;
. increase AK Steel's earnings potential and generate cash flow to support
greater growth opportunities;
. make the best use of AK Steel's operational strengths and management
expertise to achieve greater production efficiencies at Armco
facilities;
. eliminate duplicative corporate overhead; and
. enable AK Steel to utilize Armco's marketing and technical expertise to
enhance AK Steel's presence in the stainless steel market.
In reaching its decision to approve the merger and recommend that
stockholders approve the issuance of AK Holding common stock pursuant to the
merger agreement, AK Holding's board of directors considered a number of
factors, including:
. The terms and structure of the merger.
. The results of AK Holding's due diligence investigation of Armco and
other information concerning the business, assets, capital structure,
financial performance and prospects of Armco and AK Holding.
. Current and historical market prices of and trading activity in the
common stock of each of AK Holding and Armco.
. The expected increase in earnings per share of AK Holding in the first
fiscal year after the merger is completed.
. The creation of additional growth opportunities and economies of scale,
enabling the combined company to improve the services and broaden the
number and types of products currently offered by each of the
constituent companies to its customers.
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. The opinion of Credit Suisse First Boston as to the fairness, from a
financial point of view, toAK Holding of the common stock consideration
to be paid by AK Holding in the merger, including Credit Suisse First
Boston's related financial analyses. See "Opinion of AK Holding's
Financial Advisor" below.
. The fact that the merger is expected to be tax free to common
stockholders of both AK Holding and Armco, except for cash received by
Armco common stockholders in lieu of fractional shares.
AK Holding's board of directors also considered the following risks inherent
in proceeding with the merger:
. The increase in earnings per share and other benefits of the merger
might not be realized either in the expected amounts or in the expected
time.
. The significant time and effort required by management to implement the
merger and related transactions.
. The effect of the potential merger on the ability of both AK Steel and
Armco to retain key employees and to continue to operate without
disruption or loss of key customers or suppliers.
This discussion of the information and factors considered by the AK Holding
board of directors is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the merger, the AK
Holding board of directors did not find it practicable to and did not quantify
or otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the AK Holding
board of directors may have given different weights to different factors.
The AK Holding board of directors recommends that holders of AK Holding
common stock vote FOR approval of the issuance of AK Holding common stock
pursuant to the merger agreement.
Opinion of AK Holding's Financial Advisor
Credit Suisse First Boston has acted as financial advisor to AK Holding in
connection with the merger. AK Holding selected Credit Suisse First Boston
based on its experience, expertise and familiarity with AK Holding and its
business. Credit Suisse First Boston is an internationally recognized
investment banking firm that, as a customary part of its business, evaluates
businesses and securities in connection with mergers and acquisitions,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
In connection with its engagement, AK Holding requested that Credit Suisse
First Boston evaluate the fairness, from a financial point of view, to AK
Holding of the common stock merger consideration payable in the merger. On May
20, 1999, Credit Suisse First Boston rendered to the AK Holding board an oral
opinion, subsequently confirmed by delivery of a written opinion dated May 20,
1999, to the effect that, as of that date and based upon and subject to the
matters stated in the opinion, the common stock merger consideration was fair,
from a financial point of view, to AK Holding.
The full text of Credit Suisse First Boston's written opinion dated May 20,
1999 to the AK Holding board of directors, which describes the procedures
followed, assumptions made, matters considered and limitations on the review
undertaken, is appended to this document as Annex C. Credit Suisse First
Boston's opinion is addressed to AK Holding's board of directors and relates
only to the fairness of the common stock merger consideration from a financial
point of view to AK Holding. The opinion does not address any other aspect of
the proposed merger or any related transaction and does not constitute a
recommendation to any stockholder as to any matter relating to the merger. The
summary of Credit Suisse First Boston's opinion included in this joint proxy
statement/prospectus is qualified in its entirety by reference to the full text
of the opinion.
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In arriving at its opinion, Credit Suisse First Boston reviewed the merger
agreement and publicly available business and financial information relating to
each of AK Holding and Armco. Credit Suisse First Boston also reviewed other
information relating to AK Holding and Armco, including financial forecasts,
that AK Holding and Armco provided to or discussed with Credit Suisse First
Boston, and met with members of the management of AK Holding and Armco to
discuss the business and prospects of both of AK Holding and Armco.
Credit Suisse First Boston also considered financial and stock market data
of AK Holding and Armco and compared those data with similar data for other
publicly held companies in businesses similar to AK Holding and Armco and
considered, to the extent publicly available, the financial terms of other
recent business combinations and other transactions. Credit Suisse First Boston
also considered various other information, financial studies, analyses and
investigations and financial, economic and market criteria as it deemed
relevant.
In connection with its review, Credit Suisse First Boston did not assume any
responsibility for independent verification of any of the information provided
to or otherwise reviewed by it and relied on that information being complete
and accurate in all material respects. With respect to financial forecasts,
Credit Suisse First Boston was advised, and assumed, that the forecasts were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of AK Holding and Armco as to the future
financial performance of AK Holding and Armco and as to the current and future
assets and liabilities and potential run-off of the discontinued operations
that comprise the Armco Financial Services Group. Credit Suisse First Boston
also was advised, and assumed, that the forecasts reflected the best currently
available estimates and judgments of the management of AK Holding as to the
cost savings and other potential synergies, including the amount, timing and
achievability of these cost savings and other synergies, anticipated to result
from the merger. In addition, Credit Suisse First Boston assumed, with AK
Holding's consent, that the merger will be treated as a tax-free reorganization
for federal income tax purposes.
Credit Suisse First Boston was not requested to, and did not, make an
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of AK Holding or Armco, and was not furnished with any evaluations
or appraisals. Credit Suisse First Boston's opinion was necessarily based on
information available to, and financial, economic, market and other conditions
as they existed and could be evaluated by, Credit Suisse First Boston on the
date of its opinion. Credit Suisse First Boston did not express any opinion as
to the actual value of AK Holding common stock or AK Holding preferred stock
when issued in the merger or the prices at which AK Holding common stock or AK
Holding preferred stock will trade after the merger. Although Credit Suisse
First Boston evaluated the common stock merger consideration from a financial
point of view, Credit Suisse First Boston was not requested to, and did not,
recommend the specific consideration payable in the merger, which consideration
was determined between AK Holding and Armco. No other limitations were imposed
on Credit Suisse First Boston with respect to the investigations made or
procedures followed it in rendering its opinion.
In preparing its opinion to AK Holding's board, Credit Suisse First Boston
performed a variety of financial and comparative analyses, including those
described below. The summary of Credit Suisse First Boston's analyses described
below is not a complete description of the analyses underlying its opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, a fairness opinion is not readily susceptible to
summary description. In arriving at its opinion, Credit Suisse First Boston
made qualitative judgments as to the significance and relevance of each
analysis and factor considered by it. Accordingly, Credit Suisse First Boston
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and factors or focusing on information presented in
tabular format, without considering all analyses and factors or the narrative
description of the analyses, could create a misleading or incomplete view of
the processes underlying its analyses and opinion.
In its analyses, Credit Suisse First Boston considered industry performance,
regulatory, general business, economic, market and financial conditions and
other matters existing as of the date of its opinion, many of
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which are beyond the control of AK Holding and Armco. No company, transaction
or business used in Credit Suisse First Boston's analyses as a comparison is
identical to AK Holding or Armco or the proposed merger. An evaluation of the
results of those analyses is not entirely mathematical. Rather, the analyses
involve complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
analyzed.
The estimates contained in Credit Suisse First Boston's analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than those suggested by the
analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Credit Suisse First
Boston's analyses and estimates are inherently subject to substantial
uncertainty.
Credit Suisse First Boston's opinion and financial analyses were only one of
many factors that the AK Holding board considered in its evaluation of the
proposed merger and should not be viewed as determinative of the views of AK
Holding's board of directors or management with respect to the merger or the
consideration to be paid by AK Holding in the merger.
The following is a summary of the material analyses underlying Credit Suisse
First Boston's opinion to AK Holding's board of directors in connection with
the merger. The financial analyses summarized below include information
presented in tabular format. In order to fully understand Credit Suisse First
Boston's financial analyses, the tables must be read together with the text of
each summary. The tables alone do not constitute a complete description of
these financial analyses. Considering the data set forth in the tables below
without considering the full narrative description of the financial analyses,
including the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Credit Suisse First Boston's
financial analyses.
Discounted Cash Flow Analysis. Credit Suisse First Boston estimated the
present value of the unlevered after-tax free cash flows that Armco's specialty
steel business, excluding its fabricated products segment, could produce on a
stand-alone basis. Credit Suisse First Boston evaluated Armco's projected free
cash flows for the years 1999 through 2008 under three scenarios. The first
scenario, the Armco management case, was based on internal estimates of Armco
management for 1999 through 2002 and assumed specialty steel shipments
increased annually by approximately 2% in 2003 through 2008. The second
scenario was based on the Armco management case, adjusted to reflect an
increased number of specialty steel shipments at higher prices in 2000 through
2003. The third scenario was based on the Armco management case, adjusted to
reflect fewer shipments with comparable pricing terms as the Armco management
case in 1999 through 2008. Ranges of terminal values were estimated using
multiples of terminal year 2008 earnings before interest, taxes, depreciation
and amortization, commonly referred to as EBITDA, for Armco's specialty steel
business of 5.5x to 6.5x. The free cash flow streams and terminal values were
then discounted to present value using discount rates ranging from 9.5% to
10.5%. This analysis indicated an implied enterprise reference range for
Armco's specialty steel business of approximately $860 million to $1.0 billion.
Credit Suisse First Boston then estimated the present value of the future
streams of unlevered after-tax free cash flows that Armco's Douglas Dynamics
business could produce through 2008 based on internal estimates of Armco
management. Ranges of terminal values were estimated using multiples of
terminal year 2008 EBITDA of 5.5x to 6.5x. The free cash flow streams and
terminal values were then discounted to present value using discount rates
ranging from 10% to 11%. This analysis indicated an implied enterprise
reference range for Armco's Douglas Dynamics business of approximately $160
million to $190 million.
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Selected Companies Analysis. Credit Suisse First Boston compared financial
and operating data of Armco with corresponding data of the following selected
companies in the U.S. specialty steel and carbon steel industries:
. Allegheny Teledyne Incorporated
. Carpenter Technology Corporation
. Bethlehem Steel Corporation
. The LTV Corporation
. USX Corporation (U.S. Steel Group)
Credit Suisse First Boston reviewed enterprise values, calculated as equity
market value, plus debt, less cash, as a multiple of estimated calendar years
1999 and 2000 sales, EBITDA, and earnings before interest and taxes, commonly
referred to as EBIT. Estimated financial data for the selected companies were
based on publicly available research analysts' estimates and estimated
financial data for Armco were based on the Armco management case. Applying a
range of selected multiples of estimated calendar years 1999 and 2000 sales,
EBITDA and EBIT of the selected companies to corresponding financial data of
Armco's specialty steel business indicated an implied enterprise reference
range for Armco's specialty steel business of approximately $925 million to
$1.1 billion.
Credit Suisse First Boston then compared financial and operating data of
Armco's Douglas Dynamics business with corresponding data of the following
selected companies in the fabricated products industry:
. Supreme Industries, Inc.
. Miller Industries, Inc.
. Terex Corporation
. Kennametal, Inc.
. The Toro Company
Credit Suisse First Boston reviewed enterprise values as a multiple of
estimated calendar year 1999 sales, EBITDA and EBIT. Estimated financial data
for the selected companies were based on publicly available research analysts'
estimates and estimated financial data for Douglas Dynamics were based on
internal estimates of Armco management. Applying a range of selected multiples
of estimated calendar year 1999 sales, EBITDA and EBIT of the selected
companies to corresponding financial data of Douglas Dynamics indicated an
implied enterprise reference range for Armco's Douglas Dynamics business of
approximately $140 million to $170 million.
Selected Mergers and Acquisitions Analysis. Using publicly available
information, Credit Suisse First Boston analyzed the purchase prices and
implied transaction multiples paid in the following selected transactions in
the specialty steel industry:
Acquiror Target
-------- ------
. Usinor S.A. J&L Speciality Inc.
. Ispat International N.V. Inland Steel & Forgings Ltd.
. Bethlehem Steel Corporation Lukens Inc.
. Carpenter Technology Corporation Talley Industries, Inc.
. British Steel plc Avesta Sheffield AB
. Allegheny Ludlum Corporation Teledyne, Inc.
. Allegheny Ludlum Corporation Athlone Industries, Inc.
. Lukens Inc. Washington Steel Corporation
All multiples were based on financial information available at the time of the
announcement of the relevant transaction. Applying a range of selected
multiples for the selected transactions of latest 12 months sales, EBITDA and
EBIT to corresponding financial data for Armco's specialty steel business
resulted in an implied enterprise reference range for Armco's specialty steel
business of approximately $1.0 billion to $1.2 billion.
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Credit Suisse First Boston, using publicly available information, also
analyzed the purchase prices and implied transaction multiples paid in the
following selected transactions in the fabricated products industry:
Acquiror Target
-------- ------
. American Axle & Manufacturing, Inc. Colfor Manufacturing, Inc.
. Dura Automotive Systems, Inc. Adwest Automotive PLC
. Tomkins PLC Schrader-Bridgeport Industries
. Granaria Industries BV Eagle-Picher Industries, Inc.
. Terex Corporation O & K Mining GmbH
. Kohlberg Kravis Roberts & Co. L.P. Accuride Corporation
. Federal-Mogul Industries BV T&N PLC
. Kennametal, Inc. Greenfield Industries, Inc.
. Amcast Industrial Corporation Speedline S.p.A.
. Oxford Automotive, Inc. Howell Industries, Inc.
. Windward Capital Partners, L.P. American Bumper & Manufacturing Co.
. Plastech Engineered Products, Inc. United Screw & Bolt Corporation
. Terex Corporation Simon Engineering PLC (Simon Access
. Worthington Industries Inc. Companies)
. Tower Automotive, Inc. JMAC, Inc. (Gerstenslager Company)
. Intermet Corporation A.O. Smith Corporation
. Mayflower Corporation Sudbury, Inc.
. Citicorp Venture Capital, Ltd. South Charleston Stamping &
. Tower Automotive, Inc. Manufacturing Company
AETNA Industries, Inc.
MascoTech Stamping Technologies, Inc.
All multiples were based on financial information available at the time of the
announcement of the relevant transaction. Applying a range of selected
multiples for the selected transactions of latest 12 months sales, EBITDA and
EBIT to corresponding financial data for Douglas Dynamics resulted in an
implied enterprise reference range for Douglas Dynamics of approximately $170
million to $200 million.
Aggregate Reference Ranges. In summary, the three valuation methodologies
employed in the analyses described above resulted in the following implied
enterprise value reference ranges and selected reference ranges for Armco's
specialty steel business and Armco's Douglas Dynamics business:
Valuation Methodology Implied Enterprise Reference
Range
Armco's Specialty Steel Business
Discounted Cash Flow Analysis $860 million to $1.0 billion
Selected Companies Analysis $925 million to $1.1 billion
Selected Mergers and Acquisitions Analysis $1.0 billion to $1.2 billion
Selected Reference Range.................. $900 million to $1.1 billion
Valuation Methodology Implied Enterprise Reference Range
--------------------- ----------------------------------
Armco's Douglas Dynamics Business
Discounted Cash Flow Analysis $160 million to $190 million
Selected Companies Analysis $140 million to $170 million
Selected Mergers and Acquisitions Analysis $170 million to $200 million
Selected Reference Range.................. $165 million to $185 million
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Credit Suisse First Boston then added to the selected reference ranges
described above estimated valuations for Armco's other businesses, Sawhill
Tubular and Greens Port Industrial Park as well as the discontinued operations
that comprise the Armco Financial Services Group, to arrive at an aggregate
enterprise and equity reference range for Armco. This analysis resulted in an
aggregate enterprise reference range for Armco of approximately $948 million to
$1.5 billion, or approximately $486 million to $1.1 billion after adjustment
for, among other things, net debt, the redemption price of Armco preferred
stock and corporate overhead costs, or approximately $4.33 to $9.10 per share
of diluted common stock. This compares to the equity value for Armco implied in
the merger of approximately $7.50 per share of diluted common stock based on
the common stock merger consideration and the closing stock price of AK Holding
common stock on May 18, 1999.
Pro Forma Merger Analysis. Credit Suisse First Boston analyzed the potential
pro forma effect of the merger on AK Holding's earnings per share in calendar
years 2000 and 2001, based on internal estimates of the managements of AK
Holding and Armco. In this analysis, Credit Suisse First Boston took into
account the synergies that AK Holding's management anticipates will result from
the merger and assumed pooling accounting treatment for the merger. This
analysis indicated that the merger could be accretive to AK Holding's earnings
per share in calendar years 2000 and 2001. The actual results achieved by the
combined company may vary from projected results and the variations may be
material.
Other Factors. In the course of preparing its opinion, Credit Suisse First
Boston considered other information and data, including the trading
characteristics of Armco common stock and AK Steel common stock, the possible
credit impact of the merger on AK Holding, the historical exchange ratios of
the closing prices of AK Holding common stock and Armco common stock over
various trading periods and the treatment of preferred stock and debt
securities in the merger.
Miscellaneous. Pursuant to the terms of Credit Suisse First Boston's
engagement, AK Holding has agreed to pay Credit Suisse First Boston for its
services upon completion of the merger an aggregate fee equal to 0.6% of the
consideration, including liabilities assumed, payable in the merger. Based on
the closing stock prices of AK Holding common stock and Armco common stock on
June 29, 1999, it is currently estimated that this fee will be approximately
$6.6 million. AK Holding also has agreed to reimburse Credit Suisse First
Boston for its reasonable out-of-pocket expenses, including the reasonable fees
and expenses of its legal counsel and any other advisor retained by Credit
Suisse First Boston, and to indemnify Credit Suisse First Boston and related
persons and entities against liabilities, including liabilities under the
federal securities laws, arising out of Credit Suisse First Boston's
engagement.
Credit Suisse First Boston and its affiliates have in the past provided
financial services to AK Holding and AK Steel unrelated to the proposed merger,
for which services Credit Suisse First Boston and its affiliates have received
compensation. Credit Suisse First Boston may participate in the financing, if
any, of transactions related to the merger, for which services Credit Suisse
First Boston would receive additional compensation. In the ordinary course of
business, Credit Suisse First Boston and its affiliates may actively trade the
debt and equity securities of AK Holding and Armco for their own accounts and
for the accounts of customers and, accordingly, may at any time may hold long
or short positions in these securities.
Interests of Armco Officers and Directors in the Merger
In considering the recommendations of Armco's board of directors with
respect to the merger, Armco stockholders should be aware that some members of
Armco's management and board of directors have interests in the merger that may
be considered different from, or in addition to, the interests of the
stockholders of Armco generally. These include, among other things, the
acceleration of payout or increase in amount of benefits under agreements
between these persons and Armco and provisions in the merger agreement relating
to indemnification. The Armco directors were aware of these interests and
considered them, among other matters, in approving the merger agreement and the
merger.
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Under the terms of pre-existing severance agreements, each of Messrs. Will,
Albright, Bertsch, Corey, Davis, Hildreth, McDaniel, McGlone, Meneely and
Tuthill, Armco's executive officers, is entitled to receive the following
benefits upon his actual or constructive termination of employment after the
merger:
(1) a lump sum payment equal to two times or, in the case of Mr. Will,
three times, his annual base salary, annualized at the highest rate
paid during any month during the 24 months preceding notice of
termination;
(2) an amount representing the average annual incentive bonus he
received in the four calendar years prior to termination;
(3) a pro-rata bonus of any incentive compensation payable for the year
of termination; and
(4) continuation of one year of coverage under welfare benefit plans,
including life, health and other insurance benefits.
In addition, under these severance agreements, as well as under the terms of
the plans pursuant to which a number of the stock awards and stock options were
granted, immediately upon the occurrence of the merger any restrictions on any
stock award granted to any of these executives will terminate and any unvested
stock options held by them will vest. The severance agreements also provide
that if the employment of any of these executives is actually or constructively
terminated after the merger, he is entitled to receive a cash payment in
exchange for his outstanding stock options in an amount equal to the difference
between the option price and the higher of (a) the per share market value of AK
Holding common stock on the date of termination and (b) the average value of
the per share consideration paid to Armco stockholders in the merger. However,
each of the executives is expected to agree that, in lieu of receiving this
cash payment, he will receive shares of AK Holding common stock having a fair
market value equal to (a) the amount of cash payment to which he would
otherwise be entitled plus (b) an amount equal to the reasonable brokerage
expenses that would be incurred if all of these shares of stock were to be sold
on the date received.
The terms of the plan pursuant to which some of the stock awards and stock
options held by these executive officers were granted also will, upon amendment
before the merger closing, provide that an officer holding a stock option will
have the right, if he exercises the option within six months after the merger,
to receive, in addition to the shares of AK Holding common stock received upon
exercise, further shares of AK Holding common stock having a fair market value
on the date of exercise equal to
(a) the amount by which the
(1) product of the number of shares of Armco common stock for which the
option would have been exercised but for the merger substitution of AK
Holding common stock, times the highest closing price of a share of
Armco common stock during the six-month period ending on the date of
the merger closing, assuming no person other than AK Holding acquires
more than 5% of the outstanding shares of Armco common stock during
this period, exceeds
(2) the fair market value on the date of exercise of the shares of AK
Holding common stock issued upon exercise; plus
(b) an amount equal to the reasonable brokerage expenses that would be
incurred if all of these shares of stock were to be sold on the date
received.
The terms of this plan also will, upon amendment before the merger closing,
provide that, within six months after the merger, an officer may surrender this
option and receive shares of AK Holding common stock having a fair market value
equal to
(a) the amount by which
(1) the product of the number of shares of Armco common stock for which
the option would have been exercisable but for the merger substitution
of AK Holding common stock, times the highest
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closing price of a share of Armco common stock during the six-month
period ending on the date of the merger closing, assuming no person
other than AK Holding acquires more than 5% of the outstanding shares
of Armco common stock during this period, exceeds
(2) the exercise price of the option, plus
(b) an amount equal to the reasonable brokerage expenses that would be
incurred if all the shares of stock were sold on the date received.
Armco has in effect a Supplemental Executive Retirement Plan that provides
retirement benefits for participating senior executives, including Messrs.
Will, Bertsch, Corey, Davis, Hildreth, McDaniel, McGlone and Meneely. Under
this plan, absent a change of control, which includes the merger, participants
who have reached age 62 and have at least 10 years of service with Armco and
five years of participation in this plan or have reached age 65 with five years
of participation in the plan can receive the retirement benefits immediately on
an unreduced basis, and participants with five years of participation in this
plan who have reached age 55 with at least 10 years of service with Armco or
who complete 30 years of service with Armco at any age may elect an early
retirement and receive a benefit reduced based on the number of years under 62
or 65 that the participant is upon retirement. Under this plan, and under a
separate agreement with Mr. McDaniel, as a result of the merger, the
participating senior executives will be deemed immediately to have satisfied
the minimum requirements to receive benefits under this plan and their benefits
under the plan will be calculated based on number of years of service and the
greater of actual age or age 55. Messrs. Albright and Tuthill do not
participate in this plan.
AK Holding has agreed in the merger agreement to cause AK Steel to honor the
obligations of Armco under the provisions of all disclosed Armco employment,
consulting, termination, severance, change of control and indemnification
agreements, including those described above for the executive officers. Also,
from and after the merger, AK Holding will indemnify and hold harmless the
present and former officers and directors of Armco in respect of acts or
omissions occurring prior to the merger to the extent provided under the Armco
articles of incorporation and the Armco regulations. In addition, for a period
of six years after the merger, AK Holding has agreed to maintain, with some
limitations, policies of directors' and officers' liability insurance
comparable to those currently maintained by Armco.
Anticipated Accounting Treatment
The merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting:
. the recorded assets and liabilities of AK Steel and Armco will be
carried forward to the combined company at their recorded amounts,
subject to any adjustments required to conform the accounting policies
of the companies;
. income of the combined corporation will include income of AK Steel and
Armco for the entire fiscal year in which the merger occurs; and
. the reported income of the separate corporations for prior periods will
be combined and restated as income of the combined company.
Each of AK Holding and Armco has agreed that it will do the best it reasonably
can to cause its independent auditors to deliver a letter to the other that the
merger qualifies as a pooling of interests for accounting purposes. It is not a
condition to the consummation of the merger that these letters are received. In
addition,
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they have each agreed to do the best they reasonably can so that the merger
will be accounted for as a pooling of interests for accounting and financial
reporting purposes. It is not a condition to the merger that the merger qualify
as a pooling of interests.
Material Federal Income Tax Consequences of the Merger
The following is a discussion of the material federal income tax
consequences of the merger to the holders of Armco common stock and Armco
preferred stock and to AK Holding and is based on the opinions of Weil, Gotshal
& Manges LLP, counsel to AK Holding, and Arnold & Porter, counsel to Armco. The
opinions are based upon current provisions of the United States Internal
Revenue Code of 1986, as amended, which is referred to in the following
discussion as the "Code", existing regulations promulgated under the Code and
current administrative rulings and court decisions, all of which are subject to
change. No attempt has been made to comment on all federal income tax
consequences of the merger that may be relevant to particular holders,
including holders that are subject to special tax rules, for example, dealers
in securities or brokers, foreign persons, mutual funds, insurance companies,
banks, financial institutions, individual retirement accounts or other tax
deferred accounts, tax-exempt entities and holders who do not hold their shares
as capital assets. In addition, no attempt has been made to comment on the tax
consequences to a holder of Armco Class A $3.625 cumulative convertible
preferred stock who exercises the special conversion rights contained in the
change of control provisions of that preferred stock. Holders of Armco stock
are advised to consult their own tax advisors regarding the federal income tax
consequences of the merger in light of their personal circumstances or
particular holdings and the consequences under applicable state, local and
foreign tax laws.
Neither AK Holding nor Armco intends to secure a ruling from the Internal
Revenue Service with respect to the tax consequences of the merger. AK Holding
has received from its counsel, Weil, Gotshal & Manges LLP, an opinion to the
effect that, based on the law as in effect as of the date hereof, the merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code. Armco has received from its counsel,
Arnold & Porter, an opinion to the effect that, based on the law as in effect
as of the date hereof, the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
It is a condition to the closing of the merger that each party's counsel
redeliver the opinions described above, based on the law in effect as of the
effective time of the merger. In rendering their opinions, counsel to each of
AK Holding and Armco have relied upon particular representations made by AK
Holding and Armco.
Armco Common Stock.
Assuming the merger is treated as a reorganization within the meaning of
Section 368(a) of the Code:
. no gain or loss will be recognized for federal income tax purposes by AK
Holding, AK Steel or Armco as a result of the merger;
. except as described below with respect to cash received in lieu of
fractional shares, a holder of Armco common stock will not recognize gain
or loss for federal income tax purposes on the exchange of shares of
Armco common stock for AK Holding common stock in the merger;
. the aggregate tax basis of the AK Holding common stock received by a
holder of Armco common stock, including any fractional share deemed
received, will be the same as the aggregate tax basis of the Armco common
stock surrendered for the AK Holding common stock, except to the extent
that the tax basis of the AK Holding common stock received is increased
in respect of any unrecognized loss realized by that holder on any
exchange by that holder of Armco Class A $2.10 cumulative convertible
preferred stock or Armco Class B preferred stock for cash, as discussed
below; and
. the holding period for capital gains purposes of the AK Holding common
stock received by a holder of Armco common stock, including any
fractional share deemed received, will include the holding period of the
shares of Armco common stock surrendered for the AK Holding common stock,
provided that the shares of Armco common stock are held as capital assets
at the effective time of the merger.
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Armco Preferred Stock.
The federal income tax consequences to a holder of Armco Class A $2.10
cumulative convertible preferred stock or Armco Class B preferred stock who
receives cash in exchange for that stock pursuant to the merger will depend in
part on whether the holder also exchanges either Armco common stock for AK
Holding common stock or Armco Class A $3.625 cumulative convertible preferred
stock for AK Holding preferred stock pursuant to the merger. If the holder does
not also receive either AK Holding common stock or AK Holding preferred stock
pursuant to the merger, then the holder will recognize gain or loss for federal
income tax purposes upon the receipt of that cash, measured by the difference
between the amount of cash received by the holder, less the amount of cash
received representing payment for accrued dividends, and that holder's tax
basis in the Armco preferred stock exchanged. If the holder also receives
either AK Holding common stock or AK Holding preferred stock in the merger,
then, assuming the merger is treated as a reorganization within the meaning of
Section 368(a) of the Code, the holder will not recognize any loss realized on
the exchange for federal income tax purposes, but will recognize gain for
federal income tax purposes in an amount equal to the excess of any cash
received by that holder, less the amount of cash received representing payment
for accrued dividends, over that holder's tax basis in the Armco Class A $2.10
cumulative convertible preferred stock or Armco Class B preferred stock
exchanged for that cash. Any loss realized but not recognized by that holder
for federal income tax purposes will be included in the tax basis of the AK
Holding common or preferred stock received by that holder.
Unless the receipt of the cash has the effect of a dividend distribution
under a holder's particular facts and circumstances, the gain or loss
recognized will be a capital gain or loss if the shares of Armco preferred
stock were held as capital assets and will be long-term capital gain or loss if
the shares of Armco preferred stock were held for more than one year at the
closing of the merger. If, however, the receipt of cash is considered a
dividend distribution under the holder's particular facts and circumstances,
then any gain recognized by the holder will be treated as ordinary dividend
income to the extent of Armco's accumulated earnings and profits. In either
case, any portion of the cash payment received by holders of Armco preferred
stock that is payment for accrued dividends will be ordinary income.
Gain or loss will be determined separately for each block of Armco Class A
$2.10 cumulative convertible preferred stock or each block of Armco Class B
preferred stock exchanged for cash pursuant to the merger. For these purposes,
a block of stock consists of shares of Armco Class A $2.10 cumulative
convertible preferred stock or shares of Armco Class B preferred stock acquired
at the same cost in a single transaction. A holder of blocks of Armco Class A
$2.10 cumulative convertible preferred stock or Armco Class B preferred stock
having different tax bases could realize gain with respect to shares in one
block of stock and loss with respect to shares in another block of stock. Any
loss which is realized but cannot be recognized in respect of a block of stock
may not be offset against gain recognized on another block of stock.
Assuming the merger is treated as a reorganization within the meaning of
Section 368(a) of the Code:
. a holder of Armco Class A $2.10 cumulative convertible preferred stock or
Armco Class B preferred stock who elects to receive AK Holding common
stock in lieu of cash will not recognize gain or loss for federal income
tax purposes on the exchange of shares of Armco preferred stock for AK
Holding common stock in the merger, except that gain or loss will be
recognized in respect of cash received in lieu of a fractional share of
AK Holding common stock as described below;
. the aggregate tax basis of the AK Holding common stock received by a
holder of Armco preferred stock in exchange for that stock, including any
fractional share deemed received, will be the same as the aggregate tax
basis of the Armco preferred stock surrendered for the AK Holding common
stock;
. the holding period for capital gains purposes of the AK Holding common
stock received by a holder of Armco preferred stock, including any
fractional share deemed received, will include the holding period of the
shares of Armco preferred stock surrendered for the AK Holding common
stock, if those shares of Armco preferred stock are held as capital
assets at the effective time of the merger;
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. no gain or loss will be recognized by a holder of Armco Class A $3.625
cumulative convertible preferred stock for federal income tax purposes
upon receipt of AK Holding preferred stock in connection with the merger;
. the aggregate tax basis of the AK Holding preferred stock received by a
holder of Armco Class A $3.625 cumulative convertible preferred stock
will be the same as the aggregate tax basis of the Armco Class A $3.625
cumulative convertible preferred stock surrendered for the AK Holding
preferred stock, except to the extent that the tax basis of the AK
Holding preferred stock received is increased in respect of any
unrecognized loss realized by that holder on any exchange by that holder
of Armco Class A $2.10 cumulative convertible preferred stock or Armco
Class B preferred stock for cash, as discussed above; and
. the holding period for capital gains purposes of the AK Holding preferred
stock received by a holder of Armco Class A $3.625 cumulative convertible
preferred stock will include the holding period of the Armco Class A
$3.625 cumulative convertible preferred stock surrendered for the AK
Holding preferred stock, if the shares of Armco Class A $3.625 cumulative
convertible preferred stock are held as capital assets at the effective
time of the merger.
Cash In Lieu of Fractional Shares.
Cash received by a holder of Armco stock in lieu of a fractional share of AK
Holding common stock will be treated as received in exchange for that
fractional share interest, and gain or loss will be recognized for federal
income tax purposes, measured by the difference between the amount of cash
received and the portion of the basis of the Armco stock allocable to the
fractional share interest. The gain or loss will be capital gain or loss if the
shares of Armco stock were held as capital assets and will be long-term capital
gain or loss if the shares of Armco stock were held for more than one year at
the effective time of the merger.
Dissenters' Rights.
Cash received by a holder of Armco common stock or preferred stock in
satisfaction of dissenters' rights will result in the recognition of gain or
loss for federal income tax purposes, measured by the difference between the
amount of cash received and the basis of the Armco shares surrendered. The gain
or loss will be capital gain or loss if the Armco shares were held as capital
assets and will be long-term capital gain or loss if the Armco shares had been
held for more than one year at the effective time of the merger.
Backup Withholding.
Under the Code, a holder of shares of Armco stock may be subject, under
specified circumstances, to backup withholding at a rate of 31% with respect to
the amount of any cash received, unless the holder provides proof of an
applicable exemption or a correct taxpayer identification number and otherwise
complies with applicable requirements of the backup withholding rules. Any
amounts withheld under the backup withholding rules are not an additional tax
and may be refunded or credited against the holder's federal income tax
liability if the required information is furnished to the Internal Revenue
Service.
Resale Restrictions
Pooling of Interests. In order for the merger to qualify for pooling of
interests accounting treatment, our affiliates may not sell, transfer or
dispose of, or in any other way reduce their risk relative to, shares of Armco
or AK Holding common stock during the period beginning 30 days before the
merger and ending when AK Holding publishes results covering at least 30 days
of our post-merger combined operations. The merger agreement requires us to
cause our respective affiliates to execute a written agreement to comply with
these requirements.
Federal Securities Laws. Recipients of AK Holding common stock issued in
connection with the merger can freely transfer those shares under the U.S.
Securities Act of 1933, but persons who are deemed to be affiliates, as this
term is defined under the Securities Act, of Armco prior to the merger may only
sell shares
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they receive in the merger in transactions permitted by the resale provisions
of Rule 145 under the Securities Act, or as otherwise permitted under the
Securities Act.
In general, under Rule 145, for one year following the closing of the
merger, Armco affiliates will be subject to the following restrictions on the
public sale of AK Holding common stock acquired in the merger:
. an Armco affiliate, together with related persons, may sell only through
unsolicited broker transactions or in transactions directly with a
market maker, as these terms are defined in Rule 144 under the
Securities Act;
. the number of shares an Armco affiliate may sell, together with related
persons and persons acting in concert, within any three-month period for
purposes of Rule 145 may not exceed the greater of 1% of the outstanding
shares of AK Holding common stock and the average weekly trading volume
of AK Holding common stock during the four calendar weeks preceding the
sale; and
. an Armco affiliate may sell only if AK Holding remains current with its
informational filings with the SEC under the Exchange Act.
After the end of one year from the closing of the merger, an Armco affiliate
may sell shares of AK Holding common stock received in the merger without these
manner of sale or volume limitations, provided that AK Holding is current with
its Exchange Act informational filings and the Armco affiliate is not then an
affiliate of AK Holding. Two years after the closing of the merger, an
affiliate of Armco may sell shares of AK Holding common stock without any
restrictions so long as the affiliate of Armco was not an affiliate of
AK Holding for at least three months prior to the sale.
Regulatory Filings and Approvals
Armco and AK Holding may not close the merger unless Armco and AK Holding
receive required insurance department approvals. Approvals have been or are
expected to be received from all such insurance departments prior to the date
of the special meetings.
Rights of Dissenting Stockholders
Armco Stockholders
We describe below the steps that you must take if you are an Armco
stockholder and you wish to exercise dissenters' rights with respect to the
merger. The description is not complete. You should read Section 1701.85 of the
Ohio General Corporation Law, which is attached as Annex D to this document.
Failure to take any one of the required steps may result in termination of the
stockholder's dissenters' rights under the Ohio General Corporation Law. If you
are considering dissenting, you should consult your own legal advisor.
To exercise dissenters' rights, you must satisfy five conditions:
. you must be a stockholder of record on August 25, 1999,
. you must not vote dissenting shares in favor of adoption of the merger
agreement,
. you must deliver to Armco a written demand for the fair cash value of
the dissenting shares within 10 days after the vote on the merger,
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. if Armco requests, you must send to Armco, within 15 days of its
request, your stock certificates so that a legend may be added stating
that a demand for fair cash value has been made, and
. within three months of your written demand to receive the fair cash
value of your dissenting shares, you must file a complaint in court for
a determination of the fair cash value or you and Armco must have agreed
on the fair cash value.
The following is a more detailed description of the conditions you must
satisfy to perfect dissenters' rights:
1. You must be a stockholder of record. To be entitled to dissenters'
rights, you must be the record holder of the dissenting shares as of August 25,
1999. If you have a beneficial interest in shares of Armco common stock or
preferred stock that are held of record in the name of another person, you must
act promptly to cause the stockholder of record to follow the steps described
below.
2. You may not vote in favor of the merger. You must not vote shares of
stock as to which you seek fair cash value in favor of the adoption of the
merger agreement at the Armco special meeting. This requirement will be
satisfied:
. if a properly executed proxy is submitted with instructions to vote
"against" the adoption of the merger agreement or to "abstain" from this
vote,
. if no proxy is returned and no vote is cast at the Armco special meeting
in favor of the adoption of the merger agreement, or
. if you revoke a proxy and later "abstain" from or vote "against"
adoption of the merger agreement. A vote for adoption of the merger
agreement is a waiver of dissenters' rights. A proxy that is returned
signed but on which no voting preference is indicated will be voted in
favor of adoption of the merger agreement and will constitute a waiver
of dissenters' rights. Failure to vote does not constitute a waiver of
dissenters' rights.
3. You must file a written demand. You must serve a written demand for the
fair cash value of dissenting shares upon Armco on or before the tenth day
after the stockholder vote adopting the merger agreement. Armco will not inform
stockholders of the expiration of the ten-day period. Therefore, you are
advised to retain this document. The required written demand must specify your
name and address, the number of dissenting shares held of record on August 25,
1999 and the amount claimed as the fair cash value of the dissenting shares.
Voting against adoption of the merger agreement is not a written demand as
required by Section 1701.85 of the Ohio General Corporation Law.
4. You must deliver your stock certificates for legending. If requested by
Armco, you must submit your certificates for dissenting shares to Armco, within
15 days after Armco sends its request, for endorsement on the certificates by
Armco of a legend to the effect that demand for fair cash value has been made.
The certificates will be returned promptly to you by Armco. Armco intends to
make this request to any dissenting stockholders.
5. You may have to file a complaint in court. If you and Armco cannot agree
on the fair cash value of your dissenting shares, you must, within three months
after service of your demand for fair cash value, file a complaint in the Court
of Common Pleas of Butler County, Ohio, for a determination of the fair cash
value of the dissenting shares. Although Armco is also permitted to file a
complaint, it has no intention to do so. The court, if it determines that you
are entitled to be paid the fair cash value of your dissenting shares, may
determine the value of those shares. The court will determine the fair cash
value per share. The costs of the proceeding, including reasonable compensation
to the appraisers, will be assessed as the court considers equitable. Fair cash
value is the amount that a willing seller, under no compulsion to sell, would
be willing to accept, and that a willing buyer, under no compulsion to
purchase, would be willing to pay. In no event will the fair cash value be in
excess of the amount specified in your demand. Fair cash value is determined as
of the day before the Armco special meeting. The amount of the fair cash value
excludes any appreciation or
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depreciation in market value of your shares resulting from the merger. The fair
cash value of your shares may be higher or lower than, or the same as, the
market value of those shares on the date of the merger.
Your right to be paid the fair cash value of the dissenting shares will
terminate if:
. for any reason the merger is not consummated,
. you vote your shares in favor of the adoption of the merger agreement,
. you fail to make a timely written demand on Armco,
. you do not, upon request of Armco, timely surrender certificates for an
endorsement of a legend that demand for the "fair cash value" of the
dissenting shares has been made,
. you withdraw your demand, with the consent of the Armco board of
directors, or
. you and Armco have not come to an agreement as to the fair cash value of
the dissenting shares and you have not filed a complaint in court within
the prescribed time period.
From the time you make your demand, your rights as a stockholder of Armco
will be suspended. If Armco pays a cash dividend during the suspension,
dissenting stockholders will be paid an equal amount of cash, but the amount of
the fair cash value will be reduced by the amount paid. If the right to receive
fair cash value is terminated, all rights with respect to dissenting shares
will be restored to you.
If holders of shares of Armco common stock or preferred stock exercise
appraisal rights representing 10% or more of the value of the Armco common
stock or preferred stock to be received by AK Holding, the ability of the
merger to qualify as a pooling of interests for accounting and financial
reporting purposes may be affected adversely. This 10% threshold may be
reduced. The qualification of the merger for pooling of interests accounting is
not a condition of either parties' obligation to complete the merger. See "The
Merger--Anticipated Accounting Treatment."
AK Holding Stockholders
Under the Delaware General Corporation Law, AK Holding stockholders do not
have any appraisal rights or dissenters' rights.
Stock Exchange Listing
The shares of AK Holding common stock and preferred stock to be issued in
the merger will be listed on the New York Stock Exchange.
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THE MERGER AGREEMENT
The following describes the material provisions of the merger agreement.
This description is qualified in its entirety by reference to the merger
agreement itself, a copy of which is attached as Annex A to this document. You
should read the merger agreement in its entirety because it is the legal
document that governs the merger.
Effective Time
Promptly after the satisfaction or waiver of the conditions to the merger
set forth in the merger agreement, we will file a certificate of merger
concurrently with the Secretary of State of Delaware and the Secretary of State
of Ohio. When these filings have been made, Armco will be merged with and into
AK Steel Corporation and its separate corporate existence will cease. AK Steel,
which will succeed to all of Armco's assets and business, will remain a direct,
wholly-owned subsidiary of AK Holding.
What Armco Stockholders Will Receive in the Merger
Armco Common Stock
Each share of Armco common stock will be converted into the right to receive
a fraction of a share of AK Holding common stock including all associated
preferred stock purchase rights based on an exchange ratio calculated as
follows:
If the average closing price per share of AK Holding common stock during the
ten consecutive trading days ending on the sixth trading day prior to the Armco
stockholders' meeting is:
(1) greater than $28.21, the exchange ratio will be $8.00 divided by
the average closing price;
(2) equal to or greater than $26.44 but less than or equal to $28.21,
the exchange ratio will be fixed at 0.2836;
(3) equal to or greater than $22.00 but less than $26.44, the exchange
ratio will be $7.50 divided by the average closing price; or
(4) less than $22.00, the exchange ratio will be fixed at 0.3409,
subject to Armco's right to call off the merger, as discussed below.
If the average closing price during this period is less than $22.00, Armco will
have the right to call off the merger, unless AK Holding elects to increase the
exchange ratio so that the product of the exchange ratio and the average
closing price will equal $7.50. The average closing price will be computed by
taking the average of the closing price of AK Holding common stock on the New
York Stock Exchange over the ten consecutive trading days ending on the sixth
trading day prior to the Armco stockholders' meeting. The preferred stock
purchase rights will be issued under AK Holding's stockholders' rights plan and
will not trade separately unless takeover-related events occur with respect to
AK Holding. See "Description of Capital Stock of AK Holding."
Please see the table on page 2 that illustrates market value of the
fractional share of AK Holding common stock to be received by Armco
stockholders assuming various exchange ratios and average closing prices.
Armco Preferred Stock
Each share of Armco Class A $3.625 cumulative convertible preferred stock
will be converted into the right to receive one share of a newly-issued series
of AK Holding preferred stock having substantially the same rights, privileges
and restrictions as the Armco Class A $3.625 cumulative convertible preferred
stock. Because the merger will constitute a "Change of Control" of Armco under
the terms of the Armco Class A $3.625 cumulative convertible preferred stock,
the new AK Holding preferred stock will include a provision that preserves the
rights of a holder of the Armco Class A $3.625 cumulative convertible preferred
stock arising as a result of the change of control.
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Each share of Armco Class A $2.10 cumulative convertible preferred stock and
Class B preferred stock will be converted into the right to receive cash in an
amount equal to its redemption value, plus accrued dividends. The redemption
value of the Class A $2.10 cumulative preferred stock is $40 per share, and the
redemption value of the Class B preferred stock is $50 per share. While you may
elect to receive the number of shares of AK Holding common stock you would be
entitled to receive if you were to convert your preferred stock into Armco
common stock immediately prior to the effective date of the merger, the
redemption value of your preferred stock is greater than the value of the AK
Holding common stock you would receive if you were to exercise that election.
Bases of any Future Determination by Armco to Terminate and by AK Holding to
Increase the Exchange Ratio
The average closing price of AK Holding common stock for the ten consecutive
trading days ending on the sixth trading day before the Armco special meeting
will not be known until the close of trading on September 21, 1999. Armco has
made no decision as to whether it would call off the merger if the average
closing price is less than $22.00. Should this occur, Armco's board of
directors would consult with Armco's management and financial and legal
advisors and, consistent with its fiduciary duties, consider whether the
proposed merger continues to be in the best interests of Armco and its
stockholders. In its consideration, Armco's board of directors would take into
account the relevant facts and circumstances that exist at that time, including
general and specific market, economic and business conditions and other
opportunities available to Armco.
AK Holding also has made no decision as to whether, if the average closing
price is less than $22.00, it would elect to increase the exchange ratio to
provide holders of Armco common stock with a fraction of a share of AK Holding
common stock having a market value of $7.50 for each share of Armco common
stock. If that decision is required to be made, AK Holding's board of directors
would consult with AK Holding's management and legal and financial advisors and
take into account, consistent with its fiduciary duties, all relevant facts and
circumstances that exist at that time, including:
. the amount of the decrease in the value of AK Holding common stock to be
issued in the merger;
. general market, economic and business conditions;
. the extent of the dilution, or reduced accretion, in earnings of AK
Holding that would result from an increase in the number of shares to be
issued;
. other opportunities available to AK Holding; and
. whether the proposed merger, after giving effect to the increase in the
exchange ratio, continues to be in the best interests of AK Holding.
Armco Stock Options and Restricted Stock
Each outstanding Armco stock option will become an option to acquire a
number of shares of AK Holding common stock equal to the shares subject to the
option multiplied by the exchange ratio, with the exercise price being adjusted
by dividing the current exercise price by the exchange ratio. Under Armco's
plans and related agreements, all or substantially all of these options
automatically will vest at the time of the merger.
Exchange of Armco Common and Preferred Stock
AK Holding will appoint an exchange agent to handle the exchange of Armco
common stock certificates and preferred stock certificates in the merger. Soon
after the closing of the merger, the exchange agent will send to each holder of
Armco common stock and preferred stock a letter of transmittal for use in the
exchange and instructions explaining how to surrender certificates to the
exchange agent. Holders who surrender their certificates to the exchange agent,
together with a properly completed letter of transmittal, will receive the
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appropriate merger consideration. Holders of unexchanged stock certificates
will receive any dividends payable by AK Holding after the closing of the
merger only after their certificates are surrendered. Armco stockholders should
not return stock certificates with the enclosed proxy card.
No fractional shares of AK Holding common stock will be issued in the
merger. For each fractional share of AK Holding common stock that would
otherwise be issued to any holder of Armco shares, the exchange agent will pay
that holder an amount equal to either:
(1) the holder's proportionate share of the proceeds from a sale of AK
Holding common stock in which the number of shares sold is equal to the
total amount of all of the fractional shares that would have otherwise
been issued to all of these holders; or
(2) at the option of AK Holding, the product obtained by multiplying:
(A) the fractional share interest to which that holder would otherwise
have been entitled, by
(B) the closing price for a share of AK Holding common stock on the
NYSE on the effective date of the merger.
If your Armco stock certificates have been lost, stolen or destroyed, you
will only be entitled to obtain AK Holding common or preferred stock or other
merger consideration by providing an affidavit of loss and, if required by AK
Holding, posting a bond in an amount sufficient to protect AK Holding against
claims related to your Armco certificates.
Representations and Warranties and Covenants
Representations and Warranties.
The merger agreement contains customary representations and warranties from
AK Holding and Armco to the other about themselves and their subsidiaries.
Conduct of Business by Armco.
Armco has agreed to conduct its business in the ordinary course of business
consistent with past practice. Armco has agreed to, and to cause each of its
subsidiaries to, try to preserve its business organizations, keep available the
services of its present officers and employees and preserve its relationships
with customers, suppliers and others with whom it has business relations. In
particular, Armco has agreed not to engage in specified material transactions.
Conduct of Business by AK Holding.
AK Holding has agreed to restrictions that limit its ability, prior to the
closing of the merger, to amend its organizational documents, pay dividends or
make distributions, other than a regular quarterly dividend on its common stock
that does not exceed $0.125 per share, take any action that would limit the
ability of the merger to qualify for the desired accounting and tax treatment
or take any other actions that would result in the inability of AK Holding to
satisfy conditions to the merger.
No Solicitation.
Armco has agreed not to directly or indirectly solicit, initiate or
encourage a third party to make a proposal to it regarding any merger,
consolidation, share exchange, recapitalization, business combination, or
similar transaction, including any tender or exchange offer in which the third
party would acquire 20% or more of its common stock or a sale or other
disposition of all or substantially all of its assets.
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Armco may enter into discussions and negotiations with a party making an
acquisition proposal if:
. after consultation with its legal counsel, Armco's board of directors
determines in good faith that entering these negotiations is necessary
for the board properly to discharge its fiduciary duties;
. Armco's board of directors determines that the acquisition proposal is
reasonably likely to be consummated;
. after consultation with its financial advisor, Armco's board of directors
determines that the acquisition proposal would be more favorable from a
financial point of view to its stockholders than the merger;
. Armco delivers notice to AK Holding of the proposal; and
. the party making the proposal enters into a customary confidentiality and
standstill agreement.
Duty to Recommend.
Armco has agreed in the merger agreement to recommend to its stockholders
the adoption of the merger agreement. Armco's board of directors is not
permitted by the merger agreement to withdraw or modify its recommendation
unless:
. Armco has complied with the solicitation procedures described above;
. there is a pending proposal for a transaction that is more favorable from
a financial point of view to Armco's stockholders;
. Armco's board of directors determines that this action is necessary to
comply with its fiduciary duties; and
. Armco delivers notice to AK Holding that it intends to take this action.
Consents and Approvals.
AK Holding and Armco have agreed to make all filings, including those under
the Hart-Scott-Rodino Act, and to use their reasonable best efforts to obtain
all consents and approvals required in connection with the closing of the
transactions contemplated by the merger agreement.
Indemnification and Insurance.
See "Interests of Armco Officers and Directors in the Merger."
Employee Benefits.
Following the merger, the combined company will honor Armco's and all of
Armco's subsidiaries' employment, consulting, termination, severance, change in
control and indemnification agreements with any current or former officer,
director, consultant or employee.
Expenses.
Whether or not the merger is completed, all expenses incurred in connection
with the merger agreement and the transactions contemplated by the merger
agreement will be paid by the party incurring the expenses, except that the
costs of filing, printing and mailing the joint proxy statement/prospectus will
be shared equally by AK Holding and Armco and except as described below under
"Termination Fees."
55
<PAGE>
Conditions to the Merger
Conditions to Obligation of Each Party to Complete the Merger.
Each of AK Holding's and Armco's respective obligations to complete the
merger are subject to the satisfaction of the following conditions:
. Effectiveness of the Registration Statement. The registration statement
of which this document is a part has been declared effective and the SEC
has not issued any stop order suspending its effectiveness, nor has it
started or threatened any proceedings for that purpose;
. Stockholder Approval. The Armco stockholders have adopted the merger
agreement and the AK Holding stockholders have approved the issuance of
the AK Holding common stock in connection with the merger;
. Listing. The AK Holding common stock to be issued in connection with the
merger has been approved for listing on the NYSE; and
. Government Actions. No law, court order or rule of a governmental entity
prohibits the closing of the merger or only permits the closing subject
to conditions or restrictions that have or are reasonably expected to
have, individually or in the aggregate, a material adverse effect on
Armco and its subsidiaries, taken as a whole, or an effect on AK Holding
and its subsidiaries that, if it had the same effect on Armco would be,
or would be reasonably expected to be, materially adverse to Armco and
its subsidiaries, taken as a whole.
Additional Conditions to the Obligation of AK Holding to Complete the Merger.
The obligation of AK Holding to complete the merger is also subject to the
following conditions:
. Representations and Warranties. The representations and warranties of
Armco in the merger agreement are true and correct as of the closing of
the merger in all material respects;
. Covenants. Armco has complied in all material respects with all covenants
required to be complied with by it under the merger agreement;
. Tax Opinion. AK Holding has received the written opinion of Weil, Gotshal
& Manges LLP with respect to the tax-free nature of the merger;
. Pending or Threatening Governmental Action. There is no pending or
threatened governmental action that :
--seeks to restrain or prohibit the merger;
--seeks to limit or restrict the ownership or operation of Armco's
business or assets;
--has or is reasonably expected to have, individually or in the
aggregate, a material adverse effect on Armco and its subsidiaries
taken as a whole or AK Holding and its subsidiaries taken as a whole.
. Insurance Approvals. AK Holding, AK Steel and Armco have obtained
material consents and approvals from the relevant state insurance and
regulatory agencies. These consents must be in full force and effect and
may not limit or restrict the subsidiaries currently engaged in the
insurance business or AK Holding, AK Steel or Armco in any way;
. Third Party Consents. Armco has obtained material third party consents;
and
. Affiliate Letters. At least 45 days prior to the AK Holdings
stockholders' meeting, AK Holding has received letters from affiliates
of Armco agreeing to abide by the resale restrictions applicable to
affiliates of Armco. See "Resale Restrictions."
. Incentive Plans. Armco's board of directors has adopted agreed-upon
changes to its incentive plans.
56
<PAGE>
Additional Conditions to Obligation of Armco to Complete the Merger.
The obligation of Armco to complete the merger is also subject to the
following conditions:
. Representations and Warranties. The representations and warranties of AK
Holding in the merger agreement are true and correct as of the closing
of the merger in all material respects;
. Covenants. AK Holding has complied in all material respects with all
covenants required to be complied with by it under the merger agreement;
. Tax Opinion. Armco has received the written opinion of Arnold & Porter
with respect to the tax-free nature of the merger; and
. Affiliate Letters. At least 45 days prior to the Armco stockholders'
meeting, Armco has received letters from affiliates of AK Holding
agreeing to abide by the resale restrictions applicable to affiliates of
AK Holding. See "Resale Restrictions."
Termination
The merger agreement may be terminated at any time prior to the closing of
the merger, despite the adoption of the merger agreement by the Armco
stockholders and the approval by AK Holding stockholders of the issuance of AK
Holding common stock in connection with the merger:
. by mutual written consent of the boards of directors of both Armco and AK
Holding;
. by either of AK Holding or Armco if:
--the merger has not been completed by December 31, 1999 or by March
31, 2000 if the merger is not completed by December 31, 1999 solely
because of a failure to obtain requisite governmental consents or
approvals;
--the Armco stockholders do not vote to adopt the merger agreement at
the Armco stockholder meeting;
--the AK Holding stockholders do not vote to approve the issuance of AK
Holding common stock at the AK Holding stockholder meeting;
--a law or court order permanently prohibits the merger;
--a governmental entity fails to take any action necessary to fulfill
the conditions to the merger relating to antitrust, governmental
approvals, pending or threatened governmental action and insurance
approvals, and the denial has become final and non-appealable;
--the other party's board of directors withdraws or modifies its
recommendation of the merger or share issuance in a manner adverse to
the terminating party; or
--the other party breaches any representation, warranty, covenant or
agreement contained in the merger agreement and the breach remains
uncured after 15 days notice and would give rise to a failure of a
closing condition.
. by Armco if:
--prior to receipt of the requisite vote of the Armco stockholders:
. Armco has entered into discussions and negotiations with a party
making an acquisition proposal in accordance with the terms of the
merger agreement;
. after consultation with its legal counsel, Armco's board of
directors determines in good faith that terminating the merger
agreement is necessary for the board to discharge properly its
fiduciary duties;
57
<PAGE>
. subject to complying with the terms of the merger agreement, Armco's
board of directors authorizes Armco to enter into a transaction
that it determines is superior from a financial point of view;
. after giving AK Holding an opportunity to make a superior proposal,
Armco's board of directors concludes that the third party proposal
remains the superior proposal; and
. prior to termination Armco pays AK Holding the fees described below
under "Effect of Termination."
--AK Holding elects not to raise the exchange ratio when the average
closing price of AK Holding common stock is less than $22.00.
. by AK Holding if:
--Armco enters into an agreement for a transaction that it determines
is superior from a financial point of view; or
--Armco enters into or modifies any labor or collective bargaining
agreement and AK Holding believes, in its sole discretion, that the
agreement or modification would reasonably be expected to have,
individually or in the aggregate, a material adverse effect on Armco
and its subsidiaries
Termination Fees.
The merger agreement requires Armco to pay AK Holding a fee of $30,000,000
in cash, and reimburse all of AK Holding's expenses up to a maximum of
$5,000,000, if:
. the merger agreement is terminated by Armco because Armco accepts a
superior proposal and, after giving AK Holding an opportunity to make a
superior proposal, the Armco board of directors concludes that the third
party proposal remains the superior proposal;
. the merger agreement is terminated by AK Holding because Armco enters
into a binding agreement for a superior proposal, or Armco's board of
directors withdraws its approval or recommendation of the merger; or
. the merger agreement is terminated by AK Holding and any acquisition
proposal is entered into, agreed to or consummated by Armco within 18
months of the termination of the merger agreement because either Armco
did not obtain the requisite vote at its stockholders' meeting or there
is a breach by Armco that was not cured after 15 days notice, and this
breach would give rise to a failure of a closing condition.
The merger agreement requires AK Holding to pay Armco $3,500,000 in respect
of its expenses, subject to repayment if Armco sells its Sawhill Tubular
division within 18 months following the termination of the merger agreement, if
all other closing conditions are satisfied and AK Holding's board of directors
withdraws its recommendation of the merger, and AK Holding could not terminate
the merger agreement on another basis.
Amendments
AK Holding and Armco may amend the merger agreement at any time prior to
closing of the merger. However, after adoption of the merger agreement by the
Armco stockholders and approval of the issuance of AK Holding common stock by
the AK Holding stockholders, the merger agreement may not be amended without
stockholder approval unless permitted by applicable law.
58
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The merger is to be accounted for in accordance with the pooling of
interests method of accounting pursuant to APB Opinion No. 16. Accordingly, the
accompanying unaudited pro forma combined condensed financial information gives
effect to the transaction in accordance with the pooling of interests method of
accounting. Pursuant to Rule 11-02 of Regulation S-X~ the unaudited pro forma
combined condensed financial information excludes the results of discontinued
operations, extraordinary items and cumulative effects of a change in
accounting.
The unaudited pro forma combined condensed financial information should be
read in conjunction with AK Holding's and Armco's audited consolidated
financial statements and accompanying notes included in their respective annual
reports on Form 10-K for the years ended December 31, 1996, 1997 and 1998 and
AK Holding's and Armco's unaudited condensed consolidated financial statements
and accompanying notes included in their respective quarterly reports on Form
10-Q for the six months ended June 30, 1998 and 1999.
The unaudited pro forma combined condensed financial information has been
prepared in accordance with generally accepted accounting principles. These
principles require management to make extensive use of estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
unaudited pro forma combined condensed results of operations are not indicative
of the operating results that would have been achieved if the merger had been
consummated on January 1, 1996, nor are they necessarily indicative of future
operating results.
The unaudited pro forma combined condensed balance sheet gives effect to the
merger as if it had occurred on June 30, 1999 by combining the balance sheets
of each of AK Holding and Armco at June 30, 1999. The unaudited pro forma
combined condensed statements of continuing operations give effect to the
merger as if it had occurred on January 1, 1996.
59
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF CONTINUING OPERATIONS
For the Year Ended December 31, 1996
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
AK Holding Armco Combined Total Pro Forma
Historical Historical Historical Adjustments Combined
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $2,301.8 $1,724.0 $4,025.8 $(29.3)(1) $3,996.5
Operating costs:
Cost of products
sold................. 1,846.5 1,548.4 3,394.9 (56.3)(2) 3,314.3
(24.3)(1)
Selling and
administrative
expenses............. 114.7 92.1 206.8 (2.4)(2) 204.4
Depreciation.......... 76.1 76.1 58.7 (2) 134.8
Special charges....... 8.8 8.8 8.8
-------- -------- -------- --------
Total Operating
costs.............. 2,037.5 1,649.3 3,686.6 3,662.3
Operating profit........ 264.5 74.7 339.2 334.2
Interest income......... 10.1 10.1 (10.1)(3)
Interest expense........ 39.8 36.3 76.1 76.1
Other income............ 12.3 12.3 10.1 (3) 22.4
Sundry other, net....... (21.1) (21.1) (21.1)
-------- -------- -------- --------
Income before income
taxes.................. 237.0 27.4 264.4 259.4
Income tax provision.... 91.1 1.4 92.5 72.2 (4) 162.7
(2.0)(1)
Minority interest....... 8.1 (5) 8.1
-------- -------- -------- --------
Income from continuing
operations............. $ 145.9 $ 26.0 $ 171.9 $ 88.6
======== ======== ======== ========
Income per share of
common stock from
continuing operations:*
Basic**............... $ 2.57 $ 0.08 $ 0.82 (6)
======== ======== ========
Diluted............... $ 2.35 $ 0.08 $ 0.90 (6)
======== ======== ========
Weighted average number
of shares of common
stock (in thousands):*
Basic................. 52,400 106,600 82,497 (6)
======== ======== ========
Diluted............... 62,100 106,600 98,295 (6)
======== ======== ========
</TABLE>
- --------
* AK Holding Historical restated for a two-for-one common stock split effective
November 17, 1997.
**$20.9 million of preferred dividends were excluded from the basic earnings
per share calculation.
See accompanying notes to unaudited pro forma combined condensed financial
information.
60
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF CONTINUING OPERATIONS
For the Year Ended December 31, 1997
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
AK Holding Armco Combined Total Pro Forma
Historical Historical Historical Adjustments Combined
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $2,440.5 $1,829.3 $4,269.8 $(32.4)(1) $4,237.4
Operating costs:
Cost of products
sold................. 1,964.5 1,623.9 3,588.4 (59.0)(2) 3,499.7
(29.7)(1)
Selling and adminis-
trative expenses..... 114.8 100.0 214.8 (2.3)(2) 212.5
Depreciation.......... 79.8 79.8 61.3 (2) 141.1
-------- -------- -------- ------ --------
Total Operating
costs.............. 2,159.1 1,723.9 3,883.0 3,853.3
Operating profit........ 281.4 105.4 386.8 384.1
Interest income......... 10.6 10.6 (10.6)(3)
Interest expense........ 76.3 35.5 111.8 111.8
Other income............ 36.4 36.4 10.6 (3) 47.0
Sundry other, net....... (1.1) (1.1) (1.1)
-------- -------- -------- --------
Income before income
taxes.................. 241.5 79.4 320.9 318.2
Income tax provision.... 90.6 2.3 92.9 41.7 (4) 133.5
(1.1)(1)
Minority interest....... 8.1 (5) 8.1
-------- -------- -------- --------
Income from continuing
operations............. $ 150.9 $ 77.1 $ 228.0 $ 176.6
======== ======== ======== ========
Income per share of
common stock from
continuing operations:
Basic*................ $ 2.59 $ 0.55 $ 1.86 (6)
======== ======== ========
Diluted............... $ 2.43 $ 0.55 $ 1.79 (6)
======== ======== ========
Weighted average number
of shares of common
stock (in thousands):
Basic................. 55,200 107,000 85,398 (6)
======== ======== ========
Diluted............... 62,000 125,300 98,393 (6)
======== ======== ========
</TABLE>
- --------
* $17.5 million of preferred dividends were excluded from the basic earnings
per share calculation.
See accompanying notes to unaudited pro forma combined condensed financial
information.
61
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF CONTINUING OPERATIONS
For the Year Ended December 31, 1998
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
AK Holding Armco Combined Total Pro Forma
Historical Historical Historical Adjustments Combined
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $2,393.6 $1,706.5 $4,100.1 $(23.2) (1) $4,076.9
Operating costs:
Cost of products
sold................. 1,963.4 1,503.1 3,466.5 (60.7) (2) 3,340.2
(26.8) (1)
(38.8) (7)
Selling and
administrative
expenses............. 118.8 95.8 214.6 (2.6) (2) 212.0
Depreciation.......... 97.8 97.8 63.3 (2) 161.1
-------- -------- -------- --------
Total Operating
costs.............. 2,180.0 1,598.9 3,778.9 3,713.3
Operating profit........ 213.6 107.6 321.2 363.6
Interest income......... 9.0 9.0 (9.0) (3)
Interest expense........ 56.0 28.9 84.9 84.9
Other income............ 18.6 18.6 9.0 (3) 27.6
Sundry other, net....... 27.7 27.7
-------- -------- -------- --------
Income before income
taxes.................. 176.2 115.4 291.6 334.0
Income tax provision.... 61.7 5.8 67.5 36.0 (4) 120.0
15.1 (7)
1.4 (1)
Minority interest....... 8.1 (5) 8.1
-------- -------- -------- --------
Income from continuing
operations............. $ 114.5 $ 109.6 $ 224.1 $ 205.9
======== ======== ======== ========
Income per share of
common stock from
continuing operations:
Basic*................ $ 1.93 $ 0.85 $ 2.19 (6)
======== ======== ========
Diluted............... $ 1.92 $ 0.81 $ 2.14 (6)
======== ======== ========
Weighted average number
of shares of common
stock (in thousands):
Basic................. 59,300 107,800 89,688 (6)
======== ======== ========
Diluted............... 59,600 126,200 96,178 (6)
======== ======== ========
</TABLE>
- --------
* $9.8 million of preferred dividends were excluded from the basic earnings per
share calculation.
<TABLE>
<S> <C> <C> <C> <C> <C>
=== === ===
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
62
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF CONTINUING OPERATIONS
For the Six Month Period Ended June 30, 1998
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
AK Holding Armco Combined Total Pro Forma
Historical Historical Historical Adjustments Combined
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,200.2 $ 897.8 $2,098.0 $(15.5)(1) $2,082.5
Operating costs:
Cost of products
sold................. 986.6 800.5 1,787.1 (31.0)(2) 1,757.1
(18.4)(1)
19.4 (7)
Selling and
administrative
expenses............. 58.7 44.2 102.9 (1.1)(2) 101.8
Depreciation.......... 42.4 42.4 32.1 (2) 74.5
-------- ------- -------- --------
Total Operating
costs.............. 1,087.7 844.7 1,932.4 1,933.4
Operating profit........ 112.5 53.1 165.6 149.1
Interest income......... 4.1 4.1 (4.1)(3)
Interest expense........ 27.3 14.7 42.0 42.0
Other income............ 12.9 12.9 4.1 (3) 17.0
Sundry other, net....... 12.8 12.8 12.8
-------- ------- -------- --------
Income before income
taxes.................. 98.1 55.3 153.4 136.9
Income tax provision.... 36.3 3.9 40.2 16.1 (4) 49.8
1.1 (1)
(7.6)(7)
Minority interest....... 4.0 (5) 4.0
-------- ------- -------- --------
Income from continuing
operations............. $ 61.8 $ 51.4 $ 113.2 $ 83.1
======== ======= ======== ========
Income per share of
common stock from
continuing operations:
Basic*................ $ 1.04 $ 0.39 $ 0.87 (6)
======== ======= ========
Diluted............... $ 1.03 $ 0.38 $ 0.86 (6)
======== ======= ========
Weighted average number
of shares of common
stock (in thousands):
Basic................. 59,600 107,600 89,988 (6)
======== ======= ========
Diluted............... 59,900 126,100 96,476 (6)
======== ======= ========
</TABLE>
- --------
* $4.9 million of preferred dividends were excluded from the basic earnings per
share calculation.
See accompanying notes to unaudited pro forma combined condensed financial
information.
63
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF CONTINUING OPERATIONS
For the Six Month Period Ended June 30, 1999
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
AK Holding Armco Combined Total Pro Forma
Historical Historical Historical Adjustments Combined
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,314.8 $ 876.1 $2,190.9 $(15.3)(1) $2,175.6
Operating costs:
Cost of products
sold................. 1,084.0 757.0 1,841.0 (31.7)(2) 1,796.3
(11.8)(1)
(1.2)(7)
Selling and
administrative
expenses............. 62.8 53.9 116.7 (1.5)(2) 115.2
Depreciation.......... 67.1 67.1 33.2 (2) 100.3
-------- ------- -------- --------
Total Operating
costs.............. 1,213.9 810.9 2,024.8 2,011.8
Operating profit........ 100.9 65.2 166.1 163.8
Interest income......... 4.3 4.3 (4.3)(3)
Interest expense........ 48.7 11.3 60.0 60.0
Other income............ 5.6 5.6 4.3 (3) 9.9
Sundry other, net....... 10.8 10.8 10.8
-------- ------- -------- --------
Income before income
taxes.................. 57.8 69.0 126.8 124.5
Income tax provision.... 10.3 10.0 20.3 18.1 (4) 36.5
(1.4)(1)
(0.5)(7)
Minority interest....... 4.0 (5) 4.0
-------- ------- -------- --------
Income from continuing
operations............. $ 47.5 $ 59.0 $ 106.5 $ 84.0
======== ======= ======== ========
Income per share of
common stock from
continuing operations:
Basic*................ $ 0.80 $ 0.46 $ 0.88(6)
======== ======= ========
Diluted............... $ 0.79 $ 0.43 $ 0.87(6)
======== ======= ========
Weighted average number
of shares of common
stock (in thousands):
Basic................. 59,300 108,500 89,909(6)
======== ======= ========
Diluted............... 59,900 127,000 96,933(6)
======== ======= ========
</TABLE>
- --------
* $4.9 million of preferred dividends were excluded from the basic earnings per
share calculation.
See accompanying notes to unaudited pro forma combined condensed financial
information.
64
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
At June 30, 1999
(dollars in millions)
<TABLE>
<CAPTION>
AK Holding Armco Combined Pro Forma Pro Forma
ASSETS Historical Historical Historical Adjustments Combined
------ ---------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents.......... $ 141.3 $ 151.2 $ 292.5 $(119.0) (8) $ 153.5
(20.0) (8)
Short-term
investments.......... 25.1 25.1 25.1
Accounts receivable,
net.................. 321.0 223.0 544.0 544.0
Inventories, net...... 408.6 242.6 651.2 (7.6) (10) 643.6
Other................. 11.6 10.6 22.2 (8.7) (11) 13.5
-------- -------- -------- ---------
Total Current
Assets............. 882.5 652.5 1,535.0 1,379.7
-------- -------- -------- ---------
Property, plant and
equipment.............. 3,078.5 1,357.7 4,436.2 4,436.2
Less accumulated
depreciation........... (748.8) (746.0) (1,494.8) (1,494.8)
-------- -------- -------- ---------
Property, plant and
equipment, net....... 2,329.7 611.7 2,941.4 2,941.4
-------- -------- -------- ---------
Investment in AFSG...... 85.6 85.6 85.6
Other investments, net.. 26.0 26.0 (26.0) (13)
Prepaid pension......... 172.4 172.4 (34.7) (11) 137.7
Deferred taxes.......... 309.1 309.1 (69.2) (11) 481.4
239.6 (4)
0.5 (7)
1.4 (10)
Goodwill................ 125.6 125.6 125.6
Other................... 64.4 19.2 83.6 26.0 (13) 109.6
-------- -------- -------- ---------
Total Assets........ $3,449.0 $1,829.7 $5,278.7 $5,261.0
======== ======== ======== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts and notes
payable.............. $ 289.2 $ 120.8 $ 410.0 $ 410.0
Accrued salaries and
wages................ $ 75.3 (12) 75.3
Employment related
liabilities.......... 125.3 125.3 (125.3) (12)
Other accruals........ 188.3 53.5 241.8 (15.4) (12) 226.4
Current portion of
deferred taxes....... 18.7 18.7 (8.7) (11) 10.0
Current portion of
long-term debt....... 5.9 5.9 5.9
Current portion of
pension obligation... 1.5 (12) 1.5
Current portion of
postretirement
benefit obligation... 63.9 (12) 63.9
-------- -------- -------- ---------
Total Current
Liabilities........ 496.2 305.5 801.7 793.0
-------- -------- -------- ---------
Noncurrent Liabilities:
Long-term debt........ 1,280.0 247.8 1,527.8 1,527.8
Long-term pension
obligation........... 33.4 (12)
(34.7) (11)
1.3 (7)
Long-term
postretirement
benefit obligation... 584.3 584.3 829.8 (12) 1,414.0
(0.1) (7)
Long-term employee
benefit liabilities.. 882.2 882.2 (882.2) (12)
Deferred taxes........ 69.2 69.2 (69.2) (11)
Other liabilities..... 61.9 158.7 220.6 19.0 (12) 239.6
Commitments and
contingencies........
-------- -------- -------- ---------
Total Noncurrent
Liabilities........ 1,995.4 1,288.7 3,284.1 3,181.4
-------- -------- -------- ---------
Total Liabilities... 2,491.6 1,594.2 4,085.8 3,974.4
-------- -------- -------- ---------
Stockholders' Equity:
Preferred stock, Class
A.................... 137.6 137.6 (7.2) (8) 130.4
(130.4) (8)
130.4 (8)
Preferred stock, Class
B ................... 48.3 48.3 (48.3) (8)
Common stock.......... 0.6 1.1 1.7 (1.1) (8) 0.9
0.3 (8)
Additional paid-in-
capital.............. 730.5 975.6 1,706.1 (975.9) (8) 1,641.3
914.3 (8)
(3.2) (14)
Treasury stock........ (89.0) (89.0) (89.0)
Retained
earnings/(deficit)... 313.8 (921.0) (607.2) (1.1) (8) (395.6)
239.6 (4)
(6.2) (10)
(0.7) (7)
(20.0) (9)
Accumulated other
comprehensive income
(loss)............... 1.5 1.5 (2.9) (14) (1.4)
Other................. (6.1) (6.1) 6.1 (14)
-------- -------- -------- ---------
Total Stockholders'
Equity............... 957.4 235.5 1,192.9 1,286.6
-------- -------- -------- ---------
Total Liabilities and
Stockholders'
Equity............... $3,449.0 $1,829.7 $5,278.7 $5,261.0
======== ======== ======== =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
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NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
(1) Represents the elimination of sales between AK Holding and Armco.
(2) Represents a reclassification of depreciation expense to conform the
presentation of Armco results to that of AK Holding.
(3) Represents a reclassification of interest income to conform the
presentation of Armco results to that of AK Holding.
(4) Represents an adjustment to the deferred tax asset and income tax
provision as a result of the merger. Deferred tax assets have been
adjusted based upon a revised assessment of the expected realization of
future tax benefits. The income tax provision has been adjusted to reflect
the operations of the combined company.
(5) Represents a reclassification of Armco's dividends on preferred stock to a
component of income from continuing operations to conform the presentation
of Armco results to that of AK Holding.
(6) The pro forma combined per share amounts are based upon the combined
weighted average of AK Holding and Armco common stock outstanding for all
periods presented based upon Armco stockholders receiving 0.2836 of a
share of AK Holding common stock for each share of Armco common stock
held.
(7) Represents an adjustment necessary to conform the results of AK Holding's
method of accounting for pension and postretirement benefits to that of
Armco as a result of Armco's change in accounting in 1998. Prior to 1998,
AK Steel and Armco were both amortizing unrecognized gains and losses on
pensions and postretirement benefits using the minimum amortization
approach under SFAS 87 and SFAS 106. In 1998, Armco changed its
amortization method to provide for immediate recognition into income of
all gains and losses in excess of the 10 percent corridor. Gains and
losses that fall within the 10 percent corridor are amortized over the
remaining service life of active participants. We believe that the
amortization method used by Armco is the preferable method because it will
accelerate the recognition into income of events that have occurred. This
change will have a continuing impact on the combined company and may
increase the sensitivity of its results of operations in periods of market
volatility.
(8) Represents the redemption of the Armco $2.10 Class A series and Class B
series of preferred stock, the conversion of the Armco $3.625 Class A
series of preferred stock to an identical series of AK Holding preferred
stock, and the conversion of Armco common stock into AK Holding common
stock and reflects the impact of pro forma adjustments.
(9) AK Holding estimates it will incur direct transaction costs of
approximately $20.0 million associated with the merger. Those costs
consist primarily of investment banking, legal, accounting, printing, and
regulatory filing fees. The unaudited pro forma combined condensed balance
sheet reflects such expenses as if they had been paid as of June 30, 1999.
Pro forma net income and earnings per share do not reflect these one-time
transaction costs. In addition, as a result of the merger, AK Holding
estimates it will incur additional one-time charges to the results of
operations of the combined company that could range from $230.0 million to
$275.0 million. These special charges were not included in the unaudited
pro forma combined condensed statements of operations and balance sheet
and are estimated as follows:
<TABLE>
<CAPTION>
Range
-----------------
<S> <C> <C> <C>
Facilities............................................... $ 70.0 -- $ 85.0
Employee related......................................... 120.0 -- 140.0
Change in control........................................ 40.0 -- 50.0
------ ------
Total................................................ $230.0 -- $275.0
</TABLE>
AK Holding is still developing the details of these estimated one-time
special charges. Once the appropriate accounting criteria are met, these
charges will be recorded in AK Holding's results of operations.
(10) Represents the elimination of the profit on sales between AK Holding and
Armco included in ending inventory.
(11)Represents a reclassification necessary to net the deferred tax and pension
assets and liabilities.
(12) Represents the reclassification of employment-related liabilities and
long-term employee benefit liabilities to conform the presentation of
Armco results to that of AK Holding.
(13) Represents a reclassification of other investments, net to conform the
presentation of Armco results to that of AK Holding.
(14) Represents a reclassification of other stockholders' equity to conform the
presentation of Armco results to those of AK Holding.
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DESCRIPTION OF CAPITAL STOCK OF AK HOLDING
AK Holding's authorized capital stock consists of 200,000,000 shares of
common stock, par value $.01 per share, and 25,000,000 shares of preferred
stock, par value $.01 per share. The following is a summary of all the material
provisions of the common stock and preferred stock. This summary is subject to,
and qualified in its entirety by, the provisions of the certificate of
incorporation and bylaws of AK Holding and by applicable law. AK Holding is a
Delaware corporation and is subject to the Delaware General Corporation Law.
Common Stock
The holders of AK Holding common stock are entitled to one vote for each
share on all matters voted on by the stockholders. The holders of AK Holding
common stock do not have any conversion, redemption or preemptive rights. The
holders of AK Holding common stock are entitled to dividends as declared by the
board of directors of AK Holding. On liquidation, holders are entitled to
receive on a pro rata basis all assets of AK Holding available for distribution
to the holders of common stock. The rights and dividends upon liquidation may
be junior to the rights of holders of any preferred stock.
Preferred Stock
There were no shares of AK Holding preferred stock outstanding as of August
2, 1999. The board of directors of AK Holding is authorized to provide for the
issuance of an aggregate of 25,000,000 shares of preferred stock, in one or
more series, and to fix for each series:
. the voting rights,
. the designation and number of shares,
. the dividend rate,
. the dates of payment of dividends on shares and the dates from which
they are cumulative,
. the redemption rights of AK Holding and the price or prices at which
shares may be redeemed,
. the amount or amounts payable on any voluntary or involuntary
liquidation, dissolution or winding up of AK Holding,
. the amount of the sinking fund, if any, to be applied to the purchase or
redemption of shares and the manner of its application,
. whether the shares will be made convertible into, or exchangeable for,
shares of any other class or classes or of any other series of the same
class of stock of AK Holding, and if made so, on what terms,
. whether the issue of any additional shares of this series or any future
series or any other class of stock will have any restrictions and, if
so, the nature of these restrictions, and
. any other designations, powers, preferences, rights, qualifications,
limitations and restrictions as are permitted by the Delaware General
Corporation Law.
In connection with a stockholders' rights plan, the board of directors of AK
Holding authorized the issuance of up to 400,000 shares of AK Holding preferred
stock designated as the Series A junior preferred stock. The board of directors
has also authorized the issuance of up to 2,700,000 shares of AK Holding
preferred stock designated as the Series B $3.625 cumulative convertible
preferred stock. This $3.625 preferred stock will be issued pursuant to the
merger in exchange for the Armco Class A $3.625 cumulative convertible
preferred stock and will have rights identical in all material respects to the
Armco Class A $3.625 cumulative convertible preferred stock for which it is
exchanged.
A copy of the form of certificate of designation relating to the Series B
$3.625 cumulative convertible preferred stock of AK Holding is attached as
Annex F to this document. You should read the certificate of designation in its
entirety because it is the legal instrument that governs the rights of holders
of that preferred stock.
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AK Holding Series B $3.625 Cumulative Convertible Preferred Stock
The $3.625 cumulative convertible preferred stock to be issued pursuant to
the merger will rank senior to the common stock with respect to dividends and
liquidating distribution and will rank senior to all other outstanding shares
of preferred stock, if any.
Dividends
The holders of the $3.625 preferred stock are entitled to receive
cumulative annual dividends at the rate of $3.625 per share, payable quarterly
on March 31, June 30, September 30 and December 31 of each year out of the
assets of AK Holding available for the payment of dividends to the extent
permitted by law.
Redemption or Repurchase
If all accrued dividends on the $3.625 preferred stock are paid in full, AK
Holding may at any time,
. redeem all or any part of the $3.625 preferred stock, at prices, plus
accrued and unpaid dividends, starting at $51.45 per share during the
12-month period commencing October 15, 1998 and declining to $50.00 per
share on and after October 15, 2002 or
. repurchase all or any part of the $3.625 preferred stock.
No Preemptive Rights or Sinking Fund
The holders of $3.625 preferred stock have no preemptive or other rights to
subscribe for any additional shares of $3.625 preferred stock or any shares of
any other class of capital stock. No shares of $3.625 preferred stock are
subject to a sinking fund.
Liquidation Preference
Upon any liquidation, dissolution or winding up of AK Holding, whether
voluntary or involuntary, the holders of $3.625 preferred stock shall be
entitled to receive $50 per share, plus accrued and unpaid dividends, for each
share of $3.625 preferred stock out of the assets of AK Holding available for
distribution to stockholders before any distribution of assets is made to or
set apart for the holders of common stock.
Conversion Rights
Assuming an exchange ratio of 0.2836, the $3.625 preferred stock is
convertible at the holder's option, at any time, into shares of common stock
at a conversion rate of 1.9228 shares of common stock for each share of $3.625
preferred stock, subject to specified adjustments.
Voting Rights
The holders of $3.625 preferred stock are entitled to one vote for each
share on all matters voted on by the stockholders. If the equivalent of six
quarterly dividends payable on the $3.625 preferred stock or any other series
of preferred stock is in arrears, the number of directors of AK Holding shall
be increased by two and the holders of all outstanding shares of preferred
stock, voting as a separate class, shall elect the additional directors.
The holders of $3.625 preferred stock also have separate class voting
rights with respect to any proposal to
. increase the authorized number of shares of preferred stock above the
25,000,000 shares currently authorized by AK Holding's certificate of
incorporation;
. create any class of series of capital stock ranking equally with or
prior to the $3.625 preferred stock; or
. materially alter any of the existing rights of holders of $3.625
preferred stock.
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Restrictions on Payment of Dividends and Redemption
So long as any preferred stock is outstanding, AK Holding may not declare or
pay any dividend or make any distribution on, or purchase, or cause to be
purchased, or redeem, any stock ranking junior to the $3.625 preferred stock
nor may AK Holding pay, set aside or make available any money for a purchase
fund or sinking fund for the purchase or redemption of any shares of junior
stock unless:
(1) accrued dividends for all past dividend periods on all outstanding
shares of preferred stock have been paid and the dividend on all
outstanding shares of preferred stock for the then current quarterly
dividend period has been paid or declared and provided for; and
(2) the net assets of AK Holding will not, by payment of a dividend or a
redemption, be reduced below the aggregate preferential amounts to which
the then outstanding shares of $3.625 preferred stock would be entitled
upon the involuntary liquidation, dissolution or winding up of AK Holding.
Change in Control
During the 45-day period following a change in control, the $3.625 preferred
stock is convertible at the holder's option into the number of shares obtained
by dividing the applicable redemption price by average closing price of AK
Holding's common stock during the five trading days preceding the change of
control, which for purposes of this calculation will not be less than $4.00
divided by the applicable exchange ratio pursuant to the merger.
Stockholder Rights Plan
On January 23, 1996, AK Holding adopted a stockholder rights plan, commonly
known as a poison pill. Under the terms of the stockholder rights plan, AK
Holding has issued one preferred stock purchase right 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 AK Holding's voting stock or announces a tender
offer that could result in the acquisition of 30% or more of the voting stock.
In addition, as adjusted to reflect the two-for-one common stock split, each
right entitles the holder, upon occurrence of specified events, to purchase
1/200th of a share of Series A 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 specified events,
holders of the rights would be entitled to purchase either shares of AK Holding
or an acquiring entity at half of market value. The rights are redeemable,
under specified circumstances, at any time prior to their expiration on January
23, 2006. The stockholder rights plan was adopted to assure that all of AK
Holding's stockholders receive full value for their investment in the event of
stock accumulation by a potential acquiror.
This summary is qualified by the full text of the stockholders' rights plan,
which is incorporated by reference into this document.
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COMPARISON OF RIGHTS OF HOLDERS OF
AK HOLDING AND ARMCO COMMON STOCK
After the merger, stockholders of Armco, other than holders of specific
Armco preferred stock, will become stockholders of AK Holding. Their rights
will then be governed by Delaware law, including the Delaware General
Corporation Law, the AK Holding certificate of incorporation and the AK Holding
bylaws. Presently, the rights of Armco stockholders are governed by Ohio law,
including the Ohio General Corporation Law, the Armco articles of incorporation
and the Armco regulations.
The following is a summary of all the material differences between the
rights of the holders of AK Holding common stock and the rights of the holders
of Armco common stock. For a full description of the rights of the holders of
AK Holding common stock and holders of Armco common stock, holders must refer
to Delaware law, Ohio law, the AK Holding certificate of incorporation, the AK
Holding bylaws, the Armco articles of incorporation and the Armco regulations.
Copies of these documents have been filed with the SEC and will be sent to the
holders of AK Holding and Armco capital stock upon request. See "Where To Find
More Information" on page 8.
Charter Amendments
AK Holding. Delaware law provides that the certificate of incorporation of a
corporation may be amended upon adoption by the board of directors of a
resolution setting forth the proposed amendment and declaring its advisability,
followed by the favorable vote of the holders of a majority of the outstanding
stock entitled to vote on the amendment. It also provides that a certificate of
incorporation may require a greater vote for amendment than would otherwise be
required under Delaware law. The AK Holding certificate of incorporation
requires the affirmative vote of the holders of a majority of the voting power
of the outstanding shares entitled to vote.
Armco. Under Ohio law, amending the articles of incorporation does not
require approval by a corporation's board of directors, but does require the
approval of stockholders holding two-thirds of the voting power of a
corporation, unless the corporation's articles of incorporation permit a
greater or lesser proportion, but not less than a majority. The Armco articles
of incorporation generally reduce the required vote to a majority, subject to
the right of holders of Armco preferred stock to vote as a separate class in
some circumstances.
Bylaws and Regulations
AK Holding. Under Delaware law, the power to adopt, amend or repeal the
bylaws is vested in the stockholders unless the certificate of incorporation
vests this power in the directors. Vesting this power in the directors does not
divest the stockholders of the power to adopt, alter or repeal the bylaws. The
AK Holding certificate of incorporation expressly authorizes the AK Holding
board of directors to make, alter or amend the bylaws by a majority vote of the
whole board.
Armco. Ohio corporations are governed in the conduct of their affairs and
management generally by "regulations," which are referred to as "bylaws" in
other jurisdictions. Under Ohio law, the regulations of a corporation may be
adopted or amended at a meeting by the affirmative vote of the holders of a
majority of the voting power of the outstanding shares. Ohio law also permits
stockholders to adopt or amend a corporation's regulations without a meeting by
the written consent of the holders of two-thirds of the voting power of the
corporation, unless another proportion is specified in the corporation's
articles of incorporation, but not less than a majority. Armco's articles of
incorporation require the affirmative vote, or written consent, of the holders
of a majority of the voting power of the corporation to adopt or amend the
regulations.
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Right to Call Special Meeting of Stockholders
AK Holding. Under Delaware law, special meetings of the stockholders may be
called by a corporation's board of directors or by those persons who are
authorized by the corporation's certificate of incorporation. The AK Holding
bylaws provide that special meetings may be called by the board of directors,
the chief executive officer or stockholders holding a majority of the
outstanding shares entitled to vote at the meeting.
Armco. Under Ohio law, the holders of at least 25% of the outstanding stock
of a corporation have the authority to call special meetings of stockholders,
unless the corporation's articles of incorporation or regulations specify
another percentage, which may in no case be greater than 50%. Armco's
regulations currently require the holders of at least 50% of the outstanding
stock to call special meetings of the stockholders. The regulations also
provide that special meetings may be called by the chairman of the board,
president, any vice president or a majority of Armco's directors.
Mergers and Consolidations
AK Holding. Under Delaware law, mergers or consolidations, other than so-
called parent-subsidiary mergers, must be approved by the directors of each
constituent corporation and adopted by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote on the agreement, or by a
greater vote if provided in the certificate of incorporation. The AK Holding
certificate of incorporation does not alter the vote required. Under Delaware
law, the separate vote of any class of shares is not required. Additionally,
Delaware law provides that, unless its certificate of incorporation provides
otherwise, no vote of the stockholders of the surviving corporation is required
to approve the merger if
(1) the agreement of merger does not amend in any respect the
corporation's certificate of incorporation,
(2) each share outstanding immediately prior to the effective date is to
be an identical outstanding or treasury share of the surviving corporation
after the effective date, and
(3) the number of shares of the surviving corporation's common stock to
be issued in the merger plus the number of shares of common stock into
which any other securities to be issued in the merger are initially
convertible does not exceed 20% of its common stock outstanding immediately
prior to the effective date of the merger.
Armco. Under Ohio law, mergers or consolidations, other than parent-
subsidiary mergers, must be approved by the directors of each constituent
corporation and adopted by stockholders of each constituent Ohio corporation,
other than the surviving corporation, holding at least two-thirds of the
corporation's voting power, or a different proportion but not less than a
majority of the voting power, as provided in the articles of incorporation. The
Armco articles of incorporation generally require a majority vote. In the case
of a merger, the agreement must, in some situations, also be adopted by the
stockholders of the surviving corporation by similar vote.
Other Corporate Transactions
AK Holding. Delaware law requires a majority vote on disposition of all or
substantially all of a corporation's assets and on dissolutions, unless a
greater vote is provided for in the certificate of incorporation. The AK
Holding certificate of incorporation requires the affirmative vote of the
holders of at least two-thirds of the voting stock to effect these actions.
Armco. Subject to some exceptions, under Ohio law the approval of two-thirds
of the voting power of the corporation, or a different proportion, but not less
than a majority of the corporation's voting power, if provided in the articles
of incorporation, is required for
(1) the consummation of combinations and majority share acquisitions
involving the transfer or issuance of the number of shares as would entitle
the holders of the shares to exercise at least one-sixth of the voting
power of the corporation in the election of directors immediately after the
consummation of the transaction,
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<PAGE>
(2) the disposition of all or substantially all of the corporation's
assets other than in the regular course of business, and
(3) voluntary dissolution.
The Armco articles of incorporation provide that the affirmative vote of a
majority of the voting power is required for approval of these types of
actions.
Action Without a Meeting
AK Holding. Delaware law provides that any action that may be taken at a
meeting of stockholders may be taken without a meeting, without prior notice
and without a vote, if the holders of stock having not less than the minimum
number of votes otherwise required to approve the action consent in writing,
unless otherwise provided in the certificate of incorporation. The AK Holding
certificate of incorporation and the AK Holding bylaws expressly provide that
actions of stockholders must be effected at an annual or special meeting of
stockholders and may not be effected by any consent in writing by these
stockholders.
Armco. Under Ohio law, unless the articles of incorporation or the
regulations provide otherwise, any action that may be taken by stockholders at
a meeting may be taken without a meeting with the unanimous written consent of
the stockholders. Neither the Armco articles of incorporation nor the Armco
regulations provide otherwise, except that the Armco regulations state that
they may be amended by the written consent of the holders of a majority of the
voting power. For a publicly-held corporation, like Armco, however, this, in
essence, means that all other stockholder action must be taken at a meeting,
because obtaining unanimous written consent is likely impracticable.
Cumulative Voting and Other Rights
AK Holding. Cumulative voting permits a stockholder to cast as many votes in
the election of directors for each share of stock held by him as there are
directors to be elected and each stockholder may cast all his votes for a
single candidate or distribute his votes among two or more candidates, as he
chooses. Under Delaware law, cumulative voting is not permitted unless provided
for by a specific provision in the certificate of incorporation. The AK Holding
certificate of incorporation does not provide for cumulative voting.
Delaware law requires voting by separate classes only with respect to
amendments to the certificate of incorporation that adversely affect the
holders of those classes or that increase or decrease the aggregate number of
authorized shares or the par value of the shares of any of those classes.
Armco. Under Ohio law, cumulative voting in the election of directors is
mandatory upon proper notice being given to a corporation by any stockholder
unless specifically eliminated by a provision in a corporation's articles of
incorporation. The Armco articles of incorporation do not contain a provision
of this type.
Ohio law entitles holders of a particular class of shares to vote as a
separate class if the rights of that class are affected in specific respects by
mergers, consolidations or amendments to the articles of incorporation.
Additionally, the Armco articles of incorporation require voting by specified
classes of stock with respect to amendments which materially alter these
classes or which increase the aggregate number of the authorized shares of
these classes.
Loans to Officers and Directors
AK Holding. Delaware law permits a corporation to lend money to, or to
guarantee an obligation of, an officer or other employee of the corporation or
any subsidiary of the corporation, including an officer or employee who is also
a director of the corporation or of its subsidiaries, whenever that loan or
guarantee may, in the judgment of the directors, reasonably be expected to
benefit the corporation. Delaware law generally does not impose liability on
the directors who vote for or assent to the making of a loan to an officer,
director, or stockholder.
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Armco. Unlike Delaware law, Ohio law provides that directors of an Ohio
corporation who vote for or assent to the making of loans to an officer,
director, or stockholder of a corporation are jointly and severally liable to
the corporation for the amount of the loan, plus interest, until the loan has
been paid, unless, at the time of making the loan, a majority of the
disinterested directors of the corporation voted for the loan and, taking into
account the terms and provisions of the loan and other relevant factors,
determined that the making of the loan could reasonably be expected to benefit
the corporation.
Dividend Rights
AK Holding. Under Delaware law, a corporation may pay dividends out of
surplus or, if no surplus exists, out of net profits for the fiscal year in
which the dividends are declared and/or of its preceding fiscal year. However,
dividends may not be paid out of these net profits if the capital of the
corporation is less than the aggregate amount of capital represented by the
outstanding stock of all classes having a preference upon the distribution of
assets. Dividends may be paid in cash, property, or in shares of capital stock.
Before declaring dividends, the board of directors can set aside funds for a
reserve to meet contingencies, subject to the rights of preferred stockholders,
if any.
Armco. Under Ohio law, a corporation may pay cash dividends only out of
surplus and must notify its stockholders if a dividend is paid out of capital
surplus. Additionally, distributable cash surplus includes any appreciation of
a corporation's tangible or intangible assets, as determined by the
corporation's board of directors. Thus, an Ohio corporation can write-up the
value of its appreciated tangible or intangible assets to recognize any
increase in their fair market value, thereby creating capital surplus that may
be distributed to its stockholders in the form of a dividend. This permits the
directors of an Ohio corporation to make quick restructuring decisions and pay
dividends without selling assets of the corporation or otherwise taking
extraordinary actions to create a capital surplus.
Repurchase of Stock
AK Holding. Under Delaware law, a corporation may repurchase or redeem its
own stock only out of surplus and only if the purchase does not impair capital.
However, a corporation may redeem preferred stock out of capital if those
shares will be retired upon redemption and the stated capital of the
corporation is reduced pursuant to a resolution of its board of directors by
the amount of capital represented by those shares.
Armco. Under Ohio law, a corporation may not purchase or redeem its own
stock unless authorized to do so by its articles of incorporation or under
particular circumstances and may not do so if immediately thereafter its assets
would be less than its liabilities plus its stated capital, if any, or if the
corporation is insolvent or would be rendered insolvent by the purchase or
redemption. The Armco articles of incorporation authorize Armco to purchase
stock of any class issued by Armco.
Fiduciary Duties of Directors
AK Holding. Under Delaware law, the business and affairs of a corporation
are managed by or under the direction of its boards of directors. In exercising
their powers, directors are charged with the fiduciary duties of loyalty and
care. A party challenging the decision of a board of directors generally bears
the burden of rebutting the applicability of the so-called "business judgment
rule," a presumption that, in making a business decision, directors acted on an
informed basis, in good faith and in the honest belief that the action was
taken in the best interests of the corporation, by demonstrating that, in
reaching their decision, the directors breached one or more of their fiduciary
duties. Unless this presumption is rebutted, the business judgment exercised by
directors in making their decisions is not subject to judicial review. Where,
however, the presumption is rebutted, and in some other circumstances, the
directors bear the burden of demonstrating the entire fairness of the relevant
transaction. In spite of the business judgment rule, Delaware courts may
subject directors' conduct to enhanced scrutiny in taking defensive actions in
response to a threat to corporate control or approving a transaction resulting
in a sale of control.
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Armco. The fiduciary duties of directors are similar under Ohio law to
directors' duties under Delaware law. Unlike Delaware, Ohio has codified the
standards governing directors' duties. Ohio law provides that a director may be
found to have violated his duties only by clear and convincing evidence, rather
than the preponderance of the evidence standard applicable in most states.
Further, Ohio law provides specific statutory authority for directors to
consider, in addition to the interests of the corporation's shareholders, other
factors including the interests of the corporation's employees, suppliers,
creditors and customers; the economy of the state and nation; community and
societal considerations; the long-term and short-term interests of the
corporation and its shareholders; and the possibility that these interests may
be best served by the continued independence of the corporation. Finally, Ohio
law specifically provides that the selection of a time frame for the
achievement of corporate goals shall be the responsibility of the directors.
Liability of Directors
AK Holding. Delaware law permits a corporation to limit or eliminate the
liability of its directors to the corporation or its stockholders for monetary
damages arising from a breach of fiduciary duty, except under particular
circumstances. These circumstances include a breach of the duty of loyalty to
the corporation or its stockholders, acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, a
declaration of a dividend or the authorization of the repurchase or redemption
of stock in violation of Delaware law or any transaction from which the
director derived an improper personal benefit. The AK Holding certificate of
incorporation eliminates director liability to the fullest extent permitted by
Delaware law.
Armco. Under Ohio law, a director is not liable for monetary damages unless
it is proved by clear and convincing evidence that his action or failure to act
was undertaken with deliberate intent to cause injury to the corporation or
with reckless disregard for the best interests of the corporation. There is,
however, no comparable provision limiting the liability of officers or other
agents of a corporation. In addition, under Ohio law, in some circumstances a
director is liable for the payment of illegal dividends and illegal redemptions
and for loans to directors, officers or stockholders.
Indemnification of Directors and Officers
AK Holding. Under Delaware law, a corporation may indemnify a director or
officer of the corporation against expenses, including attorneys' fees,
judgments, fines and settlement amounts actually and reasonably incurred in a
civil or criminal action, suit or proceeding or by reason of being or having
been a representative of the corporation. However, in a derivative action on
behalf of the corporation, the corporation may indemnify a director or officer
only against expenses incurred. This indemnification is available if the person
acted in good faith and reasonably believed that his actions were in or not
opposed to the best interests of the corporation and, in a criminal proceeding,
had no reasonable cause to believe that his conduct was unlawful. In a
derivative action brought on behalf of the corporation, this indemnification is
limited to expenses incurred. Delaware law also provides that a corporation may
advance a director or officer the expenses incurred in defending any action, if
it receives an undertaking from the officer or director to repay the amount
advanced if it is ultimately determined that the person is not entitled to
indemnification.
In any circumstance, determination of the amount of the indemnification must
be made by a majority of the directors who are not parties to the action, even
though less than a quorum, or, if there are no disinterested directors or if
the directors so direct, by independent legal counsel. No indemnification for
expenses in derivative actions is permitted under Delaware law if the person is
found to be liable to the corporation, unless a court finds him entitled to
indemnification. If, however, that person is successful in defending a third-
party derivative action, indemnification for expenses incurred is mandatory.
The indemnification provisions of Delaware law are nonexclusive of any other
rights to which the party may be entitled under any bylaw, agreement or vote of
stockholders or disinterested directors. The AK Holding certificate of
incorporation provides for indemnification of directors and officers to the
fullest extent permitted by law and authorize AK Holding to purchase and
maintain insurance on behalf of this person whether or not AK Holding would
have
74
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the power to indemnify this director or officer against liability under the AK
Holding certificate of incorporation.
Armco. Under Ohio law, corporations are authorized to indemnify directors
and officers within prescribed limits and must indemnify them under some
circumstances. Ohio law does not provide statutory authorization for a
corporation to indemnify directors and officers for settlements, fines or
judgments in the context of derivative suits. However, it provides that
directors, but not officers, are entitled to mandatory advancement of expenses,
including attorney's fees, incurred in defending any actions, including
derivative actions, brought against the director, provided the director agrees
to cooperate with the corporation concerning the matter and to repay the amount
advanced if it is proved by clear and convincing evidence that his act or
failure to act was done with deliberate intent to cause injury to the
corporation or with reckless disregard for the corporation's best interests.
Anti-Takeover Provisions
Delaware and Ohio law have statutes that delay or prevent unsolicited third
party takeover attempts. These statutes encourage an acquiring company to
negotiate seriously with a target company's board of directors in advance of a
takeover attempt.
AK Holding. Under Section 203 of the Delaware General Corporation Law, a
corporation is prohibited from engaging in any business combination with a
person who, together with his affiliates or associates, owns, or within a
three-year period did own, 15% or more of the corporation's voting stock, an
interested stockholder, unless:
. prior to the date on which the person became an interested stockholder,
the board of directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder,
. the interested stockholder acquired 85% of the voting stock of the
corporation, excluding specified shares, upon consummation of the
transaction, or
. on or after the date on which the person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and the affirmative vote, at a special
meeting and not by written consent, of at least two-thirds of the
outstanding voting shares of the corporation, excluding shares held by
the interested stockholder.
A business combination includes:
. mergers, consolidations and sales or other dispositions of 10% or more
of the assets of a corporation to or with an interested stockholder,
. particular transactions resulting in the issuance or transfer to an
interested stockholder of any stock of the corporation or its
subsidiaries, and
. other transactions resulting in a disproportionate financial benefit to
an interested stockholder.
Armco. Armco is subject to Chapter 1704 of the Ohio Revised Code, the Ohio
Merger Moratorium Statute, which is similar in many respects to Section 203 of
the Delaware General Corporation Law.
Chapter 1704 governs business combinations and other transactions between an
Ohio public company and an interested shareholder. An interested shareholder is
a person who beneficially owns or has the right to vote 10% or more of a
company's outstanding shares and who acquired the shares or voting rights
without the prior approval of its board of directors.
For three years after a person becomes an interested shareholder, the
following transactions between the company and the interested shareholder or
persons related to that shareholder are prohibited:
. the sale or acquisition of any interest in assets,
. mergers and similar transactions,
75
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. a voluntary dissolution,
. the issuance or transfer of shares or any rights to acquire shares in
excess of 5% of the company's outstanding shares,
. a transaction that increases the interested shareholder's proportionate
ownership of the company, and
. any other benefit that is not shared proportionately by all
shareholders.
After three years, transactions between the company and an interested
shareholder generally require:
. approval by at least a two-thirds majority shareholder vote, including a
majority of shares not owned or controlled by the interested
shareholder, or
. satisfaction of the statutory fair price requirements that apply to
shares held by persons other than the interested shareholder.
The following are the major differences between Chapter 1704 of the Ohio
General Corporation Law and Section 203 of the Delaware General Corporation
Law:
<TABLE>
<CAPTION>
Chapter 1704 Section 203
------------ -----------
<C> <S>
Triggered by the acquisition of 10% of the Triggered by the acquisition of 15% of
voting power without prior approval of the voting power without prior approval of the
board of directors board of directors
Substantially all transactions with an Transactions with an interested stockholder
interested shareholder are prohibited for are prohibited for three years unless
three years approved by at least 66 2/3% of the
outstanding voting stock
Prohibition continues after initial three- Prohibition terminates after three years
year period unless transaction is approved
by the required percentage of shares or
shareholders receive fair value
No exemption for a person who acquires Does not apply to a person who acquires 85%
significant percentage of stock of outstanding stock
Right to vote revocable proxy is not Right to vote revocable proxy is excluded
expressly excluded from definition of from definition of interested stockholder
interested shareholder
</TABLE>
Armco is also subject to Section 1701.831 of the Ohio Revised Code, the Ohio
Control Share Acquisition Act. Delaware law contains no comparable provision.
The Ohio Control Share Acquisition Act prohibits a person from acquiring
specific percentages of the voting power of an Ohio company, beginning at 20%,
unless that person delivers a disclosure statement to the company. The company
must then call a stockholders meeting within ten days after delivery of the
statement, generally to be held within 50 days after delivery of the statement.
The person may make the acquisition within 360 days if it is approved at the
shareholders meeting by a majority of:
. the voting power present, and
. the voting power present excluding interested shares, which are defined
as shares of stock held by the person, officers or inside directors of
the company.
A quorum must be present at the meeting, meaning a majority of:
. the voting power of the company, and
. the voting power of the company excluding shares held by interested
shareholders.
76
<PAGE>
A company's articles or regulations may provide that the section does not
apply. Armco has not opted out of Section 1701.831 of the Ohio Revised Code.
Adoption of the merger agreement at the Armco special meeting will also
constitute approval of the transaction for purposes of Section 1701.831 of the
Ohio Revised Code.
Section 1707.043 of the Ohio Revised Code also applies to Armco. Delaware
law contains no comparable provision. This section provides that if a
shareholder disposes of an Ohio company's stock for a profit of more than
$250,000 within 18 months after announcing an intention to make a proposal to
acquire control of the company, then the company may recover the profit unless
the shareholder proves in court that:
. its sole purpose in making the proposal was to acquire control of the
company and it had reasonable grounds to believe it would succeed,
. it did not make the proposal for the purpose of manipulating the market,
increasing its profit or decreasing its loss, and
. the proposal did not have a material adverse effect on the price or
trading volume of the shares.
Because neither Section 203 of Delaware law nor chapter 1704, section
1701.831 or section 1707.043 of Ohio law has been extensively interpreted by
the courts of Delaware or Ohio, uncertainties exist concerning the application
of each statute to particular transactions. Consequently, it is difficult to
determine whether either statute would be more restrictive than the other with
respect to any proposals to change control or otherwise alter the structure of
AK Holding or Armco.
77
<PAGE>
LEGAL MATTERS
The legality of the shares of AK Holding common stock to be issued in the
merger will be passed on by John G. Hritz, Executive Vice President and General
Counsel of AK Holding.
EXPERTS
The AK Holding consolidated financial statements incorporated in this
prospectus by reference from AK Holding's Annual Report on Form 10-K for the
year ended December 31, 1998 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein
by reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The Armco consolidated financial statements incorporated in this prospectus
by reference from Armco's Annual Report on Form 10-K for the year ended
December 31, 1998 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Due to the contemplated closing of the merger, Armco does not currently
expect to mail a proxy statement for its annual meeting of stockholders in the
year 2000 because the separate corporate existence of Armco will cease upon the
effectiveness of the merger. If the merger is not consummated, proposals of
Armco stockholders to be included in the proxy statement to be mailed to all
Armco stockholders entitled to vote at the 2000 annual meeting of Armco
stockholders must be received at Armco's principal executive offices no later
than November 15, 1999.
Any proposal that a stockholder of AK Holding would like to include in AK
Holding's proxy statement for its 2000 annual meeting of stockholders must be
received at AK Holding's principal executive offices no later than January 20,
2000.
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ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of May 20, 1999
among
ARMCO INC.
AK STEEL HOLDING CORPORATION
and
AK STEEL CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I THE MERGER................................................... 1
SECTION 1.1 The Merger............................................. 1
SECTION 1.2 Effective Time......................................... 1
SECTION 1.3 Closing of the Merger.................................. 1
SECTION 1.4 Effects of the Merger.................................. 2
SECTION 1.5 Certificate of Incorporation and Bylaws................ 2
SECTION 1.6 Directors.............................................. 2
SECTION 1.7 Officers............................................... 2
ARTICLE II CONVERSION OF SECURITIES..................................... 2
SECTION 2.1 Conversion of Securities............................... 2
SECTION 2.3 Exchange Funds......................................... 6
SECTION 2.4 Exchange and Election Procedures....................... 7
SECTION 2.5 Distributions with Respect to Unsurrendered
Certificates........................................... 8
SECTION 2.6 No Further Ownership Rights............................ 8
SECTION 2.7 No Fractional Shares of Parent Common Stock............ 8
SECTION 2.8 Dissenting Shares...................................... 10
SECTION 2.9 Termination of Exchange Fund........................... 10
SECTION 2.10 No Liability........................................... 10
SECTION 2.11 Investment of the Exchange Funds....................... 10
SECTION 2.12 Lost Certificates...................................... 10
SECTION 2.13 Withholding Rights..................................... 11
SECTION 2.14 Stock Transfer Books................................... 11
SECTION 2.15 Affiliates............................................. 11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 11
SECTION 3.1 Organization and Qualification; Subsidiaries........... 11
SECTION 3.2 Capitalization of the Company and Its Subsidiaries..... 12
SECTION 3.3 Authority Relative to This Agreement; Consents and
Approvals.............................................. 13
SECTION 3.4 SEC Reports; Financial Statements...................... 13
SECTION 3.5 No Undisclosed Liabilities............................. 14
SECTION 3.6 Absence of Changes..................................... 15
SECTION 3.7 Information Supplied................................... 16
SECTION 3.8 Consents and Approvals; No Violations.................. 16
SECTION 3.9 No Default............................................. 17
</TABLE>
A-i
<PAGE>
TABLE OF CONTENTS--(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 3.10 Real Property............................................ 17
SECTION 3.11 Litigation............................................... 18
SECTION 3.12 Company Permits; Compliance with Applicable Laws......... 18
SECTION 3.13 Employee Plans........................................... 18
SECTION 3.14 Labor Matters............................................ 19
SECTION 3.15 Environmental Matters.................................... 20
SECTION 3.16 Taxes.................................................... 22
SECTION 3.17 Absence of Questionable Payments......................... 23
SECTION 3.18 Material Contracts....................................... 23
SECTION 3.19 Insurance................................................ 24
SECTION 3.20 Insurance Business....................................... 24
SECTION 3.21 Intellectual Property.................................... 25
SECTION 3.22 Year 2000................................................ 26
SECTION 3.23 Opinion of Financial Advisor............................. 26
SECTION 3.24 Brokers.................................................. 26
SECTION 3.25 Accounting Matters; Tax Treatment........................ 26
SECTION 3.26 Takeover Statutes........................................ 26
SECTION 3.27 Amendment to the Company Rights Agreement................ 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY........ 27
SECTION 4.1 Organization............................................. 27
SECTION 4.2 Capitalization of Parent................................. 27
SECTION 4.3 Authority Relative to This Agreement..................... 28
SECTION 4.4 SEC Reports; Financial Statements........................ 28
SECTION 4.5 No Undisclosed Liabilities............................... 29
SECTION 4.6 Absence of Certain Changes or Events..................... 29
SECTION 4.7 Information Supplied..................................... 29
SECTION 4.8 Consents and Approvals; No Violations.................... 29
SECTION 4.9 Compliance with Applicable Laws.......................... 30
SECTION 4.10 Absence of Questionable Payments......................... 30
SECTION 4.11 Year 2000................................................ 30
SECTION 4.12 Opinion of Financial Advisor............................. 30
SECTION 4.13 Brokers.................................................. 30
SECTION 4.14 Accounting Matters; Tax Treatment........................ 31
</TABLE>
A-ii
<PAGE>
TABLE OF CONTENTS--(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE V COVENANTS RELATED TO CONDUCT OF BUSINESS...................... 31
SECTION 5.1 Conduct of Business of the Company..................... 31
SECTION 5.2 Conduct of Business of Parent.......................... 33
SECTION 5.3 Access to Information.................................. 34
ARTICLE VI ADDITIONAL AGREEMENTS........................................ 34
SECTION 6.1 Preparation of S-4 and the Proxy Statement............. 34
SECTION 6.2 Letter of Accountants.................................. 35
SECTION 6.3 Meetings............................................... 35
SECTION 6.4 Reasonable Best Efforts................................ 36
SECTION 6.5 No Solicitation; Acquisition Proposals................. 37
SECTION 6.6 Public Announcements................................... 38
SECTION 6.7 Indemnification; Directors' and Officers' Insurance.... 38
SECTION 6.8 Notification of Certain Matters........................ 39
SECTION 6.9 Pooling................................................ 39
SECTION 6.10 Tax-Free Reorganization Treatment...................... 40
SECTION 6.11 Employee Matters....................................... 40
SECTION 6.12 Affiliate Letters...................................... 40
SECTION 6.13 SEC Filings............................................ 41
SECTION 6.14 Fees and Expenses...................................... 41
SECTION 6.15 Listing of Stock....................................... 41
SECTION 6.16 Antitakeover Statutes.................................. 41
SECTION 6.17 Combined Operations.................................... 42
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER.................... 42
SECTION 7.1 Conditions to Each Party's Obligations to Effect the
Merger................................................. 42
SECTION 7.2 Conditions to the Obligations of the Parent and the
Operating Company...................................... 42
SECTION 7.3 Conditions to the Obligations of the Company........... 44
ARTICLE VIII TERMINATION; AMENDMENT; WAIVER............................. 45
SECTION 8.1 Termination by Mutual Agreement........................ 45
SECTION 8.2 Termination by Either Parent or the Company............ 45
SECTION 8.3 Termination by the Company............................. 45
SECTION 8.4 Termination by Parent.................................. 46
SECTION 8.5 Effect of Termination and Abandonment.................. 46
SECTION 8.6 Amendment.............................................. 47
SECTION 8.7 Extension; Waiver...................................... 47
</TABLE>
A-iii
<PAGE>
TABLE OF CONTENTS--(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE IX MISCELLANEOUS.................................................. 48
SECTION 9.1 Nonsurvival of Representations and Warranties............ 48
SECTION 9.2 Entire Agreement; Assignment............................. 48
SECTION 9.3 Notices.................................................. 48
SECTION 9.4 Governing Law............................................ 49
SECTION 9.5 Descriptive Headings..................................... 49
SECTION 9.6 Parties in Interest...................................... 49
SECTION 9.7 Severability............................................. 49
SECTION 9.8 Specific Performance..................................... 49
SECTION 9.9 Counterparts............................................. 50
SECTION 9.10 Interpretation........................................... 50
SECTION 9.11 Definitions.............................................. 50
SECTION 9.12 Certain Ohio Matters..................................... 51
</TABLE>
A-iv
<PAGE>
<TABLE>
<CAPTION>
Defined
Defined Terms on Page
- ------------- -------
<S> <C>
1998 Stock Incentive Plan............................................... 39
Acquiring Person........................................................ 38
Acquiring Person Statement.............................................. 49
Acquisition Proposal.................................................... 71
Antitrust Law........................................................... 51
APB 16.................................................................. 56
Assumed Stock Option.................................................... 8
Audit Date.............................................................. 21
Average Parent Stock Price.............................................. 4
beneficial ownership.................................................... 71
beneficially own........................................................ 71
Cash Election........................................................... 6
Cash Election Notice.................................................... 6
Cash Election Percentage................................................ 6
CERCLA.................................................................. 29
Certificates............................................................ 9
Certificates of Merger.................................................. 1
Change of Control Provisions............................................ 5
Class A Preferred Stock................................................. 4
Class B Preferred Stock................................................. 4
Closing................................................................. 2
Closing Date............................................................ 2
Code.................................................................... 1
Common Exchange Fund.................................................... 9
Common Merger Consideration............................................. 4
Common Shares Trust..................................................... 12
Company................................................................. 1
Company Agreements...................................................... 23
Company Board........................................................... 18
Company Common Stock.................................................... 3
Company Disclosure Schedule............................................. 15
Company Option Plans.................................................... 8
Company Permits......................................................... 25
Company Preferred Stock................................................. 4
Company Required Approvals.............................................. 23
Company Requisite Vote.................................................. 18
Company Rights Agreement................................................ 17
Company SEC Reports..................................................... 19
Company Stock Option.................................................... 8
Company Stockholder Meeting............................................. 50
Company Year 2000 Plan.................................................. 36
Confidentiality Agreement............................................... 49
Control Shares Acquisition Law.......................................... 37
Covered Transactions.................................................... 37
Current Premium......................................................... 54
Delaware Certificate of Merger.......................................... 1
DGCL.................................................................... 1
Dissenters Shares....................................................... 13
Distribution Date....................................................... 38
DOJ..................................................................... 51
</TABLE>
A-v
<PAGE>
<TABLE>
<CAPTION>
Defined
Defined Terms on Page
- ------------- -------
<S> <C>
Effective Time.......................................................... 2
Election Form........................................................... 10
Election Shares Trust................................................... 12
Employee Benefit Plan................................................... 26
Employee Benefit Plans.................................................. 26
Environmental Costs and Liabilities..................................... 29
Environmental Law....................................................... 29
Excess Common Shares.................................................... 12
Excess Election Shares.................................................. 12
Exchange Act............................................................ 19
Exchange Agent.......................................................... 9
Exchange Ratio.......................................................... 3
Excluded Shares......................................................... 3
Expenses................................................................ 58
Expiration Date......................................................... 38
Final Conversion Date................................................... 5
Financial Advisor....................................................... 37
FTC..................................................................... 51
GAAP.................................................................... 19
Governmental Entity..................................................... 23
Guaranty................................................................ 20
Hazardous Material...................................................... 29
HSR Act................................................................. 23
Incentive Program....................................................... 7
Indemnified Parties..................................................... 54
Insurance Departments................................................... 23
Insurance Laws.......................................................... 35
Insurance Subsidiaries.................................................. 34
Intellectual Property................................................... 36
know.................................................................... 71
knowledge............................................................... 71
Law..................................................................... 24
Lien.................................................................... 17
Lower Collar............................................................ 4
Material Adverse Effect................................................. 71
Material Contracts...................................................... 34
Measurement Period...................................................... 4
Merger.................................................................. 1
Merger Consideration.................................................... 5
Multiemployer Plan...................................................... 26
Multiple Employer Plans................................................. 26
NNIC.................................................................... 20
NYSE.................................................................... 4
OCI..................................................................... 20
OGCL.................................................................... 1
Ohio Certificate of Merger.............................................. 1
Operating Company....................................................... 1
Orders.................................................................. 20
OSHA.................................................................... 29
</TABLE>
A-vi
<PAGE>
<TABLE>
<CAPTION>
Defined
Defined Terms on Page
- ------------- -------
<S> <C>
Parent.................................................................. 1
Parent $3.625 Preferred Stock........................................... 5
Parent and Operating Company Agreements................................. 42
Parent Board............................................................ 40
Parent Common Stock..................................................... 3
Parent Disclosure Schedule.............................................. 38
Parent Expenses......................................................... 66
Parent Preferred Stock.................................................. 38
Parent Required Approvals............................................... 42
Parent Requisite Vote................................................... 40
Parent Rights........................................................... 3
Parent Rights Agreement................................................. 3
Parent SEC Reports...................................................... 40
Parent Stockholder Meeting.............................................. 50
Parent Year 2000 Plan................................................... 43
Permits................................................................. 35
person.................................................................. 71
Preferred Exchange Fund................................................. 9
Preferred Merger Consideration.......................................... 5
Proxy Statement......................................................... 22
Real Property Leases.................................................... 24
Release................................................................. 29
Remedial Action......................................................... 29
Representative.......................................................... 10
Rights.................................................................. 38
S-4..................................................................... 22
SAP Financial Statements................................................ 19
SEC..................................................................... 1
Securities Act.......................................................... 15
Share................................................................... 3
Share Issuance.......................................................... 22
Shares.................................................................. 3
Stat.................................................................... 19
subsidiary.............................................................. 71
Superior Proposal....................................................... 52
Surviving Corporation................................................... 1
Takeover Statutes....................................................... 37
Tax Returns............................................................. 32
Taxes................................................................... 32
Termination Date........................................................ 63
Termination Notice...................................................... 4
Top-Up Intent Notice.................................................... 4
Voting Shares........................................................... 18
WARN Act................................................................ 28
</TABLE>
A-vii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of May 20, 1999 is among ARMCO
INC., an Ohio corporation (the "Company"), AK STEEL HOLDING CORPORATION, a
Delaware corporation ("Parent"), and AK STEEL CORPORATION, a Delaware
corporation and a direct wholly owned subsidiary (as hereinafter defined) of
Parent (the "Operating Company").
WHEREAS, the respective Boards of Directors of the Company, Parent and the
Operating Company, and Parent as the sole stockholder of the Operating Company,
each have, in light of and subject to the terms and conditions set forth
herein, resolved to deem this Agreement and the transactions contemplated
hereby, including the Merger (as defined in Section 1.1), taken together,
advisable and fair to, and in the best interests of, their respective
stockholders;
WHEREAS, for federal income Tax (as defined in Section 3.16) purposes, it is
intended that the Merger shall qualify as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code");
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a "pooling of interests" under APB 16 (as defined in Section
6.9(a)) and the applicable rules and regulations of the Securities and Exchange
Commission (the "SEC"); and
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, the Company, Parent and the Operating Company hereby
agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. At the Effective Time (as defined in Section 1.2),
upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL") and the Ohio
General Corporation Law (the "OGCL"), the Company shall be merged with and into
the Operating Company ("Merger"). Following the Merger, the Operating Company
shall continue as the surviving corporation (the "Surviving Corporation") and
shall continue its corporate existence under the DGCL, and the separate
corporate existence of the Company shall cease.
SECTION 1.2 Effective Time. Subject to the provisions of this Agreement,
Parent, the Operating Company and the Company shall cause the Merger to be
consummated by (i) filing a certificate of merger complying with the DGCL with
the Secretary of State of the State of Delaware (the "Delaware Certificate of
Merger") and (ii) filing a certificate of merger (the "Ohio Certificate of
Merger" and, together with the Delaware Certificate of Merger, the
"Certificates of Merger") complying with the OGCL with the Secretary of State
of the State of Ohio, in each case as soon as practicable on or after the
Closing Date (as defined in Section 1.3). The Merger shall become effective
upon the later of such filings or at such time thereafter as is provided in the
Certificates of Merger (the "Effective Time").
SECTION 1.3 Closing of the Merger. The closing of the Merger (the "Closing")
will take place at a time and on a date (the "Closing Date") to be specified by
the parties, which shall be no later than the tenth business day (or such fewer
number of business days as Parent shall determine (upon not less than two
business days' notice to the Company)) after satisfaction or waiver of the
conditions set forth in Article VII (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the fulfillment or
waiver of those conditions), at the offices of Weil, Gotshal & Manges LLP, 767
Fifth Avenue, New York, New York 10153, unless another time, date or place is
agreed to in writing by the parties hereto.
A-1
<PAGE>
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL and the OGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, immunities, powers and franchises of the Company and the
Operating Company shall vest in the Surviving Corporation, and all debts,
liabilities, obligations and duties of the Company and the Operating Company
shall become the debts, liabilities, obligations and duties of the Surviving
Corporation.
SECTION 1.5 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of the Operating Company in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation, until amended in accordance with such Certificate of Incorporation
and the DGCL. The Bylaws of the Operating Company in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation, until
amended in accordance with such Bylaws, the Certificate of Incorporation and
the DGCL.
SECTION 1.6 Directors. The directors of the Operating Company immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation until such director's
successor is duly elected or appointed and qualified.
SECTION 1.7 Officers. The officers of the Operating Company at the Effective
Time shall be the initial officers of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.1 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of any of the parties hereto or
any holder of shares of Company Common Stock (as defined in Section 2.1(c)) or
Company Preferred Stock (as defined in Section 2.1(d)):
(a) Securities of the Operating Company and Parent. The issued and
outstanding securities of the Operating Company shall remain outstanding and
shall be unchanged as a result of the Merger. The issued and outstanding
securities of Parent shall remain outstanding and shall be unchanged as a
result of the Merger.
(b) Cancellation of Treasury Shares and Parent-Owned Shares. Each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time that is owned by the Company, or by Parent, the Operating Company or any
other subsidiary of Parent (other than shares in trust accounts, managed
accounts, custodial accounts and the like that are beneficially owned by third
parties) shall automatically be cancelled and shall cease to exist, and no
consideration shall be delivered or deliverable in exchange therefor.
(c) Conversion of Company Common Stock. Subject to the provisions of Section
2.1(e), each share of common stock, par value $.01 per share, of the Company
(including the associated Rights (as defined in the Company Rights Agreement
referred to in Section 3.2(a)), "Company Common Stock") issued and outstanding
immediately prior to the Effective Time (individually, a "Share" and
collectively, the "Shares") (other than Shares to be cancelled in accordance
with Section 2.1(b) and any Dissenters Shares (as defined in Section 2.8)
(collectively, "Excluded Shares")), shall be converted into and be exchangeable
for the right to receive a fraction (rounded to the nearest ten thousandth) of
a fully paid and non-assessable share of common stock, par value $.01 per
share, of Parent (including the associated rights (the "Parent Rights") to
purchase shares of Series A Junior Preferred Stock pursuant to the Rights
Agreement, dated as of January 23, 1996, between Parent and The Bank of New
York as predecessor to The Fifth Third Bank, as Rights Agent (the
A-2
<PAGE>
"Parent Rights Agreement"), "Parent Common Stock"), such fraction to be in the
ratio provided below (the "Exchange Ratio"). If the Average Parent Stock Price
(as hereinafter defined) is:
(i) greater than $28.21, the Exchange Ratio shall be $8.00 divided by
the Average Parent Stock Price;
(ii) equal to or greater than $26.44 but less than or equal to $28.21,
the Exchange Ratio shall be fixed at 0.2836;
(iii) equal to or greater than $22.00 but less than $26.44, the
Exchange Ratio shall be $7.50 divided by the Average Parent Stock
Price; or
(iv) less than $22.00 (the "Lower Collar"), the Exchange Ratio shall be
fixed at 0.3409;
provided that if the Average Parent Stock Price is less than the Lower Collar,
the Company shall have the right to give written notice to Parent (a
"Termination Notice") that the Company elects to terminate this Agreement. Any
Termination Notice shall be delivered to Parent no later than 5:00 p.m. New
York City time on the first business day following the last day of the
Measurement Period (as hereinafter defined). If the Company delivers a timely
Termination Notice, Parent shall have the right to give written notice to the
Company (the "Top-Up Intent Notice") that Parent elects to increase the
Exchange Ratio such that the product of the Exchange Ratio as so increased and
the Average Parent Stock Price shall equal $7.50. Any Top-Up Intent Notice
shall be delivered to the Company no later than 5:00 p.m. New York City time on
the third business day prior to the date of the Company Stockholder Meeting (as
defined in Section 6.3(a)). As used herein, the "Average Parent Stock Price"
shall mean the average of the per share closing prices of Parent Common Stock
(rounded to the nearest ten thousandth) on the New York Stock Exchange, Inc.
("NYSE") (as reported in the New York City edition of The Wall Street Journal
or, if not reported thereby, another nationally recognized source) during the
ten consecutive trading day period (the "Measurement Period") ending on the
sixth trading day prior to the Company Stockholder Meeting). All shares of
Parent Common Stock issued pursuant to this Section 2.1(c), together with the
cash (if any) to be delivered pursuant to Section 2.1(e)(i) and any cash in
lieu of fractional shares to be paid in respect of such Parent Common Stock
pursuant to Section 2.7, is referred to herein as the "Common Merger
Consideration".
(d) Conversion of Company Preferred Stock.
(i) Each share of Class A Preferred Stock of the Company, no par value
("Class A Preferred Stock"), other than the $3.625 Cumulative Convertible
Preferred Stock of the Company (the "$3.625 Preferred Stock"), and each
share of Class B Preferred Stock of the Company, par value $1.00 per share
("Class B Preferred Stock" and collectively with the Class A Preferred
Stock, the "Company Preferred Stock") issued and outstanding immediately
prior to the Effective Time (other than shares of Company Preferred Stock
held by the Company, Parent or the Operating Company) shall be converted
into and be exchangeable for the right to receive, at the election of the
holder of such share made in accordance with Section 2.4(b), (x) cash in an
amount equal to the redemption price of such class or series of the Company
Preferred Stock, if such share of Company Preferred Stock were redeemed by
the Company immediately prior to the Effective Time in accordance with the
Amended Articles of Incorporation of the Company (plus an amount equal to
the dividends that would have accrued on such Company Preferred Stock from
the Effective Time through the Final Conversion Date (as hereinafter
defined)) or (y) the number of shares of Parent Common Stock such holder
would have been entitled to receive pursuant to Section 2.1(c) if such
holder had converted such Company Preferred Stock into shares of Company
Common Stock immediately prior to the Effective Time in accordance with the
Amended Articles of Incorporation of the Company, plus a cash payment in
the amount of any accrued and unpaid dividend which such holder would have
been entitled to receive upon the conversion of such shares of Company
Preferred Stock in accordance with the Amended Articles of Incorporation of
the Company if the date of the conversion was the date of the holder's
election to take shares of Parent Common Stock under this clause (y);
provided, that if such holder fails to make such election in accordance
with Section 2.4(b) within 30 days following the mailing by the Surviving
Corporation of a notice to each such
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holder that the Effective Time has occurred (such 30th day following such
mailing being referred to herein as the "Final Conversion Date"), each such
share of Company Preferred Stock held by such holder shall be converted
into and be exchangeable for the right to receive cash in accordance with
clause (x) of this Section 2.1(d)(i).
(ii) Subject to the provisions of Section 2.1(e), each share of $3.625
Preferred Stock issued and outstanding immediately prior to the Effective
Time (other than shares of $3.625 Preferred Stock held by the Company,
Parent or the Operating Company) shall be converted into and be
exchangeable for the right to receive one share of Parent Preferred Stock
(as defined in Section 4.2(a)), designated as Parent's $3.625 Cumulative
Convertible Preferred Stock ("Parent $3.625 Preferred Stock"), which stock
shall have the same rights, preferences, privileges, qualifications,
limitations and restrictions as the $3.625 Preferred Stock, except that,
subject to the provisions of paragraph 8 of Subdivision E of Section 2 of
Article Fourth of the Amended Articles of Incorporation of the Company (the
"Change of Control Provisions"), the rate at which the $3.625 Preferred
Stock of the Company is convertible into Company Common Stock immediately
prior to the Effective Time shall be multiplied by the Exchange Ratio to
determine the initial rate at which Parent $3.625 Preferred Stock shall be
convertible into Parent Common Stock following the Effective Time.
The cash to be delivered pursuant to Section 2.1(d)(i) and, if applicable,
Section 2.1(e)(ii), the shares of Parent $3.625 Preferred Stock to be issued
pursuant to Section 2.1(d)(ii) and, if applicable, the shares of Parent Common
Stock to be issued pursuant to Section 2.1(d)(i) or 2.1(e)(ii), together with
any cash in lieu of fractional shares to be paid in respect of such Parent
Common Stock pursuant to Section 2.7, is referred to herein as the "Preferred
Merger Consideration" and, together with the Common Merger Consideration, is
referred to as the "Merger Consideration".
(e) Parent Cash Election. Notwithstanding the provisions of Sections 2.1(c)
and 2.1(d)(ii), if Parent's independent accountants do not deliver the letter
contemplated by Section 6.9(b) hereof as of the date the S-4 (as defined in
Section 3.7) is declared effective:
(i) Parent shall have the right (the "Cash Election"), by written notice
(the "Cash Election Notice") to the Company delivered prior to the date the
S-4 is declared effective, to cause up to 25% of the Shares to be converted
into the right to receive cash in lieu of Parent Common Stock. The Cash
Election Notice shall specify the percentage (expressed as a fraction, the
"Cash Election Percentage") of the Shares to be so converted into cash. If
a Cash Election Notice is delivered, each Share (other than Excluded
Shares) shall be converted into and be exchangeable for the right to
receive (x) cash in an amount equal to the product of (A) the Per Share
Value (as hereunder defined) and (B) the Cash Election Percentage and (y) a
fraction of a share of Parent Common Stock equal to the product of (C) the
Exchange Ratio and (D) one (1) minus the Cash Election Percentage. For
purposes of this Section 2.1(e)(i), "Per Share Value" shall mean: if the
Average Parent Stock Price is (q) greater than $28.21, $8.00; (r) equal to
or greater than $26.44 but less than or equal to $28.21, the Average Parent
Stock Price multiplied by the Exchange Ratio; (s) equal to or greater than
$22.00 but less than $26.44, $7.50; or (t) less than $22.00, the Average
Parent Stock Price multiplied by the Exchange Ratio (unless the Company
gives a Termination Notice and Parent gives a Top-Up Intent Notice, in
which case the Per Share Value shall be $7.50); and
(ii) each share of $3.625 Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than shares of $3.625
Preferred Stock held by the Company, Parent or the Operating Company) shall
be converted into and be exchangeable for the right to receive, at the
election of the holder of such share made in accordance with Section
2.4(b), (x) cash in an amount equal to the redemption price of the $3.625
Preferred Stock, if such share of $3.625 Preferred Stock were redeemed by
the Company immediately prior to the Effective Time in accordance with the
Amended Articles of Incorporation of the Company (plus an amount equal to
the dividends that would have accrued on such $3.625 Preferred Stock from
the Effective Time through the Final Conversion Date) or (y) the greater of
(A) the number of shares of Parent Common Stock such holder would have been
entitled to receive
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pursuant to Section 2.1(c) if such holder had converted such $3.625
Preferred Stock into shares of Company Common Stock immediately prior to
the Effective Time in accordance with the Amended Articles of Incorporation
of the Company and (B) the number of shares of Parent Common Stock such
holder would have been entitled to receive pursuant to Section 2.1(c) if
such holder had converted such $3.625 Preferred Stock into shares of
Company Common Stock pursuant to the Change of Control Provisions plus a
cash payment in the amount of any accrued and unpaid dividend which such
holder would have been entitled to receive upon the conversion of such
$3.625 Preferred Stock in accordance with the Amended Articles of
Incorporation of the Company if the date of conversion was the date of the
holder's election to take shares of Parent Common Stock under this clause
(y); provided, that if such holder fails to make such election in
accordance with Section 2.4(b) within 45 days following the mailing by the
Surviving Corporation of a notice to each such holder that the Effective
Time has occurred, each share of $3.625 Preferred Stock held by such holder
shall be converted into and be exchangeable for the right to receive cash
in accordance with clause (x) of this Section 2.1(e)(ii).
(f) Certain Adjustments. If between the date of this Agreement and the
Effective Time the outstanding shares of Parent Common Stock shall have been
changed into a different number of shares or a different class by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares or any similar event, the amount of shares of
Parent Common Stock constituting the Exchange Ratio shall be correspondingly
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares or such similar
event.
(g) Tax Opinion Adjustment. If, based on the Merger Consideration payable
pursuant to Sections 2.1(c) and 2.1(d), and taking into account Section 2.1(e),
the tax opinions referred to in Sections 7.2(d) and 7.3(d) hereof cannot be
delivered as a result of the Merger potentially failing to satisfy continuity
of interest requirements under applicable Federal income tax principles
relating to reorganizations under Section 368(a) of the Code (as reasonably
determined by Weil, Gotshal & Manges LLP and Arnold & Porter, such
determination to be made (v) assuming that each share of Company Preferred
Stock, other than the $3.625 Preferred Stock and shares of Company Preferred
Stock held by the Company, Parent or the Operating Company, shall be converted
into cash, (w) if the provisions of Section 2.1(e) are applicable, by taking
into account the Cash Election Percentage and assuming that each share of
$3.625 Preferred Stock, other than shares of $3.625 Preferred Stock held by the
Company, Parent or the Operating Company, shall be converted into cash (x)
taking into account Dissenters Shares and cash issued in lieu of fractional
shares, if any, (y) using the Closing Date Price (as hereinafter defined) as
the measure of value of the shares of Parent Common Stock issued as Merger
Consideration and (z) requiring that the total value of such Parent Common
Stock issued as Merger Consideration represent no less than 45% of the total
consideration issued and to be issued in the Merger to all holders of Shares),
then the Common Merger Consideration shall be adjusted by reducing, to the
extent necessary to enable the tax opinions to be rendered, the amount of cash
to be delivered to the holders of Shares, for each Share converted, and in lieu
thereof delivering to such holders such number of shares of Parent Common Stock
equal to (x) the amount by which the cash component of the Common Merger
Consideration is reduced, pursuant to this clause, in order to enable the
rendering of the tax opinions, divided by (y) the Closing Date Price.
For purposes hereof, the "Closing Date Price" of a share of Parent Common
Stock shall be the closing sales price of Parent Common Stock as reported on
the NYSE as of the close of the trading day immediately prior to the Closing
Date.
SECTION 2.2 Stock Options
(a) As soon as practicable following the date of this Agreement, Parent and
the Company (or, if appropriate, any committee of the Board of Directors of the
Company administering Company's 1988 Stock Option Plan, 1993 Long-Term
Incentive Plan, Amended 1993 Long-Term Incentive Plan, 1996 Incentive Plan and
1997-1999 Long-Term Incentive Program (the "Incentive Program') (collectively,
the "Company Option Plans")) shall take such action as may be required to
effect the following provisions of this
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Section 2.2(a). Subject to the provisions of Section 16 of the Exchange Act (as
defined in Section 3.4), as of the Effective Time each option to purchase
Shares pursuant to the Company Option Plans (a Company Stock Option") which is
then outstanding shall be converted into an option (or a new substitute option
shall be granted) (an Assumed Stock Option") to purchase the number of shares
of Parent Common Stock (rounded up to the nearest whole share) equal to (x) the
number of Shares subject to such option multiplied by (y) the Exchange Ratio,
at an exercise price per share of Parent Common Stock (rounded down to the
nearest penny) equal to (A) the former exercise price per share of Company
Common Stock under such option immediately prior to the Effective Time divided
by (B) the Exchange Ratio; provided, however, that in the case of any Company
Stock Option to which Section 421 of the Code applies by reason of its
qualification under Section 422 of the Code, the conversion formula shall be
adjusted, if necessary, to comply with Section 424(a) of the Code. Except as
provided above, the Assumed Stock Options shall be subject to the same terms
and conditions (including expiration date and exercise provisions) as were
applicable to the converted Company Stock Option immediately prior to the
Effective Time. The Company (including any committee of the Board of Directors
administering the Company Option Plans) shall take such action as may be
necessary to provide that the vesting of the exercisability of any Company
Stock Option will not be accelerated through the Merger or this Agreement,
except as otherwise provided in the Company Option Plans or in any agreement in
effect on the date hereof between the Company and any holder of a Company Stock
Option.
(b) As soon as practicable after the Effective Time, Parent shall deliver to
the holders of Company Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective Company Option Plans and the
agreements evidencing the grants of such Company Stock Options and that such
Company Stock Options and agreements shall continue in effect on the same terms
and conditions (subject to the adjustments required by this Section 2.2) after
giving effect to the Merger and the provisions set forth above. Parent shall
comply with the terms of the Company Option Plans.
(c) Parent shall take such actions as are reasonably necessary for the
conversion of the Company Option Plans or the Company Stock Options pursuant to
this Section 2.2, including the reservation, issuance and listing of Parent
Common Stock as is necessary to effectuate the transactions contemplated by
this Section 2.2. Parent shall prepare and file with the SEC, and use its
reasonable best efforts to cause to become effective, on or prior to the date
of the Effective Time a registration statement on Form S-8 or other appropriate
form with respect to shares of Parent Common Stock subject to the Assumed Stock
Options and shall maintain the effectiveness of such registration statement or
registration statements covering such Assumed Stock Options (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such Assumed Stock Options remain outstanding. With respect to those
individuals, if any, who subsequent to the Effective Time will be subject to
the reporting requirements under Section 16(a) of the Exchange Act, where
applicable, Parent shall use all reasonable efforts to administer the Company
Option Plans assumed pursuant to this Section 2.2 in a manner that complies
with Rule 16b-3 promulgated under the Exchange Act to the extent the applicable
Company Option Plan complied with such Rule prior to the Merger.
SECTION 2.3 Exchange Funds.
(a) Prior to the Effective Time, Parent shall appoint a commercial bank or
trust company reasonably acceptable to the Company to act as exchange agent
hereunder for the purpose of exchanging Shares for the Common Merger
Consideration and Company Preferred Stock for the Preferred Merger
Consideration (the Exchange Agent").
(b) At or prior to the Effective Time, Parent shall deposit with the
Exchange Agent, in trust for the benefit of holders of Shares, certificates
representing the Parent Common Stock issuable pursuant to Section 2.1 in
exchange for outstanding Shares. Parent agrees to make available to the
Exchange Agent from time to time as needed, cash sufficient to pay cash in lieu
of fractional shares pursuant to Section 2.7 and any dividends and other
distributions pursuant to Section 2.5. Any cash and certificates of Parent
Common Stock deposited with the Exchange Agent pursuant to this Section 2.3(b)
shall hereinafter be referred to as the "Common Exchange Fund."
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(c) At or prior to the Effective Time, Parent shall deposit with the
Exchange Agent, in trust for the benefit of holders of the Company Preferred
Stock, cash payable pursuant to Section 2.1(d)(i) or 2.1(e)(ii) in exchange for
outstanding shares of Company Preferred Stock, and certificates representing
the Parent Common Stock and/or Parent $3.625 Preferred Stock issuable pursuant
to Section 2.1(d). Parent agrees to make available to the Exchange Agent from
time to time as needed, cash sufficient to pay cash in lieu of fractional
shares pursuant to Section 2.7 and any dividends and other distributions
pursuant to Section 2.5. Any cash and certificates of Parent Common Stock
deposited with the Exchange Agent pursuant to this Section 2.3(c) shall
hereinafter be referred to as the "Preferred Exchange Fund."
SECTION 2.4 Exchange and Election Procedures.
(a) Subject to Section 2.4(b), as soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to
mail to each holder of a certificate or certificates which immediately prior to
the Effective Time represented outstanding Shares or outstanding shares of
Company Preferred Stock (the "Certificates") (i) a letter of transmittal which
shall specify that delivery shall be effective, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent, and which letter shall be in customary form and have such other
provisions as Parent may reasonably specify; and (ii) instructions for
effecting the surrender of such Certificates in exchange for the applicable
Merger Consideration. Upon surrender of a Certificate to the Exchange Agent
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor, as applicable, (A) shares of
Parent Common Stock or Parent $3.625 Preferred Stock representing, in the
aggregate, the whole number of shares that such holder has the right to receive
pursuant to Section 2.1 (after taking into account all Shares or shares of
Company Preferred Stock then held by such holder) and (B) a check in the amount
equal to the cash that such holder has the right to receive pursuant to the
provisions of this Article II, including cash in lieu of any fractional shares
of Parent Common Stock pursuant to Section 2.7 and any dividends and other
distributions pursuant to Section 2.5. No interest will be paid or will accrue
on any cash payable pursuant to Section 2.1, 2.5 or 2.7. In the event of a
transfer of ownership of Company Common Stock or Company Preferred Stock which
is not registered in the transfer records of the Company, shares of Parent
Common Stock evidencing, in the aggregate, the proper number of shares of
Parent Common Stock or Parent $3.625 Preferred Stock, a check in the proper
amount of cash in lieu of any fractional shares of Parent Common Stock pursuant
to Section 2.7 and any dividends or other distributions to which such holder is
entitled pursuant to Section 2.5, may be issued with respect to such Shares or
shares of Company Preferred Stock to such a transferee if the Certificate
representing such Shares or shares of Company Preferred Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and to evidence that any applicable stock transfer Taxes
have been paid.
(b) As soon as reasonably practicable after the Effective Time, the
Surviving Corporation shall cause the Exchange Agent to mail to each holder of
a Certificate representing Company Preferred Stock, in addition to the letter
of transmittal and instructions referred to in Section 2.4(a), an election form
in such form as Parent and Company shall mutually agree (each, an "Election
Form"), together with instructions for effecting the election to be made by
such holder pursuant to Section 2.1(d) or 2.1(e). Each Election Form shall
permit the holder (or the beneficial owner through appropriate and customary
documentation and instructions) to choose to receive the alternate forms of
consideration set forth in Section 2.1(d) or 2.1(e) for all (but not less than
all) such holder's shares of Company Preferred Stock. Holders of record of
shares of Company Preferred Stock who hold such shares as nominees, trustees or
in other representative capacities (each, a "Representative") may submit
multiple Election Forms, provided that such Representative certifies that each
such Election Form covers all of the shares of Company Preferred Stock held by
such Representative for a particular beneficial owner. Election Forms in
respect of Company Preferred Stock (other than $3.625 Preferred Stock) must be
properly completed and submitted on or before 5:00 p.m. (New York City time) on
the 30th day following the mailing of the Election Form and accompanying
instructions by the Exchange Agent. Election Forms in respect of $3.625
Preferred Stock must be properly completed and submitted on or before 5:00 p.m.
(New York City
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time) on the 45th day following the mailing of the Election Form and
accompanying instructions by the Exchange Agent. An Election Form shall be
deemed properly completed only if accompanied by one or more Certificates and
the letter of transmittal contemplated by Section 2.4(a). Any Election Form may
be revoked or changed by the person submitting such Election Form on or prior
to the applicable election deadline.
Parent will have the discretion, which it may delegate in whole or in part
to the Exchange Agent, to determine whether Election Forms have been properly
completed, signed and submitted or revoked and to disregard immaterial defects
in forms of election. If Parent (or the Exchange Agent) shall determine that
any purported Election was not properly made, such purported Election shall
have no force or effect. The decision of Parent (or the Exchange Agent) in all
such matters shall be conclusive and binding. Neither Parent nor the Exchange
Agent will be under any obligation to notify any person of any defect in an
Election Form submitted to the Exchange Agent.
SECTION 2.5 Distributions with Respect to Unsurrendered Certificates. No
dividends or other distributions declared or made with respect to shares of
Parent Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate representing Shares of Company
Common Stock with respect to the shares of Parent Common Stock that such holder
would be entitled to receive upon surrender of such Certificate and no cash
payment in lieu of fractional shares of Parent Common Stock shall be paid to
any such holder pursuant to Section 2.7 until such holder shall surrender such
Certificate in accordance with Section 2.4. Subject to the effect of applicable
Laws (as defined in Section 3.9), following surrender of any such Certificate,
there shall be paid to such holder of shares of Parent Common Stock issuable in
exchange therefor, without interest, (a) promptly after the time of such
surrender, the amount of any cash payable in lieu of fractional shares of
Parent Common Stock to which such holder is entitled pursuant to Section 2.7
and the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock, and (b) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such shares of Parent Common Stock.
SECTION 2.6 No Further Ownership Rights. From and after the Effective Time,
dividends shall cease to accrue on the Company Preferred Stock. All shares of
Parent Common Stock and Parent $3.625 Preferred Stock issued and cash paid upon
conversion of the Shares and the shares of Company Preferred Stock in
accordance with the terms of this Article II (including any cash paid pursuant
to Sections 2.5 and 2.7) shall be deemed to have been issued or paid in full
satisfaction of all rights pertaining to the Shares and the shares of Company
Preferred Stock.
SECTION 2.7 No Fractional Shares of Parent Common Stock.
(a) No certificates or scrip of shares of Parent Common Stock representing
fractional shares of Parent Common Stock or book-entry credit of the same shall
be issued upon the surrender for exchange of Certificates and such fractional
share interests will not entitle the owner thereof to vote or to have any
rights of a shareholder of Parent or a holder of shares of Parent Common Stock.
(b Notwithstanding any other provision of this Agreement, each holder of
Shares or Company Preferred Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Parent Common
Stock (after taking into account all Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount and in the
manner described below:
(i) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (A) the number of full shares
of Parent Common Stock that would be issuable pursuant to Section 2.1(c)
but for the operation of this Section 2.7 over (B) the aggregate number of
full shares of Parent Common Stock to be distributed to holders of Shares
giving effect to the operation of this
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Section 2.7 (such excess being herein called the "Excess Common Shares").
Following the Effective Time, the Exchange Agent, as agent for the holders
of Shares, shall sell the Excess Common Shares at then prevailing prices on
the NYSE, all in the manner provided in subsection (iii) of this Section
2.7.
(ii) As promptly as practicable following the 30-day election period
referred to in Section 2.1(d)(i) and the 45-day election period referred to
in Section 2.1(e)(ii), the Exchange Agent shall determine the excess of (A)
the number of full shares of Parent Common Stock that would be issuable
pursuant to Section 2.1(d) but for the operation of this Section 2.7 over
(B) the aggregate number of full shares of Parent Common Stock to be
distributed to holders of Shares giving effect to the operation of this
Section 2.7 (such excess being herein called the "Excess Election Shares").
Following the applicable election period, the Exchange Agent, as agent for
the holders of the Company Preferred Stock, shall sell the Excess Election
Shares at then prevailing prices on the NYSE, all in the manner provided in
subsection (iii) of this Section 2.7.
(iii) The sale of the Excess Common Shares and Excess Elected Shares by
the Exchange Agent shall be executed on the NYSE through one or more member
firms of the NYSE and shall be executed in round lots to the extent
practicable. The Exchange Agent shall use all reasonable efforts to
complete the sale of the Excess Common Shares as promptly following the
Effective Time and the Excess Election Shares following the applicable
election period as, in the Exchange Agent's reasonable judgment, is
practicable consistent with obtaining the best execution of such sales in
light of prevailing market conditions. Until the net proceeds of such sale
or sales have been distributed to the holders of Shares or the holders of
the Company Preferred Stock, the Exchange Agent will hold such proceeds in
trust for such holders (the "Common Shares Trust" and the "Election Shares
Trust," respectively). The Exchange Agent shall determine the portion of
the Common Shares Trust to which each holder of Shares shall be entitled,
if any, by multiplying the amount of the aggregate net proceeds comprising
the Common Shares Trust by a fraction, the numerator of which is the amount
of fractional share interests to which such holder is entitled (after
taking into account all Shares held at the Effective Time by such holder)
and the denominator of which is the aggregate amount of fractional share
interests to which all holders of Shares are entitled. The Exchange Agent
shall determine the portion of the Election Shares Trust to which each
applicable holder of shares of Company Preferred Stock shall be entitled,
if any, by multiplying the amount of the aggregate net proceeds comprising
the Election Shares Trust by a fraction, the numerator of which is the
amount of fractional share interests to which such holder of applicable
Company Preferred Stock is entitled (after taking into account all Company
Preferred Stock held at the end of the applicable election period by such
holder) and the denominator of which is the aggregate amount of fractional
share interests to which all holders of applicable Company Preferred Stock
are entitled.
(iv) Notwithstanding the provisions of subsections (i) and (ii) of this
Section 2.7, Parent may elect prior to the Effective Time, in lieu of the
issuance and sale of Excess Common Shares and Excess Election Shares and
the making of the payments contemplated in such subsections, to pay to the
Exchange Agent an amount sufficient for the Exchange Agent to pay each
holder of Shares and Company Preferred Stock an amount in cash equal to the
product of (A) such fractional part of a share of Parent Common Stock
multiplied by (B) the closing price on the NYSE (as reported in the New
York City edition of The Wall Street Journal or, if not reported thereby,
another nationally recognized source) for a share of Parent Common Stock on
the date of the Effective Time, and, in such case, all references herein to
the cash proceeds of the sale of the Excess Common Shares, Excess Election
Shares and similar references shall be deemed to mean and refer to the
payments calculated as set forth in this subsection (iv). In such event,
Excess Common Shares and Excess Election Shares shall not be issued or
otherwise transferred to the Exchange Agent pursuant to Section 2.7.
(v) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Shares with respect to any
fractional share interests, the Exchange Agent shall make available such
amounts, net of any required withholding (and without interest), to such
holders.
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SECTION 2.8 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of Company Common Stock and Company Preferred Stock
outstanding immediately prior to the Effective Time and held by a holder who
has not voted in favor of the Merger and who has exercised dissenters' rights
in respect of such shares of Company Common Stock or Company Preferred Stock in
accordance with the OGCL ("Dissenters Shares") shall not be converted into a
right to receive the applicable Merger Consideration unless such holder fails
to perfect or withdraws or otherwise loses his dissenters' or objecting
shareholders' rights. Dissenters Shares shall be treated in accordance with
Section 1701.85 of the OGCL. If after the Effective Time such holder fails to
perfect or withdraws or otherwise loses his right to demand the payment of fair
value for Dissenters Shares under the OGCL, such shares of Company Common Stock
or Company Preferred Stock, as the case may be, shall be treated as if they had
been converted as of the Effective Time into a right to receive the applicable
Merger Consideration without interest. The Company shall give Parent prompt
notice of any demands received by the Company for the exercise of dissenters'
rights with respect to shares of Company Common Stock or Company Preferred
Stock and Parent shall have the right to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with
the prior written consent of Parent, make any payment with respect to, or
settle or offer to settle, any such demands. In the event any amounts shall
become due and payable in respect of such demands, such amounts shall be paid
by the Company.
SECTION 2.9 Termination of Exchange Fund. Any portion of the Common Exchange
Fund or the Preferred Exchange Fund which remains undistributed to the holders
of Certificates for six months after the Effective Time (and any portion of
either Exchange Fund that is not required to be distributed by reason of
stockholders' elections (or the absence thereof) pursuant to Section 2.1) shall
be delivered to Parent or otherwise on the instruction of Parent, and any
holders of the Certificates who have not theretofore complied with this Article
II shall thereafter look only to the Surviving Corporation and Parent for the
Merger Consideration exchangeable for such Certificates to which such holders
are entitled pursuant to Section 2.1 and Section 2.4, any cash in lieu of
fractional shares of Parent Common Stock to which such holders are entitled
pursuant to Section 2.7 and any dividends or distributions with respect to
shares of Parent Common Stock to which such holders are entitled pursuant to
Section 2.5. Any such portion of the Common Exchange Fund or the Preferred
Exchange Fund remaining unclaimed by holders of Shares or shares of Preferred
Stock five years after the Effective Time (or such earlier date immediately
prior to such time as such amounts would otherwise escheat to or become
property of any Governmental Entity (as defined in Section 3.8)) shall, to the
extent permitted by Law, become the property of Parent, free and clear of any
claims or interest of any person previously entitled thereto.
SECTION 2.10 No Liability. None of Parent, the Operating Company, the
Company, the Surviving Corporation or the Exchange Agent shall be liable to any
person in respect of any Merger Consideration from the Common Exchange Fund or
the Preferred Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar Law.
SECTION 2.11 Investment of the Exchange Funds. The Exchange Agent shall
invest any cash included in the Common Exchange Fund or the Preferred Exchange
Fund as directed by Parent on a daily basis. Any interest and other income
resulting from such investments shall promptly be paid to Parent, and any loss
will be restored promptly by Parent.
SECTION 2.12 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect to the Shares
formerly represented thereby, any cash in lieu of fractional shares of Parent
Common Stock and unpaid dividends and distributions on shares of Parent Common
Stock deliverable in respect thereof, pursuant to this Agreement.
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SECTION 2.13 Withholding Rights. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of Shares or shares
of Preferred Stock of such amounts as it is required to deduct and withhold
with respect to the making of such payment under the Code and the rules and
regulations promulgated thereunder, or any provision of a Tax Law. To the
extent that amounts are so withheld by the Surviving Corporation or Parent, as
the case may be, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the Shares in respect to
which such deduction and withholding was made by the Surviving Corporation or
Parent, as the case may be.
SECTION 2.14 Stock Transfer Books. The stock transfer books of the Company
shall be closed immediately upon the Effective Time and there shall be no
further registration of transfers of Shares thereafter on the records of the
Company. On or after the Effective Time, any Certificates presented to the
Exchange Agent or Parent for any reason shall be converted into the Merger
Consideration with respect to the Shares or shares of Company Preferred Stock
formerly represented thereby, any cash in lieu of fractional shares of Parent
Common Stock to which the holders thereof are entitled pursuant to Section 2.7
and any dividends or other distributions to which the holders thereof are
entitled pursuant to Section 2.5.
SECTION 2.15 Affiliates. Notwithstanding anything to the contrary herein, no
shares of Parent Common Stock, Parent $3.625 Preferred Stock or cash shall be
delivered to a person who may be deemed an "affiliate" of the Company in
accordance with Section 6.12 hereof for purposes of Rule 145 under the
Securities Act of 1933, as amended (the "Securities Act"), or for purposes of
qualifying the Merger for "pooling of interests" under APB 16 and the
applicable SEC rules and regulations, until such person has executed and
delivered to Parent the written agreement contemplated by Section 6.12.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the Company to
Parent prior to the execution of this Agreement (the "Company Disclosure
Schedule") (each Section of which qualifies the correspondingly numbered
representation and warranty or covenant to the extent specified therein), the
Company hereby represents and warrants to each of Parent and the Operating
Company as follows:
SECTION 3.1 Organization and Qualification; Subsidiaries.
(a) The Company and each of its subsidiaries is a corporation or legal
entity duly organized, validly existing and in good standing under the Laws of
the jurisdiction of its incorporation and has all requisite corporate,
partnership or similar power and authority to own, lease and operate its
properties and to carry on its businesses as now conducted and proposed by the
Company to be conducted.
(b) Section 3.1 of the Company Disclosure Schedule sets forth a list of all
subsidiaries of the Company. Except as listed in Section 3.1 of the Company
Disclosure Schedule, the Company does not own, directly or indirectly,
beneficially or of record, any shares of capital stock or other security of any
other entity or any other investment in any other entity.
(c) Each of the Company and its subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing does not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(d) The Company has heretofore delivered to Parent accurate and complete
copies of the articles or certificate of incorporation and codes of
regulations, bylaws or other similar organizational documents, as currently in
effect, of each of the Company and each of its subsidiaries.
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SECTION 3.2 Capitalization of the Company and Its Subsidiaries.
(a) The authorized capital stock of the Company consists of (i) 150,000,000
shares of Company Common Stock, and (ii) 6,697,231 shares of Class A Preferred
Stock and 5,000,000 shares of Class B Preferred Stock. As of April 30, 1999,
(i) 108,704,326 shares of Company Common Stock were issued and outstanding (of
which 2,028,873 shares of Company Common Stock were "Restricted Shares" under
the Company's benefit plans); (ii) 5,261,520 shares of Company Common Stock
were subject to outstanding options issued pursuant to the Company's benefit
plans; (iii) 22,681,261 shares of Company Common Stock were reserved for
issuance upon conversion of Company Preferred Stock; (iv) 34,081 shares of
Company Common Stock were reserved for issuance pursuant to the outstanding
stock unit grants under the 1995 Directors Stock Purchase and Deferred
Compensation Plan; and (v) no shares of Company Common Stock were issued and
held in the treasury of the Company. As of the date hereof, (i) 1,697,231
shares of Class A $2.10 Cumulative Convertible Preferred Stock, 2,700,000
shares of Class A $3.625 Cumulative Convertible Preferred Stock, and no shares
of Participating Preferred Stock, are issued and outstanding and 990,000 shares
of Class B $4.50 Cumulative Convertible Preferred Stock are issued and
outstanding; and (ii) 750,000 shares of Participating Preferred Stock are
reserved for issuance upon exercise of the rights pursuant to the Rights
Agreement (as hereinafter defined). Section 3.2 of the Company Disclosure
Schedule sets forth a complete and correct list of all holders of options to
acquire Shares, including such person's name, the number of options (vested,
unvested and total) held by such person and the exercise price for each such
option. All the outstanding shares of Company Common Stock are, and all shares
of Common Stock issuable upon the exercise of outstanding options described in
the third sentence of this Section 3.2 will be, when issued in accordance with
the terms thereof, duly authorized, validly issued, fully paid and non-
assessable. Except as set forth above or in Section 3.2(a) of the Company
Disclosure Schedule and except for the Company's obligations under the Rights
Agreement, dated as of February 23, 1996 (the "Company Rights Agreement"),
between the Company and The Fifth Third Bank, as rights agent, and except for
the transactions contemplated by this Agreement, (1) there are no shares of
capital stock or other voting securities of the Company authorized, issued or
outstanding, (2) there are no outstanding options, warrants, calls, preemptive
rights, subscriptions or other rights, agreements, arrangements or commitments
of any character relating to the issued or unissued capital stock or other
voting securities of the Company or any of its subsidiaries, obligating the
Company or any of its subsidiaries to issue, transfer or sell or cause to be
issued, transferred or sold any shares of capital stock, voting securities or
other equity interest in the Company or any of its subsidiaries or securities
convertible into or exchangeable for such shares or equity interests, or
obligating the Company or any of its subsidiaries to grant, extend or enter
into any such option, warrant, call, subscription or other right, agreement,
arrangement or commitment, or (3) there are no outstanding contractual
obligations of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any Shares or other capital stock of the Company or any
subsidiary or to provide funds to make any investment (in the form of a loan,
capital contribution or otherwise) in any subsidiary or any other entity other
than loans to Subsidiaries in the ordinary course of business. There are no
stockholder agreements, voting trusts or other agreements or understandings to
which the Company or any of its subsidiaries is a party or by which it is bound
relating to the voting of any shares of capital stock of the Company.
(b) All of the outstanding capital stock of the Company's subsidiaries is
owned by the Company, directly or indirectly, free and clear of any Lien (as
hereinafter defined) or any other limitation or restriction (including any
restriction on the right to vote, transfer or sell the same, except as may be
provided as a matter of Law) except for (i) any limitations under the Orders
(as defined in Section 3.4(b) hereof) and (ii) any directors' qualifying
shares. There are no securities of the Company or its subsidiaries convertible
into or exchangeable for, no options or other rights to acquire from the
Company or its subsidiaries, and no other contract, understanding, arrangement
or obligation (whether or not contingent) providing for the issuance or sale,
directly or indirectly of, any capital stock or other ownership interests in,
or any other securities of, any subsidiary of the Company. There are no
outstanding contractual obligations of the Company or its subsidiaries to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other ownership interests in any subsidiary of the Company. For purposes of
this Agreement, "Lien" means, with respect to any asset (including, without
limitation, any security) any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset.
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SECTION 3.3 Authority Relative to This Agreement; Consents and Approvals.
(a) The Company has all necessary corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby (other than, with respect to the Merger and this Agreement,
the Company Requisite Vote (as hereinafter defined)). This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by each of Parent and the
Operating Company, constitutes a valid, legal and binding agreement of the
Company, enforceable against the Company in accordance with its terms.
(b) The Board of Directors of the Company (the "Company Board") has duly and
validly authorized the execution and delivery of this Agreement and approved
the consummation of the transactions contemplated hereby, and taken all
corporate actions required to be taken by the Company Board for the
consummation of the transactions, including the Merger, contemplated hereby and
has resolved (i) to deem this Agreement and the transactions contemplated
hereby, including the Merger, taken together, advisable and fair to, and in the
best interests of, the Company and its stockholders; and (ii) to recommend that
the stockholders of the Company approve and adopt this Agreement. The Company
Board has directed that this Agreement be submitted to the stockholders of the
Company for their approval at a meeting to be held for that purpose. The
affirmative vote of the holders of a majority of the voting stock of the
Company (which is comprised solely of the Company Common Stock and the Class A
Preferred Stock (collectively, the "Voting Shares")) (voting as a single class)
as of the record date for the Company Stockholders Meeting, and the affirmative
vote of the holders of a majority of the Voting Shares, excluding such shares
which are Interested Shares (as defined by Section 1701.01(CC) of the OGCL) of
the Company (voting as a single class) (together, the "Company Requisite Vote")
are the only votes of the holders of any class or series of capital stock of
the Company necessary to adopt this Agreement and approve the transactions
contemplated hereby, including the Merger. No other vote of the stockholders of
the Company is required by law, the articles of incorporation or the code of
regulations of the Company or otherwise in order for the Company to approve and
adopt this Agreement or to consummate the transactions contemplated hereby. The
Company Board has also approved this Agreement and the transactions
contemplated hereby, including the Merger, for the purposes of Chapter 1704 of
the Ohio Revised Code if and to the extent that Chapter 1704 is applicable
thereto.
SECTION 3.4 SEC Reports; Financial Statements.
(a) The Company has filed all required forms, reports and documents with SEC
since January 1, 1996, each of which has complied in all material respects with
all applicable requirements of the Securities Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), each as in effect on the dates
such forms, reports and documents were filed. The Company has heretofore
delivered to Parent, in the form filed with the SEC (including any amendments
thereto), (i) its Annual Reports on Form 10-K for each of the fiscal years
ended December 31, 1996, 1997 and 1998; (ii) all definitive proxy statements
relating to the Company's meetings of stockholders (whether annual or special)
held since January 1, 1996; and (iii) all other reports or registration
statements filed by the Company with the SEC since January 1, 1996 (the
"Company SEC Reports"). None of such forms, reports or documents, including,
without limitation, any financial statements or schedules included or
incorporated by reference therein, contained, when filed, any untrue statement
of a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of the Company included in
the Company SEC Reports complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto and fairly present, in conformity with generally
accepted accounting principles applied on a consistent basis ("GAAP") (except
as may be indicated in the notes thereto), the consolidated financial position
of the Company and its consolidated subsidiaries as of the dates thereof and
their consolidated results of operations and changes in financial position for
the periods then ended
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(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments). Except as set forth in Section 3.4(a) of the Company
Disclosure Schedule, since January 1, 1999, there has not been any change, or
any application or request for any change, by the Company or any of its
subsidiaries in accounting principles, methods or policies for financial
accounting or Tax purposes (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments).
(b) The Company has previously furnished Parent with copies of audited
annual and unaudited quarterly convention statements as filed with the
domiciliary state insurance department of each Insurance Subsidiary (as defined
in Section 3.9(b)) as of and for the years ended December 31, 1998, 1997, and
1996, and the quarter ended March 31, 1999, prepared in conformity with
accounting practices prescribed or permitted (including, without limitation,
accounting practices permitted by OCI in connection with the Orders, each as
defined below) by the National Association of Insurance Commissioners or the
insurance regulatory authority in the states in which the Insurance
Subsidiaries (as defined in Section 3.20(a)) are domiciled ("Stat"),
consistently applied throughout the specified period, except as permitted by
OCI in the Orders or as set forth in Section 3.18(xi) of the Company Disclosure
Schedule (collectively, the "SAP Financial Statements"). Each of the SAP
Financial Statements fairly presents in all material respects the financial
position of the applicable Insurance Subsidiary as of its date and each of the
statements of operation included in the SAP Financial Statements fairly
presents in all material respects the respective statutory financial positions
and the result of operations of the applicable Insurance Subsidiary for the
period therein set forth, in each case in accordance with Stat, consistently
applied throughout the specified period, except as permitted by OCI in the
Orders or as set forth in Section 3.18(xi) of the Company Disclosure Schedule.
Except as set forth in Section 3.4(b) of the Company Disclosure Schedule, each
of the SAP Financial Statements was correct in all material respects when filed
and there were no material omissions therefrom. The exhibits and schedules
included in the SAP Financial Statements, when considered in relation to the
basic statutory financial statements included therein, present fairly in all
material respects the information shown therein in accordance with Stat and the
SAP Financial Statements comply in all material respects with all applicable
regulatory requirements, as modified or waived by the applicable insurance
regulatory authority. "Orders" shall mean the orders issued by OCI in
connection with the run-off of Northwestern National Insurance Company ("NNIC")
including, without limitation, the Orders in case numbers 93-C23510, 94-C23861,
95-C24204, 96-C24597 and 97-C25031, and the documents and other orders referred
to therein. "OCI" shall mean the Office of the Commissioner of Insurance of the
State of Wisconsin.
(c) Except for the Guaranty (as hereinafter defined), neither the Company
nor any of its subsidiaries (i) has entered into any agreement, commitment or
understanding, written or otherwise (that is in effect on the date hereof or
will be in effect on the Closing Date), with any Governmental Entity or
Insurance Department which would obligate them to provide any form of financial
or balance sheet support of any nature whatsoever to Armco Financial Services
Corporation, Armco Insurance Group, Inc. and/or the Insurance Subsidiaries,
(ii) has any liabilities or obligations of any nature whatsoever, whether or
not accrued, contingent or otherwise, to any Person to provide any form of
financial or balance sheet support to Armco Financial Services Corporation,
Armco Insurance Group, Inc, and/or the Insurance Subsidiaries, (iii) has
knowledge of any claims, allegations, disputes or assertions by any Person,
including Insurance Departments, that any agreement or obligation of the type
referred to in subsection (i) or (ii) of this Section exist. "Guaranty" shall
mean the "Run-Off and Surplus Agreement," dated December 30, 1993 between Armco
Financial Services Corporation, Armco Insurance Group, Inc. and Northwest
National Insurance Company of Milwaukee which constitutes Exhibit A to the
Order of the Office of the Commissioner of Insurance of the State of Wisconsin,
dated December 30, 1993 (Case No. 93-C23510) as amended by the Orders, and the
agreements referred to therein, pursuant to which Armco Financial Services
Corporation and Armco Insurance Group, Inc. agreed to, among other things,
maintain the policyholder surplus of Northwestern National Insurance Company at
prescribed levels.
SECTION 3.5 No Undisclosed Liabilities. Neither the Company nor any of its
subsidiaries has any material liabilities or obligations of any nature, whether
or not accrued, contingent or otherwise, and there is no existing condition,
situation or set of circumstances known to the Company which could be expected
to result
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in such a liability or obligation, except (a) liabilities or obligations
reflected in the Company SEC Reports filed prior to the date hereof and (b)
liabilities or obligations incurred in the ordinary course of business which do
not and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
SECTION 3.6 Absence of Changes. Except as and to the extent publicly
disclosed in the Company SEC Reports filed prior to the date hereof, as set
forth in Section 3.6 of the Company Disclosure Schedule or as permitted by
Section 5.1, since December 31, 1998 (the "Audit Date") the Company and its
subsidiaries have conducted their business in the ordinary and usual course
consistent with past practice and there has not been:
(a) any event, change, occurrence or development which does or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company (other than any event, occurrence, development or
state of circumstances or facts resulting primarily from (i) changes in general
economic conditions or (ii) events or developments generally affecting the
industry in which the Company and its subsidiaries operate);
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company (other
than payment of the Company's regular quarterly cash dividend on Preferred
Stock), or any repurchase, redemption or other acquisition by the Company or
any subsidiary of any Company securities;
(c) any amendment of any term of any outstanding security of the Company or
any subsidiary;
(d) (i) any incurrence or assumption by the Company or any subsidiary of any
indebtedness for borrowed money (A) other than in the ordinary and usual course
of business consistent with past practice (it being understood that any
indebtedness incurred prior to the date hereof in respect of capital
expenditures shall be considered to have been in the ordinary and usual course
of business consistent with past practice) or (B) in connection with any
acquisition or capital expenditure permitted by Section 5.1 or (ii) any
guarantee, endorsement or other incurrence or assumption of liability (whether
directly, contingently or otherwise) by the Company or any subsidiary for the
obligations of any other person (other than any wholly owned subsidiary of the
Company), other than in the ordinary and usual course of business consistent
with past practice;
(e) any creation or assumption by the Company or any subsidiary of any Lien
on any material asset of the Company or any subsidiary other than in the
ordinary and usual course of business consistent with past practice;
(f) any making of any loan, advance or capital contribution to or investment
in any person by the Company or any subsidiary other than (i) any acquisition
permitted by Section 5.1, (ii) loans, advances or capital contributions to or
investments in wholly owned subsidiaries of the Company or (iii) loans or
advances to employees of the Company or any subsidiary made in the ordinary and
usual course of business consistent with past practice;
(g) (i) any contract or agreement entered into by the Company or any
subsidiary on or prior to the date hereof relating to any material acquisition
or disposition of any assets or business or (ii) any modification, amendment,
assignment, termination or relinquishment by the Company or any subsidiary of
any contract, license or other right (including any insurance policy naming it
as a beneficiary or a loss payable payee) that does or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company, other than, in the case of (i) and (ii), transactions,
commitments, contracts or agreements in the ordinary and usual course of
business consistent with past practice and those contemplated by this
Agreement;
(h) any material change in any method of accounting or accounting principles
or practice by the Company or any subsidiary, except for any such change
required by reason of a change in GAAP; or
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(i) any (i) grant of any severance or termination pay to any director,
officer or employee of the Company or any of its subsidiaries; (ii) entering
into of any employment, deferred compensation or other similar agreement (or
any amendment to any such existing agreement) with any director, officer or
employee of the Company or any of its subsidiaries (it being acknowledged and
agreed that the hiring of employees in the ordinary course of business on an
at-will basis shall not be deemed the entering into of an employment or similar
agreement); (iii) increase in benefits payable under any existing severance or
termination pay policies or employment agreements; or (iv) increase in
compensation, bonus or other benefits payable to directors, officers or
employees of the Company or any of its subsidiaries other than, in the case of
clause (iv) only, increases in compensation, bonus or other benefits payable to
employees of the Company or any of its subsidiaries in the ordinary and usual
course of business consistent with past practice or merit increases in salaries
of employees at regularly scheduled times in customary amounts consistent with
past practices.
SECTION 3.7 Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of Parent Common Stock as required by the terms of
this Agreement (the "Share Issuance") pursuant to the Merger (the "S-4"), at
the time the S-4 is filed with the SEC and at the time it becomes effective
under the Securities Act, will contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, and (ii) the proxy statement
relating to the Company Stockholder Meeting (as hereinafter defined) and the
Parent Stockholder Meeting (as defined in Section 4.5) to be held in connection
with the Merger and the Share Issuance (the "Proxy Statement") will, at the
date mailed to stockholders and at the times of the meetings of stockholders to
be held in connection with the Merger or the Share Issuance, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event with respect to the Company, its officers
and directors or any of its subsidiaries should occur which is required to be
described in an amendment of, or a supplement to, the S-4 or the Proxy
Statement, the Company shall promptly so advise Parent and such event shall be
so described, and such amendment or supplement (which Parent shall have a
reasonable opportunity to review) shall be promptly filed with the SEC and, as
required by Law, disseminated to the stockholders of the Company. The Proxy
Statement, insofar as it relates to the Company Stockholder Meeting, will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder.
SECTION 3.8 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the NYSE, the Securities Act, the Exchange
Act, state securities or blue sky Laws, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the New York State
Insurance Department, the Wisconsin Insurance Department and any other
applicable state insurance and regulatory agency (collectively, the "Insurance
Departments"), the filing and recordation of the Certificates of Merger as
required by the DGCL and the OGCL, filings under Environmental Laws (as defined
in Section 3.15) and as otherwise set forth in Section 3.8 to the Company
Disclosure Schedule (collectively, the "Company Required Approvals"), no filing
with or notice to, and no permit, authorization, consent or approval of, any
court or tribunal or administrative, governmental or regulatory body, agency or
authority, including Insurance Departments (a "Governmental Entity") is
necessary for the execution and delivery by the Company of this Agreement or
the consummation by the Company of the transactions contemplated hereby, except
(other than in respect those to be obtained from Insurance Departments) where
the failure to obtain such permits, authorizations, consents or approvals or to
make such filings or give such notice does not and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company. Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby will (i) conflict with or result in any breach
of any provision of the respective articles or certificate of incorporation or
code of regulations or bylaws (or similar governing documents) of the Company
or any of its subsidiaries, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or
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acceleration or Lien) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which any of them or any of their respective properties or assets
may be bound (collectively, the Company Agreements "Company Agreements"), or
(iii) violate any Law applicable to the Company or any of its subsidiaries or
any of their respective properties or assets, except in the case of (ii) or
(iii) for violations, breaches or defaults which do not or would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company. Section 3.8 of the Company Disclosure Schedule sets
forth a list of all material third party consents and approvals required to be
obtained under the Company Agreements prior to the consummation of the
transactions contemplated by this Agreement.
SECTION 3.9 No Default. Neither the Company nor any of its subsidiaries is
in violation of any term of (i) its articles or certificate of incorporation,
code of regulations, bylaws or other organizational documents, (ii) any
agreement or instrument related to indebtedness for borrowed money or any other
agreement to which it is a party or by which it is bound, or (iii) any foreign
or domestic law, order, writ, injunction, decree, ordinance, award,
stipulation, statute, judicial or administrative doctrine, rule or regulation
entered by a Governmental Entity ("Law") applicable to the Company, its
subsidiaries or any of their respective properties or assets, except, in the
case of (ii) and (iii), for violations which do not or would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company or to prevent or materially delay the performance of this
Agreement by the Company.
SECTION 3.10 Real Property.
(a) Section 3.10(a) of the Company Disclosure Schedule sets forth all of the
real property owned in fee by the Company and its subsidiaries that is used as
a manufacturing or office facility or is otherwise material to the conduct of
the business of the Company and its subsidiaries, taken as a whole. Each of the
Company and its subsidiaries has good and marketable title to each parcel of
real property owned by it free and clear of all Liens, except (i) Taxes and
general and special assessments not in default and payable without penalty and
interest, and (ii) other liens, mortgages, pledges, encumbrances and security
interests which do not materially interfere with the Company's of any of its
subsidiaries' use and enjoyment of such real property or materially detract
from or diminish the value thereof.
(b) Section 3.10(b) of the Company Disclosure Schedule sets forth all
leases, subleases and other agreements (the "Real Property Leases") under which
the Company or any of its subsidiaries uses or occupies or has the right to use
or occupy, now or in the future, any real property that is used as a
manufacturing or office facility or is otherwise material to the conduct of the
business of the Company and its subsidiaries, taken as a whole. The Company has
heretofore delivered to Parent true, correct and complete copies of all Real
Property Leases (and all modifications, amendments and supplements thereto and
all side letters to which the Company or any of its subsidiaries is a party
affecting the obligations of any party thereunder). Each Real Property Lease
constitutes the valid and legally binding obligation of the Company or its
subsidiaries, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general
applicability relating to or affecting creditors' rights or by general equity
principles), and is in full force and effect. All rent and other sums and
charges payable by the Company and its subsidiaries as tenants under each Real
Property Lease are current, no termination event or condition or uncured
default of a material nature on the part of the Company or any such subsidiary
or, to the Company's knowledge, the landlord, exists under any Real Property
Lease. Each of the Company and its subsidiaries has a good and valid leasehold
interest in each parcel of real property leased by it free and clear of all
Liens, except (i) Taxes and general and special assessments not in default and
payable without penalty and interest, and (ii) other liens, mortgages, pledges,
encumbrances and security interests which do not materially interfere with the
Company's or any of its subsidiaries' use and enjoyment of such real property
or materially detract from or diminish the value thereof.
(c) No party to any such Real Property Leases has given notice to the
Company or any of its subsidiaries of or made a claim against the Company or
any of its subsidiaries with respect to any material breach or default
thereunder.
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SECTION 3.11 Litigation. Except as and to the extent publicly disclosed by
the Company in the Company SEC Reports filed prior to the date hereof or as set
forth in Section 3.11 of the Company Disclosure Schedule, there is no suit,
claim, action, proceeding or investigation pending or, to the Company's
knowledge, threatened against the Company or any of its subsidiaries or any of
their respective properties or assets which (a) does or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company or (b) as of the date hereof, questions the validity of this
Agreement or any action to be taken by the Company in connection with the
consummation of the transactions contemplated hereby or could otherwise prevent
or delay the consummation of the transactions contemplated by this Agreement.
Except as and to the extent publicly disclosed by the Company in the Company
SEC Reports filed prior to the date hereof, there is no judgment, order, writ,
injunction or decree outstanding against the Company or its subsidiaries which
does or would reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company.
SECTION 3.12 Company Permits; Compliance with Applicable Laws. The Company
and its subsidiaries hold all permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "Company Permits"), except (other than in
respect of the Company Permits of the Insurance Subsidiaries) for failures to
hold such permits, licenses, variances, exemptions, orders and approvals which
do not or would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company. The Company and its
subsidiaries are in compliance in all material aspects with the terms of the
Company Permits, except where the failure to so comply does not or would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. The businesses of the Company and its
subsidiaries are not being conducted in violation of any Law applicable to the
Company or its subsidiaries, except that no representation or warranty is made
in this Section 3.12 with respect to Environmental Laws and except for
violations or possible violations which do not and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company. To the Company's knowledge, no investigation or review by any
Governmental Entity with respect to the Company or its subsidiaries is pending
or threatened, nor, to the Company's knowledge, has any Governmental Entity
indicated an intention to conduct the same.
SECTION 3.13 Employee Plans.
(a) Section 3.13(a) of the Company Disclosure Schedule sets forth a list of
all "employee benefit plans," as defined in Section 3(3) of ERISA, all
employment, executive compensation, consulting or other compensation
agreements, and all stock option, stock award, stock purchase or other equity-
based compensation, deferred compensation, severance, salary continuation, life
insurance, bonus or other incentive compensation programs or arrangements, and
directors' benefit, bonus or other incentive compensation arrangements, for
which the Company or any of its subsidiaries has any obligation to or
liability, contingent or otherwise, (each, an "Employee Benefit Plan" and
collectively, the "Employee Benefit Plans"); other than Employee Benefit Plans
which do not cover any of the Company's employees whose annual compensation
exceeds $100,000, officers or directors, have been in existence for at least
two years without material modification, and which (i) are fully funded through
insurance policies or assets held in trusts, (ii) are welfare benefit plans
covering only bargaining unit employees during their employment and their
eligible dependents for which the costs of all accrued liabilities have been
properly reflected in the Company's financial statements, or (iii) are
terminable at will without more than 60 days' prior notice or consent and
without any penalty or additional payment in excess of benefits accrued prior
to the date of termination (and such accrued benefits have been properly
reflected as liabilities in the Company's financial statements). Section
3.13(a) of the Company Disclosure Schedule separately identifies each Employee
Benefit Plan which is subject to Title IV of ERISA. None of the Employee
Benefit Plans is a multiemployer plan, as defined in Section 3(37) of ERISA
("Multiemployer Plan"), or is or has been subject to Sections 4063 or 4064 of
ERISA ("Multiple Employer Plans").
(b) True, correct and complete copies of the following documents, with
respect to each of the Employee Benefit Plans set forth in Section 3.13(a) of
the Disclosure Schedule have been delivered to Parent by the
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Company (i) any plans and related trust documents, and amendments thereto; (ii)
the most recent Form 5500 and schedules thereto; (iii) the most recent
financial actuarial valuation, if applicable; and (iv) summary plan
descriptions. Company has made available to Parent the actuary or actuaries who
are responsible for each Employee Benefit Plan that is (i) a welfare plan
providing for post-employment medical or death benefit coverage or (ii) subject
to Title IV of ERISA.
(c) As of the date hereof, (i) all contributions or other payments required
to be made by or under any Employee Benefit Plan, any related trusts, or any
collective bargaining agreement or pursuant to Law have been made by the due
date therefor (including any valid extension); (ii) the Company and its
subsidiaries have performed all obligations required to be performed by them
under any Employee Benefit Plan; (iii) the Employee Benefit Plans have been
administered in compliance with their terms and the requirements of ERISA, the
Code and other applicable Laws; and (iv) there are no material actions, suits,
arbitrations or claims (other than routine claims for benefit) pending or, to
the knowledge of the Company, threatened with respect to any Employee Benefit
Plan, except for such events, acts or omissions that would not have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(d) Except as set forth in Section 3.13(d) of the Company Disclosure
Schedule or could not reasonably be expected to have a Material Adverse Effect
on the Company:
(i) Neither the Company nor any ERISA Affiliate has terminated any Title
IV Plan for which there is any outstanding liability under Title IV of
ERISA, and no event has occurred that could reasonably be expected to
result in any liability under Title IV of ERISA (other than payment of PBGC
premiums which are not overdue).
(ii) Neither the Company nor any ERISA Affiliate or any organization to
which the Company or any ERISA Affiliate is a successor or Parent
corporation, within the meaning of Section 4069(b) of ERISA, has engaged in
any transaction within the last five years which might be alleged to come
within the meaning of Section 4069 of ERISA.
(e) Each of the Employee Benefit Plans which is intended to be "qualified"
within the meaning of Section 401(a) of the Code has been determined by the IRS
to be so "qualified" and the trusts maintained pursuant thereto are exempt from
federal income taxation under Section 501 of the Code, and the Company knows of
no fact which would adversely affect the qualified status of any such Pension
Plan or the exemption of such trust.
(f) Except as set forth in Section 3.13(f) or 6.11 of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will by itself or in
combination with any other event (i) result in any payment becoming due, or
increase the amount of compensation due, to any current or former employee of
the Company or any of its subsidiaries; (ii) increase any benefits otherwise
payable under any Employee Benefit Plan; or (iii) result in the acceleration of
the time of payment or vesting of any such benefits.
SECTION 3.14 Labor Matters.
(a) Section 3.14(a) of the Company Disclosure sets forth a list of all
employment, labor or collective bargaining agreements to which the Company or
any subsidiary is party and except as set forth therein, there are no
employment, labor or collective bargaining agreements which pertain to
employees of the Company or any of its subsidiaries. The Company has heretofore
delivered to Parent true and complete copies of (i) the employment agreements
listed on Section 3.14(a) of the Company Disclosure Schedule and (ii) the labor
or collective bargaining agreements listed on Section 3.14(a) of the Company
Disclosure Schedule, together with all material amendments, modifications and
supplements thereto and side letters materially affecting the duties, rights
and obligations of any party thereunder.
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(b) No labor organization or group of employees of the Company or any of its
subsidiaries has made a pending demand for recognition or certification; and,
to the Company's knowledge, there are no representation or certification
proceedings or petitions seeking a representation proceeding presently pending
or threatened in writing to be brought or filed with the National Labor
Relations Board or any other labor relations tribunal or authority. To the
Company's knowledge, there are no organizing activities involving the Company
or any of its Subsidiaries pending with any labor organization or group of
employees of the Company or any of its subsidiaries.
(c) Except as set forth in Section 3.14(c) of the Company Disclosure
Schedule, there are no unfair labor practice charges, grievances or complaints
pending or threatened in writing by or on behalf of any employee or group of
employees of the Company or any of its Subsidiaries which do or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the operations of the Company.
(d) Except as set forth in Section 3.14(d) of the Company Disclosure
Schedule, there are no complaints, charges or claims against the Company or any
of its subsidiaries pending, or threatened in writing to be brought or filed,
with any Governmental Entity or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment of any individual by the Company or any of its subsidiaries.
(e) The Company and each of its subsidiaries is in compliance in all
material respects with all Laws relating to the employment of labor, including
all such Laws and orders relating to wages, hours, collective bargaining,
discrimination, civil rights, safety and health workers' compensation and the
collection and payment of withholding and/or Social Security Taxes and similar
Taxes.
(f) Except as set forth in Section 3.14(f) of the Company Disclosure
Schedule, since the enactment of the Worker Adjustment and Retraining
Notification Act (the "WARN Act"), neither the Company nor any of its
subsidiaries has effectuated (i) a "plant closing" (as defined in the WARN Act,
or any similar state, local or foreign Law) affecting any site of employment or
one or more facilities or operating units within any site of employment or
facility of the Company or any of its Subsidiaries; or (ii) a "mass layoff" (as
defined in the WARN Act, or any similar state, local or foreign Law) affecting
any site of employment or facility of the Company or any of its subsidiaries.
SECTION 3.15 Environmental Matters.
(a) For purposes of this Agreement:
(i) "Environmental Costs and Liabilities" means any and all losses,
liabilities, obligations, damages (including compensatory, punitive and
consequential damages), fines, penalties, judgments, actions, claims, costs
and expenses (including, without limitation, fees, disbursements and
expenses of legal counsel, experts, engineers and consultants and the costs
of investigation and feasibility studies and clean up, remove, treat, or in
any other way address any Hazardous Materials (as hereinafter defined))
arising from, under or pursuant to any Environmental Law (as hereinafter
defined);
(ii) "Environmental Law" means any applicable federal, state, local or
foreign Law (including common Law), statute, rule, regulation, ordinance,
decree or other legal requirement relating to the protection of natural
resources, the environment and public and employee health and safety or
pollution or the release or exposure to Hazardous Materials (as hereinafter
defined) and shall include, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") (42
U.S.C. (S)9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. (S)1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. (S)6901 et seq.), the Clean Water Act (33 U.S.C. (S)1251 et seq.),
the Clean Air Act (33 U.S.C. (S)7401 et seq.), the Toxic Substances Control
Act (15 U.S.C. (S)7401 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. (S)136 et seq.), and the
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Occupational Safety and Health Act (29 U.S.C. (S)651 et seq.) ("OSHA") and
the regulations promulgated pursuant thereto, and any such applicable state
or local statutes, and the regulations promulgated pursuant thereto, as
such Laws have been and may be amended or supplemented through the Closing
Date;
(iii) "Hazardous Material" means any substance, material or waste which
is regulated, classified or otherwise characterized as hazardous, toxic,
pollutant, contaminant or words of similar meaning or regulatory effect by
any Governmental Entity or the United States, and includes, without
limitation, petroleum, petroleum by-products and wastes, asbestos and
polychlorinated biphenyls;
(iv) "Release" means any release, spill, effluent, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching, or
migration into the indoor or outdoor environment, or into or out of any
property owned, operated or leased by the applicable party or its
subsidiaries; and
(v) "Remedial Action" means all actions, including, without limitation,
any capital expenditures, required by a Governmental Entity or required
under or taken pursuant to any Environmental Law, or voluntarily undertaken
to (A) clean up, remove, treat, or in any other way, ameliorate or address
any Hazardous Materials or other substance in the indoor or outdoor
environment; (B) prevent the Release or threat of Release, or minimize the
further Release of any Hazardous Material so it does not endanger or
threaten to endanger the public health or welfare of the indoor or outdoor
environment; (C) perform pre-remedial studies and investigations or post-
remedial monitoring and care pertaining or relating to a Release; or (D)
bring the applicable party into compliance with any Environmental Law.
(b) Except as set forth in Section 3.15 of the Company Disclosure Schedule:
(i) The operations of the Company and its subsidiaries have been and, as
of the Closing Date, will be, in compliance with all Environmental Laws,
except for noncompliance that does not and would not reasonably be expected
to result in the Company and its subsidiaries incurring material
Environmental Costs and Liabilities, and the Company is not aware of any
facts, circumstances or conditions, which without significant capital
expenditures, would prevent material compliance in the future;
(ii) The Company and its subsidiaries have obtained and will, as of the
Closing Date, maintain all material permits, authorizations, licenses or
similar approvals required under applicable Environmental Laws for the
continued operations of their respective businesses;
(iii) The Company and its subsidiaries are not subject to any
outstanding written orders or material contracts with any Governmental
Entity or other person respecting (A) Environmental Laws, (B) Remedial
Action or (C) any Release or threatened Release of a Hazardous Material;
(iv) The Company and its subsidiaries have not received any written
communication alleging, with respect to any such party, the material
violation of or material liabilities (real or potential), in each case,
individually or in the aggregate, under any Environmental Law;
(v) Neither the Company nor any of its subsidiaries has any material
contingent liability in connection with the Release of any Hazardous
Material (whether on-site or off-site);
(vi) The operations of the Company or its subsidiaries do not involve
the generation, transportation, treatment, storage or disposal of hazardous
waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in effect as
of the date of this Agreement) or any state equivalent;
(vii) There is not now, nor to the Company's knowledge, has there been
in the past, on or in any property of the Company or its subsidiaries any
of the following: (A) any underground storage tanks or surface
impoundments, (B) any asbestos-containing materials, or (C) any
polychlorinated biphenyls; and
(viii) No judicial or administrative proceedings are pending or, to the
Company's knowledge, threatened against the Company and its subsidiaries
alleging the violation of or seeking to impose liability pursuant to any
Environmental Law and there are no investigations pending or, to the
Company's knowledge, threatened against the Company or any of its
subsidiaries under Environmental Laws.
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(c) None of the exceptions set forth in Section 3.15 of the Company
Disclosure Schedule is reasonably likely to result in the Company and its
subsidiaries incurring Environmental Costs and Liabilities which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(d) The Company has provided Parent and Purchaser with copies of all
environmentally related assessments, audits, investigations, sampling or
similar reports relating to the Company or its subsidiaries or any real
property currently or formerly owned, operated or leased by or for the Company
and its subsidiaries.
SECTION 3.16 Taxes. Except as disclosed on Section 3.16 of the Company
Disclosure Schedule:
(a) Each of the Company and each subsidiary of the Company has timely filed,
or has caused to be timely filed on its behalf (taking into account any
extension of time within which to file), all Tax Returns (as hereinafter
defined) required to be filed by it, and all such filed Tax Returns are true,
complete and accurate in all material respects. All Taxes shown to be due on
such Tax Returns, or otherwise required to be paid by the Company or a
subsidiary of the Company, have been timely paid.
(b) The most recent financial statements contained in the Company SEC
Reports reflect an adequate reserve for all Taxes payable by the Company and
its subsidiaries for all Taxable periods and portions thereof through the date
of such financial statements. No deficiency with respect to Taxes has been
proposed, asserted or assessed against the Company or any subsidiary of the
Company. No liens for Taxes exist with respect to any asset of the Company or
any subsidiary of the Company, except for statutory liens for Tax not yet due.
(c) The Federal income Tax Returns of the Company and each subsidiary of the
Company have been examined by and settled with the United States Internal
Revenue Service (or the applicable statute of limitations has expired) for all
years through 1994, and the material state income and franchise Tax Returns of
the Company and each subsidiary of the Company have been examined by and
settled with the applicable state Tax authorities for the years specified in
Section 3.16(c) of the Company Disclosure Schedule. All assessments for Taxes
due with respect to such completed and settled examinations or any concluded
litigation have been fully paid.
(d) Neither the Company nor any subsidiary of the Company has any obligation
under any agreement (either with any person or any taxing authority) with
respect to Taxes.
(e) Neither the Company nor any subsidiary of the Company has constituted
either a "distributing corporation" or a "controlled corporation" (within the
meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock
qualifying for tax-free treatment under Section 355 of the Code.
(f) Neither the Company nor any subsidiary of the Company has been a member
of an affiliated group of corporations within the meaning of Section 1504 of
the Code, other than the affiliated group of which the Company is the common
parent.
(g) No audit or other administrative or court proceedings are pending with
respect to Federal income or state income or franchise Taxes of the Company or
any subsidiary of the Company and no notice thereof has been received. No issue
has been raised by any taxing authority in any presently pending Federal income
or state income or franchise Tax audit that could be material and adverse to
the Company or any subsidiary of the Company for any period after the Effective
Time.
(h) No claim has been made by a taxing authority in a jurisdiction where
neither the Company nor any subsidiary of the Company files state income or
franchise Tax Returns that the Company or any subsidiary of the Company is or
may be subject to income or franchise taxation in that jurisdiction.
(i) Neither the Company nor any subsidiary of the Company is a party to any
contract, agreement or other arrangement which provides for the payment of any
amount which would not be deductible by reason of Section 162(m) or Section
280G of the Code.
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(j) The Company has made available to Parent true and complete copies of (i)
all Federal income and all material state income and franchise Tax Returns of
the Company and its subsidiaries filed for the preceding three taxable years
for which filings have been made and (ii) any audit report issued within the
last three years (or otherwise with respect to any audit or proceeding in
progress) relating to Taxes of the Company or any subsidiary of the Company.
(k) No subsidiary of the Company owns any Shares.
(l) For purposes of this Agreement:
"Taxes" includes all forms of taxation, whenever created or imposed, and
whether of the United States or elsewhere, and whether imposed by a local,
municipal, governmental, state, foreign, Federal or other Governmental
Entity, or in connection with any agreement with respect to Taxes including
all interest, penalties and additions imposed with respect to such amounts.
"Tax Returns" means all Federal, state, local, provincial and foreign
Tax returns, declarations, statements, reports, schedules, forms and
information returns and any amended Tax return relating to Taxes.
SECTION 3.17 Absence of Questionable Payments.
(a) Neither the Company nor any of its subsidiaries nor, to the Company's
knowledge, any director, officer, agent, employee or other person acting on
behalf of the Company or any of its subsidiaries, has used any corporate or
other funds for unlawful contributions, payments, gifts, or entertainment, or
made any unlawful expenditures relating to political activity to government
officials or others or established or maintained any unlawful or unrecorded
funds in violation of Section 30A of the Exchange Act. Neither the Company nor
any of its subsidiaries nor, to the Company's knowledge, any director, officer,
agent, employee or other person acting on behalf of the Company or any of its
subsidiaries, has accepted or received any unlawful contributions, payments,
gifts, or expenditures. To the Company's knowledge, the Company and each of its
subsidiaries which is required to file reports pursuant to Section 12 or 15(d)
of the Exchange Act is in compliance with the provisions of Section 13(b) of
the Exchange Act.
SECTION 3.18 Material Contracts.
(a) Section 3.18 of the Company Disclosure Schedule sets forth a list of all
Material Contracts (as hereinafter defined). The Company has heretofore made
available to Parent true, correct and complete copies of all written or oral
contracts and agreements (and all material amendments, modifications and
supplements thereto and all side letters to which the Company or any of its
subsidiaries is a party materially affecting the obligations of any party
thereunder) to which the Company or any of its subsidiaries is a party or by
which any of its properties or assets are bound that are material to the
business, properties or assets of the Company and its subsidiaries taken as a
whole, including, without limitation, all: (i) employment, severance, personal
services or consulting contracts (other than any such contracts that are
terminable without penalty upon not more than 90 days notice), and all non-
competition or indemnification contracts with current or former directors,
officers or employees of the Company or any of its subsidiaries (including,
without limitation, any contract to which the Company or any of its
subsidiaries is a party involving employees of the Company); (ii) material
license agreements relating to Intellectual Property (as defined in Section
3.21) granting to the Company a license to practice technology used in the
conduct of its current operations; (iii) contracts granting a right of first
refusal or first negotiation for essential properties, services or supplies, or
material sales not in the ordinary course; (iv) partnership or joint venture
agreements; (v) agreements for the acquisition, sale or lease (including leases
in connection with financing transactions) of any properties or assets of the
Company with a value in excess of $3 million (by merger, purchase or sale of
assets or stock or otherwise) entered into since January 1, 1996; (vi) material
contracts or agreements with any Governmental Entity; (vii) loan or credit
agreements, mortgages, indentures or other agreements or instruments evidencing
(A) indebtedness for borrowed money by the
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Company or any of its subsidiaries or any such agreement pursuant to which
indebtedness for borrowed money may be incurred (including guaranties) or (B)
Liens securing any such indebtedness; (viii) agreements that purport to limit,
curtail or restrict the ability of the Company or any of its subsidiaries, or
would restrict the ability of Parent or any of its subsidiaries, to compete in
any geographic area or line of business; (ix) agreements or arrangements,
including but not limited to hedges, options, swaps, caps and collars, designed
to protect the Company or any of its subsidiaries against fluctuations in
interest rates, currency exchange rates or the prices of certain commodities
and raw materials; (x) to the extent not otherwise required to be disclosed
pursuant to any other clause of this Section 3.18(a), contracts or agreements
that would be required to be filed as an exhibit to a Form 10-K filed by the
Company with the SEC on the date hereof; (xi) contracts, agreements or
understandings with Insurance Departments; and (xii) commitments and agreements
to enter into any of the foregoing (collectively, together with any such
contracts entered into in accordance with Section 5.1 hereof, the "Material
Contracts"). Except as set forth in Section 3.18 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to or
bound by any severance or other agreement with any employee or consultant
pursuant to which such person would be entitled to receive any additional
compensation or an accelerated payment of compensation as a result of (x) the
consummation of the transactions contemplated hereby or (y) the termination of
such employment or consulting following such consummation.
(b) Each of the Material Contracts is in full force and effect. There is no
breach or default under any Material Contract either by the Company or, to the
Company's knowledge, by any other party thereto, and no event has occurred that
with the lapse of time or the giving of notice or both would constitute a
breach or default thereunder by the Company or, to the Company's knowledge, any
other party, except for any such breach or default as does not or would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(c) No party to any such Material Contract has given notice to the Company
of or made a claim against the Company with respect to any breach or default
thereunder, except for any such breach or default as does not or would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
SECTION 3.19 Insurance. Section 3.19 of the Company Disclosure Schedule sets
forth a list of insurance policies (including information on the scope and
amount of the coverage and deductibles provided thereunder) maintained by the
Company or any of its subsidiaries which policies have been issued by insurers,
which, to the Company's knowledge, are reputable and financially sound and
provide coverage for the operations conducted by the Company and its
subsidiaries of a scope and coverage consistent with customary industry
practice. The Company has delivered to Parent a true and correct copy of the
claims history under such policies from January 1, 1998 through the date
hereof.
SECTION 3.20 Insurance Business.
(a) Set forth in Section 3.20(a) of the Company Disclosure Schedule is a
list of all subsidiaries of the Company engaged in the insurance business (the
"Insurance Subsidiaries") and each jurisdiction in which the regular conduct of
the business of each Insurance Subsidiary requires it to be qualified as an
insurer. Except as set forth in Section 3.20(a) of the Company Disclosure
Schedule, no certificate of authority with respect to any jurisdiction set
forth in Section 3.20(a) of the Company Disclosure Schedule has been revoked,
restricted, suspended, limited or modified nor is any such certificate of
authority the subject of a proceeding for revocation, restriction, suspension,
limitation or modification, nor is any Insurance Subsidiary operating under any
formal or informal agreement or understanding with the licensing authority of
any state which restricts its authority to do business or requires any
Insurance Subsidiary to take, or refrain from taking, any action.
(b) Except as set forth in Section 3.20(b) of the Company Disclosure
Schedule, each of the Insurance Subsidiaries holds in full force and effect all
licenses, franchises, permits and authorizations ("Permits") necessary for the
conduct of their respective businesses as currently conducted under and
pursuant to any
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applicable Insurance Law (as defined below) relating to the Company and the
Subsidiaries, and there has been no violation of any Permit nor has it received
written notice asserting any such violation. "Insurance Laws" means any
statute, rule or regulation issued by any governmental agency (including,
without limitation, any insurance regulatory agency or body) that relates to
the business conducted by the Insurance Subsidiaries.
SECTION 3.21 Intellectual Property.
(a) Section 3.21 of the Company Disclosure Schedule sets forth a list of all
patents, patent rights, invention disclosure statements, trademarks, trademark
rights, trade names, trade name rights, service marks, and all applications for
any of the foregoing, of the Company and its subsidiaries the absence of which
would reasonably be expected to have a Material Adverse Effect with respect to
the Company. Except as set forth in Section 3.21 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is entitled to
receive or obligated to pay any royalties or similar payments in respect of
Intellectual Property.
(b) The Company and its subsidiaries own or possess adequate licenses or
other valid rights to use (in each case, free and clear of any Liens), all
Intellectual Property (as hereinafter defined) used or held for use in
connection with the business of the Company and its subsidiaries as currently
conducted or as contemplated to be conducted and the absence of which ownership
or rights would reasonably be expected to have a Material Adverse Effect with
respect to the Company.
(c) The use of any Intellectual Property by the Company and its subsidiaries
does not infringe on, or otherwise violate the rights of any person and is in
accordance with any applicable license pursuant to which the Company or any of
its subsidiaries acquired the right to use any material Intellectual Property,
except where the result of such infringement, violation or failure does not and
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect with respect to the Company.
(d) No person is challenging or, to the knowledge of the Company, infringing
on or otherwise violating any right of the Company or any of its subsidiaries
with respect to any Intellectual Property owned by and/or licensed to the
Company or its subsidiaries, except where the result of such challenge,
infringement or violation does not and would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect with
respect to the Company.
(e) Neither the Company nor any of its subsidiaries has received any notice
(written or otherwise) of any assertion or claim, pending or not, with respect
to any Intellectual Property used by the Company or its subsidiaries, except
where the result of such assertion or claim does not and would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to the Company.
(f) No material Intellectual Property owned/or licensed by the Company or
its subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual Property,
other than as does not and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
For purposes of this Agreement, "Intellectual Property" means (i) all
trademarks, trademark rights, trade names, trade name rights, trade dress and
other indications of origin, corporate names, brand names, logos, certification
rights, service marks, applications for trademarks and for service marks, know-
how and other proprietary rights and information, the goodwill associated with
the foregoing and registration in any jurisdiction of, and applications in any
jurisdictions to register, the foregoing, including any extension, modification
or renewal of any such registration or application; (ii) all inventions,
discoveries and ideas (whether patentable or unpatentable and whether or not
reduced to practice), in any jurisdiction, all improvements thereto, and all
patents, patent rights, applications for patents (including, without
limitation, divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; (iii) all licenses (whether the Company is licensor or licensee)
and other agreements relating to any Intellectual Property described in (i) or
(ii); (iv) nonpublic information, trade secrets
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and confidential information and rights in any jurisdiction to limit the use or
disclosure thereof by any person; (v) writings and other works, whether
copyrightable or not, in any jurisdiction, and all registrations or
applications for registration of copyrights in any jurisdiction, and any
renewals or extensions thereof; (vi) all mask works and all applications,
registrations and renewals in connection therewith, in any jurisdiction; (vii)
all computer software (including data and related documentation); (viii) any
similar intellectual property or proprietary rights; and (ix) all copies and
tangible documentation thereof and any claims or causes of action arising out
of or relating to any infringement or misappropriation of any of the foregoing.
SECTION 3.22 Year 2000. The Company and its subsidiaries have developed and
are executing a plan with respect to Year 2000 readiness (the "Company Year
2000 Plan"). The Company has provided Parent with a copy of the Company Year
2000 Plan and has provided a report on the status of the Company Year 2000 Plan
through April 30, 1999 that is accurate in all material respects. The Company
Year 2000 Plan addresses the Year 2000 issues which, to the knowledge of the
Company, are material to the Company and its subsidiaries, including internal
information systems and process control risks, embedded circuitry risks and
third party risks.
SECTION 3.23 Opinion of Financial Advisor. Salomon Smith Barney Inc. (the
"Financial Advisor") has delivered to the Company Board its opinion, dated the
date of this Agreement, to the effect that, as of such date, the consideration
to be received by the holders of Shares in the Merger is fair to such holders
from a financial point of view, and, as of the date hereof, such opinion has
not been withdrawn or modified.
SECTION 3.24 Brokers. No broker, finder or investment banker (other than the
Financial Advisor, a true and correct copy of whose engagement agreement has
been provided to Parent) is entitled to any brokerage, finder's or other fee or
commission or expense reimbursement in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
the Company or any of its affiliates.
SECTION 3.25 Accounting Matters; Tax Treatment. Neither the Company nor any
of its affiliates or stockholders has taken or agreed to take any action or is
aware of any fact or circumstance that would (i) prevent the Merger from
qualifying as a "pooling of interests" under APB 16 and the applicable SEC
rules and regulations (except that no representation is made to the effect that
the transactions contemplated by this Agreement will so qualify) or (ii)
prevent the Merger from qualifying as a reorganization under Section 368 of the
Code. The Company has not failed to bring to the attention of Parent any
actions, agreements or understandings, whether written or oral, that would be
reasonably likely to prevent Parent from accounting for the Merger as a
"pooling of interests" under APB 16 and the applicable SEC rules and
regulations.
SECTION 3.26 Takeover Statutes. The Company has taken all action required to
be taken by it in order to exempt this Agreement and the transactions
contemplated hereby from, and this Agreement and the transactions contemplated
hereby (the "Covered Transactions") are exempt from, the requirements of any
"moratorium," "control share," "fair price," "affiliate transaction," "business
combination" or other antitakeover Laws and regulations of any state
(collectively, "Takeover Statutes"), including, without limitation, any
antitakeover provision in the Company's articles of incorporation or code of
regulations, other than the provisions of Section 1701.831 of the OGCL (the
"Control Shares Acquisition Law"). The requirements of the Control Shares
Acquisitions Law will be satisfied upon delivery to the stockholders of the
Company of the Acquiring Person Statement (as defined in Section 6.1 hereof)
and receipt of the Company Requisite Vote.
SECTION 3.27 Amendment to the Company Rights Agreement. The Company Board
has taken all necessary action (including any amendment thereof) under the
Company Rights Agreement so that (a) none of the execution or delivery of this
Agreement, the exchange of the shares of Parent Common Stock for the Shares in
accordance with Article II, or any other transaction contemplated hereby will
cause (i) the rights (the "Rights") issued pursuant to the Company Rights
Agreement to become exercisable under the Company
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Rights Agreement, or a Distribution Date (as defined on the Company Rights
Agreement), (ii) Parent or the Operating Company to be deemed an Acquiring
Person (as defined in the Company Rights Agreement), or (iii) the Distribution
Date (as defined in the Company Rights Agreement) to occur upon any such event;
and (b) the Expiration Date (as defined in the Company Rights Agreement) of the
Rights shall occur immediately prior to the Effective Time.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUBSIDIARY
Except as set forth in the disclosure schedule delivered by Parent to the
Company prior to the execution of this Agreement (the "Parent Disclosure
Schedule") (each Section of which qualifies the correspondingly numbered
representation and warranty or covenant to the extent specified therein),
Parent and the Operating Company hereby represent and warrant to the Company as
follows:
SECTION 4.1 Organization.
(a) Each of Parent and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its businesses as now conducted or
proposed by Parent or the Operating Company to be conducted, except where the
failure to be duly organized, existing and in good standing or to have such
power and authority would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Parent.
(b) Each of Parent and its subsidiaries is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
duly qualified or licensed and in good standing does not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent.
(c) Parent has heretofore delivered to the Company accurate and complete
copies of the articles of incorporation and bylaws of Parent as currently in
effect.
SECTION 4.2 Capitalization of Parent.
(a) The authorized capital stock of the Parent consists of 200,000,000
shares of Parent Common Stock and 25,000,000 shares of preferred stock, par
value $.01 per share ("Parent Preferred Stock"). As of April 30, 1999 (i)
59,413,295 shares of Parent Common Stock are issued and outstanding; (ii)
2,111,482 shares of Parent Common Stock were subject to outstanding options
issued pursuant to Parent's 1998 Stock Incentive Plan (the "1998 Stock
Incentive Plan"), and 4,539,159 shares of Parent Common Stock were reserved for
issuance under the 1998 Stock Incentive Plan; and (iii) 4,877,625 shares of
Parent Common Stock were issued and held in the treasury of the Parent. As of
the date hereof, no shares of Parent Preferred Stock are issued and outstanding
and 297,066 shares of Parent Preferred Stock are reserved for issuance upon
exercise of the Parent Rights pursuant to the Parent Rights Agreement. All the
outstanding shares of Parent Common Stock are, and all shares to be issued as
part of the Common Merger Consideration will be, when issued in accordance with
the terms hereof, duly authorized, validly issued, fully paid and non-
assessable. Except as set forth above, and except for the transactions
contemplated by this Agreement and Parent's obligations under the Parent Rights
Agreement, as of the date of this Agreement (1) there are no shares of capital
stock or other voting securities of Parent authorized, issued or outstanding,
(2) there are no authorized or outstanding options, warrants, calls, preemptive
rights, subscriptions or other rights, agreements, arrangements or commitments
of any character relating to the issued or unissued capital stock or other
voting securities of Parent, obligating Parent to issue,
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transfer or sell or cause to be issued, transferred or sold any shares of
capital stock, voting securities or other equity interest in Parent or
securities convertible into or exchangeable for such shares or equity
interests, or obligating Parent to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement, arrangement or
commitment, (3) there are no outstanding contractual obligations of Parent to
repurchase, redeem or otherwise acquire any capital stock of Parent. There are
no stockholder agreements, voting trusts or other agreements or understandings
to which Parent is a party or by which it is bound relating to the voting of
any shares of capital stock of Parent.
(b) All of the outstanding capital stock of Parent's subsidiaries (including
the Operating Company) is owned by Parent, directly or indirectly, free and
clear of any Lien or any other limitation or restriction (including any
restriction on the right to vote or sell the same, except as may be provided as
a matter of Law). There are no securities of Parent or its subsidiaries
convertible into or exchangeable for, no options or other rights to acquire
from Parent or its subsidiaries, and no other contract, understanding,
arrangement or obligation (whether or not contingent) providing for the
issuance or sale, directly or indirectly, of any capital stock or other
ownership interests in, or any other securities of, any subsidiary of Parent.
There are no outstanding contractual obligations of Parent or its subsidiaries
to repurchase, redeem or otherwise acquire any outstanding shares of capital
stock or other ownership interests in any subsidiary of Parent.
SECTION 4.3 Authority Relative to This Agreement.
(a) Each of Parent and the Operating Company has all necessary corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. No other corporate proceedings on the part of
Parent or the Operating Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than, with respect to
the Share Issuance, the Parent Requisite Vote (as hereinafter defined)). This
Agreement has been duly and validly executed and delivered by each of Parent
and the Operating Company and, assuming the due authorization, execution and
delivery hereof by the Company, constitutes a valid, legal and binding
agreement of each of Parent and the Operating Company, enforceable against each
of Parent and the Operating Company in accordance with its terms.
(b) The Boards of Directors of Parent (the "Parent Board") and the Operating
Company and Parent as the sole stockholder of the Operating Company have duly
and validly authorized the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, and taken all corporate
actions required to be taken by such Boards of Directors and Parent as the sole
stockholder of the Operating Company for the consummation of the transactions.
The affirmative approval of the holders of Parent Common Stock representing a
majority vote of stockholders present at the Parent Stockholders Meeting (as
hereinafter defined) (the "Parent Requisite Vote") is the only vote of the
holders of any class or series of capital stock of Parent necessary to approve
the Share Issuance.
SECTION 4.4 SEC Reports; Financial Statements. Parent has filed all required
forms, reports and documents with the SEC since January 1, 1996, each of which
has complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, each as in effect on the dates such forms,
reports and documents were filed. Parent has heretofore delivered to the
Company, in the form filed with the SEC (including any amendments thereto), (i)
its Annual Reports on Form 10-K for the fiscal year ended December 31, 1996,
1997 and 1998, (ii) all definitive proxy statements relating to Parent's
meetings of stockholders (whether annual or special) held since January 1, 1996
and (iii) all other reports or registration statements filed by Parent with the
SEC since January 1, 1996 (the "Parent SEC Reports"). None of such forms,
reports or documents, including, without limitation, any financial statements
or schedules included or incorporated by reference therein, contained, when
filed, any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial statements of Parent
included in the Parent SEC Reports complied as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect
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thereto and fairly present, in conformity with GAAP on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of Parent and its consolidated subsidiaries as of the dates thereof
and their consolidated results of operations and changes in financial position
for the periods then ended (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments). Since January 1, 1999,
there has not been any change, or any application or request for any change, by
Parent or any of its subsidiaries in accounting principles, methods or policies
for financial accounting or Tax purposes.
SECTION 4.5 No Undisclosed Liabilities. Neither the Parent nor any of its
subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, and there is no existing condition, situation
or set of circumstances known to Parent which could be expected to result in
such a liability or obligation, except (a) liabilities or obligations reflected
in the Parent SEC Reports filed prior to the date hereof, (b) liabilities or
obligations incurred in the ordinary course of business which do not and would
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Parent and (c) liabilities or obligations
incurred in connection with the transactions contemplated hereby.
SECTION 4.6 Absence of Certain Changes or Events. Except as disclosed in the
Parent SEC Reports filed prior to the date hereof or as set forth in Section
4.6 of the Parent Disclosure Schedule, since December 31, 1998 (a) the
businesses of the Parent and its Subsidiaries have been conducted in the
ordinary course consistent with past practice, and (b) there has not been any
event, change, occurrence or development that has had, or is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on the
Parent (other than any event, occurrence, development or state of circumstances
or facts resulting primarily from (i) changes in general economic conditions or
(ii) events or developments generally affecting the industry in which the
Parent and its subsidiaries operate).
SECTION 4.7 Information Supplied. None of the information supplied or to be
supplied by Parent or the Operating Company for inclusion or incorporation by
reference in (i) the S-4 will, at the time the S-4 is filed with the SEC and at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
(ii) the Proxy Statement will, at the date mailed to stockholders and at the
times of the Company Stockholder Meeting and the Parent Stockholder Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect
to Parent, its officers and directors or any of its subsidiaries should occur
which is required to be described in an amendment of, or a supplement to, the
S-4 or the Proxy Statement, Parent shall promptly so advise the Company and
such event shall be so described, and such amendment or supplement (which the
Company shall have a reasonable opportunity to review) shall be promptly filed
with the SEC and, as required by Law, disseminated to the stockholders of
Parent. The S-4 and, insofar as it relates to the Parent Stockholder Meeting,
the Proxy Statement will comply as to form in all material respects with the
provisions of the Securities Act and the Exchange Act, respectively, and the
respective rules and regulations thereunder.
SECTION 4.8 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky Laws, the HSR Act, the Insurance Departments, the filing
and recordation of certificates of merger as required by the DGCL and the OGCL
and as otherwise set forth in Section 4.8 to the Parent Disclosure Schedule
(the "Parent Required Approvals"), no filing with or notice to, and no permit,
authorization, consent or approval of, any Governmental Entity is necessary for
the execution and delivery by Parent or the Operating Company of this Agreement
or the consummation by Parent or the Operating Company of the transactions
contemplated hereby, except (other than in respect of those to be obtained from
Insurance Departments) where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings or give such
notice do not or would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on Parent. Neither the execution,
delivery and
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performance of this Agreement by Parent or the Operating Company nor the
consummation by Parent or the Operating Company of the transactions
contemplated hereby will (i) conflict with or result in any breach of any
provision of the respective articles of incorporation or bylaws (or similar
governing documents) of Parent or the Operating Company or any of Parent's
subsidiaries, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or Lien) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which Parent or the Operating Company or any of Parent's
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound (collectively, the "Parent and Operating
Company Agreements" or (iii) violate any Law applicable to Parent or the
Operating Company or any of Parent's subsidiaries or any of their respective
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults which do not or would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent. Section
4.8 of the Parent Disclosure Schedule sets forth a list of all material third
party consents and approvals required to be obtained under the Parent and
Operating Company Agreements prior to the consummation of the transactions
contemplated by this Agreement.
SECTION 4.9 Compliance with Applicable Laws. Except as and to the extent
publicly disclosed by Parent in the Parent SEC Reports filed prior to the date
hereof, the businesses of Parent and its subsidiaries are not being conducted
in violation of any Law, ordinance or regulation of any Governmental Entity,
except for violations or possible violations which do not and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent. To Parent's knowledge, no investigation or review by
any Governmental Entity with respect to Parent or its subsidiaries is pending
or threatened, nor, to Parent's knowledge, has any Governmental Entity
indicated an intention to conduct the same, other than, in each case, those
which Parent reasonably believes do not or would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Parent.
SECTION 4.10 Absence of Questionable Payments. Neither Parent nor any of its
subsidiaries nor, to Parent's knowledge, any director, officer, agent, employee
or other person acting on behalf of Parent or any of its subsidiaries, has used
any corporate or other funds for unlawful contributions, payments, gifts, or
entertainment, or made any unlawful expenditures relating to political activity
to government officials or others or established or maintained any unlawful or
unrecorded funds in violation of Section 30A of the Exchange Act. Neither
Parent nor any of its subsidiaries nor, to Parent's knowledge, any director,
officer, agent, employee or other person acting on behalf of Parent or any of
its subsidiaries, has accepted or received any unlawful contributions,
payments, gifts, or expenditures. To Parent's knowledge, Parent and each of its
subsidiaries which is required to file reports pursuant to Section 12 or 15(d)
of the Exchange Act is in compliance with the provisions of Section 13(b) of
the Exchange Act.
SECTION 4.11 Year 2000. Parent and its subsidiaries have developed and are
executing a plan with respect to Year 2000 readiness (the "Parent Year 2000
Plan"). Parent has provided the Company with a copy of the Parent Year 2000
Plan and has provided a report on the status of the Parent Year 2000 Plan
through April 30, 1999 that is accurate in all material respects. The Parent
Year 2000 Plan addresses the Year 2000 issues which, to the knowledge of
Parent, are material to Parent and its subsidiaries, including internal
information systems and process control risks, embedded circuitry risks and
third party risks.
SECTION 4.12 Opinion of Financial Advisor. The Board of Directors of the
Parent has received the opinion of Credit Suisse First Boston Corporation,
dated the date of this Agreement, to the effect that, as of such date, the
Common Merger Consideration is fair to the Parent from a financial point of
view and, as of the date hereof, such opinion has not been withdrawn or
modified in a manner adverse to Parent.
SECTION 4.13 Brokers. No broker, finder or investment banker (other than
Credit Suisse First Boston Corporation) is entitled to any brokerage, finder's
or other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by and on behalf of Parent or the
Operating Company or any of their affiliates.
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SECTION 4.14 Accounting Matters; Tax Treatment. Neither Parent nor any of
its affiliates has taken or agreed to take any action or is aware of any fact
or circumstance that would (a) prevent the Merger from qualifying as a "pooling
of interests" under APB 16 and the applicable SEC rules and regulations (except
that no representation is made to the effect that the transactions contemplated
by this Agreement will so qualify) or (b) prevent the Merger from qualifying as
a reorganization under Section 368 of the Code. Parent has not failed to bring
to the attention of the Company any actions, agreements or understandings,
whether written or oral, that would be reasonably likely to prevent Parent from
accounting for the Merger as a "pooling of interests" under APB 16 and the
applicable SEC rules and regulations.
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business of the Company. Except as contemplated by
this Agreement, during the period from the date hereof to the Effective Time,
the Company will, and will cause each of its subsidiaries to, conduct its
operations in the ordinary and usual course of business consistent with past
practice and, to the extent consistent therewith, with no less diligence and
effort than would be applied in the absence of this Agreement, seek to preserve
intact its current business organizations, seek to keep available the service
of its current officers and employees and seek to preserve its relationships
with customers, suppliers and others having business dealings with it to the
end that goodwill and ongoing businesses shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement or in Section 5.1 of the Company
Disclosure Schedule, prior to the Effective Time, neither the Company nor any
of its subsidiaries will, without the prior written consent of Parent,
(a) amend its certificate of incorporation or bylaws (or other similar
governing instrument) or amend, modify or terminate the Company Rights
Agreement;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
stock of any class or any other securities convertible into or exchangeable for
any stock or any equity equivalents (including, without limitation, any stock
options or stock appreciation rights), except for the issuance or sale of
Shares pursuant to Company Stock Options outstanding on the date of this
Agreement or the issuance of Shares pursuant to stock unit grants outstanding
on the date of this Agreement under the 1995 Directors' Stock Purchase Plan,
pursuant to the Incentive Program (pursuant to irrevocable elections made prior
to the date of this Agreement) or upon conversion of the Company Preferred
Stock outstanding on the date of this Agreement or the issuance of stock
options under the Incentive Program (pursuant to irrevocable elections made
prior to the date of this Agreement);
(c) (i) split, combine or reclassify any shares of its capital stock; (ii)
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock
except the declaration and payment of regular quarterly cash dividends on the
Company Preferred Stock in accordance with their respective terms with usual
record and payments dates in accordance with past dividend practice; (iii) make
any other actual, constructive or deemed distribution in respect of any shares
of its capital stock or otherwise make any payments to stockholders in their
capacity as such; or (iv) redeem, repurchase or otherwise acquire any of its
securities or any securities of any of its subsidiaries (including redeeming
any Rights);
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its subsidiaries (other than the Merger);
(e) alter through merger, liquidation, reorganization, restructuring or in
any other fashion the corporate structure or ownership of any subsidiary;
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(f) (i) incur or assume any long-term or short-term debt or issue any debt
securities, except for borrowings under existing lines of credit in the
ordinary and usual course of business consistent with past practice (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person,
except in the ordinary and usual course of business consistent with past
practice and in amounts not material to the Company and its subsidiaries, taken
as a whole, and except for obligations of the wholly owned subsidiaries of the
Company; (iii) make any loans, advances or capital contributions to, or
investments in, any other person (other than to the wholly owned subsidiaries
of the Company or customary loans or advances to employees in the ordinary and
usual course of business consistent with past practice and in amounts not
material to the maker of such loan or advance); (iv) pledge or otherwise
encumber shares of capital stock of the Company or its subsidiaries; or (v)
mortgage or pledge any of its material assets, tangible or intangible, or
create or suffer to be created any material Lien thereupon;
(g) except as may be required by Law, enter into, adopt, amend, extend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase agreement, pension, retirement, deferred
compensation, labor, collective bargaining, employment, severance or other
employee benefit agreement, trust, plan, fund, award or other arrangement for
the benefit or welfare of any director, officer or employee in any manner, or
increase in any manner the compensation or fringe benefits of any director,
officer or (except as required under agreements existing on the date hereof and
except for increases in compensation, bonus or other benefits payable to
employees of the Company or any of its subsidiaries in the ordinary and usual
course of business consistent with past practice or merit increases in salaries
of employees at regularly scheduled times in customary amounts consistent with
past practices) employee or pay any benefit not required by any plan and
arrangement as in effect as of the date hereof (including, without limitation,
the granting of stock appreciation rights or performance units);
(h) acquire, sell, lease or dispose of any assets outside the ordinary and
usual course of business consistent with past practice or any assets which in
the aggregate are material to the Company and its subsidiaries taken as a
whole, enter into any commitment or transaction outside the ordinary and usual
course of business consistent with past practice or grant any exclusive
distribution rights;
(i) except as may be required as a result of a change in Law or in GAAP,
change any of the accounting principles or practices used by it and, except as
may be required as a result of a change in law or statutory accounting
practices of New York or Wisconsin, as applicable, permit any Insurance
Subsidiary to make, any material change in the reinsurance, claim processing
and payment, reserving, financial or accounting practices or policies of any
Insurance Subsidiary;
(j) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing-off notes or
accounts receivable other than in the ordinary and usual course of business
consistent with past practice or as required by GAAP;
(k) acquire (by merger, consolidation, or acquisition of stock or assets)
any corporation, partnership or other business organization or division thereof
or any equity interest therein; (ii) enter into any material contract or
agreement, other than in the ordinary and usual course of business consistent
with past practice or amend in any material respect any of the Material
Contracts or the agreements referred to in Section 3.18; (iii) authorize any
new capital expenditure or expenditures which, individually, is in excess of
$10 million or, in the aggregate, are in excess of $67 million; or (iv) enter
into or amend any contract, agreement, commitment or arrangement providing for
the taking of any action that would be prohibited hereunder;
(l) make or revoke any Tax election, or settle or compromise any Tax
liability in excess of amounts reserved therefor on the consolidated balance
sheet of the Company as at the Audit Date, or change (or make a request to any
Taxing authority to change) any aspect of its method of accounting for Tax
purposes;
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(m) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
and usual course of business consistent with past practice of liabilities
reflected or reserved against in, or contemplated by, the Company's
consolidated balance sheet as of March 31, 1999 (or the notes thereto) as
included in the Company SEC Reports, or incurred in the ordinary and usual
course of business consistent with past practice;
(n) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or any of
its subsidiaries is a party;
(o) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated hereby;
(p) take any action (including any action otherwise permitted by this
Section 5.1) that would prevent or impede the Merger from qualifying as a
"pooling of interests" under APB 16 and the applicable SEC rules and
regulations or as a reorganization under Section 368(a) of the Code;
(q) enter into any agreement or arrangement that limits or otherwise
restricts the Company or any of its subsidiaries or any successor thereto or
that could, after the Effective Time, limit or restrict the Surviving
Corporation and its affiliates (including Parent) or any successor thereto,
from engaging or competing in any line of business or in any geographic area;
(r) permit any Insurance Subsidiary to enter into or modify any reinsurance
or retrocession agreement by any Insurance Subsidiary other than in the
ordinary course of business consistent with past practice, or terminate or
commute any reinsurance or retrocession agreement legally carried on the books
of the Insurance Subsidiary at the time of such termination or commutation;
(s) enter into any new agreement, commitment or understanding with the
Insurance Departments, or amend any existing agreement, commitment or
understanding with the Insurance Departments, including the Guaranty; or
(t) take, propose to take, or agree in writing or otherwise to take, any of
the actions described in Sections 5.1(a) through 5.1(s) or any action which
would (y) make any of the representations or warranties of the Company
contained in this Agreement (i) which are qualified as to materiality untrue or
incorrect or (ii) which are not so qualified untrue or incorrect in any
material respect or (z) result in any of the conditions to the Merger set forth
in Article VII hereof not being satisfied.
SECTION 5.2 Conduct of Business of Parent. Except as otherwise expressly
provided in this Agreement or as set forth in Section 5.2 of the Parent
Disclosure Schedule, prior to the Effective Time, neither Parent nor any of its
subsidiaries will, without the prior written consent of the Company:
(a) amend its certificate of incorporation (or other similar governing
instrument) in any manner that would be materially adverse to the holders of
Parent Common Stock;
(b) (i) declare, set aside or pay any dividend or other distribution in
respect of its capital stock except the declaration and payment of regular
quarterly cash dividends not in excess of $0.125 per share of Parent Common
Stock, (ii) make any other actual, constructive or deemed distribution in
respect of any shares of its capital stock or otherwise make any payments to
stockholders in their capacity as such or (iii) redeem, repurchase or otherwise
acquire any shares of Parent Common Stock;
(c) take any action (including any action otherwise permitted by this
Section 5.2) that would prevent or impede the Merger from qualifying as a
"pooling of interests" under APB 16 and the applicable SEC rules and
regulations or as a reorganization under Section 368(a) of the Code; or
(d) take, propose to take, or agree in writing or otherwise to take, any of
the actions described in Section 2.1(e) or Sections 5.2(a) through 5.2(c) or
any action which (y) would make the representations or warranties
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of Parent and the Operating Company in this Agreement (i) which are qualified
as to materiality untrue or incorrect or (ii) which are not so qualified untrue
in any material respect or (z) result in any of the conditions to the Merger
set forth in Article VII hereof not being satisfied.
SECTION 5.3 Access to Information.
(a) Between the date hereof and the Effective Time, the Company will give
Parent and the Operating Company and their authorized representatives
(including counsel, financial advisors and auditors) reasonable access during
normal business hours to all employees, plants, offices, warehouses and other
facilities and to all books and records of the Company and its subsidiaries,
will permit Parent and the Operating Company to make such inspections as Parent
and the Operating Company may reasonably require and will cause the Company's
officers and those of its subsidiaries to furnish Parent and the Operating
Company with such financial and operating data and other information with
respect to the business, properties and personnel of the Company and its
subsidiaries as Parent or the Operating Company may from time to time
reasonably request, provided that no investigation pursuant to this Section
5.3(a) shall affect or be deemed to modify any of the representations or
warranties made by the Company in this Agreement. The Company will keep Parent
and the Operating Company fully informed, and consult with Parent and the
Operating Company on a regular basis concerning, all matters pertaining to the
Company's collective bargaining agreements and any and all negotiations in
connection therewith.
(b) Between the date hereof and the Effective Time, Parent and the Operating
Company will give the Company and its authorized representatives (including
counsel, financial advisors and auditors) reasonable access during normal
business hours to all employees, plants, offices, warehouses and other
facilities and to all books and records of Parent and its subsidiaries, will
permit the Company to make such inspections as the Company may reasonably
require and will cause Parent's officers and those of its subsidiaries to
furnish the Company with such financial and operating data and other
information with respect to the business, properties and personnel of Parent
and its subsidiaries as the Company may from time to time reasonably request,
provided that no investigation pursuant to this Section 5.3(b) shall affect or
be deemed to modify any of the representations or warranties made by Parent or
the Operating Company in this Agreement.
(c) Between the date hereof and the Effective Time, the Company shall
furnish to Parent and the Operating Company, (i) concurrently with the
deliveries thereof to management or the Company Board, such monthly financial
statements and data as are regularly prepared for distribution to Company
management or the Company Board and (ii) at the earliest time they are
available, such quarterly and annual financial statements as are prepared for
the Company's SEC filings, which (in the case of this clause (ii)), shall be in
accordance with the books and records of the Company.
(d) Each of Parent and the Operating Company will hold and will cause its
authorized representatives to hold in confidence all documents and information
concerning the Company and its subsidiaries furnished to Parent or the
Operating Company in connection with the transactions contemplated by this
Agreement pursuant to the terms of that certain Confidentiality Agreement
entered into between the Company and Parent dated April 23, 1999 (the
"Confidentiality Agreement").
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of S-4 and the Proxy Statement. Parent and the
Company will, as promptly as practicable, jointly prepare and file with the SEC
the Proxy Statement in connection with the vote of the stockholders of the
Company with respect to the Merger and the vote of the stockholders of Parent
with respect to the Share Issuance. Parent will, as promptly as practicable,
prepare, following receipt of notification from the SEC that it has no further
comments on the Proxy Statement, and file with the SEC the S-4, containing a
joint proxy statement/prospectus, which shall also include all information
required in order for such proxy statement
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to constitute an Acquiring Person Statement (as defined by Section 1701.01 (BB)
of the OGCL), and forms of proxy, in connection with the registration under the
Securities Act of the shares of Parent Common Stock issuable upon conversion of
the Shares and the other transactions contemplated hereby. Parent and the
Company will, and will cause their accountants and lawyers to, use all
reasonable best efforts to have or cause the S-4 declared effective as promptly
as practicable after filing with the SEC, including, without limitation,
causing their accountants to deliver necessary or required instruments such as
opinions, consents and certificates, and will take any other action required or
necessary to be taken under federal or state securities Laws or otherwise in
connection with the registration process (other than qualifying to do business
in any jurisdiction which it is not now so qualified or to file a general
consent to service of process in any jurisdiction). The Company and Parent
shall, as promptly as practicable after the receipt thereof, provide to the
other party copies of any written comments and advise the other party of any
oral comments, with respect to the Proxy Statement or the S-4 received from the
staff of the SEC. The Company will provide Parent with a reasonable opportunity
to review and comment on any amendment or supplement to the Proxy Statement
prior to filing with the SEC and will provide Parent with a copy of all such
filings with the SEC. Each of Parent and the Company will use its reasonable
best efforts to cause the Proxy Statement to be mailed to its stockholders
(including, in the case of the Company, the holders of the Company Preferred
Stock) at the earliest practicable date.
SECTION 6.2 Letter of Accountants.
(a) The Company shall use all reasonable best efforts to cause to be
delivered to Parent a letter of Deloitte & Touche LLP, the Company's
independent auditors, dated a date within two business days before the date on
which the S-4 shall become effective and addressed to Parent, in form and
substance reasonably satisfactory to Parent and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the S-4.
(b) Parent shall use all reasonable best efforts to cause to be delivered to
the Company a letter of Deloitte & Touche LLP, Parent's independent auditors,
dated a date within two business days before the date on which the S-4 shall
become effective and addressed to the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the S-4.
SECTION 6.3 Meetings.
(a) The Company shall take all lawful action to (i) cause a special meeting
of its stockholders (the "Company Stockholder Meeting") to be duly called and
held as soon as practicable after the date of this Agreement for the purpose of
voting on the approval and adoption of this Agreement and (ii) solicit proxies
from its stockholders to obtain the Company Requisite Vote for the approval and
adoption of this Agreement. The Company Board shall recommend approval and
adoption of this Agreement and the Merger by the Company's stockholders and,
except as permitted by Section 6.5, the Company Board shall not withdraw, amend
or modify in a manner adverse to Parent such recommendation (or announce
publicly its intention to do so).
(b) Parent shall take all lawful action to (i) cause a special meeting of
its stockholders (the "Parent Stockholder Meeting") to be duly called and held
as soon as practicable after the date of this Agreement for the purpose of
voting on the approval of the Share Issuance and (ii) solicit proxies from its
stockholders to obtain the Parent Requisite Vote. The Parent Board shall
recommend approval of the Share Issuance by Parent's stockholders and, except
as required to comply with their fiduciary duty under applicable Law, the
Parent Board shall not be permitted to withdraw, amend or modify in a manner
adverse to the Company such recommendation (or announce publicly its intention
to do so).
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SECTION 6.4 Reasonable Best Efforts.
(a) Subject to the terms and conditions of this Agreement, each party will
use its reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under
applicable Laws to consummate the Merger and the other transactions
contemplated by this Agreement. In furtherance and not in limitation of the
foregoing, each party hereto agrees to make an appropriate filing of a
Notification and Report Form pursuant to the HSR Act with respect to the
transactions contemplated hereby as promptly as practicable and in any event
within ten (10) business days of the date hereof and to supply as promptly as
practicable any additional information and documentary material that may be
requested pursuant to the HSR Act and use its reasonable best efforts to take,
or cause to be taken, all other actions consistent with this Section 6.4
necessary to cause the expiration or termination of the applicable waiting
periods under the HSR Act as soon as practicable.
(b) Each of Parent and the Company shall, in connection with the efforts
referenced in Section 6.4(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under the
HSR Act or any other Antitrust Law (as hereunder defined), use its reasonable
best efforts to (i) cooperate in all respects with each other in connection
with any filing or submission and in connection with any investigation or other
inquiry, including any proceeding initiated by a private party; and (ii) keep
the other party informed in all material respects of any material communication
received by such party from, or given by such party to, the Federal Trade
Commission (the "FTC"), the Antitrust Division of the Department of Justice
(the "DOJ") or any other Governmental Entity and of any material communication
received or given in connection with any proceeding by a private party, in each
case regarding any of the transactions contemplated hereby; and (iii) permit
the other party to review any material communication given by it to, and
consult with each other in advance of any meeting or conference with, the FTC,
the DOJ or any such other Governmental Entity or, in connection with any
proceeding by a private party, with any other person, and to the extent
permitted by the FTC, the DOJ or such other applicable Governmental Entity or
other person, give the other party the opportunity to attend and participate in
such meetings and conferences. For purposes of this Agreement, "Antitrust Law"
means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act,
the Federal Trade Commission Act, as amended, and all other Laws that are
designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade or lessening of
competition through merger or acquisition.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Sections 6.4(a) and 6.4(b), each of Parent and the Company shall
use its reasonable best efforts to resolve such objections if any, as may be
asserted a Governmental Entity or other person with respect to the transactions
contemplated hereby under any Antitrust Law. In connection with the foregoing,
if any administrative or judicial action or proceeding, including any
proceeding by a private party, is instituted (or threatened to be instituted)
challenging any transaction contemplated by this Agreement as violative of any
Antitrust Law, each of Parent and the Company shall cooperate in all respects
with each other and use its respective reasonable best efforts to contest and
resist any such action or proceeding and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order, whether temporary,
preliminary or permanent, that is in effect and that prohibits, prevents or
restricts consummation of the transactions contemplated by this Agreement.
Notwithstanding the foregoing or any other provision of this Agreement, nothing
in this Section 6.4 shall (i) limit a party's right to terminate this Agreement
pursuant to Section 8.2 (a), (d) or (e) so long as such party has up to then
complied in all material respects with its obligations under this Section 6.4,
or (ii) require Parent or the Operating Company to (x) enter into any "hold-
separate" agreement or other agreement with respect to the disposition of any
assets or businesses of the Parent or any of its subsidiaries or the Company or
any of its subsidiaries in order to obtain clearance from the Federal Trade
Commission or the Antitrust Division of the Department of Justice or any state
antitrust or competition authorities to proceed with the consummation of the
transactions contemplated hereby; (y) consummate the transactions contemplated
hereby in the event that any consent, approval or authorization of any
Governmental Entity obtained or sought to be obtained in connection with this
Agreement is conditioned upon the imposition of any other significant
restrictions upon, or the
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making of any material accommodation (financial or otherwise) in respect of the
transactions contemplated hereby or the conduct of the business of the
Surviving Corporation or the Parent (including any agreement not to compete in
any geographic area or line of business) or results, or would result in, the
abrogation or diminishment of any authority or license granted by any
Governmental Entity; or (z) enter into negotiations with any labor organization
representing employees of the Company or any of its subsidiaries as a condition
to consummation of the transactions contemplated by this Agreement.
SECTION 6.5 No Solicitation; Acquisition Proposals.
(a) From the date hereof until the termination hereof, and except as
expressly permitted by the following provisions of this Section 6.5, the
Company will not, nor will it permit any of its subsidiaries to, nor will it
authorize or permit any officer, director or employee of or any investment
banker, attorney, accountant or other advisor or representative of, the Company
or any of its subsidiaries to, directly or indirectly, (i) solicit, initiate or
encourage the submission of any Acquisition Proposal (as defined in Section
9.11(a)), (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to the Company or
any of its subsidiaries, or take any other action to facilitate, any
Acquisition Proposal or any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal
or (iii) enter into any agreement with respect to an Acquisition Proposal
(other than a confidentiality agreement as described below); provided, however,
that nothing contained in this Section 6.5(a) shall prohibit the Company Board
from, prior to receipt of the Company Requisite Vote, furnishing information
to, or entering into discussions or negotiations with, any person that makes an
unsolicited bona fide written Acquisition Proposal if, and only to the extent
that (A) the Company Board, after considering applicable provisions of state
law and after consultation with outside legal counsel, determines in good faith
that such action is necessary for the Company Board to discharge properly its
fiduciary duties to the Company's stockholders under applicable Law, (B) the
Company Board determines in good faith that such Acquisition Proposal, if
accepted, is reasonably likely to be consummated taking into account all legal,
financial, regulatory and other aspects of the proposal and the person making
the proposal, and believes in good faith, after consultation with an
independent, nationally recognized financial advisor and after taking into
account the strategic benefits to be derived from the Merger and the long term
prospects of Parent and its subsidiaries, would, if consummated, result in a
transaction more favorable to the Company's stockholders from a financial point
of view than the Merger, and for which the Company Board determines in its good
faith judgment (after such consultation) that financing, to the event required,
is then committed or reasonably available (any such more favorable Acquisition
Proposal being referred to herein as a "Superior Proposal"), and (C) prior to
taking such action, the Company (x) provides reasonable notice to Parent to the
effect that it is taking such action and (y) receives from such person an
executed confidentiality/standstill agreement in reasonably customary form and
in any event containing terms at least as stringent in all material respects as
those contained in the Confidentiality Agreement between Parent and the Company
as of the date hereof. Prior to providing any information to or entering into
discussions or negotiations with any person in connection with an Acquisition
Proposal by such person, the Company shall notify Parent of any Acquisition
Proposal (including, without limitation, the material terms and conditions
thereof or amendments or supplements thereto and the identity of the person
making it) as promptly as practicable (but in no case later than 24 hours)
after its receipt thereof, and shall thereafter inform Parent on a prompt basis
of the status of any discussions or negotiations with such a third party, and
any material changes to the terms and conditions of such Acquisition Proposal.
Immediately after the execution and delivery of this Agreement, the Company
will, and will cause its subsidiaries and affiliates, and their respective
officers, directors, employees, investment bankers, attorneys, accountants and
other agents to, cease and terminate any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any possible
Acquisition Proposal. The Company agrees that it will take the necessary steps
to promptly inform the individuals or entities referred to in the first
sentence hereof of the obligations undertaken in this Section 6.5(a).
(b) From the date hereof until the termination hereof, the Company will not
(A) amend or grant any waiver or release under any standstill or similar
agreement with respect to any class of equity securities of the
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Company, or (B) (except as expressly contemplated by this Agreement) amend, or
approve any transaction or redeem rights under, the Company Rights Agreement.
(c) Except as expressly permitted by this Section 6.5 or in connection with
its termination of this Agreement in accordance with the terms and conditions
of Section 8.3(a), the Company Board will not withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Parent, its approval or
recommendation of this Agreement or the Merger unless (i) the Company has
complied with the terms of Section 6.5(a), (ii) a Superior Proposal is pending
at the time the Company Board determines to take any such action, (iii) the
Company Board, after considering applicable provisions of state law and after
consultation with outside legal counsel, determines in good faith that such
action is necessary for the Company Board to discharge properly its fiduciary
duties to the Company's stockholders under applicable Law and (iv) the Company
shall have delivered to Parent a prior written notice advising Parent that it
intends to take such action and describing its reasons for taking such action
(such notice to be delivered not less than two days prior to the time such
action is taken); provided, however, the Company Board may not approve or
recommend (and in connection therewith, withdraw or modify its approval or
recommendation of this Agreement or the Merger) an Acquisition Proposal unless
such an Acquisition Proposal is a Superior Proposal (and the Company shall have
first complied with its obligations set forth in Section 8.3(a) and the time
period referred to in the last sentence of Section 8.3(a) has expired) and
unless it shall have first consulted with outside legal counsel, and have
determined that such action is necessary for the Company Board to comply with
its fiduciary duties to the Company's stockholders. Nothing contained in this
Section 6.5 shall prohibit the Company from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act or from making any disclosure to the Company's stockholders which,
in the good faith judgment of the Company Board, after considering applicable
provisions of state law and after consultation with outside legal counsel is
required under applicable Law; provided, that except in accordance with this
Section 6.5(c) or in connection with its termination of this Agreement in
accordance with the terms and conditions of Section 8.3(a), the Board of
Directors of the Company shall not withdraw or modify, or propose to withdraw
or modify, its position with respect to the Merger or approve or recommend, or
propose to approve or recommend, an Acquisition Proposal.
(d) Notwithstanding anything contained in this Agreement to the contrary,
any action by the Company Board permitted by, and taken in accordance with,
this Section 6.5 shall not constitute a breach of this Agreement by the
Company. Nothing in this Section 6.5 shall (i) permit the Company to terminate
this Agreement (except as provided in Article VIII hereof) or (ii) affect any
other obligations of the Company under this Agreement.
SECTION 6.6 Public Announcements. Each of Parent, the Operating Company and
the Company will consult with one another before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Agreement, including, without limitation, the Merger, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable Law or by
obligations pursuant to any listing agreement with the New York Stock Exchange,
as determined by Parent, the Operating Company or the Company, as the case may
be.
SECTION 6.7 Indemnification; Directors' and Officers' Insurance.
(a) The Parent agrees that all rights to exculpation and indemnification for
acts or omissions occurring prior to the Effective Time now existing in favor
of the current or former directors or officers (the "Indemnified Parties") of
the Company as provided in its articles of incorporation or code of regulations
or in any agreement between the Company and any of the Indemnified Parties
shall survive the Merger and shall continue in full force and effect in
accordance with their terms for a period of six years following the Effective
Time, and accordingly during such period, the Surviving Corporation shall
indemnify the Indemnified Parties to the same extent as such Indemnified
Parties are entitled to indemnification pursuant to the preceding sentence.
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(b) For a period of three (3) years after the Effective Time, Parent shall
cause to be maintained in effect the policies of directors' and officers'
liability insurance maintained by the Company for the benefit of those persons
who are covered by such policies at the Effective Time (or Parent may
substitute therefor policies of at least the same coverage with respect to
matters occurring prior to the Effective Time), to the extent that such
liability insurance can be maintained annually at a cost to Parent not greater
than 250 percent of the annual premium (the "Current Premium") for the current
Company directors' and officers' liability insurance; provided that if such
insurance cannot be so maintained or obtained at such costs, Parent shall
maintain or obtain as much of such insurance as can be so maintained or
obtained at a cost equal to 250 percent of the current annual premiums of the
Company for such insurance. The Company represents and warrants to Parent that
the Current Premium is $315,000.
(c) To the fullest extent permitted by Law, from and after the Effective
Time, all rights to indemnification now existing in favor of the employees,
agents, directors or officers of the Company and its subsidiaries with respect
to their activities as such prior to the Effective Time, as provided in the
Company's article of incorporation or code of regulations, in effect on the
date thereof or otherwise in effect on the date hereof, shall survive the
Merger and shall continue in full force and effect for a period of not less
than six years from the Effective Time.
(d) The rights of each Indemnified Party under this Section 6.7 are intended
to benefit, and shall be enforceable by, each Indemnified Party.
SECTION 6.8 Notification of Certain Matters. The Company shall, upon
obtaining knowledge of any of the following, give prompt notice to Parent and
the Operating Company, and Parent and the Operating Company shall, upon
obtaining knowledge of any of the following, give prompt notice to the Company,
of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
contained in this Agreement, which is qualified as to materiality, to be untrue
or inaccurate, or any representation or warranty not so qualified, to be untrue
or inaccurate in any material respect at or prior to the Effective Time, (ii)
any material failure of the Company, Parent or the Operating Company, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder, (iii) the occurrence or non-
occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any condition to the obligations of any party to the effect of
the transactions contemplated hereby not to be satisfied, (iv) any notice of,
or other communication relating to, a default or event which, with notice or
lapse of time or both, would become a default, received by it or any of its
subsidiaries subsequent to the date of this Agreement and prior to the
Effective Time, under any contract or agreement material to the financial
condition, properties, businesses, results of operations or prospects of it and
its subsidiaries taken as a whole to which it or any of its subsidiaries is a
party or is subject, (v) any notice or other communication from any
Governmental Entity in connection with the Merger or Guaranty, (vi) any
actions, suits, claims, investigations or other proceedings (or communications
indicating that the same may be contemplated) commenced or threatened against
the Company or any of its subsidiaries which, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Section
3.20 or which relate to the consummation of the Merger, (vii) any notice or
other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement, or (viii) any Material Adverse Effect in their
respective financial condition, properties, businesses, results of operations
or prospects, taken as a whole; provided, however, that the delivery of any
notice pursuant to this Section 6.8 shall not cure such breach or non-
compliance or limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
SECTION 6.9 Pooling.
(a) The Company shall use its reasonable best efforts to cause to be
delivered to Parent letters from its independent auditors, Deloitte & Touche
LLP, dated as of the date the S-4 is declared effective and dated as of the
Closing Date, stating that the accounting of the Merger as a "pooling of
interests" under Opinion 16 of the
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Accounting Principles Board ("APB 16") and the applicable SEC rules and
regulations is appropriate if the Merger is consummated as contemplated by this
Agreement (it being understood and agreed that the delivery of such letters
shall not constitute a condition to the parties' obligations to consummate the
transactions contemplated by this Agreement).
(b) Parent shall use its reasonable best efforts to cause to be delivered to
the Company letters from its independent auditors, Deloitte & Touche LLP, dated
as of the date the S-4 is declared effective and dated as of the Closing Date,
stating that the accounting of the Merger as a "pooling of interests" under APB
16 and the applicable SEC rules and regulations is appropriate if the Merger is
consummated as contemplated by this Agreement (it being understood and agreed
that the delivery of such letters shall not constitute a condition to the
parties' obligations to consummate the transactions contemplated by this
Agreement).
(c) Each party hereto shall use its reasonable best efforts to take such
actions (including seeking necessary waivers from employees under Company
benefit plans or agreements with the Company) as are within its reasonable
control so that the Merger will be accounted for as a "pooling of interests"
under APB 16 and the applicable SEC rules and regulations (it being understood
and agreed that the qualification of the Merger as a "pooling of interests"
shall not constitute a condition to the parties' obligations to consummate the
transactions contemplated by this Agreement); provided, that the parties shall
have no further obligations under this Section 6.9(c) following the date the S-
4 is declared effective if Parent's accountants do not deliver the letter
contemplated by Section 6.9(b) as of the date the S-4 is declared effective.
SECTION 6.10 Tax-Free Reorganization Treatment. The Company, Parent and the
Operating Company shall execute and deliver to Arnold & Porter, counsel to the
Company, and Weil, Gotshal & Manges LLP, counsel to Parent and the Operating
Company, certificates substantially in the forms agreed to on or prior to the
date hereof at such time or times as reasonably requested by such law firms in
connection with their respective deliveries of opinions with respect to the
transactions contemplated hereby. Prior to the Effective Time, none of the
Company, Parent or the Operating Company shall take or cause to be taken any
action which would cause to be untrue (or fail to take or cause not to be taken
any action which would cause to be untrue) any of the representations in such
certificates.
SECTION 6.11 Employee Matters.
(a) Parent will cause the Surviving Corporation to honor the obligations of
the Company or any of its subsidiaries under the provisions of all employment,
consulting, termination, severance, change in control and indemnification
agreements disclosed in Section 6.11 of the Company Disclosure Schedule between
and among the Company or any of its subsidiaries and any current or former
officer, director, consultant or employee of the Company or any of its
subsidiaries; provided, however, that nothing in this Agreement shall preclude
Parent or any of its affiliates from having the right to terminate the
employment of any employee of the Company or any of its subsidiaries, with or
without cause, or amend or terminate any Employee Benefit Plan, in each case
after the Effective Time.
(b) The Company Board shall have adopted prior to the Closing Date an
amendment to each of the 1993 Long-Term Incentive Plan of Armco Inc. and the
1996 Incentive Plan of Armco Inc. in the form attached hereto as Schedule
6.11(b).
SECTION 6.12 Affiliate Letters. Section 6.12 of the Company Disclosure
Schedule (which shall be delivered not later than June 4, 1999) will set forth
a list of all persons who are, and all persons who to the Company's knowledge
will be at the Closing Date, "affiliates" of the Company for purposes of Rule
145 under the Securities Act or for purposes of qualifying the Merger for
"pooling of interests" accounting treatment under APB 16 and applicable SEC
rules, and Section 6.12 of the Parent Disclosure Schedule (which shall be
delivered not later than June 4, 1999) will set forth a list of all persons who
are, and all persons who to Parent's knowledge will be at the Closing Date,
"affiliates" of Parent for purposes of qualifying the Merger for "pooling of
interests" under APB 16 and the applicable SEC rules and regulations. The
Company and
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Parent will each respectively cause such lists to be updated promptly through
the Closing Date. Not later than 45 days prior to the date of the Company
Stockholder Meeting, the Company shall cause its "affiliates" to deliver to
Parent a written agreement substantially in the form attached as Exhibit A, and
Parent shall cause its "affiliates" to deliver to the Company a written
agreement substantially in the form attached as Exhibit B.
SECTION 6.13 SEC Filings.
(a) The Company shall furnish to the Parent copies of all reports, proxy
statements and prospectuses of the type referred to in Section 3.4 which it
files with the SEC on or after the date hereof, and the Company represents and
warrants that as of the respective dates thereof, such reports will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and the unaudited consolidated
interim financial statements included in such reports (including any related
notes and schedules) will fairly present the financial position of the Company
and its consolidated Subsidiaries as of the dates thereof and the results of
operations and cash flows or other information included therein for the periods
or as of the date then ended (subject, in the case of the interim financial
statements, to normal, recurring year-end adjustments), in each the case of the
interim financial statements, to normal, recurring year-end adjustments), in
each case in accordance with past practice and GAAP consistently applied during
the periods involved (except as otherwise disclosed in the notes thereto.)
(b) Parent shall furnish to the Company copies of all reports, proxy
statements and prospectuses of the type referred to in Section 4.4 which it
files with the SEC on or after the date hereof, and Parent represents and
warrants that as of the respective dates thereof, such reports will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and the unaudited consolidated
interim financial statements included in such reports (including any related
notes and schedules) will fairly present the financial position of Parent and
its consolidated Subsidiaries as of the dates thereof and the results of
operations and cash flows or other information included therein for the periods
or as of the date then ended (subject, in the case of the interim financial
statements, to normal, recurring year-end adjustments), in each case in
accordance with past practice and GAAP consistently applied during the periods
involved (except as otherwise disclosed in the notes thereto).
SECTION 6.14 Fees and Expenses. Whether or not the Merger is consummated,
all Expenses (as hereinafter defined) incurred in connection with this
Agreement, and the transactions contemplated hereby shall be paid by the party
incurring such Expenses, except (a) Expenses incurred in connection with the
filing, printing and mailing of the Proxy Statement and the S-4, which shall be
shared equally by the Company and Parent, and (b), if applicable, as provided
in Section 8.5. As used in this Agreement, "Expenses" includes all out-of-
pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with, or related to, the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the preparation, filing, printing and mailing of the Proxy Statement
and the S-4 and the solicitation of stockholder approvals and all other matters
related to the transactions contemplated hereby.
SECTION 6.15 Listing of Stock. Parent shall use its best efforts to cause
the shares of Parent Common Stock to be issued in connection with the Merger to
be approved for listing on the NYSE on or prior to the Closing Date, subject to
official notice of issuance.
SECTION 6.16 Antitakeover Statutes. If any Takeover Statute is or may become
applicable to the Merger, each of Parent and Company shall take such actions as
are necessary so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of any Takeover Statute on
the Merger.
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SECTION 6.17 Combined Operations. Parent agrees to use its reasonable best
efforts to make publicly available, promptly following the Closing,
consolidated financial results (including combined sales and net income)
covering at least 30 days of post-merger combined operations of Parent and the
Company, pursuant to the requirements of APB 16.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to
the Effective Time of each of the following conditions, any or all of which may
be waived in whole or in part by the party being benefited thereby, to the
extent permitted by applicable Law:
(a) This Agreement shall have been approved and adopted by the Company
Requisite Vote and the Share Issuance shall have been approved by the Parent
Requisite Vote;
(b) Any waiting period applicable to the Merger under the HSR Act shall have
expired or early termination thereof shall have been granted without
limitation, restriction or condition;
(c) There shall not be in effect any Law of any Governmental Entity of
competent jurisdiction, restraining, enjoining or otherwise preventing
consummation of the transactions contemplated by this Agreement or permitting
such consummation only subject to any condition or restriction that has or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company (or an effect on Parent and its
subsidiaries that, were such effect applied to the Company and its
subsidiaries, has or would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company) and no Governmental
Entity shall have instituted any proceeding which continues to be pending
seeking any such Law.
(d) The S-4 shall have been declared effective by the SEC and shall be
effective at the Effective Time, and no stop order suspending effectiveness
shall have been issued, no action, suit, proceeding or investigation by the SEC
to suspend the effectiveness thereof shall have been initiated and be
continuing, and all necessary approvals under state securities Laws or the
Securities Act or Exchange Act relating to the issuance or trading of the
Parent Common Stock shall have been received.
(e) The Parent Common Stock required to be issued hereunder shall have been
approved for listing on the NYSE, subject only to official notice of issuance.
SECTION 7.2 Conditions to the Obligations of the Parent and the Operating
Company. The respective obligations of Parent and the Operating Company to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment at or prior to the Effective Time of each of the following
additional conditions, any or all of which may be waived in whole or part by
Parent and the Operating Company, as the case may be, to the extent permitted
by applicable Law:
(a) The representations and warranties of the Company contained herein or
otherwise required to be made after the date hereof in a writing expressly
referred to herein by or on behalf of the Company pursuant to this Agreement,
to the extent qualified by materiality or Material Adverse Effect, shall have
been true and, to the extent not qualified by materiality or Material Adverse
Effect, shall have been true in all material respects, in each case when made
and on and as of the Closing Date as though made on and as of the Closing Date
(except for representations and warranties made as of a specified date, which
need be true, or true in all material respects, as the case may be, only as of
the specified date).
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(b) The Company shall have performed or complied in all material respects
with all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the time of the Closing.
(c) The Company shall have delivered to Parent a certificate, dated the date
of the Closing, signed by the President or any Vice President of the Company
(but without personal liability thereto), certifying as to the fulfillment of
the conditions specified in Sections 7.2(a) and 7.2(b).
(d) Parent shall have received an opinion of Weil, Gotshal & Manges LLP,
dated the Effective Time, based on the representations of Parent, the Operating
Company and the Company, referred to in Section 6.10, to the effect that the
Merger will be treated for Federal income Tax purposes as a reorganization
within the meaning of Section 368(a) of the Code.
(e) (i) All authorizations, consents or approvals of a Governmental Entity
(other than those specified in Section 7.1(b) hereof) required in connection
with the execution and delivery of this Agreement and the performance of the
obligations hereunder shall have been made or obtained, without any limitation,
restriction or condition that has or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company (or
an effect on Parent and its subsidiaries that, were such effect applied to the
Company and its subsidiaries, would have or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company), except for such authorizations, consents or approvals, the failure of
which to have been made or obtained does not and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company (or an effect on Parent and its subsidiaries that, were such
effect applied to the Company and its subsidiaries, would have or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company).
(ii) There shall not be pending or threatened by any Governmental Entity any
suit, action or proceeding (A) seeking to restrain or prohibit the consummation
of the Merger or any of the other transactions contemplated by this Agreement
or seeking to obtain from the Company or Parent any damages that are material
in relation to the Company and its subsidiaries taken as a whole or Parent and
its subsidiaries taken as a whole, as applicable, (B) seeking to (1) prohibit
or limit the ownership or operation by the Company, Parent or any of their
respective subsidiaries of any material portion of the business or assets of
the Company and its subsidiaries, taken as a whole, or Parent and its
subsidiaries, taken as a whole, as applicable, (2) compel the Company, Parent
or any of their respective subsidiaries to dispose of or "hold separate" any
material portion of the business or assets of the Company and its subsidiaries,
taken as a whole, or Parent and its subsidiaries, taken as a whole, as
applicable, as a result of the Merger or any of the other transactions
contemplated by this Agreement or (3) impose any other significant restrictions
upon, or the making of any material accommodation (financial or otherwise) in
respect of, the transactions contemplated hereby or the conduct of the business
of the Surviving Corporation or the Parent (including any agreement not to
compete in any geographic area or line of business), (C) seeking to impose
limitations on the ability of Parent to acquire or hold, or exercise full
rights of ownership of, any shares of capital stock of the Company or the
Surviving Corporation, including the right to vote the common stock of the
Surviving Corporation, on all matters properly presented to the stockholders of
the Surviving Corporation, (D) seeking to prohibit Parent and its subsidiaries
from effectively controlling in any material respect the business or operations
of the Company and its subsidiaries, taken as a whole, (E) which would result
in the abrogation or diminishment of any authority or license granted by any
Governmental Entity or (F) which otherwise could reasonably be expected to have
a Material Adverse Effect on the Company or Material Adverse Effect on Parent.
(iii) Parent, the Operating Company and the Company shall have obtained from
or filed with, as appropriate, the relevant Insurance Departments such material
consents, approvals, orders, authorizations, registrations, declarations,
permits or filings in connection with this Agreement and the transactions
contemplated by this Agreement for the conduct of their businesses as currently
conducted or as expected to be conducted. All orders, consents, permits,
authorizations, approvals, and waivers necessary to be obtained from Insurance
Departments for the consummation of the Closing of the transactions
contemplated hereby shall have
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been obtained and shall be in full force and effect, in each case (A) without
the abrogation or diminishment of the authority or license currently held by
any Insurance Subsidiary, or the imposition of significant restrictions upon
the transactions contemplated hereby or the conduct of the business of such
Insurance Subsidiaries, following the Effective Time, (B) without any
limitation, requirement or condition on Parent, the Operating Company, the
Company or any subsidiary of the Company (other than the Insurance
Subsidiaries), (C) without any limitation, requirement or condition on the
Insurance Subsidiaries (except as and to the extent any such limitation,
requirement or condition may exist on the date hereof in the Orders or as
described in Section 3.18(xi) of the Company Disclosure Schedule), (D) without
the imposition (either directly, indirectly or by virtue of the transactions
contemplated by this Agreement) on Parent or the Operating Company of any
guaranty relating to the obligations of any subsidiary of the Company,
including, without limitation, the Insurance Subsidiaries, and (E) without
requiring Parent, the Operating Company or the Company to vary the financial or
other terms of the transactions contemplated hereby.
(f) The Company shall have obtained (i) the consents and approvals set forth
in Sections 3.3 and 3.8 of the Company Disclosure Schedule and (ii) the consent
or approval of each person whose consent or approval shall be required under
any Material Contract, Real Property Lease or other obligation to which the
Company or any of its subsidiaries is a party, except those for which the
failure to obtain such consents or approvals does not or would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company and would not prevent or materially impair the ability of
the Company to consummate the transactions contemplated by this Agreement.
(g) Not later than 45 days prior to the Company Stockholder Meeting, Parent
shall have received from Company's "affiliates" a written agreement
substantially in the form attached as Exhibit A.
(h) The Company Board shall have adopted the amendments to certain of its
incentive plans, as provided in Section 6.11(b).
SECTION 7.3 Conditions to the Obligations of the Company. The obligations of
the Company to consummate the transactions contemplated by this Agreement are
subject to the fulfillment at or prior to the Effective Time of each of the
following conditions, any or all of which may be waived in whole or in part by
the Company to the extent permitted by applicable Law:
(a) The representations and warranties of Parent and the Operating Company
contained herein or otherwise required to be made after the date hereof in a
writing expressly referred to herein by or on behalf of Parent and the
Operating Company pursuant to this Agreement, to the extent qualified by
materiality or Material Adverse Effect, shall have been true and, to the extent
not qualified by materiality or Material Adverse Effect, shall have been true
in all material respects, in each case when made and on and as of the Closing
Date as though made on and as of the Closing Date (except for representations
and warranties made as of a specified date, which need be true, or true in all
material respects, as the case may be, only as of the specified date).
(b) Parent shall have performed or complied in all material respects with
all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the time of the Closing.
(c) Parent shall have delivered to the Company a certificate, dated the date
of the Closing, signed by the President or any Vice President of Parent (but
without personal liability thereto), certifying as to the fulfillment of the
conditions specified in Section 7.3(a) and 7.3(b).
(d) The Company shall have received an opinion of Arnold & Porter, dated the
Effective Time, based on the representations of Parent, the Operating Company
and the Company, referred to in Section 6.10 hereof, to the effect that the
Merger will be treated for Federal income Tax purposes as a reorganization
within the meaning of Section 368(a) of the Code.
(e) Not later than 45 days prior to the date of the Company Stockholder
Meeting, the Company shall have received from Parent's "affiliates" a written
agreement substantially in the form attached as Exhibit B; provided, that this
condition shall be of no force or effect if Parent's accountants do not deliver
the letter contemplated by Section 6.9(b) hereof as of the date the S-4 is
declared effective.
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ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination by Mutual Agreement. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the approval of the Merger by the Company
Requisite Vote and the approval of the Shares Issuance by the Parent Requisite
Vote referred to in Section 7.1(a), by mutual written consent of the Company
and Parent by action of their respective Boards of Directors.
SECTION 8.2 Termination by Either Parent or the Company. This Agreement may
be terminated and the Merger may be abandoned at any time prior to the
Effective Time by action of the Board of Directors of either Parent or the
Company if:
(a) the Merger shall not have been consummated by December 31, 1999, whether
such date is before or after the date of approval of the Merger by the Company
Requisite Vote or of the Share Issuance by the Parent Requisite Vote (the
"Termination Date"); provided, however, that if either Parent or the Company
determines that additional time is necessary in connection with obtaining any
consent, registration, approval, permit or authorization required to be
obtained from any Governmental Entity, the Termination Date may be extended by
Parent or the Company from time to time by written notice to the other party to
a date not beyond March 31, 2000;
(b) the Company Requisite Vote shall not have been obtained at the Company
Stockholder Meeting or at any adjournment or postponement thereof;
(c) the Parent Requisite Vote shall not have been obtained at the Parent
Stockholder Meeting or at any adjournment or postponement thereof;
(d) any Law permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable (whether
before or after the approval of the Merger by the Company Requisite Vote or of
the Share Issuance by the Parent Requisite Vote); or
(e) any Governmental Entity shall have failed to issue an order, decree or
ruling or to take any other action which is necessary to fulfill the conditions
set forth in Sections 7.1(b), and 7.2(e), as applicable, and such denial of a
request to issue such order, decree, ruling or take such other action shall
have been final and nonappealable; provided, that the right to terminate this
Agreement pursuant to this Section 8.2 shall not be available to any party that
has breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the occurrence of the
failure of the Merger to be consummated.
SECTION 8.3 Termination by the Company. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval of the Merger by the Company Requisite Vote
referred to in Section 7.1(a), by action of the Company Board:
(a) prior to receipt of the Company Requisite Vote, if (i) the Company is
not in breach of Section 6.5, (ii) the Company Board shall have determined in
good faith, after considering applicable provisions of state law and after
consultation with outside legal counsel, that it is necessary for the Company
Board to discharge properly its fiduciary duties to the Company's stockholders
under applicable law, to terminate this Agreement to enter into an agreement
with respect to or to consummate a transaction constituting a Superior
Proposal, and (iii) the Company Board authorizes the Company, subject to
complying with the terms of this Agreement, to enter into a binding written
agreement concerning a transaction that constitutes a Superior Proposal and the
Company notifies Parent in writing that it intends to enter into such an
agreement, attaching the most current version of such agreement to such notice,
but only if during the five business day period after the Company's
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notice, (A) the Company shall have offered to negotiate with (and, if such
offer is accepted, or if requested by Parent, shall have negotiated with), and
shall have caused its respective financial and legal advisors to negotiate
with, Parent to attempt to make such commercially reasonable adjustments in the
terms and conditions of this Agreement as would enable the Company to proceed
with the transactions contemplated herein and (B) the Board of Directors of the
Company shall thereafter have concluded, after considering the results of such
negotiations and the revised proposals made by Parent, if any, that any
Superior Proposal giving rise to the Company's notice continues to be a
Superior Proposal. The Company may not effect such termination unless (i) prior
thereto the Company pays to Parent in immediately available funds the fees
required to be paid pursuant to Section 8.5 and (ii) such termination is within
two business days after the termination of the five business day period
referred to in clause (iii) above. The Company agrees (x) that it will not
enter into a binding agreement referred to in clause (ii) above until at least
the sixth business day after it has provided the notice to Parent required
thereby and (y) to notify Parent promptly if its intention to enter into a
written agreement referred to in its notification shall change at any time
after giving such notification;
(b) if there is a breach by Parent or the Operating Company of any
representation, warranty, covenant or agreement contained in this Agreement
that would give rise to a failure of a condition set forth in Section 7.3(a) or
7.3(b), which has not been cured within 15 business days following receipt by
Parent of written notice of such breach;
(c) pursuant to Section 2.1(c) if, under the circumstances set forth
therein, the Company has delivered a timely Termination Notice; provided that
such termination shall not be effective unless and until Parent has failed to
deliver a timely Top-Up Intent Notice in accordance with Section 2.1(c); or
(d) the Parent Board, whether or not permitted to do so by this Agreement,
shall have withdrawn or adversely modified its approval of the Share Issuance,
or shall have failed to call the Parent Stockholder Meeting in accordance with
Section 6.3(b).
SECTION 8.4 Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval of the Share Issuance by the Parent Requisite Vote
referred to in Section 7.1(a) if:
(a) the Company enters into a binding agreement for a Superior Proposal, or
the Company Board, whether or not permitted to do so by this Agreement, shall
have withdrawn or adversely modified its approval or recommendation of this
Agreement or the Merger, or shall have failed to call the Company Stockholder
Meeting in accordance with Section 6.3(a);
(b) there is a breach by the Company of any representation, warranty,
covenant or agreement contained in this Agreement that would give rise to a
failure of a condition set forth in Section 7.2(a) or 7.2(b), which has not
been cured within 15 business days following receipt by the Company of written
notice of such breach; or
(c) the Company enters into, adopts, amends or extends (without the prior
written consent of Parent, whether or not the same is required under this
Agreement) any labor or collective bargaining agreement with respect to
employees of the Company or its subsidiaries which agreement, amendment or
modification is on terms that (i) are different from those in effect on the
date hereof and (ii) Parent believes, in its sole discretion (exercised in good
faith) do, or would reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect on the Company and its subsidiaries
or Parent and its subsidiaries (it being understood that if the Company takes
any of the foregoing actions, the same shall be deemed a material breach by the
Company of this Agreement).
SECTION 8.5 Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement and the abandonment of the
Merger pursuant to this Article VIII, this Agreement (other than this Section
8.5 and Sections 5.3(d), 6.14 and Article IX) shall become
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void and of no effect with no liability on the part of any party hereto (or of
any of its directors, officers, employees, agents, legal and financial advisors
or other representatives); provided, however, except as otherwise provided in
this Section 8.5, no such termination shall relieve any party hereto of any
liability or damages resulting from (i) any willful breach of any
representations or warranties contained in this Agreement or (ii) any breach of
any covenant or agreement contained in this Agreement.
(b) In the event that (i) this Agreement is terminated by the Company
pursuant to Section 8.3(a), or (ii) this Agreement is terminated by Parent
pursuant to Section 8.4(a), or (iii) if within 18 months of the termination of
this Agreement pursuant to Section 8.2(b) or by Parent pursuant to Section
8.4(b) any Acquisition Proposal by a third party is entered into, agreed to or
consummated by the Company, then the Company shall pay Parent (by wire transfer
of immediately available funds to an account designated by Parent) a
termination fee of $30,000,000 plus, subject to the last sentence of this
Section 8.5(b), the reimbursement of all of Parent's actual and documented
expenses up to a maximum reimbursed amount of $5,000,000 (the "Parent
Expenses"), on the date of such termination, in the case of clauses (i) or
(ii), or on the earlier of the date an agreement is entered into with respect
to an Acquisition Proposal or an Acquisition Proposal is consummated in the
case of clause (iii). In addition, if an Acquisition Proposal shall have been
made to the Company or any of its stockholders or any person shall have
publicly announced an intention (whether or not conditional) to make an
Acquisition Proposal with respect to the Company and thereafter this Agreement
is terminated by either Parent or the Company pursuant to Section 8.2(b), the
Company shall promptly on demand reimburse all of the Parent Expenses and
thereafter be obligated to pay the termination fee only in the event such fee
is payable pursuant to this Section 8.5(b).
(c) In the event that this Agreement is terminated by the Company pursuant
to Section 8.3(d) and, at the time of such termination, (i) Parent would not
have been entitled to terminate this Agreement pursuant to Section 8.2 or 8.4,
(ii) all conditions set forth in Sections 7.1 and 7.2 (other than Section
7.1(a), Section 7.1(d) (to the extent such condition is not satisfied by reason
of any breach by Parent) and those conditions that by their nature are to be
satisfied at the Closing) have been satisfied or waived or shall remain capable
of being satisfied on or prior to the Termination Date and (iii) the Company
shall not have sold its Sawhill Tubular Division, Parent shall pay to the
Company, promptly on demand, $3,500,000 in respect of the Company's expenses in
connection with the transactions contemplated by this Agreement; provided that
if, within 18 months of the termination of this Agreement pursuant to Section
8.3(d), the Company consummates a sale of its Sawhill Tubular Division, the
Company shall, promptly on demand, repay such $3,500,000 to Parent.
(d) Each of the Company and Parent acknowledges that the agreements
contained in Sections 8.5(b) and 8.5(c) are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, the Company, Parent and the Operating Company would not have
entered into this Agreement; accordingly, if the Company or Parent fails to
promptly pay the amount due pursuant to Section 8.5(b), and, in order to obtain
such payment, Parent or the Company commences a suit which results in a
judgment against the Company or Parent for the fee set forth in this Section
8.5, the Company or Parent, as the case may be, shall pay to the other its
costs and expenses (including attorneys' fees) in connection with such suit,
together with interest from the date of termination of this Agreement on the
amounts owed at the prime rate of The Fifth Third Bank in effect from time to
time during such period plus two percent (2%).
SECTION 8.6 Amendment. This Agreement may be amended by action taken by the
Company, Parent and the Operating Company at any time before or after approval
of the Merger by the Company Requisite Vote and the approval of the Share
Issuance by the Parent Requisite Vote but, after any such approval, no
amendment shall be made which requires the approval of such stockholders under
applicable Law without such approval. This Agreement may not be amended except
by an instrument in writing signed on behalf of the parties hereto.
SECTION 8.7 Extension; Waiver. At any time prior to the Effective Time, each
party hereto (for these purposes, Parent and the Operating Company shall
together be deemed one party and the Company shall be deemed the other party)
may (i) extend the time for the performance of any of the obligations or other
acts of
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the other party, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document, certificate
or writing delivered pursuant hereto, or (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. Any agreement
on the part of either party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of either party hereto to assert any of its rights hereunder
shall not constitute a waiver of such rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants and agreements in this Agreement or in
any exhibit, schedule or instrument delivered pursuant to this Agreement shall
survive beyond the Effective Time, except for those covenants and agreements
contained herein and therein that by their terms apply or are to be performed
in whole or in part after the Effective Time and this Article IX. This Section
9.1 shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 9.2 Entire Agreement; Assignment.
(a) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof, other than the Confidentiality Agreement.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by operation of Law (including, but not limited to,
by merger or consolidation) or otherwise; provided, however, that the Operating
Company may assign, in its sole discretion, any or all of its rights, interests
and obligations under this Agreement to any direct wholly owned subsidiary of
Parent, but no such assignment shall relieve Parent or the Operating Company of
its obligations hereunder if such assignee does not perform such obligations.
Any assignment in violation of the preceding sentence shall be void. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
SECTION 9.3 Notices. All notices, requests, instructions or other documents
to be given under this Agreement shall be in writing and shall be deemed given,
(i) five business days following sending by registered or certified mail,
postage prepaid, (ii) when sent if sent by facsimile; provided that the fax is
promptly confirmed by telephone confirmation thereof, (iii) when delivered, if
delivered personally to the intended recipient and (iv) one business day
following sending by overnight delivery via a national courier service, and in
each case, addressed to a party at the following address for such party:
if to Parent or to Merger
Sub, to: AK Steel Holding Corporation
703 Curtis Street
Middletown, Ohio 45043-0001
Attention: General Counsel
Facsimile: (513) 425-5607
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Howard Chatzinoff, Esq. and
Stephen H. Cooper, Esq.
Facsimile: (212) 310-8007
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if to the Company, to: Armco Inc.
Legal Department
One Oxford Center
301 Grant Street
Pittsburgh, PA 15219-1415
Attention: General Counsel
Facsimile: (412) 255-9985
with a copy to: Arnold & Porter
399 Park Avenue
New York, NY 10022
Attention: Jonathan C. Stapleton, Esq.
Facsimile (212) 715-1399
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 9.4 Governing Law. Except to the extent that Delaware Law or Ohio
Law is mandatorily applicable to the Merger and for the rights of the
shareholders of the Company, this Agreement shall be governed by and construed
in accordance with the Laws of the State of New York, without regard to the
principles of conflicts of Law thereof.
SECTION 9.5 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
SECTION 9.6 Parties in Interest. This Agreement shall be binding upon and
except as provided in Section 6.7(c) inure solely to the benefit of each party
hereto and its successors and permitted assigns, and, except as provided in
Section 6.7(c), nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
SECTION 9.7 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
SECTION 9.8 Specific Performance. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the Southern District of the State of New York or in New York state
court, this being in addition to any other remedy to which they are entitled at
Law or in equity. In addition, each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of the courts of the United States
for the Southern District of New York or any New York state court in the event
any dispute arises out of this Agreement or any of the transactions
contemplated hereby, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court
and (c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated hereby in any other court.
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<PAGE>
SECTION 9.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 9.10 Interpretation.
(a) The words "hereof," "herein" and "herewith" and words of similar import
shall, unless otherwise stated, be construed to refer to this Agreement as a
whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." All terms defined in this Agreement shall have the defined
meanings contained herein when used in any certificate or other document made
or delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the
plural forms of such terms and to the masculine as well as to the feminine and
neuter genders of such terms. Any agreement, instrument or statute defined or
referred to herein or in any agreement or instrument that is referred to herein
means such agreement, instrument or statute as from time to time, amended,
qualified or supplemented, including (in the case of agreements and
instruments) by waiver or consent and (in the case of statutes) by succession
of comparable successor statutes and all attachments thereto and instruments
incorporated therein. References to a person are also to its permitted
successors and assigns.
(b) The phrases "the date of this Agreement," "the date hereof" and terms of
similar import, unless the context otherwise requires, shall be deemed to refer
to May 20, 1999. The phrase "made available" in this agreement shall mean that
the information referred to has been actually delivered to the party to whom
such information is to be made available.
(c) The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
SECTION 9.11 Definitions.
(a) "Acquisition Proposal" means an inquiry, offer or proposal regarding any
of the following (other than the transactions contemplated by this Agreement)
involving the Company: (i) any merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of all
or substantially all the assets of the Company and its subsidiaries, taken as a
whole, in a single transaction or series of related transactions; (iii) any
tender offer or exchange offer for 20 percent or more of the outstanding Shares
or the filing of a registration statement under the Securities Act in
connection therewith; or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
(b) "beneficial ownership" or "beneficially own" shall have the meaning
provided in Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
(c) "know" or "knowledge" means, with respect to any party, the knowledge of
such party's executive officers after due inquiry, including inquiry of such
party's counsel and other officers or employees of such party responsible for
the relevant matter.
(d) "Material Adverse Effect" means with respect to any entity, any change,
circumstance or effect that, individually or in the aggregate with all other
changes, circumstances and effects, is or is reasonably likely to be materially
adverse to (i) the assets, properties, business, condition (financial or
otherwise) or results of operations of such entity and its subsidiaries taken
as a whole or (ii) the ability of such party to consummate the transactions
contemplated by this Agreement.
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(e) "person" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
(f) "subsidiary" means, when used with reference to any entity, any
corporation or other organization, whether incorporated or unincorporated, (i)
of which such party or any other subsidiary of such party is a general or
managing partner or (ii) the outstanding voting securities or interests of,
which having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization, is directly or indirectly owned or
controlled by such party or by any one or more of its subsidiaries.
SECTION 9.12 Certain Ohio Matters. The Operating Company hereby represents,
warrants and agrees as follows:
(a) The principal office of the Operating Company in Delaware, its state of
incorporation, is c/o The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware.
(b) The Operating Company hereby consents to be sued and served with
process in the State of Ohio and hereby irrevocably appoints the Secretary of
State of Ohio as its agent to accept service of process in any proceeding in
Ohio to enforce against the Operating Company any obligation of the Company or
to enforce the rights of a dissenting shareholder of the Company.
(c) The Operating Company desires to transact business in Ohio as a foreign
corporation and has previously qualified to do so. The Operating Company has
appointed CT Corporation System, Carew Tower, Cincinnati, Ohio 45202 as its
statutory agent for service of process.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
AK STEEL HOLDING CORPORATION
By: /s / Richard M. Wardrop, Jr.
--------------------------------
Name: Richard M. Wardrop, Jr.
Title: Chairman and Chief
Executive Officer
AK STEEL CORPORATION
By: /s / Richard M. Wardrop, Jr.
--------------------------------
Name: Richard M. Wardrop, Jr.
Title: Chairman and Chief
Executive Officer
ARMCO INC.
By: /s / James F. Will
--------------------------------
Name: James F. Will
Title: President and Chief
Executive Officer
A-51
<PAGE>
ANNEX B
[Letterhead of Salomon Smith Barney Inc.]
May 20, 1999
Board of Directors
Armco Inc.
One Oxford Centre
301 Grant Street
Pittsburgh, PA 15219-1415
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of shares ("Shares") of common
stock, par value $.01 per share (the "Company Common Stock"), of Armco Inc.
(the "Company"), of the consideration to be received by such holders in
connection with the proposed merger (the "Merger") contemplated by the
Agreement and Plan of Merger (the "Agreement") to be entered among the Company,
AK Steel Holding Corporation ("Parent") and AK Steel Corporation ("Operating
Sub").
As more specifically set forth in the Agreement, and subject to the terms
and conditions thereof, in the Merger, the Company will merge with and into
Operating Sub, and each outstanding Share (other than Excluded Shares (as
defined in the Agreement)), together with the associated Rights (as defined in
the Company Rights Agreement referred to in the Agreement), will be converted
into the right to receive a fraction (rounded to the nearest thousandth) of a
share of common stock, par value $.01 per share (the "Parent Common Stock"), of
Parent (including the associated Parent Rights (as defined in the Agreement),
such fraction to be in the ratio (the "Exchange Ratio") as follows: if the
Average Parent Stock Price (as defined in the Agreement) is (i) greater than
$28.21, the Exchange Ratio shall be $8.00 divided by the Average Parent Stock
Price; (ii) equal to or greater than $26.44 but less than or equal to $28.21,
the Exchange Ratio shall be fixed at 0.2836; (iii) equal to or greater than
$22.00 but less than $26.44, the Exchange Ratio shall be $7.50 divided by the
Average Parent Stock Price; or (iv) less than $22.00 (the "Lower Collar"), the
Exchange Ratio shall be fixed at 0.3409. If the Average Parent Stock Price is
less than the Lower Collar, the Company shall have the right to terminate the
Agreement, subject to Parent's right to elect to increase the Exchange Ratio so
that the product of the Exchange Ratio as so increased and the Average Parent
Stock Price shall equal $7.50. As more specifically set forth in the Agreement,
under certain circumstances, Parent shall have the right to elect to cause a
percentage specified by Parent, up to 25% (the "Cash Election Percentage"), of
the Shares to be converted into the right to receive cash in lieu of Parent
Common Stock. If Parent makes this election, each Share (other than Excluded
Shares) shall be converted into the right to receive (x) cash in an amount
equal to the product of (A) the Per Share Value (as defined below) and (B) the
Cash Election Percentage and (y) a fraction of a share of Parent Common Stock
equal to the product of (C) the Exchange Ratio and (D) the difference obtained
by subtracting the Cash Election Percentage from one (1.00). The "Per Share
Value" shall be determined as follows: if the Average Parent Stock Price is (i)
greater than $28.21, the Per Share Value shall be $8.00; (ii) equal to or
greater than $26.44 but less than or equal to $28.21, the Per Share Value shall
be the
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<PAGE>
Average Parent Stock Price multiplied by 0.2836; (iii) equal to or greater than
$22.00 but less than $26.44, the Per Share Value shall be $7.50; or (iv) less
than $22.00, the Per Share Value shall be the Average Parent Stock Price
multiplied by 0.3409 (subject to the Company's right to terminate, as described
above, and Parent's right to elect to increase the Per Share Value to $7.50).
The portion of the consideration Parent may elect to pay in cash is subject to
reduction to the extent necessary for the Merger to qualify as a tax-free
reorganization for United States federal income tax purposes. Holders of Shares
will receive cash in lieu of fractional shares of Parent Common Stock.
Operating Sub will continue as the surviving corporation of the Merger and will
be a wholly owned subsidiary of Parent.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) a draft of the Agreement, dated as of
May 20, 1999; (ii) certain publicly available information concerning the
Company and Parent; (iii) certain other financial information with respect to
the Company and Parent, including projections and the Company's estimates of
the cost savings expected to be derived from the Merger, that were provided to
us by the Company and Parent, respectively, for purposes of our analysis; (iv)
certain publicly available information, prepared by third-parties, including
equity research analysts, concerning the business, operations and financial
prospects of the Company and Parent and the sectors in which they operate; (v)
certain publicly available information concerning the trading of, and the
trading market for, the Company Common Stock and the Parent Common Stock; (vi)
certain publicly available information with respect to certain other companies
that we believe to be comparable to the Company or Parent and the trading
markets for certain of such other companies' securities; and (vii) certain
publicly available information concerning the nature and terms of certain other
transactions that we consider relevant to our inquiry. We also have considered
such other information, financial studies, analyses, investigations and
financial, economic and market criteria that we deemed relevant. We have also
met with certain officers and employees of the Company and Parent to discuss
the foregoing as well as other matters we believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available and have neither attempted
independently to verify nor assumed any responsibility for verifying any of
such information and have further relied upon the assurances of management of
the Company that they are not aware of any facts that would make any of such
information inaccurate or misleading. We have not conducted a physical
inspection of any of the properties or facilities of the Company or Parent, nor
have we made or obtained or assumed any responsibility for making or obtaining
any independent evaluations or appraisals of any of such properties or
facilities, nor have we been furnished with any such evaluations or appraisals.
With respect to projections, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of the Company and Parent as to the future
financial performance of the Company and Parent and we express no view with
respect to such projections or the assumptions on which they were based. We
also have assumed that the definitive Agreement, when executed and delivered,
will not contain any terms or conditions that differ materially from the terms
and conditions contained in the draft of the Agreement we have reviewed, that
the Merger will qualify as a tax-free reorganization for United States federal
income tax purposes, and that the Merger will be consummated in accordance with
the terms of the Agreement, without waiver of any of the conditions precedent
to the Merger contained in the Agreement.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company and Parent; (ii) the business prospects of the Company and Parent;
(iii) the historical and current market for the Company Common Stock, the
Parent Common Stock and for the equity securities of certain other companies
that we believe to be comparable to the Company or Parent; and (iv) the nature
and terms of certain other merger transactions that we believe to be relevant.
We have also taken into account our assessment of general economic, market and
financial conditions as well as our experience in connection with similar
transactions and securities valuation generally. We have not been asked to
consider, and our opinion does not address, the
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<PAGE>
relative merits of the Merger as compared to any alternative business strategy
that might exist for the Company. We have considered the process that resulted
in negotiation of the Agreement, including discussions with other potential
acquirors. Our opinion necessarily is based upon conditions as they exist and
can be evaluated on the date hereof and we assume no responsibility to update
or revise our opinion based upon circumstances or events occurring after the
date hereof. Our opinion is, in any event, limited to the fairness, from a
financial point of view, of the consideration to be received by the holders of
Shares in the Merger and does not address the Company's underlying business
decision to effect the Merger or constitute a recommendation of the Merger to
the Company or a recommendation to any holder of Shares as to how such holder
should vote with respect to the Merger. Our opinion also does not constitute an
opinion or imply any conclusion as to the price at which the Company Common
Stock will trade following announcement of the Merger or at which the Parent
Common Stock will trade following the announcement of the Merger or following
the consummation of the Merger.
As you are aware, Salomon Smith Barney Inc. is acting as financial advisor
to the Company in connection with the Merger and will receive a fee for our
services, a substantial portion of which is contingent upon consummation of the
Merger. Additionally, Salomon Smith Barney Inc. or its predecessors or
affiliates have previously rendered certain investment banking and financial
advisory services to the Company, for which we or our predecessors or
affiliates received customary compensation. In addition, in the ordinary course
of business, Salomon Smith Barney Inc. may actively trade the securities of the
Company and Parent for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Salomon Smith Barney Inc. and its affiliates (including Citigroup Inc. and its
affiliates) may have other business relationships with the Company, Operating
Sub and Parent.
This opinion is intended for the benefit and use of the Company (including
its management and directors) in considering the transaction to which it
relates and may not be used by the Company for any other purpose or reproduced,
disseminated, quoted or referred to by the Company at any time, in any manner
or for any purpose, without the prior written consent of Salomon Smith Barney
Inc., except that this opinion may be reproduced in full in, and references to
the opinion and to Salomon Smith Barney Inc. and its relationship with the
Company (in each case in such form as Salomon Smith Barney Inc. shall approve)
may be included in, the proxy statement the Company distributes to holders of
Shares in connection with the Merger and in the registration statement on Form
S-4 filed by Parent of which such proxy statement forms a part.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the consideration to be received by the
holders of Shares in the Merger is fair, from a financial point of view, to
such holders.
Very truly yours,
Salomon Smith Barney Inc.
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<PAGE>
ANNEX C
[Letterhead of Credit Suisse First Boston Corporation]
May 20, 1999
Board of Directors
AK Steel Holding Corporation
703 Curtis Street
Middletown, Ohio 45043
Members of the Board:
You have asked us to advise you with respect to the fairness to AK Steel
Holding Corporation ("AK Steel") from a financial point of view of the Common
Stock Merger Consideration (as defined below) set forth in the Agreement and
Plan of Merger, dated as of May 20, 1999 (the "Merger Agreement"), by and among
AK Steel, AK Steel Corporation, a wholly owned subsidiary of AK Steel
("Operating Company"), and Armco Inc. ("Armco"). The Merger Agreement provides
for, among other things, the merger of Armco with and into Operating Company
(the "Merger") pursuant to which each outstanding share of the common stock,
par value $0.01 per share, of Armco ("Armco Common Stock") will be converted
into the right to receive that number of shares of the common stock, par value
$0.01 per share, of AK Steel (the "AK Steel Common Stock") determined as
follows (the number of shares of AK Steel Common Stock into which shares of
Armco Common Stock will be so converted, the "Common Stock Exchange Ratio"):
(i) if the average of the per share closing prices of AK Steel Common Stock on
the New York Stock Exchange, Inc. during the ten consecutive trading day period
ending on the sixth trading day prior to Armco's stockholders' meeting in
respect of the Merger (the "Average Stock Price") is greater than $28.21, the
Common Stock Exchange Ratio will be $8.00 divided by the Average Stock Price;
(ii) if the Average Stock Price is equal to or greater than $26.44 but less
than or equal to $28.21, the Common Stock Exchange Ratio will be fixed at
0.2836; (iii) if the Average Stock Price is equal to or greater than $22.00 but
less than $26.44, the Common Stock Exchange Ratio will be $7.50 divided by the
Average Stock Price; or (iv) if the Average Stock Price is less than $22.00,
the Common Stock Exchange Ratio will be fixed at 0.3409, subject to certain
termination and top-up provisions specified in the Merger Agreement. The Merger
Agreement further provides that if the Merger does not qualify for pooling of
interests treatment in accordance with generally accepted accounting
principles, then AK Steel will have the right to cause up to 25% of the
outstanding shares of Armco Common Stock to be converted into the right to
receive cash, in which case each outstanding share of Armco Common Stock will
be converted in the Merger into the right to receive (i) cash in an amount
equal to the product of (x) the Per Share Value (as defined in the Merger
Agreement) and (y) the percentage of the shares of Armco Common Stock to be
converted into cash (the "Cash Election Percentage" and, such cash amount, the
"Cash Consideration") and (ii) a fraction of a share of AK Steel Common Stock
equal to the product of (x) the Common Stock Exchange Ratio and (y) one minus
the Cash Election Percentage (the Cash Consideration and the Common Stock
Exchange Ratio being collectively referred to as the "Common Stock Merger
Consideration"). The Merger Agreement also provides for the conversion in the
Merger of each outstanding share of the Class A Preferred Stock, no par value,
of Armco (the "Class A Preferred Stock") and Class B Preferred Stock, par value
$1.00 per share, of Armco (the "Class B Preferred Stock" and, together with the
Class A Preferred Stock, the "Armco Preferred Stock") into the right to
receive, as more fully specified in the Merger Agreement, cash, shares of AK
Common Stock or shares of preferred stock, par value $0.01 per share, of AK
Steel (the "AK Steel Preferred Stock").
In arriving at our opinion, we have reviewed the Merger Agreement and certain
publicly available business and financial information relating to AK Steel and
Armco. We have also reviewed certain other information relating to
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Board of Directors
AK Steel Holding Corporation
May 20, 1999
Page 2
AK Steel and Armco, including financial forecasts, provided to or discussed
with us by AK Steel and Armco, and have met with the managements of AK Steel
and Armco to discuss the businesses and prospects of AK Steel and Armco. We
have also considered certain financial and stock market data of AK Steel and
Armco, and we have compared those data with similar data for other publicly
held companies in businesses similar to AK Steel and Armco, and we have
considered, to the extent publicly available, the financial terms of certain
other business combinations and other transactions which have recently been
effected. We also considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which
we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
such information being complete and accurate in all material respects. With
respect to the financial forecasts, we have been advised, and have assumed,
that such forecasts have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of AK Steel and
Armco as to the future financial performance of AK Steel and Armco and as to
Armco Financial Services Corporation and its direct and indirect subsidiaries
(including the current and future assets and liabilities and potential run-off
thereof) and the best currently available estimates and judgments of the
management of AK Steel as to the cost savings and other potential synergies
(including the amount, timing and achievability thereof) anticipated to result
from the Merger. We also have assumed, with your consent, that the Merger will
be treated as a tax-free reorganization for federal income tax purposes. We
have not been requested to make, and have not made, an independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) of AK Steel
or Armco, nor have we been furnished with any such evaluations or appraisals.
Our opinion is necessarily based upon information available to us, and
financial, economic, market and other conditions as they exist and can be
evaluated, on the date hereof. We are not expressing any opinion as to what the
value of the AK Steel Common Stock or AK Steel Preferred Stock actually will be
when issued pursuant to the Merger or the prices at which the AK Steel Common
Stock or AK Steel Preferred Stock will trade or otherwise be transferable
subsequent to the Merger.
We have acted as financial advisor to AK Steel in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Merger. We have in the past provided
financial services to AK Steel unrelated to the proposed Merger, for which
services we have received compensation. We also may participate in the
financing, if any, of certain transactions related to the Merger, for which
services we would receive additional compensation. In the ordinary course of
business, Credit Suisse First Boston and its affiliates may actively trade the
debt and equity securities of AK Steel and Armco for their own accounts and for
the accounts of customers and, accordingly, may at any time hold long or short
positions in such securities.
It is understood that this letter is for the information of the Board of
Directors of AK Steel in connection with its evaluation of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder
should vote with respect to any matter relating to the Merger, and is not to be
quoted or referred to, in whole or in part, in any registration statement,
prospectus or proxy statement, or in any other document used in connection with
the offering or sale of securities, nor shall this letter be used for any other
purposes, without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Common Stock Merger Consideration is fair to AK Steel from a
financial point of view.
Very truly yours,
Credit Suisse First Boston Corporation
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ANNEX D
SECTION 1701.85 OF THE OHIO REVISED CODE
DISSENTING SHAREHOLDER'S DEMAND FOR FAIR CASH VALUE OF SHARES.
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the corporation
involved, the dissenting shareholder shall be a record holder of the shares of
the corporation as to which he seeks relief as of the date fixed for the
determination of the shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall
not have been voted in favor of the proposal. Not later than ten days after the
date on which the vote on the proposal was taken at the meeting of the
shareholders, the dissenting shareholder shall deliver to the corporation a
written demand for payment to him of the fair cash value of the shares to which
he seeks relief, which demand shall state his address, the number and class of
such shares, and the amount claimed by him as the fair cash value of the
shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as
of the date on which the agreement of merger was adopted by the directors of
that corporation. Within twenty days after he has been sent the notice provided
in section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the
new entity, whether the demand is served before, on, or after the effective
date of the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on
them a legend to the effect that demand for the fair cash value of such shares
had been made. The corporation promptly shall return such endorsed certificates
to the dissenting shareholder. A dissenting shareholder's failure to deliver
such certificates terminates his rights as a dissenting shareholder, at the
option of the corporation, exercised by written notice sent to the dissenting
shareholder within twenty days after the lapse of the fifteen-day period,
unless a court for good cause shown otherwise directs. If shares represented by
a certificate on which such a legend has been endorsed are transferred, each
new certificate issued for them shall bear a similar legend, together with the
name of the original dissenting holder of such shares. Upon receiving a demand
for payment from a dissenting shareholder who is the record holder of
uncertificated securities, the corporation shall make an appropriate notation
of the demand for payment in its shareholder records. If uncertificated shares
for which payment has been demanded are to be transferred, any new certificate
issued for the shares shall bear the legend required for certificated
securities as provided in this paragraph. A transferee of the shares so
endorsed, or of uncertificated securities where such notation has been made,
acquires only such rights in the corporation as the original dissenting holder
of such shares had immediately after the service of a demand for payment of the
fair cash value of the shares. A request under this paragraph by the
corporation is not an admission by the corporation that the shareholder is
entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or
D-1
<PAGE>
the corporation, which in case of a merger or consolidation may be the
surviving or new entity, within three months after the service of the demand by
the dissenting shareholder, may file a complaint in the court of common pleas
of the county in which the principal office of the corporation that issued the
shares is located or was located when the proposal was adopted by the
shareholders of the corporation, or, if the proposal was not required to be
submitted to the shareholders, was approved by the directors. Other dissenting
shareholders, within that three-month period, may join as plaintiffs or may be
joined as defendants in any such proceeding, and any two or more such
proceedings may be consolidated. The complaint shall contain a brief statement
of the facts, including the vote and the facts entitling the dissenting
shareholder to the relief demanded. No answer to such a complaint is required.
Upon the filing of such a complaint, the court, on motion of the petitioner,
shall enter an order fixing a date for a hearing on the complaint and requiring
that a copy of the complaint and a notice of the filing and of the date for
hearing be given to the respondent or defendant in the manner in which summons
is required to be served or substituted service is required to be made in other
cases. On the day fixed for the hearing on the complaint or any adjournment of
it, the court shall determine from the complaint and from such evidence as is
submitted by either party whether the dissenting shareholder is entitled to be
paid the fair cash value of any shares and, if so, the number and class of such
shares. If the court finds that the dissenting shareholder is so entitled, the
court may appoint one or more persons as appraisers to receive evidence and to
recommend a decision on the amount of the fair cash value. The appraisers have
such power and authority as is specified in the order of their appointment. The
court thereupon shall make a finding as to the fair cash value of a share and
shall render judgment against the corporation for the payment of it, with
interest at such rate and from such date as the court considers equitable. The
costs of the proceeding, including reasonable compensation to the appraisers to
be fixed by the court, shall be assessed or apportioned as the court considers
equitable. The proceeding is a special proceeding and final orders in it may be
vacated, modified, or reversed on appeal pursuant to the Rules of Appellate
Procedure and, to the extent not in conflict with those rules, Chapter 2505 of
the Revised Code. If, during the pendency of any proceeding instituted under
this section, a suit or proceeding is or has been instituted to enjoin or
otherwise to prevent the carrying out of the action as to which the shareholder
has dissented, the proceeding instituted under this section shall be stayed
until the final determination of the other suit or proceeding. Unless any
provision in division (D) of this section is applicable, the fair cash value of
the shares that is agreed upon by the parties or fixed under this section shall
be paid within thirty days after the date of final determination of such value
under this division, the effective date of the amendment to the articles, or
the consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a
holder of uncertificated securities entitled to such payment. In the case of
holders of shares represented by certificates, payment shall be made only upon
and simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and,
in the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of
the Revised Code, fair cash value as to shareholders of a constituent
subsidiary corporation shall be determined as of the day before the adoption of
the agreement of merger by the directors of the particular subsidiary
corporation. The fair cash value of a share for the purposes of this section is
the amount that a willing seller who is under no compulsion to sell would be
willing to accept and that a willing buyer who is under no compulsion to
purchase would be willing to pay, but in no event shall the fair cash value of
a share exceed the amount specified in the demand of the particular
shareholder. In computing such fair cash value, any appreciation or
depreciation in market value resulting form the proposal submitted to the
directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
D-2
<PAGE>
(b) The corporation abandons the action involved or is finally enjoined
or prevented from carrying it out, or the shareholders rescind their
adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent of
the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand until
either the termination of the rights and obligations arising from it or the
purchase of the shares by the corporation, all other rights accruing from such
shares, including voting and dividend or distribution rights, are suspended. If
during the suspension, any dividend or distribution is paid in money upon
shares of such class or any dividend, distribution, or interest is paid in
money upon any securities issued in extinguishment of or in substitution for
such shares, an amount equal to the dividend, distribution, or interest which,
except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair
cash value of the shares. If the right to receive fair cash value is terminated
other than by the purchase of the shares by the corporation, all rights of the
holder shall be restored and all distributions which, except for the
suspension, would have been made shall be made to the holder of record of the
shares at the time of termination.
D-3
<PAGE>
ANNEX E
Acquiring Person Statement
(1) The acquiring persons are AK Steel Holding Corporation, a Delaware
corporation ("Holding"), and its wholly owned subsidiary AK Steel Corporation,
a Delaware corporation ("AK Steel"). The issuing public corporation is Armco
Inc. ("Armco").
(2) This Acquiring Person Statement is given pursuant to Section 1701.831 of
the Ohio Revised Code.
(3) AK Steel and Holding own no shares of Armco.
(4) If consummated, the transaction described below will result in the
acquiring persons owning in effect 100% of the voting power of Armco.
(5) The transaction will consist of the merger of Armco into AK Steel. AK
Steel will be the surviving corporation. In the merger, all outstanding shares
of Armco will be converted into a right to receive shares of Holding or cash.
The terms of the transaction are set forth in the Agreement and Plan of Merger
dated as of May 20, 1999, among Armco, Holding and AK Steel, which is hereby
incorporated by reference.
(6) Holding and AK Steel hereby represent that the proposed transaction, if
consummated in accordance with its terms, including the approval of the
stockholders of Armco as contemplated by the Merger Agreement, will not be
contrary to law and that they have the financial capacity to consummate the
proposed transaction.
Dated: , 1999
AK Steel Holding Corporation
By:
-----------------------------------
AK Steel Corporation
By:
-----------------------------------
E-1
<PAGE>
ANNEX F
PROPOSED FORM OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES B $3.625 CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
AK STEEL HOLDING CORPORATION
Pursuant to Section 151 of the General Corporation Law of the State of Delaware
----------------
AK Steel Holding Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), in
accordance with the provisions of Section 151 of such law DOES HEREBY CERTIFY
that, pursuant to the authority conferred upon the Board of Directors of the
Corporation by its Certificate of Incorporation, as amended (the "Certificate
of Incorporation"), the Board of Directors adopted the following resolution:
RESOLVED, that pursuant to the authority vested in the Board of Directors of
the Corporation in accordance with the provisions of its Certificate of
Incorporation, a series of preferred stock of the Corporation be, and hereby
is, created and that the powers designations, preferences and relative,
participating, optional or other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereon, are as follows:
Section 1. Designation. The series of preferred stock established hereby
shall be created out of the authorized and outstanding shares of the
Corporation's existing class of Preferred Stock (as defined in the Certificate
of Incorporation) and shall be designated as the "Series B $3.625 Cumulative
Convertible Preferred Stock." The number of shares constituting such series
shall be 2,700,000 and are referred to herein as the "$3.625 Preferred Stock."
Section 2. Future Increase or Decrease of Class and Series.
(a) For so long as any shares of $3.625 Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote of the holders of a
majority of the outstanding $3.625 Preferred Stock, increase the authorized
number of shares of Preferred Stock or create any class or series of capital
stock which ranks equally with or prior to the $3.625 Preferred Stock.
(b) The number of authorized shares of $3.625 Preferred Stock may be
increased (but not above the number of authorized shares of Preferred Stock) or
decreased (but not below the number of shares of $3.625 Preferred Stock then
outstanding) by the Board of Directors, in its sole discretion, without the
consent of the holders of outstanding shares of $3.625 Preferred Stock.
Section 3. Stock Ranking Junior to $3.625 Preferred Stock. Whenever
reference is made herein to stock or shares "ranking junior to the $3.625
Preferred Stock" such reference shall mean and include the Common Stock, the
Series A Junior Preferred Stock and any other authorized class of the
Corporation's capital stock in respect of which the rights of the holders as to
the payment of dividends and as to distributions in the event of dissolution,
liquidation or winding up of the Corporation are subordinate to the rights of
the holders of the $3.625 Preferred Stock.
Section 4. Dividends.
(a) Holders of outstanding shares of $3.625 Preferred Stock shall be
entitled to receive, subject to the rights of holders of any class of stock of
the Corporation or series thereof ranking senior to the $3.625
F-1
<PAGE>
Preferred Stock in respect of dividends and distribution, when and as declared
by the Board of Directors of the Corporation, out of the assets of the
Corporation legally available therefor, dividends at the rate of $3.625 per
share per annum and no more, payable in cash quarterly in equal installments on
the last day of each March, June, September and December. Dividends shall be
cumulative, whether or not earned, and shall accrue on each share of $3.625
Preferred Stock from September 30, 1999, except that dividends on shares of
$3.625 Preferred Stock issued after the first date of issue of any shares of
$3.625 Preferred Stock shall accrue on each such share from the quarterly
dividend payment date next preceding the date of issue of each such share;
provided, that
(i) if the date of issue is a quarterly dividend payment date or a date
between the record date for the determination of holders of $3.625
Preferred Stock entitled to receive a quarterly dividend and the payment
date for such quarterly dividend, such dividends shall be cumulative and
shall accrue from such quarterly dividend payment date, and
(ii) if any shares of $3.625 Preferred Stock are issued at a time when
cumulative dividends are in arrears on previously issued shares of $3.625
Preferred Stock, dividends on such newly issued shares shall be cumulative
and shall accrue in an amount equal to the dividends accrued and unpaid on
such previously issued shares of $3.625 Preferred Stock.
(b) Dividends payable on $3.625 Preferred Stock for any period less than a
full quarter shall be computed on the basis of a 360-day year.
(c) Accumulations of dividends shall not bear interest.
Section 5. Restrictions on Payment of Dividends. So long as any $3.625
Preferred Stock shall be outstanding, the Corporation shall not declare or pay
any dividend or make any distribution on, or purchase, or cause to be
purchased, or redeem, any stock ranking junior to the $3.625 Preferred Stock,
nor shall any money be paid or set aside or made available for a purchase fund
or sinking fund for the purchase or redemption of any shares of such junior
stock unless
(i) accrued dividends for all past dividend periods on all outstanding
shares of $3.625 Preferred Stock shall have been paid and the dividend on
all outstanding shares of $3.625 Preferred Stock for the then current
quarterly dividend period shall have been paid or declared and provided
for; and
(ii) the net assets of the Corporation shall not thereby be reduced
below the aggregate preferential amounts to which the then outstanding
shares of $3.625 Preferred Stock would be entitled upon the involuntary
liquidation, dissolution or winding up of the Corporation.
Section 6. Rights Upon Default in Payment of Dividends. If the Corporation
shall have failed to pay, or declare and set apart for payment, when due,
dividends on all outstanding shares of $3.625 Preferred Stock in an amount
equal to six quarterly dividends upon such shares, the number of Directors of
the Corporation shall be increased by two at the first annual meeting of the
stockholders of the Corporation held thereafter, and at such meeting and at
each subsequent annual meeting until dividends payable for all past quarterly
dividend periods on all outstanding shares of $3.625 Preferred Stock shall have
been paid, or declared and set apart for payment, in full, the holders of the
outstanding shares of $3.625 Preferred Stock shall have the right, voting as a
separate class, to elect such two additional members of the Board of Directors
to hold office until the annual meeting of shareholders held next after their
election and the election and qualification of their successors or until such
payment, or such declaration and setting apart for payment, in full, whichever
period is shorter; provided, that during any period of time in which the
holders of shares of $3.625 Preferred Stock shall have the right to elect two
Directors of the Corporation as set forth in this Section 6, the voting right
conferred upon the holders of $3.625 Preferred Stock by Section 8 shall be
suspended with respect to the election of Directors, but shall otherwise
continue in effect. Upon such payment, or such declaration and setting apart
for payment, in full, the terms of the two additional Directors so elected
shall forthwith terminate, and the number of Directors of the Corporation shall
be reduced by two and the right of the holders of shares of $3.625 Preferred
Stock to
F-2
<PAGE>
vote pursuant to this Section 6 shall cease, subject to increase in the number
of Directors as aforesaid and to revesting of such voting right in the event of
each and every additional failure in the payment of dividends in an amount
equal to six quarterly dividends as aforesaid.
Section 7. Liquidation Rights. Upon any dissolution, liquidation or winding
up of the Corporation, whether voluntary or involuntary, before any
distribution or payment is made to the holders of any class of stock ranking
junior to the $3.625 Preferred Stock, the holders of $3.625 Preferred Stock
shall be entitled to be paid in cash Fifty Dollars ($50.00) per share plus an
amount equal to all dividends thereon accrued and unpaid computed to the date
on which payment thereof is made available. If the net assets of the
Corporation shall be insufficient to permit the payment to holders of all
outstanding shares of $3.625 Preferred Stock of the full amount to which they
are entitled, the entire net assets of the Corporation shall be distributed
ratably to the holders of all outstanding shares of $3.625 Preferred Stock in
proportion to the amounts to which they are respectively entitled. After
payment to holders of the $3.625 Preferred Stock of the full preferential
amounts aforesaid, the holders of the $3.625 Preferred Stock, in their capacity
as such, shall have no right or claim to any of the remaining assets of the
Corporation, which remaining assets shall be distributed among the holders of
shares ranking junior to the $3.625 Preferred Stock in accordance with their
respective rights thereto. The sale, lease or conveyance of all the property
and assets of the Corporation to, or the merger or consolidation of the
Corporation into or with, any other corporation shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation for the purposes of
this Section 7.
Section 8. Voting Rights. The holders of $3.625 Preferred Stock shall be
entitled at all times to one vote for each share of $3.625 Preferred Stock in
respect of all matters to be voted upon by stockholders of the Corporation
generally, including the election of Directors, and shall vote, without regard
to class or series (except as required pursuant to Sections 2(a), 6 or 9
hereof), together with the holders of each other class and series of capital
stock of the Corporation entitled to vote.
Section 9. Amendments Materially Altering Provisions of Outstanding $3.625
Preferred Stock. The Corporation shall not adopt, without the affirmative vote
of holders of two-thirds of the outstanding shares of $3.625 Preferred Stock,
voting as a separate class, any amendment to the Certificate of Incorporation
that materially alters any existing rights of the holders of the outstanding
$3.625 Preferred Stock.
Section 10. Preemptive Rights. No holder of $3.625 Preferred Stock shall
have any preemptive right in, or preemptive right to subscribe to, any
additional $3.625 Preferred Stock or any shares of any other class of stock, or
any bonds, debentures or other securities convertible into or exchangeable for
shares of stock of any class or series.
Section 11. Prohibitions Against Reissue or Resale. All shares of $3.625
Preferred Stock that are purchased, redeemed, converted, exchanged or otherwise
acquired by the Corporation shall be retired and none of such shares shall be
reissued or resold.
Section 12. Redemption. At the option of, and to the extent fixed by, the
Board of Directors, the Corporation may redeem at any time, or from time to
time, shares of $3.625 Preferred Stock, as a whole or in part, at the following
redemption prices, plus in each case, accrued and unpaid dividends thereon to
the date fixed by the Board of Directors for redemption:
If redeemed prior to October 15, 1999: $51.4500, and if redeemed during the
twelve-month period commencing October 15:
<TABLE>
<CAPTION>
Amount
Per
Year Share
---- --------
<S> <C>
1999............................................................ $51.0875
2000............................................................ $50.7250
2001............................................................ $50.3625
2002 and thereafter............................................. $50.0000;
</TABLE>
F-3
<PAGE>
provided, that not less than thirty days prior to the date fixed for any such
redemption, a notice of the time and place thereof shall be given to the
holders of record of the shares of $3.625 Preferred Stock so to be redeemed by
mailing a copy of such notice to such holders at their respective addresses as
the same appear on the books of the Corporation and, if the Board of Directors
shall so determine, by publication of notice in such manner as may be
prescribed by resolution of the Board of Directors. Notice of every redemption
shall state the redemption date; the number of shares of $3.625 Preferred Stock
to be redeemed and, if less than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; the
redemption price; the place or places where certificates for such shares are to
be surrendered for payment of the redemption price; the then current conversion
rate; and the date the conversion right terminates. In case of redemption of
less than all of the outstanding shares of $3.625 Preferred Stock, the
redemption shall be made pro rata or the shares to be redeemed shall be chosen
by lot in such manner as may be prescribed by resolution of the Board of
Directors.
At any time after notice of redemption has been given in the manner herein
prescribed, the Corporation may deposit with any bank or trust company having
capital and surplus of at least $5,000,000 that shall be named in such notice,
in trust for the holders of the shares so to be redeemed, the amount of the
aggregate redemption price payable on the date fixed for redemption to the
respective orders of such holders upon endorsement to the Corporation or
otherwise as may be required and surrender of the certificates for such shares.
Upon deposit of the aggregate redemption price, as aforesaid, or, if no such
deposit is made, upon said redemption date (unless the Corporation shall
default in making payment of the redemption price as set forth in said notice)
such holders shall cease to be stockholders with respect to said shares and
shall be entitled only to receive the redemption price on or after the date
fixed for redemption, without interest thereon, upon endorsement, if required,
and surrender of the certificates for such shares as aforesaid; provided,
however, that no such deposit in trust shall be deemed to terminate any
conversion rights to which any such holder may otherwise be entitled. Any funds
so deposited by the Corporation and unclaimed at the end of six years from the
date fixed for such redemption shall be repaid by such bank or trust company to
the Corporation upon its request, after which repayment the holders of such
shares so called for redemption shall look only to the Corporation for payment
of the redemption price thereof. Any funds so deposited which shall not be
required for such redemption because of the exercise subsequent to the date of
such deposit of any right of conversion or exchange, shall be returned to the
Corporation forthwith. Any interest accrued on any funds so deposited shall
belong to the Corporation and shall be paid to it from time to time.
If at any time the Corporation shall have failed to pay accrued dividends in
full on the outstanding $3.625 Preferred Stock, thereafter and until such
dividends shall have been paid in full or declared and set apart for payment in
full, the Corporation shall not redeem any shares of $3.625 Preferred Stock
(except pursuant to a redemption of all of the shares of $3.625 Preferred Stock
then outstanding) or, directly or indirectly, purchase any shares of $3.625
Preferred Stock. Subject to the foregoing, any shares of $3.625 Preferred Stock
may be purchased by the Corporation.
The shares of $3.625 Preferred Stock shall not be entitled to the benefit of
any sinking fund to be applied to the purchase or redemption thereof.
Section 13. Conversion Rights.
(i) The shares of $3.625 Preferred Stock shall be convertible at the option
of the respective holders thereof, at any time after the date of issue, into
shares of Common Stock of the Corporation (hereinafter, "Common Stock"), as
such shares may be constituted on the Conversion Date (as hereinafter defined),
at the rate of [ * ] shares of Common Stock for each share of $3.625 Preferred
Stock, subject to adjustment as
- --------
* The conversion rate to be inserted here will be determined immediately prior
to the effective time of the merger with Armco by multiplying (x) 6.78 (the
conversion rate currently applicable to Armco's Class A $3.625 cumulative
convertible preferred stock) by (y) the applicable exchange ratio used to
determine the fraction of a share of AK Holding common stock to be issued in
exchange for one share of Armco common stock pursuant to the merger.
F-4
<PAGE>
provided herein and to the provisions of subsection (ix) of this Section 13;
provided that, as to any shares of $3.625 Preferred Stock that shall have been
called for redemption, the conversion right shall terminate at the close of
business on the fifth day preceding the date fixed for redemption unless
default shall be made in the payment of the redemption price plus accrued and
unpaid dividends.
(ii) The holder of a share or shares of $3.625 Preferred Stock may exercise
the foregoing conversion right as to any of such shares by delivering to the
Corporation during regular business hours, at the office of the transfer agent
for the $3.625 Preferred Stock or at such other place as may be designated by
the Corporation, the certificate or certificates for the shares to be
converted, duly endorsed or assigned in blank (or to the Corporation, if
required by it), accompanied by written notice stating that the holder elects
to convert such shares and stating the name or names (with address) in which
the certificate or certificates for Common Stock are to be issued. Conversion
shall be deemed to have been effected on the date when such certificate or
certificates have been so received by the Corporation or its transfer agent,
and such date is referred to herein as the "Conversion Date." As promptly as
practicable thereafter, the Corporation shall issue and deliver to or upon the
written order of such holder, a certificate or certificates for the number of
full shares of Common Stock to which such holder is entitled and a check, cash,
scrip certificate or other adjustment, at the election of the Corporation, in
respect of any fraction of a share as provided in subparagraph (iv) below. The
person in whose name the certificate or certificates for Common Stock are to be
issued shall be deemed to have become a holder of Common Stock of record on the
Conversion Date unless the transfer books of the Corporation are closed on that
date, in which event such person shall be deemed to have become a holder of
Common Stock of record on the next succeeding date on which the transfer books
are open, but the conversion rate shall be that in effect on the Conversion
Date.
(iii) No payment or adjustment shall be made for dividends accrued but
unpaid (even though the record date, but not the payment date, with respect
thereto shall have preceded the Conversion Date) on any shares of $3.625
Preferred Stock converted (or for dividends on any shares of Common Stock
issuable on conversion), but until all dividends accrued and unpaid on such
shares of $3.625 Preferred Stock up to the quarterly dividend payment date next
preceding the Conversion Date shall have been paid to the converting holder or
to his assigns, or declared and set apart for such payment, in full, no
dividend shall be paid or set apart for payment or declared on the Common Stock
or on any other class of stock of the Corporation ranking as to dividends
junior to the $3.625 Preferred Stock and no payments shall be made with respect
to any purchase or acquisition of, or to any sinking fund with respect to, any
class of stock of the Corporation ranking as to dividends or distribution of
assets on a parity with or junior to the $3.625 Preferred Stock.
(iv) The Corporation shall not be required to issue any fraction of a share
of Common Stock upon conversion of any share or shares of $3.625 Preferred
Stock. If more than one share of $3.625 Preferred Stock shall be surrendered
for conversion at one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the total number of shares of $3.625 Preferred Stock so surrendered. If any
fractional interest in a share of Common Stock would be deliverable upon
conversion of the $3.625 Preferred Stock, the Corporation shall make an
adjustment therefor in cash unless its Board of Directors shall have determined
to adjust fractional interests by issuance of scrip certificates or in some
other manner. Adjustment in cash shall be made on the basis of the current
market value of one share of Common Stock, which shall be taken to be the last
reported sale price of the Common Stock on the New York Stock Exchange on the
last business day before the Conversion Date, or, if there was no reported sale
price of the Common Stock on the New York Stock Exchange on the last business
day before the Conversion Date, or if there was no reported sale on that day,
the mean between the closing bid and asked quotations on that Exchange on that
day or, if the Common Stock was not then listed on that Exchange, the mean
between the lowest bid and the highest asked quotations in the over-the-counter
market on that day.
(v) The issuance of Common Stock upon conversion of shares of $3.625
Preferred Stock shall be without charge to the converting holder for any fee,
expense or tax in respect thereof, but the Corporation shall not be required to
pay any fee, expense or tax that may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock in any name
other than that of the holder of record on the books of the Corporation of the
shares of $3.625 Preferred Stock converted, and the Corporation shall not, in
any such
F-5
<PAGE>
case, be required to issue or deliver any certificate for shares of Common
Stock unless and until the person requesting the issuance thereof shall have
paid to the Corporation the amount of such fee, expense or tax or shall have
established to the satisfaction of the Corporation that such fee, expense or
tax has been paid.
(vi) The conversion rate provided in subsection (i) shall be subject to the
following adjustments, which shall be made to the nearest one-hundredth of a
share of Common Stock or, to the next lower one-hundredth:
(A) If the Corporation shall pay to the holders of its Common Stock a
dividend in shares of Common Stock or in securities convertible into Common
Stock, the conversion rate in effect immediately prior to the record date
fixed for the determination of the holders of Common Stock entitled to such
dividend shall be proportionately increased, effective immediately
following such record date.
(B) If the Corporation shall split the outstanding shares of its Common
Stock into a greater number of shares or combine the outstanding shares of
its Common Stock into a smaller number of shares, the conversion rate in
effect immediately prior to such action shall be proportionately increased
in the case of a split or decreased in the case of a combination, effective
immediately following such action.
(C) If the Corporation shall issue to the holders of its Common Stock,
as a class, rights or warrants to subscribe for or purchase shares of its
Common Stock at a price less than the Current Market Price (as defined
below) of the Common Stock at the record date fixed for the determination
of the holders of Common Stock entitled to such rights or warrants, the
conversion rate in effect immediately prior to the record date shall be
increased, effective immediately following such record date, to an amount
determined by multiplying that conversion rate by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
prior to the record date plus the number of additional shares of Common
Stock so offered for subscription or purchase upon the exercise of such
rights or warrants and the denominator of which is the number of shares of
Common Stock outstanding immediately prior to the record date plus the
number of shares of Common Stock that the aggregate subscription or
purchase price of the total number of shares so offered would purchase at
the Current Market Price of the Common Stock as of the record date. The
term "Current Market Price" of the Common Stock at any record date shall
mean the average of the daily last reported sale prices per share of the
Common Stock on the New York Stock Exchange during the twenty (20)
consecutive business days commencing with the thirtieth (30th) business day
before that record date, provided, that if there was no reported sale on
any such day or days there shall be substituted the mean between the
closing bid and asked quotations on that Exchange on that day or days, and,
provided further, that if the Common Stock was not listed on that Exchange
on any such day or days there shall be substituted the mean between the
lowest bid and the highest asked quotations on the over-the-counter market
on that day or days.
(D) If the Corporation shall distribute to the holders of its Common
Stock any evidences of its indebtedness, or any rights or warrants to
subscribe for any security other than its Common Stock, or any other assets
(excluding dividends and distributions in cash to the extent permitted by
law), the conversion rate in effect immediately prior to the record date
fixed for the determination of the holders of Common Stock entitled to such
distribution shall be increased, immediately following the record date, to
an amount determined by multiplying such conversion rate by a fraction, the
numerator of which is the Current Market Price of the Common Stock at the
record date and the denominator of which is such Current Market Price less
the fair market value (as determined by the Board of Directors, whose
determination, in the absence of fraud, shall be conclusive) of the amount
of evidences of indebtedness, rights or warrants, or other assets
(excluding cash dividends and distributions as aforesaid) so distributed in
respect of one share of Common Stock.
No adjustment of the conversion rate in respect of this subsection (vi)
shall be made unless the adjustment would require a change of at least 1% in
the conversion rate, but any such adjustment shall be carried forward and taken
into account in a subsequent adjustment, if any.
F-6
<PAGE>
Whenever the conversion rate is adjusted pursuant to this subsection (vi)
the Corporation shall promptly place on file at the office of the transfer
agent for the $3.625 Preferred Stock a statement signed by the Chairman, the
President or any Vice President of the Corporation and by its Treasurer or an
Assistant Treasurer showing in detail the facts requiring such adjustment and
the conversion rate after such adjustment, and shall cause the transfer agent
to mail copies of such statement to the holders of record of the $3.625
Preferred Stock.
(vii) The Corporation may make such reductions in the conversion rate, in
addition to those required by subsection (vi), above, as it considers to be
advisable in order that any event treated for Federal income tax purposes as a
dividend of stock or stock rights shall not be taxable to the recipients.
(viii) In case of any reclassification or change of the outstanding shares
of Common Stock (except a split or combination of shares) or in case of any
consolidation or merger to which the Corporation is a party (except a merger in
which the Corporation is the surviving corporation and which does not result in
any reclassification of or change in the outstanding Common Stock except a
split or combination of shares) or in case of any sale or conveyance to another
corporation of all or substantially all of the property of the Corporation,
effective provision shall be made by the Corporation or the successor or
purchasing corporation (a) so that the holder of each share of $3.625 Preferred
Stock then outstanding shall thereafter have the right to convert such share of
$3.625 Preferred Stock into the kind and amount of stock or other securities or
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock into
which such share of $3.625 Preferred Stock might have been converted
immediately prior thereto, and (b) so that there shall be subsequent
adjustments of the conversion rate which shall be equivalent, as nearly as
practicable, to the adjustments provided for in subsection (vi) above. The
provisions of this subsection (viii) shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales or conveyances.
(ix) The $3.625 Preferred Stock will initially be issuable in exchange for
shares of the Class A $3.625 Cumulative Convertible Preferred Stock (the
"Predecessor Preferred Stock") of Armco Inc. ("Armco") as a result of the
merger of Armco with and into AK Steel Corporation (the "Merger"). The Merger
will constitute a "Change of Control" of Armco under the terms of the
Predecessor Preferred Stock. Accordingly, in order to give effect to the change
of control provisions of the Predecessor Preferred Stock, holders of shares of
the $3.625 Preferred Stock who receive such shares in exchange for shares of
the Predecessor Preferred Stock, will have the right and option, until the
expiration of 45 days after the date of the Merger, to convert each such share
of $3.625 Preferred Stock into the number of shares of Common Stock determined
by dividing the redemption price then in effect (as set forth in Section 12
hereof) with respect to optional redemption by the Corporation by [$**].
(x) Shares of Common Stock issued upon conversion of shares of $3.625
Preferred Stock shall be issued as fully paid shares and shall be nonassessable
by the Corporation. The Corporation shall at all times reserve and keep
available, free from preemptive rights, for the purpose of effecting the
conversion of $3.625 Preferred Stock, such number of its duly authorized shares
of Common Stock as shall be sufficient to effect the conversion of all
outstanding shares of $3.625 Preferred Stock.
Section 14. Change of Control. If there occurs a "Change of Control" (as
defined below) with respect to the Corporation, each share of $3.625 Preferred
Stock may be converted, at the option of the holder thereof at any time from
the date of such Change of Control until the expiration of 45 days after the
date of a
- --------
** The dollar amount to be inserted here will be determined immediately prior
to the effective time of the merger with Armco by dividing (x) the average
of the daily last reported sale prices per share of Armco's common stock
on the New York Stock Exchange for the last five trading days before the
date of the merger (provided that if there was no reported sale on any
such day or days there shall be substituted the mean between the closing
bid and asked quotations for Armco's common stock on the New York Stock
Exchange on that day or days) by (y) the applicable exchange ratio used to
determine the fraction of a share of AK Steel Holding Corporation common
stock to be issued in exchange for one share of Armco common stock
pursuant to the merger.
F-7
<PAGE>
notice by the Corporation to all holders of the outstanding shares of $3.625
Preferred Stock of the occurrence of the Change of Control, into the number of
shares of Common Stock determined by dividing the redemption price then in
effect (as set forth in Section 12) with respect to optional redemption by the
Corporation by the greater of (a) the average of the daily last reported sale
prices per share of the Common Stock on the New York Stock Exchange for the
last five trading days before the Change of Control, provided that if there was
no reported sale on any such day or days there shall be substituted the mean
between the closing bid and asked quotations for the Common Stock on the New
York Stock Exchange on that day or days, and provided further that if the
Common Stock was not listed on the New York Stock Exchange on any such day or
days there shall be substituted the mean between the lowest bid and the highest
asked quotations for the Common Stock in the over-the-counter market on that
day or days, or (b) [$ *** ]. Upon a Change of Control, the Corporation may
elect to pay holders of the $3.625 Preferred Stock exercising their conversion
rights an amount equal to the applicable redemption price plus any accrued and
unpaid dividends. If the Change of Control involves a consolidation, merger or
sale of assets of the Corporation, the holders of the $3.625 Preferred Stock
exercising their conversion rights will be entitled to receive the same
consideration as received for the number of shares of Common Stock into which
their shares of $3.625 Preferred Stock would have been converted pursuant to
their special conversion rights.
A "Change in Control" of the Corporation will be deemed to have occurred (a)
if as a result of a transaction or series of related transactions pursuant to a
tender offer or otherwise, any person or entity (or group within the meaning of
Section 13d-3 of the Securities Exchange Act of 1934), (i) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 of the Securities and Exchange Act
of 1934), directly or indirectly, of 50% or more of the Corporation's
outstanding voting securities or (ii) acquires 50% or more of the Corporation's
assets, or (b) if the Corporation consolidates with or merges into or sells or
transfers substantially all of its assets to another person and, as a result
thereof, the existing shareholders of the Corporation immediately prior thereto
hold less than 50% of the combined voting power of the shares, interest,
participations or other equivalents in the equity interest of such other
person.
IN WITNESS WHEREOF, AK Steel Holding Corporation has caused this Certificate
of Designations to be signed by James L. Wainscott, its Vice President,
Treasurer and Chief Financial Officer, this day of September, 1999
AK STEEL HOLDING CORPORATION
By: ______________________________
James L. Wainscott,
Vice President, Treasurer
and Chief Financial Officer
- --------
*** The dollar amount to be inserted here will be determined immediately prior
to the effective time of the merger with Armco by dividing (x) $4.00
(representing 66 2/3% of the last reported sale price ($6.00) of Armco's
common stock on the New York Stock Exchange on September 30, 1992, the
date immediately preceding the date of the definitive prospectus
supplement relating to the original offer and sale of Armco's $3.625
cumulative convertible preferred stock) by (y) the applicable exchange
ratio used to determine the fraction of a share of AK Steel Holding
Corporation common stock to be issued in exchange for one share of Armco
common stock pursuant to the merger.
F-8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
AK Steel Holding Corporation ("AK Holding") is a Delaware corporation.
Subsection (b)(7) of Section 102 of the Delaware General Corporation Law (the
"DGCL") enables a corporation in its original certificate of incorporation or
an amendment thereto to eliminate or limit the personal liability of a director
to the corporation or its stockholders for monetary damages for violations of
the director's fiduciary duty, except (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the DGCL (providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions) or (iv) for any transaction from which a director
derived an improper personal benefit. The Certificate of Incorporation of AK
Holding has eliminated the personal liability of its directors to the fullest
extent permitted by law.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding provided that such
director or officer acted in good faith in a manner reasonably believed to be
in, or not opposed to, the best interests of the corporation, and, with respect
to any criminal action or proceeding, provided further that such director or
officer has no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person acted in any of the capacities set forth
above, against expenses (including attorney's fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit
provided that such director or officer acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification may be made in respect of any
claim, issue or matter as to which such director or officer shall have adjudged
to be liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
of the circumstances of the case, such director or officer is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) or (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification and advancement of expenses provided
for, by, or granted pursuant to, Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; and empowers
the corporation to purchase and maintain insurance on behalf of any person who
is or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liabilities under Section 145.
II-1
<PAGE>
Article Seven of the Certificate of Incorporation of AK Holding states that
the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to, or testifies in, any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative in nature, by reason of the fact that such person is or was a
director, officer or employee of the corporation, or is or was serving at the
request of the corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the full extent permitted by law, and the
corporation may adopt by-laws or enter into agreements with any such person for
the purpose of providing such indemnification.
Item 21. Exhibits and Financial Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*2.1 Agreement and Plan of Merger dated as of May 20, 1999, by and among
Armco Inc., AK Steel Holding Corporation and AK Steel Corporation
(Annex A to the Joint Proxy Statement/Prospectus).
4.1 Indenture, dated as of December 17, 1996 (the "1996 Indenture"),
relating to AK Steel's 9 1/8% Senior Notes Due 2006 (including form of
notes) (incorporated herein by reference to Exhibit 4.1 to AK Steel's
Registration Statement on Form S-4, No. 333-19781 ("Registration No.
333-19781")).
4.2 Indenture, dated as of February 10, 1999, relating to AK Steel's 7
7/8% Senior Notes Due 2009 (incorporated herein by reference to
Exhibit 1 to AK Holding's Current Report on Form 8-K dated February
17, 1999).
4.3 Form of Note Purchase Agreement, dated as of December 17, 1996, with
respect to AK Steel's Senior Secured Notes Due 2004 (incorporated
herein by reference to Exhibit 4.5 to Registration No. 333-19781).
**4.4 Form of Certificate of Designations of Series B $3.625 Cumulative
Convertible Preferred Stock (Annex F to the Joint Proxy
Statement/Prospectus).
**5 Opinion of John G. Hritz as to legality of the securities being
registered.
**8.1 Opinion of Weil, Gotshal & Manges as to certain United States federal
income tax consequences of the merger.
**8.2 Opinion of Arnold & Porter as to certain United States Federal income
tax consequences of the merger.
*12.1 Ratio of Earnings to Combined Fixed Changes.
**23.1 Consent of Deloitte & Touche LLP (auditors for AK Holding).
**23.2 Consent of Deloitte & Touche LLP (auditors for Armco).
23.3 Consent of John G. Hritz (included in Exhibit 5).
23.4 Consent of Weil, Gotshal & Manges LLP (included in Exhibit 8.1).
23.5 Consent of Arnold & Porter (included in Exhibit 8.2).
*24 Power of Attorney (included on signature pages).
*99.1 Form of Proxy card to be mailed to holders of AK Holding common stock.
*99.2 Form of Proxy card to be mailed to holders of Armco common stock.
*99.3 Consent of Credit Suisse First Boston Corporation.
*99.4 Consent of Salomon Smith Barney Inc.
</TABLE>
- --------
*Previously filed.
**Filed herewith.
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(a) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
II-2
<PAGE>
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration Statement; and
(b) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(c) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(d) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(e) that prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the Registrant undertakes
that such reoffering prospectus will contain the information called for by
the applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable registration form;
(f) that every prospectus (i) that is filed pursuant to paragraph (e)
immediately preceding, or (ii) that purports to meet the requirements of
such Section 10(a)(3) of the Act and is issued in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment of the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(g) insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction on the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue;
II-3
<PAGE>
(h) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request; and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request; and
(i) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AK Steel Holding
Corporation has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Middletown, State of Ohio.
Date: August 25, 1999
AK Steel Holding Corporation
By: /s/ James L. Wainscott
----------------------------------
James L. Wainscott
Vice President, Treasurer and
Chief Financial Officer
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman and Chief August 25, 1999
______________________________________ Executive Officer
Richard M. Wardrop, Jr. (Principal Executive
Officer)
* Vice President, Treasurer August 25, 1999
______________________________________ and Chief Financial
James L. Wainscott Officer (Principal
Financial Officer)
* Controller (Principal August 25, 1999
______________________________________ Accounting Officer)
Donald B. Korade
* Director August 25, 1999
______________________________________
Allen Born
Director
______________________________________
John A. Georges
* Director August 25, 1999
______________________________________
Dr. Bonnie G. Hill
* Director August 25, 1999
______________________________________
Robert H. Jenkins
* Director August 25, 1999
______________________________________
Lawrence A. Leser
Director
______________________________________
Robert E. Northam
* Director August 25, 1999
______________________________________
Cyrus Tang
* Director August 25, 1999
______________________________________
James A. Thomson, Ph.D.
</TABLE>
/s/ James L. Wainscott
*By:
------------------------------
James L. Wainscott
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*2.1 Agreement and Plan of Merger dated as of May 20, 1999, by and among
Armco Inc., AK Steel Holding Corporation and AK Steel Corporation
(Annex A to the Joint Proxy Statement/Prospectus).
4.1 Indenture, dated as of December 17, 1996 (the "1996 Indenture"),
relating to AK Steel's 9 1/8% Senior Notes Due 2006 (including form of
notes) (incorporated herein by reference to Exhibit 4.1 to AK Steel's
Registration Statement on Form S-4, No. 333-19781 ("Registration No.
333-19781")).
4.2 Indenture, dated as of February 10, 1999, relating to AK Steel's 7
7/8% Senior Notes Due 2009 (incorporated herein by reference to
Exhibit 1 to AK Holding's Current Report on Form 8-K dated February
17, 1999).
4.3 Form of Note Purchase Agreement, dated as of December 17, 1996, with
respect to AK Steel's Senior Secured Notes Due 2004 (incorporated
herein by reference to Exhibit 4.5 to Registration No. 333-19781).
**4.4 Form of Certificate of Designations of Series B $3.625 Cumulative
Convertible Preferred Stock (Annex F to the Joint Proxy
Statement/Prospectus).
**5 Opinion of John G. Hritz as to legality of the securities being
registered.
**8.1 Opinion of Weil, Gotshal & Manges as to certain United States federal
income tax consequences of the merger.
**8.2 Opinion of Arnold & Porter as to certain United States Federal income
tax consequences of the merger.
*12.1 Ratio of Earnings to Combined Fixed Changes.
**23.1 Consent of Deloitte & Touche LLP (auditors for AK Holding).
**23.2 Consent of Deloitte & Touche LLP (auditors for Armco).
23.3 Consent of John G. Hritz (included in Exhibit 5).
23.4 Consent of Weil, Gotshal & Manges LLP (included in Exhibit 8.1).
23.5 Consent of Arnold & Porter (included in Exhibit 8.2).
*24 Power of Attorney (included on signature pages).
*99.1 Form of Proxy card to be mailed to holders of AK Holding common stock.
*99.2 Form of Proxy card to be mailed to holders of Armco common stock.
*99.3 Consent of Credit Suisse First Boston Corporation.
*99.4 Consent of Salomon Smith Barney Inc.
</TABLE>
- --------
*Previously filed.
**Filed herewith.
<PAGE>
EXHIBIT 5
[AK Steel Letterhead]
August 25, 1999
AK Steel Holding Corporation
703 Curtis Street
Middletown, Ohio 45043
Re: AK Steel Holding Corporation Registration Statement
On Form S-4 Relating to the AK Steel/Armco Merger
---------------------------------------------------
Ladies and Gentlemen:
As set forth in the Registration Statement on Form S-4 (the "Registration
Statement") to be filed by AK Steel Holding Corporation, a Delaware corporation
("AK Holding"), under the Securities Act of 1933, as amended, relating to the
issuance of shares of AK Holding's common stock, par value $.01 per share ("AK
Holding Common Stock") and shares of a new issuance of AK Holding preferred
stock, par value $1.00 per share, designated as Series B $3.625 Cumulative
Convertible Preferred Stock (the "$3.625 Preferred Stock"), I am rendering this
opinion with respect to the validity of the shares of AK Holding Common Stock
and $3.625 Preferred Stock to be issued pursuant to the terms of the Merger
Agreement referred below. At your request, this opinion is being furnished to
you for filing as Exhibit 5 to the Registration Statement.
As set forth in the Registration Statement, the issuance of shares of AK Holding
Common Stock will occur in connection with the consummation of the merger of
Armco Inc. with and into AK Steel Corporation ("AK Steel"), a Delaware
corporation and the wholly-owned subsidiary of AK Holding, pursuant to the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of May 20, 1999,
by and among Armco Inc., AK Holding and AK Steel.
In my capacity as General Counsel for AK Holding, I have examined, either
personally or indirectly through lawyers who report to me or through other
counsel, originals or copies (certified or otherwise identified to my
satisfaction) of the Merger Agreement and such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of AK Holding, and have
made such inquiries of such officers and representatives, as I have deemed
relevant and necessary as the basis for the opinions hereinafter set forth.
<PAGE>
August 25, 1999
Page 2
In such examination, I have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of such latter documents. As to all questions of fact material to
these opinions that have not been independently established, I have relied upon
certificates or comparable documents of officers and representatives of AK
Holding and upon the representations and warranties of AK Holding contained in
the Merger Agreement.
Based on the foregoing, I am of the opinion that the shares of AK Holding Common
Stock and $3.625 Preferred Stock to be issued pursuant to the Merger Agreement
have been duly authorized and, when issued as contemplated by the Merger
Agreement, will be validly issued, fully paid and nonassessable.
I express no opinion with respect to the laws of any jurisdiction other than the
corporate laws of the State of Ohio and the federal securities laws of the
United States.
I hereby consent to the use of this opinion letter as an exhibit to the
Registration Statement and to any and all references to me in the proxy
statement/prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ John G. Hritz
----------------------------
John G. Hritz
Executive Vice President and
General Counsel
<PAGE>
EXHIBIT 8.1
August 25, 1999
AK Steel Holding Corporation
703 Curtis Street
Middletown, Ohio 45043
Ladies & Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the merger (the "Merger") of Armco Inc. (the "Company"), an Ohio
corporation, with and into AK Steel Corporation (the "Operating Company"), a
Delaware corporation and a direct wholly owned subsidiary of AK Steel Holding
Corporation ("Parent"), a Delaware corporation.
In formulating our opinion, we examined such documents as we deemed
appropriate, including the Agreement and Plan of Merger dated as of May 20, 1999
(the "Merger Agreement"), among Parent, the Operating Company and the Company,
the Proxy Statement (the "Proxy Statement") filed by the Company with the
Securities and Exchange Commission (the "SEC") and the Registration Statement on
Form S-4, as filed by Parent with the SEC on August 25, 1999, in which the Proxy
Statement is included as a prospectus (with all amendments thereto, the
"Registration Statement"). In addition, we have obtained such additional
information as we deemed relevant and necessary through consultation with
various officers and representatives of Parent and the Company.
Our opinion set forth below assumes (1) the accuracy of the statements
and facts concerning the Merger set forth in the Merger Agreement, the Proxy
Statement and the Registration Statement, (2) the consummation of the Merger in
the manner contemplated by, and in accordance with the terms set forth in, the
Merger Agreement, the Proxy Statement and the Registration Statement, (3) the
accuracy of the representations made by Parent and the Operating Company which
are set forth in the certificate delivered to us by Parent, dated the date
hereof, and the representations made by the Company which are set forth in the
certificate delivered to us by the Company, dated the date hereof, and (4) that
any representations made in such certificates "to the best knowledge of " or
like import are accurate without such qualification.
<PAGE>
AK Steel Holding Corporation
August 25, 1999
Page 2
Based upon the facts and statements set forth above, our examination
and review of the documents referred to above and subject to the assumptions set
forth above, we are of the opinion that for federal income tax purposes the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
Our opinion is based on current provisions of the Code, the Treasury
Regulations promulgated thereunder, published pronouncements of the Internal
Revenue Service and case law, any of which may be changed at any time with
retroactive effect. Any change in applicable laws or facts and circumstances
surrounding the Merger, or any inaccuracy in the statements, facts, assumptions
and representations on which we have relied, may affect the continuing validity
of the opinions set forth herein. We assume no responsibility to inform you of
any such change or inaccuracy that may occur or come to our attention.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
<PAGE>
Exhibit 8.2
August 25, 1999
Armco Inc.
One Oxford Centre
301 Grant Street
Pittsburgh, PA 15219-1415
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the proposed merger (the "Merger") of Armco Inc. (the "Company")
with and into AK Steel Corporation ("Operating Company"), a direct wholly owned
subsidiary of AK Steel Holding Corporation ("Parent"). All capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to such
terms in the Agreement and Plan of Merger (the "Plan of Merger"), dated as of
May 20, 1999, by and among Parent, Operating Company and the Company.
In preparing our opinion, you have directed us to assume that (1) the
Merger will be consummated in accordance with the terms, conditions and other
provisions of the Plan of Merger and none of the terms and conditions contained
therein has been or will be waived or modified in any respect; (2) all of the
factual information, descriptions, representations and assumptions set forth or
referred to (a) in this letter (an advance copy of which has been provided to
you), (b) in the Plan of Merger, (c) in letters (the "Letters") to us from the
Company dated August 25, 1999, and from Parent dated August 25, 1999 (an advance
copy of which has been provided to you) and (d) in the Proxy Statement prepared
in connection with the Merger, are accurate and complete and will be accurate
and complete at the Effective Time; and (3) any representations made in the
Letters "to the best knowledge of" or like import are accurate without such
qualification.
We have not independently verified any factual matters relating to the
Merger in connection with or apart from our preparation of this opinion.
Accordingly, our opinion does not take into account any matters not set forth
herein which might have been disclosed by independent verification.
Assuming that the Merger is consummated in accordance with the terms
and conditions set forth in the Plan of Merger, and based on the facts set forth
or referred to in this letter, in the Letters, in the Plan of Merger and in the
Proxy Statement, including all assumptions and representations in any such
documents, and subject to the qualifications and other matters set forth herein,
it is our opinion that, for federal income tax purposes, the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
<PAGE>
Armco Inc.
August 25, 1999
Page 2
Our opinion is limited to the foregoing federal income tax
consequences of the Merger, which are the only matters as to which you have
requested our opinion, and you must judge whether the matters addressed herein
are sufficient for your purposes. We do not address any other federal income
tax consequences of the Merger or other matters of federal law and we have not
considered matters (including state or local tax consequences) arising under the
laws of any jurisdiction other than matters of federal law arising under the
laws of the United States.
Our opinion is based on the understanding that the relevant facts are,
and will be at the Effective Time, as set forth or referred to in this letter.
If this understanding is incorrect or incomplete in any respect, our opinion
could be affected.
Our opinion is also based on the Code, Treasury Regulations
promulgated under the Code, case law and Internal Revenue Service rulings as
they now exist. These authorities are all subject to change and such change may
be made with retroactive effect. We can give no assurance that after any such
change, our opinion would not be different. Moreover, our opinion is not
binding on the Internal Revenue Service or the courts. We undertake no
responsibility to update or supplement our opinion.
This opinion letter is being rendered to you in connection with the
Merger and in satisfaction of the requirement set forth in Section 7.3(d) of the
Merger Agreement. This opinion letter (and the opinions expressed herein) may
not be relied upon by you for any other purpose, or relied upon by, or furnished
to, any other person, firm or corporation without our prior written consent. We
hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement on Form S-4 which includes the Proxy Statement as a
prospectus filed by Parent with the Securities and Exchange Commission on August
25, 1999, and to the use of our name in the Proxy Statement under the caption
"The Merger-Material Federal Income Tax Consequences of the Merger". In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Arnold & Porter
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 3 to
Registration Statement No. 333-82035 of AK Steel Holding Corporation on Form S-
4 of our report dated January 20, 1999, appearing in the Annual Report on Form
10-K of AK Steel Holding Corporation for the year ended December 31, 1998, and
to the reference to us under the heading "Experts" in the Prospectus, which is
part of such Registration Statement.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
August 25, 1999
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 3 to
Registration Statement No. 333-82035 of AK Steel Holding Corporation on Form S-
4 of our report dated February 5, 1999 on the consolidated financial statements
of Armco Inc. and subsidiaries appearing in and incorporated by reference in
the Annual Report on Form 10-K of Armco Inc. for the year ended December 31,
1998.
We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
August 25, 1999
