As filed with the Securities and Exchange Commission on April 3, 1998
Registration No. 333-43867
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
Amendment No. 3 to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
WHEELING-PITTSBURGH CORPORATION
WHEELING-PITTSBURGH STEEL CORPORATION
CONSUMERS MINING CORPORATION
WHEELING-EMPIRE COMPANY
MINGO OXYGEN COMPANY
PITTSBURGH-CANFIELD COMPANY
WHEELING CONSTRUCTION PRODUCTS, INC.
WP STEEL VENTURE CORPORATION
CHAMPION METAL PRODUCTS, INC.
(Exact name of Registrants as specified in their charters)
DELAWARE 3312 55-0309927
DELAWARE (Primary Standard Industrial 55-0703273
PENNSYLVANIA Classification Code Number) 55-0149670
DELAWARE 25-1450838
OHIO 55-6018996
PENNSYLVANIA 34-1016803
DELAWARE 55-0721401
DELAWARE 55-0737095
DELAWARE 55-0754536
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Wheeling-Pittsburgh Corporation
1134 Market Street
Wheeling, West Virginia 26003
(304) 234-2400
(Address and telephone number of registrants' principal executive offices)
------------------------------------
John R. Scheessele
Wheeling-Pittsburgh Corporation
1134 Market Street
Wheeling, West Virginia 26003
(304) 234-2424
(Name, address and telephone number of agent for service for registrants)
------------------------------------
Copy to:
Steven Wolosky, Esq.
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
(212) 753-7200
------------------------------------
Approximate date of commencement of proposed exchange offer: As soon as
practicable after this Registration Statement becomes effective.
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. / /
<PAGE>
------------------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Per Note Aggregate Offering Price Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/4% Senior Exchange Notes Due 2007(1) $275,000,000 $1,000 $275,000,000 $83,333.33(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Wheeling-Pittsburgh Steel Corporation -- -- -- --
Guarantee of 9 1/4% Senior Exchange Notes due 2007 (2)
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Consumers Mining Corporation -- -- -- --
Guarantee of 9 1/4% Senior Exchange Notes due 2007 (2)
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Wheeling-Empire Company -- -- -- --
Guarantee of 9 1/4% Senior Exchange Notes due 2007 (2)
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Mingo Oxygen Company -- -- -- --
Guarantee of 9 1/4% Senior Exchange Notes due 2007 (2)
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Pittsburgh-Canfield Company -- -- -- --
Guarantee of 9 1/4% Senior Exchange Notes due 2007 (2)
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Wheeling Construction Products, Inc. -- -- -- --
Guarantee of 9 1/4% Senior Exchange Notes due 2007 (2)
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WP Steel Venture Corporation -- -- -- --
Guarantee of 9 1/4% Senior Exchange Notes due 2007 (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Champion Metal Products, Inc. -- -- -- --
Guarantee of 9 1/4% Senior Exchange Notes due 2007 (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $83,333.33(1)
====================================================================================================================================
</TABLE>
(1) Such fee was paid with the initial filing of the Registration Statement.
(2) No additional consideration is to be received for the guarantee.
The registrants hereby amend this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrants
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 of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to buy nor shall there
be any sale of these securities in any state in which such offer, solicitation
or sale would be unlawful prior to registration or qualification under the
securities laws of any such state.
Prospectus (Subject to Completion)
Dated April 3, 1998
OFFER TO EXCHANGE
9 1/4% Senior Exchange Notes Due 2007
for
all outstanding
9 1/4% Senior Notes Due 2007
($275,000,000 aggregate principal amount outstanding)
of
WHEELING-PITTSBURGH CORPORATION
which are fully and unconditionally guaranteed by all
of the present and future operating subsidiaries
of Wheeling-Pittsburgh Corporation, consisting of
Wheeling-Pittsburgh Steel Corporation
Consumers Mining Corporation
Wheeling-Empire Company
Mingo Oxygen Company
Pittsburgh-Canfield Company
Wheeling Construction Products, Inc.
WP Steel Venture Corporation
Champion Metal Products, Inc.
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON __________ __, 1998, UNLESS EXTENDED
--------------
See "Risk Factors" immediately following the Prospectus Summary for a
discussion of certain information that should be considered in connection with
the Exchange Offer and an investment in the New Notes.
If any holder of Old Notes is an affiliate of the Company, is engaged
in or intends to engage in or has any arrangement or understanding with any
person to participate in the distribution of the New Notes to be acquired in the
Exchange Offer, such holder (i) could not rely on the applicable interpretations
of the Commission and (ii) must comply with the registration requirements of the
Securities Act in connection with any resale transaction.
--------------
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------
The date of this Prospectus is _________, 1998
(Continued on next page)
<PAGE>
(Cover page continued)
Wheeling-Pittsburgh Corporation, a Delaware corporation (the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the
"Exchange Offer"), to exchange $1,000 principal amount of its 9 1/4% Senior
Exchange Notes Due 2007 (the "New Notes") for each $1,000 principal amount of
its outstanding 9 1/4% Senior Notes Due 2007 (the "Old Notes"). The offer and
sale of the New Notes have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to the Registration Statement (as
defined herein) of which this Prospectus constitutes a part. As of April __,
1998, $275,000,000 aggregate principal amount of the Old Notes was outstanding.
The Exchange Offer is being made pursuant to the terms of the registration
rights agreement (the "Registration Rights Agreement") dated November 20, 1997,
by and between the Company, Donaldson, Lufkin & Jenrette Securities Corporation
("Donaldson, Lufkin & Jenrette") and Citicorp Securities, Inc. ("Citicorp,"
together with Donaldson, Lufkin & Jenrette, the "Initial Purchasers"), pursuant
to the terms of the Purchase Agreement dated November 20, 1997, by and between
the Company and the Initial Purchasers. The New Notes and the Old Notes are
collectively referred to herein as the "Notes." As used herein, the term
"Holder" means a holder of the Notes.
The Notes are senior unsecured obligations of the Company. The Notes
are fully and unconditionally guaranteed (the "Subsidiary Guarantees") by all of
the Company's present and future operating subsidiaries (the "Guarantors"). The
Subsidiary Guarantees rank pari passu in right of payment to all existing and
future senior indebtedness of the Guarantors. The Notes will be effectively
junior to secured indebtedness of the Company and its subsidiaries, including
borrowings under the Revolving Credit Facility (as defined), to the extent of
the assets securing such indebtedness. At December 31, 1997, the Notes were
subordinated to the $90.9 million of secured indebtedness of the Company and its
subsidiaries and the Notes were pari passu with $75.0 million of borrowings
under the Term Loan Agreement (as defined).
The Company will accept for exchange any and all Old Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City time,
on the date the Exchange Offer expires, which will be __________ __, 1998 [20
BUSINESS DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER], unless the Exchange
Offer is extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any aggregate minimum principal amount of
Old Notes being tendered for exchange. However, the Exchange Offer is subject to
certain conditions, which may be waived by the Company, and to the terms and
provisions of the Registration Rights Agreement. Old Notes may be tendered only
in denominations of $1,000 aggregate principal amount and integral multiples
thereof. The Company has agreed to pay the expenses of the Exchange Offer. See
"The Exchange Offer."
Any waiver, extension or termination of the Exchange Offer will be
publicly announced by the Company through a release to the Dow Jones News
Service and as otherwise required by applicable law or regulations.
The Notes were issued in a private placement (the "November Offering")
under an indenture (the "Indenture"), dated as of November 26, 1997, by and
among the Company and Bank One Trust Company, N.A. (in such capacity, the
"Trustee"). The New Notes will be obligations of the Company and are entitled to
the benefits of the Indenture, including the accrual of interest from the time
of their issuance. The net proceeds of the November Offering, together with the
borrowings under the Term Loan Agreement, were used to defease the Company's 9
3/8% Senior Notes due 2003 (the "9 3/8% Notes") pursuant to the terms of the
indenture under which the 9 3/8% Notes were issued and to reduce outstanding
borrowings under the Revolving Credit Facility.
The form and terms of the New Notes are identical in all material
respects to the form and terms of the Old Notes, except that the offer and sale
of the New Notes have been registered under the Securities Act. Any Old Notes
not tendered and accepted in the Exchange Offer will remain outstanding and will
be entitled to all the rights and preferences and will be subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the Holders of Old Notes will continue to be subject to the
existing restrictions upon transfer thereof and the Company will have no further
obligation to such Holders to provide for the registration under the Securities
Act of the offer and sale of the Old Notes held by them. Following the
<PAGE>
completion of the Exchange Offer, none of the Notes will be entitled to the
contingent increase in interest rate provided pursuant to the Registration
Rights Agreement. See "The Exchange Offer."
The Notes will mature on November 15, 2007. Interest on the Notes will
be paid in cash at a rate of 9 1/4% per annum on each May 15 and November 15,
commencing May 15, 1998.
The Notes will be redeemable at the option of the Company whole or in
part, on or after November 15, 2002, initially at 104.625% of their principal
amount, plus accrued and unpaid interest, declining to 100% of their principal
amount, plus accrued and unpaid interest on or after November 15, 2005. In
addition, upon a Change of Control (as hereinafter defined), the Company will be
required to make an offer to purchase the Notes at a purchase price equal to
101% of their principal amount plus accrued and unpaid interest and liquidated
damages, if any. See "Description the New Notes -- Mandatory Redemption," "--
Optional Redemption," and "-- Repurchase at the Option of Holders."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
that New Notes issued pursuant to this Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by a Holder thereof
other than (i) a broker-dealer who purchased such Old Notes directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an "affiliate" (within the meaning
of Rule 405 of the Securities Act) of the Company, without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the Holder is acquiring the New Notes in the ordinary course of its
business and is not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the New Notes. Holders of Old
Notes who tender in the Exchange Offer with the intention to participate in a
distribution of the New Notes may not rely upon the position of the staff of the
Commission enunciated in the above-referenced no-action letters, and, in the
absence of an exemption, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Holders of Old Notes wishing to participate in the Exchange
Offer must represent to the Company in the Letter of Transmittal that such
conditions have been met.
Each broker-dealer (other than an "affiliate" of the Company) that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the consummation of the Exchange Offer, it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution." Any broker-dealer who is an
affiliate of the Company may not rely on such no-action letters and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction.
The New Notes constitute a new issue of securities with no established
trading market.
This Prospectus, together with the Letter of Transmittal, is being sent
to all registered Holders of Old Notes as of _____________ __, 1998.
The Company will not receive any proceeds from the Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus and the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Exchange Agent (as defined herein). This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy the New
Notes in any jurisdiction to any person to whom it is unlawful to make such
offer or
<PAGE>
solicitation in such jurisdiction. The delivery of this Prospectus shall not,
under any circumstances, create any implication that the information herein is
correct at any time subsequent to its date.
---------------------------
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION..........................................................2
PROSPECTUS SUMMARY.............................................................4
RISK FACTORS..................................................................15
THE EXCHANGE OFFER............................................................23
USE OF PROCEEDS...............................................................29
CAPITALIZATION................................................................30
SELECTED CONSOLIDATED FINANCIAL
DATA......................................................................31
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................................33
BUSINESS......................................................................39
LEGAL PROCEEDINGS.............................................................52
MANAGEMENT....................................................................54
EXECUTIVE COMPENSATION........................................................56
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS;
TRANSACTIONS BETWEEN
THE COMPANY AND WHX.......................................................60
DESCRIPTION OF PRINCIPAL
INDEBTEDNESS..............................................................62
DESCRIPTION OF RECEIVABLES FACILITY...........................................63
INDEMNIFICATION AND INTERCREDITOR
AGREEMENT.................................................................63
DESCRIPTION OF THE NEW NOTES..................................................64
CERTAIN U.S. FEDERAL INCOME TAX
CONSEQUENCES..............................................................89
PLAN OF DISTRIBUTION..........................................................93
LEGAL MATTERS.................................................................93
EXPERTS.......................................................................93
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS...............................................................F-1
<PAGE>
---------------------------
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act with respect to the New Notes offered in the
Exchange Offer. For the purposes hereof, the term "Registration Statement" means
the original Registration Statement and any and all amendments thereto. In
accordance with the rules and regulations of the Commission, this Prospectus
does not contain all of the information set forth in the Registration Statement
and the schedules and exhibits thereto. Each statement made in this Prospectus
concerning a document filed as an exhibit to the Registration Statement is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions, although all material terms of such documents are set forth
herein. For further information pertaining to the Company and the New Notes
offered in the Exchange Offer, reference is made to such Registration Statement,
including the exhibits and schedules thereto and the financial statements, notes
and schedules filed as a part thereof. The Registration Statement (and the
exhibits and schedules thereto) may be inspected and copied at the public
reference facilities maintained by the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, or
at its regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, Suite 1300, New York, New York
10048. Any interested party may obtain copies of all or any portion of the
Registration Statement and the exhibits thereto at prescribed rates from the
Public Reference Section of the Commission at its principal office at Judiciary
Plaza, 450 Fifth Street, Room 1024, Washington, D.C. 20549. In addition,
registration statements and other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly
available through the Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov.
Upon effectiveness of this Registration Statement the Company and each
of the Subsidiary Guarantors will be subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and other information with the Commission.
Such reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549; 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Indenture requires the Company to file with the Commission the
annual, quarterly and other reports required by Sections 13(a) and 15(d) of the
Exchange Act. The Company will supply without cost to each Holder of Notes, and
file with the Trustee under the Indenture, copies of the audited financial
statements, quarterly reports and other reports that the Company is required to
file with the Commission pursuant to Sections 13(a) and 15(d) of the Exchange
Act.
------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made hereby, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the securities offered hereby to any person in
any state or other jurisdiction in which such offer or solicitation is unlawful.
The delivery of this Prospectus at any time does not imply that information
contained herein is correct as of any time subsequent to its date.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
-2-
<PAGE>
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. These documents are available upon
request from the Company at 1134 Market Street, Wheeling, West Virginia 26003,
Attention: Vice President, Assistant Secretary and Treasurer, (304) 234-2460. In
order to ensure timely delivery of the documents, any request should be made
________, 1998 [five business days prior to the date on which the final
investment decision must be made].
-3-
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to, and should
be read in conjunction with, the more detailed information and consolidated
financial statements (including notes thereto) appearing elsewhere in this
Prospectus. All references to operating and financial data and other information
of Wheeling-Pittsburgh Corporation ("WPC," and together with its consolidated
subsidiaries, the "Company") for the years ended December 31, 1996 and 1997,
respectively, reflect the adverse impact of a ten-month strike against the
Company which commenced October 1, 1996 and was settled August 12, 1997 (the
"Strike").
The Company
General
The Company is a vertically integrated manufacturer of predominantly
value-added flat rolled steel products. The Company sells a broad array of
value-added products, including cold rolled steel, tin- and zinc-coated steels
and fabricated steel products. The Company's products are sold to steel service
centers, converters, processors, the construction industry, and the container,
automotive and appliance industries. During 1997, the Company had revenues of
approximately $489.7 million on shipments of approximately 850.5 thousand tons
of steel and an operating loss of $287.1 million. These results reflect the
effects of the Strike.
The Company believes that it is one of the low cost domestic flat
rolled steel producers. The Company's low cost structure is the result of: (i)
the restructuring of its work rules and manning requirements under its new
five-year collective bargaining agreement (the "New Labor Agreement") with the
United Steelworkers of America ("USWA"), which settled the Company's ten-month
Strike in August 1997; (ii) the strategic balance between its basic steel
operations and its finishing and fabricating facilities; and (iii) its efficient
production of low cost, high quality metallurgical coke.
The new work rule package affords the Company substantially greater
flexibility in down-sizing its overall workforce and assigning and scheduling
work, thereby reducing costs and increasing efficiency. Furthermore, the Company
expects to maintain pre-Strike steel production levels with 850 fewer employees
(a reduction of approximately 20% in its hourly workforce). Finally, the Company
believes the five year term provides the Company with a significant advantage
since a majority of the Company's integrated steel competitors have labor
contracts that will expire in 1999.
The Company has structured its operations so that its hot strip mill
and downstream operations have greater capacity than do its raw steel making
operations. The Company therefore can purchase slabs and ship at greater than
100% of its internal production capacity in periods of high demand, while
maintaining the ability to curtail such purchases and still operate its basic
steel facilities at or near capacity during periods of lower demand. The Company
believes this flexibility results in enhanced profitability throughout an
economic cycle. The Company also believes that it produces metallurgical coke at
a substantially lower cost than do other coke manufacturers because of its
proximity to high quality coal reserves and its efficient coke producing plant.
This reduces the Company's costs and, if coke demand remains high, allows the
Company to sell coke profitably in the spot and contract markets.
The Company conducts its operations primarily through two business
units, the Steel Division and Wheeling Corrugating Company ("Wheeling
Corrugating"). The Steel Division sells flat rolled steel products such as hot
rolled, cold rolled, coated and tin mill steel to third parties, and cold rolled
and coated steel substrate to Wheeling Corrugating. Wheeling Corrugating, the
Company's primary downstream operation, is a fabricator of roll-formed products
primarily for the construction and agricultural industries. As part of the
Company's strategy to expand its downstream operations, the Company has acquired
several fabricating facilities in order to enhance profit margins and reduce
exposure to downturns in steel demand. Other important examples of the Company's
downstream operations are its joint venture interests in Wheeling-Nisshin, Inc.
("Wheeling-Nisshin") and Ohio Coatings Company ("OCC"). Wheeling-Nisshin, in
which the Company owns a 35.7% interest, produces and ships from its
state-of-the-art production facility a diverse line of galvanized, galvannealed,
galvalume and aluminized products, principally to steel service centers and the
construction and automotive industries. OCC, in which the Company owns a 50%
interest, operates a new tin coating facility that commenced commercial
production in January 1997. The Company has long-term contracts to supply up to
75% of Wheeling-Nisshin's steel requirements and almost
-4-
<PAGE>
100% of OCC's. These downstream operations and joint ventures are integral to
the Company's strategy of increasing shipments of higher value-added steel
products while decreasing dependence on hot rolled coils, a lower-margin
commodity steel product.
Subsidiary Guarantors
Wheeling-Pittsburgh Steel Corporation is the Company's wholly-owned
operating subsidiary and produces flat rolled steel products.
Consumers Mining Corporation holds royalty interests in coal deposits.
Wheeling-Empire Company holds a 12.5% ownership interest in the Empire
Iron Mining partnership, which operates an iron ore mine in Michigan.
Mingo Oxygen Company produces oxygen and other gasses for use in steel
making operations.
Pittsburgh-Canfield Company produces electrogalvanized steel products.
Wheeling Construction Products, Inc. produces fabricated steel
products.
WP Steel Venture Corporation holds the Company's 50% interest in a
joint venture in Wheeling-Ispat Partners.
Champion Metal Products, Inc. produces fabricated steel products.
All of the Company's raw steel producing facilities have been restarted
as of September 30, 1997, and the Company expects to be at pre-Strike production
and shipment levels during the second quarter of 1998.
Business Strategy
The Company's business strategy includes the following initiatives:
Improve Cost Structure. The New Labor Agreement has allowed the Company
to eliminate 850 hourly positions (approximately 20% of its pre-Strike hourly
workforce). The Company believes that these reductions, combined with the
significantly more flexible work rules under the New Labor Agreement, will allow
it to operate at pre-Strike levels with 850 fewer employees. As a result, the
Company anticipates substantial cost savings and productivity improvements once
pre-Strike production levels are reached. In addition, the Company has directed
its capital expenditures towards upgrading and modernizing its steelmaking
facilities, with a goal toward increasing productivity. These expenditures
include modernization of its hot and cold rolling facilities and a major reline
in 1995 of its No. 5 blast furnace located in Steubenville, Ohio. This reline
increased productivity and provided the Company with the ability to produce 100%
of the hot metal necessary to satisfy caster production requirements from two
rather than three blast furnaces. The Company's ability to produce low cost,
high quality metallurgical coke helps the Company maintain lower costs than
those of many of its competitors. In addition, during periods of high demand the
Company is able to profitably sell coke produced in excess of its internal
needs.
Expand Production of Value-Added Products. The Company intends to
continue to expand its sale of value-added products such as coated and
fabricated steels in order to improve profit margins and reduce its exposure to
commodity steel market volatility. This strategy is evidenced by the Company's
expansion of Wheeling Corrugating and its emphasis on joint ventures, such as
Wheeling-Nisshin and OCC, which give the Company access to downstream markets
through long-term supply contracts. The Company's shipments of
Wheeling-Corrugating products increased approximately 22.7% from 1993 to 1997.
Shipments of other value-added products were lower due to the Strike. The
Company will continue to target strategic acquisitions and joint ventures that
support the Company's sales of value-added products.
-5-
<PAGE>
Recent Developments
In November 1997, the Company sold $275,000,000 of the Old Notes
pursuant to the Old Indenture in the November Offering. Concurrently with the
consummation of the November Offering, the Company entered into a Term Loan
Agreement with DLJ Capital Funding, Inc., as syndication agent, Donaldson,
Lufkin & Jenrette Securities Corporation, as arranger, Citicorp USA, Inc., as
documentation agent, National City Bank, as administrative agent, and the
lenders party thereto (the "Term Loan Agreement"). Pursuant to the Term Loan
Agreement, the Company borrowed an aggregate of $75.0 million, the net proceeds
of which were, together with the proceeds of the November Offering, used to
defease the 93/8% Notes and reduce outstanding borrowings under the Revolving
Credit Facility. See "Use of Proceeds."
WPC is a wholly-owned subsidiary of WHX Corporation ("WHX"), a publicly
traded company listed on the New York Stock Exchange, Inc. ("NYSE"). The Company
comprises the majority of the operating assets of WHX. The principal executive
offices of the Company are located at 1134 Market Street; Wheeling, West
Virginia 26003; its telephone number is (304) 234-2400.
-6-
<PAGE>
Summary of the Terms of the Exchange Offer
The Exchange Offer.....................Pursuant to the Exchange Offer, New Notes
will be issued in exchange for
outstanding Old Notes validly tendered
and not withdrawn. The aggregate
principal amount of the New Notes will be
equal to that of the Old Notes and will
be issued in denominations of $1,000 in
principal amount and any integral
multiple of $1,000 in excess thereof. The
Company will issue New Notes to tendering
Holders of Old Notes as promptly as
practicable after the Expiration Date.
Resale ..............................Based on an interpretation by the staff
of the Commission set forth in no-action
letters issued to third parties, The
Company believes that the New Notes
issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for
resale, resold and otherwise transferred
by any Holder thereof (other than
broker-dealers, as set forth below, and
any such Holder that is an "affiliate"
(within the meaning of Rule 405 under the
Securities Act) of the Company) without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such New
Notes are acquired in the ordinary course
of such Holder's business and that such
Holder has no arrangement or
understanding with any person to
participate in the distribution of such
New Notes. Each broker-dealer (other than
an affiliate of the Company) that
receives New Notes for its own account in
exchange for Old Notes that were acquired
as a result of market-making or other
trading activity must acknowledge that it
will deliver a prospectus in connection
with any resale of such New Notes. The
Letter of Transmittal states that by so
acknowledging and delivering a
prospectus, such broker-dealer will not
be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it
may be amended or supplemented from time
to time, may be used by such broker-
dealer in connection with resales of New
Notes received in exchange for Old Notes
where such New Notes were acquired by
such broker-dealer as a result of
market-making activities or other trading
activities. The Company has agreed that,
for a period of 180 days after the
Expiration Date, it will make this
Prospectus available to any such
broker-dealer for use in connection with
any such resale. See "Plan of
Distribution." Any Holder who tenders in
the Exchange Offer with the intention to
participate, or for the purpose of
participating, in a distribution of the
New Notes or who is an affiliate of the
Company may not rely on the position of
the staff of the Commission enunciated in
Exxon Capital Holdings Corporation
(available May 13, 1988) or similar
no-action letters and, in the absence of
an exemption therefrom, must comply with
the registration and prospectus delivery
requirements of the Securities Act in
connection with a secondary resale
transaction. Failure to comply with such
requirements in such instance may result
in such Holder incurring liabilities
under the Securities Act for which the
Holder is not indemnified by the Company.
-7-
<PAGE>
The Exchange Offer is not being made to,
nor will the Company accept surrenders
for exchanges from, Holders of Old Notes
in any jurisdiction in which this
Exchange Offer or the acceptance thereof
would not be in compliance with the
securities or blue sky laws of such
jurisdiction.
Expiration Date........................5:00 p.m., New York City time, on _______
__, 1998 [20 BUSINESS DAYS AFTER
COMMENCEMENT OF THE EXCHANGE OFFER],
unless the Exchange Offer is extended, in
which case the term "Expiration Date"
means the latest date and time to which
the Exchange Offer is extended. Any
extension, if made, will be publicly
announced through a release to the Dow
Jones News Service and as otherwise
required by applicable law or
regulations.
Conditions to the
Exchange Offer.......................The Exchange Offer is subject to certain
conditions, which may be waived by the
Company. See "The Exchange Offer
Conditions to the Exchange Offer." The
Exchange Offer not conditioned upon any
minimum principal amount of Old tes being
tendered.
Procedures for Tendering Old Notes.....Each Holder of Old Notes wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance
with the instructions contained herein
and therein, and mail or otherwise
deliver the Letter of Transmittal, or a
facsimile thereof, together with the Old
Notes to be exchanged and any other
required documentation to Bank One, N.A.,
as Exchange Agent, at the address set
forth herein and therein. By executing a
Letter of Transmittal, each Holder will
represent to the Company that, among
other things, the New Notes acquired
pursuant to the Exchange Offer are being
obtained in the ordinary course of
business of the person receiving such New
Notes, whether or not such person is the
Holder, that neither the Holder nor any
such other person has any arrangement or
understanding with any person to
participate in the distribution of such
New Notes and that neither the Holder nor
any such other person is an "affiliate,"
as defined in Rule 405 under the
Securities Act, of the Company.
Special Procedures for
Beneficial Owners....................Any beneficial owner whose Old Notes are
registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender in
the Exchange Offer should contact such
registered Holder promptly and instruct
such registered Holder to tender on such
beneficial owner's behalf. If such
beneficial owner wishes to tender on his
own behalf, such beneficial owner must,
prior to completing and executing the
Letter of Transmittal and delivering his
Old Notes, either make appropriate
arrangements to register ownership of the
Old Notes in such owner's name or obtain
a properly completed bond power from the
registered Holder. The transfer of
registered ownership may take
considerable time and may not be able to
be completed prior to the Expiration
Date.
-8-
<PAGE>
Guaranteed Delivery Procedures.........Holders of Old Notes who wish to tender
such Old Notes and whose Old Notes are
not immediately available or who cannot
deliver their Old Notes and a properly
completed Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior
to the Expiration Date may tender their
Old Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer -- Procedures for
Tendering."
Acceptance of Old Notes and
Delivery of New Notes................Subject to certain conditions (as
described more fully in "The Exchange
Offer -- Conditions to the Exchange
Offer"), the Company will accept for
exchange any and all Old Notes that are
properly tendered in the Exchange Offer
and not withdrawn, prior to 5:00 p.m.,
New York City time, on the Expiration
Date. The New Notes issued pursuant to
the Exchange Offer will be delivered as
promptly as practicable following the
Expiration Date.
Withdrawal Rights......................Subject to the conditions set forth
herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration
Date. See "The Exchange Offer --
Withdrawal of Tenders."
Certain United States Federal Income
Tax Considerations...................The exchange pursuant to the Exchange
Offer should not constitute a taxable
exchange for United States federal income
tax purposes. Each such New Note should
be treated as having been originally
issued at the time the Old Note exchanged
therefor was originally issued. See
"Certain United States Federal Income Tax
Considerations."
Exchange Agent.........................Bank One, N.A., the Trustee under the
Indenture, is serving as exchange agent
(the "Exchange Agent") in connection with
the Exchange Offer. For information with
respect to the Exchange Offer, the
telephone number for the Exchange Agent
is (614) 248-5811 and the facsimile
number for the Exchange Agent is (614)
248-2566.
See "The Exchange Offer" for more detailed information concerning the terms of
the Exchange Offer.
-9-
<PAGE>
Summary Description of the New Notes
The Exchange Offer applies to $275,000,000 aggregate principal amount
of Old Notes. The form and terms of the New Notes will be the same in all
material respects as the form and terms of the Old Notes, except that the offer
and sale of the New Notes will be registered under the Securities Act and,
therefore, the New Notes will not bear legends restricting the transfer thereof.
Upon consummation of the Exchange Offer, none of the Notes will be entitled to
registration rights under the Registration Rights Agreement. The New Notes will
evidence the same debt as the Old Notes, will be entitled to the benefits of the
Indenture and will be treated as a single class thereunder with any Old Notes
that remain outstanding. See "Description of the New Notes."
Securities Offered $275,000,000 principal amount of 9 1/4%
Senior Exchange Notes due 2007.
Maturity Date November 15, 2007.
Interest and Payment Dates The Notes bear interest at the rate of 9 1/4%
per annum, payable semi-annually on May 15
and November 15 of each year, commencing May
15, 1998.
Optional Redemption The Notes are redeemable at the option of the
Company, in whole or in part, on or after
November 15, 2002, at the redemption prices
set forth herein, together with accrued and
unpaid interest and Liquidated Damages, if
any, thereon to the date of redemption. The
Company has the option, at any time prior to
November 15, 2002, to redeem the Notes, in
whole but not in part, at a redemption price
equal to 100% of the principal amount thereof
plus the Applicable Premium, together with
accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of
redemption. In addition, at any time on or
prior to November 15, 2000 in the event of
one or more Public Equity Offerings the
Company may, subject to certain requirements,
redeem up to 35% of the original aggregate
principal amount of the Notes with the net
cash proceeds thereof at a redemption price
equal to 109.25% of the principal amount
thereof, together with accrued and unpaid
interest and Liquidated Damages, if any,
thereon to the date of redemption; provided
that at least 65% of the original aggregate
principal amount of the Notes remains
outstanding immediately after such
redemption. See "Description of the New
Notes--Optional Redemption."
Change of Control Upon the occurrence of a Change of Control,
the Company is required to make an offer to
repurchase all or a portion of such holder's
Notes at a price of 101% of the principal
amount thereof plus accrued interest and
Liquidated Damages, if any, thereon to the
date of repurchase. If a Change of Control
were to occur, it is unlikely that the
Company would be able to both repay all of
its obligations under the Revolving Credit
Facility and repay other indebtedness,
including borrowings under the Term Loan
Agreement that would become payable upon the
occurrence of such Change of Control, unless
it could obtain alternate financing. See
"Risk Factors --Possible Need to Obtain
Alternate Financing Upon a Change in Control"
and "Description of the New Notes--Repurchase
at the Option of Holders--Change of Control."
Subsidiary Guarantees The Notes are fully and unconditionally
guaranteed on a senior basis by the
Guarantors, which consist of all of the
Company's present and future Subsidiaries
(excluding Unrestricted Subsidiaries). The
Subsidiary Guarantees may be released under
certain circumstances. See "Description of
the New Notes--Guarantees."
Asset Sale Proceeds The Company is obligated in certain
circumstances to make an offer to purchase
the Notes at a purchase price equal to 100%
of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages,
if any, thereon to the repurchase date with
the net cash proceeds of certain sales or
other dispositions
-10-
<PAGE>
of assets. See "Description of the New
Notes--Repurchase at the Option of
Holders--Asset Sales."
Ranking The Notes are unsecured obligations of the
Company, ranking senior in right of payment
to all existing and future subordinated
indebtedness of the Company and pari passu
with all existing and future senior unsecured
indebtedness of the Company, including
borrowings under the Term Loan Agreement. The
Notes will be effectively junior to secured
indebtedness of the Company and its
subsidiaries, including borrowings under the
Revolving Credit Facility, to the extent of
the assets securing such indebtedness. As of
September 30, 1997, on a pro forma basis
giving effect to the November Offering, the
borrowings under the Term Loan Agreement and
the use of proceeds therefrom, there would
have been an aggregate of $405.7 million of
indebtedness of the Company and its
Subsidiaries, the Notes would have been
effectively subordinated to $56.8 million of
secured indebtedness of the Company and its
Subsidiaries, additional availability of
approximately $94.5 million would have
existed under the Revolving Credit Facility
and the Notes would have been pari passu with
$75.0 million of borrowings under the Term
Loan Agreement.
Certain Covenants The Indenture pursuant to which the Notes are
issued (the "Indenture") contains certain
covenants, including, but not limited to,
covenants with respect to: (i) limitations on
indebtedness; (ii) limitations on restricted
payments; (iii) limitations on transactions
with affiliates; (iv) limitations on liens;
(v) limitations on sale of assets; (vi)
limitations on issuance and sale of capital
stock of subsidiaries; (vii) limitations on
dividends and other payment restrictions
affecting subsidiaries; and (viii)
restrictions on consolidations, mergers and
sales of assets. The Company may incur
Indebtedness if the Consolidated Interest
Coverage Ratio for the Company's most
recently ended four full fiscal quarters for
which internal financial statements are
available immediately preceding the date on
which such additional Indebtedness is
incurred would have been at least 2.00 to 1,
on a pro forma basis (including a pro forma
application of the net proceeds therefrom),
as if the additional Indebtedness had been
incurred at the beginning of such
four-quarter period. At December 31, 1997,
the Company could not incur additional
indebtedness under this formula.
Notwithstanding the foregoing, the Company
may incur specific indebtedness including
Permitted Capital Expenditure Indebtedness of
the Company and its Restricted Subsidiaries
and Existing Indebtedness (other than
Permitted Working Capital Indebtedness and
Indebtedness under the Letter of Credit
Facility). See "Description of the New
Notes--Certain Covenants."
Events of Default The Indenture provides that
each of the following constitutes an Event of
Default: (a) default in the payment when due
of interest or Liquidated Damages on the
Notes and such default continues for 30 days;
(b) default in payment when due of the
principal of or premium (if any) on the
Notes; (c) failure by the Company to comply
with the provisions described under the
captions "Description of the New
Notes--Repurchase at the Option of
Holders--Change of Control," "--Asset Sales,"
"--Certain Covenants-- Restricted Payments,"
"-- Incurrence of Indebtedness and Issuance
of Preferred Stock" or "--Merger,
Consolidation or Sale of Assets"; (d) failure
by the Company for 30 days after notice to
comply with any of its other agreements in
the Indenture or the Notes; (e) default under
any mortgage, indenture or instrument under
which there may be issued or by which there
may be secured or evidenced any Indebtedness
for money borrowed by the Company or any of
its Restricted Subsidiaries (or the payment
of which is guaranteed by the Company or any
of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists or is
created after the date of the Indenture,
which default (i) is a Payment Default (as
-11-
<PAGE>
defined) or (ii) results in the acceleration
of such Indebtedness prior to its express
maturity and, in each case, the principal
amount of any such Indebtedness, together
with the principal amount of any other such
Indebtedness under which there has been a
Payment Default or the maturity of which has
been so accelerated, aggregates $10.0 million
or more; (f) failure by the Company or any of
its Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0
million, which judgments are not paid,
discharged or stayed for a period of 60 days;
(g) failure by any Guarantor to perform any
covenant set forth in its Subsidiary
Guarantee, or the repudiation by any
Guarantor of its obligations under its
Subsidiary Guarantee or the unenforceability
of any Subsidiary Guarantee against a
Guarantor for any reason, unless, in each
such case, such Guarantor and its
Subsidiaries have no Indebtedness outstanding
at such time or at any time thereafter; and
(h) certain events of bankruptcy or
insolvency with respect to the Company or any
of its Restricted Subsidiaries. See "Risk
Factor--Cross Default Provisions" and
"Description of the New Notes--Events of
Default and Remedies."
Settlement at DTC Transfers of Notes between participants in
The Depository Trust Company ("DTC") will be
effected in the ordinary way in accordance
with DTC rules and will be settled in
next-day funds.
Risk Factors
For a discussion of risks that should be considered by prospective
purchasers in connection with an investment in the Notes, including risks
relating to sensitivity of results of operations to realized steel prices;
impact of strike; resumption of operations, significant outstanding indebtedness
of the Company, cross-default provisions, joint venture obligations, ranking;
holding company structure, substantial capital expenditure requirements,
substantial employee post retirement obligations, uncertainty of impact of
future collective bargaining agreements; possibility of strikes, control by WHX;
conflicts of interest; transactions with WHX, fraudulent conveyance; possible
invalidity of Subsidiary Guarantees and need to obtain alternate financing upon
a Change of Control, see "Risk Factors."
-12-
<PAGE>
Summary Consolidated Financial Data
The following table sets forth certain summary consolidated financial
data of the Company for each of the five years in the period ended December 31,
1997. Such information is derived from the consolidated financial statements of
the Company which have been audited by Price Waterhouse LLP, independent
accountants. EBITDA is operating income plus depreciation, amortization and
special charges. The Company has included EBITDA because it is commonly used by
certain investors and analysts to analyze and compare companies on the basis of
operating performance, leverage and liquidity and to determine a company's
ability to service debt. EBITDA does not represent cash flows as defined by
generally accepted accounting principles and does not necessarily indicate that
cash flows are sufficient to fund all of the Company's cash needs. EBITDA should
not be considered in isolation or as a substitute for net income (loss), cash
flows from operating activities or other measures of liquidity determined in
accordance with generally accepted accounting principles. EBITDA measures
presented may not be comparable to similarly titled measures of other companies.
This information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related consolidated notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
-------------------------------------------------------------------------
1993 1994 1995 1996 1997(6)
---- ---- ---- ---- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net sales............. $1,046,795 $1,193,878 $1,267,869 $1,110,684 $489,662
Cost of products sold
(excluding depreciation
and profit sharing) 876,814 980,044 1,059,622 988,161 585,609
Depreciation......... 57,069 61,094 65,760 66,125 46,203
Profit sharing........ 4,819 9,257 6,718 -- --
Selling, administrative and
general expenses... 58,564 60,832 55,023 54,903 52,222
Special charges(1).... -- -- -- -- 92,701
------- ------- ------- -------- --------
Operating income (loss) 49,529 82,651 80,746 1,495 (287,073)
Interest expense...... 21,373 22,581 22,431 23,763 27,204
Other income (expense) 11,965 6,731 3,234 9,476 (221)
B & LE lawsuit settlement -- 36,091 -- -- --
------- ------- ------- -------- --------
Income (loss) before
taxes, extraordinary
items and cumulative
effect of change in
accounting method.. 40,121 102,892 61,549 (12,792) (314,498)
Tax provision (benefit) 9,400 21,173 3,030 (7,509) (110,035)
------- ------- ------- -------- ---------
Income (loss) before
extraordinary items and
cumulative effect of
change in accounting
method(2).......... $ 30,721 $81,719 $ 58,519 $ (5,283) $ (204,463)
======== ======= ======== ======== ===========
OTHER DATA:
Cash flow from:
Operations......... $(174,963) $ 162,600 $ 146,569 $ 92,282 $ (175,506)
Investing.......... (88,991) (66,639) (86,407) (44,503) (37,188)
Financing.......... 261,292 (89,179) (30,114) (54,655) 176,744
EBITDA, as adjusted for
special charges.... 106,598 143,745 146,506 67,620 (148,169)
Capital expenditures.. 73,652 69,139 81,554 31,188 33,755
Depreciation.......... 57,069 61,094 65,760 66,125 46,203
SELECTED OPERATING DATA:
Tons shipped (000's).. 2,251 2,397 2,385 2,105 851
Percent value-added
products........... 67.9% 68.6% 70.1% 71.9% 67.9%
Dollars per shipped ton:
Sales.............. $465 $498 $532 $528 $576
Cost of products sold
(excluding
depreciation and
profit sharing) 390 409 444 469 689
Gross profit (loss) 75 89 88 59 (113)
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
-------------------------------------------------------------------------
1993 1994 1995 1996 1997(6)
---- ---- ---- ---- -------
EBITDA, as adjusted for
<S> <C> <C> <C> <C> <C>
special charges.... 47 60 61 32 (174)
Operating income
(loss)........... 22 34 34 1 (338)
Average number of
active employees(3) 5,381 5,402 5,333 5,228 3,878
Man-hours per net ton
shipped(4)......... 4.91 4.58 4.62 4.54 4.95
Raw steel production
(000's of tons).... 2,260 2,270 2,200 1,780 663
Capacity utilization.. 94% 95% 92% 74% 28%
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1997(5)
-----------------------------------
(in thousands)
BALANCE SHEET DATA:
<S> <C>
Cash, cash equivalents and short-term investments............................. $ 0
Working capital (excluding cash, cash equivalents and short-term investments). 9,169
Property, plant and equipment, net............................................ 694,108
Total assets.................................................................. 1,424,568
Total debt (including current portion)........................................ 439,903
Stockholder's equity......................................................... 114,712
</TABLE>
- ------------------
(1) Includes a special charge for benefits included in the New Labor
Agreement related to enhanced retirement benefits, 1997 bonuses and
special assistance payments for those not returning to work
immediately.
(2) The Company adopted Statement of Financial Accounting Standard No. 112,
"Accounting for Post-employment Benefits" in 1994 and recorded a charge
of $12.2 million ($10.0 million net of tax). These benefits include,
among others, disability, severance and workmen's compensation.
(3) "Average number of active employees" is calculated for each period as
the quotient of: the sum of total salaried and hourly employees paid
for one pay period of each month, as determined from the mid-month
salaried and hourly payroll registers, divided by the total number of
months in the respective period.
(4) "Man-hours per net ton shipped" is calculated for each period as the
quotient of: the sum of total hours worked for all union and non-union
employees for the related period plus an estimated amount of 173 hours
worked per month for each of the Company's salaried employees, divided
by the sum of total tons shipped.
(5) The Balance Sheet Data gives effect to the November Offering and the
use of proceeds therefrom.
(6) On a pro forma basis, if the borrowings under the Term Loan Agreement
had been incurred and the Old Notes had been issued as of January 1,
1997, the net loss would have increased by $5.9 million due to
additional interest expense of $9.1 million (pre-tax) and stockholder's
equity would have been $5.9 million less.
-14-
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk
factors set forth below as well as the other information set forth in this
Prospectus.
Factors Relating to the Company
Sensitivity of Results of Operations to Realized Steel Prices
The Company's results of operations are significantly affected by
relatively small variations (on a percentage basis) in the realized sales prices
of its products, which, in turn, depend upon both the prevailing prices for
steel and the demand for particular products. During the first nine months of
1996, the Company shipped approximately 1.9 million tons, and realized an
average sales price per ton of approximately $514. A one percent decrease in
this average realized price would have resulted in a decrease in net sales and
operating income of approximately $9.8 million. The Company sells approximately
75% of its products at spot prices (including shipments to Wheeling-Nisshin and
OCC under supply contracts at prices approximating spot prices, see "Business--
Wheeling-Nisshin" and "--Ohio Coatings Company"). The Company believes its
percentage of sales at spot prices is higher than that of many of its domestic
integrated competitors. The Company therefore may be affected by price decreases
more quickly than many of such competitors.
Impact of Strike; Resumption of Operations
The Strike has had a material adverse effect on the Company's results
of operations and may continue to adversely affect the Company in the short-run.
The Company reported losses for the fourth quarter of 1996 and the first three
quarters of 1997 of $30.9 million, $40.3 million, $34.6 million and $96.8
million, respectively. Included in the loss for the third quarter of 1997 is a
pre-tax charge of $88.9 million primarily associated with the costs attributable
to the New Labor Agreement. The Company anticipates that it will continue
reporting losses until shipments return to pre-Strike levels, which is
anticipated to occur during the first half of 1998, although there can be no
assurance that delays will not occur. Until the Company's operations are fully
resumed, the Company anticipates that it will need to invest substantial
resources to rebuild inventories and generate accounts receivable. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." In addition, there can be no
assurance that the Company will return to pre-Strike shipment levels or that the
Company will otherwise operate profitably.
Significant Outstanding Indebtedness of the Company
The Company has, and after giving effect to the November Offering and
the use of proceeds therefrom, will continue to have substantial indebtedness
and debt service requirements. At December 31, 1997, after giving effect to the
November Offering, the borrowings under the Term Loan Agreement and the use of
proceeds therefrom, the Company's total indebtedness was $439.9 million and its
stockholder's equity was $114.7 million.
The Company's current annual debt service requirement is $32.2 million.
The Company's level of indebtedness will have several important effects
on its future operations, including the following: (a) a significant portion of
the Company's cash flow from operations will be dedicated to the payment of
interest on and principal of its indebtedness and will not be available for
other purposes; (b) the financial covenants and other restrictions contained in
the Company's existing $150.0 million revolving credit agreement (the "Revolving
Credit Facility") require the Company to meet certain financial tests and limit
its ability to borrow additional funds or to dispose of assets; and (c) the
Company's ability to obtain additional financing in the future for working
capital, postretirement health care and pension funding, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired.
Additionally, the Company's ability to meet its debt service obligations and to
reduce its total debt will be dependent upon the Company's future performance,
which will be
-15-
<PAGE>
subject to general economic conditions and to financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Description of
Principal Indebtedness."
There can be no assurance that the Company's business will generate
sufficient cash flow from operations or that future borrowings will be available
under the Revolving Credit Facility in an amount sufficient to enable the
Company to service its indebtedness, including the Notes and the Term Loan
Agreement, or to make anticipated capital expenditures. If the Company is unable
to draw amounts under the Revolving Credit Facility in the future, such
inability could have a material adverse effect on the financial condition and
results of operations of the Company. Moreover, an inability of the Company to
meet the financial covenants contained in the Revolving Credit Facility or other
indebtedness could result in an acceleration of amounts due thereunder. In the
event the Company is unable to make required payments or otherwise comply with
the terms of its indebtedness, including borrowings under the Revolving Credit
Facility and the Term Loan Agreement, the holders of such indebtedness could
accelerate the obligations of the Company thereunder, which could result in the
Company being forced to seek protection under applicable bankruptcy laws or in
an involuntary bankruptcy proceeding being brought against the Company. Under
such circumstances, the holders of the Notes may be adversely affected. If it
becomes necessary for the Company to refinance all or a portion of the principal
of the Notes on or prior to maturity there can be no assurance that the Company
will be able to effect such refinancing on commercially reasonable terms or at
all.
A portion of the Company's outstanding indebtedness, including all
borrowings under the Revolving Credit Facility and the Term Loan Agreement,
bears interest at floating rates. As a result, the Company's results of
operations and ability to service its indebtedness will be affected by future
fluctuations in interest rates.
For further information on the Company's outstanding indebtedness and
Receivables Facility (as defined herein), see "Description of Principal
Indebtedness," "Description of Receivables Facility" and "Indemnification and
Intercreditor Agreement."
Cross-default Provisions
Wheeling-Pittsburgh Steel Corporation ("WPSC") is the borrower under
the Revolving Credit Facility, which is guaranteed by WPC, two subsidiaries of
the Company and Unimast Incorporated ("Unimast"), a wholly-owned subsidiary of
WHX. Unimast's inventory is included in the borrowing base under the Revolving
Credit Facility, and Unimast receives advances from WPSC of funds borrowed by
WPSC under the Revolving Credit Facility. Under the Indenture, such advances may
not exceed $40 million at any time outstanding and must be repaid not later than
the first anniversary of the date of the Indenture. Unimast is also a
participant in the Receivables Facility, and its receivables are included in the
pool of receivables sold. Unimast, WHX and the Company entered into an
intercreditor agreement upon the consummation of the November Offering which
provides, among other things, that Unimast and WHX will be solely responsible
for repayment of any funds advanced by WPSC to Unimast in respect of borrowings
under the Revolving Credit Facility and have agreed to indemnify the Company if
a default occurs under the Revolving Credit Facility or if the Receivables
Facility is terminated as a result of a breach of either of such agreements by
Unimast or WHX. In addition, the Company is solely responsible for repayment of
its borrowings under the Revolving Credit Facility and has agreed to indemnify
WHX and Unimast if a default occurs under the Revolving Credit Facility or if
the Receivables Facility is terminated as a result of a breach of either of such
agreements by the Company. There can be no assurance, however, that in the event
of a default by Unimast or WHX, that either Unimast or WHX will be able to make
any payments to the Company required by such intercreditor agreement. In
addition, in the event Unimast or WHX causes a default under the Revolving
Credit Facility, the amounts due thereunder for all participants including the
Company could be accelerated (which could lead to an event of default under the
Notes) and the Company's ability to borrow additional funds under the Revolving
Credit Facility could be terminated. In the event such acceleration occurs,
there can be no assurance that the Company will be able to refinance such
borrowings. A failure by the Company to refinance such borrowings would have a
material adverse effect on the Company. See "Description of Principal
Indebtedness."
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Joint Venture Obligations
WPC has certain commitments and contingent obligations with respect to
the OCC joint venture including the following: (i) WPC is required, along with
Dong Yang Tinplate Ltd. ("Dong Yang"), to contribute additional funds to OCC to
cover its pro rata share of any cost overruns and working capital needs of OCC
to the extent that OCC is unable to otherwise finance such amounts (the Company
anticipates that its pro rata share of such funding obligations will be between
$5.0 million and $10.0 million through December 31, 1998); and (ii) WPC is
jointly and severally liable, together with Dong Yang, to contribute to OCC,
either as a loan or a capital contribution, amounts sufficient to cure certain
defaults and violations of certain financial covenants of OCC under OCC's
borrowing facility, which currently has a maximum availability of $17.0 million.
OCC is negotiating to increase such borrowing facility from $17.0 million to
$20.0 million, and in connection therewith Dong Yang and the Company may agree
to jointly and severally guarantee all of such obligations. In addition, WPC
also has certain commitments and contingent obligations under the
Wheeling-Nisshin joint venture including the following: (i) WPC is required,
along with Nisshin Steel, to contribute additional funds to Wheeling-Nisshin to
cover its pro rata share of working capital needs of Wheeling-Nisshin, to the
extent Wheeling-Nisshin is unable to cover its working capital needs or
Wheeling-Nisshin is unable to finance such needs; and (ii) WPC has agreed to
indemnify WHX for WHX's agreement with Nisshin Steel to contribute in proportion
to WPC's interest in Wheeling-Nisshin to the repayment of outstanding borrowings
of Wheeling-Nisshin should Wheeling-Nisshin be unable to repay its debt
obligations. There can be no assurance that the Company will be able to make any
such required payments or if made, that they will not have a material adverse
effect upon the Company. If the Company is unable to make any of such required
payments, it would be a breach of the Company's joint venture agreements.
Ranking; Holding Company Structure
The Notes are unsecured obligations of the Company, ranking senior in
right of payment to all existing and future subordinated indebtedness of the
Company, and pari passu with all existing and future senior unsecured
indebtedness of the Company, including borrowings under the Term Loan Agreement.
The Subsidiary Guarantees rank pari passu in right of payment with all existing
and future senior indebtedness of the Guarantors, including the obligations of
the Guarantors under the Revolving Credit Facility, any successor credit
facility and the Term Loan Agreement. At December 31, 1997, the borrowings under
the Term Loan Agreement and the use of proceeds therefrom, the aggregate
principal amount of indebtedness (excluding trade payables, other accrued
liabilities and the Notes) of the Company and its subsidiaries is approximately
$165.9 million, all of which would have ranked effectively senior to the Notes.
Although the Notes constitute senior obligations of the Company, the holders of
secured indebtedness would have a prior claim to the assets securing such
indebtedness. The Revolving Credit Facility is secured by the inventory of WPSC,
two of the Company's Subsidiaries, and Unimast, and certain other assets. In
addition, pursuant to the Receivables Facility, WPSC sells an undivided
percentage ownership in a designated pool of accounts receivable generated by
it, two of the Company's Subsidiaries, and Unimast. See "Description of
Principal Indebtedness" and "Description of Receivables Facility."
The Company is a holding company that conducts substantially all of its
business operations through its subsidiaries. Consequently, the Company's
operating cash flow and its ability to service its indebtedness, including the
Notes, is dependent upon the cash flow of its subsidiaries and the payment of
funds by such subsidiaries to the Company in the form of loans, dividends or
otherwise. The Company's subsidiaries are separate and distinct legal entities
apart from the Company and each operating subsidiary has agreed to guarantee
payment of the Notes on a senior basis. The Indenture contains financial and
restrictive covenants that limit the ability of the Company and its subsidiaries
to, among other things, borrow additional funds, dispose of assets, pay cash
dividends or make certain restricted payments. See "Description of
Notes--Certain Covenants" and "Description of Principal Indebtedness."
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Substantial Capital Expenditure Requirements
The Company operates in a capital intensive industry. From 1993 through
1997, the Company's capital expenditures totalled approximately $289.3 million.
This level of capital expenditures was used to maintain productive capacity,
improve productivity and upgrade selected facilities to meet competitive
requirements and maintain compliance with environmental laws and regulations,
including the Clean Air Act of 1990. The Company anticipates funding its capital
expenditures in 1998 from cash on hand and funds generated by operations. Prior
to the resolution of the Strike, the Company had delayed most capital
expenditures at the Strike-affected plants. The Company anticipates that capital
expenditures will approximate depreciation, on average, over the next few years.
There can be no assurance that the Company will have adequate funds from
operations to make all required capital expenditures or that the amount of
future capital expenditures will be commensurate with historical averages.
Substantial Employee Postretirement Obligations
The Company has substantial financial obligations related to its
employee and retiree postretirement plans for medical and life insurance and
pensions. Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106")
requires accrual of retiree medical and life insurance benefits rather than
recognition of costs as claims are paid. In accordance with SFAS 106, a
liability has been established for the present value of the estimated future
unfunded medical obligations. In addition, in accordance with the Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," the
Company has recognized a liability equal to its unfunded accumulated pension
benefit obligations. As of December 31, 1997, the Company had an unfunded
accumulated postretirement benefit obligation for retiree health care of
approximately $301.0 million. In addition, the Company had recorded an unfunded
accumulated pension benefit obligation for the recently implemented defined
benefit pension plan ("DB Plan") of approximately $167.3 million, of which
approximately 75% must be funded over the next five years.
Uncertainty of Impact of Future Collective Bargaining Agreements; Possibility of
Strikes
As of December 31, 1997, the USWA represented approximately 73% of the
Company's employees. In August 1997, the Company entered into the New Labor
Agreement with the USWA, which expires on September 1, 2002. There can be no
assurance as to the results of negotiations of future collective bargaining
agreements, whether future collective bargaining agreements will be negotiated
without production interruptions or the possible impact of future collective
bargaining agreements, or the negotiations thereof, on the Company's financial
condition and results of operations. In addition, there can be no assurance that
strikes will not occur in the future in connection with labor negotiations or
otherwise.
Control by WHX; Conflicts of Interest; Transactions with WHX
The Company is a wholly-owned subsidiary of WHX and all directors are
elected at the direction of WHX. See "Management." The Company believes that WHX
will not be prohibited from acting in its own self interest in respect of, among
other things, approval of various corporate activities and the voting or
disposition of the shares of Common Stock owned by it. The ongoing relationship
between the Company and WHX could result in conflicts of interest between the
Company and WHX. Also, WHX and the Company have entered into certain agreements,
which were not the result of arms-length negotiations between independent
parties, providing for indemnification and certain other rights and obligations
for each of them after consummation of the November Offering.
In addition, as a subsidiary of WHX, the Company has had the financial
resources of WHX available to meet its liquidity needs. The Notes are not an
obligation of WHX and are stand-alone obligations of WPC. WHX is not obligated
to provide funds to the Company, and the Company will in the future have to rely
on its own resources and third-party credit to meet its cash requirements. WHX
and WPC are jointly and severally obligated to make certain payments to WPSC
pursuant to the terms of a keepwell agreement entered into in connection with
the Revolving Credit Facility to maintain certain financial ratios of the
Company. The Company has agreed to
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indemnify WHX with respect to any payments made by WHX on account of WHX's
obligations under such keepwell agreement. See "Certain Relationships and
Related Transactions; Transactions between the Company and WHX."
From time to time, WHX has made advances to the Company, principally to
fund working capital needs and interest payments on debt. The Company also has
made advances to WHX, from time to time, principally to fund the payment by WHX
of dividends on its outstanding preferred stock and the working capital needs of
Unimast. As of December 31, 1997, the Company had made advances to WHX in the
net amount of $28.0 million. All advances are repayable upon demand and do not
bear interest. To the extent the Company has net outstanding advances from WHX,
the Company's obligation to repay such advances will be subordinated to the
repayment obligations on the Notes.
Fraudulent Conveyance; Possible Invalidity of Subsidiary Guarantees
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance laws, if the
Company, at the time it issues the Notes, or any one of the Guarantors, at the
time it issues its Subsidiary Guarantee, (a) incurs such indebtedness with the
intent to hinder, delay or defraud creditors, or (b)(i) receives less than
reasonably equivalent value or fair consideration for incurring such
indebtedness and (ii)(A) is insolvent at the time of the incurrence, (B) is
rendered insolvent by reason of such incurrence (after the application of the
proceeds of the November Offering), (C) is engaged or is about to engage in a
business or transaction for which the assets that will remain with the Company
or such Guarantor constitute unreasonably small capital to carry on its
business, or (D) intends to incur, or believes that it will incur, debts beyond
its ability to pay such debts as they mature, then, in each such case, a court
of competent jurisdiction could avoid, in whole or in part, the Notes or such
Subsidiary Guarantee. The measure of insolvency for purposes of the foregoing
will vary depending upon the law applied in such case. Generally, however, the
Company or any Guarantor would be considered insolvent if the sum of its debts,
including contingent liabilities, was greater than all of its assets at fair
valuation or if the present fair saleable value of its assets was less than the
amount that would be required to pay the probable liability on its existing
debts, including contingent liabilities, as they become absolute and matured.
To the extent any Subsidiary Guarantee were to be avoided as a
fraudulent conveyance or held unenforceable for any other reason, holders of the
Notes would cease to have any claim in respect of such Guarantor and would be
creditors solely of the Company and any Guarantor whose Subsidiary Guarantee was
not avoided or held unenforceable. In such event, the claims of the holders of
the Notes against the issuer of an invalid Subsidiary Guarantee would be subject
to the prior payment of all other liabilities of such Guarantor. There can be no
assurance that, after providing for all prior claims, there would be sufficient
assets to satisfy the claims of the holders of the Notes relating to any avoided
Subsidiary Guarantee. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of the New Notes."
Need to Obtain Alternate Financing Upon a Change of Control
The Indenture provides that, upon the occurrence of any Change of
Control, the Company will be required to make a Change of Control Offer (as
defined) to purchase all or any part of each holder's Notes issued and then
outstanding under the Indenture at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase. The Revolving Credit Facility
prohibits the Company from purchasing any Notes prior to their stated maturity
and also provides that certain Change of Control events would constitute a
default thereunder. In addition, any future credit or other borrowing agreements
may contain similar restrictions. Finally, the Company's ability to pay cash to
the holders of Notes upon a repurchase may be limited by the Company's then
existing financial resources. See "Description of Principal Indebtedness" and
"Description of the New Notes--Repurchase at the Option of Holders--Change of
Control."
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If a Change of Control were to occur, it is unlikely that the Company
would be able to both repay all of its obligations under the Revolving Credit
Facility and repay other indebtedness, including borrowings under the Term Loan
Agreement that would become payable upon the occurrence of such Change of
Control, unless it could obtain alternate financing. There can be no assurance
that the Company would be able to obtain any such financing on commercially
reasonable terms or at all, and consequently no assurance can be given that the
Company would be able to purchase any of the Notes tendered pursuant to a Change
of Control Offer.
Factors Relating to the Industry
Cyclicality
Historically, steel industry performance has been cyclical in nature,
reflecting changes in industry capacity as well as the cyclicality of many of
the principal markets it serves, including the automotive, appliance and
construction industries. Although total domestic steel industry capacity was
substantially reduced during the 1980s through extensive restructuring, and
demand has been particularly strong since 1993, with domestic steel industry
earnings strong during the 1994-1996 period, there can be no assurance that
demand will continue at current levels or that the addition of new minimills and
recent restarts of previously idled domestic facilities will not adversely
impact pricing and margins.
Possible Fluctuations in the Cost of Raw Materials
The Company's operations require substantial amounts of raw materials,
including various types of iron ore pellets, steel scrap, coal, zinc, oxygen,
natural gas and electricity. The price and availability of these raw materials
are subject to steel industry and general market conditions affecting supply and
demand. Furthermore, worldwide competition in the steel industry has frequently
limited the ability of steel producers to raise finished product prices to
recover higher raw material costs. The Company's future profitability may be
adversely affected to the extent it is unable to pass on higher raw material
costs to its customers.
Competition
The domestic steel industry is highly competitive. Despite significant
reductions in raw steel production capacity by major domestic producers in the
1980s, partially offset by the recent minimill capacity additions and joint
ventures, the domestic industry continues to be threatened by excess world
capacity.
The Company faces increasing competitive pressures from other domestic
integrated producers, minimills and processors. Processors compete with the
Company in the areas of slitting, cold rolling and coating. Minimills are
generally smaller volume steel producers that use ferrous scrap metals as their
basic raw material. Compared to integrated producers, minimills, which rely on
less labor and capital intensive hot metal sources, have certain advantages.
Since minimills typically are not unionized, they have more flexible work rules
that have resulted in lower employment costs per net ton shipped. Since 1989,
significant flat rolled minimill capacity has been constructed and these
minimills now compete with integrated producers in product areas that
traditionally have not faced significant competition from minimills. In
addition, there is significant additional flat rolled minimill capacity under
construction or announced with various planned commissioning dates in 1997
through 1999. Near term, these minimills are expected to compete with the
Company primarily in the commodity flat rolled steel market, and processors are
expected to compete with the Company in the flat rolled and cold rolled steel
market. In the long-term, such minimills may also compete with the Company in
producing value-added products. In addition, the increased competition in
commodity product markets may influence certain integrated producers to increase
product offerings to compete with the Company's custom products.
During the early 1990s, the domestic steel market experienced
significant increases in imports of foreign produced flat rolled products. The
level of imports, however, declined somewhat in late 1995 and early 1996. During
the same period, exports of domestically produced flat rolled steel increased
significantly. In recent months,
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there has been an increase in imports of flat rolled products, and a decrease in
exports of flat rolled steel products. The strength of the U.S. dollar and
economy, as well as the strength of foreign economies, can significantly affect
the import/export trade balance for flat rolled steel products. The status of
the trade balance may significantly affect the ability of the new minimill
capacity to come on-line without disrupting the domestic flat rolled steel
market.
Wheeling Corrugating and the Company's other fabricating operations
compete in a large number of regional markets with numerous other fabricating
operations, most of which are independent of the major integrated manufacturers.
Independent fabricators generally are able to acquire flat rolled steel
products, their basic raw material, at prevailing market prices. There are few
barriers to entry into the manufacture of fabricated products in certain
individual markets currently served by Wheeling Corrugating (although the
geographic breadth of the markets served by Wheeling Corrugating would be hard
to replicate). Other competitors, including domestic integrated producers and
minimills, may decide to manufacture fabricated products and compete with
Wheeling Corrugating in its markets. Such competition may negatively affect
prices that may be obtained in certain markets by the Company for its fabricated
products. Many of Wheeling Corrugating's competitors do not have a unionized
workforce and, therefore, may have lower operating costs than Wheeling
Corrugating.
Materials such as aluminum, cement, composites, glass and plastics
compete as substitutes for steel in many markets.
Costs of Complying with Environmental Standards
The Company and other steel producers have become subject to
increasingly stringent environmental standards imposed by Federal, state and
local environmental laws and regulations. The Company has expended, and can be
expected to be required to expend in the future, significant amounts for
installation of environmental control facilities, remediation of environmental
conditions and other similar matters. The costs of complying with such stringent
environmental standards as the new ambient air quality standards for ozone and
PM2.5 as well as the climate change treaty negotiations may cause the Company
and other domestic steel producers to be competitively disadvantaged vis-a-vis
foreign steel producers and producers of steel substitutes, who may be subject
to less stringent standards. The Company has also been identified as a
potentially responsible party at five "Superfund" sites and has been alleged to
be a potentially responsible party at two other "Superfund" sites. The Superfund
law imposes strict joint and several liability upon potentially responsible
parties. See "Legal Proceedings--Environmental Matters."
Lack of a Public Market
The New Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to list the New Notes on
any United States securities exchange or to seek approval for quotation through
any automated quotation system. The Company has been advised by the Initial
Purchasers that following completion of the Exchange Offer, the Initial
Purchasers intend to make a market in the New Notes. However, the Initial
Purchasers are not obligated to do so and any market-making activities with
respect to the New Notes may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the New Notes or as to the liquidity of or the trading market
for the New Notes. If a trading market does not develop or is not maintained,
Holders of the New Notes may experience difficulty in reselling the New Notes or
may be unable to sell them at all. If a market for the New Notes develops, any
such market may cease to continue at any time. If a public trading market
develops for the New Notes, future trading prices of the New Notes will depend
on many factors, including, among other things, prevailing interest rates, the
Company's results of operations and the market for similar securities and other
factors, including the financial condition of the Company.
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Consequences of the Exchange Offer to Non-Tendering Holders of the Old Notes
In the event the Exchange Offer is consummated, the Company will not be
required to register any Old Notes not tendered and accepted in the Exchange
Offer. In such event, Holders of Old Notes seeking liquidity in their investment
would have to rely on exemptions to the registration requirements under the
Securities Act. Following the Exchange Offer, none of the Notes will be entitled
to the contingent increase in interest rate provided for (in the event of a
failure to consummate the Exchange Offer in accordance with the terms of the
Registration Rights Agreement) pursuant to the Registration Rights Agreement.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Old Notes were sold by the Company on November 26, 1997 to the
Initial Purchasers, which placed the Old Notes with certain institutional
investors in reliance on Section 4(2) of, and Rule 144A under, the Securities
Act. In connection with the sale of the Old Notes, the Company entered into the
Registration Rights Agreement, pursuant to which the Company agreed to use its
best efforts to consummate an offer to exchange the Old Notes for the New Notes
pursuant to an effective registration statement on or before April 10, 1998. A
copy of the Registration Rights Agreement has been filed as an exhibit to this
Registration Statement. Unless the context requires otherwise, the term "Holder"
with respect to the Exchange Offer means any person in whose name Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered Holder, or any person whose
Old Notes are held of record by DTC who desires to deliver such Old Notes by
book-entry transfer at DTC.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any Holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on interpretations by the staff of the Commission set
forth in no-action letters issued to third parties, the Company believes that
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any Holder of such New
Notes (other than any such Holder that is an "affiliate" of the Company, within
the meaning of Rule 405 under the Securities Act and except in the case of
broker-dealers, as set forth below) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder has no arrangement or understanding with any person to participate in the
distribution of such New Notes. Any Holder who tenders in the Exchange Offer for
the purpose of participating in a distribution of the New Notes or who is an
affiliate of the Company may not rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
By tendering in the Exchange Offer, each Holder of Old Notes will
represent to the Company that, among other things, (i) the New Notes acquired
pursuant to the Exchange Offer are being obtained in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
such Holder, (ii) neither the Holder of Old Notes, nor any such other person,
has an arrangement or understanding with any person to participate in the
distribution of such New Notes, (iii) if the Holder is not a broker-dealer, or
is a broker-dealer but will not receive New Notes for its own account in
exchange for Old Notes, neither the Holder, nor any such other person, is
engaged in or intends to participate in the distribution of such New Notes and
(iv) neither the Holder nor any such other person is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act or, if such
Holder is an "affiliate," that such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
Following the consummation of the Exchange Offer, Holders of Old Notes
not tendered will not have any further registration rights and the Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for the Old Notes could be adversely affected.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and all
Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. Subject to the minimum denomination requirements
of the New Notes, the Company will issue $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of
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outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000 principal amount.
The forms and terms of the New Notes will be identical in all material
respects to the forms and terms of the corresponding Old Notes, except that the
offer and sale of the New Notes will have been registered under the Securities
Act and, therefore, the New Notes will not bear legends restricting the transfer
thereof. The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange. As of _______, 1998,
$275,000,000 aggregate principal amount of the Old Notes were outstanding. This
Prospectus, together with the Letter of Transmittal, is being sent to all
Holders as of ________, 1998. Holders of Old Notes do not have any appraisal or
dissenters' rights under the Indenture in connection with the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the applicable rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
for the purpose of receiving the New Notes from the Company. If any tendered Old
Notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, such unaccepted Old Notes
will be returned, without expense, to the tendering Holder thereof as promptly
as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
" -- Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
_____________, 1998, [20 BUSINESS DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE
OFFER] unless the Company in its sole discretion, extends the Exchange Offer, in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended. Although the Company has no current
intention to extend the Exchange Offer, the Company reserves the right to extend
the Exchange Offer at any time and from time to time by giving oral or written
notice to the Exchange Agent and by timely public announcement communicated,
unless otherwise required by applicable law or regulation, by making a release
to the Dow Jones News Service. During any extension of the Exchange Offer, all
Old Notes previously tendered pursuant to the Exchange Offer and not withdrawn
will remain subject to the Exchange Offer. The date of the exchange of the New
Notes for Old Notes will be the first AMEX trading day following the Expiration
Date.
The Company expressly reserves the right to (i) terminate the Exchange
Offer and not accept for exchange any Old Notes if any of the events set forth
below under " -- Conditions to the Exchange Offer" shall have occurred and shall
not have been waived by the Company and (ii) amend the terms of the Exchange
Offer in any manner that, in its good faith judgment, is advantageous to the
Holders of the Old Notes, whether before or after any tender of the Old Notes.
Should the Company materially amend the terms of the Exchange Offer, (i) the
Company will file an amendment to the Registration Statement which will reflect
any material changes to the Exchange Offer and (ii) all Holders will be
resolicited as may be required by applicable law.
Procedures for Tendering
The tender to the Company of Old Notes by a Holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between such
Holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal signed by such
holder. A Holder of the Old Notes may tender such Old Notes by (i) properly
completing and signing a Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to a Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with any
corresponding certificate or certificates representing the Old Notes being
tendered (if in certificated form) and any required signature guarantees, to the
Exchange Agent at its address set forth in the
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Letter of Transmittal on or prior to the Expiration Date (or complying with the
procedure for book-entry transfer described below) or (ii) complying with the
guaranteed delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in DTC whose name appears on a security listing as the owner of
Old Notes), the signature of such signer need not be guaranteed. In any other
case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered Holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" as defined by Rule 17Ad-15 under
the Exchange Act (any of the foregoing hereinafter referred to as an "Eligible
Institution"). If the New Notes and/or the Old Notes not exchanged are to be
delivered to an address other than that of the registered Holder appearing on
the register for the Old Notes, the signature in the Letter of Transmittal must
be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL
OTHER DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS
BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO
THE COMPANY.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish an account with respect
to the Old Notes at DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of Old Notes by causing
DTC to transfer such Old Notes into the Exchange Agent's account with respect to
the Old Notes in accordance with DTC's procedure for such transfer. Although
delivery of the Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an appropriate Letter of Transmittal with any
required signature guarantee and all other revised documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at the address
set forth in the Letter of Transmittal on or prior to the Expiration Date, or,
if the guaranteed delivery procedures described below are complied with, within
the time period provided under such procedures.
If the Holder desires to accept the Exchange Offer and time will not
permit a Letter of Transmittal or Old Notes to reach the Exchange Agent before
the Expiration Date or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if the Exchange Agent has received
at its office, on or prior to the Expiration Date, a letter, telegram or
facsimile transmission from an Eligible Institution setting forth the name and
address of the tendering Holder, the name(s) in which the Old Notes are
registered and the certificate number(s) of the Old Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that, within
three AMEX trading days after the date of execution of such letter, telegram or
facsimile transmission by the Eligible Institution, such Old Notes, in proper
form for transfer (or a confirmation of book-entry transfer of such Old Notes
into the Exchange Agent's account at DTC), will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Old Notes being tendered
by the above-described method are deposited with the Exchange Agent within the
time period set forth above (accompanied or preceded by a properly completed
Letter of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery, which may
be used by Eligible Institutions for the purposes described in this paragraph,
are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i)
the tendering Holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC), is received by the Exchange
Agent or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) from an Eligible Institution
is received by the Exchange Agent. Issuances of New Notes in exchange for Old
Notes
-25-
<PAGE>
tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against submission of a duly signed Letter of
Transmittal (and any other required documents) and deposit of the tendered Old
Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptance for exchange of which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any Old Notes. None of the Company, the Exchange Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification. Any Old Notes received by the Exchange Agent that are not
validly tendered and as to which the defects or irregularities have not been
cured or waived, or if Old Notes are submitted in an aggregate principal amount
greater than the aggregate principal amount of Old Notes being tendered by such
tendering Holder, will be returned by the Exchange Agent to the tendering
holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
(a) purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date and (b) to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers will differ from the terms
of the Exchange Offer.
Terms and Conditions of the Letter of Transmittal
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Old Notes to the Company and irrevocably
constitutes and appoints the Exchange Agent as the Transferor's agent and
attorney-in-fact to cause the Old Notes to be assigned, transferred and
exchanged. The Transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Old Notes and to acquire
New Notes issuable upon the exchange of such tendered Old Notes, and that, when
the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. The
Transferor also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Company to be necessary or desirable to
complete the exchange, assignment and transfer of tendered Old Notes or transfer
ownership of such Old Notes on the account books maintained by DTC. All
authority conferred by the Transferor will survive the death, bankruptcy or
incapacity of the Transferor and every obligation of the Transferor will be
binding upon the heirs, legal representatives, successors, assigns, executors
and administrators of such Transferor.
By executing a Letter of Transmittal, each Holder will make to the
Company the representations set forth above under the heading " -- Purpose and
Effect of the Exchange Offer."
Withdrawal of Tenders
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable,
except that Old Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written, telegraphic or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at the
address set forth in the Letter of Transmittal prior to 5:00 p.m., New York City
time on the Expiration Date. Any such notice of withdrawal must specify the
holder named in the Letter of Transmittal as having tendered Old Notes to be
withdrawn, the certificate numbers and designation of Old Notes to be withdrawn,
the principal amount of Old Notes delivered for exchange, a statement that such
Holder is withdrawing his election to have such Old Notes exchanged, and the
name of the registered Holder of such Old
-26-
<PAGE>
Notes, and must be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal (including any required signature
guarantees) or be accompanied by evidence satisfactory to the Company that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Old Notes being withdrawn. The Exchange Agent will return the properly withdrawn
Old Notes promptly following receipt of notice of withdrawal. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawn Old Notes or otherwise comply with DTC procedure. All
questions as to the validity of notices of withdrawal, including time of
receipt, will be determined by the Company, and such determination will be final
and binding on all parties.
Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to issue New
Notes in exchange for any properly tendered Old Notes not theretofore accepted
and may terminate the Exchange Offer, or, at its option, modify or otherwise
amend the Exchange Offer, if either of the following events occur:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority
which, in the sole judgment of the Company, would prohibit, restrict or
otherwise render illegal consummation of the Exchange Offer, or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which, in the Company's sole judgment, might
materially impair the Company's ability to proceed with the Exchange
Offer.
The Company expressly reserves the right to terminate the Exchange
Offer and not accept for exchange any Old Notes upon the occurrence of either of
the foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Old Notes).
The foregoing conditions are for the sole benefit of the Company and
may be waived by the Company, in whole or in part, in its sole discretion. The
foregoing conditions must be either satisfied or waived prior to termination of
the Exchange Offer. Any determination made by the Company concerning an event,
development or circumstance described or referred to above will be final and
binding on all parties.
Exchange Agent
Bank One, N.A. has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
By Mail (registered or certified mail recommended):
Bank One, N.A.
100 E. Broad Street
Columbus, Ohio 43215-3607
By Overnight Courier:
Bank One, N.A.
100 E. Broad Street
Columbus, Ohio 43215-3607
By Hand Delivery:
Bank One, N.A.
100 E. Broad Street
Columbus, Ohio 43215-3607
-27-
<PAGE>
By Facsimile: (614) 248-2566 Confirm by Telephone: (614) 248-5811
(For Eligible Institutions Only)
Fees and Expenses
The expense of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitations
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.
The Company has not retained any dealer-manager or other soliciting
agent in connection with the Exchange Offer and will not make any payments to
brokers, dealers or others soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, the Letter of
Transmittal and related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees of the Company, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, New Notes, or
Old Notes for principal amounts not tendered or accepted for exchange, are to be
delivered to, or are to be issued in the name of, any person other than the
registered Holder of the Old Notes tendered or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
Accounting Treatment
The New Notes will be recorded at the same carrying value as the Old
Notes as reflected in the Company's accounting records on the date of the
exchange because the exchange of the Old Notes for the New Notes is the
completion of the selling process contemplated in the issuance of the Old Notes.
Accordingly, no gain or loss for accounting purposes will be recognized. The
expenses of the Exchange Offer and the unamortized expenses related to the
issuance of the Old Notes will be amortized over the term of the New Notes.
Other
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, shall create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) Holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to Holders of Old Notes
in such jurisdiction.
-28-
<PAGE>
As a result of the making of the Exchange Offer, the Company will have
fulfilled a covenant contained in the Registration Rights Agreement. Holders of
the Old Notes who do not tender their Old Notes in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
limitations applicable thereto under the Indenture except for any such rights
under the Registration Rights Agreement and except that the Old Notes will not
be entitled to the contingent increase in interest rate provided for in the Old
Notes. All untendered Old Notes will continue to be subject to the restrictions
on transfer set forth in the Indenture and the Old Notes. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market, if
any, for untendered Old Notes could be adversely affected.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
New Notes offered hereby. In consideration for issuing the New Notes as
contemplated in this Prospectus, the Company will receive in exchange Old Notes
in like principal amount, the terms of which are identical in all material
respects to the New Notes, except that the offer and sale of such New Notes will
be registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. Old Notes surrendered in exchange for New
Notes will be retired and canceled and cannot be reissued. Accordingly, issuance
of the New Notes will not result in a change in the indebtedness of the Company.
The Company received gross proceeds of approximately $275.0 million
from the November Offering. Additionally, the Company borrowed an aggregate of
$75.0 million pursuant to the Term Loan Agreement, the net proceeds of which
were, together with the proceeds of the November Offering, used to (i) defease
the outstanding 93/8% Notes, which 93/8% Notes have a maturity date of November
15, 2003, at a total cost of $298.8 million, and (ii) reduce by approximately
$51.0 million outstanding borrowings under the Revolving Credit Facility, which
matures on May 3, 1999 and bears interest at the Citibank prime rate plus 1.0%
and/or a Eurodollar rate margin plus 2.25%.
-29-
<PAGE>
CAPITALIZATION
The following table sets forth short-term debt and the current portion
of long-term debt and the consolidated capitalization of the Company as of
December 31, 1997 which gives effect to the November Offering and the
application of the net proceeds therefrom. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Selected Consolidated Financial Data." This table should be read in conjunction
with the Consolidated Financial Statements included elsewhere in this
Prospectus.
As of December 31, 1997
------------------------
Actual
(in thousands)
Short-term debt ......................................... $ 89,800
Current portion of long-term debt ....................... 199
Long-term debt:
9 1/4% Senior Notes offered hereby ................ 273,966
Term Loan ......................................... 75,000
93/8% Senior Notes ................................ --
Other debt ........................................ 938
---------
Total long-term debt ........................... 349,904
---------
Stockholder's equity:
Common stock ........................................... --
Additional paid-in capital .............................. 272,065
Accumulated earnings (deficit)(1) ....................... (157,353)
---------
Total stockholder's equity ..................... 114,712
---------
Total capitalization .................................... $ 554,615
=========
- ---------------
See Notes H and I of Notes to Consolidated Financial Statements.
(1) On a pro forma basis, if the borrowings under the Term Loan Agreement
had been incurred and the Old Notes had been issued as of January 1,
1997, the accumulated deficit in earnings would have been $5.9 million
higher and stockholder's equity would have been $5.9 million lower, due
to additional interest expense of $9.1 million (pre-tax).
-30-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company for each of the five years in the period ended December 31, 1997.
Such information is derived from the consolidated financial statements of the
Company which have been audited by Price Waterhouse LLP, independent
accountants. EBITDA is operating income plus depreciation, amortization and
special charges. The Company has included EBITDA because it is commonly used by
certain investors and analysts to analyze and compare companies on the basis of
operating performance, leverage and liquidity and to determine a company's
ability to service debt. EBITDA does not represent cash flows as defined by
generally accepted accounting principles and does not necessarily indicate that
cash flows are sufficient to fund all of the Company's cash needs. EBITDA should
not be considered in isolation or as a substitute for net income (loss), cash
flows from operating activities or other measures of liquidity determined in
accordance with generally accepted accounting principles. EBITDA measures
presented may not be comparable to similarly titled measures of other companies.
This information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related consolidated notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
-------------------------------------------------------------------------------
1993 1994 1995 1996 1997(6)
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Net Sales................... $1,046,795 $1,193,878 $1,267,869 $1,110,684 $489,662
Cost of products sold (excluding
depreciation and profit sharing) 876,814 980,044 1,059,622 988,161 585,609
Depreciation............... 57,069 61,094 65,760 66,125 46,203
Profit sharing.............. 4,819 9,257 6,718 -- --
Selling, administrative and general
expenses................. 58,564 60,832 55,023 54,903 52,222
Special charges(1).......... -- -- -- -- 92,701
------- ------- ------- ------- --------
Operating income (loss)..... 49,529 82,651 80,746 1,495 (287,073)
Interest expense............ 21,373 22,581 22,431 23,763 27,204
Other income (expense)...... 11,965 6,731 3,234 9,476 (221)
B & LE lawsuit settlement... -- 36,091 -- -- --
------- ------- ------- ------- --------
Income (loss) before taxes,
extraordinary items and
cumulative effect of change in
accounting method........ 40,121 102,892 61,549 (12,792) (314,498)
Tax provision (benefit)..... 9,400 21,173 3,030 (7,509) (110,035)
------- ------- ------- -------- ---------
Income (loss) before extraordinary
items and cumulative effect of
change in accounting method(2) $ 30,721 $81,719 $ 58,519 $ (5,283) $ (204,463)
======== ======= ======== ========== ===========
FINANCIAL RATIOS AND OTHER DATA:
Cash flow from:
Operations............... $ (174,963) $ 162,600 $ 146,569 $ 92,282 $ (175,506)
Investing................ (88,991) (66,639) (86,407) (44,503) (37,188)
Financing................ 261,292 (89,179) (30,114) (54,655) 176,744
EBITDA, as adjusted for special
charges..................... 106,598 143,745 146,506 67,620 (148,169)
Capital expenditures........ 73,652 69,139 81,554 31,188 33,755
Depreciation................ 57,069 61,094 65,760 66,125 46,203
Ratio of earnings to fixed
charges(3)............... 2.0x 3.7x 2.5x -- --
SELECTED OPERATING DATA:
Tons shipped (000's)........ 2,251 2,397 2,385 2,105 851
Percent value-added products 67.9% 68.6% 70.1% 71.9% 67.9%
Dollars per shipped ton:
Sales.................... $465 $498 $532 $528 $576
Cost of products sold
(excluding depreciation and
profit sharing) 390 409 444 469 689
Gross profit............. 75 89 88 59 (113)
EBITDA, as adjusted for
special charges.......... 47 60 61 32 (174)
Operating income (loss).. 22 34 34 1 (338)
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
-------------------------------------------------------------------------------
1993 1994 1995 1996 1997(6)
---- ---- ---- ---- ----
Average number of active
<S> <C> <C> <C> <C> <C>
employees(4)............. 5,381 5,402 5,333 5,228 3,878
Man-hours per net ton shipped(5) 4.91 4.58 4.62 4.54 4.95
Raw steel production (000's of
tons).................... 2,260 2,270 2,200 1,780 663
Capacity utilization........ 94% 95% 92% 74% 28%
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(in thousands)
BALANCE SHEET DATA:
Cash, cash equivalents and
<S> <C> <C> <C> <C> <C>
short term investments...... $279,856 $12,778 $42,826 $35,950 $ 0
Working capital (excluding
cash, cash equivalents
and short-term
investments)............. 118,195 129,137 104,973 73,072 9,169
Property, plant and
equipment, net........... 748,673 732,615 748,999 710,999 694,108
Total assets................ 1,491,600 1,266,372 1,340,035 1,245,892 1,424,568
Total debt (including
current portion)......... 350,279 292,825 288,740 269,414 439,903
Stockholder's equity........ 432,283 246,194 343,770 338,487 114,712
</TABLE>
- ------------------------
(1) Includes a special charge for benefits included in the New Labor
Agreement related to enhanced retirement benefits, 1997 bonuses and
special assistance payments for those not returning to work
immediately.
(2) The Company adopted Statement of Financial Accounting Standard No. 112,
"Accounting for Post-employment Benefits" in 1994 and recorded a charge
of $12.2 million ($10.0 million net of tax). These benefits include,
among others, disability, severance and workmen's compensation.
(3) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes, extraordinary items
and fixed charges. Fixed charges consist of interest expense and the
portion of rental expense deemed representative of the interest factor.
For the years ended December 31, 1996 and December 31, 1997, earnings
were not sufficient to cover fixed charges. Additional earnings of
$24.8 million for 1996 and $315.5 for 1997 would have been required to
achieve a ratio of 1.0 for such periods.
(4) "Average number of active employees" is calculated for each period as
the quotient of: the sum of total salaried and hourly employees paid
for one pay period of each month, as determined from the mid-month
salaried and hourly payroll registers, divided by the total number of
months in the respective period.
(5) "Man-hours per net ton shipped" is calculated for each period as the
quotient of: the sum of total hours worked for all union and non-union
employees for the related period plus an estimated amount of 173 hours
worked per month for each of the Company's salaried employees, divided
by the sum of total tons.
(6) On a pro forma basis, if the borrowings under the Term Loan Agreement
had been incurred and the Old Notes had been issued as of January 1,
1997, the net loss would have increased by $5.9 million due to
additional interest expense of $9.1 million (pre-tax) and stockholder's
equity would have been $5.9 million less.
-32-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Introduction
OVERVIEW
The Company was reorganized on January 3, 1991 with a business strategy
of shifting its product mix to value-added products through downstream expansion
and acquisitions. In July 1994, a new holding company, WHX, which separated the
steel related operations from non-steel related businesses, was created. The
Company comprises primarily all of the steel related operations of WHX.
On August 12, 1997, the Company and the USWA entered into the New Labor
Agreement which settled the Strike. The Strike directly affected facilities
accounting for approximately 80% of the Company's steel shipments on an annual
basis. The Company believes the five year term of the New Labor Agreement
provides the Company with a significant competitive advantage since a majority
of the Company's integrated steel competitors have labor contracts that expire
in 1999. The New Labor Agreement provides for a restructuring of work rules and
manning requirements and a reduction in the expense associated with retiree
healthcare costs. The improved work rules allow the Company to eliminate 850
hourly jobs (approximately 20% of the work force) which the Company believes
will materially reduce its labor costs. Partially offsetting these savings are
wage increases and the costs of the DB Plan, which includes a retirement
incentive. Based on actual wage and certain direct employee benefits costs
during the first nine months of 1996 for employees represented by the USWA, the
elimination of 850 USWA-represented employees working a standard number of hours
per year would have resulted in estimated annual labor cost savings of
approximately $45.0 million.
All of the Company's production facilities resumed operations as of
September 30, 1997. Raw steel production achieved 90% of capacity in the fourth
quarter of 1997. The Company expects to achieve pre-Strike levels of raw steel
production and increased shipments of a higher value-added product mix during
the first half of 1998.
1997 Compared to 1996
Net sales for the year ended December 31, 1997 totaled $489.7 million
on shipments of 850.5 thousand tons of steel products, compared to $1,110.7
million on shipments of 2.1 million tons in the year ended December 31, 1996.
The decrease in sales and tons shipped is primarily attributable to the Strike
at eight plants located in Ohio, Pennsylvania and West Virginia. Production and
shipment of steel products at these plants ceased on October 1, 1996 and the
Strike continued to August 12, 1997. Average net sales per ton increased 9.1%
from $528 per ton shipped to $576 because higher value-added products continued
to be shipped during the strike from other locations.
Cost of products sold increased to $689 per ton shipped in 1997 from
$469 in 1996. This increase reflects the effect of high fixed cost and low
capacity utilization and higher levels of external steel purchases due to the
work stoppage, higher costs for natural gas and a higher value-added product
mix. In addition, cost of products sold were adversely affected by a door
rehabilitation program at the Company's number 8 coke battery. The operating
rate for 1997 was 27.6%. The operating rate for the nine months prior to the
Strike was 98.9%, but dropped to 74.0% for 1996. Raw steel production was 100%
continuous cast.
Depreciation expense decreased 30.1% to $46.2 million in 1997, compared
to $66.1 million in 1996, due to lower levels of raw steel production and its
effect on units of production depreciation methods. Raw steel production
decreased by 62.8%.
-33-
<PAGE>
Selling, administrative and general expense decreased 4.9% to $52.2
million in 1997, from $54.9 million in 1996. The decrease is due to the reduced
level of operations.
In 1997 the Company recorded a special charge of $92.7 million related
to the New Labor Agreement. The special charge included $66.7 million for
enhanced retirements, $15.5 million for signing and retention bonuses, $3.8
million for special assistance payments and other employee benefits and $6.7
million for a grant of one million stock options to WPN Corp. ("WPN") for its
performance in negotiating the new labor agreement.
Interest expense increased to $27.2 million in 1997 from $23.8 million
in 1996. The increase is due primarily to higher levels of borrowings under the
Revolving Credit Facility.
Other income/expense decreased to expense of $.2 million in 1997 from
income of $9.5 million in 1996. The decrease is due to recognition of an equity
loss for the OCC joint venture in 1997 totaling $8.5 million. Equity losses on
joint ventures totaled $1.2 million in 1997 compared to income of $9.5 million
in 1996. Interest and investment income totaled $4.2 million in 1997 and $3.9
million in 1996. Accounts receivable securitization fees totaled $3.8 million in
1997 compared to $4.9 million in 1996 due to lower activity during the Strike
period.
The tax benefits for 1997 and 1996 were $110.0 million and $7.5
million, respectively, before recording a tax benefit related to extraordinary
charges in 1997.
Income (loss) before extraordinary items in 1997 totaled $(204.5)
million, compared to $(5.3) million in 1996.
The 1997 extraordinary charge of $40.0 million ($26.0 million net of
tax) reflects the premium and interest of $37.4 million on the legal defeasance
of long term debt, and $2.6 million for coal miner retiree medical expense
attributable to the allocation of additional retirees to the Company by the
Social Security Administration (SSA).
Net loss totaled $230.5 million in 1997, compared to net loss of $5.3
million in 1996.
1996 Compared to 1995
Net sales for the year ended December 31, 1996 totaled $1,110.7 million
on shipments of 2.1 million tons of steel products. Net sales for the year ended
December 31, 1995 totaled $1,267.9 million on shipments of 2.4 million tons. The
decrease in sales and tons shipped is primarily attributable to the Strike at
eight plants located in Ohio, Pennsylvania and West Virginia. Production and
shipment of steel products at these plants ceased on October 1, 1996. Shipments
in the fourth quarter of 1996 decreased to 207,000 tons compared to 582,000 tons
shipped in the fourth quarter of 1995. Also, steel prices declined 3.8% in 1996
compared to the prior year, but were partially offset by a higher value-added
product mix. Average sale price per ton decreased to $528 per ton in the year
ended December 31, 1996 from $532 per ton in the year ended December 31, 1995.
Cost of products sold increased to $469 in the year ended December 31,
1996 from $444 per ton shipped in the year ended December 31, 1995. This
increase reflects the volume effect of lower production on fixed cost absorption
and higher levels of external steel purchases due to the Strike, higher costs
for coal, ore and natural gas and a higher value-added product mix. The
operating rate for the nine months prior to the Strike was 98.9%, but dropped to
74.0% for the full twelve months of 1996 compared to 91.6% in 1995. Raw steel
production is 100% continuous cast.
Depreciation expense increased to $66.1 million in the year ended
December 31, 1996 from $65.8 million in the year ended December 31, 1995.
Increased depreciation attributable to higher amounts of depreciable property
were partially offset by lower levels of raw steel production and its effect on
units of production depreciation method.
No profit sharing was earned in the year ended December 31, 1996 as a
result of the Strike and its impact on pre-tax income. Profit sharing totaled
$6.7 million in the year ended December 31, 1995.
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<PAGE>
Selling, administrative and general expense remained stable, decreasing
to $54.9 million in the year ended December 31, 1996 compared to $55.0 million
in the year ended December 31, 1995.
Interest expense increased to $23.8 million in the year ended December
31, 1996 from $22.4 million in the year ended December 31, 1995 due to a
reduction in capitalized interest from $6.4 million in the year ended December
31, 1995 to $2.5 million in the year ended December 31, 1996. The reduction in
capitalized interest reflects lower amounts of capital expenditures and shorter
construction periods in the year ended December 31, 1996.
Other income increased to $9.5 million in the year ended December 31,
1996 from $3.2 million in the year ended December 31, 1995. The increase is
principally due to a $4.6 million improvement in equity income from investments.
The tax provision for the year ended December 31, 1996 and the year
ended December 31, 1995 was a $7.5 million benefit and $3.0 million provision,
respectively, before recording a tax benefit related to extraordinary charges in
the year ended December 31, 1995. The tax provision (benefit) was calculated on
an alternative minimum tax basis. The 1995 provision includes the effect of
recognizing $58.0 million of deferred tax assets, but excludes the benefit of
applying $30.2 million of pre-reorganization tax benefits, which are direct
additions to paid-in-capital.
There were no pre-reorganization tax benefits applied in 1996.
Income before extraordinary charges in the year ended December 31, 1995
totaled $58.5 million. The 1995 extraordinary charge of $4.7 million ($3.0
million net of tax) reflects additional liability for coal miner retiree medical
expense attributable to the allocation of additional retirees to the Company by
the Social Security Administration.
Net loss in the year ended December 31, 1996 totaled $5.3 million. Net
income in the year ended December 31, 1995 totaled $55.5 million.
Liquidity and Capital Resources
The Company will require additional working capital to continue to fund
the re-start of its production facilities and its re-entry into the marketplace.
The Company expects that the sale during 1998 of the coke produced during the
Strike, the sale of receivables under the Receivables Facility and availability
under the Revolving Credit Facility will be adequate to fund such re-start. As
of December 31, 1997, the Company's liquidity from the above sources was in
excess of $120 million.
Net cash flow used in operating activities for 1997 totaled $175.5
million reflecting losses of $201.6 million before depreciation, taxes and a
special charge. Working capital accounts (excluding cash, short term borrowings
and current maturities of long-term debt) used $23.1 million of funds,
principally due to the prolonged Strike and related start-up cost resulting from
its labor settlement on August 12, 1997. Accounts receivable increased $19.8
million (excluding $24 million sale of trade receivables under the
securitization agreement) due to increased sales reflecting resolution of the
Strike. Inventories valued principally by the LIFO method for financial
reporting purposes, totaled $255.9 million at December 31, 1997, an increase of
$62.5 million from the prior year end. The increase in inventories is due to
increases in furnace coke (as a result of continuing coke production by salaried
workers during the Strike) and contractual commitments for iron ore pellets.
Trade payables and accruals increased $65.1 million due to higher operating
levels. Net cash flow used in investing activities for 1997 totaled $37.2
million including capital expenditures of $33.8 million. Net cash flow from
financing activities totaled $176.7 million including borrowings under the
Revolving Credit Facility of $89.8 million and net intercompany advances of
$30.6 million.
For the year ended December 31, 1997, the Company spent $33.8 million
(including capitalized interest) on capital improvements, including $12.4
million on environmental control projects. Capital expenditures were lower than
in recent years due to the Strike. Non-current accrued environmental liabilities
totaled $7.8 million at December 31, 1996 and $10.6 million at December 31,
1997. These liabilities were determined initially in January
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<PAGE>
1991, based on all available information, including information provided by
third parties, and existing laws and regulations then in effect, and are
reviewed and adjusted quarterly as new information becomes available. The
Company does not anticipate that assessment and remediation costs resulting from
the Company's status as a potentially responsible party will have a material
adverse effect on its financial condition or results of operations. However, as
further information comes into the Company's possession, it will continue to
reassess such evaluations. The Clean Air Act Amendment of 1990 is expected to
increase the Company's cost related to environmental compliance; however, such
an increase in cost is not reasonably estimable, but is not anticipated to have
a material adverse effect on the consolidated financial condition of the
Company.
Net cash flow from operating activities for 1996 totaled $92.3 million.
Working capital accounts (excluding cash, short term investments, short term
borrowings and current maturities of long-term debt) provided $42.6 million of
funds, principally due to the Strike at eight of the Company's facilities.
Accounts receivable decreased $50.1 million (excluding $22 million payment on
trade receivable securitization transactions) due to a lower level of sales
during the Strike. Inventories valued principally by the LIFO method for
financial reporting purposes, totaled $193.3 million at December 31, 1996, a
decrease of $73.2 million from the prior year end. Trade payables and accruals
decreased $64.5 million due to lower operating levels.
For the year ended December 31, 1996, the Company spent $31.2 million
(including capitalized interest) on capital improvements, including $6.8 million
on environmental control projects. Capital expenditures were lower than in prior
years due to the Strike. Non-current accrued environmental liabilities totaled
$7.3 million at December 31, 1995 and $7.8 million at December 31, 1996.
Continuous and substantial capital and maintenance expenditures will be
required to maintain and, where necessary, upgrade operating facilities to
remain competitive, and to comply with environmental control requirements. It is
anticipated that necessary capital expenditures, including required
environmental expenditures, in future years should approximate depreciation
expense and represent a material use of operating funds. The Company anticipates
funding its capital expenditures in 1998 from cash on hand, the sale of
receivables under the Receivables Facility, availability under the Revolving
Credit Facility, and funds generated from operations.
The Company has a commitment to fund the working capital requirements
of each of OCC and Wheeling-Nisshin in proportion to its ownership interest if
cash requirements of such joint ventures are in excess of internally-generated
and available borrowed funds. The Company anticipates that Wheeling-Nisshin will
not have such funding requirements for the foreseeable future. As of December
31, 1997, the Company's investment in OCC is $20.8 million, $7.2 million of
which was invested in 1997. The Company anticipates that through December 31,
1998 additional funding requirements from the Company will be between $5.0
million and $10.0 million. OCC may also require future working capital
contributions from its equity partners; however, the Company does not believe
that any such required funding will be material to the Company's liquidity.
In August 1994 the Company entered into the Receivables Facility,
whereby it agreed to sell up to $75 million on a revolving basis, an undivided
percentage ownership in a designated pool of accounts receivable generated by
WPSC and two of the Company's subsidiaries, Wheeling Construction Products, Inc.
("WCP") and Pittsburgh-Canfield Company ("PCC") (the "Receivables Facility").
The Receivables Facility expires in August 1999. In July 1995, WPSC amended such
agreement to sell an additional $20 million on similar terms and conditions. In
October 1995, WPSC entered into an agreement to include the receivables
generated by Unimast in the pool of accounts receivable sold. Accounts
receivable at December 31, 1997, exclude $69.0 million representing accounts
receivable sold with recourse limited to the extent of uncollectible balances.
Fees paid by WPSC under the Receivables Facility range from 5.76% to 8.50% of
the outstanding amount of receivables sold. Based on the Company's collection
history, the Company believes that credit risk associated with the above
arrangement is immaterial.
WPSC has a Revolving Credit Facility with Citibank, N.A. as agent. The
Revolving Credit Facility provides for borrowing for general corporate purposes
of up to $150 million, and with a $35 million sublimit for Letters of Credit.
Interest is calculated at a Citibank prime rate plus 1.0% and/or a Eurodollar
rate plus 2.25%. The Revolving Credit Facility expires May 3, 1999. Borrowings
under the Revolving Credit Facility are secured primarily by inventory of WPSC,
PCC and WCP, subsidiaries of the Company, and Unimast. The terms of the
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<PAGE>
Revolving Credit Facility contain various restrictive covenants, limiting among
other things, dividend payments or other distributions of assets, as defined in
the Revolving Credit Facility. Certain financial covenants associated with
leverage, net worth, capital spending, cash flow and interest coverage must also
be maintained. The Company, PCC, WCP and Unimast have each guaranteed all of the
obligations of WPSC under the Revolving Credit Facility. Borrowings outstanding
against the Revolving Credit Facility at December 31, 1997 totaled $89.8
million.
WPSC also has a separate facility with Citibank, N.A. for letters of
credit up to $50 million. At December 31, 1997 letters of credit totaling $9.3
million were outstanding under this facility. The letters of credit are
collateralized at 105% with U.S. Government securities owned by the Company, and
are subject to an administrative charge of .4% per annum on the amount of
outstanding letters of credit.
WPSC is the borrower under the Revolving Credit Facility, which is
guaranteed by WPC, two subsidiaries of the Company and Unimast, a wholly-owned
subsidiary of WHX. Unimast is also a participant in the Receivables Facility,
and its receivables are included in the pool of receivables sold. Unimast, WHX
and the Company entered into an intercreditor agreement upon the consummation of
the November Offering which provides, among other things, that Unimast and WHX
will be solely responsible for repayment of any of Unimast's borrowings under
the Revolving Credit Facility and have agreed to indemnify the Company if a
default occurs under the Revolving Credit Facility or if the Receivables
Facility is terminated as a result of a breach of either of such agreements by
Unimast. In addition, the Company is solely responsible for repayment of its
borrowings under the Revolving Credit Facility and has agreed to indemnify WHX
and Unimast if a default occurs under the Revolving Credit Facility or if the
Receivables Facility is terminated as a result of a breach of either of such
agreements by the Company. There can be no assurance, however, that in the event
of a default by Unimast or WHX, that either Unimast or WHX will be able to make
any payments to the Company required by such intercreditor agreement. In
addition, in the event Unimast causes a default under the Revolving Credit
Facility, the amounts due thereunder for all participants including the Company
could be accelerated (which could lead to an event of default under the Notes)
and the Company's ability to borrow additional funds under the Revolving Credit
Facility could be terminated. In the event such acceleration occurs, there can
be no assurance that the Company will be able to refinance such borrowings. A
failure by the Company to refinance such borrowings would have a material
adverse effect on the Company.
On November 20, 1997, the Company issued the Notes pursuant to the
November Offering. In addition, on November 20, 1997 the Company entered into
the Term Loan Agreement with DLJ Capital Funding Inc., as syndication agent,
pursuant to which the Company borrowed $75 million. Interest on the Term Loan
Agreement is payable on March 15, June 15, September 15 and December 15 as to
Base Rate Loans, and with respect to LIBOR loans on the last day of each
applicable interest period, and if such interest period shall exceed three
months, at intervals of three months after the first day of such interest
period. The Term Loan Agreement will mature on November 15, 2006. Amounts
outstanding under the Term Loan Agreement bear interest at the Base Rate (as
defined therein) plus 2.25% or the LIBOR Rate (as defined therein) plus 3.25%.
The Company's obligations under the Term Loan Agreement are guaranteed by its
operating subsidiaries. The Company may prepay the obligations under the Term
Loan Agreement beginning on November 15, 1998, subject to a premium of 2.0% of
the principal amount thereof. Such premium declines to 1.0% on November 15, 1999
with no premium on or after November 15, 2000.
The proceeds from the Notes and the Term Loan Agreement were used to
defease $266.2 million of 93/8% Notes and to pay down borrowings under the
Revolving Credit Facility.
The Company recorded an extraordinary charge of $40.0 million ($26.0
million net of tax) to cover the premium and interest of $37.4 million on the
legal defeasance of long term debt and $2.6 million for coal miner retiree
medical benefits.
Under the terms of the New Labor Agreement, the Company established a
DB Plan covering its hourly employees. In addition, the Company had recorded an
unfunded accumulated pension benefit obligation for the recently implemented DB
Plan of approximately $167.3 million, of which approximately 75% must be funded
over the next five years. In accordance with ERISA regulations, the Company does
not anticipate having to make significant contributions to fund the obligations
of the new plan in 1998, but will fund approximately $80 million
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<PAGE>
in 1999 ($40 million in the first quarter). As of December 31, 1997, the Company
had an unfunded accumulated postretirement benefit obligation for retiree health
care of approximately $301.0 million.
In 1997 the Company recorded a special charge of $92.7 million related
to the New Labor Agreement. The special charge included $66.7 million for
enhanced retirements, $15.5 million for signing and retention bonuses, $3.8
million for special assistance payments and other employee benefits and $6.7
million for a grant of one million stock options to WPN Corp. ("WPN") for its
performance in negotiating the new labor agreement.
The Company began a Year 2000 compliance project in July 1995. This
project encompasses business systems, mainframe processor systems, plant
operating systems, end-user computing systems, wide-area and voice networks, and
building and plant environmental systems. Included in the project plan is a
review of Year 2000 compliance assurance program with customers, suppliers, and
other constituents. System inventories for all affected systems are being
reviewed and work is in progress to ensure that such systems are Year 2000
compliant. Management believes, based on a current review and the ongoing
effort, that all relevant computer systems will be Year 2000 compliant by the
second quarter of 1999. Management believes that the cost of the Year 2000
project will not be material to the Company's financial position or results of
operations.
Short-term liquidity is dependent, in large part, on cash on hand,
investments, availability under the Revolving Credit Facility, sale of
receivables under the Receivables Facility, general economic conditions and
their effect on steel demand and prices. Long-term liquidity is dependent upon
the Company's ability to sustain profitable operations and control costs during
periods of low demand or pricing in order to sustain positive cash flow. The
Company believes that, based on current levels of operations and anticipated
improvements in operating results, cash flows from operations and borrowings
available under the Revolving Credit Facility will enable the Company to fund
its liquidity and capital expenditure requirements for the foreseeable future,
including scheduled payments of interest on the Notes and payments of interest
and principal on the Company's other indebtedness, including borrowings under
the Term Loan Agreement. However, external factors, such as worldwide steel
production and demand and currency exchange rates could materially affect the
Company's results of operations and financial condition. There can be no
assurance that the Company will be able to maintain its short-term and/or its
long-term liquidity. A failure by the Company to maintain its liquidity could
have a material adverse effect on the Company.
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<PAGE>
BUSINESS
General
The Company is a vertically integrated manufacturer of predominantly
value-added flat rolled steel products. The Company sells a broad array of
value-added products, including cold rolled steel, tin- and zinc-coated steels
and fabricated steel products. The Company's products are sold to steel service
centers, converters, processors, the construction industry, and the container,
automotive and appliance industries. During 1997 the Company had revenues of
approximately $489.7 million on shipments of 850.5 thousand tons of steel and an
operating loss of $287.1 million. These results reflect the effects of the
Strike.
The Company believes that it is one of the low cost domestic flat
rolled steel producers. The Company's low cost structure is the result of: (i)
the restructuring of its work rules and manning requirements under its five-year
New Labor Agreement with the USWA, which settled the Company's ten-month Strike
in August 1997; (ii) the strategic balance between its basic steel operations
and its finishing and fabricating facilities; and (iii) its efficient production
of low cost, high quality metallurgical coke.
The new work rule package affords the Company substantially greater
flexibility in down-sizing its overall workforce, and assigning and scheduling
work, thereby reducing costs and increasing efficiency. Furthermore, the Company
expects to maintain pre-Strike steel production levels with 850 fewer employees
(a reduction of approximately 20% in its hourly workforce). Finally, the Company
believes the five year term provides the Company with a significant advantage
since a majority of the Company's integrated steel competitors have labor
contracts that will expire in 1999.
The Company has structured its operations so that its hot strip mill
and downstream operations have greater capacity than do its raw steel making
operations. The Company therefore can purchase slabs and ship at greater than
100% of its internal production capacity in periods of high demand, while
maintaining the ability to curtail such purchases and still operate its basic
steel facilities at or near capacity during periods of lower demand. The Company
believes this flexibility results in enhanced profitability throughout an
economic cycle. The Company also believes that it produces metallurgical coke at
a substantially lower cost than do other coke manufacturers because of its
proximity to high quality coal reserves and its efficient coke producing plant.
This reduces the Company's costs and, if coke demand remains high, allows the
Company to sell coke profitably in the spot and contract markets.
The Company conducts its operations primarily through two business
units, the Steel Division and Wheeling Corrugating. The Steel Division sells
flat rolled steel products such as hot rolled, cold rolled, coated and tin mill
steel to third parties, representing 77.8% and 73.3% of the Company's net sales
in 1995 and 1996, respectively. The Steel Division sells cold rolled and coated
steel substrate to Wheeling Corrugating for further processing. Wheeling
Corrugating, the Company's primary downstream operation, is a fabricator of
roll-formed products primarily for the construction and agricultural industries.
As part of the Company's strategy to expand its downstream operations, the
Company has acquired several fabricating facilities to enhance profit margins
and reduce exposure to downturns in steel demand. Other important examples of
the Company's downstream operations are its joint venture interests in
Wheeling-Nisshin and OCC. Wheeling-Nisshin, in which the Company owns a 35.7%
interest, produces and ships from its state-of-the-art production facility a
diverse line of galvanized, galvannealed, galvalume and aluminized products,
principally to steel service centers and the construction and automotive
industries. OCC, in which the Company owns a 50% interest, operates a new tin
coating facility that commenced commercial production in January 1997. The
Company has long-term contracts to supply up to 75% of Wheeling-Nisshin's steel
requirements and almost 100% of OCC's. These downstream operations and joint
ventures are integral to the Company's strategy of increasing shipments of
higher value-added steel products while decreasing dependence on hot rolled
coils, a lower-margin commodity steel product.
All of the Company's raw steel producing facilities have been restarted
as of September 30, 1997, and the Company expects to be at pre-Strike production
and shipment levels during the first half of 1998 although the Company does not
anticipate the purchase and processing of steel slabs in 1998.
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<PAGE>
Business Strategy
The Company's business strategy includes the following initiatives:
Improve Cost Structure. The New Labor Agreement has allowed the Company
to eliminate 850 hourly positions (approximately 20% of its pre-Strike hourly
workforce). The Company believes that these reductions, combined with the
significantly more flexible work rules under the New Labor Agreement, will allow
it to operate at pre-Strike levels with 850 fewer employees. As a result, the
Company anticipates substantial cost savings and productivity improvements once
pre-Strike production levels are reached. In addition, the Company has directed
its capital expenditures towards upgrading and modernizing its steelmaking
facilities, with a goal toward increasing productivity. These expenditures
include modernization of its hot and cold rolling facilities and a major reline
in 1995 of its No. 5 blast furnace located in Steubenville, Ohio. This reline
increased productivity and provided the Company with the ability to produce 100%
of the hot metal necessary to satisfy caster production requirements from two
rather than three blast furnaces. The Company's ability to produce low cost,
high quality metallurgical coke, helps the Company maintain lower costs than
those of many of its competitors. In addition, during periods of high demand the
Company is able to profitably sell coke produced in excess of its internal
needs.
Expand Production of Value-Added Products. The Company intends to
continue to expand its sale of value-added products such as coated and
fabricated steels in order to improve profit margins and reduce its exposure to
commodity steel market volatility. This strategy is evidenced by the Company's
expansion of Wheeling Corrugating and its emphasis on joint ventures, such as
Wheeling-Nisshin and OCC, which give the Company access to downstream markets
through long-term supply contracts. The Company will continue to target
strategic acquisitions and joint ventures that support the Company's sales of
value-added products.
Product Mix
The tables below reflect the historical product mix of the Company's
shipments, expressed in tons. The Company has realized increases in the
percentage of higher value products during the 1990's as (i) the operations of
Wheeling Corrugating were expanded and (ii) Wheeling-Nisshin's second coating
line increased its requirements for cold rolled coils from WPSC. Additionally,
the OCC joint venture should enable the Company to increase tin mill product
shipments up to an additional 91,000 tons compared to 1996 levels.
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<PAGE>
Historical Product Mix
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1993 1994 1995 1996(1) 1997(1)
------ ------ --------- -------- ---------
Product Category:
Higher Value-Added Products:
<S> <C> <C> <C> <C> <C>
Cold Rolled Products--Trade .............. 11.1% 10.5% 7.9% 8.4% 5.6%
Cold Rolled Products--Wheeling-Nisshin ... 15.6 17.3 18.9 16.6 7.7
Coated Products .......................... 20.4 21.7 21.3 21.5 12.3
Tin Mill Products ........................ 8.8 7.2 7.1 7.5 3.3
Fabricated Products (Wheeling Corrugating) 12.0 11.9 14.9 17.9 39.0
------ ------ ------ ------ ------
Higher Value-Added Products as a Percentage
of Total Shipments 67.9 68.6 70.1 71.9 67.9
Hot Rolled Products 31.2 31.4 29.9 28.1 20.0
0.9 -- -- -- 12.1
Semi-Finished ------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
Average Net Sales per Ton $ 465 $ 498 $ 532 $ 528 $ 576
</TABLE>
- ------------------
(1) The allocation among product categories was affected by the Strike at
eight of the Company's facilities.
Steel Division
The Steel Division is the Company's primary steelmaking operation.
Products produced by the Steel Division are described below. These products are
transferred to Wheeling Corrugating for further processing and are sold directly
to third party customers, and to Wheeling-Nisshin and OCC pursuant to long-term
supply agreements between the Company and such entities.
Cold Rolled Products. Cold rolled coils are manufactured from hot
rolled coils by employing a variety of processing techniques, including
pickling, cold reduction, annealing and temper rolling. Cold rolled processing
is designed to reduce the thickness and improve the shape, surface
characteristics and formability of the product. In its finished form, the
product may be sold to service centers and to a variety of end users such as
appliance or automotive manufacturers or further processed internally into
corrosion-resistant coated products including hot dipped galvanized,
electrogalvanized, or tin mill products. In recent years, the Company has
increased its cold rolled production to support increased sales to
Wheeling-Nisshin and the expansion of Wheeling Corrugating, which are labeled as
separate product categories above.
Coated Products. The Company manufactures a number of
corrosion-resistant, zinc-coated products including hot dipped galvanized and
electrogalvanized sheets for resale to trade accounts and to support the
fabricating operations of Wheeling Corrugating. The coated products are
manufactured from a steel substrate of cold rolled or hot rolled pickled coils
by applying zinc to the surface of the material to enhance its corrosion
protection. The Company's trade sales of galvanized products are heavily
oriented to unexposed applications, principally in the appliance, construction,
service center and automotive markets. Typical industry applications include
auto underbody parts, culvert pipe, refrigerator backs and heating/air
conditioning ducts. Over 30% of hot dipped galvanized production tonnage is
transferred to Wheeling Corrugating for further processing and reported under
the fabricated products category. The Company sells electrogalvanized products
for application in the appliance and construction markets.
Tin Mill Products. Tin mill products consist of blackplate and
tinplate. Blackplate is a cold rolled substrate (uncoated), the thickness of
which is less than .0142 inches, and is utilized in the manufacture of pails,
shelving and sold to OCC for the manufacture of tinplate products. Tinplate is
produced by the electro-deposition of tin to a blackplate substrate and is
utilized principally in the manufacture of food, beverage, general line and
aerosol containers. While the majority of the Company's sales of these products
is concentrated in a variety of container markets, the Company also markets
products for automotive applications, such as oil filters and gaskets. The
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<PAGE>
Company has phased out its existing tin mill facilities and will produce all of
its tin coated products through OCC. The Company expects that its participation
in OCC will enable it to expand the Company's presence in the tin plate market.
OCC's $69 million tin coating mill, which commenced commercial operations in
January 1997, will have a nominal annual capacity of 250,000 net tons. The
Company will supply up to 230,000 tons of the substrate requirements of the
joint venture subject to quality requirements and competitive pricing. The
Company and Nittetsu Shoji America, a major Japanese trading company's U.S.
based operation, will act as the distributors of the joint venture's product,
with the Company selling between 81% and 85% of production based on volume.
Hot Rolled Products. Hot rolled coils represent the least processed of
the Company's finished goods. Approximately 68% of the Company's 1997 production
of hot rolled coils was further processed internally into value-added finished
products. The balance of the tonnage is sold as hot rolled black or pickled
(acid cleaned) coils to a variety of consumers such as converters/processors,
steel service centers and the automotive and appliance industries. The
converters/processors transform the hot rolled coil into a finished product such
as pipe and tubing, while the service centers typically slit or cut the material
to size for resale to the end user.
Fabricated Products
(Wheeling Corrugating)
Fabricated products represented 55.1% or $269.7 million of the
Company's net sales in 1997 and 26.7% or $296.7 million of the Company's net
sales in 1996. Fabricated products consist of cold rolled or coated products
further processed mainly via roll forming. The Company intends to increase sales
of fabricated products through expansion, selective acquisitions of fabricating
facilities and new product development. Wheeling Corrugating markets exclusively
value-added products.
Wheeling Corrugating is a fabricator of roll-formed products for the
construction, highway, and agricultural products industries. In conjunction with
the Company's business strategy of expanding its sales of higher value-added
products, Wheeling Corrugating has increased its shipments of fabricated
products by approximately 23% since 1993. Following the establishment of its
Lenexa, Kansas and Minneapolis, Minnesota locations, Wheeling Corrugating
expanded its regional operations, through acquisitions, in Wilmington, North
Carolina (1993), Gary, Indiana, Warren, Ohio (1994) and Brooks, Medford and
Klamath Falls, Oregon (1996). The regional presence of certain of these
facilities has enabled Wheeling Corrugating to take advantage of low-cost barge
freight from the Company's Ohio Valley plants and to provide customers in the
outlying areas with competitive services through "just-in-time delivery." In
some of its product lines, Wheeling Corrugating has substantial market share and
therefore has increased opportunity to pursue higher profit margins. The Company
believes that it would be difficult for a competitor to replicate Wheeling
Corrugating's geographical breadth.
The following table sets forth certain shipment information relating to
Wheeling Corrugating's product categories:
Net Tons Shipped by Wheeling Corrugating
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
(tons in thousands)
<S> <C> <C> <C> <C> <C>
Construction Products 146.2 151.7 205.6 213.5 198.1
Agricultural Products 100.7 113.6 125.7 142.8 122.4
Highway Products 19.5 16.4 20.0 16.8 11.4
Other 4.0 4.0 3.9 3.6 --
---------- ---------- ---------- ---------- ----------
Total Net Tons Shipped 270.4 285.7 355.2 376.7 331.9
========== ========== ========== ========== ==========
</TABLE>
Construction Products. Construction products consist of roll-formed
sheets, which are utilized in sectors of the non-residential building market
such as commercial, institutional and manufacturing. They are classified into
three basic categories: roof deck; form deck; and composite floor deck. Roof
deck is a formed steel sheet, painted
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<PAGE>
or galvanized, which provides structural support in non-residential roofing
systems. Form deck is a formed steel sheet, painted, galvanized or uncoated,
that provides structural form support for structural or insulating concrete
slabs in non-residential floor or roofing systems. Composite floor deck is a
formed steel sheet, painted, galvanized or uncoated, that provides structural
form support and positive reinforcement for structural concrete slabs in
non-residential floor systems.
Agricultural Products. Agricultural products consist of roll-formed,
corrugated sheets which are used as roofing and siding in the construction of
barns, farm machinery enclosures and light commercial buildings and certain
residential roofing applications. These products can be manufactured from hot
dipped or painted hot dipped galvanized coils. Historically, these products have
been sold primarily in rural areas. In recent years, however, such products have
found increasing acceptance in light commercial buildings.
Highway Products. Highway products consist of bridge form, which is
roll-formed corrugated sheets that are swedged on both ends and are utilized as
concrete support forms in the construction of highway bridges.
Wheeling-Nisshin
The Company has a 35.7% equity interest in Wheeling-Nisshin, which is a
joint venture between the Company and Nisshin Holding, Incorporated, a
wholly-owned subsidiary of Nisshin Steel Co., Ltd. Wheeling-Nisshin is a
state-of-the-art processing facility located in Follansbee, West Virginia which
produces among the lightest gauge galvanized steel products available in the
United States. Shipments by Wheeling-Nisshin of hot dipped galvanized,
galvanneal, galvalume and aluminized products, principally to the construction
industry, have increased from 158,600 tons in 1988 to 686,100 tons in 1997.
Wheeling-Nisshin products are marketed through trading companies, and its
shipments are not consolidated into the Company's shipments.
Wheeling-Nisshin began commercial operations in 1988 with an initial
capacity of 360,000 tons. In March 1993, Wheeling-Nisshin added a second hot
dipped galvanizing line, which increased its capacity by approximately 80%, to
over 660,000 annual tons and allows Wheeling-Nisshin to offer the lightest-gauge
galvanized sheet products manufactured in the United States for construction,
heating, ventilation and air-conditioning and after-market automotive
applications. Wheeling-Nisshin has been profitable every year since inception.
Wheeling-Nisshin's results of operations for the years ended December 31, 1996
and 1997 were negatively impacted by the Strike, principally due to the
Company's inability to supply cold rolled coils to Wheeling-Nisshin during the
period of the Strike, which caused Wheeling-Nisshin to purchase cold rolled
coils in the spot market at higher prices.
The Company's amended and restated supply agreement with
Wheeling-Nisshin expires in 2013. Pursuant to the amended supply agreement, the
Company will provide not less than 75% of Wheeling-Nisshin's steel substrate
requirements, up to an aggregate maximum of 9,000 tons per week subject to
product quality requirements. Pricing under the supply agreement is negotiated
quarterly based on a formula which gives effect to competitive market prices.
Shipments of cold rolled steel in 1997 by the Company to Wheeling-Nisshin were
approximately 64,500 tons, or 7.8% of the Company's total tons shipped and
approximately 351,900 tons, or 16.8%, in 1996. This decrease reflects the effect
of the Strike on the Company's shipping level.
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<PAGE>
The following chart provides certain financial and operating data for
Wheeling-Nisshin:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
(TONS IN THOUSANDS, DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Tons sold 467.2 628.8 651.2 665.8 686.1
Revenues $264.2 $374.6 $389.7 $375.7 $396.3
Cash flow provided (used) from
Operations 19.0 41.7 25.2 42.5 26.7
Investing (15.3) (.8) (1.0) (21.1) (9.6)
Financing 7.4 (34.0) (39.1) (18.4) (13.8)
EBITDA(1) 27.6 35.6 47.8 47.0 37.8
Net income 7.1 10.4 18.0 21.6 16.1
The Company's pro rata share:
Cash dividends received -- 2.5 2.5 2.5 2.5
Equity income 1.8 3.7 6.4 7.7 5.7
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Total assets $253.2 $241.4 $205.5 $219.4 $212.8
Total debt 95.7 68.7 36.7 25.3 18.5
Stockholders' equity 106.1 109.5 120.6 135.2 144.2
</TABLE>
(1) EBITDA is operating income plus depreciation and amortization. The
Company has included EBITDA because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance, leverage and liquidity and to determine a
company's ability to service debt. EBITDA does not represent cash flows
as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all of the
Company's cash needs. EBITDA should not be considered in isolation or
as a substitute for net income (loss), cash flows from operating
activities or other measures of liquidity determined in accordance with
generally accepted accounting principles. EBITDA measures presented may
not be comparable to other similarly titled measures of other
companies.
Ohio Coatings Company
The Company has a 50% equity interest in OCC, which is a joint venture
between the Company and Dong Yang, a leading South Korea-based tin plate
producer. Nittetsu Shoji America ("Nittetsu"), a U.S. based tin plate importer,
holds non-voting preferred stock in OCC and will act, together with the Company,
as a distributor of OCC's products. OCC completed construction of a $69 million
state-of-the-art tin coating mill in 1996 and commenced commercial operations in
January 1997. The OCC tin-coating facility is the only domestic electro-tin
plating facility constructed in the last 30 years. The OCC tin coating line is
anticipated to have a nominal annual capacity of 250,000 net tons, and shipped
approximately 71,000 tons in 1997. The Company has phased out its existing tin
coating facilities and will produce all of its tin coated products through OCC.
The Company's participation in OCC will enable it to expand the Company's
presence in the tin plate market and convert more hot rolled sheet into tin mill
products. As part of the joint venture agreement, the Company has the right to
supply up to 230,000 tons of the substrate requirements of OCC, subject to
quality requirements and competitive pricing. The Company will market between
81% and 85% of OCC's products. In 1997, OCC had operating losses of $14.3
million, which were negatively impacted by the Strike.
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<PAGE>
Other Steel Related Operations of the Company
The Company owns an electrogalvanizing facility which had revenues of
$34.8 million in 1997 and $47.1 million in 1996, while providing an outlet for
approximately 60,000 tons of steel in a normal year and a facility that produces
oxygen and other gases used in the Company's steel-making operations. The
Company is also a 12 1/2% equity partner in an iron ore mining partnership.
Customers
The Company markets an extensive mix of products to a wide range of
manufacturers, converters and processors. The Company's 10 largest customers
(including Wheeling-Nisshin) accounted for approximately 35.4% of its net sales
in 1995, 34.9% in 1996, and 30.2% in 1997. Wheeling-Nisshin was the only
customer to account for more than 10% of net sales. Wheeling-Nisshin accounted
for 15.2% and 12.7% of net sales in 1995, and 1996, respectively.
Geographically, the majority of the Company's customers are located within a
350-mile radius of the Ohio Valley. However, the Company has taken advantage of
its river-oriented production facilities to market via barge into more distant
locations such as the Houston, Texas and St. Louis, Missouri areas. As discussed
above, Wheeling Corrugating has acquired regional facilities to service an even
broader geographical area.
The Company's shipments historically have been concentrated within
seven major market segments: construction industry, steel service centers,
converters/processors, agriculture, container, auto, and appliances. The
Company's overall participation in the construction and the
converters/processors markets substantially exceeds the industry average and its
reliance on automotive shipments as a percentage of total shipments is
substantially less than the industry average.
Percent of Total Net Tons Shipped
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
Major Customer Category: 1993 1994 1995 1996 (1) 1997(1)
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Steel Service Centers 33% 32% 29% 26% 32%
Converters/Processors(2) 26 28 28 25 16
Construction 18 18 18 22 31
Agriculture 5 5 6 7 14
Containers(2) 7 6 6 7 2
Automotive 6 6 5 5 2
Appliances 3 3 4 4 2
Exports -- -- 1 1 --
Other 2 2 3 3 1
----------- ----------- ----------- ------------- -------------
Total 100% 100% 100% 100% 100%
=========== =========== =========== ============= =============
</TABLE>
(1) The allocation among customer categories was affected by the Strike at
eight of the Company's facilities.
(2) Products shipped to Wheeling-Nisshin and OCC are included primarily in
the Converters/Processors and Containers markets, respectively.
Set forth below is a description of the Company's major customer
categories:
Steel Service Centers. The Company's shipments to steel service centers
are heavily concentrated in the areas of hot rolled and hot dipped galvanized
coils. Due to increased in-house costs to steel companies during the 1980's for
processing services such as slitting, shearing and blanking, steel service
centers have become a major factor in the distribution of hot rolled products to
ultimate end users. In addition, steel service centers have become a significant
factor in the sale of hot dipped galvanized products to a variety of small
consumers such as mechanical contractors, who desire not to be burdened with
large steel inventories.
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<PAGE>
Converters/Processors. The growth of the Company's shipments to the
converters/processors market is principally attributable to the increase in
shipments of cold rolled products to Wheeling-Nisshin, which uses cold rolled
coils as a substrate to manufacture a variety of coated products, including hot
dipped galvanized and aluminized coils for the automotive, appliance and
construction markets. As a result of the second line expansion, the Company's
shipments to Wheeling-Nisshin increased significantly beginning in 1993. The
converters/processors industry also represents a major outlet for the Company's
hot rolled products, which are converted into finished commodities such as pipe,
tubing and cold rolled strip.
Construction. The Company's shipments to the construction industry are
heavily influenced by the sales of Wheeling Corrugating. Wheeling Corrugating
services the non-residential and agricultural building and highway industries,
principally through shipments of hot dipped galvanized and painted cold rolled
products. With its acquisitions during the 1980's and early 1990's of regional
facilities, Wheeling Corrugating has doubled its shipments and has been able to
market its products into broad geographical areas. The Company expects these
acquisitions will mitigate the effects of regional economic downturns in the
construction business. In December 1996 the Company, through Wheeling
Corrugating, acquired the assets of Champion Metal Co., a rollformer, which has
three locations in Oregon.
Agriculture. The Company's shipments to the agricultural market are
principally sales of Wheeling Corrugating roll-formed, corrugated sheets which
are used as roofing and siding in the construction of barns, farm machinery
enclosures and light commercial buildings.
Containers. The vast majority of the Company's shipments to the
container market are concentrated in tin mill products, which are utilized
extensively in the manufacture of food, aerosol, beverage and general line cans.
The container industry has represented a stable market. The balance of the
Company's shipments to this market consists of cold rolled products for pails
and drums. As a result of the OCC joint venture, the Company phased out its
existing tin mill production facilities in 1996, and has begun to distribute
products produced by OCC. The Company has the right to supply up to 230,000 tons
of the substrate requirements of OCC until January 1, 2012.
Automotive. Unlike the majority of its competitors, the Company is not
heavily dependent on shipments to the automotive industry. However, the Company
has established a variety of higher value-added niches in this market,
particularly in the area of hot dipped galvanized products for deep drawn
automotive underbody parts. In addition, the Company has been a supplier of tin
mill products for automotive applications, such as oil filters and gaskets. A
third niche has been the Company's participation in painted electrogalvanized
products for auto draft stripping applications. As a result of the Strike, the
Company was unable to secure automotive contracts for 1998. The Company
anticipates it will be in a favorable position to compete for automotive
contracts in future periods.
Appliance. The Company's shipments to the appliance market are
concentrated in hot dipped galvanized, electrogalvanized and hot rolled coils.
These products are furnished directly to appliance manufacturers as well as to
blanking, drawing and stamping companies. Additional shipments are furnished to
service centers and converters/processors for ultimate appliance applications.
The Company has concentrated on niche product applications primarily used in
washer/dryer, refrigerator/freezer and range appliances. The Company anticipates
that it will retain a portion of its appliance contracts for 1998. However, due
to the Strike, the Company will not be able to secure a full level of shipments
comparable to those achieved in 1996. The Company expects to be in a favorable
position to compete for contracts to supply appliance manufacturers in 1999.
Manufacturing Process
In the Company's primary steelmaking process, iron ore pellets, coke,
limestone, sinter and other raw materials are consumed in the blast furnace to
produce hot metal. Hot metal is further converted into liquid steel through its
basic oxygen furnace ("BOF") process where impurities are removed, recycled
scrap is added and metallurgical properties for end use are determined on a
batch-by-batch (heat) basis. The Company's BOF has two vessels, each with a
steelmaking capacity of 285 tons per heat. From the BOF, the heats of steel are
sent to the ladle metallurgy facility ("LMF"), where the temperature and
chemistry of the steel are adjusted to precise tolerances. Liquid steel from the
LMF then is formed into slabs through the process of continuous casting. After
continuous casting, slabs are reheated, reduced and finished by extensive
rolling, shaping, tempering and, in certain cases, by
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<PAGE>
the application of coatings at the Company's downstream operations. Finished
products are normally shipped to customers in the form of coils or fabricated
products. The Company has linked its steelmaking and rolling equipment with a
computer based integrated manufacturing control system to coordinate production
tracking and sales activities.
Raw Materials
The Company has a 12.5% ownership interest in Empire Iron Mining
Partnership ("Empire") which operates a mine located in Palmer, Michigan. The
Company is obligated to purchase approximately 12.5% or 1.0 million gross tons
per year (at current production levels) of the mine's annual ore output.
Interest in related ore reserves as of December 31, 1997, is estimated to be
21.1 million gross tons. The Company generally consumes approximately 2.4
million gross tons of iron ore pellets in its blast furnaces. The Company's pro
rata cash operating cost of Empire currently approximates the market price of
ore. The Company obtains approximately half of its iron ore from spot and
medium-term purchase agreements at prevailing world market prices. It has
commitments for the majority of its blast furnace iron ore pellet needs through
1999 from suppliers in North America.
In November 1993, the Company sold the operating assets of its coal
company to an unrelated third party. The Company also entered into a long-term
supply agreement with such third party to provide the Company with a substantial
portion of the Company's coal requirements at competitive prices. The Company's
operations require a substantial amount of coking coal.
The Company currently produces all of its coke requirements and
typically consumes generally all of the resultant by-product coke oven gas. In
1997, approximately .9 million tons of coking coal were consumed in the
production of blast furnace coke by the Company. The Company may continue to
sell its excess coke and coke oven by-products to third-party trade customers.
During the Strike, the Company continued to produce coke at its Follansbee
facility. The Company has entered into a contract with a major domestic
integrated steel producer for the sale of coke produced by the Company during
the Strike.
The Company's operations require material amounts of other raw
materials, including limestone, oxygen, natural gas and electricity. These raw
materials are readily available and are purchased on the open market. The
Company is presently dependent on external steel scrap for approximately 8% of
its steel melt. The cost of these materials has been susceptible in the past to
price fluctuations, but worldwide competition in the steel industry has
frequently limited the ability of steel producers to raise finished product
prices to recover higher material costs. Certain of the Company's raw material
supply contracts provide for price adjustments in the event of increased
commodity or energy prices.
Backlog
Order backlog was 368,025 net tons at December 31, 1997, compared to
158,751 net tons at December 31, 1996 and 400,624 tons at December 31, 1995. The
Company believes that the December 31, 1997 order backlog will be shipped by the
end of the 1998 first half. The Company is vigorously pursuing customers lost to
competitors during the Strike and anticipates rebuilding its order backlog to
historic levels.
Capital Investments
The Company believes that it must continuously strive to improve
productivity, product quality and control manufacturing costs in order to remain
competitive. Accordingly, the Company is committed to continuing to make
necessary capital investments with the objective of reducing manufacturing costs
per ton, improving the quality of steel produced and broadening the array of
products offered to the Company's served markets. The Company's capital
expenditures (including capitalized interest) for 1997 were approximately $33.8
million, including $12.4 million on environmental projects. Capital expenditures
in 1996 and 1997 were lower than in recent years due to the Strike. From 1993 to
1997, such expenditures aggregated approximately $289.3 million. This level of
capital expenditures was needed to maintain productive capacity, improve
productivity and upgrade selected facilities to meet competitive requirements
and maintain compliance with environmental laws and regulations. The capital
expenditure program has included improvements to the Company's infrastructure,
blast furnaces, steel-making facilities, 80-inch hot strip mill and finishing
operations, and has resulted in improved shape, gauge, surface and
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<PAGE>
physical characteristics for its products. In particular, the quality
improvements completed at the Allenport cold rolling facility in 1992 and the
installation of automatic gauge controls at the Yorkville tandem mill in 1993
have enhanced productivity and improved the quality of substrate provided to
Wheeling-Nisshin and other customers. Continuous and substantial capital and
maintenance expenditures will be required to maintain operating facilities,
modernize finishing facilities to remain competitive and to comply with
environmental control requirements. The Company anticipates funding its capital
expenditures in 1998 from cash on hand and funds generated by operations, sale
of receivables under the Receivables Facility and funds available under the
Revolving Credit Facility. During the Strike, the Company had delayed
substantially all capital expenditures at the Strike-affected plants. The
Company anticipates that capital expenditures will approximate depreciation on
average, over the next few years.
Energy Requirements
During 1997 coal constituted approximately 76% of the Company's total
energy consumption, natural gas 20% and electricity 4%. Many of the Company's
major facilities that use natural gas have been equipped to use alternative
fuels. The Company continually monitors its operations regarding potential
equipment conversion and fuel substitution to reduce energy costs.
Employment
Total active employment of the Company at December 31, 1997 totaled
4,011 employees, of which 2,928 were represented by the USWA, and 114 by other
unions. The remainder consisted of 874 salaried employees and 95 non-union
operating employees.
On August 12, 1997, the Company and the USWA entered into the New Labor
Agreement. Set forth below is a summary of terms of the New Labor Agreement.
Term
The contract has a five year term with no mid-term renegotiation
provisions ("reopeners").
Work Force Reduction
The Company has implemented its immediate and unilateral right to
reduce its hourly work force by 850 employees (from its pre-Strike level of
approximately 4,090). The Company has no obligation to replace workers upon
retirement. The average all-in cost per job eliminated is $55,000 per year in
wages and benefits. Based on actual wage and certain direct employee benefit
costs during the first nine months of 1996 for employees represented by the
USWA, the elimination of 850 USWA-represented employees working a standard
number of hours per year would have resulted in estimated annual labor cost
savings of approximately $45 million.
Work Rule Modernization
The above mentioned job reductions are made possible by a dramatic
restructuring of the Company's work rules, including, among other things,
provisions for: (i) mandatory multi-crafting which requires participation of all
hourly craftsmen under the age of 55 and is expected to result in a more highly
skilled and flexible work force; (ii) a new "equipment tender" position, which
allows for craftsmen to operate, maintain and repair their own equipment and is
expected to reduce the need for dedicated maintenance crews; and (iii) enhanced
maintenance flexibility, which allows for greater freedom in assignment of
non-craft jobs and permits craftsmen to assist each other in performing
maintenance functions.
Wage and Bonus
The Company paid a bonus of $2,000 per hourly employee upon
ratification of the New Labor Agreement. In addition, the Company agreed to
increase hourly wage rates (currently averaging $17.00/hour) as follows: (i)
25(cent) per hour on June 1, of each of 1998, 1999 and 2000; and (ii) 37.5(cent)
per hour on each of June 1, 2001 and March 1, 2002.
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<PAGE>
Trust for Retiree Medical Obligations
The New Labor Agreement gives the Company the right to pay up to $11
million of retiree medical expenses using previous contributions to a trust
established for the benefit of future retirees. Such payments would otherwise be
funded out of the Company's operating cash flows. Furthermore, the Company is
relieved of its obligation to make certain future annual contributions
(aggregating $16 million) to the trust. The Company will make one payment
(estimated to be $4 million) to the trust in July 2002. Finally, the Company's
obligation to pay retiree medical costs beyond the term of its pension agreement
is limited on a per capita basis.
Pension Plan (summary of terms)
The Company agreed to provide a DB Plan for its hourly employees. The
DB Plan has an eight year term, without reopeners, and provides for monthly cash
benefits as follows: (i) for employees who retire prior to May 31, 2003, $40
times years of service; or (ii) for those who retire on or after May 31, 2003,
$44 times years of service.
The DB Plan has certain early retirement provisions which are either
similar to or less costly than those of the typical USWA-bargained plans. In
addition, the DB Plan provides for certain incentives to accelerate the rate of
retirement of hourly employees. The Company has offered to pay either a $25,000
lump sum, or $400 per month until age 62, to the first 818 eligible employees
who opt to retire.
The Company is no longer obliged to make contributions (which averaged
$9.2 million per year for the period from 1985 to 1996) to its Defined
Contribution Plan ("DC Plan") for USWA-represented employees. The approximately
$121.3 million in assets in the DC Plan (as of December 31, 1997) are available
to fund individuals' retirement benefits under the new DB Plan. The actuarially
determined unfunded accumulated benefit obligation for all benefits under the DB
Plan totals $167.3 million as of December 31, 1997. Under ERISA, the Company is
subject to annual minimum cash funding requirements to satisfy its obligations
under the DB Plan.
Other Provisions
The requirement to have a USWA representative on the WHX board of
directors was eliminated and the number of representatives on the WPSC board of
directors was reduced from two to one. Certain aspects of the Company's Medical
Benefit Plans were amended with the effect of encouraging employees to elect the
Company's managed care medical plan option. A new gain sharing arrangement was
implemented which supplants profit sharing under certain circumstances.
Competition
The steel industry is cyclical in nature and has been marked
historically by overcapacity, resulting in intense competition among domestic
integrated steel producers, minimills and processors. The market for flat rolled
steel in the United States is supplied principally by domestic integrated steel
producers, domestic steel minimills and processors and foreign steel producers.
Integrated producers produce steel from a combination of iron ore, coke and
steel scrap using blast furnaces and basic oxygen furnaces.
The Company faces increasing competitive pressures from other domestic
integrated producers, minimills and processors. Processors compete with the
Company in the areas of slitting, cold rolling and coating. Minimills are
generally smaller volume steel producers that use ferrous scrap metals as their
basic raw material. Compared to integrated producers, minimills, which rely on
less capital intensive hot metal sources, have certain advantages. Since
minimills typically are not unionized, they have more flexible work rules that
have resulted in lower employment costs per net ton shipped. Since 1989,
significant flat rolled minimill capacity has been constructed and these
minimills now compete with integrated producers in product areas that
traditionally have not faced significant competition from minimills. In
addition, there is significant additional flat rolled minimill capacity under
construction or announced with various planned commissioning dates in 1997
through 1999. Near term, these minimills are expected to compete with the
Company primarily in the commodity flat rolled steel market and processors are
expected to compete with the Company in the flat rolled and cold rolled steel
market. In the long-term, such minimills may also compete with the Company in
producing value-added products. In addition, the
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<PAGE>
increased competition in commodity product markets influence certain integrated
producers to increase product offerings to compete with the Company's custom
products.
As the single largest steel consuming country in the western world, the
United States has long been a favorite market of steel producers in Europe and
Japan. Steel producers from emerging economic powers such as Korea, Taiwan, and
Brazil, and non-market economies such as Russia and China, have also recognized
the United States as a target market.
Total annual steel consumption in the United States has fluctuated
between 88 million and slightly over 117 million tons since 1991. A number of
steel substitutes, including plastics, aluminum, composites and glass, have
reduced the growth of domestic steel consumption.
Steel imports of flat rolled products as a percentage of domestic
apparent consumption, excluding semi-finished steel, have been approximately 18%
in 1995, 19% in 1996, and 20.4% in 1997. World steel demand, world export
prices, U.S. dollar exchange rates and the international competitiveness of the
domestic steel industry have all been factors in these import levels.
Properties
The Company has one raw steel producing plant and various other
finishing and fabricating facilities. The Steubenville complex is an integrated
steel producing facility located at Steubenville and Mingo Junction, Ohio and
Follansbee, West Virginia. The Steubenville complex includes a sinter plant,
coke oven batteries that produce all coke requirements, three blast furnaces
(two operating), two basic oxygen furnaces, a two-strand continuous slab caster
with an annual slab production capacity of approximately 2.4 million tons, an
80-inch hot strip mill and pickling and coil finishing facilities. The Ohio and
West Virginia locations, which are separated by the Ohio River, are connected by
a railroad bridge owned by the Company. A pipeline is maintained for the
transfer of coke oven gas for use as fuel from the coke plant to several other
portions of the Steubenville complex. The Steubenville complex primarily
produces hot rolled products, which are either sold to third parties or shipped
to other of the Company's facilities for further processing into value-added
products.
The following table lists the other principal plants of the Company and
the annual capacity of the major products produced at each facility:
<TABLE>
<CAPTION>
OTHER MAJOR FACILITIES
LOCATION AND OPERATIONS CAPACITY TONS/YEAR MAJOR PRODUCTS
- ------------------------------------------------------- ---------------------- -----------------------------------
<S> <C> <C>
Allenport, Pennsylvania:
Continuous pickler, tandem mill, temper
mill and annealing 950,000 Cold rolled sheets
Beech Bottom, West Virginia:
Painted steel in coil form and
Paint line and roll-forming equipment 120,000 formed steel products
Canfield, Ohio:
Electrogalvanizing line, paint line, ribbon Electrolytic galvanized sheet and
and oscillating rewind slitters 65,000 strip
Martins Ferry, Ohio:
Temper mill, zinc coating lines and roll Hot dipped galvanized sheets and
forming equipment 750,000 coils and formed steel products
Yorkville, Ohio:
Continuous pickler, tandem mill, temper
mills and annealing lines 660,000 Black plate and cold rolled sheets
</TABLE>
Wheeling Corrugating fabricates products at Fort Payne, Alabama;
Houston, Texas; Lenexa, Kansas; Louisville, Kentucky; Minneapolis, Minnesota;
Warren, Ohio; Gary, Indiana; Wilmington, North Carolina and
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<PAGE>
Klamath Falls, Medford and Brooks, Oregon. The Fort Payne, Houston and
Wilmington facilities were acquired in 1986, 1989 and 1993, respectively. The
Gary facility was acquired in 1994. The Oregon facilities were acquired in 1996.
The Company maintains five regional sales offices for flat-rolled and
tin mill products and nine sales offices and/or warehouses for Wheeling
Corrugating products.
All of the above facilities currently owned by the Company are
regularly maintained in good operating condition. However, continuous and
substantial capital and maintenance expenditures are required to maintain the
operating facilities, to modernize finishing facilities in order to remain
competitive and to meet environmental control requirements.
All of the above facilities and substantially all of the other real
property of the Company are owned in fee by the Company (exclusive of coal lands
held by subsidiaries or corporations in which the Company has an interest) and
are subject to the first lien that secures the $9.2 million face amount (as of
December 31, 1997) of Tax Benefit Transfer Letters of Credit issued to support
the sale of tax benefits associated with the construction of the slab caster
located at the Company's Steubenville complex.
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LEGAL PROCEEDINGS
Environmental Matters
The Company, as are other industrial manufacturers, is subject to
increasingly stringent standards relating to the protection of the environment.
In order to facilitate compliance with these environmental standards, the
Company has incurred capital expenditures for environmental control projects
aggregating $5.9 million, $6.8 million and $12.4 million for 1995, 1996 and
1997, respectively. The Company anticipates spending approximately $41.3 million
in the aggregate on major environmental compliance projects through the year
2000, estimated to be spent as follows: $13.4 million in 1998, $15.9 million in
1999 and $12.0 million in 2000. Due to the possibility of unanticipated factual
or regulatory developments, the amount and timing of future expenditures may
vary substantially from such estimates.
The Company has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund") or similar state statutes at several waste sites. The Company is
subject to strict, joint and several liability imposed by Superfund on
potentially responsible parties. Due to the technical and regulatory complexity
of remedial activities and the difficulties attendant to identifying potentially
responsible parties and allocating or determining liability among them, the
Company is unable to reasonably estimate the ultimate cost of liability under
Superfund. The Company believes, based upon information currently available,
that the Company's liability for remediation costs in connection with the
Buckeye Reclamation site will be between $3.0 and $4.0 million. At six other
sites (MIDC Glassport, United Scrap Lead, Tex-Tin, Breslube Penn, Four County
Landfill and Beazor) the Company estimates the liability to aggregate up to
$700,000.
The Company is currently funding its share of remediation costs.
The Clean Air Act Amendments of 1990 (the "Clean Air Act") directly
affect the operations of many of the Company's facilities, including coke ovens.
Under the Clean Air Act, coke ovens generally will be required to comply with
progressively more stringent standards which will result in an increase in
environmental capital expenditures and costs for environmental compliance. Most
of the forecasted environmental expenditures will be spent on projects relating
to compliance with these standards. Upon completion of the capital projects, the
Company anticipates that its facilities will meet the applicable Clean Air Act
standards.
In March 1993, the United States Environmental Protection Agency
("EPA") notified the Company of Clean Air Act violations, alleging particulate
matter and hydrogen sulfide emissions in excess of allowable concentrations, at
the Company's Follansbee Coke Plant. The parties have entered into a consent
decree settling the civil penalties related to this matter for $700,000 and the
Company completed payment of all civil penalties in January 1997.
In an action brought in 1985 in the U.S. District Court for the
Northern District of West Virginia, the EPA claimed violations of the Solid
Waste Disposal Act at a surface impoundment area at the Follansbee facility. The
Company and the EPA entered into a consent decree in October 1989 whereby soil
and groundwater testing and monitoring have been implemented and the Company is
currently working with the EPA to close the surface impoundment.
In September 1996, the EPA issued a initial administrative order under
the Resource Conservation and Recovery Act ("RCRA") affecting other areas of the
Follansbee facility. The EPA is seeking to require the Company to perform a site
investigation of the Follansbee plant. The Company has actively contested the
EPA's jurisdiction to require a site investigation. One of two appeals was
dismissed by the court, but the Company is continuing with the second appeal.
On December 20, 1995, the Department of Justice notified the Company of
its intention to bring proceedings seeking civil penalties for alleged
violations of the Clean Water Act (1991-94) and RCRA (1990-91) at the Company's
Follansbee facility. Suit was filed February 5, 1996 in the U.S. District Court,
Eastern District of West Virginia (Civil Action #5-96CV20). A consent decree has
been entered and the matter has been settled for $200,000.
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<PAGE>
In addition, the West Virginia Department of Environmental Protection
("WVDEP") sought civil penalties for violations of a National Pollutant
Discharge Elimination System permit at the Company's Follansbee plant. A
settlement has been proposed by the WVDEP in which the Company would pay
approximately $100,000 in settlement of this matter.
By letter dated March 15, 1994 the Ohio Attorney General advised the
Company of its intention to file suit on behalf of the Ohio EPA for alleged
hazardous waste violations at the Company's Steubenville, Mingo Junction,
Martins Ferry and Yorkville facilities. In subsequent correspondence the State
of Ohio demanded a civil penalty of approximately $300,000 in addition to
injunctive relief. The demand for injunctive relief consists of remedial
activities at each facility aggregating less than $125,000, the initiation of a
waste minimization program at the affected facilities and a company wide
compliance assessment. The Company is in the process of conducting settlement
negotiations with the Ohio EPA.
In January 1998, the Ohio Attorney General notified the Company of a
draft consent order and initial civil penalties in the amount of $1.0 million
for various air violations at the Company's Steubenville and Mingo Junction
facilities occurring from 1992 through 1996. The Company anticipates entering
into discussions with the Ohio Environmental Enforcement Section to resolve
these issues.
The Company is currently operating in substantial compliance with three
consent decrees (two with the EPA and one with the Pennsylvania Department of
Environmental Resources) with respect to wastewater discharges at Allenport,
Pennsylvania and Mingo Junction, Steubenville, and Yorkville, Ohio. The Company
has completed all of the technical requirements of the consent decrees and is
evaluating filing petitions to terminate them.
As the Company becomes aware of potential environmental liabilities
resulting from its operations, such situations are assessed and remediated in
accordance with regulatory requirements.
Non-current accrued environmental liabilities totaled $7.8 million at
December 31, 1996 and $10.6 million at December 31, 1997. These accruals were
initially determined by the Company in January 1991, based on all then available
information. As new information becomes available, including information
provided by third parties, and changing laws and regulation, the liabilities are
reviewed and the accruals adjusted quarterly. Management believes, based on its
best estimate, that the Company has adequately provided for remediation costs
that might be incurred or penalties that might be imposed under present
environmental laws and regulations.
Based upon information currently available, including the Company's
prior capital expenditures, anticipated capital expenditures, consent agreements
negotiated with Federal and state agencies and information available to the
Company on pending judicial and administrative proceedings, the Company does not
expect its environmental compliance and liability costs, including the
incurrence of additional fines and penalties, if any, relating to the operation
of its facilities, to have a material adverse effect on the financial condition
or results of operations of the Company. However, as further information comes
into the Company's possession, it will continue to reassess such evaluations.
General Litigation
The Company is a party to various litigation matters including general
liability claims covered by insurance.
In the opinion of management, the litigation described herein is not
expected to have a material adverse effect on the financial condition or results
of operations of the Company.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding the Company's
directors and executive officers:
Name Age Position
- ------------------ ------- -----------------------------------------
John R. Scheessele 50 President
Paul J. Mooney 46 Executive Vice President and Chief Financial
Officer
James T. Gibbons 46 Vice President--Mergers and Acquisitions
Thomas R. Notaro 47 Vice President--Comptroller
John W. Testa 61 Vice President, Assistant Secretary and Treasurer
Ronald LaBow 63 Director
Robert A. Davidow 55 Director
Marvin L. Olshan 70 Director and Secretary
The business experience, principal occupations and employment as well
as the periods of service of each of the directors and executive officers of the
Company during the last five years are set forth below.
John R. Scheessele has been President of the Company, a Director and
President of WHX and Chairman of the Board, President and Chief Executive
Officer of WPSC since March 1997. Prior to such time, Mr. Scheessele was
President and Chief Executive Officer of The SKD Company, a privately held
supplier of original equipment to the automotive industry, from February 1996 to
February 1997. From October 1995 until January 1996, Mr. Scheessele was an
independent consultant. Prior to such time, Mr. Scheessele was President and
Chief Executive Officer of WCI Steel, Inc. ("WCI") from November 1994 to
September 1995, Executive Vice President and Chief Financial Officer of WCI from
November 1993 to November 1994 and Chief Financial Officer of WCI from October
1988 to November 1993.
Paul J. Mooney has been Executive Vice President and Chief Financial
Officer of WHX, the Company and WPSC since November 1997. Prior to joining the
Company, Mr. Mooney was a partner with Price Waterhouse LLP where he served in a
variety of positions including National Director of Cross Border Filing Services
with the Accounting, Auditing and SEC Services department since July 1, 1996,
Accounting and Business Advisory Services Department--Pittsburgh Site Leader
since 1988 and Client Service and Engagement Partner since 1985.
James T. Gibbons has been Vice President--Mergers and Acquisitions of
the Company since October 1997, and of WPSC since February 1994; Vice
President--Planning & Development of WPSC from April 1991 to February 1994;
Director--Reorganization Planning of WPSC from July 1987 to April 1991.
Thomas R. Notaro has been Vice President--Comptroller of the Company
since October 1997, and of WPSC since March 1997; Vice President--Information
Services and Assistant to the President of WPSC from February 1995 to March
1997; Vice President--Purchasing and Information Services of WPSC from February
1994 to February 1995; Vice President--Comptroller of WPSC from May 1993 to
February 1994; Comptroller of WPSC from July 1990 to May 1993.
John W. Testa has been Vice President, Assistant Secretary and
Treasurer of the Company since October 1997, and of WPSC since February 1994;
Vice President--Treasurer of WPSC since 1980.
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<PAGE>
Ronald LaBow has been a director of the Company since 1991. Mr. LaBow
has also been President of Stonehill Investment Corp. since February 1990. Mr.
LaBow is also a director of Regency Equities Corp., a real estate company, and
is Chairman of the Board of Directors of WHX.
Robert A. Davidow has been a private investor since January 1990. Mr.
Davidow is also a director of Arden Group, Inc. and WHX.
Marvin L. Olshan has been a director and Secretary of the Company since
1991 and a partner of Olshan Grundman Frome & Rosenzweig LLP since 1956. Mr.
Olshan is also a director of WHX.
The Company anticipates adding one independent director in the near
future, who will not be affiliated with WHX. Directors do not currently receive
any compensation for serving as directors.
In addition, the following table sets forth information regarding the
officers of WPSC:
Name Age Position
- ------------------- --- -------------------------------------------------
John R. Scheessele 50 Chairman, President and Chief Executive Officer
Paul J. Mooney 46 Executive Vice President and Chief Financial
Officer
James H. Bischoff 58 Vice President--Commercial
James E. Muldoon 54 Vice President--Purchasing
James T. Gibbons 46 Vice President--Mergers and Acquisitions
Daniel C. Keaton 47 Vice President--Human Resources
Thomas R. Notaro 47 Vice President--Comptroller
Tom Patrick 58 Vice President--Wheeling Corrugating Company
John W. Testa 61 Vice President, Secretary and Treasurer
The business experience, principal occupations and employment as well
as the periods of service of each of the officers of WPSC during the last five
years, who are not also officers of WPC, are set forth below.
James H. Bischoff has been Vice President--Commercial since August
1997. Mr. Bischoff was previously employed as Vice President--Sales and
Marketing for Quanex Corporation, a metal manufacturing and processing company,
since 1993. Prior to 1993, Mr. Bischoff was employed by Bethlehem Steel
Corporation for 32 years, most recently as District Sales Manager.
James E. Muldoon has been Vice President--Purchasing since October
1997. Mr. Muldoon was previously employed with U.S. Steel Group of USX
Corporation for 34 years most recently as General Manager of Purchasing.
Daniel C. Keaton has been Vice President--Human Resources since
February 1994; Vice President-- Employee Relations from April 1992 to February
1994; Director, Labor Relations from May 1991 to April 1992.
Tom Patrick has been Vice President--Wheeling Corrugating since
February 1994; Vice President-- Operations from November 1992 to February 1994;
Vice President and General Manager--Finishing Operations from March 1990 to
November 1992.
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table.
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to (i) the chief executive officer
("CEO") of the Company for the fiscal year ended December 31, 1997 (Mr. James L.
Wareham, the President of the Company until February 1997 and Mr. John R.
Scheessele, the current President of the Company) and (ii) the four most highly
compensated executive officers of the Company other than the CEO whose salary
and bonus exceeded $100,000 with respect to the fiscal year ended December 31,
1997 and who were employed by the Company on December 31, 1997 (together with
the CEO, the "Named Executive Officers").
Summary Compensation Table(1)
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Other Annual Securities All other
Name and Principal Salary Bonus Compensation Underlying Compensation
Position Year ($) ($)(2) ($)(3) Options (#) ($)(4)
---------- ---- ----- ------ -------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
John R. Scheessele, 1997 358,974 -- 133,250(6) 240,000 49,333(7)
President (5) 1996 -- -- -- -- --
1995 -- -- -- -- --
James L. Wareham, 1997 66,667 -- 9,001(9) -- 4,260
President (8) 1996 400,000 -- -- -- 47,140(10)
1995 400,000 90,000 -- -- 46,825(10)
James G. Bradley, 1997 133,333 53,333(13) -- 65,000 5,260
Vice President(11) 1996 160,000 -- -- 10,000 2,922
1995 40,000(12) -- -- -- --
James T. Gibbons, 1997 101,200 25,300(13) -- -- 5,111
Vice President 1996 101,200 -- -- -- 3,613
1995 101,200 15,872 -- -- 3,421
John W. Testa, 1997 99,000 23,500(13) -- 15,000 18,040
Vice President 1996 94,000 -- -- -- 14,013
1995 94,000 14,742 -- -- 13,231
Thomas R. Notaro, 1997 95,700 23,925(13) -- 15,000 5,493
Vice President 1996 95,700 -- -- -- 5,354
1995 95,700 14,232 -- -- 3,622
</TABLE>
- ----------------------------
(1) All compensation data include compensation received by such executive
officer for services rendered to the Company, WHX and WPSC. Option
data reflect options to purchase shares of WHX Common Stock.
(2) Includes bonuses paid in 1996 for services rendered in the prior year
pursuant to the WPSC Management Incentive Program ("WPSC Management
Incentive Program") covering officers and salaried employees of WPSC.
Mr. Wareham was not eligible to participate in the WPSC Management
Incentive Program. Mr. Wareham's employment agreement provides for an
annual bonus to be awarded in the sole discretion of the Company. Mr.
Wareham was granted a bonus in 1996 for services rendered in the prior
year. All bonus amounts have been attributed to the year in which the
services were performed.
(3) Excludes perquisites and other personal benefits unless the aggregate
amount of such compensation exceeds the lesser of either $50,000 or
10% of the total of annual salary and bonus reported for such named
executive officer.
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<PAGE>
(4) Amounts shown, unless otherwise noted, reflect employer contributions to
WPSC Salaried Employees Pension Plan.
(5) Employment with the Company commenced in February 1997.
(6) Includes relocation allowance of $87,865 and membership dues of $37,930.
(7) Includes insurance premiums paid by the Company in 1997 of $45,000.
(8) Resigned from employment with the Company in February 1997.
(9) Includes dues of $3,849 and financial planning fees of $4,081.
(10) Includes insurance premiums paid by the Company in 1996 and 1995 of $40,000
annually.
(11) Resigned Chief Financial Officer position with the Company in October 1997.
(12) Employment with the Company commenced in October 1995.
(13) Represents retention bonus paid upon conclusion of the Strike.
Aggregated Option Exercises and Fiscal Year-End Option Value Table.
The following table sets forth certain information concerning
unexercised stock options held by the Named Executive Officers as of December
31, 1997.
Option Grants Table. The following table sets forth certain
information regarding stock option grants made to each of the Named Executive
Officers during the fiscal year ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual Rates
of Stock Price Appreciation for
Individual Grants Option Term
----------------- -------------------------------
% of Total
Options
Number of Securities Granted to Exercise
Underlying Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
---- ------------ ------------- ------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
John R. Scheessele 240,000 22.6% 13.8125 9/25/07 2,084,760 5,283,257
James L. Wareham 0 0% -- -- 0 0
James G. Bradley 65,000 6.1% 13.8125 9/25/07 564,623 1,430,882
James T. Gibbons 0 0% -- -- 0 0
John W. Testa 15,000 1.4% 13.8125 9/25/07 125,799 330,204
Thomas R. Notaro 15,000 1.4% 13.8125 9/25/07 125,799 330,204
</TABLE>
- -------------------
All options are to purchase shares of WHX Common Stock and were granted under
WHX's 1991 Incentive and Nonqualified Stock Option Plan and vest ratably over a
three-year period. This period commenced September 25, 1997.
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<PAGE>
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-end Option Values(1)
------------------------------------
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money Options at
Options at 1997 Fiscal 1997 Fiscal Year-
Year-End(#) Exercisable/ End($)(1) Exercisable/
Unexercisable Unexercisable
NAME -------------------------- -------------------------
- ----
John R. Scheessele 0/240,000 0/0
James L. Wareham 0/0 0/0
James G. Bradley 0/65,000 0/0
James T. Gibbons 14,003/0 47,385/0
John W. Testa 8,753/15,000 28,447/0
Thomas R. Notaro 12,253/15,000 39,822/0
- ------------------
(1) On December 31, 1997, the last reported sales price of the Common Stock
of WHX as reported on the New York Stock Exchange Composite Tape was
$12.00.
Long-Term Incentive and Pension Plans.
The Company does not have any long-term incentive or defined benefit
pension plans.
Deferred Compensation Agreements.
Certain key employees of the Company were parties to deferred
compensation agreements and/or severance agreements. The deferred compensation
agreements generally provide that the employee is entitled to receive, over a
fifteen-year period commencing at the later of age 65 or termination of
employment, an amount equal to twice his base salary for the most recent
twelve-month period of his employment prior to January 3, 1996. The annual
benefits payable to Messrs. Gibbons, Testa and Notaro upon retirement was
$13,493, $12,533 and $12,760, respectively. Certain other deferred compensation
payments are payable by WPSC in certain circumstances, such as a demotion in job
status without good cause, death or as a result of a change of control of the
Company. Each of Messrs. Gibbons, Testa and Notaro is a party to a deferred
compensation agreement such as is described above. Except as described in this
paragraph, and in the next several paragraphs with respect to the employment
agreement of Messrs. Scheessele, Wareham and Mooney, no plan or arrangement
exists which results in compensation to a Named Executive Officer in excess of
$100,000 upon such officer's future termination of employment or upon a
change-of-control.
Employment Agreements.
Mr. John R. Scheessele commenced employment as President of the
Company, President of WHX and President, Chairman of the Board and Chief
Executive Officer of WPSC pursuant to a three-year employment agreement, dated
as of February 7, 1997, which is automatically extended for successive
three-year periods unless earlier terminated pursuant to the provisions of such
agreement. The agreement provides for an annual salary to Mr. Scheessele of
$400,000 and an annual bonus to be awarded in the sole discretion of the
Company. The Company will consider several factors in determining whether to pay
a bonus to Mr. Scheessele including the performance of Mr. Scheessele and the
resulting benefits to the Company and the overall performance of the Company as
measured by the guidelines specified in the employment agreement that are used
to determine the bonuses of other senior executives of the Company. In addition,
the employment agreement provides for Mr.
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<PAGE>
Scheessele to receive the cash surrender value of life insurance contracts
purchased by the Company upon termination of his employment. The employment
agreement provides that in the event Mr. Scheessele's employment is terminated
without cause or Mr. Scheessele voluntarily terminates his employment due to a
material change in the nature and scope of his authorities and duties after a
change in control of the Company occurs, he will be entitled to receive a
payment of $1,200,000, and other specified benefits for a period of one year
from the date of termination. Specified benefits under Mr. Scheessele's
employment agreement will be forfeited under certain circumstances.
Mr. Wareham was employed pursuant to an agreement that provided for an
annual salary to Mr. Wareham of $400,000 and an annual bonus awarded in the sole
discretion of the Company. In addition, the employment agreement provided for
Mr. Wareham to receive the cash surrender value of life insurance contracts
purchased by the Company upon termination of his employment. In February 1997,
Mr. Wareham resigned from his positions with the Company and was succeeded by
Mr. John R. Scheessele.
In November 1997, Mr. Frederick G. Chbosky resigned from his positions
as Chief Financial Officer of each of the Company, WHX and WPSC. In 1998, Mr.
Chbosky will receive from WPSC a severance payment of $128,100.
Mr. Paul J. Mooney commenced employment as Executive Vice President and
Chief Financial Officer of each of the Company, WHX and WPSC pursuant to a
three-year employment agreement, dated as of October 17, 1997, which is
automatically extended for successive three-year periods unless earlier
terminated pursuant to the provisions of such agreement. The agreement provides
for an annual salary to Mr. Mooney of $200,000 and an annual bonus to be awarded
in the sole discretion of the Company. The Company will consider several factors
in determining whether to pay a bonus to Mr. Mooney including the performance of
Mr. Mooney and the resulting benefits to the Company and the overall performance
of the Company as measured by the guidelines specified in the employment
agreement that are used to determine the bonuses of other senior executives of
the Company. In addition, the employment agreement provides for Mr. Mooney to
receive the cash surrender value of life insurance contracts purchased by the
Company upon termination of his employment. The employment agreement provides
that in the event Mr. Mooney's employment is terminated without cause or Mr.
Mooney voluntarily terminates his employment due to a material change in the
nature and scope of his authorities and duties after a change in control of the
Company occurs, he will be entitled to receive a payment of $600,000, and other
specified benefits for a period of one year from the date of termination.
Specified benefits under Mr. Mooney's employment agreement will be forfeited
under certain circumstances.
Compensation Committee Interlock and Insider Participation.
The Board of Directors of the Company is responsible for determining
compensation of the Company's executive officers. Mr. Olshan is a member of
Olshan Grundman Frome & Rosenzweig LLP, which has been retained as outside
general counsel to the Company since January 1991. Fees received from the
Company by such firm during the fiscal year ended December 31, 1997 did not
exceed 5% of the Company's or the firm's revenues.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS;
TRANSACTIONS BETWEEN THE COMPANY AND WHX
John R. Scheessele, President of the Company and WPSC and a director of
the Company and WPSC, and Akimune Takewaka, a director of WPSC, are directors of
Wheeling-Nisshin. Mr. Takewaka is also Chairman of the Board of
Wheeling-Nisshin. James D. Hesse, a former Vice President of the Company, is
President, Chief Executive Officer and a director of Wheeling-Nisshin. The
Company currently holds a 35.7% equity interest in Wheeling-Nisshin.
Marvin L. Olshan, a director and Secretary of the Company, is a member
of Olshan Grundman Frome & Rosenzweig LLP, which firm has been retained as
outside general counsel to the Company since January 1991. Fees received from
the Company by such firm during the fiscal year ended December 31, 1997 did not
exceed 5% of the Company's revenues.
The Company and WHX and WHX's affiliates have in the past entered into
intercompany transactions and agreements incident to their respective
businesses, and the Company and WHX may enter into material transactions and
agreements from time to time in the future. In connection with the November
Offering, the Company and WHX amended certain existing agreements, and also
entered into agreements with respect to the respective obligations that will be
assumed by each party. These agreements were not the result of arm's length
negotiations between the parties. It is possible that conflicts of interest
could arise between the Company and WHX in certain circumstances.
The following is a summary of certain agreements, arrangements and
transactions between the Company and WHX.
Indemnification and Intercreditor Agreement
Pursuant to the Indemnification Agreement (as defined), the Company has
agreed to indemnify WHX and hold WHX harmless from all liabilities relating to
the operations of the Company whether relating to or arising out of occurrences
prior to, on or after the closing ("Closing") of the November Offering, and
other obligations assumed at the Closing. Similarly, WHX has agreed to indemnify
the Company and hold the Company harmless from all liabilities relating to the
operations of the business of WHX, other than the business of the Company,
whether relating to or arising out of occurrences prior to, on or after the
Closing. To the extent WHX is called upon to make payments under its guarantees
of certain of the Company's indebtedness, the Company will indemnify it in
respect of such payments. To the extent the Company's actions cause a default
under the Revolving Credit Facility or the termination of the Receivables
Facility or a default under any other debt instrument of WHX or Unimast, the
Company will indemnify WHX and Unimast in respect of any incremental costs and
expenses suffered by WHX or Unimast on account thereof. The Company's
obligations under the Indemnification Agreement will be subordinate to the
Company's obligations under the Notes and the Term Loan Agreement. To the extent
WHX's or Unimast's actions cause a default under the Revolving Credit Facility
or the termination of the Receivables Facility or a default under any other debt
instrument of the Company, WHX and Unimast will indemnify the Company in respect
of any incremental costs and expenses and damages suffered by the Company on
account thereof. See "Indemnification and Intercreditor Agreement."
Tax Sharing Agreement
The Company will be included in the consolidated federal income tax
returns filed by WHX during all periods in which it has been or will be a
wholly-owned subsidiary of WHX ("Affiliation Year"). The Company and WHX have
entered into an agreement (the "Tax Sharing Agreement") providing for the manner
of determining payments with respect to federal income tax liabilities and
benefits arising in Affiliation Years. Under the Tax Sharing Agreement, the
Company will pay to WHX an amount equal to the share of WHX's consolidated
federal income tax liability, generally determined on a separate return basis,
and WHX will pay the Company for any reduction in WHX's consolidated federal
income tax liability resulting from utilization or deemed utilization of
deductions, losses, and credits arising which are attributable to the Company,
in each case net of any amounts theretofore paid or credited by WHX or the
Company to the other with respect thereto. In the event that WHX's consolidated
federal income tax liability for any Affiliation Year is adjusted upon audit or
otherwise, the Company
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<PAGE>
will bear any additional liability or receive any refund which is attributable
to adjustments of items of income, deduction, gain, loss or credit of the
Company. WHX shall permit the Company to participate in any audits or litigation
with respect to Affiliation Years, but WHX will otherwise have exclusive and
sole responsibility and control over any such proceedings.
Advances
From time to time WHX has made advances to the Company, principally to
fund working capital needs and interest payments on debt. The Company also has
made advances to WHX, from time to time, principally to fund the payment by WHX
of dividends on its outstanding preferred stock and the working capital needs of
Unimast. As of December 31, 1997, the Company had made advances to WHX in the
net amount of $28.0 million. All advances were repayable upon demand and did not
bear interest. To the extent the Company has net outstanding advances from WHX,
the Company's obligations to repay such advances will be subordinated to the
repayment obligations on the Notes.
Management Agreement
Pursuant to a management agreement, as amended, between WHX and WPN, of
which Ronald LaBow, the Chairman of the Board of the Company is the sole
stockholder and an officer and director, WPN provides financial, management,
advisory and consulting services to WHX and the Company, subject to the
supervision and control of the independent directors of WHX. In 1996 and 1997,
WPN received a monthly fee of $458,333.33, with total payments of $5,500,000 in
1996 and 1997. Commencing on January 1, 1998, the Company has agreed to
contribute $2.5 million towards the payment of such annual fee in consideration
of services to be rendered to the Company.
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<PAGE>
DESCRIPTION OF PRINCIPAL INDEBTEDNESS
Revolving Credit Facility
WPSC has a Revolving Credit Facility with Citibank, N.A. as agent. The
Revolving Credit Facility provides for borrowing for general corporate purposes
of up to $150 million, and with a $35 million sublimit for Letters of Credit.
The Revolving Credit Facility expires May 3, 1999. Borrowings under the
Revolving Credit Facility are secured primarily by inventory of the Company,
WPSC, PCC and WCP, subsidiaries of the Company, and Unimast. The terms of the
Revolving Credit Facility contain various restrictive covenants, limiting among
other things, dividend payments or other distributions of assets, as defined in
the Revolving Credit Facility. Certain financial covenants associated with
leverage, net worth, capital spending, cash flow and interest coverage must also
be maintained. The Company, PCC, WCP and Unimast have each guaranteed all of the
obligations of WPSC under the Revolving Credit Facility. Borrowings outstanding
against the Revolving Credit Facility at December 31, 1997 totaled $89.8
million.
The Revolving Credit Facility bears interest, payable monthly in
arrears, at the Citibank prime rate plus 1.0% and/or a Eurodollar rate margin
plus 2.25%, but the margin over the prime rate and the Eurodollar rate can
fluctuate up or down based upon performance. The maximum prime rate margin is
1.00% and the maximum Eurodollar margin is 2.25%. The letter of credit fee is
2.25% and is also performance-based.
WPSC also has a separate facility with Citibank, N.A. for letters of
credit up to $50 million. At December 31, 1997 letters of credit totaling $9.3
million were outstanding under this facility. The letters of credit are
collateralized at 105% with U.S. Government securities owned by the Company, and
are subject to an administrative charge of .4% per annum on the amount of
outstanding letters of credit.
Term Loan Agreement
The Company entered into the Term Loan Agreement with DLJ Capital
Funding, Inc., as syndication agent, Donaldson, Lufkin & Jenrette Securities
Corporation, as arranger, Citicorp USA, Inc., as documentation agent, a
financial institution to be named as administrative agent and the lenders party
thereto on November 20, 1997, pursuant to which the Company borrowed $75.0
million. The net proceeds of the Term Loan Agreement were used, together with
the net proceeds of the November Offering, to defease the Old Notes and to
reduce borrowings under the Revolving Credit Facility.
The Term Loan Agreement matures on November 15, 2006. Amounts
outstanding under the Term Loan Agreement are expected to bear interest at
either (i) the Alternate Base Rate (as defined therein) plus 2.25% or (ii) the
LIBOR Rate (as defined therein) plus 3.25%, determined at the Company's option.
The Company's obligations under the Term Loan Agreement will be guaranteed by
the Company's Restricted Subsidiaries. The Company may prepay the obligations
under the Term Loan Agreement beginning on November 15, 1998, subject to a
premium of 2.0% of the principal amount thereof. Such premium declines to 1.0%
on November 15, 1999 with no premium on or after November 15, 2000.
The Term Loan Agreement contains customary representations and
warranties. Covenants and events of default under the Term Loan Agreement are
substantially similar to those described under "Description of the New
Notes--Certain Covenants" and "--Events of Default and Remedies." Lenders under
the Term Loan Agreement have customary voting, participation and assignment
rights.
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DESCRIPTION OF RECEIVABLES FACILITY
In August 1994 WPSC entered into an agreement to sell, up to $75
million on a revolving basis, an undivided percentage ownership in a designated
pool of accounts receivable generated by WPSC and two of its affiliates, WCP and
PCC. The agreement expires in August 1999. In July 1995, WPSC amended such
agreement to sell an additional $20 million on similar terms and conditions. In
October 1995, WPSC entered into an agreement to include the receivables
generated by Unimast, in the pool of accounts receivable sold. Accounts
receivable at December 31, 1996, exclude $45 million representing accounts
receivable sold with recourse limited to the extent of uncollectible balances.
As of December 31, 1997, fees paid by the Company ranged from 7.42% to 8.50% of
the outstanding amount of receivables sold. Based on the Company's collection
history, the Company believes that credit risk associated with the above
arrangement is immaterial. Accounts receivable sold pursuant to the Receivables
Facility at December 31, 1997 aggregated $69.0 million.
INDEMNIFICATION AND INTERCREDITOR AGREEMENT
Unimast, WHX and the Company entered into an intercreditor,
indemnification and subordination agreement (the "Indemnification Agreement")
upon the consummation of the November Offering which provides, among other
things, that Unimast and WHX will be responsible to the Company for repayment of
any of Unimast's borrowings under the Revolving Credit Facility and have agreed
to indemnify the Company if a default occurs under the Revolving Credit Facility
or if the Receivables Facility is terminated as a result of a breach of either
of such agreements by Unimast. In addition, the Company is solely responsible
for repayment of its borrowings under the Revolving Credit Facility and has
agreed to indemnify WHX and Unimast if a default occurs under the Revolving
Credit Facility or if the Receivables Facility is terminated as a result of a
breach of either of such agreements by the Company. The Company's obligations
under the Indemnification Agreement will be subordinate to the Company's
obligations under the Notes. See "Risk Factors--Cross-default Provisions."
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DESCRIPTION OF THE NEW NOTES
The Old Notes were issued under the Indenture among the Company, the
Guarantors and Bank One, N.A., as Trustee (in such capacity, the "Trustee"). The
New Notes will be issued under the Indenture, which will be qualified under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), upon the
effectiveness of the Registration Statement of which this Prospectus is a part.
The form and terms of the New Notes are the same in all material respects as the
form and terms of the Old Notes, except that the offer and sale of the New Notes
will have been registered under the Securities Act and, therefore, the New Notes
will not bear legends restricting transfer thereof. Upon the consummation of the
Exchange Offer, Holders of Notes will not be entitled to registration rights
under, or the contingent increase in interest rate provided pursuant to, the
Registration Rights Agreement. The New Notes will evidence the same debt as the
Old Notes and will be treated as a single class under the Indenture with any Old
Notes that remain outstanding.
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act as in effect
on the date of the Indenture. The Notes are subject to all such terms and
reference is made to the Indenture and the Trust Indenture Act for a statement
thereof. A copy of the Indenture has been filed with the Commission as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary, which describes certain provisions of the Indenture and the
Notes, does not purport to be complete, although all material terms of such
documents are set forth herein, and is subject to, and is qualified in its
entirety by reference to, the Indenture and the Notes, including the definitions
therein of terms not defined herein and those terms made a part thereof by the
Trust Indenture Act. Whenever particular defined terms of the Indenture not
otherwise defined herein are referred to, such defined terms are incorporated
herein by reference.
Principal, Maturity and Interest
The Notes are or will be senior unsecured obligations of the Company,
limited in aggregate principal amount to $275,000,000 and will mature on
November 15, 2007. Interest on the Notes will accrue at the rate of 9 1/4% per
annum and will be payable semi-annually in arrears on May 15 and November 15
(each, an "Interest Payment Date"), commencing on May 15, 1998, to holders of
record on the immediately preceding May 1 and November 1. Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of and interest, premium (if any) and Liquidated Damages (if any) on
the Notes will be payable at the office or agency of the Company maintained for
such purpose or, at the option of the Company, payment may be made by check
mailed to holders of the Notes at their respective addresses set forth in the
register of holders; provided, however, that all payments with respect to Notes
the holders of which have given wire transfer instructions to the Company will
be required to be made by wire transfer of immediately available funds to the
accounts specified by the holders thereof. Until otherwise designated by the
Company, the Company's office or agency will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
and integral multiples thereof.
Ranking
The Notes are or will be unsecured obligations of the Company, ranking
senior in right of payment to all existing and future subordinated indebtedness
of the Company and pari passu with all existing and future senior unsecured
indebtedness of the Company, including borrowings under the Term Loan Agreement.
The Notes will be effectively junior to secured indebtedness of the Company to
the extent of the assets securing the indebtedness, and to secured indebtedness
of Subsidiaries of the Company, to the extent of the assets of such
subsidiaries. See "--Guarantees." At December 31, 1997, the borrowings under the
Term Loan Agreement and the use of proceeds therefrom, there would have been an
aggregate of $56.8 million of indebtedness of Subsidiaries of the Company. In
addition, the Company would have had the ability to borrow an additional
approximately $94.5 million under the Revolving Credit Facility at December 31,
1997. Except to the extent of the Subsidiary Guarantees, holders of the Notes
would have been effectively subordinated to all such indebtedness of
Subsidiaries and trade payables of WPSC.
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Guarantees
The Company's payment obligations under the Notes are jointly and
severally guaranteed on a senior basis by all of the Company's present and
future Subsidiaries (excluding Unrestricted Subsidiaries) (the "Guarantors")
pursuant to the Subsidiary Guarantees. The Subsidiary Guarantees rank pari passu
in right of payment to all existing and future senior Indebtedness of the
Guarantors, including the Guarantors' obligations under the Revolving Credit
Facility, any successor credit facility and the Term Loan Agreement. Each
Subsidiary Guarantee is an unconditional and irrevocable guarantee of the
obligations of the Company under the Notes and the Indenture. The obligations of
each Guarantor under its Subsidiary Guarantee is limited to the maximum amount
that may be paid thereunder without resulting in such Subsidiary Guarantee being
deemed to constitute a fraudulent conveyance or a fraudulent transfer under
applicable law. See "Risk Factors--Fraudulent Conveyances; Possible Invalidity
of Subsidiary Guarantees." Each Guarantor that makes a payment or distribution
under its Subsidiary Guarantee shall be entitled to a contribution from each
other Guarantor so long as exercise of such right does not impair the rights of
holders of Notes under any Subsidiary Guarantee.
The Indenture provides that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving person) or sell all
or substantially all of its assets to, another corporation, person or entity
whether or not affiliated with such Guarantor unless (a) subject to the
provisions of the following paragraph, the person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all of the
obligations of such Guarantor, pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Subsidiary Guarantee
of such Guarantor and the Indenture; (b) immediately after giving effect to such
transaction, no Default or Event of Default exists; (c) such Guarantor, or any
Person formed by or surviving any such consolidation or merger, would have
Consolidated Net Worth (immediately after giving effect to such transaction),
equal to or greater than the Consolidated Net Worth of the Guarantor immediately
preceding the transaction; and (d) the Company would be permitted, immediately
after giving effect to such transaction, to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Interest Coverage Ratio test set forth
in the covenant described under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock." Notwithstanding the provisions of
this paragraph, the Indenture will not prohibit the merger of two of the
Guarantors or the merger of a Guarantor into the Company.
The Indenture provides that, in the event of a sale or other
disposition of all of the capital stock of any Guarantor (including by way of
merger or consolidation) or all of the assets of such Guarantor, then such
Guarantor (in the event of a sale or other disposition of all of the capital
stock of such Guarantor) or the corporation acquiring the property (in the event
of a sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided, however, that the Net Proceeds of such sale or other disposition are
applied in accordance with the applicable provisions of the Indenture. See
"--Repurchase at the Option of Holders--Asset Sales." In addition, the Indenture
will provide that, in the event the Board of Directors of the Company designates
a Guarantor to be an Unrestricted Subsidiary, then such Guarantor will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided, however, that such designation is conducted in accordance with the
applicable provisions of the Indenture.
Optional Redemption
The Notes will not be redeemable at the Company's option prior to
November 15, 2002. Thereafter, the Notes will be subject to redemption at any
time at the option of the Company, in whole or in part, upon not less than 30 or
more than 60 days' notice to each holder of Notes to be redeemed, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the applicable redemption date, if redeemed during the 12-month period
beginning on November 15 of the years indicated below:
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Year Percentage
2002...................... 104.625%
2003...................... 103.083%
2004...................... 101.542%
2005 and thereafter....... 100.000%
Notwithstanding the foregoing, on or prior to November 15, 2000, the
Company may redeem up to 35% of the aggregate principal amount of Notes
originally issued at a redemption price (expressed as a percentage of principal
amount) of 109.25% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date, with
the net cash proceeds of one or more Public Equity Offerings; provided, however,
that (a) at least 65% of the aggregate principal amount of Notes initially
issued remains outstanding immediately after the occurrence of each such
redemption and (b) such redemption occurs no later than 30 days following the
date of the consummation of such Public Equity Offering.
At any time prior to November 15, 2002, the Notes may also be redeemed
as a whole but not in part at the option of the Company, upon not less than 30
nor more than 60 days prior notice mailed by first-class mail to each Holder's
registered address, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium, accrued interest and Liquidated Damages, if
any, thereon to the redemption date (subject to the right of Holders of record
on the relevant record date to receive interest due on the relevant interest
payment date).
"Applicable Premium" means, with respect to a Note at any redemption
date, the greater of (i) 1.0% of the principal amount of such Note and (ii) the
excess of (A) the present value at such time of (1) the redemption price of such
Note at November 15, 2002 plus (2) all required interest payments due on such
Note through November 15, 2002, computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over (B) the then outstanding principal
amount of such Note.
"Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the redemption date to November 15, 2002; provided, however, that if
the period from the redemption date to November 15, 2002 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the redemption date to November 15, 2002
is less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
Selection and Notice
In the event that less than all of the Notes are to be redeemed at any
time, selection of Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed, or, if the Notes are not so listed, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that no Note shall be redeemed in a principal
amount that is less than $1,000. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each holder of Notes to be redeemed at its registered address. If any Note is to
be redeemed in part only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed and a new
Note in principal amount equal to the unredeemed portion of the original Note
shall be issued in the name of the holder thereof upon cancellation of the
original Note. On and after the redemption date, interest ceases to accrue on
Notes or portions of them called for redemption.
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Mandatory Redemption
Except as set forth below under "--Repurchase at the Option of
Holders," the Company is not required to make any mandatory redemption of or
sinking fund payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, the Company will be
required to make an offer (a "Change of Control Offer") to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of each holder's Notes at
an offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of repurchase (the "Change of Control Payment"). Within 30 days following a
Change of Control, the Company will mail a notice to each holder of Notes
describing the transaction that constitutes the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of Notes as a
result of a Change of Control.
On or before the Change of Control Payment Date, the Company will, to
the extent lawful, (a) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (b) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (c) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an officer's certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided, however, that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction. In addition, the Company
could enter into certain transactions, including acquisitions, refinancings or
other recapitalizations, that could affect the Company's capital structure or
the value of the Notes, but that would not constitute a Change of Control. The
Company's ability to repurchase Notes following a Change of Control may also be
limited by the Company's then existing financial resources.
The Company will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
A "Change of Control" will be deemed to have occurred upon the
occurrence of any of the following: (a) the sale, lease, transfer, conveyance or
other disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the assets of the
Company and its Restricted Subsidiaries, taken as a whole, to any person (as
such term in used in Section 13(d)(3) of the Exchange Act), (b) the adoption of
a plan relating to the liquidation or dissolution of the Company, (c) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" or "group" (as such
terms are used in Section 13(d)(3) of the Exchange Act) other than WHX or an
underwriter or group of underwriters in an underwritten public offering becomes
the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act), directly or indirectly through one or more
intermediaries, of at least 50% of the voting power of the outstanding voting
stock of the Company, (d) the merger or consolidation
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of the Company with or into another corporation with the effect that the then
existing stockholders of the Company hold less than 50% of the combined voting
power of the then outstanding voting securities of the surviving corporation of
such merger or the corporation resulting from such consolidation or (e) the
first day on which more than a majority of the members of the Board of Directors
of the Company are not Continuing Directors.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (a) was a member of the
Board of Directors of the Company on the date of original issuance of the Notes
or (b) was nominated for election to the Board of Directors of the Company with
the approval of, or whose election to the Board of Directors of the Company was
ratified by, at least a majority of the Continuing Directors who were members of
the Board of Directors of the Company at the time of such nomination or election
or by WHX so long as WHX owns a majority of the Capital Stock of the Company.
Asset Sales
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless (a) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors of the Company set
forth in an officer's certificate delivered to the Trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of and (b) at least 80% of
the consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash; provided, however, that the amount of (i) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or such Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability and (ii) any securities,
notes or other obligations received by the Company or such Restricted Subsidiary
from such transferee that are converted by the Company or such Restricted
Subsidiary within 30 days of receipt into cash (to the extent of the cash
received) shall be deemed to be cash for purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset
Sale, the Company or any such Restricted Subsidiary shall apply such Net
Proceeds to reduce Indebtedness under the Revolving Credit Facility or other
pari passu Indebtedness (and, in the case of such other pari passu Indebtedness,
to correspondingly reduce commitments with respect thereto). To the extent such
Net Proceeds are not utilized as contemplated in the preceding sentence, such
Net Proceeds may, within 270 days after receipt thereof, be utilized to acquire
Replacement Assets. Pending the final application of any such Net Proceeds, the
Company or any such Restricted Subsidiary may otherwise invest such Net Proceeds
in any manner that is not prohibited by the Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in this paragraph will
be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $20 million, the
Company will be required to make an offer to all holders of Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of Notes that may be
purchased out of the Note Pro Rata Share of Excess Proceeds at an offer price in
cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the amount that the Company is required to repurchase, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate amount of Notes surrendered by holders thereof exceeds the amount
that the Company is required to repurchase, the Trustee shall select the Notes
to be purchased on a pro rata basis. Upon completion of such offer to purchase,
the amount of Excess Proceeds shall be reset at zero.
Certain Covenants
Restricted Payments
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or
pay any dividend or make any other payment or distribution on account of
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the Company's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company) or to the direct or indirect holders of the
Company's Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company); (b) purchase, redeem or otherwise acquire or retire for value
(including without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company (other than any such
Equity Interests owned by the Company or any Wholly Owned Restricted Subsidiary
of the Company); (c) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value, any Indebtedness that
is subordinated in right of payment to the Notes, except a payment of interest
or principal at Stated Maturity; or (d) make any Restricted Investment (all such
payments and other actions set forth in clauses (a) through (d) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Consolidated Interest Coverage Ratio test set forth in
the first paragraph of the covenant described under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(iii) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Company and its
Restricted Subsidiaries after the date of the Indenture, is less than
the sum of (A) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) commencing April 1, 1998 to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit), plus (B) 100% of the
aggregate Net Cash Proceeds received by the Company from the issue or
sale since the date of the Indenture of Equity Interests of the Company
(other than Disqualified Stock) or of Disqualified Stock or debt
securities of the Company that have been converted into such Equity
Interests (other than any such Equity Interests, Disqualified Stock or
convertible debt securities sold to a Restricted Subsidiary of the
Company and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (C)
to the extent that any Restricted Investment that was made after the
date of the Indenture is sold for cash or otherwise liquidated or
repaid for cash, the sum of (x) the initial amount of such Restricted
Investment and (y) 50% of the aggregate Net Proceeds received by the
Company or any Restricted Subsidiary in excess of the initial amount of
such Restricted Investment, plus (D) $10 million.
The foregoing provisions do not prohibit (a) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (b) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such Net Cash Proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (iii) (B) of the preceding paragraph; (c) the defeasance, redemption,
repurchase, retirement or other acquisition of subordinated Indebtedness with
the Net Cash Proceeds from an incurrence of, or in exchange for, Permitted
Refinancing Indebtedness; (d) the payment of any dividend by a Restricted
Subsidiary of the Company to the holders of its Equity Interests on a pro rata
basis; (e) so long as no Default or Event of Default shall have occurred and be
continuing, the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company held by any member of the Company's
or any of its Restricted Subsidiaries' management upon the death, disability or
termination of employment of such member of management; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $500,000 in any calendar year and $2.5 million
in the aggregate; (f) loans or advances to Unimast by the Company or WPSC prior
to the first anniversary of the date of the Indenture of amounts borrowed by
WPSC under the Revolving Credit Facility provided (i) such loans or advances do
not exceed $40 million at any time outstanding, (ii) Unimast pays interest
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to WPSC on such loans or advances in an amount equal to the interest payable by
WPSC on such amounts pursuant to the Revolving Credit Facility and (iii) such
loans and advances are repaid in full on or prior to the first anniversary of
the date of the Indenture; (g) the payment by the Company of management fees to
WHX not to exceed $2.5 million in any calendar year, in exchange for services
provided to it by WPN pursuant to the management agreement between WHX and WPN;
and (h) payments permitted under the WHX Agreements.
In determining the amount of Restricted Payments permissible under
clause (iii) of the first paragraph of this covenant, amounts expended pursuant
to clauses (a) and (e) of the immediately preceding paragraph shall be included
as Restricted Payments for purposes of such clause (iii).
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation. All such outstanding Investments will
be deemed to constitute Investments in an amount equal to the greater of (a) the
net book value of such Investments at the time of such designation and (b) the
fair market value of such Investments at the time of such designation. Such
designation will be permitted only if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined by
the Board of Directors of the Company whose resolution with respect thereto
shall be delivered to the Trustee. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an officer's
certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant described in this
section were computed.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Indebtedness) and that the Company will not
permit any of its Restricted Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness if the
Consolidated Interest Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
would have been at least 2.00 to 1, on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred at the beginning of such four-quarter period.
Notwithstanding the foregoing, the Company and, to the extent set forth
below, its Restricted Subsidiaries may incur the following (each of which shall
be given independent effect):
(a) Indebtedness of the Company under the Notes and the
Indenture;
(b) Permitted Working Capital Indebtedness of the Company and
its Restricted Subsidiaries;
(c) Existing Indebtedness (other than Permitted Working
Capital Indebtedness and Indebtedness under the Letter of Credit
Facility);
(d) Indebtedness of the Company and its Restricted
Subsidiaries under the Letter of Credit Facility;
(e) Capital Expenditure Indebtedness, Capitalized Lease
Obligations and purchase money Indebtedness of the Company and its
Restricted Subsidiaries in an aggregate principal amount not to exceed
$50 million at any time outstanding;
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(f) (i) Hedging Obligations of the Company and its Restricted
Subsidiaries covering Indebtedness of the Company or such Restricted
Subsidiary (which Indebtedness is otherwise permitted to be incurred
under this covenant) to the extent the notional principal amount of any
such Hedging Obligation does not exceed the principal amount of the
Indebtedness to which such Hedging Obligation relates; or (ii)
repurchase agreements, reverse repurchase agreements or similar
agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by
any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition; provided that the terms of such agreements comply with the
guidelines set forth in Federal--Financial Agreements of Depository
Institutions with Securities and Others (or any successor guidelines),
as adopted by the Comptroller of the Currency;
(g) Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $30 million
at any time outstanding;
(h) Indebtedness of the Company representing guarantees of
Indebtedness incurred by one of its Restricted Subsidiaries pursuant
to, and in compliance with, another provision of this covenant;
(i) Indebtedness of the Company or any of its Restricted
Subsidiaries representing guarantees of a portion of the Indebtedness
of Wheeling-Nisshin which is not greater than the Company's or such
Restricted Subsidiary's pro rata ownership of the outstanding Equity
Interests in Wheeling-Nisshin; provided, however, that (i) such
Indebtedness is expressly subordinated to the prior payment in full in
cash of all Obligations with respect to the Notes and (ii) at the time
of incurrence and after giving effect to the Indebtedness of
Wheeling-Nisshin which is being guaranteed, the Consolidated Interest
Coverage Ratio of Wheeling-Nisshin for its most recently ended four
full fiscal quarters for which internal financial statements are
available would have been at least 2.00 to 1, determined on a pro forma
basis as if any additional Indebtedness had been incurred at the
beginning of such four quarter period;
(j) Indebtedness of the Company or its Restricted Subsidiaries
representing guarantees of Indebtedness of Wheeling-Nisshin required to
be made pursuant to the Letter of Undertaking not to exceed $10
million;
(k) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company
and any of its Wholly Owned Restricted Subsidiaries; provided, however,
that (i) if the Company is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full in
cash of all Obligations with respect to the Notes and (ii) (A) any
subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a
Wholly Owned Restricted Subsidiary and (B) any sale or other transfer
of any such Indebtedness to a Person that is not either the Company or
a Wholly Owned Restricted Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(l) Indebtedness under the Term Loan Agreement; and
(m) any Permitted Refinancing Indebtedness representing a
replacement, renewal, refinancing or extension of Indebtedness
permitted under the first paragraph and clauses (c) and (l) of this
covenant.
Liens
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien on any asset now owned or hereafter acquired,
or any income or profits therefrom or assign or convey any right to receive
income therefrom, without making effective provision for all payments due under
the Indenture and the Notes and the Subsidiary Guarantees to be directly secured
on an equal and ratable basis with the obligations so secured or, in the event
such Indebtedness is subordinate in right of payment to the Notes or the
Subsidiary Guarantees, prior to such Indebtedness, in each case until such time
as such obligations are no longer secured by a Lien.
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Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may create, incur, assume or suffer to exist (each of which shall
be given independent effect):
(a) Permitted Liens;
(b) Liens to secure the payment of Capital Expenditure
Indebtedness and Capitalized Lease Obligations, provided that (i) the
aggregate principal amount of Indebtedness secured by such Liens shall
not exceed the lesser of cost or Fair Market Value of the assets or
property acquired, constructed or improved with the proceeds of such
Indebtedness and (ii) such Liens shall not encumber any other assets or
property of the company and its Subsidiaries;
(c) Liens secured by the Capital Stock or assets of
Wheeling-Nisshin or Ohio Coatings Company to the extent required under
agreements as existing on the date of the Indenture; and
(d) Liens on accounts receivable, inventory, intangibles
necessary or useful for the sale of such inventory, and other current
assets of the Company or any Restricted Subsidiary or on Capital Stock
of Subsidiaries, in each case incurred to secure Permitted Working
Capital Indebtedness.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a) (i) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries on its Capital Stock or with respect to any other interest or
participation in, or measured by, its profits, or (ii) pay any indebtedness owed
to the Company or any of its Restricted Subsidiaries, (b) make loans or advances
to the Company or any of its Restricted Subsidiaries or (c) transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (1)
Existing Indebtedness as in effect on the date of the Indenture including,
without limitation, restrictions under the Revolving Credit Facility, as in
effect on the date of the Indenture and any refinancings, amendments,
restatements, renewals or replacements thereof; provided, however, that the
agreements governing such contain restrictions that are not more restrictive,
taken as a whole, than those contained in the agreement governing the
Indebtedness being so refinanced, amended, restated, renewed or replaced (2) the
Indenture, the Notes and the Subsidiary Guarantees, (3) applicable law, (4) any
instrument governing Indebtedness or Capital Stock of a person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any person, or the properties or assets of any person,
other than the person, or the property or assets of the person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indenture to be incurred, (5) customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (6) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (c) above on the property so acquired, (7) customary
provisions in bona fide contracts for the sale of property or assets, or (8)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are not more
restrictive, taken as a whole, than those contained in the agreements governing
the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, person or entity unless (a) the Company is the surviving
corporation or the entity or the person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia, (b) the entity or person formed
by or surviving any
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such consolidation or merger (if other than the Company) or the entity or person
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the Notes
and the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, (c) immediately after such transaction no Default
or Event of Default exists and (d) except in the case of a merger of the Company
with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or
the entity or person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Interest Coverage Ratio test set forth
in the first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate or any officer, director or employee of the Company
(each of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated person or, if there is no such comparable transaction, on terms that
are fair and reasonable to the Company, and (b) the Company delivers to the
Trustee (i) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $2.0
million, either (A) a resolution of the Board of Directors of the Company set
forth in an officer's certificate certifying that such Affiliate Transaction
complies with clause (a) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors of
the Company or (B) if there are no disinterested members of the Board of
Directors of the Company, an opinion as to the fairness to the Company of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing and (ii) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $5.0 million, an opinion as to
the fairness to the Company of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment banking firm of
national standing; provided, however, that the following shall be deemed not to
be Affiliate Transactions: (v) customary directors' fees, indemnification or
similar arrangements or any employment agreement or other compensation plan or
arrangement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary; (w) transactions between or among the
Company and/or its Wholly-Owned Restricted Subsidiaries; (x) transactions
pursuant to the WHX Agreements or agreements with or applicable to any of
Wheeling-Nisshin, Ohio Coatings Company, the Empire-Iron Mining Partnership or
W-P Coal Company, in each case as in effect on the date of the Indenture; (y)
the purchase of accounts receivable from Unimast for immediate resale on the
same terms pursuant to the Receivables Facility; and (z) Restricted Payments
that are permitted pursuant to clauses (e), (f), (g) and (h) of the second
paragraph of the covenant described under the heading "--Restricted Payments"
and Indebtedness permitted to be incurred pursuant to clauses (i) and (j) of the
second paragraph of the covenant described under the heading "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided, however, that the Company may enter into a sale and
leaseback transaction if (a) the Company could have (i) incurred Indebtedness in
an amount equal to the Attributable Indebtedness relating to such sale and
leaseback transaction pursuant to the Consolidated Interest Coverage Ratio test
set forth in the first paragraph of the covenant described under the heading
"--Incurrence of Indebtedness and Issuance of Preferred Stock" and (ii) incurred
a Lien to secure such Indebtedness pursuant to the covenant described
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above under the heading "--Liens," (b) the gross cash proceeds of such sale and
leaseback transaction are at least equal to the fair market value (as determined
in good faith by the Board of Directors of the Company and set forth in an
officer's certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (c) the transfer of assets in
such sale and leaseback transaction is permitted by, and the Company applies the
Net Cash Proceeds of such transaction in compliance with, the covenant described
under the heading "--Repurchase at the Option of Holders--Asset Sales."
Issuances and Sales of Capital Stock of Subsidiaries
The Indenture provides that the Company (a) will not permit any Wholly
Owned Restricted Subsidiary of the Company to issue any of its Equity Interests
to any person other than to the Company or a Wholly Owned Restricted Subsidiary
of the Company, and (b) will not, and will not permit any Wholly Owned
Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary
of the Company to any person (other than the Company or any Wholly Owned
Restricted Subsidiary of the Company) unless (i) such transfer, conveyance,
sale, lease or other disposition is of all of the Capital Stock of such Wholly
Owned Restricted Subsidiary and (ii) the Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with the
covenant described under the caption "--Repurchase at the Option of
Holders--Asset Sales"; provided that this clause (b) shall not apply to any
pledge of Capital Stock of any Wholly Owned Restricted Subsidiary of the Company
permitted pursuant to clause (d) of the covenant described under the caption
"--Liens."
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall, after the date of the Indenture, acquire, create or
designate another Restricted Subsidiary, then such newly acquired, created or
designated Restricted Subsidiary shall execute a Subsidiary Guarantee and
deliver an opinion of counsel in accordance with the terms of the Indenture.
Payment for Consent
The Indenture provides that neither the Company nor any of its
Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any holder
of any Notes for or as an inducement to any consent, waiver or amendment of any
of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all holders of the Notes that
consent, waive or agree to amend in the timeframe set forth in the solicitation
statement documents relating to such consent, waiver or agreement.
Reports
The Indenture provides that, whether or not the Company is required to
do so by the rules and regulations of the Commission, the Company will file with
the Commission (unless the Commission will not accept such a filing) and, within
15 days of filing, or attempting to file, the same with the Commission, furnish
to the holders of the Notes (a) all quarterly and annual financial and other
information with respect to the Company and its Subsidiaries that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants, and (b) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, the Company and the Guarantors will
furnish to the holders of the Notes, prospective purchasers of the Notes and
securities analysts, upon their request, the information, if any, required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event
of Default: (a) default in the payment when due of interest or Liquidated
Damages on the Notes and such default continues for 30 days; (b) default in
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payment when due of the principal of or premium (if any) on the Notes; (c)
failure by the Company to comply with the provisions described under the
captions "--Repurchase at the Option of Holders--Change of Control," "--Asset
Sales," "--Certain Covenants--Restricted Payments," "--Incurrence of
Indebtedness and Issuance of Preferred Stock" or "--Merger, Consolidation or
Sale of Assets"; (d) failure by the Company for 30 days after notice to comply
with any of its other agreements in the Indenture or the Notes; (e) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists or is created after the date of the
Indenture, which default (i) is caused by a failure to pay principal of or
premium (if any) or interest on such Indebtedness prior to the expiration of any
grace period provided in such Indebtedness (a "Payment Default") or (ii) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$10.0 million or more; (f) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $10.0 million,
which judgments are not paid, discharged or stayed for a period of 60 days; (g)
failure by any Guarantor to perform any covenant set forth in its Subsidiary
Guarantee, or the repudiation by any Guarantor of its obligations under its
Subsidiary Guarantee or the unenforceability of any Subsidiary Guarantee against
a Guarantor for any reason, unless, in each such case, such Guarantor and its
Subsidiaries have no Indebtedness outstanding at such time or at any time
thereafter; and (h) certain events of bankruptcy or insolvency with respect to
the Company or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, any Significant Subsidiary
or any group of Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
November 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to such date, then the premium
specified in the Indenture shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.
The holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of the principal of or interest or Liquidated Damages on the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of Notes by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may
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not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (a) the rights of holders of outstanding Notes to
receive payments in respect of the principal of and interest, premium (if any)
and Liquidated Damages (if any) on such Notes when such payments are due from
the trust referred to below, (b) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (c) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (d) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "--Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of and interest, premium (if any) and
Liquidated Damages (if any) on the outstanding Notes on the stated maturity or
on the applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date, (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred, (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred, (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit), (v) such
Legal Defeasance or Covenant Defeasance will not result in a breach or violation
of, or constitute a default under any material agreement or instrument (other
than the Indenture) to which the Company or any of its Restricted Subsidiaries
is a party or by which the Company or any of its Restricted Subsidiaries is
bound, (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (vii) the Company must deliver to the Trustee an
officer's certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others and (viii) the Company must deliver to the
Trustee an officer's certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Transfer and Exchange
A holder of Notes may transfer or exchange Notes in accordance with the
Indenture. The registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The
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Company is not required to transfer or exchange any Note selected for
redemption. Also, the Company is not required to transfer or exchange any Note
for a period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for
all purposes.
Amendment, Supplement and Waiver
Except as provided below, the Indenture or the Notes may be amended or
supplemented with the consent of the holders of at least a majority in principal
amount of the Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Notes held by a non-consenting Holder): (a) reduce the
principal amount of Notes whose holders must consent to an amendment, supplement
or waiver, (b) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (including
as described under the caption "--Repurchase at the Option of Holders"), (c)
reduce the rate of or change the time for payment of interest on any Note, (d)
waive a Default or Event of Default in the payment of principal of or interest,
premium (if any) or Liquidated Damages (if any) on the Notes (except a
rescission of acceleration of the Notes by the holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration), (e) make any Note payable in money other than
that stated in the Notes, (f) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of holders of Notes to
receive payments of principal of or interest, premium (if any) or Liquidated
Damages (if any) on the Notes, (g) waive a redemption payment with respect to
any Note (including a payment as described under the caption "--Repurchase of
the Option of Holders"), (h) make any change in the foregoing amendment and
waiver provisions, (i) modify the ranking or priority of the Notes or the
Subsidiary Guarantees in any manner adverse to the Holders or (j) except as
provided in the Indenture, release any Guarantor from its obligations under its
Subsidiary Guarantee, or change any Subsidiary Guarantee in any manner that
would adversely affect the Holders.
Notwithstanding the foregoing, without the consent of any holder of
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to holders of Notes in
the case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the holders of Notes or that does not adversely
affect the legal rights under the Indenture of any such holder, or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days and apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of Notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
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Additional Information
Anyone who receives this Prospectus may obtain a copy of the form of
Indenture and Registration Rights Agreement without charge by writing to
Wheeling-Pittsburgh Corporation, attention: Treasurer.
Certain Definitions
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Indebtedness" means, with respect to any specified person,
(i) Indebtedness of any other person existing at the time such other person is
merged with or into or became a Restricted Subsidiary of such specified person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other person merging with or into or becoming a
Restricted Subsidiary of such specified person, and (ii) Indebtedness secured by
a Lien encumbering an asset acquired by such specified person at the time such
asset is acquired by such specified person.
"Affiliate" of any specified Person means any other Person which,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with, such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
person shall be deemed to be control, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means the sale, lease, conveyance, disposition or other
transfer (a "disposition") of any properties, assets or rights (including,
without limitation, a sale and leaseback transaction or the issuance, sale or
transfer by the Company of Equity Interests of a Restricted Subsidiary) whether
in a single transaction or a series of related transactions; provided, however,
that the following transactions will be deemed not to be Asset Sales: (a) sales
of inventory in the ordinary course of business; (b) a disposition of assets by
the Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned
Restricted Subsidiary of the Company to the Company or to another Wholly Owned
Restricted Subsidiary of the Company; (c) a disposition of Equity Interests by a
Wholly Owned Restricted Subsidiary of the Company to the Company or to another
Wholly Owned Restricted Subsidiary of the Company; (d) a Permitted Investment or
Restricted Payment that is permitted by the Indenture; (e) the issuance by the
Company of Equity Interests; (f) the disposition of properties, assets or rights
in any fiscal year the aggregate Net Proceeds of which are less than $1 million;
and (g) the sale of accounts receivable pursuant to the Receivables Facility.
"Attributable Indebtedness" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Capital Expenditure Indebtedness" means Indebtedness incurred by any
Person to finance the purchase or construction of any property or assets
acquired or constructed by such Person which have a useful life of more than one
year so long as (a) the purchase or construction price for such property or
assets is included in "addition to property, plant or equipment" in accordance
with GAAP, (b) the acquisition or construction of such property or assets is not
part of any acquisition of a Person or line of business and (c) such
Indebtedness is incurred within 90 days of the acquisition or completion of
construction of such property or assets.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
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"Capital Stock" means (a) in the case of a corporation, corporate
stock, (b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and (d) any
other interest or participation that confers on a person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
person.
"Cash Equivalents" means (a) United States dollars, (b) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than six months from the date of acquisition, (c) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any domestic commercial bank
having capital and surplus in excess of $500 million, (d) repurchase obligations
with a term of not more than thirty days for underlying securities of the types
described in clauses (b) and (c) above entered into with any financial
institution meeting the qualifications specified in clause (c) above, (d)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Rating Service and in each case maturing
within six months after the date of acquisition and (e) money market mutual
funds substantially all of the assets of which are invested primarily of the
type described in the foregoing clauses (a) through (d).
"Consolidated Cash Flow" means, with respect to any person for any
period, the Consolidated Net Income of such person for such period plus, without
duplication (a) provision for taxes based on income or profits of such person
and its Restricted Subsidiaries, to the extent that such provision for taxes was
included in computing Consolidated Net Income, plus (b) Consolidated Interest
Expense of such person and its Restricted Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing Consolidated Net Income, plus (c) depreciation and
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid, outside of the
ordinary course of business, in a prior period) and other non-cash charges of
such person and its Restricted Subsidiaries for such period, to the extent that
such depreciation, amortization and other non-cash charges were deducted in
computing Consolidated Net Income, minus (d) non-cash items increasing
consolidated revenues in determining Consolidated Net Income for such period to
the extent not already reflected as an expense in computing Consolidated Net
Income, minus (e) all cash payments during such period relating to non-cash
charges and other non-cash items that were or would have been added back in
determining Consolidated Cash Flow for any prior period, in each case, on a
consolidated basis and determined in accordance with GAAP.
"Consolidated Interest Coverage Ratio" means with respect to any person
for any period, the ratio of the Consolidated Cash Flow of such person for such
period to the Consolidated Interest Expense of such person for such period;
provided, however, that the Consolidated Interest Coverage Ratio shall be
calculated giving pro forma effect to each of the following transactions as if
each such transaction had occurred at the beginning of the applicable
four-quarter reference period: (a) any incurrence, assumption, guarantee or
redemption by the Company or any of its Restricted Subsidiaries of any
Indebtedness (including revolving credit borrowings based on the average daily
balance outstanding during the relevant period) subsequent to the commencement
of the period for which the Consolidated Interest Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation of
the Consolidated Interest Coverage Ratio is made (the "Calculation Date"); (b)
any acquisition that has been made by the Company or any of its Restricted
Subsidiaries, or approved and expected to be consummated within 30 days of the
Calculation Date, including, in each case, through a merger or consolidation,
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date (in which case Consolidated Cash Flow for such reference period
shall be calculated to include the Consolidated Cash Flow of the acquired
entities and without giving effect to clause (c) of the proviso set forth in the
definition of Consolidated Net Income); and (c) any other transaction that may
be given pro forma effect in accordance with Article 11 of Regulation S-X as in
effect from time to time; and provided, further, that (i) the Consolidated Cash
Flow attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded and (ii) the
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Consolidated Interest Expense attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Consolidated Interest Expense will not be
obligations of the referent person or any of its Restricted Subsidiaries
following the Calculation Date.
"Consolidated Interest Expense" means, with respect to any person for
any period, the sum, without duplication, of (a) the consolidated interest
expense of such person and its Restricted Subsidiaries for such period, whether
paid or accrued (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), (b) any interest expense on Indebtedness of another person that is
guaranteed by such person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such person or one of its Restricted Subsidiaries (whether or
not such guarantee of Lien is called upon), (c) the consolidated interest
expense of such person and its Restricted Subsidiaries that was capitalized
during such period and (d) the product of (i) all cash dividend payments on any
series of preferred stock of such person, times (ii) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rates of such person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any person for any
period, the aggregate of the Net Income of such person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the Net Income (but not loss) of any person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent person or a Wholly Owned Restricted
Subsidiary thereof, (b) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (c) the Net Income of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (d) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any person as of any
date, the sum of (a) the consolidated equity of the common stockholders of such
person and its consolidated Restricted Subsidiaries as of such date plus (b) the
respective amounts reported on such person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
person upon issuance of such preferred stock, less (i) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such person or a consolidated Restricted Subsidiary of such
person, (ii) all investments as of such date in unconsolidated Restricted
Subsidiaries and in persons that are not Subsidiaries and (iii) all unamortized
debt discount and expense and unamortized deferred charges as of such date, in
each case determined in accordance with GAAP; provided, however, that any
changes after the date of the Indenture in the liabilities of such person and
its Restricted Subsidiaries in respect of other post-retirement employee
benefits or pension benefits that would be reflected on a consolidated balance
sheet of such person and its Restricted Subsidiaries in accordance with GAAP
shall be excluded.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures (excluding any
maturity as a result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or
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prior to the date that is 91 days after the date on which the Notes mature or
are redeemed or retired in full; provided, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof (or of any
security into which it is convertible or for which it is exchangeable) have the
right to require the issuer to repurchase such Capital Stock (or such security
into which it is convertible or for which it is exchangeable) upon the
occurrence of an Asset Sale or a Change of Control shall not constitute
Disqualified Stock if such Capital Stock (and all such securities into which it
is convertible or for which it is exchangeable) provides that the issuer thereof
will not repurchase or redeem any such Capital Stock (or any such security into
which it is convertible or for which it is exchangeable) pursuant to such
provisions prior to compliance by the Company with the provisions of the
Indenture described under the caption "--Repurchase at the Option of
Holders--Change of Control" or "--Asset Sales," as the case may be.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries in existence on the date of the Indenture, including,
without limitation, the Obligations of the Company and its Restricted
Subsidiaries under (i) the Close Corporation and Shareholders Agreement of Ohio
Coatings Company as existing on the date of the Indenture and the guarantee by
the Company or any Restricted Subsidiary of up to $20 million of Indebtedness of
Ohio Coatings Company under the Credit Agreement between Ohio Coatings Company
and National City Bank, Northeast, or (ii) the Keepwell Agreement, dated
December 28, 1995, between the Company, WPSC, WHX and the lenders party thereto
as existing on the date of the Indenture to the extent permitted by the WHX
Agreements, until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any person, the
obligations of such person under interest rate swap agreements, interest rate
cap agreements, interest rate collar agreements and other agreements or
arrangements designed to protect such person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any person, any indebtedness of
such person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such person prepared in accordance with GAAP, as well as Indebtedness of
others secured by a Lien on any asset of such person (whether or not such
Indebtedness is assumed by such person) and, to the extent not otherwise
included, the guarantee by such person of any Indebtedness of any other person.
The amount of any Indebtedness outstanding as of any data shall be (a) the
accreted value thereof, in the case of any Indebtedness that does not require
current payments of interest and (b) the principal amount thereof, in the case
of any other Indebtedness.
"Investments" means, with respect to any person, all investments by
such person in other persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees by the referent person of, and Liens on any
assets of the referent person securing, Indebtedness or other obligations of
other persons), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in
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accordance with GAAP. If the Company or any Restricted Subsidiary of the Company
sells or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such person is no longer a Restricted Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "--Certain Covenants--Restricted Payments."
"Letter of Credit Facility" means the Letter of Credit Agreement, dated
as of August 22, 1994, among WPSC and Citibank, N.A., as the same may be
amended, supplemented or otherwise modified including any refinancing,
refunding, replacement or extension thereof and whether by the same or any other
lender or group of lenders, provided, that the aggregate amount of letters of
credit available may not exceed $50,000,000.
"Letter of Undertaking" means that certain letter of undertaking dated
July 21, 1997 from WHX to The Sanwa Bank, Limited, as existing on the date of
the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Cash Proceeds" means, with respect to any issuance or sale of
common stock of the Company, means the cash proceeds of such issuance or sale
net of attorneys' fees, accountants' fees, underwriters' fees, broker's
commissions and consultant and any other fees actually incurred in connection
with such issuance or sale.
"Net Income" means, with respect to any person, the net income (loss)
of such person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (a) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (i) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (ii)
the disposition of any securities by such person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such person or any of
its Restricted Subsidiaries and (b) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
(without duplication) (a) the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
sales commissions, recording fees, title transfer fees, title insurance
premiums, appraiser fees and costs incurred in connection with preparing such
asset for sale) and any relocation expenses incurred as a result thereof, (b)
taxes paid or estimated to be payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), (c) amounts required to be applied to the repayment of
Indebtedness (other than Permitted Working Capital Indebtedness) secured by a
Lien on the asset or assets that were the subject of such Asset Sale, (d) any
reserve established in accordance with GAAP or any amount placed in escrow, in
either case for adjustment in respect of the sale price of such asset or assets,
until such time as such reserve is reversed or such escrow arrangement is
terminated, in which case Net Proceeds shall include only the amount of the
reserve so reversed or the amount returned to the Company or its Restricted
Subsidiaries from such escrow arrangement, as the case may be.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise) or (c) constitutes the lender, and (ii) with respect to which no
default (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other
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Indebtedness of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Note Pro Rata Share" means with respect to Excess Proceeds, the amount
equal to the product of (a) Excess Proceeds and (b) the fraction determined by
dividing (i) the aggregate principal amount of Notes then outstanding by (ii)
the sum of the aggregate principal amount of Notes then outstanding and the
aggregate amount of borrowings under the Term Loan Agreement then outstanding.
"Obligations" means any principal, interest, penalties, fees,
indemnification, reimbursements, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company, (b) any Investment in Cash
Equivalents, (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a person that is engaged in the same line of business as the
Company and its Restricted Subsidiaries were engaged in on the date of the
Indenture or a line of business or manufacturing or fabricating operation
reasonably related thereto (including any downstream steel manufacturing or
processing operation or manufacturing or fabricating operation in the
construction products business) if as a result of such Investment (i) such
person becomes a Wholly Owned Restricted Subsidiary of the Company and a
Guarantor or (ii) such person is merged, consolidated or amalgamated with or
into, or transfers of conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the
Company, (d) any Investment made as a result of the receipt of non-cash
consideration from (i) an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "--Repurchase at the Option
of Holders-- Asset Sales" or (ii) a disposition of assets that does not
constitute an Asset Sale, (e) any Investment acquired solely in exchange for
Equity Interests (other than Disqualified Stock) of the Company, (f) Investments
existing as of the date of the Indenture and (g) other Investments in any person
that is engaged in the same line of business as the Company and its Restricted
Subsidiaries were engaged in on the date of the Indenture or a line of business
or manufacturing or fabricating operation reasonably related thereto (including
any downstream steel manufacturing or processing operation or manufacturing or
fabricating operation in the construction products business) which Investment
has a fair market value (as determined by a resolution of the Board of Directors
of the Company and set forth in an officer's certificate delivered to the
Trustee), when taken together with all other investments made pursuant to this
clause (g) that are at the time outstanding, not to exceed $10.0 million.
"Permitted Liens" means (a) Liens existing as of the date of the
Indenture; (b) Liens in favor of the Company and its Subsidiaries; (c) Liens on
property of a person existing at the time such person is merged into or
consolidated with the Company or any Subsidiary of the Company, provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the person
merged into or consolidated with the Company or any of its Subsidiaries; (d)
Liens on property existing at the time of acquisition thereof by the Company or
any Subsidiary of the Company, provided that such Liens were in existence prior
to the contemplation of such acquisition; (e) pledges or deposits under
workmen's compensation laws, unemployment insurance laws or similar legislation,
or good faith deposits in connection with bids, tenders, contracts (other than
for the payment of Indebtedness) or leases to which such person is a party, or
deposits to secure public statutory obligations of such person or deposits of
cash or United States Government bonds to secure surety or appeal bonds to which
such person is a party, or deposits as security for contested taxes or import
duties or for the payment of rent in each case incurred in the ordinary course
of business (f) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently pursued, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (g) Liens incurred in the
ordinary course of business of the Company or any Restricted Subsidiary of the
Company with respect to obligations that do not exceed $10.0 million at any one
time outstanding and that (1) are not incurred in connection with the borrowing
of money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (2) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Restricted Subsidiary; (h) Liens
securing Permitted Refinancing Indebtedness, provided that the Company was
permitted to incur such Liens with respect to the Indebtedness so refinanced;
and (i) minor encroachments, encumbrances, easements or reservations of, or
rights of others for, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other
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restrictions as to the use of real properties all of which do not materially
impair the value or utility for its intended purposes of the real property to
which they relate or Liens incidental to the conduct of the business of such
Person or to the ownership of its properties.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness (other than Indebtedness under the Revolving Credit
Agreement) of the Company or any of its Restricted Subsidiaries; provided that
(a) the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or accreted
value, if applicable), plus premium, if any, and accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith), (b)
such Permitted Refinancing Indebtedness has a final maturity date no earlier
than the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded, (c) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes, such
Permitted Refinancing Indebtedness is subordinated in right of payment to the
Notes on terms at least as favorable, taken as a whole, to the holders of Notes
as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded and such
Indebtedness shall not have any scheduled principal payment prior to the 91st
day after the final maturity date of the Notes and (d) such Indebtedness is
incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; provided, however, that a Restricted Subsidiary may
guarantee Permitted Refinancing Indebtedness incurred by the Company, whether or
not such Restricted Subsidiary was an obligor or guarantor of the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and
provided, further, that if such Permitted Refinancing Indebtedness is
subordinated to the Notes, such guarantee shall be subordinated to such
Restricted Subsidiary's Subsidiary Guarantee to at least the same extent.
"Permitted Working Capital Indebtedness" means Indebtedness of the
Company and its Restricted Subsidiaries under the Revolving Credit Facility and
under any other agreement, instrument, facility or arrangement that is intended
to provide working capital financing or financing for general corporate purposes
(including any asset securitization facility involving the sale of accounts
receivable); provided that the aggregate outstanding amount of such Indebtedness
of the Company and its Restricted Subsidiaries, at the time of incurrence, shall
not exceed greater of (a) the sum of (i) 50% of the net aggregate book value of
all inventory of the Company and its Restricted Subsidiaries at such time and
(ii) 80% of the net aggregate book value of all accounts receivable (net of bad
debt expense) of the Company and its Restricted Subsidiaries at such time and
(b) $175 million.
"Public Equity Offering" means an underwritten offering of common stock
of the Company meeting the registration requirements of the Securities Act.
"Receivables Facility" means the program for the issuance and placement
from time to time of trade receivable backed adjustable rate securities, all as
contemplated by that certain Pooling and Servicing Agreement, dated as of August
1, 1994, between Wheeling-Pittsburgh Funding, Inc., WPSC, Bank One, Columbus,
N.A. and Wheeling-Pittsburgh Trade Receivable Master Trust and that certain
Receivables Purchase Agreement, dated as of August 1, 1994, between WPSC and
Wheeling-Pittsburgh Funding, Inc., as each may be amended, supplemented or
otherwise modified including any refunding, replacement or extension thereof.
"Replacement Assets" means (x) properties and assets (other than cash
or any Capital Stock or other security) that will be used in a business of the
Company and its Subsidiaries conducted on the date of the Indenture or in a line
of business or manufacturing or fabricating operation reasonably related thereto
(including any downstream steel processing or manufacturing operation or
manufacturing or fabricating operation in the construction products business) or
(y) Capital Stock of any person that will become on the date of the acquisition
thereof a Wholly Owned Restricted Subsidiary of the Company as a result of such
acquisition.
"Restricted Investment" means an Investment other than a Permitted
Investment.
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"Restricted Subsidiary" of a person means any Subsidiary of such person
that is not an Unrestricted Subsidiary.
"Revolving Credit Facility" means the Second Amended and Restated
Credit Agreement, dated as of December 28, 1995, among WPSC, the lenders party
thereto and Citibank, N.A. as agent, as the same may be amended, supplemented or
otherwise modified including any refinancing, refunding, replacement or
extension thereof and whether by the same or any other lender or groups of
lenders.
"Significant Subsidiary" means any Restricted Subsidiary that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any person, (a) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
person or one or more of the other Subsidiaries of that person (or a combination
thereof) and (b) any partnership (i) the sole general partner or the managing
general partner of which is such person or a Subsidiary of such person or (ii)
the only general partners of which are such person or of one or more
Subsidiaries of such person (or any combination thereof).
"Tax Sharing Agreement" means the Tax Sharing Agreement between the
Company and WHX as in effect on the date of the Indenture.
"Term Loan Agreement" means the Term Loan Agreement dated as of the
date of the Indenture, between the Company, DLJ Capital Funding, Inc., as
syndication agent, Donaldson, Lufkin & Jenrette Securities Corporation, as
arranger, Citicorp USA, Inc., as documentation agent, a financial institution to
be determined as administrative agent and the lenders party thereto.
"Unimast" means Unimast, Inc., an Ohio corporation.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to
a resolution of the Board of Directors of the Company, but only to the extent
that such Subsidiary (a) has no Indebtedness other than Non-Recourse Debt, (b)
is not party to any agreement, contract, arrangement or understanding with the
Company or any Restricted Subsidiary of the Company unless such agreement,
contract, arrangement or understanding does not violate the terms of the
Indenture described under the caption "--Certain Covenants--Transactions with
Affiliates," (c) is a person with respect to which neither the Company nor any
of its Restricted Subsidiaries has any direct or indirect obligation (i) to
subscribe for additional Equity Interests or (ii) to maintain or preserve such
person's financial condition or to cause such person to achieve any specified
levels of operating results, in each case, except to the extent otherwise
permitted by the Indenture. Any such designation by the Board of Directors of
the Company shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under the
caption "--Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock," the Company shall be in default
of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any
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outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (A) such Indebtedness is permitted under the covenant
described under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (B) no
Default or Event of Default would be in existence following such designation.
"U.S. Government Obligations" means direct, fixed-rate obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged, which are not callable and which mature (or may be put to the issuer
by the holder at no less than par) no later than the maturity date of the Notes.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"Wheeling-Nisshin" means Wheeling-Nisshin, Inc., a Delaware
corporation.
"Wholly Owned Restricted Subsidiary" of any person means a Restricted
Subsidiary of such person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such person or by one or more Wholly Owned Restricted
Subsidiaries of such person.
"WHX" means WHX Corporation, a Delaware corporation.
"WHX Agreements" mean (i) the Intercreditor, Indemnification and
Subordination Agreement by and among the Company, WHX, WPSC and Unimast and (ii)
the Tax Sharing Agreement, in each case as in effect on the date of this
Indenture.
Book-Entry; Delivery and Form
The certificates representing the Notes are issued in fully registered
form without interest coupons. Notes sold in offshore transactions in reliance
on Regulation S under the Securities Act will initially be represented by one or
more temporary global Notes in definitive, fully registered form without
interest coupons (each a "Temporary Regulation S Global Note") and will be
deposited with the Trustee as custodian for, and registered in the name of a
nominee of, DTC for the accounts of Euroclear and Cedel Bank. The Temporary
Regulation S Global Note will be exchangeable for one or more permanent global
Notes (each a "Permanent Regulation S Global Note"; and together with the
Temporary Regulation S Global Notes, the "Regulation S Global Note") on or after
the 40th day following the Closing Date upon certification that the beneficial
interests in such global Note are owned by non-U.S. persons. Prior to the 40th
day after the Closing Date, beneficial interests in the Temporary Regulation S
Global Note may be held only through Euroclear or Cedel Bank and any resale or
other transfer of such interests to U.S. persons shall not be permitted during
such period unless such resale or transfer is made pursuant to Rule 144A or
Regulation S and in accordance with the requirements described below.
Notes sold in reliance on Rule 144A will be represented by one or more
permanent global Notes in definitive, fully registered form without interest
coupons (each a "Restricted Global Note"; and together with the Regulation S
Global Note, the "Global Notes") and will be deposited with the Trustee as
custodian for, and registered in the name of a nominee of, DTC.
Each Global Note (and any Notes issued for exchange therefor) will be
subject to certain restrictions on transfer set forth therein as described under
"Transfer Restrictions."
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Notes originally purchased by or transferred to Institutional
Accredited Investors who are not qualified institutional buyers ("Non-Global
Purchasers") will be issued Notes in registered form without interest coupons
("Certificated Notes"). Upon the transfer of Certificated Notes initially issued
to a Non-Global Purchaser to a qualified institutional buyer or in accordance
with Regulation S, such Certificated Notes will, unless the relevant Global Note
has previously been exchanged in whole for Certificated Notes, be exchanged for
an interest in a Global Note. For a description of the restrictions on the
transfer of Certificated Notes, see "Transfer Restrictions."
The Global Notes. Ownership of beneficial interests in a Global Note
will be limited to persons who have accounts with DTC ("participants") or
persons who hold interests through participants. Ownership of beneficial
interests in a Global Note will be shown on, and the transfer of that ownership
will be effected only through, records maintained by DTC or its nominee (with
respect to interests of participants) and the records of participants (with
respect to interests of persons other than participants). Qualified
institutional buyers may hold their interests in a Restricted Global Note
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
Investors may hold their interests in a Regulation S Global Note
directly through Cedel Bank or Euroclear, if they are participants in such
systems, or indirectly through organizations that are participants in such
system. Cedel Bank and Euroclear will hold interests in the Regulation S Global
Notes on behalf of their participants through DTC.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with the applicable procedures of DTC, in addition to those provided for under
the Indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest on, a Global Note will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Issuer, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Issuer expects that DTC or its nominee, upon receipt of any payment
of principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Issuer also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules and will be settled in same-day funds.
Transfers between participants in Euroclear and Cedel Bank will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
The Issuer expects that DTC will take any action permitted to be taken
by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC will exchange the applicable Global
Note for Certificated Notes, which it will distribute to its participants and
which may be legended as set forth under the heading "Transfer Restrictions."
The Issuer understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing
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Agency" registered pursuant to the provisions of Section 17A under the Exchange
Act. DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC, Euroclear and Cedel Bank are expected to follow the
foregoing procedures in order to facilitate transfers of interests in a Global
Note among participants of DTC, Euroclear and Cedel Bank, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Issuer nor the Trustee
will have any responsibility for the performance by DTC, Euroclear or Cedel Bank
or their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
While all material tax consequences of the Notes are discussed below,
persons considering the purchase of Notes should consult their own tax advisors
concerning the application of United States federal income tax laws, as well as
the laws of any state, local, or other taxing jurisdiction applicable to their
particular situations.
In the opinion of Olshan Grundman Frome & Rosenzweig LLP, the United
States tax counsel to the Company, subject to the limitations set forth herein,
the following is an accurate summary of the material United States federal
income tax consequences of the purchase, ownership and disposition of the Notes.
The discussion below is based upon the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations, rulings and judicial
decisions thereunder as of the date hereunder, and such authorities may be
repealed, revoked or modified so as to result in U.S. federal income tax
consequences different from those discussed below.
Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Note that is not (i) a citizen or
resident of the United States, (ii) a corporation organized under the laws of
the United States or any political subdivision thereof or therein, (iii) an
estate, the income of which is subject to U.S. federal income tax regardless of
the source, or (iv) a trust if a court within the United States is able to
exercise primary supervision of the administration of the trust and one or more
U.S. persons have the authority to control all substantial decisions of the
trust (a "Non-U.S. Holder").
The discussion does not consider all aspects of U.S. federal income and
estate taxation that may be relevant to the purchase, ownership or disposition
of the Notes by a particular Non-U.S. Holder in light of such Holder's personal
circumstances, including holding the Notes through a partnership. For example,
persons who are partners in foreign partnerships and beneficiaries of foreign
trusts or estates who are subject to U.S. federal income tax because of their
own status, such as United States residents or foreign persons engaged in a
trade or business in the United States, may be subject to U.S. federal income
tax even though the entity is not subject to income tax on the disposition of
its Note.
For purposes of the following discussion, interest and gain on the
sale, exchange or other disposition of a Note will be considered "U.S. trade or
business income" if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business or (ii) in the case of a treaty resident,
attributable to a U.S. permanent establishment (or to a fixed base) in the
United States.
Stated Interest. Generally, any interest paid to a Non-U.S. Holder of a
Note that is not U.S. trade or business income will not be subject to United
States tax if the interest qualified as "portfolio interest." Generally,
interest on the Notes will qualify as portfolio interest if (i) the Non-U.S.
Holder does not actually or constructively own 10% or more of the total voting
power of all voting stock of the Company and is not a "controlled foreign
corporation" with respect to which the Company is a "related person" within the
meaning of the Code, (ii) the beneficial owner, under penalty of perjury,
certifies that the beneficial owner is not a United States person and such
certificate provides the beneficial owner's name and address on Form W-8 or, at
the option of the withholding agent, on a substitute form substantially similar
to Form W-8, and (iii) the Non-U.S. Holder is not a bank receiving interest on
an extension of credit made pursuant to a loan agreement entered into in the
ordinary course of its trade or business. A holder must notify the Company in
writing on a timely basis of any change affecting the validity of the Form W-8.
The gross amount of payments to a Non-U.S. Holder of interest that do
not qualify for the portfolio interest exception and that are not U.S. trade or
business income will be subject to U.S. federal income tax at the rate of 30%,
unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S.
trade or business income will be taxed on a net basis at regular U.S. rates
rather than the 30% gross rate. To claim the benefit of a tax treaty or to claim
exemption from withholding because the income is U.S. trade or business income,
the Non-U.S. Holder must provide a properly executed Internal Revenue Service
Form 1001 or 4224 (or such successor forms as the United States Internal Revenue
Service designates), as applicable, prior to the payment of interest. These
forms must be periodically updated. Recently adopted Treasury Regulations which
are not yet in effect (the "Final Regulations")
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would alter the foregoing rules in certain respects. In general, the Final
Regulations are effective January 1, 1999. Under the Final Regulations, a
Non-U.S. Holder that is seeking an exemption from withholding tax on account of
a treaty or on account of the Notes being held in connection with a U.S. trade
or business generally would be required to provide Internal Revenue Service Form
W-8. If the Notes are not actively traded, the Non-U.S. Holder also would be
required to provide a taxpayer identification number, and may be required to
provide other documentary evidence of foreign status. The Final Regulations also
contain rules concerning payments through intermediaries. Non-U.S. Holders
should consult their tax advisors concerning the application of the Final
Regulations in light of their own circumstances.
Sale, Exchange or Redemption of Notes. Except as described below and
subject to the discussion concerning backup withholding, any gain realized by a
Non-U.S. Holder on the sale, exchange or redemption of a Note generally will not
be subject to U.S. federal income tax, unless (i) such gain is U.S. trade or
business income, (ii) subject to certain exceptions, the Non-U.S. Holder is an
individual who holds the Note as a capital asset and is present in the United
States for 183 days or more in the taxable year of the disposition, or (iii) the
Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates.
Federal Estate Tax. Notes held (or treated as held) by an individual
who is a Non-U.S. Holder at the time of his or her death will not be subject to
U.S. federal estate tax, provided that the individual does not actually or
constructively own 10% or more of the total voting power of all voting stock of
the Company and income on the Notes was not U.S. trade or business income.
Information Reporting and Backup Withholding. The Company must report
annually to the United States Internal Revenue Service and to each Non-U.S.
Holder any interest that is subject to withholding or that is exempt from U.S.
withholding tax pursuant to a tax treaty or the portfolio interest exception.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.
Under certain circumstances, the United States Internal Revenue Service
requires information reporting and backup withholding of United States federal
income tax at a rate of 31% with respect to payments to certain non-corporate
Non-U.S. Holders (including individuals). Information reporting and backup
withholding will apply unless such non-corporate Non-U.S. Holders certify to the
withholding agent that the beneficial owner of the Note is not a U.S. Holder.
This certification requirement will generally be satisfied by the certification
provided to avoid the 30% withholding tax (described above).
The payment of the proceeds of a disposition of a Note by a Non-U.S.
Holder to or through the United States office of a broker or through a
non-United States branch of a United States broker generally will be subject to
information reporting and backup withholding at a rate equal to 31% of the gross
proceeds unless the Non-U.S. Holder certifies on Internal Revenue Service Form
W-8 that the beneficial owner of the Note is not a U.S. Holder or otherwise
establishes an exemption. The payment of the proceeds of a disposition of a Note
by a Non-U.S. Holder to or through a non-United States office of a non-United
States broker will not be subject to backup withholding or information reporting
unless the non-United States broker has certain United States relationships or
connections.
In the case of the payment of proceeds from the disposition of Notes to
or through a non-U.S. office of a broker that is either a U.S. person or a U.S.
related person, the regulations require information reporting on the payment
unless the broker has documentary evidence in its files that the owner is a
Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is a U.S. person or a U.S. related person (absent actual knowledge that the
payee is a U.S. person).
Any amount withheld under the backup withholding rules from a payment
to a Non-U.S. Holder will be allowed as a refund or a credit against such
Non-U.S. Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
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U.S. Holders
Subject to the discussion below, stated interest payable on to the
Notes will be taxable to a U.S. Holder as ordinary income when received or
accrued in accordance with such holder's regular method of tax accounting.
Market Discount. If a U.S. Holder purchases a Note for an amount that
is less than its stated principal amount, the amount of such difference will be
treated as "market discount" for U.S. federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market discount
rules, a U.S. Holder will be required to treat any principal payment on, or any
gain on the sale, exchange, retirement or other disposition of, a Note as
ordinary income to the extent of the market discount which has not previously
been included in income and is treated as having accrued on such Note at the
time of such payment or disposition. If a U.S. Holder makes a gift of a Note,
accrued market discount, if any, will be recognized as if such U.S. Holder had
sold such Note for a price equal to its fair market value. In addition, the U.S.
Holder may be required to defer, until the maturity of the Note or, in certain
circumstances, the earlier disposition of the Note in a taxable transaction, the
deduction of a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry such Note.
Any market discount will be considered to accrue on a straight-line
basis during the period from the date of acquisition to the maturity date of the
Note, unless the U.S. Holder elects to accrue market discount on a constant
interest method. A U.S. Holder of a Note may elect to include market discount in
income currently as it accrues (on either a straight-line basis or constant
interest method), in which case the rules described above regarding the deferral
of interest deductions will not apply. This election to include market discount
in income currently, once made, is irrevocable and applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent of
the Service.
Amortizable Bond Premium. A U.S. Holder that purchases a Note for an
amount in excess of the sum of all amounts payable on the Note after the
purchase date other than stated interest will be considered to have purchased
the Note at a "premium." A U.S. Holder may generally elect to amortize the
premium over the remaining term of the Note on a constant yield method. The
amount amortized in any year will be treated as a reduction of the U.S. Holder's
interest income from the Note. A U.S. Holder who elects to amortize bond premium
must reduce its tax basis in the related obligation by the amount of premium
amortized during its holding period. Bond premium on a Note held by a U.S.
Holder that does not make such an election will decrease the gain or increase
the loss otherwise recognized on disposition of the Note. The election to
amortize premium on a constant yield method once made applies to all debt
obligations held or subsequently acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the IRS.
Treasury regulations recently have been issued that require a U.S.
Holder that purchases a Note on or after March 2, 1998, or any subsequent
taxable year, at a premium, and elects to amortize such premium, must amortize
such premium under a constant yield method. However, a U.S. Holder may elect to
apply the new rules to all Notes held on or after the first day of the taxable
year containing March 2, 1998.
Sale or Other Disposition. In general, a U.S. Holder of Notes will
recognize gain or loss upon the sale, exchange, redemption, or other taxable
disposition of such Notes measured by the difference between (a) the amount of
cash and the fair market value of property received (except to the extent
attributable to accrued interest on the Notes previously taken into account) and
(b) the U.S. Holder's tax basis in the Notes, and market discount previously
included in income by the U.S. Holder and decreased by amortizable bond premium,
if any, deducted over the term of the Notes. Subject to the market discount
rules discussed above, any such gain or loss will generally be (x) long-term
capital gain or loss, provided the Notes have been held for more than 18 months,
(y) mid-term capital gain or loss, provided the Notes have been held for more
than 12 months but not more than 18 months and (z) short-term capital gain or
loss, provided the Notes have been held for not more than 12 months. The excess
of net long-term capital gains over net short-term capital losses is taxed at a
lower rate than ordinary income for certain non-corporate taxpayer. The
distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, limitations on the deductibility
of capital losses.
In general, an exchange of outstanding bonds such as the Old Notes for
newly issued bonds such as the New Notes is treated as tax free to exchanging
creditors and the debtor. In this case, a U.S. Holder's basis in the
-91-
<PAGE>
New Notes is generally the same as his basis in the Old Notes and the U.S.
Holder's holding period in the New Notes includes the period for which the Old
Notes had been held. Although no gain or loss would be recognized to an
exchanging U.S. Holder under these circumstances, if the exchange of the Old
Notes for the New Notes were deemed to constitute an exchange of a debt
instrument for a modified debt instrument that differed materially in kind or in
extent, and the issue price of the New Notes (which would be their
publicly-traded fair market value on the date on which a substantial amount of
the New Notes is issued) was less than that of the Old Notes, original issue
discount could arise to a U.S. Holder.
Backup Withholding. "Backup" withholding and information reporting
requirements may apply to certain payments of principal and interest on a Note
and to certain payments of proceeds of the sale or retirement of a Note. The
Company, any agent thereof, a broker, the Trustee or any paying agent, as the
case may be, will be required to withhold tax from any payment that is subject
to backup withholding at a rate of 31% of such payment if the U.S. Holder fails
to furnish his taxpayer identification number (social security number or
employer identification number), to certify that such U.S. Holder is not subject
to backup withholding, or to otherwise comply with the applicable requirements
of the backup withholding rules. Certain U.S. Holders (including, among others,
all corporations) are not subject to the backup withholding and reporting
requirements.
-92-
<PAGE>
PLAN OF DISTRIBUTION
Except as described below, (i) a broker-dealer may not participate in
the Exchange Offer in connection with a distribution of the New Notes, (ii) such
broker-dealer would be deemed an underwriter in connection with such
distribution and (iii) such broker-dealer would be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions. A broker-dealer may, however,
receive New Notes for its own account pursuant to the Exchange Offer in exchange
for Old Notes when such Old Notes were acquired as a result of market-making
activities or other trading activities. Each such broker-dealer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer (other than an "affiliate" of the Company) in
connection with resales of such New Notes. The Company has agreed that for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any such broker-dealer for use in
connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in a Letter of Transmittal. The Company has agreed to pay all expenses incident
to the Exchange Offer other than commissions or concessions of any brokers or
dealers and transfer taxes and will indemnify the Holders of the Old Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
The Initial Purchasers have indicated to the Company that they intend
to effect offers and sales of the New Notes in market-making transactions at
negotiated prices related to prevailing market prices at the time of sale, but
is not obligated to do so and such market-making activities may be discontinued
at any time. The Initial Purchasers may act as principal or agent in such
transactions. There can be no assurance that an active market for the New Notes
will develop.
LEGAL MATTERS
Certain legal matters in connection with the Notes offered hereby will
be passed upon for the Company by Olshan Grundman Frome & Rosenzweig LLP, New
York, New York. Marvin L. Olshan, a member of Olshan Grundman Frome & Rosenzweig
LLP, is a director and Secretary of the Company.
EXPERTS
The consolidated financial statements of Wheeling-Pittsburgh
Corporation and its subsidiaries as of December 31, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997, included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
-93-
<PAGE>
The financial statements of Wheeling-Nisshin as of December 31, 1997
and 1996, and for each of the three years ended December 31, 1997 included in
this Prospectus have been audited by Coopers & Lybrand L.L.P., independent
accountants, as stated in their report appearing herein.
-94-
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
<S> <C>
Report of Price Waterhouse LLP, Independent Accountants.........................................................F-2
Consolidated Statements of Operations of WPC for the years ended December 31,
1997, 1996 and 1995........................................................................................F-3
Consolidated Balance Sheets of WPC as of December 31, 1997 and 1996.............................................F-4
Consolidated Statements of Cash Flows of WPC for the years ended December 31,
1997, 1996 and 1995........................................................................................F-5
Notes to Consolidated Financial Statements of WPC...............................................................F-6
Report of Coopers & Lybrand L.L.P., Independent Accountants...................................................F-25
Financial Statements of Wheeling-Nisshin, Inc..................................................................F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Wheeling-Pittsburgh Corporation (a wholly-owned subsidiary of
WHX Corporation)
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of cash flows present fairly,
in all material respects, the financial position of Wheeling-Pittsburgh
Corporation and its subsidiaries (the "Company") at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and the significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
February 10, 1998
F-2
<PAGE>
WHEELING-PITTSBURGH CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF WHX CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997
(DOLLARS IN THOUSANDS)
----------------------------------------------------
REVENUES:
<S> <C> <C> <C>
Net sales..................................................... $ 1,267,869 $ 1,110,684 $ 489,662
COST AND EXPENSES:
Cost of products sold, excluding
depreciation and profit sharing............................. 1,059,622 988,161 585,609
Depreciation.................................................. 65,760 66,125 46,203
Profit sharing................................................ 6,718 -- --
Selling, administrative and general expense................... 55,023 54,903 52,222
Special charge................................................ -- -- 92,701
----------------- ----------------- -----------------
1,187,123 1,109,189 776,735
----------------- ----------------- -----------------
Operating income (loss)....................................... 80,746 1,495 (287,073)
Interest expense on debt...................................... 22,431 23,763 27,204
Other income (loss)........................................... 3,234 9,476 (221)
----------------- ----------------- -----------------
Income (loss) before taxes
and extraordinary item...................................... 61,549 (12,792) (314,498)
Tax provision (benefit)....................................... 3,030 (7,509) (110,035)
----------------- ----------------- -----------------
Income (loss) before
extraordinary item.......................................... 58,519 (5,283) (204,463)
Extraordinary charge--net of tax............................. (3,043) -- (25,990)
----------------- ----------------- -----------------
Net income (loss) ............................................ $ 55,476 $ (5,283) $ (230,453)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
WHEELING-PITTSBURGH CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF WHX CORPORATION)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------
1996 1997
(Dollars in thousands)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents..................................................... $ 35,950 $ 0
Trade receivables, less allowances for doubtful
accounts of $1,149 and $1,108............................................... 24,789 44,569
Inventories................................................................... 193,329 255,857
Prepaid expenses and deferred charges......................................... 13,366 24,938
----------------- -----------------
Total current assets.................................................... 267,434 325,364
Investment in associated companies............................................. 65,297 68,742
Property, plant and equipment, at cost less
accumulated depreciation and amortization..................................... 710,999 694,108
Deferred income taxes........................................................... 100,157 196,966
Intangible asset-pension........................................................ -- 76,714
Due from affiliates............................................................. 58,522 27,955
Deferred charges and other assets............................................... 43,483 34,719
----------------- -----------------
$ 1,245,892 $ 1,424,568
================= =================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
<S> <C> <C>
Trade payables................................................................ $ 51,500 $ 116,559
Short term borrowings......................................................... -- 89,800
Payroll and employee benefits................................................. 57,094 56,212
Federal, state and local taxes................................................ 9,083 11,875
Deferred income taxes--current................................................ 30,649 32,196
Interest and other............................................................ 8,067 9,354
Long-term debt due in one year................................................ 2,019 199
----------------- -----------------
Total current liabilities............................................... 158,412 316,195
Long-term debt.................................................................. 267,395 349,904
Other employee benefit liabilities.............................................. 435,502 427,125
Pension liability............................................................... -- 166,652
Other liabilities............................................................... 46,096 49,980
----------------- -----------------
907,405 1,309,856
================= =================
STOCKHOLDER'S EQUITY:
Common Stock $.01 par value; 100 shares issued and outstanding.................. -- --
Additional paid-in capital...................................................... 265,387 272,065
Accumulated earnings (deficit)................................................. 73,100 (157,353)
----------------- -----------------
338,487 114,712
----------------- -----------------
$ 1,245,892 $ 1,424,568
================= =================
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
WHEELING-PITTSBURGH CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF WHX CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1995 1996 1997
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss)............................................. $ 55,476 $ (5,283) $ (230,453)
Items not affecting cash from operating activities:
Depreciation and amortization............................... 65,760 66,125 46,203
Other postretirement benefits............................... 5,522 3,505 2,322
Coal retirees' medical benefits, net of tax................. 3,043 -- 1,700
Premium on early debt retirement, net of tax................ -- -- 24,290
Income taxes................................................ (5,530) (6,572) (94,029)
Special charges, net of current portion..................... -- -- 69,137
Pension expense............................................. -- -- 9,327
Equity (income) loss in affiliated companies................ (4,845) (9,495) 1,206
Decrease (increase) in working capital elements:
Trade receivables........................................... 33,365 50,061 (43,780)
Trade receivables sold...................................... 22,000 (22,000) 24,000
Inventories................................................. (5,412) 73,247 (62,528)
Trade payables.............................................. (10,736) (48,721) 65,059
Other current assets........................................ (6,311) 4,033 (11,572)
Other current liabilities................................... (10,060) (13,973) 4,744
Other items--net.............................................. 4,297 1,355 18,868
----------------- ----------------- -----------------
Net cash flow provided by (used in) operating activities...... 146,569 92,282 (175,506)
----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant additions and improvements............................ (81,554) (31,188) (33,755)
Investments in affiliates................................... (7,353) (17,240) (7,150)
Proceeds from sales of assets............................... -- 1,425 1,217
Dividends from affiliated companies......................... 2,500 2,500 2,500
----------------- ----------------- -----------------
Net cash used in investing activities......................... (86,407) (44,503) (37,188)
----------------- ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt proceeds, net of issuance cost............... -- -- 340,270
Long-term debt retirement................................... (4,085) (15,153) (268,277)
Premium on early debt retirement............................ -- -- (32,600)
Short term debt borrowings.................................. -- -- 89,800
Letter of credit collateralization.......................... 1,094 384 16,984
Receivables from affiliates................................. (27,123) (39,886) 30,567
----------------- ----------------- -----------------
Net cash provided by (used in) financing activities........... (30,114) (54,655) 176,744
----------------- ----------------- -----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. 30,048 (6,876) (35,950)
Cash and cash equivalents at beginning of year................ 12,778 42,826 35,950
----------------- ----------------- -----------------
Cash and cash equivalents at end of year...................... $ 42,826 $ 35,950 $ --
================- ================= =================
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES
The accounting policies presented below have been followed in preparing
the accompanying consolidated financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiary companies. All significant intercompany accounts and transactions are
eliminated in consolidation. The Company uses the equity method of accounting
for investments in unconsolidated companies owned 20% or more.
EARNINGS PER SHARE
Presentation of earnings per share is not meaningful since the Company
is a wholly owned subsidiary of WHX Corporation. See Note A--Corporate
Reorganization.
BUSINESS SEGMENT
The Company is primarily engaged in one line of business and has one
industry segment, which is the making, processing and fabricating of steel and
steel products. The Company's products include hot rolled and cold rolled sheet,
and coated products such as galvanized, prepainted and tin mill sheet. The
Company also manufactures a variety of fabricated steel products including roll
formed corrugated roofing, roof deck, form deck, floor deck, culvert, bridge
form and other products used primarily by the construction, highway and
agricultural markets.
Through an extensive mix of products, the Company markets to a wide
range of manufacturers, converters and processors. The Company's 10 largest
customers (including Wheeling-Nisshin) accounted for approximately 35.4% of its
net sales in 1995, 34.9% in 1996 and 30.2% in 1997. Wheeling-Nisshin was the
only customer to account for more than 10% of net sales in 1995 and 1996. No
single customer accounted for more than 10% of net sales in 1997.
Wheeling-Nisshin accounted for 15.2% and 12.7% of net sales in 1995 and 1996,
respectively. Geographically, the majority of the Company's customers are
located within a 350-mile radius of the Ohio Valley.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and on deposit and
highly liquid debt instruments with original maturities of three months or less.
INVENTORIES
Inventories are stated at cost which is lower than market. Cost is
determined by the last-in first-out ("LIFO") method for substantially all
inventories.
F-6
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed on the straight line and the modified units of
production methods for financial statement purposes and accelerated methods for
income tax purposes. The modified units of production method adjusts the
straight line method based on an activity factor for operating assets. Adjusted
annual depreciation is not less than 60% nor more than 110% of straight line
depreciation. Accumulated depreciation after adjustment is not less than 75% nor
more than 110% of straight line depreciation. Interest cost is capitalized for
qualifying assets during the assets' acquisition period. Capitalized interest
cost is amortized over the life of the related asset.
Maintenance and repairs are charged to income. Renewals and betterments
made through replacements are capitalized. Profit or loss on property
dispositions is credited or charged to income.
PENSIONS, OTHER POSTRETIREMENT AND POSTEMPLOYMENT PLANS
The Company has a tax qualified defined benefit pension plan covering
USWA - represented hourly employees and a tax qualified defined contribution
pension plan covering substantially all salaried employees. The defined benefit
plan provides for a defined monthly benefit based on years of service. The
defined contribution plan provides for contributions based on a percentage of
compensation for salaried employees. Costs for the defined contribution plan are
being funded currently. Unfunded accumulated benefit obligations under the
defined benefit plan are subject to annual minimum cash funding requirements
under the Employees Retirement Income Security Act ("ERISA").
The Company sponsors medical and life insurance programs for
substantially all employees. Similar group medical programs extend to pensioners
and dependents. The management plan provides basic medical and major medical
benefits on a non-contributory basis through age 65.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income
Taxes. Recognition is given in the accounts for the income tax effect of
temporary differences in reporting transactions for financial and tax purposes
using the deferred liability method. Tax provisions and the related tax payments
or refunds have been reflected in the Company's financial statements in
accordance with a tax sharing agreement between WHX and the Company.
ENVIRONMENTAL MATTERS
The Company accrues for losses associated with environmental
remediation obligations when such losses are probable and reasonably estimable.
Accruals for estimated losses from environmental remediation obligations
generally are recognized no later than completion of the remedial feasibility
study.
Such accruals are adjusted as further information develops or
circumstances change. Costs of future expenditures for environmental remediation
obligations are not discounted to their present value. Recoveries of
environmental remediation costs from other parties are recorded as assets when
their receipt is deemed probable.
F-7
<PAGE>
NOTE A--CORPORATE REORGANIZATION
FORMATION OF WHX CORPORATION
On July 26, 1994 the Company and its subsidiaries were reorganized and
a new holding company, WHX Corporation ("WHX"), was formed. Upon effectiveness
of the merger each share of Wheeling-Pittsburgh Corporation ("WPC"), WPC Series
A Preferred Stock and each WPC Warrant were converted into a share of WHX Common
Stock, WHX Series A Preferred Stock and a WHX Warrant, respectively. WHX also
assumed the obligation to purchase the Redeemable Common Stock of the ESOP and
guaranteed substantially all of the Company's outstanding indebtedness. See Note
H. The merger was a change in legal organization and the assets and liabilities
transferred were accounted for at historical cost with carryover basis.
The merger was accounted for as a reorganization of entities under
common control whereby the basis of assets and liabilities were unchanged.
Pursuant to the merger agreement the Company contributed the capital stock of
the following subsidiaries to WHX: WP Land Company, Wheeling-Pittsburgh Radio
Corporation (and its subsidiaries) and Wheeling-Pittsburgh Capital Corporation.
Additionally, the Company contributed the cash and marketable securities and
certain real property and leasehold interests to WHX. WPC retained the capital
stock of the remaining steel-related subsidiaries and equity investments.
Prior to the Corporate Reorganization, the operations of the non-steel
subsidiaries, and the income and gains and losses from the cash, marketable
securities and real estate were included in the consolidated results of
operations of the Company. Following the Corporate Reorganization, such results
were included only in the consolidated results of WHX.
At December 31, 1996 and 1997, amounts due from affiliates totaled
$58.5 million and $28.0 million, respectively. These amounts reflect cash
advances between affiliates, dividends paid by WPC on behalf of WHX,
intercompany tax allocations and Unimast working capital advances.
NOTE B -- COLLECTIVE BARGAINING AGREEMENT
The Company's prior labor agreement with the USWA expired on October 1,
1996. On August 1, 1997 the Company and the USWA announced that they had reached
a tentative agreement on the terms of a new collective bargaining agreement. The
tentative agreement was ratified on August 12, 1997 by USWA-represented
employees, ending a ten month strike. The new collective bargaining agreement
provides for a defined benefit pension plan, a retirement enhancement program,
short-term bonuses and special assistance payments for employees not immediately
recalled to work and $1.50 in hourly wage increases over its term of not less
than five years. It also provides for the reduction of 850 jobs, mandatory
multicrafting as well as modification of certain work practices.
NOTE C -- SPECIAL CHARGE - NEW LABOR AGREEMENT
The Company recorded a special charge of $92.7 million in 1997. The
special charge is primarily related to certain benefits included in its new
collective bargaining agreement .
The special charges include enhanced retirement benefits to be paid
under the defined benefit pension program which totaled $66.7 million and were
recorded under the provisions of Statement of Financial Accounting Standard
No.88, Employers' Accounting For Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and various other charges which
totaled $26.0 million. These charges include $15.5 million for signing and
retention bonuses, $3.8 million for special assistance payments to laid-off
employees and other employee benefits and $6.7 million for the fair value of a
stock option grant to WPN Corp. for its performance in negotiating a new labor
agreement.
F-8
<PAGE>
NOTE D--PENSIONS, OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
PENSION PROGRAMS
The Company provides defined contribution pension programs for both
hourly and salaried employees, and prior to August 12, 1997 also provided a
defined contribution pension program for USWA-represented employees. Tax
qualified defined contribution plans provide in the case of hourly employees an
increasing company contribution per hour worked based on the age of its
employees. A similar tax qualified plan for salaried employees provides defined
company contributions based on a percentage of compensation.
On August 12, 1997 the Company established a defined benefit pension
plan for USWA - represented employees pursuant to a new labor agreement. The
plan includes individual participant accounts of USWA represented employees from
the hourly defined contribution plan and merges the assets of those accounts
into the defined benefit plan.
As of December 31, 1997, $127.0 million of fully vested funds are held
in trust for benefits earned under the hourly defined contribution pension plan.
Approximately 59% of the trust assets are invested in equities and 41% in fixed
income investments.
As of December 31, 1997, $35.0 million of fully vested funds are held
in trust for benefits earned under the salaried employees defined contribution
plan. Approximately 57% of the assets are invested in equities and 43% are in
fixed income investments. All plan assets are invested by professional
investment managers.
All pension provisions charged against income totaled $10.8 million,
$9.3 million and $12.6 million in 1995, 1996 and 1997, respectively. In 1997,
the Company also recorded a $66.7 million charge for enhanced retirement
benefits paid under the defined benefit pension plan, pursuant to a new labor
agreement.
DEFINED BENEFIT PLAN
The plan was established pursuant to a collective bargaining agreement
ratified on August 12, 1997. Prior to that date, benefits were provided through
a defined contribution plan, the Wheeling-Pittsburgh Steel Corporation
Retirement Security Plan ("Retirement Security Plan").
The defined benefit pension plan covers employees represented by the
USWA. The plan also includes individual participant accounts from the Retirement
Security Plan. The assets of the Retirement Security Plan were merged into this
Bargaining Unit Pension Plan as of December 1, 1997.
Since the plan includes the account balances from the Retirement
Security Plan, the plan includes both defined benefit and defined contribution
features. The gross benefit, before offsets, is calculated based on years of
service and the current benefit multiplier under the plan. This gross amount is
then offset for benefits payable from the Retirement Security Plan and benefits
payable by the Pension Benefit Guaranty Corporation from previously terminated
plans. Individual employee accounts established under the Retirement Security
Plan are maintained until retirement. Upon retirement, the account balances are
converted into monthly benefits that serve as an offset to the gross benefit, as
described above. Aggregate account balances held in trust at December 31, 1997
total $121.3 million.
As part of the bargaining agreement, the Company offered a limited
program of Retirement Enhancements. The Retirement Enhancement program provides
for unreduced retirement benefits to the first 850 employees who retire after
October 1, 1996. In addition, each retiring participant can elect a lump sum
payment of $25,000 or a $400 monthly supplement payable until age 62. More than
850 employees applied for retirement under this program prior to December 31,
1997.
F-9
<PAGE>
The Retirement Enhancement program represented a Curtailment and
Special Termination Benefits under SFAS No. 88. The Company recorded a charge of
$66.7 million in 1997 to cover the retirement enhancement program.
The Company's funding policy is to contribute annually an amount that
satisfies the minimum funding standards of ERISA.
The following table sets forth the reconciliation of the projected
benefit obligation ("PBO") to the accrued obligation included in the Company's
consolidated balance sheet at December 31, 1997.
December 31,
1997
----
(Dollars in thousands)
Vested benefit obligation $(127,457)
Non-vested benefit (44,974)
---------
Projected benefit obligation (172,431)
Plan assets at fair value 5,179
----------
Obligations in excess of plan assets (167,252)
Unrecognized prior service cost 76,714
---------
Accrued pension costs (90,538)
Additional minimum pension liability (76,714)
---------
Total pension liability $(167,252)
=========
Net Periodic Pension Cost:
Service cost $2,278
Interest cost 4,172
Return on assets --
Amortization of prior service cost 2,877
--------
Net periodic pension cost 9,327
Recognition of retirement enhancement program 66,676
Total pension cost $76,003
Assumptions and Methods
Discount Rate: 7%
Long Term Rate of Return on Plan Assets: 8%
Assets: Market Value
Participant Census: Projected from January 1, 1997
401-K PLAN
Effective January 1, 1994 the Company began matching salaried employee
contributions to the 401(K) plan with shares of the Company's Common Stock. The
Company matches 50% of the employees contributions. The employer contribution is
limited to a maximum of 3% of an employee's salary. Matching contributions of
WHX Common Stock pursuant to the 401(k) plan are charged to WPC at market value
through the intercompany accounts. At December 31, 1995, 1996 and 1997, the
401(K) plan held 115,151 shares, 190,111 shares and 275,537 shares of WHX Common
Stock, respectively.
F-10
<PAGE>
POSTEMPLOYMENT BENEFITS
The Company provides benefits to former or inactive employees after
employment but before retirement. Those benefits include, among others,
disability, severance and workers' compensation. The assumed discount rate used
to measure the benefit liability was 7.5% at December 31, 1996 and 7.0% at
December 31, 1997.
OTHER POSTRETIREMENT BENEFITS
The Company sponsors postretirement benefit plans that cover both
management and hourly retirees and dependents. The plans provide medical
benefits including hospital, physicians' services and major medical expense
benefits and a life insurance benefit. The hourly employees' plans provide
non-contributory basic medical and a supplement to Medicare benefits, and major
medical coverage to which the Company contributes 50% of the insurance premium
cost. The management plan has provided basic medical and major medical benefits
on a non-contributory basis through age 65.
The Company accounts for these benefits in accordance with SFAS No.
106. The cost of postretirement medical and life benefits for eligible employees
are accrued during the employee's service period through the date the employee
reaches full benefit eligibility. The Company defers and amortizes recognition
of changes to the unfunded obligation that arise from the effects of current
actuarial gains and losses and the effects of changes in assumptions. The
Company funds the plans as current benefit obligations are paid. Additionally,
in 1994 the Company began funding a qualified trust in accordance with its
collective bargaining agreement. The new collective bargaining agreement
provides for the use of those funds to pay current benefit obligations and
suspends additional funding until 2002. The following table sets forth the
reconciliation of the Accumulated Postretirement Benefit Obligation ("APBO") to
the accrued obligation included in the Company's consolidated balance sheet at
December 31, 1996 and 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Active employees not eligible for retirement.................................... $ 85,030 $ 54,443
Active employees eligible to retire............................................. 68,300 51,841
Retirees and beneficiaries...................................................... 208,011 202,528
----------------- -----------------
Accumulated postretirement benefit obligation.................................. 361,341 308,812
Plan assets at fair market value................................................ 13,010 7,795
----------------- -----------------
Obligations in excess of plan assets............................................ 348,331 301,017
Unamortized reduction in prior service cost..................................... 1,806 40,486
Unamortized gain................................................................ 64,303 71,942
----------------- -----------------
Accrued postretirement benefit obligation....................................... $ 414,440 $ 413,445
================= =================
</TABLE>
At December 31, 1997 plan assets consisted primarily of short term
corporate notes.
F-11
<PAGE>
The following table sets forth the components of the recorded net
periodic postretirement benefit costs.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997
(DOLLARS IN THOUSANDS)
Net periodic postretirement benefit cost:
<S> <C> <C> <C>
Service cost.................................................. $ 3,563 $ 3,953 $ 2,488
Interest cost................................................. 26,757 23,982 20,950
Other......................................................... (3,570) (3,888) (7,490)
----------------- ----------------- -----------------
Total........................................................ $ 26,750 $ 24,047 $ 15,948
================= ================= =================
Assumptions:
Discount rate................................................. 7.0% 7.0% 7.0%
Health care cost trend rate.................................. 10.5% 9.5% 9.0%
Return on assets.............................................. 8.0% 8.0% 8.0%
</TABLE>
For measurement purposes, medical costs are assumed to increase at
annual rates as stated above and declining gradually to 4.5% in 2004 and beyond.
The health care cost trend rate assumption has significant effect on the costs
and obligation reported. A 1% increase in the health care cost trend rate in
each year would result in approximate increases in the accumulated
postretirement benefit obligation of $25.1 million, and net periodic benefit
cost of $4.3 million.
COAL INDUSTRY RETIREE HEALTH BENEFIT ACT
The Coal Industry Retiree Health Benefit Act of 1992 (the "Act")
created a new United Mine Workers of America postretirement medical and death
benefit plan to replace two existing plans which had developed significant
deficits. The Act assigns companies the remaining benefit obligations for former
employees and beneficiaries, and a pro rata allocation of benefits related to
unassigned beneficiaries ("orphans"). The Company's obligation under the Act
relates to its previous ownership of coal mining operations.
In 1995 the Social Security Administration (SSA) assigned additional
retirees and orphans to the Company. Based on the information obtained over the
past several years the Company believed the liability had been reasonably
determined and valued the liability at its net present value using a 7.5%
discount rate. After discounting the liability to present value, the net charge
to income in 1995 totaled $3.0 million. At December 31, 1997 the actuarially
determined accrued liability discounted at 7% covering 532 assigned retirees and
dependents and 133 orphans, totaled $10.8 million. The Company recorded an
extraordinary charge of $1.7 million (net of tax) in 1997 related to assignment
of additional orphans.
NOTE E--INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997
(DOLLARS IN THOUSANDS)
INCOME TAXES BEFORE EXTRAORDINARY ITEMS
Current
<S> <C> <C> <C>
Federal tax provision....................................... $ 7,810 $ (1,317) $ 0
State tax provision......................................... 750 380 460
----------------- ----------------- -----------------
Total income taxes current.................................... 8,560 (937) 460
----------------- ----------------- -----------------
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997
(DOLLARS IN THOUSANDS)
Deferred
<S> <C> <C> <C>
Federal tax provision (benefit)............................. (35,684) (6,572) (110,495)
Pre-reorganization tax benefits 30,154 -- --
recorded directly to equity............................... ----------------- ----------------- -----------------
Income tax provision (benefit)................................ $ 3,030 $ (7,509) $ (110,035)
================= ================= =================
TOTAL INCOME TAXES
Current
Federal tax provision....................................... $ 7,810 $ (1,317) $ --
State tax provision......................................... 750 380 460
----------------- ----------------- -----------------
Total income taxes current.................................... 8,560 (937) 460
----------------- ----------------- -----------------
Deferred
Federal tax provision (benefit)............................. (37,322) (6,572) (124,490)
Pre-reorganization tax benefits 30,154 -- --
recorded directly to equity............................... ----------------- ----------------- -----------------
Income tax provision (benefit)................................ $ 1,392 $ (7,509) $ (124,030)
================= ================= =================
COMPONENTS OF TOTAL INCOME TAXES
Operations................................................... $ 3,030 $ (7,509) $ (110,035)
Extraordinary items........................................... (1,638) -- (13,995)
----------------- ----------------- -----------------
Income tax provision (benefit)................................ $ 1,392 $ (7,509) $ (124,030)
================= ================= =================
</TABLE>
Deferred income taxes result from temporary differences in the financial basis
and tax basis of assets and liabilities. Deferred taxes for WHX as common parent
and all subsidiaries at least 80% owned (the "Consolidated Group") are recorded
on the books of WPC. Deferred tax assets and/or liabilities attributable to WHX
are not material for the periods presented. The type of differences that give
rise to deferred income tax liabilities or assets are shown in the following
table:
DEFERRED INCOME TAX SOURCES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1997
(DOLLARS IN MILLIONS)
ASSETS
<S> <C> <C>
Postretirement and postemployment employee benefits............................. $ 147.1 $ 147.7
Operating loss carryforward (expiring in 2005 to 2012).......................... 8.0 76.7
Minimum tax credit carryforwards (indefinite carryforward)...................... 49.5 49.5
Provision for expenses and losses............................................... 43.3 87.0
Leasing activities.............................................................. 25.2 23.8
State income taxes.............................................................. 6.0 1.4
Miscellaneous other............................................................. 7.7 7.5
----------------- -----------------
Deferred tax assets........................................................ 286.8 393.6
----------------- -----------------
F-13
<PAGE>
LIABILITIES
Property plant and equipment.................................................... (157.1) (166.1)
Inventory...................................................................... (34.4) (34.9)
State income taxes.............................................................. (4.9) (1.0)
Miscellaneous other............................................................. (.9) (6.8)
----------------- -----------------
Deferred tax liability..................................................... (197.3) (208.8)
Valuation allowance............................................................. (20.0) (20.0)
----------------- -----------------
Deferred income tax asset--net.................................................. $ 69.5 $ 164.8
================= =================
</TABLE>
As of December 31, 1997, for financial statement reporting purposes a
balance of approximately $29.0 million of prereorganization tax benefits exist.
These benefits will be reported as a direct addition to equity as they are
recognized. In 1995 tax benefits of $42.1 million were recognized as a direct
addition to equity of which $30.2 million was recognized by the Company and
$11.9 million was recognized by the common parent of the Consolidated Group.
This $11.9 million was charged to the common parent pursuant to the tax sharing
agreement and is part of the "Due From Affiliate". The decrease in the valuation
allowance in 1995 reflects the recognition of these tax benefits. No
prereorganization tax benefits were recognized in 1996 and 1997.
During 1994, the Company experienced an ownership change as defined by
Section 382 of the Internal Revenue Code. As the result of this event, the
Company will be limited in its ability to use net operating loss carryforwards
and certain other tax attributes to reduce subsequent tax liabilities. The
amount of taxable income that can be offset by pre-change tax attributes in any
annual period is limited to approximately $32 million per year.
A tax sharing agreement between the Company and WHX determines the tax
provision and related tax payments or refunds allocated to the Company in years
in which they are combined in a consolidated federal income tax return. The tax
sharing agreement stipulates that Wheeling-Pittsburgh Steel Corporation
("WPSC"), a wholly-owned subsidiary (and principal operating subsidiary) of
Wheeling-Pittsburgh Corporation ("WPC") shall be deemed to have succeeded to the
portion of the net operating loss and credit carryovers attributable to the
steel group on December 31, 1990.
Total federal and state income taxes paid in 1995, 1996 and 1997 were
$18.0 million, $3.5 million and $0.7 million, respectively.
Federal tax returns have been examined by the Internal Revenue Service
("IRS") through 1987. The statute of limitations has expired for years through
1993; however, the IRS can review prior years to adjust any NOL's incurred in
such years and carried forward to offset income in subsequent open years.
Management believes it has adequately provided for all taxes on income.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income as follows:
F-14
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997
(DOLLARS IN THOUSANDS)
Income (loss) before taxes and extraordinary
<S> <C> <C> <C>
item........................................................ $ 61,549 $ (12,792) $ (314,498)
=============== =============== ================
Tax provision (benefit) at statutory rate..................... $ 21,542 $ (4,477) $ (110,074)
Increase (reduction) in tax due to:
Percentage depletion........................................ (973) (1,027) (1,092)
Equity earnings............................................. (1,288) (2,408) 338
State income tax net of federal effect...................... 1,624 260 299
Alternative minimum tax rate differential................... -- -- --
Reduction in valuation allowance net of
equity adjustment......................................... (16,300) -- --
(1,575) 143 494
Other miscellaneous......................................... ----------------- ----------------- -----------------
Tax provision (benefit) $ 3,030 $ (7,509) $ (110,035)
================= ================= =================
</TABLE>
NOTE F--INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Finished products............................................................... $ 44,621 $ 42,810
In-process...................................................................... 59,984 106,740
Raw materials................................................................... 80,147 103,735
Other materials and supplies................................................... 19,476 19,811
----------------- -----------------
204,228 273,096
LIFO reserve.................................................................... (10,899) (17,239)
----------------- -----------------
$ 193,329 $ 255,857
================= =================
</TABLE>
During 1996 and 1997, certain inventory quantities were reduced,
resulting in liquidations of LIFO inventories, the effect of which decreased
income by approximately $1.2 million in 1996, and increased income by
approximately $0.6 million in 1997.
NOTE G--PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land and mineral properties..................................................... $ 7,121 $ 7,071
Buildings, machinery and equipment.............................................. 1,021,435 1,034,189
Construction in progress........................................................ 18,023 21,741
----------------- -----------------
1,046,579 1,063,001
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Accumulated depreciation and amortization...................................... 335,580 368,893
----------------- -----------------
$ 710,999 $ 694,108
================= =================
</TABLE>
The Company utilizes the modified units of production method of
depreciation which recognizes that the depreciation of steelmaking machinery is
related to the physical wear of the equipment as well as a time factor. The
modified units of production method provides for straight line depreciation
charges modified (adjusted) by the level of raw steel production. In 1996 and
1997 depreciation under the modified units of production method was $7.6 million
or 13.4% and $21.6 million or 40.0%, respectively, less than straight line
depreciation. The 1996 and 1997 reductions in depreciation primarily reflect the
ten-month strike which began October 1, 1996.
NOTE H--LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Senior Unsecured Notes due 2007, 9 1/4%......................................... $ -- $ 273,966
Term Loan Agreement due 2006, floating rate..................................... -- 75,000
Senior Unsecured Notes due 2003, 93/8%:......................................... 266,155 --
IRS pension tax note due 1997, 8%............................................... 1,833 --
Other........................................................................... 1,426 1,137
----------------- -----------------
269,414 350,103
Less portion due within one year............................................... 2,019 199
----------------- -----------------
Total Long-Term Debt(1).................................................... $ 267,395 $ 349,904
================= =================
</TABLE>
(1) The fair value of long-term debt at December 31, 1996 and December 31,
1997 was $269.1 million and $350.1 million, respectively. Fair value of
long-term debt is estimated based on trading in the public market.
Long-term debt maturing in each of the next five years is as follows:
1998, $199; 1999, $219; 2000, $217; 2001, $233 and 2002, $259.
A summary of the financial agreements at December 31, 1997 follows:
REVOLVING CREDIT FACILITY:
On December 28, 1995, WPSC entered into a Second Amended and Restated
Revolving Credit Facility ("RCF") with Citibank, N.A. as agent. The RCF provides
for borrowings for general corporate purposes up to $150 million and a $35
million sub-limit for Letters of Credit.
The Credit Agreement expires May 3, 1999. Interest rates are based on
the Citibank prime rate plus 1.0% and/or a Eurodollar rate plus 2.25%, but, the
margin over the prime rate and the Eurodollar rate can fluctuate based upon
performance. A commitment fee of .5% is charged on the unused portion. The
letter of credit fee is 2.25% and is also performance based.
Borrowings are secured primarily by 100% of the eligible inventory of
WPSC, Pittsburgh-Canfield Corporation ("PCC"), Wheeling Construction Products,
Inc. ("WCPI") and Unimast, and the terms of the RCF contain various restrictive
covenants, limiting among other things dividend payments or other distribution
of assets,
F-16
<PAGE>
as defined in the RCF. The Company and Unimast, Inc., are wholly-owned
subsidiaries of WHX. WPSC, PCC and WCPI are wholly-owned subsidiaries of the
Company. Certain financial covenants associated with leverage, net worth,
capital spending, cash flow and interest coverage must be maintained. WPC, PCC,
WCPI and Unimast have each guaranteed all of the obligation's of WPSC under the
Revolving Credit Facility ("RCF"). See Note J. Borrowings outstanding against
the RCF at December 31, 1997 totaled $89.8 million. No letters of credit were
outstanding under the RCF.
In August 1994 WPSC entered into a separate facility for letters of
credit up to $50 million. At December 31, 1997 letters of credit totaling $9.3
million were outstanding under this facility. The letters of credit are
collateralized at 105% with U.S. Government securities owned by the Company, and
are subject to an administrative charge of .4% per annum on the amount of
outstanding letters of credit.
9 3/8% SENIOR NOTES DUE 2003:
On November 23, 1993 WPC issued $325.0 million of 9 3/8% Senior Notes.
Interest on the Senior Notes is payable semiannually on May 15 and November 15
of each year, commencing May 15, 1994. The Senior Notes mature on November 15,
2003. During 1994, the Company repurchased $54.3 million of its outstanding 9
3/8% Senior Notes at an average price of 94% of the related outstanding
principal amount.
During 1996, $4.2 million of the Senior Notes were retired via the
issuance by WHX Corporation shares of its common stock pursuant to the terms of
the Senior Notes Indenture agreement. The Company issued warrants to its common
shareholders in 1991. The warrants expired on January 3, 1996. Pursuant to the
Corporate Reorganization, WHX became the publicly-held issuer of the common and
preferred stock and the warrants. The warrants provided that holders could
tender lawful debt of the Company at face value to pay for exercise of warrants.
Certain investors bought the notes at a discount and used them to exercise
warrants.
The surrender of the notes and reduction of WPC debt was charged to WPC
through the intercompany account.
On November 26, 1997, the Company, under the terms of the 9 3/8%
Indenture, defeased the remaining $266.2 million 93/8% Senior Notes outstanding
at a total cost of $298.8 million. The 93/8% Senior Notes were placed into
trusteeship where they will be held until the November 15, 2000 redemption.
9 1/4% SENIOR NOTES DUE 2007:
On November 26, 1997 the Company issued $274 million of 9 1/4% Senior
Notes. Interest on the Senior Notes is payable semi-annually on May 15 and
November 15 of each year, commencing May 15, 1998. The Senior Notes mature on
November 15, 2007.
The 9 1/4% Senior Notes are redeemable at the option of the Company, in
whole or in part, on or after November 15, 2002 at specified redemption prices,
plus accrued interest and liquidated damages, if any, thereon to the date of
redemption.
Upon the occurrence of a Change of Control (as defined), the Company
will be required to make an offer to repurchase all or any part of each holder's
Notes at 101% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of repurchase.
The 9 1/4% Senior Notes are unsecured obligations of the Company,
ranking senior in right of payment to all existing and future subordinated
indebtedness of the Company, and pari passu with all existing and future senior
unsecured indebtedness of the Company, including borrowings under the Term Loan
Agreement.
F-17
<PAGE>
The 9 1/4% Senior Notes are fully and unconditionally guaranteed on a
joint and several and senior basis by the guarantors, which consist of all of
the Company's present and future operating subsidiaries. Summarized combined
financial information of the subsidiary guarantors is presented in Note N. The
financial statements of the guarantor subsidiaries have not been separately
provided as management does not believe these financial statements are material
to an investor. Neither Wheeling-Nisshin (as defined) nor Ohio Coatings Company
("OCC") are guarantors of the 9 1/4% Senior Notes. Neither the non-guarantor
subsidiaries nor OCC are material to the financial statements of the Company.
Audited financial statements of Wheeling-Nisshin are presented at page F-25
because it is considered a significant subsidiary of the Company under SEC
regulations.
The 9 1/4% Senior Notes indenture contains certain covenants,
including, but not limited to, covenants with respect to: (i) limitations on
indebtedness; (ii) limitations on restricted payments; (iii) limitations on
transactions with affiliates; (iv) limitations on liens; (v) limitations on sale
of assets; (vi) limitations on issuance and sale of capital stock of
subsidiaries; (vii) limitations on dividends and other payment restrictions
affecting subsidiaries; and (viii) restrictions on consolidations, mergers and
sales of assets.
The Company has agreed to file a registration statement relating to an
exchange offer for the 9 1/4% Senior Notes under the Securities Act of 1993, as
amended. The Notes are eligible for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market.
Term Loan Agreement
On November 26, 1997 the Company entered into the Term Loan Agreement
with DLJ Capital Funding, Inc., as syndication agent pursuant to which the
Company borrowed $75 million.
Interest on the term loan is payable on March 15, June 15, September 15
and December 15 as to Base Rate Loans, and with respect to LIBOR loans on the
last day of each applicable interest period, and if such interest period shall
exceed three months, at intervals of three months after the first day of such
interest period. Amounts outstanding under the Term Loan Agreement bear interest
at the Base Rate (as defined therein) plus 2.25% or the LIBOR Rate (as defined
therein) plus 3.25%.
The Company's obligations under the Term Loan Agreement are guaranteed
by its present and future operating subsidiaries. The Company may prepay the
obligations under the Term Loan Agreement beginning on November 15, 1998,
subject to a premium of 2.0% of the principal amount thereof. Such premium
declines to 1.0% on November 15, 1999 with no premium on or after November 15,
2000.
Interest Cost
Aggregate interest costs on long-term debt and amounts capitalized
during the three years ended December 31, 1997, are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
(Dollars in thousands)
<S> <C> <C> <C>
Aggregate interest expense on long-term debt............. $28,793 $26,263 $29,431
Less: Capitalized interest............................... 6,362 2,500 2,227
--------------- --------------- ---------------
Interest expense......................................... $22,431 $23,763 $27,204
=============== =============== ===============
Interest Paid............................................ $27,873 $27,660 $29,515
=============== =============== ===============
</TABLE>
F-18
<PAGE>
NOTE I--Stockholder's Equity
Prior to the Corporate Reorganization discussed in Note A, the
authorized capital stock of WPC consisted of 60,000,000 shares of Common Stock,
$.01 par value and 10,000,000 shares of Preferred Stock, $0.10 par value.
Pursuant to a reorganization of the Company effective on July 26, 1994, WPC
became a wholly-owned subsidiary of WHX. WHX, a new holding company, became the
publicly held issuer for all of the outstanding Common and Preferred Stock and
outstanding warrants of WPC and assumed WPC's rights and obligations with
respect to WPC's option plans, all as described below.
Changes in capital accounts are as follows:
<TABLE>
<CAPTION>
CONVERTIBLE
COMMON STOCK PREFERRED ACCUMULATED CAPITAL IN
EARNINGS EXCESS OF PAR
SHARES AMOUNT SHARES AMOUNT (DEFICIT) VALUE
------------ ------------ -------- ---------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995.......... 100 $0 0 $0 $ 22,907 $223,287
Pre-reorg. tax benefits......... -- -- -- -- -- 42,100
Net income....................... -- -- -- -- 55,476 --
------------ ------------ -------- ---------- ------------- -------------
Balance December 31, 1995........ 100 0 0 0 78,383 265,387
Net income (loss)................ -- -- -- -- (5,283) --
------------ ------------ -------- ---------- ------------- -------------
Balance December 31, 1996....... 100 0 0 0 73,100 265,387
Net income (loss)................ -- -- -- -- (230,453) --
WPN stock option................. -- -- -- -- -- 6,678
------------ ------------ -------- ---------- ------------- -------------
Balance December 31, 1997........ 100 $ 0 0 $ 0 $(157,353) $272,065
============ ============ ======== ========== ============= =============
</TABLE>
Pursuant to a corporate reorganization of the Company effective July
26, 1994, WHX assumed the rights and obligations of WPC under WPC's stock option
plans and WHX Common Stock is issuable in lieu of each share of WPC Common Stock
required by the plans. The Company accounts for grants of options to purchase
WHX Common Stock in accordance with interpretation 1 to APB 25. Options to
purchase WHX Common Stock are granted at market value and cash is paid to WHX
when the option is exercised. No employee compensation amounts are recorded upon
the issuance of options to purchase WHX Common Stock.
On August 4, 1997 the compensation committee of the Board of Directors
of WHX granted an option to purchase 1,000,000 shares of WHX Common Stock to WPN
Corp, at the then market price per share, subject to stockholder approval, for
its performance in negotiating a five year labor agreement. The Board of
Directors approved such grant on September 25, 1997, and the stockholders
approved it on December 1, 1997 (measurement date).
The WPN options are exercisable with respect to one-third of the shares
of Common Stock issuable upon the exercise thereunder at any time on or after
the date of stockholder approval of the Option Grants. The options with respect
to an additional one-third of the shares of Common Stock may be exercised on the
first and second anniversaries of the Approval Date, respectively. The options,
to the extent not previously exercised, will expire on August 4, 2007.
The Company is required to record a charge for the fair value of the
1997 option grants under SFAS 123. The fair value of the option grant is
estimated on the measurement date using the Black--Scholes option-pricing
model. The following assumptions were used in the Black--Scholes calculation:
expected volatility of 48.3%, risk- free interest rate of 5.83%, an expected
life of 5 years and a dividend yield of zero. The resulting estimated fair value
of the shares granted in 1997 was $6.7 million which was recorded as part of the
special charge related to the new labor agreement.
F-19
<PAGE>
NOTE J --Related Party Transaction
The Chairman of the Board of WHX is the President and sole shareholder
of WPN Corp. Pursuant to a management agreement effective as of January 3, 1991,
as amended January 1, 1993 and April 11, 1994, approved by a majority of the
disinterested directors of WHX, WPN Corp. provides certain financial, management
advisory and consulting services to WHX. Such services include, among others,
identification, evaluation and negotiation of acquisitions, responsibility for
financing matters for WHX and its subsidiaries, review of annual and quarterly
budgets, supervision and administration, as appropriate, of all WHX's accounting
and financial functions and review and supervision of reporting obligations
under Federal and state securities laws. In exchange for such services, WPN
Corp. received a fixed monthly fee of $458,333 in 1996 and 1997 from WHX. In
1998, the Company will pay a monthly fee of $208,333 and WHX will pay $250,000
per month for these services. In addition to the fixed monthly fee, WHX paid a
$300,000 bonus to WPN Corp. for its services in obtaining a new five-year labor
contract with significant job reductions. The Management Agreement has a two
year term and is renewable automatically for successive one year periods, unless
terminated by either party upon 60 day's prior written notice.
The WHX stockholders approved a grant of an option to purchase
1,000,000 shares of Common Stock to WPN Corp. for their performance in obtaining
a new labor agreement. The options were valued using the Black--Scholes formula
at $6.7 million and recorded as a special charge related to the labor contract.
Pursuant to an indemnification agreement, the Company has agreed to
indemnify WHX and hold WHX harmless from all liabilities relating to the
operations of the Company whether relating to or arising out of occurrences
prior to, on or after the closing of the November Offering, and other
obligations assumed at the Closing. Similarly, WHX has agreed to indemnify the
Company and hold the Company harmless from all liabilities relating to the
operations of the business of WHX, other than the business of the Company,
whether relating to or arising out of occurrences prior to, on or after the
closing of the November Offering. To the extent WHX is called upon to make
payments under its guarantees of certain of the Company's indebtedness, the
Company will indemnify it in respect of such payments. To the extent the
Company's actions cause a default under the Revolving Credit Facility or the
termination of the Receivables Facility or a default under any other debt
instrument of WHX or Unimast, the Company will indemnify WHX and Unimast in
respect of any incremental costs and expenses suffered by WHX or Unimast on
account thereof. The Company's obligations under the Indemnification Agreement
will be subordinate to the Company's obligations under the 9 1/4% Senior Notes
and the Term Loan Agreement. To the extent WHX's or Unimast's actions cause a
default under the Revolving Credit Facility or the termination of the
Receivables Facility or a default under any other debt instrument of the
Company, WHX and Unimast will indemnify the Company in respect of any
incremental costs and expenses and damages suffered by the Company on account
thereof.
NOTE K-Commitments and Contingencies
Environmental Matters
The Company has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund") or similar state statues at several waste sites. The Company is
subject to joint and several liability imposed by Superfund on potentially
responsible parties. Due to the technical and regulatory complexity of remedial
activities and the difficulties attendant to identifying potentially responsible
parties and allocating or determining liability among them, the Company is
unable to reasonably estimate the ultimate cost of compliance with Superfund
laws. The Company believes, based upon information currently available, that the
Company's liability for clean up and remediation costs in connection with the
Buckeye reclamation will be between $3.0 and $4.0 million. At six other sites
(MIDC Glassport, United Scrap Lead, Tex- Tin, Breslube Penn, Four County
Landfill and Beazor) the Company estimates costs to aggregate up to $700,000.
The Company is currently funding its share of remediation costs.
F-20
<PAGE>
The Company, as are other industrial manufacturers, is subject to
increasingly stringent standards relating to the protection of the environment.
In order to facilitate compliance with these environmental standards, the
Company has incurred capital expenditures for environmental control projects
aggregating $5.9 million, $6.8 million and $12.4 million for 1995, 1996 and
1997, respectively. The Company anticipates spending approximately $41.3 million
in the aggregate on major environmental compliance projects through the year
2000, estimated to be spent as follows: $13.4 million in 1998, $15.9 million in
1999 and $12.0 million in 2000. Due to the possibility of unanticipated factual
or regulatory developments, the amount of future expenditures may vary
substantially from such estimates.
Non-current accrued environmental liabilities totaled $7.8 million at
December 31, 1996 and $10.6 million at December 31, 1997. These accruals were
initially determined by the Company in January 1991, based on all then available
information. As new information becomes available, including information
provided by third parties, and changing laws and regulations, the liabilities
are reviewed and the accruals adjusted quarterly. Management believes, based on
its best estimate, that the Company has adequately provided for remediation
costs that might be incurred or penalties that might be imposed under present
environmental laws and regulations. Based upon information currently available,
including the Company's prior capital expenditures, anticipated capital
expenditures, consent agreements negotiated with Federal and state agencies and
information available to the Company on pending judicial and administrative
proceedings, the Company does not expect its environmental compliance costs and
liability costs, including the incurrence of additional fines and penalties, if
any, relating to the operation of its facilities, to have a material adverse
effect on the financial condition or results of operations of the Company.
However, as further information comes into the Company's possession, it will
continue to reassess such evaluations.
NOTE L--Other Income
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1995 1996 1997
----------------- ------------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest and investment income............. $ 3,106 $ 3,948 $ 4,189
Equity income (loss)....................... 4,845 9,495 (1,206)
Receivables securitization fees............ (4,283) (4,934) (3,826)
Other, net................................ (434) 967 622
----------- ----------------- -------------------
$ 3,234 $ 9,476 $ (221)
=========== ================= ==================
</TABLE>
NOTE M--Sale of Receivables
In 1994, a special purpose wholly-owned subsidiary of WPSC, entered
into an agreement to sell (up to $75 million on a revolving basis) an undivided
percentage ownership in a designated pool of accounts receivable generated by
WPSC, WCPI and PCC. The agreement expires in August 1999. In July 1995 WPSC
amended such agreement to sell an additional $20 million on similar terms and
conditions. In October 1995 WPSC entered into an agreement to include the
receivable generated by Unimast, in the pool of accounts receivable sold.
Accounts receivable at December 31, 1996 and 1997 exclude $45 million and $69
million, respectively, representing uncollected accounts receivable sold with
recourse limited to the extent of uncollectible balances. Fees paid by WPSC
under this agreement range from 5.76% to 8.50% of the outstanding amount of
receivables sold. Based on the Company's collection history, the Company
believes that credit risk associated with the above arrangement is immaterial.
The Company adopted Statement of Financial Accounting Standards No. 125
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities (SFAS 125), effective January 1, 1997. The
F-21
<PAGE>
adoption of SFAS 125 did not have a material effect on the Company's financial
position or results of operations for the year ended December 31, 1997.
NOTE N - SUMMARIZED COMBINED FINANCIAL INFORMATION OF THE SUBSIDIARY GUARANTORS
OF THE 9 1/4% SENIOR NOTES
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1995 1996 1997
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
INCOME DATA
Net sales $1,267,869 $1,110,684 $489,662
Cost of products sold, excluding depreciation 1,061,452 987,528 585,609
Depreciation 65,760 66,125 46,203
Selling, general and administrative expense 61,653 54,740 52,294
Special charge -- -- 92,701
----------- ---------- -----------
Operating income (loss) 79,004 2,291 (287,145)
Interest expense 21,643 22,983 26,071
Other income (loss) (3,179) (973) (1,280)
----------- ---------- -----------
Income (loss) before tax 54,182 (21,665) (314,496)
Tax provision (benefit) 1,418 (10,615) (110,034)
----------- ---------- -----------
Net income (loss) $52,764 ($11,050) ($204,462)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1995 1996 1997
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
BALANCE SHEET DATA
Assets
Current assets $379,677 $267,055 $324,813
Non-current assets 910,512 926,386 990,435
--------- ---------- ----------
Total assets $1,290,189 $1,193,441 $1,315,248
========== ========== ==========
Liabilities and stockholder's equity
Current liabilities $222,930 $152,385 $311,723
Non-current liabilities 754,914 739,762 935,834
Stockholder's equity 312,345 301,294 67,691
---------- ---------- ----------
Total liabilities and stockholder's equity $1,290,189 $1,193,441 $1,315,248
========== ========== ==========
</TABLE>
NOTE O--SEPARATE FINANCIAL STATEMENTS OF SUBSIDIARIES NOT CONSOLIDATED AND 50
PERCENT OR LESS OWNED PERSONS.
F-22
<PAGE>
The Company owns 35.7% of Wheeling-Nisshin, Inc. (Wheeling-Nisshin").
Wheeling-Nisshin had total debt outstanding at December 31, 1996 and 1997 of
approximately $25.3 million and $18.5 million, respectively. The Company derived
approximately 15.2% and 12.7%of its revenues from sale of steel to
Wheeling-Nisshin in 1995 and 1996, respectively. The decrease in revenue
reflects the effect of the Strike on Company shipments to Wheeling-Nisshin. The
Company received dividends of $2.5 million annually from Wheeling-Nisshin from
1995 through 1997. Audited financial statements of Wheeling-Nisshin are
presented at page F-25 because it is considered a significant subsidiary of the
Company under SEC regulations.
NOTE P -- EXTRAORDINARY CHARGES
1995 1996 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
Premium on early debt retirement $ -- -- $32,600
Unamortized debt issuance cost -- -- 4,770
Coal retiree medical benefits 4,681 -- 2,615
Income tax effect (1,638) -- (13,995)
------- --- --------
$3,043 -- $25,990
======= === ========
In November 1997 the Company paid a premium of $32.6 million to defease
the remaining $266.2 million of the 93/8 Senior Notes at a total cost of $298.8
million.
In 1997, a 7% discount rate was used to calculate the actuarially
determined coal retiree medical benefits liability. In 1996 and 1995 the
discount rate was 7.5%. In 1997 the Company also incurred higher premiums for
additional retirees and orphans assigned in 1995. See Note D.
NOTE Q-QUARTERLY INFORMATION (UNAUDITED)
Financial results by quarter for the two fiscal years ended December
31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
EARNINGS (LOSS)
PER SHARE BEFORE EARNINGS
GROSS PROFIT EXTRAORDINARY NET INCOME EXTRAORDINARY (LOSS) PER
NET SALES (LOSS) CHARGE (LOSS) (LOSS) CHARGE SHARE
----------- ----------- ----------------- ------------ ----------------- -----------
(DOLLARS IN THOUSANDS)
1996:
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter............... $287,846 $ 38,720 -- $ 1,389 * *
2nd Quarter............... 328,457 55,342 -- 11,020
3rd Quarter............... 359,906 57,986 -- 13,223
4th Quarter(1)............ 134,475 (29,525) -- (30,915)
1997(1):
1st Quarter............... 79,014 (34,139) -- (40,251) * *
2nd Quarter............... 87,878 (20,825) -- (34,584)
3rd Quarter............... 103,217 (31,621) -- (96,785)
4th Quarter............... 219,553 (9,362) (25,990) (58,833 )
</TABLE>
* Earnings per share are not meaningful because the Company is a
wholly-owned subsidiary of WHX Corporation.
F-23
<PAGE>
(1) The financial results of the Company for the fourth quarter of 1996 and
all four quarters of 1997 were adversely affected by the Strike.
Negative impacts of the Strike included the volume effect of lower
production on fixed cost absorption, higher levels of external steel
purchases, start-up costs and a higher- cost mix of products shipped.
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Wheeling-Nisshin, Inc.:
We have audited the accompanying balance sheets of Wheeling-Nisshin,
Inc. (the Company) as of December 31, 1997 and 1996, and the related statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Wheeling-Nisshin,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
February 12, 1998
F-25
<PAGE>
WHEELING-NISSHIN, INC.
BALANCE SHEETS
December 31, 1997 and 1996
(Dollars in thousands)
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 22,313 $ 19,017
Investments ...................................... 28,500 19,900
Trade accounts receivable, net of allowance for
bad debts of $250 in 1997 and 1996 ............. 16,364 19,765
Inventories (Note 3) ............................. 16,793 22,233
Prepaid income taxes ............................. 139 --
Deferred income taxes (Note 6) ................... 2,342 2,337
Other current assets ............................. 622 819
-------- --------
Total current assets ....................... 87,073 84,071
Property, plant and equipment, net (Note 4) ........ 124,787 134,174
Debt issuance costs, net of accumulated amortization
of $1,704 in 1997 and $1,617 in 1996 ............. 197 284
Other assets ....................................... 719 851
-------- --------
Total assets ............................... $212,776 $219,380
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.....................................$ 10,684 $ 21,226
Due to affiliates (Note 8)........................... 3,356 --
Accrued interest..................................... 367 497
Accrued income taxes................................. -- 3,183
Other accrued liabilities............................ 3,260 3,388
Accrued profit sharing............................... 4,644 6,505
Current portion of long-term debt (Note 5)........... 6,835 6,828
-------- --------
Total current liabilities...................... 29,146 41,627
Long-term debt, less current portion (Note 5)......... 11,645 18,487
Deferred income taxes (Note 6)......................... 25,262 24,116
Other long-term liabilities (Note 9)................... 2,500 --
-------- --------
Total liabilities.............................. 68,553 84,230
-------- --------
Contingencies (Note 9).................................
Shareholders' equity:
Common stock, no par value; authorized, issued
and outstanding, 7,000 shares...................... 71,588 71,588
Retained earnings.................................... 72,635 63,562
-------- --------
Total shareholders' equity......................... 144,223 135,150
-------- --------
Total liabilities and shareholders' equity.....$212,776 $219,380
======== ========
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
WHEELING-NISSHIN, INC.
STATEMENTS OF INCOME
For the years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Net Sales ................................... $ 396,278 $ 375,658 $ 389,704
Cost of goods sold (Note 8) ................. 365,967 335,071 349,429
--------- --------- ---------
Gross profit ............................ 30,311 40,587 40,275
Selling, general and administrative expenses 5,608 6,546 8,676
--------- --------- ---------
Operating profit ........................ 24,703 34,041 31,599
--------- --------- ---------
Other income (expense):
Interest and other income ................. 2,203 2,539 1,717
Interest expense .......................... (1,398) (1,909 (3,729)
--------- --------- ---------
805 630 (2,012)
--------- --------- ---------
Income before income taxes .............. 25,508 34,671 29,587
Provision for income taxes (Note 6) ......... 9,435 13,110 11,538
--------- --------- ---------
Net income .............................. $ 16,073 $ 21,561 $ 18,049
========= ========= =========
Earnings per share (Note 2) ................. $ 2.30 $ 3.08 $ 2.58
========= ========= =========
</TABLE>
The accompanying notes are a integral part of the financial statements.
F-27
<PAGE>
WHEELING-NISSHIN, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
Common Retained
Stock Earnings Total
-------- ---------- ----------
Balance at December 31, 1994 $ 71,588 $ 37,952 $ 109,540
Net income ................. -- 18,049 18,049
Cash dividends ($1 per share) -- (7,000) (7,000)
--------- --------- ---------
Balance at December 31, 1995 71,588 49,001 120,589
Net income .................. -- 21,561 21,561
Cash dividends ($1 per share) -- (7,000) (7,000)
--------- --------- ---------
Balance at December 31, 1996 71,588 63,562 135,150
Net income .................. -- 16,073 16,073
Cash dividends ($1 per share) -- (7,000) (7,000)
--------- --------- ---------
Balance at December 31, 1997 $ 71,588 $ 72,635 $ 144,223
========= ========= =========
The accompanying notes are a integral part of the financial statements.
F-28
<PAGE>
WHEELING-NISSHIN, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income.................................................. $ 16,073 $ 21,561 $ 18,049
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............................. 13,065 12,952 16,210
Deferred income taxes..................................... 1,141 5,330 5,449
Net change in operating assets and liabilities:
Decrease (increase) in trade accounts receivable........ 3,401 (730) (602)
Decrease (increase) in inventories...................... 5,440 (3,467) 5,161
(Increase) decrease in prepaid and accrued
income taxes ......................................... (3,322) (51) 1,368
Decrease (increase) in other assets..................... 197 (636) 42
(Decrease) Increase in accounts payable................. (10,542) 12,846 179
Increase (decrease) in due to affiliates................ 3,356 (6,036) (25,233)
Decrease in accrued interest............................ (130) (173) (312)
(Decrease) increase in other accrued liabilities........ (1,989) 945 4,843
---------------- ----------------- -----------------
Net cash provided by operating activities............. 26,690 42,541 25,154
----------------- ----------------- -----------------
Cash flows from investing activities:
Capital expenditures, net................................... (959) (1,173) (1,029)
Purchase of investments..................................... (43,700) (19,900) --
Sale of investments......................................... 35,100 -- --
----------------- ----------------- -----------------
Net cash used in investing activities................. (9,559) (21,073) (1,029)
----------------- ----------------- -----------------
Cash flows from financing activities:
Payments on long-term debt.................................. (6,835) (11,361) (32,145)
(7,000) (7,000) (7,000 )
Payment of dividends........................................ ----------------- ----------------- -----------------
Net cash used in financing activities................. (13,835) (18,361) (39,145)
----------------- ----------------- -----------------
Net increase (decrease) in cash and
cash equivalents............................................ 3,296 3,107 (15,020)
Cash and cash equivalents:
Beginning of the year....................................... 19,017 15,910 30,930
----------------- ----------------- -----------------
End of the year............................................. $ 22,313 $ 19,017 $ 15,910
================= ================= =================
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest.................................................. $ 1,528 $ 2,082 $ 4,041
================= ================= =================
Income taxes.............................................. $ 11,616 $ 7,831 $ 4,968
================= ================= =================
Supplemental schedule of noncash investing
and financing activities:
Acquisition of property, plant and equipment
included in other long-term liabilities (Note 9).......... $ 2,500 $ -- $ 290
================= ================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE>
WHEELING-NISSHIN, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
1. Description of Business
Wheeling-Nisshin, Inc. (the Company) is engaged in the production and
marketing of galvanized and aluminized steel products at a manufacturing
facility in Follansbee, West Virginia. Principally all of the Company's sales
are to ten trading companies located primarily in the United States. At December
31, 1997, Nisshin Holding Incorporated, a wholly-owned subsidiary of Nisshin
Steel Co., Ltd.,(Nisshin) and Wheeling-Pittsburgh Corporation
(Wheeling-Pittsburgh) owned 64.3% and 35.7% of the outstanding common stock of
the Company, respectively.
2. Summary of Significant Accounting Policies
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash and cash equivalents consist of general cash accounts and highly
liquid debt instruments with maturities of three months or less when purchased.
Substantially all of the Company's cash and cash equivalents are maintained at
one financial institution. No collateral or other security is provided on these
deposits, other than $100 of deposits insured by the Federal Deposit Insurance
Corporation.
Investments:
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." This statement requires that securities be classified as
trading, held-to-maturity, or available-for-sale. The Company's investments,
which consist of certificates of deposit and commercial paper, are classified as
held-to-maturity and are recorded at cost. The certificates of deposit amounted
to $28,500 and $15,000 at December 31, 1997 and 1996, respectively, and are
maintained at one financial institution. Commercial paper amounted to $4,900 at
December 31, 1996.
Inventories:
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method.
Property, Plant and Equipment:
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization.
Major renewals and improvements are charged to the property accounts,
while replacements, maintenance and repairs which do not improve or extend the
useful lives of the respective assets are expensed. Upon disposition or
retirement of property, plant and equipment, the cost and the related
accumulated depreciation or amortization are removed from the accounts. Gains or
losses on sales are reflected in other income.
F-30
<PAGE>
Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the assets.
Deferred Pre-Operating Costs:
Certain costs directly related and incremental to the Company's second
production line were deferred until commencement of commercial operations in
March 1993. These costs, which were an integral part of the process of bringing
the new line into commercial production and, therefore, benefited future
periods, were being amortized using the straight-line method over a three-year
period. In 1995, management determined that they had fully recovered the
deferred pre-operating costs related to the new production line. Accordingly,
the remaining unamortized cost at December 31, 1995 of $390 was charged to
operations in 1995.
Debt Issuance Costs:
Debt issuance costs associated with long-term debt secured to finance
the construction of the Company's original manufacturing facility and the second
production line were capitalized and are being amortized using the effective
interest method over the term of the related debt.
Income Taxes:
The Company uses SFAS 109, "Accounting for Income Taxes" to recognize
deferred tax liabilities and assets for the difference between the financial
statement carrying amounts and the tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Earnings Per Share:
The Company has adopted SFAS No. 128, "Earnings Per Share" issued in
February 1997. This statement requires the disclosure of basic and diluted
earnings per share and revises the method required to calculate these amounts.
The adoption of this standard did not impact previously reported earnings per
share amounts.
Earnings per share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding during each period.
Reclassification:
In 1997, the Company reclassified cash discounts previously reported
within selling, general and administrative expense to net sales. Previous years
financial statements have been restated to conform to 1997 presentation. Cash
discounts were approximately, $1,917, $1,842, and $1,873 in 1997, 1996 and 1995,
respectively.
3. Inventories
Inventories consist of the following at December 31:
1997 1996
------------ ------------
Raw materials........................ $ 6,089 $ 10,645
Finished goods....................... 10,704 11,588
------------ ---------------
$ 16,793 $ 22,233
============ ============
Had the Company used the first-in, first-out (FIFO) method to value
inventories, the cost of inventories would have been $1,343 lower than the LIFO
value at December 31, 1997 and $12 lower than the LIFO value at
F-31
<PAGE>
December 31, 1996. During 1997, certain inventory quantities were reduced,
resulting in liquidation of LIFO inventories, the effect of which increased net
income by approximately $839.
4. Property, Plant and Equipment
Property, plant and equipment consists of the following at December 31:
1997 1996
---------- -----------
Buildings....................................... $ 34,665 $ 34,665
Land improvements............................... 3,097 3,097
Machinery and equipment........................ 164,893 161,723
Office equipment................................ 3,725 3,436
----------- ---------
206,380 202,921
Less accumulated depreciation and amortization.. (82,625) (69,779)
----------- ----------
123,755 133,142
Land............................................ 1,032 1,032
---------- ---------
$ 124,787 $ 134,174
========== =========
Depreciation expense was $12,846, $12,715 and $13,651 in 1997, 1996,
and 1995, respectively.
5. Long-Term Debt
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------------
Industrial revenue bonds for the second production line accruing interest at
.625% over the LIBOR rate, as adjusted for periods ranging from three months
to one year, as elected by the Company. The interest rate on the bonds at
December 31, 1997 was 6.53%. The bonds are payable in 17 equal semi-annual
installments of $3,353 plus interest
<S> <C> <C>
through March 2000............................................................$ 18,235 $ 24,941
West Virginia Economic Development Authority
(WVEDA) loan accruing interest at 4%, payable in
monthly installments of $2 including interest through January 2001............ 67 90
Capital lease obligations accruing interest at rates
ranging from 10% to 13.8%, payable in monthly
installments through January 2000............................................. 178 284
----------------- -----------------
18,480 25,315
Less current portion............................................................ 6,835 6,828
----------------- -----------------
11,645 $ 18,487
================= =================
</TABLE>
The industrial revenue bonds are collateralized by substantially all
property, plant and equipment and are guaranteed by Nisshin. In addition, the
industrial revenue bonds provide that dividends may not be declared or paid
without the prior written consent of the lender. Such approval was obtained for
the dividends paid in years 1997, 1996 and 1995.
F-32
<PAGE>
The annual maturities on all long-term debt for each of the five years
ending December 31 are: $6,835 in 1998; $6,784 in 1999; $4,848 in 2000; $13 in
2001 and $0 in 2002.
F-33
<PAGE>
6. INCOME TAXES
The provision for income taxes for the years ended December 31 consist
of:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
Current:
<S> <C> <C> <C>
U.S. Federal................. $ 7,771 $ 7,366 $ 5,838
State........................ 523 414 251
Deferred....................... 1,141 5,330 5,449
----------------- ----------------- -----------------
$ 9,435 $ 13,110 $ 11,538
================= ================= =================
</TABLE>
Reconciliation of the federal statutory and effective tax rates for
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Federal statutory rate........................................ 35.0% 35.0% 35.0%
State income taxes............................................ 1.5 1.2 0.8
Other, net.................................................... 0.5 1.6 3.2
----------------- ----------------- -----------------
37.0% 37.8% 39.0%
================= ================= =================
</TABLE>
The deferred tax assets and liabilities recorded on the balance sheets
as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
Deferred tax assets:
<S> <C> <C>
Accrued expenses.............................................................. $ 1,120 $ 1,376
Other......................................................................... 1,222 961
----------------- -----------------
2,342 2,337
----------------- -----------------
Deferred tax liabilities:
Depreciation and amortization................................................. 23,781 22,491
Other......................................................................... 1,481 1,625
----------------- -----------------
25,262 24,116
----------------- -----------------
$ 22,920 $ 21,779
================= =================
</TABLE>
The Company has available tax credit carryforwards of approximately
$60,000 which may be used to offset up to 80% of future West Virginia state
income tax liabilities through 2003. A valuation allowance for the entire amount
of the credit has been recognized in the accompanying financial statements.
Accordingly, as the credit is utilized, a benefit is recognized through a
reduction of the current state income tax provision. Such benefit amounted to
approximately $864 in 1997, $998 in 1996 and $640 in 1995.
7. Employee Benefit Plans
Retirement Plan:
The Company has a noncontributory, defined contribution plan which
covers eligible employees. The plan provides for Company contributions ranging
from 2% to 6% of the participant's annual compensation based on their years of
service. The Company's contribution to the plan was $415 in 1997, $336 in 1996
and $266 in 1995.
F-34
<PAGE>
Profit-Sharing Plan:
The Company has a nonqualified profit-sharing plan for eligible
employees, providing for cash distributions to the participants in years when
income before income taxes is in excess of $500. These contributions are based
on an escalating scale from 5% to 15% of income before income taxes.
Profit-sharing expense was $4,644 in 1997, $6,505 in 1996 and $5,546 in 1995.
Postretirement Benefits:
In December 1996, the Company adopted a defined benefit postretirement
plan which covers eligible employees. Generally, the plan calls for a stated
percentage of medical expenses reduced by deductibles and other coverages. The
plan is currently unfunded. The postretirement benefit expense was $68 for 1997
and 1996. Accrued postretirement benefits was approximately $144 and $68 at
December 31, 1997 and 1996, respectively.
8. Related Party Transactions
The Company has an agreement with Wheeling-Pittsburgh under which the
Company has agreed to purchase a specified portion of its required raw materials
through the year 2013. The Company purchased $24,533, $161,380 and $187,548 of
raw materials and processing services from Wheeling-Pittsburgh in 1997, 1996 and
1995, respectively. The amounts due Wheeling-Pittsburgh for such purchases are
included in due to affiliates in the accompanying balance sheets.
The Company sells products to Wheeling-Pittsburgh. Such sales totaled
$6,408, $6,511, and $5,693 in 1997, 1996, and 1995, respectively, of which $880
and $901 remained unpaid at December 31, 1997 and 1996, respectively, and are
included in trade accounts receivable in the accompanying balance sheets. The
Company also sells product to Unimast, Inc., an affiliate of
Wheeling-Pittsburgh. Such sales totaled $435, $1,537 and $1,389 in 1997, 1996
and 1995, respectively, of which $10 and $358 remained unpaid at December 31,
1997 and 1996, respectively, and were included in trade accounts receivable in
the accompanying balance sheets.
9. Legal Matters
The Company is a party to a dispute for final settlement of charges
related to the construction of its second production line. The Company had
claims asserted against it in the amount of approximately $6,900 emerging from
civil actions alleging delays on the project. In connection with the dispute,
the Company filed a separate claim for alleged damages that it had sustained in
the amount of approximately $400.
The claims were litigated in the Court of Common Pleas of Allegheny
County, Pennsylvania in a jury trial, which commenced on January 5, 1996. A
verdict in the amount of $6,700 plus interest of $1,900 was entered against the
Company on October 2, 1996. After the verdict, the plaintiffs requested the
trial court to award counsel fees in the amount of $2,422 against the Company.
The motions for counsel fees plus interest were granted by the court to the
plaintiffs in June 1997.
The Company filed appeals from the judgments to the Superior Court of
Pennsylvania in 1997. Post- judgment interest will accrue during the appeal
period. Additionally, the Company has posted a bond in the amount approximating
$12,000 that will be held by the court pending the appeals. Although the Company
has been advised by its Special Counsel that it has various legal bases for
relief, litigation is subject to many uncertainties and, as such, the Company is
presently unable to predict the outcome of its appeals. The Company has recorded
a liability in the amount of $2,500 at December 31, 1997 related to these
matters, which has been capitalized in property, plant and equipment as cost
overruns in the accompanying 1997 balance sheet. If the Company is unsuccessful
in these appeals, it is at least reasonably possible that the ultimate
resolution of these matters may have a material effect on the Company's results
of operations or cash flows in the year of final determination. Any portion of
the ultimate resolution for interest, penalties and counsel fees will be charged
to results of operations.
F-35
<PAGE>
10. Fair Value of Financial Investments
The estimated fair values and the methods used to estimate those values
are disclosed below:
Investments:
The fair values of commercial paper and certificates of deposit were
$28,890 and $20,145 at December 31, 1997 and 1996, respectively. These amounts
were determined based on the investment cost plus interest receivable at
December 31, 1997 and 1996.
Long-Term Debt:
Based on borrowing rates currently available to the Company for bank
loans with similar terms and maturities, fair value approximates the carrying
value.
F-36
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The General Corporation Law of the State of Delaware (the "Delaware
Law") permits indemnification of directors, employees and agents of corporations
under certain conditions and subject to certain limitations. Pursuant to the
Delaware Law, the Company has included in its Certificate of Incorporation and
bylaws a provision to eliminate the personal liability of its directors for
monetary damages for breach or alleged breach of their duty of care to the
fullest extent permitted by the Delaware Law and to provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
the Delaware Law.
Item 21. Exhibits and Financial Statement Schedules.
(a) The following is a complete list of Exhibits filed as a part of this
Registration Statement, which are incorporated herein:
**1 Purchase Agreement dated November 20, 1997, by and among
the Company, and the Initial Purchasers.
**3.1 Certificate of Incorporation of the Company.
**3.2 By-laws of the Company.
**3.3 Certificate of Incorporation of Wheeling-Pittsburgh Steel
Corporation.
**3.4 By-laws of Wheeling-Pittsburgh Steel Corporation.
**3.5 Certificate of Incorporation of Consumers Mining
Corporation.
**3.6 By-laws of Consumers Mining Corporation.
**3.7 Certificate of Incorporation of Wheeling-Empire Company.
**3.8 By-laws of Wheeling-Empire Company.
**3.9 Certificate of Incorporation of Mingo Oxygen Company.
**3.10 By-laws of Mingo Oxygen Company.
**3.11 Certificate of Incorporation of Pittsburgh-Canfield
Company.
**3.12 By-laws of Pittsburgh-Canfield Company.
**3.13 Certificate of Incorporation of Wheeling Construction
Products, Inc.
**3.14 By-laws of Wheeling Construction Products, Inc.
**3.15 Certificate of Incorporation of WP Steel Venture
Corporation.
**3.16 By-laws of WP Steel Venture Corporation.
**3.17 Certificate of Incorporation of Champion Metal Products,
Inc.
II-1
<PAGE>
**3.18 By-laws of Champion Metal Products, Inc.
**4.1 Indenture dated as of November 26, 1997, by and among the
Company and Bank One, N.A.
**4.2 Term Loan Agreement dated as of November 26, 1997, by and
among the Company, various financial Institutions as
Lenders, DLJ Capital Funding, Inc. as Syndication Agent
and Citicorp USA, Inc. as Documentation Agent.
**4.3 Amendment No. 1 to Term Loan Agreement dated as of
December 31, 1997, between the Company, various financial
Institutions as Lenders, DLJ Capital Funding, Inc. as
Syndication
Agent and Citicorp USA, Inc. as Documentation Agent.
**4.4 Keepwell Agreement dated December 28, 1995, by WPSC and
WHX.
**4.5 Amendment to Keepwell Agreement dated November 28, 1997 by
WPSC, the Company, the Lenders, WHX and Citibank N.A.
**4.6 Second Amended and Restated Credit Agreement dated
December 28, 1995 among WPSC, the Lenders party thereto
and Citibank N.A., as Agent.
**4.7 Amendment No. 1 to the Second Amended and Restated Credit
Agreement dated as of December 30, 1996, among WPSC, the
Lenders party thereto and Citibank N.A., as Agent.
**4.8 Amendment No. 2 to the Second Amended and Restated Credit
Agreement dated as of June 30, 1997, among WPSC, the
Lenders party thereto and Citibank N.A., as Agent.
**4.9 Amendment No. 3 to the Second Amended and Restated Credit
Agreement dated as of September 30, 1997, among WPSC, the
Lenders party thereto and Citibank N.A., as Agent.
**4.10 Amendment No. 4 to the Second Amended and Restated Credit
Agreement dated as of November 19, 1997, among WPSC, the
Lenders party thereto and Citibank N.A., as Agent.
**4.11 Amendment No. 5 to the Second Amended and Restated Credit
Agreement dated as of November 28, 1997, among WPSC, the
Lenders party thereto and Citibank N.A., as Agent.
**5 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
**8 Opinion of Olshan Grundman Frome & Rosenzweig LLP
(included in Exhibit 5 to this Registration Statement).
**10.1 Employment Agreement by and between the Company and John
R. Scheessele, dated February 7, 1997.
**10.2 Employment Agreement by and between the Company and Paul
J. Mooney, dated October 17, 1997.
**10.3 1991 Incentive and Nonqualified Stock Option Plan.
**10.4 Pooling and Servicing Agreement dated as of August 1,
1994, among Wheeling-Pittsburgh Funding, Inc., WPSC and
Bank One, Columbus, N.A.
**10.5 Amended and Restated Shareholders Agreement dated as of
November 12, 1995, between Nisshin Steel Co., Ltd. and
Wheeling-Pittsburgh Steel Corporation.
II-2
<PAGE>
**10.6 Close Corporation and Shareholder's Agreement effective as
of March 24, 1994, by and among Dong Yang Tinplate America
Corp., the Company, Nittetsu Shoji America, Inc. and Ohio
Coatings Company.
**21.1 Subsidiaries of Registrant.
*23.1 Consent by Price Waterhouse LLP.
*23.2 Consent by Coopers & Lybrand L.L.P.
**23.4 Consent of Olshan Grundman Frome & Rosenzweig LLP
(included in Exhibit 5 to this Registration Statement).
**25 Statement of eligibility of trustee.
**99.1 Registration Rights Agreement dated November 26, 1997, by
and among the Company and the Initial Purchasers.
**99.3 Form of Letter of Transmittal for Tender of all
outstanding 9 1/4% Senior Notes Due 2007 in exchange for 9
1/4% Senior Exchange Notes Due 2007 of the Company.
**99.4 Form of Tender for all outstanding 9 1/4% Senior Notes Due
2007 in exchange for 9 1/4% Senior Exchange Notes Due 2007
of the Company.
**99.5 Form of Instruction to Registered Holder from Beneficial
Owner of 9 1/4% Senior Notes due 2007 of the Company.
**99.6 Form of Notice of Guaranteed Delivery for outstanding 9
1/4% Senior Notes Due 2007 in exchange for 9 1/4% Senior
Exchange Notes Due 2007 of the Company.
- -----------------------
* Filed herewith.
** Previously filed.
Item 22. Undertakings.
(a) The undersigned registrants hereby undertake:
(1) 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) under the Securities Act of 1933, as amended (the
"Securities Act"), the issuer 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 form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415 under the Securities Act, will be filed as a part
of an amendment to 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, 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.
(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
II-3
<PAGE>
have been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
enforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrants of expenses incurred or
paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceedings) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(c) The undersigned registrants hereby undertake 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.
(d) The undersigned registrants hereby undertake 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.
(e) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act, each filing of the
registrants' annual report pursuant to Section 13(a) or 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Wheeling-Pittsburgh Corporation has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Wheeling, State of West Virginia on April 3, 1998.
WHEELING-PITTSBURGH CORPORATION
By: /s/ John R. Scheessele
-------------------------------------
John R. Scheessele
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ John R. Scheessele President and Chief Executive April 3, 1998
- ------------------------- Officer (Principal Executive
John R. Scheessele Officer)
/s/ Paul J. Mooney Executive Vice President and Chief April 3, 1998
- ------------------------- Financial Officer (Principal
Paul J. Mooney Financial Officer and Principal
Accounting Officer)
/s/ Ronald LaBow* Director April 3, 1998
- ------------------------
Ronald LaBow
/s/ Robert A. Davidow* Director April 3, 1998
- ------------------------
Robert A. Davidow
/s/ Marvin L. Olshan* Director April 3, 1998
- ------------------------
Marvin L. Olshan
- ----------------------
* By Power of Attorney
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Wheeling-Pittsburgh Steel Corporation has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wheeling, State of West Virginia on April 3, 1998.
WHEELING-PITTSBURGH STEEL CORPORATION
By: /s/ John R. Scheessele
-------------------------------------
John R. Scheessele
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/ John R. Scheessele President and Chief Executive April 3, 1998
- ------------------------ Officer (Principal Executive Officer)
John R. Scheessele
/s/ Paul J. Mooney Executive Vice President and Chief April 3, 1998
- ------------------------ Financial Officer (Principal Financial
Paul J. Mooney Officer and Principal Accounting
Officer)
- ------------------------ Director
Robert L. Dobson
/s/ Ronald LaBow* Director April 3, 1998
- ------------------------
Ronald LaBow
- ------------------------ Director
Keith K. Kappmeyer
/s/ Stewart E. Tabin* Director April 3, 1998
- ------------------------
Stewart E. Tabin
/s/ Akimune Takewaka* Director April 3, 1998
- -----------------------
Akimune Takewaka
/s/ Neale X. Trangucci* Director April 3, 1998
- -----------------------
Neale X. Trangucci
- ----------------------
* By Power of Attorney
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Consumers Mining Corporation has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wheeling, State of West Virginia on April 3, 1998.
CONSUMERS MINING CORPORATION
By: /s/ John R. Scheessele
-------------------------------------
John R. Scheessele
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ John R. Scheessele President and Chief Executive April 3, 1998
- ------------------------ Officer (Principal Executive
John R. Scheessele Officer)
/s/ Paul J. Mooney Executive Vice President and Chief April 3, 1998
- ------------------------ Financial Officer (Principal
Paul J. Mooney Financial Officer and Principal
Accounting Officer)
/s/ James E. Muldoon* Director April 3, 1998
- ------------------------
James E. Muldoon
- ----------------------
* By Power of Attorney
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Wheeling Empire Company has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Wheeling, State of West Virginia on April 3, 1998.
WHEELING EMPIRE COMPANY
By: /s/ John R. Scheessele
-------------------------------------
John R. Scheessele
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ John R. Scheessele President and Chief Executive April 3, 1998
- ---------------------- Officer (Principal Executive Officer)
John R. Scheessele
/s/ Paul J. Mooney Executive Vice President and Chief April 3, 1998
- ---------------------- Financial Officer (Principal Financial
Paul J. Mooney Officer and Principal Accounting
Officer)
/s/ James E. Muldoon* Director April 3, 1998
- ----------------------
James E. Muldoon
- ----------------------
* By Power of Attorney
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Mingo Oxygen Company has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Wheeling, State of West Virginia on April 3, 1998.
MINGO OXYGEN COMPANY
By: /s/ John R. Scheessele
-------------------------------------
John R. Scheessele
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ John R. Scheessele President and Chief Executive April 3, 1998
- ----------------------- Officer (Principal Executive Officer)
John R. Scheessele
/s/ Paul J. Mooney Executive Vice President and Chief April 3, 1998
- ----------------------- Financial Officer (Principal Financial
Paul J. Mooney Officer and Principal Accounting
Officer)
/s/ James E. Muldoon* Director April 3, 1998
- -----------------------
James E. Muldoon
/s/ Thomas A. Helinski* Director April 3, 1998
- -----------------------
Thomas A. Helinski
/s/ John W. Testa* Director April 3, 1998
- -----------------------
John W. Testa
- ----------------------
* By Power of Attorney
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Pittsburgh-Canfield Company has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wheeling, State of West Virginia on April 3, 1998.
PITTSBURGH-CANFIELD COMPANY
By: /s/ John R. Scheessele
-----------------------------------
John R. Scheessele
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ John R. Scheessele President and Chief Executive April 3, 1998
- ---------------------- Officer (Principal Executive Officer)
John R. Scheessele
/s/ Paul J. Mooney Executive Vice President and Chief April 3, 1998
- --------------------- Financial Officer (Principal Financial
Paul J. Mooney Officer and Principal Accounting
Officer)
/s/ James E. Muldoon* Director April 3, 1998
- ----------------------
James E. Muldoon
/s/ John W. Testa* Director April 3, 1998
- ----------------------
John W. Testa
- ----------------------
* By Power of Attorney
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Wheeling-Construction Products, Inc. has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Wheeling, State of West Virginia on April 3, 1998.
WHEELING-CONSTRUCTION PRODUCTS, INC.
By: /s/ John R. Scheessele
--------------------------
John R. Scheessele
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ John R. Scheessele President and Chief Executive April 3, 1998
- ----------------------- Officer (Principal Executive Officer)
John R. Scheessele
/s/ Paul J. Mooney Executive Vice President and Chief April 3, 1998
- ----------------------- Financial Officer (Principal Financial
Paul J. Mooney Officer and Principal Accounting
Officer)
/s/ Tom Patrick* Director April 3, 1998
- -----------------------
Tom Patrick
- ----------------------
* By Power of Attorney
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
WP Steel Venture Corporation has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wheeling, State of West Virginia on April 3, 1998.
WP STEEL VENTURE CORPORATION
By: /s/ John R. Scheessele
-------------------------------------
John R. Scheessele
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ John R. Scheessele President and Chief Executive April 3, 1998
- ----------------------- Officer (Principal Executive Officer)
John R. Scheessele
/s/ Paul J. Mooney Executive Vice President and Chief April 3, 1998
- ----------------------- Financial Officer (Principal Financial
Paul J. Mooney Officer and Principal Accounting
Officer)
/s/ James E. Muldoon* Director April 3, 1998
- ----------------------
James E. Muldoon
- ----------------------
* By Power of Attorney
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Champion Metal Products, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wheeling, State of West Virginia on April 3, 1998.
CHAMPION METAL PRODUCTS, INC.
By: /s/ John R. Scheessele
-------------------------------------
John R. Scheessele
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ John R. Scheessele President and Chief Executive April 3, 1998
- ----------------------- Officer (Principal Executive Officer)
John R. Scheessele
/s/ Paul J. Mooney Executive Vice President and Chief April 3, 1998
- ---------------------- Financial Officer (Principal Financial
Paul J. Mooney Officer and Principal Accounting
Officer)
/s/ Tom Patrick* Director April 3, 1998
- ----------------------
Tom Patrick
II-13
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Wheeling-Pittsburgh Corporation of our
report dated February 10, 1998 relating to the financial statements of
Wheeling-Pittsburgh Corporation and its subsidiaries, which appears in such
Prospectus. We also consent to the reference to us under the headings "Experts,"
"Summary Consolidated Financial Data," and "Selected Consolidated Financial
Data" in such Prospectus. However, it should be noted that Price Waterhouse LLP
has not prepared or certified such "Summary Consolidated Financial Data" or such
"Selected Consolidated Financial Data."
Price Waterhouse LLP
Pittsburgh, Pennsylvania
April 3, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Amendment No. 3 to
Form S-4 (File No. 333-43867) for Wheeling-Pittsburgh Corporation $275 million
9.25% Senior Notes of our report dated February 12, 1998, on our audits of the
financial statements of Wheeling- Nisshin, Inc. We also consent to the
references to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Pittsburgh, Pennsylvania
April 3, 1998
